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Income Tax Appellate Tribunal, DELHI BENCH ‘E’ : NEW DELHI
Before: SHRI L.P. SAHU & SHRI KULDIP SINGH
(PAN : AABCN5784E) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri R.S. Singhvi, Advocate REVENUE BY : Shri Rajesh Kumar, Senior DR Date of Hearing : 05.10.2016 Date of Order : 26.10.2016 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : Appellant, M/s. Navdeep Jewellers Pvt. Ltd. (hereinafter referred to as ‘the assessee’), by filing the present appeal sought to set aside the impugned order dated 18.12.2013 passed by the Commissioner of Income-tax (Appeals (Central), Gurgaon qua the assessment year 20010-11 confirming the penalty levied u/s 271AAA on the grounds inter alia that :-
“1. A search & seizure action u/s 132 of the Income Tax Act, 1961 was conducted on the appellant as on 30.07.2009.
During the course of search, the appellant admits the undisclosed income in a statement under sub-section (4) of Section 132 and specifies the manner in which such income has been derived; and also substantiates the manner in which the undisclosed income was derived and paid the tax and interest in due time in respect of undisclosed income.
The appellant filed its return of Income declaring taxable Income of Rs.l,74,98,810/- inclusive of the aforesaid undisclosed income declared during the course of search.
4. That the assessment u/s 153(1)(b) was completed on the taxable income of Rs.1,74,98,810/- as declared in the return of Income.
5. That before finalizing• the assessment proceedings u/s 153 A, a show cause notice was given to the appellant regarding initiation of penalty u/s 271 AAA.
The appellant against submitted its reply along with the evidences showing the income as well as investment in the undisclosed assets of the appellant. And the aforesaid evidences were seized by Income Tax Department during the course of search and are still lying with the department.
7. A Penalty of Rs.17,04,317/- has been imposed on the appellant by observing the following things:
"The assessee has not been able to give any details as required in the show cause notice to substantiate its claim. The assessee has merely stated that the surrendered income pertains to jewellery business consisting of unaccounted job-work, unaccounted purchase of old jewellery at cheap rate and unaccounted income received from other jewelers. However, no documentary evidence have been produced by the assessee in support of his claim.
In view of the above, it is seen that assessee has not been able to substantiate the manner in which undisclosed income has been derived and therefore I am satisfied that the assessee is liable for facing penalty proceedings u/s 271 AAA of the I T. Act, with regards to surrender of undisclosed income made of Rs.17,04,317/- and accordingly penalty proceeding are being initiated separately by the issue of notice U/S 274 of the I T. Act. "
Aggrieved against the Penalty Order u/s 271 AAA, the assessee filed appeal with CIT (A), Gurgaon and Ld. CIT Appeal dismissed the appeal of the appellant company by observing the following remarks: "In the case in hand there is no dispute that the search operation took place after 1st June, 2007. To reiterate, there is no dispute that the assessee during the statement recorded u/s 132(4) has admitted the undisclosed income. However, and very importantly, the assessee has not said how exactly the undisclosed income was derived despite the queries by the AO. The details of each transaction, the persons involved have not been disclosed. Similarly it has also not substantiated the manner in which the undisclosed income was derived Further, the assessee when asked to furnish evidence to these admitted transactions stated that the undisclosed income was invested in stock and show-room and that the disclosure was evidenced by the different loose papers/documents seized and annexed in different annexures prepare during the search on 30.07.2009. This statement is not sufficient as something more was required on the part of the assessee to elucidate the manner of earning such large income which was disclosed in his return of Income, only consequent to the search operation. The provisions of section 271AAA as envisaged is for the assessee to come out clean by specifying and substantiating the manner of deriving such income u/a 132(4) regarding any such undisclosed income relating to the specified year so as to avail of the immunity under the Act. As held in Pioneer(supra), there has been a paradigm shift in the treatment of undisclosed income which gets unearth during the search operations. The burden cast upon the assessee is much higher as unlike in see 271 (1)(c) explanation 5 if the assessee fails to divulge such finer details of the earning of income, then the requirements of immunity can be held to be not met. The questions posed by the AO were categorical. To reiterate, the provisions of the sub Sec. 2 (i) (ii) and (iii) of section 271AAA are very clear. These three conditions need to be satisfied together. There is no dispute regarding sub see (i) and (iii). In this case as the assessee cannot be said to have discharged the onus of substantiating the manner in which the income was derived, the condition laid down in sub section (ii) remains unfulfilled In view of the discussion above and the facts of the case, I have no reason not to uphold the impugned order of the Ld AO 9. That upon the facts and circumstances of the case, the Ld. Assessing Officer as well as CIT Appeal are not justified to impose a penalty under section 271AAA of the Income Tax amounting to Rs.17,04,317/- which is arbitrary, illegal and bad in law and based on the surmises and conjecture.
10. The applicant craves leave to make addition or alteration, if any on the grounds of appeal at the time of hearing, if required.”
2. Briefly stated the facts of this case are : on the basis of search and seizure conducted under section 132 (1) of the Income- tax Act, 1961 (for short ‘the Act’) at the business premises of the assessee on 30.07.2009, notice u/s 153A of the Act was served upon the assessee and in response thereto, the assessee company by filing return of income declaring its income to the tune of Rs.1,74,98,810/- by making total surrender amounting to Rs.1,70,43,170/-. Assessment was completed u/s 153B(1)(b) of the Act, penalty proceedings u/s 271AAA were initiated in respect of the surrendered income on account of excess stock-in-trade.
Assessee filed comprehensive submissions during penalty proceedings primarily taking defence that the assessee has not hidden any income and the assessment has been completed u/s 153B(1)(b) without making any addition. However, AO has not accepted the submissions made by the assessee and imposed the penalty to the tune of Rs.17,04,317/- u/s 271AAA (1) of the Act.
3. Assessee challenged the penalty order before the ld. CIT (A) who has affirmed the penalty order by dismissing the appeal.
Feeling aggrieved, the assessee has come up before the Tribunal by way of filing the present appeal.
We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
It is not in dispute that during the search and seizure operation, the assessee has made following disclosure :-
Income relating to Amount of Nature of investment of assessment year unaccounted income unaccounted income 2009-10 35,00,000/- Invested in showroom (Building construction, furniture and fixture 2010-11 1,38,33,000/- Stock in trade (jewellery) 2010-11 32,10,170/- Stock in trade (jewellery) Total 2,05,43,170/-
6. During the appellate proceedings qua the penalty order dated 30.01.2001 for AY 2009-10 passed u/s 271AAA on the basis of disclosure of income of Rs.35,00,000/- made during the same search and seizure operation conducted on 30.07.2009, it is observed by CIT (A) that when the revenue has not asked the assessee to disclose the manner in which such income was earned, particularly when income is surrendered during the course of search u/s 132 (4), it can be assumed that during the discussion, the assessee must have been made aware of the provisions contained u/s 271AAA (2)(ii).
However, in the instant case, the AO has not made the assessee aware about the provisions contained u/s 271AAA (2)(ii) to substantiate the manner in which the undisclosed income was derived. So, in these circumstances, it is proved that the assessee has substantiated the manner in which the surrendered income was derived and AO by admitting his explanation accepted the return of income filed by the assessee u/s 153B(1)(b) of the Act.
8. Undisputedly, consequent to the search and seizure operation conducted on the business premises of the assessee company on 30.07.2009, surrender to the tune of Rs.1,70,43,170/- has been made and thereafter assessment was completed u/s 153B(1)(b) of the Act at Rs.1,74,98,810/- and the assessee has deposited the due tax along with interest.
To proceed further, we would like to reproduce the provisions contained u/s 271AAA of the Act for ready perusal:-
“271AAA. (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 June, 2007, the assessee shall pay by way of penalty, in addition to tax, if any, payable by him, a sum computed at the rate of ten per cent of the undisclosed income of the specified previous year. (2) Nothing contained in sub-section (1) shall apply if the 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) pays the tax, together with interest, if any, in respect of the undisclosed income. (3) 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).”
Under section 271AAA(2)(i) of the Act, penalty @ 10% of the undisclosed income shall not be imposed if the assessee, “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”.
In the instant case, when we refer to findings returned by the CIT (A) at para 1 of page 9, the assessee vide disclosure letter submitted that, “the earning of the aforesaid unaccounted income during FY 2008-09 and 2009-10 i.e. from 01.04.2009 till 30.07.2009 was from the jewellery business and that the loose paper being documents seized during the search operation are related to unaccounted income which was invested in the showroom and stock of jewellery. However, AO has proceeded to invoke the provisions contained u/s 271AAA on the ground that the assessee has not disclosed how exactly the undisclosed income was returned but undisputedly the AO has not examined the assessee on oath as required u/s 132(4) of the Act to substantiate the manner in which the undisclosed income was derived, rather proceeded on the basis of disclosure letter given by the assessee.
When the assessee has given details of unaccounted money available with him during the search operation substantiated with loose paper/documents seized during search and seizure operation and the AO has not questioned the assessee by recording his statement u/s 132(4) of the Act about the manner in which the undisclosed income has been derived to substantiate the same, there is no justification to impose the penalty u/s 271AAA.
Bare perusal of the penalty order and the order passed by ld. CIT (A) goes to prove that the AO got himself satisfied that the assessee has substantiated the manner in which the undisclosed income was derived because he has not raised any query whatsoever to the assessee to substantiate the manner of earning of the undisclosed income.
Identical issued has been decided in favour of the assessee by the coordinate Bench of the Tribunal in case cited as Neeraj Singhal vs. ACIT – (2014) 146 ITD 152 and Sunil Kumar Bansal vs. DCIT – (2015) 37 ITR 576. So, in view of the facts and circumstances of the case, we are of the considered view that when the assessment in this case was completed u/s 153B(1)(b) of the Act at Rs.1,74,98,810/- (including surrendered amount of Rs.1,70,43,170/-) and the assessee has paid tax due with interest which has not been questioned by the AO to substantiate the manner in which the said undisclosed income was derived, the assessee is entitled for to avail of the benefit of the amnesty provisions contained u/s 271AAA (2) read with section 132 (4) of the Act. Consequently, appeal filed by the assessee stands allowed and penalty stands deleted.
Order pronounced in open court on this day 26th of October, 2016.