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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: HONBLE KUL BHARAT & HONBLE MANISH BORAD
O R D E R PER MANISH BORAD, AM. The above captioned appeal is filed at the instance of the assessee pertaining to Assessment Year 2012-13 and is directed against the orders of Ld. Commissioner of Income Tax (Appeals)-III (in short ‘Ld.CIT(A)’], Indore dated 24.01.2017 which is arising out of the order u/s 271AAB of the Income Tax Act 1961(In short the ‘Act’) dated 23.09.2015 framed by ACIT(Central)-1, Indore.
Pumarth Properties & Holdings Pvt. Ltd
Assessee had raised following grounds of appeal;
The following grounds of Appeal are without prejudice to each other:-
1)On the facts and circumstances of the case as well as in Law, the Learned Assessing Officer has erred in levying a penalty u/s.271AAB of the Income Tax Act' 1961 instead of u/s.271 (1 )(c) of the Income Tax Act, 1961, without considering the facts and circumstances of the case. 2)On the facts and circumstances of the case as well as in Law, the Learned CIT(A) has erred in confirming the action of Learned Assessing Officer erred in levying a penalty of Rs.86,85,000/- U/s 271AAB of the Income Tax Act,1961,being 30 of the additional income of Rs.2,89,50,000/-- without considering the facts and circumstances of the case. 3)On the facts and circumstances of the case as well as in Law, the Learned CIT(A) has erred in confirming the action of Learned Assessing Officer erred in Levying a penalty of Rs 86,85,000/- -on the alleged plea that the assessee could not specify and substantiate the manner in which the undisclosed income has been arrived ,without considering the facts and circumstances of the case. 4)On the facts and circumstances of the case as well as in Law, the Learned CIT(A) has erred in confirming the action of Learned Assessing Officer has erred imposing a penalty of Rs.86,85,000/- without appreciating the fact that the quantum of penalty imposed by him is not in accordance with the provision of section 271 AAB of the Income Tax Act, 1961, without considering the facts and circumstances of the case. 5)The appellant craves leave to add, amend, alter or delete the said ground of appeal
3. Brief facts of the case as culled out from the records are that the assessee is a private limited company engaged in trading of equity shares and NSE derivatives. It belongs to Apollo (Pumarth)
Group of Indore. Regular return of income u/s 139(1) of the Act for Assessment Year 2012-13 was e-filed on 13.9.2012 declaring income of Rs.43,775/-, thereafter on 21.9.2012 search u/s 132 of the Act was carried out in the business as well as residential Pumarth Properties & Holdings Pvt. Ltd Apollo (Pumarth) Group of Indore including the assessee. During the course of search various unsigned share certificates were found and it was revealed that 9 companies have invested total amount of Rs.2,89,50,000/- as share application money in the assessee company. As the Director of the company was unable to provide any concrete evidence to prove the identity, genuineness and creditworthiness of the share application money of Rs.2,89,50,000/- he admitted the entire amount as undisclosed income of the assessee company for Assessment Year 2012-13.
Revised return was filed on 31.32013 declaring income of Rs.2,89,93,780/- . Subsequently on 28.1.2014 assessee filed the return of income in response to the notice u/s 153A of the Act including the surrendered income. Due taxes on the total income were already paid on undisclosed income at the time of filing revised return of income. The income of Rs.2,89,93,775/- declared by the assessee in the return filed in response to notice u/s 153A of the Act was assessed as total income.
The Ld. A.O initiated the penalty only proceedings u/s 271AAB of the Act. Thereafter penalty proceedings u/s 271AAB Pumarth Properties & Holdings Pvt. Ltd Ld. A.O levied penalty of Rs.86,85,000/- being 30% of the undisclosed income observing that the assessee’s case falls under Sub Clause (c) of the Section 271AAB(1) providing for levy of penalty of not less than 30% but not exceeding 90% of the undisclosed income. Ld. A.O also observed that the assessee has not substantiated the manner of earning the undisclosed income.
4. Against the levy of penalty assessee preferred appeal before Ld. CIT(A) and pleaded that the assessee’s case falls under section 27AAB(1)(a) of the Act and penalty of 10% only needs to be levied in its case as the undisclosed income has been accepted by the assessee during the course of search and duly offered to tax in the return of income along with paying due taxes. However, Ld. CIT(A) did not find any merits in the contentions of the assesee and sustained the finding of Ld. A.O thereby confirming the penalty of Rs.86,85,000/- imposed u/s 271AAB of the Act.
5. Now the assessee is in appeal before the Tribunal raising various grounds but the sole grievance both on legal as well as merits is against the levy of penalty of Rs.86,85,000/- u/s 271AAB of the Act.
Pumarth Properties & Holdings Pvt. Ltd
6. Ld. Counsel for the assessee challenging the legality of proceeding initiated u/s 271AAB of the Act referring to the provisions of 271AAB of the Act made following written submissions;
“That from the provision of Section 271AAB of the Act it is evident that the necessary ingredients for imposition of penalty u/s 271AAB are: a. Search after 1.7.2012
A penalty @10% or20% or 30% of the undisclosed income of the specified previous year.
(underlined to supply emphasis) Explanation: (b) Specified previous year means the previous year-
(i) which has ended before the date of search, but the date if furnishing the return of income u/s 139(1) has not expired before the date of search and the assessee has not furnished the return of income for the previous year before the date of serach; or (ii) in which search was conducted.
(underlined to supply emphasis)
That in the present case the search was conducted on 21.09.2012 in the case Pumarth Group and the Appellant 5 Pumarth Properties & Holdings Pvt. Ltd Company was also covered in search section.
That it is submitted that the Appellant / assessee has already furnished its return for A.Y 2012-13 u/s 139 (1) on 13.09.2012 i.e. before the date of search. True Copy of the acknowledgement of return filed on 13.09.2012 u/s 139 (1) is Annexure S/l.
That from the above submission it is submitted that on the date of search the return for A.Y 2012-13 was already filed i.e. on 13/09/2012 and hence the necessary ingredient for invoking the provisions of section 271AAB (i.e. specified previous year) qua A.Y 2012-13 was non-existent and same is liable to set-aside.
7. Thus a bare perusal of the relevant provision read with the return filed u/s 139 (1) shows that in the present case penalty u/s 271 AAB for A.Y 2012-13 was non invokable.”
Per contra Departmental Representative vehemently argued and supported the orders of lower authorities.
We have heard rival contentions and perused the records placed before us. The sole grievance raised in this appeal is against the findings of Ld. CIT(A) confirming the levy of penalty of Rs.86,85,000/- u/s 271AAB of the Act which was calculated by the Ld. A.O on the undisclosed income surrendered by the assessee during the course of search u/s 132 of the Act conducted on Pumarth Properties & Holdings Pvt. Ltd 21.09.2012 admitting that the details of nine share applicants giving a total sum of Rs. 2,89,50,000/- on the share application money to the assessee could not be verified and also showed his inability to prove the creditworthiness and genuineness of the amount received.
The assessee filed its regular return of income on 13.9.12 for Assessment Year 2012-13 disclosing income of Rs.43,775/-.
Search u/s 132 of the Act was conducted on 21.9.2012.
Undisclosed income surrendered and offered to tax during the course of search. Revised return was filed on 31.3.2013 declaring income of Rs.2,89,93,780/-. Subsequently in compliance to notice u/s 153A of the Act return of income was filed on 28.1.2014 including the surrendered income of Rs.2,89,50,000/- thereby showing the total income of Rs.2,89,93,775/-. This income was accepted by the Ld. A.O as assessed income. After assessing the income u/s 153A r.w.s. 143(3) of the Act for Assessment Year 2012- 13 accepting the return of income as assessed income at Rs. 2,89,93,780/-, penalty proceedings u/s 271AAB were initiated and after giving due opportunity to the assessee penalty of 30% was Pumarth Properties & Holdings Pvt. Ltd 271AAB of the Act. Now the assessee has challenged the levy of penalty by raising four grounds.
Through Ground No.1 and 4 Ld. Counsel for the assessee has pleaded that in the given facts of the case provisions of Section 271AAB cannot be invoked instead Ld. A.O ought to have initiated the penalty proceedings u/s 271(1)(c) of the Act. In other words legality of the provisions u/s 271AAB of the Act has been challenged and in the remaining Ground No.2 & 3 assessee has challenged the levy of penalty @30% by contending that assessee has duly substantiated and specified the manner in which the undisclosed income has been arrived.
We will first take up Ground No. 1 & 4 challenging the legality of the penalty proceedings initiated u/s 271AAB of the Act. For better understanding we would like to refer to the provisions of Section 271AAB of the Act which reads as under;
'211AAB. Penalty where search has been initiated.-(1) The Assessing Officer may, notwithstanding anything contained in any other provisions 'of this Act, direct that, in a case where search has been initiated under section 132 on or after the 1st day of July, 2012, the assessee shall pay (by' Pumarth Properties & Holdings Pvt. Ltd way of penalty, in addition to tax, if any, payable by him,-
If a) a sum computed at the rate of ten per cent of the undisclosed income of the specified previous year, if such assessee-
(i) in the course of the search, in a statement under Sub- section (4) of section 132, 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) on or before the specified date-
(A) pays the tax, together with interest, if any, in respect of the undisclosed income; and (B) furnishes the return of income for the specified previous year declaring such undisclosed income therein;
(b) a sum computed at the rate of twenty per cent of the undisclosed income of the specified previous year, if such assessee-
(i) in the course of the search, in a statement under sub-section (4) of section 132, does not admit the undisclosed income; and (ii) on or before the specified date- Pumarth Properties & Holdings Pvt. Ltd (A) declares such income in the return of income furnished for the specified previous year; and (B) pays the tax, together with interest, if any, in respect of the undisclosed income;
(c) a sum which shall not be less than thirty per cent but which shall not exceed ninety per cent of the undisclosed income of the specified previous year, if it is not covered by the provisions of clauses (a) and (b).
(2) No penalty under the. provisions of clause (c) of sub- section (1) of section 271 shall be imposed upon the assessee in respect of the undisclosed income referred to in sub- section (1).
(3) The provisions of sections 274 and 275 shall, as far as may be, apply in relation to the penalty referred to in this section.
Explanation.-For the purposes of this section-
(a) "specified date" means the due date of furnishing of return of income under sub-section (1) of section 139 or the date on which the period specified in the notice issued under section 153A for furnishing of return of income expires, as the case may be;
(b) "specified previous year" means the previous year-
(i) which has ended before the date of search, but the date of furnishing the return of income under sub- section (1) of section 139 for such year has not expired Pumarth Properties & Holdings Pvt. Ltd before the date of search and the assessee has not furnished the return of income for the previous year before the date of search; or (ii) in which search was conducted; (c) "undisclosed income" means-
(c) undisclosed income means -
(i) any income of the specified previous year represented, either wholly or partly, by any money, bullion, jewellery or other valuable article or thing or any entry in the books of account or other documents or transactions found in the course of a search under section 132, which has-
(A) not been recorded on or before the date of search in the books of account or other documents maintained in the normal course relating to such previous year; or otherwise not been disclosed to the Chief (B) Commissioner or Commissioner before the date of search; or (ii) any income of the specified previous year represented, either wholly or partly, by any entry in respect of an expense recorded in the books of account or other documents maintained in the normal course relating to the specified previous year which is found to be false and would not have been found to be so had the search not been conducted”
Pumarth Properties & Holdings Pvt. Ltd
Ld. Counsel for the assessee referring to the above provisions of Section 271AAB of the Act has pleaded that penalty can be levied @10/20/30/90 per cent as the case may be on the undisclosed income of the specified previous year. Ld. A.O has adopted Assessment Year 2012-13 as the specified previous year for levying the penalty u/s 271AAB of the Act. On the other hand Ld. Counsel for the assessee has contended that the specified previous year in the case of the assessee is Assessment Year 2013-14 and not Assessment Year 2012-13, as the case of the assessee does not fall under category (i) of the explanation (b) of Section 271AAB of the Act which defines specific previous year.
Now the issue before us is to examine the plea of the Ld. Counsel for the assessee about the applicability of specified previous year in the given facts. Explanation (b) of Section 271AAB of the Act mentions that specified previous year could be either of the following two;
(i) which has ended before the date of search, but the date of furnishing the return of income under sub-section (1) of section 139 for such year has not expired before the date of Pumarth Properties & Holdings Pvt. Ltd search and the assessee has not furnished the return of income for the previous year before the date of search; or (ii) in which search was conducted.
Ld. A.O has adopted assessment year 2012-13 by bringing the case of the assessee under category (i) referred above. Now for coming under category (i) requirement is that the due date of furnishing return of income should not expire before the date of conducting the search u/s 132 of the Act and the assessee has not furnished the return of income for the previous year before the date of search. However in the case of the assessee though the date of search is 21.9.2012 which is before the due date of filing of return of income on 30.9.2012, but the assesee has already furnished its Income Tax Return on 13.9.2012 i.e. before the date of search.
This return of income was e-filed by the assessee showing income of Rs.43,775/-. Thus we can safely conclude that the assessee does not fall under category (i) of the specified previous year. What remains is category(ii) i.e. the year in which search was conducted i.e. Assessment Year 2013-14 as the date of search was on 21.09.2012 falling under financial year 2012-13. But the penalty proceedings u/s 271AAB of the Act have been initiated by the Ld. Pumarth Properties & Holdings Pvt. Ltd A.O for Assessment Year 2012-13 which in our considered view was not a correct step.
It seems that Ld. A.O has wrongly invoked the provisions of Section 271AAB of the Act for Assessment Year 2012-13 but the situation may have been different and much favourable to the Revenue if the Assessing Officer had invoked provisions of Section 271(1)(c) of the Act which gives power to the Assessing Officer to levy the penalty u/s 271(1)(c) of the Act in the case falling under explanation 5A of Section 271(1)(c) of the Act which reads as follows;
Explanation 5A.— Where, in the course of a search initiated under section 132 on or after the 1st day of June, 2007, the assessee is found to be the owner of— (i) any money, bullion, jewellery or other valuable article or thing (hereafter in this Explanation referred to as assets) and the assessee claims that such assets have been acquired by him by utilising (wholly or in part) his income for any previous year; or (ii) any income based on any entry in any books of account or other documents or transactions and he claims that such entry in the books of account or other documents or transactions represents his income (wholly or in part) for any previous year, which has ended before the date of search and,— (a) where the return of income for such previous year has been furnished before the said date but such income has not been declared therein; or (b) the due date for filing the return of income for such previous year has expired but the assessee has not filed the return, Pumarth Properties & Holdings Pvt. Ltd then, notwithstanding that such income is declared by him in any return of income furnished on or after the date of search, he shall, for the purposes of imposition of a penalty under clause (c) of sub-section (1) of this section, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income.”
The above mentioned explanation to Section 271(1)(c) of the Act is squarely applicable on the facts of the assessee because the original return of income was filed on 13.9.2012 and income surrendered during the course of search on 21.9.2012 was not offered to tax in the original return and had the Ld. A.O invoked the provisions of Section 271(1)(c) of the Act then there would hardly have any possibility left with the assessee to escape the levy of the penalty u/s 271(1)(c) of the Act.
Before us the revenue authorities have not disputed this fact that the Ld. A.O has only invoked the provisions of Section 271AAB of the Act and no notice have been issued for initiating penalty proceedings u/s 271(1)(c) of the Act, which means that Revenue has missed the chance to issue notice u/s 271(1)(c) of the Act..
We therefore in the given facts and circumstances of the case wherein penalty proceedings ought to have been intimated u/s 271(1)(c) of the Act but were wrongly initiated u/s 271AAB of the Pumarth Properties & Holdings Pvt. Ltd Act for Assessment Year 2012-13 are of the view that as the basic requirements for invoking Section 271AAB of the Act is not fulfilled, we have no option left except to allow the legal grounds raised by the assessee and quash the penalty proceedings initiated u/s 271AAB of the Act and delete the penalty of Rs. 86,85,000/- levied by the Ld. A.O u/s 271AAB of the Act. Other grounds on merits of the case are merely academic in nature and become infructuous as the penalty proceedings u/s 271AAB of the Act itself been quashed and held to be invalid and bad in law.
In the result appeal of the assessee is allowed.