2021 (10) TMI 423 - HC - Income Tax

Penalty levied u/s 271(1)(c) - net undisclosed income received as on money which was unearthed based on diary found in survey - addition as per Investigation wing during survey proceedings and also admitted by one of the partners in the statement recorded u/s. 131 (1A) and the said on money income was not accounted for in the regular books of account of the assessee on the date of survey? - HELD THAT - As survey had taken place on 09.01.2013 as a part of search operation of the entire group and when it chose to disclose additional ₹ 20 Cr., ₹ 3.80 Cr. came to be attributable to the respondent firm. The return was filed under Section 139 of the Act by the respondent for the Assessment Year 20132014 on 29.09.2013, which is after about eight months of the survey which was conducted. The books of account also were not closed and it was not a case of any revised return being filed by the respondent Assessee. In such circumstances, Assessing Officer also had not added any other income for the amount of ₹ 3.80 Cr. had already been declared in the return itself. Both the authorities concurrently have correctly held following the decision of PRINCIPAL COMMISSIONER OF INCOME TAX-3 vs. R UMEDBHAI JEWELLERS PVT. LTD 2016 (9) TMI 9 - GUJARAT HIGH COURT that no penalty can be levied in such circumstances. Adverting to the facts of the present appeal, return was filed after about eight (8) months of conducting of survey and books of accounts were not closed also - neither it is a case of filing of revised return disclosing undisclosed income nor the case of books of accounts having been closed. Therefore, as rightly held by both the CIT(Appeals) and ITAT, no penalty can be imposed. - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the ITAT erred in law and on facts by deleting the penalty levied under Section 271(1)(c) of the Income Tax Act.
2. Whether the amount of ?3.80 crore, disclosed as "on money" during survey proceedings, constituted concealed income.
3. Applicability of the decision in PRINCIPAL COMMISSIONER OF INCOME TAX-3 vs. R UMEDBHAI JEWELLERS PVT. LTD to the present case.

Issue-wise Detailed Analysis:

1. Deletion of Penalty under Section 271(1)(c):
The Revenue challenged the ITAT's decision to delete the penalty of ?1,18,00,000/- levied under Section 271(1)(c) of the Income Tax Act. The penalty was initially imposed by the Assessing Officer on the grounds of concealment of income, specifically ?3.80 crore received as "on money" which was not accounted for in the regular books of account at the time of the survey. However, the ITAT upheld the CIT(A)'s decision to delete the penalty, noting that the Assessee had disclosed the additional income in its return filed for the Assessment Year 2013-2014 and had paid the due taxes.

2. Concealed Income:
The Assessee, a Partnership Firm engaged in real estate development, was subjected to a survey under Section 133(A) of the Income Tax Act on 09.01.2013. During this survey, a total disclosure of ?20 crore was made, of which ?3.80 crore pertained to the respondent firm. This amount was included in the return filed by the Assessee for the Assessment Year 2013-2014. The Assessing Officer accepted the return without any additions but initiated penalty proceedings for concealment of income. The Assessee argued that the amount of ?3.80 crore could not be treated as concealed income since it was declared in the return filed before the closure of the books and the end of the financial year.

3. Applicability of PRINCIPAL COMMISSIONER OF INCOME TAX-3 vs. R UMEDBHAI JEWELLERS PVT. LTD:
Both the CIT(A) and ITAT relied on the decision in PRINCIPAL COMMISSIONER OF INCOME TAX-3 vs. R UMEDBHAI JEWELLERS PVT. LTD, where it was held that penalty under Section 271(1)(c) could not be imposed if the income was disclosed before the due date for filing the return and was included in the return filed. The court noted that in the present case, the Assessee disclosed the additional income in the return filed within the statutory period, and the books of account were not closed at the time of the survey. Therefore, the conditions for imposing a penalty under Section 271(1)(c) were not met.

Conclusion:
The court dismissed the Revenue's appeal, affirming the decisions of the CIT(A) and ITAT. It held that no penalty could be imposed under Section 271(1)(c) as the Assessee had disclosed the additional income in the return filed within the statutory period, and the books of account were not closed at the time of the survey. The court reiterated that the principles laid down in the case of PRINCIPAL COMMISSIONER OF INCOME TAX-3 vs. R UMEDBHAI JEWELLERS PVT. LTD were applicable to the present case, and thus, the penalty was rightly deleted.