2009 (4) TMI 78 - HC - Income Tax

Penalty u/s 271(1)(c) - neither in the original return nor in the revised return the petitioner had disclosed the income - clear case of concealment of income - petitioner did not disclose the manner in which such income had been derived, therefore, case is not covered by explanation 5 of Section 271 - immunity available under Explanation 5 is not available to the assessee - Commissioner has recorded a finding of fact that the transactions were disclosed in the course of search no merit in petition

Summary

Issues:
Challenge against penalty under Section 271(1)(c) of the Income Tax Act for assessment year 1985-86.

Analysis:
The petitioners contested the penalty imposed under Section 271(1)(c) of the Income Tax Act for the assessment year 1985-86, following a search and seizure action that revealed undisclosed havala loans. The Commissioner of Income Tax confirmed the addition of the loans as income and disallowed the interest claimed by the assessee. The petitioners sought waiver of the penalty, arguing that they had voluntarily disclosed the loans as other income under Section 132(4) for a subsequent assessment year. However, the Commissioner found that the concealment of income was evident as the loans were not disclosed in the original or revised returns. The Commissioner rejected the application under Section 264, stating that the case did not fall within Explanation 5 of Section 271(c) as the income was not disclosed before the search and seizure action.

The petitioners further contended that the penalty was unjustified since the income was eventually offered for taxation. The court clarified that the issue was not about jurisdiction but rather about the application of Explanation 5 to Section 271(c). The court emphasized that for the explanation to apply, the petitioner must admit the income and disclose its source, which was not done in this case. The court referenced various judgments to support its decision.

The court upheld the Commissioner's findings, noting that the transactions were disclosed during the search, but the income was not disclosed in the original or revised returns, indicating a clear case of income concealment. The court concluded that the petition lacked merit, and the rule was discharged with no order as to costs.