2007 (12) TMI 46 - HC - Income Tax

Undisclosed income found during search for the assessment year 1987-88 but has spread over the same for five years Whether Tribunal was right in holding that the assessee was entitled to claim the benefit of immunity from levy of penalty under Explanation 5 to section 271(1) (c) assessment had become final & weren t the subject-matter of challenge so tribunal s decision is right.

Summary

Issues Involved:
1. Interpretation of Explanation 5 to Section 271(1)(c) of the Income-tax Act.
2. Entitlement to immunity from penalty under Explanation 5 to Section 271(1)(c) when undisclosed income is spread over multiple assessment years.

Detailed Analysis:

1. Interpretation of Explanation 5 to Section 271(1)(c)

The core issue revolves around the interpretation of Explanation 5 to Section 271(1)(c) of the Income-tax Act. The Tribunal's decision was challenged on whether the assessee is entitled to immunity from penalty under this provision when the undisclosed income was spread over five years, despite the initial statement under Section 132(4) indicating it would be declared for a single assessment year.

The court examined the language of Explanation 5 to Section 271(1)(c), which provides that if an assessee, during a search, is found to possess undisclosed assets and claims these were acquired from undisclosed income, they are deemed to have concealed income unless specific conditions are met. These conditions include making a statement under Section 132(4) about the undisclosed assets and paying the tax and interest on such income.

The Tribunal found that the assessee's revised returns for multiple years were accepted by the Assessing Officer, indicating the income was earned over those years. This acceptance by the Department implied that the assessee adhered to the statement made under Section 132(4).

2. Entitlement to Immunity from Penalty

The court analyzed whether the immunity provided by sub-clause (2) of Explanation 5 to Section 271(1)(c) was applicable when the assessee spread the undisclosed income over multiple years. It was observed that the immunity is not contingent upon the income being declared in any specific assessment year. The critical factors are the statement under Section 132(4), the declaration of the manner in which the income was derived, and the payment of tax and interest.

The court noted that the provision does not stipulate that the tax and interest must be paid for a particular assessment year. Since the assessments were finalized and the tax and interest were paid, the immunity could not be considered lost due to the spreading of income over several years.

The court emphasized that the statutory language does not require the income to be declared in a specific year to claim immunity. The assessee's obligation is to disclose the income in the relevant previous years, which was done in this case. The Assessing Officer's reshuffling of the income among different years did not negate the fact that the total undisclosed income was accounted for and taxed.

Conclusion

The court concluded that the assessee's actions complied with the requirements of sub-clause (2) of Explanation 5 to Section 271(1)(c). The immunity from penalty was upheld as the assessee made the necessary disclosures, specified the manner of income derivation, and paid the due taxes and interest.

The questions framed in the appeals were answered against the Revenue and in favor of the assessee. The Tribunal's orders were maintained, and both appeals were dismissed.