2010 (12) TMI 888 - AT - Income Tax

Penalty u/s 271(1) - Undisclose cash - search was conducted and unaccounted cash belonging to the assessee was found during the course of search, the assessee later on made a surrender of cash of Rs. 20,00,000 which cannot be said to be bona fide action on the part of the assessee because the assessee despite having ample opportunity from the date of search in July, 2004 till the date of filing of the original return on 14-10-2005 had been claiming it to be accounted cash for which no evidence was filed at any stage - For what purpose the assessee was waiting for making a surrender on 3-1-2007 is not clear - Therefore, would show that the learned CIT(A) was not justified in deleting the penalty - Decided against the assessee.

Summary

Issues Involved:
1. Cancellation of penalty levied under section 271(1)(c) of the Income-tax Act.
2. Explanation and disclosure of undisclosed income.
3. Voluntary disclosure and concealment of income.
4. Quantification of penalty.

Issue-wise Detailed Analysis:

1. Cancellation of Penalty Levied under Section 271(1)(c) of the Income-tax Act:
The appeal by the revenue challenges the order of the CIT(A) which canceled the penalty of Rs. 7,31,850 levied under section 271(1)(c). The Assessing Officer had levied the penalty on the grounds that the assessee did not explain the source of cash seized during the assessment proceedings, despite earlier submissions before the ADI.

2. Explanation and Disclosure of Undisclosed Income:
The assessee, an Angadia, filed a return under section 153C declaring Rs. 20,00,000 as additional income, representing cash seized during a search. The assessee argued that this income was voluntarily offered to avoid prolonged litigation and to buy peace. The Assessing Officer, however, did not accept this explanation, stating that the assessee had not disclosed this amount in the original return filed on 14-10-2005, despite being aware of the seizure in July 2004.

3. Voluntary Disclosure and Concealment of Income:
The CIT(A) accepted the assessee's explanation, noting that the income offered in the return was accepted without further additions. The CIT(A) referenced the Supreme Court decision in CIT v. Suresh Chandra Mittal, where it was held that no penalty should be levied if income is offered to avoid litigation and buy peace. The CIT(A) concluded that the assessee's surrender of income was to avoid litigation, and thus, canceled the penalty.

However, the revenue argued that the assessee had ample time to disclose the income voluntarily in the original return but failed to do so. The revenue cited various judgments, including those from the Bombay, Madras, and Kerala High Courts, to support the imposition of penalty for concealment of income, arguing that the assessee's disclosure was not voluntary but a result of the search and subsequent detection by the authorities.

4. Quantification of Penalty:
The Tribunal noted that the Assessing Officer had not considered the assessed income while imposing the penalty. The penalty should be computed based on the assessed income of Rs. 9,90,994, not the entire amount of Rs. 20,00,000. The Tribunal restored the matter to the Assessing Officer to recompute the penalty on the assessed income only, as per section 271(1)(c) and Explanation 4 of the Income-tax Act.

Conclusion:
The Tribunal set aside the CIT(A)'s order canceling the penalty and restored the penalty order passed by the Assessing Officer. However, the Tribunal directed the Assessing Officer to reconsider the quantification of the penalty based on the assessed income of Rs. 9,90,994. The departmental appeal was thus allowed partly, with instructions for the Assessing Officer to compute the minimum penalty accordingly.