Commissioner, Income Tax vs Abdul Rashid

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

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 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. 2. Subsequently, the Assessee also paid tax along with interest on the surrendered amount on 05.10.1992.

The due date for filing return u/s 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.

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 11,18,990/-. This included the surrendered income as well.

The AO also initiated penalty proceedings u/s 271 of the Act and imposed a penalty of 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.

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

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

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 4,84,000/- levied u/s 271(1)(c) of the Income. Tax Act, 1961?

(ii) Whether on the facts and in the dr 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?

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 judgment.

THE DECISION: NOT NECESSARY TO FILE RETURN BEFORE DUE DATE

The Assessee is an individual. The due date for filing return u/s 139(1) of the Act for the relevant assessment year 1992-93 was 31 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 u/s 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.

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.

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.

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.

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.

In the dissenting judgment 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.

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.

A Division Bench of the Allahabad High Court in Commissioner of Income Tax Vs. Shri Radha Kishan Goel, 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.

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.

This immunity in clause (2) to the Explanation was also considered by the Supreme Court in Assistant Commissioner of Income Tax Vs. Gebilal Kanhaialal (Huf), (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.

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.

A Division Bench of the Madras High Court in The Commissioner of Income Tax Vs. Shri. S.D.V. Chandru, 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.

In case, the legislature wanted the fourth condition namely that return had to be filed before the time specified u/s 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.

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.

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

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.

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1 271. Failure to furnish returns, compl(sic) 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 u/s 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, then, notwithstanding that such income is declared by him in any return of income furnished on or after the date of the search, he shall, for the purposes of imposition of a penalty under clause (c) of sub-section (1) of this section, be deemed to have concealed the particulars of his income or furnished 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 manner in which such income has been derived and pays the tax, together with interest, if any, in respect of such income.