2003 (1) TMI 28 - HC - Income Tax

Immunity for levy of penalty under section 271(1)(c) - A bare reading of sub-clause (2) to Explanation 5 makes it clear that if during the course of search a statement of the assessee is recorded under sub-section (4) of section 132 in respect of any amount cash stock jewellery or other valuable article or thing which is found in his possession or control and the assessee admits in his statement that such income was acquired income or was acquired with the undisclosed income and pays the tax together with interest if any on the said amount he is granted an immunity for levy of penalty under section 271(1)(c) of the Act.

Summary

Issues:
- Appeal against order deleting penalty under section 271(1)(c) of the Income-tax Act, 1961
- Interpretation of Explanation 5 to section 271(1)(c) regarding immunity from penalty in case of surrender during search
- Application of the immunity provision in the context of a statement recorded under section 132(4) of the Act
- Comparison of penalty treatment with other related assessees

Analysis:
The judgment pertains to an appeal by the Revenue against the deletion of a penalty under section 271(1)(c) of the Income-tax Act, 1961. The case involved a search under section 132 of the Act at the residential premises of one of the partners of the respondent/assessee, where a diary reflecting unaccounted transactions was found. The partner disclosed an amount during the search, leading to a penalty imposition by the Assessing Officer. However, the Commissioner (Appeals) deleted the penalty, citing coverage under section 271(1)(c) read with Explanation 5. The Tribunal upheld this decision, emphasizing that the surrender of the undisclosed amount was made on the day of the search, falling within the immunity provision of Explanation 5.

The key issue revolved around the interpretation of Explanation 5 to section 271(1)(c) concerning the conditions for immunity from penalty in cases of surrender during a search. The Tribunal clarified that if an assessee admits to undisclosed income during a search and pays the tax with interest, they are granted immunity from penalty under this provision. The judges noted that the surrender in this case was made on the search day itself, meeting the requirements of the immunity clause. The comparison with similar cases involving other assessees showed a consistent approach in penalty treatment, further supporting the decision to uphold the deletion of the penalty.

The judgment highlighted the importance of the timing of surrender and the specific conditions outlined in the law for granting immunity from penalties under section 271(1)(c). The judges emphasized that the immunity provision under Explanation 5 was correctly applied in this case, as the surrender occurred during the search and met the necessary criteria. Ultimately, the court concluded that no legal question of substance arose from the Tribunal's order, leading to the dismissal of the Revenue's appeal.