2011 (11) TMI 658 - AT - Income Tax

Summary

Issues Involved:
1. Legality of the order passed by the CIT(A).
2. Whether the penalty u/s 271(1)(c) is justified when the income was surrendered suo-motto.
3. Validity of the penalty based on the surrender without documentary evidence.
4. Whether the penalty is tenable without a finding on merit regarding concealment.
5. Legality of the penalty order without recorded satisfaction by the AO in the assessment order.

Summary:

1. Legality of the order passed by the CIT(A):
The assessee argued that the CIT(A) erred in confirming the penalty imposed by the AO. The CIT(A) upheld the penalty, noting that the surrender followed an investigation by the AO and that the penalty proceedings were duly initiated in the assessment order.

2. Whether the penalty u/s 271(1)(c) is justified when the income was surrendered suo-motto:
The assessee contended that no penalty was leviable as the income was surrendered suo-motto to avoid litigation and buy peace. The AO rejected this, stating that the surrender was not voluntary but came during the assessment proceedings when confronted with impounded material. The Tribunal found that the surrender was made to settle the dispute and did not admit any concealment of income, as evidenced by the assessee's letter dated 22.11.06.

3. Validity of the penalty based on the surrender without documentary evidence:
The assessee argued that the additions were made only based on the surrender without any documentary evidence. The Tribunal noted that there was no material on record against the assessee to show any concealment and that the AO did not carry out any investigation to prove concealment.

4. Whether the penalty is tenable without a finding on merit regarding concealment:
The assessee contended that the penalty was untenable as no finding on merit regarding concealment was recorded in the penalty order. The Tribunal observed that the AO did not indicate in the penalty order the specific credit in respect of which the penalty was being imposed and that the surrender was made to buy peace without any material implicating the assessee for concealment.

5. Legality of the penalty order without recorded satisfaction by the AO in the assessment order:
The assessee argued that the penalty order was untenable as no satisfaction was recorded by the AO in the assessment order. The Tribunal found that the AO did not record any satisfaction of concealment in the assessment order and that the penalty was imposed solely based on the surrender, which was not an admission of concealment.

Conclusion:
The Tribunal allowed the appeal, canceling the order under appeal and deleting the penalty imposed. The Tribunal relied on various judgments, including "CIT v. Baroda Tin Works," "CIT v. Suresh Chandra Mittal," and others, to conclude that the imposition of penalty solely based on the assessee's surrender is not justified. The order was pronounced in the open court on 18.11.2011.