DCIT-CC-III, LUDHIANA vs. M/S SEL TEXTILE LTD, LUDHIANA

आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण,च�डीगढ़ �यायपीठ आयकर अपीलीय अिधकरण च�डीगढ़ �यायपीठ च�डीगढ़ �यायपीठ ‘‘बी च�डीगढ़ �यायपीठ बी.”, च�डीगढ़ च�डीगढ़ च�डीगढ़ च�डीगढ़ बी बी IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH ‘B’ CHANDIGARH �ीमती �ीमती �दवा �ीमती �ीमती �दवा �दवा �सह �दवा �सह �सह, �याियक �सह �याियक �याियक सद�य �याियक सद�य सद�य एवं सद�य एवं एवं, एवं एवं एवं एवं �ीमती एवं �ीमती �ीमती अ�पूणा� �ीमती अ�पूणा� अ�पूणा� गु�ा अ�पूणा� गु�ा गु�ा, लेखा गु�ा लेखा लेखा सद�य लेखा सद�य सद�य सद�य BEFORE: SMT. DIVA SINGH, JM & SMT.ANNAPURNA GUPTA, AM आयकर अपील अपील संसंसंसं./ ITA No. 206/CHD/2021 आयकर आयकर आयकर अपील अपील िनधा�रण वष� िनधा�रण वष� / Assessment Year : 2013-14 िनधा�रण वष� िनधा�रण वष� The DCIT, M/s SEL Textiles Ltd., बनाम Central Circle-III, Plot No. 274, GT Road, VS Ludhiana. Dhandari Khurd, Ludhiana. �थायी लेखा सं./PAN /TAN No: AANCS0401M अपीलाथ�/Appellant ��यथ�/Respondent राज�व क� ओर से/ Revenue by : Shri Ashok Khanna, Addl. CIT िनधा�रती क� ओर से/Assessee by : Shri Ashwani Kumar, CA & Shri Bhavesh Jindal, CA तारीख/Date of Hearing : 16.11.2021 उदघोषणा क� तारीख/Date of Pronouncement : 04.01.2022 VIRTUAL HEARING आदेश आदेश/ORDER आदेश आदेश PER DIVA SINGH The present appeal has been filed by the Revenue wherein the correctness of the order dated 16.06.2021 of CIT(A)-I, Ludhiana pertaining to 2013-14 assessment year has been assailed on the following grounds : 1. Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) was justified in deleting the penalty of Rs.1,98,79,572/- imposed u/s 271AAB(l)(c) of the Income Tax Act, 1961 by holding that the amount of Rs.6,62,65,239/- would not fall in the definition of 'undisclosed income' by ignoring the fact that the assessee has itself disclosed additional income during the course of search.

ITA 206 /CHD/2021 A.Y. 2013-14 Page 2 of 8

issue is fully covered in his favour and the appeal of the

Revenue may be dismissed. Examining the submission he

was required to demonstrate the correctness of the

statement from the facts on record. In response thereto,

the ld. AR submitted that due to some confusion at his

office, the respective file has got mixed up with some other

files and he is not readily having the file, accordingly, a

short adjournment was sought. The appeal, accordingly, in

these circumstances was adjourne d to the next date.

ld. Sr.DR on the next date was heard first. Inviting

attention to the penalty orde r u/s 271AAB dated

31.03.2019, it was submitted on behalf of the Revenue that

the assessee in the course of the search conducted on

11.09.2013 u/s 132 at his office and residence premises

surrendered an amount of Rs. 80 Crores on account of

various documents, loose papers and assets etc. found and

seized at the business premises of the assessee and its

allied concerns. This finding of fact recorded at page 11 of

the assessment order has been extracted in the penalty

order itself and has been relied upon for the levy of

ITA 206 /CHD/2021 A.Y. 2013-14 Page 3 of 8

penalty. It is reproduced hereunder for the sake of

completeness :

Date: - 04-10-2013 To The Deputy Director of Income Tax (Investigation), Panchkula Subject: SEL Manufacturing Co. Ltd. group of cases, Search u/s 132 of the Income Tax Act, 1961 on 11/09/2013 ................. Statement u/s 132(4) of the income Tax Act, 1961. Sir,

Consequent upon search u/s 132 of the Income Tax Act, 1961 at the business premises of M/s SEL Manufacturing Co. Ltd. and its allied concerns and also at the residential premises of the Directors, various documents, loose papers & assets have been found & seized by the respective Authorized Officers & the department has pointed out certain discrepancies to us. The petitioners in a keen desire to purchase peace of mind and to avoid litigation & multiplicity of proceedings, hereby offer a sum of Rs, 80,00,00,000/- (Rupees Eighty Crores Only) as additional income over & above the books results, to cover various discrepancies such as cash, stock, assets deductions, disallowable expenses etc. Detailed bifurcation shall be submitted after looking into the entire seized documents in due course of time. The above declaration is made voluntarily without any pressure and has made in the presence of my counsel. It is also mentioned that the above declaration is for all the relevant years till the date of search and with the condition that no penalty or prosecution will be made against the Group Companies and persons. This disclosure is part of our statement u/s 132(4) of the Income Tax Act.

Thanking you, Yours faithfully,

Sd/-

(Neeraj Saluja )

3.1. Inviting attention to para 8 of the penalty order, it

was his submission that in the present case, the assessee

had offered an amount of Rs.6,62,65,239/- for

discrepancies in the regular books of account and taking

ITA 206 /CHD/2021 A.Y. 2013-14 Page 4 of 8

note of these facts, penalty under the said Section was

imposed. Specific finding arrived at from the penalty order

relied upon reads as under :

The assessee has itself admitted that "this amount of 8. Rs.6,62,65,239/- is being offered at Business income to cover any discrepancies found in the seized documents during the course of search and also to cover any kind of discrepancies in the regular books of account. Therefore, the concealment of Rs.6,62,65,239/-falls within the meaning of 'undisclosed income' as per the provisions of section 271AAB(3)(c)(ii) which explains 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. Also, the assessee had not specified in the surrender letter that the surrender was made u/s 14A for A.Y. 2013-14 and the head under which this amount was offered was disclosed later by the assessee. Even if the disclosure for the year under consideration relates to section 14A still it would fall under provisions of section 271AAB(3)(c)(ii)as it would be disclosure of the expenditure in relation to income not includible in the total income by the assessee and the assessee would not have surrendered the amount related to expenses under section 14A if the search would not have been conducted. 9. Thus, the replies of the assessee are not found acceptable. As brought out in the as assessment order, it is very clear that the assessee has made disclosure only after search proceedings were initiated and therefore, this is a fit case for levy of penalty u/s. 271AAB of the Act, 1961. 10. In this case, assessee admitted the undisclosed income in its statement recorded u/s 132(4) of I.T. Act and due to the heavy losses no tax was paid and furnished the return of the same but neither the assessee had specified the manner in which such income had been derived in the statement recorded u/s 132(4) of I.T. Act, 1961 nor the assessee had substantiated the manner in which the undisclosed income was derived, which are essential part of the penalty u/s 271AAB(l)(a). Therefore, assessee does not fall under the provisions of 271AAB(l)(a) and 271AAB(l)(b).

3.2 The ld. DR submitted that the penalty order was held

to be not sustainable on account of the fact that the

addition stood deleted ultimately by the ITA T in the

quantum proceedings. No change in facts or law was

brought to our notice. In these circumstances, he placed

reliance upon the penalty order.

ITA 206 /CHD/2021 A.Y. 2013-14 Page 5 of 8

impugned order. Attention was invited to the Paper Book

consisting of Copy of the order of the ITAT dated

12.12.2019 passed in the quantum proceedings wherein

the deletion of the addition in the quantum proceedings by

the CIT(A) stood affirme d by the ITAT. Inviting attention to

Paper Book page 30, it was his submission that the AO

vide his order dated 06.05.2020 has passed an order giving

appeal effect to the aforesaid order of the ITAT. In the

circumstances, it was his submission that the

departmental appeal may be dismissed.

record. For the sake of clarity and completeness, we deem

it necessary to extract the relevant finding which is under

challenge in the present proceedings:

4.1 Ground of Appeal No. 1 relates to imposition of penalty amounting to Rs.1,98,79,572/-. The appellant is aggrieved against the order of the AO imposing penalty u/s 271AAB. The AO has mentioned that a search u/s 132 was conducted in this case on 11.09.2013 and notice u/s 153A(1) was issued on 24.03.2014 but the assessee did not file return. Ultimately, the return was filed on 26.02.2015 declaring loss of Rs.37,73,25,403/- including Rs. 6,62,65,239/- as additional income declared u/s 132(4) of the Income Tax Act, 1961. The assessment was completed u/s 153A r.w.s. 143(3) vide order dated 30.03.2016 at total loss of Rs. 37,55,80,850/-. It is further mentioned by the AO that at the time of search, the assessee admitted undisclosed income amounting to Rs. 6,62,65,239/- u/s 132(4) and penalty proceedings u/s 271AAB were initiated on this undisclosed income. The reply of the assessee to the show-cause notice is reproduced in the penalty order which was considered but not found tenable. As per the AO, during the search,

ITA 206 /CHD/2021 A.Y. 2013-14 Page 6 of 8 the assessee has itself admitted and surrendered total Rs. 80 crore as additional income out of which Rs.6,62,65,239/- was surrendered for the assessment year 2013-14 and a copy of the surrender letter dated 04.10.2013 is reproduced in the order. The AO observed that this amount was being offered as business income to cover any discrepancy found in the seized document and also to cover any kind of discrepancy in regular books of accounts, therefore, the surrendered amount of Rs.6,62,65,239/- fall within the meaning of 'undisclosed income' as per provision of section 271AAB(3)(c)(ii) of the Income Tax Act, 1961. The AO further observed that the assessee admitted the undisclosed income u/s 132(4) but neither specified the manner in which such income was derived nor substantiated the manner in which the undisclosed income was derived. As per the AO, accordingly, the case falls within the provision of section 271AAB(l)(c), attracting penalty @30%. Thus, a penalty of Rs. 1,98,79,572/- was levied u/s 271AAB. The facts of the case, the basis of penalty imposed by the AO and the arguments of the AR during the course of appellate proceedings have been considered. The AR has submitted that the amount under consideration for levy of penalty is the disallowance u/s 14A offered after making statement u/s 132(4). As per the AR, the appellate made a disallowance of Rs.6,62,65,239/- while filing the return and during the assessment vide letter dated 23.03.2016, had information the AO that due to change in legal position with respect to disallowance u/s 14A, there was no amount which fall within the ambit of Section 14A and prayed that the return be deemed to have been revised to this extent. This request was denied by the AO and the claim of the assessee was also rejected by the CIT(A). The AR has submitted that on further appeal, the Hon'ble ITAT decided the issue in favor of the assessee by restricting the disallowance u/s 14A to the extent of exempt income which was nil in the instant case. It is also submitted that the AO gave effect to the said order of the Hon'ble ITAT and the AR enclosed the copy of working by the AO with regard to the tax determined after the appeal effect to Hon'ble ITAT order. The order giving effect to Hon'ble ITAT order dated 12.12.2019 in ITA No. 150 to 154/Chd/2018 relating to the quantum addition for the assessment year 2010-11 to 2014-15 passed by the AO, calculating the relief on account of self-disallowance u/s 14A at Rs.6,62,65,239/- for assessment year 2013-14 under consideration, is reproduced below:-

ITA 206 /CHD/2021 A.Y. 2013-14 Page 7 of 8

It is further submitted that the disallowance u/s 14A does not fall within 1 ambit of definition of 'undisclosed income' as per provision of section 271AAB a for this the AR relied upon the judgment of the Hon'ble ITAT Division Bench 1 Chandigarh in the case of M/s. SEL Textile Ltd. in ITA No. 695/Chd/2018 dated 18.04.2019 for the assessment year 2014-15. In view of the above facts including the judgment of the Hon'ble Jurisdictional ITAT in the case of M/s. SEL Textile Ltd. in ITA No. 695/Chd/201 dated 18.04.2019 relied upon by the AR and the appeal effect given by the AO in the present case relating to the quantum addition, the penalty of Rs. 1,98,79,572/ levied by the AO u/s 271AAB, in respect of disallowance u/s 14A, is not found sustainable and therefore deleted. Accordingly, this ground of appeal is allowed. 4.2 Grounds of Appeal Nos. 2 & 3 relate to issue of penalty notice and do not require separate comments in view of the adjudication of the preceding ground. 5. In the result, the appeal is allowed.

5.1 A perusal of the same would show that the CIT(A) has

quashed the penalty order on account of the fact that the

addition stood deleted by the ITA T and this very specific

appeal effect order passed by the AO which is appended at

page 30 of the Paper Book was taken cognizance of by him.

ITA 206 /CHD/2021 A.Y. 2013-14 Page 8 of 8

We have already e xtracted the re levant portion from the

penalty order and seen that the specific penalty was levied

on account of the alleged disclosure of Rs.6,62,65,239/-.

Accordingly, we are of the view that the prayer of the

assessee has to be allowed and ground raised by the

Revenue has no merit. The departmental grounds stand

dismissed.

Order pronounced on 04 January, 2022.

Sd/- Sd/- गु�ा ) अ�पूणा� गु�ा �दवा �सह ( अ�पूणा� ( �दवा �सह ) अ�पूणा� अ�पूणा� गु�ा गु�ा �दवा �दवा �सह �सह (ANNAPURNA GUPTA) (DIVA SINGH) लेखा सद�य सद�य/ Accountant Member �याियक �याियक सद�य सद�य/ Judicial Member लेखा लेखा लेखा सद�य सद�य �याियक �याियक सद�य सद�य “Poonam” आदेश क� �ितिलिप अ�ेिषत/ Copy of the order forwarded to : 1. अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent 3. आयकर आयु�/ CIT 4. आयकर आयु� (अपील)/ The CIT(A) 5. िवभागीय �ितिनिध, आयकर अपीलीय आिधकरण, च�डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड� फाईल/ Guard File आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar