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Income Tax Appellate Tribunal, MUMBAI BENCH “G”, MUMBAI
Before: SHRI D.KARUNAKARA RAO & SHRI PAWAN SINGH
Revenue by : Ms. Ramapriya Raghavan (Sr. DR) Assessee by : Shri Senehal Shah (AR) Date of hearing : 07.06.2016 Date of Order : 24.06.2016 O R D E R
PER PAWAN SINGH, JM:
The Revenue has filed the present appeal against the order of CIT(A)-26, Mumbai dated 04.08.2014 for Assessment Year (AY) 2011-12. The Revenue has raised the following Ground of appeal:-
1. Whether on the facts and in the circumstances of the case and in law, the learned CIT(A) is justified in deleting the penalty u/s. 271AAA of Rs. 13,29,634/- without appreciating the fact that the assessee has failed to explain the manner in which undisclosed income is derived as required u/s. 271AAA(2)(ii) of the I.T. Act, 1961?”
2. Whether on the facts and in the circumstances of the case and in law, the learned CIT(A) is justified holding that provision of section 271AAA(2)(ii) cannot be satisfied unless provisions of section 271AAA(2)(ii) are fulfilled without appreciating the fact that both the conditions are distinct and independent of each other?”.
M/s Wizcraft International Pvt. Ltd.
Brief facts of the case are that the search & seizure action u/s 132(1) of the Act was carried out on 20.01.2011 on the premises of assessee. During the search incriminating material was seized from the premises of the assessee. The assessee made a statement u/s 132(4) of the Act and made a disclosure of additional income of Rs. 3,00,00,000/-.. Thereafter, the assessee filed return of income on 30.09.2011, declaring total income of Rs.26,13,92,237/-. The assessment was completed u/s. 143(3) of the Act on 22.03.2013 computing total income at Rs. 26,13,92,237/-. While framing assessment no further addition was made by AO.
During the course of assessment proceedings, it was noticed by AO that the assessee, offered undisclosed income of Rs. 3,00,00,000/-. Out of the said undisclosed income of Rs. 1,32,96,340/- was not substantiated when confronted to Subhash Vincent Joseph . On the basis of above conclusion, the AO issued a show cause notice to assessee on 08.07.2013 for initiating penalty proceeding u/s 271AAA of the Act and. The assessee replied the show cause notice, vide his reply dated 26.07.2013. In reply the assessee contended that assessee-company made a disclosure of Rs. 3,00,00,000/- u/s 132(4) of the Act during the search & seizure action. The undisclosed income was offered for taxation. The assessee-company offered Rs. 3,00,00,000/- for tax out of which Rs. 1.67 Crore was substantiated with document, seized during the course of search & seizure. The remaining amount of Rs. 1.33 Crore (approx) was to be considered for any other issue which may arise later and just to buy peace with the department and requested to drop the action initiated u/s 271AAA. The contention of assessee was not accepted by AO. The AO concluded that assessee- company has not furnished any confirmation from third party of having paid such amount and proof on receipt of the said amount of Rs. 1.33 Crore (approx). The assessee has not fulfilled the conditions of section 271AAA (2)(ii) of the Act. The assessee failed to disclose his taxable income truly and correctly. The AO worked out the penalty of Rs. 13,29,634/- being 10% of undisclosed income Rs. 1,32,96,340/-, which M/s Wizcraft International Pvt. Ltd.
was not substantiated. Aggrieved by the order of AO, the assessee filed an appeal before the CIT(A), and succeeded vide impugned order dated 04.08.2014. Against the order of CIT(A), the Revenue filed the present appeal before us.
We have heard the Departmental Representative (DR) of the Revenue and Authorised Representative (AR) for assessee and perused the material available on record. DR for Revenue argued that during the search & seizure action, the statement of Shri Subhash Vincent Joseph was recorded u/s 132(4) of the Act, wherein Rs. 3,00,00,000/- was offered as an undisclosed income. Out of Rs. 3,00,00,000/-, Rs. 1.67 Crore was duly substantiated with the documents seized. Rs. 1.33 Crore (approx) was not substantiated by assessee and thus all three condition attached with sub- section (2) of section 271AAA was not complied. Since the assessee- company failed to substantiate the manner in which undisclosed income of Rs. 1.33 Crore (Approx) was derived, the AO levied the penalty as prescribed under sub-section (1) of section 271AAA. Ld. DR for Revenue vehemently argued that when Shri Subhash Vincent Joseph was confronted with the incriminating material seized during the search and was asked to explain the nature of receipt in the books of account, Shri Subhash Vincent Joseph only could explain about Rs. 1.67 Crore. It was argued that CIT(A) wrongly deleted the penalty levied by AO. Ld. DR argued that order of CIT(A) be reversed and the order of AO may be restored. Ld. DR relied upon the decision of ITAT, Mumbai in ACIT vs. Prakash Steelage Ltd. (2015 55 taxman.com 284(Mumbai Trib.). On the other hand Ld. AR for assessee argued that AO has grossly erred in concluding that assessee has not substantiate the manner in which the undisclosed income of Rs. 1.33 Crore. The AR further argued that while recording the statement of Shri Subhash Vincent Joseph, no specific question in respect of amount of Rs. 1.33 Crore (approx) was posed. The amount of Rs. 1.67 Crore was duly substantiated with the document seized during the course of search & seizure. Ld. AR of the assessee further
M/s Wizcraft International Pvt. Ltd. argued that the assessee voluntarily disclosed the amount of Rs. 3,00,00,000/- which included Rs.1.33 Crore(approx). The question of specifying the manner in which the income has been derived is duly answered and substantiated with the document impounded/seized during the search & seizure. However, no specific question with regard to the amount of Rs. 1.33 Crore (approx) was asked to the Shri Subhash Vincent Joseph. Thus, the assessee has no opportunity to substantiate the said part of voluntary offered undisclosed income. Ld. AR of assessee further relied upon the decision(s) of ITAT, Chennai in ACIT vs. Shri Kishore Kumar Gokul Das (ITA No. 716 & 717/Mds/2013, ITAT, Delhi Tribunal, in Smt. Raj Rani Gupta vs. DCIT (ITA No. 3371/Del/2011, ACIT vs. Ritu Singhal (ITA No. 5257/Del/2013) and ITAT, Kolkata in SPS Steel & Power Ltd. vs. ACIT (ITA No. 1391/Kol/2011).
We have considered the rival contentions of the parties and perused the material available on record. We have gone through the various decisions referred by ld. Representative of the parties. Ld. DR relied upon the decision of Mumbai Tribunal in ACIT vs. Prakash Steelage Ltd. (supra) wherein the Co-ordinate Bench while dealing with the levy of penalty u/s 271AAA held as under: “There was a search and seizure action under section 132 at premises of assessee- Several incriminating materials were found leading to disclosure of undisclosed income vide statement under section 132(4) – Addition was made by Assessing Officer- Thereafter, penalty under section 271AAA had been levied by Assessing Officer as assessee could not specify manner in which such income had been derived- Commissioner (Appeals) deleted penalty on basis of a finding that there was substantial compliance, not warranting any further denial of benefit of Explanation 5A to section 271(1)(c) – whether Commissioner (Appeals) having examined levy on basis and anvil of a different provision, matter was to be restored back to him for consideration afresh.” On the other hand Ld. AR for assessee relied upon the decision of ACIT, Chennai vs. Kishore Kumar Gokul Das, ITAT, Delhi Tribunal, in Smt. Raj Rani Gupta vs. DCIT (ITA No. 3371/Del/2011, ACIT vs. Ritu Singhal (ITA No. 5257/Del/2013) and ITAT, Kolkata in SPS Steel & Power Ltd.
M/s Wizcraft International Pvt. Ltd.
(ITA No. 5257/Del/2013) and ITAT, Kolkata In SPS Steel & Power Ltd. vs. ACIT (ITA No. 1391/Kol/2011). In ACIT, Chennai Vs. Kishore Kumar Gokul Das (supra) it was held as under: “In view thereof and after giving our thoughtful consideration, we are of the view that admittedly, whilst initiating penalty proceedings under section 271(1)(C) of the "Act" in the impugned 'search' conducted on 11.09.2008 i.e. on or after 01.06.2007, the Assessing Officer had not taken into consideration the specific provision i.e. section 271AAA of the "Act". Apart from that, it also emanates from the case file that in the course of 'search', the assessee admitted undisclosed income of Rs.53.55 lakhs. The same was 'returned' on 13.09.2010 in furtherance to notice under section 153A of the 5 & 717/M/ 717/M/13 /M/13 "Act". We make it clear that earlier, he had disclosed income of Rs.2,30,900/-. Post section 153A notice, he declared income of Rs. 55,85,900/- i.e. Rs. 2,30,900/- + additional amount of Rs.53,55,000/-. Needless to state, he also paid the taxes there upon. It is not the case of the Revenue that the assessment finalized lead to any addition in assessee's case. Similarly, there is no finding that the assessee had any 'undisclosed' income not returned after 153A notice. We reiterate that no cogent material has been produced by the Revenue to rebut the findings of the CIT(Appeals) regarding admission of undisclosed income by way of statement recorded under section 132(4), explanation of its source and also payment of taxes by the assessee. Therefore, in our view, the present case is covered by section 271AAA(2) of the "Act" and the penalty has been rightly deleted by the CIT(Appeals).
Further, the ITAT, Delhi in Raj Rani Gupta Vs. DCIT (supra) it was held as under:
5. The appellant truthfully answered every question being asked and fulfilled its obligation. The statement made by the appellant was bona fide, genuine and in accordance to her knowledge of the provisions of law. No opportunity was provided to specify and substantiate the manner in which such income was derived rather questions were not raised at all.
6. The Oath Administrator should have informed the appellant that you have not specified and substantiated the manner in which such income has been derived. Therefore, You could be penalized.
7. The appellant is layman whereas Oath Administrator was representing Income Tax Department and conducting search with many officers. In a way he must be very well aware of the 5 ITA
M/s Wizcraft International Pvt. Ltd.
No3371/Del/11 provisions of the law and especially provisions related to search and seizure.
8. framing of the questions were not in the scope of the appellant.
The appellant rely the decision of CIT v. Radha Kishan Goel 278 ITR 454 where the Hon'ble Allahabad High Court accepted that unless the authorized officer puts a specific question with regard to the manner in which income has been derived. It is not expected from the person to make a statement in this regard.
The appellant further clarified the nature and source of income in the assessment and penalty proceedings. The appellant was not having any documentary evidence of the additional income otherwise it would have been discovered during the search."
The Ld AR relied upon the decision of Hon'ble Apex Court in the case of Hindustan Steel Ltd. v. State of Orissa (1972) 83-ITR 26 (SC) He particularly made reference to the following observation of Hon'ble Supreme Court:-
"An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi criminal proceedings and penalty will not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a 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 prescribes, the authority competent to impose the penalty will be justified in refusing to impose penalty 6 when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute."
The Hon'ble Gujarat High Court also in the case of CIT v. Mahendra C. Shah 299 ITR 305 held as under:. "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 Explanation 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 M/s Wizcraft International Pvt. Ltd. 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 In view of the above, the penalty is deleted.
Further, in ACIT, Delhi vs. Ritu Singhal,(supra) it was held as under:
(12) An overview of the provisions of S 271AAA of the Act will make it clear that no penalty is leviable in case an Appellant discloses and substantiates the manner in which the undisclosed income was earned and pays the taxes due thereon with interest. In the instant case the Appellant had disclosed the manner in which the income has been earned and the same has also got substantiated with reference to the documents seized during the course of search and accordingly the question of levy of penalty u/s 271AAA of the Income Tax Act, 1961 gets answered in the negative.
In SPS Steel & Power Ltd versus ACIT(supra) it was held: penalty under section 271 AAA could not be levied nearly on admission of assessee during search proceedings and there must be some conclusive evidence before assessing officer that Antrim eight in seized documents represented undisclosed income of assessee Further Co-ordinate Bench of Mumbai Tribunal in titled as Shri Purnandu Jain vs. ACIT (authored by Ld. AM), held as under: “7. We have heard both the parties and perused the orders of the Revenue Authorities as well as the cited order of the Tribunal and the judgments of the High Courts. The core issue for adjudication relates to the availability of immunity under the provisions of Explanation 5(2) to section 271(1)(c) of the Act in respect of additional income disclosed and relatable to the earlier assessment years. Admittedly, this is the case where no inquiry was made into the manner of deriving of the income which is a subject matter of penalty. These aspects are analyzed by the Tribunal in the assessee's own case in the later assessment years and the issue was decided in favour of the assessee. For the sake of completeness of this order, we reproduce the said paras 6.1 to 6.3 of the said order of the Tribunal (supra) dated 23.9.2013, which read as under: "6.1. The construction of the provisions of Explanation 5 put-forth by Ld DR on the basis of aforementioned instruction no.1882 are totally
M/s Wizcraft International Pvt. Ltd. contrary to the aforementioned decision of Hon'ble Madras High court and the aforementioned decisions of other Benches of ITAT. These instructions are issued by CBDT on 5.6.1991 when the decision rendered by Hon'ble Madras High Court is dated 9.12.2003. During the course of hearing Ld CIT DR was required to place on record any decision of any court in which the view conveyed by the CBDT in aforementioned Instruction No. 1882 is adopted, he was unable to cite any such decision. It was only argued that instructions issued by CBDT are in the nature contemporanea exposition and for such purpose reliance was mainly placed on the decision of Hon'ble Supreme Court in the case of K.P. Varghese (supra). We have carefully considered such submissions of Ld CIT DR and we found that such contention of Ld DR has no force as the law regarding bindingness of circulars issued by CBDT has been later on explained by Larger Bench of Hon'ble Supreme Court in the case of CCE vs. Ratan Melting & Wire Industries (the decision rendered by five judges of Hon'ble Supreme Court) [2008] 17 STT 103 wherein it has been held that it is for the Court to declare what the particular provision of statute states and it is not for executive; a circular cannot be given effect to in preference to the view expressed in a decision of the Hon'ble Supreme Court or the High Court; a circular which is contrary to the statutory provisions has really no existence in law. It has been clarified that the clarifications I circulars issued by the Central Government and of the State Government represent merely understanding of the statutory provision. They are not binding upon the court. It is for the Court to declare what the particular provision of the statute says and it is not for the executive. Thus, the law on this issue is very much clear that wherever question regarding interpretation of a provision is applicable the interpretation adopted by the Court will have a preference over the interpretation give by the CBDT. Therefore, this contention of Ld CIT DR has to be rejected particularly in the view of the fact that Ld CIT DR could not cite any decision of any Court by which the aforementioned view of the CBDT is supported. Moreover, we are considering the provision regarding levy of penalty. Where two interpretations are possible, levy of concealment penalty is not justified. Even according to law of precedence, the decision rendered by Madras High Court, in absence of decision of jurisdictional High Court on the issue will have persuasive value and view has been taken after considering the relevant provisions. Accordingly, we hold that Ld CIT (A) did not commit any error in deleting the penalty by following the aforementioned decision of Hon 'ble Madras High Court and penalty cannot be sustained on the interpretation of provisions adopted by the CBDT. 6.2. Before, parting with the appeals of the Revenue, for the sake of completeness we may mentioned here that even though It is not the case of AO that assessee did not specify in the statement made u/s 132(4) the manner in which the additional income was derived, but during the course of hearing of the appeal it was clarified by Ld AR that assessee was never asked to describe the manner in which he
M/s Wizcraft International Pvt. Ltd. has derived such additional income and it was submitted that during the course of hearing before Ld CIT (A) assessee had placed reliance on various decision in which it was held that where assessee has not been asked with such question that in what manner such income has been derived and the income has been offered and taxes have been paid then it will be sufficient compliance of Explanation 5 to section 271(1)(c). He in this regard referred to the decision of Hon'ble Gujarat High Court in the case of CIT vs. Mahendra C Shah [2008] 299 ITR 305/172 Taxman 58 and the decision of Allahabad High Court in the case of CIT vs. Radha. Kishan Goesl [2005] 278 ITR 454/ [2006] 152 Taxman 290. Thus, immunity provided by Explanation 5 is available to the assessee even though assessee has not specified the manner in which the undisclosed income is earned by him. 6.3. In view of the above discussion, we decline to interfere in the order passed by Ld CIT (A) and appeals filed by the Revenue are dismissed.”
8. Considering the above settled nature of the issue, the penalty levied by the AO is deleted. Accordingly, grounds raised by the assessee are allowed.”
6. Now coming to the facts of the present case, we have noticed that the AO while levying the penalty, out of total undisclosed declared income of Rs. 3,00,00,000/- , the sum of Rs. 1.67 Crore was duly substantiated and supported the same with the documentary evidence. Therefore AO did not levied penalty u/s 271AAA. However the remaining Rs. 1.33 Crore (approx) was further offered for an ambiguity that may arise in any proceeding . The CIT(A) while considering this ground observed that AO has not accepted the assessee’s claim in the manner, in which the said income was substantiated. Since the disclosure is voluntary, it is deem to be interpreted that assessee has substantiated the manner in which undisclosed income amounting to Rs. 1.33 Crore (approx) has been derived. And concluded, if the said amount is not treated as income offered in legitimate manner, the question of paying tax on the same does not arise. The assessee-company has paid tax of Rs. 9.70 Lacs for undisclosed income despite the fact that huge refund was due to the assessee. The CIT(A) while relying upon the decision of Co-ordinate Bench reported in [2013] 59 SOT 36 Mum(Trib.) titled as Marathon Nextgen Reality & Textiles Lt. Vs. DCIT wherein it was held that:
M/s Wizcraft International Pvt. Ltd.
“when a statement is recorded from the assessee and addition is made on the basis of the statement recorded then the same statement has to be accepted in full or rejected in full’’. The revenue cannot pick-up and chooses the portion which is favourable to the department and against the assessee and deleted the penalty and levied by AO.
In our considered opinion, the only issue that arises for our consideration is, whether the manner in which the, undisclosed income has been derived is substantiated or not when the assessee was asked to explained it. If we examine the answer of the questions of specifying the manner in which the income has been derived, the answer is yes. No question was posed by authorised officer while recording the statement of Subash Vincent u/s132(4) in respect income of Rs.1.33Crore (approx) . Thus the alleged failure on the part of the assessee to specify and substantiate in respect of undisclosed income of Rs. 1.33 Crore(approx) , was due to the reason that no such question was posed to Subash Vincent. So it was not expected from the person who has once voluntarily offered the income and substantiated part of it, so far as confronted to him and remaining was neither pose to him nor he voluntarily substantiated. The argument of AR of assessee that the amount surrendered has been accepted suo-moto by the Revenue itself leads to the irrefutable conclusion that the question of specifying and substantiating the manner in which it has earned has been answered to the satisfaction of the authorised person as well as assessing officer. Moreover it needs to be understood that in absence of any specific procedure prescribed in the Act, for specifying and substantiating the undisclosed income, the fact that the same has been accepted without any variation by the AO is by itself enough evidence of the said criteria is having been met and satisfied. And this of our view is duly supported with the decision of Delhi tribunal in Ritu Singhal case (supra) and Shri Purnandu Jain vs. ACIT (supra).The decision of Mumbai Tribunal in ACIT Vs Prakash Steelage Ltd (supra) referred by Ld DR is defer on the fact of the present case. In Prakash Steelage, the return
M/s Wizcraft International Pvt. Ltd. income was not accepted by AO, the AO made addition while framing assessment. And the statement recorded on behalf of assessee does not specify the manner in which income is derived. However in the present case the return income is was accepted by AO without any variation/addition. As the ratio of decision cited by ld DR is not applicable on the fact of the present case. In the above discussion we hold that the order passed by Commissioner of appeals does not require any interference at our end, and the appeal filed by the revenue is dismissed.
In the result, the appeal filed by revenue is dismissed.
Order pronounced in the open court on this 24th June, 2016.