| SooperKanoon Citation | sooperkanoon.com/64713 |
| Court | Income Tax Appellate Tribunal ITAT Cochin |
| Decided On | Aug-22-1991 |
| Judge | G Santhanam, P Ammini |
| Reported in | (1991)39ITD370(Coch.) |
| Appellant | South Indian Finance |
| Respondent | income-tax Officer |
2. The assessee is a partnership firm known as 'M/s. South Indian Finance', Trivandrum, consisting of father, mother and children. The partnership was constituted by a partnership deed dated 9-8-1983. The assessee-firm is engaged in money lending business on security of gold ornaments and promissory notes. The first accounting year of the business of the assessee ended on 31-3-1984. There was a search under Section 132 of the Income-tax Act at the business premises and residence of its partners on 25-7-1985. The incriminating documents throw light on the rate of interest charged by the assessee on advances and investments made out of the funds belonging to it. It was also found that the assessee was not in the habit of maintaining proper accounts. The Managing Partner, Shri G. Sahadeva Panicker, was examined and his statements were recorded. He admitted that the assessee was charging interest at 36% to 48% on gold loans and 36% on promissory notes, as shown in the slips.
3. The assessee filed a return of income on 5-8-1985 admitting an income of Rs. 1.5 lakhs and Rs. 2.5 lakhs for the assessment years 1984-85 and 1985-86 respectively. The Income-tax Officer completed the assessments on 27-9-1985 accepting the returned income for both the assessment years under consideration. The penalty proceedings under Section 271(1)(c) were initiated for both these assessment years. The assessee filed written objection stating that the returns were filed to purchase peace with department, though the assessee had legal and factual points in its favour. It was further stated that 'some liabilities were omitted to be mentioned at the time of furnishing the sworn statement, and the cost of assets such as furnishing of the firm's offices were overstated. This resulted in working out the excess of payments over receipts at a higher figure'. The Income-tax Officer rejected the above contentions in toto and dismissed the same outright as after-thought. Thus, he imposed penalty of Rs. 78,328 for the assessment year 1984-85 and Rs. 1,32,470 for the assessment year 1985-86 respectively under Section 271(1)(c) read with Explanation 5 of that section on the ground that the assessee had either concealed the particulars of its income or had furnished inaccurate particulars thereof.
4. The assessee carried the matter in appeal to CIT(Appeals), Trivandrum, who confirmed the levy of penalty made by the Income-tax Officer by his common order dated 10-3-1986. Hence, these further appeals by the assessee.
5. We have heard the parties and perused the records. One of the arguments advanced on behalf of the assessee is no penalty will lie against the addition agreed to by the assessee. In support of this contention, the assessee submitted that the returns of income showing total income of Rs. 1.5 lakhs and 2.5 lakhs for the assessment years 1984-85 and 1985-86 were filed after the search and seizure under Section 132. The Income-tax Officer accepted the returns of income and completed the assessment on that basis. The case of the assessee is that the assessee showed the income in order to purchase peace with the department. The assessee has not even preferred an appeal against the assessed income by the Income-tax Officer. In the assessment order for the assessment year 1984-85 dated 27-9-1985, the Income-tax Officer has held that 'the Managing Partner, while making a deposition at the time of search has come out with the real extent of investments according to him and the assessee firm has filed a return of income in pursuance thereof. It is not in possession of any evidence whatsoever to prove that the investments were overstated. It is also pertinent that the firm has not chosen to resort to any remedial action with regard to the income admitted in the return of income. These contentions appear to have been advanced to avoid the penal and other imperative consequences and they have to be dismissed outright as an after thought'. It was further stated in the assessment order itself that the assessee also expressed its desire to come out with a true disclosure of the income of the assessee. In the Annexure-I to the assessment order, it is stated that the unaccounted consideration admitted to have been paid for acquiring immovable properties which are given" in Annexure-II to the assessment order. The excess of payments over receipts on the basis of the statement of Annexure-I is worked out at Rs. 5.54 lakhs as on the date of search. While the Managing Partner was examined, he was admitted that the South Indian Chit Funds was in the name of his way, B. Thamarakshy, for which proper books of accounts were maintained.
After the finance business of South Indian Finance was started, various assets have been purchased in his name, in the name of his wife and in the name of his children. As on the date of search all the assets and liabilities of the South Indian Finance were also deposed by him and he had agreed to be assessed on the excess of assets over liabilities.
Hence, in this case, there is ample proof to show that the assessment was on the basis of returned income by the assessee. Though the acquisition of some of the assets is not relevant for the impugned assessment years, the assessee had offered and had been assessed on the same in the years under appeals on spreadover basis. Hence, we have to hold that the addition was made on agreed basis. If that being so, no penalty will lie against the agreed addition, in view of the decision of the Supreme Court in the case of Sri Shadilal Sugar & General Mills Ltd. v. CIT [ 1987] 168 ITR 705, wherein it is held that - Held, reversing the decision of the High Court on that question, that the Tribunal had considered all the facts and the admission made by the appellant as well as the time of the admission. The appellant had only accepted certain amounts as taxable; it had not been accepted by the appellant that it had deliberately furnished inaccurate particulars or concealed any income. This was not a case where there was no evidence to support the Tribunal's conclusion.
Nor had the Tribunal acted on material which was irrelevant to the enquiry or considered material partly relevant and partly irrelevant or based its decision partly on conjecture, surmises or suspicion.
In preferring one view to another view of factual appreciation, the High Court transgressed the limits of its jurisdiction on a reference in answering the question that it had reframed against the appellant.
From the assessee agreeing to additions to his income, it does not follow that the amount agreed to be added was concealed income.
There may be a hundred and one reasons for such admission, i.e., when the assessee realises the true position, it does not dispute certain disallowance but that does not absolve the Revenue from proving the mens rea of quasi-criminal offence.
Therefore, we hold that penalty imposed under Section 271(1)(c) will not lie and it is liable to be cancelled.
6. The next point to be decided is whether Explanation 5 to Section 271(1)(c) is applicable to the facts of this case.
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 (hereafter 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 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 pays the tax, together with interest, if any, in respect of such income.
In this case, admittedly there was a search at the business premises and residence of the assessee on 25-7-1985. The documents seized are given in Annexure-II to the assessment order. They are the title deeds of immovable properties. The search was conducted under Section 132(1) of the Income-tax Act, 1961. Section 132(4) reads as follows:- The authorised officer may, during the course of the search or seizure, examine on oath any person who is found to be in possession or control of any books of account, documents, money, bullion, jewellery or other valuable article or thing and any statement made by such person during such examination may thereafter be used in evidence in any proceedings under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act.
It was argued on behalf of the assessee that the sale deeds in respect of the immovable properties will not fall either under Explanation 5 to Section 271(1)(c) or Section 132(4) of the Income-tax Act, 1961.
Further it was argued that the documents found are documents relating to the immovable property which cannot be seized as they are not valuable articles. Hence, no penalty will lie. He also placed reliance, in support of his contention, on a decision reported in 98 ITR 194 in the case of Bhagwandas Narayandas v. CIT, wherein it is held that - Under Clause (e) of Sub-section (1) read with the provisions of Sub-section (5) of Section 132 the officer authorised under Section 132 can seize and retain for the purpose of Sub-section (5) only those articles which fall within the category of 'money, bullion, jewellery or other valuable article or thing'. Sub-section (5) says that all those specified articles are shortly referred to as 'assets'. Rule 112A makes it clear that the show-cause notice contemplated by it is required to be given only with reference to those specified 'assets' in respect of which inquiry under Section 132(5) is contemplated. It is evident from the scheme of Section 132(5) that the 'assets' which are seized during the course of an authorised search under Section 132 are expected to be retained only for the purpose of satisfying the tax liability of an assessee as ascertained from his undisclosed income. Therefore, by using the words 'valuable article or thing' what the Legislature has intended to imply is that the assets covered by these words should be such as could be converted into cash so that the tax liability of the assessee concerned, as revealed from his undisclosed income, could be duly satisfied. In other words, the thing or article which can be retained under Section 132(5) should be one which is carrying its own intrinsic value in terms of money. A document of title relating to an immovable property or even a fixed deposit receipt issued by a bank does not possess any intrinsic market value. They can neither be negotiated nor be transferred for valuable consideration. Thus, they are not covered by Section 132(5) of the Act or Rule 112A of the Rules.
The learned Senior Departmental Representative, Shri C. Abraham, contended that the document of title would establish the ownership of the assessee in respect of the assets and, therefore, the title deed itself would come under the expression "valuable article or thing".
9. We have carefully considered this submission. The expressions used in the Explanation 5 to Section 271(1)(c) are "money, bullion, jewellery or other valuable article or thing". To this extent there is similarity between the Explanation cited above and the expressions found in Section 132(4) because in the latter section expressions such as "books of accounts, other documents" are additionally found. Further the expressions viz., "money, bullion, jewellery or other valuable article or thing" found in Explanation 5 to Section 271 (1)(c) can be construed, in view of their identical nature, in the same manner in which such expressions are construed for purposes of either Section 132(1)(c) or 132(5) read with 132(4). Section 132(1)(c) empowers the authorities to conduct search if there is reason to believe "that any person is in possession of any 'money, bullion, jewellery or other valuable article or thing' and such money, bullion, jewellery or other valuable article or thing represents either wholly or partly income or property for the purpose of the Income-tax Act, 1922 or this Act (hereinafter in this section referred to as the undisclosed income or property". Thus the power of search is based upon the reasonable belief that there is concealment of income represented by "money, bullion, jewellery or other valuable article or thing". These very expressions have been engrafted in the Explanation 5 to Section 271(1)(c) in which the reference to "documents" is conspicuous by its absence. Therefore, the inevitable conclusion is that it is only in respect of "such assets" enumerated in Explanation 5 to Section 271 (1)(c) [which are in pari materia with those in Section 132(1)(c)], as are found in the ownership of the assessee but not recorded in the books of account that the assessee is deemed to have concealed his income. Thus, the documents of title which represent the right to immovable property, which right itself is an immovable property, is outside the purview of Explanation 5 to Section 271(1)(c). We are re-inforced in this conclusion on the interpretation placed in Bhagwandas Narayandas v. CIT [1975] 98 ITR 194 (Guj.) on the train of words such as "money, bullion, jewellery or other valuable article or thing" occurring in Section 132(5) read with Section 132(4) of the Income-tax Act, 1961. The principle of ejusdem generis is to be applied in interpreting the words 'other valuable article or thing'. We do so and thus uphold the contention of the learned counsel for the assessee.
10. Whether in the Explanation 5 to Section 271 (1)(c) the omission of the word "other document" as is found in Section 132(4) is a lacuna or a deliberate omission it is not for us to state. Suffice it to say that strict construction should be placed on the expressions used in a penal section vide Sri Radhakrishna Trading Co. v. CIT [ 1954] 26 ITR 666 (Mad.) and C.A. Abraham v. ITO [1961] 41 ITR 425 (SC).
11. In the result, the appeals are allowed and the order of the CIT(Appeals) is cancelled.