Immunity from penalty as provided under Explanation 5 to Section 271(1)(c) despite non disclosure of manner in which income is derived

In the present case, admittedly the Assessment Year being 1988-89 and the search having taken place on 03.07.1987 the return of income was not due before 31.07.1988. Therefore, whether the income represented by the value of the asset was shown in the return of income or not became irrelevant once a declaration had been made about such income having not been disclosed till the date of search in the return of income to be furnished before the time specified in Section 139(1) of the Act as required by the earlier part of Exception No. 2. In fact, at the cost of repetition, it is required to be stated that the legislative intent and the scheme that flows from a plain reading of the provision makes it clear that in relation to search and seizure proceedings, for becoming entitled to immunity from levy of penalty the basic requirement is in case of Exception No. 1 relevant entry in the books of account or disclosure before the competent authority, and in relation to Exception No. 2 disclosure in the statement made under Section 132(4) of the Act. Disclosure or otherwise in the return of income post the date of search would not absolve an assessee from the deeming provision, namely, ‘deemed concealment’ once an assessee is found in possession of a valuable asset at the time of search. Hence, the contention raised on behalf of the Revenue that penalty is leviable under the main provision for concealment vis-a-vis the return of income does not merit acceptance.

In so far as the alleged failure on the part of the assessee to specify in the statement under Section 132(4) of the Act regarding the manner in which such income has been derived, suffice it to state that when the statement is being recorded by the authorized officer it is incumbent upon the authorized officer to explain the provisions of Explanation 5 in entirety to the assessee concerned and the authorized officer cannot stop short at a particular stage so as to permit the Revenue to take advantage of such a lapse in the statement. The reason is not far to seek. In the first instance, the statement is being recorded in the question and answer form and there would be no occasion for an assessee to state and make averments in the exact format stipulated by the provisions considering the setting in which such statement is being recorded, as noted by Allahabad High Court in case of CIT v. Radha Kishan Goel (supra). Secondly, considering the social environment it is not possible to expect from an assessee, whether literate or illiterate, to be specific and to the point regarding the conditions stipulated by Exception No. 2 while making statement under Section 132(4) of the Act. The view taken by the Tribunal as well as Allahabad High Court to the effect that even if the statement does not specify the manner in which the income is derived, if the income is declared and tax thereon paid, there would be substantial compliance not warranting any further denial of the benefit under Exception No. 2 in Explanation 5 is commendable.

Hence, the Tribunal was justified in coming to the conclusion that in so far as the value of diamonds was concerned, the assessee having made a declaration under Section 132(4) of the Act and paid taxes thereon, had fulfilled all the conditions for availing the benefit of immunity from levy of penalty as provided under Explanation 5 to Section 271(1)(c) of the Act. In absence of any infirmity in the order of Tribunal on this count the question referred is answered in the affirmative i.e. in favour of the assessee and against the Revenue.