2019 (1) TMI 657 - HC - Income Tax

Levy of penalty u/s 271(1)(c) - assessment u/s 153A - poof of incriminating material found in search - Held that - Where any income based on any entry in books of account or other documents or transactions is found and the assessee claimed that such entry in the books of account or transactions represents his income from any previous year, then notwithstanding that the income declared in the return filed for a period under consideration is accepted, the assessee would still be liable to penalty under Section 271(1)(c) of the Act. In the present case going by the order of the Tribunal, this is precisely what has happened. By virtue of this explanation, therefore, penalty could be levied and the fact that in the assessment order, no additional income is assessed in assessment in response to the notice under Section 153A of the Act, would be of no consequence. The contention that there was no incriminating material found during such search which related to the income so declared, cannot be accepted in view of the clear findings of facts from the Tribunal - decided against assessee.

Summary

Issues:
1. Levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Validity and justification of penalty under Section 271(1)(c) when concealed income was disclosed.

Issue 1: Levy of Penalty under Section 271(1)(c) of the Income Tax Act, 1961:

The appellant, an assessee, was subjected to a search and seizure operation by Revenue Authorities, leading to the declaration of additional income not previously disclosed in the filed return. The Assessing Officer imposed a penalty under Section 271(1)(c) of the Act, which was challenged by the assessee. The Commissioner (Appeals) reversed the penalty orders, citing the absence of incriminating material during the search that could give rise to the escaped income. The Revenue appealed to the Tribunal, which allowed the appeal and reinstated the penalty, referring to Explanation 5A below Section 271(1) of the Act. The Tribunal disagreed with the Commissioner's view on incriminating material and upheld the penalty.

Issue 2: Validity and Justification of Penalty under Section 271(1)(c) when Concealed Income was Disclosed:

The appellant argued that penalty based on the income returned by the assessee in response to the Notice under Section 153A of the Act should not have been imposed when incriminating material was found during the search. The appellant relied on Explanation 5A added by the Finance Act 2009, which deems an assessee to have concealed income even if the declared income is accepted in the return filed post-search, based on certain conditions. The Tribunal found incriminating material leading to the detection of concealed income, justifying the penalty under Section 271(1)(c) despite no additional income being assessed in response to the notice under Section 153A. The Tribunal's factual findings supported the penalty imposition, dismissing the appeals and concluding that no question of law arose.

This judgment clarifies the application of Explanation 5A in penalty proceedings under Section 271(1)(c) of the Income Tax Act, emphasizing the significance of incriminating material found during a search operation in determining the validity of penalties for concealed income.