TMI Blog2007 (12) TMI 505X X X X Extracts X X X X X X X X Extracts X X X X ..... etails 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 s. 132 was conducted in the premises of Prakash Tea Agencies group of cases on 6th Jan, 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 s. 153A was issued on 6th April, 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 asst. yr. 2000-01 such receipts were shown to have been received b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be levied. To summarize, the main arguments are that the gifts are genuine and only with a view to buy peace with the Department. the same were offered to tax. In the absence of a guilty mind or an intention to conceal, penalty cannot be levied. 6. The AO considered the above explanation. According to the AO, 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 R an attempt to evade the payment of tax by arranging such gifts. The learned AO 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 s. 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 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 06,000 3,83,000 S. Sanjay 12,34,000 17,46,000 2,94,000 32,74,000 V.N. Manjunath 11,54,000 17,06,000 2,94,000 31,54,000 S. Ravindra 11,54,000 18,44,000 2,94,000 32,92,000 S. Lalitha 13,01,000 18,04,000 2,94,000 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e into the books without payment of tax. The purpose of creating these alleged gifts cannot be for any other purpose but to avoid tax. 7. From the above consequences of events, the learned AO concluded that gifts have been proved to be non-genuine and the assessee was not in a position to establish 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 AO imposed penalty under s. 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 assessees have any independent business or any another independent sources of income. (c) When there is technical or venial breach of provisions of the Act, then the authority is justified i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith assessee filing revised return showing higher income after search to purchase peace and avoid litigation, (Tribunal correctly held that burden of proving concealment not discharged) and that no penalty under s. 271(1)(c) could be levied in a case where income returned in revised returns is accepted even though revised returns were filed after search and subsequent to inquiries. These cases are applicable to the assessee insofar as the issue of penalty imposed for gifts surrendered by the assessees are concerned. The gifts were already disclosed 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 particul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative drew our attention to the statement of Shri V.N. Sridhar recorded on 22nd Jan., 2004. In answer to question No. 3, Shri V.N. Sridhar has admitted that gifts were bogus. The bogus gifts were used to covert unaccounted money which were generated in the course of undisclosed business. He further stated that he is not aware of the bank from which DDs were purchased for gifts. It was admitted by him that cash was handed over to Shri Shivaram Bhat and commission at the rate of 7 per cent was paid to arrange gifts. Statement of Shri D. Shivaram Bhat, chartered accountant was also recorded. The learned Departmental Representative drew our attention to answer No. 7 from the statement of Shri Shivaram Bhat. Vide this answer 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. Tirupal to Shri V.N. Sridhar and both of them had discussion in my office and such gifts were arranged. The learned Departmental Representative thereafter drew our attention to joint statement recorded on 22nd Jan., 2004. The joint statement has been signed by the following persons : (1) J.D. Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is the return which would have been filed originally under the normal provisions. (d) This is further strengthened by the fact that the assessment proceedings abate. The assessments do not mean merely the scrutiny proceedings. The assessment proceedings commence with the filing of return of income and all the proceedings from the filing of return of income abate and hence the old proceedings including the return of income do not survive. When once the original return does not survive, it is not available for comparison for the calculation of penalty under s. 271(1)(c) of IT Act 1961. 15. In the counter reply the learned Departmental Representative submitted that the assessee cannot raise technical objections as the same were not raised before CIT(A). The assessee cannot question the assessment proceedings during the course of penalty proceedings. The learned Departmental Representative stated that s. 153A deals with assessment/reassessment in cases where search under s. 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 Departmental Representative stated that all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 97 ITR 232 (Kar), (2001) 171 CTR (Kar) 256 : (2002) 253 ITR 145 (Kar) (supra), 5. CIT vs. Modern Stores Ors. in ITRC A No. 246/1998 dt. 14th Feb., 2005 and TRC 523/1998 dt. 5th Sept., 2005. 6. Bhurmal Mallaji vs. ITO dt. 29th Nov., 2001 in ITA No. 935/Bang/1995. 19. We have heard both the parties. It is true that s. 153A starts with non obstante clause. It says notwithstanding anything contained in s. 139, s. 147, s. 148, s. 149, s. 151 and s. 153 in the case of a person where search is initiated under s. 132, the AO will issue a notice for furnishing the return of income. Hence, irrespective of the fact that return of income has been filed the AO is required to proceed under s. 153A in the case of a person where search is initiated. Sec. 147 deals with the assessment or reassessment of escaped income. In case assessment/reassessment proceedings are pending under s. 147 in respect of a person in whose case search has been initiated then, the AO will have to proceed to assess/reassess income under s. 153A and proceedings under s. 147 will abate. Sec. 148 deals with the issue of notice where income has escaped assessment. Hence, in a case where search has been initiated, n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... return to be filed in response to notice under s. 153A is to be in the prescribed form. It was stated that no form was prescribed for filing return in response to notice under s. 153A. Hence, on this ground, the Authorised Representative has challenged the validity of the assessment. As per s. 153A(a), the assessee is required to file the return of income in respect of each assessment year falling within this assessment year in the prescribed form and verified in the prescribed manner. It is nowhere mentioned that the form will be prescribed under s. 153A of the IT Act. It is mentioned that provisions of the Act will apply as if such return was required to be furnished under s. 139. It is not disputed that the return form has been prescribed under s. 139. Hence, return under s. 153A was required to be filed in the prescribed form as prescribed for return to be filed under s. 139. Hence, on this ground, we are not inclined to accept the argument of the learned Authorised Representative 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 6th Jan., 2004. Search ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sridhar. Hence, there cannot be any dispute that statement dt. 27th Feb., 2004 of Shri V.N. Sridhar is under s. 132(4) of the IT Act. Before proceeding further, it will be useful to reproduce the statement of Shri V.N. Sridhar. Q. 3. During the course of search proceeding today certain FDRs and other investments like NSc have been found which have been inventorised as 5/PTA-2/on 27th Feb., 2004. Please let me know the source of these investments standing in the name of various persons ? Ans. I have gone through the list of receipts and I have to state that all these have been reflected in my returns filed by me and my family members in whose name these investment are standing. Q. 4 During the course of search proceeding and subsequent enquiries you had mentioned that the undisclosed income of yourself, your business 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 dt. 26th Feb., 2004 which was submitted before you and in the said letter we have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1/4th share) Q.5 From the above it can be seen that the income of various family members which were not disclosed to the Department were brought in the form 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 dt. 26th Feb., 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es due and request you to kindly consider the letter submitted dt. 26th Feb., 2004. 24. From the above statement, it is clear that the assessee was found to be the owner of assets, valuables articles or thing and in the statement recorded under s. 132(4), surrender was made and it was made clear that such assets or valuable article or things have been acquired out of the gifts received and now surrendered. We are reproducing here the out-flow of amounts received by way of gifts in the case of Shri V.N. Sridhar, HUF and Shri V.N. Sridhar (Indl.) 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 Bank Chpet 4,22,000 dt. 7th April, 2000, Prakash Tea Agency dt. 10-2-2001 10,00,000 2002-03 15,50,000 Prakash Tea Agency, dt. 18-12-2001 5,00,000 2003-04 4,41,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 271(1)(c) is applicable. Before proceeding further, it will be useful to reproduce Expln. 5 to s. 271(1)(c). Explanation 5 :'Where in the course of a search under s. 132, the assessee is found to be the owner of any money, bullion, jewellery or other valuable article or thing (hereafter in this Explanation referred to as assets) and the assessee claims that such assets have been acquired by him utilizing (wholly or in part) his income' (a) for any previous year which has ended before the date of the 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 after the date of the search, he shall, for the purposes of imposition of a penalty under cl. (c) of sub-s. (1) of this section, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income (unless,' (1) such income is, or the transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 2 premises on 6th Feb., 2004. Search at one premises was concluded on the same date. Search at 2nd premises was temporarily concluded on 6th Feb., 2004. It was not difficult for the Revenue to have completed the search at 2nd premises within next day. The search on 2nd premises was concluded on 27th Feb., 2004. During search which has been shown to have been concluded on 27th Feb., 2004, only inventory of cash seized and inventory of other valuable found were prepared. Such action could have been done on 6th Feb., 2004 or 7th Feb., 2004. As per Panchnama dt. 27th Feb., 2004, the inventories prepared are as under : Pay order with details seized ₹ 78,24,000 Details of various FDRs, TDRs, NSC inventorised and the total of such valuable is ₹ 52,24,477 28. Before concluding search on 27th Feb., 2004, declaration dt. 26th Feb., 2004 was obtained in this group. Surrender of undisclosed income was made vide statement dt. 27th Feb., 2004, recorded under s. 132(4) of the IT Act. The surrounding circumstances do reveal that search at 2nd premises was prolonged to get declaration under s. 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee and his family members on 10th March, 1992. During the course of search, the statements of the assessee under s. 132(4) of the Act were recorded. In the statement under s. 132(4) of the Act, the assessee admitted amongst other things, unexplained income from money lending business by promissory notes which was a joint venture of himself and his son, estimated at ₹ 8,00,000. It was stated that 50 per cent belonged to his son. His statement was also endorsed by his son. Penalty was imposed on the assessee and his son. The assessee claimed immunity under Expln. 5 to s. 271(1)(c). The AO held that since money invested in money lending business was not actually seized during the course of search operation and was to be found from the incriminating documents during the course of search and seizure, it could not form part of the disclosure under s. 132(4) and hence could not be considered for immunity from levy of penalty for concealment of particulars of income in terms of Expln. 5 to s. 271(1)(c). The CIT(A) deleted the penalty and this was upheld by the Tribunal. On appeal to the High Court : Held, dismissing the appeal, that no penalty was leivable in view o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tinued the search proceedings till such declaration was filed. After getting such declaration, the Revenue has recorded the statement under s. 132(4) of the IT Act. While concluding the search, the Revenue has seized not only pay orders and DDs but also FDRs. It appears that there was implied understanding i.e., if the assessee discloses his unaccounted income then penalty proceedings will not be taken against him. There is total surrender of more than ₹ 7 crores in this group of cases. The Revenue has not initiated penalty proceedings in the case of M/s Prakash Tea Agencies, where cash of more than ₹ 3 crores was found. 34. The learned Allahabad High Court in the case of CIT vs. Radha Kishan Goel (2006) 200 CTR (All) 300: (2005) 278 ITR 454(All) has held that penalty is not imposable if assessee admits that assets were acquired with undisclosed income. Non-disclosure of manner in which undisclosed income was derived is relevant. 35. The learned Rajasthan High Court in the case of Gebilal Kanhaialal (HUF) vs. Asstt. CIT (2004) 190 CTR (Raj) 233: (2004) 270 ITR 523(Raj) held that Expln. 5 to s. 271(1)(c) is applicable in case the amount found during the search is s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the manner in which income was derived. We had already pointed out that joint declaration was filed vide which it was accepted that individual members were having their own independent sources of income. 40. We will now discuss the case laws relied on by the learned Departmental Representative. 1. CIT vs. K.P. Sampath Reddy (supra) In this case, the learned jurisdictional High Court upheld the penalty on the ground that the basis of the assessment was not the assessee's letter but the inference is drawn from the independent investigation of the circumstances. The learned High Court held that it was not possible to infer any agreement by the Revenue either in clear terms or by necessary implication that assessment was based on the basis of the assessee's letter. However, in the present cases, the assessment is based on the admission given by Shri V.N. Sridhar to the fact that gifts have been arranged. The assessment order does not refer to any independent investigation carried out by the Revenue. It refers to the fact that during the course of search, it was established that such gifts are not genuine and the assessee agreed to offer such gifts for taxes. Therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penalty was cancelled was that though, there was nothing on record to suggest that any assurance was extended to the assessee, yet fact suggested that the inducement was given to the assessee. The learned High Court held that the finding of the Tribunal that the assurance like the one alleged by the assessee must have been extended to them, even in the absence of material in the record to support the same was unsustainable being purely conjectural. Before the learned High Court an argument was advanced that seizure made in the course of search proceedings showed concealment for the accounting period during which the search was conducted, yet said seizure did not disclose anything incriminating against the assessee for the previous periods. Revised returns filed for the previous periods voluntarily. Such submissions were not accepted by the learned High Court. Mere filing of the revised return was not enough. The background and circumstances in which such returns are filed held the key to the answer whether such returns are bona fide. In cases before the High Court, it was observed that revised returns were filed to pre-empt any action on the part of the Department for reopening of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court held that the Tribunal was not justified in coming to the conclusion that merely because Department had agreed not to levy penalty under s. 271(1)(c) it would prevent the AO to levy penalty under s. 271(1)(c) for concealment of income. Thus, in the instant case, enquiries were made and during the course of enquiries, the assessee surrendered the same. The assessee was not able to offer any explanation, as the plea taken was that it agreed to the addition on the condition that no penalty will be levied. There cannot be any estoppel against statute. The facts in the instant case are distinguishable and the decision is not applicable. 41. From the above discussion, it is clear that if assessee surrenders the undisclosed income and such undisclosed income is found to be invested in valuables or article or thing and the assessee in a statement under s. 132(4) surrenders such amount and files the return and pays the taxes then penalty is not leviable. One of the requirement is such undisclosed income is found to be recorded in the books of account. In the instant case, the unexplained gifts have been considered as income. Such unexplained gifts have been found to be recorde ..... X X X X Extracts X X X X X X X X Extracts X X X X
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