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Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI SANJAY ARORA & SHRI G. PAVAN KUMAR
आदेश /O R D E R
Per Sanjay Arora, AM:
This is an Appeal by the Assessee challenging the Order by the Commissioner of Income Tax Appeals (Central)-I, Chennai (‘CIT(A)’ for short) dated 28.08.2014, confirming the levy of penalty u/s. 271(1)(c) of the Income Tax Act, 1961 (‘the Act’ hereinafter) for the assessment year (AY) 2007-08.
This appeal was disposed of by the Tribunal in the first instance on 14.01.2016 vide its common order for AYs 2003-2004, 2005-2006 to 2007-2008 (copy on record). However, Ground 1, projected per sub-grounds 1.1 to 1.4 of its 2 S.Muthukarrupan vs. Asst. CIT appeal, being omitted to be decided, the same stands restored by it for being heard and disposed (in MA No.165/Mds/2016 dated 23.09.2016). The brief facts in this case are that the assessee, a business man undertaking trading activity in Naupli seeds, was intercepted at the Chennai Airport with cash of Rs.24.85 lacs, which was subject to seizure u/s. 132. It is the sustainability or otherwise in law, in the facts and circumstance of the case, of the levy of penalty u/s. 271(1)(c) of the Act consequent to its assessment vide order dated 26.12.2008, that forms the subject matter of the surviving appeal. While the assessee seeks refuge under Explanation 5 to s. 271(1)(c), in the view of the Revenue, the assessee had been able to substantiate his claims with any cogent evidence, even as concealment of income stands positively established.
3. We have heard the parties and perused the material on record; each side also furnishing a paper-book (PB). The issue before us lies in a very narrow compass, i.e., whether or not the assessee has satisfied the conditions of clause (2) of Explanation 5 to s. 271(1)(c), so as to be entitled to the saving from the levy of penalty there-under. We observe no finding by the Revenue authorities in the matter, even as specific contention in this regard was raised by the assessee before the ld. CIT(A) vide his written submissions dated 30.10.2013 (APB pages 26-29, at para 09; also refer para 5.3 of the impugned order). The said Explanation reads as under: ‘Explanation 5.— Where in the course of a search under section 132, the assessee is found to be the owner of 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,-- (a) for any previous year which has ended before the date of the search, but the return of income for such year has not been furnished before the said date or, where such return has been furnished before the said date, such income has not been declared therein ; or (b) for any previous year which is to end on or after the date of the search, then, notwithstanding that such income is declared by him in any return of income furnished on or after the date of the search, he shall, for 3 S.Muthukarrupan vs. Asst. CIT 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, unless,-- (1) such income is, or the transactions resulting in such income are recorded,-- (i) in a case falling under clause (a), before the date of the search ; and (ii) in a case falling under clause (b), on or before such date, in the books of account, if any, maintained by him for any source of income or such income is otherwise disclosed to the Chief Commissioner or Commissioner before the said date ; or (2) he, in the course of the search, makes a statement under sub-section (4) of section 132 that any money, bullion, jewellery or other valuable article or thing 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. We accordingly proceed to examine the satisfaction of the each of the three conditions set out under clause (2) (b) of Explanation 5. The assessee’s statement of taxable income (DPB pg.26), forming part of the return of income for the relevant year, bears an entry (for Rs. 25.20 lacs) as follows, and on which basis declaration of income of Rs. 24.85 lacs is being claimed: (DPB pg. 26)
‘Income from other sources Commissions and income from real estate transactions 2520000 Interest on bank deposits 4451 Other Receipts 135104 2659555’ On being questioned about the difference (Rs.35,000/-) in-as-much as there is no mention of seizure of cash or surrender of undisclosed income in the statement of taxable income, the ld. A.R would take us through the assessee’s submissions in the matter during the assessment proceedings (APB pgs. 3-6), which in fact find reproduction in the assessment order, and reads as under: ‘2. Kindly be noted that I am a small business man working very hard in life. I faced lot of hurdles problems in my business. As the firms in which I am a partner 4 S.Muthukarrupan vs. Asst. CIT are not faring well due to adverse business conditions in sea food trade. In the beginning of the previous year 2006-07 I had entered into real estate business as it was booming at that time. I thought I can make some money in real estate if I am bold and courageous. Though my entry into the real estate was late, I felt that it is not too late. To make investment in properties, I had borrowed substantial amounts from various friends and relatives for interest. All these loans are taken by cheques/drafts only. With the borrowed funds and also with my small savings I had purchased few properties during the previous 2006-07. I made the investment in properties with the aim that T can sell them at a later date for better price and make some gain. I also thought that with the sale proceeds of properties I can repay all the loans. As the money available with me is not sufficient to make investments in properties. I had done few transaction of making small advance to land owners, search for potential buyer and facilitate the sale transactions between the seller and the ultimate buyer and in that process I made some money. Also I have acted as an agent in real estate and earned some commissions during the previous year 2006- 07. Further I made some small commission in arranging shrimp seed for the farmers from hatcheries during the previous year 2006-07. I have not maintained proper records for the real estate transactions and commission earned in real estate and shrimp seeds. In view of this I could not able to give complete details of the transactions in real estate, commissions earned therein etc. However in my fund flow statement prepared for the year 2006-07 I have correctly arrived my incomes and commissions in real estate transactions and shrimp seeds which in total comes to Rs. 25,20,000/-.
Kindly be noted that I have not made any extra income in the above said transactions more than what is noted above. In fact I have to make some payment to sub-brokers out of the above earned income towards their commission which is also not deducted from the above amount. If it is done, my income will come down from the above noted figure.
I had already explained that the ultimate and substantial source for the cash brought by me, which was seized at the Airport, is my commissions and income in real estate transactions and shrimp seeds. But the 'entire amount of this cash does not represent my above said commissions and other incomes alone. Only substantial amount of this cash represents the said incomes and part of this cash consists of loans taken from various persons by cheques/DD which are later withdrawn from banks. At the time of cash Seizure, as I was not maintaining proper accounts for these real estate transactions and commissions, I had told that the above income are yet to be accounted and will be admitted as income in the return of income to be filed for the Asst. year 2007-08. Accordingly, I have later ascertained properly the above said income from commissions from all sources and other real estate transactions and admitted the same as income in the return of income filed for the asst. year 2007-08 voluntarily.’ The assessee has explained that he entered real estate business during the relevant previous year, i.e., f.y. 2006-2007, with some savings and borrowings 5 S.Muthukarrupan vs. Asst. CIT from friends and relatives, which were through the banking channel, investing in certain lands with a view to sell them at a profit. He had also undertaken some transactions on ‘Agreement to Sell’ basis, paying advance to the land owners. Then, again, he had acted as an agent in some other transactions, earning commission during f.y. 2006-07. The total income, arrived at on the basis of a cash flow statement – in-as-much as proper records were not maintained, from the same as well as from commission in the shrimp seed business, is Rs. 25.20 lacs. In fact, he goes on to add (at paras 3 & 4 of his statement), that some payments to sub- brokers from the said income are yet to be made, and which will further reduce his income. Further, that the cash seized did not represent his income in the entirety, and that a good part of it was cash withdrawn from the bank against deposit of cheques/DDs towards loans from different persons. The last part, we observe, is a contradiction in-as-much as assessee confirms having arrived at the income figure only on the basis of the cash flow statement, prepared in the absence of proper records. Also, how could the claim of ‘borrowing’ from ‘friends and relatives’ - from whom loans are purportedly availed, be ‘accepted’ without being substantiated with the reference thereto – whose identity remains unspecified, much less confirmed by them. The same as well as reference to the sub-broker commission is inconsequential as no claim for the same has been made; rather, could not be without furnishing proper details. The AO has, accepting the disclosure, brought the entire amount (Rs.24.85 lacs) to tax by way of cash seized, and the balance Rs. 0.35 lacs as commission and income from real estate business. The condition of the returning the income is thus satisfied. For the payment of tax, the assessee claims so on the basis of the income statement, claiming refund for Rs.17.25 lacs, i.e., after adjusting the tax liability on the returned income. Though the amount seized cannot be by itself appropriated against tax liability, for which the order u/s. 132 is required, the claim for refund after adjusting the tax liability on the returned income itself signifies admission and payment of tax on the returned income, satisfying thus the condition of payment of tax on the disclosed income.
6 S.Muthukarrupan vs. Asst. CIT The third aspect is admission u/s. 132(4) as well as stating the manner in which the income has been earned. Per the statement u/s. 132(4) dated 05/2/2007 (DPB pgs. 3-4), the assessee admits to being engaged in brokerage in shrimp seed business, commission income from which was deposited with his friends and relatives in-as-much as he intended to purchase land, and not reflected in his returns. Per the statement u/s. 131 dated 05.02.2007 (APB pgs. 1-7), the assessee explains to be in shrimp seed business; of having borrowed Rs. 20 lacs (in cash) from his friend at Coimbatore - where he went on 03.02.2007 to borrow money, while Rs. 5,00,000/- was received by way of advance on ‘sale of land’. True, there are some contradictions and gaps in the statements, but the same are liable to be ignored in-as-much as the assessee admits to the cash found in his possession as representing his undisclosed income (vide answer to Q.17). It is clear that the amount stands earned by him from the Naupli seeds business as well as transactions in real estate. No doubt, a part of the deposition is u/s. 131, but the same is again under oath and, more importantly, honoured. The submissions during assessment proceedings must also be considered as in continuation of his depositions. The condition as stipulated does not require the assessee to prove anything. In any case, there were sufficient leads in the assessee’s statements which, if pursued, could determine if the statement/s by the assessee was false, in which case he could not seek remission or immunity from penalty, which is premised on the Revenue discovering thus a source of undisclosed income, i.e., in the bargain. Though we are only concerned with the penalty as levied, i.e., qua the sum recovered, the cash seized may well represent a fraction (or part) of the amount invested by the assessee in his undisclosed businesses. In our view, therefore, the assessee has satisfied all the conditions set out in clause (2) of Explanation 5 to s. 271(1)(c). We, accordingly, direct the deletion of the impugned penalty.