2023 (4) TMI 885 - AT - Income Tax

Penalty u/s 271(1)(c) OR u/s 271AAA - addition made on account of unexplained profit for Land trading pursuant to search proceedings - HELD THAT - Admittedly, the year before us is the year in which the search was conducted and therefore it fulfils the conditions of the specified previous year as provided under explanation (b) of section 271AAA - if any penalty is to be levied, then the same has to be charged under the provisions of section 271AAA - provisions of subsection (3) of section 271AAA(1) of the Act specifically debars the revenue to levy the penalty under the provisions of section 271(1)(c) of the Act. Penalty has been levied under the wrong provisions of the Act i.e. section 271(1)(c) of the Act and therefore the same is not maintainable. Hence the ground of appeal of the assessee is allowed.

Summary

Issues involved:
The appeal against the order of the Commissioner of Income Tax (Appeals) regarding the penalty under section 271(1)(c) of the Income Tax Act, 1961.

Additional Ground of Appeal:
The assessee pleaded for admitting an additional ground of appeal challenging the levy of penalty under section 271(1)(c) based on the debarring provision of section 271AAA(3) of the Act.

Admission of Additional Ground:
The Tribunal admitted the additional ground raised by the assessee, citing the wide powers of the Tribunal to consider legal questions necessary for assessing tax liability correctly, even if not raised earlier.

Background and Addition of Income:
The assessee, involved in real estate development, was found to have earned unaccounted income from land trading, leading to an addition of Rs. 4,44,000 to the total income and initiation of penalty proceedings for concealing income particulars.

Assessee's Contention:
The assessee argued that the addition was based on estimates and lacked direct evidence, therefore, penalty under section 271(1)(c) was unwarranted as there was no willful attempt to conceal income.

AO's Decision and CIT(A) Confirmation:
The Assessing Officer (AO) held that the addition was based on material found during the search, justifying the penalty under section 271(1)(c). The CIT(A) upheld the penalty, stating the documents found were specific and the assessee failed to rebut the presumption of ownership.

Appeal and Legal Grounds:
The assessee appealed, contending that penalty should be charged under section 271AAA due to the search period falling within its scope, and section 271(1)(c) penalty was not maintainable as per section 271AAA(3).

Tribunal's Decision:
The Tribunal allowed the assessee's appeal, finding the penalty levied under section 271(1)(c) to be incorrect and not maintainable, as the search period fell under the provisions of section 271AAA, which debars penalty under section 271(1)(c).

This judgment highlights the importance of correctly applying the relevant provisions of the Income Tax Act and ensuring that penalties are imposed in accordance with the specific circumstances outlined in the legislation.