2013 (1) TMI 574 - HC - Income Tax

Penalty u/s 271(1)(c) - penalty set aside by Tribunal - survey under Section 133A - Unaccounted share capital receipt - assessee surrendered the income under income from other sources - Held that - Revenue is right in contending that there was absolutely no explanation from the assessee in respect of the amount of Rs.40,74,000/- when the AO called upon the assessee to produce the evidence as to the nature and source of the amount received as share capital, the creditworthiness of the applicants and the genuineness of the transactions the assessee simply folded up and surrendered a sum of Rs.56.49 lacs in its hands initially, which was later scaled down to Rs.40,74,000/-. The assessee merely stated that with a view to avoid litigation and buy peace it surrendered the income under the head income from other sources . In the absence of any explanation in respect of the surrendered income, the first part of clause (A) of Explanation 1 is attracted. It cannot be denied that the nature and source of the amount surrendered are facts material to the computation of the total income of the assessee. The Revenue is entitled to know the same and if the nature and source of the amount are not explained, it is entitled to draw the inference that the amount represents the assessee s taxable income. It is the assessee who has received the monies & in the absence of any explanation is statutorily considered as amounting to concealment of income - the Tribunal fell into error in setting aside the penalty imposed by the AO and upheld by the CIT(Appeals) - against the assessee

Summary

Issues:
- Whether the Tribunal erred in setting aside the penalty imposed by the AO and upheld by the CIT (A)?

Analysis:
1. The appeal pertains to the assessment year 2004-05 under Section 260A of the Income Tax Act, 1961. An addition of Rs.40,74,700 was made based on documents found during a survey, relating to share capital transactions. The AO sought explanations regarding the nature and source of the monies received.

2. The assessee offered Rs.56.49 lacs as income from other sources to avoid litigation. Later, this amount was revised to Rs.40.74 lacs. The AO added this amount as income from other sources based on directions from the Addl. CIT, as the assessee failed to provide satisfactory explanations.

3. Subsequently, penalty proceedings were initiated under Section 271(1)(c) for furnishing inaccurate particulars of income. The AO imposed a penalty of Rs.14,16,600, considering the surrender of income during assessment proceedings as concealment.

4. The CIT(A) and the Tribunal rejected the assessee's plea, emphasizing the voluntary nature of the surrender. The Tribunal canceled the penalty, citing lack of evidence of concealment and the voluntary nature of the offer.

5. The revenue contended that the Tribunal misinterpreted Explanation-1 to Section 271(1)(c) of the Act. The Tribunal's decision was deemed erroneous as the assessee failed to provide any explanation regarding the surrendered income, attracting the provisions of Explanation-1.

6. The absence of a valid explanation from the assessee regarding the surrendered income led to the inference of concealment. The Tribunal's decision was overturned, upholding the penalty imposed by the AO and CIT(A). The substantial question of law was answered in favor of the revenue, allowing the appeal with no costs.