BUDGET 2009 has proposed to substitute existing explanation 5A below section 271(1)(c ) with new explanation 5A with retrospective effect from 01/06/2007.
This new section provides that if in the course of search an assessee is found to be the owner of any money, bullion, jewllery or other valuable articles or thing; and the assessee claims that such assets have been acquired by him by utilizing his income for any previous year ended before the date of search for which return of income has been filed, then the assessee shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income.
In other words, the above explanation provides that if a return of income has already been furnished and some income has not shown therein; and such income is later on disclosed at the time of search, then the assessee shall be deemed to have concealed the income.
It is a settled law and it is common sense also that if income is detected by the department after the return of income is filed, it is concealment under explanation 1 itself.
Therefore a question arises as to what is the necessity of such presumptive explanation 5A; if it is already a settled law that it is concealment. What Is the necessity for the legislature to introduce this explanation; that too, with retrospective effect? It appears that there is no logic for this. Such explanation is absolutely unnecessary. On the contrary, introduction of such fresh explanation creates complication in the minds of everybody that in reverse situation there will not be concealment, i.e. in the situation where there is no search, there is only survey, or there is only enquiry; and assessee has disclosed income, there will not be any concealment. Introducing such unnecessary explanation on the Statute book is highly illogical and legislature should desist from passing this amendment.
It is worth noting that there is another explanation; that is, explanation 5 in section 271(1)(c). That explanation has been made inoperative with effect from 01/06/2007 by amendment made by Finance Act, 2007. As per this explanation, an assessee could make disclosure of income for earlier year for which return had been filed and could escape penalty. This was unjust provision because it used to give escape to an assessee, who has been searched and caught; by disclosing income at the time of search. That provision was to be amended and such explanation was to be introduced in explanation 5. Exactly this was my suggestion in my article regarding suggestions for amendments in IT Act published in this website in the column `budget run up’.
in the above case, the reverse cannot be true becos there is no search at all…..so introduction of explanation wil only make things clear becos the assessee can take the plea that he has already disclosed in the return filed and which can also be crossed checked for verification.with retrospective wil make the legislation more clear becos penalty is not an instrumnet to collect tax but to act as a deterrant in avoiding paying tax…