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TMI Blog2019 (1) TMI 1405X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration is the ‘specified previous year’ in terms of Explanation (b)(ii), being, the previous year in which the search was conducted. In that view of the matter, we do not find any infirmity in the passing of the instant penalty order u/s.271AAA for the assessment year 2009-10. The contention raised by the assessee in this regard is thus repelled. AO did not impose any penalty u/s 271AAA on the income ₹ 2.07 crore. Further, there is no whisper whatsoever on this score in the penalty order passed by the AO u/s 271AAA of the Act. In fact, the AO considered such income of ₹ 2.07 crore in his penalty order separately passed u/s 271(1)(c) of the Act. Under such circumstances, the enhancement power of the ld. CIT(A) cannot be extended to income of ₹ 2.07 crore. This legal issue is settled in favour of the assessee. It is observed from the relevant seized document that the income, representing figures which appear under the name of the assessee totaling up to ₹ 2.77 crore, was promptly offered for taxation. Then there are certain figures appearing under the name of 'Sakhare’, which total up to ₹ 2.07 crore. It is this item of income on which t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he rival submissions and gone through the relevant material on record. The assessee raised certain grounds in the memorandum of appeal. Thereafter, certain additional grounds were filed and eventually modified additional grounds of appeal were filed, challenging the impugned order on certain legal issues as well as on merits. 4. We will first espouse the legal issues urged on behalf of the assessee in seriatim . The first legal issue taken up by the ld. AR is that the penalty u/s.271AAA be deleted as the same can be imposed only in respect of specified previous year and the assessment year 2009-10 under consideration, cannot be so construed. In his opinion, the assessment year 2008-09 was the correct specified previous year in terms of Explanation (b)(i) to section 271AAA of the Act and further that sub-clause (ii) of the Explanation (b) was not attracted in the present case. This contention was strongly countered by the ld. DR. 5. It is seen from the assessment order that the search in this case was initiated on 11-02-2009. The ld. AR has invited our attention towards the last panchnama, a copy of which has been placed on page 19 onwards of the paper book, which is date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provides that penalty shall be computed @10% of the undisclosed income of the specified previous year where search is initiated after 01-06-2007 but before 01-07-2012. Sub-section (3) of section 271AAA provides that in case penalty is imposed under subsection (1), then the provisions of section 271(1)(c) shall not apply in respect of such undisclosed income. When we consider the provisions of section 271(1)(c) in juxtaposition to section 271AAA, it is manifested that in case of a search, penalty is imposed u/s.271AAA on the undisclosed income of the specified previous year and penalty u/s.271(1)(c) is imposed with reference to other years covered under search assessments. Search in the extant case was conducted in the year 2009, which undoubtedly falls within the period stipulated in sub-section (1) of section 271AAA. In such a scenario, penalty is liable to be imposed on undisclosed income of the `specified previous year u/s 271AAA alone. The AO has treated assessment year 2009-10 as the `specified previous year and imposed the instant penalty. 7. Now the question arises about the determination of the specified previous year as per sub-clause (i) of the Explanation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs the building etc. and carries out the actual search. This is the second stage in our discussion, which is initiation of search . When the entire search is concluded by the authorized officer and a final panchnama is drawn, then we enter the third stage, that is, the search is concluded . 9. The legislature has used the word `search preceded by the words initiation of or conclusion of at different places to clearly convey that it is referring to the date of initiation of search or the conclusion of search, as the case may be. For example, section 153A dealing with assessment in case of search or requisition specifically uses the expression initiation of search in second proviso to sub-section (1). Similarly, section 153C dealing with the assessment of income of any other person uses the expression initiation of search in first proviso to sub-section (1) . On the contrary, section 153B(2) provides that the authorization shall be deemed to have been executed in the case of search, on the conclusion of search as recorded in the last panchnama. Section 158BE setting out time limit for completion of block assessment also provides under sub-section (2) tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or Commissioner before the date of search . The expression ` before the date of search in Explanation (b)(i) has also been used without any pre-fix of `initiation of or `conclusion of . On an analysis of the expression ` before the date of search in the definition of `undisclosed income , it amply transpires that it refers to the date of `initiation of the search . Our reasoning is that part (A) in clause (i) of the Explanation (a) refers to the undisclosed income etc. which has not been recorded in the books of account before the date of search. It necessarily has to be an income which is not found to be recorded at the time of initiation of search and it cannot be an income which is not found to be recorded at the time of conclusion of search. Once an item of income not recorded is found at the time of initiation of search, it will remain undisclosed even if the assessee during the course of search records it in its books of account. If we interpret it as referring to the date of conclusion of search, then any one can easily go scot free by recording in his books of account the undisclosed income found during the course of search, before the conclusion, thereby making i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by this interpretation of the provision, the A.Y. 2009-10 cannot be considered as the `specified previous year . The contention of the assessee is, ergo, upheld. 11. Having seen the meaning of the `specified previous year in terms of sub-clause (i), now we turn to sub-clause (ii) of clause (b) of Explanation to section 271AAA. As per this provision, specified previous year means `the previous year in which search was conducted . In this regard, the ld. AR submitted that for the purposes of sub-clause (ii), the year of search should be considered as the year in which the search was concluded and since the search was concluded on 3.4.2009, which falls in the previous year 2009-10, the `specified previous year becomes A.Y. 2010-11 and not the A.Y. 2009-10 under consideration. This argument was strongly refuted by the ld. DR. 12. Having heard both the sides, we find that the ld. AR has bolstered a view that for the purposes of sub-clause (i), the date of `search should be considered as the date of `initiation of search , but when it comes to sub-clause (ii), it should be treated as the date of `conclusion of search . It can be seen that sub-clause (ii) of clause (b) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anner 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. 14. On circumspection of sub-section (2), it is borne out that penalty @ 10% of the undisclosed income of the specified previous year as set out in sub-section (1), shall not be imposed if the assessee satisfies three conditions, viz, (i) he admits the undisclosed income in statement u/s.132(4) and also specifies the manner in which such income was derived; (ii) he substantiates the manner in which the undisclosed income was derived; and (iii) pays taxes etc. in respect of such undisclosed income. It is only on the cumulative satisfaction of the above three conditions that an assessee can avail immunity from penalty u/s.271AAA. 15. Adverting to the facts of the instant case, it is seen that in his statement u/s.132(4) recorded on 12-02-2009, whose copy is available on pages 88-89 of the paper book and the english translation has been provided on pages 90-91 of the paper book, the assessee in reply question no. 5 declared an additional income of ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f undisclosed income and offered such income surrendered u/s 132(4) in his return of income. The factum of retraction had the effect of erasing the earlier surrender of undisclosed income u/s 132(4) of the Act. When the facts are such, we are afraid, that the assessee cannot be said to have fulfilled the condition of clause (i) of section 271AAA(2) of the Act. 17. It is further relevant to note that the second condition of clause (i) of section 271AAA(2) is that the assessee `specifies the manner in which such income has been derived . We find from the reply to question no. 5 of the statement u/s.132(4) that albeit the assessee surrendered the undisclosed income but did not specify the manner in which such income was derived. He simply stated that some entries are left to be entered in the books of account and some short coming is there in it . Taking into consideration of these matters ..additional income of ₹ 40 crore is being declared . It is, therefore, evident that the assessee not only failed to conclusively surrender the undisclosed income in his statement u/s.132(4) but also did not specify the manner in which such income was earned. 18. It is still ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of any time limit for payment of taxes, such payment needs to be made within a reasonable time. Explanation 5 to section 271(1)(c) and sub-section (2) to section 271AAA talk of immunity from imposition of penalty. It is but natural that such immunity can be granted only if all the requisite conditions, including payment of taxes, are fulfilled latest before the imposition of penalty. If the condition of payment of taxes is not fulfilled even up to the date of passing of the penalty order, the assessee cannot claim immunity from imposition of penalty. 21. The ld. AR has relied on the judgment in the case of Gebilal Kanhaialal HUF (supra) in which their Lordships held that in the absence of any time limit for payment of taxes, the payment made by the assessee with taxes together with interest should be considered to have satisfied the third condition of clause (2) of Explanation 5 to section 271(1)(c). This judgment was delivered on an appeal filed by the Revenue against the judgment of the Hon ble Rajasthan High Court in Gebilal Kanhaialal HUF vs. ACIT (2004) 270 ITR 523 (Raj.) in which the factual position has been recorded in more detail. Search in that case was cond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tatutory provision. The argument of the ld. AR that the AO failed to record proper satisfaction in the assessment order before initiating penalty u/s 271AAA, is factually incorrect and devoid of merit. It can be seen from the assessment order that the AO mentioned about the initiation of penalty u/s 271AAA at least at six places. Then at the end of the order again, he has written that notice for penalty, inter alia, u/s 271AAA be issued. 25. There is another aspect of the matter. The ld. AR has drawn a parallel from section 271(1)(c) to buttress his argument of non-imposition of penalty for want of recording of proper satisfaction. In this regard, it is relevant to note the difference between language of section 271(1)(c) por una parte and section 271AAA por otra parte . 26. The relevant part of section 271 reads as under :- (1) If the Assessing Officer or the Commissioner (Appeals) or the Principal Commissioner or Commissioner in the course of any proceedings under this Act, is satisfied that any person- (a) (b) (c) has concealed the particulars of his income or furnished inaccurate particulars of such income, or (d) , he may direct that such person s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der and there is a direction for initiation of penalty u/s 271(1)(c), such assessment order shall be deemed to constitute satisfaction of the AO for initiation of penalty. With this insertion, proper satisfaction of the AO is deemed to be recorded on his writing at the end of the assessment order about the initiation of the penalty proceedings. Thus, it is no more open to the assesses to contend that no penalty can be imposed in the absence of recording proper satisfaction by the AO in the assessment order, so long as there is a direction at the end of the assessment order for initiating penalty. Adverting to the facts of the instant case, we find that the AO has initiated penalty proceedings at the end of the assessment order, apart from mentioning at several places in the body of the assessment order to initiate penalty u/s 271AAA of the Act. 32. Viewed from any angle, we have no hesitation in holding that the action of the AO in imposing penalty, on all the legal issues taken up by the ld. AR, cannot be faulted with and is perfectly in order. Thus the contention of the ld. AR on all the legal issues is jettisoned. 33. Now we take up the penalty on merits. The factu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndisclosed income found in the course of search , only such items of undisclosed income can be considered for imposition of penalty under this section, which are found in the course of search. If a particular item of income is not found during the course of search but the assessee suo motu offers it in his return of income, the same cannot fall within the purview of undisclosed income and escapes the rigor of the penal section. Since income of ₹ 5.86 lakh does not qualify as undisclosed income as it was not found during the course of search, the same in our considered opinion cannot be considered for the purposes of imposition of penalty u/s.271AAA. We, therefore, order to delete penalty to this extent. 37. It is noted that apart from ₹ 5.86 lakh, the AO imposed penalty on income of ₹ 5,71,19,958/- offered by the assessee in the return of income pertaining to documents found during the course of search. The detail of such amount of ₹ 5.71 crore and odd is as under :- Unexplanied Jewelery 9,030,458 Cash expensed towards medical treatment of daughter, Komal Kakade 45,500 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penalty was rightly imposed/confirmed/enhanced. 41. Income of ₹ 70.00 lac was offered by the assessee on the basis of a seized document at page no. 34 of bundle no. 4. Page 45 of the paper book is a copy of such document whose english translation has been provided at page 47 of the paper book. Relevant part of this document reads as under:- As per the MOU in between myself Sanjay Kakade and Mr. Kalyani in respect of above said project, we both have to pay expenses in the ratio of 50%. At present funds of the said company is finished and for continue the work of acquisition of land our said contribution of near about ₹ 2.50 crore it is necessary to send through Kakade Properties to Krocas . Such request is made by S.B. Kanade, Director, Krocas Properties Pvt. Ltd. Till this date an amount of ₹ 4.20 crore is given by cheque. Similarly ₹ 70 lakhs paid in cash. As such total ₹ 4.90 crore is paid. 42. On going through the above part of the document, it can be seen that payment of ₹ 70 lakh was made to Crocus Properties Pvt. Ltd. by Kakade Properties Pvt. Ltd. in cash, apart from certain payments made through cheques. Copy of acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enalty has been challenged is a sum of ₹ 8,00,000/-, being, `Capital introduced in M/s Kakade Jewelllers . The assessee included this sum in his total income furnished in the return of income. During the course of assessment proceedings, it was argued that the said amount of ₹ 8,00,000/- pertains to the A.Y. 2005-06 and 2008-09. The Assessing Officer while computing income chargeable to tax, reduced this sum from the total income. It is this reduction of income, which has also been visited with the penalty. 45. It is apparent from penultimate page of the assessment order that the Assessing Officer excluded ₹ 8,00,000/- from the total income of the assessee by noticing that : `the amount of ₹ 8,00,000/- is actually pertaining to the AY 2005-06 and AY 2008-09 as discussed in these years and the amount of ₹ 3,00,000/- and ₹ 5,00,000/- respectively have been taxed in those years. The amount is therefore, reduced from this year . It is, thus manifest that such sum of ₹ 8,00,000/- is not an income of the `specified previous year and ergo sheds the character of `undisclosed income in terms of Expl. (a) to section 271AAA of the Act. In that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such notice, he made an enhancement of the penalty levied by the AO u/s 271AAA. In such a situation, it becomes significant to determine the scope of power of CIT(A) under section 251(1)(b) of the Act, which provides that in disposing an appeal against an order imposing a penalty, he may confirm or cancel such order or vary it so as either to enhance or to reduce the penalty . 48. Sub-section (1) of section 271AAA provides that : The Assessing Officer may, notwithstanding anything contained in any other provisions of this Act, direct that, . the assessee shall pay by way of penalty . Power to levy penalty u/s 271AAA of the Act lies only with the AO, in contradistinction to section 271(1)(c), which empowers also the CIT(A) to impose penalty, in addition to the AO. On a conjoint reading of these two provisions, it is accentuated that CIT(A) cannot impose penalty u/s. 271AAA of the Act. 49. In the instant case, the ld. CIT(A) has rightly not exercised his power of imposing penalty u/s 271AAA, but instead resorted to making an enhancement of penalty imposed by AO u/s. 271 AAA of the Act. It is basic that the term `enhancement of income or penalty pre-supposes existence of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact, the AO considered such income of ₹ 2.07 crore in his penalty order separately passed u/s 271(1)(c) of the Act. Under such circumstances, the enhancement power of the ld. CIT(A) cannot be extended to income of ₹ 2.07 crore. This legal issue is settled in favour of the assessee. 51. Notwithstanding the above, we will also consider the issue on merits. It is observed from the relevant seized document that the income, representing figures which appear under the name of the assessee totaling up to ₹ 2.77 crore, was promptly offered for taxation. Then there are certain figures appearing under the name of `Sakhare , which total up to ₹ 2.07 crore. It is this item of income on which the assessee has disputed the imposition of penalty on the ground that it did not pertain to him. There is no dispute on the fact that `Sakhare is a person different from `Kakade , namely, the assessee. Page number 57 onwards of the paper book is a copy of registered Transfer deed dated 20th September 2011 in respect of a bungalow at Jalbaug Co-operative Housing Society Mumbai. This Transfer deed has been executed between Sakhare and the `Kakade , namely, the assessee on o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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