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Income Tax Appellate Tribunal, “A” BENCH: KOLKATA
Before: Shri A. T. Varkey, JM & Dr. (Shri) Arjun Lal Saini, AM ]
PER SHRI A.T. VARKEY, JM
This is a Revenue’s appeal against the action of the ld. CIT(A) restricting the penalty u/s. 271AAB at 10% as opposed to AO’s action of levying penalty at 30% of undisclosed income.
Ground no. 1& 2 of the Revenue’s appeal are as under:
“1. That, on the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in allowing the appeal of the assessee and restricting the penalty u/s 271AAB @10% of undisclosed income when the assessee has failed to deposit the tax and interest payable on the undisclosed income before the filing of return.
That, on the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in holding that the assessee was entitled to the benefit of Section 271AAB(1)(a) of the Act giving his wrong finding that all the conditions prescribed therein were satisfied by the assessee and directed to wrongly restrict the penalty at 10% of undisclosed income of the assessee.”
The AO levied the penalty at 30% of the undisclosed income u/s. 271 AAB(1) (c) of the Income-tax Act, 1961, [hereinafter, the ‘Act’ in short] by observing as under:-
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“5. In this case, the assessee has made disclosure during the statement recorded under Oath u/s 132(4) of the Income Tax Act 1961. The assessee has included the above income of Rs. 3.64 crores in his return of income but did not make the full payment of tax and interest before the due date of filing return. In his submission the assessee has also categorically stated that the tax on disclosed income has been paid before filing of the return. But in the Act in Section 271AAB it is clearly written that TAX AND INTEREST has to be deposited before the filing of return. As per the computation filed by the assessee, it is seen that after allowing credit of TDS, the assess vas required to deposit Rs. 1,24,35,550/- and statutory interest on such taxes but before filing return the assessee could only deposit Rs. 50 lakhs on 26.06.2015 and Rs 15,76,890/- on 24/09/2015. It is seen that the assessee has disclosed an income of Rs. 3.64 crores. The tax on such 3.64 crores comes to Rs 1,09,20,000/- considering that the other income of the assessee is more than Rs. 10 lakhs (This is to mention that-the, assessee has huge income from Salary in Crores and Bank Interest from HDFC Bank on which TDS Was made) and as such the tax rate. comes to 30%. Surcharge of above is Rs 10,92,000/- and education cess comes to Rs. 3,60,360/-. The total tax comes to Rs. 1,23,72,360/-. It is seen that the assessee has made payments of self-assessment tax of Rs. 50 lakhs on 26.06.2015 and Rs. 15,67,890/- on 24.09.2015. So, the assessee has not deposited the tax on such undisclosed income before the due date of filing the return. It is seen that the assessee has submitted a letter on 12.04.2016 after the assessment is over requesting that the demand raised u/s 143(3) dated 31.03.2016, can be adjusted with the seized amounting of Rs. 65.50 lacs. But the seized money cannot be treated as tax paid before that specified date on undisclosed income. Moreover, u/s 271AAB, it is clearly written that tax has to be paid along with interest. Even without admitting if it is presumed that the seized amount of Rs. 65.50 lacs has been paid on 06.05.2015 as disclosed u/s 132(4) on that day then also it is self-assessment tax and also the interest u/s 234B and 234C will be applicable. The interest u/s 234B comes to Rs. 3,60,509/- and 234C comes to Rs. 4,57,777/-. Total Rs. 8,18,286/-. Considering the interest as above, the tax and interest on undisclosed income comes to Rs. 1,31,90,646/-. 6. Even if considering all the payment as discussed above the assessee has failed to deposit the tax and statutory interest on the undisclosed income as on the due date of filing return of the specified year, which is A.Y. 2015-16 in this case. So, considering all above, it is clear that the case of the assessee falls within Section 271AAB(1)(c) as the tax and Interest is not paid before the filing of Return and I consider it to be a fit case for imposition of penalty u/s 271AAB(1)(c) @ 30% of the undisclosed income of the assessee as it could only be unearthed by virtue of the Search and Seizure operation and on seizure of the of tax sought to be evaded is calculated as under u/s. 271AAB(1) ( c): Amount of undisclosed income 3,64,00,000/- Tax @ 30% 1,09,20,000/- Surcharge @ 10% 10,92,000/- Education Cess @ 3% 3,60,360/- Total 1,23,72,360/- Hence, an amount of Rs. 1,23,72,360/- is imposed u/s. 271AAB(1)( c ) of the Income Tax Act, 1961.”
Aggrieved, the assessee preferred an appeal before the ld. CIT(A), who was pleased to restrict the penalty @ 10% of the undisclosed income by observing as under:-
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“I have considered the findings of the AO in the penalty order and perused the facts as narrated in the A/R ‘s written submissions. From the assessment order u/s. 143(3), I find that for the assessment year 2015-16, the return of income was filed by the assessee declaring total income Rs. 6,82, 91,580/- on which the tax payable was Rs. 2,30,14,032/-. In addition the assessee was also liable to pay interest u/s. 234B & 234C aggregating to Rs. 6,82,343/-. At the time of filing of return, the assessee had claimed credit for following payments; i) Tax Deducted at Source Rs. 1,05,78,485 ii) Credit for Cash Seized on 20.03.2015 Rs. 65,50,000 iii) Self Assessment Tax Rs. 65,67,890/- TOTAL Rs.2,36,96,375/-
In view of the credit claimed for the aforesaid sums, the assessee had claimed that entire tax payable on the returned income was fully discharged. The A/R further submitted that on the date of search, cash of Rs. 65,50,000/- was found & seized from the residence of the assessee. In his statements recorded u/s. 132(4) on 05.05.2015, the assessee had made declaration of undisclosed income with reference to documents, valuables & cash found & seized at the time of search and had offered to pay tax on the undisclosed income of Rs. 3,64,00,000/-. In the said statement u/s. 132(4) dated 05.05.2015, the appellant had also made a request for adjusting seized cash of Rs. 65,50,000/- against his liability to pay tax on the undisclosed income of Rs. 3,64,00,000/-. The request for adjustment of seized cash was reiterated by the assessee while filing the return of income for assessment year 2015-16. In the impugned order the AO however rejected the assessee's plea for not granting benefit of clause (a) of Section 271AAB solely on the ground that the assessee had not paid the entire tax& interest due on the undisclosed income of Rs.3,64,00,000/-. According to AO the tax payable on such sum amounted to Rs.1,23,72,5601-; there against, the AO gave credit only in respect of self-assessment tax of Rs.65,67,890/-. In AO's opinion to avail the benefit of clause (a) it was necessary for the assessee to discharge the entire tax liability of Rs.1,23,72,560/- on or before completion of assessment under Section 143(3) and since the assessee had failed to discharge such tax liability and there was a shortfall of Rs. 58,04,670 1-, he held that the assessee was not entitled to avail the benefit of clause (a) of Section 271AAB. The AO particularly noted that the request for adjustment of seized cash was made by the assessee subsequent to passing of the order u/s 143(3) and therefore even though the AO ultimately accepted the assessee's plea for adjustment of seized cash against the tax liability for assessment year 2015-16, he declined to give benefit of such set off for the purpose of applying clause (a) of Section 271AAB. therefore find that the AO levied the penalty and therefore even though the AO ultimately accepted the assessee's plea for adjustment of seized cash against the tax liability for assessment year 2015- 16, he declined to give benefit of such set off for the purpose of applying 'clause (a) of Section 271AAB. I then force find that the AO levied the penalty at the highest rate prescribed in clause (c) only because he found that the assessee had not paid entire ta liability due on undisclosed income of Rs.3,64,00,000 / - prior to completion of assessment. Moreover the alleged shortfall of Rs.58,04 ,670/- occurred solely because the credit for seized cash of Rs.65,50,000'- was not allowed. In AO's opinion even the request for adjustment of seized cash against the tax liability for assessment year 2015-16 was made by the assessee much after the completion of the assessment and therefore the benefit of such set-off could not be allowed earlier and in that view of the matter he justified levy of penalty lunder clause (c) of Section 271AAB of the Act.
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From the material p before me, I however find that the credit for seized cash against the assessee's liability for assessment year 2015-16 was ultimately allowed by the AO himself on 11.01.2017 when an order u/s 154 was passed. From the documents available in the records, I find that the request for adjustment of seized cash against the tax payable on the 'undisclosed income' was made by the assessee in his statement u/ s 132(4) given "on 05/05/2015I!Even ill the return furnished, the assessee had put forth claim for adJ0stment of seized cash against tax payable on the 'undisclosed income' of Rs,3,64,00 ,000 / -, I therefore find that the AO's allegation that the assessee made request for adjustment only after completion of assessment is factually incorrect rind is not supported by the documents on record. If the AO could rectify this error and grant r he credit for seized cash against the tax liability for assessment year 2015-16 in January 2017, then nothing had prevented the AO to allow such set off at the time of completion of assessment because the request for such set off was made by the assessee even prior to filing of the return as also in the return of income. Had the AO acted upon the assessee's request for giving such credit promptly, then there would have been no shortfall in payment of tax on 'undisclosed income' of Rs.3,64,00,000/- at the time of completion of assessment. In such an event admittedly, the assessee could have been entitled to benefit of clause (a) of Section 271AAB of the Act In view of the foregoing facts therefore, I have no hesitation in holding that the assessee was entitled to the benefit of Section 271AAB(a) A .l« Act since all the conditions prescribed therein were satisfied b) the assessee. Accordingly the AO is directed to restrict the penalty ii. respect of undisclosed income of Rs.3,64,00,000/- to Rs,36,40,000/- [ 3,64,00,000 x 10%]. Ground Nos. 4 to 6 are therefore part1y allowed. "
Aggrieved, the Revenue is before us. At the time of hearing, the ld. DR relying on the CBDT Circular No. 20/2017 contented that the ld. CIT(A) erroneously directed the AO to treat the seized cash during search as ‘advance tax’ and thereby concluding that the tax and interest payable on the undisclosed income was fully discharged by the assessee prior to filing of the return. He submitted that as per Explanation (2) to Section 132B, the ld. CIT(A) could not have held the seized cash to be in the nature of advance tax and in that view of the matter the interest u/s 234B was rightly levied by the AO which was not paid by the assessee prior to filing his return. Consequently therefore the assessee was not entitled to claim the benefit of Section 271AAB(1)(a) in terms of which penalty leviable was only at 10% of the undisclosed income. On the other hand, the ld. AR fully supported the order of the ld. CIT(A).
We have heard both the parties and perused the records. We note that the assessee, the managing director of M/s Industrial Safety Products Ltd, had disclosed a sum of Rs. 15 crores on 20-03-2015 during search u/s. 132(4) of the Act (initial deposition), which inter-alia included Rs. 3.64 Cr. offered to tax in the name of the assessee. Detailed break-up of Rs.3.64 crores was provided by the assessee in his
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statement u/s 132(4) dated 05-05-2015 (second deposition). In the same statement, the assessee also requested the authorized officer to allow credit of cash of Rs.65,50,000/- seized on 20-03-2015 against the tax payable on the income of Rs.3.64 crs. At the time of filing of return u/s 139 on 24.09.2015, the assessee reiterated his request for adjustment of seized cash against his tax liability for the relevant AY 2015-16. It was therefore assessee’s case that he had discharged his liability to pay tax and interest on returned income taking into account the payment by way of cash adjustment of Rs.65,50,000/- and self-assessment tax of Rs.65,67,890/-. The assessee therefore claimed that there was no default on the assessee’s part to pay tax and interest due on returned income inter alia including the income admitted in his statement u/s 132(4) of the Act. He therefore claimed that even if penalty was leviable, at best, it can be imposed only at 10% of the undisclosed income as per sub clause (i) of clause (a) of Sec. 271AAB of the Act and not under clause (c) of Sec. 271AAB of the Act as done by the AO.
From the facts on record, we note that the return of income for the AY 2015-16 was filed by assessee on 24.09.2015 declaring total income of Rs.6,82,91,580/- on which the tax payable was Rs. 2,30,14,032/-. In addition, the assessee was also liable to pay interest u/s. 234B & 234C aggregating to Rs.6,82,343/-. At the time of filing of return, the assessee claimed credit for the following payments:-
i) Tax Deducted at Source Rs. 1,05,78,485/- ii) Credit for cash seized on 20.3.2015Rs. 65,50,000/- iii) Self Assessment Tax Rs. 65,67,890/- TOTAL Rs. 2,36,96,375/-
The AO while passing the order u/s 143(3) of the Act did not give credit for cash of Rs.65,50,000/- seized on 20-03-2015 thereby raised demand of Rs.75,00,362/- which included interest u/s 234B and 234C of the Act. Subsequent to passing of the order u/s 143(3) of the Act on 31-03-2016, the AO passed an order u/s 154 of the Act dated 11-01-2017, wherein he accepted the assessee’s plea for adjustment of seized cash against the tax liability for A.Y 2015-16. In this order however, the AO retained 5 I.T.A No. 2062/Kol/2017 A.Y 2015-16 Shri Gopal Kumar Naredi.
the interest levied u/s 234C and 234B treating the payment of Rs.65,50,000/- as if being made on 11.01.2017. Being aggrieved by AO’s order u/s 154 of the Act retaining interest charged up to the date of order u/s 154 of the Act, an appeal was filed before the ld. CIT(A). The ld. CIT(A) in his order dated 20-07-2018 confirmed the charging of interest u/s. 234C but deleted the interest levied u/s 234B taking note of the fact that the sum of Rs.65,50,000/- for which the credit was given, was in the custody of Income-tax Department since 20-03-2015. We note that order of the ld. CIT(A) dated 20-07-2018 has become final. The ld. AR pointed out that after giving effect to the ld. CIT(A)’s order dated 20-07-2018, the total sum payable inter alia including tax, surcharge, education cess and interest u/s 234C works out to Rs.2,36,42,026/-; whereas the assessee had paid taxes aggregating to Rs.2,36,96,375/- by way of TDS, seized cash and self -assessment tax. We therefore find merit in the ld. AR’s submission that there was no default of non-payment of tax and interest, as alleged on the assessed income, and therefore the ld. CIT(A) was right allowing the benefit of Section 271AAB(1)(a) of the Act.
We also observe that the alleged shortfall of tax prior to completion of assessment was only to the tune of Rs.58,04,670/- because credit for seized cash of Rs.65,50,000/- was not allowed by the AO. We find that the said cash was in possession of the Income-tax Department since 20-03-2015. It is not in dispute that after 20-03-2015, the assessee never had access to the said cash which was admittedly with the department till 11.01.2017 and remained in their custody. It is also undisputed that ultimately the said seized cash was appropriated by the AO against the assessee’s tax liability for the AY 2015-16 in relation to income disclosed in the statement u/s 132(4) of the Act. We therefore find that the seized cash was appropriated by the Income-tax Department only towards satisfying the assessee’s tax liability for AY 2015-16 and for no other purpose. Once the seized cash gets adjusted against the assessee’s liability for AY 2015-16, then the question which remains is what date should be regarded as the date of payment. Can it be said that the date of payment was 11-01-2017 only because on that date the AO passed an order u/s 154 allowing the assessee’s plea for adjusting the seized cash against his tax liability. In our considered view, the answer is in the negative. The fact remains that the seized cash of Rs.65.50 lacs was in the 6 I.T.A No. 2062/Kol/2017 A.Y 2015-16 Shri Gopal Kumar Naredi.
Department’s custody since 20-03-2015 and the assessee in his statement dated 05-05- 2015 as also at the time of filing of the return had made requests in writing for adjustment of seized cash. For deciding the ‘date of payment’, it is wholly immaterial whether or not such payment is regarded as ‘advance tax’. However, the material fact is that the Department itself treated the seized cash to be the payment made towards discharge of assessee’s tax liability. In the foregoing circumstances the only conclusion which one may draw is that the date of cash seizure was the date of tax payment and therefore no interest u/s 234B could be levied once the date of payment is held to be 20.03.2015. We also note from the Grounds raised before us by the Revenue’s appeal that the Revenue per se has not objected to the ld. CIT(A) specific finding of fact that the assessee in his statement u/s. 132(4) dt. 05-05-2015 had requested the AO to adjust the seized amount of Rs. 65.50 lakhs against the tax payable on the undisclosed income. This finding of fact by the ld. CIT(A) has been not challenged before us, which finding thus crystallizes and becomes final. We therefore hold that the ld. DR’s contention that assessee made the plea of adjustment of seized cash against tax on undisclosed income much after the completion of assessment is per-se wrong. We therefore find that the ld. CIT(A) has rightly held that the assessee did not commit the default of non-payment of tax before filing of return and therefore penalty could not be levied at 30% of the undisclosed income. And moreover, the department having taken the amount of Rs 65.50 lakhs in their custody, cannot take unjust enrichment of it, when on one hand the department says it is assessees un- disclosed income and then, not doing what he [assessee] directs to do with his money and thereafter finding fault with him and penalizing him for their [revenue] own omission cannot be accepted. We accordingly uphold the ld. CIT(A)’s order restricting the penalty levied at 10% of the undisclosed income in the facts & circumstances of the case. So, we confirm the action of Ld CIT(A) and dismiss the Ground Nos. 1and 2 of the Revenue.
Ground No.3 raised by the Department is as under:
“That, on the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in giving the benefit of Section 271AAB(1)(a) to the assessee just on the basis of payment of his tax liability on undisclosed income by way of adjustment of seized cash against the 7 I.T.A No. 2062/Kol/2017 A.Y 2015-16 Shri Gopal Kumar Naredi.
advance tax as held by him, ignoring the default of the assessee of not specifying the manner in which such income was derived and thus, not fulfilling other two conditions by the assessee and hence, no being eligible for the benefit of Section 271AA(1)(a).”
The ld. DR submitted that in order to claim benefit of Section 271AAB(1)(a), the assessee should have not only paid the tax & interest on undisclosed income prior to filing of the return, but the assessee should have also disclosed in his statement u/s 132(4) the manner in which such undisclosed income was earned and further should have substantiated the same with cogent evidence. In the present case, the assessee did not fulfil these conditions prescribed in Section 271AAB(1)(a) and therefore the ld. CIT(A) was not justified in allowing the benefit of concessional rate of penalty at 10% only on the ground that the assessee had paid tax & interest on admitted income. Per contra, the ld. AR submitted that at the appellate stage before the Tribunal, the Revenue has made out an entirely new case justifying the penalty. The ld. AR argued that in the adversarial appellate proceedings which are prevalent in India, the appeal before the Tribunal arises from the order of the ld. CIT(A). The Revenue therefore can raise only such grounds of appeal which arise or emanate from the orders of the authorities below. The Revenue is not permitted to justify its action with reference to entirely new grounds which were never made out by the AO at the stage of passing of the order of assessment or penalty. He further submitted that the penalty proceedings being quasi criminal in nature, it is necessary to restrict the scope of penalty to the reasons for which the penalty was levied and the Tribunal cannot expand the scope of appeal and permit the Revenue to justify the penalty on the grounds for which penalty was never levied by the AO in the first instance.
Having considered the rival submissions, we find merit in the Ld. AR’s submissions. We have already extracted the AO’s order levying penalty at Para 3- above, from which it is apparent that nowhere the AO justified levy of penalty on the ground that the assessee had not substantiated the manner of earning of undisclosed income and thereby condition of Section 271AAB(1)(a) was not fulfilled. The only ground for which the penalty was levied under Section 271AAB(1)(c) was that the assessee had failed to pay tax along with interest before filing of the return for the specified year. Except this lone reason, the AO did not cite any other reason or ground 8 I.T.A No. 2062/Kol/2017 A.Y 2015-16 Shri Gopal Kumar Naredi.
justifying the levy of penalty. We also note that the ld. CIT(A) adjudicated the assessee’s appeal with reference to correctness of such sole ground on which the AO had levied the penalty. We therefore find that Ground No. 3 taken by the Revenue does not emanate from the orders of the lower authorities. We also find merit in the ld. AR’s submission that the penalty proceedings being quasi criminal in nature, the AO was bound to spell out the precise reasons at the time of passing of the penalty order and he cannot be permitted to make out new grounds before the Tribunal justifying his action of levying penalty and thus enlarge the scope of the appeal, which is not permissible. We therefore hold that since Ground No. 3 raised by the Revenue does not arise from the orders of lower authorities, this ground is dismissed in limine.
In the result, the appeal of the Revenue is dismissed.
Order Pronounced in the Open Court on 8th November, 2019 Sd/- Sd/- Arjun Lal Saini A.T. Varkey Accountant Member Judicial Member Dated 08-11-2019
PP(Sr.P.S.) Copy of the order forwarded to: 1. Appellant/Revenue: The ACIT, CC 3(3) Kolkata Aaykar Bhawan Poorva, E M Bye Pass 110 Shanti Pally, 4th Fl., Kolkata-107. Respondent/Assessee: Shri Gopal Kumar Nared P-33, CIT Road, Scheme 2 VIM, Kolkata-700 054. CIT, 3. 4. CIT(A), Kolkata. (sent through e-mail) DR, Kolkata Benches, Kolkata. (sent through e-mail) 5. **PP/SPS True Copy By By Order Assistant Registrar
ITAT Kolkata
9 I.T.A No. 2062/Kol/2017 A.Y 2015-16 Shri Gopal Kumar Naredi.