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Facts
The assessee, a Managing Director of a chit fund company, was subjected to a search and seizure operation. An XL sheet revealed that the assessee was conducting an unregistered chit fund business and earning commission, which was not offered to tax. The assessee subsequently filed a return of income under Section 153A, admitting income from the unregistered chit fund.
Held
The Tribunal held that for AY 2017-18 and 2018-19, the penalty levied under Section 270A for misreporting of income was confirmed as the admitted income was not shown in the original return. However, for AY 2019-20, the penalty levied under Section 271AAB was not sustainable as the financial year was not concluded at the time of search and all transactions were recorded.
Key Issues
Whether penalty under Section 270A is leviable for misreporting of income when income is admitted during search and disclosed in the return filed under Section 153A. Whether penalty under Section 271AAB is sustainable when transactions were recorded before the end of the financial year and within the due date of filing the return.
Sections Cited
270A, 271AAB, 132, 153A, 139, 143(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘A’ BENCH: CHENNAI
Before: SHRI SS VISWANETHRA RAVI & SHRI JAGADISH
आदेश / O R D E R
PER JAGADISH, A.M : Aforesaid three appeals filed by the assessee for Assessment Year (AYs) 2017-18, 2018-19 & 2019-20 arises out of the orders of Learned Commissioner of Income Tax (Appeals)-20, Chennai [hereinafter “CIT(A)”] dated 25.09.2023.
, 1409 & 1410/Chny/2023 :- 2 -:
The facts in all the appeals of the assessee are identical and issues are common hence, we proceed to pass a common order. For 2018-19 as lead case.
The effective ground of appeal in this appeal of assessee is against confirming the penalty levied u/s. 270A of the Act of Rs. 24,44,500/- in A.Y 2017-18 and Rs. 28,19,937/- in A.Y 2018-19 & Rs. 10,28,700/- in A.Y 2019-20 u/s. 271AAB of the Act.
The brief facts of the case are that the assessee is a Managing Director of M/s. AKPM Chit Pvt. Ltd. A search and seizure operation u/s. 132 of the Act was carried out in the case of Shri S. Mohanraj and his related groups on 06.03.2019 and the office premises of M/s.
AKPM Chit Pvt Ltd. was also covered. During the search, XL sheet was found and seized which revealed that the assessee was conducting unregistered chit fund business and earned commission which was not offered to tax. The A.O consequent upon the search u/s. 132 of the Act, had issued notice u/s. 153A of the Act. In response to the notice, the assessee filed return of income by declaring total income of Rs. 60,48,400/- including the income admitted during the search and seizure operation. The assessee , 1409 & 1410/Chny/2023 :- 3 -: during the search and seizure, has admitted a net profit of 27% on the face value of unregistered chit fund as income:
A.Y Income admitted 2017-18 Rs. 39,55,500/- 2018-19 Rs. 45,63,000/-
The A.O in the assessment order passed u/s 153A accepted the return of income, but initiated penalty us/. 270A of the Act for A.Y 2017-18 and A.Y 2018-19 for misreporting of income and penalty u/s. 271AAB(1A) of the Act for A.Y 2019-20. The assessee before the A.O has stated that there was no misreporting of income as the return of income filed in response to notice u/s 153A of the Act is to be treated as return filed u/s. 139 of the Act and the A.O has accepted the return of income in assessment order passed under section 153A of the Act.
However, the A.O levied penalty as the assessee has not reported the income from unregistered chit fund, which came to knowledge only during the course of search and seizure operation and return was filled subsequent to search, in response to notice u/s. 153A of the Act. On appeal, the Ld. CIT(A) has upheld the penalty order.
When the appeal was called out, no one appeared from assessee side. The appeal was listed on 30.04.2024, 11.06.2024, , 1409 & 1410/Chny/2023 :- 4 -:
10.07.2024, 20.08.2024, 15.10.2024, 22.10.2024, 04.12.2024 and 05.1.2024, but no one has appeared on behalf of the assessee. We, however find that assessee has filed written submission on 03.12.2024 which is on record. We therefore, proceed to decide the case with the able assistance of Ld. DR, Shri K. Rohan Raj, Addl. CIT, based on the written submissions filed by the assessee.
The Ld. AR in his written submissions has submitted that the return of income filed by the assessee u/s. 153A of the Act are to be treated as return filed u/s. 139(1) of the Act by virtue of law stated in Section 153A(1A) of the Act. The Ld. AR has submitted that in the case of assessee, the income admitted in the return of income filed u/s. 153A of the Act and the income assessed are same hence, there is no under reporting of income for levy of penalty u/s. 270A of the Act.
The Ld. AR has relied on the case of PCIT-19 vs. Neeraj Jindal 393 ITR 1 (Delhi) and the decision of Hon’ble Gujarat High Court in the case of Kirit Dahyabai Patel vs. ACIT [2017] 80 taxmann.com 162 (Guj.) and order of ITAT, Chennai Benches in the case of ACIT Vs. VN Devadoss [2013] 32 taxmann.com 133 (Chennai-Trib.) in support of his contention.
, 1409 & 1410/Chny/2023 :- 5 -:
The Ld. Departmental Representative, on the other hand, has submitted that the assessee has included the unaccounted income from unregistered chits fund in the return of income in response to notice u/s. 153A of the Act, which is consequent upon search operation conducted on 06.03.2019, therefore assessee has clearly misreported his income. The Ld. DR has submitted that the assessee has disclosed additional income in pursuant to the search in the return filed u/s. 153A of the Act particulars of which was concealed by the assessee while filing the original return of income. The Ld. D.R also relied on the case of A.P. Sahgal vs. ACIT [2004] 89 ITD 580 (Delhi), wherein it has been held that filing of revised return will not absolve the assessee from penal action. The Ld. DR also relied on the case of ACIT vs. Kirit Dahyabhai Patel [2009] 121 ITD 159 (Ahmedabad)(TM).
We have heard the rival submissions, and perused the materials available on record. The assessee has filled return of income for A.Y. 2017-18 on 24.10.2017 disclosing total income of Rs 20,92,900 and for A.Y 2018-19 on 27.09.2018 on total income of Rs 34,80,190. The returns were processed u/s 143(1) on 30.10.2019 and 10.02.2019 respectively. A search was conducted u/s. 132 on 06.03.2019 and unaccounted income from unregistered chit fund was found , based on which assessee has filled return of income including the unaccounted , 1409 & 1410/Chny/2023 :- 6 -: income in response to notice u/s 153A. The only issue to adjudicate is whether penalty u/s. 270A of the Act is to be levied in case assessee has disclosed the income admitted during search in response to notice issued u/s. 153A of the Act and the A.O has accepted the return of income in order passed u/s. 153A.
It is evident that the assessee has not shown income from unregistered chits fund in the original return filled u/s 139(1) but included the undisclosed income found during search only in response to notice u/s. 153A of the Act. It is true that section 153A(1)(a) states that a return filled in response to a section 153A notice is to be treated as return under section 139. However this does not absolve the assessee from penalty liability if the income disclosed in the return was previously undisclosed or underreported. The section 270(9)(e) of the Act clearly states that failure to record any receipt in books of account having bearing on total income is a case of misreporting of income . In view of above, the arguments of assessee and case laws relied are not relevant. The Hon’ble Supreme Court in the case of Mak Data P.
Ltd. Vs. CIT [2013] 358 ITR 593 (SC) has observed that it is trite law that the voluntary disclosure does not release the Appellant-assessee from the mischief of penal proceedings and the law does not provide that when an assessee makes a voluntary disclosure of his concealed , 1409 & 1410/Chny/2023 :- 7 -: income, he had to be absolved from penalty. We do not find any infirmity in the order of Ld CIT(A) holding that the present case is covered by the provisions of section 270A(9)(e) and therefore the same is being upheld. In light of the above, penalty levied for AYs 2017-18 is hereby confirmed. Thus, the appeal filed by the assessee for A.Y 2017-18 is dismissed.
ITA No.1409/Chny/2023 for AY 2018-19:
We find that the identical issue is involved in assessee’s appeal for A.Y 2018-19 also and accordingly, our adjudication above in A.Y 2017-18 applies mutatis mutandis to this case as well. Therefore, for the similar reasons, we also confirm the penalty levied for A.Y 2018-
Thus, the appeal filed by the assessee for A.Y 2018-19 is dismissed.
ITA No. 1410/Chny/2023 for A.Y 2019-20:
The A.O has levied penalty u/s. 271AAB of Rs. 10,28,700/-. We find that search was conducted in this case on 01.03.2019 and due date of filing the return was on 31.10.2019. The assessee has filed return of income of Rs. 53,32,430/- and the same has been accepted by the A.O in the order passed u/s. 143(3) of the Act. The A.O has , 1409 & 1410/Chny/2023 :- 8 -: levied penalty u/s 271AAB on the ground that assessee failed to maintain books of accounts and consequently transactions regarding unregistered chits found in excel sheet maintained in the computer are not recorded in the books of account ought to have been maintained by him. The assessee, on the other hand in the written submission has submitted that he has filled return of income u/s 139(1) within the due date prescribed by the Act and return of income has been accepted by the A.O. The assessee has also submitted that the financial year was not concluded as on the date of search and the chit transaction were accounted in the software maintained in the normal course of business. We find that the financial year has not ended at the time of search and all transactions have been recorded in the software maintained. Assessee has filled return of income including all transaction within the due date prescribed u/s 139(1) of the Act and return of income has been accepted in the assessment order passed u/s 143(3) of the Act, Penalty levied u/s 271AAB of the Act is not sustainable. We accordingly reverse the order of Ld CIT(A) and delete the penalty. Thus, the appeal filed by the assessee for A.Y 2019-20 is allowed.
, 1409 & 1410/Chny/2023 :- 9 -:
In the result, the appeals filed by the assessee for A.Ys 2017-18 & 2018-19 are dismissed and the appeal for A.Y 2019-20 is allowed.
Order pronounced on 26th February, 2025.