2012 (12) TMI 667 - HC - Income Tax

Clause (2) to Explanation 5 to Section 271(1)(c) not applied - course of proceedings u/s 153A - Held that - The said provision is available, not merely when the assessee, in his statement offers or surrenders, to tax the amount in question which is later assessed, but also complies with the other conditions, of having filed the return. The allusion to Section 139 (1) is significant in this regard, because a notice and consequent search assessment pursuant to Section 153A stands excluded, altogether, by virtue of the non-obstante clause to the latter (Section 153A) provision. Even if the other view, more favourable to the assessee were to be taken, and a return under Section 153A be assumed to be covered as one under Section 139 (1), the fact remains, that in this case, the assessee did not include it, pursuant to the notice issued, and instead chose to merely reiterate its return originally filed on 31-10-2005 The search, and the statement recorded under Section 132 (4), the assessee, on being issued with notice u/s 153A did not file any return. The notice under Section 153A was issued on 20-7-2006. It was only when assessment proceedings were taken up for consideration, did the assessee, by letter dated 14-8-2007, request, that its return, filed on 31-10-2005, be treated as its return filed in response to the notice under Section 153A. Much later, it sought to revise its computation, on 14-12-2007. Therefore, this Court is of the opinion that the escape route , provided by Clause (2) to Explanation 5 in this case, was not available to the assessee - the Tribunal did not commit any error of law appeal, being devoid of merits, is consequently dismissed.

Summary

Issues Involved:
1. Application of Clause (2) to Explanation 5 of Section 271(1)(c) of the Income Tax Act.
2. Whether the assessee concealed income or furnished inaccurate particulars of income.
3. Whether the assessee is entitled to immunity under Explanation 5 to Section 271(1)(c).

Detailed Analysis:

Issue 1: Application of Clause (2) to Explanation 5 of Section 271(1)(c) of the Income Tax Act
The primary contention of the assessee was that the case falls under Explanation 5(a)(1) to Section 271(1)(c) of the Act, as the income or transactions were recorded in the books as share capital of other concerns. The assessee argued that since the undisclosed income was admitted in the statement given on the date of search, it could not be included in the return filed prior to the search. The assessee relied on the case of Commissioner Of Income-Tax v. Chhabra Emporium, where it was held that penalty should be canceled when surrender falls within Explanation 5. The court, however, noted that the assessee did not file any return after the notice under Section 153A and merely revised the computation of income much later. Therefore, the court opined that the "escape route" provided by Clause (2) to Explanation 5 was not available to the assessee.

Issue 2: Whether the Assessee Concealed Income or Furnished Inaccurate Particulars of Income
The revenue contended that the assessee did not declare the income in the original return or in response to the notice under Section 153A, amounting to concealment of income. The court observed that the assessee's conduct of not filing a return after the notice under Section 153A and only revising the computation later indicated an intention to conceal income. The court highlighted that the assessee's actions did not comply with the conditions of Clause (2) to Explanation 5, which required the assessee to file a return and specify the manner in which the income was earned.

Issue 3: Whether the Assessee is Entitled to Immunity under Explanation 5 to Section 271(1)(c)
The court examined the conditions under Clause (2) of Explanation 5, which include making a statement under Section 132(4) during the search, specifying the manner in which the income was earned, and paying the tax along with interest. The court found that the assessee did not fulfill these conditions, as the return was not filed after the notice under Section 153A, and the income was not included in the original return. The court further clarified that Clause (2) to Explanation 5 applies to cases where the return of the year is yet to be filed during the search, and not to cases where returns are filed under Section 139(1).

Conclusion:
The court concluded that the Tribunal did not commit any error of law and no substantial question of law arose for consideration. The appeal was dismissed, and the penalty imposed under Section 271(1)(c) was upheld. The court emphasized that the provisions of Clause (2) to Explanation 5 did not apply to the assessee's case, as the conditions for immunity were not satisfied.