2014 (6) TMI 76 - AT - Income Tax

Penalty u/s 271(1)(c) of the Act Undisclosed income - Held that - The assessee derived income from salary, rent, interest and business - in case the assessee is found to be the owner of any money, bullion, jewellery or other valuable article or thing and thereafter the assessee claims that such assets have been acquired by him by utilizing (wholly or in part) his income which is related to any previous year which has ended before the date of search and the return of income for such previous year has been furnished before the said date but such income has not been declared furnished before the date of search or for such previous year which is to end on or after the date of search and such income is declared by him in his ROI furnished on or after the date of search. The deeming provision about concealment of income or furnishing of inaccurate particulars of such income shall not be applicable when such income or transaction resulting income which are recorded on or before the date of search in the books of account maintained regularly during the course of business or when he makes a declaration in his statement u/s 132(4) of the Act that money etc. found in his possession or under his control was acquired out of his income which has not been disclosed in his ROI to be furnished before the expiry of time specified in section 139(1) and specifies the manner in which the said income has been derived and pays due tax thereon together with interest in respect of such income Relying upon CIT Vs. Kanhaiyalal Saruparia 2007 (12) TMI 46 - RAJASTHAN HIGH COURT - thus, a penalty u/s 271(1)(c) of the Act cannot be imposed - The assessee has fulfilled the conditions laid down in Explanation 5 thus, the order of the Penalty is set aside Decided in favour of Assessee.

Summary

Issues Involved:
Penalty under section 271(1)(c) of the Income-tax Act, 1961 for A.Ys. 2006-07 based on undisclosed income declared, applicability of Explanation 5 to section 271(1)(c) in penalty proceedings.

Detailed Analysis:

Issue 1: Penalty under section 271(1)(c)
The judgment deals with two appeals by connected assessees for Assessment Years 2006-07 concerning penalty orders under section 271(1)(c) of the Income-tax Act, 1961. The penalty was imposed by the DCIT, Circle-1, and confirmed by the CIT(A). The assessees argued against the penalty, citing compliance with notice u/s 153A, declaration of additional income, and payment of due taxes. The disclosed income included investments in shares, gym machinery purchase, and other expenses. The assessee contended that Explanation 5 to section 271(1)(c) protected them as they voluntarily disclosed additional income. The Tribunal examined the facts, including the undisclosed income offered for taxation by the assessee and other family members, and the applicability of Explanation 5.

Issue 2: Applicability of Explanation 5 to section 271(1)(c)
The Tribunal analyzed Explanation 5 to section 271(1)(c) of the Act, which deals with the concealment of income or furnishing inaccurate particulars. The provision exempts certain cases where the assessee discloses assets acquired from income not declared earlier and pays due taxes with interest. The Tribunal referred to a decision by the Hon'ble Jurisdictional High Court to interpret the conditions under Explanation 5. It was noted that the assessee fulfilled the requirements specified in the Explanation, including declaration of undisclosed income and payment of taxes. Relying on the High Court's judgment, the Tribunal held that penalty under section 271(1)(c) cannot be imposed in the present case. The Tribunal ordered the deletion of the penalty and allowed the appeals of the assessees based on the findings and interpretation of Explanation 5.

Conclusion:
The judgment extensively analyzed the penalty imposition under section 271(1)(c) for undisclosed income declared by the assessees for A.Ys. 2006-07. The Tribunal considered the applicability of Explanation 5 to protect the assessees from penalty in light of their voluntary disclosure and payment of due taxes. The decision highlighted the importance of fulfilling the conditions specified in the Explanation to avoid penalty under section 271(1)(c). Ultimately, the Tribunal allowed the appeals of the assessees based on the interpretation of the legal provisions and relevant case law.