The Ahmedabad bench of the Income Tax Appellate Tribunal (ITAT) has held that the penalty under section 271(c)(1) of the Income Tax Act cannot be made merely on the basis of the declaration made by the assessee during search proceedings.
A search was carried out at the premises of the Dhanjimama group inconsequent to which, the assessee filed return of income wherein he had disclosed additional income of Rs.9,98,000/-. Later, the penalty was also imposed on the assessee on the ground that he confessed before the authorities that there was concealment of income for the relevant assessment.
Relying on a catena of decisions, the Tribunal held that solely on the basis of declaration, addition is not possible.
Analyzing the provisions of Explanation 5A appended to section 271(1)(c), the Tribunal observed that a perusal of the above Explanation would indicate that this Explanation could be invoked if during the course of search any incriminating material representing any money, bullion, jewellery other valuables articles or things or entry in any books of accounts found during the course of the search, based on such material, addition is being made.
“This Explanation cannot be invoked simply for the reason that, had the search not been carried out, the assessee would not have disclosed this additional income. Somewhat an identical situation was considered by the ITAT, Rajkot Bench in the case of Shri Mansukhbhai R. Sorathia and Others, in IT(SS)A.No.46 to 52/RJT/2012, wherein question before the Tribunal was, when no money, bullion, jewellery or book-entry was found at the time of the search, and the only evidence against the assessee is an admission of additional income made in the statement under section 132(4), whether such admission tantamount to the disclosure of money, bullion, jewellery or diary and income disclosed is to be considered as concealed income or not?,” the Tribunal said.
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