ITO, WARD-4(2)(1),, AHMEDABAD vs. M/S.RUSHABH VATIKA,, RAJKOT

The instant appeal filed by the Revenue is directed against the order dated 07.09.2015 passed by the Commissioner of Income Tax (Appeals)-1, Rajkot arising out of the order dated 31.12.2013 passed by the ITO, Ward – 9(1), Ahmedabad under Section 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred as to “the Act”) for the Assessment Year (A.Y.) 2010-11.

ITO vs. M/s. Rushabh Vatika Asst.Year –2010-11 - 3 - 5. In fact, a search was initiated on 15.09.2009 in the case of partner of the assessee and the group cases and during which statement under Section 132(4) was recorded from several persons of the group admitting unaccounted sale account pertaining to project of the appellant firm; it was accepted to declare profits attributable thereto and pay tax thereon. Subsequent thereto the appellant declared unaccounted profit @ 20% of the undisclosed sales so admitted and paid tax thereon.

6. It is relevant to mention that in the quantum appeal the Ld. CIT(A) determined the ultimate net profit @ 30% as offered in the return of income taking into consideration the estimated profit in respect of the project of Kothariya 172, Silver Stone and Silver Springs, being the nearly projects of Rushabh Vatika situated in Chekla Village having identical business of land as determined by the Hon’ble Settlement Commission. The relevant observation made by the Ld. CIT(A) in the quantum appeal is as follows:- “6.6 So far as the estimation of profit which should be taxed in the hands of the appellant is concerned, it is pointed out by the appellant that the Hon’ble Commission has determined the net profit which should be charged in respect of the projects Kothariya 172, Silver Stone and Silver Springs @30% in place of 20% disclosed in the returns of income as well as in the application submitted before the Settlement Commission. This is also a fact that both Silver Springs and Rushabh Vatika are nearby projects situated in Chekhla Village having identical business of selling of plots of land. The Hon'ble Commission while estimating the profits of Silver Springs @ 30% has duly considered the business activities of nearby Rushabh Vatika Project for the purpose. Therefore, it cannot be disputed that the estimation of profits of the appellant in respect of Rushabh Vatika Project has to be in tune with the estimation of profits in the cases of Silver Springs as settled by the Commission unless any differentiating evidence in respect of Rushabh Vatika Project is brought on record. It is further noted that Shri Mukesh M. Sheth, a key person of the group in the statement recorded u/s 132(4) of the Act has clearly admitted the fact of unaccounted sales and offered to tax the income or profit arising out of the said unaccounted sales. The entire unaccounted sales has not been offered / disclosed as income as is evident from the perusal of the statement recorded.

ITO vs. M/s. Rushabh Vatika Asst.Year –2010-11 - 4 -

6.7 It is further noted that the appellant has shown the gross profit of Rs.67,34,398/- on its accounted sales of Rs.3,69,66,577/- in respect of Rushabh Vatika Project. Thus, the gross profit shown on the accounted sales is 18.22%. Therefore, the contention of the appellant, that for the same scheme of land plots, the Department has taxed the income @ 12% for block period ending on 12-09-2002 which has become final, is not justified so far as the present year is concerned wherein disclosed gross profit on accounted sales is 18.22%. It is also an admitted fact that in respect of unaccounted sales, the margin of profit is always higher. 6.8 In view of the above and considering the order of the Settlement Commission in respect of Silver Springs wherein profit has been estimated @ 30% instead of 20% offered in the return of income, it would be fair and reasonable to adopt the same rate of estimated profit even in the case of Rushabh Vatika Project of the appellant. The total unaccounted sales in the present case is Rs. 5,19,86,163/-. The estimated profits on such unaccounted sales @ 30% amounting to Rs. 1,55,95,849/- is accordingly taxed in the case of the appellant. Since the appellant has already disclosed profit of Rs.1,03,97,2337- @ 20% on the quantum of unaccounted sales, the balance amount of Rs.51,98,616/- is, therefore, sustained out of total addition made by the AO at Rs.4,15,88,930/-”

ITO vs. M/s. Rushabh Vatika Asst.Year –2010-11 - 5 -

(A) such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner (Appeals) to be false, or (B) such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him,"

Reliance in this respect is placed on the following decisions: (i) A.M. Shah & Co. v. CIT 238 ITR 415 (Guj) - whereby the Hon'ble High Court held that "the word 'inaccurate particulars' would cover both falsity in final figure as also constituent elements, which are inaccurate in some specific or definite respect, whether in constituent or subordinate items of income or end result. Therefore, any concealment or inaccuracy in particulars of income in return occurring at any stage up to and inclusive of ultimate stage or working out of total income would attract penalty provisions of section 271(1)(c)." (ii) In a judgment in the case of Union of India Vs. Dharmendra Textiles Processor &. Others 306 ITR 277 the Honorable Supreme Court observed that the object of enactment of section 271(1)(c) read with explanation indicated that the section had been enacted to provide for a remedy for the loss of revenue. The penalty under this section is a civil liability. Willful concealment is not an essential ingredient for attracting civil liability as is in the matter of prosecution u/s. 276C. What is required is that there is concealment/or furnishing inaccurate particulars of income that would be sufficient to levy penalty.

7. In view of the discussions made in the preceding paragraphs, it is clear that the assessee had consciously and deliberately concealed income by way of furnishing inaccurate particulars of income to the tune of Rs.4,15,88,930/-

ITO vs. M/s. Rushabh Vatika Asst.Year –2010-11 - 6 - and hence it is liable for penalty u/s. 271(1)(c) of the Act. Further, though delivered on different set of facts, it is pertinent to refer to the decision of Hon'ble Karnataka High Court in the case of CIT V/ s. Sree Valliappa Textiles (2007) 294 ITR 322 wherein it has been held that Section 271(1)(c) has to be strictly applied in the larger interest of discipline in filling correct returns by the assessees.

8. The Ld. CIT(A) while dealing this particular aspect of the matter observed as follows:- “I find that the search was conducted on 15-9-2009 and therefore the said date clearly falls within the period of 1st June, 2007 to 1st July, 2012 mentioned in sub- section (1) of Sec. 271AAA. I further find force in contentions of the A.R. that "the income admitted by the appellant and found during search is also duly covered by the definition of "undisclosed income" given in the Explanation below Sec. 271AAA(4) and therefore it becomes consequently apparent that in respect of such undisclosed income the jurisdiction itself for levy of penalty u/s 271(1)(c) would cease to apply in view of the explicit provisions of Sec. 271AAA(3) of the Act. In other words and having due regard to the purpose behind introduction of Sec. 271AAA by the Finance Act, 2007 w.e.f. 1-4-2007, the case of the appellant for levy of penalty would obviously arise u/s 271AAA only and not under any other section of the Act in respect of the income so assessed for the year under appeal. It is also pertinent to note that Sec. 271AAA appears to be a specific provision for levy of penalty in search cases only, more so because it says "notwithstanding anything contained in any other provisions of this Act ......" and also it is titled as "Penalty where search has been initiated." It is also a recognized principle in the income-tax Act that specific provision prevails over a general provision. In view of above, it becomes clear that once a search has been initiated within the period specified in section 271AAA, penalty in such cases could be considered only by passing an appropriate order under the said section and not under any other section or in particular not under Sec. 271(1)(c). The aforesaid proposition has also been laid down and has come to be elaborately dealt with by various Courts and Tribunals in the precedents cited before me and relied upon by the appellant (supra). I also find further force in the contention of the A.R. that a jurisdictional error by invoking an inapplicable provisions of law is fatal and it cannot be cured, particularly when read in the context of the statement given u/s 132(4) of the Act wherein the deponents had clearly referred to the benefit of penalty u/s 271AAA of the Act in respect of the undisclosed income admitted by them. Therefore, I further find that based on the assessment material on record, the I.T.O. levying penalty could not have been unaware of the correct penalty provisions applicable in the case. In view of above, I

ITO vs. M/s. Rushabh Vatika Asst.Year –2010-11 - 7 - hold that the order of levying penalty u/s 271(1)(c) of the Act cannot be sustained on this ground itself and hence the levy of penalty is directed to be deleted. It would also be necessary to deal with the second aspect of the contentions advanced on behalf of the appellant which are with regard to the provisions of Sec. 271AAA itself. In this regard/ the A.R. submitted before me that while Sec. 271AAA provides for penalty to be computed @ 10% of the undisclosed income of the specified previous year, sub-section (2) thereof provides that nothing contained in sub-section (1) shall apply if the assessee in a statement u/s 132(4) admits the undisclosed income, specifies the manner in which it has been derived, substantiates the manner and pays tax with interest thereon. On this aspect, the A.R. argued that in the case of the appellant all the said three conditions of sub-section (2) were duly fulfilled because the undisclosed income was admitted u/s 132(4), it was specified that the same was derived upon sale of plots in a specific real estate scheme named Rushabh Vatika of Chekhla, the manner of deriving the same was in cash which was also substantiated alongwith land plot nos. of the said scheme, as stated in the statement u/s 132(4) itself, profit thereon was declared in the return of income by computing the same @ 20%. It was further argued that adoption of profit rate of 30% by the C.I.T. (Appeals) was finally upheld by the tribunal and that the said rate itself was by way of an estimate by an appellate authority and it cannot be said that the higher rate of 30% than the rate of 20% declared by the appellant was based upon any incriminating material showing such 30% rate. Based on the same, it was argued that even a higher estimation of only a profit rate was an application of a theory accepted by the Hon'ble Gujarat High Court in several cases in search/ survey matters as cited and accepted by the tribunal in the case of the appellant itself and thus the same can be duly said to be covered by the provisions of sub-section (2) of Sec. 271AAA. The submissions on this aspect of the argument are duly considered. It is seen from record and in particular from the statement u/s 132(4) dated 23-10-2009 cop of which is in paper book that the undisclosed income was admitted u/s 132(4), that it was specified by the deponents that the same was derived from sale of plots in a specific real estate scheme named Rushabh Vatika of Chekhla, that the manner of deriving the same was in cash which was also substantiated alongwith land plot nos. of the said scheme as stated in the assessment order itself, as stated in the statement u/s 132(4) itself, profit thereon was declared in the return of income by computing the same @ 20%. Thus, I find that even if the entire undisclosed sales are considered as profits (although the same are finally estimated at 30% rate of sales and not at 100%), the entire such sales/income, for reasons stated above, gets covered under sub-section (2) of Sec. 271AAA. Therefore, in my considered view, the substantive provisions of Sec. 271AAA(1) cannot apply when sub-section (2) itself states that "Nothing contained in sub-section (1) shall apply if ........". I also find from the statement u/s 132(4) that the investigating officer did not put any question with regard to the rate of profit or the extent of income arising from undisclosed sales whereas the deponents had very clearly stated that they will disclose the taxable income or the amount of profit from the sales in the returns of relevant years of relevant concerns and had also clearly declared the same with an understanding that if on the said income they will be entitled to get the benefit of penalty u/s 271AAA,

ITO vs. M/s. Rushabh Vatika Asst.Year –2010-11 - 8 - than they will get the said benefit. Thus, it can be seen on an overall perusal of the entire statement read with seized material and the assessment order in the light of subsequent appellate orders, that the appellant was forthright in making disclosure in the light of specific provisions of the Act and" thus even the investigating officer cannot be said to be unaware of the same. In view of above, in addition to my findings earlier above with regard to validity of order u/s 271(1)(c), the levy of penalty is deleted even if the same can be said to have been levied u/s 271AAA of the Act. In the result, ground no. 1 is allowed.”