2020 (1) TMI 911 - AT - Income Tax

Penalty u/s 271(1)(c) - addition towards salary income made by the Assessing officer during the course of proceedings u/s 153A r/w 143(3) - Undisclosed salary income received from M/s Ganpati Royal Residency by not accepting the explanation of assessee that such salary income was inadvertently left to be included at the time of filing the return - HELD THAT - Penal provisions must be strictly construed and only on satisfaction of conditions specified therein, the penalty can be levied. In the instant case, the assessee has not been found to be recipient of salary income during the course of search. The assessee is an individual deriving salary and interest income and not required to maintain books of accounts. There is nothing on record that any documents/material/information was found during the course of search which remotely indicate that the assessee is recipient of salary income. It is only during the course of proceedings u/s 153A that the AO noticed that the assessee is in receipt of salary income and which has not been disclosed by the assessee in his return and the same was accordingly brought to tax. The dispute is not that the salary income was not offered to tax by assessee in his return of income which is an admitted position but the question is whether such salary income has been found during the course of search and the answer to that in not in affirmative. In the present case, we therefore find that none of the conditions specified in explanation 5A to section 271(1)(c) is satisfied in the instant case and therefore, levy of penalty is hereby directed to be deleted. - Decided in favour of assessee.

Summary

Issues:
Levy of penalty under section 271(1)(c) for alleged undisclosed salary income of ?70,000.

Analysis:
1. The appeal was filed against the order of ld. CIT(A)-II, Udaipur for Assessment Year 2011-12. The assessee, during assessment proceedings, realized a salary of ?70,000 from M/s Ganpati Royal Residency was inadvertently left out of the return. The AO added this amount to the total income, initiating penalty proceedings under section 271(1)(c) for concealment of income particulars.

2. The assessee contended that as no incriminating material was found during the search, the addition made by the AO was unsustainable. The AO's penalty was based on Explanation 5A to section 271(1)(c), which the assessee challenged. The ld. CIT(A) upheld the penalty, citing a Kerala High Court decision and questioning the credibility of the explanation provided by the assessee regarding the omitted salary income.

3. The assessee argued that the assessment proceedings were not pending during the search, and no incriminating material was discovered. The AO's addition under section 153A was deemed illegal. The assessee relied on various judicial decisions to support the contention that penalty on an illegal addition is not justifiable. The Hon'ble ITAT had previously ruled in favor of the assessee in a similar matter.

4. The assessee claimed the omission of the salary income was a bona fide mistake, citing a Supreme Court case. The ld. CIT(A)'s rejection of the explanation was challenged, emphasizing that similar instances occurred in other group companies where salary was not declared due to oversight but rectified upon discovery.

5. The dispute centered on whether the salary income addition made during section 153A proceedings could warrant a penalty under Explanation 5A to section 271(1)(c). The Tribunal noted that no incriminating evidence was found during the search linking the assessee to the undisclosed income. As the conditions of Explanation 5A were not met, the penalty was deemed unjustified.

6. Ultimately, the Tribunal allowed the appeal, directing the deletion of the penalty imposed on the undisclosed salary income. The decision was based on the strict interpretation of penal provisions and the absence of incriminating material linking the assessee to the omitted income.