ASSESSEE MAKING PAYMENT WITHIN PERMISSIBLE TIME UPON RECEIVING NOTICE UNDER SECTION 156 PENALTY CANNOT BE IMPOSED.

[Mr. M. GOVINDARAJAN]

                        In ‘Deputy Commissioner of Income Tax V. Pioneer Marbles and Interiors Private Limited’ – (2012 (2) TMI 261 (Tri)) the assessee company and certain associated entities, collectively called as ‘Pioneer Group’ were subjected to search and seizure operations on 30.08.2007 under Section 132 of the Act.  The assessee at that time made a disclosure of Rs. 50 lakhs and the same was declared as income and subsequently returned by the assessee on 28.09.2008.  On 31.12.2009 the assessment was completed.   The Assessing Officer initiated penalty proceedings under Section 271AAA on the grounds that the assessee has not paid the full taxes and interest on disclosure made under Section 132(4).   The assessee submitted that while filing the income tax return and due to an advertent mistake the assessee did not compute interest under Section 234C but he paid the shortfall within the permissible time upon receiving the notice of demand under Section 156.   The Assessing Officer however rejected the submissions of the assessee.

                        The Assessing Officer held that since the search was conducted on 30.08.2007 and the disclosure was made in the statement recorded under Section 132 (4) of the Act for the specified previous year, the penalty provisions of Sec. 271AAA was squarely applicable.  In order to escape the penalty under Section 271AAA the assessee is required to fulfill all the three conditions laid down.  In this case the assessee did not pay the mandatory interest payable under Section 234 C of the Act.  Thus all the conditions of Section 271AAA (2) have not been complied with.   The imposed penalty is 10% of the disclosed amount i.e., Rs.50 lakhs.

                        The assessee filed appeal before the Commissioner of Income Tax (Appeals) who noted that from a plain reading of Section 271AAA it is apparent that if the conditions laid down under Section 271AAA(2) are satisfied no penalty will be imposed.   There is no precondition that the tax along with interest must be paid before filing of return or any other specified date in Section 271AAA.  The due tax, along with interest was paid before the penalty proceedings were concluded.  Therefore the Commissioner (Appeals) deleted the impugned penalty.

                        Against this order appeal was filed by the Department before the Tribunal.  The following are the grievances against the order of Commissioner (Appeals):

• That in the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeals) erred in appreciating the facts of the case and thus erred in canceling the penalty under Section 271AAA of the Act;
• That the assessee was in default to pay the tax together with interest in respect of undisclosed income and it is mentioned in Section 271AAA(2)(iii) of the Act that the assessee ‘pays the tax together with interest, if any, in respect of undisclosed income’.   Therefore the learned Commissioner of Income Tax (Appeals) has erred in law in allowing the relief.

The Tribunal analyzed the provisions of Section 271AAA which reads as follows:

271AAA Penalty where search has been initiated – (1) The Assessing Officer may, notwithstanding anything contained in any other provisions of this Act, direct that, in a case where search has been initiated under Section 132 on or after the 1^st day of June, 2007, the assessee shall pay by way of penalty, in addition to tax, if any, payable by him, a sum computed at the rate of ten per cent of the undisclosed income of the specified previous year.

            (2) Nothing contained in sub section (1) shall apply if the assessee-

(i)                 in the course of the search, in a statement under sub section (4) of Section 132, admits the undisclosed income and specifies the manner in which such income has been derived;

(ii)               substantiates the manner in which the undisclosed income was derived; and

(iii)             pays the tax, together with interest, if any, in respect of the undisclosed income.

(3) No penalty under the provisions of clause © of sub section (1) of Section271 shall be imposed upon the assessee in respect of the undisclosed income referred to in sub section (1).

(4) The provisions of sections 274 and 275 shall, so far as may be, apply in relation to the penalty referred to in this section.

Explanation – For the purposes of this section –

(a)    ‘undisclosed income’ means-

(i)                 any income of the specified previous year represented, either wholly or partly, by any money, bullion, jewellery or other valuable article or thing or any entry in the books of account or other documents or transactions found in the course of a search under Section 132, which has-

(A)  not been recorded on or before the date of search in the books of account or other documents maintained in the normal course relating to such previous year; or

(B)  Otherwise not been disclosed to the Chief Commissioner or Commissioner before the date of search; or

(ii)               Any income of the specified previous year represented, either wholly or partly, by any entry in respect of an expense recorded in the books of account or other documents maintained in the normal course relating to the specified previous year which is found to be false and would not have been found to be so had the search not been conducted;

(b)   ‘specified previous year’ means the previous year-

(i)                 which has ended before the date of search, but the date of filing 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 said due date; or

(ii)               in which search was conducted.

The Tribunal found that unlike in the case of penalty under Section 271(1)©, Section 271AAA without any reference to findings or presumptions of concealment of income or the findings or presumptions of furnishing of inaccurate particulars, provides that in respect of unaccounted income in the cases where the search is initiated after 01.06.2007, the assessee is to pay a penalty at 10% of unaccounted income.  Section 271AAA relaxes the rigour of this penalty provision in a situation in which-

(i)                 in the course of the search, in a statement under Section 132(4) the assessee admits the undisclosed income and specifies the manner in which such income has been derived;

(ii)               substantiates the manner in which the undisclosed income was derived; and

(iii)             pays the tax, together with interest, if any, in respect of the undisclosed income.

While payment of taxes along with interest, by the assessee is one of the conditions precedent for availing the immunity under Section 271AAA (2), there is no time limit set out for such payments by the assessee.   Once a time limit for payment of tax and interest has not been set out by the statute, it cannot indeed be open to the Assessing Officer to read such a time limit into the scheme of the section or to infer one.  The Tribunal held that there is no legally sustainable basis for the stand of the Assessing Officer that in a situation in which due tax and interest has not been paid in full before filing of the relevant income tax return, the assessee will not be eligible for immunity under Section 271AAA(2).

                        The Tribunal held that where the entire tax and interest has been duly paid well within the time limit for payment of notice of demand under Section 156 and well before the penalty proceedings were concluded, the assessee could not be denied the immunity under Section 271AAA(2) only because entire tax, along with interest was not paid before filing of income tax return or for that purpose before conclusion of the assessment proceedings.