2005 (12) TMI 83 - HC - Income Tax

Penalty levied u/s 271(1)(c) - concealment of particulars Or furnished inaccurate particulars of income - HELD THAT - The expression used in clause (2) of Explanation 5 is not confined to physical possession but extends to type of possession which is capable of being held. In case the property is an actionable claim it can be possessed by way of possessing the right to recover such asset by exercise of such right. When such loan is represented by promissory note it could give rise to presumption that money represented by promissory notes belong to the person as held by the person in whose favour the promissory note has been executed. If on that basis the assessee could be held owner of the debt represented by the promissory notes he cannot be deemed to be in possession of such actionable claim an asset of the assessee. Thus the view propounded by the Assessing Officer and now pursued by the Revenue by drawing distinction between possession of tangible and intangible assets is unsustainable. In fact it was never the case of the Revenue that the assessee had not complied with the requirement of Explanation 5 to section 271 except that no statement about undisclosed income could be made u/s 132(4) it applies only to the declaration of undisclosed tangible assets. This clearly was erroneous in view of a combined reading of section 132(4) and Explanation 5 to section 271. Hence the conclusion of the Tribunal cannot be said to be erroneous. Thus CIT (A) and the Tribunal were justified that the penalty was not for concealment of particulars and no penalty is leviable in view of specific Explanation 5 to section 271(1)(c) of the Act and cannot be interfered. It may also be noticed that in the case of Amarchand Soni the same view was expressed. Amarchand Soni had also resorted to K.V.S. Scheme 1998 that has further strengthened his case and the appeal of the Revenue in his case was dismissed. We do not find any force in this appeal and the same is hereby dismissed.

Summary

Issues:
Appeal against order of Income-tax Appellate Tribunal regarding penalty for assessment year 1992-93.

Analysis:
1. The appeal challenged the penalty imposed under section 271(1)(c) of the Income Tax Act for concealment of income. The Tribunal upheld the order of the Commissioner of Income-tax (Appeals) setting aside the penalty imposed by the Assessing Officer.

2. A search under section 132(1) revealed undisclosed income from a money-lending business jointly operated by the assessee and his son. The assessee disclosed Rs. 4 lakhs as income from this business during assessment proceedings for 1992-93. The Assessing Officer imposed a penalty for concealment of income, which was contested by the appellant.

3. The Assessing Officer argued that the disclosure made by the assessee did not qualify for immunity under Explanation 5 to section 271(1)(c) as it did not pertain to tangible assets found during the search. The Commissioner of Income-tax (Appeals) disagreed, stating that the undisclosed income from the money-lending business was considered and taxed, and the penalty was unjustified.

4. Explanation 5 to section 271 deals with assets found during a search, without distinguishing between tangible and intangible assets. If the assessee admits to undisclosed income represented by assets found during the search, no presumption of concealment arises. The Assessing Officer's distinction between tangible and intangible assets was deemed unsustainable.

5. The Tribunal affirmed that the penalty was not for concealment of particulars and no penalty was leviable under Explanation 5 to section 271(1)(c). The case of the son, who also disclosed income under the K.V.S. Scheme, further supported the decision to dismiss the appeal.

6. The judgment concluded that the penalty imposed on the appellant was unwarranted, as the disclosure made by the assessee regarding the undisclosed income from the money-lending business did not amount to concealment. The appeal was dismissed, upholding the decisions of the Commissioner of Income-tax (Appeals) and the Tribunal.