By TIOL News Service

AHMEDABAD, MAR 26, 2019: THE ISSUE IS - Whether penaly u/s 271(1)(c) is called for on additional income declared in return filed u/s 153A. YES IS THE ANSWER.

Facts of the case

The assessee filed return of income for relevant AY. Thereafter, a search was conducted u/s 132 of the Act in the case of Dhanjimama group of cases which included the assessee as well. Consequent to the search action, incriminating materials were found and a statement was recorded wherein the assessee admitted certain additional income based on documents found during the course of search. A proceeding u/s 153A was initiated as a consequence. The assessment was completed u/s 153A of the Act and the income declared in the return was assessed as such. The AO however, imposed penalty of Rs. 2,18,740/- (100% of the tax sought to be evaded) on the additional income of Rs.7,78,750/- declared in pursuance of the search by invoking provisions of Section 271(1)(c) of the Act. The CIT(A) sustained the action of the AO towards imposition of penalty.

On appeal, Tribunal held that,

++ plea raised on behalf of the assessee was that Section 153A of the Act opens with a non obstante clause which seeks to exclude the application of, inter alia, Section 139 of the Act and thus, in effect, the revised return filed under s.153A of the Act takes place of the original return under s.139 of the Act for the purposes of all other provisions of the Act. It is consequently the claim of the assessee that once the assessee files a revised return under s.153A of the Act, the revised return will be treated as the original return filed under s.139 of the Act in so far all other provisions of the Act are concerned. As noted earlier, Section 271AAA and Explanation 5A to Section 271(1)(c) of the Act deems culpability in appropriate cases even before the return is filed in search cases. Therefore, substitution of return originally filed under s.139 of the Act by subsequent return under s.153A of the Act has no impact on the legal fiction towards concealment enjoined by Explanation 5A of the Act. Therefore, the non obstante provision in Section 153A of the Act does not come in the way of penalty proceedings in search cases at all. Thus, the plea of the assessee for applicability of penalty provisions qua the return of income which may hold good under the normal provisions will not apply to special provisions enacted in search cases;

++ explanation 5A of the Act has been inserted to specifically address the situation were consequent to a search, assets and valuables or undisclosed income in the form of entry in books, documents etc. is found and thereafter the assessee files return of income in consequence of search. In such cases, owing to deeming fiction, the additional income declared in the return would be deemed to be concealed income. Thus, by virtue of Explanation Section 271AAA of the Act and Explanation 5A to Section 271(1)(c) of the Act, it is presumed by the statute that the assessee would not have disclosed such unrecorded income in the return filed subsequently in the absence of search. Thus, while as a matter of general proposition, there can presumably be no concealment of income till filing of return as per the normal provisions of Section 271(1)(c) of the Act, a presumption of concealment of income can be attributed under Explanation 5A /271AAA/271AAB of the Act much before return of income is filed unlike the normal situation where concealment of income can be attributed only with reference to the return filed. In view of the special provisions enacted for imposition of penalty in search cases, the default under s.271(1)(c) of the Act gets triggered towards undisclosed income immediately on search action pending filing of return under s.139/s.153A of the Act albeit subject to escape roots as provided in Section 271AAA/271AAB/Explanation 5A to Section 271(1)(c) of the Act etc. No merit was found in the plea of the assessee. No other plea has been raised on merits to absolve the assessee from imposition of penalty. Consequently, the appeal of the assessee in ITA No.159/Ahd/2017 for AY 2010-11 is dismissed.

(See 2019-TIOL-671-ITAT-AHM)