2017 (1) TMI 740 - AT - Income Tax

Penalty levied under section 271(1)(c) - undisclosed income on account of bogus purchases and sales - Held that - On an appreciation of the material on record we are inclined to concur with the view of the CIT(A) that the explanation put-forth by the assessee in the penalty proceedings was a plausible one, inasmuch as, the circumstances on which the additional income was offered was because the disputed parties with whom these transactions were made were non-cooperative and the assessee having no control over those parties was, therefore, not able to substantiate its claim with necessary material evidence. Therefore, the assessee was constrained in order to avoid lengthy litigation to offer the additional income, which was accepted as such the Assessing Officer. Apex Court in the case of Mak Data P. Ltd. (2013 (11) TMI 14 - SUPREME COURT) while considering the provisions of Explanation 1 to section 271(1)(c) of the Act observed that the general principles of law in respect of penalty for concealment of income, does not grant the assessee automatic immunity from penalty on account of surrender or voluntary disclosure of income. As per the provisions of Explanation 1 to section 271(1)(c) of the Act, the question is whether the assessee has offered any explanation for concealment of income or furnishing of inaccurate particulars of income. In the case own hand we find that the requirement laid down by the Hon ble Court has been met by the assessee inasmuch as, as observed by the CIT(A), the assessee s explanation (supra) which appears plausible and which explanation, though brushed aside by the Assessing Officer as an afterthought, has not been brought out or found to be false in respect of furnishing of particulars. We, therefore, uphold this view of the CIT(A) and consequently uphold her order directing the Assessing Officer to delete the penalty levied in the case on hand for assessment year 2009-10 - Decided in favour of assessee

Summary

Issues Involved:
1. Whether the penalty levied under section 271(1)(c) of the Income Tax Act, 1961, was justified.
2. Whether the explanation provided by the assessee for the undisclosed income was plausible.
3. Whether the penalty proceedings were initiated and concluded correctly under the specified limb of section 271(1)(c).

Detailed Analysis:

1. Justification of Penalty under Section 271(1)(c):
The Revenue appealed against the CIT(A) order deleting the penalty of ?14,53,833/- levied under section 271(1)(c) of the Income Tax Act, 1961. The penalty was initially imposed by the Assessing Officer (AO) because the assessee admitted an undisclosed income of ?47,04,960/- during a survey action under section 133A. The AO concluded that the income was concealed and levied a penalty of 100% of the tax sought to be evaded. However, the CIT(A) deleted the penalty, stating that the addition was made on an agreed basis to avoid litigation and maintain peace, not due to concealment.

2. Plausibility of Assessee's Explanation:
The assessee, a firm engaged in the manufacture and trading of chemicals, filed its return declaring a total income of ?2,45,67,888/-. During the survey, the assessee admitted to an undisclosed income due to non-cooperation from the parties involved in certain transactions. The CIT(A) held that the explanation provided by the assessee was plausible, as the non-cooperation from the parties and the inability to substantiate claims with evidence were valid reasons for offering the additional income. The CIT(A) cited several judicial precedents, including the case of CIT vs. Jayaraj Talkies, to support the view that not every case of non-disclosure warrants a penalty.

3. Correct Initiation and Conclusion of Penalty Proceedings:
The assessee argued that the penalty proceedings were initiated for "concealment of particulars of income" but the penalty was levied for "furnishing of inaccurate particulars of income." This discrepancy was highlighted as a significant procedural flaw. The Tribunal referred to the decision in the case of Smt. Shalini Karan Kumar and Dharni Developers, where it was held that such discrepancies render the penalty unsustainable. The Tribunal found merit in the assessee's contention and held that the penalty levied under section 271(1)(c) was not sustainable due to the procedural inconsistency.

Conclusion:
The Tribunal upheld the CIT(A)'s order deleting the penalty of ?14,53,833/-. It concurred with the CIT(A) that the explanation provided by the assessee was plausible and that the penalty proceedings were procedurally flawed. Consequently, the Revenue's appeal was dismissed.

Order Pronouncement:
The order was pronounced in the open court on 11th January 2017.