No penalty if Declaration is made under section 132(4) by duly substantiating manner in which such undisclosed income was derived; including those undisclosed income in the return filed under section 153A and the payment of taxes is done thereon

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No penalty if Declaration is made under section 132(4) by duly substantiating manner in which such undisclosed income was derived; including those undisclosed income in the return filed under section 153A and the payment of taxes is done thereon

Short Overview  Where assessee duly disclosed  transactions reflected in seized dairies in the returns filed pursuant to notice under section 153A  and paid taxes thereon, all the three conditions for claiming immunity from levy of penalty were duly complied with by  assessee and hence, no penalty could be levied under section 271(1)(c) in view of explanation-5, clause-2 thereto.

During search at assessee|s premises certain dairies were found which admittedly contained certain transactions of undisclosed income. In the statement recorded under section 132(4) accepted to the contents of the dairies and related undisclosed income reflected thereon by duly substantiating the manner in which such undisclosed income was derived by him. AO framed assessment under section 153A and levied penalty as regards undisclosed income unearthed during search.

 It is held that Undisputed, assessee had duly disclosed  transactions reflected in seized dairies in the returns filed pursuant to notice under section 153A  and paid taxes thereon. Hence, all the three conditions for claiming immunity from levy of penalty viz. declaration made under section 132(4) by duly substantiating manner in which such undisclosed income was derived; including those undisclosed income in the return filed under section 153A and the payment of taxes thereon were duly complied with by assessee and hence, case of assessee fell within Explanation-5, Clause-2 of section 271(1)(c) and, therefore, no penalty was leviable.

Decision: In assessee’s favour.

Followed:  Samson Perinchery  ITA No. 1154/2014, dated 5-1-2017 : 2017 TaxPub(DT) 672 (Bom-HC).

IN THE ITAT, MUMBAI BENCH

C.N. PRASAD, J.M. & M. BALAGANESH, A.M.

Jayant B. Patel HUF v. Dy. CIT

ITA Nos. 4619, 4620, 4621, 4622, 4623, 4624 & 4625/Mum/2018

13 July, 2020

Assessee by: V. Chandrashekhar, Advocate

Revenue by: Ms. Samadha Mullamudi, Sr Authorised Representative

ORDER

Per Bench

These appeals in ITA No. 4619/Mum/2018, ITA No. 4620/Mum/2018, ITA No. 4621/Mum/2018, ITA No. 4622/Mum/2018, 4623/Mum/2018 & 4624/Mum/2018 & 4625/Mum/2018 for assessment year 2001-02, 2002-03, 2003-04, 2004-05, 2005-06, 2006-07 & 2007-08 respectively arise out of the order by the learned Commissioner (Appeals)-48, Mumbai in Appeal Nos. Commissioner (Appeals)-48/I.T-42, 44 & 48/DC CC2(3)/2017-18, Commissioner (Appeals)-48/I.T-43, 45,46 & 47/DC CC2(3)/2017-18, dated 14-6-2018, 31-5-2018 (learned Commissioner (Appeals) in short) in the matter of imposition of penalty under section 271(1)(c) read with section 274 & 271(1)(c) respectively of the Income Tax Act, 1961. Also include the details of assessment year 2007-08.

  1. At the outset, the learned Authorised Representative submitted that the only effective issue involved in all these appeals is as to whether the learned Commissioner (Appeals) was justified in confirming the levy of penalty under section 271(1)(c) of the Act in the facts and circumstances of the case. He also submitted that assessment year 2001-02 being the first year in search assessment be taken up as the lead case. The learned Departmental Representative also agreed for the same. Hence, with the consent of both the parties, appeal for the assessment year 2001-02 is taken as the lead case and taken up for adjudication.
  2. We have heard rival submissions and perused the materials available on record. We find that there was a search under section 132 of the Act in the case of Shri Jayant B Patel and persons connected with him on 10-1-2007 in the premises of Cliffton society, Juhu. Pursuant to the search, notices under section 153A of the Act were issued to the assessee for all the assessments years commencing from assessment year 2001-02 onwards. It is not in dispute that at the time of search, certain dairies numbered as A-1 to A-6 in the panchanama, dated 10-1-2007 were found which admittedly contained certain transactions of undisclosed income. The assessee during the course of search had given a declaration statement under section 132(4) of the Act accepting to the contents of the dairies and the related undisclosed income reflected thereon by duly substantiating the manner in which such undisclosed income was derived by him. It is not in dispute that the assessee had duly disclosed the transactions reflected in the said dairies in the returns filed pursuant to notice under section 153A of the Act and paid taxes thereon. Hence, all the three conditions for claiming immunity from levy of penalty viz. declaration made under section 132(4) of the Act by duly substantiating manner in which such undisclosed income was derived; including those undisclosed income in the return filed under section 153A of the Act and the payment of taxes thereon were duly complied with by the assessee in the instant case. Hence, the case of the assessee falls within the Explanation-5, Clause-2 of section 271(1)(c) of the Act wherein immunity from levy of penalty is squarely provided in the statute itself. We find that the learned assessing officer had levied the penalty as under for various assessment years :–
ITA No. AY On Income declared in return under section 153A as Gross Profit on Dairy Business On additions made by the assessing officer on transaction of Shares Total
4619 2001-02 311,899 167,407 479,306
4620 2002-03 320,484 NA 320,484
4621 2003-04 331,193 16,322 347,515
4622 2004-05 304,040 NA 304,040
4623 2005-06 310,361 NA 310,361
4624 2006-07 161,058 NA 161,058
4625 2007-08 Nil 119,610 119,610
TOTAL 17,39,035 3,03,339 20,42,374

3.1. From the above table read together with the provisions of Explanation-5 Clause-2 of section 271(1)(c) of the Act, it could be safely concluded that no penalty could at all be levied in the total sums of Rs. 17,39,035 as detailed in the aforesaid table for the assessment years 2001-02 to 2006-07 since the same represents the income disclosed by the assessee in the returns filed under section 153A of the Act, which would be eligible for immunity in terms of Clause-2 of Explanation-5 of section 271(1)(c) of the Act. Hence, we are in agreement with the argument advanced by the learned Authorised Representative that no penalty at all could be initiated in respect of the said sums disclosed by the assessee in the returns filed under section 153A of the Act.

3.2. The remaining penalty of Rs. 3,03,339 are levied as under :–

A.Y.2001-02 Rs. 1,67,407
A.Y.2003-04 Rs. 16,322
A.Y.2007-08 Rs. 1,19,610
TOTAL Rs. 3,03,339

3.3. We find from the perusal of the assessment order under section 143(3) read with section 153A of the Act, dated 16-12-2011 for the assessment year 2001-02 that the learned assessing officer while making three additions thereon had recorded his satisfaction as under :–

(a) Addition towards unexplained cash expenditure of Rs. 48,554–penalty initiated for concealment of income.

(b) Addition on account of bogus long-term capital gains of Rs. 5,14,965–penalty initiated for inaccurate particulars of income or concealment of income.

(c) Addition made towards agricultural income treating the same as bogus of Rs. 1,00,000–penalty initiated for inaccurate particulars of income or concealment of income.

3.4. Out of the aforesaid three additions, this Tribunal in the quantum appeal proceedings, had sustained addition towards bogus long term capital gain to the extent of Rs. 4,84,965 and addition towards unexplained cash expenditure to the tune of Rs. 24,248.

3.5. We find that the learned assessing officer had levied penalty for the assessment year 2001-02 by applying the Explanation-5 to section 271(1)(c) of the Act for the following three sums.–

(a) Undisclosed dairy sales found during the course of search reflected in the return filed under section 153A of the Act -Rs. 9,45,000
(b) Addition made towards bogus long term capital gain -Rs. 4,84,965
(c) Addition made towards unexplained cash expenditure -Rs. 24,248
TOTAL Rs. 14,52,219

3.6. We find that the learned assessing officer in page 3 in para 8 of his penalty Order, dated 31-7-2017 had mentioned in bold letters by supplying more emphasis thereon that the aforesaid three items would constitute undisclosed income of the assessee eligible for levy of penalty for furnishing inaccurate particulars of income (underlining and emphasis provided by us).

3.7. But we find that the learned assessing officer in para 12 of his penalty order had mentioned that the penalty is levied for both concealment of income as well as furnishing of inaccurate particulars of income by the assessee and accordingly, levied penalty of Rs. 4,79,306 for the assessment year 2001-02. The break-up of the said penalty is as under:–

Penalty for income disclosed in the return filed under section 153A of the Act -Rs. 3,11,899
Penalty for additions made in the 153A assessment -Rs. 1,67,407
TOTAL Rs. 4,79,306

3.8. We find that the learned Authorised Representative has also placed on record the copy of the show-cause notice issued under section 274 of the Act read with section 271(1)(c) of the Act, dated 16-12-2011 for the assessment year 2001-02 wherein, we find that the learned assessing officer had not struck-off the relevant portion and had not specified the offence committed by the assessee i.e. whether the assessee has concealed his income or furnished inaccurate particulars of his income. With this factual background, the issue before us requires to be adjudicated.

  1. It could be seen that originally in the assessment order, the learned assessing officer vide para 7.2 and para 7.3 page 8 had recorded his satisfaction that penalty proceedings are being initiated separately under section 271(1)(c) of the Act for furnishing inaccurate particulars of income or concealment of income in respect of one addition and in respect of another addition penalty proceedings were initiated for concealment of income. But in the final penalty order vide para 8 thereon, he had recorded his satisfaction that penalty is leviable for furnishing inaccurate particulars of income. But again in para 12 of the same penalty order, the learned assessing officer states that penalty is levied for both concealment of income as well as furnishing of inaccurate particulars of income. This clearly shows the complete confused state of mind of the learned assessing officer and non-application of mind by the learned assessing officer by not clearly mentioning the specific offence committed by the assessee as to whether the assessee has concealed the particulars of his income or has furnished inaccurate particulars of his income. The divergent stand taken at the time of recording satisfaction in the assessment proceedings and at the time of framing of penalty order is very much evident from the aforesaid narration of facts. Hence, this is a classic case of both non-application of mind on the part of the learned assessing officer mentioning the specific offence and also initiating penalty on one limb of the alleged offence and levying penalty on the other limb of the alleged offence thereon. Hence, the ratio laid down by the Hon’ble Jurisdictional High Court in the case ofSamson Perinchery – ITA No. 1154/2014, dated 5-1-2017 : 2017 TaxPub(DT) 0672 (Bom-HC) squarely becomes applicable to the assessee’s case and respectfully following the said decision, the penalty levied for the assessment year 2001-02 in the sum of Rs. 1,67,407 deserves to be deleted.

4.1. The learned Departmental Representative vehemently placed reliance on the recent decision of the Hon’ble Bombay High Court in Ventura Textiles case in ITA No. 958/2017, dated 12-6-2020 : 2020 TaxPub(DT) 2582 (Bom-HC) by drawing specific reference to para 26 of the said decision thereon. The main crux of the said decision is that the Hon’ble Bombay High Court had held that even if the penalty notice does not mention the specific charge of offence committed by the assessee, if the learned assessing officer has duly recorded his satisfaction in the quantum assessment order itself, the assessee is completely made aware of the offence committed by him and also the mind of the learned assessing officer. Subsequently, if the penalty is levied by the learned assessing officer on the very same limb for which satisfaction was recorded in the quantum assessment order, then the penalty levied would be sustainable in the eyes of law and cannot be struck down merely because there is a defect in the penalty notice. In other words, the Hon’ble Bombay High Court had observed that in the case of Ventura Textiles, the assessee was duly informed about the specific limb on which penalty is initiated by way of proper satisfaction recorded in the quantum assessment order. We find that this decision of Hon’ble Bombay High Court in the case of Ventura Textiles cannot be made applicable to the facts of the instant case and it is factually distinguishable as is evident from the aforesaid narration of facts.

4.2. We hold that the decision of Hon’ble Jurisdictional High Court in the case of CIT v. Samson Perinchery in ITA No. 1154/2014, dated 5-1-2017 : 2017 TaxPub(DT) 0672 (Bom-HC) would hold the field in the facts of the instant case. Respectfully following the said decision, the penalty levied for assessment year 2001-02 is hereby directed to be deleted.

  1. Hence we hold that in respect of penalties levied for the additions made in the section 153A assessments, the decision rendered for assessment year 2001-02 for cancellation of penalty in the sum of Rs. 1,67,407 thereon would apply with equal force for deleting the penalties of Rs. 16,322 and Rs. 1,19,610 for the assessment years 2003-04 and 2007-08 respectively also, in view of the identical issue.
  2. To sum up, we hold

(a) No penalty under Explanation-5 to section 271(1)(c) of the Act could be levied in respect of undisclosed income found in the course of search but which were duly returned by the assessee in the return filed under section 153A of the Act together with compliance of other conditions submitted in Clause-2 of Explanation-5 to section 271(1)(c) of the Act which provides immunity to the assessee from levy of penalty. By this, the penalty levied for all the assessment years in the total sum of Rs. 17,39,035 is deleted.

(b) In respect of penalty on additions made during the course of assessments framed under section 153A of the Act for three assessment years i.e. assessment years 2001-02, 2003-04 and 2007-08, we hold that the same is deleted for recording improper satisfaction on the part of the learned assessing officer by not mentioning the specific offence committed by the assessee in the quantum assessment order and also for initiating penalty on one limb and levying penalty on the other limb of the alleged offence. By this, the penalty levied for three assessment years in the sum of Rs. 3,03,339 is deleted.

5.2. Accordingly, the grounds raised for all the assessment years are allowed.

  1. In the result, all the appeals of the assessee are allowed.
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