Appeal granted, penalty deleted for undisclosed income; lack of incriminating material renders penalty unjustified.

The Tribunal allowed the appeal, directing the deletion of the penalty imposed on the undisclosed salary income of Rs. 70,000. The decision was based on the absence of incriminating material linking the assessee to the omitted income during section 153A proceedings, rendering the penalty under Explanation 5A to section 271(1)(c) unjustified.

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Issues:
Levy of penalty under section 271(1)(c) for alleged undisclosed salary income of Rs. 70,000.

Analysis:
1. The appeal was filed against the order of ld. CIT(A)-II, Udaipur for Assessment Year 2011-12. The assessee, during assessment proceedings, realized a salary of Rs. 70,000 from M/s Ganpati Royal Residency was inadvertently left out of the return. The AO added this amount to the total income, initiating penalty proceedings under section 271(1)(c) for concealment of income particulars.

2. The assessee contended that as no incriminating material was found during the search, the addition made by the AO was unsustainable. The AO's penalty was based on Explanation 5A to section 271(1)(c), which the assessee challenged. The ld. CIT(A) upheld the penalty, citing a Kerala High Court decision and questioning the credibility of the explanation provided by the assessee regarding the omitted salary income.

3. The assessee argued that the assessment proceedings were not pending during the search, and no incriminating material was discovered. The AO's addition under section 153A was deemed illegal. The assessee relied on various judicial decisions to support the contention that penalty on an illegal addition is not justifiable. The Hon'ble ITAT had previously ruled in favor of the assessee in a similar matter.

4. The assessee claimed the omission of the salary income was a bona fide mistake, citing a Supreme Court case. The ld. CIT(A)'s rejection of the explanation was challenged, emphasizing that similar instances occurred in other group companies where salary was not declared due to oversight but rectified upon discovery.

5. The dispute centered on whether the salary income addition made during section 153A proceedings could warrant a penalty under Explanation 5A to section 271(1)(c). The Tribunal noted that no incriminating evidence was found during the search linking the assessee to the undisclosed income. As the conditions of Explanation 5A were not met, the penalty was deemed unjustified.

6. Ultimately, the Tribunal allowed the appeal, directing the deletion of the penalty imposed on the undisclosed salary income. The decision was based on the strict interpretation of penal provisions and the absence of incriminating material linking the assessee to the omitted income.

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