Deputy Cit vs Mahendra Gupta
2002 Latest Caselaw 489 Del

Order

Y.K. Kapur, J.M.

These two appeals of the revenue arise out of a common order passed by Commissioner (Appeals), since involve same question of law and fact are being taken up together and are being disposed of by a common order.

One of the grounds of challenge in both these appeals is to the order of the Commissioner (Appeals) in directing the assessing officer to treat the amount of surrender, surrendered by the assessed during the course of search and seizure, as business income as against the "Income from other sources" held by the assessing officer.

2. The brief background of the present case is that during the search of the business premises of the assessed, the assessed made a declaration of Rs. 20 lakhs and surrendered the same representing unaccounted stock found in the factory, jewellery seized from lockers, etc.

2. The brief background of the present case is that during the search of the business premises of the assessed, the assessed made a declaration of Rs. 20 lakhs and surrendered the same representing unaccounted stock found in the factory, jewellery seized from lockers, etc.

3. The amount declared by the assessed was credited to the profit and loss account and the appellant in the return filed claimed deductions under section 80-I of the Income Tax Act. It needs to be mentioned here itself that in the statement recorded during the proceedings under section 132(4) of the Income Tax Act, the assessed stated that the amount of Rs. 20 lakhs surrendered is the income from business. Since the assessed had made a statement that the surrendered amount is the income from business, perhaps it was on this basis, the assessed made a claim under section 80-I on this amount in the return of income filed.

3. The amount declared by the assessed was credited to the profit and loss account and the appellant in the return filed claimed deductions under section 80-I of the Income Tax Act. It needs to be mentioned here itself that in the statement recorded during the proceedings under section 132(4) of the Income Tax Act, the assessed stated that the amount of Rs. 20 lakhs surrendered is the income from business. Since the assessed had made a statement that the surrendered amount is the income from business, perhaps it was on this basis, the assessed made a claim under section 80-I on this amount in the return of income filed.

4. The assessing officer prior to his framing assessment made a detailed investigation and before taking the surrendered income as income from other sources heard the assessed's representative.

4. The assessing officer prior to his framing assessment made a detailed investigation and before taking the surrendered income as income from other sources heard the assessed's representative.

5. The assessed's representative during the course of framing assessment stated before assessing officer that the assessed has surrendered the amount and in terms of Explanation 5 attached to section 271(1)(c), no penalty proceedings can be initiated. It was further submitted by the assessed's representative that in view of the immunity granted to an assessed in terms of Explanation 5 to section 271(1)(c) coupled with the statement of the assessed who had stated the surrendered amount as income from business, necessary benefit of section 80-I so claimed in the return filed needs to be granted.

5. The assessed's representative during the course of framing assessment stated before assessing officer that the assessed has surrendered the amount and in terms of Explanation 5 attached to section 271(1)(c), no penalty proceedings can be initiated. It was further submitted by the assessed's representative that in view of the immunity granted to an assessed in terms of Explanation 5 to section 271(1)(c) coupled with the statement of the assessed who had stated the surrendered amount as income from business, necessary benefit of section 80-I so claimed in the return filed needs to be granted.

6. The assessing officer agreed with the authorised representative on the issue that no penalty can be imposed under section 271(1)(c) of the Income Tax Act but while framing assessment, held the amount surrendered as income from other sources. After having held the amount surrendered as income from other sources, the assessing officer proceeded to frame assessment.

6. The assessing officer agreed with the authorised representative on the issue that no penalty can be imposed under section 271(1)(c) of the Income Tax Act but while framing assessment, held the amount surrendered as income from other sources. After having held the amount surrendered as income from other sources, the assessing officer proceeded to frame assessment.

7. Being not satisfied with the order of the assessing officer in holding the surrendered amount as income from other sources, the assessed filed an appeal before the Commissioner (Appeals). The Commissioner (Appeals) on the appeal filed while disposing of the appeal, disagreed with the assessing officer and held the amount surrendered to be the income from business. Consequently, the direction was issued to the assessing officer to allow deductions under section 80-I of the Income Tax Act.

7. Being not satisfied with the order of the assessing officer in holding the surrendered amount as income from other sources, the assessed filed an appeal before the Commissioner (Appeals). The Commissioner (Appeals) on the appeal filed while disposing of the appeal, disagreed with the assessing officer and held the amount surrendered to be the income from business. Consequently, the direction was issued to the assessing officer to allow deductions under section 80-I of the Income Tax Act.

8. The other ground of challenge is to the debit made by the assessed of an amount of Rs. 1,60,965.23 as provision for electricity bill raised by DESU which amount according to assessed is disputed. The assessed submitted that they have obtained stay from the court and that the matter is still pending.

8. The other ground of challenge is to the debit made by the assessed of an amount of Rs. 1,60,965.23 as provision for electricity bill raised by DESU which amount according to assessed is disputed. The assessed submitted that they have obtained stay from the court and that the matter is still pending.

9. The assessing officer rejected the claim holding the same to be allowable in the year of payment, which observations of the assessing officer were also disturbed by the Commissioner (Appeals).

9. The assessing officer rejected the claim holding the same to be allowable in the year of payment, which observations of the assessing officer were also disturbed by the Commissioner (Appeals).

10. The revenue is aggrieved by the order of the Commissioner (Appeals) has filed the present appeal before us.

10. The revenue is aggrieved by the order of the Commissioner (Appeals) has filed the present appeal before us.

11. During the course of hearing before us, the learned Departmental Representative took us through the grounds of appeal in two appeals filed by revenue.

11. During the course of hearing before us, the learned Departmental Representative took us through the grounds of appeal in two appeals filed by revenue.

12. We propose to take ground No. 2 in respect of Appeal No. 4611/Del/1996, first.

12. We propose to take ground No. 2 in respect of Appeal No. 4611/Del/1996, first.

13. On ground No. 2, the learned Departmental Representative submitted that on the assessed, the DESU New Delhi Vidyut Board has raised certain bill. Learned authorised representative submitted that the amount of bill is disputed by the assessed who has not made the payment of the bill but obtained a stay order from the court against DESU/DVB. The amount of bill has not been paid by assessed. The learned Departmental Representative in these circumstances submitted that the assessed was not justified in making provision in the profit and loss account for payment of this bill. He further submitted that the assessed shall be entitled to deduction in the year of payment and thus submitted that the Commissioner (Appeals) was not justified in allowing the claim of the assessed.

13. On ground No. 2, the learned Departmental Representative submitted that on the assessed, the DESU New Delhi Vidyut Board has raised certain bill. Learned authorised representative submitted that the amount of bill is disputed by the assessed who has not made the payment of the bill but obtained a stay order from the court against DESU/DVB. The amount of bill has not been paid by assessed. The learned Departmental Representative in these circumstances submitted that the assessed was not justified in making provision in the profit and loss account for payment of this bill. He further submitted that the assessed shall be entitled to deduction in the year of payment and thus submitted that the Commissioner (Appeals) was not justified in allowing the claim of the assessed.

14. On the other hand, the learned authorised representative submitted that since the liability is known but payment is deferred, there is nothing wrong in making a provision for payment, in the year of demand. He further submitted that the liability when discharged shall relate to the year of demand and thus supported the order of the Commissioner (Appeals).

14. On the other hand, the learned authorised representative submitted that since the liability is known but payment is deferred, there is nothing wrong in making a provision for payment, in the year of demand. He further submitted that the liability when discharged shall relate to the year of demand and thus supported the order of the Commissioner (Appeals).

15. We have gone through the record and heard the parties on this issue.

15. We have gone through the record and heard the parties on this issue.

16. The undisputed facts are that bill has been raised by DESUIDVB. The bill has not been paid. The assessed has filed a suit and obtained a stay. The matter is still pending in the civil court we are informed. The filing of the suit obviously indicates that there is a challenge to the demand. No one is sure when the suit will be decided and at that time what would be the demand. In these circumstances, we feel that let the assessed claim deduction in the year of payment in and the action of the assessed making provision for the said payment the subject relevant year is disallowed.

16. The undisputed facts are that bill has been raised by DESUIDVB. The bill has not been paid. The assessed has filed a suit and obtained a stay. The matter is still pending in the civil court we are informed. The filing of the suit obviously indicates that there is a challenge to the demand. No one is sure when the suit will be decided and at that time what would be the demand. In these circumstances, we feel that let the assessed claim deduction in the year of payment in and the action of the assessed making provision for the said payment the subject relevant year is disallowed.

17. The ground No. 2 of the appeal by the revenue is, therefore, allowed.

17. The ground No. 2 of the appeal by the revenue is, therefore, allowed.

18. This brings us to ground No. 1 of two appeals, i.e., 4611/De1J96 and 4613/Del/96.

18. This brings us to ground No. 1 of two appeals, i.e., 4611/De1J96 and 4613/Del/96.

19. On this ground, the learned Departmental Representative while making this submission submitted that the Commissioner (Appeals) committed a serious irregularity in treating the surrendered amount as income from business and thus directing the assessing officer to allow deduction under section 80-I of the Income Tax Act. The learned Departmental Representative further submitted that the onus that a particular income is the business income is on the assessed and it is the assessed who is supposed to discharge this onus on the basis of cogent evidence. The assessed having failed to discharge the said onus and there being nothing on the record to substantiate the said income as business income except the bald statement of the assessed, which is accordingly to revenue not enough, the departmental Representative submitted that the assessing officer was absolutely justified in treating the amount surrendered as "Income from other sources". The learned Departmental Representative further submitted that the claim of the assessed to claim the said surrendered amount as business income was a calculated move solely meant to claim relief under section 80-I of the Income Tax Act. He further submitted that the assessed's of the said class be not only discouraged to make such claims but must be dealt with a heavy hand.

19. On this ground, the learned Departmental Representative while making this submission submitted that the Commissioner (Appeals) committed a serious irregularity in treating the surrendered amount as income from business and thus directing the assessing officer to allow deduction under section 80-I of the Income Tax Act. The learned Departmental Representative further submitted that the onus that a particular income is the business income is on the assessed and it is the assessed who is supposed to discharge this onus on the basis of cogent evidence. The assessed having failed to discharge the said onus and there being nothing on the record to substantiate the said income as business income except the bald statement of the assessed, which is accordingly to revenue not enough, the departmental Representative submitted that the assessing officer was absolutely justified in treating the amount surrendered as "Income from other sources". The learned Departmental Representative further submitted that the claim of the assessed to claim the said surrendered amount as business income was a calculated move solely meant to claim relief under section 80-I of the Income Tax Act. He further submitted that the assessed's of the said class be not only discouraged to make such claims but must be dealt with a heavy hand.

20. To counter the arguments of the learned Departmental Representative, the learned authorised representative submitted that the assessed has no other source of income except the business of golden fiber. He further submitted that once an immunity is granted to the assessed under the Explanation 5 to section 271(1)(c) of the Income Tax Act, under no circumstances, the recourse to any other provision of the Act more particularly to section 69, as has been done in the present case, while framing assessment, can be taken.

20. To counter the arguments of the learned Departmental Representative, the learned authorised representative submitted that the assessed has no other source of income except the business of golden fiber. He further submitted that once an immunity is granted to the assessed under the Explanation 5 to section 271(1)(c) of the Income Tax Act, under no circumstances, the recourse to any other provision of the Act more particularly to section 69, as has been done in the present case, while framing assessment, can be taken.

21. To counter this argument of the learned authorised representative the learned Departmental Representative submitted that as far as the immunity granted under the Explanation 5 to section 271(1)(c) of the Income Tax Act, is concerned, that immunity is confined to the penalty proceedings only as contemplated under section 271(1)(c) but this immunity does not prohibit the revenue from taking action under any provisions of the Act. The learned Departmental Representative having submitted so supported the order of the assessing officer who treated the surrendered amount as income from other sources, as contemplated under section 69 of the Income Tax Act.

21. To counter this argument of the learned authorised representative the learned Departmental Representative submitted that as far as the immunity granted under the Explanation 5 to section 271(1)(c) of the Income Tax Act, is concerned, that immunity is confined to the penalty proceedings only as contemplated under section 271(1)(c) but this immunity does not prohibit the revenue from taking action under any provisions of the Act. The learned Departmental Representative having submitted so supported the order of the assessing officer who treated the surrendered amount as income from other sources, as contemplated under section 69 of the Income Tax Act.

22. Both the parties at the time of hearing referred to certain legal precedents. The learned Departmental Representative in support of his contentions placed reliance on Dy. CIT v. Gold Tax Furnishing Industries (2001) 73 TTJ (Del-Trib) 223, V. Kunhambu & Sons v. CIT (1996) 219 ITR 235 (Ker), Fakir Mohd. Hali Hasan v. CIT (2001) 247 ITR 290 (Guj), CIT v. Standard Motor Products of India Ltd. (1962) 46 ITR 814 (Mad), 578 ITR 317 (sic) and Dr. Mrs. Renuka Datia v. CIT & Anr. (1999) 240 ITR 463 (AP). While the learned Departmental Representative in support of its contention placed reliance on Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT (1997) 227 ITR 172 (SC) : (2001) 247 ITR 290 (Guj) (supra), CIT v. Rajeshree Cinema (P) Ltd. (2001) 247 ITR 76 (MP) : (2001) 247 ITR 76 (MP), Daulat Ram Rawat Mull v. CIT (1967) 64 ITR 593 (Cal), CIT v. Smt. P.K. Noorjahan (1999) 237 ITR 570 (SC). Some other legal precedents with regard to interpretation of statutes were also cited for the proposition that in the event of doubt, the interpretation which benefits the assessed should be followed.

22. Both the parties at the time of hearing referred to certain legal precedents. The learned Departmental Representative in support of his contentions placed reliance on Dy. CIT v. Gold Tax Furnishing Industries (2001) 73 TTJ (Del-Trib) 223, V. Kunhambu & Sons v. CIT (1996) 219 ITR 235 (Ker), Fakir Mohd. Hali Hasan v. CIT (2001) 247 ITR 290 (Guj), CIT v. Standard Motor Products of India Ltd. (1962) 46 ITR 814 (Mad), 578 ITR 317 (sic) and Dr. Mrs. Renuka Datia v. CIT & Anr. (1999) 240 ITR 463 (AP). While the learned Departmental Representative in support of its contention placed reliance on Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT (1997) 227 ITR 172 (SC) : (2001) 247 ITR 290 (Guj) (supra), CIT v. Rajeshree Cinema (P) Ltd. (2001) 247 ITR 76 (MP) : (2001) 247 ITR 76 (MP), Daulat Ram Rawat Mull v. CIT (1967) 64 ITR 593 (Cal), CIT v. Smt. P.K. Noorjahan (1999) 237 ITR 570 (SC). Some other legal precedents with regard to interpretation of statutes were also cited for the proposition that in the event of doubt, the interpretation which benefits the assessed should be followed.

23. We have heard the parties and gone through the record.

23. We have heard the parties and gone through the record.

24. From the record and the submissions made, it is clear that pursuant to proceedings, surrender was made. The amount of surrender was not disclosed in the books nor the source of the accumulated amount covered by the surrender was disclosed. The assessed during the search could not disclose the source and came out with a statement that the said income is his business income. The assessed on the basis of the surrender and on the basis of having got the benefit of immunity by virtue of Explanation 5 to section 271(1)(c) wants us to hold that the proceedings under section 69 of the Income Tax Act were wrongly indicated.

24. From the record and the submissions made, it is clear that pursuant to proceedings, surrender was made. The amount of surrender was not disclosed in the books nor the source of the accumulated amount covered by the surrender was disclosed. The assessed during the search could not disclose the source and came out with a statement that the said income is his business income. The assessed on the basis of the surrender and on the basis of having got the benefit of immunity by virtue of Explanation 5 to section 271(1)(c) wants us to hold that the proceedings under section 69 of the Income Tax Act were wrongly indicated.

25. Whether it is a business income or income from other source is an issue which we shall deal with little later but let us first decide the issue which revolves around the argument of the assessed that once an immunity is granted under section 271(1)(c) Explanation 5, is the revenue estopped from proceedings under section 69 of the Income Tax Act.

25. Whether it is a business income or income from other source is an issue which we shall deal with little later but let us first decide the issue which revolves around the argument of the assessed that once an immunity is granted under section 271(1)(c) Explanation 5, is the revenue estopped from proceedings under section 69 of the Income Tax Act.

26. We have taken ourselves through the provisions of section 271(1)(c) and the Explanations attached thereto and more particularly the Explanation 5 of section 271(1)(c) of Income Tax Act.

26. We have taken ourselves through the provisions of section 271(1)(c) and the Explanations attached thereto and more particularly the Explanation 5 of section 271(1)(c) of Income Tax Act.

27. Chapter XXI of the Income Tax Act deals with the power of the revenue authorities to impose penalty. There is no other chapter which deals with penalties. Section 271 which deals under Chapter XXI has some sub-sections and some Explanations. This chapter is there to bring to its net all those assesseds who commit one or other kind of violation. Not only the consequences for violating the provisions of Act are contained but the remedies like Explanation 5 to section 271(1)(c) or section 273B of the Income Tax Act are also there.

27. Chapter XXI of the Income Tax Act deals with the power of the revenue authorities to impose penalty. There is no other chapter which deals with penalties. Section 271 which deals under Chapter XXI has some sub-sections and some Explanations. This chapter is there to bring to its net all those assesseds who commit one or other kind of violation. Not only the consequences for violating the provisions of Act are contained but the remedies like Explanation 5 to section 271(1)(c) or section 273B of the Income Tax Act are also there.

28. According to the scheme of the Act, Chapter XXI, we feel is a complete code itself. Any action taken under Chapter XXI or any immunity granted under Chapter XXI is thus confined to this chapter and more particularly to the section thereto.

28. According to the scheme of the Act, Chapter XXI, we feel is a complete code itself. Any action taken under Chapter XXI or any immunity granted under Chapter XXI is thus confined to this chapter and more particularly to the section thereto.

29. We have another reason to hold that Chapter XXI is a complete code in itself and independent of the other provisions of the Act. For saying so, we have a reason and the reason is that suppose a particular claim of an assessed is rejected or an amount is not included in some proceedings, and the revenue takes out proceedings under section 271(1)(c).

29. We have another reason to hold that Chapter XXI is a complete code in itself and independent of the other provisions of the Act. For saying so, we have a reason and the reason is that suppose a particular claim of an assessed is rejected or an amount is not included in some proceedings, and the revenue takes out proceedings under section 271(1)(c).

30. In proceedings under section 271(1)(c), the assessed can still say that the penalty is not leviable and he may be successful or he may not be successful but he can still agitate the matter afresh and make out a case against penalty.

30. In proceedings under section 271(1)(c), the assessed can still say that the penalty is not leviable and he may be successful or he may not be successful but he can still agitate the matter afresh and make out a case against penalty.

31. The law is well settled that the penalty and quantum proceedings are independent proceedings and merely a claim is not included or rejected in quantum proceedings does not bring the assessed to the net of section 271(1)(c) of the Income Tax Act.

31. The law is well settled that the penalty and quantum proceedings are independent proceedings and merely a claim is not included or rejected in quantum proceedings does not bring the assessed to the net of section 271(1)(c) of the Income Tax Act.

32. We thus hold for this reason also that Chapter XXI of the Income Tax Act is independent of the other provisions of Act and no benefit of any action taken under Chapter XXI can be drawn in any other proceedings.

32. We thus hold for this reason also that Chapter XXI of the Income Tax Act is independent of the other provisions of Act and no benefit of any action taken under Chapter XXI can be drawn in any other proceedings.

33. In this background we hold that immunity granted by the revenue under the Explanation 5 of section 271(1)(c) is limited only to the extent that no penalty as contemplated under section 271(1)(c) of the Act shall be imposed but this does not restrict the revenue from investigating the source or the taxability of the amount under the other provisions of the Act.

33. In this background we hold that immunity granted by the revenue under the Explanation 5 of section 271(1)(c) is limited only to the extent that no penalty as contemplated under section 271(1)(c) of the Act shall be imposed but this does not restrict the revenue from investigating the source or the taxability of the amount under the other provisions of the Act.

34. The argument of the assessed's representative that in view of the immunity granted to the assessed under Explanation 5 to section 271(1)(c) no proceedings under section 69 of the Income Tax Act could be initiated needs to be rejected.

34. The argument of the assessed's representative that in view of the immunity granted to the assessed under Explanation 5 to section 271(1)(c) no proceedings under section 69 of the Income Tax Act could be initiated needs to be rejected.

35. This brings us to the issue whether it was a business income or income from other sources.

35. This brings us to the issue whether it was a business income or income from other sources.

36. According to the revenue, this was an income from other sources while according to the assessed it was business income. According to revenue, it wants it to be income from other sources to bring the entire surrendered amount to tax while according to assessed it wants the said surrendered amount to be business income to derive benefit of section 80-I.

36. According to the revenue, this was an income from other sources while according to the assessed it was business income. According to revenue, it wants it to be income from other sources to bring the entire surrendered amount to tax while according to assessed it wants the said surrendered amount to be business income to derive benefit of section 80-I.

37. The learned Departmental Representative during the course of hearing relied upon the expression used in sub-clause to Explanation 5 and submitted that the expression "in respect of such income" is meant to cover all the amount without any deduction which in this case is the surrendered amount while authorised representative submitted that in view of the statement of assessed that it is his business income, the assessed is entitled to the benefit section 80-I.

37. The learned Departmental Representative during the course of hearing relied upon the expression used in sub-clause to Explanation 5 and submitted that the expression "in respect of such income" is meant to cover all the amount without any deduction which in this case is the surrendered amount while authorised representative submitted that in view of the statement of assessed that it is his business income, the assessed is entitled to the benefit section 80-I.

38. The onus that it is the business income is on the assessed. The assessed has to honestly discharge the said onus by cogent evidence. According to the assessed, he has discharge this onus by his statement at the time proceedings under section 132(4). Apart from the statement of the assessed that it his business income there is nothing on the record. assessed wanted us also hold that it is his business income.

38. The onus that it is the business income is on the assessed. The assessed has to honestly discharge the said onus by cogent evidence. According to the assessed, he has discharge this onus by his statement at the time proceedings under section 132(4). Apart from the statement of the assessed that it his business income there is nothing on the record. assessed wanted us also hold that it is his business income.

39. We are afraid we cannot persuade ourselves to agree with the assessed because of the reason that at the time of search this amount was not included in the books. The amount was shown in the books subsequently the amount was shown in the books but source was not explainable, the situation would have been different but here the case is different. Here the business of the firm/appellant is of manufacturing furnishing items and seized material is jewellery and that too at the hands of partners stated to have been purchased from the surrendered funds. The returns of partners despite my having asked for have not been produced. It is clear that the jewellery items are not seized from the business premises though the main partner of the assessed-firm has surrendered under section 132(4) in the name of the firm. On the date of search these items are not entered in the books of the firm. Neither any paper voucher was found during the research nor produced in subsequent proceeding to show the surrendered amount was from business transactions. In these circumstances, by means of statement of partner the surrendered amount would not fall within the net of business transaction or business income.

39. We are afraid we cannot persuade ourselves to agree with the assessed because of the reason that at the time of search this amount was not included in the books. The amount was shown in the books subsequently the amount was shown in the books but source was not explainable, the situation would have been different but here the case is different. Here the business of the firm/appellant is of manufacturing furnishing items and seized material is jewellery and that too at the hands of partners stated to have been purchased from the surrendered funds. The returns of partners despite my having asked for have not been produced. It is clear that the jewellery items are not seized from the business premises though the main partner of the assessed-firm has surrendered under section 132(4) in the name of the firm. On the date of search these items are not entered in the books of the firm. Neither any paper voucher was found during the research nor produced in subsequent proceeding to show the surrendered amount was from business transactions. In these circumstances, by means of statement of partner the surrendered amount would not fall within the net of business transaction or business income.

40. We feel that the judgment relied upon by the learned Departmental Representative reported in (2001) 73 TTJ (Del-Trib) 223 and (1996) 219 ITR 235 (Ker) (supra) squarely apply to the facts of the case. The judgment relied upon by the learned authorised representative are on different fact and circumstances.

40. We feel that the judgment relied upon by the learned Departmental Representative reported in (2001) 73 TTJ (Del-Trib) 223 and (1996) 219 ITR 235 (Ker) (supra) squarely apply to the facts of the case. The judgment relied upon by the learned authorised representative are on different fact and circumstances.

41. In view of the discussion above, we are of the view that the amount surrendered by the assessed during the search was rightly held by the assessing officer to be the income from other source.

41. In view of the discussion above, we are of the view that the amount surrendered by the assessed during the search was rightly held by the assessing officer to be the income from other source.

42. As a result of the aforesaid discussion the appeals by the revenue are allowed.

42. As a result of the aforesaid discussion the appeals by the revenue are allowed.