Chartered Accountant Finance: [aaykarbhavan] (unknown)

CX - Assembly of duty paid parts of furniture, whether amounts to manufacture - supplier paid duty under Heading 9403 which covers 'Other furniture' - assessee only assembling parts at site - no manufacture involved: CESTAT

By TIOL News Service

MUMBAI, JAN 29, 2014: THIS is a Revenue appeal filed in the year 2004 against an order passed by the Commissioner(Appeals), but obviously, in favour of the assessee.

The facts of the case are that a SCN was issued to the assessee respondent on the ground that they are engaged in the manufacture of office furniture system falling under Chapter Heading 9403 of the Tariff. Inasmuch as the respondents were receiving parts of the furniture and assembling the same at site, which according to Revenue amounts to manufacture.

The adjudicating authority confirmed the demand and imposed penalty.

The Commissioner (Appeals) set aside the demand on the ground that the respondents were only assembling the duty paid parts of the furniture as the furniture was manufactured by M/s. Kemp & Co. and cleared on payment of duty by classifying the same under Chapter Heading 9403 of the Tariff and the demand from the respondents in the same heading only on the ground that the respondents were assembling the furniture at site was not sustainable.

In the grounds of appeal, the Revenue contends that the respondents were not receiving complete parts of the furniture and, therefore, the assembly of furniture by the respondent amounts to manufacture.

The Bench observed -

"5. …We find that there is no allegation in the show cause notice that the respondents were not receiving all the parts of the furniture. In fact the manufacturer has paid duty under Chapter Heading 9403 of the Tariff which covers 'other furniture'. The furniture manufactured was cleared in CKD condition for ease of transportation and the respondents were only assembling the parts of the furniture at site. In view of this we find no infirmity in the impugned order. The appeal is dismissed."

In passing: Hope the matter ends. After all, it took almost a decade to reach here.

(See 2014-TIOL-144-CESTAT-MUM)

2014-TIOL-50-ITAT-AHM

IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH 'C' AHMEDABAD

ITA No.2610/Ahd/2010
Assessment Year: 2007-08

DEPUTY COMMISSIONER OF INCOME TAX
CENTRAL CIRCLE-1, SURAT

PRAVINKUMAR K BHAKTA
C/O ADITYA ALLUMINIUM PVT LTD
CHIKHLI RAOD VYARA, DIST TAPI
SILVASSA, VAPI
PAN NO:ABNPB4798G

N S Saini, AM And Kul Bharat, JM

Date of Hearing: October 30, 2013
Date of Decision: November 15, 2013

Appellant Rep by: Shri J P Jhangid Sr.DR
Respondent Rep by: Shri J P Shah

Income Tax- Sections 132(4) & 271(1)(c) - Whether immunity under Explanation 5 to Sec 271(1)(c) is available even when assessee did not disclose income in manner in which it was earned.

The assessee was picked up for scrutiny assessment and the assessment u/s.143(3) was framed assessing total income of Rs.11,10,400/-. While finalizing the assessment order, penalty proceedings u/s.271(1)(c) were also initiated in respect of undisclosed income. The AO levied penalty u/s.271(1)(c). The CIT(A) deleted the penalty.

On Appeal before the Tribunal the AR submitted that the AO assured him that no penalty would be levied, therefore assessee filed the revised return of income and disclosed additional income of Rs.9,01,193/- as disclosed u/s.132(4) and paid taxes thereon. The AR further submitted that the immunity as provided under Explanation (5) to Section 271(1)(c) was available The DR submitted that the assessee had disclosed income only in the revised return of income, therefore immunity provided under Explanation(5) to Section 271(1)(c) was not available.

Having heard the parties, the Tribunal held that,

++ the ground of the Revenue is ex facie false and contrary to the records. As per record the statement has been recorded u/s.132 and not u/s.133A as claimed. Moreover, the AO categorically in his order has recorded a finding that the statement u/s.132(4) was recorded from the assessee;

++ on the issue of the assessee has not explained the manner in which the disclosed income was earned, following the decision of Jurisdictional High Court rendered in the case of CIT vs. Mahendra C.Shah where in the Court held that even if the statement does not specify the manner in which the income is derived, if the income is declared and tax thereon paid, there would be substantial compliance not warranting any further denial of the benefit under exception No.2 in Explanation 5 is commendable.No infirmity in the order of CIT(A).

Revenue's Appeal dismissed

Case followed:

CIT vs. Mahendra C.Shah reported at 299 ITR 305 (Guj.).

ORDER

Per: Kul Bharat:

This appeal by the Revenue is directed against the order of the Ld.Commissioner of Income Tax(Appeals)-II, Ahmedabad ('CIT(A)' for short) dated 16/06/2010 pertaining to Assessment Year (AY) 2007-08. The Revenue has raised the following grounds of appeal:-

i) The Ld.CIT(A) has erred in Law and on facts in granting exemption to the assessee under Explanation 5 to Section 271(1)(c) of the Act, when the disclosed income did not pertain to any money, bullion or valuation found during the course of search.

ii) The Ld.CIT(A) erred in law and on facts in agreeing that the assessee satisfy all the conditions stipulated in Explanation 5 below Section 271(1)(c) without appreciating the fact that the disclosure is made though statement recorded u/s.133A on 15/11/2006 and not in the statement recorded u/s.132(4) of the IT Act (copy enclosed as AnnexureA)

iii) The Ld.CIT(A) has erred in holding that even if the manner of income is not explained, assessee is entitled for availing immunity under Explanation 5 to Section 271(1)(c) of the Act as per decision in the case of CIT vs. Mahendra C Shah 299 ITR 305 (Guj), ignoring that the assessee did not disclosed manner in which the disclosed is earned u/s.132(4) on being asked to explain the same vide question No.23 of the statement dated 15/11/2006 u/s.132(4) and nor explained it subsequently.

iv) The Ld.CIT(A) erred in deleting the penalty by relying upon the decision in the case of CIT vs. Mishrimani Soni 162 Taxman 53, ignoring that the facts of the case in the above case law is quite distinguishable from the facts of the instant case.

v) The Ld.CIT(A) has erred in holding that penalty is not leviable in this case as per decision of CIT vs. Mishriomani Soni 162 Taxman 53, wherein it was held that Explanation 5 to section 271(1)(c) of the Act does not make any distinction between tangible and intangible assets, ignoring that amended provision Explanation 5A to Section 271(1)(c) was come in to effect in the Finance Act 2009, making it applicable prospectively to the cases in which search was conducted on or after 01/06/2007 and in the instant case, the search action was carried out on 15/11/2006.

vi) On the facts and circumstances of the case and in law, the ld.CIT(A) ought to have upheld the order of the AO.
vii) It is therefore prayed that the order of the CIT(A) be vacated and that of the AO be restored to the above extent.

2. Since the issues involved in these grounds of appeal are interconnected, the same are being disposed of by way of this consolidated order for the sake of convenience.

3. Briefly stated facts are that the case of the assessee was picked up for scrutiny assessment and the assessment u/s.143(3) of the Income Tax Act,1961 (hereinafter referred to as "the Act") for AY 2007-08 was framed vide order dated 18/12/2008, assessing total income of Rs.11,10,400/-. While finalizing the assessment order, penalty proceedings u/s.271(1)(c) of the Act were also initiated in respect of undisclosed income. In the penalty proceedings, the assessee made various submissions before the Assessing Officer, who after considering the submissions, levied penalty u/s.271(1)(c) of the Act. Against this, the assessee preferred an appeal before the ld.CIT(A)-II Ahmedabad, who after considering the submissions, deleted the penalty. Now, the Revenue is in appeal before us.

4. The ld.counsel for the assessee reiterated the submissions as were made before the lower authorities. The ld.counsel for the assessee submitted that the issue in this case is squarely covered by the decision of the Hon'ble Jurisdictional High Court rendered in the case of CIT vs. Mahendra C.Shah reported at 299 ITR 305 (Guj.). He submitted that there was a survey action and the statement was recorded thereby the assessee made disclosure, however, the said disclosure was retracted by way of Affidavit but the AO assured him that no penalty would be levied, therefore assessee filed the revised return of income and disclosed additional income of Rs.9,01,193/- as disclosed u/s.132(4) of the Act on 12/12/2008 and paid taxes thereon. He made submission that under these facts, the immunity as provided under Explanation (5) to Section 271(1)(c) was available and placed reliance on various decisions.

5. On the contrary, ld.Sr.DR supported the order of the AO and submitted that the assessee had disclosed income only in the revised return of income, therefore immunity provided under Explanation(5) to Section 271(1)(c) of the Act is not available.

6. We have considered the rival submissions, perused the material available on record and gone through the orders of the authorities below. The ld.CIT(A) decided the issue in favour of assessee on the basis that the assessee surrendered the undisclosed income during the course of search in his statement u/s.132(4) of the Act and offered it as income in the return and also paid the tax. He has also given a finding on fact that the returned income was accepted. Therefore, relying on the decision of Hon'ble Rajasthan High Court rendered in the case of CIT vs. Mishrimal Soni reported at 162 Taxman 53 and also the decision of Hon'ble Gujarat High Court rendered in the case of CIT vs. Mahendra C.Shah reported at 299 ITR 305 (Guj.), deleted the penalty. The Revenue has made submissions that the ld.CIT(A) has erred in granting exemption under Explanation 5 to Section 271(1)(c) of the Act when the disclosed income did not pertain to money, bullion, jewellery or other valuable article or thing found during the course of search. It is also the ground of the Revenue that the ld.CIT(A) erred in law and on facts in agreeing that the assessee satisfy all the conditions stipulated in Explanation 5 below Section 271(1)(c) of the Act without appreciating the fact that the disclosure is made through statement recorded u/s.133A of the Act on 15/11/2006 and not in the statement recorded u/s.132(4) of the Act. This ground of the Revenue is ex facie false and contrary to the records. As per Annexure-A, the statement has been recorded u/s.132 of the Act and not u/s.133A of the Act as claimed. Moreover, the AO categorically in his order has recorded a finding that the statement u/s.132(4) of the Act was recorded from the assessee. Hence, there is no substance in this ground of the Revenue. Another submission of Revenue is that the assessee has not explained the manner in which the disclosed income was earned. The Hon'ble Jurisdictional High Court in the case of CIT vs. Mahendra C.Shah(supra) has observed that according to the Revenue, the statement made u/s.132(4) of the Act by the assessee at the time of search does not contain any averment as to the manner in which such income had been derived by the assessee. Furthermore, there is no payment of tax along with the return of income which was originally filed and payment of last tax has been made only subsequently after disclosing such income in the revised return of income which is not warranted by the language employed in exception No.2 so as to be entitled to immunity from penalty for concealment. The Hon'ble High Court after observing the contention of the Revenue held that the contentions raised on behalf of the Revenue are not required to be accepted for the simple reason that in the first instance, there is no prescription as to the point of time when the tax has to be paid qua the amount of income declared in the statement made under section1 132(4) of the Act. The Tribunal was justified in holding that there would be sufficient compliance with the provision if tax is shown to have been paid before the assessment was completed. The Hon'ble High Court further held that in so far as the alleged failure on the part of the assessee to specify in the statement under section 132(4) of the Act regarding the manner in which such income has been derived, suffice it to state that when the statement is being recorded by the authorized officer it is incumbent upon the authorized officer to explain the provisions of Explanation 5 in its entirety to the assessee concerned and the authorized officer cannot stop short at a particular stage so as to permit the Revenue to take advantage of such a lapse in the statement. The reason is not far to seek. In the first instance, the statement is being recorded in the question and answer form and there would be no occasion for an assessee to state and make averments in the exact format stipulated by the provisions considering the setting in which such statement is being recorded. The Hon'ble Jurisdictional High Court after considering the judgement of Hon'ble Allahabad High Court rendered in the case of CIT vs. Radha Kishan Goel (2005) 278 ITR 454, affirmed the view of the Tribunal and also followed the judgement of Hon'ble Allahabad High Court, held that even if the statement does not specify the manner in which the income is derived, if the income is declared and tax thereon paid, there would be substantial compliance not warranting any further denial of the benefit under exception No.2 in Explanation 5 is commendable.

6.1. Respectfully following the decision of Hon'ble Jurisdictional High Court rendered in the case of CIT vs. Mahendra C.Shah(supra), we do not find any infirmity in the order of ld.CIT(A), the same is hereby upheld.

7. In the result, Revenue's appeal stands dismissed.

Regards,

Pawan Singla , LLB

M. No. 9825829075

014-TIOL-48-ITAT-MUM

IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH 'E' MUMBAI

CO No.72/Mum./2013
ITA No.9075/Mum./2010
Assessment Year: 2007-08

ASSTT COMMISSIONER OF INCOME TAX
CIRCLE-4(2), AAYAKAR BHAVAN 101
M K ROAD, MUMBAI-400020

M/s SANGHVI SAVLA STOCK BROKERS LTD
VESTA-B, 90, FEET ROAD PANT NAGER
GHATKOPAR (E) MUMBAI-400075
PAN NO:AAACS8744C

Rajendra Singh, AM And Amit Shukla, JM

Date of Hearing: October 3, 2013
Date of Decision: October 10, 2013

Appellant Rep by: Mrs Jyothilakshmi Nayak
Respondent Rep by: Mr Farookh Irani

Income Tax - Sections 37, 40(a)(ia), 194J - Whether there is any liability to deduct TDS for the payment of V-SAT charges - Whether the disallowance can be made on account of transactions charges when no TDS were deducted - Whether Software application expenses for up-gradation of efficient working of operations through computers in the day-to-day business management can be consider as Revenue Expenditure.

The assessee is a stock broker in BSE / NSE. The assessee had debited a sum of Rs.6,44,107, on account of V- SAT charges and Rs.3,30,000, on account of transactions charges. The AO held that these charges are in the nature of rendering of technical services and, therefore, the assessee was liable to deduct TDS on such payments and made disallowance u/s 40(a)(ia). The CIT(A) allowed the assessee's appeal.

On Appeal before the Tribunal the AR submitted that insofar as the V-SAT charges were concerned, the same are covered by the decision of the Jurisdictional High Court in the case of CIT v/s Angel Capital and Debit Market Ltd., As regards transaction charges, it was submitted that though this issue has been decided against in principle but no disallowance can be made as there was a reasonable cause in assessee's case also. The DR submitted that though the issue of V-SAT charges is covered by the decision of the Bombay High Court, however, regarding transaction charges, the DR submitted that whether the issue of transaction charges has been examined by the AO in the earlier years or not, is not coming from the records.

On the issue of disallowance of computer software The AR submitted that the software expenses were incurred for day-to-day running of the business and with the change of technology, the span of software was very short which has to be changed every now and then. Therefore, it does not have any enduring benefit on the capital field. The DR submitted that once the statutory rule itself prescribes the rate of depreciation on the software, then definitely it suggests that the software expenditures were in the nature of capital only.

Having heard the parties, the Tribunal held that,

++ it is not disputed that, insofar as the payment of V-SAT charges are concerned, the same is covered by the decision of the Bombay High Court and, therefore, there was no requirement for deducting the TDS and, consequently, no disallowance u/s 40(a)(ia) can be made;

++ regarding transaction charges, whether the disallowance has been made for the first time and no such disallowance was made in the earlier years, is not clear from the records. Therefore, on this score, the order set aside to the AO, to verify, whether in the earlier years transactions charges have been paid and any disallowance has been made in the earlier years or not. If the assessee has paid the transaction charges in the earlier years and no disallowance has been made by the Department, then in view of the decision of the Jurisdictional High Court in case of Kotak Securities Ltd. no disallowance should be made in this year because in that way it constitute a reasonable cause for not deducting the TDS in this year also;

++ on the issue of the CIT(A) disallowing Rs.2,60,000 being computer software purchase during the year as capital expenditure, inclusion of the word "computer software" in new Appendix-I, giving the rate of depreciation, will not, per-se lead to a conclusive inference that from the A.Y 2006-07, computer software are to be held as capital asset only. Whether any particular expense falls in the capital field or revenue field has to be judged, looking to the nature of expenses and various tests laid down by the courts Software application expenses are nothing, but up-gradation of efficient working of operations through computers in the day-to-day business management, which keeps on changing periodically and thus any expenditure on such an up gradation or buying of software is revenue expenditure only.

Revenue & Assessee's appeal allowed

Cases followed:

CIT v/s Angel Capital and Debit Market Ltd., Income Tax appeal no.475 of 2011

Kotak Securities Pvt. Ltd. v/s ACIT (2008-TIOL-689-ITAT-MUM)

ORDER

Per: Amit Shukla:

The present appeal has been preferred by the Revenue and the cross objection by the assessee, challenging the impugned order dated 27th October 2010, passed by the learned Commissioner (Appeals)-VIII, Mumbai, for the quantum of assessment passed under section 143(3) of the Income Tax Act, 1961 (for short "the Act") for the assessment year 2007-08.

We first take up Revenue's appeal in ITA no.9075/Mum./2010, vide which, following grounds have been raised.

"i. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance made under section 40(a)(ia) in respect of V-SAT charges of Rs.6,44,107 and transaction charges of Rs.3,30,000 paid to Stock Exchange, without appreciating the facts that these were composite charges for professional and technical services rendered by the stock exchange to its members and the assessee has failed to deduct TDS thereon.

ii. On the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in ignoring the fact that these services are essential in nature as they can only be availed by members of Stock Exchange.

iii. On the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in ignoring the facts that use of technology and algorithmic based programs have converted an erstwhile physical market into a digitally operated market."

iv. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in ignoring the fact that the services rendered by the brokers are not standard services but services that has been developed to cater to the needs of the broker community to facilitate trading."

v. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has overlooked the fact that the brokers have in subsequent years themselves started deducting the TDS on such payments and that there is no reason to give a different treatment in this year."

vi. On the facts and in the circumstances of the case, the impugned order of the Ld.CIT(A) is contrary to law to be set aside and that of the Assessing Officer be restored."

2. The assessee is a stock broker in BSE / NSE. The Assessing Officer noted that the assessee has debited a sum of Rs.6,44,107, on account of V- SAT charges and Rs.3,30,000, on account of transactions charges. He held that these charges are in the nature of rendering of technical services and, therefore, the assessee was liable to deduct TDS on such payments. Since the assessee has not deducted any TDS, he made the disallowance under section 40(a)(ia) after detail discussion running into 10 pages. The learned Commissioner (Appeals) has allowed the assessee's appeal after following the decision of the Tribunal inKotak Securities Pvt. Ltd. v/s ACIT, 124 TTJ 241 (Mum.) = (2008-TIOL-689-ITAT-MUM) and DICT v/s Angel Broking Ltd., 35 SOT 457 (Mum.).

3. Before us, it has been submitted that insofar as the V-SAT charges are concerned, the same are covered by the decision of the Hon'ble Jurisdictional High Court in the case of CIT v/s Angel Capital and Debit Market Ltd., Income Tax appeal no.475 of 2011, passed by the Hon'ble Jurisdictional High Court, vide order dated 27th July 2011, wherein it has been held that on the payment of V-SAT charges, there is no liability of deducting TDS. Moreover, this issue is also covered by the decision of the Hon'ble Jurisdictional High Court in CIT v/s Kotak Securities Ltd., [2012] 340 ITR 333 (Bom.) = (2011-TIOL-693-HC-MUM-IT). As regards transaction charges, it has been submitted before us, that though this issue has been decided against by the Hon'ble Jurisdictional High Court in principle but no disallowance can be made as there was a reasonable cause in assessee's case also, like in the case of Kotak Securities, as no such disallowance was made by the Revenue in this case also in the earlier years. Thus, in view of the ratio laid down by the Bombay High Court in Kotak Securities Ltd. (supra), no disallowance can be made.

4. The learned Departmental Representative submitted that though the issue of V-SAT charges is covered by the decision of the Bombay High Court, however, regarding transaction charges, she submitted that whether the issue of transaction charges has been examined by the Assessing Officer in the earlier years or not, is not coming from the records and whether this is the first year wherein the payment has been made or similar payments were made in the earlier year also is not coming forth.

5. We have heard the rival contention, perused the relevant findings of the authorities below and the material available on record. It is not disputed that, insofar as the payment of V-SAT charges are concerned, the same is covered by the decision of the Bombay High Court cited supra and, therefore, there was no requirement for deducting the TDS and, consequently, no disallowance under section 40(a)(ia) can be made. Regarding transaction charges, we agree with the contention of the learned Departmental Representative that, whether the disallowance has been made for the first time and no such disallowance was made in the earlier years, is not clear from the records. Therefore, on this score, we set aside the issue of transaction charges to the file of the Assessing Officer, to verify, whether in the earlier years transactions charges have been paid and any disallowance has been made in the earlier years or not. If the assessee has paid the transaction charges in the earlier years and no disallowance has been made by the Department, then in view of the decision of the Hon'ble Jurisdictional High Court in case of Kotak Securities Ltd. (supra), no disallowance should be made in this year because in that way it constitute a reasonable cause for not deducting the TDS in this year also. With this direction, the matter is restored to the file of the Assessing Officer. Thus, the ground raised by the Revenue is treated as partly allowed for statistical purposes.

6. In the result, Revenue's appeal is treated as partly allowed for statistical purposes.

We now take up assessee's cross objection no.72/Mum./2013, which is arising out of the appeal preferred by the Revenue in ITA no.9075/Mum./2010. The assessee has raised, inter-alia, following grounds of appeal:-

"1. The CIT(A) erred in disallowing Rs.2,60,000 being computer software purchase during the year as capital expenditure.

1.2 The appellant submits that in this era of high technology advancement, especially in the field of computer and software, the life of the software is very short because by the time you start using the software, there is a better and more advance software is available in market and therefore one tends to replace the software frequently to have better systems and control on the business operation. This is even more relevant in the field of capital market and specifically in the stock broking business which is done by appellant company. Because of the inherent risk in the business makes it extremely necessary to have more advanced software to know the client's position at any point of time.

1.3 The appellant therefore submits that, the expense on software is like regular ongoing business expenses and should be allowed as evenue expenses. Only because a new item has been added in the depreciation table, does not make any expenditure which is of nature Revenue expenditure, of the nature of capital expenditure."

7. The Assessing Officer has disallowed the claim of Rs. 2,60,000 incurred by the assessee on account of computer software which was claimed as revenue expenditure. The Assessing Officer has treated the same as capital expenditure because such software expenses have an enduring benefit and, therefore, he held that only depreciation should be allowed as per the new appendix of Income Tax Rules.

8. The learned Commissioner (Appeals) too confirmed the action of the Assessing Officer after observing and holding as under:-

"The appellant during the appellate proceedings has placed reliance upon the decision of CIT(A) in its own case for the assessment year 2001-02 in which it has been pointed out that the assessee had during the year upgraded software programmes like back office software, debt market software etc. which is done every year to support the expanding business and to increase the technical support to NSE and debt market operations. The appellant has therefore, submitted that the expenditure be allowed as revenue expenditure.

The issue raised in this ground of appeal has been put to rest by insertion of nomenclature "computer including computer software" at item no.5 in the new Appendix-I effective from assessment year 2006-07. In view of this insertion, all computer software are required to be treated as capital asset for assessment year 2006-07 and onward. Expenditure incurred for purchase of any software is therefore, capital expenditure. The disallowance made by the Assessing Officer is therefore, upheld. The appeal on this ground is not allowed."

9. Before us, the learned Counsel for the assessee Mr. Farookh Irani, submitted that the software expenses are incurred for day-to-day running of the business and with the change of technology, the span of software is very short which has to be changed every now and then. Therefore, it does not have any enduring benefit on the capital field. In support of his contention, he has strongly relied upon the decision of the Hon'ble Delhi High Court in CIT v/s Asahi India Safety Glass Ltd. [2012] 346 ITR 329 (Del.) = (2011-TIOL-705-HC-DEL-IT). He further submitted that the depreciation schedule in Appendix-I, which provides for rate of depreciation in case of computers and software will not lead to an automatic conclusion that all the software expenses are to be treated as capital expenses from A.Y.2006-07. Rules per-se cannot decide, what is capital asset or revenue expenditure, because the same has to be seen on the facts and circumstances of the case as well as the tests laid down by various Courts from time to time.

10. Per contra, the learned Departmental Representative submitted that once the statutory rule itself prescribes the rate of depreciation on the software, then definitely it suggests that the software expenditures are in the nature of capital only. Otherwise depreciation rate could not have been provided. This aspect has not been considered by the Hon'ble Delhi High Court relied upon by the learned Counsel, as the matter pertained to the assessment years 1997-98 and 1998-99. She also strongly relied upon the decision of the Delhi Special Bench of the Tribunal in Amway India Enterprises v/s DCIT, [2008] 111 ITD 112 (Del.) (SB) = (2008-TIOL-97-ITAT-DEL-SB), where detail guidelines have been laid down. She, thus, strongly relied upon the findings of the Assessing Officer and the learned Commissioner (Appeals).

11. In the rejoinder, the learned Counsel for the assessee submitted that the decision of Special Bench has been considered by the Hon'ble Delhi High Court in CIT v/s Amway India Enterprises, [2012] 346 ITR 341 (Del.) = (2011-TIOL-710-HC-DEL-IT), wherein it has been held that the software expenditure are to be treated as revenue expenditure.

12. We have heard the rival contention, perused the relevant findings of the authorities below and the material available on record. The assessee has incurred software expenses for upgrading the software programmes like back office software, debt market software, etc., relating to its business of stock broking. The Assessing Officer as well as the learned Commissioner (Appeals) has disallowed these expenses mainly on the ground that in the Income Tax Rules, Appendix-I, Item no.5, which has been brought in Income Tax Rule w.e.f. assessment year 2006-07, mentions the rate of depreciation on computers including computer software @60%. From this, they have inferred that the computer software is nothing but capital asset on which depreciation has to be allowed. In our considered opinion, inclusion of the word "computer software" in new Appendix-I, giving the rate of depreciation, will not, per-se lead to a conclusive inference that from the assessment year 2006-07, computer software are to be held as capital asset only on which depreciation has to be allowed and any expenses on software cannot be held as revenue expenditure. Whether any particular expense falls in the capital field or revenue field has to be judged, looking to the nature of expenses and various tests laid down by the courts from time immemorial. In this age of computerization, various softwares are developed for smooth functioning of various business needs that helps business to run effectively, efficiently and profitably. The softwares keep on changing at a very fast pace with the growing requirement in the day-to-day business. Most of the softwares become obsolete in short span and new and upgraded version are required for better functioning. Unless, it has been brought on record that the software installed has a very long lasting life and enduring benefit on a capital asset, then, probably it can be said that it may not be of revenue in nature. However, the software application, per-se, do not, in any manner, supplants the source of income or make any addition to the capital side of the assessee. Thus, in our opinion, software application expenses are nothing, but up-gradation of efficient working of operations through computers in the day-to-day business management, which keeps on changing periodically and thus any expenditure on such an upgradation or buying of software is revenue expenditure only. The decisions as relied upon by the learned Counsel also supports our view. Even though the Rules have provided rate of depreciation on computer software, but that does not lead to any kind of drawing legal inference that all the softwares have to be charecterised as capital asset. Thus, the grounds raised by the assessee in the cross objection are treated as allowed.

13. In the result, assessee's cross objection is treated as allowed.

14. To sum up, Revenue's appeal is allowed for statistical purposes, whereas the assessee's cross objection is treated as allowed.

(Order pronounced in the open Court on 10.10.2013.)

014-TIOL-48-ITAT-MUM

IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH 'E' MUMBAI

CO No.72/Mum./2013
ITA No.9075/Mum./2010
Assessment Year: 2007-08

ASSTT COMMISSIONER OF INCOME TAX
CIRCLE-4(2), AAYAKAR BHAVAN 101
M K ROAD, MUMBAI-400020

M/s SANGHVI SAVLA STOCK BROKERS LTD
VESTA-B, 90, FEET ROAD PANT NAGER
GHATKOPAR (E) MUMBAI-400075
PAN NO:AAACS8744C

Rajendra Singh, AM And Amit Shukla, JM

Date of Hearing: October 3, 2013
Date of Decision: October 10, 2013

Appellant Rep by: Mrs Jyothilakshmi Nayak
Respondent Rep by: Mr Farookh Irani

Revenue & Assessee's appeal allowed

Cases followed:

CIT v/s Angel Capital and Debit Market Ltd., Income Tax appeal no.475 of 2011

Kotak Securities Pvt. Ltd. v/s ACIT (2008-TIOL-689-ITAT-MUM)

ORDER

Per: Amit Shukla:

We first take up Revenue's appeal in ITA no.9075/Mum./2010, vide which, following grounds have been raised.

"i. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance made under section 40(a)(ia) in respect of V-SAT charges of Rs.6,44,107 and transaction charges of Rs.3,30,000 paid to Stock Exchange, without appreciating the facts that these were composite charges for professional and technical services rendered by the stock exchange to its members and the assessee has failed to deduct TDS thereon.

ii. On the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in ignoring the fact that these services are essential in nature as they can only be availed by members of Stock Exchange.

iii. On the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in ignoring the facts that use of technology and algorithmic based programs have converted an erstwhile physical market into a digitally operated market."

iv. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in ignoring the fact that the services rendered by the brokers are not standard services but services that has been developed to cater to the needs of the broker community to facilitate trading."

v. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has overlooked the fact that the brokers have in subsequent years themselves started deducting the TDS on such payments and that there is no reason to give a different treatment in this year."

vi. On the facts and in the circumstances of the case, the impugned order of the Ld.CIT(A) is contrary to law to be set aside and that of the Assessing Officer be restored."

6. In the result, Revenue's appeal is treated as partly allowed for statistical purposes.

"1. The CIT(A) erred in disallowing Rs.2,60,000 being computer software purchase during the year as capital expenditure.

1.2 The appellant submits that in this era of high technology advancement, especially in the field of computer and software, the life of the software is very short because by the time you start using the software, there is a better and more advance software is available in market and therefore one tends to replace the software frequently to have better systems and control on the business operation. This is even more relevant in the field of capital market and specifically in the stock broking business which is done by appellant company. Because of the inherent risk in the business makes it extremely necessary to have more advanced software to know the client's position at any point of time.

1.3 The appellant therefore submits that, the expense on software is like regular ongoing business expenses and should be allowed as evenue expenses. Only because a new item has been added in the depreciation table, does not make any expenditure which is of nature Revenue expenditure, of the nature of capital expenditure."

8. The learned Commissioner (Appeals) too confirmed the action of the Assessing Officer after observing and holding as under:-

"The appellant during the appellate proceedings has placed reliance upon the decision of CIT(A) in its own case for the assessment year 2001-02 in which it has been pointed out that the assessee had during the year upgraded software programmes like back office software, debt market software etc. which is done every year to support the expanding business and to increase the technical support to NSE and debt market operations. The appellant has therefore, submitted that the expenditure be allowed as revenue expenditure.

The issue raised in this ground of appeal has been put to rest by insertion of nomenclature "computer including computer software" at item no.5 in the new Appendix-I effective from assessment year 2006-07. In view of this insertion, all computer software are required to be treated as capital asset for assessment year 2006-07 and onward. Expenditure incurred for purchase of any software is therefore, capital expenditure. The disallowance made by the Assessing Officer is therefore, upheld. The appeal on this ground is not allowed."

13. In the result, assessee's cross objection is treated as allowed.

14. To sum up, Revenue's appeal is allowed for statistical purposes, whereas the assessee's cross objection is treated as allowed.

(Order pronounced in the open Court on 10.10.2013.)

The Bar Council of India has urged the Centre to allow only advocates to appear before income-tax authorities at all levels, including the appellate tribunal for arguments on assessment, penalty, etc.

At present chartered accountants, company secretaries and management professionals, who are engaged in practice of Law and Taxation, appear before IT authorities taking advantage of Section 33 of the Advocates Act, which permits advocates and other practitioners to appear before the forum concerned.

Supreme Court judgment

Armed with the Supreme Court judgment in the case of BCI vs A.K. Balaji, holding that advocates alone were entitled to practise law in both litigious and non-litigious matters, the BCI appointed a panel comprising Co-Chairman S. Prabakaran and member Rameshchandra Shan to look into the matter.

The panel, after examining the provisions of the Advocates Act, the Income Tax Act and the Chartered Accountants law, opined that the Legislature had provided a special class of persons to practise law under the Advocates Act.

"When the Institute of Chartered Accountants of India claims that it is its prerogative to tax audit that too with the limitation to financial accounts, why can't legal practitioners claim that it is their prerogative to practise Income Tax law with the backing of the Supreme Court verdict and the mandate of the Advocates Act?" it asked.

The panel pointed out that practice of Income tax law involved preparation and submission of IT returns and appearance before authorities in assessment proceedings. With the introduction of Tax Audit Certificate in 1984 under Section 44AB of the IT Act and with the requirement of a mandatory certificate from Chartered Accountants, legal practitioners found it difficult to practise IT law independently, it noted.

'Loophole' in law

So the BCI has sent a communication to the Central Board of Direct Taxes, New Delhi, and the Income-Tax Appellate Tribunal, Bangalore, to take steps to delete the words "or in any other law" from Section 33 of the Advocates Act. The CBDT should authorise lawyers to sign and furnish tax audit certificates/reports, the BCI said.

"The person conducting audit should have specialised in that subject. Hence the word 'audit' is not the domain of chartered accountants … When legal practitioners are the only class of persons entitled to practise law, there is no justification for prohibiting advocates from issuing certificates or reports under the IT Act."

Aarush Velaga recently completed one year at his first job. Unlike his colleagues, he is new at filing Income Tax Returns. He is aware that every tax payer in India is required to declare, to the Income Tax Department, at the end of every financial year, in a form that is prescribed by the Government of India, a detailed summary of all the incomes that he/she has earned during the year ended on 31st March.

Though it may be true that one might have declared and paid all the due taxes on their earnings from salary, it is quite possible and likely that one enjoys income from other sources such as the interest on a savings bank account, the dividends from holding shares of companies, the cash incomes that come from a part time job or a small time business or other different sources like royalties, fees or rent, on which, so far no income tax has been deducted.

The Government of India collects the statement of a taxpayer's income in the form of a Tax Return Statement that exists in a prescribed format. Such a statement that is duly signed, furnished and affirmed by an individual as the statement being a complete and true statement of his/her income from the last financial year is known as the Income Tax Return.

Recently this year, the Income Tax authorities in India introduced some new guidelines for filing income tax returns. For example, they have made it obligatory for the businesses to file their income tax returns through the e-form. They had also earlier made it compulsory for taxpayers with annual incomes of above INR 10,00,000 to take the online approach as well. In 2013, the Income Tax authorities decreased the lower income limit for filing e-forms and made e-filing compulsory if the taxable income is over Rs. 5 Lakh per year.

Here's a list of documents that Aarush needs to be ready with, before he files his returns.

1. Permanent Account Number: Knowing your PAN number is the first step towards filing your return. You must cross check your PAN number
online with the Income Tax Department before you begin to fill in your Income Tax Return on their website.

2. Form-16: The Form-16 is a form/statement issued by the employer carrying the details of your salary, the amount of taxable salary calculated
after extra allowances, the Tax Deduction at Source deducted, the income tax deductions that you claim and the net tax due. Via TDS, the
employer must have already deducted and deposited a part of your salary to the Income Tax Department.

3. Balance Confirmation Statements: You must declare all the incomes sourcing from interests earned on bank savings deposits, fixed
deposits and debentures in the last financial year in the Income Tax Returns.

4. Certificate of Tax Deducted at Source: After verifying whether TDS has been duly deducted, you must furnish the TDS entries in the Tax
Return to decrease the tax liability.

5. Form 26AS: The Form 26AS is a statement of all of your income tax received by the IT Department. It is a statement of tax credit showing
voluntary tax payments, in addition to the TDS.

6. Proof of Exempted Investments

> The investments made under LIC, PPF, children's tuition fee are eligible for tax deductions.

> The payment as the principal amount of a housing loan also qualifies for the same with an upper limit of INR 1,00,000. However, if you reside

in a house you are paying EMIs for, the EMI amount could be claimed for deduction with an upper cap of INR 1, > Donations certified to be in the name of charity can be declared for tax deductions as well. The PAN number of the charitable institution is
required too.

> Other Proofs of Investment: The interest you have paid on an education loan for higher studies can be claimed for IT deduction and so can the medical insurance payments for your family and your parents, capital gain on stocks (A Stock Trading Statement is required and has to be tallied with the Brokerage Account) and capital gain on the sale of owned property.

These are the documents and proofs, for claiming Tax Returns with the IT Department in India that are absolutely essential and help ease the process of filing a return

IT : Where an assessee on date of transfer of original asset, owns more than one residential house, he is not eligible for deduction under section 54F, even if other residential house is owned by assessee wholly or partially

■■■

[2013] 40 taxmann.com 528 (Hyderabad - Trib.)

IN THE ITAT HYDERABAD BENCH 'A'

Income-tax Officer, Ward -6(3), Hyderabad

Apsara Bhavana Sai*

CHANDRA POOJARI, ACCOUNTANT MEMBER
AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER

IT APPEAL NO. 557 (HYD.) OF 2012
[ASSESSMENT YEAR 2008-09]

SEPTEMBER 13, 2013

Section 54F of the Income-tax Act, 1961 - Capital gains - Exemption of, in case of investment in residential house [Owning more than one residential house] - Assessment year 2008-09 - Whether where an assessee on date of transfer of original asset owns more than one residential house, he is not eligible for deduction under section 54F even if other residential house is owned by assessee wholly or partially - Held, yes [Para 28][In favour of revenue]

FACTS

■		During relevant assessment year, assessee declared long-term capital gain arising from sale of shares. In respect of said gain, the assessee claimed deduction under section 54F.
■		The Assessing Officer finding that as on date of transfer of shares, the assessee owned more than one house, rejected assessee's claim for deduction.
■		The Commissioner (Appeals) having accepted assessee's contention that one of house property was jointly held by her with other co-owners, allowed assessee's claim.
■		On revenue's appeal:

HELD

■		Exemption under section 54F has been granted to the assessee with a view to encourage construction of one residential house. The construction/purchase of a house other than one residential house is not covered by section 54F.
■		The concession provided under section 54F with effect from 1-4-2001 would not be available in a case where the assessee already owns, on the date of transfer of the original assets, more than one residential house. Therefore, it is clear that emphasis has been given on owning more than one residential house by any assessee. The assessees, who already owns, on the date of transfer of the original asset, more than one residential house, are not eligible for the concession provided under section 54F, even if other residential house may be either owned by the assessee wholly or partially.
■		Therefore, the concession has been given only to encourage that any assessee should have his own residential house. In other words, when any assessee who owns more than one residential in his/her own title exercising such dominion over the residential house as would enable other being excluded therefrom and having right to use and occupy the said house and/or to enjoy its usufruct in his/her own right should be deemed to be the owner of the residential house for the purpose of section 54F. [Para 28]
■		In view of the foregoing discussion, if an assessee is jointly owning more than one property, then the assessee is not entitled for deduction under section 54F. Considering the totality of the facts of the case, the order of the Commissioner (Appeals) has to be reversed. [Para 32]
■		In the result, appeal of the revenue is allowed. [Para 33]

CASES REFERRED TO

ITO v. Rasiklal N. Satra [2006] 98 ITD 335 (Mum.) (para 7), Dr. P.K. Vasanthi Rangarajan v. Dy. CIT [IT Appeal no. 1753 (Mds) of 2004, dated 25-7-2005] (para 10), CIT v. Chandanben Maganlal [2000] 245 ITR 182/[2002] 120 Taxman 38 (Guj.) (para 12), Seth Banarsi Dass Gupta v.CIT [1971] 81 ITR 170 (All.) (para 13), Seth Banarsi Dass Gupta v. CIT [1987] 166 ITR 783/32 Taxman 112A (SC) (para 13), Shiv Narain Chaudhari v. CWT [1977] 108 ITR 104 (All.) (para 13), CIT v. T.N. Aravinda Reddy [1979] 120 ITR 46/2 Taxman 541 (SC)(para 13), Asstt. CITv. K. Surendra Kumar [IT Appeal No. 1324 (Mds) of 2010, dated 12-8-2011] (para 21), CIT v. Ravinder Kumar Arora [2012] 342 ITR 38/[2011] 203 Taxman 289/15 taxmann.com 307 (Delhi) (para 24), Mrs. Kamlesh Bansal v. ITO [2008] 26 SOT 3 (Delhi) (URO) (para 24), Madgul Udyog v.CIT [1990] 184 ITR 484/[1991] 54 Taxman 34 (Cal.) (para 24), Dy. CIT v. Greenko Energies (P.) Ltd. [IT Appeal Nos. 3.7 (Hyd.) of 2013, dated 10-5-2013] (para 24), Mysore Minerals Ltd. v. CIT [1999] 239 ITR 775/106 Taxman 166 (SC) (para 26), CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC) (para 26), Smt. Bhavna Thanawala v. ITO [2007] 15 SOT 377 (Mum.) (para 29), Ravinder Kumar Arora v. Asstt. CIT [2012] 52 SOT 201/21 taxmann.com 305 (Delhi) (para 29) and V.K.S. Bawa v. Asstt. CIT [1996] 56 ITD 232 (Delhi) (para 30).

K.C. Devadas for the Appellant. G.S. Phani Kishore for the Respondent.

ORDER

Chandra Poojari, Accountant Member - This appeal is directed against the order of the CIT(A)-IV, Hyderabad dated 31.01.2012 for assessment year 2008-09.

2. The Revenue raised the following grounds of appeal:

1.		The CIT(A) erred on both facts and law.
2.		The CIT(A) erred in allowing exemption u/s. 54F to the assessee though the owned more than one residential houses as on the date of transfer.

3. Brief facts of the case are that the assessee is housewife, having income from 'house property'. In her return of income, filed for the A.Y. 2008-09 on 26.3.2009, she had declared an income of Rs. 24,325/ -. However, it was observed that in the computation of total income, the assessee had shown having received Long Term Capital gains of Rs. 1,37,02,475/- on sale of shares. Out of the same, Rs. 1,12,28,000/- were claimed as exempt u/s. 54F (CGS), while Rs. 25,00,000/- u/s. 54EC (REC). Evidence and details in respect of the said investments were filed by the assessee. During the course of assessment proceedings, it was observed that the assessee had shown income from 'House property' in her e-return, in respect of the following properties:

(i)		Property at 204, Meenakshi Royal Court, Road No. 11, Banjara Hills, Hyderabad.
(ii)		Property at 301, My Home Navadeep, Madhapur, Hyderabad.

4. From the above, the Assessing Officer noted that the assessee owned more than 2 houses. He noted that as per the provisions of sec. 54F, exemption is not available where the assessee owns more than 1 residential house, other than the new asset, on the date of transfer of original asset. It was noted that the date of transfer of shares in the case of the assessee was between April, 2007 to November, 2007. As on the date of transfer of shares, however, the assessee owned more than one house. The Assessing Officer, therefore, required the assessee to explain as to why her claim of exemption u/s. 54F should not be disallowed.

5. In response, the assessee furnished a copy of the Gift Deed dated 2.4.2007 in respect of the property at 204, Meenakshi Royal Court, Road No. 11, Banjara Hills, Hyderabad, stating that the same had been gifted to Sri B. Siddhardh, aged 11 years, a minor represented by Sri B. Jaya Kumar. The Assessing Officer noted that as per the provisions of sec. 27, any person, who transfers, otherwise than for adequate consideration, any house to a minor child, shall be deemed to be the owner of the house property so transferred. He further noted that the Gift Deed was not registered and the gift had been claimed as given to the assessee's son only, who was a minor. Accordingly, the Assessing Officer concluded that such gift deed was furnished only with an intention to show that she had transferred the impugned property to her minor son before the transfer of shares.

6. In view of the above facts, the Assessing Officer required the assessee to explain as to why the claim of exemption should not be disallowed, as the assessee was owning more than one house as on the date of transfer. Vide letter dated 16.12.2010 it was submitted by the assessee that sec. 27 defines a owner of a house in the context of computing income from house property under the head "Income from House Property", within the provisions of sec. 22 to 26. It was averred that the assessee had got the Gift Deed notarized, which duly conveyed the transfer and is therefore a legal transfer.

7. Alternatively, the assessee claimed that the house at "My Home Navadeep" is a joint property, held by the assessee jointly with her husband. The assessee relied on the decision in the case of ITO v. Rasiklal N. Satra [2006] 98 ITD 335 (Mum.), holding that share in a house per se is not a single ownership. Accordingly, it was claimed that the assessee was eligible for exemption u/s. 54. On a consideration of the contentions of the assessee, the Assessing Officer opined that as per sec. 123 of the Transfer of Property Act, unless a gift of property is registered and stamped, and further attested by two witnesses, it is invalid. He noted that a Gift Deed which is not registered does not pass on any title of ownership in favour of the 'donee'. Therefore, in the process of a valid gift, the following steps are involved:

(i)		Execution of the Gift deed
(ii)		Donee's acceptance of the gift
(iii)		Payment of adequate stamp duty and registration of the property
(iv)		Handing over of possession of the property
(v)		Mutation of the property in Municipal records by the donee ID his name.

8. The Assessing Officer noted that in the assessee's case there was no execution of the Gift deed, payment of stamp duty and registration of the property. Besides, possession of the property had also not been handed over to the minor son. In addition to this, the computation of total income showed that the property was self occupied and was in possession of the assessee only. The Assessing Officer verified from the web site of the Greater Hyderabad Municipality Corporation also and found that the assessee had been shown as owner thereof, having tax dues of Rs. 8358/- as on April, 2010, even though the same was claimed as gifted to her son. The Assessing Officer noted that the effect of non registration of documents is that the same cannot be adopted or received as evidence of any transaction affecting such property. Accordingly, the Assessing Officer concluded that the so called gift is not a valid gift and therefore, it does not exist in the eyes of law. He noted that the assessee had transferred the shares of Nandan Bio Matrix on 2.4.2007 itself, the date on which the aforesaid gift deed was claimed as executed. On verification of the Stamp Vendor book, he further found that 24 stamp papers had been purchased by one Sri Srinivas for Nandan Bio Matrix Ltd., V. Bhaskara Rao, V. Jaya Kumar , M. Phaneesh, Ch. Jadav and V. Sujata, on 14.3.2005 for business purpose. He opined that the left over stamp paper was used by the assessee to show that the gift deed had been executed on 2.4.2007 itself. Accordingly, concluding that the assessee had resorted to devious device of gifting the property to her minor son for claiming exemption u/s. 54F and avoid payment of taxes on long term capital gain arising from sale of shares, even though she continued to be owner of the property. The claim of exemption u/s. 54F of the Act was denied.

9. The Assessing Officer further noted that as per the provisions of sec. 27 of the IT Act, the transfer of property to a minor son shall not be regarded as a transfer and the assessee shall be deemed to be the owner of the property. He, therefore, concluded that in effect the assessee shall be deemed to be the owner of the said property, even if it was transferred to the minor son of the assessee.

10. With regard to the alternative claim of Joint ownership of the property at "My Home Navadeep", the Assessing Officer noted that in the case of Dr. P.K. Vasanthi Rangarajan v. Dy. CIT in ITA No. 1753/Mds/2004 dated 25-7-2005 the Chennai ITAT had held that when the assessee is owning the part of a residential property, though not fully, it amounts to owning any residential property as envisaged in sec. 54F before amendment and the assessee becomes disqualified for exemption under sec. 54F. The Assessing Officer noted that as per the said decision partial ownership in the property amounts to full ownership and hence the assessee is not eligible for exemption u/s. 54F of the Act.

11. The Assessing Officer further noted that since the assessee was holding the "My Home Navadeep" property jointly with her husband, she had full rights over the same and it could not be said that she was not owning that property. It was also noted that as per the letter of the assessee, the entire rental receipt of Rs. 2,55,400/ - for the year had been considered in the return or income of the assessee only, while her husband had not shown any rental income from the said property.

12. The Assessing Officer further noted that in the case of CIT v. Chandanben Maganlal [2000] 245 ITR 182/[2002] 120 Taxman 38 (Guj), it was held that purchase of a share in the residential house is equivalent to purchase of residential house for the purpose of sec. 54. Accordingly, he opined that in view of the said decision also, share in a residential property is equivalent to one house. Accordingly, concluding that the assessee was owning more than 2 houses as on the date of transfer of shares, the Assessing Officer held that the assessee was not eligible for exemption u/s. 54F of the Act. Against this, the assessee went in appeal before the CIT(A).

13. Before the CIT(A) the assessee reiterated that a share in the joint property should be regarded as a share only and not as a single individual ownership. It was averred that the Assessing Officer did not consider the legal position standing as on date. It was contended that the assessee's case is clearly covered by the decisions, such as those in Rasiklal N. Satra (supra) and in Seth Banarsi Dass Gupta v. CIT [1971] 81 ITR 170 (All), Seth Banarsi Dass Gupta v. CIT [1987] 166 ITR 783/32 Taxman 112A (SC). It was averred that as per the judgement of the Apex Court, a co-owner means a person entitled to a share in the property but cannot be recognised as the single owner. The decisions in the cases of Shiv Narain Chaudhary v.CWT [1977] 108 ITR 104 (All.) and in CIT v. T.N. Aravinda Reddy [1979] 120 ITR 46/2 Taxman 541 (SC) were also cited.

14. The assessee further contended that the decision of the Tribunal in the case of Rasikal N. Satra (supra) was not contested further, and therefore, shall be considered as final. She maintained that it has been established in the said case that part ownership of the house property could not be a disqualification for claiming exemption u/s. 54F, as joint ownership has not been considered as a single (numeric) ownership of a house property. Therefore, a joint ownership in a house should not be considered in counting the numeric strength of the house property as envisaged under the said provisions for claiming exemption u/s. 54F and should be excluded.

15. The assessee submitted that in the case of Seth Banarsi Dass Gupta (supra), Seth Banassi Dass Gupta (supra) also a fractional share in an asset was not considered as coming within the ambit of single ownership. It was held that the test to determine a single owner is that "the ownership should be vested fully in one single name and not as joint owner or a fractional owner". The assessee submitted that that the share in a joint ownership in the property at "My Home Navadeep" should be excluded and not considered as disqualification for claiming exemption u/s. 54F of the Act.

16. The CIT(A) observed that as regards the property at 204, Meenakshi Royal Court, Road No. 11, Banjara Hills, Hyderabad, it is the contention of the assessee that in view of the gift deed dated 2.4.2007, whereby the said property was gifted to the assessee's minor son, the assessee was no more the owner of the said property. It is also contended that the provisions of sec. 27 of the Act to the effect that any person, who transfers, otherwise than for adequate consideration, any house to a minor child, shall be deemed to be the owner of the house property so transferred, is relevant only in the context of computation of income from 'House property' and not for the purpose of deciding ownership in the context of Sec. 54F of the Act.

17. The CIT(A) further observed that the contentions of the assessee are unacceptable. Firstly, it is clear that the Gift deed dated 2.4.2007 is not a registered document, so as to have any legal sanctity. In the absence of registration of the gift and attestation thereof' by two witnesses, the rights of the owner cannot be considered as transferred in favour of the so-called 'donee'. Besides, it is seen that the so called "gift deed" is claimed as executed only on the date of transfer of shares of Nandan Bio Matrix by the assessee. It is also seen that while the assessee did not pay any stamp duty towards this nor she got the property registered later, even the stamp papers used by the assessee for the same were those purchased by the personnel of Nandan Bio Matrix Ltd. itself on 14.3.2005 for business purpose. Under the circumstances, it is clear that the entire arrangement of "Gift" is only an afterthought, put on record only with a view to show that the assessee was owning only one house as on the date of transfer of shares.

18. The CIT(A) observed with regard to the deeming fiction created by Sec. 27 of the Act, it is true that the same has been prescribed in the context of computation of income from house property, however, it is clear that the provisions of sec. 54F have been enacted with a view to give fillip to the Housing Sector only. Therefore, in order to decide the eligibility of an assessee for deduction u/s. 54F, the said provision is required to be applied, so as to ensure that the intended incentive is not misused. Accordingly, even if there had been a valid and registered gift deed, the assessee could not have been considered as not being the owner of the house so gifted, for the reason that in the instant case the gift was made to a minor child, without adequate consideration.

19. The CIT(A) observed that in the instant case, however, there was no valid gift at all. It is seen that the assessee not only continued to stay in the same premises but was also being shown as the owner of the property in the municipal records even till April, 2010. Besides, in the computation of total income, the property was shown as self occupied, showing that she was in possession of the said property. In view of the above facts, it is clear that the assessee continued to be the owner of the property at 204, Meenakshi Royal Court, Road No. 11, Banjara Hills, Hyderabad.

20. As regards the property at 301, My Home Navdeep, Madhapur, Hyderabad, the CIT(A) observed that admittedly the same was jointly owned by the assessee with her husband. The question, therefore, is whether the part ownership of the assessee of the said flat could be considered as ownership of the flat. In this regard, it is seen that in the decision in the case of Dr. P.K. Vasanthi Rangarajan (supra), it has indeed been held that if an assessee owns part of a residential property, though not fully, it amounts to owning of a residential property as envisaged in sec. 54F before amendment, and the assessee becomes disqualified for exemption u/s. 54F. However, is also seen that the Tribunal Mumbai in the case of Rasiklal N. Satra (supra) have taken a view that ownership is different from absolute ownership. They have held that in the case of a residential unit, none of the co-owners can claim that he is the owner of the residential house. The Tribunal observed that ownership of a residential house means ownership to the exclusion of all others. In this regard they relied on the decision of the Supreme Court in the case of Seth Banarasi Dass Gupta (supra), holding that fractional ownership is not sufficient for claiming even fractional depreciation u/s. 32 of the Act. It was held that the word "own" would not include a case where a residential house is partly owned by one person or partly owned by other person(s). The Tribunal felt that after the aforesaid decision of the Supreme Court, the Legislature could have amended the provisions of sec. 54F to include part ownership. However, since the same is not done, it was to be held that the word "own" in sec. 54 F would include only the case where a residential house is fully and wholly owned by the assessee and not one owned by more than one person.

21. The CIT(A) observed that while it may be true that the said decision of the Tribunal Mumbai Benches in the case of Rasiklal N. Satra (supra) was not contested further, it is also seen that the Chennai Bench of the Tribunal in a recent decision in the case of Asstt. CIT v. K. Surendra Kumar in ITA No. 1324/Mds/2010 dated 12.8.2011 have followed the same decision. Going against the decision of their Co-ordinate Bench in the case of Dr. P.K. Vasanthi Rangarajan (supra), the Tribunal noted that the decision of the Supreme Court in the case of Seth Banarasi Dass Gupta (supra) had not been considered by them, whereas the same was considered in the decision in the case of Rasiklal N. Satra (supra) by the Tribunal Mumbai Benches. Since in the said case the assessee was only a part owner of the two residential properties, they held that he could not be said as owning a residential house as required for the purpose of benefit u/s. 54F of the Act.

22. The CIT(A) observed that as per the facts of the case of the present assessee, even though the assessee is still considered as the owner of the property at 204, Meenakshi Royal Court, Road No. 11, Banjara Hills, Hyderabad, she is undisputedly only a part owner of the property at 301, My Home Navadeep, Madhapur, Hyderabad. In the light of the decisions of the Tribunal Mumbai and Chennai Benches as discussed above, the assessee cannot be considered as owning the latter property, in exclusion of the joint owner, i.e., her husband, so as to be called the "owner" of flat No. 301, My Home Navdeep, Madhapur, Hyderabad for the purpose of sec. 54F of the Act. Under these circumstances, the assessee can be said as owning only one property as on the date of sale of shares, and therefore, is eligible for deduction u/s. 54F of Rs. 1,12,28,000/-. Accordingly, the CIT(A) decided the grounds raised by the assessee in her favour and directed the Assessing Officer to revise the computation of income. Against this, the Revenue is in appeal before us.

23. The learned DR submitted that the CIT(A) wrongly granted deduction u/s. 54F of the Act, though the assessee is owning more than one residential house. According to the learned DR the assessee has the following houses:

(i)		204, Meenakshi Royal Court, Road No. 11, Banjara Hills, Hyderabad (gifted to minor son through an un-registered gift deed).
(ii)		301, My Home Navdeep, Madhapur, Hyderabad (jointly owned with her husband).

24. Further, he submitted that the gift to the minor son through an unregistered gift deed is invalid. Being so, the title in the property has not been passed to the assessee's minor son and the assessee is the absolute owner of that property. Further, the assessee being partial owner of the property at 301, My Home Navdeep, Madhapur, Hyderabad, considering the partial ownership and absolute ownership of the other house situated at 204, Meenakshi Royal Court, Road No. 11, Banjara Hills, Hyderabad, the assessee is owning more than one house and is not entitled for deduction u/s. 54F of the Act. Further, he submitted that even partial ownership is to be considered as full ownership in the property and she cannot granted deduction u/s. 54F of the Act. For this proposition, he relied on the following judgments:

(i)		CIT v. Ravinder Kumar Arora [2012] 342 ITR 38/[2011] 203 Taxman 289/15 taxmann.com 307 (Delhi). In that case the assessee has purchased a new residential house along with his wife. The AO granted deduction u/s. 54F to the extent of 50% as per the assessee's share in the property. On further appeal, the Tribunal as well as the High Court held that the assessee is entitled for full exemption u/s. 54F of the Act and the Assessing Officer was not justified in restricting the exemption to the extent of 50% of the amount invested in the new residential house.
(ii)		Mrs. Kamlesh Bansal v. ITO [2008] 26 SOT 3 (Delhi) (URO) wherein it is held that the assessee investing capital gain in construction of a residential house on the land owned by her husband and under agreement having 50% share therein was eligible for exemption u/s. 54F notwithstanding absence of registered deed in hear favour.
(iii)		Further, he relied on the judgement of Calcutta High Court in the case of Madgul Udyog v. CIT [1990] 184 ITR 484/[1991] 54 Taxman 34 (Cal.). He also relied on the order of the Tribunal in the case of Dy. CIT v. Greenko Energies (P.) Ltd. in ITA Nos. 3-7/Hyd/13 dated 10.5.2013.

25. According to the DR even fractional or partial ownership of the immovable property disentitles the assessee for claiming deduction u/s. 54F of the Act. Finally, he submitted that even the fractional ownership of the property by the assessee at 301, My Home Navdeep, Madhapur, Hyderabad along with her husband and owning a property at 204, Meenakshi Royal Court, Road No. 11, Banjara Hills, Hyderabad is to be treated as assessee is owning more than one residential house and the assessee is entitled for deduction u/s. 54F of the Act.

26. On the other hand, the learned AR submitted that even if the gift deed made to assessee's minor son in respect of property situated at 204, Meenakshi Royal Court, Road No. 11, Banjara Hills, Hyderabad is invalid, the partial ownership of the property situated at 301, My Home Navdeep, Madhapur, Hyderabad along with her husband cannot be construed as owning of residential house and it should be treated as owning only one residential house and the assessee is to be granted deduction u/s. 54F of the Act and the order of the CIT(A) is to be confirmed. The AR relied on the following judgments:

(i)		Seth Banarsi Dass Gupta wherein the Apex Court held that depreciation on assets is to be granted only when the assessee is owner of the property and not in respect of a fractional ownership of the property.
(ii)		Mysore Minerals Ltd. v. CIT [1999] 239 ITR 775/106 Taxman 166 wherein the Apex Court held that any one in his possession of property in his own title exercising such dominion over the property as would enable the others being excluded therefrom and having right to use and occupy the property in his own right would be the owner of the building. According to the AR the fractional ownership cannot be construed as the assessee is owning second residential house. Being so, the assessee is entitled for deduction u/s. 54F of the Act.
(iii)		The AR also relied on the judgement of Supreme Court in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 for the proposition that when two views are possible, the view which favours the assessee is to be adopted.

27. In rejoinder, the learned DR submitted that the judgements relied on by the learned AR are relating to granting of deduction u/s. 32 and the language used therein is entirely different from section 54F of the Income-tax Act and these judgements are not applicable to the facts of the case.

28. We have heard both the parties and perused the material on record. Exemption u/s. 54F has been granted to the assessee with a view to encourage construction of one residential house. The construction/purchase of a house other than one residential house is not covered by section 54F of the Act. The concession provided u/s. 54F w.e.f. 1.4.2001 would not be available in a case where the assessee already owns, on the date of transfer of the original assets, more than one residential house. Therefore, it is clear that emphasis has been given on owning more than one residential house by any assessee. The assessees, who already owns, on the date of transfer of the original asset, more than one residential house, are not eligible for the concession provided u/s. 54F of the Act. Even if other residential house may be either owned by the assessee wholly or partially. Therefore, the concession has been given only to encourage that any assessee should have his own residential house. In other words, when any assessee who owns more than one residential in his/her own title exercising such dominion over the residential house as would enable other being excluded therefrom and having right to use and occupy the said house and/or to enjoy its usufruct in his/her own right should be deemed to be the owner of the residential house for the purpose of section 54F of the Act. The proviso to section 54F of the Act clearly provides that no deduction shall be allowed if the assessee owns on the date of transfer of the residential asset more than one residential house.

29. This has been considered in the case of Smt. Bhavna Thanawala v. ITO [2007] 15 SOT 377 (Mum). In the case of Ravinder Kumar Arora v.Asstt. CIT [2012] 52 SOT 201/21 taxmann.com 305 (Delhi) it was held that even joint ownership of the property by the assessee along with his wife is construed as investment by the assessee and deduction u/s. 54F is allowable.

30. In the case of V.K.S. Bawa v. Asstt. CIT [1996] 56 ITD 232 (Delhi) wherein it was held that when an assessee has become owner of a share (fractional) in property bequeathed to her by her mother, by the time the assessee purchased another property, she could not claim exemption u/s. 54F of the Act.

31. In the case of Ravinder Kumar Arora (supra) it was held that the assessee having invested the entire amount of long term capital gain in purchase of new residential house was entitled to exemption u/s. 54F in respect of the entire amount even though the new property was in the joint names of assessee and his wife.

32. In view of the foregoing discussion, if an assessee is jointly owning more than one property, then the assessee is not entitled for deduction u/s. 54F of the Act. Considering the totality of the facts of the case, we are inclined to reverse the order of the CIT(A). The ground taken by the Revenue is allowed.

33. In the result, appeal of the Revenue is allowed.

SUNIL

*In favour of revenue.

IT : Where assessee admits undisclosed income for earlier years which had ended prior to date of search under section 132(4) 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

■■■

[2013] 40 taxmann.com 516 (Mumbai - Trib.)

IN THE ITAT MUMBAI BENCH 'C'

Deputy Commissioner of Income-tax, Cen. Cir. 20

Purnandu Jain*

I.P. BANSAL, JUDICIAL MEMBER
AND N.K. BILLAIYA, ACCOUNTANT MEMBER

IT APPEAL NOS. 1679 & 1680 (MUM.) OF 2012
[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.

--
Regards,

Pawan Singla , LLB

M. No. 9825829075

IT : In his order imposing penalty, AO must also state the "reasons" for his 'satisfaction' that penalty is attracted

• "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.

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) ...

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:

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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Wednesday, January 29, 2014

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