2010 (3) TMI 1079 - AT - Income Tax

Summary

Issues Involved:
1. Justification of penalty levied under Section 271(1)(c) of the Income-tax Act, 1961.
2. Application of Explanation 5 to Section 271(1)(c).
3. Impact of the assessee's declaration under Section 132(4) on penalty proceedings.
4. Interpretation of provisions and precedents relevant to Explanation 5.

Issue-wise Detailed Analysis:

1. Justification of Penalty Levied Under Section 271(1)(c):
The primary issue is whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in confirming the penalty of Rs. 44,27,692/- levied by the Assessing Officer (AO) under Section 271(1)(c) of the Income-tax Act, 1961. The AO initiated penalty proceedings after the assessee filed a return declaring a loss of Rs. 19,08,840/- but later surrendered Rs. 121 lac as unaccounted income during search operations. The penalty was based on the assertion that the assessee concealed income by not declaring it in the original return or in the response to the notice under Section 153A.

2. Application of Explanation 5 to Section 271(1)(c):
Explanation 5 to Section 271(1)(c) deals with the conditions under which the presumption of concealment of income can be lifted. The AO argued that the conditions for lifting the presumption were not met because the income was neither recorded in the books of account nor disclosed to the Chief Commissioner or Commissioner before the date of the search. The CIT(A) upheld this view, stating that the concealed income would not have come to light but for the search operations.

3. Impact of the Assessee's Declaration Under Section 132(4):
The assessee contended that the declaration made under Section 132(4) should provide immunity from penalty under Sub-Clause (2) of Explanation 5. The assessee argued that the disclosure was made to buy peace and under the impression that penalty would not be levied. However, the AO and CIT(A) found that the declaration was retracted when the assessee reiterated the original return of loss in response to the notice under Section 153A.

4. Interpretation of Provisions and Precedents Relevant to Explanation 5:
The Tribunal considered various precedents to interpret Explanation 5. The assessee relied on the decision in CIT Vs. S.D.V. Chandru, where it was held that if a confession is made and tax and interest are paid, the assessee gets immunity under Explanation 5. However, the Tribunal noted that in the present case, the manner in which the income was derived was not specified, and the income was not declared in the books of account. The Tribunal also distinguished the facts from other cases cited by the assessee, such as Kanhiya Lal and Radha Kishan Goel, where the specifics of the income source were disclosed, and taxes were paid promptly.

Conclusion:
The Tribunal concluded that the penalty was justified because the assessee retracted the declaration made under Section 132(4) by reiterating the original return of loss in response to the notice under Section 153A. The Tribunal held that the immunity under Explanation 5 was not applicable because the mode and manner of earning the income were not disclosed, and the income was not recorded in the books of account. The appeal was dismissed, and the penalty was upheld.