2011 (7) TMI 637 - HC - Income Tax

Penalty u/s 271(1)(c) - whether benefit is available under Explanation 5 to Section 271(1)(c) in respect of any surrender/disclosure made not at the time of search and seizure but thereafter by statement u/s 131(1) during the assessment proceedings in pursuance to the search and seizure operations - Held that - The expression in the course of the search in Explanation 5 to Section 271(1)(c) would not include post search period like assessment proceedings in pursuance to search operations. The legislative intent for providing immunity from penalty under Explanation 5 to Section 271(1)(c) was to give concession and another opportunity to an assessee to come clean before detection during the course of search and seizure. It nowhere entitles an assessee to seek immunity from penalty where the assessee was cornered after detection during assessment proceedings in pursuance to search operations and had not availed benefit of opportunity provided in terms of Explanation 5 to Section 271(1)(c). Therefore statement made u/s 131(1)during assessment proceedings in pursuance of search and seizure operations cannot partake the character of statement u/s 132(4) - Decided against the assessee

Summary

Issues Involved:
1. Interpretation of the provisions of Explanation to Section 132(4) read with Section 131 and Rule 112A(1).
2. Jurisdiction and powers under Section 131 during the continuance of search proceedings under Section 132.
3. Entitlement to benefit of Explanation 5 to Section 271(1)(c) for surrender/disclosure made post-search.

Detailed Analysis:

Issue 1: Interpretation of Provisions of Explanation to Section 132(4) read with Section 131 and Rule 112A(1):
The court examined whether the statement recorded under Section 131 during the continuance of search proceedings under Section 132 is in continuation of the search proceedings. Section 132(4) allows the authorized officer to examine any person on oath during a search. The explanation clarifies that the examination can pertain to any matter relevant to the investigation under the Act, not just the documents or assets found during the search. Therefore, the court concluded that the examination under Section 132(4) is broader and not limited to the search itself.

Issue 2: Jurisdiction and Powers under Section 131 during Search Proceedings:
The court analyzed whether the statement recorded under Section 131 during the continuance of search proceedings under Section 132 is without jurisdiction. The court noted that Section 132(4) uses the term "authorized officer" and not "assessing officer," indicating that the powers of examination during search are vested specifically in the authorized officer conducting the search. Statements made under Section 131 during assessment proceedings do not equate to those made under Section 132(4) during a search. Thus, the court held that statements under Section 131 do not have the same legal standing as those under Section 132(4).

Issue 3: Entitlement to Benefit of Explanation 5 to Section 271(1)(c) for Post-Search Surrender:
The primary issue was whether the assessee could claim the benefit of Explanation 5 to Section 271(1)(c) for a disclosure made post-search under Section 131. Explanation 5 provides immunity from penalty if the assessee declares undisclosed income during the search under Section 132(4) and pays the due taxes and interest. The court emphasized that the legislative intent was to provide an opportunity for the assessee to come clean during the search itself, not during subsequent assessment proceedings. The court concluded that disclosures made post-search under Section 131 do not qualify for immunity under Explanation 5 to Section 271(1)(c).

Facts and Findings:
The search at the assessee's premises on 8.11.2005 did not result in any immediate declaration of income under Section 132(4). Instead, the disclosure of concealed income related to property investment was made later under Section 131 on 5.1.2006. The court found that since the disclosure was not made during the search, the assessee could not claim immunity from penalty under Explanation 5 to Section 271(1)(c).

Tribunal's Observations:
The Tribunal had previously rejected the assessee's claim, noting that the disclosure was made during assessment proceedings under Section 131, not during the search under Section 132(4). The Tribunal emphasized that the statutory requirements for immunity were not met, as the disclosure was post-search and not voluntary but compelled by subsequent investigations.

Conclusion:
The court upheld the Tribunal's decision, finding no merit in the appeal and concluding that no substantial question of law arose for consideration. The appeal was dismissed, affirming that the assessee was not entitled to immunity from penalty under Explanation 5 to Section 271(1)(c) for disclosures made post-search under Section 131.