2015 (11) TMI 1784 - AT - Income Tax

Levy of penalty u/s. 271(1)(c) - addition on account of purchase of demand drafts and unaccounted cash - income surrendered of the unaccounted income in his income tax return by assessee - HELD THAT - Assessee himself has surrendered the unaccounted income in his income tax return, because the assessee claimed to have surrendered the amount of ₹ 4,95,000/- to buy peace of mind and to avoid the protracted litigation; Second, when the revenue has statutory power to proceed against the assessee by reopening the assessment of a particular assessment year and then initiating the penalty proceedings, it cannot be allowed to proceed mechanically to invoke the penal provisions. So initiating the penalty proceedings on the basis of void assessment order are not sustainable in the eyes of law. Assessee is well within his right to take this defence of challenging the assessment order even though assessment order has not been challenged, at the time of challenging the penalty order. In the case entitled ACIT v. Smt. Surinder Kaur 2008 (4) TMI 367 - ITAT LUCKNOW-A decided the identical issue in the identical circumstances in favour of the assessee, which is applicable to the facts and circumstances of the case. So, when the foundation of addition on unaccounted income of ₹ 4,95,000/-, though not challenged by the assessee, is not sustainable in the eyes of law, the question of imposing penalty qua the said amount, does not arise. The impugned order passed by Ld. CIT(A) confirming the penalty @ 300%, the amount of ₹ 4,95,000/- is not sustainable in the eyes of law, hence, hereby set aside and the appeal of the assessee is allowed.

Summary

Issues:
Appeal against penalty imposed under section 271(1)(c) of the Income Tax Act, 1961 for assessment year 2007-08.

Detailed Analysis:

1. The appellant sought to set aside the penalty imposed by the Assessing Officer (A.O.) under section 271(1)(c) of the Income Tax Act, 1961. The penalty was confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)] for an income of Rs. 4,95,000. The appellant argued that the penalty was unjustified and that they were entitled to immunity under Explanation 5 to section 271(1)(c). The CIT(A) confirmed the penalty, leading to the present appeal.

2. During a search and seizure operation, documents were seized from the appellant's premises, resulting in additions to the income. The appellant offered to include Rs. 4,95,000 for taxation, but this was not accepted by the A.O. Additionally, unaccounted cash of Rs. 15,50,000 was found in a locker jointly maintained by the appellant and his wife. The A.O. treated this cash as unaccounted money, leading to a penalty of Rs. 20,79,453 being imposed.

3. The CIT(A) partly allowed the appeal by deleting the penalty amount related to the unaccounted cash of Rs. 15,50,000. The appellant challenged the penalty order, arguing that it lacked jurisdiction and relied on a previous judgment by ITAT, Lucknow 'A' Bench.

4. The key question was whether the penalty order was passed without jurisdiction, as it was based on documents from 2004 but assessed in 2008. The A.O. initiated penalty proceedings based on the seized documents, but the appellant had already reflected the amount in their tax return for the relevant year.

5. The Tribunal held that the penalty order was unsustainable as the A.O. lacked jurisdiction to initiate penalty proceedings based on an assessment order from a different year. The Tribunal emphasized that penalty and assessment proceedings are independent and should not influence each other. The appellant's defense of challenging the assessment order was valid, and the penalty was set aside.

This detailed analysis covers the issues involved in the legal judgment comprehensively, highlighting the key arguments and decisions made by the authorities involved.