ORDER
G. D. Agrawal, Accountant Member
1. This appeal by the Revenue is directed against the order of the Commissioner of Income-tax (Appeals), Jabalpur who cancelled a penalty of Rs. 2,85,000 levied by the Assessing Officer under section 271(1)(c) of the Income-tax Act, 1961.
2. The facts of the case are that search and seizure operations took place in the residential and business premises of the assessee on 25-4-1989. During the course of search operation pawned silver and gold ornaments, books of account, loose papers and other documents were found and seized. The assessee has filed a return declaring taxable income of Rs. 3,88,542 and agricultural income of Rs. 30,000. The income disclosed by the assessee included a sum of Rs. 3,77,475 in respect of investment in pawned articles. The Assessing Officer completed the assessment at Rs. 5,50,460, which on appeal was reduced to Rs. 3,90,460. The Assessing Officer levied a penalty of Rs. 2,85,000 under section 271(1)(c) of the Income-tax Act, 1961. The penalty was levied by invoking the Explanation 5 to the section 271(1)(c) of the Income-tax Act.
3. On appeal, the CIT(Appeals) cancelled the penalty. Hence this appeal by the Revenue.
4. At the time of hearing before us the learned Departmental Representative submitted that though the assessee has maintained a Girvi Register, the investment as per the Girvi Register works out to Rs. 5,53,475 and the assessee has offered only Rs. 3,77,475 as his income. He submitted that when the assessee himself has not relied upon books of account in toto he cannot claim the benefit of exceptions provided in Explanation 5. He further submitted that the books of account maintained by the assessee is not fully reliable. The assessee can get the benefit of exceptions provided in Explanation 5 only if the books of account are maintained in a methodical and proper manner from which the profit of the assessee can be deduced correctly.
5. The learned Counsel for the assessee argued at length. His arguments may be summarised as follows :-
(a) That during the course of search proceedings the Authorised Officer ought to have appraised the assessee about the Explanation 5 of section 271(1)(c) of the Income-tax Act. No question was asked whether the assessee wants to surrender any income under section 132(4) so as to get the benefit of Explanation 5 of section 271(1)(c). The assessee made the surrender of income at the first available opportunity, i.e. during the 132(5) proceedings itself. In the return of income also the assessee offered the same income. He further submitted that the income surrendered by the assessee is virtually accepted after the appellate proceedings. The assessee had surrendered a sum of Rs. 3,77,475 for investment in pawning business. The Assessing Officer worked out the same at Rs. 5,39,395 which, after appeal, was reduced to Rs. 3,79,395.
(b) That the assessee derived income from pawning of gold and silver ornaments. The assessee had maintained Girvi Register in the regular course of its pawning business. All the pawned articles found and seized at the time of search were duly found recorded in the said girvi register. Thus, the girvi transaction is found duly recorded in the books of account found and seized at the time of search itself. The assessee’s case is duly covered by the exception provided in Explanation 5 to section 271(1)(c) itself. The CIT(Appeals) was fully justified in cancelling the penalty and his order should be upheld.
6. We have carefully considered the arguments of both the sides and have perused the material placed before us. For the year under consideration the assessee has filed the return disclosing income of Rs. 3,88,542. The same is finally assessed at Rs. 3,90,460. The break-up of income returned and income assessed is as under :-
Particulars Income Income Income after the
returned assessed quantum appeal
1. Income from
house property Rs. 5,067 Rs. 5,067 Rs. 5,067
2. Income from Kirana Rs. 6,000 Rs. 6,000 Rs. 6,000
business
3. Income offered for
investment in
pawned articles Rs. 3,77,475 Rs. 5,39,395 Rs. 3,79,395
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Total Rs. 3,88,542 Rs. 5,50,460 Rs. 3,90,462
7. From the perusal of above it is evident that virtually there is no difference between the income returned and income assessed. The Assessing Officer has levied the penalty in respect of the amount offered by the assessee for investment in pawned articles at Rs. 3,77,495. He has levied the penalty by invoking the Explanation 5 of section 271(1)(c) of the Income-tax Act. The Explanation 5, as it stood at the relevant time is as under :-
“Explanation 5. – Where in the course of a search under section 132, 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 Chief 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 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.”
8. From the above it is clear that the above Explanation is a fiction for deemed concealment in the cases of search under section 132. It provides that where the assessee is found to be the owner of any money, bullion, jewellery or other valuable articles, during the course of search under section 132 and if the assessee claims to have acquired such assets by utilising his income of the previous year for which returns are not filed and also disclosed such income in the return of income filed after the date of search the assessee shall be deemed to have concealed the particulars of such income. However, this Explanation itself reduced the rigour of the deemed concealment by providing following two exceptions :-
(1) (a) Such income or the transaction resulting in such income are found recorded in the books of account maintained by the assessee for any source of income; or
(b) Such income is otherwise disclosed to Chief Commissioner and/or Commissioner before the date of search; or
(2) The assessee during the course of search makes a statement under section 132(4) that such money, bullion, jewellery, etc. had been acquired by the assessee out of his income not disclosed so far in the return of income and also specify the manner in which such income was earned.
9. The above exceptions are alternative, and if the assessee is able to establish that his case is covered by any of the above exceptions, he would be out of the clutches of Explanation 5 to section 271(1)(c).
10. Now we revert back to the facts of this case. We have already mentioned that the assessee derived income from pawning business. The assessee maintained girvi register in the regular course of his business. The total investment as per the girvi (pawning) register found at the time of search was Rs. 5,53,475. Nothing in this register tallied with the pawned articles found and seized at the time of search. The assessee offered a sum of Rs. 3,77,475 for investment in the pawning business worked out as under :-
Total investment as per Girvi
Register : Rs. 5,53,475
Less : Current income Rs. 26,000
Sale of ornaments : Rs. 50,000
Earlier capital Rs. 1,00,000
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Rs. 1,76,000 Rs. 1,76,000
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Rs. 3,77,475
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This income offered was virtually accepted after the first appeal.
10.1 The learned Departmental Representative has contended that the assessee should not be allowed the benefit of the exception because the assessee himself has not fully relied upon the Girvi Register. He has not offered the sum of Rs. 5,53,475 which was the sum total of the investment as per the Girvi Register. We are unable to persuade ourselves to agree to this argument of the learned Departmental Representative. As per the Girvi Register total investment in the pawning business was Rs. 5,53,475. The assessee has not disputed this investment as per the Girvi Register but has reduced it by the amount which was invested out of explained sources. In our opinion, there is nothing wrong in the claim of the assessee. Moreover, as per the exception the income or the transaction resulting in such income should be found recorded in the books of account maintained by the assessee. In this case it is undisputed that the transaction giving rise to the income was the money advanced by the assessee against the pawning of articles. All these transactions are found to be correctly recorded in the books of account found and seized at the time of search. The learned Departmental Representative has also disputed that from the books of account maintained by the assessee the profits cannot be proper deduced, because it only records the details of pawned articles and no other particulars. In our opinion, this objection of the learned Departmental Representative is not well-founded. As already stated, to get the benefit of the exception, the only requirement is that the transaction should be found recorded in the books of account. It is not necessary that such books of account should be correct and complete in all respects so as to enable the Assessing Officer to deduce the profit therefrom. That is the requirement for acceptance of the assessee’s books of account for the purpose of section 145(1), i.e., while computing profits and gains of business of the assessee. However, the said requirement of acceptance of books under section 145(1) cannot be imposed, in respect of the books of account mentioned in Explanation 5 to section 271(1)(c). It is a deeming provision and has to be construed strictly as per the language used in this section. The only requirement of the exception of the Explanation is that the transaction giving rise to such income is found recorded in the books of account maintained by the assessee. Thus, no other requirement can be added as submitted by the learned Departmental Representative. In the case under appeal before us the transaction giving rise to the income is duly recorded in the books of account found and seized at the time of the search. Therefore, in our opinion, it was covered by the first exception to Explanation 5. We have also held that the exceptions are alternative and once the assessee’s case is covered by the first exception, the assessee cannot to penalised for concealment of income by invoking Explanation 5 to section 271(1)(c). Therefore, we uphold the order of the learned CIT(Appeals) cancelling the penalty of Rs. 2,85,000.
11. In the result, the Revenue’s appeal is dismissed.