2011 (10) TMI 263 - HC - Income Tax

Penalty - Amount received shown as Gift in original return - Search Conducted - Materials found reveled the same as Undisclosed income of assessee - Held - When assessee surrendered the income and offered the same to tax along with interest and also surrendered the expenditure incurred in the form of commission for arranging such gifts. Subsequently revised returns have also been filed. As per clause (1) and (2) of Explanation 5 to Section 271(1)(c) the question is subsequently answered against revenue and penalty cannot be imposed.

Summary

Issues Involved:
1. Legality of penalty under section 271(1)(c) of the Income Tax Act for undisclosed income shown as gifts.
2. Validity of revised returns filed by the assessees.
3. Applicability of Explanation 5 to Section 271(1)(c) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Legality of Penalty under Section 271(1)(c) for Undisclosed Income Shown as Gifts:

The core issue was whether the penalty levied by the Assessing Officer under section 271(1)(c) was justified for amounts shown as gifts in the original returns, which were later found to be undisclosed income during a search. The Tribunal held that the penalty was not sustainable for the gift amounts, which were found to be income of the assessees pursuant to the search. The Revenue argued that the penalty was justified because the gifts were not genuine and were meant to conceal income. However, the Tribunal upheld the Appellate Commissioner's finding that the penalty was not justified as the assessees had declared the income in revised returns to buy peace with the department.

2. Validity of Revised Returns Filed by the Assessees:

The assessees filed revised returns twice, surrendering the income brought to tax during the search. The Tribunal noted that the revised returns were filed to declare the entire amount as income pursuant to the search, and the penalty was not justified because the assessees had filed these returns to buy peace with the department. The Tribunal accepted the explanation that the income detected was declared in the revised returns, which was factually supported by the records.

3. Applicability of Explanation 5 to Section 271(1)(c):

Explanation 5 to Section 271(1)(c) provides immunity from penalty if certain conditions are met. The Tribunal found that the conditions under Explanation 5(2) were fulfilled, as the income was declared in the revised returns, and tax along with interest was paid. The Tribunal noted that the statement recorded under Section 132(4) by Mr. V.N. Sridhar, which included details of income for himself and other family members, was binding on all assessees. The Tribunal also observed that the statement was made in the presence of and endorsed by other family members, which satisfied the requirements of Explanation 5(2).

Conclusion:

The Tribunal concluded that the penalty under Section 271(1)(c) for the gift amounts was not justified as the assessees had declared the income in revised returns and paid the tax along with interest. The substantial questions of law were answered against the Revenue and in favor of the assessees, leading to the dismissal of the appeals.