Commissioner Of Income Tax,Jalandhar-Ii, Jalandhar v. Rakesh Chawla

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. --- Income Tax Appeal No. 256 of 2004Date of decision: 11.2.2011 Commissioner of Income Tax,Jalandhar-II, Jalandhar --- Appellant Versus Rakesh Chawla, Proprietor ofM/s. Chawla Electricals ((India)Kapurthala --- Respondent CORAM:HON’BLE MR. JUSTICE ADARSH KUMAR GOELHON’BLE MR. JUSTICE AJAY KUMAR MITTAL --- Present:Mr. Vivek Sethi, Standing Counsel for the appellant. Mr. S.K. Mukhi, Advocatefor the respondent. --- AJAY KUMAR MITTAL, J. The paper-book of this case has not been received from theconcerned Branch as the same is said to have burnt in the fire incidentthat took place in the premises of this Court on the night of 30[th] January,2011. Learned counsel for the appellant has made available two copiesof paper-book to the Court for reconstruction of the file. The said copiesare taken on record and the file of the appeal be treated as having beenreconstructed. 2. This appeal under Section 260A of the Income-Tax Act, 1961(for short “the Act”) has been filed by the Revenue against the orderdated 31.3.2004, passed by the Income Tax Appellate Tribunal AmritsarBench, Amritsar (in short “the Tribunal”) in ITA No. 34/ASR/1998,relating to the assessment year 1994-95. 3. The following substantial question of law has been claimed for determination by this Court: “Whether the Tribunal was right in law in dismissing theappeal of the department by holding that Explanation 5 toSection 271(1)(c) does not apply to a proceeding underSection 132A?” 4.The facts, in brief, necessary for adjudication as narrated inthe appeal, are that the police seized a sum of Rs. 3,65,000/- from theassessee and this fact having come to the notice of the assessingofficer, survey under Section 133A of the Act was conducted at thepremises of the assessee on 26.8.1993. The amount so seized by thepolice was requisitioned by the Income Tax Department under Section132A of the Act, which was treated as income of the assessee for theassessment year 1994-95. The assessee filed return on 24.2.1995declaring total income of Rs. 3,84,430/- including Rs. 3,65,000/- seizedby the police, as income surrendered during survey. The assessingofficer vide order dated 30.3.1995, passed under Section 143(3) of theAct, assessed the income of the assessee at Rs. 4,43,000/-. Theincome assessed by the assessing officer was, however, reduced toRs.3,87,430/- in view of the order dated 6.11.1995 passed by theCommissioner of Income Tax (Appeals), [hereinafter referred to as “CIT(A)”]. 5.The assessing officer also imposed penalty of Rs. 2,10,020/-under Section 271(1)(c) of the Act on the assessee vide order dated13.3.1996 in respect of the surrendered amount of Rs.3,65,000/- asExplanation 5 to Section 271(1)(c) of the Act was attracted but theassessee did not get immunity from the deeming provisions ofExplanation 5 as the required conditions under clause (2) of Explanation5 had not been fulfilled. The assessee challenged the order imposingpenalty before the CIT(A). The CIT(A) allowed the appeal and deletedthe penalty, observing that the deeming provisions of Explanation 5 toSection 271(1)(c) were not attracted as the amount was not seizedunder Section 132, but had been requisitioned under Section 132A ofthe Act. The Revenue went in appeal against the order of the CIT(A).The Tribunal by order under appeal dismissed the appeal of theRevenue and confirming the order of the CIT(A), held that the basis andthe reasoning as given by the CIT(A) in deleting the penalty imposedwere sound and convincing. 6.It is how the Revenue is in appeal before this Court. 7.We have heard learned counsel for the parties and haveperused the record. 8.The point for consideration in this appeal is, whetherExplanation 5 to Section 271(1)(c) of the Act applies in those cases aswell where proceedings under Section 132-A of the Act have beenresorted to by the Revenue. 6.It is how the Revenue is in appeal before this Court. 7.We have heard learned counsel for the parties and haveperused the record. 8.The point for consideration in this appeal is, whetherExplanation 5 to Section 271(1)(c) of the Act applies in those cases aswell where proceedings under Section 132-A of the Act have beenresorted to by the Revenue. 9. Learned counsel for the Revenue-appellant on thestrength of the decision of the Karnatka High Court in Commissioner of Income Tax vs. Aboo Mohmed (2001) 250 ITR 313 (Karnatka)submitted that Explanation 5 to Section 271(1)(c) of the Act was attracted even to proceedings where assets have been requisitionedunder Section 132A of the Act. According to him, Section 132A(3)supported his contention. On the other hand, learned counsel for theassessee supported the order of the Tribunal and submitted that sincethe income was surrendered by the assessee, it could not be inferredthat there was concealment of income by the assessee and, thus, nopenalty could be imposed under Section 271(1)(c) of the Act. Learnedcounsel for the assessee placed reliance on the following decisions: i)Commissioner of Income Tax vs. Tarsem Kumar andanother, (1986) 161 ITR 505 (SC)another, (1986) 161 ITR 505 (SC) ii)Commissioner of Income Tax vs. Suresh Chandra Mittal(2001) 251 ITR 9 (SC)(2001) 251 ITR 9 (SC) iii)Commissioner of Income Tax vs. Rajnish Nath Aggarwal(2008) 8 DTR 253 (P&H)(2008) 8 DTR 253 (P&H) iv)Gebi Lal Kanhaialal (HUF) vs. Assistant Commissioner ofIncome Tax (2004) 270 ITR 523 (Rajasthan)Income Tax (2004) 270 ITR 523 (Rajasthan) v)Commissioner of Income Tax vs. S.I. Paripushpam, (2001)249 ITR 550 (Madras)249 ITR 550 (Madras) 10. We may refer to the relevant provisions as they existed then, before delving into the legal issue involved herein. (i)Explanation 5 to Section 271(1)(c) of the Act reads:Explanation-5. Where in the course of a search initiatedunder section 132 before the Ist day of June, 2007, theassessee is found to be the owner of any money, bullion,jewellery or other valuable article or thing (hereafter in thisExplanation referred to as assets) and the assessee claimsExplanation-5. Where in the course of a search initiatedunder section 132 before the Ist day of June, 2007, theassessee is found to be the owner of any money, bullion,jewellery or other valuable article or thing (hereafter in thisExplanation referred to as assets) and the assessee claims that such assets have been acquired by him by utilising (wholly or in part) his income,- (a)for any previous year which has ended before the dateof the search, but the return of income for such yearhas not been furnished before the said date or, wheresuch return has been furnished before the said date,such income has not been declared therein; or of the search, but the return of income for such yearhas not been furnished before the said date or, wheresuch return has been furnished before the said date,such income has not been declared therein; or (b)for any previous year which is to end on or after thedate of the search,date of the search, then, notwithstanding that such income is declared by him inany return of income furnished on or after the date of thesearch, he shall, for the purposes of imposition of a penaltyunder clause (c) of sub-section (1) of this section, bedeemed to have concealed the particulars of his income orfurnished inaccurate particulars of such income, unless- (1) such income is, or the transactions resulting in suchincome are recorded,-income are recorded,- (i) in a case falling under clause (a), before the date ofthe search; andthe search; and (ii) in a case falling under clause (b), on or before suchdate, in the books of account, if any, maintained by him for anysource of income or such income is otherwise disclosed tothe Chief Commissioner or Commissioner before the saiddate; or (2) he, in the course of the search, makes a statementunder sub-section (4) of section 132 that any money, bullion, (1) such income is, or the transactions resulting in suchincome are recorded,-income are recorded,- (i) in a case falling under clause (a), before the date ofthe search; andthe search; and (ii) in a case falling under clause (b), on or before suchdate, in the books of account, if any, maintained by him for anysource of income or such income is otherwise disclosed tothe Chief Commissioner or Commissioner before the saiddate; or (2) he, in the course of the search, makes a statementunder sub-section (4) of section 132 that any money, bullion, jewellery or other valuable article or thing found in hispossession or under his control, has been acquired out ofhis income which has not been disclosed so far in his returnof income to be furnished before the expiry of time specifiedin sub-section (1) of section 139, and also specifies in thestatement the manner in which such income has beenderived and pays the tax, together with interest, if any, inrespect of such income.” 11.Explanation 5 to under Section 271(1)(c) of the Act wasinserted by Tax Laws (Amendment) Act, 1984 with effect from IstOctober, 1984. Taxation Laws (Amendment and MiscellaneousProvisions) Act, 1986 amended the said explanation with effect from 10September, 1986. According to the said explanation if the amount foundduring search is surrendered and taxed along with interest thereon, nopenalty is exigible under Section 271(1)(c). However, where incomefound during search was surrendered, but no return was filed in respectof such income and no payment of tax was made, the penalty underSection 271(1)(c) would be justified. 12.Sub-section (3) of Section 132A of the Act reads thus: “132A(3) Where any books of account, other documents orassets have been delivered to the requisitioning officer, theprovisions of sub-sections (4A) to (14) (both inclusive) ofSection 132 and Section 132B shall so far as may be, applyas if such books of account, other documents or assets hadbeen seized under sub-section (1) of Section 132 by therequisitioning officer from the custody of the person referredto in clause (a) or clause (b) or clause (c), as the case may be, of sub-section (1) of this section and as if for the words ‘the authorized officer’ occurring in any of the aforesaid sub-sections (4A) to (14), the words ‘the requisitioning officer’were substituted.” 13. Sub-section (3) of Section 132A of the Act specificallyprovides that provisions of sub-section (4A) to (14) of Section 132 shallapply to proceedings under Section 132A of the Act. By virtue of Section132A (3) the action of requisitioning has been equated with that ofseizure under section 132(1) and as such the provisions of sub-sections(4A) to (14) of Section 132 of the Act become applicable. 14.The cumulative effect of the reading of the above said provision is that where an assessee surrenders an amount which hadbeen requisitioned under Section 132A of the Act but fails to fulfil theconditions as enumerated in Explanation 5 to Section 271 (1)(c) he wasliable for penalty for concealment. The Karnatka High Court, in Aboo Mohmed’s case (supra) while dealing with the similar issue had held asunder:- “This Section has considered the action of requisition as that of seizure under Section 132(1) and as such the provisionsof sub-sections (4A) to (14) of Section 132 would applymutatis mutandis. Since it is a deemed search the benefit ofthe Amnesty Scheme cannot be taken.” 15. The Tribunal while affirming the order of the CIT(A), whereby the penalty imposed under Section 271(1)(c) had been deleted, had ignored the provisions of sub-section (3) of Section 132A of the Act.The assessee had failed to conform to the legal requirementsenumerated in Explanation 5 to Section 271(1)(c) of the Act and, Income Tax Appeal No. 256 of 2004 8 Mohmed’s case (supra) while dealing with the similar issue had held asunder:- “This Section has considered the action of requisition as that of seizure under Section 132(1) and as such the provisionsof sub-sections (4A) to (14) of Section 132 would applymutatis mutandis. Since it is a deemed search the benefit ofthe Amnesty Scheme cannot be taken.” 15. The Tribunal while affirming the order of the CIT(A), whereby the penalty imposed under Section 271(1)(c) had been deleted, had ignored the provisions of sub-section (3) of Section 132A of the Act.The assessee had failed to conform to the legal requirementsenumerated in Explanation 5 to Section 271(1)(c) of the Act and, Income Tax Appeal No. 256 of 2004 8 therefore, the benefit of Explanation 5 was not available to him. A hugeamount of Rs. 3,65,000/- was surrendered by the assessee during thecourse of survey under Section 133A of the Act which had been carriedout at the premises of the assessee. The assessee had not filed thereturn of income within time and had also not made payment of thetaxes. Sub clause (2) of Explanation 5 to Section 271(1)(c) of the Acthad, therefore, not been complied with. Thus, it cannot be held thatthere was no concealment of income by the assessee. Suffice it tonotice that the judgments relied upon by the learned counsel for theassessee were on individual fact situation involved therein and the samedo not advance the case of the assessee. Once that is so, the Tribunalwas not right in confirming the order of the CIT(A). 16.. In view of the above, the substantial question of law isanswered in favour of the Revenue and accordingly the appeal isallowed. (AJAY KUMAR MITTAL) JUDGE February 11, 2011*rkmalik* (ADARSH KUMAR GOEL) JUDGE