KAILASH CHANDRA KABRA,BHILWARA vs. ACIT, AJMER

PER VIJAY PAL RAO, J.M.

These two appeals by the assessee are directed against two separate orders of ld. CIT (A), Jaipur arising from penalty orders passed under section 271(1)(c) of the I.T. Act for the assessment years 2004-05 and 2008-09 respectively. The assessee has raised common grounds in these appeals except the quantum of penalty. The assessee has also raised revised grounds wherein an additional ground was raised. The revised grounds for the assessment year 2004-05 are reproduced as under :-

2 ITA Nos. 89 & 90/JP/2014 Shri Kailash Chandra Kabra, Bhilwara.

“ (a) That in the facts and in the circumstances of the case and in law, the ld. Commissioner of Income Tax (Appeal), Central, Jaipur grossly erred in confirming the action of the ld. Assessing Officer in imposing penalty of Rs. 2,67,030/- u/s 271(1)(c) of the Act.

(b) That in the facts and in the circumstances of the case and in law, the order passed u/s 271(1)(c) read with explanation 5A thereof by the learned Commissioner of Income Tax (Appeal), Central, Jaipur confirming the order passed by the learned Assessing Officer u/s 271(1)(c) read with explanation 5 thereof is bad in law and deserves to be quashed.

(c) That in the facts and in the circumstances of the case and in law, the ld. Commissioner of Income Tax (Appeal), Central, Jaipur grossly erred in confirming the action of the ld. Assessing Officer in imposing penalty u/s 271(1)(c) in when the assessee appellant has admitted the undisclosed income in the statement u/s 132(4) during the course of search, explained and substantiated the manner in which this income had been derived and also paid the due tax and interest thereupon. The ld. Assessing Officer ought to have not imposed the penalty on the income offered for tax u/s 132(4) when no additional income has been subjected to tax by the ld. Assessing Officer.

(d) That in the facts and in the circumstances of the case and in law, the ld. Commissioner of Income Tax (Appeal), Central, Jaipur grossly erred in confirming the action of the ld. Assessing Officer for imposing penalty u/s 271(1)(c) of the Act when the ld. Assessing Officer was himself not sure as to whether notice is issued for concealment of income or filing inaccurate particulars of such income.”

Tribunal and it was not raised before the authorities below, therefore, treating the

said ground as an additional ground filed by the assessee, we have heard the ld. A/R

as well as the ld. D/R on the admission of the additional ground.

3 ITA Nos. 89 & 90/JP/2014 Shri Kailash Chandra Kabra, Bhilwara.

not require any verification of facts but can be adjudicated on the basis of the facts

available on record. He has relied upon the decision of Hon’ble Supreme Court in the

case of CIT vs. National Thermal Power Corporation Ltd. vs. CIT, 229 ITR 383 (SC).

ground raised by the assessee and submitted that the assessee never raised this

objection before the AO as well as before the ld. CIT (A) and, therefore, in the

absence of any reasonable cause or circumstances which has prevented the

assessee to raise this ground before the authorities below, the same cannot be

admitted at this stage.

record, at the outset, we note that the additional ground raised by the assessee is

challenging the validity of notice issued by the AO for initiation of penalty

proceedings under section 2712(1)(c) without specifying the specific ground whether

it was for concealment of income or furnishing inaccurate particulars of income.

Thus the issue raised in the additional ground is purely legal in nature and for

adjudication of the same, it does not require investigation of any facts but the facts

already available on record can be considered for adjudication of the issue raised by

the assessee. Accordingly, in view of the decision of Hon’ble Supreme Court in the

case of NTPC vs. CIT (supra), we admit the additional ground for adjudication on

merits.

4 ITA Nos. 89 & 90/JP/2014 Shri Kailash Chandra Kabra, Bhilwara.

On Merits :

274 read with section 271(1)(c) of the IT Act the AO has not specified the ground

for initiation of penalty proceedings whether it is for concealment of income or

furnishing inaccurate particulars of income. The ld. A/R has referred to the notice at

page 11 of the paper book and submitted that the AO has not deleted the irrelevant

portion in the show cause notice and, therefore, in view of the various decisions on

this point, the show cause notice issued by the AO is illegal and consequential order

passed under section 271(1)(c) is also not sustainable in law. He has referred to the

decision of Hon’ble Karnataka High Court in the case of CIT vs. Manjunatha Cotton &

Ginning Factory, 359 ITR 565 (Kar.) as well as the decision of Hon’ble Jurisdictional High Court in the case of Sheveta Construction Company Pvt. Ltd. vs. ITO dated 6th

December, 2016 in ITA No. 534 of 2008 and submitted that when the AO has not

recorded the specific ground for initiating the penalty proceedings then the assessee

was not given the proper opportunity to meet this specific ground for levy of

penalty. Therefore, in the absence of specifying the ground on which the penalty

was proposed to be levied, the penalty imposed on the basis of such proceeding is

not sustainable. The ld. A/R has also relied upon a subsequent decision of Hon’ble

Karnataka High Court in the case of Shri Muninaga Reddy vs. ACIT, 396 ITR 398

(Kar.) and submitted that the Hon’ble High Court has reiterated its view as taken in

the case of CIT vs. Manjunatha Cotton & Ginning Factory (supra). He has also relied

upon a series of other decisions on the point that in the absence of specifying the

ground in the show cause notice, the proceedings initiated by the AO for levy of

5 ITA Nos. 89 & 90/JP/2014 Shri Kailash Chandra Kabra, Bhilwara.

penalty are not valid and consequently the order passed by the AO under section

271(1)(c) is also not sustainable in law. Hence the ld. A/R has pleaded that the

penalty order passed by the AO is liable to be quashed.

addition made by the AO by disallowing any claim of the assessee or bringing any

income to tax but the assessee himself has declared undisclosed income during the

search and in the statement under section 132(4) of the Act which was not offered

to tax in the return filed in response to notice under section 153A. Therefore, when

the AO issued a show cause notice of making the addition of undisclosed income,

then the assessee filed a revised return of income and offered the said income to tax

for both the assessment years. The ld. D/R has further submitted that even

otherwise when the assessee himself has offered this income to tax as undisclosed

income, then there was no requirement of specifying the ground for imposing the

penalty under section 271(1)(c). He has relied upon the orders of the authorities

below.

record. It is undisputed fact that during the search and seizure action under section

132 carried on 16.09.2009 the assessee disclosed the income of Rs. 7,72,265/- for

the assessment year 2004-05 and Rs. 30,20,703/- for the assessment year 2008-09.

However, in the return of income in response to notice under section 153A the

assessee did not offer the said undisclosed income to tax. Therefore, the AO issued

show cause notice for making the addition of the said amount which was disclosed

during the search and seizure action but was not offered to tax in the return of

6 ITA Nos. 89 & 90/JP/2014 Shri Kailash Chandra Kabra, Bhilwara.

income and consequently the assessee offered the said undisclosed income to tax in

the revised return of income. The AO accepted the income offered in the revised

return with the observation that the revised return filed by the assessee is not

voluntary but on the basis of various incriminating documents seized during the

search and seizure operation. Accordingly, the AO initiated the penalty proceedings

by issuing the show cause notice under section 274. The assessee has raised the

objection of validity of show cause notice as it has not specified the ground for

which the penalty was proposed to be levied. Once the assessee has disclosed and

surrendered the undisclosed income during the search and seizure operation as well

as in the statement made under section 132(4), then the nature of the said income

was not required to be further determined by the AO either in the assessment

proceedings or in the penalty proceedings as it was accepted by the assessee as

undisclosed income. The assessee even in the revised return of income filed during

the assessment proceedings has offered the said income as undisclosed income and,

therefore, the AO has made no addition to the returned income but recorded its

satisfaction for initiating the penalty proceedings in respect of the surrendered

income for both the assessment years. As it is the case of surrender of undisclosed

income detected during the search and seizure action, therefore, there was no doubt

or confusion in the mind of the assessee or the AO that the income surrendered and

offered to tax by the assessee is undisclosed income. Even otherwise, as per

Explanation 5A to section 271(1)(c), when the income which is detected during the

search and seizure action was not offered to tax in the return of income to be filed

under section 139 of the Act and the due date of such return of income was already

7 ITA Nos. 89 & 90/JP/2014 Shri Kailash Chandra Kabra, Bhilwara.

expired on the date of search, then even if the assessee offered the said income to

tax in the return filed in response to notice under section 153A, the same shall be

deemed to be undisclosed income for the purpose of section 271(1)(c) of the Act.

At the outset, we fortify our view by the decision of this Tribunal and particularly by this Bench in case of Shri Satya Narain Gupta vs. DCIT vide order dated 2nd January,

2018 in ITA No. 823/JP/2016 in para 7 to 7.3 as under :-

“7. We have considered the rival submissions as well as relevant material on record. Brief facts the relevant to the issue have emerged from the record that a search and seizure action u/s 132 of the Act was carried out in the case of the assessee on 20.10.2009. During the course of search the assessee surrendered income of Rs. 10,000,00/- on account of investment/cash transactions in the property. In response to notice u/s 153(A) the assessee filed his return of income and offered an amount of Rs. 10,000,00/- to tax under the head income from the other sources. As assessee surrendered by him from the course of search. The Assessing Officer framed AY u/s 143(3) read with section 153(A) on the return income on 29.12.2011. Thus, the Assessing Officer while completing the Assessment has made no addition to the return income but recorded its satisfaction for initiating the penalty proceedings u/s 271(1)(c) in respect of surrendered amount of Rs. 10,000,00/-. Accordingly, AO issued the notice dated 29.12.2011 u/s 274 read with section 271 of Income Tax Act.

7.1. The ld. AR of the assessee has challenged the validity of show cause notice u/s 274 on the ground that the AO has not specified the grounds on which the penalty proceedings were initiated and the penalty was proposed to be levied. As it is clear from the facts as narrated above that it is a case of surrender of undisclosed income dedected. During the course of search. Since assessee offered the said surrender income of Rs. 10,000,00/- to tax in the

8 ITA Nos. 89 & 90/JP/2014 Shri Kailash Chandra Kabra, Bhilwara.

return of income filed in response to notice u/s 153A of the Act therefore, it is note a case of any addition made by the AO during the course of assessment proceedings. There is no quarrel that it is incumbent upon the AO to specify the ground and default committed by the assessee on which the penalty was proposed to be levied u/s 271(1)(c). As per section 271(1)(c) a penalty can be levied either on the ground of concealment of particulars of income or on the ground of furnishing inaccurate particulars of income.

7.2. If an addition is made by the AO then said action of the AO may lead to either furnishing of inaccurate particulars of income by the assessee or concealment of the particulars of income and therefore in such a situation if the AO proposed to initiate the proceedings u/s 271(1)(c) then he is required to specify whether the assessee has committed the default of concealment of particulars of income or furnishing inaccurate particulars of income. We find that the Assessing Officer has not specifically stated in the show cause notice as what default was committed by the assessee. However, the question of the specifying the default arises only when the addition in the income of the assessee is made by the AO and consequently the AO proposed to initiate the proceedings for levy of penalty u/s 271(1)(c) in respect of such an addition made to the income of the assessee. Therefore, if the income of the assessee is assessed at higher amount than the return income then it is the duty of the AO to specify such addition/disallowance resulting increase of total income was on account of concealment of particulars of income or due to furnishing inaccurate particulars of income. The AO has to specify the default for which it proposed to initiate the proceedings for levy of penalty u/s 271(1)(c). It is pertain to note that the addition made by the AO during the assessment proceedings may be either due to concealment of particulars of income or due to furnishing of inaccurate particulars of income. Since it is the action of the AO resulted addition in the total income therefore, it is duty of the AO to specify the default of the assessee for which such addition in the total income is made and consequently the levy of penalty is proposed. This requirement

9 ITA Nos. 89 & 90/JP/2014 Shri Kailash Chandra Kabra, Bhilwara.

of specifying the default or ground to initiate the proceedings for levy of penalty is not in dispute as held by the Hon’ble High Courts in the decisions relied upon by the ld. AR of the assessee. The very object and purpose for specifying the default is to make the assessee known about the ground on which the penalty is intended to be imposed and to meet the case of the department that the conditions stipulated u/s 271(1)(c) do not exist.

7.3. Therefore, specifying the default in the show cause notice is mandatory in the sense that the assessee must know which default he has committed and should have fully opportunity to meet the case of the department. Thus there is no quarrel on the procedence as cited and relied upon by the ld. AR however in the case of the assessee it is not an addition made by the AO but the assessee surrendered the income to tax and therefore the said surrender of income would not fall in the category of furnishing inaccurate particulars of income more so when the assessee did not file any return of income prior to the date of search. The assessee offered this amount to tax in the return of income and no further addition was made by the AO. Therefore the default in the nature of furnishing inaccurate particulars of income is ruled out. Hence it can only be in the category of concealment of particulars of income as the assessee did not file any return of income prior to the date of search and time limit for filing the return of income u/s 139(1) was already expired on 31st July, 2009 much prior date of search. Accordingly, the amount surrendered during the course of search and seizure action and subsequently offered to tax in the return of income filed post search would fall in the category of concealment of particulars of income. When there is only one possibility of default and not the possibility of either of two defaults then the requirement of specifying the default does not arise. The assessee himself surrendered and offered the said amount to tax. Therefore, it is best known to assessee what default he had committed such default. Accordingly in the peculiar facts of the case the decision relied upon by the ld. AR are not applicable. Hence the income surrendered by the

10 ITA Nos. 89 & 90/JP/2014 Shri Kailash Chandra Kabra, Bhilwara.

assessee on account of investment in properties in nothing but undisclosed income and therefore, the question of specifying the default by the AO would not arise as it was very well to none to the assessee that it is concealment of particulars of income. Accordingly the additional ground raised by the assessee is dismissed.”

Accordingly, in view of the above discussion and facts and circumstances of the case

when the assessee disclosed the undisclosed income and offered the same to tax,

then the AO was not required to specify the ground or default for levy of penalty

under section 271(1)(c).

Ground No. (a) to (c) regarding the levy of penalty u/s 271(1)(c) of

the Act.

declared this income in the revised return of income then the question of levying the

penalty under section 271(1)(c) does not arise. He has further contended that when

the Explanation 5A was not on the Statute at the time of filing the original return,

then the same cannot be applied in the case of the assessee for levy of penalty

under section 271(1)(c) of the Act. In support of his contention he has relied upon the decision of Hyderabad Bench of the Tribunal dated 23rd September, 2016 in case

of Krishnakanth Agarwal vs. DCIT in ITA Nos. 976 to 978/HYD/2015. The ld. A/R

has submitted that even otherwise for invoking the Explanation 5A there must be

some incriminating documents and the disclosure should be based on the

incriminating material. In the absence of any incriminating material, the penalty

under section 271(1)(c) cannot be levied by applying the Explanation 5A only on the

11 ITA Nos. 89 & 90/JP/2014 Shri Kailash Chandra Kabra, Bhilwara.

basis of statement recorded during the course of search. In support of his

contention he has relied upon the decision of the Coordinate Bench of the Tribunal

dated 06.05.2016 in case of M/s. Ajay Traders vs. DCIT in ITA No. 296/JP/2014.

Thus the ld. A/R has submitted that the penalty levied by the AO is not sustainable

and liable to be cancelled.

applied the Explanation 5A to section 271(1)(c) of the Act as there was incriminating

material found during the course of search and seizure action and on the basis of

the said material the assessee has disclosed the said income. Explanation 5 does

not have any provision for immunity or mitigating circumstances with reference to

income found during the course of search for any previous year which ended before

the date of search. Therefore, the income disclosed by the assessee and offered to

tax will be deemed to be concealment of income as per Explanation 5A to section

271(1)(c).

record. The first objection raised by the ld. A/R of the assessee is that the

Explanation 5A was not on the Statute when the return of income was filed by the

assessee. We note that only for the assessment year 2004-05 this contention of the

ld. A/R can be considered and not for the assessment year 2008-09 as the

Explanation 5A was brought into Statute by Finance Act, 2007 with effect from

01.06.2007 which was subsequently amended by Finance Act, 2009 with

retrospective effect from 01.06.2007. Therefore, so far as the assessment year

2008-09 is concerned, the contentions of the ld. A/R are not applicable. Secondly,

12 ITA Nos. 89 & 90/JP/2014 Shri Kailash Chandra Kabra, Bhilwara.

the decision relied upon by the ld. A/R of the assessee on this point talks about non

existence of this provision either at the time of filing the return of income for the

assessment year nor the subsequent amendment was made prior to the date of

search. Both these conditions are absent in the case of the assessee as the

provision was very much inserted in the Statute prior to filing the return of income

for the assessment year 2008-09 and even the subsequent amendment was made

prior to the search in the case of the assessee carried on 16.09.2009. Therefore, we

do not find any merit or substance in the contention of the ld. A/R of the assessee

that the Explanation 5A to section 271(1)(c) are not applicable in the case of the

assessee. The second contention of the ld. A/R is regarding the disclosure of

income without any incriminating material. We note that during the course of

search and seizure action, certain incriminating material were found and seized

which were supplied to the assessee by the AO as requested. Therefore, it is evident

from the record that the disclosure was made by the AO based on the various

incriminating documents. The AO has recorded this fact in para 9 as under :-

“ 9. It is noticed that there is disclosure and surrender of additional income of Rs. 772265/- (on account of undisclosed receipt income) in the revised return of income u/s 153A filed by the assessee, which is not voluntary but on the basis of various incriminating documents seized during the search operation and survey operation. Penalty proceedings u/s 271(1)(c) for concealment of income and furnishing inaccurate particulars of income are initiated on this point.”

Accordingly, it is evident from the record that the additional income which was

disclosed and surrendered by the assessee on account of various incriminating

documents seized during the search operation.

13 ITA Nos. 89 & 90/JP/2014 Shri Kailash Chandra Kabra, Bhilwara.

11.1. The assessee has not raised any such issue in the assessment proceedings

and himself has offered the said income which was disclosed in the statement made

under section 132(4) and, therefore, once the income was offered in the statement

under section 132(4) which is based on the incriminating documents found and

seized during the course of search, then in the absence of any such fact brought on

record that the entire income disclosed and offered to tax is not based on the

incriminating material, the contention raised by the assessee is devoid of merits. As

per the Explanation 5 to section 271(1)(c) where in the course of a search initiated

under section 132, the assessee is found to be the owner of any money, bullion,

jewellery or other valuable article or thing or income based on the entries in the

books of account or other document which was not offered to tax in the return of

income filed prior to the date of search then even if the said income is offered to tax

in the return filed in response to notice under section 153A, it will be deemed as

concealment of particulars of income or furnishing inaccurate particulars of income,

as the case may be. In the case in hand, the assessee has not disputed the fact

that the disclosure was made regarding undisclosed income which was not offered

to tax prior to the date of search and, therefore, the conditions specified under the

Explanation 5A to section 271(1)(c) are satisfied. For ready reference, Explanation

5A to section 271(1)(c) is reproduced 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

14 ITA Nos. 89 & 90/JP/2014 Shri Kailash Chandra Kabra, Bhilwara.

(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, 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.]”

Thus in view of the above facts and circumstances as discussed in the foregoing part

of this order, we find that the provisions of Explanation 5A are applicable in the case

of the assessee and accordingly the penalty levied under section 271(1)(c) is proper

and justified.

Order pronounced in the open court on 09/07/2018.

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15 ITA Nos. 89 & 90/JP/2014 Shri Kailash Chandra Kabra, Bhilwara.

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