ORDER
M.A. Ajinkya, Accountant Member
1. The two appeals have been filed by the assessee for the assessment years 1983-84 and 1984-85 against the orders of the CIT (Appeals) dated 21-12-1989 confirming penalties of Rs. 2,20,952 and Rs. 2,69,954 under Section 271(1)(c) of the Income-tax Act, 1961 for assessment years 1983-84 and 1984-85 respectively. These were heard together and are disposed of by this consolidated order.
2. The assessee herein is earning income mainly from proprietary concern and share of profit from a registered firm, M/s. K.K. Traders. On 3-10-1983, search and seizure operation was conducted by the department at the business as well as residential premises of the assessee. However, nothing incriminating was found either at the residence or at the business premises and, apparently, no order under Section 132(5) of the Act was, therefore, passed consequent to this search and seizure operation.
3. In response to notice under Section 148, the appellant filed his return showing income from property, business income and share of profit from M/s. K.K. Traders. The return was revised twice. The first revised return was filed on 18th March, 1986 showing income of Rs. 2,65,594 and another revised return was filed on 21st March, 1986, showing income of Rs. 3,68,400. This second revised return was said to have been filed under the Amnesty Scheme, then in force and in terms of CBDT circular. The Assessing Officer observed that since the return had been filed in response to notice under Section 148, the claim of the assessee that the return was filed under the Amnesty Scheme was not tenable. He determined the total income for assessment year 1983-84 at Rs. 3,68,404. Similarly, for the assessment year 1984-85, the assessment was completed on the returned income which was also revised twice and which, as per the second revised return filed, indicated income of Rs. 4,33,885. The Assessing Officer started penalty proceedings under Section 271(1)(c) of the Act for both the years. He noted that different returns were filed on different dates by the assessee consequent to the notice under Section 148. The last two returns were marked as returns filed under the Amnesty Scheme. These returns were filed after action under Section 132 had taken place. There again, the assessee had not voluntarily filed return of income within the time specified in the Act. It was only after the search action and consequent to the notice under Section 148 that the assessee was compelled to file his return of income. The assessee had not paid any advance tax for the years. Whatever had been paid was paid as self-assessment tax. Therefore, the Assessing Officer treated the income declared in the final return as concealed income and levied the aforementioned amounts of penalties in the orders passed by him under Section 271(1)(c) of the Act for the two years concerned. These penalties were confirmed by the CIT (Appeals). He accepted the Assessing Officer’s finding that the appellant’s claim that the return had been filed under the Amnesty Scheme could not be accepted because they were filed in response to the notice under Section 148. He referred to the decision of the Supreme Court in the case of ITO v. Rattan Lal [1984] 145 ITR 1831 wherein it was held that the immunity enjoyable by the declaration under the voluntary disclosure was confined to the declarant alone and was not extended to the assessment of any other assessee in relation to the income disclosed by the declarant. He also referred to the Bombay High Court decision in the case of Mrs. Pushpa Kalyanmal Singhvi v. Union of India [1988] 171 ITR 3342 wherein it was observed that Amnesty Scheme was only a part of the tax management and in respect of some issues, the scheme, to a certain extent, seemed to go beyond the statutory provisions. The essence of the finding of the CIT (Appeals) was that since, in the present case, there was a search prior to the declaration of income, action of the ITO imposing penalties could not be said to be unreasonable. He, therefore, confirmed the orders of penalty which are challenged in the present appeals before us.
4. Shri Gautam Doshi, the Ld. chartered accountant appearing for the assessee, . took us through the compilation in which details of incomes declared in the various returns have been filed. He pointed out that in the first return for the assessment year 1983-84, which was filed on 29-3-1985, share income from a registered firm K.K. Traders, was shown at Rs. 1,24,386 and this share income was changed to Rs. 2,52,584 in the second return filed on 18-3-1986. Therefore, the first revised return was filed consequent to the assessment of the firm which had the effect of changing the figure of share income that the assessee had from the firm K.K. Traders. It was in the third revised return filed on 21-3-1986 that an additional income of Rs. 1,00,000 was shown. The total income declared was Rs. 3,68,400 for assessment year 1983-84 and this income was virtually accepted by the Assessing Officer who made assessment on Rs. 3,68,404 for assessment year 1983-84. Similarly, for the assessment year 1984-85, the first return was filed showing share income of Rs. 43,992. The first return was revised showing share income of Rs. 2,17,252 and the second revised return was filed in which separate proprietary business income was revised to Rs. 2,14,883 as against Rs. 14,883 shown in the first two returns. Thus, in both the years in the last revised return filed, the assessee had disclosed additional sum of Rs. 1,00,000 for 1983-84 and Rs. 2,00,000 for assessment year 1984-85. This the assessee had done voluntarily. Shri Doshi argued that the ITO had not initiated any enquiry whatsoever or made any investigation which could be said to have led to the filing of the revised return. Between the first return that was filed on 29-3-1985 and the first revised return that was filed on 18-3-1986, nothing had been done by the department to indicate discovery of concealment. No doubt, action under Section 132 was taken, but such action did not lead to any discovery of concealed income and mere fact that notice under Section 148 was issued and the return filed in response to such a notice did not, ipso facto, mean that there was concealment of income, whereas the facts indicated that no concealment was detected by the department as a consequence of any conscious enquiry or investigation by the revenue authorities. Shri Doshi argued that filing of the revised return would exonerate the assessee from default or deficiency committed in the original return and, in support of this proposition, he relied on the decision of Madras High Court in the case of K.P. Kandasami Mudaliar & Sons v. CJT [1985] 156 1TR 638. He argued that entirety of circumstances must be taken into account before penalties could be levied and, for this proposition, he relied on the decision of the Rajasthan High Court in the case of J.P. Sharma & Sons v. CIT [1985] 151 ITR 3331. He also referred to the decision of the Madras High Court in the case of CIT v. J.K.A. Rajappa Chettiar [1985] 153 ITR 215 in support of his stand that where the ITO had not initiated enquiry on the basis of the original return and the assessment proceedings were only on the basis of the revised return, no penalty for concealment could be levied. While distinguishing the ratio of the Bombay High Court decision (supra) relied upon by the CIT (Appeals), Shri Doshi pointed out that that judgment was given on a writ petition which was admitted by the Bombay High Court but the High Court did not grant any stay and that was the writ in which amnesty circular was challenged. Shri Doshi then referred to a decision of the Gujarat High Court in the case of Taiyabji Lukmanji v. CIT [1981] 131 ITR 643 wherein reference was made to the Board’s advertisement given sometime in January 1971 where the Board had stated that if the original return filed by the assessee was false, he could file revised return to avoid consequences of discovery. In that case, the Gujarat High Court held that after considering the question as regards legality or propriety of levying penalty under Section 271(1)(c) in the light of the instructions given by the Board in the advertisement, whether or not it amounted to promissory estoppel and created a legal right, the question was required to be examined from the standpoint of the credibility of the department, had to be considered in its entire context. As regards the binding nature of the Amnesty Scheme, Shri Doshi referred to the decision of the Andhra Pradesh High Court in C1T v. T.V. Ramanaiah & Sons [1986] 157 ITR 300, where the court held that the Amnesty Scheme was not binding on the Tribunal and, in that judgment, the High Court held that wherever instructions given by the CBDT to relieve hardship were issued in exercise of the powers vested in the CBDT under Section 119 of the Act, it is certainly open to the court to compel the ITO to follow the instructions of the CBDT. That is to say, the court is not bound by the instructions of the Board. All that is required to be said is that so far as officials of the department are concerned, it is not open to them to say that they would not follow the instructions of the CBDT. He also referred to a decision of the Calcutta High Court in the case of CIT v. Bengal Iron & Galvanising Works [1987] 165 ITR 2491 where the High Court held that the Tribunal was entitled to look into the entire facts and circumstances in order to determine whether the penalty should be imposed on the assessee or not. Before the penalty could be imposed, it had to be established that the assessee proceeded deliberately with the intention to conceal correct income. In that case, the assessee-firm had filed return in November 1963, and it made voluntary disclosure in December 1965. On these facts, the court held that the assessee by a subsequent conduct might be said to have established that there was no deliberate intention of concealing income on his part and the incorrect return, which was initially filed, was sought to be rectified by its subsequent disclosure which was noted and acted upon by the ITO. The court, therefore, justified cancellation of the penalty by the Tribunal.
5. Shri Doshi referred to the various circulars of the Board and, in particular, circular issued under Notification No. F. No. 281/8/86-IT(INV-3) dated 14-2-1986, issued in exercise of the powers conferred by Clause (a) of Sub-section (2) of Section 119 of the Act, the CBDT directed that the ITO/IAC shall not initiate any proceedings for imposition of penalty on a person or impose penalty on him for an offence under Clause (a) or Clause (c) of Section 271 or 273 in respect of any assessment year upto and inclusive of assessment year 1985-86 in case if he is satisfied that such a person had, prior to detection by the ITO, or as the case may be, the IAC of concealment of particulars of income or inaccuracy of the voluntary and in good faith made, between 15th November, 1985 and 31st March, 1986, full and true disclosure of such income. Shri Doshi pointed out that this circular did not refer to proceedings started under Section 148 or returns filed in response to such proceedings. Finally, Shri Doshi concluded by pointing out that no investigation was done in this case, no enquiry leading to concealment was carried out and no order under Section 132(5) was passed and, that therefore, there was nothing on record to indicate that there was any detection of concealment on the part of the assessee to justify imposition of penalty under Section 271(1)(c). His contention was that the notice under Section 148 was issued because there was a failure on the part of the assessee to file return of income and not to bring to tax any definite item of concealed income. Mere failure to file return, according to Shri Doshi, did not amount to concealment for these years and, in support of this proposition, he relied on the decision in S. Narayanappa & Bros. v. CIT [1961] 41 ITR 125 (Mys.). For these reasons, Shri Doshi pleaded that the penalty be quashed.
6. The departmental representative argued that the issue to be decided was whether the return was really voluntary and whether the disclosure was voluntarily made. The firm in which the assessee was a partner as well as the appellant’s income were subjected to search and seizure proceedings under Section 132. Notice under Section 148 was issued in 1984 consequent to the search conducted in 1983. The return was filed in 1985. The return in response to notice under Section 148 could not be said to be a voluntary return. There was concealment in the first return because that return was not filed voluntarily. All the cases cited by the Ld. counsel for the assessee, according to the departmental representative, were not relevant in view of the amendment of provisions of Section 271(1)(c) and he relied on a decision of the Tribunal in Sixth ITO v. Kumar Metal Industries [1991] 36 ITD 261 (Bom.).
7. The departmental representative further argued that the amnesty circular did not have effect of overriding the specific provisions of the Act and the Board acting under Section 119 was exercising delegated legislation. The authority acting under the delegated powers could not, according to the departmental representative, override the statutory provisions of the Act and, for this proposition, he relied on the decision of the Supreme Court in Mannalal Jain v. State of Assam AIR 1962 (SC) 386 and AIR 1954 (SC) 694. The departmental representative voiced his doubts whether the case of the assessee in the present case could be said to be covered by the circular of the Board. According to him, the return was not voluntary, it was not true, it did not make full and correct disclosure, at least so far as the first and second returns were concerned and, therefore, the conditions prescribed in the circular for granting amnesty were not satisfied. The proceedings under Section 148 were started consequent to the search and seizure operations under Section 132. The returns were filed in response to such a notice and the assessee was prevailed upon to file revised return as a result of the search. Therefore, there was concealment in the original return and the department was justified in levying penalty for such concealment.
8. Shri Doshi, in reply, cited a host of decisions concerning binding nature of the Board’s circulars. In addition to the decision of the A.P. High Court in T.V. Ramanaiah & Sons’ case (supra), he relied on a decision of the Patna High Court in the case of CIT v. Sriram Agrawal [1986] 161 ITR 3021 wherein reliance was placed by the assessee on the Board’s circular No. 18d (XLV)-14 of 1963 dated July 15, 1963 to the effect that no penalty should be levied if, at the time of appearance before the ITO in connection with the hearing given under Sub-section (1) of Section 221, the assessee proved that the tax had already been paid. The court held that the circular of the CBDT had a binding force on the officers and persons employed in the execution of the Act under Section 5(8) of the Indian Income-tax Act, 1922, corresponding to Section 119 of the Income-tax Act, 1961 and they were bound to give effect to the circular.
9. Shri Doshi also referred to a more recent decision of the Supreme Court in the case of Keshavji Ravji & Co. v. CIT [1990] 183 ITR 11 in which one of the issues that the Supreme Court had to consider was the binding nature of the circulars of the CBDT. The Supreme Court observed at page 17 that the circulars beneficial to the assessee and which tone down the rigor of the law, issued in exercise of the statutory power under Section 119 of the Act, or under the corresponding provisions of the predecessor Act, are binding on the authorities in the administration of the Act. The Tribunal, much less the High Court, is an authority under that and the circulars do not bind them, but the benefits of such circulars to the assessee have been held to be permissible even though the circulars might have departed from the strict tenor of the statutory provisions and mitigated the rigours of the law. That is not the same thing as saying that such circulars will have either binding effect in the interpretation of the provisions or that the Tribunal and the High Court are supposed to interpret the law in the light of the circular. There is, however, support of certain judicial observations for the view that such circulars constituted external aids to construction. Shri Doshi also referred to the earlier decision of the Supreme Court in K.P. Varghese v. ITO [1981] 131 ITR 597 wherein the Supreme Court observed that circulars of the CBDT issued on July 7, 1964, and of January 14, 1974, explaining the scope of the object of Section 52(2) were binding on the department in the administration or implementation of Section 52. He emphasised the fact that where notice under Section 148 is issued on the ground that no return is filed, there is not necessarily concealment on the part of the assessee when the return is filed in response to such a notice. Whenever there is a failure to submit a return or to submit accounts, only penalty under Section 28(1)(b) of the old Act should be levied, but not penalty for concealment. As pointed out earlier, Shri Doshi relied on a decision in the case of S. Narayanappa & Bros, (supra).
10. We have considered the submissions made on behalf of both the sides and have also gone through the papers filed before us and also the orders of the revenue authorities. We have also considered carefully the various cases cited before us by both the sides. It is not disputed that although there was search on the office and residential premises of the assessee and the firm in which he was a partner, nothing incriminating was found in the search. It is also not disputed that no order under Section 132 was passed. The notice under Section 148 was issued because the assessee had not filed return of income in time. Such a notice was issued in 1984 and the return was filed for 1983-84 on 29-3-1985. Such return disclosed income from house property, share income from K.K. Traders and this return was revised on 18-3-1986 when the share income from the firm was altered to disclose income actually assessed in the case of the firm. It is the second revised return which was filed in March 1986 which disclosed additional income of rupees one lakh for 1983-84 and additional income of rupees two lakhs for 1984-85. The income returned for both the years was accepted by the department and a perusal of the assessment orders for both the years shows that there was no inquiry made by the ITO at any stage which could be said to have led to the assessee having filed the revised return in which additional income of rupees one lakh and rupees two lakhs for the respective two years under appeal was disclosed. In that sense, the revised income which was claimed to have been filed as part of Amnesty Scheme could be said to be ‘return’ in which income was voluntarily disclosed. The papers filed before us support the stand of Shri Doshi that nothing was done by the department either between the first return and the first revised return or the second revised return to indicate that any enquiry was started or any investigation carried out resulting in the discovery of concealed income. Even the search conducted earlier did not disclose any concealed income. Therefore, the assessee, in the second revised return which was finally accepted by the department, could be said to have voluntarily disclosed the additional income of Rs. 1,00,000 and Rs. 2,00,000 for the respective two years under appeal and which income was accepted by the department without any further enquiry or questioning. Therefore, the question that arises for consideration is whether the assessee could be penalized merely because notice under Section 148 was issued consequent to the proceedings under Section 132 and in response to such a notice, the assessee disclosed in the various returns filed, income from business, partnership firm and filed income which the assessee had not disclosed earlier in the first return.
11. It would appear to us that instructions given by the CBDT in respect of Amnesty Scheme as well as in respect of initiation of penalty proceedings where voluntary disclosure is made would seem to support the case of the appellant. The Board issued circulars 423, 432, 439 and 441 regarding declaration of higher income and wealth under the Amnesty Scheme and these circulars were in the nature of replies to several questions raised. A copy of the circulars has been filed by the appellant (pages 14 to 19 of the compilation). In reply to question No. 30, the reply is as follows:-
Q. Whether an assessee could make a declaration in respect of assets or income which is not the subject-matter of seizure?
A. “Yes, if it has not been already found out in the course of the search.
12. We have already stated that nothing was found in the course of the search and, therefore, the assessee could make declaration in respect of assets or income which were not the subject matter of seizure. Since the income now disclosed had not already been found out in the course of the search, the assessee could be said to have voluntarily disclosed the additional income.
13. We also find that income disclosed had been accepted without any further enquiry by the Assessing Officer and, to that extent, the second revised return filed for both the years contained disclosure which could be considered a voluntary disclosure.
In the light of these facts, the circular issued by the Board, being circular No. 281 dated 14-2-1986, assumes importance and the relevant portion of the said circular reads as under:-
…the Central Board of Direct Taxes hereby directs that the Income-tax
Officer and the Inspecting Assistant Commissioner of Income-tax shall not initiate any proceedings for imposition of a penalty on a person or impose penalty on him for an offence under Clause (a) or Clause (c) of Sub-section (1) of Section 271 or Section 273 in respect of any assessment year upto and including assessment year 1985-86 in a case, if he is satisfied that such person –
(a) has, prior to the detection by the Income-tax Officer or, as the case may be, the Inspecting Asstt. Commissioner of Income-tax, of the concealment of particulars of income or of the inaccuracy of particulars furnished in respect of such income, voluntarily and in good faith, made between the 15th day of November, 1985 and 31st day of March, 1986, a full and true disclosure of such income….
14. It will be seen that there is no reference in this circular to notice under Section 148 or return filed in response to the proceedings under that section. Having stated these facts, we are of the view that the assessee had made voluntary disclosure of income which was not detected by the Assessing Officer who had not initiated any enquiry or embarked upon any investigation and who had, under proceedings under Section 132, not found any concealed income. The assessee having made disclosure of concealed income in the second revised return, which was accepted by the department for both the years, could not be accused of having concealed any income and could not be penalised for such concealment. The assessee has made good in the revised return what it had omitted to disclose in the original return and the filing of the revised return would seem to exonerate the assessee from any default in the original returns, as has been observed by the Madras High Court in the case of K.P. Kandasami Mudaliar & Sons (supra). In that case, the assessee had made good omissions in the original return voluntarily before the investigation was started by the Assessing Officer and the court held that there was no concealment of income and penalty could not be imposed under Section 271(1)(c).
15. We have taken into account the entire circumstances of the case, as observed by the Rajasthan High Court in J.P. Sharma & Sons’ case (supra). The crux of the matter is that if after examining the return and accounts of the assessee in the course of the assessment proceedings, the ITO discovered omission or wrong statement made by the assessee and, thereafter, revised return was filed, then the assessee cannot claim that he was absolved from imposition of penalty under Section 271(1)(c). If on the other hand the assessee himself voluntarily files revised return before the order of assessment is made after he himself discovers the omission or wrong statement in the original return then, in such a case, penalty for concealment of particulars of income, as contemplated under Section 271(1)(c) cannot be imposed.
16. We are of the opinion that observations of the Calcutta High Court in the case of Bengal Iron & Galvanising Works (supra) almost clinches the issue in favour of the assessee. There also, the court held that the Tribunal was entitled to look into the entire facts and circumstances in order to determine whether the penalty should be imposed. In that case, the assessee had made full disclosure voluntarily before the ITO took any steps in assessment of the assessee and the ITO did not bring to tax any amount in excess of what was disclosed by the assessee.
17. The facts in the present case are precisely the same as in the case decided by the Calcutta High Court (supra) inasmuch as the income disclosed in the second revised return has been accepted without demur by the Assessing Officer.
18. The next point for consideration is the binding nature of the Board’s circulars. The decision of the A.P. High Court in T.V. Ramanaiah & Sons’ case (supra) and several other decisions cited and, particularly, the decision in Sriram Agrawal’s case (supra) and also the decision of the Supreme Court in Keshavji Ravji & Co.’s case (supra) and observations of the court at page 17 would seem to support the case of the assessee. When the Board issues circulars deriving authority under Section 119 of the Income-tax Act, 1961, such circulars are binding on the revenue authorities. The departmental representative cannot be said to argue that the authority though acting under delegated power, cannot override the statutory provisions. In the amnesty circular, in reply to Q. No. 30, it was clarified, as we have seen above, that assets or income not detected in the search could be disclosed in a voluntary disclosure. The Board’s circular No. 281, discussed above, does not refer to proceedings under Section 148. The facts indicate that the disclosure made in the second revised return have been found to be true and complete by the department inasmuch as they have accepted the returns so disclosed. Therefore, in our opinion, there is nothing on record to indicate that the ITO had, without carrying out any investigation or enquiry, detected any concealment to merit levy of penalty under Section 271(1)(c) of the impugned amounts. Reference in this regard may be made to the old decision of the Madras High Court in the case of CIT v. Ramdas Pharmacy [1970] 77 ITR 276. The court, after considering the decision of the Supreme Court in the case of CIT v. S. Raman Chettiar [1965] 55 ITR 630 observed that it was not correct to state that filing of the second return was of no consequence at all while considering the liability of the assessee under Section 28(1)(c) of the old Act. All the facts and circumstances commencing with the filing of original return and ending with the assessment may be taken as relevant, considering the assessee’s liability for penalty under Section 28(1)(c) of the old Act.
19. In our opinion, the third return satisfies the conditions Lald down in the amnesty circulars. There is no evidence of detection of concealment by the Assessing Officer and, therefore, we hold that the penalty under Section 271(1)(c) of the Income-tax Act, 1961, has been wrongly imposed and levy of impugned amounts of penalty for the respective two years under appeal was wrongly confirmed by the CIT (Appeals). We direct that penalty be deleted for each of the two years under appeal.
20. In the result, the appeals by the assessee are allowed.