2015 (12) TMI 1240 - AT - Income Tax

Penalty u/s. 271(1)(c) - Held that - As considered by the Hon ble Supreme Court in the case of Mak Data (P) Ltd., Vs. CIT 2013 (11) TMI 14 - SUPREME COURT , there cannot be any surrender of income with a view to avoid litigation by peace and to channelise energy and resources towards productive working and to make amicable settlement with the Income Tax Department. Statute does not recognize those types of defenses in Explanation-I, Section 271(1)(c) of the Act. It is trite law that voluntary disclosure does not release assessee from mischief of penal proceedings. Law does not provide that when assessee returns a voluntary disclosure of his concealed income, he has to be absolved from penalty. As already stated, the penalty is levied with reference to original return of income and not with reference to the assessment made consequent to the disclosure by assessee. In view of this, uphold the order of penalty for the above reasons. - Decided against assessee.

Summary

Issues Involved:
1. Levy of penalty under Section 271(1)(c) of the Income Tax Act.
2. Applicability of Explanation-5 and Explanation-5A to Section 271(1)(c).
3. Validity of reassessment proceedings under Section 147.
4. Immunity from penalty under Section 153A.

Issue-wise Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c) of the Income Tax Act:
The primary issue in this case is the levy of a penalty of Rs. 2,80,394 under Section 271(1)(c) of the Income Tax Act by the Assessing Officer (AO). The assessee, a Sales Tax Practitioner, filed a return for the AY 2002-03, disclosing an income of Rs. 2,99,263. However, during a search and seizure operation, it was discovered that the assessee had 27 undisclosed bank accounts with significant deposits and withdrawals, leading to an unexplained negative cash balance of Rs. 9,16,321. The AO initiated penalty proceedings under Section 271(1)(c) for concealment of income or furnishing inaccurate particulars. The assessee contended that the additional income was declared in compliance with Section 132(4) and hence, no penalty should be levied. However, the AO concluded that the income declared in response to the notice under Section 148 amounted to furnishing inaccurate particulars in the original return, justifying the penalty.

2. Applicability of Explanation-5 and Explanation-5A to Section 271(1)(c):
The assessee argued that the penalty should not be levied as the income was declared under Section 132(4), complying with the conditions laid down in Explanation-5 of Section 271(1)(c). However, the AO and the Commissioner of Income Tax (Appeals) [CIT(A)] concluded that Explanation-5 was not applicable as it did not provide immunity to the assessee. The CIT(A) erroneously applied Explanation-5A, which was not relevant to the case as the proceedings were under Section 147 and not Section 153A. The tribunal clarified that the penalty in reassessment proceedings under Section 147 is warranted and that the provisions of Explanation-1 to Section 271(1)(c) are applicable to the facts of the case.

3. Validity of Reassessment Proceedings under Section 147:
The reassessment proceedings were initiated under Section 147 due to the escapement of income. The tribunal noted that the original return filed by the assessee did not disclose the transactions in the 27 bank accounts. The reassessment proceedings were valid as the AO had jurisdiction to impose a penalty for concealment of income based on the original return. The tribunal emphasized that the reassessment proceedings are independent of the original assessment, and the penalty can be levied for concealment of income detected during reassessment.

4. Immunity from Penalty under Section 153A:
The assessee claimed immunity from penalty under Section 153A, as penalties for other years were dropped. However, the tribunal clarified that the scheme of assessing incomes identified in search under Section 153A is different from reassessment proceedings under Section 147. The immunity provided in Section 153A proceedings cannot be extended to reassessment proceedings. The tribunal upheld the penalty, noting that the assessee had not voluntarily disclosed the income in the original return and only did so after being confronted with the search findings.

Conclusion:
The tribunal dismissed the appeal, upholding the penalty of Rs. 2,80,394 under Section 271(1)(c) for concealment of income. The reassessment proceedings under Section 147 were deemed valid, and the applicability of Explanation-5 and Explanation-5A was clarified. The tribunal emphasized that voluntary disclosure of income does not absolve the assessee from penalty if the original return concealed the income. The order was pronounced in the open court on 30th October 2015.