TaxTMI 
TaxTMI 
2012 (6) TMI 480
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....c) at Rs.47,51,579/-. The facts of the case stated in brief are that a search and seizure action under section 132(1) of the Act was carried out in the case of assessee on 22/11/2006. During the course of search at the residence and business premises of the assessee cash of Rs.1,11,45,350/- was found. A number of loose papers containing incriminating material were found and seized vide annexure A-1 to A-9 of H-6. On the basis of entries recorded in the documents it was found that the assessee had been carrying on unaccounted business activities which was not disclosed in the returns of income. The assessee filed returns of income including return for assessment year 2004-05 under section 153A of Income Tax Act, 1961 on 23rd April, 2008 admitting income of Rs.1,43,41,002/- from undisclosed business activities. The assessing officer completed assessment accepting the returned income filed under section 153A for assessment year 2004-05. While completing assessment, the assessing officer issued notice under section 271(1)(c) read with section 274 of the Act. 3. During the course of penalty proceedings, it was submitted by the assessee that penalty under section 271(1)(c) could not b....
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....re claimed to represent the income for any previous year which has ended before the date of search, but the return for such year has not been furnished; (b) if the assets found during the search are claimed representing the income for any previous year which has ended before the date of search and the return has been filed without declaring such income; (c) the previous year relatable to valuable found is yet to end after the date of search and the assessee declares such income in the return of income. However, there are certain exceptions to above situations i.e. if the assessee shows that the income in question has been recorded in his books before the date of search, he cannot be deemed to be guilty of concealment. In case if assessee shows that the income in question has been recorded in the books on or before the date of search he cannot be deemed to be guilty of concealment of income. In order to provide benefit to the assessee from penalty provisions Explanation 5 was amended by the Taxation Laws (Amendment & Misc. Provisions) Act, 1986, according to which if the assessee in the course of search makes a statement under section 132(4) that any money, bullion, jewellery or oth....
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....ging interest under section 234A (3) does not render the original return void. Moreover in part (a)/(b) of the Explanation 5 the legislature has given importance to the first return filed under section 139(1). 4.2 As regards the last argument of the assessee that in the absence of provisions like Explanation 5A to section 271(1)(c) and section 271AAA of the Act, no penalty for concealment would be imposed, the assessing officer observed that provisions of section 271(1)(c) of the Act were applicable even prior to 1/06/2007. The amendments were made from time to time to keep pace with the Income-tax policy changes. The assessing officer, therefore, rejected the contention of the assessee and proceeded to impose penalty at the rate of 100 per cent of the tax sought to be evaded. 5. Before the ld. CIT (Appeals) the assessee made similar arguments. The ld. CIT (Appeals) relying on the decision of the ITAT in the case of Ajit B. Jota Vs. ACIT 40 SOT 543 (Mum.) held that since the assessee has filed returns after the search and had not disclosed income in the original return, Explanation 5 to section 271(1)(c) could not give impunity to the assessee. The ld. CIT (A) also concurred ....
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..... In the case of In Ajit B Zota (supra) the Hon'ble Third Member referring to the decision in the case of Kirit Dahyabhai Patel (Ahd) specifically has held that since the counsel of the assessee had not challenged that penalty U/S 271(1)(c) of the Act is not leviable, the said issue has not been examined by him and the issue discussed before him was whether immunity under Explanation 5(2) of section 271(1)(c) of the Act is available to the assessee. In Ajit B Zota again the issue in hand was not at all discussed but the decision of Kirit Dahyabhai Patel was applied though in para 14 it has been held that the Explanation 5 is not applicable when no valuable assets were found. Further the judgment of the jurisdictional High Court in SAS Pharmaceutical was not available for consideration of the Benches of Hon'ble ITAT at the time of those decisions. Ld AR of the assessee on the contrary relied on the decision of Hon'ble Delhi High Court in the case of S.S. Pharmaceuticals and Hon'ble Calcutta High Court in the case of Suresh Chand Bansal 223 CTR (Cal) 128. Further the decisions in ACIT vs. Kirit Dahyabhai Patel 121 ITD 159 and Ajit B. Zota vs. ACIT 40 SOT to 543, though on identical p....
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.... not been declared by him in any return of income furnished or after the date of search. However, two exceptions are provided vide amendments inserted on 10.9.1986 which may help avoidance of application of Explanation 5. Firstly such income or the transaction resulting in such income are recorded in the books of account on or before the date of search or the same is otherwise disclosed to the CCIT or CIT before the date of search. Secondly, in the course of search the assessee makes the statement u/s 132(4) that such assets 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 u/s 139(1) and also specifies in the statement the manner in which such income has been derived and pays tax and interest. It was, therefore, submitted that Explanation 5 is fully applicable to the facts of assessee's case for the reasons that : (a) it is undisputed that search in the case of the assessee was carried out on 22.11.2006. (b) it is undisputed and admitted that the assessee was carrying on undisclosed business during the entire period of 1.4.2000 till the date of search and this unaccounted business not on....
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....hen the assessee had filed original return of income in which the income was suppressed. Reliance on several High Court and Supreme Court judgments was made for this purpose. Enhanced income u/s 153A in itself is admission of concealment of income. If it is interpreted that penalty cannot be initiated, if the return of income is enhanced u/s 153A then it will lead to unacceptable and undesirable situation and the assessee will be tempted either not to file return of income or not to declare correct income in the return in the normal course. Explanation-5 is attracted in 153A cases even if returned income is accepted. Subsequent insertion of section 271AAA or Explanation 5A has no bearing on the case. 7.3 In Ajit B. Zota VS. ACIT (supra), the assessee had originally claimed exempt long term capital gains which were admitted to be undisclosed income during 132(4) statement. The assessee incorporated the disclosed income u/s 153A. The return income u/s 153A was accepted as assessed income, still the Hon'ble Tribunal held the assessee be liable for penalty u/s 271 (1)(c) for the logic given in Kirit Dahyabhai Patel case. Assessee was held to be liable for concealment even if Explana....
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....ed on Dilip N Shroff (2007) 291 ITR 519 (SC) which has been overruled by the larger Bench of the Apex Court later in an excise duty case in the case of Dharmendra Textile Processors (2008) 174 Taxman 571 (SC). However, factually the same was disapproved on a limited issue. In said judgment in para 25 it was held by the Apex Court that if the assessee does not meet the provisions of the Explanations u/s 271(1)(c) then the penalty is compulsory and the assessing officer has no discretion, which means that the assessing officer must show that the Explanations under the said sections are applicable to the facts of the case by specifically meeting the submissions of the assessee. On perusal of the para 25 of the said judgment, it would be seen that the Apex Court never overruled Dilip N Shroff as such but stated that an income-tax penalty u/s 271(1)(c) is a civil liability and mens rea is not necessary there as it is necessary for filing prosecution u/s 276C. The Apex Court has also held that the object behind enactment of the penalty provisions is to provide for a remedy for loss of revenue. Thus, if the revenue's loss is remedied in one manner or the other, than the penalty under the ....
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....ted after search as the Explanations 5 and 5A are applicable only in respect of incomes assessed u/s 153A of the Act after search proceedings. However, there is a difference that after survey the original return stands on the record but w.e.f. 01/06/2003, after a search, the earlier proceedings technically become non est and the assessing officer is duty bound to pass assessment orders u/s 153A for seven years whether there was any earlier assessment or not. 8.5 Further the assessee had filed the return declaring additional income on the basis of the seized papers and documents and not on the basis of cash found. The Explanation 5 of section 271(1) of the Act can only apply when the assessee declares that the cash found belongs to any particular year or period but for which averment, no evidence is found. It aims only to assess the valuables found as deemed income without reference to the seized books of account or incriminating material. The said Explanation does not refer to nor is applicable to income computed on basis of the seized books of account, papers and documents which has been specifically provided in Explanation 5A w.e.f. 01.06.2007. Had it been already included in ....
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.... assessment year falling within such six assessment years: Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this section pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate. Explanation.-For the removal of doubts, it is hereby declared that,- (i) save as otherwise provided in this section, section 153B and section 153C, all other provisions of this Act shall apply to the assessment made under this section; (ii) in an assessment or reassessment made in respect of an assessment year under this section, the tax shall be chargeable at the rate or rates as applicable to such assessment year." 10. On bare reading of Sec. 153A it is seen that this section starts with a nonobstante clause relating to normal assessment procedure covered by Sections 139, 147, 148, 149, 151 and 153 in respect of searches made after 31st May, 2003. The sections, so excluded, relate to filing of return, assessment and re-assessment proceedings. Further section 153A intends to assess or reassess total in....
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....e code for search assessments wherein search has been initiated after 31st May, 2003. The existence of the words "all other provisions of this Act shall apply to the assessment made under this section" in Explanation (i) of section 153A makes it clear that in search assessments, amongst others the provisions relating to penalty and prosecution will also be applicable. However, when normal assessment procedure covered by Sections 139, 147, 148, 149, 151 and 153 has been completely excluded by operation of non-obstante clause "Notwithstanding anything contained" the search assessments made u/s section 153A of the Act cannot be treated as continuance of normal assessment proceedings whether abated or not. Thus there is complete detachment of assessment proceedings u/s 143 or 147 from search proceedings u/s 153A of the Act. When scheme of search assessment as designed by the Legislature does not prescribe to take into account the earlier assessment proceedings whether abated or not, it will not be proper or justified to refer to returned income u/s 139 for the purpose imposition of penalty u/s 271(1)(c) of the Act. It follows that the concealment of income has to be seen with reference....
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....he residence and business premises(M/s Nanak Enterprises) of the assessee resulted in seizure of a number of loose papers containing incriminating material which were seized vide annexure A-1 to A-9 of H-6. The seized material included a printed note pad (Annexure A-6 / H-6) of MDH Ltd (an advertisement material of MDH Ltd.). Cash of cash of Rs.1,11,45,350/- was also found and a sum of Rs 1,11,00,000/- was seized. The assessee during the course of search offered an amount of Rs 5 crores to tax u/s 132(4) of the Act and the amount of Rs 1,11,00,000/- was appropriated towards payment of tax. Subsequently the assessee retracted from offer made u/s 132(4) when returns of income were filed u/s 153A of the Act. 14. The assessing officer issued notice under section 153A of the Act for assessment years 2001-02 to 2006-07. The assessee worked out cash flow statement on the basis of seized material and filed returns of income admitting undisclosed income detailed as under :- Assessment year Undisclosed income admitted. 2001-02 Rs.31,47,828/- 2002-03 Rs.8,29,565/- 2003-04 ------ 2004-05 Rs.1,43,41,002/- 2005-06 Rs.15,91,395/- 2006-07 Rs.47,53,056/-....
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....from page 28 of H-6/A-1 which had been admitted by the assessee as his undisclosed income in the cash flow statement. Further the assessee had admitted that the entries recorded on page 27 of H-6/A-1 were his unaccounted purchases. Another feature in the cash flow statement noted by the AO was that whatever income was earned by the assessee from the unaccounted transactions had been shown to be available in the form of cash. In this manner the cash balance in the hands of the assessee had been built up to Rs.2,20,07,726/- as on 22/11/2006 (the date of search) from a mere cash balance of NIL as on 1/04/2000. The AO, therefore, concluded that the cash flow statement was a self serving statement which has been filed to use the evidence, which was seized at the time of search to paint a picture that the assessee was doing unaccounted business off and on and not on a continuous basis. The assessing officer also observed that even after search the assessee had failed to come out with the complete truth as regards his unaccounted business. 17. The assessing officer on the basis of entries recorded in note pad estimated turnover for assessment year 2006-07 at Rs.20,11,18,140/- by taking....
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.... (SLCS) The entry 25K represents some unit in form of katta or bag which is evident the total made at 100 items. Therefore, it is not the weight in Kgs., but quantity in kattas / bags. Likewise for Magaz the rate cannot be Rs.6191/KDI and for another quantity of 25 katta the rate cannot be Rs.50/DL. The figures taken as sale price does not reflect the price, but it could be either lot no or something else because new paisa cannot be in three digits as had been mentioned at several places. Merely because the entries had been recorded on note pad of "MDH Masala" it cannot be presumed that the purchases outside the books of accounts were made by the assessee. These entries nowhere reflect that unaccounted purchases were made. Therefore, the ld. CIT (A) was correct in coming to the conclusion that the entries recorded on note pads / note books cannot represent the purchases made by the assessee. From the decision of the ld. CIT (A) it is evident that there was no material with the assessing officer to estimate the undisclosed purchases. The Revenue has not filed appeal against this finding of the ld. CIT (A). Therefore, no adverse inference can be drawn on the basis of entries rec....
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....ng the figures of assessment year 2006-07 cannot be upheld. Once the estimation of unaccounted purchases is not upheld, the question of estimation of profit by applying 10 per cent of profit would not arise. The assessee had admitted income from commission business based on seized material which was not disclosed. Therefore, no addition can be made on the basis of estimation of unaccounted purchases." 18. It may be noted from above that on one hand the assessing officer had rejected the cash flow statement prepared from seized material for all the six assessment years and estimation of commission income by the assessee. On the other hand he had accepted the returned undisclosed income of Rs. 1,43,41,002/- declared by the assessee in response to notice u/s 153A of the Act being higher than the estimated income by him at Rs.1,28,71,560/-. 19. There is no dispute that the assessee was indulging in unaccounted business activities for last so many years. It is also evident from the above facts that the estimation of undisclosed income by the assessee and the assessing officer is based on two different methods. The assessee estimated the undisclosed income based on seized materials....
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....in Varkey Chacko v. CIT 203 ITR 885 (SC) has held that a penalty for concealment of particulars of income or for furnishing inaccurate particulars of income can be imposed only when the assessing authority is satisfied that there has been such concealment or furnishing of inaccurate particulars. A penalty proceeding, therefore, can be initiated only after an assessment order has been made which finds such concealment or furnishing of inaccurate particulars. The penalty was permissible under the law on the date on which the offence of concealment of income was committed, that is to say, on the date of the offending return. 21. Hon'ble Madras High Court in the case of CIT v. K.R. Chinni Krishna Chetty [2000] 246 ITR 121 has held that under section 271(1)(c) of the Act the authority is given the discretion to levy a penalty if there is concealment of particulars of income and even as regards the quantum of the penalty there is a discretion. Of greater importance is the necessity for a definite finding that there is concealment, as without such a finding of concealment, there can be no question of imposing any penalty. 22. If the facts of assessee's case are examined in the light....
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.... 5 to section 271(1) remained inoperative during the period from 1.7.1995 to 31.05.2003. 25. Section 153A was inserted into statute w.e.f 1.6.2003. Clause (i) of Explanation to section 153A clarify that subject to sections 153A, 153B and 153C, all other provisions of this Act shall apply to the assessment made under this section meaning thereby that provisions relating to penalty and prosecution will also apply. It means that the Explanation 5 of section 271(1) will also apply in search assessment made u/s 153A of the Act provided that the conditions relating thereto are satisfied. 26. In the case before us the assessee has disclosed undisclosed income in the return of income filed in response to notice u/s 153A of the Act which has been accepted by the assessing officer. We have held in earlier paragraphs that under the scheme of search assessment u/s 153A, the total income of the assessee is to be determined for each of six assessment years. The assessment or re-assessment proceeding u/s 153A is not in continuation of assessment proceedings u/s 143 or sec. 147 of the Act. Since there is complete detachment of 153A proceedings from regular assessment proceedings u/s 143 or 1....
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....If the facts of the case are examined in the light of decision of Hon'ble Delhi high Court in SAS Pharmaceuticals (supra) penalty u/s 271(1)(c) is not imposable where there is neither concealment of income nor furnishing of inaccurate particulars of income in return filed u/s 153A of the Act. In earlier paragraphs we have held that the concealment of income is to be determined with reference to the return of income to be filed in response to notice u/s 153A of the Act. Once returned income filed u/s 153A is accepted by the assessing officer it can neither be a case of concealment of income nor furnishing of inaccurate of particulars of such income. Hence, the assessee's case is squarely covered by the decision of Hon'ble Delhi high Court in the case SAS Pharmaceuticals (supra). Hence, penalty u/s 271(1)(c) is not exigible. 28. The next contention of ld AR of the assessee is that if the provisions of Explanation 5 of section 271(1) in respect of searches initiated on or before 1.6. 2007 were sufficient enough for imposition of penalty u/s 271(1)(c), there was no need for inserting of Explanation 5A and section 271AAA into the statute by the Finance Act, 2007. On the contrary ld C....
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....ion 5 will not be applicable in respect of a search initiated on or after 1.6.2007. Further the words "search initiated under sec. 132 before the first day of June, 2007" have been inserted by the Finance Act, 2007 w.e.f. 1.6.2007. In our considered opinion the amended provisions of Explanation 5 will be applicable only for assessment year 2008-09 if any money, bullion, jewellery or other valuable article or thing is found from the possession of the searched person in respect whom searches are initiated on or after 1.4.2007 to 31.05.2007. 30. In case of a search initiated on or after 1.6.2007 as provided in Explanation 5A, the assessee will be liable for penalty/s 271(1)(c) both in respect of assets as well as any income based on any entry in any books of account or other documents or transactions. But no such provision relating to entries was in existence in Explanation 5 prior to insertion of Explanation 5A in section 271(1) of the Act. Hence the scheme of assessment till insertion of Explanation 5A and section 271AAA by the Finance Act, 2007 gave immunity to the assessees in respect of undisclosed income based on entries recorded in seized material. Explanation 5A substituted....