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TMI Blog2013 (6) TMI 725X X X X Extracts X X X X X X X X Extracts X X X X ..... umstances of the case the learned CIT (A) erred in deleting penalty of Rs. 4,27,614/- levied by the Assessing Officer Under Section 271(l)(c) of the Act. 2. On the fact and in the circumstances of the case the learned CIT(A) erred in allowing set-off of undisclosed income against unexplained expenditure and to hold that the expenditure no longer remained unexplained. 3. On the facts and in the circumstances of the case the learned CIT(A) erred in holding that penalty is not imposable on unexplained expenditure added under section 69C of the Act, whereas in the Assessment Year 2006-07 the CIT(A) held that penalty is imposable on unexplained expenditure which is contradictory to his finding in Para 10.4 of its order. 4. On the facts and in the circumstances of the case the learned CIT (A) erred in holding that; the penalty is imposable only on inadmissible unexplained expenditure. 3. In the appeal for the A.Y. 2006-07 the revenue has taken the following grounds: 1. On the facts and in the circumstances of the case the learned CIT (A) erred in reducing the amount of unexplained expenditure by amount of undisclosed income for levy of penalty Under Section 271(1) (c) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as carried out in the case of the Assessee and it's group concerns on 10-10-2007. Notices u/s 153A of income Tax Act were issued to the assessee for filing the returns of income and in response to the said notices, the assessee filed returns of income. The assessments have been completed by the A.O u/s 153A of the Act. The A.O also initiated penalty proceedings and levied the penalties. The income offered by the assessee, addition made by the A.O and the amount of penalties levied and quantum of income which is subjected to the penalty can be summarised for all the four assessment years as under: A.Y. Additional income offered to tax (Rs.) Addition made by the AO (Rs.) Quantum of Income (Rs.) Amount of Penalty (Rs.) 2003-04 10,48,574 1,15,000 11,63,574 4,27,614 2004-05 7,47,229 5,55,000 13,02,229 4,67,175 2005-06 29,88,724 7,38,198 37,26,922 14,63,562 2006-07 24,14,045 1,73,238 25,87,283 8,70,879 7. The assessee challenged all the penalty orders before Ld. CIT(A). The Ld. CIT(A) gave set off of the unrecorded income found in the course of search which was not declared in the returns filed by the assessee in response to the notices u/s 153A of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars under appeal stands allowed." 9. The assessee also contended that what the assessee had offered is the amount of expenditure and hence, explanation 5A to sec. 271(1)(c) of the Act has no application. The Ld. CIT(A) accepted the plea of the assessee that there is no income which is offered by the assessee but it is the only expenditure which is offered by the assessee in the returns of income. The operative part of the findings of the CIT(A) is as under: "10.4 In view of the above provision, the contention of the appellant that penalty u/s 271(1)(c) in respect of inadmissible business expenditure is not covered by the provisions of Explanation 5A is found to be acceptable as the said Explanation 5A(ii) refers to any income found noted in any documents represents the income of the assessee. In the case under appeal, undisputedly the seized material also contains notings of admissible business expenditure on which the AO has levied penalty u/s 271(1)(c) of the Act. In view of the above facts and discussion, I am of the considered view that the AO is not justified in levying in penalty on admissible unrecorded business expenditure. In respect of assessment years 2003-04, 2004-05 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) is supported by the above two decisions of the Tribunal. He opened another page of his argument and submits that even if Explanation 5A is applicable, but the said Explanation is not applicable so far as the income declared by the assessee in the returns filed in response to notice u/sec. 153A of the Act, as Explanation 5A(ii) contemplates detection of the income. The Ld. Counsel referes to the definition of income as given in sec. 2(24) of the Act and submits that in its wisdom the Parliament has inserted the definition of 'income' but there is no reference of sec/s. 68/69/69A/69C, etc. He, therefore, pleads that income offered by the assessee pertains to the expenditure and hence, no penalty is otherwise also leviable. He also placed reliance on the decision of the Hon'ble Supreme Court in the case of EMIL Webber Vs. CIT (1993) 200 ITR 483 (SC) wherein the definition of "income" u/s 2(24) is explained. He therefore, concluds his argument by submitting that no penalty is leviable at all and the Ld. CIT(A) was not justified in confirming the penalty for A.Y. 2006-07. We have also heard the Ld. DR. 12. We have heard the rival submissions and perused the record. In this case, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of search to cover up the expenditure as well as deposit in Bank A/cs. The Tribunal considered the Explanations- 3, 5 & 5A to Sec. 271(1)(c ) of the Act and held as under : 8. While deciding assessee's appeal for A.Ys. 1999-2000 and 2001-02, the penalty levied on the income offered towards the personal expenditure of the assessee and his divorcee sister has been deleted. Even though the Parliament has inserted Explanation 5A to Sec. 271(1)(c), said explanation is applicable in respect of the search initiated u/s. 132 on or after 1st June 2007. Section 5A is introduced to patch out the lacunae in the existing provisions more particularly to overcome the judicial interpretation of Explanation -5. If the search is initiated u/s. 132 on or after 1st June 2007 then there is a legal presumption that any income based on any entry in the books of account or other documents or transactions, which is claimed as income by the assessee, the same would be treated as deemed concealment of the particulars of income or furnishing inaccurate particulars of income. So far as the present assessee is concerned, the date of search is 15.6.2004 and hence, Explanation 5A to Sec. 271(1)((c ) is not app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s before us, Explanation-3 cannot be applied, as held in the case of Chandan K. Shewani (Supra). So far as Explanation 5A is concerned, it is brought on the Statute Book w.e.f. 1.6.2007 i.e. from the Assessment Year 2007-08 So far as the assessments in all these cases are concerned, no addition is made by the Assessing Officer over and above the income declared in the returns of income filed in response to notice u/s. 153A as the expression "tax sought to be evaded" appearing in clause (c) to Sec. 271(1) is to be understood as a difference between the income declared by the assessee in the return of income and the income finally assessed. After introduction of Sec. 153A w.e.f. 1.6.2003, there is no specific penalty provision to deal with the assessments framed in consequence of search and seizure action u/s. 132 of the Act. In the present case, as the returned income and income assessed are the same, otherwise also, no penalty can be levied. We, therefore, hold that in all the appeals before us, the Assessing Officer was not justified in levying the penalty u/s. 271(1)(c ) of the Act. We, accordingly, delete the penalties levied by the Assessing Officer in all the appeals for the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, he deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income." 15. The Ld. Counsel also relied on the decision in the case of Sanjay D. Kakade (supra) in which, the decision in the case of Smt. Pramila Ashtekar and others (supra) is followed by the Tribunal. There is no independent interpretation on the applicability of Explanation 5A. We would like to make it clear that in the case of Chandan K. Shewani (supra), the searches were prior to 1-6-2007 and hence, the question of applicability of A.Y. 07-08 was never before the Tribunal. We, therefore, reject the argument of the Ld. Counsel that the issue arising in this appeal is clearly covered by the decision of Smt. Pramila Ashtekar and others (supra) to the extent of the income declared in the return filed in response to notice u/s 153A of the Act. 16. The next limb of argument of the Ld. counsel is that Explanation 5A(ii) contemplate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by the Hon'ble' Supreme Court of sec. 2(24) of the Act, it is clear that it is an 'inclusive' definition and it covers all income come under charging provisions of the Act. If the argument of the learned counsel is to be accepted then no income can be taxed u/s. 68, 69, 69A, 69B, 69C & 69D. 18. It is necessary to refer to Explanation 5A which reads as under: "Explanation 5A - Where, in the course of a search initiated under section 132 on or before the 1st day of June 2007, the assessee is found to be the owner of (i) Any money, bullion, jeweler or other valuable article or thing (hereinafter in this Explanation referred to as assets) and the assessee claims that such assets have been acquired by him by utilizing (wholly or in part) his income for any previous year; or (ii) Any other 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure is found and the assessee fails to explain the source of the said expenditure or explanation of the assessee is not satisfactory, then to the extent of the amount covered by such expenditure is treated as income. Ultimately what is taxed under Sec. 69 C of the Act is not the expenditure but it is basically the undisclosed income which has been applied for incurring the unrecorded expenditure. In our view, there is no merit in the argument of the Ld. Counsel that the assessee has only declared the amount expenditure. We therefore, hold that to the extent of the income offered by the assessee pertaining to the expenditure in the returns filed in response to notice u/s 153A, Explanation-5A is applicable and as there is a legal presumption against the assessee in respect of the said income detected during the course of search and seizure operation, the assessee case is squarely covered by Explanation- 5(ii) as the assessee himself has admitted the said undisclosed income. 21. Another limb of the argument of the Ld. Counsel is that undisclosed income is also detected and hence, the Ld. CIT(A) is justified in giving the set off of the said undisclosed income against the amount of ex ..... X X X X Extracts X X X X X X X X Extracts X X X X
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