Penalties under IT Act 271(1)(c) deleted for assessment years 2000-01, 2001-02, 2002-03. High Court grants immunity.

The ITAT deleted penalties imposed under section 271(1)(c) of the Income Tax Act for assessment years 2000-01, 2001-02, and 2002-03. The High Court ruled that penalties could not be sustained as the income was included in the return filed under section 153A, granting immunity under Explanation 5(2) to section 271(1)(c). As a result, the penalties were deleted for the respective assessment years.

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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.

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