Section 271(1)(c), 271AAA – In a case where penalty is leviable u/s. 271AAA, penalty initiated and levied u/s. 271(1)(c) is unsustainable in law.

3.  ACIT
vs. Nitin M. Shah  (Mumbai) Members: G. S. Pannu, VP and Sandeep Gosain,
JM ITA No.: 2863/Mum./2017 A.Y.: 2012-13 Dated: 1^st November, 2018 Counsel for revenue / assessee: B. S. Bist /
Dr. P. Daniel

Section 271(1)(c), 271AAA –  In
a case where penalty is leviable u/s. 271AAA, penalty initiated and levied u/s.
271(1)(c) is unsustainable in law.

FACTS

The assessee was a director and key person
of one company N. A search and seizure operation was carried out on the
assessee and his group concerns. During the course of assessment proceedings,
the Assessing Officer (AO) made addition of Rs. 5,81,07,680 and assessed his
income at Rs. 12,06,72,926. Subsequently, the AO initiated penalty proceedings
u/s. 271(1)(c) of the Act in respect of the additions made during the course of
assessment. Aggrieved the assessee preferred an appeal to CIT(A) who confirmed
the addition of Rs. 2,67,68,882. As regards, the balance additions for which
relief was allowed by the CIT(A), the department filed appeal before the
Tribunal. The Tribunal upheld the order of the CIT(A) and thereafter, the AO
initiated the action for levy of penalty.

Aggrieved, the assessee preferred an appeal
before the CIT(A). The CIT(A) allowed the appeal of the assessee.

Aggrieved, revenue preferred an appeal to
the Tribunal on the ground that explanation furnished by the assessee was not bonafide
and incriminating material was found and seized in search and that the assessee
had defrauded the revenue by not offering true and correct income in the return
of income filed by the assessee. The assessee was therefore liable for penalty
as per Explanation to section 271(1)(c) of the Act.

HELD

The Tribunal observed that the CIT(A) held
that assessee’s case for levy of penalty fell u/s. 271AAA of the Act and not
u/s. 271(1)(c) of the Act. Further, sub-clause (3) to sub-section (1) of
section 271 of the Act clearly prohibited imposition of penalty in respect of
undisclosed income referred to in sub-section (1) of section 271 of the Act.
Since the AO had initiated penalty u/s. 271(1)(c) of the Act, the same was
unsustainable in law and therefore was directed to be deleted. The Tribunal
concurred with the view of the CIT(A) and held that penalty initiated and
levied by the AO u/s. 271(1)(c) of the Act was unsustainable in the eyes of law
and was thus rightly held to be deleted by the CIT(A).

The Tribunal dismissed the appeal filed by
the revenue.