2015 (12) TMI 1114 - AT - Income Tax

Assessee granted immunity under Income Tax Act, revenue appeals dismissed.

Narendra J. Thacker Versus. D.C.I.T, CC-XXIV, & vice versa

The tribunal concluded that the assessee met all conditions for immunity under Explanation 5 to Section 271(1)(c) of the Income Tax Act, granting immunity ... Penalty on account of Explanation 5 to Section 271(1)(c ) - income offered after the search but in the return filed u/s 153A of the Act - Held that:- The CIT(A) rightly held that it is not relevant whether any return of income was filed by the assessee prior to the date of search and whether any income was undisclosed in that return of income. In view of specific provision of Section 153A of the I.T.Act, the return of income filed in response to notice under section 153A of the I.T.A Act is to be considered as return filed under section 139 of the Act, as the Assessing Officer has made assessment on the said return and therefore, the return is to be considered for the purpose of penalty under section 271(1)(c ) of the I.T.Act and the penalty is to be levied on the income assessed over and above the income returned under section 153A, if any. Further, in the present case, it appears from the record that the assesses had satisfied all the conditions which are required for claiming immunity from payment of penalty under section 271(1)(c )of the Act. The provsion does not specify any time limit during which the aforesaid amount i.e the amount of penalty with interest has to be paid. Admittedly when the assessee herein have paid the entire amount with interest, the Assessing Officer ought to have granted them immunity available under Section 271(1)(c ) of the Income Tax Act. For the foregoing reaons, the present appeals stand allowed. The order of the Tribunal is quashed and set aside. Consequently, the order of the CIT(A) is restored. The question of law involved in this appeals is answered in favour of the assesee and against the revenue. - Decided against revenue 1. ISSUES PRESENTED AND CONSIDERED 1. Whether an assessee is entitled to immunity from penalty under Explanation 5 to section 271(1)(c) of the Act in respect of income offered after a search but declared in the return filed in response to a notice under section 153A. 2. Whether the immunity under Clause 2 of Explanation 5 to section 271(1)(c) is available for assessment years prior to the year of search (including years for which returns had been filed before the search). 3. Whether additional disclosures of income made during assessment proceedings but before any departmental detection amount to voluntary revisions of prior disclosures (and thus negate concealment), or whether they constitute concealment attracting penalty. 4. Proper interpretation of the phrase 'to be furnished before the expiry of time specified in subsection (1) of section 139' used in Clause 2 of Explanation 5 - whether it limits the immunity to years whose original filing deadline had not expired or should be read as 'required to be furnished' (i.e., returns required to be filed in response to section 153A). 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Immunity under Explanation 5 for income declared in return filed under section 153A Legal framework: Explanation 5 to section 271(1)(c) creates an exception to penalty where a statement under section 132(4) during a search admits that assets were acquired from income not disclosed in returns and, inter alia, such income is declared and tax (with interest) paid. Precedent treatment: The Tribunal relied on coordinate-bench decisions and appellate decisions upholding that returns filed in response to section 153A are to be treated as returns for purposes of assessing concealment and penalty under section 271(1)(c). Interpretation and reasoning: The Court held that concealment must be judged with reference to the return in response to the section 153A notice; once the income declared in that return is accepted by the Assessing Officer and tax paid, there is no concealment for penalty purposes. The Assessing Officer's acceptance of the section 153A return extinguishes any alleged concealment reflected in earlier returns or disclosures. Ratio vs. Obiter: Ratio - concealment under section 271(1)(c) in search cases is to be assessed with reference to the return filed under section 153A; acceptance of that return by AO precludes penalty under Explanation 5. Supporting decisions cited by the Court form part of the binding ratio at tribunal level; broader doctrinal remarks are obiter. Conclusion: Immunity under Explanation 5 applies where the undisclosed income is offered in the section 153A return and accepted by the Assessing Officer; penalty cannot be levied on that accepted declared income. Issue 2 - Availability of immunity for assessment years prior to the year of search Legal framework: Explanation 5 refers to previous years ending before the date of search and contains language about returns 'to be furnished before the expiry of time specified in subsection (1) of section 139.' Precedent treatment: The Court relied on rulings of the jurisdictional High Court and other High Courts which interpret the provision liberally to permit immunity for earlier assessment years, and on tribunal precedents treating returns filed under section 153A as the operative returns for the purpose of Explanation 5. Interpretation and reasoning: The Court interpreted 'to be furnished' as 'required to be furnished' - i.e., returns required to be filed in response to section 153A - so that the immunity is not confined to only those years whose original due date under section 139(1) had not expired. The word 'unless' in Explanation 5 must be read to qualify the operation of penalty, and a narrow reading would render the provision incoherent. The Court considered and followed jurisdictional authorities endorsing that approach. Ratio vs. Obiter: Ratio - Clause 2 of Explanation 5 applies to assessment years prior to the year of search if the conditions of Clause 2 are cumulatively satisfied; the phrase about section 139(1) is to be construed as 'required to be furnished' (i.e., returns under section 153A qualify). Conclusion: Immunity under Clause 2 of Explanation 5 is available for assessment years prior to the search year (including years for which returns had earlier been filed), provided the cumulative conditions of Clause 2 are met and the section 153A return/disclosure is accepted and tax (with interest) is paid. Issue 3 - Characterisation of additional disclosures made during assessment proceedings (voluntary revision vs. concealment) Legal framework: Whether an omission in an earlier return or disclosure constitutes concealment depends on facts and timing; voluntary correction before detection can negate a charge of concealment under section 271(1)(c). Precedent treatment: The Court relied on tribunal and high-court authorities holding that bona fide additional disclosures made before departmental detection, supported by evidence and followed by tax payment, amount to voluntary offers and revisions rather than concealment; such corrective offers can relate back and remove concealment. Interpretation and reasoning: The Court found the additional disclosures in the subject years were made before any departmental detection, were accompanied by explanations (cash-flow charts and documentary evidence), and were not contradicted by the AO's penalty order. The conduct and evidence demonstrated bona fide revision of the original disclosure under section 132(4) and filing under section 153A; therefore these offers did not amount to concealment warranting penalty. Ratio vs. Obiter: Ratio - voluntary disclosures made before detection and accepted by the department, with tax paid, cannot be treated as concealment for penalty purposes; factual absence of departmental detection is a key element. Observations on general principles of voluntariness vs. concealment are explanatory. Conclusion: The additional offers of income made during assessment proceedings but before detection were voluntary revisions of earlier disclosures and do not attract penalty under section 271(1)(c). Issue 4 - Construction of the phrase 'to be furnished before the expiry of time specified in subsection (1) of section 139' Legal framework: Literal reading suggests a temporal limitation to years whose original return-deadline under section 139(1) had not expired; contextual/statutory interpretation may require a broader reading to effectuate the legislative purpose of Explanation 5. Precedent treatment: The Court relied on jurisdictional High Court reasoning and other High Court decisions that construe the phrase as referring to returns 'required to be furnished' (i.e., inclusive of returns filed in response to section 153A notices), thereby avoiding an incongruous or purposeless provision. Interpretation and reasoning: The Court held the words should be read as 'required to be furnished' so that a return filed under section 153A satisfies the condition in Clause 2. This construction preserves the scheme's coherence and accords with earlier higher-court pronouncements; a narrower interpretation would render Explanation 5 meaningless in many search scenarios. Ratio vs. Obiter: Ratio - the phrase is to be read as 'required to be furnished' and includes returns filed in response to section 153A; this interpretation is essential to the Court's disposition and is binding within the decision's scope. Conclusion: The phrase must be construed to include returns required to be furnished under section 153A; when that return/disclosure and tax payment satisfy Clause 2, immunity from penalty is available. Overall conclusions and operative findings - The Court found that the cumulative conditions of Clause 2 of Explanation 5 to section 271(1)(c) were satisfied on the facts: a disclosure under section 132(4) was made, the undisclosed income was specified and explained, the income was disclosed in the return filed under section 153A, and taxes with interest were paid. - The voluntary additional disclosures made during assessment proceedings (prior to departmental detection) were treated as bona fide revisions of the original section 132(4) disclosure and section 153A return and did not constitute concealment. - The revenue's grounds were dismissed for all impugned assessment years; certain appeals by the assessee were dismissed as infructuous where relief had already been granted in the appellate authority's rectification order.