Shyam Biri Works (P) Ltd. vs Asstt. Cit

ORDER I.S. Verma, J.M.

These are cross-appeals by the assessee and revenue.

2. Income Tax Act Nos. 2322 & 2657 (All)/1991 are by the assessee wherein the assessee has objected the order of the Commissioner (Appeals), confirming the levy of penalty under section 271(1)(c) on quantum of income disclosed by the assessee, during the course of search under section 132, whereas Income Tax Act Nos. 2240 & 2660 (All.) 1991 are by the revenue wherein order of the Commissioner (Appeals) cancelling the penalty on the amount of various disallowances are quantum of differences between the assessees claim of disclosing return of income has been cancelled. For the sake of convenience all the appeals are decided by this consolidated order.

3. We have heard the assessees counsel as well as the learned Departmental Representative but before considering their respective submission, we prefer to record the brief facts as revealed from the records and are not in dispute, as under:

4. The assessee is a private limited company. It filed its return of income for the assessment year 1987-88 and assessment year 1988-89 on 29-6-1987, and 30-7-1998, respectively. Search under section 132 was carried out at the assessees business premises as well as at the residence of its managing director and other director on 29-11-1988, and 30-11-1988.

5. During the course of search on 29-11-1988 at the residence of premises No. 44, Thornhill Road, Allahabad, Sri Shyama Charan Gupta, managing director of the assessee-company disclosed an amount of Rs. 50 lakhs on account of various undisclosed investments, as the assessees income, whereas during the course of search on 30-11-1988 at the business premises of M/S Shyam Biri Works (P) Ltd. the assessees director Sri Uma Charan Gupta disclosed a sum of Rs. 32,24,000 on account of unrecorded entries in regular books. Later on the assessee seems to have furnished an affidavit giving year wise details of disclosed income of Rs. 33 lakhs as well as undisclosed income of Rs. 14,83,845. The year-wise details of disclosed income in the hand of Shyam Biri Works and M/s Shyam Biri Works (P) Ltd, were as under :

Assessment year Assessment year Assessment year Shyam Biri Works (Firm) Shyam Biri Works (Firm) Shyam Biri Works (Firm) Shyam Biri Works (P) Ltd. Search warrant case Shyam Biri Works (P) Ltd. Search warrant case Shyam Biri Works (P) Ltd. Search warrant case Out of Rs. 82 lakhs declared Out of Rs. 82 lakhs declared Out of Rs. 82 lakhs declared Other than Rs. 82 lakhs declared Other than Rs. 82 lakhs declared Other than Rs. 82 lakhs declared 1983-84 1983-84 2,00,000 2,00,000 Not applicable Not applicable 2,00,000 2,00,000 1984-85 1984-85 2,47,845 2,47,845 Not applicable Not applicable 2,47,850 2,47,850 1985-86 1985-86 76,000 76,000 Not applicable Not applicable 76,000 76,000 1987-88 1987-88 1,70,000 1,70,000 1,70,000 1,70,000 1988-89 1988-89 Nil Nil 13,30,000 13,30,000 13,30,000 13,30,000 Nil Nil 1989-90 1989-90 76,60,000 76,60,000 61,76,150 61,76,150 14,83,845 14,83,845 5,23,845 5,23,845 91,60,000 91,60,000 82,00,000 82,00,000 14,83,845 14,83,845 96,83,845 96,83,845 5.1. In consequence of furnishing up on these details, the assessee furnished so-called revised returns of income in case of M/s Shyam Biri Works as well as Shyam Biri Works Private Ltd. The return of the firm were for the assessment years 1983-84, 1984-85, 1985-86 whereas revised return in case of company, i.e., the assessee, were for the assessment years 1987-88, 1988-89 and 1989-90. The computation of income as per revised return for the assessment year 1987-88 and 1988-89 was as under :

5.1. In consequence of furnishing up on these details, the assessee furnished so-called revised returns of income in case of M/s Shyam Biri Works as well as Shyam Biri Works Private Ltd. The return of the firm were for the assessment years 1983-84, 1984-85, 1985-86 whereas revised return in case of company, i.e., the assessee, were for the assessment years 1987-88, 1988-89 and 1989-90. The computation of income as per revised return for the assessment year 1987-88 and 1988-89 was as under :

Asst. yr. 1987-88 Asst. yr. 1987-88 Asst. yr. 1987-88 Rs.

Rs.

Profit as per P&L a/c Profit as per P&L a/c 8,51,822 8,51,822 Add :

Add :

(a) Depreciation for separate consideration

(a) Depreciation for separate consideration 2,50,572 2,50,572

(b) Additional income disclosed under section 132(4)

(b) Additional income disclosed under section 132(4) 1,70,000 1,70,000

(c) Donation

(c) Donation 36,411 36,411

(d) Estimated amount of vehicle running expenses for personal use

(d) Estimated amount of vehicle running expenses for personal use 6,000 6,000

(e) Estimated amount of telephone expenses for personal use

(e) Estimated amount of telephone expenses for personal use 1,200 1,200

(f) Estimated amount of expenses on house

(f) Estimated amount of expenses on house 3,600 3,600 4,67,783 4,67,783 13,19,605 13,19,605 Less : Depreciation allowable under Income Tax Rules Less : Depreciation allowable under Income Tax Rules 2,50,572 2,50,572 Gross Total Gross Total 10,69,033 10,69,033 Less: Deduction under section 80HH Less: Deduction under section 80HH 22,662 22,662 Total income Total income 10,46,370 10,46,370 Asst. yr. 1988-89 Profit as per P&L a/c Asst. yr. 1988-89 Profit as per P&L a/c 15,58,754 15,58,754 Add :

Add :

(a) Depreciation for separate consideration 7,38,230 7,38,230

(b) Excess amount of travelling expenses

(b) Excess amount of travelling expenses 615 615

(c) Donation

(c) Donation 43,774 43,774

(d) Income disclosed under section 132(4)

(d) Income disclosed under section 132(4) 13,30,000 13,30,000 21,12,619 21,12,619 Gross Total Gross Total 36,71,373 36,71,373 Less : Depreciation allowable under Income Tax Rules Less : Depreciation allowable under Income Tax Rules Less : Depreciation allowable under Income Tax Rules 12,93,984 12,93,984 23,77,389 23,77,389 Less: Deduction under section 80HH Less: Deduction under section 80HH Less: Deduction under section 80HH 38,371 38,371 Deduction under section 80HHA Deduction under section 80HHA 7,417 7,417 45,788 45,788 23,31,601 23,31,601 or or 23,31,600 23,31,600 5.2. The assessment for both these years were completed on the basis of so-called revised returns filed on 30-3-1990, when penalty proceedings under section 271(1)(c) were also initiated. Later on the assessing officer after rejecting the assessee's claim of immunity available in view of Explanation 5 to section 271(1)(c) read with section 132(1) of the Income Tax Act, 1961, imposed penalty on the total difference between the income as per so-called revised return and income in the original returns. In the revised returns, the additional income on account of disclosure made during the search was as under :

5.2. The assessment for both these years were completed on the basis of so-called revised returns filed on 30-3-1990, when penalty proceedings under section 271(1)(c) were also initiated. Later on the assessing officer after rejecting the assessee's claim of immunity available in view of Explanation 5 to section 271(1)(c) read with section 132(1) of the Income Tax Act, 1961, imposed penalty on the total difference between the income as per so-called revised return and income in the original returns. In the revised returns, the additional income on account of disclosure made during the search was as under :

Rs.

Asst. yr. 1987-88 Asst. yr. 1987-88 1,70,000 1,70,000 Asst. yr. 1988-89 Asst. yr. 1988-89 31,30,000 31,30,000

6. On appeal, the Commissioner (Appeals) cancelled the penalty on various differences for difference in income due to withdrawal of assessee's claim of various deductions made in the original return and confirmed the penalty on the additional income included as a result of disclosure made during the course of search i.e. Commissioner (Appeals) restricted the penalty for assessment year 1987-88 on income of Rs. 1,70,000 and for assessment year 1988-89 on income of Rs. 13,30,000. The parties are in appeal against these orders of the Commissioner (Appeals).

7. The assessee's counsel relied on the disclosure made in the statement recorded under section 132(4) of the Income Tax Act on 29-11-1988 and 30-11-1988. According to the assessee's counsel, the assessee having disclosed an income of Rs. 82 lakhs which was comprising of income declared in so-called revised returns for these 2 years i.e., Rs. 1,70,000 and Rs. 13,30,000 respectively, it was entitled to benefits available under the provisions of Explanation 5 to section 271(1)(c) read with section 132(4) of the Income Tax Act. The alternative submission was that even, otherwise disclosure was made on the understanding given by the authorised officer that assessee will not be subjected to penalty under section 271(1)(c) and the prosecution. In view of these submissions, the assessee's counsel pleaded that it was not a fit case for imposition of penalty under section 271(1)(c).

8. The learned Departmental Representative on the other hand disputed the submissions advanced by the assessees counsel on the point of benefit available under clause (2) of Explanation 5 to section 271(1)(c). The learned Departmental Representative emphasised that the benefit under clause (2) of Explanation 5 to section 271(1)(c) are available only for the previous year during which the search action has taken place and for this purpose he strongly relied on the existence of words "Return of income to be furnished before expiry of time specified in clause (a) or clause (b) of sub-section (1) of section 139 ". The learned Departmental Representative submitted that immunity was available only with respect to the return which has not yet fallen due as per provisions of section 139(1)(a) and 139(1)(b) which otherwise means that the immunity was available only for the period which fell under the definition of previous year during which search was conducted. According to him, since in the present case, the search was conducted on 29th the 30-11-1988, the benefit as per clause (2) of Explanation 5 to section 271(1)(c) were available only with respect to previous year 1988-89 relevant to assessment year 1989-90, for which the revenue has not imposed any penalty. Objecting to the assessees claim that the disclosure was a result of understanding given by the revenue that assessee will not be subjected to any penalty under section 271(1)(c) and prosecution. The learned Departmental Representative submitted that there is no evidence on record which may support the assessees claim. He therefore, pleaded that the order of the Commissioner (Appeals) should be reversed and that of assessing officers be restored. In support of his plea the learned Departmental Representative relied upon the decision of Tribunal, Allahabad Bench in the case of M/s Shyam Biri Works, Allahabad, for assessment year 1984-85, a copy of the order is placed on record.

9. The learned Departmental Representative was asked to quote any decision in support of his interpretation of clause (2) to Explanation 5 to (sic) aware of any decision on this point.

10. We have considered the rival submissions and the fact and circumstances of the case placed before us and are of the opinion that the present case is not a fit case for imposition of penalty under section 271(1)(c) because of the following reasons :

10.1. So far as the assessees claim of immunity available under clause (2) of Explanation 5 to section 271(1)(c) is concerned, we consider it necessary to consider the respective stand of the parties by analysing the provisions of the Explanation which are as under :

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 (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, or 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 clause (c) of sub-section (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 clause (a), before the date of the search; and

(ii) in a case falling under clause (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 Commissioner or Commissioner before the said date., or (2) he, in the course of the search, makes a statement under sub-section (4) of section 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 sub-section (1) of section 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."

11. After careful consideration of clause (2), what we are able to understand is that the words "Return of income to be furnished before the expiry of time specified in clauses (a) and (b) of sub-section (1) of section 139 ", cannot be read without the words "Income which has not been disclosed so far in his return of income" preceding the aforesaid words and if we read the complete sentence which is comprising out of words "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 clause (a) or (b) of sub-section (1) of section 139 ", it is abundantly clearly that existence of words "clause (a) or clause (b) of sub-section (1) of section 139 do not refer only to the return of income to be furnished rather refers also to the return of income which has/have been furnished though of course the return(s) so furnished were to be furnished in view of clauses (a) and (b) of sub-section (1) of section 139, meaning thereby that this clause refers to the return(s) already having been furnished as well as the returns which is yet to be furnished. Had it not been the case then words "which has not been disclosed so far "should not have been in the provisions. Existence of these words clearly leads one to understand that this clause is applicable to the return(s) already furnished as well as to the return to be furnished though of course such returns should have been furnished under clauses (a) and (b) to sub-section (1) of section 139.

12. In view of this interpretation of clause (2) we are of the opinion that the interpretation put by the learned Departmental Representative is not acceptable and consequently we held that immunity available under clause (2) was for previous assessment year(s) also i.e., the assessment years for which return(s) of income has/have been furnished. So far as assessees case is concerned it is admitted fact that the assessee has disclosed an income of Rs. 82 lakhs which was inclusive of income of sums of Rs. 1,70,000 and Rs. 2,30,000 for the assessment year 1987-88 and 1988-89 and, therefore, the assessee is entitled to the immunity available under clause (2) of Explanation 5 of section 271(1)(c) of the Act for both these assessment years.

13. In view of these discussions we cancel the penalty for both the years :

14. So far as the question of voluntary disclosure as a result of understanding given by the revenue is concerned, we are of the opinion that disclosure as envisaged under Explanation 5 to section 271(1)(c) do not speak of "Voluntary Disclosure". The requirement of disclosure under these provisions is that the disclosure should have been "during the course of search" and voluntary or otherwise, do not come in picture. Since the Commissioner (Appeals) as well as the assessing officer have gone by the voluntary disclosure aspect of the case, we are of the opinion that both the them misdirected themselves while considering the assessees claim of immunity available under Explanation 5 to section 271(1)(c).

15. With regard to the assessees claim that the disclosure was as a result of understanding given by the authorised officer that the assessee will not be subjected to penalty under section 271(1)(c) or the prosecution, though there is no evidence on record to support the plea but the question No. 8 put by the authorised officer to Shri Uma Charan Gupta while recording his statement under section 132(4) of the Act during the course of search at business premises of the assessee on 30-11-1988, leads one to understand that the officer, if had not given any assurance, at least might have induced the assessee by explaining the immunity available under this clause. Whatever may have been the story behind the putting such a question, one cannot ignore the existence of question No. 8 in the statement recorded under section 132(4) which, if not directly, at least indirectly indicates that the assessee was given some assurance, but since the disclosure by Shri Uma Charan Gupta was only to the extent of Rs. 32,24,000 and it is not clear as to whether income disclosed in these two assessments was out of another disclosed income of Rs. 50,00,000 the assessee cannot be benefited on this account.

16. Coming to the reliance by the learned Departmental Representative on Tribunals order in case of one M/s Shyam Biri Works (Firm) for assessment year, 1984-85, copy placed on record, it is evident from the details of year-wise disclosed income and assessee in whose hand the income has been disclosed (extracted in the paragraph containing facts that this disclosure was made by the assessee in the hands of firm, in whose case there was no search at all and therefore immunity available under Explanation 5 to section 271(1)(c) could not be extended to a person who was not being searched. On 29th and 30-11-1988 when the search was conducted the firm M/s Shyam Biri Works was not in existence and, therefore, assessees claim of disclosure of income in the hands of the firm in assessment year 1983-84, 1984-85 and 1985-86 could not be said to be a disclosure under Explanation 5 to section 271(1)(c) read with section 132(4).

17. In view of these facts and circumstances, we are of the opinion that the revenues reliance on Tribunals section is of no use.

18. In the result penalties for both the years are cancelled and appeals are allowed.

19. In view of our decision of even date in assessees appeals Income Tax Act Nos. 2322 & 2657/(All)/1991, the revenues date in assessees appeals Income Tax Act Nos. 2322 & 2657/(All)/1991, the revenues appeals stand dismissed.