2021 (9) TMI 590 - AT - Income Tax

Tribunal cancels penalties under Income Tax Act, emphasizes assessed income over original return

Shri Krishan Lal Madhok Versus The A.C.I.T. Central Circle – 15 New Delhi

Shri Krishan Lal Madhok Versus The A.C.I.T. Central Circle – 15 New Delhi - TMI Issues Involved:1. Confirmation of penalty under Section 271(1)(c) of the Income Tax Act, 1961.2. Assessment of income post search and seizure under Section 153A.3. Levy of penalty on undisclosed income and deposits in HSBC account.4. Calculation of interest on foreign bank account balances.Detailed Analysis:1. Confirmation of Penalty under Section 271(1)(c) of the Income Tax Act, 1961:The primary grievance of the assessee was that the Commissioner of Income Tax (Appeals) erred in confirming a penalty of Rs. 75,53,556 under Section 271(1)(c) of the Income Tax Act, 1961. The Assessing Officer initially imposed this penalty, stating that the assessee did not declare an income of Rs. 2,23,68,002 in the original return filed under Section 139 of the Act. However, the Tribunal opined that once the income is returned in the return filed under Section 153A, the original return under Section 139 gets superseded. Thus, any initiation of penalty should be based on the assessed income under Section 153A, and not on the original return.2. Assessment of Income Post Search and Seizure under Section 153A:The Tribunal referred to the Delhi High Court's judgment in Neeraj Jindal's case, which highlighted that the revised return filed under Section 153A takes the place of the original return under Section 139 for all purposes, including penalty proceedings. The Tribunal also cited various High Court rulings which supported the view that merely filing a revised return showing higher income does not justify the levy of penalty. The Tribunal concluded that the return filed under Section 153A should be considered for penalty purposes, not the original return under Section 139.3. Levy of Penalty on Undisclosed Income and Deposits in HSBC Account:The Tribunal noted that the assessee had honored his statement and offered Rs. 2,23,68,000 in his return of income for the Assessment Year 2007-08 and paid taxes thereon. The Assessing Officer did not refute the assessee's claim that the peak credit calculation was done at the behest of tax authorities. The Tribunal found no merit in bifurcating the disclosed amount into two assessment years when the tax rate was the same and there was no loss to the revenue. The Tribunal directed the deletion of the addition in both assessment years, thereby dismissing the penalty on the HSBC deposits and interest.4. Calculation of Interest on Foreign Bank Account Balances:The Tribunal addressed the revenue's appeal concerning the addition of Rs. 18,58,311 on account of peak balances in the HSBC account and Rs. 73,074 on account of accrued interest. The Tribunal found that the Assessing Officer's assumption of interest earned at the rate of 4% was baseless and unsupported by documentary evidence. The Tribunal upheld the first appellate authority's decision to delete the addition, emphasizing that the computation of interest based on assumptions defies the concept of real income taxability.Conclusion:The Tribunal concluded that since the foundation of the assessment was removed, the superstructure of the penalty must also fall. Consequently, the penalty imposed under Section 271(1)(c) was directed to be deleted, and the appeal filed by the assessee was allowed. The order was pronounced in the open court on 06.09.2021 in the presence of both parties' representatives.