IT : Where assessee surrendered income during search, explained manner in which it was derived in statement and paid tax as well as interest thereon, it was not necessary to file return before due date to get immunity from penalty for concealment under clause (2) of Explanation 5 to section 271(1)(c)
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[2013] 40 taxmann.com 244 (Chhattisgarh)
HIGH COURT OF CHHATTISGARH
Commissioner of Income-tax, Bilaspur C.G.
v.
Abdul Rashid*
YATINDRA SINGH, CJ.
AND PRITINKER DIWAKER, J.
AND PRITINKER DIWAKER, J.
IT APPEAL NO. 33 OF 2004†
FEBRUARY 21, 2013
Section 271(1)(c), read with section 139 of the Income-tax Act, 1961 - Penalty - For concealment of income [Explanation 5] - Assessment year 1992-93 - During search, assessee surrendered income and made statement regarding manner in which it was derived - Assessee paid tax along with interest and filed belated return - Assessing Officer initiated penalty proceedings under section 271(1)(c) and held that assessee was not entitled to immunity under clause (2) of Explanation 5 to section 271(1)(c) - Commissioner (Appeals) and Tribunal deleted penalty - Whether, where assessee made statement during search, explained manner in which surrendered amount was derived and paid tax as well as interest thereon, it was not necessary to file return before due date under section 139(1) to get benefit of immunity from penalty for concealment, under clause (2) of Explanation 5 to section 271(1)(c) - Held, yes [Para 25] [In favour of assessee]
HELD
| ■ | The assessee is an individual. The due date for filing return under section 139(1) for the relevant assessment year 1992-93 was 31-8-1992. However, the return was filed belatedly i.e., after the due date for filing the return by the assessee under section 139(1), though a statement was made during search before the due date. The question is, whether it is the requirement of the law that the return should be filed before the due date, in order to get the benefit of immunity under clause (2) of the Explanation. [Para 11] | |
| ■ | Since the time to file return was still there; the assessee could have filed his return till the last date. Infact, there cannot be any concealment of income unless the return was filed or could be there if no return is ever filed. However, the Explanation creates a legal fiction regarding concealment of income. [Para 13] | |
| ■ | The Explanation provides that if during search, an assessee is found to be owner of asset that was acquired in the previous year for which return has not been filed, then it would be concealment of income. [Para 14] | |
| ■ | 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 clauses (1) and (2) to theExplanation. The legal fiction can be done away with, in case the assessee fulfils the conditions mentioned in either of them. [Para 15] | |
| ■ | It was because of the fiction of law provided in the Explanation that surrendered amount was treated to be 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. [Para 17] | |
| ■ | A Division Bench of the Allahabad High Court in CIT v. Radha Kishan Goel [2005] 278 ITR 454/[2006] 152 Taxman 290 explained the intention and object of immunity provided in the clauses to the Explanation as follows: |
'The exception appears to be to provide an opportunity to the assessee to make a clean and fair confession and 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.' [Para 18]
| ■ | If 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. [Para 19] | |
| ■ | The Supreme Court in the case of Asstt. CIT v. Gebilal Kanhaialal [2012] 348 ITR 561/210 Taxman 244/25 taxmann.com 214, explained that in order to get the benefit of the immunity, the following three conditions must be satisfied: |
| - | The first condition is that the assessee must make a statement under section 132(4) in the course of search stating that the unaccounted assets and incriminating documents found from his possession 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 section 139(1); | |
| - | The second condition is that the assessee should specify in his statement under section 132(4), the manner in which such income stood derived; | |
| - | The third condition is that the assessee has to pay the tax together with interest, if any, in respect of such undisclosed income. [Para 20] | |
| - | The Supreme Court has not mandated filing of return before the due date in order to get benefit of immunity under clause (2) of theExplanation. [Para 21] |
| ■ | In case, the legislature wanted the fourth condition namely that return had to be filed before the time specified under section 139(1) 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 words are not inserted indicates that such condition is not required. [Para 23] | |
| ■ | In order to take benefit of the immunity under clause (2) of the Explanation, 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 - namely 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. [Para 24] | |
| ■ | In the present case, the CIT(A) as well as the Tribunal 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 Explanation. [Para 25] |
CASE REVIEW
CIT v. Radha Kishan Goel [2005] 278 ITR 454/[2006] 152 Taxman 290 (All.) (para 18) and Asstt. CIT v. Gebilal Kanhaialal [2012] 348 ITR 56/210 Taxman 244/25 taxmann.com 214 (SC) (para 20) followed.
CIT v. Abdul Rashid, ITAT Jabalpur, dated 10-6-2003 affirmed.
CASES REFERRED TO
Haddock v. Haddock (201 (1906) US 562) (para 16), CIT v. Radha Kishan Goel [2005] 278 ITR 454/[2006] 152 Taxman 290 (All) (para 18),Asstt.CIT v. Gebilal Kanhaialal [2012] 348 ITR 561/210 Taxman 244/25 taxmann.com 214 (SC) (para 20) and CIT v. S.D.V. Chandru [2004] 266 ITR 175/136 Taxman 537 (Mad.) (para 22).
Anand Dadaria for the Appellant. Anup Majumdar for the Respondent.
JUDGMENT
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 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 Abdul Rashid (the Assessee) in the month of August, 1992. During the search, the Assessee surrendered an amount of Rs. 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 31.03.1992.
3. Subsequently, the Assessee also paid tax along with interest on the surrendered amount on 05.10.1992.
4. The due date for filing return under section 139(1) 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. The return included the surrendered income.
5. The Assessing Officer (the AO) started the assessment proceedings and the AO passed an assessment order on 21.03.1995 holding the taxable income of the Assessee to Rs. 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 Rs. 4,84,400/- 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 Rs. 4,84,000/- 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.
THE DECISION: NOT NECESSARY TO FILE RETURN BEFORE DUE DATE
11. The Assessee is an individual. The due date for filing return under section 139(1) of the Act for the relevant assessment year 1992-93 was 31st August, 1992. However, the return was filed belatedly on 19.08.1994 i.e. 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 filed 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 there; the Assessee could have filed his return till the last date. Infact, there cannot be any concealment of the income unless the return was filed or could be there if no return is ever filed. However, the Explanation creates a legal fiction regarding concealment of income.
14. The Explanation provides that if during search an Assessee is found to be owner of asset that was acquired in the previous year for which return has not been filed then it would be 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.
16. In the dissenting judgement of Haddock v. Haddock (201 (1906) US 562), Justice Holmes rightly observed that,
'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. It 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 CIT v. Radha Kishan Goel [2005] 278 ITR 454/[2006] 152 Taxman 290 (All) explained the intention and object of immunity provided in the clauses to the Explanation as follows:
'The exception appears to be to provide an opportunity to the assessee to make a clean and fair confession and 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. If 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 Asstt.CIT v. Gebilal Kanhaialal [2012] 348 ITR 561/210 Taxman 244/25 taxmann.com 214 (the Gebilal case). The Supreme Court explained that in order to get the benefit of the immunity, the following three conditions must be satisfied:
| ♦ | The first condition is that the assessee must make a statement under s.132(4) in the course of search stating that the unaccounted assets and incriminating documents found from his possession 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 penalty 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; | |
| ♦ | The third condition under cl. (2) is that the assessee had to pay the tax together with interest, if any, in respect of such undisclosed income. |
21. In the Gebilal case, the Supreme Court has not mandated filing of return before the due date in order to get benefit of immunity under clause (2) of the Explanation.
22. A Division Bench of the Madras High Court in CIT v. S.D.V. Chandru [2004] 266 ITR 175/136 Taxman 537 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 words are not inserted indicates that such condition is not required.
24. In our opinion, in order to take benefit of the immunity under clause (2) of the Explanation, 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—namely 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 Explanation.
CONCLUSION
26. Our conclusions 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 had made 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.
P. SENRegards
Prarthana Jalan
__._,_.___
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