SHRI NIRAL KRUPESH PATEL,BARODA vs. THE DY.CIT, CIRCLE-1(3), BARODA

आदेश/O R D E R PER BENCH The captioned appeals have been filed by the different Assessee against the orders of the Ld. Commissioner of Income-Tax (Appeals)- Vadodara (in short “Ld. CIT(A)”) involving respective Assessment Years. Since issues involve in all these appeals are identical, we proceed to dispose of all the appeals by this common order for the sake of convenience and brevity

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4.1 Subsequently, a summon dated 28th May 2013 was issued by the Assistant DIT (Investigation) under section 131(1A) of the Act requiring the assessee, among other things, the details of the insurance policies held by him and his family members.

4.2 However, the assessee, in the meantime, vide letter dated 24th of July 2013, addressed to the Commissioner of Income Tax under section 273A of the Act, disclosed an income of Rs. 5.30 crore representing the investment made by the him in the insurance policies in the different years. The details of the investment made in the insurance policies in different years stand as under:

Assessment Year Amount 2009-10 50,00,000 2010-11 75,00,000 2011-12 2,20,00,000 2013-14 1,85,00,000 Total 5,30,00,000

4.3 The assessee finally complied with the summon issued by the ADIT dated 28 May 2013 by making a reply dated 31st July 2013 along with the necessary documents as required in the notice issued under section 131 (1A) of the Act.

4.4 Subsequently a survey was conducted under section 133A of the Act at the business premises of the assessee dated 30th August 2013 but there was no incriminating material found by the survey team. However the assessee in the statement recorded during the survey has admitted in response to the question No. 20 that he has made unaccounted investment in the insurance policies, but further claimed that he has already disclosed such investment as additional income before CIT by filing application under section 273A of the Act vide letter dated 24th July 2013.

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4.5 The assessee vide letter dated 10th of September 2013 further informed to the ADIT about the fact that he has made disclosure for the investments made in insurance policies before the CIT under section 273A of the Act vide letter dated 24 July 2013.

5.1 However, the AO was of the view that the assessee has neither disclosed such additional income in the original income tax return filed under section 139 of the Act nor during the course of assessment framed under section 143(3) of the Act. Thus it is evident that the assessee never wanted to disclose such income. But he had to disclose such income in the return filed under section 148 of the Act as the facts about such income was unearthed during the survey conducted under section 133A of the Act dated 30th August 2013.

5.2 As per the AO, had the action not been taken by the department by conducting survey under section 133A of the Act, the assessee would not have offered the undisclosed investment in the insurance policies as income. Accordingly, the AO proposed to levy the penalty by issuing notice under section 274/271(1)(c) of the Act upon the assessee on account of concealment of income for the investment in the insurance policies.

5.3 The assessee in response to such notice submitted that he has already voluntary disclosed the investments made by him in the insurance policies as additional income by way of letter dated 24th July 2013 to the ld. CIT. As such, the

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undisclosed investment insurance policies was not detected by the AO during any proceedings. Therefore, there cannot be any penalty section 271(1)(c) of the Act for the investment made in the insurance policies on account of concealment of income.

5.4 However, the AO rejected the contention of the assessee and levied the penalty of Rs. 17,19,850/- being 100% of the amount of tax sought to be evaded for the concealment of income.

Being aggrieved by the order of the learned CIT (A) the assessee is in appeal before us.

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the detection by the Revenue about such undisclosed investment. As such, the letter issued by the ADIT dated 28 May 2013 and subsequently to enquire about the insurance policies of the assessee and his family members cannot be a reason to hold that the assessee has not disclosed income on account of such investments voluntary. It is because the letter issued by the ADIT was merely to enquire the details of the investment and it had no specific information on hand about such undisclosed investment.

7.1 The learned AR also contended that there was no specific charge mention in the show cause notice issued under section 274 read with section 271(1)(c) of the Act whether it was for concealment of income or furnishing inaccurate particulars of income. Thus in the absence of any specific charge, the penalty under section 271(1)(c) of the Act is not sustainable.

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enclosed as Exhibit C). This itself shows that details of all the insurance policies opened at his address was called for. iv. Subsequently, vide summons u/s 131(1 A) dated 24-06-2013, Shri Niral K Patel was asked to provide details and copies of all bank accounts/insurance policies (either operational or non operational) maintained by him as well as his companies/concerns for the period from 01-04-2009 till 24-06-2013. He was also asked to provide bank account/policy number, tenure of policy, premium paid, type of account, name and address of the bank branch. (Copy enclosed as Exhibit D).

v. Vide summons u/s 131(1A) dated 22-07-2013, the principal officer of Kotak Mahindra Old Mututal Life Insurance Limited was asked to provide details of all insurance policies opened at the address of Shri Niral K Patel(PAN: ACQPP6163R). It was also asked to provide details of insurance policies held in the name of Shri Krupesh N Patel, Shri Amish K Patel, Punja Niral Patel along with KYC norms. (Copy enclosed as Exhibit E). This shows that the details of insurance policies in case of other family members were also asked repeatedly and specifically by the Department. vi. Also, Kotak Mahindra Old Mutual Life Insurance Ltd has submitted the V details called for vide letter dated 22-07-2013 and 05-06-2013. (Copy of covering letters of the Bank are enclosed as Exhibit F) 4. It is pertinent to mention that the assessee Shri Niral K Patel had filed an application under 273A on 24.07.2013 but as evident from the above facts mentioned in para 3. that application was only made after being detected and specifically confronted with the investments made in insurance policies by the Department. Thus, this cannot be considered as voluntary disclosure in any circumstances. 5. It is also important to note here that the disclosure made on behalf of other family members during the course of survey was also not voluntary. As evident from the para 3 above, the Department had already been repeatedly asking details of investments made by the family members from the assessee Shri Niral K Patel and also from the Bank. The Bank had also provided details in case of some of the family members, which was available with the Department. Apart from that it is also pertinent to mention that the disclosure was made by Shri Niral K Patel on behalf of his family members on 01.09.2013 but even before that on 31.08.2013 itself the Bank was requested through summons to provide the details of insurance policies taken by the family members. A specific list of 13 family members were also provided to the Bank. (A copy of the notice dated 31.08.2013 issued to the Bank alongwith the enclosure is attached herewith as Exhibit G). A copy of the statement of Shri Niral K Patel recorded during the Survey proceedings is enclosed as (Exhibit H). It may be seen that in reply to question no. 20, the assessee made disclosure on 01.09.2013. Thus, the disclosure was made only after specific summon was issued to the Bank asking details of insurance policies held by the family members. Thus, it is again evident that the disclosure . during the survey was not made voluntary but in fact it was only made after detection and enquiries conducted by the Department.

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Dy. Director of Income-tax (Investigation)-II, Baroda

9.1 On making reference to the enquiries referred in the notice issued under section 131(1A) of the Act on standalone basis, it appears that these enquiries were general in nature. It is because, there was no reference mentioned about any specific insurance policies or the periods which the ADIT was looking for. Furthermore, the ADIT was requiring the details of the insurance policies held by the assessee as well as his family members. As such, the ADIT has not issued separate notices the family members of the assessee to provide the details of the insurance policies despite the fact all of them were income tax assessee.

9.2 However, we further note that the ADIT has again issued a summon under section 131(1A) of the Act dated 24th of June 2013 requiring the assessee to furnish the details of insurance policies held by him along with his associated concern. The extract of summon is reproduced as under: Documents to be filed 1. Copy of Income tax return filed by you as well as your companies/business concerns from A.Y. 2010-11 till date along-with computation of income, P& L account and balance sheet. 2. Details and copies of all bank accounts/insurance policies (either operational of non operational) maintained by you as well as your companies/business concerns for the period from 01.04.2009 till date. Also giving the bank account/policy no., tenure of policy, premium paid, type of account, name and address of the bank branch.

9.3 Going forward, we also note that the ADIT has also issued summon dated 28th May 2013, 11th June 2013 and 22nd July 2013 under section 131(1A) to the Kodak Mahindra Old Mutual Life Insurance Limited for furnishing the detail of insurance policies held by the assessee along with his family members . The relevant

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extract of summon issued as on 22nd July 2013, for the sake of ready reference is reproduced as under: Documents to be filed

9.4 A conjoint reading of all the summons issued under section 131(1A) of the Act to the assessee and the Kodak Mahindra Old Mutual Life Insurance Limited reflects that there was some information available with the Department about the investments held by the assessee in the insurance policies. Therefore, the disclosure made by the assessee before the learned CIT dated 27 July 2013 cannot be said of voluntary disclosure as claimed by him. It appears, had these summons not been issued to the assessee, the assessee would not have disclosed such income in the income tax return. Accordingly we are not convinced with the argument of the learned AR for the assessee that such disclosure was made voluntarily by the assessee.

9.5 Going further, though the disclosure was not voluntary by the assessee in our considered view but that is not enough to attract the penalty on account of concealment of income under the provisions of section 271(1)(c) of the Act. As such to levy the penalty under the provisions of section 271(1)(c) of the Act, the revenue has to cross the hurdles or satisfy the conditions mentioned therein. For this purpose, we need to make reference to the provisions of section 271(1)(c) of the Act which reads as under: 1) If the Assessing Officer or the Commissioner (Appeals) or the Principal Commissioner or Commissioner in the course of any proceedings under this Act, is satisfied that any person— (a) [***] (b) has failed to comply with a notice under sub-section (2) of section 115WD or under sub-section (2) of section 115WE or under sub-section (1) of section 142 or sub-section

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(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, or

9.6 A bare reading of the above provision reveals that initiation of penalty proceedings under section 271(1)(c) of the Act is subject to the fulfilment of the conditions namely, The Assessing Officer should be 'satisfied' that: (a) the assessee has either concealed particulars of his income; or (b) furnished inaccurate particulars of his income; or (c) infracted both (a) and (b) above.

9.7 The 'satisfaction' should be arrived at during the course of any proceedings. These could be assessment, reassessment or rectification proceedings. Now the question arises, whether the summon issued under section 131(1A) can be equated as proceeding as envisaged under section 271(1)(c)of the Act. The answer certainly stand in negative. It is because, the summon was issued under section 131(1A) of the Act by the ADIT much before the initiation of the proceedings initiated under section 148 of the Act. Similarly, the assessee disclosed the income much before the initiation of the proceedings initiated under section 148 of the Act.

9.8 Admittedly, the income disclosed by the assessee in response to the notice issued under section 148 of the Act was accepted by the revenue without any further addition. As such the return income was accepted by the revenue. Accordingly, the revenue has to find out the concealment of income with reference to the income declared by the assessee in the return of income filed under section 148 of the Act viz a viz the income as assessed by the AO. As, there was no difference between the return and the assessed income, then in our considered view, the question of penalty does not arise merely on the basis of the income admitted during the survey proceedings.

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9.9 In holding so, we draw support and guidance from the judgment of Hon’ble Delhi High Court in the case of CIT vs. SAS Pharmaceuticals reported in [2011]335 ITR 259 wherein it was held as under:

“No doubt, the assessee had surrendered certain income during the course of survey and discrepancies noticed by the survey team would suggest that the assessee was not maintaining proper accounts in respect to cash, stock and renovation expenses, etc. Therefore, there could be a possibility that but for that survey, the discrepancies brought to the notice of the assessee and physical verification of the stock and other accounts would have gone unnoticed and the assessee might have suppressed in the income-tax return as well. However, fact remained that it had disclosed same in the return filed by it. [Para 5] In this context, the question would be as to whether the assessee could be imposed penalty under section 271(1)(c) when it had shown that income in income-tax return filed by it and contended that it had voluntarily declared the same in the 'regular return filed for the relevant year'. [Para 6] Section 271(1)(c) is a penal provision and such a provision has to be strictly construed. Unless the case falls within the four-corners of the said provision, penalty cannot be imposed. Sub-section (1) of section 271 stipulates certain contingencies on the happening whereof the Assessing Officer or the Commissioner (Appeals) may direct payment of penalty by the assessee. Clause (c) of section 271(1) authorizes imposition of penalty when the Assessing Officer is satisfied that the assessee has either (a) concealed the particulars of his income; or (b) furnished inaccurate particulars of such income. [Para 12] It was not the case of furnishing inaccurate particulars of income, as in the income-tax return, particulars of income had been duly furnished and the surrendered amount of income was duly reflected in the income-tax return. The question was whether the particulars of income were concealed by the assessee or not. It would depend upon the issue as to whether concealment had reference to the income-tax return filed by the assessee, viz., whether concealment was to be found in the income-tax return. [Para 13] The revenue relying upon the expression 'in the course of any proceedings under this Act' occurring in sub-section (1) of section 271 contended that even during survey when it was found that the assessee had concealed the particular of his income, it would amount concealment in the course of 'any proceedings'. Such contention could not be accepted. The words 'in the course of any proceedings under this Act' are prefaced by the satisfaction of the Assessing Officer or the Commissioner (Appeals). When the survey is conducted by a survey team, the question of satisfaction of Assessing Officer or the Commissioner (Appeals) or the Commissioner does not arise. It was the Assessing Officer who initiated the penalty proceedings and directed the payment of penalty. He had not recorded any satisfaction during the course of survey. Decision to initiate penalty proceedings was taken while making assessment order. It was, thus, obvious that the expression 'in the course of any proceedings under this Act' could not have the reference to survey proceedings in the instant case. [Para 14] It necessarily follows that concealment of particulars of income or furnishing of inaccurate particular of income by the assessee has to be in the income-tax return filed by it. There is sufficient indication of this in the judgment in the case of CIT v. Mohan Das Hassa Nand [1983] 141 ITR 203/ 13 Taxman 328 (Delhi) and in CIT v. Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158/ 189 Taxman 322. The Supreme Court has clinched this aspect, viz., the assessee can furnish the particulars of income in his return and everything would depend upon the income-tax return filed by the assessee. This view gets supported by to Explanation 4 as well as Explanations 5 and 5A to section 271. [Para 15]

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Obviously, no penalty can be imposed unless the conditions stipulated in the said provisions are duly and unambiguously satisfied. Since the assessee was exposed during survey, might be, it would have not disclosed the income but for the said survey. However, there cannot be any penalty only on surmises, conjectures and possibilities. Section 271(1)(c ) has to be construed strictly. Unless it is found that there is actually a concealment or non-disclosure of the particulars of income, penalty cannot be imposed. In the instant case, there was no such concealment or non-disclosure as the assessee had made a complete disclosure in the income-tax return and offered the surrendered amount for the purposes of tax. [Para 16]

9.10 We also draw support and guidance from the judgment of Hon’ble Madhya Pradesh High Court in the case of CIT vs. Suresh Chandra Mittal reported in [2000] 241 ITR 124 (MP) which was also affirmed by the Hon’ble Supreme Court reported in [2001] 251 ITR 9 (SC) wherein it was held as under:

It is well-settled that under section 271(1)(c ), the initial burden lies on the revenue to establish that the assessee has concealed the income or has furnished inaccurate particulars of such income. The burden shifts to the assessee only if he fails to offer any explanation for the undisclosed income or offers an explanation which is found to be false by the assessing authority. However, the proviso to Explanation 1 provides for shifting of this burden again where the explanation offered by the assessee is found to be bona fide. In the instant case, though it was true that the assessee had not surrendered at all and that he had done so on the persistent queries made by the Assessing Officer, but once the revised assessment was regularised by the revenue and once the assessing authority had failed to take any objection in the matter, the declaration of income made by the assessee in his revised returns and his explanation that he had done so to buy peace with the department and to come out of vexed litigation could be treated as bona fide. Therefore, the Tribunal was justified in cancelling the penalty levied.

In the light of the above stated discussion, we hold that there cannot be a penalty merely on the basis that the assessee has disclosed income after receiving the notice from the ADIT and the income was accepted during survey proceedings as discussed above.

9.11 Now coming to the case law referred by the AO i.e MAK Data, we find that the principles laid down by the Hon’ble Apex Court in the case of MAK Data (P) Ltd vs. CIT reported in 358 ITR 593, in our humble opinion are factually different from the present facts of the case. In that case there were many documents found during the survey proceedings which were incriminating in nature. Thereafter a specific query was raised by the AO during assessment proceedings with respect to such

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incriminating documents found during the course of survey. Thus, the assessee in response to such specific query surrendered income of Rs. 40.74 lacs. However, in the present case there was no any incriminating documents discovered during the course of survey at the premises of the assessee. Similarly, the additional income offered by the assessee in return filed in response to notice under section 148 of the Act admitted as it is by the AO. Accordingly, we conclude that the principles laid down by the Hon’ble Apex Court in the case MAK Data (supra) are not applicable on the case in hand. Hence, the penalty in the instant case cannot be attracted under the provisions of section 271(1)(c) of the Act in the present facts and circumstances.

9.12 As the assessee succeeds in the appeal filed by him, we do not find any reason to adjudicate the other contentions raised by the learned AR for the assessee i.e. challenging the validity of the notice issued under section under section 274 read with section 271(1)(c) of the Act that there was no specific charge mentioned therein. Thus the ground of appeal of the assessee is allowed.

9.13 In the result the appeal filed by the assessee is partly allowed.

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Sr.No. ITA No. Assessment Name of the Assessee Year Shri Tanmay Surendrabhai 601-602/Ahd/2016 & 2009-10, 2011-12 Patel 1-3 1042/Ahd/2017 & 2010-11 1043/Ahd/2017 Shri Amish K. Patel 152/Ahd/2018 & 2010-11, 2009-10 4-6 153/Ahd/2018 & 2011-12 7-9 1046-1047/Ahd/2017 2009-10 to 2010- Smt.Sudhaben N. Patel & 11 & 2011-12 1243/Ahd/2018

Order pronounced in the Court on 19/08/2020 at Ahmedabad.

-Sd- -Sd- (RAJPAL YADAV) (WASEEM AHMED) VICE PRESIDENT ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 19/08/2020 manish