SHRI DIPAK KALANI,INDORE vs. THE JCIT,OSD, (CENTRAL)-1, INDORE

PER KUL BHARAT, J.M: These two appeals by the Assessee are directed against order

of the CIT(A)-3, Indore dated 23.04.2019 pertaining to the

assessment year 2012-13. Since the issues are common both

appeals are taken up together and are being disposed by way of consolidated order.

The assessee has raised following grounds of appeal:

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seizure operation u/s 132 of the Income Tax Act 1961(hereinafter

referred as the ‘Act’) was carried out on the business as well as

residential premises of the Kalani Group sub-group of Signet

including the assessee along with other concerns/business

associate on 03.11.2011. The assessee had filed return of income of

the assessment year 2012-13 u/s 139(1) of the Act on 30.09.2012

declaring total income of Rs.69,56,681/- including the voluntarily

disclosed income u/s 132(4) amounting to Rs.62,50,000/-

assessment order was passed on 12.03.2014. A notice u/s 274

r.w.s 271AAA of the Act was issued on 12.03.2014 initiating penalty

proceedings u/s 271AAA of the Act. In response thereto, the

assessee stated that Ld. CIT(A) has already deleted the addition on

which penalty sought to be imposed. However, the Assessing Officer

proceeded to impose penalty of Rs.6,25,000/-.

the Ld. CIT(A) who also sustained the penalty.

has raised ground No.2 which is against the legality of the notice

reads as under: 3

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“2. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in maintaining the levy of penalty under section 271AAA of the Act even when the show cause notice as issued for levy of penalty was defective wherein no specific charge was framed against the appellant and therefore penalty imposed on the basis of such defective notice is not maintainable in law.”

in the written synopsis. Ld. counsel for the assessee submitted that

the issue is squarely covered in favour of the assessee. The

submissions of the assessee are reproduced as under:

A.1] The present appeal is filed by the assessee against the order of the Ld CIT (A)-3, Bhopal dated 23-04-2019. A.2] The search and seizure operations under section 132 of the Income- Tax Act,1961 were carried out at the business as well as residential premises of the Kalani Group of Indore including the appellant and other concerns/ business associates on 03-11-2011. A.3] The appellant accepted additional income to the tune of Rs. 5,00,00,000/- during the course of search in his statement recorded under section 132(4) of the Income-Tax Act, 1961. However, it later on came to the notice of the appellant on perusal of the seized material that most of the assets were properly accounted for and henceforth, the appellant along with his brother, Shri Pankaj Kalani duly offered additional income to the tune of Rs. 1,25,00,000/- for tax in their income-tax returns for the Assessment Year 2012-13 and paid legitimate amount of tax due on such additional income. A.4] The income-tax return of the appellant for the Assessment Year 2012- 13 was thereafter filed on 30-09-2012 wherein total income was declared at Rs. 69,56,681/- including additional income of Rs. 62,50,000/- as accepted during the course of search. A.5] The assessing officer however initiated penalty proceedings under section 271AAA of the Income-Tax Act, 1961 in respect of such additional

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income of Rs. 62,50,000/- and subsequently levied penalty of Rs. 6,25,000/- being 10% of such income of Rs. 62,50,000/- stating that the appellant could not substantiate the manner in which the undisclosed income was derived.

A.6] The appellant thereafter preferred an appeal before the Ld CIT (A)-3, Bhopal against the penalty order as passed under section 271AAA of the Income-Tax Act, 1961 and took the following grounds of appeal:

1] That on the facts and in the circumstances of the case and in law the Ld Assessing officer erred in levying penalty U/s 271AAA of the Act without properly appreciating the facts of the case and submission made before him.

2] That on the facts and in the circumstances of the case and in law the Ld Assessing officer erred in levying penalty U/s 271AAA of the Act even when the additional income was declared in the statement as recorded U/s 132(4) of the Act and tax due on the additional income was also paid by the appellant with the return of total income.

3] The appellant reserves his right to add, alter and modify the ground of appeal taken before the first appellate authority.

A.7] However, the Ld CIT (A)-3, Bhopal vide order dated 23-04-2019 confirmed the penalty of Rs. 6,25,000/- as levied by the assessing officer under section 271AAA of the Income-Tax Act, 1961 by observing that the impugned amount would not have been offered for taxation had there been no search and seizure operation. The Ld CIT (A) confirmed the levy of penalty under section 271AAA of the Income-Tax Act, 1961 without dealing with each ground of appeal raised before him which is neither legal nor proper.

A.8] The appellant has therefore preferred an appeal before the Hon’ble Bench against the order of the Ld CIT (A)-3, Bhopal and has taken the following grounds of appeal:

1] That on the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in maintaining the levy of penalty under section 271AAA of the Act without properly appreciating the facts of the case and submissions made before him even when the additional income was declared in the statement as recorded under section 132(4) of the Act and tax due on the additional income was also paid by the appellant.

2] That on the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in maintaining the levy of penalty under section 271AAA

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of the Act even when the show cause notice as issued for levy of penalty was defective wherein no specific charge was framed against the appellant and therefore penalty imposed on the basis of such defective notice is not maintainable in law.

3] The appellant reserves his right to add, alter and modify the grounds of appeal as taken by him.

1] GROUND NO. 2 – CHALLENGING THE LEVY OF PENALTY OF RS. 6,25,000/- UNDER SECTION 271AAA OF THE INCOME-TAX ACT, 1961 SINCE THE SHOW CAUSE NOTICE ISSUED PRIOR TO THE LEVY OF PENALTY WAS DEFECTIVE WHEREIN NO SPECIFIC CHARGE WAS FRAMED

1.1] The appellant in this ground of appeal has challenged the levy of penalty of Rs. 6,25,000/- under section 271AAA of the Income-Tax Act, 1961 since the show cause notice issued prior to the levy of penalty was defective wherein no specific charge was framed against the appellant.

1.2.1] The provision of sub-section (4) of section 271AAA of the Income-Tax Act, 1961 provides that provisions of section 274 and 275 shall apply in relation to penalty referred to in this section which implies that the assessing officer is bound to issue a notice under section 274 of the Income-Tax Act, 1961 and provide a reasonable opportunity of being heard to the assessee before passing any order imposing penalty.

1.2.2] The opportunity of being heard that ought to be given to the assessee should be a meaningful one and not farce.

1.3.1] The provisions of section 271AAA of the Income-Tax Act, 1961 provide that penalty may be levied at the rate of 10% of the undisclosed income of the specified previous year. The show cause notice as issued prior to the levy of penalty must specifically point out that the assessee has undisclosed income on which penalty at the rate of 10% of the undisclosed income may be levied under section 271AAA of the Income- Tax Act, 1961. Further, the show cause notice shall also point out as to why the assessee is being denied immunity as per the provisions of sub- section (2) of section 271AAA of the Income-Tax Act, 1961.

1.3.2] Copy of show cause notices dated 12-03-2014 and 20-02-2018 as issued under section 274 read with section 271AAA of the Income-Tax Act, 1961 for the Assessment Year 2012-13 are also reproduced hereunder for your ready reference:

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1.3.3] On perusal of these show cause notices, it is quite evident that the assessing officer initiated penalty proceedings under section 271AAA of the Income-Tax Act, 1961 but the appellant was show caused on the charge of concealment of particulars of income or furnishing inaccurate particulars of income which falls under the scope and purview of section 271(1)(c) of the Income-Tax Act, 1961 and not under the purview of section 271AAA of the Income-Tax Act, 1961.

1.3.4] The assessing officer in the show cause notice did not specify the default and charge against the appellant which necessitated levy of penalty under section 271AAA of the Income-Tax Act, 1961. The show cause notice as issued prior to the levy of penalty under section 271AAA of the Income-Tax Act, 1961 was vague and issued in a casual fashion which makes the alleged show cause notice defective and invalid and consequently, order imposing penalty of Rs. 6,25,000/- under section 271AAA of the Income-Tax Act, 1961 deserves to be quashed.

1.4.1] The aforesaid issue is squarely covered in favour of the appellant by the decision of the Hon’ble ITAT Chandigarh Bench in the case of Gillco Developers and Builders (P.) Ltd. v. DCIT, Central Circle-II, Chandigarh as reported in [2017] 85 taxmann.com 339 (Chandigarh - Trib.) wherein it has been categorically held that: “20. A perusal of the above notice shows that though the Assessing officer has intended to initiate penalty proceedings u/s 271AAA(1) of the Act, however, the wording written in the body of the letter does not conform to the charges of the provisions of section 271AAA of the Act, rather, the assessee has been show caused on the charge of furnishing of inaccurate particulars of income, which falls under the scope and purview of section 271(1)(c) of the Act. The assessee, therefore, is not show caused for levy of penalty under the provisions of section 271AAA, rather for doing an act inviting penalty u/s 271(1)(c) of the Act, which otherwise is neither arising out of the facts of the case nor established against the assessee. Thus, the penalty proceedings conducted against the assessee u/s 271AAA of the Act were invalid at its very inception because of the defective and invalid show cause notice, rendering the entire penalty proceedings void ab initio. The penalty levied against the assessee is thus not sustainable on this score also.” [Emphasis Supplied]

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1.4.2] The aforesaid issue is also covered in favour of the appellant by the recent judgments of the Hon’ble ITAT, Indore Bench wherein it has been categorically held that the show cause notice which is not in accordance with the mandates of law and wherein the matter written in the body of the notice issued under section 274 of the Income-Tax Act, 1961 does not refer to the charges of provision of section 271AAB of the Income-Tax Act, 1961, makes the alleged notice defective and invalid and thus, penalty order passed consequentially deserves to be set-aside. The decision rendered in the below cited judgments is squarely applicable to the facts of the present case since both the penalties i.e. penalty under section 271AAA and section 271AAB of the Income-Tax Act, 1961 are levied as a specified percentage of the undisclosed income.

Relevant extracts from few of these judicial precedents which have enunciated the above-mentioned principles are reproduced hereunder for your ready reference:

1.4.3] The Hon’ble ITAT Indore Bench in the case of Dr. Rajesh Jain Vs. DCIT (Central)-1, Indore [ITA No. 905/Ind/2018] vide order dated 19-02-2020 has categorically held that:

“11. From going through the above notice issued to the assessee, we find that there is no mention about various conditions provided u/s 271 AAB of the Act. In the notice dated 22.03.2016 the Ld. A.O has very casually used the proforma used for issuing notice before levying penalty u/s 271(1)(c) of the Act for the concealment of income or furnishing of inaccurate particulars of income. It does not talk anything about various clauses of section 271AAB of the Act for levying penalty @10%/20%/30%. Certainly such notice has a fatal error and technically is not a correct notice in the eyes of law because it intends to penalize an assessee without spelling about the specific charge against the assessee. 12. Hon'ble Jurisdictional High Court in the case of PCIT V/s Kulwant Singh Bhatia (supra) dealt the issue of defective notice issued u/s 274 r.w.s. 271(1)(c) of the Act and Hon'ble court after relying judgment of Hon'ble Supreme Court in the case of CIT V/s Manjunatha Cotton Ginning Factory and CIT v/s SSA’S Emerald Meadows (supra) held that such show cause notices would not satisfy the requirement of law as notice was not specific. Merely 10

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issuing notice in general proforma will negate the very purpose of natural justice. Hon'ble Apex Court in the case of Dilip N Shraf 161 Taxmann 218 held that “the quasi criminal proceedings u/s 271(1)(c) of the Act ought to comply with the principles of natural justice”. 16. We, therefore respectfully following the judgment/decision referred above and in the given facts and circumstances of the case wherein the matter written in the body of the notice issued u/s 274 of the Act does not refer to the charges of provision of Section 271AAB of the Act makes the alleged notice defective and invalid and thus deserves to be quashed. Since the penalty proceedings itself has been quashed the impugned penalty of Rs. 2,04,900/- stands deleted. We accordingly allow the legal ground raised by the assessee challenging the validity of notice issued u/s 274 r.w.s. 271AAB of the Act and quash the penalty proceeding as void ab intio. In the result appeals of the assessee(s) for Assessment Years 2014-15 is allowed on legal ground.” [Emphasis Supplied]

1.4.4] The Hon’ble ITAT Chennai Bench ‘A’ in the case of DCIT Vs. Shri R. Elangovan [ITA No. 1199/CHNY/2017] has categorically held that:

“5…………..It is clear from the Sub Section (3) of Section 271 AAB that Sections 274 and Section 275 of the Act shall, so far as may be, apply. Sub Section (1) of Section 274 of the Act mandates that order imposing penalty has to be imposed only after hearing the assessee or giving a assessee opportunity of hearing. Opportunity that is to be given to the assessee should be a meaningful one and not a farce. Notice issued to the assessee reproduced (supra), does not show whether penalty proceedings were initiated for concealment of income or for furnishing inaccurate particulars of income or for having undisclosed income within the meaning of Section 271AAB of the Act. Notice in our opinion was vague. Hon’ble Karnataka High Court in the case of SSA’s Emerald Meadows (supra) relying in its own judgment in the case of Manjunatha Cotton and Ginning Factory (supra) had held as under:- ‘’2. This appeal has been filed raising the following substantial questions of law: (1) Whether, omission if assessing officer to explicitly mention that penalty proceedings are being initiated for furnishing of inaccurate particulars or that for concealment of income makes the penalty 11

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order liable for cancellation even when it has been proved beyond reasonable doubt that the assessee had concealed income in the facts and circumstances of the case? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the penalty notice under Section 274 r.w.s. 271(1)(c) is bad in law and invalid despite the amendment of Section 271(1B) with retrospective effect and by virtue of the amendment, the assessing officer has initiated the penalty by properly recording the satisfaction for the same? (3) Whether on the facts and in the circumstances of the case, the Tribunal was justified in deciding the appeals against the Revenue on the basis of notice issued under Section 274 without taking into consideration the assessment order when the assessing officer has specified that the assessee has concealed particulars of income? 3. The Tribunal has allowed the appeal filed by the assessee holding the notice issued by the Assessing Officer under Section 274 read with Section 271(1)(c) of the Income Tax Act, 1961 (for short ‘the Act’) to be bad in law as it did not specify which limb of Section 271(1)(c) of the Act, the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income. The Tribunal, while allowing the appeal of the assessee, has relied on the decision of the Division Bench of this Court rendered in the case of CIT vs. Manjunatha Cotton and Ginning Factory (2013) 359 ITR 565. 4. In our view, since the matter is covered by judgment of the Division Bench of this Court, we are of the opinion, no substantial question of law arises in this appeal for determination by this Court. The appeal is accordingly dismissed’’. In the earlier case of Manjunatha Cotton and Ginning Factory (supra) their lordship had observed as under:- ‘’Notice under section 274 of the Act should specifically state the grounds mentioned in section 271(1)(c) , i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income. Sending printed form where all the grounds mentioned in section 271 are mentioned would not satisfy the requirement of law; The assessee should know the grounds which he has to meet specifically. Otherwise, the principles of natural justice are offended. On the basis of such proceedings, no penalty could be imposed on the assessee;) taking up of penalty proceedings on one limb and finding the assessee guilty of another limb is bad in law; penalty proceedings are distinct from the assessment proceedings: though 12

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proceedings for imposition of penalty emanate from proceedings of assessment, they are independent and a separate aspect of the proceedings; The findings recorded in the assessment proceedings in so far as “concealment of income” and “furnishing of incorrect particulars” would not operate as res judicata in the penalty proceedings. It is open to the assessee to contest the proceedings on the merits. However, the validity of the assessment or reassessment in pursuance of which penalty is levied, cannot be the subject matter of penalty proceedings. The assessment or reassessment cannot be declared invalid in the penalty proceedings’’. View taken by the Hon’ble Karnataka High Court in the above judgment was indirectly affirmed by the Hon’ble Apex Court, when it dismissed an SLP filed by the Revenue against the judgment in the case of SSA’s Emerald Meadows (supra), specifically observing that there was no merits in the petition filed by the Revenue. Considering the above cited judgments, we hold that the notice issued u/s.274 r.w.s. 271AAB of the Act, reproduced by us at para 5 above was not valid. Ex-consequenti, the penalty order is set aside.” [Emphasis Supplied]

1.4.5] The Hon’ble Apex Court in the case of CIT Vs SSA’s Emerald Meadows as reported in [2016] 73 taxmann.com 248 (SC) dismissed the Special Leave Petition filed by the Department against the order of the Hon’ble Karnataka High Court. The Hon'ble Karnataka High Court in the case of CIT Vs SSA's Emerald Meadows as reported in [2016] 73 taxmann.com 241 (Karnataka) following its own decision in the case of CIT Vs Manjunatha Cotton & Ginning Factory as reported in [2013] 35 taxmann.com 250/218 Taxman 423/359 ITR 565 dismissed the appeal of revenue by observing as under:

“3. The Tribunal has allowed the appeal filed by the assessee holding the notice issued by the Assessing Officer under Section 274 read with Section 271(1)(c) of the Income Tax Act, 1961 (for short 'the Act') to be bad in law as it did not specify which limb of Section 271(1)(c) of the Act, the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income. The Tribunal, while allowing the appeal of the assessee, has relied on the decision of the Division Bench of this Court rendered in the case of CIT v. Manjunatha Cotton

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& Ginning Factory [2013] 359 ITR 565/218 Taxman 423/35 taxmann.com 250 (Kar.). 4. In our view, since the matter is covered by judgment of the Division Bench of this Court, we are of the opinion, no substantial question of law arises in this appeal for determination by this Court. The appeal is accordingly dismissed.” [Emphasis Supplied] 1.4.6] The Hon’ble Madhya Pradesh High Court in the case of Pr CIT Vs Kulwant Singh Bhatia [ITA No. 9 to 14 of 2018] held that no penalty under section 271(1)(c) of the Act is leviable when there is no specific charge mentioned in the show cause notice [refer Para 11 of the decision]:

“11. On due consideration of the arguments of the learned counsel for the appellant, so also considering the fact that the ground mentioned in show-cause notice would not satisfy the requirement of law, as notice was not specific, we are of the view that the learned Tribunal has rightly relying on the decision of CIT V/s. Manjunatha Cotton Ginning Factory (supra) and CIT V/s. SSA'S Emerald Meadows(supra) rightly allowed the appeal of the assessee and set aside the order of penalty imposed by the authorities. No substantial question of law is arising in these appeals. ITA.No(s).9/2018, 10/2018, 11/2018, 12/2018, 13/2018 and 14/2018, filed by the appellant have no merit and are hereby dismissed.” [Emphasis Supplied]

1.5] In view of the above discussion and judicial precedents cited supra, it is quite clear that the assessing officer mechanically issued the show cause notice in a general proforma without applying his mind and without mentioning any specific charge for which the appellant was required to be show caused thereby negating the principles of natural justice. It is also pertinent to mention that the assessing officer initiated penalty proceedings under section 271AAA of the Income-Tax Act, 1961 but the appellant was show caused on the dual charge of concealment of particulars of income or furnishing inaccurate particulars of income which falls under the scope and purview of section 271(1)(c) of the Income-Tax Act, 1961 and not under the purview of section 271AAA of the Income-Tax Act, 1961. The show cause notice thus suffers from a fatal error which is not curable under section 292BB of the Income-Tax Act, 1961 and henceforth, penalty of Rs. 6,25,000/- as levied under section 271AAA of the Income-Tax Act, 1961 on the basis of such defective 14

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and invalid show cause notice is not sustainable on this ground itself and deserves to be deleted in entirety.

2] GROUND NO. 1 – CHALLENGING THE LEVY OF PENALTY OF RS. 6,25,000/- UNDER SECTION 271AAA OF THE INCOME-TAX ACT, 1961 SINCE THE AMOUNT OF ADDITIONAL INCOME WAS DECLARED IN THE STATEMENT RECORDED UNDER SECTION 132(4) OF THE INCOME-TAX ACT, 1961 AND TAX DUE ON SUCH ADDITIONAL INCOME WAS ALSO PAID

2.1] The appellant in this ground of appeal has challenged the levy of penalty of Rs. 6,25,000/- under section 271AAA of the Income-Tax Act, 1961 since the amount of additional income was declared in the statement recorded under section 132(4) of the Income-Tax Act, 1961 and tax due on such additional income was paid and more so when no question was asked during the course of recording of statement under section 132(4) of the Income-Tax Act, 1961 in respect of manner of earning such additional income.

2.2] In the facts of the present case, the amount of additional income of Rs. 62,50,000/- was accepted by the appellant in the statement recorded under section 132(4) of the Income-Tax Act, 1961 and such amount of additional income was duly incorporated in the income-tax return of the appellant for the Assessment Year 2012-13 and legitimate amount of tax due on such additional income was duly paid.

2.3] It has been held in various judicial precedents that the assessee is entitled for the immunity provided in section 271AAA of the Income-Tax Act, 1961 in cases where additional income is declared in the statement recorded under section 132(4) of the Income-Tax Act, 1961 and the amount of tax due on such additional income is also paid by the assessee.

Relevant extracts from few of the judicial precedents that have enunciated the above principle are reproduced hereunder for your ready reference:

2.4.1] The Hon’ble ITAT Chandigarh Bench ‘A’ in the case of ACIT, Central Circle, Patiala v. Munish Kumar Goyal as reported in [2014] 45 taxmann.com 563 (Chandigarh - Trib.) has held that:

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“10. Plain reading of sub-section would show that if the assessee during the course of search in a statement admits to some undisclosed income and pay taxes on the same then penalty cannot be levied in terms of sub-sec (1) of this Section. In the case before us, the amount of Rs. 4 crore which was surrendered during search, has been declared by the assessee in the return and taxes have been paid accordingly. Therefore the assessee is normally entitled for the immunity provided in Sec 271AAA itself. However, the Revenue has raised further dispute that whether the assessee has disclosed the manner in which income has been earned. In the penalty order passed by the Assessing officer following questions and answers have been extracted: "Q. Do you want to say anything more ? Ans. I voluntarily surrender a sum of Rs. 4.00 crore (Rs. Four crore) for current financial year i.e. 2009-10 relevant to A.Y. 2010-11 in any (should be 'my') individual capacity. They cover all the discrepancies in the seized papers during the course of search proceedings." 11. Therefore clearly the Revenue has not asked the assessee to disclose the manner in which such income was earned. In any case once the income is surrendered during the course of search u/s 132(4) it can be safely assumed that during discussion the assessee must have disclosed the manner. In any case we find force in the submissions of the Ld. Counsel for the assessee that if the Explanation of the assessee has been accepted for a sum of Rs. 1987500 out of total surrender of Rs. 4 crore then same manner should have been accepted for the whole of the amount. It is not clear from the penalty order how explanation for Rs. 1987500 was accepted. In any case the Ld. CIT(A) has considered all these issues in detail and the D.R. for the Revenue has not referred to any material or decision which can controvert the findings of the CIT(A). In the following cases which have been relied on by the Ld. Counsel for the assessee which was clearly held that penalty is not leviable.” [Emphasis Supplied]

2.4.2] The Hon’ble ITAT Cuttack Bench in the case of Pramod Kumar Jain v. DCIT as reported in [2013] 33 taxmann.com 651 (Cuttack - Trib.) has held that:

“6. We have heard the rival contentions and perused the material available on record. On consideration of the facts and circumstances of the case, we are inclined to hold that no definition could be given 16

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to the "specified manner" insofar as the very statement on oath u/s. 132(4) specifies the manner on which the assessee is prepared to pay tax thereon. The inscribing in the books of account was taken care of by the assessee when he filed the returns in pursuance to notice u/s. 153A accounting the assets. Therefore, the case laws cited at the Bar clearly indicate that the penalty is not automatic if one of the purported condition is not fulfilled although all the conditions have been agreed to of having fulfilled by the Assessing Officer insofar as the tax and interest has been recovered. Penalty has been levied after the tax has been recovered therefore answers the queries raised by the learned DR for that the said provisions become redundant was not the intention of the legislation. The manner, during the search operation, is noted by the search party which the Assessing Officer has acceded to. Therefore, following the decisions as relied upon by the learned Counsel for the assessee, wherein the Tribunal was pleased to consider cancelling the penalty so levied are also applicable to the assessees' cases before us insofar as there is no prescribed method to indicate the manner in which income was generated when the definition of "undisclosed income" has been defined in the Act itself when no income of the specified previous year represented "either wholly or partly" which onus lay upon the assessee stood discharged. In view of the above, we are of the considered view that the levy of penalty u/s. 271AAA in the instant cases are not justified and as such, we cancel the penalty so levied u/s. 271AAA for the AYs under consideration in the case of respective assessees.” [Emphasis Supplied]

2.5.1] Further, in the facts of the present case, legitimate amount of tax due on additional income had been paid well before the conclusion of the assessment as well as penalty proceedings.

2.5.2] The provision of sub-section (2) of section 271AAA of the Income-Tax Act, 1961 which specifies one of the conditions for granting immunity as payment of tax, together with interest, in respect of undisclosed income corresponds to erstwhile Explanation 5 of section 271(1)(c) of the Income-Tax Act, 1961. It is pertinent to mention that no time limit has been prescribed in sub-section (2) of section 271AAA of the Income-Tax Act, 1961 for payment of tax, together with interest, in respect of such undisclosed income.

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2.5.3] It has been categorically held in various judicial precedents that once a time limit for payment of tax and interest has not been set out by the statute, it cannot indeed be open to the Assessing Officer to read such a time limit into the scheme of the Section or to infer one. Hence, the judicial precedents have laid down that it would be sufficient compliance of the provisions of sub-section (2) of section 271AAA of the Income-Tax Act, 1961 if the assessee pays the amount of tax due on the additional income before the conclusion of assessment proceedings or even before the conclusion of penalty proceedings.

Relevant extracts from few of the judicial precedents that have enunciated the above principle are reproduced hereunder for your ready reference:

2.6.1] The Hon’ble ITAT Kolkata Bench ‘A’ in the case of DCIT, Central Circle III, Kolkata v. Pioneer Marbles & Interiors (P.) Ltd. as reported in [2012] 19 taxmann.com 301 (Kol.) has held that:

“7. We find that under the scheme of Section 271 AAA, there is a complete paradigm shift so far as penalty in respect of unaccounted income unearthed as a result of search operation carried out on or after 1st June 2007 is concerned. Unlike in the case of penalty under section 271(1)(c), Section 271 AAA, without any reference to findings or presumptions of concealment of income or the findings or presumptions of furnishing of inaccurate particulars, provides that in respect of unaccounted income in the cases where search initiated after 1st June 2007, the assessee is to pay a penalty @ 10% of unaccounted income. Sub section 2 of Section 271 AAA, however, relaxes the rigour of this penalty provision in a situation in which (i) in the course of the search, in a statement under section 132(4), admits the undisclosed income and specifies the manner in which such income has been derived; (ii) substantiates the manner in which the undisclosed income was derived; and (iii) pays the tax, together with interest, if any, in respect of the undisclosed income. While payment of taxes, along with interest, by the assessee is one of the conditions precedent for availing the immunity under section 271AAA(2), there is no time limit set out for such payments by the assessee. Once a time limit for payment of tax and interest has not been set out by the statute, it cannot indeed be open to the 18

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Assessing Officer to read such a time limit into the scheme of the Section or to infer one. There is thus no legally sustainable basis for the stand of the Assessing Officer that in a situation in which due tax and interest has not been paid in full before filing of the relevant income tax return, the assessee will not be eligible for immunity under section 271 AAA(2). 8. While dealing with Explanation 5 to Section 271(1)(c), which is broadly on the same lines, Hon'ble Gujarat High Court, in the case of CIT v. Mahendra C. Shah [2008] 299 ITR 305/ 172 Taxman 58 has observed that, "……there is no prescription about the point of time when the tax had to be paid qua the amount of income declared in the statement under section 132(4) of the Act". We must, however, point out that even after making these specific observations Their Lordships had to treat the conclusion of assessment proceedings as outer limit for making payment of tax and interest but that was because of the peculiar nature of penalty provisions under section 271(1)(c) wherein Assessing Officer has to record the satisfaction in the course of assessment proceedings itself - something which is not a condition precedent for imposition of penalty under section 271 AAA. Their Lordships had held that "…However, the outer limit has to be the point of time when the assessment proceedings are undertaken by the Assessing Officer because the opening portion of section 271(1) of the Act requires the Assessing Officer to record satisfaction in the course of such proceedings, and the satisfaction has to be as regards the concealment of particulars of income or furnishing inaccurate particulars of income." Section 271 AAA, as the statute unambiguously provides, does not require any subjective satisfaction of the Assessing Officer to be arrived at during the assessment proceedings, and, therefore, the outer limit of payment before the conclusion of assessment proceedings will not come into play. 9. In our considered view, therefore, on the facts of the present case wherein entire tax and interest has been duly paid well within the time limit for payment of notice of demand under section 156 and well before the penalty proceedings were concluded, the assessee could not be denied the immunity under section 271AAA(2) only because entire tax, along with interest, was not paid before filing of income tax return or, for that purpose, before concluding the assessment proceedings. 10. For the reasons set out above, we approve the conclusions arrived at by the CIT(A) and decline to interfere in the matter.”

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[Emphasis Supplied]

2.6.2] The Hon’ble Gujarat High Court in the case of CIT v. Mahendra C. Shah as reported in [2008] 172 Taxman 58 (Gujarat) has categorically held that:

“12. The contentions raised on behalf of the revenue are not required to be accepted for the simple reason that in the first instance, there is no prescription as to the point of time when the tax has to be paid qua the amount of income declared in the statement made under section 132(4) of the Act. The Tribunal was justified in holding that there would be sufficient compliance of the provision if tax is shown to have been paid before the assessment was completed. The reasoning which has weighed with the Tribunal is that the search proceedings were conducted on 3-7-1987 when the statement under section 132(4) of the Act was made. The last date for payment of advance tax qua the last instalment of advance tax was 15-12-1987 in such a case, according to the Tribunal, and in the event, the assessee did not pay tax qua the income declared in the statement made under section 132(4) of the Act, the assessee became liable to pay interest in accordance with the relevant provisions of the Act because Exception No. 2 itself specifies payment of tax, together with interest, if any, indicating that Legislature did not stipulate any specified time limit for payment of tax. There is no infirmity in this reasoning. 13. However, the outer limit has to be the point of time when the assessment proceedings are undertaken by the Assessing Officer because the opening portion of section 271(1) of the Act requires the Assessing Officer to record satisfaction in the course of such proceedings, and the satisfaction has to be as regards the concealment of particulars of income or furnishing inaccurate particulars of income. In other words, a satisfaction as to concealment can be arrived at the earliest point of time only in the course of assessment proceedings and for that purpose the Assessing Officer is required to verify and ascertain whether the income has been declared and tax paid thereon. For the purposes of Explanation 5, which comes into play only in case of search and seizure proceedings, return of income per se would have no relevance if one reads entire Explanation 5, including the two Exceptions. The emphasis on disclosure in the return of income is relevant only for the purposes of avoiding the deeming fiction of

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concealment in relation to the previous year which has already ended before the date of search but return of income for such year had not been furnished, or where return has been filed such income has not been disclosed. Insofar as a previous year which is to end on or after the date of search return of income would have hardly any relevance because the Explanation itself stipulates that regardless of such income having been declared in any return of income furnished on or after the date of search the assessee would become liable to imposition of penalty, the only exception being a declaration at the time of search. As to what that declaration has to be has already been examined hereinbefore and it is not necessary to repeat the same. 14. In the present case, admittedly the assessment year being 1988- 89 and the search having taken place on 3-7-1987 the return of income was not due before 31-7-1988. 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. 15. Insofar 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 21

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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 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. 16. Hence, the Tribunal was justified in coming to the conclusion that insofar 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.” [Emphasis Supplied]

2.7] In view of the above discussion and judicial precedents cited supra, it is clearly evident that levy of penalty under section 271AAA of the Income-Tax Act, 1961 is not justifiable in the facts of the present case since additional income was declared by the appellant in the statement recorded under section 132(4) of the Income-Tax Act, 1961 and legitimate amount of tax due on the amount of additional

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income was also paid in due course of time. The appellant was therefore eligible to claim immunity against the penal provisions of section 271AAA of the Income-Tax Act, 1961 and henceforth, penalty of Rs. 6,25,000/- as levied by the assessing officer is neither legal nor proper and deserves to be deleted in entirety.

3.1] It is worth mentioning that levy of penalty under section 271AAA of the Income-Tax Act, 1961 is not justifiable where the amount of additional income is declared in the statement recorded under section 132(4) of the Income-Tax Act, 1961 and tax due on such additional income is paid and more so when no question is asked during the course of recording of statement under section 132(4) of the Income-Tax Act, 1961 in respect of manner of earning such additional income.

3.2.1] The appellant in his statement as recorded under section 132(4) of the Income-Tax Act, 1961 during the course of search agreed to surrender an amount of Rs. 5 crores merely on the basis of suggestion of the authorized officer without examining the details and loose papers as found and seized from the residential and business premises.

3.2.2] The appellant subsequently along-with his brother, Shri Pankaj Kalani declared additional income of Rs. 1,25,00,000/- while filing their income-tax returns and that too on a precautionary basis after examining the loose papers and after considering the effect of excess jewellery and cash found from the premises of the appellant.

3.3.1] Copy of statement of the appellant as recorded under section 132(4) of the Income-Tax Act, 1961 has been filed on Page No. 21-45 of the paper book.

3.3.2] On perusal of the statement of the appellant as recorded during the course of search, it is quite evident that the appellant in response to the last question agreed to surrender an amount of Rs. 5 crores on his behalf and on behalf of his other family members and thereafter the authorized officer did not ask any further questions to the appellant in respect of the manner of earning of such additional income.

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3.3.3] It has been categorically held in various judicial precedents that when the statement is being recorded by the authorized officer, it is incumbent upon the authorized officer to explain the provisions of the Income-Tax Act, 1961 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. 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. 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 sub-section (2) while making statement under section 132(4) of the Income-Tax Act, 1961.

3.3.4] Further, it has also been held that levy of penalty under section 271AAA of the Income-Tax Act, 1961 is not justifiable if no question is asked during the course of recording of statement under section 132(4) of the Income-Tax Act, 1961 in respect of the manner of earning such additional income.

Relevant extracts from few of the judicial precedents that have enunciated the above principles are reproduced hereunder for your ready reference:

3.4.1] The Hon’ble Gujarat High Court in the case of Pr. CIT v. Mukeshbhai Ramanlal Prajapati as reported in [2017] 398 ITR 170 (Gujarat) has categorically held that:

“10. It can thus be seen that this court in the case of Mahendra C. Shah and the Allahabad High Court in the case of Radha Kishan Goel (supra) have put considerable stress on the recording of the statement under section 132(4) of the Act in the context of the requirement of the assessee to disclose the manner in which the undisclosed income was derived in order to avoid penalty. The High Court in the case of Mahendra C. Shah, in particular, observed that considering the social environment, it is not possible to expect from an assessee 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 court went on to observe that if the income is 24

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declared and tax is paid thereon, there would be substantial compliance. 11. It is this principle which the Commissioner of Income-tax (Appeals) and the Tribunal have applied in the present case. As noted, the Commissioner of Income-tax (Appeals) was specific that no question was put to the assessee while recording statement under section 132 regarding the manner of deriving the undisclosed income. Counsel for the Revenue, however, vehemently contended that in the present case, the penalty was being imposed under section 271AAA of the Act and the statutory provisions enabling the assessee to avoid such a penalty are entirely different as compared to Explanation 5 to section 271. 13. Sub-section (2) of section 271AAA thus while retaining the other requirements of avoiding penalty as provided in clause (ii) of Explanation 5 has now introduced an additional requirement of the assessee having to substantiate the manner in which, the undisclosed income was derived. It is this requirement which the counsel for the Revenue would place great emphasis on. According to her, onus is now entirely shifted on the assessee not only to make a disclosure of the undisclosed income but also to specify the manner, in which, the income has been derived and to substantiate the same. It was therefore, contended that the earlier decisions of this court in the case of Mahendra C. Shah and the decision of the Allahabad High Court in the case of Radha Kishan Goel rendered in the back drop of different statutory provisions would not automatically apply. 14. We do not reject this contention totally. However, in so far as the facts of the present case are concerned, the field would still be held by the decision of this court in the case of Mahendra C. Shah (supra). Sub-section (2) of section 271AAA imposes an additional condition of the assessee having to substantiate the manner in which, the undisclosed income was derived. This requirement, however, must be seen as consequential to or corollary to the base requirement of specifying the manner, in which, the undisclosed income was derived. It is only when such declaration is made, the question of substantiating such disclosure or claim would arise. If, as in the present case, the Revenue failed to question the assessee while recording his statement under section 132(4) of the Act as regards the manner of deriving such income, the Revenue cannot jump to the consequential or later requirement of substantiating the manner of deriving the income. In the context of the requirement of the assessee specifying the manner of deriving the income the decision of this court in the case of Mahendra C. Shah (supra) would hold the field 25

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even in the context of sub-section (2) of section 271AAA of the Act. It is only when the officer of the raiding party recording the statement of the assessee under section 132(4) of the Act elicits a response from the assessee's this requirement, the assessee's responsibility to substantiate the manner of deriving such income would commence. When the base requirement itself fails, the question of denying the benefit of no penalty would not arise.” [Emphasis Supplied]

3.4.2] The Hon’ble Delhi High Court in the case of Pr. CIT v. Emirates Technologies (P.) Ltd. as reported in [2017] 399 ITR 189 (Delhi) has held that:

3.The Commissioner of Income-tax (Appeals) in para 4.7 of the order dated November 4, 2013 noted that no specific query had been put to the assessee by drawing his attention to section 271AAA of the Act asking him to specify the manner in which the undisclosed income, surrendered during the course of search, had been derived. The Commissioner of Income-tax (Appeals), therefore, relying on the decisions of this court held that the jurisdictional requirement of section 271AAA was not met. 4.The above view has been concurred with by the Income-tax Appellate Tribunal. 5.In the facts and circumstances of the case, the court is of the view that the concurrent decision of the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal represent a plausible view which cannot be said to be perverse. No substantial question of law arises for consideration. The appeal is accordingly dismissed. [Emphasis Supplied]

3.4.3] The Hon’ble ITAT Chandigarh Bench ‘A’ in the case of Sunil Kumar Bansal v. DCIT as reported in [2015] 62 taxmann.com 78 (Chandigarh - Trib.) has held that:

“10. From the above it as well as the observation of the hon'ble Gujarat High Court in case of Mahendra C. Shah (supra) it becomes clear that if no question is asked during the statement recorded under section 132(4) the assessee cannot be expected to further substantiate the manner of earning of income. Since taxes have already been paid, therefore in our opinion, penalty could not have

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been levied. Accordingly we set aside the order of the learned Commissioner of Income-tax (Appeals) and delete the penalty.” [Emphasis Supplied]

3.4.4] The Hon’ble ITAT Ahmedabad Bench ‘D’ in the case of ACIT, Central Circle-2, Surat v. Shreenarayan Sitaram Mundra as reported in [2017] 83 taxmann.com 231 (Ahmedabad - Trib.) has held that: “9.3 As observed earlier, the Revenue is aggrieved by non- compliance of the section 271AAA(2)(i) of the Act. As per section 271AAA(2)(i), one of the conditions for obtaining relief from the imposition of penalty under s.271AAA is that the assessee in the statement recorded under s.132(4) of the Act admits the undisclosed income and 'specifies the manner' in which such income has been derived. Section 271AAA(2)(ii) casts obligation on the part of the assessee to 'substantiate the manner' in which the undisclosed income was derived. Thus, sub-section (2)(ii) finds its genesis from sub-section 2(i) of the Act. Admittedly, the Revenue is not aggrieved by the condition stipulated in sub-section 2(ii) of the Act. Impliedly, the Revenue admits that the assessee has not failed to substantiate the manner in which the undisclosed income derived. This being so, it follows by necessary implication that the assessee has not failed to specify the manner at the first place when substantiation thereof has not been called into question by the Revenue. Thus, the case of the Revenue requires to be summarily dismissed on this ground alone. Notwithstanding, we further note that the assessee has replied to the query raised while recording the statement as called for. The revenue does not appear to have quizzed the assessee for satisfying the manner in which the purported undisclosed income has been derived. The income considered as an undisclosed income in the statement under s.132(4) has been duly incorporated in the return filed pursuant to search. Therefore, the revenue in our view now cannot plead deficiency on the part of the assessee to specify the manner which has not been called into question at the time of search. We simultaneously note that nowhere in the assessment order or in the penalty order, the revenue has made out a case that the manner of earning undisclosed income was enquired into post search stage either. The revenue has not pointed out any query which remained unreplied or evaded in the course of search or post search investigation. Therefore looking from any angle, it is difficult to hold in favour of the revenue. Accordingly, we decline to interfere in the order of the CIT (A).”[Emphasis Supplied]

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3.4.5] The Hon’ble ITAT Delhi Bench ‘E’ in the case of Neerat Singal v. ACIT, Central Circle-13, New Delhi as reported in [2013] 37 taxmann.com 189 (Delhi - Trib.) has categorically held that:

3.5] In view of the above discussion and judicial precedents cited supra, it is quite clear that levy of penalty of Rs. 6,25,000/- under section 271AAA of the Income-Tax Act, 1961 is grossly unjustifiable in the facts of the present case since no question was asked during the course of recording of statement under section 132(4) of the Income-Tax Act, 1961 in respect of manner of earning of such additional income and in the absence of such query being raised by the authorized officer during the course of recording of statement under section 132(4) of the Income-Tax Act, 1961, no penalty could have been levied under section 271AAA of the Income-Tax Act, 1961 for the want of substantiating the manner of earning such additional income more so when the amount of additional income was included in the income-tax return and the amount of tax due on such additional income was also paid. Hence, penalty of Rs. 6,25,000/- as levied by the assessing officer under section 271AAA of the Income-Tax Act, 1961 is neither legal nor proper and deserves to be deleted in entirety. 28

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and submitted that the assessee has not raised any objection before

the authorities below. He further contended that merely a defective

notice should not be the reason of quashing the penalty

proceedings when the assessee himself has participated into the

proceedings. In support of Ld. DR relied upon the judgment of

Hon'ble Madras High Court rendered in the case of Sundaram

Finance Ltd. vs. ACIT.

judgment of the Karnataka High Court in the case of CIT vs.

Manjunatha Cotton & Ginning Factory (2013) 35 taxmann.com

250/218 Taxman 423/359 ITR 565 and also the judgment of

Hon'ble Supreme Court in the case of CIT vs. SSA’s Emerald

Meadows (2016) 73 taxmann.com 248(SC). We find that the

assessing officer imposed penalty by observing as under:

“7. The assessee has disclosed the additional income only as a result of search and seizure operation and the assessee could not substantiate the manner in which the undisclosed income has been derived. Therefore, it is evident that the impugned amount would not have been offered for taxation had there been no search and seizure operation in this case. The provision of section 271AAA says as under: The Assessing Officer may notwithstanding anything contained in any other provisions of this Act, direct that, in a 29

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case where search has been initiated under section 132 on or after the 1st day of June, 2007 but before the 1st day of July, 2012, the assessee shall pay by way of penalty, in addition to tax, if any payable by him a sum computed at the rate of ten per cent of the undisclosed income of the specified previous year.” 8. Further the assessee could not substantiate the manner in which the undisclosed income was derived during the course of assessment proceedings as well as penalty proceedings. Therefore, it is evident that the impugned amount surrendered by the assessee during the search is nothing but concealed income of the assessee. Therefore, penalty u/s 271AAA is leviable on the admitted undisclosed income of Rs.62,50,000/- for the A.Y. 2012-13. 9. In view of above facts and circumstances, I am satisfied that the assessee is liable to penalty under section 271AAA of the Income Tax Act on the admitted undisclosed income of Rs.62,50,000/- for the A.Y.2012-13 as the assessee could not substantiate the manner in which the undisclosed income has been derived.”

view of the binding precedence coupled with the facts that the

notice initiating penalty u/s 271AAA is not in accordance with law.

Moreover, the Assessing Officer has not confronted the assessee to

substantiate the manner in which the additional income was earned

in the absence of such query. It cannot be inferred that the

assessee failed to substantiate the manner which additional income

was earned. We, therefore, direct the Assessing Officer to delete the

penalty. 30

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Kalani the assessee has raised following grounds of appeal:

parties have adopted same arguments. We have decided the

ITANo.700/Ind/2019 by observing as under:

Deepak and Pankaj Kalani /ITANos.700 & 701/Ind/2019

It cannot be inferred that the assessee failed to substantiate the manner which additional income was earned. We, therefore, direct the Assessing Officer to delete the penalty.

Therefore, taking a consistent view the Assessing Officer is hereby directed to delete the penalty.

Sd/- Sd/- (MANISH BORAD) (KUL BHARAT) ACCOUNTANT MEMBER JUDICIAL MEMBER

Indore; �दनांक Dated : 27/08/2020 Patel/PS Copy to: Assessee/AO/Pr. CIT/ CIT (A)/ITAT (DR)/Guard file. By order

Assistant Registrar, Indore