Income Tax Appeal No. 256 of 2004 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. --- Income Tax Appeal No. 256 of 2004 Date of decision: 11.2.2011 Commissioner of Income Tax, Jalandhar-II, Jalandhar --- Appellant Versus Rakesh Chawla, Proprietor of M/s. Chawla Electricals ((India) Kapurthala --- Respondent CORAM: HON’BLE MR. JUSTICE ADARSH KUMAR GOEL HON’BLE MR. JUSTICE AJAY KUMAR MITTAL --- Present: Mr. Vivek Sethi, Standing Counsel for the appellant. Mr. S.K. Mukhi, Advocate for the respondent. --- AJAY KUMAR MITTAL, J. The paper-book of this case has not been received from the concerned Branch as the same is said to have burnt in the fire incident that took place in the premises of this Court on the night of 30th January, 2011. Learned counsel for the appellant has made available two copies of paper-book to the Court for reconstruction of the file. The said copies are taken on record and the file of the appeal be treated as having been reconstructed. Income Tax Appeal No. 256 of 2004 2 2. This appeal under Section 260A of the Income-Tax Act, 1961 (for short “the Act”) has been filed by the Revenue against the order dated 31.3.2004, passed by the Income Tax Appellate Tribunal Amritsar Bench, Amritsar (in short “the Tribunal”) in ITA No. 34/ASR/1998, relating to the assessment year 1994-95. 3. The following substantial question of law has been claimed for determination by this Court: “Whether the Tribunal was right in law in dismissing the appeal of the department by holding that Explanation 5 to Section 271(1)(c) does not apply to a proceeding under Section 132A?” 4. The facts, in brief, necessary for adjudication as narrated in the appeal, are that the police seized a sum of Rs. 3,65,000/- from the assessee and this fact having come to the notice of the assessing officer, survey under Section 133A of the Act was conducted at the premises of the assessee on 26.8.1993. The amount so seized by the police was requisitioned by the Income Tax Department under Section 132A of the Act, which was treated as income of the assessee for the assessment year 1994-95. The assessee filed return on 24.2.1995 declaring total income of Rs. 3,84,430/- including Rs. 3,65,000/- seized by the police, as income surrendered during survey. The assessing officer vide order dated 30.3.1995, passed under Section 143(3) of the Act, assessed the income of the assessee at Rs. 4,43,000/-. The income assessed by the assessing officer was, however, reduced to Rs.3,87,430/- in view of the order dated 6.11.1995 passed by the Commissioner of Income Tax (Appeals), [hereinafter referred to as “CIT (A)”]. Income Tax Appeal No. 256 of 2004 3 5. The assessing officer also imposed penalty of Rs. 2,10,020/- under Section 271(1)(c) of the Act on the assessee vide order dated 13.3.1996 in respect of the surrendered amount of Rs.3,65,000/- as Explanation 5 to Section 271(1)(c) of the Act was attracted but the assessee did not get immunity from the deeming provisions of Explanation 5 as the required conditions under clause (2) of Explanation 5 had not been fulfilled. The assessee challenged the order imposing penalty before the CIT(A). The CIT(A) allowed the appeal and deleted the penalty, observing that the deeming provisions of Explanation 5 to Section 271(1)(c) were not attracted as the amount was not seized under Section 132, but had been requisitioned under Section 132A of the Act. The Revenue went in appeal against the order of the CIT(A). The Tribunal by order under appeal dismissed the appeal of the Revenue and confirming the order of the CIT(A), held that the basis and the reasoning as given by the CIT(A) in deleting the penalty imposed were sound and convincing. 6. It is how the Revenue is in appeal before this Court. 7. We have heard learned counsel for the parties and have perused the record. 8. The point for consideration in this appeal is, whether Explanation 5 to Section 271(1)(c) of the Act applies in those cases as well where proceedings under Section 132-A of the Act have been resorted to by the Revenue. 9. Learned counsel for the Revenue-appellant on the strength of the decision of the Karnatka High Court in Commissioner of Income Tax vs. Aboo Mohmed (2001) 250 ITR 313 (Karnatka) submitted that Explanation 5 to Section 271(1)(c) of the Act was Income Tax Appeal No. 256 of 2004 4 attracted even to proceedings where assets have been requisitioned under Section 132A of the Act. According to him, Section 132A(3) supported his contention. On the other hand, learned counsel for the assessee supported the order of the Tribunal and submitted that since the income was surrendered by the assessee, it could not be inferred that there was concealment of income by the assessee and, thus, no penalty could be imposed under Section 271(1)(c) of the Act. Learned counsel for the assessee placed reliance on the following decisions: i) Commissioner of Income Tax vs. Tarsem Kumar and another, (1986) 161 ITR 505 (SC) ii) Commissioner of Income Tax vs. Suresh Chandra Mittal (2001) 251 ITR 9 (SC) iii) Commissioner of Income Tax vs. Rajnish Nath Aggarwal (2008) 8 DTR 253 (P&H) iv) Gebi Lal Kanhaialal (HUF) vs. Assistant Commissioner of Income Tax (2004) 270 ITR 523 (Rajasthan) v) Commissioner of Income Tax vs. S.I. Paripushpam, (2001) 249 ITR 550 (Madras) 10. We may refer to the relevant provisions as they existed then, before delving into the legal issue involved herein. (i) Explanation 5 to Section 271(1)(c) of the Act reads: 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 Income Tax Appeal No. 256 of 2004 5 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 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, Income Tax Appeal No. 256 of 2004 6 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. Explanation 5 to under Section 271(1)(c) of the Act was inserted by Tax Laws (Amendment) Act, 1984 with effect from Ist October, 1984. Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986 amended the said explanation with effect from 10 September, 1986. According to the said explanation if the amount found during search is surrendered and taxed along with interest thereon, no penalty is exigible under Section 271(1)(c). However, where income found during search was surrendered, but no return was filed in respect of such income and no payment of tax was made, the penalty under Section 271(1)(c) would be justified. 12. Sub-section (3) of Section 132A of the Act reads thus: “132A(3) Where any books of account, other documents or assets have been delivered to the requisitioning officer, the provisions of sub-sections (4A) to (14) (both inclusive) of Section 132 and Section 132B shall so far as may be, apply as if such books of account, other documents or assets had been seized under sub-section (1) of Section 132 by the requisitioning officer from the custody of the person referred to in clause (a) or clause (b) or clause (c), as the case may Income Tax Appeal No. 256 of 2004 7 be, of sub-section (1) of this section and as if for the words ‘the authorized officer’ occurring in any of the aforesaid sub- sections (4A) to (14), the words ‘the requisitioning officer’ were substituted.” 13. Sub-section (3) of Section 132A of the Act specifically provides that provisions of sub-section (4A) to (14) of Section 132 shall apply to proceedings under Section 132A of the Act. By virtue of Section 132A (3) the action of requisitioning has been equated with that of seizure under section 132(1) and as such the provisions of sub-sections (4A) to (14) of Section 132 of the Act become applicable. 14. The cumulative effect of the reading of the above said provision is that where an assessee surrenders an amount which had been requisitioned under Section 132A of the Act but fails to fulfil the conditions as enumerated in Explanation 5 to Section 271 (1)(c) he was liable for penalty for concealment. The Karnatka High Court, in Aboo Mohmed’s case (supra) while dealing with the similar issue had held as under:- “This Section has considered the action of requisition as that of seizure under Section 132(1) and as such the provisions of sub-sections (4A) to (14) of Section 132 would apply mutatis mutandis. Since it is a deemed search the benefit of the Amnesty Scheme cannot be taken.” 15. The Tribunal while affirming the order of the CIT(A), whereby the penalty imposed under Section 271(1)(c) had been deleted, had ignored the provisions of sub-section (3) of Section 132A of the Act. The assessee had failed to conform to the legal requirements enumerated in Explanation 5 to Section 271(1)(c) of the Act and, Income Tax Appeal No. 256 of 2004 8 therefore, the benefit of Explanation 5 was not available to him. A huge amount of Rs. 3,65,000/- was surrendered by the assessee during the course of survey under Section 133A of the Act which had been carried out at the premises of the assessee. The assessee had not filed the return of income within time and had also not made payment of the taxes. Sub clause (2) of Explanation 5 to Section 271(1)(c) of the Act had, therefore, not been complied with. Thus, it cannot be held that there was no concealment of income by the assessee. Suffice it to notice that the judgments relied upon by the learned counsel for the assessee were on individual fact situation involved therein and the same do not advance the case of the assessee. Once that is so, the Tribunal was not right in confirming the order of the CIT(A). 16.. In view of the above, the substantial question of law is answered in favour of the Revenue and accordingly the appeal is allowed. (AJAY KUMAR MITTAL) JUDGE (ADARSH KUMAR GOEL) February 11, 2011 JUDGE *rkmalik*