MS. TRIPTA KAUR,NEW DELHI vs. ACIT, NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “G”, NEW DELHI BEFORE SHRI R. K. PANDA, ACCOUNTANT MEMBER AND MS. SUCHITRA KAMBLE, JUDICIAL MEMBER ITA No.2974/Del/2015 Assessment Year : 2012-13 Tripta Kaur, ACIT, Central Circle- 14, A-29, Friends Colony-East, New Delhi. Vs. New Delhi.

PAN : AAAPK8020A (Appellant) (Respondent)

Assessee by : Shri Ved Jain, CA Shri Ashish Chadha, CA : Shri B. S. Rajpurohit, Sr. DR Department by Date of hearing : 05-09-2018 Date of pronouncement : 12-09-2018 O R D E R PER R. K. PANDA, AM : This appeal filed by the assessee is directed against the order dated 20.03.2014 of the CIT(A)- XXVI, New Delhi relating to assessment year 2012-13. 2. Facts of the case, in brief, are that the assessee is an individual and filed her return of income on 21.01.2014 declaring total income of Rs.5,89,56,260/-. A search and seizure operation was carried out on Shri Paraminder Sing Kalra, Consortium Securities Pvt. Ltd. and other associated concerns on 28.07.2011.

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The search was conducted ostensibly on the basis of prior information that Shri

Paraminder Singh Kalra is owing foreign accounts abroad containing substantial

amount of undisclosed cash. The search at assessee’s premise was also covered

as the assessee happened to be the CEO of M/s. Consortium Securities (P) Ltd.

and was deriving income from house property, income from business or

profession, capital gain and income from other sources. The group is also

engaged in the real estate dealings. Besides above, Smt. Tripta Kaur is doing

the business of purchase/ sale of painting/ art works/ sculptures etc. in the name

and style M/s GALLERIE NVYA. The Assessing Officer completed the

assessment determining the total income at Rs.6,05,52,484/-. Subsequently, the

Assessing Officer initiated penalty proceedings u/s 271(1)(c) of the I.T. Act,

1961. Rejecting the various explanations given by the assessee, the Assessing

Officer levied penalty of Rs.96,54,003/- on the income sought to be evaded of

tax at Rs.3,12,42,729/-.

271(1)(c) on the ground that the assessee had declared an amount of Rs.3 crores

in her return of income as additional income and penalty cannot be levied on the

said amount in view of the provisions of section 271AAA of the I.T. Act. It was

argued that the penalty, if any, could be levied only on the amount of

Rs.12,42,729/- being the difference between the returned income and the

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assessed income on account of unexplained stock. So far as levy of penalty of

Rs.12,42,729/- is concerned, it was again argued that the penalty is not leviable

on this amount u/s 271(1)(c) since the present assessment year 2012-13 is the

specified period and the Assessing Officer has made addition treating the

unexplained stock as undisclosed income of the assessee. Therefore, the

provisions of section 271AAA are only applicable and penalty cannot be levied

u/s 271(1)(c) of the I.T. Act. Even on merit, it was argued that the valuation of

inventory was on estimate basis on which GP had been adopted. Therefore, the

penalty cannot be levied on such estimated difference in the valuation of

inventory which is less than 10% of the total value of inventory in the instant

case.

given by the assessee and sustained penalty of Rs.3,84,003/- on the addition of

Rs.12,42,729/- on account of unexplained stock. He, however, held that the

penalty cannot be levied on the amount of Rs.3 crores which was surrendered

by the assessee during the course of search and the assessee has declared the

same in the return of income and paid the tax thereon.

assessee is in appeal before the Tribunal by raising the following grounds :-

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“1. On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals) [CIT(A)] is bad, both in the eye of law and on the facts. 2. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in confirming the penalty of Rs. 3,84,003/- on income of . Rs.12,42,729/- levied by the AO under section 271(1)(c) of the Act. 3. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and law in ignoring the provisions of Section 271AAA read with Section 271(1)(c) Explanation 5A whereby no penalty is leviable under section 271(1)(c) in respect of the undisclosed income of the previous year in which search is carried on. 4. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law in ignoring the contention of the assessee that the computation of undisclosed income of Rs. 3,12,42,729/- is not factually correct. 5. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in ignoring the contention of the assessee that this undisclosed income of Rs. 3,12,42,729/- has been computed on the basis of estimation and without there being any material of such income actually been earned by the assessee. 6. (i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in holding that the appellant has conceded in the written submission that penalty of Rs.12,42,729/- could be imposed under Section 271(1)(c) of the Act. 6. (ii) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in not reading the written submission in its entirety and confirming the penalty. 7. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the penalty under section 271(1)(c) rejecting the contention of the assessee that there is neither concealment nor furnishing of inaccurate particulars. 8. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the penalty despite the fact that the penalty proceedings are independent proceedings, as such merely on the basis of disallowances and additions made by the AO, penalty cannot be levied. 9. The appellant craves leave to add, amend or alter any of the grounds of appeal.”

CIT(A) in confirming the penalty levied on the addition of Rs.12,42,729/-. He

submitted that since the present assessment year is the specified previous year

and the addition is made by the Assessing Officer treating the unexplained stock

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as undisclosed income of the assessee, therefore, the provisions of section

271AAA are only applicable to the case of the assessee, since the provisions of

section 271AAA and provisions of section 271(1)(c) are mutually exclusive in

view of sub-section (3) of section 271AAA. Therefore, penalty cannot be

levied on that income u/s 271(1)(c) of the I.T. Act since in the instant case the

search took place on 28.07.2011 and the nature of addition made by the

Assessing Officer is on account of unexplained stock of Rs.12,42,729/-.

Relying on various decisions, he submitted that since the provisions of section

271AAA are only applicable, therefore, initiation of penalty proceedings against

the assessee u/s 271(1)(c) are vitiated. For the above proposition, he relied on

the decision of the Delhi Bench of the Tribunal in the case of Ashwani Kumar

Arora vs. ACIT reported in 50 ITR 37, decision of the Mumbai Bench of the

Tribunal in the case of ITO vs. M/s. Trishul Enterprises reported in 2018 (1)

TMI 1140 – ITAT- Mumabi, decision of the Ahmedabad Bench of the Tribunal

in the case of Dr. Naman A. Shastri vs. ACIT reported in 2015 (11) TMI 109 –

ITAT Ahmedabad and various other decisions.

been levied merely on the addition made on estimation basis. In the instant

case, there is no concealment of any particulars of income or furnishing of

inaccurate particulars of such income by the assessee. Therefore, penalty u/s

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271(1)(c) cannot be levied on account of estimated addition to the closing stock.

For the above proposition, he relied on the decision of the Hon’ble Punjab &

Haryana High Court in the case of CIT vs. Sangrur Vanaspati Mills Ltd.

reported in 303 ITR 53, in the case of Harigopal Singh vs. CIT reported in 258

ITR 85 and various other decisions.

while passing the assessment order the Assessing Officer has not stated the limb

under which the penalty proceedings are being initiated. He has simply

mentioned penalty proceedings u/s 271(1)(c) of the I.T. Act,1961 are being

initiated separately. Referring to the notice issued u/s 274 r.w.s. 271, copy of

which is placed at page 21 of the Paper Book, he submitted that inappropriate

words in the said notice have not been struck off. Relying on various decisions,

he submitted that when the inappropriate words are not struck of it is not

understood as to under which limb of Act, the Assessing Officer has levied

penalty and under such circumstances the penalty proceedings stand vitiated.

For the above proposition, he relied on the decision of the Hon’ble Karnataka

High Court in the case of CIT vs. M/s SSA’S Emerald Meadows vide ITA

No.380 of 2015 order dated 23.11.2015. He submitted that the Hon'ble High

Court in the above decision, following the decision of the Hon'ble High Court in

the case of Manjunath Cotton and Ginning Factory reported in 359 ITR 565,

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had upheld the decision of the Tribunal cancelling the penalty and dismissed the

appeal filed by the Revenue on the ground that the notice issued by the

Assessing Officer u/s 274 r.w.s. 271 is bad in law since it did not specify under

which limb of section 271(1)(c) penalty proceedings have been initiated. He

submitted that the SLP filed by the Revenue has been dismissed by the Hon’ble

Supreme Court.

submitted that the difference estimated by the Assessing Officer is just 4% of

the total value estimated by the Assessing Officer and it cannot be ignored that

such addition has been made with GP rate 39.20% which is also taken on

arbitrary manner. Referring to the decision of the Chandigarh Bench of the

Tribunal in the case of Shri Anil Talwar vs. DCIT vide ITA No.357 to

361/CHD/2018 dated 07.08.2018, he submitted that under somewhat similar

circumstances, the Tribunal deleted the penalty levied u/s 271(1)(c) by the

Assessing Officer and upheld by the ld. CIT(A) holding that merely because the

additions have been sustained in the quantum proceedings same is not good

enough reasons to initiate the penalty. He accordingly submitted that the

penalty levied by the Assessing Officer u/s 271(1)(c) which has been sustained

by the ld. CIT(A) is not sustainable.

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CIT(A). He submitted that in the year of search penalty can be levied under

both the sections i.e. u/s 271AAA and under section 271(1)(c) of the I.T. Act.

He submitted that as per the provisions of section 271AAA penalty can be

levied on the undisclosed income detected during the course of search whereas

penalty can be levied u/s 271(1)(c) if any other addition has been made. He

accordingly submitted that the penalty levied by the Assessing Officer u/s

271(1)(c) which has been sustained by the ld. CIT(A) is justified.

perused the material available on record. We find the Assessing Officer in the

assessment order made addition of Rs.15,96,224/- on account of difference on

account of unexplained stock found during the course of search. Subsequently,

the Assessing Officer in 154 proceedings restricted such addition to

Rs.12,42,729/-. We find, in appeal, the ld. CIT(A) deleted the penalty levied by

the Assessing Officer on the amount of Rs.3 crores surrendered in the return on

the ground that the provisions of section 271(1)(c) are not applicable since it is

the specified previous year and is within the ambit of penalty u/s 271AAA of

the I.T. Act. The Revenue is not in appeal on this issue. Therefore, we are not

concerned with the same. However, we find the ld. CIT(A) confirmed the

penalty on the addition of Rs.12,42,729/- levied by the Assessing Officer u/s

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271(1)(c) which was the addition made by him on estimation basis and applying

GP rate. It is the submission of the ld. counsel for the assessee that since this is

the specified year, therefore, only provisions of section 271AAA are applicable

and penalty cannot be levied u/s 271(1)(c) of the I.T. Act. It is his alternate

argument that the addition has been made by the Assessing Officer on the basis

of estimation by applying the GP rate of 39.20% and, therefore, penalty is not

leviable on such estimated addition to the valuation of closing stock.

It is an admitted fact that the search in the instant case took place on 28.07.2011

and, therefore, the present assessment year i.e. A.Y. 2012-13 relates to the

specified previous year. Therefore, when the addition has been made by the

Assessing Officer treating the unexplained stock as undisclosed income of the

assessee, the provisions of section 271AAA are applicable and provisions of

section 271(1)(c) cannot be applied in the present case. For ready reference,

provisions of section 271AAA are reproduced as under :-

“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,—

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(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 (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.”

the total income of the assessee as unexplained stock found during the course of

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search, therefore, the impugned assessment year being within the meaning of

specified year i.e. the year in which the search was conducted and the addition

made by the Assessing Officer being in nature of undisclosed income only the

provisions of section 271AAA has to be applied and penalty cannot be levied

u/s 271(1)(c) of the I.T. Act.

Assessing Officer by estimating the GP rate and thereby determining the

difference in the closing stock and the inventory which has been added to the

total income of the assessee. It is the settled position of law that penalty is not

leviable on account of ad-hoc additions. Further, in the instant case the

difference is just 4% of the value estimated by the Assessing Officer and such

amount is negligible considering the huge amount of stock of Rs.43,49,74,000/-.

We find the Assessing Officer in the body of the assessment order has observed

as under :-

“The average G.P. rate earning in the preceding years comes to 39.20% by applying this G.P. Rate on the tag price of Rs4,21,17,000 - Rs.92,50,000 (being paintings owned by assessee herself in personal capacity) = Rs.3,28,67,000/-, the value of such inventory comes to Rs.1,99,83,136/- and the average GP rate on tag price of Rs.38,86,658/- (w.r.t. consignment below Rs.5 lakhs) as discussed above the value of such inventory comes to Rs.23,63,088/-. Thus the addition required on this account of unexplained stock found during the course of the search comes to Rs.1,99,83,136 + Rs.23,63,088 = Rs.2,23,46,224/- + Rs.92,50,000/- = Rs.3,15,96,224/-. The assessee has included an amount of Rs.3,00,00,000/- in her return of income on the difference of inventory. Considering the same an addition of Rs.15,96,224/- (Rs.3,15,96,224 - Rs.3,00,00,000/-) is being made on this account. The difference between the unexplained stock and the income offered of Rs.3,00,00,000/- i.e. Rs.15,96,224/- is being added to the income of the

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assessee. Penalty proceedings u/s 271(1)(c) of the Act are being initiated are separately.”

reduced to Rs.12,42,729/- in the order passed u/s 154 of the I.T. Act. In view of

the above discussion, we are of the considered opinion that both legally and

factually the ld. CIT(A) is not justified in confirming the penalty levied by the

Assessing Officer. We, therefore, set-aside the order of the ld. CIT(A) and

direct the Assessing Officer to cancel the penalty. The grounds raised by the

assessee are accordingly allowed.

Sd/- Sd/- (SUCHITRA KAMBLE) (R. K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 12-09-2018. Sujeet Copy of order to: - 1) The Appellant 2) The Respondent 3) The CIT 4) The CIT(A) 5) The DR, I.T.A.T., New Delhi By Order //True Copy// Assistant Registrar ITAT, New Delhi