2015 (4) TMI 1060 - AT - Income Tax

Penalty u/s 271(1)(c) - income in question was included in the return filed by the assessee under section 153AHeld that - In view of the fact that the income in question was covered by the declaration made in the statement recorded under section 132(4) and the tax thereon was duly paid by the assessee the provisions of Explanation 5 to section 271(1)(c) of the Act will come into play on the facts of this case. Accordingly as the assessee rightly contends penalty under section 271(1)(c) can not be sustained in law. In any event as held in the case of Kirit Dahyabhai Patel vs. ACIT 2015 (1) TMI 201 - GUJARAT HIGH COURT the penalty under section 271(1)(c) of the Act can only be imposed in respect of an income over and above the income disclosed in the return filed under section 153A and since the income in question was included in the return filed by the assessee under section 153A the impugned penalty is unsustainable. For this reason also the impugned penalties therefore deleted. - Decided in favour of assessee

Summary

Issues Involved:
1. Correctness of penalties under section 271(1)(c) of the Income Tax Act, 1961.
2. Applicability of Explanation 5 to section 271(1)(c) regarding the penalties.
3. Eligibility for immunity under Explanation 5(2) to section 271(1)(c).

Detailed Analysis:

1. Correctness of penalties under section 271(1)(c) of the Income Tax Act, 1961:
The assessee challenged the correctness of the penalties imposed for the assessment years 2003-04, 2004-05, and 2005-06. The penalties were confirmed by the CIT(A) despite the assessee's contention that there was no concealment of income as the disclosed income was included in the returns filed under section 139 read with section 153A, and the taxes were duly paid.

2. Applicability of Explanation 5 to section 271(1)(c) regarding the penalties:
The Assessing Officer (AO) imposed penalties under section 271(1)(c), rejecting the assessee's reliance on Explanation 5. The AO argued that Explanation 5 provides a deeming provision whereby the assessee is treated as a defaulter if the return of income is furnished after the date of search, which was the case here. The AO also noted that the assessee did not disclose the income to the Chief Commissioner or Commissioner before the search and did not specify the manner of derivation of the undisclosed income in the statement under section 132(4).

3. Eligibility for immunity under Explanation 5(2) to section 271(1)(c):
The CIT(A) upheld the AO's decision, referencing the ITAT Ahmedabad bench's decision, which confined the benefit of Explanation 5(2) to the year in respect of which the due date for filing the return was yet to come. The CIT(A) ruled that the assessee was not entitled to the benefit of immunity under Explanation 5(2) as the due date for filing the return had expired for the years in question.

Judgment Analysis:
Upon further appeal, the ITAT considered the jurisdictional High Court's judgment in the case of Kirit Dahyabhai Patel vs. ACIT, which provided a broader interpretation of Explanation 5(2). The High Court held that the return filed in response to notice under section 153A should be considered as a return filed under section 139, and penalties under section 271(1)(c) should only be imposed on income assessed over and above the income disclosed in such returns.

The High Court also referenced the Supreme Court decision in Gebilal Kanbhaialal (HUF), which clarified that the conditions for immunity under Explanation 5(2) were met if the statement under section 132(4) disclosed the income, specified the manner of its derivation, and the tax along with interest was paid, without any specific time limit for such payment.

Conclusion:
Respecting the jurisdictional High Court's views, the ITAT ruled in favor of the assessee. It concluded that since the income in question was covered by the declaration made in the statement recorded under section 132(4) and the tax thereon was duly paid, the provisions of Explanation 5 to section 271(1)(c) applied. Consequently, the penalties under section 271(1)(c) could not be sustained. The ITAT ordered the deletion of the penalties for the assessment years 2003-04, 2004-05, and 2005-06, allowing the assessee's appeals.

Result:
The appeals were allowed, and the penalties were deleted.