SHRI SANJAY SOMANI,JAIPUR vs. DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1, JAIPUR

PER BENCH :

These three appeals by three individual assesses who are family members are

directed against three separate orders of ld. CIT (A)-4, Jaipur dated 23.08.2017 and

05.09.2017 arise from the penalty orders passed under section 271AAA of the I.T.

Act for the assessment year 2012-13. The issue raised in these appeals is identical

and common and also arising from the same facts as well as the search and seizure

action. Therefore, for the purpose of recording facts, the appeal in ITA No.

822/JP/2017 is taken as lead case wherein the assessee has raised the following

grounds :-

“1. Under the facts and circumstances of the case the learned CIT (A)-4, Jaipur has grossly erred in not allowing the assessee to represent its case before him by ignoring the principles of natural justice and therefore making ex party order of confirmation of order passed by learned AO.

3 ITA Nos. 822, 823 & 825/JP/2017 Shri Sanjay Somani, Shri Peeyush Somani and Shri Sameer Somani.

31.01.2012 in case of Somani Group to which the assesses belong to. During the

search and seizure action, statement of Shri Sameer Somani was recorded under

section 132(4) in which he offered Rs. 5 crores as undisclosed income of the Somani

Group, after consulting with all the partners including the assesses before us. Thereafter, vide letter dated 24th February, 2012 the assesses given the details of

bifurcation of undisclosed income of Rs. 5 crores and out of which Rs. 2.41 crores

was offered in the case of M/s. Aditya Telelink Pvt. Ltd., Rs. 1.5 crores in the case of

M/s. Redd communication India Pvt. Ltd. and balance of Rs. 79 lacs was shared

amongst the different individuals of the family. The assesses before us have owned

up and offered to tax Rs. 20 lacs each as undisclosed income. The assessees filed

returns of income and offered the undisclosed income of Rs. 20 lacs each. The AO

accepted the income so declared and offered to tax by the assessee. However, the

AO observed that the assesses have neither explained the manner of earning of

income nor have substantiated the same and, therefore, penalty proceedings under

section 271AAA were initiated against these three assesses. The AO accordingly

issued a show cause notice dated 19.08.2014 under section 271AAA read with

section 274 of the Act to which the assessee filed reply dated 28.08.2014. The

assessee contended that when the assessee has complied with all the conditions

provided under section 271AAA, then no penalty is leviable on the amount which

was offered to tax. The AO did not accept the contention of the assessee and levied

the penalty of Rs. 2,00,000/- each being 10% of the undisclosed income of each

4 ITA Nos. 822, 823 & 825/JP/2017 Shri Sanjay Somani, Shri Peeyush Somani and Shri Sameer Somani.

assessee. The assessee challenged the levy of penalty before the ld. CIT (A). The

appeals filed by the assesses were dismissed ex parte.

section 271AAA grants immunity to the assessee who satisfies the conditions that he

admits undisclosed income in the statement under section 132(4) and specifies the

manner in which such income has been derived. Further, the assessee substantiated

the manner in which the undisclosed income was derived and paid the tax together

with interest in respect of the undisclosed income. Since the assessee complied with

the required conditions and, therefore, the penalty under section 271AAA cannot be

levied in the cases of assesses. He has further submitted that in the statement recorded under section 132(4) on 1st February, 2012 Shri Sameer Somani admitted

undisclosed income of Rs. 5 crores for the entire group and thereafter vide letter dated 24th February, 2012 the undisclosed income was divided amongst the partners

including the three assesses in these appeals who have offered Rs. 20 lacs each to

tax. The ld. A/R has further contended that the AO has levied the penalty on the

ground that the assessee has not specified the manner in which undisclosed income

was derived and, therefore, when the assessee failed to substantiate the manner in

which the undisclosed income was derived, the AO has levied the penalty @ 10% of

undisclosed income in each case. The ld. A/R has contended that during the course

of assessment proceedings, the assessee submitted letter dated 14.3.2014 and

explained the manner in which undisclosed income was derived. Therefore, the

requirement of specifying the manner in which undisclosed income was derived was

satisfied when the assessee explained the same vide letter dated 14.03.2014. The

ld. A/R has further contended that there is no specific format or procedure

5 ITA Nos. 822, 823 & 825/JP/2017 Shri Sanjay Somani, Shri Peeyush Somani and Shri Sameer Somani.

prescribed under the Act for substantiation of manner in which the undisclosed

income was derived. Hence the explanation of the assessee in the letter dated

14.03.2014 satisfied the requirement of the provisions. He has pointed out that the

assessee has admitted that he has entered into transactions of land/property and

earned the commission and brokerage income and income arising from the same is

declared in the return. Thus the assessee explained the manner in which the

undisclosed income was earned and also substantiated the same and hence the

conditions required for grant of immunity of penalty under section 271AAA has been

satisfied. In support of his contention, he has relied upon the decision of Hon’ble

Gujarat High Court in case of Principal CIT vs. Swapna Enterprise, 401 ITR 488

(Guj.) as well as the decision of the Delhi Benches of the Tribunal in the case of Sita

Ram Gupta vs. ACIT, 151 ITD 449 (Trib.)(Del.). Hence, the ld. A/R has submitted

that the condition of specifying the manner in which undisclosed income was derived

stood duly satisfied by the assessee before the authorities below and, therefore, the

penalty levied under section 271AAA may be deleted/cancelled.

below and submitted that the AO while passing the penalty order under section

271AAA has clearly stated that the assessee failed to substantiate the manner of

earning the undisclosed income. The ld. D/R has further submitted that the AO has

clearly pointed out that no return was filed by the assessee for the year under

consideration within the time prescribed under section 139(1) of the Act and, therefore, a notice under section 142(1) was issued on 30th October, 2012 for filing

the return. In compliance to this notice, the assessee filed his return of income on

31.12.2012 declaring total income which included undisclosed income declared

6 ITA Nos. 822, 823 & 825/JP/2017 Shri Sanjay Somani, Shri Peeyush Somani and Shri Sameer Somani. during the search and seizure action. However, the assessee could not explain the manner of earning the additional undisclosed income nor could substantiate the manner of earning. Therefore, the penalty under section 271AAA is leviable when the assessee has failed to comply with the conditions. 5. We have considered the rival submissions as well as relevant material on record. The sole ground for levy of penalty under section 271AAA is non substantiation of manner of earning the income which was surrendered by the assessee. It is pertinent to note that the undisclosed income of Rs. 5 crores was disclosed in the statement under section 132(4) by one Shri Sameer Somani who is also family member of the assessee and representing the entire group. The relevant part of the statement has been produced by the AO in the penalty order at page 3 as under :-

“ iz'u 32 vkt vkids vkoklh; Hkou ,&25] lqHkk’k uxj] t;iqj ij fnuakd 31-01-2012 ls 01-02-2012 rd ryk'kh dh dk;Zokgh dh xbZ bl Hkou esa vki Lo;a] vkids cM+s HkkbZ Jh lat; lksekuh] vkidh ekrk Jherh ljyk lksekuh] vkids pkpk Jh t; dqekj lksekuh ,oa muds iq= Jh fi;q’k lksekuh vius&vius ifjokj ds lkFk fofHkUu ryksa ij jgrs gSaA ryk'kh dk;Zokgh ds nkSjku vkids fuokl LFkku ds vykok vkidh QeksZ@dEiuh ds dk;kZy;ksa ij Hkh ryk'kh o losZ dh dk;Zokgh Hkh dh xbZA bl nkSjku vkids vkWfQl dk;kZy;ksa o fuokl LFkku ij fofHkUu dkxtkr ik, o tCr fd, x, gSaA vkius tcr dkxtkrksa dk lR;kiu viuh cgh [kkrksa o ys[kk iqLrdksa ls lR;kiu ugha djk;k x;kA bu ik;s o tCr fd, x;s dkxtkrksa ds vk/kkj ij vkids o vkids ifjokj ds vU; lnL;ksa ,oa vkidh ikfjokfjd QeksZa vkSj dEifu;ksa esa v?kksf’kr vk; o fuos'k dh lEHkkouk curh gSA bl lEcU/k esa vki D;k dguk pkgrs gSA

mŸkj : lpZ dh dk;Zokgh ds nkSjku gekjs fuokl ,oa gekjh dEifu;ksa o QeksZa ds dk;kZy;ksa ij ls fofHkUu dkxtkr ik, o tCr fd, x, gSA eSa o esjs ifjokj ds vU; lnL; bu dkxtkrksa esa bUnzkt izfrf’B;ksa dk lR;kiu

7 ITA Nos. 822, 823 & 825/JP/2017 Shri Sanjay Somani, Shri Peeyush Somani and Shri Sameer Somani. cgh [kkrksa o ys[kk iqLrdksa ls ugha djok lds gSA bl lEcU/k esa eSusa Jh lat; lksekuh] t; dqekj lksekuh] fi;q’k lksekuh ds fopkj foe'kZ djus ds ckn ge lHkh bl urhts ij igqaps gSa fd gekjh QeksZ o dEifu;ksa esa :i;s ikWap djksM+ dh v?kksf’kr vk; Lohdkj djrs gq, vk;dj ds fy, lefiZr djrs gSaA bl v?kksf’kr vk; ij ge ns; vk;dj fu;ekuqlkj pqdk nsaxsA gekjh fdu QeksZ@dEifu;ksa dh v?kksf’kr vk; gSA bldk iw.kZ fooj.k gekjh dEifu;ksa o QeksZa ds dk;kZy;ksa esa ik, o tCr fd, x, dkxtkrksa@ys[kksa iqLrdksa ds lr;kiu ds ckn vkids dk;kZy; esa izLrqr dj nsaxsA “

Thus as per the statement recorded under section 132(4) the total amount of Rs. 5.00 crores was disclosed as undisclosed income for the entire group which was subsequently distributed amongst various partners which includes two corporate entities and four individuals. However, out of Rs. 5 crores, Rs. 79 lacs was shared by four individuals and the assessees before us have owned up Rs. 20 lacs each from the undisclosed income. Thus the major part of the undisclosed income was owned up by two corporate entities viz. M/s. Aditya Telelink Pvt. Ltd and M/s. Redd Communication India Pvt. Ltd. It is also clear that at the time of statement the manner of earning the undisclosed income was not substantiated nor it was explained though it may be reflected from the seized material itself. However, from the statement recorded under section 132(4) it is not clear as to how the undisclosed income was earned by the group as a whole. Subsequently, vide letter dated 24th February, 2012 the assessee group has bifurcated the undisclosed income amongst various partners and Rs. 79 lacs was owned up by four individuals who are family members including the three assesses before us. The relevant part disclosing Rs. 79 lacs in the hands of individuals in the letter dated 24th February, 2012 is as under :-

8 ITA Nos. 822, 823 & 825/JP/2017 Shri Sanjay Somani, Shri Peeyush Somani and Shri Sameer Somani.

“ (c) Disclosure of additional income of Rs. 79,00,000/-.

The break up of additional income of Rs. 79.00 lacs amongst different assesses of our family and business concern, the manner of earning the additional income disclosed will be submitted subsequently on detailed scrutiny fothe seized material/records and/or post search inquiry carried out by the department either before/at the time of filing of return of income and/or in the assessment proceedings by claiming the telescoping effect against any proposed addition that may be proposed to be made by the A.O. in the assessment proceedings on the basis of seized material/records as well as in respect of gold ornaments and jewellery found during the course of search proceedings in respect of which the explanation offered by the assessee is not acceptable to the Assessing Officer.”

Therefore, it is apparent from the said letter that there was no explanation or

substantiation of the manner in which undisclosed income was derived by the

individuals. The assessee has contended that during the course of assessment

proceedings vide letter dated 14.03.2014 the assessee has substantiated the manner

in which the undisclosed income was derived. However, we find that the said letter

also does not disclose any specific manner but a stand was taken by the assessee

that it was a voluntary disclosure of total amount of Rs. 5 crores pertaining to the

assessee as well as different members of the family and concerns/firms/companies.

The reference was also made to the letter dated 24.02.2012. Thus it is clear that so

far as the individual assesses are concerned, there is no separate or specific

substantiation of the manner in which the undisclosed income was earned.

However, since the disclosure was made as a consolidated amount of Rs. 5 crores

9 ITA Nos. 822, 823 & 825/JP/2017 Shri Sanjay Somani, Shri Peeyush Somani and Shri Sameer Somani.

on behalf of the group, then if the substantiation of manner in which the undisclosed

income was earned by the group was satisfied in case of the corporate entities who

owned up the major share of the undisclosed income, then the out-come of the

proceedings in the case of two companies, namely, M/s. Aditya Telelink Pvt. Ltd. and

M/s. Redd Communication India Pvt. Ltd. shall have a direct bearing on the question

of levy of penalty under section 271AAA of the Act in the hands of the individual

assesses. Since neither the assessee nor the department has brought before us any

record or material about the status of the penalty proceedings in case of these two

companies, namely, M/s. Aditya Telelink Pvt. Ltd. and M/s. Redd Communication

India Pvt. Ltd., therefore, in the facts and circumstances of the case, we are of the

considered view that the matter needs a reconsideration at the level of the AO and

as per the out-come of the penalty proceedings, if any, in the cases of M/s. Aditya

Telelink Pvt. Ltd. and M/s. Redd Communication India Pvt. Ltd. Hence, we set aside

the matter to the record of the AO to reconsider the levy of penalty in the light of

out-come of the penalty proceedings in the case of two companies. Needless to say,

the assessee be given an opportunity of hearing before passing the fresh order.

Order pronounced in the open court on 20/07/2018. Sd/- Sd/- ¼ HkkxpUn½ ¼ fot; iky jkWo ½ (BHAGCHAND) ( VIJAY PAL RAO ) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 20/07/2018. das/

10 ITA Nos. 822, 823 & 825/JP/2017 Shri Sanjay Somani, Shri Peeyush Somani and Shri Sameer Somani. आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant-Shri Sanjay Somani, Shri Peeyush Somani and Shri Sameer Somani, Jaipur. 2. izR;FkhZ@ The Respondent-The DCIT, Central Circle-1, Jaipur. 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 6. xkMZ QkbZy@ Guard File {ITA No. 822, 823 & 825/JP/2017}

vkns'kkuqlkj@ By order,

सहायक पंजीकार@Aेेज. त्महपेजतंत