Gujarat HC Quashes ₹21.16 Lakh Penalty On Mother, As Her Accepted ₹64.54 Lakh 153C Return Left No Tax Sought To Be Evaded

A search at the premises of the assessee’s son led to a statement admitting undisclosed income of approximately ₹64.54 lakh in the assessee’s case, supported by seized records relating to land-sale proceeds.

The assessee’s return under Section 139(1) did not include that income.

After receiving notice under Section 153C, she filed a return under Section 153A disclosing the income and paid tax.

The Assessing Officer accepted that return without making an addition but imposed a penalty of ₹21,16,092 under Section 271(1)(c).

The CIT(A) deleted the penalty; the Tribunal restored it.

The assessee appealed to the Gujarat High Court.

1. Whether the Tribunal erred in restoring the penalty under Section 271(1)(c) where the income disclosed in the return filed under Section 153A in response to the Section 153C notice was accepted without addition

2. Whether the assessee’s earlier returns under Section 139(1) or Section 139(4) could be relied on to find concealment and calculate tax sought to be evaded after proceedings under Section 153C were initiated

Section 271(1)(c) authorises a penalty for concealment of income or furnishing inaccurate particulars, while Explanation 4(c) defines the tax sought to be evaded, in an ordinary case, by comparing the tax on assessed total income with the tax that would have been chargeable had the concealed income been excluded.

Sections 153A and 153C provide for assessment of the relevant years following a search and apply the Section 153A assessment procedure to the other person concerned.

Relying on *Principal Commissioner of Income Tax v. JSW Steel Limited*, (2020) 422 ITR 71 (Bom), the Court stated that pending assessment or reassessment proceedings abate upon the relevant search proceedings, and the return filed under Section 153A is treated as a return under Section 139.

The Court also held that Explanation 5 to Section 271(1)(c), concerning assets found in the possession or control of an assessee during a search, did not govern the penalty issue on these facts.

The Court found that the assessee disclosed the additional income in her Section 153A return filed in response to the Section 153C notice, and the Assessing Officer accepted that return without making any further addition.

Applying the statutory scheme and *JSW Steel*, it held that the earlier returns under Sections 139(1) and 139(4), which were pending for processing, could not be used to sustain the Tribunal’s finding that the assessee had failed to come forward with the income.

With the Section 153A return accepted and no further difference in tax payable established, the Court concluded that no tax was sought to be evaded within Explanation 4(c), and therefore the penalty could not stand.

It set aside the Tribunal’s order restoring the penalty and held that, in the circumstances, no penalty under Section 271(1)(c) was leviable.

The appeal was allowed.