TMI Blog2007 (8) TMI 234X X X X Extracts X X X X X X X X Extracts X X X X ..... maintained mercantile system of accountancy and the accounting period is the financial year ending on March 31 of each year. For both the assessment years, the assessments were completed under section 143(3) of the Income-tax Act on March 19, 1985, and December 20, 1985. A search and seizure was conducted under section 132 of the Act and in the course of the said search operation, certain books of account papers relating to the business of the assessee were found and seized. The said books of account pertained to the financial years 1985-86 and 1986-87. Certain loose sheets including sales, etc., for the financial year 1983-84 onwards were also seized. The transactions made through bank accounts were found to have been mostly kept out of the books of account. After the aforesaid search and seizure carried out on August 26, 1986, the assessee filed a revised return on September 29, 1986, under the amnesty scheme disclosing additional income of Rs. 4,50,000 and Rs. 2,50,000, respectively, for the assessment years 1984-85 and 1985-86. The assessments were regularised by getting service of notice under section 148 of the Act and the assessments were completed for both the years on dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct as that was not voluntary one but was filed owing to search and seizure operation. Aggrieved by the said order, the assessee filed an appeal before the Income-tax Appellate Tribunal. The Appellate Tribunal allowed the appeal and set aside the order of penalty. 4. Mr. Binod Poddar, learned counsel appearing for the assessee, firstly, submitted that the Income-tax Appellate Tribunal, being the highest fact finding body, came to a finding that the Revenue have failed to prove the very basic thing that the disputed amount, in fact, represented the income of the assessee. The Tribunal further stated that there is no evidence that the assessee has mens rea in his mind to infract the provisions of section 271(1) (c) of the Act. Learned counsel submitted that some concrete and positive evidence is required to prove that the assessee has failed to file the correct income and has acted with ill-motive having mens rea in his mind. Learned counsel submitted that after the search and seizure was conducted, the assessee, just for his peace of mind, settled the dispute voluntarily, owned the transaction recorded in the said documents and filed revised return and surrendered additional inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt therein, he may furnish a revised return at any time before the assessment is made. (6) The prescribed form of the returns referred to in sub-sections (1), (2) and (3) shall, in such cases as may be prescribed, require the assessee to furnish the particulars of income exempt from tax, assets of the prescribed nature and value and belonging to him, expenditure exceeding the prescribed limits incurred by him under prescribed heads and such other outgoings as may be prescribed." 7 From a bare reading of the aforesaid provisions, it is clear that under the old provisions of sub-section (5) of section 139, an assessee, having furnished a return under sub-section (1) or (2), may file a revised return at any time before the assessment was made. This would be up to two years from the end of the relevant assessment year. The amending Act 1987 has substituted a new sub-section (5) whereby the limit of the period for filing a revised return has also been reduced to one year from the end of the relevant assessment year. Reference to sub-section (2) has also been omitted. It has also been provided that in respect of the assessment year 1988-89 or any earlier assessment year, revised re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Chapter XVII-C; (ii) in the cases referred to in clause (b), in addition to any tax payable by him, a sum which shall not be less than ten per cent. but which shall not exceed fifty per cent. of the amount of the tax, if any, which would have been avoided if the income returned by such person had been accepted as the correct income (iii) in the cases referred to in clause (c), in addition to any tax payable by him, a sum which shall not be less than ten per cent., but which shall not exceed twice, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or the furnishing of inaccurate particulars of such income Provided that, if in a case falling under clause (c) the amount of income (as determined by the Income-tax Officer on assessment) in respect of which the particulars have been concealed or inaccurate particulars have been furnished exceeds a sum of twenty-five thousand rupees, the Income-tax Officer shall not issue any direction for payment by way of penalty without the previous approval of the Inspecting Assistant Commissioner. Explanation 1 .—Where in respect of any facts material to the computation of the total i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of which had been furnished for the year immediately preceding the first preceding year and so on, until the entire utilised amount is covered by the amounts so added or deducted in such earlier assessment years. Explanation 3.— Where any person who has not previously been assessed under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act, fails, without reasonable cause, to furnish within the period specified in sub-clause (iii) of clause (a) of sub-section (1) of section 153 a return of his income which he is required to furnish under section 139 in respect of any assessment year commencing on or after the 1st day of April, 1974, and, until the expiry of the period aforesaid, no notice has been issued to him under sub-section (2) of section 139 or section 148 and the Income-tax Officer or the Appellate Assistant Commissioner or the Commissioner (Appeals) is satisfied that in respect of such assessment year such person has taxable income, then, such person shall, for the purposes of clause (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 hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssioner before the said date. From 1-10-1984 : TLA Act, 1984 : Penalty : Assets seized on search : Burden of proof: Explanation 5 has been inserted by TLA Act, 1984, with effect from 1-10-1984. The effect of the amendment is that any asset seized on a search will be treated as concealed income even if it is claimed to have been acquired out of income of a previous year unless such income is, or the transactions resulting in such income have been, recorded in the books of account or such income is otherwise disclosed before the search to the Commissioner. (1A) Where any penalty is imposable by virtue of Explanation 2 to sub-section (1), proceedings for the imposition of such penalty may be initiated notwithstanding that any proceedings under this Act in the course of which such penalty proceedings could have been initiated under sub-section (1) have been completed. (2) When the person liable to penalty is a registered firm or an unregistered firm which has been assessed under clause (b) of section 183 then, notwithstanding anything contained in the other provisions of this Act, the penalty imposable under sub-section (1) shall be the same amount as would be imposable o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e course of a search, was entitled to explain that such assets were acquired by him by utilizing his income relating to any previous year, whether it ended before the date of search or after the date of the search. By doing so, the assessee could have escaped the liability to penalty under section 271(1) (c). In order to plug the aforesaid loophole, Explanation 5 has been inserted by the Taxation Laws (Amendment) Act, 1984, with effect from October 1, 1984. The newly inserted Explanation 5 enacts a deeming provision and have application to a situation 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, and the assessee claims that such assets have been acquired by him by utilising wholly or in part, his income from any previous year which has already been ended before the date of the search or which is to end on or after the date of the search, then in such a situation, such income declared by him in furnishing returns shall be deemed to have been concealed the particulars of his income or furnished inaccurate particulars of such income within the meaning of section 271 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 143(3). But after a search was conducted under section 132, the assessee realised that its books of account were defective with regard to cost of construction. Therefore, the assessee filed a revised return which were accepted by the Department and assessments were completed. The assessing authority treated the difference between the incomes as per the original return and revised return as concealment income and consequently, levied penalties. The order levying penalties was upheld by the Commissioner of Income-tax (Appeals). Thereafter, the Department filed four complaints before the magistrate for an offence under sections 276C(2), 277 and 278B of the Income-tax Act and sections 12DB, 34, 193, 196 and 420, IPC. However, in the meantime, the Income-tax Appellate Tribunal before whom appeals were preferred by the assessee held that there was no concealment of income by the assessee and accordingly penalties were cancelled. The order of the Tribunal was not challenged and consequently, it became final. The assessee then came before the High Court against the prosecution launched on the basis of the report of the Assessing Officer. In that context, the Supreme Court obser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eted determining the total income of the assessee which included the income from other sources. However, the assessee did not enter in the cash book some of the transactions on the date when purchase was made. After the assessing authority noticed the aforesaid fact, the assessee offered some amount as additional income. The assessment was accordingly made treating the amount as unexplained investment. Consequently, penalty proceedings were initiated against the assessee under section 271(1) (c) of the Act. The Assessing Officer found the assessee's explanation unacceptable and imposed penalty. The appeal filed by the assessee was refused. The assessee then preferred appeal before the Income-tax Tribunal. The Tribunal allowed the appeal. Arising out of the order of the Tribunal, the questions noted therein were placed for consideration of the High Court. The High Court answered the questions in favour of the Revenue. Then the assessee moved the Supreme Court. The Supreme Court considered the ratio decided by the Bombay High Court in the case of CIT v. P. M. Shah [1993] 203 ITR 792 and in the case of CIT v. Dharmchand L. Shah [1993] 204 ITR 462 (Bom) and observed (page 103) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of that Explanation , the view taken in this case can no longer be said to be applicable. The appeal is, therefore, dismissed with costs." 20 In the instant case, the Income-tax Appellate Tribunal, while allowing the appeal by setting aside the order of penalty, proceeded on the basis that the assessee disclosed the aforesaid additional amount voluntarily in call of amnesty scheme and for that such disclosure of income and offering the same for tax may be for various reasons. Such voluntary disclosure cannot be said to be concealed income of the assessee. The Tribunal further proceeded on the basis that the Revenue has to prove mens rea on the part of the assessee by adducing evidence. In my view the Tribunal has totally misconstrued the provisions of the Act and the finding is wholly perverse in law. The Tribunal has not considered the effect of Explanation 5 to section 271(1)(c) of the Act. 21 In the case of CIT v. C. Ananthan Chettiar [2005] 273 ITR 401, the Madras High Court was considering a similar question. In that case, the Income -tax Department in a search and seizure operation conducted in the assessee's shop and residence, seized cash, jewelleiy a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... documents, papers and records, including certain diaries were seized. After scrutiny, unaccounted income was worked out. The appellant admitted the above unaccounted income and offered to disclose the additional income in the hands of various funds in various years which were broadly on the basis of entries recorded in the diaries. On the basis of disclosures, all the groups concerned including the appellant chose to file a revised return disclosing the additional income which was accepted by the Assessing Officer by passing the assessment order under section 152(3) of the Act. In the assessment order, the Assessing Officer ordered initiation of penalty proceedings under section 271(1) (c) of the Act. The assessing authority finally passed the order of penalty. Aggrieved the said order, the appellant preferred appeals before the appellate authority who confirmed the levy of penalty. The appellant then moved the Income-tax Appellate Tribunal by filing appeals which were eventually dismissed. The appellant then moved the Bombay High Court raising the following substantial question of law (page 25) : "Whether, on the facts and in circumstances of the case and law, the diaries, on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The words in Explanation 5 ' books of account, if any, maintained by him for any source of income' are important words signifying the legislative intent embodied in the Explanation warranting grant of immunity from penalty. The legislative intent is to admit only those books of account maintained by the assessee on his own behalf as by their very nature and circumstances are maintained for the purposes of drawing the source of income. Therefore, when books of account are tendered for claiming the benefit of Explanation 5 to section 271(1) (c) of the Act, it must be shown to be a book, that book must be a book of account, and on the top of it that must be one maintained for the purposes of drawing the source of income under the Income- tax Act. These essential requirements must be carefully observed while implementing tax legislation in the country where secret and parallel accounts based on frauds and forgery are extremely common and responsibility of keeping and maintaining accounts for the purposes of the tax legislation is honoured in the breach rather than the observance. Now, turning to the facts of the cases in hand, private diaries may have been most regularly m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee then moved the Supreme Court. The Supreme Court dismissed the appeal and affirmed the judgment of the Division Bench. Their Lord- ships observed (page 552) "Admittedly, the appellant did not file the return either within the time specified in the statute for doing so or within the extended period of time. The returns were filed beyond the extended period for filing the return. Interest on the amount due and penalty are two different and distinct concepts. Interest is the accretion on the capital whereas the penalty is a punishment imposed on a wrong-doer. Counsel appearing for the assessee in support of the contention placed reliance on a judgment of this court in CIT v. M. Chandra Sekhar [1985] 151 ITR 433. In the said case, their Lordships were dealing with a return filed under section 139(1) of the Act whereas in the present case the returns had been filed under section 139(4). The assessee was absolved of his liability to pay the penalty under provisos to section 139(1). It was observed (page 439) 'In the instant case, the extension was a matter falling within sub section (1) of section 139, and the returns furnished by the assessee must be attributed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mens rea may come in. Unfortunately, in the judgment under appeal, this distinction has not been borne In mind which led to the non-application of the ratio of the Full Bench of the Kerala High Court CIT v. Gujarat Travancore Agency [1976] 103 ITR 149. It was this aspect of the matter which came to be clarified in Gujarat Travancore Agency v. CIT [1989] 177 ITR 455 (SC) which has subquently been applied in CITv.Kalyan Das Rastogi [1992] 193ITR713 (SC). Thus, it is submitted that the Revenue is entitled to succeed. 9. In opposition to this, learned counsel for the assessee drew our attention to the passages occurring in the impugned judgment wherein the requirement of proving mens rea had come to be insisted upon. According to him, there is not much of a difference between a case falling under section 271(1) (a) or sub-section (1) (c). 10. We have given our careful consideration to the above submissions. We are of the view that the Revenue is entitled to succeed. As a matter of fact, the very question with which we are concerned is no longer res integra as has rightly been pointed out by Mr. Ramamurthy. In Gujarat Travancore Agency v. CIT [1989] 177 ITR 455, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asured are significant. Unless there is something in the language of the statute indicating the need to establish the element of mens rea, it is generally sufficient to prove that a default in complying with the statute has occurred. In our opinion, there is nothing in section 271(1) (a) which requires that mens rea must be proved before penalty can be levied under that provision 26 In the case of Gujarat Travancore Agency v. CIT [1989] 177 ITR 455(SC) ; [1989] 3 SCC 52 the Supreme Court held (page 457) "4. Learned counsel for the assessee has addressed exhaustive arguments before us on the question whether penalty imposed under section 271(1) (a) of the Act involves the element of mens rea and in support of his submission that it does, he has placed before us several cases decided by this court and the High Courts in order to demonstrate that the proceedings by way of penalty under section 271(1) (a) of the Act are quasi-criminal in nature and that, therefore, the element of mens rea is mandatoty requirement before a penalty can be imposed under section 271(1) (a) We are relieved of the necessity of referrmg to all those decisions Indeed, many of them were considered by th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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