2015 (11) TMI 1576 - AT - Income Tax

Penalty u/s 271(1)(c) - voluntary surrender of income by assessee - Held that - Undisputedly penalty proceedings as well as assessment proceedings are to be decided independently and the penalty proceedings are not to be influenced by the assessment proceedings. In the instant case no doubt assessee has surrendered the income of Rs. 40, 00, 000/- during search and seizure operation but Hon ble Apex Court in the judgement CIT Vs Suresh Chandra Mittal (2001 (6) TMI 63 - SUPREME Court ) held that in this case the assessee initially filed return with meager income and subsequently filed revised return showing higher income after search and seizure operation for reopening of assessment in order to buy peace of mind and to avoid protracted litigation the Appellate Tribunal has rightly held that burden of proving concealment into discharge the penalty cannot be levied . But in the instant case Ld. CIT(A) has gone a step further by holding that surrender of income of Rs. 40, 00, 000/- during the assessment year 2007-08 was in fact not generated during the year under assessment rather it being a forfeiture of sale amount as income for the assessment year 2006-07 assessee has bona fidely surrendered the same. So as a sequel to the discussion made in the preceding paragraphs we are of the considered view that the A.O. has failed to make out the case of concealment of particulars of income or furnishing of inaccurate particulars of such income by the assessee rather it was a case of voluntary surrender of income of Rs. 40, 00, 000/- for tax purpose in order to buy peace of mind and to avoid vexed litigation and Ld. CIT(A) has legally and rightly passed the impugned order. Finding no illegality or perversity in the impugned order we hereby dismiss the present appeal filed by the Revenue. - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of the cancellation of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Applicability of Explanation 5A of Section 271(1)(c) in the context of the case.
3. Determination of whether the surrendered amount constitutes taxable income.

Detailed Analysis:

1. Legality of the Cancellation of Penalty under Section 271(1)(c):

The primary issue is whether the CIT(A) erred in canceling the penalty of Rs. 13,46,400 imposed by the Assessing Officer (A.O.) under Section 271(1)(c) of the Income Tax Act, 1961. The Revenue argued that the penalty was justified as the assessee deliberately concealed income by not disclosing it voluntarily before the date of search. The CIT(A) concluded that the surrendered amount of Rs. 40,00,000 was received as forfeiture of advance and did not constitute taxable income. Hence, the disclosure was an act of good faith, and no concealment was established. The Tribunal upheld this view, noting that the penalty proceedings should be independent of assessment proceedings and that the burden of proving concealment was not discharged by the Revenue.

2. Applicability of Explanation 5A of Section 271(1)(c):

The Revenue contended that Explanation 5A of Section 271(1)(c) was applicable, which deems income declared in any return filed after the date of search as concealed. However, the CIT(A) and the Tribunal found that the advance received against the sale of land, even if treated as forfeiture, did not constitute taxable income for the assessment year 2007-08. The Tribunal emphasized that to impose a penalty under Section 271(1)(c), the A.O. must prove that there was concealment of particulars of income or the furnishing of inaccurate particulars, which was not established in this case.

3. Determination of Whether the Surrendered Amount Constitutes Taxable Income:

The facts revealed that during a search and seizure operation, an amount of Rs. 1,15,00,000 was found to have been received in cash by the assessee's company. The assessee surrendered Rs. 40,00,000, which was added to his taxable income. However, the CIT(A) concluded that this amount was received as an advance for a sale that did not culminate and was treated as forfeiture in the subsequent assessment year. The CIT(A) and the Tribunal both agreed that the surrendered amount did not constitute taxable income for the year in question. The Tribunal relied on the judgment in CIT Vs Suresh Chandra Mittal, where the Supreme Court held that no penalty could be levied when the assessee offered additional income to buy peace and avoid litigation, and the burden of proving concealment was not discharged by the Revenue.

Conclusion:

The Tribunal upheld the CIT(A)'s order, finding no concealment of income or furnishing of inaccurate particulars by the assessee. The surrendered amount was not considered taxable income for the assessment year 2007-08, and the penalty under Section 271(1)(c) was rightly canceled. The appeal filed by the Revenue was dismissed, affirming that the disclosure was voluntary and made in good faith to avoid protracted litigation. The Tribunal emphasized the independent nature of penalty proceedings and the necessity for the A.O. to prove concealment to impose a penalty.