TaxTMI 
TaxTMI 
2008 (12) TMI 315
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....ternative 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 admitted that the sales were unaccounted. Notice under section 153A....
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....ished 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 or other valuable articles or things. 3.2 As per the Assessing Officer, none of the explanations offered by t....
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....sessee 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 certain addition were made in the assessment proceedings on the basis of assessee's declaration/surrender would not automa....
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....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 unaccounted sales. After drawing our attention to the replies given by the assessee in his statement recorded under section 1....
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....ll.) - 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 copies of the returns and computation of income filed along with the return under section 153A. Paper book-2 contains 72 pages. It contains copies of assessmen....
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.... 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, ITAT Bang. Bench. V.V. Projects & Investments (P.) Ltd. v. Dy. CIT [2008] 300 ITR 40 (AP). CIT v. Rajan & Co. [2007] 291 ITR 340 (Delhi). Everplus Securities & Finance Ltd. v. Dy. CIT [2006] 285 ITR....
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.... 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)(c) only covers tangible movable items. For this proposition, the learned AR relied on the decision of Pune Bench in the case of Dy. CIT v. Mahadik Bros. [2003] 84 ITD 1 and that of Hon'ble Allahabad High Court in the case of CIT v. Mohan Lal Sharma [2006] 281 ITR 384. Hence, it was argued that FDs or debtors are not covered within the Ex....
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....nt 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 be deemed invalid merely by reason of any mistake, the defect or omission in such notice if such notice is in substance and in fact in conformity with or according to the intent and purpose of the Act. It was argued that the assessee clearly understood the purpose for which the show-cause notice has been issued and no reference has been made in the r....
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....destal 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'ble Apex Court in the case of K.P. Madhusudhanan v. CIT [2001] 251 ITR 9 9 in which it has been held that the decision in the case of Sir Shadilal Sugar & General Mills Ltd. (supra) is not a good law after introduction of explanation. 3.19 We have heard both the parties. Search proceedings in the case of the assessee were commenced on 9-11-2004. Statem....
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....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 intimate that there are the transactions of unaccounted sales made to various parties and receipts of cash from them. Statement dated 23-11-2004 Q.1 Please identify yourself? Ans. : I am Shri K. Natarajan S/o Late Ganapathy aged 55 years. I am the sole proprietor of M/s. Nataraj Metal Stores, M/s. N.P. Stone Polishing works. Q.6 I am showing you seized material A/NMS-1/13 to A/NMS-1/22 seized during the course of search proceeding on 23-11-2004 from your business premise at No. 4, PVR Road, Ranasinghpet, Banga....
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....nforcement 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'ble Apex Court at para 25 observed as under :- "The Explanations appended to section 271(1)(c) of the Act entirely indicates the element of strict liability on the assessee for concealment or for giving inaccurate particulars while filing return. The judgment in Dilip N. Shroff's case (supra) has not considered the effect and relevant of section 276C of the Income-tax Act. Object behind enactment of section 271(1)(c) read with Explanations indicate that the said section has been enacted to provide for a remedy for loss of revenue. The penalty under that provision is a civil liability. Wilful conc....
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....ained 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 of this court in Sir Shadilal Sugar & General Mills Ltd. v. CIT [1987] 168 ITR 705. He submitted that the assessee had agreed to the additions to his income referred to hereinabove to buy peace and it did not follow therefrom that the amount that was agreed to be added was concealed income. That it did not follow that the amount agreed to be added was concealed income is undoubtedly what was laid down by this court in the case of Sir Shadilal Sugar & General Mills Ltd. [1987] 168 ITR 705 and that, therefore, the revenue was required to prove the mens rea of a quasi-criminal offence. But it was because of the view taken i....
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....emises 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 they have been seized and marked as A/NMS2, A/NMS3, A/NMS4, A/NMS5, A/NMS7, A/NMS8, A/NMS9, A/NMS10, A/NMS11, A/NMS12 and A/NMS14. Assessee's statement to this effect was recorded on 9-11-2004 to which the assessee has admitted that the sales were unaccounted. The assessee manufactures aluminium ingots in his factory at Nayandanahalli, Mysore Road, Bangalore. The nature of business, location of the factory or income earned were not declared to the department. On the other hand the assessee declared the factory as a godown and the sale of aluminium ingots as sale of scrap which is not accounted. The assessee is also running another factory in the n....
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....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 in fact formed the satisfaction and initiated penalty proceedings in course of assessment proceedings." 4.3 Hence, relying on the above decision of the Tribunal and considering the facts as mentioned above, we hold that the Assessing Officer was satisfied before initiating the proceedings under section 271(1)(c). 5. Now the next issue before us is as to whether the penalty is not imposable on account of defect in the notice. 5.1 It is true that the show-cause notice does not contain the specific allegation i.e., whether it is in respect of concealment of income or furnishing of inaccurate particulars of income. The notice is to be read along with the assessment order during the ....
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....ovisions) 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 been found to operate even in cases where the assessee has no intention to fabricate any evidence and he includes in his return the income out of which such assets have been acquired. Hence, by the Amending Act, it has been provided that if an assessee in such cases makes a statement during the course of the search admitting that the assets found at his premises or under his control have 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 prescribed in clause (a) or (b) of section 139(1) and specifies in the statement the manner in which such income has been derived and pays the taxes that are due thereon, no penalty ....
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....ons 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 question is asked and the assessee does not give the reply.In the instant case, tax has been paid. The requirement of Explanation 5 to section 271(1)(c) for providing immunity from penalty is that tax along with interest is paid. There is no prescription as to the point of time when the tax has to be paid qua the amount of income declared in the statement under section 132(4).In the instant case, the assessee has paid the tax. The return filed in response to section 153A were not processed. The payment of interest was created at the time of assessment and it is not the case of the revenue that such payment has not been paid. Hence we are of the opinion that no penalty is leviable in respect of sum of Rs. 24,34,709 a....
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....d 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 consider the imposition of penalty in a case where the cash was seized by the police authorities and it was explained that part of cash belong to third parties. However, there was no evidence to explanation and the assessee surrendered the amount for assessment by filing the return. The Hon'ble Rajasthan High Court upheld the penalty and observed that after the insertion of Explanation to section 271(1)(c), the requirement as the department should establish that there has been a conscientious concealment of particulars of income or a deliberate failure to furnish accurate particulars is no longer necessary. In case additions are made and the explanations submitted by the assessee is not satisfactory, the income added....