2003 (12) TMI 40 - HC - Income Tax

Penalty 271(1)(c) - In cases where the assessee had not disclosed his income in the returns filed for the previous year which have ended prior to the date of the search and in the statement given under section 132(4) the assessee admits the receipt of undisclosed income for those years and also specifies the manner in which such income had been derived and thereafter pays the tax on that undisclosed income with interest such undisclosed income would get immunised from the levy of penalty Thus penalty is not sustainable

Summary

Issues:
1. Penalty under section 271(1)(c) read with Explanation 5 for not filing income tax return before due date.
2. Interpretation of Explanation 5 regarding undisclosed income and penalty immunity.
3. Distinction between previous years before and after search date for penalty applicability.

Analysis:
The High Court of MADRAS addressed the issue of penalty levied under section 271(1)(c) read with Explanation 5 for failing to file income tax returns before the due date. The case involved assessment years 1985-86 and 1986-87. The court considered whether the Tribunal was correct in canceling the penalty after finding that the assessee did not file the return of income on time as per section 139(1) of the Income-tax Act.

The court noted that a search was conducted at the assessee's premises in 1990, leading to the recording of a statement under section 132(4) of the Act. Subsequently, the assessee filed returns for earlier years, admitted a higher income, and paid the tax along with interest. Despite this, the Assessing Officer imposed a penalty, arguing that Explanation 5 of section 271(1)(c) did not apply to previous years.

Explanation 5 to section 271(1)(c) provides conditions under which an assessee is not considered to have concealed income. The court analyzed the language of Explanation 5, emphasizing that it does not differentiate between previous years before and after the search date. It highlighted that if the assessee admits undisclosed income for previous years in the statement given during the search, pays the tax with interest, then such income is immune from penalty.

The court concluded that if the assessee discloses undisclosed income for previous years in the statement during the search and pays the due tax, the penalty is not applicable. Therefore, the Tribunal's decision to cancel the penalty was upheld in favor of the assessee, ruling against the Revenue's claim. This judgment clarifies the interpretation of Explanation 5 and the immunity from penalty for undisclosed income in specific circumstances, emphasizing the importance of timely disclosure and payment of taxes.