TaxTMI 
TaxTMI 
2015 (3) TMI 264
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....is on-money was taken in cash which in turn was routed back into the group of companies in the form of share application/unsecured loans, share capital etc. The unaccounted money routed through this channel was reinvested in the purchase of further lands and for new projects. The share application money received in cash was also utilized for booking bogus expenses as site development charges for inflating the cost of construction to bring down its profits. Accordingly, notice u/s 271AAA was issued to the assessee on 03-03- 2014. The assessment order u/s 143(3) of the IT Act was passed on 30- 12-2010 after making certain additions / disallowance and penalty proceedings u/s 271AAA were initiated. Since the assessee could not prove that it has not concealed the true particulars of its income to the extent of Rs. 15,30,00,000/-, penalty order u/s 271AAA of the Act was passed levying a penalty of Rs.l,53,00,000/-." 3. On appeal the First Appellate Authority rejected the various contentions of the assessee and partly confirmed the penalty. Aggrieved the assessee is in appeal on the following grounds:- 1. "That the learned CIT (A) has erred both on facts and in law in confirming the ord....
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....levied beyond an amount of Rs. 1,86,01,810/- is not sustainable, for the reason that the penalty had not been initiated on those items of income by the AO. 5. For this proposition he relied on the following case laws:- (i) CIT vs Triveni Engineering and Industries Ltd. 369 ITR 660 HC [All] (ii) CIT vs Lotus Construction 370 ITR 475 HC (T & AP) (iii) CIT vs MWP Limited 264 CTR 502 (Kar.) (copy enclosed) 6. On levy of penalty on a sum of Rs. 1,86,01,810/- the Ld. Counsel submitted that the English translation of the statement made by the Director of the assessee company u/s 132(4) on 15.10.2008, has been reproduced by the Ld. CIT(A) in his order at page 12 & 13. He submitted that the assessee complied with the provision of sub-section 2 of the section 271AAA by paying taxes on admitted undisclosed income. He submitted that a perusal of the statement recorded demonstrates that, no specific question was put to the assessee to describe or give the details about the manner in which the undisclosed income was earned nor to substantiate the same. He submitted that when no specific question has been put to the assessee by the Revenue officials, it cannot be held that the assessee has n....
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....f facts" before the CIT(A) in the prescribed form makes the order of the CIT(A) defective and consequently the order passed by the CIT(A) is bad in law. 11. The Ld. DR submitted that section 271AAA has been introduced into the statute to reduce the rigorous of penalty wherever the assessee has declared undisclosed income and where the assessee fulfilled the conditions stipulated in 271AAA sub-section (2) of the Act. He pointed out that the penalty is only at flat rate of 10% of the taxes on an undisclosed income as against penalty range from 100% to 300% u/s 271(1)(c) of the Act. Thus he submitted that liberal interpretation should not be given. 12. On the issue of initiation of penalty, qua the additional income, the Ld. DR submitted that in the last paragraph of the assessment order, the AO has stated that penalty proceedings u/s 271AAA of the Act has been initiated separately. He submitted that the A.O. has recorded satisfaction in the assessment order and hence proceedings to levy penalty have been validly initiated on the entire undisclosed income. He pointed out to the reply of the assessee, to the notice of penalty and submitted that the assessee has also understood that t....
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.... was derived was not stated nor was it specified as to whose undisclosed income this was. 14. In reply the Ld. Counsel of the assessee submitted that substantial rights guaranteed under the statutes would prevail over forms and procedures. He pointed out that the assessee had submitted the statement of facts during the course of hearing as mentioned in Form No-35. He strongly objected to these arguments of the Ld. DR as devoid of merit. On the statement of voluntarily surrender given by Sh. Vijay Jindal, he submitted that Sh. Vijay Jindal is a Director of the company and the AO had accepted this disclosure as disclosure of the company. He submitted that at this point of time, the ld. DR cannot raise such issues as otherwise the entire additions should be taken as wrongly made by the AO in the hands of the assessee. He submitted that the ld. DR could not point our any contrary judgements of the High Court/Tribunal on the issue of initiation or on the issue of the assessee not being asked a specific question on the manner of deriving undisclosed income and submitted that the Tribunal should follow the proposition as these issues laid down by the Hon'ble High Courts and by the Co-Ord....
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....ount in the garb of share application contributions. The amount of Rs. 30,00,000/- is accordingly represents the concealed income of the assessee."(Emphasis own) 17. At page 21 para 2 in no other part of the order, the term concealed income has been used by the AO except for Rs. 30,00,000/- the AO held as follows:- "With these remarks the income of the assessee is assessed accordingly keeping in view of the fact that the assessee has already surrendered Rs. 15,00,00,000/- against discrepancy in the books of account and loose papers as admitted during the statement recorded u/s 132(4) of the I.T.Act. The aforesaid addition are covered by the surrender amount except for Rs. 30,00,000/- added as concealed income of the assessee as discussed above.(Emphasis own)" 18. At page 17 of the assessment order under the head "other issues", the AO discussed the disclosure of Rs. 10,90,60,000/-. On Para No-3 at page 18 he held as follows:- Other issues: 1. ....................... 2. ....................... 3. "Document A-163: This document consisting of bunch of loose papers was found at the premises of the assessee. Vide order sheet entry dated 24.12.2010 the assessee was asked to explain....
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.... only with reference to penalty proceedings initiated in the order passed u/s 143(3) of the Act. Hence this notice is also regarding 2 items of income. 22. Thus a perusal of all the above clearly indicates that initiation of penalty proceedings only with respect to two items i.e. (i) addition made of Rs. 1,86,01,810/- in para 3 at page 18 of the order of the assessment was on the basis of document A-163. (ii) Addition made of Rs. 30,00,000/- on account of share application money received during he year which was treated as "concealed income" of the assessee (see page 17 & page 21 of the order of assessment). 23. Thus the penalty levied in respect of other items of income i.e. on those items of income on which no penalty proceedings have been initiated in the assessment order, have to be deleted on the ground that there is no initiation of penalty by following the proportion laid down by various Courts and Tribunals. 24. The Hon'ble Allahabad High Court in the case of CIT vs Triveni Engineering and Industries Ltd. 369 ITR 660 HC (All.) on the issue of initiation held as follows:- "Held from the assessment order for the assessment year 2000-01 it was abundantly clear that in re....
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....ceedings could be gathered from the said order also. It was held in the case of CIT v Manjunatha Cotton & Ginning Factory [2013] 218 Taxman 423/35 taxmann.com 250 (Kar.) that (a) phrases like penalty proceedings are being initiated separately (b) penalty proceedings under section 271(1)(c) are initiated separately do not comply with the meaning of the word direction as contemplated even in the amended provisions of law. The direction should be clear and without any ambiguity. The word 'direction' has been interpreted by the decision of the Apex Court in the case of Rajinder Nath v. CIT [1979] 120 ITR 14/2 Taxman 204, where it has been held that in any event whatever else it may amount to, on its very terms the observation that the ITO is free to take action, to assess the excess in the hand of the co-owners cannot be described as a direction. A direction by a statutory authority is in the nature of an order requiring positive compliance. When it is left to the option and discretion of the ITO whether or not to take action, it cannot be described as a direction. [para 12]. * Thus, in the absence of such a direction, the deeming provision was not attracted. Therefore, the conditions....
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....mination may thereafter be used in evidence in any proceedings under the Indian Income tax Act, 1922 (11 of 1922), or under this Act. Explanation. - For the removal of doubts, it is hereby declared that the examination of any person, under this sub-section may be not merely in respect of any book of account, other documents or assets found as a result of the search, but also in respect of all matters relevant for the purposes of any investigation connected with any proceedings under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act. 9. From a perusal of Explanation 5 it is evident that in circumstances which otherwise did not attract the penalty provisions of section 271 (1)(c) of the Act, now a deeming provision was introduced as to attract the penalty provisions to those cases as well. But an exception is provided in clause (2) of Explanation 5 where the deeming provision will not apply if during the course of search the assessee makes the statement under sub-section (4) of section 132 of the Act that the money, bullion, jewellery, etc., found in his possession has been acquired out of his income which has not been disclosed so far in his return of income to be fu....
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....the manner in which such income has been derived, it can be inferred that such undisclosed income was derived from the business which he was carrying on or from other sources. The object of the provision is achieved by making the statement admitting the non-disclosure of money, bullion, jewellery, etc. Thus, we are of the opinion that much importance should not be attached to the statement about the manner in which such income has been derived. It can be inferred on the facts and circumstances of the case, in the absence of anything to the contrary. Therefore, mere non-statement of the manner in which such income was derived would not make Explanation 5 (2) inapplicable." 13. The above observations of their Lordships were made with reference to penalty u/s 271(1)(c) of the IT Act. 14. In 'CIT vs. Mahendra C. Shah', (2008) 299 ITR 305 (Guj) (CLPB 30- 40), again, considering the penalty u/s 271 (1)(c) of the Act, following 'Radha Kishan Goel' (supra), it was held:- "15. Insofar as the alleged failure on the part of the assessee to specify in the statement under section 132 (4) of the Act regarding the manner in which such income has been derived, suffice it to state that when the ....
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....1AAA of the Act specially when the offered undisclosed income has been accepted and due tax thereon has been paid by the assessee. We thus while setting aside orders of the authorities below in this regard direct the AO to delete the penalty of Rs. 12,50,00,000/- levied u/s 271AAA of the Act. The ground is accordingly allowed." 16. In 'Neerat Singal', (supra) (CLPB 60-77), in the search at the residential premises of the assessee, certain documents relating to transactions in properties undertaken by the assessee were found and seized. As per these documents, the assessee had an outstanding sum of Rs. 3 crore and Rs. 6 crores from various persons, which was duly disclosed as additional income for AY 2010-11, while making statement u/s 132 (4) of the Act. Additionally, the assessee had paid in cash a sum of ` 17,86,57,781/-, for purchase of land, which was also declared as additional income for AY 2010-11, while making statement u/s 132 (4) of the Act. In the said statement the assessee had admitted that he had entered into various forward/speculative and property transactions during the concerned period. In view of this, an income of Rs. 125 crores arising out of the said transact....
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....tedly, the assessee has paid due tax on the admitted undisclosed income. The question of specifying the manner in which the undisclosed income was derived, stood duly answered by the assessee before the authorities. The same was accepted by the AO, without variation, this fact itself evidencing the assessee having passed the test of Section 271AAA of the Act. Then, there is no specific format/procedure prescribed in the Act for specifying and substantiating an undisclosed income. The statement of the assessee, specifying the manner in which the undisclosed income was derived and substantiated, did not face any rebuttal or rejection at the hands of the AO. As per the statement recorded (which statement, though not of the assessee in ITA No.1835/Del/2013, was of his son, i.e., the assessee in ITA No.1836/Del/2013 and was ratified by him, as pointed out by the ld. Counsel for the assessees before us), it had been admitted that the assessee had entered into various transactions of sale/purchase of land during the concerned period. The income arising out of the said transactions was declared. This included the undisclosed amount. Later, due taxes thereon were also paid. 20. Besides, in....
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....hich such income has been derived and pays the tax, together with interest, if any, in respect of such income, then the assessee for such income will not be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income to attract the penalty therein. * Similarly, under the provisions of section 271AAA, penalty is not leviable where search has been initiated under section 132 on or after 1- 6-2007 but before 1-7-2012, and the assessee in the course of search, in a statement under the sub-section (4) of section 132,(i), admits the undisclosed income (ii) specifies and substantiates the manner in which such income has been derived, and (iii) pays the tax together with interest, if any, in respect of the undisclosed income. From the reading of both these penal provisions it is found that one requirement is common for non-attraction of the penal provisions under both the sections, i. e., if the assessee in his statements recorded under section 132(4) admits the undisclosed income and 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. * The on....