2010 (7) TMI 665 - AT - Income Tax

Penalty - Undisclosed income - Interest u/s. 234A 234B & 234C - Search and seizure - It was the submission of the learned counsel that penalty cannot be levied as the assessee had filed return of income and the Department had accepted same in the order passed under section 143(3) r.w.s. 153A. hence when there is no addition to the returned income penalty cannot be levied - whether immunity is available to the assessee when additional income was disclosed in the return u/s 153A was also considered by the Coordinate Bench in the case of ACIT vs. Kirit Dahyabhai Patel reported in 121 ITD 159 (TM) - since the assessee has filed returns after the search and has not disclosed the income in the original return the Explanation 5 to section 271(1)(c) cannot give immunity to the assessee there is no explanation why the income earned by way of speculation profit was not disclosed in the original return - in this case no assessment or reassessment proceedings are pending on the date of search hence the original return filed has to be taken into consideration - Explanation 1 to Section 271(1)(c) can not be invoked as there is no bonafide explanation given why this income was not disclosed at the time of filing original return - Decided against the assessee

Issues Involved:

1. Confirmation of penalty under Section 271(1)(c)
2. Applicability of Explanation 5 to Section 271(1)(c)
3. Adjustment of seized cash towards tax liability
4. Levy of interest under Sections 234A, 234B, and 234C
5. Voluntary disclosure of undisclosed income
6. Validity of notice under Section 153A

Issue-wise Detailed Analysis:

1. Confirmation of Penalty under Section 271(1)(c):
The assessee appealed against the CIT(A)'s confirmation of the penalty of Rs. 12,60,000/- levied by the A.O. under Section 271(1)(c). The penalty was imposed for furnishing inaccurate particulars of income to claim exemption under Section 54F by converting undisclosed income into artificial long-term capital gains. The A.O. found that the shares were acquired in cash and dematerialized after an unduly long period, suggesting fabrication of the transaction. The assessee admitted the accommodative nature of the transaction and offered Rs. 40 lakhs as undisclosed income. The CIT(A) upheld the penalty, stating that the assessee had not voluntarily disclosed the income and had furnished inaccurate particulars.

2. Applicability of Explanation 5 to Section 271(1)(c):
The A.O. held that the assessee's case fell within the exception provided under clause 2 of Explanation 5 to Section 271(1)(c) but denied immunity due to non-payment of interest. The CIT(A) disagreed, stating that the disclosure was made after the due date for filing the return under Section 139(1) and hence, the exception did not apply. The Tribunal agreed with the CIT(A), stating that Explanation 5 was not applicable as the assessee was not found to be the owner of any money, jewelry, or other valuable articles or things during the search. The income disclosed was speculative profit from share transactions outside the books of account.

3. Adjustment of Seized Cash towards Tax Liability:
The assessee contended that the A.O. wrongly levied interest under Section 234B despite the application to adjust seized cash of Rs. 12,00,000/- towards tax liability. The A.O. adjusted the seized cash only on 7/5/2008, leading to the conclusion that the assessee was not covered by the immunity clause (2) of Explanation 5 to Section 271(1)(c). The Tribunal noted that the assessee paid the tax on the surrendered income but not the interest, and hence, the A.O.'s denial of immunity was justified.

4. Levy of Interest under Sections 234A, 234B, and 234C:
The assessee argued that no interest under Sections 234A and 234C was leviable as the return was filed in time in response to notice under Section 153A. The Tribunal noted that the interest liability increased due to the non-credit of the seized amount, and hence, the A.O. correctly levied the penalty under Section 271(1)(c).

5. Voluntary Disclosure of Undisclosed Income:
The assessee claimed that the disclosure was made voluntarily to buy peace and avoid litigation. The Tribunal, however, held that the disclosure was not voluntary as it was made after the search and seizure operations. The Tribunal cited various judgments to support the view that disclosure made subsequent to the seizure of incriminating material is not voluntary.

6. Validity of Notice under Section 153A:
The assessee argued that the notice under Section 153A was bad in law and the consequent assessment order was null and void. The Tribunal did not find merit in this argument as the original return filed was considered, and the additional income disclosed in the return filed in response to the notice under Section 153A was speculative profit not disclosed in the original return.

Conclusion:
The Tribunal upheld the penalty under Section 271(1)(c) as the assessee had furnished inaccurate particulars of income and the disclosure was not voluntary. The appeal of the assessee was dismissed.

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