2018 (11) TMI 1122 - AT - Income Tax

Tribunal upholds penalties for AY 2006-07 & 2007-08 under sec 271(1)(c) but deletes penalty for AY 2008-09

M/s. Spaze Towers Pvt. Ltd. Versus DCIT, Central Circle-II, Faridabad

The Tribunal upheld penalties for AY 2006-07 and AY 2007-08 under section 271(1)(c) read with Explanation 5A, citing the deeming provisions of Explanation ... Penalty u/s 271(1)(c) - reasonable cause in failure to report the income for the year under consideration - Held that:- Conduct of the assessee of not objecting the addition of income to the assessment year under consideration shows that the claim of income relevant to the year under consideration has been accepted by the assessee. In such circumstances, the assessee squarely falls under the deeming provisions of Explanation 5A below section 271(1)(c) and cannot escape from liability of penalty under section 271(1)(c). The decisions relied upon by the DR are in relation to Explanation 5 to section 271(1)(c) and not in relation to Explanation 5A. The Explanation 5 pertains to search initiated before first day of June, 2007 whereas Explanation 5A pertain to searches initiated on after first day of June, 2007. The main part of the Explanation 5 is pari materia with Explanation 5A except the conditions where levy of the penalty has been excluded. In the cases relied upon by the Ld. DR the penalty was held to leviable in terms of Explanation 5 to section 271(1)(c) despite the income was disclosed in the return filed consequent to the search proceeding. In the instant case, scenario is more worse and the assessee has even not disclosed the said income in the return of income filed for the year under consideration consequent to search proceeding. We are of the opinion that deeming provisions of Explanation 5A below section 271(1)(c) of the Act is attracted and for the purpose of imposition of the penalty under section 271(1)(c) of the Act, the assessee is deemed to have concealed particulars of his income or furnish inaccurate particulars of such income, thus the levy penalty by the Assessing Officer is accordingly upheld. The ground of the appeal raised by the assessee is accordingly dismissed. Penalty under section 271AAA - Held that:- The penalty under section 271AAA of the Act could be levied in specified previous year in respect of the undisclosed income unless admitted in a statement under section 132(4) and specified the manner in which income is derived and the manner has to be substantiated and tax has paid on the undisclosed income. In case any of the 3 conditions are not fulfilled, the penalty under section 271AAA would be levied. But, if the Assessing Officer has made any addition other than the undisclosed income stated under section 132(4) and find the assessee liable for concealment of particular of income or furnishing inaccurate particular of income, he may initiate penalty under section 271(1)(c) of the Act in respect of those additions. AO may levy penalty invoking the main provisions of the section 271(1)(c) of the Act and Explanation other than Explanation 5 and 5A, if applicable, but cannot take shelter of deeming provisions of Explanation 5/5A for levy of penalty under section 271(1)(c) of the Act. Because, the deeming Explanation 5A cannot be invoked for a specified previous year, which has been specifically barred by way of clause (a) or (b) of the Explanation 5A. In the instant case before us, the Assessing Officer has levied penalty under section 271(1)(c) of the Act only invoking the Explanation 5A below section 271(1)(c) of the Act and not held the assessee liable for concealment of particular of income or furnishing of inaccurate particular of income on the basis of Explanation other than Explanation 5A - the penalty levied by the Assessing Officer under section 271(1)(c) of the Act is cancelled and the action of the CIT(A) in deleting the penalty is upheld. The grounds of the appeal of the Revenue are accordingly dismissed. Issues Involved:1. Sustaining penalty under section 271(1)(c) of the Income Tax Act, 1961 for AY 2006-07.2. Sustaining penalty under section 271(1)(c) of the Income Tax Act, 1961 for AY 2007-08.3. Deleting penalty under section 271(1)(c) of the Income Tax Act, 1961 for AY 2008-09.Detailed Analysis:Issue 1: Sustaining Penalty under Section 271(1)(c) for AY 2006-07Facts:- A search and seizure action under section 132 was carried out on 29/04/2008.- The Director of the assessee company surrendered Rs. 27 crores as undisclosed income for AY 2008-09.- The assessee did not file a regular return of income for AY 2006-07.- The Assessing Officer (AO) added Rs. 15,54,000/- to AY 2006-07 based on seized documents and initiated penalty proceedings under section 271(1)(c) read with Explanation 5A.Arguments:- The assessee argued it was an honest error and there was no concealment, as the income was included in AY 2008-09.- The AO argued that the income pertained to AY 2006-07, and the assessee did not challenge this in quantum proceedings.Decision:- The Tribunal upheld the penalty, stating that the assessee's failure to report the income for AY 2006-07 attracted Explanation 5A, deeming the income concealed.- The Tribunal emphasized that the assessee did not object to the addition and thus accepted the income for AY 2006-07.Issue 2: Sustaining Penalty under Section 271(1)(c) for AY 2007-08Facts:- The assessee filed a regular return for AY 2007-08 declaring Rs. 11,86,465/- and later filed a return under section 153A declaring Rs. 40,16,465/- including Rs. 28,30,000/- as surrendered income.- The AO initiated penalty proceedings for the surrendered amount.Arguments:- The assessee argued that the income was declared in the return filed under section 153A and thus should not attract penalty.- The AO argued that the income was not declared in the original return and thus attracted Explanation 5A.Decision:- The Tribunal upheld the penalty, stating that the income was not declared in the original return and thus attracted Explanation 5A.- The Tribunal noted that the decisions cited by the assessee did not pertain to Explanation 5A and were not applicable.Issue 3: Deleting Penalty under Section 271(1)(c) for AY 2008-09Facts:- The search was conducted on 29/04/2008, and the regular return for AY 2008-09 was filed on 30/09/2008.- The AO added Rs. 1,92,65,497/- to the income declared in the return filed under section 153A and initiated penalty proceedings under section 271(1)(c) read with Explanation 5A.Arguments:- The AO argued that the assessee failed to include the undisclosed income in the original return and thus attracted Explanation 5A.- The assessee argued that the due date for filing the return had not expired on the date of the search and thus Explanation 5A was not applicable.Decision:- The Tribunal upheld the CIT(A)'s decision to delete the penalty, noting that Explanation 5A was not applicable as the due date for filing the return had not expired on the date of the search.- The Tribunal also rejected the assessee's application under Rule 27 of the ITAT Rules, stating that the CIT(A) had decided all grounds in favor of the assessee.Conclusion:The Tribunal upheld the penalties for AY 2006-07 and AY 2007-08 under section 271(1)(c) read with Explanation 5A, emphasizing the deeming provisions of Explanation 5A. However, it deleted the penalty for AY 2008-09, noting that Explanation 5A was not applicable as the due date for filing the return had not expired on the date of the search.