RAJESH A PATEL vs. ASSISTANT COMMISSIONER OF INCOME TAX

Facts

The assessee filed a return for AY 2002-03 declaring income of Rs. 1,30,900. A search under Section 132 was conducted on 04.09.2003. In response to a notice under Section 153A, the assessee disclosed additional income. Assessment proceedings under Section 153A were completed on 20.03.2006, accepting the return filed in pursuance of the search. Penalty proceedings under Section 271(1)(c) were initiated for disclosing additional income. The Assessing Officer levied penalty at 100% of the tax sought to be evaded. The CIT(A) deleted the penalty. The revenue appealed to the ITAT, which allowed the revenue's appeal, restoring the penalty. The assessees have filed these appeals against the ITAT's order dated 17.07.2009.

Held

The High Court held that the view taken by the Tribunal was erroneous. The CIT(A) had rightly held that it is not relevant whether any return was filed prior to the search or whether income was undisclosed in that return. In view of Section 153A, the return filed in response to a notice under Section 153A is to be considered as a return filed under Section 139. The assessment was made on this return, and therefore, it should be considered for penalty under Section 271(1)(c). The penalty is to be levied on the income assessed over and above the income returned under Section 153A, if any. The assessees had satisfied all conditions for claiming immunity from penalty under Section 271(1)(c), as the provision does not specify a time limit for payment of tax with interest. Since the assessees paid the entire amount with interest, immunity should have been granted. The penalty under Section 271(1)(c) cannot be levied on the income shown in the return filed under Section 153A. The assessees are entitled to the benefit of Explanation 5(2) to Section 271(1)(c). The order of the Tribunal was quashed and set aside, and the order of the CIT(A) was restored. The question of law was answered in favour of the assessee.

Key Issues

1. Whether, in the facts and circumstances, the ITAT was right in law in restoring the penalty imposed under Section 271(1)(c) by holding that the benefit under Explanation 5 to Section 271(1)(c) is available only for the period where the due date for filing the return under Section 139(1) had not expired? Assessee's contentions: - The Tribunal erred in restoring the penalty and setting aside the CIT(A)'s order. - Penalty under Section 271(1)(c) can be levied only if there is no variation between the income assessed and the income filed under Section 153A. - The Assessing Officer dropped penalty proceedings for another group member for AYs 2003-04 and 2004-05. - The Tribunal relied on decisions of other Tribunals and the Bombay High Court, ignoring judgments of the Madras High Court and Rajasthan High Court. - Relied on: CIT vs. Chhabra Emporium, CIT vs. S.D.V. Chandru, Gebilal Kanbhaialal (HUF) vs. ACIT, ACIT vs. Gebilal Kanhailal HUF, CIT vs. Kanhaiyalal, CIT vs. Radha Kishan Goel, CIT vs. Abdul Rashid, S.M.J. Housing vs. CIT, CIT, West Bangal vs. Vegetable Products Ltd. Revenue's contentions: - The order of the Tribunal is just and proper and requires no interference. - Relied on: Shourya Towers (P.) Ltd. vs. Deputy Commissioner of Income Tax.