DCIT Vs Ethirajulu Vajravel Kumaran (ITAT Chennai)
ITAT Chennai held that penalty under section 271(1)(c) of the Income Tax Act not sustainable since the additional income offered by the assessee was voluntary and addition is not based upon incriminating material seized during the course of search. Accordingly, order of CIT(A) upheld and appeal of revenue dismissed.
Facts- A search and seizure operation u/s.132 of the Act was conducted in the case of M/s.Arunai Group & Others on 25.03.2021. The assessee was also subjected to search. During the course of the search, certain loose sheets in the form of non-judicial stamp papers were found and seized from the premises of the assessee. Post search operation, AO concluded that the temple construction was borne by assessee out of undisclosed income. AO also proposed initiation of penalty proceedings under section 271(1)(c) of the Income Tax Act. Consequently, by order dated 30.09.2022 passed u/s.271(1)(c) of the Act, the AO imposed a penalty of Rs.1,11,89,533/-, being 100% of the tax sought to be evaded on the said sum of Rs.3,25,88,900/-.
CIT(A) proceeded to delete the penalty of Rs.1,11,89,533/- levied by the AO u/s.271(1)(c) of the Act. Being aggrieved, revenue has preferred the present appeal.
Conclusion- Held that the additional income has been offered by the assessee voluntarily, and such disclosure is not founded upon or traceable to any incriminating material discovered or seized during the course of search proceedings. It is a well-settled principle, fortified by several pronouncements of the Coordinate Benches of this Tribunal, that the deeming fiction embedded in Explanation 5A to Section 271(1)(c) of the Act can be invoked only when the addition or disclosure of income is directly relatable to incriminating evidence unearthed during the course of search. In the absence of such incriminating material, the provisions of Explanation 5A cannot be pressed into service for the imposition of penalty u/s.271(1)(c) of the Act. Thus, in view of the judicial precedents and the legislative scheme, it follows that in the present case, where the assessee’s voluntary disclosure of additional income is not supported by any seized or incriminating document, the penalty provisions u/s.271(1)(c) of the Act stand inapplicable.
