DCIT 22(3), NAVI MUMBAI vs. VIJAY RAVJI GAJRA, NAVI MUMBAI

This appeal by revenue is directed against the order of the CIT (Appeals)-33, Mumbai dt. 15/07/2014, deleting the penalty of Rs. 35,58,183/-levied u/s 271AAA of the Income Tax Act, 1961 (in short ‘the Act’) for Asst. Year 2009-10.

2.1 The assessee is an individual engaged in business of real estate as builder and developer. A search and seizure action u/s 132 of the Act was conducted by the I.T. Department in the Gajra group on 19/02/2009, wherein the assessee along with his partner Shri.Ramesh Gajra disclosed collectively additional income of Rs. 15 crores in their individual hands and firm in which he was partner. In the assessee’s case the disclosure was as Rs. 4,24,31,099/-. For Asst. year 2009-10, the assessee filed his return of income on 03/05/2010 declaring total income of Rs. 3,57,72,163/-. The breakup of the disclosure of income declared in the course of search and was as under:-

Sr. Description AY 2009-10 As per ROI Difference No. (as per 132(4) 1 Jewellery 3,00,000 3,00,000 NIL 2 Cash Seizure 10,00,000 10,00,000 NIL 3 Brokerage 7,50,000 7,50,000 NIL 4 Cash Credit by way of 3,78,81,099 3,35,31,393 43,49,166 loan 5 Miscellaneous 25,00,000 NIL 25,00,000 6 Total 4,24,31,099 3,55,81,933 68,49,166 2.2 In the course of assessment proceedings, the assessee explained the difference of Rs. 43,49,166/- on account of reduced disclosure of cash credit which was accepted by the Assessing Officer (‘AO’). In respect of the difference of Rs. 25,00,000/- on account of ‘Miscellaneous income’ the assessee submitted that this amount was declared by the assessee during search to cover any shortfall in the declaration made u/s 132(4) of the Act and since later on, at the time of filing of the return of income, it was found that there was no shortfall in the undisclosed income beyond Rs. 3,55,81,933/-, the same was not offered in the return of income filed for Asst. year 2009-10. The assessee’s explanation, however, did not find favour with the A.O and the said amount of Rs. 25,00,000/- was brought to tax in the assessee’s hands when the A.O concluded the assessment u/s 153A r. w. s 143(3) of the Act vide order dt. 03/11/2010 wherein the assessee’s income was determined at Rs. 3,82,75,163/-. Penalty proceedings u/s 271AAA of the Act were initiated simultaneously in this regard. The authorities below have observed that no appeal has been preferred by the assessee against the order of assessment for Asst. year 2009-10 dt. 03/11/2010 and therefore the matter attained finality.

3.1 The A.O initiated penalty proceedings u/s 271AAA of the Act simultaneously in the order of assessment for Asst. year 2009-10 dt. 03/11/2010, requiring the assessee to show cause as to why penalty be not levied there under in the case on hand. In reply dt. 23/05/2011, the assessee objected to the said proposal of the A.O submitting, inter alia, that the A.O had accepted the disclosure of Rs. 3,55,81,933/- made by the assessee and that the only addition made to the returned income was Rs. 25,00,000/-purely on estimate basis. The explanation put forward by the assessee were not accepted by the A.O and proceeded to levy penalty of Rs.35,58,193/-; being 10% of the returned income of Rs. 3,55,81,933/- vide order dt. 30/05/2011 due to non compliance with the conditions specified u/s 271AAA of the Act.

3.2 Aggrieved by the order levying penalty of Rs. 35,58,193/- u/s 271AAA of the Act for Asst. year 2009-10 vide order dt. 30/05/2011, the assessee preferred an appeal before the Ld. CIT(Appeals)-33, Mumbai. After considering the submissions put forth by the assessee, the AO’s views in the matter and the material on record, the Ld. CIT(A) in the impugned order, dt. 15/07/2014, deleted the penalty levied u/s 271AAA of the Act, as he was of the view that the assessee in the course of search proceedings had declared the details of income and the manner thereof, as evident from a perusal of the working on page 3 of the order of assessment and also for the reason that the A.O had not identified which conditions has not been complied with by the assessee as provided u/s 271AAA of the Act. In coming to this finding, the Ld. CIT(A) followed the decision of the Co-ordinate bench of this Tribunal in the case of M/s Kanakia Spaces Pvt. Ltd. in dt. 10/07/2013.

4.1 Revenue, being aggrieved by the impugned order of the CIT(Appeals)-33, Mumbai dt. 15/07/2014 deleting the penalty of Rs. 35,58,193/- levied u/s 271AAA of the Act for Asst. year 2009-10, has preferred this appeal raising the following grounds:-

1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the penalty of Rs. 35,58,193/- levied by the Assessing Officer u/s 271AAA of the Income Tax Act, 1961, without considering the fact that the assessee had failed to ‘Specify’ and ‘Substantiate’ the manner in which the undisclosed income has been derived despite the fact that u/s 271AAA(2) onus lies on the assessee to specify and substantiate the manner in which undisclosed income was derived.

2. The appellant prays that the order of the CIT(A) on the above grounds be reversed and that of the Assessing Officer be restored.

3. The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary.

4.2 The Ld. DR for Revenue was heard in support of the grounds raised (supra), submitting that the only issue challenged was the order of the Ld. CIT(A) deleting the penalty of Rs. 35,58,193/- levied by the A.O u/s 271AAA of the Act for Asst. year 2009-10. According to the Ld. DR, who placed strong reliance on the order of the A.O, the Ld. CIT(A) ought not to have deleted the said penalty as the assessee had failed to discharge its onus to specify and substantiate the manner in which the undisclosed income had been derived. In view of the above it was prayed that the order of the Ld. CIT(A) be reversed and that of the A.O be restored.

4.3 Per contra, the Ld. AR for the assessee supported the impugned order of the Ld. CIT(A) deleting the penalty of Rs. 35,58,193/-levied u/s 271AAA of the Act, as being in order. Submissions put forward before authorities below were reiterated. According to the Ld. AR, the assessee had fulfilled the conditions, as required by the provisions of sec. 271AAA of the Act, and both specified and substantiate d u/s 132(4) of the Act, the manner and source from which the undisclosed income of Rs. 4,24,31,099/- had been earned before the Addl. DIT (Inv.) Kalyan vide letter dt. 12/04/2009, which item wise break up finds mention at pages 1 and 2 of the order of assessment of for Asst. year 2009-10. It was contended that in view of the above, penalty u/s 271AAA of the Act was not leviable or sustainable in the case on hand and was correctly deleted by the Ld. CIT(A). In this regard reliance was, inter alia, placed on the decision of the Co-ordinate bench of this Tribunal in the case of Kanakia Spaces Pvt. Ltd. ( dt. 10/07/2013.) which the Ld. AR contends covers the issue in this appeal in favour of the assessee.

4.4.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncement cited. The facts of the matter as emanate from the record are that in the course of search action in the Gajra group, on 09/02/2009 and thereafter it was, inter alia admitted before the Addl. DIT (Inv), Thane vide letter dt. 12/04/2009 and in the assessee’s statement u/s 132(4) of the Act that the declaration/admission of undisclosed income of the assessee in the case on hand for Asst. year 2009-10 was as under:-

Sr. Description & Details Amount No. 1 Jewellery Rs. 3,00,000 2 Cash Seizure Rs. 10,00,000 3 Brokerage Rs. 7,50,000 4 Represents cash credit by way of loans in regular books Rs. 3,78,81,099 of account including interest(loan amount Rs. 3,38,22,409/-, interest Rs. 40,58,690/-) 5 Miscellaneous Rs. 25,00,000 Total Rs. 4,24,31,099 4.4.2 It is seen that in the return of income filed thereafter for Asst. year 2009-10 on 03/05/2010, the assessee declared undisclosed income as under:-

Sr. No. Description Amount (Rs.) 1 Jewellery 3,00,000 2 Cash Seizure 10,00,000 3 Brokerage 7,50,000 4 Cash credit by way of loan 3,35,31,933 Total 3,55,81,933 The difference between the declaration u/s 132(4) of the Act and that admitted in the return of income filed was; (i) Rs. 43,49,100/- on accounts of cash credit by way of loan, the assessee’s explanation for which was accepted by the A.O; and (ii) an amount of Rs. 25,00,000/- on account of ‘Miscellaneous’ which was added to the assessee’s income when the order of assessment was finalized u/s 153A rws 143(3) vide order dt. 03/11/2010.

4.4.3 Penalty proceedings were initiated u/s 271AAA of the Act simultaneously in the order of assessment for Asst. year 2009-10. It is seen that the A.O proceeded to levy penalty of Rs. 35,58,193/- @ 10% of the returned undisclosed income of Rs. 3,55,81,933/- admitted by the assessee u/s 132(4) of the Act and declared in the return of income for A.Y. 2009-10, on the ground that the assessee had not complied with the provisions specified under Section 271AAA of the Act for non-levy of penalty there under. On appeal by the assessee, we find that the Ld. CIT(A) after considering the submissions of the assessee, the A.O’s views and the material on record, has deleted the penalty levied u/s 271AAA holdings under at paras 2.6 to 2.8 of the impugned order :-

2.6 I have considered the details on record filed by the A.O as well as by the appellant on various dates. I have also perused the assessment order and the impugned penalty order. The first contention of the appellant that the income offered under 132(4) does not fall within the definition of the term "undisclosed income" is incorrect. The appellant was found in possession of cash and jewellery which he could not explain. Similarly the brokerage expense of Rs.7.50 lakh has been found to be false. However, the amount of Rs.3.55 crore representing unexplained cash credit is squarely covered by Explanation (a)(ii) of section 271AAA. The details of these cash credits are also provided to AO during assessment and find mention in the assessment order date wise. Thereof, this contention of the appellant is not frivolous and deserves to be held as such.

2.7 Coming to the next contention of the appellant it is an undisputed fact that the appellant has during the course of search proceedings declared the income and the manner thereof. This is evident from the perusal of the Assessment Order wherein these facts are recorded. The AO has on page 3 of the assessment order recorded the details of cash credits of Rs.3.55 crore and the dates on which these are credited in the books of the appellant. The cash and jewellery found do not require any further substantiation as they are tangible items. Even in the penalty order, the AO has clearly mentioned the comparison between the income offered u/s 132(4) and the income as per return of income. On a perusal of the penalty order, no reason has been provided by the AO for levy of penalty. He has not identified which condition has been violated by the appellant as provided u/s 271AAA and why. He has merely reproduced the conditions u/s 271AAA and made a bald statement that the appellant has not satisfied the conditions. The penalty order seems to have been passed mechanically without dealing with each condition separately. The appellant's case is squarely covered by the decision of the jurisdictional ITAT in the case of M/s Kanakia Spaces Private Limited (supra) wherein the Hon’ble ITAT has held as under :-

"The fact of the matter is that the requirement on the part of an assessee to substantiate the source of income cannot be taken to mean that all evidences in the respect has to be produced. The very fact that the disclosure is made in respect of undisclosed income, all that can be required of an assessee is that the proximate nature of acquisition can be mentioned by him. It cannot be the case that very minute detail thereof would be preserve with evidence which is possible only for the regular income being disclosed by him The requirement as per' Section (2) of Section 271AAA is only that the manner of earning income should be specified so that undue advantage of telescoping or some other income being brought within the total ambit of undisclosed income surrendered does not happen. From the order of the Ld. A.0 also, it is apparent that the penalty is not levied by him on account of some conviction but has been just levied to complete the proceedings. In fact there are no material facts warranting the levy of penalty and, accordingly, the penalty of Rs.55,00,000/- - levied under section 271AAA is directed to be deleted."

2.8 It is also important to mention here that the disclosure made by the appellant has been duly accepted by the AO and detailed in the Assessment Order by the AO. Therefore, there is no occasion to levy penalty u/s 271AAA. I direct the AO to delete the impugned penalty. The appellant succeeds in appeal and the penalty stands deleted.

4.4.4 The provisions of Section 271AAA of the Act read as under:-

271AAA (Penalty where search has been initiated. (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 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- (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.)

4.4.5 From a perusal of the provisions of section 271AAA of the Act(supra), the finding of the Ld. CIT(A)(supra) and the material on record, we concur with the Ld. CIT(A)’s observation that the undisclosed income of Rs. 3.55 crores representing various items as cited therein are liable to be considered in terms of the provisions of Explanation (a)(ii) to Section 271AAA of the Act. As per the material on record and as observed by the Ld. CIT(A), we find that it is an undisputed fact that the assessee has, during the course of search proceedings, apart from declaring the undisclosed income; has also given the detailed break up of the same, item wise and giving the proximate manner in which and source the same have been earned/derived from. This is therefore, in our view, substantiated. The above facts find mention by the A.O in the order of assessment at 2 to 4 thereof, inter alia giving the dates on which these cash credit are credited in the books of accounts. It is not a requirements on the part of the assessee that all evidences in respect of the undisclosed income have to be produced to substantiate the source of income; a proximate nature of acquisition would be sufficient. We too, agree with the finding of the Ld. CIT(A) that the A.O has not identified which of the conditions have been violated by the assessee, that invite the levy of penalty u/s 271AAA of the Act in the case on hand; Nor has any reason has been rendered for the levy thereof. On a careful appreciation of the factual and legal matrix of the case on hand, we are of the considered view that the assessee’s case is squarely covered by the decision of the co-ordinate bench of this Tribunal in the case of Kanakia Spaces Pvt. Ltd.(supra) wherein the Hon’ble Tribunal at paras 3.1 to 4.1 has observed and held as under:-

3.1 …………………………………………………………………………………… It is seen that the ld.AO has written two sentences at para- 8 to conclude that the appellant has not been able to substantiate the source of acquisition of the movable assets. The fact of the matter is that the requirement on the part of an assessee to substantiate the source of income cannot be taken to mean that all evidences in the respect has to be produced. The very fact that the disclosure is made in respect of undisclosed income, all that can be required of an assessee is that the proximate nature of acquisition can be mentioned by him. It cannot be the case that very minute detail thereof would be preserve with evidence which is possible only for the regular income being disclosed by him. The requirement as per’ Section (2) of Section 271AAA is only that the manner of earning income should be specified so that undue advantage of telescoping or some other income being brought within the total ambit of undisclosed income surrendered does not happen. From the order of the Ld. A.O also, it is apparent that the penalty is not levied by him on account of some conviction but has been just levied to complete the proceedings. In fact there are no material facts warranting the levy of penalty and, accordingly, the penalty of Rs.55,00,000/- levied under section 271AAA is directed to be deleted.”

format stipulated by the provisions considering the setting in which such statement is being recorded. 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 in the second exception while making statement under section 132(4). 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.”

4.1 In this case, the assessee was asked to explain the entries in the ‘work-in-progress sheet’ and assessee in the course of statement offered the income with a plea not to initiate penalty proceedings. The assessee was not asked about the manner in which such income was earned and also to substantiate the manner in which undisclosed income was derived. The provision of clause-2 of Explanation-V appended to section 271(1)(c) are similar to section 271AAA(2). The scope and meaning has been lucidly explained by the Hon'ble Allahabad High Court in the case of CIT vs. Radha Kishan Goel (2005) 278 ITR 454 (All.), which was followed by the Hon'ble Gujarat High Court in the above referred case. In view of the above principles laid down, we are of the opinion that immunity provided under s/s.(2) of section 271AAA is applicable and accordingly, the order of CIT(A) does not require any modification. Revenue’s grounds are rejected.

4.4.6 In the factual and legal matrix of the case as discussed above, from para 4.1 to 4.4.5 of this order(supra), and following the decision of the co-ordinate bench of this Tribunal in the case of Kanakia Spaces Pvt. Ltd. (ITA No. 6763/Mum/2011 dt. 10/07/2013), we are of the opinion that the impugned order of the Ld. CIT(A) deleting the penalty of Rs. 35,58,193/- u/s 271AAA of the Act in the case on hand for Asst. year 2009-10 does not call for any interference by us and therefore uphold the same. Consequently, ground No. 1 to 3 of revenue’s appeal is dismissed.