2019 (1) TMI 675 - AT - Income Tax

Penalty u/s 271(1)(c) - unaccounted payment towards the sale of vacant land - Held that -Unaccounted payment towards the sale of vacant land at ₹ 27. 15 lakhs in the ratio of 15 85 for vacant land and agricultural land. Though the payment was towards the exempt land as well as the vacant site, the payment of unaccounted money was passed on to the assessee towards the sale of agricultural land and the vacant site, which is established from the statements recorded from both the vendor and the vendee. Once the vendor and vendee have accepted the receipt and the payment of unaccounted money, subsequent retraction has no relevance and it is a valid piece of evidence. It is admitted fact that after completion of the search also, the assessee has admitted the additional income towards receipt of sale of land and taken the credit for application of income towards the investments. Therefore, we are unable to accept the contention of the CIT(A) that without bifurcation of the exact amount, the receipt of on-money does not lead to concealment. Similarly, the observation of the CIT(A) that no material was found during the course of search also is not acceptable, since, both the parties have agreed the payment and receipt of unaccounted money and the assessee has explained the application of unaccounted money towards the source for investment made to various other properties as observed from the recitals of the penalty order. Hence, we hold that this is a clear case of concealment of income which attracts penalty u/s 271(1)(c) and we have no hesitation to uphold the order of the AO. AO has levied the penalty on concealment of income of ₹ 1,61,71,166/- which was the addition enhanced by the Ld. CIT(A) in its appellate order. Since the Tribunal has adopted the correct method for appropriation of on money towards the sale of vacant land at ₹ 27. 15 lakhs, we uphold the imposition of penalty on the concealed income of ₹ 27. 15 lakhs against the levy of penalty on concealed income of ₹ 1. 61 lakhs. Accordingly we set aside the order of the Ld. CIT(A) and confirm the penalty to the extent of addition of ₹ 27. 15 lakhs and direct the AO to revise the penalty. - Decided partly in favour of revenue.

Summary

Issues Involved:
1. Validity of the penalty imposed under Section 271(1)(c) of the Income Tax Act.
2. Evidence of on-money payment and its apportionment.
3. Retraction of the admission of additional income by the assessee.
4. Enhancement of on-money component by CIT(A) and its subsequent apportionment by ITAT.

Issue-wise Detailed Analysis:

1. Validity of the Penalty Imposed under Section 271(1)(c):
The core issue in this appeal is whether the penalty under Section 271(1)(c) of the Income Tax Act for concealment of income is valid. The Assessing Officer (AO) imposed a penalty of ?61,52,212/- on the concealed income of ?1,61,71,166/- which was enhanced by the CIT(A). The CIT(A) later canceled the penalty, stating that no material was found during the search and seizure operations regarding the receipt of additional consideration and that the AO did not follow a scientific method for apportioning the amount attributable to the sale of the vacant site related to the assessee.

2. Evidence of On-Money Payment and Its Apportionment:
During the search and seizure operation, it was found that the assessee firm entered into a transaction with M/s Jayadarshini Housing Pvt. Ltd. for ?1,08,34,000/-. Statements recorded from the managing partner of the assessee firm and the Managing Director of Jayadarshini Housing Pvt. Ltd. revealed that the company paid ?3.00 crores, out of which ?1.78 crores was on-money paid in cash. The AO apportioned the on-money component of ?1,56,11,475/- towards the sale of the vacant site at Kanur in the hands of Shubhadarsi Estates and ?21,88,525/- in the hands of the managing partner towards the sale of agricultural land. The CIT(A) enhanced the on-money component in the hands of the assessee firm to ?1,61,71,166/- and reduced it in the hands of the managing partner to ?16,28,834/-.

3. Retraction of the Admission of Additional Income by the Assessee:
The assessee initially admitted to receiving ?1.78 crores in cash as additional consideration and agreed to admit it as additional income for the relevant assessment year. However, the assessee later retracted this admission. The CIT(A) noted that the addition was made purely based on the admission made by the assessee during the search and seizure operations, which was later retracted by the assessee himself. The CIT(A) concluded that there was no evidence on record to show that any additional consideration was received.

4. Enhancement of On-Money Component by CIT(A) and Its Subsequent Apportionment by ITAT:
The CIT(A) enhanced the on-money component in the hands of the assessee firm and reduced it in the hands of the managing partner. On appeal, the ITAT apportioned the on-money towards the sale of the urban site at Kanur village in the hands of the assessee firm at ?27.15 lakhs and in the hands of the managing partner towards the sale of agricultural land at ?1.53 crores. The total income assessed in the hands of Shubhadarsi Estates for the A.Y. 2005-06 was thus reduced to ?40,05,522/- from the initially assessed income of ?1,69,05,785/- after giving effect to the ITAT's order.

Conclusion:
The ITAT concluded that the on-money payment was established as both the vendor and vendee had agreed to the payment and receipt of unaccounted money. The subsequent retraction by the assessee had no relevance, and the concealment of income was established. The ITAT upheld the imposition of penalty on the concealed income of ?27.15 lakhs, setting aside the CIT(A)'s order and directing the AO to revise the penalty accordingly. The appeal filed by the revenue was partly allowed.

Order Pronounced:
The order was pronounced in the open court on 11th January 2019.