TMI Blog2007 (12) TMI 460X X X X Extracts X X X X X X X X Extracts X X X X ..... ails of gifts in the original returns. (v)The decisions relied upon by the CIT(A) or with reference to case were the assessee had filed revised returns without any quantification by the department. The CIT(A) has failed to appreciate the facts that in the present case the quantum of income is not based on the revised return but on the fact of withdrawal of claim of gifts by the assessee. The issue of revised returns is only incidental. 3. The action under section 132 was conducted in the premises of Prakash Tea Agencies Group of cases on 6-1-2004. All the assessees belong to this group. Since facts in all the cases are identical, therefore, we will be referring to the facts of one of the cases, i.e., case of Shri S. Kumar. Notice under section 153A was issued on 6-4-2004. In response to that notice, the assessee filed return declaring an income of ₹ 7,07,230. In the original return, the assessee declared an income of ₹ 92,230. An additional income of ₹ 6,15,000 was declared. This amount represented credits in the capital account of the assessee. During the previous year relevant to the assessment year 2000-01, such receipts were shown to have been received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... genuine and only with a view to buy peace with the deptt., the same were offered to tax. In the absence of a guilty mind or an intention to conceal, penalty cannot be levied. 6. The Assessing Officer considered the above explanation. According to the Assessing Officer, alleged credits were credited in the capital account and the capital account is represented by the assets acquired. The existence of the asset confirms the fact that for the receipt of such gifts there would have been unexplained investments. The investigation conducted during the course of search showed that the gifts were not genuine and there was an attempt to evade the payment of tax by arranging such gifts. The learned Assessing Officer has referred to the following facts for arriving at the above conclusion : 1.The assessee belongs to a group identified as Prakash Tea Agency group of cases. The main entity, M/s. Prakash Tea Agencies is carrying on business of trading in tea leaves. 2.During the course of action under section 132 conducted, along with other assets, cash of ₹ 3,88,30,100 was found. This cash was proved to be unaccounted and the same has been offered for tax for the assessment y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal V.N. Manjunath 11,54,000 17,06,000 2,94,000 31,54,000 S. Ravindra S. Lalitha 11,54,000 13,01,000 18,44,000 18,04,000 2,94,000 2,94,000 32,92,000 33,99,000 N. Sashindra HUF 5,00,000 9,09,000 15,99,000 4,90,000 34,98,000 V.N Sridhar 12,70,000 16,97,000 2,94,000 32,61,000 Total 15,00,000 1,79,02,000 2,19,90,000 44,41,000 4,58,33,000 5.Enquiries conducted revealed that with the assistance of Shri Shivaram Bhat, C.A. and an agent by name Tirupal, the assessee got organized these gifts. 6.Each gift was of ₹ 49,000. 7.It was Shri Tirupa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ish that such gifts are genuine. The explanation of the assessee that it offered such amounts for taxation only to buy peace with the department is not acceptable. Accordingly, the Assessing Officer imposed penalty under section 271(1)(c). 8. Before the learned CIT(A), the assessee made the following submissions : (a)It is not a case, where the assessee has omitted to disclose the source of income or transactions and the transactions of gift were not hidden from the department. The assessee was not able to conclusively prove, therefore, to buy peace and to bring an end to all proceedings, all the members of the group offered the items to tax which otherwise do not constitute regular income. (b)None of the assessee have any independent business or any another independent sources of income. (c )When there is technical or venial breaks of provisions of the Act, then the authority is justified in refusing to impose penalty. Reliance was placed on the decisions of the Apex Court in the case of Hindustan Steel Ltd. v. State of Orissa 83 ITR 26 and in case of Shibani Dutt v. CIT 217 ITR 93 . (d)Findings in assessment order cannot operate resjudicate and development proceed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sclosed to the department in the returns filed before the date of search. Only during the assessment proceedings, with a view to end the proceedings and on the understanding that no penalty will be levied, it was agreed to file revised returns. It has been stated by the assessee regarding gifts no enquiries were conducted. Where there is candid admission of concealing facts or categorical finding of source of income having been concealed penalty may be justifiable. In this regard the position with regard to bank deposits is distinguishable. Considering the contentions raised by the assessee and the citations referred to above, where the particulars are already available in the return and to buy peace, the assessee files the revised return of income in view of Hon ble Supreme Court s observations and MP High Court s judgment, the levy of concealment penalty on the issue of gifts disclosed by the assessee is not considered justified. The levy of penalty on account of gifts is hereby ordered to be deleted in these cases. 10. During the course of proceedings before us, the learned DR has filed a paper book containing 38 pages. The learned DR drew our attention towards letter signed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er he admitted that Shri V.N. Sridhar requested him to arrange some fictitious donors for the purposes of converting his unaccounted money into gifts. He introduced Mr. M.K. Thirupal to Shri V.N. Sridhar and both of them had discussion in my office and such gifts were arranged. The learned DR thereafter drew our attention to joint statement recorded on 22-1-2004. The joint statement have been singed by the following persons : (1)J.D. Shivaram Bhat (2)Thirupal (3)B.N. Sridhar (4)Shashindra (5)Keshav Bhatt 12. Joint statement is also singed by one witness Shri A. Jayraj. Vide this joint statement, it has been made clear that gifts were arranged to covert unaccounted money. 13. After drawing our attention to the above-referred facts, the learned DR relied on the decision of the jurisdictional High Court in the case of CIT v. Sudharshan Silks Sarees [2002] 253 ITR 1451 (Kar.). The learned DR has also filed copy of the judgment of the jurisdictional High Court dated 14-2-2005 in the case of CIT v. Sunrise Industrial Syndicate [ITRC No. 246 of 1998]. In this case, search under section 132(1) was conducted and there were certain cash credits which were reflected in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee cannot question the assessment proceedings during the course of penalty proceedings. The learned DR stated that section 153A deals with assessment/re-assessment in cases where search under section 132 has been initiated. The assessee takes the credit of tax paid with original return and, hence, it cannot be said that original return does not survive. The learned DR stated that all the donors were not available. Shri Keshav Bhatt, office staff of Shri D. Shivaram Bhat, C.A. of the assessee admitted in his statement that some of the donors whose names were given with the address of office premises of Shri D. Shivaram Bhatt never stayed there in the past 12 years. 16. The learned DR stated that Explanation 5 to section 271(1)(c) can be considered in the cases where action under section 153A has been taken. F.D.A s were found in few names only. The fact that penalty was not levied in the case of Prakash Tea Agency is not relevant. Some of the F.D s were made prior to receipt of gifts. The claim that ladies and mentally disabled persons are also included in the penalty cases is not relevant as they were represented by G.P.A. holders. 17. The claim that there is no mens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 153A and proceedings under section 147 will abate. Section 148 deals with the issue of notice where income has escaped assessment. Hence, in a case where search has been initiated, notice is to be issued under section 153A to assess or reassess the income of the relevant assessment years. Section 149 deals with time-limit for notice to be issued under section 148. Such time-limits will not be applicable in respect of notices to be issued under section 153A. Section 151 deals with the sanction for issue of notice. It provides that notice under section 148 can be issued after getting permission from the relevant authority. Section 151 has been made non-applicable in respect of notices to be issued under section 153A. Section 153 deals with time-limit for completion of assessment and reassessment. Since section 153A also deals with assessment/reassessment of the six assessment years and, therefore, the time-limit as mentioned in respect of assessment under section 153A will not be applicable in respect of assessment or re-assessment to be made under section 153A. Section 153A(b) makes it clear that it is this section which authorizes the Assessing Officer to make assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bed for return to be filed under section 139. Hence, on this ground, we are not inclined to accept the argument of the learned AR that the assessment order is invalid. In the instant case, returns have been filed in those prescribed forms. 21. In the group of cases, search proceedings were initiated on 6-1-2004. Search was completed on the same date in the cases of M/s. Prakash Tea Agencies, Shri H.N. Nagaraj and Shri N. Sashindra. In respect of premises at 20th Cross, Banashankari, however, search was concluded on 17-2-2004 in respect of premises No. 13, Mehanta Layout, Bull Temple Road, Bangalore. As per copy of panchnama placed on record the warrant was issued in the name of M/s. Muktha Enterprises, Mr. Prakash Tea Agency, Shir V.N. Sridhar, Smt. Mukta Sridhar and Shri H.N. Nagaraj and Shri Shashindra N. 22. During the course of search under section 132 in respect of M/s. Prakash Tea Agency, cash of ₹ 3,11,59,115 was found and the same was seized. The Assessing Officer has completed the assessment proceedings of M/s. Praksh Tea Agency under section 153A for the assessment years 1998-99 to 2004-05 though that firm declared additional income for all the assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness and your family members have been converted to bogus gifts. Please let me know whether these amounts have been declared to the department in the return filed and further in what form they are lying at present ? Ans. Me and my family members have jointly signed a letter dated 26-2-2004 which was submitted before you and in the said letter we have mentioned that the gifts received were deposited to various bank accounts. All these bank accounts have been declared to the department and the gifts have also been declared to the department in the return filed by us in the respective assessment years. We have also enclosed details of gifts received by various persons for various assessment years. The total gifts that have been declared is ₹ 4,31,96,000 further I wish to state that on the basis of the amount of gifts which have been deposited in the bank accounts, the actual gifts received works out to ₹ 4,58,33,000. This amount varies from the amount declared to the extent of ₹ 26,37,000. This amount has not been shown in the return filed by the concerned persons. Regarding the form in which these gifts are lying, all the amounts were deposited in the banks of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm of gifts into this bank accounts and these gifts as well as the bank accounts have been declared to the department. Though the assets are disclosed to the department, the source of which were undisclosed income of the concerned persons. Please let me know why these amounts which are lying in the bank accounts which have their sources which were not disclosed to the department should not be seized as assets representing undisclosed income ? Ans. The assets mentioned have been disclosed to the department in the respective returns. Regarding the non-disclosure of the sources of the same, we are offering the same for taxation in the respective years in the hands of the concerned persons as committed by a letter dated 26-2-2004. In view of the above, I request you not to seize the amount lying in the bank accounts which have been duly declared to the department. We have also mentioned a list of bank accounts which have not been declared to the department. However, no gifts amount have been deposited in these bank accounts. Bank accounts have the deposits, which have not been declared to the department. We have no objection to the seizure of the amounts. Accordingly, we are submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , valuable articles or things and in the statement recorded under section 132(4), surrender was made and it was made clear that such assets or valuable articles or things have been acquired out of the gifts received and now surrendered. We are reproducing here the outflow of amounts received by way of gifts in the case of Shri V.N. Sridhar, HUF and Shri V.N. Sridhar (Ind.) and Smt. Mukta Sridhar : SHRI V.N. SRIDHAR HUF Gift Asst. year Amount Outflow other than tax Amount 2000-01 5,00,000 2001-02 12,74,000 FDR Indian Bnk Chpet 422000 Dated 7-4-2000 Prakash Tea Agency dated 10-2-2001 10,00,000 2002-03 15,50,000 Prakash Tea Agency dated 18-12-2001 5,00,000 2002-04 4,41,000 LIC Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 SMT. MUKTHA SRIDHAR Gift Amount Outflow other than tax Amount Asst. year 2001-02 12,92,000 LIC Bheema Nivesh 10,00,000 Dated 29-3-2001 2002-03 17,95,000 2003-04 3,34,000 LIC Premium dated 30-3-2002 52,400 LIC Premium dated 26-3-2003 52,930 2004-05 Property at SY No. 109/1 Rachenahalli 1/4 share 7,35,500 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 specified in the statement the manner in which such income has been derived and pays the tax, together with interest, if any, in respect of such income]. (a)For applying Explanation 5, the assessee should be found to be owner of any money, bullion, jewellary or other valuable article or thing in the course of search. (b)The assessee should claim that such assets have been acquired by him out of his income which has not been disclosed so far in his return of income. (c)In a statement recorded under section 132(4), the assessee makes a statement that such assets or valuable article or thing have acquired out of his income which is not been disclosed in his return. (d)Such income is declared in the return and the assessee pays the tax. In the instant case, the assessee has been found to be the owner of valuable article or thing. The assessee has utilized the amounts by depositing the same in bank accounts or purchase property or making investment in LIC policies. The assessee admitted in the statement of record under section 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that Explanation 5 to section 271(1)(c) applies to tangible and intangible assets. It will be useful to reproduce the head note of this decision : Explanation 5 to section 271(1)(c) of the Income-tax Act, 1961, deals with a situation in which any assets are found to be in the ownership of the assessee in the course of search under section 132 of the Income-tax Act, 1961. It makes no distinction between tangible assets and intangible assets. Clause (2) of Explanation 5 makes it clear that where in the course of search the assessee makes a statement under section 132(4) and owns that he acquired any of such assets out of his undisclosed income, not so far returned, and further states the manner in which such income has been derived and pays tax together with interest if any in respect of such income, no presumption of concealment has to be drawn, notwithstanding the admission to that effect. In other words to the extent, the assessee makes a clean breast of his undisclosed income represented by assets found to be in the possession of the assessee, he is not deemed to have concealed his income or concealed particulars thereof. Explanation 5(2) is not confined to physical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... true and correct and the assessee agreed to the addition of ₹ 1,08,000 to purchase peace and to avoid litigation. In respect of addition of ₹ 1,08,000, the assessee has offered an explanation. Thus, in this case, the revenue has not initiated penalty proceedings in respect of additional income disclosed vide statement under section 132(4) of the Income-tax Act. 32. The learned Madras High Court in the case of CIT v. S.D. Chandru [2004] 266 ITR 1751 had an occasion to consider the effect of the Explanation 5 under section 271(1)(c). The learned High Court observed as under : In cases where the assessee had not disclosed his income in the returns filed for the previous year which have ended prior to the date of the search and, in the statement given under section 132(4), the assessee admits the receipt of undisclosed income for those years and also specifies the manner in which such income had been derived, and thereafter pays the tax on that undisclosed income with interest, such undisclosed income would get immunized from the levy of penalty. The Tribunal, therefore, was right in holding that the penalty was not leviable. The question referred is, therefore, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the locker. The total income assessed was ₹ 17,63,650. It was a little more than the original surrender and was less than the subsequent surrender made on 27-12-1989. It was held that Explanation 5 is applicable. The learned High Court has reproduced following observations of the Tribunal : The two applications made by the assessee and other members of his group clearly come to suggest that the assessee was making a clean breast to confess undisclosed income and he did tried to co-operate with the deptt. to avoid protect litigation between him and deptt. In our opinion the basic idea behind this was to provide Explanation 5 of section 271(1)(c) is to avoid litigation by the deptt. and get the maximum income-tax benefit at the premises from whose business premises as well as residential are searched. 37. Hence, in the instant case, the group has surrendered the income and paid taxes along with return. Though, assessee not only co-operated with the deptt. but also filed return declaring such undisclosed income and paid the taxes. 38. Allahabad Bench in the case of Shyam Biri Works (P.) Ltd. v. ITO [2001] 70 TTJ 880 deleted the penalty as the assessee disclosed amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accepted. The assessee filed revised return. The Delhi High Court held that the filing of the revised return means admission by the assessee in respect of concealment of income. However, in the instant case, the facts are different. The assessee contended that it has earned income over a period of years and such period even extended to the period for which action under section 153A was not possible. The assessee has offered the amounts credited as gifts and has not asked that such amounts should be spread over the period of years during which income was earned. Hence, this decision is not applicable. 3.B.A. Balasubramaniam Bros. Co. s case (supra ). The Apex Court held that in view of Explanation in section 271(1)(c) to the effect that if income returned is less than 80 per cent of the assessed income then burden is on the assessee to prove that there had been no concealment and if such burden is not discharged then levy of penalty is valid. Such explanation stands omitted and, hence, this case law is of no help to the revenue. 4.Sudharshan Silk Sarees case (supra). Search and seizure operations were conducted on the business premises of the 2 assessees. During the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. Hence, when we are considering the applicability of Explanation 5 to section 271(1)(c) then, the decision of the jurisdictional High Court is of no help to the revenue. 5.Bhurmal Mallaji s case (supra). In this case, the Assessing Officer noticed that a certificate was given to the bank with the details of stock month-wise. There was difference of stock as shown in the return and stock as shown to the bank. The assessee voluntarily offered difference for taxation in order to purchase peace. The Bangalore Bench upheld the penalty because the Assessing Officer noticed the discrepancy and the assessee has failed to give any plausible explanation for not offering the same in the return of income. The worthy Apex Court has also held that law laid down in the case of Sir Shadilal Sugar General Mills Ltd. (supra) is not a correct law and assessee has to file an explanation. The explanation is to be consi-dered and if the explanation is bona fide then penalty is not leviable. In the case before the Bangalore Bench, the assessee was not able to give any satisfactory explanation, therefore, the penalty was confirmed. This is not a case where Explanation 5 was involved. 6.Sabu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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