Voluntary disclosure of undisclosed income in Section 153A return leads to deletion of Section 271(1)(c) penalty

The ITAT Patna allowed the assessee's appeal and deleted the penalty imposed u/s 271(1)(c). The case involved voluntary disclosure of Rs. 5 crore undisclosed income in the return filed u/s 153A following a statement recorded u/s 132(4) during search proceedings. The AO had imposed penalty observing a significant gap between income declared in the original return u/s 139(1) versus the return filed u/s 153A. The ITAT held that no incriminating material was found during the search regarding this income. The disclosure related to outstanding liabilities in the books without supporting bills/vouchers. Since the voluntarily disclosed income was accepted by the AO and properly declared in the return filed u/s 153A, there was no concealment or furnishing of inaccurate particulars. The assessee originally declared a loss of Rs. 54.99 crore, and even after surrendering Rs. 5 crore, remained in loss position at Rs. 44.99 crore, supporting deletion of penalty.

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ISSUES:

Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 can be imposed when the assessee voluntarily discloses additional income in the return filed under section 153A and no incriminating material is found during search under section 132.Whether the return filed under section 153A is to be treated as a return filed under section 139 for the purpose of levy of penalty under section 271(1)(c).Whether mere acceptance of additional income disclosed suo moto by the assessee in the return filed under section 153A, without any evidence of concealment or furnishing of inaccurate particulars, justifies imposition of penalty under section 271(1)(c).The scope and exercise of discretion by the Assessing Officer in imposing penalty under section 271(1)(c) where no incriminating material or contumacious conduct is established.

RULINGS / HOLDINGS:

The penalty under section 271(1)(c) cannot be imposed where the assessee has voluntarily disclosed additional income in the return filed under section 153A and such return has been accepted by the Assessing Officer, especially when no incriminating material was found during the search.The return filed under section 153A is to be considered as a return filed under section 139 for all purposes, including levy of penalty under section 271(1)(c), and concealment or furnishing of inaccurate particulars must be judged with reference to the return filed under section 153A.Acceptance of the additional income declared suo moto by the assessee in the return filed under section 153A, without any evidence of concealment or furnishing of inaccurate particulars of income, precludes the imposition of penalty under section 271(1)(c).The word "may" in section 271(1)(c) confers judicial discretion on the Assessing Officer to levy penalty, which must be exercised judicially considering all relevant circumstances; mechanical imposition of penalty without evidence of contumacious conduct or concealment is not justified.

RATIONALE:

The Court relied on the statutory framework of the Income-tax Act, particularly sections 132, 139, 153A, and 271(1)(c), and judicial precedents emphasizing that a return filed under section 153A is treated as a return under section 139 for penalty purposes.Precedents establish that penalty under section 271(1)(c) requires proof of deliberate concealment or furnishing of inaccurate particulars, which must be shown by incriminating material or contumacious conduct, neither of which was present in the case.The Court referred to multiple authoritative decisions holding that voluntary disclosure of income post-search, acceptance of such return by the Assessing Officer, and absence of incriminating evidence negate the basis for penalty imposition.The discretionary nature of penalty under section 271(1)(c) was underscored, with emphasis on judicial exercise of discretion based on facts and circumstances, not mechanical or automatic penalty imposition.The Court recognized the distinction between assessment proceedings and penalty proceedings, noting that penalty imposition requires a higher threshold of evidence to establish culpability beyond mere tax liability.The decision aligns with a doctrinal approach that penal provisions are remedial and discretionary, requiring clear demonstration of concealment or inaccurate particulars to justify penalty, especially in search and seizure contexts.

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