INDUS ENGINEERING CO. vs. ASSTT.COMISSIONER OF INCOME TAX (INV) and ORS.

PDF · subscribers
WP/539/1993HC Bombay13 April 2009Author: HON'BLE SHRI JUSTICE F.I. REBELLO, HON'BLE SHRI JUSTICE J.H. BHATIA7 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that there was no merit in the petition. The Court agreed with the Commissioner's findings that the assessee had accepted the CIT(A)'s order for AY 1985-86, and the loan of Rs. 10,65,000 and interest thereon were indeed taxable for that assessment year. The Court noted that this income was not disclosed in either the original or the revised return filed by the assessee, making it a clear case of concealment of income. The Court further observed that the assessee had failed to demonstrate that their case fell within the scope of Explanation 5 to Section 271 of the Act. The requirements of Explanation 5 were not met, as the assessee did not disclose the manner in which such income was derived, and the income pertained to a previous year that had ended before the search. The Court found that the respondents had acted within their jurisdiction in imposing the penalty. Consequently, the Rule was discharged.

What were the facts?

The petitioners, M/s Indus Engineering Co. and its partner Shrenik K. Mehta, approached the Bombay High Court challenging a penalty order under Section 271(1)(c) of the Income Tax Act for assessment year 1985-86. During a search and seizure action on June 30, 1987, the assessee admitted to havla loans totaling Rs. 36,05,000. Of this, Rs. 10,65,000 pertained to AY 1985-86 and was taxed as income, along with claimed interest. The CIT(A) confirmed this addition and disallowed interest. The assessee accepted this order. Subsequently, penalty proceedings were initiated, resulting in a penalty of Rs. 6,75,657. The assessee contended that the loans were part of a declaration under Section 132(4) to cover discrepancies and that taxes had been paid on this declared income.

What were the issues?

1. Whether the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961, for concealment of income related to havla loans of Rs. 10,65,000 for assessment year 1985-86 was justified, considering the assessee's contention that it was part of a Section 132(4) declaration and taxes were paid. Assessee's arguments: The assessee argued that the declaration under Section 132(4) was made to cover discrepancies including alleged excess stock and unproved loan creditors amounting to Rs. 36.05 lakhs. They contended that the penalty should be waived as this portion of the loan was part of the total declaration under Section 132(4) on which all taxes had been paid. They further submitted that the loans were voluntarily offered as other income under Section 132(4) and disclosed for AY 1988-89, thus there was no concealment of income. Revenue's arguments: The revenue contended, through the Commissioner's order, that the assessee had accepted the CIT(A)'s order for AY 1985-86, and the loan and interest were liable to be taxed for that year. The income was not disclosed in the original or revised return and was detected during the search. The declaration under Section 132(4) did not grant immunity from penal provisions. The Commissioner also noted that the case did not fall under Explanation 5 to Section 271 as the income pertained to a previous year that ended before the search, and the return was filed without disclosing the income.

Which sections of the Income-tax Act were involved?

Section 271(1)(c),Section 133A,Section 132(4),Section 264,Section 271

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO.539 OF 1993 1.Messrs Indus Engineering Co., )     Having its office at 504, Loha )     Bhavan, P.D. Mello Road,  )     Bombay­9 ) 2.Shrenik K. Mhta, Partner of the  )     Petitioner No.1 having his  )     Office at the aforesaid address )..PETITIONERS                                             Versus 1.Asstt. Commissioner of Income Tax )   (Investigation), Circle 17(1), Bombay. ) 2.Commissioner of Income Tax, Bombay)    City V, Bombay. ) 3.Union of India, Bombay. )..RESPONDENTS Mr. Ashok N. Kotangale with Mr. Arun D. Nagarjun for the Petitioners. Mr. A.S. Shivsharan, for the respondents. CNR No : HCBM020149661993 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:48:47 CORAM:  F.I. REBELLO, &        J.H. BHATIA, JJ. DATE: 13TH APRIL, 2009

JUDGMENT (PER F.I. REBELLO, J.)

1.

The   petitioners   have   approached   this   Court   against   the  order   dated 18thDecember,  1992 in respect of the penalty  imposed   under   Section 271(1)(c) of the Income Tax Act.  We are concerned with the assessment year 1985­86. The assessee had filed return of income for 1985­86 on 1st October, 1985 which was subsequently revised.

2.

Action under Section 133A was conducted on 30th June, 1987 at office and factory premises of assessee.  The same was converted into search and seizure action.   In the course of search and seizure action, apart from undisclosed stock, havala loans to the tune of Rs.36,05,000/­ were admitted by the assessee.   Out of these havala loans, the loans to the extent of Rs.10,65,000/­ pertained   to assessment year 1985­86 and, therefore, the same was taxed as income of assessment year 1985­86 along with interest claimed by the assessee on these loans. Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:48:47

3.

CIT (A) vide letter dated 19th December, 1988 confirmed the addition on account of bogus loan and disallowed the interest.  The order of C.I.T. (A)  has been accepted by the assessee.

4.

Proceedings for penalty under Section 271(1)(c) were initiated.  After considering thesubmissions, penalty was imposed to the tune of Rs. 6,75,657/­. It was contended  by the petitioners before the Commissioner  in the application under Section 264, that the  declaration under Section 132 (4) was made, to cover up some discrepancies consisting of some alleged excess stock and unproved loan creditors amounting to Rs.36.05 lakhs.    It was, therefore, pleased that the penalty imposed under Section 271(1) (c) should be waived treating this part of the loan disallowed as part  of total declaration made under Section 132(4)  on which all the  taxes have been paid.  It was further submitted by letter of 26th November, 1992 that the petitioner had offered the loans as other income   voluntarily under Section 132(4) and had disclosed the loan of Rs.10,65,000/­ as other income for assessment year 1988­89. It was  submitted that there was no concealment of income and, therefore, the penalty   should   be waived. Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:48:47

5.

The   Commissioner   of   Income   Tax   after   considering   the   contentions observed that the petitioner had accepted  the order of C.I.T. (A) for assessment year  1985­86. It was further observed that it cannot be disputed that the loan of Rs.10,65,000/­ and the interest thereon was liable to be taxed  for income for the assessment year 1985­86. In the original return filed by the assessee  and   also   in   the   subsequent revised return the assessee had not disclosed this income.

The concealment of income was detected by the Department  during

the course of search and seizure action.  The assessee  had made a declaration under Section 132(4) but it does not entitle the petitioners to immunity from the penal provisions.

6.

Penalty, could be waived if the case is covered   by   explanation   5   of Section 271 of the Act. Since the income pertained to the previous year which has ended before the date of search and the assessee has also filed the return before the said date   without   disclosing   the   income due to havala loans and interest thereon, the immunity available under Explanation 5 is not available to the assessee.  The application under Section 264 was rejected.

6.

At  the  hearing  of   this   petition,   on  behalf   of   the  petitioners   learned Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:48:47

Counsel has reiterated the said contentions and has further submitted that the income was subsequently offered to tax.   It is submitted that under these circumstances the respondents acted without juri iction in imposing penalty.

7.

This is not a case of want of juri iction.   This is a case where the petitioners   were   unable   to   make   out   that   the   case   fell   within Explanation 5 to Section 271(c).   The requirement to fall within the explanation is not only admission by the petitioner in his statement, but what   has  been  set  out   by   the   Commissioner.     The  petitioners   were further   bound   to   disclose   the  source   of   their   income.     Under   these circumstances the explanation is not   attracted.   Learned Counsel had referred to us the judgment in the case of Sir Sadilal Sugar and General Mills Ltde. & Anr. vs. Commissioner of Income Tax, Delhi, 168 ITR 705, (S.C.), Commissioner of Income Tax vs. Suresh Chandra Mittal, 251 ITR 9 (S.C.), Commissioner of Income Tax vs. Chhabra Emporium 264 ITR 249 (Delhi) as also in the case of Commissioner of Income Tax vs. Radha Kishan Goel,  278 ITR 254 (Allahabad) and some other judgments which we need not go through.

8.

The Commissioner has recorded a finding of  fact  that the transactions were   disclosed in the course of search. The income was in respect of Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:48:47

assessment year 1985­86. The search was conducted on 30th June, 1987. Apart from that the Commissioner noted that neither in the original return nor in the revised return the petitioner had disclosed the income. It was, therefore, a clear case of concealment of income.  In so far as the issue pertaining to Explanation 5, as we have earlier pointed out the petitioner did not disclose the manner in which such income had been derived.

9.

Under these circumstances we are clearly of the opinion that there is no merit in this petition.  Rule Discharged.  There shall be no order as to costs. (J.H. BHATIA, J.) (F.I. REBELLO, J.) Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:48:47

Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:48:47 Powered by TCPDF (www.tcpdf.org)

More judgments on Section 271(1)(c)

All 25,141 judgments and leading authorities on Section 271(1)(c) →

Recent GST High Court judgments

Search GST case law →