2016 (1) TMI 174 - AT - Income Tax

Penalty u/s. 271(1)(c) - proceedings u/s. 153A - Assessee admitted additional incomes and paid taxes thereon - Held that - Since the facts in this case also are more or less similar to the case of the case of Dilip Kedia Vs. ACIT (2013 (7) TMI 934 - ITAT HYDERABAD ) and assessee filed his returns of income much before the provisions of Explantion-5A were introduced on the statute and as rightly held by the Supreme Court in the case of Reliance Petro Products 2010 (3) TMI 80 - SUPREME COURT , the penalty provisions as applicable on the date of filing the original return are applicable, it is of the opinion that there cannot be any penalty u/s. 271(1)(c) since assessee filed returns of income as declared in statements u/s. 132(4) and proceedings u/s. 153A are independent and separate proceedings from the regular assessment proceedings. In view of this, penalty u/s. 271(1)(c) is not warranted on the facts of the case. Accordingly, the orders of AO and CIT(A) are set aside and grounds are allowed. - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of penalty levied under Section 271(1)(c) of the Income Tax Act.
2. Applicability of Explanation 5A to Section 271(1)(c) in the context of search and seizure operations.
3. Impact of voluntary disclosure of additional income on penalty proceedings.

Detailed Analysis:

1. Legality of Penalty Levied Under Section 271(1)(c):
The assessee faced penalties for the assessment years 2004-05, 2005-06, and 2006-07 under Section 271(1)(c) of the Income Tax Act, following search and seizure operations. The penalties were imposed despite the assessee's claim that additional income was declared voluntarily to settle the matter. The Assessing Officer (AO) did not accept the explanation and levied penalties for concealing particulars of income. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the penalties, referencing judgments from higher courts to support the decision, stating the arrangement was intended for tax evasion.

2. Applicability of Explanation 5A to Section 271(1)(c):
The CIT(A) relied on Explanation 5A, which was retrospectively applied, to justify the penalties. The assessee argued that Explanation 5A should not apply as it was introduced later. The Tribunal analyzed previous decisions, including the Mumbai Tribunal's ruling in the case of Mr. Kiran Shah, which stated that penalties under Section 271(1)(c) should only apply if there is additional income assessed over the returned income in response to notice under Section 153A. Since the AO accepted the income declared in the returns without further additions, the Tribunal found no grounds for penalties.

3. Impact of Voluntary Disclosure of Additional Income:
The Tribunal considered the fact that the assessee declared additional income voluntarily under Section 132(4) and filed returns accordingly. The AO did not make further additions beyond the declared income. The Tribunal referenced the Supreme Court's ruling in Addl CIT v. Onkar Saran and other cases, which held that penalties should be based on the law prevailing at the time of filing the original return, not on subsequent amendments. The Tribunal concluded that since the returns were filed before the introduction of Explanation 5A, the penalties under Section 271(1)(c) were not warranted.

Conclusion:
The Tribunal allowed the appeals, setting aside the orders of the AO and CIT(A). It held that the penalties under Section 271(1)(c) were not justified, given that the assessee had voluntarily disclosed additional income and filed returns before the introduction of Explanation 5A. The Tribunal emphasized that the proceedings under Section 153A are separate from regular assessment proceedings, and no penalty should be levied when the declared income matches the assessed income without further additions.