2014 (12) TMI 513 - AT - Income Tax

Assessee's Appeals Succeed: Penalties Under Section 271(1)(c) Deleted

Sushil Kumar Trehan Versus DCIT, Central Circle-25, New Delhi.

The appeals filed by the assessee were allowed, and the penalties imposed under Section 271(1)(c) for additional income disclosed in response to notices ... Levy of penalty u/s 271(1)(c) – Return filed on the basis of seized papers and documents and not on the basis of cash found – Held that:- The search was carried out on 22.11.2006, as in the said two cases. Certain documents were found and were seized - In the return of income filed u/s 153A of the Act, additional income from trading and commission was disclosed. Concealment penalty was levied on this additional income - as decided in assessee’s own case for the earlier assessment year, the decision in SHRI PREM ARORA Versus DEPUTY COMMISSIONER OF INCOME TAX [2012 (6) TMI 480 - ITAT DELHI] followed, wherein it has been held that for the purpose of imposition of penalty u/s 271(1)(c) of the Act, as a result of search assessments made u/s 153A, the original return of income filed u/s 139 of the Act cannot be considered and that where the return of income filed u/s 153A of the Act is accepted by the Assessing Officer, there will be no concealment of income and, consequently, penalty u/s 271 (1)(c) cannot be imposed - Explanation 5 to section 271(1) of the Act cannot be invoked merely on presumption that the assessee might have been in possession of cash throughout the period covered by search assessments – thus, the order for levying penalty is set aside – Decided in favour of assessee. Issues Involved:1. Confirmation of penalty under Section 271(1)(c) for additional income offered in response to notice under Section 153A.2. Penalty imposed on income assessed on a protective basis.Issue-Wise Detailed Analysis:1. Confirmation of Penalty under Section 271(1)(c):The primary issue revolves around the confirmation of penalties levied under Section 271(1)(c) for additional income disclosed in the returns filed in response to notices under Section 153A. The penalties were imposed on the grounds that the additional income was deemed concealed.- Facts and Background: An income-tax search was conducted at the assessee's premises on 22.11.2006, leading to the seizure of certain documents. Based on these documents, the assessee filed returns for the Assessment Year 2001-02, declaring additional income which was not disclosed in the original returns filed under Section 139. The Assessing Officer (AO) completed the assessment under Section 153A without altering the declared income but imposed penalties equivalent to 100% of the tax due on the additional income, deeming it as concealed income.- Assessing Officer's Justifications:- Explanation 5 to Section 271(1)(c): The AO argued that Explanation 5 introduces a fiction of deemed concealment for undisclosed assets found during a search initiated before 01.06.2007.- Non-Voluntary Disclosure: The AO held that the returns filed under Section 153A were not voluntary since they were filed only after the assessee realized that the evidence of concealed income was with the tax department.- CBDT Circulars: The AO referred to CBDT circulars and judicial precedents which stated that disclosures following a search cannot be treated as voluntary.- Judicial Precedents: The AO cited various judicial authorities to support the view that income declared after a search cannot be considered voluntary.- CIT(A)'s Decision: The CIT(A) dismissed the appeals, holding that the income surrendered by the assessee was based on documents found during the search and thus deemed concealed. The CIT(A) also noted that the case fell within the general provisions of Section 271(1)(c) and Explanation 5, and that the disclosure was not voluntary but a result of the search.2. Penalty Imposed on Income Assessed on a Protective Basis:The second issue pertains to the penalty imposed on income assessed on a protective basis in the hands of the assessee.- CIT(A)'s Observations: The CIT(A) noted that all additions, including those protectively assessed in the hands of the assessee, were substantively added following the Tribunal's decision in the case of 'M/s MDH Ltd.' Thus, the undisclosed income became a substantive addition in the hands of the assessee.Tribunal's Findings:- Precedents Followed: The Tribunal followed its earlier decisions in the cases of 'Prem Arora vs. DCIT' and 'Kiran Grover vs. DCIT,' where it was held that for the purpose of penalty under Section 271(1)(c) as a result of search assessments made under Section 153A, the original return filed under Section 139 cannot be considered. If the return filed under Section 153A is accepted by the AO, there is no concealment of income, and consequently, no penalty can be imposed.- Application of Explanation 5 and 5A: The Tribunal noted that Explanation 5 to Section 271(1)(c) applies to searches initiated before 01.06.2007. In the case of the assessee, the search was conducted on 22.11.2006. The Tribunal observed that Explanation 5A, applicable to searches initiated on or after 01.06.2007, includes provisions for penalties on undisclosed income based on entries in books or documents. However, Explanation 5, applicable in the assessee's case, did not cover such entries.- Conclusion: The Tribunal concluded that the facts of the present appeals were the same as in the cases of 'Prem Arora' and 'Kiran Grover.' Following these decisions, the Tribunal set aside the orders under appeal and deleted the penalties.Final Judgment:All three appeals filed by the assessee were allowed, and the penalties imposed under Section 271(1)(c) were deleted. The order was pronounced in the open court on 14.03.2014.