Allahabad High Court In Case Of Commissioner Of Income-Taxvs. Radha Kishan Goel[1] And That Of The Gujarat High Court Incase Of Commissioner Of Income-Tax v. Mahendra C. Shah[2

Priya Soparkar 1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.1688 OF 2016 Principal Commissioner of Income Tax (Central)-4V/s. … Appellant M/s Phoenix Mills Limited… Respondent --- Mr.Tejveer Singh for the Appellant.Mr.Madhur Agrawal i/by Mr.Atul Karsandas Jasani for theRespondent. --- CORAM : AKIL KURESHI AND B.P.COLABAWALLA, JJ. DATE : FEBRUARY 07, 2019. P.C.:- 1.This appeal is filed by the revenue to challenge the judgment of Income Tax Appellate Tribunal. Following questionis presented for our consideration:- "Whether on the facts and in the circumstancesof the case and in law, the ITAT was justified inupholding the order of CIT(A) deleting thepenalty under Section 271AAA withoutappreciating the fact that the assessee has failedto explain the source and the manner in whichthe undisclosed income was earned and therefore,the assessee was not covered by the exception provided in the sub-section 2 of the section271AAA of the Income Tax Act, 1961 andconsequently liable for penalty under Section271AAA of the Act?" 2.The issue pertains to imposition of penalty under Section271AAA of the Income Tax Act ("the Act" for short). Duringsearch the assessee in the statement recorded under Section132(4) of the Act had admitted certain undisclosed income. TheAssessing Officer however was of the opinion that since theassessee had not disclosed the manner of earning such income, theassessee cannot claim immunity from penalty. In this context,the reference was made to sub-section (2) of Section 271AAAwhich requires that in addition to admitting the undisclosedincome in statement under sub-section (4) of Section 132, theassessee also specifies the manner in which such income has beenderived. In the opinion of the Assessing Officer, this laterrequirement of the assessee specifying the manner in which suchincome have been derived, was not specified. When the issueultimately reached the Tribunal, the Tribunal by impugnedjudgment deleted the penalty relying on the decisions of Allahabad High Court in case of Commissioner of Income-TaxVs. Radha Kishan Goel[1] and that of the Gujarat High Court incase of Commissioner of Income-Tax Vs. Mahendra C. Shah[2]. 3.Having heard learned counsel for the parties and havingperused the documents on record, we do not find any error inthe view of the Tribunal. The requirement in question flowingfrom clause (i) of sub-section (2) of Section 271AAA of the Act issimilar to one specified in sub-clause (2) of Explanation 5 toSection 271 of the Act. In context of this provision that AllahabadHigh Court in case of Radha Kishan Goel (supra) had held thatunless the Authorized Officer recording the statement underSection 132(4)(a) of the Act puts the specific question withregard to the manner in which income have been derived, itcannot be expected from a person to make a statement in thisregard and in case in the statement the manner in which incomehas been derived has not been stated, but has been statedsubsequently, it amounts to compliance with Explanation 5(2). 1(2005) 278 ITR 454(All) 2(2008) 299 ITR 305 (Guj) 4.In case of Mahendra C. Shah (supra) Gujarat High Court reiterated this position and held that:- 1(2005) 278 ITR 454(All) 2(2008) 299 ITR 305 (Guj) 4.In case of Mahendra C. Shah (supra) Gujarat High Court reiterated this position and held that:- "15. In so far as the alleged failure on the part ofthe assessee to specify in the statement underSection 132(4) of the Act regarding the manner inwhich such income has been derived, suffice it tostate that when the statement is being recorded bythe authorized officer it is incumbent upon theauthorized officer to explain the provisions ofExplanation 5 in entirety to the assessee concernedand the authorized officer cannot stop short at aparticular stage so as to permit the Revenue to takeadvantage of such a lapse in the statement. Thereason is not far to seek. In the first instance, thestatement is being recorded in the question andanswer form and there would be no occasion for anassessee to state and make averments in the exactformat stipulated by the provisions considering thesetting in which such statement is being recorded,as noted by Allahabad High Court in case of CIT v.Radha Kishan Goel (2005) 278 ITR 454. Secondly,considering the social environment it is notpossible to expect from an assessee, whetherliterate or illiterate, to be specific and to the pointregarding the conditions stipulated by ExceptionNo. 2 while making statement under Section132(4) of the Act. The view taken by the Tribunalas well as Allahabad High Court to the effect thateven if the statement does not specify the mannerin which the income is derived, if the income isdeclared and tax thereon paid, there would besubstantial compliance not warranting any furtherdenial of the benefit under Exception No. 2 inExplanation 5 is commendable." Priya Soparkar 5901 itxa 1688-16-o 5.This decision of the Gujarat High Court in case ofMahendra C. Shah(supra) came up for consideration before thesaid High Court in case of Mukeshbhai Ramanlal Prajapati in Tax Appeal No.434 of 2017 in the context of the penaltyprovision under Section 271AAA of the Act. The revenue's appealwas dismissed by an order dated 24[th] July, 2017 making following observations:- "10. It can thus be seen that this Court in case ofCommissioner of Income Tax vs. Mahendra C.Shahand Allahabad High Court in case of Commissionerof Income Tax vs. Radha Kishan Goel (supra) haveput considerable stress on the recording of thestatement under section 132(4) of the Act in thecontext of the requirement of the assessee todisclose the manner in which the undisclosedincome was derived in order to avoid penalty. TheHigh Court in case of Commissioner of Income Taxvs. Mahendra C.Shah, in particular, observed thatconsidering the social environment, it is notpossible to expect from an assessee to be specificand to the point regarding the conditions stipulatedby exception No.2 while making statement undersection 132(4) of the Act. The Court went on toobserve that if the income is declared and tax ispaid thereon, there would be substantialcompliance. 11. It is this principle which the CIT (Appeals) andthe Tribunal have applied in the present case. Asnoted, CIT (Appeals) was specific that no questionwas put to the assessee while recording statementunder section 132 regarding the manner of derivingthe undisclosed income. Counsel for the Revenue, however, vehemently contended that in the presentcase, the penalty was being imposed under section271AAA of the Act and the statutory provisionsenabling the assessee to avoid such a penalty areentirely different as compared to Explanation 5 tosection 271. 12. Sub section (1) of section 271AAA provides fora penalty in addition to tax at the rate of tenpercent of the undisclosed income in case where thesearch has been initiated under section 132 of theAct on or after 1st day of June 2007 but before 1stday of July 2012. Such penalty may, however, beavoided if the conditions specified under subsection (2) are satisfied which are as under: however, vehemently contended that in the presentcase, the penalty was being imposed under section271AAA of the Act and the statutory provisionsenabling the assessee to avoid such a penalty areentirely different as compared to Explanation 5 tosection 271. 12. Sub section (1) of section 271AAA provides fora penalty in addition to tax at the rate of tenpercent of the undisclosed income in case where thesearch has been initiated under section 132 of theAct on or after 1st day of June 2007 but before 1stday of July 2012. Such penalty may, however, beavoided if the conditions specified under subsection (2) are satisfied which are as under: (2) Nothing contained in sub section (1) shall applyif the assessee- (i) in the course of the search, in a statement undersub section (4) of section 132 admits theundisclosed income and specifies the manner inwhich such income has been derived; (ii) substantiates the manner in which theundisclosed income was derived; and (iii) pays the tax, together with interest, if any, inrespect of the undisclosed income." 13. Sub section (2) of Section 271AAA thus whileretaining the other requirements of avoidingpenalty as provided in clause (ii) of Explanation 5 has now introduced anadditional requirement of the assessee having tosubstantiate the manner in which, the undisclosedincome was derived. It is this requirement whichthe counsel for the Revenue would place greatemphasis on. According to her, onus is now entirelyshifted on the assessee not only to make adisclosure of the undisclosed income but also tospecify the manner, in which, the income has beenderived and to substantiate the same. It was therefore, contended that the earlier decisions ofthis Court in case of Commissioner of Income Taxvs. Mahendra C.Shah and the decision of AllahabadHigh Court in case of Commissioner of Income Taxvs. Radha Kishan Goel rendered in backdrop ofdifferent statutory provisions would notautomatically apply. 14. We do not reject this contention totally.However, insofar as the facts of the present case areconcerned, the field would still be held by thedecision of this Court in case of Commissioner ofIncome Tax vs. Mahendra C.Shah (supra). Sub-section (2) of section 271AAA imposes anadditional condition of the assessee having tosubstantiate the manner in which, the undisclosedincome was derived. This requirement, however,must be seen as consequential to or corollary to thebase requirement of specifying the manner, inwhich, the undisclosed income was derived. It isonly when such declaration is made, the question ofsubstantiating such disclosure or claim would arise.If, as in the present case, the Revenue failed toquestion the assessee while recording his statementunder section 132 (4) of the Act as regards themanner of deriving such income, the Revenuecannot jump to the consequential or laterrequirement of substantiating the manner ofderiving the income. In the context of therequirement of the assessee specifying the mannerof deriving the income the decision of this Court incase of Commissioner of Income Tax vs. MahendraC.Shah (supra) would hold the field even in thecontext of sub-section (2) of section 271AAA of theAct. It is only when the officer of the raiding partyrecording the statement of the assessee undersection 132(4) of the Act elicits a response from theassesse's this requirement, the assessee'sresponsibility to substantiate the manner ofderiving such income would commence. When the Priya Soparkar base requirement itself fails, the question ofdenying the benefit of no penalty would not arise." 6.In the result, this appeal is dismissed. (B.P.COLABAWALLA,J.) (AKIL KURESHI,J.) ….