2016 (3) TMI 641 - AT - Income Tax

Penalty u/s 271(1)(c ) - whether the assessee is entitled for immunity from levy of penalty on account of Explanation 5 to Section 271(1)(c ) of the Act in respect of income offered after the search but in the return filed u/s 153C of the Act - Held that - The assessee has cumulatively satisfied all the conditions stipulated in Clause 2 of Explanation 5 to Section 271(1)( c) of the Act and hence entitled for immunity from levy of penalty for all the assessment years under appeal. The assessee had filed the returns u/s 153C and u/s 139(1) of the Act as the case may be, and the same has been accepted in the search assessments and regular assessment, no penalty u/s 271(1)(c ) of the Act could be levied. The expression to be furnished mentioned in Clause 2 of Explanation 5 to Section 271(1)(c ) has to be construed as required to be furnished u/s 153A of the Act. No satisfaction with regard to specific charge of concealment, as contemplated in section two limbs of section 271(1)(c ) of the Act , was recorded by the Learned AO and the same is not discernible either from the show cause notice or from the assessment order. - Decided in favour of assessee

Issues Involved:
1. Entitlement to immunity from levy of penalty under Explanation 5 to Section 271(1)(c) of the Income Tax Act, 1961.
2. Validity of penalty proceedings in the absence of satisfaction recorded by the Assessing Officer (AO).
3. Applicability of immunity for all assessment years prior to the year of search.
4. Requirement of demonstrating the manner in which undisclosed income was derived.

Detailed Analysis:

1. Entitlement to Immunity from Levy of Penalty:
The primary issue was whether the assessee is entitled to immunity from the levy of penalty under Explanation 5 to Section 271(1)(c) of the Income Tax Act, 1961, for income offered after a search but in the return filed under Section 153C. The Tribunal noted that the assessee had made a disclosure under Section 132(4) of the Act and paid taxes thereon. It was held that the assessee had demonstrated the manner of deriving the undisclosed income to some extent, and substantial compliance with the immunity clauses had been satisfied. The Tribunal placed reliance on the Gujarat High Court decision in CIT vs. Mahendra C Shah, which stated that the manner of deriving the undisclosed income need not be demonstrated in full when substantial compliance has been made.

2. Validity of Penalty Proceedings:
The Tribunal examined whether proper satisfaction was recorded by the AO for initiating penalty proceedings. It was held that the AO must record the specific charge on which the assessee has committed the crime, i.e., whether the assessee has concealed the particulars of income or furnished inaccurate particulars of his income. The Tribunal referred to the Supreme Court decision in CIT vs. Jai Laxmi Rice Mills Ambala City, which emphasized the necessity of recording satisfaction for the initiation of penalty proceedings. The Tribunal found that the AO did not independently work out the quantum of undisclosed income different from what was promised in the statement under Section 132(4) and accepted in the return filed under Section 153C.

3. Applicability of Immunity for All Assessment Years:
The Tribunal held that the immunity provided in Clause 2 of Explanation 5 to Section 271(1)(c) of the Act is available to all assessment years prior to the year of search if the conditions stipulated are satisfied. The Tribunal relied on the decision of the Jurisdictional Calcutta High Court in CIT vs. Brijendra Gupta, which interpreted the expression "to be furnished" as "required to be furnished" under Section 153A of the Act. This interpretation was supported by the Gujarat High Court in Kirit Dahyabhai Patel vs. ACIT, which held that the return filed in response to notice under Section 153A is to be considered as a return filed under Section 139 for the purpose of penalty under Section 271(1)(c).

4. Requirement of Demonstrating the Manner of Deriving Undisclosed Income:
The Tribunal found that the assessee had demonstrated the manner of deriving the undisclosed income to some extent in the statement recorded under Section 132(4). The Tribunal referred to the Gujarat High Court decision in CIT vs. Mahendra C Shah, which held that the manner of deriving the undisclosed income need not be demonstrated in full when substantial compliance has been made. The Tribunal also noted that the AO's statement that the manner was not demonstrated at all was not acceptable.

Conclusion:
The appeals of the revenue were dismissed, and the petition filed by the assessee under Rule 27 for the three assessment years was also dismissed. The Tribunal concluded that the assessee had satisfied all the conditions stipulated in Clause 2 of Explanation 5 to Section 271(1)(c) and was entitled to immunity from levy of penalty for all the assessment years under appeal. The Tribunal emphasized the necessity of recording specific satisfaction by the AO for initiating penalty proceedings and held that the immunity provided in Clause 2 of Explanation 5 is applicable to all assessment years prior to the year of search.

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