RAJESH D DEDHIA ( HUF),MUMBAI vs. ASST CIT CEN CIR 23, MUMBAI

ORDER

PER N.K. PRADHAN, AM

1. The Commissioner (Appeals) erred in confirming penalty under section 271(1)(c) of Rs. 1,14,948/- invoking Explanation – 5A to section 271(1)(c) of the I.T. Act 1961.

2. The Commissioner (Appeals) failed to appreciate that the income of Rs. 3,72,000/- is added to the income of the assessee on estimation of gross profit at 25% of the goods sold.

3. The Commissioner (Appeals) failed to appreciate that Explanation – 5A to section 271(1)(c) of the Act provides that income offered in the return of income subsequent to the search would also amount to concealment or furnishing of inaccurate particulars of such income and thus it prevents the assessee from contending that income is already offered in the return of income and hence there is no concealment or furnishing of inaccurate particulars of income.

4. The Commissioner (Appeals) failed to appreciate that Explanation – 5A to section 271(1)(c) of the Act does not prohibit the assessee from contending that the income offered in the return of income filed subsequent to the search is based on estimate of gross profit allegedly earned on the goods sold and therefore, there is no concealment of income or furnishing of inaccurate particulars of income.

5. The Commissioner (Appeals) erred in observing that further addition of Rs. 58,000/- has been made by the AO on the basis of seized documents only.

6. The Commissioner (Appeals) failed to appreciate that the addition of Rs. 58,000/- was made by the AO by estimating the gross profit at 25% of the goods sold as against 22% adopted by the assessee while offering the income.

7. The Commissioner (Appeals) failed to appreciate that in the course of the search the alleged stock register was found for the months of January to March 2010 and no material was found for the earlier period of nine months and therefore, income voluntarily offered for the said period of nine months cannot be said to have been concealed as there was no material found in the course of the search for the said income.

8. The order of the Commissioner (Appeals) confirming the penalty is bad in law and without jurisdiction. 3. In a nutshell, the facts are that the assessee- HUF is proprietor of M/s. Navkaar, which is engaged in the business of trading in shirts. Originally, the return of income was filed by the assessee on 23.09.2010 declaring total income of Rs. 5,82,640/-. Subsequently, a search and seizure action u/s 132(1) of the Act was carried out by the Revenue on Zamkudi Group on 09.10.2010. The Assessing Officer (AO) passed an order u/s 143(3) r.w.s 153C of the Act on 20.03.2013 assessing the income of the assessee at Rs. 9,54,640/-. During the course of search, the assessee had disclosed Rs. 3,14,000/- as its undisclosed income from business. The estimated GP worked out by the assessee was at 22%. During the course of search and survey on the assessee’s business premises, certain documents were found. Based on these documents the AO estimated the GP at the rate of 27.60% on the unaccounted sales and thus made an addition of Rs. 58,000/-. As per the AO, the total undisclosed income was assessed at Rs. 3,72,000/-. The assessee accepted the assessment order and did not file appeal against it. Then the AO imposed a minimum penalty of Rs. 1,14,948/- on the above amount.

4. The assessee preferred an appeal before the learned CIT(A) against the penalty order passed by the AO. The learned CIT(A) came to a finding that where search is carried out after 01.06.2007, Explanation 5 will not apply, and in such cases, Explanation 5A will apply, as per which assessee cannot be given any immunity even if he has surrendered such income and included the same in the return filed subsequent to search. The learned CIT(A) thus confirmed the penalty of Rs. 1,14,948/- imposed by the A.O. u/s 271(1)(c) of the Act.

5. Before us the learned counsel of the assessee submits that the search action was conducted by the Revenue on 09.10.2010 i.e. after the financial year ending 31.03.2010. It is submitted by him that the return of income for the A.Y. 2010-11 was due on 30.09.2010 and the same was filed on 24.09.2010. It is also submitted by him that the assessee has estimated the income for the entire year even though the seized papers were found showing unaccounted sales only for 3 months and this method of estimation of income is also accepted by the AO, though the estimation was made by adopting slightly higher GP. Thus it is submitted that penalty u/s 271(1)(c) is not leviable on the above estimated income. Further it is stated that there are no seized papers showing actual amount of GP earned from sales made out of books and the assessee has estimated GP taking average GP of last 3 years which comes to 22% whereas the AO estimated the GP at 27.60%. Thus it is submitted that the penalty levied amounting to Rs. 1,14,948/- on estimation of income for the entire period without any justification be deleted.

7.1 To sum up, the penalty in the instant case, has been imposed by the AO on (i) additional income of Rs. 3,14,000/- disclosed by the assessee in its return of income filed on 08.02.2012 in response to notice issued u/s 153C of the Act and (ii) Rs. 58,000/- estimated by the AO. The assessee has not contested the addition made by the AO in the assessment.

7.2 In a case where assessment is made on best judgement after estimating the turn over and rate of gross profit, it cannot be said that penalty cannot be imposed. It has to be examined whether there was material to implicate the assessee for having concealed, or furnished inaccurate particulars of income, also in the light of Explanation during the period it was effective.

7.3 Let us now discuss the decisions relied on by the learned counsel of the assessee. In Amir Chand vs. ITO (1994) 49 ITD 606 (Del), it has been held that it was not permissible to press into service Explanation 5 to Section 271(1)(c) while dealing with a case of survey u/s 133A of the Act. In the instant appeal we are concerned with search and seizure action u/s 132 of the Act. Therefore, the case of the assessee is distinguishable from the above case.

In Prem Arora vs. DCIT (2012) 149 TTJ (Del) 590, the search was carried out prior to introduction of Explanation 5A w.e.f. 1st June, 2007, therefore, the Tribunal held that no penalty could be levied upon the assessee u/s 271(1)(c).

In Smt. Usha Ashok Kumar Shah vs. DCIT (ITA No. 2766/Mum/2014) for the A.Y. 2003-04 ; Anant Shelters Pvt. Ltd. vs. ITO (ITA No. 7473/Mum/2011) for the A.Y. 2007-08; CIT vs. Aarkay Saree Museum (1991) 187 ITR 147 (Bom) and CIT vs. Modi Industrial Corporation (2010) 195 taxman 68 (P&H) the imposition of penalty as per Explanation 5 to section 271(1)(c) was not the issue.

7.4 For clarity the provisions of Explanation 5A to section 271(1)(c) are extracted as under:

“Explanation 5A.— Where, in the course of a search initiated under section 132 on or after the 1st day of June, 2007, the assessee is found to be the owner of— (i) any money, bullion, jewellery or other valuable article or thing (hereafter in this Explanation referred to as assets) and the assessee claims that such assets have been acquired by him by utilising (wholly or in part) his income for any previous year; or (ii) any income based on any entry in any books of account or other documents or transactions and he claims that such entry in the books of account or other documents or transactions represents his income (wholly or in part) for any previous year, which has ended before the date of search and,— (a) where the return of income for such previous year has been furnished before the said date but such income has not been declared therein; or (b) the due date for filing the return of income for such previous year has expired but the assessee has not filed the return, then, notwithstanding that such income is declared by him in any return of income furnished on or after the date of search, he shall, for the purposes of imposition of a penalty under clause (c) of sub-section (1) of this section, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income.”

7.5 In STC vs. Modi Sugar Mills, AIR 1961 SC 1047, p. 1051, his Lordship Shah, J. has said thus : “In interpreting a taxing statute, equitable considerations are entirely out of place. Nor can taxing statutes be interpreted on any presumptions or assumptions. The court must look squarely at the words of the statute and interpret them. It must interpret a taxing statute in the light of what is clearly expressed; it cannot imply anything which is not expressed; it cannot import provisions in the statute so as to supply any assumed deficiency”.

7.6 In ACIT vs. Smt. J. Mythili [2013] 35 taxmann.com 86 (Chennai - Trib.), it has been held that “where there was a search upon assessee and she subsequent to search, in pursuance of notice issued under section 153A, filed returns for relevant assessment years and amount shown in returns filed as 'other income' was not a part of her regular accounts, such amount would squarely come within purview of concealed income liable to penalty under section 271(1)(c)”. 7.7 For the reasons delineated at para 7 to 7.6 here-in-above, we uphold the order of the learned CIT(A).