CREELOTEX ENGINEERS PVT. LTD.,AHMEDABAD vs. DCIT, CENTRAL CIRCLE-2(4),, AHMEDABAD

PER RAJPAL YADAV, JUDICIAL MEMBER:

2 under section 153A was issued upon the assessee, and it filed its return of income on 25.10.2012 declaring income at Rs.99 lakhs, whereas in the original return of income filed under section 139 it has disclosed NIL income. The ld.AO has passed assessment order on 31.1.2014 and assessed the total income at Rs.99,49,500/-. He made an addition of Rs.49,500/-. It is pertinent to observe that during the search, statement of Shri Shankarlal Chowdhary was recorded under section 132(4) on 19.11.2011. In his statement, he has admitted an additional income of Rs.50 crores and bifurcation of such details has been noted by the AO at page no.3 of the assessment order, which read as under: “(1) During the various financial years, the following companies had raised share capital: Assessment Year in which the amount is disclosed Sr. Name of the 2006-07 2007-08 2008-09 2009-10 Total (Rs.) No. Company 1 Shreepal Starch - - 9000000 - 9000000 Products Pvt. Ltd. 2 Siwana- Agri - 13000000 3500000 - 16500000 Marketing Pvt. Ltd. 3 Vicas Vehicles Pvt. - 9500000 8500000 500000 18500000 Ltd. 4 Creelotex Bngg. Put. - 9900000 8500000 - 18400000 Ltd. 5 Marg Biotech Pvt. 16500000 13200000 7000000 - 36700000 Ltd. 6 Safari Biotech Pvt. 13250000 9200000 8800000 - 31250000 Ltd. 7 Telecon Infotech Pvt. 10000000 9500000 9800000 - 29300000 Ltd. 8 Vascroft Design Pvt - 9000000 12000000 - 21000000 Ltd. Total 39750000 73300000 67100000 500000 180650000 On the basis of submissions, the income disclosed by the company during the search & seizure action u/s 132(1) of the I.T. Act is Rs.99,00,000/-.The same amount is offered by the company "as income from other sources by filling return of income U/s 153A. Since the assessee has furnished inaccurate particulars of his income and thereby has concealed his income, penalty proceedings u/s 271(l)(c) r.w. Explanation file above the of the Act are initiated separately.”

3 4. A perusal of the above would indicate that a sum of Rs.99 lakhs was allocated to the assessee for the Asstt.Year 2007-08 and the assessee has filed the return admitting this sum of Rs.99 lakhs. The AO has initiated penalty proceedings under section 271(1)(c) read with Explanation 5A. The stand of the AO is that admission by the assessee during the course of search about undisclosed income of Rs.99 lakhs is to be construed that unaccounted income has been unearthed during the course of search within the meaning of Explanation 5A attached to section 271(1)(c) and this addition would represent concealed income. Accordingly, the ld.AO has imposed penalty of Rs.33,32,340/-. Appeal to the CIT(A) did not bring any relief to the assessee.

“7. We have carefully considered the rival submissions. In the present set of appeals, the controversy revolves around imposition of penalty broadly on four counts as summarized below: (i) Whether when no incriminating document or material was found during the course of search, Explanation 5A to Section 271(1)(c) of the Act is applicable in the light of standalone ‘oral evidence’ in the form of statement

4 under s.132(4) of the Act? (ii) Whether when there was no addition over and above income declared by the assessee in the return of income filed under s.153A of the Act, penalty under s. 271(1)(c) of the Act is to be imposed? (iii) Whether there is no furnishing of inaccurate particulars of income as the additional income disclosed in the return of income filed under s.153A of the Act has been accepted and assessed without demur?

(iv) Whether when the AO has failed to specify as to for which limb of default under Section 271(1)(c) of the Act, penalty proceedings are initiated, was the AO justified in imposing penalty and whether the penalty can be levied when the charge against the assessee in itself is allegedly vague and non-descript and the action of AO suffers from alleged non-application of mind.

8. In terms of first contention raised as noted above, the primary question that emerges for determination is whether penalty under s.271(1)(c) of the Act can be imposed qua the return filed by the assessee disclosing higher income under s.153A of the Act (vis-àvis earlier return filed under s.139 of the Act) solely on the basis of certain statement recorded under s.139(4) of the Act without any reference to and without corroboration of any incriminating material to support such declaration.

8.1 The answer to the primary question has to be deduced in terms of Explanation 5A to Section 271(1)(c) of the Act in vogue at the relevant time of search Explanation 5A is a deeming provision. With reference to search assessments, the aforesaid Explanation has been specifically inserted to Section 271(1)(c) of the Act. The pertinent question is whether Explanation 5A to Section 271(1)(c) of the Act is attracted in the peculiar facts of the case. Explanation 5A is applicable to cases where in the course of a search under s.132 of the Act, the assessee is found to be the owner of any money, bullion, jewellery or other valuable articles or things or any income based on entry in books of accounts or other documents or transactions and such entries represent income of the assessee. Ostensibly, this Explanation has been added to specifically address the situations where consequent to a search, assets and valuables or book entries etc. are discovered to be in control or possession of the assessee and thereafter the assessee files the return of income after the date of search.

8.2 In the backdrop of this position, we now turn to take cognizance of relevant facts germane to the issue. A perusal of the order of the lower authorities in quantum proceedings and the penalty proceedings gives the unmistakable impression that additional income offered in a statement recorded under s.132(4) of the Act in some group disclosure at the time of search has been accepted by the Revenue simplicitor. Hence, the additional income declared in the return filed under s.153A is based solely on certain admissions made by the assessee at the time of search. Significantly, it is 5 noticed in the same vain that the aforesaid additional income is not backed by any document of incriminating nature in corroboration per se In accord with Explanation 5A, it is necessary that there must be certain assets (money or bullion) unearthed in the possession of the assessee during the search and/or entries are recorded in the any books/documents and the assessee must claim that such assets/entries represent unaccounted income. Ostensibly, Explanation 5A would come into play only when unaccounted assets of the nature as mentioned in the said Explanation are found during the search or income based on entries in the books of accounts is claimed by the assessee to be his income falling in any previous year.

8.3 In the instant case, the facts are quite distinct and peculiar. While no incriminating documents were recorded to have been found to support the undisclosed income except an elaborate and conditional statement of one of the key person of the group, the deponent of the statement has never claimed the entries in dispute to be ‘income’ of the assessee per se. A bare reading of the aforesaid statement (supra) reveals several peculiar features; (i) the assessee merely agrees to pay tax on the share capital without admitting the same to be beset with ingenuity of any sort; (ii) In contrast, the assessee asserts before the authorized officer that the share capital was subscribed by the genuine shareholders through banking channels and the source of subscription is impeccable and beyond any doubt; (iii) while the share capital raised is duly explained and recorded in books, the assessee agreed to pay tax thereon with an understanding that there would be no penal consequences on payment of tax with interest; (iv) the statement was claimed to be made to buy peace with respect to the source of source the subscription which may be a matter of dispute; (v) The deponent of the statement nowhere admitted any disclosure of income per se but showed his willingness to pay taxes. In substance, the assessee expressed his willingness to pay taxes out of genuine constraints without admitting the share capitals/entries to be expropriatory.

8.4 In the circumstances, where the statement under s.132(4) of the Act is claimed to be abstract and devoid of being inculpatory and does not suggest any apparent suppression of undisclosed income, the question arises as to whether firstly, the Explanation 5A is attracted in the absence of any claim from the assessee that entries in books represents income and secondly whether the AO, in the circumstances, is under duty to use statutory discretion in favour of the assessee. As noticed from the solitary material in the form of statement, the deponent has nowhere claimed the existence of undisclosed ‘income’ per se but has merely agreed to pay tax etc. and thus Explanation 5A, in our view, could not be applied. At this juncture, we simultaneously notice the phraseology of the Section 271(1)(c) of the Act whereby the AO ‘may’ direct to the assessee to pay by way of penalty specified sum in the case of certain defaults including concealment of income

6 etc. Ostensibly, the imposition of penalty under s.271(1)(c) of the Act is not automatic. In the circumstances narrated above, there can be no manner of doubt that statutory discretion vested with the AO ought to have been exercised in favour of the assessee and not against the assessee for such unproved income. The Revenue could not lay hands on any tangible material except conditional and tacit averments, which confession in itself is seen to be non-admission of any ingenuity. In the circumstances, we have no hesitation to hold that such confession cannot be the basis for imposition of onerous penalty.

8.5 An incidental but a pertinent question would arise also as to whether a statement recorded under s.132(4) of the Act can be treated as evidence found in the course of search per se. As noted, except for an oral evidence under s.132(4) of the Act of abstract nature with distinguishing features, no incriminating material has been found to support the assertions made therein. To reiterate, the assertions made are highly qualified and without any admissions of undisclosed income per se. The Hon’ble Delhi High Court in the case of CIT vs. Harjeev Agrawal [2016] 229 DLT 33 order dated 10/03/2016 has ruled that oral statements on a ‘standalone basis’ without reference to any other material discovered during search would not empower the AO to make additions in a block assessment (which is peri materia with the present scheme of search assessment under s.153A of the Act). The Hon’ble Delhi High Court in CIT vs. Rajpal Bhatia (2011) 333 ITR 315 (Del) has also echoed that an oral evidence is neither ‘books of accounts etc.’ or ‘assets’. It was a document which came to be created owing to search and not found in the course of search. In the circumstances, where a judicial view has been taken that addition itself on such statement is without authority of law, it is rather difficult to appreciate the action of the Revenue towards imposition of penalty on such additions in affirmative. Needless to say, the penalty provision stands on a very stringent pedestal qua the quantum proceedings.

8.6 Having regard to peculiar facts of the case, the action of Revenue is clearly bereft of merits. Consequently we hold the first proposition framed above in favour of the assessee and against the Revenue.

8.7 We do not consider it expedient to address ourselves on propositions (ii) to (iv) raised on behalf of the assessee at this stage in the light of our observations on first proposition itself.

9. We are thus of the firm opinion that action of the AO in imposing the penalty is not sustainable in law. The order of the CIT(A) is accordingly set aside and the AO is directed to delete the penalty imposed under s.271(1)(c) of the Act.

7 10. In the result, appeal of the Assessee is allowed. 11. Other appeals in IT(SS)A Nos. 129 to 133, 135 & 136/Ahd/2015 also rests on similar facts and involves identical issue towards imposition of varied penalties. In parity with the reasonings in IT(SS)A No. 134/Ahd/2015 (supra), all other captioned appeals of the assessees concerning AYs. 2006- 07, 2007-08 and 2008-09 are allowed with consequential directions to AO to delete respective penalties.”

7. It is further observed that an identical situation was considered by the ITAT, Rajkot Bench in IT(SS)A.No.46 to 52/RJT/2012 in the case of Shri Mansukhbhai R. Sorathia and others. The discussion made by the Tribunal is worth to note. It reads as under: “9. At the cost of repetition, we would like to observe that as per Explanation 5A, if in the course of search initiated under section 132 on or after the 1st June, 2007, the assessee is found to be owner of any money, bullion, jewellery or other valuable article or things and the assessee claims such assets have been acquired by him by utilsing the whole or partly of his income from any previous year or any income based on any entry in any books of account or other documents or transactions found during the course of search, and the assessee claims that such entry in the books of account or other documents or transactions represents his income from any previous year, which has ended before the date of search, then, notwithstanding such income is declared by him in any return of income furnished on or after the date of search, he shall for the purpose of imposition of penalty under clause (c) of sub-section (1) of this Section be deemed to have been concealed particulars of income or furnished inaccurate particulars. The moot question for attracting this explanation is that in the course of search money, bullion, jewellery or income based on any entry in the books of accounts or other documents ought to have been found. In a given situation, no money or bullion or jewellery or income might have found from the assessees for the assessment years which were not part of “specified previous year” contemplated in section 271AAA or immunity available to the assessees under sub-clause (a) and (b) of Explanation 5A, then also, if in response to the notice under section 153A, the assessee disclosed some additional income voluntarily, would he be deemed to have concealed the income for visiting him with penalty under section 271(1)(c) of the Act ? The ld.Revenue authorities had drawn inference that since the assessee has not disclosed additional income in the original returns, meaning thereby, it is to be 8 assumed that they have disclosed this amount only when some incriminating material was found. To our mind this assumption ought to be supported with reference of that incriminating material. Let us see the finding in the assessment order.

2.1 It is seen that the assessee had made disclosure unaccounted income of Rs 22,00,000/- which was not disclosed in the return filed u/s. 139(1). This being concealed income, penalty proceedings u/s. 271(l)(c) of the I T Act is being initiated.

3. After verification, the total income is determined as under:- Total income as per return of income Rs 28,45,960/- Total assessed income Rs 28,45,960/- Agricultural income for rate purpose Rs.6,14,131/-

“4. I have carefully considered the submissions made by the assesses. The contention of the assessee is not acceptable

9 because, the additional income offered by the assesses only surfaced due to the search action carried by the department. Had there been no search, the portion of additional income would have remained concealed eternally. If in a regular case, on detection of concealment, penalty u/s. 271(1)(c) is leviable, how much more penalty becomes true and potent in a case where the concealment has been detected on account of proactive search action initiated by the department. In the case of the assessee, the assessee has not recorded details of his income and the same was worked out only during search and that too on the basis of the seized materials. In fact, it is an established judicial decision that 'documents seized during the search cannot be said the books of accounts maintained for any source of income, for the purposes of Explanation 5 (CIT Vs Glamour Restaurant (2003) 80 TTJ (Mum) 763. Diaries found and seized during course of search cannot be considered as books of account maintained by the assessee for the purpose of immunity to be granted to him under the provisions of Explanation 5 to section 271(1)(c) - Dr T P Kulkarni Vs CIT (2003) 86 ITD 696 (Mum). It has also been held that Only books of account maintained in the regular course can make the assessee eligible for grant of immunity from penalty and not just any of such books, which have not been maintained in regular course of business - Brij Lal Goyal Vs CIT (2004) 88 ITD 413 (Delhi).”

10 Explanation.- For the removal of doubts, it is hereby declared that the examination of any person under this sub- section may be not merely in respect of any books of account, other documents or assets found as a result of the search, but also in respect of all matters relevant for the purposes of any investigation connected with any proceeding under the Indian Income- tax Act, 1922 (11 of 1922 ), or under this Act.”

11 of the assessee was recorded under section 132(4) of the Act. He made disclosure of Rs.7 lakhs. Later on, in January, 1989, the assessee retracted from the disclosure and stated the disclosure of Rs.50,000/- was acceptable to him. The ld.AO made an addition of Rs.7 lakhs on the basis of his statement and observed that the retraction was made after a lapse of 2 months. The assessee did not have any reason for retracting from the disclosure. The ld.First Appellate Authority concurred with the AO and confirmed the addition of Rs.7 lakhs to his income. The Tribunal has also confirmed the addition by observing that there was nothing on record which indicated that the disclosure was taken from the assessee under duress, pressure or coercion. The retraction after lapse of two months from the date of disclosure by the assessee was considered as after-thought. The issue travelled before the Hon’ble High Court. The Hon’ble High Court has deleted the addition by observing that merely on the basis of disclosure, addition cannot be made. There should be some corroborative material. The following observations in para-26 of the judgement of Hon’ble Court are worth to note. It reads as under: “26. In view of what has been stated hereinabove we are of the view that this explanation seems to be more convincing, has not been considered by the authorities below and additions were made and/or confirmed merely on the basis of statement recorded under section 132(4) of the Act. Despite the fact that the said statement was later on retracted no evidence has been led by the Revenue authority. We are, therefore, of the view that merely on the basis of admission the assessee could not have been subjected to such additions unless and until, some corroborative evidence is found in support of such admission. We are also of the view that from the statement recorded at such odd hours cannot be considered to be a voluntary statement, if it is subsequently retracted and necessary evidence is led contrary to such admission. Hence there is no reason not to disbelieve the retraction made by the Assessing Officer and explanation duly supported by the evidence. We are, therefore, of the view that the Tribunal was not justified in making addition of Rs. 6 lakhs on the basis of statement recorded by the Assessing Officer under section 132(4) of the Act. The Tribunal has committed an error in ignoring the retraction made by the assessee.

12 27. In the above view of the matter, addition of Rs. 1 lakh made on account of unaccounted cash is confirmed and the addition of Rs. 6 lakhs is hereby deleted.”

This decision has been followed by the Hon’ble High Court in 16. the case of CIT Vs. Chandrakumar Jethmal Kochar, 55 taxmann.com 292 (Guj). The Hon’ble High Court has reproduced the discussion made by the Tribunal, and thereafter, concurred with the conclusions of the Tribunal by observing as under: “6. In view of the above discussion and considering the principal laid down in the case of Kailashben Manharlal Chokshi (supra),we are of the considered opinion that the view taken by the Tribunal is just and proper. We are not convinced with the submissions made by Mr. Mehta, learned advocate for the appellant that the Tribunal has not given cogent reasons. Therefore, the answer to the first question would be against the Revenue and in favour of the assessee. The second question will also enure for the benefit of the assessee as from the record it is clear that other concerns were not Benami concerns of the assessee.