2020 (9) TMI 566 - AT - Income Tax

Penalty u/s 271(1)(c) - assessment proceeding u/s 153A - short term capital gain on sale of immovable property was found during the course of search OR not? - HELD THAT - In the instant case, the assessee has not been found to have earned short term capital gain on sale of immovable property during the course of search . The assessee is an individual and derived income from salary and income from other sources i.e. interest income and he was not required to maintain the books of account. Nothing on record which suggests that any document/ material/ information was found during the course of search which remotely indicate that the assessee is recipient of short term capital gain on sale of immovable property. It is only during the course of proceedings u/s 153A that the AO noticed that the assessee is in receipt of salary income which has not been disclosed by the assessee in his return and the same was brought to tax. The dispute is not that short term capital gain earned by the assessee on sale of immovable property was not offered to tax by the assessee in his return of income which is an admitted position but question is whether such short term capital gain on sale of immovable property was found during the course of search and obviously the answer to that is not in affirmative. None of the conditions specified in Explanation 5A to Section 271(1)( c) of the Act are attracted and therefore, levy of penalty is hereby directed to be deleted. Thus the appeal of the assessee is allowed.

Summary

Issues Involved:
Challenge to penalty order under Explanation 5A to Section 271(1)(c) of the Income Tax Act, 1961 for alleged undisclosed short term capital gain.

Detailed Analysis:

Issue 1: Imposition of Penalty under Explanation 5A to Section 271(1)(c)
- The assessee filed a return of income declaring total income but later revised it to include short term capital gain on sale of property.
- The AO initiated penalty proceedings under Section 271(1)(c) for concealment of income.
- The ld. CIT(A) upheld the penalty, leading to the appeal before ITAT Jaipur.
- The assessee argued that the penalty was illegal as no incriminating material was found during the search.
- The ITAT noted that the penalty provisions must be strictly construed and can only be imposed if conditions are satisfied.
- Relying on precedents and legal principles, ITAT held that since no incriminating documents were found during the search, the penalty under Explanation 5A was not applicable.
- The ITAT referred to the decision in the case of Shri Yash Bhatia and Price Waterhouse Coopers Pvt Ltd. vs CIT to support its decision.
- Consequently, the ITAT allowed the appeal and directed the deletion of the penalty.

Issue 2: Bonafide Mistake and Non-Disclosure
- The assessee claimed that the short term capital gain was inadvertently omitted and was a bonafide mistake.
- Citing the decision in Price Waterhouse Coopers Pvt Ltd. vs CIT, the assessee argued that no penalty should be levied for such inadvertent errors.
- The ITAT agreed with the assessee's argument, emphasizing that the short term capital gain was not found during the search.
- The ITAT also distinguished the case from other precedents where maintaining books of accounts was a requirement.
- Based on the lack of incriminating evidence and the bonafide nature of the mistake, the ITAT concluded that the penalty was unjustified and ordered its deletion.

Conclusion:
The ITAT Jaipur allowed the appeal, ruling in favor of the assessee and directing the deletion of the penalty imposed under Explanation 5A to Section 271(1)(c) of the Income Tax Act, 1961. The decision was based on the absence of incriminating material during the search, the bonafide nature of the mistake, and the strict interpretation of penalty provisions.