Gujarat H.C : Where Assessing Officer levied penalty under section 271AAA for default of not substantiating manner in which undisclosed income was earned, in view of fact that assessee developer had made statement that undisclosed income was earned by way of ‘on money’ received in its housing project and, moreover, assessee had paid due tax on said income, impugned penalty was unjustified

High Court Of Gujarat

Pr.CIT, Surat-2 vs. Swapna Enterprise

Section : 271AAA

Assessment Year: 2011-12

Ms. Harsha Devani And A.S. Supehia, JJ.

Tax Appeal No. 826 Of 2017

January 22, 2018

ORDER

Ms. Harsha Devani, J.- By this appeal under section 260A of the Income Tax Act, 1961 (hereinafter referred to as “the Act”), the appellant – revenue has challenged the order dated 10.4.2017 made by the Income Tax Appellate Tribunal, “B” Bench, Ahmedabad, (hereinafter referred to as “the Tribunal”) in ITA No.1355/Ahd/2014 by proposing the following two questions, stated to be substantial questions of law:—

“(A) Whether on the facts and in the circumstances of the case and in law, the Appellate Tribunal has erred in confirming the order of CIT(A) by ignoring the fact that the assessee has not fulfilled the conditions laid down u/s 271AAA?

(B) Whether on the facts and in the circumstances of the case and in law, the Appellate Tribunal can delete the penalty when the assessee has not fulfilled the conditions laid down u/s 271AAA as the assessee neither specified the manner of undisclosed income, not substantiated the manner in which the income was derived and not paid the tax while filing the return of income u/s 153A of the Act?”

2. The assessment year is 2011-12 and the corresponding accounting period is 1.4.2010 to 31.3.2011.

3. The assessee firm was engaged in the business of development of housing projects. Search and seizure proceedings came to be carried out under section 132 of the Act at the business as well as residential premises of the assessee. During the course of search, a statement of one of the partners of the firm, namely, Shri Alpeshbhai G. Kotadia came to be recorded on 20.1.2011 under section 132(4) of the Act, wherein he had admitted Rs.15 crore as undisclosed income on oath. A notice under section 142(1) of the Act was issued to the assessee, in response to which, the assessee furnished return of income on 29.9.2011 declaring total income of Rs.17,11,33,110/- for the year under consideration. The Assessing Officer observed that during the course of assessment, the assessee was asked to substantiate the income of Rs.15 crore offered by it, which was admitted as undisclosed income in the statement of Shri Alpeshbhai G. Kotadia. During the course of search action, the assessee was also asked for the manner in which the income was derived.

The assessee having failed to substantiate the manner in which the undisclosed income was derived, the Assessing Officer levied penalty of Rs.15 lakh at the rate of 10% of the undisclosed income admitted to Rs.15 crore under section 271AAA of the Act. The assessee carried the matter in appeal before the Commissioner (Appeals), who, by an order dated 12.2.2014, deleted the penalty. The revenue went in appeal to the Tribunal, but did not succeed.

4. Mrs. Kalpana Raval, learned senior standing counsel for the appellant assailed the impugned order by submitting that neither of the three conditions required to avail of immunity from penalty under section 271AAA of the Act, as laid down under sub-section (2) of the said section, have been satisfied in the present case. Reiterating the grounds set out in the memorandum of appeal, it was submitted that the assessee has failed to specify (i) the manner in which the income was derived, (ii) to substantiate the manner in which the undisclosed income was derived, and (iii) to pay the tax together with interest on such undisclosed income. It was submitted that, therefore, the Tribunal was not justified in confirming the order passed by the Commissioner (Appeals) in deleting the penalty imposed upon the respondent.

5. A perusal of the order passed by the Commissioner (Appeals) reveals that during the course of search action under section 132 of the Act, a statement of Shri Alpeshbhai Kotadia, partner of the assessee firm was recorded under section 132(4) of the Act, wherein he admitted that the pages of diary BS-1 found and seized, contained entries of taxable income of Rs.15 crore relating to various firms which were not recorded in the books of accounts. Out of Rs.15 crore, an amount of Rs.8.10 crore was disclosed in the case of the assessee firm. It had also been admitted by Shri Kotadia that the pages of the diary which was found and seized, contained entries of net taxable income which had not been recorded in the books of accounts, and hence, the said unaccounted income was offered for taxation. It was further the case of the assessee that the authorised officer did not ask any question regarding the manner in which the undisclosed income was derived nor had he sought any evidence for substantiating the manner of earning the undisclosed income. The Commissioner (Appeals), after appreciating the material on record, has found that Shri Kotadia, during the course of recording of his statement, had clearly explained that the unaccounted income represented net taxable income of the projects undertaken by the assessee firm. In the statement it has been clearly explained that the details mentioned in the diary represented net taxable income for the projects and during the course of assessment proceedings, the assessee had filed relevant details in this regard. No evidence was found to show that the assessee had earned the undisclosed income from any other source instead of the projects income. The Commissioner (Appeals) on the basis of the aforesaid findings recorded by him found that the first condition as prescribed under clause (i) of sub-section (2) of section 271AAA of the Act was fulfilled in the case of the assessee, as the manner of earning the undisclosed income has clearly been stated by Shri Kotadia, the partner of the assessee firm. As regards clause (ii) of sub-section (2) of section 271AAA of the Act, the Commissioner (Appeals) has observed that the undisclosed income of Rs.8.10 crore was admitted by Shri Alpeshbhai Kotadia in his statement under section 132(4) of the Act, the basis of which was a diary found and seized during the course of search. The diary contained the entries of the unaccounted/undisclosed income of Rs.8.10 crore belonging to the assessee firm which had been explained by Shri Kotadia while recording his statement. Such undisclosed income has been accepted by the Assessing Officer in the assessment proceedings and hence, the Commissioner (Appeals) was of the view that the second condition also stands satisfied.

6. As regards the third condition as envisaged in clause (iii) of sub-section (2) of section 271AAA of the Act, the Commissioner (Appeals) has noted that the tax together with interest if any, in respect of undisclosed income should be paid by the assessee for getting immunity from the penalty. The Assessing Officer has stated in the penalty order itself that full tax including interest on the undisclosed income had been paid by way of adjustment out of seized cash or otherwise in response to notice of demand but before conclusion of penalty proceedings. The Commissioner (Appeals) has placed reliance upon the decision of this High Court in the case of CIT v. Mahendra C. Shah [2008] 172 Taxman 58 /299 ITR 305 and has held that there is no time limit fixed in the Act for payment of tax on income disclosed and hence, this condition was also satisfied. In the light of the fact that the assessee had satisfied all the three conditions set out in sub-section (2) of section 271AAA of the Act, the Commissioner (Appeals) deleted the penalty.

7. The Tribunal, in the impugned order, has recorded that in this case in the assessment order, the Assessing Officer himself did not dispute that during the course of search, it was admitted by Shri Kotadia that the income was earned by accepting on-money in its building project “Green City”. Thus, the manner in which the income was derived has been disclosed. It was also pointed out that the undisclosed income was received by the assessee as on-money and hence, the Commissioner (Appeals) was justified in deleting the penalty.

8. Thus, insofar as satisfaction of clause (i) and clause (ii) of sub-section (2) of section 271AAA of the Act is concerned, both the Commissioner (Appeals) as well as the Tribunal have recorded concurrent findings of fact that Shri Kotadia, during the course of recording of his statement at the time of the search, had stated that the income was earned by accepting on-money in its building project. Therefore, the manner in which the income had been derived has been clearly specified in the statement made by Shri Kotadia. Insofar as substantiating the manner in which the undisclosed income was derived is concerned, the Tribunal has recorded that it had been pointed out that the undisclosed income was received by the assessee as on-money. It is not the case of the appellant that during the course of recording of the statement of Shri Kotadia any specific questions had been asked to substantiate the manner in which the income was derived. Thus, it cannot be said that the findings recorded by the Commissioner (Appeals) and the Tribunal regarding satisfaction of clauses (i) and (ii) of sub-section (2) of section 271AAA of the Act suffers from any legal infirmity.

9. Insofar as satisfaction of clause (iii) of sub-section (2) of section 271AAA of the Act is concerned, a perusal of the penalty order reveals that the entire amount of tax and penalty had been paid by 30th July, 2010, whereas the assessment order has been made on 22.3.2013. Admittedly, therefore, the entire amount of tax and interest had been paid, prior to making of the assessment order. This court in Mahendra C. Shah (supra), has, in the context of Explanation 5 to sub-section (1) of section 271(1) of the Act, held that there is no prescription as to the point of time when the tax has to be paid qua the amount of income declared in the statement made under section 132(4) of the Act. There would be sufficient compliance with the provision if tax is shown to have been paid before the assessment was completed.

10. Explanation 5 to section 271(1) of the Act provides that where in the course of a search initiated under section 132 before the 1st day of June, 2007, the assessee is found to be the owner or money, bullion, jewellery etc and the assessee claims that such assets have been acquired by him by utilizing (wholly or in part) his income for any previous year as provided there under, then, not withstanding 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 penalty under clause (c ) of sub-section (1) of that section, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income. The Explanation further provides for two exceptions to such deeming of concealment of particulars and furnishing of inaccurate particular. The second exception, inter alia provides that “if the assessee pays the tax, together with interest if any, in respect to such income”, he shall be entitled to be excepted from the rigours of the Explanation.

11. A conjoint reading of the provisions of clause (iii) of sub- section (2) of section 271AAA of the Act and Explanation 5 to section 271(1) of the Act shows that the language employed in the second exception under Explanation 5 to section 271(1) is, “pays the tax together with interest, if any, in respect of such income” and clause (iii) of sub-section (2) of section 271AAA of the Act employs the language “pays the tax, together with interest, if any, in respect of the undisclosed income”. Thus, the language employed in both the sections is similar. Therefore, the Tribunal as well as the Commissioner (Appeals) were wholly justified in applying the principles enunciated by this High Court in Mahendra C. Shah’s case (supra) while interpreting the provisions of sub-section (2) of section 271AAA of the Act. Accordingly, the assessee has also satisfied the third condition laid down under sub-section (2) of section 271AAA of the Act. The Tribunal was, therefore, wholly justified in upholding the deletion of penalty under section 271AAA of the Act.

12. In the light of the above discussion, there being no infirmity in the impugned order passed by the Tribunal, no question of law, as proposed, or otherwise, can be said to arise. The appeal, therefore, fails and is, accordingly, summarily dismissed.

[Citation : 401 ITR 488]