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Before: Shri Inturi Rama Rao & Shri Duvvuru RL Reddy
O R D E R
PER DUVVURU RL REDDY, JUDICIAL MEMBER:
These cross appeals filed by the assessee as well as Revenue are directed against the order of the ld. Commissioner of Income Tax (Appeals) II, Chennai, dated 05.12.2012 relevant to the assessment year 2007-08 passed under section 271(1)(c) of the Income Tax Act, 1961 [“Act” in short].
Both the cross appeals filed by the assessee as well as Revenue are delayed by 10 days and 39 days respectively, for which, the ld. Counsel for the assessee has filed a petition in support of an affidavit for condonation of the delay in the filing the appeal by the assessee and the Department has filed a petition for condonation of delay in filing the appeal, to which; the ld. DR as well as ld. Counsel have not raised any objection. Consequently, since the assessee as well as Revenue was prevented by sufficient cause, the delays in filing of both the appeals are condoned and the appeals are admitted for adjudication.
The assessee filed the appeal challenging the direction of the ld. CIT(A) to levy the penalty under section 271AAA of the Act in place of penalty levied under section 271(1)(c) of the Act on the undisclosed income of ₹.3,89,32,110/-.
Brief facts of the case are that the assessee is engaged in carrying on construction and real estate business. There was a search and seizure operation in the premises of the assessee on 10.01.2008. During the course of search, books of account and documents were found and seized. In response to the issue of notice under section 153A of the Act, the assessee filed return of income for the assessment year 2007-08 on 12.08.2009 admitting income of ₹.3,89,32,110/-. The assessment under section 153A r.w.s. 143(3) of the Act was completed by determining the total income at ₹.4,03,96,828/-. The Assessing Officer also initiated penalty proceedings under section 271(1)(c) of the Act on account of unaccounted cash, negative cash balance. After considering the submissions of the assessee during the course of penalty proceedings, the Assessing Officer levied penalty of ₹.1,35,97,572/- under section 271(1)(c) of the Act. On appeal, besides holding that the penalty is not leviable on the additions of ₹.64,840/-, ₹.2,99,878/- and ₹.11,00,000/- under section 271(1)(c) of the Act, the ld. CIT(A) directed the Assessing Officer to levy penalty at the rate of 10 per cent on such undisclosed income of the assessee under section 271AAA of the Act.
On being aggrieved, the assessee is in appeal before the Tribunal and the ld. Counsel for the assessee argued that penalty under section 271AAA of the Act is not leviable and prayed for quashing the direction issued to the Assessing Officer to levy penalty under section 271AAA of the Act and also prayed for confirming the order of the ld. CIT(A) having found that the penalty levied under section 271(1)(c) of the Act is untenable.
Per contra, by filing cross appeal, the ld. DR has submitted that the ld. CIT(A) has erroneously directed the Assessing Officer to levy the penalty under section 271AAA of the Act since the provisions of section 271AAA of the Act are applicable in respect of income of “specified previous year” as provided in Explanation (b) to section 271AAA of the Act. It was further submission that the assessee has not filed its return of income under section 139(1) of the Act and but for the search undertaken under section 132 of the Act, the undisclosed income would not came into light and thereby penalty under section 271(1)(c) of the Act is very much warranted and pleaded for confirming the levy of penalty under section 271(1)(c) of the Act.
We have heard both the sides, perused the materials available on record and gone through the orders of authorities below including paper book and case law filed. The first point at issue is whether the provisions of section 271AAA of the Act are applicable in this case or not. The assessee is a private limited company, carrying on construction and real estate business, should have filed its return of income under section 139(1) of the Act by 31.10.2007, whereas, the assessee company has not filed its return of income. The Department initiated search action under section 132 of the Act on 10.01.2008 and seized books of account and other documents. Since the assessee has not filed its return of income, the Assessing Officer issued notice under section 153A if the Act on 29.09.2008 and duly served on the assessee requiring to furnish a return of income for the assessment year 2007-08. Accordingly, the assessee filed its return of income on 12.08.2009 admitting a total income of ₹.3,89,32,110/-. After considering the submissions of the assessee as well as seized materials/documents, the assessment under section 153A r.w.s. 143(3) of the Act was completed by determining the total income of the assessee at ₹.4,03,96,828/- after making various additions. Since the assessee has not preferred further appeal against the additions, the Assessing Officer initiated penalty under section 271(1)(c) of the Act and levied penalty on the assessed income of ₹.4,03,96,828/- at ₹.1,35,97,572/-. Against levy of penalty, the assessee preferred further appeal before the ld. CIT(A). After considering the submissions of the assessee, the ld. CIT(A) has observed that the search and seizure operation under section 132 of the Act was carried out on 10.01.2008, which was after 01.06.2007. It was further observed that the assessment year involved is 2007-08 and therefore, provisions of section 271AAA of the Act are attracted and not that of section 271(1)(c) of the Act consequent upon insertion of section 292B of the Act, whereby no return of income, assessment, notice, summons or other proceedings shall be rendered invalid merely on account of any mistake, defect or omission where the return, assessment, notice, summons or other proceedings in substance and effect are in conformity with or according to the intention and purpose of the Act. By incorporating this provision, it has been made clear that technical mistakes carrying no substance shall nto come in the way of validity of assessment ort penalty proceedings, etc. In other words, minor defects or irregularities in the circumstances aforesaid, would not negate the validity of the proceedings initiated by the Assessing Officer and the assessee would not be able to raise technical or venial defects in this regard. In view of the above, the ld. CIT(A) has held that the penalty order had to be passed in the present case in accordance with the provisions of section 271AAA of the Act and directed the Assessing Officer to do so. Aggrieved by the above direction, the ld. Counsel for the assessee has argued that the provisions of section 271AAA of the Act are not applicable and prayed for vacating the above order of the ld. CIT(A) and the ld. DR has also argued that the order of the ld. CIT(A) on this issue is erroneous since the provisions of section 271AAA of the Act are applicable in respect of income of “specified previous year” a provided in Explanation (b) to section 271AAA of the Act. We find force in the arguments of both the Counsels. We have perused the relevant provisions and reproduced hereunder: (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.] In this case, the date of filing the return of income under section 139(1) of the Act has expired on 31.09.2007 and much after; the Department initiated the search action under section 132 of the Act on 10.01.2008. In view of the above, the previous year had ended before the date of search and the date of filing of return of income under section 139(1) of the Act had also been expired. Thus, the provisions of section 271AAA of the Act have no application in this case, and accordingly, the ground raised by the assessee to this extent is allowed. Similarly, the appeal of the Revenue also allowed.
The next ground raised in the appeal of the assessee relates to levy of penalty under section 271(1)(c) of the Act. Since the assessee has not preferred any appeal against the assessment order, the Assessing Officer initiated penalty proceedings under section 271(1)(c) of the Act on account of unaccounted cash payments and negative cash balance.
8.1 The assessee has claimed land development expenses to the tune of ₹.5,99,755/-, which was paid in cash. Since the assessee could not furnish cogent evidence and proper vouchers, after verification of the accounts, the Assessing Officer estimated and allowed 50% and balance 50% of the cash payment amounting to ₹.2,99,878/- was disallowed. Against the disallowance, the Assessing Officer initiated penalty proceedings under section 271(1)(c) of the Act. On appeal, the ld. CIT(A) held that no penalty can be levied under section 271(1)(c) of the Act besides holding that penalty under section 271AAA of the Act is warranted.
8.2 We have considered the rival contentions. Since the assessee could not furnish proper evidence and vouchers, the Assessing Officer estimated the expenses and disallowed 50% of the claim. From the above, it is clear that the addition was made purely based on estimate basis. In the case of CIT v. K. Meenakshi Kutty 258 ITR 494, the Hon’ble Jurisdictional High Court has categorically held that penalty cannot be levied where additions are made on estimate basis. In view of the direct decision on this issue, the penalty levied under section 271(1)(c) of the Act stands deleted.
8.3 With regard to levy of penalty of ₹.11 lakhs, based on the seized materials, the Assessing Officer observed that the assessee has paid unaccounted cash of ₹. 11 lakhs to Shri K. Devaraj. The source of money was not evidenced. In the absence of evidence, the submission of the assessee that Shri K. Devaraj has returned the money and it was reploughed into the business was not accepted by the Assessing Officer. Since the entire transaction was carried out outside the books of account, the Assessing Officer held that the assessee has furnished inaccurate particulars of income warranting levy of penalty under section 271(1)(c) of the Act. On appeal, the ld. CIT(A) held that no penalty can be levied under section 271(1)(c) of the Act besides holding that penalty under section 271AAA of the Act is warranted.
8.4 We have heard the rival submissions. The source of unaccounted cash transaction of ₹. 11 lakhs was not brought on record. Moreover, the entire unaccounted cash transaction was carried out outside the books of account. But for search operation under section 132 of the Act, the unaccounted cash transaction would have escaped assessment. Under these facts and circumstances, we are of the considered opinion that the Assessing Officer has rightly held that the assessee has furnished inaccurate particulars of income warranting levy of penalty under section 271(1)(c) of the Act. Thus, the penalty levied under section 271(1)(c) of the Act stands confirmed.
8.5 With regard to levy of penalty of ₹.64,840/-, the Assessing Officer observed that the assessee has not complied with the provisions of TDS in respect of the payments made to M/s. Bright Electricals of ₹.39, 390/- and Shri S. Rajendran of ₹.25,450/- totalling to ₹.64,840/- in connection with land development. The assessee had no explanation to offer, the Assessing Officer made disallowance under section 40(a)(ia) of the Act. During the course of penalty proceedings, the Assessing Officer observed that even while filing the return of income under section 153A of the Act, the assessee should have added back himself the statutory disallowances applicable as per law. By not doing so, the assessee has furnished inaccurate particulars of income with the intention to conceal his total income, thereby warranting levy of penalty under section 271(1)(c) of the Act. Thus, the Assessing Officer levied penalty.
8.6 We have heard the rival submissions. There was non-compliance of provisions of TDS in respect of land development expenses incurred by way of payments made to M/s. Bright Electricals of ₹.39,390/- and Shri S. Rajendran of ₹.25,450/- totalling to ₹.64,840/-, but not deducted TDS. Moreover, while filing return under section 153A of the Act, the assessee has failed to add the statutory disallowances applicable as per law, thereby the assessee has furnished inaccurate particulars warranting levy of penalty. Under these facts and circumstances, we are of the considered opinion that the Assessing Officer has rightly levied penalty under section 271(1)(c) of the Act and the same stands confirmed.
8.7 As regards the negative cash balance, the assessee has submitted that the cash balance as per the manual cash book and computerized cash book did not tally. The fact of negative cash balance was revealed only during the course of search proceedings. During the course of assessment proceedings, the assessee submitted that the books were recasted resulting in negative cash balance of ₹.86,393/-, which was due to cash deposits in the bank. Penalty proceedings were initiated on the ground that, but for search under section 132 of the Act, the issue of negative cash balance would not have come to light and the books of accounts would not have been recasted, thereby, an amount of ₹.86,393/- would have escaped assessment. The fact of on-money cash payments, concealment of purchases and sales, improper maintenance of books of account in the regular course of business are all go to prove of furnishing of inaccurate particulars of income. The assessee could not controvert the above observations of the Assessing Officer. Under these facts and circumstances, we are of the considered opinion that the Assessing Officer has rightly levied penalty under section 271(1)(c) of the Act and the same stands confirmed.
In the result, the appeal filed by the assessee is partly allowed and the appeal filed by the Revenue stands allowed. Order pronounced on the 28th November, 2019 in Chennai.