TaxTMI 
TaxTMI 
2007 (12) TMI 505
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....ee 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 ₹ 7,07,230. In the original return, the assessee declared an income of ₹ 92,230. An additional income of ₹ 6,15,000 was declared. This amount represented credits in the capital account of the assessee. During the previous year relevant to the asst. yr. 2000-01 such receipts were show....
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....vied. 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 conducted, along with other assets, cash of ₹ 3,88,30,100 was found. This cash was proved to be unaccounted and the same has been....
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....cash. 11. Shri S. Kumar, belonging to the assessee group happens to be one of the beneficiaries for a non-genuine gift of ₹ 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 ₹ 4,58,33,000 received as alleged gifts by the group. 1,000 donors are required for organizing gifts each of denomination ₹ 49,000. The assessee group has neither established the existence of the donors nor their creditworthiness, Presuming that such people are all in existence, there is no reason as to why these 1,000 people prefer to give gifts to the assessee group alone year after year for no obvious reason. It is not the case of the assessee group that such donors are either relatives or friends who could have given gifts on some occasions. Presuming but not accepting that the gifts are genuine, it does not stand to logic as to how all donors fall into a pattern that none of them have any identifiable source of income and prefer to gift to the asses....
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....sion 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 penalty cannot be levied. The apex Court upheld that finding. (g) If income returned in revised return is accepted, even though revised return were filed after search and subsequent enquiries made by the Department, the penalty cannot be levied as held by the Madhya Pradesh High Court in the case reported at CIT vs. Shyamlal M. Soni (2005) 276 ITR 156(MP). (h) The AO also recorded that assessee has co-operated with the Department and accordingly levied minimum penalty. The disclosure was only the measure of co-operation ....
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.... 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 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 Departmental Representative further drew our attention towards answer given to question No. 7 by Shri V.N. Sridhar, in the statement recorded on 27th Feb., 2004. Vide this answer Shri Sridhar stated that they are in the business of tea trading for the past 45 years and the income so generated was kept in the form of cash at home as the business is in cash. Other family ....
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....t 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 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 Authorised Representative submitted as under : (a) Sec. 153A starts with a non obstante clause "notwithstanding R any thing contained in ss. 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 s. 271(1)(c) of IT Act, 1961 consequent to insertion of s. 153A of IT Act, 1961. (c) B....
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.... 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 Court : CIT vs. Sunrise Industrial Syndicate in ITRC 246 of1998 dt. 14th Feb., 2005 submitted with paper book. 2. Madhya Pradesh High Court : (2007) 207 CTR (MP) 395(supra). It was that the case law in S.C. Mittal vs. CIT was entirely based on Sir Shadi Lal Sugar & General Mills Ltd. & Anr. vs. CIT [reported at (1987) 64 CTR (SC) 199'Ed.] and the decision of Supreme Court in K.P. Madhusudhanan vs. CIT [reported at (2001) 169 CTR (SC) 489'Ed.] was not there at that time. 2. Tribunal decision'Mrs. Alka P. Valia vs. ITO (2004) 87 TTJ (Mumbai)251 ' penalty leviable in the case of bogus gifts. ....
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.... 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 course of any proceedings under the Act provided the AO is satisfied that the person has concealed particulars of his income or has furnished inaccurate particulars of income. Hence, s. 153A is a specific section for making assessment or reassessment in the cases where search under s. 132 has been initiated. The section is materially different from s. 147 in respect of this regard only. If the assessee has already filed a return under s. 139 or in response to notices under s. 148 and he is served with a notice under s. 153A, then there can be a case of concealment, if the assessment made in pursuance to return filed under s. 153A. It is noticed that there ....
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....y 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 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 V.N. Sridhar was recorded under s. 131 of the IT Act on 22nd Jan., 2004. In question No. 3, Shri Sridhar was confronted with the fact that search enquires 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 non-genuine. The gifts were arranged to convert their unaccounted money. A declaration was given on 26th Feb, 2004 to the fact that gifts are non-genuine are being surrende....
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.... 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 ₹ 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 ₹ 2,32,000 4. M.N. Shashindra No. 112, Dr. Shivaram, Karanth Nagar 25-7-2003 ₹ 2,17,000 5. 'do' No. 413, Dr. Shivaram, Karanth Nagar 25-7-2003 ₹ 4,02,500 6. Smt. Mukta Sridhar Sy No. 109/1, Panchanahalli, K.R. Puram 26-6-2003 (1/4th share) 7. Shri H.N. Nagaraj 'do' 26-6-2003 (1/4th share) 8. Smt. Nagarathna 'do' 26-6-2003 (1/4th share) Q.5 From the above it can be seen that the income of various family members which were not disclosed to the Department were brought in the form of gifts into this bank accounts and these gifts as well as the bank accounts have been declared to the Department. Though the assets are disclosed to the Department, the sourc....
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.... 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 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 consider the letter submitted dt. 26th Feb., 2004." 24. From the above statement, it is clear that the assessee was found to be the owner of assets, valuables articles or thing and in the statement recorded under s. 132(4), surrender was made and it was made clear that such assets or valuable article or things have been acquired out of the gifts re....
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....d by him in any return of income furnished on or after the date of the search, he shall, for the purposes of imposition of a penalty under cl. (c) of sub-s. (1) of this section, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income (unless,' (1) such income is, or the transactions resulting in such income are recorded,' (i) in a case falling under cl. (a), before the date of the search; and (ii) in a case falling under cl. (b), on or before such date, in the books of account, if any, maintained by him for any source of income or such income is otherwise disclosed to the Chief CIT or CIT before the said date; or (2) he, in the course of the search, makes a statement under sub-s. (4) of s. 132 that any money, bullion, jewellery or other valuable article 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-s. (1) of s. 139, and also specified in the statement the manner in which such income has been derived and pays the tax, together with interest, if any, in r....
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....s group. Surrender of undisclosed income was made vide statement dt. 27th Feb., 2004, recorded under s. 132(4) of the IT Act. The surrounding circumstances do reveal that search at 2nd premises was prolonged to get declaration under s. 132(4) of the IT Act. It was a normal presumption in the mind of the assessee that if a declaration is made under s. 132(4) and taxes along with interest are paid by filing the return, no penalty will be leviable. Perhaps the Department was also keen to get the declaration under s. 132(4) so that it can collect tax and litigation is avoided. For such circumstances, exception was created in Expln. 5 to s. 271(1)(c). The assessee is entitled for such benefit provided conditions mentioned in Expln. 5 to s. 271(1)(c) are satisfied. 29. The learned Rajasthan High Court in the case of CIT vs. Mishrimal Soni (2007) 209 CTR (Raj) 438: (2007) 287 ITR 77(Raj) held that Expln. 5 to s. 271(1)(c) applies to tangible and intangible assets. It will be useful to reproduce the headnote of this decision. "Explanation 5 to s. 271(1)(c) of the IT Act, 1961, deals with a situation in which any assets are found to be in the ownership of the assessee in the course ....
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....of particulars of income in terms of Expln. 5 to s. 271(1)(c). The CIT(A) deleted the penalty and this was upheld by the Tribunal. On appeal to the High Court : Held, dismissing the appeal, that no penalty was leivable in view of specific Expln. 5 to s. 271(1)(c)." 30. In the case of CIT vs. E.V. Balashanmugham (2006) 206 CTR (Mad) 440: (2006) 286 ITR 626(Mad), the assessee disclosed the additional income in the statement recorded under s. 132(4). This additional income was offered in the return. The AO did not initiate penalty proceedings in respect of additional income declared. Penalty proceedings were initiated in respect of further addition of ₹ 1,08,000. 31. The learned Madras High Court held that the statement of offering additional income was true and correct and the assessee agreed to the addition of ₹ 1,08,000 to purchase peace and to avoid litigation. In respect of additional of ₹ 1,08,000, the assessee has offered an explanation. Thus, in this case, the Revenue has not initiated penalty proceedings in respect of additional income disclosed vide statement under s. 132(4) of the IT Act. 32. The learned Madras High Court in the case of CIT vs. S....
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....ned Rajasthan High Court in the case of Gebilal Kanhaialal (HUF) vs. Asstt. CIT (2004) 190 CTR (Raj) 233: (2004) 270 ITR 523(Raj) held that Expln. 5 to s. 271(1)(c) is applicable in case the amount found during the search is surrendered and tax along with interest is paid. In that case it was held that penalty is not leviable. 36. The learned Allahabad High Court in the case of CIT vs. Manmohan Goel (2005) 149 Taxman 578(All) had an occasion to consider the penalty deleted by the Tribunal after applying Expln. 5 to s. 271(1)(c). In that case, the assessee initially surrendered ₹ 17 lakhs under different heads. The Tribunal felt that it was immaterial, as it was only an estimate. The assessee on 27th Feb, 1989 made an application for further surrender of ₹ 1,19,166 and such application was made before the conclusion of search of the locker. The total income assessed was ₹ 17,63,650. It was a little more than the original surrender and was less than the subsequent surrender made on 27th Dec., 1989. It was held that Expln. 5 is applicable. The learned High Court has reproduced following observations of the Tribunal : "The two applications made by the assessee....
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....ependent investigation carried out by the Revenue. It refers to the fact that during the course of search, it was established that such gifts are not genuine and the assessee agreed to offer such gifts for taxes. Therefore, the decision of the jurisdictional High Court is not applicable, as facts in the instant case are different. 2. Tube Fabrico (I) Ltd. vs. CIT (supra) Though the learned Departmental Representative has referred to the judgment reported at 210 ITR 351 (sic), no judgment is available at that page, perhaps the learned Departmental Representative has referred to the judgment reported at p. 1035 of 210 ITR. In this case, it was found that the assessee has made sales in the accounting period relevant to the asst. yr. 1978-79. Such information was found during the course of search. The assessee made request that income should be spread over 3 years and such request was accepted. The assessee filed revised return. The Delhi High Court held that the filing of the revised return means admission by the assessee in respect of concealment of income. However, in the instant case, the facts are different. The assessee contended that it has earned income over a period of yea....
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....ed held the key to the answer whether such returns are bona fide. In cases before the High Court, it was observed that revised returns were filed to pre-empt any action on the part of the Department for reopening of the earlier assessment on the basis of seizures and disclosure made in the course of search proceedings and levy of penalty was upheld by the High Court. The facts in the instant cases are distinguishable. In the case before the learned High Court, no argument was made that Expln. 5 to s. 271(1)(c) is applicable. Moreover, there is nothing on record to suggest that such undisclosed income was found invested in some valuables. Learned jurisdictional High Court at p. 149 has observed that the respondent assessee have not perused before us their claim of immunity from levy of penalty in terms of Expln. 5 to s. 271(1)(c) of the IT Act. Hence, when we are considering the applicability of ss. 5 to 271(1)(c) then, the decision of the jurisdictional High Court is of no help to the Revenue. 5. Bhurmal Mallaji vs. ITO (supra) In this case, the AO noticed that a certificate given to the bank with the details of stock month-wise. There was difference of stock as shown in the ....