2009 (12) TMI 24 - HC - Income Tax

Penalty u/s 271(1)(c) - . A balance-sheet dated 5th September, 1985 was also found and seized. The said balance-sheet contained capital account in the name of minor son of the partner - . The penalty proceedings under Section 271(1)(c) of Income Tax Act were initiated against the respondent/assessee for non disclosure of the capital account of the minor son as found in the said balance-sheet penalty as imposed by the AO deleted by CIT(A) and ITAT held that - The Tribunal while confirming the order passed by the authorities below has noticed that the respondent/assessee during the course of search proceedings itself accepted the concealed income and filed the return even before the order under Section 132(5) was passed thereby surrendering the income to the tune of Rs. 22,04,947/-. The income tax in respect of the income was also paid prior to 29th September, 1986 - no penalty can be levied in the circumstances noticed above.

Summary

Issues:
1. Interpretation of Section 271(1)(c) of the Income Tax Act, 1961 regarding penalty imposition.
2. Application of Explanation 5(b) to Section 271(1)(c) post search operation.
3. Legality of the Tribunal's decision in canceling the penalty under Section 271(1)(c).

Issue 1: Interpretation of Section 271(1)(c) of the Income Tax Act, 1961 regarding penalty imposition:
The case involved a search operation at the business and residential premises of the respondent/assessee, leading to the discovery of incriminating documents, including a balance-sheet with a capital account in the name of a minor son of the partner. The respondent explained that they intended to file the minor son's income return but the search took place before that. Penalty proceedings were initiated under Section 271(1)(c) for non-disclosure of the minor son's capital account. The assessing officer levied a penalty, which was later set aside by the First Appellate Authority and confirmed by the Tribunal. The appellant questioned the legality of allowing the benefit of an explanation to Section 271(1)(c) before its insertion in 1986.

Issue 2: Application of Explanation 5(b) to Section 271(1)(c) post search operation:
The appellant also raised concerns about the applicability of Explanation 5(b) to Section 271(1)(c) of the Income Tax Act, 1961. Despite the explanation coming into effect after the search and the non-compliance of all conditions by the assessee, the Tribunal had to determine whether the benefit of this explanation was available. The Tribunal noted that the respondent had accepted the concealed income during the search proceedings, filed a return, and paid the tax before a specific date. The Tribunal's decision was influenced by a previous Division Bench ruling that stated no penalty could be imposed in such circumstances, leading to the deletion of the penalty in question.

Issue 3: Legality of the Tribunal's decision in canceling the penalty under Section 271(1)(c):
The Tribunal's decision to cancel the penalty under Section 271(1)(c) was challenged in the appeal. However, the High Court, referring to a previous judgment, found that the Tribunal's action was legally justified. Citing the precedent set by the Commissioner of Income-Tax Vs. Radha Kishan Goel case, the High Court determined that the Tribunal had not committed any illegality in deleting the penalty, thereby upholding the Tribunal's decision and dismissing the appeal.

In conclusion, the High Court upheld the Tribunal's decision to cancel the penalty under Section 271(1)(c) based on the circumstances of the case, the applicability of relevant explanations, and the legal interpretations of the Income Tax Act, 1961.