TaxTMI 
TaxTMI 
2007 (12) TMI 460
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....ch would not absolve the assessee of having filed false details of gifts in the original returns. (v)The decisions relied upon by the CIT(A) or with reference to case were the assessee had filed revised returns without any quantification by the department. The CIT(A) has failed to appreciate the facts that in the present case the quantum of income is not based on the revised return but on the fact of withdrawal of claim of gifts by the assessee. The issue of revised returns is only incidental." 3. The action under section 132 was conducted in the premises of Prakash Tea Agencies Group of cases on 6-1-2004. All the assessees belong to this group. Since facts in all the cases are identical, therefore, we will be referring to the facts of one of the cases, i.e., case of Shri S. Kumar. Notice under section 153A was issued on 6-4-2004. In response to that notice, the assessee filed return declaring an income of Rs. 7,07,230. In the original return, the assessee declared an income of Rs. 92,230. An additional income of Rs. 6,15,000 was declared. This amount represented credits in the capital account of the assessee. During the previous year relevant to the assessment year 2000-01, ....
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.... the main arguments are that the gifts are genuine and only with a view to buy peace with the deptt., the same were offered to tax. In the absence of a guilty mind or an intention to conceal, penalty cannot be levied." 6. The Assessing Officer considered the above explanation. According to the Assessing Officer, alleged credits were credited in the capital account and the capital account is represented by the assets acquired. The existence of the asset confirms the fact that for the receipt of such gifts there would have been unexplained investments. The investigation conducted during the course of search showed that the gifts were not genuine and there was an attempt to evade the payment of tax by arranging such gifts. The learned Assessing Officer has referred to the following facts for arriving at the above conclusion : "1.The assessee belongs to a group identified as 'Prakash Tea Agency' group of cases. The main entity, M/s. Prakash Tea Agencies is carrying on business of trading in tea leaves. 2.During the course of action under section 132 conducted, along with other assets, cash of Rs. 3,88,30,100 was found. This cash was proved to be unaccounted and the same has be....
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....resses for the purpose of creating donors. 8.With the help of Shri Shivaram Bhat, capital build-up returns were field in many of the names to create an impression that such alleged donors are genuine and have income. 9.Shri Sridhar, main member of the assessee-group got pay-in-slips filled in for purchase of demand drafts. 10.Care was taken to see that each demand draft does not exceed Rs. 49,000 since the banks refuse to issue demand drafts exceeding Rs. 50,000 for remittance by cash. 11.Shri S. Kumar, belonging to the assessee-group happens to be one of the beneficiaries for a non-genuine gift of Rs. 6,15,000 during the previous year. All the above facts have been accepted in the statements recorded during the course of search and the gifts were agreed as not genuine the income, therefore, has been offered for tax. The existence of the income is not under dispute. For a total amount of Rs. 4,58,33,000 received as alleged gifts by the group. 1,000 donors are required for organizing gifts each of denomination Rs. 49,000. The assessee-group has neither established the existence of the donors nor their creditworthiness. Presuming that such people are all in existence, ....
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....at arouse are different from that thus in penalty proceedings '235 ITR 417, 220 ITR 325, 203 ITR 147 and 196 ITR 463'. (e )The decision of the jurisdictional High Court in the case of Sudharshan Silk and Sarees 253 ITR 145 is not applicable as in that case, there was a categorical admission by the partners of the firm that they were legally omitted to account some sales as per sales bills issued by them and sales were only partially recorded. On the basis of the fact, the jurisdictional High Court held that penalty was levied in that case. In that case, there is no categorical findings of any source of income having been considered or any excessive expenses or deduction claimed. (f)The decision of the Apex Court reported at 259 ITR 9 is applicable. In that case, revised return showing higher income after search were filed to purchase peace and avoid litigation. The Appellate Tribunal held that burden of proving concealment is not discharged and penalty cannot be levied. The Apex Court upheld that finding. (g )If income returned in revised return is accepted, even though revised returns were filed after search and subsequent enquiries made by the department, the penalty can....
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....vestigation), Bangalore. Copy of such letter is available at pages 16 to 21 of the paper book filed by the learned DR. Vide para 13 of this letter, it is clearly mentioned that the partners/persons individually have also earned income, which was brought in regular books of account by way of gift, etc., have also invested in properties and in bank account. The entire income/assets are not of firm. Any such statement that the income/assets belong only to firm is not fully correct. The actual assets/income belong partly to firm out of its business activities and mainly to individual persons who have introduced the same in business. It was, therefore, argued that the content of the above letter makes it clear that the individuals were also having their own sources of income. Hence, the contention raised before the learned CIT(A) that none of the assessees who have received gifts were not having any independent business or any other independent sources of income is not correct. The learned DR further drew our attention towards answer given to question No. 7 by Shri V.N. Sridhar in the statement recorded on 27-2-2004. Vide this answer, Shri Sridhar stated that they are in the business of....
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....ing the assessment made addition of Rs. 7,21,250. It was argued that the assessee accepted the addition of income only to buy peace and to end the litigation. The penalty was deleted by the Tribunal. However, the learned High Court held that if an addition is made and if there were no proper explanation for such addition, it would amount to concealment of income and the authorities under the Acts are justified in levying penalty under section 271(1)(c) of the Income-tax Act. The learned DR drew our attention to the decision of M.P. High Court in the case of Dy. CIT v. Chirag Metal Rolling Mills [2007] 162 Taxman 317, in which, it has been held that there is no onus on the revenue to prove mala fides on the part of the assessee. Assessee can explain his bona fides in the penalty proceedings. 14. The learned AR submitted as under : (a)Section 153A starts with a non obstante clause "notwithstanding anything contained in sections 139, 147, 148, 149, 151 and 153......" Further under the second proviso of the section, the assessment and reassessment abate. (b)There is no amendment to section 271(1)(c) of Income-tax Act, 1961 consequent to insertion of section 153A of Income-tax ....
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....o buy peace is not tenable since there is elaborate planning as seen from the sworn statements recorded including the admission of payment of commission to the chartered accountant for arranging these bogus gifts. The reliance placed on Ashok Pai's case and Dilip Shroff's case is out of place as the facts are totally different and Dilip Shroff's case was referred to larger Bench. 18. Case laws relied on by the Department : 1.Karnataka High Court : Sunrise Industrial Syndicate's case (supra) submitted with paper book. 2.M.P. High Court : Chirag Metal Rolling Mills' case (supra). It was that the case law in CIT v. Suresh Chandra Mittal [2000] 241 ITR 124 (MP) was entirely based on Sir Shadilal Sugar & General Mills Ltd. v. CIT [1987] 33 Taxman 460A (SC) and the decision of Supreme Court in K.P. Madhusudhanan v. CIT [2001] 118 Taxman 324 was not there at that time. 3.ITAT decision - 87 TTJ 251 - penalty leviable in the case of bogus gifts. 4.Delhi High Court decision that once assessee agrees for spread over of income concealment is established. 5.B.A. Balasubramanian Bros. & Co. v. CIT [1999] 236 ITR 977 (SC), Tube Fabrico (I) Ltd. v. CIT [1994] 210 ITR 10351 (Delhi....
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....) to section 234A and Explanation (2) to section 234B make it clear that assessment or reassessment is required to be made under section 153A. It is mentioned in these Explanations that if an assessment is made for the first time under section 153A, the assessment so made shall be regarded as regular assessment. As per section 2(8) of the Income-tax Act, it is clear that assessment includes re-assessment. Proceedings under section 271(1)(c) can be initiated in the course of any proceedings under the Act provided the Assessing Officer is satisfied that the person has concealed particulars of his income or has furnished inaccurate particulars of income. Hence, section 153A is a specific section for making assessment or reassessment in the cases where search under section 132 has been initiated. The section is materially different from section 147 in respect of this regard only. If the assessee has already filed a return under section 139 or in response to notices under section 148 and he is served with a notice under section 153A, then there can be a case of concealment, if the assessment made in pursuance to return filed under section 153A. It is noticed that there was concealment i....
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....ceedings for the assessment years 1998-99 to 2003-04. Penalty proceedings under section 271(1)(c) were initiated only for the assessment year 2004-05. The learned AR has stated during the course of proceedings before us that these penalty proceedings have also been dropped. Thus, the department has accepted the stand of the assessee that in case the return of income declared in return filed in response to notice under section 153A is accepted then there is no case of concealment. If one goes by this understanding of the provisions of the law then no penalty could have been levied in respect of the assessees who are in appeal before us. 23. Statement of Shri T.N. Sridhar was recorded under section 131 of the Income-tax Act on 22-1-2004. In question No. 3, Shri Sridhar was confronted with the fact that search enquiries have revealed that he and his family members have claimed to have received gifts from various persons. Shri V.N. Sridhar has clarified the entire position. It was admitted by him that such gifts were not genuine. The gifts were arranged to convert their unaccounted money. A declaration was given on 26-2-2004 to the fact that gifts are non-genuine are being surrender....
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....unt annexed to the said letter. From these amounts, certain properties have been purchased in the year 2003. The details are as follows : Name Property location Date of purchase Amount 1. Mr. V.N. Sridhar Sy. 109, Rachina- 26-6-2003 Rs. 7,35,500 halli, K.R. Puram 2. -do- Site at 40th Cross, 8th Block, Jayanagar. 15-7-2003 Rs. 2,00,000 (Advance) 3. -do- No. 411, Dr. Shivarama Karanth Nagar 25-7-2003 Rs. 2,32,000 4. M.N. Shashindra No. 112, Dr. Shivaram Karanth Nagar 25-7-2003 Rs. 2,17,000 5. -do- No. 413, Dr. Shivaram Karnath Nagar 25-7-2003 Rs. 4,02,500 6. Smt. Mukta Sridhar SY, No.109/1, 26-6-2003 Rs. 7,35,500 Panchanahalli (1/4th Share) K.R. Puram 7. Shri H.N. Nagaraj -do- 26-6-2003 Rs. 7,35,500 (1/4 Share) 8. Smt. Nagarathna -do- 26-6-2003 Rs. 7,35,500 (1/4 share) ....
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.... many years. However, we have restricted the offering of income for taxation for the period commencing from the assessment year 1998-99 only. Even though certain assets in the form of bank deposits from the bogus gifts have been entered the bank in subsequent years the amounts of cash utilized were generated in the earlier years. Q. 7 Do you have any documentary evidence to establish that the sources of the assets which have come into existence in the assessment year 1998-99 and subsequent years were out of the income that generated prior to the period relevant to the assessment year 1998-99 ? Ans. I do not have any documentary evidence. However, I have to say that we are in this business of tea trading for the past 45 years and the income so generated were kept in the form of cash at home as our business is cash. Our other family members also had sources of income in cash which were kept at home and were deposited for the purchase of property or for other purposes from time to time. Q. 8 Have you to add to or amend any of the aforesaid answers ? Ans. No. Except that I request you to take lenient view and we are ready to pay the taxes due and request you to kindly consi....
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.... 15-9-2003 32,61,000 31,84,841 Balance Amt. at SB A/c Indian Bank Chpet 76,159 32,61,000 32,61,000 SMT. MUKTHA SRIDHAR Gift Amount Outflow other than tax Amount Asst. year 2001-02 12,92,000 LIC Bheema Nivesh 10,00,000 Dated 29-3-2001 2002-03 17,95,000 2003-04 3,34,000 LIC Premium dated 30-3-2002 52,400 LIC Premium dated 26-3-2003 52,930 2004-05 Property at SY No. 109/1 Rachenahalli 1/4 share 7,35,500 24-6-2003 Honda Scooter dated 22-9-2003 38,651 Total 34,21,000 18,79,481 Balance at SB A/c 12346 Indian Bank Chpet 15,41,519 34,21,000 34,21,000 25. With the above factual background, now we have to consider as....
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.... by him out of his income which has not been disclosed so far in his return of income. (c)In a statement recorded under section 132(4), the assessee makes a statement that such assets or valuable article or thing have acquired out of his income which is not been disclosed in his return. (d)Such income is declared in the return and the assessee pays the tax. In the instant case, the assessee has been found to be the owner of valuable article or thing. The assessee has utilized the amounts by depositing the same in bank accounts or purchase property or making investment in LIC policies. The assessee admitted in the statement of record under section 132(4) that such investments were made out of the bogus gifts arranged and such bogus gifts were offered for tax. Hence, it is clear that Explanation 5 to section 271(1)(c) is applicable in the cases of the assessee before us. 26. The Assessing Officer at page 2 of the penalty order has clearly mentioned that gifts credited in capital account are represented by the assets acquired. Hence, there is no iota of doubt that assessee has been found to be the owner of valuable articles or things and such assets stands acquired out of gif....
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....assessee makes a statement under section 132(4) and owns that he acquired any of such assets out of his undisclosed income, not so far returned, and further states the manner in which such income has been derived and pays tax together with interest if any in respect of such income, no presumption of concealment has to be drawn, notwithstanding the admission to that effect. In other words to the extent, the assessee makes a clean breast of his undisclosed income represented by assets found to be in the possession of the assessee, he is not deemed to have concealed his income or concealed particulars thereof. Explanation 5(2) is not confined to physical possession but extends to other forms of possession. An amount invested in money-lending business and loans advanced represented by promissory notes found in the possession of the assessee are capital investments of the assessee and are all actionable claims. When such a loan is represented by a promissory note, it could give rise to a presumption that the money represented by the promissory notes belongs to the person as held by the person in whose favour the promissory note has been executed. A search under section 132(1) of t....
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....The learned High Court observed as under : "In cases where the assessee had not disclosed his income in the returns filed for the previous year which have ended prior to the date of the search and, in the statement given under section 132(4), the assessee admits the receipt of undisclosed income for those years and also specifies the manner in which such income had been derived, and thereafter pays the tax on that undisclosed income with interest, such undisclosed income would get immunized from the levy of penalty. The Tribunal, therefore, was right in holding that the penalty was not leviable. The question referred is, therefore, answered in favour of the assessee and against the revenue." 33. The learned Allahabad High Court in the case of CIT v. Mahesh Chand Agarwal [2006] 157 Taxman 539 held that Explanation 5 to section 271(1)(c) will be applicable, when assessee has made statement under section 132(4) and surrendered certain amount as undisclosed cash. The facts in the present case are similar to the facts in the case of Mahesh Chand Agarwal (supra). If one goes to the entire proceedings of the search, it is clear that effort of the assessee was to co-operate with t....
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.... deptt. In our opinion the basic idea behind this was to provide Explanation 5 of section 271(1)(c) is to avoid litigation by the deptt. and get the maximum income-tax benefit at the premises from whose business premises as well as residential are searched." 37. Hence, in the instant case, the group has surrendered the income and paid taxes along with return. Though, assessee not only co-operated with the deptt. but also filed return declaring such undisclosed income and paid the taxes. 38. Allahabad Bench in the case of Shyam Biri Works (P.) Ltd. v. ITO [2001] 70 TTJ 880 deleted the penalty as the assessee disclosed amount of undisclosed income. In the statement under section 132(4) and filed revised return declaring additional income. 39. The learned Delhi Bench in the case of Dy. CIT v. Sunder Lal [2001] 72 TTJ 448 deleted the penalty when assessee surrendered the additional income in the statement under section 132(4) and showed the same in the return. The assessee stated that the income has been arranged from speculation business. It was held that this was sufficient compliance to Explanation 5 to section 271(1)(c), as it was not necessary for the assessee to have sat....
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....d. Hence, this decision is not applicable. 3.B.A. Balasubramaniam Bros. & Co.'s case (supra ). The Apex Court held that in view of Explanation in section 271(1)(c) to the effect that if income returned is less than 80 per cent of the assessed income then burden is on the assessee to prove that there had been no concealment and if such burden is not discharged then levy of penalty is valid. Such explanation stands omitted and, hence, this case law is of no help to the revenue. 4.Sudharshan Silk & Sarees' case (supra). Search and seizure operations were conducted on the business premises of the 2 assessees. During the course of search, certain goods and papers containing details of sales as well as purchases not otherwise accounted for in the books maintained by the assessee were discovered. One of the partners made a clean breast and stated the modus operandi of concealing the true turnover for the relevant period. The assessee filed revised return for the years under consideration. On that basis reassessment were completed accepting the figure disclosed in such returns. The Tribunal cancelled the penalty. One of the ground on which the penalty was cancelled was that tho....
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....ng Officer noticed the discrepancy and the assessee has failed to give any plausible explanation for not offering the same in the return of income. The worthy Apex Court has also held that law laid down in the case of Sir Shadilal Sugar & General Mills Ltd. (supra) is not a correct law and assessee has to file an explanation. The explanation is to be consi-dered and if the explanation is bona fide then penalty is not leviable. In the case before the Bangalore Bench, the assessee was not able to give any satisfactory explanation, therefore, the penalty was confirmed. This is not a case where Explanation 5 was involved. 6.Saburam Premchand's case (supra). In the instant case, it was admitted that loans from 2 persons shown in the books were not genuine. The ADIT issued notice to explain the book entries in respect of amounts borrowed from different persons. The assessee offered a certain sum for the purposes of taxation with a view to buy peace from the department provided no penalty proceedings are initiated. Assessment was completed on the revised return of income. Tribunal deleted the penalty on the ground that the assessee has offered the income under specific condition tha....