High Court Of Allahabad
CIT vs. Mohan Lal Sharma
Section 271(1)(c)
Asst. Year 1987-88
R.K. Agrawal & Rajes Kumar, JJ.
IT Ref. No. 61 of 1994
27th April, 2005
Counsel Appeared
R.K. Upadhaya, for the Appellant : Shakeel Ahmad, for the Respondent
JUDGMENT
Rajes Kumar, J. :
Tribunal has referred the following question of law under s. 256(1) of the IT Act, 1961 (hereinafter referred to as “Act”), for opinion to this Court : “Whether, on the facts and in the circumstances of the case, the learned Tribunal was justified in holding that the penalty under s. 271(1)(c) was not leviable ?” The present reference relates to the asst. yr. 1987-88. Brief facts of the case are as follows : Assessee-respondent (hereinafter referred to as “assessee”) is an individual and was doing proprietary business of purchase and sale of silver ornaments in the name of Mohan Lal Narendra Kumar. The original return was filed on 20th July, 1987, disclosing the income of Rs. 36,890. Income declared in the return was accepted under s. 143(1) of the Act vide order dt. 15th Sept., 1987. Just after the filing of the return a search was conducted under s. 132(1) of the Act, at the business as well as residential premises of the assessee. During the course of search four FDRs in the names of four minor children of the assessee were found and seized from the locker of the bank, owned by the assessee. Total investment in those four FDRs were to the extent of Rs. 3,45,000. In the statement recorded on 18th Aug., 1988 at the time of opening of the locker, Mohan Lal Sharma stated that the FDRs in the name of four children namely, Master Ravish Sharma, Manish, Vishal and Baby Namrata Sharma are kept in locker and they were all disclosed under the income-tax/wealth tax. During the course of the proceedings under s. 132(12) of the Act, CIT had held that there was no source of income with the minors and thus the source of FDRs were not proved and it being relatable to the assessee, directions were issued to the AO to assess these FDRs in the hands of the assessee. Thereafter, assessee, to buy peace, filed revised return including alleged FDRs of Rs. 3,45,000 in his income. Assessment proceedings were completed afresh according to the law. Thereafter, penalty of Rs. 2,50,000 was imposed. In first appeal, amount of penalty was reduced to Rs. 64,878 being minimum penalty imposable. Assessee being aggrieved filed second appeal before the Tribunal. Tribunal allowed the appeal and quashed the penalty, Tribunal held as follows :
We have heard the parties at length on the point and we take up the preliminary pleas taken by the assessee. The first plea taken up is that the FDRs were not valuable article or thing. Explanation 5 of s. 271(1)(c) clearly provides that where in course of search under s. 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 and or in part his income for any previous year which has ended before the date of the search but the return of income for such year has not been furnished before the said date, such income has not been declared therein, then notwithstanding such declaration such income for the purpose of imposition of penalty shall be deemed to have been concealed. Thus, to attract the provisions of Expln. 5 of s. 271(1)(c), the assessee must be found in possession of any valuable article or thing. Admittedly, these FDRs were not money, bullion, jewellery. The Hon’ble Gujarat High Court in the case of Bhagwandas Narayan Das vs. CIT & Ors. (1975) 98 ITR 194 (Guj) had held as under : ‘……Therefore, by using the words “valuable article or thing”, what the legislature intended to imply is that the assets covered by these words should be such as could be converted into cash so that the tax liability of the assessee concerned, as revealed from his undisclosed income, could be duly satisfied. In other words, the thing or article which can be retained under s. 132(5) should be the one which is carrying its own intrinsic value in terms of money. A document of title relating to an immovable property or even a fixed deposit receipt issued by a bank does not possess any intrinsic market value. They can neither be negotiated nor be transferred for a valuable consideration. Thus, they are not covered by s. 132(5) of the Act or r. 112A of the Rules.’
The decision of the Hon’ble Madras High Court in the case of I. Devarajan & Ors. vs. Tamil Nadu Farmers Service Co-operative Federation & Ors. (1979) 13 CTR (Mad) 280 : (1980) 131 ITR 506 (Mad) relied upon by the learned Departmental Representative and also by the learned CIT(A), in our opinion does not much help the Department. In that case, the point involved was of attachment and in the said order it was held that FDRs could be attached through the bank to whom the FDRs pertained. In that case too, Hon’ble Madras High Court had held that the fixed deposit receipt itself is not negotiable instrument and has no value as these deposits generally carry a term that they are not transferable. The fixed deposit receipts cannot as such be assigned without the concurrence of the bank, though the receipts by themselves cannot be said to be an asset. So in this way even that subsequent order of the Hon’ble Madras High Court also goes to support the case of the assessee that these fixed deposit receipts were not valuable assets found from the possession of the assessee. Hence, we are of the opinion that mere recovery of these FDRs from the locker of the assessee standing in the name of minors by itself was not the recovery of valuable assets which could be covered by Expln. 5 of s. 271(1)(c). We, therefore, hold that this argument of the learned counsel for the assessee has force. Anyhow, this is not the only ground on the basis of which the said FDRs had been included in the income of the assessee, the other ground taken up by the Department is that the assessee himself had filed the revised return admitting the FDRs to be his income, which otherwise has not been shown by him in his earlier return. This fact leads as to the alternative plea taken up by the learned counsel for the assessee.
The learned counsel for the assessee in the alternative plea has stressed that even this admission in the subsequent return also does not much go against the assessee. For that he has relied to the decision of the Hon’ble Supreme Court in Sir Shadilal Sugar & General Mills Ltd. & Anr. vs. CIT (1987) 64 CTR (SC) 199 : (1987) 168 ITR 705 (SC). In the said case, the Hon’ble Supreme Court had remarked that “from the assessee agreeing to additions to his income, it does not follow that the amount agreed to be added was concealed income. There may be a hundred and one reasons for such admission.” Thus, the mere surrendering of the said amount in the revised return by itself does not prove concealment of the income. No doubt, it is a strong force against the assessee, yet all the surrounding circumstances has also to be taken to arrive at a conclusion as to whether this amounted to concealment of income and thereby whether it attracted the provisions of penalty under s. 271(1)(c) or not. Here in this case the assessee has tried to explain the said FDRs by giving a statement that they belong to his minor sons. The assessee has also filed copies of assessment orders showing that these minors were duly assessed by the Department may be under the amnesty scheme. The income was shown from gifts and for want of evidence the amounts were surrendered to the Department for taxation. Even in the subsequent year the Department had assessed the interest of these FDRs in the hands of those minors under s. 143(3) (copy of the assessment order filed in the compilation) the assessee even at the time of search and seizure had disclosed the said fact that the FDRs are lying in the locker and they stood in the names of minor sons, which already stands disclosed to the Department in the return filed by the minors. Government/CBDT had given a concession to assessee to file returns of income which will be accepted without any enquiry and the assessee will not be required to give the details of their income. This is a special concession given by the law and the Department is bound by these concessions. In view of these concessions if the minors of the assessee had surrendered certain gifts in the form of income and duly assessed as such and purchased FDRs in the names, the said income and the FDRs now cannot be questioned in the hands of the minors. Once that income cannot be questioned in the hands of minors, then we do not understand as to how the said income can now be questioned in the hands of the assessee. No doubt, the assessee after the order passed under s. 132(12), surrendered the said amount as his income in the revised return, but that mere surrender can be for hundred and one reasons. In view of the Hon’ble Supreme Court’s decision in the case reported in (1987) 168 ITR 705 (SC) (supra), the mere fact of surrender cannot go to prove the concealment of income by the assessee. That surrender may be taken into consideration while computing the income of the persons surrendering the income, but is not sufficient to prove the concealment of income. The Department has to prove certain other facts as well as to prove the concealment. The Hon’ble Punjab & Haryana High Court in the case of Gumani Ram Siri Ram vs. CIT (1972) 85 ITR 67 (P&H) held that on the facts and in the circumstances of the case, penalty under s. 271(1)(c) could not be levied merely because certain deposits were surrendered by the assessee, unless there was material on the record to show that the surrendered item was his income. Here, in this case, there is no iota of evidence to prove that these FDRs were the concealed income of the assessee except his own surrender in the revised return. On the other hand, there is ample evidence on record filed by the assessee to prove that alleged FDRs were the income of minors’ receipts by them by gifts and duly surrendered by them during the search and accepted by the Department and the interest income on these FDRs even subsequently in the subsequent years after the search had been assessed in the hands of the minors treating the said income as that of minors under s. 143(3) which implies the conscious application of mind by the Department to the assessment. Over and above all these, there is no finding either by the AO or by the learned CIT(A) that the explanation given by the assessee was false. There is only mention that explanation was not acceptable to the Department.
The mere fact that it was not acceptable to the Department was sufficient to include the said account in the name of the assessee in our opinion, was not sufficient to attract the provisions of penalty. This opinion of ours find support in decision of the Tribunal in the case of Ram Chand Ram Kishen Chawla vs. ITO (1992) 198 ITR 176 (Del) (TM)(AT) in which the Third Member while deciding the issue had held as under : ‘There is another important point to be borne in mind, viz., the explanation offered by the assessee must be found to be false before the penalty provisions of s. 271(1)(c) as amended w.e.f. 1st April, 1976, are applicable. As I have endeavoured to point out above, the falsity of the explanation was not proved are not even attempted to be proved. I, therefore, agree with the view expressed by the learned accountant member that, when the explanation offered by the assessee was not found to be false, the difference between the income returned and the income estimated cannot be regarded as concealed income.’ Here, in this case there is no positive finding at any stage that the explanation offered was false, while, in our opinion, on the other hand, the explanation offered appears to be more plausible and more true at least for the purposes of penalty provisions. As the assessee had surrendered the amount in its revised return, the Department was justified in adding the same in his income in the assessment, but the facts of the case did not give rise to penalty under s. 271(1)(c). The surrendering of the amount stood covered by the decisions of the Hon’ble Supreme Court which provide that surrender can be because of a hundred and one reasons but the mere surrender does not go to prove the concealment of income. In fact, as the circumstances stand, if the assessee would not have surrendered the amount, it might have been difficult for the Department to add the said income in the hands of the assessee because of the overwhelming evidence filed by the assessee to prove that the alleged income stood in the name of minor by filing the return under amnesty scheme, before the search and seizure. Anyhow, we are not expected to give our finding on the point of quantum included in the assessment, but we do feel that the circumstances of the case was not sufficient to prove the conscious concealment of the income by the assessee. We, therefore, hold that the penalty imposed and sustained by the learned CIT(A) was not justified in the facts of law. We, accordingly, set aside the said order and cancel the penalty imposed.”
Heard Sri R.K. Upadhyaya, learned standing counsel, and Sri Shakeel Ahmad, learned counsel for the respondent-assessee. Learned standing counsel submitted that the Tribunal has illegally quashed the penalty. He submitted that at the time of search 4 FDRs were found in the name of minor valuing Rs. 3.45 lakhs. When it was found that the minor had no source of income, direction was issued by the CIT (A) in the order under s. 132(12) of the Act to treat the FDRs belonging to the assessee, then revised return was filed disclosing the amount of Rs. 3.45 lakhs as income in the return. He submitted that the surrender was not voluntary and when the assessee was caught he had no option except to surrender the said amount, which he has done and, therefore, it is the case of concealment of income within the purview of s. 271(1)(c) of the Act. Learned counsel for the assessee relied upon the order of the Tribunal and submitted that the Tribunal on the facts, and circumstances has accepted the explanation of the assessee and held that there was no case of concealment. According to him findings of the Tribunal is finding of fact.
6. Having heard learned counsel for the parties, we have perused the order of Tribunal and the authorities below. We do not find any error in the order of Tribunal. Sec. 271(1)(c) reads as follows : “Sec. 271—Failure to furnish returns, comply with notices, concealment of income, etc.—(1) If the ITO or the AAC or the CIT(A) in the course of any proceedings under the Act is satisfied that any person— (c) has concealed the particulars of his income or furnished inaccurate particulars of such income, Explanation 5: Where in the course of a search under s. 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 assets) and the assessee claims that such assets have been acquired by him by utilizing (wholly or in part) his income— (a) for any previous year which has ended before the date of the search, but the return of income for such year has not been furnished before the said date or, where such return has been furnished before the said date, such income has not been declared therein; or (b) for any previous year which is to end on or after the date of the search, then, notwithstanding that such income is declared by him in any return of income furnished on or after the date of the search, he shall, for the purposes of imposition of a penalty under cl. (c) of sub-s. (1) of this section, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income, unless (1) such income is, or the transactions resulting in such income are recorded— (i) in a case falling under cl. (a), before the date of the search; and (ii) in a case falling under cl. (b), 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 Chief CIT or CIT before the said date; or (2) he, in the course of the search, makes a statement under sub-s. (4) of s. 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 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.”
In the present case, Expln. 5 of s. 271(1)(c) of the Act is not applicable. Expln. 5 is applicable to the money, bullion, jewellery or other valuable articles or thing. The FDRs do not fall within the purview of the aforesaid items and, therefore, the amount of FDRs cannot be treated as deemed concealed income in view of Expln. 5 of s. 271(1)(c) of the Act. Now the question for consideration is whether, on the facts and circumstances of the case, the amount of Rs. 3.45 lakhs which was the value of 4 FDRs in the name of four minor children which was surrendered by the assessee in its return can be said to be concealed income of the assessee. Tribunal held that these minors were assessed to tax under the amnesty scheme. Perusal of the statement of Sri M.L. Sharma recorded on 18th Aug., 1988 at the time of opening of the locker also shows that he has categorically stated that the 4 FDRs have been disclosed in income-tax/wealth-tax. Therefore, the observation of the Tribunal cannot be held to be unjustified that, if FDRs would have not been surrendered in the income by the assessee, it may not be liable to tax in the hands of the assessee being disclosed by the minor in the amnesty scheme. It appears that when in the proceedings under s. 132(12), which was summary proceeding, CIT has issued the direction to treat the FDRs belonging to the assessee, assessee in order to buy peace surrendered the amount of FDRs as income in a revised return. Totality of the circumstances shows that the assessee right from the beginning contended that the FDRs belongs to the minors and have been disclosed in income-tax/wealth-tax. It was also found as a fact that these FDRs have been disclosed by the minors in their assessment proceedings under the amnesty scheme. Therefore, merely because the assessee surrendered the amount in the return, it cannot be said to be concealed income of the assessee. Findings of the Tribunal in this regard is finding of fact and there appears to be no reason to interfere with such findings which is based on the material on record.
7. In the case of Sir Shadilal Sugar & General Mills Ltd. & Anr. vs. CIT (1987) 64 CTR (SC) 199 : (1987) 168 ITR 705 (SC) while dealing with the provisions of s. 271(1)(c) of the Act, apex Court held that, from the assessee agreeing to addition to his income, it does not follow that the amount agreed to be added was concealed income. There may be a hundred and one reasons for such admission. Apex Court further held that the assessee had only accepted certain amounts as taxable, it has not been accepted by the assessee that it had deliberately furnished inaccurate particulars or concealed any income. Apex Court had upheld the order of the Tribunal deleting the penalty, which was based on material on record.
8. The apex Court in the case of K.C. Builders & Anr. vs. Asstt. CIT (2004) 186 CTR (SC) 721 : JT 2004 (2) SC 100 has held as follows :
“One of the amendments made to the above-mentioned provisions is the omission of the word “deliberately” from the expression “deliberately furnished inaccurate particulars of such income”.
It is implicit in the word “concealed” that there has been a deliberate act on the part of the assessee. The meaning of the word “concealment” as found in Short Oxford English Dictionary, 3rd Edn., Vol. I, is as follows : ‘In law, the intentional suppression of truth or fact known, to the injury or prejudice of another.’ The word “concealment” inherently carries with it the element of mens rea. Therefore, the mere fact that some figure or some particulars have been disclosed by itself, even if it takes out the case from the purview of non-disclosure, it cannot by itself take out the case from the purview of furnishing inaccurate particulars. Mere omission from the return of an item of receipt does neither amount to concealment nor deliberate furnishing of inaccurate particulars of income unless and until there is some evidence to show or some circumstances found from which it can be gathered that the omission was attributable to an intention or desire on the part of the assessee to hide or conceal the income so as to avoid the imposition of tax thereon. In order that a penalty under s. 271(1)(c) may be imposed, it has to be proved that the assessee has consciously made the concealment or furnished inaccurate particulars of his income. Where the additions made in the assessment order, on the basis of which penalty for concealment was levied, are deleted, there remains no basis at all for levying the penalty for concealment and, therefore, in such a case no such penalty can survive and the same is liable to be cancelled as in the instant case. Ordinarily, penalty cannot stand if the assessment itself is set aside. Where an order of assessment or reassessment on the basis of which penalty has been levied on the assessee has itself been finally set aside or cancelled by the Tribunal or otherwise, the penalty cannot stand by itself and the same is liable to be cancelled as in the instant case ordered by the Tribunal and later cancellation of penalty by the authorities.” In view of the law laid down by the apex Court as stated above and facts and circumstances of the present case, we do not find any error in the order of Tribunal, which is accordingly upheld. For the reasons stated above, we answer the question referred to us in affirmative, i.e., in favour of the assessee and against the Revenue.
[Citation : 281 ITR 384]
