ORDER
Y.K. Kapur, J.M.
1. The Revenue in this appeal has made a grievance to the order of the CIT(A) dt. 27th May, 1998, on the ground that the CIT(A) has erred in deleting the penalty imposed by the AO under Section 271(1)(c) of the IT Act.
2. The relevant facts available on the record are that the assessee for the asst. yr. 1995-96 filed a return of income on 30th Oct., 1995, declaring a total income of Rs. 2,24,920. The return was processed under Section 143(1)(a) and the same was finalized on 15th Jan., 1996, at the same amount as disclosed by the assessee. Subsequently, the record transpires that the case was selected for scrutiny and pursuant thereto notice under Section 143(2) of the IT Act was issued on 13th Aug., 1996. Consequent to the issuance of notice Shri V.K. Jain, CA appeared and attended the proceedings from time to time. During the course of investigation the AO found that in the computation of the total income furnished alongwith the return the assessee had shown a sale of 56000 shares of a company called Nilamber Holdings Ltd. from which after the indexing the assessee had shown a long-term capital gain of Rs. 20,18,600, The return so filed by the assessee disclosed that these capital gains were invested by the assessee in a residential property. According to the assessee as these gains were invested in the residential property, the same were exempted under Section 54F of the IT Act. The AO sought various details pertaining to the share transaction from the assessee. The inquiries so conducted by the AO on the information disclosed in the return filed depicted that the purchases of these shares of Nilamber Holdings Ltd. were made from one Maheshwari Sons having their office at 1748/55, Naiwala, Karol Bagh, New Delhi, while the sales were made to a party viz, Madhu Jain & Co., Room No. 13, BD Chamber, 10/54, DB Gupta Road, Karol Bagh, New Delhi. The AO conducted further inquiries and found that the said Madhu Jain & Co. was operating through the premises belonging to one Shri Satish Goyal, CA who was also dealing in the shares. The said Shri Satish Goyal admitted that Shri Hari Shankar Maheshwari was closely known to him as a friend. After operating for a few months, Mr. Maheshwari left for Aligarh was also the information furnished by Mr. Goyal. On being asked about the whereabouts of the, said Maheshwari Shri Satish Goel showed his inability on account of the whereabouts of Shri Harishankar Maheshwari. The AO after conducting the inquiries at Maheshwari Sons also made inquiries at Madhu Jain & Co. where also he found that the premises belonging to one Shri S.S. Sharma, CA who was not available and the attendant could not throw any light on the affairs of Madhu Jain & Co.
3. Further inquiries were conducted from the Office of the Registrar of Companies with regard to the addresses of the Directors of Nilamber Holdings Ltd. from the Registrar of the Companies. The address furnished for Nilamber Holdings Ltd, in the Office of the Registrar of the Companies was 7A/8, Channa Market, WEA, Karol Bagh, New Delhi, but when the AO deputed his inspector to find the whereabouts of the said company, the inspector reported that this premises also belonged to one CA, namely Mr. Karan S. Jasuja, but the said CA refused to say anything about the company, namely, Nilamber Holdings Ltd.
4. Caught in such a situation, the AO issued summons to the assessee under Section 131 of the IT Act on 10th Feb., 1997, calling upon the assessee to appear personally for giving statement of oath and the matter was posted for hearing on 13th Feb., 1997. A day before i.e.; on 12th Feb., 1997, Shri V.K. Jain, CA appeared and requested for time on the ground that the assessee was out of station. On the request of the assessee the matter was adjourned to 28th Feb., 1997. On 28th Feb., 1997, the assessee avoided appearance and deputed his representative to appear before the AO. The authorized representative informed the AO that the assessee has withdrawn his claim made under Section 54F of the IT Act and has shown the amount of capital gain as income from other sources. The learned authorized representative also submitted that full tax has been paid by the assessee on the income from other sources. On 4th March, 1997, the assessee filed a revised return in which income of Rs. 20,30,000 was declared as income from other sources. Along with the return challan of payment of tax was also furnished.
5. The AO accepted the revised return filed by the assessee and computed the income of the assessee at Rs. 22,59,930, While finalizing the assessment, the AO initiated penalty under Section 271(1)(c) of the IT Act by issuance of a notice to show-cause on 4th Sept., 1997, which was duly replied to vide assessee’s letter dt. 12th Sept., 1997. Though the copy of the reply filed by the assessee has neither been filed by the appellant nor by the Revenue, but the order of the AO reveals that the reply filed by the assessee proceeded in the direction that as the assessment has been computed at an amount of Rs. 22,59,930 and as the AO had accepted the withdrawal of claim under Section 54F as well as claim for long-term capital gain and as the AO added back the amount of total income assessed under Section 143(1)(a) i.e., Rs. 2,94,920 to the income disclosed in revised return the penalty proceedings in. these circumstances have wrongly been invoked.
6. The explanation furnished by the assessee did not find favour with the AO and the AO opined that the assessee had taken a calculated move that if he succeeds he saves the tax, but as he is caught and the inquiries have been conducted into various transactions after the case was selected by the Department for scrutiny, he in these circumstance was left with no option but to file the revised return. According to the AO the revised return was moved to avoid penalty and is not a bona fide act. In these circumstances he held the assessee liable for penalty under Section 271(1)(c) of the IT Act.
7. The assessee being not satisfied with the order of the AO filed an appeal before the CIT(A). Before the CIT(A) the assessee contended that there was no concealment and the penalty has wrongly been imposed. The explanation furnished by the assessee before the CIT(A) found favour and the CIT(A) proceeded to delete the penalty with the following observations :
“In the instant case, the assessee had not suppressed any material in the original return of income. He had declared the sale of 56,000 shares for a consideration of Rs. 22,17,600. He had also declared its cost of acquisition at Rs. 1,87,600. None of these declarations have been found false by the AO, rather he has accepted this fact in his assessment order. The law visualizes filing of more than one return prior to completion of assessment, if some omission is discovered by the assessee. It is the return on which assessment is completed, which would be relevant for the purpose of applicability of the. relevant law for imposition of penalty. This was so held in CIT v. 8. Sucha Singh Anand (1984) 149 ITR 143 (Del). Viewed from this angle also the penalty was unwarranted inasmuch as the AO had accepted in his assessment order the revised return. Considering all these aspects of the matter, particularly the fact that there was no detection of concealment prior to filing of the revised return, the penalty imposed by the AO is cancelled.”
8. The Revenue has a grievance to the order of the CIT(A) and is in appeal before us. At the threshold the learned Departmental Representative submitted that the CIT(A) has misdirected himself in making the observations which have been reproduced above. The case of the learned Departmental Representative was that the assessee has violated the provisions of Section 271(1)(c) of the IT Act, The learned Departmental Representative contended that in this case the assessee has not only violated the provisions of the substantive section, but also his case does not fall within the Expln. 1 of Section 271(1)(c). The learned Departmental Representative contended that the assessee is guilty of having furnished inaccurate particulars of income as mentioned in Section 271(1)(c). That apart, the explanation of the assessee that he has disclosed the material is also not correct. The learned Departmental Representative would contend that to draw the benefit of having filed a revised return it is incumbent on the assessee to show that the revised return was filed because there was a bona fide omission which led to discovery of wrong statement. The learned Departmental Representative would contend that though the filing of revised return is no bar, but the onus that some fact has been discovered in the original return which was wrong is on the assessee. The learned Departmental Representative contended that these ingredients are missing and the revised return was filed to cover up the lacunae and to justify the claims made in the original return. According to the learned Departmental Representative once the process of investigation into the income disclosed by the assessee in the first return has started, then even if the assessee files revised return the offence under Section 271(1)(c) would be deemed to have been taken place. According to the learned Departmental Representative there is a very thin silver lining which would protect the assessee and that silver lining is that the assessee before investigation into the truthfulness of the first return has started on his own to file the revised return and explains the bona fide of mistake that has occurred in the first return. It is only then the penalty under Section 271(1)(c) would not be invoked, otherwise it would be a different situation. Advancing further her arguments, the learned Departmental Representative contended that in this case the mala fide conduct of the assessee is writ large. She contended that in this case firstly the assessee disclosed a long-term capital gain in the original return filed. On the long-term capital gain so earned, the assessee again claimed exemption under Section 54F. The exemption under Section 54F, according to the learned Departmental Representative, is available to only those who strictly comply with the provisions of Section 54F, otherwise not. Admittedly, according to the learned Departmental. Representative the assessee did not fulfil the conditions requisite for the benefit under Section 54F, but despite that he made a claim, The assessee was, according to the learned Departmental Representative successful in its attempts and his assessment was finalized as an intimation under Section 143(1)(a) was sent. The learned Departmental Representative contended that had this case not come up in scrutiny, the assessee would not have paid the tax on the. amount and in the process would have gone scot-free. It was in these circumstances the learned Departmental Representative contended that the assessee is guilty of having furnished inaccurate particulars of his income. The learned Departmental Representative contended that after the case had come up for scrutiny, the AO had started investigating into the affairs of the assessee in the return disclosed and all the investigation having taken in a particular direction, according to the learned Departmental Representative the assessee felt that there is no savior and it was in these circumstances the assessee filed a revised return disclosing the amount claimed by him as income from long-term capital gain and on which income he claimed exemption under Section 54F. The learned Departmental Representative contended that if this is not a case in which penalty under Section 271(1)(c) is to be confirmed then there cannot be any other better case than this.
9. In support of her contention the learned Departmental Representative relied upon the judgment of the apex Court in K.P. Madhusudhanan v. CIT (2001) 251 ITR 99 (SC). At the threshold while referring to this judgment the learned Departmental Representative contended that the CIT(A) has relied upon the judgment in the case of Sir Shadilal Sugar Mills Ltd. and Anr. v. CIT (1987) 168 ITR 705 (SC) is not a good law as per the decision in (2001) 251 ITR 99 (SC) (supra).
10. The learned Departmental Representative drawing strength from the judgment referred to above submitted that the ratio of these judgments is that the onus that there is no concealment and that the assessee has not furnished inaccurate particulars of the income is on the assessee and in case he fails to prove that his failure to return correct particulars of his income was not due to any mala fide, he shall be deemed to have furnished inaccurate particulars of his income and consequently shall be liable to the penalty under the section. Having referred to this judgment, learned Departmental Representative submitted that in this case the assessee made a calculated attempt and having found himself in a lurch, filed a revised return, and thus is guilty of having furnished inaccurate particulars of his income. The learned Departmental Representative contended that the penalty has rightly been imposed as the assessee fails on both counts of (a) having violated the provisions of substantive section which says “furnished inaccurate particulars of his income”; and (b) of the Expln. 1 to Section 271(1)(c) which talks of “fails to furnish an explanation or explanation furnished is false.”
11. Another, judgment on which the learned Departmental Representative placed reliance was the one in the case of Amjad Ali Nazir Ali v. CIT (1977) 110 ITR 419 (All). The learned Departmental Representative in ‘ support of her contention also relied upon the judgment of the Punjab & Haryana High Court in the case of CIT v. Dr. Sujan Singh Mallik (1989) 178 ITR 643 (P&H). The learned Departmental Representative relied upon the judgment of the Guwahati High Court in the case of F.C. Aggarwal v. CIT (1976) 102 ITR 408 (Gau) which judgment of the High Court was confirmed by the Supreme Court in G.C. Agarwal v. CIT (1991) 186 ITR 571 (SC). The submission of the learned Departmental Representative with respect to the judgment relied upon by the assessee and placed on record was that they advance the case of the Revenue and not the assessee.
12. To the arguments raised by the learned Departmental Representative, learned authorized representative supported the order of the CIT(A) and submitted that the penalty so imposed by the AO was rightly deleted by the CIT(A). The submission of the learned authorized representative was that as the assessee had filed the revised return prior to the completion of the assessment within the meaning of Section 139(5) of the IT Act, penalty under Section 271(1)(c) could not be imposed and has, therefore, rightly been deleted by the CIT(A), Another submission of the learned authorized representative was that in this case the assessee has not concealed his income or the particulars of income. The case of the learned authorized representative was that the assessee had disclosed in the original return filed the sale and purchase of shares, of Nilamber Holdings. Ltd. It was contended that the capital gain after indexing was shown in the original return filed. That apart, the learned authorized representative contended that the amount so earned by way of long-term capital gain was shown to have been invested in the property and exemption was claimed. It was submitted that the assessee having disclosed the entire particulars of his income in the original return the case of the assessee was that by no stretch of imagination can it be said that the assessee is guilty of having furnished inaccurate particulars of his income. It was in this background he suggested that if later on the heads of income have been changed it would not be a case of concealment of income or furnishing inaccurate particulars of the income because income is not only to be taxed but taxed under a right head. The submission of the learned authorized representative was that the income has to be assessed under the heads and merely because the heads of income have been changed would not be a ground for imposition of the penalty, The other submission of the learned authorized representative was that the assessee had filed a revised return on his own and since the act of the assessee was voluntary, the provisions of Section 271(1)(c) are not attracted and, therefore, it was contended that the penalty has rightly been imposed (cancelled). The learned authorized representative for the assessee relied upon the following judgments:
(i) CIT v. Sucha Singh Anand (1984) 149 ITR 143 (Del)
(ii) J.P. Sharma & Sons v. CIT (1985) 151 ITR 333 (Raj)
(iii) CIT v. J.K.A. Rajappa Chettiar (1985) 153 ITR 215 (Mad)
(iv) CIT v. Dr. (Km.) M. Dubey (1988) 171 ITR 144 (MP)
(v) CIT v. Sri Rajram Cloth Stores (1995) 214 ITR 262 (Mad)
(vi) Addl CIT v. Manjeet Engineering Industries (1985) 154 ITR 509 (Del)
13. We have heard the parties and taken ourselves through the record. In this case the question which needs to be examined is whether the second return was filed bona fide or not. If we come across the facts which points out that the second return was filed bona fide, then obviously we will have to agree that the penalty cannot be imposed, but if the answer to this question is in the negative, then obviously the situation would be different. To answer this question we will have to refer to the material on the record which depicts the crystallized facts in the following manner.
14. The crystallized facts in this case are that the assessee filed two returns one original and one revised. In the original return filed the assessee disclosed having earned capital gains from the shares and these capital gains according to the assessee in the original return filed were invested in accordance with the provisions of Section 54F of the IT Act. The assessee therefore claimed exemption because of the beneficial provisions of Section 54F the IT Act. The assessment in this case was framed under Section 143(1)(a). This is not in dispute. The assessee’s case was later on selected for scrutiny. The AO started investigation into the bona fides of the share transactions, from which the assessee had made a claim for long-term capital gain. The direction of the investigation as disclosed in the assessment order and have been referred to by the learned Departmental Representative during the course of her submissions recorded above pointed against the bona fides of the assessee as is evident from the fact that the existence of the persons from whom shares were purchased and sold were not found and the existence of the company’s whereabouts had become doubtful. To find the truth and get first hand information, the AO issued summons to the assessee under Section 131, the purpose for which the AO issued summons under Section 131 of the IT Act. Summons were served, representative appeared before the AO. The authorised representative sought time for the appearance of the assessee before the AO for recording of the statement pursuant to summons under Section 131 of the IT Act which was granted. On the next date, before the AO the assessee did not appear again, but sent his representative who informed the AO that the assessee has withdrawn the claim of long-term capital gain as well as the claim of exemption under Section 54F and has disclosed the entire income i.e., the sale price of shares minus the investment as income from other sources. On this statement the assessment was framed and the said amount of the income from other sources which amounted to Rs. 20,30,800 was added to the already disclosed income with respect to which proceedings were completed under Section 143(1)(a).
15. The assessee says that as he had filed the revised return the penalty proceedings under Section 271(1)(c) cannot be invoked.
To invoke the provisions of Section 271(1)(c) in cases where the revised return is filed all that one needs to see is the point of time at which the revised return is filed and whether the revised return is filed bona fide or mala fide. In this case the revised return is filed after substantial investigation have been made in the affairs of sale and purchase of shares disclosed in the first return. Once the substantial investigation have been made in the first return and the assessee was cornered it was at that stage when the revised return was filed. We at this stage can say in the background which have been disclosed above and in the light of the legal precedent which we shall be referring a little later that the revised return in this case was filed after the AO had carried out substantial investigation, It was not the case that the assessee had discovered some new material or a mistake as is contemplated under Section 139(5) of the IT Act. Everything was known to the assessee. He was sitting pretty after he had received intimation under Section 143(1)(a). There was no discovery of any omission or wrong statement. When we say so, we say so on the strength that when the assessee claimed long-term capital gain he took shelter under Section 54F to avoid payment of tax on long-term capital gain. The assessee was conscious of provisions of Section 54F because he has recorded in the return filed. Section 54F we must say is applicable only to those situations which was enshrined therein and the cases are that the assessee makes an investment in residential house the amount of long-term capital gain as contemplated under Section 54 or construct a property within a time-frame mentioned therein. In this case neither the assessee had constructed a residential house nor the assessee had purchased a residential house. None of the conditions of Section 54F were complied with but despite that he still made a claim for exemption to which he was not eligible but when the AO had started investigating into the truthfulness of the affairs of claim in the original return which assessee knew he would not be in a position to substantiate, he filed a revised return. We, therefore, say that filing of the revised return was not a voluntary act or to put it differently was not bona fide filed by the assessee, but it was intentionally done to cover up the lacunae or the defaults committed in the original return.
We may further observe that it is worth noting here that in the original return the assessee had shown income as capital gains on sale of shares. But in the revised return he declared the income under the head income from other sources without explaining the reasons and the source. This was done because the extensive enquiries and investigations made by AO as mentioned above had revealed that the parties were not available and the transactions were not genuine and provable. The assessee had falsely shown the income under capital gains so that he could claim exemption under Section 54F and get away without paying any tax thereon while having advantage of explaining investment in property. The clever method adopted by the assessee to hoodwink was dangerous and had to be viewed seriously. But when he had been cornered and the AO on extensive enquiries collected prima facie evidence to establish the claim of capital gains and claim of exemption under Section 54F as false, he filed the revised return not only withdrawing exemption under Section 54F but taking u-turn about the head of income from capital gains to other sources. These facts also clearly prove the false and mala fide intention of the assessee in showing income as capital gains and claiming exemption under Section 54F in the original return.
16. We may, at this stage, refer to some observations of the Allahabad High Court relied upon by learned Departmental Representative in the case of Amjad Ali, Nazir Ali v. CIT (supra) wherein the Allahabad High Court has observed :
“The position would, however, be different where the omission or the wrong statement in the return was not deliberate. In such cases, where the assessee discovers any wrong statement, the Act permits the filing of the revised return. The discovery of the omission or wrong statement may be, by the assessee himself, or may come to the knowledge of the assessee during assessment proceedings, even at the pointing out of the ITO provided that the assessee was unaware of the omission or the wrong statement at the time of the filing of the original return.”
In view of the paragraph reproduced above when the ratio of judgment is applied to the facts of the present case we fail to understand as to how can it be claimed by the assessee that the revised return was filed voluntarily.
17. Another judgment which supports the view we take and relied upon by the learned Departmental Representative is the one in the case of CIT v. Dr. Sujan Singh Mallik (supra). In this case the assessee who was a doctor by profession filed his return of income. Various sources of income were disclosed in the return filed but no income was disclosed from the private practice. The AO on the basis of the original return filed, deputed an Inspector to visit the premises of the doctor from where he found that the doctor was carrying out private practice. On the happening of the visit of the Inspector the doctor revised the return. The AO completed the assessment to initiate the penalty under Section 271(1)(c) of the IT Act. The matter travelled to the High Court and the Punjab & Haryana High Court observed that the revised return filed after the Inspector of Income-tax discovered the concealed income would not save the assessee from the agony of provisions of Section 271(1)(c) of the IT Act. Another judgment on which we may refer to and relied upon by the learned Departmental Representative is the one in the case of G.C. Aggarwal v. CIT (supra) wherein the apex Court confirmed the view of the Guwahati High Court holding that if the assessee fails to discharge the burden cast upon him that the omission in the original return was bona fide the penalty under Section 271(1)(c) of the IT Act would be imposed.
18. The learned authorized representative for the assessee has relied upon the judgment of the Delhi High Court in the case of CIT v. Sardar Sucha Singh Anand (supra) which was also a case of filing a revised return. The jurisdiction of the High Court held that there is no bar to an assessee filing a revised return under Section 139(5) of the IT Act provided the assessee discovers any omission or wrong statement therein, but it has been held that if there is a deliberate omission or misstatement it will be the very first return which will be relevant for the purpose of imposition of penalty.
19. We may refer to the observations of Delhi High Court in this regard which has been reproduced for ready reference:
“We may examine this question from yet another angle. The return of income is required to be filed by virtue of Section 139(1) or Section 139(2) of the Act. It is provided in Section 139(5) of the Act that if any person having furnished a return under Sub-section (1) or (2) discovers any omission or wrong statement therein, he may furnish a revised return at any time before the assessment is made. Therefore, the law visualizes filing of more than one return prior to the completion of assessment if such an occasion arises. If the subsequent return/returns filed by the assessee only correct some omission of wrong statement inadvertently made or not made deliberately in the first return, it is the return on which the assessment is completed which would be relevant for the purpose of applicability of the relevant law for imposition of penalty. Otherwise, if there is any deliberate omission or misstatement, it will be the very first return which would be relevant for imposition of penalty. We are fortified in taking this view by the decision in Amjad Ali Nazir Ali v. CIT (supra).
20. A perusal of the aforesaid paragraph reveals that in the revised return the assessee must explain the omission or the wrong statement. It is only then he will be protected from the penalty provision of Section 27l(1)(c). In the light of the fact that we have held that there was a deliberate act on the part of the assessee in not filing the correct particulars we are afraid as to how can the assessee draw any benefit from the said judgment. Another judgment on which the assessee, placed reliance is the one in the case of J.P. Sharma v. CIT (supra) which was also a case of a revised return, but in this case the Court held that the filing of the revised return was bona fide and, therefore, the penalty was not imposed. We must say that this judgment also does not help the assessee.
21. Another judgment on which the assessee placed reliance is the one in case J.K.A. Rajiappa Chettiar (supra). In this case the assessee filed a return of income disclosing a particular income. Before the return could be taken up for finalisation by the AO, the assessee made a voluntary disclosure under Section 68 and filed a revised return disclosing higher incomes and the assessment were framed under revised incomes and the penalty initiated under Section 271(1)(c) of the IT Act. which was deleted by the Tribunal on the ground that the AO had not taken any steps to pursue the original return to institute any inquiry to find out if those returns were true or false at the time assessee making voluntary disclosure and filing revised return. The matter travelled to the High Court and the High Court upheld the order of the Tribunal with the following observations:
“The pertinent inquiry under Section 271(1)(c) is not whether the return was true or false, but whether the assessee, in the course of any assessment proceedings had concealed particulars of his income. As, in the instant case, the ITO had not initiated any inquiry for assessment on the basis of original returns and the assessment proceedings were only on the basis of revised returns and in the said assessment proceedings the attempt of both the assessee and the Department was to estimate the assessee’s profit from the sale of licence the Tribunal was right in its view that there was no concealment by the assessee justifying the levy of penalty.”
22. A perusal of the said judgment reveals that; if no steps have been taken by the AO to investigate into the affairs filed in the first return and the assessee revised his return before the investigation, then the provisions of Section 271(1)(c) would not be attracted. But, in the case in hand the AO had carried out substantial investigation into the affairs of the assessee disclosed in the first return and the assessee having been cornered proceeds to revise, his return, We fail to appreciate as to how this judgment applies to the assessee. To the contrary, we must say this judgment supports the case of the Revenue who have imposed ‘a’ penalty under Section 271(1)(c) of the IT Act
23. Another judgment on which the reliance has been placed was in the case of CIT v. Dr.(Km.) M. Dubey (supra). In this case the assessee was in a position to explain that she, had bona fide made some mistake in the return filed and that is how the High Court proceeded to delete the penalty imposed by the authorities below. We, in the case in hand, have held that the action of the assessee in revising his return was not bona fide and, therefore, we fail to understand as to how the judgment relied upon by the assessee advances his case.
24. Another judgment on which the assessee placed reliance was the one reported in (1995) 214 ITR 262 (Mad) (supra) which was also a case of bona fide omission. Even this judgment does not help the assessee.
25. In view of the discussion above, we, therefore, have no hesitation in saying that if the authorities below carry out certain investigations into the affairs of the assessee on the basis of the first return filed and the assessee, after the investigations by the authorities below, revises his return, but is unable to bona fide explain the discovery of any omission or wrong statement that led to the filing of revised return under Section 139(5), the penalty under Section 271(1)(c) shall be imposed.
26. Consequent to the above, we have no hesitation in saying that the assessee had intentionally and deliberately filed inaccurate particulars of his income in the original return filed and, therefore, the penalty under Section 271(1)(c) of the IT Act has rightly been imposed.
27. The appeal filed by the Revenue succeeds and is hereby allowed.