VISHNU PRASAD MAHARWAL,JAIPUR vs. ACIT, JAIPUR

PER SHRI KUL BHARAT, J.M. This is an appeal filed by the assessee against the order of ld. CIT (A)- 4, Jaipur dated 15.06.2016 pertaining to A.Y. 2010-11. The assessee has raised the following grounds of appeal :-

2 ITA No. 764/JP/2016 Shri Vishnu Prasad Maharwal

not clarified and failed to substantiate the manner in which the assessee had derived undisclosed income. 2. The assessee prays for leave to add, to amend, to delete, to modify the all or any grounds of appeal on or before the hearing of appeal.”

section 271AAA of the Income Tax Act, 1961(hereinafter referred to as the

Act).

of the Act in Shri Mahaveer Singh Sankhala Group on 23/7/2009 in response

of the notice that assessee under section 142(1) of the Act. The assessee

stated that a return of income is already filed on 30/09/2010 declared total

income of Rs. 70,24,010/-. While framing the assessment, the assessing

officer initiated penalty proceedings under section 271AAA on the amount of

Rs. 30 lakhs. Subsequently, a penalty order under section 271AAA of the Act

was passed on the ground that assesee has neither specified the manner in

which income has been derived nor substantiate the manner of deriving such

undisclosed income. Thereby, the assessing officer levied a penalty of 3 lakhs

at the rate of 10% of undisclosed income. Aggrieved by this, the assessee

preferred an appeal before Ld. CIT (A), who after considering the submissions

dismiss the appeal.

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Counsel for the assessee reiterated the submission as made in the written

brief.

4.1 On the contrary, ld. Departmental Representatives opposed the

submissions and submitted that the provisions are clear. There is no

confusion it is incumbent upon the assessee to demonstrate the manner in

which the undisclosed income was earned.

4.2 We have heard the rival contentions, perused the material available

records. There is no dispute with regard to the fact that the surrendered

income was duly disclosed into the return of income by the assessee.

However, the penalty was imposed on the ground that the assessee has not

substantiated the manner in which the undisclosed income was earned as per

271AAA of the Act. The Assessing Officer in a case, where search has been

initiated direct the assessee to pay by way of penalty if any payable by him a

computed at the rate of 10% of the undisclosed income of specified previous

year. However, sub-section (1) would not be applicable if the assessee in the

case of search in a statement under sub-section 132(4) admits the

undisclosed income and specify the manner in which such income has been

derive substantiate the manner and undisclosed income was derived and pays

the tax together with interest if any in respect of undisclosed income. In the

4 ITA No. 764/JP/2016 Shri Vishnu Prasad Maharwal

present case, the assessee has admitted an undisclosed income paid the tax

together with interest in respect of the undisclosed income. However, the

Assessing Officer imposed penalty on the basis that the assessee failed to

substantiate the manner and undisclosed income was derived. We find that

during the statement recorded u/s 132(4) enclosed at paper book page nos. 9

to 17, the assessee had admitted the undisclosed income in answer to

question no. 18. The ld. Counsel for the assessee submitted that Assessing

Officer did not ask the assessee to specify the manner and substantiate the

manner in which the undisclosed income was earned. He submitted that

under the identical facts the coordinate bench in the case of ACIT Vs. M/s

Kanakia Spaces Pvt. Ltd. in ITA No. 6763(Mum)/2011 deleted the penalty on

the ground that assessee was not asked about the manner in which such

income was earned also to substantiate the manner in which undisclosed

income was derived. He submitted that the Coordinate Bench has relied upon

the judgment of Hon’ble Allahabad High Court rendered in the case of CIT Vs.

Radha Kishan Goel (2005) 278 ITR 454(All). The reliance is also placed upon

the judgment of the Hon’ble Gujarat High Court rendered in the case of CIT

Vs. Mahender C. Shah 299 ITR 305.

4.3 We have considered the rival contentions. There is no dispute with

regard to the fact the assessee as per section 271AAA is required to admit the

undisclosed income and specify the manner in which such income has been

5 ITA No. 764/JP/2016 Shri Vishnu Prasad Maharwal

derived, substantiate the manner in which the undisclosed income was

derived and pays the tax together with interest if any in respect of

undisclosed income. The contention of the assessee is that, that no question

was posed while recording the statement under section 132(4) or

substantiating the manner in which the income has been derived. It is

contended that if no question is asked than the assessee is not required to

substantiate the manner in which the income was derived. The Hon’ble

Gujarat High Court in the case of CIT Vs. Mahender C. Shah 299 ITR 305 has

held that so far as alleged failure on the part of the assessee to specify in the

statement u/s 132(4) of the Act, regarding the manner in which such income

has been derived, suffice it to state that when the statement is being

recorded by the Authorized Officer, it is incumbent upon the Authorized

Officer to explain the provision of Explanation 5 in its entirety to the assessee

concerned and the Authorized Officer cannot stop short at a particular stage

so as to permit the revenue to take advantage of such a lapse in the

statement. The reason is not far to seek. In the first instance, the statement

is being recorded in the question and answer form and there would be no

occasion for an assessee to state and make averment in the exact format

stipulated by the provisions, considering the setting in which statement is

being recorded. The Hon’ble Court further affirmed the view of the Hon’ble

Allahabad High Court and the Tribunal to the effect that even if the statement

does not specify the manner in which the income is derived, if the income is

6 ITA No. 764/JP/2016 Shri Vishnu Prasad Maharwal

declared and tax thereon paid, there would be substantial compliance not

warranting any further deny of the benefit under Act exception no. 2 in

Explanation 5 is commendable. Hon’ble Allahabad High Court in the case of

CIT Vs. Radha kishan Goel 278 ITR 454 (Supra) has held that u/s 132(4) of

the Act unless the Authorized Officers puts a specific question with regard to

the manner in which income has been derived, it is not expected from the

person to make a statement in this regard and in the case in the statement

the manner in which income has been derived has not been stated, but it has

been stated subsequently, that amounts to compliance with explanation 5(2)

of the Act. It was further held that, in the absence of specific statement

about the manner in which such income has been derived it can be inferred

that such undisclosed income was derived from the business he was carrying

on from other sources. The object of the provision is achieved by making this

statement admitted the non-disclosure of money, bullion, jewellery etc.

Therefore, it was held that much importance should not be attached to the

statement about the manner in which such income has been derived it can be

inferred on the facts and circumstances of the case, in the absence of

anything to the contrary. Therefore, mere non-statement of the manner in

which has income was derived would not make explanation 5(2) in applicable

4.4 In the light of the above judgment when in the present case also

admittedly, there is no specific query by the Assessing Officer, hence, the

7 ITA No. 764/JP/2016 Shri Vishnu Prasad Maharwal Assessing Officer was not justified in imposing the penalty. Therefore, we

hereby direct the Assessing Office to delete the penalty.

Order pronounced in the open court on 10/03/2017.

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सहायक पंजीकार@Aेेज. त्महपेजतंत

8 ITA No. 764/JP/2016 Shri Vishnu Prasad Maharwal