Delhi High Court
Commissioner Of Income Tax vs Smt. Meera Devi on 23 August, 2012
Author: S. Ravindra Bhat
Bench: S. Ravindra Bhat, R.V. Easwar
* IN THE HIGH COURT OF DELHI AT NEW DELHI
RESERVED ON : 09.07.2012
DECIDED ON : 23.08.2012
+ ITA Nos.995/2010 & 997/2010
COMISSIONER OF INCOME TAX ..... APPELLANT
Through : Mr. N.P. Sahni, Senior Standing Counsel
Versus
SMT. MEERA DEVI ...... RESPONDENT
Through : Mr. S.Krishnan, Advocate
ITA Nos.1217/2010, 1219/2010, 1220/2010,
1221/2010, 1231/2010, 1233/2010
KIRAN DEVI ....... APPELLANT
Through : Mr. S.Krishnan, Advocate
Versus
COMMISSIONER OF INCOME TAX ..... RESPONDENT
Through : Mr. Sanjeev Sabharwal, Senior Standing Counsel
with Mr. Puneet Gupta, Senior Standing Counsel
CORAM:
MR. JUSTICE S. RAVINDRA BHAT
MR. JUSTICE R.V. EASWAR
MR. JUSTICE S.RAVINDRA BHAT
%
1. This judgment will dispose of 8 appeals which involve appreciation of
common questions of fact and similar questions of law.
ITA Nos. 995,997/2010, 1217, 1219-1221, 1231 & 1233/2010 Page 1
2. The question of law framed in respect of ITA 1217/2010, 1219/2010,
1221/2010, 1231/2010 and 1233/2010 reads as follows :
"Whether on the facts and in the circumstances of the case the Income
Tax Appellate Tribunal can uphold the penalty by invoking the main
provision of Section 271(1)(c) of the Act when the charge in the initiation
of proceedings and levy of penalty was under Explanation 5 of Section
271(1)(c) of the Act?"
The question of law framed in ITA Nos. 995 and 997/2010 was as follows:
"Whether the ITAT was justified in not going into the merits of the
case?"
3. The first batch of appeals i.e. ITAT 1217/2010, 1219/2010, 1221/2010,
1231/2010 and 1233/2010 are hereby referred to as "Kiran Devi's case" and the
second batch of appeals i.e. ITA 995 & 997/2010 are hereby referred as "Meera
Devi's case". In the latter i.e. Meera Devi's case, the Commissioner of Income
Tax is in appeal; and in Kiran Devi's case the Assessee is in appeal.
4. The brief facts necessary for disposal of the cases before this Court are
that on 13.01.2004 a search operation under Section 132 of the Income Tax Act
was conducted in the residential premises of one K.N. Mehrotra, an employee
of M/s Prabhat Zarda Group. During the course of search, several loose papers,
bank statements, documents etc. were found and seized. The said individual
K.N. Mehrotra submitted that those papers, documents etc pertained to Smt.
Meera Devi and also to Kiran Devi. These and several other documents were
included in Annexure 8. Subsequently both Meera Devi and Kiran Devi were
asked to explain the source of deposits by summons dated 03.03.2006, by AC-
IT (Central Circle XIV). Initially no one appeared on behalf of the two
assessees. Later the AO issued notice under Section 153 C to both the
assessees, asking them to file return of income for the years under
consideration. In response to this, the assessees filed their return on 28.03.2006.
These returns were later assessed and explanations sought from the individuals.
ITA Nos. 995,997/2010, 1217, 1219-1221, 1231 & 1233/2010 Page 2
In Meera Devi's case, the additional income disclosed in response to the notice
under Section 153 C was `3,52,200/- (1999-2000); `5,30,471/- (2000-2001);
`23,77,110/- (2001-2002); `25,39,730/- (2002-2003); and `19,47,220/- (2003-
2004). Similarly in the case of Kiran Devi after summons were issued a return
was filed showing considerable higher income on 28.03.2006. In the case of
Kiran Devi the additional income disclosed under Section 153 C was
`.3,57,410/- (1999-2000), `.37,12,580/- (2000-2001); `.55,31,900/- (2001-
2002), `.8,76,740/- (2002-2003); `.18,67,320/- (2003-2004). For the last year
the Assessing Officer found that the income liable to be taxed was `.20,05,584/-
on account of an addition of `.7,02,964/- made under Section 68 of the Income
Tax Act for unproved cash credit.
5. The Assessing Officer had also initiated penalty proceedings under
Section 271 (1) (c) of the Income Tax Act, 1961 for concealment of income.
After completion of assessment the penalty orders were made. The assessees
appealed to the Commissioner (Appeals). The appeals of Meeri Devi were
dismissed on 28.11.2007. Kiran Devi's appeals were also dismissed on
14.12.2007.
6. Being aggrieved by the orders the said assessees approached the Tribunal.
Apparently in the case of Meeri Devi three appeals were dismissed by the CIT
(Appeals).
7. In the meanwhile some other individuals i.e. Ashok Kumar and Shravan
Kumar were issued with similar notices and called upon to furnish returns. The
assessments were completed on the basis of the revised returns filed by them
which did not disclose any additions. In other cases, however, the orders of the
Assessing Officer and Commissioner CIT (Appeals) concurrently imposing and
affirming penalty were taken in appeal to the ITAT which on 14.03.2008
allowed them holding as follows:
ITA Nos. 995,997/2010, 1217, 1219-1221, 1231 & 1233/2010 Page 3
"The language of provisions of Explanation 5 to Section 271(1)(c) is
plain and clear. As per the Explanation 5 as stood at the relevant time, if
at the time of search assets which are not recorded in the books of
accounts are found, the assessee is liable to penalty u/s 271 (c) for
concealment even if he declares the full value of those assets as his
income in the return filed after the search. In the instant cases, the
assessees were not found to be the owner of any money, bullion, jewellery
or other valuable articles or things during the course of search which
was not disclosed in the returns of income or books of account
maintained by them. Since this very condition that the assets were not
found in the possession of assessees is not satisfied, the provision of
Explanation 5 could not be resorted to for levy of penalty u/s 271 (1)(c) of
the Act. The language of Explanation 5 to Section 271(1)(c) being plain
and simple, in our considered view, the AO was not justified in taking
recourse to the Explanation for imposition of penalty. Moreover, the
assessees being salaried persons were not required to maintain the books
of account in respect of salary income. The salary income has suffered
tax at source. Likewise the income from house property is also disclosed
to the department. Penalty u/s 271(1)(c) can be imposed for furnishing of
inaccurate particulars of income or if the assessee fails to offer an
explanation that is not substantiated and assessee fails to prove that such
explanation was bonafide. The AO has wrongly invoked the provisions of
Explanation 5 to impose penalty u/s 271(1)(c). Since the provisions of
Explanation 5 are not attracted in the case of both the assessee, penalties
imposed by the AO and confirmed by the Ld. CIT(A) deserves to be
deleted in all the appeals. We order accordingly."
8. In these circumstances, when Meera Devi's appeals (ITA 564-
568/Del/2008) were taken up for hearing, the Tribunal on the basis of the above
reasoning (in its previous order dated 14.03.2008), allowed the appeals. Three
appeals were filed by the Revenue, however, they were not considered by this
Court on the ground that the tax effect was less than the prescribed amount. It
is in these circumstances the two surviving appeals of Meera Devi, are being
considered. In the case of Kiran Devi by a subsequent order dated 07.08.2009,
another Bench of the ITAT dismissed the assessee's appeal.
9. Counsel for the assessee in both cases i.e. Kiran Devi and Meera Devi
urged that the Tribunal fell into an error in not taking into consideration the fact
that penalty proceedings were completely unwarranted in these cases. It was
ITA Nos. 995,997/2010, 1217, 1219-1221, 1231 & 1233/2010 Page 4
submitted that having regard to the 5th Explanation to Section 271 (1)(c) of the
Income Tax Act and the fact that the assessees had promptly responded and
filed the returns after receipt of notices consequent upon the search, it could not
be said that there was any intention on their part to conceal the income or that
they had furnished false or inaccurate particulars in their original returns filed
under Section 139 of the Act. Counsel highlighted the fact that the principle of
consistency and judicial discipline demanded that Kiran Devi's appeals ought to
have been allowed having regard to the order of the Tribunal in ITA 272,273 &
318/Del/2007 and connected cases, decided on 14.03.2008. That interpretation
was by a co-ordinate Bench of the Tribunal. In case another Bench felt that
interpretation was incorrect judicial discipline demanded, that the latter Bench
should have referred the appeals for consideration by a larger or special Bench.
In support of this contention, learned counsel relied upon the decision reported
as Union of India Vs. Paras Laminates Pvt. Ltd. (1990) 186 ITR 722.
10. It was urged by virtue of several decisions of the various High Courts and
the Supreme Court, it is an established rule of law that search proceedings and
returns filed pursuant to them to be viewed strictly in accordance with the
special provisions connected with it. It was submitted that the presumption
which the Revenue can resort under Section 132(4A) and Section 132 (5) is
discretionary and also limited and cannot be mechanically drawn but has to be
supported by the facts and reasons. In this case, counsel relied upon the
judgment reported as Commissioner of Income Tax Vs. Chhabra Emporium
(2003) 264 ITR 249 (Del) to say that during the course of search, statement of
the assessee is recorded under Section 132(4) in respect of any cash, amount,
stock or jewellery etc. that individual is entitled to claim immunity by virtue of
fifth Explanation to Section 271(1)(c) of the Act. The decision in P.R. Mitrani
Vs. Commissioner of Income Tax (2006) 287 ITR 209 (SC) was relied upon for
the proposition that presumptions under the Income tax Act are to be narrowly
ITA Nos. 995,997/2010, 1217, 1219-1221, 1231 & 1233/2010 Page 5
construed and cannot be resorted for purposes of framing regular assessment. It
was also emphasized - by relying upon the ruling in CIT Vs. Anwar Ali (1970)
76 ITR 696 and in CIT Vs. Jalaram Oil Mills (2002) 253 ITR 192, that the
mere fact that explanation of an assessee, in assessment proceedings is rejected
by itself is not a ground for levying penalty against him or her in connection
with the assessment year.
11. Learned counsel on behalf of the Revenue argued that the approach of the
Tribunal cannot be faulted, in dismissing Kiran Devi's appeals. It was
contended that as opposed to the previous order of 14.03.2008 which
mechanically accepted the appeals by the assessees, and was applied without
looking into individual facts and circumstances, the subsequent order in Kiran
Devi's case is an elaborate one. Counsel for the Revenue submitted that the
decision in Meera Devi's on the other hand suffers from the same infirmity as it
does not discuss the individual facts and why fifth Explanation (to Section 271
(1) (c)) was attracted.
12. It was highlighted by the counsel for the Revenue that the search in this
case took place in a third party's premises. During the course of conduct of that
search, documents pertaining to these two assessees, i.e. Kiran Devi and Meera
Devi were found and seized. Despite notices, they did not respond. Ultimately
the Assessing Officer had to issue notices under Section 153C. It was on
receipt of these notices that both the assessees approached the Assessing Officer
and filed returns for the block period. These returns showed substantial
increase as compared with the original (regular) returns of income which had
originally been filed under Section 139. In both cases there was no explanation
why the income which was subsequently disclosed under Section 153C had
been omitted. In these cases the income claimed was in respect of house
property or income from other source or agricultural income. The Assessing
Officer brought to tax the amounts and in one assessment year alone he added
ITA Nos. 995,997/2010, 1217, 1219-1221, 1231 & 1233/2010 Page 6
certain amount under Section 68 in Meera Devi's case. These clearly reflected
that but for the search and seizure and subsequent proceedings, the two
assessees had no intention of disclosing the income and had in fact indulged in
concealing their income and amounts which had to be taxed in their original
returns. This omission clearly amounted to conduct that attracted Section
271(1)(c).
13. It was urged that the Tribunal fell into an error in Meera Devi's case in
not showing that fifth Explanation by itself does not come to the aid of the
assessee but the situations which carve out exceptions to a limited extent aid the
assessee to disclose the income or source of income within the time limit
specified. Learned counsel submitted in this regard that while issuing a show
cause notice what was required by the Assessing Officer was to merely state as
to how and what constituted inaccurate particulars. In all cases it is for the
assessee to show that the limited exceptions spelt out in the fifth Explanation
applied. In this case, clearly, the conduct of the assessees was such that the
exception to the Explanation was not attracted.
14. It can be seen from the above discussion that the assessees in this case
were asked to respond to notices issued by the income tax authorities, pursuant
to documents recovered during search of one K.N. Mehrotra, an employee of
M/s Prabhat Zarda Group. He stated that the documents, papers and bank
account particulars pertained to the assessees. It is not in dispute that even
though the assessees did not initially respond to the notice, yet, when they
received notices under Section 153C, both filed returns. In these returns, they
disclosed substantially higher income - adding other sources, i.e. rent from
house property and income from other sources. The assessees argue that they
cannot be penalized, since the fifth explanation to Section 271(c) - which
applies to search cases- is attracted. They also argue that the Tribunal's previous
order in the connected cases bound it and the doctrine of precedent as well as
ITA Nos. 995,997/2010, 1217, 1219-1221, 1231 & 1233/2010 Page 7
judicial discipline constrained it to follow that previous order. In case it wished
to re-visit the reasoning, the proper course should have been to refer the matter
to a larger Bench.
15. There is some authority for the assessees' argument that a Bench of a
Tribunal should not depart from an earlier view expressed by it, in the interests
of consistency and stability in the administration of law. The Court is also aware
that the Tribunal is a quasi-judicial authority, and is not a court of record. There
are important exceptions to the doctrine of precedent, which reinforce the public
interest in proper administration of justice. The first is that a decision is an
authority for what it says, in the context of the facts. The second is that if the
previous decision is per incuriam, the Tribunal, or court is not bound to
consider it as a binding precedent.
16. In this context, it would be necessary to notice that Section 271 (1) (c)
empowers the Assessing Officer to impose penalties wherever the assessee does
not furnish accurate particulars, in the form of returns, such as concealing the
sources of income, or withholding true and full information. This duty was spelt
out by the Supreme Court as one cast on the assessee to disclose all facts,
including every potential income. In Calcutta Discount Company v Income Tax
Officer AIR 1961 SC 372 the Supreme Court underlined this duty in the
following terms:
"a duty on every assessee to disclose fully and truly all material facts
necessary for his assessment. What facts are material, and necessary for
assessment will differ from case to case. In every assessment proceeding,
the assessing authority will, for the purpose of computing or determining
the proper tax due from an assessee, require to know all the facts which
help him in coming to the correct conclusion. From the primary facts in
his Possession, whether on disclosure by the assessee, or discovered by
him on the basis of the facts disclosed, or otherwise-the assessing
authority has to draw inferences as regards certain other facts; and
ultimately, from the primary facts and the further facts inferred from
them, the authority has to draw the proper legal inferences, and ascertain
ITA Nos. 995,997/2010, 1217, 1219-1221, 1231 & 1233/2010 Page 8
on a correct interpretation of the taxing enactment, the proper tax
leviable. Thus, when a question arises whether certain income received
by an assessee is capital receipt, or revenue receipt, the assessing
authority has to find out what primary facts have been proved, what other
facts can be inferred from them, and taking all these together, to decide
what the legal inference should be.
There can be no doubt that the duty of disclosing all the primary
facts relevant to the decision of the question before the assessing
authority lies on the assessee."
If one keeps the above duty (on the part of each assessee) in perspective, the
question of whether the particulars furnished were inaccurate, or there was a
deliberate withholding of information has to be viewed in the context of facts of
every case. In the present case, both assessees had not furnished the particulars
or sources of income which they ultimately disclosed (after being called upon to
do so, by the A.O., through notice under Section 153C) when they filed their
returns. This clearly amounted to non-disclosure of relevant particulars. The
facts subsequently disclosed by them were pursuant to the search in someone
else's premises. Had the search not taken place, they would have kept quiet,
thus allowing that part of the income to remain outside the fold of taxation.
Clearly, therefore, their conduct in filing returns without full particulars fell
within the mischief of Section 271 (1) (c). The question then is whether they
were entitled to claim the benefit of the exception, carved out from the main
Explanation to that provision.
17. This Court is conscious of the fact that taxing statutes have to be
construed in their own terms, and there is no question of equity playing any role
in that function. If that perspective is kept in mind, it is apparent that the
Explanation 5 to Section 271 (1) (c) is premised on search of the assessee. The
main part of the Explanation creates a legal fiction, (i.e. the assessee shall, for
the purposes of imposition of a penalty under cl. (c) of sub-s. (1) of this section,
be deemed to have concealed the particulars of his income or furnished
ITA Nos. 995,997/2010, 1217, 1219-1221, 1231 & 1233/2010 Page 9
inaccurate particulars). The assessee can, in limited circumstances, avail the
benefit of the exceptions ("unless") if
(1) for any previous year which has ended before the date of the
search, (but for which the return of income for such year has not been
furnished before that) or, where such return has been furnished before the
said date, it has not been declared in it, he satisfies that such income is, or
the transactions resulting in such income are recorded before the date of
the search or
(2) 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 be deemed to have concealed the
particulars of his income or furnished inaccurate particulars of such
income unless he satisfies that on or before such date, in the books of
account, 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 (i.e. the date of search) or
(3) The assessee, 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.
18. The structure of the provision, and the Explanation make it clear that the
first part, i.e. concealment of income, or furnishing of inaccurate particulars,
ITA Nos. 995,997/2010, 1217, 1219-1221, 1231 & 1233/2010 Page 10
results in the presumption, that it is liable for penalty. The onus is upon the
assessee, whose premises are subjected to search, and from where the books of
account pertaining to the undisclosed particulars are found, to show that he falls
within the two exceptions, carved out of the Explanation. In other words, the
Explanation enacts a presumption that where undisclosed particulars are found
in the course of a search, in the form of assets, or from books of account, the
two exceptions are attracted. These exceptions are qualified, and in turn are
premised on disclosures at specified points of time.
19. It would be relevant, in this context, to notice the decision of the Bombay
High Court in Sheraton Apparels, Max vs. ACIT (2003) 1 BOMLR 888 where
the Explanation was considered and interpreted. The court emphasized the
expression "books of account" and held that:
"31. The income-tax legislation has been using the term "book" or "books
of account" right from its inception. But, these terms are defined in the
Act for the first time by the Finance Act, 2001, with effect from June 1,
2001. Section 2(12A) defines the said terms to mean :
"(12A) 'books or books of account' includes ledgers, day-books,
cash books, account books, and other books, whether kept in the
written form or as print-outs of data stored in a floppy, disc, tape
or any other form of electromagnetic data storage device."
32. Then above definition appears to have been framed by the Legislature
keeping in view the development of computer technology. If the newly
inserted definition of books of account inserted in the Income-tax Act is
examined in contrast to the definition given under Section 34 of the
Evidence Act, it will be clear that the stringent requirements of Section 34
are not to be found in the said definition. Obviously, for the simple reason
that the purpose of both the legislations are different. So far as the cases
at hand are concerned, they relate to the assessment years 1984-85 to
1988-89 ; much prior to the period of introduction of the definition which
was introduced for the first time under the Finance Act, 2001.
33. In order to appreciate the submissions keeping in view the facts of the
present cases, one has to concentrate not only on the bare term "books of
account" but also on the words in whose company the said term is
ITA Nos. 995,997/2010, 1217, 1219-1221, 1231 & 1233/2010 Page 11
appearing. The extracted sub-clause appearing hereinbelow will have to
be understood properly and appropriate meaning will have to be
assigned keeping in mind the backdrop in which the concept of "books of
account" is referred to in Sub-clause (1) of Clause (b) of Explanation 5.
The words used are :
"such income is, or the transactions resulting in such income are
recorded . . . in the books of account, if any, maintained by him for
any source of income .. . before the said date."
34. The term "books of account" referred to in Sub-clause (1) of
Explanation 5 to Section 271(1)(c) means books of account which have
been maintained for determining any source of income. The term "source
of income" as understood in the Income-tax Act is to identify or classify
income so as to determine under which head, out of the various heads of
income referred to in Section 14 of the Act, it would fall for the purposes
of computation of the total income for charging income-tax thereon.
Thus, the term "books of account" referred to in this relevant sub-clause
of Explanation 5 would mean those books of account whose main object
is to provide credible data and information to file the tax returns. A
credible accounting record provides the best foundation for filing returns
of both direct and indirect taxes. Accounting is called a language of
business. Its aim is to communicate financial information about the
financial results. This is not possible unless the main objectives of the
books of account are to maintain a record of business : to calculate profit
earned or loss suffered during the period of time, to depict the financial
position of the business ; to portray the liquidity position ; to provide up
to date information of assets and liabilities with a view to derive
information so as to prepare a profit and loss account and draw a
balance-sheet to determine income and source thereof. Thus, the term
"books of account" referred to in Explanation 5 must answer the above
qualifications. It cannot be understood to mean compilation or
collections of sheets in one volume. The books of account referred to are
those books of account which are maintained for the purposes of the
Income-tax Act and not diaries which are maintained merely as a man's
private record ; prepared by him as may be in accordance with his
pleasure or convenience to secretly record secret, unaccounted
clandestine transactions not meant for the purposes of the Income-tax
Act, but with specific intention or desire on the part of the assessee to
hide or conceal income so as to avoid imposition of tax thereon.
35. The words in Explanation 5 "books of account, if any, maintained by
him for any source of income" are important words signifying the
ITA Nos. 995,997/2010, 1217, 1219-1221, 1231 & 1233/2010 Page 12
legislative intent embodied in the Explanation warranting grant of
immunity from penalty. The legislative intent is to admit only those books
of account maintained by the assessee on his own behalf as by their very
nature and circumstances are maintained for the purposes of drawing the
source of income. Therefore, when books of account are tendered for
claiming the benefit of Explanation 5 to Section 271(1)(c) of the Act, it
must be shown to be a book, that book must be a book of account, and on
the top of it that must be one maintained for the purposes of drawing the
source of income under the Income-tax Act. These essential requirements
must be carefully observed while implementing tax legislation in the
country where secret and parallel accounts based on frauds and forgery
are extremely common and responsibility of keeping and maintaining
accounts for the purposes of the tax legislation is honoured in the breach
rather than the observance.
36. Now, turning to the facts of the cases in hand, private diaries may
have been most regularly maintained, it may have been exhibiting record
of the factual facts, contemporaneously made but they were never
maintained for the purposes of the Income-tax Act to draw the source of
income or for the computation of total income to offer income calculated
therefrom for the purposes of taxation. Such books or diaries can hardly
be designed or accepted as books of account for the purposes of
Explanation 5 of Section 271(1)(c) of the Act, so as to afford immunity
from penalty. None of the cases cited by the appellants were close to the
facts found herein, hence no reference thereto in our opinion, is
necessary."
20. In these cases, it would be relevant to notice the reasoning of the Tribunal
in the Kiran Devi batch of cases. The extracts of its order are reproduced below:
"12.1 In assessment order for assessment year 1999-2000, after
recording sequence of events leading to search at residential premises of
Shri K.N. Mehrotra and refusal of the assessee to attend to summons
under Section 131 and action taken under Section 153C and the return
filed by the assessee, the Assessing Officer as per para 5 has observed as
under :
"Since the assessee has filed the return of income after the
date of search, it is a fit case to initiate penalty proceedings
as per the Explanation 5 to Section 271(1)(c) of the Income
Tax Act, 1961 because the assessee has concealed her
income and furnished inaccurate particulars of income.
ITA Nos. 995,997/2010, 1217, 1219-1221, 1231 & 1233/2010 Page 13
Hence, penalty proceedings under Expln. 5 to Section
271(1)(c) of the Act are initiated."
12.2 Similarly, other assessment order has been passed. A clear finding
that assessee has concealed his income and furnished inaccurate
particulars of income has been recorded in the assessment order. Penalty
proceeding has been initiated in terms of Explanation 5 to Section
271(1)(c) of the IT Act. In the said Explanation it is provided as under :
"Explanation 5 : Where in the course of a [search initiated under
Section 132 before the 1st day of June, 2007], 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) 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 purposes of imposition of a penalty
under cl. (c) of sub-s. (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 account, 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
(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
ITA Nos. 995,997/2010, 1217, 1219-1221, 1231 & 1233/2010 Page 14
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.]"
12.3 The exceptions provided in the Explanation have no application
here and are not relevant. The highlighted (italicised in print) portion is
required to be read in the assessment order in the light of reference to
Explanation 5. There is, therefore, a clear finding fully supported by facts
that assessee concealed income in the returns originally filed under
Section 139, notwithstanding that such income was disclosed after search
and after detection of the concealed income in returns in response to
notices under Section 153C. These facts are clearly emerging from the
assessment orders leading to valid initiation of penalty proceeding and
penalty orders. In the light of unassailable facts, no prejudice has even
been alleged or claimed by the assessee."
xxxxxxx xxxxxxxxx xxxxxxxxx
"16. We have carefully considered submissions of assessee relating to
invoking/application/non-application of Explanation 5 to Section
271(1)(c) of the IT Act. If free and without judicial constraint to follow
the decision of a Coordinate Bench, we would have perhaps agreed with
the view taken by learned CIT(A) to Explanation 5. The said Explanation
does not mention that search should be of the assessee and copy of bank
statement found in search can be treated as evidence of assessee's
ownership of "money" or "other valuable article". Therefore, to examine
import of Explanation 5 with reference to finding recorded by learned
CIT(A), the issue could be referred for consideration. However, the
finding of the Co-ordinate Benches that Explanation 5 to Section
271(1)(c) is not applicable, in our opinion, is not material for disposal of
appeal. There is, therefore, no need to refer the matter to the Special
Bench. This is, however, without prejudice and subject to clear and
established facts on record which are not even in dispute. In the light of
above facts, we are to examine the question whether assessee is liable to
be penalized under Section 271(1)(c) of the IT Act.
16.1 The main contention advanced on behalf of the assessee is that
penalty proceeding was initiated by invoking Explanation 5 to Section
271(1)(c) and, therefore, question has to be strictly examined in the light
of above Explanation. Even main provision of Section 271(1)(c) cannot
be considered or applied to uphold the levy of penalty. Other Benches of
the Tribunal did not go beyond considering Explanation 5 and held that
said Explanation is not applicable and thereby cancelled the penalty. In
ITA Nos. 995,997/2010, 1217, 1219-1221, 1231 & 1233/2010 Page 15
our considered opinion, above contentions of the assessee based upon
Explanation 5 are to be rejected. Various explanations to Section
271(1)(c) being part of the section, need not be invoked while initiating
penalty proceeding. The penalty is to be imposed if conditions prescribed
by Section 271(1)(c) are satisfied. The said section is to the following
effects:"
xxxxxxx xxxxxxxxx xxxxxxxxx
"16.7 It is further to be understood that Explanations deal with
cases of "deemed concealment" and not of actual concealment fully
established. Even if burden is taken to be on the Revenue, the same is also
discharged in this case. We, therefore, fail to appreciate why penalty for
concealment of income under main Section 271(1)(c) cannot be imposed
or upheld for not disclosing "income" in the returns originally filed under
Section 139 of the IT Act. Income withheld and not shown in those returns
was the concealed income which was detected by the Revenue in the
search in these cases. Why assessee should not pay penalty on such
concealed income is beyond our comprehension.
16.8 In our considered opinion, it was totally unnecessary on the facts
of these cases for the AO to invoke (allegedly) Explanation 5 to Section
271(1)(c) of the IT Act as income not disclosed in the return under
Section 139 but detected subsequently and established to be assessee's
income and assessed accordingly is concealed and fully covered by
Section 271(1)(c) of the IT Act. There was absolutely no need to try and
bring the cases under Explanation 5 of section. It has been referred by
the AO out of abundant precaution to make clear to the assessee that
subsequent disclosure of income under Section 153C would not alter her
default under Section 271(1)(c) of the Act committed in returns filed
under Section 139 (before the search). Factual matrix is not in dispute. It
is immaterial that above Explanation has been referred in the assessment
order. On facts, application of Section 271(1)(c) is not affected. The
proposition that assessee has an obligation to show correct income under
Section139 and if it is not done, Revenue is entitled to invoke provision to
Section 271(1)(c) notwithstanding that correct income is shown in
response to notice under Section 148 of the IT Act or in some other
proceedings is well established and is beyond doubt. For the purpose of
present proceeding, there is no material difference whether the returns
were filed in response to notice under Section 148 or under Section 153C
of the IT Act. The legal position on the issue is more than clear."
21. The above extracts would show that the assessees did not disclose the
income or the assets any time in the returns filed by them. Furthermore, the
ITA Nos. 995,997/2010, 1217, 1219-1221, 1231 & 1233/2010 Page 16
search conducted was not in their premises; it was in the premises of someone
else. Having regard to the restricted nature of the phrase "books of account" the
particulars found in the premises of someone else could not be said to have been
"in the course of search", because the present assessees' premises were not
searched. Nor did they make any disclosure or statement, or surrender their
income, during the course of search. They filed a return, which for the first time,
disclosed the hitherto concealed income. Their explanations were not of the
kind which therefore, fell within the exception to Explanation 5 of Section 271
(1) (c). The reliance placed by the assessees on the judgment of this court in
Chhabra is inapposite, because in that case, the assessee surrendered the
amount during, or immediately after the search. P.R. Mitrani does not help the
assessees, because this Court is not holding that the presumption which has to
be taken under the provision is irrebuttable, or sweeping. The court is merely
construing the Parliamentary purpose for the fifth Explanation, and also
interpreting the nature of the exceptions which allow the assessee the benefit.
Clearly, the assessees in this case cannot claim any such benefit.
22. For the above reasons, the question of law in ITA Nos.1217/2010,
1219/2010, 1221/2010, 1231/2010 and 1233/2010 is answered in favour of the
revenue and against the appellant. The said appeals are, consequently,
dismissed. For the same reasons, the questions of law in ITA Nos. 995/2010 and
997/2010 are answered in favour of the revenue. The said two appeals are
consequently, allowed.
S. RAVINDRA BHAT, J.
R.V.EASWAR, J.
AUGUST 23, 2012 ITA Nos. 995,997/2010, 1217, 1219-1221, 1231 & 1233/2010 Page 17