2008 (3) TMI 422 - HC - Income Tax

Penalty- Concealment- The assessee claimed immunity from penalty because of filing of return and payment of tax on the income declared. However, the Assessing Officer noticed that there is concealment of income by virtue of operation of Explanation 5 to section 271(1)(c) of the Act. However, he limited the penalty levied under section 271(1)(c) of the Act to the minimum amount. Even though the assessee filed an appeal against the penalty order, the same was rejected by the first appellate authority, namely, the Commissioner of Income-tax (Appeals). However, on second appeal by the assessee, the Tribunal cancelled the penalty on the assumption that prior to the due date for filing of return. Held that- if the assessee in the course of search does not disclose income and offer payment, the assessee is deemed to have concealed particulars of income even in the course of search. Obviously, there is concealment of income by the assessee by virtue of operation of Explanation 5 to section 271(1)(c) of the Act because the assessee not only did not disclose income in the course of search. The reference by answering the question referred in favour of the Revenue and against the assessee.

Summary

Issues:
1. Penalty under section 271(1)(c) of the Income-tax Act, 1961 for the assessment year 1990-91.
2. Interpretation of Explanation 5 to section 271(1)(c) of the Act.
3. Validity of the Tribunal's decision to cancel the penalty.

Analysis:
1. The case involves a reference by the Revenue against the cancellation of penalty imposed on the assessee under section 271(1)(c) of the Income-tax Act, 1961 for the assessment year 1990-91. The assessee, an advocate and power of attorney holder, failed to establish that a seized amount belonged to another person, leading to penalty proceedings for concealment of income initiated by the Assessing Officer.

2. The Tribunal's decision to cancel the penalty was based on the assumption that the assessee had returned the income and paid tax before the due date for filing the return. However, the Revenue argued that this assumption was incorrect as the return was actually due earlier, providing ample time for compliance. The operation of Explanation 5 to section 271(1)(c) of the Act was crucial in this case, deeming concealment of income if not disclosed during a search.

3. The High Court rejected the Tribunal's decision, emphasizing that the assessee's failure to disclose income during the search, coupled with an unproven claim that the amount belonged to another person, constituted concealment under Explanation 5. The court held that the presumption of concealment under this provision was conclusive, making the assessee liable for penalty. The minimum penalty levied by the Assessing Officer was upheld, and the reference was disposed of in favor of the Revenue.

Conclusion:
The judgment highlights the significance of timely disclosure of income and the implications of Explanation 5 to section 271(1)(c) of the Income-tax Act, emphasizing that failure to disclose income during a search amounts to concealment. The decision underscores the strict application of penalty provisions in cases of non-disclosure, reaffirming the liability of the assessee despite attempts to evade penalty through delayed compliance or unproven claims.