Rc/43/1996 Of Mohan Lal Meghraj v. The Commissioiner Of Income Tax.hyd

THE HON’BLE SRI JUSTICE V.V.S.RAOAND THE HON’BLE SRI JUSTICE SAMUDRALA GOVINDARAJULU REFERRED CASE No.43 of 1996 30.12.2011 Between: Sri Mohanlal Meghraj … Petitioner and Commissioner of Income TaxHyderabad. …Respondent THE HON’BLE SRI JUSTICE V.V.S.RAOAND THE HON’BLE SRI JUSTICE SAMUDRALA GOVINDARAJULUREFERRED CASE No.43 of 1996 ORDER:(Per Hon’ble Sri Justice V.V.S.Rao) The two questions referred to this Court under Section 256(1)of the Income Tax Act, 1961 (the Act, for brevity) on the request ofthe assessee relating to the assessment year 1986-87 are thefollowing. 1.“Whether on the facts and in the circumstances of the casethe Tribunal was correct in law in confirming the penalty ofRs.21,104/- on the ground that the assessee cannot invokethe benefits of clause (2) of Explanation 5 to S.271(1)(c) ofthe Act as the said clause came into statute book after27.1.1986 when the search under S.132 took place?”the Tribunal was correct in law in confirming the penalty ofRs.21,104/- on the ground that the assessee cannot invokethe benefits of clause (2) of Explanation 5 to S.271(1)(c) ofthe Act as the said clause came into statute book after27.1.1986 when the search under S.132 took place?” 2.“Whether on the facts and in the circumstances of the case,the Income Tax Appellate Tribunal ought to have held that theassessee was entitled to the benefits of clause (2) ofExplanation 5 to Section 271(1)(c) as by the time the returnwas filed the said clause was already in the statute book andthe provisions of law as stood at the time of filing of the return The assessee is a business man in general goods. He runsMysore Emporium which is a proprietary concern. The officials of theIncome Tax Department conducted search under Section 132 of theAct on 17.01.1986. Though the credit balance in the cash book wasshown as Rs.10,131/-, cash amount of Rs.94,701/- was found. Theofficials recorded the sworn statement of the assessee underSection 133(c) of the Act as there was unaccounted amount ofRs.84,570/-. The assessee in a statement offered the unaccountedamount for assessment. On 15.05.1986, the Income Tax Officerpassed orders under Section 132(5) of the Act estimating theundisclosed income. The assessee then filed a return for 1986-87 on12.11.1986 which was assessed on 31.12.1986 under Section 143(3)of the Act. The assessee then filed appeals before CIT (Appeals)against the assessment order which was confirmed in Appeal on24.05.1990. The assessee did not carry the matter in further appealto the appellate Tribunal. In view of the unaccounted amount, Income Tax Officerinitiated penalty proceedings separately and passed order levyingpenalty amount of Rs.21,104/-. The matter was then carried to CIT(Appeals). Relying on clause (2) of Explanation 5 to Section 271(1)of the Act, the assessee contended that the deeming provision withregard to the concealment of the particular income would not beattracted. The said clause (2) of Explanation 5 was inserted byTaxation Laws (Amendment and Miscellaneous Provisions) Act,1986 (with effect from 10.09.1986). The appellate Commissionerignored the submission and applied the deeming provision ofExplanation 5 while dismissing the appeal. The assessee’s appealbefore the Income Tax Appellate Tribunal was also dismissed.Therein the learned Tribunal observed that when Explanation 5 to Section 271(1)(c) was not on the statute book and the same cameinto force on 10.09.1986, the assessee cannot invoke the saidprovisions. Thereupon, the assessee sought reference. The counsel for the assessee relied on clause (2) ofExplanation 5 to Section 271(1)(c) and would submit that as theassessee accepted and offered the excess amount found during thesearch to tax, the deeming provision would not be attracted. Sherelied on the two decisions of the Supreme Court in Jain Brothers v Section 271(1)(c) was not on the statute book and the same cameinto force on 10.09.1986, the assessee cannot invoke the saidprovisions. Thereupon, the assessee sought reference. The counsel for the assessee relied on clause (2) ofExplanation 5 to Section 271(1)(c) and would submit that as theassessee accepted and offered the excess amount found during thesearch to tax, the deeming provision would not be attracted. Sherelied on the two decisions of the Supreme Court in Jain Brothers v Union of India[[1]]and Maya Rani Punj v Commissioner of Income Tax[[2]]which deal with interpretation of fiscal legislation. She also relies onthe decision of this Court in Commissioner of Wealth Tax v AmatulKareem[[3]],Commissioner of Income Tax v Bihar Cotton Mills Limited[[4]]and Commissioner of Income Tax v Mahendra C.Shah[[5]]in support ofthe submission that though clause (2) of Explanation 5 came intoforce with effect from 10.09.1986, the same would govern thesituation. The junior counsel for Income Tax, however, would submit thatas the relevant provision was introduced with effect from 10.09.1986even if the assessment order passed thereafter on 01.12.1986, thepetitioner would not fall under the excluded category as per clause(2) to Explanation 5 of Section 271(1)(c) of the Act. He relied on theJudgment of the Supreme Court in Brij Mohan v Commissioner ofIncome Tax[[6]], wherein the issue directly fell for consideration. We have perused the judgments relied on by the assessee’scounsel. But having regard to the decision in Brij Mohan, which isdirectly on the point, we do not consider it necessary to refer thedecisions cited by the counsel for the assessee. The apex Courtnoticing the history of amendments to Section 271(1)(c), laid downthat it is the law ruling on the date when the act of concealment takes place which is relevant and the subsequent amendment has no bearing. The relevant observations are as follows. In our opinion, the assessment of the total income andthe computation of tax liability is a proceeding which, for thatpurpose, is governed by entirely different considerations from aproceeding for penalty imposed for concealment of income. Andthis is so notwithstanding that the income concealed is theincome assessed to tax. In the case of the assessment ofincome and the determination of the consequent tax liability, therelevant law is the law which rules during the assessment yearin respect of which the total income is assessed and the taxliability determined. The rate of tax is determined by the relevantFinance Act. In the case of a penalty, however, we mustremember that a penalty is imposed on account of thecommission of a wrongful act, and plainly it is the lawoperating on the date on which the wrongful act iscommitted which determines the penalty. Where penalty isimposed for concealment of particulars of income, it is thelaw ruling on the date when the act of concealment takesplace which is relevant. It is wholly immaterial that theincome concealed was to be assessed in relation to anassessment year in the past. (emphasis supplied) In view of the above, the first question is answered in theaffirmative and the second question in the negative in favour of therevenue and against the assessee. The reference case standsdisposed of accordingly without any order as to costs. _______________ (V.V.S.RAO, J) 30.12.2011pln ____________________________________ (SAMUDRALA GOVINDARAJULU, J) [1][1970] 77 ITR 107 (SC)[1970] 77 ITR 107 (SC) [2][1986] 157 ITR 330 (SC)[1986] 157 ITR 330 (SC) [3][1987] 167 ITR 703 (AP)[1987] 167 ITR 703 (AP) [4][1988] 170 ITR 290 (Patna)[1988] 170 ITR 290 (Patna) [5][2008] 299 ITR 305 (Guj)[2008] 299 ITR 305 (Guj) [6][1979] 120 ITR 1 (SC) = (1979) 4 SCC 118 = AIR 1979 SC 1897