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Income Tax Appellate Tribunal, DELHI ‘C’ BENCH,
Before: SHRI N.K. BILLAIYA, & MS. SUCHITRA KAMBLE
PER N.K. BILLAIYA, ACCOUNTANT MEMBER,
With this appeal, the Revenue has challenged the correctness of the order of the Commissioner of Income Tax [Appeals] - 27, New Delhi dated 28.10.2015 pertaining to assessment year 2012-13.
2. The solitary grievance of the Revenue is that the ld. CIT(A) erred in deleting the penalty of Rs. 76,42,611/- levied u/s 271AAA of the Income-tax Act, 1961 [hereinafter referred to as 'The Act'].
3. The roots for levy of penalty lie in the assessment order dated 31.03.2014 framed u/s 143(3) r.w.s 153A of the Act.
Briefly stated, the facts of the case are that search operation u/s 132 of the Act was conducted at the premises of the assessee on 29.03.2012. The return of income originally filed declared an income of Rs. 58,38,490/-. However, during the course of assessment proceedings, revised return of income was filed declaring income of Rs. 3.71 crores.
While framing the assessment order, the Assessing Officer formed a belief that the assessee was involved in providing accommodation entries, and accordingly, returned income was assessed at Rs. 5,99,94,55,170/-.
The assessee carried the matter before the ld. CIT(A) and the ld. CIT(A) disposed of the appeal vide order dated 26.12.2014. Quantum additions made by the Assessing Officer were deleted and considering that the assessee was involved in providing accommodation entries, commission income was estimated at Rs. 5,06,19,100/- and further addition in respect of pay orders amounting to Rs. 2,64,68,506/- and cash of Rs. 50 lakhs were also added.
After giving appeal effect, the Assessing Officer computed the income at Rs. 8,22,64,607/-and worked out undisclosed income at Rs. 7,64,26,117/- and proposed to levy penalty u/s 271AAA of the Act @ 10% tax on undisclosed income and computed the penalty at Rs. 76,42,611/-.
During the course of penalty proceedings, the assessee strongly contended that the provisions of section 271AAA of the Act do not apply on the facts of the case for the simple reason that the commission income has been estimated by the appellate authority. It was further contended that the proposed penalty is solely for the reason that certain amount has been confirmed by the ld. CIT(A). It was brought to the notice of the Assessing Officer that no specific seized documents or statements of the assessee have been pointed out, which may suggest that the amount on which penalty is proposed to be levied was undisclosed income within the meaning of section 271AAA of the Act.
The Assessing Officer dismissed the contentions of the assessee by holding as under:
In the present case, the assessee has failed all the three conditions as mentioned above. The assessee has not specify the manner in income has been derived and has not paid taxes an interest thereon in respect of undisclosed income. Further, the case laws as relied upon by the assessee are also not a help as the facts and circumstances of those cases are entirely different that of assessee’s case. Therefore, I held the assessee as liable to penalize u/s 271AAA of the Act and a penalty of Rs.76,42,611 /- as computed below is imposed upon the assessee.
Amount of penalty is computed as under: Undisclosed income Rs.7,64,26,117/- Penalty computed @10% Rs. 76,42,611/- Penalty imposed Rs. 76,42,6117- Rs. 76,42,611/- Penalty levied @ 10% of tax on undisclosed income
Penalty so levied was agitated before the ld. CIT(A) and once again the assessee pointed out that the provisions of section 271AAA of the Act do not apply on the facts of the case. It was brought to the notice of the ld. CIT(A) that penalty u/s 271AAA of the Act is attracted when search is conducted and the assessee is found to be having undisclosed income for specified years.
After considering the facts and submissions, the ld. CIT(A) held as under:
“I have gone through the submissions and the order of the Assessing Officer and all the relevant facts and circumstances of the case. I delete the penalty u/s 271AAA for the following main reasons;
The AO has primarily levied the penalty u/s 271 AAA as the CIT(A) has confirmed additions to a certain extent.
The AO has not examined the matter to determine whether the additions confirmed can be called to be undisclosed income within the meaning of section 271 AAA of the Act. 3. Looking at the facts and circumstances of the matter I do not consider that the additions confirmed can be treated as “undisclosed income” as defined in section 271 AAA. 4. Additions have been confirmed only on estimated basis or for the inability of the appellant to produce audited accounts of certain entities. CIT(A) had specifically noted in the quantum proceedings that the principles of natural justice were not followed.”
Aggrieved by this, the Revenue is before us.
The ld. DR, through his written submissions, once again reiterated the findings of the Assessing Officer and strongly contended that the ld. CIT(A) has grossly erred in deleting the penalty. Strong reliance was placed on the decision in the case of PCIT Vs. Ritu Singal 92 Taxmann.com 224 and Anand Sancheti ITA No. 305/NAG/2015.
Per contra, the ld. counsel for the assessee reiterated what has been stated before the lower authorities.
We have given thoughtful consideration to the orders of the authorities below and have also considered the judicial decisions relied upon by the ld. representatives. A bare perusal of the penalty order shows that the Assessing Officer has levied the penalty mechanically by taking difference in the return of income and assessed income. Entire penalty order is devoid of any specific findings in respect of any specific seized material or undisclosed income detected as a result of search. In our understanding of the law, it was incumbent upon the Assessing Officer to first establish that there was undisclosed income within the meaning of section 271AAA of the Act before any penalty under the said section could be levied.
Section 271AAA reads as under:
“271AAA (1) The Assessing Officer may, notwithstanding anything contained any other provisions of this Act, direct that, in a case where search has been initiated under section 132 on or after the 1st day of June, 2007 but before the Is' 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 of ten per cent of the undisclosed income of the specified previous year.
Nothing contained in sub-section (1) shall apply if the (2) assessee,
(i) in the course of the search, in a statement under sub- section of 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 will interest, if any, in respect of the undisclosed income.
No penalty under the provisions of clause (c) of sub- section (1) shall be imposed upon the assessee in respect of the undisclosed income referred to in subsection (1).
4. The provisions of section 274and 275shall, so far as may be, apply in relation to the penalty referred to in this section.
Explanation - for the purposes of this section, -
(i) “undisclosed income” means- any income of the specified previous year represented, (i) either wholly or partly, by any money, bullion, jewellery or other valuable article or thing or any entry in the books of account or other documents or transactions found in the course of a search under section 132,which has-
(A) not been recorded on or before the date of search in the books of account or other documents maintained in the normal course relating to such previous year; or (B) otherwise not been disclosed to the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner before the date of search; Or any income of the specified previous year represented, (ii) either wholly or partly, by any entry in respect of an expense recorded in the books of account or other documents maintained in the normal course relating to the specified previous year which is found to be false and would not have been found to be so had the search not been conducted ; (Emphasis supplied)
“specified previous year’’ means the previous year- (a)
(i) which has ended before the date of search, but the date of fling the return of income under sub-section (1) of section 139 for such not expired before the date of search and the assessee has not furnished the return of income for the previous year before the said date; or in which search was conducted.” (i)
It can be seen from the aforesaid provisions that undisclosed income has been defined and is meant to be any income either wholly or partly, represented by any money, bullion, jewellery or other valuable article or thing or any entry in the books of account or other documents or transactions found in the course of a search under section 132, which is not recorded on or before the date of search or not disclosed by the PCIT before the date of search or any income represented either wholly or partly by any entry in respect of any expense recorded in the books of account or other documents.
At the very outset, the third limb has to be excluded because no expense was found recorded in the books of account which represents any income of the specified previous year.
As mentioned elsewhere, while levying the penalty, the Assessing Officer has nowhere mentioned specifically any undisclosed income within the meaning of undisclosed income given u/s 271AAA of the Act.
On the contrary, the facts available on record indisputably establish that the quantum of income confirmed by the ld. CIT(A) was purely on estimate basis and in our humble opinion, estimated income cannot be said to be undisclosed income within the meaning of section 271AAA of the Act.
In the case of Durga Kamal Rice Mills 265 ITR 25, the Hon'ble High Court of Calcutta has held as under:
“When two views are possible and when no clear and definite inference can be drawn, in a penalty proceeding, penalty cannot be imposed….in quantum proceedings, a particular provision might be attracted for addition to the income of the assessee. But when ti comes to the question of imposition of penalty, then independent of the finding arrived at in the quantum proceedings the authority has to find conclusively that eh assessee owns the concealed amount.”
In the light of the aforementioned decision of the Hon'ble Calcutta High Court, we are of the considered view that the burden of proof in the penalty proceedings is independent and larger than in the assessment proceedings and the assessment proceedings and penalty proceedings are different. Findings in the assessment proceedings are not sufficient to impose penalty. Further, penalty cannot be imposed when assessment has been enhanced merely on estimates. Considering the facts of the case in totality, we do not find any error or infirmity in the findings of the ld. CIT(A).
Before parting, the two decisions relied upon by the ld. DR are misplaced in as much as in the case of Ritu Singal [supra], levy of penalty was upheld because the assessee did not specify in search proceedings as to how she derived undisclosed income and under what head it fell and in the case of Anand Sancheti, the Tribunal upheld the levy of penalty on the ground that the assessee had failed to specify the manner in which the said income had been derived. Facts of the case in hand as mentioned elsewhere, do not fit in the facts of the decisions relied upon by the ld. DR.
In the result, the appeal of the Revenue in is dismissed.
The order is pronounced in the open court on 06.12.2019.