When The Assessment Order Was Challengedbefore The Commissioner Of Income Tax (Appeals),He Did Not Sustain The Penalty Imposed By Theassessing Officer Following v. R Umedbhai Jewellers Pvt.ltd Passed In Tax Appeal

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 178 of 2021 FOR APPROVAL AND SIGNATURE: HONOURABLE MS. JUSTICE SONIA GOKANI andHONOURABLE MR. JUSTICE RAJENDRA M. SAREEN ==========================================================1Whether Reporters of Local Papers may be allowedNO to see the judgment ?2To be referred to the Reporter or not ?NO3Whether their Lordships wish to see the fair copyNOof the judgment ?4Whether this case involves a substantial questionNOof law as to the interpretation of the Constitutionof India or any order made thereunder ?==========================================================THE PRINCIPAL COMMISSIONER OF INCOME TAX, VADODARA 1 VersusM/S SHREEDHAR ASSOCIATES ==========================================================Appearance:MR.VARUN K.PATEL(3802) for the Appellant(s) No. 1MR MANISH J SHAH(1320) for the Opponent(s) No. 1========================================================== CORAM: HONOURABLE MS. JUSTICE SONIA GOKANIandHONOURABLE MR. JUSTICE RAJENDRA M. SAREEN Date : 14/09/2021 ORAL JUDGMENT (PER : HONOURABLE MS. JUSTICE SONIA GOKANI) 1.The Revenue is in appeal before this Court against the judgment of the Income-Tax AppellateTribunal dated 05.03.2020 raising followingquestion for our consideration : “(a) Whether in the facts and circumstances of the case,learned ITAT has erred in law and on fact in deleting thepenalty of levied under section 271(1)(c) of the Income TaxAct amounting to Rs.1,18,00,000/- despite the fact thatpenalty was levied on admitted net undisclosed income ofRs.3.80 crore received as “on money”, which wasunearthed based on diary found and impounded byInvestigation wing during survey proceedings and alsoadmitted by one of the partners in the statement recordedu/s. 131 (1A) of the Act and the said “on money” incomewas not accounted for in the regular books of account ofthe assessee on the date of survey?” 2.The Assessee a Partnership Firm was involved in the business of real estate development andconstruction, where it had come out with a scheme‘Shreedhar Residency’ in the first year 2012-2013. The survey under Section 133 (A) of theIncome Tax Act, 1961 (‘the Act’ hereinafter) wasconducted on 09.01.2013 as a part of searchoperations in Rashmikant Bhatt Group along with other Assessees belonging to the very group. Thetotal disclosure was made of Rs.20 Cr. Of whichRs.3.80 Cr. was of the respondent firm. This wasoffered as an additional income of a year undersurvey and the return which was filed by therespondent for the Assessment Year 2013-2014 on29.09.2013. The total income disclosed anddeclared was Rs.4,26,92,360/- which was inclusiveof the sum of Rs.3.80 Cr. 3.The Assessment Order under Section 143 (3) ofthe Act was passed by the DCIT, Central Circle 2,Vadodara on 28.12.2015 without any addition,whereby the return filed by the respondent -Assessee was accepted. However, the AssessingOfficer had initiated the penalty proceedingsunder Section 271(1)(c) of the Act on the groundof concealment. The stand of the respondent-Assessee is that the amount of Rs.3.80 Cr. cannotbe treated as concealed income since the same hadbeen declared in the return filed by the Assesseewhich was not accepted by the assessing Officer and a penalty was imposed under Section 271(1)(c) ofthe Act at the rate of 100% tax on income to thetune of Rs.3.80 Cr. 4.When the Assessment Order was challengedbefore the Commissioner of Income Tax (Appeals),he did not sustain the penalty imposed by theAssessing Officer following the decision of thisCourt rendered in case of PRINCIPAL COMMISSIONEROF INCOME TAX-3 vs. R UMEDBHAI JEWELLERS PVT.LTD passed in Tax Appeal No.549 of 2016. penalty was imposed under Section 271(1)(c) ofthe Act at the rate of 100% tax on income to thetune of Rs.3.80 Cr. 4.When the Assessment Order was challengedbefore the Commissioner of Income Tax (Appeals),he did not sustain the penalty imposed by theAssessing Officer following the decision of thisCourt rendered in case of PRINCIPAL COMMISSIONEROF INCOME TAX-3 vs. R UMEDBHAI JEWELLERS PVT.LTD passed in Tax Appeal No.549 of 2016. 5.This was carried before the Income TaxAppellate Tribunal (‘the ITAT’ for short), whichhad not entertained the appeal following thedecision of this Court passed in Tax AppealNo.549 of 2016 noting that these findings anddirections were in the identical circumstances.The ITAT had noted that the Assessee had offeredan amount as additional business income, whichwas duly incorporated in the books of account andin the regular return of income taxes were duly C/TAXAP/178/2021 JUDGMENT DATED: 14/09/2021 paid. The ITAT also on account of the fact thatthe books of account were not closed as the yearwas not over and since it was not the case ofrevenue that the books were completed and andaccounts were audited and the returns were filed had treated this as an unaccounted income. Thisis an ongoing financial year and it wasAssessee’s first year of operation therefore,also it was not possible for it to consider asthe amount pertained to earlier years of business. This has been challenged by therevenue. 6.We have heard the learned standing counsel,Mr.Varun Patel, who has fervently urged that theAssessing Officer was justified in levying thepenalty as the income was unaccounted & it cameto the surface only on account of the surveyproceedings. Had the survey proceedings been notundertaken, the amount could have never beensurfaced nor would respondent-Assessee going todeclare it as part of its return. Therefore, considering the scheme of the penalty Section271(1)(c) of the Act, the order of ITAT deservesinterference. 7.On a caveat, learned advocate, Mr.Manish Shahhas strenuously resisted this on the ground thatboth the CIT and the ITAT had rightly followedthe decision PRINCIPAL COMMISSIONER OF INCOMETAX-3 vs. R UMEDBHAI JEWELLERS PVT. LTD (supra)where the identical circumstances existed. It wasnot a case where books were either closed and thereturn also was not filed as yet. In cases wherethe income had come to the fore after once thereturn had been filed by the Assessee, therevenue had an occasion to treat this as theincome which was liable to the penalty, but notin the present case. 8.Having heard the learned advocates on boththe sides and also having noticed that the surveyhad taken place on 09.01.2013 as a part of searchoperation of the entire group and when it chose to disclose additional Rs.20 Cr., Rs.3.80 Cr.came to be attributable to the respondent firm.The return was filed under Section 139 of the Actby the respondent for the Assessment Year 2013-2014 on 29.09.2013, which is after about eightmonths of the survey which was conducted. Thebooks of account also were not closed and it wasnot a case of any revised return being filed bythe respondent Assessee. In such circumstances,Assessing Officer also had not added any otherincome for the amount of Rs.3.80 Cr. had alreadybeen declared in the return itself. Both theauthorities concurrently have correctly heldfollowing the decision of PRINCIPAL COMMISSIONEROF INCOME TAX-3 vs. R UMEDBHAI JEWELLERS PVT.LTD (supra)that no penalty can be levied insuch circumstances. 9.This Court in case PRINCIPAL COMMISSIONEROF INCOME TAX-3 vs. R UMEDBHAI JEWELLERS PVT.LTD (supra) also was considering the case of acompany which was in its first year of 9.This Court in case PRINCIPAL COMMISSIONEROF INCOME TAX-3 vs. R UMEDBHAI JEWELLERS PVT.LTD (supra) also was considering the case of acompany which was in its first year of incorporation subjected to survey operation andat that stage, when the due date for filing thereturn had not expired, the Assessee had admittedcertain bogus share application money to the tuneof Rs.5.86 Cr. Before the expiry of the due datefor filing return, the return was filed byAssessee and he made a matching disclosure. Noaddition was made in the income by the AssessingOfficer, but he levied the penalty on the groundthatAssesseehadfurnishedinaccurateparticulars. The Court held that penalty couldnot have been imposed as rightly held by theTribunalbyfollowingobservationsanddirections: “6. To our mind, such penalty could not have been imposedas rightly held by the Tribunal. Section 271 of the Actprovides for penalty. Clause (c) of sub-section (1) of Section271 of the Act provides that if the Assessing Officer duringthe course of any proceeding under the Act is satisfied thatany person has concealed the particulars of his income orfurnished inaccurate particulars of such income, he maydirect such person to pay by way of penalty which shall notbe less than, but which shall not exceed three times the amount of tax sought to be evaded by the reason ofconcealment of particulars or furnish inaccurate particularsof such income. Relevant provision or Section 271 of the Actreads, thus; “271.(1) If the Assessing Officer or the Commissioner(Appeals) or the[Principal Commissioner or]Commissioner in the course of any proceedings underthis Act, is satisfied that any person— (a) xxx xxx xxx (b) xxx xxx xxx (c) has concealed the particulars of his income orfurnished inaccurate particulars of such income, or (i) xxx xxx xxx (ii) xxx xxx xxx (iii) in the cases referred to in clause (c) or clause (d),in addition to tax, if any, payable by him, a sumwhich shall not be less than, but which shall notexceed three times, the amount of tax sought to beevaded by reason of the concealment of particulars ofhis income or fringe benefits or the furnishing ofinaccurate particulars of such income or fringebenefits. Explanation 1.—Where in respect of any facts material to the computation of the total income of any personunder this Act,— (A) such person fails to offer an explanation or offersan explanation which is found by the Assessing Officeror the Commissioner (Appeals) or the [PrincipalCommissioner or] Commissioner to be false, or (B) such person offers an explanation which he is notable to substantiate and fails to prove that suchexplanation is bona fide and that all the facts relatingto the same and material to the computation of histotal income have been disclosed by him, then, theamount added or disallowed in computing the totalincome of such person as a result thereof shall, for thepurposes of clause (c) of this sub-section, be deemedto represent the income in respect of which particularshave been concealed.” 7. As noted, the revenue desired to bring in the element ofthe assessee having furnished inaccurate particulars of itsincome. The fact that the assessee did make a disclosure ofsuch income in the return filed and the Assessing Officerwas not dissatisfied by such disclosure is not in dispute.The assessee having filed the return by the due date forfiling return, in which such income was also offered to tax,the question of assessee having furnished inaccurateparticulars of the income would not arise. 7. As noted, the revenue desired to bring in the element ofthe assessee having furnished inaccurate particulars of itsincome. The fact that the assessee did make a disclosure ofsuch income in the return filed and the Assessing Officerwas not dissatisfied by such disclosure is not in dispute.The assessee having filed the return by the due date forfiling return, in which such income was also offered to tax,the question of assessee having furnished inaccurateparticulars of the income would not arise. 8. It may be that the assessee was subjected to searchoperation before filing of the return and it may also bethat the revenue has sufficient material at its command toargue that but for the survey operation the assessee wouldnot have disclosed such income. However, these are notthe grounds on which the penalty under Section 271(1)(c)of the Act can be imposed. The grounds are specific,namely, of the assessee having concealed particulars of theincome or having furnished inaccurate particulars of suchincome. When neither of these two conditions apply,penalty cannot be levied under the said provision. 9. Attempt on the part of counsel for the revenue to relyupon explanation (1) to Section 271(1) of the Act wouldalso be futile. Said explanation provides that if a personfails to offer an explanation or offers explanation which isfound by the Assessing Officer to be false or offers anexplanation which he is not able to substantiate or fails toprove that such explanation is bonafide, the amount addedor disallowed in computing total income of such person, asa result thereof for the purpose of clause (c) of sub-section(1) be deemed to represent the income in respect of whichparticulars have been concealed. This explanation would,thus, apply at the stage of assessment since it refers to inrespect of any facts material to the computation of totalincome. At such a stage. If the assessee fails to offer anexplanation or offers an explanation which is found to be false, the explanation would apply and by deeming fiction,the assessee would be for the purpose of clause (c) of sub-section (1) of Section 271 of the Act be deemed to haveconcealed the particulars of the amount added ordisallowed in computing total income of the assessee.10. The decision of the Supreme Court in case of MAKData (P) Ltd. (supra) was based on different set of facts. Itwas a case where the assessee had filed a return of incomefor the Assessment Year 2004-04 declaring total income ofRs.16.17 lacs. During the course of assessment proceedings,the Assessing Officer confronted the assessee with certainmaterials collected during the course of survey operationearlier conducted in case of assessee’s sister concern. Theassessee thereupon offered a further sum of Rs.40.74 lacsto avoid litigation and buy peace. The Assessing Officeraccepted such further disclosure and brought the said sumof Rs.40.74 lacs to tax as income from other source andalso initiated penalty proceedings with respect to such sum.When the assessee pressed the clause of making adeclaration to buy peace, the matter ultimately reached theHigh Court which accepted the revenue’s plea that theassessee had not offered any explanation about concealmentof the income. The High Court thus applied explanation (1)to Section 271(1)(c) of the Act and upheld the penalty. Thisdecision was carried by the assessee before the SupremeCourt, which, while dismissing the appeal, observed asunder : “9. We are of the view that the surrender ofincome in this case is not voluntary in the sensethat the offer of surrender was made in view ofdetection made by the AO in the search conductedin the sister concern of the assessee. In thatsituation, it cannot be said that the surrender ofincome was voluntary. AO during the course ofassessment proceedings has noticed that certaindocuments comprising of share application forms,bank statements, memorandum of association ofcompanies, affidavits, copies of Income Tax Returnsand assessment orders and blank share transferdeeds duly signed, have been impounded in thecourse of survey proceedings under Section 133Aconducted on 16.12.2003, in the case of a sisterconcern of the assessee. The survey was conductedmore than 10 months before the assessee filed itsreturn of income. Had it been the intention of theassessee to make full and true disclosure of itsincome, it would have filed the return declaring anincome inclusive of the amount which wassurrendered later during the course of theassessment proceedings. Consequently, it is clearthat the assessee had no intention to declare itstrue income. It is the statutory duty of the assesseeto record all its transactions in the books ofaccount, to explain the source of payments madeby it and to declare its true income in the return of income filed by it from year to year. The AO, inour view, has recorded a categorical finding thathe was satisfied that the assessee had concealedtrue particulars of income and is liable for penaltyproceedings under Section 271 read with Section274 of the Income Tax Act, 1961.” 11. The vital difference in the aforesaid case, thus, wasthat the assessee had already filed a return disclosing anamount of Rs.16.17 lacs. It was only during the assessmentproceedings that the assessee agreed to surrender furthersum of Rs.40.74 lacs by way of income. It was on accountof the material collected by the revenue during surveyoperation carried out in case of assessee’s sister concern. Inour case, the assessee had neither made additionaldisclosure nor revised the return after filing the returnwithin the time provided under the Statute. 12. The decision of this Court in case of DeepakConstruction Co. (Supra) also was rendered in different factsituation. It was a case where for the Assessment Year1983-84, the assessee had filed the return of income whichwas taken in scrutiny. During the scrutiny assessment, theAssessing Officer issued a show cause notice confronting theassessee with certain squared up cash credits. Upon receiptof the notice, the assessee filed a revised return offeringsuch sum by way of additional income. The revised returnwas accepted by the Assessing Officer. He, however, instituted penalty proceedings for the additional incomesurrendered by the assessee. In such background, thequestion arose whether after the assessee having filed therevised return, could the revenue have imposed penaltywithout making any additions to the income so returned.The High Court in the said judgment held that since therevised return was filed after detection of concealment ofincome, penalty under Section 271(1)(c) of the Act wouldbe levied. Likewise, in case of Dr.A. Mohd. Abdul Khadir(Supra) also, the Madras High Court was concerned withthe similar situation where the assessee revised his returnpursuant to the search operation during which he hadadmitted to have concealed the income. The Court held thatsuch revised return could not be treated as voluntary return andpenalty under Section 271(1)(a) of the Act would be leviable.” 10. The case relied upon by the Appliacnt for penalty is of Prasanna Dugar vs. 10. The case relied upon by the Appliacnt for penalty is of Prasanna Dugar vs. Commissioner of Income Tax,reported in(2016) 70 taxmann.com 175 (SC) wherepenaltywas imposed for concealment of income. It was a caseof a search where Assessee made voluntary disclosureof Rs.6 Cr. even though no incriminating documentsuggested any such undisclosed income. The Assesseehad offered for taxation sum of Rs.70 Lakh. TheHigh Court had held that the penalty levied under Section 271 (1)(c) was justifiable. The ApexCourt had upheld the order of the High Court byholding thus: “7.The assessee further assailed the said order of theCommissioner of Income-tax (Appeals) before the Tribunal.The matter was heard by the Bench of the Tribunal,however, while the learned Accountant Member (ShriB.R.Jain) in his order taking into consideration the peculiarsituation, observed that there was no documentary evidenceon record to show payment of any “on money” or tosuggest that there is any unexplained investment in stockentry. He chose to allow the appeal and cncelled the penalty.However, learned Judicial Member (Shri V. Durga Rao) wrotea separate judgment observing that after carefully goingthrough the order of the learned Accountant Member, he wasunable to persuade to agree with the views and conclusiondrawn by the learned Member that there being no materialor documentary evidence on record to show payment of any“on money”, while he found that there was ample evidenceon record in the shape of incriminating documents and clearworking of the “on money” which was noticed by thesurvey team. He further noticed that the statements wererecorded of two persons and also directions who themselvescalculated the concealed income and filed revised return onMarch 27, 2008. he also came to the conclusion that there isnothing on record that the assessee filed revised return ofincome due to pressure from the Department, rather in factthe directors of the assessee company themselves have calculated the undisclosed income and thereafter filed revisedreturn. Thus, learned Judicial Member disagreed with thefindings of the learned Accountant Member and upheld thepenalty. Since there was difference of opinion, the same wasreferred to a Third Member on the following question: “Whether on the peculiar facts and circumstancesof this case, there is any justification in sustenanceof penalty imposed under Section 271(1)(c) of theAct?” Learned Vice-President of the Tribunal (Shri G.D.Agrawal)who acting as a Third Member, heard the matter again andheld as under: “35.However, the facts of the assessee’s case arealtogether different. In the case under considerationbefore me, as already noted, there was survey at theassessee’s premises. During the course of survey,various incriminating documents, including thepurchase deed for purchase of agricultural land, werefound. The statements of the employees wererecorded. On the basis of those documents andstatements, it was established that the assessee wasrecording thepurchase of the land at a much lesservalue than the actual purchase price. When thesefacts were confirmed to the director of the company,he admitted to have made the cash payment for Learned Vice-President of the Tribunal (Shri G.D.Agrawal)who acting as a Third Member, heard the matter again andheld as under: “35.However, the facts of the assessee’s case arealtogether different. In the case under considerationbefore me, as already noted, there was survey at theassessee’s premises. During the course of survey,various incriminating documents, including thepurchase deed for purchase of agricultural land, werefound. The statements of the employees wererecorded. On the basis of those documents andstatements, it was established that the assessee wasrecording thepurchase of the land at a much lesservalue than the actual purchase price. When thesefacts were confirmed to the director of the company,he admitted to have made the cash payment for purchase of agricultural land which was not recordedin the books of account. He, with the help of thosedocuments, prepared a detailed chart and worked outthe unrecorded investment in the land by theassessee company in three assessment years. Therevised return wasfiled to include those unexplainedinvestment in the purchase of agricultural land.Therefore, it is a case where the revised return isfiled by the assessee after the detection ofunderstatement of purchase price by the surveyauthorities. It is not a case where the revised returnwas furnished by the assessee voluntarily to buypeace with the Income-tax Department. In view ofthe above, in my opinion, the above decision ofhon’ble apex court would not be applicable to thefacts of the assessee’s case. (Emphasis supplied). 36. After considering the arguments of both the sidesand the facts of the case, I agree with the findings ofthe Assessing Officer in the penalty order that theasessee did not disclose the correct purchaseconsideration of the agricultural land. The purchaseprice of the land was recorded at a lesser value inthe regular books of account. These facts weredetected by the Revenue as a result of survey at theassessee’s premises. During the course of survey, thedirector of the company admitted these facts. Thus,it is a clear case where the assessee furnished incorrect particulars in the original return of incomewith regard to purchase price of agricultural land,value of closing stock as well as the business income.The revised return modifying the figure of purchasevalue of agricultural land, value of closing stock aswell as business income was furnished only after thedetection of these discrepancies during the course ofsurvey. In view of the above, I have no hesitation tohold that on the facts and circumstances of the case,learned Judicial Member rightly proposed to sustainthe penalty imposed under Section 271(1)(c).” )Emphasis supplied). Thus, even the learned Vice-President being the ThirdMember of the Tribunal, discarded the finding of the learnedAccountant Member that there was no incriminatingdocument or no documentary evidence on record to showpayment of any “on money”. Thus, penalty was upheld.” As it is quite clear the facts in case ofPrasanna Dugar (supra) materially differ from thefacts of respondent in the matter on hand duringthe search and seizure, the disclosure was madeon 03.02.2009 and the Assessee had already bythen filed the return for the Assessment Year2008-2009. The Assessee had on the basis of thedisclosure once again filed the return on31.03.2010 where he had offered Rs.70 Lakh for taxation earned during the Assessment Year 2008-2009. Thus, it was the clear case where Assesseehad already earlier filed his return where thisamount had not been disclosed. And therefore, theApex Court held that his case would be squarelycovered under Section 271(1)(c) of the Act. As it is quite clear the facts in case ofPrasanna Dugar (supra) materially differ from thefacts of respondent in the matter on hand duringthe search and seizure, the disclosure was madeon 03.02.2009 and the Assessee had already bythen filed the return for the Assessment Year2008-2009. The Assessee had on the basis of thedisclosure once again filed the return on31.03.2010 where he had offered Rs.70 Lakh for taxation earned during the Assessment Year 2008-2009. Thus, it was the clear case where Assesseehad already earlier filed his return where thisamount had not been disclosed. And therefore, theApex Court held that his case would be squarelycovered under Section 271(1)(c) of the Act. 11. In case of Grass Field Farms & Resorts (P.)Ltd. vs. Deputy Commissioner of Income-tax,reported in (2017) 79 taxmann.com 425 (Rajasthan)also there was a levy of penalty for theconcealment of the income as during the surveyoperation, at Assessee’s business premise,certain incriminating documents were found andimpounded. This resulted into undisclosedinvestment in purchase of agricultural land andother discrepancies. The Assessee sought to filea revised return declaring an additional incomeoffered during the course of survey andtherefore, the Assessing Officer made not onlythe addition, but also levied the penalty underSection 271(1)(c). 12. Facts of the instant case would materiallydiffer from this case of Grass Field Farms &Resorts (P.) Ltd. (supra) where also the questionwas of filing revised return during the course ofthe assessment year and income which wasdisclosed later in revised return had not beendeclared in earlier return. 13.Adverting to the facts of the present appeal,return was filed after about eight(8) months ofconducting of survey and books of accounts werenot closed also. In other words, neither it is acase of filing of revised return disclosingundisclosed income nor the case of books ofaccounts having been closed. Therefore, asrightly held by both the CIT(Appeals) and ITAT,no penalty can be imposed. 14. In the result, the present Tax Appeal isdismissed accordingly. Sd/-(SONIA GOKANI, J) M.M.MIRZA Sd/- (RAJENDRA M. SAREEN,J)