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2009 (11) TMI 558 - AT - Income TaxPenalty - search and seizure - the assessee, a partnership firm is engaged in the business as Katcha Artiya and derives income mainly from commission on sale of agricultural commodities -concealment of income - Held that The authorized officer concluded the action taken under s. 132 of the Act without recording statement of the appellant during the course of search proceedings. No reasons are spell out, on record as to why the authorized officer did not record appellant s statement even on 13th Jan., 1995 when he resumed the proceedings under s. 132 of the Act. At least the appellant cannot be blamed for non-action on the part of the authorized officer. Explanation 5 to s. 271(1)(c) of the Act bestows immunity on the assessee for making a disclosure of his income in the manner as specified therein. There is, however, nothing in the hands of an assessee to compel authorized officer and require him to record a statement during the course of search. It was an act to be performed by the authorized officer as it was his legal duty to have recorded the statement, particularly when by non-recording of the statement under s. 132(4) of the Act, assessee is shown to have deprived of a benefit conveyed by Expln. 5 to s. 271(1)(c) of the Act. The expression may as used in s. 132(4) of the Act in such a case needs to be read as shall . Assessee has acted bona fidely in filing the return of his income by disclosing additional income that stood assessed without any variation. In a case like this, there being failure on the part of the authorized officer to record a statement under s. 132(4) of the Act in the course of search under s. 132 of the Act, the provision deeming concealment of the particulars of income for the purpose of imposition of penalty can neither be read in isolation nor taken as divorced from the obligatory statement to be recorded under s. 132(4) of the Act. It also cannot be read to the disadvantage of the appellant particularly when the assessee is shown to have made a substantive compliance of making the disclosure and bona fidely acting thereon as well.
Issues Involved:
1. Justification of penalty imposition under Section 271(1)(c) of the IT Act. 2. Applicability of Explanation 5 to Section 271(1)(c) and Section 132(4) of the IT Act. 3. Determination of whether the surrender of income was made during the course of search. 4. Determination of whether the surrender and declaration relate to Assessment Year 1995-96 in the normal course. Detailed Analysis: Issue 1: Justification of Penalty Imposition under Section 271(1)(c) of the IT Act The assessee, a partnership firm engaged in commission-based business, was subjected to a search under Section 132 of the IT Act. Incriminating documents were seized, and the assessee declared an undisclosed income of Rs. 50 lacs. The AO imposed a penalty of Rs. 20 lacs for concealing income, which was upheld by the CIT(A). The Tribunal directed the CIT(A) to provide a clear finding on whether the surrender was made during the search and the applicability of Explanation 5 to Section 271(1)(c). Issue 2: Applicability of Explanation 5 to Section 271(1)(c) and Section 132(4) of the IT Act The CIT(A) found that the surrender of income was not made during the search but afterward. The assessee failed to make a statement under Section 132(4) regarding the undisclosed income and did not specify how the income was derived. The benefit of Explanation 5 was denied because the statement was not made voluntarily during the search. The Tribunal noted that the non-recording of the statement under Section 132(4) was due to the search party's failure, not the assessee's. Issue 3: Determination of Whether the Surrender of Income was Made During the Course of Search The CIT(A) concluded that the surrender was not made during the search but afterward to the Asstt. Director of IT (Inv.). The Tribunal found that the search was disrupted, and the statement under Section 132(4) was not recorded due to the search party's failure. The Tribunal held that the expression 'may' in Section 132(4) should be read as 'shall,' making it obligatory for the authorized officer to record the statement. Issue 4: Determination of Whether the Surrender and Declaration Relate to Assessment Year 1995-96 in the Normal Course The CIT(A) held that the surrender was not voluntary and in the normal course for AY 1995-96. The Tribunal found that the assessee made a bona fide disclosure at the earliest opportunity and complied with the requirements. The return was filed voluntarily, and the income disclosed was assessed without variation. Conclusion: The Tribunal exonerated the assessee from the penalty, noting that the failure to record the statement under Section 132(4) was due to the authorized officer's inaction. The assessee made a bona fide disclosure and complied with the requirements, thus deserving immunity under Explanation 5 to Section 271(1)(c). The appeal by the assessee was allowed.
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