Income Tax Appellate Tribunal - Pune
Sanjay Dattatraya Kakade, Pune vs Asst. Cit, Central Circle 2(2), Pune on 18 January, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "A", PUNE
BEFORE SHRI R.S. SYAL, VICE PRESIDENT
AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER
आयकर अपील सं. / ITA No.932/PUN/13
नधा रण वष / Assessment Years : 2009-10
Sanjay Dattatray Kakade, ACIT, Central Circle-2(3),
55/11A, Kakade Paradise, Vs. Pune
Ashok Path Lane,
New Law College Road,
Pune - 411 004
PAN : ALNPK3325J
(Appellant) (Respondent)
Appellant by Shri Hari Krishan
Respondent by Shri Sanjeev Ghei
Date of hearing 15-01-2019
Date of pronouncement 18-01-2019
आदे श / ORDER
PER R.S.SYAL, VP :
This appeal by the assessee emanates from the order passed by the CIT(A) Central, Pune on 29-01-2013 confirming and also enhancing the penalty imposed by the Assessing Officer u/s.271AAA of the Income-tax Act, 1961 (hereinafter also called `the Act') in relation to the Assessment Year 2009-
10. 2 ITA No.932/PUN/2013
Sanjay D. Kakade
2. Briefly stated, the facts of the case are that a search and seizure action u/s.132 of the Act was taken upon the assessee on 11-02-2009. Return was filed on 30.09.2010 declaring total income of Rs.26,21,24,080/-. The AO assessed the total income at Rs.28,20,70,090/-. Penalty of Rs.57,70,620/- was imposed u/s.271AAA on the undisclosed income of Rs.5,77,06,205/-. The ld. CIT(A) dismissed the appeal of the assessee and also made an enhancement of penalty on a further income of Rs.2,07,46,005/-, on which the AO had chosen not to impose penalty under this section. Aggrieved thereby, the assessee is in appeal before the Tribunal.
3. We have heard the rival submissions and gone through the relevant material on record. The assessee raised certain grounds in the memorandum of appeal. Thereafter, certain additional grounds were filed and eventually modified additional grounds of appeal were filed, challenging the impugned order on certain legal issues as well as on merits.
4. We will first espouse the legal issues urged on behalf of the assessee in seriatim. The first legal issue taken up by the ld. AR is that the penalty u/s.271AAA be deleted as the same 3 ITA No.932/PUN/2013 Sanjay D. Kakade can be imposed only in respect of 'specified previous year' and the assessment year 2009-10 under consideration, cannot be so construed. In his opinion, the assessment year 2008-09 was the correct 'specified previous year' in terms of Explanation (b)(i) to section 271AAA of the Act and further that sub-clause (ii) of the Explanation (b) was not attracted in the present case. This contention was strongly countered by the ld. DR.
5. It is seen from the assessment order that the search in this case was initiated on 11-02-2009. The ld. AR has invited our attention towards the last panchnama, a copy of which has been placed on page 19 onwards of the paper book, which is dated 03-04-2009. The dates of initiation and conclusion of search have not been denied on behalf of the Revenue. It is thus palpable that the search in this case commenced on 11- 02-2009, which is prior to the closure of the financial year ending 31-03-2009 and completed on 03-04-2009, which is after the closure of the financial year ending 31-03-2009. The question which looms large before us is to determine 'specified previous year' in terms of Expl. (b)(i) to section 271AAA of the Act, which in the opinion of the ld. AR 4 ITA No.932/PUN/2013 Sanjay D. Kakade should be reckoned from the date of commencement of search, i.e. 11-02-2009, whereas the Revenue is contending that the same should be considered from 03-04-2009, being the date on which the search was concluded. In order to appreciate the rival contentions, it would be apt to note down the definitions contained in Explanation below sub-section (4) of section 271AAA, which read as under :-
"Explanation.--For the purposes of this section,--
(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 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 5 ITA No.932/PUN/2013 Sanjay D. Kakade 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.]"
(some parts italicized by us)
6. Sub-section (1) of section 271AAA provides that penalty shall be computed @10% of the undisclosed income of the 'specified previous year' where search is initiated after 01-06- 2007 but before 01-07-2012. Sub-section (3) of section 271AAA provides that in case penalty is imposed under sub- section (1), then the provisions of section 271(1)(c) shall not apply in respect of such undisclosed income. When we consider the provisions of section 271(1)(c) in juxtaposition to section 271AAA, it is manifested that in case of a search, penalty is imposed u/s.271AAA on the undisclosed income of the 'specified previous year' and penalty u/s.271(1)(c) is imposed with reference to other years covered under search assessments. Search in the extant case was conducted in the year 2009, which undoubtedly falls within the period stipulated in sub-section (1) of section 271AAA. In such a scenario, penalty is liable to be imposed on undisclosed income of the `specified previous year' u/s 271AAA alone. 6 ITA No.932/PUN/2013
Sanjay D. Kakade The AO has treated assessment year 2009-10 as the `specified previous year' and imposed the instant penalty.
7. Now the question arises about the determination of the 'specified previous year' as per sub-clause (i) of the Explanation (b) to section 271AAA, which provides that a 'specified previous year' means a 'previous year' which has ended before the date of search, but the date of filing the return of income u/s.139(1) for such year has not expired before the date of search and the assessee has not furnished his return of income for that previous year before the said date. The controversy in this regard is to find out the meaning of the terms `date of search'. Whereas the case of the assessee is that the expression `date of search' as employed in Expl. (b)
(i) means the date of initiation or commencement of search, the Revenue has canvassed a view that it refers to the date of conclusion or completion of search. If we consider the date of initiation as the date of search, which in the instant case is 11- 02-2009, then the 'specified previous year' would be the previous year which ended on 31-03-2008 and the relevant assessment year would be 2008-09 and if we go with the Revenue and take the date of conclusion of search as the date 7 ITA No.932/PUN/2013 Sanjay D. Kakade of search, which is 3.4.2009, then the 'specified previous year' would be the previous year which ended on 31-03-2009 and the relevant assessment year would be 2009-10.
8. Normally, there are three stages in case of a search. First is the initiation of process of search; second is the initiation of search; and third is conclusion of search. Section 132(1) of the Act provides that where Principal Director General etc., in consequence of the information in his possession, has reason to believe the existence of one of the three conditions, such as, any person is in possession money, bullion, jewellery or other valuable article of thing etc. and such money, bullion, jewellery etc., represents either wholly or partly income which has not been or would not be disclosed, then he may authorize any Additional Director etc., being the authorized officer, to enter and search any building, place, vessel etc., where he has reason to suspect that such undisclosed money, bullion, jewellery or other valuable article or things are kept. This is the stage of authorization of search by the Principal Director General etc., which is the first stage in our discussion, being, the initiation of process of search. Pursuant to such first stage, that is, authorization of search action by the Principal Director 8 ITA No.932/PUN/2013 Sanjay D. Kakade General etc., the authorized officer physically enters the building etc. and carries out the actual search. This is the second stage in our discussion, which is initiation of search. When the entire search is concluded by the authorized officer and a final panchnama is drawn, then we enter the third stage, that is, the search is concluded.
9. The legislature has used the word `search' preceded by the words 'initiation of' or 'conclusion of' at different places to clearly convey that it is referring to the date of initiation of search or the conclusion of search, as the case may be. For example, section 153A dealing with assessment in case of search or requisition specifically uses the expression 'initiation of search' in second proviso to sub-section (1). Similarly, section 153C dealing with the assessment of income of any other person uses the expression 'initiation of search' in first proviso to sub-section (1). On the contrary, section 153B(2) provides that the authorization shall be deemed to have been executed in the case of search, on the 'conclusion of search' as recorded in the last panchnama. Section 158BE setting out time limit for completion of block assessment also provides under sub-section (2) that the authorization shall be deemed to 9 ITA No.932/PUN/2013 Sanjay D. Kakade have been executed in the case of search on the 'conclusion of search'. Thus, it is overt that the Parliament has recognized the expression 'initiation of search' as distinct from 'conclusion of search' and used such expressions at the appropriate places as deemed necessary.
10. Reverting to the Explanation to clause (b)(i) to section 271AAA, we find that the legislature has simply used the expression `date of search' and the same is not qualified by the words `initiation of' or `conclusion of'. The `specified previous year' in the extant case varies with pre-fixing of the words `initiation of' or `conclusion of' to the word `search' as used in the provision. the Whereas the assessee is battling for pre-fixing the words `initiation of' before the word `search' in the provision, the Revenue is strongly pitching for using the words `conclusion of'. In the absence of any express usage of the appropriate pre-fix to the word `search' in the language of the Explanation (b)(i) to section 271AAA of the Act, we need to discover the same on a harmonious reading of the provision in entirety. When so understood and on taking a holistic view of the mater, it turns out that the legislature intended to mean the 'date of search' in sub-clause (i) of clause (b) of the 10 ITA No.932/PUN/2013 Sanjay D. Kakade Explanation to section 271AAA as the `date of initiation of search'. We fortify our view by simultaneously reading clauses (a) and (b) of the Explanation to section 271AAA defining `undisclosed income' and `specified previous year'. Firstly, it is pertinent to note that similar expression, namely, `before the date of search' has been used in both the clauses, viz., (a) and (b)(i) of the Explanation. We have set out supra the definition of `undisclosed income' in the Explanation (a) in two sub-clauses (i) and (ii), dealing with broader categories of any income represented by unexplained assets etc. and any income represented by false expenses. We are restricting ourselves to sub-clause (i), which defines `undisclosed income' to mean any income represented by any money, bullion, jewellery etc. found in the course of a search 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 search'. The expression `before the date of search' in Explanation (b)(i) has also been used without any pre-fix of `initiation of' or `conclusion of'. 11 ITA No.932/PUN/2013
Sanjay D. Kakade On an analysis of the expression `before the date of search' in the definition of `undisclosed income', it amply transpires that it refers to the date of `initiation of the search'. Our reasoning is that part (A) in clause (i) of the Explanation (a) refers to the undisclosed income etc. which has not been recorded in the books of account before the date of search. It necessarily has to be an income which is not found to be recorded at the time of initiation of search and it cannot be an income which is not found to be recorded at the time of conclusion of search. Once an item of income not recorded is found at the time of initiation of search, it will remain undisclosed even if the assessee during the course of search records it in its books of account. If we interpret it as referring to the date of conclusion of search, then any one can easily go scot free by recording in his books of account the undisclosed income found during the course of search, before the conclusion, thereby making it as disclosed income, which proposition is patently incorrect. Once an item of income is found, which is not recorded in the books of account up to the date of initiation of search, the same has to be obviously characterized as undisclosed income. Similar position follows by reading part (B) in clause (i) of the 12 ITA No.932/PUN/2013 Sanjay D. Kakade Explanation (a), which also refers to the undisclosed item of income which has otherwise been not disclosed to the Principal Cf. CIT etc. `before the date of search'. Here again, if we construe the `date of search' as the date of conclusion of search, it would mean that any undisclosed income found during the course of search would become a disclosed income, if the assessee discloses it to the competent authority at any time during the continuation of search. Thus, if any income by way of certain money, bullion, jewellery etc. is found during the course of search which has not been recorded in the books of account, the assessee cannot escape the clutches of section 271AAA simply by recording or disclosing the same after the initiation but before the conclusion of search. Obviously, this cannot be the intention of the legislature to construe the expression 'date of search' given in clause (a) of the Explanation to mean the 'date of conclusion of search'. It has to be the 'date of initiation of search' so that any income represented by any money, bullion, jewellery etc. found in the course of search but not recorded in the books is considered as 'undisclosed income'. Thus it becomes crystal clear that the expression `before the date of search' used in clause (a) of the 13 ITA No.932/PUN/2013 Sanjay D. Kakade Explanation refers to the `date of search' as the date of `initiation of search' and not the date of `conclusion of search'. As the same expression of 'before the date of search' has been used in the definition of 'specified previous year', we hold that on a tuneful reading of clauses (a) and (b) of the Explanation to section 271AAA, the 'date of search' in the Explanation
(b) is also the 'date of initiation of search' and not the 'date of conclusion of search'. If we consider 11-02-2009, being, the 'date of initiation of search' as the 'date of search', the 'specified previous year' in terms of sub-clause (i) of clause
(b) of Explanation to section 271AAA becomes the year ending 31-03-2008, being, the previous year which ended before the date of search on 11-02-2009. Going by this interpretation of the provision, the A.Y. 2009-10 cannot be considered as the `specified previous year'. The contention of the assessee is, ergo, upheld.
11. Having seen the meaning of the `specified previous year' in terms of sub-clause (i), now we turn to sub-clause (ii) of clause (b) of Explanation to section 271AAA. As per this provision, 'specified previous year' means `the previous year in which search was conducted'. In this regard, the ld. AR 14 ITA No.932/PUN/2013 Sanjay D. Kakade submitted that for the purposes of sub-clause (ii), the year of search should be considered as the year in which the search was concluded and since the search was concluded on 3.4.2009, which falls in the previous year 2009-10, the `specified previous year' becomes A.Y. 2010-11 and not the A.Y. 2009-10 under consideration. This argument was strongly refuted by the ld. DR.
12. Having heard both the sides, we find that the ld. AR has bolstered a view that for the purposes of sub-clause (i), the date of `search' should be considered as the date of `initiation of search', but when it comes to sub-clause (ii), it should be treated as the date of `conclusion of search'. It can be seen that sub-clause (ii) of clause (b) of the Explanation also refers to the word `search' and no prefix of 'initiation of' or 'conclusion of' has been used therein also. We have noticed while interpreting the term 'date of search' in sub-clause (i) of clause (b) of Explanation that it refers to the 'date of initiation of search'. Once the position is so, we fail to comprehend as to how the same unqualified expression 'search' used in both the sub-clauses can be construed differently, that is, with a prefix of 'initiation of' in sub-clause (i) and `conclusion of' in 15 ITA No.932/PUN/2013 Sanjay D. Kakade sub-clause (ii) of clause (b) of the Explanation. In the absence of any specific prefix used to the term 'search' in clause (b) of the Explanation defining 'specified previous year', we can assign only one meaning to the word 'search' in both the sub- clauses. Going with our interpretation, the year in which search is conducted has also to be seen as the year in which the search is initiated and not the year in which it is concluded. Even otherwise, the word `conduct' means to execute. A search is conducted when it actually takes place. We cannot say that a search is conducted on its conclusion. It is, therefore, held that the 'specified previous year' under clause
(b)(ii) of the Explanation to section 271AAA means the previous year in which the search was initiated. As the search in this case was initiated on 11-02-2009, which falls in the previous year ending 31-03-2009, the assessment year 2009- 10 becomes the relevant previous year. It is thus held that the assessment year 2009-10 under consideration is the 'specified previous year' in terms of Explanation (b)(ii), being, the previous year in which the search was conducted. In that view of the matter, we do not find any infirmity in the passing of the instant penalty order u/s.271AAA for the assessment year 16 ITA No.932/PUN/2013 Sanjay D. Kakade 2009-10. The contention raised by the assessee in this regard is thus repelled.
13. The next legal argument raised by the ld. AR is that the assessee was entitled to immunity under sub-section (2) of section 271AAA, which has been wrongly denied. In order to appreciate the rival contentions, it would be apposite to reproduce sub-section (2) of section 271AAA, as under :-
`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.'
14. On circumspection of sub-section (2), it is borne out that penalty @ 10% of the 'undisclosed income' of the 'specified previous year' as set out in sub-section (1), shall not be imposed if the assessee satisfies three conditions, viz, (i) he admits the undisclosed income in statement u/s.132(4) and also specifies the manner in which such income was derived;
(ii) he substantiates the manner in which the undisclosed income was derived; and (iii) pays taxes etc. in respect of such undisclosed income. It is only on the cumulative satisfaction 17 ITA No.932/PUN/2013 Sanjay D. Kakade of the above three conditions that an assessee can avail immunity from penalty u/s.271AAA.
15. Adverting to the facts of the instant case, it is seen that in his statement u/s.132(4) recorded on 12-02-2009, whose copy is available on pages 88-89 of the paper book and the english translation has been provided on pages 90-91 of the paper book, the assessee in reply question no. 5 declared an additional income of Rs. 40 crore and agreed to pay tax on it within six to twelve months. On 12-06-2009, the assessee reiterated before the DDIT (Inv) the declaration of Rs.40 crore as additional income based on various papers and records in the hands of self and the members of the group. A copy of such letter is available on page 102 of the paper book. However, the assessee shot a letter dated 04-11-2009 to the CIT (Investigation) withdrawing the declaration made u/s.132(4). In this letter, whose copy is placed on page 105 of the paper book, the assessee wrote to the CIT (Investigation) that the declaration was made under stressful conditions when his mind was unable to respond to any logic and reasoning. This letter concludes by recording that : "the said declaration does not reflect the true position 18 ITA No.932/PUN/2013 Sanjay D. Kakade and as such I, retract/withdrew the said erroneous declaration signed by me earlier". Another letter dated 12-11-2009, copy placed on page 106 of the paper book, was addressed to the ACIT, Central Circle-2(2) informing about the withdrawal of the disclosure of Rs.40 crore made by him during the course of search. The ld. AR claimed that despite the above retraction, the assessee and his family members filed returns declaring the admitted income of Rs.40 crore. Under such circumstances, a question arises as to whether the assessee can be said to have satisfied the condition in clause (i) of section 271AAA(2) of the Act?
16. In our considered opinion, the answer to this poser needs to be given in negative. The obvious reason is that though the assessee admitted undisclosed income in his statement u/s 132(4), but later on retracted from the same. Once he retracted from the statement made u/s.132(4), the original admission came to be effaced. The fact that the assessee later on filed returns declaring the originally surrendered income, bring him at par with any other assessee who does not surrender any undisclosed income in the statement u/s 132(4), but files return declaring certain income suo motu. Consequences which 19 ITA No.932/PUN/2013 Sanjay D. Kakade follow in the case of such any other assessee, apply to the assessee as well. As such any other assessee, by simply offering certain additional income in the return, cannot claim immunity under sub-section (2), the same holds true for the assessee as well. The position would have been different if the assessee had not retracted from the surrender of undisclosed income and offered such income surrendered u/s 132(4) in his return of income. The factum of retraction had the effect of erasing the earlier surrender of 'undisclosed income' u/s 132(4) of the Act. When the facts are such, we are afraid, that the assessee cannot be said to have fulfilled the condition of clause (i) of section 271AAA(2) of the Act.
17. It is further relevant to note that the second condition of clause (i) of section 271AAA(2) is that the assessee `specifies the manner in which such income has been derived'. We find from the reply to question no. 5 of the statement u/s.132(4) that albeit the assessee surrendered the 'undisclosed income' but did not specify the manner in which such income was derived. He simply stated that "some entries are left to be entered in the books of account and some short coming is there in it". Taking into consideration of these 20 ITA No.932/PUN/2013 Sanjay D. Kakade matters.................additional income of Rs. 40 crore is being declared". It is, therefore, evident that the assessee not only failed to conclusively surrender the 'undisclosed income' in his statement u/s.132(4) but also did not specify the manner in which such income was earned.
18. It is still further relevant to note that even the condition under clause (ii) of section 271AAA(2) has not been satisfied, which requires the assessee to substantiate the manner in which the 'undisclosed income' was derived. As the assessee failed to `specify' the manner in which the undisclosed income was earned, there could have been no occasion and there is, in fact, no `substantiation' of the manner in which such undisclosed income was derived.
19. The third condition as stipulated in clause (iii) of sub- section (2) is that the assessee pays taxes with interest, if any, in respect of the 'undisclosed income'. The factual panorama concerning the payment of taxes needs to be elaborately noticed. The assessee even though declared 'undisclosed income' in his return of income, but did not pay appropriate amount of taxes on such income along with the return of income. The assessment was completed on 31-12-2010 and 21 ITA No.932/PUN/2013 Sanjay D. Kakade the position remained as such. The penalty order came to be passed on 30-06-2011 and the AO has recorded a categorical finding that "the assessee has not paid the entire taxes on the income returned till today". The ld. AR candidly accepted correctness of the finding recorded by the AO in this regard in the penalty order. He, however, claimed that the appropriate amount of taxes was subsequently paid and hence, the condition of payment of taxes should be considered as satisfied. For this proposition, he relied on the judgment of Hon'ble Supreme Court in the case of ACIT Vs. Gebilal Kanhaialal HUF (2012) 348 ITR 561 (SC) in which it has been held that no time limit for payment of taxes is prescribed under clause (2) of Explanation 5 to section 271(1)(c).
20. It is found as an admitted position that the assessee did not pay full amount of taxes with interest after making disclosure or along with return of income or till the passing of the assessment order or even the penalty order. Full amount of taxes was claimed to have been paid after passing of the penalty order. A question arises as to whether under such circumstances the requirement of clause (iii) can be treated as satisfied? In our considered opinion, the answer to this 22 ITA No.932/PUN/2013 Sanjay D. Kakade question cannot be given in affirmative. It is patent that no time limit has been prescribed in clause (iii) of section 271AAA(2) in the same manner, as is the position in the case of Explanation 5 to section 271(1)(c). In the absence of any time limit for payment of taxes, such payment needs to be made within a reasonable time. Explanation 5 to section 271(1)(c) and sub-section (2) to section 271AAA talk of immunity from imposition of penalty. It is but natural that such immunity can be granted only if all the requisite conditions, including payment of taxes, are fulfilled latest before the imposition of penalty. If the condition of payment of taxes is not fulfilled even up to the date of passing of the penalty order, the assessee cannot claim immunity from imposition of penalty.
21. The ld. AR has relied on the judgment in the case of Gebilal Kanhaialal HUF (supra) in which their Lordships held that in the absence of any time limit for payment of taxes, the payment made by the assessee with taxes together with interest should be considered to have satisfied the third condition of clause (2) of Explanation 5 to section 271(1)(c). This judgment was delivered on an appeal filed by the 23 ITA No.932/PUN/2013 Sanjay D. Kakade Revenue against the judgment of the Hon'ble Rajasthan High Court in Gebilal Kanhaialal HUF vs. ACIT (2004) 270 ITR 523 (Raj.) in which the factual position has been recorded in more detail. Search in that case was conducted on 29-07-1987, during the course of which the assessee made a surrender. Though taxes were not paid immediately but such taxes were paid "before completion of the assessment". It is in this backdrop of facts that the Hon'ble Summit Court upheld the judgment of the Hon'ble High Court holding that the condition of payment of taxes should be considered to have been satisfied. It is certainly understandable that the condition of payment of taxes in terms of clause (ii) of Explanation 5 to section 271(1)(c) can be considered to have been satisfied by paying due taxes before the completion of assessment, if not paid prior to the filing of return etc. But if the taxes are not paid even till the passing of the penalty order, for which the assessee is claiming immunity, we fail to appreciate as to how there can be any immunity. The ratio in the case of Gebilal Kanhaialal HUF (supra) needs to be seen in the background of the facts in which it was laid down. That was a case in which taxes were paid before the completion of 24 ITA No.932/PUN/2013 Sanjay D. Kakade assessment and the Hon'ble Apex Court held that the requisite condition stood satisfied on payment of such taxes. The facts of the instant case are no where matching with those of the case decided by the Hon'ble Supreme Court. Non-payment of taxes much after the completion of assessment or even after the passing of penalty order cannot, in our considered opinion, be construed as fulfillment of condition in clause (iii) of section 271AAA(2).
22. In view of the foregoing discussion, we are satisfied that the assessee failed to fulfill all the three requisite conditions set out in sub-section (2) of section 271AAA and hence, the authorities were justified in denying the immunity from payment of such penalty.
23. Still another legal issue was raised by the ld. AR by stating that the AO did not record proper satisfaction in the assessment order before imposing penalty. Drawing an analogy from certain decisions in which penalty u/s 271(1)(c) has been deleted where the AO did not categorically record satisfaction as to whether it was a case of concealment of income or furnishing of inaccurate particulars of income, the ld. AR submitted that the AO failed to record similar proper 25 ITA No.932/PUN/2013 Sanjay D. Kakade satisfaction in his assessment order before imposing penalty u/s 271AAA of the Act.
24. We have gone through the rival submissions in the light of the related statutory provision. The argument of the ld. AR that the AO failed to record proper satisfaction in the assessment order before initiating penalty u/s 271AAA, is factually incorrect and devoid of merit. It can be seen from the assessment order that the AO mentioned about the initiation of penalty u/s 271AAA at least at six places. Then at the end of the order again, he has written that notice for penalty, inter alia, u/s 271AAA be issued.
25. There is another aspect of the matter. The ld. AR has drawn a parallel from section 271(1)(c) to buttress his argument of non-imposition of penalty for want of recording of proper satisfaction. In this regard, it is relevant to note the difference between language of section 271(1)(c) por una parte and section 271AAA por otra parte.
26. The relevant part of section 271 reads as under :-
(1) If the Assessing Officer or the Commissioner (Appeals) or the Principal Commissioner or Commissioner in the course of any proceedings under this Act, is satisfied that any person--
(a) 26 ITA No.932/PUN/2013 Sanjay D. Kakade
(b)
(c) has concealed the particulars of his income or furnished inaccurate particulars of such income, or
(d) , he may direct that such person shall pay by way of penalty,...'.
27. A close scrutiny of the relevant parts of section 271 deciphers that there are two important requisites of this provision. The first is that the AO etc., `is satisfied' that any person has concealed the particulars of income etc. and the second is that 'he may direct' that such person shall pay penalty. It is in view of such a language of the provision that the AO should first be satisfied about concealment etc, by recording requisite satisfaction and then he should direct the imposition of penalty.
28. On the other hand, sub-section (1) of 271AAA 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 but before the 1st day of July, 2012, 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."27 ITA No.932/PUN/2013
Sanjay D. Kakade
29. When we peruse the language of this provision, it turns out that the AO is simply to `direct' that penalty should be paid by the assessee under this provision.
30. On consideration of the language of sub-section (1) of section 271 in conjunction with sub-section (1) of section 271AAA, it becomes glaringly apparent that whereas section 271(1) requires recording of satisfaction by the AO first and then the direction to impose penalty is warranted, section 271AAA simply requires direction to impose penalty without recording any satisfaction. Unlike section 271(1)(c), the legislature has not contemplated recording of satisfaction u/s 271AAA. Once it is found that there is no requirement of recording satisfaction in section 271AAA before imposing penalty, the argument of ld. AR that the satisfaction was improper or it was not specific, automatically becomes academic in nature.
31. Notwithstanding the above, it is significant to note that even the position in the context of section 271(1)(c) requiring recording of proper satisfaction before initiating penalty, has undergone statutory amendment. The Finance Act, 2008 has inserted sub-section (1B) to section 271 with retrospective 28 ITA No.932/PUN/2013 Sanjay D. Kakade effect from 01-04-1989 providing that where any amount is added or disallowed in computing the total income in the assessment order and there is a direction for initiation of penalty u/s 271(1)(c), such assessment order shall be deemed to constitute satisfaction of the AO for initiation of penalty. With this insertion, proper satisfaction of the AO is deemed to be recorded on his writing at the end of the assessment order about the initiation of the penalty proceedings. Thus, it is no more open to the assesses to contend that no penalty can be imposed in the absence of recording proper satisfaction by the AO in the assessment order, so long as there is a direction at the end of the assessment order for initiating penalty. Adverting to the facts of the instant case, we find that the AO has initiated penalty proceedings at the end of the assessment order, apart from mentioning at several places in the body of the assessment order to initiate penalty u/s 271AAA of the Act.
32. Viewed from any angle, we have no hesitation in holding that the action of the AO in imposing penalty, on all the legal issues taken up by the ld. AR, cannot be faulted with 29 ITA No.932/PUN/2013 Sanjay D. Kakade and is perfectly in order. Thus the contention of the ld. AR on all the legal issues is jettisoned.
33. Now we take up the penalty on merits. The factual matrix is that the assessee offered an income of Rs.26.21 crore in his return of income and the assessment was made at a total income of Rs.28.20 crore, making an addition of Rs.2.07 crore towards 'undisclosed income' and reducing it by Rs.8 lakh towards `Declaration in r/o Kakade Jewellers'. The AO imposed penalty on income of Rs.5.77 crore which includes a sum of Rs.5.86 lakh, being, a sum of bank deposits and interest thereon which was suo motu offered by the assessee in his return of income without any detection and which is separate from total surrender made by him. The assessee challenged such a penalty before the ld. first appellate authority, who made an enhancement with reference to an income of Rs.2.07 crore, for which the AO had initially imposed penalty u/s 271(1)(c) of the Act and not u/s 271AAA and such penalty u/s 271(1)(c) came to be deleted by the ld. CIT(A).
34. Before proceeding with the matter, it is essential to mention that the assessee was subjected to search and seizure 30 ITA No.932/PUN/2013 Sanjay D. Kakade action and the assessments were completed for the assessment years 2003-04 to 2009-10 pursuant to search. Penalties were imposed for all these years. The Tribunal confirmed penalty u/s. 271(1)(c) for the assessment years 2005-08 and 2008-09. Certain minor penalties for the assessment years 2003-04 and 2004-05 were deleted. Such a copy of the Tribunal order dated 28.02.2018 in ITA nos. 12/Pn/2013 etc. has been placed on record.
35. Reverting to the impugned order, first item of income which has been subjected to penalty is a sum of Rs.5.86 lac, representing a suo motu declaration by the assessee of the bank deposits made by him which were not detected in the course of search.
36. In order to test the sustenance or otherwise of penalty on this item of income, it is befitting to mention that section 271AAA of the Act contemplates penalty in respect of 'undisclosed income', which expression has been defined in the Explanation to section 271AAA, as has been extracted above. Relevant part of the Explanation states that 'undisclosed income' means any income represented wholly or partly by any money, bullion, jewellery etc. `found in the 31 ITA No.932/PUN/2013 Sanjay D. Kakade course of search' which has not been recorded before the date of search in the books of account or otherwise not disclosed. Since scope of penalty u/s.271AAA is restricted to undisclosed income found in the course of search, only such items of undisclosed income can be considered for imposition of penalty under this section, which are found in the course of search. If a particular item of income is not found during the course of search but the assessee suo motu offers it in his return of income, the same cannot fall within the purview of 'undisclosed income' and escapes the rigor of the penal section. Since income of Rs.5.86 lakh does not qualify as 'undisclosed income' as it was not found during the course of search, the same in our considered opinion cannot be considered for the purposes of imposition of penalty u/s.271AAA. We, therefore, order to delete penalty to this extent.
37. It is noted that apart from Rs.5.86 lakh, the AO imposed penalty on income of Rs.5,71,19,958/- offered by the assessee in the return of income pertaining to documents found during the course of search. The detail of such amount of Rs.5.71 crore and odd is as under :-
32ITA No.932/PUN/2013
Sanjay D. Kakade Unexplained Jewellery 9,030,458 Cash expensed towards medical treatment of daughter, 45,500 Komal Kakade Cash payments to the contractors for the office building 27,700,000 Certain expenses 2,544,000 Payment made to Crocus Properties 7,000,000 Capital introduced in M/s. Kakade Jewellers 800,000 Cash payment to Shri. Khune 10,000,000 Total 57,119,958
38. Out of the seven items in the above Table, the ld. AR has challenged the confirmation of penalty only in respect of two items, namely, Rs.70 lakhs towards `Payment made to Crocus Properties' and Rs.8 lakhs towards `Capital introduced in M/s. Kakade Jewellers'. In respect of other items of income in the above Table, the ld. AR fairly admitted that penalty is exigible as they fall within the definition of 'undisclosed income'. As such, we confirm penalty in respect of the other five items of income listed in the above Table.
39. Now we turn to the first disputed item of income of Rs.70 lakh, which is `Payment made to Crocus Properties'. The AO recorded in Para 8(iii) of the assessment order that page 34 of bundle no. 4 of seized documents pertains to 33 ITA No.932/PUN/2013 Sanjay D. Kakade payments made to Crocus Properties Pvt. Ltd., on the basis of which the assessee declared undisclosed income.
40. Before taking up the issue of imposition or otherwise of penalty, it is noteworthy to observe that penalty proceedings are distinct from assessment proceedings. Mere fact that an addition was made or confirmed in appeal or not assailed by the assessee in the appeal proceedings cannot be a ground for automatic imposition of penalty. The legislature has separately enacted penalty proceedings, which implies that the question of imposition of penalty needs to be decided afresh independent of the assessment proceedings. In such penalty proceedings, the assessee gets one more opportunity to explain his position qua the imposition of penalty de hors the view canvassed in the assessment proceedings. If an assessee succeeds in convincing the authorities in such proceedings that the penalty is not called for notwithstanding the confirmation of addition or not filing of appeal in quantum proceedings, the penalty has to be deleted. With this background in mind, we will proceed to examine and evaluate if the penalty was rightly imposed/confirmed/enhanced.
34ITA No.932/PUN/2013
Sanjay D. Kakade
41. Income of Rs.70.00 lac was offered by the assessee on the basis of a seized document at page no. 34 of bundle no. 4. Page 45 of the paper book is a copy of such document whose english translation has been provided at page 47 of the paper book. Relevant part of this document reads as under:-
"As per the MOU in between myself Sanjay Kakade and Mr. Kalyani in respect of above said project, we both have to pay expenses in the ratio of 50%. At present funds of the said company is finished and for continue the work of acquisition of land our said contribution of near about Rs.2.50 crore it is necessary to send through Kakade Properties to Krocas. Such request is made by S.B. Kanade, Director, Krocas Properties Pvt. Ltd. Till this date an amount of Rs.4.20 crore is given by cheque. Similarly Rs.70 lakhs paid in cash. As such total Rs.4.90 crore is paid."
42. On going through the above part of the document, it can be seen that payment of Rs. 70 lakh was made to Crocus Properties Pvt. Ltd. by Kakade Properties Pvt. Ltd. in cash, apart from certain payments made through cheques. Copy of account of Crocus Properties Pvt. Ltd. in the books of Kakade Properties Pvt. Ltd. is available on page 48 of the paper book, which evidences that payment of Rs.4.10 crore was made by Kakade Properties Pvt. Ltd. by means of cheques. This implies that the remaining sum of Rs.70 lakh was also paid by Kakade Properties Pvt. Ltd. to Crocus Properties Pvt. Ltd., 35 ITA No.932/PUN/2013 Sanjay D. Kakade which was albeit offered by the assessee for taxation in his hands.
43. The moot question which arises for our consideration is as to whether penalty can be sustained in respect of an item of income offered by the assessee which evidently belonged to Kakade Properties Pvt. Ltd. We need not go so far to find out an answer to this proposition, as a similar issue has been discussed by the Tribunal in the penalty order of the assessee for the A.Yrs. 2003-04 to 2008-09 in the context of section 271(1)(c) of the Act. One of the items of income on which penalty was imposed is a sum of Rs.5 lakh offered by the assessee in his return of income for the A.Y. 2008-09 representing : `Amount disclosed as negative cash in M/s. Kakade Jewellers (Firm)'. The Tribunal has discussed this aspect on pages 38 and 39 of its order and deleted penalty on such an amount of Rs.5 lakh by observing that the penalty should have been validly imposed in the hands of M/s. Kakade Jewellers (Firm) and not the assessee. There is nothing on record to show that the said order of the Tribunal has been reversed or modified in any manner by the Hon'ble High Court. It is quite fundamental that penalty can be imposed on 36 ITA No.932/PUN/2013 Sanjay D. Kakade an assessee only if he has earned some undisclosed income. If some undisclosed income was earned by a third party, but offered as income by the assessee, the same cannot be considered as undisclosed income of the assessee for the purposes of penalty u/s 271AAA of the Act. Since the facts and circumstances of the penalty on the income of Rs.70 lakh declared by the assessee, which actually represents undisclosed income of Kakade Properties Pvt. Ltd. that was advanced by it to M/s. Crocus Properties Pvt. Ltd., are mutatis mutandis similar to those already decided by the Tribunal in assessee's own case for the immediately preceding assessment year, respectfully following the precedent, we hold that no penalty is sustainable in respect of such an income of Rs.70 lakh.
44. Next item of income on which penalty has been challenged is a sum of Rs.8,00,000/-, being, `Capital introduced in M/s Kakade Jewelllers'. The assessee included this sum in his total income furnished in the return of income. During the course of assessment proceedings, it was argued that the said amount of Rs.8,00,000/- pertains to the A.Y. 2005-06 and 2008-09. The Assessing Officer while computing 37 ITA No.932/PUN/2013 Sanjay D. Kakade income chargeable to tax, reduced this sum from the total income. It is this reduction of income, which has also been visited with the penalty.
45. It is apparent from penultimate page of the assessment order that the Assessing Officer excluded Rs.8,00,000/- from the total income of the assessee by noticing that : `the amount of Rs.8,00,000/- is actually pertaining to the AY 2005-06 and AY 2008-09 as discussed in these years and the amount of Rs.3,00,000/- and Rs.5,00,000/- respectively have been taxed in those years. The amount is therefore, reduced from this year'. It is, thus manifest that such sum of Rs.8,00,000/- is not an income of the `specified previous year' and ergo sheds the character of `undisclosed income' in terms of Expl. (a) to section 271AAA of the Act. In that view of the matter, there can be no question of penalty on it when the income itself has not been taxed. We, therefore, order to delete penalty on income of Rs.8,00,000/-.
46. Now we take up the last item disputed in the instant appeal, being an enhancement of penalty made by the ld. CIT(A) on income of Rs. 2,07,46,005/- arising out of page number 12 of bundle no. 1 of seized documents, whose copy 38 ITA No.932/PUN/2013 Sanjay D. Kakade is available at page 51 of the Paper book. This page contains date-wise details of certain unrecorded expenses. Amounts have been bifurcated on this page under two heads, namely, "Kakade" and "Sakhare". Then, there is a column of `Total', decoded to Rs.4.84 crore, which is a sum of the figures given under these two names, namely, "Kakade" (Rs.2.77 crore) and "Sakhare" (Rs.2.07 crore). The assessee did not object to the decoding and included Rs.2.77 crore in his total income representing the figures mentioned under the Column "Kakade", namely, self. The other sum of Rs.2.07 crore mentioned under the column "Sakhare" was not offered for taxation on the ground that it pertained to a third party and not the assessee. The Assessing Officer made an addition of Rs.2.07 crore to the total income of the assessee, which was not agitated in further appeals. No penalty was imposed by the Assessing Officer u/s 271AAA of the Act. When the appeal against the instant penalty order came up before the ld. CIT(A), he issued an enhancement notice and thus included the sum of Rs.2.07 crore in the amount liable for penalty. The assessee is aggrieved by the enhancement in penalty. 39 ITA No.932/PUN/2013
Sanjay D. Kakade
47. A preliminary legal question which arises on this score is whether the ld. CIT(A) could have validly enhanced penalty imposed by the AO u/s 271AAA of the Act? Before answering this question, it is crucial to recapitulate the facts that the AO initiated penalty u/s 271AAA on income of Rs.5.77 crore and penalty u/s. 271(1)(c) on income of Rs.2.07 crore. The assessee challenged the penalty imposed u/s 271(1)(c). The ld. CIT(A) deleted the penalty by observing that there is a specific provision in section 271AAA(3), which prohibits imposition of penalty u/s 271(1)(c) for the `specified previous year'. However, when the appeal against the penalty order u/s 271AAA came up before him, he issued notice of enhancement on the income of Rs.2.07 crore. Pursuant to such notice, he made an enhancement of the penalty levied by the AO u/s 271AAA. In such a situation, it becomes significant to determine the scope of power of CIT(A) under section 251(1)(b) of the Act, which provides that in disposing an appeal against an order imposing a penalty, he may confirm or cancel such order or vary it so as either to enhance or to reduce the penalty'.
40ITA No.932/PUN/2013
Sanjay D. Kakade
48. Sub-section (1) of section 271AAA provides that : "The Assessing Officer may, notwithstanding anything contained in any other provisions of this Act, direct that, .... the assessee shall pay by way of penalty... .' Power to levy penalty u/s 271AAA of the Act lies only with the AO, in contradistinction to section 271(1)(c), which empowers also the CIT(A) to impose penalty, in addition to the AO. On a conjoint reading of these two provisions, it is accentuated that CIT(A) cannot impose penalty u/s. 271AAA of the Act.
49. In the instant case, the ld. CIT(A) has rightly not exercised his power of imposing penalty u/s 271AAA, but instead resorted to making an enhancement of penalty imposed by AO u/s. 271 AAA of the Act. It is basic that the term `enhancement' of income or penalty pre-supposes existence of some income or penalty, which can be validly enhanced by the first appellate authority. In the context of an assessment, enhancement can be made by the CIT(A) w.r.t. the additions made by the AO. It is also possible that the AO discusses an item in the assessment order but does not make any addition for that. There can also be enhancement of such zero income determined by the AO on that score. But where 41 ITA No.932/PUN/2013 Sanjay D. Kakade the AO has neither made any addition on a particular item nor expressly considered that item in the assessment order, the CIT(A) cannot go beyond the assessment order to exercise the power of enhancement in respect of such item of income. The Hon'ble Supreme Court in CIT vs. Shapoorji Pallonji (1962) 44 ITR 891 (SC) and CIT vs. Rai Bahadur Hardutroy (1967) 66 ITR 443 (SC) has held that CIT(A) cannot assess a new source of income. Full Bench of the Hon'ble Delhi High Court in CIT vs. Sardari Lal & Co. (2001) 251 ITR 864 (Del) (FB) has also laid down to the similar extent. The Hon'ble jurisdictional High Court in Lokenath Tolaram vs. CIT (1986) 161 ITR 82 (Bom) has held that the power of enhancement of AAC is restricted to the subject matter of assessment or the source of income which has been clearly considered by ITO from the point of view of its taxability. Applying the ratio decidendi of the above cases to the penalty proceedings u/s 271AAA before the CIT(A), it becomes palpable that the CIT(A) can make enhancement of penalty imposed by the AO, if it was wrongly levied at a rate less than 10% or the AO considered a particular amount of income in the penalty order but got satisfied with the explanation 42 ITA No.932/PUN/2013 Sanjay D. Kakade tendered by the assessee and chose not to impose penalty thereon. If, however, a particular item of income was not at all considered by the AO in his penalty order, in our considered opinion, the same cannot come within the purview of power of enhancement by CIT(A) inasmuch as it would amount to travelling beyond the penalty order and discovering a new source of penalty, which is not permissible in view of the judgments rendered, inter alia, by the Hon'ble Supreme Court as discussed above.
50. Adverting to the facts of the instant case, we find that the AO did not impose any penalty u/s 271AAA on the income Rs.2.07 crore. Further, there is no whisper whatsoever on this score in the penalty order passed by the AO u/s 271AAA of the Act. In fact, the AO considered such income of Rs.2.07 crore in his penalty order separately passed u/s 271(1)(c) of the Act. Under such circumstances, the enhancement power of the ld. CIT(A) cannot be extended to income of Rs.2.07 crore. This legal issue is settled in favour of the assessee.
51. Notwithstanding the above, we will also consider the issue on merits. It is observed from the relevant seized document that the income, representing figures which appear 43 ITA No.932/PUN/2013 Sanjay D. Kakade under the name of the assessee totaling up to Rs.2.77 crore, was promptly offered for taxation. Then there are certain figures appearing under the name of `Sakhare', which total up to Rs.2.07 crore. It is this item of income on which the assessee has disputed the imposition of penalty on the ground that it did not pertain to him. There is no dispute on the fact that `Sakhare' is a person different from `Kakade', namely, the assessee. Page number 57 onwards of the paper book is a copy of registered Transfer deed dated 20th September 2011 in respect of a bungalow at Jalbaug Co-operative Housing Society Mumbai. This Transfer deed has been executed between "Sakhare" and the `Kakade', namely, the assessee on one hand and one Shrimati Anita J. Suri, on the other. This Transfer deed also mentions Permanent Account Number of Sh. Sakhare as distinct from the assessee. Not only that, even photographs of Shri Sakhare and the assessee have been incorporated on such a Transfer deed. It thus becomes crystal clear that "Sakhare" is a person different from the assessee. If there is certain undisclosed income pertaining to "Sakhare", the same cannot be included in the income qualifying for penalty imposable on the assessee u/s 271AAA of the Act, 44 ITA No.932/PUN/2013 Sanjay D. Kakade even though such an income got assessed in his hands. We therefore, order to delete penalty on income of Rs.2.77 crore.
52. In the result appeal of the assessee is partly allowed. Order pronounced in the Open Court on 18th January, 2019.
Sd/- Sd/-
(VIKAS AWASTHY) (R.S.SYAL)
JUDICIAL MEMBER VICE PRESIDENT
पुणे Pune; दनांक Dated : 18th January, 2019
सतीश
आदे श क त ल प अ े षत/Copy of the Order is forwarded
to:
1. अपीलाथ / The Appellant;
2. यथ / The Respondent;
3. आयकर आयु (अपील) /
The CIT (Appeals) Central, Pune
4. The CIT Central, Pune
िवभागीय ितिनिध, आयकर अपीलीय
5.
अिधकरण, पु णे "A" / DR 'A', ITAT, Pune;
6. गाड% फाईल / Guard file. // True copy //
आदे शानस
ु ार/ BY ORDER,
// True Copy // //
Senior Private Secretary
आयकर अपीलीय अिधकरण ,पु णे / ITAT, Pune
45
ITA No.932/PUN/2013
Sanjay D. Kakade
Date
1. Draft dictated on 15-01-2019 Sr.PS
2. Draft placed before author 18-01-2019 Sr.PS
3. Draft proposed & placed JM
before the second member
4. Draft discussed/approved JM
by Second Member.
5. Approved Draft comes to Sr.PS
the Sr.PS/PS
6. Kept for pronouncement on Sr.PS
7. Date of uploading order Sr.PS
8. File sent to the Bench Clerk Sr.PS
9. Date on which file goes to
the Head Clerk
10. Date on which file goes to
the A.R.
11. Date of dispatch of Order.
*