Income Tax Appellate Tribunal - Ahmedabad
Radhakrishna& Co, Surat vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "A"
Before SHRI BHAVNESH S AINI,JM & SHRI A N P AHUJ A, AM
ITA no.962/Ahd/2009
(Assessment Year:-2005-06)
Asst. Commissioner of V/s M/s Radhakrishna & Co.,
Income-tax, Central Circle- 4019, Jash Textile Market,
2, Surat Ring Road, Surat
PAN: AABTR 0308 R
[Appellant] [Respondent]
Revenue by :- Shri S K Meena, DR
Assessee by:- Shri S Kabra, AR
O R D E R
A N Pahuja: This appeal by Revenue against an order dated 09-01- 2009 of the ld. CIT(Appeals)-II, Ahmedabad, for the Assessment Year 2005-06, raises the following grounds:-
[1] The CIT(A) has erred in law and on facts in deleting the penalty levied by the AO u/s 271(1)(c) of the IT Act when the assessee failed to comply with the provisions of Explanation 5 to section 271(1)(c) of the IT Act.
[2] The CIT(A) has erred in law and on facts in deleting the penalty when the decision of the Hon'ble High Court of Punjab & Haryana reported in 287 ITR 376 is squarely applicable in the case of the assessee.
[3] On the facts and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the AO. [4] It is, therefore, prayed that the order of the CIT(A) be set aside and that of the AO be restored to the above extent.
2. Facts, in brief, as per relevant orders are that a search under section 132 of the Income-tax Act, 1961 [hereinafter referred to as the "Act"] was conducted in the case of the assessee on 24-08-2005. Consequently, a notice u/s 153A of the Act was issued on 08-10- 2007. In response, the assessee filed return declaring income of Rs.10,00,000/- on 07-12-2007. To a query by the Assessing Officer ['AO' in short] during the course of assessment proceedings, the assessee explained that the said income was earned out of business of purchase and sale of land properties and the assessee did not 2 ITA no.962/Ahd/2009 maintain any books of account. Accordingly, assessment was completed on the income of Rs.10,00,000/-.Inter alia, penalty proceedings u/s 271(1)(c) of the Act were initiated.
3. Subsequently, in response to a show cause notice before levy of penalty u/s 271(1)(c) of the Act, the assessee replied that no addition was made nor any concealment was found during the course of assessment proceedings and declared amount was assessed as its income. Since the disclosure was made to buy peace and the assessee co-operated with the Department, it was pleaded that no penalty should be levied. Inter alia, the assessee pleaded that declaration of income was made in terms of exception provided in explanation to 5 to section 271(1)(c) of the Act and therefore no penalty could be levied. However, the AO did not accept the submissions of the assessee on the ground that the immunity under explanation 5 to sec. 271(1)(c) of the Act was not available to the assessee. Accordingly, penalty of Rs.3,53,430/- @ 100% of the tax sought to be evaded, was levied on the aforesaid income of Rs.10,00,000/- for furnishing inaccurate particulars of income..
4 On appeal, the learned CIT(A) cancelled the penalty in the following terms:-
"3. The appellant submitted that during the course of search no cash, bullion, jewellery or any other valuable articles were found pertaining to the year. The cash of Rs.33.16 lacs found was covered under the disclosure of Rs.2 crores pertaining to A.Y.2006-07. The Explanation 5 to Section 271(1)(c) is applicable only and only if some asset is found in the form of cash, bullion, jewellery or any other valuable article or thing and the assessee claims that such asset has been acquired out of income not disclosed so far.
The appellant further submitted that it was very clear from the assessment order that nothing was found and the income was returned in accordance with the statement recorded u/s. 132(4) to buy peace of mind. The appellant relied on the following judicial pronouncements;
1 Shyam Biri Works. P. Ltd. vs. ACIT 70 TTJ 880 (All) 2 South India Finance vs. ITO 42 TTJ 347 (Cochin) 3 Bhagwandas Narayandas vs. CIT 98 ITR 194 (Guj.) 3 ITA no.962/Ahd/2009 4 ACIT vs. Rasila S.Mehta 82 ITD 27 (Mum.)
4. I have Considered the facts and the submissions. I agree with the appellant's view. In the case, of ACIT vs. Rasila S. Mehta 82 ITD 27 the Hon'ble ITAT, Mumbai Bench held that "in view of statement u/s. 132(4) admitting undisclosed income the assessee are to be deemed to have concealed particulars of their income or furnished inaccurate particulars of income discovered during the search in view of Expln. 5 to section 271(1)(c) because as on the date of search, the time limit under section 139(1) of filing the return of income for the relevant year had already expired and returns were not filed. However, Expln. 5 could not be applied to the entire income as assessed by the A.O. but only to such income which could be ascribed to any money, bullion, jewellery or any other valuable article or thing of which the assesses were found to be the owners during the course of search proceedings."
Following this decision of ITAT, Mumbai Bench and also ratio of judgment in the cases of Shyam Biri Works P. Ltd. vs. ACIT 70 TTJ 880 (All), South India Finance vs. ITO 42 TTJ 347 (Cochin) & Bhagwandas Narayandas vs. CIT 98 ITR 194 (Guj.) and the fact that no assets were found during the search relating to this assessment year, it is held that the penalty is not leviable and the appellant is allowed relief."
5. The Revenue is now in appeal before us against the aforesaid findings of the learned CIT(A). The learned DR relied upon the order of the AO while the learned AR on behalf of the assessee supported the findings of the learned CIT(A) on the ground that no asset was seized during the course of search. Inter alia, the learned AR relied upon the decision dated 30-04-2010 of the ITAT, Ahmedabad Bench- D in the case of Kaushal M Khanna and Sangeetaben K Khanna in ITA nos.2883, 2885 & 2848/Ahd/2009. To a query by the Bench, the ld. AR admitted that the assessee did not file any return for the year under consideration prior to search nor was ever assessed to tax. To a further query, the ld. AR submitted that explanation 3 to sec. 271(1)(c) of the Act was not applicable in their case.
6. W e have heard both the parties and gone through the facts of the case as also the aforesaid decision dated 30-04-2010 of the ITAT in the case of Kaushal M Khanna and Sangeetaben K Khanna(supra). Admittedly, the assessee was not assessed to tax prior to search nor filed any return of income. For the first time, the assessee filed return declaring income of Rs. 10 lacs from his 4 ITA no.962/Ahd/2009 business of purchase and sale of land properties on 7.12.2007 in pursuance to a notice issued under sec. 153A of the Act. Thus, prima facie the case of the assessee falls within explanation 3 to sec. 271(1)(c) of the Act, which reads as under:
"Explanation 3.-Where any person fails, without reasonable cause, to furnish within the period specified in sub-section (1) of section 153 a return of his income which he is required to furnish under section 139 in respect of any assessment year commencing on or after the 1st day of April, 1989, and until the expiry of the period aforesaid, no notice has been issued to him under clause (i) of sub- section (1) of section 142 or section 148 and the Assessing Officer or the Commissioner (Appeals) is satisfied that in respect of such assessment year such person has taxable income, then, such person shall, for the purposes of clause (c) of this sub-section, be deemed to have concealed the particulars of his income in respect of such assessment year, notwithstanding that such person furnishes a return of his income at any time after the expiry of the period aforesaid in pursuance of a notice under section 148."
6.1 W ith regard to invocation of explanation to sec. 271(1)(c) of the Act, Hon'ble Supreme court in the case of K.P.Madhusudanan vs. CIT,251 ITR 99(SC) held as under:
"....The Explanation to section 271(1)(c) is a part of section 271. When the Income-tax Officer or the Appellate Assistant Commissioner issues to an assessee a notice under section 271, he makes the assessee aware that the provisions thereof are to be used against him. These provisions include the Explanation. By reason of the Explanation, where the total income returned by the assessee is less than 80 per cent. of the total income assessed under section 143 or 144 or 147, reduced to the extent therein provided, the assessee is deemed to have concealed the particulars of his income or furnished inaccurate particulars thereof, unless he proves that the failure to return the correct income did not arise from any fraud or neglect on his part. The assessee is, therefore, by virtue of the notice under section 271 put to notice that if he does not prove, in the circumstances stated in the Explanation, that his failure to return his correct income was not due to fraud or neglect, he shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars thereof and, consequently, be liable to the penalty provided by that section. No express invocation of the Explanation to section 271 in the notice under section 271 is, in our view, necessary before the provisions of the Explanation therein are applied..........."
6.2 W e find that while imposing penalty under section 271(1)(c), the Assessing Officer has not invoked Explanation 3 to section 5 ITA no.962/Ahd/2009 271(1)(c) of the Act. But their Lordships of Hon'ble Punjab & Haryana High Court in the case of CIT v. Rajeshwar Singh [1986] 162 ITR 173, have held that Explanation to section 271(1)(c) can be invoked for the first time by the ITAT. By following the aforesaid judgment of Punjab & Haryana High Court in the case of Rajeshwar Singh the ITAT, Chandigarh Bench in the case of Roshan Lal Madan vs. Asstt. CIT (1998) 62 TTJ (Chd)(TM) 1 : (2000) 245 ITR 36 (AT)(Chd)., has taken the same view that Explanation to section 271(1)(c) can be invoked for the first time by the Tribunal. 6.3 Admittedly, this is the case of a new assessee , no return having been filed prior to search. In the instant case , the ld. CIT(A) cancelled the penalty only on the ground that no assets were seized during the search while relying on the decision in the case of ACIT vs. Rasila S Mehta,82 ITD 27(Mum.). The said decision for the AY 1988-89 did not relate to a new assessee. In fact in the said decision, the ITAT, inter alia, concluded as under:
" As a matter of fact, explanation 3 was inserted and appended to the main provision of section 271(1)(c) by Taxation Laws (Amendment) Act, 1975 to promulgate a deeming provision that non- filing of returns of income within the period during which the assessee could file the return of income by new assessee shall be deemed to be concealment of income. However, the scope and ambit of Explanation 3 has been confined to the new assessees only and Explanation 3 has no application in relation to the assessees who have filed returns of income in past. We therefore accept the contentions of the assessees in this respect and do not agree with the authorities below that the entire returned income should be treated as income concealed by the assessee or in respect of which inaccurate particulars have been furnished by the assessees for the reason that these assessees had not furnished the returns of income within the normal period allowed to them for having filed their returns of income on their own.
6.4 Thus, reliance on the aforesaid decision in Rasila S Mehta(supra), being not of a new assessee, is totally misplaced. As regards other three decisions relied upon by the assessee before him, the ld. CIT(A) did not even care to analyse the facts and circumstances of the said cases nor ascertained as to whether the said cases were of new assessees .W e find that in none of these 6 ITA no.962/Ahd/2009 decisions, explanation 3 to sec. 271(1)(c) of the Act was considered.
6.5 As already pointed out, the ld. CIT(A) cancelled the penalty, relying upon the aforesaid decisions, without even caring to ascertain as to whether or not facts and circumstances in the instant case were similar to facts and circumstances in the aforecited decisions. Even before us, the ld. AR did not demonstrate so nor even explained as to whether or not any money, bullion, jewellery and other valuable article or thing was found during the search. There is not even a whisper in the impugned order as to whether or not the amount of Rs. 10 lacs represented the value of any money, bullion, jewellery and other valuable article or thing was found during the search in terms of explanation 5 to sec. 271(1)(c) of the Act nor the ld. AR or DR threw any light on this aspect. Before proceeding further, we may have a look at the relevant explanation 5 to sec. 271(1)(c) of the Act, which reads as under:
Explanation 5.-Where in the course of a search under section 132 , the assessee is found to be the owner of any money, bullion, jewellery or other valuable article or thing (hereafter in this Explanation referred to as assets) and the assessee claims that such assets have been acquired by him by utilising (wholly or in part) his income,-
(a) for any previous year which has ended before the date of the search, but the return of income for such year has not been furnished before the said date or, where such return has been furnished before the said date, such income has not been declared therein; or
(b) for any previous year which is to end on or after the date of the search, then, notwithstanding that such income is declared by him in any return of income furnished on or after the date of the 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, unless,-
(1) such income is, or the transactions resulting in such income are recorded,-
(i) in a case falling under clause (a), before the date of the search; and
(ii) in a case falling under clause (b), on or before such date,
7 ITA no.962/Ahd/2009 in the books of account, if any, maintained by him for any source of income or such income is otherwise disclosed to the Chief Commissioner or Commissioner before the said date; or (2) he, in the course of the search, makes a statement under sub- section (4) of section 132 that any money, bullion, jewellery or other valuable article or thing found in his possession or under his control, has been acquired out of his income which has not been disclosed so far in his return of income to be furnished before the expiry of time specified in sub-section (1) of section 139, and also specifies in the statement the manner in which such income has been derived and pays the tax, together with interest, if any, in respect of such income.
6.6 A mere glance at the aforesaid explanation reveals that in order to apply aforesaid explanation or benefit of exceptions provided therein, in the course of a search under section 132 of the Act , the assessee has 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 utilising (wholly or in part) his income. In the instant case, no such finding of ownership of any money, bullion, jewellery or other valuable article or thing, has been recorded by the ld. CIT(A), who mechanically applied the aforecited decisions. The ld. AR appearing before us also did not attempt to demonstrate as to how the aforesaid decisions are applicable in the instant case. W e may point out that in the decision dated 30-04-2010 of the ITAT in the case of Kaushal M Khanna and Sangeetaben K Khanna(supra), also relied upon by ld. AR, the ITAT concluded that explanation 5 to sec. 271(1)(c) of the Act is not applicable in a case where no money, bullion, jewellery and other valuable article or thing is found during the search. The ld. AR has also not explained as to how this decision is of any assistance.
6.7 In the light of aforesaid discussion, it is amply clear that the ld. CIT(A) did not examine the applicability either of explanations 3 & 5 to sec. 271(1)(c) of the Act or of the decisions cited by the assessee before him. Apparently, the aforesaid order of the ld. CIT(A) is not a speaking order . A mere glance at the impugned order reveals that the order passed by the ld. CIT(A) is cryptic and 8 ITA no.962/Ahd/2009 grossly violative of one of the facets of the rules of natural justice, namely, that every judicial/quasi-judicial body/authority must pass reasoned order, which should reflect application of mind by the concerned authority to the issues/points raised before it. The application of mind to the material facts and the arguments should manifest itself in the order. Section 250(6) of the Act mandates that the order of the CIT(A) while disposing of the appeal shall be in writing and shall state the points for determination, the decision thereon and the reason for the decision. As is apparent, the impugned order suffers from lack of reasoning and is not a speaking order. In view of the foregoing, especially when the ld. CIT(A) has not passed a speaking order on the issue of levy of penalty raised in ground nos. 1 & 2 in the appeal before us nor examined the applicability of explanations 3 and 5 to sec. 271(1)(c) of the Act and nor even analysed the facts and circumstances of various decisions relied upon before him by the assessee vis-a-vis facts and circumstances in the instant case , we consider it fair and appropriate to set aside the order of the ld. CIT(A) and restore the matter to his file for deciding the issue of levy of penalty afresh in accordance with law, after allowing sufficient opportunity to both the parties. Needless to say that while redeciding the appeal, the learned CIT(A) shall pass a speaking order, keeping in mind, inter alia, the mandate of provisions of sec. 250(6) of the Act, bringing out clearly as to whether or not the explanations 3 & 5 to sec. 271(1)(c) of the Act or exceptions provided in explanation 5 and decisions relied upon by the assessee before him are applicable in the fact situation of the instant case. W ith these directions, ground nos. 1 & 2 in the appeal are disposed of.
7. Ground Nos.2 and 3 in the appeal being mere prayer nor any submissions having been made on these grounds, do not require any separate adjudication and are, therefore, dismissed.
9 ITA no.962/Ahd/2009
8. In the result, appeal is allowed but for statistical purposes.
Order pronounced in the court today on 29-07-2011 Sd/- Sd/-
(BHAVNESH S AINI) (A N P AHUJ A) JUDICI AL MEMBER ACCOUNTANT MEMBER Dated : 29 -07-2011 Copy of the order forwarded to:
1. M/s Radhakrishna & Co., 4019, Jash Textile Market, Ring Road, Surat
2. Asst. Commissioner of Income-tax, Central Circle-2, Surat
3. CIT concerned
4. CIT(A)-II, Ahmedabad
5. DR, ITAT, Ahmedabad Bench-A, Ahmedabad
6. Guard File BY ORDER Deputy Registrar Assistant Registrar ITAT, AHMEDABAD