TMI Blog2001 (10) TMI 1186X X X X Extracts X X X X X X X X Extracts X X X X ..... e s premises on 30-8-1981. Thereafter, the CIT, Central, decided that the income of the assessee was only to the extent of brokerage, which was fixed at 0.75 per cent after allowing 50 per cent for sub-brokerage paid by the assessee. So the assessee had adopted the same basis for computing his total income up to the assessment year 1989-90. The assessee, however, himself had accepted 1.25 per cent of total turnover as his net profit for assessment years 1990-91 and 1991-92. The assessee explained that the business of stock brokerage substantially increased since 1990 onwards and the volume of transactions and number of clients had also increased. Therefore the margin by way of brokerage was also higher as compared to earlier years. Assessment year 1989-90 3. In this case, the return declaring a total income of ₹ 20,53,680 was filed on 31-10-1989. The assessment was completed on 28-2-1992 on a total income of ₹ 31,56,125. The Assessing Officer in his order under section 271(1)(c) of the Act has stated that during the course of search action on 24-2-1989 the assessee in his statement under section 132(4) had declared ₹ 30 lakhs for the assessment y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the computation of income at ₹ 31,56,175 was based on the statement under section 132(4) recorded on 13-3-1989 of Shri Nandlal Shah, father of the assessee, on the basis of the Power of Attorney received from the assessee. She had also stated that in the face of admission at the time of search and seizure and as 0.75 per cent applied by the assessee while computing income for assessment year 1981-82 was also not sacrosanct after the passage of several years the Assessing Officer was justified in computing the income at ₹ 31,56,175. She has also stated that the assessee did not file any appeal against the addition made. Therefore the assessee had no grievance against the assessment completed. She has also stated that the explanation filed by the assessee is of no significance in view of the fact that the admission made by the assessee at the time of search and seizure operation on 24-2-1989 and subsequent disclosure made under section 132(4) of the Act of ₹ 30 lakhs. Thus she concluded that the discrepancy in the returned and assessed income remained unexplained and held that the assessee had furnished inaccurate particulars of his income in the return of inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons made in the assessment order. He stated that the assessment proceedings and penalty proceedings under section 271(1)(c) are independent and the Assessing Officer has to bring on record some independent evidence to establish that the assessee knowingly filed the inaccurate particulars of his income or concealed the actual particulars of his income. He contended that in the present case the income has been estimated and the department could not discover anything incriminating during the course of search. Therefore there is no justification for initiating the penalty proceedings under section 271(1)(c) of the Act. During the course of search, the total turnover was found to be correct. Therefore the net profit has to be determined by applying the rate of 0.75 per cent of brokerage on the total turnover as was done in the earlier years and the net income was accordingly determined at ₹ 20,23,680. He argued that the rate of brokerage at 1.25 per cent accepted by the assessee during the course of search conducted on 27-9-1990 was for the assessment years 1990-91 and 1991-92 and the assessee also explained the reason for the increased rate of brokerage at 1.25 per cent. Accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it @ 1.25 per cent of the total turnover reflected in these bank accounts for the assessment years 1990-91 and 1991-92 on the basis of total turnover falling in these respective assessment years. The assessee declared a sum of ₹ 18 lakhs as income on the turnover for the assessment year 1990-91. The assessee also disclosed share of profit of ₹ 4,467 from M/s. Suresh N. Shah Co. After claiming deduction under Chapter VI, the assessee disclosed the net taxable income of ₹ 17,83,780 in his return filed on 29-11-1990. The assessment was completed on the returned income. The Assessing Officer in his penalty order under section 271(1)(c) has observed that the fact regarding unaccounted business being done had been admitted by the assessee in his statement recorded under section 132(4). Thus, according to him, the assessee had confessed to have earned unaccounted income and therefore the proposition regarding concealment of income by the assessee was established even without the help of Explanations of section 271(1)(c). The Assessing Officer thus concluded that the assessee concealed the particulars of income to the tune of ₹ 18 lakhs disclosed by him under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . There was no difference between the assessed income and the returned income. Therefore the Explanation has no application. He placed his reliance on the Supreme Court decision in the case of Brij Mohan v. CIT [1979] 120 ITR 11. Assessment year 1991-92 8. In this year the return of income was filed on the due date on 30-10-1991 declaring total income of ₹ 28,88,211. The assessee disclosed a sum of ₹ 18 lakhs in his statement under section 132(4), as we have mentioned above at the time of search conducted on 27-9-1990. The assessee also declared income of ₹ 3,25,000 for the period subsequent to search up to 31-3-1991. Thus the taxable income of the assessee was determined at ₹ 20,88,211 under section 143(3) of the Act. The Assessing Officer in his order under section 271(1)(c) has held that the assessee confessed to have earned unaccounted income. Therefore the concealment of income is established even without the help of Explanations to section 271(1)(c). The Assessing Officer thus concluded that the assessee concealed the particulars of income to the tune of ₹ 18 lakhs disclosed by him under section 132(4) of the Act. He therefore l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of bank accounts. The transactions were carried out on behalf of various clients. Taking into consideration the various factors, the Commissioner of Income-tax, Central Circle, adopted the basis 0.75 per cent of total turnover for determination of net brokerage for the earlier assessment years. By taking the very same basis, the assessee filed his return of income for the assessment year 1989-90 declaring a total income of ₹ 20,53,600 and paid the taxes thereon. The Assessing Officer however determined the net income of brokerage by taking the rate at 1.25 per cent of total turnover, which worked out to ₹ 31,56,125 and also initiated penalty proceedings for concealment of income under section 271(1)(c) of the Act. The assessee did not accept the brokerage rate at 1.25 per cent adopted by the department but the assessee had not preferred appeal against the same only to buy mental peace and to avoid prolonged litigation. The income has been assessed on estimated basis taking higher rate of brokerage than what was shown by the assessee. There was a search in the premises of the assessee on 24-2-1989. The father of the assessee, Shri Nandlal Shah, made a statement under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pendently that the assessee deliberately concealed the actual facts of his income or knowingly filed inaccurate particulars of his income. The mere fact that the assessee had agreed to be assessed at a higher income than returned income, is not a proof of admission of concealment by the assessee. That fact cannot give a good foundation to the imposition of penalty. In the case of D. Halappa Sons v. CIT [1974] 95 ITR 542 (Mys.), the High Court held as under: It is the duty of the Officer concerned to examine before he makes order imposing a penalty, the facts and circumstances of the case and then come to a finding whether concealment, etc., has been proved independently from the mere rejection of the assessee s explanation regarding the items suspected to have been concealed. Unless the concealment is so proved, penalty cannot be imposed if the assessee had agreed to the imposition. Bombay High Court in the case of CIT v. Devandas Perumal Co. [1983] 140 ITR 9431, has laid down as under: The presumption contemplated by Explanation to section 271(1)(c) stood rebutted by the fact that there was no suppression of any sales or inflation of any purchases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income on the basis of bank transactions. The assessee offered a sum of ₹ 18 lakhs for taxation being income earned for the assessment year 1990-91. Consequent to such search and seizure, order under section 132(5) was passed but no penalty under section 271(1)(c) was worked out on the income offered under section 132(4) of the Act. Similarly, the assessee offered a sum of ₹ 18 lakhs for taxation being income earned up to the date of search for the assessment year 1991-92. Consequent to the search and seizure, order under section 132(5) was passed but no penalty under section 271(1)(c) was worked out on the income offered under section 132(4) of the Act. Search and seizure action was taken against the assessee on 27-9-1990, which was before the due dates for filing the returns for these assessment years. During the course of search, the assessee explained that he had earned this income out of brokerage and commission business of Bombay Stock Exchange. He also explained that he was maintaining various current accounts and his income was being determined on the basis of transactions routed through bank accounts in the past and that method was accepted by the department. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of his income is a furnishing of inaccurate particulars of his income. So the basis for determining the inaccurate particulars of assessee s income is the return of income filed by him. In the present case, the due dates for filing the returns of income were not yet over and before that the assessee s premises were searched under section 132 of the Act. The returns were filed on the due dates after the search including the disclosure made by the assessee voluntarily and the returned income was accepted by the department. Therefore the assessee did not file any inaccurate particulars of his income declared in the returns. In order that a penalty under section 271(1)(c)( iii) may be imposed, it has to be proved that the assessee has consciously made the concealment or furnished inaccurate particulars of his income. In the present case the assessee has neither furnished inaccurate particulars nor concealed the particulars of his income. Therefore the provisions of section 271(1)(c) are not attracted. Now the main point remains for consideration is whether the deeming provision given in Explanation 5(a) of section 271(1)(c) are applicable to the facts of the present case. According to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 271(1)(c) in cases where he explains that the acquisition of assets recovered in course of search is out of income of previous year which had already ended before the date of search or which is to end on or after the search but with the exceptions mentioned in sub-clauses (1) and (2) of Explanation. In the present case, the department could not recover any money, bullion, jewellery or other valuable article or thing pertaining to the assessment year 1990-91. Therefore the deeming provisions of Explanation 5 do not apply to this year. Therefore the penalty under section 271(1)(c) cannot be imposed under the provisions of Explanation 5 of section 271(1)(c). So far as the Assessing Officer 1991-92 is concerned, the same is covered with the exception No. (2) of Explanation 5. During the course of search, the assessee made a statement under section 132(4) of the Act wherein he stated that the cash of ₹ 1,00,000, promissory notes of ₹ 2 lakhs and share certificates of ₹ 14,70,000 found in his possession and seized were acquired by him out of his income which has not been disclosed so far in his return to be furnished before the expiry of time specified in sub-sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1990-91 and 1991-92 and also filed the explanation regarding the higher rate of brokerage for the assessment years 1990-91 and 1991-92. The Assessing Officer also supported his finding with the statement of the assessee s father wherein the assessee s father confirmed the rate of brokerage at 0.75 per cent. The facts of the present case are entirely different from the facts of the above case. Therefore this case is not relevant to the issue under consideration. In the case of Smt. Chandrakanta (supra) relied upon by the DR, the assessee filed a return showing loss of ₹ 51,530 for the assessment year 1963-64. She then revised her return and showed profit of ₹ 7,500. She was not maintaining any books of account. The Income-tax Officer therefore estimated and determined the income at ₹ 51,000. Since the minimum penalty leviable exceeded ₹ 1000, the matter was referred to the Inspecting Assistant Commissioner. The Inspecting Assistant Commissioner imposed a pen- alty of ₹ 10,000 as, according to him, the case fell under section 271(1)(c) of the Income-tax Act, 1961. On appeal, the Tribunal cancelled the penalty. The Madhya Pradesh High Court however held a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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