2017 (3) TMI 1179 - AT - Income Tax

Levy of penalty under section 271(1)(c) - development of the property could not be completed and consequently the same could not be transferred, merely because the assessee had offered the cash component as income in his hands in the year under appeal - Held that - Where the assessee had entered into a development agreement but the same could not be completed because of the dispute between the parties, though the capital gains on the amounts received in assessment year 2006-07 has been offered to tax, but the possession and the retention of the property by the assessee establishes the case of assessee that there is no transfer and the transaction has not been completed till date. The Talati vide order dated 19-04-2010 has also acknowledged that the properties owned by the assessee and the co-owners is under attachment to the Commissioner of Income Tax. In such circumstances, we find no merit in levying penalty and holding the assessee to have concealed the income under section 271(1)(c) of the Act. The operation of Explanation 5 to section 271(1)(c) of the Act was limited to any money, bullion, jewellery or other valuable articles or thing, found during the course of search and where the assessee claims that It was acquired by him by utilizing his income, then conditions are provided therein, to hold, whether the assessee is liable to levy of penalty for concealment or not. The Explanation 5 to section 271(1)(c) of the Act is silent about the working of income on the basis of any books of account or other documents found during the course of search which represent the income of the person searched for any previous years. In the absence of same and where the sole basis for the addition in the hands of assessee is the document found during the course of search and admittedly no cash being found, then Explanation 5 to section 271(1)(c) of the Act is not attracted. We hold so and delete the penalty levied under section 271(1)(c) of the Act on this alternate plea also. - Decided in favour of assessee

Summary

Issues Involved:
1. Levy of penalty under section 271(1)(c) of the Income-tax Act, 1961.
2. Application of Explanation 5 to section 271(1)(c) of the Act.

Issue-wise Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c) of the Income-tax Act, 1961:

The appeals were filed against the orders confirming the penalty levied under section 271(1)(c) of the Income-tax Act, 1961. The search and seizure action revealed that the assessee and co-owners received a cash component from the sale of land, which was not disclosed in the income tax returns. The Assessing Officer (AO) assessed the income under long-term capital gains and held the assessee liable for penalty due to non-filing of returns, thereby concealing particulars of income as per Explanation 5 to section 271(1)(c). The CIT(A) upheld the AO’s decision, stating that the assessee furnished inaccurate particulars and concealed income, justifying the penalty.

The assessee contended that the properties were still in possession and attached by the AO, arguing there was no merit in holding the assessee liable for concealment. The assessee also pointed to ongoing litigation and disputes preventing the completion of the development agreement, asserting that the properties were not transferred and thus, no concealment occurred.

The Tribunal noted that the assessee had offered the cash component to tax and accepted the long-term capital gains assessment to buy peace. However, due to disputes and ongoing litigation, the development agreement was not completed, and the properties remained with the assessee. The Tribunal concluded that since the properties were still retained and not transferred, there was no merit in levying the penalty for concealment under section 271(1)(c).

2. Application of Explanation 5 to Section 271(1)(c) of the Act:

The Tribunal examined whether Explanation 5 to section 271(1)(c) applied. This provision deems an assessee to have concealed income if found in possession of undisclosed assets during a search. The assessee argued that Explanation 5 did not apply as no money, bullion, or jewelry was found; the addition was based on seized documents.

The Tribunal agreed, noting that Explanation 5 pertains to undisclosed physical assets, not to income inferred from documents. Since the addition was based solely on documents and no cash was found, Explanation 5 was not applicable. Consequently, the Tribunal held that the penalty under section 271(1)(c) could not be levied based on this explanation, and directed the AO to delete the penalty.

Conclusion:

The Tribunal allowed the appeals, concluding that the penalty under section 271(1)(c) was not justified due to the retention of properties and non-applicability of Explanation 5. The decision in ITA No.305/PUN/2014 applied mutatis mutandis to ITA No.306/PUN/2014, resulting in both appeals being allowed.