TMI Blog2019 (3) TMI 2008X X X X Extracts X X X X X X X X Extracts X X X X ..... the statement of the assessee U/s 132(4) of the Act and subsequent surrender of the said income to tax without any incriminating material found or seized. Since the income and transaction relating to the income are already part of the books of account not only for the year under consideration but also for the preceding years and therefore, except surrender made by the assessee, the addition if any made by the Assessing officer of this income based on the statement would not have survived or sustained. In the case of Jai Steel (India)[ 2013 (6) TMI 161 - RAJASTHAN HIGH COURT] has laid down the proposition that the addition made in absence of incriminating material in the proceedings U/s 153A where the assessment was not pending on the date of search is not sustainable. Once the assessee has raised all these contentions and explained during the penalty proceedings that the transactions of purchase and sale of shares and consequential long term capital gain are genuine based on the documentary evidence and further all these were part of the books of account and disclosed in the return of income filed U/s 139 consequently the addition itself would not have survived had the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome and offered the same for taxation. In the return of income filed in response to notice U/s 153A of the Act, the assessee declared the total income of Rs.2,96,92,630/- and agricultural income of Rs. 16,74,181/- including the surrendered income of Rs. 2,81,27,840/- as admitted in the statement U/s 132(4) of the Act. The assessment was completed U/s 143(3) read with Section 153A of the Act on 22/12/2017 on the total income of Rs.2,96,92,630/- which includes the income admitted by the assessee and surrendered to tax as undisclosed income during the search and seizure action. Subsequently, the Assessing Officer initiated the penalty proceedings U/s 271(1)(c) of the Act in respect of the income surrendered by the assessee of Rs. 2,81,27,840/- and levied the penalty of Rs. 86,91,502/- vide order dated 18/5/2018. 3. The assessee challenged the order of the Assessing Officer levying the penalty U/s 271(1)(c) of the Act before the ld. CIT(A) and contended that the income surrendered by the assessee in the course of search and seizure action was already disclosed in the return of income filed U/s 139(1) of the Act, though the same was claimed as exempt U/s 10(38) of the Act, therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the assessee which makes it clear that if the Assessing Officer is satisfied that any person has concealed the particulars of income or furnishing inaccurate particulars of income or where in respect of any facts material to the computation of total income of the assessee fails to offer an explanation or the explanation is found by the Assessing Officer to be not bonafide, then the case of the assessee comes within the purview of Section 271(1)(c) of the Act. The ld CIT-DR has contended that once the assessee himself has admitted the undisclosed income then the case of the assessee is covered under the provisions of Section 271(1)(c) read with Explanation 5A of the Act. He has relied upon the order of the Assessing Officer. 5. On the other hand, the ld AR of the assessee has submitted that the revenue has not disputed the fact that the assessee has declared long term capital gain in the return of income filed U/s 139(1) of the Act on 16/10/2013, though it was claimed as exempt income U/s 10(38) of the Act. The ld AR has further submitted that the transaction of purchase and sale of shares were duly recorded in the books of account of the assessee and the Assessing Officer h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterial. The mere fact that the assessee has declared higher income in the return of income filed U/s 153A of the Act then in the original return of income, in absence of any incriminating material, it cannot be construed that the assessee has concealed his income. Once the transactions are duly recorded in the books of account and also supported by the relevant documentary evidence to prove the genuineness of the purchase ands ale of shares then merely declaring higher income would not ipso facto amounts to concealment of income or furnishing of inaccurate particulars of income attracting the penalty proceedings U/s 271(1)(c) of the Act. In the penalty proceedings, the Assessing Officer has without appreciating the documentary evidence and without controverting the documentary evidence has treated the surrendered income as concealment of income or furnishing inaccurate particulars of income. The ld AR has relied upon the following decisions: (i) Tidewater Marine International Inc V DCIT Spl. Range Dehradun 96 ITD 406 (Delhi). (ii) Deep Chand Kothari V. CIT (1988) 171 ITR 381 (Raj (iii) Commissioner of Income Tax v. Harjeev Aggarwal (2016) 290 CTR 263 (iv) Principal Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer has not doubted or disturbed the holding of the shares by the assessee and shown in the balance sheet at the end of the preceding financial year. Once the transactions are duly recorded in the books of account and also disclosed in the original return of income filed U/s 139(1) of the Act then the documents found during the search containing the details of the long term capital gain already recorded in the books of account would not amount to incriminating material disclosing any undisclosed income. Even the said details as recorded in the seized material AS-1 itself does not reveal the nature of transaction being genuine or bogus. These are only the computation of long term capital gain from sale of shares. Therefore, the documents which were found and seized during the course of search and seizure action containing details of long term capital gain would not be regarded as incriminating material disclosing any income not recorded in the books of account. Apart from the fact that these transactions were duly recorded in the books of account and also disclosed in the return of income filed U/s 139(1) of the Act, the assessee has also produced relevant documents, the details ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also the payment of purchase consideration through banking channel as revealed in the bank account statement of the assessee. All these documents are independently verifiable. The revenue has not disputed the filing of original return of income by the assessee for these years as well as for the A.Y. 2011-12. Further the Assessing officer while passing the assessment U/s 153A of the Act for the A.Y. 2011-12 has not disturbed the holding of shares shown in the balance sheet as on 31/3/2012. These transactions were also carried out through the capital account of the assessee which was also part of the record of the A.Y. 2011-12 but the Assessing Officer has accepted all these details without any adverse finding or comments while passing the assessment order U/s 153A of the Act for the A.Y. 2011-12. The assessee also produced sale bills/contract notes regarding sale of shares, copy of ledger account of the assessee in the books of share brokers in respect of sale transactions, bank statement showing the receipt of sale consideration and DEMAT accounts having the entries of credit of the shares at the time of purchase and debit of the shares from the DEMAT account at the time of sale. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded before the date of search and,- (a) where the return of income for such previous year has been furnished before the said date but such income has not been declared therein; or (b) the due date17 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.] Therefore, clause (a) and (b) clearly set out the conditions and situation under which the income declared in the return filed subsequent to the search can be deemed as concealment of particulars of income or furnishing inaccurate particulars of income. In the case in hand when the assessee already furnished return of income before the date of search and also declared long term capital gain then none of the conditions as prescribed under clause (a) (b) are satisfied so as to bring the case of the assessee in the misch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tement recorded under Section 132(4) of the Act can be used in evidence for making a block assessment only if the said statement is made in the context of other evidence or material discovered during the search. A statement of a person, which is not relatable to any incriminating document or material found during search and seizure operation cannot, by itself, trigger a block assessment. The undisclosed income of an Assessee has to be computed on the basis of evidence and material found during search. The statement recorded under Section 132(4) of the Act may also be used for making the assessment, but only to the extent it is relatable to the incriminating evidence/material unearthed or found during search. In other words, there must be a nexus between the statement recorded and the evidence/material found during search in order to for an assessment to be based on the statement recorded. 22. In CIT v. Shri Ramdas Motor Transport [1999] 238 ITR 177/102 Taxman 300, a Division Bench of Andhra Pradesh High Court, reading the provision of Section 132(4) of the Act in the context of discovering undisclosed income, explained that in cases where no unaccounted documents or incriminatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und during the search. However, in the context of Section 158BB(1) of the Act which expressly restricts the computation of undisclosed income to the evidence found during search, the statement recorded under Section 132(4) of the Act can form a basis for a block assessment only if such statement relates to any incriminating evidence of undisclosed income unearthed during search and cannot be the sole basis for making a block assessment. In the subsequent decision in the case of Principal Commissioner of Income Tax, Delhi Vs. Best Infrastructure (India) Pvt. Ltd. (supra), the Hon ble Delhi High Court has again held in para 38 as under: 38. Fifthly, statements recorded under Section 132 (4) of the Act of the Act do not by themselves constitute incriminating material as has been explained by this Court in Harjeev Aggarwal (supra). Lastly, as already pointed out hereinbefore, the facts in the present case are different from the facts in Smt. Dayawanti Gupta(supra) where the admission by the Assessees themselves on critical aspects, of failure to maintain accounts and admission that the seized documents reflected transactions of unaccounted sales and purchases, is non-existent in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court in the case of CIT v. Raj Pal Bhatia [2011] 333 ITR 315/10 taxmann.com 191/202 Taxman 140 (Mag.)wherein the Hon'ble Court held that statement could not be construed as material found during the course of search operations for the purpose of Chapter XIVB. The case law applied by the ld. CIT (A) has mis-placed the fact that in that case certain documents pertaining to share applications were found during the course of survey, whereas in assessee's case no incriminating documents were found. Therefore, case law relied upon by the ld. CIT (A) is not applicable. He further argued that ITAT Mumbai in the case of Financial Technologies (I) Ltd. v. Asstt. CIT [2015] 61 taxmann.com 406 held that Explanation-5A has been used by the legislature where any money, bullion, jewellery or other valuable article or thing found during the course of search which has not been disclosed by the assessee and additions were made on account of unaccounted money, bullion etc. In this case as such revenue has not brought on record any material to prove that unaccounted money, jewellery or incriminating documents were found. He further has drawn our attention to ITAT Jaipur Bench decision i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment order is a relevant material for the purpose of levy of penalty U/s 271(1)(c) of the Act, however, it cannot be a sole basis of levy of penalty and the Assessing Officer has to consider all the relevant material facts as well as explanation furnished by the assessee. Therefore, in the case of the assessee, the income was assessed only because the assessee surrendered the same but it would not have otherwise sustained the test of the legal requirement of the assessment of the income without any incriminating material. There are binding precedents on the issue that in the proceedings U/s 153A of the Act, the Assessing Officer cannot reassess the income in absence of any incriminating material found and seized during the course of search or post search enquiry. In the case in hand, we find that the entire basis of the additional income assessed to tax in the proceedings U/s 153A of the Act is the statement of the assessee U/s 132(4) of the Act and subsequent surrender of the said income to tax without any incriminating material found or seized. Since the income and transaction relating to the income are already part of the books of account not only for the year under conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penalty u/s 271(1)(c) cannot be held as validly imposable in the instant case: - i) During the course of search the appellant admitted the long term capital gain shown in his ITR as his undisclosed income but such undisclosed income in not based on any documents found as a result of search or evidences. During the course of search seizure operations, no incriminating material, evidence or documents whatsoever were found. ii) Such long term capital gain was already declared in the ITR filed under Section-139(1) of the Act though the same shown as exempted u/s 10(38) of the Act. iii) During the course of assessment proceedings the appellant submitted documents from acquisition to sales of documents to prove the genuineness of capital gain earned by him. The transaction was carried out in recognized stock exchange and was through proper banking channel. The documentary evidence were remained uncontroverted by the AO during the assessment proceedings as well as penalty proceedings. iv) During the course of assessment proceedings as well as penalty proceedings the appellant repeatedly submitted that the long term capital gain earned by him is genuine one and d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncriminating documents were found and seized. The assessee surrendered the additional income under section 132(4) at Rs. 15 lacs and requested not to impose penalty u/s 271(1)(c) of the IT Act. The ld. AO imposed the penalty by invoking the Explanation 5A to section 271(1)(c) of the Act, which has been confirmed by ld. CIT (A) by considering the judgment of Hon ble Supreme Court in the case of MAK Data Pvt. Ltd. (supra). But for imposing the penalty under Explanation 5A on the basis of statement recorded during the course of search, it is necessary to be found incriminating documents and is to be considered at the time of assessment framed under section 153A of the Act. The issue has been considered by various High Courts as well as by ITAT as relied upon by the assessee, which are squarely applicable to the case of the assessee. As no incriminating documents were found during the course of search, therefore, Explanation 5A to section 271(1)(c) is not applicable. Accordingly, we delete the penalty confirmed by ld. CIT (A). It is undisputed fact that, the no incriminating documents were found during the course of search to prove the concealment of income and the penalty ..... X X X X Extracts X X X X X X X X Extracts X X X X
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