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TMI Blog2024 (10) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... eby deleted. X X X X Extracts X X X X X X X X Extracts X X X X ..... ed AO also made disallowance of business promotion expenses to the tune of Rs. 10,79,175/- and initiated penalty proceedings u/s 271AAB (1A)(b) of the Act. 7. The quantum proceedings travelled to this Tribunal at the behest of the assessee. This Tribunal deleted both the disallowances made by the learned AO in the sums of Rs. 1,17,710/- and Rs. 10,79,175/- and allowed the appeal of the assessee in ITA no. 1299/Del/2021 for assessment year 2018-19 dated 10.05.2023. Since the additions were deleted, the penalty proceedings u/s 271AAB (1A)(b) of the Act would have no legs to stand and accordingly deserves to be deleted. 8. Now, what effectively survives, is levy of penalty u/s 271AAB (1A)(b) of the Act on the suo moto disallowance of expenses of personal nature u/s 37 of the Act made by the assessee in the return filed in response to notice issued u/s 153A of the Act in the sum of Rs. 12,30,000/-. As stated in the earlier part of the order, it is not in dispute that assessee had indeed made suo moto disallowance of Rs. 12,30,000/- in the return filed in response to notice issued u/s 153A of the Act. The penalty proceedings u/s 271AAB of the Act had been initiated only pursuant to se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the four-corners of the said provision, penalty cannot be imposed. Subsection (1) of Section 271 stipulates certain contingencies on the happening whereof the AO or the Commissioner (Appeals) may direct payment of penalty by the Assessee." Thus, what is required to be judged is whether there has been a "concealment" of income in the return filed by the assessee. 15. Earlier decisions indicated a conflict of opinion as to whether Section 271(1)(c) required the revenue to specifically prove mens rea on the part of the assessee to conceal his income. In order to remove the element of mens rea, the Finance Act, 1964 deleted the word "deliberately" that preceded the words "concealed the particulars of his income" in Section 271(1)(c). Nonetheless, even post the amendment, the Apex Court in K.C. Builders v. Assistant Commissioner of Income Tax, 265 ITR 562 (SC) held that: "The word „concealment‟ inherently carried with it the element of mens rea. Therefore, the mere fact that some figure or some particulars have been disclosed by itself, even if takes out the case from the purview of nondisclosure, cannot by itself take out the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... minating evidence, does not show that the assessee has "concealed" his income for the relevant assessment years. On this point, several High Courts have also opined that the mere increase in the amount of income shown in the revised return is not sufficient to justify a levy of penalty. 18. The Punjab & Haryana High Court in Commissioner of Income Tax v. Suraj Bhan, (2007) 294 ITR 481 (P & H), held that when an assessee files a revised return showing higher income, penalty cannot be imposed merely on account of such higher income filed in the revised return. Similarly, the Karnataka High Court in the case of Bhadra Advancing Pvt Limited v. Assistant Commissioner of Income Tax, (2008) 219 CTR 447, held that merely because the assessee has filed a revised return and withdrawn some claim of depreciation penalty is not leviable. The additions in assessment proceedings will not automatically lead to inference of levying penalty. The Calcutta High Court in the case of Commissioner of Income Tax v. Suresh Chand Bansal, (2010) 329 ITR 330 (Cal) held that where there was an offer of additional income in the revised return filed by the assessee and such offer is in consequence of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Considering that the non-obstante clause under Section 153A excludes the application of, inter alia, Section 139, it is clear that the revised return filed under Section 153A takes the place of the original return under Section 139, for the purposes of all other provisions of the Act. This is further buttressed by Section 153A (1)(a) which reads: "Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, in the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003, the Assessing Officer shall a) issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the interpretation and application of Explanation-5 to Section 271(1)(c) and whether it is attracted in the facts of this case. For convenience, Explanation-5 is reproduced below: "Explanation 5: Where in the course of a search initiated under section 132 before the 1st day of June, 2007, the assessee is found to be the owner of any money, bullion, jewellery or other valuable article or thing (hereafter in this Explanation referred to as assets) and the assessee claims that such assets have been acquired by him by utilising (wholly or in part) his income, - (a) for any previous year which has ended before the date of the search, but the return of income for such year has not been furnished before the said date or, where such return has been furnished before the said date, such income has not been declared therein ; or (b) for any previous year which is to end on or after the date of the search, 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion during the search operations as his income in the return filed after the search, the assessee would be deemed to have concealed his income. Thus, Parliament has created a deeming fiction by virtue of which in such cases, even if the assessee includes such income (which represents the value of the assets found in his possession during the search) in his return filed after the search, it will be deemed that such return disclosing higher income was filed only because the assets were found in his possession during the search. Put differently, if not for the search, the Legislature deems that the assessee would not have disclosed such income in the return filed subsequently. Explanation-5 also contains two exceptions, where the assessee would not be deemed to have concealed his income and would gain immunity from levy of penalty- first, if such income is or the transactions resulting in such income are recorded in the books of account maintained by the assessee for any source of income or such income was otherwise disclosed to the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner before the date of the search; second, in the course of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Parliament to enact a deeming fiction in the form of Explanation-5; such a reading would render Explanation-5 otiose and without any purpose. This is also consonant with the view arrived at in the earlier part of this decision, i.e. mere increase of income in the return filed pursuant to Section 153A would not be sufficient to show concealment under Section 271(1)(c). 26. Now for the Revenue to invoke Explanation-5, it would have to prove that its requirements are clearly fulfilled in the present case. In order for Explanation-5 to apply, it is necessary that there must be certain assets (such as money, bullion etc.) found in the possession of the assessee during the search, and that the assessee must claim that such assets have been acquired by him by utilising (wholly or in part) his income. Moreover, such income must be in relation to a particular previous year that has either ended before the date of the search or is to end on or after the date of the search and such income is declared subsequently in the return of income filed after the search. Therefore, it is only when assets are found during the search which the assessee claims have been acquired by him by utilizing (whol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or thing is found in the possession or under control of the assessee. In the case of the assessee the search was conducted on 22.11.2006 and cash of Rs. 1,11,45,350/- was found from the possession of the assessee. The assessee had undisclosed commission income as well as purchases and sales as seen from the statement of affairs made by the assessee based on seized material. The assessee had drawn cash flow statement for the entire period of six years in order to determine undisclosed income based on seized material for each of six assessment years. Explanation 5 to section 271(1) of the Act cannot be invoked in assessment year 2004-05 merely on presumption that the assessee might have been in possession of cash throughout the period covered by search assessments. The income offered to tax u/s 153A for assessment year 2004-05 is based on entries recorded in the seized material. Unlike provisions of Explanation 5A, the provisions of Explanation 5 cannot be invoked in assessment year 2004-05 in respect of entries recorded in seized material. Thus invoking of Explanation 5 in assessment year 2004-05 is based on presumptions, surmises and conjectures. It is settled law that suspicion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars 2005-06 and 2006-07 in respect of entries recorded in seized material. Thus invoking of Explanation 5 in assessment year 2005-06 & 2006-07 is based on assumptions and presumptions. It is settled law that suspicion howsoever strong, cannot take the place of evidence and hence the contention of the Revenue that assessee was in possession of cash throughout the period of assessment years under consideration has to be rejected." It is difficult to see any infirmity in the decision of the learned ITAT in the present case. Levy of penalty under Section 271(1)(c) cannot be on the basis of surmises and conjectures. Thus, 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 after the search and falling within the mischief of Explanation 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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