2016 (3) TMI 149 - HC - Income Tax

Penalty u/s 271 - Amount disclosed under Section 132(4) - Held that - A perusal of the order of the Tribunal shows that the order passed by the Tribunal in the factual matrix involved herein requires to be re-adjudicated in the light of the interpretation given by the Apex Court in Gebilal Kanhaialal s case (2012 (9) TMI 297 - SUPREME COURT ) to clause (2) of Explanation 5 to Section 271(1)(c) of the Act as the Tribunal is the final fact finding authority who is required to deal with all aspects of facts and law before recording its conclusions based thereon. Accordingly, the impugned orders are set aside and the matter is remanded to the Tribunal to decide the same afresh after hearing the parties and by passing a speaking order in accordance with law.

Summary

Issues Involved:
1. Whether the decision of ITAT and authorities below is perverse regarding the adjustment of seized assets against tax liability.
2. Whether the decision of ITAT and authorities below is perverse in holding that the return of income was not furnished in time.
3. Whether the ITAT was justified in law that the return of income should have been filed within the time limit specified under Section 139(1) to get the benefit of Explanation 5 of Section 271(1)(c).

Issue-wise Detailed Analysis:

1. Adjustment of Seized Assets Against Tax Liability:
The appellant argued that the seized assets, which were significantly more valuable than the tax liability, should be adjusted against the taxes due. The appellant had appended a note to the return of income offering this adjustment. The Tribunal, however, did not accept this argument and levied a penalty under Section 271(1)(c) for non-payment of taxes. The High Court referenced the Supreme Court's judgment in Assistant Commissioner of Income Tax v. Gebilal Kanhaialal, HUF, which emphasized that no specific time limit is prescribed for the payment of tax under Clause (2) of Explanation 5 to Section 271(1)(c). The High Court found that the Tribunal needs to re-evaluate this issue in light of the Supreme Court's interpretation.

2. Timeliness of Income Return Filing:
The appellant filed the return on 23.5.1994 for the assessment year 1994-95, which the authorities below held was not within the time limit specified under Section 139(1). The Tribunal treated the return as filed under Section 139(4) and denied the benefit under Explanation 5 to Section 271(1)(c). The High Court noted that the Tribunal must reassess this issue considering the Supreme Court's guidance that the timeliness of the return filing is crucial for determining the applicability of penalties.

3. Justification of Penalty Under Explanation 5 to Section 271(1)(c):
The Tribunal upheld the penalty, stating the appellant did not meet the conditions for immunity under Explanation 5. The High Court outlined the three conditions necessary for immunity: a statement under Section 132(4), specifying the manner of income derivation, and payment of tax with interest. The High Court observed that the Tribunal's decision did not fully consider the Supreme Court's interpretation that no time limit for tax payment is prescribed under Clause (2). Therefore, the Tribunal's decision requires re-adjudication to ensure it aligns with the Supreme Court's ruling.

Conclusion:
The High Court set aside the impugned orders and remanded the case to the Tribunal for fresh adjudication. The Tribunal is directed to re-evaluate the issues after hearing the parties and pass a speaking order in accordance with the law, considering the Supreme Court's interpretation in Gebilal Kanhaialal's case. The High Court emphasized that its observations should not influence the Tribunal's independent judgment on the merits of the controversy.