COMMISSIONER OF INCOME TAX Vs. MAHENDRA C SHAH

JUDGEMENT

(1.) THE Income-tax Appellate Tribunal, Ahmedabad Bench 'a' has referred the following question under Section 256 (1) of the Income-tax Act, 1961 (the Act), at the instance of the Commissioner of Income-tax:

(2.) THE Assessment Year is 1988-89. Search operations took place at the premises of one M/s. Dinal Gems, 303, Panchratna, Opera House, Bombay under Section 132 of the Act on 03. 07. 1987. Admittedly, the respondent-assessee was also present at that point of time at the said premises. A personal search of the assessee was undertaken and diamonds worth Rs. 5,06,712/- were found from the person of the assessee and seized. On 25. 02. 1991 assessment under Section 143 (3) of the Act was completed on a total income of Rs. 5,77,600/ -. The record reveals that a return of income declaring total income of Rs. 20,880/- was filed on 17. 10. 1989. This was followed by a revised return filed on 27. 09. 1990 declaring total income of Rs. 5,27,600/-, including the value of diamonds found from the possession of the assessee i. e. worth Rs. 5,06,712/ -. The Assessing Officer initiated penalty proceedings under Section 271 (1) (c) of the Act and levied a penalty of Rs. 5,61,464/ -. The penalty levied by the Assessing Officer was confirmed in First Appeal by the Commissioner (Appeals ). The assessee carried the matter in Second Appeal before the Tribunal, who has deleted the penalty for the reasons recorded in order dated 24. 05. 1994. The Tribunal has referred to provisions of Explanation 5 to Section 271 (1) (c) of the Act and come to the conclusion that the case of the assessee was covered by the Exception provided in Explanation 5 and, therefore, in light of the statement recorded at the time of search under Section 132 (4) of the Act, no penalty was leviable for concealment.

(3.) MR. B. B. NAIK, learned Standing Counsel for the applicant-revenue, assailed the impugned order of the Tribunal primarily on the ground that the Tribunal had wrongly granted immunity to the assessee considering the peculiar facts of the case and the provisions of Explanation 5 to Section 271 (1) (c) of the Act. It was submitted that by mere declaration in the statement recorded under Section 132 (4) of the Act the assessee did not derive any immunity if the assessee failed to comply with the further requirement of the provisions, namely, payment of tax and interest at the time of filing of the return of income. That in fact the assessee had not even disclosed the amount declared in the statement in the original return of income filed on 17. 10. 1989 and had not even paid tax. The value of the diamonds seized at the time of search had been included in revised return of income for the first time on 27. 09. 1990 and tax had been paid only at that point of time. In the circumstances, it was contended that a default had already taken place vis-a-vis the original return of income and once income had been concealed at the time of filing of the original return of income, filing of revised income would not absolve the assessee from penal consequence. It was further submitted that once the declared amount had not been disclosed in the return of income originally filed and even payment of tax having not been made the assessee was not entitled to immunity provided by Explanation 5 to Section 271 (1) (c) of the Act. It was urged that this was a case where till the point of time the search took place the assessee had not voluntarily come forward to declare the income and in fact as per earlier portion of Explanation 5 there was a deemed concealment. Therefore, the case of the assessee cannot be treated as case of any other assessee who had not been subjected to search and seizure proceedings and a strict view of the matter was required to be taken; that there could not be same treatment of persons i. e. the assessees, who were not similarly situated. In support of the submissions made reliance has been placed on the Apex Court order in case of G. C. Agarwal Vs. Commissioner of Income-tax, Assam, Nagaland, Etc. , (1990) 186 ITR 571.