COMMISSIONER OF INCOME TAX Vs. MAHESH CHAND AGRAWAL

JUDGEMENT

(1.) THE Tribunal, Allahabad has referred to following two questions of law under Section 256(1) of the IT Act, 1961 (hereinafter referred to as 'the Act') for opinion of this Court: Whether on the facts and in the circumstances of the case, Tribunal was justified in holding that conditions laid down in Expln. 5(2) to Section 271(1)(c) were fulfilled and no penalty was leviable under Section 271(1)(c) of the IT Act, 1961?

(2.) WHETHER on the facts and in the circumstances of the case, the Tribunal was justified in holding that the immunity available under the aforesaid Explanation were available to the assessee in respect of the amounts surrendered in the hands of the firm M/s Ganesh Prasad Gondi Lal and Sons by his father and partners of the firm and taxed in the hands of the assessee as per settlement arrived at later on ? 2. The present reference relates to the asst. yr. 1989 -90. Brief facts of the case are that the assessee belongs to M/s Ganesh Pd. Gonda Lal and Sons group of cases of Banda, in which a search was conducted at the residential as well as business premises of the assessee and other assessees of the same group on 30th Aug., 1988, which continued upto 1st Sept., 1988. During the course of the said search, cash and jewellery were found and seized. During the search and seizure, the assessee had made a statement under Section 132(4) and surrendered an amount of Rs. 40,000 as undisclosed cash and Rs. 6 lakhs as undisclosed jewellery. The assessee had also moved an application before the learned CIT, Kanpur for settlement of his taxable income. Consequently, under the directions/guidelines issued by the learned CIT, Kanpur the assessments were famed. Thereafter the notices were also issued to the assessee for imposing penalty under Section 271(1)(c). The explanation of the assessee that his case was covered under Expln. 5(2) of Section 271(1)(c) was not accepted and a penalty was imposed on the ground that the assessee's statement did not disclose the manner in which such income was earned and the assessee had also not paid the tax and interest thereon before filing the return or latest before the prescribed time under Section 139(1). In appeal Tribunal deleted the penalty. Tribunal held as follows: We have heard the parties at length and we find that the crux of the case is as to how far the surrender by the father of the assessee of the jewellery alleged to be belonging to the firm should be treated to have been surrendered by the assessee. While deciding the case of Radha Krishna Goel, copy filed in the compilation, we have held that there should be a harmonious interpretation of the law. The Hon'ble Supreme Court in the case of the Reserve Bank of India v. Peerless General Finance had held that the interpretation of law as it stands, deserves to be construed in the way as it had been the intention of the legislature. In this case, Expln. 5 of Section 271(1)(c) provides a deeming provision for imposing penalty on recovery of certain undisclosed assets at the time of search and seizure, yet it gives an exception for the benefit of the assessee too in Sub -section (2) of the said Explanation that if the assessee makes a statement under Sub -section (4) of Section 132 that such assets have been acquired out of his income not disclosed in his return of income, then no penalty shall be imposed. This very fact shows the intention of the legislature that the legislature wants that if the assessee, from whose possession certain recovery is made, makes a clean breast confession and cooperates with the Department and pays the entire tax due, then no penalty shall be imposed. Here in this case, as the facts stand, it cannot be doubted that the Department took the cases of various members of the group as one and the settlement applications made on two dates also indicated that they were made for all the members of the group, the guidelines issued by the learned CIT on two dates also clearly indicate that the cases of all the members of the group were being treated as one. Hence, under these circumstances, specially when the assessee and all the members of the group have co -operated with the Department to the maximum and the Department has also accepted all what was surrendered by the assessee giving out relief even on the excess amount surrendered by the members of the group in their statements made initially under Section 132(4) shows that the entire proceedings were aimed at arriving at the settlement and getting the maximum tax due from item at the earliest opportunity and avoiding the rigours of litigation which could be for both, i.e. the members of the group and also for the Department. Under these circumstances, no doubt the assessee was not having any locker, yet the entire recovery from all the members of the group was being treated as one recovery, the fact that the recovery of jewellery from the residential portion occupied by the assessee and from the alleged portion occupied by the firm were all mixed up and a common Panchnama was prepared clearly indicate that the Department was not treating the assessee differently. It is not in dispute that there were certain lockers belonging to various members of the group and they were operated on 17th Nov., 1988 and thus, if a liberal interpretation of the facts is taken, then the search and seizure will be deemed to have been carried till 17th Nov., 1988 as has been held by us in the case of Radha Krishna Goel and Man Mohan Goel. Under these circumstances, if a broad liberal interpretation is given to Expln. 5 of Section 271(1)(c), specially in view of the peculiar circumstances, then the provisions of penalty are not attracted as either the assessee or his father had surrendered the entire value of the jewellery in their statement under Section 132(4) at the very time of the search, i.e. 30th Aug., 1988 and subsequently bifurcated by the different members of the group on the basis of a settlement petition moved by the group and processed by the Department and thereafter the assessments were framed on the basis of the guidelines issued by the learned CIT. Besides the above facts, even the alternative plea taken by the learned Counsel for the assessee also cannot be lightly brushed aside. If the search is taken to have concluded on 30th Aug., 1988, then admittedly Shri Mahesh Chand Agrawal was neither found to be owner of the jewellery nor was treated to be the owner by the Department, which is the subject -matter of appeal filed by the Department. If fiscal law requires a strict interpretation, then penal provisions have to be construed more strictly and the assessee cannot be said to be the owner within the meaning of Expln. 5 so as to attract its applicability for the purpose of levying the penalty. The admission of the assessee or surrendering the value of the said jewellery in the return later on does not amount to admission of any concealment by the assessee. As held by the Hon'ble Supreme Court in the case of Sir Shadilal Mills Ltd. v. CYT (supra), the surrender of income can be for 101 reasons and one of them may be to purchase peace with the Department, but it by no stretch of imagination establishes the concealment of income by the assessee. Following said ratio, it implies that even despite the surrender of the income by the assessee, the Department is yet to prove some circumstances or the other to prove the concealment of income. Here, as discussed above, either the assessee was not found in possession or owner of the recovery of jewellery from the premises occupied by the firm or if deemed to be the owner of the jewellery on the basis of the settlement arrived at later on, then he could not be deprived of the benefit of Expln. 5(2) of Section 271(1)(c) where the group had surrendered the said amount at the very time of the search as undisclosed income of the assessee. We, therefore, feel that even on this alternative plea too the assessee is entitled to the benefit of Expln. 5 (2) of Section 271(1)(c) of the Act No. 1 of 1961. Taking the entire discussion given above, we are of the opinion that the penalty imposed and sustained by the learned CIT(A) was not justified in the eyes of law. When we hold that even the penalty sustained was not justified, then the appeal filed by the Department regarding the relief has no force. We accordingly, dismiss the appeal filed by the Department and allow the appeal filed by the assessee.

(3.) LEARNED standing counsel has fairly submitted that the issue involved is covered by the decision of this Court in IT Ref. No. 111 of 1993, CUT v. Radha Kishan Goel decided on 21st April, 2005 [reported at (2006) 200 CTR (All) 300 - - Ed].