A2Z INFRA ENGINEERING LIMITED,GURGAON vs. DCIT- CENTRAL CIRCLE-2, FARIDABAD

Assessee by: Ms. Ritu Kamal Kishore, CA Department by: Shri P. Praveen Sidharth, CIT-DR Date of hearing: 07 02 2023 Date of pronouncement: 28 03 2023 O R D E R PER PRADIP KUMAR KEDIA, A.M.: The captioned appeal has been filed at the instance of the assessee against the order of the Commissioner of Income Tax (Appeals)-III, Gurgaon [‘CIT(A)’ in short], dated 30.11.2018 arising from the penalty order dated 22.02.2018 passed by the Assessing Officer (AO) under Section 271AAA of the Income Tax Act, 1961 (the Act) concerning AY 2013-14.

3. Briefly stated, search and seizure operation under Section I.T.As No.944/Del/2019 2 132 of the Act was carried out at the premises of the assessee on 24.04.2012, i.e., during the Financial Year 2012-13, relevant to Assessment Year 2013-14 in question. It was noticed that the Assessing Officer had made addition of Rs.1 lakh on account of foreign currency inventoried in locker sealed by CBI was not offered as undisclosed in the return of income and addition of Rs.1,55,00,000/- on account of unaccounted cash transactions and cash found during the course of search was set off against the business loss and hence no taxes have been paid. The Assessing Officer while imposing penalty @ 10% only alleged that assessee has failed to substantiate the manner of earning such undisclosed income.

4. Aggrieved by the imposition of penalty, the assessee preferred appeal by the CIT(A). The CIT(A) however declined to entertain the relief pleaded before him.

5. Further aggrieved, the assessee preferred appeal before the Tribunal.

6. In support of its appeal, the assessee contended before the CIT(A) as well as before us that the amount of Rs.1,55,00,000/- offered in statement under Section 132(4) of the Act has been duly included while determining the taxable income of the assessee. The amount of Rs.1 lakh has also been disclosed in other assessment year and is also duly accounted for. As further contended, having disclosed the amount, such income has been rightly set off against the existing business loss in accordance with the provisions of Income Tax Act in the absence of any bar in this regard. A reference was made to CBDT circular 19/2019 dat. 19/06/2019 for eligibility of set off in the AY 2013-14 in I.T.As No.944/Del/2019 3 question. The ld. counsel thus contends that when the assessee is having huge business losses at its disposal there was no warrant to make payment of taxes without it being due. It was contended that the undisclosed income once included in the return of income partakes the character of regular income for the purposes of set off and carry forward of remaining losses.

7. On appraisal we find force in the plea of assessee in the matter of set off having regard to express CBDT circular. The requirement of payment of taxes under S. 271AAA thus requires to read as having been met. The question of payment of tax would arise only where the tax is due while determining the cumulative taxable income which is not the case here. Further, as per para 5 of the penalty order, the only allegation against the assessee is that the Assessee has failed to substantiate the manner of deriving undisclosed income. However, it is not discernible from the penalty order or from the first appellate order as to whether any query was raised in this regard in the course of search proceedings. The assessee has offered income and in the absence of any specific inquiry from the Authorized Officer under Section 132(4), the assessee was not obliged to volunteer explanation on manner of determining income or substantiation thereof. A reference was made to the judgment of Hon’ble Delhi High Court in the case of Pr.CIT vs. Emirates Technologies P. Ltd., (2017) 399 ITR 189 (Del) and Pr.CIT vs. Sundeep Gupta (DHC) IT Appeal No.967-68/2017 dated 13.11.2017. Thus, the obligations set out in penalty provision are considered to be fully met. The penalty imposed is thus not sustainable in law.

I.T.As No.944/Del/2019 4 Order pronounced in the open Court on 28/03/2023.