L. GIRIDHARLAL AND CO. Vs. INCOME TAX OFFICER

JUDGEMENT

(1.) THE appellant is a partnership firm, undertaking business in bullion and jewellery and it has been submitting returns under the Income -tax Act, 1961 (for short "the Act"), from time to time. On June 26, 1985, initially a survey was conducted in the business premises of the appellant. That, in turn, was converted into a search under section 132 of the Act. It was found that 36 kgs. of silver and about 8 kgs. of gold was riot accounted for in the books: In the course of proceedings thereunder, explanation offered by the appellant in respect of 36 kgs of silver, was accepted. However, the explanation offered in respect of gold, as to failure to enter in the stock books was not accepted. Substantial quantity thereof was seized. In the subsequent proceedings initiated under section 132 of the Act, the value of the seized gold was treated as income. It is stated that on payment of the tax thereon, the gold was released. The appellant filed regular returns for the assessment year 1986 -87, on September 30, 1986. An order of assessment was passed by treating the value of the gold as undisclosed income under section 69A of the Act and the corresponding tax was levied. Though in the appeal preferred by the appellant herein before the Commissioner (Appeals) some relief was granted, the same was nullified in the further appeal preferred by the Department. The Assessing Officer initiated proceedings under section 271(1)(c) of the Act proposing to levy penalty. The explanation submitted by the appellant was found not satisfactory. An order was passed on November 30, 2000, levying penalty to the extent of 200 per cent of the value of seized gold. Aggrieved by that, the appellant approached the Commissioner of Income -tax (Appeals), Hyderabad. Through order dated December 27, 2001, the Commissioner of Income -tax (Appeals) reduced the penalty to 100 per cent Further appeal by the appellant to the Income -tax Appellate Tribunal, Hyderabad Bench, was rejected through order dated May 22, 2002. Hence, this appeal under section 260A of the Act.

(2.) SRI A.V. Krishna Koundinya, learned counsel for the appellant, submits that the search was made at a time when the appellant had still opportunity to file return and there was no finding at any stage to the effect that the gold in question was acquired in the earlier assessment year. He contends that, in the facts and circumstances of the case, the appellant was entitled to the benefit of clause (2) of Explanation 5 to section 271(1) of the Act. He submits that all the three conditions stipulated by the hon'ble Supreme Court in its decision in Asst. CIT v. Gebilal Kanhaialal, HUF : [2012] 348 ITR 561 (SC), are fulfilled in the instant case. Learned counsel further submits that a clear distinction needs to be maintained between the cases covered by sub -clause (a) of Explanation 5 to section 271(1) of the Act, on the one hand, and sub -clause (b) thereof, on the other, in the context of levying penalty under that section. He has also placed reliance upon the judgment of the Delhi High Court in CIT v. SAS Pharmaceuticals : [2011] 335 ITR 259 (Delhi) and this court in CTT v. Nasa Continental Exports Ltd. (I.T.T.A. No. 96 of 2001).

(3.) THE noticing of gold in the possession of the appellant, that was entered into books of account, has resulted in two sets of proceedings. The first is that in the returns submitted for the assessment year 1986 -87, the value of the seized gold was treated as undisclosed income and the tax was levied accordingly. That aspect assumed finality.