COMMISSIONER OF INCOME TAX,BILASPUR vs. ABDUL RASHID

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ITA/33/2004HC ChhattisgarhCGHC01003981200420 February 2013Author: HON'BLE THE CHIEF JUSTICE,HON'BLE SHRI JUSTICE PRITINKER DIWAKER8 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that it is not necessary to file the return before the due date to avail the benefit of immunity under clause (2) of Explanation 5 to Section 271(1)(c) of the Income Tax Act, 1961. The Court reasoned that the legal fiction of concealment created by Explanation 5 can be overcome if the assessee fulfills the conditions mentioned in clause (2). These conditions are: (i) making a statement under Section 132(4) during the search that the assets were acquired out of undisclosed income, (ii) specifying the manner in which such income was derived, and (iii) paying the tax together with interest on such undisclosed income. The Court noted that the Supreme Court in Assistant Commissioner of Income Tax vs. Gebilal Kanhaialal (2012) did not mandate filing the return before the due date for this immunity. The Court further observed that the Madras High Court in CIT vs. SDV Chandru (2004) viewed the reference to the time specified in Section 139(1) as a reiteration of the legal requirement, not an additional condition. The Court found that the Assessee had satisfied all three conditions: made a statement during the search, explained the source of income, and paid the tax and interest. Therefore, the Assessee was entitled to the immunity, and the penalty was rightly deleted. The appeal was dismissed.

What were the facts?

The Income Tax Department conducted a search on the residential premises of the Assessee, Shri Abdul Rashid, in August 1992. During the search, the Assessee surrendered ₹8,50,000 and made a statement on September 11, 1992, explaining the source of this income for the previous year ending January 31, 1992. The Assessee subsequently paid tax and interest on this amount on October 5, 1992. The due date for filing the return for Assessment Year 1992-93 was August 31, 1992, but the Assessee filed it belatedly on August 19, 1994, including the surrendered income. The Assessing Officer initiated penalty proceedings under Section 271(1)(c) and imposed a penalty of ₹4,84,400, treating the surrendered amount as concealed income. The Commissioner of Income Tax (Appeals) deleted the penalty, holding the Assessee entitled to immunity under Explanation 5(2) to Section 271(1)(c). The Income Tax Appellate Tribunal dismissed the Department's appeal, leading to the present appeal before the High Court.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in law in upholding the cancellation of the penalty of ₹4,84,000 levied under Section 271(1)(c) of the Income Tax Act, 1961? (Question of law) 2. Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in law in holding that Explanation 5 to Section 271(1)(c) squarely covered the case when the conditions stipulated in Explanation 5 have not been fulfilled by the assessee? (Question of mixed law and fact) Assessee's contentions: The Assessee argued that they fulfilled the conditions for immunity under clause (2) of Explanation 5 to Section 271(1)(c). This included making a statement during the search, explaining the manner of earning the surrendered income, and paying the tax along with interest. They contended that filing the return before the due date was not a mandatory condition for this immunity, citing Supreme Court and High Court judgments. Revenue's contentions: The Revenue argued that the Assessee failed to fulfill the conditions stipulated in Explanation 5, specifically implying that the belated filing of the return was a failure to meet the requirements for immunity.

Which sections of the Income-tax Act were involved?

Section 271(1)(c),Section 139(1),Section 132(4)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
IN THE HIGH COURT OF JUDICATURE AT BILAS R (CHHATTISGARH) I. T. A. N033 OF 20 Commissioner, Bilaspur Income (co) APPELLANT myhiw 2m“? VERSUS Rashid g S/o Late Abdul Hafiz, Surajpur [Chhattisgarh] RESPONDENT v/ APPEAL UNDER SECTION 260A OF INCOME TAX ACT 1961 v AFR HIGH COURT OF CHHATTISGARH AT BILASPUR DIVISION BENCH CORAM: HON'BLE SHRI YATINDRA SINGH, C.]. HON’BLE SHRI PRITINKER DIWAKER,] ITA No. 33 of 2004 Appellant : Commissioner, Income Tax, Bilaspur C.G. VERSUS Respondent Shri Abdul Rashid Appeal under Section 260A of Income Tax Act, 1961 Appearance: Shri Anand Dadaria, counsel for the appellant. Shri Anup Majumdar, counsel for the respondent. mDGEMENT (215‘ February, 2013) 1. The main point involved in the present case is, 'Whether in order to get benefit of immunity mentioned \\ in clause (2) of explanation-5 of section 271(1)(c)1 of the. ’l / i 1 271. Failure to furnish returns, comply with notices, concealment of income, etc. (1) If Assessing Officer or the Deputy Commissioner (Appeals) or the Commissioner (Appeals) in the course of any proceedings under this Act, is satisfied that any person— (c) has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty,— Explanation 5.—Where in the course of a search under section 132, the assessee is found to be the owner of any money, bullion, jewellery or other valuable article or thin (hereafter in this Explanation referred to as assets) and the assessee claims that such assets have been acquired by him by utilising (wholly or in part) his income,— (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, / ’ 2 Income Tax Act, 1961 (the Act) (the Explanation), is it necessary to file return before the due date specified under sub-section (1) of section 139 {section 139(1)} of the Act or not.' THE FACTS 2. The Income Tax Department (the Department) conducted a search in the residential premises of Shri Abdui Rashid (the Assessee) in the month of August, 1992. During the search, the Assessee surrendered an amount of ¥8,50,000/— and made a statement on 11.09.1992 regarding the manner in which the surrendered income was derived in the previous year ending on 31.01992. 3. Subsequentiy, the Assessee also paid tax along with interest on the surrendered amount on 05.10.1992. 4. The due ate for filing return under ection 131) of the Act for the Assessee for the assessment year (AY) 1992-93 was 31.08.1992. However, the return for the same was filed belatedly on 19.08.1994. Te return included the surrendered Ime nco. z / / / \\\ ‘ 5. The Assessing Officer (the AO) started the assessment / then, notwithstanding that such inme is declared by him in any return of income furnished on or ater the date of the search he shall, for the purposes of impositio of a penalty under clause(c) of sub-section (1) of this section, be eemed to have concealed the particulars of his income or furnishe inaccurate particulars of such income, unless,—— (1) (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 specified in the statement the m‘anner in which such income has been derived and pays the tax, together with interest, if any, in respect of such income. 3. d S 9( h / co f n d d 3 proceedings and the AO passed an assessment

order on 21.03.1995 holding the taxable income of the Assessee to ¥11,18,990/-. This included the surrendered income as well.

6.

The AO alSo initiated penalty proceedings under section 271 of the Act and imposed a penalty of f4,84,400/— on 29.10.1999 treating the Assessee to have concealed the particulars of the income to the extent of the surrendered amount in view of the Explanation.

7.

The Assessee filed an appeal before the Commissioner of Income Tax (Appeals) (the CIT-A). He held that the Assessee was entitled to the immunity mentioned under clause (2) of the Explanation and deleted the penalty.

8.

The Department filed an appeal before the Income/Tax Appellate Tribunal, Jabalpur Bench, Jabalpur (the Tribunal). It was dismissed on 10.06.2003. Hence, the present appeal. POINTS FOR DETERMINATION

9.

We have heard counsel for the parties. This appeal was admitted on the following substantial questions of law: (i) Whether on the facts and in the circumstances of the case, learned Income Tax Appellate Tribunal was justified in law. in upholding the cancellation of penalty of f4,84,000/— levied under Section 271(1)(c) of the Income Tax Act, 1961? (ii)Whether on the facts and in the cir of the case, learned Income Tax Appellate Tribunal was justified in law in holding that explanation-5 to Section 271(1)(c) squarely covered the case when the conditions stipulated in explanation-5 have not been fulfilled by the assessee?

10.

Nevertheless, the only aspect of the aforesaid questions that has been argued by the counsel for the Department is mentioned in the first paragraph of the judgement. \‘\j a 4 THE DECISIQN: 'NOT NECESSARY TO FILE RETURN BEFORE DUE DATE

11.

The Assessee is an individuaL The due de for filing return under section 139(1) of the Act for the relevant asessment year 1992-93 was 315‘ August, 1992. However, the return was filed belatedly on 19.08.1994 ie after the due date for filing the return by the Assessee under section 139(1) of the Act, though a statement was made during search before the due date on 11.08.1992. The question is, is it the requirement of the law that the return should be fild before the due date, in order to get the benefit of immunity under clause (2 ) of the Explanation.

12.

The due date for filing return for the Assessee was 31.08.1992. However, subject to certain conditions, a belated return could also be filed. This was done by filing return on 19.08.1994. 13 The time to file return was still ther- the Assessee could have led hs return ll e last dat lnfac there cannot be any concealment of the ncome unless the return was led or could be there no return s ever led Howeve the Explanaon creat a legal con regardng concealment of ncom

14.

The Explanation provides that’if during search an Assessee is found to e owner of asset tht was acquired in the previous year for which return has not been filed then it would e concealment of income.

15.

It is because of the legal fiction under the Explanation that the amount surrendered by the Assessee is treated to be concealed income. However, in two different contingencies, the section also provides immunity. These are mentioned in the clause (1) and (2) to the Explanation. The legal fiction can be done away with, in case the Assessee fulfills the conditions mentioned in either of them. I] wines—+7 r ‘ ~ 'V*’ T at s e ’ 'Of course this is a pure fiction and fiction is always a poor ground for changing substantive rights.'

17.

In fact, there was no concealment. lt was because of the fiction of law provided in the Explanation that surrendered amount was treated to be the concealment. And if fiction is a poor ground for changing substantive rights then it should be strictly construed and immunity against the same, if any, should be liberally construed rather than other way round.

18.

A Division Bench of the Allahabad High Court in Commissioner of Income Tax vs Radha Kishan Goel {(2005) 278 ITR 454 (All)} explained the Intention and object of immunity prov1ded m the clauses to the Explanation as follows 'The exception appears to be to prowde an opportunity 1 to the assessee to make a clean and fair confession and ,l to~surrender his income and also to deposit the tax and interest thereon which may result ’in an agreed assessment. The paramount intention appears to be that in the case of fair and clean confession and surrender of his income, during the course of search further litigation may be avoided and the Revenue may get the tax and interest, etc., at an earliest.‘ 19. lf the intention and the object be as aforesaid, then there is no reason to deny the immunity especially, when the Assessee had made a statement during search, explained the manner in which the surrendered amount was earned, and had paid tax along with interest on the surrendered'amount.

20.

This immunity in clause (2) to the Explanation was also ‘ considered by the Supreme Court in Assistant Commissioner of 3 ‘ CTR- 345 (the Gebilal gaieg‘heiupreme Court explained that in order to get

6 the benefit of the immuniy, the following three conditions must be satisfied: - The first condition is that the assessee must make a statement under 5.132(4) in the course of search stating that the unaccounted assets and incriminating documents found from his pssession during the search have been acquired out of his income, which has not been disclosed in the return of income to be furnished before expiry of time specified in s. 139(1); - The second condition for availing of the immunity from penlty under s. 271(1)(c) is that the assessee should specify in his statement under s. 132(4), the manner in which such income stood derived; — (2004) 266 ITR 0175 has observed: ‘The additional words which refer to the time specified in section 139(1) are only a reiteration of the legal requirement regarding the time within which returns should normally be filed.‘

23.

In case, the legislature wanted the fourth condition namely that return had to be filed before. the time specified under section 139(1) of the Act then the words 'and files the same' would have also been added in clause (2) to the Explanation after the words ‘sub-section (1) of section 139'. The fact that such ords are not inserted indicates that such condition is not required. l t o a d bla de w \i

@

24.

In our opinion, in order to take benefit of the immunity under clause (2) of the Expianation, it is not necessary that the return should be filed before the due date. An Assessee is entitled to the benefit of the immunity if the other conditions—nameiy making of a statement, providing therein the manner of obtaining surrendered income, and payment of tax along with interest on the surrendered income—are satisfied.

25.

In the present case, the CIT—A as well as the Tribunal have held that the Assessee had made a statement during the search, explained the manner in which the surrendered amount was earned, and has paid the tax including interest thereon. There is no illegality in this finding. Thus, the Assessee was entitled to get the benefit of immunity under clause (2) of the Expianation.

CONCLUSION

26.

Our conciusions are as follows: (a) In order to get benefit of immunity under clause (2) of explanation-5 to section 271(1)(c) of the Act, it is not necessary to file the return before the due date provided that the Assessee hadimade a statement during the search, explained the manner in which the surrendered amount was derived, and paid tax as well as the interest on the surrendered amount; (b) In the present case all conditions as detailed in clause (2) to explanation-5 were satisfied; (c) The Assessee was entitled to the immunity. In View of our conclusions, the appeal has no merit. It is dismissed. as, 5d}. \x.M Pritinker Diwaker Chief Justice Judge , I '\, \

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