Income Tax Appellate Tribunal - Pune
Chandan K. Shewani, Pune vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
Pune Bench "B" , Pune
Before Shri G.S. Pannu Accountant Member
and Shri R.S. Padvekar, Judicial Member
ITA No. 235 & 236/PN/2010
(Asstt. Yeard : 2002-03 & 2003-04)
Chandan K. Shewani ... Appellant
D-14, Parmar Paradise,
B.J. Road
Pune-411001
PAN: ABDPS4846G
v.
Dy. Commissioner of Income Tax ... Respondent
Central Circle 1(1),
4th Floor, P.M.T. Building,
C Wing\, Shankerseth Road,
Swargate, Pune
Appellant by : S/Shri Sunil Pathak/Nikhil Pathak
Respondent by : Shri Alok Mishra
Date of Hearing : 16/7/12
Date of Pronouncement : 29-8-12
ORDER
Per R.S. Padvekar, JM
These two appeals are arising from the penalty orders passed u/s. 271(1)(c) of the Act for the A.Ys. 2002-03 and 2003-04. As the facts are identical in both the A.Ys., both these appeals are disposed off by this common order. The assessee has questioned the validity of the penalties levied u/s. 271(1)(c ) by the A.O. and partly sustained by Ld. CIT(A) for the A.Y. 2002-03 and A.Y. 2003-04.
2. The facts revealed from the record are as under. There was search action in the case of assessee u/s. 132 of the Act on 15.6.2004 during which, cash amounting to Rs. 35,25,000/- was seized as the assessee could not explain the source of the said cash. In the return filed in response to notice u/s. 153A, assessee declared the additional income of Rs. 9,80,000/-, which comprised of undisclosed family expenses of Rs. 4,80,000/- and fictitious gifts of Rs. 5,00,000/- over and above what was detected as a result of search. The A.O. made estimated addition of Rs. 50,000/- to undisclosed income offered by the assessee of Rs. 9,80,000/- and another sum of Rs. 50,000/- towards 'on-money'. The A.O. initiated the penalty proceedings u/s. 271(1)(c ) and vide order 2 ITA Nos.235 & 236/PN/2010 Chandan K. Shewani A.Ys. 2002-03 & 2003-04 Page of 11 dated 28.3.2008, levied the penalty of Rs. 4,50,000/- u/s. 271(1)(c ) of the Act. As observed by the A.O, the additional income on account of undisclosed cash credits and fictitious gifts to the extent of Rs. 9,80,000/- was offered in consequence to the search action only. The A.O has further observed that the assessee's case is covered by Explanation - 3 to Sec. 271(1)(c ). Considering the fact that assessee filed the return of income only after the date of search, he concluded that to the extent of Rs. 15,42,140/-, the assessee has concealed the income for the A.Y. 2002-03 and he levied the penalty to the extent of Rs. 4,50,000/- for the A.Y. 2002-03. The assessee challenged the penalty order before the Ld CIT(A). The Ld CIT(A) confirmed the penalty on the following items of income :
1) Unexplained credit Rs. 9,80,000/-
2) Undisclosed entry Rs. 10,676/-
3) Income from share trading Rs. 4,566/-
4. Capital Gains Rs. 1,36,252/-
5. Dividend Rs. 977/-
In sum and substance, the assessee could not get major relief from Ld. CIT(A) and hence, the assessee is in appeal before us for A.Y. 2002-03.
3. In respect of A.Y. 2003-04, the assessee filed the return of income for the said Assessment Year on 29.4.2005 disclosing total income of Rs. 37,99,170/-. In the said return, the assessee offered the additional income of Rs. 32,00,000/- on account of undisclosed cash credit and Rs. 55,000/- on account of undisclosed entry. The A.O. concluded the assessment of the assessee determining the total income of Rs. 38,39,170/-. The A.O. initiated the penalty proceedings u/s. 271(1)(c ) in respect of the additional income of Rs. 32,55,009/- which was offered by the assessee. It appears that the addition of Rs. 50,000/- made by the A.O in respect of the undisclosed cash credit to the extent of Rs. 50,000/- was deleted by the CIT(A). The assessee contended that there is no variation between the income assessed and declared in the return of income filed u/s. 153A. The A.O. rejected the contention of the assessee and levied the penalty of Rs. 12,00,000/- on the income of Rs. 32,55,000/- which was offered by the assessee in the return filed. The assessee challenged the penalty order before the Ld CIT(A). Before the Ld CIT(A), the assessee contended that with a view to buy peace of mind, the assessee declared the additional income to the tune of Rs.
3 ITA Nos.235 & 236/PN/2010Chandan K. Shewani A.Ys. 2002-03 & 2003-04 Page of 11 32,55,000/- right at the time of search action itself. As per contention of the assessee, the said amount was in respect of unexplained cash credits as under :
Particular Amount
1.Drawing of family Rs.1,71,193/-
2.Citi Bank A/c. No.5-1036-35- Rs.5,00,000/-
7073.Citi Bank A/c. No.15-1036- Rs.9,75,000/-
36-703
Bank 148100 006216 Rs. 13,75,00/-
Tirupati Financial Nagari Rs. 1,00,000/-
Cash Balance Rs. 75,807/-
Total Rs.32,00,000
4. We have heard the parties and perused the record. We first take the assessee's appeal for the A.Y. 2002-03 being ITA No. 235/PN/2010. As per the facts on record, search action u/s. 132(1) of the I.T. Act was carried out at the residential as well as business premises of the assessee on 15.6.2004. During the course of search, cash of Rs. 35,59,100/-was found. So far as A.Y. 2002-03 is concerned, in response to notice u/s. 153A of the Act, the assessee filed the return of income disclosing total income of Rs. 14,92,138/-. The A.O completed the assessment making the addition to the extent of Rs. 1,00,000/-. The total income of the assessee declared in the return was comprised of the following income -
Sr.No. Particulars Amount
Rs. Ps.
1. Income from house property 1,67,389.00
2. Income from share trading 4656.00
3. Short Term Capital Gain on sale of 1,36,252.00
Shares
4. Interest + Dividend 1,93,166.00
5. Unexplained cash credit (Gifts + 9,80,000.00
Personal expenditure of assessee
and his sister )
6. Unexplained Entry 10,676.00
Total 1,492,140.00
4 ITA Nos.235 & 236/PN/2010
Chandan K. Shewani
A.Ys. 2002-03 & 2003-04
Page of 11
The A.O. made addition of Rs. 50,000/- on adhoc basis i.e. presuming that the assessee might have paid 10% commission on the gift shown and another adhoc addition of Rs. 50,000/- presuming that assessee might not have disclosed some income to that extent. The assessee challenged the said addition before the Ld CIT(A) and those additions were deleted. The A.O. levied the penalty on the entire income declared by the assessee u/s. 271(1)(c ) to the extent of Rs.4,50,000/-. The Ld CIT(A) deleted the penalty pertaining to the income from house property and interest income but sustained the penalty respect of the other items of the income.
5. The assessee has declared Rs. 5,00,000/- towards amount of the gift claimed to have been credited to the Bank Account and personal as well his sister's personal expenses of Rs. 4,80,000/-. Admittedly, the assessee is not maintaining any books of account. The assessee never filed the return of income for the A.Y. 2002-03 prior to the date of search u/s. 139 of the Act but for the first time filed the return of income on 29.4.2005. As per the copies of the Panchanama, it is seen that substantial cash was seized from the residential premises as well as locker No. 20 of PDCC Bank. It is also seen that Bank Pass Books were seized in respect of 13 Bank accounts.
6. The Ld Counsel argues that the income declared towards gift which was credited to the Bank Account was the genuine gift but to buy the peace and avoid protracted litigation, the assessee decided to come clean and offered the income suo motto. He submits that the assessee also declared Rs. 4,80,000/- towards his personal expenditure as well as personal expenditure of his sister who is a divorcee. He submitted that except the adhoc addition of Rs. 1,00,000/- which is also otherwise deleted, the income offered as per the return was accepted. He submitted that no penalty is leviable as no money, valuable article, bullion, gold etc., is subject matter of the assessment for the A.Y. 2002-
03. He submitted that in the preceding three years, the penalty levied by the A.O was deleted which was in respect of the income voluntarily offered towards the drawings of the assessee and divorced sister. He submitted that there was incriminating material found against the assessee during the course of the search. In so far as the cash found in the course of search is concerned, same is offered in the A.Ys. 2004-05 5 ITA Nos.235 & 236/PN/2010 Chandan K. Shewani A.Ys. 2002-03 & 2003-04 Page of 11 and 2005-06. Per contra, the Ld. D.R. supported the orders of the authorities below.
7. We find that the A.O has levied the penalty for the A.Ys. 1999- 2000, 2000-01 and 2001-02. We find that in the preceding three years, the penalty levied by the A.O is deleted. The major income offered for the said years was in respect of the personal expenditure of the assessee and his divorcee sister as some entries were found in the diary and to avoid future probe by the tax sleuth, assessee offered the said amount as the undisclosed income. In the present year, in addition to the income towards the gift of Rs. 5,00,000/-, assessee also offered Rs. 4,80,000/- towards personal & household expenditure. The assessee also declared the income from the share trading and income from capital gain. The assessee also paid taxes on the income declared in the return in response to notice u/s. 153A though the income offered by the assessee in respect of alleged gift of Rs. 5,00,000/- and his personal and sister expenditure of Rs. 4,80,000/- which may be based on some entries in the diary but the facts remains that the Explanation -5 to Sec. 271(1)(c ) has no application to the assessee's case for the A.Y. 2002-03 as no addition is made which is based on any money, gold, jewellery etc., found during the course of search.
8. While deciding assessee's appeal for A.Ys. 1999-2000 and 2001- 02, the penalty levied on the income offered towards the personal expenditure of the assessee and his divorcee sister has been deleted. Even though the Parliament has inserted Explanation 5A to Sec. 271(1)( c ), said explanation is applicable in respect of the search initiated u/s. 132 on or after 1st June 2007. Section 5A is introduced to patch out the lacunae in the existing provisions more particularly to overcome the judicial interpretation of Explanation -5. If the search is initiated u/s. 132 on or after 1st June 2007 then there is a legal presumption that any income based on any entry in the books of account or other documents or transactions, which is claimed as income by the assessee, the same would be treated as deemed concealment of the particulars of income or furnishing inaccurate particulars of income. So far as the present assessee is concerned, the date of search is 15.6.2004 and hence, Explanation 5A to Sec. 271(1)((c ) is not applicable. It is well settled rule of interpretation of the penalty provisions that the same should be 6 ITA Nos.235 & 236/PN/2010 Chandan K. Shewani A.Ys. 2002-03 & 2003-04 Page of 11 strictly interpreted and there is no scope for any presumption for levy of the penalty unless statute specifically provides same.
9. So far as the Explanation-3 to Sec. 271(1)(c) is concerned, which reads as under :
"Explanation 3.- Where any person fails, without reasonable cause, to furnish within the period specified in sub-section (1) of section 153 a return of his income which he is required to furnish under section 139 in respect of any assessment year commencing on or after the 1st day of April, 1989, and until the expiry of the period aforesaid, no notice has been issued to him under clause (i) of sub- section (1) of section 142 or section 148 and the Assessing Officer or the Commissioner (Appeals) is satisfied that in respect of such assessment year such person has taxable income, then, such personal shall, for the purposes of clause (c ) of this sub-section, be deemed to have concealed the particulars of his income in respect of such assessment year, notwithstanding that such person furnishes a return of his income at any time after the expiry of the period aforesaid in pursuance of a notice under section 148."
The said Explanation presumes that there is a concealment of particulars of income or filing of the inaccurate particulars of income in the situation where the assessee did not file return of income u/s. 139 or within the time limit prescribed u/s. 153(1) of the Act but files the return of income in response to notice u/s. 148. The said Explanation is also silent in the situation if the assessee has not filed the return of income for any particular A.Y. but filed the return of income for the first time in response to notice u/s. 153A, then what would be the legal presumption ? In our opinion, Explanation-3 has no application, when the return is filed in response to notice u/s. 153A. We, therefore, hold that as per the facts of this case and law applicable, there is no justification to levy the penalty for the A.Y. 2002-03 in the income declared by the assessee in the return of income in response to notice u/s. 153A even for the said income is based on some entries found in the diaries or other documents or even Bank Account during the course of search. We, accordingly delete the penalty sustained by the Ld CIT(A).
7 ITA Nos.235 & 236/PN/2010Chandan K. Shewani A.Ys. 2002-03 & 2003-04 Page of 11
10. Now we take up the assessee's appeal for A.Y. 2003-04 being ITA No. 236/PN/2010. In this year, the assessee filed the return of income disclosing the total income of Rs. 37,99,170/- and the A.O determined the total income at Rs. 38,39,170/- by merely making adhoc addition of Rs. 50,000/-. The income declared by the assessee in the return is as under :
Sr.No. Particulars Amount
Rs. .
1. Income from House Property 2,19,000/-
2. Income from business 1,25,910/-
3. Short Term Capital Gains of sale 1,59,478/-
of Shares
4. Interest income 40,882/-
5. UTI MEP Redemption 10,000/-
6. Unexplained Cash Credits 32,00,000/-
7. Unexplained entry 55,000/-
Gross Total 38,11,170/-
Less : Deduction U/Sec. 80 L 12,000/-
Total Rs. 37,95,170
11. In sum of Rs. 32,00,000/- declared by the assessee, said declared income comprised of the following items :
1) Drawing of the family Rs. 1,71,193/-
2) Citi Bank A/c. No.5-103635-707 Rs. 5,00,000/-
3) Citi Bank A/c. 15-103636-703 Rs. 9,75,000/-
4) HDFC Bank A/c. No.148100006216 Rs.13,75,000/-
5) Tirupati Finance Nagari Society Rs.1,00,000/-
6) Cash Balance Rs.75,807/-
Total Rs. 32,00,000/-
So far as the deposits in the Bank A/c. are concerned, the Bank Accounts were detected in the course of search. Assessee contended that it was difficult for him to explain the deposits made in the Bank accounts. The Assessee further submitted that he offered impugned credit as living 8 ITA Nos.235 & 236/PN/2010 Chandan K. Shewani A.Ys. 2002-03 & 2003-04 Page of 11 expenses of family members as income with a view to buy peace of mind but he could not prove the source of the said credit. The explanation of the assessee was turned down by both the authorities below.
12. It is worthwhile to reproduce the operative part of the reasons given by the Ld CIT(A) for confirming the penalty on the income declared towards the unexplained credit of Rs. 32,00,000/-, unexplained entry of Rs. 55,000/- , interest income Rs. 40,882/- and capital gains of Rs. 1,59,478/- as under :
"5.6 Further, reference can also be made to the decision of the Hon'ble Supreme Court in the case of K.P. Madhusudhan reported in 251 ITR 99 wherein the Apex Court affirmed the decision of Kerala High Court that it cannot be laid down as a general proposition that no penalty can be levied for agreed assessment when the explanation offered by the appellant regarding the credits had no semblance of acceptability. In the present case also, the appellant has offered an explanation for the credits, which he is not able to substantiate and therefore, even under the deeming provisions of Explanation 1 to sec. 271(1)(c ), the appellant is deemed to have concealed the particulars of income or furnished inaccurate particulars of his income. In the circumstances, the decision of Madras High Court in the case of CIT-II Vs Shri. E.V. Balashanmugham (2006) 286 ITR 626 (Mad) relied upon by the appellant cannot come to the aid of the appellant. 5.7 It is also claimed that the records of the appellant were not well maintained and the appellant was not able to attend to his tax matters due to personal difficulties in his family. It is stated that he was overtaken by certain circumstances in the family and he has not deliberately attempted to conceal the particulars of income or furnished inaccurate particulars of income. This claim also cannot be accepted. Firstly, the claim made by the appellant that there were certain difficulties in the family at the material point of time is not supported by any evidence on record. On the contrary, the appellant made substantial deposits in the bank account and also dealt in shares regularly during the year and in subsequent years and earned substantial income by way of capital gains as per the details furnished during the appellate proceedings. It is also a fact that cash of Rs.35,25,000/- was found and seized from the 9 ITA Nos.235 & 236/PN/2010 Chandan K. Shewani A.Ys. 2002-03 & 2003-04 Page of 11 premises of the appellant during the search. The so-called personal difficulties in no way affected his earnings during the year and subsequently. The return for the year under the appeal was due on 31-10-2003 and it was not filed till the date of the search on 15/06/2004. Therefore, it canot be said that the appellant was overtaken by certain circumstances in the family and as a result, he did not pay adequate attention to the tax matters. 5.8 Coming to the case laws relied upon by the appellant. It may be mentioned that the said decisions are distinguishable on facts of the present case. In the case of Krishnalal Shivchand Rai Vs. CIT reported in 88 ITR 293, the Hon'ble Punjab High Court observed that no opportunity was afforded to the assessee for leading evidence and prove that the impugned credits were genuine and in that context, the Hon'ble Punjab High Court held that the penalty levied without such opportunity was invalid. The facts in the present case are totally different in the sense that appellant himself admitted the undisclosed income / credits in the return filed in response to notice u/s 153A, consequent to the search. Therefore, it is not a mere surrender of additional income. Faced with the inevitable consequences, the appellant was forced to disclose such income which he had failed to disclose by filing the regular returns of income in the normal course. In the case of CIT Vs. SV Electricals, the issue was whether penalty was leviable when the disclosure was total and there was no deliberate intention to evade payment of taxes. In that case, the ITAT upheld the order of the CIT(A) in setting aside the penalty on the ground that there was total disclosure and no deliberate intention to evade lawful taxes. In that context, the Hon'ble High Court held that it is not a fit case to upturn the concurrent findings of the two appellate authorities and it does not involve any question of law. Thus, the facts in that case have no parallel to the facts existing in the present case. Similarly, in the case of CIT Vs. Koduri Raja Rao, the Andhra Pradesh High Court held that penalty u/s. 28(1)(c ) of 1922 Act in the absence of positive evidence to show that that the amount was income of the assessee deliberately concealed.. This decision was rendered under the provisions of 1922 Act and much water has flown since then and the willful or deliberate concealment is no longer required to be proved for levying penalty u/s. 271(1)(c 10 ITA Nos.235 & 236/PN/2010 Chandan K. Shewani A.Ys. 2002-03 & 2003-04 Page of 11 ). Moreover, the addition was made in the present case on the basis of positive evidence i.e. entries in the bank a/c and other documents found during the search. For the same reasons, the decision by the ITAT Lucknow reported in 87 ITD 173 is also of no help to the appellant. Similarly, the decisions reported in 204 ITR 244 and 221 ITR 110 do not render any support to the case of the appellant as willful neglect, mens rea etc. is no longer a condition precedent for imposition of penalty. Thus, the decisions relied upon by the appellant are not applicable to the facts of the present case. At this juncture, reference can be made to the decision of the Hon'ble Supreme Court in the case of Dharmendra Textile Processors Ltd. as reported in 306 ITR 277 wherein the Apex Court held that mens rea is not an essential ingredient of sec. 271(1)(c ) and there is no discretion with the Authority competent to impose penalty below the prescribed minimum."
13. In the A.Y. 2003-04, it is admitted factual position that the income declared by the assessee in the return of income filed in response to notice u/s. 153A is Rs. 37,99,170/-. In this year, the assessee filed the return of income on 29.4.2005 i.e. within 2 years from the end of the A.Ys. 2003-04 as per the time limit prescribed u/s. 153(1) for completing the assessment u/s. 143 or 144 of the Act. While completing the assessment, the A.O made the mere addition of Rs. 50,000/- but otherwise, the return of income was accepted. As interpreted by the different judicial pronouncement, the expression "tax sought to be evaded" appearing in clause (c) in Sec. 271(1) is to be understood as a difference between the income declared by the assessee in the return of income and income finally assessed. After introduction of Sec. 153A w.e.f. 1.6.2003, there is no specific penalty provision to deal with the assessment frames in consequences of search and seizure action u/s. 132 of the Act. Except Rs. 75,807/- declared by the assessee as a cash, there is no declaration based on any money, bullion, jewellery or other valuable articles or thing in the nature of assets. As discussed in the assessee's appeal for A.Y. 2002-03, Explanation 5A is applicable from 1.6.2007 and hence, in this year, we are only concerned with Explanation-5 as the date of search is prior to 1.6.2007. Except the estimated addition of Rs. 50,000/-, no addition is made by the A.O. The A.O has accepted the income declared by the assessee in the return of income filed in response 11 ITA Nos.235 & 236/PN/2010 Chandan K. Shewani A.Ys. 2002-03 & 2003-04 Page of 11 to notice u/Sec. 153A and in respect of said income. Explanation-5 cannot be applied. Moreover, no other income is added which is based on any incriminating material which can be subjected to the penal consequences. It is true that the assessee filed the return of income for the A.Y. 2003-04 only after search action by the Department, but, as there is no specific provision to levy the penalty on the income declared by the assessee in the return filed in response to notice u/s. 153A, except Explanation-5, we have to apply provisions of Sec. 271(1)(c ) as are applicable in the normal assessments.
14. For the reasons given in the assessee's appeal for the A.Y. 2002-03 and in the light of the discussion hereinabove, we hold that the penalty levied by the A.O on the income declared by the assessee in the return of income filed in response to notice u/s. 153A is not sustainable. We accordingly delete the entire penalty levied by the A.O for A.Y. 2003-04 and the respective grounds taken by the assessee are allowed.
15. In the result, both the appeals of the assessee are allowed.
The order is pronounced in the open Court on 29th August 2012.
Sd/- Sd/-
(G.S. PANNU) (R.S.PADVEKAR )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Pune, dated the 29th August, 2012
US
Copy of the order is forwarded to :
1. The Appellant
2. The Respondent
3. The CIT - (Central), Pune
4. The CIT(A)-I, Pune
5. The D.R. "B" Bench, Pune
6. Guard File
/- true copy-/
By order
Senior Private Secretary
Income Tax Appellate Tribunal
Pune