SEVANTILAL MANILAL vs ASSISTANT COMMISSIONER OF INCOME TAX

This is an appeal by the assessee against the order of the Commissioner (Appeals) for assessment year 1986-87 confirming the penalty levied u/s 27 1 (1)(c) of the Act.

In a search and seizure action on 3-6-1988 in the case of the assessee and the firm M/s. Sevantilal Manilal & Co., in which he was a partner, the firm was found to have deposited on 10-5-1985 a sum of Rs. 2,00,000 in their bank account, but the name of the person or the source thereof was not recorded in their books. By letter dated 19-9-1988 the assessee owned up having given cash of Rs. 2,00,000 to the firm on 10-5-1985 which was deposited by them in their bank accounts. The assessee also claimed that this money was subsequently withdrawn in two lots by him Rs. 1,25,000 on 5-8-1985 and Rs. 75,000 on 7-6-1985 and was claimed to have been utilised in purchasing excess jewellery of Rs. 1,90,750 found with the assessee and a deposit of Rs. 11,000 for booking a Maruti Car. As the assessment for the year under appeal was originally completed u/s 143(l), the assessee filed a revised return and the assessment was completed u/s 147, read with section 143 by including the aforesaid two amounts. The penalty was levied for the aforesaid concealment of Rs. 2,00,000, based on the tax that would have been avoided thereon. The Commissioner (Appeals) upheld the penalty by observing in paragraph 2 of his order as under:

"2. 1 have considered the submissions of the appellant''s representative. However, I am unable to accept the appellant''s contention in this regard. In my opinion, the assessing officer is justified in holding that the amount of Rs. 2,00,000 represents appellant''s concealed income from undisclosed sources. The assessing officer was right when he mentioned that the appellant has already stated that the cash of Rs. 2,00,000 was utilised for purchase of jewellery after withdrawing it. If it is accepted that the sum of Rs. 2,00,000 deposited in bank was taken as loan and the names of the loan givers were entered in books then these loans should have appeared in the books till they are repaid because the money has already been utilised for purchase of jewellery as claimed by the appellant. However, neither the loans are repaid nor is there any outstanding loans in the books. This clearly indicates that this amount was appellant''s own income from undisclosed sources. I also agree with the assessing officer that the appellant''s case is not covered by Explanation 5 of section 27 1 (1)(c). The appellant''s case is of the previous year ending before the date of search and this income was not declared therein. The proviso would only apply if the transaction resulting in such income is recorded in books. However, in the appellant''s books there is no record of any transaction which resulted in the generation of an income of Rs. 2,00,000. Addedly also, the proviso to Explanation 5 was introduced with effect from 10-9-1986 and the appellant''s accounting year having ended prior to that proviso does not apply in the appellant''s case.

The parties were heard and their rival submissions considered. Explanation 5 to section 271 (1)(c) of the Act, which is claimed to have come to assessee''s rescue, reads as under:

"Where in the course of a search u/s 132, the assessee is found to be the owner of any money, bullion, jewellery or other valuable article or thing (hereinafter in the 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 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 the clause (a) or clause (b) of sub-section (1) of section 139 and also specified 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."

The assessee was found to be the owner of the jewellery worth Rs. 1,90,750 and deposit receipt for booking the car of Rs. 11,000 in the course of the search action u/s 132 of the Act carried out on 3-6-1988. He claimed these two assets to have been acquired out of the income of Rs. 2,00,000, the income not declared in assessment year 1986-87, but was stated to have been originally deposited with the firm of M/s. Sevantilal Manilal & Co. and withdrawn subsequently and utilised for acquiring the jewellery, etc. It is, therefore, deemed as income as per clause (a) of the Explanation for which the assessee concealed the particulars of income or furnished inaccurate particulars of such income unless it is covered by clauses (1) and (2) of the Explanation.

The assessee claimed that his case was saved by clause (1)(i). This saving clause applies only when the assessee has recorded for the said income in the books of account, if any, maintained by him for any source of income or where it is otherwise disclosed to the Chief Commissioner of Income tax before the date of search. In other words the income is to be found recorded in the books of account. The said books of account are to be the books of account maintained by the assessee, which could be for any source of income. Alternatively, the income was to be disclosed to the Chief Commissioner of Income Tax. Both these, recording of the income in the assessee''s books of account or the disclosure to the Chief Commissioner of Income Tax, had to be before the date of the search. The assessee was maintaining books of account for the sources of his income, but this transaction was not recorded any where therein. The assessee, however, submits that lie is a partner in the firm, in the books of which the income is recorded and, therefore, the assessee is deemed to have complied with this requirement. The assessee came out with an ingenious argument that the object behind granting exemption from penalty is the disclosure of income to the department before the date of search and that is fulfilled when it was found recorded in the books of account. I do not find an v substance or force in this argument of the assessee - firstly because the Explanation requires that the income should be recorded in the books of account maintained by him and that would only, mean by the assessee himself to whom the income belongs; secondly in firm''s books also no name of the depositor or lender is given, assessee''s name does not appear in the firm''s books for this income; thirdly this income has no bearing to the source of his income from the firm, it was claimed to have been earned by the assessee independent to firm and not as a partner of the firm; fourthly the recording in the firm''s books was not of income but as borrowing, which was refunded subsequently and lastly it might be true that the object of granting exemption is the disclosure of particulars of'' income before the date of the search, but it has to be by the assessee in the books of account maintained by him for any source of income and not elsewhere. The contention of the assessee is accordingly rejected.

The assessee then came forward with a technical plea that the off of income was subject to a condition of immunity being granted to him. Here also I do not find any force in the submission of the assessee. Where the assessee was found in possession of the assets and lie owns Lip those assets to be his own as not recorded and the source of which is claimed by himself to be cash of Rs. 2,00,000, how could it be a conditional offer? if he had not offered this income he would have been penalised for concealment for the undisclosed sources for acquiring the assets. In any case, from the statement u/s 132(4) 1 find that the condition, even if it was there, was for the disclosure of firm''s income and not for assessee''s income. Question No. 7 and the answer thereto appearing at page 16 of the paperbook, on which reliance is placed by the assessee read as under:

"Q. 7. On a scrutiny of the cash books of M/s. Rasiklal Kantilal & Co. and M/s. Sevantilal Manilal & Co., it is seen that there are cash deposits in bank accounts on certain dates which are not explained by the cash balance. In other words, the cash balance is insufficient, explain the deposits in bank accounts. What explanation do you have for the same?

Ans. I admit that the unexplained cash deposited in bank accounts are unaccounted and constitutes the undisclosed income of the respective firm for the respective accounting year. We are willing to pay the necessary taxes on this undisclosed income represented by such unaccounted cash deposits. We may be given sometime for working out the exact quantum of such additional income. Since we are voluntarily offering this income, M/s. Sevantilal Manilal & Co. and M/s. Rasiklal Kantilal & Co. may be exempted from penalty and prosecution proceedings and interest."

This income was not offered in the firm''s assessment, but was owned up by the assessee as his own income and offered to tax in his individual assessment. Thus there was no condition for offering this income in the assessee''s case at all. The submission seems to be factually wrong.

For the reasons detailed above and on the facts and circumstances of the case, I do not find any merit in the assessee''s appeal. It is accordingly dismissed.