TMI Blog2012 (6) TMI 480X X X X Extracts X X X X X X X X Extracts X X X X ..... n 5 cannot be invoked in assessment year 2004-05 merely on presumption that the assessee might have been in possession of cash throughout the period covered by search assessments - The income offered to tax u/s 153A for assessment year 2004-05 is based on entries recorded in the seized material, thus Explanation 5 cannot be invoked in assessment year 2004-05 in respect of entries recorded in seized material - in favour of assessee. - ITA No.4702 (Del) of 2010 - - - Dated:- 9-3-2012 - R P Tolani, K D Ranjan, JJ. For Appellant: Shri Vinod Kumar Bindal, CA For Respondent: Shri Sudesh Garg (CIT)-DR ORDER Per: K D Ranjan: This appeal by the assessee for assessment year 2004-05 arises out of order of the ld. CIT (Appeals)-I, New Delhi. The ground of appeal raised by the assessee is as under :- The ld. Appellate Authority erred in law and on facts in confirming the penalty of Rs.47,51,579/- levied under section 271(1)(c) in response to the notice under section 153-A of the Act, while on additional income offered in the return of income filed by the appellant tively ignoring parts of the submissions made and also ignoring that no such penalty can be imposed on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1/06/2007 by the Finance Act, 2007, made it clear that the additional income offered by the assessee in response to notice under section 153A was liable to imposition of penalty. Since the search was conducted before 1/06/2007 and in the absence of these sections, the additional income offered by the assessee in the returns filed under section 153A could not be held as concealed income. The return of income filed after the search in response to notice under section 153A is a voluntary return having no element of concealment of income and the fact that the returns of income filed under section 139 of the Act had become non-est. Therefore, the return filed by the assessee was only to be considered for levy of penalty of concealment. It was, therefore, submitted that as per the existing provisions as on the date of search the assessee was liable for penalty only in respect of additional incomes brought to tax by the efforts of the Department due to search operation after first return under section 153A was filed by the assessee. 4. The assessing officer examined the contention of the assessee in the light of provisions of Explanation 5 of section 271(1)(c) of the Act. Explanation 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 to section 271(1)(c) of the Act were clearly attracted. He also noted that the assessee did not disclose this income in the original return of income filed under section 139. The return of income filed by the assessee showing undisclosed income from the business activities was filed on 23rd April, 2008 which was clearly after the time allowed to file the revised return u/s 139 of the Act. He also observed that provisions of Explanation 5(b) were clearly applicable in the case of the assessee. As regards the contention of the assessee that return of income filed under section 153A was filed voluntary he relied on the CBDT Circular dated 30/09/1969 wherein word voluntary has been explained. According to CBDT Circular the voluntary in its primary sense means from one s own free will or without compulsion. In its secondary sense implies without any legal obligation or not prompted by inducement. If there is seizure of incriminating material in the course of search and penalties and prosecutions are imminent and the disclosure is as a sequel to such search, it would not be possible to treat the disclosure as voluntary. The assessing officer relying on various decisions observed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the basis of seized documents and papers. He further submitted that the regular return for assessment year 2004-05 was filed prior to the date of search and provisions of Explanation 5A to section 271(1)(c) and section 271AAA of the Act were inserted after the date of search. 6.1 He further submitted that the proceedings u/s 153A are independent of proceedings in pursuance of the original return of income filed. Once notice u/s 153A is issued, the return of income filed u/s 153A is, as if, it is the return of income in pursuance of section 139. The return of income originally filed has no relevance. The assessed income u/s 153A is the same as the returned income and hence, no income has been concealed or inaccurate particulars of such income have not been filed, within the meaning of section 271(1)(c) of the Income-tax Act. Till the insertion of Explanation-5A w.e.f. 1.6.2007, the Revenue had no enabling powers to impose penalty u/s 271 (1)(c) in the cases where search had taken place after 1/6/2003, if the returned income filed in pursuance of section 153A was not less than assessed income. Further Explanation-5 of section 271(1)(c) of the I.T. Act is not applicable to the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndisclosed cash amounting to Rs.1,11,43,350/-. As per assessee's own cash flow statements/cash book/Balance sheets the appellant was admittedly in possession of unaccounted cash of Rs. 2,20,07,726/- on the date of search out of this Rs.1,11,43,350/- was actually found by the search party. It was also submitted that the assessee was compelled to declare unaccounted income and admit his huge unaccounted affairs only on account of search which resulted into seizure of huge unaccounted cash as well as large number of incriminating documents. 7.1 Ld CIT(DR) further submitted that the normal invocation of section 271(1)(c) pre-supposes furnishing of inaccurate particulars of income or concealment of income. Explanation-5 to section 271 which was introduced in the year 1984 brings out entirely independent architecture for imposition of penalty in search cases. Explanation-5 brings on the statute the concept of deemed concealment which has very wide and large amplitude. Explanation-5 gets triggered only in case of any assessee in whose case search u/s 132 is carried out. The assessee should be found to be the owner of any money bullion jewellary or other valuable article or things. The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... return of income furnished on or after the date of search, he shall be liable for imposition of penalty u/s 271(1)(c). (f) the assessee admittedly had not mentioned anything about this undisclosed business in his return of income filed originally u/s 139 which is available on page 173 of the assessee's paper book. The original return of income was just for Rs.7,21,250/- and no income as such from the undisclosed business were mentioned in the original return. The assessee's efforts to raise controversy regarding insertion of Explanation-5A from 1.6.2007, is absolutely unnecessary as the insertion of Explanation-5A does not mean that Explanation-5 was not valid before 1.6.2007. 7.2 Ld CIT(DR) further submits that the assessee s arguments are not tenable either on law or equity or prudence. Facts of the case in ACIT vs. Kirit Dahyabhai Patel 121 ITO 159 are identical to the facts of the assessee's case in as much that the returned income u/s 153A was accepted as assessed income. In this case reference to Third Member (Sh. R.V. EASWAR, then VICE PRESIDENT) was also made. In the judgment it was inter-alia held that the return of income filed u/s 153A cannot be considered as volunta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relied by the Revenue, the counsel of the assessee had conceded that penalty provisions u/s 271(1)(c) are applicable to the facts of their case but according to assessee facts of the case are not at all covered by the said two decisions. The assessee has stated that penalty u/s 271(1)(c) of the Act is not at all attracted here firstly there is no reason for any satisfaction of any concealment in the impugned assessment proceedings as the returned income only has been accepted. There is no direction in the statute to refer to the earlier completed assessment proceedings for comparison of declared incomes while recording any such satisfaction which is the beginning point for these proceedings. Secondly no such penalty can be imposed where the additional income was declared in the return filed u/s 153A of the Act on the basis of seized documents and papers and valuables in respect of searches undertaken during the period from o1.06.2003 to 31.05.2007. 8.1 The Learned DR has incorrectly mentioned that the assessee admitted that the said two decisions are on identical proposition. The same are on levy of penalty u/s 271(1)(c) read with the section 153A of the Act but on different rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f income filed after the search u/s 153A of the Act. Thus definitely two views are possible and then no penalty is imposable otherwise. 8.3 Penalty is a quasi civil and criminal action and is based on some presumptions and deemed concealed income. Thus these provisions have to be strictly applied. Penalty has never been automatic on all the additional income assessed. Specific statutory provision is required to attract such action. Income can be deemed but penalty cannot be. The fresh penalty provisions inserted U/S 271AAA and Explanation 5A of section 271(1) w.e.f. 01.06.2007 clearly support the contention of the assessee. Further these provisions have not been discussed in the two decisions relied by the Revenue but specifically discussed on behalf of the assessee in the impugned appellate proceedings. 8.4 The jurisdictional High Court in S.A.S. Pharmaceuticals judgment has specifically held that penalty u/s 271(1)(c) cannot be imposed on the amount of additional income returned after survey on the plea that in absence of survey the assessee would not have disclosed the said additional income. The High Court has also specifically considered the above mentioned newly inserted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h was not earlier disclosed. On the other hand, the contention of the Revenue is that the return filed under sec. 153A, is not voluntary and is intended to assess the undisclosed income. Sec. 153A was inserted into statute with effect from 1st June, 2003 by the Finance Act, 2003 which reads as under: 153A . Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, 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- (a) issue notice 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 assessment years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139; (b) assess or reassess the total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. The abatement refers to suspension or termination of the proceedings either of the main action, or the proceedings ancillary or collateral to it. The word is commonly used in the legislations, which provide for abatement of action/suit; abatement of legacies; abatement of nuisance; and all actions for such nature, which have the pendency or continuance. The proceedings, which have already terminated are not liable for abatement unless statute expressly provides for such consequence thereof. The word 'pending' occurring in the second proviso to section 153A of the Act, is also significant. It is qualified by the words on the date of initiation of the search , and makes it abundantly clear that only such assessment or reassessment proceedings are liable to abate. The pendency of an appeal in the Tribunal against the order of assessment against which an appeal has been decided by Commissioner (Appeals) is not a continuation of the proceedings of assessment. 11. Thus while section 153A prescribes for assessment or reassessment of total income in search cases, section 153B prescribes the time limit for completion of assessment under sec. 153A. Section 153C relates to the cases whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot u/s 153A. From above discussion it follows that where retuned income filed u/s 153A is accepted by the assessing officer, there will be no concealment of income and consequently penalty u/s 171(1)(c) cannot be imposed. 13. The second contention of the assessee is that the penalty under section 271(1)(c) is not at all attracted because there is no reason for any satisfaction of any concealment in the impugned assessment proceedings as the returned income only had been accepted by the assessing officer. In order to answer this question we will refer to assessment made u/s 153A of the Act which is the foundation of imposition of penalty u/s 271(1)(c) of the Act. The facts as seen from assessment order and other material on record are that the assessee, Shri Prem Kumar Arora during the relevant period covered by search was carrying business under the name style M/s Nanak Enterprises. During this period he was main purchaser for MDH Ltd and purchased items from Khari Baoli, Delhi through his proprietorship concern M/s Nanak enterprises. Proper books of account were maintained for this business activity. During the course of search conducted on 22/11/2006 it came to notice of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... name of the party in codes from whom these items were purchased. These purchases were not recorded in the books of accounts of M/s. Nanak Enterprises. The assessing on the basis of entries recorded in the note pad worked out turnover of Rs. 3,35,19,690/- for the period from 10th April to 31st May 2005. From these figures the assessing calculated the monthly average purchases of Rs.1,67,59,845/-. The assessing officer, thus, came to the conclusion that the assessee was not only making unaccounted sales but also making unaccounted purchases on large scale. The assessing officer further noted that these purchases were made in cash for MDH Ltd. The entries recorded on note pad contained only the name of the supplier such as, HCS, RJCS etc. and not the name of purchaser. Since Sh. Prem Kumar Arora was exclusively purchasing for MDH Ltd., the name of MDH Ltd was not considered necessary for recording by Shri Arora and thus concluded that all the purchases were made on behalf of MDH Ltd. Further availability of huge cash of more than Rs. 1,00,00,000/- also indicated that Shri Arora was handling unaccounted cash of MDH Ltd., as he himself was a dedicated supplier of MDH Ltd and financial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ading in spices as under:- Assessment year Profit 2006-07 Rs.2,01,11,814/- 2005-06 Rs.1,60,89,451/- 2004-05 Rs.1,28,71,560/- 2003-04 Rs.1,02,97,248/- 2002-03 Rs.82,37,799/- 2001-02 Rs.65,90,239/- Thus the assessing officer for assessment year 2004-05 estimated undisclosed income of Rs.1,28,71,560/- as against estimated by the assessee at Rs.1,43,41,002/- on the basis of seized material. We may like to mention here that basis of estimation of sales by the assessing officer based on entries recorded in Annexure A-6/H-6 was not approved by the Ld CIT(A) and this Tribunal in the case of MDH Ltd. In the case of the assessee, however ld CIT(A) upheld the stand of the assessing officer but the Tribunal reversed the decision of CIT(A) in line with the decision of the Tribunal in the case of MDH Ltd. by observing as under: 19. In this regard we would also like to record our findings about the note pad maintained by Shri Prem Kumar Arora. The assessing officer has estimated the unaccounted purchases on the basis of third column, which according to the assessing officer is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commission agency. Ld CIT(A) in the case of MDH Ltd has held that the note pad does not relate to business of MDH Ltd. However, the ld CIT(A) in the case of assessee has upheld the estimation of purchases and estimation of profits thereon. We may also like to mention some of the entries to demonstrate that third column does not reflect the rate of a particular item/dry fruit. This is being done as the ld. CIT(DR) has argued that no finding has been given in the case of the assessee. The entries recorded are similar on all the days. The details of some of such entries of column 3 are as follows: Page No.100 (internal page 6 ) Jeera Green 6629 Kishmish 5966/57 Giri 7116 Page No. 101 : (internal page 8 ) Magaz 5153/100 Pista 15453/451 Dal Chini 7848/103 Page No. 102 : (internal page 9 ) Saugi 6341 Magaz 6973/DL Page No. 103 : (internal page 10 ) Kala Zeera 6603/48 Pista 15453/331 From above entries it is clear that the figure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and quantities of certain spices/dry fruits and by multiplying the assumed quantities and rates estimates sales for the period from 10.4.2005 to 31.05.2005 at Rs 3,35,19,690/-. He has completely ignored the other seized material which has been taken into consideration by the assessee while estimating undisclosed commission income. The assessing officer extrapolated sales based on estimation of sales of 52 days (10.4.2005 to 31.05.2005) for financial year 2005- 06. He further extrapolated sales figures backward for the period relevant to assessment years 2001-02 to 2005-06 by presuming that there was 20% growth in business in each year. He has further estimated profits by presuming profits of 10%. Thus estimation of profits at Rs.1,28,71,560/- for assessment year 2004-05 is based on multiple estimations and presumptions. The method of estimation of sales and profits for the assessment years covered by the period of six years has been rejected by the Tribunal in quantum appeal proceedings of the assessee as well as in the case of MDH Ltd. On the contrary the estimation of profits for all the six assessment years covered u/s 153A had been upheld by the Tribunal. For the assessment ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to above and penalty u/s 271(1)(c) will not be imposable. 23. In CIT v. Suresh Chandra Mittal [2001] 251 ITR 9 (SC) the assessee filed revised returns showing higher income after search and notice for reopening of assessment, to purchase peace and avoid litigation and Department simply rested its conclusion on the act of voluntary surrender done by the assessee in good faith, High Court was justified in holding that no penalty could be levied. The assessee s case is on more strong footings as that of Suresh Chand Mittal decided by Hon ble Supreme Court. As held in earlier paragraphs there should be variation in assessed and returned income and such variation should be as a result of concealment. It is not the case of assessing officer that penalty u/s 271(1)(c) has been imposed on certain additions made based on seized material which had not been admitted by the assessee in the return filed in response to notice under sec. 153A of the Act. Rather it is a case where the statute has given an opportunity to the assessee to rectify the omissions on part of the assessee. Hence no penalty will be levied if the assessee declares undisclosed income u/s 153A of the Act. 24. The Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Delhi High Court in the case of M/S S.A.S. Pharmaceuticals (supra) while deciding the issue levy of penalty u/s 271(1)(c) in paragraph 15 16 has held as under: 15. It necessarily follows that concealment of particulars of income or furnishing of inaccurate particulars of income by the assessee has to be in the income tax return filed by it. There is sufficient indication of this Court in the judgment in the case of Commissioner of Income Tax, Delhi-I Vs Mohan Das Hassa Nand 141 ITR 203 and in Reliance Petro products Pvt. Ltd (supra), the Supreme court has clinched this aspect, viz., the assessee can furnish the particulars of income in his return and everything would depend upon the income tax return filed by the assessee. This view gets supported by Explanation 4 as well as 5 and 5A of section 271 of the Act as contended by the learned counsel for the respondent. 16. No doubt, the discrepancies were found during the survey. This has yielded income from the assessee in the form of amount surrendered by the assessee. Presently, we are not concerned with the assessment of income, but the moot question is to whether this would attract penalty upon the assessee under prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... previous year which has ended before the date of search but the return of income for such year has not been furnished before the said date or where such return has been furnished before the said date, such income has not been declared therein; or (b) for any previous year which is to end on or after the date of the search, then, notwithstanding that such income is declared by him in any return of income furnished on or before the date of search, he shall, for the purposes of imposition of a penalty under section 271(1)(c ) be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income unless the case falls in exceptions provided either under clause (1) or clause (2) of the Explanation 5. Clause (1) covers the cases where such income or transactions resulting in such income is/are recorded in the books of accounts maintained by him for any source of income before the date of search or such income is otherwise disclosed to chief commissioner or commissioner before the date of search. On the other hand Clause (2) is applicable where the assessee makes a statement under section 132(4) that any money, bullion, jewellery or other valuable ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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,- (a) where the return of income for such previous year has been furnished before the said date but such income has not been declared therein; or (b) the due date for filing the return of income for such previous year has expired but 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. 31. From above discussion it is clear that the provisions of Explanation 5 are applicable in the cases where during the course of search initiated on or before 1.6.2007 any money, bullion, jewellery or other valuable article or thi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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