2015 (1) TMI 513 - AT - Income Tax

Penalty u/s 271(1)(c) - incriminating material found during the search or not - surrender of income - Held that - In the facts of the present case it stands fully addressed that the assessee has offered an explanation consistently in terms of clause (A) of Explanation-1 to section 271(1)(c) and considering the overall conduct of the assessee as is discernable form the record, we are of the view that the bonafides contemplated in Clause B of the said explanation cannot be doubted as in the facts of the present case the occasion to conceal and filing of inaccurate particulars does not arise as the assessee who is described as an illiterate old Halwai who admittedly offered to surrender income for tax which was retracted on the grounds that offer was made on the belief that incriminating material was found during the search where admittedly the seized documents when made available showed that nothing incriminating was found. Where admittedly the jewellery found was less than the disclosed jewellery and in the said period no property either by the assessee or the family had been purchased and cash found was claimed consistently belonging to the various firms and explainable from that recorded books of accounts and none of these findings and claims have been shown to be incorrect. Thus we set aside the impugned order and quash the penalty holding that the explanation offered by the assessee is a bonafide explanation on facts which deserves to be accepted. Decided in favour of assessee.

Issues Involved:
1. Violation of natural justice and time-barred action.
2. Confirmation of penalty under Section 271(1)(c) amounting to Rs. 52,50,000.
3. Assessment of surrendered income and its subsequent treatment.
4. Validity of the penalty proceedings.

Issue-wise Detailed Analysis:

1. Violation of Natural Justice and Time-Barred Action:
The appellant initially raised various grounds, including the violation of natural justice and the argument that the action was time-barred. However, these grounds were not pursued during the arguments.

2. Confirmation of Penalty under Section 271(1)(c) Amounting to Rs. 52,50,000:
The core issue argued was the confirmation of the penalty under Section 271(1)(c) amounting to Rs. 52,50,000. The relevant facts include a search conducted at the assessee's premises on 10.11.2005, where the assessee disclosed an additional income of Rs. 1 crore, later enhanced to Rs. 1.75 crore. The assessee claimed that the statements were made under duress and mental strain, and upon verification of seized material, no incriminating evidence was found to support the disclosed income. The Assessing Officer (AO) rejected this explanation, asserting that the surrender was voluntary and without coercion. The AO proceeded to add the surrendered amount and an additional Rs. 2,50,000 shown as gifts.

3. Assessment of Surrendered Income and Its Subsequent Treatment:
The CIT(A) restricted the addition of Rs. 1.75 crore to Rs. 13,20,950, citing a lack of reference to any seized material by the AO. The ITAT, however, upheld the addition of Rs. 1.75 crore and directed the AO to grant telescoping benefit of Rs. 2,50,000 received as gifts against the surrender of Rs. 1.75 crore.

4. Validity of the Penalty Proceedings:
The AO initiated penalty proceedings under Section 271(1)(c) but kept them in abeyance until the receipt of the Tribunal's order in the quantum proceedings. Upon confirmation of the addition, the AO issued a fresh show-cause notice. The assessee did not appear in response, leading the AO to conclude that the assessee had concealed income and furnished inaccurate particulars. The CIT(A) upheld the penalty, emphasizing that the additional income offered was after the department had collected evidence and determined the magnitude of evasion.

Analysis of Assessee's Arguments:
The assessee argued that the surrender was made under mistaken facts and was not warranted, as no incriminating material was found. The assessee relied on various judicial decisions to support the claim that penalty is not automatic and that the explanation offered was bona fide. The CIT(A) and ITAT's findings in the quantum proceedings were cited to show that the explanation was consistently offered and that no incriminating material was found.

Tribunal's Findings:
The Tribunal noted that penalty proceedings and assessment proceedings are separate and distinct. It emphasized that the explanation offered by the assessee must be considered independently in penalty proceedings. The Tribunal found that the explanation offered by the assessee was bona fide, as no incriminating material was found during the search, the jewellery found was less than disclosed, and the cash was explainable from recorded books of accounts. The Tribunal concluded that the assessee's belief that there was incriminating material was reasonable and that the explanation offered was bona fide.

Conclusion:
The Tribunal set aside the impugned order and quashed the penalty, holding that the explanation offered by the assessee was bona fide and deserved to be accepted. The appeal filed by the assessee was allowed.

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