2013 (2) TMI 473 - HC - Income Tax

Penalty for Concealment of Income Whether Penalty u/s 271(1)(c) should be imposed or not Search was carried out in the business premises of the assessee Found that the assessee had invested Rs. 11 lakhs in two properties and this had not been disclosed Held that - Assessee had made a statement under sub-section (4) of section 132 of the Act stating that he had acquired the property out of the income which was not disclosed by him. Subsequently, the assessee filed a return of income before the expiry of time specified under section 139 of the Act and he also paid the tax thereon. Moreover, the assessee had not acted in a contumacious manner. In fact, the assessee had made a clean breast of the entire facts and had admitted the purchase of the property from the income which was not disclosed. The non-disclosure of the income was due to the facts that the assessee was an uneducated and illiterate petty contractor who received payments only after deduction of tax at source. It is under these circumstances that the assessee believed bona fide that no further tax was required to be paid. In T. Ashok Pai v. CIT 2007 (5) TMI 199 - SUPREME COURT the Supreme Court observed that if the explanation given by an assessee is taken to be bonafide, the question of imposition of penalty under section 271(1)(c) of the Act would not arise. Since assessee had complied with the provisions of clause (2) of Explanation 5 to section 271(1)(c) of the Act, no penalty Shall be imposed Against the revenue.

Summary

Issues:
- Application of Explanation 5 to section 271(1)(c) of the Income-tax Act, 1961 for penalty imposition.

Analysis:
1. Facts Leading to the Case: A search at the business premises revealed undeclared investment by the assessee. The assessee, an uneducated contractor, believed tax deduction at source was sufficient, leading to non-disclosure of income.

2. Assessment and Proceedings: The assessee filed returns for the relevant years, paid due taxes, and sought waiver for interest. The Commissioner of Income-tax accepted the returns without penalty imposition due to the non-contumacious conduct of the assessee.

3. Penalty Imposition: The Revenue initiated penalty proceedings under section 271(1)(c) citing non-compliance with Explanation 5. The Assessing Officer found the assessee liable, but the Commissioner and Tribunal disagreed, considering the assessee's circumstances and compliance with tax payment.

4. Explanation 5 Compliance: The Tribunal found the assessee met the requirements of clause (2) of Explanation 5 by making a statement under section 132(4), filing returns, and paying taxes. The Tribunal also considered the assessee's illiteracy and belief regarding tax liability.

5. Judicial Precedent: Referring to T. Ashok Pai v. CIT, the Court emphasized the importance of assessee's bona fides in penalty proceedings. Both the Commissioner and Tribunal were satisfied with the assessee's explanation, leading to the dismissal of penalty imposition.

6. Final Decision: The Court concurred with the Tribunal's decision, noting the assessee's compliance with Explanation 5 and lack of contumacious behavior. Relying on the principle of strict construction in penalty cases, the Court ruled in favor of the assessee, dismissing the appeals and rejecting penalty imposition by the Revenue.