SHRI MOHAMED MOHTRAM FAROOQUI,JHUNJHUNU vs. ACIT, CIRCLE, JHUNJHUNU

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR Jh fot; iky jko] U;kf;d lnL; ,oa Jh foØe flag ;kno] ys[kk lnL; ds le{k BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 1252/JP/2019 fu/kZkj.k o"kZ@Assessment Year :1993-94 cuke Sh. Mohamed Mohtram Farooqui ACIT, Vs. Mohalla Pirzadan, Circle, Jhunjhunu Jhunjhunu LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAFPF3165N vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Sh. P. C. Parwal (CA) jktLo dh vksj ls@ Revenue by : Ms. Chanchal Meena (Addl. CIT) lquokbZ dh rkjh[k@ Date of Hearing : 09/09/2020 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 09/12/2020 vkns'k@ ORDER

PER: VIKRAM SINGH YADAV, A.M.

This is an appeal filed by the assessee against the order of ld. CIT(A)-03, Jaipur dated 30.10.2019 wherein the assessee has taken the following grounds of appeal:- “1. The ld. CIT(A) has erred on facts and in law in confirming the levy of penalty of Rs. 2,42,296/- u/s 271(1)(c) of the IT Act, 1961. 2. The ld. CIT(A) has erred on facts and in law in holding that Explanation 5 to section 271(1)(c) is applicable and since assessee has not stated the manner of earning the income in statement u/s 132(4), he is liable for penalty by not accepting the contention of assessee that this explanation is not attracted in case of requisition u/s 132A. 3. The ld. CIT(A) has erred on facts and in law in ignoring the fact that assessee has declared the income on which penalty is imposed in 1

ITA No. 1252/JP/2019 Sh. Mohamed Mohtram Farooqui vs. ACIT, Jhunjhunu the original return filed u/s 139(1) and thus there is no concealment of income on which penalty could have been levied.”

ITA No. 1252/JP/2019 Sh. Mohamed Mohtram Farooqui vs. ACIT, Jhunjhunu proceedings would depend on the return filed by the asssessee. The assessee's argument that in the event of declaration of income in the return there would be no deemed concealment appears to have substance. The Assessing officer is required to apply his mind carefully in this regard before taking any decision. The nature of disclosure in the return and the relevant provisions of the Income tax Act should be kept in mind.”

ITA No. 1252/JP/2019 Sh. Mohamed Mohtram Farooqui vs. ACIT, Jhunjhunu 7. Pursuant to the order of the Hon’ble Supreme Court, a fresh show-cause dated 7.02.2012 was issued by the AO to the assessee and in response, the assessee furnished its submissions and made the necessary representation before the AO. In its submission, the assessee furnished the details of the filing of return prior to and subsequent to AY 93-94 as mentioned at Pg 5 & 6 of the penalty order. He also filed detailed explanation as to the non applicability of Explanation 5 of section 271(1)(c) with reference to the requisition u/s 132A and reliance was placed on various case laws. It was contended that since the assessee had offered cash of Rs.5,92,340/- in the return filed u/s 139(1) and Explanation 5 is not applicable, no penalty u/s 271(1)(c) is leviable.

ITA No. 1252/JP/2019 Sh. Mohamed Mohtram Farooqui vs. ACIT, Jhunjhunu 10. During the course of hearing, the ld A/R on behalf of the assessee submitted that the first issue involved in this case is whether Explanation 5 to section 271(1)(c) is attracted in case of requisition u/s 132A of the Act.

• ITO Vs. Nurul Huda G. Aboobkar (1995) 55 ITD 296 (Bang.) (Trib.) • Gulamrasul M. Pathan Vs. ACIT (1996) 57 ITD 129 (Ahd.) (Trib.) • Vinod Goyal vs ACIT (2008) 115 TTJ 559 (Nag)

ITA No. 1252/JP/2019 Sh. Mohamed Mohtram Farooqui vs. ACIT, Jhunjhunu 132(4) is not applicable in a requisition u/s 132A. In any case assessee has explained in the “Notes to the return of income” that the money belongs to his four brothers and also to his brother in law who own 40 bigha of irrigated agricultural land but still on the advice of his Counsel, he has offered the same to be taxed as income and therefore no penalty u/s 271(1)(c) be levied as the surrender is voluntarily, suo moto and to avoid litigation (though it donot represent assessee’s income at all). It was submitted that it is for this reason that Hon’ble Supreme Court required the AO to verify the income declared in the return filed earlier and subsequent to AY 93-94. The assessee has not filed any return prior to AY 93-94 but in the return filed for AY 93-94 and in subsequent year, the income declared is only the income under the head “house property”/ “income from other sources”. All these facts shows that the cash of Rs. 5,92,340/- offered in the return is just to avoid the litigation which is neither a concealment of income or furnishing of inaccurate particulars of income.

ITA No. 1252/JP/2019 Sh. Mohamed Mohtram Farooqui vs. ACIT, Jhunjhunu the statement admitting the non-disclosure of money, bullion, jewellery, etc. Thus, we are of the opinion that much importance should not be attached to the statement about the manner in which such income has been derived. It can be inferred on the facts and circumstances of the case, in the absence of anything to the contrary. Therefore, mere non-statement of the manner in which such income was derived would not make Expln. 5(2) inapplicable. In the present case, it was submitted that the assessee has explained that the cash do not belong to him but to his brother and brother in law who has sufficient agricultural income but he has included the cash in his income only to avoid litigation and therefore this Explanation itself constitute the manner in which the cash is declared in the return. Therefore, on the ground of alleged non disclosure of manner of earning income also, penalty imposed by the lower authorities is not justified.

ITA No. 1252/JP/2019 Sh. Mohamed Mohtram Farooqui vs. ACIT, Jhunjhunu • Vasavi Shelters Vs. ITO 141 ITD 590 (2013) (Bang.) • DCIT Vs. Dr. Satish B. Gupta (2011) 49 DTR 262 (Ahd.) • CIT Vs. Reliance Petroproducts (P) Ltd. 322 ITR 158 (SC)

ITA No. 1252/JP/2019 Sh. Mohamed Mohtram Farooqui vs. ACIT, Jhunjhunu “Explanation 5.—Where in the course of a search initiated under section 132 before the 1st day of June, 2007, 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 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 Principal Chief Commissioner or Chief Commissioner or Principal 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

ITA No. 1252/JP/2019 Sh. Mohamed Mohtram Farooqui vs. ACIT, Jhunjhunu 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.”

“23. Explanation-5 to Section 271(1) was inserted by the Taxation Laws (Amendment) Act, 1984, with effect from 1 October, 1984. The Explanation is applicable to cases where in the course of a search under Section 132 of the Act, the assessee is found to be the owner of any money, bullion, jewellery or other valuable article or thing. In such cases, if the assessee claims that these 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 such year has not been furnished before the said date, or where such return has been furnished before the said date, such income has not been declared in the return, or such previous year is to end on or after the date of the search, the assessee shall, for the purposes of imposition of penalty under Section 271(1 )(c) of the Act, be deemed to have concealed the particulars of his income. This Explanation has been inserted to address situations where consequent to a search, assets and valuables are discovered to be in the possession of the assessee, and thereafter the assessee files return of income after the date of search. In such cases, even if the assessee includes the amounts utilized by him in acquiring the assets found in his possession during the search operations as his income in the return filed after the search, the assessee would be deemed to have concealed his income. 10

ITA No. 1252/JP/2019 Sh. Mohamed Mohtram Farooqui vs. ACIT, Jhunjhunu Thus, Parliament has created a deeming fiction by virtue of which in such cases, even if the assessee includes such income (which represents the value of the assets found in his possession during the search) in his return filed after the search, it will be deemed that such return disclosing higher income was filed only because the assets were found in his possession during the search. Put differently, if not for the search, the Legislature deems that the assessee would not have disclosed such income in the return filed subsequently. Explanation-5 also contains two exceptions, where the assessee would not be deemed to have concealed his income and would gain immunity from levy of penalty- first, if such income is or the transactions resulting in such income are recorded in the books of account maintained by the assessee for any source of income or such income was otherwise disclosed to the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner before the date of the search; second, in the course of the search, the assessee makes a statement under Section 132(4) that the assets found in his possession have 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 Section 139(1), 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. 24. The purpose of inserting Explanation-5 in the statute books was explained by the Supreme Court in K.P. Madhusudan v. Commissioner of Income Tax, (2001 251 ITR 99, wherein the Court held- “Learned Counsel for the assessee then drew our attention to the judgement of this Court in Sir Shadilal Sugar and General Mills Ltd. v. CIT (1987) 168 ITR 705. He submitted that the assessee had agreed to the additions to his income referred to hereinabove to buy peace and it did not follow therefrom that the amount that was agreed to he added 11

ITA No. 1252/JP/2019 Sh. Mohamed Mohtram Farooqui vs. ACIT, Jhunjhunu was concealed income. That it did not follow that the amount agreed to be added was concealed income is undoubtedly what was laid down by this Court in the case of Sir Shadilal Sugar and General Mills Ltd. (1987) 168 ITR 705 and that therefore, the Revenue was required to prove the mens rea of a quasi-criminal offence. But it was because of the view taken in this and other judgments that the Explanation to Section 271 was added.”

ITA No. 1252/JP/2019 Sh. Mohamed Mohtram Farooqui vs. ACIT, Jhunjhunu Explanation-5 to apply, it is necessary that there must be certain assets (such as money, bullion etc.) found in the possession of the assessee during the search, and that the assessee must claim that such assets have been acquired by him by utilising (wholly or in part) his income. Moreover, such income must be in relation to a particular previous year that has either ended before the date of the search or is to end on or after the date of the search and such income is declared subsequently in the return of income filed after the search. Therefore, it is only when assets are found during the search which the assessee claims have been acquired by him by utilizing (wholly or in part) his income for any particular previous year, and then declares such income (which he utilized in acquiring the assets found) in a subsequent return filed after the date of search, would it be deemed that the assesee has concealed his income. In other words, the assets seized during the search must relate to the income of the particular assessment year whose return is filed after the date of the search. Such a conclusion is only logical, considering that assessment under the Act is with respect to a particular assessment year and the penalty imposed under Section 271(1)(c) would also be for concealing income in that particular assessment year, which concealment was revealed by the discovery of certain assets in the assessee’s possession during the search conducted under Section 132.”

ITA No. 1252/JP/2019 Sh. Mohamed Mohtram Farooqui vs. ACIT, Jhunjhunu Income tax Department initiated requisition proceedings u/s 132A and drew a panchnama and taken possession of cash in pursuance of warrant u/s 132A of the Income Tax Act 1961. It is therefore a situation where cash has been found in possession of the assessee which was seized by the police department and thereafter requisitioned u/s 132A from the police department and it is not a situation where cash has been found in possession of the assessee during the course of search initiated at the assessee’s premises u/s 132 of the Act and going by the plain and strict reading of the provisions of explanation 5 which talks only about the situation arising out of search proceedings initiated u/s 132 and not requisition proceedings u/s 132A, the essential condition for invocation of explanation 5 is not fulfilled in the instant case and going by the strict rule of interpretation of penalty provisions, explanation 5 cannot be invoked in the instant case.

ITA No. 1252/JP/2019 Sh. Mohamed Mohtram Farooqui vs. ACIT, Jhunjhunu by the IT department. On the other hand, section 132A relates to books of account and other assets seized during the course of search proceedings conducted by other departments. The heading of section 132A is ‘Powers to requisition books of account, etc.,". It is, therefore, clear that this particular section although, may be analogous to the provisions of section 132 dealing with search and seizure proceedings taken recourse to by other departments, again at the same time cannot be considered to convey the idea that in the case of requisition of books, assets, etc., by the department in accordance with the provisions of section 132A also, it is the IT department which has conducted the search and seizure proceedings. Explanation 5 to section 271(1)(c) starts with the following clause "wherein the course of a search under section 132". This particular Explanation cannot, therefore, be considered to apply to a case where proceedings under section 132A only have been taken recourse to. It is correct that the provisions of sub- sections (4A) to (14) (both inclusive) of section 132 shall, so far as may be, apply to proceedings under section 132A also, as if such books of account, other documents or assets had been seized under section 132(1) by the Requisitioning Officer. This deeming provision cannot, however, apply to another deeming provision contained in Explanation 5 to section 271(1)(c). Furthermore, inasmuch as the provisions of sub-section (4) of section 132 does not apply to a proceeding under section 132A, the assessee, in the case of a proceeding under section 132A is not entitled to the opportunity of making a disclosure under such sub-section (4) of section 132. If in such a case, the provisions of Explanation 5 to section 271(1)(c) applies, it will be a case of beating a person with his hands and feet bound without any opportunity to come out of the mischief of the aforesaid Explanation 5 by making the disclosure under section 132(4), to which opportunity an assessee in whose case proper search under section 132(1) has been conducted, is entitled. Taking into consideration all these facts, therefore, we are of the 15

ITA No. 1252/JP/2019 Sh. Mohamed Mohtram Farooqui vs. ACIT, Jhunjhunu opinion that Explanation 5 to section 271(1)(c) does not apply to a case of requisitioning of assets under the provisions of section 132A. The instant case also, therefore, would not fall within the mischief of the said Explanation. Hence, we agree with the decision of the CIT(A) that penalty under section 271(1)(c) is not exigible in the present case. We uphold the cancellation of the penalty.”

ITA No. 1252/JP/2019 Sh. Mohamed Mohtram Farooqui vs. ACIT, Jhunjhunu agencies. The question of making a requisition under Section 132A will come into existence only after the assets have already been found by some other Government agency. The expression "search" and "seizure" necessarily implies a forcible exaction for searching and taking possession from the owner or one who has the possession and who is un-willing to part with the possession. On the other hand, the requisition by one wing of the Government under the authority of Law such as Section 132A from other agency of the Government cannot be treated as a forcible action like search and seizure. The provisions relating to search and seizure contained in Section 132 and the provisions relating to requisition of books of accounts and assets from other Government departments contained in Section 132A are clearly different and distinct in nature. Prior to insertion of Section 132A by the Taxation Laws (Amendment) Act, 1975, it was held by various Courts that the money, etc. sought to be seized must have been in the possession of the person who had committed a default by not disclosing the same for the purposes of IT Act. It followed that lawful seizure could not be effected if the money etc. to be seized had already been seized by, and was in possession and control of, another Government authority, such as the Police Department or Excise Department. Such a view is clearly supported by the judgment of Hon'ble Supreme Court in the case of Tarsem Kumar (supra). That is why perhaps Section 132A was introduced in the IT Act by the aforesaid Amending Act. 15. The provisions of Explanation 5 to Section 271(1)(c) cannot be made applicable in relation to asset requisitioned under Section 132 A merely because Section 132A(3) provides that the provisions of Section 132(4A) to (14) shall, so far as may be, applied as if such assets or books of accounts had been seized by the Requisitioning Officer from the custody of the persons referred to in that section. Some of these provisions contained in Section 132 have been incorporated only for the purposes of clarifying that those 17

ITA No. 1252/JP/2019 Sh. Mohamed Mohtram Farooqui vs. ACIT, Jhunjhunu assets shall be dealt with in accordance with the provisions provided for in those sub-sections of Section 132. But this cannot be interpreted to mean that Explanation 5 to Section 271(1)(c) can also be made applicable in relation to income represented by assets requisitioned as per Section 132A.

ITA No. 1252/JP/2019 Sh. Mohamed Mohtram Farooqui vs. ACIT, Jhunjhunu case of Amir Chand(supra) has also taken the view that Explanation 5 to Section 271(1)(c) is applicable only in proceedings under Section 132 and cannot be applied while dealing with a case of survey under Section 133 A.

ITA No. 1252/JP/2019 Sh. Mohamed Mohtram Farooqui vs. ACIT, Jhunjhunu 21. Further, in another case of Vinod Goyal vs ACIT (supra), similar contentions were considered and the relevant findings of the Coordinate Bench read as under:

“As is evident from the provisions of Explanation 5 extracted above, any money, bullion, jewellery and other valuables or things found to be owned by the assessee during the course of search under section 132 is deemed to be the concealment on the part of the assessee subject to the fulfilment of condition as stipulated therein. This deeming fiction created by Explanation 5, however, is made applicable specifically where the assessee is found to be the owner of money or other valuables during the course of a search under section 132 and the same, therefore, cannot be extended where the assessee is found to be the owner of any money or other valuables as a result of requisition made under section 132A as is the position in the present case. Explanation 5 thus cannot be invoked in the present case of the assessee since there was no search conducted in his case under section 132 and he was found to be the owner of cash as a result of requisition made under section 132A. The reliance of the learned CIT(A) on the said Explanation to confirm the penalty imposed under section 271(1)(c) thus was clearly misplaced. On the other hand, the cash found by the Police Department from the possession of the employee of the assessee and subsequently requisitioned by the Income-tax Department under section 132A was surrendered by the assessee as his income for the year under consideration in his statement recorded during the course of survey and in the return of income filed for the said year in the regular course, the said amount was duly shown by the assessee. Even the Assessing Officer himself not only completed the assessment under section 153A with reference to the said return filed by the assessee, but even accepted the income as declared by the assessee in the said return. It is by now well settled that the concealment as envisaged in section 271(1)(c) has to be informed on the 20

ITA No. 1252/JP/2019 Sh. Mohamed Mohtram Farooqui vs. ACIT, Jhunjhunu basis of return of income filed by the assessee and the income which is already declared by the assessee in his return of income filed in the regular course cannot be treated as his concealed income. In the present case, the amount of Rs. 46,85,855 representing cash found from the possession of his employee was not only declared by the assessee as his income in the return filed regularly for the year under consideration, but the return so filed was also accepted by the Assessing Officer in the assessment completed under section 153A and this being the undisputed position, we are of the considered view that the same could not be treated as concealment of particulars of his income by the assessee or furnishing of inaccurate particulars of such income attracting the penal provisions of section 271(1)(c). In that view of the matter, we set aside the impugned order of the learned CIT(A) confirming the penalty imposed by the Assessing Officer under section 271(1)(c) and direct the Assessing Officer to cancel the same.”

ITA No. 1252/JP/2019 Sh. Mohamed Mohtram Farooqui vs. ACIT, Jhunjhunu and in absence of any contrary authority brought to our notice and keeping in view the strict construction of penalty provisions, the matter relating to levy of penalty in situation of requisition of assets u/s 132A shall continue to be governed by the main provisions of section 271(1)(c) and explanation 5 cannot be invoked in such cases.

In the result, the appeal filed by the assessee is allowed. 22

Order pronounced in the open Court on 09/12/2020.

Sd/- Sd/- ¼fot; iky jko½ ¼foØe flag ;kno½ (Vijay Pal Rao) (Vikram Singh Yadav) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 09/12/2020 *Ganesh Kr. आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- Sh. Mohamed Mohtram Farooqui, Jhunjhunu 2. izR;FkhZ@ The Respondent- ACIT, Circle, Jhunjhunu 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत. 6. xkMZ QkbZy@ Guard File {ITA No. 1252/JP/2019} vkns'kkuqlkj@ By order, सहायक पंजीकार@Aेेज. त्महपेजतंत