2018 (4) TMI 1197 - AT - Income Tax

Penalty u/s 271(1)(c) - income surrendered during the search and seizure operation - Held that - The assessee has paid tax on the income surrendered as per statement recorded u/s 132 (4) at the time of search and seizure operation together with interest before the completion of assessment. See CIT vs. Radha Kishan Goel 2005 (4) TMI 47 - ALLAHABAD High Court and CIT vs. Mahendra C. Shah (2008 (2) TMI 32 - GUJARAT HIGH COURT). When the assessee has offered aggregate amount of ₹ 64,00,000/- which includes the cash seized and adjusted in accordance with the question no.10 of statement recorded u/s 132 (4) and this amount finds mention in the computation of income, the provisions contained under Explanation (5) to section 271)(1)(c) are not attracted. So, the question framed is answered in the negative. AO has failed to make out the case of concealment of income or furnishing of inaccurate particulars of such income by the assessee so as to attract the provisions contained u/s 271(1)(c) of the Act, hence penalty levied by the AO and restricted by the ld. CIT (A) is hereby deleted. - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of sustaining penalty under Section 271(1)(c) of the Income-tax Act, 1961.
2. Adequacy of opportunity of being heard and observance of principles of natural justice.
3. Applicability of Explanation 5 to Section 271(1)(c) and its exceptions.

Issue-Wise Detailed Analysis:

1. Legality of Sustaining Penalty under Section 271(1)(c):
The primary issue was whether the assessee concealed particulars of income or furnished inaccurate particulars during the assessment proceedings. The assessee argued that the penalty order was unsustainable as the Assessing Officer (AO) issued a vague and ambiguous notice under Section 271(1)(c) and that the disclosure was voluntary to avoid litigation. The Revenue countered that under Explanation 5 to Section 271(1)(c), the assessee was deemed to have concealed income since the surrender occurred during a search and seizure operation.

2. Adequacy of Opportunity of Being Heard and Observance of Principles of Natural Justice:
The assessee contended that the penalty was imposed without adequate opportunity for a hearing, violating principles of natural justice. The Tribunal noted that the AO failed to clearly state whether the assessee concealed income or furnished inaccurate particulars, which indicated a lack of proper satisfaction required for initiating penalty proceedings.

3. Applicability of Explanation 5 to Section 271(1)(c) and its Exceptions:
The Tribunal examined whether the assessee's case fell under the exceptions provided in Explanation 5 to Section 271(1)(c). The assessee had surrendered ?25,00,000 and ?39,00,000 during a search and seizure operation, claiming immunity from penalty under clause (2) of Explanation 5 by making a voluntary disclosure and paying taxes thereon before the assessment was completed. The Tribunal referenced the High Court rulings in CIT vs. Radha Kishan Goel and CIT vs. Mahendra C. Shah, which supported the assessee's position that voluntary disclosure and payment of taxes before assessment completion entitled the assessee to immunity from penalty.

Conclusion:
The Tribunal concluded that the assessee had made a voluntary confession to buy peace and avoid litigation, fulfilling the conditions of Exception (2) to Explanation 5 of Section 271(1)(c). The AO did not properly satisfy himself regarding the concealment or inaccuracy of income particulars, rendering the penalty proceedings invalid. Consequently, the penalty levied by the AO and restricted by the CIT (A) was deleted, and the appeal filed by the assessee was allowed.