TMI Blog2008 (1) TMI 513X X X X Extracts X X X X X X X X Extracts X X X X ..... O will not levy any penalty u/s 271(1)(c) of the Act. In the present case before us the assessee has filed his original return of income under section 139(1) declaring an income. Whereas search under section 132 took place on September 4, 2003, and the assessee has not declared this additional income, declared during the course of search u/s 132(4) of the Act, in the original return. Explanation 5 to section 271 (1) (c) of the Act will not come to the rescue of the assessee as there is no time available for filing of return u/s 139(1) of the Act as mentioned in clause (2) of Explanation 5 of this section. It means income admitted u/s 132(4) of the Act which has not been disclosed in his return of income to be furnished before the expiry of time limit u/s 139(1) of the Act, then the assessee will not be liable to the penalty. But the facts in the present case before us are clearly different that the AY for which the income is admitted u/s 132(4) is the AY 1998-99 and the search was conducted as on September 4, 2003. It means no time is left for the return u/s 139(1) of the Act and even the assessee has filed his original return of income and in this return he has not declared ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs 1998-99 to 2002-2003. The assessments were framed by the ACIT, Central Circle 1(3), Ahmedabad for the AYs 1998-99 to 2002-2003 Under Section 143(3) of the Income-tax Act, 1961 ['the Act' hereinafter] vide his orders dated 30.03.2006. The penalty orders, for these five assessment years, Under Section 271(1)(c) of the act was passed by the Assessing Officer('the AO' in short vide dated 21.09.2006. The assessee has raised the following grounds: 1. The CIT(A) has erred in law and on facts in cancelling the penalty of Rs. 1,42,983/-, levied Under Section 271(1)(c) of the Act, by the A.O., without considering the fact that the assessee had not voluntarily disclosed the true and correct income. 2. The CIT(A) has erred in law and on facts in not properly considering the Explanation 5 to Section 271(1)(c) of the Act, according to which, the assessee is not entitled to immunity from the penalty for the earlier period where the due date of return Under Section 139(1) of the act has expired. 2. These two grounds are common in all the five appeals of the revenue except the figures. The facts and circumstances' are exactly identical in all the years, hence we will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee's undisclosed income Under Section 153A(b) of the Act. Penalty Proceedings Under Section 271(1)(c) are also initiated in respect of this addition. 4. In the assessment framed Under Section 153A(b) of the Act, the AO initiated penalty proceedings Under Section 271(1)(c) of the Act for undisclosed income assessed under this Section amounting to Rs. 5,00,000/-. The assessee has not preferred any appeal against the quantum addition and the assessment framed Under Section 153A(b) has become final. Subsequently the AO started the penalty proceedings. The AO noticed that during the course of search at assessee's residence as well as business premises, that the assessee was engaged in the business of land and construction. The assessee was a member of Group known as Bata Group in Kalol. The Group acquired co-operative housing societies for selling the land released by AUDA for the benefit of members of the societies. During the course of search, one Shri Kirti B Modi who was covered Under Section 132 of the Act, was working as Accountant for all the co-operative housing societies and was maintaining the books of accounts on his personal computer. Annexure-A, Item No. 9, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceedings as well as assessment proceedings. (6) There was no return of income in existence on the date of search in view of the specific Provisions of Section 153A of the Act. As per Provisions of Section 153A, assessment in case of search, the Section requires issuance of fresh notice, furnishing of fresh returns for all 6 years and all past actions are abate i.e. put to an end of the returns filed or assessment become nonest. (7) The return Under Section 153A filed after search is a return furnish Under Section 139 of the I.T. Act. (8) The assessee has offered incomes which were admitted in statement and explained now these incomes were earned. Thus true and full income were offered in return and due taxes were paid/provided thereon. 5. It was also claimed by the assessee that this declaration is made Under Section 132(4)of the Act during the course of search and also disclosed the manner in which this income was earned. It was also claimed that the taxes have been paid by making adjustments of FDRs/cash seized during the course of search. The assessee pleaded that he is relying upon the application of Explanation 5(2) to Section 271(1)(c)read with Section 132(4) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt has relied upon the ratio laid down by the Hon'ble Madras High Court in the case of CIT v. SDV Chandru 266 ITR 175, where the Hon'ble Madras High Court (supra) held that immunity under Explanation 5(2) to Section 271(1)(c) is available and penalty was liable for all the earlier years. Respectfully following the ratio laid down by Hon'ble Madras High Court (supra), I hold that the appellant is entitled to the benefit of the provisions of Explanation 5(2) to Section 271(1)(c)of the Act for earlier years i.e. for AY 1998-1999 to AY 2002-2003, no penalty can be imposable for earlier years. ii) Penalty on the income returned Under Section 153A of the IT Act. I have gone through the submissions made on behalf of the appellant and arguments of Ld. A.R. The provisions of Section 153A due to its notwithstanding clause supersedes the other provisions of Section 139, Section 147, Section 148, Section 149, Section 151 and Section 153. Therefore, the return filed Under Section 153A overrides the other returns filed prior to search, if any, and they become nonest. The return filed Under Section 153A is the only return, which is considered by AO for making assessment Under Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this appeal. The AD card for service of notice is very much available on records. 8. From the above facts it is clear the assessee has originally filed its return of income Under Section 139(1) of the Act on 27.10.98 declaring total income at Rs. 79,830/-. After the department conducted search Under Section 132(1) of the Act in the residential as well as business premises of the assessee on 4.09.2003 where huge investment was found to be made in the business of construction carried on by the assessee along with its associate members of group. The assessee admitted having made investments and to cover up such undisclosed investment made a surrender of Rs. 5,00,000/- during the course of search. The assessment was framed Under Section 153A(b) of the Act accepting the return of income as disclosed by the assessee during the course of search for an amount of Rs. 5,00,000/. This income is over and above what was disclosed in the original return. The Assessing Officer levied the penalty Under Section 271(1)(c)of the Act for concealment of income. The CIT(A) deleted the penalty on two premises i.e i) by making applicability of explanation 5(2) to Section 271(1)(c) of the Act ii) and p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te of the 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, [unless,: (1) such income is, or the transactions resulting in such income are recorded,: (i) in a case falling under Clause (a), before the date of the search; and (ii) in a case falling under Clause (b), on or before such date, in the books of account, if any, maintained by him for any source of income or such income is otherwise disclosed to the [Chief Commissioner or Commissioner] before the said date; or (2) he, in the course of the search, makes a statement under Sub-Section (4) of Section 132 that any money, bullion, jewellery or other valuable article or thing found in his possession or under his control, has been acquired out of his income which has not been disclosed so far in his return of income to be furnished before the expiry of time specified in [* * *] Sub-Section (1) of Section 139, and also specifies in the statement the manner in which such income has been derived and pays the tax, together with interest, if any, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anation 5, the assessee is fastened with the liability to penalty under Section 271(1)(c) in cases he explains the acquisition of assets, recovered in the course of search, from out of income of a previous year which has already ended before the date of the search or which is to end on or after the date of search. 10. The ld. CIT(A) while deciding this issue has relied on the case law of Hon'ble Madras High Court in the case of CIT v. S.D.V. Chandru [2004] 266 ITR 175 and the relevant finding by the Hon'ble High Court (at page 177) reads as under: While Clauses (a) and (b) make a clear distinction between the previous year which has ended before the date of the search, and the previous year which is to end on or after the date of the search, para. (2) in Explanation 5 does not make any such distinction. It refers to the statement given by the assessee at the time of the search under Section 132(4) with regard to the assets found at the time of search being the statement to the effect that such assets have been acquired out of his undisclosed income and the specification by the assessee in such statement with regard to the manner in which such income had been derived, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved and pays the taxes that are due thereon, no penalty shall be leviable. 11. From the above case law of Hon'ble Bombay High Court in the case of Sheraton Apparels : Max Corporation: Tressa Fashion, supra, it is clear that if an assessee in such case makes a statement during the course of search admitting the assets found during such search, have been acquired by him out of his income which has not been disclosed so far in his return of income to be furnished before the expiry of the time prescribed Under Section 139(1) and also specifies in the statement made Under Section 132(4), the manner in which such income has been derived and pays the taxes that are due including interest, then the Assessing Officer will not levy any penalty Under Section 271(1)(c)of the act. In the present case before us the assessee has filed his original return of income Under Section 139(1) declaring an income of Rs. 79,830/-. Whereas search Under Section 32 took place on 4.9.2003 and the assessee has not declared this additional income of Rs. 5,00,000/-, declared during the course of search Under Section 132(4) of the Act, in the original return. The explanation 5 to Section 271(1)(c) of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at it is not relevant whether any return of income was filed by the assessee prior to the date of search and whether any income was disclosed in that return or not. The CIT(A) further stated relying on provision of Section 153A of the Act that the return of income filed in response to notice under Section 153A(a) of the Act is to be considered as return filed under Section 139 and the Assessing Officer has made assessment on this return and therefore this return is to be considered for the purposes of levy of penalty of the Act and in any case penalty is to be levied over and above the return of income returned under Section 153Aof the Act. Even CIT(A) has also relied on the new provision introduced in the Finance Bill being Section 271AAA of the Act, wherein a penalty is proposed to be levied in the cases of search with effect from 1.6.2007. The CIT(A) held that the introduction of such provision itself shows that no penalty under Section 271(1)(c) is imposable on the income returned under Section 153A prior to such amendment. In view of this he deleted the penalty. 14. First of all it is seen that the facts of this case are very clear. A search action Under Section 132of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the search under Section 132 or requisition under Section 132A, as the case may be, shall abate. Save as otherwise provided in the proposed Section 153A, Section 153B and Section 153C, all other provisions of this Act shall apply to the assessment or reassessment made under Section 153A. In the assessment or reassessment made in respect of an assessment year under this Section , the tax shall be chargeable at the rate or rates as applicable to such assessment year. Further the note on clauses to the Finance Bill, 2003 has explained relevant provision as brought by Clause 59 as under:- [2003] 260 ITR 164 (statutes): The proposed new Section 153A provides that in the case of a person where a search is initiated under Section 132 or books of account, other documents or any assets are requisitioned under Section 132A after the 31st day of May, 2003, the Assessing Officer shall, notwithstanding anything contained in Section 139, Section 147, Section 148, Section 149, Section 151 and Section 153, issue notices to such person requiring him to furnish within such period as may be specified in the notice the return of income in respect of each assessment year falling within six assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, if applicable. In the assessment or reassessment made in respect of an assessment year under this Section , the tax shall be chargeable at the rate or rates as applicable to such assessment year. In view of the above second proviso to Section 153A as brought on the statute by the Finance Act 2003 w.e.f. 1.6.2003 provides that such notice will have the effect of abating all the pending assessment or reassessment proceedings, so as to avoid multiplicity of penalty proceedings, which was a feature of block assessment. Where assessee has already filed a return, a fresh return in response to notice Under Section 153A has to be filed, which incidentally gives him an opportunity to make good omission. If the AO had made an assessment without the knowledge of a search or requisite or overlooking such search or requisite on a return filed by the assessee in an order under Section 143(3) or under Section 144 after the initiation of search, such assessment will not be valid. From this it is clear that the second proviso to Section 153A(b) provides that the assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts and circumstances, we are not in agreement with the view of the CIT(A) that the original return filed by the assessee as on 27.10.98 will abate and the return filed in response to Section 153A(a) of the Act is to be considered as return filed under Section 139 of the Act as the original return. The assessee in the present case has already filed the original return as on 27.10.98 and no action whatsoever is pending and the return of income was accepted as it is. Subsequently, during the course of search the assessee has disclosed a sum of Rs. 5,00,000/- in his return of income filed under Section 153A(a) of the Act as declared under Section 132(4)of the Act and accepted the assessment also. As regards to this legal issue, we are of the view, that the CIT(A) has erred in ignoring the return filed originally on 27.10.98 in view of the second proviso to Section 153Aof the Act. Another aspect on which the CIT(A) has given his finding, that, the introduction of Section 271AAA of the Act nowhere puts bar for levy of penalty under Section 271(1)(c) of the Act on or before 1.6.2007 as introduced by the Finance Act, 2007. Even by the Finance Act 2007, w.e.f. 1.6.2007 there is amendment ..... X X X X Extracts X X X X X X X X Extracts X X X X
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