ITO, JAIPUR vs. GAJANAN TOWERS PVT. LTD., JAIPUR

PER VIJAY PAL RAO, J.M.

This appeal by the revenue is directed against the order dated 31st July, 2013 of ld. CIT (A)-II, Jaipur arising from the penalty order passed under section 271(1)(c) of the Act, 1961 for the assessment year 2005-06. The revenue has raised the following grounds of appeal :-

(i) Whether on the facts and in the circumstances of the case and in law the ld. CIT (Appeals) has erred in deleting and restricting the penalty imposed u/s 271(1)(c) by the AO, without appreciating the fact that the assessee deliberately attempted to conceal its income by filing inaccurate particulars of income.

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(ii) The appellant craves its rights to add, amend or alter any of grounds on or before the hearing.

The assessee has filed its return of income on 31st October, 2005 declaring 2. loss of Rs. 46,95,261/-. Thereafter the assessee revised its return of income on 8th

February, 2006 and declared loss of Rs. 22,58,484/-. Thereafter, a survey under

section 133A of the IT Act was conducted at the business premises of the assessee on 10th March, 2006 wherein various discrepancies were found. After the survey the assessee again revised its return of income on 28th March, 2006 declaring profit of

Rs. 23,41,516/-. The assessment under section 143(3) was completed on

28.12.2007 on the total income of Rs. 42,26,934/-. The matter was carried upto the

stage of Tribunal in quantum proceedings against the additions/disallowances made

by the AO. The additions/disallowances confirmed by this Tribunal are as under :-

Undeclared sales Rs. 5,04,985/-

Disallowance u/s 40(a)(ia) Rs. 7,26,512/-

Disallowance of expenditure Being not incidental to the Business. Rs. 37,827/-

Addition u/s 69 being Unexplained expenditure Rs.3,15,750/-

Apart from the above additions/disallowances, there was an addition on account of

undisclosed cash receipt of Rs. 46,00,000/- which was declared by the assessee in

the revised return filed after the survey proceedings. The AO initiated proceedings

for levy of penalty under section 271(1)(c) of the Act in respect of the above

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additions/disallowances as well as in respect of the disallowance under section 24(a)

in pursuant to the revision order passed under section 263 of Rs. 1,92,000/-. Thus

the total amount on which penalty was initiated was Rs. 63,77,074/-. The AO levied

a penalty of Rs. 46,67,060/- which is 200% of tax evaded on the said amount vide order dated 30th March, 2012 passed under section 271(1)(c) of the Act. The

assessee challenged the action of the AO before ld. CIT (A). The ld. CIT (A) has

deleted the penalty levied against the undisclosed income of Rs. 46,00,000/-,

disallowance made under section 40(a)(ia) and the addition/disallowance made

under section 24(a) of Rs. 1,92,000/-. The ld. CIT (A) has though confirmed the

levy of penalty, however, to the extent of 100% as against the 200% levied by the

AO in respect of undisclosed sales of Rs. 5,04,985/- and the addition made under

section 69C of Rs. 3,15,750/-. Thus the revenue has challenged the impugned order

of ld. CIT (A) in respect of the relief granted either by deleting the penalty or

reducing to 100% from 200%.

against the undisclosed income on account of unexplained deposit made of Rs.

46,00,000/- in the revised return of income, it was not a voluntary disclosure by the

assessee but the assessee has disclosed this amount only after a survey was

conducted and the assessee has declared the undisclosed income during the course

of survey. Thus he has submitted that the ld. CIT (A) has committed an error by

treating the disclosure in the revised return as voluntary disclosure and not

concealment of income. In support of his contention, the ld. D/R has relied upon the

decision of Hon’ble Delhi High Court in the case of CIT vs. Usha International Ltd.

212 taxman 519 /254 CTR 509 (Delhi) as well as decision of Hon’ble Jurisdictional

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High Court in the case of Grass Field Farms Resorts Pvt. Ltd. vs. DCIT, 388 ITR 395

(Raj.) and submitted that the disclosure made by the assessee in the revised return

only because of the material and documents found during the survey and statement

was recorded. Therefore, the same cannot be held as voluntary. The ld. D/R has

also relied upon the decision of Hon’ble Supreme Court in the case of Mak Data Pvt.

Ltd. vs. CIT, 358 ITR 593 (SC) and submitted that Hon’ble Supreme Court has held

that surrender of income is not voluntary in the sense that the offer of surrender

was made in view detection made by the AO in the search conducted in the sister

concern of the assessee. Thus the ld. D/R has submitted that it is clearly a case of

concealment of income and the assessee disclosed the said income of Rs.

46,00,000/- only because of survey action taken by the AO. He has relied upon the

order of the A.O.

3.1. As regards the other addition on which the penalty was deleted or reduced by

the ld. CIT (A), the ld. D/R has relied upon the order of the AO.

3.2. On the other hand, the ld. A/R of the assessee has submitted that the return

of income was filed within the period of limitation permissible under section 139 of

the Act and, therefore, the same cannot be considered as undisclosed income of the

assessee when there is no addition made by the AO in the return of income. When a

valid revised return of income was filed and accepted by the AO then the amount

offered to tax in the return of income cannot be held as concealed income. Further,

the ld. A/R has submitted that even otherwise this was not a real income of the

assessee but only advances were received by the assessee without any actual sale

during the year under consideration. The income would arise or accrued only at the

time of sale in the subsequent year. Hence the mere surrender of income by the

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assessee in the revised return of income cannot be treated as undisclosed income of

the assessee. He has relied upon the decision of Hon’ble Karnataka High Court in

the case of CIT vs. Vega Auto Accessories Pvt. Ltd., 212 taxman 96 (Kar.). He has

also supported the order of ld. CIT (A). The ld. A/R has also relied upon the various

decisions which were relied upon before ld. CIT (A).

record. There is no dispute that the assessee has offered income of Rs. 46,00,000/- in its revised return of income filed on 28th March, 2006. The said revised return

was though within the period of limitation, however, the facts and circumstances at

the time of surrender cannot be ignored which led to the disclosure of said income

of Rs. 46,00,000/- by the assessee in the revised return. It is pertinent to note that

this is the third return filed by the assessee and prior to this the assessee already filed two returns of income. It is also not in dispute that revised return filed on 28th March, 2006 is post survey action on 10th March, 2006. But for the survey

proceedings the assessee could not have declared this amount of Rs. 46,00,000/- as

this amount was found to have been received by the assessee from the buyers of

the flats. The Director of the assessee company has admitted this fact that the

assessee received this amount from the buyers of the flats. However, the assessee

has contended that since it was received as an advance and the actual sale was not

completed during the year under consideration. However, when the assessee has

finally declared this income and offered to tax in the return of income, then the issue

whether this income was accrued during the year could not be examined by the AO.

The question arises whether this income disclosed by the assessee and offered to

tax in the revised return of income filed after the survey action is a voluntary

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disclosure or because of detection made by the AO during the course of survey. The

Hon’ble Delhi High Court in the case of CIT vs. Usha International Ltd. (supra) while

dealing with an issue of disclosure of income in the revised return after the survey

has observed and held in para 20-22 as under :-

“20. In the judgment by a Division Bench of this Court in CIT v. SAS. Pharmaceuticals [2011] 335 ITR 259/199 Taxman 255/11 taxmann.com 207 the factual position was different. A survey was carried out at the business premises and godown of the assessee on 06.01.2003 during which certain discrepancies in cash, stock and renovation details were found. The assessee surrendered an amount of Rs. 88.14 lakhs during the survey on account of the discrepancies. However, at the time of the survey, the assessee was not under any obligation to file the return of income for the year ended 31.03.2003 as he still had time to do so. In the return filed for the assessment year 2003-04, relevant to the year ended on 31.03.2003, the assessee included the surrendered amount and filed a return of income declaring Rs. 87.71 lakhs. The assessment was made including the surrendered amount obviously on the basis of return filed. Penalty proceedings for concealment of income were initiated on the ground that the surrender was made during the survey only when the discrepancies were brought to the notice of the assessee. The assessing officer was of the view that had there been no survey the assessee would have succeeded in concealing the income and evading tax. The CIT (Appeals) and the Tribunal held that it was not a case of concealment of income as the surrendered income had been included in the return filed by the assessee. This Court upheld the finding of the Tribunal holding that there could not be any penalty on the basis of assumptions, surmises and conjectures and since the assessee had included the surrendered income in the return filed, there was no non-disclosure or concealment which could be penalised. This decision is not a case of revised return. It, therefore, does not have any relevance to the present case. 21. Both the CIT (Appeals) and the Tribunal, with respect, have not examined the facts of the present case in the manner expected of them. The Tribunal has merely based its conclusion on certain previous orders without any discussion of the facts of the present case. The question of concealment of income and whether the revised return was filed voluntarily or not is a question of fact to be examined and decided upon the facts and circumstances of the each case and, therefore, it was not permissible to the Tribunal to merely rely on earlier orders where this issue was considered and penalties were cancelled. It may be that in those cases also similar claims for deduction were involved; nevertheless, the question of concealment and the relevance of filing a revised return withdrawing the claim for deduction are all fact – dependent, and merely because in one case it was held that there was no concealment, it does not follow, as a matter of law, that in all such cases penalty cannot be imposed. At best, those earlier cases could only have a persuasive value. We

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are of the view that the Tribunal has committed an error in upholding the order of the CIT (Appeals) cancelling the penalties, without assigning any valid reason and without examining the facts. 22. For the above reasons we reverse the order of the Tribunal and hold that the penalty under Section 271(1)(c) was rightly imposed; the substantial question of law is answered in the negative, in favour of the Revenue and against the assessee. The penalty order passed by the assessing officer on 22.03.1993 is restored and the appeal filed by the Revenue is allowed. The assessee shall pay the costs of the revenue, which we assess at Rs. 20,000/-.”

Thus the Hon’ble High Court has upheld the order of the AO levying the penalty

wherein it was held that if there is no survey the assessee would have succeeded in

concealing the income and evading the tax. Similar view has been taken by the

Hon’ble Jurisdictional High Court in the case of Grass Field Farms & Resorts Pvt. Ltd.

vs. DCIT (supra) in para 17 to 26. The Hon’ble High Court has considered the

judgment of the Hon’ble Supreme Court in the case of Mak Data Pvt. Ltd. vs. CIT

(supra) and upheld the levy of penalty in respect of the amount disclosed by the

assessee after the survey conducted by the AO. The Hon’ble Supreme Court in the

case of Mak Data Pvt. Ltd. vs. CIT (supra) has laid down the law on this point in

para 9 to 11 as under :-

“9. 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

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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 for penalty proceedings under Section 271 read with Section 274 of the Income Tax Act, 1961. 10. The AO has to satisfy whether the penalty proceedings be initiated or not during the course of the assessment proceedings and the AO is not required to record his satisfaction in a particular manner or reduce it into writing. The scope of Section 271(l)(c) has also been elaborately discussed by this Court in Union of India v. Dharmendra Textile Processors [2008] 13 SCC 369 and CIT v. Atul Mohan Bindal [2009] 9 SCC 589. 11. The principle laid down by this Court, in our view, has been correctly followed by the Revenue and we find no illegality in the department initiating penalty proceedings in the instant case. We, therefore, fully agree with the view of the High Court. Hence, the appeal lacks merit and is dismissed. There shall be no order as to costs.”

Thus in view of the facts and circumstances of the case, we note that the assessee

disclosed the income of Rs. 46,00,000/- only after the survey proceedings and in

view of the binding precedents, we up hold the levy of penalty and reversed the

order of ld. CIT (A) qua this issue in respect of the income disclosed by the

assessee.

restricted the levy of penalty from 200% to 100%.

material on record. Though the addition made by the AO was sustained by this

Tribunal and the same has attained the finality, however, we find that the penalty

equivalent to 100% of tax to be evaded on this amount is a reasonable and proper

decision taken by the ld. CIT (A) which does not require any interference.

Accordingly, we uphold the finding of the ld. CIT (A) qua this issue.

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40(a)(ia), the ld. CIT (A) has deleted the penalty.

material on record. The AO has levied the penalty in respect of the disallowance

made under section 40(a)(ia) because of non compliance of provisions of deduction

of TDS. It is not the case of the AO that the expenditure claimed by the assessee is

bogus or not allowable under sections 28 to 37 of the IT Act. However, the

disallowance was made only because of non deduction of TDS by the assessee. The

remedy against the loss of revenue in such violation of provisions of deduction of tax

is two-fold. One is an order to be passed under section 201(1)/201(1A) and another

remedy to make the compliance is disallowance of the said expenditure under

section 40(a)(ia). Therefore, when the claim of expenditure other-wise not found to

be bogus or patently impermissible the disallowance made by the AO by invoking the

provisions of section 40(a)(ia) would not lead to conclusion that the assessee has

either concealed the particulars of income or furnished inaccurate particulars of

income. Once the case of disallowance under section 40(a)(ia) does not fall under

the category of concealment of particulars of income or inaccurate particulars of

income, the mere disallowance because of non compliance of the provisions of the

Act ipso facto would not lead to levy of penalty. Hence, we do not find any error or

illegality in the order of the ld. CIT (A) in deleting the penalty in respect of

disallowance made under section 40(a)(ia).

100% by ld. CIT (A).

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material on record. The addition made by the AO under section 69C though was

confirmed and attained the finality, however, this addition was due to the reason

that the assessee failed to explain the source of said expenses. Accordingly, we

concur with the view of ld. CIT (A) to restrict the penalty to 100% of the tax to be

evaded of such income. The order of ld. CIT (A) is upheld.

the revision order under section 263.

order as under :-

“ 6. Penalty on addition under section 263 of Rs. 1,92,000 – assessing officer levied penalty on addition relating to income from rent of property treated as business income. Appellant submitted that this issue is decided in its favour by ITAT in the appellant’s own case for assessment year 2006-07. I have go through the order of ITAT dated 9.07.2010 and it is seen that in para 10, the income from rent was considered as income from the property. Since this issue is already decided in the appellant’s favour in subsequent year by ITAT, penalty on such addition cannot be levied. Accordingly penalty of this addition is deleted.”

Thus it is clear that the said addition was deleted by the Tribunal in the appeal filed

by the assessee against the revision order. This fact of deletion of the addition has

not been disputed by the revenue. Accordingly when the Tribunal has already

deleted the addition, then the penalty under section 271(1)(c) has no leg to stand.

11 ITA No. 751/JP/2013 M/s. Gajanan Towers Pvt. Ltd. Accordingly, we do not find any error or illegality in the order of the ld. CIT (A) qua this issue. 13. In the result, appeal of the revenue is partly allowed.

Order pronounced in the open court on 12/03/2018. Sd/- Sd/- ( fot; iky jkWo ) ¼foØe flag ;kno½ (VIKRAM SINGH YADAV ) ( VIJAY PAL RAO ) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member

Tk;iqj@Jaipur fnukad@Dated: 12/03/2018. das/ आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू vihykFkhZ@The Appellant- The ITO Ward 4(1), Jaipur. 1. izR;FkhZ@ The Respondent-M/s. Gajanan Towers Pvt. Ltd., Jaipur. 2. 3. vk;dj vk;qDr@ CIT vk;dj vk;qDr@ CIT(A) 4. 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत xkMZ QkbZy@ Guard File {ITA No. 751/JP/2013} 6. vkns'kkuqlkj@ By order,

सहायक पंजीकार@Aेेज. त्महपेजतंत

12 ITA No. 751/JP/2013 M/s. Gajanan Towers Pvt. Ltd.