Shri Bhim Singh C/O ... v. Deputy Commissioner ...

Shri N.L Kalra, A.M:— The assessee has filed an appeal against order of ld. CIT(A) II Jaipur dated 15.04.2011 The grounds of appeal are as under:

Because, the Commissioner of Income Tax (Appeals)-II has grossly erred in upholding the levy of penalty u/s. 271(1)(c) of Rs. 35100/-.

Because, the Commissioner of Income Tax (Appeals)-II & Assessing Officer have failed to appreciate the fact of returns being voluntary before the detection of concealment/furnishing of inaccurate particulars by the Assessing Officer for assessment year 2001–2002.

Because the Assessing Officer and Commissioner of Income Tax (Appeals)-II have not brought on record any evidence in respect of concealment or furnishing of inaccurate particulars for assessment year under consideration and therefore levy of penalty under section 271(1)(c) is in excess of jurisdiction besides lacking locus standi.

2. On perusal of the penalty order, it is seen that the AO has levied penalty of Rs. 35,100/- as the assessee had filed revised returns of income pursuant to search action at his premises on 13.02.2001 Subsequent to search operations, the assessee had initially revised his return of income on 01.08.2002 wherein lease rent of Rs. 35,100/- was disclosed from Skippers County. The assessee again filed revised return of income on 23.01.2003 wherein enhanced lease rent of Rs. 1,00,000/- was disclosed from Skippers county. The AO was of the opinion that the assessee has revised the return after the search operation when department had already detected the concealment. The AO further held that revised returns were not bonafide as the assessee had not discovered any omission or wrong statement in the original return. Before me, the counsel of the appellant has submitted that in the block assessment order dated 27.02.2003, it was held that the assessee was enjoying income from Skippers County which was not disclosed before the department. The income on this account was determined at 3 lakhs. The second revised return was filed just before the completion of the block assessment order, wherein lease rent from Skippers County, was shown at Rs. 1 lakh. It was further argued before the A.O that similar addition of Rs. 3,00,000/- made in block period (1,00,000/- each in assessment years 1998–1999, 1999–2000 and 2000–2001) was deleted partly by commissioner of Income Tax (Appeals) which was upheld by Income Tax Appellate Tribunal and remaining part of Rs. 1,59,002/- was also deleted by Income Tax Appellate Tribunal. Thus the very basis of initiation and consequential levy of penalty under section 271(1)(c) did not survive.

3. The ld. CIT(A) observed that it is a settled law that if after search operations, the return is revised then the disclosure can not be held to be voluntary. The ld. CIT(A) confirmed the penalty after observing as under:

It was held by the Honourable Allahabad High Court in the case of Commissioner Of Income Tax-Ii Petitioner v. Sri Rakesh Suri (2010-TIOL-357-HC-Allahabad) that the Tribunal had erred in cancelling the penalty levied U/s 271(1)(c) of I.T Act. In the instant case, the assessee surrendered the income after being concerned by the department and finding no escape route. The assessee tried his best to escape from communicating the relevant information even while surrendering the income. This showed the state of mind and disclosure seemed to be not voluntary but under compulsion being cornered by revenue. Accordingly it was held cancelling of penalty by the Tribunal was not justified. In the present case, the filing of the second and third return speaks loudly about the conduct of the assessee which can not be said to be anything else than malafide and filing of another return does not obliterate the fact of earlier malafide return and that the assessee had furnished wrong particulars of the his income with a view to suppress the actual income and therefore, he is liable to be penalized. The appellant has unsuccessfully tried to correlate the facts of the present case with the assessment completed for the Block Period. There was no evidence that the assessee had received lease rent of Rs. 1,00,000/- from Skippers County in A.Y 98–99, AY 99–2000 and AY 2000–2001. The Honourable ITAT allowed the appeal of the assessee since in the Block assessment, addition can be made only if documentary evidence relating to same is found during the course of search. Whereas in the present year, the assessee has himself offered lease rent income of Rs. 35,000/- in the first revised return of income followed by enhanced lease rent income of Rs. 1,00,000/- from Skippers County in the second revised return of income. The assessee has filed the initial return dishonestly with a view to conceal the income and the revised return was filed out of compulsion. After due consideration of facts and circumstances in the present case, I hold the AO was right in levying the penalty of Rs. 35,100/- u/s 271 (1)(c) of the I.T Act.

4. We have heard both the parties. Formal notice u/s 143(2) was issued on 23.01.2002 No hearing on 05.02.2002 The assessee filed revised returns on 1.8.2002 and 27.01.2003 Notice u/s 143(2) was again issued on 21.02.2003 Querries have been raised on 22.04.2003 On 22.03.2004, the assessee was asked as to why revised return be not treated as non est. In the block assessment, the A.O made addition on account of income from skipper's country and such addition was deleted by ld. CIT(A) and the Tribunal has confirmed the order of ld. CIT(A) after observing as under:

The A.O made addition of Rs. 3 Lac on account of estimation of income from skippers county. The same was opposed before the ld. CIT(A) with the submission that the A.O has overlooked the fact as stated by the assessee in his reply dated 18.2.2003 that the hire charges of the farm house have been duly disclosed through periodic I.T returns, whenever received on receipt basis since inception. It was submitted that the income is accounted on receipt basis which is the method of accounting followed by the assessee since inception, therefore, the income though accrued but has not been received and hence not taken into account. The ld. CIT(A) being convinced with the explanation of the assessee has deleted the addition on the basis that no evidence was found during the course of search indicating the higher income from the farm house in the A.Yrs 1998–1999 to 2000–2001 or in regard to any income from this source over and above the income disclosed in the earlier A. Yrs. as well. He noted further that the assessee has also not admitted any such undisclosed income from the farm house either in his statements u/s 132(4) or in the return of income for the block period filed by him for the relevant A. Yrs. We agree with the finding of the ld. CIT(A). The same is upheld. Thus in our view no grievance is left with the assessee to allege that any addition of Rs. 1,59,002/- has been sustained by the Ld. CIT(A) on account of income from skipper's county. The ground No. 2(vi) is thus dismissed as not maintainable.

5. It means that nothing was found during search to indicate any undisclosed income in respect of receipt from skipper's county. Hence this is not a case that revenue noticed any undisclosed income. However, the assessee did not disclose the entire receipt in the first revised return. The particulars of income disclosed in first revised return were not correct. The difference between second revised return & first revised return is of Rs. 35,000/-. The first revised return can not be termed as revised on account of any item of income found during the search. Hence we feel that AO should impose minimum penalty on canceled income of Rs. 35,000/-.

6. In the result the appeal is partly allowed.