2024 (12) TMI 422 - AT - Income Tax

Penalty u/s 271(1)(c)/271AAB - additional income brought to tax owning to search action - income is assessed on the basis of material seized in search seizure action carried out u/s 132 - addition is buoyed by the declaration on oath u/s 131 of the Act - HELD THAT - As in the similar facts and circumstance, where the income of the assessee is assessed in variation to income returned, the Hon ble Supreme Court in the case of MAK Data Pvt Ltd 2013 (11) TMI 14 - SUPREME COURT observed that, the explanation to section 271(1) raises a presumption of concealment when income is finally assessed in variation of returned income, and it was in this factual scenario where the income reported by the assessee in the return filed was lower than the income finally assessed and brought to tax, it is held that the penalty was rightly leviable irrespective of the fact whether such variation was on account of voluntary surrender or surrender of income or otherwise. Glaringly, the sum surrender to pay tax on the sum of sub-contracting expenditure sprung out upon respondents failure to prove veracity genuineness which came to light solely on account of search action. Therefore, it is not a case wherein a disclosure was voluntarily made; indeed, it was out of search action. Otherwise, bogus expenditure claimed earlier could have continued to hold field of deduction. In any case, so-called voluntary disclosure/surrender of sub-contract expenditure claimed earlier by furnishing inaccurate particulars of income cannot alter the consequences in the light of decision of the Hon ble Apex Court in the similar facts and circumstances in view of former judicial precedents, irrespective of the fact as to how much of such bogus/sham sub-contact/expenditure has actually been brough to tax in the course of assessment by the Ld. AO, as the same is subject matter of revision under the provisions of law. Given section 274 provides that, no order imposing a penalty shall be made unless the assessee has been heard or has been given a reasonable opportunity of being heard. The requirement of section 274 of the Act since shown complied and remained undisputed, and the penal provisions being a civil liability calling no act of or ingredient for wilful concealment as laid in the case of UOI Vs Dharmendra Textile Processors 2008 (9) TMI 52 - SUPREME COURT the penalty imposed u/s 271AAB also deserves to be sustained on similar observation. Nothing contrary has been shown to us in the present facts which would warrant diversion from the view fortified in K P Madhusudan Vs CIT 2001 (8) TMI 8 - SUPREME COURT MAK Data Pvt Ltd 2013 (11) TMI 14 - SUPREME COURT Apropos, in view of the aforesaid discussion and former judicial precedents (supra) the impugned orders of CIT(A) for AY 2013-14 2014-15 are set-aside in its entirety and for AY 2019-20 to the extent it relates to penalty on unexplained sub-contracting expenditure brought to tax u/s 69C of the Act. The respective orders of penalty are thus restored accordingly.

Summary

Issues Involved:

1. Applicability of penal provisions under Section 271(1)(c) and Section 271AAB of the Income-tax Act, 1961, concerning unexplained sub-contracting expenditure.
2. Validity of the deletion of penalties by the Commissioner of Income Tax (Appeals) [CIT(A)].
3. Consideration of judicial precedents in the context of penalty imposition.

Issue-wise Detailed Analysis:

1. Applicability of Penal Provisions under Section 271(1)(c) and Section 271AAB:

The primary issue concerns the applicability of penalty provisions under Sections 271(1)(c) and 271AAB of the Income-tax Act, 1961, on unexplained sub-contracting expenditure. The Revenue challenged the deletion of penalties imposed by the Assessing Officer (AO) based on the assessee's inability to substantiate the genuineness of sub-contracting transactions. The AO had levied penalties due to the assessee's failure to produce necessary documents to verify the legitimacy of sub-contracting expenses, which were treated as bogus. The Revenue argued that the penalty was justified as the additions were based on materials seized during a search operation, and the assessee's surrender of income was not voluntary but prompted by the search findings.

2. Validity of the Deletion of Penalties by CIT(A):

The CIT(A) had deleted the penalties imposed by the AO, which the Revenue contested. The Revenue argued that the CIT(A) erred in law by relying on judicial precedents that were no longer applicable after the insertion of explanations to Section 271(1)(c). The Revenue emphasized that the penalties were justified as the assessee failed to prove the genuineness of sub-contracting transactions, and the surrender of income was not voluntary. The Tribunal agreed with the Revenue, stating that the CIT(A)'s reliance on outdated precedents was misplaced, and the penalties were warranted due to the assessee's inability to substantiate the transactions.

3. Consideration of Judicial Precedents:

The Tribunal analyzed various judicial precedents cited by both parties. The Revenue relied on the Supreme Court's decisions in "K P Madhusudan Vs CIT" and "MAK Data Pvt. Ltd. Vs CIT," which upheld the imposition of penalties when income was assessed based on seized materials. The Tribunal noted that the CIT(A)'s reliance on "Sir Shadilal Sugar & General Mills Ltd." was inappropriate as the legal landscape had evolved with subsequent judicial interpretations. The Tribunal emphasized that the assessee's surrender of income did not absolve it from penalties, as the surrender was not voluntary but rather a response to the search findings.

Conclusion:

The Tribunal allowed the Revenue's appeals, reinstating the penalties imposed by the AO. It concluded that the penalties under Sections 271(1)(c) and 271AAB were justified due to the assessee's failure to substantiate the genuineness of sub-contracting transactions, and the CIT(A)'s decision to delete the penalties was based on misapplied judicial precedents. The Tribunal underscored the importance of the assessee's burden to prove the bona fides of its claims and the applicability of penalties when income is assessed in variation to the returned income.