2015 (5) TMI 423 - AT - Income Tax

Penalty under section 271(1)(c) - disclosure of income during search operation - Held that - As decided in case of S.D.V. Chandru 2003 (12) TMI 40 - MADRAS High Court in a case where the assessee had not disclosed his income in the returns filed for the previous year which have ended prior to the date of the search and in the statement given under Section 132(4) the assessee admitted the receipt of undisclosed income for those years and also specified the manner in which such income had been derived and thereafter pays the tax on that undisclosed income with interest then such undisclosed income would get immunised from the levy of penalty. Respectfully following the esteemed views of Hon ble jurisdictional High Court we uphold the grievance of the assessee. In view of the fact that the income in question was covered by the declaration made in the statement recorded under section 132(4) and the tax thereon was duly paid by the assessee the provisions of Explanation 5 to section 271(1)(c) of the Act will come into play on the facts of this case. Accordingly as the assessee rightly contends penalty under section 271(1)(c) can not be sustained in law. In any event as held by the Hon ble jurisdictional High Court above the penalty under section 271(1)(c) of the Act can only be imposed in respect of an income over and above the income disclosed in the return filed under section 153A and since the income in question was included in the return filed by the assessee under section 153A the impugned penalty is unsustainable. For this reason also the impugned penalties of 79, 070/- for A.Y. 2003-04 82, 070/- for A.Y. 2004-05 and 65, 025/- for the A.Y. 2005-06 are therefore deleted. The assessee gets the relief accordingly. - Decided in favour of assessee.

Summary

Issues Involved:
1. Legitimacy of penalties under section 271(1)(c) of the Income Tax Act, 1961.
2. Applicability of Explanation 5 to section 271(1)(c) of the Act.
3. Conditions for immunity from penalty under Explanation 5(2) to section 271(1)(c).

Detailed Analysis:

1. Legitimacy of Penalties under Section 271(1)(c):
The appeals were directed against the order confirming penalties under section 271(1)(c) of the Income Tax Act, 1961, imposed on the assessee for the assessment years 2000-01, 2001-02, and 2002-03. The penalties were imposed following a search and seizure operation, where the assessee's son disclosed certain incomes which were subsequently shown in the returns filed by the assessee. The Assessing Officer initiated penalty proceedings, contending that the assessee had concealed income. Despite the assessee's arguments that there was no concealment and the income was disclosed under a deeming fiction, the AO imposed penalties, rejecting the assessee's reliance on Explanation 5 to Section 271(1)(c).

2. Applicability of Explanation 5 to Section 271(1)(c):
The AO argued that Explanation 5 to section 271(1)(c) provides a deeming provision whereby the assessee is treated as a defaulter if the return of income is furnished after the date of the search, deeming the assessee liable for concealment of income. The AO further contended that the assessee did not qualify for the protection provided under the exception to Explanation 5, as the income was not disclosed to the Commissioner before the search, and the manner of derivation of undisclosed income was not specified in the statement made under section 132(4).

3. Conditions for Immunity from Penalty under Explanation 5(2):
The CIT(A) upheld the AO's decision, relying on the Third Member decision of the ITAT Ahmedabad, which confined the benefit of Explanation 5(2) to the year in respect of which the due date for filing the return was yet to come. However, the jurisdictional High Court, in the case of Kirit Dahyabhai Patel vs. ACIT, reversed this decision, holding that the return filed in response to notice under Section 153A is to be considered as filed under Section 139, and the penalty is to be levied on the income assessed over and above the income returned under Section 153A. The High Court further held that the assessee is entitled to immunity if the income is disclosed in the statement under section 132(4), and the tax thereon is duly paid.

Conclusion:
Following the jurisdictional High Court's judgment, the ITAT deleted the penalties, holding that the provisions of Explanation 5 to section 271(1)(c) would come into play, and the penalty could not be sustained as the income was included in the return filed under section 153A. The appeals were allowed, and the penalties for the respective assessment years were deleted.