ASSISTANT COMMISSIONER OF INCOME TAX vs. M/S MADAN LAL GAGGAR

ITA/1/1999HC RajasthanRJHC01014553199904 October 2006Author: RAJESH BALIA,GOPAL KRISHAN VYAS11 pages
AI SummaryDismissed

What did the High Court hold?

The Tribunal held that the penalty could not be levied under Section 271(1)(c) and also cancelled the penalty levied under Section 273(1)(a) for non-payment of advance tax. The Tribunal found that the search was conducted in the presence of Sh. Madanlal in his individual capacity, and the order under Section 132(5) was made against him as an individual. The amount of Rs. 4 lacs was surrendered by him in his individual capacity, and the estimated tax liability for AY 1987-88, including this amount, was computed and paid by him as an individual. The Tribunal noted that the firm, by mistake, declared the income surrendered by the individual as its own. Therefore, the firm could not be held guilty of concealing particulars of income that was surrendered by the assessee in his individual capacity. The Tribunal also observed that the tax on the surrendered income was paid by Madanlal in his individual capacity. The High Court agreed with the Tribunal's findings, stating that the assessee had substantiated the explanation furnished by him, and the explanation could not be said to be not bona fide. The findings that the assessee's explanation about the surrendered income being wrongly included in the firm's return was substantiated were findings of fact based on relevant material and were not perverse. Therefore, the levy of penalty was rightly not sustained. The appeal filed by the Revenue was dismissed.

What were the facts?

The appeal by the Revenue challenges an order of the Income Tax Appellate Tribunal (ITAT) concerning assessment years (AY) 1987-88 and 1988-89. A search was conducted on Sh. Madanlal between October 14-17, 1987, under a warrant issued in his individual name. An order under Section 132(5) was also passed in his individual capacity, noting that Rs. 7 lacs from undisclosed sources were offered to be spread over AY 1987-88 and 1988-89. The assessee firm, M/s Madanlal Gaggar, initially filed a return for AY 1987-88 declaring Rs. 47,671. Later, a revised return for AY 1987-88 was filed on February 9, 1990, declaring Rs. 4,46,761, with a claim for a loss of Rs. 1 lac in mining business. The Assessing Officer (AO) disallowed the loss and assessed the firm at Rs. 4,47,761. The Rs. 4 lacs surrendered by Madanlal in his individual capacity were included in the firm's income. The assessee firm appealed this inclusion, contending it was a mistake and the amount was surrendered individually. The CIT(Appeals) allowed the firm's appeal, directing verification of individual assessment records.

What were the issues?

1. Whether the Tribunal committed an error of law by not drawing a presumption under Section 271C (Explanation 5) of the Income Tax Act, 1961, that the assessee firm concealed income by not mentioning it in the return for the relevant year? Assessee's Contentions: - The Rs. 4 lacs surrendered was done in the individual capacity of Sh. Madanlal, not by the firm. - The order under Section 132(5) was passed in the individual capacity of Sh. Madanlal. - The tax liability on the surrendered amount was computed and paid by Sh. Madanlal in his individual capacity. - The inclusion of Rs. 4 lacs in the firm's income was a mistake. - The Tribunal correctly found that the firm could not be attributed with guilt of concealment as the income was surrendered by the individual. Revenue's Contentions: - The AO initiated penalty proceedings under Section 271(1)(c) for concealing particulars of income based on the addition made in the revised return. - The assessee's plea to invoke Explanation 5 to Section 271(1) was rejected by the AO on the grounds that no statement under Section 132(4) was recorded by Madanlal as he was not present during the search, although the AO also referred to a statement recorded under Section 132(4). - The CIT(Appeals) confirmed the levy of penalty.

Which sections of the Income-tax Act were involved?

Section 271(1)(c),Section 132(1),Section 132(5),Section 143(1),Section 148,Section 271C,Section 132(4),Section 273(1)(a),Section 271(5)

AI-generated summary — verify with the full judgment below

1 D.B.INCOME TAX APPEAL NO. 01/99 (ACIT, CIRCLE BHILWARA VS. M/S MADAN LAL GAGGAR, BHILWARA) Date of Order : 04.10.2006 HON'BLE MR. RAJESH BALIA,J. HON'BLE MR. GOPAL KRISHAN VYAS,J. Mr. K.K.Bissa, for the appellant. Mr. Sanjeev Johri, for the respondents. Heard. learned counsel for the appellant. The following substantial question is framed at the time of admission; “Whether in the facts & circumstances of the case, the Tribunal committed error of law by not drawing presumption u/s 271-C (Explanation 5) of the Income Tax Act, that the assessee firm concealed the income by not mentioning” in the return of the relevant year”. The facts of proceedings as appear from the order passed by the Tribunal and on the basis of material made available to us by learned counsel for the parties are that the assessee Sh. Madanlal has two status under the Income Tax Act, 1961. He is being assessed to income tax as individual in the name of Sh. Madanlal and total estimated tax liability for Assessment Year 1987-88 and 1988-89 was computed for the purpose of retaining assets found during the search. The order

2 shows that Rs. 4 lacs were included in income

The order continues below.

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