2015 (7) TMI 451 - HC - Income Tax

Penalty under section 271(1)(c) of the Income Tax Act, 1961 - Held that - One of the conditions is that the assessee makes a statement under sub-Section (4) of Section 132 that the assets unearthed have been acquired out of his income which has not been disclosed so far in his returns of income already filed. The difficulty arises by the use of the expression to be furnished before the expiry of time specified in sub-Section (1) of Section 139 . A confusion is likely to arise as to whether the departure has been sought to be made by the legislature only for those cases where the statement as regards undisclosed income was made pertaining to a previous year for which time to file return under Section 139 had not expired. But that was not the intention because the expression unless appears after Clauses (a) and (b) of Explanation which provides for imposition of penalty. Therefore, unless has to apply to the provision for imposition of penalty. Therefore, the aforesaid expression to be furnished has to be interpreted as required to be furnished . Only in that case the Section will make a meaning otherwise the Section does not make any meaning. We are supported in our view by the judgment of the Madras High Court in the case of C.I.T. Vs. SDV Chandru reported in 2003 (12) TMI 40 - MADRAS High Court wherein a Division Bench opined that The additional words which refer to the time specified in section 139(1) are only a reiteration of the legal requirement regarding the time within which returns should normally be filed. - Decided against the revenue.

Summary

Issues:
1. Whether the assessee is entitled to immunity from penalty under Explanation-5 to Section 271(1)(c) of the Income Tax Act.
2. Interpretation of the conditions under Explanation-5 regarding undisclosed income and penalty imposition.

Analysis:

1. Issue 1 - Entitlement to Immunity from Penalty:
The appeal challenged the deletion of penalties under section 271(1)(c) of the Income Tax Act for assessment years 2000-01 to 2004-05. The assessee had concealed income, but claimed immunity under Explanation-5 to Section 271(1)(c). The Tribunal upheld the immunity, prompting the revenue's appeal. The key question was whether the assessee met the conditions for immunity. The Tribunal and the CIT (Appeals) found in favor of the assessee, citing compliance with all requirements of the clause. The judgment highlighted that the critical issue was whether the Tribunal correctly applied the immunity provision, which it did by satisfying all conditions. The High Court referred to a similar case where immunity was allowed under the same provision, emphasizing compliance with the conditions as crucial.

2. Issue 2 - Interpretation of Conditions under Explanation-5:
The crux of the matter revolved around the interpretation of the conditions under Explanation-5 to Section 271(1)(c). The provision outlined scenarios where an assessee could claim immunity from penalty for undisclosed income. The clause specified requirements related to the declaration of income in returns and statements made during a search. The revenue contended that the conditions were not met, while the assessee argued compliance. The Court delved into the legislative intent behind the provision, particularly focusing on the phrase "to be furnished before the expiry of time specified in sub-Section (1) of Section 139." The interpretation of this phrase was crucial in determining the applicability of the immunity provision. Referring to precedents, the Court clarified that the phrase should be understood as "required to be furnished" to give the provision meaning. By aligning with previous judgments, the Court resolved the interpretation issue in favor of the assessee, leading to the dismissal of the revenue's appeal.

In conclusion, the High Court upheld the immunity from penalty under Explanation-5 for the assessee, emphasizing compliance with the conditions outlined in the provision. The judgment provided clarity on the interpretation of the legislative language to ensure the correct application of the immunity provision in cases of undisclosed income.