2014 (5) TMI 816 - AT - Income Tax

Penalty u/s 271(1)(c) of the Act - Addition on account of purchase and sale of various properties Held that - The source of income of the assessee is from business of real estate up to the AY 2005-06 and for the AY 2006-07 and 2007-08, the source of income is salary income - It is not that the bona fide belief claimed by the assessee is without any basis - there is a reasonable cause for the non-disclosure of the relevant income by the assessee - it is not a fit case for the levy of penalty on account of concealment u/s 271(1)(c) of the Act - the assessee has accepted the additions made in the assessment does not by itself justify the imposition of penalty for concealment - the amounts involved in the AY 2006-07 and 2007-08 are very meager, there was no justification for the imposition of penalty u/s 271(1)(c) of the Act the order of the CIT(A) is set aside Decided in favour of Assessee.

Summary

Issues:
Penalty under Section 271(1)(c) of the Income-tax Act, 1961 for assessment years 2005-06 to 2007-08.

Analysis:
The appeals were against penalties levied by the Commissioner of Income-tax(Appeals) III, Hyderabad. The assessee, involved in real estate business, failed to file returns despite a search and seizure operation. The Assessing Officer found discrepancies in the income declared by the assessee and made additions based on seized documents. Penalties were imposed under Section 271(1)(c) for concealment of income. The assessee contended that the undisclosed income was embedded in the real estate income offered and accepted the additions to avoid prolonged litigation. However, the Assessing Officer imposed penalties at 100% of the tax sought to be evaded.

Proceedings before the CIT(A) saw the assessee arguing a bona fide belief that real estate income was exempt from tax. The CIT(A) upheld the penalties. On appeal, the Tribunal noted the source of income changed from real estate to salary for the relevant years. The Assessing Officer's additions were based on property transactions without considering allowable deductions. The Tribunal found merit in the assessee's claim that purchased lands were agricultural and beyond taxable limits for capital gains. The Tribunal held that there was a reasonable cause for non-disclosure of income and no basis to justify penalties. The Department failed to disprove the assessee's explanations, and the Tribunal canceled all penalties imposed for the three assessment years.

In conclusion, the Tribunal allowed all three appeals, setting aside the penalties imposed by the Assessing Officer and confirmed by the CIT(A).