Madras High Court
The Commissioner Of Income-Tax vs Shri. S.D.V. Chandru on 9 December, 2003
Equivalent citations: (2004)189CTR(MAD)272, [2004]266ITR175(MAD)
Author: R. Jayasimha Babu
Bench: R. Jayasimha Babu, S.R. Singharavelu
ORDER R. Jayasimha Babu, J.
1. The assessment years are 1985-86 and 1986-87. The question referred is as to whether the Tribunal was right in cancelling the penalty levied under Section 271(1)(c) read with Explanation -5 thereunder after the Tribunal found that the assessee had not filed the return of income before the due date mentioned under Section 139(1) of the Income Tax Act.
2. There was a search in the premises of the assessee on 13.02.1990. A statement of the assessee was recorded, under Section 132(4) of the Act, at the time of search. Thereafter, the assessee filed his returns for the earlier years and admitted a larger income and also paid the tax together with interest.
3. The assessing officer nevertheless levied penalty on the assessee even while such penalty had not been levied for other members of his group on whose behalf he had admitted a larger income. The assessing officer construed para (2) in explanation 5 of Section 271(1)(c) as being limited to the year of search and not applicable to earlier years.
4. Explanation 5 to Section 271(1)(c) provides that in the circumstances set out in paras (1) and (2) of that explanation, the assessee is not to be regarded as having concealed his income. That part of explanation 5 reads as under :
" 271 (1) (c) ........ ........
(1) such income is, or the transactions resulting in such income are recorded - (i) in a case falling under clause (a), before the date of the search; and (ii) in a case falling under clause (b), on or before such date, in the books of account, if any, maintained by him for any source of income or such income is otherwise disclosed to the Chief Commissioner or Commissioner before the said date; or (2) he, in the course of the search, makes a statement under sub-section (4) of section 132 that any money, bullion, jewellery or other valuable article or thing found in his possession or under his control, has been acquired out of his income which has not been disclosed so far in his return of income to be furnished before the expiry of time specified in sub-section (1) of section 139, and also specifies in the statement the manner in which such income has been derived and pays the tax, together with interest, if any, in respect of such income."
Clause (a) and clause (b) referred to above reads thus, " (a) for any previous year which has ended before the date of the search, but the return of income for such year has not been furnished before the said date or, where such return has been furnished before the said date, such income has not been declared therein; or
(b) for any previous year which is to end on or after the date of the search "
5. While clause (a) and (b) make a clear distinction between the previous year which has ended before the date of search, and previous year which is to end on or after the date of search, para (2) in Explanation 5 does not make any such distinction. It refers to the statement given by the assessee at the time of the search under Section 132(4) with regard to the assets found at the time of search being the statement to the effect that such assets have been acquired out of his undisclosed income and the specifications by the assessee in such statement with regard to the manner in which such income had been derived, and the subsequent payment by the assessee of the tax on such undisclosed income together with interest.
6. The words in para (2), "..... has been acquired out of his income which has not been disclosed in his return of income to be furnished before the expiry of time specified in sub-section (1) of section 139," is not to be read as referring to income so far not disclosed in respect of the previous year which is to end after the date of search. The words used as "income which has not been so far disclosed in his return of income". The additional words which refer to the time specified in Section 139(1) is only a reiteration of the legal requirement regarding the time within which Returns should normally be filed.
7. In cases where the assessee had not disclosed his income in the returns filed for the previous year which have ended prior to the date of search and, in the statement given under Section 132(4), the assessee admits the receipt of undisclosed income for those years and also specifies the manner in which such income had been derived, and thereafter pays the tax on that undisclosed income with interest, such undisclosed income would get immunised from the levy of penalty.
8. The Tribunal, therefore, was right in holding that the penalty was not leviable. The question referred is therefore, answered in favour of the assessee and against the revenue.