The Judgment of the Court was delivered by

M.Y Eqbal, J.:— The Commissioner of Income Tax, Bihar-II, Ranchi filed two applications under Section 256(1) of the Income-tax Act, 1961 for the assessment years 1984–85, 1985–86 and prayed to the Appellate Tribunal to refer the question arising out of the order of the Tribunal for answer by this Court. Hence, after setting out the relevant facts, the Tribunal solicited the opinion of this Court on the following question of law:—

“Whether on the facts and in the circumstances of the case the Hon'ble Members of the Tribunal were justified in deleting the penalty of Rs. 2, 97, 631/-?

2. The brief facts of the case are that the assessee was assessed under the status of individual. He is the proprietor of M/s. S.R & Co. The assessee maintained mercantile system of accountancy and the accounting period is the financial year ending on 31st March of each year. For both the assessment years, the assessments were completed under Section 143(3) of the Income-tax Act on 19-3-1985 and 20-124985. A search and seizure was conducted under Section 132 of the Act and in course of the said search operation, certain books of account papers relating to business of the assessee were found/and seized. The said books of account pertained to the financial years 1985–86 and 1986–87. Certain loose-sheets including sales, etc. for the financial years 1983–84 onwards were also seized. The transactions made through bank accounts were found to have mostly kept out of the books of account. After the aforesaid search and seizure carried out on 26-84986, the assessee filed revised return on 29-9-1986 under the Amnesty scheme disclosing additional income of Rs. 4,50,000/- and Rs. 2,50,000/- respectively for the assessment years 1984–85 and 1985–86. The assessments were regularized by getting service of notice under Section 148 of the Act and the assessments were completed for both the years on, disclosed amount only. Though the assessments were completed on the additional amount disclosed by the assessee, but it was noted by the Assessing Officer from the various incriminating documents that the assessee was carrying on business outside the books of account even in fact bank account with initial deposit of Rs. 3.50 lacs was brought to light. The Assessing Officer particularly noted that the assessee had accounted transactions for sales for more than Rs. 21 lakhs and Rs. 50 lakhs respectively during the previous years relevant to the assessment years 1984–85 and 1985–86. The Assessing Officer, accordingly, estimated the turnover of Rs. 30 lakhs and Rs. 10 lakhs for those previous years and also worked out the income of Rs. 15000/- and Rs. 30000/- by way of commission. Accordingly, the Assessing Officer recorded a finding that the assessee resorted to concealment of income through these transactions made outside the books of account. Consequently, while regularizing the return by issuing notice under Section 148 of the Act, it was decided for initiation of penalty proceedings under Section 271(1)(a) and 271(1)(c) of the Act.

3. In the penalty proceedings notices were issued to the assessee who in reply to the show Cause notice, filed a common explanation for the financial years 1984–85 and 1985–86 wherein it was stated that no penalty is imposable under Section 271(1)(c) as the revised return filed by him has been accepted. The Assistant Commissioner of Income Tax decided the penalty proceedings after giving full opportunity of hearing. The Authority came to the conclusion that furnishing of return showing additional income of Rs. 2.5 lakhs Was not a voluntary act on the part of the assessee. In fact, since investigation was started after the search and some incriminating papers and documents were seized, the assessee filed another return disclosing the additional income. Accordingly, penalty was imposed. The said order was challenged by filing appeal. The Commissioner of Income Tax (Appeals) while affirming the order held that the conduct of the assessee disclosing the peak credit for bank deposit as his income was enough to show that he concealed the income. The appellate authority also came to the conclusion that filing of the revised return was not going to absolve the assessee from his liability under Section 271(1)(c) of the Act as that was not voluntary one but was filed owing to search and seizure operation. Aggrieved by the said order, the assessee filed appeal before the Income Tax Appellate Tribunal. The appellate Tribunal allowed the appeal and set aside the order of penalty.

4. Mr. Binod Poddar learned counsel appearing for the assessee, firstly submitted that the Income-tax Appellate Tribunal, being the highest fact-finding body, came to a finding that the Revenue have failed to prove the very basic thing that the disputed amount, in fact, represented the income of the assessee. The Tribunal further stated that there is no evidence that the assessee has mens rea in his mind to in???ract the provisions of Section 271(1)(c) of the Act. Learned counsel submitted that some concrete and positive evidence is required to prove that the assessee has failed to file the correct income and has acted with ill-motive having mens rea in his mind. Learned counsel submitted that after the search and seizure was conducted, the assessee, just for his peace of mind, settled the dispute voluntarily, owned the transaction recorded in the said documents and filed revised return and surrendered additional income. In that view of the matter, the question of imposing further penalty under Section 271(1)(c) of the Act does not arise. Learned counsel relied upon the decision of the Supreme Court in the case of Commissioner of Income Tax, Indore v. Suresh Chandra Mital [(2003) 11 SCC 729], in the case of K.C Builders v. Assistant Commissioner of Income-tax [(2004) 2 SCC 731] and the case of Sir Shadilal Sugar and General Mills Ltd. v. Commissioner of Income-tax, Delhi (SC) [(1987) 4 SCC 722] : (AIR 1987 SC 2008) and the Commissioner of Income Tax v. Ashim Kumar Agarwal (High Court of Jharkhand) [(2005) 275 ITR 48] : (2006 Tax LR 590).

5. On the other hand, Mr. Jhunjhunwala, learned counsel appearing for the Revenue submitted that the revised return filed by the assessee was not voluntary, rather it was after search and seizure was conducted by the Department. The revised return filed by the assessee cannot be taken to be under Section 139(5) of the Act. Learned counsel submitted that the Appellate Tribunal has not correctly appreciated the facts of the case, relevant provision of the Act and the ratio decided by the Supreme Court and different High Courts.

6. Before appreciating the rival contentions made by the learned counsel appearing for the parties, I would first like to discuss some of the relevant provisions of the Income-tax Act, 1961.

7. Chapter XIV of the Income-tax Act, 1961 deals with the procedure for assessment in the event return is filed. Section 139 provides that every person, if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax, shall furnish a return of his income or the income of such other person in the manner prescribed in the Act. The relevant sub-sections of Section 139 as stood at the relevant time, read as under:—

“(1) Every person, if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax, shall furnish a return of his income or the income of such other person during the previous year in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed—

(a)……..

(b)………

(1A) to (4)…….

(5) If any person having furnished a return under sub-section (1) or sub-section (2), discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the assessment is made.

(6) The prescribed form of the returns referred to in sub-sections (1), (2) and (3) shall, in such cases as may be prescribed, require the assessee to furnish the particulars of income exempt from tax, assets of the prescribed nature and value and belonging to him, expenditure exceeding the prescribed limits incurred by him under prescribed heads and such other outgoings as may be prescribed.

(6A) ……..”

8. From bare reading of the aforesaid provisions, it is clear that under the old provisions of sub-section (5) of Section 139, an assessee, having furnished a return under sub-section 1(a) or (2), may file revised return at any time before the assessment was made. This would be up to two years from the end of the relevant assessment year. The Amending Act 1987 has substituted a new sub-section (5) whereby limit of period for filing revised return has also been reduced to one year from the end of the relevant assessment year. Reference to sub-section (2) has also been omitted. It has also been provided that in respect of assessment years 1988–89 or any earlier assessment year, revised return can still be filed within two years from the end of relevant assessment year.

9. By Finance Act, 1985, some amendments were brought in Section 139 whereby some of the sub-sections were substituted. Section 132 as it stood in the financial year lays down the search and seizure and also the procedure to be followed for the search and seizure contained under that Section.

10. Section 271 of the Income-tax Act as stood during the relevant year is worth to be quoted for the purposes of answering the reference. The Section reads as under:—

“271. Failure to furnish returns, comply with notices, concealment of income, etc.—

(1) If the Income-tax Officer or the Appellate Assistant Commissioner [or the Commissioner (Appeals)] in the course of any proceedings under this Act, is satisfied that any person—

(a) has without reasonable cause failed to furnish the return of total income which he was required to furnish under sub-section (1) of Section 139 or by notice given under sub-section (2) of Section 139 or Section 148 or has without reasonable cause failed to furnish it within the time allowed and in the manner required by sub-section (1) of Section 139 or by such notice, as the case may be, or

(b) has without reasonable cause failed to comply with the notice under sub-section (1) of Section 142 or sub-section (2) of Section 143 [or fails to comply with a direction issued under sub-section (2A) of Section 142] or

(c) has concealed the particulars of his income or furnished inaccurate particulars of such income,

he may direct that such person shall pay by way of penalty,—

(i) in the cases referred to in clause (a),—

(a) in the case of a person referred to in sub-section (4A) of Section 139, where the total income in respect of which he is assessable as a representative assessee does not exceed the maximum amount which is not chargeable to income-tax, a sum not exceeding one per cent of the total income computed under this Act without giving effect to the provisions of Sections 11 and 12, for each year or part thereof during which the default continued;

(b) in any other case, in addition to the amount of the tax, if any, payable by him, a sum equal to two per cent of the assessed tax for every month during which the default continued;

Explanation.— In this clause, “assessed tax” means tax as reduced by the sum, if any deducted at source under Chapter XVIIB or paid in advance under Chapter XVIIC;

(ii) in the cases referred to in clause (b), in addition to any tax payable by him, a sum which shall not be less than ten per cent, but which shall not exceed fifty per cent of the amount of the tax, if any which could have been avoided if the income returned by such person had been accepted as the correct income;

(iii) in the cases referred to in clause (c), in addition to any tax payable by him, a sum which shall not be less than ten per cent, but which shall not exceed twice, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or the furnishing of inaccurate particulars of such income:

Provided that, if in a case falling under clause (c), the amount of income (as determined by the Income-tax Officer on assessment) in respect of which the particulars have been concealed or inaccurate particulars have been furnished exceeds a sum of twenty-five thousand rupees, the Income-tax Officer shall not issue any direction for payment by way of penalty without the previous approval of the Inspecting Assistant Commissioner.

Explanation 1.— Where in respect of any facts material to the computation of the total income of any person under this Act,—

(A) such person fails to offer an explanation or offers an explanation which is found by the Income-tax Officer or the Appellate Assistant Commissioner [or the Commissioner (Appeals)] to be false, or

(B) such person offers an explanation which he is not able to substantiate,

then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purpose of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed:

Provided that nothing contained in this Explanation shall apply to a case referred to in clause (B) in respect of any amount added or disallowed as a result of the rejection of any explanation offered by such person, if such explanation is bona fide and all the facts relating to the same and material to be computation of his total income have been disclosed by him.

Explanation 2.— Where the source of any receipt, deposit, outgoing or investment in any assessment year is claimed by any person to be an amount which had been added in computing the income or deducted in computing the loss in the assessment of such person for any earlier assessment year or years but in respect of which no penalty under clause (iii) of this sub-section had been levied, that part of the amount so added or deducted in such earlier assessment year immediately preceding the year in which the receipt, deposit, outgoing or investment appears (such earlier assessment year hereafter in this explanation referred to as the first preceding year) which is sufficient to cover the amount represented by such receipt deposit or outgoing or value of such investment (such amount or value hereafter in this Explanation referred to as the utilized amount) shall be treated as the income of the assessee, particulars of which had been concealed or inaccurate particulars of which had been furnished for the first preceding year, and where, the amount so added or deducted in the first preceding year is not sufficient to cover the utilized amount, that part of the amount so added or deducted in the year immediately preceding the first preceding year which is sufficient to cover such part of the utilized amount as is not so covered shall be treated to be the income of the assessee, particulars of which had been concealed or inaccurate particulars of which had been furnished for the year immediately preceding the first preceding year and so on, until the entire utilized amount is covered by the amount so added or deducted in such earlier assessment years.

Explanation 3.— Where any person who has not previously been assessed under the Indian Income-tax, 1922 (11 of 1922), or under this Act, fails, without reasonable cause, to furnish within the period specified in sub-clause (iii) of clause (a) of sub-section (1) of Section 153 a return of his income which he is required to furnish under Section 139 in respect of any assessment year commencing on or after the first day of April, 1974, and until the expiry of the period aforesaid, no notice has been issued to him under sub-section (2) of Section 139 or Section 148 and the Income-tax Officer or the Appellate Assistant Commissioner [or the Commissioner (Appeals)] is satisfied that in respect of such assessment year such person has taxable income then, such person shall, for the purposes of clause (c) of this sub-section, be deemed to have concealed the particulars of his income in respect of such assessment year, notwithstanding that such person furnishes a return of his income at any time after the expiry of the period aforesaid in pursuance of a notice under Section 148.

Explanation 4.— For the purposes of clause (iii) of this sub-section, the expression “the amount of tax sought to be evaded”,—

(a) in any case where the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished exceeds the total income assessed, means the tax that would have been chargeable on the income in respect of which particulars have been concealed or inaccurate particulars have been furnished had such income been the total income;

(b) in any case to which Explanation 3 applies, means the tax on the total income assessed;

(c) in any other case, means the difference between the tax on the total income assessed and the tax that would have been chargeable had such total income been reduced by the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished.

Explanation 5.— Wherein 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 (hereinafter 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 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 Commissioner before the said date.

From 1-10-84; TLA Act, 84: Penalty: Assets seized on search: Burden of proof: Explanation 5 has been inserted by TLA Act, 84 w.e.f 1-10-84. The effect of the amendment is that any asset seized on a search will be treated as concealed income even if it is claimed to have been acquired out of income of a previous year unless such income is, or the transactions resulting in such income have been, recorded in the books of account or such income is otherwise disclosed before the search to the Commissioner.

(1A) Where any penalty is imposable by virtue of Explanation 2 to sub-section (1), proceedings for the imposition of such penalty may be initiated notwithstanding that any proceedings under this Act in the course of winch such penalty proceedings could have been initiated under sub-section (1) have been completed.

(2) When the person liable to penalty is a registered firm or an unregistered firm which has been assessed under clause (b) of Section 183 then notwithstanding anything contained in the other provisions of this Act, the penalty imposable under sub-section (1) shall be the same amount as would be imposable on that firm if that firm were an unregistered firm.

(3) Notwithstanding anything contained in this section:—

(a) no penalty for failure to furnish the return of his total income under sub-section (1) of Section 139 shall be imposed under sub-section (i) on an assessee whose total income does not exceed the maximum amount not chargeable to tax in his case by one thousand five hundred rupees:

(b) where a person has failed to comply with a notice under sub-section (2) of Section 139 or Section 148 and proves that he has no income liable to tax, the penalty imposable uniier sub-section (1) shall not exceed twenty-five rupees;

(c) no penalty shall be imposed under sub-section (1) upon any person assessable under clause (i) of sub-section (1) of Section 160, read with Section 161, as the agent of a non-resident for failure to furnish the return under sub-section (1) of Section 139;

(d) the penalty imposed under clause (i) of sub-section (1) and the penalty imposed under clause(iii) of that sub-section, read with Explanation 3, thereto, shall not exceed in the aggregate twice the amount of the tax sought to be evaded:

Provided that nothing contained in clause (a) or clause (b) shall apply to a case referred to in sub-clause (a) of clause (i) of sub-section (1).

(4) If the Income-tax Officer or the Appellate Assistant Commissioner [or the Commissioner (Appeals)] in the course of any proceedings under this Act, is satisfied that the profits of a registered firm have been distributed otherwise than in accordance with the share of the partners as shown in the instrument of partnership on the basis of which the firm has been registered under this Act, and that any partner has thereby returned his income below its real amount, he may direct that such partner shall, in addition to the tax, if any; payable by him, pay by way of penalty a sum not exceeding one and half times the amount of tax which has been avoided, or would have been avoided if the income returned by such partner had been accepted as his correct income; and no refund or other adjustment shall be claimable by any other partner by reason of such direction.

(4A) and (4B) [Omitted by TLA Act, 1975, w.e.f 1-10-75.]”

11. Prior to Taxation Laws (Amendment Act), 1984 in Section 271, an assessee, who was found to be the owner of any money, bullion, jewellery, etc. recovered during the course of a search, was entitled to explain that such assets were acquired by him by utilizing his income relating to any previous year, whether it ended before the date of search or after the date of the search. By doing so, the assessee could have escaped the liability to penalty under Section 271(1)(c). In order to plug the aforesaid loophole, Explanation 5 has been inserted by the Taxation Laws (Amendment Act), 1984 with effect from 1st October, 1984. The newly inserted Explanation 5 enacts deeming provision and have application to a situation 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, and the assessee claims that such assets have been acquired by him by utilizing wholly or in part, his income for any previous year which has already been ended before the date of the search or which is to end on or after the date of the search, then in such a situation, such income declared by him in furnishing returns shall be deemed to have been concealed the particulars of his income or furnished inaccurate particulars of such income within the meaning of Section 271(1)(c) of the Act. Thus, by the deeming provisions of Explanation 5, the assessee is fastened with the liability to penalty under Section 271(1)(c) in case he explains the acquisition of assets, recovered in the course of search, from out of income of a previous years.

12. The expressions “has concealed the particulars of income” and “has furnished the accurate particulars of income” as used in Section 271(1)(c) of the Act have different meaning and connotation.

13. According to Black's Law Dictionary (8th edition), the word ‘concealment’ means, the act of refraining from disclosure, especially, an act by which one prevents or hinders the discovery of something. Concealment is a affirmative act intended or known to be likely to keep another from learning of a fact of which he would otherwise have learnt”. Such affirmative act is always equivalent to a misrepresentation and has any effect that a misrepresentation would have.

14. The meaning of the word “concealment” as found in Shorter Oxford English Dictionary, 3rd edition, is as follows:—

“In law, the intentional suppression of truth or fact known, to the injury or prejudice of another”

15. According to Webster's new international dictionary, concealment means:— To hide or withdraw from observation, to recover or keep from sought, to prevent the discovery of, to hold knowledge of.

16. It is, therefore, manifestly clear that concealment means an attempt to hide an item of income or a portion thereof from the knowledge of the Income-tax authorities.

17. From bare reading of Section 139(5) and Section 271(1)(c) of the Act, it is manifestly clear that both the aforesaid sections meet two different situations. Section 139(5) proceeds on the basis of omission or wrong statement which had crept into the original return being inadvertent and unintentional, whereas Section 271(1)(c) of the Act proceeds on the basis of concealment being deliberate and the furnishing of inaccurate particulars being wilful and intentional.

18. Mr. Poddar, learned counsel appearing for the assessee relied upon a decision of the Supreme Court in the case K.C Builders v. Assistant Commissioner of Income Tax [(2004) 2 SCC 731]. In that case, the assessee, a partnership firm, engaged in the business of construction and sale of flats, submitted income-tax returns. The assessments were initially completed under Section 143(3). But after a search was conducted under Section 132, the assessee realized that its books of account were defective with regard to cost of construction. Therefore, the assessee filed a revised return which were accepted by the department and assessments were completed. The assessing authority treated the difference between the income as per the original return and revised income as concealed income and consequently, levied penalties. The order levying penalties was upheld by the C.I.T (Appeals). Thereafter, the department filed four complaints before the Magistrate for an offence under Sections 276-C(2), 277 and 278-B of the Income-tax Act and Sections 120-B, 34,193,196 and 420 IPC. However, in the meantime, the Income-tax Appellate Tribunal before whom appeals were preferred by the assessee held that there was no concealment of income by the assessee and accordingly penalties were cancelled. The order of the Tribunal was not challenged and consequently, it became final. The assessee then, came before the High Court against the prosecution launched on the basis of report of the assessing officer. In that context, the Supreme Court observed:—

“14. The word “concealment” inherently carries with it the element of mens rea. Therefore, the mere fact that some figure or some particulars have been disclosed by itself, even if takes out the case from the purview of nondisclosure, it cannot by itself take out the case from the purview of furnishing inaccurate particulars. Mere omission from the return of an item of receipt does neither amount to concealment nor deliberate furnishing of inaccurate particulars of income unless and until there is some evidence to show or some circumstances found from which it can be gathered that the omission was attributable to an intention or desire on the part of the assessee to hide or conceal the income so as to avoid the imposition of tax thereon. In order that a penalty under Section 271(1)(iii) may be imposed, it has to be proved that the assessee has consciously made the concealment or furnished inaccurate particulars of his income. Where the additions made in the assessment order, on the basis of which penalty for concealment was levied, are deleted, there remains no basis at all for levying the penalty for concealment and, therefore, in such a case no such penalty can survive and the same is liable to be cancelled as in the instant case. Ordinarily, penalty cannot stand if the assessment itself is set aside. Where an order of assessment or reassessment on the basis of which penalty has been levied on the assessee has itself been finally set aside or cancelled by the Tribunal or otherwise, the penalty cannot stand by itself and the same is liable to be cancelled as in the instant case ordered by the Tribunal and later cancellation of penalty by the authorities.”

19. Mr. Poddar, learned senior counsel appearing for the assessee also put heavy reliance on the decision of the Supreme Court in the case of Sir Shadilal Sugar and General Mills Limited v. Commissioner of Income-tax, Delhi, (1987) 4 SCC 722. This decision was rendered by the Supreme Court before Explanation (5) was inserted in Section 271(c) of the Act. This has been clarified by the Supreme Court in a subsequent decision in K.P Madhusudhanan v. Commissioner Of Income Tax, Cochin [(2001) 251 ITR 99] : (2001) 6 SCC 665 : (AIR 2001 SC 2704).

20. In the case of K.P Madhusudhanan v. Commissioner Of Income Tax, Cochin (supra) the fact of the case was that for the assessment year 1986–87, the assessee, a partnership firm, filed return of income and assessment was completed determining the total income of the assessee which included the income from other sources. However, the assessee did not enter in the cash-book some of the transactions on the date when purchase was made. After the Assessing Authority noticed the aforesaid fact, the assessee offered some amount as additional income. The assessment was accordingly made treating the amount unexplained investment. Consequently, penalty proceedings were initiated against the assessee under Section 271(1)(c) of the Act. The Assessing Officer found the assessee's explanation unacceptable and imposed penalty. The appeal filed by the assessee was refused. The assessee then preferred appeal before the Income-tax Tribunal: The Tribunal allowed the appeal. Arising out of the order of Tribunal, the questions noted therein were placed for consideration of the High Court. The High Court answered the questions in favour of the Revenue. Then the assessee moved the Supreme Court. The Supreme Court considered the ratio decided by Bombay High Court in the case of P.M Shah, (1993) 203 ITR 792 and in the case of Dharamchand L. Shah, (1993) 204 ITR 462 (Bom) and observed:—

“10. We find it difficult to accept as correct the two judgments aforementioned. The Explanation to Section 271(1)(c) is a part of Section 271. When the Income Tax Officer or the Appellate Assistant Commissioner issues to an assessee a notice under Section 271, he makes the assessee aware that the provisions thereof are to be used against him. These provisions include the Explanations. By reason of the Explanations, where the total income returned by the assessee is less than 80 per cent of the total income assessed under Section 143 or 144 or 147, reduced to the extent therein provided, the assessee is deemed to have concealed the particulars of his income or furnished inaccurate particulars thereof, unless he proves that the failure to return the correct income did not arise from any fraud or neglect on his part. The assessee is, therefore, by virtue of the notice under Section 271 put to notice that if he does not prove, in the circumstances stated in the Explanation, that his failure to return his correct income was not due to fraud or neglect, he shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars thereof and, consequently, be liable to the penalty provided by that section. No express invocation of the Explanation to Section 271 in the notice under Section 271 is, in our view, necessary before the provisions of the Explanation therein are applied. The High Court at Bombay was, therefore, in error in the view that it took and the Division Bench in the impugned judgment was right.

11. Learned counsel for the assessee then drew our attention to the judgment of this Court in Sir Shadilal Sugar and General Mills Ltd. v. CIT, (1987) 4 SCC 722 : (AIR 1987 SC 2008). He submitted that the assessee had agreed to the additions to his income referred to hereinabove to buy peace and it did not follow therefrom that the amount that was agreed to be added was concealed income. That it did not follow that the amount agreed to be added was concealed income is undoubtedly what was laid down by this Court in the case of Sir Shadilal Sugar and General Mills Ltd. and that, therefore, the Revenue was required to prove the mens rea of a quasi-criminal offence. But it was because of the view taken in this and other judgments that the Explanation to Section 271 was added. By reason of the addition of that Explanation, the view taken in this case can no longer be said to be applicable.

12. The appeal is, therefore, dismissed with costs.”

21. In the instant case, the Income Tax Appellate Tribunal, while allowing the appeal by setting aside the order of penalty, proceeded on the basis that the assessee disclosed the aforesaid additional amount voluntarily in call of Amnesty Scheme and for that such disclosure of income and offering the same for tax may be for various reasons. Such voluntary disclosure cannot be said to be concealed income of the assessee. The Tribunal further proceeded on the basis that the Revenue has to prove mens rea on the part of the assessee by adducing evidence. In my view, the Tribunal has totally misconstrued the provisions of the Act and the finding is wholly perverse in law. The Tribunal has not considered the effect of Explanation (5) to Section 271(1)(c) of the Act.

22. In the case Commissioner Of Income-Tax v. C. Ananthan Chettiar [(2005) 273 ITR 401], the Madras High Court was considering a similar question. In that case the Income Tax Department in a search and seizure operation conducted in the assessee's shop and residence, seized cash, jewellery and certain documents. Thereafter the assessee filed a revised return for the assessment years 1986–87 disclosing additional income which was accepted and assessment was made on the basis of revised return. The assessee took the stand that there was no concealment and it was only for the purpose of buying peace with the department that the additional income was disclosed and revised return was filed. The Tribunal accepted this plea of the assessee and held that no penalty, in the circumstances, was leviable by relying on Supreme Court decision in Sir Shadilal Sugar and General Mills Ltd v. Commissioner of Income-tax, Delhi (SC) [(1987) 168 ITR 705] : (1987) 4 SCC 722 : (AIR 1987 SC 2008). On the reference, the Madras High Court set aside the order and observed:—

“Learned counsel for the Revenue submitted that the order of the Tribunal is not in accordance with law, as it has ignored the Explanation to Section 271(1)(c) of the Act. Learned counsel also placed reliance on the decision in the case of K.P Madhusudhanan v. Commissioner Of Income Tax, Cochin, [2001] 251 ITR 99 (SC) : (2001) 6 SCC 665 : (AIR 2001 SC 2704), wherein it was held that the law declared by the Court in the case of Sir Shadilal Sugar and General Mills Ltd. v. CIT, [1987] 168 ITR 705 (SC) was no longer applicable by reason of the addition of the Explanation to Section 271. That Explanation casts a burden on the assessee to show that the additional income that had not been disclosed was not due to fraud or neglect.

In this case, the assessee offered no explanation at all except to assert that he disclosed the income only to buy peace with the Department and what was disclosed, in fact, was additional income. The reason for not having disclosed the income earlier was not stated. In these circumstances, the Tribunal was in error in setting aside the penalty. The question is answered in favour of the Revenue and against the assessee, in the light of the later decision of the three Judge bench of the Supreme Court in the case of K.P Madhusudhanan v. Commissioner Of Income Tax, Cochin, [2001] 251 ITR 99 (SC)”

23. Similarly in the case of (1) Sheraton Apparels v. (2) Max Corporation [(2002) 256 ITR 20]: (2002 Tax LR 534), the provisions of Section 271(1)(c) of the Act and Explanation 5 came for consideration before the Bombay High Court. In that case, a search and seizure operation under Section 132 of the Act was carried out in the shop premises of the appellant after returns filed by them. In course of search and seizure operation, certain documents, papers and records, including certain diaries were seized. After scrutiny, unaccounted income was worked out. The appellant admitted the above unaccounted income and offered to disclose the additional income in the hands of various funds in various years which were broadly on the basis of entries recorded in the diaries. On the basis of disclosures, all the groups concerned including the appellant chose to file revised return disclosing the additional income which was accepted by the assessing officer by passing the assessment order under Section 152(3) of the Act. In the assessment order, the assessing officer ordered initiation of penalty proceedings under Section 271(1)(c) of the Act. The assessing authority finally passed the order of penalty. Aggrieved by the said order, the appellant preferred appeals before the appellate authority who confirmed the levy of penalty. The appellant then moved the Income-tax Appellate Tribunal by filing appeals which were eventually dismissed. The appellant then moved the Bombay High Court raising the following substantial questions of law:—

“Whether on the facts and in circumstances of the case and law, the diaries on the basis of which the additions were made could be regarded as books of account for the purposes of Clause 1(1) of Explanation 5 to Section 271(1)(c) of the Act so as to provide immunity to the appellants?

Dismissing all the appeals, the High Court observed:—

“The term “books of account” referred to in sub-clause (1) of explanation 5 to Section 271(1)(c) means books of account which have been maintained for determining any source of income. The term “source of income” as understood in the Income-tax Act is to identify or classify income so as to determine under which head, out of the various heads of income referred to in Section 14 of the Act, it would fall for the purposes of computation of the total income for charging income-tax thereon. Thus, the term “books of account” referred to in this relevant sub-clause of Explanation 5 would mean those books of account whose main object is to provide credible data and information to file the tax returns. A credible accounting record provides the best foundation for filing returns of both direct and indirect taxes. Accounting is called a language of business. Its aim is to communicate financial information about the financial results. This is not possible unless the main objectives of the books of account are to maintain a record of business; to calculate profit earned or loss suffered: during the period of time, to depict the financial position of the business; to portray the liquidity position; to provide up to date information of assets and liabilities with a view to derive information so as to prepare a profit and loss account and draw a balance-sheet to determine income and source thereof. Thus, the term “books of account” referred in Explanation 5 must answer the above qualifications. It cannot be understood to mean compilation or collections of sheets in one volume. The books of account referred to are those books of account which are maintained for the purposes of the Income-tax Act and not diaries which are maintained merely as a man's private record; prepared by him as may be in accordance with his pleasure or convenience to secretly record secret, unaccounted clandestine transactions not meant for the purposes of the Income-tax Act, but with specific intention or desire on the part of the assessee to hide or conceal income so as to avoid imposition of tax thereon.

The words in Explanation 5 “books of account, if any, maintained by him for any source of income” are important words signifying the legislative intent embodied in the; Explanation warranting grant of immunity from penalty. The legislative intent is to admit only those books of account maintained by the assessee on his own behalf as by their very nature and circumstances are maintained for the purposes of drawing the source of income. Therefore, when books of account are tendered for claiming the benefit of Explanation 5 to Section 271(1)(c) of the Act, it must be shown to be a book, that book must be a book of account, and on the top of it that must be one maintained for the purposes of drawing the source of income under the Income-tax Act. These essential requirements must be carefully observed while implementing tax legislation in the country where secret and parallel accounts based on frauds and forgery are extremely common and responsibility of keeping and maintaining accounts for the purposes of the tax legislation is honoured in the breach rather than the observance.

Now, turning to the facts of the cases in hand, private diaries may have been most regularly maintained, it may have been exhibiting record of the factual facts, contemporaneously made but they were never maintained for the purposes of the Income-tax Act to draw the source of income or for the computation of total income to offer income calculated therefrom for the purposes of taxation. Such books or diaries can hardly be designed or accepted as books of account for the purposes of Explanation 5 of Section 271(1)(c) of the Act, so as to afford immunity from penalty. None of the cases cited by the appellants were close to the facts found herein, hence no reference thereto in our opinion, is necessary.

The Tribunal was perfectly justified in upholding the levy of penalty under Section 271(1)(c) of the Act.

Accordingly, question of law reframed is answered in the negative, i.e against the appellants/assessees and in favour of the Revenue. In the result, all the appeals are dismissed with no order as to costs.”

24. In the case of Amin Chand Payarelal v. Inspecting Asstt. Commissioner, Income Tax [(2006) 7 SCC 483], the assessee filed a writ petition in the High Court for quashing/withdrawal of the order passed by the Commissioner of Income Tax and the orders of assessment and penalty proceedings under Section 271(1)(a) of the Income-tax Act and the demand notice issued under Section 156 of the Act and also the order imposing penalty. Admittedly, the assessee did not file the returns within the time specified in the statute or within the extended period of time. The returns were filed beyond the extended period for filing the returns. The writ petition was allowed by the learned Single Judge holding that the penalty imposed by the authorities was not in accordance with law and consequently, the order imposing penalty was quashed. The learned single Judge allowed the writ petition on the grounds that the imposition of penalty was without jurisdiction in view of the fact that interest had been paid for late filing of the returns for the years in question. Secondly, the penalty under Section 271(1)(a) of the Act would not be imposed by the Assistant Commissioner of Income-tax as he had no jurisdiction to do so. Aggrieved by the said order, the Revenue moved the Division Bench. The Division Bench came to the conclusion that mere deposit of interest would not absolve the assessee from his liability to pay the penalty under Section 271(1)(a) of the Act. The assessee then moved the Supreme Court. The Supreme Court dismissed the appeal and affirmed the judgment of the Division Bench. Their Lordships observed:—

“9. Admittedly, the appellant did not file the return either within the time specified in the statute for doing so or within the extended period of time. The returns were filed beyond the extended period for filing the return. Interest on the amount due and penalty are two different and distinct concepts. Interest is the accretion on the capital whereas the penalty is a punishment imposed on a wrongdoer.

10. Counsel appearing for the assessee in support of the contention placed reliance on a judgment of this Court in CIT v. M. Chandra Sekhar, (1985) 1 SCC 283 : (AIR 1985 SC 114). In the said case, their Lordships were dealing with return filed under Section 139(1) of the Act whereas in the present case the returns had been filed under Section 139(4). The assessee was absolved of his liability to pay the penalty under the provisos to Section 139(1). It was observed (SCC p. 289, para 7):

“7. In the instant case, the extension was a matter falling within sub-section (1) of Section 139, and the returns furnished by the assessee must be attributed to that provision. They were not returns furnished within the contemplation of sub-section (4) of Section 139. Therefore, the decision of the Gujarat High Court in CIT v. Santosh Industries, (1974) 93 ITR 563 (Guj), of the Karnataka High Court in M. Nagappa v. ITO, (1975) 99 ITR 32 (Kant), of the Andhra Pradesh High Court in Poorna Biscuit Factory v. CIT, (1975) 99 ITR 41 (AP), of the Orissa High Court in CIT v. Gangaram Chapolia, (1976) 103 ITR 613 (Ori) (FB), and of the Allahabad High Court in Metal India Products v. CIT, (1978) 113 ITR 830 (All) (FB) cannot be invoked in the instant case. They are cases dealing with a return filed in the circumstances mentioned in sub-section (4) of Section 139.”

11. Meaning thereby that cases falling under Sections 139(1) and 139(4) have to be dealt with differently. Sub-section (4) of Section 139 of the Act provides for a situation where the returns are not filed by an assessee within the time allowed or within the extended period for filing such returns. In the present case, the returns in question had not been filed either within the time allowed under the Act or within the extended period. The reliance placed on the aforesaid judgment lends no assistance to the appellant as the principle on which the aforesaid decision has been rendered is distinguishable and cannot be applied to the admitted facts in the present case.

15. We hold that the penalty could be levied in the present case under Section 271(1)(a) of the Act.”

25. In the case of Commissioner of Income Tax (Addl.), Gujarat v. I.M Patel and Co. [1993 Supp (1) SCC 621] : (AIR 1992 SC 1762) the Supreme Court held:

“8. Based on this decision, the argument of learned counsel proceeds that there is a fundamental distinction between the levy of penalty under Section 271(1)(a) as opposed to Section 271(1)(c) of the Act. The former relates to the obligation of the assessee to file a return within the due date, while the latter deals with concealment where statutory obligation has been imposed requiring the assessee to file the return within the due date. It is for him to show, should he file a belated return, a “reasonable cause”. The burden is ultimately on the assessee to plead and prove the “reasonable cause”. Consequently, no ‘mens rea’ could arise at all. In contradistinction to this where, it is a case of concealment of income under Section 271(1)(c) then the question of mens rea may come in. Unfortunately, in the judgment under appeal this distinction has not been in mind which led to the non-application of the ratio of the Full Bench of the Kerala High Court CIT v. Gujarat Travancore Agency, (1975 Tax LR 922). It was this aspect of the matter which came to be clarified in CIT v. Gujarat Travancore Agency which has subsequently been applied in CIT v. Kalyan Dass Rastogi (1991 SCW 585). Thus, it is submitted that the Revenue is entitled to succeed.

26. In opposition to this, the learned counsel for the assessee drew our attention to the passages occurring in the impugned judgment, wherein the requirement of proving mens rea had come to be insisted upon. According to him there is not much of a difference between a case falling under Section 271(1)(a) or sub-section (1)(c).

27. We have given our careful consideration to the above submissions. We are of the view that the Revenue is entitled to succeed. As a matter of fact the very question with which we are concerned is no longer res integra as has rightly been pointed out by Mr. Ramamurthy. In Gujarat Travancore Agency case the Court answered the question in the following words (SCC pp. 54-55, para 4):

“Learned counsel for the assessee has addressed exhaustive arguments before us on the question whether penalty imposed under Section 271(1)(a) of the Act involves the element of mens rea and in support of his submission that it does, he has placed before us several cases decided by this Court and the High Court in order to demonstrate that the proceedings by way of penalty under Section 271(1)(a) of the Act are quasi-criminal in nature and that, therefore, the element of mens rea is a mandatory requirement before a penalty can be imposed under Section 271(1)(a). We are relieved of the necessity of referring to all those decisions. Indeed, many of them were considered by the High Court and are referred to in the judgment under appeal. It is sufficient for us to refer to Section 271(1)(a), which provides that penalty may be imposed if the Income Tax Officer is satisfied that any person has, without reasonable cause, failed to furnish the return of total income, and to Section 276-C which provides that if a person wilfully fails to furnish in due time the return of income required under Section 139(1), he shall be punishable with rigorous imprisonment for a term which may extend to one year or with fine. It is clear that in the former case what is intended is a civil obligation while in the latter, what is imposed is a criminal sentence. There can be no dispute that having regard to the provisions of Section 276-C which speaks of wilful failure on the part of the defaulter and taking into consideration the nature of the penalty, which is punitive, no sentence can be imposed under that provision unless the element of mens rea is established. In most cases of criminal liability the intention of the legislature is that the penalty should serve as a deterrent. The creation of an offence by statute proceeds on the assumption that society suffers injury by the act or omission of the defaulter and that a deterrent sentence must be imposed to discourage the repetition of the offence. In the case of a proceeding under Section 271(1)(a), however, it seems that the intention of the legislature is to emphasise the fact of loss of revenue and to provide a remedy for such loss, although no doubt an element of coercion is present in the penalty. In this connection, the terms in which the penalty falls to be measured are significant. Unless there is something in the language of the statute indicating the need to establish the element of mens rea, it is generally sufficient to prove that a default in complying with the statute has occurred. In our opinion, there is nothing in Section 271(1)(a) which requires that mens rea must be proved before penalty can be levied under that provision.”

28. In the case of Gujarat Travancore Agency, Cochin v. Commissioner of Income Tax, Kerala, Ernakulam [(1989) 3 SCC 52], the Supreme Court held:

“4. Learned counsel for the assessee has addressed an exhaustive arguments before us on the question whether a penalty imposed under Section 271(1)(a) of the Act involves the element of mens rea and in support of his submission that it does he has placed before us several cases decided by this Court and the High-Courts in order to demonstrate that the proceedings by way of penalty under Section 271(1)(a) of the Act are quasi-criminal in nature and that therefore the element of mens rea is a mandatory requirement before a penalty can be imposed under Section 271(1)(a). We are relieved of the necessity of referring to all those decisions. Indeed, many of them were considered by the High Court and are referred to in the judgment under appeal: It is sufficient for us to refer to Section 271(1)(a), which provides that a penalty may be imposed if the Income Tax Officer is satisfied that any person has without reasonable cause failed to furnish the return of total income, and to Section 276-C which provides that if a person wilfully fails to furnish in due time the return of income required under Section 139(1), he shall be punishable with rigorous imprisonment for a term which may extend to one year or with fine. It is clear that in the former case what is intended is a civil obligation while in the latter what is imposed is a criminal sentence. There can be no dispute that having regard to the provisions of Section 276-C, which speaks of wilful failure on the part of the defaulter and taking into consideration the nature of the penalty, which is punitive, no sentence can be imposed under that provision unless the element of mens rea is established. In most cases of criminal liability, the intention of the legislature is that the penalty should serve as a deterrent. The creation of an offence by statute proceeds on the assumption that society suffers injury by the act or omission of the defaulter and that a deterrent must be imposed to discourage the repetition of the offence. In the case of a proceeding under Section 271(1)(a), however, it seems that the intention of the legislature is to emphasise the fact of loss of revenue and to provide a remedy for such loss, although no doubt an element of coercion is present in the penalty. In this connection the terms in which the penalty falls to be measured is significant. Unless there is something in the language of the statute indicating the need to establish the element of mens rea it is generally sufficient to prove that a default in complying with the statute has occurred. In our opinion, there is nothing in Section 271(1)(a) which requires that mens rea must be proved before penalty can be levied under that provision. We are supported by the statement in Corpus Juris Secundum, volume 85, page 580, paragraph 1023:

“A penalty imposed for a tax delinquency is a civil obligation, remedial and coercive in its nature and is far different from the penalty for a crime or a fine or forfeiture provided as punishment for the violation of criminal or penal laws.”

29. Having considered the entire facts, circumstances of the case and the law discussed herein above, in my considered opinion the assessee did not act voluntarily and bonafidely in filing the revised return and offering the additional income. Admittedly, the revised return was not filed within the financial year or even before search and seizure was conducted and incriminating documents were recovered showing undisclosed income of the assessee. Explanation (5) has added in Section 271(1)(c) of the Act in order to meet such situations. The Assessing officer was therefore, fully justified in initiating penalty proceeding and levying penalty under Section 271(1)(c) of the Act the finding of the Appellate Tribunal is wholly perverse and cannot be sustained in law.

30. For the aforesaid reasons, this reference is answered in favour of the Revenue and against the assessee.

D.G.R Patnaik, J.:—

31. I agree.

32. Reference answered in favour of Revenue.