2004 (7) TMI 86 - HC - Income Tax

Penalty u/s 271(1)(c) surrender of income - case of the assessee is that during the course of search the assessee has surrendered Rs. 22, 32, 000 on that amount there should be no penalty in view of the Explanation 5 to section 271(1)(c) - The penalty has been imposed on the ground that as tax has not been paid along with interest in time the benefit of Explanation 5 to section 271(1)(c) of the Act cannot be extended to the assessee. - There is no dispute on the facts that search was continued till August 1 1987 and on August 1 1987 in the statement the assessee has disclosed a particular concealed income and surrendered it for the tax and tax has been paid along with interest. In these circumstances the Tribunal has committed error in restoring the penalty order of the Assessing Officer.

Summary

Issues:
1. Restoration of penalty under section 271(1)(c) of the Act for surrendered income during a search.
2. Impact of time lag between offering surrendered amount and filing return on Explanation 5 to section 271(1)(c).
3. Requirement and timing of tax payment on surrendered income for Explanation 5 to section 271(1)(c) benefit.
4. Consequences if particulars of surrendered income are found incorrect.

Analysis:

Issue 1: The Tribunal restored the penalty under section 271(1)(c) of the Act for income surrendered during a search. The assessee contended that as the tax on the surrendered amount was paid before assessment completion, they should benefit from Explanation 5 to section 271(1)(c). The Department argued that due to delays in filing returns and tax payment, the assessee was ineligible for the benefit. The Tribunal's decision was based on the requirement that tax should be paid before assessment completion, as seen in a previous case.

Issue 2: The time lag between offering the surrendered amount and filing returns was questioned regarding the operation of Explanation 5 to section 271(1)(c). The Tribunal's decision highlighted the importance of tax payment before assessment completion, emphasizing compliance with tax obligations for penalty imposition.

Issue 3: The timing of tax and interest payment on the surrendered income was crucial for availing the benefit of Explanation 5 to section 271(1)(c). The Tribunal's decision emphasized the need for tax payment before assessment completion, as demonstrated by the case of Mahendra Chitnan Lal Shah v. Asst. CIT, where the tax was paid before assessment despite delays in filing returns.

Issue 4: The consequences of incorrect particulars of surrendered income were also addressed. The Tribunal's decision focused on the importance of timely tax payment and compliance with tax obligations to avoid penalty imposition under section 271(1)(c) of the Act.

In conclusion, the High Court allowed the appeal, setting aside the Tribunal's decision to impose the penalty. The Court emphasized the significance of tax payment before assessment completion and compliance with tax obligations for availing benefits under Explanation 5 to section 271(1)(c) of the Act.