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[2013] 40 taxmann.com 516 (Mumbai - Trib.)
IN THE ITAT MUMBAI BENCH 'C'
Deputy Commissioner of Income-tax, Cen. Cir. 20
v.
Purnandu Jain*
I.P. BANSAL, JUDICIAL MEMBER
AND N.K. BILLAIYA, ACCOUNTANT MEMBER
AND N.K. BILLAIYA, ACCOUNTANT MEMBER
IT APPEAL NOS. 1679 & 1680 (MUM.) OF 2012
[ASSESSMENT YEARS 2004-05 & 2006-07]
[ASSESSMENT YEARS 2004-05 & 2006-07]
SEPTEMBER 23, 2013
Section 271(1)(c), read with section 69B, of the Income-tax Act, 1961 - Penalty - For concealment of income [Explanation 5] - Assessment years 2004-05 and 2006-07 - A search was conducted at premises of assessee and assessee offered a certain sum as his undisclosed income for earlier years - Said return was accepted and assessment was framed under section 153A - However, Assessing Officer levied concealment penalty in respect of additional income and he held that benefit of Explanation 5 could not be extended to assessee as additional income related to earlier years - Commissioner (Appeals) held that concealment penalty could not be levied as per Explanation 5 to section 271(1)(c) - Madras High Court in CIT v. SDV Chandru [2004] 266 ITR 175/136 Taxman 537 had dealt with said issue and held that where assessee had not disclosed his income in return filed for previous years which had ended prior to date of search, and in statement given under section 132(4), assessee admits a receipt of undisclosed income for those years and also specifies manner in which such income had been derived, and thereafter pays tax on that undisclosed income with interest, such undisclosed income would get immunized from levy of penalty - Whether in view of said decision, which had persuasive value, no error was committed by Commissioner (Appeals) in deleting concealment penalty - Held, yes [Para 6.1] [In favour of assessee]
FACTS
| ■ | A search was conducted at premises of assessee and assessee offered a certain sum as additional income for earlier years. The assessment was framed under section 153A, accordingly. | |
| ■ | However the Assessing Officer levied concealment penalty and he held that benefit of Explanation 5 cannot be extended to assessee as additional income related to earlier years. | |
| ■ | On appeal, the Commissioner (Appeals), had allowed benefit of Explanation 5 to the assessee. | |
| ■ | On second appeal, the department submitted that the Commissioner (Appeals) had erred in coming to a conclusion that provisions of Explanation 5 could also be applied to earlier years as the said interpretation would be contrary to the Instruction No. 1882, dated 5-6-1991 issued by CBDT. Further it was pleaded that benefit of Explanation 5 was available only to the year in which a return had not been filed so far since the period of filing of the return under section 139(1) had not expired. |
HELD
| ■ | The issue as to whether or not the benefit of clause (2) of the aforementioned Explanation can be given to the assessee in respect of the years in respect of which return of income have already been filed under section 139(1) in addition to the assessment year for which the period for filing return under section 139(1) has not been expired was considered by the Madras High Court in the case of CIT v. SDV Chandru [2004] 266 ITR 175/136 Taxman 537. | |
| ■ | It held that in cases where the assessee had not disclosed his income in the return filed for previous year which have ended prior to date of search, and in the statement given under section 132(4), the assessee admits a receipt of undisclosed income for those years and also specifies manner in which such income had been derived, and thereafter pays tax on that undisclosed income with interest, such undisclosed income would get immunized from levy of penalty. [Para 6] | |
| ■ | The construction of the provisions of Explanation 5 put-forth by the department on the basis of Instruction No.1882 is totally contrary to the decision of Madras High Court. These instructions are issued by CBDT on 5-6-1991 while the decision rendered by the Madras High Court is dated 9-12-2003. It was only argued that instructions issued by the CBDT are in the nature of contemporanea expositio. Such contention of the department has no force. | |
| ■ | The law on this issue is very much clear that wherever question regarding interpretation of a provision is applicable, the interpretation adopted by the Court will have a preference over the interpretation given by the CBDT. Therefore, this contention of the department has to be rejected particularly in view of the fact that the department could not cite any decision of any Court by which the aforementioned view of CBDT is supported. Where two interpretations are possible, levy of concealment penalty is not justified. Even according to law of precedence, the decision rendered by the Madras High Court, in absence of decision of jurisdictional High Court on the issue will have persuasive value and view has been taken after considering the relevant provisions. Accordingly, the Commissioner (Appeals) did not commit any error in deleting the penalty by following the aforementioned decision of the Madras High Court and penalty cannot be sustained on the interpretation of provisions adopted by the CBDT. [Para 6.1] |
CASE REVIEW
CIT v. SDV Chandru [2004] 266 ITR 175/136 Taxman 537 (Mad.) (para 6) followed.
CASES REFERRED TO
Sheraton Apparels v. Asstt. CIT [2002] 256 ITR 20/123 Taxman 238 (Bom.) (para 3), CIT v. SDV Chandru [2004] 266 ITR 175/136 Taxman 537 (Mad.) (para 3), K.P. Varghese v. ITO [1981] 131 ITR 597/7 Taxman 13 (para 4), CIT v. Thana Electricity Supply Ltd. [1994] 206 ITR 727 (Bom.) (para 4), Consolidated Pneumatic Tool Co. Ltd.v. CIT [1994] 209 ITR 277/[1995] 79 Taxman 458 (Bom.) (para 4), Dy. CIT v. Avinash CH Gupta [2011] 44 SOT 85 (Kol) (para 6), ACIT v. Neptune Constructions [IT Appeal Nos. 3165 and 3169 (Mum.) of 2008, dated 30-4-2010] (para 6), CCE v. Ratan Melting & Wire Industries [2008] 17 STT 103 (SC) (para 6.1), CIT v. Mahendra C. Shah [2008] 299 ITR 305/172 Taxman 58 (Guj.) (para 6.2) and CIT v. Radha Kishan Goel [2005] 278 ITR 454/[2006] 152 Taxman 290 (All.) (para 6.2).
Devendra A. Mehta for the Appellant. T. Roumuan Piate and S.D. Srivastava for the Respondent.
ORDER
I.P. Bansal, Judicial Member - Both these appeals are filed by the revenue. They are directed against two separate orders passed by Ld. CIT(A)-39, Mumbai dated 15/12/2011 for assessment years 2004-05 and 2006-07. Grounds of appeal read as under:
Grounds of Appeal in ITANo.1679/Mum/2012,A.Y.2004-05:
| "1. | On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in directing the Assessing Officer to delete the penalty levied u/s 271(1)(c) of the IT. Act with regards to the amount of Rs. 56,64,430/-. | |
| 2. | On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in not appreciating the fact that the assessee is not entitled to benefit of Explanation 5(2) to section 271(1)(c) of the I.T. Act for the earlier assessment years for which the due date for filing the return of income is over. | |
| 3. | The Appellant craves to leave to add, to amend and / or to alter any of the grounds of appeal, if need be. | |
| 4. | The appellant, therefore, prays that on the grounds stated above, the order of the CIT (A)-39, Mumbai may be set aside and that of the Assessing Officer restored. |
Grounds of Appeal in ITANo.1680/Mum/2012, A.Y.2006-07:
| "1. | On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in directing the Assessing Officer to delete the penalty levied u/s 271(1)(c) of the IT. Act with regards to the amount of Rs.4,17,85,000/- | |
| 2. | On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in not appreciating the fact that the assessee is not entitled to benefit of Explanation 5(2) to section 271 (1)(c) of the I.T. Act for the earlier assessment years for which the due date for filing the return of income is over. | |
| 3. | The Appellant craves to leave to add, to amend and / or to alter any of the grounds of appeal, if need be. | |
| 4. | The appellant, therefore, prays that on the grounds stated above, the order of the CIT (A)-39, Mumbai may be set aside and that of the Assessing Officer restored." |
2. A search was conducted at the premises of the assessee on 26/4/2007. Vide statement recorded under section 132(4) of the Income Tax Act,1961(the Act) on 27/4/2007 the assessee offered a sum of Rs.20.00 crores as additional income for and on behalf of various members of his family. The relevant portion of the statement is as follows:
"In total I am offering Rs.20 crores as additional income of companies as well as myself and family members. The assessee wise and respective assessment year wise break up of total income of Rs.20 crores as offered above, will be submitted later on after examining the seized materials, books of accounts and records and there may be variation in the quantum vis-a-vis the assessee. The total aggregate income as being offered as above will be Rs.20 crores.
The above disclosure will cover any discrepancies in hands of any of the companies/Individuals/HUF.
I am making above declaration on behalf of companies and also myself and my family members and my HUF as the case may be in order to obviate undue litigation and to buy peace provided no penalty and no prosecution proceedings are initiated."
2.1 The aforementioned offer was further confirmed in the statement recorded on 3/5/2007. The breakup of the aforementioned undisclosed income of Rs.20.00 crores was reflected in the return as follows:
| Ankur Drugs and Pharma Ltd. | 1,57,38,435/- |
| Shri Purnandu Jain (HUF) | 10,23,41,819/- |
| M/s. Purnandu Jain (HUF) | 3,96,13,096/- |
| Smt. Anupama Jain | 5,00,40,000/- |
| 20,77,33,350/- |
2.2 It is a sum of Rs.10,,23,41,819/-, the part of which was declared by the assessee in respect of assessment years 2004-05 and 2006-07 and such return filed by the assessee including aforementioned amount was accepted in the assessment framed under section 153A r.w.s. 143(3). For the purpose of clarification we may mention here that another amount of Rs.11,38,050/- was also added by the AO in A.Y 2004-05 which was offered by the assessee during the course of assessment proceedings and in the impugned grounds department has not shown its grievance regarding deletion of penalty on the amount of Rs.11,38,050/-
2.3 The AO levied concealment penalty on the income which was disclosed by the assessee in pursuance to return filed under section 153A. This is the case of the assessee that concealment penalty cannot be levied in view of Explanation - 5 to section 271(1)(c) of the Act and such case of the assessee has been accepted by Ld. CIT(A). The department is aggrieved and has field aforementioned grounds. The additions on which concealment penalty is deleted are a sum of Rs.56,64,430/- and Rs.4,17,85,000/- for A.Ys 2004-05 and 2006-07 respectively.
3. Ld. CIT(A) has deleted the penalty firstly by distinguishing the decision of Hon'ble Bombay High Court in the case of Sheraton Apparels v. Asstt. CIT [2002] 256 ITR 20/123 Taxman 238, which was applied by the AO to levy the penalty. Ld. CIT(A) after taking note of the relevant portion of the decision of Hon'ble Bombay High Court has to come to a conclusion that the said decision was totally on different issue as the issue considered therein was that the entries recorded in the diary was to be considered as entry recorded in the books of account and such contention of the assessee was turned down by the Hon'ble Bombay High Court and it was held that personal diary cannot be considered as books of account, therefore, assessee is not entitled for benefit available under Explanation -5 of section 271(1)(c). Secondly, the issue raised by the AO was that benefit of Explanation -5 cannot be extended to assessee as additional income related to earlier years. Such contention of AO has been turned down by Ld. CIT(A) on the basis of Hon'ble Madras High Court in the case of CIT v. SDV Chandru [2004] 266 ITR 175/136 Taxman 537, wherein after considering the provisions of Explanation -5 of section 271 (1)(c) their Lordships have come to a conclusion that benefit of Explanation - 5 to section 271(1)(c) will also be available in respect of earlier years prior to date of search. The department is aggrieved with such finding recorded by Ld. CIT(A) and has filed aforementioned grounds of appeal.
4. After narrating the facts it was submitted by Ld. CIT DR that CIT(A) has erred in coming to a conclusion that provisions of Explanation -5 can also be applied to earlier years as the said interpretation taken by Ld. CIT(A) will be contrary to the Instruction No.1882 dated 5/6/1991 issued by CBDT. He has placed before us a copy of the said instruction and it was pleaded that benefit of Explanation -5 is available only to the year in which a return had not been filed so far since the period of filing of the return under section 139(1) had not expired. It was submitted that the decision of Hon'ble Madras High Court relied upon by Ld. CIT(A) is contrary to the aforementioned instruction. It was further submitted that the said instruction having not been brought to the notice of Hon'ble Madras High Court, the decision of Hon'ble Madras High Court should not be followed as the instruction issued by CBDT apart from being binding on the revenue authorities are clearly in the nature of contemporanea expositio furnishing legitimate aid in the construction of section as per decision of Hon'ble Supreme Court in the case of K.P. Varghese v. ITO [1981] 131 ITR 597/7 Taxman 13. It was further submitted that decision of Hon'ble Madras High Court is a non-jurisdictional High Court decision, therefore, not binding on Mumbai Tribunal and reference in this regard was made to CIT v. Thana Electricity Supply Ltd. [1994] 206 ITR 727 (Bom.), according to which the decision of non Jurisdictional High Court is not binding on Courts or Tribunal outside its own territorial jurisdiction. At best it may have only pursuing the effect. Ld.CIT DR further referred to the decision of Hon'ble Bombay High Court in the case of Consolidated Pneumatic Tool Co. Ltd. v. CIT [1994] 209 ITR 277/[1995] 79 Taxman 458, wherein it has been held that judgment of one High Court is not binding on Tribunal in another State. It was further submitted that in view of Instruction No.1882 dated 5/6/1991, no two views were possible. There being no ambiguity in the provision, therefore, interpretation laid down in the aforementioned instruction should have been followed Ld. CIT DR submitted that Ld. CIT(A) has committed an error in granting the relief simply on the basis of decision of Hon'ble Madras High Court.
5. On the other hand, Ld. AR relying upon the order passed by Ld. CIT(A) pleaded that penalty has rightly been deleted. It was submitted that on the interpretation of a provision, CBDT view can be applied only when there is no ambiguity in the law. He submitted that interpretation of the provision done by Hon'ble High Court should be given preference over the interpretation adopted by CBDT.
6. We have heard both the parties and their contentions have carefully been considered. Before proceeding further it will be relevant to reproduce the provision of Explanation -5 to section 271(1)(c) of the Act.
"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) such income is, or the transactions resulting in such income are recorded,—
| (i) | in a case falling under clause (a), before the date of the search ; and | |
| (ii) | in a case falling under clause (b), on or before such date, |
in the books of account, if any, maintained by him for any source of income or such income is otherwise disclosed to the Chief Commissioner or Commissioner before the said date ; or
(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."
The issue arising in the present appeal is that where or not the benefit of clause (2) of the aforementioned explanation (hereinafter referred to as exception-2 for the sake of convenience) can be given to the assessee in respect of the years in respect of which return of income have already been filed under section 139(1) in addition to the assessment year for which the period for filing return under section 139(1) has not been expired. This issue was considered by Hon'ble Madras High Court of aforementioned decision in the case of SDV Chandru (supra). In the said case search was conducted at the premises of the assessee on 13/2/1990 and the issue was involving in respect of assessment year 1985-86 and 1986-87. The statement of the assessee under section 132(4) was recorded. Thereafter the assessee filed his return for earlier assessment years i.e. 1985-86 and 1986-87 and admitted larger income and also paid the tax together with interest. The AO had construed the clause (2) of Explanation-5 of section 271(1)(c) as being limited to the year of search and not applicable to earlier years. The Tribunal granted the relief to the assessee. Their Lordships after considering the aforementioned provisions have come to the conclusion that while clauses (a) and (b) make a clear distinction between previous year which is ended before the date of the search, and the previous year which is to end on or after the date of search, para-2 in Explanation-5 does not make any such distinction. It refers to the statement given by the assessee at the time of the search under section 132(4) with regard to assets found at the time of search being the statement to the effect that such assets have been acquired out his undisclosed income and specification by the assessee in such statement with regard to the manner in which such income had been derived, and the subsequent payment by the assessee of the tax on such undisclosed income together with interest. It is further observed that the words in para-2 "has been acquired out his income which has not been disclosed in the return of income to be furnished before the expiry of time specified in sub-section(1) of section 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 search. The words used are "income which has not been so far disclosed in his return of income". The additional words are referred to the time specified in section 139(1) are only a reiteration of the legal requirement regarding the time within which return should normally been filed. In cases where the assessee had not disclosed his income in the return filed for previous year which have ended prior to the date of search, and in the statement given under section 132(4), the assessee admit a receipt of undisclosed income for those years and also specifies the manner in which such income had been derived, and thereafter pays the tax on that undisclosed income with interest, such undisclosed income would get immunized from the levy of penalty. It is in this manner Hon'ble High Court has upheld the order of the Tribunal. The aforementioned decision has been followed in a number of decisions rendered by this Tribunal, copies of which have been field by Ld. AR in the paper book. These areDy. CIT v. Avinash CH Gupta [2011] 44 SOT 85 (Kol), Shyam Biri Works (P.) Ltd. v. Asstt. CIT [2001] 70 TTJ 880 (All.), ACIT v. Neptune Constructions , order dated 30/4/2010 in ITA No.3165/Mum/2008 and 3169/Mum/2008.
6.1 The construction of the provisions of Explanation -5 put-forth by Ld. DR on the basis of aforementioned Instruction No.1882 are totally contrary to the aforementioned decision of Hon'ble Madras High Court and the aforementioned decisions other Benches of ITAT. These instructions are issued by CBDT on 5/6/1991 when the decision rendered by Hon'ble Madras High Court is dated 9/12/2003. During the course of hearing Ld.CIT DR was required to place on record any decision of any Court in which the view conveyed by the CBDT in aforementioned Instruction No.1882 is adopted, he was unable to cite any such decision. It was only argued that instructions issued by CBDT are in the nature of contemporanea expositio . and for such purpose reliance was mainly placed on the decision of Hon'ble Supreme Court in the case of K.P. Varghese (supra). We have carefully considered such submissions of Ld. CIT DR and we found that such contention of Ld. DR has no force as the law regarding bindingness of circulars issued by CBDT has been later on explained by Larger Bench of Hon'ble Supreme Court in the case of CCE v. Ratan Melting & Wire Industries (the decision rendered by five judges of Hon'ble Supreme Court), [2008] 17 STT 103 wherein it has been held that it is for the Court to declare what the particular provision of statue states and it is not for executive; a circular cannot be given effect to in preference to the view expressed in a decision of the Hon'ble Supreme Court or the High Court; a circular which is contrary to the statutory provisions has really no existence in law. It has been clarified that the clarifications/ circulars issued by the Central Government and of the State Government represent merely understanding of the statutory provision. They are not binding upon the Court. It is for the Court to declare what the particular provision of the statute says and it is not for the executive . Thus the law on this issue is very much clear that wherever question regarding interpretation of a provision is applicable the interpretation adopted by the Court will have a preference over the interpretation given by the CBDT. Therefore, this contention of Ld. CIT DR has to be rejected particularly in the view of the fact that Ld. CIT DR could not cite any decision of any Court by which the aforementioned view of CBDT is supported. Moreover, we are considering the provision regarding levy of penalty. Where two interpretations are possible, levy of concealment penalty is not justified. Even according to law of precedence, the decision rendered by Madras High Court, in absence of decision of Jurisdictional High Court on the issue will have persuasive value and view has been taken after considering the relevant provisions. Accordingly, we hold that Ld. CIT(A) did not commit any error in deleting the penalty by following the aforementioned decision of Hon'ble Madras High Court and penalty cannot be sustained on the interpretation of provisions adopted by CBDT.
6.2 Before parting with the appeals of the revenue, for the sake of completeness we may mention here that even though it is not the case of AO that assessee did not specify in the statement made u/s. 132 (4) the manner in which the additional income was derived, but during the course of hearing of the appeal it was clarified by Ld. AR that assessee was never asked to describe the manner in which he has derived such additional income and it was submitted that during the course of hearing before Ld. CIT(A) assessee had placed reliance on various decision in which it was held that where assessee has not been asked with such question that in what manner such income has been derived and the income has been offered and taxes have been paid then it will be sufficient compliance of Explanation -5 to section 271(1)(c). He in this regard referred to the decision of Hon'ble Gujarat High Court in the case of CIT v. Mahendra C. Shah [2008] 299 ITR 305/172 Taxman 58 and the decision of Allahabad High Court in the case of CIT v. Radha. Kishan Goel [2005] 278 ITR 454/[2006] 152 Taxman 290. Thus immunity provided by Explanation -5 is available to the assessee even though assessee has not specified the manner in which the undisclosed income is earned by him.
6.3 In view of the above discussion we decline to interfere in the order passed by Ld. CIT(A) and appeals filed by the revenue are dismissed.
7. In the result, both the appeals filed by the revenue are dismissed.
POOJA*In favour of assessee.
__._,_.___
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