2006 (5) TMI 163 - AT - Income Tax

Summary

Issues Involved:
1. Confirmation of penalty under Section 271(1)(c) of the IT Act, 1961.
2. Basis of assessments and declarations made by the assessee.
3. Applicability of Explanation 5 below Section 271(1)(c).
4. Reliance on the order passed under Section 132(5) of the Act.
5. Residuary issues.

Detailed Analysis:

1. Confirmation of Penalty under Section 271(1)(c):
The first issue addresses whether the CIT(A) was correct in confirming the penalty levied by the AO under Section 271(1)(c) of the IT Act, 1961. The penalty amounting to Rs. 2,86,655 was confirmed despite the assessee's claim that the declaration of income was made voluntarily to avoid litigation and that there was no independent material basis for the assessed income.

2. Basis of Assessments and Declarations:
The second issue revolves around the basis on which assessments were completed. The assessee argued that the assessments were based on ad hoc declarations made to buy peace and avoid litigation, rather than on any independent material evidence. The CIT(A) pointed out that the original returns were filed declaring a certain income, but subsequent searches revealed discrepancies, leading to revised returns with higher declared incomes.

3. Applicability of Explanation 5 below Section 271(1)(c):
The third issue concerns the applicability of Explanation 5 below Section 271(1)(c). The CIT(A) held that Explanation 5 did not apply to the facts of the case. The assessee's declaration of income was not considered voluntary as it was made only when confronted with incriminating material during the search. The CIT(A) concluded that the AO rightly levied penalties as the conditions for immunity under Explanation 5 were not satisfied.

4. Reliance on the Order Passed under Section 132(5):
The fourth issue deals with the reliance on the order passed under Section 132(5) of the Act. The CIT(A) relied on this order, which is an interlocutory order meant for the retention of assets seized during the search and seizure operation. The CIT(A) noted several discrepancies and shortcomings in the books of account, which justified the penalties.

5. Residuary Issues:
The fifth ground of appeal is residuary in nature and does not specifically address any particular aspect of the case.

Conclusion:
The Tribunal considered the facts, rival submissions, and various case laws cited. It was noted that no specific discrepancies were pointed out in the assessment or penalty orders for the years under appeal. The Tribunal relied on the decisions in the cases of Suresh Chand Mittal, Devandas Perumal, and Shiv Lal Tak, which emphasize that mere declaration of higher income to avoid litigation does not automatically imply concealment of income. The burden was on the Department to prove that the incomes had been concealed in the original returns, which was not established. Consequently, the penalties were deleted, and the appeals were allowed.

Final Order:
The substantive grounds of appeal taken by the assessee in all three appeals were allowed, and the penalties levied were deleted.