Immunity From Penalty U/s. 271(1)(c) Available For Belated Returns

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.

INCOME TAX APPELLATE TRIBUNAL, “G” BENCH, MUMBAI
BEFORE SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER

AND SHRI AMIT SHUKLA, JUDICIAL MEMBER

ITA No. 7737/Mum./2011 – Assessment Year: 2008-09)

Income Tax Officer (Central)

V/s

Mr. Gope M. Rochlani 

ORDER

PER AMIT SHUKLA, J.M.

The present appeal is preferred by the Revenue challenging the impugned order dated 30^th August 2011, passed by the learned Commissioner (Appeals)-I, Mumbai, in relation to the penalty proceedings under section 271(1)(c) of the Income Tax Act, 1961 (for short “the Act”), for the assessment year 2008-09. Following grounds have been raised by the Revenue:-

1. In the facts and circumstances of the case and in law, the Ld CIT(A)- I, Thane erred in cancelling the penalty levied by the AO.
2. In the facts and circumstances of the case and in law, the Ld CIT(A)- I, Thane erred in deleting the penalty on the ground that the additional income declared during statement u/s.132(4), is on the basis of the assessee^,s own working of the WIP.
3. In the facts and circumstances of the case and in law, the Ld CIT(A)-I, Thane erred in deleting the penalty on the ground that the assessee^,s admission of additional income declared is on the basis of entries in the books of accounts, documents and transactions.
4. In the facts and circumstances of the case and in law, the Ld CIT(A)- I, Thane erred in deleting the penalty on the ground that as per explanation 5A (ii)(b) to section 271 (1)(c), the assessee has deemed to have concealed the particulars of his income for the purposes of imposition of penalty u/s. 271(1)(c).
5. In the facts and circumstances of the case and in law, the Ld CIT(A)- I, Thane erred in deleting the penalty on the ground that the assessee did not file the return of income till the date of search which took place on 16- 10-2008, as the time for filing of return u/s.139(l) was 30-09- 2008. Due to which the additional income was detected otherwise the assessee would have concealed the additional income declared.
6. The Appellant prays that order of the CIT(A)-I, Thane on the grounds be set aside and that of the Assessing Officer be restored.”

2. Facts in brief:- The assessee is a 50% partner in the FIRM m/S. Madhav Constructions, which is carrying out the business of housing development and builders in Kalyan. A search and seizure action under section 132(1) and simultaneously survey action under section 133A was carried out at the residential premises of main person / partners and business premises of Madhav Group on 15^th October 2008. During the course of search, statement on oath under section 132(4) was recorded on 17^th October 2008 of Mr. Gopi M. Rochlani, one of the partners wherein he declared an additional income of 1,25,00,000. This amount was also offered in the return of income filed for the assessment year 2008-09 on 31^st October 2008. This surrender was applicable to the assessee also wherein similar amount of 1,25,00,000 was offered for the assessment year 2008-09 and the return of income was filed on 31^st October 2008,  wherein the income of 1,31,19,140 was shown which included the additional income offered during the course of search / survey action. The relevant statement on oath which has been reproduced in the assessment order as well as in the penalty order, for the sake of ready reference, is reproduced herein below:-

“During the course of survey proceedings in our office premises, we were asked to provide tentative trading account and WIP as on the date of survey, but due to laborious and time consuming work this is not possible. On going through the physical break up of work —in-progress with the books I would like to add that the balance sheet of Madhav sankalp for financial year 2007-09(A. Y.2008-09) reveal as under:

I would like to further add here that out of the estimated expenditure of Rs.5.0 crores, Rs.2,5 crores is for FY 2007-08 and Rs.2.5 crores is for FY 2008-09. this money has been in vested by both the F. Yrs, on which myself and my son Raja are ready to pay due taxes. We declare this additional income u/s. 132(4), over and above our regular income for F.Yrs. 2007-08 and 2008-09, @ Rs.1.25 crores each F.Yr under the head investment in Madhav construction (profit in land dealing).

3. In the assessment order passed under section 143(3) r/w section 153A, the assessment order was completed on the same income of ~ 1,31,19,140 vide order dated 31^st December 2010 on which return of income was filed. Thereafter, the Assessing Officer initiated the penalty proceedings under section 271(1)(c) and observed that, firstly, the income has been offered only as a consequence of search and seizure under section 132(1) and secondly, it was offered under the head “Income From Other Sources” for the assessment year 2008-09 in the return of income filed on 31^st October 2009, whereas the original due date of the return of income was 30^th September 2008, which has expired before the date of search. Thus, he held that the assessee’s case is covered by Explanation 5A to section 271(1)(c).

4. The assessee, before the Assessing Officer, submitted that this additional income was offered voluntarily which was on estimate basis and and the same has been accepted in the assessment order as such, therefore, provisions of section 271(1)(c) is not applicable. The entire explanation of the assessee was rejected and finally, penalty was levied on the entire amount of 125 crores at 42,40,750.

5. Before the learned Commissioner (Appeals), the assessee made very detail submissions with regard to Explanation 5A to section 271(1)(c) and submitted that in view of clause (b) of Explanation 5A, penalty cannot be levied as the assessee filed return of income on the due date which can also be inferred as return of income filed under section 139(4). Further submissions were also made on merits as well as on the ground that no penalty can be levied on estimated income.6. The Learned Commissioner (Appeals), though did not accept the assessee’s explanation on Explanation 5A to section 271(1)(c), but deleted the penalty on the ground that the income which was offered was only on estimate basis, therefore, additional income offered by the assessee can neither be held to be concealed income or furnishing of inaccurate particulars of income. The relevant conclusion drawn by the learned Commissioner (Appeals) after detail discussion is reproduced herein below:-

“64. After considering the submissions of the A.R. and ratio laid down by various judicial authorities in the cases referred to above and particularly taking into consideration the findings of Hon^,ble ITAT Rajkot Bench in the case of Shabbir Alluddin Latiwala V/s. Deputy Commissioner of Income Tax and Shri Gopichand Rupchand Rajani (Supra) I am inclined to agree with the assessee that lnspite assessee^,s case not being covered by the immunity provided under explanation 5A to sec. 271(1)(c) I hold that even if the assessee is not in a position to establish conclusively that additional income was offered by him voluntarily but at the same time I find that A.0. has also not been able to identify the very foundation on the basis of which assessee had offered additional income. The A. 0. neither in the course of assessment proceedings nor in the penalty proceedings has been able to link declaration of additional income with any material found even In the course of search. Even the sale figure of Rs.88.54 Cr has been adopted purely on the basis. Profit is estimated at 40% to arrive at estimated expenditure. WIP up to date of survey Is estimated at 62%. I further find that the income has been offered only on estimate which Is clearly proved from the statement u/s. 132(4) where every figure has been mentioned on estimate to the extent of even rounding up of the figures and therefore in my considered view it can not be held that the additional income offered by the assessee was concealed income in respect of which Inaccurate particulars had been furnished. I accordingly hold that A.O. Is not justified in levying penalty u/s. 271(1)(c) of the IT Act 1961 in the assessee^,s case. The penalty levied is accordingly cancelled.”

7. Before us, the learned Departmental Representative submitted that this is not a case of estimate made by the Assessing Officer in the regular assessment proceedings but it is a case of search and seizure, wherein the assessee has himself declared additional income in the statement recorded under section 132(4). Even if such surrender was based on estimate, then also it represents the undisclosed income which has been owned by the assessee. Thus, the penalty cannot be deleted on the pleading that penalty has been levied on estimate basis. In this case, Explanation 5A is clearly applicable. Under Explanation 5A to section 271(1)(c), in case of a search which has been conducted after 1^st June 2007, if any undisclosed income has been found which has not been shown in the return of income either prior to the date of search or on the due date of filing of return of income, penalty has to be levied. This is evident from the plain language of Explanation 5A. Thus, the findings of the learned Commissioner (Appeals) for deleting the penalty purely on the ground that this was a case of estimate is wholly erroneous once he has come to a conclusion that the assessee is not getting the benefit of Explanation 5A.

8. Per contra, the learned Counsel submitted that the assessee offered the income for the assessment year 2008-09, for which the due date of filing the return of income under section 139(1) was 30^th September 2009 and the due date of filing the return of income under section 139(4) was 31^st March 2010. In the present case, the assessee has filed his return of income on 31^st October 2009, which can be said to be filed under section 139(4). Clause (b) of Explanation 5A mentions the phrase “due date for filing the return of income”. This “due date” can also be treated as due date of return of income filed under section 139(4) also. In support of this contention, he relied upon the judgment of Hon’ble Punjab & Haryana High Court in CIT v/s Jagtar Singh Chawla, passed in Income Tax Appeal no.71 of 2012, vide judgment dated 20^th March 2013 and the judgment of Gauahati High Court in CIT v/s Rajesh Kumar Jalan, [2006] 286 ITR 276 (Gau.). Relying on these case laws, he submitted that in these cases, the High Court, in the context of section 54(2) and 54F, wherein similar phrase has been used and in particular in section 54(2), the words mentioned is “time limit under section 139”, has been interpreted by the Hon’ble High Court to mean that the words “due date” means the return of income filed under section 139(1) or 139(4) because section 139(4) is the extended period only. If the requirements of the due date has been fulfilled within the time limit of section 139(4) then it meats the requirement of the law. He, thus, submitted that the assessee’s income disclosed at the time of search has already been shown on the due date for filing of the return of income and, therefore, penalty cannot be levied by invoking the provisions of Explanation 5A of section 271(1)(c). He further reiterated his submissions as made before the learned Commissioner (Appeals) with regard to the levy of penalty on estimated income.

9. We have carefully considered the rival contentions and perused the relevant findings of the Assessing Officer and the learned Commissioner (Appeals). In this case, a search and seizure action was taken place after 1st June 2007 i.e., on 16^th October 2008. The assessee, during the course of statement recorded under section 132(4), has offered income of 1.25 crores as additional income for the previous year ending before the date of search i.e., year ending 31^st March 2008 relevant to the assessment year 2008-09. The due date for filing of the return of income under section 139(1) for assessment year 2008-09 was 30^th September 2009, whereas the assessee has filed the return of income on 31^st October 2009 i.e., after one month from the date of filing of the return of income as provided in section 139(1). The due date for filing of the return of income under section 139(4) for the assessment year 2008-09 was 31^st March 2010. Thus, the return of income filed by the assessee in this case was at best under section 139(4). The issue before us is whether the return of income filed under section 139(4) can be held to be the “due date” for filing the return of income for such previous year as mentioned in clause (b) of Explanation 5A to section 271(1)(c) and, if so, whether the penalty can be levied on the facts of the present case under the Explanation 5A. For better appreciation of the provisions of Explanation 5A, the same is reproduced herein below:-

[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, then, notwithstanding that such income is declared by him in any return of income furnished on or after the date of 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.”

10. On a plain reading of the aforesaid Explanation, it is apparent that following conditions are essential for levy of penalty under section 271(1)(c):-

(i) this Explanation is applicable to an assessee in whose case search has been initiated under section 132 on/or after 1^st June 2007;

further,

(ii) during the course of search, the assessee should be found to be the owner of –

(a) any money, bullion, jewellery, for other valuable article or thing to which and the assessee claims to have acquired such assets by utilizing his income for any previous year; or

(b) any income which is based on any entry in any books of account or other documents or transactions and claims that these represents income for any previous year which is ended before the date of search; and further,

(iii) if such asset or income which represents the income of any previous year, firstly, has not been shown in the return of income which has been furnished before the date of search i.e., such income has not been declared therein and secondly, the due date for filing the return of income had expired i.e., the assessee has not shown this income in the return of income filed on or before the due date;

(iv) then on such income declared by him in the return of income furnished on or after the date of search, he is liable for penalty under section 271(1)(c) and he is deemed to have concealed the particulars of his income or furnish inaccurate particulars of income.

11. There are two saving clause in the aforesaid Explanation wherein penalty cannot be held to be leviable under section 271(1)(c), firstly, the assessee had shown such asset as mentioned in clause (i) or income as mentioned in clause (ii) in the return of income furnished before the date of search and, secondly, such asset and the income has been shown in the return of income filed on the due date. Thus, if any assessee falls under these saving clauses, Explanation 5A cannot be invoked.

12. For the purpose of the instant case, we have to see whether or not the assessee has shown the income in the return of income filed on the “due date”. Provisions of section 139(1) provides for various types of assesses to file return of income before the due date and such due date has been provided in the Explanation 2, which varies from year-to-year. Whereas, provisions of section 139(4) provides for extension of period of “due date” in the circumstances mentioned therein and it enlarges the time limit provided in section 139(1). The operating line of sub-section 4 of section 139 provides that “any person who has not furnished the return within the time aIIowed” ~ here the time allowed means under section 139(1), then in such a case, the time limit has been extended. Wherever the legislature has specified the “due date” or has specified the date for any compliance, the same has been categorically specified in the Act. For e.g., under section 44AB where the assessee is required to get his accounts audited before the specified date and furnish by that date, the specified date has been specifically mentioned as the date provided in section 139(1). Similarly, in section 43B 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”. This “due date” can be very well inferred as due date of the filing of return of income filed under section 139, which includes section 139(4). 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). 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 mean date of filing of the return of income under section 139(4).

13. This proposition has been explained by the various High Courts also wherein in the context of sections 54F and 54(2), it has been interpreted that the due date of section 139 can be inferred as due date under section 139(4) also. This proposition has been elaborated in the following decisions:-

i)  CIT v/s Rajesh Kumar Jalan, (20061 286 ITR 276 (Gau.). wherein it has been observed and held as under:-

‘From a plain reading of sub-s. (2) of s. 54, it is clear that only s. 139 is mentioned in s. 54(2) in the context that the unutiised portion of the capital gain on the sale of property used for residence should be deposited before the date of furnishing the return of the income-tax under s. 139. Sec. 139 cannot be meant only as s. 139(1) but it means all sub-sections of s. 139. Under sub-s. (4) of s. 139, any person who has not furnished a return within the time allowed to him under sub-s. (1) of s. 142 may furnish the return for any previous year at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment whichever is earlier. Such being the situation, it is the case of the assessee that the assessee could fulfill he requirement under s. 54 for exemption of the capital gain from being charged to income-tax on the sale of property used for residence upto 30th March, 1998, inasmuch as the return of income-tax for the asst. yr. 1996-97 could be furnished before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment whichever is earlier under sub-s. (4) of s. 139. In the facts and circumstances of the case, the assessee was entitled to claim benefit under s. 54 on the entire amount received by him on account of sale of his house property.

ii)  CIT v/s M/s. Jagriti Aggarwal, (20111 339 ITR 610 (P&H), wherein it has been observed and held as under:-

‘6. Sec. 54 of the Act contemplates that the capital gain arises from the transfer of a long-term capital asset, but if the assessee within a period of one year before or two years after the date on which the transfer took place purchases residential house, then instead of the capital gain, the income would be charged in terms of provisions of sub-s. (1) of s. 54. As per sub-s. (2), if the amount of capital gains is not appropriated by the assessee towards the purchase of new asset within one year before the date on which the transfer of the original asset took place, or which is not utilized by him for the purchase or construction of the new asset before the date of furnishing the return of income under s. 139, the amount shall be deposited by him before furnishing such return not later than due date applicable in the case of assessee for furnishing the return of income under sub-s. (1) of s. 139 in an account in any such bank or institution as may be specified. Relevant sub-s. (2) of S. 54 of the Act reads as under:-

Xxx                                xxx                                        xxx

7. The question which arises is; whether the return filed by the assessee before the expiry of the year ending with the assessment year is valid under s. 139(4) of the Act?

8. Learned counsel for the Revenue has argued that the assessee was required to file return under sub-s. (1) of s. 139 of the Act in terms of sub-s. (2) of s. 54 of the Act. It is contended that sub-s. (4) is not applicable in respect of the assessee so as to avoid payment of long-term capital gain.

9. On the other hand, learned counsel for the respondent relies upon a Division Bench judgment of Karnataka High Court in Fathima Bal vs. ITO (2009) 32 DTR (Kar) 243 where in somewhat similar circumstances, it has been held that time-limit for deposit under scheme or utilisation can be made before the due date for filing of return under s. 139(4) of the Act. Learned counsel for the respondent also relies upon a Division Bench judgment of Gauhati High Court in CIT vs. Rajesh Kumar Jalan (2006) 206. CTR (Gau) 361 (2006) 286 ITR 274 (Gau).

10. Having heard learned counsel for the parties, we are of the opinion that sub-s. (4) of s. 139 of the Act is, in fact, a proviso to sub-s. (1) of s. 139 of the Act. Sec. 139 of the Act fixes the different dates for filing the returns for different assessee. In the case of assessee as the respondent, it is 31st day of July of the assessment year in terms of cI. (c) of the Expln. 2 to sub-s. (1) of s. 139 of the Act, whereas sub-s. (4) of s. 139 provides for extension in period of due date in certain circumstances. It reads as under: -11. A reading of the aforesaid sub-section would show that if a person has not furnished the return of the previous year within the time allowed under sub-s (1) i.e., before 31^st day of July of the assessment year, the assessee can file return before the expiry of one year from the end of the relevant assessment year.”

iii) CIT v/s Jagtar Singh Chawla, passed in Income Tax Appeal no.71 of 2012, vide judgment dated 20^th March 2013 wherein it has been observed and held as under:-

‘The provisions of Section 54F(4) of the Act are pari-materia with Section 54(2) of the Act. Section 54 deals with the profit on sale of a residential house, whereas Section 54F deals with the transfer of any long term capital assets not being a residential house.

A Division Bench of the Gauhati High Court in a case reported as Commissioner of Income Tax v. Rajesh Kumar Jalan (2006) 286 ITR 274, held that only Section 139 of the Act is mentioned in Section 54(2) of the Act in the context that the unutilized portion of the capital gain on the sale of property used for residence should be deposited before the date of furnishing the return of the Income Tax under Section 139 of the Act and that it would include extended period to file return in terms of Sub Section 4 of Section 139 of the Act. It was held as under:-

‘From a plain reading of sub-section (2) of Section 54 of the Income-tax Act, 1961, it is clear that only section 139 of the Income-tax Act, 1961, is mentioned in section 54(2) in the context that the unutilized portion of the capital gain on the sale of property used for residence should be deposited before the date of furnishing the return of the Income-tax under section 139 of the Income-tax Act. Section 139 of the Income tax Act, 1961, cannot be meant only section 139(1), but it means all sub-sections of section 139 of the Income-tax Act, 1961. Under sub­section (4) of section 139 of the Income-tax Act any person who has not furnished a return within the time allowed to him under sub-section (1) of Section 142 may furnish the return for any previous year at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment year whichever is earlier.”

The said judgment was relied upon by a Division Bench of the Karnataka High Court in Fathima Bai v. ITO, ITA No.435 of 2004 Decided on 17th October 2008, wherein it was held to the following effect:-

“11. The extended due date under section 139(4) would be 31.3.1990. The assessee did not file the return within the extended due date, but filed the return on 27.2 .2000. However, the assessee had utilized the entire capital gains by purchase of a house property within the stipulated period of section 54(2) i.e., before the extended due date for return under section 139. The assessee technically may have defaulted in not filing the return under section 139(4). But, however, utilized the capital gains for purchase of property before the extended due date under section 139(4). The contention of the revenue that the deposit in the scheme should have been made before the initial due date and not the extended due date is an untenable contention.”

A Division Bench of this Court in which one of us (Hemant Gupta, J.) was a member, had an occasion to consider the provisions of Section 54(2) of the Act, wherein it has been held that subsection (4) of Section 139 of the Act is in fact a proviso to Section 139(1) of the Act. Therefore, since the assessee has invested the sale proceeds in a residential house within the extended period of limitation, the capital gain is not payable. The judgments in Rajesh Kumar Jalan^,s case and Fathima Bai^,s case (supra) were referred to. It has been held as under:-

“Having heard learned counsel for the parties, we are of the opinion that sub­section (4) of Section 139 of the Act is, in act, a proviso to sub-section (1) of Section 139 of the Act. Section 139 of the Act fixes the different dates for filing the returns for different assesses. In the case of assessee as the respondent, it is 31st day of July, of the Assessment Year in terms of clause (c) of the Explanation 2 to sub-section 1 of Section 139 of the Act, whereas sub-section (4) of Section 139 provides for extension in period of due date in certain circumstances.”

From the propositions laid down by the aforesaid decisions, it is absolutely clear that provisions of section 139(4) is actually the extension of the due date of section 139(1) and, therefore, the due date for filing of the return of income can also be reckoned with the date mentioned in section 139(4).

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.