• "Reasons" and "conclusions" are two different things and "reasons" must show mental exercise of authorities in arriving at particular conclusion. It is not enough for the AO to merely state his "satisfaction" i.e. conclusion that conditions attracting penalty u/s 271AAA are satisfied. The AO should also state his "reasons" for the 'conclusion'/'satisfaction'. CIT is also not justified in dismissing assessee's revision application against the penalty by simply affirming AO's order without examining whether conditions stated in section 271AAA for imposing penalty were satisfied and without recording any reasons.
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[2014] 41 taxmann.com 474 (Allahabad)
HIGH COURT OF ALLAHABAD
Crossings Infrastructure (P.) Ltd.
v.
Commissioner of Income-tax (Central)
SUDHIR AGARWAL, J.
WRIT TAX NO. 539 OF 2013
JANUARY 15, 2014
S.D. Singh, Ravi Kant and S.P. Nigam for the Petitioner. Shambhoo Chopra for the Respondent.
ORDER
1. Heard Sri Ravi Kant, learned Senior Advocate, assisted by Sri S.P. Nigam, learned counsel for petitioner; and learned Standing Counsel and Sri Shambhoo Chopra, learned counsel for respondents.
2. This writ petition is directed against the order dated 29.6.2011 passed by Assistant Commissioner, Income Tax, Central Circle, Meerut (hereinafter referred to as "ACIT"), i.e., respondent no. 2, under Section 271 of Income Tax Act, 1961 (hereinafter referred to as "Act, 1961") imposing a penalty of Rs. 1,46,69,958.40 upon petitioner and the revisional order dated 28.3.2013 passed by Commissioner of Income Tax (Central), Tilak Nagar, Kanpur Nagar (hereinafter referred to as "CIT"), i.e., respondent no. 1 dismissing petitioner's revision and confirming ACIT's order dated 29.6.2011.
3. The facts in brief giving rise to dispute in the present writ petition are as under.
4. Petitioner M/S Crossing Infracture Private Limited is engaged in business of real estate, developer, builder and colonizer. A search and seizure operation held on 6.2.2009 at petitioner's premises and its subsidiary companies under Section 132 of Act, 1961 in which valuable and documents/ papers were seized by Search Team. During the Course of search, petitioner made a statement under Section 132(4) of Act, 1961 offering income of Rs. 60 crore for assessment year 2009-10 (financial years 2008-09). The details of such offer are as under:
| Tentative trading results | 35 crores |
| Transaction of Sale/purchase of land | 23.47 crores |
| Other income | 1.53 crore |
Copy of the said statement is on record as Annexure 1 to this writ petition.
5. Petitioner, thereafter filed returns of income in compliance of notice under Section 142 (1) of Act, 1961 declaring total income of Rs. 46,38,04,798/-. The department issued notice dated 24.12.2010 requiring petitioner to show cause as to why he filed return of Rs. 46.38 crores instead of 60 crores as stated in his statement under Section 132 (4) of Act, 1961, during the course of search and seizure.
6. Petitioner on 26.12.2010 submitted a revised return declaring total income of Rs. 61,05,04,382/- and then submitted reply on 27.12.2010 to the notice dated 24.12.2010.
7. The respondent no. 2 passed order dated 30.12.2010 accepting returned income filed in terms of revised return and assessed total income of petitioner Rs. 61,05,04,382/-. The additional income of Rs. 14,66,99,584/- was taken by ACIT as an addition to original return of Rs. 46,38,04,798/- in assessment order dated 30.12.2010. It also provided for imposition of penalty under Section 271 (1) (c) and 271AAA of Act, 1961. Consequently a notice under Section 271 AAA was issued by ACIT on 13.6.2011 which was replied by petitioner and thereafter ACIT passed order dated 29.6.2011 (Annexure 11 to the writ petition), one of the impugned orders in this writ petition, whereagainst petitioner preferred Revision which has been dismissed by CIT, vide another impugned order dated 28.3.2013.
8. Sri Ravi Kant, learned Senior Advocate, contended that penalty under Section 271AAA of Act, 1961 could not have been imposed upon petitioner since he has complied with all the requirements under Sub-section (2) of Section 271AAA of Act, 1961 and once those conditions are complied with, no penalty can be imposed under Sub-section (1) thereof for the reason that Sub-section (2) overrides Sub-section (1). He further contended that in the present case, Assessee pleaded and placed entire facts on record to show that all the three requirements of Sub-section (2) of Section 271AAA of Act, 1961 have been complied with, but respondents 1 and 2 in a cursory manner have rejected it by observing that petitioner has failed to substantiate one of those conditions without giving any reason therefor and in this respect impugned orders, besides being otherwise illegal, are also bad for want of reasons. He placed reliance on Apex Court's decision in Assistant Commissioner of Income Tax v. Gebilal Kanhailal [2012] 348 ITR 561 andCommissioner of Income Tax, Indore v. Suresh Chandra Mittal [2003] 11 SCC 729 whereby the Court affirmed Madhya Pradesh High Court's decision in CIT v. Suresh Chandra Mittal [2000] 241 ITR 124 (MP HC).
9. Per contra, Sri Shambhoo Chopra, learned counsel appearing for Revenue, contended that it is not the mere compliance of one or two conditions of Sub-section (2) of Section 271AAA of Act, 1961, but if the compliance is not satisfactory and shows that Assessee has followed a mischievous conduct, penalty would be justified and Sub-section (2) of Section 271AAA of Act, 1961 would not be attracted in such contingency. He placed before this Court the impugned orders passed by authorities below as also Apex Court's decision in Mak Data Private Limited v. Commissioner of Income Tax[2013] 358 ITR 593 (SC) and a Division Bench judgment of Delhi High Court in Shourya Towers P. Ltd. v. Deputy Commissioner of Income Tax[2013] 359 ITR 523 (Delhi).
10. It would be appropriate at this stage to have a glance over Section 271AAA (1) (2) and (3) of Act, 1971, which read as under:
"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)."
11. Section 271AAA itself has been inserted in the statute by Finance Act, 2007 (hereinafter referred to as "Act, 2007") with effect from 1.4.2007. Sub-section (1) provides for imposition of penalty in addition to tax, if any, payable by an Assessee at the rate of 10 per cent of the undisclosed income of specified previous year. Sub-section (2) is an exception to such liability of penalty provided Assessee has complied with certain requirements as detailed in Clause (i), (ii) and (iii) of Sub-section (2) and if that has been done, Sub-section (2) states that Sub-section (1) shall not apply to such an Assessee. Sub-section (2) enable an Assessee to absolve himself from the liability of penalty under Sub-section (1), after observing/complying with certain requisites in the course of search and seizure and thereafter:
| (1) | Assessee must have admitted, in the statement under Section 132 (4) of Act, 1961, undisclosed income; and, must also have specified the manner in which such income has been derived, | |
| (2) | Assessee must also substantiate the manner in which undisclosed income was derived, i.e., must adduce adequate material to support the manner in which undisclosed income was derived by him which he has specified, if any, in his statement under Section 132 (4); and, | |
| (3) | Assessee pays tax together with interest, if any, in respect to undisclosed income. |
12. If all these steps have been taken by Assessee, besides saving liability of penalty under Section 271AAA (1), he would also himself save from another penalty under Section 271 (a) (c). Sub-section (3) further provides that no penalty under Clause (c) of Sub-section (1) of Section 271 shall be imposed upon Assessee in respect to undisclosed income referred to in Sub-section (1) if Sub-section (2) stands complied.
13. Therefore, when the steps provided in Sub-section (2) of Section 271AAA are observed by Assessee, besides the fact, he shall absolve himself from the liability of penalty under Sub-section (1) of Section 271AAA, he will also legally escape from liability of penalty under Section 271 (1) (c) in respect to undisclosed income vide Sub-section (3) of Section 271AAA.
14. In the present case, for the assessment year 2009-10, petitioner had not filed regular return since the search and seizure operation was conducted on 6.2.2009 itself i.e. during the continuance of the Assessment Year concerned. In his statement under Section 132(4) of Act, 1961, he stated that the estimated tentative income on assumptive basis would be around 35 crore, but offered tax to an aggregate sum of Rs. 60 crores. He also claims to have specified the manner in which such income was derived and adduced documents to substantiate manner in which undisclosed income was derived.
15. It is true that in the regular return, which he filed for Assessment Year 2009-10, he disclosed income of Rs. 46.38 crore and odd (i.e., less than 60 crores, as admitted in his statement under Section 132(4) of Act, 1961) but then he filed a revised return after sometime, in which returned income was shown as Rs. 61 crores and odd. It is not in dispute that the entire amount of tax together with interest on the aforesaid income has been paid by petitioner.
16. Further, though it is true that no separate reply was submitted by petitioner to the notice issued by ACIT, but it is admitted that a reply was submitted by petitioner before notice dated 13.6.2011, i.e., 11.3.2011 and that reply itself was relied on and reiterated during the course of hearing before ACIT which took place pursuant to notice dated 13.6.2011. Therein he pleaded all facts to demonstrate compliance of Sub-section (2) of Section 271AAA but in the order passed by ACIT, I find that instead of looking on this aspect, it has mainly relied on the fact that revised return was filed by Assessee after a notice was issued to him on 24.12.2010 and since initial return itself was belated one, it could not have been revised. The ACIT has observed that above conduct shows that Assessee has not acted in a bona fide manner as alleged, in filing initial return with lessor income, hence is liable for penal proceedings. He is not entitled for any benefit by virtue of filing mere revised return.
17. Coming to requirement of conditions under Section 271AAA of Act, 1961, the ACIT has only said this much "I am satisfied the assessee has deliberately concealed the particulars of its income to the extent of Rs. 14,66,99,584/- (610504382-463804798) added as the assessee has not fulfilled the conditions as per the provision of section 271AAA by not paying taxes on total undisclosed income and substantiated the manner in which such undisclosed income was derived; and admitted the total undisclosed income and specified the manner in which such income has been derived for filing return as stated in the Assessment order".
18. Except of recording his own satisfaction, i.e. conclusion that the conditions under Section 271AAA of Act, 1961 have not been complied with, ACIT himself has not discussed as to how and in what manner, conditions have not been complied. Moreover, ACIT has referred to the assessment order which is also on record as Annexure-6 but a careful perusal thereof also could not show at all as to in which part of the said order, ACIT has discussed about the factum, whether conditions under Sub-section (2) of Section 271AAA of Act, 1961 have been observed and satisfied by Assessee or not except of saying that penalty notice under Section 271 (1) (c) and 271AAA be issued separately. There is no discussion with respect to Section 271AAA in the entire assessment order.
19. In the revisional order also CIT has affirmed ACIT's order without looking into these fact whether conditions under 271AAA (2) of Act, 1961 have been complied with or not.
20. Though no direct authority with reference to Section 271AAA (2) of Act, 1961 has been placed before this Court, but parties have placed authorities with reference to Section 271(1) (c), Explanation 5 (2) of Act, 1961. Section 271 also deals with the cases where an Assessee has failed, to furnish return, comply with notice and is guilty of concealment of income etc., and the penalty, he is liable to incur, for such lapses. However, Explanation 5 (2) thereof is in the nature of exception absolving an Assessee from liability of penalty and Clause 5 (2) relevant for the purpose of present case, reads as under:
"Explanation 5.- 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 of 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,-
| (a) | for any previous year which has ended before the date of the search, but the return of income for such year has not been furnished before the said date or, where such return has been furnished before the said date, such income has not been declared therein ; or | |
| (b) | for any previous year which is to end on or after the date of the search, then, notwithstanding 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 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, unless,- |
(1) ...
(2) he, in the course of the search, makes a statement under sub-section (4) of section 132 that any money, bullion, jewellery or other valuable article or thing found in his possession or under his control, 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 also specifies in the statement the manner in which such income has been derived and pays the tax, together with interest, if any, in respect of such income."
21. Section 271AAA and Explanation 5 (2) of Section 271 (1) (c) came to be considered before Apex Court in Assistant Commissioner of Income Tax v. Gebilal Kanhailal (supra). The Court said that it provides, where, in the Course of search under Section 132, the Assessee, found to be owner of unaccounted assets, claims that such assets have been acquired by him by utilizing, wholly or partly, his income for any previous year which has ended before the date of search or which is to end on or after the date of search, then in such a situation, notwithstanding that such income is declared by him in any return of income furnished on or after the date of search, he shall be deemed to have concealed particulars of his income for the purpose of imposition of penalty, but there are two exceptions to such deeming provision or to such a presumption of concealment which are given in sub-clauses (1) and (2) of Explanation (5). Referring to Clause (2) of Explanation 5, the Court said that three conditions have to be satisfied by the Assessee for claiming immunity for payment of penalty thereunder. The Court then said:
"The first condition was that the assessee must make a statement under section 132(4) in the course of search stating that the unaccounted assets and incriminating documents found from his possession during the search have been acquired out of his income, which has not been disclosed in the return of income to be furnished before expiry of time specified in section 139(1). Such statement was made by the Karta during the search which concluded on 1-8-1987. It is not in dispute that condition No.1 was fulfilled. The second condition for availing of the immunity from penalty under section 271(1)(c) was that the assessee should specify, in his statement under section 132(4), the manner in which such income stood derived. Admittedly, the second condition, in the present case also stood satisfied. According to the Department, the assessee was not entitled to immunity under clause (2) as he did not satisfy the third condition for availing the benefit of waiver of penalty under section 271(1)(c) as the assessee failed to file his return of income on July 31, 1987, and pay tax thereon particularly when the assessee conceded on August 1, 1987 that there was concealment of income. The third condition under clause (2) was that the assessee had to pay the tax together with interest, if any, in respect of such undisclosed income. However, no time limit for payment of such tax stood prescribed under clause (2). The only requirement stipulated in the third condition was for the assessee to "pay tax together with interest". In the present case, the third condition also stood fulfilled. The assessee has paid tax with interest up to the date of payment. The only condition which was required to be fulfilled for getting the immunity, after the search proceedings got over, was that the assessee had to pay the tax together with interest in respect of such undisclosed income up to the date of payment. Clause (2) did not prescribe the time limit within which the assessee should pay tax on income disclosed in the statement under section 132(4)."
22. Considering the question, whether Assessee can be denied such benefit and held liable for penalty, if instead of making declaration on his own, he has done so by virtue of a revised return, and, that too, after queries etc. made by revenue, A Division Bench of Madhya Pradesh High Court in CIT v.Suresh Chandra Mittal (supra) said:
" … though it is true that the assessee had not surrendered at all and that he had done so on the persistent queries made by the Assessing Officer, but once the revised assessment was regularised by the Revenue and once the assessing authority had failed to take any objection in the matter, the declaration of income made by the assessee in his revised returns and his explanation that he had done so to buy peace with the Department and to come out of vexed litigation could be treated as bona fide in the facts and circumstances of the case. Therefore, the Tribunal was justified in cancelling the penalty levied by the Assessing Officer and affirmed by the Commissioner of Income-tax (Appeals) in the facts and circumstances of the case. This reference is accordingly answered in the affirmative holding that the Tribunal was justified in doing so."
23. The aforesaid judgment has been confirmed by Apex Court by dismissing appeal, and the order of dismissal of appeal is reported in 2003 (11) SCC 729.
24. In Mak Data Private Limited v. CIT (supra) there is no case set up by Assessee that he complied with the conditions provided in exception clause of Explanation 5 so as to escape from the liability of penalty. Therein, there was only a disclosure by Assessee of his concealed income but other conditions were not observed and at least the judgment does not show that those conditions were complied with, so as to attract the Exception clauses (1) and (2) of Explanation (5). The aforesaid judgment, in my view, would not help Revenue in any manner.
25. Similarly in Shourya Towers P. Ltd. (supra) also, the Court found that Assessee has not filed return declaring undisclosed income and, therefore, immunity against penalty cannot be granted. This is evident from following observations made by the Division Bench in the judgment:
"In the instant case, leaving aside the mode of acquisition of income, even the return was not filed of the entire income before the search was made. Thus, immunity under this explanation cannot be granted to the assessee."
26. Further the Court said in para 13 of the judgment, as under:
"Therefore, this Court is of the opinion that the "escape route", provided by Clause (2) to Explanation 5 in this case, was not available to the assessee. It has to be reiterated that the said provision is available, not merely when the assessee, in his statement offers or surrenders, to tax the amount in question which is later assessed, but also complies with the other conditions, of having filed the return.
27. It is, thus, a case where conditions specified in Explanation 5 Sub-clauses (1) and (2) were not observed, hence the question of immunity thereunder would not have arisen.
28. In the present case, at this stage, I do not propose to hold whether petitioner, as a matter of fact, has complied with all the conditions or not since on this aspect, after going through the impugned orders, I'm of the view that authorities below have not at all discussed the matter, except of recording their conclusion by reiterating the language of Sub-section (2) of 271AAA of Act, 1961 and saying that the same have not been complied with. It is well established that "reasons" and "conclusions" are two different things and "reasons" must show mental exercise of authorities in arriving at a particular conclusion.
29. In Union of India v. Mohan Lal Kapoor [1973] 2 SCC 836, as under:
"Reasons are the links between the materials on which certain conclusions are based and the actual conclusions. They disclose how the mind is applied to the subject matter for a decision whether it is purely administrative or quasi-judicial. They should reveal a rational nexus between the facts considered and the conclusions reached."
30. Referring to the above case law, Apex Court in Gurdial Singh Fijji v. State of Panjab & Ors [1979] 2 SCC 368 in para 18 said:
"We may also indicate, since the High Court saw the file and discovered that the appellant was not brought on the Select List because he was "not found suitable otherwise", that regulation 5 which deals with the preparation of a list of suitable officers provides by Clause 7 that "if in the process of selection, review or revision it is proposed to supersede any member of the State Civil Service, the Committee shall record its reasons for the proposed supersession". While dealing with an identical provision in Clause 5 of regulation 5 of the same Regulations as they stood then, this Court observed in Union of India v. Mohan Lal Capoor and Ors. [1973] 2 SCC 836 that "rubber-stamp" reasons given for the supersession of each officer to the effect that the record of the officer concerned was not such as to justify his appointment "at this stage in preference to those selected", do not amount to "reasons for the proposed supersession" within the meaning of Clause 5. "Reasons", according to Beg J. (with whom Mathew J. concurred) "are the links between the materials on which certain conclusions are based and the actual conclusions". The Court accordingly held that the mandatory provisions of regulation 5(5) were not complied with by the Selection Committee. That an officer was "not found suitable" is the conclusion and not a reason in support of the decision to supersede him. True, that it is not expected that the Selection Committee should give anything approaching the judgment of a Court, but it must at least state, as briefly as it may, why it came to the conclusion that the officer concerned was found to be not suitable for inclusion in the Select List. In the absence of any such reason, we are unable to agree with the High Court that the Selection Committee had another "reason" for not bringing the appellant on the Select List."
31. The Apex Court in the case of Uma Charan v. State of Madhya Pradesh & Anr. AIR 1981 SC 1915 said:
"Reasons are the links between the materials on which certain conclusions are based and the actual conclusions. They disclose how the mind is applied to the subject matter for a decision whether it is purely administrative or quasi-judicial. They should reveal a rational nexus between the facts considered and the conclusions reached. Only in this way can opinions or decisions recorded be shown to be manifestly just and reasonable".
32. In Mc Dermott International Inc. v. Burn Standard Co. Ltd. & Ors. [2006] 11 SCC 181 Apex Court referring to Bachawat's Law of Arbitration and Conciliation, 4th Edn., pp. 855-56 in para 56 said:
"Reasons are the links between the materials on which certain conclusions are based and the actual conclusions..."
33. In Kranti Associates Private Limited & Anr. v. Masood Ahmed Khan & Ors. [2010] 9 SCC 496 Apex Court referring to the judgment inMohan Lal Kapoor (supra) in para 23 said:
"Such reasons must disclose how mind was applied to the subject-matter for a decision regardless of the fact whether such a decision is purely administrative or quasi-judicial. This Court held that the reasons in such context would mean the link between materials which are considered and the conclusions which are reached. Reasons must reveal a rational nexus between the two."
34. The Apex Court in Competition Commission of India v. Steel Authority of India Ltd. & Anr. JT 2010 (10) SC 26 in para 68 referring to the judgment in the case of Gurdial Singh Fijji (supra) said:
"Reasons are the links between the materials on which certain conclusions are based and the actual conclusions. By practice adopted in all courts and by virtue of judge- made law, the concept of reasoned judgment has become an indispensable part of basic rule of law and in fact, is a mandatory requirement of the procedural law. Clarity of thoughts leads to clarity of vision and therefore, proper reasoning is foundation of a just and fair decision."
35. Since, respondents no. 2 and 1 respectively have not looked into this aspect of the matter, therefore, in my view, let the matter be examined again by ACIT itself.
36. In the result, the writ petition is allowed. The impugned orders dated 29.6.2011 and 28.3.2013 are hereby quashed. Matter is remanded to respondent no. 2 to pass a fresh order in accordance with law and in the light of observations made above.
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