Sanjay Aggarwal v. Commissioner Of Income Tax,Ludhiana

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. --- Income Tax Appeal No. 212 of 2011Date of decision: 21.7.2011 Sanjay Aggarwal --- Appellant Versus Commissioner of Income Tax,Ludhiana --- Respondent CORAM:HON’BLE MR. JUSTICE ADARSH KUMAR GOELACTING CHIEF JUSTICE HON’BLE MR. JUSTICE AJAY KUMAR MITTAL --- Present:Mr. Pankaj Jain, Advocate and Mr. Rishabh Kapoor, Advocate for the appellant. --- AJAY KUMAR MITTAL, J. This appeal under Section 260A of the Income-Tax Act,1961 (for short “the Act”) has been filed by the assessee against theorder dated 31.3.2010, passed by the Income Tax AppellateTribunal, Amritsar Bench, Amritsar (in short “the Tribunal”) in ITA No.54/ASR/2010, relating to the assessment year 2006-07. 2.The following substantial questions of law have beenclaimed for determination of this Court: a) Whether on the true and correct interpretation of theprovisions of Explanation to section 132(4) read withSection 131, read with Rule 112A(1) the statementprovisions of Explanation to section 132(4) read withSection 131, read with Rule 112A(1) the statement recorded u/s 131 is in continuation of the proceedings of search initiated u/s 132 of the Act? b) Whether the statement recorded u/s 131 during thecontinuance of the search ‘proceedings’ u/s 132 iswithout jurisdiction and powers prescribed under the Act?continuance of the search ‘proceedings’ u/s 132 iswithout jurisdiction and powers prescribed under the Act? 3. The facts, in brief, necessary for adjudication as narratedin the appeal, are that the assessee - Shri Radha Raman Aggarwalwas an individual. The appellant is the legal heir of the assessee –Shri Radha Raman Aggarwal. The return for the assessment year2006-07 was filed on 17.01.2007 showing income of Rs. 7,88,620/-.The income was assessed under Section 143(3) of the Act at thereturned amount. The assessment was completed on 31.10.2007which contained the surrendered amount of Rs. 7,25,000/- inconsequence of the search carried under Section 132 of the Act on8.11.2005. The assessee made disclosure under Section 131(1) ofthe Act on 5.1.2006 and offered to surrender the amount attributableto him in the investment in property. Thereafter, proceedings forimposing penalty under Section 271(1)(c) of the Act were initiatedand a penalty in the sum of Rs. 1,90,318/- was levied on theappellant-assessee on 20.03.2008. 4. The assessee preferred appeal before theCommissioner of Income Tax (Appeals) {in short the CIT(A)}. TheCIT(A) dismissed the appeal on 18.11.2009. 5. The assessee preferred further appeal before theTribunal and the same was also dismissed vide order dated31.03.2010. 6.This is how the assessee is in appeal before this Court. 7.Learned counsel for the assessee submitted that in viewof Explanation to Section 132(4) of the Act, the surrender made bythe assessee in the statement made under Section 131(1) inconsequence of search carried under Section 132 of the Act, theassessee was entitled to the benefit of Explanation 5 to Section 271(1)(c) of the Act. The surrender of Rs.7,25,000/- was, thus, coveredunder the aforesaid Explanation 5 to Section 271(1)(c) of the Actand no penalty was leviable there-under. 8.We are unable to accept the aforesaid contention. 9.The point for adjudication that arises in this appeal iswhether an assessee is entitled to benefit of Explanation 5 to Section271(1)(c) of the Act in respect of any surrender/disclosure made notat the time of search and seizure but thereafter by statement underSection 131(1) of the Act during the assessment proceedings inpursuance to the search and seizure operations. 8.We are unable to accept the aforesaid contention. 9.The point for adjudication that arises in this appeal iswhether an assessee is entitled to benefit of Explanation 5 to Section271(1)(c) of the Act in respect of any surrender/disclosure made notat the time of search and seizure but thereafter by statement underSection 131(1) of the Act during the assessment proceedings inpursuance to the search and seizure operations. 10.It would be advantageous to refer to Explanation toSection 132(4) of the Act and Explanation 5 to Section 271(1)(c) ofthe Act to fully appreciate the controversy involved herein. Section132(4) of the Act along with Explanation attached thereto readsthus:- “Section 132(4): The authorised officer may, during thecourse of the search or seizure, examine on oath anyperson who is found to be in possession or control of anybooks of account, documents, money, bullion, jewelleryor other valuable article or thing and any statement madeby such person during such examination may thereafterbe used in evidence in any proceeding under the IndianIncome-tax Act, 1922 (11 of 1922), or under this Act. Explanation – For the removal of doubts, it is herebydeclared that the examination of any person under thissub-section may be not merely in respect of any books ofaccount, other documents or assets found as a result ofthe search, but also in respect of all matters relevant forthe purposes of any investigation connected with anyproceeding under the Indian Income-tax Act, 1922 (11 of1922), or under this Act.” 11.Sub-section (4) of Section 132 of the Act empowers theauthorised officer to examine any person on oath who is found to bein possession or control of any books of account, documents,valuable articles etc. during the course of search. The explanationattached thereto clarifies that the examination referred to in the sub-section is not restricted to the books of account, other documents orassets or articles found during the search, but can also be for thepurposes of investigation connected with any proceedings under theAct. 12.Explanation 5 to Section 271(1)(c) of the Act is in thefollowing terms:- -Explanation5: 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 inthis explanation referred to as assets) and the assesseeclaims that such assets have been acquired by him byutilizing (wholly or in part) his income, - a) For any previous year which has ended before thedate of the search, but the return of income for suchyear has not been furnished before the said date, suchincome has not been declared therein; ordate of the search, but the return of income for suchyear has not been furnished before the said date, suchincome has not been declared therein; or b) for any previous year which is to end on or after thedate 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,-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,- (1)such income is, or the transactions resulting in suchincome are recorded,-income are recorded,- (i)in a case falling under clause (a), before thedate of the search; anddate of the search; and (1)such income is, or the transactions resulting in suchincome are recorded,-income are recorded,- (i)in a case falling under clause (a), before thedate of the search; anddate of the search; and (ii)in a case falling under clause (b), on or beforesuch date, in the books of account, if any,maintained by him for any source of incomeor such income is otherwise disclosed to theChief Commissioner or Commissioner beforethe said date; orsuch date, in the books of account, if any,maintained by him for any source of incomeor such income is otherwise disclosed to theChief Commissioner or Commissioner beforethe said date; or (2) he, in the course of the search, makes a statementunder sub-section (4) of section 132 that anymoney, bullion, jewellery or other valuable article orthing found in his possession or under his control,has been acquired out of his income which has notunder sub-section (4) of section 132 that anymoney, bullion, jewellery or other valuable article orthing found in his possession or under his control,has been acquired out of his income which has not been 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 hasbeen derived and pays the tax, together withinterest, if any, in respect of such income.” 13. Explanation 5 to Section 271(1)(c) of the Act was inserted by Taxation Laws (Amendment) Act, 1984 w.e.f. 1.10.1984.According to Explanation 5 to Section 271(1)(c) of the Act, where anassessee surrenders undisclosed income in the course of thesearch by making a statement under Section 132(4) of the Act andpays taxes and interest thereon, penalty as provided under Section271(1)(c) of the Act is not leviable. 14.The scope and effect of the Explanation 5 to Section 271(1)(c) of the Act was explained by the Central Board of Direct Taxesin circular No.394, dated 14.9.1984, (1984) 150 ITR (St) 22 in thefollowing words: “36.2. The new Explanation contains a special provisionapplicable to cases where in the course of a search undersection 132 of the Income-tax Act, the assessee is foundto be the owner of any money, bullion, jewellery or othervaluable article or thing. The new Explanation providesthat if in such cases, the assessee claims that the assetsreferred to above have been acquired by him by utilising(whether wholly or in part) his income for any previousyear which has ended before the date of the search, butthe return of income for such year has not been furnishedbefore the said date, or where such return has been “36.2. The new Explanation contains a special provisionapplicable to cases where in the course of a search undersection 132 of the Income-tax Act, the assessee is foundto be the owner of any money, bullion, jewellery or othervaluable article or thing. The new Explanation providesthat if in such cases, the assessee claims that the assetsreferred to above have been acquired by him by utilising(whether wholly or in part) his income for any previousyear which has ended before the date of the search, butthe return of income for such year has not been furnishedbefore the said date, or where such return has been furnished before the said date, such income has not beendeclared in the return, the assessee shall, for thepurposes of imposition of penalty under section 271(1)(c)of the Income-tax Act, be deemed to have concealed theparticulars of his income or furnished inaccurateparticulars of such income unless such income is, or thetransactions resulting in such income are, recordedbefore the date of the search in the books of account, ifany, maintained by him for any source of income or suchincome is otherwise disclosed to the Commissionerbefore the date of the search. Where the assesseeclaims that the aforesaid assets have been acquired byhim by utilising (whether wholly or in part) his income forany previous year which is to end on or after the date ofthe search, he shall for the purposes of section 271(1)(c)of the Act be deemed to have concealed the particulars ofhis income or furnished inaccurate particulars of suchincome, unless such income is or the transactionsresulting in such income are, recorded on or before suchdate in the books of account, if any, maintained by him forany source of income or such income is otherwisedisclosed to the Commissioner before the said date.36.3. The fact that the income referred to above isdeclared by the assessee in any return of incomefurnished by him on or after the date of the search will notprovide immunity to the assessee from imposition ofpenalty under Section 271(1)(c) of the Act unless the conditions mentioned in the preceding paragraph are fulfilled. 36.4. The aforesaid amendments take effect from 1October, 1984.” 15.The expression “in the course of the search” inExplanation 5 to Section 271(1)(c) of the Act would not include postsearch period like assessment proceedings in pursuance to searchoperations. The legislative intent for providing immunity from penaltyunder Explanation 5 to Section 271(1)(c) of the Act was to giveconcession and another opportunity to an assessee to come cleanbefore detection during the course of search and seizure. It nowhereentitles an assessee to seek immunity from penalty where theassessee was cornered after detection during assessmentproceedings in pursuance to search operations and had not availedbenefit of opportunity provided in terms of Explanation 5 to Section271(1)(c) of the Act. Section 132(4) of the Act uses the expression“authorised officer” and not the words “assessing officer”. Theexpression “authorised officer” used in Section 132(4) of the Actinstead of “assessing officer” also supports the aforesaidinterpretation. Therefore, statement made under Section 131(1) ofthe Act during assessment proceedings in pursuance of search andseizure operations cannot partake the character of statement underSection 132(4) of the Act. As a necessary corollary, the benefit ofExplanation 5 to Section 271(1)(c) of the Act would, thus, not beadmissible in such situation. 16.Adverting to the facts of the present case, the searchtook place at the premises of the assessee on 8.11.2005 wherein theassessee had not declared any income in the statement recorded 16.Adverting to the facts of the present case, the searchtook place at the premises of the assessee on 8.11.2005 wherein theassessee had not declared any income in the statement recorded under Section 132(4) of the Act. The disclosure regarding concealedincome in respect of undeclared investment in the purchase ofimmoveable property was made under Section 131(1) of the Act on5.1.2006. Thus, no immunity can be claimed by the assessee fromlevy of penalty in terms of Explanation 5 to Section 271(1)(c) of theAct. 17.The similar issue raised by the assessee before theTribunal was rejected after considering the scope of Section 132(4)and Explanation 5 to Section 271(1)(c) of the Act with the followingobservations: “We have given out thoughtful consideration to the rivalsubmissions, perused the relevant material placed onrecord, including the case laws cited and the synopsisfiled by the Ld. Counsel for the assessee. It is evidentfrom the above discussions and clear findings given bythe lower authorities that the assessee has not declaredany income in the statement recorded under section 132(4) of the Act. Thus, the assessee has failed to complywith the statutory requirements as contained undersection 271(1)(c) read with Explanation 5 thereunder.The assessee admitted post search investigation in thestatement recorded on 5.1.2006 under Section 131 of theAct and, the concealed income, in the form ofunaccounted investment made in the purchase ofimmovable property. He, subsequently, disclosed thesaid unexplained investment in the return of income. Theargument of the Ld. Counsel for the assessee that thereis no difference between the returned income and assessed income and as no addition was made to thereturned income, is not legally and factually tenable.Similarly, the contention of the Ld. Counsel thatproceedings, u/s 131 of the Act are in continuance of thesearch operation u/s 132(1) of the Act, does not have anystatutory merit. It is for the party searched to seekimmunity, as contemplated under Section 271(1)(c) readwith Explanation 5 thereto. There is no legal sanctity, tosupport the contention of the Ld. Counsel that theassessee was not given opportunity to make declarationof unexplained income, in the course of searchoperations. The assessee disclosed such income afterdetection of the unexplained investment in the postsearch investigation, in the deposition made u/s 131 ofthe Act. The case laws relied upon by the Ld. Counselfor the assessee pertain to the admission/declarationmade by the party, in the statement recorded underSection 132(4) of the Act, during the course of searchoperations. Thus, in the present case, there is no suchdeclaration by the assessee of the concealed income, inthe course of statement recorded under Section 132(4) ofthe Act. In view of this, the case laws relied upon by theassessee are factually different and distinguishable, as inall those cases, the assessee admitted the concealedincome, in the statement recorded under Section 132(4)of the Act, in the course of search operations. It is addedthat certain case laws relied upon by the assessee’scounsel have already been considered by the Ld. CIT(A), in his impugned appellate order. Therefore, we are of theconsidered opinion that the immunity contemplated underExplanation 5 to Section 271(1)(c) of the Act, is notavailable to the present assessee. However, the issue iscovered under the general provisions of Section 271(1)(c)of the Act, as well as under the deemed concealedincome within the meaning of Explanation 5 to Section271(1)(c) of the Act, for the purpose of concealedincome.” 18. The Tribunal while repelling the contention of the assessee further noticed as under:- in his impugned appellate order. Therefore, we are of theconsidered opinion that the immunity contemplated underExplanation 5 to Section 271(1)(c) of the Act, is notavailable to the present assessee. However, the issue iscovered under the general provisions of Section 271(1)(c)of the Act, as well as under the deemed concealedincome within the meaning of Explanation 5 to Section271(1)(c) of the Act, for the purpose of concealedincome.” 18. The Tribunal while repelling the contention of the assessee further noticed as under:- “Thus, the assessee has clearly failed to comply with thestatutory requirements, as contained under the saidsection. It is, further, added that it is not a case of agreedsurrender made by the assessee because the assesseehas simply admitted concealed income in the course ofproceedings under section 131 of the Act. We havecarefully gone through and considered the ratio of thedecisions as well as the facts of the case laws reliedupon by the Ld. Counsel for the assessee and found thatnone of the case law is applicable to the facts of thepresent case because in all those cases, the facts aredifferent and distinguishable. In the present case, theassessee has admitted undisclosed investment in thecourse of proceedings u/s 131 and not during searchproceedings under Section 132(4) of the Act. It is furtheradded that perusal of decision of the Hon’ble Bombay High Court in the case of CIT v. Kiran & Company,(1996) 217 ITR 326, reveals that the assessee madeconditional offer for settlement – consequently,cancellation of penalty. In the present case, there is nosuch conditional offer made by the assessee. However, itis abundantly clear that the Department detectedconcealment in the course of post search operations,while recording statement u/s 131 of the Act. It is furtheradded that the contention of the assessee that it was avoluntary surrender, is not factually and legally tenable.The assessee admitted and unexplained investmentmade in the property in the course of post searchinvestigations and the same was disclosed subsequently,in the return of income filed by the assessee. Thus, suchconduct of the assessee cannot be treated as voluntarydisclosure. It is further made clear that in this casestatement was recorded u/s 131 of the Act and it is not acase of non-recording of statement u/s 132(4) of the Act,in the course of search operations.” 19.No illegality or perversity having been pointed out by thelearned counsel in the aforesaid findings warranting interference bythis Court, we find no merit in the appeal. Resultantly, there does notarise any substantial question of law for consideration of this Court.Accordingly, the appeal is dismissed. (AJAY KUMAR MITTAL) JUDGE July 21, 2011*rkmalik* (ADARSH KUMAR GOEL) ACTING CHIEF JUSTICE