By Jagdish D. Shah, Jagdish T. Punjabi, Chartered Accountants
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Explanation 5 to section 271(1)(c) – undisclosed income declared in return filed u/s. 139(4) and assessed as such entitled to immunity from penalty.
Facts:
In the order passed u/s 143(3) r.w. section 153A, the AO accepted the income of Rs. 1.31 crore retuned by the assessee. Thereafter, he initiated the penalty proceedings u/s. 271(1)(c) for the reasons that the assessee declared the additional income as a result of the search operation carried out by the department and secondly, the return of income was filed after the due date of filing of return. The assessee explained that the income was offered voluntarily which was on estimate basis and the same had been accepted in the assessment order as such. Therefore, the provisions of section 271(1) (c) was not applicable. However, the AO rejected the explanation offered and imposed a penalty of Rs. 42.41 lakh. Before the CIT(A) the assessee submitted that in view of clause (b) of Explanation 5A to section 271(1)(c), penalty cannot be levied as the assessee filed the return of income on the due date which can also be inferred as return of income filed u/s. 139(4). The CIT(A) however, didn’t accept the assessee’s explanation on Explanation 5A but deleted the penalty on the ground that the income which was offered was only on estimate basis, therefore, the additional income offered to tax can neither be held as concealed income or furnishing of inaccurate particulars of income.
Before the tribunal, the revenue submitted that it was not a case of estimate made by the AO in the regular assessment proceedings but it is a case of search and seizure, wherein the assessee has himself declared additional income in the statement recorded u/s. 132(4). Even if such surrender was based on estimate, then also it represents undisclosed income. Thus, the penalty cannot be deleted on the ground that it was based on the estimated income. Further it was submitted that as per the language of the Explanation 5A to section 271(1)(c), if any undisclosed income is found which is not shown in the return of income either prior to the date of search or before the due date of filing of return, penalty was levieable.
Held:
According to the tribunal, Explanation 5A to section 271(1)(c) provides that if during the course of search, the assessee is found to be the owner of any asset or income which has not been shown in the return of income which has been furnished before the date of search and the “due date” for filing the return of income has expired, the assessee is deemed to have concealed the particulars of his income or furnish inaccurate particulars of income and liable for penalty u/s. 271(1)(c). In other words, if the income is offered in the return which is filed by the “due date”, no penalty can be imposed.
The tribunal then examined whether the “due date” in Explanation 5A encompasses a belated return filed u/s. 139(4). It observed that the “due date” can be very well inferred as due date of filing of return of income u/s. 139(4) because wherever the legislature has provided the consequences of filing of the return of income u/s. 139(4), then the same has also been specifically provided. E.g., section 139(3) which denies the benefit of carry forward of losses u/s. 72 to 74A if the return of income is not filed within the time limit provided u/s. 139(1). In the absence of such a restriction, the limitation of time of “due date” cannot be strictly reckoned with section 139(1). Even a belated return filed u/s. 139(4) will be entitled to the benefit of immunity from penalty. For the said proposition the tribunal also relied on the decisions of the Gauhati high court in the case of Rajesh Kumar Jalan (286 ITR 276), the Punjab & Haryana high court in the cases of Jagriti Aggarwal (339 ITR 610) & of CIT vs. Jagtar Singh Chawla. In view of the above, the tribunal held that the assessee gets immunity under clause (b) of Explanation 5A to section 271(1) (c) because the assessee has filed return of income within due date.
