THE ACIT, CENTRAL CIRCLE-3,, SURAT vs. M/S. PATDI COMMERCIAL & INVESTMENT LTD.,, SURAT

आदेश /ORDER

PER C.M.GARG, JUDICIAL MEMBER:

This is a set of three appeals filed by the Revenue against the

common order of Commissioner of Income Tax (Appeals)-II, Ahmedabad

(‘CIT(A)’ for short) dated 22.03.2014 for the Assessment Year (A.Y) 2011-

12.

circumstances of all three appeals are quite similar and identical and for

the sake of convenience and brevity, we are taking up ITA

No.1810/Ahd/2014/ SRT for AY 2011-12 as lead case, wherein grounds

of Revenue read as follows:

the relevant material placed on the record of the Tribunal. The ld. CIT-DR

3 ITA Nos.1810, 1811 & 1815/Ahd/2014/SRT (A.Y: 2011-12) M/s. Krish Corporation submitted that the ld. CIT(A) has erred in law and on facts in deleting the

penalty of Rs. 2,00,00,000/- imposed u/s. 271AAA of the Act, 1961,

ignoring the fact that the assessee has not satisfied the conditions laid

down in section 271AAA(2)(ii) of the Act. He further contended that the ld.

CIT(A) has not appreciated that the section 271AAA(2) casts the onus on

the assessee to admit, specify and substantiate the undisclosed income

and pay tax and interest thereon. The Income Tax Act does not cast the

onus on the Assessing Officer to establish the source of unaccounted

income. Supporting the penalty order, the ld. CIT-DR submitted that the

assessee disclosed Rs. 20 crores during the course of search for which

the assessee failed to specify the manner in which income has been

derived. Therefore, s. 271AAA(1) of the Income Tax Act, 1961 (in short

'the Act') is clearly applicable in assessee’s case. He further submitted

that the ld. CIT(A) has granted relief to the assessee without any basis

and justified reason therefore, impugned order may kindly be set aside by

restoring that of the Assessing Officer (AO).

penalty against the mandate and provision of s. 271AAA of the Act and by

ignoring various decisions of Hon'ble Supreme Court and Hon'ble High

Court including decision of Hon'ble Jurisdictional High Court of Gujarat in

the case of CIT vs. Mahendra C Shah reported in 299 ITR 305 (Guj.) and

recent decision in the case of Pr. CIT v. Mukeshbhai Ramanlal Prajapati

4 ITA Nos.1810, 1811 & 1815/Ahd/2014/SRT (A.Y: 2011-12) M/s. Krish Corporation reported in 398 ITR 170 (Guj.). The ld. AR vehemently submitted that

from the another recent decision of Hon’ble Jurisdictional High Court of

Gujarat in the case of PCIT vs. Swapna Enterprise reported in 401 ITR

488 (Guj.), wherein it was held that where u/s. 132 statement of one,

partner of assessee firm is recorded u/s. 132(4), wherein he admitted that

pages of diary BS-1 found and seized, contained entries of taxable

income relating to various firms which are not recorded in books of

accounts then, CIT was right in deleting penalty imposed by AO on

assessee.

view that as per provision of s. 271AAA of the Act, the AO may direct the

assessee to pay 10% undisclosed income of the specified previous year,

in addition to the tax payable by him. However, the legislation has granted

immunity from the said penalty subject to cumulatively fulfilling three

conditions as specified in sub section (2) of s. 271AAA of the Act.

assessee is entitled to immunity from imposing of penalty u/s. 271AAA of

the Act. From para 3 at Page 2 of the penalty order, it is clear that the AO

himself noted that the assessee has paid tax together with interest in

respect of undisclosed income. Therefore, undisputedly condition of

clause (iii) of sub section (2) of s. 271AAA of the Act has been complied

5 ITA Nos.1810, 1811 & 1815/Ahd/2014/SRT (A.Y: 2011-12) M/s. Krish Corporation with by the assessee. In this situation, we hold that benefit of the ratio of

the order of ITAT, Pune in the case of Shailesh Gopal Mhaske 167 ITD

344 (Pune-Trib.) as relied by the ld. CIT-DR, is not available for the

Revenue as in that case assessee has not paid tax on the undisclosed

income. Therefore, in that case the Tribunal declined to grant immunity

from the penalty u/s. 271AAA of the Act as in the present case the

assessee has paid due taxes etc. on the undisclosed income surrendered

during the statement u/s. 132(4) of the Act thus, assessee is entitled to

get immunity from penalty on complying with the condition and

requirement of clause (iii) of sub section (2) of s. 271AAA of the Act.

has complied with the conditions as provided in clauses (i) & (ii) of sub

section (2) of s. 271AAA of the Act, and it is entitled for immunity from

imposing of penalty u/s. 271AAA of the Act. First of all, we find it

appropriate to reproduce the relevant part of first appellate order, wherein

the ld. CIT(A) granted relief to the assessee and directed the AO to delete

the penalty, which reads as follows:

“5. The facts of the case and submissions have been carefully perused. The ground that though there was a disclosure of undisclosed income of Rs. 41.00 crores in the name of entire appellant group of assessees viz. M/s Krish Corporation, Shri Vinodbhai J Pate! and M/s Patdi Commercial & Investments Ltd. [PCIL] by Shri Jerambhai Patel, Director of Patdi Commercial & Investments Ltd. and the share of the appellant was Rs. 20.00 crores. The A.O. was of the view that the manner in which this undisclosed income was derived was not clearly stated by Shri Patel.

6 ITA Nos.1810, 1811 & 1815/Ahd/2014/SRT (A.Y: 2011-12) M/s. Krish Corporation According to the A.O., the assessee stated only that the income declared u/s. 132[4] of the I. T. Act was in form of unaccounted on money or unaccounted cash received/receivable from construction work undertaken by M/s Krish Corporation. According to the A.Q., the assessee did not give specific details of amounts received or details of unaccounted expenditure. Thus, according to him, the exemption clauses of Section 271AAAF2] were not fulfilled in this case. Hence, the penalty.

On the other hand, the AR has submitted that an amount of Rs. 20.00 crores was declared in the name of the appellant as unaccounted income earned outside the Books of Account for the year F.Y. 2010-11 i.e. A.Y. 2011- 12. The Ld. AR has submitted that the appellant group has been engaged in constructing Radha Krishna Textile Market [RKT] and from proposed purchasers, on money was also received. The AR also stated that unaccounted on money in respect of RT&U Division of the said project was taken in the name of M/s Krish Corporation, the details of which were recorded in the diary which was found and seized as per Annexure B.S.8 which contained the details of cash transaction towards booking and selling of RT&U wings of RKT Market. The selling after construction work was done by M/s Krish Corporation and therefore, the declaration of on money was also done in the name of this concern also.

As regards fulfillment of the conditions of section 271AAA(2) are concerned, it is relevant to reproduce the said Section hereunder:- 271 AAA. [1] The A. O. may, notwithstanding anything contained in any other provisions of this Act, direct that, in a case where search has been initiated under Section 132 on or after the Is' day of June, 2007 [but before the 1st day of July 2012] the assessee shall pay by way of penalty, in addition to tax, if any, payable by him, a sum computed at the rate often per cent of the undisclosed income of the specified previous year. [2] Nothing contained in sub section [1] shall apply if the assessee—

i) in the course of the search, in a statement under sub section [4] of Section 132, admits the undisclosed income and specifies the manner in which such income has been derived; ii) substantiates the manner in which the undisclosed income was derived; and iii) pays the tax, together with interest, if any, in respect of the undisclosed income.

Perusal of Section shows that to avail exemption from penalty u/s. 271 AAA, the assessee has to fulfill three pre-requisites as mentioned in sub section [2]. In the case of appellant, additional Income is stated to have been earned by the appellant as on money received from its project i.e. RT&U wing of RKT market. It was stated

7 ITA Nos.1810, 1811 & 1815/Ahd/2014/SRT (A.Y: 2011-12) M/s. Krish Corporation that the appellant group has constructed Radha Kishan Textile Market as well as Project Krish Enclave in Surat which is a residential complex. Unaccounted income by way of on money was received in such ventures and the details were found mentioned in the diaries seized B.S.7, B.S.8 and B.S.9 of the Panchnama. The seized diary marked as B.S.8 of the Panchnama pertains to Krish corporation the appellant firm. It was clearly mentioned by Shri Patel in the statement u/s. 132[4] that seized diary BS.8 contained the details on money received/receivables in cash in respect of shops/office premises booked by interested persons/concerns. Out of total disclosure of Rs. 41.00 crores made on behalf of the entire group, Rs. 20.00 crores has been admitted in the name of the appellant firm.

Thus it is seen from the statement of Shri Patel, wherein undisclosed income was declared u/s. 132[4], the manner of earning the said income was also clearly stated and the same was substantiated by seized documents [in the case of appellant firm, it is seized diary marked B.S.8]. It is also seen that the Authorized officer during the search did not put specific question or made query regarding the manner of earning of undisclosed income being declared. Thus, in my view, the exemption clauses (i) and (ii) of Section 271AAA[2] are fulfilled in this case because the appellant has clearly stated the manner in which the undisclosed income was derived and the same was substantiated also in form of seized material and cash received/ receivable. It has been held by various courts that unless the authorized officer puts specific questions to the person giving declaration u/s. 132[4] about the manner of earning the said undisclosed income, it will be presumed that the conditions of Section 271AAA[2] are fulfilled if the assessee declares unaccounted income and tells the sources thereof. Reliance is placed on following court decisions where the Hon'ble courts have held that:-

i) ………if no specific question is posed by the authorized officer during the search about the manner of earning of declared income, there would be substantial compliance if the income is declared and taxes thereon paid. [Mahendra C Shah [2008] 299 ITR 305 Guj]

It is not expected from a person to make statement suo-moto ii) about the manner of earning the income unless he is specifically asked by the authorized officer but even if it is stated subsequently, that will amount to the compliance of explanation 5[2] of Section 271(1)(c). In absence of any specific statement about manner of earning income, it can be inferred that undisclosed income was derived from business which he was carrying on or from other sources. The objection of provision is achieved by making statement admitting non disclosure of money, bullion, jewelry, etc. [Radhakishan Goya! 278 ITR 454 - Alld .H.C.]

8 ITA Nos.1810, 1811 & 1815/Ahd/2014/SRT (A.Y: 2011-12) M/s. Krish Corporation It is seen that the judgements of Mahendra C Shah and Radhakishan Goyal both were delivered in the context of Section 271(1)(c) explanation 5[2] but the provisions are akin to Section 271AAA[2],

There are various other court decisions also which support this view that-if assessee declares voluntarily, additional income during the statement u/s. 132[4j and states the manner of earning said income supported by identified assets and taxes along with interest paid thereon, the conditions of Section 271AAA[2] will be treated as fulfilled and penalty u/s. 271AAA shall not be leviable for e.g.

i) Sulochanadevi A Agarwai !TA No. 1052/Ahd/2012. ii) ITO V. Shilpaben N Gupta - 1784/Ahd/2012 iii) Promodkumar Jain v. DCIT- 131 to 133/CTK/2012 iv) DCIT v. Pioneer Marbles and Interiors P. Ltd. 1326/Kol/2011

……………if no specific question is posed by the authorized iii) officer during the search about the manner of earning of declared income, there would be substantial compliance if the income is declared and taxes thereon paid. [Mahendra C Shah [2008] 299 ITR 305 Guj]

it is not expected from a person to make statement suo-moto iv) about the manner of earning the income unless he is specifically asked by the authorized officer but even if it is stated subsequently, that will amount to the compliance of explanation 5[2] of Section 271(1)(c). In absence of any specific statement about manner of earning income, it can be inferred that undisclosed income was derived from business which he was carrying on or from other sources. The objection of provision is achieved by making statement admitting non disclosure of money, bullion, jewelry, etc. [Radhakishan Goyal 278 ITR 454 - Alld .H.C.]

It is seen that the judgements of Mahendra G Shah and Radhakishan Goya! both were delivered in the context of Section 271(1)(c) explanation 5[2] but the provisions are akin to Section 271AAA[2].

There are various other court decisions also which support this view that if assessee declares voluntarily, additional income during the statement u/s. 132[4] and states the manner of earning said income supported by identified assets and taxes along with interest paid thereon, the conditions of Section 271AAA[2] will be treated as fulfilled and penalty u/s. 271AAA shall not be leviable for e.g. i. Sulochanadevi A Agarwal ITA No. 1052/Ahd/2012. ii. ITO V. Shilpaben N Gupta - 1784/Ahd/2012 iii. Promodkumar Jain v. DCIT - 131 to 133/CTK/2012 iv. DCIT v. Pioneer Marbles and Interiors P. Ltd. 1326/Kol/2011

9 ITA Nos.1810, 1811 & 1815/Ahd/2014/SRT (A.Y: 2011-12) M/s. Krish Corporation

Similar verdict has been given in following recent court decisions:- a) Neerat Singhai v. ACIT, C.C.13, New Delhi [2013] 37 Taxman.com 189 Del. Tri. b) Concrete Developers v. ACIT, C.C. 2[2], [2013] 34 Taxman.com 62 Nagpur As regards third limb of Section 271AAA[2] i.e. taxes on additional income should have been paid along with interest, it is observed that it is not in dispute as the A.O. himself has admitted in the penalty order that the taxes along with the interest have been paid by the appellant properly. Thus, taking into account, the entire facts and circumstances of the case as well as the legal position, I am of the view that the A.O. was not justified in levying the penalty u/s. 271AAA. The same is directed to be deleted. The appellant gets relief.” In view of above conclusion drawn by the ld. first appellate authority, 8.

we observe that the ld. CIT(A) has followed ratio of the decision of the

decision Hon’ble Jurisdictional High Court in the case of Mahendra C.

Shah (supra), wherein following the ratio of the decision of Hon'ble

Allahabad High Court in the case of CIT v. Radhakishan Goel 278 ITR

454 (All), it was held that the statement is being recorded in the question

and answer form and there would be no occasion for an assessee to state

and make averments in the exact format stipulated by the provision of sub

section (2) of s. 271AAA of the Act.

Shri Jerambhai Patel, a prominent person in the Sangani group of builder

and developer, including present assessee firm, u/s. 132(4) of the Act

recorded on 09.06.2010, which was based on the documents seized

during the course of search operation. Copy of the said statement and its

10 ITA Nos.1810, 1811 & 1815/Ahd/2014/SRT (A.Y: 2011-12) M/s. Krish Corporation English translation has been placed at pgs. 13-24 of the assessee paper

book, wherein reply to Q. No.8 Shri Jerambhai Patel stated that

“considering various documents that are kept & found during the search at

our various premises and also considering various document at our office

premises at C-1175, Radha Krishan Textile Market, I would like to inform

you that from the shops of Radha Krishna Textile Market and shops of

RTU Wings of Radha Krishana Textile Market and towards Krish Enclave

Flats sales, we have earned in the form of “unaccounted income on

money” which is our unaccountable each receivables and its account are

in diaries of BS-7, BS-8 & BS-9 as above. In which RKT Market’s account

up to 31.03.2011 and account of booking up to J Wings and also account

of R.T.U division of Krish Corporation and also booking’s account of Krish

Enclave which is unaccounted.” After narrating these facts Shri Jerambhai

Patel in the last part of this answer to Q. No.8 surrendered Rs. 41 crores

including Rs. 20 crores in the name of present assessee i.e., Krish

Corporation.

questions posed to Shri Jerambhai Patel by the statement recording

authority, it is clear that there was no occasion for Shri Jerambhai Patel to

state and make averments in the exact format as stipulated and required

under clauses (i) & (ii) of sub s. (2) of s. 271AAA of the Act and in this

scenario and considering the environment in which statement u/s. 132(4)

11 ITA Nos.1810, 1811 & 1815/Ahd/2014/SRT (A.Y: 2011-12) M/s. Krish Corporation of the Act is recorded it is not practically possible and correct to expect

from the assessee, whether educated or uneducated, to specify and to

point out the facts complying with the requirement of conditions stipulated

in the clauses (i) & (ii) of sub s. (2) of s. 271AAA of the Act. In this

situation, and on the basis of foregoing discussion, we reach to a logical

conclusion that the ld. CIT(A) was right in granting relief to the assessee

by following ratio of the decision of Hon'ble Gujarat High Court in the case

of Mahendra C. Shah (supra), which has been referred by Hon’ble

Jurisdictional High Court in its subsequent judgments in the cases of PCIT

v. Emirates Technologies Pvt. ltd. (supra) and PCIT vs. Swapna

Enterprises (supra). We are unable to see any ambiguity perversity or

any other valid reason to interfere with the same. Hence, we uphold the

same. Accordingly, grounds of appeal of Revenue being devoid of merits

are dismissed upholding the order of ld. CIT(A).

ITA Nos. 1811 & 1815/Ahd/2014/SRT of Revenue: 11. Since, in the very beginning of hearing both the parties agreed to

the fact that the facts and circumstances of all three appeals are quite

similar and identical as disclosure was made in all three appeals by Shri

Jerambhai Patel in his statement recorded u/s. 132(4) of the Act on

09.06.2010 and therefore, our conclusion drawn in the earlier part of this

order for ITA No.1810 /Ahd/2014/SRT would apply mutatis mutandis to

other two appeals i.e., in ITA Nos.1811 & 1815/Ahd/2014/SRT both for

12 ITA Nos.1810, 1811 & 1815/Ahd/2014/SRT (A.Y: 2011-12) M/s. Krish Corporation AY 2011-12 and grounds of appeal of Revenue in these appeals are also stand dismissed. 12. In the result, all the three appeals of Revenue are dismissed.

Order pronounced in the open court on this day of 10th October, 2018.

Sd/- Sd/- (ओ पी मीना) (सी एम गग�) (O.P.MEENA) (C.M.GARG) लेखा सद�/Accountant Member �ाियक सद�/Judicial Member सूरत / Surat; िदनांक Dated : 10th October, 2018 EDN आदेश की #ितिलिप अ&ेिषत/Copy of the Order is forwarded to : 1. अपीलाथ�/The Appellant; 2.��थ� /The Respondent; 3.आयकर आयु$(अपील) /The concerned CIT(A); 4. The concerned Prl. CIT; 5. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, सूरत / DR, ITAT, Surat; 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, // true copy // सहायक प*जीकर / Assistant Registrar आयकर अपीलीय अिधकरण, सूरत / ITAT, Surat