TMI Blog2010 (7) TMI 665X X X X Extracts X X X X X X X X Extracts X X X X ..... an not be invoked as there is no bonafide explanation given why this income was not disclosed at the time of filing original return - Decided against the assessee - ITA No. 7325/Mum/2008 - - - Dated:- 16-7-2010 - ORDER Per B. Ramakotaiah, A.M. This appeal by the assessee is against the order of the CIT(A)- VI, Mumbai dated 19.11.2008 confirming the penalty under section 271(1)(c) of Rs.12,60,000/- levied by the A.O. 2. Assessee has raised the following 7 grounds : - 1. The Ld. CIT(A) erred in confirming the penalty of Rs.12,60,000/- on income of Rs.37,80,000/- without appreciating that there was no concealment of income or furnishing of inaccurate particulars as there was no difference in the returned income of Rs.42,81,540/- and the assessed income and hence, penalty may be deleted. 2. The Ld. CIT(A) erred in holding that the Assessee is not covered by the exception provided under clause 2 of explanation 5 to section 271(1)(c). 3. With out prejudice to the above the Ld. CIT(A) failed to appreciate that though the application of the assessee dated 3/3/2006 to adjust seized cash of Rs.12,00,000/- towards tax liability was not rejected, Assessing Officer a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 132(4), categorically admitted that the transaction was accommodative in nature aimed at converting his undisclosed income into artificial long term capital gain and offered an amount of Rs. 40 lakhs as undisclosed income. Accordingly, the assessee in his return of income filed in response to notice under section 153A had shown the entire consideration of Rs.40,00,000/- as speculation profit. Based on the assessee s admission regarding the accommodative transaction in respect of capital gain, the A.O. held that the assessee had furnished inaccurate particulars of his income to avail himself of concession available under section 54F by converting his undisclosed income into artificial long term capital gains. The A.O. further held that though the assessee s case fell within the exception provided under clause 2 of Explanation to section 271, the immunity following from such clause in respect of disclosure made under section 132(4) can be allowed only if the assessee fulfils all the conditions specified there under. One of the essential conditions is that the tax on income disclosed together with interest shall be paid by the assessee. Relying on the judgement of the Hon'ble High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bullion, . Or other valuable article or thing found in his possession .. 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 .. in the instant case, clearly the disclosure was made much later than the date specified in the section 139(1) for filing of return in the instant case. Thus the A.O. was clearly wrong in giving a finding that the appellant s case was covered by the exception provided under clause 2 of Explanation 5 to section 271(1)(c) [but for the non-payment of interest]. This benefit is available to those assessees who make the disclosure of income etc., in those cases where the due date for filing of return for that year has not expired and the return has not been filed for the relevant year on the date of search. Clearly the appellant s case is not covered by such situation. Hence, the conclusion arrived at by the A.O. can not be upheld. However, the A.O. has levied the penalty by holding that the other conditions specified under that clause namely the payment of taxes on surrendered income and interest thereon had not been fulfille ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty whereas the CIT(A) has given a finding that Explanation 5 to Section 271(1)(c) does not apply at all. In this regard the detailed submissions are as under: - Explanation 5 to Section 271: 1. The Assessing Officer held that though assessee s case falls within the exception provided under clause 2 of Explain 5 to Sec. 271 but as the interest u/s. 234A, Sec. 234B and Sec. 234C has remained unpaid immunity under clause 2 of Explanation 5 was denied and penalty was levied. 2. No interest u/s. 234A, is leviable in this case as the Assessee has filed his return of Income in time in pursuance to notice u/s. 153A. 3. Section 234A subsection 3 has been amended so as to provide that, if the return required to be filed in response to notice under section 153A is filed after the period allowed for filing it, or is not at all filed, interest under section 234A will become leviable for the period commencing on the day immediately following the expiry of the time allowed in the notice. Hence interest cannot be levied when return is filed in time. 4. Even as per section 234B sub-section 3 interest is payable for period commencing on the day following the date of determination of tot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S.D.V. Chandru (266 ITR 175 (Mad) has directly dealt with this issue. 11. Jainarayan Moolchand Agrawal (Decd) vs. ACIT 109 ITD 275 (Jab). 12. Dr. Dharamveer Singh Dhillon vs. CIT (2008) 116 TTJ 141 (Bilaspur) 13. Explanation 5 to section 271(1)(c) is squarely applicable to the Assessee. 14. CIT vs. Mahendra C. Shah (2008) 299 ITR 305 (Guj). 6. It is further submitted that the assessee has agreed for the assessment to buy peace and voluntarily offered undisclosed income with a request not to effect penalty proceedings and assessee has given all the details of share transactions purchase bills, sales bills, demat account, etc. Since the assessee voluntarily admitted to buy peace and requested that penalty should not be levied, the assessee has not challenged the assessment order. Hence, following the principles of Sir Shadilal Sugar and General Mills Ltd. vs. CIT 168 ITR 705 the assessee should not be punished with penalty. It was submitted that agreeing to additions does not follow that the amount agreed to be added was concealed. There may be hundred and one reasons for such admissions, i.e. when the assessee realises the true position does not dispute certain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mentioned transaction in our hands . It was his submission that the assessee had indulged in speculation business/undisclosed transactions and earned income and only after acquiring that income the assessee has converted them into accounted transaction and used the above mentioned modus operandi of selling the shares of Database Finance Ltd. and claiming the long term capital gains. This modus operandi came into light during the search operations. He then referred to the original return filed wherein the assessee has offered long term capital gains at Rs.38,70,575/- and claimed exemption under section 54F on Rs.40,00,000/- invested. He then referred to the return filed under section 153A placed in the paper book at page No. 1 to 8 to submit that what was offered under 153A was speculative profit under the head Profits and Gains of Business or Profession and the capital gain was still shown at Nil and the entire capital gain transactions were same in the revised return filed under 153A as well. It was his submission that the assessee has not disturbed the capital gain computation or the claim of exemption under section 54F while offering the amount of Rs.40,00,000/- as speculat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... original return) (b) Profit and gains of business or profession Rs. 43,38,823/- (increased by Rs.40 lakhs disclosed as profit) (c) Capital gains Nil Same as in original return (d) Income from other sources Rs. 5,658/- Same as in original return) 12. The net taxable income was arrived at Rs.43,81,540/- and tax free income was increased from Rs.17,508/- to Rs.51,023/-. The assessee has arrived at the tax payable at Rs.12,58,462/- and after claiming the credit of advance tax and seized amount of Rs.12,00,000/- the balance payable was Rs.74,794/- and was paid before filing the return. In view of calculation of interest under section 234A, 234B and 234C in which credit to the amount seized could not be given, assessee s interest liability has increased and accordingly the A.O. felt that one of the conditions for providing immunity under Explanation 5 to section 271(1)(c) was not fulfilled. He accordingly levied penalty under section 271(1)(c). 13. The CIT(A), however, considered that Explanation 5 is not applicable to the facts of the case and by elaborate discussion on the issue, which was extracted in the earli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis of the material found in the search the assessee accepted that they indulged in a modus operandi of paying cash and converting sale proceeds into cheques thereby claiming long term capital gains. This modus operandi was unearthed in the course of search proceedings. The assessee, however, has admitted speculation profit of Rs.40,00,000/- which was source for long term capital gains. This indicates that the disclosure is not voluntary and so the principles established by the Hon'ble Supreme Court in the cases of Suresh Chandra Mittal (supra) cannot apply to the facts of the case. 16. Moreover, the assessee has not disturbed the capital gains working. The reliance on Mukesh R. Marolia 6 SOT 247 is also not appropriate as the assessee has not disturbed the capital gain working nor the A.O. treated the sale proceeds as unexplained cash credit, which was the issue in the above said case. In this case the assessee has offered the speculation profit which was not disclosed in the original return and admittedly this speculation profit was earned in share transaction outside the books of account as per the statement given in the course of search. In view of this the assessee s cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) to s. 271(1)(c) is available to the assessees. No judgment of the Hon ble Gujarat High Court on this question was brought to my notice by either side. The Madras High Court in S.D.V. Chandru s case (supra) has held that the words in Expln. 5(2) ".....has been acquired out of his income which has not been disclosed in his return of income to be furnished before the expiry of time specified in sub-s. (1) of s. 139" are not to be read as referring to income so far not disclosed in respect of the previous year which is to end after the date of the search and that the words which refer to the time-limit under s. 139(1) are "only a reiteration of the legal requirement regarding the time within which returns should normally be filed". In this view of the matter it was held that no penalty can be imposed on the basis of the returns filed after the date of the search, pursuant to declaration under s. 132(4), in which additional income was shown by the assessee though such returns related to earlier assessment years. To the same effect is the judgment of the Rajasthan High Court in CIT vs. Kanhaiyalal (supra). In fact, in this case the High Court has observed that it is not merely the ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of search, assets which are not recorded in the books of account are found, a taxpayer is liable to penalty for concealment even if he declares the full value of those assets as his income in the return filed after the search. This provision has been found to operate even in cases where the assessee has no intention to fabricate any evidence and he includes in his return the income out of which such assets have been acquired. Hence, by the Amending Act, it has been provided that if an assessee in such cases makes a statement during the course of the search admitting that the assets found at his premises or under his control have been acquired out of his income which has not been disclosed so far in his return income to be furnished before the expiry of time prescribed in cl. (a) or (b) of s. 139(1) and specifies in the statement the manner in which such income has been derived, and pays the taxes that are due thereon, no penalty shall be leviable." [pp. 38 and 39 of 162 ITR (St.)] The above circular explaining the amendment shows that the benefit of immunity conferred by the Expln. 5(2), as amended by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986 w.e.f. 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of income was explained and accordingly filed the return of income only to buy peace and avoid litigation. However, there is no explanation why the income earned by way of speculation profit was not disclosed in the original return. Provisions of section 153A are similar in nature to the provisions of section 148 as far as calling for return and completion of assessment procedures are concerned. One of the contentions raised was that the original return filed gets abated and the assessee gets immunity as the returned income and assessed income are same as far as return under section 153A is concerned. According to the second proviso to section 153A assessment or reassessment, if any, relating to any assessment year falling within a period of six assessment years pending on the date of initiation of search under section 132 or making of requisition under section 132A shall only abate. However, in this case no assessment or reassessment proceedings are pending on the date of search, hence, the original return filed has to be taken into consideration. When compared to the original return already filed and the return filed in response to notice under section 153A, the fact which arise ..... X X X X Extracts X X X X X X X X Extracts X X X X
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