2022 (12) TMI 585 - AT - Income Tax

Penalty u/s 271(1)(c) - disclosure or admission made u/s 132(4) of the Act during the course of search proceedings - HELD THAT - Presumption of admissibility of evidence is a rebuttable one, and if an assessee is able to demonstrate with the help of some material that such admission was either mistaken, untrue or based on misconception of facts, then, solely on the basis of such admission, no addition is required to be made. As true that admission being declaration against an interest are good evidence, but they are not conclusive, and a party is always at liberty to withdraw the admission by demonstrating that they are either mistaken or untrue. In law, the retracted confession even may form the legal basis of admission, if the AO is satisfied that it was true and was voluntarily made. But then basing the addition on a retracted declaration solely would not be safe. It is not a strict rule of law, but only a matter of prudence. As a general rule, it is unsafe to rely upon a retracted confession without corroborative evidence. Due to this grey situation, CBDT issued Circular No.286/2/2003 prohibiting the departmental officials from taking confession in the search. The board is of the view that often the officials used to obtain confessions from the assessee and stop further recovery of the material. Such confessions have been retracted and then the addition could not withstand the scrutiny of the higher appellate authority, because no material was found, supporting such addition. Keeping the provisions of section 132(4) in justaposition with provisions of Explanation 5A to Section 271(1) (c), the inference of ownership of any money, bullion, jewellery or other valuable articles, to our mind, ought not be based merely on the joint disclosure petition - When the assessee has taken specific plea that no money, bullion or jewellery or income based on any entries in any books of account or other documents for these two assessment years was found during the course of search, AO ought to have immediately referred the documents, entries or any asset found, which is relevant to these assessment years in the penalty proceedings. He should have rejected the explanation of the assessee by demonstrating it as incorrect. Rather, the authorities have proceeded on the assumption that had there been no money, bullion, jewellery or income based on entries was not found, the assessee would not have made voluntary disclosure of the income in his returns. Inference of availability of money, bullion or assets or income embedded in the entries cannot be drawn merely from the disclosure petition referred above. These should have been found in physical form and pertaining to these specific years in the course of conduct of such and seizure operation, only then deeming fiction of concealment as stated in Explanation 5A of Section 271(1) (c) would get triggered. Revenue authorities have not referred any documentary evidence demonstrating the fact that voluntary incomes offered by the assessee in these two years were actually unearthed during the course of search and are based on any entry in any books of account or other documents so unearthed which are specific to such additions whereon impugned penalty is imposed. Therefore, to our mind, penalty so imposed by applying Explanation 5A to Section 271(1)(c) deserves to be deleted. Accordingly, appeal of the assessee is al lowed and the penalty so imposed is deleted. Appeal of assessee allowed.

Summary

Issues Involved:
1. Condonation of delay in filing the appeals.
2. Imposition of penalty under Section 271(1)(c) of the Income-tax Act for Assessment Years 2007-08 and 2011-12.
3. Validity of the additional income disclosure under Section 153A of the Income-tax Act.
4. Application of Explanation 5A to Section 271(1)(c) of the Income-tax Act.

Detailed Analysis:

1. Condonation of Delay:
The appeals were time-barred by 95 days. However, considering the COVID period and the Hon'ble Supreme Court's orders in suo motu Writ Petition No. 3 of 2020, the Tribunal condoned the delay. The Tribunal noted that the appeals were filed in September 2022, and the impugned order was passed on 23.12.2021, thus excluding the COVID period, there was no substantial delay.

2. Imposition of Penalty:
The assessee challenged the imposition of penalties amounting to Rs.33,609/- for A.Y. 2007-08 and Rs.1,35,315/- for A.Y. 2011-12 under Section 271(1)(c) of the Income-tax Act. The penalties were imposed by the Assessing Officer (AO) based on the assessee's failure to disclose brokerage and commission income in the original returns, which were disclosed only after a search and seizure operation conducted on 18.02.2013.

3. Validity of Additional Income Disclosure:
The assessee filed a return of income in response to a notice under Section 153A, reporting additional income of Rs.50,000/- for A.Y. 2007-08. This was part of a joint disclosure where the assessee and another individual disclosed a total of Rs.11,00,00,000/- for various assessment years. The AO imposed penalties, arguing that the disclosure was not voluntary but forced by the search operation, thus constituting concealed income.

4. Application of Explanation 5A to Section 271(1)(c):
Explanation 5A to Section 271(1)(c) deems any undisclosed income found during a search as concealed income, even if declared in a return filed post-search. The Tribunal examined whether the additional income disclosed by the assessee in response to the notice under Section 153A was voluntary or compelled by the search. The Tribunal noted that the AO did not reference any specific incriminating material found during the search that directly linked to the additional income disclosed. The Tribunal emphasized that for Explanation 5A to apply, there must be clear evidence of undisclosed income found during the search.

The Tribunal concluded that the revenue authorities did not provide sufficient evidence to prove that the additional income disclosed was unearthed during the search. The penalty imposed under Section 271(1)(c) was deemed inappropriate as the disclosure did not fall under the mischief of deemed concealment provided in Explanation 5A.

Conclusion:
The Tribunal allowed the appeals of the assessee, deleting the penalties imposed under Section 271(1)(c) for both assessment years. The Tribunal emphasized the need for concrete evidence linking the disclosed income to the search findings for the application of Explanation 5A. The appeals were allowed, and the penalties were deleted for both A.Y. 2007-08 and A.Y. 2011-12.