2013 (1) TMI 717 - AT - Income Tax

Penalty u/s 271(1)(c) - Benefit of Explanation 5 of section 271(1)(c) - Held that - benefit of Explanation 5 of section 271(1)(c) is available to the assessee-company as all the requisite conditions of this Explanation stand fulfilled. The version that the surrender is not voluntary would not apply in the case when surrender of undisclosed income is made under section 132(4) and certain specific conditions are found to exist. - benefit of Explanation 5 is available to this assessee and no penalty under section 271(1)(c) can be imposed in all the three assessment years. Therefore we order to delete penalty levied in all these years namely (2004-05) and (2006-07) are ordered to be deleted. - Following decision of Asst. CIT v. Gebilal Kanhaiyalal 2012 (9) TMI 297 - SUPREME COURT - Decided in favour of assessee.

Summary

Issues involved:
Interpretation of Explanation 5 to section 271(1)(c) of the Income Tax Act in penalty proceedings initiated after a search operation under section 132 of the Act.

Detailed Analysis:

1. Common Facts and Surrender of Undisclosed Income:
- A search operation under section 132 of the Act was conducted, resulting in the director of the assessee-company surrendering undisclosed income of Rs. 151.01 lakhs.
- The surrender was due to unrecorded receipts and wrong claims to deduction, disclosed in the return of income filed under section 153A of the Act.
- Penalties under section 271(1)(c) were imposed, contested by the assessee-company seeking benefit under Explanation 5 to section 271(1)(c).

2. Benefit of Explanation 5:
- The Tribunal considered the conditions of Explanation 5 and found them fulfilled by the assessee-company.
- It was held that the surrender of undisclosed income under section 132(4) with specific conditions met qualifies for the benefit of Explanation 5.

3. Requisite Conditions of Explanation 5:
- The Tribunal highlighted that the three conditions of Explanation 5 were satisfied by the assessee-company.
- Referring to a High Court decision, it was established that the immunity under Explanation 5 applied when the income related to different assessment years and assessments were final.

4. Judicial Precedents:
- Citing a Rajasthan High Court decision, it was emphasized that disclosure and payment of tax on concealed income post-search operation entitled the assessee to immunity from penalty.
- The decision was upheld by the apex court, clarifying that timely tax payment on disclosed income sufficed for immunity under Explanation 5.

5. Decision and Penalty Deletion:
- The Tribunal concluded that the benefit of Explanation 5 applied to the assessee, leading to the deletion of penalties imposed under section 271(1)(c) for the relevant assessment years.
- Consequently, penalties for the years 2004-05 and 2006-07 were ordered to be deleted, and all appeals of the assessee were allowed.

6. Outcome and Disposal:
- The Tribunal allowed all appeals of the assessee in the matter, ordering the deletion of penalties and dismissing stay applications as the main appeals were disposed of.
- The final decision was pronounced in open court on January 29, 2013, granting relief to the assessee-company in penalty proceedings based on the interpretation of Explanation 5 to section 271(1)(c) of the Income Tax Act.