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Income Tax Appellate Tribunal, “J”, BENCH MUMBAI
Before: SHRI R.C.SHARMA, AM & SHRI RAM LAL NEGI, JM
O R D E R PER R.C.SHARMA (A.M): These are the cross appeals filed by the assessee and revenue against the order of CIT(A), Mumbai, for the assessment year 2004-2005, in the matter of imposition of penalty u/s.271(1)(c) of the I.T.Act.
Rival contentions have been heard and record perused. In this case the penalty was imposed by the AO with regard to the amounts surrendered during the course of search as well as additions made during the course of assessment. Facts in brief are that the assessee firm is engaged in the business of developing, building and construction activities. During the course of search action u/s.132 in Summer Group of cases including the assessee’s office premises at Chandivali Farms, MBC Studio Road, Off Saki Vihar Road, Kalyan Quarry Kadan, Mumbai- 400072. The assessee has disclosed a sum of Rs.67,04,500/-. Thereafter notice u/s.153A was issued and assessment was completed u/s.143(3), wherein the AO found that pages 1 to 65 of Annexure-A/1 were impounded on 06.11.2006. The assessee offered Rs.51,54,000/- as unaccounted compensation paid to tenants of the assessee’s site at Chandivali Farm, on the basis of the seized/impounded documents. However, during the course of assessment it was found that the unrecorded payment as per these pages was Rs.1,25,50,500/- and not Rs.51,54,000/- as stated by the assessee. Therefore, the difference of Rs.73,96,500/- (Rs.1,25,50,500 – Rs.51,54,000) was added to the total income of the assessee as income from other sources and penalty was imposed with respect to the same.
Further during the course of search action u/s.132 of the Income Tax Act, 1961, in the assessee’s office premises at 201, Commerce House, 140, N.M.Road, Fort, Mumbai-400023, a loose paper file containing 1 to 65 pages of Annexure-A/4 was seized on 07.11.2006. On the basis of page 1 to 56 of Annexure-A/4, the assessee had declared an income of Rs.15,50,000/- as peak value arising from various cash receipts and payments for the period between August 2003 and October, 2003. However, the transactions appearing in the pages 1 to 56 of the seized documents were analyzed independently. During the course of assessment it was found that the total of undisclosed income from these pages was Rs.41,43,263/-. Therefore, the difference of Rs.25,93,263/- (Rs.41,43,263 – Rs.15,50,000/-) was added to the total income of the assessee as income from other sources. Penalty was levied by AO u/s.271(1)(c) of the I.T.Act in respect of the amount surrendered in the course of search as well as on the amount of additions made during the proceeding u/s.143(3) r.w.s.147 of I.T.Act.
By the impugned order the CIT(A) deleted the penalty with respect to the income offered during the course of search, which was incorporated in the return of income filed in pursuance to the notice u/s.153A after having the following observations :- 1.22 The appellant has disclosed this income in the return filed in response to notice u/s. 153A on 20.09.2007 and paid taxes on this income before filing of the return. The appellant has submitted that Shri Ramesh Shah, Partner of the firm had made the statement u/s. 132(4) of the Income Tax Act on 07.11.2006 that all the assets as stated had been acquired out of the income which had not been disclosed so far in the return of income to be furnished before the expiry of time specified in section 139(1). He has further made declaration in the statement u/s.132(4) that the said income is derived from business activity from the real and construction carried out by it. Necessary taxes along with interest have already been paid by the appellant firm on this income disclosed in the return filed on 20.09.2007. Therefore, the firm's case squarely falls in exception enumerated in para No. (2) of Explanation 5 to section 271(1)(c) applicable in the case wherein search initiated u/s. 132 before 01.06.2007. The appellant has relied on the following decisions:- (i) Gebilal Kanhaialal (HUF) v. ACIT..(2004) 270 ITR 523 (ii) CIT v. S. D.V. Chandru (2004) 266 ITR 175. (iii) CIT v. Kanhaivalal 299 ITR 19 (iv) CIT v. Chhabra Emporium 264 ITR 249 1.23 The Assessing Officer in his assessment order has admitted the fact that the appellant has filed its return of income in response to notice u/s. 153A showing income of Rs.67,04,500/- but he has imposed the penalty on the disclosed income also on the ground that this income has not been disclosed by the assessee in the original return of income filed on 31.10.2004 prior to search and seizure operation. 1.24 The appellant has relied on the decision of Hon'ble Madras High Court in the case of CIT Vs. S.D.V. Chandru 266 ITR 175 in which the court has held as under:- "Explanation 5 to section 271(1)(c) provides that in the circumstances set out in paras. (1) and (2) of that Explanation, the assessee is not to be regarded as having concealed his income. While clauses (a) and (b) makes a clear distinction between the previous year which has ended before the date of the search and a previous year which is to end on or after the date of the search, para (2) in explanation 5 does not make any such distinction. It refers to the statement given by the assessee at the time of the search under section 132(4) with regard to the assets found at the time of search being the statement to the effect that such assets have been acquired out of his undisclosed income and the specification by the assessee in such statement with regard to the manner in which such income had been derived; and the subsequent payment by the assessee of the tax on such undisclosed income together with interest. The words in para. (2), "has been acquired out of his income which has not been disclosed in his return of income to be furnished before the expiry of time specified in sub-section (1) of section 139," is not to be read as referring to income so far not disclosed in respect of the previous year which is to end after the date of the search. The words used are "income which has not been so far disclosed in his return of income". The additional words which refer to the time specified in section 139(1) are only a reiteration of the legal requirement regarding the time within which returns should normally be' filed. In cases where the assessee had not disclosed his income in the returns filed for the previous year which have ended prior to the date of the search and, in the statement given under section 132(4), the assessee admits the receipt of undisclosed income for those years and also specifies the manner in which such income had been derived, and thereafter pays the tax on that undisclosed income with interest, such undisclosed income would get immunised from the levy of penalty". 1.25 The appellant has also relied on the decision of Hon'ble Rajasthan High Court in the case of CIT Vs. Kanhaiyalal 299 ITR 19 has held at Page- 27 of the said ITR as follows:-
"Thus, when the parent provision contemplates the income to be permissible in any previous years, obviously sub-clauses (1) and (2), which are in the nature of the proviso to this Explanation, have to be read in line therewith, and, therefore, if the disclosure of the asset has been made, then the assessee cannot be prohibited from showing that the income related to anyone or more of the previous years before the date of the search, at the pain of the immunity conferred by sub-clause (2) of Explanation 5 being taken away. They have also held at page 29 of the said ITR as follows:- "Examining the present case from that stand point it is clear, that the assessing authority has made assessment for the five assessment years, and instead of believing the returns filed by the assessee, the assessing authority, as a fact, had found the income to be relating to different assessment years, in different volumes, as contra- distinguished to the one submitted by the assessee, and has accordingly made the assessments, which assessments had become final, and are not the subject-matter of challenge. That being the position, in our view, it cannot be said that the immunity conferred by sub-clause (2) of Explanation 5, consequent upon the assessee giving statement under section 132(4), was at all taken away, or even watered down. 1.26 The appellant has further invited my attention towards 'the decision of Delhi High Court in the case of CIT Vs. Chabra Emporium 264 ITR 249 in which the court has held that surrender of Rs. 8,00,000/- was made on the date of the search action and such surrender fell within the immunity of Explanation 5 of section 271(1)(c) although amount of surrendered income was disclosed in revised return. 1.27 In view of the decision of Hon'ble Madras High Court in the case of CIT Vs. S.D.V. Chandru 266 ITR 175, decision of Hon'ble Rajasthan High Court in the case of Gebilal Kanhaiyalal (HUF) vs. ACIT (2004) 270 ITR 523 and decision of Hon'ble Rajasthan High Court in the case of CIT Vs. Kanhaiyalal 299 ITR19, it is clear that the appellant is entitled to immunity provided in exception to explanation 5 to section 27I(1)(c) of the Income Tax Act as the appellant has disclosed his additional income during search and seizure operation under section 132(4) and paid taxes thereon. Thus the appellant fulfilled the condition of exception of Explanation 5 of Section 271(1)(c) of the income tax act. 1.28 In view of the above fact, it is clear that the appellant fulfilled the conditions stipulated in Explanation 5 to Section 271(1)(c) for availing immunity for levy of penalty. Therefore,' the. Assessing Officer is not justified in levy of penalty in respect of income surrendered amounting to Rs.67,04,500/-. The Assessing Officer is directed to cancel the penalty on the income of Rs.67,04,500/-.
We have considered rival contentions, carefully gone through the orders of authorities below and found that categorical finding has been recorded by CIT(A) to the effect that assessee has fulfilled all the conditions stipulated in Explanation 5 to Section 271(1)(c) for availing immunity for levy of penalty. The assessee has also paid taxes on this income before filing of return. The detailed finding recorded by CIT(A) and the conclusion drawn by him is supported by the decision of Hon’ble Madras High Court in the case of SDV Chandru 266 ITR 175, Rajasthan High Court in the case of Kanhaiyalal, 299 ITR 19 and Delhi High Court in the case of Chabra Emporium 264 ITR 249. Accordingly we do not find any reason to interfere in the order of CIT(A) deleting the penalty levied with respect to income surrendered during the course of search amounting to Rs.67,04,500/-.
With respect to the penalty levied with reference to lose papers 1 to 65 Annexure-A/4, we found that it was explained by the assessee before the AO that certain portion of the seized material could not be copied out as it should be on the photocopies obtained due to the fact that the impugned figures were written in pencil on which transparent cello tape was fixed so that the figures written in pencil cannot be tampered in the original documents those were seized. This fact of poor photocopying of the pencil written portion of the documents and therefore poor and illegible copied matter was not properly appreciated by the Ld. Assessing Officer and he levied penalty on the difference of Rs.73,96,500/-. We also found that assessee otherwise arrived at unaccounted income of Rs.51,54,000/- from the same seized material which was clearly legible after copying it and accordingly offered the same for taxation. The contention of assessee that this amount was unintentional and it had no intention to conceal the income before the Revenue. This contention of the assessee was not properly appreciated by the lower authorities. Similar addition of Rs.25,93,263/- was made on the ground of unaccounted cash payment which was recorded to the tune of Rs.41,43,263/- out of which assessee has surrendered only Rs.15,50,000/-. The assessee has explained that it was due to mistake of Accountant as the entry was not properly appreciated by the lower authorities and they have also levied penalty with respect to these difference. In the interest of justice and fairplay we restore the penalty levied with reference to addition of Rs.73,96,500/- and Rs.25,93,263/- back to the file of AO for deciding afresh after giving due opportunity to the assessee.
In the result, appeal of the revenue is dismissed whereas appeal of the assessee is allowed for statistical purposes. Order pronounced in the open court on this 23/06/ 2016. Sd/- Sd/- (RAM LAL NEGI) (R.C.SHARMA) न्यानयक सदस्य / JUDICIAL MEMBER ऱेखा सदस्य / ACCOUNTANT MEMBER भुंफई Mumbai; ददनांक Dated 23/06/2016 प्र.कु.मभ/pkm, नन.स/ PS आदेश की प्रनिलऱपप अग्रेपषि/Copy of the Order forwarded to : अऩीराथी / The Appellant 1. प्रत्मथी / The Respondent. 2. आमकय आमुक्त(अऩीर) / The CIT(A), Mumbai. 3.