Where assessee has filed returns after search and has not disclosed income in original return, Explanation 5 to section 271(1)(c) cannot give immunity to assessee.
ITAT, `A’ BENCH, MUMBAI,
Ajit B. Zota Vs. ACIT
ITA No. 7325/Mum/2008
Date- July 16, 2010
ORDER
Per B. Ramakotaiah, A.M.
This appeal by the assessee is against the order of the CIT(A)- VI, Mumbai dated 19.11.2008 confirming the penalty under section 271(1)(c) of Rs. 12,60,000/- levied by the A.O.
2. Assessee has raised the following 7 grounds : –
“1. The Ld. CIT(A) erred in confirming the penalty of Rs. 12,60,000/- on income of Rs. 37,80,000/- without appreciating that there was no concealment of income or furnishing of inaccurate particulars as there was no difference in the returned income of Rs. 42,81,540/- and the assessed income and hence, penalty may be deleted.
2. The Ld. CIT(A) erred in holding that the Assessee is not covered by the exception provided under clause 2 of explanation 5 to section 271(1)(c).
3. With out prejudice to the above the Ld. CIT(A) failed to appreciate that though the application of the assessee dated 3/3/2006 to adjust seized cash of Rs.12,00,000/- towards tax liability was not rejected, Assessing Officer adjusted it only on 7/5/2008 and therefore wrongly levied interest u/s. 234B and concluded that Assessee is not covered by the immunity u/s. clause (2) of Explanation 5 to Section 271(1)(c) and hence penalty may be deleted.
4. Without prejudice to above, the Ld. CIT(A) failed to appreciate that no interest u/s. 234A and 234C is leviable and hence, penalty may be deleted.
5. Without prejudice to above, the assessee was under a bonafide belief that no interest u/s. 234A, 234B & 234C is payable as per the return of income and hence, penalty may be deleted.
6. Without prejudice to above, the Ld. CIT(A) failed to appreciate that Assessee voluntarily offered the undisclosed income for taxation to buy peace and avoid penalty proceedings and the department failed to discharge the burden of proving concealment and hence penalty of Rs. 12,60,000/- may be deleted.
7. The Ld. CIT(A) Officer failed to appreciate that notice u/s. 153A was bad in law and the consequent assessment order is null and void as 153A is mandatory to issue notice requiring assessee to file returns for six assessment years preceding the year of search and he must make an assessment for each of the preceding six Assessment years and hence the penalty u/s. 271(1)(c) must be deleted.”
3. Briefly stated, consequent to a search and seizure operations conducted under section 132 of the I.T. Act on 02.03.2006, a notice under section 153A was issued on 13.04.2007. In compliance to such notice the assessee filed return of income on 29.05.2007 declaring a total income of Rs. 42,81,540/-. In the original Return of income filed on 16-07-03 by the assessee, a sum of Rs. 38,70,575/- was declared as net long term capital gain arising on account of sale of shares of Database Finance Ltd. and the same was claimed as exempt under section 54F. It was found during the search operation that the shares in question were shown to have been acquired on 07.04.2001 in cash and they has been dematerialized on 25.02.2003 after an unduly long period from the alleged date of purchase. The facts and circumstances of the case suggested that the assessee had fabricated the transaction of purchase and sale of shares to take advantage of the exemption available under section 54F in respect of long term capital gains. When confronted, the assessee vide his reply to Q.No. 24 of the statement dated 02.03.2006 recorded under section 132(4), categorically admitted that the transaction was accommodative in nature aimed at converting his undisclosed income into artificial long term capital gain and offered an amount of Rs. 40 lakhs as undisclosed income. Accordingly, the assessee in his return of income filed in response to notice under section 153A had shown the entire consideration of Rs. 40,00,000/- as speculation profit. Based on the assessee’s admission regarding the accommodative transaction in respect of capital gain, the A.O. held that the assessee had furnished inaccurate particulars of his income to avail himself of concession available under section 54F by converting his undisclosed income into artificial long term capital gains. The A.O. further held that though the assessee’s case fell within the exception provided under clause 2 of Explanation to section 271, the immunity following from such clause in respect of disclosure made under section 132(4) can be allowed only if the assessee fulfils all the conditions specified there under. One of the essential conditions is that the tax on income disclosed together with interest shall be paid by the assessee. Relying on the judgement of the Honourable High Court of P&H in the case of Ashok Kumar Gupta Vs. CIT 287 ITR 376, he considered that that the immunity can be availed of by an assessee only if the tax on the surrendered income along with interest is paid immediately after surrender and in any case before filing of return of income. In the instant case, even considering the adjustment of seized cash of Rs. 12,00,000/- the assessee paid only tax on surrendered income and the interest thereon remained unpaid as on the date of filing return in response to notice under section 153A. Thus, AO held that the assessee was not entitled to the immunity under clause 2 of Explanation 5 to section 271 and levied the impugned penalty under section 271(1)(c).
4. It was contended before the CIT(A) that the assessee has disclosed all material facts, which are duly accepted in the assessment completed under section 143(3) r.w.s. 153A and the assessee had voluntarily offered undisclosed income to buy peace and relied on various case laws for cancellation of penalty. The CIT(A) confirmed the penalty stating as under: –
“6.2 I have considered the facts of the issue as well as the written submissions made by the A.R but do not find merit in them. It is an undisputed fact that the impugned income was shown as long term capital gains by the appellant in the original return with a view to claim exemption u/s. 54F to reduce his tax liability. It is also a fact that the appellant had disclosed bogus profit on sale of shares of Database Finance Ltd., which were shown to have been purchased on 07.04.2001 in cash and the same has been dematerialized on 25.02.2003, after an unduly long period from the alleged date of purchase. It is also an admitted fact that when confronted, the appellant admitted in his statement recorded u/s. 132(4) that the said transaction was aimed at converting his undisclosed income into artificial long term capital gains with a view to claim exemption u/s. 54F. Thus it can not be said that the appellant had voluntarily disclosed the said income as undisclosed income.
6.3 The A.O. has also not given a correct finding in holding that the appellant’s case fell within the exception provided under clause 2 of Explanation 5 to section 271(2)(c) [but for the non-payment of interest]. The said clause 2 becomes applicable only where the assessee makes a statement under sub-section 4 of section 132 that any money, bullion, …. Or other valuable article or thing found in his possession ….. 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 ….. in the instant case, clearly the disclosure was made much later than the date specified in the section 139(1) for filing of return in the instant case. Thus the A.O. was clearly wrong in giving a finding that the appellant’s case was covered by the exception provided under clause 2 of Explanation 5 to section 271(1)(c) [but for the non-payment of interest]. This benefit is available to those assessees who make the disclosure of income etc., in those cases where the due date for filing of return for that year has not expired and the return has not been filed for the relevant year on the date of search. Clearly the appellant’s case is not covered by such situation. Hence, the conclusion arrived at by the A.O. can not be upheld. However, the A.O. has levied the penalty by holding that the other conditions specified under that clause namely the payment of taxes on surrendered income and interest thereon had not been fulfilled.
6.4 In view of the discussion in the above paragraphs it is held that the appellant is not entitled to exception provided under clause 2 of Explanation 5 to section 271(1)(c) and that the appellant having furnished inaccurate particulars of his income as admitted in the statement recorded on oath, the penalty has been correctly levied, irrespective of whether interest u/s. 234A, 234B or 234C was payable or not. It is further held that the appellant did not voluntarily disclose any income and that the surrender was made only after the appellant was searched and the said statement recorded.”
5. Before us, referring to the paper book filed in this regard from page No. 1 to 36 and various case laws from page 37 to 150 and further documents placed on record with reference to the copy of original return filed on 16.07.2003, it was the submission of the learned counsel that penalty cannot be levied as the assessee had filed return of income and the Department had accepted same in the order passed under section 143(3) r.w.s. 153A., hence, when there is no addition to the returned income penalty cannot be levied. Further it was also submitted that the assessee has made a disclosure under section 132(4) and satisfied all the conditions, hence, penalty cannot be levied. He then referred to the statement made during the search in this regard to submit that disclosure was made to buy peace and to avoid litigation and, hence, penalty cannot be levied. On merits, it was submitted that sale of shares cannot he assessed as undisclosed income. Relying of the decision of the ITAT in the case of Mukesh R. Marolia vs. ACIT 6 SOT 247 it was submitted that even bogus sale of shares cannot be assessed as other source income. It was further submitted that the assessee has made some claim and if the claim is not found correct penalty cannot be levied relying on the decision of the Honourable Supreme Court in the case of CIT Vs. Reliance Petroproducts Pvt. Ltd. 322 ITR 158. It was the submission that there is no concealment in the Return and the Returned income and Assessed Income being the same, penalty cannot be levied. Further,Disclosure was made u/s. 132(4) and all the conditions justified hence penalty cannot be levied.”
5. The learned counsel submitted that it was a case of the A.O. that tax plus interest was not paid and on that contention only the A.O. has levied penalty whereas the CIT(A) has given a finding that Explanation 5 to Section 271(1)(c) does not apply at all. In this regard the detailed submissions are as under: –
“Explanation 5 to Section 271:
1. The Assessing Officer held that though assessee’s case falls within the exception provided under clause 2 of Explain 5 to Sec. 271 but as the interest u/s. 234A, Sec. 234B and Sec. 234C has remained unpaid immunity under clause 2 of Explanation 5 was denied and penalty was levied.
2. No interest u/s. 234A, is leviable in this case as the Assessee has filed his return of Income in time in pursuance to notice u/s. 153A.
3. Section 234A subsection 3 has been amended so as to provide that, if the return required to be filed in response to notice under section 153A is filed after the period allowed for filing it, or is not at all filed, interest under section 234A will become leviable for the period commencing on the day immediately following the expiry of the time allowed in the notice. Hence interest cannot be levied when return is filed in time.
4. Even as per section 234B sub-section 3 interest is payable for period commencing on the day following the date of determination of total income.
Explanation 2 to section 234B(1) states that, where, in relation to an assessment, an assessment is made for the first time u/s 147 or 154A, the assessment so made shall be regarded as a regular assessment for the purpose of this section.
5. Interest u/s. 234B is only Rs.230/- as per the return filed which is paid by the assessee.
6. Without prejudice, the learned Assessing Officer failed to appreciate that though the Application of the assessee dated 3/3/2006 to adjust seized cash of Rs. 12,00,000/- towards tax liability was not rejected, Assessing Officer adjusted it only on 7/5/2008 and therefore wrongly levied interest u/s. 234B and concluded that Assessee is not covered by the immunity clause (2) of Explanation 5 to Section 271(1)(c) and hence penalty may be deleted.
Gopal Chand Khandelwal Vs. ACIT (1995) 52 ITD 661 (Del) (666-669)
7. Sec. 234C is not applicable as section 234C has not been amended so as to bring within its ambit the assessments under section 153A.
8. As the entire interest is paid before the date of filing return u/s. 153A immunity under clause 2 of expl. 5 to sec. 271(1)(c) may be invoked and penalty may be deleted.
9. CIT Vs. Mishrimal Soni (1007) 289 ITR 77 (Raj.) (para 7) – Explanation 5 deals with situation in which any assets are found to be in the ownership of the assessee in the course of search under s. 132. It makes no distinction between tangible assets or intangible assets. Clause (2) of Expln. 5 makes it clear that where in the course of search the assessee makes a statement under s. 132(4) and owns that any of such assets he acquired out of his income from undisclosed income, not so far returned, and further states the manner in which such income has been derived and pays tax together with interest if any in respect of such income, no presumption of concealment has to be drawn, notwithstanding admission to that effect. In other words to the extent the assessee makes a clean breast of his undisclosed income represented by assets found to be in the possession of the assessee, he is not deemed to have concealed his income or concealed particulars thereof. 63-69
10. Para (2) in explanation 5 does not make any distinction between the previous year which has ended before the date of search and the previous year which is to end on or after the date of search. The Madras High Court in the of CIT Vs. S.D.V. Chandru (266 ITR 175 (Mad) has directly dealt with this issue.
11. Jainarayan Moolchand Agrawal (Decd) vs. ACIT 109 ITD 275 (Jab).
12. Dr. Dharamveer Singh Dhillon vs. CIT (2008) 116 TTJ 141 (Bilaspur)
13. Explanation 5 to section 271(1)(c) is squarely applicable to the Assessee.
14. CIT Vs. Mahendra C. Shah (2008) 299 ITR 305 (Guj).
6. It is further submitted that the assessee has agreed for the assessment to buy peace and voluntarily offered undisclosed income with a request not to effect penalty proceedings and assessee has given all the details of share transactions – purchase bills, sales bills, demat account, etc. Since the assessee voluntarily admitted to buy peace and requested that penalty should not be levied, the assessee has not challenged the assessment order. Hence, following the principles of Sir Shadilal Sugar and General Mills Ltd. vs. CIT 168 ITR 705 the assessee should not be punished with penalty. It was submitted that agreeing to additions does not follow that the amount agreed to be added was concealed. There may be hundred and one reasons for such admissions, i.e. when the assessee realises the true position does not dispute certain dis allowances but that does not absolve the Revenue to prove means rea of quasi-criminal offence. The learned counsel also relied on the decision in the case of CIT vs. Suresh Chandra Mittal 251 ITR 9 (SC) for the above proposition. The learned counsel also distinguished the case of Ashok Kumar Gupta vs. CIT 287 ITR 376 (P&H) stating that in that case neither the return was filed nor the admitted tax was paid. It was the submission that the assessee had voluntarily offered the income and hence, penalty is not attracted both on facts and also on law.
7. The learned D.R., however, referred to the penalty order of the A.O. and the order of the CIT(A). It was his submission that the assessee has not paid tax plus interest and referred to the consequential order passed by the A.O. subsequently under section 154 giving credit to Rs. 12,00,000/- seized and submitted that the assessee had to pay an amount of Rs. 2,70,948/- out of which an amount of Rs. 2,14,553/- was interest and balance amount was tax which indicates that the assessee has not paid even the tax portion of the admitted amount at the time of filing the return. It was also submitted that the assessee has discharged the tax liability subsequently which indicates that the Assessing Officer’s order in denying the benefit to the assessee of immunity under section 271(1)(c) Explanation 5 was correct. He then referred to the orders of the CIT(A) to submit that the assessee’s case does not fall under Explanation 5 at all and so Explanation 1 was applicable. With reference to the bonafide of the disclosure made, he referred to the statement of the assessee placed in the paper book and referred to various questions during search to submit that the assessee has admitted that he has availed bogus long term capital gains. He then referred to question No. 24 wherein the assessee has admitted that the sale transactions of these shares were accommodative in nature which means that the proceeds derived from sale of shares was routed through out of unaccounted cash paid in hand against the cheque received. He then referred to the submission in page 12 to the following: “Thus I offer Rs.60,00 ,000/- in total as undisclosed income in my hand and in the hands of Smt. Bhavana to cover unaccounted cash acquired out of undisclosed/unaccounted income earned from speculation business in shares and utilised the same in the above mentioned transaction in our hands”. It was his submission that the assessee had indulged in speculation business/undisclosed transactions and earned income and only after acquiring that income the assessee has converted them into accounted transaction and used the above mentioned modus operandi of selling the shares of Database Finance Ltd. and claiming the long term capital gains. This modus operandi came into light during the search operations. He then referred to the original return filed wherein the assessee has offered long term capital gains at Rs.38,70,575/- and claimed exemption under section 54F on Rs. 40,00,000/- invested. He then referred to the return filed under section 153A placed in the paper book at page No. 1 to 8 to submit that what was offered under 153A was speculative profit under the head “Profits and Gains of Business or Profession” and the capital gain was still shown at Nil and the entire capital gain transactions were same in the revised return filed under 153A as well. It was his submission that the assessee has not disturbed the capital gain computation or the claim of exemption under section 54F while offering the amount of Rs. 40,00,000/- as speculation profit along with share of income from the firm under the head “Profits and Gains of Business or Profession”. Accordingly the CIT(A) was correct in conforming the penalty as assessee has not bonafidely admitted any income in the original return and there was concealment to that extent of Rs.40,00,000/-ie. income which was admitted in the return filed after the search and seizure proceedings. It was also his submission that the return filed after search and seizure proceedings cannot be considered as voluntary. He accordingly supported the orders of the A.O. levying and the CIT(A) confirming the penalty.
8. We have considered the issue. Before adverting to the legal propositions it is necessary to place on record the factual positions vis-à-vis the returns filed by the assessee. As seen from the return filed originally by the assessee for A.Y. 2003- 04 on 16th July 2003 the assessee has admitted the following: –
(a) Income from house property Rs. 15,103/-
(b) Profits/ gains of business or profession Rs.3,03,832/-
(c) Capital gain Nil
(d) Income from other sources Rs. 5,658/-
(e) Gross total income Rs. 2,94,287/-
9. After claiming deduction under Chapter VI-A the total income was Rs. 2,81,540/- and tax payable was determined at Rs. 45,635/-. With interest and by taking credit of advance tax paid, the balance tax of Rs. 5,640/- was paid as self-assessment tax. The detailed statements under each head indicate that under the profits and gain of business or profession the assessee had share of profit of Rs. 4,94,026/- and after claiming bank charges and interest of Rs. 1,90,196/- the business income was arrived at Rs. 3,03,882/-.
10. With reference to capital gains the assessee has shown sale of 54,000 shares of Database Finance Ltd. for an amount of Rs. 39,20,115/- and after claiming purchase cost of Rs. 58,540/- arrived at the profit of Rs. 38,70,525/-. This amount was claimed as exempt under section 54F as the assessee invested an amount of Rs. 40,00,000/-in specified assets.
11. In the return of income filed in response to notice under section 153A, the assessee has offered the following income: –
