2015 (8) TMI 921 - AT - Income Tax

Penalty under section 271(1)(c) - disclosure of income as the result of search operation on the assessee and not voluntary - CIT(A) deleted the penalty - Held that - Provisions of Explanation 5 are applicable in the cases where during the course of search initiated on or before 1.6.2007 any money, bullion, jewellery or other valuable article or thing is found in the possession or under control of the assessee ; and in the instant case of the assessee, the search was conducted on 11.01.2007 and cash of ₹ 5,26,530/- was found from the possession of the assessee ; and so the cash was admittedly, not seized during the relevant assessment years before us. In other words, the assessee had surrendered undisclosed income and cash was seized during search in A.Y 2007-2008, and not in the relevant assessment years. However, in the relevant assessment year under consideration before us, the assessee has made an addition of ₹ 21,65,932/- in the return filed pursuant to section 153A notice. Explanation 5 to section 271(1) of the Act cannot be invoked in assessment years 2005-06 & 2006-07, which are before us, merely on presumption that the assessee might have been in possession of the seized cash throughout the period covered by search assessments. The income offered to tax u/s 153A for assessment years 2005-06 and 2006-07 cannot be said to be based on assets seized, because from the assessment order, it is clear that search was on 11.01.2007 (i. E AY 2007-08), the cash seized during search was only to the tune of ₹ 5,26,530/- and it is not emerging from the records that the assessee has claimed during search that the cash seized (on 11.01.2007), belonged to him and that was owned by him in the relevant assessment years i. E. AYs 2005-06 and 2006-07. Unless there is a clear finding in this respect, Explanation 5 of Section 271(1)(c) cannot be of any help to the department. As rightly pointed out by the Coordinate Bench in Prem Arora (2012 (6) TMI 480 - ITAT DELHI), the provisions of Explanation 5 cannot be invoked in assessment years 2005-06 and 2006-07 in respect of entries recorded in seized material. Thus invoking of Explanation 5 in assessment year 2005-06 & 2006-07 is based on assumptions and presumptions. It is settled law that suspicion howsoever strong, cannot take the place of evidence and hence the contention of the Revenue that assessee was in possession of cash throughout the period of assessment years under consideration has to be rejected. Thus even the amended provisions of Explanation 5 cannot be applied in assessment years 2005-06 & 2006-07. Consequently penalty u/s 271(c) cannot be imposed by invoking Explanation 5 of the Act in assessment years 2005-06 & 2006-07 in respect of cash found in previous year relevant to assessment year 2007-08.- Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of the CIT(A) order.
2. Deletion of penalty under section 271(1)(c) of the Income-tax Act.
3. Applicability of Explanation 5(1) & 5(2) of section 271(1)(c).
4. Voluntariness of income disclosure in response to notice u/s 153A.
5. Implications of non-levy of penalty post-search operation.

Detailed Analysis:

1. Legality of the CIT(A) Order:
The revenue contended that the CIT(A)'s order was bad in law and against the facts of the case. They argued that the CIT(A) erred by not appreciating that the income disclosure was a result of a search operation and not voluntary. The CIT(A) deleted the penalty imposed by the A.O. under section 271(1)(c) of the Act, which the revenue contested.

2. Deletion of Penalty under Section 271(1)(c):
The A.O. had imposed a penalty of Rs. 7,29,100/- for the assessment year 2005-06, asserting that the assessee concealed income. The CIT(A) deleted this penalty, observing that the additional income declared in response to notice u/s 153A was accepted without any alteration. The CIT(A) noted that no incriminating documents were found during the search, and the income declared by the assessee was voluntary to avoid litigation and buy peace of mind. The CIT(A) relied on several case laws, including CIT Vs Shyamlal M Soni and Prem Arora vs. DCIT, which supported the view that penalty under section 271(1)(c) is not leviable when the income declared in response to notice u/s 153A is accepted as such.

3. Applicability of Explanation 5(1) & 5(2) of Section 271(1)(c):
The revenue argued that the CIT(A) ignored the applicability of Explanation 5(1) & 5(2) of section 271(1)(c). However, the CIT(A) and the Tribunal found that Explanation 5 was not applicable in this case. The Tribunal noted that the search was conducted on 11.01.2007, and the cash seized during the search was not related to the assessment years 2005-06 and 2006-07. The Tribunal emphasized that suspicion cannot replace evidence, and there was no clear finding that the seized cash belonged to the assessee during the relevant assessment years.

4. Voluntariness of Income Disclosure in Response to Notice u/s 153A:
The revenue contended that the income disclosure in response to notice u/s 153A was not voluntary. However, the CIT(A) and the Tribunal concluded that the income declared by the assessee in response to notice u/s 153A was voluntary, as no incriminating documents were found during the search. The Tribunal reiterated that penalty under section 271(1)(c) is not imposable when the income declared in response to notice u/s 153A is accepted without any variation.

5. Implications of Non-Levy of Penalty Post-Search Operation:
The revenue argued that not levying penalty for additional income detected during a search would incentivize concealment of income until detected by the department. However, the Tribunal, relying on the case of Prem Arora vs. DCIT, held that the concept of voluntary return of income is relevant in normal assessment proceedings but not in search assessments under section 153A. The Tribunal concluded that where the returned income filed u/s 153A is accepted by the assessing officer, there is no concealment of income, and consequently, penalty under section 271(1)(c) cannot be imposed.

Conclusion:
The Tribunal upheld the CIT(A)'s order, deleting the penalty imposed by the A.O. under section 271(1)(c) for the assessment years 2005-06 and 2006-07. The Tribunal dismissed the revenue's appeals, affirming that the additional income declared by the assessee in response to notice u/s 153A was voluntary and not based on any incriminating material found during the search. The Tribunal emphasized that penalty under section 271(1)(c) is not leviable when the returned income filed u/s 153A is accepted as such.