TMI Blog2019 (9) TMI 1235X X X X Extracts X X X X X X X X Extracts X X X X ..... re not attracted to the assessee as the return of income was already filed prior to search and put on record. The application of amended provisions of Explanation 5A of Section 271(1)(c) of the Act which came into force by an amendment subsequent to search albeit with retrospective effect thus cannot be applied when seen with reference to cause of action i.e. date of search. It is to be borne in mind that Explanation 5A appended to s.271(1)(c) of the Act is a legal fiction for deeming concealment against the assessee in search cases. Both original return under u/s 139 of the Act as well as revised return under s.153C of the Act had been filed before the amended provisions were brought into force. Hence, we are of the view that shelter of substituted provisions of Explanation 5A to Section 271(1)(c) of the Act could not be taken to the instant case for fastening concealment penalty. The assessee having filed the return under s.139 of the Act prior to search as well as return under s.153C of the Act prior to substituted Explanation coming into force, would be governed by pre amended Explanation 5A and thus would escape the clutches of penalty under s.271(1)(c) of the Act due to no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of penalty under s.271(1)(c) of the Act. The facts being broadly common, all the appeals were heard together and are being disposed of by the common order. 3. We shall first take up assessee s appeal in IT(SS)A Nos. 551 552/Ahd/2012 283/Ahd/2014 concerning AYs. 2005-06, 2006-07 2007-08 respectively arising out of a common order of the CIT(A) for appreciating the facts in perspective. 4. The assessee has challenged imposition of penalty of ₹ 25,20,000/- each for assessment years i.e. 2005-06 2006-07 and ₹ 27,72,000/- for AY 2007-08. Briefly stated, the assessee is engaged in the business of manufacturing, maintenance and repairing of electrical transformers. A search action under s.132 of the Act was carried out in the Amod Group of cases including the Director of the assessee company (Shri Harshad Mehta) on 11.02.2009. Simultaneously, survey proceedings under s.133A of the Act were also carried out at the business premises of the assessee company. Consequent upon search, the Director of the assessee admitted certain excess stock of goods pertaining to the assessee company and same was offered to tax in equal proportion of exac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concealing the particulars of income in respect of additional income disclosed in the return filed in response to notice under s.153C of the Act. It was thus submitted that while the initial satisfaction in the course of the assessment was formed towards furnishing of inaccurate particulars of income qua the original return filed under s.139 of the Act, the CIT(A) however has confirmed the penalty for a different offence namely concealment of particulars of income . The learned counsel for the assessee thus pointed out that while the person issuing direction to impose penalty was satisfied about the offence towards furnishing of inaccurate particulars of income , the CIT(A), in first appeal, has totally changed the complexion of the offence and confirmed the penalty for a different offence i.e. concealment of particulars of income . The learned counsel submitted that law in this regard is well settled and referred to the decision of the co-ordinate bench of Tribunal in Shri Kantibhai Naranbhai Prajapati vs. ITO ITA No. 2880/Ahd/2014 order dated 15/02/2018 which specifically dwells upon such fact situation. The learned counsel thus contended that the penalty so imposed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot shown to resonate with the actual physical stock either. No excess physical quantity was found at the time of search as pointed out at the first instance before the AO as can be seen from para 4 of the penalty order dated 28.06.2011 concerning AY 2005-06. Thus, a hypothetical estimation and equal distribution thereof as additional income offered in the return filed under s.153C of the Act to buy peace and to ward off litigation (bereft of such physical stock) ought not to have attracted penalty under s.271(1)(c) of the Act. The learned counsel accordingly submitted in conclusion that imposition of penalty under s. 271(1)(c) of the Act is thus without sanction of law and therefore penalty so imposed by different penalty orders appealed against, are required to be struck down and the penalties imposed for various assessment years requires to be cancelled. 8. The learned DR, on the other hand, relied upon the order of the lower authorities and submitted in furtherance that specific incriminating documents showing notings towards excess stock was found from the residential premises of the Director and as a sequel thereto, the assessee company has offered the additio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o-ordinate bench in Kantibhai Naranbhai Prajapati vs. ITO ITA No. 2880/Ahd/2014 order dated 15.02.2018 which squarely dwells upon the aforesaid objection of the assessee: 8. We straight away find that the AO vide penalty order dated 25/11/2013 under s.271(1)(c) of the Act imposed penalty on additions made alleging concealment of particulars of income . However, the CIT(A), on the other hand, has confirmed the penalty on the ground of furnishing inaccurate particulars of income . Apparently, the basis and foundation for imposition of penalty has been altered by the CIT(A). It is thus ostensible that findings recorded by the CIT(A) show that penalty has been confirmed on a different premise and the original satisfaction for imposition of penalty has been altered or modified by the appellate authority. In such circumstances, where the original basis of imposition of penalty has been altered in a significant way by the first appellate authority, the very basis for sustaining the penalty is rendered nonexistent. Needless to say, the imposition of penalty is solely dependent upon the satisfaction of the AO [unless initiated by CIT(A)] and nonelse. The ground for ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t seized documents do not belong to the searched person. The distinction between expression belongs to and relates to or refers to must be borne in mind by AO. It was observed by the Hon ble Court that AO should not confuse the expression belongs to with expression relates to or refers to . The Hon'ble Court went on to explain the purport of the expression by giving illustration of a registered sale deed which essentially implied something more than a casual connection. In the wake of the aforesaid judgment, merely because a document/loose paper was found in the possession of a searched person showing reference to certain entries relatable to a third person, the said documents/loose paper by itself would not tantamount to be belonging to the third person. Similar view has been expressed in the case of Renu Constructions Pvt. Ltd. (Delhi) 399 ITR 262 (Del.) and Kamleshbhai Dharamshibhai Patel 263 CTR 362 (Guj). The co-ordinate bench Tribunal in Shailesh S Patel vs. ITO (2018) 97 taxmann.com 570 (Ahmedabad Trib.) has also reiterated the aforesaid pre-requisite for formation of satisfaction for the purposes of Section 153C of the Act. No averment is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of assessee company herein. The CIT(A) has invoked Explanation 5A to Section 271(1)(c) of the Act and confirmed the imposition of penalty. The AO levied penalty for the respective assessment years in appeal under s. 271(1)(c) of the Act on the ground that the assessee has concealed particulars of income or furnished inaccurate particulars of income which is evidenced from the fact that the assessee did not offer true and correct income in the regular returns already filed for the respective assessment years in question prior to search. In this background, we notice that pre-amended and erstwhile Explanation 5A as it stood at the time of search applied only to non-file assessees who were searched under s.132 of the Act at the relevant time of search. To put it differently, Explanation 5A was strangely not applicable to those assessee who had already filed their returns under s.139 of the Act prior to search howsoever may be the extent of wrong doing or concealment. To bring home this point, it may be relevant to reproduce pre-amended Explanation 5A, as inserted by the Finance Act, 2007, w.e.f. 1.6.2002 which read as under: Explanation 5A.-Where in the course of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of income for such previous year furnished before the said date but such income has declared therein, or (b) the due date for filing the return of income for such previous year has expired but the assessee has not 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. 9.7 Thus, as can be observed, the application of pre-amended Explanation was limited to non-filer assessee whereas this anomaly was corrected in substituted Explanation. To elaborate, while the original Explanation 5A introduced by the Finance Act, 2007 w.e.f. 01.06.2007 held the persons guilty of concealment where the return was not filed only, the substituted Explanation 5A roped in with retrospective effect from 01.06.2007 by Finance (No.2) Act, 2009 attempted to cover both filers of return of income as well as non-filers for the purposes of penalty on undisclo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1)(c) of the Act alleging incorrect set off earlier losses amounting to ₹ 3,02,530/- and as well as sales outside books amounting to ₹ 11,63,394/-. In this regard, we firstly notice that penalty has been imposed as a consequence of order passed under s.153C r.w.s. 153A of the Act. Similar to AYs. 2005-06, 2006-07 2007-08, we observe that the AO has recorded mixed satisfaction towards furnishing of inaccurate particulars of income leading to concealment while framing assessment. The AO however has imposed penalty under s. 271(1)(c) of the Act alleging inaccurate particulars of income furnished. The CIT(A), in first appeal, has confirmed the penalty on both grounds; namely concealment of particulars of income as well as furnishing inaccurate particulars of income. Thus, the satisfaction recorded in the assessment order has undergone substantial change which is not in sync with judicial precedents recorded on the point. This apart, the penalty is not sustainable also for the fact that it could not be successfully demonstrated that satisfaction as mandated under s.153C of the Act was properly recorded. Thirdly, the documents seized from the searched person were req ..... X X X X Extracts X X X X X X X X Extracts X X X X
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