2008 (12) TMI 315 - AT - Income Tax

Penalty u/s. 271(1)(c) - concealed income found in search and seizure operation u/s 132 - assessment u/s 153A - Statement recorded u/s 132(4) - No satisfaction recorded by AO - Whether the penalty is not imposable on account of defect in the SCN notice - assessee was indulging in unaccounted sales. HELD THAT - From the judgment of The Hon'ble apex Court (3 Judge Bench) in the case of Union of India Ors. vs. Dharamendra Textile Processors Ors. 2008 (9) TMI 52 - SUPREME COURT , it is clear that the object behind enactment of s. 271(1)(c) was to provide for a remedy for loss of revenue. Wilful concealment is not an essential ingredient for imposing penalty as that is the requirement in case a prosecution is launched. However, in the instant case, as we had already referred that the assessee was fully aware of the fact of unaccounted sales. He was fully aware of the income from such sales. He has not given any explanation to say as to why such sales were not disclosed in the original return. The explanation for not disclosing such sales is not forthcoming. Only explanation given is that the income has been surrendered to purchase peace and to avoid litigation. As held by the Hon'ble apex Court in the case of Onkar Saran Sons 1992 (3) TMI 1 - SUPREME COURT , one has to see the concealment in the original return. In the original return, the assessee has not disclosed the entire sales. This fact was material to the computation of the total income. No explanation has been offered as to why such sales were not reflected in the original return. The only explanation now submitted is that the assessee agreed for the addition to purchase peace. Such explanation cannot be considered as bona fide because the documents relating to such unaccounted sales were found. It was also found that the assessee was having unaccounted debtors. Hence, in the instant case, Expln. 1 is squarely applicable for imposition of penalty. AO has recorded his satisfaction or not - HELD THAT - As per s. 271(1B), there is deemed satisfaction in respect of additions made. The AO has imposed penalty not only on the addition made to the income returned u/s 153A but also on the difference between the original returned income and the income returned in response to notice u/s 153A. The Act does not require any specific form of satisfaction to be recorded. The satisfaction can be inferred from the assessment order. The five Judge Bench of the Hon'ble apex Court in the case of CIT vs. S.V. Angidi Chettiar 1962 (1) TMI 10 - SUPREME COURT held that action u/s 28 has been taken for concealment of income indicating clearly that the ITO was satisfied in the course of the assessment proceeding that the firm had concealed its income. It is clear that the AO was satisfied that the additional income being offered is the concealed income. The narration of the facts in the assessment order and mentioning of incriminating documents found during the course of search showing unaccounted sales clearly indicate that the AO was satisfied during the course of proceedings that penalty proceedings u/s. 271(1)(c) are required to be initiated. The satisfaction is evident and it cannot be held that the proceedings have been initiated without recording satisfaction. The Tribunal in the case of Asstt. CIT vs. Goutham Public School 2002 (9) TMI 295 - ITAT VISAKHAPATNAM had an occasion to consider and decide as to whether satisfaction as required u/s. 271 (1)(c) stands recorded in the case. Hence, relying on the above decision of the Tribunal and considering the facts, we hold that the AO was satisfied before initiating the proceedings u/s. 271(1)(c). Whether the penalty is not imposable on account of defect in the notice? - HELD THAT - The purpose of issuing the show-cause notice is to give the assessee an adequate opportunity in respect of default, which is detected and alleged against him. From the nature of the assessment proceedings and the fact mentioned in the assessment order, it is clear that there was a specific charge of concealment of income and the assessee got adequate opportunity in rebutting such charge. Hence, it cannot be said that penalty proceedings are invalid because the AO has not struck off the column for which the assessee was not required to give reply. Hence, on this ground, penalty proceedings cannot be cancelled. AO has not brought on record any evidence to suggest that the difference between income estimated at 7 per cent by him and 5 per cent returned by the assessee stands invested in any form. Hence, there is no material to suggest that penalty is leviable in respect of the addition made by the AO. Therefore we delete the penalty in respect of addition made on account of applying net profit of 7 per cent as against 5 per cent by the assessee. Thus, the penalty is leviable to the extent of net profit estimated at 5 per cent by the assessee. Similarly, other income disclosed in the return filed in response to notice u/s. 153A consisted of income declared on account of stone polishing and melting operation of aluminium. Since such income was not declared in the original return, therefore, these amounts will have to be considered for the purpose of imposition of penalty u/s. 271(1)(c). We are not inclined to accept the contentions of the ld AR that in view of second proviso to s. 153A, the original return abates and therefore, there is no concealment. Concealment is to be seen on the basis of the original return. In respect of six assessment years mentioned in s.153A, assessments are to be made u/s.153A and any assessment or reassessment proceedings pending on the date of search shall abate. Hence, it cannot be held that penalty is not leviable on account of second proviso to s.153A vide which assessment or reassessment proceedings abate. Returns filed earlier do not stand abated. Mention of s.153A in ss. 234A and 234B for increasing the interest changed earlier also supports the view that earlier returns do not become infructuous. Therefore, it is held that penalty on an income for AY 2004-05 and an addition of income due to application of net profit rate for all the assessment years is not leviable and penalty will be leviable on difference on income, declared in return u/s.153A and original return after considering the exclusion for which penalty is held as not leviable. Appeals for all the assessment years are partly allowed.

Summary

Issues Involved:
1. Deletion of penalty under section 271(1)(c).
2. Concealed income detected by search and seizure operation.
3. Acceptance of concealed income in return filed under section 153A.

Detailed Analysis:

1. Deletion of Penalty under Section 271(1)(c):
The revenue appealed against the CIT(A)'s decision to delete the penalty imposed under section 271(1)(c). The CIT(A) held that the penalty could not be automatically imposed based on the assessee's declaration during assessment proceedings. The CIT(A) referenced the Supreme Court's decision in CIT v. Suresh Chandra Mittal, which stated that voluntary surrender of income does not justify penalty imposition. The CIT(A) also noted that penalty proceedings are quasi-criminal and the burden of proof lies on the revenue to establish conscious concealment or deliberate furnishing of inaccurate particulars. The ITAT upheld this view, emphasizing that the penalty cannot be imposed merely on the basis of admission or surrender without concrete evidence of concealment.

2. Concealed Income Detected by Search and Seizure Operation:
The assessee, engaged in sales of scrap, granite polishing, and aluminum ingot manufacturing, was subjected to a search under section 132, revealing unaccounted sales and seized documents. The Assessing Officer (AO) quantified the unaccounted turnover and assessed the income by applying a higher net profit rate of 7% compared to the 5% declared by the assessee. The AO initiated penalty proceedings, arguing that the additional income offered by the assessee was due to the search and not voluntary. The ITAT noted that the assessee admitted unaccounted sales and sundry debtors during the search, indicating awareness of undisclosed income. However, the ITAT found that the AO did not provide specific evidence linking the additional income to concrete investments or assets, thus questioning the basis for the penalty.

3. Acceptance of Concealed Income in Return Filed under Section 153A:
The assessee filed returns under section 153A, admitting additional income based on seized materials. The AO imposed penalties on the difference between assessed income and originally returned income. The ITAT observed that the returns filed under section 153A should be considered independently of other proceedings. The ITAT highlighted that the assessee's disclosure of additional income was to avoid prolonged litigation, and there was no specific finding of omission or evidence of concealment. The ITAT also noted that the penalty notice issued by the AO was vague, lacking specific allegations of concealment or inaccurate particulars, rendering it defective under section 292B.

Separate Judgments Delivered:
The ITAT provided a detailed analysis of the arguments and evidence presented by both parties. The ITAT concluded that the penalty under section 271(1)(c) was not justified for the additional income declared by the assessee, as it was based on estimated gross profit and not concrete evidence of concealed income. The ITAT also emphasized that the burden of proof lies on the revenue to establish conscious concealment or deliberate furnishing of inaccurate particulars, which was not adequately demonstrated in this case.

Conclusion:
The ITAT partly allowed the appeals, holding that penalty on the income of Rs. 24,34,709 for assessment year 2004-05 and the addition of income due to the application of a higher net profit rate was not leviable. Penalty would be leviable on the difference between the income declared in the return under section 153A and the original return, excluding the amounts for which penalty was deemed not leviable.