Penalty U/s. 271(1)(c) leviable on Income disclosed in return filed pursuant to notice U/s. 153A without proper explanation

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 :–

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