2016 (10) TMI 590 - AT - Income Tax

Penalty u/s 271(1)( c ) - income declared by the assessee in the return of income u/s 153A - Held that - The Hon ble Gujarat High Court in the cast of Kirit Dahyabhai Patel V/s ACIT 2015 (1) TMI 201 - GUJARAT HIGH COURT held that for all practical purposes return filed in response to notice u/s 153A of the Act has to be as return furnished u/s 139(1) of the Act and therefore, if, any undisclosed income as admitted by the assessee in the statement recorded under section 132(4) of the Act during the course of search operation is offered in the said return and due taxes were paid which were duly accepted by the AO then no penalty could be imposed u/s 271(1)(c ) of the Act. In view of the above we are in agreement with the arguments advanced by the ld.AR that the penalty as imposed by the AO and upheld by the ld. CIT(A) was wrong and against the provisions of law - Decided in favour of assessee

Summary

Issues:
Challenge to penalty imposed u/s 271(1)(c) r.w.s.274 of the Income Tax Act, 1961 for assessment year 2004-05.

Analysis:
1. The appeal was filed challenging the penalty upheld by the ld.CIT(A) on an income of ?18,50,000/- imposed by the Assessing Officer u/s 271(1)(c) r.w.s.274 of the Act. The issue raised was regarding the penalty upheld by the CIT(A) despite the disclosure of income in the return filed in response to notice u/s 153A of the Act.

2. A search and seizure operation u/s 132 of the Act was conducted, leading to the assessee filing a return declaring total income, including undisclosed income. The undisclosed income of ?18,50,000/- was based on seized papers related to cash payments. The AO initiated penalty proceedings under section 271(1)(c) and imposed a penalty of ?9,71,319/-, which was partly upheld by the CIT(A).

3. The primary contention was whether the undisclosed income declared in the return filed u/s 153A, with due taxes paid, was liable for penal action u/s 271(1)(c) of the Act. The Tribunal examined various decisions and held that if the undisclosed income is admitted during the search operation and offered in the return filed u/s 153A, with due taxes paid and accepted by the AO, no penalty could be imposed.

4. Referring to case laws like Prem Arora and Vrajlal T Gala, the Tribunal emphasized that if the undisclosed income is admitted during the search operation and offered in the return filed u/s 153A, and taxes are duly paid and accepted by the AO, no penalty under section 271(1)(c) could be invoked. The Tribunal also cited the decision of the Hon'ble Gujarat High Court supporting this view.

5. Consequently, the Tribunal held that the penalty imposed by the AO and upheld by the CIT(A) was incorrect and against the provisions of law. The order of the CIT(A) was set aside, and the penalty was deleted, allowing the appeal of the assessee.

6. In conclusion, the Tribunal ruled in favor of the assessee, emphasizing the importance of disclosing undisclosed income during search operations and offering it in the return filed u/s 153A, with due taxes paid and accepted by the AO to avoid penalties under section 271(1)(c) of the Income Tax Act, 1961.