Income Tax Appellate Tribunal - Allahabad
Gian Chand Bhatia vs Deputy Commissioner Of Income-Tax on 28 November, 1996
Equivalent citations: [1997]61ITD24(ALL)
ORDER
R.D. Agrawala, Judicial Member
1. This second appeal by the assessee challenges the levy of a penalty in a sum of Rs. 5,00,000 under section 271(1)(c) of the Income-tax Act, 1961 (hereinafter referred to as the 'Act' for brief) in respect of the assessment year 1988-89.
2. Facts to be stated shortly and as are relevant for the proper adjudication of the present dispute are these :
3. The premises of the assessee were subjected to search on 11-8-1987. Same day a statement under sub-section (4) of section 132 of the Act was recorded, copy of which is available at pages 1 to 3 of the assessee's paper-book. Relevant part of this statement which has a direct bearing on the exigibility of penalty when translated in English runs as under :
Going through the papers found out during the search I am disclosing the following incomes :-
Rs. 6,50,000 Six Lakhs Fifty thousand in the form of F.D.R./IVP
and not shown as income in the books.
Rs. 1,50,000 in the form of investment in jewellery account.
Rs. 1,25,000 in the form of house investment account.
I am surrendering this amount of Rs. 9,25,000 in the form of undisclosed and unaccounted income of investment and am willing to pay tax thereon voluntarily. I am making this surrender with the understanding that I would get absolved of the liability to pay interest, penalty and prosecution in respect of this income.
4. Reference may thereafter be made to the order rendered by the learned IAC (Assessment), Range-I, Kanpur, under sub-section (5) of section 132 of the Act, copy available at pages 4 to 14 of the paper-book which in its body at para 8 specifically accepts the good faith of the assessee in the following manner :-
"8. At the time of search, the assessee has made a disclosure of his income, hitherto undisclosed, in good faith in order to get immunity from penalty. The statement of the assessee Shri Gyan Chand Bhatia recorded under section 132(4) on 11-8-1987, disclosed the following income :
Value
(i) In respect of F.D. Rs. Indira Vikas Patra which are not in the books of account Rs. 6,50,000
(ii) Investment in jewellery Rs. 1,50,000
(iii) Investment in house Rs. 1,25,000
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Rs. 9,25,000"
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5. Further the assessee also invited our attention to a communication dated 12-2-1991 addressed to the Dy. Commissioner of Income-tax, Special Range-1, Kanpur, copy available at page 20 of the paper-book, after giving the short history of the surrender wherein it was requested that the amount of Rs. 9,25,000 surrendered by him "may please be added in the assessment for the above year and no penal action should be taken against me". In view of the stress laid down by the learned counsel for the assessee it may be stated that the assessee vide this letter also reminded the Ld. D.C. (Assessment), about the "surrender covering all matters in agreement of the then Assessing Officer and final settlement of search proceedings", which facts were reiterated in another communication dated 14-3-1991, addressed to the Dy. Commissioner of Income-tax, Special Range-I, copy available at pages 21 to 26 of the paper-book. Eventually, the assessment was completed on the 18-3-1991, wherein the surrender amount was included in the following manner :-
"The assessee, therefore, vide order-sheet entry dated 5-2-1991 was required to explain why the entire amount offered as additional income i.e., Rs. 9,25,000 should not be added in assessment year 1988-89. The assessee filed its reply dated 14-3-1991 wherein the assessee has claimed bifurcation of the amount of Rs. 9,25,000 either in assessment years 1985-86 and 1986-87 or in assessment year 1988-89 during which disclosure was actually made and requested that no penal action be taken.
Since the disclosure dated, i.e., 11-8-1987 falls relevant to assessment year 1988-89 entire offered amount of Rs. 9,25,000 is, therefore, added in the income for assessment year 1988-89."
6. The matter rested there as for obvious reasons the question of any agitation by the assessee did not arise, he himself already having agreed to the said addition in terms of his initial statement dated 11-8-1987, referred to supra.
7. However, penalty proceedings were initiated under clause (c) of sub-section (1) of section 271 of the Act, by the Assessing Officer who in his brief order levied penalty of Rs. 5,00,000 in the following manner :-
"Notice under section 271(1)(c) read with section 274 was issued on 18-3-1991 in response to this notice the assessee has replied that in light of disclosure under section 132(4) penalty should not be levied. The claim of assessee is acceptable only to the extent of assets described above which total up to Rs. 4,31,000. Regarding remaining amount of Rs. 4,94,000 there is no corresponding assets. Assessee has not paid taxes on the amount disclosed which is one of the condition before assessee is not treated to be assessee in default. Due to non-payment of taxes, the case of assessee goes beyond the purview of exemption as per Explanation 5 to section 271(1)(c). Accordingly, penalty under section 271(1)(c) is being levied as under :-
(a) Income deemed to be concealed Rs. 9,25,000 (b) Tax thereon Rs. (c) Minimum penalty leviable Rs. (d) Maximum penalty leviable Rs.
Therefore, an amount of Rs. 5,00,000 is levied as penalty under section 271(1)(c). Issue notice of demand and challan."
8. These observations of the Assessing Officer although appear to accord an impression that he had also something else in his mind while imposing penalty, but evident as it is, the substantial basis which rested with him in levying penalty is only the non-payment of tax which violated the requisite conditions and took the case out of the purview of Explanation 5 to section 271(1)(c) of the Act.
9. Aggrieved, the assessee filed an appeal which was disposed of by the learned CIT (Appeals) vide his order dated 7-7-1992, impugned before us.
10. It is interesting to point out that the Ld. CIT (Appeals) did not agree with the basis that prevailed with the Assessing Officer in imposing the penalty as is evident from para 4 of his order being reproduced below :-
"4. The second argument of the applicant for knocking down penalty under section 271(1)(c) is that the surrender was made with the condition that no penalty for concealment be levied. In this regard, it was pleaded that the commitment should have been honoured by the department particularly in view of the fact that the appellant had surrendered the amount to buy mental peace and to avoid unnecessary litigation. Attention was also drawn to the finding of the Assessing Officer that Explanation 5 of section 271 was not applicable to the entire disclosure as only the assets amounting to Rs. 4,31,000 could be relatable to assets found during the course of search. It was pointed out that the word 'things' was used in the Explanation and that this word could not only cover money, bullion, jewellery but all other assets. I am in agreement with the first argument of the appellant that the taxes were paid in relation to disclosure of Rs. 9,25,000. The assets seized and retained under section 132(5) of the IT Act, 1961 were sufficient to meet the tax demanded. The second ground of the appellant however defies acceptance in the light of the fact that a disclosure was made on 11-8-1987. This disclosure was not reflected in the return of income filed on 4-8-1989. In this ground it must be mentioned that disclosure was not reflected in any return filed by appellant subsequent to the statement recorded under section 132(4) wherein surrender of Rs. 9,25,000 had been made. The return for assessment year 1988-89, i.e., year under appeal as already stated bears no mention of the disclosure. The sum of Rs. 9,25,000 was, therefore, concealed by the appellant. The conduct of not disclosing the sum of Rs. 9,25,000 in the return of income obliterates the disclosure made at the time of search. In effect the appellant by filing such return of income has retracted from the disclosure at the time of search. In such a situation it does not behave the appellant to make a plea that the surrender was made with the understanding that no penalty would be levied. In fact, the appellant based on the foregoing conduct, lost the benefit which might have been available in terms of section 271(1)(c). The assessment whereby a sum of Rs. 9,25,000 was added to the income of the appellant has not been contested in further appeal. This amount so added to the total income of the appellant is deemed to represent the income in respect of which particulars have been concealed in view of the fact that the explanation offered has not been substantiated. The explanation offered was in the letter of the appellant dated 14-3-1991. In that letter it had been stated that Rs. 9,25,000 covers the closing balances of loans and credits which he was not in a position to get verified. Explanation 1 to section 271 clearly applies to the facts relating to the appellant and, therefore, the penalty of Rs. 5,00,000 as levied by the Assessing Officer is confirmed. The computation of penalty is as under :-
Income deemed to have been concealed Rs. 9,25,000 Tax thereon Rs. 4,63,838 Minimum penalty Rs. 4,63,838 Maximum penalty Rs. 9,27,676."
11. Thus, although he agreed with the assessee's plea that the taxes were paid by him in relation to disclosure of Rs. 9,25,000, in his opinion, penalty was leviable in view of Explanation 1 to section 271 of the Act, as the disclosure made by the assessee was not reflected in any return filed by him subsequent to his statement under sub-section (4) of section 132 of the Act.
12. Opposing strenuously the sustaining of penalty by the learned CIT (Appeals), learned counsel for the assessee made two-fold submissions. Firstly, that in law the levy of penalty is solely dependent upon the "satisfaction" of the Assessing Officer (unless penalty initiated during first appeal) and none else. That the Assessing Officer as was clearly demonstrable had imposed penalty on the ground that taxes had not been paid by the assessee. That this finding of the Assessing Officer became otiose as the same was reversed by the learned CIT (Appeals), who in unambiguous terms accepted the assessee's stand that taxes in relation to the disclosure of Rs. 9,25,000 had been paid by the assessee [refer to the extracted portion of the CIT (Appeals) order]. The second limb of the assessee's submission before us has been that even if he did not succeed on the first preliminary objection about the disappearance of the basis on which the penalty has been imposed, the reason assigned by the learned CIT (Appeals) also did not had any legal legs to stand. Elaborating, it was contended that the income, i.e., the amount of Rs. 9,25,000 stood fully disclosed from various documents starting from the assessee's statement under section 132(4) and his two petitions dated 12-2-1991 and 14-3-1991 referred to supra. A reference of another petition dated 15-4-1991, copy available at page 27, which was addressed to the learned Dy. Commissioner of Income-tax, Range-I, Kanpur, was also made. It was vehemently urged that the amount of Rs. 9,25,000 surrendered by the assessee in a most categorical manner without any retraction by him at any point of time what to say of a direct or indirect manner, not even remotely or distinctly on which the department eventually assessed him, the assessee could not be levied with the charge of non-disclosure or even half-hearted disclosure of tax relating to the concealed income of Rs. 9,25,000 muchless held guilty of concealment itself.
13. Opposing the learned D.R. placing reliance on the view taken by the learned CIT (Appeals), contended that the penalty was imposable and prayed that the appeal be dismissed.
14. We have gone through the entire gamut of evidence and material to which our attention was invited and have taken into consideration the submissions made by either side.
15. Facts of the case as have emerged out perhaps do not admit of any quarrel or dispute. The assessee made surrender of Rs. 9,25,000 composed by various items as indicated in his statement recorded under sub-section (4) of section 132 of the Act and thereafter in various communications, three of which have been referred to above by us, namely, dated 12-2-1991, 14-3-1991 and 15-4-1991, copies available at pages 20-27 of the paper-book reiterated again and again the factum of disclosure of Rs. 9,25,000 by him on 11-8-1987, the day of search itself, incidentally adding about the understanding that no penalty would be levied on such disclosure. Penalty was, however, imposed. Further also there is absolutely no room for any doubt that the learned Assessing Officer imposed a penalty on the ground that the assessee did not pay taxes on the amount disclosed which was one of the conditions to enable the assessee for not being treated in default. This stand of the department lost its shine during first appeal, as the Ld. CIT (Appeals) categorically held that he agreed with the first submission of the assessee "that taxes were paid in relation to disclosure of Rs. 9,25,000". Incidentally, this finding by the learned CIT (Appeals) does not constitute his ipse dixit nor was it a non-sequitor as it was suffixed by a sentence which says that the assets seized and detained under section 132(5) of the Income-tax Act, 1961 were sufficient to meet the tax demand. It is also pertinent to point out that this finding recorded by the first appellate authority became final, the same not having been challenged by the department either in a cross-appeal or cross-objection. Therefore, without going into the merits of the aspect of the matter, we stop at that. Thus, there is sufficient force in the stand taken by the assessee that the learned CIT (Appeals) sustained the penalty only after changing the basis on which the penalty was imposed by the Assessing Officer and by carving out a new ground. In this connection, reference may be made firstly to the provision of clause (b) of sub-section (1) of section 251 as per which during first appeal against an order imposing a penalty the appellate authority may confirm or cancel such order or vary it so as either to enhance or to reduce the penalty. It is also important to point out that this power compared to the other powers conferred on a first appellate authority as enumerated in clauses (a) and (c) of the same provision in respect of an appeal against the order of assessment or in residual matters is not as wide as in the remaining two clauses and is restricted to either confirm or cancel a penalty order or vary it so as either to enhance or reduce the penalty. In this connection, reference may be made to a decision of the Summit Court in the case of D.M. Manasvi v. CIT [1972] 86 ITR 557 (SC) which also speaks about the satisfaction of the Assessing Officer in imposing a penalty. On the same subject, reliance was placed on a decision of High Court of Gauhati in the case of Padmaram Bharali v. CIT [1977] 110 ITR 54, wherein on the facts and in the circumstances of the case it was held that the penalty having been initiated by the Assessing Officer for concealment of particulars, the Appellate Tribunal could not uphold it on the ground that the assessee would be deemed to have concealed the particulars of income or to have furnished inaccurate particulars of such income. While we are, therefore, largely with the assessee that the basis of the imposition of penalty could not have been changed by the learned CIT (Appeals) in whose opinion, the Assessing Officer was not correct in saying that the assessee had not paid the taxes and who imposed the penalty on different count, namely, that the assessee had not disclosed the amount of Rs. 9,25,000 we would not hesitate in allowing this appeal even on the count on which the penalty was imposed by the learned CIT (Appeals). Our reasons for saying so are these :
16. In the first instance, the assessee clearly stated in his statement under section 132(4) on the day of search itself that he was making a surrender of Rs. 9,25,000. This fact was also acknowledged by the Assessing Officer as is evident from his order under section 132(5), wherein he rather complimented the assessee and stated that he made a disclosure of his income, hitherto undisclosed in good faith in order to get immunity from penalty. Things did not come to an end here. In his petitions dated 12-2-1991, 14-3-1991 and 15-4-1991, the assessee unequivocally reiterated that he made a disclosure of Rs. 9,25,000 on 11-8-1987. Incidentally, there are also certain other petitions (copies in the paper-book of the assessee, such as a petition dated 15-3-1988 at page 19). It was only as a result of the stand taken by the assessee that vide order dated 18-3-1991, he was assessed and the assessment included an amount of Rs. 9,25,000. Incidentally, the assessment also speaks for itself inasmuch as at internal page 2 thereof it details out the complete narration in respect of the surrender reproduced in paragraph 5 hereinbefore. Similarly, in the computation part of the assessment at Item No. 3 the assessment order finds the following recording :-
"3. Amount of disclosure made on 11-8-1987 in terms of section 132(4) as discussed above. Rs. 9,25,000 Gross total income Rs. 5,92,336"
17. Thus, there does not remain any doubt in the assessee's plea that right from the very beginning till the end he made disclosure of Rs. 9,25,000. It is, therefore, not possible for us to legally agree with the Ld. CIT (Appeals) that "in effect the appellant by filing such return of income has retracted from the disclosure at the time of search". The document referred to supra, and the assessment eventually made totally belie the view taken by the Ld. CIT (Appeals). In fact, the background of the addition of Rs. 9,25,000 as is demonstrated above is nothing else than the categorical disclosure and that too persistently made by the assessee before the revenue authorities. In this connection, however, reference may be made to a decision of the Jurisdictional High Court in the case of Mohd. Ibrahim Azimulla v. CIT[1981] 131 ITR 680 (All.), which also helps the assessee inasmuch as even if it could be stated literally that the assessee did not make any specific disclosure about Rs. 9,25,000 in his return it was due to want of care by him without the absence of any fraud or wilful neglect and such want of care would not make him guilty of concealment. In fact, it is quite difficult to say even about the absence of want of care by the assessee as he has been all along informing the department by written representations that he had made a disclosure of Rs. 9,25,000 on the day of search itself. Thus, every bit of conceivable information with regard to the amount of Rs. 9,25,000 was in the conscious knowledge of the department, which fact also assists the assessee as has been held by the High Court of Kerala in the case of CIT v. Pawan Kumar Dalmia [1987] 168 ITR 1/35 Taxman 136.
18. In the result, we are of the considered view that no penalty is imposable on the assessee. Penalty deleted.
19. Appeal allowed.