D.b.income Tax Appeal v. M/S Madan Lal Gaggar, Bhilwara

D.B.INCOME TAX APPEAL NO. 01/99(ACIT, CIRCLE BHILWARA VS. M/S MADAN LAL GAGGAR, BHILWARA) Date of Order : 04.10.2006 HON'BLE MR. RAJESH BALIA,J.HON'BLE MR. GOPAL KRISHAN VYAS,J. Mr. K.K.Bissa, for the appellant. Mr. Sanjeev Johri, for the respondents. Heard. learned counsel for the appellant. The followingsubstantial question is framed at the time of admission; “Whether in the facts & circumstances of the case, theTribunal committed error of law by not drawingpresumption u/s 271-C (Explanation 5) of the IncomeTax Act, that the assessee firm concealed the incomeby not mentioning” in the return of the relevant year”. The facts of proceedings as appear from the orderpassed by the Tribunal and on the basis of material madeavailable to us by learned counsel for the parties are that theassessee Sh. Madanlal has two status under the Income Tax Act,1961. He is being assessed to income tax as individual in thename of Sh. Madanlal and total estimated tax liability forAssessment Year 1987-88 and 1988-89 was computed for thepurpose of retaining assets found during the search. The order shows that Rs. 4 lacs were included in income of assessment year1987-88 and Rs. 3 lacs for the assessment year 1988-89. The firmof which Madanlal is partner assessed as registered firm in thename of M/s Madanlal Gaggar. The present appeal relates toproceedings for levy of penalty on the firm M/s Madanlal Gaggar.A search was conducted at the premises of Sh. Madanlal,between 14.10.1987 to 17.10.1987. This search was carried outunder a warrant issued under Section 132(1) in the name of Sh.Madan Lal . Simultaneous search was conducted on the businesspremises of the assessee. Orders in terms of Section 132(5) of theIncome Tax Act, 1961, was also made in the name of Sh. Madanlal only in his status as individual. In the order under Section 132(5) it was noticed that no separate addition is being made in thecase of firm since the assessee has voluntarily offered in hisstatement recorded under Section 132(5) the amount of 7 lacsincome from undisclosed sources to be spread over in twodifferent years i.e. assessment year 1987-88 and 88-89. The assessee-firm has filed return initially forassessment year 1987-88 on 13.08.1987 and declared totalincome of Rs. 47,671/- and the assessment was also completedunder Section 143(1) on the returned income on 31.3.87.However, later on this return for 87-88 filed on 9.2.90 inpursuance to notice under Section 148 issued on 6.2.90. Theassessee showed income of Rs. 4,46,761/- instead of Rs. 46,761/-as per original return and claimed loss of Rs. 1 lac in mining business. However, the Assessing Officer disallowed the claim ofloss and assessed the firm at Rs. 4,47,761/-. in his individualcapacity including remainder Rs. 3 lacs as his income theamount of Rs. 3 lacs surrendered by assessee Sh. Madanlal outof 7 lacs as noticed order under Section 132(5) was assessed inthe status as individual and this has become final. The assessee-firm appealed against the order ofassessment including Rs. 4 lacs in the assessment of theincome of the firm contending that he had surrendered amount of4 lacs in his individual capacity. By mistake the amount hadbeen again included in the income of firm, while filing revisedreturn. He, therefore, claimed exclusion of Rs. 4 lacs, therefrom. The CIT [Appeals] vide his order dated 2.3.95 allowedthe appeal. The CIT has made the following observations; The assessee-firm appealed against the order ofassessment including Rs. 4 lacs in the assessment of theincome of the firm contending that he had surrendered amount of4 lacs in his individual capacity. By mistake the amount hadbeen again included in the income of firm, while filing revisedreturn. He, therefore, claimed exclusion of Rs. 4 lacs, therefrom. The CIT [Appeals] vide his order dated 2.3.95 allowedthe appeal. The CIT has made the following observations; “I have considered the facts of the case. Insupport the Id. A/R has filed photocopy of orderu/s 132(5) order which clearly states thatsearch was authorized in the case of ShriMadanlal Gaggar (Indl) and the order u/s 132(5) was passed in his individual capacity. Thisincludes sum of Rs. 4 lacs working of whichhas been given that tax liability for A.Y. 87-88of Rs. 3,67,855/- which was duly deposited bythe individual as stated supra. Apparently,there appears to be some confusion andamount has been included in the hands of thefirm. The individual files are not before me.Apparently the authorisation as well as orderu/s 132(5) was passed in the individualcapacity therefore, in the firness of thing theAO is directed to verify the individual asstt. Records of Shri Madanlal Gaggar for A.Y. 87-88 to verify whether the amount of surrenderof Rs. 4 lacs as per order u/s 132(5) also wasincluded in his individual return and the taxpaid. If so, the amount shall be excluded fromthe hands of the firm. Subject to verificationthe appeal is allowed.” The CIT [Appeals] has also referred to liability of taxunder Section 132(5) passed in the individual capacity. Thisincludes sum of Rs. 4 lacs working of which has been given whilecomputing tax liability for asstt. Year 1987-88 at Rs. 3,67,855 /-which was duly deposited by the individual as stated. This amountwas stated to have been paid by the assessee as per the findingrecorded by the CIT [Appeals]. For assessment year 1987-88 the assessee asindividual had furnished return of his income on 10.8.87 beforesearch was conducted. The assessment took place on 30.3.90.Significantly the Assessment Order by Assistant C.I.T.,Investigation Circle recorded his finding as under:- “During the course of proceedings under Section132(5) in the case of firm the assessee vide hisletter dated 4.2.88 declared net incomeasessable in the assessment year 1987-88 atRs. 4,00,000/- and accordingly he filed revisedreturn on 5.2.90 declaring net income at Rs.4,15,903.” In other words in the case of Individual forassessment year 1987-88 the A.O took the view and connected declaration of Rs. 4 lacs during search as income of the firm andassessed the assessee. He was not found guilty of anyconcealment. However, penalty proceedings were initiated in thecase of firm under Section 271(1)(c) for concealing particulars ofincome on the basis of addition made in revised return andpenalty was levied. Assessee's plea to invoke explanation 5 toSec. 271(1) was rejected inter alia on the ground that no statementunder Section 132(4) could be recorded by the assessee Madanlalbecause he was not present during the search. However, inthe next breath the assessing officer has referred to thestatement recorded under Section 132(4). In other words in the case of Individual forassessment year 1987-88 the A.O took the view and connected declaration of Rs. 4 lacs during search as income of the firm andassessed the assessee. He was not found guilty of anyconcealment. However, penalty proceedings were initiated in thecase of firm under Section 271(1)(c) for concealing particulars ofincome on the basis of addition made in revised return andpenalty was levied. Assessee's plea to invoke explanation 5 toSec. 271(1) was rejected inter alia on the ground that no statementunder Section 132(4) could be recorded by the assessee Madanlalbecause he was not present during the search. However, inthe next breath the assessing officer has referred to thestatement recorded under Section 132(4). Be that as it may, he found that since no amount wassurrendered during the course of his examination but amount wassurrendered by a separate letter dated 4.2.88 addressed to theofficer during the course of proceedings under Section 132(5)which we have noticed above. The assessee cannot get thebenefit of Section 271(1)(c) explanation (5) read with section 132(4) of the I.T.Act which absolves the amount surrendered duringthe course of statement under Section 132(4) by giving detailsthereon from the reach of penalty proceedings. Thus, by denyingthe benefit of presumption of the proceedings under Section 271(5), the assessing officer imposed the minimum imposablepenalty under Section 27(1) (c) vide order dated 28.9.95. The CIT [Appeals] while passing the order dated15.1.96 confirmed the levy of penalty. However, in the second appeal, the Tribunal foundby considering the aforesaid material that search was conductedin the presence of Sh. Madanlal in individual capacity. That orderunder Section 132(5) was made against Individual Madanlal in hisindividual capacity has stated that the amount of Rs. 4 lacs isbeing surrendered him in his individual capacity and not by theapplicant-firm. Estimated tax liability was also computed forassessment year 1987-88 in respect of Mandan lal individual byincluding Rs. 4 lacs as amount surrendered by him and demandcreated by the order was duly paid by the Assessee in his individualcapacity. But by mistake the applicant firm has declared theincome surrendered by the individual as the income of the firm.On account of this mistake the firm cannot be attributed with guiltof concealing the particulars of the firm's income which wassurrendered by the assessee in individual capacity. It also noticedthat the tax on the surrendered income made by Madanlal inindividual capacity has also been paid by him. In view thereof, theTribunal found that penalty could not be levied under section271(c). For the same reason, penalty levied under Section 273(1)(a) for nonpayment of advance tax by the assessing officer wascancelled. At this juncture, we found that reference to thepresumption in question appears to be inapt. As the levy ofpenalty by the assessing officer and subsequent setting asidethe penalty by the Tribunal is not founded on the basis ofpresumption that the assessee is not guilty of concealment orfurnishing the particulars of income by considering the materialthat was available on record and accepted the explanationfurnished by the assessee in respect of addition made in the reutrnof income for the assessment year 1987-88, therefore, nothingturns on the question of presumption only. At this juncture, we found that reference to thepresumption in question appears to be inapt. As the levy ofpenalty by the assessing officer and subsequent setting asidethe penalty by the Tribunal is not founded on the basis ofpresumption that the assessee is not guilty of concealment orfurnishing the particulars of income by considering the materialthat was available on record and accepted the explanationfurnished by the assessee in respect of addition made in the reutrnof income for the assessment year 1987-88, therefore, nothingturns on the question of presumption only. It is well settled and hardly need any elaboration thatpresumption raised under section 271(1)(c) Explanation 5 readwith section 132(4) of the I.T. Act is rebuttable presumption whichcan be rebutted by adducing additional evidence as well as bythe material available on record also. No specific mode has beenprescribed for rebutting presumption of concealing particulars ofincome or concealment of income which arise in respect ofaddition made or claim to deduction disallowed by the AssessingAuthority as per Explanation (1) appended to Sec. 271(1). Therefore, when the tribunal has considered thematerial and reached a definite finding that the assessee is notguilty of concealing the particular of his income or furnishinginaccurate particulars of such income, the question of burden ofproof and raising of presumption takes backseat. The Explanation-I to Section 271(1) reads as under:- “Where in respect of any facts material to thecomputation of the total income of any personunder this Act,- (A) such person fails to offer an explanation oroffers an explanation which is found by theAssessing Officer or the Commissioner (Appeals)[or the Commissioner] to be false, or [and fails toprove that such explanation is bona fide and thatall the fats relating to the same and material tothe computation of his total income have beendisclosed by him], then, the amount added or disallowed incomputing the total income of such person, as aresult thereof shall, for the purposes of clause(c)of this sub-section, be deemed to represent theincome in respect of which particulars have beenconcealed.” Apparently, it is a case in which the assessing officerhas not found as such that the explanation offered by the assesseeis false. On the other hand, it was found by the CIT (Appeals) inthe first instance that order Under Section 132(5) revealsthatsurrender of income has been made by the assessee in hisindividual capacity because the order under Section 132(5) wasmade in the capacity while treating the assessee as individual onlyand the proceedings were taken in respect of the individual only. Itwas also accepted that as per the amount taken, liabilitydetermined under section 132(5) has already been paid by theassessee, therefore, it was apparently established by the order ofCIT (A) read with order passed under section 132(5) of the Act of 1961 that assessee in the individual capacity has surrendered Rs.7 lacs as income from undisclosed sources spreading it out in twoassessment years 1987-88 & 88-89. The assessees's estimatedliability for tax on such income was worked out in the order underSection 132(5) only on that premises. Tax liability of theassessee as individual also determined which has been paid byhim. From these facts, it was apparent that the assessee asindividual had surrendered Rs 7 lacs before the assessing officerin proceedings under Section 132 and he has also paid taxthereon. 1961 that assessee in the individual capacity has surrendered Rs.7 lacs as income from undisclosed sources spreading it out in twoassessment years 1987-88 & 88-89. The assessees's estimatedliability for tax on such income was worked out in the order underSection 132(5) only on that premises. Tax liability of theassessee as individual also determined which has been paid byhim. From these facts, it was apparent that the assessee asindividual had surrendered Rs 7 lacs before the assessing officerin proceedings under Section 132 and he has also paid taxthereon. Very significantly while the assessing the assesseeas individual the Assessing Officer noticed and accepted thatsurrender of Rs. 4 lacs during search was in the case of firm. Thisfinding is apparently incongruous and contrary to record ofproceedings under Section 132(5) which was placed before usduring hearing and also contrary to findings recorded by CIT(Appeals) in appeal of the firm against the Assessment Order underSection 143 [3]. If the surrender of income is assumed to be inthe case of firm by Assessing Officer and the firm hadsurrendered the income of its capacity as firm. There would havehardly been any case for initiating penalty proceedings underSection 271(1)(c) . It was by disjuncting the case of firm from itsown findings in the case of assessee as individual that it haddiscarded its Explanation . Same mistake was apparently committed by the CIT(Appeals) while affirming the penalty order in the case of firm.While rejecting the plea of the assessee to invoke Explanation 5 toSec. 271(1) the CIT (Appeals) relied on the statement underSection 132(4) as in respect of individual and not in the case offirm. But in coming to this conclusion that assessee had in allsurrendered Rs. 7 lacs during search proceedings Rs. 4 lacs forassessing year 1987-88 and Rs. 3 lacs for assessing year 1988-89. He paid the tax determined in respect of these two items asper order passed under Section 132(5) as individual. In his returnalso he had surrendered Rs. 7 lacs only albeit Rs. 4 lacs wereincluded in the return of firm and not in the case of individual. Onthe basis of order under Section 132(5) no additions were made inthe returned income of Individual which would have been thenatural corollary of attributing the surrender of Rs. 7 lacs by theassessee as individual and suffer order under Section 132(5) onthat basis as individual in respect thereof. There was never any amount other than surrenderedduring search by the assessee as on individual. It is also noticeable that the assessee, in fact, challengedthe order passed on the basis of return submitted by firm beforethe CIT [Appeals] bringing out this mistake and sought exclusionof income of the assessee of the firm, which was found plausible bythe CIT [Appeals]. In all these circumstances, if the Tribunal has accepted the Explanation furnished by the Assessee to be correct,no error can be found with it nor such finding can be held to beperverse. In view of these findings that the assessee hassucceeded to substantiate explanation furnished by him, at anyrate the explanation submitted by the assessee cannot be said tobe not bonafide . In that view of the matter Tribunal was justified innot sustaining the penalty merely by raising presumption underExplanation 1- Explanation 5. We are of the opinion that in the aforesaid facts andcircumstances, the findings that the assessee's explanation aboutthe surrendered income during the proceedings under Section 132(5) having wrongly been included in the return submitted by thefirm of which the assessee individual as a partner hassubstantiated are findings of fact based on relevant material, thesame cannot be said to be perverse. Hence levy of penalty hasrightly been not sustained. In view of the aforesaid, the order passed by theTribunal does not call for interference. We are of the opinion that in the aforesaid facts andcircumstances, the findings that the assessee's explanation aboutthe surrendered income during the proceedings under Section 132(5) having wrongly been included in the return submitted by thefirm of which the assessee individual as a partner hassubstantiated are findings of fact based on relevant material, thesame cannot be said to be perverse. Hence levy of penalty hasrightly been not sustained. In view of the aforesaid, the order passed by theTribunal does not call for interference. Accordingly, the appeal fails and is hereby dismissed.There shall be no order as to costs. (GOPAL KRISHAN VYAS),J. (RAJESH BALIA),J.