SRI MANISH MUNDRA,KOLKATA vs. A.C.I.T CC - XXX,KOLKATA., KOLKATA

In both these appeals the assessee has challenged the order of CIT(A) whereby the CIT(A) confirmed the order of AO in imposing penalty on the assessee u/s 271(1)(c) of the Act.

The facts and circumstances in which penalty u/s 271(1) of the Act imposed on the assessee by the AO are as follows :- The assessee filed the return of income for AY 2003-04 & 2004-05 disclosing total income of Rs. 8,43,300/- (including LTCG of Rs. 6,62,942/-) and Rs.l3,35,401/- (including Long Term Capital Gain (LTCG) of Rs.9,66,102/-) on 30.9.2003 & 18.10.2004 respectively. On this LTCG on sale of shares, the assessee had paid tax @ 10% as per the provisions of section 112 of the Act. Thereafter a search was initiated in the premises of the assessee on 14/2/2008. No incriminating material was found in – Shri Manish Mundra ,A.Y.2003-04 & 2004-05 the course of search. Notice u/s 153A was issued in response to which the assessee filed return of income on 27.8.2009 for both the aforesaid AYs declaring the same income as was disclosed in the original return.

In the course of penalty proceedings, it was submitted that although it is evident from the reply of the Calcutta Stock exchange that there exists a mismatch in the number of shares sold and that even in cases the sale has been executed in the name of a different person yet, what has been done by the broker is not a concern of the assessee. The assessee pointed out that in support of the long term capital gain the assessee had submitted copies of purchase bills, copies of contract note for sale, copy of demat account. The assessee also pointed out that the entire sale proceeds was received through banking channels. The assessee pleaded that the fact that there was – Shri Manish Mundra ,A.Y.2003-04 & 2004-05 mismatch between the shares sold by the broker on enquiry from the stock exchange cannot be the basis to hold that the assessee is guilty of having furnished inaccurate particulars of income. It was submitted that the assessee agreed to taxing the long term capital gain under the head ‘Income from other sources ‘ only to buy peace and therefore the assessee cannot be said to have concealed particulars of income. It was further pointed out that the income as reported in the original return of income filed for the relevant year by the assessee u/s 139(1) of the Act, the income declared in the return filed in response to notice u/s 153A of the Act and the income that was brought to tax by the AO in the assessment completed u/s.153A of the Act are one and the same amount. It was submitted that it was only because of the fact that long term capital gain was chargeable to tax at 10% whereas the same, if considered as income from other sources, it would be chargeable to tax at a much higher rate cannot be the basis to hold the assessee was guilty of concealing particulars of income or furnishing inaccurate particulars of income.

The aforesaid submission made by the assessee did not find favour with the AO or CIT(A). Both AO and CIT(A) held that the assessee is guilty of having furnished inaccurate particulars of income.

Aggrieved by the aforesaid orders of CIT(A), the assessee has preferred the present appeal before the Tribunal.

The first submission of the ld. Counsel for the assessee that in the course of the search of assesee no incriminating material whatsoever was found. It was further submitted that the assessee had filed returns of income for A.Yrs. 2003-04 and 2004- 05 within the due date u/s 139(1) of the Act and these returns have been accepted u/s 143(1) of the Act. It was submitted that in a proceeding u/s 153A of the Act, only income arising out of incriminating material found in the course of search can be brought to tax. It was submitted that even in respect of returns accepted u/s 143(1) of the Act, the same could be revisited in proceedings u/s 153A of the Act only if there – Shri Manish Mundra ,A.Y.2003-04 & 2004-05 are incriminating material found during the course of search. It was submitted by him that in the present case no incriminating material was found in the course of search and it was only a routine enquiry made by the AO in the assessment proceedings u/s 153A of the Act, consequent to which the impugned addition was made. It was submitted that the very addition made in the assessment proceedings was beyond the scope of the proceedings u/s 153A of the Act. In this regard our attention was drawn to the decision of the Hon’ble ITAT, Delhi Bench in the case of ACIT vs M/s. Delhi Hospital Supply Pvt. Ltd. In order dated 01.10.2015 wherein it was held as follows :- "7. Keeping in view of the aforesaid findings given by the Ld. CIT(A), we are of the considered view that Ld. CIT(A) has rightly held that in the absence of any material found during the search, as a result, no disallowance I additions can be made in the assessment u/s. 153A of the I T. Act. Even otherwise, we find force in the Ld. Counsel's submissions that the issue in dispute is also covered by the' decision of the Hon'ble Jurisdictional High Court in the case of CIT(Central)-III vs. Kabul Chawla in ITA No. 707, 709, 713IDe112014 wherein the Hon'ble High Court has held that if the additions are made, but not based on any incriminating material found during search operation, then these additions were not sustainable in the eyes of law. In our considered opinion, the Ld. CIT(A) has rightly adjudicated the issue in dispute and accordingly rightly deleted the additions in dispute. Keeping in view of the above discussion, we uphold the Ld. CIT(A)'s order which is a well reasoned order and therefore, the same does not need any interference on our part and also by respectfully following the decision of the Hon 'ble Jurisdictional High Court in the case of CIT(Central)-III vs. Kabul Chawla (Supra), we are of the view that Ld. CIT(A) has rightly ITA NO. 39961De112011 deleted the additions in dispute. Accordingly, the issues in dispute are decided against the Revenue and in favour of the Assessee." In the given case, the assessment for the assessment years 2003-04 & 2004-05 stood concluded and were not pending on the date of search. Hence in the light of the above the AO was not empowered to disturb the concluded assessments and frame fresh assessments. The power of the AO to frame assessment u/s 153A of the Act is limited to the extent of income escaping assessment coming to the knowledge of the AO during the course of search. However, in the given case no material was found in course of search which would suggest that LTCG was bogus and was undisclosed income of the assessee from earlier years. The said addition was mainly made on account of the facts that on enquiry, the Calcutta Stock Exchange mentioned that there is a mismatch in the said shares as sold by the said broker and that even the sale has been executed in the name of a different person. Based on this information alone the Ld. AO proceeded to conclude that the LTCG is bogus and is actually undisclosed income of the assessee from the previous years which was brought to tax in AY 2003-04 & 2004-05.” &470/Kol/2013 – Shri Manish Mundra ,A.Y.2003-04 & 2004-05 7.1. It was further submitted by the ld. Counsel for the assessee that since the retuned income and the assessed income are one and the same no penalty can be imposed u/s 271(1)(c) of the Act. In this regard our attention was drawn to Explanation 5A to section 271(1)(c) of the Act, prior to its substitution by the Finance Act, 2009, w.r.e.f. 1.6.2007 which reads as follows :- "Explanation 5A - Where, in the course of a search initiated under section 132 on or after the 1st day of June, 2007, the assessee is found to be the owner of- (i) any money, bullion, jewellery or other valuable article or thing (hereafter in this Explanation referred to as assets) and the assessee claims that such assets have been acquired by him by utilising (wholly or in part) his income for any previous year; or (ii) any income based on any entry in any books of account or other documents or transactions and he claims that such entry in the books of account or other documents or transactions represents his income (wholly or in part) for any previous year, which has ended before the date of search and the due date for filing the return of income for such year has expired and the assessee has not filed the return, then, notwithstanding that such income is declared by him in any return of income furnished on or after the date of search, he shall, for the purposes of imposition of a penalty under clause (c) of sub-section (1) of this section, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income. "

The learned DR relied on the order of the AO/CIT(A).

We have given careful consideration to the rival submissions. It is not disputed before us that income returned by the assessee in the return of income u/s 139(1) of the Act, the return filed u/s 153A of the Act and the income brought to tax in the order of assessment u/s 153A of the Act are one and the same. In such circumstances we are of the view that no penalty can be imposed on the assessee. If at all the revenue wants to impose penalty in the present case, then, it has to take recourse to Explanation 5A to section 271(1)(c) of the Act. As rightly contended by the learned counsel for the assessee, Explanation 5A would be attracted only in the case where there is difference in the income returned u/s 139(1) of the Act and the income ultimately brought to tax in the order of assessment u/s 153A of the Act. We, therefore, are of the view that the penalty could not have been imposed in this case.

We also are of the view that in the light of the admitted fact that no incriminating material was found in the course of search the impugned addition could not have been made in the proceedings u/s 153A of the Act. The decision of the ITAT, Delhi Bench in the case of ACIT vs M/s. Delhi Hospital Supply Pvt. Ltd. (supra) followed the decision of Hon’ble Delhi High Court in the case of Kabul Chawla (supra) supports the plea of the assesee in this regard. The law is well settled that assessment proceedings and penalty proceedings are two independent proceedings and – Shri Manish Mundra ,A.Y.2003-04 & 2004-05 that the assessee in penalty proceedings is entitled to show that the very addition for which penalty is sought to be imposed ought not to have been made in the assessment proceedings. We, therefore, are of the view that even on this ground penalty imposed on the assessee deserves to be cancelled. For the reasons given above. We direct that the penalty imposed for the above assessment years be cancelled.

In the result the appeals of the assessee are allowed.