2012 (9) TMI 136 - AT - Income Tax

Penalty u/s 271(1)(c) - nondisclosure of short term and long term capital gain - CIT(A) deleted the levy - revised return filed by assessee - Held that - As the assessee submitted revised return since in the original return long term capital gain on UTI liquid plus fund institution plan was claimed exempt u/s 10(38) as also to reflect correct figures of sale of land at Kheri Sadh and rental income, thus merely because the assessee disclosed additional income suo motu after issue of a notice u/s 143(2), does not amount to detection of concealment by the AO. It is not the case of the AO that in reply to a query of the AO, some new facts were discovered or the AO had dug out some information which was not furnished by the assessee. In such circumstances no penalty is leviable - As decided in the decision in CIT v. Suresh Chandra Mittal (2001 (6) TMI 63 - SUPREME COURT) that when an assessee files a revised return showing higher income and gives an explanation that he offered higher income to buy peace of mind and avoid litigation, penalty cannot be imposed merely on account of higher income having been subsequently declared - thus in this case even though the revised return was found to be invalid, the AO accepted the income as declared in the revised return and computation & did not bring any material on record that the declaration of income made by the assessee in his revised return or his explanation was not bonafide - in favour of assessee.

Issues Involved:
1. Cancellation of penalty levied under Section 271(1)(c) for nondisclosure of short-term and long-term capital gains.
2. Validity of the revised return filed after receipt of notices under Sections 143(2) and 142(1).
3. Disallowance of interest claimed by the assessee.
4. Assessment of rental income and its reconciliation with TDS certificates.
5. Additional income disclosed during the assessment proceedings.

Issue-wise Detailed Analysis:

1. Cancellation of Penalty under Section 271(1)(c):
The primary issue was whether the penalty of Rs. 10,77,190/- levied under Section 271(1)(c) for nondisclosure of capital gains was justified. The Tribunal noted that the assessee had filed a revised return declaring additional income, which was not detected by the Assessing Officer (AO) but disclosed by the assessee suo motu. The Tribunal emphasized that penalty proceedings are distinct from assessment proceedings and require a separate evaluation of whether the income was concealed. The Tribunal referenced several judicial precedents, including the Supreme Court's ruling in Ananthraman Veerasinghaiah & Co. Vs. CIT, which held that findings in assessment proceedings are not conclusive for penalty proceedings. Consequently, the Tribunal upheld the CIT(A)'s decision to cancel the penalty, noting that the assessee had voluntarily disclosed the income and there was no evidence of concealment detected by the AO.

2. Validity of the Revised Return:
The revised return filed by the assessee was a point of contention since it was submitted after the issuance of notices under Sections 143(2) and 142(1). The AO treated the revised return as invalid because it was beyond the time prescribed under Section 139(5). However, the Tribunal found that the revised return was filed voluntarily to correct the figures of capital gains and interest income. The Tribunal cited various cases, including CIT v. S.V. Electricals P. Ltd., where it was held that a voluntary revised return does not amount to detection of concealment by the AO. Therefore, the Tribunal concluded that the revised return, although technically invalid, did not indicate concealment of income.

3. Disallowance of Interest:
The AO disallowed interest of Rs. 2,51,507/- claimed by the assessee, which was later reduced by the CIT(A). The Tribunal referred to its earlier order, which deleted the disallowance of interest, stating that when interest-bearing borrowed funds are used to earn taxable interest income, the full payment of interest is allowable as a deduction. The Tribunal reiterated that the assessee was entitled to the deduction of the full amount of interest paid, not just the amount of interest income earned.

4. Assessment of Rental Income:
The AO added rental income discrepancies based on TDS certificates, which the assessee contested, stating that part of the rental income was refunded to the buyer of the property. The Tribunal had previously restored this issue to the AO to verify whether the buyer had declared the rental income in their return. The Tribunal noted that if the buyer had declared the income, it should not be taxed in the hands of the assessee. The Tribunal emphasized the importance of consistency in tax treatment across different assessment years and referenced the Punjab & Haryana High Court's ruling in CIT v. Reita Biscuits Co. Pvt. Ltd., which supports uniform treatment in similar circumstances.

5. Additional Income Disclosed During Assessment:
The assessee disclosed additional income during the assessment proceedings, which the AO argued was not voluntary. The Tribunal, however, found that the disclosure was made before any specific detection of undisclosed income by the AO. The Tribunal cited cases such as CIT v. Harnarain and CIT v. Suresh Chandra Mittal, which held that voluntary disclosure of income, even after the issuance of a notice, does not automatically imply concealment. The Tribunal concluded that the additional income disclosed by the assessee was voluntary and not a result of concealment.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to cancel the penalty. The Tribunal found that the assessee had voluntarily disclosed the additional income, and there was no evidence of concealment detected by the AO. The Tribunal emphasized the distinction between assessment and penalty proceedings and the necessity of evaluating the facts to determine whether there was actual concealment of income.

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