2006 (8) TMI 141 - HC - Income Tax

Levy of penalty under section 271(1)(c) - Explanation 5 to section 271(1)(c) - The plea of non-availability of funds for payment of tax due on the surrendered income payment of tax along with interest before the date of assessment or payment of interest for delayed payment of tax cannot be circumstances which could be pleaded by the assessee to claim immunity from levy of penalty in terms of Explanation 5 - An assessee who having surrendered his concealed income during the course of search and seizure still neither files the return in time nor deposits the tax on surrendered income immediately after the surrender cannot be given the benefit of Explanation 5 assessee s appeal dismissed penalty upheld

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Justification of the levy of penalty under section 271(1)(c) of the Income-tax Act, 1961.
3. Interpretation and application of Explanation 5 to section 271(1)(c) of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The court condoned the delay in filing the appeal based on the reasons stated in the application. The application was disposed of accordingly.

2. Justification of the Levy of Penalty under Section 271(1)(c):
The assessee challenged the levy of penalty amounting to Rs. 4,42,928 under section 271(1)(c) of the Income-tax Act, 1961. The penalty was imposed following a search and seizure operation conducted on March 26, 1993, which revealed undisclosed income, cash, and jewellery. The assessee had offered to surrender Rs. 10 lakhs as undisclosed income during the search. However, the Assessing Officer levied the penalty, stating that the assessee had concealed particulars of his income and did not fulfill the mandatory conditions under Explanation 5 to section 271(1)(c). This decision was upheld by the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal.

3. Interpretation and Application of Explanation 5 to Section 271(1)(c):
Explanation 5 to section 271(1)(c) provides conditions under which an assessee may be deemed to have concealed income unless specific conditions are met. The assessee argued that there was no requirement for payment of tax and interest along with the return and that the entire amount was paid before processing the return under section 143(1)(a) of the Act. However, the Tribunal found that the assessee did not comply with the conditions specified in Explanation 5, particularly the requirement to pay taxes together with interest on the concealed income. The Tribunal noted that the assessee admitted to short payment of taxes and claimed insufficient funds as a reason, which is not a valid explanation under Explanation 5.

The relevant provisions of section 271(1)(c) and Explanation 5 were discussed, emphasizing that the concession under Explanation 5 is available only if the tax and interest on the surrendered income are paid immediately or before the due date of return. The court distinguished the present case from CIT v. Chhabra Emporium and Gebilal Kanhaialal (HUF) v. Asst. CIT, noting that the facts were different and the issue of timely payment of tax was not addressed in those cases.

The court concluded that the assessee failed to pay the tax and interest on the surrendered income before the due date and even after filing the belated return. Therefore, the benefit of Explanation 5 could not be availed. The court upheld the penalty imposed by the Assessing Officer and dismissed the appeal.

Conclusion:
The appeal was dismissed, and the order of the Tribunal upholding the penalty under section 271(1)(c) was confirmed. The court emphasized the necessity of timely payment of tax and interest on surrendered income to claim immunity from penalty under Explanation 5 to section 271(1)(c).

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