Case Law Details

Case Name : Asst. CIT Vs. S & P Foundation (P) Ltd. (ITAT Chennai)
Appeal Number : ITA No. 2084/Mds/2013
Date of Judgement/Order : 06/06/2017
Related Assessment Year : 2006- 07
Courts : All ITAT (7457) ITAT Chennai (300)

The assessee having returned the additional income of Rs. 153.99 lakhs in pursuance to notice under section 153A, which it admits as having done voluntarily, how, we wonder, is it not a case squarely governed by the said Explanation 5A. The assessee in fact admits to the sum credited to the account “advance from allottees” as representing its income. The same, it needs to be appreciated, does not explain, much less satisfactorily, the nature and source of the said credit, so that section 68, deeming the same as the assessee’s income for the current year, shall apply with full force. Who are the allottees ? What is their cred­itworthiness? Have they confirmed paying the same, representing the money paid to the sellers of land ? Why, again, if they have, is the amount not reflected as the sale proceeds of the relevant real estate/property, having been recovered from the allottees by the assessee as a part of the cost, or otherwise charged to them ? This is all the more so as the assessee has claimed and been allowed deduction (in computing its regular profit) in respect of expenditure of its business by way of on money paid to the sellers of land, as “development charges”. How does it, in any case, represent a liability of the assessee? In fact, to the extent the assessee has received money, duly entered in its books of account, the same is also covered under clause (i), i.e., besides clause (ii), of Explanation 5A. The facts and circumstances of the case are squarely covered by the said provision, even as observed by the Bench during hearing, to no satisfactory answer by the learned Authorized Representative. The learned Commissioner (Appeals) has in our view completely misled himself in the matter by not considering a direct provision of law, clearly applicable in the facts and circumstances of the case. In fact, that the assessing officer has not referred to it is not relevant inasmuch as the provision of law (section), is to be read along with Explanation appended thereto, with there being no estoppel against law (also refer : CIT v. Durga Prasad More (1971) 82 ITR 540 (SC)). The scope for the non-application of the said Explanation is only where the assessee does not admit the same as its income, which then becomes a subject-matter of dispute between the assessee and the Revenue. Again, in view of the foregoing, reference to the admission being voluntary, or to the decisions, as the case of Suresh Chan­dra Mittal (supra), is completely misplaced. As aforenoted, that the income is admitted, and the disclosure voluntary, is the reason or the basis for the application of Explanation 5A. Even on facts, it is to be appreciated that it is the search and the concomitant discovery of the books of account, duly completed, reflecting the said credit as well as expenditure claimed, that has led to the disclosure, with the assessee having no answer to the various aspects of the credit or the amounts credited to the account head “advance to allottees” as well as the corresponding debit to the account “develop­ment charges”, claimed as deduction. There is no confirmation from the transferor/s of the real estate to having received on money, i.e., qua the amount debited to the said (latter) account, which has in any case been claimed and allowed as deduction.

As explained in MAK Data (P) Ltd. v. CIT (2013) 358 ITR 593 (SC), the plea as to the disclosure being only to buy peace of mind, etc., is only a ruse or a make believe. The assessee’s case, on the contrary, is squarely covered against it by the decisions in the case MAK Data (P) Ltd. (supra); K.P. Madhusudhanan v. CIT (2001) 251 ITR 99 (SC); and CIT v. Zoom Communication (P) Ltd. (2010) 327 ITR 510 (Delhi), to name some, being clearly applicable in the facts and circumstances of the case, i.e., qua addi­tional income. And, considered either way, irrespective of whether the assessee has filed, or not filed, the return of income on 30-11-2006. Both Explanation 5A, as well as Explanation 1 to section 271(1)(c) are, accordingly, attracted in the facts and circumstances of the case for the said sum.

FULL TEXT OF THE ITAT JUDGMENT

This is an appeal by the Revenue agitating the order by the Commissioner (Appeals)-II, Chennai (“CIT(A)” for short) dated 5-12-2012 allow­ing the assessee’s appeal contesting the levy of penalty under section 271(1)(c) of the Income Tax Act, 1961 (“the Act” hereinafter) vide order dated 30-6-2010 for the assessment year (AY) 2006-07.

2. The brief facts of the case are that the assessee, a company in the business of construction and real estate, was subject to search under section 132 of the Act on 10-1-2008. Books of account and other documents were found and seized. In response to the notice under section 153A pursuant to the search, the assessee filed a return of income on 12-8-2009 admitting a total income of Rs. 2,55,13,240 including the additional income of Rs. 1,53,98,570 offered towards “development charges”. Assessment, accordingly, was made, making an addition of Rs. 13,000 under section 40(a)(ia) to the income as disclosed. The assessee was subsequently issued a show-cause notice for levy of penalty under section 271(1)(c) of the Act, to which it replied as under :–

“… In the final accounts of the financial year 2005-06, an amount of Rs. 1,53,98,570 had been debited to ‘land development cost’ by giving corresponding credit it to ‘advances from allottees’. Such debit of Rs. 1,53,98,570 under Land Devt. cost’ were nothing but on-money payments to various land owners. In other words the final accounts of the year ending 31-3-2006 had wrong credit to an extent of Rs. 1,53,98,570 under the head ‘advances from allottees’. In order to come clean before the Department we have now revised our computation of income by disallowing the expenditure of Rs. 1,53,98,570 under the land development cost (also to remove the excess credit under advances from allottees)…”

In the view of the assessing officer (AO), the assessee had, as apparent, offered to disclose its income only in response to the search proceedings, whereat the credit of Rs. 153.99 lakhs as “advance from allottees” had been called into question. The assessee, in fact, despite having income charge­able to tax for the relevant year as per its books of account, which were complete up to 31-3-2006 as found at the time of search, had not filed its return of income for the relevant year by the due date of filing of return under section 139(1) and, in fact, even up to the date of search; rather, not even within 30 days of the issue of notice under section 153A on 29-9-2008 as required by law. He, accordingly, levied penalty under section 271(1)(c) on the assessed income.

In appeal, the learned Commissioner (Appeals) found that the assessee had filed the return of income under section 139(1) of the Act for the relevant year on 30-11-2006 at an income of Rs. 1,01,14,668. It was therefore wrong to say that the assessee had not filed any return of income up to the date of search. The only question that therefore survived was the levy of penalty on the additional income of Rs. 153.99 lakhs offered by the assessee in response to notice under section 153A as well as the dis allowance of Rs. 13,000 under section 40(a)(ia) in assessment. Considering the assessee’s submissions on the facts of the case, he deleted the penalty thereon, holding as under :–

“6.1 As regards the penalty on additional amount of Rs. 1,58, 98,570, being withdrawal of land development charges, the assessing officer has stated that but for search, the assessee would not have disclosed any income filed in response to notice under section 153A. He has, however, not given any definite finding as to how it consti­tutes concealed income. While considering an appeal against an order made under section 271(1)(c), what is required to be examined is the record which the assessing officer imposing penalty had before him and if that record can sustain that there has been concealment or furnishing inaccurate particulars of income, that would be sufficient to sustain the penalty. At this juncture, it would be appropriate to note that the Explanation contained in section 271(1)(c) is self-contained in that it treats every difference between the reported and the assessed income as concealed income, but at the same time, provides the criteria where penalty would be warranted. Penalty is leviable for concealment where an assessee fails to offer any explanation for a difference or offers an explanation, which is found to be false. In the instant case, the amount has been voluntarily offered by the appellant in the return of income under section 153A by withdrawing the land development expenses debited to the profit and loss account. The appellant has been able to offer an explanation which is satisfactory. Further, as submitted by the learned Authorized Representative taxes have also been paid on the admitted income. The decision of the Hon’ble Supreme Court in the case of CIT v. Suresh Chandra Mittal (2001) 251 ITR 9 (SC) is relevant is such a situation. The Hon’ble Supreme Court held that penalty is not leviable if the assessee files revised return offering additional income. In that case, the assessee had originally filed returns showing meager income. When, after search action under section 132, a notice under section 148 was served on him, he filed revised returns showing higher income. Subsequently, assessment order was passed and the return submitted was regularized under section 148. In penalty proceedings under section 271(1)(c), the assessee claimed that he offered additional income to buy peace of mind and avoid litigation. The assessing officer did not accept the contention and levied penalty which was confirmed by the Commissioner (Appeals). But the Income Tax Appellate Tribunal held that the Department has not discharged its burden of proving concealment and had simply rested its conclusion on the act of voluntary surrender done by assessee on good faith, and that penalty order could not be levied in such income. On a reference, the Hon’ble High Court held that no penalty could be levied for concealment. The Department preferred appeals to the Hon’ble Supreme Court. The Hon’ble Supreme Court dismissed the appeals holding that no interference with the order of the High Court was called for (251 ITR 9). There is no reason as to why the ratio of the above decision will not be applicable to the facts of the present case. Here also, a search action under section 132 was carried out at the premises of the assessee. The appellant had filed original return of income on 28-11-2006 declaring income of Rs. 1,01,46,668. Subsequent to search under section 132, it filed return of income in response to the notice under section 153A wherein it has offered additional income of Rs. 1,53,98, 570 by withdrawing the claim of land development expenses. The assessing officer has also accepted the above income in the assessment order. There is no definite finding regarding concealment of income of furnishing of inaccurate particulars of such income. The appellant did not file any appeal because addition of Rs. 13,000 only was made under section 40(a)(ia) to the returned income. Moreover, it is well settled that assessment and penalty proceedings are separate. In view of these facts and respectfully following the above decision, I am of the considered opinion that penalty cannot be levied on the additional income offered by the assessee.

6.2 As regards the dis allowance under section 40(a)(ia) it may be stated that penalty was not initiated on this addition of Rs. 13,000 in the assessment order. However, penalty has been levied because the entire assessed income was subjected to penalty under section 271(1)(c). The Hon’ble Income Tax Appellate Tribunal (SB), Vishakhapatnam in the case of Merilyn Shipping and Transports v. AMI. CIT (2012) 16 ITR (Tab) 1 (Visakhapatnam) (SB), has held that provisions of section 40(a)(ia) are applicable only to amounts of expenditure payable as on 31st March of the previous year and not to actual amounts paid during the previous year without deduction of TDS. When the addition itself is not sustainable, there is no question of levy of penalty on such addi­tion. The Hon’ble Supreme Court in CIT v. Reliance Petroproducts (P) Ltd. (2010) 322 ITR 158 (SC), has also held that dis allowance of expenses per se will not amount to furnishing inaccurate particulars of income. Hence, the penalty is not leviable on this addition. In the result, the ground is allowed.

Aggrieved, the Revenue is in appeal.

3. Before us, the admitted position was that no return of income had been filed prior to the date of search, and had been only after the issue of notice under section 153A, on 12-8-2009. While the Revenue relied on the findings in assessment and the penalty orders, the learned Authorised Representative would on the decisions in Rawatmal Harakchand v. CIT (1981) 129 ITR 346 (Cal) and in P.V. Doshi v. CIT (1978) 113 ITR 22 (Guj), averring that even the initiation of the penalty is bad in law.

4. We have heard the parties, and perused the material on record.

4.1 We may proceed by delineating the respective cases of the parties before us. The Revenue’s case is that the filing of the return by the assessee is only subsequent to the search and upon discovering that it had no reasonable explanation for the “advance from allottees” credited in its books in cash, in the like sum, i.e., Rs. 153.99 lakhs, corresponding to the expenditure booked under the account head “development charges”, and which is admittedly on money paid to the persons from whom land or rights therein had been acquired. The basis for the relief by the first appellate authority is that the assessee having already filed its return on 30-11-2006, it is only the additional income (of Rs. 153.99) lakhs offered per the return under section 153A, or the dis allowance effected in assessment, that could at all be considered for the purpose of levy of penalty under section 271(1)(c). The latter was on the basis that the amount was not payable as at the year-end, even as advocated by the Tribunal in Merilyn Shipping and Transport v. Addl. CIT (2012) 16 ITR (Trib) 1 (Visakhapatnam) (SB) (refer paragraph 6.2 of the impugned order). With regard to the former, there was no finding as to concealment or furnishing inaccurate particulars of income by the assessing officer, who had merely inferred that the assessee would not have “returned” its income but for the search thereon. The burden to prove that it was not a case of a voluntary surrender of income, made in good faith, is on the Revenue, which it had not discharged. The assessee has only offered the income to buy peace of mind. He, accordingly, deleted the penalty on the entire sum, relying on the decision in the case of CIT v. Suresh Chandra Mittal (2001) 251 ITR 9 (SC), wherein, similarly, notice under section 148 had been issued after search action under section 132, in response to which the assessee had offered a higher income (refer paragraph 6.1).

The penalty, which stands levied on the entire assessed income, would accordingly need to be considered separately for each of the three sums comprising it. While the Revenue maintains that no return of income had been filed prior to 12-8-2009 the learned Commissioner (Appeals) has allowed relief to the assessee (on the regular business profit as per its books of account) on the basis that the same had been duly returned on 30-11-2006. The issue thus turns on a matter of fact, i.e., whether or not the assessee had filed its return of income on 30-11-2006 the only return admittedly furnished by it prior to that under section 153A on 12-8-2009. It is indeed surprising that there should be any ambiguity and, further, continuing up to the second appellate stage, on such a simple matter of fact. Where the assessee has filed a return on 30-11-2006, the same would necessarily be receipted, i.e., carry a receipt number and, besides, would have been processed under section 143(l)(a). Be that as it may, where furnished, there is no question of the assessee being subject to penalty thereon, while, where not, the same is returned for the first time only on 12-8-2009 even as the same is only as per its books of account, found and seized in search. Accordingly, the assessee having not furnished any explanation for not returning the income chargeable to tax, it shall be liable for penalty on the income of Rs 101.15 lakhs. The issue is in fact squarely covered by Explanation 3 to section 271(1)(c), which reads as under the time period prescribed under section 153 expiring on 31-3-2009 :–

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 1-4-1989, and until the expiry of the period aforesaid, no notice has been issued to him under clause (i) of sub­section (1) of section 142 or section 148 and the assessing officer 01 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.”

In this regard, however, we observe from the assessment order that the assessee had paid “advance tax” at Rs. 35 lakhs. The computation of penalty, which stands levied at 100 per cent, of the tax sought to be evaded, shall, in the present case, be with reference to Explanation 4(b) to section 271(1)(c), reading as under which allows credit for the advance tax. With­out doubt, interest under sections 234A, 234B, and 234C shall, in view of section 140A, chargeable up to the date/s of the payment of advance-tax, nave lo be appropriated first, and only the balance amount regarded m law as the amount of advance tax paid by the assessee for the relevant year :–

‘Explanation 4.–For the purposes of clause (iii) of this sub­section, the expression ‘the amount of tax sought to be evaded’,–. ..

(b) 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; . . .”

We decide accordingly, with the assessing officer computing the penalty, where no return has been filed on 30-11-2006 allowing credit for the advance tax.

4.2 Next, we may discuss the aspect of levy of penalty on the sum of Rs. 153.99 lakhs offered as additional Income per section 153A return. Explanation 5A to section 271(1)(c) of the Act reads as under :–

Explanation 5A.–Where in the course of a search initiated under section 132 on or after the 1-6-2007, the assessee is found to be the owner of,–

(i) any money, bullion, jewellery or other valuable article or thing (hereinafter 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 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 the 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 year has expired and 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 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.”

Where, therefore, the assessee is found in the course of search to be the owner of any asset, the source of which is attributable to income, or otherwise as the owner of any income (for any previous year) based on any entry in the books of account, documents or transactions, which has not been disclosed per the return of income for the relevant year ended prior to the date of search (or in respect of which year no return had been filed despite the expiry of the due date for furnishing the return of income as on the date of search), then, notwithstanding it being returned as income per the return filed subsequent to the search, the assessee shall, for the purpose of levy of penalty under section 271(1)(c), be deemed to have concealed the particulars of his income or furnished inaccurate particulars of income, i.e., per the return of income as furnished.

In the facts of instant case, the assessee having returned the additional income of Rs. 153.99 lakhs in pursuance to notice under section 153A, which it admits as having done voluntarily, how, we wonder, is it not a case squarely governed by the said Explanation 5A. The assessee in fact admits to the sum credited to the account “advance from allottees” as representing its income. The same, it needs to be appreciated, does not explain, much less satisfactorily, the nature and source of the said credit, so that section 68, deeming the same as the assessee’s income for the current year, shall apply with full force. Who are the allottees ? What is their cred­itworthiness? Have they confirmed paying the same, representing the money paid to the sellers of land ? Why, again, if they have, is the amount not reflected as the sale proceeds of the relevant real estate/property, having been recovered from the allottees by the assessee as a part of the cost, or otherwise charged to them ? This is all the more so as the assessee has claimed and been allowed deduction (in computing its regular profit) in respect of expenditure of its business by way of on money paid to the sellers of land, as “development charges”. How does it, in any case, represent a liability of the assessee? In fact, to the extent the assessee has received money, duly entered in its books of account, the same is also covered under clause (i), i.e., besides clause (ii), of Explanation 5A. The facts and circumstances of the case are squarely covered by the said provision, even as observed by the Bench during hearing, to no satisfactory answer by the learned Authorized Representative. The learned Commissioner (Appeals) has in our view completely misled himself in the matter by not considering a direct provision of law, clearly applicable in the facts and circumstances of the case. In fact, that the assessing officer has not referred to it is not relevant inasmuch as the provision of law (section), is to be read along with Explanation appended thereto, with there being no estoppel against law (also refer : CIT v. Durga Prasad More (1971) 82 ITR 540 (SC)). The scope for the non-application of the said Explanation is only where the assessee does not admit the same as its income, which then becomes a subject-matter of dispute between the assessee and the Revenue. Again, in view of the foregoing, reference to the admission being voluntary, or to the decisions, as the case of Suresh Chan­dra Mittal (supra), is completely misplaced. As aforenoted, that the income is admitted, and the disclosure voluntary, is the reason or the basis for the application of Explanation 5A. Even on facts, it is to be appreciated that it is the search and the concomitant discovery of the books of account, duly completed, reflecting the said credit as well as expenditure claimed, that has led to the disclosure, with the assessee having no answer to the various aspects of the credit or the amounts credited to the account head “advance to allottees” as well as the corresponding debit to the account “develop­ment charges”, claimed as deduction. There is no confirmation from the transferor/s of the real estate to having received on money, i.e., qua the amount debited to the said (latter) account, which has in any case been claimed and allowed as deduction.

As explained in MAK Data (P) Ltd. v. CIT (2013) 358 ITR 593 (SC), the plea as to the disclosure being only to buy peace of mind, etc., is only a ruse or a make believe. The assessee’s case, on the contrary, is squarely covered against it by the decisions in the case MAK Data (P) Ltd. (supra); K.P. Madhusudhanan v. CIT (2001) 251 ITR 99 (SC); and CIT v. Zoom Communication (P) Ltd. (2010) 327 ITR 510 (Delhi), to name some, being clearly applicable in the facts and circumstances of the case, i.e., qua addi­tional income. And, considered either way, irrespective of whether the assessee has filed, or not filed, the return of income on 30-11-2006. Both Explanation 5A, as well as Explanation 1 to section 271(1)(c) are, accordingly, attracted in the facts and circumstances of the case for the said sum. We decide accordingly (also refer paragraph 4.4).

4.3 Finally, we may discuss the aspect of dis allowance under section 40(a)(ia) effected at Rs. 13,000. The learned Commissioner (Appeals) has directed deletion on the basis of the corresponding amount being not payable as at the year-end following Merityn Shipping and Transport (supra). The plea is valid. However, we observe no explanation by the assessee to that effect; rather, whatsoever. And, consequently, absence of any finding by any authority. The matter would accordingly have to go back to the file of the assessing officer to determine as a matter of fact whether the amount disallowed outstands, in whole or in part, as at the year end, so that to the extent it outstands, no penalty would be exigible. Where, and to the extent not, an absence of any explanation would justify the levy of penalty under section 271(1)(c). We decide accord­ingly.

4.4 Before parting with our order, we may also address the assessee’s charge of even the initiation of penalty proceedings being bad in law. In this regard, it may suffice to refer to the following observations by the Hon’ble Apex Court in MAK Data (P.) Ltd. (supra), a decision rendered by it with reference to and in fact applying its earlier decisions, as in Union of India v. Dharamendra Textile Processors (2008) 306 ITR 277 (SC) and CIT v. Atul Mohan Bindal (2009) 317 ITR 1 (SC) (headnote of 358 ITR ) :–

Explanation 1 to section 271(1)(c) of the Income Tax Act, 1961 raises a presumption of concealment, when a difference is noticed by the assessing officer, between the reported and assessed income. The burden is then on the assessee to show otherwise, by cogent and reliable evidence. When the initial onus placed by the Explanation has been discharged by him, the onus shifts to the Department to show that the amount in question constituted income and not otherwise.

Voluntary disclosure does not release the assessee from the mischief of penal proceedings. The law does not provide that when an assessee makes a voluntary disclosure of his concealed income, he has to be absolved from penalty. The assessing officer should not be carried away by the plea of the assessee such as Voluntary disclosure’, ‘buy peace’, ‘avoid litigation’, ‘amicable settlement’, to explain away its conduct. The question is whether the assessee has offered any explanation for concealment of particulars of income or furnishing inaccurate particulars of income…

The assessing officer has to satisfy himself whether or not penalty proceedings should be initiated during the course of the assessment proceedings and the assessing officer is not required to record his satisfaction in a particular manner or reduce it into writing.”

The assessee’s plea and, its case, is without merit.

5. In the result, the Revenue’s appeal is disposed on the aforesaid terms.

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