OPTIONS DEVELOPRS AND BUILDERS,MUMBAI vs. DCIT CE CIR 22, MUMBAI

आदेश / O R D E R

Per Joginder Singh (Judicial Member) The assessee is aggrieved by the impugned order dated 11/09/2013 of the Ld. First Appellate Authority, Mumbai. The only ground raised in the present appeal pertains to levying penalty u/s 271AAA(1) of the Income Tax Act, 1961 (hereinafter the Act), amounting to Rs.84,58,000/-.

i. CIT vs Mahendra C. Shah (2008) 299 ITR 305 (Guj.); 215 CIT 493 (Guj.).

M/s Options Developers & Builders 6 (page -57 of the paper book) by further explaining that the name of the parties was also disclosed and survey was conducted on these parties. So far as, the documents were concerned, these were explained to be dump document (pages 60 to 62 of the paper book) but due to buy peace disclosure of additional income were made by the assessee. Our attention was invited to page-2 of the paper book along with page-12 of the order of the Commissioner of Income Tax (Appeal) (para-1) evidencing that disclosure was made to buy peace with the department. The ld. counsel also invited our attention to the assessment order for Assessment year 2009-10 (page-3 last para), wherein, even the Assessing Officer has recorded. It was asserted that parties were identified and verification of the noting was never made independently by the department, which reveals that there was no such transaction. The explanation of the assessee was claimed to cross verified.

2.2. On the other hand, the ld. DR, Ms. Sudha Ramachandran, defended the imposition of penalty by placing reliance upon the penalty order/impugned order and relied upon the decision of the Tribunal in the case of ACIT vs Prakash Steelage Ltd. (2015) 55 Taxman.com 284 (Mum).

2.3. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee is a builder/developer. A search and seizure action u/s 132 of the Act was carried out at the business premises and residences of the partners on M/s Options Developers & Builders 16/11/2009. Shri Gangdas Patel, partner, offered Rs.8.45 crores as additional income, during recording of statement u/s 132(4) of the Act, being earnings from construction activity (the amount not recorded in books of accounts). During search, certain loose papers were found from the possession of one of the employee namely Shri Raju Patel. The said loose papers no.3, 14, 35 and 39 are available as annexure A-3 to written submission filed before Commissioner of Income Tax (Appeal). This disclosure of additional income was made by the assessee to buy peace and to avoid litigation and penalties (page 2 of the written submissions). The assessee also paid taxes on the disclosed additional income. The ld. Assessing Officer initiated penalty proceedings u/s 271AAA of the Act on the undisclosed income (disclosed during recording of statement) of Rs.8,45,00,000/- and unaccounted cash of Rs.80,000/- on account of unexplained expenditure. The basis for initiating penalty by the Assessing Officer is that the assessee was unable to substantiate the manner of earning the undisclosed income, whereas, the stand of the assessee is that the undisclosed income (admitted during recording of statement) was stated to be out of business activity/construction activity and paid due taxes thereupon. Before proceeding further, we are reproducing hereunder the relevant provision of section 271AAA of the Act for ready reference and analysis:-

“271AAA. (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 M/s Options Developers & Builders

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 (1) of 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.]”

M/s Options Developers & Builders 2.4. If the aforesaid provision of the Act is analyzed as

per sub-section (1), the assessee shall pay by way of penalty, in addition to tax, if any, payable by him, a sum computed at the rate of 10% of the undisclosed income of the specified previous year. However, sub-section 271AAA(2) says that sub- section (1) shall apply, if the assessee (i) in the course of search, in a statement under section 132(4), admits the undisclosed income and specified the manner, in which such income was derived, (ii) substantiate 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.

2.5. It is further noted that with the insertion of Explanation “undisclosed income” has been defined to be (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 accounts or other documents or transaction found in the course of M/s Options Developers & Builders search u/s 132, which has (A) has not been recorded on or before the date of search in the books of accounts or other documents maintained in the normal course relating to such previous year or not disclosed to the department. The broad analysis of the section says that the manner of earning such undisclosed income has to be explained by the assessee and further the assessee has to pay the tax along with interest, if any, in respect to such undisclosed income.

2.6. If the aforesaid provision of the Act is kept in juxtaposition with the facts of the present appeal undisputedly to buy peace with the Department and to avoid litigation, the assessee made disclosure of additional income of Rs.8.45 crores and paid due taxes thereupon. So far as, manner of earning the income is concerned, we find that statement of Shri Rajesh & Patel @ Raju Patel was recorded (pages 33 to 43 of the paper book). Through question number 8 (page-36 onwards of the paper book), the assessee was asked with respect to loose papers, it is noticed that Mr. Patel duly explained the same, therefore, it is established that the assessee has clearly explained the source of the money,

M/s Options Developers & Builders therefore, from this angle, penalty cannot be sustained.

During hearing before us, the ld. counsel for the assessee, claimed that the documents, alleged to be recovered from the premises, are dumb documents and has no evidentiary value.

If this appeal is analyzed with respect to dumb document, still at least, penalty does not survive.

2.7. Another argument taken before us, by the assessee, is that the disclosure of additional income was made by the assessee simply to buy peace with the department and also to avoid litigation. The Bench asked the ld. counsel for the assessee whether identical plea was raised before the Assessing Officer or the Commissioner of Income Tax (Appeal), the ld. counsel duly explained that such argument was taken before the authorities, for which our attention was invited to the written submissions filed before the Commissioner of Income Tax (Appeal). From the written submissions (page 2), it has been claimed as under:-

“During search certain loose papers were found from the possession of one of the appellant employee Shri Raju Patel. The said loose paper no. 3, 14, 35 & 39 are filed at under Annexure A/3. In order to buy peace & avoid litigation &

M/s Options Developers & Builders penalties the appellant has come forward to disclose as additional income & paid taxes on the same.”

2.8. In the aforesaid written submissions, not only to buy peace and to avoid litigation, the assessee has specifically prayed penalty is also, therefore, the assessee has substantiated its version that additional disclosure was made subject to aforementioned conditions, therefore, the assessee is having a good case for deleting the penalty. The case of the assessee is fortified by the decision of the Mumbai bench of the Tribunal in the case of Shri Uday C. Tamnhankar vs DCIT (supra). The relevant portion of the same is reproduced hereunder for ready reference (pages 22 to 25 of the paper book):-

“23. We shall now take up the appeal filed by the assessee for assessment year 2008-09 against the penalty levied u/s 271AAA of the Act. As noticed earlier, the assessee had offered the excess cash balance of Rs.1.05 crores as his income for AY 2008-09 out of the cash of Rs.1.13 crores found during the course of search. Hence the assessing officer levied penalty u/s 271AAA of the Act at 10% of the additional offer of Rs.1.05 crores made in the statement taken u/s 132(4) of the Act. Before the Ld CIT(A), the assessee claimed immunity from penalty by contending that he has complied with the conditions prescribed in sec. 271AAA(2) of the Act. However, the Ld CIT(A) took the view that the assessee has not disclosed the manner in M/s Options Developers & Builders which the undisclosed income was earned and accordingly the Ld CIT(A) confirmed the penalty.

M/s Options Developers & Builders and that was accepted by the Department by passing the assessment orders accordingly. Therefore, the cases of the assessees fall exactly within the purview of sub-s (2) of s. 271AAA. Therefore the provisions contained in sub.s (1) of s. 271AAA are not applicable…”

M/s Options Developers & Builders 2.9. The ratio laid down in the aforesaid order dated 11/09/2015 and the facts are identical and in the present appeal also, we find that the assessee has complied with the conditions prescribed in section 271AAA(2) of the Act. The penalty was imposed upon the assessee on the plea that the assessee has not disclosed the manner in which undisclosed income was earned. From the statement recorded from Mr. Patel u/s 132(4) of the Act, it was categorically stated that the income was earned from construction activities, tax was paid along with interest, therefore, assessee is having a good case.

Even otherwise, no prescribed formula has been mentioned in the Act on the basis of which, it can be said that manner has not been explained. The activity of the assessee is construction activity and the assessee explained that the undisclosed income was earned out of construction activity, thus, we are satisfied with the disclosure/manner of the assessee. If the Assessing Officer/authorize officer was not satisfied with the manner, nothing prevented him to explain the assessee and to record the statement accordingly. Rather the disclosure was accepted by the Department and due taxes along with interest were paid by the assessee. The ratio laid down in Ashok

M/s Options Developers & Builders Kumar Sharma vs DCIT (2012) 149 TTJ(CTK)(UO)33 supports the case of the assessee, wherein, it was held as under:-

“Undisputedly the assessees have shown the undisclosed income under the head “income from business” in the returns filed by them and that was accepted by the Department by passing the assessment orders accordingly. Therefore, the cases of the assessees fall exactly within the purview of sub-s (2) of s. 271AAA. Therefore the provisions contained in sub.s (1) of s. 271AAA are not applicable…” We note that the Nagpur Bench of the Tribunal has taken identical view in Concrete Developers vs ACIT (ITA No.381/Nag/2012) dated 20/03/2013, thus, the assessee is fortified by these aforesaid decisions.

2.10. The assessee is further fortified by the decision from Mumbai Bench of the Tribunal, wherein, one of us (Judicial Member) is signatory to the order in the case of DCIT vs Hafeez S. Contractor (Supra) order dated 02/09/2015. The relevant portion from the order is reproduced hereunder for ready reference:-

“2. The Revenue is aggrieved by the decision of the ld. CIT(A) in deleting the penalty of Rs..5,05,256/- levied by the AO under section 271AAA of the Act.

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“271AAA. Penalty where search has been initiated.—(1) The Assessing Officer may, notwithstanding anything contained in M/s Options Developers & Builders 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.

According to the assessee, he has complied with all the three conditions specified in sub-section 2 of section 271AAA of the Act. Whereas, the AO has stated that the assessee has not substantiated the manner in which the undisclosed income was derived by the assessee. We notice that an identical issue was considered by the Nagpur Bench of the Tribunal in the case of Concrete Developers (supra), wherein the Tribunal noticed that the assessee had declared undisclosed income under the head “Business” and the AO had also accepted the same. Under these set of facts, the Tribunal held that it cannot be said that the assessee had not or could not substantiate the manner in which the undisclosed income was derived by it. Accordingly, the Tribunal deleted the penalty levied u/s 271AAA by holding that the assessee’s case falls under section 271AAA of the Act.

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5. In the instant case also, the Ld CIT(A) has noticed that the assessee has offered the additional income under the head “Business” and the same has also been accepted by the assessing officer. Accordingly, the Ld CIT(A) has deleted the impugned penalty by following the decision rendered in the case of Concrete developers (supra). Since the facts prevailing in the instant case and the facts relating to Concrete developers (supra) are identical in nature and since the Ld CIT(A) has followed the decision rendered by the co-ordinate bench of Tribunal in the above cited case, we do not find any reason to interfere with his order.

2.11. Identical view was taken by the Mumbai Bench of the Tribunal in the case of ACIT vs M/s Kanakia Spaced Pvt. Ltd. (ITA No.6763/Mum/2011) order dated 10/07/2013. The Bench while dismissing the appeal of the Revenue duly considered the decision from Hon’ble Gujarat High Court in CIT vs Mahendra C. Shah (299 ITR 305)(Guj.). The relevant portion from the aforesaid order of the Tribunal is reproduced hereunder for ready reference:-

“4. After considering the rival submissions, we do not see any reason to interfere with the order of CIT(A). The order is in tune with the principles laid down by various co-ordinate Benches and High Courts particularly with reference to disclosure made under M/s Options Developers & Builders section 132(4). In the case of CIT vs. Mahendra C. Shah (299 ITR 305) the Hon’ble Gujarat High Court considered similar statement under section 132(4) to grant immunity under section 271(1)(c). The Hon'ble High Court held as under:-

“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 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. 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 M/s Options Developers & Builders 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.

2.12. The scope and meaning of section 271AAA(2) has been lucidly explained by the Hon’ble High Court in the case of Radha Krishna Goel (2005) 278 ITR 454 (All.). It is noteworthy that the Hon’ble High Court has categorically held that the provisions of clause-2 of explanation-V appended to section 271(1)(c) are similar to 271AAA(2) of the Act. Thus, the assessee is having a good case in its favour.

2.13. In another case, decided by the Tribunal of Delhi Bench in Sudha Gupta vs DCIT (ITA No.5445/Del/2012) order dated 22/08/2014, wherein other cases from the Tribunal such as Gulabrai V. Gandhi vs ACIT (84 ITD 370), Rajrani Gupta (ITA No.3371/Del./2011) order dated 30/03/2012, dated 12/10/2012, decision in Mahendra

M/s Options Developers & Builders C. Shah (supra) from Hon’ble Gujarat High Court, case of Mother pride Education Personna Pvt. Ltd. vs DCIT (ITA No.3372/D/2011) order dated 12/10/2012, etc were considered and penalty was deleted. Therefore, since, the issue/facts is identical, the assessee is having good case in its favour for deleting the penalty.

2.14. In another case of Smt. Raj Rani Gupta vs DCIT (ITA No.3371/Del/2011) order dated 30/03/2012, the appeal of the assessee was allowed. In the case of DCIT vs Shri Rajiv Chopra (ITA No.990/Chd/2014) order dated 27/11/2015, wherein, the case of Manish Kumar Goel 45 taxman.com 563 was followed and the appeal of the department was dismissed.

Likewise, the Mumbai Bench of the Tribunal in Janak Madhusudan Vakaharia vs ACIT (ITA No.2900/Mum/2012) order dated 26/07/2013, following the case from Ahmedabad Bench of the Tribunal in DCIT vs Ranjendra Prasad Dokania (ITA No.525/Ahd/2012) the appeal of the assessee was allowed and the Assessing Officer was directed to delete the penalty u/s 271AAA of the Act.

M/s Options Developers & Builders 2.15. Likewise, in DCIT vs M/s Nector Life Science Ltd. (ITA No.107/Chd/2015) order dated 27/11/2015 following the case of Sunil Kumar Bansal vs DCIT (ITA No.874 & 875/Chd/2013) and other cases including Mahendra C. Shah from Hon’ble Gujarat High Court was discussed and the appeal of the Revenue was dismissed. In another case of DCIT vs Banarsidas R. Jindal and ors. (ITA NO.1436, 1438, 1440/Pn/2013) order dated 26/06/2015 following Satish Chandra G. Mittal (ITA No.970/Pn/2011) order dated 11/05/2015, the appeals of the Revenue were dismissed.

2.16. In another case by the Kolkata Bench of the Tribunal in JCIT vs M/s Castal Extrusion Pvt. Ltd. (ITA No.1269/Kol/2012) and JCIT vs M/s Beco Industries Pvt. Ltd. order dated 24/09/2015, wherein, the decision from Hon’ble Punjab & Haryana High Court in CIT vs Careers Education & Infotech Pvt. Ltd. (2011) 336 ITR 257 (P & H), the decision from Hon’ble Apex Court in CIT vs Suresh Chandra Mittal (2001) 251 ITR 9 (SC), MAK Data Pvt. Ltd. vs CIT (358 ITR 593)(SC) were discussed and ultimately the appeal of the Revenue was dismissed. The Hon’ble Apex Court in Suresh

M/s Options Developers & Builders Chandra Mittal (Supra), wherein their Lordships have observed that :

“where the assessee has filed a revised return showing higher income and the assessee has surrendered the income after persistent queries by the Assessing Officer and where the revised return has been regularized by the Revenue, the explanation of the assessee that he has declared the additional income to buy peace of mind and to come out of vexed litigation could be treated as bona fide, accordingly the levy of penalty u/s 271(1)(c) was held to be not justified.”

2.17. The Kolkata Bench of the Tribunal in another case of SPS Steel & Power Ltd. vs ACIT (ITA No.1391 & 1414/Kol/2011) dismissed the appeal of the Revenue vide order dated 30/06/2015. The relevant portion from the aforesaid order is reproduced hereunder:-

“6. We have heard rival contentions and gone through the facts and circumstances of the case. Coming to Revenue’s appeal, we find that the AO has accepted the disclosure made vide petition dated

11.04.2008 amounting to Rs.8.64 crores. The AO also admitted that assessee filed a detailed working of disclosure with cash flow statement which was verified. The AO discussed the disclosure in his assessment order and the same is reproduced in above para-2. The AO has not disputed that out of the total undisclosed income of M/s Options Developers & Builders

Rs.7,97,65,623/-, a sum of Rs.6.84 crores was admitted as undisclosed income in the statement u/s 132(4) of the Act and duly included the same as undisclosed income in the return of income and also paid taxes. The AO levied the penalty only on the reason that the assessee failed to substantiate the manner in which the undisclosed income was derived. From the detailed working and calculation of the undisclosed income as done by the AO in his assessment order as is reproduced in above para-2, and also included in the same in the return of income and paid taxes. The AO has not disputed the above disclosure as each and every entry has been explained by the assessee with narrations stating the manner in which this income was earned by assessee.

Hence, in this case it cannot be said that the assessee has not specified the manner in which the undisclosed income has been earned because the papers found during the course of search relates to the business of the assessee or debtors relating to business of the assessee. It is clear from the above that the undisclosed income was earned mainly by virtue of trading activities and income from other sources. This has not been disputed by the AO during the course of scrutiny assessment and accepted the same as it is. In this regard, we have gone to the provision of Sec. 292C of the Act which reads as under:-

“292[(1)] Where any books of accounts, other documents, money, bullion, jewellery or other valuable articles or thing are or is found in the possession or control of any person in the course of a search under section M/s Options Developers & Builders

132 [or survey under section 133A], it may, in any proceeding under this Act, be presumed- (i) That such books of accounts , other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person; (ii) That the contents of such books of accounts and other documents are true; and (iii) That the signature and every other pat of such books of accounts and other documents which purport ….. section 132].”

In view of the above, Section which deems that all recordings in the seized documents are correct unless proved to the contrary. In view of the above provisions and the facts of this case implies that the recordings in the seized documents are trading activity and income from other sources, which were never disputed by the AO. The Cuttak

Bench of this Tribunal in the case of Ashok Kumar Sharma v. DCIT

149 TTJ 33, in similar circumstances, has held that:-

“Assessees have disclosed concealed income while giving statements u/s. 132 during course of search and paid tax thereon and showed the said undisclosed income in return filed under the head ‘income from business’ and Department has accepted these returns and accordingly passed assessment orders. It is not a case of revenue that assessee has not satisfied the manner in which income is derived and assessee has not paid tax with interest on undisclosed income. Undisputedly, assessees have shown undisclosed income under head “income from business” in returns filed by them, and the same was accepted by Department by passing assessment orders accordingly. Therefore, cases of assessee fall exactly within purview of section 271AAA(2). Therefore provisions contained in subsection 1 of section 271AAA are not applicable.”

In view of the above factual and legal position, in the instant case, the income disclosed by the assessee and also the return has been M/s Options Developers & Builders accepted by the assessee, no penalty u/s 271AAA of the Act can be levied and CIT(A) has rightly deleted the same. We confirm the order of CIT(A) deleting the penalty.

According to AO, the undisclosed income is neither admitted or disclosed u/s. 132(4) of the Act nor subsequently included in the return of income filed by the assessee. According to AO, this undisclosed income was merely detection by the Revenue. The assessee before us explained in respect to the payment of Rs.15,77,307/- which is recorded in page No. 23 of seized document

UKS1. According to AO, the assessee has recorded a sum of Rs.1,54,620/- in its disclosure petition and the balance Rs.14,22,687/- was not disclosed. It was explained that as per the disclosure petition the assessee had shown an income of Rs.1,54,620/- with reference to page No. 23 of the seized document UKS1. In arriving at such profits, payment of Rs.55 lakhs has been considered. Thus, the allegation of the AO that a sum of Rs.1,54,620/- was only disclosed is completely contrary to the facts of the case. The assessee alternatively argued that the aforesaid payments of Rs.14,22,687/- were not considered in the disclosure petition, then in that case said payment should reduce

M/s Options Developers & Builders the income voluntarily disclosed by the assessee during the course of search i.e. Rs.6.84 crores. The said income was represented by cash disclosed in the balance sheet of the assessee and as accepted by the AO. Ld. counsel for the assessee before us drew us the provision of Sec. 69C of the Act and argued that from a plain reading of the Sec.

69C of the Act, the addition can be made only if the assessee cannot explain the source of the expenditure. In the instant case, the source of the expenditure of Rs.14,22,687/- clearly stands explained by the disclosed income of Rs.6.84 crores available to the assessee in cash.

Thus, no addition u/s. 69C of the Act can be made. Further, he stated that page No. 23 of the UKS1 is a dumb document. The document merely has some figures written on it. The document nowhere mentions the nature of the transactions, the parties to the transaction, the period of transaction etc. Nothing can be gathered from the said document. Thus no addition can be made on the said document. He explained the aforesaid seized document that it is apparent that cash expenses of Rs.13.50 lakh was incurred and paid to Liberty Marine.

The same was added by the AO to the income of the assessee disregarding the fact that said sum was already considered in its disclosure petition, wherein Miscellaneous cash expense of Rs.25,41,155/- was disclosed to have been paid to Liberty Marine. But the assessee accepted the addition just to avoid lingering litigation but this is not subject-matter of penalty u/s 271AAA of the Act.

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as per the aforesaid seized document, Ld. counsel for the assessee explained that the said amount was considered in the disclosure petition of the assessee, wherein miscellaneous expenditure of Rs.101,36,805/- in connection with miscellaneous receipts of Rs.61 lakh was disclosed by the assessee. He argued that, if for the sake of argument, it is assumed that the aforesaid expenses of Rs.57,7,936/- were not disclosed in the return, then, in that case said expense should reduce the income voluntarily disclosed by the assessee in curse of search i.e. Rs.6.84 crores. As already explained in para 4.3 above, the assessee had enough cash available to meet the said expense.

Accordingly, no addition u/s. 69C of the Act can be made.

of the total transportation charges paid by the assessee a sum of Rs.15 lakh was received back in cash on account of discounts offered by the transporter and accordingly expenses to the tune of Rs.15 lakh recorded in the books are bogus. He contended that Shri Bipin Vohra,

Chairman of the assessee company in his statement obtained in course of search accepted the said allegation. Reliance was also placed on page no. 7 of SPSG/2 and page No. 28 of SPSG/3. Ld counsel explained firstly to the seized documents relied upon by the AO and M/s Options Developers & Builders page No. 7 of SPSG/2 shows the details of cheques issued to various parties. Further, page No. 28 of SPSG/3 shows withdrawal of Rs.6.50 lakh from bank account of the assessee. The said document is the evidence of payment made to Sampoorna Logistics in cheque as transportation charges. They nowhere suggest cash receipt by the assessee. Hence, no addition can be made based on the said documents. Ld. counsel explained the statement of Shri Bipni Vohra,

Chairman of the assessee-company, obtained in course of search, and clarified that his statement was recorded by the search party under duress and coercion. Thus, the statement made in course of search does not have much evidentiary value unless it is corroborated with other documentary evidences. For this Ld. counsel for the assessee drew our attention to Departmental issued by CBDT vide Board’s letter No. F No.286/2/2003/IT(Inv) dated 11.03.2003 and the extract of which is as under:-

“Instances have come to the notice of the Board where the assessee have claimed that they have been forced to confess the undisclosed income during course of search and seizure and survey. Such confession, if not based on credible evidence, are altered/retracted by the concerned assessee while filing returns of income. In such circumstances, confessions in the course of search and seizure and survey operations do not serve any useful purpose. It is therefore advised that there should be focus and concentration on collection of evidence of income which leads to information on what has not been disclosed or is not likely to be disclosed before income tax department. Similarly while recording statements during curse of search and seizures and survey operations, no attempt should be made to obtain confession as to undisclosed income. Any action on the contrary will be viewed adversely.”

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In view of the above, Ld. counsel for the assessee argued that the Board recognizes that forced statements are taken by the Authorities from assessee during search admitting or confessing to undisclosed income but according to him, such confession by an oral statements would not suffice unless there is enough evidence to corroborate such confession. In view of these, he argued that no document supporting cash receipt of Rs.15 lakh was found during the course of search and the entire statement of Shri Bipin Vohra. Accordingly, the penalty levied by the AO cannot be sustained.

at page 65 of paper book. A perusal of the same shall clarify that the document nowhere mentions the period of the transaction. It merely records some transactions in the cash and bank column. Solely on this basis, the AO presumed that entries of Rs.640.25 on right hand side are cash payments of Rs.6.4025 crores and entries on the left hand side of Rs.667 represent cash receipts of Rs.6.67 crores. Accordingly he treated the net amount of Rs.26.75 lakh as undisclosed income and added the same to the income of the assessee. He explained that the said document is a dumb document since it is does not specify the period to which it pertains. Thus, it is not possible to trace out as to which set of transactions cumulate to the figures reflected in the page.

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Further, the seized document nowhere mentions any basis for deciphering the figures recorded in the said document. Thus, the AO was not justified in presuming that the figures in the seized document were in lakhs. Now, since the document is a dumb document no addition could have been made on that basis as already discussed in para 4.4 above. Moreover, the seized document does not constitute books of accounts of the assessee. It is merely a loose sheet of paper, which has no intrinsic value. Attention in this regard is invited to the definition of books of accounts u/s. 2(12A) of the Act: “Books or books of accounts” includes ledgers, day-books, cash books, account- books and other books, whether kept in the written form or as print- outs of data stored in a floppy, disc. Tape or any other form of electro- magnetic data storage device;”

Thus from the above, according to Ld. counsel of assessee it is clear that books of accounts include ledgers, cash books etc., the paper seized from the premises of assessee clearly does not fall within the definition of books of accounts. From a plain reading of the above, it is clear that undisclosed income means “any income represented by any entry in the documents found in course of search” which are not recorded in the books of the assessee. However, in the instant case of assessee, the addition I & II i.e. of cash expenses and payments of Rs.71,90,623/- was included in the disclosure petition and the return filed after search and accordingly recorded in the books of accounts

M/s Options Developers & Builders of the assessee. Thus no penalty u/s 271AAA can be imposed on the said amount.

The items outside the disclosure of Rs.6.84 crores is only the expenses paid to Sampoorna Logistics and allegedly to received back in cash on account of discounts offered by Transport and added on the basis of the statement of Shri Bipin Vohra has never been confronted to the assessee and the statement is without any corroborative evidences.

Moreover, the assessee has furnished explanation of the above entries added by the AO during the course of scrutiny proceedings and even in penalty proceedings. This was also explained before CIT(A) during the appellate proceedings qua the levy of penalty. In view of the above, now we have to discuss the case law of coordinate of ITAT

Jabalpur Bench in the case of ACIT v. Satyapal Wassan 295 ITR (AT)

352 held that:-

“A charge can be levied on the basis of document only when the document is a speaking one. The document should speak either out of itself or in the company of other material found on investigation and/or in the search. The document should be clear and unambiguous in respect of all the four components of the charge of tax. If it is not so, the document is only a dumb document. No charge can be levied on the basis of a dumb document. A document found during the course of a search must be a speaking one and without any second interpretation, must reflect all the M/s Options Developers & Builders details about the transaction of the assessee in the relevant assessment year. Any gap in the various components for the charge of tax must be filled up by the Assessing Officer through investigations and correlations with other material found either during the course of the search or on investigations. The document was bereft of necessary details about the year of transaction, ownership, nature of transaction, necessary code for deciphering the figu9res. The Assessing Officer presumed that the transaction belonged to the financial year 1988-89 relevant to the assessment year 1989-90, that the figures mentioned in the document were advances made by the assessee, that the transactions belonged to the assessee, and that the transactions were in a code of lakhs and that the unit was the rupee. The Assessing Officer did not carry out any enquiry either during the course of search or during the course of assessment proceedings to find out the nature of transactions and the period in which those transactions were carried out; he had simply presumed that the figures were advances without there being any material on record to support such presumption. The Assessing Officer had drawn inferences, made presumptions, relied on surmises and thus made unsustainable additions.” In this case also the assessee has explained firstly that the payment of Rs.55 lakh is out of the availability of cash generated out of disclosure of Rs.6.84 crores. Even otherwise, the document page No. 23 of UKS/1 bears no date and does not mention the nature of the transaction and on the basis of conjecture and surmises presumption cannot be drawn that this is income.

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of Income-tax v. Shri Ramdas Motor Transport (1999) 238 ITR 177

(AP) held that:- under the provisions of section 132(4) as it existed at the relevant time the question of examining any person by the authorised officer would arise only when he found such person to be in possession of any undisclosed money or books of accounts. But, in this case, it was admitted by the Revenue that on the dates of search, the Department was not able to find any unaccounted money, unaccounted bullion or any other valuable articles or things, nor any unaccounted documents nor any such incriminating material either from the premises of the company or from the residential houses of the managing director and other directors. In such a case, when the managing director or any other persons were not found to be in possession of any incriminating material, the question of examining them by the authorised officer during the course of each and recording any statement from them by invoking the powers under section 132(4) did not arise. The Explanation to section 132(4) permitting such examination came into effect only from April 1, 1980. Even if it were held that he statement of the managing director fell under the Explanation to section 132(4), the Tribunal had recorded a finding of fact to the effect that the statement of the managing director or that of the other partners had no evidentiary value as they were not supported by any documentary proof. No question of law arose from the order of the Tribunal.

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 accounts 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 the search ; or”

From the above, it is clear that undisclosed income means “any income represented by any documents” found during the course of search, which are not recorded in the books of accounts of the assessee. In the instant case, the additions of cash expenses and payments of Rs.71,90,623/- is the result of cash available out of the disclosed cash of Rs.6.84 crores which was included in the disclosure petition. Further, addition of Rs.15 lakh on account of alleged cash receipts from Sampoorna Logistics, which was alleged to be reimbursement, it is clear that expenditure recorded in the books of accounts can be held to be undisclosed income of the assessee if the said expenditure is found to be false. It is the Department on whom, onus of proving that expenditure recorded in the books is bogus or false based on documentary evidences found in the course of search. Here in the present case, no documentary evidences establishing the falsity of claim of transportation charges paid to Sampoorna Logistics was found in the course of search. According to us the said expenditure cannot be held to be undisclosed income of the assessee for the purpose of levying penalty u/s. 271AAA of the Act.

challenged by the revenue as perverse or based on irrelevant evidence or no evidence at all. Therefore, the finding of the Tribunal that the provisions of s. 271(1) were not attracted was not erroneous.” Similarly, the Hon'ble Madras High Court in case of CIT vs. M. Pachamuthu 295 ITR 502 (Mad) held:- “Mere addition agreed to by the assessee during the course of survey would not empower the Assessing Officer to levy the penalty under section 271(1)© of the Income-tax Act, 1961 … The fact that the assessee had agreed to additions to income was not proof of concealment.” Even Hon'ble Kerala High Court in the case of CIT vs. M. George & Brothers 59 CTR 298 (Kel) held that:- “where the assessee for one reason or the other agrees or surrenders certain amounts for assessment, the imposition of penalty solely on the basis of the assessee’s surrender will not be well-founded. Depending upon the facts and circumstances of each case the Court has to decide whether penalty is justified. It is always for the Revenue to bring the case under the ambit o sec. 271(1)© by establishing there is concealment on the part of the assessee. The Explanation to sec. 271(1)© inserted w.e.f. 1std April, 1964 merely raises a rebuttable presumption but the basic principle that there should be have been concealment still remains.” Further Hon'ble Punjab & Haryana High Court in case of Commissioner of Income-tax v. Rajiv Garg 313 ITR 256 (P&H) upheld the order of the Tribunal where it was observed that – “Merely because an income has been offered by the assessee in response to the notice under section 148, it cannot be ipso facto inferred that the penal provisions of section 271(1)© are attracted. In order to apply the penal provisions of section 271(1)© it is to be necessarily inferred that there is positive act of concealment of income or furnishing of inaccurate particulars of such income by the assessee.” It is further held that “The Department had simply rested its conclusion on the act of the assessee of having offered additional income in the return

M/s Options Developers & Builders filed in response to notice under section 148 of the Act. As noted earlier, the additional income so offered by the assessee was done in good faith and, therefore, in our view, penalty under section 271(1)© of the Act could not be levied.”

Further Hon'ble Bombay High Court in case of CIT vs. Haji Gaffar

Haji Dada Chini 169 ITR 033 (Bom) held that:-

“on the facts of the case, the Tribunal had taken a possible view on the question before it and, therefore, there was no reason to interfere with its conclusion that the letter addressed by the assessee to the Income-tax Officer offering credits in respect of hundi loans for assessment and also stating that the penalty under section 271(1)© of the Income-tax Act, 1961, may be decided on the merits, did not amount to an admission of concealment of income and the levy of penalty on such basis was liable to be quashed.” From the above, it is clear that penalty cannot be levied merely on the admission of the assessee and there must be some conclusive evidence before the AO that entry made in the seized documents, represents undisclosed income of the assessee. In the instant case, in respect to the amount of Rs.1,13,65,623/-, there is no evidence which proves that the entries recorded in the documents found during the course of search is over and above the income as declared by the assessee at Rs.6.84 crores as undisclosed income and accepted by Revenue. In view of the above, we delete the penalty and allow the appeal of the assessee.

M/s Options Developers & Builders 2.18 Now, we shall deal with the order in ACIT vs Prakash Steelage Ltd. (supra) relied upon by the ld. DR. In that case, penalty of concealment u/s 271AAA was levied by the assessee. In that case, the assessee could not specify the manner in which such income was derived. The Commissioner of Income Tax (Appeal) deleted the penalty on the basis of finding that there was substantial compliance of the provision by the assessee. However, the Tribunal remanded the appeal for statistical purposes with certain directions. However, in the present appeal, the assessee made a bona fide disclosure and so far as the manner is concerned, the Assessing Officer/authorize officer did not ask in a specified manner and accepted the disclosure made by the assessee on which due taxes along with interest were paid by the assessee, therefore, this judicial decision may not held the Revenue. Even otherwise, it is settled proposition that when two views are possible, which favours the assessee has to be preferred (CIT vs Vegetable Products Ltd.) 88 ITR 192(SC). Even otherwise, the Department cannot take the advantage of the ignorance of the assessee as was held in Raj Rani Gulati vs CIT (2012) 346 ITR 543 (All.), CIT vs Geo Industries 234 ITR 541 (Mad.) and M/s Options Developers & Builders CIT vs Lucknow Public Education Society (2009) 318 ITR 223 (All.).

2.19. If the totality of facts are analyzed, so far as, manner (specified manner) of earning of undisclosed income was neither questioned by the DDIT nor by the ld. Assessing Officer, therefore, the decision in Mahendra C Shah (supra) from Hon’ble Gujarat High Court and Radha Krishna Goel (Supra) from Hon’ble Allahabad High Court squarely supports the case of the assessee. It is noted that the statement of the partner of the assessee was recorded u/s 132(4) of the Act on 16/11/2009 i.e. date of search and post search proceedings on 08/2/2010 and also at the time of assessment proceedings on 14/12/2011. On all these occasions, the assessee was never asked to substantiate the source of income or the manner of earning such income. The assessee to buy peace with the Department, to avoid litigation and on the condition that penalty should not be imposed made a disclosure of the additional income, paid due taxes thereon along with interest.

It is also noted that on the basis of statement of Gangdas Patel, the ld. Assessing Officer accepted the additional

M/s Options Developers & Builders disclosure of Rs.8.45 crores from the construction business of the assessee and the Assessing Officer accepted the quantum and nature of disclosure, thus, the penalty cannot be held to be justified. The decision in DCIT vs Smt. Sulochana Devi Agarwal (ITA No.1052/Ahd/2012) supports the case of the assessee. It is also noted that so far as the manner is concerned, neither any specific question was asked by the Assessing Officer/authorize officer nor a specific format, if any, of manner was provided to the assessee. Even during post search proceedings/assessment proceedings, the assessee provided the brake-up of the disclosure. In view of the foregoing discussion, the reasoning given in the penalty order for levying the penalty and the confirmation of the same in the impugned order also cannot be justified.

2.20. Even otherwise the penalty u/s 271AAA of the Act is not mandatory. As sub-section (1) to section 271AAA starts with the words “the Assessing Officer may, notwithstanding the word used shall, thus, the legislature in its wisdom has not made the penalty provision mandatory. Thus, it depends upon the facts of each case and the judicial

M/s Options Developers & Builders satisfaction/judicial discretion of the Assessing Officer, which has to be exercised having regard to his judicial conscious.

The very fact that the disclosure with respect to undisclosed income was made by the assessee with the intention of proximate nature of acquisition of his business activities. If the minute details are provided in the books of accounts and consequently disclosed, there is no question of additional disclosure by the assessee. The requirement of sub-section (2) to section 271AAA is that the manner of earning income should be specified so that no undue advantage is taken. It was the duty of the Assessing Officer/authorize officer either to guide the assessee with respect to the manner or to record the statement of the assessee in a manner to their satisfaction.

As mentioned earlier, the Assessing Officer accepted the disclosure of additional income on which due taxes along with interest were paid by the assessee, therefore, considering the totality of facts and the judicial pronouncements discussed hereinabove, we find merit in the submissions of the assessee, consequently, the appeal of the assessee is allowed and the ld. Assessing Officer is directed to delete the penalty.

M/s Options Developers & Builders Finally, the appeal of the assessee is allowed. This order was pronounced in the open on 16/05/2016.