1. These appeals of the assessee have been directed against the orders of the CIT(A) XX, Bombay, dt, 22nd Feb., 1993, for the asst. yrs.
1989-90, 1990-91 and 1991-92. The common grounds of appeal taken up by the assessee are regarding the levy of penalty under Section 271(1)(c) of the Act, One consolidated order for these appeals is being passed as the issue involved is identical and for the sake of convenience and brevity.
2. The assessee is engaged in the business of share broker in Bombay Stock Exchange. The assessee is not maintaining the regular books of account. There was a search action at the premises of the assessee on 24th Feb., 1989. Another search action was carried out on 27th Sept., 1990 at the premises of the assessee. There was also search and seizure action carried out at the assessee's premises on 30th Aug., 1991.
Thereafter, the CIT, Central, decided that the income of the assessee was only to the extent of brokerage, which was fixed at 0.75 per cent after allowing 50 per cent for sub-brokerage paid by the assessee. So the assessee had adopted the same basis for computing his total income up to the asst. yr. 1989-90. The assessee, however, himself had accepted 1.25 per cent of total turnover as his net profit for asst.
yrs. 1990-91 and 1991-92. The assessee explained that the business of stock brokerage substantially increased since 1990 onwards and the volume of transactions and number of clients had also increased.
Therefore, the margin by way of brokerage was also higher as compared to earlier years. Asst. yr. 1989-90 3. In this case, the return declaring a total income of Rs. 20,53,680 was filed on 31st Oct., 1989. The assessment was completed on 28th Feb., 1992, on a total income of Rs. 31,56,125. The AO in his order under Section 271(1)(c) of the Act has stated that during the course of search action on 24th Feb., 1989, the assessee in his statement under Section 132(4) had declared Rs. 30 lakhs for the asst. yr. 1989-90. He had also stated that the income of the assessee was worked out at 0.75 per cent of the total turnover of Rs. 28.5 crores. The assessee, however, offered only Rs. 21,30,376 as income by way of brokerage. The AO has also observed that the assessee made a disclosure of 1.25 per cent of brokerage for the asst. yrs. 1990-91 and 1991-92 on total turnover as per the bank accounts in his statement under Section 132(4) of the Act during the course of search carried out on 27th Sept., 1990.
The assessee explained that the business of stock brokers had substantially increased since 1990 onwards and the volume of transactions and number of clients were also increased. Therefore, the margin by way of brokerage was also higher as compared to earlier years. The assessee also explained that up to asst. yr. 1989-90 the rate of brokerage was taken at 0.75 per cent as fixed by the CIT, Central. The AO however, rejected the explanation filed by the assessee and adopted the rate of brokerage at 1.25 per cent for the asst. yr.
1989-90 also and determined the income of the assessee at Rs. 32,15,825. Accordingly, the AO also initiated penalty proceedings under Section 271(1)(c) of the Act. The assessee explained that the basis 0.75 per cent brokerage fixed by the CIT, Central, was quite fair and the same had been accepted by the Department in the earlier assessment years. The AO however, observed that the CIT, Central, had fixed the percentage on brokerage at 0.75 percent in the year 1981, which cannot be accepted as a decision which can never be changed. He stated that the doctrine of res indicate does not apply to income-tax proceedings.
He further stated that there are tremendous changes in the business trend in the share market and, earning more brokerage cannot be ruled out. The AO relying on the admission of the assessee for the asst. yr.
1990-91 justified the determination of income at Rs. 32,15,825 by adopting the rate of brokerage at 1.25 per cent for the asst. yr.
1989-90 also. The AO held that the assessee failed to furnish correct particulars of his income and thus committed a default under Section 271(1)(c) of the Act. He therefore imposed penalty of Rs. 5,50,000 on the assessee.
4. The learned CIT(A) observed that the computation of income at Rs. 31,56,175 was based on. the statement under Section 132(4) recorded on 13th March, 1989, of Shri Nandlal Shah, father of the assessee, on the basis of the power of attorney received from the assessee. She had also stated that in the face of admission at the time of search and seizure and as 0.75 per cent applied by the assessee while computing income for asst. yr. 1981-82 was also not sacrosanct after the passage of several years the AO was justified in computing the income at Rs. 31,56,175.
She has also stated that the assessee did not file any appeal against the addition made. Therefore, the assessee had no grievance against the assessment completed. She has also stated that the explanation filed by the assessee is of no significance in view of the fact that the admission made by the assessee at the time of search and seizure operation on 24th Feb., 1989, and subsequent disclosure made under Section 132(4) of the Act of Rs. 30 lakhs. Thus, she concluded that the discrepancy in the returned and assessed income remained unexplained and held that the assessee had furnished inaccurate particulars of his income in the return of income filed by him. She, therefore, confirmed the penalty of Rs. 5,50,000 levied by the AO. 5. At the time of hearing, the learned counsel for the assessee stated that the assessee was not maintaining regular books of account. He was operating number of bank accounts, The interest of the assessee in these transactions was only to the extent of brokerage. He explained that transactions were carried out on behalf of the various clients. The rate of brokerage in the share market normally varies from 1 per cent to 2 per cent and out of this, the share broker has to pay certain percentage of brokerage to the sub-brokers. Out of balance amount, the broker has to meet all his day-to-day running and maintenance expenses. He further stated that taking into consideration all the factors, the CIT, Central Circle, adopted the basis of 0.75 per cent of total turnover for determination of net brokerage in the earlier assessment years. He argued that by taking the very same basis, the assessee filed his return of income on 31st Oct., 1989, showing total income of Rs. 20,53,600 and paid the taxes thereon. The learned counsel also brought to our notice that though the net brokerage rate of 1,25 per cent adopted by the AO for the relevant assessment year was not acceptable on the facts of the case as well as in law, the assessee did not prefer an appeal against the same only to buy mental peace and to avoid prolonged litigation. The learned counsel also explained that the assessee was ill at the time of search, which was conducted in his premises on 24th Feb., 1989. The father of the assessee, Shri Nandlal Shah, on the basis of power of attorney from the assessee made a statement under Section 132(4) of the Act wherein he declared an income of Rs. 30 lakhs for the asst. yr. 1989-90. He also declared that the income had been worked out @ 0.75 per cent of the total turnover of Rs. 28.5 crores approximately. Again, another search and seizure action under Section 132 of the Act was carried out at the premises of the assessee on 27th Sept., 1990. In the statement under Section 132(4) made during the course of search the assessee disclosed 1.25 per cent profit on the total turnover as per the bank accounts for the asst.
yrs. 1990-91 and 1991-92. The learned counsel argued that penalty under Section 271(1)(c) is not automatic on the additions made in the assessment order. He stated that the assessment proceedings and penalty proceedings under Section 271(1)(c) are independent and the AO has to bring on record some independent evidence to establish that the assessee knowingly filed the inaccurate particulars of his income or concealed the actual particulars of his income. He contended that in the present case the income has been estimated and the Department could not discover anything incriminating during the course of search.
Therefore, there is no justification for initiating the penalty proceedings under Section 271(1)(c) of the Act. During the course of search, the total turnover was found to be correct. Therefore, the net profit has to be determined by applying the rate of 0.75 per cent of brokerage on the total turnover as was done in the earlier years and the net income was accordingly determined at Rs. 20,23,680. He argued that the rate of brokerage at, 1.25 per cent accepted by the assessee during the course of search conducted on 27th Sept., 1990, was for the asst. yrs. 1990-91 and 1991-92 and the assessee also explained the reason for the increased rate of brokerage at 1.25 per cent.
Accordingly the assessee explained that the business of stock exchange substantially increased since 1990 onwards and brokerage had substantially increased since the asst. yr. 1990-91 onwards. The volume of transaction and number of clients had also increased. Thus, the learned counsel contented that the assessee's margin by way of brokerage was also higher as compared to earlier years. He contended that the statement of the assessee should be read as a whole and not only that part which suits the Department. He invited our attention to the assessment order for the asst. yr. 1988-89 where the AO had determined the net profit by taking the rate of brokerage at 1.25 per cent, which was subsequently reduced by the CIT(A) to 1 per cent Therefore, he contended that the rate of 1.25 per cent adopted by the AO is not justified. He contended that even the income determined @ 1 per cent was on estimated basis, which does not warrant initiation of penalty proceedings under Section 271(1)(c) automatically. He contended that the AO has determined the income on the basis of the disclosure made for the asst. yrs. 1990-91 and 1991-92 without bringing any independent evidence on record for the imposition of penalty. According to him, the AO has levied the penalty without any basis. He placed his reliance on the following Court cases: (ii) Sir Shadilal Sugar & General Mitts Ltd. v. CIT (1987) 168 ITR 705 (SC); (vi) Hindustan Steel Ltd. v. State of Oiissa (1972) 83 ITR 26 (SC).
Asst yr. 1990-91 6. There was a search and seizure action in the premises of the assessee on 27th Sept., 1990. The AO has observed in his assessment order that according to the books and documents seized during the search, the assessee was found to be operating number of bank accounts in various names. In his statement under Section 132(4) of the Act, the assessee stated that he had earned brokerage/commission in respect of transactions carried out through these bank accounts. The assessee declared profit @ 1.25 per cent of the total turnover reflected in these bank accounts for the asst, yrs. 1990-91 and 1991-92 on the basis of total turnover falling in these respective assessment years. The assessee declared a sum of Rs. 18 lakhs as income on the turnover for the asst. yr. 1990-91. The assessee also disclosed share of profit of Rs. 4,467 from M/s Suresh N. Shah & Co. After claiming deduction under Chapter VI, the assessee disclosed the net taxable income of Rs. 17,83,780 in his return filed on 29th Sept., 1990. The assessment was completed on the returned income. The AO in his penalty order under Section 271(1)(c) has observed that the fact regarding unaccounted business being done had been admitted by the assessee in his statement recorded under Section 132(4). Thus, according to him, the assessee had confessed to have earned unaccounted income and, therefore, the proposition regarding concealment of income by the assessee was established even without the help of Explns. of Section 271(1)(c). The AO thus concluded that the assessee concealed the particulars of income to the tune of Rs. 18 lakhs disclosed by him under Section 132(4) of the Act. The learned CIT(A) observed that the case of the assessee falls squarely in the deeming provisions given in Expln. 5 of Section 271(1)(c) of the Act. She has also stated that the assessee had declared additional income of Rs. 36 lakhs under Section 132(4) of the Act out of which Rs. 18 lakhs had been offered for the asst. yr.
1990-91 during the course of search and seizure operation. She has further stated that the income was not offered voluntarily by the assessee but the same was offered as Department had detected various bank accounts through which unaccounted business was done by the assessee. Thus, according to her, the assessee had confessed to have earned unaccounted income himself and the concealment of income stood fully admitted by him. The learned CIT(A) thus confirmed the penalty levied by the AO.7. The learned counsel for the assessee contended that the assessee was not maintaining regular books of account. He was disclosing his taxable income on the basis, of the transactions carried out through bank accounts. This method of disclosing the taxable income had been accepted by the Department in the past. He argued that the search was conducted on 27th Sept., 1990, whereas the return of income was filed on 29th Sept., 1990. Therefore, the admission made of Rs. 18 lakhs was the actual income of the assessee during the year under consideration based on the bank transactions and the same was disclosed in the regular return filed by the assessee. The learned counsel contended that the assessee did not conceal any income from the Department and his disclosure was based on the method of determining his income as per the, transactions reflected in the various bank accounts maintained by him, which method had been accepted by the Department in the past. So far as the seizure of cash of Rs. 1,00,000, pro notes of Rs. 2 lakhs and shares worth Rs. 14,70,000 are concerned, the learned counsel contended that the same were acquired out of the income for the asst.
yr. 1991-92. He also pointed out that the Department could not discover any assets pertaining to the asst. yr. 1990-91. Therefore, the provisions of Expln. 5 of Section 271(1)(c) are not applicable to this year. He also contended that the penalty is leviable only if concealment is detected. There was no difference between the assessed income and the returned income. Therefore, the Explanation has no application. He placed his reliance on the Supreme Court decision in the case of Brij Mohan v. CIT (1979) 120 ITR 1 (SC). Asst. yr. 1991-92 8. In-this year the return of income was filed on the due date on 30th Oct., 1991, declaring total income of Rs. 28,88,211. The assessee disclosed a sum of Rs. 18 lakhs in his statement under Section 132(4), as we have mentioned above at the time of search conducted on 27th Sept., 1990. The assessee also declared income of Rs. 3,25,000 for the period subsequent to search up to 31st March, 1991. Thus, the taxable income of the assessee was determined at Rs. 20,88,211 under Section 143(3) of the Act. The AO in his order under Section 271(1)(c) has held that the assessee confessed to have earned unaccounted income.
Therefore, the concealment of income is established even without the help of Explanations to Section 271(1)(c). The AO thus concluded that the assessee concealed the particulars of income to the tune of Rs. 18 lakhs disclosed by him under Section 132(4) of the Act. He, therefore, levied the penalty of Rs. 10 lakhs under Section 271(1)(c) of the Act.
The learned CIT(A) confirmed the penalty on the same basis, which we have already discussed in the foregoing paragraphs while dealing with the similar proceedings for the asst. yr. 1990-91.
9. The learned counsel contended that the declared and assessed income remained the same. The search was conducted on 27th Sept., 1990, whereas the due date for filing the return was 30th Oct., 1991.
Therefore, there was time for filing the return and the assessee declared his income on the basis of transactions conducted through the bank accounts, which was also the accepted mode by the Department for determining the taxable income. He argued that the Department did not detect any concealment during the course of search and the declaration by the assessee was based on his transactions through the bank accounts. Therefore, the provisions of Expln. 5 to Section 271(1)(c) are not attracted in this case.
10. The learned Departmental Representative placed his full reliance on the findings of the authorities below and contended that penalty can be levied even if the income is determined on estimated basis. To support his contention, he relied on the following Court cases : (iii) Param Anand Builders (P) Ltd. v. ITO (1996) 56 TTJ (Mumbai) 21 : (1996) 59 YTD 29 (Mumbai).
11. In the rejoinder, the learned counsel contended that the Court cases relied upon by the Departmental Representative are not applicable to the facts of the present case. In the present case, the statement recorded under Section 132(4) is not of the assessee but of his father.
Moreover, the Department could not find any discrepancy in the turnover and even the father of the assessee in his statement under Section 132(4) disclosed that the rate of profit was only 0.75 per cent of the total turnover, which was being accepted by the Department in the past.
12. We have carefully considered the submissions made by the rival parties. We have also gone through the various documents filed by the learned counsel. The assessee is acting as a share broker in Bombay Stock Exchange. He was not maintaining the regular books of account. It is also not in dispute that he was operating number of bank accounts.
The transactions were carried out on behalf of various clients. Taking into consideration the various factors, the CIT, Central Circle, adopted the basis 0.75 per cent of total turnover for determination of net brokerage for the earlier assessment years. By taking the very same basis, the assessee filed his return of income for the asst. yr.
1989-90 declaring a total income of Rs. 20,53,600 and paid the taxes thereon. The AO however, determined the net income of brokerage by taking the rate at 1.25 per cent of total turnover, which worked out to Rs. 31,56,125 and also initiated penalty proceedings for concealment of income under Section 271(1)(c) of the Act. The assessee did not accept the brokerage rate at 1.25 per cent adopted by the Department but the assessee had not preferred appeal against the same only to buy mental peace and to avoid prolonged litigation. The income has been assessed on estimated basis taking higher rate of brokerage than what was shown by the assessee. There was a search in the premises of the assessee on 24th Feb., 1989. The father of the assessee, Shri Nandlal Shah, made a statement under Section 132(4) and disclosed that the income is to be determined from brokerage (c) 0.75 per cent of the total turnover of Rs. 28.5 crores. Keeping in view the period subsequent to the search and discrepancies in the documents, he made a total disclosure of Rs. 30 lakhs. The AO also referred to the statement of the assessee recorded under Section 132(4) during the course of search conducted on 27th Sept., 1990, wherein the assessee accepted the rate of brokerage at 1.25 per cent and has justified the disclosure of Rs. 30 lakhs. In fact, the assessee made the disclosure of rate of brokerage at 1.25 per cent for the asst. yrs. 1990-91 and 1991-92 on the basis that the business of stock exchange had increased since 1990 onwards and, therefore, there was also increase in the assessee's margin by way of brokerage. Therefore the Department estimated the income of the assessee on the basis of the statement recorded under Section 132(4) of the Act from the father of the assessee and the statement of the assessee under Section 132(4) of the Act, which was recorded during the course of subsequent search and which was relevant only for the asst.
yrs. 1990-91 and 1991-92. The Department could not find any material during the course of search which indicated that the assessee was indulging in the concealment of his income. Even his father disclosed in his statement under Section 132(4) that the rate of brokerage was 0.75 per cent, which had been accepted by the Department in the past.
All the transactions of the assessee are through his bank accounts.
Therefore, the Department could have determined the income on the basis of the total transactions in the bank accounts by taking the rate of 0.75 per cent The Department has failed to prove that some of the transactions in the bank accounts were not disclosed by the assessee.
The estimation of income of the assessee is merely on the basis of statement of the father of the assessee without any other supporting evidence found by the Department during the course of search. The Department also could not discover any assets, which were unaccounted, during the course of search. We therefore, do not find any basis for imposing the penalty. It has been held by the Courts that the findings in the assessment order do not automatically warrant the imposition of penalty. The AO has to prove independently that the assessee deliberately concealed the actual facts of his income or knowingly filed inaccurate particulars of his income. The mere fact that the assessee had agreed to be assessed at a higher income than returned income', is not a proof of admission of concealment by the assessee.
That fact cannot give a good foundation to the imposition of penalty.
In the case of D. Halappa & Sons v. CIT (1974) 95 ITR 542 (Mys), the High Court held as under : "It is the duty of the officer concerned to examine before he makes order imposing a penalty, the facts and circumstances of the case and then come to a finding whether concealment, etc., has been proved independently from the mere rejection of the assessee's explanation regarding the items suspected to have been concealed.
Unless the concealment is so proved, penalty cannot be imposed if the assessee had agreed to the imposition." Bombay High Court in the case of CIT v. Devandas Perumal & Co. (1983) 140 ITR 943 (Bom), has laid down as under : "The presumption contemplated by Explanation to Section 271(1)(c) stood rebutted by the fact that there was no suppression of any sales or inflation of any purchases. The mere fact that the ITO proceeded to estimate the net profit at a figure higher than what was disclosed by the assessee, would not lead to the conclusion that there was a failure to return the correct income arising out of fraud or any gross or wilful neglect on the part of the assessee." Further, in the case of CIT v. Kiran & Co. (1996) 217 ITR 326 (Bom), the Hon'ble High Court held that no penalty could be imposed on the assessee merely on the basis of an offer of the settlement as in such a case it can be said that the Revenue had failed to discharge its onus to prove concealment of income; In the present case, the income had been assessed on estimated basis, taking higher rate of brokerage than what is shown by the assessee. Therefore, it cannot be said that the assessee has concealed his income. The basis of 0.75 per cent shown by the assessee was fair enough as the same was based on earlier years' assessments, which were accepted by the Department. The statement recorded from the father of the assessee does not automatically establish the concealment as the father of the assessee disclosed rate of brokerage at 0.75 per cent, which was being accepted by the Department in the past. The Department also could not find out any additional evidence during the course of search to support their contention that the assessee was indulging in the concealment of income. The mere fact that the AO. proceeded to estimate the rate of profit at higher figure than what was disclosed by the assessee, it cannot be concluded that there was a failure to return the correct income arising out of fraud or any gross or wilful neglect on the part of the assessee. Under the circumstances, we do not find any justification for imposing the penalty of Rs. 5,50,000 and the same is therefore deleted.
13. So far as the asst. yrs. 1990-91 and 1991-92 are concerned, there was a search and Seizure action at the residential and business premises of the assessee conducted on 27th Sept., 1990. The assessee declared a sum of Rs. 36 lakhs under the provisions of Section 132(4) of the Act on the assurance of the search party that no penalty for concealment of income would be levied if such declaration was made and due taxes were paid. As we have mentioned above, the assessee was not maintaining any books of account and he was disclosing the income on the basis of bank transactions. The assessee offered a sum of Rs. 18 lakhs for taxation being income earned for the asst. yr. 1990-91.
Consequent to such search and seizure, order under Section 132(5) was passed but no penalty under Section 271(1)(c) was worked out on the income offered under Section 132(4) of the Act. Similarly, the assessee offered a sum of Rs. 18 lakhs for taxation being income earned upto the date of search for the asst. yr. 1991-92. Consequent to the search and seizure, order under Section 132(5) was passed but no penalty under Section 271(1)(c) was worked out on the income offered under Section 132(4) of the Act. Search and seizure action was taken against the assessee on 27th Sept., 1990, which was before the due dates for filing the returns for these assessment years. During the course of search, the assessee explained that he had earned this income out of brokerage and commission business of Bombay Stock Exchange. He also explained that he was maintaining various current accounts and his income was being determined on the basis of transactions routed through bank accounts in the past and that method was accepted by the Department.
Therefore the assessee did not conceal any facts whatsoever from the Department. His income in the past was being determined on the basis of total turnover reflected in his various bank accounts and for these assessment years also the assessee made the disclosure of Rs. 36 lakhs, which was also on the basis of total turnover of Rs. 22.2 crores reflected in his various bank accounts. The Department could not lay their hands on any additional evidence during the course of search which indicated that the assessee was indulging in the evasion of tax.
During the course of search, the Department seized cash of Rs. 1,00,000 and promissory notes worth Rs. 2 lakhs. Share certificates of M/s Reliance Industries worth Rs. 14,70,000 were kept under promissory order and deemed to be seized. The assessee explained that the investment in assets and cash, promissory notes and shares was made out of the income earned from the business of brokerage/commission from the share market during the previous year relevant to the asst. yr.
1991-92. The declaration made under Section 132(4) of the Act of Rs. 18 lakhs for the asst. yr. 1991-92 included these investments also.
Therefore there is no dispute regarding the earning of this income during the asst. yr. 1991-92. The return for the asst. yr. 1991-92 was yet to be filed as the due date for filing the return was after the date of search. Similarly, for the asst. yr. 1990-91, the due date for filing the return was after the date of search. The assessee made the disclosure voluntarily under Section 132(4) and thereafter filed the returns under Section 139(1) of the Act. The assessments were completed under Section 143(3) of the Act accepting the income disclosed by the assessee in his returns. The learned CIT(A) had confirmed the penalties on the basis that the case of the assessee squarely falls within the deeming provisions given in the Expln. 5(a) to Section 271(1)(c). In furnishing his return, an assessee is required to furnish particulars and accounts on which returned income has, been arrived at. These may be particulars as per books of account, if he has so maintained, or any other basis upon which he had arrived at the returned figure of income.
Any inaccuracy made in such books of account or otherwise which resulted in keeping off or hiding a portion of his income is a furnishing of inaccurate particulars of his income. So the basis for determining the inaccurate particulars of assessee's income is the return of income filed by him. In the present case, the due dates for filing the returns of income were not yet over and before that the assessee's premises were searched under Section 132 of the Act. The returns were filed on the due dates after the search including the disclosure made by the assessee voluntarily and the returned income was accepted by the Department. Therefore, the assessee did not file any inaccurate particulars of his income declared in the returns. In order that a penalty under Section 271(1)(c)(iii) may be imposed, it has to be proved that the assessee has consciously made the concealment or furnished inaccurate particulars of his income. In the present case the assessee has neither furnished inaccurate particulars nor concealed the particulars of his income. Therefore the provisions of Section 271(1)(c) are not attracted. Now the main point remains for consideration is whether the deeming provision given in Expln. 5(a) of Section 271(1)(c) are applicable to the facts of the present case.
According to the CIT(A), the case of the assessee squarely falls in the deeming provisions given in Expln. 5(a) of Section 271(1)(c). Expln. 5 has been inserted by the Taxation Laws (Amendment) Act, 1984 w.e.f. 1st Oct., 1984. The newly inserted Explanation enacts deeming provision and hence applies to a situation where in the course of search under Section 132 the assessee is found to be the owner of any money, bullion, jewellery or other valuable article or thing (hereinafter referred to as assets) and the assessee claims that such assets have been acquired by him by utilizing (wholly or in part) his income- (a) for any previous year which has ended before the date of 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 search, then, notwithstanding that such income is declared by him in any return of income furnished on or after the date of search, he shall, for the purpose of imposition of penalty under Clause (c) of Sub-section (1) 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 search; and in the books of account, if any, maintained by him for any source of income or such income is otherwise disclosed to the Chief CIT before the said date; or (2) he, in the course of 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 Section 139(1), and also specifies in the statement the manner in which such income has been derived and pays the taxes together with interest, if any, in respect of such income.
Thus, with the deeming provisions of Expln. 5, the assessee is fastened with the liability to penalty under Section 271(1)(c) in cases where he explains that the acquisition of assets recovered in course of search is out of income of previous year which had already ended before the date of search or which is to end on or after the search but with the exceptions mentioned in Sub-clauses (1) and (2) of Explanation. In the present case, the Department could not recover any money, bullion, jewellery or other valuable article or thing pertaining to the asst. yr. 1990-91. Therefore, the deeming provisions of Expln. 5 do not apply to this year. Therefore, the penalty under Section 271(1)(c) cannot be imposed under the provisions of Expln. 5 of Section 271(1)(c). So far as the asst. yr.
1991-92 is concerned, the same is covered with the exception No. (2) of Expln. 5. During the course of search, the assessee made a statement under Section 132(4) of the Act wherein he stated that the cash of Rs. 1,00,000, promissory notes of Rs. 2 lakhs and share certificates of Rs. 14,70,000 found in his possession and seized were acquired by him out of his income which has not been disclosed so far in his return to be furnished before the expiry of time specified in Sub-section (1) of Section 139. He also specified in his statement the manner in which such income has been derived. He also paid the taxes on such income along with the interest thereon.
Therefore the deeming penal provisions of Expln. 5 of Section 271(1)(c) are not attracted in this case also. Therefore no penalty is leviable under Section 271(1)(c) of the Act in.respect of the amount of Rs. 18 lakhs disclosed under Section 132(4) of the Act for the asst. yr. 1991-92.
14. The various cases relied upon by the learned Departmental Representative are not applicable to the facts of the present case. In the case of S.S, Ratanchand Bholanath (supra), the assessment order for the asst. yr. 1971-72 in respect of the assessee's HUF had been passed.
The appellate authority set aside the order and remanded the matter.
During reassessment proceedings, the assessee admitted that a sum of Rs. 11,027 relating to the sale of tempo van on account of wrong totalling was liable to be added to the income. The AO passed a reassessment order adding Rs. 11,027 to the total income. He also initiated penalty proceedings against the assessee. The assessee did not challenge the reassessment order in appeal. Penalty was imposed.
The appeal against this was dismissed by the AAC and the Tribunal. On these facts, the Madhya Pradesh High Court held that the AO was justified in adding Rs. 11,027 to the income because the assessee itself informed the AO that there was an error in the balance sheet to the extent of Rs. 11,027. In this case the assessee itself told the AO that there was a suppression of income to the extent of Rs. 11,027 but in the present case there was no suppression of income. The assessee's income was being determined (c) 0.75 per cent of the total transactions in the bank accounts maintained by the assessee in the earlier years.
The assessee also filed his return for the asst. yr. 1989-90 by disclosing the same rate of brokerage on the total turnover. The AO however changed the rate of brokerage to 1.25 per cent on the basis of the statement recorded under Section 132(4) of the Act during the course of subsequent search. In fact, the assessee disclosed the rate at 1.25 per cent for the asst. yrs. 1990-91 and 1991-92 and also filed the explanation regarding the higher rate of brokerage for the asst.
yrs. 1990-91 and 1991-92. The AO also supported his finding with the statement of the assessee's father wherein the assessee's father confirmed the rate of brokerage at 0.75 per cent. The facts of the present case are entirely different from the facts of the above case.
Therefore this case is not relevant to the issue under consideration.
In the case of Smt. Chandrakanta (supra) relied upon by the Departmental Representative, the assessee filed a return showing loss of Rs. 51,530 for the asst. yr. 1963-64. She then revised her return and showed profit of Rs. 7,500. She was not maintaining any books of account. The ITO therefore estimated and determined the income at Rs. 51,000. Since the minimum penalty leviable exceeded Rs. 1,000, the matter was referred to the IAC. The IAC imposed a penalty of Rs. 10,000 as, according to him, the case fell under Section 271(1)(c) of the IT Act, 1961. On appeal, the Tribunal cancelled the penalty. The Madhya Pradesh High Court however held as under : "When the assessee submitted his return and showed a loss of Rs. 50,000 and then revised it and showed a profit of Rs. 7,500 he had necessarily suppressed the particulars of income and given an incorrect account of his income. The assessee did not maintain books of account. His income had, therefore to be assessed on estimate basis. The Tribunal committed an error in holding that since the assessee's income was assessed on estimate basis, the assessee was not liable to any penalty." In this case the assessee had suppressed the particulars of her income and had given an incorrect account of her income. But in the present case, the assessee did not suppress the particulars of his income. He filed his return on the basis of his total turnover as per his bank accounts. The AO applied the rate of 1.25 per cent which was applicable only to the asst. yrs. 1990-91 and 1991-92. He also erroneously relied upon the statement of the assessee's father, which was not based on actual facts of this case. Therefore in the present case the income has been estimated without any basis. Penalty is possible even if income is estimated but the onus is on the Department to prove that correct income has not been returned due to fraud or gross or wilful neglect on the part of the assessee. In the case of CIT v. Devandas Perumal & Co.
(supra), the Bombay High Court held that the mere fact that ITO proceeded to estimate the net profit at. a figure higher than what was disclosed by the assessee would not lead to the conclusion that there was a failure to return the correct income arising out of fraud or any gross or wilful neglect on the part of the assessee. Under the circumstances, the decision in the case of Smt. Chandrakanta Anr.
(supra) has no relevance to the facts of the present case. The third case of Param Anand Builders (P) Ltd. (supra) relied upon by the Departmental Representative is on the application of provisions of Section 145 of the Act. Hence not relevant to the issue under consideration.
15. In view of the aforesaid discussion, we do not find any justification for levying the penalties. The same are therefore deleted. The findings of the learned CIT(A) are, therefore, reversed.