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TMI Blog2013 (8) TMI 965X X X X Extracts X X X X X X X X Extracts X X X X ..... hri C.S. Aggarwal, Sr. Advocate, Shri Gautam Jain, Advocate For the Respondent : Smt. Renuka Jain Gupta, Sr. DR ORDER PER I.C. SUDHIR, JUDICIAL MEMBER The assessee has impugned first appellate order on the following grounds :- 1. That the learned CIT(A) has erred both on facts in law in confirming the order imposing a penalty on the assessee by the learned DCIT, Central Circle-II, Faridabad, of ₹ 80,00,000/- by invoking the provisions of section 271AAA of the Act, despite the fact, assessee had satisfied the requirements of sub-section (2) of section 271AAA of the Income Tax Act. 2. That the learned CIT(A) has failed to appreciate that the assessee also duly satisfied the provisions of subclause (ii) of sub-section (2) and the finding that the assessee had failed to satisfy the manner in which the aforesaid income has been earned is legally and factually misconceived despite the same having been replied in answer to question no. 18, of the statement recorded u/s 132(4) of the Act at the time of search. 3. That the learned CIT(A) has failed to appreciate that, once the assessee had made a statement that the aforesaid income has been earned from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether the assessee was able to specify the manner in which undisclosed income was derived and able to substantiate the said manner to get immunity from levy of penalty u/s 271AAA of the Income Tax Act. 4. Ld. AR submitted that Shri J.S. Chawla Director of the appellant company in his statement had stated that an agreement to sell for purchase of agricultural land was entered by the assessee company for which initial payment of ₹ 15 crores was made prior to 31.3.2008. It was further stated that out of aforesaid sum of ₹ 15 crors, sum of ₹ 8 crores in cash was given as imprest amount for custody to the seller to exchange against cheques issued against refund of the same. However the said sum of ₹ 8 crores paid in cash was offered as undisclosed income from business operation of the appellant company. He submitted that in response to notice u/s 153A issued to the appellant company it filed the return of income declaring an income of ₹ 24,79,04,507/- for the assessment year under consideration which also included income surrendered during the course of search of ₹ 26,71,70,000/-. He referred page 137 of the paper book wherein break up of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary evidences, yet the same should and ought to have been divulged in the statement u/s 132(4) or subsequently. 5. The Ld. AR submitted that levy of penalty of ₹ 80 lac u/s 271AAA in the case of the present assesee is based on complete misconception of facts, circumstances of the case and statutory provision of law. Penalty u/s 271AAA of the Act is to be initiated only in respect of undisclosed income, which has been defined in clause (a) of Explanation to section 271AAA(4) of the Act. As per which there must be an income found in the course of search u/s 132 on the appellant company. In the present case penalty 271AAA of the Act has been levied in respect of income of ₹ 8 crores offered by the appellant in statement recorded u/s 132(4) of the Act on the basis of an agreement to sell found from the premises of Shri Vipin Sharma and Shri Aman Sharma at C-25, Greater Kailash-1, New Delhi. Ld. AR submitted that income of ₹ 8 corres does not constitute undisclosed income in terms of clause (a) of Explanation to section 271AAA of the Act since the same is not based on any money, bullion, jewellary or other document or material found in the course of search on the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny question raised in this respect by the authorized Officer. In support he he placed reliance on the following decisions :- i) 299 ITR 305 (Guj) CIT vs. Mahendra C. Shah (pages 224-225 of JPB) ii) 270 ITR 523 (Raj) Gebitlal Kanhaialal (HUF) vs. ACIT iii) 299 ITR 19 (Raj.) CIT vs. Kanhaiyalal iv) 286 ITR 626 (Mad) CIT vs. E.V. Balashanmugham v) 264 ITR 249 (Del) CIT vs. Chhabra Emporium vi) 247 ITR 742 (Ker) CIT vs. Santhosh Financiers vii) 278 ITR 454 (All) CIT vs. Radha Kishan Goel 8. Ld. AR submitted that search was conducted on 28.4.2008 when books of accounts of the appellant were not closed. The documents was found from the premises of Shri Vipin Sharma and Shri Aman Sharma who are assessed independently. They have not been searched as directors of the assesssee s company. He submitted that Shri J.S. Chawla is a Director of the assessee company whose statement u/s 132 (4) was recorded. According to him penalty provisions must strictly be applied and not as per the logic to justify the action. In support he placed reliance on the decision of Hon ble Supreme Court in the case of Income Tax Officer. v. Ch. Atchaiah. 218 ITR 239 (SC). AO has accepted ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee is to pay a penalty @ 10% of unaccounted income. Sub section (2) of section 271AAA however provides exemption from this penalty provisions in a situation in which (i) during the course of search in a statement under section 132(4) the assessee 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 the interest, if any, in respect of the undisclosed income. The AO in the impugned penalty order has held that the assessee has not fulfilled conditions as laid down in clause (ii) to sub section (2) of section 271 AAA . It has been alleged that the amount of ₹ 8 crores paid to M/s. Kay Kay Designers Towers Pvt. Ltd. out of the agreed consideration of ₹ 15 crores (the break-up of which was ₹ 7 crores paid by cheque accounted in the books of accounts while the balance ₹ 8 crores paid by cash) was not recorded. On the date of search operation Shri T.S. Chawla Director of the appellant company disclosed the amount of ₹ 8 crores which has been accepted by the department in the assessment framed u/s 153A of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nst various assessee of the group. The breakup of this disclosure of 27crores as discussed in this statement is as under subject to adjustments on the basis of seized material. (i) Cash andjewellery 5 crores (QNo.-19) (ii)) Investments 8 crores (Q No.-18) (iii) Unexplained expenditure/ 4 crores (Q NO.-23 and 20) Investments as per loose Papers (iii) Adjustment in sales value 10 crores (q No. - 24) Total Disclosures 27 crores The aforesaid figure of ₹ 5 crores as mentioned at 1 above includes undisclosed investment in jewellery found and seized from the residence of Deepak Kumar C-275 Defence Colony New Delhi amounting to ₹ 26 lacs approx .. Ques 26 :- Do you want to say anything else. Ans. No Sir, thanks. Ques 18 - Pages 1-11 1 found from the residence of Aman Sharma r/o C-, G.K -1, N Delhi (seized as per annexure A is shown to you which is an agreement of sale of land. Please explain the contents of the same. Ans. The said papers are agreement for purchases of agriculture land for which initial payment aggregating to ₹ 15 crores was made prior to 31.03.2008 as apparent from the said agreement. Due to paucity of funds in banks/books of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be attached to the statement about the manner in which such income has been derived. It can be inferred on the facts and circumstances of the case, in the absence of anything to the contrary. Therefore, mere non-statement of the manner in which such income was derived would not make Explanation 5(2) inapplicable held Hon ble High Court. Similar view has been expressed by the Hon ble Gujrat High Court in the case of CIT vs. Mahendra C. Shah (supra) For a ready reference relevant extract of the said decision of Hon ble Gujarat High Court is reproduced hereunder :- 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 recor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the Act itself when no income of the specified previous year represented either wholly or partly which onus lay upon the assessee stood discharged. 12. When we examine the facts of the present case in view of the above Decisions, we find that no specific question was raised by the department during the course of recording of statement u/s 132(4) of the Act to specify the manner in which such income has been derived and to substantiate it, instead the assessee in reply to question No. 18 has stated that undisclosed income was from the business. Respectfully following the above decision we hold that in absence of specific query raised in this regard, the assessee would not be expected to specify the manner in which the said undisclosed income was derived and substantiate it, still the assessee has specify the manner substantiation of which cannot be disputed in absence of any adverse finding on the manner explained by the assessee and accepted as such in the assessment framed u/s 153A of the Act. We are thus of the view that the authority below were not justify in imposing and sustaining the penalty of ₹ 80 lacs u/s 271 AAA of the Act keeping in view the facts and circums ..... X X X X Extracts X X X X X X X X Extracts X X X X
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