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2011 (12) TMI 390 - AT - Income TaxPenalty u/s 271(1)(c) - Undisclosed income - the expression in the course of any proceedings under this Act - survey u/s 133A - assessee was keeping two sets of books and documentary evidence was found exhibiting the involvement of assessee in selling the goods out of books and recording expenditure. - held that - When the survey is conducted by a survey team, the question of satisfaction of AO or the CIT(A) or the CIT does not arise. We have to keep in mind that it is the AO who initiated the penalty proceedings and directed the payment of penalty. He had not recorded any satisfaction during the course of survey. Decision to initiate penalty proceedings was taken while making assessment order. It is, thus, obvious that the expression in the course of any proceedings under this Act cannot have the reference to survey proceedings in this case. Penalty - surrender of income during survey - held that - the assessee had surrendered a whopping sum of Rs.1.6 crores during the course of survey/search and seizure operation. While furnishing its return of income, the appellant had declared its income including the amount so surrendered. - However, while framing the assessment order, the learned AO initiated penal proceedings on the premise that the assessee had furnished inaccurate particulars by suppressing and under-reporting the investment in bank accounts and on account of income deemed to have accrued to it. - penal proceedings initiated and subsequent imposing of penalty under s. 271(l)(c) of the Act in the present appellant s case are not in accordance with the provisions of s. 271(l)(c) as envisaged in the Act. - Decided in favor of assessee.
Issues Involved:
1. Deletion of penalty under Section 271(1)(c) of the IT Act. 2. Justification for reporting lower income as per impounded digital files. 3. Wilful furnishing of lower income to evade taxes. 4. Applicability of judicial precedents on penalty imposition. 5. Distinction between assessment and penalty proceedings. Issue-wise Detailed Analysis: 1. Deletion of Penalty under Section 271(1)(c): The primary grievance of the Revenue was that the CIT(A) erred in deleting the penalty of Rs. 49.07 lakhs, ignoring the provisions of Explanation 4(a) below Section 271(1)(c) of the IT Act. The penalty was imposed due to the assessee's failure to justify the lower income reported in the impounded digital files and the wilful furnishing of lower income to evade taxes. 2. Justification for Reporting Lower Income: The Revenue argued that the assessee firm, engaged in the manufacture and sale of liquors, had maintained parallel business records in digital files named 'sample files' which were unearthed during a survey under Section 133A. These files revealed unaccounted sales and purchases. The assessee failed to provide any acceptable explanation for the lower income reported, leading to the conclusion that there was concealment of income. 3. Wilful Furnishing of Lower Income to Evade Taxes: The AO observed that the assessee had wilfully furnished a return of lower income to evade taxes, as evidenced by the suppression of revenue in the digital files. The ratio and tests laid down in the cases of National Textiles vs. CIT and Dy. CIT vs. Smt Jayshree M. Pethani were applicable, and the assessee failed to advance any evidence to support its claims, leading to the imposition of a penalty. 4. Applicability of Judicial Precedents on Penalty Imposition: The Revenue relied on several case laws, including IMP Precision Engg. Co. Ltd vs. Dy. CIT, Asstt. CIT vs. Kirit Dhyabhai Patel, and Shyam Behari vs. Asstt. CIT, to support the imposition of penalty. However, the Tribunal found that these precedents did not apply to the present case as the facts were different. The Tribunal referred to the case of Sadhbhav Builders vs. ITO, where it was held that no penalty could be levied if the income was disclosed in the return of income. 5. Distinction Between Assessment and Penalty Proceedings: The Tribunal emphasized that penalty proceedings are different from assessment proceedings. In the present case, the assessee had disclosed the additional income of Rs. 1.60 crores in its return, and there was no concealment in the return filed. The Tribunal relied on the ruling in CIT vs. SAS Pharmaceuticals, where it was held that no penalty could be imposed unless there was actual concealment or non-disclosure of income in the return. Conclusion: The Tribunal concluded that the penalty proceedings and the subsequent imposition of penalty under Section 271(1)(c) were not in accordance with the provisions of the IT Act. The assessee had disclosed the additional income in its return, and there was no concealment. Therefore, the Revenue's appeal was dismissed. The Tribunal also noted that the CIT(A) had erroneously adjudicated an issue related to disallowance under Section 40A(3), which was not relevant to the penalty proceedings.
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