2019 (2) TMI 1671 - AT - Income Tax

Penalty u/s 271(1)(c) - return filed disclosing higher income u/s 153A (vis- vis earlier return filed u/s 139) solely on the basis of certain statement recorded u/s 139(4) without any reference to and without corroboration of any incriminating material to support such declaration - HELD THAT - There can be no manner of doubt that statutory discretion vested with the AO ought to have been exercised in favour of the assessee and not against the assessee for such unproved income. The Revenue could not lay hands on any tangible material except conditional and tacit averments which confession in itself is seen to be non-admission of any ingenuity. In the circumstances we have no hesitation to hold that such confession cannot be the basis for imposition of onerous penalty. An incidental but a pertinent question would arise also as to whether a statement recorded u/s 132(4) can be treated as evidence found in the course of search per se. As noted except for an oral evidence under s.132(4) of abstract nature with distinguishing features no incriminating material has been found to support the assertions made therein. To reiterate the assertions made are highly qualified and without any admissions of undisclosed income per se. The Hon ble Delhi High Court in the case of CIT vs. Harjeev Agrawal 2016 (3) TMI 329 - DELHI HIGH COURT has ruled that oral statements on a standalone basis without reference to any other material discovered during search would not empower the AO to make additions in a block assessment (which is peri materia with the present scheme of search assessment u/s 153A). Hon ble Delhi High Court in CIT vs. Rajpal Bhatia 2010 (11) TMI 1010 - DELHI HIGH COURT has also echoed that an oral evidence is neither books of accounts etc. or assets . It was a document which came to be created owing to search and not found in the course of search. In the circumstances where a judicial view has been taken that addition itself on such statement is without authority of law it is rather difficult to appreciate the action of the Revenue towards imposition of penalty on such additions in affirmative. Needless to say the penalty provision stands on a very stringent pedestal qua the quantum proceedings. Action of Revenue is clearly bereft of merits. Consequently we hold the first proposition framed above in favour of the assessee and against the Revenue.

Issues Involved:
1. Applicability of Explanation 5A to Section 271(1)(c) of the Income Tax Act.
2. Imposition of penalty when no addition is made over the income declared under Section 153A.
3. Furnishing of inaccurate particulars of income.
4. Vagueness and non-application of mind by the AO in initiating penalty proceedings.

Detailed Analysis:

Issue 1: Applicability of Explanation 5A to Section 271(1)(c) of the Income Tax Act

The primary question was whether penalty under Section 271(1)(c) could be imposed based solely on a statement recorded under Section 132(4) without corroborating incriminating material. The Tribunal noted that Explanation 5A applies when assets or book entries representing income are found during a search. In this case, the additional income declared was based solely on a statement by a key person of the group, without any supporting incriminating documents. The statement did not admit undisclosed income but agreed to pay tax to avoid disputes. The Tribunal held that Explanation 5A could not be applied as no tangible material was found, and the statement was conditional and did not suggest undisclosed income. The Tribunal emphasized that the imposition of penalty is not automatic and should be based on concrete evidence, which was lacking in this case.

Issue 2: Imposition of Penalty When No Addition is Made Over the Income Declared Under Section 153A

The Tribunal considered whether penalty could be imposed when the income declared under Section 153A was accepted without any modifications. It referred to the judgment of the Gujarat High Court in Kirit Dahyabhai Patel vs. ACIT, which stated that the return filed under Section 153A should be considered as a return filed under Section 139. Since the AO made no additions to the income declared under Section 153A, the Tribunal held that penalty provisions under Section 271(1)(c) were not applicable.

Issue 3: Furnishing of Inaccurate Particulars of Income

The Tribunal examined whether there was any furnishing of inaccurate particulars of income when the additional income disclosed in the return filed under Section 153A was accepted and assessed without any further additions. The Tribunal referred to the Supreme Court decision in CIT vs. Reliance Petroproducts (P.) Ltd., which held that in the absence of any inaccuracy in the particulars of income filed, the provisions of Section 271(1)(c) do not apply. Since the AO accepted the income declared under Section 153A without any further additions, the Tribunal concluded that there was no furnishing of inaccurate particulars of income.

Issue 4: Vagueness and Non-application of Mind by the AO in Initiating Penalty Proceedings

The Tribunal addressed the issue of whether the AO specified the charge for which penalty proceedings were initiated. The Tribunal noted that the AO's satisfaction was formed towards furnishing inaccurate particulars of income as well as towards concealment of income, which is not permissible as per the Karnataka High Court decision in CIT vs. Manjunatha Cotton & Ginning Factory. The Tribunal also observed that the notice issued under Section 271(1)(c) was vague and non-descript, indicating non-application of mind by the AO. Consequently, the Tribunal held that the penalty proceedings were invalid.

Conclusion:

The Tribunal held that the imposition of penalty under Section 271(1)(c) was not sustainable in law due to the lack of incriminating material, the acceptance of income declared under Section 153A without modifications, the absence of inaccurate particulars of income, and the vague and non-descript nature of the AO's notice. The Tribunal directed the AO to delete the penalty imposed. All other similar appeals involving identical issues were also allowed, and the respective penalties were directed to be deleted.

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