No concealment penalty without recording findings to bonafide of the explanation offered by the assessee with reasoning. ITAT deletes penalty u/s 271(1)(c)
ABCAUS Case Law Citation:
ABCAUS 1140 (2017) (02) ITAT
The assessee is aggrieved with the levy of penalty u/s 271(1)(c) of the Income-tax Act, 1961 (“the Act”) by the Assessing Officer (AO), which was confirmed by the Commissioner of Income-tax (Appeals).
Assessment Year : 2010-11
Date/Month of Pronouncement: February, 2017
Important Case Laws Cited/relied upon:
Income Tax Officer Vs. Manjit Singh Baldev Singh Commission Agents reported in (1999) 69 ITD 97 (ASR)
Brief Facts of the Case:
In the case of assessee a survey under section 133A was carried out in which the survey party found discrepancies namely, excessive stock, cash, investment. Also some loose papers were also found having entries of Rs.17,99,955/- was also found. During the course of survey proceeding, the assessee accepted the above discrepancies and surrendered the amounts involved for taxation.
However, in the return of income filed for the year, the assessee, declared total income including all the items of discrepancies except entries in loose papers, against which the assessee included income of Rs.4,16,220/- only.
During the assessment proceedings, the assessee agreed for the addition for the full amount on account of loose papers with a view to buy peace of mind and only to avoid any further litigation and harassment subject to no penalty and prosecution proceeding. The Assessing Officer accordingly made addition and initiated penalty proceedings under section 271(1)(c).
During the penalty proceedings, the assessee submitted that during the survey, he had surrendered sum under pressure and to buy peace of mind, however, at the time of filing return of income the excess amount of Rs.13,83,330/-, which was surrendered on account of loose papers, was not included in the income due to debatable view of inclusion of margin of sales instead of total amount of sales included in the loose papers. He also submitted that to buy peace of mind and to avoid further litigation on the issue accepted the addition of Rs.13,83,330/- during assessment proceeding subject to the condition that no penalty or prosecution proceeding would be initiated against the assessee.
The Assessing Officer did not found any merit in the submission and held that it was a clear case of concealment of particulars of income and levied the penalty.
On appeal, the Commissioner of Income-tax (Appeals) observed that the assessee had ample time to explain each and every entry in the loose papers as had been asked by the Assessing Officer and he was under no pressure at the time of assessment proceeding to make a blanket surrender if the entries in the loose papers could have been explained. The Commissioner of Income-tax (Appeals), opined that there was no bona fide explanation for concealing the particulars of the income and, therefore, the penalty was upheld.
Observations made by the Tribunal:
The Tribunal opined that mere raising of a plea of voluntary surrender or buy peace or avoid litigation or amicable settlement was not sufficient for not levy of penalty and the Assessing Officer was required to examine whether the assessee had discharged his burden of proving the bonafide.
It was observed that in the case of the assessee the CIT(A) had confirmed the penalty on the ground that explanation furnished by the assessee was not bonafide by invoking Explanation-1, of the section 271(1). However, the Assessing Officer, had not recorded any finding whether the explanation filed by assessee was bonafide or not.
The Tribunal noted that the Explanation-1 to section 271(1)(c) has two limbs. First limb under clause A cover situation where there is no explanation at all or the explanation is found to be false. The second limb under clause-B covers the situation where the explanation furnished by the assessee is found to be not bonafide and all material facts are not disclosed.
The Tribunal observed that it was not the case of the lower authorities that no explanation was filed by the assessee or the explanation furnished was found to be false, thus The CIT(Appeals) had only observed that explanation furnished with assessee was not bonafide and thus the case of assessee was falling under part B of the Explanation-1.
It was noted that before the AO, the assessee had submitted that while filing the return of income amount in question was not included due to debatable view of inclusion of margin of sales instead of total amount of sales included in the loose papers. The CIT (Appeals) had not given any reasoning as to why the said explanation was not bonafide.
The ITAT opined that where in the course of search or survey action evidences in respect of source of income and application of income both are found, then addition could have been made either on source of income or application of income and it cannot be made both for source of income and application of income. In the present case, the AO in the assessment order nowhere observed that the assessee was having any source of investment in stock, cash etc other than the sales. In such circumstances, the apparent source of investment in stock, cash, furniture and fixture, renovation in shop etc. was the sales appearing in loose papers and the AO should have allowed the telescoping of the income appearing in loose papers against the investment in stock, cash etc.
According to the ITAT, the Assessing Officer appeared to have simply made addition for the amount offered by the assessee, without going into whether said addition could have been made in the hands of the assessee or not. It was the statutory duty of the AO to assess the income in accordance with law only.
The Tribunal further observed that the Assessing Officer, even levied the penalty without any finding recorded in the order on the issue whether the explanation filed by the assessee was bonafide or not and whether all material facts related to the addition were disclosed by the assessee.
In our view, merely making addition by the Assessing Officer, which is accepted by the assessee, cannot make the assessee liable for the levy of penalty unless the conditions of Explanation-1 of section 271(1)(c) are satisfied.
The appeal was partly allowed.and the matter was remanded back to the file of the AO to examine the applicability of the conditions of Expanation-1 of the section 271(1)(c) of the Act and decide the issue of levy of penalty in accordance with law.