The Powers of the Search operation u/s 132 are much wider than the Survey proceedings as prescribed u/s 133A of the Act.
respect of “Undisclosed Income” too.
whether the disclosures made during the Search safeguards Assessee from Penalty???
Sr.
No. |
Section
|
Applicability
|
1
|
271(1)(c)
read with Explanation 5A |
Applicable
to Search carried out on or after 01/06/2007 |
2
|
271AAA
|
Applicable
to Search carried out on or after 01/06/2007 but before 01/07/2012 |
3
|
271AAB
|
Applicable
to Search carried out on or after 01/07/2012 |
by admitting the additional undisclosed income in the statement u/s 132(4) of the Act.
PENALTY ON UNDISCLOSED INCOME FOUND DURING THE COURSE OF SEARCH
Under the existing provisions of section 271AAA of the Income-tax Act, no penalty is levied if the assessee admits the undisclosed income in a statement under sub-section (4) of section 132 recorded in the course of search and specifies the manner in which such income has been derived and pays the tax together with interest, if any, in respect of such income. As a result, undisclosed income (for the current year in which search takes place or the previous year which has ended before the search and for which return is not yet due) found during the course of search attracts a tax at the rate of 30% and no penalty is leviable. In order to strengthen the penal provisions, it is proposed to provide that the provisions of section 271AAA will not be applicable for searches conducted on or after 1st July, 2012. It is also proposed to insert a new provision in the Act (section 271AAB) for levy of penalty in a case where search has been initiated on or after 1st July, 2012. The new section provides that,-
(i) If undisclosed income is admitted during the course of search, the taxpayer will be liable for penalty at the rate of 10% of undisclosed income subject to the fulfillment of certain conditions.
(ii) If undisclosed income is not admitted during the course of search but disclosed in the return of income filed after the search, the taxpayer will be liable for penalty at the rate of 20% of undisclosed income subject to the fulfillment of certain conditions.
(iii) In a case not covered under (i) and (ii) above, the taxpayer will be liable for penalty at the rate ranging from 30% to 90% of undisclosed income.
These amendments will take effect from the 1st day of July, 2012 and will,
accordingly, apply to any search and seizure action taken after this date. [Clauses
89, 95, 96] |
payable penalty slab rates of 10%, 20% and 30% to 90% of the undisclosed income, subject to fulfillment of difficult conditions.
Section
|
Conditions
for applicability of lower slab of the penalty |
Quantum
of Penalty |
Remarks
|
271AAB(1)(a)
|
a)
Admission of such income in statement u/s 132(4) b)
Specified and SUBSTANTIATE the manner in which such undisclosed income was derived c)
Pays the tax and interest on such undisclosed income before the specified date; d)
Furnish the return of income for specified previous year and declare such undisclosed income therein |
Penalty
Leviable @ 10% of undisclosed income |
This
clause is practically not possible in each and every cases, because even after the disclosure of income in the statement u/s 132(4), most of the Assessee could not substantiate the same. And
also the discretion always lies with the department whether to appreciate the manner so substantiated by the Assessee or to outright reject the same stating it to be a “Make believe Story” |
271AAB(1)(b)
|
a)
Such Undisclosed Income NOT admitted in statement u/s 132(4); and b)
Furnish the return of income for specified previous year and declare such undisclosed income therein c)
Pays the tax and interest on such undisclosed income before the specified date; |
Penalty
Leviable @ 20% of undisclosed income |
In
this clause, there is no condition to substantiate the manner in which such undisclosed income was derived. Only covers subsequent disclosure prior to assessments with higher quantum. |
271AAB(1)(c)
|
a)
Undisclosed income of specified previous year not covered in clause (a) and (b) of section 271AAB(1). |
Penalty
Leviable @ 30% to 90% of undisclosed income |
Quantum
of penalty same as per section 271(1)(c) r.s. Expl. 5A |
Definition
|
Remark
|
|
(b) “specified previous year” means the previous
year– |
||
(i)
|
which
has ended before the date of search, but the date of furnishing the return of income under sub-section (1) of section 139 for such year has not expired before the date of search and the assessee has not furnished the return of income for the previous year before the date of search; or |
Technically
there cannot be any undisclosed income for any Assessee till he is lawfully having prescribed time for filing of return and has not yet filed the return. (as the law does not specifically prescribes maintaining day to day books, but practically the Assessee should) It
is the prerogative of assessee as its always open for him to include any income before the due date of filing the return. |
(ii)
|
in which search was conducted;
|
Here
also, the question of undisclosed income does not arise as the income is generally declared in the return of income, and return shall be filed after the end of the year in which search is carried out. Hence, once again the Assessee can still disclose all such incomes in his return. |
[Explanation 5A.–Where, in the course of a search initiated under section 132 on or after the 1st day of June, 2007, the assessee is
found to be the owner of — (i) any money, bullion, jewellery or other valuable article or thing (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 for any previous year; or
(ii) any income based on any entry in any books of account or other documents or transactions and he claims that such entry in the books of account or other documents or transactions represents his income (wholly or in part) for any previous year,
which has ended before the date of search and, —
(a) where the return of income for such previous year has been furnished before the said date but such income
has not been declared therein; or (b) the due date for filing the return of income for such previous year has expired but the assessee has not filed the return,
|
30. Further, the provisions of Section 153A are specifically brought on the Statute book, for assessment, in case of search u/s 132(1) or requisition of books of account u/s 132A of the Act. The opening sentence of Section 153A of the Act, overrides the provisions of Section 139, 147, 148, 149, 151 and 153 of the Act. The assessee has declared undisclosed income, in the return filed, in response to notice u/s 153A of the Act and the CIT(Appeals), having regard to the facts of the case, invoked
the currently applicable Explanation 5A Section 271(1) (c) of the Act and upheld the penalty, levied by the AO. In such a fact-situation, the CIT(Appeals) has acted in accordance with the currently operative and relevant penal provisions, with reference to the return of income, f i led in response to Section 153A of the Act. 31. In view of the above legal and factual discussions, and having regard to the express statutory provisions of Section 271(1) (c) of the Act read with Explanation 5A thereunder, as inserted by the Finance (No. 2) Act, 2009, with retrospective effect from 01.06.2007, we do not find any infirmity, in the findings of ld CIT(Appeals) . Therefore, the findings of the CIT(Appeals) are upheld and, consequently, the grounds of appeal of the assessee are dismissed.
|
as used in clause (b) of this explanation. The clause (b) can be termed as a
saving clause wherein penalty u/s 271(1)(c) can’t be levied.
also, the “due date” has been specifically provided as the date mentioned in sub–section (1) of section 139. In the aforesaid Explanation 5A, the
legislature has not specified the due date as provided in section 139(1) but
has merely envisaged the words “due date”.
Where the legislature has provided the consequences of filing of the return of income under section 139(4), then the same has also been specifically provided.
For e.g., section 139(3), provides that for the purpose of carry forward losses under sections 72 to 74A, the return of income should be filed within the time limit provided under section 139(1), otherwise losses cannot be set–off. In absence of such a restriction, the limitation of time of “due date” cannot be strictly reckoned with section 139(1) only. Thus, the meaning of the words “due date”, sans any limitation or
restriction as given in clause (b) of Explanation 5A, cannot be read as “due date” as provided in section 139(1). The words “due date” therefore, can also safely mean date of filing of the return of income under section 139(4) and section 139(5) of the Act.
14. In our considered opinion, once the legislature has not specified the “due date” as provided in section 139(1) in Explanation 5A, then by implication, it has to be taken as the date extended under section 139(4). In view of the above, we hold that the assessee gets the benefit / immunity under clause (b) of Explanation to section 271(1)(c) because the assessee has filed its return of income within the “due date” and, therefore, the penalty levied by the Assessing Officer cannot be sustained on this ground. Even though we are not affirming the findings and the conclusions of the learned Commissioner (Appeals), however, as per the discussion made above, penalty is deleted in view of the interpretation of Explanation 5A to section 271(1)(c). Consequently, the ground raised by the Revenue is treated as dismissed.
|
Particulars
|
Alternate
1 |
Alternate
2 |
Alternate
3 |
Section
|
245H(1)
|
273A
|
273AA w.e.f.
1-4-2008. |
Competent Authority
|
Settlement Commission
|
Commissioner with prior approval of
CCIT or DGIT |
Commissioner after abatement from
settlement commission |
Conditions
prescribed therein |
a. co-operated with the Settlement
Commission b. has made a full and true disclosure
of his income and the manner in which such income has been derived |
a. prior to the detection by the [Assessing] Officer, of the
concealment of particulars of income or of the inaccuracy of particulars furnished in respect of such income, voluntarily and in good faith, made full and true disclosure of such particulars b. has co-operated in any enquiry
relating to the assessment of his income c. and has either paid or made
satisfactory arrangements for the payment of any tax or interest payable in consequence of an order passed under this Act in respect of the relevant assessment year |
a. he has made an application for
settlement under section 245C and the proceedings for settlement have abated under section 245HA b.the penalty proceedings have been
initiated under this Act c. if he is satisfied that the person
has, after the abatement, co-operated with the income-tax authority in the proceedings before him and has made a full and true disclosure of his income and the manner in which such income has been derived |
“When
one door closes, another opens; but we often look so long and so regretfully upon the closed door that we do not see the one which has opened for us.” Alexander Graham Bell
|
01/04/2008.
mandatory unambiguous wording of section 271AAA and section 271AAB of the Act. Below is the summary of the phrase “manner in which such income has been derived”
wherever occurred in Income Tax Act:
Sections where only requirement of
is to Disclose the manner |
Sections where TWIN requirements are
prescribed Disclose the manner as well as
SUBSTANTIATE the same |
245C:
Application for settlement of cases |
271AAA:
Penalty where search has been initiated |
245H
Power of Settlement Commission to grant immunity from prosecution and penalty |
Section
271AAB Penalty where search has been initiated. |
271(1)(c)
Explanation 5 |
|
273AA
Power of Commissioner to grant immunity from penalty |
|
278AB:
Power of Commissioner to grant immunity from prosecution |
ITR 305 (Guj) has held that if the income is declared and taxes have been paid thereon, there would be substantial compliance not warranting any further denial of the benefit, even if the statement u/s 132(4) does not
specify the manner in which the undisclosed income is derived.
case suggests anything contrary thereto. This approach of the department shall promote the Assessee’s to disclose their
undisclosed / unaccounted income truly and fully in the statement u/s 132(4) of the Act and/or also during the pendency of Assessment u/s 153A r.w.s. 143(3) of the Act and also in making timely payment of the taxes thereon.
at the same time the manner so disclosed by the Assessee should be considered in its true spirit otherwise the Assessee will hesitate in making any disclosures, as same shall not grant them immunity from penalty.
during the Survey
It necessarily follows that concealment of particulars of income or furnishing of inaccurate particular of income by the assessee has to be in the IT return filed by it. The assessee can furnish the particulars of income in his return and everything would depend upon the IT return filed by the assessee. This view gets supported by Explanations 4 as well as 5 and 5A of s. 271.
Obviously, no penalty can be imposed unless the conditions stipulated in the said provisions are duly and unambiguously satisfied. Since the assessee was exposed during survey, may be, it would have not disclosed the income but for the said survey. However, there cannot be any penalty only on surmises, conjectures and possibilities. Sec. 271(1)(c) has to be construed strictly. Unless it is found that there is actually a concealment or non-disclosure of the particulars of income penalty cannot be imposed. There is no such concealment or non-disclosure as the assessee had made a complete disclosure in the IT return and offered the surrendered amount for the purposes of tax
14. Explns. 5 and 5A are also an exception to the rule that when an income which is ultimately brought to tax is declared in a return of income, there can be no question of treating the Assessee as having “concealed particulars of income or furnished inaccurate particulars of income” Those Explanations will also not apply in the present case because those Explanations are applicable only when there is a search u/s.132 of the Act and to a case of Survey u/s. 133A of the Act.
15. For the reasons given above we hold that there can be no justification for imposition of penalty on the income offered in the return of income by the Assessee for both the A.Ys., because there cannot be any penalty on income which is declared in a return of income, on the facts and circumstances of the present case.
|
which such income is earned, by way of special immunity provisions in form of section 245H (by settlement Commission), Section 273A and Section 273AA (By Commissioner). Prosecution proceedings may follow, Once penalty is confirmed.
Disclaimer:
The contents of this document are solely for informational purpose. It does not constitute professional advice or a formal recommendation. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. The authors do not accepts any liabilities for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon. |