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Income Tax Appellate Tribunal, “E” Bench, Mumbai
Before: Shri B.R. Baskaran (AM)& Shri Pawan Singh (JM)
O R D E R Per B.R. Baskaran (AM) :-
Both the appeals filed by the assessee are directed against the order passed by the learned CIT(A)-41, Mumbai conforming the penalty levied by the Assessing Officer u/s. 271(1)(c) of the Act for A.Y. 2006-07 & 2007-08.
Both appeals were heard together and hence they are being disposed of by this common order, for the sake of convenience.
Facts relating to the case are stated in brief. The assessee is a partnership firm engaged in the business as developer, builder and contractor. Search and seizure operation was conducted u/s. 132 of the Act in the Ravi Shetty Group cases on 26.7.2007. The Revenue also carried out survey operation u/s. 133A of the Act at the business premises of the assessee. During the course of survey action, loose papers were found and impounded. Those documents revealed that the assessee has received a sum of ` 6 lakhs in aggregate on 29.11.2005 and on 41.1.2006 by way of cash on sale of a flat in 2 M/s. Sai Radha Developers the building named “Sai Radha Paradise”, i.e., during the year relevant to assessment year 2006-07. Documents also revealed that the assessee has received payments by way of cash in respect of another project named “Achu Nandana Apartment". Aggregate amount of cash received in respect of this project on 14.7.2007 was ` 61,11,550/- which included unaccounted amount of ` 60,60,800/-, i.e. during the year relevant to AY 2007-08. Loose papers also revealed that the partner of the assessee has received a sum of ` 7,70,000/- by way of cash in respect of sale of shops in April, 2007. When these discrepancies were confronted to the partner of the assessee firm during the course of search operations, the partner has agreed to offer a sum of ` 75,00,000/- u/s. 132(4) of the Act.
Subsequently, the assessments of both the years under consideration were reopened by the Assessing Officer by issuing notice u/s. 148 of the Act. In response thereto, the assessee filed return of income admitting additional income of ` 6 lakhs in A.Y. 2006-07 & ` 69 lakhs in A.Y. 2007-08.
The Assessing Officer completed the assessment of A.Y. 2006-07 by accepting income declared by the assessee. In A.Y. 2007-08, the Assessing Officer disallowed a sum of ` 1,75,308/- u/s. 40A(3) of the Act, being 20% of the expenditure incurred by way of cash. Thereafter the Assessing Officer initiated penalty proceedings in both the years u/s 271(1)(c) of the Act and levied penalty on the additional income of ` 6 lakhs declared in A.Y. 2006-07 and ` 70,75,308/- (69,00,000+1,75,308) in AY 2007-08 computed @ 100% tax sought to be evaded. The assessee could not succeed in appeals filed before the learned CIT(A) for both the years and hence the assessee has filed these appeals before us.
The Ld A.R submitted that the assessee is following mercantile system of accounting and both the building projects were completed subsequently in AY 2008-09. Accordingly he submitted that the discrepancy, if any, in not disclosing the receipts would have bearing only in AY 2008-09 and not in AY 2006-07 and 2007-08. He submitted that it is also established proposition
3 M/s. Sai Radha Developers that the entire unaccounted receipt, if any, cannot be taxed, but only the income element therein should be taxed. However, the partner of the assessee, without appreciating these legal positions, has agreed to offer entire amount of Rs.75.00 lakhs in order to buy peace and to avoid litigation in the statement taken u/s 132(4) of the Act during the course of search conducted in his hands. He submitted that the assessee was subjected to only survey operations u/s 133A of the Act and not subjected to search. He submitted that the assessing officer should have initiated proceedings u/s 153C of the Act, since the offer was made in the statement recorded u/s 132(4) of the Act, but the AO chose to reopen the assessment u/s 148 of the Act. Since the additional income was offered by the partner during the course of search operation, the assessee has offered additional income accordingly. He submitted that the income can be taxed only in the appropriate assessment year and the concession given by the assessee cannot operate as estoppel. Hence the additional income offered by the assessee cannot be considered to be a case of concealment of income or furnishing of inaccurate particulars of income, when there is no legal obligation to offer the same during the two years under consideration. He further submitted that the disallowance made u/s 40A(3) is a disallowance made by legal fiction and hence the same would not result in concealment of particulars of income or furnishing of inaccurate particulars of income.
The Ld A.R also submitted that there is no application of mind on the part of the AO when he initiated the penalty proceedings, i.e., the AO has not specified the charge, i.e., the limb mentioned in sec. 271(1)(c) of the Act under which the penalty proceedings have been initiated. Accordingly he submitted that the penalty orders are liable to be quashed on this legal point also.
On the contrary, the ld D.R submitted that the assessee has not accounted the amounts received by way of cash and the same is evidenced by the loose sheets found during the course of search. The assessee has come forward to admit the additional income after the search/survey operations and hence the Ld CIT(A) has rightly confirmed the penalty levied in both the years
4 M/s. Sai Radha Developers as the offer of additional income was not voluntary, but the same was made after its detection by the revenue.
We have heard rival contentions and perused the record. There is no dispute with regard to the fact that the assessee is following project completion method for offering income from the building projects. There is also no dispute with regard to the fact that both the building projects, viz., “Sai Radha Paradise” and “Achu Nandana Apartments” have not been completed during the years under consideration, i.e., they have been completed in the year relevant to AY 2008-09. Hence there is merit in the contentions of the Ld A.R, the incidence of taxation on account of unaccounted receipts, if any, shall arise only in AY 2008-09 and not during the years under consideration. It is well established proposition of law that the income pertaining to one year cannot be assessed in another year. The Ld A.R also contended that the entire amount of alleged unaccounted receipts cannot be taken as income of the assessee and only the income portion thereon can be assessed in order to reiterate the point that the offer was voluntary one.
It is well settled proposition that the penalty proceedings are independent of assessment proceedings and further, the additions made in the assessment proceedings would not automatically give rise to penalty u/s 271(1)(c) of the Act, i.e., during the course of penalty proceedings, the assessing officer is required to examine the applicability of sec. 271(1)(c) of the Act afresh and the findings given in the assessment order can only be taken as a guidance. In the instant case, the assessee has contended that the income additionally offered by the assessee did not accrue during the two years under consideration. Further the offer was made by the partner of the assessee firm during the course of search proceedings conducted in his hands, while the assessee was subjected to only survey operations. We notice that the assessing officer has accepted the additional income offered by the assessee only on the basis of offer made in the statement taken from the partner of the firm u/s 132(4) of the Act, i.e., the assessing officer did not examine the aspect whether the alleged unaccounted receipts are taxable in the two years under consideration.
5 M/s. Sai Radha Developers Further he did not also examine the question as to whether the entire amount can be taken as the income of the assessee. It is noticed that the assessee also declared additional income on the strength of the offer made u/s 132(4) of the Act. Under these set of facts, we are of the view that the additional income offered by the assessee can be considered as a voluntary offer only and it cannot be considered as an offer made after detection by the revenue. In any case, we notice that the explanation of the assessee was not found to be false in terms of Explanation 1 to sec. 271(1)(c) of the Act.
In view of the foregoing discussions, we are of the view that there is no case to levy penalty u/s 271(1)(c) of the Act in both the years under consideration. The Ld A.R also contended that the AO did not apply his mind as required u/s 271(1)(c) of the Act while initiating penalty proceedings. Since we have deleted the penalty on merits, we do not find it necessary to address the legal issue. Accordingly we set aside the orders passed by Ld CIT(A) in both the years and direct the AO to delete the penalty levied u/s 271(1)(c) of the Act in both the years.
In the result, both the appeals of the assessee are allowed.
Order has been pronounced in the Court on 1.3.2017.