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TMI Blog2017 (2) TMI 1002X X X X Extracts X X X X X X X X Extracts X X X X ..... portunity to make good omission, if any, in the original return. Once the A.O. accepts the revised return filed under Section 153A, the original return under Section 139 abates and becomes non-est. Now, it is trite to say that the “concealment” has to be seen with reference to the return that it is filed by the assessee. Thus, for the purpose of levying penalty under Section 271(1)(c), what has to be seen is whether there is any concealment in the return filed by the assessee under Section 153A, and not vis-a vis the original return under Section 139. Interpretation and application of Explanation-5 to Section 271(1)(c) - whether it is attracted in the facts of this case? - Held that:- Explanation-5 cannot assist the claim of the revenue in the present case for the relevant assessment years under consideration before this Court for the simple reason that for the relevant assessment years, 2005-06 & 2006-07, no material was recovered during the search. Rather, the assessee added ₹ 21,65,932/- in the return filed pursuant to notice under section 153A. That amount was not relatable to any sum recovered or article seized. Therefore, the question of adding or not adding amounts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent under Section 153A read with Section 143(3) of the Act on 31.12.2008 after accepting the declared income by observing that, After examination of the details filed and discussion with AR of the assessee the income of the assessee is accepted and assessed at ₹ 23,38, 731/-. In addition, he also initiated penalty proceedings under Section 271(1)(c) of the Act by observing: From the seized records it is noticed that the assessee group had offered a sum of ₹ 16 Crores as unaccounted income. However, as the disclosure is consequence of the search, I am of the view that the assessee has concealed the income. Thus, penalty proceedings u/s 271 (l)(c) is being initiated separately. Thereafter, the AO passed the penalty order under Section 271(1)(c) of the Act, by imposing penalty amounting to ₹ 1,34,640/- being 100% of the amount of tax sought to be evaded on the concealed income of ₹ 4 Lakhs. 3. The assessees preferred revisions under Section 264 of the Act dated 06.08.2009 before the Commissioner of Income Tax ( CIT ) (Central-II), New Delhi against the order passed by the A.O. The CIT (Central-II) in its order dated 10.03.2011 held that since penalt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e course of search, voluntary surrender of ₹ 16 crores was made so as to cover various group cases, including that of the assessee. Such surrender was to buy peace of mind, to co-operate with the revenue and to avoid protracted litigation with it. The revenue argued that penalty had to be levied because the return of income was not a voluntarily disclosure, but was under Section 153A. It was further contended that incriminating documents were found during the course of the search and seizure operations, and disclosure made by the appellant u/s 132(4) of the Act was as a consequence of the search operations. But for the search at the premises of M/s J M Estate Developers Pvt. Ltd. group, including the appellant, the appellant would not have disclosed the additional income nor would he have offered the same for taxation. The CIT (A) relied on the decision of the learned ITAT (Delhi) in the case of Sh. Prem Arora v. DCIT, Central Circle-25, New Delhi, 2012-TIOI-262-ITAT-DEL, to hold that the concept of voluntary return of income may be important in penalty proceedings initiated in the course of normal assessment proceedings made u/s 143(3) or section 147, but not under Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard: (i) Whether under Section 271(1)(c) as it stood prior to the insertion of Explanation 5, levy of penalty is automatic if return filed by the assessee under Section 153A of the Act discloses higher income than in the return filed under Section 139(1)? (ii) What would be the position of law after insertion of Explanation 5 and whether it is attracted in the facts of this case? We will answer each question in turn. Issue I 9. Counsel for the revenue submitted that in the original return, the assessee had not declared the income which came to be detected by the Department during the course of survey. It is only after the search that the assessee filed the revised returns, which itself would go to show that amount offered during the search is concealed income. There is no finding by the Tribunal that there was cessation of liability of these amounts during the relevant financial year. Hence, the Revenue contends that the levy of penalty is required to be sustained. For imposition of penalty mens rea is not a requirement. Once the conditions mentioned in section 271(1)(c) are held to have been established, the imposition of penalty is automatic and no discreti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the furnishing of inaccurate particulars of such income or fringe benefits. 13. At the outset, it must be noted that pursuant to the search and seizure operation conducted under Section 132(4) of the Act, the assessee was given notice under Section 153A to file fresh return of his income. Thereafter, the assessee filed revised returns and the return filed by the assessee under Section 153A was accepted as such by the A.O. However, the A.O. was of the opinion that inasmuch that the income disclosed by the assessee under Section 153A was higher than the income in the original return filed under Section 139(1) and since in his view, such disclosure of income was a consequence of the search conducted on the assessee, there was concealment of income which attracted Section 271(1)(c) of the Act. Therefore, the question that needs to be answered is whether penalty is to be levied automatically whenever the assessee declares a higher income in his return filed under Section 153A in comparison to the original return filed under Section 139(1). 14. The Supreme Court held, in Shri T. Ashok Pai v. Commissioner of Income Tax, Bangalore (2007) 7 SCC 162 , that penalty under Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to avoid the imposition of tax thereon. In order that a penalty under Section 271(1)(c) may be imposed, it has to be proved that the assessee has consciously made the concealment or furnished inaccurate particulars of his income. 16. Thus, despite the fact that there is no requirement of proving mens rea specifically, it is clear that the word conceal inherently carries with it the requirement of establishing that there was a conscious act or omission on the part of the assessee to hide his true income. This was also the conclusion of the Supreme Court in the case of Dilip N. Shroff Karta of N.D. Shroff v. Joint Commissioner of Income Tax, Special Range Mumbai and Anr., (2007) 291 ITR 519 (SC). In a later decision in Union of India v. Dharmendra Textile Processors, (2008) 13 SCC 369, the Supreme Court overruled its decision in Dilip N. Shroff (supra). Thereafter, in Commissioner of Income Tax v. Reliance Petroproducts Pvt. Ltd., (2010) 11 SCC 762 the Court clarified that Dilip N. Shroff (supra) stood overruled only to the extent that it imposed the requirement of mens rea in Section 271(1)(c); however, no fault was found with the meaning of conceal laid down in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , then levy of penalty under Section 271(1)(c) was not justified. From the above cases it would be clear that when an assessee has filed revised returns after search has been conducted, and such revised return has been accepted by the A.O., then merely by virtue of the fact that such return showed a higher income, penalty under Section 271(1)(c) cannot be automatically imposed. 19. The whole matter can be examined from a different perspective as well. Section 153A provides the procedure for completion of assessment where a search is initiated under Section 132 or books of account, or other documents or any assets are requisitioned under Section 132A after 31.05.2003. In such cases, the Assessing Officer shall issue notice to such person requiring him to furnish, within such period as may be specified in the notice, return of income in respect of six assessment years immediately preceding the assessment year relevant to the previous year in which the search was conducted under Section 132 or requisition was made under Section 132A. The Assessing Officer shall assess or reassess the total income of each of these six assessment years. Assessment or reassessment, if any, relating to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e I.T. Act. the return of income filed in response to notice under s. 153A of the I.T. Act is to be considered as return filed under s. 139 of the Act, as the AO has made assessment on the said return and therefore, the return is to be considered for the purpose of penalty under s. 271(1)(c) of the I.T. Act and the penalty is to be levied on the income assessed over and above the income returned under s. 153A, if any. 21. Thus, it is clear that when the A.O. has accepted the revised return filed by the assessee under Section 153A, no occasion arises to refer to the previous return filed under Section 139 of the Act. For all purposes, including for the purpose of levying penalty under Section 271(1)(c) of the Act, the return that has to be looked at is the one filed under Section 153A. In fact, the second proviso to Section 153A(1) provides that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this sub-section pending on the date of initiation of the search under Section 132 or making of requisition under Section 132A, as the case may be, shall abate. What is clear from this is that Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al 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. 23. Explanation-5 to Section 271(1) was inserted by the Taxation Laws (Amendment) Act, 1984, with effect from 1 October, 1984. The Explanation is applicable to cases where in the course of a search under Section 132 of the Act, the assessee is found to be the owner of any money, bullion, jewellery or other valuable article or thing. In such cases, if the assessee claims that these assets have been acquired by him by utilizing (wholly or in part) his income for any previous year which has ended before the date of the search, but the return of income for such year has not bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion-5 in the statute books was explained by the Supreme Court in K.P. Madhusudan v. Commissioner of Income Tax, (2001 251 ITR 99 , wherein the Court held- Learned Counsel for the assessee then drew our attention to the judgement of this Court in Sir Shadilal Sugar and General Mills Ltd. v. CIT (1987) 168 ITR 705. He submitted that the assessee had agreed to the additions to his income referred to hereinabove to buy peace and it did not follow therefrom that the amount that was agreed to he added was concealed income. That it did not follow that the amount agreed to be added was concealed income is undoubtedly what was laid down by this Court in the case of Sir Shadilal Sugar and General Mills Ltd. (1987) 168 ITR 705 and that therefore, the Revenue was required to prove the mens rea of a quasi-criminal offence. But it was because of the view taken in this and other judgments that the Explanation to Section 271 was added. 25. This shows that Explanation-5 was specifically inserted to deal with the situation where higher income was disclosed in the return filed consequent to a search operation, and the assessee claimed that such addition of income did not imply that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent under the Act is with respect to a particular assessment year and the penalty imposed under Section 271(1)(c) would also be for concealing income in that particular assessment year, which concealment was revealed by the discovery of certain assets in the assessee s possession during the search conducted under Section 132. Here, it would be beneficial to reproduce the dictum of the Rajasthan High Court in Commissioner of Income Tax v. Kanhaiyalal, (2008) 299 ITR 19 (Raj), where it held that- We may consider the things from yet another aspect, viz., that under the set up of IT Act, in whatever eventuality the assessment may have to be made, i.e. whether a regular assessment, or assessment consequent upon escapement of income, or assessment of a block period, but in either case, the assessment has to be, with respect to the particular assessment year, relating to the concerned previous year, and the income derived, or found by the Department to have been derived, or earned, by the assessee, during particular previous year, has to be assessed during the relevant assessment year only, and assessment of such income cannot be shifted to any other past or future years, so much ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of cash found in previous year relevant to assessment year 2007-08. 28. Basing its reasoning on this decision, the ITAT in the present case held that in the case of the assessee, the search was conducted on 11.01.2007 and cash of ₹ 5,26,530/- was recovered from the possession of the assessee; and so the cash was admittedly, not seized during the relevant assessment years in consideration before the Tribunal. In other words, while the assessee had surrendered undisclosed income, the cash was seized during search in A.Y 2007-2008, and not in the relevant assessment years. However, in the relevant assessment year under consideration in the instant case, the assessee made an addition of ₹ 21,65,932/- in the return filed pursuant to notice under section 153A. The ITAT held that Explanation 5 to section 271(1) of the Act could not be invoked in assessment years 2005-06 2006-07, which are under consideration in this case, merely on the presumption that the assessee might have been in possession of the seized cash throughout the period covered by the search assessments. The learned ITAT also held- The income offered to tax u/s 153A for assessment years 200506 and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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