2013 (7) TMI 660 - HC - Income Tax

Penalty u/s 271(1)(c) - CIT deleted penalty that on date of search filing date for return not over - Tribunal confirmed penalty holding that even though the return was accepted, yet, the penalty proceedings and assessment proceedings being different, penalty was leviable - Held that - admitted fact in this case is that the search party did not find any incriminating materials against the firm - Even in the course of search, if certain materials were seized relating to the assessee, yet, nothing was spoken to as regards the non-maintenance of the books of accounts or absence of books of accounts relating to the transactions of the firm - as on the date of search in the partner s premises, the books of accounts of the firm were not found. The absence of books of accounts of the firm in the partners residence, certainly would not lead to a further inference that there were no books of accounts of the firm maintained by the assessee - Decided in favour of assessee.

Summary

Issues:
1. Confirmation of penalty under Section 271(1)(c) of the Income Tax Act, 1961
2. Applicability of Explanation 5 to Section 271(1)(c) of the Act
3. Interpretation of Section 153C in relation to the appellant firm
4. Search conducted in partner's premises and its impact on penalty levy
5. Allegations of concealment of income and inaccurate particulars

Analysis:

Issue 1:
The case involved the confirmation of a penalty under Section 271(1)(c) of the Income Tax Act, 1961. The Income Tax Appellate Tribunal upheld the penalty, citing concealment of income due to the delayed filing of returns post a search conducted in a partner's premises. The Tribunal emphasized that the mere payment of tax after the search did not absolve the applicability of penalty provisions. The Tribunal differentiated between assessment and penalty proceedings, asserting that penalty was still leviable despite the acceptance of returns.

Issue 2:
Regarding the applicability of Explanation 5 to Section 271(1)(c) of the Act, the Tribunal's decision was challenged. The Explanation pertains to situations where assets are found during a search, leading to a presumption of concealed income. However, the courts found that the conditions outlined in Explanation 5 did not align with the circumstances of the present case. The absence of incriminating materials against the firm during the search and the proper maintenance of books of accounts by the assessee were crucial factors in rejecting the application of Explanation 5.

Issue 3:
The interpretation of Section 153C in relation to the appellant firm was also a point of contention. The Deputy Commissioner initiated penalty proceedings based on the assumption that the firm had concealed income, as it filed returns post the search. However, the Commissioner of Income Tax (Appeals) overturned this decision, highlighting that the delay in filing was due to external factors, such as the seizure of materials. The courts ultimately ruled in favor of the assessee, emphasizing that the search did not yield incriminating evidence against the firm.

Issue 4:
The search conducted in the partner's premises raised questions about the legitimacy of the penalty levy. The courts noted that no incriminating materials were found directly related to the firm during the search. The absence of the firm's books of accounts in the partner's residence did not automatically imply concealment of income. The timing of the search, conducted before the due date for filing returns, was a crucial factor in assessing the validity of the penalty.

Issue 5:
Allegations of concealment of income and inaccurate particulars were central to the penalty proceedings. The courts scrutinized whether the delayed filing of returns post the search constituted concealment. The assessee argued that there was no concealment, as the transactions were duly recorded in the books of accounts. The courts ultimately sided with the assessee, emphasizing that the absence of incriminating evidence and the timely filing of returns negated the grounds for penalty imposition.

In conclusion, the High Court set aside the decision of the Income Tax Appellate Tribunal, ruling in favor of the assessee and dismissing the penalty under Section 271(1)(c) of the Income Tax Act, 1961.