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2008 (1) TMI 513 - AT - Income TaxApplicability of Explanation 5(2) to section 271(1)(c) - Assessment order framed u/s 153A(b) - penalty for the earlier period where the due date of return under section 139(1) - Undisclosed investment surrender - Search And Seizure. Applicability of Explanation 5(2) to section 271(1)(c) - From the case law of the hon'ble Bombay High Court in the case of Sheraton Apparels : Max Corporation : Tressa Fashion v. Asst.[2002 (5) TMI 39 - BOMBAY HIGH COURT]. it is clear that if an assessee in such case makes a statement during the course of search admitting the assets found during such search, have been acquired by him out of his income which has not been disclosed so far in his return of income to be furnished before the expiry of the time prescribed u/s 139(1) and also specifies in the statement made u/s 132(4), the manner in which such income has been derived and pays the taxes that are due including interest, then the AO will not levy any penalty u/s 271(1)(c) of the Act. In the present case before us the assessee has filed his original return of income under section 139(1) declaring an income. Whereas search under section 132 took place on September 4, 2003, and the assessee has not declared this additional income, declared during the course of search u/s 132(4) of the Act, in the original return. Explanation 5 to section 271 (1) (c) of the Act will not come to the rescue of the assessee as there is no time available for filing of return u/s 139(1) of the Act as mentioned in clause (2) of Explanation 5 of this section. It means income admitted u/s 132(4) of the Act which has not been disclosed in his return of income to be furnished before the expiry of time limit u/s 139(1) of the Act, then the assessee will not be liable to the penalty. But the facts in the present case before us are clearly different that the AY for which the income is admitted u/s 132(4) is the AY 1998-99 and the search was conducted as on September 4, 2003. It means no time is left for the return u/s 139(1) of the Act and even the assessee has filed his original return of income and in this return he has not declared this income detected during the course of search. Thus, respectfully following the above case, we are of the view that the assessee's case does not fall in the exceptions provided under Explanation 5 to section 271(1)(c) read with section 132(4) of the Act. Accordingly, on this aspect we confirm the penalty and reverse the order of CIT (A). No penalty under section 271(1)(c) is imposable on the income returned under section 153A prior to such amendment - We are not in agreement with the view of the CIT (A) that the original return filed by the assessee as on October 27, 1998, will abate and the return filed in response to section 153A(a) of the Act is to be considered as return filed u/s 139 of the Act as the original return. The assessee in the present case has already filed the original return as on October 27, 1998, and no action whatsoever is pending and the return of income was accepted as it is. Subsequently, during the course of search the assessee has disclosed a sum of Rs. 5,00,000 in his return of income filed u/s 153A(a) of the Act as declared u/s 132(4) of the Act and accepted the assessment also. The reasoning given by the CIT (A) that by introduction of section 271AAA of the Act itself shows that no penalty u/s 271(1)(c) is imposable on the income returned u/s 153A of the Act, is clearly a wrong interpretation of this Explanation. In view of this, on this legal issue also we confirm the penalty and reverse the order of the CIT (A). As we have decided both the legal issues in favour of the Revenue and against the assessee, and since the CIT (A) has not adjudicated the appeal on merits, we have no alternative except to set aside this appeal of the Revenue to the file of the CIT (A). Accordingly, we set side this appeal of the Revenue to the file of the CIT (A) with the directions to adjudicate the penalty appeals on the merits. In the result the Revenue's appeals are allowed for statistical purposes.
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