No penalty leviable when income assessed shown in income tax return

The ITAT, Ahmedabad in the matter of the DCIT, Central Circle-1(1), Ahmedabad v. NBM Iron & Steel Trading Pvt. Ltd. [ITA No. 205/Ahd/2022, dated May 17, 2023] held that if an assessee during a survey surrendered his income and later showed that income in his regular income tax return, no penalty can be imposed on the assessee.

Facts

M/s. NBM Iron & Steel, Trading Pvt. Ltd. ("the Respondent") is engaged in the business of ship breaking. The Revenue department conducted a survey under Section 133A of the Income Tax Act, 1961 ("the IT Act") at the business premises of the Respondent and a search action under Section 132 of the IT Act at the residential premises of the Respondent both dated January 12, 2010.

During a search the director of the Respondent declared income of INR 1,80,00,000/- of the Respondent and INR 20,00,000/- in his individual capacity.

The Respondent reported INR 3,27,20,120/- (inclusive of INR 1,80,00,000/-) in its income tax return dated October 07, 2010.

However, as per regular assessment as per Section 143(3) of the IT Act dated December 29, 2011, the income was assessed at INR 4,17,26,360/-.

Aggrieved by the additions made by the Assessing officer ("AO"), the Respondent filed an appeal before the Commissioner of Income Tax (Appeal) ("the CIT (A)") who gave partial relief to the Respondent. The Revenue department filed an appeal before the ITAT, wherein the matter was restored and remanded back to the CIT(A) for fresh hearing. In the fresh hearing, the CIT(A) confirmed the addition of INR 1,84,08,097/- on merits of the case.

Consequently, the AOissued a notice under Section 271(1)(c) r.w. Section 274 of the IT Act for levying penalty INR 62,56,911/- on the income ascertained by the CIT(A) of INR 1,84,08,097/-. In response to the notice the Respondent filed reply which was not accepted by the AO and the penalty of INR 62,56,911/- was levied vide the penalty order ("the Penalty Order").

Aggrieved by the Penalty order, the Respondent filed an appeal before the CIT(A).

The CIT(A) vide the Order ("Impugned Order") held that the Respondent has correctly paid taxes on income of INR 1,80,00,000/- and deleted such addition. However, for the remaining income of Rs. 4,08,097/-, the CIT(A) confirmed the addition.

Aggrieved by the Impugned Order the Revenue field an appeal before the ITAT on the grounds that the Respondent had not recorded any amount in books and made ad hoc additions in return of income which is ‘filing inaccurate particulars’ as per Section 271(1)(c) of the IT Act.

Issues

Whether penalty could be imposed under section 271(1)(c) of the IT Act,on the income surrendered during survey which was shown by the Respondent it in income-tax return?

Held

The ITAT, Ahmedabad in [ITA No. 205/Ahd/2022] held as under:

• Observed that, the Respondent in Income tax return duly declared the sum of INR  1,80,00,000/- which was admitted during the course of survey. Thus, it cannot be said that the Respondent had furnished ‘inaccurate particulars of income’.
• Analysed Explanation 5A to Section 271(1)(c) of the IT Act and stated penalty is not leviable since the Respondent has paid taxes on such amount in the income tax return filed u/s. 139(1) of the IT Act.
• Referred the judgement of CIT vs. SAS Pharmaceuticals (IT APPEAL NO. 1058 OF 2009 April 8, 2011) wherein, the Hon’ble Delhi High Court held that where income surrendered by the assessee during survey has been shown by it in its regular income tax return filed within prescribed time, penalty could be imposed on the amount not declared during survey.
• Stated that, the grounds raised by the Revenue is devoid of merits.
• Dismissed the appeal filled by the Revenue.

Relevant provision

Explanation 5A to Section 271(1)(c) of the IT Act

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) any income based on any entry in any books of account or other documents or transactions and he claims that such entry in the books of account or other documents or transactions represents his income (wholly or in part) for any previous year,

which has ended before the date of search and,-

(a) where the return of income for such previous year has been furnished before the said date but such income has not been declared therein; or

(b) the due date for filing the return of income for such previous 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.