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Facts
During a search operation, the assessee offered Rs. 28,56,53,000/- as undisclosed income for AY 2012-13. The Assessing Officer levied a penalty under Section 271 AAA. The CIT(A) sustained a part of the penalty.
Held
The Tribunal held that since no specific question was put to the assessee during the search to substantiate the manner of earning the undisclosed income, the penalty under Section 271 AAA cannot be levied.
Key Issues
Whether penalty under Section 271 AAA can be levied when the assessee was not specifically asked to substantiate the manner of earning undisclosed income during search operations.
Sections Cited
271 AAA, 274, 140A(1), 271(1)(c)
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Income Tax Appellate Tribunal, CHANDIGARH BENCH “A”, CHANDIGARH
Before: SHRI. RAJPAL YADAV, VP & SHRI. KRINWANT SAHAY, AM
Order
PER KRINWANT SAHAY, AM:
1. The above appeals are arising out of the penalty order u/s 271 AAA r.w. section 274 as passed by the Assessing Officer vide order, dated 28.09.2017, wherein, the Assessing officer has levied a penalty of Rs. 2,88,65,300/- against which the assessee filed an appeal before the CIT(A)(Central), Gurgaon. The Ld. CIT(A) vide order, dated 26.04.2019 sustained the penalty of Rs. 1,58,68,413/-, against that order, the assessee has filed this appeal before the raising following grounds of appeal:-
1. The learned CIT (A) has erred in law and facts in confirming penalty levied under section 271 AAA on an amount of Rs. 1,58.68,413/-of penalty levied at Rs. 2,85,65,300/-.
2. The learned CIT(A) has erred in law and facts in holding that amount disclosed Rs. 1,58,68,413/- is undisclosed income as per provisions of section 271 AAA.
3. The learned CIT (A) has erred in law and facts in confirming penalty levied under section 271 AAA on an amount of Rs. 1,58,68,413/- whereas assessee filed appeal before CIT(A) with regard to fact that" assessee has failed to substantiate the manner in which income was derived, when the assessee has duly declared the same as business income and which is accepted and assessed by the AO.
4. The learned CIT (A) has erred in law and facts in confirming penalty levied under section 271 AAA on an amount of Rs. 1,58,68,413/-whereas the same is chargeable @ 10% of the undisclosed income of Rs. 1,25,16,413/-, the surrendered income, which the assessee has failed to substantiate the manner in which in which it was earned.
5. The appellant craves leave for any addition, deletion or amendment in the grounds of General appeal on or before disposal of appeal.
2. The department came in cross appeal before the Hon'ble Bench bearing . The relief was allowed by the CIT(A) vide order, dated 26.09.2019, reducing the penalty of Rs. 2,85,65,300/- to Rs. 1,58, 68,413/-.
2.1 The assessee had moved an application before the Ld. CIT(A) u/s 154 contending that there was some mistake in the order as passed by the Ld. CIT(A) vide order, dated 26.09.2019. There has been an order of the ITAT in quantum appeal, wherein, certain additions have been deleted. The remaining surrendered
3 amount was to Rs. 1,25,16,413/-, which, could be considered to have not been explained. Thus, the penalty was restricted to 10% of the remaining surrendered amount of Rs. 1,25,16,413/- and, accordingly, penalty was levied at Rs.12,51,641/-, being 10% of unexplained surrendered amount vide order, dated 21.09.2020 of the CIT (A).
2.2 Against that order, the department has come in appeal bearing for which, the following grounds of appeals have been raised: -
1. "Whether on the facts and in circumstances of the case and in law, the CIT(A) was correct in holding that the assesse had complied with the condition mentioned in clause iii) of section 271AAA(2) of the Income Tax Act, 1961.
2. Whether on the facts and in circumstances of the case and in law, the CIT (A) was correct in reducing the penalty imposed u/s 271AAA of the Act from Rs.2,85,65,300/- to Rs.12,51,641/- despite the fact that the assesse had failed to comply with the condition mentioned in clause iii) of section 271 AAA (2) of the Income Tax Act, 1961.
Whether on the facts & in the circumstances of the case, the order of the CIT (A) may be quashed and that the order of the AO may be restored.
4. The appellant craves to add, amend, alter or modify and ground of appeal at the time of hearing."
grounds of appeal are as under: i. Whether on the facts and in circumstances of the case and in law, the CIT(A) was correct inholding that the assessee has complied with the conditions as prescribed in clause (iii) of section 271AAA(2) of the Income Tax Act, 1961.
4 ii. Whether on the facts and in circumstances of the case and in law, the CIT(A) was correct in holding that there is no time limit prescribed u/s 271AAA(2)(iii) for payment of tax together with interest ignoring the provisions of sec 140A(1) of the Act which require the assessee to make payment of tax together with interest before filing of the return of income. iii. Whether on the facts and in circumstances of the case and in law, the CIT(A) was correct in relying upon the decision of Hon'ble Supreme Court in the case of ACIT vs. Gebilal Kanhaiyalal HUF (SC) 252 CTR 345 which is based on different facts as in the present case. The assessee has not paid entire tax, together with interest, in respect of the undisclosed income before filing of the return of income. iv. Whether on the facts and in circumstances of the case and in law, the CIT(A) was correct in holding that the assesse has complied with the conditions as prescribed in clause (iii) of section 271 AAA(2) of the Income Tax Act, 1961, which was against the decision of the Hon'ble jurisdictional Punjab & Haryana High Court in the case of Ashok Kumar Gupta v CIT [2006] 287 ITR 376 in which the Hon'ble High Court has held that to claim immunity from levy of penalty in terms of the provisions of Explanation 5 to section 271(1) (c) of the Act, the tax on the surrendered income along with the interest is required to be paid immediately and in any case before the due date of filing of the return.
2.4 Since these are cross appeals by the assessee and the department and the facts are common in both the appeals related to penalty u/s 271AAA for the Asstt. Year 2012-13, all the grounds of appeal are being disposed off by common order:-
The appeals of the department bearing and 344/Chd/2020 are late and for which, a request for condonation of delay has been filed by the department contending that due to transfer of jurisdiction of the assessee from time to time, the order of CIT(A) was received by different Assessing Officers and, as such, there was bonafide delay. The Ld. Counsel did not object to the delay and, accordingly, after considering the facts as stated in the condonation application, the delay in and 344/Chd/2020 is condoned.
5 3. The facts in brief, are that there was a search and seizure operations conducted u/s 132 on 02.09.2011 in 'Bajwa Group of Cases. During the course of search seizure, the assessee offered a sum of Rs. 28,56,53,000/- for the Asstt. Year 2011-12 and such disclosure of the amount was made in the return of income filed by the assessee for Asstt. Year 2012-13. The Assessing Officer noticed that, though, the assessee had stated, while offering the income during search, that the surrender of undisclosed income was in addition to the regular income of the assessee, the Assessing Officer observed that the assessee has not been able to 'substantiate the manner' of deriving the undisclosed income as per provisions of section 271 AAA.
The assessee contended that during the course of search, the Authorized Officer never asked the assessee to specify the manner, in which, such income had been derived. Accordingly, during the course of proceedings u/s 271 AAA, the assessee relied upon number of judgements of High Courts and of Chandigarh ITAT that in the absence of any specific statement about the manner, in which, such income has been derived, no adverse view could be drawn against the assessee.
In the order of CIT(A), the assessment order have been reproduced from para 3, page 6 to page 15. The Assessing Officer has held that the assessee has failed to specify the manner, in which, the surrendered income has been earned and accordingly, levied a penalty u/s 271AAA amounting to Rs.
6 2,85,65,300/-, which is equivalent of 10% of the additional income of Rs. 28,56,53,000/-.
The assessee filed a detailed submissions before the CIT(A), contending that the assessee had fulfilled all the conditions as per section 271 AAA. The CIT(A) held that during the year under consideration, the assessee had disclosed undisclosed income for the Asstt. Year under consideration which was accepted by the Assessing Officer and held that the assessee has failed to substantiate the manner of earning the undisclosed income as per explanation to section 271 AAA. The CIT(A) further held following the judgment of Jurisdictional 'Chandigarh Bench' in the case of 'Manohar Infrastructure and Construction Pvt. Ltd. in that for claiming immunity from penalty u/s 271AAA, since the assessee had not been able to substantiate the manner of earning undisclosed income, penalty u/s 271AAA was held to be leviable to the extent of Rs.1,58,68,413/- as the assessee had not disclosed the manner of earning the income of Rs. 1,58,68,413/- only as offered on account of any other discrepancy.
Thereafter, the assessee made an application u/s 154 before the CIT(A) which has been reproduced in the order of CIT(A) in Appeal No. 60/CIT(A)-3/GGN/2017-18. In the said application, it was contended that the amount of Rs. 1,58.68,413/- was surrendered to cover any other discrepancy, during the course of search. The addition of Rs. 33,52,000/- made by the AO in the assessment order on account of 'unexplained receipts' was deleted by the ITAT, thus, the appellant could be said to have 7 failed to specify and substantiate the manner of earning, the balance surrender of undisclosed income of Rs. 1,25,16,413/- (Rs. 1,58,68,413/- minus Rs. 33,52,000/-). This amount was, not covered under the provisions of section 271 AAA. Thus, it was held that as per said section 271 AAA, the penalty @ 10% on undisclosed income of Rs. 1,25,16,413/- should have been imposed. It was further submitted that only 10% of the undisclosed income of Rs. 1,25,16,413/-, amounting to Rs. 12,51,641/-could be imposed as penalty. The Ld. CIT (A) vide order, dated 21.09. 2020, accordingly, restricted the penalty to Rs. 12,51,641/- against which, the department has filed an appeal bearing ITA No. 344/Chd/2020.
The Ld. Counsel of the assessee argued before us that the facts are borne out from the order of Assessing Officer and CIT(A) and the detail of the surrendered income of Rs. 28,56,53,000/- was as under:-
S.No. Name of the Company/Firm Amount 1. In the hands of company M/s Bajwa Developers Ltd.
Unaccounted receipts Rs.7,25,00,000 2. Cash seizure in office Rs.7,00,000 3. Sundry Creditors Rs.19,65,84,567/- Rs.1,58,68,143/- 4. On account of any other discrepancy/. Total Rs.28,56,53,000/- It was further brought to our notice that, as the surrender of Rs. 7,25,00,000/- was on account of the amount received on booking of plots, which was yet to be accounted for in the books of accounts on the date of search. The surrender on account of cash seizure of Rs. 7 lacs, the same was the cash as per books of 8 accounts to the tune of Rs. 19,41,874/-. The surrender on account of 'sundry creditors' of Rs. 19,65,84,587/- was made on account of 'sundry creditors' as per books of accounts thus, these were the amount offered as per books of accounts therefore, the manner of earning the income was not required to be disclosed. The same was offered during the course of search. It was further brought to our notice that the addition of Rs. 33,52,000/-, which was made by the AO has since been deleted by the ITAT vide order, dated 30.1.2017 as that amount stood covered in the balance surrendered amount of Rs. 1,58,68,143/-. Thus, only on the amount of Rs. 1,25,16,413/-, the mode and manner of earning the income could be said to be not disclosed.
The assessee relied upon the judgement of 'Chandigarh Bench' of the ITAT in the case of Sh. Jarnail Singh Bajwa, one of the group case wherein, under similar facts and circumstances, the penalty u/s 271 AAA has been deleted and in that case also, it was argued that the penalty u/s 271AAA was levied since the assessee had not stated the mode and manner of earning the undisclosed income. Further reliance has been placed on the following judgments:-
i). Chandigarh Bench of the ITAT in the case of Sh. Jarnail Singh., where under similar facts and circumstances, the penalty had been levied u/s 271 AAA, have been deleted. ii). Chandigarh Bench of the ITAT in the case of Manohar Infrastructure and Constructions Pvt.Ltd. Vs DCIT, as reported in 48 CCGH 0178, wherein the decision of Hon'ble Apex Court have been followed for deletion of penalty u/s 271 AAA.
9 iii). Chandigarh Bench of ITAT in the case of Sh. Satish Goyal in ITYA No.636/Chd/2016, wherein the decision of Hon'ble Apex Court have been followed for deletion of penalty u/s 271AAA. iv). The judgment of Apex Court in the case of ACIT Vs Gebital Kanhaialal HUF, as reported in 348 ITR 561.
The Ld. Counsel also referred to the statement of Sh. Jarnail Singh Bajwa, as recorded during search and argued that no specific question was put to the assessee for declaration of the manner of earning the 'undisclosed income' and, thus, it was stressed before us that the CIT (A) had wrongly confirmed the penalty of Rs. 12,51,641/-.
On the other hand, the Ld. CIT, DR argued that the CIT(A) has wrongly reduced the penalty to Rs. 12,51,641/- he argued that there was no justification for even reducing the penalty to Rs. 1,58,68.413/-. It was stressed before us that the mode and manner of earning the income has not been substantiated, which the assessee was duty bound to do, since the conditions which were mandatorily required to be complied with, have not been made therefore, the CIT(A) has erred in reducing the penalty, firstly to Rs. 1,58,68,413/- and then to Rs. 12,51,641/- vide order, dated 21.09.2020.
We have gone through the order of the Assessing Officer, order of the CIT(A), arguments of the Ld. Counsel and the Ld. Sr. DR. Facts are not disputed and we find that there was surrender of 10 Rs. 28,56,53,000/- out of that amount, the following three amounts are part of the books of accounts of the assessee as under:-. i) Unaccounted receipts Rs. 7,25,00,000/- ii) Cash seizure in office Rs. 7,00,000/- iii) Sundry Creditors Rs. 19,65,84,567/-
Regarding the amount of Rs. 1,58,68,413/-, the Ld. CIT(A) has mentioned in the order, dated 21.09.2020 that addition of Rs. 33,52,000/-, which was made by the AO on account of unexplained receipt , it was deleted by the ITAT vide order, dated 30.10.2017 and, thus, the balance surrendered income of Rs. 1,25,16,413/- remained for levy of penalty u/s 271AAA.
We have gone through the case laws cited by the Counsel of the assessee and we have gone through the statement of Sh. Jarnail Singh Bajwa as recorded during the course of search. We find that no specific question has been put to the assessee to substantiate the mode and manner of earning the "undisclosed income". In the case of "Sh.Jarnail Singh Bajwa" a group case under similar facts and circumstances, the Chandigarh Bench of the ITAT In ITA No.508/Chd.2016, for A.Y. 2012-13, had confirmed the order of CIT(A) deleting the penalty u/s 271 AAA by giving the following finding as under:- "In the present case, the learned CIT (DR) could not controvert this fact that the assessee included the surrendered income in the return of income and also paid due taxes thereon within the stipulated time. In the submissions before the authorities below, the assessee stated that the surrender of an income is an addition of additional regular income of the assessee and the 11 assessee also informed the AO that during the statement recorded by the search operation, he was never specified in which the income was derived and never asked to substantiate in which undisclosed income was derived and thus there was no occasion for the assessee to explain the source of surrendered money and to substantiate the manner and without asking any specific questions on these points, the Revenue Authorities cannot levy penalty. In these factual matrix of the case, we have no hesitation to hold that the order of the CIT(A) is sustainable in view of the ratio of the decision of Hon'ble Gujarat High Court in the case of M.C. Shah (supra) and thus we are unable to see any valid reason to interfere with the same and consequently we uphold the same."
In the above said case also since no specific question was put to the assessee to substantiate the manner of earning undisclosed income. Thus following the above said judgment of the group case, we have no hesitation in allowing the appeal of the assessee. Accordingly, the appeal of the assessee in is allowed and the appeal of the Revenue in and 344/Chd/2020 are dismissed.