2009 (6) TMI 654 - AT - Income Tax

Penalty u/s 271(1)(c) - the provisions of section 271(1)(c) are applicable to assessment made under section 153A - whether the immunity under Explanation 5(2) to section 271(1)(c) is available to the assessees - Held that - The additional income declared in returns filed after the date of the search, pursuant to declaration under section 132(4) do not fall under the category of the return mentioned in Explanation 5(2) to section 271(1)(c) - In respect of all the earlier years, needless to add, the due dates for filing returns under section 139(1) would have ended much earlier. Returns were filed by the assessees after the search, in response to notices issued under section 153A on 31-5-2004. The additional income declared in these returns do not fall under the category of the return mentioned in Explanation 5(2) to section 271(1)(c). Therefore, the assessees are not entitled to the immunity from penalty.

Issues Involved:
1. Cancellation of penalty under section 271(1)(c) of the Income-tax Act.
2. Applicability of Explanation 5 to section 271(1)(c) of the Income-tax Act.
3. Whether the return filed under section 153A should be treated as a return filed under section 139 for penalty purposes.

Detailed Analysis:

1. Cancellation of Penalty under Section 271(1)(c) of the Income-tax Act:
The revenue challenged the CIT(A)'s decision to cancel penalties levied under section 271(1)(c) for various assessment years, arguing that the assessees did not voluntarily disclose their true income. The CIT(A) had canceled the penalties on the grounds that the returns filed under section 153A should be considered as returns filed under section 139, and since the income assessed was the same as the income returned under section 153A, no penalty should be levied. The CIT(A) also considered that there were no specific provisions for levying penalties under section 271(1)(c) for returns filed under section 153A.

2. Applicability of Explanation 5 to Section 271(1)(c) of the Income-tax Act:
The CIT(A) held that the assessees were entitled to immunity under Explanation 5(2) of section 271(1)(c) for the earlier years, following the Madras High Court decision in CIT v. S.D.V. Chandru. However, the revenue argued that the immunity was not applicable because the returns under section 153A were filed after the search and the income was not disclosed in the original returns filed under section 139. The Assessing Officer had levied penalties on the grounds that the disclosure was not voluntary and was made only after incriminating evidence was found during the search.

3. Whether the Return Filed under Section 153A Should be Treated as a Return Filed under Section 139 for Penalty Purposes:
The CIT(A) considered the returns filed under section 153A as fresh returns under section 139, and thus, no penalty should be levied if the income assessed was the same as the income returned under section 153A. The revenue, however, contended that the original returns filed under section 139 should be considered, and since the income disclosed in the returns filed under section 153A was not disclosed in the original returns, penalties under section 271(1)(c) were justified.

Tribunal's Findings:

On the Cancellation of Penalty:
The Tribunal noted that the Assessing Officer had rightly levied penalties under section 271(1)(c) as the assessees had not disclosed their true income in the original returns filed under section 139. The Tribunal emphasized that the concealment was complete when the original returns were filed, and the returns filed under section 153A did not absolve the assessees from penalty.

On the Applicability of Explanation 5:
The Tribunal upheld the revenue's contention that Explanation 5(2) to section 271(1)(c) did not provide immunity to the assessees for the earlier years. The Tribunal relied on the decision in the case of Rupesh Bholidas Patel and the Bombay High Court decision in Sheraton Apparels, concluding that the immunity under Explanation 5(2) was not applicable as the returns under section 153A were filed after the search and the income was not disclosed in the original returns.

On the Treatment of Returns Filed under Section 153A:
The Tribunal disagreed with the CIT(A)'s view that the returns filed under section 153A should be treated as fresh returns under section 139 for penalty purposes. The Tribunal held that the original returns filed under section 139 should be considered, and since the income disclosed in the returns filed under section 153A was not disclosed in the original returns, penalties under section 271(1)(c) were justified.

Conclusion:
The Tribunal allowed the revenue's appeals, concluding that the penalties under section 271(1)(c) were rightly imposed on the assessees. The Tribunal emphasized that the concealment was complete when the original returns were filed, and the returns filed under section 153A did not absolve the assessees from penalty. The Tribunal also held that the immunity under Explanation 5(2) to section 271(1)(c) was not applicable to the assessees for the earlier years.

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