Gujarat High Court
Principal Commissioner Of Income Tax, ... vs Ravani Developers on 10 June, 2019
Author: J.B.Pardiwala
Bench: J.B.Pardiwala, A.C. Rao
C/TAXAP/19/2019 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 19 of 2019
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PRINCIPAL COMMISSIONER OF INCOME TAX, SURAT 2
Versus
RAVANI DEVELOPERS
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Appearance:
MRS KALPANAK RAVAL(1046) for the Appellant(s) No. 1
for the Opponent(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA
and
HONOURABLE MR.JUSTICE A.C. RAO
Date : 10/06/2019
ORAL ORDER
(PER : HONOURABLE MR.JUSTICE J.B.PARDIWALA)
1. This appeal under Section 260-A of the Income Tax Act, 1961 (for short "the Act") is at the instance of the Revenue and is directed against the order dated 28.06.2018 passed by the Income Tax Appellate Tribunal, Surat Bench, Surat in ITA No.1356/AHD/2014/SRT for the assessment year 2011-12. By the impugned order the Appellate Tribunal dismissed the appeal preferred by the Revenue and thereby affirmed the order passed by the Commissioner of Income Tax (Appeals)-II, Ahmedabad in CIT(A)-II/CC.1/432/2013-14. The Revenue has proposed the following substantial questions of law :
"i) Whether on the facts and in the circumstances of the case and in law, the Hon'ble ITAT erred in Page 1 of 10 Downloaded on : Wed Jul 03 02:37:38 IST 2019 C/TAXAP/19/2019 ORDER confirming the order of the CIT(A) deleting the penalty by ignoring the fact that the assessee has not fulfilled the conditions laid down u/s 271AAA(2)?
ii) Whether on the facts and in the circumstances of the case and in law, the Hon'ble ITAT can delete the penalty when the assessee has not fulfilled the conditions laid down u/s 271AAA(2) as the assessee neither specified the manner of undisclosed income nor substantiated the manner in which the income was derived?
iii) Whether on the facts and in the circumstances of the case and in law, the Hon'ble ITAT erred in confirming the order of the CIT(A) deleting the penalty by recognizing the tax paid after filing return as payment made before specified/due date?"
2. The facts giving rise to this appeal may be summarized as under :
2.1 The assessment order under Section 143(3) of the Act, 1961 was finalized on 22.02.2013 determining total income at Rs.8,70,14,020/-. While finalizing the assessment order, the penalty proceedings under Section 271AAA of the Act also came to be initiated in respect of the admitted unaccounted income of Rs.8,10,000,000/- for the assessment year 2011-12. The penalty of Rs.81,00,000/- was levied under Section 271AAA of the Act. It appears from the materials on record that the search and seizure proceedings under Section 132 of the Act was carried out at the business premises of the assessee on 19.01.2011. In the course of search a statement under Section 132(4) of the Act was recorded of one Shri Page 2 of 10 Downloaded on : Wed Jul 03 02:37:38 IST 2019 C/TAXAP/19/2019 ORDER Dilipbhai K. Ravani. Shri Ravani offered for assessment the undisclosed income of Rs.8,10,00,000/- on account of the unexplained income earned outside the books of accounts pertaining to the assessee firm. The assessing officer accordingly imposed penalty of Rs.81 lacs under Section 271AAA of the Act.
2.2 The assessee being aggrieved of the order of the Assessing Officer preferred appeal before the CIT, Ahmedabad. The CIT, Ahmedabad allowed the appeal preferred by the assessee holding as under :
"5. I have carefully perused the penalty order as well as submissions made by A.R. on behalf of the appellant. It is observed that during the search action u/s. 132 in the case of infrastructure group of assessee of Surat which took place on 19th January, 2011, a statement of Shri Dilipbhai K. Ravani, and the partner of the firm was recorded u/s. 132(4) of the Act. He admitted in the statement that the pages of diary found and seized, contained entries of taxable income of Rs.18.00 crores, relating to various firms which were not recorded in the books of accounts.
It is seen that out of total Rs.18.00 crores, an amount of Rs.8.10 crores was disclosed in the case of the appellant firm. It has been admitted by Shri Dilipbhai K. Ravani that the pages of the diary which was found and seized, contained entries of net taxable income which was not recorded on the books of accounts and hence, the said unaccounted authorized Officer did not ask the question regarding the manner in which the undisclosed income was derived and did not seek any evidence for substantiating the manner of earning the undisclosed income.
5.2 It is seen that as per clause (i) of sub section (2) of Page 3 of 10 Downloaded on : Wed Jul 03 02:37:38 IST 2019 C/TAXAP/19/2019 ORDER section 271AAA, the first condition for immunity from penalty is that the undisclosed income should have been admitted by the assessee in the statement u/s.132(4) and the manner in which such income has been derived should also be specified by the assessee. The Assessing Officer has stated in the penalty order that no doubt there was undisclosed income declared by the assessee in the statement recorded u/s. 132(4) on the basis of the seized record, but the manner in which such undisclosed income was derived, was not clearly stated by the assessee. On the other hand the A.R. has submitted that in reply to Q.No.6 of the statement of Shri Dilipbhai Ravani recorded u/s. 132(4) of the Act dated 20.01.2011, it was clearly explained that the said unaccounted income represented net taxable income of the projects undertaken by the appellant firm. The copy of the statement has also been perused by me. In the statement recorded, it has been clearly explained that the details mentioned in the dairy represented net taxable income for the projects run by the appellant. During the course of assessment proceedings, the appellant filed relevant details also in this regard. No evidences were found to prove that the appellant had earned the undisclosed income from any other source other than these projects' income. Thus, it is clearly seen from the first conditions as prescribed u/s.271AAA sub section (2) clause (i) is fulfilled in the case of the appellant as the manner of earning the undisclosed income has clearly been stated by Shri Dilipbhai Ravani, the partner of the appellant firm.
5.3 As regards clause (ii) of sub section (2), it says that the manner in which undisclosed income has been derived should be substantiated by the assessee. On this point, the Assessing Officer has disclosed in the penalty order that the assessee failed to specify the manner in which the undisclosed income was derived and hence there was no question of substantiating the same and according to him this condition was also not satisfied.
However, it is observed that the undisclosed income of Rs.8.10 crores was admitted by Shri Ravani in his statement u/s. 132(4) of the Act, the basis of which was a diary found and seized during the course of search.
The diary contained the entries of the unaccounted/undisclosed income of Rs.18.00 crores out of which Rs.8.10 crores belonged to the appellant firm which has been explained by Shri Ravani while Page 4 of 10 Downloaded on : Wed Jul 03 02:37:38 IST 2019 C/TAXAP/19/2019 ORDER recording his statement on oath. The undisclosed income of Rs.8.10 crores has been accepted by the Assessing Officer in the assessment proceedings. Thus, in my considered view, the second condition also stands fulfilled in the case of the appellant firm.
5.4 As regards the third condition as envisaged in clause (iii) of sub section (2) which says that the tax together with interest if any, in respect of undisclosed income should be paid by the assessee for getting immunity from the penalty, the Assessing Officer has stated in the penalty order itself that full tax including interest on the disclosed income has been paid and reflected in the return of income and this condition was also satisfied."
2.3 The Revenue being dissatisfied with the order passed by the CIT preferred appeal before the Appellate Tribunal. The Appellate Tribunal dismissed the appeal holding as under :
"11. We have considered the facts and perused the material available on record and also gone through the case laws cited by the parties. We find that during the course of search and seizure carried out in the case of assessee's group a statement u/s. 132(4) of the Act was recorded on 20.01.2011 from Shri Dilipbhai K. Ravani wherein, he, on behalf of all 3 firms had made a disclosure of undisclosed income of Rs.18 crores by stating that this is the unaccounted income kept out of books which covers the transactions recorded on page no.1, 2, 3 of the diary (Annexure, A-3). Out of this disclosure of Rs.18 crores, Rs.8.10 crores pertains to assessee firm. We find that when asked about the question i.e. question no.7 that where does this unaccounted income lies, Shri Dilip K. Ravani has replied that the unaccounted income lies in the form of receivables. We, further note that the assessee has offered the said undisclosed income of Rs.8.10 crores in his Return of Income filed in response to notice section 142(1) and the AO has accepted the same "while making the scrutiny assessment, we also note that assessee has also paid due taxes and the interest Page 5 of 10 Downloaded on : Wed Jul 03 02:37:38 IST 2019 C/TAXAP/19/2019 ORDER thereon. Although the tax has been paid after filing of Return of Income, but before the assessment is made. Therefore, in the light of decision of Hon'ble Supreme Court in the case of ACIT vs. Gebilal Kanhailal (HUF) 348 ITR 561 (SC) and CIT vs. Mahendra C. Shah (supra) the tax on undisclosed income is deemed to have been paid for the purpose of immunity from the penalty u/s. 271AAA of the Act.
12. We further find that the perusal of statement on oath recoded u/s. 132(4) (placed at paper book, page 9 and 10) Shri Dilip K. Ravani in reply to question no.5 stated that the unaccounted income of all the three firms have been recorded in the diary in coded words. Shri Dilip K. Ravani has offered the said income for taxation, thus, it is seen that the assessee has explained that income pertains to receivables on account of business income of construction. It is further seen that while recording the statement u/s. 132(4) of the Act, the Authorised Officer never asked the manner on which undisclosed income has been derived nor specifically asked to substantiate the manner in which the undisclosed income was earned. The Ld. Counsel for the assessee has placed reliance in the case of Mahendra C. Shah (supra) which also supports the case of the assessee.
13. The AR further submitted that while recording the statement u/s. 132(4) of the Act, the Authorised Officer never asked the manner of deriving the undisclosed income and also did not ask specifically to substantiate the manner in which the undisclosed income was derived. When such conditions are not questioned by the Authorised Officer, the assessee is not expected to specify on his own the manner in which the income was earned and to substantiate the same as held by the Hon'ble Gujarat High Court in the case of CIT vs. Mahendra C. Shah [2008] 299 ITR 305 (Guj). The Ld. Counsel, further placed reliance in the case of CIT vs. Radha Kishan Goel [2005] 278 itr 454 [2006] 152 taxman 290 (all) of Hon'ble Allahabad High Court which was followed by the Hon'ble Gujarat High Court in the above referred case while deriving the explanation 5 to section 271(1)(c), which is broadly on the same line as Hon'ble Gujarat High Court in the case of Mahendra C. Shah has observed that there is no prescription about the point of time when the tax had to be paid qua the amount of income declared in the statement u/s. 132(4) of the Act. It was further pointed Page 6 of 10 Downloaded on : Wed Jul 03 02:37:38 IST 2019 C/TAXAP/19/2019 ORDER out that even after making these specific observations tax liability is to treat the conclusion of the assessment proceedings as outer limit for making payment of tax and interest.
15. In the light of the above decision it is clearly discernable that sub-section(2) of section 271AAA cannot be applicable when assessee is not subjected to the question by the manner of earning and substantiating thereon, then and the AO did not raise such query at the time recording his statement under section 132(4) of the Act. Further, the claim of the Ld. DR that the AO, vide letter dated 27.11.2012, had asked to substantiate the manner of earning income. We find that this letter cannot substantiate the statement recorded during search u/s. 132(4) of the Act, hence, not material. Therefore, we are of the opinion that the Ld.CIT(A) has rightly deleted the penalty levied u/s. 271AAA of the Act. In view of above backdrop, we do not find any infirmity in the order of Ld.CIT(A), hence, same is upheld. Accordingly, the ground raised by the Revenue are dismissed."
2.4 The Appellate Tribunal while dismissing the appeal preferred by the Revenue placed strong reliance on the decision of this Court in the case of Principal Commissioner of Income Tax-2 (PCIT-2) vs. Mukeshbhai Ramanlal Prajapati rendered in Tax Appeal No.434 of 2017 . We take notice of the fact that in Mukeshbhai Ramanlal Prajapati (supra) the coordinate bench placed reliance on the decision of this Court in the case of Commissioner of Income Tax vs. Mahendra C. Shah reported in [(2008) 299 ITR 305 (Guj)].
3. This appeal involves the interpretation of Section Page 7 of 10 Downloaded on : Wed Jul 03 02:37:38 IST 2019 C/TAXAP/19/2019 ORDER 271AAA of the Act. Section 271AAA of the Act reads thus :
Section 271AAA :
(1) The Assessing Officer may, notwithstanding anything contained in any other provisions of this Act, direct that, in a case where search has been initiated under section 132 on or after the 1st day of June, 2007, the assessee shall pay by way of penalty, in addition to tax, if any, payable by him, a sum computed at the rate of ten per cent of the undisclosed income of the specified previous year.
(2) Nothing contained in sub-section (1) shall apply if the assessee,
(i) in the course of the search, in a statement under sub-section (4) of section 132, admits the undisclosed income and specifies the manner in which such income has been derived;
(ii) substantiates the manner in which the undisclosed income was derived; and
(iii) pays the tax, together with interest, if any, in respect of the undisclosed income.
(3) No penalty under the provisions of clause (c) of sub-section (1) of section 271 shall be imposed upon the assessee in respect of the undisclosed income referred to in sub- section (1).
(4) The provisions of sections 274 and 275 shall, so far as may be, apply in relation to the penalty referred to in this section.
Explanation.--For the purposes of this section,--
(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 Page 8 of 10 Downloaded on : Wed Jul 03 02:37:38 IST 2019 C/TAXAP/19/2019 ORDER 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 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."
3.1 Clause 2 of Section 271AAA makes it very clear that if the three conditions stipulated therein are fulfilled then nothing contained in sub-section (1) would apply. We take notice of the fact that the CIT appeals as well as the Appellate Tribunal has recorded the concurrent findings that all the three conditions as stipulated in sub-section (2) of Section 271AAA are fulfilled.
4. Having heard Ms. Kalpanak Raval, the learned senior standing counsel appearing for the Revenue and having gone through the materials on record, we are of the view that the Page 9 of 10 Downloaded on : Wed Jul 03 02:37:38 IST 2019 C/TAXAP/19/2019 ORDER issue is squarely covered by the decision of this Court in the case of Mahendra C. Shah (supra). In such circumstances referred to above, this appeal fails and is hereby dismissed.
(J. B. PARDIWALA, J) (A. C. RAO, J) Dolly Page 10 of 10 Downloaded on : Wed Jul 03 02:37:38 IST 2019