2016 (12) TMI 1236 - AT - Income Tax

Penalty under section 271(1)(c) - disclosure of additional income towards withdrawal of exemption u/s 10AA - Held that - The assessee disclosed additional income for ₹ 7.88 corers from assessment year 2006-07 to 2008-09 towards withdrawal of exemption u/s 10AA in respect of SEZ at Chennai but while framing the assessment the during the course of assessment proceedings the AO allowed the deduction u/s 10AA of the Act and also no discrepancy was pointed out while initiating the penalty u/s 271(1) and even observed in the penalty order that the penalty was imposed for mere admission of assessee during the course of search action and also that the addtiuonal income was disclosed in the return filed in response to notice u/s 153C of gthe Act. In view of the facts we are of the considered opinion that the order of the ld.CIT(A) sustaining and upholding the penalty is wrong. We accordingly set aside the order of CIT(A) by allowing the appeal of the assessee and the AO is directed to delete the penalty. Levying penalty u/s 271(1)(c)instead of section 271AAA - Held that - As search action u/s 132 of the Act was initiated after 1.6.2007,penalty u/s 271(1) (c) of the Act could not be imposed by virtue of insertion of new provisions on the statute book for levy of penalty in the case of search under section 271AAA of the Act w.e.f. AY 2007-08 and therefore the penalty as imposed by the AO and confirmed by the ld.CIT(A) has to be deleted.

Summary

Issues Involved:
1. Confirmation of penalty levied under section 271(1)(c) of the Income Tax Act, 1961.
2. Legality and jurisdiction of penalty under section 271(1)(c) versus section 271AAA.

Issue-wise Detailed Analysis:

1. Confirmation of Penalty Levied under Section 271(1)(c):
The main issue in these appeals is the confirmation of a penalty of ?42,07,500/- imposed by the Assessing Officer (AO) under section 271(1)(c) of the Income Tax Act, 1961, which was confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)]. The penalty was levied on the assessee for allegedly furnishing inaccurate particulars of income and concealing income. The assessee argued that the income of ?1 crore was disclosed suo motu to buy peace of mind and avoid litigation, even though nothing was found by the search party. The assessee contended that there was no concealment or filing of inaccurate details, and the penalty order was void ab initio as no addition or disallowance was made during the assessment under section 143(3) read with section 153C.

The facts reveal that during a search operation on 22.8.2008, the Chairman and Managing Director of the group disclosed ?10 crores as additional income for the assessment years 2007-08 and 2008-09. The assessee filed returns declaring additional income of ?1.25 crores in response to a notice under section 153C. The AO initiated penalty proceedings under section 271(1)(c) and imposed a penalty equal to 100% of the tax sought to be evaded, amounting to ?42,07,500/-, stating that the additional income was disclosed only after the search operation and would not have been disclosed otherwise.

The CIT(A) upheld the penalty, stating that the disclosure during the search could not be considered voluntary and that the immunity under Explanation 5 of section 271(1)(c) was not applicable as the necessary parameters were not satisfied. The CIT(A) concluded that the assessee furnished inaccurate particulars of income in the return filed under section 139(1) and did not provide a satisfactory explanation for the income disclosed during the search.

2. Legality and Jurisdiction of Penalty under Section 271(1)(c) versus Section 271AAA:
In the second appeal, the assessee challenged the penalty of ?2,97,41,250/- imposed under section 271(1)(c), arguing that it was illegal and without jurisdiction as the search took place after 1.6.2007, and hence, the penalty should have been levied under section 271AAA, which was applicable from assessment year 2007-08.

The Tribunal considered the submissions and noted that the search was conducted on 20.2.2008, which was after 1.6.2007. Therefore, the penalty could only be imposed under section 271AAA and not under section 271(1)(c). This view was supported by the decision of the Mumbai Bench of the Tribunal in the case of Smt. Hiral Himanshu Kanakia, where it was held that for searches initiated after 1.6.2007, penalty could only be levied under section 271AAA.

Conclusion:
The Tribunal found merit in the assessee's submissions and concluded that the imposition of penalty under section 271(1)(c) was not justified. The Tribunal noted that no specific defect or incriminating material was found during the search, and the disclosure was made voluntarily to buy peace of mind. The Tribunal set aside the order of the CIT(A) and directed the AO to delete the penalty. Additionally, the Tribunal held that the penalty under section 271(1)(c) was legally unsustainable for searches conducted after 1.6.2007, and the penalty should have been levied under section 271AAA. The appeals filed by the assessee were allowed, and the penalties were directed to be deleted.