TMI Blog2020 (9) TMI 144X X X X Extracts X X X X X X X X Extracts X X X X ..... st order of the CIT(A)-3, Indore dated 23.04.2019 pertaining to the assessment year 2012-13. Since the issues are common both appeals are taken up together and are being disposed by way of consolidated order. 2. First we take up the assessee s appeal in ITANo.700/Ind/2019. The assessee has raised following grounds of appeal: 1. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in maintaining the levy of penalty under section 271AAA of the Act without properly appreciating the facts of the case and submissions made before him even when the additional income was declared in the statement as recorded under section 132(4) of the Act and tax due on the additional income was also paid by the appellant. ₹ 6,25,000/- 2. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in maintaining the levy of penalty under section 271AAA of the Act even when the show cause notice as issued for levy of penalty was defective wherein no specific charge was framed against the appellant and therefore penalty imposed on the basis of such defective notice is not maintainable in law. 3. The appellant reserves h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f ₹ 5,00,00,000/- during the course of search in his statement recorded under section 132(4) of the Income-Tax Act, 1961. However, it later on came to the notice of the appellant on perusal of the seized material that most of the assets were properly accounted for and henceforth, the appellant along with his brother, Shri Pankaj Kalani duly offered additional income to the tune of ₹ 1,25,00,000/- for tax in their income-tax returns for the Assessment Year 2012-13 and paid legitimate amount of tax due on such additional income. A.4] The income-tax return of the appellant for the Assessment Year 2012-13 was thereafter filed on 30-09-2012 wherein total income was declared at ₹ 69,56,681/- including additional income of ₹ 62,50,000/- as accepted during the course of search. A.5] The assessing officer however initiated penalty proceedings under section 271AAA of the Income-Tax Act, 1961 in respect of such additional income of ₹ 62,50,000/- and subsequently levied penalty of ₹ 6,25,000/- being 10% of such income of ₹ 62,50,000/- stating that the appellant could not substantiate the manner in which the undisclosed income was derived. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not maintainable in law. 3] The appellant reserves his right to add, alter and modify the grounds of appeal as taken by him. 1] GROUND NO. 2 CHALLENGING THE LEVY OF PENALTY OF ₹ 6,25,000/- UNDER SECTION 271AAA OF THE INCOME-TAX ACT, 1961 SINCE THE SHOW CAUSE NOTICE ISSUED PRIOR TO THE LEVY OF PENALTY WAS DEFECTIVE WHEREIN NO SPECIFIC CHARGE WAS FRAMED 1.1] The appellant in this ground of appeal has challenged the levy of penalty of ₹ 6,25,000/- under section 271AAA of the Income-Tax Act, 1961 since the show cause notice issued prior to the levy of penalty was defective wherein no specific charge was framed against the appellant. 1.2.1] The provision of sub-section (4) of section 271AAA of the Income-Tax Act, 1961 provides that provisions of section 274 and 275 shall apply in relation to penalty referred to in this section which implies that the assessing officer is bound to issue a notice under section 274 of the Income-Tax Act, 1961 and provide a reasonable opportunity of being heard to the assessee before passing any order imposing penalty. 1.2.2] The opportunity of being heard that ought to be given to the assessee should be a meaningful on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AAA(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 on this score also. [Emphasis Supplied] 1.4.2] The aforesaid issue is also covered in favour of the appellant by the recent judgments of the Hon ble ITAT, Indore Bench wherein it has been categorically held that the show cause notice which is not in accordance with the mandates of law a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We, therefore respectfully following the judgment/decision referred above and in the given facts and circumstances of the case wherein the matter written in the body of the notice issued u/s 274 of the Act does not refer to the charges of provision of Section 271AAB of the Act makes the alleged notice defective and invalid and thus deserves to be quashed. Since the penalty proceedings itself has been quashed the impugned penalty of ₹ 2,04,900/- stands deleted. We accordingly allow the legal ground raised by the assessee challenging the validity of notice issued u/s 274 r.w.s. 271AAB of the Act and quash the penalty proceeding as void ab intio. In the result appeals of the assessee(s) for Assessment Years 2014-15 is allowed on legal ground. [Emphasis Supplied] 1.4.4] The Hon ble ITAT Chennai Bench A in the case of DCIT Vs. Shri R. Elangovan [ITA No. 1199/CHNY/2017] has categorically held that: 5 ..It is clear from the Sub Section (3) of Section 271 AAB that Sections 274 and Section 275 of the Act shall, so far as may be, apply. Sub Section (1) of Section 274 of the Act mandates that order imposing penalty has to be imposed only after hearing the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of CIT vs. Manjunatha Cotton and Ginning Factory (2013) 359 ITR 565. 4. In our view, since the matter is covered by judgment of the Division Bench of this Court, we are of the opinion, no substantial question of law arises in this appeal for determination by this Court. The appeal is accordingly dismissed . In the earlier case of Manjunatha Cotton and Ginning Factory (supra) their lordship had observed as under:- Notice under section 274 of the Act should specifically state the grounds mentioned in section 271(1)(c) , i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income. Sending printed form where all the grounds mentioned in section 271 are mentioned would not satisfy the requirement of law; The assessee should know the grounds which he has to meet specifically. Otherwise, the principles of natural justice are offended. On the basis of such proceedings, no penalty could be imposed on the assessee;) taking up of penalty proceedings on one limb and finding the assessee guilty of another limb is bad in law; penalty proceedings are distinct from the assessment proceedings: though proceedings for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning Factory [2013] 359 ITR 565/218 Taxman 423/35 taxmann.com 250 (Kar.). 4. In our view, since the matter is covered by judgment of the Division Bench of this Court, we are of the opinion, no substantial question of law arises in this appeal for determination by this Court. The appeal is accordingly dismissed. [Emphasis Supplied] 1.4.6] The Hon ble Madhya Pradesh High Court in the case of Pr CIT Vs Kulwant Singh Bhatia [ITA No. 9 to 14 of 2018] held that no penalty under section 271(1)(c) of the Act is leviable when there is no specific charge mentioned in the show cause notice [refer Para 11 of the decision]: 11. On due consideration of the arguments of the learned counsel for the appellant, so also considering the fact that the ground mentioned in show-cause notice would not satisfy the requirement of law, as notice was not specific, we are of the view that the learned Tribunal has rightly relying on the decision of CIT V/s. Manjunatha Cotton Ginning Factory (supra) and CIT V/s. SSA'S Emerald Meadows(supra) rightly allowed the appeal of the assessee and set aside the order of penalty imposed by the authorities. No substantial question of law is ari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... additional income was duly incorporated in the income-tax return of the appellant for the Assessment Year 2012-13 and legitimate amount of tax due on such additional income was duly paid. 2.3] It has been held in various judicial precedents that the assessee is entitled for the immunity provided in section 271AAA of the Income-Tax Act, 1961 in cases where additional income is declared in the statement recorded under section 132(4) of the Income-Tax Act, 1961 and the amount of tax due on such additional income is also paid by the assessee. Relevant extracts from few of the judicial precedents that have enunciated the above principle are reproduced hereunder for your ready reference: 2.4.1] The Hon ble ITAT Chandigarh Bench A in the case of ACIT, Central Circle, Patiala v. Munish Kumar Goyal as reported in [2014] 45 taxmann.com 563 (Chandigarh - Trib.) has held that: 10. Plain reading of sub-section would show that if the assessee during the course of search in a statement admits to some undisclosed income and pay taxes on the same then penalty cannot be levied in terms of sub-sec (1) of this Section. In the case before us, the amount of ₹ 4 crore which w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see when he filed the returns in pursuance to notice u/s. 153A accounting the assets. Therefore, the case laws cited at the Bar clearly indicate that the penalty is not automatic if one of the purported condition is not fulfilled although all the conditions have been agreed to of having fulfilled by the Assessing Officer insofar as the tax and interest has been recovered. Penalty has been levied after the tax has been recovered therefore answers the queries raised by the learned DR for that the said provisions become redundant was not the intention of the legislation. The manner, during the search operation, is noted by the search party which the Assessing Officer has acceded to. Therefore, following the decisions as relied upon by the learned Counsel for the assessee, wherein the Tribunal was pleased to consider cancelling the penalty so levied are also applicable to the assessees' cases before us insofar as there is no prescribed method to indicate the manner in which income was generated when the definition of undisclosed income has been defined in the Act itself when no income of the specified previous year represented either wholly or partly which onus lay upon the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e findings or presumptions of furnishing of inaccurate particulars, provides that in respect of unaccounted income in the cases where search initiated after 1st June 2007, the assessee is to pay a penalty @ 10% of unaccounted income. Sub section 2 of Section 271 AAA, however, relaxes the rigour of this penalty provision in a situation in which (i) in the course of the search, in a statement under section 132(4), 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. While payment of taxes, along with interest, by the assessee is one of the conditions precedent for availing the immunity under section 271AAA(2), there is no time limit set out for such payments by the assessee. Once a time limit for payment of tax and interest has not been set out by the statute, it cannot indeed be open to the Assessing Officer to read such a time limit into the scheme of the Section or to infer one. There is thus no legally sustainable basis for the stand of the Assessing Officer that in a situa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terfere in the matter. [Emphasis Supplied] 2.6.2] The Hon ble Gujarat High Court in the case of CIT v. Mahendra C. Shah as reported in [2008] 172 Taxman 58 (Gujarat) has categorically held that: 12. The contentions raised on behalf of the revenue are not required to be accepted for the simple reason that in the first instance, there is no prescription as to the point of time when the tax has to be paid qua the amount of income declared in the statement made under section 132(4) of the Act. The Tribunal was justified in holding that there would be sufficient compliance of the provision if tax is shown to have been paid before the assessment was completed. The reasoning which has weighed with the Tribunal is that the search proceedings were conducted on 3-7-1987 when the statement under section 132(4) of the Act was made. The last date for payment of advance tax qua the last instalment of advance tax was 15-12-1987 in such a case, according to the Tribunal, and in the event, the assessee did not pay tax qua the income declared in the statement made under section 132(4) of the Act, the assessee became liable to pay interest in accordance with the relevant provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h in the return of income to be furnished before the time specified in section 139(1) of the Act as required by the earlier part of Exception No. 2. In fact, at the cost of repetition, it is required to be stated that the legislative intent and the scheme that flows from a plain reading of the provision makes it clear that in relation to search and seizure proceedings, for becoming entitled to immunity from levy of penalty the basic requirement is in case of Exception No. 1 relevant entry in the books of account or disclosure before the competent authority, and in relation to Exception No. 2 disclosure in the statement made under section 132(4) of the Act. Disclosure or otherwise in the return of income post the date of search would not absolve an assessee from the deeming provision, namely, 'deemed concealment' once an assessee is found in possession of a valuable asset at the time of search. Hence, the contention raised on behalf of the revenue that penalty is leviable under the main provision for concealment vis-a-vis the return of income does not merit acceptance. 15. Insofar as the alleged failure on the part of the assessee to specify in the statement under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x due on the amount of additional income was also paid in due course of time. The appellant was therefore eligible to claim immunity against the penal provisions of section 271AAA of the Income-Tax Act, 1961 and henceforth, penalty of ₹ 6,25,000/- as levied by the assessing officer is neither legal nor proper and deserves to be deleted in entirety. 3.1] It is worth mentioning that levy of penalty under section 271AAA of the Income-Tax Act, 1961 is not justifiable where the amount of additional income is declared in the statement recorded under section 132(4) of the Income-Tax Act, 1961 and tax due on such additional income is paid and more so when no question is asked during the course of recording of statement under section 132(4) of the Income-Tax Act, 1961 in respect of manner of earning such additional income. 3.2.1] The appellant in his statement as recorded under section 132(4) of the Income-Tax Act, 1961 during the course of search agreed to surrender an amount of ₹ 5 crores merely on the basis of suggestion of the authorized officer without examining the details and loose papers as found and seized from the residential and business premises. 3.2.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jarat High Court in the case of Pr. CIT v. Mukeshbhai Ramanlal Prajapati as reported in [2017] 398 ITR 170 (Gujarat) has categorically held that: 10. It can thus be seen that this court in the case of Mahendra C. Shah and the Allahabad High Court in the case of Radha Kishan Goel (supra) have put considerable stress on the recording of the statement under section 132(4) of the Act in the context of the requirement of the assessee to disclose the manner in which the undisclosed income was derived in order to avoid penalty. The High Court in the case of Mahendra C. Shah, in particular, observed that considering the social environment, it is not possible to expect from an assessee to be specific and to the point regarding the conditions stipulated by exception No. 2 while making statement under section 132(4) of the Act. The court went on to observe that if the income is declared and tax is paid thereon, there would be substantial compliance. 11. It is this principle which the Commissioner of Income-tax (Appeals) and the Tribunal have applied in the present case. As noted, the Commissioner of Income-tax (Appeals) was specific that no question was put to the assessee while re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d even in the context of sub-section (2) of section 271AAA of the Act. It is only when the officer of the raiding party recording the statement of the assessee under section 132(4) of the Act elicits a response from the assessee's this requirement, the assessee's responsibility to substantiate the manner of deriving such income would commence. When the base requirement itself fails, the question of denying the benefit of no penalty would not arise. [Emphasis Supplied] 3.4.2] The Hon ble Delhi High Court in the case of Pr. CIT v. Emirates Technologies (P.) Ltd. as reported in [2017] 399 ITR 189 (Delhi) has held that: 3.The Commissioner of Income-tax (Appeals) in para 4.7 of the order dated November 4, 2013 noted that no specific query had been put to the assessee by drawing his attention to section 271AAA of the Act asking him to specify the manner in which the undisclosed income, surrendered during the course of search, had been derived. The Commissioner of Income-tax (Appeals), therefore, relying on the decisions of this court held that the jurisdictional requirement of section 271AAA was not met. 4.The above view has been concurred with by the In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of the Revenue requires to be summarily dismissed on this ground alone. Notwithstanding, we further note that the assessee has replied to the query raised while recording the statement as called for. The revenue does not appear to have quizzed the assessee for satisfying the manner in which the purported undisclosed income has been derived. The income considered as an undisclosed income in the statement under s.132(4) has been duly incorporated in the return filed pursuant to search. Therefore, the revenue in our view now cannot plead deficiency on the part of the assessee to specify the manner which has not been called into question at the time of search. We simultaneously note that nowhere in the assessment order or in the penalty order, the revenue has made out a case that the manner of earning undisclosed income was enquired into post search stage either. The revenue has not pointed out any query which remained unreplied or evaded in the course of search or post search investigation. Therefore looking from any angle, it is difficult to hold in favour of the revenue. Accordingly, we decline to interfere in the order of the CIT (A). [Emphasis Supplied] 3.4.5] The Hon ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Income-Tax Act, 1961 is neither legal nor proper and deserves to be deleted in entirety. 5. Ld. Departmental Representative (DR) opposed the submissions and submitted that the assessee has not raised any objection before the authorities below. He further contended that merely a defective notice should not be the reason of quashing the penalty proceedings when the assessee himself has participated into the proceedings. In support of Ld. DR relied upon the judgment of Hon'ble Madras High Court rendered in the case of Sundaram Finance Ltd. vs. ACIT. 6. In rejoinder Ld. counsel for the assessee placed reliance on the judgment of the Karnataka High Court in the case of CIT vs. Manjunatha Cotton Ginning Factory (2013) 35 taxmann.com 250/218 Taxman 423/359 ITR 565 and also the judgment of Hon'ble Supreme Court in the case of CIT vs. SSA s Emerald Meadows (2016) 73 taxmann.com 248(SC). We find that the assessing officer imposed penalty by observing as under: 7. The assessee has disclosed the additional income only as a result of search and seizure operation and the assessee could not substantiate the manner in which the undisclosed income has been derived. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dditional income was declared in the statement as recorded under section 132(4) of the Act and tax due on the additional income was also paid by the appellant. ₹ 6,25,000/- 2. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in maintaining the levy of penalty under section 271AAA of the Act even when the show cause notice as issued for levy of penalty was defective wherein no specific charge was framed against the appellant and therefore penalty imposed on the basis of such defective notice is not maintainable in law. 3. The appellant reserves his right to add, alter and modify the grounds of appeal as taken by him. 10. The facts are identical as were in ITANo.700/Ind/2019. The parties have adopted same arguments. We have decided the ITANo.700/Ind/2019 by observing as under: 7. The above finding of the assessing officer cannot be sustained in view of the binding precedence coupled with the facts that the notice initiating penalty u/s 271AAA is not in accordance with law. Moreover, the Assessing Officer has not confronted the assessee to substantiate the manner in which the additional income was earned in the absence of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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