Gujarat High Court
The Principal Commissioner Of Income ... vs M/S Shreedhar Associates on 14 September, 2021
Author: Sonia Gokani
Bench: Sonia Gokani, Rajendra M. Sareen
C/TAXAP/178/2021 JUDGMENT DATED: 14/09/2021
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 178 of 2021
FOR APPROVAL AND SIGNATURE:
HONOURABLE MS. JUSTICE SONIA GOKANI
and
HONOURABLE MR. JUSTICE RAJENDRA M. SAREEN
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1 Whether Reporters of Local Papers may be allowed NO
to see the judgment ?
2 To be referred to the Reporter or not ? NO
3 Whether their Lordships wish to see the fair copy NO
of the judgment ?
4 Whether this case involves a substantial question NO
of law as to the interpretation of the Constitution
of India or any order made thereunder ?
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THE PRINCIPAL COMMISSIONER OF INCOME TAX, VADODARA 1
Versus
M/S SHREEDHAR ASSOCIATES
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Appearance:
MR.VARUN K.PATEL(3802) for the Appellant(s) No. 1
MR MANISH J SHAH(1320) for the Opponent(s) No. 1
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CORAM:HONOURABLE MS. JUSTICE SONIA GOKANI
and
HONOURABLE MR. JUSTICE RAJENDRA M. SAREEN
Date : 14/09/2021
ORAL JUDGMENT
(PER : HONOURABLE MS. JUSTICE SONIA GOKANI)
1. The Revenue is in appeal before this Court Page 1 of 21 Downloaded on : Sat Oct 09 21:43:23 IST 2021 C/TAXAP/178/2021 JUDGMENT DATED: 14/09/2021 against the judgment of the Income-Tax Appellate Tribunal dated 05.03.2020 raising following question for our consideration :
"(a) Whether in the facts and circumstances of the case, learned ITAT has erred in law and on fact in deleting the penalty of levied under section 271(1)(c) of the Income Tax Act amounting to Rs.1,18,00,000/- despite the fact that penalty was levied on admitted net undisclosed income of Rs.3.80 crore received as "on money", which was unearthed based on diary found and impounded by Investigation wing during survey proceedings and also admitted by one of the partners in the statement recorded u/s. 131 (1A) of the Act and the said "on money" income was not accounted for in the regular books of account of the assessee on the date of survey?"
2. The Assessee a Partnership Firm was involved in the business of real estate development and construction, where it had come out with a scheme 'Shreedhar Residency' in the first year 2012- 2013. The survey under Section 133 (A) of the Income Tax Act, 1961 ('the Act' hereinafter) was conducted on 09.01.2013 as a part of search operations in Rashmikant Bhatt Group along with Page 2 of 21 Downloaded on : Sat Oct 09 21:43:23 IST 2021 C/TAXAP/178/2021 JUDGMENT DATED: 14/09/2021 other Assessees belonging to the very group. The total disclosure was made of Rs.20 Cr. Of which Rs.3.80 Cr. was of the respondent firm. This was offered as an additional income of a year under survey and the return which was filed by the respondent for the Assessment Year 2013-2014 on 29.09.2013. The total income disclosed and declared was Rs.4,26,92,360/- which was inclusive of the sum of Rs.3.80 Cr.
3. The Assessment Order under Section 143 (3) of the Act was passed by the DCIT, Central Circle 2, Vadodara on 28.12.2015 without any addition, whereby the return filed by the respondent - Assessee was accepted. However, the Assessing Officer had initiated the penalty proceedings under Section 271(1)(c) of the Act on the ground of concealment. The stand of the respondent- Assessee is that the amount of Rs.3.80 Cr. cannot be treated as concealed income since the same had been declared in the return filed by the Assessee which was not accepted by the assessing Officer and a Page 3 of 21 Downloaded on : Sat Oct 09 21:43:23 IST 2021 C/TAXAP/178/2021 JUDGMENT DATED: 14/09/2021 penalty was imposed under Section 271(1)(c) of the Act at the rate of 100% tax on income to the tune of Rs.3.80 Cr.
4. When the Assessment Order was challenged before the Commissioner of Income Tax (Appeals), he did not sustain the penalty imposed by the Assessing Officer following the decision of this Court rendered in case of PRINCIPAL COMMISSIONER OF INCOME TAX-3 vs. R UMEDBHAI JEWELLERS PVT. LTD passed in Tax Appeal No.549 of 2016.
5. This was carried before the Income Tax Appellate Tribunal ('the ITAT' for short), which had not entertained the appeal following the decision of this Court passed in Tax Appeal No.549 of 2016 noting that these findings and directions were in the identical circumstances. The ITAT had noted that the Assessee had offered an amount as additional business income, which was duly incorporated in the books of account and in the regular return of income taxes were duly Page 4 of 21 Downloaded on : Sat Oct 09 21:43:23 IST 2021 C/TAXAP/178/2021 JUDGMENT DATED: 14/09/2021 paid. The ITAT also on account of the fact that the books of account were not closed as the year was not over and since it was not the case of revenue that the books were completed and and accounts were audited and the returns were filed had treated this as an unaccounted income. This is an ongoing financial year and it was Assessee's first year of operation therefore, also it was not possible for it to consider as the amount pertained to earlier years of business. This has been challenged by the revenue.
6. We have heard the learned standing counsel, Mr.Varun Patel, who has fervently urged that the Assessing Officer was justified in levying the penalty as the income was unaccounted & it came to the surface only on account of the survey proceedings. Had the survey proceedings been not undertaken, the amount could have never been surfaced nor would respondent-Assessee going to declare it as part of its return. Therefore, Page 5 of 21 Downloaded on : Sat Oct 09 21:43:23 IST 2021 C/TAXAP/178/2021 JUDGMENT DATED: 14/09/2021 considering the scheme of the penalty Section 271(1)(c) of the Act, the order of ITAT deserves interference.
7. On a caveat, learned advocate, Mr.Manish Shah has strenuously resisted this on the ground that both the CIT and the ITAT had rightly followed the decision PRINCIPAL COMMISSIONER OF INCOME TAX-3 vs. R UMEDBHAI JEWELLERS PVT. LTD (supra) where the identical circumstances existed. It was not a case where books were either closed and the return also was not filed as yet. In cases where the income had come to the fore after once the return had been filed by the Assessee, the revenue had an occasion to treat this as the income which was liable to the penalty, but not in the present case.
8. Having heard the learned advocates on both the sides and also having noticed that the survey had taken place on 09.01.2013 as a part of search operation of the entire group and when it chose Page 6 of 21 Downloaded on : Sat Oct 09 21:43:23 IST 2021 C/TAXAP/178/2021 JUDGMENT DATED: 14/09/2021 to disclose additional Rs.20 Cr., Rs.3.80 Cr. came to be attributable to the respondent firm. The return was filed under Section 139 of the Act by the respondent for the Assessment Year 2013- 2014 on 29.09.2013, which is after about eight months of the survey which was conducted. The books of account also were not closed and it was not a case of any revised return being filed by the respondent Assessee. In such circumstances, Assessing Officer also had not added any other income for the amount of Rs.3.80 Cr. had already been declared in the return itself. Both the authorities concurrently have correctly held following the decision of PRINCIPAL COMMISSIONER OF INCOME TAX-3 vs. R UMEDBHAI JEWELLERS PVT. LTD (supra) that no penalty can be levied in such circumstances.
9. This Court in case PRINCIPAL COMMISSIONER OF INCOME TAX-3 vs. R UMEDBHAI JEWELLERS PVT.
LTD (supra) also was considering the case of a
company which was in its first year of
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C/TAXAP/178/2021 JUDGMENT DATED: 14/09/2021
incorporation subjected to survey operation and at that stage, when the due date for filing the return had not expired, the Assessee had admitted certain bogus share application money to the tune of Rs.5.86 Cr. Before the expiry of the due date for filing return, the return was filed by Assessee and he made a matching disclosure. No addition was made in the income by the Assessing Officer, but he levied the penalty on the ground that Assessee had furnished inaccurate particulars. The Court held that penalty could not have been imposed as rightly held by the Tribunal by following observations and directions:
"6. To our mind, such penalty could not have been imposed as rightly held by the Tribunal. Section 271 of the Act provides for penalty. Clause (c) of sub-section (1) of Section 271 of the Act provides that if the Assessing Officer during the course of any proceeding under the Act is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct such person to pay by way of penalty which shall not be less than, but which shall not exceed three times the Page 8 of 21 Downloaded on : Sat Oct 09 21:43:23 IST 2021 C/TAXAP/178/2021 JUDGMENT DATED: 14/09/2021 amount of tax sought to be evaded by the reason of concealment of particulars or furnish inaccurate particulars of such income. Relevant provision or Section 271 of the Act reads, thus;
"271.(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) xxx xxx xxx
(b) xxx xxx xxx
(c) has concealed the particulars of his income or furnished inaccurate particulars of such income, or
(i) xxx xxx xxx
(ii) xxx xxx xxx
(iii) in the cases referred to in clause (c) or clause (d), in addition to tax, if any, payable by him, a sum which shall not be less than, but which shall not exceed three times, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or fringe benefits or the furnishing of inaccurate particulars of such income or fringe benefits.
Explanation 1.--Where in respect of any facts material Page 9 of 21 Downloaded on : Sat Oct 09 21:43:23 IST 2021 C/TAXAP/178/2021 JUDGMENT DATED: 14/09/2021 to the computation of the total income of any person under this Act,--
(A) such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner (Appeals) or the [Principal Commissioner or] Commissioner to be false, or (B) such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed."
7. As noted, the revenue desired to bring in the element of the assessee having furnished inaccurate particulars of its income. The fact that the assessee did make a disclosure of such income in the return filed and the Assessing Officer was not dissatisfied by such disclosure is not in dispute. The assessee having filed the return by the due date for filing return, in which such income was also offered to tax, the question of assessee having furnished inaccurate particulars of the income would not arise. Page 10 of 21 Downloaded on : Sat Oct 09 21:43:23 IST 2021 C/TAXAP/178/2021 JUDGMENT DATED: 14/09/2021
8. It may be that the assessee was subjected to search operation before filing of the return and it may also be that the revenue has sufficient material at its command to argue that but for the survey operation the assessee would not have disclosed such income. However, these are not the grounds on which the penalty under Section 271(1)(c) of the Act can be imposed. The grounds are specific, namely, of the assessee having concealed particulars of the income or having furnished inaccurate particulars of such income. When neither of these two conditions apply, penalty cannot be levied under the said provision.
9. Attempt on the part of counsel for the revenue to rely upon explanation (1) to Section 271(1) of the Act would also be futile. Said explanation provides that if a person fails to offer an explanation or offers explanation which is found by the Assessing Officer to be false or offers an explanation which he is not able to substantiate or fails to prove that such explanation is bonafide, the amount added or disallowed in computing total income of such person, as a result thereof for the purpose of clause (c) of sub-section (1) be deemed to represent the income in respect of which particulars have been concealed. This explanation would, thus, apply at the stage of assessment since it refers to in respect of any facts material to the computation of total income. At such a stage. If the assessee fails to offer an explanation or offers an explanation which is found to be Page 11 of 21 Downloaded on : Sat Oct 09 21:43:23 IST 2021 C/TAXAP/178/2021 JUDGMENT DATED: 14/09/2021 false, the explanation would apply and by deeming fiction, the assessee would be for the purpose of clause (c) of sub- section (1) of Section 271 of the Act be deemed to have concealed the particulars of the amount added or disallowed in computing total income of the assessee.
10. The decision of the Supreme Court in case of MAK Data (P) Ltd. (supra) was based on different set of facts. It was a case where the assessee had filed a return of income for the Assessment Year 2004-04 declaring total income of Rs.16.17 lacs. During the course of assessment proceedings, the Assessing Officer confronted the assessee with certain materials collected during the course of survey operation earlier conducted in case of assessee's sister concern. The assessee thereupon offered a further sum of Rs.40.74 lacs to avoid litigation and buy peace. The Assessing Officer accepted such further disclosure and brought the said sum of Rs.40.74 lacs to tax as income from other source and also initiated penalty proceedings with respect to such sum. When the assessee pressed the clause of making a declaration to buy peace, the matter ultimately reached the High Court which accepted the revenue's plea that the assessee had not offered any explanation about concealment of the income. The High Court thus applied explanation (1) to Section 271(1)(c) of the Act and upheld the penalty. This decision was carried by the assessee before the Supreme Court, which, while dismissing the appeal, observed as under :
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C/TAXAP/178/2021 JUDGMENT DATED: 14/09/2021 "9. We are of the view that the surrender of income in this case is not voluntary in the sense that the offer of surrender was made in view of detection made by the AO in the search conducted in the sister concern of the assessee. In that situation, it cannot be said that the surrender of income was voluntary. AO during the course of assessment proceedings has noticed that certain documents comprising of share application forms, bank statements, memorandum of association of companies, affidavits, copies of Income Tax Returns and assessment orders and blank share transfer deeds duly signed, have been impounded in the course of survey proceedings under Section 133A conducted on 16.12.2003, in the case of a sister concern of the assessee. The survey was conducted more than 10 months before the assessee filed its return of income. Had it been the intention of the assessee to make full and true disclosure of its income, it would have filed the return declaring an income inclusive of the amount which was surrendered later during the course of the assessment proceedings. Consequently, it is clear that the assessee had no intention to declare its true income. It is the statutory duty of the assessee to record all its transactions in the books of account, to explain the source of payments made by it and to declare its true income in the return Page 13 of 21 Downloaded on : Sat Oct 09 21:43:23 IST 2021 C/TAXAP/178/2021 JUDGMENT DATED: 14/09/2021 of income filed by it from year to year. The AO, in our view, has recorded a categorical finding that he was satisfied that the assessee had concealed true particulars of income and is liable for penalty proceedings under Section 271 read with Section 274 of the Income Tax Act, 1961."
11. The vital difference in the aforesaid case, thus, was that the assessee had already filed a return disclosing an amount of Rs.16.17 lacs. It was only during the assessment proceedings that the assessee agreed to surrender further sum of Rs.40.74 lacs by way of income. It was on account of the material collected by the revenue during survey operation carried out in case of assessee's sister concern. In our case, the assessee had neither made additional disclosure nor revised the return after filing the return within the time provided under the Statute.
12. The decision of this Court in case of Deepak Construction Co. (Supra) also was rendered in different fact situation. It was a case where for the Assessment Year 1983-84, the assessee had filed the return of income which was taken in scrutiny. During the scrutiny assessment, the Assessing Officer issued a show cause notice confronting the assessee with certain squared up cash credits. Upon receipt of the notice, the assessee filed a revised return offering such sum by way of additional income. The revised return was accepted by the Assessing Officer. He, however, Page 14 of 21 Downloaded on : Sat Oct 09 21:43:23 IST 2021 C/TAXAP/178/2021 JUDGMENT DATED: 14/09/2021 instituted penalty proceedings for the additional income surrendered by the assessee. In such background, the question arose whether after the assessee having filed the revised return, could the revenue have imposed penalty without making any additions to the income so returned. The High Court in the said judgment held that since the revised return was filed after detection of concealment of income, penalty under Section 271(1)(c) of the Act would be levied. Likewise, in case of Dr.A. Mohd. Abdul Khadir (Supra) also, the Madras High Court was concerned with the similar situation where the assessee revised his return pursuant to the search operation during which he had admitted to have concealed the income. The Court held that such revised return could not be treated as voluntary return and penalty under Section 271(1)(a) of the Act would be leviable."
10. The case relied upon by the Appliacnt for penalty is of Prasanna Dugar vs. Commissioner of Income Tax, reported in (2016) 70 taxmann.com 175 (SC) where penalty was imposed for concealment of income. It was a case of a search where Assessee made voluntary disclosure of Rs.6 Cr. even though no incriminating document suggested any such undisclosed income. The Assessee had offered for taxation sum of Rs.70 Lakh. The High Court had held that the penalty levied under Page 15 of 21 Downloaded on : Sat Oct 09 21:43:23 IST 2021 C/TAXAP/178/2021 JUDGMENT DATED: 14/09/2021 Section 271 (1)(c) was justifiable. The Apex Court had upheld the order of the High Court by holding thus:
"7.The assessee further assailed the said order of the Commissioner of Income-tax (Appeals) before the Tribunal. The matter was heard by the Bench of the Tribunal, however, while the learned Accountant Member (Shri B.R.Jain) in his order taking into consideration the peculiar situation, observed that there was no documentary evidence on record to show payment of any "on money" or to suggest that there is any unexplained investment in stock entry. He chose to allow the appeal and cncelled the penalty. However, learned Judicial Member (Shri V. Durga Rao) wrote a separate judgment observing that after carefully going through the order of the learned Accountant Member, he was unable to persuade to agree with the views and conclusion drawn by the learned Member that there being no material or documentary evidence on record to show payment of any "on money", while he found that there was ample evidence on record in the shape of incriminating documents and clear working of the "on money" which was noticed by the survey team. He further noticed that the statements were recorded of two persons and also directions who themselves calculated the concealed income and filed revised return on March 27, 2008. he also came to the conclusion that there is nothing on record that the assessee filed revised return of income due to pressure from the Department, rather in fact the directors of the assessee company themselves have Page 16 of 21 Downloaded on : Sat Oct 09 21:43:23 IST 2021 C/TAXAP/178/2021 JUDGMENT DATED: 14/09/2021 calculated the undisclosed income and thereafter filed revised return. Thus, learned Judicial Member disagreed with the findings of the learned Accountant Member and upheld the penalty. Since there was difference of opinion, the same was referred to a Third Member on the following question:
"Whether on the peculiar facts and circumstances of this case, there is any justification in sustenance of penalty imposed under Section 271(1)(c) of the Act?"
Learned Vice-President of the Tribunal (Shri G.D.Agrawal) who acting as a Third Member, heard the matter again and held as under:
"35.However, the facts of the assessee's case are altogether different. In the case under consideration before me, as already noted, there was survey at the assessee's premises. During the course of survey, various incriminating documents, including the purchase deed for purchase of agricultural land, were found. The statements of the employees were recorded. On the basis of those documents and statements, it was established that the assessee was recording thepurchase of the land at a much lesser value than the actual purchase price. When these facts were confirmed to the director of the company, he admitted to have made the cash payment for Page 17 of 21 Downloaded on : Sat Oct 09 21:43:23 IST 2021 C/TAXAP/178/2021 JUDGMENT DATED: 14/09/2021 purchase of agricultural land which was not recorded in the books of account. He, with the help of those documents, prepared a detailed chart and worked out the unrecorded investment in the land by the assessee company in three assessment years. The revised return wasfiled to include those unexplained investment in the purchase of agricultural land. Therefore, it is a case where the revised return is filed by the assessee after the detection of understatement of purchase price by the survey authorities. It is not a case where the revised return was furnished by the assessee voluntarily to buy peace with the Income-tax Department. In view of the above, in my opinion, the above decision of hon'ble apex court would not be applicable to the facts of the assessee's case. (Emphasis supplied).
36. After considering the arguments of both the sides and the facts of the case, I agree with the findings of the Assessing Officer in the penalty order that the asessee did not disclose the correct purchase consideration of the agricultural land. The purchase price of the land was recorded at a lesser value in the regular books of account. These facts were detected by the Revenue as a result of survey at the assessee's premises. During the course of survey, the director of the company admitted these facts. Thus, it is a clear case where the assessee furnished Page 18 of 21 Downloaded on : Sat Oct 09 21:43:23 IST 2021 C/TAXAP/178/2021 JUDGMENT DATED: 14/09/2021 incorrect particulars in the original return of income with regard to purchase price of agricultural land, value of closing stock as well as the business income. The revised return modifying the figure of purchase value of agricultural land, value of closing stock as well as business income was furnished only after the detection of these discrepancies during the course of survey. In view of the above, I have no hesitation to hold that on the facts and circumstances of the case, learned Judicial Member rightly proposed to sustain the penalty imposed under Section 271(1)
(c)." )Emphasis supplied).
Thus, even the learned Vice-President being the Third Member of the Tribunal, discarded the finding of the learned Accountant Member that there was no incriminating document or no documentary evidence on record to show payment of any "on money". Thus, penalty was upheld." As it is quite clear the facts in case of Prasanna Dugar (supra) materially differ from the facts of respondent in the matter on hand during the search and seizure, the disclosure was made on 03.02.2009 and the Assessee had already by then filed the return for the Assessment Year 2008-2009. The Assessee had on the basis of the disclosure once again filed the return on 31.03.2010 where he had offered Rs.70 Lakh for Page 19 of 21 Downloaded on : Sat Oct 09 21:43:23 IST 2021 C/TAXAP/178/2021 JUDGMENT DATED: 14/09/2021 taxation earned during the Assessment Year 2008- 2009. Thus, it was the clear case where Assessee had already earlier filed his return where this amount had not been disclosed. And therefore, the Apex Court held that his case would be squarely covered under Section 271(1)(c) of the Act.
11. In case of Grass Field Farms & Resorts (P.) Ltd. vs. Deputy Commissioner of Income-tax, reported in (2017) 79 taxmann.com 425 (Rajasthan) also there was a levy of penalty for the concealment of the income as during the survey operation, at Assessee's business premise, certain incriminating documents were found and impounded. This resulted into undisclosed investment in purchase of agricultural land and other discrepancies. The Assessee sought to file a revised return declaring an additional income offered during the course of survey and therefore, the Assessing Officer made not only the addition, but also levied the penalty under Section 271(1)(c).
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12. Facts of the instant case would materially differ from this case of Grass Field Farms & Resorts (P.) Ltd. (supra) where also the question was of filing revised return during the course of the assessment year and income which was disclosed later in revised return had not been declared in earlier return.
13.Adverting to the facts of the present appeal, return was filed after about eight(8) months of conducting of survey and books of accounts were not closed also. In other words, neither it is a case of filing of revised return disclosing undisclosed income nor the case of books of accounts having been closed. Therefore, as rightly held by both the CIT(Appeals) and ITAT, no penalty can be imposed.
14. In the result, the present Tax Appeal is dismissed accordingly.
Sd/-
(SONIA GOKANI, J) Sd/-
(RAJENDRA M. SAREEN,J) M.M.MIRZA Page 21 of 21 Downloaded on : Sat Oct 09 21:43:23 IST 2021