TaxTMI 
TaxTMI 
2007 (12) TMI 505
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....urn filed subsequent to the search 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 s. 132 was conducted in the premises of Prakash Tea Agencies group of cases on 6th Jan, 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 s. 153A was issued on 6th April, 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 re....
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.... assessee's explanation is false, just because the source for a cash credit or receipt is disbelieved, penalty cannot be levied. To summarize, the main arguments are that the gifts are genuine and only with a view to buy peace with the Department. the same were offered to tax. In the absence of a guilty mind or an intention to conceal, penalty cannot be levied." 6. The AO considered the above explanation. According to the AO, 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 R an attempt to evade the payment of tax by arranging such gifts. The learned AO 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 s. 132 condu....
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....ng donors. 8. With the help of Shri Shivaram Bhat, capital build-up returns were filed 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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....oceedings because in penalty proceedings, the consideration that arise are different from that thus in penalty proceedings.'(1999) 235 ITR 417 (sic), Akshay Bhandar vs. CIT (1996) 220 ITR 325(Gau), (1993) 203 ITR 147 (sic) and Gemini Distilleries (P) Ltd. vs. CIT & Anr. (1992) 196 ITR 463(Kar). (e) The decision of the jurisdictional High Court in the case of CIT vs. Sudharshan Silks & Sarees (2001) 171 CTR (Kar) 256: (2002) 253 ITR 145(Kar) 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 (sic) is applicable. In that case revised return showing higher income after search were filed to purchase peace and avoid litigation. The Tribunal held that burden of proving concealment is not discharged and p....
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....he levy of penalty on account of gifts is hereby ordered to be deleted in these cases." 10. During the course of proceedings before us, the learned Departmental Representative has filed a paper book containing 38 pages. The learned Departmental Representative drew our attention towards letter signed by various members of the group and addressed to ADI(Inv.), Bangalore. Copy of such letter is available at pp. 16 to 21 of the paper book filed by the learned Departmental Representative. 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 contents of the above letter make it clear that the individuals were also having their own sources of income. Hence, the contention raised before the learne....
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....attention to the above referred facts, the learned Departmental Representative relied on the decision of the jurisdictional High Court in the case of Sudharshan Silks & Sarees (supra). The learned Departmental Representative has also filed copy of the judgment of the jurisdictional High Court dt. 14th Feb., 2005 in the case of CIT vs. Sunrise Industrial Syndicate, Bangalore. In this case search under s. 132(1) was conducted and there were certain cash credits which were reflected in the books of account. The AO while completing 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 s. 271(1)(c) of the IT Act. The learned Departmental Representative drew our attention to the decision of Madhya Pradesh High Court in the case of Dy. CIT vs. Chirag Metal Rolling Mills Ltd. (2007) 207 CTR (MP) 395, in which, it ha....
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....never stayed there in the past 12 years. 16. The learned Departmental Representative stated that Expln. 5 to s. 271(1)(c) can be considered in the cases where action under s. 153A has been taken. FDRs were found in few names only. The fact that penalty was not levied in the case of Prakash Tea Agency is not relevant. Some of the FDs were made prior to receipt of gifts. The claim that ladies and mentally disabled persons are also included in the penalty cases is not relevant as they were represented by G.P.A. holders. 17. The claim that there is no mens rea and the admission of additional income was only to 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 T. Ashok Pai vs. CIT [reported at (2007) 210 CTR (SC) 259'Ed.] case and Dilip N. Shroff vs. Jt. CIT [reported at (2007) 210 CTR (SC) 228'Ed.] is out of place as the facts are totally different and Dilip N. Shroff's case (supra) was referred to Larger Bench. 18. Case laws relied on by the Department : 1. Karnataka High C....
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....t of notices to be issued under s. 153A. Sec. 151 deals with the sanction for issue of notice. It provides that notice under s. 148 can be issued after getting permission from the relevant authority. Sec. 151 has been made non-applicable in respect of notices to be issued under s. 153A. Sec. 153 deals with time-limit for completion of assessment and reassessment Since s. 153A also deals with assessment/reassessment of the six assessments years and therefore the time-limit as mentioned in respect of assessments under s. 153A (sic-s. 153) will not be applicable in respect of assessment or reassessment to be made under s. 153A. Sec. 153A(b) makes it clear that it is this section which authorizes the AO to make assessment or reassessment of the total income. Expln. 3 to s. 234A and Expln. 2 to s. 234B makes it clear that assessment or reassessment is required to be made under s. 153A. It is mentioned in these Explanations that if an assessment is made for the first time under s. 153A, the assessment so made shall be regarded as regular assessment. As per s. 2(8) of the IT Act, it is clear that assessment includes reassessment. Proceedings under s. 271(1)(c) can be initiated in the cour....
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....spect of premises No. 13, Mehanta Layout, Bull Temple Road, Bangalore. As per copy of Panchnama placed on record the warrant was issued in the name of M/s Muktha Enterprises, M/s Prakash Tea Agency, Shri V.N. Sridhar, Smt. Mukta Sridhar and Shri H.N. Nagaraj and Shri Shashindra N. 22. During the course of search under s. 132 in respect of M/s Prakash Tea Agency, cash of Rs. 3,11,59,115 was found and the same was seized. The AO has completed the assessment proceedings of M/s Prakash Tea Agency under s. 153A for the asst. yrs. 1998-99 to 2004-05 though that firm declared additional income for all the assessment years, the AO has not initiated any penalty proceedings for the asst. yrs. 1998-99 to 2003-04. Penalty proceedings under s. 271(1)(c) were initiated only for the asst. yr. 2004-05. The learned Authorised Representative 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 s. 153A is accepted then there is no case of concealment. If one goes by this understanding of the provis....
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....led by us in the respective assessment years. We have also enclosed details of gifts received by various persons for various assessment years. The total gifts that have been declared is Rs. 4,31,96,000. Further I wish to state that on the basis of the amount of gifts which have been deposited in the bank accounts, the actual gifts received works out to Rs. 4,58,33,000. This amount varies from the amount declared to the extent of Rs. 26,37,000. This amount has not been shown in the return filed by the concerned persons. Regarding the form in which these gifts are lying, all the amounts were deposited in the banks of the concerned persons which are as per the list of declared bank account 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, Rachinahalli, K.R. Puram 26-6-2003 Rs. 7,35,500 2. 'do' Site at 40th Cross, 8th Block, Jayanagar. 15-7-2003 (Advance) 3. 'do' No. 411, Dr. Shivarama, Karanth Nagar 25-7-2003 Rs. 2,32,000 4. M.N. Shashindra No. 112, D....
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.... income ? Ans. The amounts shown against M/s Prakash Tea Agencies is out of the income of the tea business of the firm. The income shown by me and Mr. Shashindra are out of the professional income of tea testing and similarly the income received by others are on account of the undisclosed income earned by them. These assets have been generated over a period spreading over many years. However, we have restricted the offering of income for taxation for the period commencing from the asst. yr. 1998-99 only. Even though certain assets in the form of bank deposits from the bogus gifts have been entered in 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 asst. yr. 1998-99 and subsequent years were out of the income that generated prior to the period relevant to the asst. yr. 1998-99 ? Ans. I don't 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 bus....
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....otal 34,21,000 18,79,481 Balance at SB a/c 12,346 Indian Bank Chpet 15,41,519 34,21,000 34,21,000 25. With the above factual background, now we have to consider as to whether Expln. 5 to s. 271(1)(c) is applicable. Before proceeding further, it will be useful to reproduce Expln. 5 to s. 271(1)(c). "Explanation 5 :'Where in the course of a search under s. 132, the assessee is found to be the owner of any money, bullion, jewellery or other valuable article or thing (hereafter in this Explanation referred to as assets) and the assessee claims that such assets have been acquired by him utilizing (wholly or in part) his income' (a) for any previous year which has ended before the date of the search but the return of income for such year has not been furnished before the said date or, where such return has been furnished before the said date, such income has not been declared therein; or (b) for any previous year which is to end on or after the date of the search, then, notwithstanding that such income is declared by him in any return of income furnished on or after the date of the s....
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....esented by the assets acquired. Hence, there is no iota of doubt that assessee has been found to be the owner of valuable article or things and such assets stand acquired out of gifts. 27. We may also not lose sight of the sequence of events. Search under s. 132(1) was ordered at the 2 premises on 6th Feb., 2004. Search at one premises was concluded on the same date. Search at 2nd premises was temporarily concluded on 6th Feb., 2004. It was not difficult for the Revenue to have completed the search at 2nd premises within next day. The search on 2nd premises was concluded on 27th Feb., 2004. During search which has been shown to have been concluded on 27th Feb., 2004, only inventory of cash seized and inventory of other valuable found were prepared. Such action could have been done on 6th Feb., 2004 or 7th Feb., 2004. As per Panchnama dt. 27th Feb., 2004, the inventories prepared are as under : Pay order with details seized Rs. 78,24,000 Details of various FDRs, TDRs, NSC inventorised and the total of such valuable is Rs. 52,24,477 28. Before concluding search on 27th Feb., 2004, declaration dt. 26th Feb., 2004 was obtained in this group. Surrender of undisclosed i....
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....ented 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 s. 132(1) of the Act was conducted at the residential premises of the assessee and his family members on 10th March, 1992. During the course of search, the statements of the assessee under s. 132(4) of the Act were recorded. In the statement under s. 132(4) of the Act, the assessee admitted amongst other things, unexplained income from money lending business by promissory notes which was a joint venture of himself and his son, estimated at Rs. 8,00,000. It was stated that 50 per cent belonged to his son. His statement was also endorsed by his son. Penalty was imposed on the assessee and his son. The assessee claimed immunity under Expln. 5 to s. 271(1)(c). The AO held that since money invested in money lending business was not actually seized during the course of search operation and was to be found from the incriminating documents during the course of search and seizure, it could not form part of the disclosure under s. 132(4) and hence could not be considered for immunity from levy of penalty for concealment of particulars of inc....
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....Chandra Aggarwal. If one goes to the entire proceedings of the search, it is clear that effort of the assessee was to co-operate with the Department and to surrender entire undisclosed income and the Revenue continued the search proceedings till such declaration was filed. After getting such declaration, the Revenue has recorded the statement under s. 132(4) of the IT Act. While concluding the search, the Revenue has seized not only pay orders and DDs but also FDRs. It appears that there was implied understanding i.e., if the assessee discloses his unaccounted income then penalty proceedings will not be taken against him. There is total surrender of more than Rs. 7 crores in this group of cases. The Revenue has not initiated penalty proceedings in the case of M/s Prakash Tea Agencies, where cash of more than Rs. 3 crores was found. 34. The learned Allahabad High Court in the case of CIT vs. Radha Kishan Goel (2006) 200 CTR (All) 300: (2005) 278 ITR 454(All) has held that penalty is not imposable if assessee admits that assets were acquired with undisclosed income. Non-disclosure of manner in which undisclosed income was derived is relevant. 35. The learned Rajasthan High Cour....
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....ed that the income has been arranged from speculation business. It was held that this was sufficient compliance to Expln. 5 to 271(1)(c), as it was not necessary for the assessee to have satisfied the manner in which income was derived. We had already pointed out that joint declaration was filed vide which it was accepted that individual members were having their own independent sources of income. 40. We will now discuss the case laws relied on by the learned Departmental Representative. 1. CIT vs. K.P. Sampath Reddy (supra) In this case, the learned jurisdictional High Court upheld the penalty on the ground that the basis of the assessment was not the assessee's letter but the inference is drawn from the independent investigation of the circumstances. The learned High Court held that it was not possible to infer any agreement by the Revenue either in clear terms or by necessary implication that assessment was based on the basis of the assessee's letter. However, in the present cases, the assessment is based on the admission given by Shri V.N. Sridhar to the fact that gifts have been arranged. The assessment order does not refer to any independent inves....
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.... 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 though, there was nothing on record to suggest that any assurance was extended to the assessee, yet fact suggested that the inducement was given to the assessee. The learned High Court held that the finding of the Tribunal that the assurance like the one alleged by the assessee must have been extended to them, even in the absence of material in the record to support the same was unsustainable being purely conjectural. Before the learned High Court an argument was advanced that seizure made in the course of search proceedings showed concealment for the accounting period during which the search was conducted, yet said seizure did not disclose anything incriminating against the assessee for the previous periods. Revised returns filed for the previous periods voluntarily. Such submissions were not accepted by the learned High Court. Mere filing of the revised return was not enough. The background and circumstances i....
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....e 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 that no penalty would be imposed. The learned High Court held that the Tribunal was not justified in coming to the conclusion that merely because Department had agreed not to levy penalty under s. 271(1)(c) it would prevent the AO to levy penalty under s. 271(1)(c) for concealment of income. Thus, in the instant case, enquiries were made and during the course of enquiries, the assessee surrendered the same. The assessee was not able to offer any explanation, as the plea taken was that it agreed to the addition on the condition that no penalty will be levied. There cannot be any estoppel against statute. The facts in the instant case are distinguishable and the decision is not applicable. 41. From the above discussion, it is clear that if assessee surrenders the undisclosed income and such undisclosed income is found to be invested in valuables or article or thing and the assessee in a statement under s. 132(4) surrenders such amount and files the return an....