ITR/62/1997 1/9 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD INCOME TAX REFERENCE No. 62 of 1997 For Approval and Signature: HONOURABLE MR.JUSTICE D.A.MEHTA HONOURABLE MR.JUSTICE Z.K.SAIYED ============================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ===================================================== COMMISSIONER OF INCOME-TAX - Applicant(s) Versus SHRI SHANKERLAL NEBHUMAL UTTA-MCHANDANI - Respondent(s) ===================================================== Appearance : MR MANISH R BHATT for Applicant(s) : 1, MR KETAN H SHAH for Respondent(s) : 1, ===================================================== CORAM : HONOURABLE MR.JUSTICE D.A.MEHTA and HONOURABLE MR.JUSTICE Z.K.SAIYED Date : 10/03/2008 ORAL JUDGMENT ITR/62/1997 2/9 JUDGMENT (Per : HONOURABLE MR.JUSTICE D.A.MEHTA) 1. The Income Tax Appellate Tribunal, Ahmedabad Bench-B, has referred the following question, for the opinion of this Court, at the instance of Commissioner of Income Tax under sec. 256(1) of the Income Tax Act, 1961 (the Act): “Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that penalty under sec. 271(1)(c) is not leviable in this case as the assessee has filed revised return before it was actually 'detected' by the Department? 2. The Assessment Years, in questions, are 1985-86, 1986-87 and 1987-88. Returns of the income for all the three Assessment Years were filed by the assessee, an individual, on 31.10.1985, 31.10.1986 and 16.12.1988, respectively. The assessments for Assessment Years 1985-86 and 1986-87 were completed. Subsequently, on 27.10.1987 search and seizure proceedings under sec. 132 of the Act took place at the premises of one M/s. J.J. Corporation and its partners. During the course of such proceedings, various documents, loose papers, pass-books, bank statements, etc. were found and seized. On the basis of various pass-books of Vysya Bank and Canara Bank in relation to bank accounts in the names of various family members of the assessee, certain queries were ITR/62/1997 3/9 JUDGMENT raised by the Revenue. On 27.2.1989, the assessee surrendered the amounts reflected by the various bank accounts in the names of family members as his own income from undisclosed sources followed by revised returns filed on 31.3.1989. The Assessing Officer issued notices for Assessment Years 1985-86 and 1986- 87 under sec. 148 of the Act on 20.2.1990 to regularise the revised returns filed by the assessee for the said two Assessment Years. 3. The Assessing Officer framed the assessment on the basis of the revised returns for all the three Assessment Years under consideration but also made estimate of marriage expenses declared by the assessee and initiated penalty proceedings under sec. 271(1)(c) of the Act because, according to the Assessing Officer, the revised returns had not been filed voluntarily but only consequent upon the search and seizure proceedings taken by the Revenue. The Assessing Officer came to the conclusion that the assessee was guilty of concealment of income by furnishing inaccurate particulars in the original returns of income and for this purpose, apart from the factum of the assessee of the assessee having declared the amounts standing to the credit of the family members in the bank accounts, the Assessing Officer noted that such an amount reflected by the bank accounts in the name of the family members were not commensurate with the known sources of income of those family members and the pass-books of the bank accounts were found from the custody of the assessee, ITR/62/1997 4/9 JUDGMENT the bank accounts were operated by the assessee, and the funds utilised by the assessee for investment in the firm; therefore, the amount actually belonged to the assessee. He, accordingly imposed penalties to the tune of Rs. 4,36,218/- for Assessment Year 1985- 86, Rs. 5,67,500/- for Assessment Year 1986-87 and Rs. 11,85,000/- for Assessment Year 1987-88. 4. The assessee carried the matter in appeals before the Commissioner (Appeals). However, Commissioner (Appeals) confirmed the penalties for all the three Assessment Years. The assessee therefore, preferred second appeals before the Tribunal. 5. The Tribunal, vide impugned order dated 20.8.1996 reversed the order of Commissioner (Appeals) and allowed the appeals holding that the authorities were not justified in levying penalties for all the Assessment Years under consideration. The Tribunal has, recorded thus, in relation to the controversy brought before the Tribunal: “The question in all these three appeals which is required to be adjudicated by us is as to whether the assessee filed revised returns offering the additional income in the firm of deposits in Vysya Bank and Canara Bank in the name of family members of the assessee and the interest earned thereon as well as certain other sums on account of ITR/62/1997 5/9 JUDGMENT unexplained expenditure on account of marriage of his relatives and certain other additions and certain other additional income, before it was detected by the Department or was it offered to buy peace and avoid litigation as claimed by the assessee in the covering letter filed along with the return.” 6. Thereafter, referring to dictionary meaning of term 'detection', the Tribunal has noted that in the present case admittedly some steps were taken by the departmental authorities for finding out the concealment indulged into by the assessee as well as other co-partners in various firms. The Tribunal further notes “certain queries were raised from the assessee but no specific notice was issued by the departmental authorities alleging particular items of income which has been concealed by the assessee. Thus, there was only a prima facie belief that the assessee has concealed his income for the assessment years under consideration and the process of detection was not complete by dated 31.3.1989 when the assessee filed the revised returns wherein additional income in the form of deposits in the name of family members, interest earned thereon and certain other items of underplained expenditure, etc. were offered for assessement in all the three assessment years under consideration.' 7. The Tribunal has also noted “it may be further ITR/62/1997 6/9 JUDGMENT pointed out that the departmental authorities had assessed the amounts found in the bank accounts of various family members in Vysya Bank and Canara bank along with interest in the hands of those family members and has also initiated penalty proceedings for concealment of income in their respective cases as well. It is also an admitted position that those family members have nowhere admitted that they were banamidars of the assessee.” 8. Assailing the impugned order of Tribunal, Mr. M.R. Bhatt, learned Senior Standing Counsel for applicant – Revenue, after reiterating the facts, stated that there was admission of the assessee regarding concealment of income when the revised returns were filed consequent upon certain queries raised by the department as recorded by the Tribunal and, therefore, the Tribunal has committed an error in law in coming to the conclusion that there was no detection and the returns were voluntary in nature. That the Tribunal failed to appreciate that the default was committed by the assessee when the return of income was originally filed and declaration in the revised returns did not absolve the assessee so as to delete the penalties imposed. That in fact, the Tribunal ought to have dealt with the issue as to what was the explanation of the assessee for not originally disclosing the income declared in the revised returns. In support of the propositions, various decisions have been cited on behalf of the applicant- revenue. ITR/62/1997 7/9 JUDGMENT 9. Mr K.H. Shah learned advocate appearing for respondent – assessee has supported the impugned order of Tribunal by referring to the findings recorded by the Tribunal. It was also submitted that the revised returns of income were voluntary in nature and, in fact, there was no admission during the course of search and seizure proceedings as could be reflected from the statement made under sec. 132(4) of the Act. The learned advocate has cited as many as eight decisions. 10. As can be seen from the question raised and referred for the opinion of this Court, the scope of the controversy brought before the Court is very narrow. The Court is required to determine only whether the Tribunal was right in holding that penalty under sec. 271(1)(c) of the Act was not leviable in the present case as the assessee had filed revised returns before the concealment was actually detected by the department. In light of the aforesaid frame of the question, the Court has not thought it fit to deal with the contentions raised on behalf of the Revenue to the effect that Explanation to Sec. 271(1)(c) of the Act was applicable, and that the Court should call for supplementary statement of the case, if the Court feels that the documents annexed to the statement of the case are not sufficient to answer the question. 11. As noted hereinbefore, the Tribunal has in terms ITR/62/1997 8/9 JUDGMENT found that though certain queries were raised and put to the assessee there was no specific pin pointing of particular items of income which have been concealed by the assessee. The Tribunal has found, as a matter of fact, that till 31.3.1989 the process of detection was not complete, the date 31.3.1989 being the date of filing of revised returns. In face of these findings recorded on the basis of evidence appreciated by the Tribunal, the Court does not find it necessary to deal with any other issues considering the question referred for the opinion of this Court. In fact, there is no material on record to indicate that the aforesaid finding of the Tribunal is incorrect in any manner whatsoever. Furthermore, the Tribunal has also noted as a matter of fact that the very same amounts standing to the credit of the bank accounts of various family members had already been assessed by the departmental authorities along with interest in the hands of the family members and it was also an admitted position that those family members have nowhere admitted that the family members were benamidars of the assessee. 12. In the circumstances, it is apparent that the same income, namely the amounts in the bank accounts along with the interest thereon, have been assessed in the hands of the assessee as well as different family members. Hence, even the department is not certain as to the right person who is amenable to tax qua the said income. In the circumstances, the Tribunal rightly came to the conclusion that no ITR/62/1997 9/9 JUDGMENT penalty is exigible under the provisions of Sec. 271(1)(c) of the Act when the Tribunal has found that admittedly the family members have not been treated as benamidars of assessee nor have the family members stated that they are the benamidars of the assessee. 13. In the view that the Court has taken it has not been found necessary to enumerate and deal with more than a dozen authorities cited by both the sides. The question referred for the opinion of this Court is, therefore, answered in affirmative, i.e., in favour of the assessee and against the Revenue. The Reference stands disposed of accordingly with no order as to costs. (D.A. MEHTA, J.) (Z.K. SAIYED, J.) mandora/