2015 (7) TMI 121 - AT - Income Tax

Tribunal upholds CIT(A)'s decisions on penalty deletions under Sections 271(1)(c) and 271AAA.

The Tribunal dismissed all appeals filed by the Revenue, upholding the CIT(A)'s decisions to delete penalties under Sections 271(1)(c) and 271AAA. It ... Penalty levied u/s.271(1)(c) - undisclosed income in the hands of director - CIT(A) deleted penalty levy - Held that:- CIT(A) deleted the penalty holding that the profit offered to tax by the directors of the different companies including the assessee in their hands in fact belongs to the said companies which have been earned by the said companies from their manufacturing activity. Therefore, such income has to be taxed in the hands of the respective companies and not in the hands of the directors. According to the Ld.CIT(A) it is the settled proposition of law that in order to levy penalty u/s.271(1)(c) there has to be income of the assessee in respect of which particulars have been concealed. Since in the instant case it is not the income of the assessee and the income belongs to that of the respective companies, therefore, penalty u/s.271(1)(c) of the I.T. Act cannot be levied by invoking either Explanation 1 or Explanation 5A to provisions of section u/s.271(1)(c) of the I.T. Act. No infirmity in the above finding given by the Ld.CIT(A). Even in the hands of the company, the assessee in principle has not accepted the result of such unaccounted sale which has been categorically stated by Shri Ghanshyam C. Goyal in his reply to Question No.4. As per the provisions of Explanation 5A to section 271(1)(c) penalty cannot be levied if search took place on or after 01-06-2007 and the assessee is found to be the owner of any asset such as money, bullion, jewellery or other valuables etc or owner of any income based of any entry in books of account and he claims that such entry in the books of accounts represents his income.In the instant case the income declared and accepted by the assessee in the return filed in response to notice u/s.153A as undisclosed income is actually belongs to the company and he is not the owner of such income. The Ld. Counsel for the assessee also made a statement at the Bar that the assessee has not taken any benefit out of the amount disclosed. The tax paid on such undisclosed income has gone waste as no benefit out of such income has been availed by the assessee. Therefore, we are of the considered opinion that this is not a fit case for levy of penalty u/s.271(1)(c) read with Explanation 5A - Decided in favour of assessee. Penalty proceedings u/s.271AAA - assessee has declared an amount of ₹ 1,63,58,750/- being Hundi, petty loans, sales receivable etc. - CIT(A) deleted penalty levy - Held that:- Considering the fact that the assessee has filed the return disclosing the income declared during the course of search on the basis of seized material and paid the taxes thereon we are of the considered opinion that the assessee has substantiated the manner in which the undisclosed income was derived and the immunity provided u/s.271AAA(2) are applicable. In this view of the matter and in view of the detailed order passed by Ld.CIT(A) relying on various decisions, we find no infirmity in his order cancelling the penalty levied u/s.271AAA of the I.T. Act. See CIT vs. Radha Kishan Goel (2005 (4) TMI 47 - ALLAHABAD High Court) and DCIT Vs. Pioneer Marbles & Interiors Pvt. Ltd. [2012 (2) TMI 261 - ITAT, KOLKATA] - Decided in favour of assessee Issues Involved:1. Validity of Penalty under Section 271(1)(c) of the Income Tax Act.2. Application of Explanation 5A to Section 271(1)(c).3. Application of Section 271AAA for penalty immunity.Detailed Analysis:1. Validity of Penalty under Section 271(1)(c) of the Income Tax Act:Facts and Proceedings:The case involves a batch of 9 appeals filed by the Revenue against separate orders of the CIT(A), Aurangabad. A search action under Section 132 of the Income Tax Act was conducted at the premises of different members/associate concerns of the Kalika group. The assessee filed a return declaring total income, including income declared during the search. The Assessing Officer noted that the income declared was a result of the search action and initiated penalty proceedings under Section 271(1)(c) read with Explanation 5A.Assessee's Argument:The assessee argued that the income was declared to avoid litigation and buy peace of mind. They contended that the income from the manufacturing activity of the companies should be assessed in the hands of the companies, not the directors. The assessee relied on the Supreme Court judgment in CIT vs Reliance Petro-products Pvt. Ltd. and other decisions to argue against the penalty.CIT(A)'s Decision:The CIT(A) deleted the penalty, holding that the income declared by the directors actually belonged to the companies. Since the income was not that of the assessee, penalty under Section 271(1)(c) could not be levied. The CIT(A) also noted that the income was declared to avoid litigation and was not concealed with the intention to evade tax.Tribunal's Decision:The Tribunal upheld the CIT(A)'s order, agreeing that the income declared belonged to the companies and not the directors. Thus, penalty under Section 271(1)(c) was not justified.2. Application of Explanation 5A to Section 271(1)(c):Assessing Officer's Argument:The Assessing Officer argued that the income declared was a result of the search and that the provisions of Explanation 5A to Section 271(1)(c) were attracted. He contended that irrespective of the income being declared in the return after the search, it should be considered as concealed income.Assessee's Counter-Argument:The assessee argued that Explanation 5A applies only when the assessee is found to be the owner of any asset or income based on any entry in the books of account. Since the income declared belonged to the companies, Explanation 5A was not applicable.Tribunal's Decision:The Tribunal agreed with the assessee, stating that Explanation 5A was not applicable as the income declared did not belong to the assessee but to the companies. The Tribunal noted that the second limb of Explanation 5A provides that no penalty can be levied if the assessee does not claim that such an entry represents his income.3. Application of Section 271AAA for Penalty Immunity:Facts and Proceedings:In the case of Shri Gopal Ghanshyam Goyal, the assessee declared additional income during the search and filed a return declaring the same. The Assessing Officer imposed a penalty under Section 271AAA, arguing that the assessee did not substantiate the manner in which the undisclosed income was derived.Assessee's Argument:The assessee argued that they had declared the income during the search, paid taxes, and cooperated with the proceedings. They contended that the conditions for immunity under Section 271AAA were fulfilled.CIT(A)'s Decision:The CIT(A) deleted the penalty, stating that the assessee had fulfilled the conditions for immunity under Section 271AAA. The CIT(A) noted that the term 'specified manner' was not defined and that the assessee had declared the income and paid taxes, which constituted substantial compliance.Tribunal's Decision:The Tribunal upheld the CIT(A)'s order, agreeing that the assessee had fulfilled the conditions for immunity under Section 271AAA. The Tribunal referred to various decisions where penalties under Section 271AAA were deleted in similar circumstances.Conclusion:The Tribunal dismissed all the appeals filed by the Revenue, upholding the orders of the CIT(A) in deleting the penalties under Sections 271(1)(c) and 271AAA. The Tribunal emphasized that the income declared by the directors belonged to the companies and that the conditions for penalty immunity under Section 271AAA were fulfilled.