2015 (4) TMI 914 - AT - Income Tax

Tribunal cancels penalty under Sec 271(1)(c) as assessee met conditions under Explanation 5(2)

The tribunal concluded that the penalty under Section 271(1)(c) was not justified as the assessee had fulfilled the conditions under Explanation 5(2). The ... Penalty for undisclosed income u/s 271(1)(c) of Income Tax Act, 1961 - Explanation 5 to section 271(1)(c) does not cover any immovable property - Principle of ejusdem generis - Assessee fulfilled all the conditions specified in explanation 5(2) to section 271(1)(c) - Held that:- In the instant case, in relation to the assessment year under consideration, the assessee was found to be the owner of 'construction on agriculture land (Rs.12,54,780/-) and membership of VLCC (Rs.1,95,220/-) during search. The impugned investments were duly shown by the assessee in her return of income for the assessment year 2007-08. As discussed above, the ownership of the assessee in construction of agriculture land could not be termed as ownership of 'any money, bullion, jewellery or other valuable article or thing' as envisaged under Explanation 5 in view of the judgements of Cochin Bench in case of South India Fiance [1991 (8) TMI 135 - ITAT COCHIN]. Therefore, so far as investment in 'construction on agriculture land' was concerned, the Explanation 5 to Sec.271(1)(c) was not applicable in the assessee's case and accordingly, penalty to that extent was not leviable. The learned C.I.T.(A). wrongly took the contradictory stand. On the one hand he held that the assessee was not entitled for immunity provided under Explanation 5(2) because the undisclosed income consisted of investment in construction on agriculture land and therefore, not covered by the term 'any money, bullion, jewellery or other valuable article or thing' as held by the honourable Cochin Bench, at the same time he confirmed penalty levied by the A.O. under Explanation 5 to Sec.271(1)(c). Once it was held that Explanation 5 was not applicable on the facts of the assessee's case, penalty could have not been imposed under the said Explanation. Moreover, the CIT(A) wrongly considered payment towards membership of VLCC as immovable property and confirmed the levy of penalty. Furthermore, the assessee’s case was covered under exceptional circumstances provided under clause (2) of Explanation 5 to Sec.271(1)(c) as all the conditions specified in Explanation 5(2) to Sec.271(1)(c) were satisfied fulfilled as evident from the following facts: (a) Shri Purnandu Jain, head of the family, in his statement recorded u/s.132(4) on 27.04.2007 offered ₹ 20 crores as additional income for and on behalf of various members of his family.In view of the above discussion, we do not find any merit in the action of AO levying penalty u/s.271(1)(c) of the Act, as the assessee had fulfilled all the conditions specified in explanation 5(2) to section 271(1)(c) of the I.T.Act. - Decided in favour of assessee. Issues Involved:1. Imposition of penalty under Section 271(1)(c) of the Income-tax Act, 1961.2. Applicability of Explanation 5 to Section 271(1)(c).3. Interpretation of 'money, bullion, jewellery or other valuable article or thing' under Explanation 5.4. Fulfillment of conditions under Explanation 5(2) for immunity from penalty.Detailed Analysis:1. Imposition of Penalty under Section 271(1)(c):The appeal concerns the imposition of a penalty amounting to Rs. 4,28,043/- under Section 271(1)(c) of the Income-tax Act for the Assessment Year 2007-08. The assessee, deriving income from rent, capital gains, and interest, had a search conducted at her premises on 26-4-2007. The Assessing Officer (AO) assessed undisclosed income of Rs. 14,50,000/- and levied the penalty, rejecting the assessee's contention that her case was covered under Explanation 5 to Section 271(1)(c).2. Applicability of Explanation 5 to Section 271(1)(c):Explanation 5 to Section 271(1)(c) states that if an assessee is found to be the owner of any money, bullion, jewellery, or other valuable article or thing during a search, and claims that such assets were acquired from income not disclosed in the return, the assessee is deemed to have concealed income unless specific conditions are met. The CIT(A) confirmed the penalty, observing that the benefit of Explanation 5 could only be availed if the assets found were not disclosed in the return of income.3. Interpretation of 'Money, Bullion, Jewellery or Other Valuable Article or Thing':The tribunal referred to the case of South India Finance Vs. ITO, where it was held that the expressions 'money, bullion, jewellery or other valuable article or thing' in Explanation 5 should be construed similarly to those in Section 132(1)(c). The tribunal emphasized that these terms should be interpreted ejusdem generis, meaning they should be of the same kind. Consequently, immovable property does not fall under 'other valuable article or thing' as it is not movable.4. Fulfillment of Conditions under Explanation 5(2) for Immunity:The tribunal noted that the assessee had declared the investments in construction on agricultural land and VLCC membership in her return for the assessment year 2007-08. It was concluded that the ownership in the construction of agricultural land could not be considered as ownership of 'any money, bullion, jewellery or other valuable article or thing' under Explanation 5. Therefore, the penalty was not applicable for these investments. Additionally, the CIT(A) erroneously treated the payment towards VLCC membership as immovable property and confirmed the penalty.The tribunal also recognized that the assessee's case met the exceptional circumstances under Explanation 5(2), as all conditions specified were satisfied. The head of the family had offered Rs. 20 crores as additional income during the search, covering discrepancies for various family members, and had requested immunity from penalty and prosecution.Conclusion:The tribunal concluded that the penalty under Section 271(1)(c) was not justified as the assessee had fulfilled the conditions under Explanation 5(2). The AO was directed to delete the penalty of Rs. 4,28,043/-. The appeal of the assessee was allowed, and the order was pronounced in the open court on 18/02/2015.