RAMCHANDRAUDAYSINGHJADHAVRAO,PUNE vs. ACIT, CIRCLE-3, PUNE

Facts of the case, in brief, are that the assessee is an individual and running a proprietary firm under the name and style of M/s. JKG Developers which is engaged in the business of construction and development of land and construction of residential and commercial projects. He filed his return of income on 31.01.2017 declaring total income of Rs.12,37,36,920/-. The same was processed u/sec.143(1) of the Income Tax Act, 1961 (in short "the Act"). In this case a survey action u/sec.133A of the Act was conducted on 14.09.2016 at his business premises. The case of the assessee was selected for compulsory scrutiny. During the course of assessment proceedings, the Assessing Officer referred to the various questions put to the assessee especially question no.11 and 13, details of which are as under:

Since the assessee filed his return of income on 31.01.2017 incorporating the income offered during the survey, he accepted the income returned without making any further addition. However, he initiated penalty proceedings u/sec.271(1)(c) of the Act on the ground that had there been no survey action u/s 133A of the Act, the assessee would not have disclosed the above mentioned business income of Rs.79 lakhs and long term capital gains of Rs.10.74 crores.

From the facts of the case it has been brought on record that the assessee has converted the land inherited by the assessee form capital asset to stock in trade. The reply given by the assessee in his statement is reproduced below: "This land was inherited by me i.e. Mr. Ramchandra Jadhavrao and was held as capital asset till F.Y. 2010-11. Then when the said land was introduced for the project Purvorang, this land was converted by me, as suggested by my Tax Consultant, into Stock in trade in financial year 2010-11 of the value of Rs. 93.15 crore.” The date of the Survey conducted by the Income tax department is 14.09.2016 where as the conversion into stock in trade was done in FY 2010-11. Once the Survey proceedings were undertaken only then the assessee came forward with the fact and declared the sum. The limb for concealment of income is duly satisfied in this case and this is a fit case for imposition of penalty on the grounds of concealment of income. Had the survey not conducted the assessee would not have filed his due taxes and hence there is concealment of income 08. After careful consideration, the facts of the case I am convinced that provisions of Sec. 271(1)(c) of the IT Act are attracted in the case of the assessee. It is evident that the assessee concealed the income of Rs.11,53,00,000/- which it offered for taxation subsequent to survey action u/s 133A of the IT Act; after detection of income by the Department. Thus the assessee has concealed the particulars of income the meaning of provision of sec. 271(1)(c) of the IT Act. Accordingly, I am satisfied the assessee is liable for penalty u/s 271[1](c) of the Income Tax Act, 1961. The penalty leviable is computed as under: Computation of Penalty u/s 271(1)(c) for the A.Y. 2016-17 1. Income sought to be evaded Rs. 11,53,00,000/- 2. Tax on sought to be evaded Rs 2,70,22,050/- 3. Penalty @ 100% of tax Rs. 2,70,22,050/- 4. Penalty @ 300% Rs. 8,10,66,150/- 5. Minimum Penalty levied @ 100% sought to be evaded Rs. 2,70,22,050/- 09. Thus, penalty u/s. 271(1)(c) of the Act which is 100% of the tax sought to be evaded is levied on assessee at Rs.2,70,22,050/-. Order is passed accordingly Issue demand notice and challan after proper verification.”

The Ld. Counsel for the assessee referring to Form 26AS for assessment year 2016-17, copy of which is placed at pages 9 to 14 of the paper book, drew the attention of the Bench to the same and submitted that the assessee has paid an amount of Rs.1 crore on 15.12.2015 and another Rs.50 lakh on 15.03.2016 as advance tax, apart from TDS of about Rs.6.84 lakhs. Further, the due date for filing of the return has not expired on the date of survey. Therefore, it cannot be said that the assessee would not have declared the income had there been no survey action. He further submitted that since the assessee was not maintaining any regular accounts and the accounts were not audited for assessment year 2011-12 and the return form does not contain any clause for showing the conversion of capital asset to stock in trade the assessee did not show the same. Relying on the following decisions, he submitted that when income filed incorporating the income surrendered during survey and the same has been accepted, no penalty u/s 271(1)(c) of the Act is leviable: i) CIT vs. SAS Pharmaceuticals (2011) 335 ITR 259 (Del) ii) Prakash Mithalal Oswal vs. ITO vide order dated 18.05.2022

The Ld. DR on the other hand heavily relied on the orders of the Assessing Officer and the Ld. CIT(A). He submitted that the assessee never disclosed to the Department that the land was converted into stock in trade in financial year 2010- 11 and due taxes on such conversion were paid. The conversion of land was discovered during the survey proceedings only which was conducted on 14.09.2016 and the said fact was kept hidden by the assessee for more than 5 years. Since the capital asset was converted into stock in trade in assessment year 2011- 12 and the assessee never disclosed this fact to the department till the survey, therefore, the penalty u/s 271(1)(c) of the Act is clearly leviable on the income disclosed during the survey. Referring to the decisions relied by the Ld. CIT(A), he submitted that the Ld. CIT(A) has thoroughly discussed the issue and has rightly confirmed the penalty levied by the Assessing Officer u/s 271(1)(c) of the Act and therefore, the same should be upheld and the grounds raised by the assessee be dismissed.

We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) / NFAC and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Assessing Officer in the instant case levied penalty of Rs.2,70,22,050/- being 100% of the tax sought to be evaded on two items i.e. business income of Rs.79 lakh from the proprietorship concern M/s. JKG Developers and Rs.10.74 crore as long term capital gain from JKG Associates which the assessee has admitted during the course of survey conducted on 14.09.2016. We find the Ld. CIT(A) deleted the penalty levied on the business income of Rs.79 lakh for which the Revenue has not filed any appeal and therefore we are not concerned with the same.

So far as the levy of penalty on the addition of Rs.10.74 crores on account of long term capital gain income declared by the assessee during the course of survey is concerned, we find the Assessing Officer levied the penalty on the ground that during the course of survey it was noticed that the assessee has converted the land in question which was a capital asset into stock in trade in financial year 2010-11 and never disclosed the same to the department and only when the survey was conducted, the assessee, on being pointed out on this, has offered the income to tax and filed the return. Therefore, according to the Assessing Officer, had there been no survey, the assessee would not have declared the income and therefore, according to the Assessing Officer, the assessee has concealed the particulars of income within the meaning of section 271(1)(c) of the Act for which he levied the penalty on account of surrender of income of Rs.10.74 crores. We find the Ld. CIT(A) upheld the action of the Assessing Officer. It is the submission of the Ld. Counsel for the assessee that although the land was converted into stock in trade during the financial year 2010-11 relevant to assessment year 2011-12, however, due to no clause in the return form to disclose such conversion from capital asset to stock in trade, the assessee could not do the same. Further, the accounts of the assessee were also not subject to any audit for which the assessee was not in a position to do the needful as per the Act. However, the assessee had paid sufficient advance taxes and TDS which covers the liability and the due date for filing of the return has not expired. Therefore, it is not correct to say that the assessee would not have disclosed the conversion of capital asset into stock in trade to the department had there been no survey. Further, the returned income has been accepted without any addition.

We find some force in the above arguments of the Ld. Counsel for the assessee. We find the assessee in his statement recorded u/s 131 of the Act during the survey u/s 133A of the Act on 14.09.2016 in his reply to question Nos.11 and 13 has stated the reasons for non disclosure of such conversion of capital asset to stock in trade which have already been reproduced in the preceding paragraphs. Further, during the course of assessment proceedings, on being asked by the Assessing Officer as to whether the fact of conversion of land into stock in trade during the financial year 2010-11 was disclosed in any of the ITRs filed from assessment year 2011-12 to 2015-16 is concerned, the assessee has stated that the land in question has been converted into stock in trade in assessment year 2011-12 and since the assessee was not subject to tax audit for assessment year 2011-12, the question of disclosure regarding the conversion of land into stock in trade in tax audit report for assessment year 2011-12 does not arise. It was also stated that there is no separate column for disclosure in the ITR with respect to conversion of land into stock in trade. It is also an admitted fact that due date for filing of the return has not expired on the date of survey and the assessee has paid sufficient advance tax and TDS.

It is not the case of furnishing inaccurate particular of income, as in the income tax return, particulars of income have been duly furnished and the surrendered amount of income was duly reflected in the income tax return. The question is whether the particulars of income were concealed by the assessee or not. It would depend upon the issue as to whether this concealment has reference to the income tax return filed by the assessee, viz., whether concealment is to be found in the income tax return.

We may, first of all, reject the contention of the learned counsel for the Revenue relying upon the expression „in the course of any proceedings under this Act‟ occurring in Sub-section (1) of Section 271 of the Act and contending that even during survey when it was found that the assessee had concealed the particular of his income, it would amount concealment in the course of „any proceedings‟. The words „in the course of any proceedings under this Act‟ are prefaced by the satisfaction of the AO or the Commissioner of Income Tax (Appeals). When the survey is conducted by a survey team, the question of satisfaction of AO or the Commissioner (Appeals) or the Commissioner does not arise. We have to keep in mind that it is the AO who initiated the penalty proceedings and directed the payment of penalty. He had not recorded any satisfaction during the course of survey. Decision to initiate penalty proceedings was taken while making assessment order. It is, thus, obvious that the expression “in the course of any proceedings under this Act‟ cannot have the reference to survey proceedings, in this case.

It necessarily follows that concealment of particulars of income or furnishing of inaccurate particular of income by the assessee has to be in the income tax return filed by it. There is sufficient indication of this in the judgment of this Court in the case of Commissioner of Income Tax, Delhi-I Vs. Mohan Das Hassa Nand 141 ITR 203 and in Reliance Petroproducts Pvt. Ltd. (supra), the Supreme Court has clinched this aspect, viz., the assessee can furnish the particulars of income in his return and everything would depend upon the income tax return filed by the assessee. This view gets supported by Explanation 4 as well as 5 and 5A of Section 271 of the Act as contended by the learned counsel for the Respondent.

No doubt, the discrepancies were found during the survey. This has yielded income from the assessee in the form of amount surrendered by the assessee. Presently, we are not concerned with the assessment of income, but the moot question is to whether this would attract penalty upon the assessee under the provisions of Section 271(1) (c) of the Act. Obviously, no penalty can be imposed unless the conditions stipulated in the said provisions are duly and unambiguously satisfied. Since the assessee was exposed during survey, may be, it would have not disclosed the income but for the said survey. However, there cannot be any penalty only on surmises, conjectures and possibilities. Section 271 (1) (c) of the Act has to be construed strictly. Unless it is found that there is actually a concealment or non-disclosure of the particulars of income, penalty cannot be imposed. There is no such concealment or non-disclosure as the assessee had made a complete disclosure in the income tax return and offered the surrendered amount for the purposes of tax.

We, thus, answer the questions as formulated above, in favour of the assessee and against the Revenue finding no fault with the decisions of the CIT (A) as well as the Tribunal. As a result, this appeal is dismissed.”

The ld. DR heavily banked on the judgment of the Hon’ble Supreme Court in MAK Data Pvt. Ltd. Vs. CIT (2013) 358 ITR 593 (SC) for bolstering his submission that the amount surrendered by the assessee also attracts imposition of penalty. The assessee in that case filed his return on 27-10-2004 declaring income of Rs.16.17 lakh. Prior to that, a survey action was taken against the assessee on 16-12-2003. No income was offered during the course of survey and as such nothing was included in the return filed after the date of survey on that count. It was during the course of assessment proceedings and in reply to show cause notice filed on 22-11-2006 that the assessee made an offer of surrendering a sum of Rs.40.74 lakh. The AO accordingly completed the assessment by making this addition and thereafter imposed penalty. It was in this backdrop of the facts that the Hon’ble Supreme Court held that the penalty u/s.271(1)(c) was rightly imposed because the disclosure of the assessee was immaterial. The Hon’ble Supreme Court observed that “Explanation to section 271(1) raises a presumption of concealment, when difference is noted by the AO, between reported and assessed income”. It was in this factual scenario where the income reported by the assessee in the return of income was lower than the income finally assessed by the AO, that the Hon’ble Supreme Court held that the penalty was rightly leviable.

Turning to the facts of the extant case, it is found that the reported income and the assessed income of the assessee remain same except for minor disallowance of expenses. The AO has imposed penalty only with reference to the amount of Rs.50.00 lakh and odd which was suo motu declared by the assessee in the return. In that view of the matter, the ratio laid down in MAK data Pvt. Ltd. (supra) has no application to the facts of the extant case as the income under consideration forming the foundation for the penalty is not the one which was added by the AO beyond the income returned.

In view of the fact that the assessee voluntarily offered the income, declared in the survey, in the return of income and the assessment was made without making any addition on that score, we hold that such an income cannot constitute the bedrock for the imposition of penalty u/s.271(1)(c) of the Act. We, therefore, order to delete the penalty.”

In the result, the appeal filed by the assessee is allowed.