SAMSON PERINCHERY,MUMBAI vs. ASST CIT CEN CIR 18& 19, MUMBAI

Having heard rival contentions, we are of the view that there is no infirmity in the decision rendered by Ld CIT(A) on this issue. We notice that the search officials have unearthed various types of investments, cash and deposits. Under the Income tax Act, an assessee is required to disclose the sources thereof. For computing the source, one is required to take into consideration both declared and undisclosed income. Hence, there is merit in the contentions of the assessee that the aggregate income disclosed in returns filed u/s 153A of the Act (income returned u/s 139(1) plus additional income declared) should be compared with the aggregate amount of investments found during the course of search. Even if we assume for a moment that the assessee has not explained the sources of investments, the AO is required to give credit for the income already declared by the assessee in the returns of income filed for various years for the purpose of arriving at undisclosed investment. A perusal of the assessment order would show that this addition has been made by the AO with the description “Unaccounted investment”, meaning thereby the AO has also understood that the investment in which sources have been explained should not be added. Since the quantum found at the time of search relate to investments, what is required to be assessed is only those part of investments, sources of which could not be explained to the satisfaction of the AO. Further the Ld CIT(A) has found out from the answers given by the assessee that the assessee had intended to include the income declared in the returns filed u/s 139(1) of the Act in the disclosure and such an interpretation given by Ld CIT(A) is well within the scheme of the Act. Accordingly, we do not find any infirmity in the decision rendered by Ld CIT(A) on this issue.

In the assessee’s appeal, it is prayed that the income relating to Kisan Vikas Patra (KVP) and refund of LIC amount should be excluded from the total income. It appears that the assessee had been offering interest income from KVP on estimated basis and during the year under consideration, the interest income offered has exceeded actual amount of interest. Accordingly it is prayed that the excess portion of interest income should be excluded from the total income. It is further submitted that the assessee has wrongly offered LIC refund, a capital receipt, as his income and accordingly it is prayed that the same may be excluded.

It is settled law that the tax can be collected only on the real income. The excess interest cannot be subjected to tax, even if the assessee had offered the same. Similarly the capital receipts cannot be taxed except with the authority of law. Since both the contentions have been raised for the first time before us, we deem it proper to restore the same to the file of the AO for examination of the same. Accordingly we restore both these issues to the file of the AO, who may take appropriate decision in accordance with the law after providing adequate opportunity to the assessee.

The remaining two appeals relate to the penalty levied u/s 271AAA of the Act. The AO levied penalty on the reasoning that the assessees have not specified the manner in which the undisclosed income was generated and further the assessees have failed to pay the tax on the additional income. It is pertinent to note that the provisions of sec. 271AAA(2) specifies three conditions, which are required to be satisfied in order to escape from penalty under that section. According to AO, the assessees have not satisfied two conditions. In the appellate proceedings, the Ld CIT(A) examined the replies given by the assessee in the sworn statement and noticed that the assessee has stated his sources of income as brokerage and commission income. Accordingly he held that the condition relating the sources of income has been satisfied. With regard to the payment of taxes, the assessee had requested the AO to encash Kisan Vikas Patras and the same was not found to be sufficient by the tax authorities to comply with the conditions specified in sec. 271AAA of the Act. Accordingly, the Ld CIT(A) confirmed the penalty

We have heard the parties on this issue. Since the penalty u/s 271AAA has been levied on identical set of facts in both the cases, we prefer to dispose both the appeals instead of sending the appeal of Mrs. Peidade Perinchery to the file of the Ld CIT(A). According to the Ld CIT(A), these assesses have not satisfied the conditions specified in sec. 271AAA with regard to the payment of taxes, i.e, the above said section specifies that the assessee should pay the tax together with interest, if any, in respect of undisclosed income. The facts of the case would show that the undisclosed income declared by the assessee consisted of investment in shares, mutual funds and Government securities. The cash and bank balances available with the assessee were not sufficient to pay the taxes on undisclosed income. Hence the assessee has filed an application with the AO, requesting him to encash the Kisan Vikas Patras and to adjust the proceeds thereof against the tax payable by the assessee on the disclosed income. It is a settled proposition of law that a person cannot be forced to do impossibility. Since the assessee was not having liquid funds to pay the taxes, he had no other option, but to encash the securities. Accordingly, he has requested the AO. In our view, the request so made by the assessee and subsequent encashment of the securities satisfies the conditions prescribed in sec. 271AAA of the Act for payment of tax. Accordingly, we modify the order of Ld CIT(A) and hold that the assessees have satisfied the condition relating to payment of tax also. Accordingly we direct the AO to delete the penalty levied u/s 271AAA of the Act in both the cases under consideration.

In the result, the appeal filed by the revenue in is dismissed. The appeal of the assessee in is treated as allowed and remaining two appeals of the assessee are allowed.