High Court Of Rajasthan
CIT vs. Mishrimal Soni
Section 271(1)(c), Expln. 5
Asst. Year 1992-93
Rajesh Balia & R.P. Vyas, JJ.
IT Appeal No. 86 of 2005
3rd December, 2005
Counsel Appeared
Vivek Shrimali for Sangeet Lodha, for the Appellant : Rajendra Mehta, for the Respondent
JUDGMENT
By the court :
Heard learned counsel for the parties.
2. This appeal is directed against the order of the Tribunal, Jodhpur Bench, Jodhpur, dt. 26th Feb., 1994, relating to penalty proceeding for the asst. yr. 1992-93. The Tribunal dismissed the appeal of the Revenue and affirmed the order of the CIT(A) setting aside the order of penalty by which the penalty under s. 271(1)(c) of the Act amounting to Rs. 2,30,700 imposed by the AO was set aside by the CIT(A). A search under s. 132(1) of the Act was conducted at the residential premises of the assessee and his family members on 10th March, 1992. During the course of search, the statements of the assessee under s. 132(4) of the Act were recorded. During the statement under s. 132(4) of the Act, the assessee admitted amongst other things, unexplained income from the money- lending business by promissory notes which was a joint venture of himself and his son, estimated at Rs. 8,00,000. It was stated that 50 per cent of such unexplained income belongs to the assessee and 50 per cent belongs to his son. His statement was also endorsed by his son, Amarchand Soni. The assessee submitted in his returns of Rs. 4 lakhs on account of unexplained investment in moneylending and interest earned thereon. Though the assessee in the first instance spread over the undisclosed income under s. 132(4) for nine assessment years he finally agreed to be assessed for the entire sum of Rs. 4 lakhs as income of the year in which the search took place and assessment was accordingly made by making additions. During the statement recorded under s. 132(4) of the Act, the assessee had disclosed a sum of Rs. 4 lakhs as income from money-lending business inclusive of capital and interest thereon, which had hitherto been not disclosed, hence, the assessment order became final. During the course of assessment proceedings for the asst. yr. 1992-93 penalty under s. 271(1) (c) was also imposed against the appellant as well as his son Amarchand Soni, as the AO was of the opinion that the assessee had concealed the particulars of income. The assessee had claimed that since he in his statement under s. 132(4) has disclosed Rs. 4 lakhs as his unexplained investment in money-lending, IVPs and FDRs, and has also surrendered such amount as his income, so no penalty is leviable on account of concealment of particulars of income in terms of Expln. 5 to s. 271(1)(c). However, the AO did not agree with such contention and for concealment of particulars of income, as per s. 271(1)(c) penalty was imposed. Ground for rejecting the contention was that no declaration of unexplained income can be made. His contention was that under s. 132(4) no disclosure was made on account of interest on money-lending business and FDR. Provision for not levying the penalty is applicable to disclosure of tangible assets under s. 132(4) and it does not provide for disclosure of intangible assets. Unaccounted income represented by incriminating documents, which are verifiable from incriminating documents seized during search operations cannot be made the subject-matter of disclosure under s. 132(4). Since money invested in moneylending business was not actually seized during the course of search operation and was to be found from the incriminating documents during the course of search and seizure, it could not form part of disclosure under s. 132(4) and hence cannot be considered for immunity from levy of penalty for concealment of particulars of income in terms of Expln. 5 to s. 271(1)(c). On these premises the AO did not extend the benefit of Expln. 5 to s. 271(1)(c) and imposed the penalty aforesaid in respect of a sum of Rs. 4 lakhs.
The view expressed by the AO did not find favour with the CIT(A) who was of the opinion that the AO was not justified in imposing the penalty for concealment on account of income surrendered by the appellant during the course of search by making statement under s. 132(4) because entire undisclosed income on account of unexplained investment in money-lending business, pursued by the appellant jointly along with his son Shri Amarchand Soni, was considered and taxed. Shri Amarchand Soni had already got immunity in respect of imposition of penalty under the KVSS 1998, and it would be unfair and unethical if the appellant is penalised for the same act. In coming to this conclusion a specific statement about admitting of Rs. 8 lakhs invested in money- lending business which is undisclosed and it is derived from the capital investment and interest earned thereon. Out of Rs. 8 lakhs as estimated income admitted, of such business, it is further stated that the income was earned through joint business of father and son, therefore, he surrendered Rs. 4 lakhs to be treated as his income of the current financial year and the remaining four lakhs rupees be treated as income of his son Amarchand. Amarchand had also put endorsement to it. The only reason that prevailed with the AO in not extending the benefit of Expln. 5 in respect of disclosure made during the statement recorded under s. 132(4) was that it did not relate to any tangible asset found during the search operation, but relates to intangible assets verifiable through incriminating documents (promissory notes). According to the AO such disclosure does not fall within the scope of Expln. 5 to s. 271. No other reason has been found to deny the benefit of Expln. 5 to the assessee. Explanation 5 to s. 271 reads as under : “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 (hereafter in this Explanation referred to as assets) and the assessee claims that such assets have been acquired by him by utilising (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 cl. (a) or cl. (b) of sub-s. (1) of s. 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.”
Explanation 5 deals with situation in which any assets are found to be in the ownership of the assessee in the course of search under s. 132 of the IT Act, 1961. It makes no distinction between tangible assets or intangible assets. Clause (2) of Expln. 5 makes it clear that where in the course of search the assessee makes a statement under s. 132(4) and owns that any of such assets he acquired out and of his income from undisclosed income, not so far returned, and further states the manner in which such income has been derived and pays tax together with interest if any in respect of such income, no presumption of concealment has to be drawn, notwithstanding admission to that effect. In other words to the extent the assessee makes a clean breast of his undisclosed income represented by assets found to be in the possession of the assessee, he is not deemed to have concealed his income or concealed particulars thereof.
The money-lending business and loan advanced by the assessee evidenced by promissory notes found during search cannot be said to be “not assets”, as has been assumed by the AO. Amount invested in money-lending business and loan advanced represented by promissory notes found in the possession of the assessee are capital investment of the assessee and are all actionable claims. The fallacy in the reasoning of the AO lies in ignoring that a money represented by a debt, which could be recovered is an actionable claim which very much is owned and possessed by the moneylender, investor or depositor as the case may be and is an asset owned and possessed by the assessee. If the view of the AO is to be accepted, it will amount to accepting that actionable claim is not an asset which is capable of being owned and possessed. The expression used in cl. (2) of Expln. 5 is not confined to physical possession but extends to type of possession which is capable of being held. In case the property is an actionable claim it can be possessed by way of possessing the right to recover such asset by exercise of such right. When such loan is represented by promissory note, it could give rise to presumption that money represented by promissory notes belong to the person as held by the person in whose favour the promissory note has been executed. If on that basis the assessee could be held owner of the debt represented by the promissory notes he can be deemed to be in possession of such actionable claim, an asset of the assessee. Thus, the view propounded by the AO and now pursued by the Revenue by drawing distinction between possession of tangible and intangible assets is unsustainable.
In fact it was never the case of the Revenue that the assessee had not complied with the requirement of Expln. 5 to s. 271, except that no statement about undisclosed income could be made under s. 132(4), it applies only to the declaration of undisclosed tangible assets. This clearly was erroneous in view of a combined reading of s. 132(4) and Expln. 5 to s. 271. Hence, the conclusion of the Tribunal cannot be said to be erroneous. In these circumstances, CIT(A) and Tribunal were justified that the penalty was not for concealment of particulars and no penalty is leviable in view of specific Expln. 5 to s. 271(1)(c) of the Act and cannot be interfered. It may also be noticed that in case of Amarchand Soni, the same view was expressed. Amarchand Soni had also resorted to KVSS, 1998, that has further strengthened his case and the appeal of the Revenue in his case was dismissed. We do not find any force in this appeal and the same is hereby dismissed.
[Citation : 289 ITR 77]
