2018 (1) TMI 1071 - AT - Income Tax

Penalty u/s 271(1)(c) - income in question has been surrendered and accepted by the AO - eligibility to protection u/s 273B - Held that - As assessee though surrendered the amount when confronted with the entries entered in the diaries found and seized in the search operation but when his revised return was accepted and the explanation of the assessee that this occurred due to inadvertent lapse on his part and being the youngest member in the group having been assigned all the jobs to accomplish, have little time for him to pay attention to his personal accounts and have a check on the accountant s work, has been accepted when the surrendered income along with interest has been accepted in the revised return of income. So, the explanation could be treated as bonafide and reasonable. So, we are of the considered view that in these circumstances, the penalty is not leviable. - Decided in favour of assessee.

Summary

Issues:
- Appeal against penalty orders under section 271(1)(c) of the Income-tax Act, 1961 for assessment years 2005-06, 2007-08 & 2008-09.
- Allegation of under-reporting income leading to penalty imposition.
- Assessment based on seized diaries showing discrepancies in income reporting.
- Defense of inadvertent under-reporting of income by the assessee.
- Applicability of penalty under section 271(1)(c) in cases of surrendered income.
- Interpretation of case laws regarding surrender of income and penalty imposition.

Detailed Analysis:

Issue 1 - Appeal against penalty orders:
The appellant sought to set aside penalty orders passed by the Commissioner of Income-tax (Appeals) for the assessment years 2005-06, 2007-08 & 2008-09 under section 271(1)(c) of the Income-tax Act, 1961.

Issue 2 - Allegation of under-reporting income:
The assessments revealed discrepancies in income reporting by the appellant, leading to penalty proceedings under section 271(1)(c) of the Act. The appellant had under-reported commission income in the returns, which was found to be under-estimated for the respective assessment years.

Issue 3 - Defense of inadvertent under-reporting:
The appellant defended the under-reporting of income as inadvertent, stating that the discrepancies arose due to a lack of realization of household expenses and personal income recorded in the seized diaries. The appellant claimed to have voluntarily reported the under-reported income upon realization of the lapse.

Issue 4 - Applicability of penalty on surrendered income:
The Tribunal considered whether penalty imposition under section 271(1)(c) was justified when the appellant had voluntarily surrendered the under-reported income. The defense of inadvertent lapse and subsequent voluntary disclosure by the appellant were crucial in determining the applicability of the penalty.

Issue 5 - Interpretation of case laws:
The Tribunal analyzed relevant case laws, such as CIT vs. Mohan Lal Sharma and CIT vs. Suresh Chandra Mittal, to assess the applicability of penalties in cases of surrendered income due to inadvertent lapses. The judgments highlighted the importance of bonafide explanations and voluntary disclosures in penalty proceedings.

In conclusion, the Tribunal found that the penalty levied and confirmed by the authorities was not sustainable in light of the appellant's explanation, voluntary disclosure of under-reported income, and relevant case laws. Therefore, the penalty orders were deleted, and the appeals were accepted.