Tax Management India. Com
                        Law and Practice: A Digital eBook ...

Category of Documents

TMI - Tax Management India. Com
Case Laws Acts Notifications Circulars Classification Forms Manuals SMS News Articles
Highlights
D. Forum
What's New

Share:      

        Home        
 

TMI Blog

Home List
← Previous Next →

2019 (6) TMI 659

cost/purchase of land - validity of Documents found and seized during the course of search - owner of the undisclosed income - HELD THAT:- 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. In the instant case, the first limb is not satisfied, therefore, the penalty cannot be levied as the requirement is satisfaction of both the limbs individually and cumulatively. Admittedly, the assessee is a partner in M/s Manglam Vardhman Developers and also a Director in M/s Richwell Enterprises Pvt. Ltd. However, by merely becoming a partner in a firm or a director in the company, the transactions undertaken by the firm/companies will remain the transactions of the firm/companies even though the same have been executed/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. Theref .....

X X X X X X X

Full Text of the Document

X X X X X X X

f both the parties, the case of Sh. Kamal Sethia is taken as the lead case for the purposes of present discussion wherein the Revenue has taken the following sole ground of appeal as under:- whether on the facts and in the circumstances of the case and in law ld. CIT(A) is justified in deleting the penalty u/s 271(1)(c) of ₹ 1,23,40,919/- imposed by the AO. 3. Briefly stated, the facts of the case are that a search & seizure action u/s 132(1) of the Act was carried out on 17.12.2014 at the various premises of Vardhaman Group and the assessee, being one of the members of this group was also covered by search operations. The assessee is a director in 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 .....

X X X X X X X

Full Text of the Document

X X X X X X X

osition 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 with the amount of concealed income being ₹ 3,63,07,550/-. Further, the Assessing Officer relied on the Hon ble Supreme Court decision in case of Prasanna Dugar vs. CIT [2016] 70 taxmann.com 175 (SC), Hon ble Punjab and Haryana decision in case of Commissioner of Income-tax (Central), Ludhiana vs. Bansal Abushan Bhandar [2014] 42 taxmann.com 9 (Punjab & Haryana) and Chennai Tribunal in case of ACIT, Central Circle 11(5) vs. Smt. J. Mythili. Finally, 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 fo .....

X X X X X X X

Full Text of the Document

X X X X X X X

ther held by the ld CIT(A) that voluntary action of appellant in declaring additional income once in the revised return and again in response to notice u/s 153A de hors the evidence found as a result of search cannot be branded as concealment of income so as to levy penalty and it would have been a different result had the income offered is pursuant to evidences found as a result of search. 8. It was further held by the ld. CIT(A) that the AO has simply observed in the assessment order Notice u/s 271(1)(c) is being issued . There is no finding as to whether it is for concealment 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 .....

X X X X X X X

Full Text of the Document

X X X X X X X

) is not applicable. 11. In the above factual matrix, we now refer to the contentions advanced by both the parties. Firstly, we refer to the contentions advanced by the ld CIT DR. During the course of hearing, the ld. CIT DR submitted that first of all, ground challenging the legality of order u/s 271(1)(c) of Act was admitted by the ld. CIT(A) by way of an additional ground without giving an opportunity to the Assessing Officer. It was submitted that the assessee 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 referr .....

X X X X X X X

Full Text of the Document

X X X X X X X

y the ld. CIT(A), it was submitted that in case of Dinesh Kumar Vijay vs. ITO in ITA No. 58/JP/2016, the Jaipur Tribunal has distinguished the said decision and has held as under:- 14 In case of Sheveta Construction (supra), the substantial question of law for consideration before the Hon ble Rajasthan High Court was whether penalty for alleged concealment of income or furnishing inaccurate particulars 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 happen .....

X X X X X X X

Full Text of the Document

X X X X X X X

₹ 20.10 crore include disclosure of undisclosed income of ₹ 9.92 cr. each by Sh. Vivek Sethia and Sh. Kamal Sethia and our reference was drawn to Question No. 19,21,26,27,28,37 and 39 of the statement recorded of Sh. Vivek Sethia u/s 132(4) of the Act. 16. Regarding the finding of the ld. CIT(A) that the 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 .....

X X X X X X X

Full Text of the Document

X X X X X X X

Hon ble High Court has been dismissed by the Hon ble Supreme Court in Prasanna Dugar vs. CIT [2016] 70 taxmann.com 175 (SC). It was accordingly submitted that the case of the assessee is clearly covered under explanation 5A to section 271(1)(c) and thus, the order of AO 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 ori .....

X X X X X X X

Full Text of the Document

X X X X X X X

doing any business in his individual capacity. Therefore, the penalty has been imposed on the assessee only on the basis of statements of the assessee recorded during the course of search. It was 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 .....

X X X X X X X

Full Text of the Document

X X X X X X X

euticals [2011] 335 ITR 259/199 Taxmann. 255/11 taxmann.com 207 (Delhi), Reliance Petro Products P. Ltd 322 ITR 158 (SC), Hindustan Steel 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 inevi .....

X X X X X X X

Full Text of the Document

X X X X X X X

te as specified u/s 139(1) and accordingly, even if assessee files return of income after date of search 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 as .....

X X X X X X X

Full Text of the Document

X X X X X X X

ard, we refer to the assessment order passed u/s 143(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 subse .....

X X X X X X X

Full Text of the Document

X X X X X X X

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 a clear finding in terms of charge of deemed co .....

X X X X X X X

Full Text of the Document

X X X X X X X

rposes 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 income for any previous year which has ended before the date of search. In the instant case, there is nothing on record which demonstrates that any money, bullion, jewellery or other valuable article or thing has been found during the course of s .....

X X X X X X X

Full Text of the Document

X X X X X X X

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 the same and only in a scenario where the same is satisfied, the question of declaring such undisclosed income in the return of income will arise for consideration. Where it is ultimately determined that the assessee is found to be owner of the undisclosed income, the fact that such undisclosed income has not been .....

X X X X X X X

Full Text of the Document

X X X X X X X

lty 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 assessee is the owner of the income for the relevant previous year and the second limb talks about the claim and the admission by the assessee that such income represents his income for the said previous year. Therefore, there has to be finding by the Revenue that the assessee is the owner of such income for the relevant previous year and acceptance/admission by the assessee tha .....

X X X X X X X

Full Text of the Document

X X X X X X X

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 finding that we have noted in the penalty order is that the assessee has declared undisclosed income during the course of search in his statement u/s 132(4) and the same has been accepted and offered to tax subsequently in the return of income so filed in response to notice u/s 153A of the Act. Admittedly and undisputedly, there is, however, no finding in the penalty order to the effect that the assessee is found to be the owner of income based on .....

X X X X X X X

Full Text of the Document

X X X X X X X

tement 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 project Silver Crown has been carried out by M/s Sethia Real estate, project Imperial Heights and project Horizon by M/s Richwell Enterprises and project Arcadia Greens by M/s Manglam Vardhaman Developers. The statement of Shri Vivek Sethia thus corroborates the statement of the assessee, as we have noted above, that the construction business was undertaken by the companies/firms and not by the assessee and his son in their individual capacity. 43. Now coming to the specific disclosure made b .....

X X X X X X X

Full Text of the Document

X X X X X X X

ed 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 limb relates to findings by the Revenue during the course of search that the assessee is the owner of the income for the relevant previous year and the second limb talks about the claim and the admission by the assessee that such income represents his income for the said previous year. Therefore, there has to be finding by the Revenue that the assessee is the owner of such income for the relevant previous year and acceptance/admission by the assessee that such income represent his income wholly or in part for any previous year ended before the date of search. In th .....

X X X X X X X

Full Text of the Document

X X X X X X X

ty 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. 47. Looking at the matter from another perspective, as we have noted above, basis the documents found and seized during the course of search, read along with the statements so recorded u/s .....

X X X X X X X

Full Text of the Document

X X X X X X X

nd 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 maintained by the assessee in the normal course and not vice-versa. We are also conscious of the fact that there are deeming provisions in terms of section 69 and 69B wherein such amounts may be deemed as income in absence of satisfactory explanation. In our view, the deeming fiction so envisaged under Section 69 and Section 69B cannot be extended and applied automatically in context of section 271AAB. It is a well-settled legal proposition that the deeming provisions are limited for the purposes that have been brought on the statute book and have therefore to be applied in the context of provisions wherein they have been brought on the statue book and not othe .....

X X X X X X X

Full Text of the Document

X X X X X X X

 

 

← Previous Next →

 

 

|| Home || About us || Feedback || Contact us || Disclaimer || Terms of Use || Privacy Policy || Database || Members || Refer Us ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.
|| Blog || Site Map - Recent || Site Map ||