Appellate Tribunal Was Right In Relying The Judgment Of The Hon'ble Court Of Gujarat Reported Vide 299 Itr 305 Gujarat In The Case Of Commissioner Of Income-Tax v. The Tribunal, In Its Impugned Order, While Concurring With The Findings Of The Cit(A) In Deleting The Penalty, Observed As Under

IN THE HIGH COURT OF GUJARAT AT AHMEDABADR/TAX APPEAL NO. 273 of 2019 ========================================================== PRINCIPAL COMMISSIONER OF INCOME TAX (CENTRAL), SURAT VersusVIBHUTI ORGANISERS PVT. LTD. ==========================================================Appearance:MRS MAUNA M BHATT(174) for the Appellant(s) No. 1 for the Opponent(s) No. 1 ========================================================== CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALAand HONOURABLE MR.JUSTICE A.C. RAO Date : 15/07/2019 ORAL ORDER (PER : HONOURABLE MR.JUSTICE J.B.PARDIWALA) 1This Tax Appeal under Section 260A of the Income Tax Act, 1961 (for short, “the Act, 1961”) is at the instance of the Revenue and is directed against the order passed by the Income Appellate, Surat Bench, Surat dated 29[th] October 2018 in the ITA No.2089/Ahd/2014/SRT for the assessment year 2011-12. 2The Revenue has proposed the following two questions of law: “[A] Whether on the facts and circumstances of the case and in law, the Appellate Tribunal was right in deleting the penalty of Rs.92,90,000/- levied under Section 271AAA of the Income Tax Act, when the assessee failed to substantiate the manner in which undisclosed income of Rs.9,29,00,000/- was derived, though the assessee was provided opportunity to substantiate such manner during the assessment as well as penalty proceedings, which happened much after recording the statement under Section 132(4) of the Income Tax Act? [B] Whether on the facts and circumstances of the case and in law, the Appellate Tribunal was right in relying the judgment of the Hon'ble Court of Gujarat reported vide 299 ITR 305 Gujarat in the case of Commissioner of Income-tax vs. Mahendra C. Shah, when the said judgment is clearly distinguishable from the facts involved in this case viz-a-viz the difference in fulfillment of criteria as prescribed under explanation 5 of Section 271(1)(c) of the Income Tax Act and that of the criteria as per sub-section (2) of Section 271AAA of the Income Tax Act?” 3The Tribunal, in its impugned order, while concurring with the findings of the CIT(A) in deleting the penalty, observed as under: “6.In view of findings recorded by the AO in the penalty order and conclusion drawn by the ld. CIT(A) in the first appellate order, as reproduced herein above, we observe that admittedly the appellant has offered the total of unaccounted income of Rs.9.29 crores by AY 2011-12 in the statement recorded during the search and seizure operation u/s. 132(4) of the Act. This declaration / surrender was based on the notes in the diary/note book market as Annexure-BS-2 which clearly mentions the date-wise receipts of 'on money' or 'unaccounted receipts' in the name of the appellant company as well as in the name of the other concerns of the appellant group. From the notings on the pages of said diary/note book Annexure-BS-2 there was clear mentioning of the date/months and unaccounted income received by the assessee during the said period, which was offered to tax during statement u/s. 132 of the Act. 7. From the copy of the statement of Shri Karshanbhai M. Prjapati recorded u/s. 132(4) of the Act (assessee paper book page 1-3), we observe that replying to Q. Nos. 5, 6 & 7, the assessee clearly stated the manner in which of earning such undisclosed income of Rs. 9.29 crores as derived from construction business of the appellant company in the projects namely 'Swastik Universal’, which was a residential complex. Then, the condition provided in sub s. (i) of s. 271AAA(2) of the Act is satisfied as the manner of earning of undisclosed income has been clearly stated by the assessee in the statement of director of assessee company recorded u/s. 132(4) of the Act. It is also not in dispute that the assessee has shown surrendered income in the return filed in response to notice u/s. 153A of the Act and has paid all due taxes etc. thereon and thus, another required condition has also been fulfilled by the assessee. 8. Now, we further evaluate the conclusion of the ld. CIT(A), wherein he has relied on the ratio of the decision of decision Hon’ble Jurisdictional High Court in the case of Mahendra C. Shah (supra) and decision of Hon'ble High Court of Allahabad in the case of CIT vs. Shri Radha Kishan Goel (supra) and other two orders of ITAT in the case of Sulochana A, Agarwal (supra) and Shri Pramodkumar Jain (supra). In the case of Mahendra C. Shah (supra), their lordship speaking for the Jurisdictional High Court held that the AO has to specifically ask the assessee to explain the manner in which the undisclosed income has been derived and if he has not done so, the assessee cannot be penalized, if suo-moto he, by enlarge, explains the manner of earning the undisclosed income and pays the taxes thereon. In these circumstances and in the light of ratio of the decision of Hon'ble Jurisdictional High Court in the case of Mahendra C. shah (supra), when we analyze the statement of Shri Prajapati. a Director of the company recorded u/s. 132 (4) of the Act during search and seizure operation that no question has been asked to the assessee to the Director of the company asking him to comply with the condition (ii) of s. 271AAA of the Act to substantiates the manner in which the undisclosed income was derived. Therefore, ratio of the decision of Hon'ble High Court of Gujarat in the case of Mahendra C. shah (supra) and recent decision dated 14.09.2015 in Tax appeal No.565/2015 in the case of PCIT vs. Geeta Prints Pvt. Ltd. (Guj), as vehemently relied by the ld. AR supports the contention and explanation of the assessee and respectfully following the same, we declined to accept stand and observations of the AO in imposing penalty u/s. 271AAA of the Act. At the same time, we further observe that the ld. CIT(A) was right in cancelling the penalty by following decision of Hon'ble Jurisdictional High Court and hence, conclusion drawn ld. First appellate authority in the impugned order is upheld. Consequently, grounds of Revenue being devoid of merits are dismissed. 9.The ld. AR submitted that the assessee has filed C.O. to support conclusion drawn by the ld. CIT(A) and the same does not want to press the same hence, the same are dismissed as not pressed.” 4Thus, the findings of fact recorded by the two revenue authorities is that the assessee offered the total unaccounted income of Rs.9.29 Crores for the assessment year 2011-12 in his statement recorded during the search and seizure operation u/s. 132(4) of the Act. The Tribunal, by placing reliance on the decision of this Court in the case of CIT vs. Mahendra C. Shah [99 ITR 305 (Guj)], took the view that the Assessing Officer is obliged to specifically ask the assessee to explain the manner in which the undisclosed income had been derived and the failure on the part of the Assessing Officer in not inquiring specifically should not go against the assessee and the assessee should not be penalised. The Revenue took notice of the statement of Shri Prajapati, a 4Thus, the findings of fact recorded by the two revenue authorities is that the assessee offered the total unaccounted income of Rs.9.29 Crores for the assessment year 2011-12 in his statement recorded during the search and seizure operation u/s. 132(4) of the Act. The Tribunal, by placing reliance on the decision of this Court in the case of CIT vs. Mahendra C. Shah [99 ITR 305 (Guj)], took the view that the Assessing Officer is obliged to specifically ask the assessee to explain the manner in which the undisclosed income had been derived and the failure on the part of the Assessing Officer in not inquiring specifically should not go against the assessee and the assessee should not be penalised. The Revenue took notice of the statement of Shri Prajapati, a Director of the company, recorded under Section 132(4) of the Act during the search and seizure. In such statement, no such question had been asked to the assessee. 5In the overall view of the matter, we are convinced with the findings recorded by the Tribunal. In our opinion, there is no substantial question of law involved in the present appeal. 6We also take notice of one recent pronouncement of this Court in the case of Principal Commissioner of Income-Tax vs. Mukeshbhai Ramanlal Prajapati reported in [2017] 398 ITR 170 (Guj) dealing with Section 271AAA of the Act. We quote the relevant observations made by this Court as follows: “It can thus be seen that this Court in case of Commissioner of Income Tax vs. Mahendra C. Shah and Allahabad High Court in case of Commissioner of Income Tax vs. Radha Kishan Goel (supra) have put considerable stress on the recording of the statement under section 132(4) of the Act in the context of the requirement of the assessee to disclose the manner in which the undisclosed income was derived in order to avoid penalty. The High Court in case of Commissioner of Income Tax vs. Mahendra C. Shah, in particular, observed that considering the social environment, it is not possible to expect from an assessee to be specific and to the point regarding the conditions stipulated by exception No.2 while making statement under section 132(4) of the Act. The Court went on to observe that if the income is declared and tax is paid thereon, there would be substantial compliance. It is this principle which the CIT (Appeals) and the Tribunal have applied in the present case. As noted, CIT (Appeals) was specific that no question was put to the assessee while recording statement under section 132 regarding the manner of deriving the undisclosed income. Counsel for the Revenue, however, vehemently contended that in the present case, the penalty was being imposed under section 271AAA of the Act and the statutory provisions enabling the assessee to avoid such a penalty are entirely different as compared to Explanation 5 to section 271. 12.Sub section (1) of section 271AAA provides for a penalty in addition to tax at the rate of ten percent of the undisclosed income in case where the search has been initiated under section 132 of the Act on or after 1[st] day of June 2007 but before 1[st] day of July 2012. Such penalty may, however, be avoided if the conditions specified under sub section (2) are satisfied which are as under: “(2) Nothing contained in sub section (1) shall apply if the assessee- (i) in the course of the search, in a statement under sub section (4) of section 132 admits the undisclosed income and specifies the manner in which such income has been derived;section 132 admits the undisclosed income and specifies the manner in which such income has been derived; (ii) substantiates the manner in which the undisclosed income was derived; andderived; and (iii) pays the tax, together with interest, if any, in respect of the undisclosed income.”undisclosed income.” “(2) Nothing contained in sub section (1) shall apply if the assessee- (i) in the course of the search, in a statement under sub section (4) of section 132 admits the undisclosed income and specifies the manner in which such income has been derived;section 132 admits the undisclosed income and specifies the manner in which such income has been derived; (ii) substantiates the manner in which the undisclosed income was derived; andderived; and (iii) pays the tax, together with interest, if any, in respect of the undisclosed income.”undisclosed income.” 13.Sub section (2) of Section 271AAA thus while retaining the other requirements of avoiding penalty as provided in clause (ii) of Explanation 5 has now introduced an additional requirement of the assessee having to substantiate the manner in which, the undisclosed income was derived. It is this requirement which the counsel for the Revenue would place great emphasis on. According to her, onus is now entirely shifted on the assessee not only to make a disclosure of the undisclosed income but also to specify the manner, in which, the income has been derived and to substantiate the same. It was therefore, contended that the earlier decisions of this Court in case of Commissioner of Income Tax vs. Mahendra C. Shah and the decision of Allahabad High Court in case of Commissioner of Income Tax vs. Radha Kishan Goel rendered in backdrop of different statutory provisions would not automatically apply. 14.We do not reject this contention totally. However, insofar as the facts of the present case are concerned, the field would still be held by the decision of this Court in case of Commissioner of Income Tax vs. Mahendra C. Shah (supra). Sub-section (2) of section 271AAA imposes an additional condition of the assessee having to substantiate the manner in which, the undisclosed income was derived. This requirement, however, must be seen as consequential to or corollary to the base requirement of specifying the manner, in which, the undisclosed income was derived. It is only when such declaration is made, the question of substantiating such disclosure or claim would arise. If, as in the present case, the Revenue failed to question the assessee while recording his statement under section 132 (4) of the Act as regards the manner of deriving such income, the Revenue cannot jump to the consequential or later requirement of substantiating the manner of deriving the income. In the context of the requirement of the assessee specifying the manner of deriving the income the decision of this Court in case of Commissioner of Income Tax vs. Mahendra C. Shah (supra) would hold the field even in the context of sub-section (2) of section 271AAA of the Act. It is only when the officer of the raiding party recording the statement of the assessee under section 132(4) of the Act elicits a response from the assesse’s this requirement, the assessee’s responsibility to substantiate the manner of deriving such income would commence. When the base requirement itself fails, the question of denying the benefit of no penalty would not arise.” 7Thus, in view of the aforesaid, this appeal fails and is hereby dismissed. (J. B. PARDIWALA, J) CHANDRESH (A. C. RAO, J)