2019 (3) TMI 2008 - AT - Income Tax

Penalty u/s 271(1)(c) - income so surrendered and offered for taxation - return of income filed in response to notice U/s 153A wherein assessee declared the total income and agricultural income including the surrendered income as admitted in the statement U/s 132(4) - in statement recorded U/s 132(4) of the Act, the assessee declared and surrendered the said long term capital gain on sale of shares as undisclosed income and offered the same for taxation - HELD THAT - As in the case of the assessee, the income was assessed only because the assessee surrendered the same but it would not have otherwise sustained the test of the legal requirement of the assessment of the income without any incriminating material. There are binding precedents on the issue that in the proceedings U/s 153A AO cannot reassess the income in absence of any incriminating material found and seized during the course of search or post search enquiry. In the case in hand, we find that the entire basis of the additional income assessed to tax in the proceedings U/s 153A of the Act is the statement of the assessee U/s 132(4) of the Act and subsequent surrender of the said income to tax without any incriminating material found or seized. Since the income and transaction relating to the income are already part of the books of account not only for the year under consideration but also for the preceding years and therefore, except surrender made by the assessee, the addition if any made by the Assessing officer of this income based on the statement would not have survived or sustained. In the case of Jai Steel (India) 2013 (6) TMI 161 - RAJASTHAN HIGH COURT has laid down the proposition that the addition made in absence of incriminating material in the proceedings U/s 153A where the assessment was not pending on the date of search is not sustainable. Once the assessee has raised all these contentions and explained during the penalty proceedings that the transactions of purchase and sale of shares and consequential long term capital gain are genuine based on the documentary evidence and further all these were part of the books of account and disclosed in the return of income filed U/s 139 consequently the addition itself would not have survived had the assessee not surrendered the income then this explanation of the assessee would certainly lead to the conclusion that the penalty is not leviable U/s 271(1)(c) - Appeal of the revenue is dismissed.

Summary

Issues Involved:
1. Whether the CIT(A) was right in canceling the penalty of Rs. 86,91,502/- levied by the A.O. under Explanation 5A to Section 271(1)(c) of the Income Tax Act.
2. Whether the CIT(A) was right in canceling the penalty by relying on the decision in Ajay Traders Vs DCIT Central Circle, Alwar, and ignoring the later decision in Shri Radha Govind Lashkari Jaipur Vs ACIT, Central Circle-2, Jaipur.

Detailed Analysis:

Issue 1: Cancellation of Penalty under Explanation 5A to Section 271(1)(c)
The primary contention was whether the CIT(A) correctly canceled the penalty imposed under Explanation 5A to Section 271(1)(c). The assessee had declared long-term capital gains in the original return filed under Section 139(1) but claimed them as exempt under Section 10(38). During a search and seizure operation, the assessee admitted to the gains being undisclosed income and offered them for taxation in the return filed under Section 153A. The assessment included the surrendered income, leading to the initiation of penalty proceedings.

The CIT(A) canceled the penalty on the grounds that the additional income surrendered was based solely on the statement recorded during the search and not on any seized material or findings in the assessment. The CIT(A) held that the statement alone was insufficient to establish concealment of income or furnishing inaccurate particulars.

The Tribunal upheld the CIT(A)'s decision, emphasizing that the transactions were duly recorded in the books of account and disclosed in the original return. The Tribunal noted that the documents found during the search were not incriminating and did not reveal the nature of the transactions as bogus. The Tribunal also highlighted that the penalty proceedings are separate from assessment proceedings, and the mere declaration of higher income in the return filed under Section 153A does not automatically imply concealment of income.

Issue 2: Reliance on Ajay Traders Vs DCIT and Ignoring Shri Radha Govind Lashkari Jaipur Vs ACIT
The revenue argued that the CIT(A) erred in relying on the decision in Ajay Traders Vs DCIT while ignoring the later decision in Shri Radha Govind Lashkari Jaipur Vs ACIT. The Tribunal, however, found that the facts in Ajay Traders were more applicable to the present case. In Ajay Traders, the Tribunal had held that penalty under Explanation 5A to Section 271(1)(c) could only be levied if incriminating material was found during the search, which was not the case here.

The Tribunal reiterated that no incriminating documents were found during the search, and the additional income was surrendered based on the assessee's statement. The Tribunal also cited several judicial precedents, including decisions from the Delhi High Court and the Supreme Court, which supported the view that statements recorded under Section 132(4) without corroborating incriminating material do not constitute sufficient grounds for penalty under Explanation 5A.

Conclusion:
The Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s order to cancel the penalty. The Tribunal concluded that the penalty under Section 271(1)(c) read with Explanation 5A was not applicable as no incriminating material was found during the search, and the transactions were duly recorded in the books of account and disclosed in the original return. The decision emphasized the importance of corroborative evidence in penalty proceedings and upheld the principle that mere declarations or statements without supporting material do not warrant penalties for concealment of income.