2016 (6) TMI 886 - AT - Income Tax

Levy penalty u/s 271(1)(c) - surrender of income - Held that - The assessee has placed on record copy of the statement of the assessee recorded on 3.10.2007 in which entire surrender of 69 lacs was made in all the assessment years under appeals in which no incriminating material was referred to the assessee while recoding her statement to conclude that assessee had concealed any income. The assessee made a surrender of 69 lacs as per letter of surrender. Therefore Ld. Counsel for the assessee is justified in contending that even in the absence of any incriminating documents found against the assessee during the course of search the provisions of explanation 5A of section 271(1)(c) would not apply in the case of the assessee. This issue was considered in detail by the ITAT Hyderabad Bench in the case of Dilip Kedia Vs. ACIT (2013 (7) TMI 934 - ITAT HYDERABAD ) which squarely apply to the facts and circumstances of the present case. Thus no justification to sustain the penalty u/s 271(1)(c) of the I.T. Act - Decided in favour of assessee. Levy penalty u/s 271(1)(c) - assessee had not filed its return of income u/s 139(1) of the Act within the due date and disclosure was made subsequently in response to the notice u/s 153A - Held that - The assessment year under appeal is 2007-08 and due date of filing of the return was 31.7.2007 u/s 139(1) but no return has been filed by the assessee by the due date. The due date u/s 139(1) was extended upto 31.3.2009 which was actually extension of due date under section 139(4) of the Act. Therefore due date had not expired for filing of the return u/s 139(1) (4) of the I.T. Act on the date of search. The assessee in response to the notice u/s 153A declared entire income including the Short Term Capital Gain and Misc. income which have been accepted by the Assessing officer as it is. Therefore Explanation 5A introduced by the Finance Act 2009 would not apply in the case of assessee because the return u/s 153A was already filed on 31.12.2008 which have been accepted as it is by the Assessing officer. Further as is held in assessment year 2005-06 no material was referred to in the statement of the assessee while making a total surrender of 69 lacs. Therefore in the absence of any material against the assessee deeming provision of concealment would not apply in the case of the assessee. - Decided in favour of assessee.

Summary

Issues Involved:
1. Levy of penalty under Section 271(1)(c) of the Income-tax Act, 1961.
2. Application of Explanation 5A to Section 271(1)(c) for assessment years 2005-06, 2006-07, and 2007-08.
3. Validity of penalty in the absence of incriminating material found during the search.
4. Impact of filing returns before the due date on the applicability of Explanation 5A.

Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c):
The appeals challenge the levy of penalty under Section 271(1)(c) for concealment of income and furnishing inaccurate particulars. The assessee argued that the penalty should not be levied as the income was disclosed in response to the notice under Section 153A and based on the assurance from the Department that no penalty would be imposed.

2. Application of Explanation 5A to Section 271(1)(c):
Explanation 5A was inserted by the Finance Act, 2007, effective from 1.6.2007, to cover searches initiated after this date. It deems concealment of income if the assessee has not declared certain income in the original return filed before the search. The Tribunal analyzed whether Explanation 5A applies to the assessee's case, given that the original returns were filed before the search dates.

Assessment Year 2005-06:
The assessee filed the original return on 16.3.2006, before the search on 27.9.2007. The Tribunal concluded that Explanation 5A does not apply as the original return was filed before the due date. The Tribunal relied on the Supreme Court's decisions in CIT v. Onkar Saran & Sons and B.N. Sharma v. CIT, which held that the law applicable for imposing penalty is the law in force at the time of filing the original return.

Assessment Year 2006-07:
The facts and arguments were similar to the assessment year 2005-06. The Tribunal followed the same reasoning and concluded that Explanation 5A does not apply as the original return was filed before the due date of the search.

Assessment Year 2007-08:
The assessee did not file the original return by the due date but filed it in response to the notice under Section 153A. The Tribunal noted that the due date for filing the return had not expired at the time of the search. Thus, Explanation 5A does not apply. The Tribunal cited the ITAT Mumbai Bench's decision in Kshiti R. Maniar and other relevant judgments to support this conclusion.

3. Validity of Penalty in the Absence of Incriminating Material:
The Tribunal emphasized that no incriminating material was found during the search to suggest that the assessee had concealed income. The surrender of income was made voluntarily, and no specific documents were referred to in the statement recorded during the search. Therefore, the Tribunal held that the penalty under Section 271(1)(c) could not be sustained.

4. Impact of Filing Returns Before the Due Date:
The Tribunal highlighted that if the original returns were filed before the due date, the provisions of Explanation 5A would not apply. The Tribunal referred to the Supreme Court's rulings that the law prevailing at the time of filing the original return governs the levy of penalty. This principle was applied consistently across the assessment years under appeal.

Conclusion:
The Tribunal set aside the orders of the authorities below and canceled the penalties levied under Section 271(1)(c) for all assessment years under appeal. The appeals of the assessee were allowed based on the detailed analysis of the applicability of Explanation 5A and the absence of incriminating material.