2015 (12) TMI 1114 - AT - Income Tax

Penalty on account of Explanation 5 to Section 271(1)(c ) - income offered after the search but in the return filed u/s 153A of the Act - Held that - The CIT(A) rightly held that it is not relevant whether any return of income was filed by the assessee prior to the date of search and whether any income was undisclosed in that return of income. In view of specific provision of Section 153A of the I.T.Act, the return of income filed in response to notice under section 153A of the I.T.A Act is to be considered as return filed under section 139 of the Act, as the Assessing Officer has made assessment on the said return and therefore, the return is to be considered for the purpose of penalty under section 271(1)(c ) of the I.T.Act and the penalty is to be levied on the income assessed over and above the income returned under section 153A, if any. Further, in the present case, it appears from the record that the assesses had satisfied all the conditions which are required for claiming immunity from payment of penalty under section 271(1)(c )of the Act. The provsion does not specify any time limit during which the aforesaid amount i.e the amount of penalty with interest has to be paid. Admittedly when the assessee herein have paid the entire amount with interest, the Assessing Officer ought to have granted them immunity available under Section 271(1)(c ) of the Income Tax Act. For the foregoing reaons, the present appeals stand allowed. The order of the Tribunal is quashed and set aside. Consequently, the order of the CIT(A) is restored. The question of law involved in this appeals is answered in favour of the assesee and against the revenue. - Decided against revenue

Summary

Issues Involved:
1. Entitlement to immunity from levy of penalty under Explanation 5 to Section 271(1)(c) of the Income Tax Act, 1961 for income disclosed after a search but included in the return filed under Section 153A.

Issue-wise Detailed Analysis:

1. Entitlement to Immunity from Levy of Penalty under Explanation 5 to Section 271(1)(c):

Facts and Background:
A search and seizure operation was conducted on 27.7.2006 on the Thacker group, including the assessee. The assessee disclosed substantial undisclosed income during the search under Section 132(4) of the Act and later included this income in the return filed under Section 153A. The Assessing Officer (AO) levied penalties under Section 271(1)(c) for the assessment years 2002-03 to 2005-06, arguing that the disclosure was a result of the search and would not have been made otherwise.

First Appeal:
The CIT(A) deleted the penalties for the assessment years 2004-05 and 2005-06, concluding that the assessee had satisfied all conditions for immunity under Clause 2 of Explanation 5 to Section 271(1)(c) by making a disclosure under Section 132(4), specifying the manner of earning the income, and paying the due taxes. For the assessment years 2001-02 to 2003-04, the CIT(A) initially held that the assessee had not paid the taxes due on the income disclosed in the returns filed under Section 153A and during assessment proceedings, thus not satisfying the conditions for immunity. However, upon rectification and confirmation of tax payments, the CIT(A) granted immunity for these years as well.

Revenue's Argument:
The revenue contended that the assessee would not have disclosed the income without the search, thus constituting concealment. They argued that immunity under Clause 2 of Explanation 5 to Section 271(1)(c) is only available for the year of the search and the preceding year if the return filing due date had not expired.

Assessee's Argument:
The assessee argued that all conditions for immunity under Clause 2 of Explanation 5 were met, including the voluntary disclosure of additional income before any detection by the department. The assessee relied on various case laws supporting their claim for immunity.

Tribunal's Analysis and Decision:
The tribunal examined the relevant legal provisions and case laws, noting that the disclosure under Section 132(4) followed by returns under Section 153A and payment of taxes satisfied the conditions for immunity. The tribunal referenced multiple judicial precedents, including the Jurisdictional Calcutta High Court's decisions, which supported the assessee's position that immunity is available for all assessment years prior to the year of the search if conditions are met.

The tribunal found that the additional income disclosed during assessment proceedings was voluntary and before any detection by the department, thus considered a revision of the original disclosure. The tribunal also interpreted the expression "to be furnished" in Clause 2 of Explanation 5 as "required to be furnished" under Section 153A, aligning with the Jurisdictional Calcutta High Court's interpretation.

Conclusion:
The tribunal concluded that the assessee had cumulatively satisfied all conditions stipulated in Clause 2 of Explanation 5 to Section 271(1)(c) and was entitled to immunity from penalty for all assessment years under appeal. The tribunal dismissed the revenue's appeals and upheld the CIT(A)'s order granting immunity to the assessee.

Outcome:
- The assessee's appeals for the assessment years 2001-02 to 2003-04 were dismissed as infructuous since the required relief was already obtained.
- The revenue's appeals for all assessment years were dismissed, confirming the assessee's entitlement to immunity from penalty.

Summary Table of Appeals:
| Appeal Number | Assessment Year | Appeal by | Result |
|---------------|-----------------|--------------------|-------------------------|
| ITA Nos.1786-1788/Kol/2009 | 2001-02 to 2003-04 | Assessee's Appeal | Dismissed as infructuous |
| ITA Nos.1521 to 1523/Kol/2010 & ITA Nos.1690-1691/Kol/2009 | 2001-02 to 2003-04 & 2004-05 to 2005-06 | Departmental Appeal | Dismissed |