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Facts
A search and seizure action under section 132 of the Income Tax Act was conducted at the office premises of Unity Infraprojects Ltd. and the residence of the assessee, a director. During the search, it was revealed that the assessee received cash over and above the sale consideration for a plot of land. The assessee's share of this unaccounted cash receipt was Rs. 1,42,06,679/-.
Held
The Tribunal held that the penalty levied under section 271(1)(c) of the Act was justified. The assessee's claim that the cash receipts were voluntarily offered for taxation was rejected, as the disclosure was made only after the detection of concealment during the search. The claims for cost of improvement and BMC fees were also found to be unsubstantiated and disallowed, justifying the penalty on these amounts as well.
Key Issues
Whether penalty under section 271(1)(c) is leviable when income is disclosed post search, and whether penalty is justified on disallowed cost of improvement and BMC fees.
Sections Cited
271(1)(c), 153A, 143(3), 132, 132(4), 139(1)
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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: ANIKESH BANERJEE, HON’BLE
O R D E R
PER NARENDRA KUMAR BILLAIYA, AM:
This appeal by the assessee is preferred against the order of the ld. CIT(A) - 50, Mumbai, dated 28/06/2024, pertaining to AY 2009-10.
The solitary grievance of the assessee is that the ld. CIT(A) erred in confirming the penalty levied by the AO u/s 271(1)(c) of the Act. 3. Representatives were heard at length. Case records carefully perused and the relevant judicial decision brought to our notice duly considered. 4. The roots for the levy of penalty lie in the assessment order dated 31/03/2014 framed u/s 153A r.w.s. 143(3) of the Act. 5. Briefly stated, the facts of the case are that a search and seizure action u/s 132 of the Act was carried out on 10/02/2012 at the office premises of Unity Infraprojects Ltd. The assessee being one of the director of the company was also searched at his residence. Statutory notices were accordingly issued and served upon the assessee. Pursuant 2 to the notice, the assessee filed return of income u/s 153A of the Act in which the assessee included the cash receipts on sale of flats while computing the capital gain on sale of property along with his spouse. The cause for this action was triggered from the search assessment proceedings u/s 132 of the Act carried out at the residential premises of Shri Madhav Nadkarni, CFO of M/s. Unity Infraprojects, at Flat No. 102, Plot No. 125, Kalpatru CHS, Seth Motisha Cross Lane, Byculla, Mumbai on 10/02/2012, wherein as per the seized loose paper no. 213 of Annexure-A1, it was revealed that on sale of plot at Matunga, which was jointly owned by the assessee along with his spouse, they are in receipt of cash of Rs.2,65,00,000/- in addition to the agreed sale consideration of the plot of Rs.2,77,00,000/-. 5.1. In respect of the assessee’s share of Rs.1,42,06,679/-, penalty proceedings were initiated u/s 271(1)(c) of the Act. 6. Thereafter, the assessee furnished another return u/s 153A of the Act on 06/01/2014, wherein the assessee had shown long term capital gain on the sale of property at Matunga of Rs.1,13,39,956/- as against short term capital gains of Rs.1,35,66,593/-, offered in the original return filed u/s 153A of the Act. The reduction in the short term capital gains was explained as under:-
6.1. It can be seen from the above that the assessee had claimed interest cost of Rs. 5,93,103/- and BMC fees of Rs.24,73,045/- which was indexed for the recomputation of capital gains. These expenses claimed by the assessee were disallowed and since no appeal has been filed by the assessee, the disallowance became final. Penalty proceedings initiated for furnishing inaccurate particulars/concealment of income.
The penalty proceedings were separately initiated and vide order dated 31/03/2017, the AO levied penalty of Rs.1,17,60,708/- on the amount offered as cash receipts of Rs.1,42,06,679/- and cost of improvement of Rs.53,94,499/-.
The assessee carried the matter before the ld. CIT(A) without any success.
Before us, the ld. Counsel for the assessee vehemently stated that, insofar as the sale receipts in cash is concerned, the assessee has himself offered it for taxation in the return filed u/s 153A of the Act, therefore, no penalty is leviable on this amount. Strong reliance was placed on the decision of the Hon’ble Delhi High Court in the case of PCIT vs. Neeraj Jindal reported in [2017] 393 ITR 1 (Delhi).
4 9.1. Insofar as the addition on account of disallowance of cost of improvement is concerned, the ld. Counsel for the assessee stated that the assessee did not furnish any inaccurate particular of income nor concealed any income. Inadvertently, the interest cost and the BMC fees could not be claimed as cost of improvement in the return filed pursuant to the notice u/s 153A of the Act. Therefore, no penalty should be levied on the amount also. 9.2. Per contra, the ld. D/R strongly supported the findings of the AO. It is the say of the ld. D/R that the income returned and thereafter revised was pursuant to the search action and had there been no search action, the assessee would not have offered the additional income.
We have given a thoughtful consideration to the order of the authorities below and have carefully perused the decisions of the Hon’ble Delhi High Court (supra).
The undisputed fact is that during the course of search assessment proceedings at the residential premises of Shri Madhav Nadkarni, CFO of M/s. Unity Infraprojects, some loose sheets were found and seized which revealed that the assessee had received cash of Rs.2,65,00,000/-, over and above the sale consideration of Rs. 2,77,00,000/- on sale of flat at Matunga. The assessee’s share was Rs. 1,42,06,679/-. It is only because of this search that the assessee included the cash receipts in his return of income filed u/s 153A of the Act which means that the offer was only after the detection of concealment by the revenue and there was live link between the notings in the pieces of paper and the offer made by the assessee. The decision relied upon by the assessee (supra), is totally on different set of facts and incidentally the decision supports the levy of penalty rather than deletion of penalty inasmuch as in that 5 case, no material was recovered during the course of search and the assessee added Rs.21.65 Lakhs in the return filed pursuant to notice u/s 153A of the Act, suo moto and this amount was not relatable to any sum recovered or article seized. Therefore, the question of adding or not adding amounts after the search and falling within the mischief of Explanation (5) to Section 271(1)(c) of the Act, could not arise in the facts and circumstances of the case. Therefore, deletion of penalty was justified. Facts are clearly distinguishable and the decision of the Hon’ble Delhi High Court supports the action of the revenue authorities.
The levy of penalty cannot be denied for the reasons that the assessee cannot be given benefit of Explanation (5) to Section 271(1)(c) of the Act as Clause (ii) of Explanation (5) to Section 271(1)(c) of the Act, exempts only that part of the income from the penal provisions which is covered by statement u/s 132(4) of the Act where the assets have been acquired by the assessee out of his income which is not disclosed in the return of income to be furnished before the expiry of the time prescribed u/s 139(1) of the Act and the assessee specifies in the statement, the manner in which such income has been derived. The penalty was levied because the assessee had not communicated in the return, the income which was sought to be brought to taxation as a result of the search. The disclosure in the return after the search did not, in any way, diminish its responsibility to do so. 12.1. Moreover, the penalty has not been levied for returning higher income but on the amount returned, found only during the search proceedings and, therefore, it cannot be said that the excess income has I.T.A. No. 3746/Mum/2024 6 no co-relation with any incriminating material/assets/investment found.
It would be pertinent to refer to the observations of the Hon’ble High Court in the case Neeraj Jindal (supra) in relation to the invocation of Explanation (5), which reads as under:- “Now for the revenue to invoke Explanation 5, it would have to prove that its requirements are clearly fulfilled in the present case. In order for Explanation 5 to apply, it is necessary that there must be certain assets (such as money, bullion etc.) found in the possession of the assessee during the search, and that the assessee must claim that such assets have been acquired by him by utilising (wholly or in part) his income. Moreover, such income must be in relation to a particular previous year that has either ended before the date of the search or is to end on or after the date of the search and such income is declared subsequently in the return of income filed after the search. Therefore, it is only when assets are found during the search which the assessee claims to have been acquired by him by utilizing his income for any particular previous year, and then declared such income in a subsequent return filed after the date of search, would it be deemed that the assessee had concealed his income. In other words, the assets seized during the search must relate to the income of the particular assessment year whose return is filed after the date of the search. Such a conclusion is only logical, considering that assessment under the Act is with respect to a particular assessment year and the penalty imposed under section 271(1)(c) would also be for concealing income in that particular assessment year, which concealment was revealed by the discovery of certain assets in the assessee's possession during the search conducted under section 132.”