DR SARITA MILING DAVARE,MUMBAI vs. ACIT CEN CIR 40, MUMBAI

First we shall take up the appeal filed for A.Y. 2004-05. The assessee was subjected to search and seizure operation u/s. 132(1) of the Act. During the course of search, national saving certificates worth ` 3,50,000/- was found in the joint name of the assessee and her father/grandfather. Before the search officials, the assessee agreed to offer the above said sum of ` 3,50,000/- as her income. Accordingly she filed return of income u/s. 153A of the Act declaring amount of ` 3,50,000/- for the year under consideration. The Assessing Officer accepted the return and thereafter levied penalty u/s. 271(1)(c) of the Act by invoking Explanation 5A to sec.271(1)(c). Learned CIT(A)

Learned AR submitted that the assessee did not invest amount of ` 3,50,000/- in National Savings Certificate out of her own income and has received the same as gift/inheritance from her father and grandfather. The assessee has offered the above said amount as her income in the return of income filed u/s. 153A of the Act, since she has agreed to offer the same in the statement taken from her during the course of search. Learned AR submitted that explanation 5A to section 271(1)(c) shall be applicable only if the assessee is found to be the owner of the asset and the assessee claims that the same has been acquired by him by utilizing (wholly or in part) his income for any previous year. Learned AR submitted that the assessee did not have any other income in the year under consideration and the Assessing Officer has recorded said fact in para 3 of the assessment order. In the absence of own income, the question of invoking Explanation 5A does not arise. He submitted that the assessee has acquired these national saving certificates by way of inheriting/gift from her father/grandfather. Accordingly he submitted that provisions of Explanation 5A to sec. 271(1)(c) has been wrongly invoked by the AO. He further submitted that Explanation 5 and Explanation 5A has been brought into section 271(1)(c) as deeming provision where the assessee claims that undisclosed assets have been acquired by him out of his income. Intention for inserting Explanation 5 has been explained by Hon'ble Bombay High Court in the case of Sheraton Apparels Vs. ACIT (2002) 256 ITR 20. Learned AR further submitted that the assessee has offered an amount of ` 3,50,000/- as her income in the return of income filed by her and hence the impugned penalty is liable to be deleted.

On the contrary learned Departmental Representative submitted that the assessee did not file her return of income for the year under consideration prior to the date of search and the assessee has filed her return of income for the first time u/s. 153A for the year under consideration, as she agreed to offer

We have heard rival contentions and perused the record. We notice that the AO has invoked the provisions of Explanation 5A to sec. 271(1)(c) to impose penalty. We notice that the AO himself has observed in the assessment order that the assessee did not derive any income during the year under consideration. Further the fact that the NSC was held in the joint name of the assessee and her father/grandfather, in a way supports the case of the assessee that the investments were made by them. Hence we are of the view that the Explanation 5A would not apply to the facts of the present case. In this view of matter and in the facts and circumstances of the case, the return of income filed by the assessee offering the amount of Rs.3,50,000/- as agreed in the statement cannot be considered to be a case of concealment of particulars of income. Accordingly we set aside the order passed by Ld CIT(A) and direct the AO to delete the penalty.

We shall now take up the appeal filed for AY 2008-09. The assessee claimed a sum of Rs.48,500/- as rent expenditure and the same was disallowed by the AO by treating the same as not related to business. The AO later levied penalty on the above said disallowance and the same was also confirmed by Ld CIT(A).

We heard the parties on this issue and perused the record. We notice that the penalty has been levied on the disallowance of rental expenditure on the presumption that the same does not relate to business. The fact whether the premises was used or not used for professional purposes is a debatable one and hence the above said disallowance should also be considered to be a debatable one, in which case the penalty u/s 271(1)(c) will not lie. Accordingly

In the result, both the appeals of the assessee are allowed. Order has been pronounced in the Court on 5.10.2016