2015 (12) TMI 1813 - AT - Income Tax

Penalty u/s 271(1)(c) - assessment proceedings u/s 153A - treat the LTCG declared by the Assessee as Income from other sources - HELD THAT - It is not disputed before us that income returned by the assessee in the return of income u/s 139(1) of the Act, the return filed u/s 153A of the Act and the income brought to tax in the order of assessment u/s 153A of the Act are one and the same. In such circumstances we are of the view that no penalty can be imposed on the assessee. If at all the revenue wants to impose penalty in the present case, then, it has to take recourse to Explanation 5A to section 271(1)(c). As rightly contended by the learned counsel for the assessee, Explanation 5A would be attracted only in the case where there is difference in the income returned u/s 139(1) of the Act and the income ultimately brought to tax in the order of assessment u/s 153A of the Act. We, therefore, are of the view that the penalty could not have been imposed in this case. We also are of the view that in the light of the admitted fact that no incriminating material was found in the course of search the impugned addition could not have been made in the proceedings u/s 153A. The law is well settled that assessment proceedings and penalty proceedings are two independent proceedings and that the assessee in penalty proceedings is entitled to show that the very addition for which penalty is sought to be imposed ought not to have been made in the assessment proceedings. We, therefore, are of the view that even on this ground penalty imposed on the assessee deserves to be cancelled. - Decided in favour of assessee.

Summary

Issues:
- Imposition of penalty under section 271(1)(c) of the Income Tax Act
- Validity of penalty imposed by AO and confirmed by CIT(A)
- Interpretation of Explanation 5A to section 271(1)(c) of the Act
- Assessment proceedings under section 153A in absence of incriminating material
- Applicability of penalty in the absence of differences in returned income and assessed income

Analysis:

The appeals were filed by the Assessee against the orders of CIT(A) confirming the penalty imposed by the AO under section 271(1)(c) of the Income Tax Act for AY 2003-04 and 2004-05. The AO initiated penalty proceedings based on the Assessee's acceptance that long term capital gain should be treated as regular income, subject to the condition that no penalty would be imposed. However, both the AO and CIT(A) held the Assessee guilty of furnishing inaccurate particulars of income.

The Assessee contended that no incriminating material was found during the search, and the addition made by the AO in the assessment proceedings under section 153A was beyond the scope of the Act. The Tribunal referred to a similar case and held that without incriminating material, no additions could be made under section 153A. The Tribunal also noted that the returned income and assessed income were the same, making the penalty unjustified.

Regarding Explanation 5A to section 271(1)(c) of the Act, the Tribunal explained that it applies when there is a difference between income declared in the return and assessed income. Since the Assessee's returned income matched the assessed income, the Tribunal ruled out the applicability of the penalty. The Tribunal emphasized that penalty and assessment proceedings are independent, and the Assessee had the right to challenge the addition made in the assessment during penalty proceedings.

Ultimately, the Tribunal allowed the Assessee's appeals, cancelling the penalty imposed for the relevant assessment years. The decision was based on the absence of incriminating material during the search, the alignment of returned and assessed income, and the independent nature of penalty and assessment proceedings.

This detailed analysis highlights the key legal issues involved in the judgment, including the imposition of penalties, the validity of penalty imposition, interpretation of relevant legal provisions, and the impact of assessment proceedings without incriminating material.