M/S. NARSI IRON AND STEEL PVT. LTD.,UTTAR PRADESH vs. DCIT, NEW DELHI

In the Income-Tax Appellate Tribunal, Delhi Bench ‘E’, New Delhi

Before : Shri Amit Shukla, Judicial Member And Shri L.P. Sahu, Accountant Member

ITA No. 3547/Del./2015 Assessment Year: 2009-10

M/s. Narsi Iron & Steel Pvt. Ltd. S-1, vs. D.C.I.T., Central Circle-5 Industrial Area Site-A, Mathura (U.P.) New Delhi (PAN : AAACN3681P) (Appellant) (Respondent)

Appellant by Shri S.S. Rana, CIT/DR Respondent by Shri Rajiv Saxena, Advocate and Shri Ajit Kumar Jha, Advocate

Date of Hearing 05.12.2018 Date of Pronouncement 28.01.2019

ORDER Per L.P. Sahu, A.M.: This appeal by the assessee arises out of the order passed by the CIT(A)-24, New Delhi dated 24.03.2015 in relation to assessment year 2009- 10, challenging the confirmation of penalty imposed u/s. 271-AAA of the IT Act.

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account of unexplained construction in the project, named Kusum Vatika and partly on account of difference in stock as noted by the Assessing Officer. The assessee had also disclosed Rs.90 lakhs separately in the profit and loss account of Kusum Vatika. The surrender of undisclosed income so made by the assessee was accepted by the Assessing Officer. The Assessing Officer, thereafter, initiated proceedings u/s. 271AAA and imposed a penalty of Rs.9 lacs equal to 10% of such surrendered undisclosed income, on the premise that the assessee did not specify the manner in which the said undisclosed surrendered income was derived by the assessee. The assessee carried the matter in appeal before the ld. CIT(A) who affirmed the penalty imposed by the Assessing Officer. Aggrieved by the impugned order, the assessee is in appeal before the Tribunal.

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that in other group cases of assessee, similar penalties have been deleted by the Tribunal and High Court. Reliance is placed on the following decisions :

(i). Narendra Kumar Agarwal vs. DCIT (ITA No. 4107/Del/2014) & Others. (ii). Rakesh Kumar Garg vs. DCIT (ITA No. 673/Del/2014) (iii). M/s. Emirates Technologies Pvt. Ltd. (ITA No. 400/2017 – Delhi High Court) (iv). Sandeep Gupta vs. Pr. CIT (ITA No. 967/2017- Delhi H.C.) (v). Santosh Kumar Garg vs. DCIT (ITA No. 267/Del/2014).

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DR, wherein the Hon’ble Court while deciding the issue in the light of provisions of section 271AAA of the Act has held as under : Analysis and conclusions 7. Section 271AAA, which is involved in the present case, reads as follows: "Penalty where search has been initiated. 271AAA. (1) The Assessing Officer 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 1st 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 of ten 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.

(3) No penalty under the provisions of clause (c) of sub-section (1) of section 271 shall be imposed upon the assessee in respect of the undisclosed income referred to in sub- section (1). (4) The provisions of sections 274 and 275 shall, so far as may be, apply in relation to the penalty referred to in this section. Explanation.—For the purposes of this section,— (a) "undisclosed income" means—

(i) any income of the specified previous year represented, 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

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(ii) any income of the specified previous year represented, 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;

(b) "specified previous year" means the previous year—

(i) which has ended before the date of search, but the date of filing the return of income under sub-section (1) of section 139 for such year has 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

(ii) in which search was conducted." 8. This provision was brought into force with effect from 01-04-2007. Its scope and effect was explained by Circular of the Central Board of Direct Taxes (CBDT) dated 12-03-2008 (Circular No.3) in the following terms: "68. Provision for penalty for concealment in search and seizure cases.-68.1 A new section 271AAA has also been inserted so as to provide that, in a case where search has been initiated under section 132 on or after 1st June, 2007, the assessee shall be liable to 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. However, provisions of this section shall not be applicable if the assessee- (i) in a statement under sub-section (4) of section132 in the course of the search, 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. It is further provided that no penalty under the provisions of clause (c) of sub-section (1) of section 271 shall be levied or imposed upon the assessee in respect of the undisclosed income referred to in this section. It is also provided that the provisions of section 274 and section 275 shall, so far as may be, apply in relation to the penalty leviable under the new section. 68.2 For the purposes of this section, undisclosed income has been defined to mean- (i) any income of the specified previous years represented, 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 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 which has otherwise not been disclosed to the Chief Commissioner or Commissioner before the date of the search; or (ii) any income of the specified previous year represented, 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.

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68.3 For the purposes of this section, specified previous year has been defined, so as to mean the previous year — (i) which has ended before the date of search, but the date of filing the return of income under sub-section (1) of section 139 for such year has 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 (ii) in which search was conducted. 68.4 An appeal to the Commissioner against levy of penalty under the proposed new section 271AAA has also been provided. 68.5 Applicability- This amendment will take effect from the 1st day of June, 2007 and will accordingly apply in relation to assessment year 2007-2008 and subsequent years in cases where search under section 132 is initiated on or after 1st June, 2007." 9. Section 271AAA was amended by the Finance Act, 2012 with effect from 01-04-2012. The effect of the amendment was that it became applicable in all cases where search was initiated under Section 132 on or after 01-06-2007 but before 01-07-2012.Section 271AAA and its amendments are part of series of amendments with respect to the effect of presumption in the case of search cases under Section 132(4A). These were introduced simultaneously with the omission of Explanation 5 to Section 271(1)(c) on the one hand and insertion of Explanation 5A as well as Section 292C. The provision applies to income of the specified period, i.e. period for which return had not yet become due and the broken periods starting from the beginning of the financial years till the date of the search. It provides for 10% penalty of such income through a statutory inference or presumption that such amount or income was not intended to be disclosed as they were not reflected in the books, soon at the time of the search. 10. One of the conditions that results in the inapplicability of Section 271AA is payment of tax. Since the assessability and quantification of the amount of undisclosed income can be legitimately computed only at the stage of assessment, it was held by the Tribunal concurring with the first appellate authority, that the outer time limit for payment of tax is not prior to the conclusion of assessment proceedings. Where there was a short payment by way of self-assessment tax but made good in response to the notice of demand on completion of the assessment it was held that there was no scope for penalty under section 271AAA as was held in Mahendra C. Shah (supra) while interpreting Explanation 5 to Section 271(1)(c). 11. Explanation 5(2) of Section 271(1)(c) was considered by the Supreme Court in Asstt. CIT v. Gebilal Kanhaialal [2012] 25 taxmann.com 214/210 Taxman 244/348 ITR 561. It was held that Explanation 5 (2) to Section 271 (1) (c) provides, where, in the course of search under Section 132, the assessee, found to be owner of unaccounted assets, claims that such assets have been acquired by him by utilizing, wholly or partly, his income for any previous year which has ended before the date of search or which is to end on or after the date of search, then, notwithstanding that such income is declared by him in any return of income furnished on or after the date of search, he shall be deemed to have concealed particulars of his income for the purpose of imposition of penalty, but there are exceptions to such deeming provision or to such a presumption of concealment. The Court then said:

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"It provides that where, in the course of search under Section 132, the assessee is found to be the owner of unaccounted assets and the assessee claims that such assets have been acquired by him by utilizing, wholly or partly, his income for any previous year which has ended before the date of search or which is to end on or after the date of search, then, in such a situation, notwithstanding that such income is declared by him in any return of income furnished on or after the date of search, he shall be deemed to have concealed the particulars of his income for the purposes of imposition of penalty under Section 271(1)(c). The only exceptions to such a deeming provision or to such a presumption of concealment are given in Sub-Clauses (1) and (2) of Expln. 5. In this case, we are concerned with interpretation of Clause (2) of Expln. 5, which has been quoted above. Three conditions have got to be satisfied by the assessee for claiming immunity from payment of penalty under Clause (2) of Expln. 5 to Section 271(1)(c).The first condition was that the assessee must make a statement under Section 132(4) in the course of search stating that the unaccounted assets and incriminating documents found from his possession during the search have been acquired out of his income, which has not been disclosed in the return of income to be furnished before expiry of time specified in Section 139(1). Such statement was made by the Karta during the search which concluded on 1-8-1987. It is not in dispute that condition No. 1 was fulfilled. The second condition for availing of the immunity from penalty under Section 271(1)(c) was that the assessee should specify, in his statement under Section 132(4), the manner in which such income stood derived. Admittedly, the second condition, in the present case also stood satisfied. According to the Department, the assessee was not entitled to immunity under clause (2) as he did not satisfy the third condition for availing the benefit of waiver of penalty under Section 271(1)(c) as the assessee failed to file his return of income on July 31, 1987, and pay tax thereon particularly when the assessee conceded on August 1, 1987 that there was concealment of income. The third condition under clause (2) was that the assessee had to pay the tax together with interest, if any, in respect of such undisclosed income. However, no time limit for payment of such tax stood prescribed under clause (2). The only requirement stipulated in the third condition was for the assessee to "pay tax together with interest". In the present case, the third condition also stood fulfilled. The assessee has paid tax with interest up to the date of payment. The only condition which was required to be fulfilled for getting the immunity, after the search proceedings got over, was that the assessee had to pay the tax together with interest in respect of such undisclosed income up to the date of payment. Clause (2) did not prescribe the time limit within which the assessee should pay tax on income disclosed in the statement under Section 132(4). For the above reasons, we hold that the assessee was entitled to immunity under Clause (2) of Expln. 5 to Section 271 (1)(c)." 12. Like in that case, the first condition under Section 271AAA is that the assessee must make a statement under Section 132(4) in the course of search stating that the unaccounted assets and incriminating documents found from his possession during the search have been acquired out of his income, which has not been disclosed in the return of income to be furnished before expiry of time specified in Section 139(1). The second condition for availing of the immunity from penalty under Section 271(1)(c) is that the assessee should specify, in his statement under Section 132(4), the manner in which such income stood derived. The revenue contended Gebilal Kanhaialal's case (supra) that though the second condition stood satisfied, the third condition was not sought. It urged that the

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assessee was not entitled to immunity under Clause (2) as he did not satisfy the third condition for availing the benefit of waiver of penalty under Section 271(1)(c) as he failed to file his return of income on 31st July, 1987 and pay tax thereon particularly when the assessee conceded on 1st Aug., 1987 that there was concealment of income. The third condition under Clause (2) was that the assessee had to pay the tax together with interest, if any, in respect of such undisclosed income. The court held that no time-limit for payment of such tax stood prescribed under Clause (2) and that the only requirement stipulated in the third condition was for the assessee to "pay tax together with interest". It was held in Gebilal Kanhaialal's case (supra) that the third condition was also fulfilled as the assessee paid tax with interest upto the date of payment. The only condition which was required to be fulfilled for securing the immunity, after the search proceedings got over, was that the assessee had to pay the tax together with interest in respect of such undisclosed income upto the date of payment. Explanation 5 (2) did not prescribe the time-limit within which the assessee should pay tax on income disclosed in the statement under Section 132(4). 13. In the present case, during the course of the statement made by the assessee, during the course of the search on 4 March, 2010, that she had lent Rs.16 crores in aggregate to three individuals during financial year 2009-2010. This was in response to a query by the revenue officials during the course of search when the basis of Page 81 of Exhibit A-3 was sought to be questioned. To the next question, the assessee replied that the said amount of Rs.16 crores is my unaccounted income for the Financial Year 2009-2010 relevant for AY 2010-2011". However, the requirement of the assessee having to "(ii) substantiates the manner in which the undisclosed income was derived" was satisfied. Although a general statement that the undisclosed income was the source of Rs.16 crores was disclosed, no "substantiation" of the "manner" of deriving such undisclosed income was revealed. 14. In construing Section 271AAA one must not lose sight of its essential purpose which resulted in its enactment. There is a penalty at the rate of 10% of the undisclosed amount declared, if the conditions in Section 271AAA (2) are not met with. This is quite different from the penal provision under Section 271 (1) (c) of the Act, which directs that if income is concealed or inaccurate returns are filed, which are disallowed by the AO, the penalty shall be "three times the amount of tax sought to be evaded". In the case of amounts disclosed during the course of search, the penalty amount is only ten percent of the undisclosed income. Parliament has, therefore, given a different treatment to the latter category. At the same time, if an assessee were to successfully urge the "escape route" so to say, of Section 271AAA (2), all three conditions mentioned in the provision, (as held in Gebilal Kanhaialal's case (supra) in respect of pari material provisions) have to necessarily be fulfilled. In the preset case, the assessee, while declaring the "undisclosed income" also stated, that "the surrender is being made subject to no penal action of Section 271 (1) (c)". 15. While dealing with a case of similar surrender- but made in the course of survey proceedings, by an assessee (which led to imposition of penalty), the Supreme Court, in Mak Data (P) Ltd. v CIT [2013] 38 taxmann.com 448/358 ITR 539 held as follows: '7. The AO, in our view, shall not be carried away by the plea of the assessee like "voluntary disclosure", "buy peace", "avoid litigation", "amicable settlement", etc. to explain away its conduct. The question is whether the assessee has offered any explanation for concealment of particulars of income or furnishing inaccurate particulars of income. Explanation to 271 raises a presumption of concealment, when a difference is noticed by the AO, between reported and assessed income. The burden is

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then on the assessee to show otherwise, by cogent and reliable evidence. When the initial onus placed by the explanation, has been discharged by him, the onus shifts on the Revenue to show that the amount in question constituted the income and not otherwise. 8. Assessee has only stated that he had surrendered the additional sum of Rs.40,74,000/- with a view to avoid litigation, buy peace and to channelize the energy and resources towards productive work and to make amicable settlement with the income tax department. Statute does not recognize those types of defences under the explanation 1 to 271 (1) (c) of the Act. It is trite law that the voluntary disclosure does not release the Appellant-assessee from the mischief of penal proceedings. The law does not provide that when an assessee makes a voluntary disclosure of his concealed income, he had to be absolved from penalty. 9. We are of the view that the surrender of income in this case is not voluntary in the sense that the offer of surrender was made in view of detection made by the AO in the search conducted in the sister concern of the assessee. In that situation, it cannot be said that the surrender of income was voluntary. AO during the course of assessment proceedings has noticed that certain documents comprising of share application forms, bank statements, memorandum of association of companies, affidavits, copies of Income Tax Returns and assessment orders and blank share transfer deeds duly signed, have been impounded in the course of survey proceedings under Section 133A conducted on 16-12-2003, in the case of a sister concern of the assessee.' 16. That the income which was ultimately brought to tax pursuant to the disclosure made, which was voluntary on the part of the assessee is stating the obvious. The assessee merely stated that the sums advanced were undisclosed income. However, she did not specify how she derived that income and what head it fell in (rent, capital gain, professional or business income out of money lending, source of the money etc). Unless such facts are mentioned with some specificity, it cannot be said that the assessee has fulfilled the requirement that she, in her statement (under Section 132 (4)) "substantiates the manner in which the undisclosed income was derived". Such being the case, this court is of opinion that the lower appellate authorities misdirected themselves in holding that the conditions in Section 271AAA (2) were satisfied by the assessee. 17. For the above reasons, it is held that the impugned order is in error; the substantial question of law is answered in favour of the revenue and against the assessee. The appeal is consequently allowed. No costs.

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“4. We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case. 5. Undisputedly, during the search and seizure operation conducted at the business and residential premises of the assessee u/s 132(1) on 11.12.2009, assessee surrendered additional income of Rs.21 crores. It is also not in dispute that in the return filed by the assessee for AY 2010-11, assessee declared undisclosed income of Rs.21 crores which includes Rs.9.25 crores on account of excess stock and Rs.11.75 crores as income from other sources in the computation of income annexed with the tax return. It is also not in dispute that the assessee has expressed his inability to explain certain seized documents rather stated that those may be included to form part of the amounts surrendered during search and seizure operation. It is also not in dispute that assessee has already paid tax together with interest on the surrendered income of Rs.21 crores. 6. In the backdrop of the aforesaid facts and circumstances of the case, order passed by ld. Revenue authorities below, arguments advanced by ld. AR for the parties, the sole question arises for determination in this case is :- “as to whether assessee has failed to substantiate the manner in which the undisclosed income of Rs.21 crores was derived and is liable to be penalized u/s 271AAA of the Act.” 7. To proceed further, provisions contained under section 271AAA (2) are reproduced as under for ready perusal :- “271AAA. (1) The Assessing Officer 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 1st 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 of ten 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” 8. Under section 271AAA(2)(i) of the Act, penalty @ 10% of the undisclosed income shall not be imposed if the assessee, “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” substantiates the manner in which the undisclosed income was derived and pays the tax together with interest if any on the undisclosed income.

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peace of mind and avoid litigation. So, when the assessee has failed to specify the manner and substantiate the manner in which the undisclosed income was derived rather embark upon the mercy plea that he is making surrender to buy peace of mind and avoid litigation, he is not entitled for benefit of section 271AAA(2) of the Act. Case laws relied upon by the assessee is not applicable to the facts and circumstances of the case. Following the decision rendered by Hon’ble Delhi High Court in case cited as Pr.CIT vs. Smt. Ritu Singal (supra), we are of the considered view that ld. CIT (A) has erred in deleting the penalty of Rs.2,10,00,000/- u/s 271AAA, hence appeal filed by the Revenue is hereby allowed and penalty order passed by the AO is restored.” 7. Thus, laying our hand on and respectfully following the aforesaid latest decision of Hon’ble Jurisdictional High Court, and also the decision of Co- ordinate Bench of ITAT Delhi Bench, we find no justification to interfere with the orders of the authorities below. Accordingly, the appeal of the assessee is found devoid of merits and deserves to fail.

Dated: 28.01.2019 *aks* Copy of order forwarded to: (1) The appellant (2) The respondent (3) Commissioner (4) CIT(A) (5) Departmental Representative (6) Guard File By order Assistant Registrar Income Tax Appellate Tribunal Delhi Benches, New Delhi