TaxTMI 
TaxTMI 
2017 (2) TMI 1002
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....law, the brief facts in ITA- 463/2016 are discussed. The assessee belonged to the M/s. J.M. Estate Developers Pvt. Ltd. group. For the relevant assessment year 2005-06, it reported its income through a return under Section 139(1) of the Act, declaring an income of Rs. 1,72,799/- on 30.12.2005. A search and seizure operation under Section 132(4) of the Act was carried out on 11.01.2007 in the premises of the assessee's group companies and directors of the company. A disclosure of Rs. 16 crores was made by the group under Section 132(4) of the Act on behalf of different directors and relatives of the directors. During the search, cash amounting to Rs. 5,26,530/- and jewellery worth Rs.l7,85,785/- were found from the premises and lockers of the assessee. Out of these assets, cash amounting to Rs. 4,06,930/- was seized, whereas no jewellery was seized. Notice under Section 153A of the Act was issued on 26.02.2008, in response to which the assessee filed his return of Income on 23.10.2008 declaring an income of Rs. 23,38,731/-, thus showing additional income of Rs. 21,65,932/-. The AO completed the assessment under Section 153A read with Section 143(3) of the Act on 31.12.2008 after....
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....1(1)(c) of the Act on 29.09.2011 imposing penalty of Rs. 7,29,100/- being 100% of the amount of tax sought to be evaded on the concealed income of Rs. 21,65,932/-. Aggrieved, the assessee appealed; the CIT (A) deleted the penalty. The revenue appealed to the ITAT, which on 19.08.2015, confirmed the order of the CIT (A). Proceedings and Arguments before the CIT(A) and ITAT 5. The assessee had contended that the penalty order was untenable because there was no difference between the income returned pursuant to notice under Section 153A and the income assessed. The assessee declared the entire undisclosed income in the return filed in response to the notice under Section 153A, which was accepted in the assessment order of the AO. Furthermore said the assessee, no incriminating materials were found during the course of the search carried out at the premises of M/S JM Estates Developers Pvt. Ltd. Therefore, the additional income offered in the revised return would have to be considered as bona fide. The assessee argued that in the statement recorded during the course of search, voluntary surrender of Rs. 16 crores was made so as to cover various group cases, including that of the ....
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....e of the search, he shall be deemed to have concealed his income. However, in the present case, the search was conducted on 11.01.2007 and cash of Rs. 5,26,530/- was found from the assessee's possession; so the cash was admittedly not seized during the relevant assessment years which were in question before the ITAT. The ITAT rejected the Revenue's contentions. It concluded that while the assessee had surrendered undisclosed income, the cash was seized during search in A.Y. 2007-2008, and not in the relevant assessment years under consideration. Therefore, the ITAT concluded that Explanation 5 to Section 271(1) of the Act could not be invoked in assessment years 2005-06 & 200607, which were the relevant assessment years, on the presumption that the assessee might have been in possession of the seized cash throughout the period covered by search assessments. 8. The present batch of appeals concerns the interpretation and application of Section 271(1)(c) of the Act and Explanation 5 thereto. Two broad issues arise for consideration in this regard: (i) Whether under Section 271(1)(c) as it stood prior to the insertion of Explanation 5, levy of penalty is automatic if return ....
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....in the return under Section 153A coincided or tallied with the amount found) the revenue's invocation of Section 271(1)(c) of the Act by relying on Explanation 5, was unfounded. 12. The first question involves interpretation of Section 271(1)(c) of the Act. For convenience, the relevant provision of the Act is reproduced below: "Section 271 (1) If the Assessing Officer or the Principal Commissioner or Commissioner (Appeals) or the Principal Commissioner or Commissioner in the course of any proceedings under this Act, is satisfied that any person - xxxxx (c) has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty- xxxxx (iii) in the cases referred to in clause (c) or clause (d), in addition to tax, if any, payable by him, a sum which shall not be less than, but which shall not exceed three times, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or fringe benefits or the furnishing of inaccurate particulars of such income or fringe benefits." 13. At the outset, it must be noted that pursuant to the search and sei....
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....r to remove the element of mens rea, the Finance Act, 1964 deleted the word "deliberately" that preceded the words "concealed the particulars of his income" in Section 271(1)(c). Nonetheless, even post the amendment, the Apex Court in K.C. Builders v. Assistant Commissioner of Income Tax, 265 ITR 562 (SC) held that: "The word „concealment‟ inherently carried with it the element of mens rea. Therefore, the mere fact that some figure or some particulars have been disclosed by itself, even if takes out the case from the purview of non-disclosure, cannot by itself take out the case from the purview of furnishing inaccurate particulars. Mere omission from the return of an item of receipt does neither amount to concealment nor deliberate furnishing of inaccurate particulars of income unless and until there is some evidence to show or some circumstances found from which it can be gathered that the omission was attributable to an intention or desire on the part of the assessee to hide or conceal the income so as to avoid the imposition of tax thereon. In order that a penalty under Section 271(1)(c) may be imposed, it has to be proved that the assessee has consciously made th....
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....missioner of Income Tax, (2008) 219 CTR 447, held that merely because the assessee has filed a revised return and withdrawn some claim of depreciation penalty is not leviable. The additions in assessment proceedings will not automatically lead to inference of levying penalty. The Calcutta High Court in the case of Commissioner of Income Tax v. Suresh Chand Bansal, (2010) 329 ITR 330 (Cal) held that where there was an offer of additional income in the revised return filed by the assessee and such offer is in consequence of a search action, then if the assessment order accepts the offer of the assessee, levy of penalty on such offer is not justified without detailed discussion of the documents and their explanation which compelled the offer of additional income. The Madras High Court in the case of S.M.J. Housing v. Commissioner of Income Tax, (2013) 357 ITR 698 held that where after a search was conducted, the assessee filed the return of his income and the Department had accepted such return, then levy of penalty under Section 271(1)(c) was not justified. From the above cases it would be clear that when an assessee has filed revised returns after search has been conducted, and such....
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....ssing Officer shall- a) issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139. 20. Therefore, the position that emerges from the above-mentioned provision is that once the assessee files a revised return under Section 153A, for all other provisions of the Act, the revised return will be treated as the original return filed under Section 139. On similar lines, the Gujarat High Court in the case of Kirit Dahyabhai Patel v. Assistant Commissioner of Income Tax, (2015) 280 CTR (Guj) 216, held that: "In view of specific provision of s. 153A of the I.T. Act. the return of income filed in response to notice under s. 153A of the I.T. Act is to be considered as return filed under s. 139 of the Act, as the AO has made assessment on the said return a....
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....ished 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 search, he shall, for the purposes of imposition of a penalty under clause (c) of sub-section (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 clause (a), before the date of the search ; and (ii) in a case falling under clause (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 Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner before the said date ; or (2) he, in the course of the search, makes a statement under sub-section (4) of section 132 that any money, bullion, jewellery or other valuable article or th....
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....-5 also contains two exceptions, where the assessee would not be deemed to have concealed his income and would gain immunity from levy of penalty- first, if such income is or the transactions resulting in such income are recorded in the books of account maintained by the assessee for any source of income or such income was otherwise disclosed to the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner before the date of the search; second, in the course of the search, the assessee makes a statement under Section 132(4) that the assets found in his possession have 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 the time specified in Section 139(1), 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. 24. The purpose of inserting Explanation-5 in the statute books was explained by the Supreme Court in K.P. Madhusudan v. Commissioner of Income Tax, (2001 251 ITR 99, wherein the Court held- "Learned Counsel for the assessee then drew our attention to the ....
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.... claim that such assets have been acquired by him by utilising (wholly or in part) his income. Moreover, such income must be in relation to a particular previous year that has either ended before the date of the search or is to end on or after the date of the search and such income is declared subsequently in the return of income filed after the search. Therefore, it is only when assets are found during the search which the assessee claims have been acquired by him by utilizing (wholly or in part) his income for any particular previous year, and then declares such income (which he utilized in acquiring the assets found) in a subsequent return filed after the date of search, would it be deemed that the assesee has concealed his income. In other words, the assets seized during the search must relate to the income of the particular assessment year whose return is filed after the date of the search. Such a conclusion is only logical, considering that assessment under the Act is with respect to a particular assessment year and the penalty imposed under Section 271(1)(c) would also be for concealing income in that particular assessment year, which concealment was revealed by the discover....
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....ghout the period covered by search assessments. The income offered to tax u/s 153A for assessment year 2004-05 is based on entries recorded in the seized material. Unlike provisions of Explanation 5A, the provisions of Explanation 5 cannot be invoked in assessment year 2004-05 in respect of entries recorded in seized material. Thus invoking of Explanation 5 in assessment year 2004-05 is based on presumptions, surmises and conjectures. It is settled law that suspicion howsoever strong, it cannot take place of actual evidence and hence the contention of the Revenue that assessee was in possession of cash throughout the period of six assessment years has to be rejected. In view of above discussion we are of the considered opinion that even the amended provisions of Explanation 5 cannot be applied in assessment year 2004-05. Consequently penalty u/s 271(c) cannot be imposed by invoking Explanation 5 of the Act in assessment year 2004-05 in respect of cash found in previous year relevant to assessment year 2007-08." 28. Basing its reasoning on this decision, the ITAT in the present case held that in the case of the assessee, the search was conducted on 11.01.2007 and cash of Rs. 5,26....