2016 (1) TMI 801 - AT - Income Tax

Penalty levied under section 271(1)(c) - additional income offered in the return of income submitted under section 153A - CIT(A) deleted the levy - Held that - The assessee had furnished original return of income in which he had not declared its receipts from the profession, but pursuant to the search and seizure operation, certain incriminating documents were seized, which contained unrecorded receipts, expenses and investments in various financial years and the assessee in response thereto, declared the additional professional fees and paid taxes. The case of the assessee before us was that since the additional taxes have been paid there is no question of levy of penalty under section 271(1)(c) of the Act. We find no merit in the said claim of the assessee, in view of our order of even date in the case of Mrs.Sarita Kaur Manjeet Singh Chopra Vs. ITO ( 2015 (12) TMI 1025 - ITAT PUNE ). Accordingly, we uphold the levy of penalty under section 271(1)(c) of the Act on unrecorded receipts, expenditure and investments declared by the assessee pursuant to search. - Decided against assessee. Addition made by the Assessing Officer in the assessment proceedings pursuant to the original return of income filed by the assessee - Held that - From the perusal of details, we find that the said addition was made by the Assessing Officer while passing the order under section 143(3) of the Act, which in turn, was confirmed by the CIT(A) and the Tribunal. While filing the return of income under section 153A of the Act, the assessee had not included the said additional income. The penalty proceedings, if any had to be initiated and levied pursuant to proceedings under section 143(3) and not pursuant to proceedings under section 143(3) r.w.s. 153A of the Act. Accordingly, we find no merit in the said observations of the authorities below and we direct the Assessing Officer to levy penalty under section 271(1)(c) of the Act on the additional income assessed in the hands of assessee pursuant to search and delete the penalty for concealment on the alleged addition of ₹ 6,00,000/-.- Decided in favour of assessee in part.

Issues Involved:
1. Deletion of penalty levied under section 271(1)(c) of the Income Tax Act, 1961.
2. Applicability of Explanation 5A to section 271(1)(c).
3. Treatment of additional income declared under section 153A.
4. Treatment of unexplained loans.

Detailed Analysis:

1. Deletion of Penalty Levied under Section 271(1)(c):
The primary issue in all the appeals was the deletion of penalty levied under section 271(1)(c) of the Income Tax Act, 1961. The Revenue argued that the CIT(A) erred in deleting the penalty without appreciating the settled legal position regarding the difference between income disclosed under section 139 and 153A, especially when based on incriminating seized material.

2. Applicability of Explanation 5A to Section 271(1)(c):
The Revenue contended that the CIT(A) failed to apply Explanation 5A correctly, which deals with the concealment of income discovered during a search. The CIT(A) held that no direct linkage was established between the seized material and the additional income declared, thus rendering Explanation 5A inapplicable. Instead, the CIT(A) applied Explanation 1, which was found to be more plausible given the circumstances.

3. Treatment of Additional Income Declared under Section 153A:
During the search, incriminating documents were found, leading to the declaration of additional income by the assessee in the return filed under section 153A. The Assessing Officer (AO) noted that this declaration was not voluntary and initiated penalty proceedings under section 271(1)(c). The CIT(A) observed that the additional income declared had no direct linkage to the seized material and thus, Explanation 5A was not applicable. The CIT(A) further noted that the assessee had offered the additional income to avoid protracted litigation and had paid all due taxes, making the explanation plausible under Explanation 1.

4. Treatment of Unexplained Loans:
The AO also initiated penalty proceedings for unexplained loans totaling Rs. 6,00,000, which were not included in the return filed under section 153A. The CIT(A) held that since no incriminating documents were found regarding these loans during the search, no penalty could be levied under Explanation 5A. The CIT(A) emphasized that the AO had not imposed penalty in the original assessment proceedings for these loans, thus no penalty was justified under section 271(1)(c) in the absence of new incriminating evidence.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to delete the penalty for the additional income declared under section 153A, finding that Explanation 5A was not applicable as no direct linkage with the seized material was established. However, the Tribunal directed the AO to levy penalty under section 271(1)(c) for the additional income assessed pursuant to the search and delete the penalty for the unexplained loans, as these were not part of the incriminating documents found during the search.

Order:
The appeal of Revenue in ITA No.2241/PN/2012 was partly allowed, and other appeals in ITA Nos.2242, 2243 & 2244/PN/2012 were allowed. The order was pronounced on October 30, 2015.

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