The order of the Bench was delivered by
T. R. Sood (Accountant Member).-These appeals are directed against the order of the learned Commissioner of Income-tax (Appeals), Gurgaon dated June 12, 2013.
2. In both these appeals the assessee has raised the following grounds :
"1. The learned Commissioner of Income-tax (Appeals) has erred in law and facts in confirming penalty of Rs. 8,50,000 in the assessment year 2009-10 and Rs. 50,000 in the assessment year 2010-11 under section 271AAA of the Income-tax Act.
2. That the penalty under section 271AAA as confirmed by the learned Commissioner of Income-tax (Appeals) is against the facts and circumstances of the case and by not considered our submissions properly."
3. After hearing both parties we find that a search was conducted in this group of cases and total surrender of Rs. 6.5 crores was made and in the hands of the various individuals and firms, etc. Out of this total surrender, Rs. 90 lakhs was surrendered in the hands of the assessee consisting of Rs. 85 lakhs in the assessment year 2009-10 and Rs. 5 lakhs in the assessment year 2010-11. The income was assessed on returned income after considering surrendered income and penalty proceedings under section 271AAA were initiated. In response to the show-cause notice for levy of penalty it was mainly submitted that the assessee was director of M/s. Hill View Infrastructure Pvt. Ltd. and partner in Hill View Promoters. By virtue of working with these companies the assessee had acquired good knowledge in real estate business and has also established good links in the trade. Because of these two factors the assessee had earned certain commission which was not declared earlier and which was declared now. It was further pleaded that no evidence was available because commission from real estate business was not intended to be accounted for and therefore no records were kept. Income was surrendered because of investment made in Saraswati Educational Welfare Society and Hill View Infrastructure Pvt. Ltd. was detected during survey. The Assessing Officer did not find force in these submissions and referred to the provisions of section 271AAA. He observed that the assessee has not substantiated the manner in which the income has been earned and details commission, or details of transaction or property in respect of which income was earned is not furnished. In this background penalty at 10 per cent. amounting to Rs. 8,50,000 was levied.
4. On appeal the submissions made before the Assessing Officer were reiterated and reliance was placed on certain case law.
5. The learned Commissioner of Income-tax (Appeals) did not find any force in the submissions and confirmed levy of penalty.
6. Before us, learned counsel for the assessee reiterated the submissions made before the Assessing Officer and the learned Commissioner of Income-tax (Appeals). He further submitted that no questions were asked regarding the manner of earning the income and that is why no reply was given. In the absence of such questions it cannot be said that the assessee has not substantiated the manner of earning the profit. In this regard he relied on the decision of the hon'ble Gujarat High Court in the case of CIT v. Mahendra C. Shah [2008] 299 ITR 305 (Guj). He also relied on the decision of the Cuttack Bench of the Tribunal in the case of Pramod Kumar Jain v. Deputy CIT (I. T. A. Nos. 131, 132 and 133/CTK/2012) and he further submitted that the issue is covered by the decision of the Chandigarh Bench of the Tribunal in the case of Deputy CIT v. Amarjit Goyal (I. T. A. Nos. 1080, 1081 and 1082/Chd/2013).
7. On the other hand, the learned Departmental representative for the Revenue strongly supported the order of the learned Commissioner of Income-tax (Appeals).
8. We have considered the rival submissions carefully and find that the hon'ble Gujarat High Court in the case of CIT v. Mahendra C. Shah [2008] 299 ITR 305 (Guj) has made following observations in this regard.
"When the statement is being recorded by the authorised officer it is incumbent upon the authorised officer to explain the provisions of Explanation 5 in entirety to the assessee concerned and the authorised 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. 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 the second exception while making state ment under section 132(4). 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."
Further this issue came up for consideration of the Chandigarh Bench of the Tribunal in the case of Deputy CIT v. Amarjit Goyal (I. T. A. Nos. 1080, 1081 and 1082/Chd/2013. The following issue was decided vide para 5 which is as under :
"5. After considering the rival submissions and the material on record, we find that identical issues came up for consideration of the Tribunal in I. T. A. No. 1005/Chd/2013 in the case of Asst. CIT v. Gian Chand Gupta, 1006/Chd/2013 in the case of Asst. CIT v. V. Mohinder Gupta and 1007/Chd/2013 in the case of Asst. CIT v. Sanjay Kumar Goyal and the issues were decided against the Revenue following the order of the Tribunal in I. T. A. Nos. 1003 and 1004 of 2013 in the case of Munish Kumar Goyal and Harish Kumar Singla vide paras 4 to 11 which read as under :
'4. After considering the rival submissions and the material on record, we find that identical issues came up for consideration of the Tribunal in I. T. A. Nos. 1003 and 1004 of 2013 in the case of Munish Kumar Goyal and Harish Kumar Singla which were adjudicated vide paras 8 to 13 which is as under :
8. We have gone through the rival submissions carefully. The learned Commissioner of Income-tax (Appeals) has decided this issue vide para 5 which is as under :
'I have considered the basis of penalty imposed by the Assessing Officer and the arguments of the authorised representative on the issue. The perusal of the provisions of section 271AAA make it clear that the penalty can be levied on undisclosed income of the specified year if the conditions specified in sub-section (2) of section 271AAA are not satisfied. It, therefore, follows that first thing to determine is what is the amount of undisclosed income under the given circumstances. The concept of undisclosed income has been clearly defined by the Explanation, to section 271AAA and the same reads as under :
(a) 'Undisclosed income' means-
(i) any income of the specified previous year represented, either wholly or partly, by any money, bullion, jewellery or other valuable article or thing or any entry in the books of account or other documents or transactions found in the course of search under section 132, which has-
(A) not been recorded on or before the date of search in the books of account or other documents maintained in the normal course relating to such previous year ; or
(B) otherwise not been disclosed to the Chief Commissioner or Commissioner before the date of search ; or
(ii) any income of the specified previous year represented, either wholly or partly, by any entry in respect of an expense recorded in the books of account or other documents maintained in the normal course relating to the specified previous year which is found to be false and would not have been found to be so had the search not been conducted ; . . . '
The perusal of the above detailed definition shows that it is exhaustive definition and there is clear identification of the income represented 'either wholly or partly, by any money, bullion, jewellery or other valuable article or thing or any entry in the books of account or other documents of transactions found in the course of search under section 132'. It is seen that there is clear and direct association between the income on one hand and assets/documents on the other hand found during the course of search. It follows that if certain income is not represented by any assets/documents/entry found during the search, the same would not be covered under the definition of undisclosed income but would invite penalty proceedings under section 271(1)(c) on the fulfilment of other requisite conditions. This means that entire disclosure of income at the time of search operation may not fall under the definition of the undisclosed income if it could not be relatable to some assets/documents/entry found during the course of search operation. It also means that if the Assessing Officer during the course of search assessment proceedings makes certain additions independent of the incriminating material/ documents found during the course of search operation then such an assessed income would not invite penalty proceedings under section 271AAA but under section 271(1)(c). It also means that initiation of penalty proceedings would depend upon the nature of the income assessed and there could be penalty proceedings under section 271AAA as well as section 271(1)(c) for the same assessment year, however in respect of different income. The Assessing Officer in the penalty order has clearly accepted that disclosure of income by the assessee to the tune of Rs. 3,80,12,500 is not represented by any assets/documents found during the course of search operation and has also observed that the same was part of the undisclosed income just because this disclosure had come during the course of search and was therefore as a result of the search. There is a clear acceptance of the fact that the said disclosure is not with reference to any assets/ documents found during the course of search. It is only because the said disclosure happened during the search that the same has been clubbed in the definition of undisclosed income requiring the assessee to fulfil the condition as specified in sub-section (2) of section 271AAA. Iam of the clear view that income to the extent of Rs. 3,80,12,500 does not come under the definition of undisclosed income as defined under section 271AAA and therefore no penalty under section 271AAA could be levied. The second aspect of the penalty order passed by the Assessing Officer is that whether the assessee had fulfilled the requisite conditions as specified under sub-section (2) of section 271AAA. The Assessing Officer has accepted that the assessee had made the disclosure under section 132(4) during the course of search operation and specified the manner of earning such income and it also substantiated the same on the basis of seized documents to the tune of Rs. 19,87,500. The Assessing Officer's view that the assessee is required to substantiate the quantum of undisclosed income does not seem logical from the bare reading of the provisions of sub-section (2) of section 271A. The requirement of the law is that the assessee should state the manner of earning undisclosed income and also substantiate the same. It would not be correct interpretation of the provisions to stretch the requirement to substantiate the quan tum as well. There is no doubt with regard to the fact that the asses see's manner of earning undisclosed income being financing activities has been substantiated by the seized documents. The requirement of the law has therefore been fulfilled as the assessee had stated the manner of earning unaccounted income, substantiating the same and also paid the due taxes along with the interest within the specified time limit. Even if the entire income by any logic is included in the definition of undisclosed income, the penalty under section 271AAA would not be leviable because of fulfilment of requirement of sub- section (2) of section 271AAA.
9. We further find that section 271AAA reads as under :
'271AAA.(1) The Assessing Officer may, notwithstanding anything contained in any other provisions of this Act, direct that, in a case where search has been initiated under section 132 on or after the 1st day of June, 2007 (but before the 1st day of July, 2012), the assessee shall pay by way of penalty, in addition to tax, if any, payable by him, a sum computed at the rate of ten per cent. of the undisclosed income of the specified previous year.
(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 ;
(ii) substantiates the manner in which the undisclosed income was derived ; and
(iii) pays the tax, together with interest, if any, in respect of the undisclosed income.
(3) No penalty under the provisions of clause (c) of sub-section (1) of section 271 shall be imposed upon the assessee in respect of the undisclosed income referred to in sub-section (1).
(4) The provisions of sections 274 and 275 shall, so far as may be, apply in relation to the penalty referred to in this section.
Explanation.-For the purposes of this section,-
(a) 'undisclosed income' means-
(i) any income of the specified previous year represented, either wholly or partly, by any money, bullion, jewellery or other valuable article or thing or any entry in the books of account or other documents or transactions found in the course of a search under section 132, which has-
(A) not been recorded on or before the date of search in the books of account or other documents maintained in the normal course relating to such previous year ; or
(B) otherwise not been disclosed to the Chief Commissioner or Commissioner before the date of search ; or
(ii) any income of the specified previous year represented, either wholly or partly, by any entry in respect of an expense recorded in the books of account or other documents maintained in the normal course relating to the specified previous year which is found to be false and would not have been found to be so had the search not been conducted ;
(b) Not relevant. . .'
10. Plain reading of sub-section would show that if the assessee during the course of search in a statement admits to some undisclosed income and pay taxes on the same then penalty cannot be levied in terms of sub-section (1) of this section. In the case before us, the amount of Rs. 4 crores which was surrendered during search, has been declared by the assessee in the return and taxes have been paid accordingly.
Therefore the assessee is normally entitled for the immunity provided in section 271AAA itself. However, the Revenue has raised further dispute that whether the assessee has disclosed the manner in which income has been earned. In the penalty order passed by the Assessing Officer following questions and answers have been extracted :
'Q. Do you want to say anything more ?
Ans. I voluntarily surrender a sum of Rs. 4 crores (Rs. four crores) for current financial year i.e., 2009-10 relevant to the assessment year 2010-11 in any (should be 'my') individual capacity. They cover all the discrepancies in the seized papers during the course of search proceedings.'
11. Therefore clearly the Revenue has not asked the assessee to disclose the manner in which such income was earned. In any case once the income is surrendered during the course of search under section 132(4) it can be safely assumed that during discussion the assessee must have disclosed the manner. In any case we find force in the submissions of learned counsel for the assessee that if the explanation of the assessee has been accepted for a sum of Rs. 19,87,500 out of total surrender of Rs. 4 crores then same manner should have been accepted for the whole of the amount. It is not clear from the penalty order how explanation for Rs. 19,87,500 was accepted. In any case the learned Commissioner of Income-tax (Appeals) has considered all these issues in detail and the Departmental representative for the Revenue has not referred to any material or decision which can controvert the findings of the Commissioner of Income-tax (Appeals). In the following cases which have been relied on by learned counsel for the assessee which was clearly held that penalty is not leviable.
Following the above order we decide the issues against the Revenue."
From the above it as well as the observation of the hon'ble Gujarat High Court in case of CIT v. Mahendra C. Shah [2008] 299 ITR 305 (Guj) it becomes clear that if no question is asked during the statement recorded under section 132(4) the assessee cannot be expected to further substantiate the manner of earning of income. Since taxes have already been paid, therefore in our opinion, penalty could not have been levied. Accordingly we set aside the order of the learned Commissioner of Income-tax (Appeals) and delete the penalty.
9. In the result, both appeals of the assessee are allowed.
The order pronounced in the open court on November 18, 2014.