2013 (10) TMI 598 - AT - Income Tax

Penalty u/s 271(1)(c) - Penalty levied @ 300% - Held that - There is no dispute with reference to the fact that the amounts ultimately accepted by the Assessing Officer in the assessments were almost the same as that of the amounts admitted by the assessee in the returns, except for a small amount of Rs.31,770 added in assessment year 2008-09. It is also not in dispute that the assessee is a resident of Kolwada Village of Mehsana District in Gujarat and on seizure through his employees on respective dates, the assessee had to file the returns at Hyderabad, consequent to assigning the jurisdiction to the Assessing Officer at Hyderabad by the CIT Gujarat. It is also not in dispute that the assessee s returns were sent by post and has furnished evidence of dispatching them by post before the authorities - AO has not invoked the correct provisions of law for levying the penalty. In this case search was conducted in the premises of the assessee on 24-09-2008, thus the date of initiation of search was on 24-09-2008. From the provisions of Section 271AAA it is clear that in the case where action U/s 132 is initiated on or after 01/06/2007, penalty cannot be levied U/s 271 (1)(c)of the Act. Penalty can be levied only U/s. 271AAA of the Act when certain conditions stipulated therein is not complied - Decided in favour of assessee.

Summary

Issues Involved:
1. Legitimacy of penalties under Section 271(1)(c) of the Income-tax Act, 1961.
2. Applicability of Explanation 5A to Section 271(1)(c).
3. Applicability of Section 271AAA for the penalties.
4. Validity of the assessee's claim of filing returns via RPAD.
5. Jurisdictional issues regarding the location of the proceedings.

Detailed Analysis:

1. Legitimacy of Penalties under Section 271(1)(c):
The Assessing Officer (AO) initiated proceedings under Section 271(1)(c) of the Income-tax Act, 1961, and levied penalties at 300% for the assessment years 2008-09 and 2009-10. The AO invoked Explanation 5A to Section 271(1)(c) and imposed penalties of Rs. 13,15,200 and Rs. 20,75,940, respectively. The CIT(A) confirmed these penalties, stating that the appellant had organized an elaborate unaccounted business and attempted to create false evidence even after being caught, which justified the imposition of the maximum penalty.

2. Applicability of Explanation 5A to Section 271(1)(c):
Explanation 5A to Section 271(1)(c) applies to cases where the search has been initiated and the income has not been declared in the return filed before the date of search, or the due date for filing the return has expired, and the return has not been filed. The Tribunal found that Explanation 5A did not apply to the facts of this case because the search occurred during the financial year (26.03.2008 and 30.04.2008), and the previous year had not ended before the date of the search. Therefore, the provisions of Explanation 5A were not applicable.

3. Applicability of Section 271AAA for the Penalties:
The Tribunal concluded that the provisions of Section 271AAA, which apply to searches initiated on or after 1st June 2007 but before 1st July 2012, were applicable. Section 271AAA imposes a penalty at the rate of 10% of the undisclosed income if certain conditions are met, such as admitting the undisclosed income during the search and paying the tax along with interest. The Tribunal noted that the assessee's case fell within the purview of Section 271AAA and not Section 271(1)(c).

4. Validity of the Assessee's Claim of Filing Returns via RPAD:
The assessee claimed to have filed returns via RPAD, but the CIT(A) found this claim incorrect, stating that no returns had been received by any income tax office. The Tribunal found that the assessee had furnished evidence of dispatching the returns by post and that the AO had accepted the returns filed with the same date and completed the assessment proceedings. The Tribunal accepted the assessee's explanation that the returns were originally filed in March 2009 and again in October 2010, and found the CIT(A)'s conclusion incorrect.

5. Jurisdictional Issues Regarding the Location of the Proceedings:
The assessee, a resident of Gujarat, requested the transfer of proceedings to Gujarat, but the CIT Gandhinagar assigned the jurisdiction to the AO at Hyderabad. The Tribunal noted that the assessee had to file returns at Hyderabad due to the jurisdictional assignment and had furnished evidence of dispatching the returns by post.

Conclusion:
The Tribunal concluded that the penalties under Section 271(1)(c) were not warranted, especially at 300%, as the admitted incomes were accepted in the assessment. The Tribunal directed the AO to modify the penalties under Section 271AAA and levy a penalty at 10% of the amount of income brought to tax for both the years. This modification was made considering the express request of the assessee to curtail unnecessary proceedings, as he was not available in Hyderabad being a resident of Gujarat. The appeals of the assessee were treated as partly allowed.