Income Tax Appellate Tribunal - Ahmedabad
The Acit, Central Circle-1,, Surat vs M/S. Shahlon Industries Pvt.Ltd.,, ... on 27 March, 2017
आयकर अपील य अ धकरण, अहमदाबाद यायपीठ - अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL
CAMP AT SURAT
BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER
AND
SHRI AMARJIT SINGH, ACCOUNTANT MEMBER
आयकर अपील सं./ IT(SS)A No.09/Ahd/2014
नधा रण वष /Asstt. Year: 2010-2011
ACIT, Cent.Cir.1 Vs. M/s.Shahlon Industries P.Ltd.
Surat. 91, Khatodara GIDC
B/h. Sub-Jail
Ring Road
Surat 395 002.
PAN : AACFS 0163 E
अपीलाथ / (Appellant) तयथ
् / (Respondent)
Revenue by : Shri Shiva Sewak, sr.DR
Assessee by : Shri Mehul Shah
सन
ु वाई क तार ख/Date of Hearing : 09/03/2017
घोषणा क तार ख /Date of Pronouncement: 27/03/2017
आदे श/O R D E R
PER RAJPAL YADAV, JUDICIAL MEMBER:
Revenue is in appeal before the Tribunal against order of the ld.CIT(A)-II, Ahmedabad dated 30.10.2013 passed for the Asstt.Year 2010-11.
2. Sole grievance of the Revenue is that the ld.CIT(A) has erred in deleting penalty of Rs.34 lakhs imposed by the AO under Section 271AAA of the Income Tax Act, 1961.
IT(SS)A No.09/Ahd/2014 2
3. Brief facts of the case are that a search and seizure operation was carried out under section 132 of the Income Tax Act on 28.1.2010 at the residential and business premises of 'Shahlon' Group. During the course of search incriminating material were found and seized. The statement of Shri Dhiraj Shah, main person of the group was recorded under section 132(4) of the Act. In his statement, he had admitted unaccounted income of Rs.7 crores for the entire group which was earned as a trading profit. Bifurcation of the said undisclosed income was also given on 19.3.2010 by way of a letter before DDIT (Investigation)-3, Surat. Share of the assessee in the said disclosure was Rs.3.40 crores. According to the assessee, the source of earning this unaccounted income was a trading profit out of which Rs.1.71 crores was invested in stock and Rs.1.69 crores in cash. The assessee has filed his return of income on 29.9.2010 and declared income of Rs.82,31,487/-. The AO passed an assessment order under section 143(3) r.w.s. 153A of the Income Tax Act on 29.12.2011. He found that GP disclosed by the assessee was low, therefore, he rejected book results and made an estimated addition on account of low GP at Rs.1,05,22,980/-. He determined taxable income of the assessee at Rs.1,87,54,470/-.
4. This addition as challenged before the ld.CIT(A) who deleted it. Department took the matter in appeal before the ITAT vide ITA No.61/Ahd/2013. The Tribunal found that GP disclosed by the assessee for the period of pre-search was 8.6% of the turnover whereas for the period of post-search, its GP was 13.9%. If this GP was compared with GP rate of last year, then, there was a very slight decline in the GP rate. Accordingly, the Tribunal upheld the order of the ld.CIT(A).
5. The AO has initiated penalty proceedings under section 271AAA of the Act on the ground that the assessee failed to disclose the manner and substantiate such manner with regard to undisclosed income IT(SS)A No.09/Ahd/2014 3 offered for tax in the statement made under section 132(4) of the Act. Accordingly, the ld.AO has imposed a penalty of Rs.34.00 lakhs on the alleged undisclosed income of Rs.3.40 crores.
6. On appeal, theld.CIT(A) has held that the assessee has not only disclosed the manner but also substantiate the manner. During the course of search, it was explained by the assessee that this undisclosed income was earned as a trading profit. Therefore, in the opinion of the ld.CIT(A), the assessee has fulfilled the conditions enumerated in sub- section (2) of Section 271AAA of the Act. The ld.CIT(A) accordingly deleted the penalty.
7. We have duly considered rival contentions and gone through the record carefully. Short question before us is whether the assessee has fulfilled all conditions stipulated in sub-section (2) of section 271AAA of the Act, that absolves it from the rigours of penalty. It is pertinent to take note of relevant part of section 271AAA. It reads as under:
"(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.
IT(SS)A No.09/Ahd/2014 4 (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)."
8. A bare perusal of this section would indicate that the AO did not dispute conditions enumerated in sub-clause (i) and (iii) of section 271AAA of the Act, because during the course of search statement of main person, Shri Dhiraj Shah was recorded and he had admitted undisclosed income of Rs.7 crores out of which Rs.3.40 crore was allocated to the assessee. Thus, there is no dispute with regard to the disclosure part as contemplated in sub-clause (i) of sub-section (2). Similarly, the assessee has paid tax along with interest as contemplated in sub-clause (iii). The dispute between the assessee and the AO relates to fulfillment of conditions mentioned in sub-clause (ii). We find that this aspect has been considered by the ld.CIT(A) elaborately in the following finding:
"5. I have carefully perused the penalty order as well as submissions made by the AR on behalf of the appellant. It is observed that the during search action u/s. 132 in the case of Shahlon Group of assessees on 28- 01-2010 and the main person of the group Shri Dhirajlal R. Shah admitted unaccounted income of Rs. 7 crore of entire group which was earned as trading profit. The bifurcation of the said undisclosed income of Rs. 7 crore was also given on 19-03-2010 by way of letter before DDIT (Investigation)-III Surat and the share of appellant in the said disclosure was Rs.340,00,000/-. The source of earning this unaccounted income was told by the appellant as trading profit out of which Rs.1.71 crore was invested in stock and Rs.169 lac in cash. It has been submitted by the ARs that in the schedule 17 of the notes forming part of accounts annexed with the audited final statements at note no. 12, it has been clearly stated that the declaration the in company is on account of income from trading activity and the said disclosure has been shown in the return of income under the head 'Profits and Gains of Business and Profession' and the Assessing Officer has assessed this disclosure as business income only.
5.1 The A.R. of the appellant has submitted that the assessee made the disclosure of Rs. 3.40 crores. The total group disclosure of Rs. 7 crores was made and initially the amount of Rs.8,19,67,770/- was unidentified which was later on disclosed in case of different entities and therefore assessee's disclosure of Rs. 2.30 crores was increased to 3.40 crores.
IT(SS)A No.09/Ahd/2014 5 So the disclosure of Rs. 1.1 crores was voluntarily disclosed. The disclosure of Rs. 3.40 crores was reflected in the return of income as can be seen from profit and loss account and schedule 10 annexed therewith.
5.2 It is also observed that the disclosure was made during the course of search action u/s. 132(4) and in the statement Shri Dhirajlal R. Shah clearly stated that the income was being admitted on behalf of all the assessees of the group and in the case of appellant company, the unaccounted income was earned as trading profit of business. The source of this income was thus explained. The application of the disclosed income was stated as to Rs. 1.71 crore invested in stock and Rs. 169 lac in cash.
5.3. The bifurcation of Rs. 7 crore was given on 19-03-2010 when the lifting of prohibitory order u/s. 132(3) was pending and hence it can be stated that the manner of deriving the unaccounted income and also the investment made therefrom was made by the appellant before the conclusion of search proceedings.
5.4 During appellate proceedings, the Assessing Officer was requested to give the information whether the declaration about bifurcation of disclosed income was made by the assessee during the course of search proceedings or not and whether the taxes were paid in time or not. The ACIT, Central Circle-1, Surat has submitted his report vide letter no. ACIT/CC.1/SRT/2013-14 dated 17-10-2013, the relevant portion of which is reproduced as under:
"Sub:- Appellate proceedings in the case of M/s. Shahlon Industries Pvt Ltd, Surat in respect of penalty u/s. 271 MA of the IT Act, 1961 for Rs 34.00 Lacs for the A.Y. 2010-11-Reg.
*************** Kindly refer to your telephonic talks held with the Jt. CIT, Central Range, Surat on 14.10.2013 on the subject cited above and you have called for following informations from the A. O. relating to appellate proceedings:-
i. Bifurcation of the disclosure of Rs.7.00 Crore filed by the assessee before the investigation wing is a part of appraisal report. The said disclosure the figure of offered undisclosed income has been shown as Rs.2.30Crores relating to the assessee company for the A.Y.2010-11. Copy of the said bifurcation letter is enclosed herewith for your reference.
In the return of income for the A.Y.2010-11, the assesses has shown offered undisclosed income of Rs.3.40 Crore whereas in the bifurcation letter of the assqssee the figure of offered undisclosed income has been shown as Rs.2.30 Crore only as stated above. Hence the disclosure IT(SS)A No.09/Ahd/2014 6 shown in the appraisal report has been declared in the assessment proceedings.
//. Issue of disclosure of Rs.7.00 Crore relating to Shahlon group was disclosed in the appraisal report, which includes disclosure of Rs.2.30 Crore relating to the assesses company for the A. Y. 2010-11. The A. O. has imposed the penalty of Rs.34.00 Lacs u/s. 271 AAA on the basis of offered undisclosed income of Rs.3.40 Crore shown in the return of income by the assesses.
///. The assessee company has filed return of income showing an income of Rs.82,31,487/- on 29.09.2010 for the year under consideration. Details of tax & interest payable & tax paid are as under-
Tax and Details of tax paid Tax at the time
interest payable payable offing of
the
return
26.56.283/- AdvTax:- 25,000/- NIL
TDS:-
12,72,545/-
140A:- 13,58,738/-
Total:- 26,56,283/-
5.5 It is also seen that the Assessing Officer has no where doubted the manner of earning of this undisclosed income of Rs. 2.30 crore and the disclosure has been accepted as such in the assessment order. Thus, it is (fear that the manner in which undisclosed income was derived was never disputed and the same was explained vide letter dated 19-03- 2010. The conditions of section 271AAA(2) are fulfilled as the taxes on the undisclosed income also have been paid as seen from records.
5.6 The ARs have also relied upon the Gujarat High Court in the case of CIT V/s. Mahendra C. Shah (2008) 299 ITR 205 (Guj) where Hon'ble Court has stated it is incumbent upon the authorized officer to explain the provisions of explanation 5 in entirety to the assessee and the authorized officer cannot stop short at a particular stage so as to take advantage of such a lapse in the statement. Therefore, even in the statement does not specify the manner in which the income is derived and if the income is declared and the taxes thereon paid, there would be substantial compliance not warranting any further denial of the beneficial under exception 2 in explanation 5 is commendable.
IT(SS)A No.09/Ahd/2014 7 5.7 The AR has also referred to the judgment of I.T.A.T. Ahmedabad Bench decision in the case of Rajendra Prasad Dokania - ITA No. 525/A/2012 where the aforesaid judgment of Gujarat High Court was cited. The judgment of Allahabad HC in the case of CIT V/s. Radha Kishan Goel - 278 ITR 454 (All) has also been referred to by the ARs.
6. It is noticed that though the judgment of CIT vs. Mahendra C. Shah; was given in the context of section 271(1)(c) the wordings used for granting immunity from penalty u/s. 271(1)(c) are similar to the wording used under sub-section (2) of section 271AAA. Taking into account the entire facts and circumstances of the case and legal position as cited above, I am of the considered view that levy of penalty u/s. 271AAA by the Assessing Officer in the case of appellant is held to be not justified and the same is hereby deleted.
7. In the result, the appeal is treated as allowed. "
9. The ld.CIT(A) has observed that the assessee has demonstrated the manner and also substantiated it. Department is unable to disprove this finding of the ld.CIT(A). It is say of the assessee that this amount was earned as a trading profit which was not disclosed to the department. It has also pointed out that a sum of Rs.1.71 crores was invested in stock and Rs.1.69 crores was kept in cash. Thus, to our mind the assessee has fulfilled all conditions enumerated in order to avail immunity from penalty imposable under section 271AAA of the Act. The ld.CIT(A) has appreciated the facts in right perspective, and we do not find any error in the finding of ld.CIT(A). Accordingly, appeal of the Revenue is dismissed.
10. In the result, the appeal of the Revenue is dismissed.
Order pronounced in the Court on 27th March, 2017 at Ahmedabad.
Sd/- Sd/- (AMARJIT SINGH) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 27 /03/2017