2011 (11) TMI 681 - AT - Income Tax

Penalty levied u/s. 271(1)(c) - income declared u/s 153A - immunity from penalty - Held that - The Hon ble Gujarat High Court in the case of CIT Vs. Mahendra C. Shah (2008 (2) TMI 32 - GUJARAT HIGH COURT ) followed by the Ld CIT(A), it has been held that it is not required to specify the manner in which the income was earned in respect of the amount offered to tax in the return of income filed pursuant to search action by paying taxes thereon for availing immunity from penalty under Explanation 5 of Section 271(1)(c) of the Act. The same decision has been relied upon by the Ld. A.R. before us. Since the issue raised is fully covered by the decision of the Hon ble Gujarat High Court in the case of CIT Vs. Mahendra C. Shah (Supra) followed by the Ld CIT(A), we are not inclined to interfere with the first appellate order in this regard. The same is upheld.

Summary

Issues involved:
1. Deletion of penalty under section 271(1)(c) on income declared under section 153A.
2. Interpretation of Explanation 5 to Section 271(1)(c) regarding immunity from penalty.

Analysis:
1. The case involved a situation where the assessee filed a return of income for A.Y. 2007-08, including additional income declared under section 132(4) related to a search and seizure operation. The Assessing Officer (A.O) levied a penalty under section 271(1)(c) on this additional income. The issue was whether the assessee was entitled to immunity from penalty under Explanation 5 to Section 271(1)(c). The A.O contended that the assessee did not specify the manner in which the additional income was earned in the statement under section 132(4). However, the Commissioner of Income Tax (Appeals) held that as per judicial precedents, such specification was not necessary if the income was offered to tax in the return filed after a search action. The appellate tribunal upheld the CIT(A)'s decision based on the Gujarat High Court ruling in CIT vs. Mahendra C. Shah, emphasizing that specifying the manner of earning income was not mandatory for availing immunity from penalty under Explanation 5.

2. The tribunal considered the timing of the search operation and the filing of the return, noting that the additional income was declared in both the section 132(4) statement and the return filed under section 153A. The A.O's argument that the assessee did not specify the manner of earning income in the section 132(4) statement was dismissed, as the income was offered for taxation in the return filed under section 139. Relying on the decision in CIT vs. Mahendra C. Shah, the tribunal concluded that the assessee had fulfilled the requirements for immunity from penalty under Explanation 5. Therefore, the tribunal upheld the CIT(A)'s decision to delete the penalty under section 271(1)(c) on the additional income. The appeal was dismissed, and the first appellate order was upheld based on the established legal principles and precedents.

In conclusion, the judgment clarified the interpretation of Explanation 5 to Section 271(1)(c) regarding the immunity from penalty in cases of additional income declared after a search operation. The decision emphasized that specifying the manner of earning income was not mandatory if the income was offered for taxation in the return filed post-search action, following relevant judicial precedents.