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TMI Blog2007 (12) TMI 460X X X X Extracts X X X X X X X X Extracts X X X X ..... ving filed false details of gifts in the original returns. (v)The decisions relied upon by the CIT(A) or with reference to case were the assessee had filed revised returns without any quantification by the department. The CIT(A) has failed to appreciate the facts that in the present case the quantum of income is not based on the revised return but on the fact of withdrawal of claim of gifts by the assessee. The issue of revised returns is only incidental." 3. The action under section 132 was conducted in the premises of Prakash Tea Agencies Group of cases on 6-1-2004. All the assessees belong to this group. Since facts in all the cases are identical, therefore, we will be referring to the facts of one of the cases, i.e., case of Shri S. Kumar. Notice under section 153A was issued on 6-4-2004. In response to that notice, the assessee filed return declaring an income of ₹ 7,07,230. In the original return, the assessee declared an income of ₹ 92,230. An additional income of ₹ 6,15,000 was declared. This amount represented credits in the capital account of the assessee. During the previous year relevant to the assessment year 2000-01, such receipts were shown t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nuine and only with a view to buy peace with the deptt., the same were offered to tax. In the absence of a guilty mind or an intention to conceal, penalty cannot be levied." 6. The Assessing Officer considered the above explanation. According to the Assessing Officer, alleged credits were credited in the capital account and the capital account is represented by the assets acquired. The existence of the asset confirms the fact that for the receipt of such gifts there would have been unexplained investments. The investigation conducted during the course of search showed that the gifts were not genuine and there was an attempt to evade the payment of tax by arranging such gifts. The learned Assessing Officer has referred to the following facts for arriving at the above conclusion : "1.The assessee belongs to a group identified as 'Prakash Tea Agency' group of cases. The main entity, M/s. Prakash Tea Agencies is carrying on business of trading in tea leaves. 2.During the course of action under section 132 conducted, along with other assets, cash of ₹ 3,88,30,100 was found. This cash was proved to be unaccounted and the same has been offered for tax for the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of ₹ 6,15,000 during the previous year. All the above facts have been accepted in the statements recorded during the course of search and the gifts were agreed as not genuine the income, therefore, has been offered for tax. The existence of the income is not under dispute. For a total amount of ₹ 4,58,33,000 received as alleged gifts by the group. 1,000 donors are required for organizing gifts each of denomination ₹ 49,000. The assessee-group has neither established the existence of the donors nor their creditworthiness. Presuming that such people are all in existence, there is no reason as to why these 1,000 people prefer to give gifts to the assessee-group alone year-after-year for no obvious reason. It is not the case of the assessee-group that such donors are either relatives or friends who could have given gifts on some occasions. Presuming but not accepting that the gifts are genuine, it does not stand to logic as to how all donors fall into a pattern that none of them have any identifiable source of income and prefer to gift to the assessee-group alone. Invariably each of the gift is of quantum ₹ 49,000. The genuine transactions will never fall int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urce of income having been considered or any excessive expenses or deduction claimed. (f)The decision of the Apex Court reported at 259 ITR 9 is applicable. In that case, revised return showing higher income after search were filed to purchase peace and avoid litigation. The Appellate Tribunal held that burden of proving concealment is not discharged and penalty cannot be levied. The Apex Court upheld that finding. (g )If income returned in revised return is accepted, even though revised returns were filed after search and subsequent enquiries made by the department, the penalty cannot be levied as held by the M.P. High Court in the case reported at 276 ITR 156. (h)The Assessing Officer also recorded that assessee has co-operated with the department and, accordingly, levied minimum penalty. The disclosure was only the measure of co-operation to buy peace. Hence, the assessee was under the belief that no penalty will be levied." 9. The learned CIT(A) deleted the penalty on account of gifts after observing as under : "The arguments raised above by the assessee are quite convincing as has been held by Hon'ble Supreme Court in 251 ITR, and also in 276 ITR MP, with assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e introduced the same in business. It was, therefore, argued that the content of the above letter makes it clear that the individuals were also having their own sources of income. Hence, the contention raised before the learned CIT(A) that none of the assessees who have received gifts were not having any independent business or any other independent sources of income is not correct. The learned DR further drew our attention towards answer given to question No. 7 by Shri V.N. Sridhar in the statement recorded on 27-2-2004. Vide this answer, Shri Sridhar stated that they are in the business of tea trading for the past 45 years and the income so generated was kept in the form of cash at home as the business is in cash. Other family members also had sources of income in cash, which were kept at home and were utilized for purchase of property or for other purposes from time to time. Hence, it was argued that family members were having their independent sources of income and it cannot be said they were not having source of income. 11. The learned DR drew our attention to the statement of Shri V.N. Sridhar recorded on 22-1-2004. In answer to question No. 3, Shri V.N. Sridhar has admitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axman 317, in which, it has been held that there is no onus on the revenue to prove mala fides on the part of the assessee. Assessee can explain his bona fides in the penalty proceedings. 14. The learned AR submitted as under : (a)Section 153A starts with a non obstante clause "notwithstanding anything contained in sections 139, 147, 148, 149, 151 and 153......" Further under the second proviso of the section, the assessment and reassessment abate. (b)There is no amendment to section 271(1)(c) of Income-tax Act, 1961 consequent to insertion of section 153A of Income-tax Act, 1961. (c)Because of non obstante clause, it is very clear that the return to be filed under the provisions of section 153A of Income-tax Act, 1961 is a fresh/independent return. Any Act of concealment, there in is to be compared with the return as filed under section 153A of Income-tax Act, 1961 and the income as assessed. The fact of concealment is not to be seen vis-á-vis the return which would have been filed originally under the normal provisions. (d)This is further strengthened by the fact that the assessment proceedings abate. The assessment do not mean merely the scrutiny proceeding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Suresh Chandra Mittal [2000] 241 ITR 124 (MP) was entirely based on Sir Shadilal Sugar & General Mills Ltd. v. CIT [1987] 33 Taxman 460A (SC) and the decision of Supreme Court in K.P. Madhusudhanan v. CIT [2001] 118 Taxman 324 was not there at that time. 3.ITAT decision - 87 TTJ 251 - penalty leviable in the case of bogus gifts. 4.Delhi High Court decision that once assessee agrees for spread over of income concealment is established. 5.B.A. Balasubramanian Bros. & Co. v. CIT [1999] 236 ITR 977 (SC), Tube Fabrico (I) Ltd. v. CIT [1994] 210 ITR 10351 (Delhi), CIT v. K.P. Sampath Reddy [1992] 197 ITR 232 (Kar.), Subharshan Silk & Sarees' case (supra). 6.CIT v. Modern Stores [ITRC A. No. 246/1998, dated 14-2-2005] and CIT v. Saburam Premchand [TRC No. 523/1998, dated 5-9-2005]. 7.Bhurmal Mallaji v. ITO dated 29-11-2001 in [IT Appeal No. 935/B/1995]. 19. We have heard both the parties. It is true that section 153A starts non obstante clause. It says notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153 in the case of a person where search is initiated under section 132, the Assessing Officer will issue a notice fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... articulars of income. Hence, section 153A is a specific section for making assessment or reassessment in the cases where search under section 132 has been initiated. The section is materially different from section 147 in respect of this regard only. If the assessee has already filed a return under section 139 or in response to notices under section 148 and he is served with a notice under section 153A, then there can be a case of concealment, if the assessment made in pursuance to return filed under section 153A. It is noticed that there was concealment in the earlier return. Hence, we find no force in the submissions of learned AR. That penalty proceedings under section 271(1)(c) cannot be initiated when assessment/reassessment made under section 153A of the Income-tax Act. 20. Another submission of learned AR is that return to be filed in response to notice under section 153A is to be in the prescribed form. It was stated that no form was prescribed for filing return in response to notice under section 153A. Hence, on this ground, the AR has challenged the validity of the assessment. As per section 153A(a), the assessee is required to file the return of income in respect of eac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us. 23. Statement of Shri T.N. Sridhar was recorded under section 131 of the Income-tax Act on 22-1-2004. In question No. 3, Shri Sridhar was confronted with the fact that search enquiries have revealed that he and his family members have claimed to have received gifts from various persons. Shri V.N. Sridhar has clarified the entire position. It was admitted by him that such gifts were not genuine. The gifts were arranged to convert their unaccounted money. A declaration was given on 26-2-2004 to the fact that gifts are non-genuine are being surrendered. The search proceedings in respect of one of the premises was kept pending till such declaration was filed or received. Statement of Shri V.N. Sridhar was recorded under section 132(4) on 27-2-2004. The panchnama dated 27-2-2004 confirms that the authorized officers recorded the statement of Shri V.N. Sridhar. Hence, there cannot be any dispute that statement dated 27-2-2004 of Shri V.N. Sridhar is under section 132(4) of the Income-tax Act. Before proceeding further, it will be useful to reproduce the statement of Shri V.N. Sridhar : "Q.3 During the course of search proceeding today certain FDR and other investments like NSC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dhar SY, No.109/1, 26-6-2003 ₹ 7,35,500 Panchanahalli (1/4th Share) K.R. Puram 7. Shri H.N. Nagaraj -do- 26-6-2003 ₹ 7,35,500 (1/4 Share) 8. Smt. Nagarathna -do- 26-6-2003 ₹ 7,35,500 (1/4 share) Q.5 From the above it can be seen that the income of various family members which were not disclosed to the department were brought in the form of gifts into this bank accounts and these gifts as well as the bank accounts have been declared to the department. Though the assets are disclosed to the department, the source of which were undisclosed income of the concerned persons. Please let me know why these amounts which are lying in the bank accounts which have their sources which were not disclosed to the department should not be seized as assets representing undisclosed income ? Ans. The assets mentioned have been disclosed to the department in the respective returns. Regarding the non-disclosure of the sources of the same, we are offering the same for taxation in the respective years in the hands of the concerned persons as committed by a letter dated 26-2-2004. In view of the above, I request you not to seize the amount lying in the bank accounts w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purposes from time to time. Q. 8 Have you to add to or amend any of the aforesaid answers ? Ans. No. Except that I request you to take lenient view and we are ready to pay the taxes due and request you to kindly consider the letter submitted dated 26-2-2004." 24. From the above statement, it is clear that the assessee was found to be the owner of assets, valuable articles or things and in the statement recorded under section 132(4), surrender was made and it was made clear that such assets or valuable articles or things have been acquired out of the gifts received and now surrendered. We are reproducing here the outflow of amounts received by way of gifts in the case of Shri V.N. Sridhar, HUF and Shri V.N. Sridhar (Ind.) and Smt. Mukta Sridhar : SHRI V.N. SRIDHAR HUF Gift Asst. year Amount Outflow other than tax Amount 2000-01 5,00,000 2001-02 12,74,000 FDR Indian Bnk Chpet 422000 Dated 7-4-2000 Prakash Tea Agency dated 10-2-2001 10,00,000 2002-03 15,50,000 Prakash Tea Agency dated 18-12-2001 5,00,000 2002-04 4,41,000 LIC Premium dated 3-4-2002 LIC Premium dated 19-3-2003 53,240 53,241 Total 37,65,000 18,56,481 Balance at SB A/c 13972 Indian Bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccurate 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 specified 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]. (a)For applying Explanation 5, the assessee should be found to be owner of any money, bullion, jewellary or other valuable article or thing in the course of search. (b)The assessee should claim t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 132(4) of the Income-tax Act. It was a normal presumption in the mind of the assessee that if a declaration is made under section 132(4) and taxes along with interest are paid by filing the return, no penalty will be leviable. Perhaps the department was also keen to get the declaration under section 132(4) so that it can collect tax and litigation is avoided. For such circumstances, exception was created in Explanation 5 to section 271(1)(c). The assessee is entitled for such benefit provided conditions mentioned in Explanation 5 to section 271(1)(c) are satisfied. 29. The learned Rajasthan High Court in the case of CIT v. Mishrimal Soni [2007] 289 ITR 771 held that Explanation 5 to section 271(1)(c) applies to tangible and intangible assets. It will be useful to reproduce the head note of this decision : "Explanation 5 to section 271(1)(c) of the Income-tax Act, 1961, deals with a situation in which any assets are found to be in the ownership of the assessee in the course of search under section 132 of the Income-tax Act, 1961. It makes no distinction between tangible assets and intangible assets. Clause (2) of Explanation 5 makes it clear that where in the cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s upheld by the Tribunal. On appeal to the High Court : Held, dismissing the appeal, that no penalty was leivable in view of specific Explanation 5 to section 271(1)(c)." 30. In the case of CIT v. E.V. Balashanmugham [2006] 286 ITR 625 (Mad.), the assessee disclosed the additional income in the statement recorded under section 132(4). This additional income was offered in the return. The Assessing Officer did not initiate penalty proceedings in respect of additional income declared. Penalty proceedings were initiated in respect of further addition of ₹ 1,08,000. 31. The learned Madras High Court held that the statement of offering additional income was true and correct and the assessee agreed to the addition of ₹ 1,08,000 to purchase peace and to avoid litigation. In respect of addition of ₹ 1,08,000, the assessee has offered an explanation. Thus, in this case, the revenue has not initiated penalty proceedings in respect of additional income disclosed vide statement under section 132(4) of the Income-tax Act. 32. The learned Madras High Court in the case of CIT v. S.D. Chandru [2004] 266 ITR 1751 had an occasion to consider the effect of the Explanation 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licable in case the amount found during the search is surrendered and tax along with interest is paid. In that case it was held that penalty is not leviable. 36. The learned Allahabad High Court in the case of CIT v. Manmohan Goel [2005] 149 Taxman 578 had an occasion to consider the penalty deleted by the Tribunal after applying Explanation 5 to section 271(1)(c). In that case, the assessee initially surrendered 17 lakhs under different heads. The Tribunal felt that it was immaterial, as it was only an estimate. The assessee on 27-2-1989 made an application for further surrender of ₹ 1,19,166 and such application was made before the conclusion of search of the locker. The total income assessed was ₹ 17,63,650. It was a little more than the original surrender and was less than the subsequent surrender made on 27-12-1989. It was held that Explanation 5 is applicable. The learned High Court has reproduced following observations of the Tribunal : "The two applications made by the assessee and other members of his group clearly come to suggest that the assessee was making a clean breast to confess undisclosed income and he did tried to co-operate with the deptt. to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for taxes. Therefore, the decision of the jurisdictional High Court is not applicable, as facts in the instant case are different. 2.Tube Fabrico (I) Ltd.'s case (supra). Though the learned DR has referred to the judgment reported at 210 ITR 351, no judgment is available at that page, perhaps the learned DR has referred to the judgment reported in Tube Fabrico (I) Ltd.'s case (supra). In this case, it was found that the assessee has made sales in the accounting period relevant to the assessment year 1978-79. Such information was found during the course of search. The assessee made request that income should be spread over 3 years and such request was accepted. The assessee filed revised return. The Delhi High Court held that the filing of the revised return means admission by the assessee in respect of concealment of income. However, in the instant case, the facts are different. The assessee contended that it has earned income over a period of years and such period even extended to the period for which action under section 153A was not possible. The assessee has offered the amounts credited as gifts and has not asked that such amounts should be spread over the period of years d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment on the basis of seizures and disclosure made in the course of search proceedings and levy of penalty was upheld by the High Court. The facts in the instant cases are distinguishable. In the case before the learned High Court, no argument was made that Explanation 5 to section 271(1) (c) is applicable. Moreover, there is nothing on record to suggest that such undisclosed income was found invested in some valuables. Learned jurisdictional High Court at page 149 has observed that the respondent-assessee have not perused before us their claim of immunity from levy of penalty in terms of Explanation 5 to section 271(1)(c) of the Income-tax Act. Hence, when we are considering the applicability of Explanation 5 to section 271(1)(c) then, the decision of the jurisdictional High Court is of no help to the revenue. 5.Bhurmal Mallaji's case (supra). In this case, the Assessing Officer noticed that a certificate was given to the bank with the details of stock month-wise. There was difference of stock as shown in the return and stock as shown to the bank. The assessee voluntarily offered difference for taxation in order to purchase peace. The Bangalore Bench upheld the penalty becau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en considered as income. Such unexplained gifts have been found to be recorded in the regular books of account and such gifts were disclosed in the returns filed. Hence, the condition is that such income which is disclosed or surrendered should have been recorded in the books also stands satisfied. However, in the instant case, the assessee has not only surrendered the gifts so received but has also surrendered the expenditure incurred in the form of commission for arranging such gifts. The commission so paid is an outgoing and is not represented by any assets or valuable article or thing. If the assessee has earned undisclosed income and has spent the same in meeting household expenses or marriage expenses then Explanation 5 to section 271(1)(c) may not be applicable as the outgoings have not resulted into any assets. Hence, in respect of the amount surrendered as commission in the revised return, penalty is clearly leviable as Explanation 5 to section 271(1)(c) will not provide immunity to the assessee in respect of such expenditure. Since facts in all the cases are identical, therefore, penalty in respect of all the amounts surrendered in respect of gifts stands deleted, while p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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