2015 (11) TMI 633 - AT - Income Tax

Penalty under section 271(1)(c) - unexplained cash funds received from sale of the Bangalore property, and its utilisation for Pune property - Held that - Money applied in acquisition of Pune properties was mainly out of money received from sale of shares of M/s. Ami Builders Pvt. Ltd. and S. K. Projects P. Ltd. No fault has been found by the Assessing Officer or the Commissioner of Income-tax (Appeals) in the above cash flow statement indicating one to one nexus between the cash funds received on sale of Bangalore property and utilisation for purchase of Pune property. Since all these income had been offered for tax, there cannot be double taxation on the same income one at a point of source and another at a point of application. Taxes have been paid on additional income out of sale of shares of M/s. Ami Builders Pvt. Ltd. and S. K. Projects P. Ltd. therefore, again there cannot be tax on the same income at the time of acquisition of property at Pune. In view of the above facts we may appreciate that declaring additional income of ₹ 40.35 crores as narrated in the letter dated December 8, 2011 filed before the lower authorities, covers each and every issue that has been pointed out during the search as well as post search proceedings. The assessee had paid taxes with a view to buy peace and to avoid litigations. As a matter of record group companies and their promoters have been filing return of income since more than two decades and also paying taxes thereon. It is also clear from the above statement so recorded by the Department under section 132(4) that cash component was there for the purchase of property at Pune. The said cash and cheque component was arranged and funded by the promoters of the company, namely, Sunil and Sneha Kotharis. The source of cash was made available from the sale proceeds on shares of M/s. Ami Builders Pvt. Ltd. and S. K. Projects Ltd. which was declared and offered for tax. In view of the cash flow statement as discussed above, the assessee has explained one to one nexus namely cash funds received from sale of the Bangalore property, and its utilisation for Pune property. The revised declaration of income so filed by the assessee was bona fide and voluntary and without detection of any irregularities found by the Department. The return was revised with a view to co-operate the Department and to buy peace and to avoid litigation. The disclosure was with a specific plea that no penalty proceedings be initiated under section 271AAA or 271(1)(c) of the Act. - Decided in favour of assessee.

Issues Involved:
1. Imposition of penalty under section 271(1)(c) of the Income-tax Act, 1961.
2. Alleged failure to substantiate the manner of deriving undisclosed income and establishing the source of cash investments.
3. Voluntary declaration of income to avoid litigation.
4. Adequate opportunity of being heard and principles of natural justice.

Issue-Wise Analysis:

1. Imposition of Penalty under Section 271(1)(c):
The appeals were filed by the assessee against the orders of the Commissioner of Income-tax (Appeals)-36, Mumbai, confirming the penalty imposed under section 271(1)(c) for the assessment years 2007-08 and 2008-09. The penalties were levied on the grounds that the assessee failed to substantiate the source of undisclosed income and the cash investments made in properties. The assessee argued that the penalties were unjustified as the income was voluntarily declared to buy peace and avoid litigation.

2. Alleged Failure to Substantiate the Manner of Deriving Undisclosed Income and Establishing the Source of Cash Investments:
The assessee, a private limited company engaged in construction and property development, had originally filed returns showing nil income. Following search operations, a notice under section 153C was issued, and the assessee filed revised returns declaring an additional income of Rs. 2,59,75,000. The Assessing Officer accepted the revised computation but initiated penalty proceedings, alleging that the assessee failed to explain the source of cash investments in properties. The assessee contended that the cash investments were funded by the sale of shares of group concerns and that the income had already been taxed in the hands of the promoters, thus avoiding double taxation.

3. Voluntary Declaration of Income to Avoid Litigation:
The assessee argued that the additional income was declared voluntarily to avoid prolonged litigation and buy peace with the Revenue authorities. The declaration was made with the understanding that no penalties would be imposed. The assessee provided detailed explanations and cash flow statements linking the funds received from the sale of shares to the investments in properties, which were not disputed by the Assessing Officer.

4. Adequate Opportunity of Being Heard and Principles of Natural Justice:
The assessee claimed that the penalty order was passed without granting adequate opportunity of being heard, violating the principles of natural justice. The Tribunal examined the records, statements, and explanations provided by the assessee, including the detailed cash flow statements and the nexus between the funds received and the investments made.

Conclusion:
The Tribunal concluded that the assessee had provided a bona fide and voluntary disclosure of income, with a clear nexus between the funds received from the sale of shares and the investments in properties. The revised returns were filed to co-operate with the Department and avoid litigation. The Tribunal found no merit in the penalties imposed under section 271(1)(c) for both assessment years 2007-08 and 2008-09. Consequently, the appeals were allowed, and the penalties were set aside.

Judgment:
The appeals for the assessment years 2007-08 and 2008-09 were allowed, and the penalties imposed under section 271(1)(c) were annulled. The order was pronounced in the open court on September 23, 2015.

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