Karnataka High Court
Shri K Krishnamurthy vs The Deputy Commissioner Of Income Tax ... on 2 August, 2022
Author: P.S.Dinesh Kumar
Bench: P.S.Dinesh Kumar
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 2ND DAY OF AUGUST, 2022
PRESENT
THE HON'BLE MR. JUSTICE P.S.DINESH KUMAR
AND
THE HON'BLE MRS. JUSTICE M.G.UMA
I.T.A. NO.125 OF 2017
BETWEEN:
SHRI. K. KRISHNAMURTHY
'CHOWDESWARI PRASANNA'
NO.94, 1ST MAIN, 2ND CROSS
PRASHANTH EXTENSION
HOPE FARM, WHITEFIELD
BANGALORE - 560 066. ....APPELLANT
[BY SHRI. ASHOK A. KULKARNI, ADVOCATE]
AND:
THE DEPUTY COMMISSIONER
OF INCOME TAX CIRCLE-7(1)
4TH FLOOR, C WING
KENDRIYA SADAN
KORAMANGALA
BANGALORE - 560 034. ....RESPONDENT
[BY SHRI. K.V. ARVIND, ADVOCATE]
THIS ITA IS FILED UNDER SECTION 260-A OF
THE INCOME TAX ACT 1961, ARISING OUT OF ORDER
DATED:17/10/2016 PASSED IN ITA
NO.667/BANG/2015, FOR THE ASSESSMENT YEAR
2010-2011, PRAYING TO FORMULATE THE
SUBSTANTIAL QUESTIONS OF LAW STATE THEREIN
AND ETC.
2
THIS ITA COMING ON FOR HEARING, THIS DAY,
P.S.DINESH KUMAR J, DELIVERED THE FOLLOWING:
JUDGMENT
This appeal by the assessee has been admitted to consider following questions of law:
1. Whether the compliance with all the three conditions mentioned in Sub-section (2) of Section 271AAA mandatory or not?
2. Whether penalty prescribed @ 10% of undisclosed income under Section 271AAA of the Act can be reduced if the tax together with interest on the undisclosed income as declared by the Assessee in the course of search in a statement under Section 132(4) is partly complied with, with a delay, in the absence of specific period for such compliance specified in the Sub-clause (iii) of Section 271AAA of the Act?
2. Heard Shri Ashok A.Kulkarni, learned advocate for the appellant and Shri K.V.Aravind, learned Senior Standing Counsel for the respondent.
3. Brief facts of the case are, pursuant to a search conducted on November 25, 2010 in assessee's premises, assessment was completed by the DCIT1 on March 15, 2013 accepting the returned income of Rs.4,78,02,616/-.
1 Deputy Commissioner of Income Tax 3
4. The Revenue's case is, during the course of search, assessee offered the said income before the Investigating Officer, DDIT2.
5. The Revenue also initiated proceedings under Section 271-AAA of the Income Tax Act, 1961 ('the Act' for short) and imposed a penalty of Rs.47,80,261/- at the rate of 10% of the undisclosed income, vide order dated September 30, 2013, passed by the DCIT. The said order was challenged before the CIT (A)3 and it was allowed in part with regard to assessment year 2010-11 and the appeal challenging the penalty for assessment year 2011-12 stood dismissed. The Assessee challenged the said order in ITA No.667/Bang/2015. By it's order dated October 17, 2016, the ITAT4 has dismissed the appeal.
6. Shri Ashok Kulkarni, for the assessee submitted that assessee has admitted the income of only Rs.2,27,65,580/- but returned an income of Rs.4,78,02,616/-. According to him, the assessee has made a true disclosure of his income though he had 2 Deputy Director of Income Tax 3 Commissioner of Income Tax (Appeals) 4 Income Tax Appellate Tribunal 4 admitted only Rs.2.27 Crores before the DDIT during the course of search. Therefore, the amount returned can be bifurcated into two parts namely, the amount which the assessee has admitted and the excess amount which the assessee has returned as income.
7. Shri Kulkarni further submitted that since nothing was found at the time of search, there was no undisclosed income as per the explanation contained in Section 271-AAA of the Act. Therefore, it must be held that the machinery section has failed and hence no penalty can be imposed. According to him, strict interpretation of charging section must be followed.
8. Shri Aravind, learned Standing Counsel for the Revenue adverting to Sub-section (2) of Section 271-AAA of the Act submitted that charging section is unambiguous. Nothing contained in Sub-section (1) of Section 271-AAA would apply, if the assessee were to comply with all three conditions under Sub-section (2). Amplifying this contention, he submitted that so far as first condition is concerned, the assessee has admitted the undisclosed income before the DDIT. Therefore, it stands complied. With regard 5 to second condition, assessee has substantiated the manner in which the undisclosed income was derived. Hence, this condition is also complied. So far as third condition is concerned, Shri Aravind submitted that search was conducted on November 25, 2010 and as late as October 17, 2016, the Tribunal has recorded a finding of fact that assessee had not paid tax and interest. Since the third condition is not complied with, it cannot be held that Sub-section (1) would not apply to the assessee's case.
9. We have carefully considered rival submissions and perused the records.
10. Undisputed facts of the case are, according to the learned advocate for the assessee, the assessee had admitted an undisclosed income of 2,27,65,580/- and filed returns showing income of Rs.4,78,02,616/-. The principal argument is that nothing was found during the course of search; assessee had voluntarily filed return of income more than what he had admitted before the DDIT. According to him, machinery Section 6 has thus failed and therefore, penalty cannot be imposed.
11. Sub-section (1) of Section 271-AAA of the Act reads as follows:
" 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. "
12. Sub-section (2) makes it clear that Sub-section (1) shall not apply if three conditions mentioned therein are fulfilled.
13. Admittedly, as recorded by the Tribunal, third condition namely, the payment of tax, together with interest, if any, has not been fulfilled by the assessee.
14. In view of the above, first substantial questions raised by the appellant is answered in favour of the Revenue holding that compliance of all three 7 conditions in Sub-clause (2) of Section 271AAA of the Act are mandatory.
15. Second question with regard to reduction of penalty commensurate with quantum of tax which the appellant has deposited, is also answered against the assessee and in favour of the revenue, because, admittedly, appellant had not disclosed the income at all. But for search, the same could not have been unearthed. Having filed the returns, the assessee did not comply with condition No.3 in Sub-Section (2). If the second question were to be answered in favour of assessee, it will amount to placing premium on a person who does not abide by law.
16. In view of the above, this appeal must fail and it is accordingly dismissed.
No costs.
Sd/-
JUDGE Sd/-
JUDGE Yn.