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2017 (2) TMI 1002 - HC - Income TaxPenalty u/s 271(1)(c) - Whether under Section 271(1)(c) as it stood prior to the insertion of Explanation 5, levy of penalty is automatic if return filed by the assessee under Section 153A of the Act discloses higher income than in the return filed under Section 139(1)? - Held that - Once the assessee files a revised return under Section 153A, for all other provisions of the Act, the revised return will be treated as the original return filed under Section 139. See KIRIT DAHYABHAI PATEL Versus ASSISTANT COMMISSIONER OF INCOME TAX 2015 (1) TMI 201 - GUJARAT HIGH COURT When the A.O. has accepted the revised return filed by the assessee under Section 153A, no occasion arises to refer to the previous return filed under Section 139 of the Act. For all purposes, including for the purpose of levying penalty under Section 271(1)(c) of the Act, the return that has to be looked at is the one filed under Section 153A. Section 153A is in the nature of a second chance given to the assessee, which incidentally gives him an opportunity to make good omission, if any, in the original return. Once the A.O. accepts the revised return filed under Section 153A, the original return under Section 139 abates and becomes non-est. Now, it is trite to say that the concealment has to be seen with reference to the return that it is filed by the assessee. Thus, for the purpose of levying penalty under Section 271(1)(c), what has to be seen is whether there is any concealment in the return filed by the assessee under Section 153A, and not vis-a vis the original return under Section 139. Interpretation and application of Explanation-5 to Section 271(1)(c) - whether it is attracted in the facts of this case? - Held that - Explanation-5 cannot assist the claim of the revenue in the present case for the relevant assessment years under consideration before this Court for the simple reason that for the relevant assessment years, 2005-06 & 2006-07, no material was recovered during the search. Rather, the assessee added ₹ 21,65,932/- in the return filed pursuant to notice under section 153A. That amount was not relatable to any sum recovered or article seized. Therefore, the question of adding or not adding amounts after the search and falling within the mischief of Explanation 5 to Section 271 (1) (c) cannot arise in the facts and circumstances of this case. Thus no illegality in the order of the learned ITAT in the present case. Question of law involved is thus answered in favour of the assessee.
Issues Involved:
1. Interpretation of Section 271(1)(c) of the Income Tax Act, 1961. 2. Application of Explanation 5 to Section 271(1)(c). Issue-wise Detailed Analysis: Issue I: Interpretation of Section 271(1)(c) of the Income Tax Act, 1961 Arguments by Revenue: - The assessee did not declare the income detected during the survey in the original return. - The revised return filed after the search disclosed higher income, indicating concealed income. - Penalty under Section 271(1)(c) is automatic once conditions are met, without requiring mens rea. Arguments by Assessee: - The revised return filed under Section 153A disclosed the same income as found during the search. - There was no variation between the income declared in the revised return and the income assessed. - The assessee's disclosure of income was bona fide and aimed at avoiding prolonged litigation. Court's Analysis: - Section 271(1)(c) requires a strict construction as it is a penal provision. - The Supreme Court in various judgments (e.g., Shri T. Ashok Pai v. Commissioner of Income Tax) held that penalty under Section 271(1)(c) is not automatic and requires specific conditions to be met. - The word "conceal" inherently carries the requirement of proving a conscious act or omission by the assessee to hide income. - Mere filing of a revised return showing higher income does not automatically justify the levy of penalty. - The revised return filed under Section 153A takes the place of the original return under Section 139 for all other provisions of the Act, including penalty provisions. Conclusion: - The court concluded that the mere fact that the assessee filed a revised return disclosing higher income does not prove concealment of income for the relevant assessment years. - The revised return under Section 153A is treated as the original return under Section 139, and the penalty under Section 271(1)(c) cannot be imposed automatically based on the revised return. Issue II: Application of Explanation 5 to Section 271(1)(c) Explanation 5 Overview: - Explanation 5 deems that if assets (money, bullion, jewelry, etc.) are found during a search and the assessee claims they were acquired using undisclosed income, the assessee is deemed to have concealed income, unless specific conditions are met. Court's Analysis: - Explanation 5 applies to cases where assets are found during a search and the assessee subsequently declares such income in the return filed after the search. - The revenue must prove that the assets seized during the search relate to the income of the relevant assessment years. - In this case, the cash seized during the search was not related to the relevant assessment years (2005-06 and 2006-07). - The ITAT held that Explanation 5 could not be invoked based on presumptions that the assessee might have been in possession of the cash throughout the period covered by the search assessments. Conclusion: - The court found no infirmity in the ITAT's decision that Explanation 5 could not be applied to the relevant assessment years. - The revenue's claim under Explanation 5 was based on assumptions and lacked evidence. - Consequently, the penalty under Section 271(1)(c) could not be imposed based on Explanation 5 for the relevant assessment years. Final Judgment: - The court dismissed the revenue's appeals and answered the question of law in favor of the assessee, confirming that there was no concealment of income and no basis for imposing penalties under Section 271(1)(c) for the relevant assessment years.
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