TaxTMI 
TaxTMI 
2002 (1) TMI 257
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....ring the course of his statement recorded under section 132(4) on 12-9-1988, the assessee was asked to tell the source of his income and that of his family members. This he did. When asked to explain the nature of the entries in 134 loose papers contained in a file, the assessee replied that these papers pertained to his unaccounted income and that he owns these amounts and will pay taxes thereon. He further offered unaccounted income of Rs. 75 lakhs on account of cash, loans outside the books, cash found at residence, unaccounted jewellery owned by his family members etc., in the current year as his unaccounted income. On query as to how the offered income of Rs. 1 crore of his and his family members was earned, the assessee replied that 'this is income of business done by the family members in their proprietary concern for which no books are kept in the current year as well as income from other sources'. He further stated in reply to another question that he may be allowed immunity under section 132(4) as well as the capitalization benefit as and when the moneys are released. He also stated that the confessed income of Rs. 1 crore is proposed to be disclosed in the hands of vario....
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....ring the course of search he will not attract the presumption of Explanation 5, the Explanation 5 will be a non-starter in case of such an assessee. c. If Explanation 5 is taken not to apply in respect of any asset, the question of assessee claiming immunity from penalty will not arise at all. d. Even assuming that an assessee is found to be the owner in the course of search still the presumption will stand rebutted or discharged in the case of an assessee who has made a disclosure of his income in a statement recorded under section 132(4). e. Explanation 5 to section 271(1)(c) comprises of two parts. The first part is a deeming provision whereby an assessee is deemed to have concealed the particulars of his income. The second part provides for an exemption to the above deeming provision upon compliance of certain conditions." The submission of the assessee was that in his case all the conditions of claiming immunity by making a voluntary disclosure of his income in a statement recorded under section 132(4) was fulfilled. He was, therefore, entitled to immunity even assuming that the presumption at Explanation 5 is stood attracted in his case. The contentions of the ass....
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.... during assessment proceedings to specify the manner in which income was derived, no reply was given. For claiming immunity from penalty provisions of section 271 (1)(c), the assessee should specify the 'manner' in which such income has been derived. The word 'manner' not only postulates the source of income but the modus operandi/technique used in deriving such income. The assessee has only specified the manner as 'business'. He has not specified the transactions leading into deriving of such income. In the absence of these details of transactions, the Assessing Officer held that the assessee has not completely specified the manner in which such income has been derived. For reasons aforesaid, the Assessing Officer held that the requisite conditions have not been fulfilled as claimed by the assessee. Hence, the deeming provision of Explanation 5 to section 271(1)(c) is attracted as the assessee has neither recorded the transactions resulting in such income in the books of account nor was income disclosed to CIT or CCIT nor specified the manner in which such income had been derived. He accordingly imposed the impugned penalty of Rs. 49,84,434. 5. The assessee carried the matter i....
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.... conditions laid down in exception (2) to Explanation 5 to section 271(1)(c) of the Act and was entitled to immunity from penalty and hence, the penalty confirmed of Rs. 2,68,050 is unjustified and liable to be deleted. (ii) The learned CIT(A) failed to appreciate that as the amount was disclosed in the statement recorded under section 132(4) of the Act and also paid the tax and the return filed was accepted (subject to change in share of profit of the firm) and hence all the conditions specified in exception (2) to Explanation 5 to section 271(1)(c) were fully satisfied and hence, the penalty confirmed of Rs. 2,68,050 may be deleted." In Revenue's appeal, the following ground has been raised: "On the facts and in the circumstances of the case and in law, the learned Commissioner (Appeals) erred in directing the Assessing Officer to levy penalty under section 271(1)(c) only with reference to seized assets. The learned Commissioner (Appeals) has not appreciated that deeming provisions of Explanation 5 to section 271(1)(c) are not satisfied and penalty is leviable on entire concealed income of Rs. 1 crore." 6. Before us, the Revenue has been represented by Shri Girish Dav....
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....namely the amount other than those represented by the assets found in search, Explanation 5 would apply. The Commissioner (Appeals) has used the expression 'probably' in para 7 of his order. Shri Dave argued that the assessee cannot say that he is not the owner of the balance amount since lie has gone on record to say that the balance money is lying at other places and claimed capitalisation thereof the effect of which would be that asset to that extent will be reflected in the balance sheet of the assessee. Shri Dave also argued that the Commissioner (Appeals) is incorrect in observing that the balance amount had been voluntarily disclosed by the assessee. Such is not the case. The assessee disclosed the balance amount having regard to the entries contained in 134 loose papers found in search. Without being sure, the Commissioner (Appeals) held that Explanation 5 would not apply to the balance amount. He was not justified in holding so. 6.3 Shri Dave also refuted the findings of the Commissioner (Appeals) that the balance amount of declaration represented by documents were not found in the possession of the assessee or under his control. The loose papers containing entries on t....
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....he assessee's compilation. In reply thereto, the assessee furnished a letter dated 7-12-1988 wherein the assessee has stated that he had voluntarily disclosed the amount of Rs. 80,000 seized by the Department as his income and also specified the manner in which such income has been derived. It was also stated therein that this declaration under section 132(4) was made voluntarily and with the clear understanding that no additional income-tax would be chargeable as per the provisions of section 158B(5) and also no interest is chargeable under the Act. The assessee had also undertaken to include this amount of Rs. 80,000 in his return for the previous year ending on 31-3-1989 (assessment year 1989-90). This letter finds place at page 67 of the assessee's paper book. This was followed by another reply dated 27-12-1988 wherein again the assessee stated that in the course of his statement given under section 132(4), he had agreed to certain undisclosed income which he would voluntarily show in the return of income as his income of the current year i.e. assessment year 1989-90. The assessee, however, requested for readjustment/revision of the facts which was done. It was reiterated that ....
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....uch assets have been acquired. Hence, by the Amending Act, it has been provided that if an assessee in such cases makes a statement during the course of search admitting that the assets found at, his premises or under his control have been acquired out of his income which has not been disclosed so far in his return of income to be furnished before the expiry of time prescribed in clause (a) or (b) of section 139(1) and specifies in the statement, the manner in which such income has been derived and pays the taxes that are due thereon, no penalty shall be leviable. Shri Shivram submitted that an identical issue had come for consideration before the Ahmedabad Bench of the Tribunal in the case of Mahindra Chimanlal Shah v. Asstt. CIT [1994] 51 ITD 244 wherein it has been held that for availing immuity under Explanation 5 to section 271(1)(c), conditions precedent are 3 namely (i) the assessee must have made a statement under section 132(4) that such assets found from his possession have been acquired out of income which has not been disclosed so far in the return of income to be furnished before the expiry of time specified in section 139(1); (ii) the assessee specifies in statement u....
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....ail of the concession given by the taxation laws (Amendment & Miscellaneous Provisions) Act, 1986 which provided that if during the course of search, the assessee makes a statement under section 132(4) that any money, bullion, jewellery or any other article or thing found in his possession or control has been acquired out of his income which has not been declared so far in his return of income to be furnished under section 139(1) within the time allowed under the law and also specifies in his statement how he derived such income and paid income-tax and interest, if any thereon, then no penalty for concealment will be levied as per Explanation 5 to section 271(1)(c) of the Act. He submitted that it is the duty of the Income tax authorities to honour such advise given in the advertisement. It has been held in Taiyubji Lukmanji v. CIT [1981] 131 ITR 643 (Guj.) that it would cause greater harm to the Department itself who respond to its appeal and desire to cleanse themselves of past sins, are deterred and from doing so. 7.3 Shri Shivram submitted that during search, assets worth Rs. 5,95,000 only were found and seized. No assets in terms of Explanation 5 to section 271(1)(c) were s....
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....ty given by the search party. According to him, even if for the sake of argument, it is presumed that there was assurance given by the search party, if no explanation was forthcoming for income of Rs. 1 crore offered by the assessee, rule of estoppel cannot be applied against the statute. He further submitted that order under section 132(5) makes summary estimate of tax payable. The purpose of the said order is limited and that is retention of the seized assets. He, therefore, submitted that even if the penalty was not quantified in an order under section 132(5), the imposition of impugned penalty cannot be assailed if the same has been initiated in the order of assessment passed under section 143(3) of the Act which is not at all in dispute. Shri Dave further submitted that the advertisement given by the Income-tax Department in Economic Times on 22-9-1989 cautions the assessee not to give misleading or evasive statement during search operation of the Income-tax Department. It does not cast any duty on the Assessing Officer not to levy penalty for concealment in respect of a search which was conducted more than a year ago on 12-9-1988. Shri Dave further submitted that the Assessin....
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....oluntarily to state that I further offer an unaccounted income of Rs. 75 lakhs on account of cash loans outside the books, cash found at residence, unaccounted jewellery owned by my family members etc. in the current year as my unaccounted income. The detailed working as to the exact working of unaccounted income to be affixed in respective family members hands will be submitted subsequently after taking into account relevant facts. However, I understand that benefits of immunity from penalty and prosecution will be granted to each of the family members who is making the said proposed disclosure. I have got three lockers standing in my family members name in Grindlays Bank of which the keys of two are being handed over to your for necessary search. I may however add that I will not be able to supply as to whom these cash loans are advanced by me and my family members. Q. No. 3. Please tell how the said confessed income of Rs. 1 crore of your and your family members have been earned? A. This is income of business done by the family members in their preoprietary concern for which no books are kept in the current year as well as income from other sources. Q. No. 4. Any other ....
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....,2,3,5,7,17,18,19,20 etc. for example unaccounted personal expenses of Rs. 7,110 are recorded on page No. 18. The major expenses recorded on these papers are mainly sums spent by me for charity during the course. Any service rendered in pursuing and supervising the charitable work of Shri Lohana Atithi Bhavan Trust and Shri Lohana Sanitorium Trust. For example page No. 7 records amounts aggregating to Rs. 7,00,000 spent by me out of my unaccounted income of Current Year when I was pursuing the Charitable activities of Lonavala Sanitorium (under Shri Lohana Sanitorium Trust) in a similar manner amount sent for charity out of my unaccounted Income are recorded on above referred other pages when I was pursuing charitable activities at Dwarka, Nathdwara, Lonawala (under Shri Lohana Atithi Bhavan Trust). Thus total unaccounted expenses of about Rs. 21.5 lakhs recorded in these seized documents are covered by undisclosed income of Rs. 1 crore declare by me under section 132(4). The declaration also covers my unaccounted investment of Rs. 70,000 in marble flooring of this premises furniture, fixtures etc. The balance part of my declaration of Rs. 1 crore is to cover cash amounts lying at ....
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....arch had taken place during the previous year relevant to the assessment year 1989-90. The return of income for assessment year 1989-90 was due under section 139(1) on 31-7-1989. The assessee, however, filed the return for the assessment year 1989-90 on 3-5-1989 declaring therein income of Rs. 1,03,10,388. The Assessing Officer completed the assessment on 31-12-1990 under section 143(3) on total income of Rs. 1,03,19,063. The slight variation was due to share of profit from M/s. Gandhi Plastics as per revised computation filed. At this stage, it is pertinent to quote the observations of the Assessing Officer in para 2 of the order-- "2. A search and seizure operation was carried out at the premises of the assessee on 12-9-1988. During the course of search the assessee has made a declaration of Rs. 1 crore under section 132(4) of Income-tax Act. Consequently the assessee has paid the taxes and has credited its P & L account by the sum of Rs. 1 crore. As per the order under section 132(5) the assessee has introduced cash of Rs. 84,33,000 in its books of account after excluding the expenses incurred by it prior to the search and included in the aforesaid declaration." 13. In the....
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....ing to the amount of Rs. 94,17,000, placing reliance on the depositions made by the assessee in his statement recorded under section 132(4) of the Act. He submitted that the assessee had clearly stated that he owned the amounts spent for charity purposes of the trust and for investment in marble flooring etc. Moreover, according to Shri Dave the assessee was in possession and control of the assets represented by the seized loose papers indicating the cash amounts lying at places other than the assessee's residence. Thus, the stand of the Revenue before us is that the assessee was in possession and control of the assets corresponding to the amount of Rs. 94,17,999. According to Shri Dave the disclosure to the above extent was, however, not voluntary as it was made consequent to the incriminating documents in the form of loose papers found and seized in search. He, therefore, submitted that the Commissioner (Appeals) was incorrect in holding that the disclosure to the extent above was voluntaryily. However, we do not find any basis for such an argument which is not forthcoming either in the penalty order or in the appellate order. Moreover, the basis explained by Shri Dave, ld. Depar....
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.... of such income.)" 17. It may be stated that prior to introduction of the aforesaid Explanation, an assessee who was found to be owner of any money, bullion, jewellery or other valuable article or thing, during the course of search, could escape the penalty under section 271(1)(c) if he would have included the value of such assets as income in the return submitted after the search by stating that such assets were acquired by him out of his income relating to such previous year for which no return was filed till the date of search but such an income was included in the first return filed after the search. Since no concealment took place when the return of income was filed for the first time relating to the search, the assessee could escape levy of penalty. Explanation 5 was introduced to curb the above loophole. It contains a deeming provision and the only exceptions to such it deeming provision are given in sub-clauses (1) and (2) of clause (b) of Explanation 5. The case of the assessee has all along been that his case is covered by the aforesaid sub-clauses providing for immunity from levy of penalty under section 271(1)(c). The conditions precedent for availing the immunity un....
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....re of the considered view that the condition at (i) above stands fulfilled. Coming to the condition at (ii) above - Question No. 3 and reply thereto in the statement under section 132(4) recorded on 12-9-1988 is relevant. The question which was put to the assessee was to state how the confessed income of Rs. 1 crore of his and his family members has been earned. The reply of the assessee was that 'this is income of business done by the members in their proprietary concern for which no books are kept in the calender year as well as income from other sources'. No further query was raised by the authorised officer to ascertain the manner in which the income of Rs. 1 crore was derived. If that be so, can it be expected of the assessee o suo motu make further statements with regard to the manner in which income of Rs. 1 crore was derived. The obvious answer is in the negative. To put blame on the assessee later on for not specifying the manner in which income of Rs. 1 crore has been derived is totally unjustified: when the statement under section 132(4) was recorded in question and answer form. We, therefore, hold that the benefit of immunity from penalty cannot be denied to the assesse....