2016 (2) TMI 885 - AT - Income Tax

Penalty u/s 271(1)(c) - income offered by the assessee pursuant to search carried out at his premises - advances received in cash from the customers and gifts received - Held that - In the facts of the present case, we hold that the declaration made by the assessee on account of advances received in cash from the customers which was shown in the books of account, balance sheet and even in the return of income, filed before the date of search, in view of the declaration of the assessee while recording the statement under section 132(4) of the Act, during the course of search and seizure action at the premises of the assessee on 06.01.2010, represents the additional income in the hands of the assessee, which have been declared by the assessee in the return of income filed pursuant to issue of notice under section 153A of the Act. Such additional income offered by the assessee falls within the purview of Explanation 5A to section 271(1)(c) of the Act of the Act and t he assessee is liable for levy of penalty under section 271(1)(c) of the Act on the aforesaid amounts offered by the assessee on account of advances received in cash from customers shown in the balance sheet. Similarly, the gifts shown in the books of account which have been offered as additional income by the assessee during the course of search itself, in the statement recorded under section 132(4) of the Act is liable for levy of penalty under section 271(1)(c) of the Act i.e. on offer of income of ₹ 90,000/- in assessment year 2006-07 and ₹ 8,17,200/- in assessment year 2007-08. We find no merit in the order of CIT(A) in this regard that where the advances from customers, gifts received by the assessee and unsecured loan have been shown in the books of account and were part of the balance sheet filed by the assessee along with return of income originally filed by the assessee prior to date of search does not warrant the levy of penalty under section 271(1)(c) of the Act. In view of the amended provisions of Explanation 5A to section 271(1)(c) of the Act, the said finding of the CIT(A) is reversed and we hold that the assessee is liable to levy of penalty under section 271(1)(c) of the Act on the income offered by the assessee pursuant to search carried out at his premises, during the course of recording of statement under section 132(4) of the Act and by way of additional income in the return of income filed pursuant to issue of notice under section 153A of the Act. Similarly, unsecured loans shown in assessment year 2007-08 is liable for levy of penalty under Explanation 5A to section 271(1)(c) of the Act, which was offered by the assessee as additional income during the course of search and also declared in the return of income filed pursuant to notice under section 153A of the Act. Applying the ratio laid down by the Pune Bench of Tribunal in Sarita Kaur Manjeet Singh Chopra Vs. ITO (2015 (12) TMI 1025 - ITAT PUNE ), we hold that the assessee is exigible to levy of penalty under Explanation 5A to section 271(1)(c) of the Act on the incomes offered in the return of income pursuant to issue of notice under section 153A of the Act. - Decided against assessee Addition made on account of undisclosed rent from shop and house on estimated basis - Held that - The assessee offered to tax the notional income in respect of the said vacant house at Malegaon and shop at Nashik. The assessee admittedly, had not received any income from two properties and the income was assessed in the hands of assessee on notional basis as the assessee owned one self occupied property at Nashik. The said addition was made in the hands of assessee during the course of assessment proceedings and no information in this regard was found during the course of search proceedings. In view thereof, the provisions of Explanation 5A to section 271(1)(c) of the Act are not applicable. However, the substantive provisions of section 271(1)(c) of the Act are attracted, but in view of the notional income being assessed in the hands of assessee and in the absence of any evidence found during the course of search or otherwise as to the receipt of rental income from the said properties, we find no merit in the levy of penalty under section 271(1)(c) of the Act on such notional rent - Decided against revenue Addition made on account of notional rental income from hotel - Held that - The offer of the rental income during the course of assessment proceedings was to buy peace of mind and to avoid litigation. However, there is no finding of any of the authorities that the assessee had indeed received the aforesaid rental income from the said hotel. In view of the explanation of the assessee, which was not accepted by the Assessing Officer and addition was made in the hands of assessee on notional basis, does not justify the levy of penalty under section 271(1)(c) of the Act. We further hold that on such additions made in the hands of assessee and in the absence of any evidence found during the course of search, Explanation 5A to section 271(1)(c) of the Act is not attracted. Accordingly, we upho ld the order of CIT(A) in deleting penalty - Decided against revenue Addition on account of undisclosed profit on sale of flat - Held that - The claim of the assessee in this regard is that the said income was voluntarily offered by the assessee and was not found during the course of search. In case, no evidence was found during the course of search, then admittedly, the provisions of Explanation 5A to section 271(1)(c) of the Act are not attracted. However, the assessee is exigible to levy of penalty for concealment under section 271(1)(c) of the Act under the substantive provisions since the assessee had failed to disclose the profits earned by it on the sale of flats of ₹ 22,500/- and 42,250/- in assessment years 2008-09 and 2009-10. Accordingly, we reverse the order of CIT(A) in this regard and direct the Assessing Officer to levy penalty under section 271(1)(c) - Decided against assessee Addition of on-money received on sale of plot - Held that - Where the assessee had not offered true taxes on the income declared by the assessee and addition was made on account of on-money received on sale of plots in the hands of assessee, then the provisions of section 271(1)(c) of the Act with regard to concealment of income are attracted and the assessee is liable to levy of penalty under substantive provisions of section 271(1)(c) of the Act. We reverse the order of CIT(A) in this regard and uphold the levy of penalty under section 271(1)(c) of the Act on receipt of on-money of ₹ 12,000/- in assessment year 2006-07 and ₹ 10,000/- in 2007-08.- Decided against assessee Disallowance of labour payment for non-payment of taxes at source - Held that - The addition was made in the hands of assessee by the Assessing Officer for non-deduction of tax at source and in view of the provisions of section 40(a)(ia) of the Act. The disallowance was made in the hands of assessee on account of deeming provisions of the Act. However, it is not the case of Revenue authorities that the aforesaid amount on account of labour was not paid by the assessee. Merely because the addition has been made in the hands of assessee, does not justify the levy of penalty under section 271(1)(c) of the Act. We hold that there is no merit in the order of Assessing Officer in this regard and upholding the order of CIT(A) in deleting the penalty levied on the said addition - Decided against revenue Change in head of income - long term capital gains offered to tax in the return of income was assessed as business income in the hands of the assessee by the Assessing Officer - Held that - The assessee is undoubtedly carrying on the business of developers, but it can hold assets in two fields i.e. on account of trading or on account of investment. Merely because the assessee was not able to substantiate its claim before the Assessing Officer and had offered the said income to be assessed as business income, instead of under the head capital gains as shown in the return of income, does not justify the levy of penalty under section 271(1)(c) of the Act See CIT Vs. Bennet Coleman & Co. Ltd. 2013 (3) TMI 373 - BOMBAY HIGH COURT . Accordingly, we uphold the order of CIT(A) in this regard as where the assessee only changed head of account and in the absence of any facts that claim of assessee was not bonafide, the deletion of penalty under section 271(1)(c) of the Act by the Tribunal was upheld. - Decided against revenue

Summary

Issues Involved:
1. Deletion of penalty under section 271(1)(c) of the Income Tax Act, 1961.
2. Additional income offered in returns filed under section 153A.
3. Additions made during assessment proceedings.
4. Applicability of Explanation 5A to section 271(1)(c).

Issue-wise Detailed Analysis:

1. Deletion of Penalty under Section 271(1)(c):
The core issue in these appeals is the deletion of penalties levied under section 271(1)(c) of the Income Tax Act, 1961. The Revenue challenged the CIT(A)'s decision to delete the penalties, arguing that the assessee failed to offer explanations for discrepancies between income returned under section 139 and section 153A. The CIT(A) had deleted the penalties on various grounds, including the assertion that the income had been recorded in the books and balance sheet prior to the search and that the disclosures were voluntary.

2. Additional Income Offered in Returns Filed under Section 153A:
The Assessing Officer (AO) levied penalties based on additional income disclosed by the assessee in returns filed under section 153A following a search operation. The AO argued that these disclosures were not voluntary but were made only because incriminating documents were found. The Tribunal noted that the additional income offered by the assessee, including advances received against booking of flats/plots and gifts, was included in the returns filed post-search but not in the original returns. The Tribunal held that the assessee was liable for penalties on these amounts under Explanation 5A to section 271(1)(c).

3. Additions Made During Assessment Proceedings:
The AO made several additions during assessment proceedings, including undisclosed rental income, income from hotel operations, and on-money received from property sales. The CIT(A) deleted the penalties on these additions, reasoning that they were based on estimates or deemed provisions and lacked evidence of actual income. The Tribunal upheld the CIT(A)'s decision for some additions, such as notional rent and disallowed labor payments, but reversed it for others, including undisclosed profits on flat sales and on-money from property sales, thereby reinstating penalties on these amounts.

4. Applicability of Explanation 5A to Section 271(1)(c):
The Tribunal extensively discussed the applicability of Explanation 5A, which deems certain incomes discovered during a search as concealed, even if declared in returns filed post-search. The Tribunal cited the case of Sarita Kaur Manjeet Singh Chopra vs. ITO, where it was held that income disclosed post-search under section 153A attracts penalties under Explanation 5A. Applying this precedent, the Tribunal concluded that the assessee's additional income disclosed post-search, which was not declared in the original returns, warranted penalties under Explanation 5A.

Conclusion:
The Tribunal partially allowed the Revenue's appeals, upholding penalties on additional income disclosed post-search and certain additions made during assessment proceedings. However, it confirmed the CIT(A)'s deletion of penalties on notional and estimated additions, emphasizing the need for concrete evidence of actual income for penalty imposition. The judgment underscores the stringent application of Explanation 5A to section 271(1)(c), reinforcing the principle that income disclosed post-search is deemed concealed if not reported in original returns.