2015 (8) TMI 805 - AT - Income Tax

Penalty u/s 271(1)(c) - income surrendered during search - Held that - Assessee had surrendered a sum of ₹ 2.5 crores and he could have easily sought immunity against the penalty under explanation 5 to Section 271 (1) (c). However, the assessee did not owned his commitment and retracted from the declaration made during search and did not include the amount of surrendered income in the original return filed by him. The assessee filed revised return on 2.12.2008 through which surrender amount has been included in the return but this has clearly been done after the assessee was again cornered during the assessment proceedings. In any case as observed by the ld. CIT(A) mere filing of revised return would not grant any immunity to the assessee from levy of penalty is true. The combined reading of Section 132 (4) and explanation 5 to Section 271 (1) (c) would clearly show that immunity is available if the income is surrendered during search and the manner of earning such income is also disclosed and the assessee based on such disclosure paid tax on the same. In case before us after having made surrender the assessee simply retracted from the statement and did not include the amount of surrender in the return of income. The income was included through revised return which has not been accepted by the Assessing Officer because same was late. In any case the revised return was furnished only when the assessee was fully cornered during the assessment proceedings. In addition some more items of income were also found to be concealed particularly in respect of platinum and silver jewellery. Therefore, it is a clear case of concealment and penalty has been rightly levied and confirmed by the ld. CIT(A). - Decided against assessee.

Summary

Issues Involved:
1. Imposition of penalty under Section 271(1)(c) of the Income Tax Act.
2. Assessee's claim of surrendering the amount with the condition of no penalty or prosecution.
3. Compliance with the agreement of surrender by the department.
4. Validity of addition based on undelivered letters.
5. Addition based on statements recorded without cross-examination.

Issue-wise Detailed Analysis:

1. Imposition of Penalty under Section 271(1)(c):
The assessee contested the penalty of Rs. 67,75,500 imposed under Section 271(1)(c). The penalty was levied because the assessee did not declare the surrendered income in the original return and only included it in a revised return after being cornered during the assessment proceedings. The Tribunal noted that the assessee initially surrendered Rs. 2.5 crores during the search but later retracted and did not include the full amount in the return. The Tribunal upheld the penalty, emphasizing that the revised return did not qualify for immunity as it was filed after the assessee was cornered, and the original return did not disclose the full income.

2. Assessee's Claim of Surrendering the Amount with the Condition of No Penalty or Prosecution:
The assessee argued that the surrendered amount should not attract a penalty as it was made with the understanding that no penalty or prosecution would follow. However, the Tribunal found that the assessee did not fulfill this condition as the surrendered income was not declared in the original return. The Tribunal highlighted that the penalty provisions are independent of the assessment proceedings and that the assessee's retraction and subsequent revised return did not meet the criteria for immunity from penalty.

3. Compliance with the Agreement of Surrender by the Department:
The assessee claimed that the department failed to honor the agreement of not levying a penalty. The Tribunal dismissed this argument, stating that the assessee did not comply with the terms of the surrender by not declaring the full income in the original return. The Tribunal emphasized that the revised return was filed only after the assessee was cornered during the assessment proceedings, and thus, the penalty was justified.

4. Validity of Addition Based on Undelivered Letters:
The assessee argued that the addition was based on suspicion arising from undelivered letters, which should not lead to a penalty. The Tribunal noted that the assessee failed to substantiate the claim that some stock belonged to customers or was received on consignment. The Tribunal found that the assessee's explanation was not credible, as most letters were undelivered, and the few responses received did not support the assessee's claims. Thus, the penalty was upheld.

5. Addition Based on Statements Recorded Without Cross-examination:
The assessee contended that the addition was based on statements recorded without the opportunity for cross-examination, violating natural justice principles. The Tribunal rejected this argument, stating that the assessee had accepted the valuation and excess stock during the search and did not object to the valuation method. The Tribunal found that the assessee's later retraction and claims were not credible and upheld the penalty.

Conclusion:
The Tribunal upheld the penalty of Rs. 67,75,500 under Section 271(1)(c), rejecting the assessee's arguments regarding the conditions of surrender, compliance by the department, validity of additions based on undelivered letters, and statements without cross-examination. The Tribunal emphasized that the revised return did not qualify for immunity as it was filed after the assessee was cornered during the assessment proceedings, and the original return did not disclose the full income.