Mr. Surender Paul v. Cit, Chandigarh

ITA No. 47 of 2005 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 47 of 2005 (O&M) Date of Decision: 18.1.2016 Mr. Surender Paul Versus ....Appellant. CIT, Chandigarh ...Respondent. 1.Whether the Reporters of the local papers may be allowed to see the judgment? 2.To be referred to the Reporters or not? YES 3.Whether the judgment should be reported in the Digest? CORAM:-HON'BLE MR. JUSTICE AJAY KUMAR MITTAL.HON'BLE MRS. JUSTICE RAJ RAHUL GARG. PRESENT: Mr. S.K. Mukhi, Advocate for the appellant. Ms. Urvashi Dhugga, Advocate for the respondent. AJAY KUMAR MITTAL, J. 1.This order shall dispose of a bunch of three appeals bearingITA Nos. 386 of 2004, 47 and 104 of 2005 as according to learnedcounsel for the parties, the identical questions of law and facts areinvolved therein. For brevity, the facts are being extracted from ITA No.47 of 2005. 2.This appeal has been preferred by the assessee underSection 260A of the Income Tax Act, 1961 (in short “the Act”) against theorder dated 31.8.2004 (Annexure A-1) passed by the Income Tax Appellate Tribunal, Chandigarh Bench “A”, Chandigarh (hereinafterreferred to as “the Tribunal”) in ITA No. 494/CHD/2001 for theassessment year 1994-95. All the appeals were admitted by this Courtvide order dated 9.5.2006 for consideration of the following substantialquestions of law:- (i) Whether, the decision of ITAT and authoritiesbelow is perverse in view of the facts andcircumstances of the case being that the seizedassets were far more in value as compared tothe tax liability due on returned income and theappellant had offered adjustment of thoseassets against his taxes due vide a noteappended to return of income, thus theappellant cannot be penalized on the ground ofnon payment of taxes? (ii) Whether, the decision of ITAT and authoritiesbelow is perverse in holding that the return ofincome has not been furnished in time while infact it has been furnished on 23.5.1994 for theA.Y. 1994-95? (iii) Whether, on the facts and circumstances of thecase the ITAT was justified in law that the returnof income should have been filed by theappellant within time limit specified u/s 139(1) inorder to get the benefit of explanation 5 ofSection 271(1)(c) of the Income Tax Act, 1961? 3.A few facts necessary for adjudication of the instant appealas narrated therein may be noticed. A search and seizure operation wascarried out on 30.8.1993 by the Income Tax Department at theresidential as well as business premises of the family of the assesseeand cash, jewellery, FDR/IVPs and promissory notes were seized.During the course of search, a disclosure of ` 3 lacs was made underSection 132(4) of the Act. The said amount was surrendered subject tono penalty under Section 271(1)(c) of the Act. A further disclosure of ` 6lacs was made in the hands of Shri Dipti Lal, Shri Raj Kumar, Dipti Laland Sons besides ` 3 lacs in the case of Shri Surinder Pal (the appellantherein) for the assessment year 1994-95. The income tax return for theassessment year 1994-95 was filed by the assessee on 23.5.1994declaring the income at ` 4,70,000/- inclusive of surrender under Section132(4) of the Act. However, regarding the payment of taxes duethereon, a note was appended to the computation (Annexure P-3) to theeffect that “to be adjusted against seized liquid assets and also out ofliquidation of other assets with my assistance.” The taxes on thereturned income as per the assessee's own computation were:- against the taxes due amounting to ` 9,69,841/- on the basis of returnsof income filed by all the family members. The assessment was finalized against the taxes due amounting to ` 9,69,841/- on the basis of returnsof income filed by all the family members. The assessment was finalized vide order dated 27.12.1996 at a total income of ` 11,13,739/- bypresuming the business of jewellery as a joint business of the father andtwo brothers. The said assessment order was set aside by theCommissioner of Income Tax (Appeals) [for brevity “the CIT(A)”] to bemade de novo. Thereafter, the Assessing Officer vide order dated31.1.2000 (Annexure A-2) framed the assessment accepting thereturned/surrendered income at ` 4,70,000/-. The Deputy Commissionerof Income Tax, Investigation Circle 2(1), vide order dated 27.7.2000(Annexure A-4) levied penalty of ` 1,87,040/- under Section 271(1)(c) ofthe Act for the assessment year 1994-95 on the amount disclosed underSection 132(4) read with Explanation 5 to Section 271(1)(c) of the Act.Feeling aggrieved, the assessee filed an appeal before the CIT(A) whovide order dated 27.3.2001 (Annexure A-5) dismissed the appeal.Against the order, Annexure A-5, the assessee filed an appeal before theTribunal. The Tribunal vide order dated 31.8.2004 (Annexure A-1)upheld the order of the CIT(A) and dismissed the appeal. Hence, thepresent appeals. 4.Learned counsel for the assessee-appellant submitted thatthe Tribunal had decided the cases of the assessee whereby the reliefunder Explanation 5 to Section 271(1)(c) of the Act has been denied bytreating all the returns to have been filed under Section 139(4) of the Actwhereas the return in the present case was filed under Section 139(1) ofthe Act. A distinction was sought to be made in respect of applicability ofExplanation 5 to Section 271(1)(c) of the Act in respect of return filedunder Section 139(1) of the Act and Section 139(4) of the Act. On thatpremises, it was submitted that the Tribunal had failed to grant benefit under Explanation 5 to Section 271(1)(c) of the Act to the assessee anddeleted the penalty levied under Section 271(1)(c) of the Act. Relyingupon the judgment of the Apex Court in Assistant Commissioner of Income Tax v. Gebilal Kanhaialal, HUF, (2012) 348 ITR 561 (SC),learned counsel contended that the assessee could deposit the taxalong with interest at any time when no time limit for payment was fixed.It was urged that since the assets were seized by the revenue on10.9.1993 at the time of search and the request having been made bythe assessee for adjusting the same towards the tax liability, it could notbe said that the tax was not paid on time. 5.On the other hand, learned counsel for the respondent-revenue supported the order passed by the Tribunal. 6.We have heard learned counsel for the parties. 7.It would be advantageous to quote below Explanation 5 toSection 271(1)(c) of the Act which at the relevant time existed as under:- “Explanation 5: Where in the course of a search undersection 132, the assessee is found to be the owner ofany money, bullion, jewellery or other valuable articleor thing (hereafter in this Explanation referred to asassets) and the assessee claims that such assetshave been acquired by him by utilizing (wholly or inpart) his income,- (a) For any previous year which has ended beforethe date of the search, but the return of income forsuch year has not been furnished before the said dateor, where such 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 afterthe date of the search, then, notwithstanding that suchincome is declared by him in any return of incomefurnished on or after the date of the search, he shall,for the purposes of imposition of a penalty underclause (c) of sub-section (1) of this section, bedeemed to have concealed the particulars of hisincome or furnished inaccurate particulars of suchincome, unless, - (a) For any previous year which has ended beforethe date of the search, but the return of income forsuch year has not been furnished before the said dateor, where such 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 afterthe date of the search, then, notwithstanding that suchincome is declared by him in any return of incomefurnished on or after the date of the search, he shall,for the purposes of imposition of a penalty underclause (c) of sub-section (1) of this section, bedeemed to have concealed the particulars of hisincome or furnished inaccurate particulars of suchincome, unless, - (2) he, in the course of the search, makes astatement under sub-section (4) of section 132 thatany money, bullion, jewellery or other valuable articleor thing found in his possession or under his control,has been acquired out of his income which has notbeen disclosed so far in his return of income to befurnished before the expiry of time specified in 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,in respect of such income.” 8.Explanation 5 to Section 271(1)(c) of the Act creates adeeming fiction. The Apex Court in Gebilal Kanhaialal's case (supra)while interpreting the aforesaid explanation had comprehensively laiddown as under:- “Explanation 5 is a deeming provision. It provides thatwhere, in the course of search under Section 132, theassessee is found to be the owner of unaccountedassets and the assessee claims that such assetshave been acquired by him by utilizing, wholly orpartly, his income for any previous year which hasended before the date of search or which is to end onor after the date of search, then, in such a situation,notwithstanding that such income is declared by himin any return of income furnished on or after the dateof search, he shall be deemed to have concealed theparticulars of his income for the purposes ofimposition of penalty under Section 271(1)(c). Theonly exceptions to such a deeming provision or tosuch a presumption of concealment are given in sub-clauses (1) and (2) of Explanation 5. In this case, weare concerned with interpretation of clause (2) ofExplanation 5, which has been quoted above. Threeconditions have got to be satisfied by the assessee forclaiming immunity from payment of penalty underclause (2) of Explanation 5 to Section 271(1)(c). Thefirst condition was that the assessee must make astatement under Section 132(4) in the course ofsearch stating that the unaccounted assets andincriminating documents found from his possessionduring the search have been acquired out of his income, which has not been disclosed in the return ofincome to be furnished before expiry of time specifiedin Section 139(1). Such statement was made by theKarta during the search which concluded on August 1,1987. It is not in dispute that condition No.1 wasfulfilled. The second condition for availing of theimmunity from penalty under Section 271(1)(c) wasthat the assessee should specify, in his statementunder Section 132(4), the manner in which suchincome stood derived. Admittedly, the secondcondition, in the present case also stood satisfied.According to the Department, the assessee was notentitled to immunity under clause (2) as he did notsatisfy the third condition for availing the benefit ofwaiver of penalty under Section 271(1)(c) as theassessee failed to file his return of income on 31stJuly, 1987 and pay tax thereon particularly when theassessee conceded on August 1, 1987 that there wasconcealment of income. The third condition underclause (2) was that the assessee had to pay the taxtogether with interest, if any, in respect of suchundisclosed income. However, no time limit forpayment of such tax stood prescribed under clause(2). The only requirement stipulated in the thirdcondition was for the assessee to "pay tax togetherwith interest". In the present case, the third condition also stood fulfilled. The assessee has paid tax withinterest upto the date of payment. The only conditionwhich was required to be fulfilled for getting theimmunity, after the search proceedings got over, wasthat the assessee had to pay the tax together withinterest in respect of such undisclosed income uptothe date of payment. Clause (2) did not prescribe thetime limit within which the assessee should pay tax onincome disclosed in the statement under Section 132(4).” 9.The Supreme Court in the above noted pronouncement hadheld that the following circumstances are required to be fulfilled by theassessee to claim benefit under Clause (2) of Explanation 5 to Section271(1)(c) of the Act and seek immunity therefrom:- (i)the assessee must make a statement underSection 132(4) in the course of search statingthat the unaccounted assets and incriminatingdocuments found from his possession duringthe search have been acquired out of hisincome, which has not been disclosed in thereturn of income to be furnished before expiry oftime specified in Section 139(1). Section 132(4) in the course of search statingthat the unaccounted assets and incriminatingdocuments found from his possession duringthe search have been acquired out of hisincome, which has not been disclosed in thereturn of income to be furnished before expiry oftime specified in Section 139(1). (ii)that the assessee should specify, in hisstatement under Section 132(4), the manner inwhich such income stood derived.statement under Section 132(4), the manner inwhich such income stood derived. (iii)that the assessee had to pay the tax together with interest, if any, in respect of suchundisclosed income. However, no time limit forpayment of such tax stood prescribed underclause (2). The only requirement stipulated inthe third condition was for the assessee to "paytax together with interest". (ii)that the assessee should specify, in hisstatement under Section 132(4), the manner inwhich such income stood derived.statement under Section 132(4), the manner inwhich such income stood derived. (iii)that the assessee had to pay the tax together with interest, if any, in respect of suchundisclosed income. However, no time limit forpayment of such tax stood prescribed underclause (2). The only requirement stipulated inthe third condition was for the assessee to "paytax together with interest". 10. Delving into the controversy raised herein, it would beexpedient to notice that the assessee filed his income tax return for theassessment year 1994-95 on 23.5.1994 declaring the income at` 4,70,000/- inclusive of surrender under Section 132(4) of the Act. TheAssessing Officer vide order dated 31.1.2000 (Annexure A-2) framed theassessment accepting the returned/surrendered income at ` 4,70,000/-.The Deputy Commissioner of Income Tax, Investigation Circle 2(1), videorder dated 27.7.2000 (Annexure A-4) levied penalty of ` 1,87,040/-under Section 271(1)(c) of the Act for the assessment year 1994-95 onthe amount disclosed under Section 132(4) read with Explanation 5 toSection 271(1)(c) of the Act. The assessee filed an appeal before theCIT(A) which was dismissed. Thereafter, the assessee approached theTribunal. The Tribunal vide order dated 31.8.2004 (Annexure A-1)upheld the orders of the Assessing Officer as well as the CIT(A) anddismissed the appeal. The Tribunal had only recorded that the incomedeclared by the assessee would not provide the immunity to him fromimposition of penalty under Section 271(1)(c) of the Act unless theconditions mentioned in the statement under Section 132(4) of the Actas well as the conditions laid down in clause (2) of Explanation 5, toSection 271 of the Act are fulfilled. It further recorded that the tax authorities were fully justified that the assessee was not entitled to theimmunity and imposition of penalty amounts. A perusal of the order ofthe Tribunal shows that the order passed by the Tribunal in the factualmatrix involved herein requires to be re-adjudicated in the light of theinterpretation given by the Apex Court in Gebilal Kanhaialal's case(supra) to clause (2) of Explanation 5 to Section 271(1)(c) of the Act asthe Tribunal is the final fact finding authority who is required to deal withall aspects of facts and law before recording its conclusions basedthereon. 11.Accordingly, the impugned orders are set aside and thematter is remanded to the Tribunal to decide the same afresh afterhearing the parties and by passing a speaking order in accordance withlaw. Needless to say anything observed hereinbefore shall not be takento be expression of opinion on the merits of the controversy. (AJAY KUMAR MITTAL) JUDGE January 18, 2016gbs (RAJ RAHUL GARG)JUDGE