2013 (9) TMI 681 - HC - Income Tax

Scope of Explanation 5 to Section 271 (1) (c) of the Income Tax Act Penalty for concealment of Income - Note book was found during search in which details of expenses of renovation of residence were written. The assessee stated that he had made the expenditure out of business income but had not noted in his books of account Held that - Reliance has been placed upon the judgments of Madras High Court in the case of CIT vs. S.D.V. Chandru 2003 (12) TMI 40 - MADRAS High Court ; judgment of Hon ble Rajasthan High Court in the case of Mishrimal Soni 2005 (12) TMI 83 - RAJASTHAN High Court and judgment of Gujarat High Court in the case of CIT vs. Mahendra C. Shah 2008 (2) TMI 32 - GUJARAT HIGH COURT , which have explained the extent and scope of Explanation 5 to Section 271 (1) (c) of the Act, which deals with a situation in which any assets are found to be in the ownership of the assessee in the course of search under Section 132 of the Act. Clause (2) of Explanation 5 makes it clear that where in the course of search the assessee makes a statement under Section 132 (4) and owns that he acquired any of such assets out of his undisclosed income, not so far returned, and further states the manner in which such income has been derived and pays tax together with interest if any in respect of such income, no presumption of concealment has to be drawn, notwithstanding the admission to that effect. In other words to the extent the assessee makes a cleanbreast of his undisclosed income represented by assets found to be in the possession of the assessee he is not deemed to have concealed his income or concealed particulars thereof. The explanation is not confined to physical possession but extends to other forms of possession In the present case, as per note book, the total came to Rs.5,39,300/- which the assessee, admitted to be undisclosed income of the financial year 1991-92 and on which he was ready to pay the tax. It is admitted that the statement was made during the course of search and the assessee was ready to make payment of tax. No further detail was required nor any further explanation was required to be given as to how and in what manner and in which year or years the undisclosed income was earned and as to why the tax was not paid on such undisclosed income Decided against the Revenue.

Summary

Issues involved:
- Appeal against penalty imposed under Section 271(1)(c) of the Income Tax Act for concealment of income.

Detailed Analysis:
1. The appeal was filed by the department challenging the deletion of a penalty of Rs.5,00,000 imposed under Section 271(1)(c) of the Income Tax Act. The issue revolved around whether the surrender of undisclosed income made after the due date of filing the return of income and completion of original assessment proceedings rendered the assessee liable for penalty under Explanation 5 to Section 271(1)(c) of the Act.

2. The Income Tax Officer levied the penalty on the grounds of concealing income related to unexplained investment in house renovation and income from pawning business. The CIT (A) upheld the penalty, emphasizing the repeated concealment of income by the assessee over the years and the necessity for stringent action due to the nature of the concealment.

3. The ITAT analyzed the case and found that the assessee had admitted to undisclosed income during a search operation, specifically accepting Rs.5,39,300 as undisclosed income for the financial year 1991-92 and agreeing to pay tax on the same. The ITAT concluded that the surrender was made during the search, and the assessee was willing to pay taxes, thus ruling in favor of the assessee based on precedents from Madras, Rajasthan, and Gujarat High Courts regarding Explanation 5 to Section 271(1)(c) of the Act.

4. The ITAT highlighted that the assessee's admission of undisclosed income during the search, along with the willingness to pay taxes, aligned with the provisions of Explanation 5, which exempts an assessee from being deemed to have concealed income if they disclose assets derived from undisclosed income during a search operation. The ITAT found no requirement for further details or explanations regarding the undisclosed income, as the admission and readiness to pay taxes sufficed.

5. Based on the precedents and the specific circumstances of the case, the ITAT dismissed the Income Tax Appeal, ruling in favor of the assessee and against the revenue. The judgment emphasized the importance of the assessee's admission during the search operation and the willingness to pay taxes as factors exempting them from being deemed to have concealed income under Explanation 5 to Section 271(1)(c) of the Income Tax Act.