TMI Blog2019 (6) TMI 659X X X X Extracts X X X X X X X X Extracts X X X X ..... xecuted/undertaken by the partner/director in his fiduciary capacity. The assessee and his son were not doing any construction business in his individual capacity rather the business of construction of residential complex and other related activities have been carried out by the companies/firms wherein the assessee and his son were partner/Director. Therefore, basis the statements of the assessee and his son, other documents/transactions found during the course of search and even as per the tax filings which have been accepted by the Revenue, we find that that it is the companies/ firms and not the assessee and his son which are found to be the owner of the undisclosed income. The fact that the assessee and his son have declared the undisclosed income in their individual return of income and have paid taxes thereon and the fact that the Revenue has also accepted the same, the same is true as far as the quantum proceedings are concerned and which has now attained finality, however, when it comes to penalty proceedings, the provisions have to be read strictly and only where the conditions specified therein are satisfied, the penalty can be held justified. In explanation 5A t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two companies, namely M/s Richwell Enterprises Pvt. Ltd., and M/s Yashraj Commercial Complex Pvt. Ltd. and also a partner in the firms, M/s Vardhaman Builders and Developers (28.00% share), M/s Sethia Real Estate (33.33% share) and M/s Manglam Vardhman Developers LLP (25.00% share). 4. The assessee originally filed his return of income u/s 139(1) on 24.07.2014 declaring income from house property, remuneration and interest from these firms and interest from bank during this year totaling to ₹ 23,74,227/-. Thereafter, the assessee filed his revised return of income u/s 139(5) on 19.03.2015 declaring total income of ₹ 3,85,78,660/- which includes undisclosed income of ₹ 3,63,07,500/- which has been accepted by the assessee in his statement u/s 132(4) recorded during the course of search. In response to notice u/s 153A of the Act issued to the assessee on 11.02.2015, the assessee again furnished his return of income on 27.03.2015 declaring total income of ₹ 3,85,78,660/- which is at the same figure as per the revised return filed earlier on 19.03.2015. The Assessment u/s 143(3) read with section 153A was completed on 24.11.2016 at assessed income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally, the AO has given his conclusive finding at para 7 of his penalty order wherein it has been stated that in view of the above cited and facts and legal position, the assessee is liable for penalty u/s 271(1)(c) of the Act on account of concealment of income and accordingly, the penalty of ₹ 1,23,40,919/- was levied u/s 271(1)(c) of the Act. 6. Being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A). As per ld. CIT(A), the prerequisite for invoking of explanation 5A to section 271(1)(c) is that the assessee should be found to be owner of any money, bullion etc. found or entry in books of accounts or other documents found from the ownership of the assessee during the course of search which represents his undisclosed income for any previous year which has ended before the date of search and where the return of income for such previous year has been furnished before the date of search but such income has not been declared therein. Therefore, the perquisite for invoking explanation 5A is that the assessee should be found to be owner of such income as narrated therein. Then coming to the contention of the assessee that since additional in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lment of particulars of income or furnishing inaccurate particulars of income and the same cannot be considered as proper satisfaction so as to levy penalty u/s 271(1)(c). In support, the reliance was placed on the Hon ble Karnataka High Court in the case of Manjunatha Cotton Ginning Factory [2013] 359 ITR 565 and Rajasthan High Court in case of Sheveta Construction Co. Pvt. Ltd., in ITA No. 534/2008 and various Co-ordinate Bench decisions. 9. It was further held by the ld. CIT(A) that the levy penalty is not automatic and since the provisions of explanation 5A have been invoked by the AO, the said deeming provisions are to be strictly construed. For invoking explanation 5A for deeming even when income being declared in the return furnished after search to be deemed to be concealment of particulars of income or furnishing inaccurate particulars, the earlier part of said explanation should also be applicable. The earlier part provides that in the course of search the assessee should be found to be owner of any money, bullion or jewellery etc. or any income based on any entry in books of accounts or other documents found during search. So long as this pre condition i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see has not challenged before AO about non-mentioning of the specific limb for levy of penalty in the show cause notice issued u/s 271(1)(c). Further, the assessee has not raised any specific grounds of appeal while filing the appeal in Form No. 35 and thereafter has taken additional ground of appeal during the appellate proceedings. The ld. CIT(A) has decided the issue without giving any opportunity of being heard to the AO which is nothing but violation of principle of natural justice. It was submitted that on this ground alone, the matter may please be set aside to the file of ld. CIT(A) with the direction to adjudicate the issue after giving a proper opportunity of being heard to the AO. 12. Further, the ld. CIT DR referred to the Third Member decision in case of HPCL Mittal Energy Ltd. vs. Addl. CIT [2018] 97 taxmann.com 3 (Amritsar-Trib) wherein at para 21, it was held as under:- 21. Apart from the above three situations in which the AO has clear-cut satisfaction, there can be another fourth situation as well. It may be when it is definitely a case of under-reporting of income by the assessee for which an addition/disallowance has been made, bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticulars of income be levied when legality of assessment proceedings itself is subjudice before the Hon ble High Court and the question to that effect has already been admitted in quantum appeal. In the present case, the assessee has not moved any appeal against the assessment order even before the ld.CIT(A) and therefore, there is no question of assessment proceedings being subjudice before the Hon ble High Court. Accordingly, the decision of the Hon ble High Court in case of Sheveta Construction doesn t support the case of assessee. 15. It is therefore a case where the satisfaction has been recorded for both the limbs of section 271(1)(c) and finally, the penalty has been levied for violation of both the limbs of section 271(1)(c) of the Act. The initiation of penalty proceedings has happened by recording of satisfaction in the assessment order and the issuance of notice u/s 274 is thus in continuation of recording of such satisfaction and has thus to be read along with the assessment order and not disjoint of the assessment order. It is not a case where the penalty has been initiated for one limb and finally levied in respect of another limb. The AO has been con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee revised its ROI within time available u/s 139, hence explanation 5A to section 271(1)(c) is not applicable, it was submitted that first of all, the question comes as to whether the assessee can revised its ROI. It was submitted that the assessee has filed its ROI u/s 139 on 27.07.2014. Thereafter, a search was conducted on 17.12.2014 during which the assessee has declared undisclosed income, on the basis of incriminating material found during the search, in his statement recorded u/s 132(4). Thereafter, a notice u/s 153A was issued to the assessee on 11.02.2015 and the assessee has filed ROI on 19.03.2015 and on 27.03.2015 declaring the total income of ₹ 3,85,78,660/- including undisclosed income of ₹ 3,63,07,500/-. It was submitted that u/s 139(5), assessee can revise return of income where he discovers any omission or any wrong statement which is not the case of the assessee. It was submitted that no cognizance could be given to the revised ROI filed on 19.03.2015 i.e. after the search and issue of notice u/s 153A of the Act. 17. Regarding the finding of the ld. CIT(A) that explanation 5A to section 271(1)(c) cannot be applied to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may kindly be restored and the order of ld CIT(A) be set-aside. 19. Now, we refer to the rebuttal and submissions of the ld AR. The ld. AR submitted that the assessee is a partner in M/s Sethia Real Estate and M/s Mangalam Vardhaman Developers LLP and Director in two companies, M/s Richwell Enterprises Pvt. Ltd. and Yashraj Commercial Complex Pvt. Ltd. These firms/companies are in the business of construction of residential complexes and other related activities and the assessee was not doing any business in his individual capacity. The assessee in his return of income has declared income from house property, remuneration and interest from these partnership firms. A search was conducted on the assessee on 17.12.2014 and statement of the assessee was recorded u/s 132(4) in which the assessee has voluntarily surrendered a sum of ₹ 9,92,49,633/- for AY 2014-15. It was further submitted that the assessee filed original return of income on 24.07.2014 before date of search and revised return of income on 19.03.2015 and return in response to notice u/s 153A on 27.03.2015. The Assessing Officer completed the assessment without making any addition in the income of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further submitted that AO has nowhere demonstrated in the entire quantum as well as penalty order that the assessee was confronted with any incriminating material found during the search and on the basis of which any undisclosed income was found and disclosed by the assessee. The assessee simply in order to buy peace disclosed the additional income in his statement made u/s 132(4) of the Act which was accepted by the AO peacefully without making any further additions. Drawing reference to the assessment order dated 24.11.2016, the ld. AR submitted that no mention in the order that the disclosure made by the assessee pertained to any seized assets or incriminating transactions and no incriminating documents found and considered at the time of assessment. Further referring to the penalty order u/s 271(1)(c), it was submitted that the AO has simply reproduced the provisions of explanation 5A and some case laws and not mention about any incriminating documents even at the time of passing the penalty order. Further reliance was placed on the Co- ordinate Bench decision in case of Radha Shyam Mittal vs. DCIt (2017) 88 taxmann.com 336 wherein it was held that penalty u/s 271(1)(c) read w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Ltd. vs. State of Orissa [1972] 83 ITR 26 (SC), Dilip N. Shroff vs. Joint Commissioner of Income-tax, Special Range, Mumbai [2007] 161 Taxmann 218 (SC), Sudarshan Silk Sarees vs. CIT (2008) 300 ITR 205 (SC), CIT vs. S.D.V. Chandru [2004] 266 ITR 175/136 Taxman 537 (Mad.), CIT vs. Suresh Chandra Mittal [2000] 241 ITR 124/[2002] 123 Taxman 1052 (MP), and CIT vs. Suraj Bhan [2007] 294 ITR 481/159 Taxman 26 (Punj. Har.) 24. It was further submitted that the order passed u/s 143(3) r/w section 153A does not specify under which limb the penalty is initiated. Nor does notice u/s 274 do so. It was submitted that for levy of penalty u/s 271(1)(c), ld. AO has to apply his mind and come to a conclusion that whether the penalty is being levied for concealment of particulars of income or for furnishing inaccurate particulars of income. It was submitted that there is heavy onus on the ld. AO initiating penalty of proving the assessee guilty of concealment of income as penalty proceedings result into undue hardship for the assessee. Thus it is inevitable that the authority levying penalty should be fully satisfied after proper application of mind that it is a f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h but within extended due date u/s 139(5) by including the unaccounted income admitted during search in his return of income, deeming fiction of expln. 5A shall not be attracted. It was accordingly submitted that the Assessing Officer has accepted the revised return filed by the assessee u/s 139(5) and 153A, no occasion arises to refer to the previous return filed u/s 139(1). For all purposes, including for the purpose of levying penalty u/s 271(1)(c), the return that has to be looked at is the one filed u/s 139(5) and sec. 153A and section 139(5) and section 153A is in the nature of a second chance given to the assessee, which incidentally gives him an opportunity to make good omission, if any, in the original return. Once the Assessing Officer accepts the revised return/return filed u/s 153A, the original return u/s 139(1) abates and becomes non est. The concealment has to be seen with reference to the return that is filed by the assessee. Thus, for the purpose of levying penalty u/s 271(1)(c), what has to be seen is whether there is any concealment in the return filed by the assessee u/s 139(5) or sec. 153A, and no vis- -vis the original return u/s 139(1). It was further submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 43(3) read with section 153A of the Act. In para 2 of the assessment order, the Assessing Officer has stated that pursuant to search and seizure operation carried out on 17.12.2014 at the various premises of Vardhaman Group, the business/residential premises (801, Western Height, S-21, Shyam Nagar, Jaipur) of the assessee was also covered and thereafter notice u/s 153A was issued to the assessee on 11.02.2015 and in response to the said notice, the assessee furnished his return of income on 27.03.2015 declaring total income of ₹ 3,85,78,660/-which includes undisclosed income of ₹ 3,63,07,500/- which has been accepted by the assessee himself during the course of his statement u/s 132(4) of the Act and therefore, penalty proceedings u/s 271(1)(c) are being initiated separately. Thereafter, towards the end of the para 6 of the assessment order, the AO has stated that a notice u/s 271(1)(c) is being issued. Therefore, we find that the penalty proceedings have been initiated qua the undisclosed income which has been admitted by the assessee during the course of search in his statement u/s 132(4) of the Act and which has subsequently been reported to tax in the return filed i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter, at para 7 of the penalty order, he has stated his final and conclusive findings that: in view of above stated facts and legal position, the assessee under consideration is clearly liable for penalty u/s 271(1)(c) on account of concealment of income and accordingly, penalty u/s 271(1)(c) is imposed on him.. We therefore find that while passing the penalty order, the AO has given a clear and specific finding that it is a case of concealment of income. As we have held above, the satisfaction which has been recorded while passing the assessment order is qua the undisclosed income admitted by the assessee during the course of search and the AO while passing the penalty order has given a clear finding that the explanation 5A to section 271(1)(c) is clearly attracted in the instant case and it s a case of deemed concealment of income by the assessee. We therefore find that there is a clear and specific finding about deemed concealment of income by the Assessing Officer while passing the penalty order. Therefore, even though the notice initiating penalty proceedings is not so specific about the specific charge, however, in the penalty order, there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot 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, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income. 32. On perusal of the explanation 5A to section 271(1)(c), it lays down the following essential conditions which needs to be satisfied before the assessee is fastened with the penalty u/s 271(1)(c) of the Act: (1) Firstly, it talks about a situation where the search has been initiated u/s 132 on or after the 1st day of June, 2007. In the present case, the search has been conducted on the assessee on 17.12.2014. Therefore, this condition is satisfied in the instant case. (2) The second condition is that in the course of search so conducted, the assessee is found to be the owner of any money, bullion, jewellery or other valuable article or thing and the assessee claims that such assets have been acquired by him by utilizing (wholly or in part) his in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch. In the said return of income, the undisclosed income of ₹ 3,63,07,500/- as per statement u/s 132(4) has not been included and reported by the assessee. In this regard, the contention of the ld AR is that the assessee had declared the undisclosed income in the revised return filed u/s 139(5) on 19.03.2015 wherein he has included the undisclosed income of ₹ 3,63,07,500/. Therefore, this condition is not satisfied in the instant case and penalty should not be levied. However, we are afraid, we cannot accede to the said contention of the ld. AR as this condition talks about furnishing of income before the date of search which is 17.12.2014 and before the said date of search, the only return which has been filed is on 24.07.2014 which has been filed u/s 139(1) wherein the assessee has disclosed the total income of ₹ 22,71,160/- and has therefore not included the undisclosed income as per the statement recorded u/s 132 (4) of the Act. At the same time, as we have stated above, this condition has to be read along with second alternate condition in the sense that the assessee has to be firstly found to be owner of the undisclosed income and he admits th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the return of income filed before the date of search, this condition can be said to be satisfied. 34. Now, coming back to the second alternate condition (Para 32(2A) supra), it need to be examined whether the same is satisfied in the instant case or not. Only in a scenario where this condition is finally held to be satisfied, the levy of penalty can be held justified by invoking explanation 5A to section 271(1)(c) as all the three conditions need to be necessarily satisfied individually as well as cumulatively. 35. The second alternate condition, as we have noted in Para 32 (2A) above, has in turn, two limbs which needs to be satisfied cumulatively. The first limb provides that whether during the course of search, the assessee is found to be owner of any income based on any entry in books of accounts or other documents or transactions. The second limb states that the assessee claims that such entry in the books of accounts or other documents or transactions represent his income wholly or in part for any previous year which has ended before the date of search. The first limb relates to findings by the Revenue during the course of search that the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t year) on the basis of a number of incriminating documents found during the course of search. It was further submitted by the ld CIT DR that the powers of the ld CIT(A) are co-terminus with that of the AO and if the AO has not stated these facts in the assessment order, he can well consider them in the appellate proceedings. 38. We, therefore, find that there is atleast an acceptance by the Revenue of the legal proposition that there has to be finding by the AO to the effect that the assessee is found to be the owner of such income for the relevant previous year and also the admission/acceptance by the assessee, and merely basis the admission in statement u/s 132(4) or subsequent acceptance thereof by the assessee by way of including the undisclosed income in the return filed after the date of search, is not sufficient to invoke the deeming provisions of explanation 5A of the Act as both the limbs needs to be satisfied cumulatively. 39. Further, such findings by the AO that the assessee is the owner of income should be based on any entry in books of accounts or other documents or transactions found during the course of search. The only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year. What the assessee therefore has stated in his statement is that the documents found during the course of search relates to the undisclosed income relating to the construction business and which has not been recorded in the books of accounts of the companies/firms. The basis of the said statement is the documents found during the course of search which has been elaborately discussed in the statement of Shri Vivek Sethia as we have noted below. 42. We now refer to the statement of Sh. Vivek Sethia recorded u/s 132(4) during the course of search. In response to Question No. 4 wherein his source of income was asked, he has submitted that his source of income is from interest, remuneration and salary from the firm/companies wherein he is a Director/partner. In response to Question No. 7, he has stated that the Vardhaman Group carried out the construction activities through various companies and firms such as M/s Sethia Real estate, M/s Richwell Enterprises Pvt. Ltd., M/s Manglam Vardhman Developers and others. In response to Question No. 12 wherein he was asked in terms of various projects being carried out by these companies and the firms, he has stated that the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... documents found and seized during the course of search, read along with the statements so recorded u/s 132(4), all these expenditure towards capital cost/purchase of land totaling ₹ 7,26,15,000 relates to various construction projects being executed by M/s Manglam Vardhaman Developers and M/s Richwell Enterprises Pvt. Ltd. and even the land purchase agreements are in the name of these companies/firms and not in the individual names. What therefore has been found by the Revenue during the course of search basis the documents so found and seized is the undisclosed expenditure which relates to the construction business being undertaken by these companies/firms and which has not been recorded in the books of accounts of the companies/firms before the date of search. Therefore, it is clear that basis the documents so found and seized during the course of search, the assessee is not found to be the owner of any undisclosed income. 45. Given that the admission and surrender has been made by the assessee in his individual capacity and not by the companies/firms, the second limb can only be said to be satisfied in the instant case. As we have stated above, the first li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Manglam Developers for AY 2014-15 has been accepted by the Revenue as carrying on the business of construction of residential complexes and other related activities and also the fact that the assessee is a partner in that firm. Similarly, the return of income of M/s Richwell Enterprises for AY 2014-15 has been accepted as carrying on the business of construction of residential complexes and other related activities and also the fact that the assessee is a Director is said company. We therefore find that the assessee and his son were not doing any construction business in his individual capacity rather the business of construction of residential complex and other related activities have been carried out by the companies/firms wherein the assessee and his son were partner/Director. Therefore, basis the statements of the assessee and his son, other documents/transactions found during the course of search and even as per the tax filings which have been accepted by the Revenue, we find that that it is the companies/ firms and not the assessee and his son which are found to be the owner of the undisclosed income. The fact that the assessee and his son have declared the undisclosed income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y money, bullion, jewellery or other valuable article or thing. Whether it can then be said that such undisclosed cash advances represents income by way of any entry in the books of account or other documents or transactions found in the course of a search under section 132. A cash advance per se represents an outflow of funds from the assessee s hand and an income per se represents an inflow of funds in the hands of the assessee. Therefore, once there is an inflow of funds by way of income, there can be subsequent outflow by way of an advance to any third party. Giving an advance and income thus connotes different meaning and connotation and thus cannot be used inter-changeably. In the definition of undisclosed income, where it talks about income by way of any entry in the books of account or other documents or transactions found in the course of a search under section 132 , what perhaps has been envisaged by the legislature is an inflow of funds in the hands of the assessee which has been found by way of any entry in the books of accounts or other documents, and which has not been recorded before the date of search in the books of accounts or other documents mai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter 1st day of June, 2007, the assessee is found to be the owner of any income based on any entry in any books of account or other documents or transactions and in section 271AAB, it talks about any income of the specified previous year represented wholly or partly by any entry in the books of accounts or other documents or transactions found during the course of search u/s 132 and therefore the reasoning applied therein applies equally in the instant case and therefore, capital expenditure and payment towards purchase of land cannot be held as undisclosed income in the hands of the assessee. 49. In light of above discussions and in the entirety of facts and circumstances of the case, we are of the considered view that the assessee cannot be fastened with the penalty so envisaged under explanation 5A to section 271(1)(c) and the order of the ld CIT(A) directing deleting of penalty is upheld for the reasons as stated above. The matter is decided in favour of the assessee and against the Revenue. ITA No. 1499/JP/2018 50. Both the parties fairly submitted that the facts and circumstances of the case are exactly identica ..... X X X X Extracts X X X X X X X X Extracts X X X X
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