2014 (4) TMI 636 - HC - Income Tax

Tribunal Cancels Rs. 50.49 Lakh Penalty for Undisclosed Income Admission

Commissioner of Income Tax-I Versus Niraj Kumbhat

The Tribunal deleted the penalty of Rs. 50,49,000 imposed under section 271(1)(c) of the Income-tax Act. The penalty was initially imposed by the ... Deletion of penalty u/s 271(1)(c) of the Act – Search u/s 132(4) of the Act - Undisclosed income – Held that:- Revenue contended that the assessee has not specified in its statement, the manner in which such income has been derived – the objection of the Revenue is baseless as it has been observed by the CIT (A) that it has been specifically mentioned the manner, in which the undisclosed income has been derived – Relying upon Commissioner of Income Tax v. Mahendra C. Shah [2008 (2) TMI 32 - GUJARAT HIGH COURT] - when the statement is being recorded by the authorized officer it is incumbent upon the authorized officer to explain the provisions of Explanation 5 in its entirety to the assessee concerned and the authorized officer cannot stop short at a particular stage so as to permit the Revenue to take advantage of such a lapse in the statement - thus, there is no infirmity in the order is upheld – Decided against Revenue. Issues involved:1. Deletion of penalty under section 271(1)(c) of the Income-tax Act amounting to Rs. 50,49,000.Detailed Analysis:The issue in this case revolves around the deletion of a penalty of Rs. 50,49,000 imposed by the Assessing Officer under section 271(1)(c) of the Income-tax Act. The respondent-assessee admitted unaccounted income of Rs. 1.50 Crores shortly after a search operation and sought immunity from penalty under Section 132(4) of the Act. However, the Assessing Officer did not grant such immunity, leading to the matter being brought before the Tribunal. The Tribunal ultimately deleted the penalty, citing the appellant's disclosure of the undisclosed income during the search and subsequent actions of filing the return and paying the tax. The Tribunal's decision was based on the interpretation of Explanation 5 to Section 271(1)(c) of the Act, which provides for deeming fiction in search cases and an escape route for the assessee under certain conditions.The crux of the matter lies in the interpretation of Explanation 5 to Section 271(1)(c) of the Act, particularly clause (2) which requires the assessee to specify the manner in which the undisclosed income has been derived. The Revenue's objection was that the assessee did not specify this manner in their statement. However, the Tribunal, in line with precedent, emphasized that the authorized officer recording the statement must explain the provisions of Explanation 5 in its entirety to the assessee. The Tribunal also highlighted the practical challenges faced by an assessee in providing specific details in the statement, especially considering the format and setting in which such statements are recorded. The Tribunal's decision was supported by the judgment in the case of Commissioner of Income Tax v. Mahendra C. Shah, which emphasized substantial compliance with the requirements of the provision, even if the exact format stipulated was not followed.In conclusion, the Tribunal upheld the deletion of the penalty based on the assessee's actions in disclosing the income during the search, filing the return, and paying the tax, while also considering the practical challenges faced by the assessee in specifying the manner of income derivation in the statement. The decision was in line with the provisions of Explanation 5 to Section 271(1)(c) of the Act and relevant legal precedents, ultimately leading to the dismissal of the Revenue's appeal.