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2017 (4) TMI 1426 - AT - Income TaxPenalty u/s 271(1)(c) - search and seizure operation - proceedings u/S 153A initiated consequently - penalty imposed on difference between the income declared in the return originally filed prior to search qua the return filed subsequently in compliance of notice u/s 153A in pursuance of search action - HELD THAT - In search cases, the explanation has been specifically inserted to section 271(1)(c) to deal with situation where higher income was disclosed in the return filed consequent to a search operation and the assessee claims that such addition do not necessarily imply concealment. Thus, in terms of Explanation-5, the penalty on undisclosed income discovered in the course of search under S. 132 cannot be entirely ruled out. relied on Hon ble Gujarat High Court in KIRIT DAHYABHAI PATEL 2015 (1) TMI 201 - GUJARAT HIGH COURT As a matter of general proposition, there can be no concealment of income till filing of return as per normal provisions of section 271(1)(c) as the concealment of income can be attributed only with reference to the return filed. However, as noted, the Explanation-5 dealing with search cases provides an exception and departure to this general rule that concealment is committed vis- -vis the return filed alone. In view of overriding provision of Explanation-5 the default under s.271(1)(c) gets triggered towards undisclosed income, immediately on search action pending filing of return subject to escape route as provided in the said Explanation. it is difficult to reckon the case made out by the assessee that additional income declared in the post search returns would be entitled to immunity from penalty in a sweeping manner regardless of the satisfaction of conditions as provided for its non-applicability as enumerated under clause(2) of Explanation-5. The abstract proposition of non-applicability of penalty proceedings in all circumstances (wherever undisclosed income has been included in the return filed post-search) is singularly misplaced and is not supported by the factual context in which the decision in Kirit Dahyabhai Patel 2009 (6) TMI 654 - ITAT AHMEDABAD-B was rendered. On holistic considerations, it is manifest that the abstract proposition suggested on behalf of the assessee that penalty can be reckoned only with reference to return of income filed under 153A regardless of concealment detected in the course of search will, in our humble opinion, spell redundancy to the operation of Explanation-5 as well as Explanation-5A (as substituted in place of Explanation 5) in equal measure. Thus we find in the instant case that the Assessee is entitled to relief from the clutches of penalty u/s 271(1)(c) owing to absence of description of undisclosed assets as specified in Explanation-5 and not because of blanket non-applicability of Explanation-5 per se on 153A returns as sought to be propounded by the assessee. Unexplained investments on bunglow - HELD THAT - We find force in the argument on behalf of the assessee. The partnership-firm has admittedly paid taxes on the unexplained peak credit. The aforesaid income is thus available at the command and control of the partners of the firm in ordinary course. The assessee being one of its partners can possibly have unilateral access to the entire unexplained peak credit owing to mutual agency. Therefore, the explanation of the assessee cannot be said to wholly improbable and hence cannot be summarily brushed aside. Consequently, while the addition has been sustained partially in quantum proceedings based on proportion of share in partnership, such finding do not ipso facto apply in the penalty proceedings in view of the difference in its scope and consideration vis-a-vis quantum proceedings. Thus, benefit of doubt is required to be assigned in favour of assessee on the touchstone of preponderance of probabilities.
Issues Involved:
1. Imposition of penalty under Section 271(1)(c) of the Income Tax Act, 1961. 2. Difference between income declared in the original return and the return filed under Section 153A. 3. Unexplained investments. Issue-wise Detailed Analysis: 1. Imposition of Penalty under Section 271(1)(c): The appeals pertain to the imposition of penalty under Section 271(1)(c) of the Income Tax Act, 1961 for the Assessment Years (AYs) 2003-04 to 2006-07. The penalty was imposed by the Assessing Officer (AO) and upheld by the Commissioner of Income Tax (Appeals) [CIT(A)]. The primary contention of the assessee was against the CIT(A)'s decision to sustain the AO’s penalty imposition. 2. Difference Between Income Declared in Original Return and Return Filed under Section 153A: The assessee declared additional income in the returns filed under Section 153A following a search and seizure operation. The AO imposed penalties on the difference between the income declared in the original returns filed under Section 139(1) and the returns filed under Section 153A. The assessee argued that the Revenue is not entitled to impose penalties on the additional income declared under Section 153A, referring to the judgment of the Gujarat High Court in Kirit Dahyabhai Patel vs. ACIT which states that penalty can only be levied on income assessed over and above the income returned under Section 153A. 3. Unexplained Investments: The AO also imposed penalties on various amounts of unexplained investments sustained by the CIT(A). The assessee contended that the additions towards unexplained investments were deleted or partially reduced by the ITAT in quantum appeals. For instance, for AY 2003-04, the ITAT deleted the addition of ?73,340 towards unexplained investments. Similarly, for other years, the ITAT granted partial relief on the additions towards unexplained investments. Tribunal’s Findings: On the Difference in Income Declared: The Tribunal noted that Section 153A replaces the original return filed under Section 139 for all purposes of the Act. The Tribunal referred to Explanation-5 to Section 271(1)(c), which deals with situations where higher income is disclosed in the return filed consequent to a search operation. The Tribunal observed that for Explanation-5 to apply, the undisclosed income must be represented by assets like money, bullion, jewellery, etc., found in the possession of the assessee during the search. In this case, the additional income declared was not reported to be represented by any such assets. Therefore, Explanation-5 could not be invoked, and the penalty under Section 271(1)(c) was not justified. On Unexplained Investments: For AY 2003-04, the ITAT had deleted the addition towards unexplained investments, and hence, the penalty on this count was deleted. For other years, the Tribunal accepted the assessee's argument that the unexplained investments could be explained by the unaccounted peak credit assessed in the hands of the partnership firm. The Tribunal found the explanation plausible and held that the penalty on these additions was not justified. Conclusion: The Tribunal allowed the appeals of the assessee, deleting the penalties imposed under Section 271(1)(c) for all the assessment years in question. The Tribunal emphasized that the penalty could not be sustained in the absence of undisclosed assets as specified in Explanation-5 and that the explanation provided by the assessee regarding unexplained investments was plausible and bonafide.
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