2000 (9) TMI 248 - AT - Income Tax

Summary

Issues Involved:
1. Levy of penalty under section 271(1)(c) for assessment years 1986-87 and 1989-90.
2. Interpretation and application of Explanation 5 to section 271(1)(c).
3. Validity of penalty imposition on income disclosed under section 132(4).

Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c) for Assessment Years 1986-87 and 1989-90:
The assessee was penalized under section 271(1)(c) for both assessment years. The main contention was whether the penalty was justified given the disclosures made under section 132(4). The Assessing Officer (AO) completed assessments for 1986-87 and 1989-90 at Rs. 1,64,290 and Rs. 1,92,510 respectively, and levied penalties at the minimum prescribed rate of 100% on the tax difference.

2. Interpretation and Application of Explanation 5 to Section 271(1)(c):
The core issue was the interpretation of Explanation 5 to section 271(1)(c). The assessee argued that the disclosure under section 132(4) should immunize them from penalties, invoking exception (2) of Explanation 5. The assessee's counsel emphasized that the words "income which has not been disclosed so far" should include income that was not disclosed in past returns, arguing that this interpretation aligns with the legislative intent to encourage voluntary disclosure during searches.

The Departmental Representative countered that Explanation 5 applies only to income that was yet to be disclosed in returns due under section 139(1) at the time of the search. The Tribunal analyzed the historical context and legislative intent, noting that Explanation 5 was designed to prevent assessees from escaping penalties by filing revised returns post-search. It was concluded that the words "income which has not been disclosed so far" are intended to prevent assessees from avoiding penalties by subsequently disclosing income in revised returns after a search.

3. Validity of Penalty Imposition on Income Disclosed under Section 132(4):
The Tribunal upheld the AO's decision to deem the assessee to have concealed income as per Explanation 5 for both assessment years, as the disclosed income was not recorded in the books or disclosed to the Commissioner before the search. However, the Tribunal found that for assessment year 1989-90, the penalty on income beyond Rs. 90,704 was unjustified, as there was no return filed before the search, and the penalty could not be attributed to concealment without an initial return.

Separate Judgment by Judicial Member:
The Judicial Member concurred with the conclusions but added that the legislative intent behind Explanation 5 was to prevent assessees from benefiting from non-filing of returns before a search. The interpretation that the exception applies only to returns due but not yet filed was emphasized to avoid making any statutory words redundant.

Conclusion:
The Tribunal dismissed the appeal for assessment year 1986-87, upholding the penalty for income concealed as per Explanation 5. For assessment year 1989-90, the Tribunal partly allowed the appeal, directing the deletion of penalty on income exceeding Rs. 90,704, as there was no initial return filed before the search. The decision reinforced the disabling nature of Explanation 5, aimed at preventing post-search disclosures from negating penalties.