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Income Tax Appellate Tribunal, DELHI BENCH ‘E’, NEW DELHI
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘E’, NEW DELHI Before Sh. N. K. Saini, AM And Smt. Beena Pillai, JM Asstt. Year : 2012-13 S. K. Impex, Vs DCIT, C/o-Kapil Goel Adv., Circle-29(1), F-26/124, Sector-7, Rohini, New Delhi Delhi-110085 (APPELLANT) (RESPONDENT) PAN No. AAOFS4219B Assessee by : Sh. Kapil Goel, Adv. Revenue by : Sh. Sunil Chandra Sharma, CIT DR Date of Hearing : 01.06.2016 Date of Pronouncement : 28.06.2016 ORDER Per N. K. Saini, AM:
This is an appeal by the assessee against the order dated 07.08.2015 of ld. CIT(A)-XVI, New Delhi.
The only grievance of the assessee in this appeal relates to the confirmation of penalty levied by the AO u/s 271AAA of the Income Tax Act, 1961 (hereinafter referred to as the Act).
Facts of the case in brief are that the assessee is a partnership firm with two partners and a survey u/s 133A of the Act was conducted at the business premises of the S. K. Impex assessee on 20.07.2011 which was later on converted into search operation u/s 132 of the Act. During the course of search, excess cash of Rs.54,81,173/- was seized from the business premises of the assessee. Similarly, excess stock of gold valuing Rs.45,52,548/- and of diamonds valuing Rs.78,88,380/- was found. During the course of search, the assessee offered excess cash, gold and diamond for taxation. Accordingly, a sum of Rs.1,79,22,101/- (Rs.54,81,173/- + Rs.45,52,548/- + Rs.78,88,380/-) was offered for taxation. The AO however, initiated the penalty proceedings u/s 271AAA of the Act on the ground that had the search was not conducted at the business premises of the assessee, the difference in cash and stock would not have been detected.
4. The submission of the assessee before the AO was as under:
“With respect to your above said notice for the captioned assessee we hereby submit as under: 1. The assessee had declared a sum of Rs. 1.79 Cr. during course of search. The assessee has no other source of income than what was disclosed to the department. The assessee is in the business of jewelry and bullion and the income that was offered was generated in the course of the business activity.
S. K. Impex 2. The same has been duly accounted for in the books of accounts by passing the respective journal entries, The surrender on account of cash for Rs. 54,81,173/- has been shown as "Miscellaneous Income (Amount offered voluntarily for taxation)" in the Profit and Loss Account. The sale of surrendered stock is included in the sales turnover of the assessee and has been highlighted as "Sales includes amount offered voluntarily for taxation for Rs.1,24,40,928/-)". The same facts were also mentioned in the Notes to Accounts with Financial Statements, already filed with your honor. Moreover, the assessee has also filed the Return of income including the undisclosed income of Rs, 1.79 Cr. filed for A.Y. 2012-13. 3. "Section 271AAA reads as under. – a. The Assessing Officer may notwithstanding anything contained in any other provisions of this Act, direct that, in a case where search has been initiated u/s 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 10% of the undisclosed Income of the specified previous year. b. Nothing contained in sub section (1) shall apply the assessee. i) In the course of search in a statement u/s (4) of section 132 admits the undisclosed income and specifics the manner in which such income has been derived.
S. K. Impex ii) Substantiates the manner in which the undisclosed income was derived, and pays the tax, together with interest if any in respect of the undisclosed income. iii) No penalty under the provisions of clause (c) of sub section (i) of section 271 shall be imposed upon the assessee in respect of the undisclosed income referred to in sub section (1). iv) The provisions of sections 274 and 275 shall, so far as may be, apply in relation to the penalty referred to in the section."
From reading the above provision, it is apparent that penalty u/s cannot be imposed if in the course of search in a statement recorded under sub section 4 of section 132, the assessee admits the undisclosed income and specifies and substantiates the manner in which such income has been derived and also has paid the tax together with interest in respect of undisclosed income.
5. Details of nature of undisclosed income and manner of earning was recorded in the statement of Sh. Surender Kumar Jain at the time of search. Assesses has admitted the undisclosed income in the statement u/s 132(4) and also specified the manner in which such income has been derived in the same.
6. Taxes and applicable interest have already been paid on the undisclosed Income by the assessee and duly reflected in the Return of Income.
It was stated that the income was derived from trading transactions not recorded in the books.
S. K. Impex 8. On perusal of statement dt. 30.08.2011 filed by the assesses before the ADIT (Inv) Unit II (3) it is observed that the assesses had clearly stated that during the course of proceeding on 20.07.2011, he had voluntarily made a disclosure u/s l32(4) to avail immunity from the penalty as per suction 271AAA of the IT Act. "I have surrendered a sum of 1.79 Cr. On behalf of M/S. S.K. Impex vide statement u/s 132 at the time of search to cover all leakages in revenue on account of cash and stock for financial year 2011-12. The Income has been earned form out of books transactions of sales and purchase of bullion/jewelry. The cash amounting to Rs.55 lakhs seized during the search operations may kindly be used to meet the tax liabilities. The surrender has been made with the clear understanding that no penalty and interest will be imposed either u/s 271(1)(c) or u/s 271AAA and neither any prosecution would be launched against me or any of my family members or any of the firm in which I am a partner on account of the above said surrender. All the documents (page-wise) found and seized during the search proceedings has been explained during the assessment proceedings the manner of earning of undisclosed income, as stated by assessee in the statement u/s 132(4) has been accepted in the assessment proceedings for the assessment year 2012-13.
It is further stated that in the course of search no incriminating documents were found which could lead to the conclusion that the appellant had earned the undisclosed income.
S. K. Impex 10. The assessee had substantiated the disclosure by furnishing all the related and matching documents during the course of assessment proceedings.
That the assessment u/s 143/153A has been completed at the returned income vide order dtd. 28.02.2014 and all the facts provided by the assessee have been accepted.
12. To substantiate the above, reliance is placed on Pradip Kumar Sonthlia, Kolkata Vs Department of Income Tax, Income Tax Appellate Tribunal-Kolkata decided on 13th January 2014. 1290/KOL/2012. The Tribunal held as under...... "The Ld. DR even though relied on the order of the AO but could not convince us how the assessee fails to get immunity from the penalty u/s 271AAA of the Act. The assesses has declared undisclosed income in the return filed u/s 153A and paid tax along with the interest and the provision of section 271AAA(1) will not be applicable as the assesses complied with the conditions mentioned u/s 271AAA(2) of the Act. The assessee admitted the undisclosed income in the course of search in the statement recorded u/s 132(4) of the Act and also specific manner in which the income has been derived by him. The manner disclosed by the assessee had been accepted by the AO. The assessee has also paid the tax and interest in respect of undisclosed income. The undisclosed Income as well as the specified year are defined in the Explanation 2 to section 271AAA of the Act. Thus in our opinion the assessee has complied with the conditions as given u/s 271AAA (2)....."
S. K. Impex Our aforesaid view is duly supported by the following divisions:- i. Pramod Kumar Jain Vs DCIT (2012) 149 TTJ 36 (Cuttack-Trib) ii. Concrete Developers Vs ACIT (2013) 34 Taxman.Com 62 (Nagpur-Trib) iii. Ashok Kumar Sharma Vs DC1T (2012) 149 TTJ 33 (Cuttack-Trib) . iv. Sulochna devi Agarwal Vs Department of income Tax (ITA No. 1052/Ahd/2012). V. Shilpa M. Gupta Vs. Department of Income Tax (ITA No. 1784/Ahd/2012).
Reliance is placed upon order of ITAT Delhi in the case of Sh. Virendara Kumar Gupta, Vs ACIT, CC-9, ITA No. 552/Del/2013. Wherein it was decided as: “……….. The taxes had been paid along with the interest in all these individual hands. Since a statement was given during the course of search u/s 132 Income Tax Act, 1961 admitting the undisclosed income of Rs. 20 Cr. Of the Group, the quantum of disclosure on income was affirmed by an affidavit by other person of the Group. The manner was also slated in the statement by which sun income was earned. In our considered 552 & 553/Del./2013 view, the Croup has also substantiated the manner in which this undisclosed income was derived. In the statement recorded u/s 132(4) of the Act and in an affidavit dt. 15.05.2009, the disclosure was maintained. The assessee of the Groups have also paid the taxes applicable along with interest. In such a situation, S. K. Impex the CIT (A) was not justified in sustaining the penalty u/s 271(1)(c) of the Act levied by the Assessing Officer. Considering all these facts and circumstances, we set aside the orders of the authorities below the and direct to delete the penalty u/s 271AAA." Which has been upheld by the honorable DELHI HIGH COURT vide Income Tax Appeal Nos. 563/2013, 564/2013, decided on November 22, 2013 standing that the tribunal has taken the realistic arid pragmatic view and accordingly deleted the penalty under Section 271AAA of the Act.
Reliance is also placed upon the derision of Hon'ble Apex Court in the case of Hindustan Steel Ltd. Vs. State of Orissa (1972) 83 ITR 26(SC). He particularly made reference to the following observation of Hon'ble Supreme Court:- "An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi criminal proceedings and penalty will not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should he imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exorcised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribes, the authority competent to impose the penalty will be justified in refusing to impose penalty 6 ITA No. 3371/Del/11 S. K. Impex when there is a technical or venial breach of the provision of the act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute."
Therefore, the condition for exoneration from penalty u/s 271AAA (2) were satisfied by the assessee. In view of the above, it is therefore humbly requested to drop the penalty proceedings against the assessee and oblige."
The AO however did not find merit in the submissions of the assessee and levied the penalty of Rs.17,92,210/- by observing as under: “The assessee's above noted reply has been considered by the undersigned very carefully. The explanation put forth by the assessee is not correct and is therefore, not acceptable. Provisions of the section 271AAA(2) clearly stipulate that:- Nothing contained in sub section (1) shall apply if the assessee,- i) In the course of search in a statement u/s (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 Pays the tax, together with interest if any in respect of the undisclosed income.
S. K. Impex iii) 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). Thus in order to absolve himself from the imposition of penalty u/s 271AAA of the I.T. Act, 1961, the assessee has not only to admit the undisclosed income in a statement u/s 132(4) of the I.T. Act, 1961 but also he has to specify the manner in which such income has been derived and he has to substantiate the manner in which the undisclosed income was derived and he has to pay the tax, together with interest, if any, in respect of undisclosed income. In the instant case, assessee neither during the recording of statement u/s 132(4) of the I.T. Act nor during the course of assessment proceedings has been able to specify the manner of deriving this undisclosed income. Mere vague submission during the recording of statement u/s 132(4) of the I.T. Act that the Income has been earned from out of books transactions of sales and purchase of bullion/jewelry do not suffice to be proper compliance of the mandate of law as stipulated in section 271AAA(2) of the I.T. Act as discussed above. It is noted that the assesses, infact, has simply submitted that "I have surrendered a sum of 1.79 Cr. on behalf of M/S. S.K. Irnpex (vide statement u/s 132) at the time of search to cover all leakages in revenue on account of cash and stock for financial year 2011-12. The income has been S. K. Impex earned form out of books transactions of sales and purchase of bullion/jewelry." This submission cannot be held to tantamount to specify the manner in which such undisclosed Income has been derived not to speak of substantiating the same. The least that is required of the assessee to tantamount to specifying the manner of deriving the undisclosed income is that proximate nature of acquisition is mentioned by the assesses. To bring on record the proximate nature of acquisition, the assessee must at least state the immediate source and transactions that have brought him the undisclosed income. The assessee's submission, reproduced supra, does not, by any stretch of logic, tantamount to specifying the manner & obviously the assessee has not substantiated such manner. It is also noted that the conditions envisaged in section 271AAA(2) of the I.T. Act, 1961 are cumulative and have to be fulfilled simultaneously. Thus, mere payment of tax together with interest in respect of the undisclosed income without fulfilling other two conditions at the same time cannot confer upon the assessee the impunity form imposition of penalty envisaged u/s 271AAA(1) of the I.T. Act. Accordingly, penalty u/s 271AAA of the I.T. Act, 1961 is hereby levied as per calculation below:- Amount of un-disclosed income Rs.1,79,22,101/- Penalty leviable @ 10% of the undisclosed income Rs.17,92,210/-”
Being aggrieved the assessee carried the matter to the ld. CIT(A) and reiterated the submissions made before the S. K. Impex AO. The reliance was placed on the following decision of the various benches of the ITAT: � Shri Gopal Shetty in order dated 06.05.2015 � Pramod Kumar Jain Vs DCIT (2013) 33 Taxmann.com 651 (Cuttack-Trib) � SPS Steel & Power Ltd. in ITA No. 1391 & 1414/Kol/2011 order dated 30.06.2015 � Ashok Kumar Sharma Vs DCIT 149 TTJ 33 (Cuttack) � SVP Builders (India) Ltd. Vs DCIT in ITA No. 4674/Del/2014 order dated 19.02.2015 7. The ld. CIT(A) however did not find merit in the submissions of the assessee by observing as under: “5) Whether the plea of the assessee like “voluntary disclosure”, buy peace”, avoid litigation etc. have any meaning or do they show the escape route resorted to by the assessee. The Hon’ble Supreme Court in the case of MAK Data Pvt. Ltd. Vs CIT-II in civil Appeal No. 772 of 2013 have observed. “We are of the view that the surrender of income in this case is not voluntary in the sense that the offer of surrender was made in view of detection made by the AO in the search conducted in the sister concern of the assessee. In that situation, it cannot be said that the surrender of income was voluntary.” The Hon’ble Supreme Court has further observed that the “AO has to satisfy whether the penalty S. K. Impex proceedings be initiated or not during the course of assessment proceedings and the AO is not required to record his satisfaction in a particular manner or reduced it into writing. The scope of section 271(1)(c) has also been elaborated and discussed by this court in Union of India Vs Dharmendra Textiles Processors (2008) 13 SCC 369 and CIT Vs Atul Mohan Bindal (2009) SCC 589.” In view of the principles laid down by the Apex Court I do not find any illegality in the action of the AO. I fully agree with the imposition of penalty by the Assessing Officer. Hence the appeal of the assessee is dismissed.”
Now the assessee is in appeal. The ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the assessee in his statement recorded in Section 132(4) of the Act surrendered the amount during the course of search. Therefore, the penalty u/s 271AAA of the Act was not leviable. It was further submitted that the AO never asked the manner of deriving the income during the course of search or in the assessment proceedings and the partner of the assessee in reply to the question no. 11 clearly stated the he offered the amount of Rs.1,24,40,928/- for taxation on account of excess stock found during the search operation. A reference was made to page no. 7 of the assessee’s paper book which is the copy of the statement of S. K. Impex the partner of the assessee firm recorded on 21.07.2011. The reliance was placed on the decision of the ITAT Delhi Bench “G”, New Delhi in the case of SVP Builders (India) Pvt. Ltd. Vs DCIT, Circle 7(1), New Delhi in for the assessment year 2009-10 vide order dated 19.02.2015.
9. In his rival submissions, the ld. DR strongly supported the orders of the authorities below and further submitted that the assessee had not described the manner in which income was derived. Therefore, the immunity on the basis of statement u/s 132(4) of the Act for not levying the penalty was not available to the assessee and the penalty u/s 271AAA of the Act was rightly levied by the AO and the ld. CIT(A) was fully justified in confirming the penalty.
We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it is an admitted fact that excess stock of gold & diamond amounting to Rs.1,24,40,928/- and excess cash of Rs.54,81,173/- were found which the assessee offered for taxation during the course of search in the statement recorded u/s 132(4) of the Act. The AO levied the penalty u/s 271AAA of the Act for the reason that the manner in which the undisclosed income was derived was S. K. Impex not substantiated. In the present case, it is noticed from the statements of the partner of the assessee firm recorded u/s 132(4) of the Act during the course of search that no specific query was raised relating to the manner in which the undisclosed income was derived by the assessee. On the contrary, the assessee explained that the earning of undisclosed income had been generated from the sale of unaccounted/undisclosed jewellery. The assessee was engaged in bullion trading and gold & diamond jewellery, therefore, the source of the unaccounted excess cash, gold & diamond jewellery was the business activity of the assessee. In the present case, no specific query was raised by the authorized officers during the course of recording of statement u/s 132(4) of the Act about the manner in which the undisclosed income had been derived and about its substantiation. On the contrary, the assessee in reply to the question no. 11 relating to the discrepancy in gold & diamond jewellery totaling to Rs.1,24,40,928/- categorically stated as under: “I am not in a position to explain the discrepancy. Therefore, I offer of Rs.1,24,40,928/- for taxation on account of excess stock found during the search operation.”
S. K. Impex 11. The said query was raised during the course of recording the statement of Sh. Surender Kumar Jain Son of Late Sh. Suraj Parkash Jain partner of the assessee on 21.07.2011, copy of the said statement is placed at page nos. 5 to 7 of the assessee’s paper book. In that statement no query was raised relating to the manner in which the undisclosed income was earned. Therefore, in the absence of any such query raised by the authorized person, the AO was not justified in taking the adverse view and imposing the penalty u/s 271AAA of the Act. In the aforesaid view we are also fortified by the decision of the Co-ordinate Bench at Delhi in the case of SVP Builders (India) Ltd., Noida Vs DCIT, Circle-7(1), New Delhi (supra).
In the result, appeal of the assessee is allowed. (Order Pronounced in the Court on 28/06/2016)