Whether when assessee pays the entire tax with interest before conclusion of penalty proceedings, immunity u/s 271AAA(2) cannot be denied to assessee - YES, rules ITAT

THE issues before the Tribunal are - Whether when assessee pays the entire tax with interest before conclusion of penalty proceedings, immunity u/s 271AAA(2) cannot be denied to the assessee and whether when the statute does not prescribe any time limit for payment of tax with interest, AO cannot lay down any outer limit of payment before filing of tax return. And the questions are answered in favour of the assessee.

Facts of the case

On 30th August 2007, the assessee company and certain associated entities, collectively referred to as Pioneer Group, were subjected to search and seizure operations under section 132 of the Act. During the course of this operation, the assessee made a disclosure of Rs 50,00,000. There was no dispute that the income so declared was included in the income subsequently returned by the assessee, vide income tax return filed on 28th September 2008. The assessment under section 143(3) was

completed on 31st December 2009, but, while finalizing the assessment, the Assessing Officer also initiated the penalty proceedings under section 271 AAA and observed that “Since the assessee has not paid the full taxes and interest on disclosure made u/s 132(4), penalty proceedings under section 271AAA of the Act are initiated.” In the resultant penalty proceedings, it was submitted by the assessee that while filing the income tax return and due to an inadvertent mistake, the assessee did not compute interest levy under section 234C. It was for this reason that the self assessment taxes were underpaid by Rs 46,132 but the assessee paid over the shortfall, within permissible time, upon receiving the notice of demand under section 156. It was thus argued that the tax, together with applicable interest, was duly paid by the assessee, and, accordingly, the condition regard payment of tax and interest was duly complied with. The Assessing Officer was, therefore, urged to drop the penalty proceedings. However, the Assessing Officer was not impressed with this submission. He rejected the submissions of the assessee and proceeded to impose the penalty.On appeal, the CIT(A) noted that “from a plain reading of the above section (i.e. 271AAA) it is apparent that if the conditions laid down under sub section 2 of Section 271 AAA were satisfied, no penalty could be imposed” and that “….in section 271AAA, there was no precondition that the tax along with interest must be paid before filing of return or any other specified date”. It was in this backdrop, and in a situation in which it was an admitted position that due tax, along with interest, was paid before the penalty proceedings were concluded, the CIT(A) deleted the impugned penalty.

On appeal, the Tribunal held that,

++ under the scheme of Section 271 AAA, there is a complete paradigm shift so far as penalty in respect of unaccounted income unearthed as a result of search operation carried out on or after 1st June 2007 is concerned. Unlike in the case of penalty under section 271(1)(c), Section 271 AAA, 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 search initiated after 1st June 2007, the assessee is to pay a penalty @ 10% of unaccounted income. Sub-section 2 of Section 271 AAA, however, 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), 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. There is thus 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 271 AAA(2);

++ Section 271AAA, as the statute unambiguously provides, does not require any subjective satisfaction of the Assessing Officer to be arrived at during the assessment proceedings, and, therefore, the outer limit of payment before the conclusion of assessment proceedings will not come into play;

++ in our considered view, on the facts of the present case wherein 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 concluding the assessment proceedings