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2016 (10) TMI 492 - ITAT DELHI

2016 (10) TMI 492 - ITAT DELHI - TMI - Penalty under Section 271(1)(c) - assessee made surrender immediately after search and before issuance of any notice and had declared the surrendered income in the returns of income accepted by the Assessing Officer - Held that:- The Hon’ble Supreme Court in the case of CIT Vs. Suresh Chandra Mittal (2001 (6) TMI 63 - SUPREME Court ) has been pleased to hold that once the revised returns have been regularized by Revenue the explanation of the assessee that .....

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and had declared the surrendered income in the returns of income accepted by the Assessing Officer. Besides, the CBDT has time and again vide its Circulars No. 286 of 2003 and 286 of 2013 prohibited the assessing authorities to make assessment solely on the basis of confessional statements of the assessee and to concentrate on documentary evidence. The very purpose behind it is that in case of retraction from its statements by the assessee, the case of the Revenue should not fail. We thus while .....

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all these appeals preferred by the assessee, the action of the Learned CIT(Appeals) in sustaining the penalty levied under sec. 271(1)(c) of the Income-tax Act, 1961 at ₹ 8,53,281 in assessment year 2006-07, ₹ 73,54,710 in assessment year 2007-08, ₹ 6,81,615 in assessment year 2008-09, ₹ 49,48,020 in assessment year 2009-10 and ₹ 10,56,756 in assessment year 2010-11 has been questioned. 2. Heard and considered the arguments advanced by the parties in view of orders .....

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. 153A accepting the returns of income filed for the assessment years under consideration. The Assessing Officer thereafter initiated penalty proceedings under sec. 271(1)(c) of the Income-tax Act, 1961 and levied the penalty for the assessment years under consideration. The aggrieved assessee approached the first appellate authority but could not succeed. The action of the learned CIT(Appeals) in upholding the penalty levied by the Assessing Officer for these assessment years has been questione .....

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ain lose sheets admittedly were found but the same were ignored by the AO in assessment proceedings. 2. It is submitted that on 22.02.2011 that is within four days, immediately after the completion of search, assessee filed a letter with the AO and offered a lump sum surrender of ₹ 10 Crore. The contents of this letter are reproduced in the assessment order. It is submitted that this letter was filed much before the issuance of any summon, notice, questionnaire from the investigation wing .....

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e and balance of the amount was surrendered in the hands of one of the director namely K.C.Mittal. 3. It is submitted that thereafter the AO after receiving the material from the investigating wing issued the notice of 153A on 22.02.2013. The assessee, in response to the notices of 153A, has filed its ROI along with year wise bifurcation of ₹ 10 Crore as mentioned on Page 3 of AO‟s order. The chart is reproduced hereunder for ready reference. Asst. Year Returned Income Amount Surrend .....

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n this questionnaire the AO has simply asked the assessee about the entries mentioned in seized Annexure-A-2, A-3, A-4, A-5, A-6 and A-7 and A-9. 5. It is submitted that in response to the above the assessee vide its letter dated 20.03.2013, intimated that said notings in all the diaries had been written merely for reference purpose only and has nothing to do with the actual working of the company. The assessee, however just to honour the surrender, has offered proportionate amount belonging to .....

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se of search 7. Thereafter, the AO vide notice dated 28.03.2013, initiated penalty proceedings against the assessee copies of the notices are at Page No-1-5 of the PB. Assessee filed its reply before the AO, wherein it has been contended that there is no concealment at all and the assessee does not fall under the rigors of explanation 5A of the Income Tax Act-1961. However the contentions of the assessee were discarded and penalty for all the years are levied by the AO. 8. Action of the AO has b .....

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that these types of notices are severely criticized by the various high courts and apex court in the following judgments and ultimately penalty has been quashed. Reference can be made to the following decisions. a. Ramila Ben Vs ACIT 60 TTJ 171(Ahmadabad) b. CIT Vs Mannu Engg. 122 ITR 306(Guj) c. Dillip N Sherrof reported in 291 ITR 519(SC)- Wherein these kind of notices are severely criticized by the Apex Court. d. Smt Rita Saudhrey reported in 146 taxation 59(Del) e. Manjunath Cotton Mills re .....

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conclusion that whether is it a case of concealment of income or is it a case of furnishing of inaccurate particulars. The Apex Court in the case of Ashok Pai reported in 292 ITR 11 at page 19 has held that concealment of income and furnishing inaccurate particulars of income carry different connotations. The Gujrat High Court in the case of MANU ENGINEERING reported in 122 ITR 306 and the Delhi High Court in the case of VIRGO MARKETING reported in 171 Taxmn 156, has held that levy of penalty ha .....

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by various benches of the ITAT, for example recently Calcutta bench of the ITAT in the following cases, which were also covered under explanation 5A of section 271(1)(C) of the Act, has followed the verdict of Manjunath cotton and has quashed the penalty proceedings after observing that the notice of penalty u/s 274 was not specific in as much as the AO has not struck off the irrelevant clauses of the notice. a. Thakur Prasad Sao in ITA No1534/Cal/2013 dated 23.03.2016( Copy in Decisions Paper B .....

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ion 5A of section 271(1)(C) made it clear that for invoking the same, framing of assessment u/s 153A, on the basis of incriminating material found in the course of search, is sine-qua-non particularly for those years for which no proceedings are pending on the date of search. 14. It is submitted that clause (a) of explanation 5A is not at all applicable in the present case, and as per clause (b) presence of any income based on any entry in books of accounts or other documents is a condition prec .....

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he surrender of the assessee during the course of assessment proceedings. It is submitted that recently Hon‟ble Mumbai Bench of the ITAT in the case of Sejal Exports (India) in ITA No 5724/Del/2014, under similar set of facts has held that AO is duty bound to corroborate the surrender with seized material and if this exercise has not been done then explanation 5A cannot be invoked- (See Decisions Paper Book Page-E Para-9). Further assessee seeks to rely on the following judgments a. Ajay T .....

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ender even additions were not tenable in assessment u/s 153A, as no incriminating material has been unearthed during the course of search. If that be so then penalty cannot be levied at all. 21 It is submitted that the Ld CIT(A) has failed to appreciate that search was conducted in 2011, letter offering surrender was made in 2011 itself(within four days) and assessment was framed in 2013, which means department was in possession of the alleged incriminating material for almost two years, and if .....

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levying penalty is not permissible. 22 The Ld CIT(A) has failed to appreciate that there are two Circulars of the Board namely circular number 286 of 2003 and 286 of 2013, which prohibits confessional statement and directs the authorities to concentrate on documentary evidence- Copy of the circulars is there in Decisions Paper book. Therefore additions made contrary to the directions of the board are not tenable in law. Reliance can be placed on the following judgments a. CIT Vs Best Plastics r .....

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s can only be made, on the basis of some incriminating material found in search in respect of those years, assessment of which were not pending on the date of search. A statement alone dehors any material cannot be treated as incriminating material (Delhi High Court in Rajpal Bhatia 333 ITR 315). Further a reference can be made to the following decisions a. CIT Vs Kabul Chawala reported in 380 ITR 573(Del). b. CIT Vs Kurele Paper reported in 380 ITR 571(Del). 24. It is submitted that so far as A .....

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be said that the surrender was bona-fide and the same was made as a gesture of cooperation towards department in a bona-fide manner. 26. It is next submitted that surrender was made before the commencement of post search proceeding, under a bona-fide belief that if, there would be a delay or the surrender would have been made after the issuance of questionnaire or summon from investigation wing then it would not be treated as voluntary surrender and hence it can be said that assessee has made t .....

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namely one of the 2003 and one of the 2014. See Page No- 60-62 of Decisions Paper book. This fact and position of law would also prove that the surrender was bona fide and made in order to cooperate with department. 28 It is next submitted that there are decisions of ITAT & High Courts, wherein referring to these circulars, even additions have been deleted. Therefore, it can be said that even after lapse of 2 years, from the date of surrender and filing of ROI in 2013. Assessee has obliged h .....

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se of the present assessee is concerned the facts are on better footage. Further assessee seeks to rely on the following decisions. a. CIT Vs Harkaran Das Ved pal- 336 ITR 8(Del) b. CIT Vs Shri Ramdas Motors reported in 238 ITR 177(AP) 30 It is next submitted that provisions of section 271(1)(C) are discretionary provisions as is evident from the fact that the legislature has used the expression may and the same are not automatically invoke able in each and every case. In the context reliance ca .....

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case of CIT Vs Maya Rani Reported in 92 ITR 394(Del), wherein it has been held by the Jurisdictional High Court that word may‟ used in section 271(1) means that the authorities have a discretion either to levy or not to levy a penalty. 31 It is submitted that the present is not a case of any entry provider who indulge in money laundering type activities rather a case of a reputed assessee who is filing ROI every year and declaring substantial income every year. And has obliged his promise .....

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invoked where income is surrendered and assessment has been made on such surrender. Copy of the decision is attached in PB Submissions of the assessee in respect of Ground number 8 are as under:- 32 It is submitted that provisions of section 153A are non-obstantive provisions they exclude the operation of section 139(1), meaning thereby the return filed in pursuance to a notice of 153A would replace the original return filed under section 139(1) of the Act. And concealment of income has to be se .....

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Prem Arrora, vide it‟s order dated 09-03-2010 in ITA No 4702 of 2010- Copy in decisions Paper Book b. Sejal Export ITA No 5724 of 2012 Mumbai- Copy in decisions Paper Book 23 Explanation of the assessee not proved to be false:-It is next submitted that during the course of assessment proceedings and penalty proceedings the assessee has tendered an explanation in respect of the alleged seized material. The assessee explained that the figures mentioned on these documents are rough jottings a .....

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d that, as per the decision of Reliance petrochemicals reported in 322 ITR 158(SC) inaccurate particulars have to be seen with reference to the documents annexed with the ROI. And if they are correct or there is no material on record to show that the details furnished by the assessee are not correct then penalty under section 271(1)(C) is not leviable. 25 It is submitted that accounts of the assessee are audited and no adverse remarks have been made by the auditors in this regard. Therefore, it .....

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23;ble Lucknow Bench of the tribunal in the case of Star International Vs ACIT reported in 308 ITR (AT) 33(Luk) has held that there has to be some positive material on record collected and referred to by the AO which would show that either the assessee has concealed the particulars of his income or has furnished inaccurate particulars of his income. Hon‟ble Bench further held that there has to be something for comparison to prove that what was claimed by the assessee was false or inaccurat .....

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as concealment of particulars of income and furnishing inaccurate particulars thereof on the part of the assessee towards the income surrendered to attract levy of penalty under sec. 271(1)(c) of the Act. 6. The Learned AR rejoined with the submissions that there was no incriminating material found during the course of search and assessment was already framed under sec. 143(3) of the Act well before the date of search and only in the assessment year 2010-11, the assessment was pending on the dat .....

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ourse of search. The surrender was made immediately after completion of search itself suggests that it was voluntary action on the part of the assessee. 7. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. The learned counsel for the assessee drew out attention to the show cause notice issued u/s. 274 of the Act .....

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ssment order itself. He drew our attention to a decision of the Hon'ble Karnataka High Court in the case of CIT v. Manjunatha Cotton & Ginning Factory (2013) 218 Taxman 423 (Kar.) wherein it was held that if the show cause notice u/s. 274 of the Act does not specify as to the exact charge viz., whether the charge is that the assessee has furnished inaccurate particulars of income or concealed particulars of income by striking out the irrelevant portion of pointed show cause notice, then .....

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disclosed this income is Suo Moto but for the search this income would not have been unearthed. Hence he was satisfied that the penalty under section 271 (1) (C) read with expression 5A of the income tax act has to be initiated for which notice under section 271 (1) (C) is being issued separately. Then he went on to say that :- However as discussed above, I am satisfied that the assessee is liable for facing penalty proceedings under section 271 (1) ( c) of the income tax act 1961 read with exp .....

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horized representative is that in the notice issued there is no reference about whether the show cause is for furnishing of inaccurate particulars of income or concealment of income. Therefore he submitted that when the charge made against the assessee is twin charge the notice is not a valid notice for levy of the penalty. Even if the para No. 8 of the penalty order is seen where it is mentioned as under :- 8. The provisions of section 271 (1) (C) read with explanation 5A are clearly attracted .....

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274 of the Act before imposing penalty and submitted that the said notice doe s not specify as to whether the assessee is guilty of having furnished inaccurate particulars of income or of having concealed particulars of such income . He pointed out that the pointed show cause notice does not strike out the irrelevant portion viz., furnished inaccurate particulars of income or concealed particulars of such income . He drew our attention to a decision of the Hon'ble Karnataka High Court in the .....

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le Karnataka High Court in the case of CIT & Anr. v. Manjunatha Cotton and Ginning Factory, 359 ITR 565 (Karn), has held that notice u/s. 274 of the Act should specifically state as to whether penalty is being proposed to be imposed for concealment of particulars of income or for furnishing inaccurate particulars of income. The Hon ble High court has further laid down that certain printed form where all the grounds given in section 271 are given would not satisfy the requirement of law. The .....

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nalty u/s.271(1)(c) of the Act. 63. In the light of what is stated above, what emerges is as under : (a) Penalty under section 271(1)(c) is a civil liability. (b) Mens rea is not an essential element for imposing penalty for breach of civil obligations or liabilities. (c) Willful concealment is not an essential ingredient for attracting civil liability. (d) Existence of conditions stipulated in section 271(1)(c) is a sine qua non for initiation of penalty proceedings under section 271. (e) The e .....

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ment order passed, at least, a direction to initiate proceedings under section 271(1)(c) is a sine qua non for the Assessing Officer to initiate the proceedings because of the deeming provision contained in sub-section (1B). (h) The said deeming provisions are not applicable to the orders passed by the Commissioner of Income-tax (Appeals) and the Commis sioner. (i) The imposition of penalty is not automatic. (j) The imposition of penalty even if the tax liability is admitted is not automatic. (k .....

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nd as opined by the Assessing Officer in the assessment order. (l) Only when no explanation is offered or the explanation offered is found to be false or when the assessee fails to prove that the explanation offered is not bona fide, an order imposing penalty could be passed. (m) If the explanation offered, even though not substantiated by the assessee, but is found to be bona fide and all facts relating to the same and material to the computation of his total income have been disclosed by him, .....

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cally state the grounds mentioned in section 271(1)(c), i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income (q) Sending printed form where all the grounds mentioned in section 271 are mentioned would not satisfy the requirement of law. (r) The assessee should know the grounds which he has to meet specifically. Otherwise, the principles of natural justice is offended. On the basis of such proceedings, no penalty could be imposed to the assessee. (s) .....

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e as res judicata in the penalty proceedings. It is open to the assessee to contest the said proceedings on the merits. However, the validity of the assessment or reassessment in pursuance of which penalty is levied, cannot be the subject matter of penalty proceedings. The assessment or reassessment cannot be declared as invalid in the penalty proceedings. [underline supplied by us] It is clear from the aforesaid decision that on the facts of the present case that the show cause notice u/s. 274 .....

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erefore the principles laid down by the decision of Hon ble Karnataka High Court also squarely applies to the facts of the present case even though exploration 5A of section 271(1)(C) is invoked. Similar view has been taken by other coordinate benches in following decisions:- 1) DCIT Central circle versus Shaym Sundar Dhanuka 1869 - 1870/KOL/2013 2) Smt. Champa Goel Vs ACIT ITA No 696/Chd/2012 3) Nisheeth Kumar Jain versus ACIT ITA 961 - 964/KOL/2013 4) Harishkumar Sarogi V DCIT ITA No 1222-1226 .....

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sec. 153A of the Act as under :- Sr No A Y Returned income u/s153.A Assessed income 1 2006-07 40842350 40842350 2 2007-08 84260990 84260990 3 2008-09 67659655 67659655 4 2009-10 69167459 69167459 5 2010-11 148072602 148072602 In the present case the income is offered by appellant on ad hoc basis without co-relating the amount of year wise disclosure without any corroborating evidence. The above disclosure has been accepted by Ld. assessing officer without referring to any incriminating material .....

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ticulars of income or furnishing inaccurate particulars thereof on the part of the assessee towards the surrendered income to attract penal provisions under sec. 271(1)(c) of the Act. In the present case, vide letter on 22.2.2011 i.e. immediately after the completion of search, the assessee has offered a lump sum surrender of ₹ 10 crores well before issuance of any summons, notice, questionnaire from the investigation wing of the Revenue, with this submission that the surrender was made to .....

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pinion that the view taken by the Tribunal is erroneous. The CIT(A) rightly held that 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 undisclosed in that return of income. In view of specific provision of Section 153A of the I.T. Act, the return of income filed in response to notice under Section 153(a) of the I.T. Act is to be considered as return filed under Section 139 of the Act, as the Assessing Officer has mad .....

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initiated penalty proceedings under sec. 271(1)(c) of the Act and levied penalty relying upon the Explanation-5A to section 271(1)(c) of the Act, the Learned CIT(Appeals) also upheld the penalty. The ITAT deleted the penalty with this observation as the very fact that the partner of the assessee agreed to offer a lump sum figure of ₹ 12 crores shows that there is no one to one relationship between the documents found and the income surrendered, i.e., it was a lump sum surrender to take car .....

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also after consulting the employees, admitted the same. However, there is no discussion about the quantum of salary/loan paid in cash out of which, how much was accounted and how much was unaccounted, so that one can decipher about the undisclosed income, if any, that can be gathered from those documents . The ITAT held that the Assessing Officer should make specific reference to the documents based upon which the undisclosed income was assessed by him and the validity of the order of penalty m .....

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ut concealment of income i.e. the conditions prescribed in the Explanation 5A has not been satisfied. Similar view as expressed by the ITAT in the case of Sejal Exports (India) (supra), discussed in the above paragraph, has been expressed by Delhi Bench of the ITAT in the case of Pawan Kumar Gupta vs. ACIT (supra). The ITAT in that case has held that concealment of income has to be seen with reference to addition brought to tax over and above the income returned by the assessee in response to th .....

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fficer has noted that the assessee had made only a lump sum surrender of ₹ 10 crores and no bifurcation whatsoever based on seized documents or on the basis of financial years was submitted by the assessee. Regarding Annexures A-2, A-3, A-4, A-5, A-6, A-7 and A-9 which were diaries seized during the course of search contained certain payments made by the assessee company spreading out in different financial years starting from financial year 2006-07 to 2010-11, the assessee explained that .....

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also. The Assessing Officer has thereafter recorded that the above contention made by the assessee has been considered and found to be acceptable since the assessee has honoured the surrender made during the course of search. The Assessing Officer has justified the levy of penalty under Section 271(1)(c) of the Act on the basis that the assessee had not disclosed the income suo motu but for the search, this income would not have been unearthed. It is thus evident from the assessment order itself .....

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