Anupama Jain, Mumbai vs Assessee

/Assessee by : Shri Devendra A. Mehta /Revenue by : Shri Asghar Zain

Date of Hearing : 2nd December, 2014 Date of Pronouncement 18th February, 2015

ORDER

PER R.C.SHARMA (A.M):

This is an appeal filed by the assessee against the order of CIT(A)

dated 30-11-2011 for the Assessment Year 2007-08, in the matter of

imposition of penalty u/s.271(1)(c) of the Act amounting to Rs.4,28,043/-.

2. Rival contentions have been heard and record perused. Facts in

brief are that the assessee is an individual deriving income from rent,

capital gains, interest etc. There was a search at assessee premises on

26-4-2007. As per notice issued u/s.153A dated 16-1-2008, the assessee

filed her return of income for the assessment year under consideration on

31-7-2007. The return of income so filed included additional income

offered on construction at agricultural land at Eklara and VLCC payment. 2 ITA No.808/12

However, assessee filed revised return on 20-3-2009 at Rs.43,43,070/-.

The AO assessed the income u/s.153A at Rs.43,47,070/-. Thereafter the

AO levied penalty u/s.271(1)(c) of the Act and had assessed undisclosed

income of Rs.14,50,000/-. As per AO the assessee was liable to penalty

in view of Explanation 5 to sec.271(1)(c) of the Act. Assessee's contention

regarding her case covered under Explanation 5 to Section 271(1)(c) was

rejected by the AO. By the impugned order, the CIT(A) confirmed the

penalty by observing that the assessee could avail the benefit of

Explanation 5 to Sec.271(1)(c) only if any money, bullion, jewellery or

other valuable article or thing are found in his possession or under his

control during search and had been acquired out of his income which had

not been disclosed so far in his Return of Income. The CIT(A) observed

that undisclosed income offered for taxation comprised of investment in

construction of agricultural land - Rs.12,54,780/- and payment to VLCC -

Rs.1,95,220/- on which penalty imposed by the AO was correct. Against

this order of CIT(A), the assessee is in further appeal before us.

3. We have considered rival contentions, carefully gone through the

orders of the authorities below as well as judicial pronouncement cited at

bar. Explanation 5 to Sec.271(1)(c) of the Income-tax Act, 1961 reads as

under:

"Explanation 5.- Where in the course of a search under section 132, the assessee is found to be the owner of any money, bullion, jewellery or other valuable article or thing (hereafter in this Explanation referred to as assets) and the assessee claims that such assets have been acquired by him by utilising (wholly or in part) his income.-

(a) for any previous year which has ended before the date of the search, but the return of income for such year has not been 3 ITA No.808/12

furnished before the said date or, where such return has been furnished before the said date, such income has not been declared therein; or

(b) for any previous year which is to end on or after the date of the search, then, notwithstanding that such income is declared by him in any return of income furnished on or after the date of the search, he shall, for the purposes of imposition of a penalty under clause (c) of sub-section (1) of this section, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income, unless,-

(1) such income is, or the transactions resulting in such income are recorded-

(i) in a case falling under clause (a), before the date of the search;

and

(ii) in a case falling under clause (b), on or before such date,

in the books of account, if any, maintained by him for any source of income or such income is otherwise disclosed to the Chief Commissioner or Commissioner before the said date; or

(2) he, in the course of the search, makes a statement under sub- section (4) of section 132 that any money, bullion, jewellery or other valuable article or thing found in his possession or under his control, has been acquired out of his income which has not been disclosed so far in his return of income to be furnished before the expiry of time specified in sub-section (1) of section 139, and also specifies in the statement the manner in which such income has been derived and pays the tax, together with interest, if any, in respect of such income."

4. It is clear from the above that assessee should be found to be

owner of any money, bullion, jewellery or any other valuable article or

thing during search u/s.132 of the Act. The issue is squarely covered by

the decision of coordinate bench in the case of South India Finance Vs.

ITO, 39 ITD 370, wherein it was held as under :-

"9. We have carefully considered this submission. The expressions used in the Explanation 5 to section 271 (1 )(c) are "money, bullion, jewellery or other valuable article or thing. To this extent there is similarity between the Explanation cited above and the expressions found in section 132(4) because in the latter section expressions such as "books of accounts, other documents" are additionally found Further the expressions viz., "money, bullion, jewellery or other valuable article or thing" found in Explanation 5 to section 271 (1 )(c) can be construed, in view of their identical nature, in the 4 ITA No.808/12

same manner in which such expressions are construed for purposes of either section 132(1)(c) or 132(5) read with 132(4). Section 132(1)(c) empowers the authorities to conduct search if there is reason to believe "that any person is in possession of any 'money, bullion, jewellery or other valuable article or thing' and such money, bullion, jewellery or other valuable article or thing represents either wholly or partly income or property for the purpose of the Income- tax Act, 1922 or this Act (hereinafter in this section referred to as the undisclosed income or property". Thus the power of search is based upon the reasonable belief that there is concealment of income represented by "money, bullion, jewellery or other valuable article or thing". These very expressions have been engrafted in the Explanation 5 to section 271(1)(c) in which the reference to "documents" is conspicuous by its absence. Therefore the inevitable conclusion is that it is only in respect of "such assets" enumerated in Explanation 5 to section 271 (l)(c) [which are in pari materia with those in section 132(I)(c)j, as are found in the ownership of the assessee but not recorded in the books of account that the assessee is deemed to have concealed his income. Thus, the documents of title which represent the right to immovable property, which right itself is an immovable property, is outside the purview of Explanation 5 to section 271(1)(c). We are re-inforced in this conclusion on the interpretation placed in Bhagwandas Narayandas v. CIT [1975} 98ITR 194 (Guj.) on the train of words such as "money, bullion, jewellery or other valuable article or thing" occurring in section 132(5) read with section 132(4) of the Income-tax Act, 1961. The principle of ejusdem generis is to be applied in interpreting the words 'other valuable article or thing '. We do so and thus uphold the contention of the learned counsel for the assessee.

10. Whether in the Explanation 5 to section 271 (1 )(c) the omission of the word "other document" as is found in section 132(4) is a lacuna or a deliberate omission it is not for us to state. Suffice it to say that strict construction should be placed on the expressions used in a penal section vide Sri Radhakrishna Trading Co. v. CIT [1954} 26 ITR 666 (Mad) and CA. Abraham v. ITO [1961} 41ITR 425 (SC).

11. In the result, the appeals are allowed and the order of the CIT(Appeals) is cancelled"

5. Explanation 5 itself uses the expression "any money, bullion,

jewellery or other valuable article or thing" with reference to which the

provisions apply. In this expression "other valuable article or thing" has to

be read ejusdem generis with the earlier words "money, bullion,

jewellery". Therefore, "other valuable article or thing" have necessarily to

be movable articles which are capable of having a value. This sense 5 ITA No.808/12

neither the word "article" or "thing" could include any immovable property.

In the context of section 32A similar Explanation was considered by the

Hon'ble Supreme Court in the case of N.C. Budharaia & Co. 204 ITR 412.

The Hon'ble Apex Court held that the words "article or thing" in the

context of section 32A were used interchangeably. In the scheme and

context of the provision it would not be right to isolate the word "thing",

ascertain its meaning with reference to the Law Lexicons, and attach to it

a meaning which it was never intended to bear. In the context of section

132 also keeping in mind that the High Court decisions are in favour of the

view that section 132 is not applicable in respect of immovable property,

the fact that Explanation 5 is only with reference to search proceedings

and lastly the fact that the expression article or thing has to be read

ejusdem generis with the words, money, bullion, jewellery, it is clear that

the decision of the Hon'ble Apex Court in the case of Budhara'a & Co.'s

case (supra) is squarely applicable and, therefore, we hold that in the

present case Explanation 5 is not applicable.

6. In the instant case, in relation to the assessment year under

consideration, the assessee was found to be the owner of 'construction on

agriculture land (Rs.12,54,780/-) and membership of VLCC

(Rs.1,95,220/-) during search. The impugned investments were duly

shown by the assessee in her return of income for the assessment year

2007-08. As discussed above, the ownership of the assessee in

construction of agriculture land could not be termed as ownership of 'any

money, bullion, jewellery or other valuable article or thing' as envisaged

under Explanation 5 in view of the judgements of Cochin Bench. 6 ITA No.808/12

Therefore, so far as investment in 'construction on agriculture land' was

concerned, the Explanation 5 to Sec.271(1)(c) was not applicable in the

assessee's case and accordingly, penalty to that extent was not leviable.

The learned C.I.T.(A). wrongly took the contradictory stand. On the one

hand he held that the assessee was not entitled for immunity provided

under Explanation 5(2) because the undisclosed income consisted of

investment in construction on agriculture land and therefore, not covered

by the term 'any money, bullion, jewellery or other valuable article or thing'

as held by the honourable Cochin Bench and Pune Bench of I.T.A.T.

(supra), at the same time he confirmed penalty levied by the A.O. under

Explanation 5 to Sec.271(1)(c). Once it was held that Explanation 5 was

not applicable on the facts of the assessee's case, penalty could have not

been imposed under the said Explanation. Moreover, the CIT(A) wrongly

considered payment towards membership of VLCC as immovable

property and confirmed the levy of penalty.

7. Furthermore, the assessee's case was covered under exceptional

circumstances provided under clause (2) of Explanation 5 to

Sec.271(1)(c) as all the conditions specified in Explanation 5(2) to

Sec.271(1)(c) were satisfied fulfilled as evident from the following facts:

(a) Shri Purnandu Jain, head of the family, in his statement recorded u/s.132(4) on 27.04.2007 offered Rs.20 crores as additional income for and on behalf of various members of his family. The extract of the statement is reproduced as under:

" In total I am offering Rs.20 crores as additional income of companies as well as myself and family members. The assessee wise and respective assessment year wise break up of total income of Rs.20 crores as offered above, will be submitted later on after examining the seized materials, books of accounts and records and there may be variation in the 7 ITA No.808/12

quantum vis-a-vis the assessee. The total aggregate income as being offered as above will be Rs.20 crores.

The above disclosure will cover any discrepancies in hands of any of the companies/Individuals/HUF.

I am making above declaration on behalf of companies and also myself and my family members and my HUF as the case may be in order to obviate undue litigation and to buy peace provided no penalty and no prosecution proceedings are initiated. "

Also, Shri Purnandu Jain had further confirmed the same in his statement recorded on 03-05-2007."

8. Hon'ble Rajasthan High Court in the case of CIT Vs. (1)

Kanhaiyalal (2) Kanhaiyalal Saruparia, 299 ITR 19 (Raj), has observed

as under :-

"Explanation 5 to section 271(1)(c) of the Income tax Act, 1961 provides that where in the course of a search initiated under section 132, the assessee is found to be the owner of any assets mentioned therein, and the assessee claims that such assets have been acquired by him by utilizing (wholly or in part) his income, for any previous year, which has ended before the date of the search, but the return of income for the said year has not been furnished before the said date, or where such return had been furnished before the said date such income has not been declared therein, then, notwithstanding that such income is declared by him in any return of income furnished on or after the date of the search, he shall for the purpose of imposition of a penalty under sub-section (1)(c) be deemed to have concealed the particulars of his income or furnished inaccurate particulars of income. Significantly, such concealed income could be for any previous years, and could be required to be disclosed in such particular previous years. It is to this language of Explanation 5, that two exceptions are carved out, by using the word "unless N. Sub-clause (2) provides that it would not be treated as undisclosed or concealed income, if the assessee, in the course of the search, makes a statement under section 132(4), that any asset found in his possession or under his control has been acquired out of his income, which has not been disclosed so far in his return of income to be furnished before the expiry of the time specified in sub section (1) of section 139, and also specifies in the statement, the manner, in which such income has been derived, and pays tax, together with interest, if any, in respect of such income. Sub clause (2) does not provide any eventuality in which the immunity conferred by this clause may be taken away, or may be lost, except where the assessee fails to pay tax, together with interest, if any, in respect of such income. Sub-

clause (2) does not contemplate the requirement of the assessee paying tax, together with interest, if any, in respect of such income, 8 ITA No.808/12

in any particular assessment year only. In the language of section 132(4) read with sub-clause (2) of Explanation 5, there is nowhere the requirement, that the assessee should undertake to show that asset, in a return of any particular assessment year, to be entitled to claim the immunity. When the parent provision contemplates the income to be permissible in any previous years, obviously sub clauses (1) and (2), which are in the nature of proviso to this Explanation, have to be read in line therewith, and, therefore, if the disclosure of the asset has been made, then the assessee cannot be prohibited from showing that the income related to anyone or more of the previous years before the date of the search, at the pain of the immunity conferred by sub-clause (2) of Explanation 5 being taken away."

9. In view of the above discussion, we do not find any merit in the

action of AO levying penalty u/s.271(1)(c) of the Act, as the assessee had

fulfilled all the conditions specified in explanation 5(2) to section 271(1)(c)

of the I.T.Act. We direct the AO to delete the penalty of Rs.4,28,043/-

10. In the result, appeal of the assessee is allowed.

Order pronounced in the open court on this 18/02/2015.

18/02/2015

Sd/- Sd/- ( ) ( ) (SANJAY GARG) (R.C.SHARMA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER Mumbai; Dated 18/02/2015 /pkm, PS Copy of the Order forwarded to : 1. / The Appellant 2. / The Respondent. 3. / The CIT(A), Mumbai. 4. / CIT 5. / DR, ITAT, Mumbai

6. Guard file. //True Copy// / BY ORDER,

(Asstt. Registrar) / ITAT, Mumbai