2019 (3) TMI 1262 - AT - Income Tax

Penalty u/s 271(1)(c) - income admitted by the assessee and surrendered to tax as undisclosed income during the search and seizure action - assessee filed return of income U/s 139(1) - assessee contented that income disclosed in the return of income filed U/s 139(1) of the Act, though the same was claimed as exempt U/s 10(38) of the Act, therefore, it is not a case of concealment of particulars of income or furnishing inaccurate particulars of income - long term capital gain was already declared in the original return of income filed U/s 139(1) and was also duly recorded in the books of account - HELD THAT - In the case in hand when the assessee already furnished return of income before the date of search and also declared long term capital gain then none of the conditions as prescribed under clause (a) (b) are satisfied so as to bring the case of the assessee in the mischief of Explanation 5A to Section 271(1)(c) of the Act. The transaction of purchase and sales are not off market but at the floor of the Stock Exchange which can be duly verified from independent source without any influence of the assessee. Hence, the documents produced by the assessee are the evidence which cannot be manipulated and also can be verified from the independent sources. Once the assessee has produced all these documents to establish the genuineness of purchase and sale of transactions of shares through Stock Exchange than the mere disclosure and surrender of income would not lead to the conclusion that the assessee has concealed the particulars of income or furnished inaccurate particulars of income. If the transactions are accepted as genuine and are already declared in the return of income filed U/s 139 as well as duly recorded in the books of account then long term capital gain arising from the sale of listed shares is exempted U/s 10(38) of the Act. The withdrawal of claim of exemption by the assessee in the statement U/s 132(4) of the Act, ignoring the supporting evidence of genuineness of the claim, would not ipso facto amount to concealment of income or furnishing inaccurate particulars of income. It is undisputed fact in this case that the impugned income subjected to the assessment is only income which is surrendered by the appellant during the search and also disclosed in return of income filed under section 153A. There is no corroborative evidence/material /document in support of income so surrendered and offered for taxation and the same is only on the basis of the statement of the assessee recorded during search. The declared income is also finally assessed as such. Thus the penalty levied on this account under section 271(1)(c) is not sustainable and accordingly the same stands as cancelled. See AJAY TRADERS VERSUS THE DCIT, CENTRAL CIRCLE, ALWAR 2016 (6) TMI 422 - ITAT JAIPUR - Decided in favour of assessee

Summary

Issues Involved:
1. Legitimacy of the penalty levied under Section 271(1)(c) of the Income Tax Act.
2. Applicability of Explanation 5A to Section 271(1)(c) in the context of income declared during a search and seizure operation.
3. Validity of the CIT(A)'s reliance on prior ITAT decisions and the absence of incriminating material.

Issue-wise Detailed Analysis:

1. Legitimacy of the Penalty Levied under Section 271(1)(c) of the Income Tax Act:
The revenue challenged the CIT(A)'s decision to cancel the penalty of ?86,28,256/- levied by the Assessing Officer (A.O.) under Section 271(1)(c) of the Income Tax Act. The assessee had declared long-term capital gains on the sale of shares in the original return filed under Section 139(1), which were claimed as exempt under Section 10(38). However, during a search and seizure action, the assessee admitted these gains as undisclosed income and offered them for taxation. The A.O. subsequently imposed a penalty for concealment of income. The CIT(A) canceled this penalty, arguing that the income was already declared in the original return and recorded in the books of account, and thus could not be considered concealed. The Tribunal upheld the CIT(A)'s decision, stating that the penalty under Section 271(1)(c) is not automatic and requires concrete evidence of concealment, which was absent in this case.

2. Applicability of Explanation 5A to Section 271(1)(c) in the Context of Income Declared During a Search and Seizure Operation:
The revenue argued that Explanation 5A to Section 271(1)(c) was applicable as the assessee had admitted to bogus claims of long-term capital gains during the search. The assessee contended that the gains were already declared in the original return and recorded in the books, and thus did not constitute concealed income. The Tribunal noted that Explanation 5A deems income declared post-search as concealed if it was not declared in the original return or if no return was filed before the search. Since the assessee had declared the income in the original return, the conditions of Explanation 5A were not met. The Tribunal also referenced decisions from the Delhi High Court and other precedents, which held that statements recorded during a search, without corroborating incriminating material, do not constitute evidence of undisclosed income.

3. Validity of the CIT(A)'s Reliance on Prior ITAT Decisions and the Absence of Incriminating Material:
The CIT(A) relied on the ITAT Jaipur Bench decision in Ajay Traders vs. DCIT and other judicial precedents, which held that penalties under Section 271(1)(c) cannot be levied solely based on statements recorded during a search without incriminating material. The Tribunal agreed with this reliance, noting that no incriminating documents were found during the search to substantiate the claim of concealed income. The Tribunal emphasized that the penalty proceedings are separate from assessment proceedings and require independent evidence of concealment. The Tribunal upheld the CIT(A)'s decision, citing the absence of any material evidence to prove that the income was concealed, and the fact that the transactions were duly recorded and declared in the original return.

Conclusion:
The Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s order to cancel the penalty under Section 271(1)(c) of the Income Tax Act. The Tribunal concluded that the penalty was not justified as the income was already declared in the original return, and there was no incriminating material found during the search to substantiate the concealment of income. The Tribunal's decision was based on a thorough examination of the facts, relevant legal provisions, and judicial precedents.