2025 (7) TMI 1295 - AT - Income Tax

Penalty u/s 271(1)(c) - voluntarily income disclosed by the assessee in the return filed u/s 153A - AO during the assessment proceedings observed that there was a huge gap of income between the income as per return filed u/s 139(1) vis- -vis return filed u/s 153A of the Act as the assessee has offered for taxation as undisclosed income following a disclosure admitted u/s 132(4) - Addition also made u/s 68 in respect unexplained credit HELD THAT - We find that in this case undoubtedly there was no incriminating material found during the course of search qua this income. The assessee made disclosure in respect of outstanding liabilities which were outstanding in the books of accounts of the assessee. As noticed that in the assessment order there was no discussion by the AO apart from the fact that these disclosures were made in respect of outstanding liabilities for which no bills/ vouchers were available with the assessee. The income has been disclosed by the assessee in the return filed in response to notice u/s 153A of the Act which has also been accepted by the ld. AO. Then there is no question of concealment of income or/ furnishing of inaccurate particulars of income as has been held by the co-ordinate Bench in the case of Brahmaputra metallics Limited 2024 (11) TMI 386 - ITAT GUWAHATI there is no specific incriminating material indicating the alleged income surrendered by the assessee. Surrendered income stated in the statement recorded u/s 132(4) of the Act has been offered to tax in the income tax return and the same stands accepted by the AO. It is also noticed that the assessee had declared loss of Rs. 54.99 crore in the original return filed on 30th April 2019 and even after surrendering the undisclosed income of Rs. 5 crores the CIT(A)has accepted the income of the assessee at a loss of Rs. 44.99 crore. We therefore fail to find any infirmity in the finding of the CIT(A) deleting the impugned penalty u/s 271(1)(c). Appeal of the assessee is allowed.

Summary

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.