TMI Blog2009 (8) TMI 128X X X X Extracts X X X X X X X X Extracts X X X X ..... ual matrix is not in dispute. It is immaterial that above Explanation has been referred in the assessment order. On facts, application of s. 271(1)(c) is not affected. The proposition that assessee has an obligation to show correct income u/s. 139 and if it is not done. Revenue is entitled to invoke provision of s. 271(1)(c) notwithstanding that correct income is shown in response to notice u/s. 148 or in some other proceedings is well established and is beyond doubt. For the purpose of present proceeding, there is no material difference whether the returns were filed in response to notice u/s. 148 or u/s. 153C. The legal position on the issue is more than clear. The Hon'ble Allahabad High Court in the case of CIT vs. Ram Achal Ram Sewak [ 1974 (2) TMI 12 - ALLAHABAD HIGH COURT] held that the relevant return for the purposes of s. 271 is the original return filed by the assessee, and not the return filed subsequent thereto. We are of the view that these are fit cases where penalties u/s. 271(1)(c) have been rightly imposed on the assessee. Levy of penalty is hereby confirmed. Appeals of the assessee are dismissed. - Member(s) : VIMAL GANDHI., A. K. GARODIA. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her additions of Rs. 6,23,440 and Rs. 7,02,964 respectively under s. 68 for unproved cash credit. 5. The AO also initiated penalty proceedings under s. 271(1)(c) of the IT Act for concealment of income, for furnishing inaccurate particulars of income. Penalty proceedings were initiated as per Expln. 5 to s. 271(1)(c) of the IT Act except for asst. yr. 2004-05 in which the said Explanation has not been mentioned. 6. After providing reasonable opportunity of being heard to the assessee and after rejecting assessee's plea that various amounts were surrendered in the returns to buy peace of mind, as also that amount surrendered in return under s. 153C was not undisclosed income, the AO made penalty orders under s. 271(1)(c) after referring to Expln. 5 to the said section. The AO has also recorded a finding in the penalty orders that assessee concealed the particulars of her income and furnished inaccurate particulars thereof. It is further recorded that the assessee did not file return showing her correct income before the date of search and as such was liable to penalty under s. 271(1)(c) of the IT Act. Penalty was calculated on the tax sought to be evaded in each assessment year. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the case was adjourned to28th March, 2006. On this date, the appellant filed return of income declaring an income of Rs. 3,57,410 and agricultural income of Rs. 4,88,265. It is noticed that the additional income disclosed in the return filed in response to notice under s. 153C was in respect of 'income from house property' and 'income from other sources'. This was actually based on the credit entries appearing in the bank account of the appellant for the relevant period. This income had not been disclosed in the original return of income filed by the appellant under s. 139 of the Act. In point Nos. 3 and 6 of the questionnaire dt. 8th Nov., 2006 issued by the AO, the appellant was asked to explain reasons as to why the income under the heads 'Income from house property' and 'Income from other sources' declared in the return filed under s. 139 was different from the income declared in the return filed under s. 153C. However, the appellant did not file any reply to those queries. 6.1 The above-mentioned sequence of events clearly shows that various deposits in the bank account of the appellant, which was detected during the course of search operations at the residential premises ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he view that for applicability of Expln. 5, it is not necessary that the search should have been carried out at the premises of an assessee. Sec. 153C provides for the assessment of a person other than the person in whose case search has taken place if any money, bullion, jewellery or other valuable articles or thing or books of account or documents seized from a person searched under s. 132 belong to another person. Therefore, once the AO is satisfied that action under s. 153C is to be taken in the hands of a person other than the person in whose case search has taken place, all other provisions of the Act shall apply to that assessment because as per s. 153C(2), the AO shall assess or reassess the income of such other person in the manner prescribed under s. 153A. Moreover, it has nowhere been provided in the Expln. 5 that the statement of a person searched must be recorded by the Department. The requirement for the applicability of this Explanation is that where an assessee claims that any money, bullion, jewellery or other valuable article or thing has been acquired by him by utilizing his income for any previous year, which has ended before the date of search but the return of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the result, the appeal is dismissed." 8. Similar orders were passed in other years confirming the levy of penalty. 9. The assessee is aggrieved and has brought the issue in appeal. Shri Sampath, learned counsel for the assessee, contended that penalty provisions are required to be strictly construed. It is evident from the assessment orders that AO specifically invoked Expln. 5 to s. 271(1)(c) and also levied penalty in the light of above Explanation. However, the said Explanation has no application as in these cases, no search had taken place on the assessee or on her premises. The bank statements, etc. were found in search carried on Shri Mehrotra. Shri Sampath further contended that assessee had voluntarily surrendered certain amounts to buy peace of mind and to avoid protracted litigation. There was nothing on record to show that amount assessed in the hands of the assessee was, in fact, income of the assessee and the same was concealed in terms of s. 271(1)(c). He repeatedly emphasized that the question has to be considered with reference to Expln. 5 and not on the basis of main provisions of s. 271(1)(c) of the Act. Shri Sampath has also filed written submissions in whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions as filed by the assessee, vide letter dt. 3rd April, 2007, levied maximum penalty @ 300 per cent of the tax sought to be evaded in a sum of Rs. 1,54,500 vide order dt.27th June, 2007. In the asst. yr. 2004-05 he levied similar penalty without, naming any Explanation. 6. The penalty order so passed by the AO in each of the years was the subject-matter of challenge before the CIT(A)-III,New Delhi, who, after narrating the facts rejected the implorations of the assessee and confirmed the findings of the AO. 7. At the outset, it is pointed out that identical orders of confirmation of penalty were passed by the same CIT(A) in the case of other assessees in the same group, Smt. Meera Devi and Smt. Anju Devi for the very same years. Identical findings were recorded in those and penalty imposed in those cases was confirmed by the same CIT(A). The orders in the cases of Smt. Meera Devi and Smt. Anju Devi were the subject-matter of appeal before the Hon'ble Tribunal as under: - Smt. Meera Devi (ITA Nos. 564 to 568/Del/2008, order dt.16th April, 2009)-Delhi'B' Bench; -Smt. Anju Devi (ITA Nos. 569 to 573/Del/2008, order dt.30th April, 2009-Delhi'A' Bench. 8. Similar observations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt's case of CIT vs. Suresh Chandra Mittal (2001) 170 CTR (SC) 182 : (2001) 251 ITR 9 (SC) and also an earlier decision of the apex Court in Sir Shadi Lal Sugar General Mills Ltd. vs. CIT (1987) 64 CTR (SC) 199 : (1987) 168 ITR 705 (SC) at p. 713. While so submitting, it is also pointed out that certain observations made in the context of (1987) 64 CTR (SC) 199 : (1987) 168 ITR 705 (SC) by the apex Court itself in K.P. Madhusudhanan vs. CIT (2001) 169 CTR (SC) 489 : (2001) 251 ITR 99 (SC) have been annulled by the apex Court in its judgment in K.C. Builders vs. CIT (2004) 186 CTR (SC) 721 : (2004) 265 ITR 562 (SC). In this way no penalty could have been levied in the stipulated circumstances. 11. In the premises of these cases and in the light of settled legal position, the charges as foisted against the assessee and confirmed by CIT(A) are unalterable and immutable and otherwise being erroneous, misleading and unmaintainable merit to be quashed. 12. Notwithstanding the averments made herein above, it needs to be further noted that penalty provisions are required to be strictly construed. Every penalty is based on a charge. That charge must be precisely stated and duly confr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d show that such averments as made were false, no penalty could be sustained in terms of Expln. 1 to s. 271(1)(c) of the Act. The decision of the Gujarat High Court in National Textiles vs. CIT (2000) 164 CTR (Guj) 209 : (2001) 249 ITR 125 (Guj) is relied upon in this regard. 15. It must also be remembered that penalty proceedings and assessment proceedings are separate and distinct proceedings and that if a valid charge of income concealed is to be successfully canvassed, then the onus would lie on the AO to show that the amount in question was indeed the income of the assessee which has been suppressed. On that point the complete silence of the AO in the penalty orders speaks volumes about the charge being baseless and fallacious and the consequential innocence of the appellant on this score. 16. The AO had to read the charge of penalty in the context of the section permitting him to so along with the Explanation adduced to that section which actually informs him as to how to deal with such charge. The AO had no authority to say that he would ignore the Explanations and consider the penalty de hors the Explanation and entirely on the basis of such sub-s. (c) of s. 271(1). Suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g as recovered. In the subject case, in the first place, there is no such recovery, and in the second place, there is no opportunity and so the applicability of Expln. 5 fails. (v) The bank document located cannot be the subject-matter of a charge under Expln. 5. It is not that entries on papers and documents are unknown to constitute income under the Act. In fact, s. 158B(b) which was introduced in the statute in 1989 (much before the date of the search in this case) contains a clear mandate with regard to entry in the books of accounts or other documents or transactions constituting undisclosed income. There is no equivalent phrase in Expln. 5 to s. 271(1)(c) of the Act. It may please be noted that such has been in the contemplation of the legislature even in 2007 when Expln. 5A was introduced. Even at that point of time, no repair was done to Expln. 5 which clearly indicates that it is not the legislative intention to bring to tax or charge concealment with regard to any item other than those as originally stated in Expln. 5. The originally stated items are money, bullion, jewellery or other valuable article or thing. (vi) Even fixed deposit receipts are not reckoned as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and are to be rejected. No material whatsoever is available on record to show that entries in the bank account of the assessee were not income of the assessee and was merely surrendered to buy peace of mind. Facts and circumstances discussed by learned CIT(A) clearly demonstrate that surrendered and other income assessed in the hands of the assessee under s. 153C was income which was concealed by the assessee in the returns originally filed under s. 139. It was open to the assessee to show circumstances which prevented the assessee from disclosing correct income in returns filed under s. 139 but no effort was made to explain above. The assessee further failed to submit any explanation relating to entries or deposits in bank account when she was summoned under s. 131 of the IT Act. In response to notice under s. 153C, total income including concealed income was disclosed except cash credits and AO computed assessable income for different years accordingly. It is rather difficult to accept without any supporting material that such returns with additional income were filed to buy peace of mind. On the other hand, it is clearly established that concealment of income was detected conseq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 cl. (c) of sub-s. (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 cl. (a), before the date of the search; and (ii) in a case falling under cl. (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 CIT or CIT before the said date; or (2) he, in the course of the search, makes a statement under sub-s. (4) of s. 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-s. (1) of s. 139, and also specifies in the statement the manner in which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urn filed after the search. In the instant cases, the asses sees were not found to be the owner of any money, bullion, jewellery or other valuable articles or things during the course of search which was not disclosed in the returns of income or books of account maintained by them. Since this very condition that the assets were not found in the possession of asses sees is not satisfied, the provision of Expln. 5 could not be resorted to for levy of penalty under s. 271(1)(c) of the Act. The language of Expln. 5 to s. 271(1)(c) being plain and simple, in our considered view, the AO was not justified in taking recourse to the Explanation for imposition of penalty. Moreover, the assessees being salaried persons were not required to maintain the books of account in respect of salary income. The salary income has suffered tax at source. Likewise, the income from house property is also disclosed to the Department. Penalty under s. 271(1)(c) can be imposed for furnishing of inaccurate particulars of income or if the assessee fails to offer an explanation that is not substantiated and assessee fails to prove that such explanation was bona fide. The AO has wrongly invoked the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with notices, concealment of income, etc.-(1) If the AO or the CIT(A) or the CIT in the course of any proceedings under this Act, is satisfied that any person- .............. (c) has concealed the particulars of his income or furnished inaccurate particulars of such income, or .............. he may direct that such person shall pay by way of penalty,- (iii) in the cases referred to in cl. (c) or cl. (d), in addition to tax, if any, payable by him, a sum which shall not be less than, but which shall not exceed three times, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or fringe benefits or the furnishing of inaccurate particulars of such income for fringe benefits. Explanation 1: Where in respect of any facts material to the computation of the total income of any person under this Act,- (A) such person fails to offer an explanation or offers an explanation which is found by the AO or the CIT(A) or the CIT to be false, or (B) such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A) is satisfied that in respect of such assessment year such person has taxable income, then, such person shall, for the purposes of cl. (c) of this sub-section, be deemed to have concealed the particulars of his income in respect of such assessment year, notwithstanding that such person furnishes a return of his income at any time after the expiry of the period aforesaid in pursuance of a notice under s. 148. Explanation 4: For the purposes of cl. (iii) of this sub-section, the expression 'the amount of tax sought to be evaded',- (a) in any case where the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished has the effect of reducing the loss declared in the return or converting that loss into income, means the tax that would have been chargeable on the income in respect of which particulars have been concealed or inaccurate particulars have been furnished had such income been the total income; (b) in any case to which Expln. 3 applies, means the tax on the total income assessed as reduced by the amount of advance tax, TDS, tax collected at source and self-assessment tax paid before the issue of notice under s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee is found to be the owner of,- (i) any money, bullion, jewellery or other valuable article or thing (hereinafter in this Explanation referred to as assets) and the assessee claims that such assets have been acquired by him by utilizing (wholly or in part) his income for any previous year; or (ii) any income based on any entry in any books of account or other documents or transactions and he claims that such entry in the books of account or other documents or transactions represents his income (wholly or in part) for any previous year, which has ended before the date of the search and the due date for filing the return of income for such year has expired and the assessee has not filed the return, 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 cl. (c) of sub-s. (1) of this section, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income. Explanation 6: Where any adjustment is made in the income or loss declared in the return under the proviso to cl. (a) of sub-s. (1) of s. 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... real amount, he may direct that such partner shall, in addition to the tax, if any, payable by him, pay by way of penalty a sum not exceeding one and a half times the amount of tax which has been avoided, or would have been avoided if the income returned by such partner had been accepted as his correct income; and no refund or other adjustment shall be claimable by any other partner by reason of such direction. (4A) and (4B) Omitted by the Taxation Laws (Amendment) Act, 1975, w.e.f.1st Oct., 1975. Original sub-ss. (4A) and (4B) were inserted by the IT (Amendment) Act, 1965, w.e.f.12th March, 1965. Later on, sub-s. (4A) was substituted by the Taxation Laws (Amendment) Act, 1970, w.e.f.1st April, 1971. (5) The provisions of this section as they stood immediately before their amendment by the Direct Tax Laws (Amendment) Act, 1989 shall apply to and in relation to any assessment for the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year and references in this section to the other provisions of this Act shall be construed as references to those provisions as for the time being in force and applicable to the relevant assessment year. (6) Any re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rence was made to the authority imposing the penalty. Therefore, merely because the Explanation has not been referred to in the show-cause notices, there is no legal bar against invoking the Explanation during the course of the penalty proceedings." 16.5 In the case of CIT vs. Drapco Electric Corporation 1978 CTR (Guj) 181 : (1980) 122 ITR 341 (Guj), Hon'bleGujaratHigh Court has held as under: "Since the Explanation enacts merely a rule of evidence, it is competent to the authority which imposes the penalty to invoke its aid in reaching the final conclusion on the question of concealment, although the ITO may not have resorted to it at the stage when he made the reference to the authority." 16.6 In the case of CIT vs. Prabhu Dayal Lallu Ram (2005) 195 CTR (P H) 351 : (2005) 274 ITR 233 (P H), the following question was referred to their Lordships of Punjab Haryana High Court: "Whether, on the facts and in the circumstances of the case, the Hon'ble Tribunal was justified in law in deleting the penalty under s. 271(1)(c) amounting to Rs. 73,000 by holding that Expln. 1 to s. 271(1)(c) has not been invoked by the AO ignoring the fact that Expln. 1 to s. 271(1)(c) is an integ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der s. 153C of the IT Act. The legal position on the issue is more than clear. We may usefully refer to the following decisions: 16.9 The Hon'bleMadrasHigh Court in the case of CWT vs. M.V. Rajamma (1979) 10 CTR (Mad) 193 : (1979) 120 ITR 132 (Mad) held as under: "The learned counsel for the Revenue contended that this decision cannot be accepted as correct as it runs counter to the decision of the Supreme Court in N.A. Malbary Bros. vs. CIT (1964) 51 ITR 295 (SC). This decision of the Supreme Court had not been cited or noticed in the decision of the Allahabad High Court. In the case before the Supreme Court, the assessee did not include the profits of a business fromBangkokin the return filed for the asst. yr. 1951-52. The ITO estimated the profits of theBangkokbranch and completed the assessment accordingly. He initiated penalty proceedings and imposed Rs. 20,000 as penalty for the concealment of the income earned inBangkok. In the course of the assessment for the next year, the ITO came across the books of theBangkokbranch and he found that the assessee had made a profit of Rs. 1,25,520 as against Rs. 37,500 estimated by him. He, therefore, took proceedings under s. 34 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtment may be examined with reference to particular cases. To begin with, we shall take a case where an assessee has concealed the particulars of his income or furnished inaccurate particulars of such income in his original return as also in the return filed in pursuance of a notice under s. 148. If the argument of the Department is accepted, the assessee would become liable to two penalties, one in respect of the concealment or inaccurate furnishing of particulars in respect of the original return, and the other in respect of the second, when he filed a return in pursuance of a notice under s. 148, and the maximum penalty that the ITO can impose could be twice the amount of the income concealed on each occasion, with the result that the total penalty for the concealment would be four times the amount of income concealed. We do not feel that such a consequence was intended by the legislature. This apart, where an assessee has concealed the particulars of his income or furnished inaccurate particulars of such income once, it cannot be said that if he repeats the same act again, there is a fresh concealment or furnishing of inaccurate particulars of the same income. There are other d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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