SHRI SURENDRA SINGH BHATIA,INDORE vs. THE JCIT-3, INDORE

PER Ms. MADHUMITA ROY - JM:

The instant appeal filed by the assessee is directed against the order dated 02.12.2016 passed by the Ld. Commissioner of Income Tax (Appeals)-I, Indore (in short ‘CIT(A)’), arising out of the order dated 06.03.2013 passed by the JCIT, Range-3, Indore, under section 271AAA of the Income Tax Act, 1961 (hereinafter referred as to ‘the Act’) for Assessment Year 2015-16.

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“Whereas in the course of proceedings before me for the Assessment Year 2008- 09; it appears to me that you have contravened the provisions of section 132(4) during the relevant previous, year. Failure to comply with the provisions of section 132(4) attracts penal, provisions of section 271AAA of the I.T. Act, 1961.

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You are hereby requested to appear before me at 11::45 A.M, on 29/01/2010 and show cause ''why an order imposing a penalty on you should not be made under section 271AAA of the Income-Tax Act, 1961. If you do not wish to avail yourself of this opportunity of being heard in person or through authorised representative you may show cause in writing, on or before the said date which will be considered before any such order is made under section 271AAA of the I.T. Act, 1961.”

“5. That, in the statement given under s, 132(4), I had not only admitted the undisclosed income but had also specified the manner in which such undisclosed income was derived by me during the financial year under consideration. In reply to the question No.9.1 had declared the undisclosed income to the extent of Rs.14,00,00,000/- on account of unpaid freight, keeping in mind the provisions of section 41(1) of the Income-Tax Act, 1961. Likewise, in reply to the question No. 10t I had declared undisclosed income, to the extent of Rs.65,76,375/- on account of unexplained investment in certain property at Surat. Finally, in reply to question No.11, I had declared undisclosed income to the extent of Rs.1,24,00,000/- on account of unexplained investment in certain property at Simrol. In nutshell, the undisclosed income of Rs.14,00,00,000/- was admitted by me as having been derived from the source of business whereas the remaining undisclosed income of Rs.1,89,76,375/- was admitted by me as having been derived from income from other sources, 6. That, during the course of recording the statement, under s. 132(4), of my real brother Shri G.S. Bhatia on 26-10-2007, Shri G.S. Bhatia, on my request, and instruction and acting as my lawful attorney, also admitted an additional undisclosed income of Rs.9,00,00,000/- on my behalf for the assessment year under consideration. Shri G.S. Bhatia, on my behalf, had admitted such undisclosed income in respect of my proprietorship business concern namely M/s. Associated Transport Company.

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along with the copy of the acknowledgement are being submitted herewith for kind perusal of your good self, as Annexure A-2.01 & A-2.02. 9. That, on a perusal of the computation of total income, as furnished along with the return of income for the assessment year under consideration, it shall be observed by your good self that the entire undisclosed income of Rs.24,89,76,375/-, which was admitted by or on, behalf of me, under s. 132(4), has duly been incorporated by me while furnishing the return of income.

Date Amount Various dates through TDS 2,62,79,228 14-09-2007 1,40,00,000 15-12-2007 5,00,00,000 15-12-2007 1,30,00,000 15-03-2008 1,63,00,000 18-09-2008 40,00,000 25-09-2008 17,00,000 27-09-2008 1,23,37,620 Total 13,76,16,848

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case a search has been initiated, would not apply. In other words, I am eligible for the immunity from imposition of the penalty, under the specific provision i.e. sub- section (2) of section 271AAA of the Act. In such circumstances, the penalty proceedings so initiated by your good self under s. 271AAA deserves to be dropped." The reply of the assessee is considered but not found acceptable on the merits. There are no provisions in the income tax Act to drop the penalty until the all conditions in sub-section (2) of section 271AAA are fulfilled. The provisions of section 271 AAA states as under- "271AAA(1)- The assessing Officer may, notwithstanding anything contained in any other provisions of this Act, direct that in a case where search has been initiated under section 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 often per cent of the undisclosed income of the specified previous year. 271AAA(2)- Nothing contained in sub- section(1) shall apply if the assessee,- (i) In the course of the search, in a statement under sub-section(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 (iii) Pays the tax, together with interest, if any, in respect of the undisclosed Income." In view of above section, it indicates that the assessee can get immunity from levy of penalty only if all the conditions laid in sub-section (2) of section 271AAA are fulfilled. On perusal of the statement as recorded u/s 132(4) of the I.T. Act during the course of search f proceedings, it is noticed that assessee has not specified the manner in which such income has been derived. Assessee also fails to substantiate the manner in which the undisclosed income was derived. Therefore, the conditions u/s 271AAA(2) (i) & (ii) are not been fulfilled. Hence, the immunity granted u/s 271 AAA for levy of penalty is not applicable in the case of assessee. In view of the above mentioned facts of the case, I am satisfied that assessee has admitted total undisclosed income of Rs. 24,89,76,375/-in the course of the search proceedings in the specify thru is F.Y. 2007-08 and on this undisclosed income penalty is levied as per provisions of section 271AAA of the I.T. Act, which is calculated as under:- Income sought to be concealed Rs. 24,89,76,375/- 10% of the concealed Income Rs. 2,48,97,638/- Rounded off Rs. 2,48,97,700/- Accordingly penalty of Rs.2,48,97,700/- is imposed u/s 271 AAA of I. T. Act.”

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provision of sub-Section (2) of Section 271AAA of the Act has been complied with and, thus, penalty in the case of a searched person like the assessee would, therefore, not be applicable. The assessee is, thus, eligible to the immunity from the imposition of penalty under specific provision of Sub-Section (2) of Section 271AAA of the Act. However, the Ld. AO was of the opinion that the assessee has not specified the manner in which such undisclosed income has been derived. According to the Ld. AO, the assessee failed to substantiate the manner in which the conditions under Section 271AAA(2) (i) & (ii) of the Act has been fulfilled and finally 10% of the concealed amount of Rs.24,89,76,375/- has been imposed as penalty under Section 271AAA of the Act.

The appellant is an individual, presently aged nearly 51 years. The appellant is regularly assessed to Income-Tax for the last many years. A search U/S. 132(1) of the Income-Tax Act, 1961 was carried out by the Assistant Director of Income-Tax (Inv.)-II, Indore, on 25-09-2007, in the residential premises of the appellant as also in the business premises of various concerns in which the appellant and his family members/relatives were having vested interest. During the course of the search proceedings, various statements of the appellant under the provisions of s.!32(4) of the Income-Tax Act 1961 were recorded by the Authorized Officers. A copy of such statements are being submitted herewith, as Annexure A-1.01 to A-1.03 [PB Page No. 15 to 32] Besides recording the statement of the appellant, on certain issues related to the affairs of the appellant, statement of real brother of the appellant namely of Shri G. S. Bhatia was also recorded under s.132(4) of the Act A copy of such statement is being submitted herewith as Annexure A-1 04 [PB page No 33 to 44]. The appellant while giving the statements, had admitted additional income of Rs.24,89,76,375/- for the assessment year under consideration. Subsequently, a Notice was issued upon the appellant for furnishing his return of income for the relevant assessment year by the concerning AO. In response, the appellant furnished his Return of Income, pertaining to the assessment year under consideration,28-09-2008 vide Ack. No. 41983551280908 by declaring an income of Rs.40,00,14,766/-. In the return of income so furnished, the appellant had included the additional income of Rs.24,89,76,375/- which was admitted by him under the provisions of s.l32(4) of the Act. Before furnishing the return, the appellant had also paid the entire tax due on the return of income so furnished. The case of the appellant was selected for Scrutiny and various Notices u/s. 143(2) & 142(1) along with questionnaires were issued. In response to such

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Notices, the appellant through his authorized representative attended the hearing before the learned Assessing Officer from time to time and made written submissions along with necessary documentary evidences. During the course of the assessment proceedings, the appellant, inter alia, furnished a copy of his audit report and audited financial statements before the concerning AO, a copy whereof are being submitted herewith as Annexure A-2.01 & A-2.02 [PB Page no. 45 to 91] The learned Assessing Officer framed the assessment on 29-12-2009, u/s. 143(3) of the Income-Tax Act, 1961, by determining the income of the appellant at Rs.40,15,16,895/- as against the returned income of Rs.40,00,14,766/- thereby making addition of Rs. 15,02,129/-. Out of the additions of Rs.15,02,129/-, an addition to the extent of Rs.6,18,746/- was made by the learned AO by making ad-hoc disallowances ouf of various expenses claimed by the appellant whereas the remaining addition of Rs.8,83,283/- was made by invoking the provisions of S.14A of the Act. The AO while passing the assessment order also initiated penalty proceedings under S.271AAA of the Act. A copy of the assessment order has already been furnished by the appellant along with the Appeal Memo for the present appeal. Being aggrieved with the assessment order, the appellant preferred an appeal before the Office of Your Honour, on 18-01-2010, in Appeal No.IT-247/09-10 agitating the additions of Rs.15,02,129/- made by the learned AO. The quantum appeal, filed by the appellant as aforesaid, was duly disposed by the predecessor in the Office of Your Honour by passing an Order dated 30-11-2011. A copy of the Order is being submitted herewith as Annexure A-3.00 [PB Page No. 92 to 103]. In accordance with the first Appellate Order, the appeal of the appellant was fully allowed by directing the concerning AO to delete the entire additions of Rs.15,02,129/- made in the assessment order with the result that the income declared by the appellant in his return of income became his assessed income for the assessment year under consideration without any addition of even a single penny. Against the first Appellate Order, now the Department is in appeal before the Hon'ble ITAT, Indore Bench, Indore and the matter is still pending for adjudication by the Hon'ble ITAT. Meanwhile, the assessing officer issued a notice dated 11-l2-2012 to the appellant under the provisions of S.271AAA of the Income-Tax Act, 1961. A copy of the Notice is being submitted herewith as Annexure-A. 4.00 [PB page No. 104]. In response to the show-cause notice, the appellant made his detailed reply vide submission letter dated 12-02-2013. A copy of the reply is being submitted herewith as Annexure A-5.00 [PB Page No. 105 to 110]. Finally, the learned assessing officer vide the impugned penalty order passed on 06-03-2013, discarded the reply of the appellant and imposed a penalty of Rs.2,48,97,700/- i.e. @ 10% of the undisclosed income amounting to Rs.24,89,76,375/-. Against the penalty order, the appellant is now in appeal before Your Honour. No penalty is leviable in view of the facts and circumstances of the case and following submissions: GROUND NO. 1 SUBMISSION Since, the ground is general in nature, no specific submission has been considered necessary. GROUND NO. 2(a) & 2(b) SUBMISSION In this context, it is submitted as under: 1.00 That, in the instant case, the search had taken place on 25-09-2007 and since the appellant was having income from business in which turnover was exceeding limit of Rs.40 lakhs as prescribed under the provisions of S.44AB of the Act, the date for furnishing return of income under s.139(1) of the Act, for the assessment year under consideration, was falling due on 30-09-2008. However, the appellant furnished his return of income, on 28-09-2008, i.e. before the due date.

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2.00 That, the appellant had furnished his return of income by declaring an income of Rs.40,00,14,766/- and after giving effect to the first Appellate Order, the income finally got assessed on the same income of Rs.40,00,14,766/- meaning thereby that no concealment of income was found in the return of income furnished by the appellant. 3.00 That, on a perusal of the findings given at the last page of the assessment order, it shall be observed by Your Honour that the assessing officer framing the assessment has found no discrepancy or infirmity in the return of income furnished by the appellant. It shall be appreciated by Your Honour that while computing the taxable income of the appellant, the learned AO has considered the returned income of Rs.40,00,14,766/- by categorically stating as "Income as per Return which includes undisclosed income u/s. 132(4) as narrated above". From such fact, it is evident that the learned AO framed the assessment merely on the basis of income declared by the appellant himself in the return of income which was inclusive of undisclosed income admitted under s.132(4) of the Act. In other words, the assessment has not been made on the basis of any independent material gathered by the learned AO during the course of the assessment proceedings. 4.00 That, even while initiating the penalty under S.271AAA, the learned AO formed his so-called satisfaction as regard to the concealment of taxable income by the appellant merely on the basis of the disclosure made by the appellant himself in his statements tendered under s.!32(4) of the Act without giving any independent finding to establish that the appellant had in fact concealed any taxable income. 5.00 That, without prejudice to the above, on a plain reading of the provisions of sub-section (1) of section 271AAA of the Act, it shall be observed by Your Honour that in the section the word used is "may" and not "shall" and therefore, it shall be appreciated that the imposition of penalty is not mandatory but it is discretionary upon the Assessing Officer. It is submitted that instant case is a case in which the balance of convenience was strongly in favour of the appellant for not imposing any penalty and therefore, the imposition of penalty could not be said to be justified. It is submitted that the Hon'ble Supreme Court in case of Hindustan Steel Ltd. vs. State of Orissa (1972) 83 ITR 26 (SC) in the context of imposition of penalty, under s.271(l)(c), was pleased to hold as under:- "An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of the law are was guilty of conduct contumacious dishonest, are acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful do so. Whether penalty should be imposed for failure to perform statutory obligation is matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed the authority competent to imposed the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from bonafide belief that « the offender is not liable to act, in the manner prescribed by the statute." 6.00 Your Honour, even otherwise, it is also a settled law that assessment proceedings and penalty proceedings are two different and separate proceedings and therefore, merely on the basis of the findings given in the assessment proceedings, no penalty can be imposed. For such proposition, reliance is placed on the following judicial pronouncements: i) CIT vs. Khoday Eswarsa & Sons (1972) 83 ITR 369 (SC) ii) CIT vs. Anwar All (1970) 76 ITR 696 (SC) iii) Dilip N. Shroff vs. JCIT & Anr. (2007) 291 ITR 519 (SC) iv) Anantharam Veerasinghaiah & Co. vs. CIT (1980) 123 ITR 457 (SC) v) T. Ashok Pal vs. CIT (2007) 292 ITR 11 (SC)

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vi) ACIT vs. VIP Industries Ltd. (2009) 122 TTJ (Mum) 289 In view of the above facts, it is submitted that since in the instant case, the appellant had neither furnished the inaccurate particulars of his income nor concealed the particulars of his income for the relevant assessment year, no penalty was imposable upon the appellant under the provisions of s. 271AAA of the Act especially in a circumstance when the appellant having complied with all the conditions enjoined in sub-section (2) of the said section was eligible for getting the immunity from the penalty as contemplated under sub-section (1) of the said section. GROUND NO. 3 SUBMISSION In this context, it is submitted as under: 1.0 That, in the facts and circumstances of the case, the initiation of penalty under S.271AAA itself was not warranted as propounded in the grounds taken above. However, it is submitted that even if the provisions of sub-section (1) to section 271AAA are put into service, since the appellant's case is squarely covered by the provisions of sub-section (2) of section 271AAA of the Act, no penalty was imposable. 2.00 Your Honour, before delving with the issue, it shall be useful to reproduce the provisions of section 271AAA for a ready reference. Accordingly, the section is reproduced as under: "271AAA. (1) The Assessing Officer may, notwithstanding anything contained in any other provisions of this Act, direct that, in a case where search has been initiated under section 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 ten per cent of the undisclosed income of the specified previous year. (2) Nothing contained in sub-section (1) shall apply if the assessee,— (i) in the course of the search, in a statement under sub-section (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 (iii) pays the tax, together with interest, if any, in respect of the undisclosed income. (3) 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), (4) The provisions of sections 274 and 275 shall, so far as may be, apply in relation to the penalty referred to in this section. Explanation. —For the purposes of this section, — (a) "undisclosed income" means— (i) any income of the specified previous year represented, either wholly or partly, by any money, bullion, jewellery or other valuable article or thing or any entry in the books of account or other documents or transactions found in the course of a search under section 132, which has— (A) not been recorded on or before the date of search in the books of account or other documents maintained in the normal course relating to such previous year; or (B) otherwise not been disclosed to the Chief Commissioner or Commissioner before the date of search; or (ii) any income of the specified previous year represented, either wholly or partly, by any entry in respect of an expense recorded in the books of account or other documents maintained in the normal course relating to the specified previous year which is found to be false and would not have been found to be so had the search not been conducted; (b) "specified previous year" means the previous year—

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(i) which has ended before the date of search, but the date of filing the return of income under sub-section (1) of section 139 for such year has not expired before the date of search and the assessee has not furnished the return of income for the previous year before the said date; or (ii) in which search was conducted.]" 3.00 Your Honour, in the instant case, the appellant had duly complied with all the conditions as enjoined under sub-section (2) of section 271AAA of the Act and therefore, the provisions of sub-section (1) of section 271AAA would have no application at all. The manner of compliance of various conditions enjoined in sub- section (2) of section 271AAA is enumerated in the ensuing paras. 3.01 It is submitted that so far as the condition no. (iii) as enjoined in section 271AAA{2) is concerned, there is no dispute that the appellant had duly paid the entire tax together with interest in respect of the undisclosed income admitted by him in his statement under s.132(4) of the Act. It shall be pertinent to note that even the learned AO imposing the penalty has not disputed such position. For the sake of clarity, it is submitted that the appellant had furnished his return of income, for the assessment year under consideration, by declaring an income of Rs.40,00,14,766/- which was inclusive of the undisclosed income admitted during the course of search at Rs.24,89,76,389/-, On the returned income, the appellant was required to pay tax including surcharge, primary education cess & secondary and higher education cess of Rs.13,59,07,237/- and interest under S.234B & 234C of the Act for an aggregate sum of Rs.17,09,611/-. Thus, in totality, in respect of the returned income [inclusive of the total undisclosed income as admitted under s.l32(4)], the appellant was required to pay a sum of Rs.13,76,16,848/- by way of tax together with interest and the entire sum was duly paid by the appellant before furnishing the return of income, as per details given below:-

Date Amount Various dates through TDS 2,62,79,228 14-09-2007 1,40,00,000 15-12-2007 5,00,00,000 15-12-2007 1,30,00,000 15-03-2008 1,63,00,000 18-09-2008 40,00,000 25-09-2008 17,00,000 .. 1,23,37,620 Total 13,76,16,848

3.02 Your Honour, in the instant case, the appellant, during the course of search operations, which continued during the period from 25-09-2007-to 26-10-2007, had given his statements under sub-section (4) of section 132 of the Act and during the course of tendering the statements, the appellant in an unequivocal terms had not only admitted the undisclosed income amounting to Rs.24,89,76,389/- but had also specified the manner in which the income been derived by him, as demonstrated elaborately in the subsequent paras. 3.02.1 Your Honour, in the instant case, during the course of the search, the first statement of the appellant was recorded by the Authorized Officer under s.l32(4) of the Act on 27-09-2007. In the statement given under s. 132(4) [kindly refer PB Page No. 25], the appellant had not only admitted the undisclosed income but had also specified the manner in which such undisclosed income was derived by him during the financial year under consideration. In reply to the question No. 9, the appellant had declared the.

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undisclosed income to the extent of Rs.14,00,00,000/- on account of unpaid freight, keeping in mind the provisions of section 41(1) of the Income-Tax Act] 1961. Likewise, in reply to the question No. 10, the appellant had declared undisclosed income to the extent of Rs.65,76,375/- on account of unexplained investment in certain property at Surat owned by one of the group companies namely M/s. Bhatia International Ltd.. Likewise, in reply to question No. 1, the appellant had declared undisclosed income to the extent of Rs.1,24,00,000/- on account of unexplained investment in certain property at Simrol owned by another group company namely Bhatia Infrastructure & Industries Ltd.. In nutshell, the undisclosed income of Rs.14,00,00,000-/ was admitted by the appellant as having been derived from the source of business whereas the remaining undisclosed income of Rs.1,89,76,375/-'was admitted by him as having been derived from a source other than the source of income from salary, house property, business etc.. 3.02.2 That, besides admitting the total undisclosed income of 15,89,76,375/-, as aforesaid, during the course of recording the another statement under s. 132(4), of real brother of the appellant namely Shri G.S. Bhatia on 26-10-2007 [kindly refer PB Page No. 43], Shri G.S. Bhatia, on the appellant's request and instruction and acting as appellant's lawful attorney, also admitted an additional undisclosed income of Rs.9,00,00,000/- on appellant's behalf for the assessment year under consideration. Shri G.S. Bhatia, on appellant's behalf, had admitted such undisclosed income in respect of appellant's proprietorship business concern namely ‘M/s. Associated Transport Company’. 3.02.3 That, Shri G.S. Bhatia, on appellant's behalf, while giving reply to the question Nos. 14, 15 & 16 of the statement recorded under s. 132(4) had clearly admitted such income on account of certain discrepancies in freight payments of three branches of appellant's proprietorship business concern namely M/s. Associated Transport Company. Shri G.S. Bhatia had admitted undisclosed income amounting to Rs.3,00,00,000/- in respect of Surat and Magduma Branch, Rs.2,00,00,000/- in respect of Chennai Branch, Rs. 1,00,00,000/- in respect of Pani, Ghunghru, Chumpur and Nagpur Branch and again Rs.3,00,00,000/- in respect of Katni Branch of appellant's proprietorship concern. 3.03 That, besides admitting and specifying the manner of earning the undisclosed income, the appellant, during the course of search proceedings and as also the assessment proceedings, had also fully substantiated the manner in which the undisclosed income was derived by him, as per requirement of the clause (ii) of sub- section (2) of section 271AAA of the Act. 3.03.1 Your Honour, it is submitted that the manner of earning of undisclosed income to the extent of Rs.14,00,00,000/-, on account of unpaid freight, was dragged by the search party itself from the various documents and books of accounts found during the course of the search proceedings. On a perusal of the statement of the appellant recorded on 27-09-2007 [kindly refer PB page No. 21 to 27], vide the question nos. 4 to 9, it can be gathered that the search party casted some doubts on genuineness of the unpaid freight shown by the appellant in his regular books of account and thrown questions one after one upon the appellant and in the light of the books of account & other documents found during the course of the search, the appellant admitted the aforesaid income of Rs.14,00,00,000/- on account of unpaid freight, in his statement. It is submitted that the source of the above income emanates and gets substantiated from the books of account and other documents found during the course of the search itself and since, the search party made the appellant to admit such income on the basis of these books of account and documents, by no stretch of imagination, it can be said that the appellant failed to substantiate the manner of deriving undisclosed income as alleged by the learned AO. It would be pertinent to note that since the aforesaid income of Rs.14,00,00,000/- pertains to transportation business of the appellant and the appellant in his audited income & expenditure account for the relevant previous year [kindly refer PB Page No. 71], had also classified such income,

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as his business income, under the head of 'Net Transportation Receipts'. Further, while furnishing the return of income, the appellant had also shown such income under the head 'Profits and Gains from Business and Profession' and the disclosure so made by the appellant was duly accepted by the AO framing the assessment without any disturbance or interference. In other words, deriving of undisclosed income amounting to Rs.14,00,00,000/- by the appellant, by way of carrying out the transportation business was duly accepted by the department and therefore, now, for the purpose of examining the liability of the appellant for penalty under s. 271AAA, the department cannot be permitted to take a radical U-turn. 3.03.2 Your Honour, the income to the extent of Rs.1,89,76,375/-was admitted by the appellant, as deemed income, in view of the provisions of s.69 of the Act on account of his unexplained investment in certain immovable properties belonging to the group companies. It is submitted that the existence of documents suggesting appellant's undisclosed investment, as found during the course of the search, by itself substantiate the manner of deriving such undisclosed income, being the deemed income, by the appellant. It is submitted that the appellant had duly shown the above said undisclosed income of Rs.1,89,76,375/- in his return of income under the head 'Income from Other Sources' and the same has also been accepted by the AO framing the assessment without any further query or any interference. 3.03.3 Your Honour, the remaining income of Rs.9,00,00,000/- was admitted by the appellant, (i) on account of his inability to substantiate certain cash expenditure incurred by him in his transportation business; (ii) on account of discrepancies found in the cash sales and transportation; and (iii) various loose papers found during the course of search. It is submitted that although all these undisclosed income had a direct nexus with the businesses carried out by the appellant but while furnishing the return, the appellant disclosed such income under the head 'Income from Other Sources and such disclosure was also accepted by the learned AO. 3.04 In view of the above facts and circumstances, it shall be appreciated by Your Honour that in the instant case, the appellant had duly fulfilled all the conditions as enjoined under the provisions of sub-section (2) to section 271AAA of the Act for claiming immunity from the penal provisions. It is submitted that in the instant case, the learned AO, without any cogent basis, has reached to the patently wrong conclusion that the appellant failed to substantiate the manner in which he derived the undisclosed income. It shall be appreciated by Your Honour that from the statements of the appellant, recorded, during the course of search proceedings, under s. 132(4) of the Act, by themselves, substantiate the manner of earning of the undisclosed income by the appellant and therefore, the finding of the learned AO on this issue is patently wrong. It is submitted that even during the course of the assessment proceedings, the appellant on 24-12-2009 [kindly refer PB page No. 28 to 32], in response to summons under s.131, had given a statement before the learned AO and during the course of recording of such statement, the appellant had replied to each and every question raised by the AO on the disclosure of income and sources thereof. 4.00 Without prejudice to the above, it is submitted that although the appellant Had specified the manner of deriving the undisclosed income and had also substantiated the same before the Authorized Officers and the AO, but despite such fact, if for the sake of argument, it is presumed that the appellant had not substantiated the manner in which he derived the undisclosed income even then since neither at the stage of recording of the statements nor at the stage of assessment proceedings, he was not specifically required to substantiate the manner of deriving undisclosed income, the assessee must be deemed to have discharged his onus of substantiating the manner. For such proposition, reliance is placed on the decision of Hon'ble ITAT Ahmedabad, 'D’ Bench in the case of DCIT vs. Rajendra Prasad Dokania (2012) 32 CCH 260 AhdTrib. A copy of the judgment is being submitted herewith for kind perusal and record of Your

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Honour as Annexure A-6.00 [PB page No. 111 to 114]. For a ready reference, the relevant para is reproduced as under: "8. According to the A.O., since assessee has complied with only third condition and not other two conditions out of above three, penalty u/s 271 AAA was levied while Id. CIT(A) has held otherwise. As far as first condition is concerned, we find that assessee has fulfilled this condition as in the statement recorded at the time of search assessee, in reply to question A/o.5, stated that he was disclosing Rs.50,00,000/- representing net on money receipts on land dealings as income. Thus assessee clearly specified that income is earned by way of getting on money in land dealings. Now, coming to the second condition, we have already observed that there is no dispute about the fact that neither at the stage of recording of statement of the assessee nor at the stage of assessment proceeding assess was asked, either by the authorized officer or by the A.O., to substantiate the manner in which this undisclosed income was derived. Under these circumstances, the assessee be deemed to have discharged his onus of substantiating the manner in which this undisclosed income was derived by him and therefore it cannot be said during penalty proceeding that assessee did not fulfill this condition. There is no dispute about the third condition as assessee had paid tax with interest on the undisclosed income. Since the assessee has fulfilled all the three conditions, as laid down for exemption to the assessee from imposition of penalty u/s 271AAA of the Act, we find no infirmity In the order of Id. CIT(A) deleting this penalty and the order passed by him is hereby upheld." 4.01 Your Honour, in the similar circumstances, the Hon'ble ITAT Delhi Bench 'E1 in the case of Neerat Singal vs. ACIT (2014) 101 DTR (Del)(Trib) 238 also held the view that in absence of any query raised by the Authorized Officer to specify the manner of earning undisclosed income, no penalty under S.271AAA can be levied especially when offered undisclosed income had been accepted and due tax has been paid by the assessee. For a ready reference, the relevant catch note of the case is reproduced as under: "During the course of search proceedings the authorized officer of the department had not raised any specific query regarding the manner in which the undisclosed income has been derived and on the contrary the assessee has tried to explain the earning of the undisclosed income in question in its reply during the course of recording of his statement u/s 132(4) of the Act and thereafter. In absence of query raised by the authorized officer during the course of recording of statement u/s 132 (4) about the manner in which the undisclosed income has been derived and about its substantiation, the AO was not justified in imposing penalty u/s 271AAA of the Act specially when the offered undisclosed income has been accepted and due tax thereon has been paid by the assessee. The AO directed to delete the penalty of Rs.12,50,00,000/- levied u/s 271AAA of the Act CIT vs. Mahendra C. Shah [2008] 299 ITR 305 ; CIT v. Radha KishanGoel [2005] 278 ITR 454, followed. (Para 16)" 4.02 Your Honour, the provisions of section 271AAA are pari materia with that of erstwhile Explanation 5 to section 271(1)(c) of the Act having its application for grant of immunity from penalty under s.271(1)(c) of the Act in the case of the search initiated under s.132 before 1st day of June, 2007. Under this Explanation too, immunity from the penalty can be granted if the assessee in his statement specified the manner of earning the undisclosed income. In the context of this Explanation 5, the Hon'ble High Court of Gujarat in the case of CIT vs. Mahendra C. Shah (2008) 299 ITR 305 (Guj.) has held that once an assessee declares the undisclosed income in his return and pays the tax, it would be a substantial compliance not warranting any denial of the benefit under Exception No. 2 in Explanation 5 merely for non-specification of the manner of deriving the income in the statement given under s.132(4).A copy of the judgment is

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being submitted as Annexure A-7.00 [PB page No. 115 to 122], For a ready reference, the relevant findings of the Bench is reproduced as under:- 15. Insofar as the alleged failure on the part of the assessee to specify in the statement under s. 132(4) of the Act regarding the manner in which such income has been derived, suffice it to state that when the statement is being recorded by the authorized officer it is incumbent upon the authorized officer to explain the provisions of Expln. 5 in entirety to the assessee concerned and the authorized officer cannot stop short at a particular stage so as to permit the Revenue to take advantage of such a lapse in the statement. The reason is not far to seek. In the first instance, the statement is being recorded in the question and answer form and there would be no occasion for an assessee to state and make averments in the exact format stipulated by the provisions considering the setting in which such statement is being recorded, as noted by Allahabad High Court in case of Radha Kishan Goel (supra). Secondly, considering the social environment it is not possible to expect from an assessee, whether literate or illiterate, to be specific and to the point regarding the conditions stipulated by Exception No. 2 while making statement under s. 132(4) of the Act. The view taken by the Tribunal as well as Allahabad High Court to the effect that even if the statement does not specify the manner in which the income is derived, if the income is declared and tax thereon paid, there would be substantial compliance not warranting any further denial of the benefit under Exception No.2 in Expln. 5 is commendable. 4.03 Your Honour, the Hon'ble High Court of Gujarat in the case of Mahendra C. Shah supra, while reaching to the finding that much importance should not be attached to the statement about the manner in which the income had been derived, had taken due consideration of the similar findings of the Hon'ble High Court of Allahabad in the case of CIT vs. Radha Kishan Goel (2005) 278 ITR 454 (All.). A copy of the judgment is being submitted as Annexure A-8.00 [PB page No. 123 to 127]. 5.00 Your Honour, in the instant case, the learned AO has imposed the penalty merely by reiterating language of sub-section (2) of section 271AAA and saying that the appellant has not complied with the conditions laid down in such provisions. Except this, the learned AO passing the impugned Order, has not given any finding as to how and in what manner, the explanation of the appellant that he had complied with all the three conditions was not acceptable. In such circumstances, in view of a direct decision of the Hon'ble High Court of Allahabad in the case of Crossings Infrastructure Pvt. Ltd. vs. CIT & Anr. (2014) 222 Taxman 26 (All.) the entire penalty deserves to be deleted. A copy of the judgment is also being submitted as Annexure A-9.00 [PB page No. 128 to 137]. For a ready reference, the relevant findings of the Bench is reproduced as under: "18. Except of recording his own satisfaction, i.e. conclusion that the conditions under Section 271AAA of Act, 1961 have not been complied with, ACIT himself has not discussed as to how and in what manner, conditions have not been complied. Moreover, ACIT has referred to the assessment order which is also on record as Annexure~6 but a careful perusal thereof also could not show at all as to in which part of the said order, ACIT has discussed about the factum, whether conditions under Sub-section (2) of Section 271AAA of Act, 1961 have been observed and satisfied by Assessee or not except of saying that penalty notice under Section 271 (1) (c) and 271AAA be issued separately. There is no discussion with respect to Section 271AAA in the entire assessment order." In view of the above facts and circumstances of the case and various judicial pronouncements, the penalty of Rs.2,48,97,700/- so imposed by the learned AO under s. 271AAA of the Income-Tax Act, 1961 deserves to be quashed in toto."

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penalty provided in terms of Section 271AAA(2) of the Act and upheld the order passed by the Ld. AO.

i. M/s Keti Infrastructure Pvt. Ltd, Indore v. DCIT (Central), Indore, order dated 13/01/2021 in ITA No. 540/IND/2017 ii. DCIT vs R. Elangovan (Trib. Chennai) (CL 113), vi. Shri Mahaveer Prasad Agrawal, Bhilwara v. the DCIT, Central Circle, Kota (Order dated 02/06/2022 passed in ITA No. 1218/JP/2019) vii. Dr. Rajesh Jain Vs. DCIT (Central)-1, Indore in ITA No. 905/Ind/2018, order dated 19-02-2020.

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written notes of submission filed before us and before the authorities below.

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from salary, house property, business etc. That, besides admitting the total undisclosed income of Rs.15,89,76,375/-, as aforesaid, during the course of recording the another statement under s. 132(4), of real brother of the appellant namely Shri G.S. Bhatia on 26-10-2007, Shri G.S. Bhatia, on the appellant's request and instruction and acting as appellant's lawful attorney, also admitted an additional undisclosed income of Rs.9,00,00,000/- on appellant's behalf for the assessment year under consideration. Shri G.S Bhatia, on appellant's behalf, had admitted such undisclosed income in respect of appellant's proprietorship business concern namely 'M/s. Associated Transport Company'. That, Shri G.S. Bhatia, on appellant's behalf, while giving reply to the question Nos. 14, 15 & 16 of the statement recorded under s. 132(4) had clearly admitted such Income on account of certain discrepancies in freight payments of three branches of appellant's proprietorship business concern namely M/s. Associated Transport Company. Shri G.S. Bhatia had admitted undisclosed income amounting to Rs.3,00,00,000/- in respect of Surat and Magduma Branch, Rs.2,00,00,000/- in respect of Chennai Branch, Rs.1,00,00,000/- in respect of Pani, Ghunghru, Chumpur and Nagpur Branch and again Rs.3,00,00,000/- in respect of Kati Branch of appellant's proprietorship concern.

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doubts on genuineness of the unpaid freight shown by the appellant in his regular books of account and thrown questions one after another upon the appellant and in the light of the books of account & other documents found during the course of the search, the appellant admitted the aforesaid income of Rs.14,00,00,000/- on account of unpaid freight, in his statement. The source of the above income emanates and gets substantiated from the books of account and other documents found during the course of the search itself and since, the search party made the appellant to admit such income on the basis of these books of account and documents, by no stretch of imagination, it can be said that the appellant failed to substantiate the manner and mode of deriving undisclosed income as alleged by the Ld.AO without bring any reasoning in the penalty order. It would be pertinent to note that since the aforesaid income of Rs.14,00,00,000/- pertains to transportation business of the appellant and the appellant in his audited income & expenditure account for the relevant previous year [PB No. 1 Page No. 83], had also classified such income, as his business income, under the head of 'Net Transportation Receipts'. Further, while furnishing the return of income, the appellant had also shown such income under the head 'Profits and Gains from Business and Profession' and the disclosure so made by the appellant was duly accepted by the AO framing the assessment without any disturbance or interference. In other words, deriving of undisclosed income amounting to Rs.14,00,00,000/- by the appellant, by way of carrying out the transportation business was duly accepted by the department and therefore, now, for the purpose of examining the liability of the appellant for penalty under s. 271AAA, the department cannot be allowed to form an opinion otherwise.

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(i) on account of his inability to substantiate certain cash expenditure incurred by him in his transportation business;

(ii) on account of discrepancies found in the cash sales and transportation; and

(iii) various loose papers found during the course of search.

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Section 131, had given a statement before the learned AO and during the course of recording of such statement, the appellant had replied to each and every question raised by the AO on the disclosure of income and sources thereof. Thus, here also the assessee complied with all condition enjoined under sub-section (2) of section 271AAA of the Act and therefore, the provisions of sub-section (1) of section 271AAA would have no application in the case in hand.

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admitting duly specified the manner of earning the undisclosed income during the course of search proceedings and also fully substantiated manner and mode in the which the undisclosed income was derived by him in terms of the requirement of clause (i) and (ii) of Sub-Section (2) of Section 271AAA of the Act. In that view of the matter, when the assessee fulfilled all the conditions stipulated by the statute for claiming immunity from the imposition of penalty, the impugned penalty deserves to be quashed. We, pass order, accordingly.

This Order pronounced on 24 /11/2022

Sd/- Sd/- (BHAGIRATH MAL BIYANI) (MADHUMITA ROY) ACCOUNTANT MEMBER JUDICIAL MEMBER Indore; Dated 24 /11/2022 S. K. Sinha, Sr. PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)- 5. �वभागीय ��त�न�ध, / DR, ITAT, Indore 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER,

(Sr. Private Secretary) ITAT, Indore

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1.Date of dictation on 04.11.2022 2.Date on which the typed draft is placed before the Dictating Member 09.11.2022 3.Date on which the approved draft comes to the Sr.P.S./P.S. 4.Date on which the fair order is placed before the Dictating Member for pronouncement 5.Date on which the fair order comes back to the Sr.P.S./P.S 6.Date on which the file goes to the Bench Clerk 7.Date on which the file goes to the Head Clerk…………. 8.The date on which the file goes to the Asstt. Registrar for signature on the order…………………… 9.Date of Despatch of the Order………Date on which the typed draft is placed before the Dictating Member 19.12.2019 1. Other Member………………Date on which the approved draft comes to