SUNIL KUMAR MALHOTRA Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) BY this petition under article 226 of the Constitution of India, the petitioner challenges an order dated September 25, 1991, passed by the Assessing Officer levying on the petitioner a penalty of Rs. 58,518 under section 271(1)(c) of the Income -tax Act, 1961 ('the Act') and an order dated November 12, 1993, passed by the Commissioner of Income -tax, Kanpur. Dismissing the petitioners revision petition against the first mentioned order. Counter and rejoinder affidavits have been exchanged and I have heard learned counsel on either side at length and the petition is, therefore, finally disposed of at the admission stage.

(2.) THE petitioner is assessed to income -tax and the impugned orders relate to the assessment year 1988 -89. A search under the provisions of the Act was conducted at the business premises of the assessee and the other members of his family and during the course of that search certain loose papers were found showing receipt of certain sums of money. During the course of a search, the petitioner surrendered a sum of Rs. 1,00,000. On March 27, 1991, the petitioner filed a return of income for the assessment year 1988 -89 showing income of Rs. 1,30,630. The assessment was completed on the same day making an addition of Rs. 2,11,448 on account of unexplained investment under section 69 of the Income -tax Act. That assessment was not challenged. The Assessing Officer initiated proceedings for the levy of penalty under section 271(1)(c) and as the penalty order, copy of which as annexure II to the writ petition, shows the petitioners explanation was that the addition of Rs. 2,11,448 is covered by the surrender of Rs. 1,00,000 under section 132(4) and the cash in hand found in the books of account. The Assessing Officer gave the benefit of Rs. 1,00,000 that were surrendered under section 132(4) of the Act, but treated the balance of Rs. 1,11,148 as the concealed income of the assessee and levied the minimum amount of penalty leviable under the law, i.e., Rs. 58,518. Against this order, the petitioner chose to file a revision petition before the Commissioner of Income -tax who by the impugned order dismissed the revision petition. In the present petition several grounds have been raised but at the hearing before me only two points were pressed. The first was that during the search no valuable article or thing was recovered and the addition to the petitioners income was based on some entries in a loose paper and such paper did not amount to valuable article or thing and hence no penalty could be levied on that basis. Reliance is placed on an order of the Commissioner of Income -tax (Appeals) for the immediately preceding year, i.e., 1987 -88, for which the penalty of Rs. 54,470 was cancelled holding that Explanation 5 to section 271(1)(c) was applicable only where a valuable article or thing was found and loose papers do not constitute valuable article or thing. Learned counsel for the petitioner placed reliance on Bhagwandas Narayandas v. CIT [1975] 98 ITR (Guj), in which it was held that fixed deposit receipts and title deeds for immovable property are not assets within the meaning of section 132(5) of the Act and rule 112A of the Income -tax Rules. Learned counsel for the petitioner, therefore, contended that on this view no penalty could have been levied for the year in question. The contention is thoroughly untenable. The petitioner has not filed a copy of the assessment order and, therefore, the exact basis on which the addition of Rs. 2,11,448 was made is not known. However, he has annexed with the petition a copy of one of the loose papers which is annexure 'I' to the writ petition and it is probably on a calculation of the receipt recorded thereon that the said addition was made under section 69 of the Act. Section 69 provides that where in the financial year immediately preceding the assessment year the assessee had mad investments which are not recorded in the books of account, if, maintained by him for any source of income, and the assessee offers no explanation about the nature and the source of the investments or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year. It is by virtue of this provision that on the basis of entries in the loose papers recovered during the search the assessees investment was worked out and the addition was made. If any valuable article in the form of money, bullion or jewellery, etc., was actually recovered, the addition a would have been made under section 69A of the Act. The petitioner has also not annexed with the writ petition a copy of his explanation furnished in response to the notice under section 271(1)(c). The Assessing Officer had given the benefit of the sum of Rs. 1,00,000 surrendered under section 132(4) as provided in section 271(1)(c), Explanation 5. The question of applying the said Explanation to the remaining addition of Rs. 1,11,148 does not arise and the Assessing Officer had not done that. Therefore, the argument that the said Explanation was not applicable to that sum carries us nowhere. By virtue of Explanation 1 to section 271(1)(c) where in respect of any facts material to the computation of the total income of any person, such person furnishes an explanation which he is not able to substantiality and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, then the amount added or disallowed in computing the total income of such person shall, for the purpose of clause (c) of that sub -section, be deemed to represent the income in respect of which particulars have been concealed. As the penalty order shows the petitioners contention was that the additions of Rs. 1,11,448 was covered by the cash in hand found as per books of account. This explanation has not been accepted as correct and even before the Commissioner of Income -tax in evasion proceedings, it was not established that the entire in the loose papers tailed with the books of account so that the cash in hand as shown therein could be related to the entries in the loose papers so that no separate addition should have been made. As already stated, the petitioner does not seem to have challenged the addition by preferring an appeal against the assessment order. Whether the addition of Rs. 1,11,448 was justified and whether the assessees explanation that the amount was covered by the cash in hand shown as per books of account are question of fact which cannot be reinvestigated in the exercise of jurisdiction under article 226 of the Constitution of India. As a matter of fact learned counsel did not even make an attempt to show that the explanation was bona fide.

(3.) LASTLY , it was contended that the return was filed after an agreement with the Assessing Officer and that is why the assessment was made on the very date on which the return was filed. It appears to have been so made because the limitation was to expire a few days hence and the necessary exercise of the assessment seems to have already been done. The return declared an income of Rs. 1,36,630 while the assessment was made by addition of a further sum of Rs. 2,11,448. It, therefore, cannot be said that the assessee declared an income to which there was already an agreement with the Assessing Officer and the income assessed was income agreed between the parties. As already stated there awes no appeal and no contention was ever raised to the effect that the addition of Rs. 2,11,448 was made in violation of an agreement under which the income of the year was agreed to be assessed at Rs. 1,30,630 only. Patently the petitioner had declared a lower income and the income assessed was increased by Rs. 2,11,448 to which the assessee did not object. The explanation that the addition to the extent of Rs. 1,11,448 was covered by cash in hand has not been accepted and has not even been found to be bona fide.