DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-1(3), BANGALORE vs. M/S SRADDHA BUILDERS, BANGALORE

Per Jason P Boaz, Accountant Member

2.1 Search and seizure action u/s 132 of the Act was conducted at the assessee’s premises on 20.03.2014 and 08.04.2014. For Assessment Year 2013-14, the assessee had filed its original return declaring income of Rs.67,00,210/-. Subsequent to the search, in response to notice u/s 153A of the Act dated 07.10.2014, the assessee filed its return of income for Assessment Year 2013-14, almost 1 ½ years later, on 01.03.2016 declaring income of Rs.1,81,47,740/-, which included undisclosed income of Rs.1,31,50,000/-, admitted in the course of search. The assessment was completed u/s 153A r.w.s. 143(3) of the Act vide order dated 29.03.2016 wherein the assesseee’s income was determined at Rs.1,94,23,586/-. While completing the order of assessment for Assessment Year 2013-14, the Assessing Officer (‘AO’) initiated penalty proceedings u/s 271AAB of the Act on the amount of undisclosed income of Rs.1,31,50,000/- admitted by the assessee on the basis of incriminating documents found in the course of search. After considering the assessee’s submissions in the matter, the AO proceeded to levy penalty of Rs.39,45,000/- u/s 271AAB(1)(c) of the Act, being 30% of the undisclosed income, holding as under at para 9 and 10 of his order:

“It is no doubt that undisclosed income has been unearthed during the course of search proceedings. Therefore, levy of penalty u/s 271AAB is attracted. The only issue that needs to be decided is the rate of penalty to be levied. Clause (a) of sec. 271AAB(1) stipulates levy of penalty at 10% of undisclosed income if the assessee admits undisclosed income in a statement u/s 132(4), specified and substantiate the manner in which such income was derived and pays taxes along with interest and furnishes Return of Income within the specified date. The facts of the case are, C.O. No. 86/Bang/2018 Page 3 of 9 “notice u/s 153A was issued on 7.10.2014 requiring to file Return within 30 days of receipt of notice (specified date), the assessee filed Return in response to notice u/s 153A dtd. 7.10.2014 only on 1.3.2016. The taxes in respect of the same on undisclosed income were also paid on 30.10.2015 (Rs.32,11,300/-), 17.12.2015 (Rs.5,39,200/-), and 19.2.2016 (Rs.10,00,000/-)”. The statement where Sri Kiran Kumar Mahasamudram conceded the undisclosed income was also not u/s. 132(4) of the Act. Therefore, clearly provisions of clause (a) are not applicable to the assessee. Clause (b) which stipulates 20% of penalty is for the case where the assessee does not admits the undisclosed income in the statement u/s. 132(4), but subsequently disclosed and pays taxes along with interest. This clause is also not applicable in assessee’s case. The only remaining clause is (c) which is the residuary clause stipulates levy of penalty at 30% of the undisclosed income.

2.2 Aggrieved by the order of the AO levying penalty of Rs.39,45,000/- u/s 271AAB(1)(c) of the Act @ 30% of undisclosed income for Assessment Year 2013- 14, the assessee filed an appeal before the CIT(A)-11, Bangalore. The CIT(A), vide the impugned order dated 06.12.2017, allowed the assessee relief by directing the AO to reduce the penalty levied to 10% of the undisclosed income; as he was of the view that penalty was leviable u/s 271AAB(1)(a) of the Act and not u/s 271AAB(1)(c) of the Act. The CIT(A) held as under at paras 12.1 to 12.4 of the impugned order:

“12.1 For the A.Ys. 2013-14 and 2014-15, the AO has levied a penalty as per the provisions of S. 271AAB(1)(c). In the case under consideration, the appellant had come forward to offer additional income voluntarily and had affirmed the same through his letter addressed to the JDIT, Investigation Unit-2, Bengaluru vide its order dated 10/07/2014. It had also declared the mode and method by which the undisclosed income was earned and the form in which it is thereafter invested. The quantum of additional income to be offered was also computed and declared before the Investigation Unit. The appellant had not retracted the quantum thereafter and had affirmed by it while filing

C.O. No. 86/Bang/2018 Page 4 of 9 the ROI in response to Notice u/s 153A for AY. 2013-14 and u/s 139(1) for A.Y. 2014-15. 12.2 Since the appellant had submitted his declaration and Section 132(4) before the conclusion of search proceedings, that is before drawing the appraisal report, and while the appellant had stood firmly without any subsequent modification or retraction to the declaration made, it has to be construed that such declaration is covered by the provisions of Section 132(4) and therefore it is found that the condition laid down u/s 271AAB(1)(a)(i) and 271AAB(1)(a)(ii) are satisfied. 12.3 Though the ROi for the A.Y. 2013-14, in response to the notice u/s 153A was not filed before the specified date, the appellant is found to comply with the condition laid down 271AAB(1)(a)(iii) also since the fact and circumstances which were beyond the control of the appellant were explained to the assessing officer. The undisclosed income was blocked through an investment in an immovable asset in the absence of liquidity, the appellant could not remit the taxes. Since the 31 filed without payment of self-assessment tax would be an invalid return, the appellant was compelled to defer the time of filing of return till the tax liability is addressed. 12.4 When this fact is appreciated, it is clear that the delay in filing the return of income subsequent the specified date u/s 153A was beyond the control of the appellant. Therefore, it is found that by adhering to the declaration originally made u/s 132(4) while filing the ROI, the appellant has complied to the condition laid in the Section 271AAB(1)(a)(iii), as well. Penalty proceedings are not mandatory but discretionary. The facts of a case have to be appreciated and the AO expected to exercise his discretion and not levy penalty in a mechanical fashion. Therefore, the AO is directed to reduce the penalty after computing the same @ 10% of the Undisclosed Income of the A.Y. 2013-14 and levy the same accordingly.”

3.1 Revenue, being aggrieved by the order of the CIT(A)-11, Bangalore dated 06.12.2017 for Assessment Year 2013-14, has filed this appeal before the Tribunal wherein it has raised the following grounds:

1. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) erred in directing the Assessing Officer to levy penalty at the rate of 10% on undisclosed income admitted u/s 271AAB(1)(a) instead of at the rate of 30% of undisclosed income admitted u/s 271 AAB(1((c)?

C.O. No. 86/Bang/2018 Page 5 of 9 Whether on the facts and in the circumstances of the case, the Ld. CIT(A) erred in 2. not considering the fact that assessee failed to fulfill the cumulative conditions laid down in various sub-clauses of clause (a) of sub-section (1) of section 271AAB? 3. Any other grounds that may arise at the time of hearing.

3.2 The assessee has also filed the following cross objections (C.Os.) as under which support the impugned order of the CIT(A):

2. The Hon'ble CIT(A) was right in considering the plea of the Respondent, that having fulfilled the condition laid down u/s 271AAB for levy of 10% penalty, by admitting the undisclosed income and also specifying the manner in which the same was derived in the Statement u/s 132(4), made during the course of the Search, substantiating the manner in which the same was derived and paying the tax together with interest and furnishes the return of income for the specified year declaring such income. 3. The Hon'ble CIT (A) having appreciated the fact that the Respondent fulfilled the condition laid down u/s 271B of the Income-tax Act 1961 and was therefore liable only for penalty of 10% of the undisclosed income.

4.1 We have heard the rival contentions and perused and carefully considered the material on record in respect of the imposition of penalty u/s 271AAB of the Act for Assessment Year 2013-14. The relevant facts of the matter, as emerge from a perusal of the record, are that there was a search action u/s 132 of the Act conducted at the assessee’s premises on 20.30.2014 and 08.04.2014; in the course of which the assessee admitted undisclosed income of Rs.1,31,50,000/- for Assessment Year 2013-14. Subsequently, the AO issued notice u/s 153A of the Act dated 07.10.2014 requiring the assessee to file the return of income for Assessment Year 2013-14 within 30 days from the receipt of the notice. As there was no response from the aforesaid notice u/s 153A of the Act, a reminder letter was issued to the assessee on 18.12.2014. The assessee filed its return of income for Assessment Year 2013-14 on C.O. No. 86/Bang/2018 Page 6 of 9 01.03.2016; almost 1 ½ years later; declaring income of Rs.1,81,47,740/-; which included the undisclosed income of Rs.1,31,50,000/- admitted in the course of search. The AO completed the assessment for Assessment Year 2013-14u/s 153A r.w.s. 143(3) of the Act vide order dated 29.03.2016 wherein the assessee’s income was determined at Rs.1,94,23,586/-. The AO, simultaneously initiated penalty proceedings u/s 271AAB of the Act by issue of notice in this regard in respect of the undisclosed income of Rs.1,31,50,000/- admitted by the assessee on the basis of incriminating documents found in the course of search u/s 132 of the Act on 20.03.2014 and 08.04.2014.

4.2 It is not disputed that the undisclosed income of Rs.1,31,500/- admitted by the assessee for Assessment Year 2013-14 has been on the basis of incriminating documents detected by Revenue in the course of search proceedings and therefore the imposition penalty u/s 271AAB of the Act is attracted.

4.3 Section 271AAB of the Act reads as under: “271AAB. Penalty where search has been initiated.—(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 July, 2012, the assessee shall pay by way of penalty, in addition to tax, if any, payable by him,— (a) a sum computed at the rate of ten per cent of the undisclosed income of the specified previous year, if such 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) on or before the specified date— (A) pays the tax, together with interest, if any, in respect of the undisclosed income; and (B) furnishes the return of income for the specified previous year declaring such undisclosed income therein; (b) a sum computed at the rate of twenty per cent of the undisclosed income of the specified previous year, if such assessee—

C.O. No. 86/Bang/2018 Page 7 of 9 (i) in the course of the search, in a statement under sub-section (4) of section 132, does not admit the undisclosed income; and (ii) on or before the specified date— (A) declares such income in the return of income furnished for the specified previous year; and (B) pays the tax, together with interest, if any, in respect of the undisclosed income; (c) a sum which shall not be less than thirty per cent but which shall not exceed ninety per cent of the undisclosed income of the specified previous year, if it is not covered by the provisions of clauses (a) and (b).”

4.4 In the case on hand, the AO, after considering the assessee’s submissions, levied penalty of Rs.39,45,000/- u/s 271AAB(1)(c) of the Act @ 30% of the undisclosed income of Rs.1,31,50,000/-. The AO was of the view that penalty u/s 271AAB(1)(c) of the Act was attracted, since the assessee had neither furnished the return of income for Assessment Year 2013-14 in response to notice u/s 153A of the Act nor paid the taxes in respect of the undisclosed income of Rs.1,31,50,000/- on or before the specified date and also as the statement of Shri. Kiran Kumar Mahasamudram admitting the aforesaid undisclosed income was not u/s 132(4) of the Act. On appeal, the CIT(A), in the impugned order, was of the view that the penalty for Assessment Year 2013-14 is leviable u/s 271AAB(1)(a) of the Act @ 10% of the undisclosed income as the assessee had satisfied/fulfilled the conditions laid down in section 271AAB(1)(a)(i) and 271AAB(1)(a)(ii) of the Act. The CIT(A) was also of the opinion that even though the assessee had admittedly failed to file the return of income and pay taxes on undisclosed income on or before the specified date, the assessee has complied with the condition laid down in section 271AAB(1)(a)(iii) of the Act, as the delay was due to circumstances beyond the assessee’s control.

4.5 The dispute before us is whether penalty u/s 271AAB of the Act in the case on hand is to be imposed u/s 271AAB(1)(c) of the Act @ 30% of undisclosed income or u/s 271AAB(1)(a) @ 10% of undisclosed income. In the case on hand for Assessment Year 2013-14, we find that the fact that AO issued notice u/s 153A of the Act on C.O. No. 86/Bang/2018 Page 8 of 9 07.10.2014 requiring the assessee to file the return of income within 30 days of receipt of notice (i.e., the specified date) and that the assessee had not complied with the same is not disputed. In fact, we find that the assessee filed the return in response to the notice u/s 153A of the Act dated 07.10.2014 only on 01.03.2016; i.e., more than a year after the specified date. We also further observe that the taxes in respect of the undisclosed income were also paid long after the specified date i.e., Rs.32,11,300/- on 30.10.2015; Rs.5,39,200/- on 17.12.2015 and Rs.10,00,000/- on 19.02.2016. It is also not disputed by the assessee that the statement wherein Shri. Kiran Kumar Mahasamudram admitted the undisclosed income was not u/s 132(4) of the Act.

4.6 In this factual matrix of the case on hand, as discussed above, we are of the considered view that the provisions of sections 271AAAB(1)(a) and 271AAB(1)(b) of the Act which provides for imposition of penalty @ 10% and 20% respectively are not applicable. The view of the CIT(A), that even though the assessee had not satisfied the conditions specified in 271AAB(1)(a)(iii) of the Act, the failure to do so constitutes reasonable cause as it was due to conditions beyond the assessee’s control and therefore penalty is to be levied only @ 10% and not 30% of the undisclosed income of Rs.1,31,50,000/- admitted in this Assessment Year, is, in our considered view, totally untenable. Section 271AAB of the Act commences with ‘non-obstante clause’ overriding all other provisions of the Act and therefore the CIT(A)’s attempt to read into this unambiguous Section, what is not there by importing discretion in order to reduce the penalty to be levied on the assessee is odious to say the least. In these circumstances, we are of the view that the impugned order of the CIT(A) is factually and legally unsustainable and therefore set aside the same. We consequently, restore the order of the AO dated 30.09.2016 levying penalty of Rs.39,45,000/- u/s 271AAB(1)(c) of the Act @ 30% of the undisclosed income of Rs.1,31,50,000/- admitted by the assessee for Assessment Year 2013-14.

C.O. No. 86/Bang/2018 Page 9 of 9 5. We have perused the cross objections filed by the assessee (supra) and find that they support the impugned order of the CIT(A) which we have reversed (supra). In this view of the matter, we find no merit in the cross objections raised by the assessee and consequently dismiss them.

Order pronounced in the open court on this 7th day of December, 2018.