2017 (11) TMI 1195 - AT - Income Tax

Penalty under section 271(1)(c) - voluntary disclosure in good faith to buy piece and avoid litigation - Held that - In the instant case, in the course of search which has been initiated under section 132 on September 30, 2010 the assessee has admitted and offered to tax ₹ 25,00,000 for the financial year 2009-10. The said admission is based on the seized document identified as AS-1 page 5 found in the course of search conducted against Shri D. D. Modi on August 24, 2009 wherein 25,000 Govind Ji Lashkari was noted. Therefore, the assessee is found to be the owner of income of ₹ 25 lakhs based on the said entry in the documents so seized and he claims that such entry represents his income for the financial year 2009-10. Further, the financial year 2009-10 has ended on March 31, 2010 much before the date of search which happened on September 30, 2010. In the return of income furnished under section 139(1) on July 31, 2010 for the such financial year 2009-10, such income has not been disclosed. Such income has been disclosed subsequently in the revised return filed under section 139(5) on December 27, 2010 and thereafter, in the return filed pursuance to issuance of notice under 153A on June 21, 2011. No specific arguments have been taken by the learned authorised representative to dispute the applicability of Explanation 5A in the instant case. In light of these undisputed facts, the provisions of Explanation 5A are clearly attracted in the instant case. We are unable to subscribe to the view that in the instant case since there was voluntary disclosure in good faith to buy piece and avoid litigation, the same should not be a basis for levy of penalty as subscribing to such a view would make Explanation 5A otiose which has been specifically invoked in the instant case. Whether for the purpose of imposition of penalty under section 271(1)(c) resulting as a result of search assessment made under section 153A, the original return of income filed under section 139 cannot be considered? - Held that - The said issue is no more rest integra. Considering the non obstante clause under section 153A which excludes the application of section 139, the return filed pursuant to notice under section 153A takes the place of the original return for the purposes of all the provisions of the Act including levy of penalty under section 271(1)(c) of the Act. In the instant case, there is no dispute in this regard as the Assessing Officer has not compared the income returned under section 139(1) and income returned under section 153A. Even the learned Commissioner of Income-tax (Appeals) has accepted the same where he states that the provisions of sections 153A, 153B and 153C are a complete code for assessment wherein the search and seizure has been initiated after May 31, 2003 and complete detachment of assessment proceedings under section 143 or 147 from search proceedings under section 153A of the Act. The said contention therefore does not support the case of the assessee. In the instant case, it is no doubt true that the returned income under section 153A has been accepted (except for an amount of ₹ 1,97,178) and assessed as such by the Assessing Officer. What is how ever relevant to examine is the difference between the amount of income assessed and amount of income in respect of which particulars have been deemed to have been concealed invoking the provisions of Explanation 5A. In the instant case, the particulars which have been deemed to have been concealed amounts to ₹ 25 lakhs and on such amount, the penalty has been rightly levied by the Assessing Officer. Therefore, this contention of the learned authorised representative does not support the assessee. Coming to the levy of penalty on the addition of ₹ 1,97,178 is concerned, we find that the Assessing Officer has applied the same analogy as applied in the case of surrender of ₹ 25 lakhs and invoked Explanation 5A to levy the penalty. We are of the view that the addition is based on purely estimated basis where the Assessing Officer has worked out interest income on the said loan amount of ₹ 25 lakhs advanced to Shri D. D. Modi, and there is no material to support either the charging of interest or the rate at which such interest has been charged which has been found during the course of search. In the result, it cannot be said to be a case of concealment of income and the penalty to this extent stand deleted. - Decided partly in favour of assessee.

Issues Involved:
1. Levy of penalty under section 271(1)(c) of the Income-tax Act, 1961.
2. Applicability of Explanation 5A to section 271(1)(c).
3. Validity of the revised return filed under section 139(5).
4. Estimation of interest income on the additional disclosed income.

Detailed Analysis:
1. Levy of penalty under section 271(1)(c) of the Income-tax Act, 1961:

The case revolves around the penalty of ?8,27,866 imposed by the Assessing Officer (AO) under section 271(1)(c) on the additional income of ?25,00,000 disclosed by the assessee during a search operation. The AO held that the case fell within the ambit of Explanation 5A to section 271(1)(c), deeming the income as concealed.

2. Applicability of Explanation 5A to section 271(1)(c):

The AO argued that all conditions of Explanation 5A were met, as the income of ?25,00,000 was not declared in the original return filed before the search date but was disclosed in the revised return filed after the search. The Commissioner of Income-tax (Appeals) upheld this view, stating that the disclosure was not a voluntary act but a consequence of the search operation.

3. Validity of the revised return filed under section 139(5):

The assessee contended that the revised return filed within the time allowed under section 139(5) should be considered valid. However, the Commissioner of Income-tax (Appeals) held that the revised return was non est (invalid) as it was filed after the search operation, and the additional income was not recorded in the regular books of account.

4. Estimation of interest income on the additional disclosed income:

The AO also added ?1,79,178 as estimated interest income on the additional disclosed income of ?25,00,000. The assessee argued that this addition was based on estimation and not on any incriminating material found during the search.

Judgment Analysis:

Levy of Penalty:
The Tribunal examined whether the conditions of Explanation 5A were met. It found that the assessee admitted to the additional income of ?25,00,000 during the search and disclosed it in the revised return filed after the search. Therefore, the provisions of Explanation 5A were applicable, and the penalty was rightly levied on this amount.

Validity of Revised Return:
The Tribunal upheld the view that the revised return filed after the search operation was non est. The original return under section 139(1) did not disclose the additional income, and the revised return was filed only after the search, making it invalid for penalty immunity purposes.

Estimation of Interest Income:
The Tribunal found that the addition of ?1,79,178 as interest income was based on estimation without any supporting material found during the search. Therefore, it held that this addition did not constitute concealment of income and deleted the penalty on this amount.

Conclusion:
The Tribunal upheld the penalty on the additional income of ?25,00,000 under Explanation 5A to section 271(1)(c) but deleted the penalty on the estimated interest income of ?1,79,178. The appeal was partly allowed, providing partial relief to the assessee.

Final Order:
The appeal of the assessee was partly allowed, with the penalty on ?25,00,000 upheld and the penalty on ?1,79,178 deleted. The order was pronounced in the open court on May 24, 2017.

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