ORDER
Bench
As common facts and issues are involved in these four appeals, the same were argued together by the common authorised representative of the assessees and the Departmental Representative. The same are being decided by this consolidated order for convenience.
2. These four are cross appeals filed by the assessees as well as revenue in relation to levy of penalty under section 271(1)(c) for the assessment year 1988-89 in the case of two assessees.
3. Facts of the case leading to these appeals as mentioned in the penalty orders and the impugned appellate orders of the learned Commissioner (Appeals), briefly, are that these two ladies were connected with one Shri Harshad S. Mehta. There was a search under section 132 of the Act on 27-9-1990. During the course of the search, Shri Harshad Mehta made a statement that in the absence of updated books of account, the source of investment in various assets might not be properly known to them and, therefore, the members of the family made a declaration of additional income of Rs. 3 crores under section 132(4) of the Income Tax Act, 1961. It was promised that a detailed break-up of the amount would be given to the department in a few days time. It was further stated that all the members of the family had earned additional income of Rs. 3 crores out of brokerage of Stock Exchange and capital gains from investment in shares and securities which had not been accounted for in the family members' personal books of account. On the date of search, the members of family had not filed returns of income for assessment years 1988-89, 1989-90 and 1990-91. Shri Harshad Mehta further stated that they proposed to pay taxes on additional income of Rs. 25 lakhs for assessment year 1989-90 and Rs. 1 crore for assessment year 1990-91 and that the department should take a lenient view and grant them immunity from penalty and prosecution and interest. Thereafter, on 10-5-1991, Shri Harshad S. Mehta and Shri Ashwin S. Mehta jointly submitted a letter to the assessing officer wherein the fact of declaration of additional income under section 132(4) to the extent of Rs. 4.25 crores was reiterated. Besides, the family members filed separate affidavits on 15-4-1991, inter alia, stating that they had made declaration under section 132(4) declaring total income of Rs. 4.25 crores as source of investment in shares found could not be explained. According to the assessing officer, these two ladies vide their letters dated 22-1-1991 submitted the break-up of declaration for earlier years in the following manner :
Entity
1988-89
1989-90
1990-91
Total
Harshad S. Mehta
Nil
7,24,691
33,87,717
41,12,408
Ashwin S. Mehta
Nil
7,37,771
12,93,455
17,31,226
Hitesh S. Mehta
39,269
6,01,133
3,35,504
9,75,906
Sudhir S. Mehta
81,910
6,16,068
Nil
6,97,978
Rasila S. Mehta
7,409
3,85,946
2,50,010
6,43,365
Jyoti H. Mehta
37,794
9,91,476
11,23,679
21,52,949
Deepika A. Mehta
1,24,626
4,50,414
15,81,527
21,56,567
Pratima H. Mehta
34,699
7,07,557
Nil
7,42,256
4. As these assessees had not furnished returns of income, the assessing officer issued notices under section 148 on 7-11-1990. In response, Smt. Rasila S. Mehta filed her return of income on 30-11-1990 declaring total income at Rs. 38,751. Smt. Pratima H. Mehta filed her return of income on 30-11-1990 declaring total income of Rs. 53,010. As these returns of income were not accompanied by the profit and loss account and balance sheet, the same were eventually treated as invalid returns which was communicated to these assessees on 8-4-1991. Subsequently, these assessees filed returns of income on 4-6-1991 declaring total income of Rs. 39,500 and Rs, 53,010. The assessments in their cases were completed on 26-3-1993 at total income of Rs. 1,52,496 in the case of Smt. Rasila S. Mehta and Rs. 18,20,077 in the case of Smt. Pratima H. Mehta. However, in pursuance of the order of the learned Commissioner (Appeals), the total income in their cases was revised to Rs. 45,436 and Rs. 53,010 respectively. During the course of assessment proceedings the assessing officer had initiated penalty proceedings under section 271(1)(c). In this connection, the assessees made their submissions to the assessing officer. Smt. Pratima H. Mehta pointed out that as per order of the Hon'ble Judge of the Special Court, Shri S.N. Variava, in miscellaneous application No. 107 of 1993 dated 2-7-1993, no penalty should be imposed against her. The assessing officer however held that the said order related to levy of penalty under section 221 only and not other provisions of Income Tax Act.
5. According to the assessing officer, the assessees were liable to penalty under section 271(1)(c) in view of Explanation 5 below section 271(1)(c) inasmuch as Smt. Rasila S. Mehta had claimed that a sum of Rs. 7,409 disclosed in her returns of income for assessment year 1988-89 had been used for acquisition of shares found during the course of the search and Smt. Pratima H. Mehta had similarly claimed that a sum of Rs. 34,699 had been so used. The assessees submitted that Explanation 5 had provided that no penalty should be levied if the assessee had made a declaration under section 132(4). The assessing officer did not accept these arguments of the assessees as in his view the immunity under provisions of Explanation 5 was available only in respect of the assessment year for which the due date of filing of return was after the date of search. Moreover, the assessees had filed their returns of income in consequence of search action carried out by the department. Returns had not been filed voluntarily but in pursuance to notices under section 148. Based on this reasoning the assessing officer held that Smt. Rasila Mehta and Smt. Pratima Mehta had concealed total income at Rs. 39,500 and Rs. 53,010 respectively and the entire amount represented the income on which tax was sought to be evaded. The assessing officer therefore levied penalty on the tax sought to be evaded thus worked out at the rate of 200 per cent resulting into the levy of penalty of Rs. 12,200 on Smt. Rasila Mehta and Rs. 21,254 on Smt. Pratima Mehta.
6. Aggrieved by these penalty orders, the assessees filed appeals before the learned Commissioner (Appeals). The learned counsel for the assessee submitted before the learned Commissioner (Appeals) that these assessees having made disclosure of income under section 132(4) of the Act, their case was covered by the immunity provided under Explanation 5 to section 271(1)(c). The learned counsel referred to the judgment of Hon'ble Bombay High Court in Premachand Nathamal Kothari Mah. L.J. 1975 497 and submitted that as in the case of statements or estimates of advance tax, the Finance Act, 1979, had provided that the same could be furnished on or before the same date on which the relevant instalment became payable, the expression 'said date' appearing in the middle of Explanation 5 should be interpreted to mean the date on which search and seizure action was carried out. The learned counsel also relied on the judgment of Rajasthan High Court in the case of Yashwant Singh v. CIT (1995) 212 ITR 207 and argued that the word 'concealed' contemplated the element of mens rea. He therefore urged that the penalty levied by the assessing officer should be deleted. On the other hand, the assessing officer argued that Explanation 5 was not available in respect of disclosures relating to earlier years and the assessees' case was also not covered by Explanation 5 because income had not been disclosed before the date of search and seizure. The learned Commissioner (Appeals) held that exemption from operation of Explanation 5 was possible only in respect of the disclosure of income of the current year before the expiry of due date for filing of the return of income under section 139(1). The assessees were therefore not entitled to immunity from penalty under Explanation 5 to section 271(1)(c) in relation to assessment year 1988-89. It was not the case of the assessee that the transactions resulting in disclosed income were recorded in the books of account. In his statement, Shri Harshad Mehta had clearly admitted on behalf of the group that the income disclosed was not accounted for in the personal books of account of the family members. There was no disclosure before the Chief Commissioner or Commissioner either. The words 'before the said date' had to be interpreted so as to mean before date of search only. It was also relevant to mention that this Explanation had been inserted with a view to plug the loophole in cases where search resulted in seizure of unaccounted assets and the assessees tried to obtain benefit by claiming that such assets had been acquired out of the income of the earlier years Explanation 5 was introduced to check such mischief. Therefore, the crucial test for exemption from the operation of deeming provisions of Explanation 5 was whether the income had otherwise been disclosed before the date of search or otherwise recorded in the books of account. The words 'before the said date' could not be interpreted so as to include the date on which the search and seizure had taken place or thereafter unless it was a case in which the due date for filing the relevant return of income had not expired. The judgment of Hon'ble Bombay High Court in the case of Premachand Nathamal Kothari (supra) was with reference to an enactment of Maharashtra legislature with a view to provide relief to certain agricultural debtors. The same was a beneficial legislation and there was some ambiguity and, therefore, Hon'ble Bombay High Court interpreted the words 'before the specified date' so as to include even the date mentioned in the Act. In the case of Income Tax Act, there was no ambiguity because the Explanation had been intentionally inserted to check and prevent the assessees from taking benefit by taking the plea that undisclosed assets had been acquired out of the income of the earlier years. Another judgment of Rajasthan High Court in the case of Yashwant Singh (supra) was also not applicable because it was not a case where addition had been made on the basis of guesswork or estimate without making any detailed enquiry. This was a case in which detailed enquiry had been made and as the assessees were not in a position to rebut the factual position, the admission was made that the assets had been acquired out of income which had not been reflected in the personal books of account.
7. The learned Commissioner (Appeals) also considered the judgment of Calcutta High Court in the case of CIT v. Calcutta Credit Corpn. (1987) 166 ITR 291 and of Allahabad High Court in the case of CIT v. University Printers : [1991]188ITR206(All) which had been relied upon by the learned counsel for the assessees. The learned Commissioner (Appeals) found that both the cases were distinguishable on facts. In both the cases the addition made related to cash credits. The assessees had not admitted that the alleged cash credits represented their unaccounted income. The assessees were also able to put across Explanations about source of cash credit. On such facts the Hon'ble High Courts held that where two opinions on the same facts were possible or Explanation offered by the assessee was rejected, that by itself would not justify imposition of penalty under section 271(1)(c). The learned Commissioner (Appeals) similarly found that the judgment of Madras High Court in the case of CIT v. V.R. Chittal Achi : [1983]140ITR698(Mad) was also distinguishable.
8. The learned Commissioner (Appeals) found that in the case of these assessees, the following facts were noteworthy :
(i) The returns of income were due on 30-6-1988 and the same had not been filed even though a period of more than two years had already expired. This clearly showed that the assessees had no intention of disclosing the income earned during the previous year.
(ii) There was search at the premises of the assessees on 27-9-1990 which resulted in seizure of unaccounted material/ documents and unaccounted assets of substantial value.
(iii) During the course of the search, when the assessees were confronted they admitted additional income and also admitted that such additional income representing the investments in the shares and securities had not been accounted for in their personal books of account.
Thus, the fact of income concealed was duly admitted by the assessees. When the assessees themselves admitted that additional income represented their unaccounted income, no further evidence was necessary to show that the same was concealed income. The learned Commissioner (Appeals) referred to the judgments in Krishan Lal Shiv Chand Rai v. CIT and M. Ramaswami Asari v. CIT : [1974]96ITR546(Mad) in this respect. The learned Commissioner (Appeals), however, having regard to the facts that apart from income declared during the course of search there was no other income, held that levy of minimum penalty at the rate of 100 per cent of the tax sought to be evaded would suffice. He therefore reduced the penalty in the case of Smt. Rasila S. Mehta to Rs. 6,100 from Rs, 12,200 and in the case of Smt. Pratima H. Mehta from Rs. 21,254 to Rs, 10,627.
9. Aggrieved by the orders of the learned Commissioner (Appeals) as discussed by us in foregoing paragraphs, both assessees as well as revenue are in appeal before us. According to the assessees, no penalty under section 271(1)(c) is leviable, whereas, according to revenue the learned Commissioner (Appeals) was not justified in reducing the penalty imposed by the assessing officer at the maximum rate to the minimum rate of penalty.
10. During the course of hearing before us, the learned authorised representative of the assessees argued that these assessees were not having any large income in assessment years prior to assessment year 1988-89. In the case of Smt. Rasila Mehta, the return of income for assessment year 1985-86 was filed in time on 3-3-1986 at total income of Rs. 19,400 and the returned income was accepted. Return for assessment year 1986-87 was also filed in time on 30-9-1986 at total income of Rs. 1,46,720 which again was accepted. Return of income for assessment year 1987-88 was also filed in time on 4-9-1987 at total income of Rs. 39,085 which too had been accepted. Thus the assessee had a decent past history. For a variety of reasons, the assessee's returns of income for and after assessment year 1988-89 were held up and by the time the search took place, the assessee had not filed the return of income after 1987-88. However, having regard to the earlier history, this fact alone could not go against the assessee. Even for assessment year 1988-89, the assessing officer made considerable addition in the case of Smt. Pratima H. Mehta but after appeal effect, the same was reduced and assessed income was the same as returned by the assessee. It is true that certain additional income was declared during the course of the search, but the declaration of additional income had been made for want of particulars regarding source of investment and not because of any particular source of undisclosed income. There was also difficulty as the books of account had not been updated. The assessee had therefore requested the department to take a lenient view and to grant immunity from levy of penalty, prosecution and charging of interest.
11. The learned authorised representative of the assessees referred to the penalty orders as made by the assessing officer and submitted that these penalty orders had predominantly been made under Explanation 5 below section 271(1)(c) of the Act. However, in para 3.4 in the case of Smt. Rasila S. Mehta and in para 4.7 in the case of Smt. Pratima H. Mehta, the assessing officer also referred to the main provisions of Income Tax Act. After having invoked the provisions of Explanation 5, it was not open to the assessing officer to levy penalty under the main provisions of the Act. The learned authorised representative of the assessees relied in this behalf on the judgment of Hon'ble Bombay High Court in CIT v. P.M. Shah : [1993]203ITR792(Bom) . He also relied upon the decision of the Tribunal, Ahmedabad Bench, in the case of Gulamrasul M. Pathan v. Asstt. CIT .
12. The learned authorised representative of the assessees argued that after effect to the order of the learned Commissioner (Appeals), the assessed total income in both these cases was more or less the same as the income which had been returned by the assessees. There was therefore no concealment of income or furnishing of any inaccurate particulars of income in these cases. There was no penalty leviable on these assessees because there was no concealment of income or furnishing of inaccurate particulars of income in the first instance. Merely because the returns had not been filed in time did not result into concealment of income. There were practical difficulties such as relevant data having been dropped by the computer on account of various and want of all the relevant information. At any rate, the legal position was that an assessee commits an act of concealment only when return of income is filed and not before that. As far as returns of income were concerned, there was no concealment because the income as returned was the income as finally assessed. The learned counsel placed reliance on the judgment of Hon'ble Supreme Court in the case of Brij Mohan v. CIT : [1979]120ITR1(SC) . He referred to the observations of Hon'ble Supreme Court at page 4 wherein it was held that it is the law operating on the date on which the wrongful act is committed which determines penalty and where penalty is imposed for concealment of particulars of income, it is the law ruling on the date when the act of concealment takes place. The concealment of the particulars of income was effected by the assessee when he filed the return of income. The learned counsel for the assessees further relied upon the decision of the Tribunal, Bangalore Bench, in the case of ITO v. Nurul Huda G. Aboobakar and decision of the Tribunal, Pune Bench, in the case of Yashwant B. Chigteri v. Asstt. CIT . The learned counsel for the assessees argued that the only basis on which the penalty could be justified in these cases is the Explanations appended to the provisions of section 271(1)(c). Under the main provisions there was no concealment inasmuch as there was no difference between the returned income and the assessed income. The assessing officer could not invoke the deeming provisions of Explanation either, because the assessees' cases were fully covered by disclosure made under section 132(4). During the course of search, the assessees were given to understand that no penalty shall be levied if they, made disclosure of additional income. The assessees therefore recorded this in the disclosure itself, that the department should take a lenient view and no penalty, prosecution or interest should be brought in. Relying upon the decision of the Tribunal, Ahmedabad Bench 'C', in the case of Ashok Natverlal Patel v. Asstt. CIT , the learned authorised representative argued that having assured the assessees of immunity, it was not open to the revenue to impose penalty under section 271(1)(c) on these assessees.
13. The learned authorised representative of the assessees argued that while a group disclosure of Rs. 3 crores was made, to which these two assessees were parties no particular asset had been identified which had been concealed by the assessees. Provisions of Explanation 5 to section 271(1)(c) come into operation only when in the course of a search under section 132, the assessee is found to be the owner of any money, bullion or jewellery or other valuable article or thing and the assessee claimed that such assets had been acquired by him by utilising his or her income. In the absence of any specific asset, there was no question of application of Explanation 5. At any rate, it was settled position that if two interpretations are possible, one favourable to the assessee should be followed.
14. During the course of hearing, the learned authorised representative of the assessees referred to some other decisions in the paper book such as Gulamrasul M. Pathan's case (supra), Amir Chand v. ITO (1994) 49 ITD 606 (Del), Mahendra Chimanlal Shah v. Asstt. CIT (1994) 49 TTJ (Ahd) 677 and the decision of the Tribunal, Mumbai in the case of Geeta Tulsidas (IT Appeal No. 1977 (Bom) of 1994, dated 27-9-1999).
15. The learned Departmental Representative strongly relied upon the order of the learned Commissioner (Appeals) and pointed out that a very well reasoned and speaking order had been made by the learned Commissioner (Appeals) and all the points made by the assessees were duly considered and found untenable. This was a case of the assessees who were part of a group which had carried on business of great magnitude but did not care to file returns of income for years together. It was only as a result of special efforts of the department by way of search and seizure action under section 132 that the assessees were spurred into action and first the disclosure was made and thereafter returns of income were filed. This was therefore a case of clear concealment. The learned Commissioner (Appeals) erred in showing leniency to these assessees. As it was a case of blatant tax evasion the assessees deserved to be visited by maximum penalty as imposed by the assessing officer and reducing the same to the level of minimum imposable penalty by the learned Commissioner (Appeals) was uncalled for. The learned Departmental Representative therefore argued that while the assessees' appeals should be dismissed, revenue's appeals should be upheld and in the matter of quantum of penalty, the orders of the learned Commissioner (Appeals) should be set aside and that of assessing officer should be restored.
16. In his rejoinder, the learned authorised representative of the assessees stated that these assessees had paid advance tax and, therefore, it was totally incorrect to say that the assessees had no intention to file the returns of income and it was only search which had induced returns of income from these assessees.
17. We have carefully considered the rival submissions. We find that the case of revenue for levy of penalty in these two cases is two-fold, i.e., firstly, as the assessees had not filed their returns of income for assessment years 1988-89, 1989-90 and 1990-91 even though the same had become due, there was concealment of income on the part of these two assessees and, therefore, the entire returned/assessed income should be treated to be income which had been concealed by the assessees or in respect of which inaccurate particulars had been furnished by the assessees. Secondly according to revenue, the assessees' case was hit by provisions of Explanation 5 inasmuch as the assessees were found to be the owner of money, bullion, jewellery or other valuable article or thing during the course of the search and the assessees claimed that such assets had been acquired by them by utilising their income from assessment year 1988-89 and onwards. The assessees could not claim any immunity under Explanation 5 inasmuch as the returns of income had already fallen due under section 139(1) at the time of search and declaration of additional income by these assessees. We shall examine the first proposition first, as to whether these assessees may be treated to have concealed their income or furnished inaccurate particulars thereof for reasons only that the returns of income had been filed by them in response to notices under section 148 or as a consequence of search under section 132. The learned authorised representative of the assessees has very correctly stated that under the main provision of section 271(1)(c), an act of concealment of income or of furnishing inaccurate particulars thereof is done only when the relevant return of income is filed by the assessee. It has always been the legal position that failure to file return of income in itself does not result into concealment or inaccurate particulars of income. Reference in this behalf may be made to the judgments in Thoppil Kutti Eroor v. CIT : [1958]34ITR850(Ker) and S. Santhosa Nadar v. First Addl. ITO : [1962]46ITR411(Mad) . The same position has been reiterated in the judgment of Hon'ble Supreme Court in the case of Brij Mohan (supra) when it was held that for levy of penalty for concealment it is the law prevailing on the date of filing of return of income which is relevant. As a matter of fact, Explanation 3 was inserted and appended to the main provision of section 271(1)(c) by Taxation Laws (Amendment) Act, 1975 to promulgate a deeming provision that non-filing of returns of income within the period during which the assessee could file the return of income by new assessee shall be deemed to be concealment of income. However, the scope and ambit of Explanation 3 has been confined to the new assessees only and Explanation 3 has no application in relation to the assessees who have filed returns of income in past. We, therefore accept the contentions of the assessees in this respect and do not agree with the authorities below that the entire-returned income should be treated as income concealed by the assessee or in respect of which inaccurate particulars have been furnished by the assessees for the reason that these assessees had not furnished the returns of income within the normal period allowed to them for having filed their returns of income on their own.
18. We shall now turn to the second limb of the impugned orders which relates to Explanation 5 appended to section 271(1)(c). According to revenue, Explanation 5 was clearly attracted inasmuch as during the course of search under section 132, these assessees were found to be the owner of valuable assets and these assessees claimed that such assets had been acquired by them by utilising their income which was earned by them during the previous year relevant to assessment year 1988-89 also with which we are concerned. The learned authorised representative of the assessees has vehemently argued before us that the additional income as disclosed by these assessees has not been connected with any assets found during the course of the search and for that reason alone. Explanation 5 cannot be pressed into service in the case of these two assessees. On a careful consideration, we reject the argument of the assessees and find ourselves in agreement with the finding of the authorities below in this respect. In both the penalty orders, the assessing officer has reproduced the statement of Shri Harshad S. Mehta on behalf of these assessees during the course of search proceedings under section 132(4) on 27-9-1990. There is clear admission in this statement that the additional income was being disclosed in relation to brokerage of stock exchange and capital gains from investment in shares and securities which were not accounted for in the personal books of account of these assessees. Thereafter, again on 10-5-1991, Shri Harshad S. Mehta and Shri Ashwin S. Mehta jointly submitted a letter with the then assessing officer wherein it was reiterated that as the shares purchased by the family members could not be properly explained, the declaration of additional income of Rs. 4.25 crores was made in the statement on 27-9-1990. The assessing officer has also recorded in the penalty orders that all these persons filed their separate affidavits wherein additional income was said to be source of investment of shares found during the course of the search. We therefore accept the revenue's contention on this preliminary issue.
19. The main debate during the course of hearing before us was as to whether or not the assessees were immunised against penalty by virtue of operation of the provisions of Explanation 5. While the revenue maintains that there was no immunity to the assessees as time limit to file return of income under section 139(1) had already expired before the search, the assessees have argued that time limit was available to them to make disclosure of additional income before 'the said date' which has to be interpreted as on or before the date of the search.
20. We have carefully considered the rival submissions. Decision in these appeals hinges upon a correct reading and interpretation of Explanation 5 appended to section 271(1)(c). Provision for penalty for concealment of particulars of income or furnishing inaccurate particulars of such income as it stood prior to amendment by the Finance Act, 1964, did not have any Explanation and it was held by courts that the burden to prove either concealment of particulars of income or furnishing of inaccurate particulars of such income was entirely upon revenue. The Finance Act, 1964, inserted an Explanation whereby where the total income returned by any person was less than 80 per cent of the total income as assessed and reduced by the expenditure bona fide incurred by the assessee but not allowed by the assessing officer, it was for such person to prove that the failure to return the correct income did not arise from any fraud or any gross or willful neglect on his part. Otherwise, the assessee was deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income for the purposes of provisions of section 271(1)(c). This single Explanation was replaced by the Taxation Laws (Amendment) Act, 1975, with effect from 1-4-1976, and Explanation 1 to Explanation 4 were inserted. Explanation 5, with which we are concerned, had been inserted by the Taxation Laws (Amendment) Act, 1984, with effect from 1-10-1984 and, finally, one more Explanation, being Explanation 6, has been inserted by the Direct Tax Laws (Amendment) Act, 1989, with effect from 1-4-1989. From this historical background of Explanations to section 271(1)(c) it would appear that the Explanations operate for deeming in given situations concealment of particulars of income or furnishing of inaccurate particulars of such income. Amendment of the provisions of sections 271(1)(c) and insertion of an Explanation by the Finance Act, 1964, was described in Central Board of Direct Taxes Circular No. 20, dated 7-7-1964 as 'Tightening up of the provisions relating to liability to imposition of penalty for concealment of income or furnishing inaccurate particulars thereof'. The Explanation introduced with effect from 1-4-1964 was replaced by a set of four Explanations with effect from 1-4-1976 after considering the Wanchoo Committee Report. This Committee headed by Shri Justice K.N. Wanchoo was appointed by the Government of India to examine and suggest legal and administrative measures for countering evasion and avoidance of direct taxes and to recommend concrete and effective measures for unearthing black money and preventing its proliferation through further evasion. Explanation 5 was brought into force as a result of the experience of the department that during the course of search under section 132 where the assessees were found to be the owner of any money, bullion, jewellery or other valuable article or thing, the assessees got away by simply asserting that the matter related to certain returns of income which were not filed or had not fallen due for being filed as on the date of the search. In some cases, the assessees could also ascribe the undisclosed assets as acquisition out of income earned in distant past, way beyond the reach of the assessing officer.
This aspect has been highlighted in Central Board of Direct Taxes Circular No. 394 dated 14-9-1984 in the following words :
'Amendment of section 271 relating to penalty for certain defaults.36.1. The Amending Act has inserted a new Explanation 5 to subsection (1) of section 271 of the Income Tax Act.
36.2 The new Explanation contain a special provision applicable to cases where in the course of a search under section 132 of the Income Tax Act, the assessee is found to be the owner of any money, bullion, jewellery or other valuable article or thing. The new Explanation provides that if, in such cases, the assessee claims that the assets referred to above have been acquired by him by utilising (whether wholly or in part) his income for any previous year which has ended before the date of the search, but the return of income for such year has not been furnished before the said date or where such return has been furnished before the said date, such income has not been declared in the return, the assessee shall, for the purposes of imposition of penalty under section 271(1)(c) of the Income Tax Act, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income unless such income is, or the transactions resulting in such income are, recorded before the date of the search in the books of account, if any, maintained by him for any source of income or such income is otherwise disclosed to the Commissioner before the date of the search. Where the assessee claims that the aforesaid assets have been acquired by him by utilising (whether wholly or in part) his income for any previous year which is to end on or after the date of the search, he shall for the purposes of section 271(1)(c) of the Act be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income, unless such income, or the transactions resulting in such income are recorded on or before such date in the books of account, if any, maintained by him for any source of income or such income is otherwise disclosed to the Commissioner before the said date.
36.3 The fact that the income referred to above is declared by the assessee in any return of income furnished by him on or after the date of the search will not provide immunity to the assessee from imposition of penalty under section 271(1)(c) of the Act unless the conditions mentioned in the preceding paragraph are fulfilled.
36.4 The aforesaid amendments take effect from 1-10-1984.'
21. We now reproduce Explanation 5, which is as follows :
'Explanation 5.Where in the course of is search under section 132, the assessee is found to be the owner of any money, bullion, jewellery or other valuable article or thing (hereinafter 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,
(a) for any previous year which has ended before the date of the search, but the return of income for such year has not been furnished before the said date or, where such return has been furnished before the said date, such income has not been declared therein; or
(b) for any previous year which is to, end on or after the date of the search, then, notwithstanding that such income is declared by him in any return of income furnished on or after the date of the 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, unless,
(1) such income is, or the transactions resulting in such income are recorded,
(i) in a case falling under clause (a), before the date of the search; and
(ii) in a case falling under clause (b), on or before such date;
in the books of account, if any maintained by him for any source of income or such income is otherwise disclosed to the Chief Commissioner or Commissioner before the said date; or
(2) he, in the course of the search, makes a statement under subsection (4) of section 132 that any money, bullion, jewellery or other valuable article or thing found in his possession or under his control, has been acquired out of his income which has not been disclosed so far in his return of income to be furnished before the expiry of time specified in sub-section (1) of section 139, and also specifies in the statement the manner in which such income has been derived and pays the tax, together with interest, if any, in respect of such income.'
From the reading of Explanation 5 above quoted, it is seen that it comes into force where in the course of a search under section 132, the assessee is found to be the owner of any money, bullion, jewellery or any other article or thing and the assessee claims that such assets have been acquired by him by utilising (wholly or in part) such income which had not been declared in any of the returns of income filed on or before the date of the search, Explanation 5 provides that in such a situation, declaration of such income in any return of income furnished by the assessee on or after the date of the search would be of no avail and the assessee shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income unless such income is found to be recorded in the books of account maintained by the assessee or such income is otherwise disclosed to the Chief Commissioner or Commissioner before the date of search or the assessee makes a statement under section 132(4) that the asset(s) in question has been acquired out of his income which has not been disclosed so far in his return of income to be furnished before the expiry of time specified in section 139(1) and also specifies in the statement the manner in which such income has been derived and pays the tax, together with interest, if any, in respect of such income.
22. The learned counsel for the assessees argued that 'before the said date' should be read as 'on or before the said date' and the statement made under section 132(4) should be treated as a disclosure made to the Commissioner. The provisions of Explanation 5 would not make much sense if an assessee is treated to have concealed his income or furnished inaccurate particulars of his income in spite of having made a disclosure in the course of statement under section 132(4). On consideration of the matter we are of the view that the provisions of Explanation 5 providing for declaration of income in the statement under section 132(4) should not be confused with a voluntary disclosure scheme. This Explanation has been inserted with a view to create a legal fiction of concealment or furnishing of inaccurate particulars of income. The words 'income which has not been disclosed so far in his return of income to be furnished before the expiry of time specified in section 139(1)' are intended to encompass only such situations where the time limit specified in section 139(1) does not expire as on the date of the search. Having regard to the historical background of Explanations appended to section 271(1)(c), we are convinced that these words have been employed only to avoid a situation in which as a result of certain money, bullion, jewellery or any other valuable article or thing having been found during the course of the search, the assessee attempts to wriggle out of the situation and escape the rigours of penalty by subsequently arguing that such assets had been acquired out of the assessee's income in distant part or out of the income of the previous years for which the assessee had not filed returns of income. Explanation 5 has been conceived as a disabling provision and not as an enabling provision. The idea behind Explanation 5 is to disable an assessee from trying to escape the rigours of penalty under section 271(1)(c). Accordingly, while introducing these Explanations, the amendments were described as 'tightening up' of the provision or provisions to 'deem an assessee to have concealed the particulars of his income or furnished inaccurate particulars of such income'.
23. In view of the discussions in the foregoing paragraphs, we hold that by virtue of operation of Explanation 5, the assessees before us have to be deemed to have concealed particulars of their income or furnished inaccurate particulars of income related to the valuable assets found during the search under section 132 because as on the date of the search the time limit under section 139(1) of filing the return of income for assessment year 1988-89 had already expired. We do not see any material and justification for the plea taken by the assessees before us that the department had assured them any immunity while recording the statement under section 132(4). However, we find that Explanation 5, on the facts and in the circumstances of these appeals, cannot be applied to the entire income as assessed by the assessing officer but only to such income which could be ascribed to any money, bullion, jewellery or any other valuable article or thing the assessees were found to be the owners of during the course of search proceedings. Accordingly, we hold that Smt. Rasila S. Mehta could be deemed to have concealed her income or furnished inaccurate particulars thereof to the extent of a sum of Rs. 7,409 only for assessment year 1988-89. Similarly, Smt. Pratima H. Mehta could be deemed to have concealed her income or furnished inaccurate particulars thereof to the extent of a sum of Rs. 34,699 only. We, therefore, direct the assessing officer to recompute penalty under section 271(1)(c) in respect of only these amounts at the rate of 100 per cent of tax sought to be evaded, or minimum imposable penalty.
24. In the result, while the appeals filed by revenue are dismissed, the appeals filed by the assessees are partly allowed.