2015 (7) TMI 123 - AT - Income Tax

Penalty levied u/s.271(1)(c) - undisclosed income in the hands of director - CIT(A) deleted penalty levy - Held that - CIT(A) deleted the penalty holding that the profit offered to tax by the directors of the different companies including the assessee in their hands in fact belongs to the said companies which have been earned by the said companies from their manufacturing activity. Therefore, such income has to be taxed in the hands of the respective companies and not in the hands of the directors. According to the Ld.CIT(A) it is the settled proposition of law that in order to levy penalty u/s.271(1)(c) there has to be income of the assessee in respect of which particulars have been concealed. Since in the instant case it is not the income of the assessee and the income belongs to that of the respective companies, therefore, penalty u/s.271(1)(c) of the I.T. Act cannot be levied by invoking either Explanation 1 or Explanation 5A to provisions of section u/s.271(1)(c) of the I.T. Act. No infirmity in the above finding given by the Ld.CIT(A). In the instant case the income declared and accepted by the assessee in the return filed in response to notice u/s.153A as undisclosed income is actually belongs to the company and he is not the owner of such income. The Ld. Counsel for the assessee also made a statement at the Bar that the assessee has not taken any benefit out of the amount disclosed. The tax paid on such undisclosed income has gone waste as no benefit out of such income has been availed by the assessee. Therefore, we are of the considered opinion that this is not a fit case for levy of penalty u/s.271(1)(c) read with Explanation 5A - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of penalty levied under Section 271(1)(c) of the Income Tax Act by the Assessing Officer.
2. Whether the income declared by the assessee during the search action was correctly assessed in the hands of the assessee or should have been assessed in the hands of the respective companies.

Issue-wise Detailed Analysis:

1. Deletion of Penalty Levied under Section 271(1)(c):

The primary issue raised by the Revenue in the appeals was the deletion of the penalty levied under Section 271(1)(c) of the Income Tax Act by the CIT(A). The Revenue argued that the income declared by the assessee was a result of the search action and would not have been disclosed otherwise, indicating concealment of income. The Assessing Officer had initiated penalty proceedings, noting that the assessee had concealed particulars of income amounting to Rs. 29,96,551/-. However, the CIT(A) deleted the penalty, reasoning that the income offered by the directors of the companies, including the assessee, actually belonged to the respective companies from their manufacturing activities and not to the directors personally. The CIT(A) held that for penalty under Section 271(1)(c) to be levied, there must be "income" of the assessee in respect of which particulars have been concealed. Since the income in question belonged to the companies, the penalty could not be levied on the assessee.

2. Assessment of Income Declared During Search:

The facts of the case revealed that a search action under Section 132 of the Income Tax Act was conducted at the business and residential premises of different members/associate concerns of the Kalika group of Jalna, including the assessee. The assessee had declared additional income during the search to buy peace and avoid litigation. The Assessing Officer noted that the income declared by the assessee was a result of the search action and initiated penalty proceedings under Section 271(1)(c) read with Explanation 5A. The CIT(A) observed that the income from the alleged suppressed sales of Kalika Steel Alloys Pvt. Ltd. and Kalika Steel Jalna Pvt. Ltd. should be assessed in the hands of the companies and not the directors. The CIT(A) also noted that the income incorrectly offered in the hands of any assessee is not liable to penalty under Section 271(1)(c) as the income itself is incorrectly offered and taxed.

Conclusion:

The Tribunal upheld the order of the CIT(A), agreeing that the income declared by the directors, including the assessee, actually belonged to the respective companies and should be taxed in the hands of the companies. The Tribunal also noted that for penalty under Section 271(1)(c) to be levied, there must be income of the assessee in respect of which particulars have been concealed. Since the income in question was not the income of the assessee but of the companies, the penalty could not be levied. The Tribunal dismissed the appeals filed by the Revenue, affirming the deletion of the penalty by the CIT(A).