2016 (5) TMI 1571 - AT - Income Tax

Penalty u/s 271(1) - Search and seizure operation - Jewellery found in search - unexplained investment in jewellery - HELD THAT - Addition sustained was an estimated one. It is well settled that if the addition is sustained on estimate basis it cannot be said that the assessee concealed the income or furnished inaccurate particulars of income in respect of the estimated addition. Therefore, the penalty was not leviable u/s 271(1)(c) - in the present case, the AO himself accepted the gold jewellery in which the diamond were studded to the extent of 700 gms out of the 793.600 gms jewellery found during the course of search and the ld. CIT(A) accepted the remaining jewellery of 93.600 gms against which the department had not preferred any appeal. When the gold jewellery in which the diamonds were studded has been accepted by the department as the jewellery received at the time of marriage or other occasion, then, it cannot be said that the diamond studded in the said jewellery were out of the undisclosed income of the assessee. It is well settled that the assessment proceedings and the penalty are two different and distinct proceedings and that the addition made in the assessment may be relevant but not a conclusive proof of concealment of income or furnishing of inaccurate particulars of income. Therefore the impugned order passed by the ld. CIT(A) is set aside and the penalty sustained u/s 271(1)(c) of the Act is deleted.- Decided in favour of assessee.

Summary

Issues involved:
Penalty under section 271(1)(c) of the Income Tax Act, 1961 for undisclosed investment in jewellery.

Detailed Analysis:

Issue 1: Penalty under section 271(1)(c) - Smt. Deepika Bhalla's case
The case involved a search and seizure operation leading to the addition of undisclosed investment in jewellery. The Assessing Officer (AO) added an amount to the taxable income, which was confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)], resulting in a penalty under section 271(1)(c) of the Act. The Income Tax Appellate Tribunal (ITAT) restricted the penalty to a lower amount based on estimates, considering the circumstances and explanations provided by the appellant. The ITAT held that since the addition was estimated and the source of acquiring the jewellery was not adequately explained, a penalty was still justified but at a reduced amount.

Issue 2: Penalty under section 271(1)(c) - Smt. Satya Bhalla's case
Similar to the case of Smt. Deepika Bhalla, the case of Smt. Satya Bhalla involved the addition of undisclosed investment in diamond jewellery leading to a penalty under section 271(1)(c) of the Act. The ITAT applied similar reasoning as in the previous case, emphasizing that the addition was based on estimates and the source of acquiring the jewellery was not fully explained. Consequently, the penalty was deemed justified but was ultimately deleted due to the circumstances and the acceptance of certain jewellery by the department.

The ITAT's decisions in both cases highlighted that when additions are made on an estimated basis and the department accepts certain aspects of the jewellery, it cannot be conclusively considered as concealment of income or furnishing inaccurate particulars. The tribunal emphasized the distinction between assessment proceedings and penalty proceedings, ultimately leading to the deletion of the penalties imposed under section 271(1)(c) of the Act in both cases.

In conclusion, the appeals of the assessees were allowed, and the penalties under section 271(1)(c) of the Income Tax Act, 1961 were deleted based on the specific circumstances and explanations provided during the proceedings.