2001 (2) TMI 1024 - AT - Income Tax

Summary

Issues Involved:
1. Levy of penalty under section 271(1)(c) for the assessment year 1988-89.
2. Application of Explanation 5 to section 271(1)(c).
3. Validity of returns filed in response to notices under section 148.
4. Immunity from penalty under section 132(4) declarations.
5. Determination of the quantum of penalty.

Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c):
The case involved cross appeals by the assessees and the Revenue regarding the levy of penalty under section 271(1)(c) for the assessment year 1988-89. The assessees had not filed their returns of income before the search under section 132 on 27-9-1990. During the search, a declaration of additional income was made by Shri Harshad Mehta on behalf of the family, including the two assessees, stating that the income was not accounted for in their personal books.

2. Application of Explanation 5 to Section 271(1)(c):
The Assessing Officer invoked Explanation 5 to section 271(1)(c), arguing that the assessees were found to own unaccounted assets during the search, and the income used to acquire these assets was not declared in their returns filed before the search. The assessees contended that they were entitled to immunity under Explanation 5 as they had made a declaration under section 132(4). The CIT(A) held that the immunity under Explanation 5 was not applicable as the returns were not filed voluntarily but in response to notices under section 148.

3. Validity of Returns Filed in Response to Notices under Section 148:
The assessees had filed their returns of income in response to notices under section 148 after the search. The CIT(A) treated these returns as invalid initially but later revised the total income in their cases. The CIT(A) held that the entire returned income should not be treated as concealed income solely because the returns were filed in response to section 148 notices.

4. Immunity from Penalty under Section 132(4) Declarations:
The assessees argued that they should be granted immunity from penalty as they had made a declaration under section 132(4) during the search. The CIT(A) and the Tribunal held that the immunity under Explanation 5 was not applicable as the returns of income had already fallen due under section 139(1) at the time of the search, and the income was not disclosed before the date of the search.

5. Determination of the Quantum of Penalty:
The CIT(A) reduced the penalty imposed by the Assessing Officer, considering that the returns were filed after the search and the income was disclosed. The Tribunal upheld the CIT(A)'s decision to reduce the penalty to the minimum imposable rate of 100% of the tax sought to be evaded, rather than the maximum rate imposed by the Assessing Officer. The Tribunal directed the Assessing Officer to recompute the penalty based on the amounts deemed to be concealed income under Explanation 5.

Conclusion:
The Tribunal dismissed the Revenue's appeals and partly allowed the assessees' appeals, directing the Assessing Officer to recompute the penalty under section 271(1)(c) at the minimum rate for the amounts deemed to be concealed income. The Tribunal held that the assessees were deemed to have concealed their income to the extent of the amounts specified in their declarations during the search.