No Penalty even If Some Discrepancies found during Survey Once the Assessee already declared the Income in Return: ITAT [Read Order]

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In recent case Income Tax Appellate Tribunal ( ITAT ), Jaipur held that even if some discrepancies were found during the survey resulting in surrender of income by the assessee, once the assessee has declared the said income in the return of income filed under Section 139(1) of the Income Tax Act, then the penalty cannot be levied on assessee on contention that he would not have disclosed the income but for survey.

During the course of the survey at the business premises of the assessee, a diary was found and impounded, contains certain entries of advances given to various persons by the assessee to the tune of Rs. 3 crores. In the statement recorded under Section 133A of the Income Tax Act, the assessee admitted the above amount of Rs. 3 crores as his undisclosed income. The assessee thereafter filed his return of income declaring total income including the income surrendered during the course of the survey. The assessment was completed under section 143(3) whereby the AO has accepted the returned income except for addition on account of short rental income was made by the AO. The AO then initiated the proceedings for levy of penalty under section 271(1)(C) in respect of the income surrendered by the assessee as well as the addition made during the course of assessment framed under section 143(3). The assessee objected to the levy of penalty The AO did not accept this contention of the assessee and levied the penalty. The assessee challenged the action of the AO before the CIT (A) but could not succeed.

The assessee has submitted in the light of the judgment in case of CIT vs. S.A.S. Pharmaceuticals, 335 ITR 259 (Del.) that when the assessee has declared the income of Rs. 3 crores in the return of income filed under section 139(1) of the Act and no addition was made by the AO on this account while completing the assessment under section 143(3). As per the provisions of section 271(1)(c), the concealment of particulars of income or furnishing of inaccurate particulars of income is considered only in respect of the difference between the income declared by the assessee in the return of income and the total income finally assessed by the AO. Where there is no such difference, the question of imposing the penalty under section 271(1)(c) does not arise. Further contended that the AO has applied explanation 5a to section 271(1)(c) which is not attracted in the case of the assessee as there was no search and seizure action but a survey was carried out under section 133a before the close of the financial year.

Respondent has submitted that the surrender was not voluntary but due to the reason of discovery of undisclosed income in the course of a survey conducted at the business premises of the assessee. Hence notwithstanding the income declared in the return of income the particulars, of the instant income were not accounted for by the assessee in the books of account. Therefore, it is a clear case of concealment of particulars of income by the assessee.

The ITAT bench comprising of Judicial Member Vijay Pal Rao and Accountant Member Vikram Singh Yadav held that even if some discrepancies were found during the survey resulting in surrender of income by the assessee, once the assessee has declared the said income in the return of income filed under section 139(1) of the Act, then the penalty cannot be levied on the surmises, conjectures and possibilities that the assessee would not have disclosed the income but for survey. Accordingly, following the earlier decision of this Tribunal as well as the decision of Hon’ble Delhi High Court in case of CIT vs. SAS Pharmaceuticals, the penalty levied by the AO and confirmed by the CIT (Appeals) in respect of the amount of Rs. 3 crore is not sustainable, the same is deleted.

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