TaxTMI 
TaxTMI 
2018 (11) TMI 992
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....nd other associated concerns on 28/7/2011. The search at the premises of the assessee was also carried out, as she was Chief Executive Officer of Consortium Securities Private Limited. She was deriving income from house property, income from business of profession, capital gain and income from other sources. Besides, she is also in the business of purchase and sale of painting, artworks, sculptures etc. under the name and Style of "M/s Gallerie Navya." 03. In return of income filed for the year Assessee of Rs. 5, 89,56,260/-, she included Rs. 3 crores as her business income on account of valuation differences in the inventory valuation of artwork, painting and sculptures. Assessment proceedings resulted into an addition of Rs. 3,15,96,224/- on account of unexplained stock which was further reduced to Rs. 3,12,42,729/- on adjustment of valuation on account of price/ invoice . Assessment u/s 143 (3) of the act was passed on 31/3/2014 wherein income of the assessee was assessed at Rs. 6,05,52,484/- against the return filed of Rs. 5,89,56,260/- making an addition of unexplained stock of Rs. 15,96,224/- over and above disclosure of Rs. 3 crores in the return of income. Penalty notices ....
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....ly and therefore The Learned Commissioner Appeals proceeded to decide the issue on merits. He held that the appellant and her spouse declared a sum of Rs. 15.40 crores as their undisclosed income of which the share of the appellant was stated to be Rs. 6 crores. The disclosure of Rs. 6 crores were stated to comprise of a. Rs. 1.34 crores on account of unexplained cash, b. Rs. 96 lakhs on account of unaccounted jewelry and c. Rs. 3.70 crores on account of unexplained stock of artworks found at the time of search. Out of the undisclosed income of Rs. 6 crores, the appellant declared only Rs. 5.30 crores in the return of income, which in turn was made up of Rs. 3 crores relating to stock discrepancy and Rs. 2.30 crores relating to unaccounted cash (Rs 1.34 Crores ) and unexplained jewelry (Rs 96 Lakhs) . He further held that disclosure of Rs. 3 crores is an undisclosed income and further sum of Rs. 2.30 crores representing cash and jewelry is also undisclosed income not recorded in the books of assessee on or before the date of search maintained in the normal course of business and nor has been disclosed before the date of search. Therefore, he held that the conditions specified in s....
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....AO. Therefore, according to him all the three conditions have been met by the assessee. Hence penalty u/s 271 AAA levied by the ld AO is erroneous. 08. With respect to the order of the learned CIT (A) , he submitted that that assessee has disclosed the manner in which the income has been derived and assessee has substantiated by the manner in which the undisclosed income was earned. He stated that it is explained in statement recorded on 20/9/2011 and as well as letter dated 28/11/2011. He further relied upon the several decisions to state that, if the searched person is not asked to substantiate the manner of earning undisclosed income during the course of the search or during the course of assessment proceedings, the burden cannot lie upon assessee to disclose it suo motto. He stated that if in the statement the revenue cannot demonstrate that assessee was asked the manner and required to substantiate the undisclosed income, penalty u/s 271AAA cannot be levied. He further submitted a paper book wherein the submission dated 9/7/2014 before the assessing officer was relied upon. He further referred to the copy of statement-recorded u/s 132 (4) of the act of assessee on 20/9/2011....
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....tative vehemently supported the orders of the lower authorities. He submitted that assessee has though disclosed the above undisclosed income in a statement u/s 132 (4) of the act but has neither admitted the undisclosed income nor specified the manner in which such income has been derived. He further stated that assessee has failed to substantiate the manner in which the undisclosed income was derived during the course of assessment proceedings and further the assessee has not deposited the tax together with the interest in respect of the undisclosed income in the return filed by her. Therefore, the learned lower authorities have correctly levied the penalty. He further relied upon the decision of i. The Asst Commissioner of income tax versus SSA International Ltd [94 Taxmann.com 17 (Delhi)] ii. The Principal Commissioner Of Income Tax versus Smt Ritu Singhal (2018) [ 92 taxman.com 224 (Delhi)] 12. He submitted that the decision of the Hon'ble Delhi High Court in Smt. Ritu Singhal squarely covers the issue in favour of the revenue. 13. In rejoinder, the learned authorized representative submitted that it is not, the allegation of the revenue that assessee has not paid tax thereo....
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....of admission or assessment proceedings. h. Taxes are also not necessarily to be paid at the stage of admission. It can be along with the return or even before completion of assessment. i. The onus is on the assessee to admit u/s 132 (4) of the act and to disclose the manner of earnings and its substantiation. j. All the conditions of section 271 AAA (2) are cumulative and non fulfillment of one of them leads to inescapable route of penalty. k. No Penalty can be further imposed on the person u/s 271(1) (C ) of the act on undisclosed income. l. Undisclosed income is defined in explanation (a) to that section . It means income of the specified Previous Year represented by assets or transactions or documents which is not recorded in the books of the assessee 15. Hon'ble Delhi High Court in case of CIT versus Mrs. Ritu Singhal [2018] 403 ITR 97 (Del) has held that unless the assessee describes the manner of earning undisclosed income and also substantiate the same, the assessee is not eligible for escape from penalty as provided under section 271AAA (2) of the act. This decision has considered the principles enunciated by the decision cited by the parties before us and theref....
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....ndisclosed amount declared, if the conditions in section 271AAA(2) are not met with. This is quite different from the penal provision under section 271(1)(c) of the Act, which directs that if income is concealed or inaccurate returns are filed, which are disallowed by the Assessing Officer, the penalty shall be "three times the amount of tax sought to be evaded." In the case of amounts disclosed during the course of search, the penalty amount is only ten per cent. of the undisclosed income. Parliament has, therefore, given a different treatment to the latter category. At the same time, if an assessee were to successfully urge the "escape route" so to say, of section 271AAA(2), all three conditions mentioned in the provision, (as held in Gebilal Kanhaialal in respect of pari materia provisions) have to necessarily be fulfilled. In the present case, the assessee, while declaring the "undisclosed income" also stated, that "the surrender is being made subject to no penal action of section 271(1)(c)". 17. Further, in para no 15 Hon High court following the decision of the Honourable Supreme court in case of Makdata has stated what amounts to substantiation of the manner of earning inco....
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.... ceedings under section 133A conducted on December 16, 2003, in the case of a sister concern of the assessee." 18. Therefore it is clear that if the assessee does not specify the manner of earning income and also fails to substantiate the same , the assessee can be subject to penalty u/s 271 AAA of the act despite same is disclosed in statements u/s 132 (4) of the act and payment of due taxes thereon. 19. Facts in the present case is that assessee has disclosed income in the return of income which were disclosed in statement U/s 132 (4) of the act. Copies of the statement are submitted before us where the total disclosure of the firm was Rs. 15.40 Crores, which has been bifurcated amongst the family member, and assessee is one of them. There is no dispute that assessee has already deposited tax thereon. Now the only issue remains that whether the assessee has specified the 'manner' and 'substantiated' it or not. The Assessee has to disclose the manner of earning income i.e. how it has been earned and further to substantiate it means 'to prove it by the production of necessary evidence'. The income disclosed are to be tested to ascertain whether manner is disclosed and substantiat....
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....e idea of business activities of dealing in paintings and other art works germinated and finally initiated during 2004. 5.1.3 Business Premises The activities were initially started from her residence at A-29, Friends Colony east, New Delhi-110065, later shifted to 4/6, Sirifort Institutional Area, New and presently being conducted at Shop No. 101-103, Square One Mall, Saket, New Delhi. 5.1.4 Peculiarities and complexities of Business However, being inexperienced in business and matters incidental thereto as the activities started with honest introspection with a hobby and a passion, she was dependent upon number of persons like artists, staff and other skilled persons to help her in running the business activities. Thus the peculiarities of the business conducted can be broadly classified in two categories: (a) Peculiarities attached with nature of trade , market. (b) Other complexities specifically attributed to business conducted 5.1.5 Peculiarities attached with nature of trade , market (a) Competition The Art work is being exhibited and sold by various persons i.e. from a street vendor to highly reputed international competitors. (b) Dependence upon skill of the ....
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....etitors in the market were always preferred by them over her. However over a period of time as relationships improved artists started giving works on consignments gradually. (c) Nature of dependency on other persons Thus on account of complexities, peculiarities and inexperience the proprietor had no choice but to depend on various persons like employees, persons having contract with artists, for recording day to day business activities , to get art work on consignment etc. Due to such persistent problems accentuated by her non accounting back ground finally created a total mess in business and records. (d) Difficulty in locating permanent/trustworthy staff (e) Artist dictating terms. (f) Artists not willing or opposing maintenance of such records and documents. As such either such documents not furnished by artists and wherever furnished these are not even proper containing all particulars and details. (g) Frequent visits of the artist at business place which leads to development of a relation between them and employees as such there is always a risk that such artists may collate with employees in many manner injurious and prejudicial to the business of proprietor. (h) T....
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.... or other expenditure were incurred or services obtained may not come forward. 5.1.9 Thus the possibility that the onus of expenditure and investment so made though genuine but will not be possible to be discharged cannot be ruled out. In addition there may also be arising out of certain transaction which upon our interprets: may not be taxed but may be viewed or interpreted different: revenue. As such we may not be in the position to discharge onus irrespective and notwithstanding genuineness of transactions and credits involved. This may thus lead to unnecessary litigation in the matters. 5.1.10 Thus in order to buy peace a sum of Rs. 370 lakhs is being on higher side towards paintings, sculptures, other things etc investment in gallerie business and matters incidental thereto for the financial year relevant to the A.Y. 2012-13. The offer as made with stipulation to grant immunity from penalty is sufficient to cover up any discrepancy or any other matter or any inference as a result /outcome of search pertaining to my business activities stated above. However, the exact details shall be filed dur.ng the course of assessment proceedings." 21. As per her statement recorded u....
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....the assessee. She further stated that certain paintings are also received on consignment basis and consignment accounting is being carried out in altogether different manner. In then the rational for higher price tag to the actual value of the stock was also explained. She further stated that in letter dated 28 February 2014 she has already submitted with respect to the artwork owned by the family members and the associated concerns of the family members whose names are mentioned before the assessing officer. The proof of ownership of that artwork was also given. In para no 24 of the letter, she has also given the breakup of Rs. 3.70 crores with respect to the various years in which the income as been earned. In view of the above facts, we are of the opinion that the assessee has disclosed the manner of earning of the income with respect to Rs. 3 crores on account of undervaluation of the closing stock found during the course of search of various artworks/sculptures/ paintings. 22. Similarly, the assessee has also explained the ownership of the cash from the business of the assessee of Rs. 1.34 crores, which is part of the overall disclosure made by the group of Rs. 15.40 crores. ....
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....akhs on account of unexplained jewelry, assessee is correctly held to be liable for payment of penalty at the rate of @ 10 percent on the undisclosed income. 25. In view of the above facts , we uphold levy of penalty under section 271AAA of the Act on undisclosed income found during the course of such of Rs. 96 lakhs on unexplained jewelry. We also direct ld AO to delete the penalty with respect to the disclosure of Rs. 3 crores on account of undervaluation of the closing stock of artwork/ paintings/ sculptures etc. and cash of Rs. 1.34 crores found during the search, for which the manner of earning was disclosed and substantiated. 26. Further on plain look at penalty order, Ld AO has levied penalty of Rs. 30 lakhs stating that since in this case the penalty under section 271 (1) (c ) is being imposed on substantive basis on the same issue, therefore, he held that penalty under section 271AAA would be on protective basis. We do not find any provision under the act to levy penalty under this section in the manner ld AO has envisaged. According to the provisions of section 271AAA (3) of the act provides that no penalty under the provisions of section 271 (1)(c ) shall be imposed up....