2019 (1) TMI 675 - AT - Income Tax

Appeal on Income Tax Penalty Imposition Upheld

Income Tax Officer, Ward-2 (2), Vijayawada Versus M/s Shubhadarsi Estates

Income Tax Officer, Ward-2 (2), Vijayawada Versus M/s Shubhadarsi Estates - TMI Issues Involved:1. Validity of the penalty imposed under Section 271(1)(c) of the Income Tax Act.2. Evidence of on-money payment and its apportionment.3. Retraction of the admission of additional income by the assessee.4. Enhancement of on-money component by CIT(A) and its subsequent apportionment by ITAT.Issue-wise Detailed Analysis:1. Validity of the Penalty Imposed under Section 271(1)(c):The core issue in this appeal is whether the penalty under Section 271(1)(c) of the Income Tax Act for concealment of income is valid. The Assessing Officer (AO) imposed a penalty of Rs. 61,52,212/- on the concealed income of Rs. 1,61,71,166/- which was enhanced by the CIT(A). The CIT(A) later canceled the penalty, stating that no material was found during the search and seizure operations regarding the receipt of additional consideration and that the AO did not follow a scientific method for apportioning the amount attributable to the sale of the vacant site related to the assessee.2. Evidence of On-Money Payment and Its Apportionment:During the search and seizure operation, it was found that the assessee firm entered into a transaction with M/s Jayadarshini Housing Pvt. Ltd. for Rs. 1,08,34,000/-. Statements recorded from the managing partner of the assessee firm and the Managing Director of Jayadarshini Housing Pvt. Ltd. revealed that the company paid Rs. 3.00 crores, out of which Rs. 1.78 crores was on-money paid in cash. The AO apportioned the on-money component of Rs. 1,56,11,475/- towards the sale of the vacant site at Kanur in the hands of Shubhadarsi Estates and Rs. 21,88,525/- in the hands of the managing partner towards the sale of agricultural land. The CIT(A) enhanced the on-money component in the hands of the assessee firm to Rs. 1,61,71,166/- and reduced it in the hands of the managing partner to Rs. 16,28,834/-.3. Retraction of the Admission of Additional Income by the Assessee:The assessee initially admitted to receiving Rs. 1.78 crores in cash as additional consideration and agreed to admit it as additional income for the relevant assessment year. However, the assessee later retracted this admission. The CIT(A) noted that the addition was made purely based on the admission made by the assessee during the search and seizure operations, which was later retracted by the assessee himself. The CIT(A) concluded that there was no evidence on record to show that any additional consideration was received.4. Enhancement of On-Money Component by CIT(A) and Its Subsequent Apportionment by ITAT:The CIT(A) enhanced the on-money component in the hands of the assessee firm and reduced it in the hands of the managing partner. On appeal, the ITAT apportioned the on-money towards the sale of the urban site at Kanur village in the hands of the assessee firm at Rs. 27.15 lakhs and in the hands of the managing partner towards the sale of agricultural land at Rs. 1.53 crores. The total income assessed in the hands of Shubhadarsi Estates for the A.Y. 2005-06 was thus reduced to Rs. 40,05,522/- from the initially assessed income of Rs. 1,69,05,785/- after giving effect to the ITAT's order.Conclusion:The ITAT concluded that the on-money payment was established as both the vendor and vendee had agreed to the payment and receipt of unaccounted money. The subsequent retraction by the assessee had no relevance, and the concealment of income was established. The ITAT upheld the imposition of penalty on the concealed income of Rs. 27.15 lakhs, setting aside the CIT(A)'s order and directing the AO to revise the penalty accordingly. The appeal filed by the revenue was partly allowed.Order Pronounced:The order was pronounced in the open court on 11th January 2019.