Income Tax Appellate Tribunal - Cochin
Assistant Commissioner Of Income Tax vs Mrs. K. Vasantha on 3 December, 1997
Equivalent citations: (1998)62TTJ(COCH)344
ORDER
T.A. BEIKTE, J.M. This is a Revenue's appeal against the order of the CIT(A), Trivandrum, dt. 28th Feb., 1992, on four grounds pertaining to the only one issue of cancellation of penalty of Rs. 2,77,500 levied under s. 271(l)(c) of the IT Act, 1961, in relation to the asst. yr. 1987-88.
2. The AO held that the provisions of Expln. 5(a) to s. 271(l)(c) are applicable to the facts of the case and, therefore, the provisions of s. 271(l)(c) are attracted. The CIT(A) held that the said Explanation is not applicable to the facts of the case and relied on the decision of the Tribunal in the case of South Indian Finance vs. ITO (1991) 39 TTD 370 (Coch) to cancel the penalty. The Revenue, being aggrieved by the cancellation of the penalty levied under s. 271(l)(c) has come in appeal before the Tribunal.
3. We have heard the learned Departmental Representative, Sri Kuruvilla M. George. We have also heard the learned counsel for the assessee, Sri C. Kochunni Nair. We have taken into consideration the rival submissions.
4. According to the learned Departmental Representative, Kuruvilla M. George, the penalty levied by the AO is in consonance with the provisions of s. 271(l)(c) of the IT Act, 1961. He submitted that the AO has rightly applied the Expln. 5(a) to s. 271(l)(c) for levying the penalty for concealment of income. The assessee had come in appeal before the Tribunal, being ITA No. 30(Coch)/1992 relating to the asst. yr. 1987-88, under appeal. After considering all the facts and the arguments advanced on both sides in the above quantum appeal, the Tribunal held that the estimate adopted by the CIT(A) was quite reasonable in the circumstances of the case and confirmed the addition of Rs. 55,000 as unexplained investment. Therefore, the learned Departmental Representative submitted that penalty to the extent of the addition of Rs. 55,000 confirmed by the Tribunal in the quantum appeal has to be confirmed. He further submitted that confirmation of the addition by the Tribunal in the quantum appeal is the concealed income of the assessee and, therefore, penalty levied under s. 271(l)(c) is warranted.
5. The learned Departmental Representative, Sri Kuruvilla M. George, further relied on the commentary of s. 271(l)(c) and the legal fiction of the new Expln. 5 from p. 5919 of Chaturvedi & Pithisaria's Income-tax Law (4th Edn.) Vol. 5. He submitted that the legal fiction of this new Exp1n. 5 is correctly applied and in order to plug the loophole in the provisions of s. 271(l)(c) of the Act, Expln. 5 has been inserted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1st Oct., 1984. He has also submitted that the assessee had failed to explain the source for the acquisition of assets. He further submitted that as per s. 271(l)(c)(B) the existing Expln. 5 to s. 271(l) of the IT Act, is that, "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 those assets as his income in the return filed after the search. This provision has been found to operate even in cases 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 cl. (a) or (b) of s. 139(l) and specifies in the statement the manner in which such income has been derived and pays the taxes that are due thereon, no penalty shall be leviable". In support of his contention for justifying the levy of penalty, the learned Departmental Representative has relied on the decision of the Calcutta High Court in the case of Shri Loknath Chowdhury vs. CIT (1986) 50 CTR (Cal) 340: (1985) 155 TTR 291 (Cal). The Calcutta High Court in that case upheld the view of the Tribunal that the assessee had concealed the particulars of his income and the levy of penalty was valid. However, that observation by the Calcutta High Court was on the particular facts and circumstances of the case.
6. The learned counsel for the assessee, C. Kochunni Nair firstly submitted that even though the Tribunal has confirmed the addition to the extent of Rs. 56,000 in the quantum appeal, that would not itself form a basis to levy penalty for concealment of income under the provisions of s. 271(l)(c). Secondly, Kochunni Nair submitted that the Expln. 5(a) to s. 271(l)(c) as tried to be applied by the AO is not at all applicable in the facts and circumstances of the case. He submitted that on these two counts itself, the levy of penalty under s. 271(l)(c) cannot be confirmed. In support of his argument, Nair has relied on the decision of the Supreme Court in the case of CIT vs. N.C. Budharaja & Co. & Ors. (1993) 114 CTR (SQ) 420 : (1993) 204 ITR 412 (SQ). The Supreme Court in that case made the following observations :
"The principle of adopting a liberal interpretation which advances the purpose and object of beneficent provisions cannot be carried to the extent of doing violence to the plain and simple language used in the enactment. It would not be reasonable or permissible for the Court to rewrite the section or substitute words of its own for the actual words employed by the legislature in the name of giving effect to the supposed underlying object. After all, the underlying object of any provision has to be gathered on a reasonable interpretation of the language employed by the legislature."
According to Kochunni Nair, the Expln. 5(a) to s. 271(l)(c) has to be interpreted liberally and correctly and no violence is to be done to the plain and simple meaning employed in the provision. He submitted that a correct interpretation of Expln. 5(a) does not attract levy of penalty for concealment of income. He cited the decision of the Madras High Court in the case of TPX RamaLingam vs. CIT (1995) 125 CTR (Mad) 99: (1995) 211 ITR 520 (Mad). The Madras High Court held in the above case that the Tribunal was not justified in sustaining the penalty under s. 271(l)(c) for concealment of income having found that the difference arose between the cost of construction disclosed by the assessee and the cost estimated by the Departmental valuer as well as approved valuer. The Madras High Court further held that the difference between the cost of construction disclosed by the assessee and the cost estimated by the Departmental valuer as well as approved valuer is not sufficient to hold that there had been concealment of income. Accordingly the Court held that penalty cannot be imposed in the facts of the case. The Madras High Court referred in the above case to the decision of the Kerala High Court in the case of CIT vs. Mohammed Kunhi (1973) 87 ITR 189 (Ker). The Kerala High Court in the above case had held on facts that the ITO had no materials before him for coming to the conclusion that the assessee had concealed his income and the Tribunal was justified in cancelling the order of penalty. Finally, Kochunni Nair justified the order of the CIT(A) in cancelling the penalty levied.
7. In view of the above narrated facts, the legal fiction created by Exp1n. 5(a) to s. 271(l)(c) of the IT Act, 1961, the case law relied on by the learned counsel for the assessee and the rival submissions of the parties, the only question which has arisen for our consideration and decision is whether Exp1n. 5(a) to s. 2710)(c) is applicable to the facts and circumstances of the case and whether the cancellation of the penalty under s. 271(l)(c) by the CIT(A) is correct.
8. To arrive at a correct finding it is necessary now to examine the facts and circumstances of the case and the applicability of Exp1n. 5(a) to s. 271(l)(c) of the IT Act. The assessee had filed quantum appeal, i.e. ITA No. 30(Coch)/92 relating to the asst. yr. 1987-88, under appeal, against addition made by the AO towards unexplained investment by the assessee. The relevant facts in this regard are that the assessee constructed a Kalyanamandapam at Nagercoil. The addition was made on account of the unexplained investment in the construction of the Kalyanamandapam. The registered valuer estimated the cost of construction of the said Kalyanamandapam at Rs. 4,50,000; while the cost of construction declared by the assessee was Rs. 5,00,000. The Departmental Valuation Officer estimated the cost of construction at Rs. 6,15,000. On appeal, the CIT(A) made an estimation of the cost of construction at Rs. 5,50,000. Thus, the difference between the estimates came to Rs. 65,000. However, after allowing certain other items, the difference was found at Rs. 55,000. In the quantum appeal, the Tribunal confirmed the addition to the extent of Rs. 55,000 on account of unexplained investment in the construction of the Kalyanamandapam.
9. The learned counsel for the assessee, Kochunni Nair argued that though the Tribunal had confirmed the addition of Rs. 55,000 on account of the difference in the cost of construction of the Kalyanamandapam as the unexplained income of the assessee, the difference on the basis of estimations does not become a good ground for levy of penalty for concealment of income. In support of this contention, Nair has relied on the decision of the Madras High Court in the case of TP.K RamaLingam vs. CIT (supra). The Madras High Court held that the Tribunal was not justified in sustaining the penalty under s. 271(l)(c) because even if the assessee's explanation for the difference between the actual cost of construction shown in the books of account, and the valuer's report is not accepted by the Department, it would still require some further material to support the finding that the assessee had concealed his taxable income. In that case also, the difference arose in the construction cost of the shops shown by the assessee in its books of account and the cost estimated by the approved valuer and the Departmental valuer. The Departmental valuer estimated the cost of construction at a higher figure than the assessee's cost of construction as per his books of account and the cost as estimated by the approved valuer. On appeal, the Tribunal sustained the levy of penalty, but the Madras High Court held the view that the Tribunal was not justified in sustaining the penalty under s. 271(l)(c).
10. The learned counsel for the assessee submitted that the Madras High Court in the case of TPX Rarnalingarn vs. ClT (supra), referred to the decision of the Kerala High Court in the case of CTT vs. Mohan2med Kunhi (supra) where the Kerala High Court had held that the ITO had no material before him for coming to the conclusion that the assessee has concealed his income and the Tribunal was justified in cancelling the order of penalty under s. 271(l)(c). He submitted that following the ratio of the Kerala High Court decision and of the Madras High Court in the cases mentioned (supra), in spite of confirming the addition of Rs. 55,000 in the quantum appeal, levy of penalty cannot be justifiable.
11. Kochunni Nair argued that the assessee had made full and bona bde disclosure of all particulars of his income in the return of income filed. The residential and business premises of the firm in which the assessee was a partner were searched under s. 132 of the IT Act. The statement of the assessee's husband was taken. The assessee's husband stated in the statement that a building was already existing on the land where the Kalyanamandaparn was constructed. Hence the assessee declared the cost of construction at Rs. 5,00,000. Nair pointed out that on identical facts, the Cochin Bench of the Tribunal had held that there was no concealment of income in the case of South Indian Finance vs. TTO (supra). Relying on this decision of the Tribunal, Sri Kochunni Nair justified that the CIT(A) has rightly cancelled the penalty levied under s. 271(l)(c).
12. Another aspect of the argument of the learned counsel for the assessee is that Expln. 5(a) to s. 271(l)(c) is not applicable to the facts of the instant appeal. He took us through the provisions of Exp1n. 5(a) which reads as follows: "Explanation 5: Where in the course of a search under s. 132, the assessee is found to be the owner of any money, bullion, jewellery, or other valuable articles or things (hereafter in this Explanation referred to as assets) and the assessee claims that such assets have been acquired by him utilising wholly or in part his income :
(a) for any previous year which has ended before the date of 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."
Nair submitted that Expln. 5 does not include the term "building". According to him Kalyanamandaparn is a construction of building. Explanation 5 includes money, bullion, jewellery and other valuable articles or things and as the "building" is not included in the said Explanation, the said Explanation is not applicable in this case. He, therefore, submitted that the AO has erroneously invoked the Expln. 5 to levy penalty under s. 271(l)(c) of the Act.
13. The assessee's premises were searched under s. 132 of the IT Act and the return of income was filed thereafter. The assessee had also filed a computation under s. 273A(4) before the CIT, Trivandrum. Kochunni Nair submitted that the assessee had offered income and assessment was made on correct basis as mentioned by the CIT(A) at p. 5, para 5 of his appellate order. The CIT(A) also took note of the Supreme Court decision in the case of Shadilal Sugar & General Mflls Ltd. vs. CIT (1987) 64 CTR (SO 199 : (1987) 168 ITR 705 (SQ). Sri Nair submitted that the immovable property (Kalyanamandapam) in question is outside the purview of Expln. 5(a) to s. 271(l)(c). What is held by the Tribunal in the case of South Indian Finance vs. ITO (supra) is as follows :
"The expression used in the Expln. 5 to s. 271(l)(c) are "money, bullion, jewellery, or other valuable article or thing". To this extent there is similarity between the Explanation cited above and the expressions found in s. 132(4) because in the latter section expression such as "books of account, other documents" are additionally found. Further the expression, viz., "money, bullion, jewellery, or other valuable article or thing" found in Expln. 5 to s. 271(l)(c) can be construed, in view of their identical nature, in the same manner in which such expressions are construed for purposes of either s. 132(l)(c) or 132(5) r/w s. 132(4). Sec. 132(l)(c) empowers the authorities to conduct search if there is reason to believe "that any person is in possession of any 'money, bullion, jewellery or other valuable article or thing' and such money, bullion, jewellery or other valuable article or thing represents either wholly or partly income or property for the purpose of the IT Act, 1922 or this Act (hereinafter in this section referred to as the undisclosed income or property). Thus the power of search is based upon the reasonable belief that there is concealment of income represented by "money, bullion, jewellery or other valuable article or thing". These very expressions have been engrafted in the Expln. 5 to s. 271(l)(c) in which the reference to "documents" in conspicuous by its absence. Therefore, the inevitable conclusion is that it is only in respect of "such assets" enumerated in Expln. 5 to s. 271(l)(c) (which are in pah materia with those in s. 132(l)(c), as are found in the ownership of the assessee but not recorded in the books of account that the assessee is deemed to have concealed his income. Thus, the documents of title which represent the right to immovable property, which right itself is an immovable property, is outside the purview of Expln. 6 to s. 271(l)(c). We are reinforced in this conclusion on the interpretation placed in Bhagwandas Narayandas vs. CIT (1975) 98 ITR 194 (Guj) on the train of words such as "money, bullion, jewellery or other valuable article or thing" occurring in s. 132(5) r/w s. 132(4) of the IT Act, 1961. The principle of ejusdem generis is to be applied in interpreting the words 'other valuable article or thing'. We do so and thus uphold the contention of the learned counsel for the assessee. "
14. Sn' Kochunni Nair for interpretation of Expln. 5(a) to s. 271(l)(c) has relied on the decision of the Supreme Court in N.C. Budharaja & Co. (supra). In that case, the Supreme Court has held that a liberal interpretation has to be made to advance the purpose and object of beneficent provisions and such interpretation should not do violence to the plain and simple language used in the enactment. The Supreme Court made these observations pertaining to the words "production", "manufacture", "produce", "article", etc. He, therefore, submitted that Expln. 5(a) to s. 271(l)(c) has to be interpreted without doing any violence to hold that this Explanation is not applicable. There is substance in his argument.
15. From the facts on record, it is quite clear that the addition was made on account of estimation against estimation. It is also true that the Tribunal has confirmed the addition to the extent of Rs. 55,000 in the quantum appeal of the assessee, being the difference found in the estimates. The fact that there is difference between two estimates does not attract penalty provisions for concealment of income within the meaning of s. 271(l)(c) of the IT Act, 1961. The decisions of the Kerala High Court and the Madras High Court mentioned (supra) support this view. Secondly, Kalyanamandapam is an immovable property which is not included in Expln. 5(a) to s. 271(l)(c). Therefore, we hold that this Explanation had been wrongly invoked by the AO which is not applicable to the facts of the case.
For all these reasons, we are inclined to uphold the order of the CIT(A) cancelling the penalty levied under s. 271(l)(c) of the Act.
16. In the result, the Revenue's appeal is dismissed.