TaxTMI 
TaxTMI 
2013 (11) TMI 475
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.... Dharmendra Kisan and Shri Kiritbhai Hathibhai Patel for a total sum of Rs.60,66,568/- (Rs.30,33,284/- from each of the donor). The said gifts are arising out of premature encashment of Resurgent India Bonds -USD Cumulative Series( Bond). These bonds were purchased by the original allottees on1/10/1998 and has the face value of USD 50,000. The gift received by the assessee from Dharmendra Kisan Gandhi represent the certificate originally in the name of Asma Gupta from whose name it was transferred as per request letter dated 23/8/2001 and such transfer was recognized by the State Bank of India vide letter dated 23/10/2001. This was prematurely encashed vide payment received through demand draft dated 23/10/2001. The copies of all these evidences are filed by the assessee at page 1 to 8 of the paper book which include the copy of Passport of the donor. 3.1 The second bond was in the name of original allottee, namely Shri Kiritbhai Hathibhai Patel and it was gifted to the assessee vide letter dated 1/9/2001 and such transfer was recognized by the letter of State Bank of India dated 2/10/2001 and it was prematurely enchased vide demand draft dated 23/10/2001 and copy of these documen....
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.... to buy peace I, as the partner of M/s. Vijay Developers, as the Karta of Shri Vrajlal T. Gala HUF and the elder brother of Shri Vinod T. Gala and after consulting him to represent here today during the proceedings, I offered an additional income of Rs.2.50 crores (including Rs.1.50 crores declared earlier in the form of an affidavit) as under : Assessee A.Y. Description Manner Income Covered Cash depo Rs. Rs. Vrajlal Gala HUF 2002- 03 Gift Business 61,00,000 60,66,468 - This covers the Resurgent India Bonds Vrajlal Gala HUF 2006- 07 Madhu M. Shah Business 6,00,000 6,00,000 - This is the jewellery found at the residence of sister Ms. Madhu Shah which belonged to the assessee. Vrajlal Gala HUF 2006- 07 cash Business 15,50,000 15,50,000 - This is the cash found/seized at the residence of directors/executives: Vinod Gala HUF 2002- 03 Gift Business 30,50,000 30,33,234 - This covers the Resurgent India Bonds Vijay Developers 2006- 07 Cash Business 1,30,00,000 1,30,00,000 - Misc. 2006- 07 Cash Business 7,00,000 7,00,000 - Total 2,50,00,000 2,49,49,702 - ....
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....111 also be free from the Wealth Tax and Gift Tax in India. The tax concession will be available to the donee and transferee also. The tax concessions will be available till maturity of the RIBs to the NRI holders/donees/transferees If they return to India before maturity of the RIBs and also to resident donees. In case of premature encashment of the Bonds in non-repatriable Indian rupees by holders/donees/survivors, the proceeds in the hands of holders/donees/survivors will be free from any tax in India'. 3.6 It was submitted that according to terms of tax treatment the proceeds of premature encashment were free from any tax in India. Though those bonds were received as gift but they were not at all liable to be taxed as income and they also cannot be taxed on encashment. The premature withdrawal is also not taxable either in the hands of the allottee or donee. The said amount was declared as income in the statement recorded in the course of search under section 132(4) of the Act inadvertently without knowledge of terms and conditions contained in the offer documents. The said amount was declared just to buy peace and to avoid any harassment or any litigation under a mistaken bel....
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....ng assessee's contention about encashment of bonds being free from tax A.O has observed that the disclosure was made by the assessee to stall roving enquiries to be made by the department. The disclosure was made to avoid embarrassment to the donors. Had these gifts been a genuine gift given out of love and affection on some social occasion by the donors to the assessee then the later would not have himself offered the same for taxation. The case law relied upon by the assessee does not support the case of the assessee. AO also distinguished the decision relied upon by the assessee in the case of CIT vs. Suresh Chandra Mittal, 251 ITR 9(SC) and in this manner A.O has levied the penalty of Rs.18,66,600/-. 4. The levy of penalty was agitated in an appeal filed before Ld. CIT(A). Ld. CIT(A) has summarized the submissions of the assessee as under: "a) The proceeds of the premature encashment of the resurgent India bonds are free from tax in India and the same was declared as income, in the statement recorded u/s. 132(4) without the knowledge of the terms and conditions contained in the offer document. b) In the affidavit dt. 16.11.2005, it was made clear by....
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....ecause he was caught and it does not, in any manner, absolve or exonerate him of his illegal activity of arranging gift and earn concealed income there from. The facts of the case are so overwhelming against the assessee that he chose not to contest such addition to the total income. Though Ld. CIT(A) has agreed with the contention of the assessee that premature encashment of the bonds and interest income thereon will be free from tax, however, she has observed that the same is not the core issue to be decided in the appeal. The issue is that whether source of gift is explainable and answer to that is "no". Ld. CIT(A) has further observed that the action of the assessee was neither voluntary nor suo moto and penalty is leviable in view of decision of Hon'ble Supreme Court in the case of Union of India & Others vs. Dharmendra Textile and Processors, 306 ITR 277. In this manner Ld. CIT(A) has upheld the penalty. The assessee is aggrieved and has filed the aforementioned appeal. 5. After narrating the facts Ld. AR submitted that penalty has been initiated for filing inaccurate particulars of income whereas the penalty has been levied for concealment of income, therefore, he submitted....
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....ment made prior to search are no more referable and as the income was disclosed in the return filed in response to notice under section 153C there cannot be any concealment. 5.2 Further, Ld. A.R referred to Explanation-5 to section 271(1)(c), according to which in reference to search initiated before 1st day of June 2007 the assessee shall be deemed to have concealed particulars of his income or furnished inaccurate particulars of such income if he is found to be owner of any money, bullion, jewellery or other valuable article or thing. He submitted that bond encashed by the assesse do not fall under any of such category and to substantiate such explanation Ld. A.R referred to Explanation 5A to section 271(1)(c), which is inserted with reference to searches made on or after 1st day of June 2007 and in addition to aforementioned four items the entry in the books of accounts and other documents etc. were also considered as deemed concealment. 5.3 Ld. A.R further referred to the following decisions to contend that penalty has wrongly been levied and sustained: (1) A.V.R Prasad vs. ITO, 97 ITD 325(Hyd) - In the said case the assessee did not include admitted income whic....
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.... accurate, not exact or correct, not according to truth or erroneous. In that case it was observed that there was no finding that any details supplied by the assessee in its return was found to be incorrect, erroneous or false and finding so it was held that there was no question of inviting penalty under section 271(1)(c) of the Act. It was observed that a mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing of inaccurate particulars regarding the income of the assessee. Such claim made in the return cannot amount to inaccurate particulars. The assessee had furnished all the details in its return, which details in themselves, were not found to be inaccurate or can be view as concealment of income on its part. It was upto the authorities to accept its claim in the return or not. Merely because the assessee had claimed expenditure, which claim was not accepted or was not acceptable to the revenue, that by itself would not attract the concealment penalty. (6) Prem Arora vs. DCIT, order dated 9/3/2012 in ITA No.4702/Del/2010 (unreported decision, copy field and also given to Ld. DR)- In the said case search was carried out o....
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....ssment 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 retuned income under section 139 for the purpose of imposition of penalty under section 271(1)(c). It follows that concealment of income has to be seen with reference to additional income brought to tax over and above returned income by the assessee in response to notice issued under section 153A of the Act. Accordingly it was decided that for imposing concealment penalty resulting as a result of search assessment made under section 153A, the original return of income field under section 139 cannot be considered. 6.1 Further it was held that the assessment or re-assessment under section 153A is not in continuation of assessment proceedings under section 143 or 147 of the Act. Since there is complete detachment of section 153A proceedings from regular assessment proceedings under section 143 or 147 and hence concealment of income is to be determined with reference to return of income to be filed in response to notice under section 153A of the Act. Once returned income is accepted by the A.O it can neit....
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....d by Ld. CIT(A) and his order should be upheld. 8. In the rejoinder it was submitted by Ld. A.R that assessee was never asked to prove the genuineness of the gift and Ld. D.R is incorrect in saying that penalty has been imposed or initiated by the AO on account of furnishing inaccurate particulars as well as on account of concealment of income. 9. It is in this manner both the parties had concluded their arguments. 10. We have carefully considered the rival submissions in the light of material placed before us. In the present case concealment penalty has been levied by the revenue though the assessee had disclosed the income in the return filed in response to notice under section 153A. In normal circumstances if income itself is declared in the return of income then no such penalty will be leviable on said income as the assessee cannot said to have either concealed the particulars of his income or furnished inaccurate particulars of income. Therefore, if the return filed by the assessee under section 153A disclosing the impugned income and said return is filed for the first time and it does not fall within the mischief of Explanation-3 of section 271(1)(c) of the Act then no con....
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....ce on record to prove the genuineness of the gift. 10.3 It is also the case of the assessee that prima-facie evidence to prove the gift was submitted in the shape of copy of bond certificates; transfer application thereof; evidence of pre-encashment of bonds; copy of passport of the done etc. Only to buy peace of mind and to avoid prolonged litigation the assessee had offered the said income and has paid taxes in the return filed in response to notice under section 153A. However, according to revenue such action of the assessee cannot be considered to be voluntary and bona fide and does not absolve him from levy of concealment penalty. 10.4 It has already been mentioned that in normal case if the income itself is disclosed in the return of income then the assessee cannot be held liable for concealment of penalty. If return of income filed by the assessee under section 153A is considered independent from the return filed under section 139 then Explanation-1 cannot be applied firstly; because there is no income which has been concealed in the return so filed. Secondly; assessee does not require to file any explanation which can either be found to be false or is not substantiated. R....
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....rticle 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.]" A perusal of the above provision will reveal that in a case where search is initiated before first day of June 2007 and assessee is found to be owner of any (i) money (ii) bullion (iii) jewellery or (iv) other valuable article or things (these have been referred as "assets") and assessee claims that such assets have been acquired by him by utilizing wholly or partly his income for any previous year which either has entered before the date of the search and return has not been furnished till the date of the search or if return is furnished before the date of the search said income is not declared in the return. In such cases even if the said income is declared in the return filed after the date of search then also the assessee shall be deemed to have concealed particulars ....
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....s within the mischief of Explanation-5 as the said Explanation is not invoked by the AO. Similarly Ld. CIT(A) also did not rest his decision for sustenance of penalty on the basis of Explanation-5. It is already mentioned that Explanation-5 being deemed provision is also to be construed strictly. In the case of Shri Prem Arora vs. DCIT (Supra), Delhi ITAT has relied upon the case of Delhi High Court in the case of M/s.S.A.S Pharmaceuticals(supra). Following observations of Delhi High Court are reproduced below: "15. It necessarily follows that concealment of particulars of income or furnishing of inaccurate particulars of income by the assessee has to be in the income tax return filed by it. There is sufficient indication of this Court in the judgment in the case of Commissioner of Income Tax, Delhi-I vs. Mohan Das Hassa Nand , 141 ITR 203 in Reliance Petro Products Pvt. Ltd. (supra), the Supreme court has clinched this aspect, viz. the assessee can furnish the particulars of income in his return and everything would depend upon the income tax return filed by the assessee. This view gets supported by Explanation 4 as well as 5 and 5A of section 271 of the Act as conte....
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.... the purpose of tax. 10.7 If aforementioned decision of Hon'ble Delhi High Court is applied to the facts of present case then according to strict interpretation of Explanation-5 it cannot be said that assessee was found owner of any money, bullion, jewellery or other valuable article or thing. What has been made basis is entry in the capital account of the assessee which was already part of the accounts maintained by the assessee. Therefore, even according to the provisions of Explanation-5 concealment penalty cannot be linked to the return filed by the assessee under section 139. 10.8 Moreover, Co-ordinate Bench in the case of Prem Arora Vs. DCIT (supra), in almost similar circumstances on analysis of section 153A has held that concealment income is to be seen with reference to additional income brought to tax over and above returned by the assessee in response to notice issued under section 153A of the Act and return filed under section 139 cannot be considered. Reference can be made to the following observations: "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 Secti....
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.... or documents or assets seized under sec. 132 or requisition made under sec. 132A belong to a person other than a person in whose case search under sec. 132 or requisition under sec. 132A was made. Thus provisions of sections 153A, 153B and 153C are complete code for search assessment 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 Section 139, 147,148, 149, 151 and 153 has been completely excluded by operation of non-obstante clause "Notwithstanding anything contained" the search assessment made u/s. 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 each proceedings u/s. 153A of the Act. When schme of search assessment as designed by the Legislature does not prescribe to take into account the earlier assess....
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....as already recorded in the books of accounts and cannot be said that the additional income offered by the assessee was because of something, which was not recorded in the books of account; but only because of seized material. Once the gift was duly shown in the books of accounts, then the explanation 5 to section 271(1)(c)would not apply. It appears from the assessment order that during the course of assessment proceeding, the Assessing Officer asked the assessee to produce his uncle, who has given this gift to the assessee and only at this point and stage, the assessee decided to offer the said amount to tax. 5.4 It is apparent and manifest from the facts and circumstances of the case that to avoid the harassment of bringing his uncle from abroad and to produce before the Assessing Officer, the assessee has offered the gift amount to tax. The Assessing Officer himself has recorded the fact that in the e-mail correspondence, the uncle of the assessee has accepted the said amount. Even the source of the gift was also explained as the sale proceed of flat and therefore, though the assessee offered the said amount to tax, the same was not held as a bogus. 5....