2012 (9) TMI 297 - SC - Income Tax

Penalty u/s 271(1)(c) - search and seizure - assessee claimed immunity under clause (2) of Explanation 5 to Section 271(1)(c) - Held that - The assessee is entitled to immunity from payment of penalty under clause (2) of Explanation 5 to Section 271(1)(c) as all the three conditions as defined under the section are satisfied by assessee as decided in assessee sown case in 2004 (7) TMI 86 - RAJASTHAN HIGH COURT. As the statement was made by the Karta (assessee) during the search which concluded on August 1, 1987 that the unaccounted assets and incriminating documents found from his possession during the search have been acquired out of his income, which has not been disclosed in the return of income before expiry of time specified in Section 139(1), thus satisfying first condition - second condition was satisfied as the assessee had specified in his statement under Section 132(4), the manner in which such income stood derived - for satisfying third condition the only requirement stipulated for the assessee to pay tax together with interest as in the present case the assessee has paid tax with interest upto the date of payment, since Clause (2) did not prescribe the time limit within which the assessee should pay tax on income disclosed in the statement under Section 132(4) no default proved - decided in favour of assessee

Summary

Issues involved:
- Assessment year 1987-88
- Immunity under clause (2) of Explanation 5 to Section 271(1)(c) of the Income Tax Act, 1961

Analysis:
The civil appeal filed by the Department pertains to the assessment year 1987-88, involving an HUF represented by its Karta. Search and seizure operations conducted in July-August 1987 resulted in the seizure of assets and incriminating documents. The Karta made a statement under Section 132(4) of the Income Tax Act on August 1, 1987, surrendering a significant amount. Notices were subsequently issued to furnish information, with the Karta making a statement in February 1990 reiterating concealment of income. The main contention by the Department was the failure of the assessee to file the return of income by the due date of July 31, 1987, despite the Karta's statement on August 1, 1987. The Department relied on this failure to deny immunity under clause (2) of Explanation 5 to Section 271(1)(c).

The primary issue for determination was whether the assessee was entitled to immunity under clause (2) of Explanation 5 to Section 271(1)(c). Explanation 5 is a deeming provision that presumes concealment of income if specific conditions are not met. The interpretation of clause (2) of Explanation 5 was crucial in this case. Three conditions needed to be satisfied for immunity from penalty under this clause. The first two conditions, regarding the statement made during the search and specifying the manner of income derivation, were acknowledged to be fulfilled. The contentious third condition required the assessee to pay tax with interest on the undisclosed income. While the Department argued that the failure to file the return on time negated immunity, the Court emphasized that the only requirement was to pay tax with interest up to the date of payment, with no specified time limit.

The Court concluded that the assessee met all conditions for immunity under clause (2) of Explanation 5 to Section 271(1)(c). As a result, the civil appeal filed by the Department was dismissed, with no order as to costs.