2015 (6) TMI 285 - AT - Income Tax

Penalty proceedings u/s. 271(1)(c) - additional income offered by the assessee on account of certain payments of salaries to domestic servants and drivers etc. in response to the notice u/s. 153A - Held that - For invoking the provisions of Explanation 5A for levying the penalty u/s. 271(1)(c), the primary condition is that in the course of search the assessee should be found to be the owner of any asset or any income based on any entry in any books or documents or any such transactions. If the documents does not indicate the transaction pertaining to the assessee or the assessee is not found to be the owner then provisions of Explanation 5A cannot be invoked. The onus now in this case and at this stage to prove that Explanation 5A is not applicable, is wholly upon the assessee to explain before the Assessing Officer. Thus, the impugned orders are set aside and the matter is restored back to the file of the Assessing Officer to consider the penalty proceedings afresh in the light of the observations made above. Decided in favour of assessee for statistical purposes

Issues Involved:
1. Levy of penalty under section 271(1)(c) of the Income Tax Act.
2. Applicability of Explanation 5A to section 271(1)(c).
3. Satisfaction of conditions laid down in the main provision of section 271(1)(c) before invoking Explanation 5A.
4. Ownership and possession of documents indicating additional income.

Issue-wise Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c):
The assessee filed appeals against the levy of penalty under section 271(1)(c) for the assessment years 2003-04 to 2007-08. The penalty was imposed on additional income declared in returns filed under section 153A following a search and seizure action under section 132. The Assessing Officer (AO) initiated penalty proceedings based on the additional income shown by the assessee, which was derived from loose papers found during the search indicating payments to domestic servants and drivers.

2. Applicability of Explanation 5A to Section 271(1)(c):
The AO invoked Explanation 5A to section 271(1)(c), which provides for deemed concealment of income in cases where the assessee is found to be the owner of any money, bullion, jewellery, or other valuable articles or income during the course of a search initiated after June 1, 2007. The assessee argued that the conditions laid down in the main section must be satisfied before invoking Explanation 5A. The assessee contended that the additional income was declared voluntarily to avoid litigation and should not attract penalty.

3. Satisfaction of Conditions Laid Down in Main Provision of Section 271(1)(c):
The assessee's counsel argued that the AO must record satisfaction regarding concealment of income or furnishing inaccurate particulars, which is a mandatory condition before invoking Explanation 5A. The counsel relied on the decision of the Hon'ble Bombay High Court in CIT vs. Jet Airways India Ltd., which emphasized the necessity of fulfilling the conditions set out in the substantive part of the section. The Tribunal, however, disagreed with this contention, stating that the AO's remarks in the assessment order constituted sufficient satisfaction for initiating penalty proceedings. Subsection (1B) of section 271, introduced with retrospective effect from April 1, 1989, deems an assessment order containing directions for penalty proceedings as constituting satisfaction for initiating penalty.

4. Ownership and Possession of Documents Indicating Additional Income:
The Tribunal noted that the primary condition for invoking Explanation 5A is that the assessee should be found to be the owner of any asset or income based on documents or transactions discovered during the search. The assessee argued that the loose papers indicating payments to domestic servants and drivers were not found in their possession. The Tribunal found this fact crucial and not clearly established in the orders of the AO or the CIT(A). Therefore, the Tribunal remanded the matter back to the AO to examine whether the documents pertained to the assessee and were found from their possession. The onus was placed on the assessee to prove that Explanation 5A was not applicable.

Conclusion:
The Tribunal set aside the impugned orders and restored the matter to the AO for fresh consideration of the penalty proceedings in light of the observations made. The appeals were allowed for statistical purposes, and the order was pronounced in the open court on May 29, 2015.

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