2015 (12) TMI 699 - AT - Income Tax

Penalty u/s 271(1)(c) - surrender of income - suo motu further income declared in the returns filed u/s 153A - Held that - It is trite law that penalties should not be imposed unless the case falls under the four corners of law mandating the penalty. Thus such laws are to be strictly implemented. Adverting to explanation 5A to section 271(1)(c) if explicitly refers to Where, in the course of a search initiated under section 132 on or after the 1st day of June, 2007, the assessee is found to be the owner of .. It is not disputed that during the search assessee was not found to be owner of any gold, bullion, a/c books etc. as no incriminating material was discovered. This is further confirmed by the fact that much alleged pharmaceutical business was not found to be at all carried out by assessee and the additions stand deleted by ITAT. Explanation 5A has specific application, the contention of ld. DR. that penalty are sustainable due to the implication of word transaction mentioned in sub clause ii of explanation. 5A cannot be accepted. This is simply so as there is no mention of any specific transaction. Beside there should be any evidence found during the course of search. Thus in my considered view impugned penalties cannot be sustained under explanation 5A to section 271(1)(c). While interpreting proviso to sec. 153A, various judicial forums have held that additions in respect of finalized assessments cannot be made unless incriminating material is discovered during the course of search proceedings. In these circumstances impugned assessments for AY 2003-04, AY 2005- 06 being unabated, no additions could have been made in the absence of any incriminating material. Besides for AY 2006-07 also small penalty for house renovation expenses can be sustained on merits as no incriminating material, evidence or nature of renovation is ever inquired. Assessee s affidavit also remains uncontroverted on record. Thus impugned penalties confirmed by the ld. CIT(A) u/s 271(1)(c) are deleted. - Decided in favour of assessee.

Issues Involved:
1. Confirmation of penalty imposed under Section 271(1)(c) of the Income Tax Act for AY 2003-04, 2005-06, and 2006-07.
2. Validity of the penalty imposed in light of Explanation 5A to Section 271(1)(c).
3. Relevance of incriminating material found during the search.
4. Validity of the affidavit provided by the assessee.
5. Distinction between assessment proceedings and penalty proceedings.

Issue-wise Detailed Analysis:

1. Confirmation of Penalty Imposed under Section 271(1)(c):
The assessee challenged the confirmation of penalties imposed under Section 271(1)(c) for AY 2003-04, 2005-06, and 2006-07. The penalties were levied based on the alleged concealment of income. The amounts in question were Rs. 1,20,146 for AY 2003-04, Rs. 1,53,469 for AY 2005-06, and Rs. 25,959 for AY 2006-07. The penalties were upheld by the CIT(A) but were contested by the assessee on the grounds that no incriminating material was found during the search and that the additional income was declared voluntarily.

2. Validity of Penalty Imposed in Light of Explanation 5A to Section 271(1)(c):
The penalties were confirmed by applying the deeming provisions of Explanation 5A to Section 271(1)(c), which states that if an assessee is found to be the owner of any money, bullion, jewelry, or other valuable article or thing, or any income based on any entry in any books of account or other documents, and such income is not declared in the return of income, the assessee shall be deemed to have concealed the particulars of his income. However, the Tribunal noted that the assessee was not found to be the owner of any such assets or documents during the search. Therefore, Explanation 5A was not applicable in this case.

3. Relevance of Incriminating Material Found During the Search:
The Tribunal observed that no incriminating material or documents were found during the search that could substantiate the alleged concealment of income. The assessee had declared additional income in the returns filed under Section 153A to avoid complications, despite no incriminating evidence being discovered. The Tribunal emphasized that the penalty under Explanation 5A could not be imposed in the absence of such material.

4. Validity of the Affidavit Provided by the Assessee:
The assessee had submitted an affidavit stating that the expenses on the marriage of his sons were incurred from cash gifts received from relatives and friends. The affidavit was not supported by positive evidence, such as names, addresses, or confirmations of the persons who gave the gifts. The AO rejected the affidavit as self-serving evidence, and the CIT(A) upheld this view. However, the Tribunal noted that the AO did not conduct any further verification or cross-examination to rebut the affidavit. Citing precedents, the Tribunal held that uncontroverted affidavits should be accepted as correct.

5. Distinction Between Assessment Proceedings and Penalty Proceedings:
The Tribunal reiterated that assessment proceedings and penalty proceedings are distinct. Just because an addition is made during assessment does not automatically justify the imposition of a penalty. The AO must independently prove that the assessee concealed income. The Tribunal found that the AO did not bring any positive material to show that the income was based on entries in seized documents. It was also noted that the assessments for AY 2003-04 and 2005-06 had become final by the time of the search, and no additions could be made in the absence of incriminating material.

Conclusion:
The Tribunal concluded that the penalties under Section 271(1)(c) were not justified as the conditions of Explanation 5A were not met, no incriminating material was found during the search, and the affidavit provided by the assessee was not rebutted. Consequently, the penalties imposed for AY 2003-04, 2005-06, and 2006-07 were deleted, and the assessee's appeals were allowed.

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