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Income Tax Appellate Tribunal, KOLKATA BENCH “D”, KOLKATA
Before: SH. M.BALAGANESH & SH. S.S.VISWANETHRA RAVI
C.O.No.-106 & 107/Kol/2017 & & 1540 & 1536/KOL/2017 ITA No.1536/KOL/2017 (ASSESSMENT YEAR-2013-14) ACIT, M/s. Shailaja Park Pvt.Ltd., vs Central Circle-2(3), Room No.403, 10/4D, Elgin Road, 4thFloor, Aayakar Bhawan, Poorva, Kolkata-700020. 110, Shanti Pally, E.M.Bye Pass, PAN-ADCPA9882F Kolkata-700107. Appellant by Sh. G.Hangshing, CIT DR Respondent by Sh. A.K.Tibrewal, FCA &Amit Agarwal, Adv. Date of Hearing 20.08.2018 Date of Pronouncement 16.11.2018 ORDER PER S.S. VISWANETHRA RAVI, JUDICIAL MEMBER The above-mentioned three appeals and corresponding cross- objections filed by the Revenue and the assessee respectively against the separate order dated 11.04.2017 passed by CIT(A)-20, Kolkata for AY 2013-14 wherein he cancelled the penalty imposed by the AO u/s 271AAB (1)(c) of the Income Tax Act, 1961 (in short “Act”).
We find that Ground No.1 raised by the Revenue in both the appeals are similar and facts relating to said issue are identical in Revenue’s appeal as well as in Cross appeals, therefore, with the consent of both the parties, we proceed to hear the appeals and cross-objections together taking into consideration the facts and circumstances in as base and pass a common order for the sake of convenience.
Heard both and perused the material evidence available on record. Brief facts emanating from the record are that the assessee is an individual, derives income from salary and from other sources. The assessee conducts his business in the name and style of M/s. Vishal and it is his Proprietory concern. A search and seizure operation was conducted on Agarwal Group on 13.02.2013 and on subsequent days. In the course of search & seizure operation, cash, jewellery, books of C.O.No.-106 & 107/Kol/2017 & & 1540 & 1536/KOL/2017 accounts, documents & other assets were found and seized. The assessee filed return of income declaring a total income of Rs.1,00,98,240/- on 30- 09-2013.
During the course of scrutiny assessment proceedings, the assessee produced books of accounts alongwith documents, bank statements, evidences and filed written submission in support of its contentions and claims. Having examined the record, the AO asked the assessee to furnish the basis of calculation of undisclosed income alongwith year-wise bifurcation. The reply of the assessee discussed at para 4.1 of AO’s order which is reproduced hereunder for better understanding:-
4.1. “In reply, the A/ R of the assessee made a written submission stating that "we are offering an amount of Rs.1,23,00,000/- as an additional income in the hands of Shri Vishal Agarwal. The manner of earning of the same is out of business activities of trading in sarees, ghagra sets, suits, dress materials, furnishings and related activities which are part of the family business activities. This substantiates the manner as they are out of the same business activities which are part of the family business activities. The application of funds to the tune of Rs.98,00,000/-out of additional income offered to tax by Shri Vishal Agarwal in F. Y. 2012- 13 would have been deployed in receivables&capital circulating in the business in various forms. However, such amount has since been realized. The balance amount of Rs.25,00,000/- has been invested in Watches, Gold/Silver items/ Jewelleries & Ornaments etc.".
Considering the above submissions of assessee, the AO recorded satisfaction that it is a fit case to initiate penalty proceedings u/s 271AAB of the Act by holding that the assessee admitted undisclosed income of Rs.1,23,00,000/- which was recorded under statement u/s 132(4) of the Act.
In pursuance of the satisfaction recorded vide assessment order dated 29.02.2016, the AO initiated penalty proceedings by issuing a notice dated 29.02.2016 u/s 274 r.w.s 271 of the Act. In such proceedings, the assessee appeared and contested. The contention was, the manner of earning of such undisclosed income was explained as the same is out of family business activities of trading in sarees, ghagra sets,
C.O.No.-106 & 107/Kol/2017 & & 1540 & 1536/KOL/2017 suits, dress materials, furnishings and related activities. It was voluntarily offered in order to buy peace of mind to avoid unnecessary long drawn litigation and to demonstrate his utmost cooperation, attitude with the appellant Revenue. Further it was submitted that the said voluntary disclosure is not backed by any undisclosed income or any undisclosed assets/items that had been found inventorized by the appellant. At the outset, the assessee contended that suo motto offering of Rs.1,23,00,000/- does not come under the purview of undisclosed income as explained in Explanation (c) of section 271AAB of the Act and requested to drop the penalty. Further reliance was placed on the decision of Hon’ble Supreme Court in the case of Dilip N.Shroff vs Jt.CIT reproted in 291 ITR 519 (SC) for the proposition that the imposition of penalty is not automatic and levy of penalty is not only discretionary and to be exercised by the AO. The AO considering the submissions above held that the facts of the cited judgement of Hon’ble Supreme Court does not cover the facts of the case on hand and by applying the decision of Hon’ble Supreme Court in the case of M/s Mak Data Pvt. Ltd. Vs CIT imposed penalty of Rs.36,90,000/- @ 30% on disclosure u/s 271AAB (1) (c) of the Act.
We find that the assessee reiterated the same submissions before the CIT(A). Further placed reliance on the decision of Hon’ble High Court of Gujarat in the case of Girish Devchand Rajani [2013] 33 taxmann.com 174 (Gujarat) and in the case of Punjab Tyres [1986] 162 ITR 517 (Madhya Pradesh). The CIT(A) cancelled the penalty imposed by the AO u/s 271AAB(1)(c) of the Act by placing reliance in the case of Sudharsan Silk & Sarees 300 ITR 30 (SC) for the proposition that no penalty is leviable on the amount offered by the assessee suo motto to buy peace of mind.
The Ld.DR placed reliance on the decision of Hon’ble High Court of Allahabad in the case of Sandip Chandak. The Ld.DR argued the facts and circumstances of the said case are similar to the present case and the Hon’ble High Court held that the imposition of penalty u/s 271AAB is C.O.No.-106 & 107/Kol/2017 & & 1540 & 1536/KOL/2017 automatic. The Ld.DR supported the order of AO.
The Ld.AR made two sets of arguments. First is that no charge has been specified in the notice dated 29.02.2016 issued u/s 274 r.w.s. 271 of the Act and placed on record the same. The Ld.AR argued that the notice is defective for not specifying the charge of penalty and on such defective notice imposition of penalty is not maintainable.
Second is, regarding the decision of Hon’ble High Court of Allahabad in the case of Sandip Chandak (supra), it was argued that no substantive question of law was framed before the Hon’ble High Court of Allahabad in the case of Sandip Chandak (supra) and the observation made therein by the Hon’ble High Court in respect of imposition of penalty u/s 271AAB are obiter dicta and are not binding to place reliance. The Ld.AR supported the order of CIT-A
It is noted that the AO levied penalty @ 30% under sub-section (1)(c) of section 271AAB(1)(c) of the Act on undisclosed income offered by the assessee. The provision of section 271AAB is reproduced hereunder for ready-reference:-
Penalty where search has been initiated.
271AAB. “(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 1 st 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 -
C.O.No.-106 & 107/Kol/2017 & & 1540 & 1536/KOL/2017 (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 percent of the undisclosed income of the specified previous year, if such assessee -
(i) in the course of 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 percent 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).
(2) 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).
(3) The provisions of sections 274 and 275 shall, as far as may be, apply in relation to the penalty referred to in this section.”
On perusal of the provision u/s 271AAB explains that in a search case the AO may direct the assessee to pay penalty as computed at the rates specified in the clauses (a), (b) & (c) of sub section (1) of 271AAB of the Act and the assessee shall pay penalty in addition to the tax on undisclosed income disclosed by the assessee made at the stage of making statement u/s 132(4) of the Act or during the assessment proceedings. In the present case as discussed above that the assessee in his reply to the AO in assessment proceedings offered an additional income of Rs.1,23,00,000/- u/s 132(4) of the Act. It is also noted that the same has been computed as undisclosed income in the return of income.
C.O.No.-106 & 107/Kol/2017 & & 1540 & 1536/KOL/2017 There is no dispute regarding the payment of tax together with interest in respect of such undisclosed income and the specified date of filing return of income. So, therefore, it is clear from the record that the assessee admitted undisclosed income and the statement was recorded u/s 132(4) of the Act to that effect. The assessee also explained the manner of such earning is out of business activities of trading in sarees, ghagra sets, suits, dress materials, furnishings and related activities and paid taxes together with interest, but, however, according to AO the assessee failed to substantiate the manner in which the undisclosed income was derived by producing documentary evidence. The assessee explained the manner and substantiated it is through family business and related activities, therefore, we are of the view that the assessee is liable to pay penalty @ 10% in terms of clasue (a) of sub-section (1) of section 271AAB of the Act, but not under clause (c) at 30% of sub-section (1) of section 271AAB of the Act.
As placed reliance by the Ld.DR in the case of Sandip Chandak (supra) which held a procedure is provided u/s 271AAB of the Act where the assessee in the course of search in a statement (under sub-section 4 of Section 132) admits the undisclosed income and specified manner in which such income has been derived, than the provisions of Section 271AAB automatically attracts. The relevant portion is reproduced hereunder for ready-reference:- “In the present case, the regular assessment proceedings are being carried out under Section 143(3), which is a proceeding of assessment as so stipulated under Section 143 and sub section (3) of Section 143 provides the procedure to be adopted by the assessing authority during the course of the assessment proceedings. provides the procedure for penalty where the search has been initiate Section 271AABed. In the present case, admittedly a search and seizure operation is carried out in which the assessees have surrendered the amount of Rs.4 crores each (Rs.4 lakh each by all the three assessees) and therefore, in view of the provisions of Sec�on 271AAB the assessees are required to pay, by way of, penalty in addition to tax, if any, a sum computed @ 10% of undisclosed income of the specified period or previous years. In the case where the assessee in the course of search in a statement (under Section 4 of Section 132) admits the undisclosed income and specified manner in which such income has been derived, than the provisions of Sec�on 271AAB automatically attracts and the proceedings are to be carried out/completed.
C.O.No.-106 & 107/Kol/2017 & & 1540 & 1536/KOL/2017 We have noticed that the penalty notice has been issued under Section 274 read with section 271. Section 274 provides that no order imposing a penalty shall be made unless the assessee has been heard or has been given a reasonable opportunity of being heard. In the instant case the penalty notice issued clearly indicates that the opportunity of being heard is provided to the assessee and therefore, the penalty notices has been issued under Sec�on 274 read with section 271 calling upon the assessee to show cause in writing or in person which fulfill the requirement of Section 274 of the Act. In the present case, the provisions of Section 271AAB are fully applicable as of the conditions so stipulated or attracts as a search has been initiated under Section 132 and during the course of search the statement of the assessee has been recorded under sub section (4) of Section 132, in which the assessees admit undisclosed income and specifies the manner in which such income has been derived. We have gone through the contents of the penalty notice and we find that in the penalty notice, which has been issued under Section 274 read with Sec�on 271 , the assessing authority has clearly indicated that the proceedings under Section 271AAB being initiated and the reply to the show cause notice in writing on or before the date so as indicated will be considered before any such order is made under Section 271 AAB. We find the substance in the submission of the learned counsel for the department and we noticed that the orders passed by the CIT (Appeals), affirming the orders of the penalty, are fully justified where the CIT (Appeals) has recorded a categorical finding with regard to the statement of Sri Kamal Kishore Chandak during the search and the issuance of the penalty notices under Section 271AAB, which is relevant. We have noticed that this fact has not been considered by the Tribunal. In this regard, we may reproduce the relevant finding of CIT (Appeals) hereinbelow : "From the above provisions, it may be seen that the AO may impose the penalty under this section if following ingredients are fulfilled.
Search action u/s 132 of the Income Tax Act, 1961 should be initiated u/ s 132 on or after 01.06.2012.
2. The assessee has made disclosure of undisclosed income during the course of search action, has paid the tax together with interest and has filed return of income.
3. The assessee substantiates the manner in which he has earned the undisclosed income. From the analysis of the above Provisions of Act, it is clear that action of imposition of penalty u/s 271AAB(a) is independent of the enquiries made and subsequent additions made during course of assessment proceedings. In other words, this penalty is not based upon the facts gathered during course of assessment proceeding. It is dur to this reason, in my opinion, satisfaction of the AO is not required to be recorded by AO during assessment proceedings or at the time of completion of the proceedings. Thus, initiation of the penalty after the completion of assessment proceeding is not vitiated by law. The Ld. A.Rs have also challenged that the caption of the notice mentioned only Section 271 and not 271AAB. In this respect, the copy of notice has been produced by the Ld. A.R. before me. It is seen that the Ld. A.R. is correct in observing that the section of penalty has not been correctly mentioned by the AO in the caption. However, the AO will get the benefit of section 292BB of the Income Tax Act, 1961 because firstly, the assessee has raised no objection before the AO in this regard. Secondly, last line of the notice clearly mentions section 271AAB. Thirdly, the assessee has given reply to said notice which shows that the assessee fully
C.O.No.-106 & 107/Kol/2017 & & 1540 & 1536/KOL/2017 comprehended the implication of the notice that it is for section 271AAB. The assessee has also challenged that the principles of natural justice has not followed by the AO. The detailed submissions of A.R. in this regard has already been reproduced above. The A.R. did not produce any evidence to show that he was not given proper opportunity of hearing. It is clear from the penalty order that the AO has given penalty notice and which was also replied by the assessee. Therefore, in my opinion, principle of natural justice has not been violated. Thus in view of above discussion penalty imposed by AO u/s 271AAB of the Act is confirmed." Since admittedly, no proceeding under Section 271(1)(c) are initiated by the assessing authority during the course of the assessment proceeding under Section 143(3), the impugned penalty proceedings under Sec�on 271AAB are fully justified and are initiated in accordance with law. We find that the order of the ITAT cannot sustain, therefore, the same is set aside and the penalty orders under Section 271AAB passed by the assessing authority, confirmed by the CIT (Appeals), are affirmed and are restored.”
On perusal of the afore-mentioned decision of Hon’ble High Court of Allahabad that there was no substantial question of law was framed therein in respect of imposition of penalty u/sec 274AAB of the Act. A contention was raised by the assessee that unless satisfaction is recorded and since the same has not been recorded by the assessing authority and the notice has been issued under Section 274 read with Section 271, as such the impugned penalty proceedings under Section 271AAB are wholly illegal and unjustified. The Hon’ble High Court of Allahabad was pleased to observe that in the penalty notice, which has been issued under Section 274 read with Section 271, the assessing authority has clearly indicated that the proceedings under Section 271AAB being initiated and the reply to the show cause notice in writing on or before the date so as indicated will be considered before any such order is made under Section 271 AAB. Further, the it was held the that this fact has not been considered by the Tribunal.
In the present case as discussed above and on reading of provisions u/s 271AAB of the Act, it is justified to hold that the assessee shall pay penalty u/s 271AAB of the Act @ 10% under clause (a) of sub- section (1) of section 271AAB of the Act for the reasons set out hereunder under:-[1]. Search action u/s 132 of the Income Tax Act, 1961 should be initiated u/s 132 on or after 01.06.2012; [2]. The assessee has made disclosure of undisclosed income during the course of search action, has C.O.No.-106 & 107/Kol/2017 & & 1540 & 1536/KOL/2017 paid the tax together with interest and has filed return of income; and [3]. The assessee substantiates the manner in which he has earned the undisclosed income and in view of the above, the order of CIT(A) is set aside. Ground No-1 raised by the Revenue is partly allowed. Thus, the order of AO is restored to the extent s indicated above.
In the result, the appeal of the Revenue is partly allowed. (A.Y.2013-14 by the Revneue)
Ground No.1 raised by the Revenue in this appeal is similar to the Ground No.1 raised in Revenue, the same view is applicable to this ground also. Accordingly, Ground No.1 of the appeal raised by the Revenue in this appeal is partly allowed.
In the result, the appeal of the Revenue is partly allowed.
C.O.No.-106/Kol/2017 (A.Y.2013-14 by the assessee)
The assessee raised two effective grounds in his cross objection. Ground No.2 is relating to the show-cause notice issued u/s 274 r.w.s 271 is defective. In this regard as discussed in the aforementioned paragraphs that the assessee after receipt of the said notice contested by filing reply to the said show cause notice in the penalty proceedings. Further on perusal of the said notice, it is observed in the last paragraph that the AO directed the assessee to appear before him on specific date seeking explanation why an order u/s 271AAB of the Act be made? Therefore, in our opinion, the said notice does not appear to be defective and ambiguous as contended by Ld.AR. In the last paragraph of the said notice, the AO clearly mentioned the provision u/s 271AAB of the Act so therefore, it is clear that the AO conveyed on which provision the proceedings are being initiated and the assessee filed reply to the said notice. Therefore, Ground No.2 raised in C.O filed by the assessee fails
C.O.No.-106 & 107/Kol/2017 & & 1540 & 1536/KOL/2017 and it is dismissed.
Ground No.3 is relating to challenging the imposition of penalty @ 30% instead of 10% or 20% in the facts and circumstances of the case. In order to fall under clause (a) of sub-section (1) of section 271AAB of the Act to compute the penalty @ 10%, the assessee has to fulfill the conditions therein. On perusal of the clause (a), the assessee fulfilled all the conditions therein and therefore, penalty shall be @ 10% in terms of clause (a) of sub-section (1) of section 271AAB of the Act. Therefore, the AO is not justified in impose penalty @ 30% vide clause (c). Therefore, the AO is directed in imposing penalty @ 10% under clause (a) of sub- section (1) of section 271AAB of the Act. Thus, Ground No.3 raised by the assessee is allowed.
In the result, the cross-objection filed by the assessee is partly allowed.
C.O.No.107/Kol/2017 (AY 2013-14 by the assessee)
Ground No.2 raised by the assessee in this cross-objection is similar to the ground No.2 raised in C.O.No.106/Kol/2017 which was discussed and a view has been taken against the assessee. Accordingly, Ground No.2 is dismissed.
Ground No.3 raised by the assessee is similar to the Ground No.3 in C.O. No.106/Kol/2017 which was discussed in the adore- mentioned paragraphs and a view has been taken in favour of the assessee. Accordingly, Ground No.3 is allowed.
In the result, the cross-objection filed by the assessee is partly allowed.
C.O.No.-106 & 107/Kol/2017 & & 1540 & 1536/KOL/2017 ITA No.1536/KOL/2017 (AY-2013-14 by the assessee) 25. Ground No.1 raised by the Revenue in this appeal is similar to the Ground No.1 raised in Revenue, the same view is applicable to this ground also. Accordingly Ground No.1 of the appeal raised by the Revenue in this appeal is partly allowed.
In the result, the appeal fo the Revenue is partly allowed.
In the final result, all three Revenue’s appeals in 1540 & 1536/Kol/2017 are partly allowed and both C.Os.106 & 107/Kol/ 2017 filed by the assessee are partly allowed. Order pronounced in the open court on 16.11.2018.