TMI Blog2017 (8) TMI 1468X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings u/s 271AAA(1) of the Act, however, the wording written in the body of the letter does not conform to the charges of the provisions of section 271AAA of the Act, rather, the assessee has been show caused on the charge of furnishing of inaccurate particulars of income, which falls under the scope and purview of section 271(1)(c) of the Act. The assessee, therefore, is not show caused for levy of penalty under the provisions of section 271AAA, rather for doing an act inviting penalty u/s 271(1)(c) of the Act, which otherwise is neither arising out of the facts of the case nor established against the assessee. Thus, the penalty proceedings conducted against the assessee u/s 271AAA of the Act were invalid at its very inception because of the defective and invalid show cause notice, rendering the entire penalty proceedings void ab initio. The penalty levied against the assessee is thus not sustainable - Decided in favour of assessee - IT Appeal No. 168 (Chd.) of 2017 - - - Dated:- 28-8-2017 - Sanjay Garg And Ms. Annapurna Gupta, JJ. Parikshit Aggarwal for the Appellant. Smt. C. Chandrakanta for the Respondent. ORDER Sanjay Garg, Judicial Member ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the assessee had failed to substantiate the manner in which the undisclosed income has been derived with documentary evidences. Further, that the books of account of the assessee were not complete at the time of search. That mere passing of entries in the books of account was not sufficient to explain the source of undisclosed income. The assessee was required to explain all deposits, withdrawals along with documentary evidences. He, therefore, levied the penalty @ 10% of the undisclosed income at ₹ 2,07,50,000/-. 3. Being aggrieved by the above order of the Assessing officer, the assessee preferred appeal before the CIT (A) and reiterated its aforesaid submissions. Apart from that, the assessee raised a legal ground regarding the limitation period prescribed for levy of penalty and contended that the penalty order was time barred. The Ld. Counsel also raised another legal plea that the very initiation of the penalty otherwise was bad in law because the notice issued u/s 274 of the Act was defective. The Ld. Counsel for the assessee also submitted that no question requiring the assessee to disclose the manner and substantiate such manner in which undisclosed income had b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e rival contentions and have also gone through the records. The first contention raised by the counsel for the assessee is that during the course of search action, the assessee was not put a specific question by the search party regarding the source and manner of earning of surrendered income and also for substantiating the manner in which the undisclosed income was derived. The next contention of the Ld. counsel for the assessee is that the surrendered amount has been offered for taxation under the head income from business and profession and the same has been accepted by the Assessing officer. Hence, the source and manner of earning of income stood explained and there was no further requirement to substantiate the said manner because of the fact of acceptance of the returned income by the Assessing officer without any objection in this regard. The Ld. Counsel for the assessee has also relied upon the below mentioned decisions in support of the above contention: (i) ITAT Chandigarh Bench - DCIT v. Sanjeev Goyal [IT Appeal No. 109 (Chd.) of 2015, dated 18-11-2015] (ii) ITAT Chandigarh Bench - ACIT v. Om Parkash Sahni [IT Appeal No. 178 (Chd.) of 2016, dated 13-6-2016] Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duce herein the provisions of section 271AAA of the Act. '271AAA. Penalty where search has been initiated.- (1) The Assessing Officer may, notwithstanding anything contained in any other provisions of this Act, direct that, in a case where search has been initiated under section 132 on or after the 1st day of June, 2007, the assessee shall pay by way of penalty, in addition to tax, if any, payable by him, a sum computed at the rate of ten per cent of the undisclosed income of the specified previous year. (2) Nothing contained in sub-section (1) shall apply if the assessee,- (i) in the course of the search, in a statement under sub-section (4) of section 132, admits the undisclosed income and specifies the manner in which such income has been derived; (ii) substantiates the manner in which the undisclosed income was derived; and (iii) pays the tax, together with interest, if any, in respect of the undisclosed income. (3) No penalty under the provisions of clause (c) of sub-section (1) of section 271 shall be imposed upon the assessee in respect of the undisclosed income referred to in sub-section (1). (4) The provisions of sections 274 and 275 shall, so f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the course of search u/s 132 of the Act and further the said income has not been recorded in the books of account on or before the date of search and neither the same has been disclosed to the concerned authorities before the date of search. Hence in our view, the surrendered income falls within the definition of undisclosed income as explained under the provisions of section 271AAA of the Act. The surrendered income pertains to the year in which the search was conducted, hence, it can be safely said to be income of the 'Specified previous year' as provided under section 271AA, so prima facie, conditions for the levy of the penalty seems to be satisfied. Thus the contention of the assessee that the surrendered income was not the undisclosed income of the asssesee is not tenable, hence rejected. 10. Now coming to the exceptions providing immunity from levy of penalty as provided under the provisions of sub-section (2) of section 271AAA of the Act, the three conditions prescribed are: (i) the assessee in his statement recorded under sub-section (4) of section 132 should admit the unclosed income and specify the manner in which such income has been derived; (ii) substant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ackside of page 38 shows payment of ₹ 4,16,92,500/- Pages 34-35 Seller Harchand Singh S/o Navrang Singh. The backside of page 35 shows cash payment of ₹ 3,92,495/-. The power of attorney has been obtained in the name of my employee Sukhjit Singh for the above two lands. Pages 26-28 Seller Satnam, Jaswinder and Harmidner. The backside of page 26 shows cash payment of ₹ 3.0 crores. The total cash payment made by the company in these three deals i.e. ₹ 7.20,84,995/-. These payments have been made in cash outside the regular books of account of the company. Since I cannot explain the source of these payments, I hereby surrender these amount to tax u/s 132(4) of the I.T. Act, 1961 subject to no penal action, as the income of the company of the financial year 2011-12 (COGOBPL) over and above its normal business income of the said financial year. Q.3 I am showing you a diary named Annexure A-2, at the following pages 16, 17, 17-B (backside) 18 and 19. Please explain these. Ans. Sir, there are entries of advances given to the following persons; Dalbir Singh 2 Crore Paramjit 2.5 C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without any pressure, fear or coercion, subject to no penal action whatsoever. The assessee later on filed a letter dated 03.09.2011 to the Investigation Wing declaring the surrendered income. Relevant part of the said surrender letter is reproduced below; On 02.09.2011 a search was conducted at my residence and business premises by various teams of the Income Tax Department, During the course of search certain documents have been found by the search team at my residence as well as my business premises. In order to buy peace of mind and to avoid undue litigation/penal action I hereby voluntarily declare an amount of ₹ 2100 Crore (Rupees Twenty One Crores Only) as the undisclosed business income of M/s Gillco Developers Builders Pvt. Ltd., M/s Gilico Colonizers Pvt. Ltd the companies and Ranjit Singh Gill for the financial year 2011-12 over and above the normal business income of the company/salary and interest income for the said financial year. The detail of this income derived is as follows: In the case of Gillco Developers and Builders Pvt Ltd. Advances to Sh. Dalbir Singh ₹ 2,00,00,000 Advances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seized/impounded records and inventories made and statement recorded during the course of search. He has further stated that surrendered amount was duly reflected in the return of income and the Assessing Officer has accepted the said surrendered income as the 'Business Income' of the assessee. He therefore has contended that the source of the manner of deriving the undisclosed income stood explained. 12. On the other hand Ld. DR has invited our attention to the answers of the assessee to questions Nos. 2 3 wherein following has been stated ....Since I cannot explain the source of these payments, I hereby surrender these amount to tax.... The Ld. DR, therefore, has submitted that assessee himself had stated that he could not explain the source of those payments, therefore, the assessee is not covered by the immunity provided in clauses (i) and (ii) of sub-section (2) of section 271AAA of the Act. We have keenly gone through the above statement and the surrender letter. We find that no specific question has been asked by the search party during the course of search action as to what was the source and manner of deriving such undisclosed income. We find that the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee has made the disclosure u/s 132(4) of the Act during the course of search operation, and as observed above, the assessee has also specified the manner of earning as its business activity and further since the said contention has been accepted which may be found substantiated by the Assessing officer from the seized documents and that is why he has accepted the same as business income of the assessee. Moreover, the search party has also not doubted or pointed out any discrepancy or defect in the above statement of the assessee offering the undisclosed/surrendered income as business income of the assessee. It is neither the case of the search party nor that of the Assessing officer that undisclosed income is not out of the undisclosed business income of the assessee. Under these circumstances, in our view, the first two conditions as prescribed in clause (i) and clause (ii) of section 271AAA of the act stood complied with. Our above view finds support from the decisions of the Tribunal in the case of Munish Kumar Goyal (supra), Sunil Kumar Bansal (supra), Om Parkash Sahni (supra). 14. Even otherwise, no question by the search party was put to the assessee regarding the manner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 271(1)(c), now by a deeming provision attract penalty provisions. But an exception is provided in clause (2) of Explanation 5 where the deeming provision will not apply if during the course of search the assessee makes the statement under sub-section (4) of section 132 that the money, bullion, jewellery etc. found in his possession has been acquired out of his income which has not been disclosed so far in his return of income and also specifies 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....under section 132(4) of the Act, unless the authorized officer puts a specific question with regard to the manner in which income has been derived, it is not expected from the person to make a statement in this regard and in case, in the statement the manner in which income has been derived, has not been stated but has been stated subsequently, it amounts to compliance with Explanation 5(2). If there is nothing to the contrary in the statement recorded under section 132(4) of the Act, in the absence of any specific statement about the manner in which such income, has been derived, it can be infe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med the penalty on account of non-compliance of provisions of clauses (i) and (ii) to sub-section (2) to section 271AAA of the Act. Rather he has confirmed the penalty on different issues of non-payment of entire taxes and interest thereupon i.e. non-compliance of the contention laid down in clause (iii) of sub-section (2) of section 271AAA of the Act. The relevant part of the order of the CIT (A) for ready reference is reproduced as under: In the penalty order it has been stated by the AO that the assessee during the course of assessment proceedings as well as penalty proceedings failed to substantiate the manner in which the undisclosed income has been derived. It was further stated that the onus was on the assessee to prove and specify the manner in which had derived the additional undisclosed income and the submission had to be corroborated with documentary evidence. In the appellate proceedings, the appellant in his submissions has submitted that it is evident from the statements of the appellant recorded at the time of search and also the surrender letter of the appellant that no question requiring the appellant to substantiate the manner in which the undisclosed incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... condition specified in sec. 271AAA(2)(iii) with respect to payment of taxes, together with interest, in respect of the undisclosed income for the year under consideration so as to get immunity from penalty as ₹ 2,08,00,000/- was paid after the date of penalty order by the appellant. The appellant while seeking immunity from penalty cannot be given unlimited time for payment of taxes along with interest because the same will not in the spirit of law. In the context of penalty under section 271AAA, it has been held in the case of DCIT v. Pioneer Marbles Interiors (P.) Ltd. (2012) 68 DTK 1 (Kol. 'A') / 144 TTJ 663 (Kolkata 'A') while dealing with a case of penalty u/s 271AAA and the conditions precedent thereto, that no time limit is set out for payment of taxes along with interest by the assessee for availing of the immunity u/s 271AAA(2) and, therefore, once the entire tax and interest has been duly paid well within the time limit as per the notice of demand u/s 156 and well before the conclusion of the impugned penalty proceedings, the assessees cannot be denied immunity u/s 271AAA(2) and the penalty u/s 271AAA rightly cancelled. In view of the abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also a fact that the date of filing of the said letter along with post dated cheques is 29.7.2015 whereas the impugned penalty order has been passed on 28.9.2015 i.e after the tendering of post dated cheques. The Assessing officer has not levied the penalty on account of non-compliance of the conditions of clause (iii) of section 271AAA(2) of the Act, rather, for non-compliance of the provisions of clause (i) and clause (ii) of section 271AAA(2) of the Act, which means that the Assessing officer had accepted the request of the assessee to deposit the tax through instalments considering the bona fide request of the assessee which was accompanied with post-dated cheqeus. The Ld. counsel in this respect has invited our attention to the decision of the Hon'ble Supreme Court in the case of Asstt. CIT v. Gebilal Kanhailal HUF [2012] 348 ITR 561/210 Taxman 244/25 taxmann.com 214 wherein the Hon'ble Supreme Court while discussing the provisions of Explanation 5 of section 271(1)(c) of the Act has observed that under clause 2 of Explanation 5, three conditions have got to be satisfied by the assessee for claiming immunity from the payment of penalty. The first condition was that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht of the observations of the Hon'ble Supreme Court in the case of Gebilal Kanhialal HUF (supra), in our view, the third condition of payment of taxes as per provisions of section 271AAA(2)(iii) of the Act stood complied with. The assessee succeeds on this issue also. 19. Now coming to the legal issues raised by the assessee, the Ld. Counsel for the assessee has contended that even the notice served upon the assessee u/s 274 of the Act is also invalid. We have gone through the show cause notice issued to the assessee. The Ld. Counsel for the assessee has invited our attention to the letter / notice issued u/s 274 read with section 271AAA of the Act dated 13.1.2014, which for the sake of reference is extracted as under:- NOTICE U/S 274 READ WITH SECTION 271AAA OF THE INCOME TAX ACT, 1961 Office of the Dy. Commissioner of Income Tax, Central Circle -III, Aayakar Bhawan, Sector 17-E, Chandigarh Dated 13.01.2014 To M/s Gilco Developers and Builders Pvt Ltd., SCF 23024, Gilco Valley Morinda Ropar Road, Ropar, Punjab 140001 Whereas in the course of proceedings before me for the assessment year 2012-13, it appears to me that you have not recorded t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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