2015 (5) TMI 815 - AT - Income Tax

Penalty u/s 271(1)(c) - Held that - From the aforesaid observation of the AO, it is clear that whatever was added that was the result of investigation carried out by the Investigation Wing of the Department. However, the AO during the course of regular assessment proceedings u/s 143(3) of the Act was fully satisfied with the explanation of the assessee and no addition was made in spite of the fact that all the information relating to increase in share capital were furnished by the assessee. So, it cannot be said that the assessee concealed any information or particulars from the department. It is well settled that penalty proceeding and assessment proceedings are two different and distinct proceedings. In such type of cases, there can be many reasons for making the surrender but the surrender itself is not a conclusive proof of concealment of income or furnishing of inaccurate particulars of income. In the present case, it is also noticed that the AO levied the penalty u/s 271(1)(c) of the Act. However, for levying the penalty in search cases the Finance Act, 2007 inserted section 271AAA of the Act w.e.f 01.04.2007 which clearly states that no penalty under the provisions of clause (c) of Sub-section (1) of section 271 t shall be imposed upon the assessee in respect of the undisclosed income referred to in Sub-section (1) i.e. the undisclosed income found after the search, the word shall used in Sub-section (3) to section 271AAA makes it mandatory, therefore, the penalty u/s 271(1)(c) of the Act was not leviable in the present case. Therefore, it can be said that the AO wrongly invoked the provisions of section 271(1)(c) of the Act and levied the penalty under said section. In the present case, since the search took place on 04.09.2008 i.e. after first day of June 2007, therefore, penalty if any was leviable that was to be levied u/s 271AAA of the Act but not u/s 271(1)(c) of the Act. Thus penalty levied by the AO u/s 271(1)(c) of the Act was not justified and the ld. CIT(A) wrongly upheld the penalty levied by the AO - Decided in favour of assesse.

Summary

Issues Involved:
1. Penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Validity of the assessment under Section 153A.
3. Surrender of income and its implications on penalty.

Issue-wise Analysis:

1. Penalty under Section 271(1)(c) of the Income Tax Act, 1961:
The core issue in these appeals is whether the penalty under Section 271(1)(c) was rightly imposed on the assessee for allegedly furnishing inaccurate particulars of income. The assessee contended that all relevant documents were submitted, including identity proofs, PAN, and affidavits from shareholders. The Assessing Officer (AO) held that the assessee had introduced unaccounted income as share capital through non-existent entities and imposed a penalty of Rs. 22,96,875/-. The CIT(A) upheld the penalty, stating that the assessee knowingly introduced share capital through paper companies and failed to produce directors for verification. However, the Tribunal found that the assessee had disclosed all information regarding share capital and that the AO had accepted these details during regular assessment proceedings under Section 143(3). Thus, the Tribunal concluded that the penalty under Section 271(1)(c) was not justified.

2. Validity of the assessment under Section 153A:
The Tribunal noted that the search and seizure operation led to the initiation of assessment proceedings under Section 153A. The CIT(A) observed that under Section 153A, the AO is required to assess the total income, considering both disclosed and undisclosed income. The Tribunal agreed that the assessment under Section 153A was valid but emphasized that the penalty proceedings are distinct from assessment proceedings. The Tribunal highlighted that the AO had previously accepted the share capital details during regular assessments, indicating no concealment of income by the assessee.

3. Surrender of income and its implications on penalty:
The assessee argued that the surrender of Rs. 62,50,000/- was voluntary and made to avoid litigation, with the condition that no penalty would be imposed. The CIT(A) dismissed this argument, stating that the surrender was made only after the assessee was confronted with the findings of the Investigation Wing. The Tribunal, however, found that the surrender itself does not conclusively prove concealment of income. The Tribunal also noted that the penalty should have been considered under Section 271AAA, applicable to search cases post-June 2007, rather than under Section 271(1)(c). Since the search occurred on 04.09.2008, the Tribunal held that the penalty, if any, should be levied under Section 271AAA, which mandates no penalty under Section 271(1)(c) for undisclosed income found during a search.

Conclusion:
The Tribunal concluded that the penalty under Section 271(1)(c) was not justified, as the assessee had disclosed all relevant information and the AO had accepted these details during regular assessments. The Tribunal also noted that the penalty, if any, should be considered under Section 271AAA, which was not invoked by the AO. Therefore, the Tribunal set aside the impugned order and deleted the penalty imposed under Section 271(1)(c). The appeals filed by the assessees were allowed.