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TMI Blog2001 (2) TMI 1024X X X X Extracts X X X X X X X X Extracts X X X X ..... ement that in the absence of updated books of account, the source of investment in various assets might not be properly known to them and, therefore, the members of the family made a declaration of additional income of ₹ 3 crores under section 132(4) of the Income-tax Act, 1961. It was promised that a detailed break-up of the amount would be given to the Department in a few days time. It was further stated that all the members of the family had earned additional income of ₹ 3 crores out of brokerage of Stock Exchange and capital gains from investment in shares and securities which had not been accounted for in the family members' personal books of account. On the date of search, the members of family had not filed returns of income for assessment years 1988-89, 1989-90 and 1990-91. Shri Harshad Mehta further stated that they proposed to pay taxes on additional income of ₹ 25 lakhs for assessment year 1989-90 and ₹ 1 crore for assessment year 1990-91 and that the Department should take a lenient view and grant them immunity from penalty and prosecution and interest. Thereafter, on 10-5-1991, Shri Harshad S. Mehta and Shri Ashwin S. Mehta jointly submitted a l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ava, in miscellaneous application No. 107 of 1993 dated 2-7-1993, no penalty should be imposed against her. The Assessing Officer however held that the said order related to levy of penalty under section 221 only and not other provisions of Income-tax Act. 5. According to the Assessing Officer, the assessees were liable to penalty under section 271(1)(c) in view of Explanation 5 below section 271(1)(c) inasmuch as Smt. Rasila S. Mehta had claimed that a sum of ₹ 7,409 disclosed in her returns of income for assessment year 1988-89 had been used for acquisition of shares found during the course of the search and Smt. Pratima H. Mehta had similarly claimed that a sum of ₹ 34,699 had been so used. The assessees submitted that Explanation 5 had provided that no penalty should be levied if the assessee had made a declaration under section 132(4). The Assessing Officer did not accept these arguments of the assessees as in his view the immunity under provisions of Explanation 5 was available only in respect of the assessment year for which the due date of filing of return was after the date of search. Moreover, the assessees had filed their returns of income in consequence of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c) in relation to assessment year 1988-89. It was not the case of the assessee that the transactions resulting in disclosed income were recorded in the books of account. In his statement, Shri Harshad Mehta had clearly admitted on behalf of the group that the income disclosed was not accounted for in the personal books of account of the family members. There was no disclosure before the Chief Commissioner or Commissioner of Income-tax either. The words "before the said date" had to be interpreted so as to mean before date of search only. It was also relevant to mention that this Explanation had been inserted with a view to plug the loophole in cases where search resulted in seizure of unaccounted assets and the assessees tried to obtain benefit by claiming that such assets had been acquired out of the income of the earlier years Explanation 5 was introduced to check such mischief. Therefore, the crucial test for exemption from the operation of deeming provisions of Explanation 5 was whether the income had otherwise been disclosed before the date of search or otherwise recorded in the books of account. The words "before the said date" could not be interpreted so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. The learned CIT(A) found that in the case of these assessees, the following facts were noteworthy :- (i)The returns of income were due on 30-6-1988 and the same had not been filed even though a period of more than two years had already expired. This clearly showed that the assessees had no intention of disclosing the income earned during the previous year. (ii)There was search at the premises of the assessees on 27-9-1990 which resulted in seizure of unaccounted material/documents and unaccounted assets of substantial value. (iii)During the course of the search, when the assessees were confronted they admitted additional income and also admitted that such additional income representing the investments in the shares and securities had not been accounted for in their personal books of account. Thus, the fact of income concealed was duly admitted by the assessees. When the assessees themselves admitted that additional income represented their unaccounted income, no further evidence was necessary to show that the same was concealed income. The learned CIT(A) referred to the judgments in Krishan Lal Shiv Chand Rai v. CIT [1973] 88 ITR 293 (Punj. & Har.) and M. Ramaswami Asar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osed income. There was also difficulty as the books of account had not been updated. The assessee had therefore requested the Department to take a lenient view and to grant immunity from levy of penalty, prosecution and charging of interest. 11. The learned authorised representative of the assessees referred to the penalty orders as made by the Assessing Officer and submitted that these penalty orders had predominantly been made under Explanation 5 below section 271(1)(c) of the Act. However, in para 3.4 in the case of Smt. Rasila S. Mehta and in para 4.7 in the case of Smt. Pratima H. Mehta, the Assessing Officer also referred to the main provisions of Income-tax Act. After having invoked the provisions of Explanation 5, it was not open to the Assessing Officer to levy penalty under the main provisions of the Act. The learned authorised representative of the assessees relied in this behalf on the judgment of Hon'ble Bombay High Court in CIT v. P.M. Shah [1993] 203 ITR 7921. He also relied upon the decision of ITAT, Ahmedabad Bench, in the case of Gulamrasul M. Pathan v. Asstt. CIT [1996] 57 ITD 129. 12. The learned authorised representative of the assessees argued that after eff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alty shall be levied if they, made disclosure of additional income. The assessees therefore recorded this in the disclosure itself, that the Department should take a lenient view and no penalty, prosecution or interest should be brought in. Relying upon the decision of ITAT, Ahmedabad Bench 'C', in the case of Ashok Natverlal Patel v. Asstt. CIT [1998] 67 ITD 82, the learned authorised representative argued that having assured the assessees of immunity, it was not open to the Revenue to impose penalty under section 271(1)(c) on these assessees. 13. The learned authorised representative of the assessees argued that while a group disclosure of ₹ 3 crores was made, to which these two assessees were parties no particular asset had been identified which had been concealed by the assessees. Provisions of Explanation 5 to section 271(1)(c) come into operation only when in the course of a search under section 132, the assessee is found to be the owner of any money, bullion or jewellery or other valuable article or thing and the assessee claimed that such assets had been acquired by him by utilising his or her income. In the absence of any specific asset, there was no question of app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me for assessment years 1988-89, 1989-90 and 1990-91 even though the same had become due, there was concealment of income on the part of these two assessees and, therefore, the entire returned/assessed income should be treated to be income which had been concealed by the assessees or in respect of which inaccurate particulars had been furnished by the assessees. Secondly according to Revenue, the assessees' case was hit by provisions of Explanation 5 inasmuch as the assessees were found to be the owner of money, bullion, jewellery or other valuable article or thing during the course of the search and the assessees claimed that such assets had been acquired by them by utilising their income from assessment year 1988-89 and onwards. The assessees could not claim any immunity under Explanation 5 inasmuch as the returns of income had already fallen due under section 139(1) at the time of search and declaration of additional income by these assessees. We shall examine the first proposition first, as to whether these assessees may be treated to have concealed their income or furnished inaccurate particulars thereof for reasons only that the returns of income had been filed by them in res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the previous year relevant to assessment year 1988-89 also with which we are concerned. The learned authorised representative of the assessees has vehemently argued before us that the additional income as disclosed by these assessees has not been connected with any assets found during the course of the search and for that reason alone. Explanation 5 cannot be pressed into service in the case of these two assessees. On a careful consideration, we reject the argument of the assessees and find ourselves in agreement with the finding of the authorities below in this respect. In both the penalty orders, the Assessing Officer has reproduced the statement of Shri Harshad S. Mehta on behalf of these assessees during the course of search proceedings under section 132(4) on 27-9-1990. There is clear admission in this statement that the additional income was being disclosed in relation to brokerage of stock exchange and capital gains from investment in shares and securities which were not accounted for in the personal books of account of these assessees. Thereafter, again on 10-5-1991, Shri Harshad S. Mehta and Shri Ashwin S. Mehta jointly submitted a letter with the then Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Explanation 5, with which we are concerned, has been inserted by the Taxation Laws (Amendment) Act, 1984, with effect from 1-10-1984 and, finally, one more Explanation, being Explanation 6, has been inserted by the Direct Tax Laws (Amendment) Act, 1989, with effect from 1-4-1989. From this historical background of Explanations to section 271(1)(c) it would appear that the Explanations operate for deeming in given situations concealment of particulars of income or furnishing of inaccurate particulars of such income. Amendment of the provisions of sections 271(1)(c) and insertion of an Explanation by the Finance Act, 1964, was described in CBDT Circular No. 20, dated 7-7-1964 as "Tightening up of the provisions relating to liability to imposition of penalty for concealment of income or furnishing inaccurate particulars thereof". The Explanation introduced with effect from 1-4-1964 was replaced by a set of four Explanations with effect from 1-4-1976 after considering the Wanchoo Committee Report. This Committee headed by Shri Justice K.N. Wanchoo was appointed by the Government of India to examine and suggest legal and administrative measures for countering evasion and avoid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar which is to end on or after the date of the search, he shall for the purposes of section 271(1)(c) of the Act be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income, unless such income, or the transactions resulting in such income are recorded 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 Commissioner before the said date. 36.3 The fact that the income referred to above is declared by the assessee in any return of income furnished by him on or after the date of the search will not provide immunity to the assessee from imposition of penalty under section 271(1)(c) of the Act unless the conditions mentioned in the preceding paragraph are fulfilled. 36.4 The aforesaid amendments take effect from 1-10-1984." 21. We now reproduce Explanation 5, which is as follows :- "Explanation 5.-Where in the course of is search under section 132, 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 tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income unless such income is found to be recorded in the books of account maintained by the assessee or such income is otherwise disclosed to the Chief Commissoner or Commissioner of Income-tax before the date of search or the assessee makes a statement under section 132(4) that the asset(s) in question 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 section 139(1) and also specifies in the statement the manner in which such income has been derived and pays the tax, together with inerest, if any, in respect of such income. 22. The learned counsel for the assessees argued that "before the said date" should be read as "on or before the said date" and the statement made under section 132(4) should be treated as a disclosure made to the CIT. The provisions of Explanation 5 would not make much sense if an assessee is treated to have concealed his income or furnished inaccurate particulars of his income in spite of having made a disclosure in the course o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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