C/Taxap/1150/2018 Order v. M/S Sun Coporation

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 1150 of 2018 ========================================================== THE PRINCIPAL COMMISSIONER OF INCOME TAX, VADODARA-1VersusM/S SUN COPORATION==========================================================Appearance:MR.VARUN K.PATEL(3802) for the PETITIONER(s) No. 1 for the RESPONDENT(s) No. 1 ========================================================== CORAM: HONOURABLE MR.JUSTICE AKIL KURESHIandHONOURABLE MR.JUSTICE B.N. KARIA Date : 17/09/2018 ORAL ORDER (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. Revenue is in appeal against the judgement of the Income Tax Appellate Tribunal dated 23.02.2018 raising following question for our consideration:Appellate Tribunal dated 23.02.2018 raising following question for our consideration: “Whether on the facts and in circumstances of the case, the learned ITAT has erred in law and on fact indeleting the penalty of Rs. 1,00,00,000/- levied u/s. 271AAA of the Act by holding that the condition provided u/s. 271AAA(2) stood satisfied as assessee was not asked to specify the manner in which such income was earned and substantiate the manner in which income was derived, even though as per the provisionit was for the assessee to voluntarily state the above even if no such query was put to the assessee?” C/TAXAP/1150/2018 ORDER 2. The issue pertains to penalty levied by the Assessing Officer under section 271AAA of the Income Tax Act, 1961 ['the Act' for short]. On the ground that though the assessee had made the disclosures, it had now showed the manner of deriving such income. CIT(A) came to the conclusion that the assessee had satisfied this additional requirement for claiming immunity also since there was substantial compliance with this requirement. When the Revenue approached the Tribunal, the Tribunal dismissed the appeal mainly relying on the judgement of this Court in case of Commissioner of Income Tax vs. Mahendra C. Shah reported in 299 ITR 305 and in case of Principal Commissioner of Income Tax vs. Mukesh Ramanlal Prajapati dated 24.07.2007 in Tax Appeal No. 434 of 2017.under section 271AAA of the Income Tax Act, 1961 ['the Act' for short]. On the ground that though the assessee had made the disclosures, it had now showed the manner of deriving such income. CIT(A) came to the conclusion that the assessee had satisfied this additional requirement for claiming immunity also since there was substantial compliance with this requirement. When the Revenue approached the Tribunal, the Tribunal dismissed the appeal mainly relying on the judgement of this Court in case of Commissioner of Income Tax vs. Mahendra C. Shah reported in 299 ITR 305 and in case of Principal Commissioner of Income Tax vs. Mukesh Ramanlal Prajapati dated 24.07.2007 in Tax Appeal No. 434 of 2017. 3. Counsel for the Revenue submitted that the Revenue officials had paused a specific query to Shri Rajendra Shah, partner of the firm asking him to elaborate on the details “of undisclosed income of Rs. 35 crores and how it is earned by you and your group.” In his opinion thus, this is not a case where the Assessing Officer had not raised the query. The judgement of this Court in case of Commissioner of Income Tax vs.Mahendra C. Shah (supra)therefore would not apply. The Tribunal committed an error in coming to the contrary conclusion. His second contention was that in any case, during the course of assessment, the Assessing Officer had made additions over and above the income admitted and disclosed had paused a specific query to Shri Rajendra Shah, partner of the firm asking him to elaborate on the details “of undisclosed income of Rs. 35 crores and how it is earned by you and your group.” In his opinion thus, this is not a case where the Assessing Officer had not raised the query. The judgement of this Court in case of Commissioner of Income Tax vs.Mahendra C. Shah (supra)therefore would not apply. The Tribunal committed an error in coming to the contrary conclusion. His second contention was that in any case, during the course of assessment, the Assessing Officer had made additions over and above the income admitted and disclosed by the assessee during the raid. With respect to such addition at least the penalty could not have been deleted. 4. In case of Commissioner of Income Tax vs. Mahendra C. Shahss(upra) in the context of the penalty under section 271(1) of the Act and the claim of the assessee's immunity from such penalty under Explanation 5 to the said provision, the Court had held that:the Act and the claim of the assessee's immunity from such penalty under Explanation 5 to the said provision, the Court had held that: “15. In so far as the alleged failure on the part of the assessee to specify in the statement under Section 132(4) of the Act regarding the manner in which such income has been derived, suffice it to state that when the statement is being recorded by the authorized officer it is incumbent upon the authorized officer to explain the provisions of Explanation 5 in entirety to the assessee concerned and the authorized officer cannot stop short at a particular stage so as to permit the Revenue to take advantage of such a lapse in the statement. The reason is not far to seek. In the first instance, the statement is being recorded in the question and answer form and there would be no occasion for an assessee to state and make averments in the exact format stipulated by the provisions considering the setting in which such statement is being recorded, as noted by Allahabad High Court in case of CIT Vs. Radha Kishan Goel (supra). Secondly, considering the social environment it is not possible to expect from an assessee, whether literate or illiterate, 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 view taken by the Tribunal as well as Allahabad High Court to the effect that even if the statement does not specify the manner in which the income is derived, if the income is declared and tax thereon paid, there would be substantial compliance not warranting any further denial of the benefit under Exception No.2 in Explanation 5 is commendable.” 5. In case of Principal Commissioner of Income Tax vs. MukeshRamanlal Prajapati (supra) Division Bench of this Court had, after referring to the judgement in case of Commissioner ofIncome Tax vs. Mahendra C. Shah (supra) and Allahabad High Court in case of CIT vs. Radha Kishan Goel reported in 278 ITR 454 observed as under: 5. In case of Principal Commissioner of Income Tax vs. MukeshRamanlal Prajapati (supra) Division Bench of this Court had, after referring to the judgement in case of Commissioner ofIncome Tax vs. Mahendra C. Shah (supra) and Allahabad High Court in case of CIT vs. Radha Kishan Goel reported in 278 ITR 454 observed as under: “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) ofthe 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.” 6. In the present case however, as noted, counsel for the Revenue desired to make a slight distinction. In his opinion, this was not a case where no queries were raised by the Assessing Officer during the process of recording a statement of the assessee under section 132(4) of the Act. In this context, we may note that one of the questions put to a partner of the firm was “kindly elaborate on the details of undisclosed income of Rs. 34 crores and how it is earned by you and your group”. In the answer to this question, the partner had stated that the undisclosed income of Rs. 35 crores declared by him and his group was earned out of land related transaction and the same was not recorded in the books of accounts. He further added that the breakup of such income person wise and firm wise will be submitted after opening the bank locker and operation of prohibitory order. He stated that such disclosure was made with the consent of the family members and all partners. 7. The answer of the partner thus, in addition to confirming the disclosure of undisclosed income, further stated that the income was earned by the group out of land related transactions which was not previously recorded in the books. This was thus specifically in compliance with the requirement of establishing the manner, in which, the income was earned. It is true that at this stage, he could not give the break up of such income person wise or firm wise citing the reason of sealing of the bank locker. In our opinion, this would not be of much relevance. Firstly as noted, the answer was in sufficient disclosure of undisclosed income, further stated that the income was earned by the group out of land related transactions which was not previously recorded in the books. This was thus specifically in compliance with the requirement of establishing the manner, in which, the income was earned. It is true that at this stage, he could not give the break up of such income person wise or firm wise citing the reason of sealing of the bank locker. In our opinion, this would not be of much relevance. Firstly as noted, the answer was in sufficient compliance of requirement of manner of earning income. Secondly, as recorded by the CIT (A), the Assessing Officer had made additions taxing the admitted amounts in respective hands. In view of such facts, we are primarily of the view that there is substantial compliance by the assessee. We do not see any reason to disturb the Tribunal's order, however, for the reasons somewhat different from those recorded by the Tribunal. The addition outside of the disclosures by the assessee are not significant. The penalty in relation to such additional component also not being very large, such question is kept open. 8. In the result, tax appeal is dismissed. (AKIL KURESHI, J) JYOTI V. JANI (B.N. KARIA, J)