2017 (1) TMI 1659 - AT - Income Tax

Reopening of assessment - unaccounted cash found during the course of search action under section 132 conducted at the premises of the assessee - assessee has not maintained any books of accounts and the books of accounts were prepared only after completion of the search and seizure action - HELD THAT - Rejection of claim of the assessee regarding the source of cash which was found during the course of search action was that the assessee did not maintain any books of account and it has prepared the books of accounts only after the search action was over. According to the Department, the preparation of books of account was only after thought and no credits should be given to such books of accounts. Though it was found that the assessee did not maintain any books of account at the time of search action, if the assessee is able to explain the source of credit and prepared the true accounts of the assessee with supporting materials that its accumulated cash were from known sources of income then it has to be considered. AO was not justified in rejecting the claim of the assessee in-toto without examining each and every entries made in the books of account whether the entries were made with supporting materials or not - remit the matter back to the AO to examine the books of accounts properly and it is needless to so that the assessee shall explain each and every entries made in the books of accounts with regard to the cash amount of ₹.1.65 crores seized on the day of search and if the assessee is able to explain the same with supporting documents, AO shall consider the same in accordance with law after allowing sufficient opportunities of being heard to the assessee. With the above observations, we remit the matter to the file of the Assessing Officer for fresh consideration. Penalty levied u/s 271(1)(c) - additional income so disclosed in the statement of income recorded under section 132(4) which was later on declared in the return of income provided by the assessee - HELD THAT - We are of the opinion that though the assessee has admitted during the course of search and disclosed in the return filed in response to notice u/s 153C by offering additional income is clearly liable to levy of penalty under section 271(1)(c). Accordingly, the order passed by the CIT(A) on this issue is reversed and that of the AO is restored. Penalty u/s 271(1)(c) - HELD THAT - Addition was made on estimated basis without bringing on record any material to show that there was any undisclosed income. The assessee has furnished agricultural income. In order to apply the provisions of section 271(1)(c) of the Act, there has to be concealment of particulars of income or furnishing of inaccurate particulars of income. In the recent judgement of the Hon ble Supreme Court in the case of CIT v. Reliance Petro Products Pvt. Ltd. 2010 (3) TMI 80 - SUPREME COURT - we are of the opinion that this is not a fit case to levy of penalty on treating the agricultural income declared by the assessee as income from other sources. Accordingly, the penalty levied under section 271(1)(c) of the Act is deleted for all the assessment years.

Summary

Issues Involved:
1. Quantum addition of ?1.65 crores for the assessment year 2008-09.
2. Sustenance/deletion of penalties levied under section 271(1)(c) of the Income Tax Act for assessment years 2002-03 to 2008-09.

Detailed Analysis:

1. Quantum Addition of ?1.65 Crores for Assessment Year 2008-09:
The assessee's original assessment was completed with an assessed income of ?9,10,44,388 against the returned income of ?1,64,60,476. The assessment was reopened to bring ?1.65 crores of unaccounted cash found during a search under section 132 into account. The assessee's explanation for the cash was rejected by the Assessing Officer (AO) and sustained by the Commissioner of Income Tax (Appeals) [CIT(A)] due to the lack of supporting materials and the preparation of books of accounts post-search. The Tribunal opined that if the assessee can explain the source of the cash with true accounts and supporting materials, the AO should consider it. The matter was remitted back to the AO for fresh consideration, directing the assessee to explain each entry in the books of accounts.

2. Sustenance/Deletion of Penalties under Section 271(1)(c) for Assessment Years 2002-03 to 2008-09:
The assessee, engaged in money lending, faced penalties for various additions made by the AO, including agricultural income treated as income from other sources, unexplained cash credits, and undisclosed receipts. The CIT(A) provided partial relief, and both the assessee and Revenue appealed. The Tribunal upheld the AO's penalties, noting the assessee's failure to declare additional income before the search and the non-applicability of immunity under Explanation 5 to section 271(1)(c). The Tribunal cited several judgments, including ACIT v. Gebilal Kanhaialal HUF and CIT v. S.D.V. Chandru, emphasizing that immunity is only available if income is declared before the expiry of time under section 139(1).

Additionally, the Tribunal addressed the penalty on agricultural income, which was treated as income from other sources. It noted that penalties under section 271(1)(c) require concealment or inaccurate particulars of income. Citing CIT v. Reliance Petro Products Pvt. Ltd., the Tribunal found no evidence of inaccurate particulars and deleted the penalties for all assessment years.

Conclusion:
- The appeal regarding the quantum addition of ?1.65 crores was partly allowed for statistical purposes and remitted back to the AO for fresh consideration.
- The Revenue's appeals for penalties under section 271(1)(c) were allowed, reversing the CIT(A)'s deletion of penalties.
- The assessee's appeals concerning penalties on agricultural income were allowed, and the penalties were deleted.

Order Pronounced:
The order was pronounced on January 6, 2017, in Chennai.