Income Tax Appellate Tribunal - Ahmedabad
Ashok Natvarlal Patel vs Assistant Commissioner Of Income Tax on 5 December, 1997
Equivalent citations: [1998]67ITD82(AHD)
ORDER
B.L. Chhibber, A.M.
1. The main grievance projected in this appeal by the assessee is that the CIT(A) is not justified in confirming penalty of Rs. 2,14,000 levied by the AO under s. 271(1)(c) of the IT Act.
2. The assessee is engaged in the proprietary business of polishing of diamonds at Surat. Search operations under s. 132 of the IT Act were conducted at the premises of the assessee on 8th July, 1987. During the course of search, the statement under s. 132(4) of the IT Act of Shri Ashok N. Patel was recorded at 4.00 a.m. in the early morning on 9th July, 1987. The relevant extract of the said statement recorded in Gujarati and duly translated in English have been annexed as part of the assessee's paper-book before this Tribunal on pp. 1 to 5. During the course of recording of statement of the assessee was asked various questions regarding investments made by him and his family. With regard to a number of them, the assessee not being sure, had clarified that he would be required to verify the record. However, as per the assessee's version insistence of the income-tax officials and on being repeatedly asked and persuaded to avail of the benefit of the immunity from penalty as provided under Expln. 5 to s. 271(1)(c) of the IT Act, the assessee with a view to buy peace of mind and cooperate with the IT Department confirmed that he was prepared to pay income-tax and avail of the benefit of immunity from penalty and prosecution by disclosing various investments as having been acquired out of his undisclosed income. Subject to the actual verification in regard to the various investments, the assessee finally made disclosure of Rs. 4 lakhs in his statement under s. 132(4).
3. An order under s. 132(5) of the IT Act was passed by the AO on 6th November, 1987, estimating the concealed income at Rs. 3,59,309. A copy of the order under s. 132(5) is annexed at pp. 8 to 11 of the assessee's paper-book.
4. Based on the order under s. 132(5), the assessee filed his return of income showing the undisclosed income of Rs. 3,51,000 and also paid the amount of tax thereon. During the course of assessment proceedings, the AO confronted the assessee with the fact that since he had earlier disclosed Rs. 4 lakhs as his undisclosed income, he should stand by the said disclosure. As per the assessee's version, once again to buy peace of mind and to cooperate during the assessment proceedings, he agreed to the additional amount of Rs. 49,000. The assessee was also asked regarding the accumulation of waste and rejected diamonds of the value of Rs. 17,665 in respect of which he explained that this waste was accumulated over the period of last 8 years or so. During the course of polishing of diamonds, it is common to have such accumulated waste which were lying with him for a long time. However, since it was not possible to have any documentary evidence for the same the assessee agreed to the proposal of the AO for addition of the same amount to his total income for asst. yr. 1988-89 (the year of search) with a view to buy peace of mind and bringing an end to any possible dispute in the matter.
5. The AO initiated penalty proceedings under s. 271(1)(c) of the IT Act for concealment of income in respect of the entire amount of an addition of Rs. 4,17,665 as referred to hereinabove. In reply to the show-cause notice for penalty, it was vehemently contended by the assessee that the amount of Rs. 3,15,000 had already been offered under the IT return and in respect of which the tax was duly paid along with the filing of the return. It was further explained that the amount of disclosure of Rs. 4 lakhs under s. 132(4) was made on approximate basis, subject to verification of various investments and further-more to buy peace of mind and cooperate with the Department. The learned AO was not satisfied with the explanation furnished and imposed the penalty on the entire amount of Rs. 4,17,665, imposing a total penalty of Rs. 2,14,000. It is pertinent to note that as is evident from the last line of para 4 of the penalty order under s. 271(1)(c), although the AO had initiated at one point of time to levy penalty only with regard to the amount of shortfall of disclosure (i.e., Rs. 4 lakhs - Rs. 3,51,000 = Rs. 49,000) he changed his mind and struck off the portion "so far as this shortfall of disclosure is concerned". The AO in para 6 of his penalty order has further observed that the assessee had not fulfilled the condition governing the immunity from penalty and prosecution under Expln. 5 to s. 271(1)(c) of the Act, since the assessee had not made a true and full disclosure of his income.
6. On appeal the learned CIT(A) confirmed that the penalty in toto observing as under :
"I have considered the facts and the appellant's submissions. It is relevant to note that the AO has highlighted the fact that vide his statement under s. 132(4), the appellant had disclosed the sum of Rs. 4 lakhs whereas the appellant had offered the sum of Rs. 3,51,000 only for taxation in his return of income. As mentioned in the impugned order, the immunity contemplated by Expln. 5 is available only if the assessee pays the tax together with interest if any in respect of the income disclosed under s. 132(4). However, as has been highlighted by the AO, the appellant did not offer the relevant sum of Rs. 49,000 for taxation in his return of income, and did not pay the tax on the said sum of Rs. 49,000 as required by Expln. 5 to s. 271(1)(c). The AO has also mentioned that the appellant agreed to the addition of Rs. 49,000 only during the assessment proceedings. Considering the facts discussed in detail by the AO, it is held that the appellant has not fulfilled the conditions necessary for the grant of immunity stipulated in Expln. 5 to s. 271(1)(c). In the circumstances, it is held that the appellant is not entitled to the immunity mentioned in Expln. 5 to s. 271(1)(c). Considering the totality of the facts discussed in the impugned penalty order, it is held that the appellant has concealed the particulars of his income and has also furnished inaccurate particulars of income. Accordingly, it is held that it is a fit case for the imposition of penalty under s. 271(1)(c). Therefore, the impugned penalty order stands confirmed."
7. Shri Mukesh M. Patel, the learned counsel for the assessee submitted that there is no justification for the impugned penalty. Sub-cl. (2) of Expln. 5 to s. 271(1)(c) of the IT Act provides that where an assessee during the course of search makes a statement under s. 132(4), that any money, bullion, jewellery or other valuable article or thing found in his possession or under his control has been acquired out of his undisclosed income and he pays tax together with interest, if any, in respect of such income, he shall be entitled to claim immunity from penalty under s. 271(1)(c). According to the learned counsel it is important to note that it is nowhere provided under the above provision that the assessee must make "a full and true disclosure of income" as has been sought to be argued under para 6 of the penalty order passed by the AO. It is also pertinent to note that there is no 'due date' prescribed under the above provision for payment of tax and interest as sought to be argued by the learned AO under para 4 of his penalty order. The learned counsel, therefore, submitted that under these circumstances, there was no justification on the part of the AO to have held that the assessee was not entitled to immunity under Expln. 5 to s. 271(1)(c) on the facts of the present case. The learned counsel drew our attention to the details of investments as were recorded in the statement under s. 132(4) and in respect of which penalty proceedings were sought to be initiated and submitted that the entire amount of those investments, in fact did not pertain to asst. yr. 1988-89 and as such the assessee was under no obligation to even pay tax on these amounts during the year of search, viz., 1988-89 he drew our attention to the summarised position in this regard which is duly verifiable from the answer to question No. 11 as appearing on p. 3 of the paper-book and further as per the inventory of investment found during the course of search as appearing on pp. 6 and 7 of the assessee's paper-book which has again been reproduced on p. 19 of the paper-book in the form of a chart. According to the learned counsel from the said chart, it is clear that the amount of investments strictly falling within the year of search are less than Rs. 3 lakhs and as such the appellant already having offered Rs. 3,15,000 under the return of income for asst. yr. 1988-89 there was no question of any concealment of income or furnishing of inaccurate particulars of income so as to draw the conclusion that the assessee had committed any default within the meaning of s. 271(1)(c) of the IT Act for asst. yr. 1988-89. The learned counsel summed up his arguments stating that the learned CIT(A) also confirmed the erroneous line of reasoning sought to be drawn by the learned ITO in a mechanical way.
8. Shri Ramesh Chander, the learned Departmental Representative strongly supported the orders of the authorities below. He submitted that though the assessee had made a disclosure of Rs. 4 lakhs but ultimately in the return of income he disclosed only a sum of Rs. 3,15,000 and paid tax thereon, the immunity as envisaged under Expln. 5 appended to s. 271(1)(c) would not be available to the assessee. According to the learned Departmental Representative the provisions of Expln. 5 appended to s. 271(1)(c) should be construed strictly and if so construed then the assessee ought to have disclosed in his return an amount of Rs. 4 lakhs plus Rs. 17,665 surrendered by the assessee during the course of assessment proceedings in respect of the value of accumulated waste of the diamonds. According to the learned Departmental Representative since the assessee had not made full and true disclosure in the return of income filed pursuant to his statement recorded under s. 132(4) the immunity was not available even in respect of the amount of Rs. 3,15,000 disclosed in the return of income on which the tax was admittedly paid by the assessee. He, therefore, prayed that the orders of the authorities be confirmed.
9. We have considered the rival submissions and perused the facts on record. The analogy drawn by the authorities below is that if the amount of assessed income works out higher than the income disclosed under s. 132(4) or the income disclosed in the return under s. 139 is lower than the amount of income disclosed under s. 132(4), then in either case, no immunity from penalty under s. 271(1)(c) is at all available to the assessee. This analogy, in our considered opinion, lacks procedural propriety, factual accuracy and legal authenticity. As pointed out hereinbefore, on the facts of the present case, out of the income of Rs. 4,17,665 treated by the ITO as income concealed for asst. yr. 1988-89 the income which specifically relates or pertains to asst. yr. 1988-89 is less than Rs. 3 lakhs. The remaining income, in the nature of cash deposits in bank during the earlier years, NSC and FD investments also made during the earlier years and certain other investments which clearly do not pertain to asst. yr. 1988-89, were offered to tax only with a view to buy peace of mind. In this context penalty cannot be levied under s. 271(1)(c), merely on the ground that the income was offered during the course of the assessment proceedings for tax. As held by the Hon'ble Supreme Court in Sir Shadilal Sugar Mills Ltd. vs. CIT (1987) 168 ITR 705 (SC) that "there may be hundred and one reasons for such admission and merely from agreeing to additions, it does not follow that the amount agreed to be added was concealed income". It is quite apparent and clear that the income pertaining to this year was much less than the income of Rs. 3,15,000 disclosed in the IT return and merely because the assessee agreed finally to the addition to the extent of Rs. 4,17,665 no penalty under s. 271(1)(c) could be automatically attracted as has been sought to be done in the present case.
10. The important legal issue that needs to be considered in all such situations, is, where the Revenue has invited disclosure of income assuring immunity to an assessee under Expln. 5 to s. 271(1)(c) while recording his statement under s. 132(4), during the course of search, whether it would be fair, just and equitable on the part of the Department to turn around and back track at a later stage and impose penalty under s. 271(1)(c) on such flimsy grounds as 'full and true disclosure not having been made' or 'tax and interest not having been paid within the due date' ? In Taiyabji Lukmanji vs. CIT (1981) 131 ITR 643 (Guj), the assessee had filed revised return to avoid the consequence of discovery in response to advertisement of the CBDT in the newspaper. The High Court while quashing the penalty under s. 271(1)(c) observed as under :
"Whether or not it amounted to promissory estoppel and create a legal right apart, the question was required to be examined from the standpoint of the credibility of the Department. It would cause greater harm to the Department itself if assessees, who responded to its appeal and desire to clean so themselves of past sins are deterred from doing so."
In Bombay Cloth Syndicate vs. CIT (1995) 214 ITR 210 (Bom), on a similar issue as in the above case of Taiyabji Lukmanji after referring to the said Gujarat High Court decision the Hon'ble Bombay High Court held as under :
"The reliability of the Department is more important than some revenue here and there even from the larger and long-term point of view of tax collection. The promise was clear, it had to be kept and hence, it was not open to the IAC to impose penalty under the circumstances."
11. As is evident from the extract of statement recorded under s. 132(4) forming part of the assessee's paper-book at pp. 1 to 5 the assessee was clearly persuaded and encouraged by the search party to avail of benefit of immunity of penalty under Expln. 5 to s. 271(1)(c). This is evident from the questions-answers Nos. 5, 6, 7 and 12 of the statement recorded at 4.00 a.m. on 9th July, 1987, and question answer No. 6 of the statement recorded on 21st July, 1987. The said questions-answers clearly pointed out that the assessee was virtually given a tacit assurance of immunity from penalty for his having made the disclosure during search and the Revenue cannot be allowed to approbate and reprobate at a later stage that while the disclosure is binding on the assessee, he would still not be entitled to immunity. In our view the entire issue needs to be looked from the standpoint of Revenue's credibility and reliability in the minds of the assessee at large as pointed out by both the Gujarat and the Bombay High Courts in their judgments referred to supra.
12. In the light of the above discussion and in the totality of facts and circumstances of the case as well as in law we hold that there is no justification for the impugned penalty. The same is accordingly deleted.
13. In the result, the appeal is allowed.