TMI Blog2001 (2) TMI 1024X X X X Extracts X X X X X X X X Extracts X X X X ..... f updated books of account, the source of investment in various assets might not be properly known to them and, therefore, the members of the family made a declaration of additional income of ₹ 3 crores under section 132(4) of the Income-tax Act, 1961. It was promised that a detailed break-up of the amount would be given to the Department in a few days time. It was further stated that all the members of the family had earned additional income of ₹ 3 crores out of brokerage of Stock Exchange and capital gains from investment in shares and securities which had not been accounted for in the family members personal books of account. On the date of search, the members of family had not filed returns of income for assessment years 1988-89, 1989-90 and 1990-91. Shri Harshad Mehta further stated that they proposed to pay taxes on additional income of ₹ 25 lakhs for assessment year 1989-90 and ₹ 1 crore for assessment year 1990-91 and that the Department should take a lenient view and grant them immunity from penalty and prosecution and interest. Thereafter, on 10-5-1991, Shri Harshad S. Mehta and Shri Ashwin S. Mehta jointly submitted a letter to the Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 39,500 and ₹ 53,010. The assessments in their cases were completed on 26-3-1993 at total income of ₹ 1,52,496 in the case of Smt. Rasila S. Mehta and ₹ 18,20,077 in the case of Smt. Pratima H. Mehta. However, in pursuance of the order of the learned CIT(A), the total income in their cases was revised to ₹ 45,436 and ₹ 53,010 respectively. During the course of assessment proceedings the Assessing Officer had initiated penalty proceedings under section 271(1)(c). In this connection, the assessees made their submissions to the Assessing Officer. Smt. Pratima H. Mehta pointed out that as per order of the Hon ble Judge of the Special Court, Shri S.N. Variava, in miscellaneous application No. 107 of 1993 dated 2-7-1993, no penalty should be imposed against her. The Assessing Officer however held that the said order related to levy of penalty under section 221 only and not other provisions of Income-tax Act. 5. According to the Assessing Officer, the assessees were liable to penalty under section 271(1)(c) in view of Explanation 5 below section 271(1)(c) inasmuch as Smt. Rasila S. Mehta had claimed that a sum of ₹ 7,409 disclosed in her returns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e penalty levied by the Assessing Officer should be deleted. On the other hand, the Assessing Officer argued that Explanation 5 was not available in respect of disclosures relating to earlier years and the assessees case was also not covered by Explanation 5 because income had not been disclosed before the date of search and seizure. The learned CIT(A) held that exemption from operation of Explanation 5 was possible only in respect of the disclosure of income of the current year before the expiry of due date for filing of the return of income under section 139(1). The assessees were therefore not entitled to immunity from penalty under Explanation 5 to section 271(1)(c) in relation to assessment year 1988-89. It was not the case of the assessee that the transactions resulting in disclosed income were recorded in the books of account. In his statement, Shri Harshad Mehta had clearly admitted on behalf of the group that the income disclosed was not accounted for in the personal books of account of the family members. There was no disclosure before the Chief Commissioner or Commissioner of Income-tax either. The words before the said date had to be interpreted so as to mean before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le on facts. In both the cases the addition made related to cash credits. The assessees had not admitted that the alleged cash credits represented their unaccounted income. The assessees were also able to put across Explanations about source of cash credit. On such facts the Hon ble High Courts held that where two opinions on the same facts were possible or Explanation offered by the assessee was rejected, that by itself would not justify imposition of penalty under section 271(1)(c). The learned CIT(A) similarly found that the judgment of Madras High Court in the case of CIT v. V.R. Chittal Achi [1983] 140 ITR 6982 was also distinguishable. 8. The learned CIT(A) found that in the case of these assessees, the following facts were noteworthy :- (i)The returns of income were due on 30-6-1988 and the same had not been filed even though a period of more than two years had already expired. This clearly showed that the assessees had no intention of disclosing the income earned during the previous year. (ii)There was search at the premises of the assessees on 27-9-1990 which resulted in seizure of unaccounted material/documents and unaccounted assets of substantial value. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he time the search took place, the assessee had not filed the return of income after 1987-88. However, having regard to the earlier history, this fact alone could not go against the assessee. Even for assessment year 1988-89, the Assessing Officer made considerable addition in the case of Smt. Pratima H. Mehta but after appeal effect, the same was reduced and assessed income was the same as returned by the assessee. It is true that certain additional income was declared during the course of the search, but the declaration of additional income had been made for want of particulars regarding source of investment and not because of any particular source of undisclosed income. There was also difficulty as the books of account had not been updated. The assessee had therefore requested the Department to take a lenient view and to grant immunity from levy of penalty, prosecution and charging of interest. 11. The learned authorised representative of the assessees referred to the penalty orders as made by the Assessing Officer and submitted that these penalty orders had predominantly been made under Explanation 5 below section 271(1)(c) of the Act. However, in para 3.4 in the case of Smt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ITAT, Pune Bench, in the case of Yashwant B. Chigteri v. Asstt. CIT [2000] 75 ITD 377. The learned counsel for the assessees argued that the only basis on which the penalty could be justified in these cases is the Explanations appended to the provisions of section 271(1)(c). Under the main provisions there was no concealment inasmuch as there was no difference between the returned income and the assessed income. The Assessing Officer could not invoke the deeming provisions of Explanation either, because the assessees cases were fully covered by disclosure made under section 132(4). During the course of search, the assessees were given to understand that no penalty shall be levied if they, made disclosure of additional income. The assessees therefore recorded this in the disclosure itself, that the Department should take a lenient view and no penalty, prosecution or interest should be brought in. Relying upon the decision of ITAT, Ahmedabad Bench C , in the case of Ashok Natverlal Patel v. Asstt. CIT [1998] 67 ITD 82, the learned authorised representative argued that having assured the assessees of immunity, it was not open to the Revenue to impose penalty under section 271(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld and in the matter of quantum of penalty, the orders of the learned CIT(A) should be set aside and that of Assessing Officer should be restored. 16. In his rejoinder, the learned authorised representative of the assessees stated that these assessees had paid advance tax and, therefore, it was totally incorrect to say that the assessees had no intention to file the returns of income and it was only search which had induced returns of income from these assessees. 17. We have carefully considered the rival submissions. We find that the case of Revenue for levy of penalty in these two cases is two-fold, i.e., firstly, as the assessees had not filed their returns of income for assessment years 1988-89, 1989-90 and 1990-91 even though the same had become due, there was concealment of income on the part of these two assessees and, therefore, the entire returned/assessed income should be treated to be income which had been concealed by the assessees or in respect of which inaccurate particulars had been furnished by the assessees. Secondly according to Revenue, the assessees case was hit by provisions of Explanation 5 inasmuch as the assessees were found to be the owner of money, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or in respect of which inaccurate particulars have been furnished by the assessees for the reason that these assessees had not furnished the returns of income within the normal period allowed to them for having filed their returns of income on their own. 18. We shall now turn to the second limb of the impugned orders which relates to Explanation 5 appended to section 271(1)(c). According to Revenue, Explanation 5 was clearly attracted inasmuch as during the course of search under section 132, these assessees were found to be the owner of valuable assets and these assessees claimed that such assets had been acquired by them by utilising their income which was earned by them during the previous year relevant to assessment year 1988-89 also with which we are concerned. The learned authorised representative of the assessees has vehemently argued before us that the additional income as disclosed by these assessees has not been connected with any assets found during the course of the search and for that reason alone. Explanation 5 cannot be pressed into service in the case of these two assessees. On a careful consideration, we reject the argument of the assessees and find ourselves in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by any person was less than 80 per cent of the total income as assessed and reduced by the expenditure bona fide incurred by the assessee but not allowed by the Assessing Officer, it was for such person to prove that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part. Otherwise, the assessee was deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income for the purposes of provisions of section 271(1)(c). This single Explanation was replaced by the Taxation Laws (Amendment) Act, 1975, with effect from 1-4-1976, and Explanation 1 to Explanation 4 were inserted. Explanation 5, with which we are concerned, has been inserted by the Taxation Laws (Amendment) Act, 1984, with effect from 1-10-1984 and, finally, one more Explanation, being Explanation 6, has been inserted by the Direct Tax Laws (Amendment) Act, 1989, with effect from 1-4-1989. From this historical background of Explanations to section 271(1)(c) it would appear that the Explanations operate for deeming in given situations concealment of particulars of income or furnishing of inaccurate particulars of such income. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... declared in the return, the assessee shall, for the purposes of imposition of penalty under section 271(1)(c) of the Income-tax Act, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income unless such income is, or the transactions resulting in such income are, recorded before the date of the search in the books of account, if any, maintained by him for any source of income or such income is otherwise disclosed to the Commissioner before the date of the search. Where the assessee claims that the aforesaid assets have been acquired by him by utilising (whether wholly or in part) his income for any previous year which is to end on or after the date of the search, he shall for the purposes of section 271(1)(c) of the Act be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income, unless such income, or the transactions resulting in such income are recorded 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 Commissioner before the said date. 36.3 The fact that the income referred to abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest, if any, in respect of such income. From the reading of Explanation 5 above quoted, it is seen that it comes into force where in the course of a search under section 132, the assessee is found to be the owner of any money, bullion, jewellery or any other article or thing and the assessee claims that such assets have been acquired by him by utilising (wholly or in part) such income which had not been declared in any of the returns of income filed on or before the date of the search, Explanation 5 provides that in such a situation, declaration of such income in any return of income furnished by the assessee on or after the date of the search would be of no avail and the assessee shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income unless such income is found to be recorded in the books of account maintained by the assessee or such income is otherwise disclosed to the Chief Commissoner or Commissioner of Income-tax before the date of search or the assessee makes a statement under section 132(4) that the asset(s) in question has been acquired out of his income which has not been disclosed so far in his return o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accurate particlars of such income . 23. In view of the discussions in the foregoing paragraphs, we hold that by virtue of operation of Explanation 5, the assessees before us have to be deemed to have concealed particulars of their income or furnished inaccurate particualrs of income related to the valuable assets found during the search under section 132 because as on the date of the search the time limit under section 139(1) of filing the return of income for assessment year 1988-89 had already expired. We do not see any material and justification for the plea taken by the assessees before us that the Department had assured them any immunity while recording the statement under section 132(4). However, we find that Explanation 5, on the facts and in the circumstances of these appeals, cannot be applied to the entire income as assessed by the Assessing Officer but only to such income which could be ascribed to any money, bullion, jewellery or any other valuable article or thing the assessees were found to be the owners of during the course of search proceedings. Accordingly, we hold that Smt. Rasila S. Mehta could be deemed to have concealed her income or furnished inaccurate pa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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