2012 (8) TMI 1055 - AT - Income Tax

Summary

Issues Involved:
1. Legality of penalty u/s 271(1)(c) on additional income declared in response to notice u/s 153A.
2. Applicability of Explanation 5 to section 271(1)(c) for the period from 01/06/03 to 31/03/2007.
3. Whether investments like KVPs, NSCs, LIPs, etc., fall under the phrase "money, bullion, jewellery or other valuable article or thing" in Explanation 5.

Summary:

Issue 1: Legality of Penalty u/s 271(1)(c)
The assessee argued that no penalty u/s 271(1)(c) can be levied on the income declared in returns filed in response to notices u/s 153A, as such income should be treated as duly disclosed. The AO rejected this, stating that the additional income was brought to tax due to the Department's search operation, not voluntarily, and referred to CBDT Circular dated 30th September 1969. The AO imposed a minimum penalty u/s 271(1)(c) being 100% of the tax sought to be evaded.

Issue 2: Applicability of Explanation 5 to Section 271(1)(c)
The assessee contended that Explanation 5 is not applicable for the period from 01/06/03 to 31/03/2007 after the insertion of the words "search initiated u/s 132 before first day of June, 2007." The Tribunal found no substance in this argument, stating that the amendments have no bearing on the issue at hand. The search took place on 22/11/06, and thus, the case is fully covered by Explanation 5 to sec. 271(1)(c).

Issue 3: Investments as "Other Valuable Article or Thing"
The assessee argued that investments like KVPs, NSCs, LIPs, etc., do not fall under the phrase "money, bullion, jewellery or other valuable article or thing" in Explanation 5. The Tribunal accepted this plea, referencing decisions such as CIT vs. Mohan Lal Sharma [2006] 281 ITR 384 and Bhagwandas Narayandas vs. CIT [1975] 98 ITR 194, which held that documents like FDRs and title deeds do not possess intrinsic market value and thus do not fall under the specified assets in Explanation 5. Explanation 5A, which includes such items, was inserted w.e.f. 01/06/07 and is not applicable to searches conducted before this date.

Conclusion:
The Tribunal set aside the order of ld. CIT(A) for all four assessment years under consideration, allowing the assessee's appeals. The other plea regarding no penalty due to no variation between income returned and assessed income was deemed academic and not adjudicated.

Order Pronounced:
The order was pronounced in the open court on 24/08/2012.