ACIT Vs Arjun Lal Agarwal (ITAT Kolkata)
ITAT Kolkata held that penalty u/s 271AAB of the Income Tax Act cannot be levied on the assessee based on the disclosure made by other person during the course of search proceedings.
Facts-
Present appeal is preferred by the revenue against order of ld. Commissioner of Income Tax (Appeals) wherein the penalty imposed upon the respondent-assessee under section 271AAB of the Income Tax Act was deleted.
Conclusion-
If any disclosure was made, then it will not bind the assessee but it is just corroborative information against the assessee. The ld. CIT(D.R.) failed to appreciate the provision of section 132(4). Similarly he submitted that if penalty is not leviable under such circumstances under section 271AAB, then whole purpose of legislating provision of section 271AAB would be defeated because in such situation, no one is getting penalized for accumulating undisclosed income.
Held that it is totally a fallacious approach at the end of the ld. CIT(D.R.) and a fatuous attempt is being made to visit the assessee with penalty. It is pertinent to observe that 271AAB penalty is imposable on the person upon whom search was made. We have discussed it in the finding extracted supra. The other persons upon whom 153C assessment has been made would be covered by Explanation 5A of Section 271(1)(c). They could be visited with penalty for concealment but with the help of other provisions. It is not the case that on account of accumulation of undisclosed income, the other persons would be absolved for visiting any type of penalty. There are provisions under section 271(1)(c) read with Explanation 5 and 5A for taking care of such situation. But in the present situation, no penalty is imposable under section 271AAB upon the assessee. The ld. CIT(Appeals) has rightly deleted the penalty. We do not find any error in the order of ld. CIT(Appeals). Hence both the appeals are dismissed.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
Present two appeals are directed against the common order of ld. Commissioner of Income Tax (Appeals)-21, Kolkata dated 08.08.2019 passed for the assessment year 2015-16.
2. The ld. 1st Appellate Authority has decided the appeals of four assessees, namely Kalawati Devi Agarwal, Clean Coal Enterprises Pvt. Limited, Arjun Lal Agarwal and Savitri Devi Agarwal by way of the present common order. The ld. CIT(Appeals) has deleted the penalties imposed upon the respondent-assessees under section 271AAB of the Income Tax Act.
3. Appeal in the case of Clean Coal Enterprises Pvt. Limited was listed before the Tribunal on 03.08.2022 and it was decided on 04.08.2022 (ITA No. 2335/KOL/2019). At that point of time, it was not brought to our notice by the Revenue or by the assessee that appeals in other cases are pending before the Tribunal.
4. The ld. Counsel for the assessees, at the very outset, submitted that the issue in dispute is squarely covered by the decision of the Tribunal in the case of Clean Coal Enterprises Pvt. Limited. On the other hand, ld. CIT(D.R.) contended that the ld. CIT(Appeals) failed to construe the provision in right perspective and the Tribunal has erred in concurring with the ld. CIT(Appeals). The hearing was concluded with a liberty that Revenue would file a written submission on this aspect. The ld. CIT(D.R.) has submitted a written submission, which reads as under:-
“BEFORE THE HON’BLE ‘C’ BENCH. ITAT. KOKATA’
Re: Written submission in the case of Smt.Kalawati Devi Agarwal A.Y.2015-J6 1TA NO. 2333/Kol/2019 which was fixed before the Hon’ble’C’ Bench of ITAT Kolkata on 18.08.2022 .
In course of hearing of the aforesaid appeal on 18.08.2022, the Hon’ble Bench was pleased to allow me an opportunity to file a written submission , which is furnished as under:
The only issue involved in this appeal is – whether penalty u/s 271AAB can be levied only on an assessee when the Search & Seizure u/s 132(1) was conducted in the premises of the said assessee and assessments were framed u/s 153A of the Act or it can also be levied on an assessee where assessment was framed u/s 153C ?
3. Department filed appeal before the Hon’ble ITAT against the order of Ld. CIT(A), who deleted the penalty of Rs. 5,59,59,900/- u/s 271AAB imposed by the AO in the instant case, where the assessment was completed u/s 153C of the Act.
4. The relevant provisions of the Act are reproduced below for ready reference : Penalty where search has been initiated.
271AAB. (1) The Assessing Officer may, notwithstanding anything contained in any other provisions of this Act, direct that, in a case where search has been initiated under section 132 on or after the 1st day of July, 2012, the assessee shall pay by way of penalty, in addition to tax. if’ am. playable by 0him,—
(a) a sum computed at the rate of ten per cent of the undisclosed income of the specified previous year, if such assessee—
(i) in the course of the search, in a statement under sub-section (4) of section 132. admits the undisclosed income and specifies the manner in which such income has been derived;
(ii) substantiates the manner in which the undisclosed income was derived; and (Hi) on or before the specified date—
(A) pays the tax, together with interest, if any, in respect of the undisclosed income; and
(B) furnishes the return of income for (he specified previous year declaring such undisclosed income therein;
(b) a sum computed at the rate of twenty per cent of the undisclosed income of the specified previous year, if such assessee—
(i) in the course of the search, in a statement under sub-section (4) of section 132, docs not admit the undisclosed income; and
(ii) on or before the specified date—
(A)declares such income in the return of income furnished for the specified previous year; and
(B) pays the tax, together with interest, if any, in respect of the undisclosed income;
(c) a sum which shall not be less than thirty per cent but which shall not exceed ninety per cent of the undisclosed income of the specified previous year, if it is not covered by the provisions of clauses (a) and (b).
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[ Emphasis provided]
5. The Ld.CIT(A) observed that the assessment order and the penalty order undisputedly points out that no search had taken place in the case of the assessee as per section 132(1) of the Act and assessment was completed u/s 153C. Section 271AAB leaves no doubt that provisions of the said section are applicable only to those cases where search u/s 132 was initiated and consequently only to those assessments which are completed either u/s 153A r.w.s. 143(3) or are regular assessments u/s 143(3) in such cases.
6. Extracts from the Explanatory Memo to Finance Bill,2012: Penalty on undisclosed income found during the course of search –
271 AAB Introduced : Under the existing provisions of section 271 AAA of the Income-tax Act, no penalty is levied if the assessee admits the undisclosed income in a statement under sub-section (4) of section 132 recorded in the course of search and specifies the manner in which such income has been derived and pays the tax together with interest, if any, in respect of such income. As a result, undisclosed income (for the current year in which search takes place or the previous year which has ended before the search and for which return is not yet due) found during the course of search attracts a tax at the rate of 30% and no penalty is leviable.
In order to strengthen the penal provisions, it is proposed to provide that the provisions of section 271AAA will not be applicable for searches conducted on or after 1st July, 2012. It is also proposed to insert a new provision in the Act (section 271 AAB) for levy of penalty in a case where search has been initiated on or after 1st July, 2012. The new section provides that,- (i) If undisclosed income is admitted during the course of search, the taxpayer will be liable tor penalty at the rate of 10% of undisclosed income subject to the fulfillment of certain conditions.
If undisclosed income is not admitted during the course of search but disclosed in the return of income filed after the search, the taxpayer will be liable for penalty at the rate of 20% of undisclosed income subject to the fulfillment of certain conditions, (iii) In a case not covered under (i) and (ii) above, the taxpayer will be liable for penalty at the rate ranging from 30% to 90% of undisclosed income. These amendments will take effect from the 1st day of July, 2012 and will, accordingly, apply to any search and seizure action taken after this date. [Clauses 89, 95, 96]
[ Emphasis provided]
6.1. Since section 271AAB was introduced in place of 271AAA for searches conducted after 01.07.2012, relevant extracts from from Explanatory Memo to Finance Bill, 2007 vide which section 271 AAA was introduced, are reproduced as under :
“It is also proposed to insert a new section 271 AAA so as to provide that, in a case where search has been initiated under section 132 on or after 1st June, 2007, the assessee shall be liable to pay by way of penalty, in addition to tax, if any, payable by him, a sum computed at the rate of ten per cent of the undisclosed income of the specified previous year. However, provisions of this section shall not be applicable if the assessee- (i) in a statement under subsection (4) of section! 32 in the course of the search, admits the undisclosed income and specifies the manner in which such income has been derived; (ii) substantiates the manner in which the undisclosed income was derived; and pays the tax, together with interest, if any, in respect of the undisclosed income. It is further proposed to provide that no penalty under the provisions of clause (c) of sub-section (1) of section 271 shall be levied or imposed upon the assessee in respect of the undisclosed income referred to in proposed new section. It is also proposed to provide that the provisions of section 274 and section 275 shall, so far as may be, apply in relation to the penalty leviable under the proposed new section. For the purposes of this section it has been proposed to define undisclosed income so as to mean- (i) any income of the specified previous years represented, either wholly or partly, by any money, bullion, jewellery or other valuable article or thing or any entry in the books of account or other documents or transactions found in the course of a search under section 132, which has not been recorded on or before the date of search in the books of account or other documents maintained in the normal course relating to such previous year; or which has otherwise not been disclosed to the Chief Commissioner or Commissioner before the date of the search; or (ii) any income of the specified previous year represented, either wholly or partly, by any entry in respect of an expense recorded in the books of account or other documents maintained in the normal course relating to the specified previous year which is found to be false and would not have been found to be so had the search not been conducted. For the purposes of this section, it has also been proposed to define specified previous year so as to mean the previous year— (i) which has ended before the date of search, but the date of filing the return of income under sub-section (1) of section 139 for such year has not expired before the date of search and the asscssec has not furnished the return of income for the previous year before the said date; or (ii) in which search was conducted. It is also proposed to provide an appeal to the Commissioner against levy of penalty under the proposed new section 271 AAA. This amendment will take effect from 1st April, 2007 and will accordingly apply in relation to assessment year 2007- 2008 and subsequent years in cases where search under section 132 is initiated on or after 1st June. 2007. [Clauses 62, 67 and 68]
NOTE-1: UNDER SECTION 271AAA NO PENALTY WAS TO BE IMPOSED ON INCOME ADMITTED U/S 132(4). HOWEVER, PENALTY U/S 271 AAB IS LEVIABLE EVEN IF INCOME IS ADMITTED U/S 132(4) AND SUCH PENALTY IS TO BE LEVIED ON THE AMOUNT OF UNDISCLOSED INCOME ADMITTED U/S 132(4).THEREFORE, PENALTY UNDER NEWLY SUBSTITUTED SECTION 271AAB SHOULD BE QUA ADMISSION OF INCOME U/S 132(4) AND NOT QUA THE ASSESSEE WHOSE PREMISES WAS SEARCHED U/S 132(1).
7. Relevant extracts from section 153C :
Assessment of income of any other person. 153C.
153C. (1)] [Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that,—
