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TMI Blog2019 (9) TMI 1235X X X X Extracts X X X X X X X X Extracts X X X X ..... ltogether. When seen with reference to date of search 11.02.2009 in the present case, the provisions of erstwhile Explanation 5A were not attracted to the assessee as the return of income was already filed prior to search and put on record. The application of amended provisions of Explanation 5A of Section 271(1)(c) of the Act which came into force by an amendment subsequent to search albeit with retrospective effect thus cannot be applied when seen with reference to cause of action i.e. date of search. It is to be borne in mind that Explanation 5A appended to s.271(1)(c) of the Act is a legal fiction for deeming concealment against the assessee in search cases. Both original return under u/s 139 of the Act as well as revised return under s.153C of the Act had been filed before the amended provisions were brought into force. Hence, we are of the view that shelter of substituted provisions of Explanation 5A to Section 271(1)(c) of the Act could not be taken to the instant case for fastening concealment penalty. The assessee having filed the return under s.139 of the Act prior to search as well as return under s.153C of the Act prior to substituted Explanation coming into force, woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act were also carried out at the business premises of the assessee company. Consequent upon search, the Director of the assessee admitted certain excess stock of goods pertaining to the assessee company and same was offered to tax in equal proportion of exact ₹ 84Lakhs the AY 2005-06, 2006-07 & 2007-08. In response to the notice issued under s.153C of the Act, the assessee filed return of income for respective assessment years in question and declared the alleged unaccounted income of ₹ 84Lakhs on account of purported excess stock in each assessment year. The returns were filed originally under s.139(1) of the Act prior to issuance of notice under s.153C of the Act where, ostensibly, such alleged undisclosed income towards excess stock was not included in the return of income. The assessment under s.153C r.w.s. 153A of the Act was finalized by the AO for AYs. 2005-06, 2006-07 & 2007-08 wherein the unaccounted income of ₹ 84 Lakhs each was inter alia assessed. Penalty proceedings under s. 271(1)(c) of the Act were also initiated in respect of undisclosed income of ₹ 84Lakhs of each assessment year on account of excess stock and the AO imposed penalty @ 100% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Prajapati vs. ITO ITA No. 2880/Ahd/2014 order dated 15/02/2018 which specifically dwells upon such fact situation. The learned counsel thus contended that the penalty so imposed on a altogether different edifice is liable to struck down at threshold on this ground alone. 7.2 The learned counsel next submitted that the action of the AO towards imposition of penalty emanates from proceedings under s.153C of the Act and jurisdiction to invoke proceedings under s.153C of the Act indispensably depends upon a valid 'satisfaction' drawn by the AO of the searched person that undisclosed income by way of money, bullion, jewellery or other valuable articles or things or documents seized etc. belongs to the person other than the person referred to in Section 153A of the Act in terms of erstwhile provision of Section 153C of the Act as applicable to the assessment year in question. The learned counsel thus submitted that mere inclusion of the income in the return on the part of the assessee without such income based on alleged documents belonging to assessee herein would not validate the legal requirement enjoined for initiation of proceedings under s.153C of the Act. It was contended that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stock was found from the residential premises of the Director and as a sequel thereto, the assessee company has offered the additional income towards excessive stock apportioned in three years i.e. AYs. 2005-06, 2006-07 & 2007-08. In such circumstances, where the assessee himself has admitted the existence of undisclosed stock relatable to the assessment years in question, no indulgence was required by the AO and the penalty under s.271(1)(c) of the Act, being a civil liability and a remedy for possible loss of revenue, was required to be imposed by the AO as done by him. It was contended that deeming provision of concealment would apply with equal force notwithstanding that the said income is ultimately offered to tax by filing return of income after the date of search action. The action of the AO thus cannot be faulted. 9. We have considered the rival submissions. The solitary issue that arises for consideration is whether the AO was justified in imposing penalty under s. 271(1)(c) of the Act towards additional income declared in the revised return filed under s.153C of the Act pursuant to search in connected groups cases, in the context of the facts and circumstances existin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nonelse. The ground for action by AO was allegation of 'concealment'. This ground has been substituted by CIT(A) to 'furnishing inaccurate particulars of income' while confirming the penalty quantified by the AO. Thus, in the absence of continuity in the findings of the AO and the CIT(A), the order of the penalty passed by the AO is liable to be struck down on this ground alone. For such a view, we usefully refer to the decision of the Hon'ble Gujarat High Court in the case of New Sorathia Engineering Company vs. CIT (2006) 282 ITR 642 (Guj.) and CIT vs. Manu Engineering Works (1980) 122 ITR 306 (Guj.). Similar view has been taken by the Coordinate Bench of the Tribunal in Gian Chand Batia vs. DCIT 61 ITD 24(All.). Therefore, where concurrent I.T.authorities are not sure about nature of default, the penal action under s.271(1)(c) of the Act is not sustainable in law." In the light of the aforesaid observations of the co-ordinate bench squarely applicable to the present facts, it is difficult to uphold the action of the Revenue authorities for imposition of penalty on this ground alone. 9.2 We however also advert to another plea raised on behalf of the assessee while assailing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocuments seized towards excess stock did belong to and was the property of the company and not of the Director from whose custody it was found. Therefore, in such non-descript and innocuous situation, where the quantum assessment itself is susceptible, the consequences in form of penalty under s.271(1)(c) of the Act would not, in our view, be justified. 9.3 Pertinently, it is seen from the case records before us that the assessee has challenged the formation of 'satisfaction' recorded by the AO of the searched person (Mr. Harshad Mehta) in earlier listings. It was noted by the Tribunal as per order sheet entry dated 20.01.2016 that no material was placed on record to demonstrate 'satisfaction note'. Accordingly, specific direction was given to the Revenue as recorded vide order sheet entry dated 06.09.2017 for production of assessment records and 'satisfaction note' for invoking extraordinary jurisdiction. The responsibility owed to such direction continued to remain undischarged despite several listings thereafter. The non-production of recorded 'satisfaction' also constrains us to admit the aforesaid plea of the assessee in its favour. 9.4 We would also like to address oursel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ery or other valuable article or thing (hereinafter in this Explanation referred to as assets) and the assessee claims that such assets have been acquired by him by utilizing (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 the search and the due date for filing the return of income for such year has expired and 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 the 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." 9.6 As a measure of rationalization, an amendment was however brought out by Finance (No.2) Act, 2009 with retrospective effect as applicable to search action on or after 01.06.2007 seeking to substit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee as the return of income was already filed prior to search and put on record. The application of amended provisions of Explanation 5A of Section 271(1)(c) of the Act which came into force by an amendment subsequent to search albeit with retrospective effect thus cannot be applied when seen with reference to cause of action i.e. date of search. It is to be borne in mind that Explanation 5A appended to s.271(1)(c) of the Act is a legal fiction for deeming concealment against the assessee in search cases. Both original return under s.139 of the Act as well as revised return under s.153C of the Act had been filed before the amended provisions were brought into force. Hence, we are of the view that shelter of substituted provisions of Explanation 5A to Section 271(1)(c) of the Act could not be taken to the instant case for fastening concealment penalty. The assessee having filed the return under s.139 of the Act prior to search as well as return under s.153C of the Act prior to substituted Explanation coming into force, would be governed by pre amended Explanation 5A and thus would escape the clutches of penalty under s.271(1)(c) of the Act due to non-fulfillment of conditions of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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