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
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: –
|a) Income from house property||Rs. 15,103/-||(same as in original return)|
|b) Profit and gains of business or profession||Rs. 43,38,823/-||(increased by Rs.40 lakhs disclosed as profit)|
|c) Capital gains||Nil||Same as in original return|
|d) Income from other sources||Rs. 5,658/-||Same as in original return)|
12. The net taxable income was arrived at Rs. 43,81,540/- and tax free income was increased from Rs. 17,508/- to Rs. 51,023/-. The assessee has arrived at the tax payable at Rs. 12,58,462/- and after claiming the credit of advance tax and seized amount of Rs. 12,00,000/- the balance payable was Rs. 74,794/- and was paid before filing the return. In view of calculation of interest under section 234A, 234B and 234C in which credit to the amount seized could not be given, assessee’s interest liability has increased and accordingly the A.O. felt that one of the conditions for providing immunity under Explanation 5 to section 271(1)(c) was not fulfilled. He accordingly levied penalty under section 271(1)(c).
13. The CIT(A), however, considered that Explanation 5 is not applicable to the facts of the case and by elaborate discussion on the issue, which was extracted in the earlier part, he confirmed the penalty holding that Explanation 5 was not all applicable to the facts of the case.
14. As seen from the facts and the findings of the CIT(A) in this regard, we are of the opinion that Explanation 5 to section 271(1)(c) is not applicable to assessee’s case. Since the said Explanation operates in a case where the assessee is found to be the owner of any money, jewellery and other valuable articles or thing and as such the assets have been acquired by him by utilising the income these provisions are not applicable to assessee’s case as the assessee has not found to be owner of any such asset. What the assessee has done is that the assessee has earned speculative profit from the transactions of shares or from the business in cash and then converted the same into long term capital gains and received the sale proceeds in a modus operandi adopted to disclose only long term capital gains and when confronted with the transactions the assessee admitted that it was an accommodative transaction. However, as admitted, the source was speculative income earned by the assessee in the transaction of shares outside the books of account. The assessee also filed return of income admitting Rs. 40,00,000/- of income as speculation profit, which was not originally disclosed in the return filed on 16.07.2003 wherein he admitted the business income of Rs. 3,03,835/- only. This shows that the assessee’s speculation income has not been disclosed in the original return and was disclosed only after the search seizure proceedings.
15. Whether this disclosure can be considered voluntary and to purchase peace has to be examined. It is also been held by the judgements in Tribhovandas Bhimji Zaveri vs. Union of India 203 ITR 369 (SC) and the judgment of the Honourable Bombay High Court in the case of Natwarlal Joitram Raval vs. CIT 115 CTR (Bom) 518 that disclosure made subsequent to seizure of incriminating material would not be voluntary. The Hon’ble Gujarat High Court Full Bench in the case of CIT Vs. Satyanarayan Sikaria 238 ITR 855 also makes the position very clear that in pursuance to search incriminating material is found and disclosure is made that disclosure is liable to be void and not voluntary but if no incriminating material is found and still disclosure is made then it will be treated as voluntary. Since it is a search and seizure operation and on the basis of the material found in the search the assessee accepted that they indulged in a modus operandi of paying cash and converting sale proceeds into cheques thereby claiming long term capital gains. This modus operandi was unearthed in the course of search proceedings. The assessee, however, has admitted speculation profit of Rs. 40,00,000/- which was source for long term capital gains. This indicates that the disclosure is not voluntary and so the principles established by the Honourable Supreme Court in the cases of Suresh Chandra Mittal (supra) cannot apply to the facts of the case.
16. Moreover, the assessee has not disturbed the capital gains working. The reliance on Mukesh R. Marolia 6 SOT 247 is also not appropriate as the assessee has not disturbed the capital gain working nor the A.O. treated the sale proceeds as unexplained cash credit, which was the issue in the above said case. In this case the assessee has offered the speculation profit which was not disclosed in the original return and admittedly this speculation profit was earned in share transaction outside the books of account as per the statement given in the course of search. In view of this the assessee’s contention that sale of shares cannot be treated as unexplained cash credit on merits cannot be accepted.
17. The issue whether immunity is available to the assessee when additional income was disclosed in the return u/s 153A was also considered by the Coordinate Bench in the case of ACIT Vs. Kirit Dahyabhai Patel reported in 121 ITD 159 (TM) (One of us, the President as Vice President, Ahd. Bench as the Third Member) wherein these issues are discussed in para 10 to 13 of the Third Member order as under: –
“10. Before me the main argument on behalf of the assessees was that since s. 271(1)(c) was applicable to an assessment made under s. 153A, the immunity from penalty given by Expln. 5(2) to s. 271(1)(c) was available to the assessees. Reliance is placed on the judgment of the Madras High Court in the case of CIT vs. S.D.V. Chandru (supra) and the Rajasthan High Court in CIT vs. Kanhaiyalal (2008) 214 CTR (Raj) 611 : (2008) 299 ITR 19 (Raj) and the order of the Allahabad Bench of the Tribunal in Shyam Biri Works (P) Ltd. vs. Asstt. CIT (2001) 70 TTJ (All) 880. It is submitted that the assessees have declared additional income under s. 132(4) in the course of the search, have paid the taxes and interest thereon and offered the same for taxation in the returns filed in response to notices issued under s. 153A and since the returns have been accepted by the AO in the assessments made under s. 153A the immunity is available. Further, my attention has been drawn to the Statement of Objects and Reasons [(1986)161 ITR (St) 63] for introducing the Taxation Laws (Amendment and Miscellaneous Provisions) Bill, 1986 and the CBDT Circular No. 469, dt. 23rd Sept., 1986 [1986) 162 ITR (St) 21]. It is contended that since these aspects have not been considered in the order of the Tribunal, Ahmedabad Bench, in the case of Asstt. CIT vs. Rupesh Bholidas Patel (supra), or by the learned AM, the said order cannot be said to govern the present appeals. Written submissions and case law compilation have been filed which have also been considered by me.
11. I have considered the arguments. Since the learned counsel for the assessee has not disputed the position that s. 271(1)(c) is applicable to an assessment made under s. 153A, it is not necessary for me to examine that position. The main question before me, which was debated at length, was whether the immunity under Expln. 5(2) to s. 271(1)(c) is available to the assessees. No judgement of the Honourable Gujarat High Court on this question was brought to my notice by either side. The Madras High Court in S.D.V. Chandru’s case (supra) has held that the words in Expln. 5(2) “…..has been acquired out of his income which has not been disclosed in his return of income to be furnished before the expiry of time specified in sub-s. (1) of s. 139” are not to be read as referring to income so far not disclosed in respect of the previous year which is to end after the date of the search and that the words which refer to the time-limit under s. 139(1) are “only a reiteration of the legal requirement regarding the time within which returns should normally be filed”. In this view of the matter it was held that no penalty can be imposed on the basis of the returns filed after the date of the search, pursuant to declaration under s. 132(4), in which additional income was shown by the assessee though such returns related to earlier assessment years. To the same effect is the judgement of the Rajasthan High Court in CIT Vs. Kanhaiyalal (supra). In fact, in this case the High Court has observed that it is not merely the right of the assessee to file returns for the earlier assessment years after the date of the search pursuant to declarations made under s. 132(4) but it is his obligation to do so and the immunity conferred by Expln. 5(2) cannot be taken away or watered down. The view taken by the Madras High Court in S.D.V. Chandru’s case (supra) has been noticed by the Ahmedabad Bench of the Tribunal in the group case of Rupesh Bholidas Patel (supra) but the Bench has preferred to follow the judgement of the Bombay High Court in the case of Sheraton Apparels (supra), a decision which has also been followed by the learned AM in the present appeals. The learned AM has also referred to the order of the Tribunal in the group case of Rupesh Bholidas Patel (supra) and in para 13 of his order has held that since it is a case of the same group and the facts and circumstances of the assessees’ cases are similar to those in the case before the Tribunal, he would draw support for his view from the said order. The learned JM does not appear to have referred to the order of the Tribunal in the case of Rupesh Bholidas Patel (supra). Since a view has already been taken as to the availability of the immunity under Expln. 5(2) to s. 271(1)(c) by an order of the Ahmedabad Bench, that too in a case belonging to the same group and after referring to the judgement of the Madras High Court in S.D.V. Chandru’s case (supra), judicial discipline requires that I should not deviate from that view, I accordingly uphold the view of the learned AM that the immunity under the above explanation is not available to the present assessees.
12. The Statement of Objects and Reasons to the Taxation Laws (Amendment and Miscellaneous Provisions) Bill, [(1986) 161 ITR (St) 63], and the Circular No. 469, [(1987) 59 CTR (St) 9 : (1986) 162 ITR (St) 21] to which my attention was drawn do not advance the case of the assessees. The Statement of Objects and Reasons says that the amendment was being made “to remove an anomaly in the existing provisions in respect of cases where penalty is imposable for concealment of income even if the taxpayer has no intention to fabricate evidence or to conceal his undisclosed income after search and seizure”. The anomaly and the remedial amendment made are explained by the above circular in the following words :
“As per the existing Expln. 5 to s. 271(1) of the IT Act, if at the time of search, assets which are not recorded in the books of account are found, a taxpayer is liable to penalty for concealment even if he declares the full value of those assets as his income in the return filed after the search. This provision has been found to operate even in cases where the assessee has no intention to fabricate any evidence and he includes in his return the income out of which such assets have been acquired. Hence, by the Amending Act, it has been provided that if an assessee in such cases makes a statement during the course of the search admitting that the assets found at his premises or under his control have been acquired out of his income which has not been disclosed so far in his return income to be furnished before the expiry of time prescribed in cl. (a) or (b) of s. 139(1) and specifies in the statement the manner in which such income has been derived, and pays the taxes that are due thereon, no penalty shall be leviable.” [pp. 38 and 39 of 162 ITR (St.)]
The above circular explaining the amendment shows that the benefit of immunity conferred by the Expln. 5(2), as amended by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986 w.e.f. 10th Sept., 1986, is confined to the return for the year in respect of which the previous year is yet to end or even though ended, the time for filing the return under s. 139(1) is yet to expire. In the present case, the search took place on 4th Sept., 2003. In respect of the asst. yr. 2003-04, for which the previous year would have ended on 31st March, 2003, the return under s. 139(1) would be due latest by 31st Oct., 2003. In respect of all the earlier years, needless to add, the due dates for filing returns under s. 139(1) would have ended much earlier. Returns were filed by the assessees after the search, in response to notices issued under s. 153A, on 31st May, 2004. The additional income declared in these returns do not fall under the category of the return mentioned in Expln. 5(2) to s. 271(1)(c). Therefore, the assessees are not entitled to the immunity from penalty.
13. I accordingly agree with the view taken by the learned AM on this aspect of the matter and hold that the immunity is not available to the assessees under Expln. 5(2) to s. 271(1)(c).”
18. In view of this, since the assessee has filed returns after the search and has not disclosed the income in the original return, the Explanation 5 to section 271(1)(c) cannot give immunity to the assessee.
19. The assessee, during the course of argument, made an alternate plea that the case can be considered under Explanation 1. The Explanation 1 to Section 271(1)(c) is as under: –
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.”
20. According to the assessee he has given an explanation that the modus operandi, source of income was explained and accordingly filed the return of income only to buy peace and avoid litigation. However, there is no explanation why the income earned by way of speculation profit was not disclosed in the original return. Provisions of section 153A are similar in nature to the provisions of section 148 as far as calling for return and completion of assessment procedures are concerned. One of the contentions raised was that the original return filed gets abated and the assessee gets immunity as the returned income and assessed income are same as far as return under section 153A is concerned. According to the second proviso to section 153A assessment or reassessment, if any, relating to any assessment year falling within a period of six assessment years pending on the date of initiation of search under section 132 or making of requisition under section 132A shall only abate. However, in this case no assessment or reassessment proceedings are pending on the date of search, hence, the original return filed has to be taken into consideration. When compared to the original return already filed and the return filed in response to notice under section 153A, the fact which arises was that the assessee had offered an additional income of Rs.40,00,000/- as speculation profit, without disturbing the capital gains working. There is no explanation given why this speculation profit was not offered at the time of filing original return. In view of the facts of the case, we are of the opinion that Explanation 1 to Section 271(1)(c) can not be invoked as there is no bonafide explanation given why this income was not disclosed at the time of filing original return. Since the assessee disclosed additional income consequent to the search and seizure proceedings, we are of the opinion that the A.O. and the CIT(A) are correct in levying penalty, even though the reasons are different. We uphold the orders and accordingly reject the grounds raised by the assessee in this regard.
21. In the result, appeal of the assessee is dismissed.
Order pronounced in the open court on 16th July 2010.