2012 (6) TMI 627 - AT - Income Tax

Penalty under section 271(1)(c) - penalty immunity - search - assessee had already enhanced the income declared which was disclosed during the search to purchase peace of mind and avoid litigation Held that - Explanation 5 to section 271(1)(c) clearly shows that if income has not been declared before the expiry of time under sub-section (1) of section 139, then immunity is not available. Provisions of section 153A clearly show that rule of abatment applies to an assessment or re-assessment which is pending on the date of initiation of the search. This means all the returns filed earlier will not abate but only in cases where assessments are still pending would abate. Despite search, assessee did not want to disclose the concealed income which was found during the course of search. Legal principles are clearly applicable to the facts of the case because during the search certain bundles of bills were found which pertained to undisclosed sales which were not recorded in the books of account and this fact was admitted during the search and, therefore, offence of concealment was complete. Therefore, penalty on additional incomes declared in the returns is clearly leviable. Penalties levied by the Assessing Officer are confirmed. Revenue s appeals are allowed. Decided in favour of revenue.

Summary

Issues Involved:
1. Confirmation of levy of penalty under section 271(1)(c) of the Income Tax Act.
2. Validity of additional income assessed during the assessment proceedings under section 153A.
3. Immunity under clause (2) of Explanation 5 to section 271(1)(c) concerning declared income in returns filed under section 153A.

Issue-wise Detailed Analysis:

1. Confirmation of Levy of Penalty under Section 271(1)(c):

Facts and Arguments:
- A search was conducted on the assessee's premises, revealing unrecorded sales and purchases. The AO assessed additional income based on seized documents and imposed penalties under section 271(1)(c) for concealment of income.
- The assessee argued that the additional income was declared during the search under section 132(4) and included in the returns filed under section 153A. Therefore, penalties should not apply.
- The AO, referencing the Supreme Court decision in K.P. Madhusudan v. CIT, levied minimum penalties at 100% for various years.

Tribunal's Findings:
- The Tribunal noted that penalties were confirmed by the CIT(A) for additional income assessed during the assessment proceedings. The CIT(A) found the assessee guilty of concealment, as the income was quantified based on actual workings, not presumptions.
- The Tribunal referenced its earlier decision in a similar case (Gopal Shyam Bros.), where penalties on estimated additions were deleted, and applied the same reasoning here, leading to the deletion of penalties on estimated additional income.

Conclusion:
- The Tribunal concluded that since the additional income was estimated, the assessee could not be said to have concealed particulars of income, and thus, penalties were not justified.

2. Validity of Additional Income Assessed During Assessment Proceedings Under Section 153A:

Facts and Arguments:
- The AO found discrepancies in the assessee's sales records and assessed additional income based on these discrepancies.
- The assessee submitted that the discrepancies were due to errors in the seized documents and proposed an alternative calculation method based on peak amounts of daily sales.

Tribunal's Findings:
- The Tribunal reviewed the AO's method of estimating profits at 10% of the unrecorded sales and found it to be an estimation rather than an exact calculation.
- In similar cases, the Tribunal had deleted penalties based on estimated additions, and it followed this precedent.

Conclusion:
- The Tribunal upheld the validity of the additional income assessed by the AO but deleted the penalties associated with it, as the additions were based on estimates.

3. Immunity Under Clause (2) of Explanation 5 to Section 271(1)(c):

Facts and Arguments:
- The assessee claimed immunity under clause (2) of Explanation 5 to section 271(1)(c), arguing that the additional income was declared in the returns filed under section 153A.
- The AO contended that immunity was not applicable as the income was not declared before the expiry of time specified under section 139(1).

Tribunal's Findings:
- The Tribunal referenced the decision of the Third Member in Kirit Dahyabhai Patel, which held that immunity under Explanation 5(2) is only available if the income is declared in the return before the time allowed under section 139(1) expires.
- The Tribunal noted that the returns for the relevant years were filed after the search, and the additional income was not disclosed in the original returns filed under section 139(1).

Conclusion:
- The Tribunal concluded that the assessee was not entitled to immunity under clause (2) of Explanation 5 to section 271(1)(c) as the additional income was not declared in the returns filed before the expiry of time under section 139(1).

Final Judgment:
- The assessee's appeals were allowed, leading to the deletion of penalties on estimated additional income.
- The revenue's appeals were allowed, reinstating penalties on the additional income declared in the returns filed under section 153A, as immunity under Explanation 5(2) was not applicable.