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TMI Blog2015 (3) TMI 264X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 1,86,01,810/-. Thus the entire penalty levied u/s 271AAA, as confirmed by the Ld.CIT(A) is hereby deleted. - Decided in favour of assessee. - I.T.A .No. 4674/Del/2014 - - - Dated:- 19-2-2015 - SH. H.S.Sidhu And SH.J.S.Reddy JJ. For the Appellant : Sh.Salil Aggarwal Sh. Shailesh Gupta, Adv. For the Respondent : Sh.Ramesh Chandra, CIT DR ORDER Per J.S.Reddy, AM This is an appeal filed by the assessee directed against the order of the CIT(A)-X, Delhi dated 18.07.2014 for the assessment year 2009-10. 2. The facts are brought out at para 2 of the ld. CIT(A) s order. These are extracted for ready-reference:- The facts of the case are that a search u/s 132(1) of the I.T. Act, 1961 was conducted on 14-10-2008 in S.V.P. Group during which the office premises of SVP Builders India Ltd. Associates Company Residential premises of the Directors their relatives were covered. The SVP Group of companies was engaged in the business of construction of residential, commercial and business complexes along with sale / purchase of lands. It was alleged that the group had been charging on money on the sale of flats, shops etc. which was not accounted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39; the provisions of section 271AAA of the Act could not be invoked and no penalty could have been imposed much less u/s 271AAA of the Act. 5. That in any case, no satisfaction having been recorded by the A.O. in the order of assessment that ₹ 15,00,00,000/- was an undisclosed income and no proceedings having been initiated, no penalty u/s 271AA of the Act could have been sustained by the learned CIT(A). 4. The Ld. Counsel for the assessee Sh. Salil Aggarwal submitted that the ACIT has initiated the penalty with respect to only two specific aditions i.e. (i) addition made of ₹ 1,86,01,810/- (on the basis of document A-163) and (ii) addition made of ₹ 30,00,000/- on account of share application money received during the year which was treated as concealed income of the assessee. He submitted that the penalty qua the addition of ₹ 30,00,000/- has been deleted by the Ld. CIT(A), for the reason that the Tribunal has deleted the addition in quantum proceedings. Hence only penalty initiated on an addition made of ₹ 1,86,01,810/- remains to be adjudicated. He submitted that the AO initiated penalty, only with respect to two additions but has wrongl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bench of ITAT in the case of Sh. Kirtibhai K.Shroff vs ITO (ITA No.-342/Ahd/2011 dated 17.10.2014, for the proposition that no penalty can be levied under such circumstances. 9. He further submitted that the assessee had voluntarily disclosed an amount of ₹ 10,90,60,000/- and whereas the discrepancies in the books of accounts and the amount relatable to seized documents at best, aggregated to undisclosed income of ₹ 7,29,66,351/- only. Thus he submitted that the surrender of income made by the assessee was much higher than the evidence found during the course of search and this shows the bonafide of the assessee as it had paid more tax than that was required under the law. He relied on the arguments raised by the First Appellate Authority and submitted that the penalty sustained should be cancelled. 10. The Ld. DR, Mr. Ramesh Chandra and on the other hand opposed the contention of the assessee. He filed written submission also. At the outset he contended that penalty proceedings should be strictly construed. He submitted that the order of the CIT(A) is devoid of merit and that it is bad in law, for the reason that the assessee while filing the appeal before the CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opportunity during the course of assessment proceedings to specify the manner of earning undisclosed income and to substantiate the same, and as this opportunity was not availed by the assessee, cannot be given the benefit of Sec.271AAA(2) of the Act. 13. Referring to the letter filed by the assessee on 05.03.2013 before the AO the Ld.CIT, D.R. submitted that the only prayer was to keep the proceedings in abeyance and there was no contention arise on the issue of initiation. He submitted that the statement recorded was from one Sh. Vijay Jindal who has given a declaration u/s 132(4) of the Act cannot be considered as a declaration of the assessee company. His contention that this is a personal declaration of Shri Vijay Jindal and that this clear from the fact that certain jewellery has been referred to and this could have not been a surrender on behalf of the company. He distinguished the case laws relied on by the assessee and argued the order of the CIT(A) confirming the penalty levied by the AO u/s 271AAA be upheld. The Ld. DR referred to sub-section (2) of 271 AAA and reiterated that the condition laid down therein have not been satisfied on the assessee. He referred in det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be challenged. The right of appeal is a substantive right. Procedural issues can not take away substantial rights of a person. This cannot be a ground for the Revenue to challenge the order of the Ld. CIT(A), which is in this case in favour of the Revenue. The arguments, to say the least are farfetched. Hence we dismiss the same. 16. We now considered the contention of the assessee that penalty has been initiated by the AO during the course of assessment proceedings, only with respect to, two items of additional income. 16.1. We have perused the assessment order. At page 17 para 1 the AO held as follows:- The above fact clearly establishes the collusive arrangement between the assessee company (Share holders) and the beneficiary (i.e. SVP group) for which the companies who have advanced such contribution merely acted as an conduit channel to bring back the assessee s unaccounted/undisclosed income under the quise of share application money and later on returning these shares to the individuals/concerns of SVP group at a throwaway price This is a calculative move to give these sham transactions the colour of genuineness. Therefore, in view of above observation, cir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shier. When cheque payment is received from the customer, such cash is returned back to the customer. Further without prejudice to the above it is submitted that during AY 2009-10, the assessee have already declared additional income of 10.19 crores for any possible leakage. This document pertains to various receipts by the assessee which are not recorded in the books of account. The explanation of the assessee given in this letter is not acceptable because these documents are not entered in the books of account of the assessee. Therefore total of transactions, i.e. ₹ 1,86,01,810/- is added to the income of the assessee. 19. Thereafter at page 20 para 8 second part, he stated as follows:- Penalty proceedings u/s 271AAA have been initiated relating to disallowances/additions made as per para 3 resulting in undisclosed income. 20. From the above it is clear that initiation of penalty was qua para 3 of the income under the head other income only. There is no initiation of penalty proceedings qua the other items of income in paras 1 and 2 etc. Except at the last page where the initiation was with respect to only concealed income, there is no other place where ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). The Tribunal was justified in deleting the penalty under section 271(1)(c) in respect of the sugar development fund loan. 25. In the case of CIT vs Lotus Construction, the Hon ble Telangana and Andhra Pradesh High Court in 370 ITR 475 held as follows:- Basically section 271(1) itself indicate that the satisfaction or decision to initiate proceedings must arise in the course of the proceedings. Added to that, sub-section (1) (b) of section 271 of the Act mandates that the intention or satisfaction to initiate proceedings must be evident from the order of assessment itself, meaning thereby that such satisfaction need not be supported with other reasons. In Chennakesavas case (supra 2) this Court held that absence of any mention in the order of assessment that proceedings under Section 271(c) would be initiated makes the initiation of such proceedings, untenable. 26. The Hon ble Karnataka High Court in the case of 41 taxmann.com 496 in the case of CIT vs MWP Ltd. (Kar.) held as follows:- In the instant case in the assessment order initially something had been said regarding diminution in the value of investment. Thereafter, in the end, it was stated that penalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Ld. CIT(A) has rightly deleted the same as, in the quantum proceedings, the Tribunal has deleted this addition. 29. This leaves with us with the issue of levy of penalty on the income of ₹ 1,86,01,810/- which is item No.-3 of the head of other income. 30. Admittedly no question has been asked to the assessee, either during the course of search or thereafter, to specify the manner in which the assessee had derived this income nor to substantiate the same. The Ld. DR did not controvert this factual contention of the assessee that no question was put to the assessee by the revenue officials in this regard. A perusal of the papers on record does not demonstrate that the revenue officials have asked such a question to the answer either during the course of search or thereafter. 31. Under similar circumstances the Delhi F Bench of the Tribunal in the case of ITA no.-1835/Del/2013 in the case of Mr. Sita Ram Gupta vs ACIT order signed by one of us (AM), at para 12 to para 23 held as follows:- 12. In CIT vs. Radha Kishan Goel (supra) (CLPB 41-47), it has been, inter alia, held as follows:- 8. Section 132 (4) of the Act reads as follows: (4) The authorized o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count, documents, money, bullion, jewellery or other valuable article or thing, therefore, it is for the authorized officer to record the statement in his own way. Therefore, it is not expected from the person to state those things, which are not asked by the authorized officer. 11. It is a matter of common knowledge, which cannot be ignored that the search is being conducted with the completed team of the officers consisting of several officers with the police force. Usually telephone and all other connections are disconnected and all ingress and egress are blocked. During the course of search person is so tortured, harassed and put to a mental agony that he loses his normal mental state of mind and at that stage it cannot be expected from a person to preempt the statement required to be given in law as a part of his defence. 12.1 In these circumstances, we are of the view that under section 132 (4) of the Act unless the authorized officer puts a specific question with regard to the manner in which income has been derived, it is not expected from the person to make a statement in this regard and in case in the statement the manner in which income has been derived has not bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion No.2 while making statement under section 132 (4) of the Act. The view taken by the Tribunal as well as Allahabad High Court to the effect 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. 15. In Neerat Singal (supra) (CLPB 60-77), following Radha Kishan Goel (supra) and Mahendra C. Shah (supra), penalty levied u/s 271AAA of the Act was deleted. While doing so, it was held, inter alia, that 16. In view of above facts of the present case wherefrom it is evident that during the course of search proceedings the authorized officer of the department had not raised any specific query regarding the manner in which the undisclosed income has been derived and on the contrary the assessee has tried to explain the earning of the undisclosed income in question in its reply during the course of recording of his statement u/s 132(4) of the Act and thereafter. We thus respectfully following the ratio of above cited decisions of Hon ble Allahabad High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion of specifying the manner in which the undisclosed income had been derived and substantiated, was not rejected by the AO. In both the matters the authorized officer did not ask any other specific question of the assessees. No decision contrary to the above decisions has been cited before us. 18. Sections 271AAA (1) and (2) of the Act reads as follows:- (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 u/s 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 percent of the undisclosed income of the specified previous year. (2) Nothing contained in sub-sec. (1) shall apply if the assessee, - (i) In the course of the search, in a statement under subsection (4) of Section 132, admits the undisclosed income and specified 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s accepted as such. 32. The Chennai Bench of the ITAT in the case of ACIT vs A.N. Annamalaisamy (HUF)155 TTJ 98 (Chennai) held as follows:- Yes,-whether further amount admitted by assessee at time of search was offered for taxation and assessee had paid tax with interest and also explained about business and stated that jewellery was acquired over a period of time, there was no ground to levy penalty under section 271AAA. 33. The Hon ble Delhi Bench of the Tribunal in the case of Neerat SIngal vs ACIT 146 ITD 152 (Del), held as follows:- In the instant case, there is no dispute that the assessee has paid due tax together with interest on the admitted undisclosed income. The only dispute is as to whether while doing so the assessee has specified and substantiated the manner in which it was derived. [Para 10] On comparing Explanation 5 to section 271(1)(c) with the provisions laid down under section 271 AAA, a lot of similarity is found therein under which penalty is not attracted in a case of search on the undisclosed income. As per Explanation 5 to section 271 (1)(c), if the assessee in the course of search makes a statement under sub-section (4) of section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in case of search initiated after 1-6-2007 (but before 1-7-2012) provisions under section 271AAA will be applicable. These provisions are, thus, not applicable simultaneously but these are period specific. [Para 11] From the facts of the instant case it is evident that during the course of search proceedings the authorized officer of the department had not raised any specific query regarding the manner in which the undisclosed income has been derived and on the contrary the assessee has tried to explain the earning of the undisclosed income in question in its reply during the course of recording of his statement under section 132(4) and thereafter. In absence of query raised by the authorized officer during the course of recording of statement under section 132(4) about the manner in which the undisclosed income has been derived and about its substantiation, the Assessing Officer was not justified in imposing penalty under section 271 AAA specially when the offered undisclosed income has been accepted and tax due thereon has been paid by the assessee. Thus, the orders of the authorities below are set aside in this regard and the Assessing Officer is directed to delete the ..... 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