2014 (5) TMI 546 - AT - Income Tax

Penalty u/s 271(1)(c) of the Act Search and seizure - Unexplained entries - Held that - The assessee has surrendered Rs. 82,22,450/- u/s. 153A on account of cash found in lockers and unexplained entries in diaries - This was done during the course of search and seizure operation, where some books, documents, cash were found and impounded during the course of search The findings of the CIT(A) is upheld that it was only due to incriminating documents found / seized in the search action that persuaded the assessee to make a clear cut declaration u/s 132(4) - some pages of the diaries entries were also found to be incorrect and to that extent were added back by the AO and the assessee has conceded to the same - the assessee s claim that no penalty is leviable when unproved income is offered for taxation to purchase peace is not at all sustainable - section 271(1)(c) postulates imposition of penalty for furnishing of inaccurate particulars and concealment of income. Assessee has been clearly been guilty of concealment and the same came to the light only during search operation where diaries and documents were seized - Explanation 5A to Section 271(1)(c) clearly covers the situation - the income declared by the assessee in his return of income furnished after the date of search was solely on the basis of cash found during the search and entries in documents and diaries seized - There is no cogent explanation as to why these incomes were not disclosed earlier in the respective assessment year - assessee is clearly liable for levy of penalty u/s. 271(1)(c) of the Act the order of the CIT(A) is upheld Decided against Assessee.

Issues Involved:
1. Levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961 for the Assessment Years 2003-04 to 2006-07.
2. Validity of the surrender of income during search and seizure operations.
3. Applicability of Explanation 5A to Section 271(1)(c).
4. Assessee's claim that the notings in the diaries were dumb documents and not indicative of income.

Issue-wise Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c):
The primary issue in the appeals was the levy of penalty under Section 271(1)(c) for the Assessment Years 2003-04 to 2006-07. The penalty was confirmed by the CIT(A) based on the assessee's failure to declare actual income in the original returns filed under Section 139(1). The Tribunal noted that the assessee had surrendered Rs. 82,22,450/- under Section 153A on account of cash found in lockers and unexplained entries in diaries during the search and seizure operation. The assessee's contention that the penalty should not be levied as the surrender was voluntary and to avoid litigation was rejected. The Tribunal upheld the penalty, stating that the assessee was guilty of concealment of income, which was revealed only during the search operation.

2. Validity of the Surrender of Income:
The assessee argued that the surrender of income during the search was voluntary and made to buy peace with the department. The Tribunal observed that the surrender was made during the search and seizure operation, where incriminating documents, cash, and diaries were found. The assessee's subsequent explanation that the notings in the diaries were for personal reference and not indicative of income was deemed an afterthought. The Tribunal held that the surrender was not voluntary but was made due to the incriminating evidence found during the search.

3. Applicability of Explanation 5A to Section 271(1)(c):
The Tribunal discussed the applicability of Explanation 5A to Section 271(1)(c), which pertains to cases where income is found during a search initiated after June 1, 2007. The Explanation deems such income as concealed if it was not declared in the returns filed before the search. In this case, the additional income of Rs. 8,14,000/- for the Assessment Year 2004-05 was not declared in the original return but was included in the return filed in response to the notice under Section 153A. The Tribunal concluded that the conditions for the application of Explanation 5A were satisfied, and the penalty under Section 271(1)(c) was justified.

4. Assessee's Claim of Dumb Documents:
The assessee claimed that the notings in the diaries and loose documents were related to technical updates and cost reduction measures in textile dyeing and printing, and not indicative of income. The Tribunal rejected this claim, noting that the assessee had admitted during the search and assessment proceedings that the entries in the diaries were undisclosed income. The Tribunal found no basis for the assessee's explanation and held that the entries were indeed indicative of concealed income.

Conclusion:
The Tribunal upheld the levy of penalty under Section 271(1)(c) for all the assessment years in question. It was determined that the assessee had concealed income, which was revealed during the search operation. The Tribunal found that the conditions for the application of Explanation 5A to Section 271(1)(c) were met, and the assessee's claims regarding the nature of the diary entries were baseless. Consequently, the appeals filed by the assessee were dismissed.

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