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Income Tax Appellate Tribunal, AHMEDABAD – BENCH ‘C’
Before: SHRI RAJPAL YADAV & SHRI WASEEM AHMED
PER RAJPAL YADAV, JUDICIAL MEMBER : Present bunch of ten appeals was heard separately i.e. on 28.3.2019 and 29.3.2019 against the orders of the ld.CIT(A) passed for the above assessment years. Since common issue is involved in all these appeals, we dispose of all them by this consolidated order.
Short common question involved in all these appeals is, whether to visit the appellants with penalty under section 271(1)(c) r.w. Explanation 5A, there should be certain assets, such as money, bullion, jewellery and diary be found in the possession of the assessee during the search representing undisclosed income declared in response to the notice issued under section 153A of the Income Tax Act, 1961 ?
Grievance of all the appellants is that the ld.CIT(A) has erred in confirming following amounts of penalties imposed by the AO under sections 271(1)(c):
Assessee Asstt.Year Amount late Pragnesh Navinbhai Patel 2009-10 Rs.10,263/- Shri Tejas V. Shah 2009-10, Rs.15,450/- 2010-11 Rs.72,940/- 2012-13 Rs.2,53,390/- Shri Pravinbhai Gordhanbhai 2007-08 Rs.2,080/- Patel 2008-09 Rs.8,570/- 2009-10 Rs.61,490/- 2010-11 Rs.37,470/- 2011-12 Rs.76,330/- 2012-13 Rs.1,30,310/-
Briefly stated facts are that a search under section 132 of the Income Tax Act was carried out in the case of Tricon Group on 5.12.2012. All the appellants are covered under search action. In order to give
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logical end to the proceedings, notice under section 153A was served upon the assessee, and they have filed their returns of income in response to those notices. There is a variation between amount disclosed in the return filed in response to the notice under section 153A vis-à-vis the returned filed under section 139(1) of the Act. Except in the case of Pravinbhai Gordhanbhai Patel in the Asstt.Year 2007-08 and 2008-09, where he has not filed returns under section 139(1) of the Act. The ld.AO has passed assessment order in all these cases and accepted the returned income declared by the appellants. He did not make any addition. He initiated penalty proceedings under section 271(1)(c) of the Act on the ground that if the search was not carried out upon the assessee, they would not have disclosed any undisclosed income in response to the notice under section 153A. After hearing the assessee, he imposed penalty in each case. Appeal to the CIT(A) did not bring any relief to the assessee.
With the assistance of the ld.representatives, we have gone through the record carefully. Explanation 5A and section 271AAA of the Act has a direct bearing on the controversy. Therefore, it is pertinent to take note of this clause, which reads as under: “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,
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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, 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. 271AAA. (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 132on 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. (2) Nothing contained in sub-section (1) shall apply if the 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) pays the tax, together with interest, if any, in respect of the undisclosed income. (3) 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). (4) The provisions of sections 274 and 275 shall, so far as may be, apply in relation to the penalty referred to in this section. Explanation.—For the purposes of this section,— (a) "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
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(B) otherwise not been disclosed to the 87[Principal Chief Commissioner or] Chief Commissioner or 87[Principal 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; (b) "specified previous year" means the previous year— (i) which has ended before the date of search, but the date of filing the return of income under sub-section (1) of section 139 for such year has not expired before the date of search and the assessee has not furnished the return of income for the previous year before the said date; or (ii) in which search was conducted”. 6. A perusal of both these sections together would indicate that the immunity akin to Explanation 5 is available to the assessee under Explanation-5A also, if he fulfills the conditions narrated in section 271AAA. The Explanation appended to Section 271AAA provides the definition of undisclosed income and specified previous year. A perusal of the expression “specified previous year” would indicate that the year of search and immediately earlier year, if due date of filing of the return has not expired and income-tax return for such year has not been filed. Since the assessment years involved before us are the Asstt.Years 2007- 2008 to 2012-13, the due date for filing of the returns was expired before the search action. Thus, these years do not fall within the ambit of “specified years”. Since the period of these assessment years do not fall within the expression “specified year” provided in Section 271AAA, therefore, we do not deem it necessary to construe and explain the meaning of Explanation 5A within the scope of Section 271AAA.
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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
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original returns, meaning thereby, it is to be 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.
We have perused the assessment order. The AO has not made reference to any material found during the course of search which can suggest that additional incomes declared by the assessee are representing any money, bullion, jewellery or impounded any diary. In other words, it cannot be construed that some assets were found during the course of search representing that income which has been declared by the appellants. Somewhat similar and identical issue has been considered by the Hon’ble Delhi High Court in the case of Pr.CIT Vs. Neeraj Jindal, 393 ITR 1. The following finding of Hon’ble Delhi High Court is worth to note. It reads as under: “26. Now for the Revenue to invoke Explanation 5, it would have to prove that its requirements are clearly fulfilled in the present case. In order for Explanation 5 to apply, it is necessary that there must be certain assets (such as money, bullion etc.) found in the possession of the assessee during the search, and that the assessee must claim that such assets have been acquired by him by utilising (wholly or in part) his income. Moreover, such income must be in relation to a particular previous year that has either ended before the date of the search or is to end on or after the date of the search and such income is declared subsequently in the return of income filed after the search. Therefore, it is only when assets are found during the search which the assessee claims have been acquired by him by utilizing (wholly or in part) his income for any particular previous year, and then declares such income (which he utilized in acquiring the assets found) in a subsequent return filed after the date of search, would it be deemed that the assesee has concealed his income. In other words, the assets seized during the search must relate to the income of the particular assessment year whose return is filed after the date of the search. Such a conclusion is only logical, considering that assessment under the Act is with respect to a particular assessment year and the penalty imposed under Section 271(1)(c) would
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also be for concealing income in that particular assessment year, which concealment was revealed by the discovery of certain assets in the assessee's possession during the search conducted under Section 132. Here, it would be beneficial to reproduce the dictum of the Rajasthan High Court in CIT v. Kanhaiyalal [2008] 299 ITR 19, where it held that- "We may consider the things from yet another aspect, viz., that under the set up of IT Act, in whatever eventuality the assessment may have to be made, i.e. whether a regular assessment, or assessment consequent upon escapement of income, or assessment of a block period, but in either case, the assessment has to be, with respect to the particular assessment year, relating to the concerned previous year, and the income derived, or found by the Department to have been derived, or earned, by the assessee, during particular previous year, has to be assessed during the relevant assessment year only, and assessment of such income cannot be shifted to any other past or future years, so much so that there may be cases, where the right of the Department to assessment may have been lost on account of passage of limitation also." Thus, it is clear that the Revenue has to establish that the assets seized during the search conducted on the assessee, related to the income of the assessee for the relevant assessment years i.e. AY 2005-06 and AY 2006- 07.” xxxx xxxx xxxx
Basing its reasoning on this decision, the ITAT in the present case held that in the case of the assessee, the search was conducted on 11.01.2007 and cash of Rs.5,26,530/- was recovered from the possession of the assessee; and so the cash was admittedly, not seized during the relevant assessment years in consideration before the Tribunal. In other words, while the assessee had surrendered undisclosed income, the cash was seized during search in A.Y 2007-2008, and not in the relevant assessment years. However, in the relevant assessment year under consideration in the instant case, the assessee made an addition of Rs.21,65,932/- in the return filed pursuant to notice under section 153A. The ITAT held that Explanation 5 to section 271(1) of the Act could not be invoked in assessment years 2005-06 & 2006-07, which are under consideration in this case, merely on the presumption that the assessee might have been in possession of the seized cash throughout the period covered by the search assessments. The learned ITAT also held-
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"The income offered to tax u/s 153A for assessment years 2005- 06 and 2006-07 cannot be said to be based on assets seized, because from the assessment order, it is clear that search was on 11.01.2007 (i.e AY 2007- 08), the cash seized during search was only to the tune of Rs.5,26,530/- and it is not emerging from the records that the assessee has claimed during search that the cash seized (on 11.0 1.2007), belonged to him and that was owned by him in the relevant assessment years i.e. AYs 2005-06 and 2006- 07. Unless there is a clear finding in this respect, Explanation 5 of Section 271(1)(c) cannot be of any help to the department. As rightly pointed out by the Coordinate Bench in Prem Arora (supra), the provisions of Explanation 5 cannot be invoked in assessment years 2005-06 and 2006-07 in respect of entries recorded in seized material. Thus invoking of Explanation 5 in assessment year 2005-06 & 2006-07 is based on assumptions and presumptions. It is settled law that suspicion howsoever strong, cannot take the place of evidence and hence the contention of the Revenue that assessee was in possession of cash throughout the period of assessment years under consideration has to be rejected." It is difficult to see any infirmity in the decision of the learned ITAT in the present case. Levy of penalty under Section 271(1)(c) cannot be on the basis of surmises and conjectures. Thus, Explanation 5 cannot assist the claim of the revenue in the present case for the relevant assessment years under consideration before this Court for the simple reason that for the relevant assessment years, 2005-06 & 2006-07, no material was recovered during the search. Rather, the assessee added Rs.21,65,932/- in the return filed pursuant to notice under section 153A. That amount was not relatable to any sum recovered or article seized. Therefore, the question of adding or not adding amounts after the search and falling within the mischief of Explanation 5 to Section 271 (1) (c) cannot arise in the facts and circumstances of this case. 29. Based on the above discussion, this Court is of the opinion that Explanation 5 cannot be relied upon by the Revenue in the relevant assessment years under consideration before this Court, and in the absence of recourse to Explanation 5, there is no incriminating evidence to show that the assessee has concealed the particulars of his income, within the meaning of Section 271(1)(c) of the Act. In conclusion, this Court is of the view that there is no illegality in the order of the learned ITAT in the present case. In all four appeals, the question of law involved is thus answered in favour of the assessee. The revenue's appeals are therefore dismissed.”
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ITAT, Rajkot Bench in the case of Shri Mansukhbhai R. Sorathia and Others Vs. JCIT, IT(SS)A.No.46/RJT/2014 and others has also considered identical issue and held that Revenue cannot assume existence of seized material by holding that had the search not carried out, assessee would have not disclosed this income in response to section 153A notice. In respect of this assumption, there should be recovery of some assets, such money, bullion, jewellery or diary. No such things have been referred in these cases. Therefore, we allow all these appeals and deleted all the penalties impugned in these appeals.
In the result, all the appeals of the assessees are allowed. Pronounced in the Open Court on 8th April, 2019.
Sd/- Sd/- (WASEEM AHMED) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER