2019 (3) TMI 329 - AT - Income Tax

Tribunal upholds penalties on additional income post-search despite revised return

The Tribunal upheld the imposition of penalties under Section 271(1)(c) on the additional income declared in the return filed under Section 153A ... Penalty under Section 271(1)(c) - Explanation 5A to Section 271(1)(c) - Search under Section 132 and assessment under Section 153A - Deeming fiction of concealment in search cases - Non obstante clause in Section 153APenalty under Section 271(1)(c) - Explanation 5A to Section 271(1)(c) - Search under Section 132 and assessment under Section 153A - Deeming fiction of concealment in search cases - Whether penalty under Section 271(1)(c) can be imposed on additional income declared in a return filed under Section 153A vis-a -vis income declared in the original return filed under Section 139 - HELD THAT: - The Tribunal held that Explanation 5A to Section 271(1)(c) creates a statutory deeming fiction in search cases whereby undisclosed income discovered on search and declared subsequently is to be treated as concealed income unless the assessee qualifies for the limited exception set out in the Explanation. Accordingly, the argument that a return filed under Section 153A replaces the earlier return filed under Section 139 and therefore shields the additional income disclosed post-search from penalty is not tenable. The Tribunal relied on the scheme of the penal provisions enacted for search cases (including Sections 271AAA/271AAB and Explanation 5A) and earlier decisions of the coordinate bench to conclude that immunity from penalty is available only to the extent and subject to conditions expressly provided by the statute; a blanket proposition of non-applicability of penalty to post-search disclosures disregards the legislative intent and would render the special penal provisions otiose. The Tribunal further observed that the non obstante language in Section 153A does not negate the deeming fiction of concealment engrafted by Explanation 5A, and therefore substitution of the earlier return by a return under Section 153A does not by itself preclude initiation of penalty proceedings in search cases. [Paras 10, 11, 13, 14]Penalty under Section 271(1)(c) is maintainable on undisclosed income discovered on search and declared in the return filed under Section 153A, subject to the statutory exceptions in Explanation 5A/Sections 271AAA/271AAB.Non obstante clause in Section 153A - Deeming fiction of concealment in search cases - Whether the non obstante provision in Section 153A precludes imposition of penalty under the special deeming provisions applicable to search cases - HELD THAT: - The Tribunal rejected the contention that the non obstante opening of Section 153A, which brings assessments under a special code for search cases, operates to immunise post-search returns from the separate deeming provisions for penalty. It held that Section 153A's non obstante language does not override the specific deeming provisions (Explanation 5A and the provisions inserted by Sections 271AAA/271AAB) which are designed to treat undisclosed income found on search as concealed for penalty purposes unless the specific statutory conditions for escape are satisfied. Thus, substitution of the earlier return by a return under Section 153A does not nullify the operation of the deeming fiction in Explanation 5A. [Paras 13, 14]The non obstante clause in Section 153A does not prevent invocation of the deeming provisions for concealment enacted for search cases; penalty proceedings may be sustained subject to statutory exceptions.Final Conclusion: All appeals challenging imposition of penalty under Section 271(1)(c) for the specified assessment years were dismissed; the Tribunal upheld that undisclosed income revealed on search and declared in returns under Section 153A is amenable to penalty under the special deeming provisions unless the assessee satisfies the limited statutory exceptions. Issues Involved:1. Imposition of penalty under Section 271(1)(c) of the Income Tax Act, 1961.2. Applicability of penalty provisions to the income declared in the return filed under Section 153A post-search.3. Interpretation of Explanation 5A to Section 271(1)(c) and its impact on penalty proceedings.4. Relevance of judicial precedents in the context of penalty imposition.Issue-wise Detailed Analysis:1. Imposition of Penalty under Section 271(1)(c) of the Income Tax Act, 1961:The primary issue revolves around the imposition of a penalty under Section 271(1)(c) for concealment of income. The assessee originally filed a return under Section 139(1) and later filed a revised return under Section 153A post-search, declaring additional income. The Assessing Officer (AO) imposed a penalty of Rs. 2,18,740 on the additional income declared, invoking Section 271(1)(c) read with Explanation 5A.2. Applicability of Penalty Provisions to the Income Declared in the Return Filed under Section 153A Post-Search:The assessee argued that once a return is filed under Section 153A, the earlier return filed under Section 139 becomes non est (non-existent). The penalty should be considered only with reference to the subsequent return filed under Section 153A. The assessee cited the judgment of the Hon'ble Jurisdictional High Court in Kirit Dahyabhai Patel to support the claim that penalty can only be levied on income assessed over and above the income returned under Section 153A.3. Interpretation of Explanation 5A to Section 271(1)(c) and Its Impact on Penalty Proceedings:The Tribunal examined the applicability of Explanation 5A, which deems concealment of income even before the return is filed in search cases. The Tribunal noted that Explanation 5A addresses situations where undisclosed income is found during a search and subsequently declared in the return filed under Section 153A. The Tribunal emphasized that the legislative intent behind Explanation 5A is to impose a penalty on undisclosed income discovered during a search, regardless of its subsequent inclusion in the return filed under Section 153A.4. Relevance of Judicial Precedents in the Context of Penalty Imposition:The Tribunal referred to several judicial precedents, including the decision in Vijay K. Shah vs. ITO, which supported the imposition of a penalty on additional income declared post-search. The Tribunal also considered the decision of the Hon'ble Gujarat High Court in Kirit Dahyabhai Patel, which was extensively relied upon by the assessee. The Tribunal clarified that the decision in Kirit Dahyabhai Patel should be read in the context of the specific question of law it addressed and not as a general proposition against penalty imposition on income declared under Section 153A.Conclusion:The Tribunal concluded that the penalty under Section 271(1)(c) is applicable to the additional income declared in the return filed under Section 153A post-search. The Tribunal dismissed the appeals of the assessee, upholding the imposition of penalties by the Revenue authorities. The Tribunal emphasized that the statutory presumption of concealment under Explanation 5A applies in search cases, and the revised return under Section 153A does not absolve the assessee from penalty liability.Final Judgment:All the appeals of the assessee were dismissed, and the penalties imposed by the Revenue authorities were upheld. The Tribunal's order was pronounced in open court on 28/02/2019.