S.K. KESHOTE, J. - (1.) HEARD the learned counsel for the parties.
(2.) IT is not in dispute that the Revenue in its application under s. 256(1) of the IT Act, 1961 (for short, `the Act, 1961') had proposed the following three questions, which are stated to be of law, for referring the same to this Court for its opinion. "1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the statement made by Shri Gopaldass on 14th Oct., 1987, was in the course of search in the case of the assessee-firm ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was entitled to immunity under Expln. 5 to s. 271(1)(c) and consequently cancelling penalty of Rs. 1,68,000 ? 3. Whether, in the facts and in the circumstances of the case, the Tribunal was right in holding that the difference in stock was only on account of valuation notwithstanding the fact that there was difference in quantity of stock found as specified in para 3 of the order under s. 271(1)(c) ?" From the statement of the case we find that the Tribunal, Jaipur Bench, Jaipur (for short, `the Tribunal') referred the question Nos. 1 and 2 only to this Court for its opinion, the reference may have to para No. 8 of the statement of case. As regards to the question No. 3 proposed to be referred to this Court for opinion by the Revenue in para No. 2 of the statement of the case the learned Tribunal has recorded reasons to decline to refer the same. The learned Tribunal was of the view that it is a question of fact that the difference in the stocks was mainly on account of difference in valuation and it does not give rise to referable question of law. Briefly stated the facts of the case are that search operations had taken place on 22nd of September, 1987, at the business premises of the firm and the residential premises of the partners. Return declaring an income of Rs. 6,50,000 was filed on 28th of February, 1989, unaccompanied by the annual accounts of the firm. Subsequently, revised return declaring an income of Rs. 7,23,960, accompanied with the annual accounts, was filed on 30th Nov., 1989. In the opinion of the AO the search was completed on 28th Sept., 1987, and according to the statements of Shri Gopaldas, a partner of the assessee-firm, the stocks of precious and semi-precious stones found at the time of search was not in excess of what recorded in the books. There was a separate search in the individual case of Shri Gopaldas, which was concluded on 14th Oct., 1987, when Locker No. 1006 in his name was opened. On 14th Oct., 1987, statement of Shri Gopaldas was recorded and he surrendered Rs. 40,000 as his personal income and Rs. 3,20,000 as the income of the assessee-firm. This amount of Rs. 3,20,000 was accepted as excess stock found.
(3.) THE assessment of the firm was finalized at Rs. 7,36,100 on 15th March, 1990. Penalty proceedings under s. 271(1)(c) of the Act, 1961, were initiated against the firm. THE plea has been taken by the assessee-firm that Shri Gopaldas has surrendered in his statement recorded under s. 132(4) of the Act, 1961 in the capacity of partner of the firm during the course of search and the assessee was entitled to the immunity given under Expln. 5 of s. 271(1)(c) of the Act, 1961, and, thus, no penalty is leviable. THE AO rejected this plea of the assessee-firm on the ground that search in the case of the firm had been concluded on 28th of Sept., 1987 whereas the surrender of Rs. 3,20,000 by Shri Gopaldas came much later, on 14th Oct., 1987, when his personal locker was opened. Accordingly penalty of Rs. 1,68,000 was levied. This order of the AO has been confirmed in the appeal by the CIT(A). THE matter was taken by the assessee to the Tribunal. The learned Tribunal first analyzed the provisions of Expln. 5 to s. 271(1)(c) of the Act, 1961, and particularly cl. (2) thereof which was added with some intent and purpose. Then it analyzed the provisions contained in Part C of Chapter XIII of the Act which gives various powers to different authorities to carry out the purposes of the Act. While dealing with Part C of Chapter XIII, the learned Tribunal discussed at length the provisions of s. 132 of the Act, 1961 and observed that this provision has to be construed harmoniously in order to give effect to the intention of the Parliament. It is observed that the word "in the course of search" appearing in cl. (2) of Expln. 5 cannot be interpreted too technically and too narrowly, particularly when search by itself is an incidental power. According to the Tribunal it would be sufficient if the disclosure is made before the process under s. 132(5) commences, the immediate previous step is search and seizure during which be a person may be examined as provided for in s. 132(4). It is held that it would too technical to say that "during the course of search" means only the physical search of the premises or the person. The Tribunal concluded that search was not complete till 14th of Oct., 1987 and thus the assessee earned the immunities under Expln. 5 of s. 271(1)(c) of the Act, 1961. On merits the learned Tribunal held that the penalty imposed cannot survive. The learned Tribunal recorded a finding of fact that as per the Departmental valuation, the value arrived at of the undisclosed stock of precious and semi-precious stones arrived at was Rs. 15,85,331 whereas as per the books of the assessee it was Rs. 15,86,331. There was no excess stock with the assessee-firm. Whatever was the difference in the stock may be on account of the difference in valuation. The assessee used to maintain account of the stock in his books at cost whereas the valuation got done by the Revenue was on the basis of market rates as on the various dates of search. The Tribunal has further recorded a finding of fact that from the various statements recorded, it is evident that it was on account of constant pestering that the assessee ultimately surrendered a sum of Rs. 3,20,000,otherwise the Department has not been able to muster any material to show that the assessee had any undisclosed income. ;