2017 (2) TMI 678 - HC - Income Tax

High Court affirms deletion of penalty under Section 271(1)(c) for compliance with Explanation 5 conditions.

The High Court of Calcutta upheld the CIT(A)'s decision to delete the penalty under Section 271(1)(c) based on the assessee's compliance with Explanation ... Immunity from penalty under Explanation 5 to Section 271(1)(c) - Scope of statement under Section 132(4) as constituting disclosure - Effect of return filed in response to notice under Section 153C - Interpretation of phrase 'to be furnished before the expiry of time specified in sub Section (1) of Section 139' - Application of precedent in exclusion of penaltyImmunity from penalty under Explanation 5 to Section 271(1)(c) - Scope of statement under Section 132(4) as constituting disclosure - Deletion of penalty under Section 271(1)(c) was justified as the assessee fell within the exception in clause (2) of Explanation 5 by making a statement under Section 132(4) and disclosing the income in the return filed in response to notice under Section 153C - HELD THAT: - The Tribunal and CIT(A) found that the assessee had made a statement under Section 132(4) specifying sources of the previously undisclosed income, had filed returns in response to notices under Section 153C disclosing that income, and had secured tax via seizure applied by the Assessing Officer. The High Court agreed with the reasoning in Brijendra Gupta that the conditions of clause (2) of Explanation 5 are satisfied where the assessee makes the statutory statement and files the return required in the aftermath of search, thereby attracting immunity from penalty. The Court rejected the Revenue's reliance on Smt. Meera Devi where the facts showed no statement or surrender during search; that decision was distinguishable because there the conditions of clause (2) were not met. The Court also observed that Prasanna Dugar concerned a different provision (Explanation 5A) and was therefore inapposite. Applying the determinative interpretation adopted in Brijendra Gupta, the deletion of penalty was upheld.Penalty under Section 271(1)(c) deleted as the assessee satisfied clause (2) of Explanation 5 and was entitled to immunity.Effect of return filed in response to notice under Section 153C - Interpretation of phrase 'to be furnished before the expiry of time specified in sub Section (1) of Section 139' - A return filed in response to notice under Section 153C coupled with the statement under Section 132(4) suffices to meet clause (2) of Explanation 5; the phrase regarding the time specified in Section 139(1) is to be read as referring to the return 'required to be furnished' and does not restrict the exception to only the year of search where the normal filing time has not expired - HELD THAT: - Adopting the interpretation in Brijendra Gupta, the Court construed the words relating to the time specified in Section 139(1) as a reiteration of the legal requirement regarding when returns are to be filed and read them as referring to returns 'required to be furnished'. This avoids a literal construction that would limit the exception to cases where the statutory filing time for the year of search had not expired. The Court found the reasoning of the Madras High Court in CIT v. S.D.V. Chandru supportive of this construction. Consequently, the filing of returns in response to Section 153C notices together with the Section 132(4) statement operates to bring the assessee within clause (2) of Explanation 5.The return filed in response to Section 153C, along with the Section 132(4) statement, satisfies clause (2) of Explanation 5; the temporal language in Section 139(1) is to be read as referring to the return required to be furnished.Final Conclusion: The suggested substantial questions of law were answered by applying the reasoning in Brijendra Gupta; no substantial question of law arises and the application and appeal are dismissed, leaving the Tribunal's order upholding deletion of penalty intact. Issues:1. Justification of confirming the order of the CIT (Appeal) in deleting the penalty under Section 271(1)(c) of the Income Tax Act, 1961.2. Tribunal's decision on whether disclosures made under Section 153A amount to an extension of disclosures under Section 132(4).Issue 1:The High Court of Calcutta dealt with the Revenue's appeal against the ITAT's order regarding penalty deletion under Section 271(1)(c) of the Income Tax Act, 1961. The case involved three appeals of the Revenue related to assessment years between 2002-03 to 2006-07, following search and seizure operations under Section 132 of the Act. The Revenue appealed only in respect of ITA nos. 378 to 382/Kol/2011 for the assessment years 2002-03 to 2006-07. The CIT(A) had deleted the penalty, stating that the assessee fulfilled conditions under Explanation 5 to Section 271(1) by making disclosure statements under Section 132(4) and disclosing income in response to notice under Section 153C. The Revenue contended that the assessee couldn't explain the source of undisclosed incomes and was not eligible for immunity under Explanation 5. The court considered precedents like CIT Vs. Smt. Meera Devi and CIT Vs. Prasanna Dugar, where the latter case was decided in favor of the Revenue. However, the court upheld the CIT(A)'s order, emphasizing that the assessee had met the conditions for immunity under Explanation 5.Issue 2:Regarding the second issue, the Tribunal had to decide whether disclosures under Section 153A were an extension of disclosures under Section 132(4). The Senior Advocate for the assessee relied on a finding in the CIT(A) order, stating that the disclosed income under Section 143(3)/153C/153A was covered by the Section 132(4) disclosure. The Tribunal did not provide a contrary finding. The Senior Advocate further referenced a Division Bench judgment in CIT V. Brijendra Gupta, which clarified the interpretation of the provision for imposition of penalty under Section 271(1). The court found that the questions raised by the Revenue were already addressed in the Brijendra Gupta case, and hence, no substantial question of law was involved. Consequently, the application and appeal were dismissed based on the existing legal precedents and interpretations.In conclusion, the High Court of Calcutta upheld the CIT(A)'s decision to delete the penalty under Section 271(1)(c) based on the assessee's compliance with Explanation 5 conditions. The court also affirmed that disclosures made under Section 153A were considered an extension of disclosures under Section 132(4) as per legal interpretations provided in relevant judgments.