TaxTMI 
TaxTMI 
2008 (1) TMI 513
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....ed in law and on facts in cancelling the penalty of Rs. 1,42,983/-, levied Under Section 271(1)(c) of the Act, by the A.O., without considering the fact that the assessee had not voluntarily disclosed the true and correct income. 2. The CIT(A) has erred in law and on facts in not properly considering the Explanation 5 to Section 271(1)(c) of the Act, according to which, the assessee is not entitled to immunity from the penalty for the earlier period where the due date of return Under Section 139(1) of the act has expired. 2. These two grounds are common in all the five appeals of the revenue except the figures. The facts and circumstances' are exactly identical in all the years, hence we will take up Read year i.e. A.Y. 1998-99 in ITA No. 2395/Amd/2007. 3. The briefly stated facts in this case are, that, a search action Under Section 132 of the act was carried out in the Bata group of cases in Kalol Dist. Mehsana on 04.09.2003 including the assessee. In view of the above action, proceedings Under Section 153A(a) of the Act was initiated vide notice dated 12.12.2003. In response to this notice, the return of income was filed on 31.05.2004 declaring total income at....
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.... of Group known as Bata Group in Kalol. The Group acquired co-operative housing societies for selling the land released by AUDA for the benefit of members of the societies. During the course of search, one Shri Kirti B Modi who was covered Under Section 132 of the Act, was working as Accountant for all the co-operative housing societies and was maintaining the books of accounts on his personal computer. Annexure-A, Item No. 9, 10 and 11 seized from his residence shows that he has received fees from Shri Rajesh Amratlal Patel and Shri Rupesh Bholidas Patel in respect of various co-operative housing societies. The books of accounts of the societies were maintained by this Accountant on behalf of Shri Rajesh Amratlal Patel and Shri Rupesh Bholidas Patel. The AO has discussed all the co-operative societies as described in Annexure-A, Item No. 9, 10 and 11. Further many files containing correspondence with AUDA, signed application for membership, agreement, resignation letters, and vouchers for receipt of amount deposited with the societies of the members who were enrolled at the time of formation of the society and also at the time of making initial payments to AUDA were found and seiz....
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....ue taxes were paid/provided thereon. 5. It was also claimed by the assessee that this declaration is made Under Section 132(4)of the Act during the course of search and also disclosed the manner in which this income was earned. It was also claimed that the taxes have been paid by making adjustments of FDRs/cash seized during the course of search. The assessee pleaded that he is relying upon the application of Explanation 5(2) to Section 271(1)(c)read with Section 132(4) of the Act. The AO after considering the reply of the assessee has held that the assessee was having taxable income for the assessment year but the same was not fully disclosed in the original return of income filed on 27/10/98 and the same was unearthed by the Department during the course of search and the same was disclosed after issuance of notice Under Section 153A(a) and this fact regarding the income escaping assessment was detected by the Department during the course of search Under Section 132 of the Act. This proved that the assessee has concealed the particulars of income knowingly and in view of this the AO levied the penalty on the concealed income on which tax sought to be evaded, Under Section 271(1....
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....one through the submissions made on behalf of the appellant and arguments of Ld. A.R. The provisions of Section 153A due to its notwithstanding clause supersedes the other provisions of Section 139, Section 147, Section 148, Section 149, Section 151 and Section 153. Therefore, the return filed Under Section 153A overrides the other returns filed prior to search, if any, and they become nonest. The return filed Under Section 153A is the only return, which is considered by AO for making assessment Under Section 153A(b) and in the present case the income returned Under Section 153A and income assessed Under Section 153A(b) are same, this being the factual position and since there is no dispute about these facts, I am inclined to agree with the submissions and arguments made on behalf of the appellant that it is not relevant whether any income of income was filed by the appellant prior to the date of search and whether any income was disclosed in that return of income. In view of specific provision of Section 153A, the return of income filed in response to notice Under Section 153A(a) is to be considered as return filed Under Section 139 of the Act, as the AO has made assessment on the....
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....the course of search. The assessment was framed Under Section 153A(b) of the Act accepting the return of income as disclosed by the assessee during the course of search for an amount of Rs. 5,00,000/. This income is over and above what was disclosed in the original return. The Assessing Officer levied the penalty Under Section 271(1)(c)of the Act for concealment of income. The CIT(A) deleted the penalty on two premises i.e i) by making applicability of explanation 5(2) to Section 271(1)(c) of the Act ii) and penalty on returned income Under Section 153A of the Act by considering the return filed Under Section 139 of the Act as abated and non est in the eyes of law. 9. First we will deal with the issue of applicability of Explanation 5(2) to Section 271(1)(c)of the Act as decided by the CIT(A). The assessee has filed its original return of income Under Section 139(1)of the Act on 27.10.98 declaring an income of Rs. 79,830/. Subsequently, search was conducted Under Section 132(1) of the Act on 4.9.03 and in lieu of that action under chapter XIV was initiated Under Section 153A(a) of the Act, by issuing notice, and in response to the same the assessee disclosed the income of Rs. 5,....
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....isclosed to the [Chief Commissioner or Commissioner] before the said date; or (2) he, in the course of the search, makes a statement under Sub-Section (4) of Section 132 that any money, bullion, jewellery or other valuable article or thing found in his possession or under his control, has been acquired out of his income which has not been disclosed so far in his return of income to be furnished before the expiry of time specified in [* * *] Sub-Section (1) of Section 139, and also specifies in the statement the manner in which such income has been derived and pays the tax, together with interest, if any, in respect of such income.] It is seen that prior to the insertion of Explanation 5 to Section 271(1)(c) of the Act by the tax laws amendment act 1984 w.e.f. 1.4.1984 the assessee who is found to be the owner of any money, jewellery etc. recovered during the course of search was entitled to Explain that such assets were acquired by him by utilising his income relating to any previous year whether it ended before the date of search or is to end on or after the date of search by doing so. It is seen that prior to the insertion of Explanation 5 to Section 271 by the Taxati....
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....le Clauses (a) and (b) make a clear distinction between the previous year which has ended before the date of the search, and the previous year which is to end on or after the date of the search, para. (2) in Explanation 5 does not make any such distinction. It refers to the statement given by the assessee at the time of the search under Section 132(4) with regard to the assets found at the time of search being the statement to the effect that such assets have been acquired out of his undisclosed income and the specification by the assessee in such statement with regard to the manner in which such income had been derived, and the subsequent payment by the assessee of the tax on such undisclosed income together with interest. The words in para. (2),"... has been acquired out of his income which has not been disclosed in his return of income to be furnished before the expiry of time specified in Sub-Section (1) of Section 139," are not to be read as referring to income so far not disclosed in respect of the previous year which is to end after the date of the search. The words used are "income which has not been so far disclosed in his return of income". The additional words w....
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....in the statement made Under Section 132(4), the manner in which such income has been derived and pays the taxes that are due including interest, then the Assessing Officer will not levy any penalty Under Section 271(1)(c)of the act. In the present case before us the assessee has filed his original return of income Under Section 139(1) declaring an income of Rs. 79,830/-. Whereas search Under Section 32 took place on 4.9.2003 and the assessee has not declared this additional income of Rs. 5,00,000/-, declared during the course of search Under Section 132(4) of the Act, in the original return. The explanation 5 to Section 271(1)(c) of the Act will not come to the rescue of the assessee as there is no time available for filing of return Under Section 139(1) of the Act as mentioned in Clause 2 of Explanation 5 of this Section . The words used in Sub-clause 2 are that which has not been disclosed so far in his return of income to be furnished before the expiry of time specified in Sub-Section (1) of Section 139 of the Act. There are two limbs to this explanation, Clause (1) speaks about the income or the transactions resulting in such income are recorded in the books of accounts or disc....
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....alty is to be levied over and above the return of income returned under Section 153Aof the Act. Even CIT(A) has also relied on the new provision introduced in the Finance Bill being Section 271AAA of the Act, wherein a penalty is proposed to be levied in the cases of search with effect from 1.6.2007. The CIT(A) held that the introduction of such provision itself shows that no penalty under Section 271(1)(c) is imposable on the income returned under Section 153A prior to such amendment. In view of this he deleted the penalty. 14. First of all it is seen that the facts of this case are very clear. A search action Under Section 132of the act was carried out in the Bata group of cases in Kalol Dist. Mehsana on 04.09.2003 including the assessee. In view of the above action, proceedings Under Section 153A(a) of the Act was initiated vide notice dated 12.12.2003. In response to this notice, the return of income was filed on 31.05.2004 declaring total income at Rs. 5,79,830/-. The assessee in his return of income under Section 153A(a) of the Act disclosed Rs. 5,00,000/- as income from business or profession as declared Under Section 132(4)of the Act as his undisclosed income for the yea....
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....explained relevant provision as brought by Clause 59 as under:- [2003] 260 ITR 164 (statutes): The proposed new Section 153A provides that in the case of a person where a search is initiated under Section 132 or books of account, other documents or any assets are requisitioned under Section 132A after the 31st day of May, 2003, the Assessing Officer shall, notwithstanding anything contained in Section 139, Section 147, Section 148, Section 149, Section 151 and Section 153, issue notices to such person requiring him to furnish within such period as may be specified in the notice the return of income in respect of each assessment year falling within six assessment years referred to in Clause (b) of Section 153A, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of the Income tax Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under Section 139. The Assessing Officer shall assess or reassess the total income of six assessment years immediately preceding the previous year during which such search is conducted or requisition is made....
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....ssment. Where assessee has already filed a return, a fresh return in response to notice Under Section 153A has to be filed, which incidentally gives him an opportunity to make good omission. If the AO had made an assessment without the knowledge of a search or requisite or overlooking such search or requisite on a return filed by the assessee in an order under Section 143(3) or under Section 144 after the initiation of search, such assessment will not be valid. From this it is clear that the second proviso to Section 153A(b) provides that the assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in Section 153A pending on the date of the initiation of the search Under Section 132 or requisition under Section 132A, as the case may be, shall abate. 15. In view of the above provisions, now the only vital question arises is which, in view of the second proviso to Section 153A of the Act, assessment or reassessment relating to any assessment year falling within the period of six assessment years shall abate. As per the second proviso the pending assessment or reassessment falling within the period of six asse....
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....sessee has disclosed a sum of Rs. 5,00,000/- in his return of income filed under Section 153A(a) of the Act as declared under Section 132(4)of the Act and accepted the assessment also. As regards to this legal issue, we are of the view, that the CIT(A) has erred in ignoring the return filed originally on 27.10.98 in view of the second proviso to Section 153Aof the Act. Another aspect on which the CIT(A) has given his finding, that, the introduction of Section 271AAA of the Act nowhere puts bar for levy of penalty under Section 271(1)(c) of the Act on or before 1.6.2007 as introduced by the Finance Act, 2007. Even by the Finance Act 2007, w.e.f. 1.6.2007 there is amendment in Explanation 5 and the words substituted for "search under Section 132" are "search initiated under Section 132 before the 1st June 2007". By this Finance Bill 2007 it was proposed said Explanation 5 so as to provide that provision of said Explanation shall be applicable in a case where search initiated under Section 132 before the 1st June 2007. Further it has been clarified by the memo explaining the provisions in the Finance Bill 2007 Clause 67 as under: (source [2007] 289 ITR 329 (St.) It has been p....