TaxTMI 
TaxTMI 
2008 (12) TMI 315
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....rned CIT(A) ought to have appreciated that the assessee had no alternative to accept the concealed income detected by the Income-tax Department for search and seizure operation. Hence, it was included in the return filed under section 153 of the Act." 3. The assessee is an individual dealing in sales of scrap, granite polishing and manufacture of aluminium ingots. A search under section 132 was conducted at the business and residential premises of the assessee on 9-11-2004. Various incriminating documents and books were seized apart from seizure of cash of Rs. 9 lakhs and jewellery worth Rs. 15 lakhs. The Assessing Officer in the assessment order has mentioned that during the course of search, it was revealed that the assessee used to sell the scrap mainly to the customers from Delhi and these sales were totally unaccounted, as the parties declined to accept the sales vide bills. The assessee used to declare only the accounted sales to the Sales Tax Department and to the Income-tax Department. Unaccounted sales are available in the loose sheets and these loose sheets were seized. Statement of the assessee was recorded on 9-11-2004 i.e., on the day of the search and the assessee ....
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..... It was contended that he has not concealed particulars of income and has not furnished any inaccurate particulars of income. 3. The additional income has been offered only to buy peace and to have an end to proceedings, which would have otherwise protracted with litigation. 4. There is no specific finding of any omission and evidence of concealment. The statement of affair was filed by the assessee vide which he disclosed all his assets and investments. An extra income was disclosed on estimated gross profit calculation. The income was surrendered to buy peace otherwise there is no evidence to show that the income was earned and that it was concealed. The assets were also shown as balancing figure. Merely because there are turnover figures it does not mean that the income as assessed was actually earned. 5. Return under section 153A of the Act is to be seen independently of other proceedings. In view of this, there is no default since the returned income has been accepted. 6. Explanation 5 to section 271(1)(c) of the Income-tax Act is also not applicable as this year no income is sought to be related to any unaccounted money, bullion, jewellery....
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....rasad [2001] 250 ITR 852 (Kar.) where it was held that penalty under section 271(1)(c) is not warranted though the assessee filed revised return declaring substantially higher amount of income after the survey. The learned CIT(A) deleted the penalty after observing as under:- "It is a well settled position of law that the penalty proceedings are quasi-criminal in nature and the burden lies on the revenue to establish that the disputed amount represents income and the assessee has consciously concealed the particulars of his income or has deliberately furnished inaccurate particulars.In the instant case, it is observed that no such efforts have been made by the Assessing Officer and the penalty is imposed on the basis of mere admission/surrender. It also observed that penalty in this case has been levied under the substantive provisions of section 271(1)(c) which case heavy burden on the revenue to bring the assessee's case within the mischief of the main provisions of section 271(1)(c). More so when the Explanation to that section has not been invoked. The assessment proceedings and penalty proceedings are two separate and distinct proceedings and the mere fact that ce....
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....inst Rs. 69,32,075 ascertained by the revenue and mentioned in question No. 13. Thereafter, the learned DR drew our attention to answer to question No. 34. The assessee declared a sum of Rs. 24,34,709 as undisclosed income being represented by the unaccounted sundry debtors receivable on the date of search. In respect of such income, the assessee asked that he should be given immunity from penalty and prosecution. Thereafter, the learned DR drew our attention to the statement recorded on 23-11-2004. Certain loose sheets were found which contained the description of cash receipt. The assessee admitted that cash was received on various dates as mentioned in the slips. Our attention was drawn to answer to question No. 6, vide which, the assessee admitted that purchase vouchers are prepared at a later date to match the sale figures for which there are specific records. The purchases are made from the hawkers but no account is prepared. Purchase vouchers are created at regular intervals depending upon the sales. In answer to question No. 7, the assessee admitted that pages from 38 to 60 are bills for sales made to various parties who did not accept the bills taken. Therefore, these were....
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....d with reference to the concealed income seized in the form of jewellery and cash. (ii)Shanti Swaroop Bhatnagar v. CIT 279 ITR 451 (All.) - In this case, returned income was less than 80 per cent of the assessed income. Amount was surrendered after search operations and initiation of the assessment proceedings. Presumption of concealment of income not rebutted and hence, penalty was rightly levied. (iii)M.S. Mohammed Marzook v. ITO 283 ITR 254. - In this case, revised return was filed after search proceedings. The Tribunal has given a finding that there has been concealment of income. The Hon'ble Madras High Court held that levy of penalty is valid. (iv)M. Sahul Hameed Batcha v. ITO 292 ITR 585 (Mad.) - In this case revised return disclosing enhanced income was furnished after search proceedings. There was finding by Tribunal that omission to include such income in original return was not due to mistake. The Hon'ble Madras High Court upheld the levy of penalty." 3.7 During the course of proceedings before us, the learned AR has filed three paper books. The first paper book contains 58 pages. It contains the copies of Panchanama as well as the c....
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....trigger an enquiry. It cannot be the sole basis of an ultimate action. For levy of penalty, the revenue is required to prove the factum of concealment as also the mens rea. The fact that assessments were not being challenged in appeal does not mean that the factum of concealment has been proved. For levying penalty, mens rea is to be established and for such proposition, the learned AR relied on the following decisions :- Sudarshan Silks & Sarees v. CIT [2008] 300 ITR 205 (SC); Sir Shadilal Sugar & General Mills Ltd.'s case (supra). K.C. Builders v. Asstt. CIT [2004] 265 ITR 562 (SC); Suresh Chandra Mittal's case (supra). CIT v. Suresh Chandra Mittal [2000] 241 ITR 124 (MP). 3.8 Before initiating the penalty, it was necessary for the Assessing Officer to reach and record a satisfaction that there has been a concealment.In the present case, no such satisfaction has been recorded. A mere mention in the assessment order that penalty proceedings may separately be initiated does not amount to a recording of satisfaction. For this proposition, the learned AR relied on the following judgments :- Rajendra D. Runwal v. ITO, IT....
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.... New Sorathia Engg. Co. v. CIT [2006] 282 ITR 642(Guj.). Cargill India (P.) Ltd. v. Dy. CIT [2008] 300 ITR 223 (AT)(Delhi). CIT v. S.D.V. Chandru [2004] 266 ITR 175(Mad.). 3.11 During the course of search, cash, FDs, jewellery and debtors were found. In respect of jewellery, a detailed submission has been made by the assessee. The submission has not been found to be false. It has not been disbelieved. The fact that the explanation is bona fide has not been disputed. Hence, penalty is not leviable in view of Explanation 1 to section 271(1)(c). 3.12 An additional income was disclosed in pursuance of declaration made in the statement recorded under section 132(4). The other conditions of Explanation 5 have also been satisfied. Explanation 5 is also applicable to past years as held by the Hon'ble Rajasthan High Court in the case of CIT v. Kanhaiyalal [2008] 299 ITR 19. Explanation 5 to section 271(1)(c) creates a charge for penalty and penalty is not to be imposed in case certain conditions are satisfied. It was argued that FDs or debtors would not be covered within the Explanation 5. It was argued that residuary portion of Explanation 5 to section 271(1)(....
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....inally is to be considered for the purpose of penalty under section 271(1)(c) and for such addition, the satisfaction stands recorded under section 271(1B) of the Income-tax Act. The learned DR submitted that there is no specific way mentioned in the Act for recording of the satisfaction. The learned DR drew our attention to the five Judges judgment in the case of CIT v. S.V. Angidi Chettiar [1962] 44 ITR 739. The learned DR drew our attention to the observations of the Hon'ble Apex Court at page 745 of the judgment. Hon'ble Apex Court observed that endorsement at the foot of the assessment order by the ITO that action under section 28 had been taken for concealment of income indicates clearly that the ITO was satisfied in the course of assessment proceedings that the firm had concealed its income. Hence, the satisfaction is to be inferred from the assessment order. The learned DR argued that in the instant case, satisfaction has been recorded. 3.16 In respect of the fact that inapplicable portions in the show-cause notice under section 271(1)(c) was not struck off, the learned DR relied on the section 292B of the Income-tax Act. As per section 292B, a notice is not to b....
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....parallel proceedings of regular assessment and assessment in consequence of search i.e., block assessment. The learned DR drew our attention to sections 234A(3) and 234B(3) in which interest under both the provisions is to be charged on the basis of re-assessment or recomputation under section 153A. It was mentioned that section 153A is on the same pedestal as section 148. Only the proceeding relating to assessment stands abate. 3.18 The learned DR drew our attention to the decision of the Apex Court in the case of CIT v. Onkar Saran & Sons [1992] 195 ITR 1. In that case, proceedings under section 148 were initiated. The assessee filed the return disclosing the same income as were disclosed in the original return. The Hon'ble Apex Court held that law applicable would be the law as it stood at the time when the original return was filed. The learned DR therefore, argued that the concealment of income is in the original return. Hence, the Assessing Officer has rightly imposed penalty on the difference between the assessed income as per order under section 153A and the income declared in the original return. The learned DR also drew our attention to the decision of the Hon'....
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....d as A/NMS/17 shows subsequent to 20-10-2004, I have received cash on 25-10-2004 Rs. 3 lakhs, 26-10-2004 Rs. 3 lakhs, 2-11-2004 Rs. 1 lakh, 4-11-2004 (twice) Rs. 7,50,000 totalling to Rs. 14,50,000. Thus, the balance receivable as on date is Rs. 5,43,820 as against 19,93,820 from Sri Ramakanth of Delhi. Likewise, I have personally verified the seized material A/NMS/17 which shows the closing balances as on date as follows :- (1) Rakesh 6,03,800 (2) Datta 78,500 (3) Ramakanth 5,43,820 (4) Naresh 1,339 (5) Praveen 1,96,250 (6) Praveen Auto - (7) Suresh 10,05,250 (8) Kapila Metal 5,750 (9) Ganesh Metal - (10) Inder - Total 24,34,709 Q.15 Kindly go through the seized material marked A/NMS/02 to 14 and A/NMS/17 with reference to your working of unaccounted sundry debtors and confirm? Ans. : I have gone through the above seized materials and confirm the balance receivable from sundry debtors as on date is Rs. 24,34,709. Q.17 I am showing you seized material marked as A/NMS/18 and explain the contents therein? Ans. : I have gone through the seized material marked as A/NMS/18 and intima....
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....ded that the penalty should be based on the amount of tax sought to be evaded. What is meant by tax sought to be evaded was mentioned in Explanation 4. 3.21 The Hon'ble Apex Court (3 Judges Bench) in the case of Dharamendra Textile Processors (supra) had an occasion to consider the nature of proceedings in respect of penalty under section 271(1)(c). The Hon'ble Apex Court has referred to various decisions in which it has been held that mens rea is not essential element for imposing penalty for breach of civil obligation :- 1. Director of Enforcement v. MCTM Corpn. (P.) Ltd. [1996] 2 SCC 471. 2. Chairman, SEBI v. Shriram Mutual Fund [2006] 5 SCC 361. 3. J.K. Industries Ltd. v. Chief Inspector of Factories & Boilers [1996] 6 SCC 665. 4. R.S. Joshi, Sales Tax Officer v. Ajit Mills Ltd. [1977] 4 SCC 98. 5. Gujarat Travancore Agency v. CIT [1989] 3 SCC 52. 6. Swedish Match AB v. SEBI [2004] 11 SCC 641. 7. SEBI v. Cabot International Capital Corpn. [2005] 123 Comp. Cas. 841 (Bom.). The Hon'ble Apex Court in the judgment under reference has also reproduced section 271(1)(c) of the Income-tax Act. The Hon'....
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....g one view to another for factual appreciation, the High Court transgressed the limits of its jurisdiction under the Income-tax reference in answering the question of law. However, in the instant case, the assessee has not agreed for an item to be included in the income, which was being reflected in the books of account. This was a case where unaccounted sales were found during the course of search and amount outstanding on account of such sales were found. Even in respect of accounted sales, the assessee was preparing the purchase vouchers as actual purchases were made from hawkers and no purchase bills were obtained from them. 3.23 The Hon'ble Apex Court in the case of K.P. Madhusudhanan (supra) had an occasion to consider the imposition of penalty after introduction of Explanation to section 271(1)(c). The Hon'ble Apex Court held that specific reference to Explanation dealing with deemed concealment is not necessary. The Hon'ble Apex Court observed as under to say that whatever laid by the Apex Court in the case of Sir Shadilal Sugar & General Mills Ltd. (supra) is not applicable :- "Learned counsel for the assessee then drew our attention to the judgment....
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.... Judges Bench of the Hon'ble Apex Court in the case of Angidi Chettiar (supra) observed at page 745 as under:- "The assessment order is dated 10-11-1951 and says an endorsement at the foot of the assessment order by the ITO that action under section 28 has been taken for concealment of income indicating clearly that the ITO was satisfied in the course of the assessment proceeding that the firm had concealed its income." 4.2 Perusal of the assessment order show the following facts recorded by the Assessing Officer at the beginning of the order :- "A search under section 132 was conducted at the business and residential premises of the assessee on 9-11-2004. Various incriminating documents and books have been seized apart from Rs. 9 lakhs in cash and jewellery worth Rs. 15 lakhs. During the course of search it was revealed that the assessee used to sell the scrap mainly to the customers from Delhi and these sales were totally unaccounted, if the party refuse the bill. The assessee use to declare only the accounted sales to sales tax department and also Income-tax department. These unaccounted sales have been monitored by means of loose sheets and the....
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.... assessment proceedings. But there is no statutory requirement that the satisfaction should be recorded in writing. The question whether the Assessing Officer had arrived at such satisfaction or not would have to be decided on facts and circumstances of each case. The proceedings is sufficient to form the basis for initiation of penalty proceedings.In the instant case, the narration of facts in the assessment particulars of income during survey operations, admission of earning such income by the assessee, it's disclosure by filing revised return and finally initiation of penalty proceedings under section 271(1)(c) clearly shows that the Assessing Officer had in fact formed his satisfaction that the assessee had committed an offence which attracts the penalty proceedings cannot be faulted and dismissed as illegal. The case law relied upon by the assessee in Ram Commercial Enterprises Ltd.'s case (supra) is distinguishable on facts inasmuch as in that case the Assessing Officer in his assessment order had merely observed/directed penalty proceedings under section 271(1)(c) to be initiated separately against the assessee. Where as in the present case the Assessing Officer has ....
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.... be deemed to have concealed the particulars of income or furnished inaccurate particulars of such income. The only exception was that deemed concealment is not to be considered in case such income is found recorded in the books of account maintained by the assessee or such income is disclosed to the Commissioner before the search. Thus, by this Explanation, it was made clear that even if the assessee discloses the income for the acquisition of such assets in the return of income filed after the search, the assessee will have to be deemed to have concealed the particulars of income. 5.3 Explanation 5 to section 271(1)(c) was further amended by Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986. The amendment so made has been explained by the CBDT vide Circular No. 469, dated 23-9-1986. The relevant para is as under :- "(c)(B) As per the existing Explanation 5 to section 271(1) of the Income-tax Act, if at the time of search, assets which are not recorded in the books of account are found, a taxpayer is liable to penalty for concealment even if he declares the full value of those assets as his income in the return filed after the search. This provision has ....
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.... 271(1)(c) applies to tangible and intangible assets. The Hon'ble Allahabad High Court in the case of CIT v. Radha Kishan Goyal [2005] 278 ITR 454 held that non-disclosure of manner in which undisclosed income was derived is not relevant. However, in the instant case, the manner in which the undisclosed income has been derived is clear from the facts recorded in the statement under section 132(4) of the Income-tax Act. 5.5 The Hon'ble Gujarat High Court in the case of CIT v. Mahendra C. Shah [2008] 299 ITR 305 mentioned that the statement is recorded in the question and answer form and there would be no occasion for an assessee to state and make averments in the exact format stipulated by the provisions considering the setting in which statement is being recorded. It is incumbent upon authorized officer to explain the provisions of Explanation 5 in entirety to the assessee concerned and the authorized officer cannot stop short at a particular stage so as to permit the revenue to take advantage of such a lapse in the statement. Hence, if the statement does not specify the manner in which the income has been earned then it is not detrimental until and unless specific quest....
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....High Court in the case of CIT v. Dr. A. Mohd. Abdul Khadir [2003] 260 ITR 650 had an occasion to consider the imposition of penalty when the revised return was filed after the search. During the course of search, the Accountant of the doctor gave his false statement that the doctor was not accounting 50 to 60 per cent of the receipts. The assessee filed a petition before the Commissioner vide which he submitted that the accretion in wealth is to the extent of Rs. 2,92,000 while the income already assessed was Rs. 1,00,679. He requested the Commissioner to spread over the sum of Rs. 1,91,321 i.e., excess of accretion in wealth and declared income for the assessment years 1972-73 to 1976-77. The assessee filed revised return. The Hon'ble High court observed that mere filing of the revised return in these circumstances could not have the effect of exonerating the assessee from the liability for penalties as the revised return was filed only on the basis that he has concealed his income during the earlier years. The imposition of penalty was confirmed. 5.8 The Hon'ble Rajasthan High Court in the case of CIT v. Mohd. Mohtram Farooqui [2003] 259 ITR 132 had an occasion to cons....
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....e assessee. Thus, the penalty is leviable to the extent of net profit estimated at 5 per cent by the assessee. Similarly, other income disclosed in the return filed in response to notice under section 153A consisted of income declared on account of stone polishing and melting operation of aluminium. Since such income was not declared in the original return, therefore, these amounts will have to be considered for the purpose of imposition of penalty under section 271(1)(c). 5.10 As per the second proviso to section 153A, 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 initiation of search shall abate. The purpose of introducing the second proviso has been explained to clarify that there will be no parallel proceedings, one for the regular assessment and the other for the assessment in consequence of the search. Whatever is mentioned in the second proviso is that the assessment or reassessment proceedings shall abate. It does not say that the return for the earlier will abate and will not to be considered for the purpose of the Act. As per section 234B(3), if ....