2018 (6) TMI 1678 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - recording of satisfaction or not by the AO while initiating penalty proceedings - levy of penalty on the returned income, which includes additional income offered during the course of Survey - once the income returned has been assessed in the hands of assessee as such without making any addition, there is no merit in levying penalty under section 271(1)(c) - Revenue on the other hand, is that the additional income has been offered in the hands of assessee pursuant to Survey and in case no Survey was conducted, such additional income would not be offered, hence, it is a fit case for levy of penalty - HELD THAT - We find that similar case of levy of penalty on the additional income, which was offered in the return of income and whether the same was liable for levy of penalty under section 271(1)(c) of the Act, arose before the Tribunal in the case of Nandkishor Tulsidas Katore Vs. ACIT 2016 (12) TMI 1077 - ITAT PUNE The assessee herein had also offered additional income during the course of Survey in the return of income filed pursuant to Survey, which admittedly, was a valid return of income under section 139(1) of the Act. Applying the ratio laid down by the Hon ble High Court of Delhi in CIT Vs. SAS Pharmaceuticals 2011 (4) TMI 888 - DELHI HIGH COURT we find no merit in levy of penalty on the additional income which was offered to tax in the revised return of income filed after Survey. Accordingly, penalty levied under section 271(1)(c) of the Act is hereby cancelled.

Summary

Issues Involved:
1. Levy of penalty under section 271(1)(c) of the Income Tax Act, 1961.
2. Recording of satisfaction by the Assessing Officer while initiating penalty proceedings.
3. Validity of penalty on additional income disclosed during survey.

Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c):
The primary issue in the appeal is the levy of penalty under section 271(1)(c) of the Income Tax Act, 1961, amounting to ?2,20,617/-. The assessee, engaged in trading building/construction materials, declared a total income of ?8,70,514/- in the return. During a survey under section 133A, discrepancies in physical stock were found and confronted to the assessee. The assessee declared an additional income of ?8 lakhs to cover discrepancies and omissions, which was accepted by the Assessing Officer in the assessment under section 143(3). However, penalty proceedings were initiated under section 274 r.w.s. 271(1)(c) for concealment of income, leading to the imposition of the penalty.

2. Recording of Satisfaction by the Assessing Officer:
The assessee argued that no specific satisfaction was recorded by the Assessing Officer regarding which limb of section 271(1)(c) was violated. The assessee's representative emphasized that penal provisions must be interpreted strictly and that penalty for concealment can only be levied if it fits within the legal framework. The representative cited various judicial precedents, including CIT Vs. SAS Pharmaceuticals (2011) 335 ITR 259 (Del), to support the argument that if the revised return filed after the survey is accepted, there is no basis for penalty under section 271(1)(c).

3. Validity of Penalty on Additional Income Disclosed During Survey:
The Revenue argued, citing MAK Data (P) Ltd. Vs. CIT (2013) 358 ITR 593 (SC) and B. Damodar Vaman Baliga Jewellers Vs. JCIT (2013) 353 ITR 206 (Kar), that the additional income was disclosed only due to the survey and would not have been disclosed otherwise, justifying the penalty. The assessee, in rejoinder, contended that the original return was filed within time, and the revised return filed post-survey was also within the permissible period under section 139(5). Thus, no addition was made after the revised return, and the penalty was unjustified.

Tribunal's Findings:
The Tribunal examined whether penalty under section 271(1)(c) could be levied when the income declared in the return, including additional income disclosed during the survey, was accepted without any additions. It referred to the Pune Bench decision in Nandkishor Tulsidas Katore Vs. ACIT and the Delhi High Court ruling in CIT Vs. SAS Pharmaceuticals, which held that penalty cannot be imposed if the additional income declared during the survey is included in the valid return filed subsequently.

The Tribunal noted that the Assessing Officer did not record satisfaction during the survey but decided to initiate penalty proceedings during the assessment, which was not in line with the requirement of law. The Tribunal concluded that since the additional income was declared in a valid return filed post-survey, there was no concealment or non-disclosure warranting penalty under section 271(1)(c).

Conclusion:
The Tribunal allowed the appeal, canceling the penalty of ?2,20,617/- levied under section 271(1)(c) of the Act, upholding the assessee's argument that the penalty was unjustified as the additional income was disclosed in a valid return filed after the survey.

Order Pronounced:
The appeal was allowed on June 5, 2018.