Vildirect: IncomeTax-caselaws-1995-VIL-205-ITAT-

1995-VIL-205-ITAT-

Equivalent Citation: ITD 054, 694,

Income Tax Appellate Tribunal MADRAS

Date: 16.05.1995

ASSISTANT COMMISSIONER OF INCOME-TAX.

DR. TN. VENKATARAMAN.

BENCH

Member(s) : T. V. K. NATARAJA CHANDRAN., G. CHOWDHURY.

JUDGMENT

Per T.V.K. Natarajachandran, Sr. V.P. --- This is an appeal by the revenue which is directed against the order of the CIT (Appeals) dated 3-10-1988 wherein he cancelled the penalty levied by the Assessing Officer under section 271(1)(c). The revenue has taken the grounds to urge that the CIT (Appeals) erred in cancelling the penalty and he failed to appreciate that the search took place on 8-10-1985 and therefore, the amendment in Explanation 5 effective from 10-9-1986 was not applicable to the facts of the assessee's case and therefore, he erred in holding that no penalty is exigible in view of the second exception contained in Explanation 5 to section 271(1)(c). It was also urged that but for the search conducted by the department on 8-10-1985, the concealed income would not have come to the surface. Therefore, the CIT (Appeals) ought to have upheld the levy of penalty.

2. The facts leading to the levy of penalty for concealment of income under section 271(1)(c) have been stated in the impugned orders of the Assessing Officer as well as the first appellate authority. The case of the Assessing Officer was that the search conducted on 8-10-1985 revealed several investments during the relevant accounting year, that but for the search the investments found would not have been accounted for and that the assessee was found to be maintaining a Daily Collection Register meant for income-tax purposes, grossly under-stating his professional receipts. During the course of search, the assessee also admitted such under-statement of professional receipts in the Daily Collection Register maintained. Therefore, Explanation 5 to section 271(1)(c) was attracted and though such income is declared in the return filed after the search, he shall be deemed to have concealed particulars of income or furnished inaccurate particulars of such income and, therefore, penalty under section 271(1)(c)waswarranted. Presumably,the amendment to the said Explanation 5 made by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986 providing two exceptions to the said Explanation was not applied to the case by the Assessing Officer as such the amendment came into force after the raid which took place on 8-10-1985 vide ground No. 3 taken by the revenue before the Tribunal.

3. The case of the CIT (Appeals) was that the exception No. 2 brought in by the amendment was applicable in the present case and, therefore, there was no case for levy of penalty. He noted that the assessee has given a statement under section 132(4) during the course of search proceedings. When the discrepancies between the figures found in the two collection registers was put to the assessee, he admitted that he had not been entering the correct amount of daily collection in the Daily Collection Register intended for income-tax purposes. Regarding other investments surfaced at the time of search he had not offered any Explanation for that omission. This would reveal that the assessee has disclosed the concealed income in his statement under section 132(4). Further the cash found and seized at the time of search, was adjusted against the tax and interest in respect of the income offered by the assessee. Hence, in his opinion, the second exception would be applicable and, therefore, Explanation 5 to section 271(1)(c) was not attracted. As regards, the applicability of the amendment for levy of penalty, the CIT(Appeals) noted the decision of the Tribunal in the case of Dr. S.M. Somi v. ITO [1970] 19 CTR 9 wherein the Tribunal held that quantification of penalty was to be based on the provisions of law applicable on the date of penalty and not on the date of the offence for which penalty was attracted. The CIT (Appeals) has extracted the relevant portion of the order of the Tribunal vide para 7 of the appellate order dated 3-10-1988. Even the observations of the author Bindra in his book "Interpretation of the Statutes" have been reproduced in the same para according to which the court trying an accused person has to take into consideration the law as it exists on the date of the judgment.The CIT (Appeals) has also extracted the relevant portion of the American judgment in the case of Calder v. Bull 1978 3 Dalls (U.S.) (386) in which it has been observed that the court must construe its provisions beneficially in regard to their applicability to the accused. In view of the aforesaid rulings, the CIT (Appeals) concluded that the second exception to Explanation 5 to section 271 (1)(c) is applicable in the instant case as the amendment which came into force on 10-9-1986 was available in the statute book on the date of levy of penalty. Consequently, he cancelled the penalty levied by the Assessing Officer.

4. At the time of hearing, ld. Departmental Representative, Sri T. Vinay Mohan has been heard at great length. He has reiterated the ground taken by the revenue and strongly supported the penalty order of the Assessing Officer. He has also relied on the order of the Tribunal in assessee's own case for the earlier assessment year 1984-85 in ITA No. 3900/Mds/88, dated 13-7-1992.

5. Sri V.K. Jayaraman, ld. counsel for the assessee narrated the background of the case and pointed out that on the date of search on 8-10-1985 a sworn statement was recorded by the income-tax authority in his own handwriting and the assessee was simply asked to sign. The point made by him was that the statement was not voluntary and truthful but was made under compulsion, inducement, threat or promise. He pointed out that the slips issued by the assessee and which were seized by the department did not relate to the relevant accounting year 1-4-1984 to 31-3-1985 with the result that there was no incriminating material seized which pertained to the assessment year 1985-86. In the return filed on 17-3-1986, the income shown by the assessee based on the cash flow statement was accepted by the department in toto. Regarding the observation of the Assessing Officer contained in page 2 bottom that books of account seized from the assessee have not recorded any of the investments which surfaced at the time of search, he pointed out that no contemporaneous books of account were maintained by the assessee. Therefore penalty notice issued by the Assessing Officer is ultra vires and routine in nature. Even invoking of Explanation 5 to section 271(1)(c) is not indicated in the penalty notice. It is for this reason, the assessee could not furnish suitable reply regarding invoking of Explanation 5 to section 271(1)(c) as contended in para 5 of the written submission of the assessee dated 3-8-1994. Inasmuch as, the return of income has been accepted by the Assessing Officer and the assessee has defended that there was no concealment in the return filed, the assessee was surprised to receive the penalty order from the Assessing Officer invoking the provisions of Explanation 5 to section 271(1)(c) which was not known to the assessee at all. In this connection, the pertinent observation of their Lordships of the Bombay High Court in the case of CIT v. P.M. Shah [1993] 203 ITR 792 has been relied upon. He also pointed out that out of cash seized at the time of search, entire tax, interest and even penalty was paid up and collected by the department. Though he did not clarify on the point that the concealment takes place on the date when original return is filed, he pointed out that the income returned by the assessee was accepted in toto by the Assessing Officer after elaborate discussion. In short, the investments which surfaced at the time of search were covered by the income shown in the return filed by the assessee but for which the income returned would not have been accepted. From this point of view, there is no concealment in the return filed by the assessee. Therefore, the assessee has to resort to exceptions provided in the Explanation 5 to section 271(1)(c) because the assessee voluntarily included even investment, unexplained investment and offered as income which was ultimately accepted and the cash seized was adjusted towards tax payable on such income. In this connection, he made a reference to the fact that it is the department which has prepared the cash flow statement so as to cover up the investments which have surfaced at the time of search and which statement has been accepted by the assessee. For all these reasons, ld. counsel for the assessee vehemently supported the decision of the CIT (Appeals). The ld. Departmental Representative relied on several decisions to support the penalty levied by the Assessing Officer.

6. We have considered the rival submissions, paper compilation filed by the assessee and the impugned orders of the authorities. It has to be observed that there is no evidence on record to show regular accounts were maintained by the assessee for the major source of income viz., professional income. Therefore, the plea of failure to record unexplained investments in the regular books of account was not maintainable as rightly contended by the ld. counsel for the assessee. In para 10 of the written submission dated 3-8-1994, the assessee reiterated the facts that no books of account or duplicate set of collections registers etc. have been seized in respect of relevant accounting period from 1-4-1984 to 31-3-1985 for the assessment year 1985-86 under consideration. In fact, no regular books of account were maintained by the assessee and two daily collection registers happened to be maintained by the assessee for the period from 1-4-1985 relevant for the assessment year 1986-87 and not for the assessment year 1985-86.

7. It is pertinent to note that ld. counsel for the assessee has categorically stated that sworn statement has been recorded by the Income-tax Inspector and the cash flow statement was prepared by the department to cover up all the investments surfaced and the assessee was asked to admit suppression or omission of professional income. Even if there is exaggeration in the claim made by the ld. counsel for the assessee, the fact remains that unexplained investment can be explained by the assessee only out of the main source of income i.e. professional income. The fact remains that the income returned for the assessment year 1985-86 was accepted in toto. The fact that no regular books of accounts were maintained and the income admitted in return was accepted shows there was no concealment, under section 271(1)(c) as such . But the fact that the return was filed on 17-3-1986 after the raid conducted on 8-10-1985 admitting all the unexplained investments would bring the case within the purview of explanation. Therefore, it was a mandatory for the Assessing Officer to bring to the notice of the assessee, the factum of attraction of Explanation 5 to section 271(1)(c). Inasmuch as, there was failure to do so, the jurisdiction to levy penalty is not validly assumed and the penalty is rightly to be cancelled on that score as viewed by their Lordships of the Bombay High Court in the case of P.M. Shah. When once the jurisdiction to levy penalty under section 271(1)(c) read with Explanation therein was not validly assumed, the penalty levied was not sustainable.

8. Even assuming that the assessee shall be deemed to have concealed the particulars of such income or furnished inaccurate particulars of such income is terms of Explanation 5 to section 271(1)(c), the second exception provided by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986 with effect from 10-9-1986 is applicable to the case of the assessee as rightly concluded by the CIT (Appeals). In the sworn statement, the assessee has corrected the wrong statement made in the preliminary statement which shows that the assessee has admitted under statement of professional income. Even if it is not given by him voluntarily as vehemently contended by the ld. counsel for the assessee, the cash found was admitted to be the savings out of professional income of earlier years and partly the cash balance of his father. To a specific question regarding other investments the assessee admitted that they represented the investments made out of the professional income earned in earlier years. In short, there is enough material on record to show that professional income has been suppressed. Unexplained investments were made out of such suppressed professional income and the cash of Rs. 27,000 found in the clinic, in the residence and the locker in State Bank of India was adjusted by the department towards tax and interest due from the assessee. Thus all the prescriptions required in the second exception to Explanation 5 have been complied with.

9. The only moot point is whether the second exception which came into force on 10-9-1986 before the penalty was actually levied by the Assessing Officer would be available to the assessee or not. In our view the CIT (Appeals) has rightly extracted the legal principles of criminal jurisprudence so as to import such principles for the penalty under consideration. The second exception provided by the Taxation Laws (Amendment & Miscellaneous Provisions )Act, 1986 shows the legislative intent to mitigate the rigour of law contained in the deeming provisions of Explanation 5 to section 271(1)(c) and therefore beneficial interpretation even if there could be two interpretations on this point, should be given in favour of the assessee as ruled by the Supreme Court in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192. The case laws relied upon by the ld. Departmental Representative were referred to by the ld. counsel for the assessee in his written submission and distinguished them on facts.

10. The decision of the Tribunal for earlier assessment year 1984-85 in assessee's own case was distinguished by the ld. counsel for the assessee on facts, in the written statement filed on 7-12-1984. In view of these facts and circumstances of the case, we entirely agree with the reasons and conclusion drawn by the CIT (Appeals) and consequently, we uphold the order of the CIT (Appeals) cancelling the penalty imposed by the Assessing Officer.

11. In the result, appeal is dismissed.

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