COMMISSIONER OF INCOME TAX Vs. NEM KUMAR JAIN

JUDGEMENT

(1.) The Tribunal, New Delhi, has referred to following two questions of law under Section 256(2) of the IT Act, 1961 (hereinafter referred to as 'the Act') for opinion of this Court:

(2.) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in cancelling the penalty under Section 271(1)(c) of the IT Act, 1961 without taking into account the finding of the AO that the assessee had not paid the tax in respect of such income before furnishing his return of income ? 2. The reference relates to the asst. yr. 1988-89. Brief facts of the case are as follows : Assessee-respondent (hereinafter referred to as "assessee") is assessed to tax in the status of individual. On 16th July, 1987, the business and residential premises were searched by the income-tax officials under Section 132 of the Act. In the statement recorded under Section 132(4) of the Act during the course of search, the assessee surrendered a sum of Rs. 35 lakhs as an undisclosed income. On 28th April, 1989, assessee filed his return disclosing an income of Rs. 6,75,379 plus agricultural income of Rs. 20,000. On 20th March, 1991, he filed a revised return disclosing an income of Rs. 4,95,780 plus agricultural income of Rs. 20,000. During the course of assessment proceedings, assessee rescinded the disclosure made by him at the time of search. However, assessment was completed vide order under Section 143(3) dt. 20th March, 1991 on an income of Rs. 4,96,092 plus agricultural income of Rs. 20,000. In this way, disclosing the income in the return was not accepted. Penalty proceedings under Section 271(1)(c) of the Act were initiated. Assessee filed reply, which did not favour to the assessing authority. A sum of Rs. 2,50,000 was levied towards penalty. Before the assessing authority assessee claimed that in the statement under Section 132(4) of the Act the amount was surrendered, therefore, in view of the Expln. 5(2) to Section 271(1)(c) of the Act, penalty could not be levied. Assessing authority has not accepted the plea on the ground that assessee subsequently rescinded the disclosure during the course of assessment proceeding and inasmuch as in the statement the manner in which income has been derived has not been disclosed and the assessee has not paid the tax in respect of such income before furnishing his return of income. Being aggrieved by the penalty order, assessee filed appeal before CIT(A). CIT(A) dismissed the appeal and confirmed the penalty order. CIT(A), however, confirmed the penalty mainly on the ground that in the statement the manner in which the income has been derived has not been stated. Being aggrieved by the order of CIT(A), assessee filed second appeal before the Tribunal. Tribunal allowed the appeal and quashed the penalty. Tribunal held as follows : We find force in the contention raised on behalf of the assessee in this regard. There is no gain saying the fact that an amount of Rs. 36 lakhs was disclosed. It is. also on record that the assessment for the year under consideration stood fully covered by the disclosure made under Section 132(4). It is also a fact that specific query as to the manner in which the income had been earned or not was not put by the AO or by the officer taking the statement in which the disclosure was made by the assessee. True, that the assessee subsequently, rescinded the disclosure made by him, but the fact remains that the income returned by the assessee was accepted. Before us a copy of the order in ITA No. ...of 1992 by the Tribunal, Allahabad Bench, dt. 27th April, 1995 and order in ITA No. 7507All/1992, dt. 17th April, 1995 as also the copy of the order in ITA Nos. 699 and 700/All/1999 for asst. yrs. 1984-85 and 1988-89 dt. 28th April, 1995 were filed in which under similar circumstances penalty levied under Section 271(1)(c) has been cancelled. Circumstances remaining the same, we hold in this case also that ingredients of Section 271(1)(c) were not satisfied in this case and the penalty levied by the Departmental authorities stands cancelled.

(3.) Heard Sri Govind Krishna, learned standing counsel appearing on behalf of the Revenue. Nobody has appeared on behalf of the assessee.