2019 (10) TMI 993 - AT - Income Tax

Penalty u/s 271(1)(c) - surrender made by the assessee in the survey proceedings prior to filing of the return of income u/s 139(1) - HELD THAT - As per the provisions of section 271(1)(c), only when an amount is added or disallowed in computing the total income of the assessee as a result thereof shall for the purpose of clause (c) of section 271(1) be deemed to represent income in respect of which particulars have been concealed or inaccurate particulars have been furnished. Since the Explanation 5 or 5A of section 271(1)(c) cannot be pressed into service in this case, therefore, any surrender made by the assessee in the survey proceedings prior to filing of the return of income u/s 139(1) would not lead to the conclusion that disclosure of the said income in the return of income filed u/s 139(1) represents the income in respect of which inaccurate particulars have been furnished or particulars have been concealed. Penalty levied by the AO in respect of the said amount declared in the return of income filed under section 139(1) is not sustainable in law and the same is deleted. Addition it is pertinent to note that the AO has rejected the books of account by invoking the provisions of section 145(3) and thereafter estimated the income of the assessee by applying GP rate at 2% as against 1.92%. Thus to the extent of sales declared by the assessee in the books of account and in the return of income filed under section 139(1), any trading addition made after rejection of books of account by estimating the income would not attract the penalty under section 271(1)(c) and particularly in the case of the assessee when the income declared by the assessee represents GP rate at 1.92% and the AO has estimated the income by applying GP at 2%. Extent of the addition by applying GP at 2% on the declared sales, same will not be regarded as furnishing inaccurate particulars of income or concealment of particulars of income to attract the penal provision under section 271(1)(c). Accordingly, the penalty to the extent of the trading addition made in respect of the declared sales is deleted. Addition made by the AO in respect of unaccounted sales by applying GP at 2%, since it is the case of undisclosed sales by the assessee and, therefore, the addition on the said amount will fall in the category of concealment of particulars of income and consequently the penalty levied under section 271(1)(c) in respect of the addition is sustained. AO is directed to re-compute the penalty in respect of the addition on account of unaccounted sales. Salary expenditure which was originally disallowed by the AO of ₹ 24,000/- but the ld. CIT (A) has restricted the same to ₹ 4,000/-, this is only a case of non-acceptance of the claim of the assessee whereas it is not a bogus claim of salary expenditure. The assessee has claimed the salary @ ₹ 12,000/- per month whereas the CIT (A) in quantum appeal has allowed the salary @ ₹ 10,000/- per month. Therefore, in such a situation when the claim and particulars were already declared by the assessee in the return of income, then disallowance of part of the claim would not attract the penalty provision under section 271(1)(c). Miscellaneous expenditures were disallowed on estimated basis of ₹ 6,400/- as per the order of the ld. CIT (A) in quantum proceedings, therefore, the disallowance sustained on estimation basis would not amount to furnishing of inaccurate particulars of income or concealment of particulars of income. Accordingly, the penalty levied u/s 271(1)(c) in respect of the disallowance of salary and miscellaneous expenditure is deleted. The assessee has also raised a legal ground regarding the validity of initiation of penalty proceedings under section 271(1)(c) for want of specifying the limb and default of the assessee whether it is for furnishing of inaccurate particulars of income or concealment of particulars of income. Though A/R as well as the ld. D/R has seriously contested this issue, however, in view of the finding on the merits of the appeal, I do not propose to take up this issue for adjudication. Hence the same is dismissed being infructuous. Appeal of the assessee is partly allowed.

Summary

Issues Involved:
1. Validity of penalty under section 271(1)(c) for inaccurate particulars of income or concealment of income.
2. Treatment of undisclosed income declared by the assessee in the return of income.
3. Addition on account of trading income and disallowance of expenditures.
4. Initiation of penalty proceedings and specification of default by the assessee.

Issue 1: Validity of penalty under section 271(1)(c) for inaccurate particulars of income or concealment of income:

The appeal contested the penalty order under section 271(1)(c) of the IT Act for the assessment year 2011-12. The assessee challenged the order on the grounds that the Assessing Officer (AO) did not strike off irrelevant portions of the notice, rendering it bad in law. The contention was that no satisfaction was recorded regarding concealment of income or furnishing inaccurate particulars. The Tribunal analyzed the additions made by the AO and the contentions of both parties. The Tribunal held that the disclosure of income in the return filed under section 139(1) cannot be considered concealment or furnishing inaccurate particulars unless there is a deeming provision. As such, the penalty related to the disclosed income was deemed unsustainable and was deleted.

Issue 2: Treatment of undisclosed income declared by the assessee in the return of income:

The AO had made additions to the total income, including undisclosed income declared by the assessee during a survey. The Tribunal noted that the undisclosed income, once declared in the return under section 139(1), did not constitute concealment or inaccurate particulars. The Tribunal emphasized that without specific deeming provisions, such disclosures do not attract penalty provisions. Therefore, the penalty related to the disclosed undisclosed income was deemed unsustainable and was deleted.

Issue 3: Addition on account of trading income and disallowance of expenditures:

The AO had made various additions and disallowances, leading to the penalty under section 271(1)(c). The Tribunal examined each addition and disallowance, considering the arguments of both parties. It was held that certain additions, such as trading income additions based on estimation, did not amount to inaccurate particulars or concealment. The penalty related to these specific additions was deleted. However, in cases of undisclosed sales and certain disallowed expenditures, the penalty was sustained as they fell under concealment of income.

Issue 4: Initiation of penalty proceedings and specification of default by the assessee:

The assessee raised a legal ground challenging the initiation of penalty proceedings for not specifying the default regarding inaccurate particulars or concealment of income. Although this issue was contested, the Tribunal did not adjudicate on it due to the findings on the merits of the appeal. The appeal was partly allowed, and the penalty was adjusted based on the Tribunal's analysis of each addition and disallowance.

In conclusion, the Tribunal analyzed the validity of the penalty under section 271(1)(c) in detail, considering the disclosure of undisclosed income, trading additions, and disallowed expenditures. The decision was based on the legal provisions and specific circumstances of the case, leading to the partial allowance of the appeal and adjustments to the penalty amount.