By TIOL News Service

MUMBAI, JUNE 28, 2018: THE ISSUE IS - Whether assessee can be penalized, if he has already paid tax on the income voluntary confessed as per his statement recorded during search & seizure operation together with interest before completion of assessment. NO IS THE ANSWER.

Facts of the case:

The assessee is an individual. During the year under consideration, a search and seizure operation was carried out at his residential premises, wherein certain loose papers were found. On being confronted, an amount of Rs.25,00,000/- was surrendered by the assessee and an amount of Rs.39,00,000/- was seized on account of entries recorded in the documents seized from the residential premises. On the basis of completed assessment, the AO also initiated penalty proceedings u/s 271(1)(c). Disagreeing with the contentions raised by assessee, the AO proceeded to conclude that the assessee had concealed accurate particulars of his income by not disclosing the income which was surrendered by him during the course of search and seizure and thereby levied a penalty of Rs.23,08,480/- @ 200% of the tax sought to be evaded. On appeal, the FAA had restricted the penalty to Rs.11,54,240/- @ 100% of the tax sought to be evaded.

Tribunal held that,

++ it is admitted that the assessee has surrendered an amount of Rs.25,00,000/- and Rs.39,00,000/-. It is also not in dispute that assessee had not disclosed the surrendered amount in the return of his income nor paid taxes thereon. It is also not in dispute that the assessee while recording his statement u/s 132(4) has claimed immunity from the penalty while surrendering the said amount being unaccounted commission income. It is also not in dispute that the tax on the said surrendered amount of Rs.25,00,000/- and Rs.39,00,000/- has been adjusted from the same. It is seen that High Court of Gujarat in case of CIT vs. Mahendra C. Shah, has held that in case tax on income declared in statement u/s 132(4) was paid before assessment was completed, Exception (2) to Explanation (5) is applicable. Therefore, this case is squarely applicable to the facts and circumstances of the case as the assessee has paid tax on the income surrendered as per statement recorded u/s 132 (4) at the time of search and seizure operation together with interest before the completion of assessment. Moreover, the assessee has categorically mentioned in his statement u/s 132 (4) that the surrendered amount has been invested by him in cash out of unaccounted income generated as well as unaccounted commission income which may be generated out of the papers and documents found and seized in his residence;

++ so, when the assessee has come up with voluntary confession in order to buy peace and avoid litigation, he is entitled to the benefit of Exception (2) to Explanation 5 (2) to section 271(1)(c) and as such, the deeming provisions contained under Explanation 5 (2) are not applicable. So, when the assessee has offered aggregate amount of Rs.64,00,000/- which includes the cash seized and adjusted in accordance with the statement recorded u/s 132(4) and this amount finds mention in the computation of income, the provisions contained under Explanation (5) to section 271)(1)(c) are not attracted. Hence, penalty levied by the AO and restricted by CIT(A) is hereby deleted.

(See 2018-TIOL-957-ITAT-DEL)