2016 (2) TMI 347 - AT - Income Tax

Tribunal upholds decision, deletes penalty under Section 271(1)(c) of Income Tax Act

The Tribunal upheld the CIT(A)'s decision to delete the penalty of Rs. 48,60,000/- imposed under Section 271(1)(c) of the Income Tax Act. The Tribunal ... Penalty u/s.271(1)(c) - undisclosed income - Held that:- The assessee, in the instant case, has offered the undisclosed income of ₹ 60 lakhs in A.Y. 1991-92 and 1994-95 on the basis of sale of flats during those years and the assessee has given a note in the return filed for the impugned assessment year giving reasons for not declaring the same in this assessment year. It is now accepted proposition that on-money has to be brought to tax only in the year of sale of flats. Therefore, merely because addition has been sustained in quantum proceedings, the same cannot be a ground for levy of penalty u/s.271(1)(c) of the I.T. Act, 1961. The assessee can always make new plea during penalty proceedings. It is now the settled proposition of law that assessment proceedings and quantum proceedings are separate and distinct. In this view of the matter, we are of the considered opinion that this is not a fit case for levy of penalty u/s.271(1)(c) of the I.T. Act. We therefore, uphold the order of the CIT(A). - Decided in favour of assessee Issues Involved:1. Deletion of penalty of Rs. 48,60,000/- levied under Section 271(1)(c) of the Income Tax Act.Detailed Analysis:Issue 1: Deletion of Penalty of Rs. 48,60,000/- levied under Section 271(1)(c) of the Income Tax ActFacts of the Case:The assessee, a partnership firm engaged in the business of building and promoting, filed a return of income on 30-11-1990 declaring a total loss of Rs. 13,21,990/-. A search action under Section 132 of the Income Tax Act was conducted on 31-01-1990, during which evidence of receipt of on-money was found. One partner declared Rs. 60 lakhs as undisclosed income for AY 1990-91 in the statement recorded under Section 132(4). However, the assessee did not disclose this amount in the return but mentioned it would be considered in AY 1991-92 and 1994-95.Assessment and Appeals:The AO completed the assessment under Section 143(3) on 29-03-1993, determining the total income at Rs. 74,43,000/-, including the Rs. 60 lakhs declared under Section 132(4). The assessee's appeal against this addition was unsuccessful at both the CIT(A) and Tribunal levels. Subsequently, the AO initiated penalty proceedings under Section 271(1)(c) and levied a penalty of Rs. 48,60,000/-, which the CIT(A) deleted.Tribunal's Decision:The Tribunal, in ITA No.259/PN/1998, restored the issue to the CIT(A) for fresh adjudication. The CIT(A), in a subsequent order dated 29-01-2014, again deleted the penalty, noting that the assessee had disclosed all material facts necessary for computation of total income.Revenue's Grounds of Appeal:1. The CIT(A) erred in deleting the penalty without examining the facts and evidence available on record.2. The assessee changed its method of accounting from WIP to project completion method after detection by the search party, thereby willfully evading tax.3. Despite offering Rs. 60 lakhs as undisclosed income during the search, the assessee did not offer this amount for taxation in the return, which amounts to concealing particulars of income.Assessee's Defense:The assessee argued that on the date of the search, the financial year was not completed. The evidence of on-money received was Rs. 43,02,900/- for different assessment years. The assessee declared Rs. 60 lakhs as on-money for AY 1990-91 in the statement recorded under Section 132(4) but offered it in the returns for AY 1991-92 and 1994-95. The AO added Rs. 60 lakhs, confirmed by the Tribunal, and levied a penalty, which the CIT(A) deleted. The assessee contended that no flats were handed over in AY 1990-91, but in AY 1991-92 and AY 1994-95, the flats were handed over, and the income was declared proportionately.Legal Precedents:The assessee relied on the decision of the Bombay High Court in CIT Vs. Karda Constructions Pvt. Ltd., which held that on-money could be taxed only in the year in which the sale of flats occurred. The assessee also cited the Supreme Court decision in CIT Vs. Reliance Petroproducts Pvt. Ltd., which held that merely making an unsustainable claim in law does not amount to furnishing inaccurate particulars.Tribunal's Analysis:The Tribunal found that the evidence of on-money was Rs. 43,02,900/- for four assessment years, and no flats were sold in AY 1990-91. The Bombay High Court in CIT Vs. Karda Constructions Pvt. Ltd. held that on-money should be taxed in the year of sale of flats. No money, bullion, jewelry, or other valuable articles were found during the search. The assessee appended a note justifying non-disclosure of additional income in AY 1990-91 and offered it in AY 1991-92 before the assessment was completed.Conclusion:The Tribunal upheld the CIT(A)'s order, concluding that this was not a fit case for levy of penalty under Section 271(1)(c). The appeal filed by the Revenue was dismissed.Order Pronounced:The appeal filed by the Revenue is dismissed. Order pronounced in the open court on 13-01-2016.