2019 (4) TMI 1673 - HC - Income Tax

Immunity from penalty - applicability of Clause 5(2) of the Explanation u/s 271(1)(c) - made the disclosure of undisclosed income in the statements u/s 132(4) in search and had also specified the manner in which such income was derived from his real estate business and had also paid tax though belatedly together with interest - AO denied Immunity alleging that admitted tax liability was not paid in the returns filed u/s 153C and subsequent payment of tax cannot entitle the Assessee to the immunity - HELD THAT - There is no dispute of facts before us that besides the adjustment 1.65 crores of the cash seized during the course of search and the monthly payments of taxes made by the Assessee aggregating to ₹ 2,42,53,137/- total of which would come to ₹ 4,07,53,137/- the total tax paid by Assessee is in excess of the admitted tax liability of ₹ 3.50 crores on the undisclosed income of ₹ 8.25 crores disclosed in the six Returns filed by the Assessee on 13/14th August 2009. Therefore, in our opinion, the Assessee not only satisfied all the three conditions, namely (I) disclosure of undisclosed income in the course of the statements under Section 132(4) of the Act; (II) specify the manner of earning the same from real estate business; and (III) payment of tax with interest for which no time frame is fixed in the said Explanation 5(2). Therefore the Assessee was entitled to the immunity from penalty u/s 271(1)(c). No merits in the contentions raised by the Revenue that the payment of such tax liability in respect of undisclosed income as disclosed in the Returns of income filed by the Assessee after Notice u/s 153C, has to be made at the time of filing of the return itself. We are not dealing with the case for assessment of tax in the hands of the Assessee as per the amended procedure of assessment in question u/s 158(C) after 01.06.2003 but we are concerned with the applicability of Clause 5(2) of Explanation to Section 271(1)(c) which is an exception to the presumption of concealment u/s 271(1)(c). There has been no amendment in the language of the said provision before or after 01.06.2003 and therefore the interpretation as made by the Hon'ble Supreme Court in the case of Gebilal Kanhaialal HUF 2012 (9) TMI 297 - SUPREME COURT is binding and applies to the facts of the present case on all fours. Tribunal has erred in reversing the order passed by the learned CIT (Appeals), denying the immunity as per Clause 5(2) of the Explanation to the Assessee in the present case. The Appeals filed by the Assessee therefore deserve to be allowed and the same are allowed answering the first substantial question of law framed above in favour of the Assessee and against the Revenue. Penalty u/s 217(1)(c) - AO taxed agricultural income as 'Income from Other Sources' and imposed penalty - CIT(A) treated as agricultural income and deleted penalty - HELD THAT - Matter of there being agricultural income of the Assessee and the estimation of agricultural income by the authorities below is a finding of fact and a particular amount of the same as assessed by the Assessing Authority being reduced the learned CIT (Appeals), nonetheless remains a finding of fact and therefore, on the basis of such findings of fact by the First Appellate Authority below if the learned Tribunal has found it to be a fit case not to impose the penalty on the Assessee u/s 271(1)(c), we do not find any reason to interfere with the said findings of the learned Tribunal and therefore in our opinion, the second question also deserved to be answered in favour of Assessee and against the Revenue.

Summary

Issues Involved:
1. Applicability of Explanation 5(2) to Section 271(1)(c) of the Income Tax Act, 1961.
2. Justification of penalty under Section 271(1)(c) on agricultural income treated as "Income from Other Sources."

Issue-wise Detailed Analysis:

1. Applicability of Explanation 5(2) to Section 271(1)(c) of the Income Tax Act, 1961:

The case revolves around the imposition of penalty under Section 271(1)(c) of the Income Tax Act, 1961, following a search at the Assessee's premises. The Assessee claimed immunity from penalty under Explanation 5(2) of Section 271(1)(c), arguing that they disclosed the undisclosed income during the search, specified the manner of earning, and paid the taxes, albeit belatedly. The Tribunal initially denied this immunity, interpreting that the benefit of Explanation 5(2) is confined to returns for the year in respect of which the previous year is yet to end or the time for filing the return under Section 139(1) is yet to expire.

However, the High Court referenced the Supreme Court's decision in ACIT v. Gebilal Kanhaialal HUF, which clarified that no specific time limit for tax payment is prescribed under Explanation 5(2), and as long as the tax with interest is paid, immunity from penalty is granted. The High Court concluded that the Assessee met all three conditions: disclosure during the search, specifying the manner of earning, and payment of tax with interest, thus entitling them to immunity from penalty.

2. Justification of penalty under Section 271(1)(c) on agricultural income treated as "Income from Other Sources":

The Assessee claimed part of the undisclosed income as agricultural income, which was later treated as "Income from Other Sources" by the Assessing Authority. The First Appellate Authority upheld the penalty on this income, but the Tribunal found that the addition was made on an estimated basis without concrete evidence of undisclosed income. Citing the Supreme Court's decision in CIT v. Reliance Petro Products Pvt. Limited, the Tribunal opined that penalty under Section 271(1)(c) requires clear evidence of concealment or furnishing of inaccurate particulars, which was not present in this case. Therefore, the Tribunal deleted the penalty on the agricultural income.

The High Court upheld the Tribunal's decision, emphasizing that findings of fact regarding the nature and extent of income are binding and not subject to interference under Section 260-A of the Act. Thus, the penalty on agricultural income treated as "Income from Other Sources" was not justified.

Conclusion:

The High Court allowed the Assessee's appeals, granting immunity from penalty under Explanation 5(2) of Section 271(1)(c) and upholding the deletion of penalty on agricultural income treated as "Income from Other Sources." The Revenue's appeals were dismissed.