| SooperKanoon Citation | sooperkanoon.com/71953 |
| Court | Income Tax Appellate Tribunal ITAT Mumbai |
| Decided On | Jan-28-2002 |
| Judge | S Chandra, I Bansal |
| Reported in | (2003)84ITD370(Mum.) |
| Appellant | Gulabrai V. Gandhi |
| Respondent | Assistant Commissioner of |
2. Briefly stated, a search under Section 132(1) was conducted at the residential premises of the assessee on 12-9-1988. In the course of search, cash of Rs. 80,000, gold jewellery valued at Rs. 3,25,000 and diamond jewellery valued at Rs. 1,90,000 (totalling in all Rs. 5,95,000) was found and seized. During the course of his statement recorded under Section 132(4) on 12-9-1988, the assessee was asked to tell the source of his income and that of his family members. This he did when asked to explain the nature of the entries in 134 loose papers contained in a file, the assessee replied that these papers pertained to his unaccounted income and that he owns these amounts and will pay taxes thereon. He further offered unaccounted income of Rs. 75 lakhs on account of cash, loans outside the books, cash found at residence, unaccounted jewellery owned by his family members etc., in the current year as his unaccounted income. On query as to how the offered income of Rs. 1 crore of his and his family members was earned, the assessee replied that 'this is income of business done by the family members in their proprietary concern for which no books are kept in the current year as well as income from other sources'. He further stated in reply to another question that he may be allowed immunity under Section 132(4) as well as the capitalization benefit as and when the moneys are released. He also stated that the confessed income of Rs. 1 crore is proposed to be disclosed in the hands of various family members and taxes will be paid in course of time as per the provisions of law. In his statement recorded under Section 132(4) on 27-10-1988 the assessee stated thus : 'As the declaration of undisclosed income of Rs. 1 crore in my hands in current year (assessment year 1989-90) is made in my statement under Section 132(4), I understand that provisions of penalty and prosecution shall not be attracted in respect of the undisclosed income so declared'.
3. Proceedings under Section 132(5) commenced by issue of notice dated 1 7-11-1988 wherein source of declaration of Rs. 1 crore in the hands of the assessee for the current year (assessment year 1989-90) was, inter alia, asked. A detailed reply was furnished vide assessee's letter dated 27-12-1988. In para-8 thereof, it was again stated that his statement under Section 132(4) was made voluntarily with the clear understanding and assurance that all immunities including penalty will be granted. Order under Section 132(5) was passed on 4-1-1989. This order makes mention of assessee's statement dated 27-10-1988 requesting not to levy interest and initiate penalty/prosecution proceedings for the disclosed income of Rs. 1 crore as also his request for capitalisation of cash in hand and permissible benefit under the Act.
4. The assessee filed his return for the Assessment year 1989-90 on 3-5-1989 declaring total income of Rs. 1,03,10,308, the previous year of which consisted of 21 months for the period from 1-7-1987 to 31-3-1989. The Assessing Officer completed the assessment on 31-12-1990 under Section 143(3) on total income of Rs. 1,03,19,063. He initiated penalty proceedings under Section 271(1)(c) of the Act. In response to the show-cause notice, the assessee vide his letter dated 11-3-1991 submitted his explanation, the gist of which has been reproduced by the Assessing Officer in para 2 of the penalty order as under : On joint reading of Section 132(4) and Explanation 5 to Section 271(1)(c) it is clear; a. A person who is found to be in possession or in control of money or valuables can offer income for taxation in his statement under Section 132(4).
b. Only that assessee who is found to be owner of money or valuables in the course of search will attract the presumption contained in Explanation 5 to Section 271(1)(c). If an assessee is not found to be in possession or in control of money during the course of search he will not attract the presumption of Explanation 5, the Explanation 5 will be a non-starter in case of such an assessee.
c. If Explanation 5 is taken not to apply in respect of any asset, the question of assessee claiming immunity from penalty will not arise at all.
d. Even assuming that an assessee is found to be the owner in the course of search still the presumption will stand rebutted or discharged in the case of an assessee who has made a disclosure of his income in a statement recorded under Section 132(4).
e. Explanation 5 to Section 271(1)(c) comprises of two parts. The first part is a deeming provision whereby an assessee is deemed to have concealed the particulars of his income.
The second part provides for an exemption to the above deeming provision upon compliance of certain conditions.
The submission of the assessee was that in his case all the conditions of claiming immunity by making a voluntary disclosure of his income in a statement recorded under Section 132(4) was fulfilled. He was, therefore, entitled to immunity even assuming that the presumption at Explanation 5 is stood attracted in his case. The contentions of the assessee were not acceptable to the Assessing Officer who was of the view that in order to escape from penalty under Section 271(1)(c), the following conditions were required to be satisfied namely : (i) Unaccounted assets (money, bullion, jewellery, valuable article or thing) are found in the course of search.
(ii) Such assets are found from the possession or control of the person making his statement. The person searched makes a statement under Section 132(4) that the unaccounted assets have been acquired out of his income of that year for which return of income had not been filed so far since the period for which filing the return under Section 139(1) had not expired.
(iii) Specify in the statement the manner in which such income has been earned and (iv) Pay the tax of such income together with the interest, if any, by the due date specified for filing the return of income either under Section 139(1) or 139(2) of the Income-tax Act, 1961 whichever is earlier.
In para 4, the Assessing Officer recorded the reasons for holding that the aforementioned conditions were not fulfilled. These are : The assessee made declaration of Rs. 1 crore and filed return of income of Rs. 1,03,10,388. However, during the course of search only the following assets have been found in the possession of the assessee : For the balance amount, it was submitted by him that a part thereof was spent for charitable activities at Dwarka, Nathdwara and Lonawana. The remaining part of his declaration was stated to be lying at places other than the premises searched and kept with other persons. Since specific details regarding where the balance amount had been kept have not been furnished, it is to be held that assets corresponding to the declaration have not been found in possession or control of the assessee.
Further, the assessee disclosed the income of Rs. 1 crore in his own name in his return whereas in his statement under Section 132(4) recorded on 12-9-1988, it was stated that the amount belonged to his family members. However, in his return, the assessee has shown full amount of Rs. 1 crore in his own hands. Again to a query about the books of account or the sources leading to such income, the assessee has stated in his statement that it was from business. Despite being asked during assessment proceedings to specify the manner in which income was derived, no reply was given. For claiming immunity from penalty provisions of Section 271 (1)(c), the assessee should specify the 'manner' in which such income has been derived. The word 'manner' not only postulates the source of income but the modus operandi/technique used in deriving such income. The assessee has only specified the manner as 'business'. He has not specified the transactions leading into deriving of such income. In the absence of these details of transactions, the Assessing Officer held that the assessee has not completely specified the manner in which such income has been derived. For reasons aforesaid, the Assessing Officer held that the requisite conditions have not been fulfilled as claimed by the assessee. Hence, the deeming provision of Explanation 5 to Section 271(1)(c) is attracted as the assessee has neither recorded the transactions resulting in such income in the books of account nor was income disclosed to CIT or CCIT nor specified the manner in which such income had been derived. He accordingly imposed the impugned penalty of Rs. 49,84,434.
5. The assessee carried the matter in appeal. Certain preliminary grounds were raised before the Commissioner (Appeals) who rejected them out right. On merits, the contentions of the assessee were these : (i) Explanation 5 to Section 271(1)(c) applied by the Assessing Officer is inapplicable to the assessee's case. If at all Explanation 5 applies, it will apply only to assets found amounting to Rs. 5,83,225 and not to the balance amount of Rs. 94,17,000 for which deeming fiction could not be extended in view of the decision in South India Finance v. ITO 38 ITD 370. In that case, it has been held that if certain documents are found, these could not be treated as assets. Hence, these would be beyond the purview of Explanation (ii) Assets found worth Rs. 5,83,225 were not seized by the Department for the obvious reason that these were explained or proved.
(iii) In order under Section 132(5), penalty was not mentioned by the Assessing Officer.
The Commissioner (Appeals) considered the above contentions. He was of the view that Explanation 5 to Section 271(1)(c) would apply to assets worth Rs. 5,83,225 only which were found at the premises of the assessee and not beyond that because even if these were assets, these were not found during the course of search. He further observed that admittedly, statement under Section 132(4) was given at the time of search and the Department had not found anything except cash of Rs. 80,000, gold jewellery worth Rs. 3,25,000 and diamond jewellery worth Rs. 1,90,000. Regarding the other income, he held that it had been voluntarily disclosed and therefore, 'probably' the Explanation 5 would not apply in relation thereto. The other contentions were rejected by him. The Commissioner (Appeals) thus sustained the penalty to the extent of Rs. 2,68,050 only as against the penalty of Rs. 49,84,434 imposed by the Assessing Officer. The assessee is aggrieved by the retention of the penalty to the above extent and the revenue is aggrieved by the deletion of penalty to the extent of Rs. 47,16,384.
6. In his revised ground of appeal, the assessee has raised the following grounds: (i) The learned Commissioner (Appeals) erred in sustaining penalty under Section 271(1)(c) of the Act to the extent of Rs. 2,68,050 in respect of assets found and not seized in the course of search and seizure action without appreciating the fact that the appellant had fulfilled all the conditions laid down in exception (2) to Explanation 5 to Section 271(1)(c) of the Act and was entitled to immunity from penalty and hence, the penalty confirmed of Rs. 2,68,050 is unjustified and liable to be deleted.
(ii) The learned CIT(A) failed to appreciate that as the amount was disclosed in the statement recorded under Section 132(4) of the Act and also paid the tax and the return filed was accepted (subject to change in share of profit of the firm) and hence all the conditions specified in exception (2) to Explanation 5 to Section 271(1)(c) were fully satisfied and hence, the penalty confirmed of Rs. 2,68,050 may be deleted.
On the facts and in the circumstances of the case and in law, the learned Commissioner (Appeals) erred in directing the Assessing Officer to levy penalty under Section 271(1)(c) only with reference to seized assets. The learned Commissioner (Appeals) has not appreciated that deeming provisions of Explanation 5 to Section 271(1)(c) are not satisfied and penalty is leviable on entire concealed income of Rs. 1 crore.
6. Before us, the Revenue has been represented by Shri Girish Dave, CIT, ITAT and the case of the assessee was argued by Shri K. Shivram and Shri R.G. Tralshawala, Advocates. Both the parties argued extensively.
6.1 Shri Girish Dave appearing for the Revenue pointed out that as per the Commissioner (Appeals), the benefit of Explanation 5 is available in respect of tangible assets found in search and not to the remaining part of undisclosed income found in the documents. He posed a question namely that whether it is necessary that the assessee must be found in physical possession of tangible assets. Inviting our attention to the language used in Explanation 5, he submitted that what is necessary is that the assessee must be found to be the owner of the assets. 'Owner' is a phrase of wider implication. The word 'owner' is used in contradistinction to 'found to be in physical possession'. He referred to the reply of the assessee to question No. 2 in statement under Section 132(4) recorded on 12-9-1988 (page 41 of paper book) with regard to the entries in 134 loose papers wherein the assessee stated that "these papers pertained to my unaccounted income, part of which has been given to the Trust as donation.... I own these amounts arid will pay taxes thereon." Again in reply to question No. 3 in statement recorded on 27-10-1988, the assessee stated (page 51 of the paper book) that the balance part of my declaration of Rs. 1 crore is to cover cash amounts lying at places other than this premises". Shri Dave submitted that these admissions of the 'assessee have to be considered in the light of his request for capitalisation of cash in hand. On these facts, he submitted that it is not at all necessary that the assessee must be found to be in physical possession of tangible assets.
According to him what the provisions of Explanation 5 requires is that the assessee must be found to be the 'owner' of assets. He argued that the assessee admitted in his statement that he is the owner of money which is lying at places other than the premises searched. He, therefore, submitted that the Commissioner (Appeals) was not correct in recording the finding that for applying Explanation 5, only the tangible assets found in search is relevant and thereby excluded from its purview, expenses by way of investment in flooring and/or donations for charitable purposes.
6.2 Shri Dave further submitted that the Commissioner (Appeals) himself is in 'doubt' as to whether or not for the balance amount, namely the amount other than those represented by the assets found in search, Explanation 5 would apply. The Commissioner (Appeals) has used the expression 'probably' in para 7 of his order. Shri Dave argued that the assessee cannot say that he is not the owner of the balance amount since he has gone on record to say that the balance money is lying at other places and claimed capitalisation thereof the effect of which would be that asset to that extent will be reflected in the balance sheet of the assessee. Shri Dave also argued that the Commissioner (Appeals) is incorrect in observing that the balance amount had been voluntarily disclosed by the assessee. Such is not the case. The assessee disclosed the balance amount having regard to the entries contained in 134 loose papers found in search. Without being sure, the Commissioner (Appeals) held that Explanation 5 would not apply to the balance amount. He was not justified in holding so.
6.3 Shri Dave also refuted the findings of the Commissioner (Appeals) that the balance amount of declaration represented by documents were not found in the possession of the assessee or under his control. The loose papers containing entries on the basis of which the declaration of the remaining amount has been made was very much in the possession and control of the assessee. The Commissioner (Appeals) has simply ignored the findings of the Assessing Officer given in his order under Section 132(5), assessee's letter for capitalisation of sums on the ground that these were unaccounted cash, loans lying at other places with other persons. Shri Dave argued that the assessee was found to be owner of unaccounted cash loan of Rs. 67,65,000 lying at other places with other persons which are clearly indicated in the documents found in the course of search. Shri Dave submitted that the question for consideration before the Bench is whether the disclosure of money in the form of unaccounted cash loans for which capitalisation is sought should be treated as tangible asset or not. Shri Dave placed his reliance on the following decisions in support of his arguments that the disclosure made by the assessee was not voluntary as held by the Commissioner (Appeals): (ii) Greater Kailash Nursing Home v. Asstl. CIT [1996] 57 ITD 202 (Indore)ITO v. Smt. Leela Mammen 7. Shri K. Shivram, the learned counsel for the assessee submitted at the outset that the facts are not in dispute. He invited our attention to reply given by the assessee to question No. 4 in the statement recorded on 12-9-1988 under Section 132(4) and certain portions of the assessee's reply to question No. 3 in the statement recorded on 27-10-1988 under Section 132(4) and submitted that the disclosure of Rs. 1 crore was made under the understanding and assurance of the search party that the immunity from the penalty and prosecution shall be granted to the assessee. He also drew our attention to the query made by the Assessing Officer during proceedings under Section 132(5), vide his letter dated 17-11-1988 giving therein break-up of Rs. 1 crore offered for taxation by the assessee in his hands in the current year (assessment year 1989-90) and requiring the assessee to explain the sources of declaration of Rs. 1 crore under the different heads. A copy thereof appears at page 64 of the assessee's compilation. In reply thereto, the assessee furnished a letter dated 7-12-1988 wherein the assessee has stated that he had voluntarily disclosed the amount of Rs. 80,000 seized by the Department as his income and also specified the manner in which such income has been derived. It was also stated therein that this declaration under Section 132(4) was made voluntarily and With the clear understanding that no additional income-tax would be chargeable as per the provisions of Section 158B(5) and also no interest is chargeable under the Act. The assessee had also undertaken to include this amount of Rs. 80,000 in his return for the previous year ending on 31-3-1989 (assessment year 1989-90). This letter finds place at page 67 of the assessee's paper book. This was followed by another reply dated 27-12-1988 wherein again the assessee stated that in the course of his statement given under Section 132(4), he had agreed to certain undisclosed income which he would voluntarily show in the return of income as his income of the current year i.e. assessment year 1989-90. The assessee, however, requested for readjustment/revision of the facts which was done. It was reiterated that the assessee did not wish to go back on his declaration of undisclosed income of Rs. 1 crore which was made voluntarily with the clear understanding and assurance that immunities including immunity from penalty and other proceedings will be granted and no interest levied.
7.1 Shri Shivram pointed out from the order dated 4-1-1989 under Section 132(5) that in this order, the Assessing Officer has not determined the amount of penalty as there was no intention at all to levy penalty. He submitted that had the Assessing Officer1 intended to levy penalty on the amounts disclosed under Section 132(4), the assessee would not have included Rs. 1 crore in his return in the previous year relevant to the assessment year 1989-90 which had not yet ended and the return in respect thereto was due only on 31-7-1989. The assessee filed his return on 3-5-1989 declaring income at Rs. 1,03,10,388. In the assessment order dated 31-12-1990, the Assessing Officer accepted the income as per return. He, however, initiated penalty proceedings under Section 271(1)(c). Reply to the show-cause notice was submitted vide letter dated 11-3-1991 but the Assessing Officer imposed penalty on the ground only that, according to him, the assessee is not covered under the exception provided in Explanation 5 to Section 271(1)(c). The Commissioner (Appeals) has, however, confirmed the penalty with respect to the amount of Rs. 5,95,000 representing the assets found and seized during the course of search.
Shri Shivram argued that the case of the assessee is covered under Clause 2 of Explanation 5. However, the Revenue authorities have considered the provisions and exceptions contained in Clause 1 of Explanation 5 which is not correct because exceptions 1 and 2 are mutually exclusive which is evident from the word 'or' used in between.
Shri Shivram referred to Board's Circular No. 469, dated 23-9-1986 reported in 162 ITR (St.) 21 relevant page 38 wherein the Board has explained that as per the Explanation 5 to Section 271(1) of the Act, if at the time of search, assets which are not recorded in the books of account are found, a taxpayer is liable to penalty for concealment even if he declares the full value of those assets as his income in the return filed after the search. This provision has been found to operate even in cases where the assessee has no intention to fabricate any evidence and he includes in his return, the income out of which such assets have been acquired. Hence, by the Amending Act, it has been provided that if an assessee in such cases makes a statement during the course of search admitting that the assets found at his premises or under his control have 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 prescribed in Clause (a) or (b) of Section 139(1) and specifies in the statement, the manner in which such income has been derived and pays the taxes that are due thereon, no penalty shall be leviable. Shri Shivram submitted that an identical issue had come for consideration before the Ahmedabad Bench of the Tribunal in the case of Mahindra Chimanlal Shah v. Asstt. CIT [1994] 51 ITD 244 wherein it has been held that for availing immuity under Explanation 5 to Section 271(1)(c), conditions precedent are 3 namely (i) the assessee must have made a statement under Section 132(4) that such assets found from his possession have been acquired out of income which has not been disclosed so far in the return of income to be furnished before the expiry of time specified in Section 139(1); (ii) the assessee specifies in statement under Section 132(4), the manner in which such income has been derived; and (iii) the assessee pays the tax together with the interest, if any, in respect of such income. It was further held that primarily it is the duty of the authorised officer to explain the meaning and scope of Explanation 5 to Section 271(1)(c) while recording the admission of person concerned under Section 132(4) and at least ask some questions relating to the manner in which such income was derived by the assessee. If the authorised officer did not put any question regarding the manner in which such income was derived and other two conditions were fulfilled, the assessee, it was held, cannot be denied benefit of Explanation 5 to Section 271(1)(c) for such omission on the part of the authorised officer. Similar view has been taken by the Allahabad Bench of the Tribunal in the case of Vishwa Math Agarwal v.Asstt. CIT [2001] 71 TTJ (All.) 668. Here also, in his statement recorded under Section 132(4), assessee disclosed the entire cash in his possession and other amounts as undisclosed income. The authorised officer did not put any question to the assessee about the manner in which the income disclosed by him are earned. The Tribunal held that the benefit of Explanation 5(b)(ii) to Section 271(1)(c) cannot be denied to the assessee on the ground that he had failed to disclose the manner in which the surrendered income was earned by him. Shri Shivram submitted that in the case of the assessee at hand when question as to how confessed income of Rs. 1 crore was earned was put 10 the assessee, he replied that "This is income of business done by the family members in their proprietary concern for which no books are kept in the current year as well as income from other sources." According to him, the assessee need not explain the manner as to how the offered income was derived/earned during the course of assessment proceedings. In support of the above proposition, he placed his reliance on the decision in G.B.H. Exporters v. Asstt. CIT [1996] 58 ITD 499 (Jp.), Ashok Natverlal Palel v. Asstt. CIT [1998] 67 ITD 82 (Ahd.); Asstt. CIT v. Dr. T.N. Venkataraman [1995] 54 ITD 694 (Mad.).
7.2 Shri Shivram invited our attention to the advertisement appearing in Economic Times of the issue of 22-9-1989 given by the Income-tax Department (copy placed on record) wherein the assessees were advised to avail of the concession given by the taxation laws (Amendment & Miscellaneous Provisions) Act, 1986 which provided that if during the course of search, the assessee makes a statement under Section 132(4) that any money, bullion, jewellery or any other article or thing found in his possession or control has been acquired out of his income which has not been declared so far in his return of income to be furnished under Section 139(1) within the time allowed under the law and also specifies in his statement how he derived such income and paid income-tax and interest, if any thereon, then no penalty for concealment will be levied as per Explanation 5 to Section 271 (1)(c) of the Act. He submitted that it is the duty of the Income-tax authorities to honour such advise given in the advertisement. It has been held in Taiyubji Lukmanji v CIT [1981] 131 ITR 643 : 7 Taxman 211 (Guj.) that it would cause greater harm to the Department itself who respond to its appeal and desire to cleanse themselves of past sins, are deterred from doing so.
7.3 Shri Shivram submitted that during search, assets worth Rs. 5,95,000 only were found and seized. No assets in terms of Explanation 5 to Section 271(1)(c) were seized relatable to the balance amount of income offered and therefore, Explanation 5 was not applicable with regard thereto. In support of this proposition, he relied on the decision of Nagpur Bench of the Tribunal in Asstt. CIT v. Smt. Anupama Gijre [1995] 52 ITD 350 (Nag,).
7.4 Shri Shivram further argued that since the assessee had included the sum of Rs. 1 crore offered by him in his statement under Section 132(4) in the return filed by him, no penalty can be levied in view of the decision of the Bangalore Bench of the Tribunal in ITO v. Nurul Huda G. Aboobker [1995] 55 ITD 296 (Bang.). He further argued that even if the Department treats it as an agreed assessment even then, penalty is exigible in view of the following decisions : (i) Sir Shadi Lal Sugar & General Mills Ltd. v. CIT [1987] 168 ITR 705 : 33 Taxman 460A. (SC) (ii) CIT v. Kiran & Co. [1996] 217 ITR 326 : [1994] 74 Taxman 168.
(Bom.) (iii) CIT v. Suresh Chandra Mittal [2001] 251 ITR 9 : 119 Taxman 433 (SC) 7.5 Shri Shivram further argued that the onus was on the Revenue to prove positively that there was concealment of income or furnishing of inaccurate particulars thereof. In support, reference was made to the decision in CIT v. Ajay Hari Dalmia [1986] 157 ITR 145 : [1985] 21 Taxman 40 (Delhi). Shri Shivram also submitted that in the case of the assessee, the Revenue has accepted one part of the statement under Section 132(4) i.e. declaration of Rs. 1 crore as his income in assessment year 1989-90 but did not accept the other part of the statement namely, the immunity claimed by him in the matter of penalty, prosecution and interest. The Department cannot do so as held by the Pune Bench of the Tribunal in Chander Mohan Mehta v. Asstt. CIT [1999] 71 ITD 245 (Pune) wherein it has been held that the statement has to be considered and accepted as a whole and Revenue cannot be permitted to use that part of the statement which is beneficial to it and reject other part of the statement which is detrimental to it. Shri Shivram submitted that the decisions relied upon by Shri Girish Dave are distinguishable on facts. Shri Shivram concluded his arguments by submitting that in view of the facts of the assessee's case, the penalty is not exigible at all as the assessee's case is covered by exception provided in Explanation 5 to Section 271(1)(c).
8. In his counter arguments, Shri Girish Dave submitted that there is no evidence on record of any assurance for immunity given by the search party. According to him, even if for the sake of argument, it is presumed that there was assurance given by the search party, if no explanation was forthcoming for income of Rs. 1 crore offered by the assessee, rule of estoppel cannot be applied against the statute. He further submitted that order under Section 132(5) makes summary estimate of tax payable. The Purpose of the said order is limited and that is retention of the seized assests. He, therefore, submitted that even if the penalty was not quantified in an order under Section 132(5), the imposition of impugned penalty cannot be assailed if the same has been initiated in the order of assessment passed under Section 143(3) of the Act which is not at all in dispute. Shri Dave further submitted that the advertisement given by the Income-tax Department in Economic Times on 22-9-1989 cautions the assessee not to give misleading or evasive statement during search operation of the Income-tax Department. It does not cast any duty on the Assessing Officer not to levy penalty for concealment in respect of a search which was conducted more than a year ago on 12-9-1988. Shri Dave further submitted that the Assessing Officer/Commissioner (Appeals) have recorded a finding that the assessee did not specify the manner in which the income was earned by the assessee despite specific query made in this behalf during the course of search while recording the statement under Section 132(4). The assessee indicated only the source but not the manner of earning/deriving the confessed income of Rs. 1 crore. He submitted that the intention behind knowing 'manner' as to how the offered income has been derived/earned is to find out the techniques of tax evasion. He, therefore, submitted that the Commissioner (Appeals) was not justified in deleting the penalty to the extent of Rs. 47,16,384.
9. We have considered the rival submissions and perused the records. A search under Section 132 was conducted on 12-9-1988 at the residential premises of the assessee. The search started at late evening and was temporarily concluded on 13-9-1988 at 4.45 a.m. In search, cash of Rs. 80,000 was found and seized. Undisclosed income aggregating Rs. 1 crore was admitted by the assessee in his statement under Section 132(4) on 12-9-1988 at 11.00 p.m. For the sake of convenience the relevant portions of the statement under Section 132(4) recorded on 12-9-1988 are extracted.
Q. No. 1. Please Identify yourself and tell me what are the sources of your income and that of your family members A. I am Gulabrai V. Gandhi and my sources of income remuneration as a Director of Billion Plastics (P.) Ltd., Consumer Plastic (P.) Ltd., Rigidol Plastics (P.) Ltd. and Victory Plastic Ltd. and also income from other sources. My wife is a partner in Jugnu Plastics.
My daughter-in-law as a salaried employee of Consumer Plastics (P.) Ltd. My son is a Director Partner in most of all concerns. There is also another concern namely Gandhi Plastics Industries at Andheri.
Q. No. 2. I am showing your a loose paper file containing 134 loose papers. The file is being showed to you. Kindly go through it and confirm this that this showed to you. Explain the nature of entries made therein A. I confirm that the file is shown to me and I confirm that I have gone through the same and can state voluntarily that these papers pertain to my unaccounted income part of which has been given to the trust as donation for which I am a trustee on behalf of others. I own these amounts and will pay taxes thereon. I would further like voluntarily to state that I further offer an unaccounted income of Rs. 75 lakhs on account of cash loans outside the books, cash found at residence, unaccounted jewellery owned by my family members etc.
in the current year as my unaccounted income. The detailed working as to the exact working of unaccounted income to be affixed in respective family members hands will be submitted subsequently after taking into account relevant facts. However, I understand that benefits of immunity from penalty and prosecution will be granted to each of the family members who is making the said proposed disclosure. I have got three lockers standing in my family members name in Grindlays Bank of which the keys of two are being handed over to your for necessary search. I may however add that I will not be able to supply as to whom these cash loans are advanced by me and my family members.
Q. No. 3. Please tell how the said confessed income of Rs. 1 crore of your and your family members have been earned A. This is income of business done by the family members in their preoprictary concern for which no books are kept in the current year as well as income from other sources.
A. I may be allowed to immunity under Section 132(4) as well as the capitalisation benefit as and when the monies are released. Please not that confessed income of Rs. 1 crore is proposed to be disclosed in hands of various family members and the taxes will be paid thereon in due course of time as per provisions of law.
10. Search was resumed on 27-10-1988. One file containing 134 loose papers was seized. Once again statement of the assessee under Section 132(4) was recorded on 27-10-1988 at 11.15 p.m. Relevant Q. Nos. 2 and 3, reply thereto, are extracted below : Q. No. 2 During the course of search today, it is found that total gold Ornaments weighing about 1130 gms. are found in excess if what has been declared in the hands of various family members. In a similar manner it is found that diamond jewellery valuing about Rs. 1,90,000 did not tally with any of the items disclosed by your various family members. (I also find that 9 diamond jewellery disclosed by your family members is also highly under valued and weight of diamonds is understated to a great extent): Will you please tell me source of investment in undisclosed gold ornaments, diamond jewellery Ans. The excess gold ornaments/diamond jewellery has been acquired out of my declarations of Rs. One crore as underdosed income. Out of this additional income of Rs. 1,00,00,000 Rs. 3.25 lakhs are invested in gold ornaments, Rs. 1.9 lakhs be treated as invested in diamond jewellery. The diamond jewellery to be under valued to slight carelessness on our part and basically and it does not contained any element of unaccounted investment. However, to buy piece of mind and avoid litigations I submit that Rs. 5,00,000 out of my declaration of my additional income of Rs. 1,00,00,000 be treated as applied towards this discrepancy in valuation of diamond jewellery. I accept the valuation of the departmental valuer and undertake that this value of jewellary shall be adopted in all wealth tax returns to be filed by my family members in future.
Q. 3 Kindly go through seized file containing 134 written pages and tell me about unaccounted transactions recorded on this page Ans. I have gone through the seized file and submit that unaccounted expenses aggregating to about Rs. 21.5 lakhs are recorded in these pages. Major expenses recorded are on page Nos. 1, 2, 3, 5, 7, 17, 18, 19, 20 etc. for example unaccounted personal expenses of Rs. 7,110 are recorded on page No. 18. The major expenses recorded on these papers are mainly sums spent by me for charity during the course. Any service rendered in pursuing and supervising the charitable work of Shri Lohana Atithi Bhavan Trust and Shri Lohana Sanitorium Trust. For example page No. 7 records amounts aggregating to Rs. 7,00,000 spent by me out of my unaccounted income of Current Year when I was pursuing the Charitable activities of Lonavala Sanitorium (under Shri Lohana Sanitorium Trust) in a similar manner amount sent for charity out of my unaccounted Income are recorded on above referred other pages when I was pursuing charitable activities at Dwarka, Nathdwara, Lonawala (under Shri Lohana Atithi Bhavan Trust). Thus total unaccounted expenses of about Rs. 21.5 lakhs recorded in these seized documents are covered by undisclosed income of Rs. 1 crore declare by me under Section 132(4). The declaration also covers my unaccounted investment of Rs. 70,000 in marble flooring of this premises furniture, fixtures etc. The balance part of my declaration of Rs. 1 crore is to cover cash amounts lying at places other than this premises. On a day of search as well as kept with other persons. The same is to be capitalised accordingly. As a declaration of undisclosed income of Rs. 1 crore in my hands for current year (assessment year 1989-90) is made in my statement under Section 132(4) I understand that provisions of penalty and prosecution shall not be attracted in respect of undisclosed income so declared.
The above statement has been given by me without any force or coercion in my full sense. I have stated truth and only truth in above statement. The statement on behalf of other family members has been given after consulting them and after taking their due consent in the matters relating to them. I further submit that this disclosure also covers cash of Rs. 80,000 seized by the department on 12/13 September, 1988.
It would be obvious from the statement of the assessee under Section 132(4) recorded on 27-10-1988 that he gave break up of Rs. 1 crore admitted by him as his undisclosed income in his statement under Section 132(4) recorded on 27-10-1988. It was as under :Unaccounted gold ornaments Rs. 3,25,000Unaccounted diamond jewellery Rs. 1,90,000Undervaluation of accounted diamondjewellery shown in W.T. Return Rs. 5,00,000Unaccounted expenses for charitypurposes of Trust Rs. 21,50,000Investment in marble flooring,furniture & fixtures Rs. 70,000Unaccounted cash loan lying at other 11. Since cash of Rs. 80,000 was seized in search, order under Section 132(5) was passed on 4-1-1989 by adopting the amount of Rs. 1 crore disclosed under Section 132(4) and reducing therefrom value of investment/expenses of Rs. 15,62,531. After adjusting the tax of Rs. 52,50,000 on Rs. 1 crore, the balance of Rs. 31,87,469 was treated as cash in hand.
12. Search had taken place during the previous year relevant to the assessment year 1989-90. The return of income for assessment year 1989-90 was due under Section 139(1) on 31-7-1989. The assessee, however, filed the return for the assessment year 1989-90 on 3-5-1989 declaring therein income of Rs. 1,03,10,388. The Assessing Officer completed the assessment on 31-12-1990 under Section 143(3) on total income of Rs. 1,03,19,063. The slight variation was due to share of profit from M/s. Gandhi Plastics as per revised computation filed. At this stage, it is pertinent to quote the observations of the Assessing Officer in para 2 of the order- 2. A search and seizure operation was carried out at the premises of the assessee on 12-9-1988. During the course of search the assessee has made a declaration of Rs. 1 crore under Section 132(4) of Income-tax Act. Consequently the assessee has paid the taxes and has credited its P & L account by the sum of Rs. 1 crore. As per the order under Section 132(5) the assessee has introduced cash of Rs, 84,33,000 in its books of account after excluding the expenses incurred by it prior to the search and included in the aforesaid declaration.
13. In the aforesaid back-drop let us examine the issue of exigibility or otherwise of the impugned penalty in the light of the views expressed by the learned respective parties.
14. Perusal of the penalty order would go to reveal that in nutshell the case of the assessee was that Explanation 5 to Section 271(1)(c) comprised of two parts. The first part created a deeming fiction whereby the assessee is deemed to have concealed the particulars of his income and the second part provided exemption to the said deeming provision upon fulfilment of prescribed conditions. The assessee had fulfilled those conditions and was therefore entitled to immunity. The Assessing Officer, however, held otherwise for the reason - (i) that in search cash of Rs. 80,000 gold jewellery worth Rs. 3,25,000 and diamond jewellery worth Rs. 1,90,000 involving an aggregate amount of Rs. 5,83,225 was found to be in possession of the assessee. Except the aforesaid assets, assets corresponding to the declaration had not been found in possession or control of the assessee; (ii) That the assessee did not disclose the manner in which the amount of disclosure had been derived; and (iii) That in his statement under Section 132(4) the assessee had stated that the amount of declaration belonged to his family members but in the return the entire declaration was made in the hands of the assessee only. It was on the basis of the aforesaid finding that the Assessing Officer reached the conclusion that Explanation 5 was attracted and that the exceptions provided therein were inapplicable to the case of the assessee. When the issue was considered by the Commissioner (Appeals) he recorded a finding that the impugned penalty is exigible only with reference to the amount of Rs. 5,83,225 represented by cash gold and diamond jewellery, these being assets found in possession of the assessee during search. According to the Commissioner (Appeals) Explanation 5 was inapplicable to the remaining amount of Rs. 94,17,000 assets corresponding thereto were not found in possession of the assessee. Accordingly, he deleted the penalty of Rs. 47,16,384 relatable to the above amount of Rs. 94,17,000.
15. Shri Dave, the ld. Departmental Representative, refuted the aforesaid finding and vehemently argued that the Commissioner (Appeals) was incorrect in giving a finding that the assessee was not in possession of assets corresponding to the amount of Rs. 94,17,000, placing reliance on the depositions made by the assessee in his statement recorded under Section 132(4) of the Act. He submitted that the assessee had clearly stated that he owned the amounts spent for charity purposes of the trust and for investment in marble flooring etc. Moreover, according to Shri Dave the assessee was in possession and control of the assets represented by the seized loose papers indicating the cash amounts lying at places other than the assessee's residence. Thus, the stand of the Revenue before us is that the assessee was in possession and control of the assets corresponding to the amount of Rs. 94,17,999. According to Shri Dave the disclosure to the above extent was, however, not voluntary as it was made consequent to the incriminating documents in the form of loose papers found and seized in search. He, therefore, submitted that the Commissioner (Appeals) was incorrect in holding that the disclosure to the extent above was voluntarily. However, we do not find any basis for such an argument which is not forthcoming either in the penalty order or in the appellate order. Moreover, the basis explained by Shri Dave ld.Departmental Representative, is not relevant in the present context of applicability of exception provided in Explanation 5 containing deeming provision. We, therefore, do not consider it necessary to dwell upon the precedents relied upon by Shri Dave in support of the proposition that the declaration was not voluntary.
16. Let us have a look to Explanation 5 which has been inserted by the Taxation Laws (Amendment) Act, 1984. It provides that 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 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 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 accurate 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.) 17. It may be stated that prior to introduction of the aforesaid Explanation, an assessee who was found to be owner of any money, bullion, jewellery or other valuable article or thing, during the course of search, could escape the penalty under Section 271(1)(c) if he would have included the value of such assets as income in the return submitted after the search by stating that such assets were acquired by him out of his income relating to such previous year for which no return was filed till the date of search but such an income was included in the first return filed after the search. Since no concealment took place when the return of income was filed for the first time relating to the search, the assessee could escape levy of penalty. Explanation 5 was introduced to curb the above loophole.
It contains a deeming provision and the only exceptions to such a deeming provision are given in Sub-clauses (1) and (2) of Clause (b) of Explanation 5. The case of the assessee has all along been that his case is covered by the aforesaid Sub-clauses providing for immunity from levy of penalty under Section 271(1)(c). The conditions precedent for availing the immunity under Explanation 5 to Section 271(1)(c) are these- (i) The assessee must have made a statement under Section 132(4) that such assets found in his possession have been acquired out of income which has not been disclosed so far in the return of income to be finished before the expiry of time specified in Section 139(1); (ii) The assessee specifies in a statement under Section 132(4) the manner in which such income has been derived; and (iii) The assessee pays the tax together with interest, if any, in respect of such income.
18. It may be stated at the outset that the conditions at (i) & (ii) above clearly established that both these conditions have to be fulfilled in the course of search itself when the statement under Section 132(4) is recorded. Now, let us examine whether on the facts and in the circumstances of the assessee's case the requisite conditions for availing the benefit of immunity from penalty are fulfilled or not. It is not in dispute that the statement of the assessee under Section 132(4) was recorded on 12-9-1988 and on 27-10-1988 wherein the assessee made declaration of undisclosed income of Rs. 1 crore. This amount of Rs. 1 crore was stated to be represented by assets in the form of unaccounted cash at residence and other places, unaccounted expenses/investment in gold jewellery and diamond jewellery etc. found in his possession. For details the order under Section 132(5) dated 4-1-1989 may be referred to. It is available at PP. 80-81 of the paper book. Having regard to these facts and as argued by Shri Dave, ld. Departmental Representative, the Assessing Officer as also the Commissioner (Appeals) were not correct in recording the finding that the assessee was not found to be in possession of assets corresponding to the entire amount of declaration of Rs. 1 crore.
Perusal of the statement recorded under Section 132(4) on 27-10-1988 would reveal that the assessee had stated that the declaration of undisclosed income of Rs. 1 crore was for current year (assessment year 1989-90). What the assessec meant was that the aforesaid assets found in his possession have been acquired out of his income which has not been disclosed in any return of income filed before the search. As a matter of fact the return of income for the search year i.e. assessment year 1989-90 in the case of the assessce was due to be filed on 31-7-1989 only. Thus, we are of the considered view that the condition at (i) above stands fulfilled.
Coming to the condition at (ii) above - Question No. 3 and reply thereto in the statement under Section 132(4) recorded on 12-9-1988 is relevant. The question which was put to the assessee was to state how the confessed income of Rs. 1 crore of his and his family members has been earned. The reply of the assessee was that 'this is income of business done by the family members in their proprietary concern for which no books are kept in the calender year as well as income from other sources'. No further query was raised by the authorised officer to ascertain the manner in which the income of Rs. 1 crore was derived.
If that be so, can it be expected of the assessee to suo motu make further statements with regard to the manner in which income of Rs. 1 crore was derived. The obvious answer is in the negative. To put blame on the assessee later on for not specifying the manner in which income of Rs. 1 crore has been derived is totally unjustified : when the statement under Section 132(4) was recorded in question and answer form. We, therefore, hold that the benefit of immunity from penalty cannot be denied to the assessee on the ground of not specifying the manner in which incorne of Rs. 1 crore was derived by him.
As regards condition at (iii) above, it is an admitted position that the assessee has paid the tax @ 50 per cent + (sic) + 21/2 per cent surcharge amounting to Rs. 52,50,000 on declared income of Rs. 1 crore which is evident from the order under Section 132(5) dated 4-1-1989.
Therefore, this condition is fulfilled.
19. If the assessee has fulfilled the requisite conditions for availing the benefit: of immunity under Explanation 5 to Section 271(1)(c), the same cannot be denied on flimsy ground that in his statement under Section 132(4) recorded on 12-9-1988 the assessee had stated that the amount of declaration belonged to his family members but in the return, entire declaration was made in the hands of the assessee. It may not be out of place to mention that the Assessing Officer has ignored the statement of the assessee under Section 132(4) recorded on 27-10-1988 wherein he made a statement (in reply to question No. 3) that he was making declaration of Rs. 1 crore in his hands for current year (assessment year 1989-90). The assessee has been Ftiterating again and again that in view of his declaration in a statement? under Section 132(4), the provisions of penalty and prosecution shall not'be attracted in respect of undisclosed income declared.
20. For the reasons aforesaid, We hold that it is not a fit case for imposition of the impugned penalty at all. The penalty of R.s. 2,84,406 sustained by the Commissioner (Appeals) is hereby cancelled. Assessee succeeds in his appeal and the revenue fails.
21. In the result, appeal of the is allowed and that of the revenue is dismissed.