MAHESH BABU JAIN vs. I T O JHALAWAR

By way of this appeal, the assessee has challenged the judgment and order of the Tribunal whereby the Tribunal has allowed the appeal preferred by the Department reversing the order of the CIT(A) whereby appeal filed by the assessee was allowed.

While admitting the matter on 16.12.2009, the court has framed the following substantial question of law:- “(1) Whether on the facts and circumstances of the case, the learned Income Tax Appellate Tribunal was right in law in sustaining penalty of Rs.2,44,350/- u/s 271(1)(c) of the Income Tax Act after considering extraneous material? (2) Whether on the facts and in the circumstances of the case, the learned Income Tax Appellate Tribunal was right in law in sustaining penalty of Rs.2,44,350/- when originally penalty imposed was Rs.81,450/- when no new fact had surfaced on record?”

Counsel for the appellant Mr. Ranka has submitted that there

It is clear from perusal of CIT's order (which has been set aside by the Tribunal by impugned order) that it was based on the case of co-owner. Following mention in the order proves this fact: It is further relevant to note that in the case of the property C-l/45, Neemuch, the other co-owner was Smt. Prakash Rani Agrawal, Neemuch, and in her case on identical facts sale of part of land has been treated as adventure in the nature of trade by the AO vide order dt. 2nd Feb., 1995 for asst. yr. 1993-94. 6. We are thus inclined to accept the submission of learned Counsel for the assessee as in our considered opinion, when the very basis for invoking the powers conferred under Section 263 has disappeared as mentioned supra then the order of CIT treating the sale in question to be adventure-in-trade cannot sustain. Indeed, there cannot be two inconsistent orders in the case of same sale made by two co-owners. In any event, in the facts of this case, the AO having applied his mind to all facts and circumstances of case and having come to a conclusion that it was a case of sale attracting capital gains, the CIT could not have invoked his revisionary powers by forming different opinion on the same facts.”

Builders & Developers (2008) 307 ITR 197 (Delhi) holding as under:-

An affidavit dated 12-1-2007 has been filed by Shri Kalyan Chand, Commissioner, Income Tax (A) in which he explains why the orders passed on 23-9-2005 were not challenged by the revenue. He also says that a decision has been taken to challenge the orders of 23- 9-2005 and appeals will be filed, if necessary with an application for condensation of delay. Today the revenue has filed such appeals and challenged the order dated 23-9-2005. However, the fact remains that the primary orders dated 14-7-2003 and 14-6-2004 have admittedly not been challenged by the revenue. These primary orders having been accepted by the revenue, we see no reason why subsequent orders merely following these primary orders should be challenged by the revenue by filing appeals in this Court.

Our attention has been drawn to CIT v. ARG Security Printers (2003) 264 ITR 277 where a similar issue had arisen. A Division Bench of this Court relying upon Radhasoami Satsang v. CIT MANU/SC/0061/1992 : [1992]193ITR321(SC) held that though the principle of res judicata or estoppel by record does not apply in Income Tax proceedings, yet for the sake of consistency and for the purpose of finality in all litigations, including litigation arising out of the fiscal statutes, earlier decisions on the same question should not be reopened unless some fresh facts are found in the subsequent year. It was observed that where a fundamental aspect permeating through different assessment years has been found as a fact, one way or the other, and the parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. Reliance was also placed upon Union of India v. Satish Panalal Shah (2001) 249 ITR 22 wherein the Supreme Court had deprecated the practice of the revenue in accepting the correctness of a particular issue in one case and challenging its correctness in another case.

Precisely the same thing has happened insofar as these appeals are concerned. The revenue has accepted the primary orders passed by the Tribunal on 14-7-2003 and 14-6-2004 but has chosen to challenge the orders passed by the Tribunal in the present appeals which merely follow these primary orders. There is no reason given by the revenue for this pick and choose attitude or this attitude of accepting favorable orders in respect of one assessed but not accepting the same favorable order in respect of another assessed, without there being any distinction between their cases. Consequently, in view of the arbitrary manner of proceeding in the matter, we do not think that it will be proper or in the interest of (5 of 17) [ITA-657/2009] justice to allow the revenue to seek to recover tax from one assessed while declining to recover tax from another assessed on identical facts.

He contended that similar treatment ought to be given to the assessee.

He has relied upon the following decisions:-

That was a case, where survey was conducted under Section 133A of the Act, which led to revelation of certain documents. The Assessee, upon being confronted with these circumstances, offered to pay tax on money received in the form of share application money by having it treated as income from other sources.

It is, in this context, the Supreme Court observed that it was not a case of "voluntary disclosure" and, therefore, penalty under Section 271(1)(c) of the Act was rightly levied. This aspect of the matter comes through, upon a close perusal of the following observation made in paragraph 9 of the judgment: ".....

We are of the view that the surrender of income in this case is not voluntary in the sense that the offer of surrender was made in view of detection made by the AO in the search conducted in the sister concern of the assessee. In that situation, it cannot be said that the surrender of income was voluntary. AO during the course of assessment proceedings has noticed that certain documents comprising of share application forms, bank statements, memorandum of association of companies, affidavits, copies of Income Tax Returns and assessment orders and blank share transfer deeds duly signed, have been impounded in the course of survey proceedings under Section 133A conducted on 16.12.2003, in the case of a sister concern of the assessee. The survey was conducted more than 10 months before the assessee filed its return of income. Had it been the intention of the assessee to make full and true disclosure of its (6 of 17) [ITA-657/2009] income, it would have filed the return declaring an income inclusive of the amount which was surrendered later during the course of the assessment proceedings. Consequently, it is clear that the assessee had no intention to declare its true income. ....…"

As against the aforesaid judgment, to our mind, the facts set out in CIT V. Reliance Petroproducts Pvt. Ltd. are closer to the case in hand.

In the said case, the Assessee had claimed expenditure by way of interest incurred, qua loans taken, which was utilised for purchasing IPL shares. The Revenue disallowed the claim, while passing an order under Section 143(3) of the Act. Even while passing an order, notice under Section 271(1)(c) of the Act was issued. The Assessee took the stand that it was not a case of concealment of income or a case of having furnished inaccurate particulars.

The Asseessee, thus, took the stand that merely because the Revenue had a different view of the matter and had therefore, disallowed the claim, by taking recourse to provisions of Section 14A of the Act - that, by itself could not form the basis of imposing penalty on the Assessee.”

(Delhi) it has been held as under:-

Thus, despite the fact that there is no requirement of proving mens rea specifically, it is clear that the word "conceal" inherently carries with it the requirement of establishing that there was a conscious act or omission on the part of the assessee to hide his true income. This was also the conclusion of the Supreme Court in the case of Dilip N. Shroff Karta of N.D. Shroff v. Joint Commissioner of Income Tax, Special Range Mumbai and Anr., (2007) 291 ITR 519 (SC). In a later decision in Union of India v. Dharmendra Textile Processors, (2008) 13 SCC 369, the Supreme Court overruled its decision in Dilip N. Shroff (supra). Thereafter, in Commissioner of Income Tax v. Reliance Petroproducts Pvt. Ltd. , (2010) 11 SCC 762 the Court clarified that Dilip N. Shroff (supra) stood overruled only to the extent that it imposed the requirement of mens rea in Section 271(1) (c); however, no fault was found with the meaning of "conceal" laid down in Dilip N. Shroff's case. Thus, as the law stands, the word "conceal" in Section 271(1)(c), would require the A.O. to prove that specifically there was some conduct on part of the assessee which would show that the assessee consciously intended to hide his income.

Thus, it is clear that when the A.O. has accepted the revised return filed by the assessee under Section 153A, no occasion arises to refer to the previous return filed under Section 139 of the Act. For all purposes, including for the purpose of levying penalty under Section 271(1)(c) of the Act, the return that has to be looked at is the one filed under Section 153A. In fact, the second proviso to Section 153A(1) provides that "assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this sub-section pending on the date of initiation of the search under Section 132 or making of requisition under Section 132A, as the case may be, shall abate." What is clear from this is that Section 153A is in the nature of a second chance given to the assessee, which incidentally gives him an opportunity to make good omission, if any, in the original return. Once the A.O. accepts the revised return filed under Section 153A, the original return under Section 139 abates and becomes non-est. Now, it is trite to say that the "concealment" has to be seen with reference to the return that it is filed by the assessee. Thus, for the purpose of levying penalty under Section 271(1)(c), what has to be seen is whether there is any concealment in the return filed by the assessee under Section 153A, and not vis-a vis the original return under Section 139.”

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 (8 of 17) [ITA-657/2009] respect to a particular assessment year and the penalty imposed under Section 271(1)(c) would 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 Commissioner of Income Tax v. Kanhaiyalal, (2008) 299 ITR 19 (Raj),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, theassessment 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.”

In CIT vs. Sonali Jain (2012) 21 taxmann.com 494 (Allahabad) it has been held as under:- “18. Accordingly, the assessee is not a person who has failed to offer an explanation or the explanation offered by her was found to be false or that she was unable to substantiate the explanation or that the transactions were not bona fide so as to attract the deeming provision contained in Explanation 1(B) to Section 271(1)(c) of the Act. Therefore, the amount added to her income would not be deemed to be income in respect of which particulars had been concealed.”

In CIT vs. Mukta Sirdhar (2011) 16 taxmann.com 388 (Karnataka) it has been held as under:- “18. Explanation-5 to Section-271(1)(c) depends upon the particulars found with the assessee at the time of (9 of 17) [ITA-657/2009] search under Section-132 of the Act. As a matter of fact, Explanation-5 to sub-section (i) of Section-271 was inserted by amendment. This new explanation is a special provision applicable to cases when assessee is found to be the owner of any money, bullion, jewellery or other valuable article or thing revealed in the course of a search under Section-132 of the Act. If the assessee asserts and claims that the abovementioned assets were acquired by him by utilising (wholly or in part) his income for the previous year which has ended before the date of the search, but the return of income for such year has not been furnished before the said date or, where such return has been furnished before the said date, such income has not been declared in the return, the assessee shall be liable for payment of penalty under section 271(1)(c) of the Act and such income is deemed to have been concealed or inaccurately furnished. However the income referred to above if declared by the assessee in any return of income furnished by him, on or after the date of search will not provide any immunity to the assessee unless the conditions indicated in clause-(2) of Explanation-5 are fulfilled.

It is now well settled that the mens rea regarding concealing and inaccurate particulars need not be established by the department. It is also not in dispute that the immunity from imposing penalty available under two clauses of Explanation (5) can be extended to the respondents - assesses depending upon the facts and circumstances of each case if the explanation offered is to the satisfaction of the officer concerned. This Court can refer to the facts only if the Tribunal on facts has proceeded to give a perverse finding. In the present case, we are not faced with such a situation. The facts have to be referred because of the stand of the Revenue in these appeals contending that the benefit of statement of Mr. V.N. Sridhar cannot be extended to other respondents - assesses. Before concluding the search, a declaration was obtained from this group on 26.2.004 and surrender of undisclosed income was made vide the statement dated 27.2.2004 recorded under section 132(4) of the Act. The search commenced on 6.1.2004 and the statement under section 132(4) of the Act was obtained. Under these circumstances, naturally the assessee would start thinking that if a declaration is made under section 132(4) along with the taxes together with interest payable is paid, no penalty would be imposed. The department would also be keen to get declaration under section 132(4) so as to collect tax and avoid litigation. Only with this view, the exception was created in Explanation 5 to Section 271(1)(c) under clauses (1) and (2) to give immunity to assessee from levy of penalty. During the course of search, if the assessee

In CIT vs. Rajiv Garg (2008) 175 taxmann 184 (Punjab & Haryana) it has been held as under:- “7. After hearing the learned Counsel for the appellant, we do not find any merit in this appeal. Undisputedly, the assessee filed the return of income declaring its total income at Rs. 47,05,230, which, inter alia, included long-term capital gain on sale of shares amounting to Rs. 29,74,951. The return was processed in terms of Section 143(1)(a) of the Act on March 15, 1999. Subsequently, on the basis of some information with regard to sale proceeds of the shares amounting to Rs. 32,40,385 on which the capital gain was declared at Rs. 29,74,951 by the assessee in the original return, a notice under Section 148 of the Act was issued. Pursuant to the said notice, the assessee filed the revised return of income showing higher income. The said return of income was accompanied by a note in which the assessee submitted that he surrendered the entire amount of sale proceeds of shares to buy peace of mind and to avoid hazards of litigation and also to save himself from any penal action. Later on, on the basis of revised return, the assessment was framed and the return submitted by the assessee was regularized as (11 of 17) [ITA-657/2009] it is. During the course of assessment, the aforesaid explanation given by the assessee was neither rejected nor was it held to be mala fide. The Tribunal has recorded a pure finding of fact to the effect that the Revenue has not placed on record any material or evidence to discharge its burden of proving concealment. In the assessment order no such finding was recorded. The Department has simply rested its conclusion on the act of the assessee of having offered additional income in the return filed in response to the notice issued under Section 148 of the Act. The Tribunal has further held that the additional income so offered by the assessee was done in good faith and to buy peace. The Tribunal has relied upon the decision of the apex court in case of CIT v. Suresh Chandra Mittal MANU/SC/1286/2001 : [2001]251ITR9(SC) , wherein the Supreme Court has upheld the decision of the Madhya Pradesh High Court CIT v. Suresh Chandra Mittal MANU/MP/0086/1999 : [2000]241ITR124(MP) , where in similar circumstances it was held that the initial burden lies on the Revenue to establish that the assessee had concealed the income or had 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. In the present case, in pursuance of the notice under Section 148 of the Act, the revised return of income was filed in which the entire income was surrendered with an explanation. The revised assessment was regularized by the Revenue. The assessing authority had failed to take any objection that the declaration of income made by the assessee in his revised return and in his explanation were not bona fide. Therefore, in view of the aforesaid finding, the Tribunal was justified in upholding the order of the Commissioner of Income Tax (Appeals), whereby the penalty imposed under Section 271(1)(c) of the Act by the Assessing Officer was ordered to be deleted.”

Counsel for the respondent has taken us to the order of AO wherein the AO observed as under:- "I would therefore hold that this is a case where default u/s 271(1)(C) is proved beyond anyshadow of doubt and as a matter of fact case where even levy of the maximum amount of concealment penalty would have been justified. ;gka ;g fo'okl ugha fd;k tk ldrk fd migkj ysus dh lkjh tkudkjh Jh ,y ,y oS'; lufnys[kkdkj ¼vc LoxhZ;½ dks gh gksA ;g fu/kkZfjrh dh ,d lqfu;ksftr ;kstuk Fkh ftls foHkkx us lQy ugha gksus fn;kA fu/kkZj.k izfØ;k ds nksjku tc foHkkxh; tkap tkjh Fkh ml le;

She contended that in view of this, the revised return was filed belatedly under Section 131 and 139 therefore, Section 135 cannot be considered. She has also taken us to the judgment of the Tribunal wherein Tribunal observed as under:- “(3) We thus find that the basic ingredient of the gift that it must be donated out of love and affection, without consideration of money or money's worth, is missing in the present case as the so called gifts in question were not gifts in actual sense as it was a managed affairs by the Ld. Chartered Accountant for the assessee. Since the said Ld. Chartered Accountant had passed away in between, the assessee could not establish the genuineness of the claimed gifts as only the said Ld. Chartered Accountant was aware of particulars of those donors, the assessee was having no option but to surrender the said alleged gifts amount in its revised return of income, which was added in the income of the assessee. The concealment of particulars of said income or furnishing inaccurate particulars thereof is thus obvious in the present case, for invoking the penal provisions u/s 271(1)(c) of the Act. The Ld. 197 (Delhi); CIT Vs. Suresh Chandra Mittal, (2001) 119 Taxman 433(S.C.); CIT Vz. Anwar Ali (1970) 76 ITR 696(SC); and CIT Vs. Khoday Eswarsa & Sons, (1972) 83 ITR 369 (SC) are not helpful to the assessee as concealment of particulars of the incoem or furnishing inaccurate particulars thereof on the part of assessee, as discussed above, is obvious in the present case. We thus while setting aside first appellate order deleting the penalty in question, restore the penalty levied u/s 271(1)(c) at Rs.2,44,350 by the A.O. in result ground is allowed.”

(SC) wherein it has been held as under:- “Assessee has only stated that he had surrendered the additional sum of Rs. 40,74,000/- with a view to avoid litigation, buy peace and to channelize the energy and resources towards productive work and to make amicable settlement with the income tax department. Statute does not recognize those types of defences under the explanation 1 to Section 271(1)(c) of the Act. It is trite law that the voluntary disclosure does not release the Appellant-Assessee from the mischief of penal proceedings. The law does not provide that when an Assessee makes a voluntary disclosure of his concealed income, he had to be absolved from penalty.

We are of the view that the surrender of income in this case is not voluntary in the sense that the offer of surrender was made in view of detection made by the AO in the search conducted in the sister concern of the Assessee. In that situation, it cannot be said that the surrender of income was voluntary. AO during the course of assessment proceedings has noticed that certain documents comprising of share application forms, bank statements, memorandum of association of companies, affidavits, copies of Income Tax Returns and assessment orders and blank share transfer deeds duly signed, have been impounded in the course of survey proceedings Under Section 133A conducted on 16.12.2003, in the case of a sister concern of the Assessee. The survey was conducted more than 10 months before the Assessee filed its return of income. Had it been the intention of the Assessee to make full and true disclosure of its income, it would have filed the return declaring an income inclusive of the amount which was surrendered later during the course of the assessment proceedings. Consequently, it is clear that the Assessee had no intention to declare its true income. It is the statutory duty of the Assessee to record all its transactions in the books of account, to explain the source of payments made by it and to declare its true income in the return of income filed by it from year to year. The AO, in our view, has recorded a categorical finding that he was satisfied that the Assessee had concealed true particulars of income and is liable

Civil Appeal No.8175/2003 in case of Mohd. Mohtram Farooqui, reproduced as under: “Having examined the question of law in the context of the facts placed on record, we are of the view that the matter needs to be remitted to the Assessing Officer (AO). In this case, the Tribunal has set aside the levy of penalty under Section 271(1)(c) of the Income Tax, 1961, on the basis that the AO has not examined the concerned persons. In this connection, it may be stated that an amount of Rs.5,92,340/- was seized by the Police Thana, Sikar from the appellant on 8th April, 1992. A Panchanama was drawn by the Department on 9th April, 1992 and the cash amount was requisitioned on the same date. Consequent to the seizure, the statement of the assessee was recorded by the Deputy of Investigation, Jaipur, wherein the assessee stated that the cash belonged to his brother, his brother-in-law and a part belonged to him. According to the Tribunal, the AO should have summoned the assessee's brother and brother-in-law. According to the Tribunal, the AO did not examine any of the concerned persons. According to the Tribunal, the AO has failed to apply his mind to the facts of the case. In the circumstances, according to the Tribunal, since the AO did not examine the relevant persons and since he did not find any explanation furnished by the assessee to be false, the entire penalty proceedings came to be quashed. In our view, on the facts of this case, the Tribunal should have remitted the case to the AO particularly, in view of the fact that the assessee has raised a legal contention on the applicability of Explanation-5 to Section 271(1)(c) of the Act. In the circumstances, we remit this case to the AO. We may add that the AO Will consider one more aspect, namely, whether the assessee has filed income tax returns in the past prior to the relevant Assessment Year 1993-94 and whether he has been filing income tax returns subsequent to the relevant assessment year. The AO will also 3 find out the amount of income returned by the assessee, if any, during the assessment years prior to Assessment Year 1993-94 and the (15 of 17) [ITA-657/2009] returned income for the assessment years subsequent to the relevant Assessment Year 1993-94. This point is relevant for deciding the question as to whether penalty proceedings were rightly initiated against the assessee under Section 271(1)(c) of the Act. Before concluding, we may clarify that we do not wish to express any opinion on the merits of the case. We further clarify that contentions on both sides are expressly kept open. Subject to above, Civil Appeal stands disposed of and the matter is remitted to the AO for de novo consideration in accordance with law. No order as to costs.”

We have heard counsel for the parties.

Before proceeding with the matter, first it is to be noted that father and son are two different assessees, therefore, first contention regarding two assessees to be assessed on identical facts, both the authorities ought to have acted in the same fashion. In the identical fact, if the father has not been imposed any penalty there is no ground that different view is required to be taken in the case of son in view of the decisions of Madhya Pradesh and Delhi High Court.

The contention raised by the assessee is required to be accepted. Even otherwise, the Appellate Authority has observed as under:- “The gift received in the case of father of appellant has not been treated as concealed income in the scrutiny assessment order under section 143(3) dated 02.05.1994 passed by the ITO, Jhalawar despite the fact that the revised return was filed after the issue of notice under section 143(2). During the course of appela proceedings my ld. Predecessor CIT(A) has asked the then ACIT, Cirlce-1, Kota to obtain the copy of the impugned letter of the ADIT(Inv.) written to the appellant and its reply filed by the appellant. However, the same could not be made available either before the predecessor CIT(A) or before the under-signed. Taking into consideration plea of the appellant, the totality of the facts and circumstances of the case,

The letter which was required to be produced was not produced, therefore, in view thereof adverse inference is to be drawn against the party. The Appellate Authority while considering the same has not given any cogent reasons.

It is well settled principal that the Appellate Authority while allowing the appeal has to give reasons for reversing the order of the earlier authority. In the present case, the Tribunal has not given any finding on these issues. In that view of the matter, the order of the Tribunal merely on the basis of Supreme Court judgment without considering the facts on record is required to be quashed. Even otherwise, it is well settled that first penalty imposed by CIT (A) which was remitted back by the Tribunal, the Tribunal was satisfied, therefore, it has remitted the matter back and that is not for the increase of penalty. The department was never in appeal, therefore, in passing the second order the AO while increasing the penalty, has acted erroneously inasmuch as at the most, he could have confirmed the earlier finding of CIT(A).

In the background of above, we reverse the view taken by the Tribunal and confirmed the view that of the CIT(A). The issue is accordingly answered in favour of the assessee and against the (17 of 17) [ITA-657/2009] department.