TaxTMI 
TaxTMI 
2018 (11) TMI 992
X X X X Extracts X X X X
X X X X Extracts X X X X
....f M/s Consortium Securities Private Limited and 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 c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion of Rs. 2.30 crores. The assessee did not submit any reply 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tire disclosure which has already been accepted by the learned 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y the learned Commissioner of income tax appeals on the sum of Rs. 2.30 crores of Rs. 23 lakhs is invalid. 11. The learned departmental representative 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. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he disclosure of the sum has to be with some specificity of facts and backed with some evidences to support those facts . g. Disclosure of manner and it substantiation may be at the stage 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 sub....
X X X X Extracts X X X X
X X X X Extracts X X X X
....igh court has shown the essential purposes of section 271AAA of the act as under :- "14. In construing section 271AAA one must not lose sight of its essential purpose which resulted in its enactment. There is a penalty at the rate of 10 per cent. of the undisclosed 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 "th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....proceedings has noticed that certain documents comprising share application forms, bank statements, memorandum of association of companies, affidavits, copies of Income-tax returns and assessment orders and blank share transfer deeds duly signed, have been impounded in the course of survey pro 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 '....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ecame hobby and as such she had been consistently collecting paintings out of her hobby. 5.1.2 Commencement of Business Activities Subsequently, over the years when the primary responsibility towards educating and upbringing her two sons was over, she considered seriously to convert her avocation into vocation and as such driven by force of her hobby, the 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 categorie....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... with Artists Dealing with artists is not an easy matter for reason as explained above that most of the artists are governed by their moods and emotions operating in unorganized manner rather than in planned manner as such there were difficult to tackle. (b) Difficulty in executing sales/purchase activities Being a new entrant was thus in the eyes of artists she was the new, untried, untested, and unproven organization as such they were reluctant to deal with her and the competitors 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 dictati....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rganisation. Further considering the nature of complexities and dependency on employees it is not possible by the proprietor to keep an eye or -'personally look after every transaction. Under the circumstances the other persons execute the transactions, though the responsibility for such expenditure and onus thereof primarily lies upon the management. Under the circumstances considering that the persons we have dealt are mostly operating in unorganised sector and after the search it is quite likely that certain parties from whom purchases/sales/investments etc were made 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. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....th the excel sheets seized from the computer. She has further explained the contents of those electronic documents as well as explained the difference about the incorrect serial number and format prints. In answer to Q. NO 14 She has reconciled the physical inventory and the inventory recorded in the seized documents. She has further in answer to q. no 15 explained the statement made by her as well as the statement of the manager of the store Ms Meher Anand. According to the statement, in answer to q. no number 17 it has further been substantiated that what is the manner of the carrying on of the business of 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....herefore according to the family status, age, tradition in the family, economic status of the assessee, jewelry held since marriage, gifted to her by other family members and married status of the assessee, she disclosed the unaccounted income to the tune of Rs. 9555637/-. However, assessee neither gave the names of the persons who gifted her jewelry and she could not show sources of such excess jewelry found. In view of this, we are of the view that assessee has failed to disclose the manner of the earning of undisclosed income and failed to substantiate the same further. Hence, on the undisclosed income of Rs. 96 lakhs 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....