ANAND KUMAR BANSAL,DELHI vs. DCIT, FARIDABAD

ORDER PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER: This appeal has been preferred by the assessee against the order dated 22/01/2013 passed by the ld. Commissioner of Income Tax(Appeals), Central, Gurgaon for AY 09-10, wherein the ld. Commissioner of Income Tax (Appeals) has confirmed the penalty of Rs. 5,804,925/- imposed u/s 271AAA of the Income Tax Act, 1961 (in brief ‘The Act’). Page 1 of 18 Anand Kumar Bansal

2.2 In response to the show cause notices u/s 271AAA, the assessee made five fold contentions before the AO as under: i. That the undisclosed income was surrendered in the statement recorded u/s 132(4) of the Act; ii. That the assessee had specified the manner in which the undisclosed income had been derived; iii. That the assessee had substantiated the manner in which the undisclosed income was derived; iv. That the assessee had paid the entire taxes within the financial year and; v. That there was hardly any difference between the returned income and the assessed income.

2.3 However, the AO was of the opinion that the assessee had not been able to fulfill the conditions specified in sub-clause (ii) of sub-section (2) of section 271AAA of the Act which refers to the substantiation of the manner in which the undisclosed income has been derived. The AO was of the opinion that the assessee had not been able to produce any proof/documentary evidence with respect to any of the disclosure made by him under any head either during the assessment proceedings or during the penalty proceedings so as to prove that the undisclosed income could be corroborated with the evidence and that in absence of any such evidence/proof the assessee could not have immunity u/s 271AAA of the Act. Accordingly, the AO proceeded to impose a penalty of Rs. 45.50 lacs being 10% of the undisclosed income of Rs. 4.55 crores pertaining to advances given to various persons. On similar footing, the AO also held that the assessee had not been able to prove the source of making unexplained investments in the share capital amounting to Rs. 12,549,250/- and accordingly, imposed a penalty @ 10% on amounting to Rs. 1,254,925/- on this amount also.

2.4 Aggrieved the assessee preferred an appeal before the ld. CIT (Appeals). The ld. CIT(Appeals) observed that although there was no dispute that the assessee had admitted the undisclosed income in the statement recorded u/s 132(4) of the Act, the assessee has failed to demonstrate how exactly the undisclosed income was derived. The ld. CIT (Appeals) was of the opinion that the assessee has not explained the nature of transactions that led to the earning of the undisclosed income. The ld. CIT (Appeals) underlined the fact that unless the assessee divulged this vital piece of information, immunity from the provision of sec. 271AAA could not be claimed. The ld. CIT (Appeals) was of the opinion that merely stating that the sums had been earned as commission in land deals and in property business was too general an explanation to be accepted. The ld. CIT (Appeals) relied on the decision of the Kolkata Bench of the ITAT in DCIT vs. Pioneer Marbles and Interiors Pvt. Ltd., 144 TTJ (Kol.) 663 and confirmed the imposition of penalty by holding that the assessee had failed to discharge the onus of substantiating the manner in which the income was derived as the condition laid down in section 271AAA (2)(ii) remained unfulfilled.

2.5 Aggrieved the assessee has preferred an appeal before the Tribunal and has challenged the confirmation of the penalty by the ld. CIT (Appeals).

“Question 23 : I am showing you annexure A2 which is a pocket notebook with no. 24 and the name ‘Neel Gagan’ printed on it onm page no. 2 of this annexure A2. There are certain details of transaction relating to each payment of share application. Please state in whose hand these entries are written and explain the entries involved?

Answer: These entries are written in my own hand and these relate to cheque received against the cash paid by me for share application amounting to Rs. 1,24,25,000/- which has been taken by me in the current year i.e. between 01.04.08 to 31.03.09 (FY 2008-09). I have also paid a sum of Rs. 1,24,250/- as commission @ 1% for receipt of these cheques. I hereby surrender voluntarily as additional income for the current year Rs. 1,25,49,250/- over and above my regular income from various sources during the FY 2008-09. The amount has been earned by me as commission in land deals and in property business. I hereby voluntarily surrender the aforesaid amount as my income in good faith and I will pay the entire taxes subject to the condition that no penalty or prosecution proceedings be initiated against me. The surrender has been made in terms of section 271AAA of the Act.

Question No. 24: I am showing you annexure A2 pages 7,9,11, 12, 14 and 16 which shows certain advances given to certain individuals on certain dates. Please state in whose hand these entries have been written and also explain the nature of these entries.

Answer: These entries are in my hand writing and total of these entries is Rs. 4,55,00,000/-. This is the amount given by me as advance to various persons for the purchase of land/properties. Since I may not be able to explain the nature of these advances I hereby surrender in my name the aforesaid amount of Rs. 4,55,00,000/- as my additional income for the current year i.e. Financial Year 2008-09. This income has earned by me as commission out of dealing in land and properties. I promise to pay the taxes on additional income subject to the condition that no penalty or prosecution proceedings are initiated against me. The surrender has been made by me in terms of section 271AAA of the Act.

Question 25: I am showing you annexure A2 pag nos. 7,9,11,12,14 & 16; which shows certain advances given to certain individuals on certain dates. Please state in whose hand these entries have been written and also explain the nature of these entries?

Answer: These entries are in my hand writing on total of these entries is 4,55,00,000/- this is the amount given by me as advance to various persons for purchase of land/properties. I hereby surrender in my name the aforesaid amount of Rs. 4,55,00,000/- as my additional income for the current year i.e. FY 2008-09. This income has earned by me as commission out of dealing in land and properties. I promise to pay the taxes on additional income subject to the condition that no penalty or prosecution proceedings are initiated against me. The surrender has been made by me in terms of Section 271AAA of the Income Tax Act, 1961.”

3.1 The ld. AR submitted that the assessee’s statement u/s 132(4) of the Act was recorded by the Authorized Officer in question and answer form.

Thus, any question regarding the specification and manner in which such income has been derived has to be raised by the Authorized Officer recording the statement. The person searched cannot on his own put words in the mouth of the Authorized Officer to elicit the explanation envisaged in Page 7 of 18 Anand Kumar Bansal the provisions contained in section 271AAA which would satisfy the Department. It was submitted that u/s 132(4) of the Act, the statement is recorded by the Officers and the assessee only states what the officer asks or puts the query. It was submitted that a perusal of the above questions and answers will show that wherever and whenever a question was put to the assessee regarding the source and substantiation thereof, the assessee has categorically replied to them. Where the Authorized Officer did not raise any further query, the natural presumption is that the Authorized Officer was satisfied about the reply.

3.2 The ld. AR further submitted that the assessment had been framed purely on the basis of surrender made by the assessee who had made the surrender to avoid protracted litigation and to buy peace. It was submitted that de hors the surrender made by the assessee, the Department has not been able to prove the existence of any undisclosed income during the course of the search and that the returned income has been accepted with a minor variation only which also is due to arithmetical error.

3.3 It was further submitted that in absence of any specific format/procedure described in the Act for specifying and substantiating the undisclosed income, the fact that the same had been accepted without any variation by the AO is by itself enough evidence that the assessee has substantiated the manner in which the undisclosed income has been derived.

“11. When we compare Explanation 5 to section 271(1)© of the Act with the provisions laid down u/s 271 AAA of the Act we find a lot of similarity therein under which penalty is not attracted in a case of search on the undisclosed income. As per Explanation 5 to section 271(1)© of the Act if the assessee in the course of search makes a statement under sub section (4) of section 132 that any money, Page 9 of 18 Anand Kumar Bansal bullion, jewellery or other valuable article or things found in his possession or under his control has been acquired out of his income which has not been disclosed so far in his return of income to be furnished before the expiry of time specified in sub section (1) of section 139 and also specifies in the statement the manner in which such income has been derived and pays the tax, together with interest, if any, in respect of such income, then the assessee for such income will not be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income to attract the penalty therein. Similarly under the provisions of section 271 AAA of the Act penalty is not leviable where search has been initiated u/s 132 on or after 1.6.2007 but before 1.7.2012, and the assessee in the course of search, in a statement under the sub section 4 of section 132,(i), admits the undisclosed income (ii) specifies and substantiates the manner in which such income has been derived, and (iiii) pays the tax together with interest, if any, in respect of the undisclosed income. From the reading of both these penal provisions we find that one requirement is common for non attraction of the penal provisions under both the sections i.e. if the assessee in his statements recorded u/s 132(4) of the Act admits the undisclosed income and specifies in the statement the manner in which such income has been derived and pays the tax together with interest, if any, in respect of such income. The only additional requirement in the case of section 271 AAA in this regard is that the assessee will also have to substantiate the manner in which the undisclosed income was derived besides specification of the manner in which such income was derived. The other difference is in the application of the provisions under both the sections. The penal provision u/s 271(1)© under Explanation 5 thereto is applicable in such cases where search u/s 132 was initiated before 1.6.2007 whereas u/s 271 AAA, the provisions therein are applicable in a case where search u/s 132 of the Act has been initiated on or after 1.6.2007 but before 1.7.2012. Thus the intention of the legislature is clear to this extent that in a case wherein search was initiated before 1.6.2007, provisions u/s 271(1)© will be applicable and in search initiated after 1.6.2007 (but before 1.7.2012) provisions u/s 271 AAA of the Act will be applicable. These provisions are thus not applicable simultaneously but these are period specific. As discussed above, the only additional requirement for non attraction of penal provision u/s 271 AAA of the Act in comparison to this u/s 271(1)© is that besides specifying the manner in which the admitted an undisclosed income has been derived, the assessee will also have to substantiate this manner. In view of this relative study of both the provisions when we go through the decisions relied upon by the Ld. AR, we find that in the case of ACIT vs. GEBILAL Kanhialal (HUF) (supra) before the Hon’ble Supreme Court the Karta of the asseseee HUF had made a statement u/s 132 (4) admitting concealed income in the course of search and specified the manner in which such income stood derived. In this statement the Karta also surrendered an amount of Rs. 42,32,000/-. The Karta however neither filed return of income u/s 139 (1) on due date nor paid due tax on the surrendered income. Later on he also retracted from his statement recorded u/s 132(4) about surrender. The Hon’ble

Supreme Court after deliberating in detail on different Explanations to section 271(1)© has been pleased to hold that the assessee was entitled to immunity under clause (2) of Explanation 5 to section 271(1)© of the Act. In that case failure to file return of income on 31st July 1987 and failure to pay tax thereon was the mere reason relied upon by the department to deny to the assessee the benefit of immunity under clause (2) of Explanation 5 to section 271(1)© of the Act. According to the department the assessee had complied with all the conditions of clause 2 of Explanation 5 except payment of tax in time. Hon’ble Supreme Court pleased to hold that no time limit has been prescribed for payment of tax under clause 2 of Explanation 5 and the assessee having paid tax upto the date of payment in respect of the undisclosed income surrendered by it in the course of search, all the three conditions laid down in clause 2 of Explanation 5 to section 271(1)© stood fulfilled and therefore the assessee is entitled to immunity under clause (2) of Explanation 5 to section 271(1)© of the Act. In the case of CIT vs. Radha Kishan Goel (supra) before the Hon’ble Allahabad High Court the issue raised was as to whether mere non-statement of manner in which undisclosed income was derived would make Explanation 5 (2) to section 271(1)© inapplicable. The further question raised was as to whether in a case manner in which income has been derived has not been stated in the statement u/s 132(4) but is stated subsequently, that amounts to compliance with Explanation 5 (2) to section 271(1)© and no penalty would be leviable under said section.. Both these questions have been replied in affirmative in the decision of the Hon’ble Allahabad High

Court. As per the decision mere non statement of manner in which undisclosed was derived would not make Explanation 5 (2) to section 271(1)© inapplicable. Similarly in a case manner in which income has been derived has not been stated in statement u/s 132(4) but is stated subsequently that amounts to compliance with Explanation 5 (2) to section 271(1)© and no penalty would be leviable. Similarly in the case of CIT vs. Mahendra G. Shah before the Hon’ble Gujarat High Court the basic requirement for immunity form the levy of penalty under Explanation 5 to section 271(1) © of the Act has been discussed as per which the first requirement is disclosure in statement made u/s 132(4) and payment of tax before the assessment was completed. Following ratio laid down in this decision of Hon’ble Gujarat High Court, Pune Bench of the Tribunal in the case of DCIT vs. Shri Inderchand Surajmal Bothra (supra) wherein penalty u/s 271(1)© was levied held that it is not required to specify the manner in which the income was earned in respect of the amount offered to tax in the return of income filed to search action by paying taxes thereon for adopting immunity from penalty under Explanation 5 of section 271(A) (C) of the Act: The cuttak Bench of the Tribunal in the case of Shri Ashok Kumar Sharma (HUF) and others vs. DCIT (supra) wherein penalty u/s 271 AAA was levied the assesee had disclosed concealed income while giving statement u/s 132 of the Act during the course of search and had paid the tax thereon and showed the said undisclosed income filed under the head “income from business” and department had accepted these returns and accordingly passed the assessment order. Penalty u/s 271 AAA was levied. It was held that undisputedly the assessee had shown the undisclosed income under the head “income from business” in the returns filed by them and that was accepted by the department by passing the assessment orders accordingly, therefore the case of the assessee falls exactly within the purview of sub section 2 of section 271 AAA. Thus the impugned penalty levied contrary to the provisions contained in section 271 AAA (2) is not sustainable. The penalty was accordingly deleted. In the case of Shri Pramod Kumar Jain and another vs. JCIT (supra) before the Cuttak Bench of the Tribunal, the assesee had disclosed the unaccounted income but had failed to specify the manner in which such income had been derived. The department accordingly levied penalty u/s 271 AAA of the Act. The same was upheld by the first appellate authority. The Tribunal has however deleted the penalty on the basis that there is no prescribed method to indicate the manner in which income was generated where the definition of “undisclosed income” has been defined in the Act itself when no income of the specified previous year represented “either wholly or partly” which onus lay upon the assessee stood discharged. The Delhi Bench of the Tribunal in its recent decision in the case of Mother Pride Education Personna Pvt. Ltd,.vs. DCIT (supra) while placing reliance on its earlier decision in the case of Smt. Raj Rani Gupta (supra) and following the ratio of the decision of Hon’ble High Courts in the case of CIT vs. Radhi Kishan Goel (supra) (All) and CIT vs. Mahendra C. Shah (supra) (Guj) has deleted the penalty. The Hon’ble Allahabad High Court in the case of CIT vs. Radha Kishan Goel (supra) has been pleased to hold that u/s 132(4) of the I.T. Act 1961 unless the authorized officer puts specific question with regard to the manner in which income has been derived, it is not expected from the person to make a statement in this regard and in case in the statement the manner in which income has been derived has not been stated but has been stated subsequently, that amounts to the compliance with Explanation 5 (2) to Section 271 (1) (C) of the Act. It was further held that in case there is nothing to the contrary in the statement recorded u/s 132(4) of the Act in the absence of any specific statement about the manner in which such income has been derived, it can be inferred that such undisclosed income was derived from the business which he was carrying on or from other sources. The object of the provision is achieved by making the statement admitting the non-disclosure of money, bullion, jewellery etc. It was thus held that much importance should not be attached to the statement about the manner in which such income has been derived. It can be inferred on the facts and circumstances of the case, in absence of anything to the contrary. Therefore, mere non statement of the manner in which such income was derived would not make Explanation 5 (2) inapplicable, held the Hon’ble High Court.

officer to explain the provisions of Explanation 5 in its entirety to the assessee concerned and the Authorized Officer cannot stop short at a particular stage so as to permit the Revenue to take advantage of such a lapse in the statement. The reason is not far to seek. In the first instance, the statement is being recorded in the question and answer form and there would be no occasion of an assessee to stage and make averments in the exact format stipulated by the provisions considering the setting in which such statement is being recorded, as noted by the Allahabad High Court in the case of CIT Vs. Radha Kishan Goel (2005) 278 ITR 454.

Secondly, considering the illiterate, to be specific and to the point regarding the conditions stipulated by exception no.2 while making statement u/s 132(4) of the Income tax Act, 1961. The view taken by the Tribunal as well as the Allahabad High Court to the effect that even if the statement does not specify the manner in which the income is derived, if the income is declared and tax thereon paid, there would be substantial compliance not warranting any further denial of the benefit under exception no.2 in Explanation 5 is commendable.”

5.1 In the present appeal before us, it is seen that the Department has accepted the quantum of surrender made by the assessee in his statement recorded u/s 132(4) of the Act. The taxes due thereon have also been paid.

On having gone through the queries raised while recording the statement of the assessee u/s 132(4) of the Act, it is evident that nowhere has the Authorized Officer asked a specific question with regard to the manner in which the undisclosed income has been derived. Respectfully following the ratio of the above cited decisions of Hon’ble Allahabad High Court and Hon’ble Gujarat High Court (supra) and also of the coordinate E Bench of ITAT Delhi, we hold that in absence of query raised by the Authorized Officer during the course of recording of a statement u/s 132(4) about the manner in which the undisclosed income has been derived and about its substantiation, the AO was not justified in imposing penalty u/s 271AAA of the Act specially when the offered undisclosed income has been accepted with a very minor variation of Rs. 49,250/- and also the due tax thereon has been paid by the assessee. We also note that the reliance of the Ld. CIT (A) on the case of DCIT vs. Pioneer Marbles & Interiors (P) Ltd. (supra) for confirming the penalty is misplaced as in this case the coordinate Kolkata Bench has held that where the entire tax and interest has been duly paid well within the time-limit for payment of notice of demand u/s 156 and well before the penalty proceedings were concluded, the assessee could not be denied immunity u/s 271AAA(2) only because the entire tax, along with interest, was not paid before filing of income tax return or, for that purpose, before concluding the assessment proceedings. We, thus, set aside the order of the ld. CIT (Appeals) and direct the AO to delete the penalty of Rs. 5804925/- levied u/s 271AAA of the Act.

Order is pronounced in the open court on 05/08/2016