2016 (1) TMI 76 - AT - Income Tax

Penalty u/s 271(1)(c) - unexplained investments in relation to jewellery found during the course of search action - Held that - There is no dispute that quantum addition has been deleted by the Tribunal, therefore, in our humble opinion, the ld. Commissioner of Income tax (Appeals) is not justified in confirming the penalty. Admittedly, the impugned order is dated 07/10/2013, whereas, the order of quantum addition of the Tribunal is dated 31/07/2015, meaning thereby, the order of the Tribunal was even not even existence. Our view further finds support from the decision and the ratio laid down in CIT vs S.P Viz Construction company (1988 (10) TMI 24 - PATNA High Court ) and K.C. Builders vs ACIT (2004 (1) TMI 7 - SUPREME Court). We are of the view where the penalty for concealment or furnishing inaccurate particulars was levied and after deleting the quantum addition, there remains no basis at all for levying the penalty. Ordinarily, penalty cannot stand in itself if the addition made in the assessment itself is set aside or cancelled by the superior authority/Court. The penalty cannot stand by itself because false result may be produced by the falsity of one or more of the constituent items in the return. The word inaccurate particulars would cover falsity in the final figure and also the constituent elements or items. They simply would mean inaccurate in some specific or definite respect whether in the constituent or subordinate items of income or the end result. Concealment or furnishing inaccurate particulars implies some deliberate act on the part of the assessee in withholding the true facts from the authorities. Since, the basis of levying penalty remains no more in existence, after deletion of quantum addition, therefore, from this angle, the stand of the ld. Commissioner of Income tax (Appeals) is not sustainable. - Decided in favour of assessee.

Summary

Issues Involved:
1. Confirmation of Penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Quantum Addition related to unexplained investments in jewellery.
3. Explanation and evidence provided by the assessee regarding the source of jewellery.
4. Matching of jewellery items with valuation reports.
5. Legal precedents and judicial pronouncements relevant to the case.

Detailed Analysis:

Issue 1: Confirmation of Penalty under Section 271(1)(c) of the Income Tax Act, 1961

The assessee contested the penalty of Rs. 3,36,912/- imposed under Section 271(1)(c) of the Income Tax Act, 1961. The counsel for the assessee argued that the quantum addition, which was the basis for the penalty, had been deleted by the Tribunal in its order dated 31/07/2015. This factual matrix was not disputed by the Departmental Representative (DR).

Issue 2: Quantum Addition related to unexplained investments in jewellery

During a search action under Section 132 of the Income Tax Act, jewellery valued at Rs. 1,73,30,641/- was found at the assessee's premises, out of which jewellery valued at Rs. 36,93,026/- was seized. The Assessing Officer (AO) added Rs. 21,58,524/- to the income of the assessee as unexplained investments under Section 69A of the Act.

Issue 3: Explanation and evidence provided by the assessee regarding the source of jewellery

The assessee explained the source of the jewellery through various submissions and furnished evidence, including valuation reports and purchase bills. The assessee contended that the jewellery belonged to multiple family members and was acquired through various means, including gifts and remaking of old jewellery.

Issue 4: Matching of jewellery items with valuation reports

The Commissioner of Income Tax (Appeals) [CIT(A)] directed the assessee to prepare charts matching the jewellery items found during the search with those declared in the valuation reports. The CIT(A) observed that most items matched, but some discrepancies in descriptions and weights led to partial confirmation of the additions by the AO.

Issue 5: Legal precedents and judicial pronouncements relevant to the case

The Tribunal considered several legal precedents, including decisions from the Jodhpur Bench and the Mumbai Bench of the Tribunal, and the Hon'ble Allahabad High Court. These precedents established that minor differences in weight and description of jewellery, especially when not precisely measured, should not warrant additions under Section 69A. The Tribunal concluded that the overall weight of jewellery declared by the assessee's family was more than the jewellery found during the search, and thus the additions were not warranted.

Conclusion:

The Tribunal held that the basis for the penalty under Section 271(1)(c) no longer existed as the quantum addition had been deleted. The Tribunal cited various judicial pronouncements to support its view that penalty cannot survive if the addition itself is deleted. Consequently, the appeal of the assessee was allowed, and the penalty was set aside.

This judgment underscores the importance of providing detailed explanations and evidence to substantiate the source of assets during tax assessments and highlights the Tribunal's reliance on legal precedents to ensure fair adjudication.