Commissioner Of Income Tax, Jalandhar v. M/S Bhandari Silk Store

ITR No. 202 of 1999 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Commissioner of Income Tax, Jalandhar Versus M/s Bhandari Silk Store ITR No. 202 of 1999Date of Decision: 23.9.2010 ....Petitioner. ...Respondent. CORAM:-HON'BLE MR. JUSTICE ADARSH KUMAR GOEL.HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Sukant Gupta, Advocate for the petitioner. AJAY KUMAR MITTAL, J. 1.Following question of law has been referred for opinion ofthis Court under Section 256(1) of the Income Tax Act, 1961 (in short“the Act”) by the Income Tax Appellate Tribunal, Amritsar Bench,Amritsar (hereinafter referred to as “the Tribunal”) arising out of its orderdated 30.9.1998 in ITA No. 448(ASR)/1992 in respect of assessmentyear 1989-90:- “Whether on the facts and in the circumstances ofthe case, the Ld. Tribunal is justified in law inconfirming the order of the CIT (A) deleting thepenalty of Rs.1,70,625/- imposed under sec. 271(1)(c) of the Income-tax Act, 1961?” The necessary facts for disposal of the reference may be noticed. Search and seizure operation was carried at the businesspremises of the assessee and residential premises of the partners on11.4.1989. The assessee made disclosure statement under Section132(4) of the Act whereby a surrender of Rs.3,25,000/- was maderelating to assessment year 1989-90. A sum of Rs.2,00,000/- wasdeclared on account of stocks not entered in the books of accountswhereas balance of Rs.1,25,000/- reflected other undisclosed income ofthe assessee. However, this disclosure was included in the return ofincome filed for the assessment year in question. The AssessingOfficer completed the assessment and also initiated penaltyproceedings. The Assessing Officer concluded that since the assesseedid not fulfil the requirements laid down in Explanation 5 to Section 271(1)(c), the assessee was liable to penalty. The Assessing Officerdetermined that tax on income sought to be evaded amounting toRs.3,25,000/- would attract tax of Rs.1,70,625/- by treating theassessee-firm as unregistered firm, imposed 100% penalty of the taxsought to be evaded, i.e. Rs.1,70,625/-. On appeal, the Commissionerof Income Tax (Appeals) [in short “the CIT(A)”] deleted the penalty. Theappeal filed by the revenue was dismissed by the Tribunal. 3.The Tribunal while deleting the penalty bifurcated thesurrender into two components, i.e. Rs.2,00,000/- on account of lesservalue of stock shown in the books of account and Rs.1,25,000/- relatingto general disclosure made by the assessee. The Tribunal recordedthat surrender of Rs.2,00,000/- was covered under Explanation 5 toSection 271(1)(c) whereas disclosure of Rs.1,25,000/- was reflected inthe return of income filed by the assessee relating to assessment year ITR No. 202 of 1999 1989-90. The relevant observations made in paras 12 and 13 of theorder of the Tribunal while upholding deletion of penalty, read thus:- “12.Coming to the case of the appellant, the firstdisclosure of Rs.2,00,000/- relates to stock andanother disclosure of Rs.1,25,000/- is a generaldisclosure of income. At this stage, we have to givea proper meaning to other valuable articles or things.The Explanation-5 relates to money, bullion, jewelleryor other valuable articles or things. We are of theopinion that the stock can be included under thedefinition of other valuable articles or things. Theitem of stock belonging to assessee is an article orthing which has a value with an ultimate intention ofselling the same thing for a value in the market. Thestock may or may not be recorded in the books ofaccounts. Therefore, unaccounted stock can besubject matter of surrender. The Ld. CIT (A) hasgiven his finding that the appellant has fulfilled all theconditions laid down regarding payment of taxes,inclusion of the amount in the returned income etc.Therefore, penalty on the surrender of Rs.2,00,000/-cannot be envisaged. So far as the surrender of Rs.1,25,000/- isconcerned, this is not covered under the Explanation-5 to section 271(1)(c) because the offer is to coverover-all addition and does not refer to the stock. Inconcerned, this is not covered under the Explanation-5 to section 271(1)(c) because the offer is to coverover-all addition and does not refer to the stock. In case, it is treated to be related to the stock, we agreewith the Ld. CIT (A) then in that case it is coveredunder Explanation-5. In case, it is not referred to thestock, then under such circumstances, the incomeoffered forms part of the income returned and assuch there is no concealment. Section 271(1)(c)deals with the penalty provision when during anyproceedings under the Act, the A.O. is satisfied thatperson has concealed the particulars of his income orfurnished inaccurate particulars of income. Theelement of concealment is embedded in the return ofincome or in the statements attached with the returnof income. If in the return of income, there is noconcealment all particulars of income are correctthen there is no concealment, and the A.O. does notget jurisdiction to impose penalty under section 271(1)(c). If during the year, due to survey action undersection 133A or due to any other action, the appellantincludes any income in his books of account andreflects same in the return of his income, the A.O.cannot invoke 271(1)(c) under those situations. If heis not satisfied regarding the accuracy of suchincome he may use section 145 or 144 as the casemay be but under no circumstances he can invokesection 271(1)(c) under these circumstances. Theentry of Rs.1,25,000/- has been reflected in the return of income and as such there is no element ofconcealment involved. Keeping in view the abovediscussion, penalty deleted by the CIT(A) isconfirmed.” 4.Learned counsel for the revenue has laid challenge to theaforesaid findings of the Tribunal on the plea that Explanation 5 toSection 271(1)(c) has been misinterpreted by the Tribunal. Further, itwas submitted that disclosure of Rs.1,25,000/- having been made at thetime of search would attract penalty under Section 271(1)(c) of the Act. 5.We have heard learned counsel for the revenue and do notfind any merit in the submission made by him. 6.Explanation 5 to sub-section (1) of Section 271 wasinserted by the Taxation Laws (Amendment) Act, 1984 w.e.f. 1.10.1984.It was amended by the Taxation Laws (Amendment & MiscellaneousProvisions) Act, 1986 w.e.f. 10.9.1986. It would be apposite toreproduce Explanation 5 to Section 271(1)(c) of the Act as it existed atthe relevant time which reads thus:- “Explanation 5.-Where in the course of a searchunder section 132, the assessee is found to be theowner of any money, bullion, jewellery or othervaluable article or thing hereinafter in thisExplanation referred to as assets and the assesseeclaims that such assets have been acquired by himutilizing wholly or in part his income,- (a)for any previous year which has ended beforethe date of the search, but the return of income for such year has not been furnished beforethe said date or, where such return has beenfurnished before the said date, such incomehas not been declared therein; or (b)for any previous year which is to end on orafter the date of the search, then, notwithstanding that such income is declaredby him in any return of income furnished on or afterthe date of the search, he shall, for the purposes ofimposition of a penalty under clause (c) or sub-section (1) of this section, be deemed to haveconcealed the particulars of his income or furnishedinaccurate particulars of such income, unless,- (1)such income is, or the transactions resulting insuch income are recorded,-such income are recorded,- (i)in a case falling under clause (a), beforethe date of the search; and the date of the search; and (ii)in a case falling under clause (b), on orbefore such date, before such date, (b)for any previous year which is to end on orafter the date of the search, then, notwithstanding that such income is declaredby him in any return of income furnished on or afterthe date of the search, he shall, for the purposes ofimposition of a penalty under clause (c) or sub-section (1) of this section, be deemed to haveconcealed the particulars of his income or furnishedinaccurate particulars of such income, unless,- (1)such income is, or the transactions resulting insuch income are recorded,-such income are recorded,- (i)in a case falling under clause (a), beforethe date of the search; and the date of the search; and (ii)in a case falling under clause (b), on orbefore such date, before such date, in the books of account, if any, maintained byhim for any source of income or such income isotherwise disclosed to the Chief Commissioneror Commissioner before the said date; or (2)he, in the course of the search, makes astatement under sub-section (4) of section 132that any money, bullion, jewellery or otherstatement under sub-section (4) of section 132that any money, bullion, jewellery or other ITR No. 202 of 1999 valuable article or thing found in his possessionor under his control, has been acquired out ofhis income which has not been disclosed so farin his return of income to be furnished beforethe expiry of time specified in sub-section (1) ofsection 139, and also specifies in thestatement the manner in which such incomehas been derived and pays the tax, togetherwith interest, if any, in respect of such income.” 7.Delhi High Court in Commissioner of Income-Tax v.Chhabra Emporium, [2003] 264 ITR 249 while defining the scope ofsub-clause (2) to Explanation 5 which is relevant in the present case,observed as under:- “A bare reading of sub-clause (2) to Explanation 5makes it clear that if, during the course of search, astatement of the assessee is recorded under sub-section (4) of section 132 in respect of any amount,cash, stock, jewellery or other valuable article orthing which is found in his possession or control andthe assessee admits in his statement that suchincome was acquired income or was acquired withthe undisclosed income and pays the tax, togetherwith interest if any on the said amount, he is grantedan immunity for levy of penalty under section 271(1)(c) of the Act.” The Tribunal while upholding deletion of penalty on surrender of Rs.2,00,000/- has categorically recorded in para 12 of theorder that the surrender related to the stock which was included underthe definition of other valuable articles or things and that the conditionenumerated under Explanation 5 to Section 271(1)(c) were fulfilled. It isalso not disputed that the statement of the assessee was recordedunder Section 132(4) of the Act on the date of search. Therefore, theTribunal was right in upholding order of the CIT (A) cancelling penaltyon Rs.2,00,000/-. 9.Adverting to surrender of Rs.1,25,000/-, the same wastaken to be not covered under Explanation 5 to Section 271(1)(c) of theAct. However, the Tribunal in para 10 of the order had referred to thestatement made by the partner of the assessee-firm on the date ofsearch to the authorized officer. It reads thus:- “10.Coming to the factual position of the case, searchand seizure operation took place at the business premisesof the appellant. Authorized Officer recorded at 2 A.M. on12.4.1989, a statement under section 132 from one of thepartners of the appellant-firm. The relevant portion of the statement is reproduced asfollows:- “Q. I wish to bring it to your notice theprovision of section 132(4) of the Income-tax Act. Doyou want to avail of the immunity under the aboveclause which have been explained by me to you inthe local language. Ans. A sum of Rs.2 lacs (Rs. Two Lakhs only) “10.Coming to the factual position of the case, searchand seizure operation took place at the business premisesof the appellant. Authorized Officer recorded at 2 A.M. on12.4.1989, a statement under section 132 from one of thepartners of the appellant-firm. The relevant portion of the statement is reproduced asfollows:- “Q. I wish to bring it to your notice theprovision of section 132(4) of the Income-tax Act. Doyou want to avail of the immunity under the aboveclause which have been explained by me to you inthe local language. Ans. A sum of Rs.2 lacs (Rs. Two Lakhs only) is to be shown as an additional income which willaccrue other than the normal income as on 31.3.89as per books of accounts. This additional incomeRs.2,00,000/- will be added in the stock as I have gotapprehension in my mind that the stock available inmy shop is artificially more than the books ofaccounts.” After the statement was recorded there was a notesigned by the authorized officer and partner of the firmwhich reads as under:- “At 2 A.M. on 12.4.1989 when Search and Seizureparty was going to leave the business premises ofM/s Bhandari Silk Store, Shri Vijay Kumar, Partnerfurther affirmed an addition of Rs.1,25,000/- (Rs.Onelakh twenty five thousand only). It means that thetotal addition which is to be made as on 31.3.89 i.e.for the A.Y. 1989-90 there will be an addition ofRs.3,25,000/- over and above the normal incomewhich will accrue to the firm after the close of thebooks. This addition is subject to penalty u/s 271(1)(c) and no prosecution.” 10.It has been noticed by the Tribunal that the assessee haddisclosed this amount at the time the search party was leaving thepremises of the assessee at 2 A.M. on 12.4.1989. It was furtherrecorded that the time for filing return of income for the assessmentyear 1989-90 under Section 139(1) had not expired on the date of ITR No. 202 of 1999 search and the assessee having disclosed the amount of Rs.1,25,000/-in the return filed for the assessment year 1989-90 and paid all taxesetc. could not be held to have concealed the particular of income whichwere liable to penalty under Section 271(1)(c). The Tribunal was, thus,right in upholding cancellation of penalty on this amount as well. 11.In the light of the finding recorded by the Tribunal in whichno perversity or illegality could be shown by the learned counsel for therevenue, the Tribunal was right in deleting the penalty. 12.Accordingly, the question referred is answered against therevenue and in favour of the assessee. 13.The reference stands disposed of. (AJAY KUMAR MITTAL) JUDGE September 23, 2010gbs (ADARSH KUMAR GOEL) JUDGE