Income Tax Appellate Tribunal - Jaipur
G.B.H. Exporters vs Assistant Commissioner Of Income-Tax on 27 March, 1996
Equivalent citations: [1996]58ITD499(JP)
ORDER
Shri Pradeep Parikh, Accountant Member
1. This appeal by the assessee is directed against the order of the ld. CIT(A) dated 10-5-1991 for assessment year 1988-89. The appeal relates to the imposition of penalty of Rs. 1,68,000 under section 271(1)(c) of the Income-tax Act, 1961 (the Act).
2. In this case search operations were carried out on 22-9-1987 at the business premises of the firm and at the residential premises of the partners. Return declaring an income of Rs. 6,50,000 was filed on 28-2-1989. This return was not accompanied by Trading and Profit & Loss Account and Balance Sheet and the income was returned on estimate basis. Subsequently a revised return was filed on 30-11-1989 declaring an basis. Subsequently a revised return was filed on 30-11-1989 declaring an income of Rs. 7,23,960. This return was accompanied by the annual accounts of the firm. In the opinion of the Assessing Officer the search was concluded on 28-9-1987 and that as per the statement of one of the partners Sh. Gopaldas Sonkhia, the stocks of precious and semi-precious stones found at the time of search was not in excess of that recorded in the books. Also, in the opinion of the Assessing Officer, there was separate search in the personal case of Shri Gopaldas. This search got concluded on 14-10-1987 when locker No. 1006 in his name at SMS Highway Branch of S.B.B.J. was opened. Statement of Shri Gopaldas was recorded on 14-10-1987 in which he surrendered Rs. 40,000 as his personal income and also Rs. 3,20,000 as the income of the assessee-firm. This sum of Rs. 3,20,000 was accepted as excess stock found. The assessment was finalised on 15-3-1990 at Rs. 7,36,100 which included this sum of Rs. 3,20,000. Penalty proceedings were initiated under section 271(1)(c) and a show-cause notice was issued to the assessee in this respect. The plea of the assessee was that since Shri Gopaldas had made the surrender in his statement under section 132(4) in his capacity as a partner of the firm during the course of the search, the assessee was entitled to the immunity given under Explanation 5 of section 271(1)(c) and hence no penalty was leviable. The Assessing Officer rejected this contention of the assessee on the ground that the search in the case of the firm had concluded on 28-9-1987 whereas Shri Gopaldas' surrender of Rs. 3,20,000 on behalf of the firm came much later on 14-10-1987 when his personal locker was opened. Hence the assessee was not entitled to the immunity granted under Explanation 5. Accordingly the Assessing Officer levied a penalty of Rs. 1,68,000.
3. The ld. CIT(A) confirmed the views expressed by the Assessing Officer and hence sustained the penalty so levied.
4. Shri N.M. Ranka, the ld. counsel for the assessee, took us through the chronology of the events commencing from the date of search on 22-9-1987. Shri Gopaldas was the main partner of the the firm. The caption of all the three statements of Shri Gopaldas recorded on 23-3-1987, 28-9-1987 and 14-10-1987 showed that the said statements were recorded in his capacity as partner of the assessee-firm and that they were not in his personal capacity. The search was essentially on the firm and as stocks belonging to the firm were found at the residential premises of Shri Gopaldas, the search party obviously had to open the locker of Shri Gopaldas. The opening of the locker was, therefore, nothing but a continuation of the search which had commenced on 22-9-1987. The time lag between the search at the business and residential premises and the search of locker was also quite proximate to suggest so. However, since it involved a third party, that is the bank, a separate warrant of authorisation in the name of Shri Gopaldas was necessary. Considering these aspects a gap of about 16 to 17 days was not much so as to suggest that the opening of the locker was altogether separate and independent of the search which had commenced on 22-9-1987. Therefore, the statement of Shri Gopaldas recorded on 14-10-1987, that is on the date of opening of the locker, in the course of which he surrendered Rs. 3,20,000, was in the course of search which took place on 22-2-1987. It was further argued by Shri Ranka that too narrow and technical meaning should not be ascribed to the provisions of Explanation 5. Its purpose has to be looked at objectively. In this context, the meaning of the phrase "In the course of search" has to be given the widest possible meaning.
5. Shri Ranka then drew our attention to the reply given by Shri Gopaldas to the last question in the statement recorded on 23-9-1987 which was concluded on 25-9-1987. By the said question, the authorised officer explained the provisions of section 271(1)(c) read with Explanation 5 and enquired if he wished to say anything about it. The reply of Shri. Gopaldas was that since the search at his residence is still on and as soon as the valuation of stocks found there is done, he will make the decision. The same question was put to him on 14-10-1987 after the locker was opened. In response to this, Shri Gopaldas declared Rs.40,000 as his personal income, gave reference of the previous reply by which he had deferred the decision as mentioned above and then surrendered Rs. 3,20,000 as undisclosed income of the firm. Thus the contention of Shri Ranka was that the income of Rs. 3,20,000 was declared in the course of search with a view to buy peace and hence no penalty was leviable.
6. Our attention was drawn to the prohibitory order under section 132(3) made during the search. The said order was lifted only on furnishing of bank guarantee which was after 14-10-1987. It was submitted that anything done till then is deemed to have been done in the course of search only.
7. Finally, it was submitted that there was no positive proof that Rs. 3,20,000 was the real income of the year in question and that the conduct of the partners was neither fraudulent nor contumacious in any way and hence the penalty of Rs. 1,68,000 was bad in law and should be cancelled.
8. Shri G.C. Bansal, the ld. D.R., meeting the various arguments of Shri Ranka firstly stated that the words "... partner of..." appearing in the captions of the various statements, and particularly in the statement recorded on 14-10-1987, did not necessarily mean that the statements of Sh. Gopaldas were recorded in his capacity as partner of the firm. The said description in the caption was given not solely to indicate that the statement is being recorded in his capacity as partner. It was more for identification purposes that anything else. Next, Shri Bansal drew our attention to the specific question regarding locker put to Shri Gopaldas during the recording of the first statement on 23-9-1987. The said question and the reply, as translated by us from Hindi, are to the following effect :
Q. 8 : Kindly tell us whether your firm has any locker in its name, or whether, you or any of the partners possess any locker in your respective names?
Ans. : There is no locker in the name of the firm. I, jointly with my wife, have a locker with S.B.B.J., Chaura Rasta. I do not have any information with regard to the lockers of other partners. The key of my locker has been handed over to your officers during the search of my residential premises yesterday. Right now I cannot recollect the locker number. The name of my wife is Smt. Vimladevi Sonkhia.
9. Then our attention was drawn to the last question, i.e., question No. 29 of the said statement. By that question Shri Gopaldas was explained the provisions of section 271(1)(c), Explanation 5 thereto and whether he would like to avail of the immunity by declaring any income under section 132(4). To this, Sh. Gopaldas replied that :
"Some stocks belonging to the firm is kept at my residence which has already been stated by me earlier and the search is still on at the residence. I will take this decision as soon as the valuation of this stock is over."
10. From the above two replies, Shri Bansal submitted, the assessee had foregone the opportunity made available to it. More so, he further submitted, because ultimately on 14-10-1987 when Shri Gopaldas made the declaration, by that time the search operation in case of the firm was over. To substantiate this, our attention was drawn to column 4 of the various Panchnamas. Column 4 reads as under :
"The search could not be complete today and the Authorised Officer/Officers.... sealed the following place :
................................................................"
11. In Panchnama dated 28-9-1987, the above column was scored off, indicating thereby that the search was finally concluded on 28-9-1987. Therefore, Shri Bansal went on, the search of the locker on 14-10-1987 was an independent search on Shri Gopaldas himself. In support of this, Shri Bansal submitted that a separate Warrant of Authorisation dated 13-10-1987 was issued in the name of Shri Gopaldas, a copy of which is placed on record. The locker was opened on 14-10-1987 and on the same day the statement was recorded in the course of which Shri Gopaldas declared an undisclosed income of Rs. 3,20,000 on behalf of the firm. But since the search on the firm had already been completed on 28-9-1987, this declaration on 14-10-1987 could not be said to be in the course of search on the firm and hence the assessee was not entitled to the benefit of Explanation 5 to section 271(1)(c).
12. We have intently heard the parties. We have given our due consideration to the rival submissions and to the material placed before us.
13. The assessee has claimed immunity under Explanation 5 of section 271(1)(c) from the penalty levied. Hence, it would be proper to first examine the nature of immunity available. The immunity has been claimed by virtue of assessee's statement under section 132(4). The provisions of section 132 shall, therefore, be examined next. And then, as per the scheme of the Act, we shall examine whether the facts and circumstances of the case before us permits immunity or not, keeping in mind the legislative intent.
14. The relevant portion of the provisions Explanation 5 at the relevant time stood as follows :
"Explanation 5 - Where in the curse of a search under section 132, the assessee is found to be the owner of any money, bullion, jewellery or other valuable article or thing (hereafter in this Explanation referred to as assets) and the assessee claims that such assets have been acquired by him by utilising (wholly or in part) his income, -
(a)......................
(b) for any previous year which is to end on or after the date of the search, then, notwithstanding that such income is declared by him in any return of income furnished on or after the date of the search, he shall, for the purposes of imposition of a penalty under clause (c) of sub-section (1) of this section, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income, unless -
(1).................................
(2) he in the course of search, makes a statement under sub-section (4) of section 132 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 income which has not been disclosed so far in his return of income to be furnished before the expiry of time specified in clause (a) or clause (b) of sub-section (1) of section 139, and also specifies in the statement the manner in which such income has been derived and pays the tax, together with interest, if any, in respect of such income."
15. It has to be observed that in the above provision, clause (2) was added by The Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986 with effect from 10-9-1986. The scope of this amendment was clarified by Board in its Circular No. 469 dated 23-9-1986, 162 ITR St. 36, as follows :
"As per the existing Explanation 5 to section 271(1) of the Income-tax Act, if at the time of search, assets which are not recorded in the books of account are found, a taxpayer is liable to penalty for concealment even if he declares the full value of these assets as his income in the return filed after the search. This provision has been found to operate even in case where the assessee has no intention to fabricate any evidence and he includes in his return the income out of which such 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 the 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 specified in the statement in the manner in which such income has been derived and pays the taxes that are due thereon, no penalty shall be leviable."
16. Amongst the various conditions mentioned in clause (e) above, one important condition is that the assessee must make a statement during the course of the search. It is this condition, the fulfilment of which is in dispute before us. The rest are not disputed and hence we now proceed to examine the provisions of section 132.
17. Part C of Chapter XIII of the Act gives various powers to different authorities to carry out the purposes of the Act. These are from sections 131 to 139. Out of these provisions, section 132 holds a unique position in Part C. It relates to search and seizure. The foremost thing to be noted that though this provision is a serious invasion of the rights of the citizens, it has been held to be a procedural provision.
18. The process of the application of section 132 sets in motion with the existence of some information. This information forms the basis to frame a belief that unaccounted money can be found. On framing the belief, search warrants are issued, specifying therein the name of the person and the place to be searched, and the search commences.
19. Now broadly speaking, the Courts have held the object of this special provision to be two-fold, viz., (a) to get hold of the evidence which the said person is withholding from the tax authority; and (b) to get hold of the assets representing income believed to be undisclosed in come and applying them as may be necessary in the discharge of the existing and anticipated tax liability of the person concerned. Thus this provision is not merely to gather information, but to unearth undisclosed income and property, bring it to assessment and seize money, bullion, etc. representing such undisclosed income, and retain them for realisation such undisclosed income, and retain them for realisation of taxes, penalties, etc. Sub-sections (1) to (4) of section 132 encompass all the above processes. As an obvious fall-out, the next provision, that is, sub-section (5) section 132 empowers the authority to summarily assess the income, determine the tax liability and decide upon the quantum of assets to be retained to meet the liability so determined. Under section 132(11), the person concerned has a right to object against the order under section 132(5) and under section 132(12), the CIT will deal with such objection after giving an opportunity of being heard.
20. From the above discussion, it is very clear that section 132 is a complete, comprehensive and self-contained code in itself. It has its own procedure for search, seizure, determination of the point in dispute, quantum to be retained and also the quantum of tax and interest on the undisclosed income. On account of this it has been held that the provisions of section 132 should be construed harmoniously in order to give effect to the intention of the Legislature to bring to tax undisclosed income or property. As a natural corollary, it has also been held that the provisions of section 132 should not be construed narrowly. It has been explained that the primary power conferred is the power of seizure. Therefore, the power to enter and search any building or break open the lock of any door, box, locker, safe, etc., is only an incidental power.
21. From the above, it follows that the words "in the course of search" appearing in clause (2) of Explanation 5 cannot be interpreted too technically and too narrowly, particularly when search by itself is an incidental power. Since the prime objective of section 132 is to summarily assess the undisclosed income, determine the tax liability thereon and retain the seized assets accordingly, it would be sufficient if the disclosure is made before the process under section 132(5) commences. The immediate previous step is search and seizure during which a person may be examined as provided for in section 132(4). That is why the Legislature, in its wisdom, incorporated clause (2) in Explanation 5, so that the person concerned may avail of an opportunity to confess before the authority may proceed to summarily assess the undisclosed income. In this sense, therefore, it would be too technical to say that "during the course of search" means only the physical search of the premises or the person.
22. In this connection, it would be worth recalling the submissions of the ld. D.R. It was submitted by him that in the Panchnama dated 28-9-1987, Col. 4 was struck off and hence the search in the case of the firm was finally concluded on 28-9-1987. However, the preliminary report of the search placed at page 20 of the paper-book of the department shows that the date of conclusions as 26-9-1987. Again, the second statement of Shri Gopaldas under section 132(4) commenced on 28-9-1987. Again, the second statement of Shri Gopaldas under section 132(4) commenced on 28-9-1987 and was concluded on 29-9-1987. In that case can't it be said that the search was concluded on 29-9-1987? Thus by narrowly interpreting the words "in the course of search" as suggested by the ld. D.R., one would be creating nothing short of disharmony in the self-contained code of section 132 and defeat the very purpose of the immunity given under Explanation 5. It has to be noted that it is difficult to ascertain as to at which point of time the search operation concluded, more so when there is a composite search at the business and residential premises. Is it when the physical searching of the place concludes, or is it when the Panchnama is concluded, or is it when the prohibitory order under section 132(2) is lifted, or is it the date as mentioned in the Preliminary Report? The physical search is merely what one can describe as search operation, which is but only a part of the entire search and seizure proceedings. Thus by assigning a little wider meaning to the words "in the course of search", one would be interpreting the provisions of section 132 in a harmonious manner. In our opinion, it would be sufficient if the person concerned declares his undisclosed income in the last of the series of statements. When there is a composite search, no distinction need be made as to which was the last statement for business and which was in personal capacity. This, in no way would give too much liberty to the person concerned as the Assessing Officer has to make the order under section 132(5) within 120 days of the seizure of the assets. It would also be fair that when there are simultaneous searches, the person would be in a better frame of mind to make true disclosure keeping in view the overall picture before him.
23. Coming to the facts of the case, the first statement of Shri Gopaldas was recorded on 23-9-1987, which continued up to 25-9-1987. On 25-9-1987 Sh. Gopaldas was asked as to whether he wishes to declare any undisclosed income on behalf of the firm and avail of the immunity. To this, Shri Gopaldas replied that he would decide about it after the valuation of the stocks found at his residence is over. Exactly at this point the first statement concluded. The officer recording the statement also did not mention anything. The second statement of Sh. Gopaldas was did not mention anything. The second statement of Sh. Gopaldas was recorded on 28-9-1987. By this time the valuation of entire stocks, both, found at the business premises as well as at his residential premises was over. This statement was concluded on 29-9-1987. The questions mainly pertained to the valuation aspects. In the course of this statement, neither Shri Gopaldas declared anything, nor did the authorised officer put him the question again or reminded him that he was to take the decision regarding declaration of undisclosed income later. The third statement of Shri Gopaldas was recorded on 14-10-1987, that is, on the day his locker was opened. In the course of recording this statement, he was put the question regarding the availing of immunity. In the reply, Shri Gopaldas declared Rs. 40,000 as his personal undisclosed income and Rs. 3,20,000 as the undisclosed income of the firm. It is this declaration of Rs. 3,20,000 the revenue is contending it to be after the search was over and hence no immunity has been granted.
24. At the time of the first statement when Gopaldas deferred his decision, it was not told to him as to whether he can do so or not. When the second statement was recorded on 28-9-1987, still nothing was mentioned to him. This has two effects. First, both the lower authorities have taken 28-9-1987, i.e., the date of recording the second statement as the conclusion of search, whereas the statement itself concluded on 29-9-1987. It is surprising that an event, the entire proceedings of which has a bearing on the issue, its commencement date is treated as the completion of search and not its conclusion. Second and as a result, Sh. Gopaldas was entitled to treat it as an extension of time given to him till the opening of the locker. This tangle of dates leads us to nowhere, but corroborates out view expressed earlier that in case of simultaneous searches on the business and residential premises, declaration made in the last of the series of statements would be within the spirit of the law. Ultimately, everything has to be segregated at the end of all simultaneous searches, as to what constitutes the undisclosed business income and what constitutes the undisclosed personal income. It would, therefore, be fair and proper to accept the disclosure in this case made by virtue of the statement dated 14-10-1987.
25. On merits also the penalty cannot survive. All along, the contention of the partner of the assessee-firm was that there was no excess stock. Whatever was the difference, it was on account of the difference in valuation. The assessee used to account the stocks in its books at cost whereas the valuation got done by the revenue was on the basis of market rates as on the various dated of search. From the various statements recorded, it is evident that it was on account of constant pestering that the assessee ultimately surrendered a sum of Rs. 3,20,000. Otherwise, the department has not been able to muster any material to show that the assessee had any undisclosed income. This is evident from the material on record. As per the departmental valuer the value arrived at was Rs. 15,80,331 whereas as per the books of the assessee it was Rs. 15,86,331. From the statements recorded, it is also observed that some of the insignificant issues were debated upon, like the issue relating to the six lots of previous stones, the one relating to some personal ornaments kept at Calcutta and so on. Thus on account of pressure tactics of the questioning officer, the assessee ultimately declared Rs. 3,20,000 as undisclosed income. In our view, therefore, there is no question of levying any penalty and the same is hereby cancelled.
26. In the result, the assessee succeeds and the appeal is allowed.