JAI SHREERAM DEVELOPERS,THANE vs. ITO, CENTRAL THANE, THANE

Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा लेखा सद�य लेखा लेखा सद�य सद�य राजे�� सद�य राजे�� राजे�� केकेकेके अनुसार राजे�� अनुसार अनुसार PER RAJENDRA, AM- अनुसार Challenging the orders of CIT(A)-II,Thane,the the Assessing Officer (AO) and the assessee have filed cross appeals for the AY.2008-09 and 2009 -10.For the AY. 2010-11,only the assessee has filed the appeal.As,the issue in all the appeals is levy of penalty or deletion of penalty,so,we are adjudicating them by a single common order. Details of the dates of filing of return,dates of orders of the AO.s. and assessed income etc. can be summarized as under : A.Y. ROI filed on Returned Assessment dt. Assessed Dt. of orders Income(Rs.) Income(Rs.) of CIT(A) 2008-09 29.09.2008;revised 22,14,900/- ; 26.12.2011 81,13,400/- 11.03.2014 return filed on revised return 30.05.2011 amount Rs. 26,64,903/- 2009-10 29.09.2009; 17,78,130/-; revised 26.12.2011 75,18,500/- 11.03.2014 revised return filed return amount on 18.11.2011 Rs.38,28,130/- 2010-11 15.10.2010;revised 4,03,95,590/revised 26.12.2011 4.05crores 10.03.2014 return filed on return amount Rs. 07.06.2011 4.03 crores ITA/3417/Mum/2014 & ITA/3634/ITA/Mum-AY.2008-09:

3417-19 &3634-35/M/14-Jaishreeramgroup 2.In the group cases of the assessee, a search and seizure action, was carried out u/s.132 of the Act, in 10/12/2009, including the residences of the partners. A survey action u/s.133A was carried out at the business premises of the assessee. As a result of such a disclosure of Rs.4.50 lakhs was made by the assessee on the basis of the material gathered during search/ survey operations.Accordingly, a notice u/s.153C of the Act was issued requiring the assessee to furnish return of income for six AY.s.In response to the notice issued,the assessee filed a return of income as stated in the above-mentioned table.While completing the assessment u/s.143(3) r.w.s.153C of the Act,the AO made addition of Rs. 54.24 lakhs u/s.40A(3) of the Act and further disallowed an amount of Rs. 24,000/-under the head donation.Penalty proceedings were initiated u/s.271 in respect of the dissallowance made in the return of income and also addition made u/s.40A (3).

3.In response to the penalty show cause notice, the assessee stated that the offer to disclose income was made voluntarily to avoid protracted litigation,that the cash payments in viola - tion of Sec.40A(3)were made due to urgency of payments.After considering the submission of the assessee,the AO was of the view that the disclosure of Rs. 4.50 lakhs in the return of income was made as a result of finding during the course of survey carried out as a result of search and seizure operations, that the disclosure made in return of income was not a voluntary,that the assessee had not brought forth any argument to justify the claim of having made payments in cash,amounting to Rs. 54.24 lakhs,for the purpose of purchase, that there was no justification for the urgency of such payments, that the provisions of section 40 A(3) were rightly invoked, that the assessee had withdrawn appeal against the assessment order filed before the First Appellate Authority (FAA).Invoking the provisions of explanation to section 271(1)(c),the AO levied a minimum penalty of Rs. 18.15 lakhs.

4.Aggrieved by the order of the AO, the assessee preferred an appeal before the FAA. Before him,it was argued that the assessment order was completed u/s.143 (3) r.w.s.153C of the Act, that the AO had issued a show cause notice for penalty u/s.271AAA, that the penalty notice issued was bad in law, that there was no concealment of income. With regard to disallowance made u/s.40A (3), the assessee argued that it had not made any claim of bogus purchases, that disclosure made in the return of income was voluntary to avoid litigation.After considering the submission of the assessee,penalty order and the assessment order, the FAA held that search and seizure operations were carried out in the group of the assessee on 10/12/09, that the search action was also carried out at the residences of the partners of the assessee-firm, 2

3417-19 &3634-35/M/14-Jaishreeramgroup that bundles number five and six had been seized from the residences of one of the partners i.e. Shri Bharat Maru,that the seized material contained unaccounted on- money received on sale of various galas totaling to Rs. 3.98 crores, that it was crystal clear that the material was seized during the course of search from the partners of the firm requiring initiation of proceedings u/s.153C, that as a result of notice issued u/s.153C of the Act the assessee had filed return of income declaring a sum some of Rs. 4.50 lakhs, that the disclosure was made on the basis of findings recorded during the course of search and seizure operations as well as survey operation carried out u/s.133A of the Act, that the provisions of section 271(1)(c ) read with Explanation 5A were applicable in the case of the assessee, that it had already filed its return of income on 29.9.2008 i.e. before the date of search without disclosing the income of Rs.4.50 lakhs, that the AO had specifically initiated penalty proceedings in respect of the disclosure in the assessment order, that the assessee had deemed to have concealed the particulars of income in respect of Rs.4.50 lakhs and rendered itself liable for the penalty u/s.271(1)(c ),that penalty u/s.271 AAA was impossible only for the year in which search was conducted and not in the earlier AY.s. As regards the disallowance u/s.40A(3), the FAA observed that the disallowance was made on account of technical breach of provisions, that the AO had not recorded any finding as to whether the cash payment made on account of purchases was for bogus purchases, that in the absence of such finding the same could not be considered as income in respect of which particulars have been concealed,that no penalty u/s.271(1)(c) was imposable in respect of the said disallowance.Finally, he upheld the penalty in respect of the income disclosing the return of income i.e. for Rs. 4.50 lakhs only.

5.During the course of hearing before us,the Authorised Representative (AR) made the same arguments that were advanced before the FAA.The Departmental Representative (DR) supported the order of the FAA for confirming the penalty order for Rs.4.50 lakhs.With regard to penalty levied for violation of section 40(A)(3),he stated that matter could be decided on merit.

We have heard the rival submissions and perused the material before us. We find that AO had levied penalty for the undisclosed income shown in the reasons filed in response to the notice issued u/s.153C of the Act and for violation of provisions of section 40A(3),that the FAA upheld the penalty with regard to undisclosed income of Rs. 4.50 lakhs whereas he deleted the penalty imposed for violation of provisions of section 40A(3). The assessee is aggrieved by the confirmation of penalty for Rs. 4.50 lakhs and the AO has filed the appeal for the 3

3417-19 &3634-35/M/14-Jaishreeramgroup penalty deleted by the FAA. As the assessee has declared additional income while filing the return after the search and seizure operations and has not furnished any reasonable explanation for not including the income in its original return, so, in our opinion the FAA were justified in confirming the order of the AO imposing penalty for the said amount. As far as the deletion of penalty for violation of provisions of section 40A(3) is concerned, we are of the opinion that disallowance made by the AO under the said section cannot be termed as filing of inaccurate particulars or considering the particulars of income. Addition made during the assessment proceedings may be justified in the quantum appeal, but, each and every disallowance/addition should not or cannot result in automatic levy of penalty u/s.271(1)(c ).The object behind introducing the section was to curb the practice of the assessees to make purchases in cash. But infringement of that section cannot be equated with furnishing of inaccurate particulars. In our opinion.the order of the FAA, in that regard, does not suffer from any legal infirmity.Therefore, endorsing his order we hold that there is no need to interfere with his order. Effective grounds of appeal raised by the assessee and the AO for the year under consideration stand dismissed. ITA.s/3418/Mum/2014& 3635/Mum/2014-AY. 2009 – 10 6.The effective grounds of appeal raised by the assessee and the AO are similar to the grounds of the earlier year-the only difference is of the amounts involved. Following our order for the AY.2008-09,we decide the effective grounds of appeal against the AO and the assessee respectively. ITA/3419/Mum/2014-AY.2010-11: 7.The effective ground of appeal for the year under consideration is penalty levied u/s.271 AAA of the Act.The facts of the case have been discussed in the earlier part of our order. After completing the assessment order,the AO initiated penalty proceedings. He imposed penalty of Rs. 39.82 lakhs holding that the assessee had failed to explain and justify the reasons for non-payment of taxes on the admitted undisclosed income. 8.During the appellate proceedings,before the FAA,the assessee argued that the AO had issued penalty notice mechanically, that the assessment was completed u/s.143 (3)instead of section 153A of the Act, that penalty u/s.271 AAA could be initiated only in the cases where the assessment was completed u/s.153A(1)(b)for section 153C of the Act, that the assessment under consideration was beyond the period of such assessments, that no proceedings u/s.271 AAA could be initiated,that the assessee had paid the entire tax amount with interest, amounting to Rs. 1.53 crores within the time limit prescribed by the Act. However, the FAA

3417-19 &3634-35/M/14-Jaishreeramgroup held that the AY.under consideration was search year, that proceedings u/s.153 were not required to be initiated. Before us,the AR made the same arguments that were advanced before the FAA. The DR supported the order of the FAA.We find that assessment order for the year under considera - tion was completed u/s.143 (3) of the Act and not u/s.153. Penalty u/s.271 AAA could be imposed only when assessment is made u/s.153. The said section was introduced to the specific purpose and deals with the search and seizure actions carried out after particular date. Therefore, reversing the order of FAA we decide the effective ground of appeal in favour of the assessee.