2018 (8) TMI 383 - HC - Income Tax

Court upholds deletion of penalty for undisclosed income from property purchase under Section 271(1)(c)

The High Court upheld the decision of the Income Tax Appellate Tribunal to delete the penalty imposed under Section 271(1)(c) for undisclosed income ... Penalty u/s 271(1)(c) - undisclosed income related to on money paid for purchase of immovable property - Held that:- Tribunal reiterated the factual position before it came to the conclusion about the conduct of the assessee and that he is entitled for immunity available under Explanation 5 to Section 271(1)(c) of the Act on two counts - firstly, the immovable property is not an article or thing so as to apply Explanation 5 and secondly, even if Explanation 5 to Section 271(1)(c) of the Act is applicable, the assessee has given at best information regarding the source and particularly, no question was asked by the Department. Tribunal on re-appreciation of the factual position, deleted the levy of penalty. Thus, the entire issue revolves around the factual position and we find that no substantial question of law arises for consideration. Apart from that, we note that the quantum of penalty, which was levied by the Department, is lesser than the threshold limit prescribed in the Circulars of the Central Board of Direct Taxes prescribing the limits of the Revenue to pursue the appeals, which are pending before this Court. Issues:Challenge to order of Income Tax Appellate Tribunal for assessment year 2004-05; Substantial questions of law regarding penalty under Section 271(1)(c) for undisclosed income related to property purchase; Applicability of Explanation 5 to Section 271(1)(c) for immovable property; Effect of assessee's statement on penalty imposition; Tribunal's decision to delete penalty; Immunity under Explanation 5; Threshold limit for penalty.Analysis:The High Court considered a tax case appeal challenging the order of the Income Tax Appellate Tribunal for the assessment year 2004-05. The appeal raised substantial questions of law regarding the imposition of penalty under Section 271(1)(c) of the Income Tax Act. The first question was whether the Tribunal was correct in deleting the penalty concerning undisclosed income related to on money paid for the purchase of immovable property, arguing that Explanation 5 to Section 271(1)(c) does not apply to immovable property. The second question was whether the Tribunal was justified in deleting the penalty due to the Department not asking relevant questions, presuming that the assessee provided the best information regarding the source.The Revenue contended that the assessee admitted to payment for the property purchase, which was not disclosed, making the assessee liable for penalty under Section 271(1)(c). The Tribunal considered the assessee's statement where he admitted to the unaccounted investment in the property purchase and expressed willingness to pay tax, seeking relief from penalty and prosecution. The Tribunal analyzed the effect of the statement and the conduct of the assessee, concluding that the assessee was entitled to immunity under Explanation 5 to Section 271(1)(c) for two reasons: immovable property not falling under Explanation 5, and the assessee providing the best information without relevant questions from the Department.The Tribunal's decision to delete the penalty was based on a reappreciation of the factual position, stating no substantial question of law arose for consideration. Additionally, the penalty amount imposed by the Department was below the threshold limit set by the Central Board of Direct Taxes for pursuing appeals. Consequently, the High Court dismissed the tax case appeal, emphasizing that the issue centered on factual considerations and no substantial question of law arose, leading to the deletion of the penalty and the absence of costs.