2019 (8) TMI 52 - AT - Income Tax

Penalty u/s 271(1)(c) - Assessment u/s 153A - addition was made on the basis of admission of additional income in the statement u/s 132(4) - HELD THAT - There is no debate with regard to the proposition that in order to attract Explanation 5A appended to section 271(1)(c) there should be a search and during that search assessee should be found to be owner of any money, bullion, jewellery and other valuable article or things and the assessee claims such assets has been acquired by him by utilizing wholly or partly of his income of any previous year or any income based on any entry in any books of accounts or other documents or transaction found during the course of search, and the assessee claims that such entries in the books of accounts or other documents or transaction represent his income from any previous year, which has ended before the date of search, then notwithstanding such income is declared by him in any return of income furnished on or after the date of search, he shall for the purposes of imposition of a penalty under clause (c) of sub-section (1) would be deemed to have concealed the particulars of income or furnished inaccurate particulars of income. If any money, bullion, jewellery or valuable showing income in the hands of the assessee, and such income was not from explained source, then after search in response to the notice u/s 153A, if the assessee has admitted that income, then deeming fiction for concealment of income would attract. The question before us is that no money, bullion, jewellery or book entry was found at the time of search. The only evidence against the assessee is that an admission of additional income was made in the statement u/s 132(4). The question is this admission akin to disclosure of money, bullion, jewellery or diary and income disclosed representing this statement is to be considered as concealed income ? This aspect has been considered in both these orders VASCROFT DESIGN PVT. LTD. VERSUS ACIT 2019 (2) TMI 1671 - ITAT AHMEDABAD , wherein it has been held that on the strength of authoritative pronouncement of Hon ble High Courts in KAILASHBEN MANHARLAL CHOKSHI VERSUS CIT 2008 (9) TMI 525 - GUJARAT HIGH COURT that solely on the basis of declaration addition is not possible unless the assessee did not retract the statement. - a corroboration for such disclosure would require - we find force in the contentions of the ld.counsel for the assessee and delete the penalty. - Decided in favour of assessee.

Summary

Issues Involved:

1. Applicability of Explanation 5A to Section 271(1)(c) of the Income Tax Act, 1961.
2. Validity of penalty under Section 271(1)(c) when no incriminating material is found during the search.
3. Justification of penalty imposition when the income declared in the return filed under Section 153A is accepted without any additions.
4. Requirement for the AO to specify the exact limb of default under Section 271(1)(c) for penalty proceedings.

Issue-wise Detailed Analysis:

1. Applicability of Explanation 5A to Section 271(1)(c) of the Income Tax Act, 1961:

The primary question was whether penalty under Section 271(1)(c) could be imposed based on a return filed under Section 153A solely on the basis of a statement recorded under Section 132(4) without any incriminating material. Explanation 5A applies to cases where, during a search, the assessee is found to possess money, bullion, jewellery, or other valuable articles, or entries in books of accounts or documents representing income. The Tribunal noted that the additional income declared by the assessee was based solely on a statement recorded during the search without any corroborating incriminating material. Therefore, Explanation 5A could not be applied as no unaccounted assets or incriminating entries were found during the search.

2. Validity of Penalty under Section 271(1)(c) when No Incriminating Material is Found:

The Tribunal observed that the additional income declared in the return filed under Section 153A was based on a statement made during the search, which was not supported by any incriminating material. The Tribunal held that for Explanation 5A to apply, there must be tangible assets or entries found during the search. In the absence of such material, the penalty under Section 271(1)(c) could not be justified. The Tribunal cited the Hon’ble Delhi High Court's ruling that oral statements alone, without corroborating material, could not empower the AO to make additions in a search assessment.

3. Justification of Penalty Imposition when the Income Declared in the Return Filed under Section 153A is Accepted without Any Additions:

The Tribunal noted that the additional income declared by the assessee in the return filed under Section 153A was accepted by the Revenue without any additions. The Tribunal emphasized that the imposition of penalty under Section 271(1)(c) is not automatic and requires the AO to exercise discretion. Given that the additional income was not backed by any incriminating material, the Tribunal held that the AO should have exercised discretion in favor of the assessee and not imposed the penalty.

4. Requirement for the AO to Specify the Exact Limb of Default under Section 271(1)(c) for Penalty Proceedings:

The Tribunal highlighted that the AO must specify the exact limb of default (concealment of income or furnishing inaccurate particulars) under Section 271(1)(c) for initiating penalty proceedings. In this case, the AO failed to specify the exact limb, rendering the penalty proceedings vague and non-descript. The Tribunal held that such vague and non-specific charges could not justify the imposition of penalty.

Conclusion:

The Tribunal concluded that the penalty imposed under Section 271(1)(c) was not sustainable in law due to the lack of incriminating material, the acceptance of the additional income declared in the return filed under Section 153A without any additions, and the failure of the AO to specify the exact limb of default. Consequently, the Tribunal directed the AO to delete the penalty imposed. The Tribunal's decision was based on the principles that penalty provisions should be applied judiciously and not automatically, and that mere statements without corroborating material could not justify additions or penalties.