2013 (4) TMI 485 - AT - Income Tax

Penalty u/s. 271(1)(c) - concealment of particulars - bifurcating the income on which tax sought to be evaded - income surrendered during survey - difference between assessed income and returned income - Held that - There can be no concealment or non-disclosure, as the assessee had made a complete disclosure in the IT return and offered the surrendered amount for the purposes of tax and therefore no penalty under s. 271(1)(c) could be levied. The words in the course of any proceedings under this Act in Sec. 271(1)(c ) of the Act are prefaced by the satisfaction of the AO or the CIT(A). When a survey is conducted by a survey team, the question of satisfaction of AO or the CIT(A) or the CIT does not arise. One has to keep in mind that it is the AO who initiates penalty proceedings and directs the payment of penalty. He cannot record any satisfaction during the course of survey. Decision to initiate penalty proceedings is 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. There can be no justification for imposition of penalty on the income offered in the return of income by the Assessee for both the A.Ys., because there cannot be any penalty on income which is declared in a return of income, on the facts and circumstances of the present case. Penalty - difference between assessed income and returned income - held that - Assessee was that it was due to inadvertence that the income declared in the return of income was less than what was offered at the time of survey. - the estimation of income is not on any incriminating material but based on agreement between the revenue and the Assessee at the time of survey. In respect of such addition, for which a bona fide explanation has been given by the Assessee, no penalty can be imposed. The law is well settled that an Explanation inserted in a penal provision cannot be regarded as a substantive provision by itself and such an Explanation can only be regarded as a rule of procedure and a rule of evidence leaving it to the assessee and the Revenue to adopt the same as the basis to substantiate their rival claims having regard to the facts of the case and the law applicable. - No penalty - Decided in favor of assessee.

Summary

Issues Involved:
1. Imposition of penalty under Section 271(1)(c) of the Income Tax Act.
2. Justification of penalty on income declared in the return of income.
3. Justification of penalty on the difference between income declared in the return and income assessed by the AO.

Issue-wise Detailed Analysis:

1. Imposition of penalty under Section 271(1)(c) of the Income Tax Act:

The assessee, a partnership firm engaged in selling real estate, did not file returns for AYs 2007-08 and 2008-09 on time. A survey under Section 133A revealed undisclosed sales, leading the assessee to agree to declare 11.5% of sales as income. The AO issued notices under Section 148, and the assessee filed returns declaring income at 11% of sales. The AO imposed penalties under Section 271(1)(c), reasoning that the returns were not voluntary but a result of the survey. The CIT(A) upheld the penalties, stating the non-disclosure was evident as no returns were filed before the survey.

2. Justification of penalty on income declared in the return of income:

The Tribunal found that penalties under Section 271(1)(c) cannot be imposed on income declared in the return. The Tribunal emphasized that penalty for "concealing particulars of income or furnishing inaccurate particulars" starts with the return of income. If the income declared in the return is ultimately taxed, there is no concealment. The Tribunal referred to Explanations 3, 5, and 5A of Section 271(1)(c), which provide exceptions but found them inapplicable here. The Tribunal concluded that since the assessee filed returns within two years from the end of the assessment years and before the issuance of notice under Section 148, Explanation 3 did not apply.

3. Justification of penalty on the difference between income declared in the return and income assessed by the AO:

The Tribunal considered the difference between the income declared in the return and the income assessed by the AO. The assessee explained that the discrepancy was due to inadvertently offering 11% instead of 11.5% of sales as income. The Tribunal accepted this explanation as bona fide, noting the agreement between the revenue and the assessee during the survey. The Tribunal held that penalties cannot be imposed for additions based on estimates without incriminating evidence and that the assessee satisfied the burden under Explanation 1 to Section 271(1)(c).

Conclusion:

The Tribunal canceled the penalties imposed on the assessee for both assessment years, concluding that penalties under Section 271(1)(c) were not justified for the income declared in the return or the difference between the declared and assessed income. The appeals were allowed.