Income Tax Appeal No.212 of 2011 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. --- Income Tax Appeal No. 212 of 2011 Date of decision: 21.7.2011 Sanjay Aggarwal --- Appellant Versus Commissioner of Income Tax, Ludhiana --- Respondent CORAM: HON’BLE MR. JUSTICE ADARSH KUMAR GOEL ACTING CHIEF JUSTICE HON’BLE MR. JUSTICE AJAY KUMAR MITTAL --- Present: Mr. Pankaj Jain, Advocate and Mr. Rishabh Kapoor, Advocate for the appellant. --- AJAY KUMAR MITTAL, J. This appeal under Section 260A of the Income-Tax Act, 1961 (for short “the Act”) has been filed by the assessee against the order dated 31.3.2010, passed by the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar (in short “the Tribunal”) in ITA No. 54/ASR/2010, relating to the assessment year 2006-07. 2. The following substantial questions of law have been claimed for determination of this Court: a) Whether on the true and correct interpretation of the provisions of Explanation to section 132(4) read with Section 131, read with Rule 112A(1) the statement Income Tax Appeal No.212 of 2011 2 recorded u/s 131 is in continuation of the proceedings of search initiated u/s 132 of the Act? b) Whether the statement recorded u/s 131 during the continuance of the search ‘proceedings’ u/s 132 is without jurisdiction and powers prescribed under the Act? 3. The facts, in brief, necessary for adjudication as narrated in the appeal, are that the assessee - Shri Radha Raman Aggarwal was an individual. The appellant is the legal heir of the assessee – Shri Radha Raman Aggarwal. The return for the assessment year 2006-07 was filed on 17.01.2007 showing income of Rs. 7,88,620/-. The income was assessed under Section 143(3) of the Act at the returned amount. The assessment was completed on 31.10.2007 which contained the surrendered amount of Rs. 7,25,000/- in consequence of the search carried under Section 132 of the Act on 8.11.2005. The assessee made disclosure under Section 131(1) of the Act on 5.1.2006 and offered to surrender the amount attributable to him in the investment in property. Thereafter, proceedings for imposing penalty under Section 271(1)(c) of the Act were initiated and a penalty in the sum of Rs. 1,90,318/- was levied on the appellant-assessee on 20.03.2008. 4. The assessee preferred appeal before the Commissioner of Income Tax (Appeals) {in short the CIT(A)}. The CIT(A) dismissed the appeal on 18.11.2009. 5. The assessee preferred further appeal before the Tribunal and the same was also dismissed vide order dated 31.03.2010. 6. This is how the assessee is in appeal before this Court. Income Tax Appeal No.212 of 2011 3 7. Learned counsel for the assessee submitted that in view of Explanation to Section 132(4) of the Act, the surrender made by the assessee in the statement made under Section 131(1) in consequence of search carried under Section 132 of the Act, the assessee was entitled to the benefit of Explanation 5 to Section 271 (1)(c) of the Act. The surrender of Rs.7,25,000/- was, thus, covered under the aforesaid Explanation 5 to Section 271(1)(c) of the Act and no penalty was leviable there-under. 8. We are unable to accept the aforesaid contention. 9. The point for adjudication that arises in this appeal is whether an assessee is entitled to benefit of Explanation 5 to Section 271(1)(c) of the Act in respect of any surrender/disclosure made not at the time of search and seizure but thereafter by statement under Section 131(1) of the Act during the assessment proceedings in pursuance to the search and seizure operations. 10. It would be advantageous to refer to Explanation to Section 132(4) of the Act and Explanation 5 to Section 271(1)(c) of the Act to fully appreciate the controversy involved herein. Section 132(4) of the Act along with Explanation attached thereto reads thus:- “Section 132(4): The authorised officer may, during the course of the search or seizure, examine on oath any person who is found to be in possession or control of any books of account, documents, money, bullion, jewellery or other valuable article or thing and any statement made by such person during such examination may thereafter be used in evidence in any proceeding under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act. Income Tax Appeal No.212 of 2011 4 Explanation – For the removal of doubts, it is hereby declared that the examination of any person under this sub-section may be not merely in respect of any books of account, other documents or assets found as a result of the search, but also in respect of all matters relevant for the purposes of any investigation connected with any proceeding under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act.” 11. Sub-section (4) of Section 132 of the Act empowers the authorised officer to examine any person on oath who is found to be in possession or control of any books of account, documents, valuable articles etc. during the course of search. The explanation attached thereto clarifies that the examination referred to in the sub- section is not restricted to the books of account, other documents or assets or articles found during the search, but can also be for the purposes of investigation connected with any proceedings under the Act. 12. Explanation 5 to Section 271(1)(c) of the Act is in the following terms:- Explanation-5: Where in the course of a search initiated under section 132 before the Ist day of June, 2007, 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 utilizing (wholly or in part) his income, - Income Tax Appeal No.212 of 2011 5 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, 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 Income Tax Appeal No.212 of 2011 6 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.” 13. Explanation 5 to Section 271(1)(c) of the Act was inserted by Taxation Laws (Amendment) Act, 1984 w.e.f. 1.10.1984. According to Explanation 5 to Section 271(1)(c) of the Act, where an assessee surrenders undisclosed income in the course of the search by making a statement under Section 132(4) of the Act and pays taxes and interest thereon, penalty as provided under Section 271(1)(c) of the Act is not leviable. 14. The scope and effect of the Explanation 5 to Section 271 (1)(c) of the Act was explained by the Central Board of Direct Taxes in circular No.394, dated 14.9.1984, (1984) 150 ITR (St) 22 in the following words: “36.2. The new Explanation contains a special provision applicable to cases where in the course of a search under section 132 of the Income-tax Act, the assessee is found to be the owner of any money, bullion, jewellery or other valuable article or thing. The new Explanation provides that if in such cases, the assessee claims that the assets referred to above have been acquired by him by utilising (whether wholly 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, or where such return has been Income Tax Appeal No.212 of 2011 7 furnished before the said date, such income has not been declared in the return, the assessee shall, for the purposes of imposition of penalty under section 271(1)(c) of the Income-tax Act, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income unless such income is, or the transactions resulting in such income are, recorded before the date of the search in the books of account, if any, maintained by him for any source of income or such income is otherwise disclosed to the Commissioner before the date of the search. Where the assessee claims that the aforesaid assets have been acquired by him by utilising (whether wholly or in part) his income for any previous year which is to end on or after the date of the search, he shall for the purposes of section 271(1)(c) of the Act be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income, unless such income is or the transactions resulting in such income are, recorded 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 Commissioner before the said date. 36.3. The fact that the income referred to above is declared by the assessee in any return of income furnished by him on or after the date of the search will not provide immunity to the assessee from imposition of penalty under Section 271(1)(c) of the Act unless the Income Tax Appeal No.212 of 2011 8 conditions mentioned in the preceding paragraph are fulfilled. 36.4. The aforesaid amendments take effect from 1 October, 1984.” 15. The expression “in the course of the search” in Explanation 5 to Section 271(1)(c) of the Act would not include post search period like assessment proceedings in pursuance to search operations. The legislative intent for providing immunity from penalty under Explanation 5 to Section 271(1)(c) of the Act was to give concession and another opportunity to an assessee to come clean before detection during the course of search and seizure. It nowhere entitles an assessee to seek immunity from penalty where the assessee was cornered after detection during assessment proceedings in pursuance to search operations and had not availed benefit of opportunity provided in terms of Explanation 5 to Section 271(1)(c) of the Act. Section 132(4) of the Act uses the expression “authorised officer” and not the words “assessing officer”. The expression “authorised officer” used in Section 132(4) of the Act instead of “assessing officer” also supports the aforesaid interpretation. Therefore, statement made under Section 131(1) of the Act during assessment proceedings in pursuance of search and seizure operations cannot partake the character of statement under Section 132(4) of the Act. As a necessary corollary, the benefit of Explanation 5 to Section 271(1)(c) of the Act would, thus, not be admissible in such situation. 16. Adverting to the facts of the present case, the search took place at the premises of the assessee on 8.11.2005 wherein the assessee had not declared any income in the statement recorded Income Tax Appeal No.212 of 2011 9 under Section 132(4) of the Act. The disclosure regarding concealed income in respect of undeclared investment in the purchase of immoveable property was made under Section 131(1) of the Act on 5.1.2006. Thus, no immunity can be claimed by the assessee from levy of penalty in terms of Explanation 5 to Section 271(1)(c) of the Act. 17. The similar issue raised by the assessee before the Tribunal was rejected after considering the scope of Section 132(4) and Explanation 5 to Section 271(1)(c) of the Act with the following observations: “We have given out thoughtful consideration to the rival submissions, perused the relevant material placed on record, including the case laws cited and the synopsis filed by the Ld. Counsel for the assessee. It is evident from the above discussions and clear findings given by the lower authorities that the assessee has not declared any income in the statement recorded under section 132 (4) of the Act. Thus, the assessee has failed to comply with the statutory requirements as contained under section 271(1)(c) read with Explanation 5 thereunder. The assessee admitted post search investigation in the statement recorded on 5.1.2006 under Section 131 of the Act and, the concealed income, in the form of unaccounted investment made in the purchase of immovable property. He, subsequently, disclosed the said unexplained investment in the return of income. The argument of the Ld. Counsel for the assessee that there is no difference between the returned income and Income Tax Appeal No.212 of 2011 10 assessed income and as no addition was made to the returned income, is not legally and factually tenable. Similarly, the contention of the Ld. Counsel that proceedings, u/s 131 of the Act are in continuance of the search operation u/s 132(1) of the Act, does not have any statutory merit. It is for the party searched to seek immunity, as contemplated under Section 271(1)(c) read with Explanation 5 thereto. There is no legal sanctity, to support the contention of the Ld. Counsel that the assessee was not given opportunity to make declaration of unexplained income, in the course of search operations. The assessee disclosed such income after detection of the unexplained investment in the post search investigation, in the deposition made u/s 131 of the Act. The case laws relied upon by the Ld. Counsel for the assessee pertain to the admission/declaration made by the party, in the statement recorded under Section 132(4) of the Act, during the course of search operations. Thus, in the present case, there is no such declaration by the assessee of the concealed income, in the course of statement recorded under Section 132(4) of the Act. In view of this, the case laws relied upon by the assessee are factually different and distinguishable, as in all those cases, the assessee admitted the concealed income, in the statement recorded under Section 132(4) of the Act, in the course of search operations. It is added that certain case laws relied upon by the assessee’s counsel have already been considered by the Ld. CIT(A), Income Tax Appeal No.212 of 2011 11 in his impugned appellate order. Therefore, we are of the considered opinion that the immunity contemplated under Explanation 5 to Section 271(1)(c) of the Act, is not available to the present assessee. However, the issue is covered under the general provisions of Section 271(1)(c) of the Act, as well as under the deemed concealed income within the meaning of Explanation 5 to Section 271(1)(c) of the Act, for the purpose of concealed income.” 18. The Tribunal while repelling the contention of the assessee further noticed as under:- “Thus, the assessee has clearly failed to comply with the statutory requirements, as contained under the said section. It is, further, added that it is not a case of agreed surrender made by the assessee because the assessee has simply admitted concealed income in the course of proceedings under section 131 of the Act. We have carefully gone through and considered the ratio of the decisions as well as the facts of the case laws relied upon by the Ld. Counsel for the assessee and found that none of the case law is applicable to the facts of the present case because in all those cases, the facts are different and distinguishable. In the present case, the assessee has admitted undisclosed investment in the course of proceedings u/s 131 and not during search proceedings under Section 132(4) of the Act. It is further added that perusal of decision of the Hon’ble Bombay Income Tax Appeal No.212 of 2011 12 High Court in the case of CIT v. Kiran & Company, (1996) 217 ITR 326, reveals that the assessee made conditional offer for settlement – consequently, cancellation of penalty. In the present case, there is no such conditional offer made by the assessee. However, it is abundantly clear that the Department detected concealment in the course of post search operations, while recording statement u/s 131 of the Act. It is further added that the contention of the assessee that it was a voluntary surrender, is not factually and legally tenable. The assessee admitted and unexplained investment made in the property in the course of post search investigations and the same was disclosed subsequently, in the return of income filed by the assessee. Thus, such conduct of the assessee cannot be treated as voluntary disclosure. It is further made clear that in this case statement was recorded u/s 131 of the Act and it is not a case of non-recording of statement u/s 132(4) of the Act, in the course of search operations.” 19. No illegality or perversity having been pointed out by the learned counsel in the aforesaid findings warranting interference by this Court, we find no merit in the appeal. Resultantly, there does not arise any substantial question of law for consideration of this Court. Accordingly, the appeal is dismissed. (AJAY KUMAR MITTAL) JUDGE Income Tax Appeal No.212 of 2011 13 (ADARSH KUMAR GOEL) July 21, 2011 ACTING CHIEF JUSTICE *rkmalik*