2015 (4) TMI 292 - AT - Income Tax

Penalty proceedings u/s 271(1)(c) - undisclosed income - additions based on seized materials / documents found at the time of search from the premises of assessee s father - whether additional income was offered by assessee in respect of the projects and property which did not belong to him, but was made only to buy peace of mind and to avoid litigation? - Held that - From the facts narrated it is seen that the additions which are subject mater of penalty are based on seized materials / documents found at the time of search from the premises of assessee s father, Shri Anthony Joseph Pathathu, but the said seized material admittedly belongs to the proprietory concern of Shri Anthony Joseph Pathathu, namely, M/s.Pathathu Brothers in which assessee has no interest. Even at the time of search, when statement on oath u/s 132(4) was recorded, this aspect was made clear and it is also amply evident from the statement wherein the assessee has categorically made averment that all the documents, cash, loose papers, etc. does not belong to him but to M/s.Pathathu Brothers. From the cash flow statement as furnished before the Assessing Officer, at the time of offering of the additional income, it is seen that they are out of amount received on various dates for Roshani Project, specifically falling in the financial year 2001-2002 and financial year 2002- 2003. The other amount is on account of rent received. Admittedly, Roshani Project does not belong to the assessee or his company in which he is a Director. The said project belongs to M/s.Pathathu Brothers, wherein the assessee had no interest. Even the rental income does not belong to any of his property, albeit belongs to his father, in which the assessee has no concern. Thus, prima facie, the seized documents revealed that nothing belongs to the assessee but his father. Also that the assessee had reconciled the income and explained each and every entry has not been rebutted at any stage. The amount which was offered for additional income as stated before the authorities below, was to only buy peace of mind and to avoid protracted litigation and to save his aged father from harassment. Nothing has been brought on record by the department that, the assessee had any co-relation with the additional income offered by the assessee as worked out from the seized material which too was properly explained. It is a settled law that considerations, which arises in the penalty proceedings are separate and distinct from the assessment proceedings and the assessee can rely upon the same material and explanation to show that he is not guilty of either concealment of income or furnishing of inaccurate particulars. The assessee s explanation that no material was found from the possession of the assessee stands unrebutted even upto this stage. Thus, we set aside the order of the CIT(A) and delete the penalty levied for all the aforementioned assessment years.- Decided in favour of assessee.

Issues Involved:
1. Confirmation of penalty under Section 271(1)(c) for the assessment years 2002-2003 to 2005-2006.
2. Ownership and relevance of seized documents found during the search.
3. Validity of the additional income offered by the assessee.
4. Applicability of Explanation 5 to Section 271(1)(c).

Issue-wise Detailed Analysis:

1. Confirmation of Penalty under Section 271(1)(c):
The primary issue revolves around the confirmation of penalties levied under Section 271(1)(c) for the assessment years 2002-2003 to 2005-2006. The appellant challenged the penalties imposed by the Commissioner of Income-tax (Appeals) [CIT(A)] on the grounds that the additional income was offered voluntarily to avoid litigation and harassment of his aged father, not due to any concealment or furnishing of inaccurate particulars of income.

2. Ownership and Relevance of Seized Documents:
During a search and seizure operation under Section 132(1) at the premises of the assessee's father, documents were found that were linked to the proprietary concern of the father, M/s. Pattathu Brothers. The assessee, in his statement, clarified that he did not reside at the searched premises and had no interest in his father's business. The documents, cash, and jewelry found were asserted to belong to his father and not to him. The Tribunal noted that the seized documents did not belong to the assessee but to his father's proprietary concern, which was corroborated by the statement recorded under oath.

3. Validity of the Additional Income Offered:
The assessee offered additional income during the assessment proceedings to avoid protracted litigation and to spare his father from harassment. The additional income was computed based on a cash flow statement derived from the seized documents. The Assessing Officer accepted this explanation and treated the amount as undisclosed income. However, the assessee contended that the income was offered to buy peace of mind and not because it genuinely belonged to him. The Tribunal found that the assessee's explanation was consistent and unrebutted, indicating that the additional income was indeed offered to avoid litigation rather than being an admission of concealed income.

4. Applicability of Explanation 5 to Section 271(1)(c):
The Assessing Officer levied penalties under the deeming provision of Explanation 5 to Section 271(1)(c), which presumes concealment if certain conditions are met. However, the Tribunal observed that Explanation 5 was not applicable in this case because the assessee was not found to be the owner of any money, bullion, jewelry, or other valuable articles or things. The seized documents and assets were linked to the assessee's father and his business, not to the assessee. Therefore, the conditions required to invoke Explanation 5 were not satisfied.

Conclusion:
The Tribunal concluded that the penalties under Section 271(1)(c) were not justified as the seized documents did not belong to the assessee, and the additional income was offered to avoid litigation rather than due to any concealment or furnishing of inaccurate particulars. The Tribunal set aside the CIT(A)'s order and deleted the penalties for all the assessment years in question, thereby allowing the assessee's appeals. The decision emphasized that penalty considerations are distinct from assessment proceedings, and the assessee's explanations were found to be credible and unrebutted.

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