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TMI Blog1994 (5) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant's possession in which deposits aggregating to Rs. 1,01,100 were found. These pay-in-slips were also seized. In the statement recorded during the course search under section 132(4), the appellant offered income represented by the value of diamonds amounting to Rs. 5,06,712 and Rs. 1,01,100 represented various deposits in the said bank account. 3. The assessee submitted a return of income on 17-10-1989, declaring total income of Rs. 20,880. Thus the amount of income surrendered in the statement under section 132(4) during the course of search was not included in the income declared in the original return of income. 4. Thereafter, a revised return was submitted on 27-9-1990, declaring total income of Rs. 5,27,600. In this revised return, the assessee included a sum of Rs. 5,06,712 being the value of diamonds found from his possession during the course of said search. 5. The Assessing Officer considered the question relating to deposits in the said bank account aggregating to Rs. 1,01,100. Out of the said amount, a sum of Rs. 41,100 related to A.Y. 1984-85. The proceedings for A.Y. 1984-85 were reopened under section 148. The question relating to sources of deposits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in question as unexplained. The CIT(A) has clearly erred in not accepting the assessee's contention that the money came from withdrawal made from the same bank account a few months prior to the date of deposit. Our attention was drawn towards copies of bank statement of the said bank and other documents submitted in the compilation containing explanations relating to the said deposits made in the account with Bank of India. He submitted that the assessee is an extremely poor person which is evident from the fact that his household expenses has been estimated by the A.O. himself at the rate of Rs. 10,000 p.m. in A.Y. 1985-86, he has been assessed for A.Y. 1986-87 under section 143(3) at Rs. 18,500 and for A.Y. 1987-88 at Rs. 25,000. The finding given by the CIT(A) cannot be said to be a good and valid finding. The learned counsel relied on the judgment in the case of S.R. Venkata Ratnam v. CIT [1981] 127 ITR 807 (Kar.) to support his contention. 9. The learned D.R. submitted that the explanation with regard to some of the deposits pertaining to A.Y. 1984-85 have been accepted by the A.O. in view of convincing evidence submitted in that year. The amount in question was verifiable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d have also carefully gone through the orders of the departmental authorities as well as other documents to which our attention was drawn during the course of hearing. After giving a very thoughtful consideration to all the aspects and material, we are of the considered opinion that the CIT(A) had rightly confirmed the said addition of Rs. 50,000. The learned D.R. has very ably pointed out that the assessee has submitted different and shifting explanations from time to time in relation to the source of deposits made in the said account. The very first version given in the statement recorded on 3rd July, 1987, at the time of search, was that the said sums of Rs. 30,000 and Rs. 20,000, deposited on 24th and 27th April, 1987, were out of cash received against cheque for entry given to Pankaj S. Shah of P.V. Enterprises, and the balance is assessee's own money. In the same statement the assessee later on changed the version and offered the said amount of deposit along with other deposits in the same bank account as assessee's undisclosed income under section 132(4). The assessee did not pay any advance tax on the income so disclosed in the statement under section 132(4). A return of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound also. 13. The Assessing Officer levied penalties under section 271(1)(a) amounting to Rs. 84,436, under section 271(1)(c) amounting to Rs. 5,61,464 and under section 273(1) amounting to Rs. 2,11,084. The A.O. has given elaborate reasons in the respective penalty orders. The learned CIT(A) has confirmed the same. 14. The learned counsel for the assessee submitted that the assessee is a poor person. In the very first statement recorded during the course of search, he explained that the diamonds found during the course of search belongs to one Mr. Mahendrabhai who gave these diamond packets to him in the Diamond Hall on 5th at Panchratna building. The department did not make any enquiries against Shri Mahendrabhai who was the real owner of the diamonds found during the course of search. The assessee had to make a confession during the course of search and he surrendered the value of diamonds found from his possession valued at Rs. 5,06,712 in the statement recorded u/s 132(4). He also surrendered at that time the deposit in the saving bank a/c aggregating to Rs. 1,01,100. A major part of the said deposits in bank account were proved to have been made out of explained sources ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... representatives and have also carefully gone through the orders of the departmental authorities. It will be worthwhile to reproduce the relevant provisions of section 271(1)(c): "271. (1) If the Assessing Officer or the Deputy Commissioner (Appeals) or the Commissioner (Appeals) in the course of any proceedings under this Act, is satisfied that any person--- (a) (b) (c) has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty--- (i) (ii) (iii) In the cases referred to in clause (c) in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed three times, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or the furnishing of inaccurate particulars of such income. Explanation.--- 5. Where in the course of a search under section 132, the assessee is found to be the owner of any money, bullion, jewellery or other valuable article or thing (hereinafter in this Explanation referred to as assets) and the assessee claims that such assets have been acquired by him by utilising (wholly or i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee could validly escape levy of penalty. 17. Explanation 5 was introduced with a view to plug the aforesaid loophole. The said explanation indicates a deeming provision and provided that where, in the course of a search under section 132, the assessee is found to be owner of such unaccounted assets and the assessee claims that such assets have been acquired by him by utilising, wholly or partly his income for any previous year which has already ended before the date of search or which is to end on or after the date of the search, in such a situation, notwithstanding that such income is declared by him in any return of income furnished on or after the date of search, he shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income for the purposes of imposition of a penalty under section 271(1)(c). The only exceptions to such a deeming provision or a presumption as to concealment are given in sub-clauses (1) (2) of clause (b) of Explanation 5 as reproduced above. According to the learned counsel for the assessee, the present case is clearly covered by the aforesaid sub-clauses providing for immunity from levy of pena ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness and residential premises of Shri Mahendrabhai who was, in the first instance, stated to be the owner of the diamond packets found from the possession of the assessee. The learned D.R. submitted that no such statements of Shri Mahendrabhai were recorded nor he could point out as to whether any search operations were conducted at the premises of said Mahendrabhai. After few more questions in the said statement, the A.O. asked a simple question - 'Do you wish to offer any amount for taxation under section 132(4)?'. The assessee replied that entries relating to cash deposits in the account with Bank of India which was stated to be entries given to Pankajbhai in fact represents his money and he offers the same as liable to tax. In addition to such cash deposits, he further offered the diamonds found in his possession without jangad slips valued at Rs. 5,06,712 as undisclosed income under section 132(4). The A.O. did not ask any further question as to in what manner the assessee derived such income which is being offered for tax as undisclosed income under section 132(4). A perusal of the assessment order for A.Y. 1985-86, completed after the search on 26-3-1992 reveals that househ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he least, asked at least some questions relating to the manner in which such undisclosed income offered for tax was derived by the assessee. In large number of cases where immunity under Explanation 5 to section 271(1)(c) has been granted it would be found that such manner of deriving the undisclosed income have not been properly recorded by the authorised officers in the statements recorded during the search and yet the immunity by waiver of penalty under section 271(1)(c) is granted. it is a well known fact that a sudden search and seizure operation may unnerve the inmates of the place where the search is made. The persons whose statements are recorded during the course of search would invariably be under a disturbed mental state and may be suffering from serious mental stress and strain. In such a situation the responsibility of the authorised officers, before whom any such confessional statement is made, would be very heavy and significant. In order to understand as to how the authorised officers should record such a confessional statement, let us look at the relevant provisions of the Criminal Procedure Code in relation to recording of confessional statements. Section 164 of C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -night. The A.O. asked the assessee to state whether he would like to declare any income under section 132(4). The assessee in response to such a question categorically stated that he would like to offer income represented by value of diamonds found and seized from his possession as well as the amount of deposits in the bank account as undisclosed income under section 132(4). Thereafter the A.O. did not put to the assessee any single question relating to the manner in which such income was derived by the assessee. In the absence of any further interrogation or putting any further question in relation to the manner in which such income was derived it was impossible to expect the assessee to suo motu make further statements with regard to the manner in which such income was derived. The A.O. himself accepted the statement resting with the disclosure of undisclosed income for the purpose of section 132(4). It will be worthwhile to mention here that the Chelliah Committee, after taking into account the general practice in relation to recording of such confessional statements with regard to surrender of income during the course of search have observed that it must be ensured that the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in which such income was derived. Recording of statement under section 132(4) on all such points starts with the interrogation by the authorised officers by putting relevant questions. If the authorised officer failed to put any question regarding the manner in which such income declared in the statement under section 132(4) was derived, the declarant cannot be deprived of the benefit of immunity under Explanation 5 to section 271(1)(c) for not disclosing the manner of deriving such income in the said statement. If the authorised officer instead of closing the said statement immediately after fetching the confession as to undisclosed income would have put further question about the manner of deriving such income and the declarant would not have then specified in that statement the manner in which such income was derived, he would have perhaps been liable for non-compliance of the second condition. However, in the instant case, the authorised officer did not put any such question to the assessee in the statement and was satisfied about the completeness of such confessional statement. Hence it would be highly improper and unjust to deny the benefit of Explanation 5 to section 271(1)( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fulfilled for getting the immunity, after the proceedings of search are over, is that the assessee pays the tax together with interest in respect of such income. This necessarily implies that the assessee should not dispute the taxability of the item in question and should pay tax in respect of such income. However, the law does not prescribe the time limit within which the assessee should pay tax on such income disclosed in the statement under section 132(4). The only conclusion which can, therefore, be drawn about the limitation of time within which such payment of tax should be made is the date when the assessment is to be completed and the point of time when the A. O. is required to record his satisfaction about the initiation or non-initiation of penalty proceedings under section 271(1)(c). We are, therefore, of the considered opinion that if the first two conditions of clause (ii) of Explanation 5 stands satisfied during the course of search itself at a time when the statement under section 132(4) is recorded by the authorised officers, the assessee will be entitled to grant of immunity of waiver of penalty if he pays the tax on the income so disclosed before the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dered opinion that the assessee is liable to penalty under section 271(1)(c) in respect of tax sought to be evaded on the aforesaid addition of Rs. 50,000 which has been finally sustained in the quantum appeal. The A.O. will, however, levy minimum penalty as provided under section 271(1)(c) in relation to the said addition of Rs. 50,000. 25. We will now consider the assessee's appeal against levy of penalty under section 271(1)(a). The learned counsel was fair enough to say that it is very difficult for him to argue on behalf of the assessee the matter relating to penalty under section 271(1)(a). There was a delay of 15 months. The only reason given by the learned counsel was that the assessee had no money and, therefore, he could not file the return because he was required to pay tax on income surrendered during the course of search. The learned D.R. supported the order of the departmental authorities. 26. After considering the submissions made by the learned representatives and after going through the orders of the departmental authorities, we find that the A.O. issued a show-cause notice along with the assessment order requiring the assessee to explain the reasons for the de ..... X X X X Extracts X X X X X X X X Extracts X X X X
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