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Income Tax Appellate Tribunal, “H” BENCH, MUMBAI
Before: SHRI AMIT SHUKLA & SHRI RAJESH KUMAR
आदेश / O R D E R PER AMIT SHUKLA, JUDICIAL MEMBER:
The aforesaid appeal has been filed by the assessee against the impugned order dated 20th June, 2013 passed by the ld. CIT(A) – 39, Mumbai in relation to the penalty proceedings u/s 271 AAA of the Income Tax Act, 1961 for A.Y. 2007-08.
The assessee is mainly aggrieved by the levy of penalty of Rs. 30 lacs imposed by the A.O. u/s 271 AAA of the Act. Brief facts of the case are that a search and seizure action was carried out by the Department u/s 132 of the Act on 5th June, 2007 at the residential/business premises of the Metro group ITA 5796/M/13 2 of cases which included the assessee also. In response to the notice u/s 153A of the Act dated 10th October, 2008, the assessee company has filed its return of income on 26th December, 2008 declaring total income at Rs. 1,86,53,260/- which was the same as declared in the original return filed u/s 139(1) of the Act. As against this, the assessment was completed u/s 143(3) r.w.s. 153A of the Act on a total income of Rs. 2,25,33,628/- vide order dated 24th November, 2009. It is pertinent to note that in the said assessment order, no penalty proceedings were initiated u/s 271 AAA nor any notice was issued for levy of such penalty at that time. The penalty which was initiated in the assessment proceedings was u/s 271(1)(c) of the Act. The nature of addition made by the A.O. was first of all on account of unaccounted turnover which was based on estimated unaccounted turnover and thereby applying GP ratio rate of 4.81% on estimate basis right from A.Y. 2003-04 to A.Y. 2008-09. The working is given as under :-
A.Y. Estimated Average GP Unaccounted unaccounted income turnover 2003-04 19,80,00,000 4.81% 95,23,800 2004-05 19,80,00,000 4.81% 95,23,800 2005-06 19,80,00,000 4.81% 95,23,800 2006-07 19,80,00,000 4.81% 95,23,800 2007-08 19,80,00,000 4.81% 95,23,800 2008-09 3,30,00,000 4.81% 15,87,500 The A.O. made further addition of Rs. 31,31,340/- as unaccounted capital based on some loose papers found during the search; addition of Rs. 1,61,67,568/- on account of unexplained jewellery was in the hands of the assessee; and Rs. 50,58,000/- on account of cash found during the course of search. During the course of search, the assessee had declared an income of Rs. 3 crores in the statement recorded u/s 132(4). Accordingly, the A.O. computed the undisclosed income in the following manner:-
ITA 5796/M/13 3
On account of unaccounted income as 95,23,800 discussed above Maximum unaccounted capital as 31,31,000 discussed above Unexplained jewellery found and seized 50,58,000 during the course of search 3,38,80,368 Less: Income declared u/s 132(4) 3,00,00,000 Further addition required to be made to 38,80,368 undisclosed income
The A.O. computed the total income as follows: Total income as per return u/s 153A -Rs.1,86,53,260 Add: Undisclosed income as discussed above -Rs. 38,80,368 Total income -Rs.2,25,33,628
Against the said assessment order, first appeal was filed by the assessee, wherein the ld. CIT(A) gave part relief to the assessee and determined the unaccounted income for A.Y. 2007-08 as under:-
i) Unaccounted income from unaccounted sales - Rs. 95,23,800/- ii) Seed Capital - Rs. 31,31,000/- iii) Jewellery & Bullion - Rs.1,61,57,568/- Income offered by the assessee - Rs.2,88,12,368/- Directing the A.O. to delete the addition of Rs.33,80,368/-“
It has been informed before us by the ld. Counsel that in the second appeal filed by the Department before the Tribunal, the deletion of undisclosed income of Rs. 33,80,368/- had been upheld and accordingly, the department appeal has been dismissed vide order dated 8th May, 2013. In the meanwhile show cause notice u/s 271(1)(c) and 271 AAA of the Act was issued on 12th March, 2012 by the A.O., in response to such notice, detail reply was filed by the assessee. After considering the submissions, the A.O. realized that the penalty u/s 271(1)(c) of the Act cannot be enforced in ITA 5796/M/13 4 assessee’s case as the disclosure made by the assessee belongs to the specified previous year in which the search took place. Accordingly he held that only penalty u/s 271 AAA of the Act can be initiated and levied. The assessee objected that such penalty cannot be levied because no such penalty u/s 271 AAA was initiated in the assessment order. During the course of assessment proceedings, the A.O. held that levy of penalty u/s 271 AAA of the Act is not contingent on its initiation during any proceedings of the Income Tax Act. Once the undisclosed income falls within the definition of this section and the conditions as prescribed in this section are applicable, penalty has to be levied. Accordingly, he levied penalty of Rs. 30 lacs being 10% of undisclosed income of Rs. 3 crores and the same has been confirmed by the ld. CIT (A) also.
Before the ld. CIT(A), assessee made detail submissions as to why legally and factually such penalty u/s 271 AAA of the Act cannot be levied in the case of the assessee. The assessee’s submission has been incorporated in the appellate order from pages 4 to 8. However, the ld. CIT(A) rejected the contentions of the assessee on the ground that the assessee though have made disclosure of undisclosed income and paid taxes thereon, however, the assessee had not “specified the manner” in which undisclosed income has been derived and also “manner has not been substantiated”. Accordingly, the ld. CIT(A) confirmed the penalty after observing and holding as under:-
“It is indeed a fact that the appellant made disclosure of undisclosed income and paid taxes/interest thereon. With regard to the manner in which undisclosed income has been derived and whether it has been substantiated, a contention has been raised by the appellant that neither in the course of the search nor in the assessment proceedings any such query or question was raised. A further contention is that when the undisclosed income as declared has been shown under the head 'Profits and Gains of Business or Profession' and the department has accepted the same by passing the assessment order accordingly, the appellant ought to be deemed to have substantiated the manner in which the undisclosed income was derived. It is held that such ITA 5796/M/13 5 contentions are devoid of merits. Assuming that no query or question was raised in the earlier proceedings with regard to substantiating the manner in which the undisclosed income was derived, it is not known what prevented the appellant from furnishing the requisite details in the course of the hearing of the current penalty proceedings. Further, appellant cannot take the plea that the income as disclosed has been accepted by the A.O and hence should not be visited with penalty. Disclosure of concealed income after seizure of incriminating material with regard to the income so disclosed cannot be a voluntary action since it is made under constraint of exposure to adverse action by the department; the underlying object of such disclosure being to avoid adverse consequences that may follow a non disclosure. The conclusion to be drawn is that all the three conditions as mentioned in the relevant provision has not been consecutively eo plied with. Even if one of the conditions is not fulfilled, the appellant is liable to be visited with penalty.”
Before us, the ld. Counsel for the assessee, Mr. Neel Khandalwal after explaining the entire facts of the case, reiterated that penalty proceedings u/s 271 AAA has to be initiated in the course of assessment proceedings only, because that is the determinative of undisclosed income which has been declared by the assessee. If there is no initiation then, no penalty can be levied and too after a gap of five years from the date of search. More so, in this case, at the time of offer made by the Director in the statement u/s 234(4), the assessee had clearly stated that no penal provision should be initiated. In support, the ld. Counsel drew our attention to the Question No. 11 of first statement which reads as under:-
“Q No. 11 Do you want to say anything else: Ans. During the course of search at these premises, certain incriminating evidence has been found as mentioned above. Considering this fact and to buy peace of mind and to avoid protracted litigation with the department, I as a director of TPVSL, voluntarily offer an amount of Rs. 6.75 crores as additional income of M/ s. Thakkar Popatlal Velji Sales Ltd. (TPVSL) at present. It may kindly be kept on record that this declaration of Rs. 6.75 crores is inclusive of Rs. 1.25 crores declared by me at my residence. The year-wise and head-wise bifurcation of the additional income will be furnished after going through the seized material but not before 13.06.2007. I undertake to file the returns of income accordingly and pay the taxes due. It is requested that due immunity may be granted from levy of penalty as per provisions of the 1. T. Act 1961."
ITA 5796/M/13 6 The ld. Counsel further submitted that either during the course of search or during the course of assessment proceedings, no question or query was raised by the authorities to either the specify the manner in which such income has been derived or to substantiate the same. The assessee’s undisclosed income has been accepted by the A.O. as well as by the ld. CIT(A) and, therefore, now it cannot be held that the assessee has not specified the manner or unable to substantiate the same. Here, in this case the assessee has initially offered additional income of Rs. 6.75 crores which was later on modified in the return of income to Rs. 3 crores which has been accepted by the Department. Thus, the assessee’s stand stands accepted and, therefore, no such penalty should be levied. In any case, the ld. Counsel submitted that from the break-up of Rs. 3 crores it can be seen that it is partly for unaccounted income which has been based on estimated turnover; partly out of jewellery and bullion which was categorically explained that they belong to various family members and is fully supported by declarations made in VDIS, 97. In support, the ld. Counsel drew our attention to Question No. 3 of the second statement recorded on 27th June, 2007. None of the ingredient which constituted so called undisclosed income required any specification or substantiation of the manner, because it is purely on estimate basis and in the case of jewellery, the manner and substantiation stands satisfied. Thus no penalty on merit can be levied. In support of his contention, the ld. Counsel had relied upon the following decisions:-
(i) Pram od KumarJain vs. Dy. CIT 149 TTJ (Ctk.) (UO) 36 (ii) Ashok Kumar Sharma V/s. Dy. CIT 149 TTJ (Ctk.) (UO) 33 (iii) Dy. CIT V /s. Pioneer Marbles & Interiors P. Ltd. 50 SOT 571 (Ko1.) (iv) Mothers Pride Education Personna P. Ltd. V/s. DCIT (ITA No.3372/De/2011) (v) CIT V / s. Mahendra C Shah 299 ITR 305 (Guj) (vi) ITO V /s. Shilpa V Gupta (ITA. 1784/ Ahd/2012)
ITA 5796/M/13 7 (vii) DCIT V /s. Smt. Sulochanadevi A. Agarwal (ITA No.1052/ Ahd/2012)
The ld. D.R., on the other hand, relying upon the order of the ld. CIT(A) and submitted that, how the income has been earned and how the capital has been deployed needs to be explained by the assessee which in this case has not been done. The onus is entirely on the assessee to provide the evidence in support of the disclosure made and if the same has not been done, then, the penalty u/s 271 AAA of the Act is clearly attracted which is a deemed penalty. The conditions laid down for absolving the assessee from the penalty under this section had to be strictly followed. Thus, the ld. D.R. submitted that the penalty has been rightly confirmed by the ld. CIT(A).
We have heard the rival contentions as well as the relevant findings given by the authorities below and the material available on record including the case laws relied upon before us. From the record, it is seen that the first statement of Mr. Yogesh Popatlal Thakkar, Director of the assessee company was recorded u/s 132(4) of the Act on 6th June, 2007, wherein in response to Question No. 11, he submitted that in order to avoid protracted litigation with the Department, he is voluntarily offering Rs. 6.75 crores as additional income, although, the year-wise bifurcation was to be given subsequently. In the said statement he further requested that immunity from levy of penalty under the provisions of Income Tax Act should be granted. The relevant question has already been reproduced above. Later on, in the second statement recorded on 27th June, 2007, with regard to the jewellery, the statement of the Director reads as under:-
“Ans:- I have produced before you the Wealth Tax Returns of A.Y. 92-93 for myself, Yogesh Thakkar (HUF), Harsha Thakkar, Hansaben Thakkar, Nisha Thakkar, Nitin Thakkar, Vitin Thakkar (HUF); Also I am producing the VDIS particulars of Harsha Thakkar and Hansaben Thakkar, who have declared 1524.29 gms gold jewellery in VDIS 97. I am also producing bills (two) of two diamond jewellery purchased on ITA 5796/M/13 8
22-04-2007 of Rs. 3,41,000/- and rs. 3,01,000/- which have been paid by cheque except for rs. 1,40,000/- in cash. Since this amount has been paid in cash from undisclosed sources, I am offering the amount of Rs. 1.4 lacs as mu undisclosed income and should be included in the amount of Rs. 6.75 crores disclosed on 05-06-2007.”
From the above statement, it can be deduced that part of the source of jewellery found was explained through declarations under VDIS 97 and hence no substantiation as such is required to this extent. The disclosure u/s 132(4) by the assessee had been later clarified to be undisclosed income (for the purpose of disclosure) at Rs. 3 crores, consisting of following items of income :-
Particulars Amount Maximum unaccounted capital 31,31,000 Unexplained jewellery found and seized during 1,81,67,568 the course of search (The correct amount is Rs. 1.81 lacs and not Rs. 1,61 lacs) Unexplained cash found and seized during the 50,58,000 course of search Cash receipts 20,00,000 Miscellaneous 16,43,432 3,00,00,000 The manner in which the assessment has been completed has already been discussed above. From stage of the ld. CIT(A) the unaccounted income was computed as under:- i) Unaccounted income from unaccounted sales - Rs. 95,23,800/- ii) Seed Capital - Rs. 31,31,000/- iii) Jewellery & Bullion - Rs.1,61,57,568/- Income offered by the assessee - Rs.2,88,12,368/- Directing the A.O. to delete the addition of Rs.33,80,368/-“ From the perusal of the aforesaid items of income, it is seen that, so far as the unaccounted income from unaccounted sales is concerned, it is based purely on estimated turnover made at Rs. 19.80 crores on which estimated GP ratio ITA 5796/M/13 9 at 4.81% has been applied. Once the income has been determined finally by the ld. CIT(A) on account of estimated turnover and estimated GP and not in the manner in which the assessee has disclosed, then there is no question of levy of penalty u/s 271 AAA on this amount of unaccounted income. Further, as regard the addition on account of unaccounted capital of Rs. 31,31,000/-, it is seen that it is based on determination made by the A.O., on the basis of certain seized material but not quantified. A.O. has held that, this much amount would be the maximum unaccounted capital for the business. Once it is part of the income determined under the head business or profession, then inherent substantiation of the manner lies in the computation itself, i.e. it is on account of business income which has been offered. Moreover, this bifurcation appears to be on lumpsum basis which was not made or offered at the time of statement recorded u/s 132(4) of the Act but made later on. However, either at the time of search or at the time of assessment, the assessee was not even asked to specify the manner in which the undisclosed income has been derived. If such a question was not confronted, then how penalty u/s 271 AAA can be levied, especially here in this case. Later at the time of assessment proceeding only such income was determined. The A.O. did not initiated or issued any notice for initiating the penalty proceeding u/s 271 AAA. Rather A.O. proceeded to initiate the penalty u/s 271(1)(c), which inter alia means that A.O. did not found sufficient reason or basis to initiate penalty u/s 271 AAA. The initiation of penalty u/s 271 AAA cannot be at limbo and sweet will of the A.O., that he may take up after gap 5 years from the date of search. The law of limitation prescribed for penalties u/s 275 also applies to section 271 AAA. If the limitation is to be reckoned from the date of the assessment order, then initiation has to be there in such proceedings or assessment order. Nowhere the A.O. or CIT has specified that, under which proceedings, this penalty u/s 271 AAA has been initiated. If it is not in the course of assessment proceedings, then the initiation itself fails; and if it is to be reckoned from the date of search proceedings then already 5 years have ITA 5796/M/13 10 lapsed. Thus, on this count also penalty u/s 271 AAA cannot be sustained. Lastly, regarding the unexplained jewellery of Rs. 1,61,67,568/-, it has been stated that these belongs to the family members for which the declaration had been made under VDIS 97 and secondly, part of the same were out of gold coin issued by various cement companies to the distributors under various incentive schemes, in which assessee was dealing. Therefore, not only the manner has been specified but also it stands substantiated by the assessee. This aspect is clearly evident from the statement as reproduced above and also the findings of the ld. CIT(A), the relevant portion of which is extracted in the impugned penalty order at pages 1 to 4. Thus, on merits as well as on legal ground, we do not find any reason to confirm the penalty u/s 271 AAA and accordingly, the same is directed to be deleted.
In the result, the appeal filed by the assessee company is allowed
Order pronounced in the open court on 13th January, 2017. आदेश क� घोषणा खुले �यायालय म� �दनांकः 13-01-2017 को क� गई ।