Case Law Details
ITAT BANGALORE BENCH ‘B’
Vasavi Shelters
versus
Income-tax Officer, Ward 4(1), Bangalore
IT APPEAL NOS. 499 & 500 (BANG.) OF 2012
[ASSESSMENT YEARS 2007-08 AND 2008-09]
FEBRUARY 22, 2013
ORDER
N.V. Vasudevan, Judicial Member
These are appeals by the assessee against the common order dated 08.02.2012 of the CIT(Appeals)-II, Bangalore relating to assessment years 2007-08 and 2008-09. In these appeals, the assessee challenges the order of the CIT(Appeals) whereby he upheld the order of the AO imposing penalty on the assessee u/s. 271(1)(c) of the Act.
2. The facts and circumstances under which penalty was imposed on the assessee by the Assessing Officer are as follows. The Assessee is a partnership firm. It is engaged in the business of selling sites (real estate) The Assessee had not filed returns of income for AYs 07-08 & 08-09 on or before the due date as prescribed u/s. 139(1) of the Act. There was a Survey conducted by the Department u/s.133A of the Act in the business premises of the Assessee on 7.12.2009. In the course of survey it transpired that the Assessee had sold sites to the extent of Rs. 3,25,14,790 and Rs. 69,06,710/- in the previous year relevant to AYs 07-08 & 08-09 respectively. The Assessee in the course of survey agreed to offer 11.5% of the sales which was a sum of Rs. 37,39,200& Rs 7,94,271, as income in AYs 07-08 & 08-09 respectively.
3. The AO issued notice u/s. 148 of the Act dated 22.2.2010 for AYs 07-08 & 08-09 which was duly served on the Assessee on 26.2.2010. In response to the same the Assessee filed return of income on 31 3.2010 declaring income of Rs.35,76,630 & Rs. 7,59,740 for AYs 07-08 & 08-09 respectively. The income so returned was 11% of the sale value of sites as against 11.5% of the sale value of sites that was declared in the course of survey. The Assessee in the course of assessment proceedings agreed that the income declared in the course of survey be adopted as the total income of the Assessee. The assessment was completed by adopting the income offered at the time of survey as the total income of the Assessee. The AO initiated penalty proceedings against the Assessee for the income determined in the reassessment proceedings including the income declared in the return of income filed by the Assessee for both the AYs 07-08 & 08-09. The AO was of the view that but for the survey u/s. 133A of the Act, the Assessee would not have filed the return of income for both the assessment years. He therefore held the return of income filed by the assessee was not voluntary and was only consequent to the discovery made at the time of search regarding existence of taxable income of the assessee. The AO imposed penalty on the same reasoning u/s.271(1)(c) of the Act in both the A.Ys.
4. The CIT(A) confirmed the order of the AO observing as follows:-
“3. I have carefully considered the facts of the case and perused the penalty as well as assessment orders in the appellant’s case for the two assessment years in question. It is an undisputed fact that the appellant failed to disclose income from sale of sites valuing Rs. 3,25,14,790/- and Rs. 2,69,06,710/- for asst. years 2007-08 and 2008-09 respectively, which was brought to the notice of the AO during survey proceedings. The AO worked out 11.5% as the profit from these transactions and determined income at Rs. 37,39,200/- and Rs. 7,94,271 /-respectively. As against this, the appellant had instantanty (sic) filed returns of income at 11% profit at Rs. 35,76,630/- and Rs. 7,59,740/- for the assessment years 2007-08 and 2008-09 respectively and later agreed to 11.5% profit at Rs. 37,39,200/-and Rs.7,94,271 – worked out by the AO. The appellant’s intention of not disclosing the income from these transactions is clear as no returns were filed or taxes paid by it. It is clear case of concealment. Merely because the appellant had filed returns for substantial amounts i.e. Rs. 35,76,630/- and Rs. 7,59,740- for assessment years 2007-08 and 2008-09 subsequent to survey proceedings does not make the filing of these returns of income as having been filed voluntarily. This was done only subsequent to action under section 133A of the Act by the AO where such undisclosed transaction came to the front.”
5. Aggrieved by the order of the CIT(Appeals), the assessee has preferred the present appeals before the Tribunal.
6. We have heard the submissions of the ld. counsel for the assessee, who submitted that in respect of income offered by the assessee in the return of income for both the assessment years, there cannot be any penalty u/s 271(1)(c) of the Act, as the assessee cannot be said to have concealed the particulars of income or furnished inaccurate particulars of income. In this regard, the ld. counsel for the assessee submitted that the starting point for imposing penalty is the return of income and when income is declared in the return of income, that cannot be ignored and penalty imposed for concealment. Even in respect of the difference between the income returned and the income ultimately assessed, the ld. counsel for the assessee submitted that addition was made purely on the basis of estimate and in respect of the additions made on estimate, without any incriminating evidence and therefore there cannot be any penalty imposed on the assessee. Reliance was placed on the decision of the Hon’ble Supreme Court in the case of CIT v. Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158, wherein at page 164 of the report, the Hon’ble Supreme Court has held that a penalty for concealment has to be with reference to the return of income filed by the assessee.
7. The ld. DR, on the other hand, relied on the orders of the revenue authorities. Reliance was also placed on the decision of the ITAT, Bangalore Bench in the case of B. Gajendra Kumar v. ITO [IT Appeal Nos. 1212 to 1218/Bang/2009 dated 30.11.2012.] wherein the Tribunal in a case of discovery consequent to a survey held that penalty has to be imposed in respect of additions made in the assessment proceedings. We may, at this stage, clarify that the aforesaid decision relied upon by the ld. DR was a case where the assessee had filed the original returns of income prior to the date of survey and in those returns the income offered at the time of survey had not been declared. In the present case, however, we are concerned with a case where the assessee had not filed any return of income in the ordinary course, but had filed return of income only after the survey and in pursuance of a notice u/s. 148 of the Act. Therefore, the case of the assessee will stand on a different footing, as will be explained in the latter part of this order.
8. In all other respects, the ld. DR relied on the orders of the revenue authorities.
9. We have considered the rival submissions. We have to deal with the justification of imposition of penalty by bifurcating the income on which tax sought to be evaded was computed by the AO into two parts. The first part would be the income offered in the return of income by the Assessee for both the A.Ys. The second part would be the difference between the income declared in the return of income and the income which was actually determined by the AO in the assessment proceedings.
10. As far as the first part is concerned, viz., the justification of imposition of penalty on the income offered in the return of income by the assessee for both the A.Ys., we are of the view that there cannot be any penalty on income which is declared in a return of income, on the facts and circumstances of the present case. Penalty u/s.271(1)(c) of the Act is imposed for “concealing particulars of income or furnishing inaccurate particulars of income” When an income which is ultimately brought to tax is declared in a return of income, there can be no question of treating the Assessee as having “concealed particulars of income or furnished inaccurate particulars of income”. The starting point of determining concealment for imposing penalty is the return of income. If the return of income declares income which is ultimately brought to tax there can be no complaint by the revenue that the Assessee is guilty of “concealing particulars of income or furnishing inaccurate particulars of income”. This legal position would be implicit if one reads Sec.271(1)( c) of the Act together with Explns. 3, 5 and 5A of the Act, which carves out exception for the legal position as stated above.
“Sec.271(1)(c): Failure to furnish returns, comply with notices, concealment of income, etc.
(1) If the Assessing Officer or the Commissioner (Appeals) or the Commissioner in the course of any proceedings under this Act, is satisfied that any person
(a) to (b)** ** **
(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.
(d) (i) to (ii)** ** **
(iii) in the eases 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:
Explanation 1 : Where in respect of any facts material to the computation of the total income of any person under this Act,
(A) such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner (Appeals) or the Commissioner to be false, or
(B) such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him,
then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section be deemed to represent the income in respect of which particulars have been concealed.
Explanation 3 : Where any person, fails, without reasonable cause, to furnish within the period specified in sub-section (1) of section 153 a return of his income which he is required to furnish under section 139 in respect of any assessment year commencing on or after the 1st day of April, 1989, and, until the expiry of the period aforesaid, no notice has been issued to him under clause (i) of sub-section (1) of section 142 or section 148 and the Assessing Officer or the Commissioner (Appeals) is satisfied that in respect of such assessment year such person has taxable income, then, such person shall, for the purposes of clause (c) of this sub-section, be deemed to have concealed the particulars of his income in respect of such assessment year, notwithstanding that such person furnishes a return of his income at any time after the expiry of the period aforesaid in pursuance of a notice under section 148.
Explanation 5 : Where in the course of a search initiated under section 132 before the 1st day of June, 2007, 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 by 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 alter 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 Chief 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 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-section (1) of section 139, 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.
Explanation 5A : Where, in the course of a search initiated under section 132 on or after the 1st day of June, 2007, the assessee is found to be the owner of—
(i) 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 by utilising (wholly or in part) his income for any previous year; or
(ii) any income based on any entry in any books of account or other documents or transactions and he claims that such entry in the books of account or other documents or transactions represents his income (wholly or in part) for any previous year,
which has ended before the date of search and, —
(a) where the return of income for such previous year has been furnished before the said date but such income has not been declared therein; or
(b) the due date for filing the return of income for such previous year has expired but the assessee has not filed the return,
then, notwithstanding that such income is declared by him in any return of income furnished on or after the date of 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.”
11. Explanation 3 is an exception to the rule that when an income which is ultimately brought to tax is declared in a return of income, there can be no question of treating the Assessee as having “concealed particulars of income or furnished inaccurate particulars of income” Explan. 4(b) to Sec.271(1) of the Act makes this clear Expln.-4 to Sec.271(1) of the Act lays down what is “the amount of tax sought to be evaded” on which penalty can be imposed and clause (b) lays down in any case to which Explanation 3 applies, means the tax on the total income assessed as reduced by the amount of advance tax, tax deducted at source, tax collected at source and self assessment tax paid before the issue of notice under section 148. This means that the income declared in the return of income can be ignored and penalty can be imposed even in respect of such income. Explanation 3 of section 271(1)(c)(iii) applies also in the case of assessees, who have not been assessed as yet. According to this section, if a person fails, without reasonable cause, to furnish a return of his income voluntarily under section 139 within the period specified under section 153(1), i.e., within two years from the end of the assessment year in which the income was first asses sable, he shall be deemed to have concealed the particulars of his income in respect of such assessment year if he has taxable income for that year. But this is subject to two limitations – firstly, it applies to assessment year 1989-90 and subsequent years and secondly, no notice under section 142(1) or 148 was issued within the said period of two years. In other words, Explanation 3 shall have no application if a notice under section 142(1) or 148 was issued within two years. But if an assessee files a return of his income after the period of two years in response to a notice under section 148, he would be caught within the mischief of this Explanation.
12. In the present case, Expln.-3 to sec.271(1) of the Act will not apply because, as we have seen the Assessee filed return of income on 31.3.2010 for both the assessment years which is within a period of 2 years from the end of AY 07-08 and 08-09. Moreover the notice u/s.148 had been issued in the present case on 22.2.2010 within two years from the end of AYs 07-08 & 08-09. Therefore Explanation 3 will not apply to the present case
13. There can be no concealment or non-disclosure, as the assessee had made a complete disclosure in the IT return and offered the surrendered amount for the purposes of tax and therefore no penalty under s. 271(1)(c) could be levied. The words ‘in the course of any proceedings under this Act’ in Sec. 271(1)(c ) of the Act are prefaced by the satisfaction of the AO or the CIT(A). When a survey is conducted by a survey team, the question of satisfaction of AO or the CIT(A) or the CIT does not arise. One has to keep in mind that it is the AO who initiates penalty proceedings and directs the payment of penalty. He cannot record any satisfaction during the course of survey. Decision to initiate penalty proceedings is taken while making assessment order. It is, thus, obvious that the expression ‘in the course of any proceedings under this Act’ cannot have the reference to survey proceedings. It necessarily follows that concealment of particulars of income or furnishing of inaccurate particular of income by the assessee has to be in the IT return filed by it. The assessee can furnish the particulars of income in his return and everything would depend upon the IT return filed by the assessee. This view gets supported by Explanations 4 as well as 5 and 5A of s. 271. Obviously, no penalty can be imposed unless the conditions stipulated in the said provisions are duly and unambiguously satisfied. Since the assessee was exposed during survey, may be, it would have not disclosed the income but for the said survey. However, there cannot be any penalty only on surmises, conjectures and possibilities. Sec. 271(1)(c) has to be construed strictly. Unless it is found that there is actually a concealment or non-disclosure of the particulars of income penalty cannot be imposed. There is no such concealment or non-disclosure as the assessee had made a complete disclosure in the IT return and offered the surrendered amount for the purposes of tax
14. Explns. 5 and 5A are also an exception to the rule that when an income which is ultimately brought to tax is declared in a return of income, there can be no question of treating the Assessee as having “concealed particulars of income or furnished inaccurate particulars of income” Those Explanations will also not apply in the present case because those Explanations are applicable only when there is a search u/s.132 of the Act and to a case of Survey u/s. 133A of the Act.
15. For the reasons given above we hold that there can be no justification for imposition of penalty on the income offered in the return of income by the Assessee for both the A.Ys., because there cannot be any penalty on income which is declared in a return of income, on the facts and circumstances of the present case.
16. As far as justification for imposing penalty on the second part is concerned, viz., the difference between the income declared in the return of income and the income which was actually determined by the AO in the assessment proceedings, is concerned, we find that the plea of the Assessee was that it was due to inadvertence that the income declared in the return of income was less than what was offered at the time of survey. In this regard, the Assessee has pointed out that the offer of income at the time of survey was by a letter dated 18.12.2009 in which 11.5% of the sale value was offered as income. The Assessee has offered only 11% of the sale value as income in the return of income filed. The letter dated 18.12.2009 was misplaced and the Assessee therefore offered only 11% of the sale value as income in the return of income filed. In the assessment proceedings, the Assessee when confronted by the AO about the discrepancy agreed to the AO taxing income at 11.5% of the sale value. In our view, the estimation of income is not on any incriminating material but based on agreement between the revenue and the Assessee at the time of survey. In respect of such addition, for which a bona fide explanation has been given by the Assessee, no penalty can be imposed. The burden that lay on the Assessee under Explanation 1 to Sec.271(1)(c) of the Act, in our view, is also satisfied in the present case. The law is well settled that an Explanation inserted in a penal provision cannot be regarded as a substantive provision by itself and such an Explanation can only be regarded as a rule of procedure and a rule of evidence leaving it to the assessee and the Revenue to adopt the same as the basis to substantiate their rival claims having regard to the facts of the case and the law applicable. On the facts and circumstances of the present case, we are of the view that imposition of penalty on the difference between the income declared in the return of income and the income which was actually determined by the AO in the assessment proceedings cannot also be justified.
17. For the reasons given above we cancel the penalty imposed on the Assessee for both the AYs. The appeals of the Assessee are allowed.
18. In the result, the appeals are allowed.
