THE COMMISSIONER OF INCOME TAX,KZD. vs. S.J.PRASAD,ADVOCATE,KASARAGOD.

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ITR/3/2003HC KeralaKLHC01020403200303 March 2008Bench: HONOURABLE MR.JUSTICE T.R.RAMACHANDRAN NAIR,HONOURABLE MR.JUSTICE C.N.RAMACHANDRAN NAIR6 pages
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What did the High Court hold?

The High Court held that the Tribunal's assumption regarding the due date for filing the return for assessment year 1990-91 was incorrect; the due date was June 30, 1990. The assessee had sufficient opportunity to file the return and pay tax. The Court found that the assessee's failure to establish that the seized cash belonged to another person, coupled with the initial false explanation, constituted concealment of income. The Court emphasized the applicability of Explanation 5 to Section 271(1)(c), which creates a presumption of concealment if income is not disclosed and offered for payment during a search. Since the assessee did not disclose the income during the search and failed to prove their explanation, concealment was established. Therefore, the assessee was liable for penalty. The Court also noted that the Assessing Officer had levied only the minimum penalty, so the quantum was not in dispute. The Tribunal's order was reversed, and the reference was answered in favour of the Revenue.

What were the facts?

The Revenue (Commissioner of Income-Tax, Calicut) has filed a reference against the Income-tax Appellate Tribunal's order cancelling a penalty levied on the assessee, M.K. Ali, for assessment year 1990-91. During a search on the assessee's premises on February 14, 1990, cash of Rs. 5,75,000/- was seized. Initially, the assessee declared the cash belonged to Sri. M.G. Abdul Rahiman but later failed to establish this and filed a return declaring the amount as income from other sources. The Assessing Officer initiated penalty proceedings under Section 271(1)(c) for concealment of income, considering Explanation 5. The CIT(Appeals) upheld the penalty, but the Tribunal cancelled it, assuming the return was filed before the due date. The Revenue contends the Tribunal's assumption regarding the due date was incorrect.

What were the issues?

1. Whether the Tribunal was correct in cancelling the penalty levied under Section 271(1)(c) of the Income-tax Act, 1961, for the assessment year 1990-91, on the ground that the assessee had returned the income and paid tax thereon prior to the due date for filing the return? Assessee's Contention (as inferred from Tribunal's order and Revenue's challenge): The assessee claimed immunity from penalty by filing a return and paying tax on the declared income. The Tribunal apparently accepted this, assuming the return was filed before the due date. Revenue's Contention: The Tribunal's assumption that the return was due on June 30, 1991, is incorrect; the due date was June 30, 1990. The assessee had ample opportunity to file the return and pay tax. Furthermore, the assessee failed to establish the ownership of the seized cash by another person, and Explanation 5 to Section 271(1)(c) applies, deeming concealment of income during search if not disclosed and offered for payment. The assessee is liable for penalty under Section 271(1)(c). Reliance was placed on the decisions in Dilip N. Shroff v. Joint Commissioner of Income Tax and T. Ashok Pai v. CIT, though the Revenue argued these facts were different and did not consider Explanation 5.

Which sections of the Income-tax Act were involved?

Section 271(1)(c)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE T.R.RAMACHANDRAN NAIR MONDAY, THE 3RD MARCH 2008 / 13TH PHALGUNA 1929 ITR.No. 3 of 2003() ------------------- AGAINST THE ORDER IN RA.49/COCH/1998 IN ITA.924/COCH/1992 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPLICANT: ----------- THE COMMISSIONER OF INCOME-TAX, CALICUT. BY ADV. SRI.P.K.R.MENON,SR.COUNSEL,GOI(TAXES) SRI.GEORGE K. GEORGE, SC FOR IT RESPONDENTS: ------------- SHRI.S.J.PRASAD, ADVOCATE POWER OF ATTORNEY HOLDER OF SHRI.M.K.ALI, GOKUL BUILDINGS, KASARAGOD. BY ADV. SRI.P.BALACHANDRAN (SR.) SMT.PREETHA S.NAIR THIS TAX REFERENCE HAVING BEEN FINALLY HEARD ON 03/03/2008, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

C .N. RAMACHANDRAN NAIR & T.R. RAMACHANDRAN NAIR, JJ. -------------------------------------------- I.T.R. No. 3 OF 2003 -------------------------------------------- Dated this the 3rd day of March, 2008 JUDGMENT C.N. Ramachandran Nair,J. This is a reference at the instance of the revenue against the order of the Income-tax Appellate Tribunal cancelling penalty levied on the assessee under Section 271(1)(c) of the I.T. Act for the assessment year 1990-91. The respondent is an advocate and Power of Attorney Holder of the assessee by name M.K. Ali. A search was conducted in the assessee's premises on 14.2.1990 and during search cash for Rs. 5,75,000/- was seized by the department. In the course of search the assessee gave a statement declaring that the amount belonged to one Sri. M.G. Abdul Rahiman, Poochakad House, poochakad P.O., Pallikkara. However, later the assessee failed to estsablish his case that the amount belonged to the said Sri. Abdul Rahiman, and therefore he filed a return on 27.9.1990 declaring the amount as income from other sources. The assessing officer initiated penalty proceedings under Section 271(1)(c) of the Act for concealment of income. The assessee

2 claimed immunity from penalty because of filing of return and payment of tax on the income declared. However, the assessing officer noticed that there is concealment of income by virtue of operation of Explanation 5 to Section 271(1)(c) of the Act. However, he limited the penalty levied under Section 271 (1)(c) of the Act to the minimum amount. Even though assessee filed appeal against penalty order, the same was rejected by the first appellate authority, namely, CIT (Appeals). However, on second appeal by the assessee, the Tribunal cancelled the penalty on the assumption that prior to the due date for filing of return, the assessee returned the income and paid tax thereon. It is against this order of the Tribunal cancelling the penalty that department has filed this reference. 2. We have heard senior counsel Sri.P.K.R. Menon appearing for the revenue and senior counsel Sri. P. Balachandran appearing for the respondent-assessee. The revenue's counsel rightly pointed out that the assumption of the Tribunal that for the year 1990-91 the return was due on 30.6.1991 is obviously incorrect. In fact return was due on 30.6.1990 and search having been made on 14.2.1990, the assessee had enough opportunity to file return and remit tax on the income so

3 declared. Besides this, the assessee in the course of search could have saved penalty by accounting the income at least on the date of search and then paid tax by declaring it. Even after search and seizure of cash by the department, the assessee proceeded to contend that the amount belonged to another person, but failed to prove the same. Even though counsel for the assessee relied on the decisions of the Supreme Court in DILIP N. SHROFF V. JOINT. COMMISSIONER OF INCOME TAX, 291 I.T.R. 519 AND T. ASHOK PAI V. CIT., 292 I.T.R. 11 (SC), we notice that facts in these two decisions are different and in either of the cases the Supreme Court has not considered the scope of Explanation 5 to Section 271(1)(c) of the Act. Penalty arising out of search is covered under Explanation 5 to Section 271(1)(c) of the Act which provides that if the assessee in the course of search does not disclose income and offer payment, the assessee is deemed to have concealed particulars of income even in the course of search. Obviously there is concealment of income by the assessee by virtue of operation of Explanation 5 to Section 271(1)(c) of the Act because assessee not only did not disclose income in the course of search, but even offered explanation that it belonged to another person which the assessee could

4 not establish or prove. In the circumstances, concealment stands proved beyond any doubt by operation of presumption available under Explanation 5 to Section 271(1)(c) of the Act and consequently the assessee is liable for penalty under the said Section. Therefore the order of the Tribunal to the contrary is liable to be reversed. So far as the quantum of penalty is concerned, the Officer has levied only minimum penalty and therefore there is no scope for interference with the quantum of penalty levied. In the circumstances we dispose of the reference by answering the question referred in favour of the revenue and against the assessee. A copy of this judgment under the seal of the High Court and signature of the Registrar shall be forwarded to the Income-tax Appellate Tribunal, Cochin Bench, Cochin. (C.N.RAMACHANDRAN NAIR) Judge. (T.R.RAMACHANDRAN NAIR) Judge. kk

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