2010 (11) TMI 627 - AT - Income Tax

Search and seizure - Penalty - concealment of income - Undisclosed income - assessee filed return declaring estimated income of Rs. 65,000 - Though the Tribunal in their quantum order referred to certain inconsistencies in the explanation filed by the assessee before the learned CIT(A) in respect of the amount of Rs. 10 lacs, ultimately, addition of only Rs. 3.50 lacs was sustained on the preponderance of probabilities - However, notwithstanding the difference in the two circumstances, it is now well established that they lead to the same effect namely, keeping off a certain portion of the income from the return - It is, therefore, necessary to reappreciate and reconsider the matter so as to find out as to whether the addition made in the quantum proceedings actually represents the concealment on the part of the assessee as envisaged in s. 271(1)(c) of the Act and whether it is a fit case to impose the penalty by invoking the said provisions - As already stated, in the instant case the assessment was completed under s. 144 of the Act in pursuance to return declaring estimated income and completion of such assessment under s. 144 of the Act has been upheld by the learned CIT(A) - Since the additions have been sustained on estimate or preponderance of probabilities, in our opinion, it is not a fit case to attract the levy of penalty under s. 271(1)(c) of the Act. A mere rejection of the claim of the assessee by relying on different interpretations does not amount to concealment of the particulars of income or furnishing inaccurate particulars of income by the assessee - Decided in favour of the assessee

Issues Involved:
1. Confirmation of penalty under Section 271(1)(c) of the Income Tax Act.
2. Requirement of recording satisfaction by the Assessing Officer (AO) for initiating penalty proceedings.
3. Validity of the penalty based on different bases for initiation and imposition.
4. Exercise of discretionary jurisdiction by the AO.
5. Applicability of Explanation 1 to Section 271(1)(c).

Detailed Analysis:

1. Confirmation of Penalty under Section 271(1)(c):
The primary issue was whether the penalty of Rs. 2,49,150 levied under Section 271(1)(c) was justified. The Tribunal noted that the assessee's income was assessed at Rs. 30,91,780 under Section 144 due to non-cooperation during the assessment proceedings. The AO initiated penalty proceedings for concealment of income and furnishing inaccurate particulars. The CIT(A) upheld the penalty, citing that the assessee failed to provide satisfactory explanations for the discrepancies. The Tribunal, however, found that the additions were sustained on estimate and preponderance of probabilities, which does not justify the levy of penalty.

2. Requirement of Recording Satisfaction by the AO:
The assessee argued that the AO did not record specific satisfaction for initiating penalty proceedings, which is a condition precedent under Section 271(1)(c). The CIT(A) rejected this argument, relying on judicial precedents stating that specific recording of satisfaction is not necessary. The Tribunal upheld this view, noting that the amendment to Section 271(1)(c) by the Finance Act, 2008, made retrospective from 1st April 1989, does not require the AO to record satisfaction in the assessment order.

3. Validity of Penalty Based on Different Bases:
The assessee contended that the penalty was levied for both concealment of income and furnishing inaccurate particulars, whereas it was initiated only for concealment. The CIT(A) dismissed this argument, stating that concealment and furnishing inaccurate particulars often overlap and the basis for initiation and imposition of penalty remained consistent. The Tribunal agreed, finding no shift in the basis for penalty.

4. Exercise of Discretionary Jurisdiction by the AO:
The assessee claimed that the AO did not exercise discretionary jurisdiction properly. The CIT(A) found that the AO's actions were justified based on the facts and circumstances. The Tribunal did not find any merit in the assessee's argument regarding the improper exercise of discretion by the AO.

5. Applicability of Explanation 1 to Section 271(1)(c):
The CIT(A) and the Tribunal both noted that the assessee's explanation for the discrepancies was not found valid. The Tribunal emphasized that the presumption of concealment under Explanation 1 is rebuttable, but the assessee failed to provide a satisfactory explanation. The Tribunal also noted that the penalty was not justified as the additions were sustained on estimates and probabilities, and two different views were possible.

Conclusion:
The Tribunal concluded that the levy of penalty under Section 271(1)(c) was not justified for the additions sustained on account of jewellery and construction expenses. The Tribunal reversed the CIT(A)'s findings and cancelled the penalty related to these additions. The appeal was partly allowed, and the penalty of Rs. 2,49,150 was set aside.

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