IT: No penalty can be levied under section 271(1)(c) for concealment of income, where search was completed before end of relevant previous year
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[2013] 35 taxmann.com 180 (Hyderabad - Trib.)
IN THE ITAT HYDERABAD BENCH 'A'
Dineshkumar Ambalal Patel
v.
Assistant Commissioner of Income-tax, Circle -4(1)*
SMT. P. MADHAVI DEVI, JUDICIAL MEMBER
AND B. RAMAKOTAIAH, ACCOUNTANT MEMBER
AND B. RAMAKOTAIAH, ACCOUNTANT MEMBER
IT APPEAL NOS. 1429 & 1430 (HYD.) OF 2012
[ASSESSMENT YEARS 2008-09 & 2009-10]
[ASSESSMENT YEARS 2008-09 & 2009-10]
MAY 24, 2013
Section 271(1)(c), read with section 271AAA, of the Income-tax Act, 1961 - Penalty - For concealment of income [Explanation 5A] - Assessment years 2008-09 and 2009-10 - Whether, since Explanation 5A to section 271(1)(c) can be invoked where search ended after end of relevant previous year, penalty for concealment of income could not be levied where search occurred on 26-3-2008 for assessment year 2008-09, as previous year has not ended before date of search - Held, yes - Whether, therefore, where search ended before end of relevant previous year and was initiated on or after 1-6-2007 but before 1-7-2012, penalty was leviable under section 271AAA and not under section 271(1)(c) - Held, yes [Paras 9 and 12][Partly in favour of assessee]
FACTS
| ■ | A search was completed on the assessee on 26-3-2008 for the assessment year 2008-09, wherein cash was seized. The assessee filed return which was accepted, except for a small addition due to certain mistake. | |
| ■ | Thereafter, the Assessing Officer initiated proceedings under section 271(1)(c). The assessee contended that since it had filed the return consequent to the admission of the amount seized, and its admitted incomes had been accepted by the department, the case did not fall within the purview of section 271(1)(c). | |
| ■ | However, the Assessing Officer, not accepting the contentions of the assessee, invoked Explanation 5A to section 271(1)(c) and levied penalty at 300 per cent. | |
| ■ | On first appeal the assessee contended that Explanation 5A to section 271(1)(c) was not applicable. Relying on certain case laws, it admitted to levy of penalty under section 271AAA. The Commissioner (Appeals) however confirmed the penalty. | |
| ■ | On second appeal: |
HELD
| ■ | There is no dispute with reference to the fact that the amounts ultimately accepted by the Assessing Officer in the assessments were almost the same as that of the amounts admitted by the assessee in the returns, except for a small amount added in assessment year 2008-09. Coming to the issue of levy of penalty, assessee's contention that Explanation 5A does not apply to the facts of the case is correct. Where any search has been initiated under section 132 on or after 1-6-2007 but before 1-7-2012 and the impugned income pertained to any previous year which has ended before the date of search or where the assessee has not declared the impugned income in return filed before the date of search or due date for furnishing the return for the relevant previous year has expired and the assessee has not filed the return, then only Explanation 5A can be invoked. ThisExplanation applies to the assets or income which was found to be not declared or accounted pertaining to any year; the previous year ended before search and in the return it was not declared or return was not filed. As noted above, in the present case, the event relevant for assessment year 2008-09, leading to the seizure of cash occurred on 26-3-2008 during the year and the previous year has not ended, as it would end after the date of search, viz., on 31-3-2008, which is relevant for assessment year 2008-09. Therefore, for the assessment year 2008-09, search occurred during the accounting year. Explanation 5A does not apply as the situations specified therein are not applicable to the facts of this case. Likewise for the assessment year 2009-10 also, the seizure was within the financial year, which ended on 31-3-2009 and therefore, the provisions ofExplanation 5A do not apply, as the previous year has not ended before the date of search. The assessee's contention that provision ofExplanation 5A to section 271(1)(c) does not apply has to be accepted in view of the specific provisions of the said Explanation. [Para 9] | |
| ■ | On the contrary, the provision of section 271AAA, as contended by the assessee, are applicable. Having regard to Explanation to section 271AAA, the assessee's case is totally outside the purview of section 271(1)(c) and falls within the purview of provisions of section 271AAA. The same position was reiterated by the coordinate bench of the Tribunal in the case of Dy. CIT v. Satish M. Patel [IT Appeal No. 256 (Ahd.) of 2012, dated 20-7-2012] and the said decision relied upon by the assessee clearly applies to the facts of the present case. [Paras 10 and 11] | |
| ■ | Therefore having same opinion, that having seized cash during the previous years, which have not ended before the date of search, only provisions of section 271AAA will apply and not provisions of section 271(1)(c) Explanation 5A, as invoked by the Assessing Officer and confirmed by the Commissioner (Appeals). [Para 12] | |
| ■ | Keeping in view of the above discussion, it is opined that penalty under section 271(1)(c) is not warranted, more so at 300 per cent, when the admitted incomes were accepted in assessment for the years under appeal. Assessing Officer wrongly initiated proceedings under section 271(1)(c). In the course of proceedings before the Commissioner (Appeals) as well as before Tribunal, the assessee submitted that he has no objection, if the penalty is confirmed at 10 per cent under the provisions of section 271AAA even though no proceedings under that section were initiated, assessee would accept the penalty, if confirmed to that extent. [Para 13] | |
| ■ | Keeping in view all these facts, request of the assessee is accepted and the Assessing Officer is directed to modify the orders accordingly levying penalties under section 271AAA, working out the same at 10 per cent for each of the years under appeal, as per that provision. |
CASE REVIEW
Dy. CIT v. Satish M. Patel [IT Appeal No. 256 (Ahd) of 2012, dated 20-7-2012] (para 11) followed.
CASES REFERRED TO
Dy. CIT v. Satish M. Patel [IT Appeal No. 256 (Ahd.) of 2012, dated 20-7-2012] (para 11).
V. Siva Kumar for the Appellant. Dayasagar for the Respondent.
ORDER
B. Ramakotaiah, Accountant Member - These two appeals are by the assessee against the orders of the CIT(A) V, Hyderabad dated 31.7.2012 for the assessment years 2008-09 and 2009-10, levying penalties under S.271(1)(c) worked out at 300% by the Assessing Officer, confirmed by the CIT(A).
2. Briefly stated, the appellant is a resident of Kolwada Village in Vijapur Taluka of Mehsana District of Gujarat and is carrying on the 'Angadia' business. The employees of the assessee were detained by the Task Force of the Police, as they were carrying large amount of cash and the case was handed over to the IT department and searches were completed on 26.03.2008, wherein cash of Rs.24,04,000 was found with three persons stated to be employees of the assessee. Out of this amount, Rs.9,54,000 was claimed to belong to three persons, who were verified and monies were released. The balance cash of Rs.14,50,000 was seized vide Panchnama dated 26.3.2008. Subsequently, again on 30.04.2008, three employees of the assessee were detained by the police and cash of Rs.25,02,500 was retained to the extent of Rs.23,52,500 vide panchnama dated 30.4.2008. The DDIT(Inv) Unit II(2) recorded a statement from the assessee on 21.5.2008 and the CIT Gandhinagar notified the assessee's case to the Assessing Officer Range-4, Hyderabad, vide order dated 16.10.2008 under S.127(2) of the Income-tax Act, 1961. The assessee vide affidavit dated 16th day of February, 2008 placed before the IT authorities at Gujarat, requested for transfer of proceedings to Gujarat, as it would be undue burden to attend the proceedings at Hyderabad. The assessee also volunteered to initiate action under S.153C of the Act in respect of cash seized in the case of the deponent and requested to drop the formality of action under S.153A in the case of the assessee. He also vide letter dated 16.10.2008 addressed to Dy. Director of Income tax(Inv.) Unit II, Hyderabad, filed before the Assessing Officer at Mehsana requested the transfer of seized cash or appropriate the same towards taxes. The assessee filed returns for the assessment years 2008-09 and 2009-10, as the seizure of cash pertained to different assessment years and the assessments were finalized accepting the incomes admitted therein, except for making a small addition of Rs.31,770 for assessment year 2008-09 due to certain mistake.
3. The Assessing Officer initiated proceedings under S.271(1)(c) of the Act and in the proceedings issued show cause letter to the assessee. The assessee contested the same on the reason that S.271(1)(c) proceedings did not arise, as the assessee admitted incomes and filed returns consequent to seizure of the amount, and its admitted incomes have been accepted by the Department. It was submitted that the case does not fall within the purview of S.271(1)(c). However, the Assessing Officer did not accept the contentions of the assessee, and invoking Explanation 5A to S.271(1)(c) of the Act, levied penalty at 300% of Rs.13,15,200 for assessment year 2008-09 and Rs.20,75,940 for assessment year 2009-10.
4. Before the CIT(A), it was contended that Explanation 5A to the provisions of S.271(1)(c) do not apply to the facts of the case and relying on various case-law alternately admitted for levy of penalty under S.271AAA. The learned CIT(A) vide the detailed order for the assessment year 2008-09, however rejected the contentions of the assessee, and confirmed the penalty, ultimately stating as under-
"7.5 As if the aforementioned action of the department in seizing the cash and conducting investigations was not enough, the appellant still did not come out with truth. He stated that he had filed a return of income voluntarily and there was no concealment of income. He stated he had voluntarily filed returns of income through RPAD for AY 2008-09 on 02.03.2009 and for AY 2009-10 on 13.7.2009 declaring disclosed income well before the initiation of search asst. proceedings. This claim was also found to be incorrect as no return had ever been received by any income tax office pertaining to the above so called RPADs. Obviously, the appellant had never filed any returns of income as stated and had merely managed to obtain some RPAD numbers from somewhere to further hoodwink the revenue. This act of the appellant convincingly shows the working of his mind where he firstly organizes a well planned and elaborate unaccounted business and even after getting caught, does not admit to the truth but further tries to create a web of false evidence. It is to be noted that the search had taken place and the amount was seized on 26.3.2008 almost one year before the alleged returns are supposed to have been filed. Therefore, there is no question of any voluntariness as stated by the appellant.
7.6 From the above facts and circumstances and keeping in view the case-law discussed, I find that the case of the appellant is fit for imposition of penalty under section 271(l)(c) of the Act. The conduct of the appellant in keeping such a elaborate and deceitful system of unaccounted business coupled with his attempt to create further false evidence even after getting caught reveals an unrepentant mind and an undying attempt at falsity and tax evasion. This is definitely a case of fraud coupled with gross and willful tax evasion. This is a fit case for imposing a t1igher penalty than 100%. I full agree with the Assessing Officer that the maximum penalty should be imposed on a person who creates and sustains such a well planned activity of unaccounted and hawala business. The penalty imposed is accordingly confirmed."
5. The assessee field written submissions contesting the orders of the CIT(A) and the learned counsel reiterated the said submissions. It was submitted that the assessee was associated with Angadia business and his employees were detained in Hyderabad and cash was seized from them, which was admittedly belongs to the assessee. After return of the amount, for which there were claims, by the Department, the assessee owned up the rest of the amount, and filed returns accordingly. Countering the observation of the CIT(A) regarding filing of the returns, it was submitted that the assessee is a resident of Gujarat and filed letters before the authorities at Mehsana, affidavit with the IT authorities at Mehsana and further, sent the returns by post for which acknowledgements were placed on record. It was submitted that in the proceedings when the Assessing Officer did not receive any return, assessee filed the same copy, which was sent to the Assessing Officer by RPAD and referred to the copy of the return to submit that the verification as signed at Place Kolwada and date of verification was 2.3.2009, which was accepted by the Assessing Officer. Therefore, it was submitted that the observation of the CIT(A) that reliance cannot be placed on the so called sending of return by RPAD is not correct. Further, the learned counsel also explained the provisions of S.271(1)(c) and Explanation 5A invoked by the Assessing Officer to submit that this provision does not apply, whereas the case falls under S.271AAA of the Act. It was fairly submitted that as the assessee has waived the proceedings of assessment to be initiated directly under S.153C and also has not objected if penalty was confirmed under S.271AAA, the request which was made before the CIT(A) as well, which is not accepted.
6. The learned Departmental Representative however, relied on the orders of the Assessing Officer and the CIT(A) and reiterated the Revenue's stand.
7. We have considered the issue and the rival contentions. There is no dispute with reference to the fact that the amounts ultimately accepted by the Assessing Officer in the assessments were almost the same as that of the amounts admitted by the assessee in the returns, except for a small amount of Rs.31,770 added in assessment year 2008-09. It is also not in dispute that the assessee is a resident of Kolwada Village of Mehsana District in Gujarat and on seizure through his employees on respective dates, the assessee had to file the returns at Hyderabad, consequent to assigning the jurisdiction to the Assessing Officer at Hyderabad by the CIT Gujarat. It is also not in dispute that the assessee's returns were sent by post and has furnished evidence of dispatching them by post before the authorities.
8. Even though the acknowledgement given by the postal authorities in respect of the return for assessment year 2008-09 was dated 2.3.2009, and there were other acknowledgments also of various letters addressed to CIT, Ahmedabad, Director General of Income tax, Ahemdabad, Assitant Commissioner Aayakar Bhavan, Hyderabad etc. on the reason that there was overwriting on this acknowledgement, the learned CIT(A) in our opinion, came to a wrong conclusion that the despatch of return by that date as incorrect. If the returns were received, but have not been placed on record by the Assessing Officer, it is not the fault of the assessee, as the same Assessing Officer accepted the returns filed with the same date and completed the assessment proceedings, even though the date of the filing of the returns was stated to be 29.10.2010. Be that as it may, as seen from the sequence of events, the cash seizure was on 26.3.2008 and 30.4.2008 from the employees of the assessee and after returning an amount of Rs.9,54,000, the balance amounts were seized by the authorities. The assessee requested for jurisdiction of filing the returns in Gujarat, which was not accepted and were assigned to the Assessing Officer at Hyderabad. Therefore, in the given circumstances, explanation given by the assessee that he has sent the returns by RPAD waiving the right to be initiated correct proceedings, has to be accepted as genuine explanation. Subsequently also, there were no other additions, except for a small addition due to typographical error and the assessments were completed, with out any other addition. Therefore, assessee's explanation that returns were originally filed in March, 2009, which were again filed in October, 2010 can be accepted and to that extent, we are of the view that the finding of the CIT(A) is not correct. It is also to be noted that no enquiry was conducted by the CIT(A) for coming to the conclusion as stated in paras 7.5 quoted above.
9. Coming to the issue of levy of penalty, assessee's contention that Explanation (5A) does not apply to the facts of the case is correct. Explanation 5A to S.271(1)(c) reads as under-
"Explanation 5A.- Where, in the course of a search initiated under section 132 on or after the 1st day of June, 2007, the assessee is found to be the owner of-
| (i) | any money, bullion, jewellery or other valuable article or thing (hereafter in this Explanation referred to as assets) and the assessee claims that such assets have been acquired by him by utilising (wholly or in part) his income for any previous year; or | |
| (ii) | any income based on any entry in any books of account or other documents or transactions and he claims that such entry in the books of account or other documents or transactions represents his income (wholly or in part) for any previous year, |
which has ended before the date of search and,-
| (a) | where the return of income for such previous year has been furnished before the said date but such income has not been declared therein; or | |
| (b) | the due date for filing the return of income for such previous year has expired but the assessee has not filed the return, |
then, notwithstanding that such income is declared by him in any return of income furnished on or after the date of search, he shall, for the purposes of imposition of a penalty under clause (c) of sub-section (1) of this section, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income."
As can be seen from the above, where any search has been initiated under S.132 of the Act on or after 1.6.2007 but before 1.7.2012 and the impugned income pertained to any previous year which has ended before the date of search or where the assessee has not declared the impugned income in return filed before the date of search or due date for furnishing the return for the relevant previous year has expired and the assessee has not filed the return, then only Explanation 5A can be invoked. This explanation applies to the assets or income which was found to be not declared or accounted pertaining to an year the previous year ended before search and in the return it was not declared or return was not filed. As noted above, in the present case, the event relevant for assessment year 2008-09, leading to the seizure of cash occurred on 26.3.2008 during the year and the previous year has not ended, as it would end after the date of search, viz. on 31.3.2008, which is relevant for assessment year 2008-09. Therefore, for the assessment year 2008-09, search occurred during the accounting year. Explanation 5A does not apply as the situations specified there in are not applicable to the facts of this case. Likewise for the assessment year 2009-10 also, the seizure was within the financial year, which ended on 31.3.2009 and therefore, the provisions of Explanation 5A do not apply, as the previous year has not ended before the date of search. The assessee's contention that provision of Explanation 5A to S.271(1)(c) does not apply has to be accepted in view of the specific provisions of the said Explanation.
10. On the contrary, the provision of S.271AAA, as contended by the assessee, are applicable. The said provisions read as under-
"Penalty where search has been initiated.
| 271AAA. | (1) The Assessing Officer may, notwithstanding anything contained in any other provisions of this Act, direct that, in a case where search has been initiated under section 132 on or after the 1st day of June, 2007 but before the 1st day of July, 2012, the assessee shall pay by way of penalty, in addition to tax, if any, payable by him, a sum computed at the rate of ten per cent of the undisclosed income of the specified previous year. |
(2) Nothing contained in sub-section (1) shall apply if the assessee,-
| (i) | in the course of the search, in a statement under sub-section (4) of section 132, admits the undisclosed income and specifies the manner in which such income has been derived; | |
| (ii) | substantiates the manner in which the undisclosed income was derived; and | |
| (iii) | pays the tax, together with interest, if any, in respect of the undisclosed income. |
(3) No penalty under the provisions of clause (c) of sub-section (1) of section 271 shall be imposed upon the assessee in respect of the undisclosed income referred to in sub-section (1).
(4) The provisions of sections 274 and 275 shall, so far as may be, apply in relation to the penalty referred to in this section.
Explanation. For the purposes of this section,-
| (a) | "undisclosed income" means- |
| (i) | any income of the specified previous year represented, either wholly or partly, by any money, bullion, jewellery or other valuable article or thing or any entry in the books of account or other documents or transactions found in the course of a search under section 132, which has- |
| (A) | not been recorded on or before the date of search in the books of account or other documents maintained in the normal course relating to such previous year; or | |
| (B) | otherwise not been disclosed to the Chief Commissioner or Commissioner before the date of search; or |
| (ii) | any income of the specified previous year represented, either wholly or partly, by any entry in respect of an expense recorded in the books of account or other documents maintained in the normal course relating to the specified previous year which is found to be false and would not have been found to be so had the search not been conducted; |
| (b) | "specified previous year" means the previous year- |
| (i) | which has ended before the date of search, but the date of filing the return of income under sub-section (1) of section 139 for such year has not expired before the date of search and the assessee has not furnished the return of income for the previous year before the said date; or | |
| (ii) | in which search was conducted." |
11. Having regard to the meaning of the terms 'undisclosed income', 'Specified previous year' as defined in Explanation to S.271AAA, the assessee's case is totally outside the purview of S.271(1)(c) and falls within the purview of provisions of S.271AAA. The same position was reiterated by the coordinate Bench of the Tribunal (Ahmedabad 'A' Bench) in the case of Dy. CIT v. Satish M. Patel in ITA No.256/Ahd/2012 vide order dated 20.07.2012, and the said decision relied upon by the assessee clearly applies to the facts of the present case. In that case also, the facts are that for assessment year 2009-10, the assessee admitted income of Rs.35,53,000 from purchase and sale of land consequent to search conducted on 24.09.2008, when the penalty was levied under S.271(1)(c), the learned CIT(A) deleted the penalty, and the same was confirmed by the Tribunal with the following observations-
"7. We have heard the learned DR and carefully perused the material on record. It is evident from the order of the learned AO that search was conducted on 24-09-2008. Looking at the provisions of section 271AAA of the Act it becomes abundantly clear that where search has been initiated u/s 132 of the Act, on or after 01-06-2007, section 271AAA comes into play while as section 271(1) ( c) is barred by virtue of section 271AAA sub section (3). Section 271AAA sub section (1) and (3) are reproduced herein below for reference:
Penalty where search has been initiated.
| 271AAA. | (1) The Assessing Officer may, notwithstanding anything contained in any other provisions of this Act, direct that, in a case where search has been initiated under section 132 on or after the 1st day of June, 2007, the assessee shall pay by way of penalty, in addition to tax, if any, payable by him, a sum computed at the rate of ten per cent of the undisclosed income of the specified previous year. |
(3) No penalty under the provisions of clause (c) of sub-section (1) of section 271 shall be imposed upon the assessee in respect of the undisclosed income referred to in sub-section (1)."
8. It is clear from the above that the learned AO has not invoked the correct provisions of law for levying the penalty. In this case search was conducted in the premises of the assessee on 24-09-2008, thus the date of initiation of search was on 24-09-2008. From the provisions of Section 271AAA it is clear that in the case where action U/s 132 is initiated on or after 01/06/2007, penalty cannot be levied U/s 271 (1)(c)of the Act. Penalty can be levied only U/s. 271AAA of the Act when certain conditions stipulated therein is not complied. Therefore, we do not have any option than to confirm the order of the learned CIT(A) deleting the penalty levied by the learned AO."
12. Respectfully following the above proposition, we are also of the same opinion that having seized cash during the previous years, which have not ended before the date of search, only provisions of S.271AAA will apply and not provisions of S.271(1)(c) Explanation 5A, as invoked by the Assessing Officer and confirmed by the CIT(A).
13. Keeping in view the above discussion, we are of the opinion that penalty under S.271(1)(c) is not warranted, more so at 300%, when the admitted incomes were accepted in assessment for the years under appeal. Assessing officer wrongly initiated proceedings under 271(1)(c). In the course of proceedings before the CIT(A) as well as before us, the learned counsel submitted that assessee has no objection, if the penalty is confirmed at 10% under the provisions of S.217AAA even though no proceedings under that section were initiated, assessee would accept the penalty, if confirmed to that extent. Keeping in view the affidavit filed before the authorities, waiving his right to be initiated under S.153A/153C in the assessment proceedings, and also the submissions before us, we modify the penalties levied by the Assessing Officer under S.271(1)(c), as that of penalty under S.271AAA and direct the Assessing Officer to levy penalty at 10% of the amount of income brought to tax for both the years. This order, however, cannot be taken as a precedent in all the cases, and this modification is made, considering the express request of the assessee in order to curtail unnecessary proceedings, as he is not available in Hyderabad being a resident of Gujarat. Keeping in view all these facts, request of the assessee is accepted and the Assessing Officer is directed to modify the orders accordingly levying penalties under S.271AAA, working out the same at 10% for each of the years under appeal, as per that provision.
14. In the result, both the appeals of the assessee are treated as partly allowed.
ESHARegards
Prarthana Jalan
__._,_.___
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