In the case of DCIT vs. NBM Iron & Steel Trading Pvt. Ltd. [ITA No. 205/Ahd/2022, dated May 17, 2023], the ITAT, Ahmedabad held that if an assessee voluntarily declares income during a survey and later includes it in their regular income tax return, no penalty under Section 271(1)(c) can be imposed. ITAT held that taxpayer had accurately disclosed the surrendered income, making the penalty unjustifiable.
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 AO issued 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.
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?
The ITAT, Ahmedabad in [ITA No. 205/Ahd/2022] held as under:
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.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This appeal is filed by the Revenue as against the appellate order dated 04.03.2022 passed by the Commissioner of Income Tax (Appeals)-11, Ahmedabad partly deleting the penalty levied under section 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year (A.Y) 20 1 0-1 1.
2. The brief facts of the case is that the assessee is engaged in the business of Ship Breaking. There was a survey action u/s. 133A of the Act in the business premises of the assessee and search action u/s. 132 of the Act in the residential premises of the Director of the assessee company on 12.01.2010.
2.1. During the course of search, the Director of the assessee company declared an income of Rs. 1,80,00,000/- in the hands of the assessee company and Rs. 20,00,000/- in his individual capacity. Thus the assessee company filed its Return of Income on 07.10.2010 declaring total income of Rs. 3,27,20,120/- which is inclusive of declared income of Rs. 1,80,00,000/-. Regular assessment u/s. 143(3) was completed on 29.12.2011 assessing the income at Rs. 4,17,26,360/-. Aggrieved against the assessment order, assessee preferred an appeal before Ld. CIT(A) who was given partial relief to the assessee. The Revenue challenged the same before ITAT and Hon’ble ITAT restored the issue back to the file of the ld. CIT(A) for fresh hearing. Thus in the fresh hearing, the Ld. CIT(A) confirmed the addition of Rs. 1,84,08,097/- on merits of the case.
2.2. It is thereafter the Assessing officer issued a notice u/s. 271(1)(c) r.w.s. 274 why not to levy penalty on the additions of Rs. 1,87,70,733/- confirmed by the Ld. CIT(A) and on which minimum penalty of Rs. 62,56,9 1 1/- to be levied. The assessee filed its reply and the same was found to be not acceptable by the Assessing Officer and levied a minimum penalty of Rs. 62,56,9 1 1/-.
3. Aggrieved against the Penalty order, assessee filed an appeal before Ld. CIT(A). The Ld. CIT(A) after considering the case of the assessee and declaration made by the Director of the assessee company of Rs. 1,80,00,000/- and the Return of Income filed with taxes paid by the assessee, therefore held that the assessee has not furnished inaccurate particulars of income to the extent of Rs. 1,80,00,000/-. However for the remaining income of Rs. 4,08,097/- , the ld. CIT(A) confirmed the addition. Thus the appeal filed by the assessee was partly allowed as follows:
6.3 After perusal of the above facts, I find that the AO had simply levied the penalty on the basis of amount confirmed by the CIT(A) i.e. Rs. 1,84,08,097/-. It is also seen that the AO had levied penalty on the confirmed addition of Rs.4,08,0971- as well as disclosed income of Rs. 1,80,00,000/- during the course of survey u/s. 133A of the Act and subsequently declared in the return of income filed u/s. 139(1) of the Act. In fact in the assessment proceeding at Para 5, the AO had determined the suppression of sales figure of Rs. 1,46,64,689 only. But the AO did not make any addition on account of suppression of sales because the appellant had already disclosed a sum of Rs.1,80,00,000/- which was much higher than the amount determined by the AO herself. Further, I find that the AO during the penalty proceedings had not given any specific findings regarding how the appellant had furnished inaccurate particulars of income for the year under consideration.
It is important to mention here that the director of the appellant company had given statement u/s. 132(4) of the Act dated 12.01.2010 and had declared income of Rs. 1.80 crores for A. Y. 2010-11 and disclosed the said amount in the return of income filed u/s. 139(1) of the Act on 07.10.2010. Since, the date of filing of return of income was not expired on the survey date and income declared in the survey was truly disclosed in the return income (in fact the same was much higher than the discrepancy determined by the AO herself during the assessment proceedings). Therefore, it cannot be said that the appellant had furnished inaccurate particulars of income. The AO herself accepted the disclosure made by the appellant but failed to make out a case for furnishing inaccurate particulars of income by the appellant. The appellant has relied on various judicial pronouncement of the Hon’ble Judicial authorities and also stated that no penalty will be levied as per the explanation 5A of the section 271(1)(c) of the Act. The Hon’ble Jurisdictional High Court of Gujarat in the case of New Sorathia Engineering Company vs. CIT 155 Taxmann 516 has held that penalty is not leviable where no clear cut finding of concealment has been given by the AO.
6.3.1 Further the assessee has relied on the order of Hon’ble Jurisdictional ITAT, Ahmedabad- B Bench in case of Commissioner of Income-tax v. Jupiter Distillery  23 taxmann.com 303 (Ahmedabad – Trib.) has held as under that:-
“The assessee had surrendered a sum of Rs. 1.6 crores during the course of survey/search and seizure operation. While furnishing its return of income, the assessee had declared its income including the amount so surrendered. However, while framing the assessment order, the Assessing Officer imposed penalty under section 271 (1)(c) on the premise that the assessee had furnished inaccurate particulars by suppressing and underreporting the investment in bank accounts and on account of income deemed to have accrued to it.
Held that the assessee on its own, rather voluntarily, furnished its return of income before the issuance of the notice under section 1 53C wherein it had volunteered to admit an additional income of Rs. 1.60 crores. On facts, the penal proceedings initiated and subsequent imposing of penalty under section 271(1)(c) in the assessee’s case were not in accordance with the provisions of section 271 (1)(c).”
6.3 The assessee also relied on the order of Hon’ble ITAT, Bangalore in the case of Muninaga Reddy vs. Assistant Commissioner of Income-tax, Circle- 6(1), Bangalore  37 taxmann.com 440 (Bangalore Trib.)[14-08-2013]. The head note of the judgement is as under-
“Survey, declaration of income after, effect of] – Assessment year 2008-09- Assessee alongwith one ‘E’ developed a layout of house site – Competent Authority conducted a survey under section 133A upon ‘E’ on 11-11-2009- Consequent to survey, assessee declared his share of income from joint venture at Rs. 81 lakhs – In return of income filed for assessment year 2008- 09 on 9-6-2010, assessee apart from other income also declared aforesaid income of Rs. 81 lakhs as income from business – Assessing Officer accepted said income and passed assessment order – He also levied penalty under section 271(1)(c) on plea that but for survey operations under section 133A assessee had declared income of Rs. 81 lakhs and, therefore, he had concealed particulars of income to extent of Rs. 81 lakhs Whether since assessee had made a complete disclosure in return of income and offered surrendered amount for purposes of tax, which was accepted and brought to tax, there could be no question of treating assessee as having concealed particulars of income or furnished inaccurate particulars of income. Held, yes -Whether, therefore, there was no justification for imposition of penalty under section 271(1)(c) on income of Rs. 81 lakhs Held, yes [Paras 7, 10 12] (In favour of assessee/IT: Where assessee consequent to survey conducted under section 133A had declared income from business at Rs. 81 lakhs and further in return of income filed also declared said income, which was accepted and brought to tax, Assessing Officer was wrong in imposing penalty under section 271(1)(c),”
6.4 In similar circumstance Hon’ble High Court of Delhi in the case of Commissioner of Income-tax vs. SAS Pharmaceuticals  11 taxmann.com 207 (Delhi) [08-04-2011] has held that :-
“Whether for imposing penalty under section 271 (1)(c), concealment of particulars of income or furnishing of inaccurate particular of income by assessee has to be in income-tax return filed by it – Held, yes Whether where income surrendered by assessee during survey had been shown by it in its regular income-tax return filed within prescribed time, penalty could be imposed upon it under section.”
6.5 It is also settled position of law that penalty is not automatic and merely on confirmation of the addition by the CIT(A), the penalty cannot be levied.
7. In view of the discussion in foregoing paragraphs and respectfully following the judgement of the Hon’ble Judicial authorities, the AO is directed to delete the penalty levied on the amount of Rs.1,80,00,000/-. Further, the AO’s action in levying penalty on Rs.4,08,097/- is confirmed. Thus ground of appeal is partly allowed.
4. Aggrieved against the same, the Revenue is in appeal before us raising the following Grounds of Appeal:
1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the penalty levied on the confirmed addition of Rs. 1.80 Cr, despite the fact that during the course of survey action u/s 133A at the premise of the assessee it is seen that the assessee had not recorded mentioned any amount in it’s books of accounts and subsequently made adhoc disclosure in the return of income, which tantamount to furnishing of inaccurate particulars of income within the meaning of section 271(1)(c) of the I.T. Act, 1961.
2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) ought to have upheld the order of the A.O.
3. It is, therefore, prayed that the order of the Ld. CIT(A) be set aside and that of the A.O. be restored to the above extent.
4.1. The Ld. Sr. D.R. Shri Atul Pandey appearing for the Revenue supported the penalty order passed by the Assessing Officer and requested to uphold the same.
5. Per contra, the Ld. Counsel Shri Sarju Mehta appearing for the assessee supported the order passed by the Ld. CIT(A) and submitted before us that the survey action in the present case was held on 12.01.2010, before the completion of the financial year relevant to the assessment year 2010-11 and the Director of the assessee company declared a sum of Rs. 1,80,00,000/- as the income of the assessee company. The assessee company filed its Return of Income and also paid appropriate taxes on the declared income of Rs. 1,80,00,000/-. Thus, there is no furnishing of inaccurate particulars of income by the assessee. Thus the deletion of Rs. 1,80,00,000/- for the purpose of levy of penalty u/s. 271(1)(c) does not require any interference. Thus the Ld. A.R. reiterated the submissions made before ld. CIT(A) and requested to uphold the same and dismiss the Revenue’s appeal.
6. We have given our thoughtful consideration and perused the material available on record. It is an undisputed fact that during the course of search on 12.01.2010, the Director of the assessee company declared income of Rs. 1,80,00,000/- belongs to the assessee company and paid taxes thereon ad filed its Return of Income on 07.10.20 10 for the Assessment Year 2010-11. Further the time limit of filing of Return of Income for A.Y. 2010-11 was not expired on the date of survey namely 12.0 1.2010 i.e. much before the end of the financial year itself. However the assesse in its Return of Income duly declared the sum of Rs. 1,80,00,000/- which was admitted during the course of survey. Thus it cannot be said that the assessee had furnished “inaccurate particulars of income” which is not disputed by the Assessing Officer.
6.1. Further as per Explanation 5A to Section 271 (1)(c), penalty is not leviable since the assessee has paid the taxes thereon in the Return of Income filed u/s. 139(1) of the Act. This view of our is supported by the Co-ordinate Benches of the Tribunal in the case of CIT vs. Jupiter Distillery  23 taxmann.com 303 (Ahmedabad – Trib.) and in the case of Muninaga Reddy vs. ACIT  37 taxmann.com 440 (Bangalore – Trib.) wherein deleted the levy of penalty u/s. 271(1)(c) of the Act.
6.2. Similarly, the Hon’ble Delhi High Court in the case of CIT vs. SAS Pharmaceuticals  11 taxmann.com 207 (Delhi) wherein it was held where income surrendered by assessee during survey had been shown by it in its regular income-tax return filed within prescribed time, penalty could be imposed. Thus the Ld. CIT(A) has followed the above decisions and deleted the penalty on the declared income of Rs. 1,80,00,000/-. However the Ld. CIT(A) confirmed the levy of penalty on the balance disputed income of Rs. 4,08,097/-. Thus, we do not find any infirmity in the order passed by the Ld. CIT(A), who partly deleted the penalty levied u/s. 271(1)(c) of the Act. Thus the grounds raised by the Revenue is devoid of merits and the same is dismissed.
7. In the result, the appeal filed by the Revenue is hereby dismissed.
Order pronounced in the open court on 17 -05-2023
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