Income Tax Appellate Tribunal - Chandigarh
M/S Gillco Developers And Builders ... vs Dcit, Chandigarh on 28 August, 2017
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IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCHES, CHANDIGARH
BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER&
MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER
ITA No. 168/Chd/2017
Assessment Year: 2012-13
M/s Gillco Developers and Builders Vs. The DCIT, Central Circle-II,
Pvt., Ltd., Chandigarh
Ropar (Punjab)
(Appellant) (Respondent)
Appellant By : Sh. Parikshit Aggarwal
Respondent By : Smt. C. Chandrakanta
Date of hearing : 29.05.2017
Date of Pronouncement : 28.08.2017
ORDER
Per Sanjay Garg, Judicial Member:
The present appeal has been preferred by the assessee against the order of Commissioner of Income Tax(Appeals)-3[hereinafter referred to as CIT(A)],Gurgaon dated 30.12.2016 agitating the confirmation of the penalty levied by the Assessing officer u/s 271AAA of the Income-tax Act, 1961 (in short 'the Act').
2. The brief facts relating to the issue under consideration are that a search and seizure action u/s 132 of the Act was carried on 2.9.2011 on the 2 business and residential premises of the Gillco Group of cases lead by Shri Ranjit Singh Gill. The assessee'M/s Gillco Developers and Builders Pvt. Ltd.' is engaged in the business of real estate development. During the course of search operation, the assessee had surrendered a sum of Rs. 20.75 Crores as additional undisclosed income on account of unexplained advances and payments to certain land owners as named in the penalty order. The statement of Shri Ranjit Singh Gill was recorded u/s 132(4) regarding the disclosure of additional income. The assessee duly reflected the surrendered amount in its return of income as business income. However, during the course of assessment proceedings, the Assessing officer observed that in the statement of Sh. Ranjit Singh Gil, recorded during the course of search and also from the subsequent submission before the Department, the assesseewas not able to substantiate the manner of earning of undisclosed income declared by it during the course of search. He, therefore, initiated penalty proceedings u/s 271AAA of the Act. In the penalty proceedings, the assesseesubmitted that since it had complied with the requisite conditions of exception provisions as provided under section 271AAA(2,the penalty could not be levied upon it. It was submitted that the manner and source of deriving the surrendered income stood explained as the surrendered income has been offered under the head 'business and profession' and the same has been accepted as such by the Assessing officer. The assessee had almost paid the tax amount alongwithinterest. The assessee further submitted that even otherwise there wasno timelimit set under the provisions of section 271AAA for payment of tax and interest. The assessee also relied upon various case laws. 3 The Ld. Assessing officer, however, was not satisfied with the above contention of the assessee. He observed that the assessee had failed to substantiate themanner in which the undisclosed income has been derived with documentary evidences. Further, that the books of account of the assessee were not complete at the time of search. That mere passing of entries in the books of account was not sufficient to explainthe source of undisclosed income. The assesseewas required to explain all deposits, withdrawals along with documentary evidences. He, therefore, levied the penalty @ 10% of the undisclosed income at Rs. 2,07,50,000/-.
3. Being aggrieved by the above order of the Assessing officer, the assessee preferred appeal before the CIT(A) and reiterated its aforesaid submissions. Apart from that, the assesseeraised a legal ground regarding the limitation period prescribed for levy of penalty and contended that the penalty order was time barred. The Ld. Counsel also raised another legal plea that the very initiation of the penalty otherwise was bad in law because the notice issued u/s 274 of the Act was defective. The Ld. Counsel for the assessee also submitted that no question requiring the assessee to disclose the manner and substantiatesuch manner in which undisclosed income had been derived was ever raised by the search party to the assessee either at the time of search or even in any of the post search proceedings. In the absence of any query, there was no occasion for the assessee to disclose and substantiate such manner of deriving the surrendered income. The assessee further relied upon the following case laws:-
1. ACIT Vs. Munish Kumar Goyal (chd trib.) 152 ITR 453 4
2. Sunil Kumar Bansal v DCIT (Chd Trib.) 70 SOT 137
3. S.K. ImpexVs. DCIT (Delhi Trib.) ITA 5674/Delhi/2015 dated 28.6.2015
4. The Ld. CIT(A) after considering the submissions of the assessee,recorded his findings in para 5 of the impugned order. So far as the contention raisedby the assessee that it was evident from the statement of the assesseerecorded at the time of search and also from the surrender letter, that no questionrequiring the assessee to substantiate the manner in which the undisclosedincome was derived was raised, the Ld. CIT(A) after recording the above contention and also recording that the assessee in this respect has relied upon the decision of the Tribunal in the case of ACIT Vs. Manish Kumar Goyal and Sunil Kumar Bansal vs DCIT (supra) proceeded to discuss the another aspect of the case regarding thepayment of taxes together with interest in respect of undisclosedincome to be eligible to get the immunity from penalty u/s 271AAA of the Act. He thereafter observed that the assesseehad paid only part payment of the taxes along with due interest as on the date of penalty order dated 28.9.2015. He, therefore, held that the assessee had not fulfilled the condition of clause (iii) of section 271AAA (2) of the Act requiring the payment of tax together with interest to get immunity from the levy of penalty. He ultimately held that since the assessee had paid the taxes much beyond the date of penalty order, the penalty was liable to be confirmed for non compliance of the provisions of section271AAA (2)(iii) of the Act. The Ld. CIT(A) also rejected the other contentions of the assessee viz. that the surrender income did not amount to undisclosed income or that the 5 initiation of the penalty was beyond the limitation period as prescribed u/s275 of the Act.
5. Being aggrieved by the above order of the CIT(A),the assessee has come in appeal before us.
6. We have heard the rival contentions and have also gone through the records. The first contention raised by the counsel for the assessee is that during the course of search action, the assessee was not put a specific question by the search party regarding the source and manner of earning of surrendered income and also for substantiating the manner in which the undisclosed income was derived. The next contention of the Ld. counsel for the assessee is that the surrenderedamount has been offered for taxation under the head "income from business and profession" and the same has been accepted by the Assessing officer. Hence, the source and manner of earning of income stood explained and therewas no further requirement to substantiate the said manner because of the fact of acceptance of the returned income by the Assessing officer without any objection in this regard. The Ld. Counsel for the assessee has also relied upon the below mentioned decisionsin support of the above contention:
i) ITAT Chandigarh Bench - DCIT Vs. Sh. Sanjeey Goyal & Others ITA No. 109/Chd/2015 & Others order dated 18.11.2015
ii) ITAT Chandigarh Bench -ACIT Vs. Shri Om Parkash Sahni in ITA no. 178/Chd/2016 order dated 13.6.2016 The Ld. Counsel has further raised the contention that the levy of penalt y u/s 271AAA of the Act was not dependent on the additions made in 6 quantum assessment proceedings. The penalty proceedings u/s 271AA can be initiated and even concluded independent of the assessment proceedings. Therefore, the provisions of section 275(1)(c) were applicable and not the provisions of section 275(1)(a) of the Act. The Ld. Counsel for the assessee also invited our attention to page 111 of the paper book which is copy of the notice issued to the assessee u/s 274 read with section 271AAA of the Act. The Ld. counsel has pointed out thatgrounds mentionedin the notice did notconform to the provisions of section 271AAA of the Act and hence, the very initiation of the penalty was bad in law. The Ld. Counsel has further submitted that Ld. CIT(A) has wrongl y and illegally extended the scope of penalty so leviedby the Assessing officer. Though the Assessing Officer had levied the penalty observing that the assessee had failed to complywith the provisions of section 271AAA(2)(i) and (ii) of the Act, however, the Ld. CIT(A) has confirmed the penalty for non compliance of provisions of section 271AAA (2)(iii) of the Act by wrongly and illegally extended the scope of the levy of penalty.
He therefore has submitted that the impugned penalty levied by the AO and further confirmed by the CIT(A), but on a different ground, is liable to be deleted.
7. On the other hand, the Ld. DR has relied upon the findings of the lower authorities and has submitted that the penalty has been rightl y initiated and levied in the case of assessee. That the assessee had surrendered the income because he could not explain the source of income. Even that the Ld. CIT(A) wasauthorized to take a different stand from that of Assessing officer. Further, that initiation of penalty in this case was dependent upon the assessment proceedings. That as per the provisions of 7 section 271AAA, the surrendered income falls under the definition of undisclosed income and the assessment year in question is also the specifiedyear as defined u/s 271AAA of the Act; therefore, the penalty levied by the lower authorities was liable to be confirmed.
8. We have considered the rival contentions. To properly appreciate the rival contention raised by the Ld. Representatives of both the parties, we think it proper to first reproduce herein the provisions of section 271AAA of the Act.
"271AAA. Penalty where search has been initiated.--(1) The Assessing Officer may, notwithstanding anything contained in any other provisions of this Act, direct that, in a case where search has been initiated under section 132 on or after the 1st day of June, 2007, the assessee shall pay by way of penalty, in addition to tax, if any, payable by him, a sum computed at the rate of ten per cent of the undisclosed income of the specified previous year.
(2) Nothing contained in sub-section (1) shall apply if the assessee,--
(i ) in the course of the search, in a statement under sub- section (4) of section 132, 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.
(3) No penalty under the provisions of clause (c) of sub-section (1) of section 271 shall be imposed upon the assessee in respect of the undisclosed income referred to in sub-section (1). (4) The provisions of sections 274 and 275 shall, so far as may be, apply in relation to the penalty referred to in this section. Explanation.--For the purposes of this section,-- 8 (a ) "undisclosed income" means--
(i) any income of the specified previous year represented, either wholly or partly, by any money, bullion, jewellery or other valuable article or thing or any entry in the books of account or other documents or transactions found in the course of a search under section 132, which has--
(A ) not been recorded on or before the date of search in the books of account or other documents maintained in the normal course relating to such previous year; or (B ) otherwise not been disclosed to the Chief Commissioner or Commissioner before the date of the search; or
(ii) any income of the specified previous year represented, either wholly or partly, by any entry in respect of an expense recorded in the books of account or other documents maintained in the normal course relating to the specified previous year which is found to be false and would not have been found to be so had the search not been conducted;
(b ) "specified previous year" means the previous year--
(i) which has ended before the date of search, but the date of filing the return of income under sub-section (1) of section 139 for such year has not expired before the date of search and the assessee has not furnished the return of income for the previous year before the said date; or
(ii) in which search was conducted."
9. The perusal of the above provisions of section 271AAA of the Act, reveals that the penalty under the said provisions can be levied by the Assessing officer in a case where search has been imitated u/s 132 on or after first day of June 2007 but before first day of July 2012. Admittedly, the search in this case was initiated on 2.9.2011 which falls within the 9 stipulated period as provided. The second part of sub section (1) states that the assessee shall pay by way of penalty in addition to tax a sum computed @ 10% of the 'undisclosed income of the specified previous year'. The 'undisclosed income' has been defined in clause (a) of the Explanation to section 271AAA of the Act,whereas the specified previous year has been defined under clause (b) of the Explanationas reproduced above. Admittedly, the income was surrendered by the assesseebecause of certain documents or transactions found during the course of search u/s 132 of the Act and further the said income has not been recorded in the books of account on or before the date of search and neither the same has been disclosed to the concernedauthorities before the date of search. Hence in our view, the surrendered income falls within the definition of undisclosed income as explained under the provisions of section 271AAA of the Act. The surrendered income pertains to the year in which the search was conducted, hence,it can be safely said to be income of the 'Specified previous year" as provided under section 271AA, so prima facie, conditions for the levy of the penalty seems to be satisfied. Thus the contention of the assessee that the surrendered income was not the undisclosed income of the asssesee is not tenable, hence rejected.
10. Now coming to the exceptions providing immunity from levy of penalty as provided under the provisions of sub section (2) of section271AAA of the Act, the three conditions prescribed are: (i) the assessee in his statement recorded under sub section (4) of section 132 should admit the unclosedincome andspecif y the manner in which such income has been derived; (ii) substantiate the manner in which the 10 undisclosed income was derived and (iii) pay the tax together with interest, if any, in respect of the said undisclosedincome.
Admittedly, the assesseein this case, in his statement recorded under sub section (4) of section 132 of the Act, has surrendered the income in question and thus has admitted the undisclosed income. So far as the manner of deriving the surrendered income andsubstantiation of the said manner in which the undisclosed income was derivedis concerned, the Ld. Counsel for the assessee has placedreliance upon the various case laws, as mentioned above, to stress the point that the questionabout the manner and substantiating the manner of earning ofsurrendered income should come from the search party during the course of searchaction; if no such question is being asked to the assessee during the search action, the assessee was not supposed to disclose the manner in which the surrendered income was derived. He has further submitted that since the surrenderedamount has been declared in the return of income, and due taxes have been paid and the returned income has been accepted by the Assessing officer, hence, thecondition of disclosing the manner of deriving of the undisclosed income and further substantiation of the said manner stood complied with. The Ld. counsel for the assesseehas further invited our attention to the copy of the relevant part of the assessment order dated 13.1.2014 wherein the Assessing officer has reproduced the statement of the assessee recorded u/s 132(4) of the Act as well as surrenderletter dated 3.9.2011 of the of the assesseedeclaring the surrendered income. The saidpart of the assessment orderfor ready reference, is reproduced as under:-
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"The statement of the assessee recorded u/s 132(4) regarding disclosure ofadditional income is reproduced below:
Q.1. Please identity yourself.
Ans. I am Ranjit Singh Gill S/o Sh. Naib Singh r/o as mentioned above.
Q.2 I am showing you Page No. 22 to 38 of Annexure A-1, which are three ikrarnama (i.e. Agreement to sell). The receipts of these three agreements are also on the backside of relevant page No. 22-38. Please explain the documents.
Ans. These are full and final purchase agreements between Gillco Developers and Builders (P) Ltd and the following parties.
Page 36 -38 Seller Balwinder Singh S/o Harchand Singh. The backside of page 38 shows payment of Rs. 4,16,92,500/-
Page 34-35 Seller Harchand Singh S/o Navrang Singh. The backside of page 35 shows cash payment of Rs. 3,92,495/-. The power of attorney has been obtained in the name of my employee Sukhjit Singh for the above two lands.
Paage 26-28 Seller Satnam, Jaswinder and Harmidner. The backside of page 26 shows cash payment of Rs. 3.0 crores.
The total cash payment made by the company in these three deals i.e. Rs. 7.20,84,995/-.
These payments have been made in cash outside the regular books of account of the company. Since I cannot explain the source of these payments, I hereby surrenderthese amount to tax u/s 132 (4) of the I.T. Act, 1961 subject to no penal action, as the income of the company of the financial year 2011-12 (CO GOBPL) over and above its normal business income of the said financial year.
Q.3 I am showing you a diary named Annexure A-2, at the following pages 16, 17, 17-B (backside) 18 and 19. Please explain these.
Ans. Sir, there are entries of advances given to the following persons;
Dalbir Singh 2 Crore
Paramjit 2.5 Crore
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Satnam& others 30 Lacs
Harminder 3.05 Crore
Mandeep 2.75 crore
Karamjit 2.5 crore
Harpal 25 lacs
Tota1 3.35 Crore
These are advances given in cash to certain dealers in the market for purchase of land. These have been made outside the regular books of account of the company GillcoDeveloper and Builders (P) Ltd. I cannot explain the source of these payments. I therefore surrender this amount of Rs. 13.35 Crores to fax u/s 132 (4) of the IT. Act, 1961 subject to is further action as the income of M/s GDBPL for the F.Y. 2011-12 over and above the normal business income for the said F. Y. Q.4 As per the trial balance of the company GDBPL, (the cash in hand is Rs. 45 Lacs. But no cash (only around Rs, 6000) was found there. Please explain the cash of Rs. 3,615007- found at your home.
Ans.Sir, the trial balance was prepared as on 27.08.2011, as the books are not fully updated, The cash belongs to the company but I do not know the cash in hand situation today. (For lack of a satisfactory explanation, cash of Rs. 3 Lacs is being seized) Q.5 Do you want to state anything else.
Ans. Sir, on account of the various documents found and seized at various premises of my business concern which I have not seen completely, (except for the documents as shown by you to me). I hereby surrender a total amount of Rs. 21 Crores to tax as per the surrender letter submitted today.
GDBPL :Rs. 20.75 Cr
GCPL : Rs. 15 lacs
Jewellery in hands of myself : Rs. 10 lacs
(expected to be found in the locker)
I wish to clarify that in the surrender letter submitted by me the total advances / amounts paid to Satnam and others is 3.3 Cr out of which 3 Cr is on account of cash payment for purchase of 13 land as per registry seized vide Annexure A-1, Pg -26 and 30 lacs is on account of cash advances given to them as per diary Annexure A-2. Pg-17.1 also wish to state that the above surrender is being made voluntarily and without any pressure, fear or coercion, subject to no penal action whatsoever." The assessee later on filed a letter dated 03.09.2011 to the Investigation Wing declaring the surrendered income. Relevant part of the said surrender letter is reproduced below;
"On 02.09.2011 a search was conducted at my residence and business premises by various teams of the Income Tax Department, During the course of search certain documents have been found by (he search team at my residence as well as my business premises. In order to buy peace of mind and to avoid undue litigation/penal action I hereby voluntarily declare an amount of Rs. 2100 Crore (Rupees Twenty One Crores Only) as the undisclosed business income of M/s Gillo Developers & Builders Pvt. Ltd., M/s Gilico Colonizers Pvt. Ltd the companies and RanjitSingh Gill for the financial year 2011-12 over and above (he normal business income of the company / salary and interest income for the said financial year. The detail of this income derived is as follows:
In the case of Gillco Developers and Builders Pvt Ltd.
Advances to Sh. DalbirSingh Rs. 2,00,00,000
Advances to Sh. Paramjit Rs. 2,50,00,000
Advances to Sh. Harbinder Rs. 3.05,00,000
Advances to Sh. Mandip Rs. 2,75,00,000
Advances to Sh. Karamjit Rs. 2,50,00,000
Advances to Sh. Harpal Singh Rs. 25,00,000
Advances to Sh. HarchandSingh Rs. 3,92.495
Advances to Sh. Balwinder Singh Rs. 4,16,92,500
Payment to Satnam / Jaswinder / Rs.3,30,00,000/-
Harbinder
Misc. Discrepancies Rs. 19,15,000
Rs.20.75,00,000
In the case of Gillco Colonizers Pvt Ltd
To cover up discrepancies Rs. 15,00,000
In the cover of Sh. Ranjit Singh Gill
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On account of jewellery Rs., 10,00,000/-
Total Surrender Rs. 21,00,00,000
The disclosure is being made u/s 132(4) of the Income Tax Act, 1961 to cover various discrepancies in the seized/ impounded records, documents and inventories made and statements recorded during the course of search. We intend to cover the discrepancies which might arise in any subsequent proceedings also relating to search. The offer made by the group during the course of the above proceedings is with an understanding that the said income will not be liable to any penalty or prosecution and thus, the offer is made to buy peace and avoid any future litigations arising on account of any noting or jotting etc. which we may not be able to fully explained to the satisfaction of the department. 1 on my behalf and the companies undertake to pay the taxes due on income of Rs. 21 Crore being declared as undisclosed income."
11. The Ld. Counsel has therefore, stated that no specific question as to the source of income and manner of making and substantiation of the manner was asked to the assessee in the course of recording of statement u/s 132(4) of the Act. He has further stated that the assessee in his letter has duly explained that the disclosure was made to cover up various discrepancies in the seized / impounded records and inventories made and statement recorded during the course of search. He has further stated thatsurrendered amount was duly reflected in the return of income and the Assessing Officer has accepted the said surrendered income as the 'Business Income' of the assessee. He therefore has contended that the source of the manner of deriving the undisclosed income stood explained.
12. On the other hand Ld. DR has invited our attention to the answers of the assessee to questions Nos. 2 & 3 wherein following has been stated"....Since I cannot explain the source of these payments, I hereby surrenderthese amount to tax...."
15The Ld. DR, therefore, has submitted that assessee himself had stated that he could not explain the source of those payments, therefore, the assessee is not covered by the immunity provided in clause (i) and (ii) of sub section(2) of section 271AAA of the Act. We have keenly gone through the abovestatement and the surrender letter. We find that no specific question has been asked by the search party during the course of search action as to what was the source and manner of deriving such undisclosed income. We find that the assessee has surrendered the above income as additional income over and above its normal business income for the financial year 2011-12. So far as the statement of the assessee that since "I cannot explain the source of this payment" as read along and in context to the entire statement, the reasonable meaning of these words as coming out from the record is that the assessee means to say that he could not explain the source of these payments from his books of account; in other words, that the said payments have not been disclosed by him in his books of account and, hence the same is undisclosed income. However, the subsequentwords of the statement of offering the said income as its "business income" for the concerned financial year fulfills the gap and removes the ambiguity. When we read the entire context in reference to the question and answers, it is clear that assesseehas offered the surrendered income as itsbusinessincome inthe statement of Shri Ranjit Singh Gill recorded u/s 132(4) of the Act. Admittedly, the assessee filed its return of income declaring the said income as 'business income' and even the Assessing officer has accepted the said income as 'business income' of the assessee. In these circumstances, in our view the source and manner of earning of income stood explainedduring the search action in the 16 statementrecorded u/s 132(4) of the Act. Hence the conditions of clause (i) of section 271AAA(2) stood complied with.
13. Now coming the condition provided under clause(ii) of section 271AAA(2) requiring the substantiation of the earning of income, the Assessing officer has neither doubtednor rejected to the returning of the said surrendered income by the assessee under the head "Income from business or profession".Rather, the AO has accepted the said income as business income of the assessee. Under the circumstances, the substantiation of the manner of earning of income from the business activity of the assesseealso stoodaccepted by the Assessing officer. We are not in agreement with the observations of the Assessing officer that assessee had to explain all the deposits and the withdrawals alongwithdocumentary evidences. In our view, it is manner which is to be substantiated and not the each and every penny out of the undisclosed income earned or each or every transaction. The Assessing officer has accepted that assessee has made the disclosure u/s 132(4) of the Act during the course of search operation, and as observed above, the assessee has also specified the manner of earning as its business activity and further since the said contention has been acceptedwhich may be found substantiated by the Assessing officer from the seized documents and that is why he has accepted the same as business income of the assessee. Moreover, the search party has also not doubted or pointed out any discrepancy or defect in the above statement of the assessee offering the undisclosed/surrendered income as business income of the assessee. It is neither the case of the search party nor that of the Assessing officer that undisclosed income is not out of the undisclosed business income of the 17 assessee. Under these circumstances, in our view, the first two conditions as prescribed inclause (i) and clause (ii) of section 271AAA of the act stood complied with. Our above view finds support from the decisionsof the Tribunal in the case of ACIT Vs. Munish Kr Goyal ((supra), Sunil Kumar Bansal Vs. DCIT (supra), ACIT Vs. Om ParkashSahni (supra).
14. Even otherwise, no question by the search party was put to the assessee regarding the manner of deriving of such undisclosed income and even the provisions of section 271AAA of the Act were not explained to him. This issue is covered in favour of the assesseeby the above decisions on this account also. Reliance can be placed on the decision of the Hon'ble Gujarat High Court in the case of 'CIT Vs Mahendra C Shah 299 ITR 305(Guj)' wherein the Hon'ble Gujarat High,while discussing the exception provisions of Explanation 5 to section 271(1) (c,) has made the following observations,:
"15. In so far as the alleged failure on the part of the assessee to specify in the statement under Section 132(4) of the Act regarding the manner in which such income has been derived, suffice it to state that when the statement is being recorded by the authorized officer it is incumbent upon the authorized officer to explain the provisions of Explanation 5 in entirety to the assessee concerned and the authorized officer cannot stop short at a particular stage so as to permit the Revenue to take advantage of such a lapse in the statement. The reason is not far to seek. In the first instance, the statement is being recorded in the question and answer form and there would be no occasion for an assessee to state and make averments in the exact format stipulated by the provisions considering the setting in which such statement is being recorded, as noted by Allahabad High Court in case of CIT v. RadhaKishanGoel (supra). Secondly, considering the social environment it is not possible to expect from an assessee, whether literate or illiterate, to be specific and to the point regarding the conditions 18 stipulated by Exception No. 2 while making statement under Section 132(4) of the Act. The view taken by the Tribunal as well as Allahabad High Court to the effect that even if the statement does not specify the manner in which the income is derived, if the income is declared and tax thereon paid, there would be substantial compliance not warranting any further denial of the benefit under Exception No. 2 in Explanation 5 is commendable."
In the case of CIT v. Radha Krishna Goel [2005] 278 ITR 454, the Hon'ble Allahabad High Court gavesimilar findings and laid down similar principles as under:-
"...From a perusal Explanation 5, it is evident that the circumstances which otherwise did not attract thepenalty provisions of section 271(1)(c), now by a deeming provisionattract penalty provisions. But anexception is provided in clause (2) of Explanation 5 where the deeming provision will not apply if duringthe course of search the assessee makes the statement under sub- section (4) of section 132 that themoney, bullion, jewellery etc. found in his possession has been acquired out of his income which has notbeen disclosed so far in his return of income and also specifies in the statement the manner in whichsuch income has been derived and pays the tax together with interest, if any, in respect of suchincome....under section 132(4) of the Act, unless the authorized officer puts a specific question withregard to the manner in which income has been derived, it is not expected from the person to make a statement in this regard and in case, in the statement the manner in which income has been derived,has not been stated but has been stated subsequently, it amounts to compliance with Explanation 5(2).
If there is nothing to the contrary in the statement recorded under section 132(4) of the Act, in theabsence of any specific statement about the manner in which such income, has been derived, it can beinferred that such undisclosed income was derived from the business which he was carrying on. Theobject of the provision is achieved by making the statement admitting the non-19
disclosure of money,bullion, jewellery, etc. thus, much importance should not be attached to the statement about themanner in which such income has been derived. It can be inferred on the facts and circumstances of thecase, in the absence of anything to the contrary. Therefore, mere non-statement of the manner in whichsuch income was derived would not make explanation 5(2) inapplicable."
15. Though the above decisions of the Honourable Gujarat High Court and Allahabad High Court were rendered in reference toexplanation 5 of section 271(1)(c) and not with regard to the section 271AAA, however the principle laid down that the authorized Officer is to explain the provision to the assessee andask the relevant questions on the manner in which the undisclosed income was earned is also applicable to the provisions of section 271AAA also. Reliance in this respect can be placed on various decisions of the co-ordinate benches of this Tribunal including that in the cases of ACIT vs Munish Kumar Goyal (supra), Sunil Kumar Bansal Vs. DCIT (supra), ACIT Vs. Om ParkashSahni (supra), DCIT Vs. Harmohinder Singh Chadha in ITA 188/Chd/2015.
The Hon'ble Delhi High Court in a very recent decision in the case of "Principal Commissioner Of Income vs M/S Emirates Technologies Pvt. Ltd. ITA 400/2017 vide order dated 18.7.2017 has upheld the findings of the Delhi Bench of the Tribunal given on the similar line in relation to the matter of levy of penalty u/s 271AAA, observing as under:
"The CIT(A) in para 4.7 of the order dated 4th November, 2013 noted thatno specific query had been put to the Assessee by drawing his attention toSection 271 AAA of the Act asking him to specify the manner in which theundisclosed income, surrendered during the course of search, had beenderived. The CIT (A), therefore, relying 20 on the decisions of this Court heldthat the jurisdictional requirement of Section 271AAA was not met.
4. The above view has been concurred with by the ITAT.
5. In the facts and circumstances of the case, the Court is of the view that theconcurrent decision of the CIT(A) and the ITAT represent a plausible viewwhich cannot be said to be perverse."
16. Even otherwise, the Ld. CIT(A) has not confirmed the penalty onaccount of non-compliance of provisions of clause (i) and (ii) to sub section (2) to section 271AAA of the Act. Rather he has confirmed the penalty on different issues of non-payment of entire taxes and interest there upon i.e. non compliance of the contention laid down in clause (iii) of sub section (2) of section 271AAA of the Act.The relevant part of the order of the CIT(A) for ready reference is reproduced as under:
"In the penalty order it has been stated by the AO that the assessee during the course of assessment proceedings as well as penalty proceedings failed to substantiate the manner in which the undisclosed income has been derived. It was further stated that the onus was on the assessee to prove and specify the manner in which had derived the additional undisclosed income and the submission had to be corroborated with documentary evidence.
In the appellate proceedings, the appellant in his submissions has submitted that it is evident from the statements of the appellant recorded at the time of search and also the surrender letter of the appellant that no question requiring the appellant to substantiate the manner in which the undisclosed income has been derived was raised to the appellant at the time of search or even in any of the search proceedings. In the absence of any query, there was no occasion for the appellant to substantiate the same. in this situation, penalty u/s 271AAA was not imposable. The appellant has relied on judicial pronouncement including decision of Hon'ble Chandigarh Tribunal in the case of AC1T v. Munish Kumar Goyal and Sunil Kumar Bansal v. DCIT.21
During the appellate proceedings, the AR of the appellant vide order sheet dated 11.08.2016 was asked to give details with regard to section 271AAA(2)(iii) with respect to payment of tax, together with interest, if any in respect of the undisclosed income so as to get immunity from penalty u/s 271AAA of the Act In response to the same, the appellant has filed copy of the ITR for the year under consideration filed via e-filing acknowledgment No, 5551800021190113 on 19.01.2013. In the return filed, the total tax and interest payable for the year under consideration was worked out at Rs. 7,92,15,389/- out of which taxes paid till date of filing return were shown at Rs. 3,10,68,420/- and the tax payable as on date on filing return shown at Rs. 4,81,46,970/-.
Form 26AS of the appellant company for the A.Y. 2012-13 shows that only part / payment of taxes due along with interest was paid till even the date of penalty order i.e 28.,9.2015. The following taxes alongwithinterest for the year under consideration were paid after the penalty order was passed by the Assessing officer.
S.No. Date Amount
1 04.12.2015 26,00,000
2 04.12.2015 26,00,000
3 07.12.2015 26,00,000
4 20.01.2016 26,00,000
5 01.02.2016 26,00,000
6 05.02.2016 26,00,000
7 30.03.2016 26,00,000
8 04.05.2016 26,00,000
Total 2,08,00,000/
Thus, it is apparent from the above that the appellant has not fulfilled the condition specified in sec. 271AAA(2)(iii) with respect to payment of taxes, together with interest, in respect of the undisclosed income for the year under consideration so as to get immunity from penalty as Rs. 2,08,00,000/- was paid after the date of penalty order by the appellant.22
The appellant while seeking immunity from penalty cannot be given unlimited time for payment of taxes alongwith interest because the same will not in the spirit of law, In the context of penalty under section 271AAA, it has been held in the case of DCIT vs. Pioneer Marbles & Interiors (P.) Ltd. (2012) 68 DTK 1 (Koi. 'A') / 144 TTJ 663 (Kolkata 'A') while dealing with a case of penalty u/s 271AAA and the conditions precedent thereto, that no time limit is set out for payment of taxes along with interest by the assessee for availing of the immunity u/s 271AAA(2) and, therefore, once the entire tax and interest has been duly paid well within the time limit as per the notice of demand u/s 156 and well before the conclusion of the impugned penalty proceedings, the assesses cannot be denied immunity u/s 271AAA(2) and the penalty u/s 271AAA rightly cancelled.
In view of the above discussion, the fact that the taxes have been paid much beyond the date of penalty order by the appellant and the judicial pronouncement which is squarely applicable to the case of appellant discussed above, this ground of appeal of the appellant is dismissed as the appellant has not complied with the provision of 271AAA (2)(iii) of the Act to claim immunity from penalty."
17. Admittedly, the Revenue has not filed any appeal against the order of the CIT(A). In thesecircumstances, even otherwise, the issue of complianceof the conditions laid down in clause (i) and (ii) of section 271AAA (2) of the Act has attained finality in favour of the assessee.
18. Now coming to the findings of the CIT(A) that due to non-payment of all the due the taxes and interest thereupon, till the finalization of penalty proceedings, the assessee was not entitled to get immunity under clause (iii) to sub section (2) of section 271AAA of the Act, the Ld. counsel for the assessee has invited our attention to the paper book page 23 107 which is a copy of the letter dated 29.7.2015 addressed to the Assistant Commissioner of Income Tax (A.O.), wherein, the assessee has requested the Assessing officer that due to financial crunch, the assessee may be given some relaxation of time to deposit the tax dues. It has been further stated that the assessee has already deposited some of the tax amount and the remaining amount may be allowed to be deposited in monthly installments. The assessee also tendered post dated cheques with the said letter for balance tax dues. The assessee has also furnished the copies of the post dated cheques before us. Ld. Counsel has also relied upon the show cause notice dated 18.11.2016 issued by the Assessing officer u/s 221 of the Income Tax Act requiring the assessee to pay the outstanding dues. From the perusal of the said notice, it reveals that there is no mention of tax dues for the assessment year 2012-13 in the said letter, but of the impugned penalty levied u/s 271AAA of the Act; which means that the post dated cheques tendered by the assessee along with its letter dated 29.7.2015 have been got encashed by the Assessing officer. This letter shows that there was no intention on the part of the assessee to avoid the payment of tax dues for the year under consideration; rather, it proves the bonafide intention of the assessee to pay the tax dues. It is also a fact that the date of filing of the said letter along with post dated cheques is 29.7.2015 whereas the impugned penalty order has been passed on 28.9.2015 i.e after the tendering of post dated cheques. The Assessing officer has not levied the penalty on account of non compliance of the conditions of clause (iii) of section 271AAA (2) of the Act, rather, for non compliance of the provisions of clause (i) and clause (ii) of section 271AAA(2) of the Act, which means that the Assessing officer had 24 accepted the request of the assessee to deposit the tax through installments considering the bonafide request of the assessee which was accompanied with post-dated cheqeus. The Ld. counsel in this respect has invited our attention to the decision of the Hon'ble Supreme Court in the case of 'ACIT Vs. Gebilal Kanhaialal HUF' (2012) 348 ITR 561 (SC) wherein the Hon'ble Supreme Court while discussing the provisions of Explanation 5 of section 271(1)(c) of the Act has observed that under clause 2 of Explanation 5, three conditions have got to be satisfied by the assessee for claiming immunity from the payment of penalty. The first condition was that the assessee must make a statement under section 132(4) in the course of search stating that the unaccounted assets and incriminating documents found from his possession during the search have been acquired out of his income, which has not been disclosed in the return of income to be furnished before expiry of time specified in section 139(1) of the Act. The second condition for availing of the immunity from penalty u/s 271(1)(c) was that the assessee should specif y in his statement under section 132(4), the manner in which such income stood derived. The third condition under clause (2) was that the assessee had to pay the tax together with interest, if any, in respect to such undisclosed income. Admittedly, the assessee (in that case) had complied with the conditions clause (i) and clause (ii). The Hon'ble Supreme court observed that no time limit for payment of such tax stood prescribed under clause (2). While dismissing the appeal of the Department, Hon'ble Supreme Court observed that since the assessee had paid tax with interest up to the date of payment, the assessee was entitled to immunity under clause (2) of Explanation 5 of section 271(1)(c) of the Act.
25So far as the levy of penalty u/s 271AAA is concerned, no such time limit is prescribed for payment of tax and interest thereupon even under clause
(iii) of section 271AAA(2) of the Act also. The Coordinate Bench of the Tribunal in the case of 'Mahohar Infrastructure and Constructions Pvt Ltd. Vs. DCIT (2016) 48 CCH 0178 Chd Trib., while relying upon the aforesaid decision of the Hon'ble Supreme Court in the case of 'ACIT Vs. Gebilal Kanhailal HUF' (supra) has observed that if the assessee has paid the entire tax and interest thereupon on the undisclosed income surrendered in the statement made u/s 132(4) of the Act, and has also complied with the other two requirements of section 271AAA(2) of the Act, the assessee is entitled to get immunity from levy of penalty.
Admittedly, in this case also the assessee had also deposited tax due along with interest. Since no time limit has been prescribed for deposit of such dues and even, as discussed above, there was no overt act on the part of the assessee to avoid taxes, as his request for deposit of taxes through installments has been accepted and the assessee has already tendered post- dated cheqeus before the conclusion of the penalty, hence, in the light of the observations of the Hon'ble Supreme Court in the case of 'ACIT Vs. Gebilal Kanhialal HUF' (supra), in our view, the third condition of payment of taxes as per provisions of section 271AAA(2)(iii) of the Act stood complied with. The assessee succeeds on this issue also.
19. Now coming to the legal issues raised by the assessee, the Ld. Counsel for the assessee has contended that even the notice served upon the assessee u/s 274 of the Act is also invalid. We have gone through the show cause notice issued to the assessee. The Ld. Counsel for the assessee 26 has invited our attention to the letter / notice issued u/s 274 read with section 271AAA of the Act dated 13.1.2014, which for the sake of reference is extracted as under:-
"NOTICE U/S 274 READ WITH SECITON 271AAA OF THE INCOME TAX ACT, 1961 Office of the Dy. Commissioner of Income Tax, Central Circle -1II, Aayakar Bhawan, Sector 17-E, Chandigarh Dated 13.01.2014 To M/s Gilco Developers and Builders Pvt Ltd., SCF 23024, Gilco Valley Morinda Ropar Road, Ropar, Punjab 140001 Whereas in the course of proceedings before me for the assessment year 2012-13, it appears to me that you have not recorded the true particulars of your income in the books of accounts or not disclosed accurate particulars of income. Therefore, you are required to show cause as to why penalty proceedings u/s 274 read with section 271AAA(1) of the income Tax Act may not be levied against you.
In this regard, you are hereby requested to appear before the undersigned at 11.00A.M. on 20.02.2014 and show cause why an order imposing a penalty on you should not be made u/s 271AAA(1) of the Income-tax Act, 1961). If you do not wish to avail yourself of this opportunity of being heard in person or though authorized representative you may show cause in writing on or before the said date which will be considered before any such order is made u/s 271AAA(1).
(Seal) Sd/-
(Laganpreet Sandhu).
Dy. Commissioner of Income Tax, Central Circle-II, Chandigarh"
27
20. A perusal of the above notice shows that though the Assessing officer has intended to initiate penalty proceedings u/s 271AAA(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 abnitio. The penalty levied against the assessee is thus not sustainable on this score also.
21. The assessee has also raised another legal issue regarding the limitation point. Now at this stage, we do not deem it necessary to resort to lengthy deliberation on this issue as we have not only decided the issue of levy of penalty on merits but also the legal issue in favour of the assessee. The limitation issue, however, is left open to be adjudicated in an appropriate case.
22. In view of our observations and findings given above, the penalt y levied by the lower authorities u/s 271AAA of the Act in this case is held not sustainable and the same is accordingly ordered to be deleted. 28
23. In the result, the appeal of the assessee is hereby allowed.
Order pronounced in the Open Court on 28.08.2017 Sd/- Sd/-
( ANNAPURNA GUPTA) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated : 28 t h August, 2017 Rkk Copy to: 1. The Appellant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR