Income Tax Appellate Tribunal - Ahmedabad
Mahendra Chimanlal Shah vs Assistant Commissioner Of Income-Tax on 24 May, 1994
Equivalent citations: [1994]51ITD244(AHD)
ORDER
B.M. Kothari, Accountant Member
1. All these appeals relate to the same assessee and pertain to same assessment year, namely, A.Y. 1988-89. Hence these are being disposed of by this common order.
2. We will first consider the quantum appeal relating to the assessment order passed under Section 143(3). Search operations were conducted under Section 132 on 3rd July, 1987 at the premises of one M/s. Dinal Gems, 303 Panchratna, Opera House, Bombay where the appellant was also present. On his personal search diamonds worth Rs. 5,06,712 were found and seized. Savings bank pay-in-slips of Bank of India, Opera House branch were also found from the appellant's possession in which deposits aggregating to Rs. 1,01,100 were found, These pay-in-slips were also seized. In the statement recorded during the course search under Section 132(4), the appellant offered income represented by the value of diamonds amounting to Rs. 5,06,712 and Rs. 1,01,100 represented various deposits in the said bank account.
3. The assessee submitted a return of income on 17-10-1989, declaring total income of Rs. 20,880. Thus the amount of income surrendered in the statement under Section 132(4) during the course of search was not included in the income declared in the original return of income.
4. Thereafter, a revised return was submitted on 27-9-1990, declaring total income of Rs. 5,27,600. In this revised return, the assessee included a sum of Rs. 5,06,712 being the value of diamonds found from his possession during the course of said search.
5. The Assessing Officer considered the question relating to deposits in the said bank account aggregating to Rs. 1,01,100. Out of the said amount, a sum of Rs. 41,100 related to A.Y. 1984-85. The proceedings for A.Y. 1984-85 were reopened under Section 148. The question relating to sources of deposits in the bank account pertaining to that year was examined in those proceedings. In view of the facts, explanations and evidence submitted in the course of such proceedings, the A.O. completed the assessment for A.Y. 1984-85 at an income of Rs. 14,598 without making any addition in respect of deposits in the aforesaid S.B A/c. Similarly, one deposit in the said account fell in A.Y. 1986-87. Assessment for this year was completed after the search on 23rd March, 1989. The explanation with regard to the concerned entry for Rs. 10,000 was also accepted in A.Y. 1986-87 and assessment was made at an income of Rs. 18,500 as against the declared income of Rs. 17,903.
6. However, in the assessment order for A.Y. 1988-89 (the year under appeal), the A.O. observed that the assessee did not produce any evidence in relation to two deposits of Rs. 30,000 and Rs. 20,000 made in the bank on 24-4-1987 and 27-4-1987. The assessee admitted in the statement recorded during the search under Section 132(4) that the said amounts be treated as income liable to tax. The A.O., after granting an opportunity in this regard, made an addition of Rs. 50,000 by holding that the deposits in the said bank account remained unexplained. He also initiated penalty proceedings under Section 271(1)(a), 271(1)(c) and 273(1)(b).
7. Before the CIT(A), the assessee submitted that the said deposits of Rs. 50,000 in the bank account made in the month of April 1987 were out of the sum of Rs. 50,000 withdrawn from the same account in the month of November 1986. The CIT(A) did not accept the said explanation in view of the statement recorded during the course of search in which the assessee himself offered the said amount of unexplained deposits in the bank account as income liable to tax.
8. Before us, the learned counsel for the assessee vehemently argued that the assessee had offered for tax the entire amount of deposits in the said bank account aggregating to Rs. 1,01,100 during the course of search. But during the course of regular assessment, the sources were explained. The A.O. has himself accepted the source in relation to deposits of Rs. 41,100 in A.Y. 1984-85 and Rs. 10,000 in A.Y. 1986-87. The facts and circumstances relating to the deposits aggregating to Rs. 50,000 added as income in the year under consideration are similar and there is no justification or reason for holding the amount in question as unexplained. The CIT(A) has clearly erred in not accepting the assessee's contention that the money came from withdrawal made from the same bank account a few months prior to the date of deposit. Our attention was drawn towards copies of bank statement of the said bank and other documents submitted in the compilation containing explanations relating to the said deposits made in the account with Bank of India. He submitted that the assessee is an extremely poor person which is evident from the fact that his household expenses has been estimated by the A.O. himself at the rate of Rs. 10,000 p.m. in A.Y. 1985-86, he has been assessed for A.Y. 1986-87 under Section 143(3) at Rs. 18,500 and for A.Y. 1987-88 at Rs. 25,000. The finding given by the CIT(A) cannot be said to be a good and valid finding. The learned counsel relied on the judgment in the case of S.R. Venkata Ratnam v. CIT [1981] 127 ITR 807 (Kar.) to support his contention.
9. The learned D.R. submitted that the explanation with regard to some of the deposits pertaining to A.Y. 1984-85 have been accepted by the A.O. in view of convincing evidence submitted in that year. The amount in question was verifiable from the books of account produced before the A.O. for A.Y. 1984-85 and the funds borrowed from assessee's wife Mrs. Niruben M. Shah were also verifiable from her return of income and assessment for A.Y. 1984-85 completed prior to the search. Likewise the deposit of Rs. 10,000 falling in A.Y. 1986-87 was also accepted only after considering the relevant facts and evidence submitted in the assessment proceedings for that year. The fact that part of the deposits were accepted in other two years on the basis of convincing material and evidence submitted in those years cannot by itself justify deletion of the addition made in the year under consideration for which the assessee did not submit any evidence whatsoever. The learned D.R. submitted that the assessee submitted four different explanations in relation to source of deposits made in the bank account in this year. In the statement recorded during the course of search, in reply to question No. 8, he stated that the amount was deposited out of cash received against cheque given to Pankaj B. Shah, C/o P.V. Enterprises. Immediately in the answer to the next question No. 9 of the same statement the assessee submitted that he is willing to offer the said amount of deposits in the bank a/c. No. 8505 as income. During the course of regular assessment proceedings, he took a different stand and explained that the two amounts were loan and he would produce evidence in this regard. The A.O. granted an opportunity and the case was adjourned specifically for this purpose on 13-2-1991. The assessee did not submit any evidence. Before the CIT(A) a fourth and entirely different explanation was submitted for the first time saying that the amounts so deposited in the bank account came out of withdrawal from the same bank account made in the month of November 1986. Such shifting and different explanations cannot be accepted. The learned D.R. therefore, submitted that the CIT(A) has rightly confirmed the addition in question.
10. In the rejoinder, the learned counsel for the assessee submitted that the assessee could not remain present before the A.O. in February 1991 because of the sickness of his son at Bombay which necessitated his stay there. This fact was stated before the CIT(A) in the written submissions dated 27th August, 1991.
11. We have carefully considered the submissions made by the learned representatives and have also carefully gone through the orders of the departmental authorities as well as other documents to which our attention was drawn during the course of hearing. After giving a very thoughtful consideration to all the aspects and material, we are of the considered opinion that the CIT(A) had rightly confirmed the said addition of Rs. 50,000. The learned D.R. has very ably pointed out that the assessee has submitted different and shifting explanations from time to time in relation to the source of deposits made in the said account. The very first version given in the statement recorded on 3rd July, 1987, at the time of search, was that the said sums of Rs. 30,000 and Rs. 20,000, deposited on 24th and 27th April, 1987, were out of cash received against cheque for entry given to Pankaj S. Shah of P.V. Enterprises and the balance is assessee's own money. In the same statement the assessee later on changed the version and offered the said amount of deposit along with other deposits in the same bank account as assessee's undisclosed income under Section 132(4).
The assessee did not pay any advance tax on the income so disclosed in the statement under Section 132(4). A return of income was thereafter filed on 17-10-1989 in which also no such income offered for tax under Section 132(4) was declared. In the revised return filed on 27-9-1990, the value of diamonds found and seized was disclosed but the deposits in the said bank account were not included as income. During the course of assessment proceedings Shri Mandirawala, the authorised representative of the assessee stated that these two amounts were loan and he would produce evidence in this regard. No such evidence was produced. The A.O. still granted an opportunity and the case was adjourned to 13-2-1991. On that day also no one attended and no evidence was furnished. It is submitted on behalf of the assessee that the assessee could not attend the hearing before the A.O. in February 1991 on account of his son's illness. However, in the proceedings before the CIT(A) instead of furnishing the evidence in support of the so-called loans, as explained by the assessee's representative before the A.O., the assessee came up with an entirely new explanation for the first time before the CIT(A) that these two deposits in the bank account were made out of withdrawal made from the same account in the month of November 1987. Such shifting and contradictory stand taken from time to time completely destroys the reliability of such explanations. The burden lies on the assessee to prove the source of deposits in bank account. On the facts and in the circumstances of the present case, we are of the considered opinion that the assessee has completely failed in discharging such a burden. If the shifting explanations are viewed in the light of the admission made by the assessee in the statement under Section 132(4) it would be realised that the statement so given under Section 132(4) that the amount representing the deposits in the savings bank account would be offered for tax is more reliable and had rightly been preferred by the CIT(A) over all other subsequent shifting explanations. We, therefore, confirm the findings given by the learned CIT(A) upholding the addition of Rs. 50,000 made in the declared income.
12. No arguments were addressed by the learned counsel for the assessee in relation to interest charged under Sections 139 and 217. The CIT(A) confirmed the levy of such interest. We do not find any justification in interfering with the findings given by the CIT(A) in relation to this ground also.
13. The Assessing Officer levied penalties under Section 271(1)(a) amounting to Rs. 84,436, under Section 271(1)(c) amounting to Rs. 5,61,464 and under Section 273(1) amounting to Rs. 2,11,084. The A.O. has given elaborate reasons in the respective penalty orders. The learned CIT(A) has confirmed the same.
14. The learned counsel for the assessee submitted that the assessee is a poor person. In the very first statement recorded during the course of search, he explained that the diamonds found during the course of search belongs to one Mr. Mahendrabhai who gave these diamond packets to him in the Diamond Hall on 5th at Panchratna building. The department did not make any enquiries against Shri Mahendrabhai who was the real owner of the diamonds found during the course of search. The assessee had to make a confession during the course of search and he surrendered the value of diamonds found from his possession valued at Rs. 5,06,712 in the statement recorded Under Section 132(4). He also surrendered at that time the deposit in the saving bank a/c aggregating to Rs. 1,01,100. A major part of the said deposits in bank account were proved te have been made out of explained sources and such explanations have been made out of explained sources and such explanations have been accepted in assessment years 1984-85 and 1986-87. He submitted that at the time when the original return was filed, the assessee did not have the requisite funds and, therefore, did not include the amount of income surrendered in the statement Under Section 132(4). However, on 27-9-1990 a revised return was filed in which value of diamonds was included and tax thereof was paid. The assessee is, therefore, clearly covered by the immunity provided under Explanation 5 to Section 271(1)(c) so far as the value of diamonds is concerned and is also entitled to cancellation of penalty in relation to addition of Rs. 50,000 made in respect of deposits in the said bank account. The assessee has submitted before the CIT(A) that the money was deposited out of withdrawal made from the said bank account before a few months. He, therefore, strongly urged that the penalty levied under Section 271(1)(c) should be cancelled.
15. The learned D.R. submitted that the sequence of events will show that the assessee is not entitled to grant of immunity provided under Explanations to Section 271(1)(c). The search was made on 3-7-1987. The assessee admitted undisclosed income in the statement recorded under Section 132(4) on 3-7-1987. The return was due on 30th July, 1988. The assessee did not file any return within the time allowed under Section 139(1). The original return was filed on 17-10-1989. The assessee did not disclose the said income so surrendered under Section 132(4) and no tax was paid at the time of filing of the original return. It is only at the time of when revised return was filed on 27th July, 1990 that the assessee paid the taxes. He further submitted that the use of the words "Section 139(1)" in the said Explanation 5 necessarily implies that the return should be filed within the time prescribed under Section 139(1). The guilty intention on the part of the assessee is also amply demonstrated by the fact that the undisclosed income admitted in the statement under Section 132(4) was not shown or included in the original return of income. He also submitted that in the facts and circumstances of the present case, the levy of penalty at 200% of tax sought to be evaded is perfectly valid, reasonable and justified.
16. We have carefully considered the submissions made by the learned representatives and have also carefully gone through the orders of the departmental authorities. It will be worthwhile to reproduce the relevant provisions of Section 27l(1)(c):
271.(1) If the Assessing Officer or the Deputy Commissioner (Appeals) or the Commissioner (Appeals) in the course of any proceedings under this Act, is satisfied that any person-
(a) ** ** ** (b) ** ** **
(c) has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty-
(i) ** ** ** (ii) ** ** **
(iii) In the cases referred to in Clause (c) in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed three times, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or the furnishing of inaccurate particulars of such income.
Explanation.-
** ** **
5. Where in the course 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 (hereinafter 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) for any previous year which has ended before the date of the search, but the return of income for such year has not been furnished before the said date or, where such return has been furnished before the said date, such income has not been declared therein; or
(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 purpose 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) such income is, or the transactions resulting in such income are recorded,-
(i)in a case falling under Clause (a), before the date of the search and
(ii) in a case falling under Clause (b), on or before such date, in the books of accounts, if any maintained by him for any source of income or such income is otherwise disclosed to the Chief Commissioner or Commissioner before the said date, or *Substituted for 'twice' by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989.
(2) he, in the course of the 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 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.
Prior to introduction of the aforesaid Explanation, an assessee who was found to be the owner of any money, bullion, jewellery or other valuable article or thing, during the course of search could escape the levy of penalty under Section 271(1)(c) if he would have included the value of such assets as income in the return of income 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 year, the assessee could validly escape levy of penalty.
17. Explanation 5 was introduced with a view to plug the aforesaid loophole. The said explanation indicates a deeming provision and provided that where, in the course of a search under Section 132, the assessee is found to be owner of such unaccounted assets and the assessee claims that such assets have been acquired by him by utilising, wholly or partly his income for any previous year which has already ended before the date of search or which is to end on or after the date of the search, in such a situation, notwithstanding that such income is declared by him in any return of income furnished on or after the date of search, he shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income for the purposes of imposition of a penalty under Section 271(1)(c). The only exceptions to such a deeming provision or a presumption as to concealment are given in Sub-clauses(1) & (2) of Clause (b) of Explanation 5 as reproduced above. According to the learned counsel for the assessee, the present case is clearly covered by the aforesaid sub-clauses providing for immunity from levy of penalty under Section 271(1)(c). Let us examine the rival contentions made in relation to applicability of the said provisions on the facts and circumstances of the appellant's case.
18. The first condition is that the assessee makes a statement under Section 132(4) in the course of search that such assets found from his possession has been acquired out of his 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). This condition admittedly stands fulfilled in the case of the assessee because the assessee admitted that the value of diamonds found during the course of search represents his income and such income was not disclosed in any return of income filed before the search. In fact the return of income for the search year in the present case was due to be filed only on 30th July, 1988.
19. The second condition for availing of the immunity from penalty under the aforesaid provision is that the assessee also specifies, in the statement, the manner in which such income has been derived. It is clear from the aforesaid requirement that this second condition should also be fulfilled at the time when the statement under Section 132(4) is recorded by the authorised officers. Thus the first condition as stated in the preceding paragraph and the second condition stated above clearly establishes that these two conditions have to be fulfilled in the course of search itself when the statement under Section 132(4) is recorded.
20. In the present case, statement under Section 132(4) was recorded on 3rd July, 1987. The assessee in relation to the diamonds found from his possession, at the first instance stated that except to the extent of diamonds worth about Rs. 45,000, the other packets of diamonds were given to him by one Mr. Mahendrabhai in the Diamond Hall at Panchratna building. He has given those packets of diamonds to the assessee for selling. Again, in reply to question No. 5, he stated that he does not have the jangad slips for these diamond packets and once again repeated that the above diamond packets were given to him by Shri Mahendrabhai. We enquired from the D.R. as to whether Shri Mahendrabhai, carrying on business at Panchratna building was interrogated or examined during the course of search or thereafter or whether the search operations were also carried out at the business and residential premises of Shri Mahendrabhai who was, in the first instance, stated to be the owner of the diamond packets found from the possession of the assessee. The learned D.R. submitted that no such statements of Shri Mahendrabhai were recorded nor he could point out as to whether any search operations were conducted at the premises of said Mahendrabhai. After few more questions in the said statement, the A.O. asked a simple question - 'Do you wish to offer any amount for taxation under Section 132(4)?'. The assessee replied that entries relating to cash deposits in the account with Bank of India which was stated to be entries given to Pankajbhai in fact represents his money and he offers the same as liable to tax. In addition to such cash deposits, he further offered the diamonds found in his possession without jangad slips valued at Rs. 5,06,712 as undisclosed income under Section 132(4). The A.O. did not ask any further question as to in what manner the assessee derived such income which is being offered for tax as undisclosed income under Section 132(4). A perusal of the assessment order for A.Y. 1985-86, completed after the search on 26-3-1992 reveals that household expenses of the assessee's family was estimated at Rs. 1,000 p.m. by the A.O. The income for A.Y. 1985-86 was determined at Rs. 18,823 and for A.Y. 1986-87 at Rs. 18,500. The assessment order for A.Y. 1986-87 also reveals that the assessee derived income from brokerage from purchase and sale of diamonds. The assessee appears to be only a broker and real owner of the diamonds in question may be somebody else. The first version given by the assessee in the statement recorded during the course of search was that the diamond packets were given to him by one Shri Mahendrabhai. It is indeed surprising that the authorised officers of the department did not even like to examine that person who was shown to be the real owner of the diamond packets nor the department thought it proper to conduct simultaneous search operations at the business and residential premises of that person. The authorised officers were happy and satisfied the moment they could fetch an admission from the assessee, admitting the value of the diamonds and the amount of deposits in Bank of India as representing assessee's undisclosed income under Section 132(4). It is a well known fact that on several occasions the persons who are being searched or whose statements are recorded during the course of search are interrogated under intimidation and are sometimes coerced into making a confessional statement accepting such undisclosed income under Section 132(4). At times, the authorised officers induce the persons to make an admission so that he would be able to avail of the immunity provided under Explanation 5 to Section 271(1)(c). The Chelliah Committee had to make various important recommendations in relation to the manner of conducting the procedure of search and seizure and in relation to recording of the statements during the search. Since this second requirement is also required to be fulfilled at the time of search when the statements are being recorded under Section 132(4), it is primarily the duty of the authorised officer to explain the meaning and scope of Explanation 5 to Section 271(1)(c) when he is recording the admission of the concerned person under Section 132(4) in relation to certain undisclosed income eligible for grant of immunity under Explanation 5 to Section 271(1)(c). The officer is expected to fully explain the provisions to the concerned person and he should have, in the least, asked at least some questions relating to the manner in which such undisclosed income offered for tax was derived by the assessee. In large number of cases where immunity under Explanation 5 to Section 271(1)(c) has been granted it would be found that such manner of deriving the undisclosed income have not been properly recorded by the authorised officers in the statements recorded during the search and yet the immunity by waiver of penalty under Section 271(1)(c) is granted. It is a well known fact that a sudden search and seizure operation may unnerve the inmates of the place where the search is made. The persons whose statements are recorded during the course of search would invariably be under a disturbed mental state and may be suffering from serious mental stress and strain. In such a situation the responsibility of the authorised officers, before whom any such confessional statement is made, would be very heavy and significant. In order to understand as to how the authorised officers should record such a confessional statement, let us look at the relevant provisions of the Criminal Procedure Code in relation to recording of confessional statements. Section 164 of Cr.P.C. provides that before recording any such confession, the Magistrate shall explain to the person making a confessional statement that he is not bound to make a confession and that if he does so, it may be used as evidence against him. No Magistrate shall record any confession unless, upon questioning the person making it, he has reason to believe that it was being made voluntarily. The section further imposes a statutory obligation on the Magistrate to warn an accused that the statement which he was going to make may be used against him. The Magistrate is expected to acquaint the person making the confession as to his legal rights and consequences. He is also required to make a memo at the foot of such record stating that he has explained all the aforesaid aspects to the person making the declaration and that the statement so given contains a full and true account of the statements made by him. Section 281 of Cr.P.C. further requires that the confession shall be recorded in full and every answer given by the person shall be put down in full in the hand writing of the presiding Judge or the Magistrate himself. Ordinarily the statement should be recorded in the language in which the accused is being examined. The statement shall be shown or read to the concerned person. There are other similar requirements with a view to safeguard the interest of the person making the said statement. All these provisions contained in the Cr.P.C. may not be strictly applicable in its entirety in relation to the statements recorded under Section 132(4) but one thing is certain that the provisions of Section 132 does not authorise the search party to extract confessions under intimation during the search. Whenever any person voluntarily wants to make a statement or confession with a view to avail of the benefit of waiver of penalty in terms of Section 132(4) read with Explanations to Section 271(1)(c)itistheduty of the authorised officers to explain the relevant requirements of these provisions and he must at least put the relevant questions to him with a view to ensure that the assessee gives some reply in relation to all the required aspects for deciding the applicability or non-applicability of the provisions relating to waiver of penaltty contained in Explanation 5 to Section 271(1)(c). In the present case, the statement was recorded at 3.30 A.M. i.e., after the mid-night. The A.O. asked the assessee to state whether he would like to declare any income under Section 132(4). The assessee in response to such a question categorically stated that he would like to offer income represented by value of diamonds found and seized from his possession as well as the amount of deposits in the bank account as undisclosed income under Section 132(4). Thereafter the A.O. did not put to the assessee any single question relating to the manner in which such income was derived by the assessee. In the absence of any further interrogation or putting any further question in relation to the manner in which such income was derived it was impossible to expect the assessee to suo motu make further statements with regard to the manner in which such income was derived. The A.O. himself accepted the statement resting with the disclosure of undisclosed income for the purpose of Section 132(4). It will be worthwhile to mention here that the Chelliah Committee, after taking into account the general practice in relation to recording of such confessional statements with regard to surrender of income during the course of search have observed that it must be ensured that the assessee is not interrogated under intimidation and is not coerced into making a confessional statement. They have also suggested that the provision for paying part of the additional tax collected on the basis of search and confession as a reward to the members of the search party must be removed. In our view it was the duty of the authorised officers to explain, during the course of search, at a time when they recorded confessional statement under Section 132(4), to the assessee all the requirements of the provisions relating to Explanation 5 to Section 271(1)(c), read with Section 132(4) and they ought to have put all questions relating to the manner of deriving such undisclosed income surrendered in the said statement under Section 132(4). Since the authorised officer failed to put any question in relation to this aspect, the assessee cannot be held to be ineligible or disentitled to get the immunity of waiver of penalty in accordance with Explanation 5 to Section 271(1)(c), particularly when the assessee has duly acted upon on the basis of such provisions of waiver of penalty and has accordingly paid tax on the income so surrendered at the time of filing of the revised return and has given up his valuable right to file an appeal against that amount of income represented by value of diamonds.
21. The fulfilment of the second condition for immunity from levy of penalty viz., that the declarant also specifics the manner in which such income has been derived, has to be appreciated in the light of provisions contained in Section 132(4). Section 132(4) confers a power on the authorised officers to interrogate the person concerned on oath during search. Prior to insertion of explanation to Section 132(4) w.e.f. 1-4-1989, such power to interrogate on oath conferred upon the authorised officers was confined to the limited purpose of seeking explanation or information in respect of articles, things or documents found during the search. The said explanation expanded the power of the authorised officers to examine the person in respect of all matters relevant for the purposes of any investigation connected with any proceedings under the Act. Such power to interrogate is necessarily coupled with an obligation and duty on the part of the authorised officers to interrogate the concerned person when he makes a declaration of undisclosed income in relation to the manner in which such income was derived. Recording of statement under Section 132(4) on all such points starts with the interrogation by the authorised officers by putting relevant questions. If the authorised officer failed to put any question regarding the manner in which such income declared in the statement under Section 132(4) was derived, the declarant cannot be deprived of the benefit of immunity under Explanation 5 to Section 271(1)(c) for not disclosing the manner of deriving such income in the said statement. If the authorised officer instead of closing the said statement immediately after fetching the confession as to undisclosed income would have put further question about the manner of deriving such income and the declarant would not have then specified in that statement the manner in which such income was derived, he would have perhaps been liable for non-compliance of the second condition. However, in the instant case, the authorised officer did not put any such question to the assessee in the statement and was satisfied about the completeness of such confessional statement. Hence it would be highly improper and unjust to deny the benefit of Explanation 5 to Section 271(1)(c) to the appellant on this technical or venial ground which occurred without any fault on the part of the assessee, particularly when he has paid tax on the surrendered income and the same amount of income has been taxed by the A.O. on the basis of that very statement. On the facts and in the circumstances of the present case, we are satisfied that the second condition for grant of immunity of penalty in respect of the value of diamonds also stands fulfilled.
22. The third condition for availing of the benefit of such immunity of waiver of penalty is that the assessee pays the tax together with interest, if any, in respect of such income. It is clear from such plain language used in the Sub-clause (ii) of Explanation 5 to Section 271(1)(c) that the tax on the undisclosed income offered for taxation in the statement under Section 132(4) can be paid at any time and no time limit for payment of tax thereof has been prescribed. This condition of requiring the assessee to "pay tax together with interest" necessarily implies that in case the payment of tax is delayed the assessee will be liable to pay not only the tax but also interest thereof. In the present case the assessee surrendered the income in the statement recorded on 3rd July, 1987. He was liable to pay advance tax on the income so disclosed latest on 15-12-1987, the due date for payment of last instalment of advance tax. Since the assessee did not pay advance tax on the income so disclosed, he would naturally be liable for payment of interest. The assessee has duly paid the tax while filing the revised return on the amount of value of diamonds included in the income shown in the revised return. The levy of interest under Sections 139 and 217 has also been confirmed in the quantum appeal. The third condition, in our opinion, also thus stands fulfilled in the present case. The mere fact that the assessee did not include the value of diamonds as income in the original return filed after the search will not disentitle the assessee to avail of the benefit of immunity of waiver of penalty under Explanation 5. It would be worthwhile to state that the provisions contained in Explanation 5 nowhere requires that the income surrendered in the statement recorded under Section 132(4) should necessarily be included in the return of income furnished under Section 139(1). The only condition which is required to be fulfilled for getting the immunity, after the proceedings of search are over, is that the assessee pays the tax together with interest in respect of such income. This necessarily implies that the assessee should not dispute the taxability of the item in question and should pay tax in respect of such income. However, the law does not prescribe the time limit within which the assessee should pay tax on such income disclosed in the statement under Section 132(4). The only conclusion which can, therefore, be drawn about the limitation of time within which such payment of tax should be made is the date when the assessment is to be completed and the point of time when the A.O. is required to record his satisfaction about the initiation or non-initiation of penalty proceedings under Section 271(1)(c). We are, therefore, of the considered opinion that if the first two conditions of Clause (it) of Explanation 5 stands satisfied during the course of search itself at a time when the statement under Section 132(4) is recorded by the authorised officers, the assessee will be entitled to grant of immunity of waiver of penalty if he pays the tax on the income so disclosed before the assessment is completed and he does not dispute the taxability of such income. If the assessee includes such income in any of the returns filed after the search and does not contest the taxability thereof and gives up his valuable right of appeal against inclusion of that item of income which was surrendered in the statement under Section 132(4) and pays' tax thereof before the completion of the assessment there is no justification or reason to deny the immunity of waiver of penalty in relation to such income on which tax is duly paid. The only consequence of delayed payment of tax on income so surrendered would be that the assessee in addition to his liability to pay tax thereof will also be liable to pay interest. The levy of interest under Sections 139(8) and 217 could be validly determined only at the time of making the regular assessment, unlike the present provisions of Sections 234A, 234B & 234C, introduced w.e.f. A.Y. 1989-90. The interest has accordingly been levied and confirmed.
23. We are, therefore, of the considered opinion that on the facts and in the circumstances of the present case, the assessee has fulfilled all the conditions for availing of the benefit of immunity of waiver of penalty provided in Explanation 5 to Section 271(1)(c) in relation to the inclusion of income of Rs. 5,06,712 representing the value of diamonds. The penalty levied by the A.O. in relation to such amount of Rs. 5,06,712 is, therefore, directed to be cancelled.
24. However, the assessee would be liable for penalty under Section 271(1)(c) in relation to the addition of Rs. 50,000 being unexplained deposits in the bank account. This amount was surrendered by the assessee in the statement under Section 132(4). However, he did not pay tax on that part of the income and he retracted from the statement made under Section 132(4) in relation to this item of income. We have discussed hereinbefore, while dealing with the qunatum appeal, that the assessee has taken shifting and mutually contradictory stands in relation to explaining the source of the said deposits. Such mutually contradictory and shifting explanations given during the search, during the course of regular assessment proceedings and in the course of proceedings before the CIT(A) completely destroys the reliability of any of the explanations submitted by the assessee in relation to this item. We are, therefore, the considered opinion that the assessee is liable to penalty under Section 271(1)(c) in respect of tax sought to be evaded on the aforesaid addition of Rs. 50,000 which has been finally sustained in the quantum appeal. The A.O. will, however, levy minimum penalty as provided under Section 271(1)(c) in relation to the said addition of Rs. 50,000.
25. We will now consider the assessee's appeal against levy of penalty under Section 271(1)(a). The learned counsel was fair enough to say that it is very difficult for him to argue on behalf of the assessee the matter relating to penalty under Section 271(1)(a). There was a delay of 15 months. The only reason given by the learned counsel was that the assessee had no money and, therefore, he could not file the return because he was required to pay tax on income surrendered during the course of search. The learned D.R. supported the order of the departmental authorities.
26. After considering the submissions made by the learned representatives and after going through the orders of the departmental authorities, we find that the A.O. issued a show-cause notice along with the assessment order requiring the assessee to explain the reasons for the delay. Again a notice dated 1 lth June, 1991 was given. The assessee did not submit any reply nor explained the existence of any reasonable cause before the A.O. in response to the notices. Even before the CIT(A) the assessee did not explain as to why no reply to the show-cause notices was submitted before the A.O. The only reasonable cause explained before the CIT(A) was that the assessee could not file the return of income in time since return for the earlier years could not be filed. Such a reason was considered to be not a reasonable cause by the CIT(A). The learned counsel for the assessee did not submit any further explanations before us. We are, therefore, satisfied that the assessee has failed to explain or prove the existence of any reasonable cause. The A.O. was, therefore, fully justified in imposing the penalty under Section 271(1)(a) and the CIT(A) had rightly confirmed the same.
27. We will now consider the assessee's appeal against the order under Section 273(1)(b). The A.O. levied penalty of Rs. 2,11,089 as against minimum penalty of Rs. 2.1,109, being 10% and the maximum penalty leviable at the rate of 150% as provided in the law.
28. The learned counsel for the assessee submitted that no penalty should be levied under Section 273(1)(b) in view of the judgments of Hon'ble Gujarat High Court in the case of CIT v. Bharat Machinery & Hardware Mart [1982] 136 ITR 875 and in the case of CIT v. Vinayachand Harilal [1979] 120 ITR 752.
29. The learned D.R. submitted that penalty has rightly been levied. The sequence of events and the conduct of the assessee which have been elaborately discussed in the orders of the departmental authorities fully justifies the levy of penalty at the rate of 100%. He thus supported the order of the CIT(A).
30. We have carefully considered the submissions made by the learned representatives. The judgment of Hon'ble Gujarat High Court in the case of Bharat Machinery & Hardware Mart (supra) does not apply in relation to the facts of the present case. In that case the difference between the declared income and the assessed income was merely on account of an estimation of the gross profit made by the ITO by applying a particular G.P. rate. The facts of the judgment in the other case of Vinayachand Harilal (supra) axe also entirely different and distinguishable. In the present case, we have held that the assessee's explanation with regard to the unexplained deposit of Rs. 50,000 given at different stages of the proceedings are mutually contradictory, shifting and, therefore, such explanations have no reliability. Apart from this the value of diamonds surrendered during the course of search in the statement under Section 132(4) ought to have been included in the statement/estimate of the advance tax payable by the assessee. The statement in the search was recorded on 3rd July, 1987. The assessee was liable to furnish the statement of advance tax payable on or before 15-12-1987. Since the assessee did not include the value of diamonds found during the course of search, which was admitted by him to be representing his undisclosed income in the statement under Section 132(4), the assessee is clearly liable to penalty under Section 273. However, considering the totality of the facts and circumstances, we direct the A.O. to levy minimum penalty at the rate of 10%.
31. In the result, ITA Nos. 5402 & 1027 are dismissed and ITA Nos. 1038 & 1039 are partly allowed.