2009 (6) TMI 684 - AT - Income Tax

Summary

Issues Involved:
1. Confirmation of levy of penalty under section 271(1)(c) of the Income-tax Act.
2. Applicability of Explanation 5(2) to section 271(1)(c).
3. Interpretation of the manner in which undisclosed income was derived.
4. Reliance on legal precedents and their applicability.

Detailed Analysis:

1. Confirmation of Levy of Penalty under Section 271(1)(c):
The appeal was filed against the confirmation of a penalty of Rs. 16,83,000 levied under section 271(1)(c) for the assessment year 2006-07. The appellant, a member of the Tanveerkumar Group engaged in diamond trading and export, was subjected to a search and seizure operation under section 132 of the Income-tax Act on 8-12-2005. During the search, the Director of the company, Shri Tanveerkumar Choksi, offered a sum of Rs. 3 crores as undisclosed income for all group concerns. The bifurcation of this income included Rs. 50 lakhs for the appellant's concern for the assessment year 2006-07. The appellant included this amount in the return of income, which was accepted by the Assessing Officer, who then proposed to levy a penalty on this additional income.

2. Applicability of Explanation 5(2) to Section 271(1)(c):
The appellant argued that the amount offered was part of the statement made under section 132(4) and that taxes were paid on it, thus no penalty should be levied as per Explanation 5(2) of section 271(1)(c). However, the Assessing Officer contended that the statement under section 132(4) did not specify the manner in which the income was earned, which is a requirement for immunity under Explanation 5(2). Consequently, the minimum penalty was levied.

3. Interpretation of the Manner in Which Undisclosed Income Was Derived:
The CIT(A) upheld the penalty, stating that the conditions for immunity under Explanation 5(2) were not met. The conditions include making a statement under section 132(4) that the assets were acquired from undisclosed income, specifying the manner in which the income was derived, and paying the tax with interest. It was noted that these conditions must be fulfilled during the search itself. The CIT(A) observed that the appellant's statement did not meet these requirements.

4. Reliance on Legal Precedents and Their Applicability:
The Supreme Court in Union of India v. Dharamendra Textile Processors [2008] 306 ITR 2771 emphasized strict liability for concealment or inaccurate particulars under section 271(1)(c). The Tribunal examined whether the appellant's case satisfied the requirements of Explanation 5(2). It was noted that the statement under section 132(4) explained the undisclosed income as arising from discrepancies in stock and unexplainable credits. The Tribunal found this explanation specific enough to meet the requirements of Explanation 5(2). The Tribunal also referred to the Special Bench decision in Asstt. CIT v. VIP Industries Ltd. [2009] 30 SOT 254, which laid down the requirements for penalty under section 271(1)(c).

Conclusion:
The Tribunal concluded that the appellant's case was covered by Explanation 5(2) to section 271(1)(c) and thus no penalty was leviable. The appeal was allowed, and the penalty of Rs. 16,83,000 was deleted. The Tribunal emphasized that the explanation provided by the appellant was sufficient and that the department had accepted the offer without dispute. The decision of the first appellate authority was overturned, and the appellant was granted immunity under Explanation 5(2) to section 271(1)(c).