Court rules penalty unjustified for voluntarily declared income; Explanation to section 271(1) applied.

The court held that penalty under section 271(1)(c) of the Income-tax Act could not be imposed on income voluntarily declared during survey proceedings and included in the return without any additions or disallowances by the Assessing Officer. Relying on the Explanation to section 271(1), which applies penalties to added or disallowed income not offered in the return, the court concluded that the penalty imposed was not justified. As the reported and assessed income remained the same, except for minor expense disallowances, the penalty was deemed inappropriate, and the appeal was allowed, directing the deletion of the penalty.

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Issues:
Penalty imposition under section 271(1)(c) of the Income-tax Act, 1961 for income declared during survey proceedings.

Analysis:
The appeal challenged a penalty of Rs.14,07,762 imposed by the Assessing Officer under section 271(1)(c) of the Income-tax Act, 1961 for the assessment year 2013-14. The penalty was confirmed by the CIT(A)-5, Pune. The facts revealed that during a survey on 13-09-2013, the assessee declared income of Rs.50,00,931, which was included in the return filed later. The AO imposed the penalty based on this declared income, which was upheld in the first appeal.

Upon examination, it was noted that the penalty was imposed on the income declared during the survey and included in the return. The issue at hand was whether penalty under section 271(1)(c) could be levied on such income. The Explanation 1 to section 271(1) stipulates that penalty is applicable to added or disallowed income not offered in the return. Explanations 5 and 5A apply to search cases under section 132, not surveys under section 133A. Without any addition or disallowance by the AO, no penalty can be imposed on income voluntarily declared in the return.

The Departmental Representative relied on the Supreme Court judgment in MAK Data Pvt. Ltd. Vs. CIT (2013) to support the penalty imposition. However, the Supreme Court's decision in that case was based on a scenario where the reported income was lower than the assessed income. In the present case, the reported and assessed income remained the same, except for minor expense disallowances. As the penalty was solely based on the voluntarily declared income, the MAK Data Pvt. Ltd. judgment did not apply.

Given that the assessee voluntarily declared the income from the survey in the return, and no additions were made by the AO, it was concluded that this income could not be the basis for imposing a penalty under section 271(1)(c). Therefore, the penalty was ordered to be deleted, and the appeal was allowed.

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