TaxTMI 
TaxTMI 
TaxTMI 
2002 (1) TMI 247
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....arch, while recording the statement under section 132(4), the assessee was asked as to whether she wanted to disclose unaccounted income under section 271(1)(c) of the I.T. Act read with Explanation 5 thereto so as to get immunity from penalty. She had replied that in accordance with the above provision of law, she wanted to declare the entire unaccounted income. Subsequently, on 25-8-1987, a letter was addressed to the Asstt. Director of Inspection, wherein the details of the income to be disclosed were indicated and the manner in which the income was earned was also narrated. On 30-3-1988, the assessee filed a revised return declaring income of Rs. 2,02,778 which included a sum of Rs. 1,47,500 as undisclosed income. The Assessing Officer completed the assessment on 30-3-1990 on total income of Rs. 1,92,020 later revised to Rs. 1,83,020 by way of rectification. In the finally assessed income, the concealed income was determined at Rs. 1,27,500 as against Rs. 1,47,500 disclosed by the assessee in the revised return. The variation was on account of the fact that the Assessing Officer determined the income on the basis of the financial year whereas the assessee had worked out the una....
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....sessee. It has been held by the CIT(A) that assessee's case is not covered under any of the exceptions of Explanation 5 - the fact which was admitted by the counsel of the assessee. Regarding the claim of the assessee that she was lured to make a disclosure on the assurance that no penalty would be imposed if a disclosure was made, the learned CIT(A) has held that a question was admittedly asked during the course of recording of the statement as to whether the assessee wanted to make a disclosure in accordance with the provisions of section 271(1)(c) in order to get the benefit of Explanation 5 of the said section. According to the learned CIT(A), what the Assessing officer had suggested was relating to a declaration in accordance with the provisions of under section 271(1)(c) of the I.T. Act. If the disclosure was not in accordance with Explanation 5 to section 271(1)(c) penalty warranted under the law would be justified and that the Revenue had at no stage promised that penalty would not be imposed, even if the case is not covered under explanation 5 to under section 271(1)(c) of the I.T. Act. The CIT(A) further held that the question put to the assessee was of general nature and....
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.... this contention, it was submitted by the learned counsel that the amount received by the managing director out of the income offered for taxation in the hands of the company was neither dividend nor deemed dividend and, therefore, not chargeable to tax. It was, accordingly, pleaded that the penalty under section 271(1)(c) of the I.T. Act-may be deleted. (ii) The second issue raised by the learned counsel for the assessee is regarding the initiation of penalty proceedings during the course of assessment proceedings. Inviting our attention to the assessment order, it was contended that the Assessing Officer has directed "issue notice under section 271(1)(c)". According to the learned counsel, he has not recorded proper satisfaction for initiation of penalty proceedings. Relying upon the decision of the Delhi High Court in the case of CIT v. Ram Commercial Enterprises Ltd [2000] 246 ITR 568, it was contended that mere issue of notice under section 271(1)(c) of the I.T. Act is not enough for validity of the penalty proceedings. The penalty proceedings not having been properly initiated in accordance with law, the penalty imposed is bad in law. (iii) The third issue raised by the l....
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....ppellant was carrying on the legal profession besides being the managing director of the company namely, Hynoup Food and Oil Industries Ltd. As per the instructions of the CBDT, the authorised officer of the search is under instruction to invite the attention of the assessee to the provisions of section 271(1)(c) for making a declaration in accordance with the provisions of the Act. Therefore, the contention advanced on behalf of the assessee that she did not understand the implications of the provisions of section 271(1)(c) is not acceptable. According to the learned DR, what the authorised officer has promised was non-imposition of penalty in respect of declaration covered under Explanation 5 to section 271(1)(c) of the I.T. Act. The officer had not given the assurance that no penalty would be imposed in respect of any amount disclosed which may not be covered under Explanation 5 to section 271(1)(c) of the I.T. Act. According to the learned DR, the assessee's counsel having himself conceded before the CIT(A) that Explanation 5 to section 271(1)(c) of the I.T. Act was not attracted in this case, the question asked during the course of search was of no consequence. Relying upon th....
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....in the definition of "deemed dividend" under section 2(22). It was, accordingly, pleaded that the appeal of the assessee may be allowed. 11. I have given my careful consideration to the rival contentions. It is a case where Explanation 5 to section 271(1)(c) of the I.T. Act is admittedly not applicable as the assessment year involved is prior to the date of search and after the assessee having filed the return of income. It may be pertinent to mention that where the assessee had not filed any return of income, the courts had expressed the view that assessee cannot be said to have concealed the income as the act of concealment presupposes non-disclosure of income in the return. In order to cover the loopholes, the Legislature in its wisdom incorporated Explanation 5 to section 271(1)(c) of the I.T. Act expanding the scope of penalty for concealment even in such cases under certain circumstances. However, in order to avoid hardships in genuine cases, some exceptions have been carved out under the said Explanation. The assessee's case admittedly does not fall either under Explanation 5 to section 271(1)(c) of the I.T. Act or under the exceptions therein. It is, therefore, necessary t....
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....ection 271(1)(c) of the I.T. Act if the disclosure of income by him/her is to be ignored. If it is found that the assessee would be liable to tax notwithstanding the fact that his or her disclosure of income in the statement or in the return is ignored, the assessee would be liable to penalty under section 271(1)(c). On the other hand, if the assessee had agreed to be assessed on some income in order to buy peace of mind, the mere fact that he had agreed to be assessed on the income may not be sufficient for him or her to be liable to penalty for concealment of income. In this case, as already pointed out, the department had seized sufficient material in the course of search to establish that the company had earned substantial income which was not offered to tax. It was also found that the appellant has also received amounts out of the undisclosed income of the company of which she was the managing director. Therefore, the facts and circumstances in this case clearly suggest that the assessment of the undisclosed income of the appellant as well as of the company in which she was the managing director was not merely on the basis of the disclosure made by the company or by the appell....
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....... (ii) dividend; (iia) ...... Section 2(22) of the Income-tax Act, 1961 defines "dividend" as under: "(22) "dividend" includes (a) Any distribution by a company of accumulated profits, whether capitalised or not, if such distribution entails the release by the company to its shareholders of all or any part of the assets of the company; (b) ........ (C) ........ (d) ........ (e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) made after the 31-5-1987, by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereinafter in this clause referred to as the said concern) or any payment by any such company on behalf, or for the individual benefit, of any such shareholder to the extent to which the company in either case posses....
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....company. On these facts, it was held by the Hon'ble Supreme Court that the distribution of the right to apply for and obtain two shares of the Bank of India for each share held by the shareholders of the mill amounted to distribution of dividend and the appellants were taxable in respect of the value of the right. 15. It is evident from the aforementioned decision that a dividend is distribution of profits by the company amongst the shareholders and it is assessable to tax. It may also be pertinent to mention that various companies instead of distributing their accumulated profits as dividend amongst the shareholders indulged in advancing loans to the shareholders so as to avoid the taxation of dividend in the hands of the shareholders. The Legislature in its wisdom incorporated section 2(22) of the I.T. Act, 1961 to provide for taxation of such advances or loans to the shareholders as deemed dividend. 16. Thus, the intention of the Legislature becomes absolutely clear about the assessability of the distribution of profits in the hands of the shareholders notwithstanding the colour which is given by the company to the distribution of such profits. Reference may also be pertinen....
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....the course of assessment proceedings regarding the concealment of income which constitutes the basis and foundation of proceedings for levy of penalty. It was further stated that satisfaction in the very nature of things precedes the issue of notice and that it would not be correct to equate the satisfaction of the Income-tax officer with the actual issue of notice. By this decision of the Hon'ble Supreme Court, the decision of the Hon'ble Gujarat High Court in the case of D.M. Manasvi was affirmed. In that case, the Assessing Officer in the assessment order had mentioned as follows : "Issue notice under section 275 for the proposed penal action under section 271(1)(c) in respect of concealment or furnishing inaccurate particulars of income from M/s. Kohinoor Grain Mills Sales Depot." The Hon'ble Gujarat High Court held that the satisfaction of the Assessing officer required for purposes of section 275 was recorded in the assessment order before the issue of notice and, therefore, the proceedings were validly initiated. This decision was affirmed by the Hon'ble Supreme Court. Their Lordships of the Delhi High Court in the case of Ram Commercial Enterprises Ltd have held, on the ....