ORDER
Shri Nathuram, Accountant Member
1. These appeals preferred by the assessee are directed against the common order of the CWT(A) for the assessment years 1984-85 to 1986-87 confirming the penalty levied under section 18(1)(c) at Rs. 38,538, Rs. 24,080 and Rs. 54,572 respectively.
2. The common ground raised by the assessee for the years under consideration is as under :-
“The learned CWT(A) has erred in levying penalty under section 18(1)(c) of the Wealth-tax Act. In the facts and circumstances of the case he ought to have held that no penalty was leviable.”
3. The facts in brief are that there was a search in the case of the assessee on 12-6-1986 and during the course of search it was noticed that the assessee concealed particulars in respect of his wealth and investment made in construction work. Notices under section 17 of the Wealth-tax Act were issued and served on the assessee on 25-2-1988. The assessee in response to the notices so issued filed wealth tax returns on 31-3-1990 declaring the net wealth as under :-
1984-85 Rs. 15,78,952 1985-86 Rs. 24,78,874 1986-87 Rs. 39,35,996 The Assessing Officer (A.O.) completed the assessments for the years under consideration under section 16(3) of the Wealth-tax Act on 22-2-1991 determining the wealth as under :- 1984-85 Rs. 16,95,897 1985-86 Rs. 25,16,575 1986-87 Rs. 39,86,574
While completing the assessments the Assessing Officer initiated penalty proceedings under section 18(1)(c) of the Wealth-tax Act. In compliance to the show-cause notice issued it was explained before the Assessing Officer that the assessee has not concealed any particulars of wealth and hence no penalty is leviable. According to the Assessing Officer the wealth declared was much above the taxable limit but the assessee failed to file the returns of wealth as per provisions of section 14(1) of the Wealth-tax Act and in the process the assessee evaded the payment of wealth tax. The assessee filed the return only after the concealment of wealth was detected during search and notice under section 17 of the Wealth-tax Act were issued. This is a clear case of concealment of wealth within the meaning of section 18(1)(c). The Assessing Officer accordingly levied the impugned penalty in the years under consideration.
4. On appeal it was claimed on behalf of the assessee that neither Explanation 3 nor Explanations 4 and 5 are applicable to the facts and circumstances of the case. Difference in the wealth returned and wealth assessed is very negligible and the same does not call for levy of penalty for concealment. It was also argued that the quantum of penalty under sections 18(1)(a) and 18(1)(c) is more than the tax sought to be evaded and accordingly penalty cannot be levied in view of provisions of section 18(3A) of Wealth-tax Act. It was also claimed that since the penalty levied is more than Rs. 10,000 the Dy. CWT was not empowered to levy penalty without seeking approval of the higher authorities. The first appellate authority confirmed the penalty levied with the following observations :-
“I have carefully considered the submissions made by the learned counsel of the appellant. The first contention raised by the learned counsel of the appellant that there was no concealment by the appellant is not correct and justified because the appellant’s case is squarely covered under Explanation 5 to section 18(1)(c) of the Wealth-tax Act. It is pointed out that the appellant filed the return of wealth in response to notice under section 17 of the Wealth-tax Act issued after the search and seizure operation carried out in the case of the appellant. Therefore, it is evident that but for the search and seizure operation, the appellant would not have filed the return of wealth and disclosed the wealth consisting of investment in immovable properties. Regarding the objection of the learned counsel of the appellant that where the penalty exceeds Rs. 10,000 the Assessing Officer is required to take approval from the higher authorities, it is pointed out that this provision is applicable only in respect of the ITO and the ACIT, who are to seek approval from the DCIT. However, where the Assessing Officer is a DCIT, himself, then there is no provision for seeking any approval from the higher authorities. Therefore, this objection of the learned counsel of the appellant carries no weight. Therefore, the penalty proceedings have been rightly initiated by the Assessing Officer. Regarding the second contention that the penalty imposed is more than 5 times of tax sought to be evaded is not correct and justified, because the appellant has also taken into account the penalty imposed under section 18(1)(a) which is not correct. Regarding the third contention that the DCIT is not competent to impose penalty under section 18(1)(c), it is pointed out that as per the provisions of section 2(ca), the Assessing Officer includes the DCIT who is directed under clause (b) of sub-section (4) of section 20 of Income-tax Act to exercise or perform all or any of the powers and functions conferred on or assigned to the Assessing Officer under the Act. Therefore, keeping in view the facts and circumstances of the case, in my opinion, the Assessing Officer was fully justified in initiating penalty proceedings under section 18(1)(c) of the Wealth-tax Act. Therefore, the penalty orders passed by the Assessing Officer for all the three years under consideration are confirmed.”
The assessee is now in appeal before us against the finding so given by the first appellate authority.
5. The learned counsel for the assessee Shri S.N. Soparkar made a submission that the assessee has disclosed in the returns filed all necessary particulars about the assets owned and no asset was concealed therein. The only addition made by the Assessing Officer in the wealth declared is on account of valuation of dwelling units of Panchkalyani where while considering the valuation by rent capitalisation method the Assessing Officer did not allow 6% collection charges from the gross rent to work out the net maintainable rent. The Assessing Officer has otherwise not detected or made addition on account of any asset found to be concealed in the returns filed. He further made a submission that the Assessing Officer in the penalty orders passed has made a reference to the search carried out on 12-6-1986 as a result of which certain properties were detected and it is for this reason that he levied the penalty. He has further made a submission that the first appellate authority while confirming the penalty levied has held the view that the case is squarely covered under Explanation 5 to section 18(1)(c) of Wealth-tax Act. He submitted that Explanation 5 to section 18(1)(c) is not applicable to the facts of the present case. He has submitted that Explanation 5 to section 18(1)(c) could be invoked only where on search the assessee is found to be the owner of unaccounted money, bullion, jewellery or other valuable articles or things and the same have not been disclosed in the returns already filed or no returns had been filed before the date of search. The term valuable articles or things used in the Explanation refers only to movable assets which are capable of being in possession of the assessee and seizure by the department at the time of search whereas in the present case the wealth is mainly composed of immovable property which was in existence before the date of search and no search operations were required to search the same out within the meaning of section 132 of the Income-tax Act or 37A of the Wealth-tax Act. In support of the submission that the term ‘other valuable article or thing’ does not include immovable property, he has relied upon the decision of the Hon’ble Kerala High Court in the case of M.K. Gabriel Babu v. Asstt. Director of Income-tax [1990] 186 ITR 435 wherein it was held that the words in section 132 ‘other valuable article or thing’ used in association with the words ‘money, bullion, jewellery’ would not include in its ambit immovable properties as the same could not be seized. This judgment of the single judge was affirmed by the division Bench of the Kerala High Court in their judgment in CIT v. M.K. Gabrial Babu [1991] 188 ITR 464. A similar view has also been held by the Hon’ble Allahabad High Court in the case of Nand Kishore Mangharani v. Director [1994] 210 ITR 1071/77 Taxman 295. He has further submitted that search and seizure go together. Where an asset is known being in existence there is no need to search for and seize the asset. For such a proposition he has placed reliance on the decision of the Supreme Court in the case of CIT v. Tarsem Kumar [1986] 161 ITR 505/27 Taxman 305. The learned counsel has therefore pleaded that the facts of the present case do not attract the Explanation 5 of section 18(1)(c) and accordingly penalty levied is neither justified nor valid.
6. The learned D.R. on the other hand has made a submission that the assessee owned substantial amount of wealth both movable and immovable but failed to file the wealth tax return. It was during the course of search that the said assets came to light and it was only after a notice under section 17 was issued the assessee filed returns declaring the said assets. Had there been no search the assessee would have succeeded in evading the due wealth tax for the years under consideration. He further made a submission that the case is covered by Explanation 5 to section 18(1)(c) and thereunder the assessee is deemed to have concealed the particulars of assets within the meaning of section 18(1)(c) and the penalty levied is fully justified.
6.1 He has further argued that reading of the judgment of the Hon’ble Supreme Court in the case of Tarsem Kumar (supra) would transpire that it is not relevant to the issue involved. The issue before the Hon’ble apex court was entirely different i.e. whether income-tax authorities can seize the amount from custom authorities or not. This decision in no way advances the case of the assessee. Arguing further he has submitted that the decisions in CIT v. M.K. Gabrial Babu [1991] 188 ITR 464 (Ker.) and Nand Kishore Mangharani’s case (supra) have followed the decision of the Kerala High Court reported in M.K. Gabriel Babu v. Asstt. Director of Income-tax [1990] 186 ITR 435 and the same needs no elaborate discussion. As regards the decision reported in M.K. Gabriel Babu v. Asstt. Director of Income-tax [1990] 186 ITR 435 (Ker.) he has submitted that the Hon’ble High Court in that case had occasion to examine whether the immovable property can be seized under section 132 to the Income-tax Act and in that context they examined whether the words used in section 132 ‘other valuable article or thing’ can be construed so as to include the immovable property. The Hon’ble Court in that case was largely guided by the preceding words ‘money, bullion, jewellery’ while observing as under :-
“It is a well established canon of construction that words and phrases occurring in a statute are not to be taken in an isolated or detached manner dissociated from the context in which they are used. In other words, the meaning of words and phrases should take their colour from the context in which they appear. It is also a fundamental concept that, if a word occurs in association with other words which are well defined and understood, then that word takes colour from the words with which that word is associated.”
While so observing the Hon’ble Kerala High Court came to the conclusion that immovable property cannot come within the scope of seizure under section 132 of the Income-tax Act. The facts and situation in the matter of levy of penalty under section 18(1)(c) cannot be treated as identical situation and hence the interpretation assigned or conclusion arrived at in the aforecited cases are not at all applicable to the facts of the present case. He has further argued that it is a settled proposition of law that no word or finding from a judgment can be read in isolation and treated as the full judgment as has been held by the Hon’ble Supreme Court in the case of CIT v. Sun Engg. Works (P.) Ltd. [1992] 198 ITR 297-320/64 Taxman 442. Arguing further he submitted that it is a well established and accepted canon of interpretation that the words occurring in the statute are to be so interpreted as to advance the object of the statute so as not to allow the tax evader go scot free without paying penalty for concealing of assets which is an admitted fact in the present case. He has also invited attention to the Board’s circular No. 469 dated 23-9-1986 wherein scope of Explanation (5) to section 271(1)(c) has been discussed. He has also pointed out that the provisions of Explanation (5) to section 271(1)(c) are pari materia to that of Explanation (5) to section 18(1)(c) and the same were brought on the statute to overcome the difficulties faced by the department in imposing penalty where unaccounted assets were detected in the course of search as the assessee’s after such detection were disclosing the same in the returns filed subsequent to the search and were getting away with the plea that since no default of concealment has been committed with reference to the said assets in the return filed they could not be penalised. That frustrated the very object of the search operations carried out to punish the tax evaders. The learned D.R. has further argued that there is no scope for placing narrow interpretation on the words ‘article or thing’ occurring in Explanation (5). The term ‘other valuable article or thing’ is sufficiently wide to cover items of all kinds of property. The word ‘thing’ going by the dictionary means anything that may be subject of proprietary rights. He has also contended that money, bullion, jewellery or other valuable article or thing are collectively referred as ‘assets’ in Explanation (5) itself so also the provisions of wealth tax largely deal with immovable and other properties and they are subject-matter of wealth tax. Therefore to exclude immovable property from the ambit of such words as occurring in Explanation (5) would defeat and frustrate the very intent of the Legislature allow the assessees to go scot free without penal consequences even after detection made in search operations. He therefore pleaded that on given facts the lower authorities were fully justified in levying the penalty under section 18(1)(c) and the same requires no interference.
7. We have considered the facts and also gone through the material brought on record. The undisputed facts are that returns of wealth were required to be filed by 30-6-1984, 30-6-1985 and 30-6-1986 for the assessment years 1984-85, 1985-86 and 1986-87 respectively under section 14(1) of the Wealth-tax Act. The assessee however failed to file the returns within the due time. There was a search at the premises of the assessee on 12-6-1986 and according to the Assessing Officer it came to the notice of the department on search that the assessee concealed particulars of his wealth and investment in construction. A notice under section 17 of the Wealth-tax Act was issued and served upon the assessee on 25-2-1988 for the years under consideration and in response the assessee filed the returns of wealth on 31-3-1990 for all the years declaring net wealth as given above. The Assessing Officer completed the assessments under section 16(3) of the Wealth-tax Act on 22-2-1991 at a wealth little higher than that disclosed. The difference between the net wealth declared and net wealth assessed is on account of the fact that while valuing the properties on rent capitalisation method the Assessing Officer did not allow 6% collection charges from the gross rent for working out the net maintainable rent for each year. It would thus be seen from the facts given above that the assessee neither concealed the particulars of any asset nor furnished inaccurate particulars of any assets or debts in the wealth tax returns filed for the years under consideration and accordingly no case could be made out for concealment of any assets in the returns filed. From the details of the assets declared in the return filed for the assessment year 1986-87 we find that the assessee owned 7 chawls, residential house, dwelling units at Panchkalyani, apart from jewellery, cash, debts etc., and their value shown is as under :-
1. Value of two chawls Rs. 12,48,624 [other 5 chawls having been completed within 5 years claimed exemption under section 5(1)(iv)(c) of Wealth-tax Act]. 2. Dwelling units of Panchkalyani Rs. 22,61,676 3. Residential house Rs. 1,50,000 4. Land admeasuring 4491.18 sq. yds. covered under ULC Act. Rs. 22,456 5. Jewellery Rs. 2,08,615 6. Cash in hand Rs. 3,07,936 7. Debts Rs. 1,45,000 It would be seen from above that substantial portion of the net wealth declared represent value of immovable properties. We also note that the chawls as well as dwelling units of Panchkalyani are under tenancy and their value has been shown on rent capitalisation method. 8. The question that arises is whether the wealth so declared is covered by the deeming provisions as contained in Explanation (5) to section 18(1)(c) of Wealth-tax Act as claimed by the revenue for the purpose of levy of penalty under section 18(1)(c). Explanation (5) to section 18(1)(c) reads as under :- "Where in the course of a search under section 37A, 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 represent or form part of his net wealth, - (a) on any valuation date falling before the date of the search, but the return in respect of the net wealth on such date has not been furnished before the date of the search or, where such return has been furnished before the said date, such assets have not been declared in such return; or (b) on any valuation date falling on or after the date of the search, then notwithstanding that such assets are declared by him in any return of net wealth furnished on or after the date of the search, he shall, for the purpose of imposition of a penalty under clause (c) of sub-section (1) of this section, be deemed to have concealed the particulars of such assets or furnished inaccurate particulars of such assets." The Explanation (5) thus lays down the following requirements for treating the assets declared as deemed concealed assets within the meaning of section 18(1)(c) : 1. The assessee is found to be the owner of any money, bullion, jewellery or other valuable article or thing in the course of search. 2. The assessee claims that such assets represent of form part of his net wealth on any valuation date falling before the date of search. 3. The return in respect of said net wealth as on such valuation date has not been furnished before the date of search.
On satisfaction of such conditions the assessee is deemed to have concealed the particulars of such assets or furnished inaccurate particulars of such assets within the meaning of section 18(1)(c) even if the assets are declared by him in any returns of wealth furnished on or after the date of search. It has to be seen in the present case whether the immovable property disclosed fall within the ambit of term “other valuable article or thing” and whether the assessee was found to be the owner of such immovable property only during the course of search and not earlier. We would examine first whether the term used in Explanation (5) “other valuable article or thing” cover immovable property. Since this term has been used in section 37A of the Wealth-tax Act it has to be seen whether it is used in that section in the context of movable property or immovable property. As per section 37A(1)(c) where the competent authority in consequence of information in his possession has reason to believe that any person is in possession of any articles or things including money disproportionate to his known assets particulars of which will be useful for or relevant to any proceeding under the Act, he then authorises an officer to :
(i) enter and search any building, place, vessel, vehicle or aircraft where he has reason to suspect that such articles or things including money among others are kept,
(ii) search any person who is in the building, place, vessel, vehicle or aircraft if the authorised officer has reason to suspect that such person has secreted about his person any such article or thing including money;
(iii) seize any such money, bullion, jewellery or any other valuable article or thing found as a result of such search.
It is evident from above that the term ‘any valuable article or thing’ has been used in the section as is capable of keeping in a building, place etc., or is capable of being kept secreted on a person and also as capable of being seized. This is possible only if the term ‘any valuable article or thing’ represent only movable assets as immovable assets are incapable of being kept in a building or being secreted on a person or being seized. We further note that provisions of section 37A of Wealth-tax Act are pari materia with those of section 132(1) of the Income-tax Act and there is also similar term ‘any valuable article or thing’ has been used in addition to money, bullion, jewellery. The corresponding section 132(1)(c) also refers to money, bullion, jewellery or other valuable articles or things. The Hon’ble Delhi High Court in the case of L.R. Gupta v. Union of India [1992] 194 ITR 32 has opined on page 47 of the report that sub-clause (c) of section 132(1) pertains only to movable and not immovable assets. The Hon’ble Kerala High Court in the case of M.K. Gabriel Babu v. Asstt. Director of Income-tax [1990] 186 ITR 435 has also held the view that words in section 132 ‘other valuable article or thing’ used in association with the words ‘money, bullion, jewellery’ could not be said to include in its ambit immovable properties. This single bench decision has been affirmed by the Division Bench of the Hon’ble Kerala High Court in CIT v. M.K. Gabrial Babu [1991] 188 ITR 464. A similar view has also been taken by the Hon’ble Allahabad High Court in the case of Nand Kishore Mangharani (supra). It is a well settled principle of law that a word or phrase in a statute must be construed taking into account the context in which it is used. It becomes clear from the reading of section 132(1) of Income-tax Act and 37A of the Wealth-tax Act that the words ‘other valuable article or thing’ bring into its ambit only the movable assets and not the immovable assets. These words ‘other valuable article or thing’ used in Explanation (5) to section 18(1)(c) of Wealth-tax Act which is consequential to section 37A cannot be construed differently to include immovable assets. It rather also means only movable assets. In this view of the matter and having regard to the facts and ratio of the decisions cited (supra) we hold that the immovable property declared by the assessee is not covered by the term ‘other valuable article or thing’ as used in Explanation (5) to section 18(1)(c) of the Wealth-tax Act.
9. The other question that arises is whether the assessee was found to be the owner of the said immovable assets only during the course of search. We find from the details of the wealth declared that the said chawls and dwelling units in Panchkalyani had been constructed/acquired by the assessee in earlier years and the same were leased out to tenants. The assessee received rental income of Rs. 76,050 from dwelling units in Panchkalyani along during assessment year 1986-87 apart from the rental income received from chawls. It is not the case of the revenue that such renal income has not been disclosed by the assessee in earlier years. The existence of these assets was thus known to the revenue even in earlier years and accordingly it cannot be said that such immovable assets were found only during the course of search. The assessee might have also made investment in these properties and the same might have also been accounted for in the books of account in earlier years.
10. The said immovable property was thus in existence and known to the revenue in the period earlier to the search and the same also does not come within the ambit of term ‘other valuable articles or thing’. Thus one of the basic and important condition of Explanation (5) for deeming the said immovable assets as representing concealed assets is not satisfied and accordingly there is no jurisdiction for levy of penalty under section 18(1)(c) by invoking the provisions of Explanation (5) to section 18(1)(c) so far as immovable property involved is concerned.
11. The assessee has also declared movable assets in the shape of cash, jewellery and debts in the years under consideration. We note that the revenue has not made out a case to establish that the movable assets disclosed in the returns filed were found unaccounted wholly or partly during the course of search and as such the same fall in the ambit of Explanation (5) to section 18(1)(c) of the Wealth-tax Act nor there is any material placed before us to show that such assets were found unaccounted wholly or partly on search. Looking to these facts we assume that the movable assets disclosed in the returns filed were not found unaccounted during the course of search.
11.1 The scope of Explanation (5) to section 271(1)(c) has been explained and discussed as under in Board’s Circular No. 469 dated 23-9-1986 :-
“As per the existing Explanation 5 to section 271(1) of the Income-tax Act if at the time of search assets which are not recorded in the books of account are found, a taxpayer is liable to penalty for concealment even if he declares the full value of those assets as his income in the return filed after the search. This provision has been found to operate even in cases where the assessee has no intention to fabricate any evidence and he includes in his return the income out of which such assets have been acquired.”
The provisions of Explanation 5 to section 271(1)(c) are pari materia to that of Explanation (5) to section 18(1)(c) of Wealth-tax Act as mentioned above. We also note that the provisions of Explanation (5) to both of these sections 18(1)(c) of Wealth-tax Act and 271(1)(c) of Income-tax Act were brought on the statute book simultaneous with effect from 1-10-1984 by Taxation Laws Amendment Act 1984 to overcome the problem faced in levy of concealment penalty where unaccounted assets were found and detected during search but the same were disclosed in the returns filed subsequently. The aforecited Board’s circular would also apply mutatis mutandis to the cases under Wealth-tax Act and as per the circular Explanation (5) would be invoked in the cases of movable assets if the same are found unaccounted during the course of search. As the movable assets disclosed were not found unaccounted on search Explanation (5) of section 18(1)(c) of Wealth-tax Act would not apply to movable assets as well.
12. Considering all the facts and circumstances discussed above we do not consider this a fit case for levy of penalty under section 18(1)(c) of the Wealth-tax Act for the assessment years involved by invoking Explanation (5) thereto. We accordingly cancel the penalty levied vacating the orders of the lower authorities.
13. In the result the assessee’s appeals are allowed.
