2014 (10) TMI 576 - HC - Income Tax

Penalty u/s 271(1)(c) Explanation submitted by assessee satisfactory or not 200% of penalty levied of the value of gold seized by AO which CIT(A) reduced to 100% - Value of gold treated as undisclosed income u/s 69A Gold seized during search u/s 132 Held that - The assessee s case falls into sub-clause (b) - by the time the search was undertaken, the assessee had time to file returns, and as a matter of fact, the returns were filed on 30.09.1986, wherein the income through which the seized gold was acquired, was also disclosed relying upon Assistant Commissioner of Income Tax, Udaipur Versus M/s. Gebilal Kanhaialal HUF, Through Karta, Udaipur 2012 (9) TMI 297 - SUPREME COURT - three conditions must be fulfilled by an assessee, before claiming the immunity under clause (2) of Explanation 5 to Section 271 of the Act - the search was made on 26.06.1985, and the returns were filed within time, on 30.09.1986 - There was no finding at any stage of the proceedings that the acquisition of the seized gold was during any earlier AY - the first condition can be deemed to have been complied with by the appellant - what is required in the context of clause (2) of Explanation 5 to Section 271 of the Act is making of a statement by the assessee and not the acceptability or otherwise of it - Since the assessee made the statement, this condition is complied with. The value of the seized gold was treated as income of the assessee and he paid thereon - the case fits into clause (2) of Explanation 5, which in turn, would bring about immunity to the appellant vis--vis Section 271 of the Act - The Tribunal proceeded on hyper- technicalities and acted as though every seizure must entail initiation of proceedings u/s 271 of the Act - Such an approach cannot be countenanced - the case of the assess is covered by clause (2) of Explanation 5 of Section 271 of the Act thus, the order of the Tribunal is set aside Decided in favour of assessee.

Summary

Issues:
1. Assessment of undisclosed income based on seized gold.
2. Levy of penalty under Section 271(1)(c) of the Income Tax Act.
3. Interpretation and application of Explanation 5 to Section 271 of the Act.
4. Compliance with conditions for claiming immunity under Explanation 5.

Assessment of Undisclosed Income:
The appellant, a Partnership Firm in bullion and jewellery business, faced a search under Section 132 of the Income Tax Act, leading to the discovery of unaccounted silver and gold. While the explanation for silver was accepted, the gold's value was treated as undisclosed income for the assessment year 1986-87. Despite some relief in appeals, the penalty under Section 271(1)(c) was imposed, leading to this appeal.

Levy of Penalty:
The Assessing Officer alleged concealment of income and inaccurate particulars, invoking Section 271(1)(c) of the Act. The penalty was initially set at 200% of the seized gold's value, later reduced to 100% by the Commissioner. The Tribunal upheld the penalty, prompting the appellant to challenge the decision under Section 260A of the Act.

Interpretation of Explanation 5:
Explanation 5 to Section 271 is crucial in determining penalties for undisclosed income. It outlines conditions where an assessee is deemed to have concealed income, with exceptions for cases where assets were acquired using disclosed income. The provision distinguishes between scenarios where income was not declared in returns and where there was still time to disclose such income.

Compliance with Immunity Conditions:
The appellant argued for immunity under Explanation 5, citing compliance with conditions laid down by the Supreme Court. The Court analyzed each condition, emphasizing the importance of the appellant's timely return filing and payment of tax on the seized gold. The Tribunal's strict approach was criticized, and the Court ultimately granted the appeal, setting aside the penalty and upholding the appellant's compliance with the immunity conditions.