1997 (6) TMI 52 - AT - Income Tax

Summary

Issues Involved:
1. Levy of penalty under section 271(1)(c) of the Income-tax Act, 1961.
2. Applicability of Explanation 5 to section 271(1)(c) of the Income-tax Act, 1961.
3. Validity of the assessee's claim regarding income from speculation business.
4. Maintenance of books of account for speculation income.

Detailed Analysis:

1. Levy of Penalty Under Section 271(1)(c):
The appeal was directed against the order of the CIT (Appeals) upholding the levy of a penalty of Rs. 5,11,963 under section 271(1)(c) of the Income-tax Act, 1961. The penalty was imposed following a search operation where cash and jewellery were seized from the assessee's locker. The Assessing Officer initiated penalty proceedings, concluding that the assessee had concealed the true particulars of his income by furnishing inaccurate details regarding the source of the assets found in the locker.

2. Applicability of Explanation 5 to Section 271(1)(c):
Explanation 5 to section 271(1)(c) deems certain income as concealed if assets found during a search are not recorded in the books of account. The assessee claimed that the seized assets were part of his current income from speculation, which was disclosed in his return. The tribunal examined whether the case fell under the exceptions provided in sub-clauses (i) and (ii) of Explanation 5. The tribunal found that the assessee's case was covered by sub-clause (i) since the income was recorded in the books of account maintained for the speculation business.

3. Validity of the Assessee's Claim Regarding Income from Speculation Business:
The assessee contended that the cash and jewellery found were from his speculation business in silver. He provided letters and a diary recording transactions in Urdu as evidence. The Assessing Officer, however, noted discrepancies such as the lack of past experience in speculation, inability to produce brokers, and giving a wrong address to the vault company. Despite these observations, the income from speculation was assessed and included in the total income.

4. Maintenance of Books of Account for Speculation Income:
The tribunal focused on whether the assessee maintained books of account for the speculation income as required by sub-clause (i) of Explanation 5. The tribunal observed that the assessee had maintained a diary recording the transactions and had disclosed this income in his return. The tribunal concluded that the requirement of maintaining books of account was satisfied, and the other circumstances cited by the revenue were extraneous to the issue.

Conclusion:
The tribunal held that Explanation 5 to section 271(1)(c) was not applicable as the case was covered by sub-clause (i). The penalty imposed was therefore cancelled, and the appeal was allowed. The tribunal emphasized that the books of account maintained by the assessee for the speculation income were sufficient to meet the requirements of the law, and the revenue's reliance on other circumstances was misplaced.