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2015 (5) TMI 537 - ITAT BANGALORE

2015 (5) TMI 537 - ITAT BANGALORE - TMI - Penalty under Section 271(1)(c) - admission of income during survey - Held that:- As relying on case of Vasavi Shelters [2013 (4) TMI 485 - ITAT BANGALORE]wherein it was held that there can be no justification for the levy of penalty under Section 271(1)(c) of the Act in respect of income offered in the return of income for the concerned assessment year which is in a similar factual matrix as the case on hand, we hold that there can be no justification f .....

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CIT (D.R) ORDER Per Shri Jason P. Boaz : This appeal by the assessee is directed against the order of the Commissioner of Income Tax (Appeals)-III, Bangalore dt.24.6.2014 for Assessment Year 2007-08 confirming the levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961 (herein after referred to as 'the Act') imposed by the Assessing Officer. 2. The facts of the case, briefly, are as under :- 2.1 The assessee, Propx. of Maruti Ceramics and engaged in the business as a dealer .....

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ned income of ₹ 14,21,220 in view of the Assessing Officer resorting to a disallowance of ₹ 48,672 under Section 40A(3) of the Act. While passing the order of assessment, the Assessing Officer simultaneously initiated penalty proceedings under Section 271(1)(c) of the Act by issue of notice under Section 274 rws 271 of the Act dt.18.12.2009. 2.2 From the details on record, it transpires that in the course of survey proceedings, conducted at the assessee's business premises on 14. .....

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f the Act @ 100% of the tax sought to be evaded on the excess stock of ₹ 10,35,000 found in the course of survey under Section 133A of the Act; which in the opinion of the Assessing Officer would not have been admitted by the assessee but for the survey conducted at the assessee's business premises. 2.3 Aggrieved by the order levying penalty of ₹ 4,34,738 under Section 271(1)(c) of the Act vide dt.5.5.2010, for Assessment Year 2007-08, the assessee preferred an appeal before the .....

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he learned CIT (Appeals) erred in passing the order in the manner he did. 2. The learned CIT (Appeals) erred in affirming the levy of penalty under Section 271(1)(c) of the Act as made by the Assessing Officer. 3. On the facts and in the circumstances of the case, the learned CIT (Appeals) ought to have appreciated that the impugned addition was accepted during the course of survey by the appellant only to buy peace which has resulted in initiating penalty proceedings by the Appellant only to bu .....

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n the return voluntarily and the appellant has also co-operated with the Revenue and accordingly the learned CIT (Appeals) ought to have refrained form affirming the levy of penalty under Section 271(1)(c) of the Act. 5. The learned CIT (Appeals) ought to have appreciated the various judgments cited by the appellant as they were applicable to the facts of the appellant s case and thus ought to have deleted the penalty under Section 271(1)(c) of the Act. 6. Without prejudice, the levy of penalty .....

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under Section 271(1)(c) of the Act as the assessee cannot be said to have concealed particulars of income or furnished inaccurate particulars of income therein. According to the learned Authorised Representative, the starting point for imposition of penalty is the return of income and when income is declared in the return of income, that cannot be ignored. It was submitted by the learned Authorised Representative that the facts of the case on hand were that pursuant to the survey under Section 1 .....

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iculars of her income to warrant the levy of penalty under Section 271(1)(c) of the Act. In support of this proposition, the learned Authorised Representative cited and placed reliance on the decision of the Hon'ble Apex Court in the case of CIT V Reliance Petroproducts (P) Ltd. (2010) 322 ITR 158 wherein at page 164 of the ITR, the Hon'ble Apex Court has held that a penalty for concealment has to be with reference to the return of income filed by the assessee. The learned Authorised Rep .....

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f penalty of ₹ 4,34,738 on the amount of excess stock of ₹ 10,35,000, which was admitted in the return of income for Assessment Year 2007-08 as part of the returned income of ₹ 14,21,220, was not warranted and ought to be deleted. 4.2 Per contra, the learned Departmental Representative relied on the orders of the authorities below. 4.3.1 We have heard the rival submissions and perused and carefully considered the material on record, including the judicial pronouncements cited a .....

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ncome admitted and offered for taxation in the concerned assessment year. 4.3.2 The relevant portion of this order in the case of Vasavi Shelters (supra) at paras 10 to 15 thereof is extracted hereunder : 10. As far as the first part is concerned, viz., the justification of imposition of penalty on the income offered in the return of income by the Assessee for both the A.Ys., we are of the view that there cannot be any penalty on income which is declared in a return of income, on the facts and c .....

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ncome declares income which is ultimately brought to tax there can be no complaint by the revenue that the Assessee is guilty of concealing particulars of income or furnishing inaccurate particulars of income . This legal position would be implicit if one reads Sec.271(1)( c) of the Act together with Expln.3, 5 and 5A of the Act, which carves out exception for the legal position as stated above. Sec.271 (1) (c ): Failure to furnish returns, comply with notices, concealment of income, etc. (1) If .....

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lause (d), in addition to tax, if any, payable by him, a sum which shall not be less than but which shall not exceed three times the amount of tax sought to be evaded by reason of the concealment of particulars of his income or fringe benefits or the furnishing of inaccurate particulars of such income or fringe benefits: Explanation 1 : Where in respect of any facts material to the computation of the total income of any person under this Act,- (A) such person fails to offer an explanation or off .....

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es of clause (c) of this sub-section be deemed to represent the income in respect of which particulars have been concealed. Explanation 3 : Where any person, fails, without reasonable cause, to furnish within the period specified in sub-section (1) of section 153 a return of his income which he is required to furnish under section 139 in respect of any assessment year commencing on or after the 1st day of April, 1989, and, until the expiry of the period aforesaid, no notice has been issued to hi .....

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pursuance of a notice under section 148. Explanation 5 : Where in the course of a search initiated under section 132 before the 1st day of June, 2007, the assessee is found to be the owner of any money, bullion, jewellery or other valuable article or thing (hereafter in this Explanation referred to as assets) and the assessee claims that such assets have been acquired by him by utilising (wholly or in part) his income,- (a) for any previous year which has ended before the date of the search, bu .....

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on, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income, unless,- (1) such income is, or the transactions resulting in such income are, recorded,- (i) in a case falling under clause (a), before the date of the search; and (ii) in a case falling under clause (b), on or before such date, in the books of account, if any, maintained by him for any source of income or such income is otherwise disclosed to the Chief Commissioner or Commissioner .....

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and pays the tax together with interest, if any, in respect of such income. Explanation 5A : Where, in the course of a search initiated under section 132 on or after the 1st day of June, 2007, the assessee is found to be the owner of- (i) any money, bullion, jewellery or other valuable article or thing (hereafter in this Explanation referred to as assets) and the assessee claims that such assets have been acquired by him by utilising (wholly or in part) his income for any previous year; or (ii) .....

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s year has expired but the assessee has not filed the return, then, notwithstanding that such income is declared by him in any return of income furnished on or after the date of search, he shall, for the purposes of imposition of a penalty under clause (c) of sub-section (1) of this section, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income. 11. Explanation-3 is an exception to the rule that when an income which is ultimately brought to .....

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mount of advance tax, tax deducted at source, tax collected at source and self assessment tax paid before the issue of notice under section 148. This means that the income declared in the return of income can be ignored and penalty can be imposed even in respect of such income. Explanation 3 of section 271(1)(c)(iii) applies also in the case of assessees, who have not been assessed as yet. According to this section, if a person fails, without reasonable cause, to furnish a return of his income v .....

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the said period of two years. In other words, Explanation 3 shall have no application if a notice under section 142(1) or 148 was issued within two years. But if an assessee files a return of his income after the period of two years in response to a notice under section 148, he would be caught within the mischief of this Explanation. 12. In the present case, Expln.-3 to sec.271(1) of the Act will not apply because, as we have seen the Assessee filed return of income on 31.3.2010 for both the As .....

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ld be levied. The words in the course of any proceedings under this Act in Sec. 271 (1)(c ) of the Act are prefaced by the satisfaction of the AO or the CIT(A). When a survey is conducted by a survey team, the question of satisfaction of AO or the CIT(A) or the CIT does not arise. One has to keep in mind that it is the AO who initiates penalty proceedings and directs the payment of penalty. He cannot record any satisfaction during the course of survey. Decision to initiate penalty proceedings is .....

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orted by Explanations 4 as well as 5 and 5A of s. 271. Obviously, no penalty can be imposed unless the conditions stipulated in the said provisions are duly and unambiguously satisfied. Since the assessee was exposed during survey, may be, it would have not disclosed the income but for the said survey. However, there cannot be any penalty only on surmises, conjectures and possibilities. Sec. 271(1)(c) has to be construed strictly. Unless it is found that there is actually a concealment or non-di .....

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