Full Judgment
2. The facts of the case briefly stated are that locker No. 5533 in D.M.C. Vaults Ltd., Karol Bagh, New Delhi in name of assessee and his wife was operated upon by the revenue under section 132 of the Income-tax Act, 1961 on 3-8-1989 and cash amounting to Rs. 8,12,000 and jewellery valued at Rs. 99,989 were seized. A Panchnama was prepared which states that search at the vaults was in continuation of proceedings taken on 21-7-1989. In the present appeal, we are not concerned with operation other than the opening of vault. The assessee on 9-8-1989 wrote to the Asstt. Director of Income-tax that cash and jewellery found from the vault belonged to him and form part of his current income for assessment year 1990-91. It was requested that the letter "may be treated as my statement under section 132(4) read with Explanation 5 of section 271(1)(c) of the Income-tax Act, 1961." The assessee further wrote letter dated 6-11-1989 to Asstt. Commissioner (Inv.), New Delhi to contend that the assessee earned cash and jewellery found from the locker from speculation business in assessment year 1990-91. For above income of Rs. 9,48,700 the assessee has maintained necessary books of account. A copy of letter earlier written on 9-8-1989 was filed with the above letter. The assessee also gave computation of income of Rs. 9,48,700 from speculation in letter dated 27-11-1989. The above summary was claimed to be given on the basis of regularly maintained books of account in the shape of a diary in which all transactions pertaining to speculation were written in Urdu.
3. Subsequently on 29-11-1990 assessee filed return declaring an income of Rs. 10,68,537 including income from speculation in silver at Rs. 9,48,700 to cover cash and valuable articles seized from the vault. The Assessing Officer in the assessee order has observed that the assessee was asked to furnish details regarding speculation business in the course of proceeding under section 132(5) of the Income-tax Act. It is recorded that the assessee had stated that the said business was conducted through number of brokers. The statement of the assessee was recorded on 30-11-1989 and in that statement assessee gave names of few brokers, but expressed his ignorance and inability to furnish their complete address or produce them for examination. In the statement dated 30-11-1989 the assessee categorically admitted that he did not have any past experience of speculation business. The Assessing Officer further observed that the assessee had given wrong address to vault people and, therefore, only inference which could be drawn was that he had no intention to declare this amount for income-tax purposes.
Despite the above remarks, income from speculation business was assessed as under and included in the total income : 4. The Assessing Officer also initiated penalty proceedings under section 271(1)(c) of the Income-tax Act. In reply to the show-cause notice in these proceedings, the assessee contended that provisions of section 271(1)(c) were not applicable. The Assessing Officer rejected the above claim and levied penalty by invoking provisions of Explanation 5 to section 271(1)(c) of the Income-tax Act, 1961. The Assessing Officer reached the conclusion that above Explanation 5 is applicable after examining the assessee's statement dated 30-11-1989.
He further took into account the following circumstances : "(i) That the assessee had no past experience of speculation business and none of his family member ever did that business.
(ii) Whereabouts of brokers through whom business was carried were not available and assessee showed his inability to produce the brokers for examination.
(iv) That no supporting evidence was produced to establish veracity of claim that assessee earned income from speculation business in silver.
(v) The assessee's petition under section 132(11) was rejected by the CIT (Appeals), Delhi-VII, New Delhi on the ground that no documentary evidence was furnished to establish that the assessee had earned income from speculation business in silver.
(vi) That the assessee in his statement recorded on 30-11-1989 admitted that he had given wrong address procuring the vault and no explanation was furnished why wrong address was given.
(vii) The dates of operation of vault as also the fact that forward trading in silver was banned, the Assessing Officer concluded that assessee's claim of speculation business in silver was made up story to cover assets seized from the locker." The Assessing Officer while levying and computing penalty further made the following observations : "From the above, it is clear that the assessee has furnished inaccurate particulars to the querries raised regarding the source of the assets found in the said locker and he has not been able to give the correct particular regarding sources of his income, therefore, the provisions of Explanation 5 to section 271(1)(c) read with section 132(4) are not fulfilled.
9. I, therefore, hold that the assessee has concealed the true particulars of his income. I impose a penalty of Rs. 5,11,963 which is worked out as under :Tax on assessed income : Rs. 5,54,224Tax on 1,20,462 Rs. 42,261 --------------Tax on income from undisclosed sources : Rs. 5,11,963Minimum penalty @ 100 per cent comes to : Rs. 5,11,963Maximum penalty @ 300 per cent comes to : Rs. 15,35,889Penalty imposed @ 100 per cent Rs. 5,11,963Issue demand notice and challan." 5. The levy of above penalty was challenged in appeal before the CIT (Appeals). It was argued that cash and valuable articles found and seized from the vault represented assessee's current income from speculation which was surrendered under section 132(4) read with Explanation 5 of section 271(1)(c) of the Income-tax Act, 1961. In this connection, the assessee relied upon letters written by the assessee after operation of vault wherein specific plea was raised that the assessee had carried speculation business in silver for which he had maintained necessary books of account in the shape of a diary. As transactions relating to speculation business were recorded in regular books, the provisions of Explanation 5 were not applicable.
6. The learned CIT (Appeals) did not find any merit in the above contention. He held that the assessee has not made any statement under section 132(4) of the Income-tax Act. As regards claim of assessee that entries were made in diary, the learned CIT (Appeals) held that no proof regarding carrying on of speculation business was furnished and, therefore, case of the assessee will not fall within the purview of sub-rule (1) of Explanation 5. The case as also not covered by sub-rule (2) of above explanation. With above observations, the learned CIT (Appeals) confirmed the levy.
8. We have heard the rival submissions of both the parties at length.
The short question which requires consideration is whether the matter is covered under Explanation 5 to section 271(1)(c) of the Income-tax Act. The assessee had admitted that cash and jewellery found from vault on its operation 3-8-1989 were acquired by utilising his current income from speculation. The assessee further disclosed the value of cash and other assets aggregating to Rs. 9,48,075 in his return filed on 29-11-1990. Normally when an income is fully disclosed in a return, the assessee cannot be charged to have concealed that income. There cannot be a concealment without filing of the return, but to get over the above situation in a large number of cases which were escaping penal action in spite of the fact that the income/assets would not have come to light but for the search conducted by the revenue, the provisions of Explanation 5 were brought on the statute book. This provision treated certain income as deemed concealed income or income in respect of which inaccurate particulars were furnished where assets seized in search are not found recorded in the books of account. The said Explanation 5 is as under : "Explanation 5 - Where in the course of a 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; 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 purpose 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 of 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 sub-section (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 pay the tax, together with interest, if any, in respect of such income.)" 9. Shri. C. S. Agarwal, the learned counsel for the assessee contended that his case was fully covered by sub-clause (i) to Explanation 5 as speculative transactions relating to income earned are recorded in the books of account maintained by the assessee for the speculation business. The matter is fully covered by the exception provided in clause (i) to the General Rule provided in Explanation 5. Shri. Agarwal argued that no other condition relating to making of statement under sub-section (4) of section 132 was required to be satisfied in a case falling under sub-clause (i). It is further not necessary to disclose the manner in which the disclosed income is earned.
10. These submissions were opposed by the learned D.R. but on consideration of rival submissions, we find consideration force in submission advanced by Shri Agarwal, as per reasons hereinafter given.
11. It is clear from provision of Explanation 5 when owner of any money, bullion, jewellery or other valuable article (hereinafter called 'assets') claims that seized assets are acquired by utilising income of previous year ending before the date of search or of the year which is yet to end then such income even if disclosed in the return would be deemed to have been concealed income or income in respect to which inaccurate particulars were furnished unless the case is covered under sub-clause (i) or (ii) of Explanation which are exception to the general rule. The aforesaid clauses require that either seized assets should be recorded in books of account maintained by the assessee or otherwise the disclosure about asset should be made to the Chief Commissioner on the date of search and taxes, etc., paid. The later case would be covered by clause (ii) but here we are concerned about the application of clause (i) and, therefore, need not go into the larger questions like 'in the course of search under section 132' or when the assess would be deemed to have made a statement under sub-section (4) of section 132. We are to examine whether provision of sub-section (1) to Explanation 5 are applicable, where money or other valuable assets referred to in the Explanation are claimed to represent income of the current year (of previous year which is to end on or after the date of search). The case would fall under clause (b) of Explanation 5 and if above income or transaction resulting in such income are recorded in the books of account, if any maintained for such income, the provision of Explanation 5 would not be applicable.
12. As already noted in the assessment order, the Assessing Officer has assessed 'income from speculation in silver as declared'. It is, therefore, difficult to contest for the revenue and accept for us that the assessee did not carry on speculation business as claimed. For purposes of sub-clause (i) of Explanation 5, the finding required to be recorded is not whether books of account relating to acquired assets found in search with the assesses are correct and complete. The finding to be recorded is whether books of account in respect of above income are maintained. The assessee in his letter dated 9-8-1989 took the stand seized assets were acquired from business in speculation in silver. In the next letter dated 6-11-1989, he took up a categorical stand that he had maintained necessary books of account in respect of speculation income earned in the current financial year. Yet in another letter dated 27-11-1989 the assessee gave detailed computation of gains from speculation. The assessee was summoned under section 131 and his statement was recorded on 30-11-1989. The ITO has observed that the assessee did not give addresses of brokers and showed him inability to produce them. The Assessing Officer in the penalty order also relied on the facts that the assessee gave wrong address for procuring vault and that he has failed to give accurate particulars of income earned through speculation to acquire assets in question. These observations might be relevant for cases falling under clause (ii) but not under clause (i) as discussed above. Only question relevant was whether books of account were maintained in respect of income claimed to be utilised to acquire seized assets. The Assessing Officer did not refute above claim in the assessment order, or during the course of proceeding before him. On the contrary the Assessing Officer accepted assessee's claim and assessed income from speculation as disclosed. It is not the requirement of sub-section (1) that complete, correct and regular books of account should be maintained by the assessee to satisfy condition of above clause. The requirement is to find out whether books of account containing transactions to earn income utilised for acquiring seized assets are maintained. The requirement of sub-clause (i) in the present case is fully satisfied. The other circumstances that assessee gave wrong address to DMC Vaults Ltd. and that he had no intention to disclose assets (1) income found in vault or that brokers were not produced for examination or that he carried trade in banned items were extraneous to the issue under consideration and the revenue authorities went wrong in relying upon such circumstances. For the aforesaid reasons, we hold that Explanation 5 of section 271(1)(c) of the Income-tax Act, 1961 is not applicable as the case was covered by clause (i). The penalty imposed, therefore, is hereby cancelled.