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TMI Blog2012 (8) TMI 812X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 (Centr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rged 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 construed and cannot be resorted for purposes of framing regular assessment. It was also emphasized - by relying upon the ruling in C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rity 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 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, 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 dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 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. 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 con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hlighted (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 "mon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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