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TMI Blog2019 (3) TMI 1262X X X X Extracts X X X X X X X X Extracts X X X X ..... hich can be duly verified from independent source without any influence of the assessee. Hence, the documents produced by the assessee are the evidence which cannot be manipulated and also can be verified from the independent sources. Once the assessee has produced all these documents to establish the genuineness of purchase and sale of transactions of shares through Stock Exchange than the mere disclosure and surrender of income would not lead to the conclusion that the assessee has concealed the particulars of income or furnished inaccurate particulars of income. If the transactions are accepted as genuine and are already declared in the return of income filed U/s 139 as well as duly recorded in the books of account then long term capital gain arising from the sale of listed shares is exempted U/s 10(38) of the Act. The withdrawal of claim of exemption by the assessee in the statement U/s 132(4) of the Act, ignoring the supporting evidence of genuineness of the claim, would not ipso facto amount to concealment of income or furnishing inaccurate particulars of income. It is undisputed fact in this case that the impugned income subjected to the assessment is only income which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 02/07/2015. During the course of search and seizure proceedings, certain documents marked as Annexure AS-1 were found containing the details of long term capital gain earned by the assessee and his family members during the various years. In the statement recorded U/s 132(4) of the Act, the assessee declared and surrendered the said long term capital gain on sale of shares as undisclosed income and offered the same for taxation. In the return of income filed in response to notice U/s 153A of the Act, the assessee declared the total income of ₹ 3,44,11,020/- including the surrendered income of ₹ 2,79,23,161/- as admitted in the statement U/s 132(4) of the Act. The assessment was completed U/s 143(3) read with Section 153A of the Act on 22/12/2017 on the total income of ₹ 3,44,11,020/- which includes the income admitted by the assessee and surrendered to tax as undisclosed income during the search and seizure action. Subsequently, the Assessing Officer initiated the penalty proceedings U/s 271(1)(c) of the Act in respect of the income surrendered by the assessee of ₹ 2,79,23,161/- and levied the penalty of ₹ 86,28,256/- vide order dated 18/5/2018. 3. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the Assessing Officer has treated the income as concealment only on the basis of the statement dehors any seized material. The assessee in his statement recorded U/s 132(4) of the Act has clearly admitted the bogus claim of long term capital gain and therefore, disclosed the undisclosed income. Hence, Explanation 5A of Section 271(1)(c) of the Act is applicable in the case of the assessee which makes it clear that if the Assessing Officer is satisfied that any person has concealed the particulars of income or furnishing inaccurate particulars of income or where in respect of any facts material to the computation of total income of the assessee fails to offer an explanation or the explanation is found by the Assessing Officer to be not bonafide, then the case of the assessee comes within the purview of Section 271(1)(c) of the Act. The ld CIT-DR has contended that once the assessee himself has admitted the undisclosed income then the case of the assessee is covered under the provisions of Section 271(1)(c) read with Explanation 5A of the Act. He has relied upon the order of the Assessing Officer. 5. On the other hand, the ld AR of the assessee has submitted that the revenue has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e penalty proceedings are separate from assessment proceedings and finding in the assessment proceedings does not lead to the conclusion that the assessee has concealed the income. The penalty U/s 271(1)(c) of the Act is not automatic. No positive material has been brought on record by the Assessing Officer to show that the income is based on any entries recorded in the seized material. The mere fact that the assessee has declared higher income in the return of income filed U/s 153A of the Act then in the original return of income, in absence of any incriminating material, it cannot be construed that the assessee has concealed his income. Once the transactions are duly recorded in the books of account and also supported by the relevant documentary evidence to prove the genuineness of the purchase ands ale of shares then merely declaring higher income would not ipso facto amounts to concealment of income or furnishing of inaccurate particulars of income attracting the penalty proceedings U/s 271(1)(c) of the Act. In the penalty proceedings, the Assessing Officer has without appreciating the documentary evidence and without controverting the documentary evidence has treated the surre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act. It is also not in dispute that the transactions of purchase and sale of equity shares of listed companies were duly recorded in the books of account and capital gain arising from the sale of shares were reflected in the books of account regularly maintained by the assessee. The assessee has also shown the shares in question in the balance sheet as on 31/3/2012 and the Assessing Officer has not doubted or disturbed the holding of the shares by the assessee and shown in the balance sheet at the end of the preceding financial year. Once the transactions are duly recorded in the books of account and also disclosed in the original return of income filed U/s 139(1) of the Act then the documents found during the search containing the details of the long term capital gain already recorded in the books of account would not amount to incriminating material disclosing any undisclosed income. Even the said details as recorded in the seized material AS-1 itself does not reveal the nature of transaction being genuine or bogus. These are only the computation of long term capital gain from sale of shares. Therefore, the documents which were found and seized during the course of search and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (C) DEMAT ACCOUNT STATEMENTS OF FOLLOWING BROKERS: Suresh Rathi Securities Private Limited Religare Securities Limited Hem Securities Limited (Page No. 98-102 of paper book) Thus, the purchase bill for purchase of shares alongwith ledger account in the books of the share broker clearly reveals the date of purchase and also the payment of purchase consideration through banking channel as revealed in the bank account statement of the assessee. All these documents are independently verifiable. The revenue has not disputed the filing of original return of income by the assessee for these years as well as for the A.Y. 2011-12. Further the Assessing officer while passing the assessment U/s 153A of the Act for the A.Y. 2011-12 has not disturbed the holding of shares shown in the balance sheet as on 31/3/2012. These transactions were also carried out through the capital account of the assessee which was also part of the record of the A.Y. 2011-12 but the Assessing Officer has accepted all these details without any adverse finding or comments while passing the assessment order U/s 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred to as assets) and the assessee claims that such assets have been acquired by him by utilising (wholly or in part) his income for any previous year; or ( ii ) any income based on any entry in any books of account or other documents or transactions and he claims that such entry in the books of account or other documents or transactions represents his income (wholly or in part) for any previous year, which has ended before the date of search and,- ( a ) where the return of income for such previous year has been furnished before the said date but such income has not been declared therein; or ( b ) the due date17 for filing the return of income for such previous year has expired but the assessee has not filed the return, then, notwithstanding that such income is declared by him in any return of income furnished on or after the date of search, he shall, for the purposes of imposition of a penalty under clause ( c ) of sub-section (1) of this section, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income.] Therefore, clause (a) and (b) clearly set out the conditions and situation under which the income dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of books of accounts, documents, assets, etc. Plainly, the intention of the Parliament is to permit such examination only where the books of accounts, documents and assets possessed by a person are relevant for the purposes of the investigation being undertaken. Now, if the provisions of Section 132(4) of the Act are read in the context of Section 158BB(1) read with Section 158B(b) of the Act, it is at once clear that a statement recorded under Section 132(4) of the Act can be used in evidence for making a block assessment only if the said statement is made in the context of other evidence or material discovered during the search. A statement of a person, which is not relatable to any incriminating document or material found during search and seizure operation cannot, by itself, trigger a block assessment. The undisclosed income of an Assessee has to be computed on the basis of evidence and material found during search. The statement recorded under Section 132(4) of the Act may also be used for making the assessment, but only to the extent it is relatable to the incriminating evidence/material unearthed or found during search. In other words, there must be a nexus between the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the person who made such statement. The finding of the Tribunal was based on the above well settled principle. 23. It is also necessary to mention that the aforesaid interpretation of Section 132(4) of the Act must be read with the explanation to Section 132(4) of the Act which expressly provides that the scope of examination under Section 132(4) of the Act is not limited only to the books of accounts or other assets or material found during the search. However, in the context of Section 158BB(1) of the Act which expressly restricts the computation of undisclosed income to the evidence found during search, the statement recorded under Section 132(4) of the Act can form a basis for a block assessment only if such statement relates to any incriminating evidence of undisclosed income unearthed during search and cannot be the sole basis for making a block assessment. In the subsequent decision in the case of Principal Commissioner of Income Tax, Delhi Vs. Best Infrastructure (India) Pvt. Ltd. (supra), the Hon ble Delhi High Court has again held in para 38 as under: 38. Fifthly, statements recorded under Section 132 (4) of the Act of the Act do not by themselves constitute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 38 taxmann.com 448. The surrender of income in the revised return was voluntary and suo moto. Additional income disclosed under section 153A in the return does not lead to the conclusion that the assessee firm was having undisclosed income or had concealed the particulars of income. The surrender was made on the basis of statement recorded u/s 132(4) of the IT Act. He further argued that under similar facts and circumstances which came before the Hon'ble Delhi High Court in the case of CIT v. Raj Pal Bhatia [2011] 333 ITR 315/10 taxmann.com 191/202 Taxman 140 (Mag.)wherein the Hon'ble Court held that statement could not be construed as material found during the course of search operations for the purpose of Chapter XIVB. The case law applied by the ld. CIT (A) has mis-placed the fact that in that case certain documents pertaining to share applications were found during the course of survey, whereas in assessee's case no incriminating documents were found. Therefore, case law relied upon by the ld. CIT (A) is not applicable. He further argued that ITAT Mumbai in the case of Financial Technologies (I) Ltd. v. Asstt. CIT [2015] 61 taxmann.com 406 held that Expla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t can be levied only when some incriminating material is found during the course of search. Even otherwise the penalty proceedings are separate and independent from the assessment order and particularly in case where the Assessing Officer has not made any addition but the assessee itself has surrendered an additional income then the explanation of the assessee against the levy of penalty has to be considered in the proceedings U/s 271(1)(c) of the Act. It is settled proposition of law though the assessment order is a relevant material for the purpose of levy of penalty U/s 271(1)(c) of the Act, however, it cannot be a sole basis of levy of penalty and the Assessing Officer has to consider all the relevant material facts as well as explanation furnished by the assessee. Therefore, in the case of the assessee, the income was assessed only because the assessee surrendered the same but it would not have otherwise sustained the test of the legal requirement of the assessment of the income without any incriminating material. There are binding precedents on the issue that in the proceedings U/s 153A of the Act, the Assessing Officer cannot reassess the income in absence of any incriminati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous case laws. 4.1 It is found that the appellant has advanced arguments from multiple perspectives, starting from technicalities of imposing the penalty by treating the additional income as concealment of income, penalty only on the basis of statements recorded in search, additional income surrendered dehors the seized material, finding in assessment alone not sufficient to establishing of the mensrea etc. From examination of documents and submission the following facts emerges by which the penalty u/s 271(1)(c) cannot be held as validly imposable in the instant case: - i) During the course of search the appellant admitted the long term capital gain shown in his ITR as his undisclosed income but such undisclosed income in not based on any documents found as a result of search or evidences. During the course of search seizure operations, no incriminating material, evidence or documents whatsoever were found. ii) Such long term capital gain was already declared in the ITR filed under Section-139(1) of the Act though the same shown as exempted u/s 10(38) of the Act. iii) During the course of assessment proceedings the appellant submitted documents from acquisiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he penalty u/s 271(1)(c) cannot be levied as the matter is covered one. Apart from the consideration given on the several case laws cited by the applicant it is worth to place the reliance on the decision Hon ble ITAT, Jaipur Bench, Jaipur in the case of Ajay traders V/s DCIT, Central Circle, Alwar (ITA No. 296/ JP/2014) pronounced on 06.05.2016 as follows: - 4.3. We have heard rival contentions and perused the material on record. It is undisputed fact that during the course of search, no incriminating documents were found and seized. The assessee surrendered the additional income under section 132(4) at ₹ 15 lacs and requested not to impose penalty u/s 271(1)(c) of the IT Act. The ld. AO imposed the penalty by invoking the Explanation 5A to section 271(1)(c) of the Act, which has been confirmed by ld. CIT (A) by considering the judgment of Hon ble Supreme Court in the case of MAK Data Pvt. Ltd. (supra). But for imposing the penalty under Explanation 5A on the basis of statement recorded during the course of search, it is necessary to be found incriminating documents and is to be considered at the time of assessment framed under section 153A of the Act. The issue has be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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