Narendra S Agrawal, Aurangabad vs Department Of Income Tax

The above batch of 9 appeals filed by the Revenue in case of

different assessees are directed against the separate orders dated

01-04-2013 of the CIT(A), Aurangabad relating to different

assessment years mentioned therein. For the sake of convenience,

all these were heard together and are being disposed of by this

common order.

2. First we take up ITA No.1433/PN/2013 in the case of Shri

Arun S. Agrawal for A.Y. 2007-08 as the lead case. 3

3. Facts of the case, in brief, are that the assessee is an

individual. A search action u/s.132 of the I.T. Act was conducted

on 16-06-2009 at the business and residential premises of different

members/associate concerns of the Kalika group of Jalna. The

assessee's premises was also covered. In response to notice

u/s.153A the assessee filed return of income on 18-07-2011

declaring total income at Rs.42,67,042/- and agricultural income

at Rs.73,510/-. During the course of assessment proceedings the

Assessing Officer noted that the assessee in its computation of

income has shown income of Rs.19,57,468/- "as income declared

in search u/s.132". He noted that this income is in addition to the

income declared originally in return of income filed u/s.139 of the

I.T. Act. On being questioned by the Assessing Officer the assessee

vide submission filed on 18-10-2011 has stated as under :

"The assessee has accepted income u/s.132 during the year though there is no such direct evidence of such sales were noticed or such sales were made by the assessee company/Director. The assessee has declared income in order to buy peace, to avoid litigation and paid the tax according & honoured the declaration."

The Assessing Officer therefore noted that this income declared by

the assessee was resultant of search action. Had the search not

taken place the assessee would not have shown this income. He

therefore held that the assessee has concealed the particulars of

income to the extent of Rs.19,57,468/-. He therefore initiated

penalty proceedings u/s.271(1)(c) of the I.T. Act read with

Explanation 5A.

4. In response to the penalty notice the assessee submitted as

under :

"5.1 The assessee group has declared income during the course of search to cover all deficiencies & mistakes & honoured the declaration & paid taxes.

4

5.2 The assessee has co-operated in all proceedings & shall co- operate.

5.3 The assessee has never filed inaccurate particulars & not hidden any material facts.

5.4 The assessee has not concealed any income with the intention to evade tax & in guilt mind. The penalty u/s 271(1)(c) can be levied only when there must be concealment or there must be inaccurate particulars of income. To avoid litigation, the assessee agreed for addition.

5.5 The assessee also relies upon the latest judgment given by the Supreme Court in CIT vs Reliance Petro-products Pvt. Ltd."

5. However, the Assessing Officer was not satisfied with the

explanation given by the assessee. He observed that statement of

Shri Ghanshyam Goyal, main concerned person of Kalika group

was recorded u/s.132(4) of the I.T. Act. At the time of search at

Kalika Steel Alloys Pvt. Ltd. on 08-07-2009 in the statement Shri

Ghanshyam Goyal made declaration of income of Rs.14 crores.

Later on in the statement recorded u/s.131 of the Act by the ADIT

(Investigation) Aurangabad on 17-08-2009 Shri Ghanshyam Goyal

reiterated the declaration of income and gave detailed bifurcation

of the income declared at Rs.14 crores. In reply to question No.4 of

the said statement Shri Ghanshyam Goyal declared an amount of

Rs.19,57,468/- as undisclosed income in the hands of Shri Arun

S. Agrawal, i.e. the assessee for A.Y. 2007-08. He observed that

the declaration of income made by Shri Ghanshyam Goyal was on

account of profit earned on unaccounted sale determined by DGCE

in the cases of Kalika Steel Alloys Pvt. Ltd. for various assessment

years. The income estimated on unaccounted sales was declared

in the hands of the directors. The assessee was one of such

directors and an amount of Rs.19,57,468/- was declared for the

A.Y. 2007-08. He therefore held that the provisions of Explanation

5A to section 271(1)(c) of the I.T. Act are attracted. Further,

irrespective of declaring income in the returned income after the 5

date of search such income has to be considered as concealed

income. He further observed that although the assessee and the

group as such have cooperated during assessment proceedings it

does not give immunity from imposition of penalty for concealing of

income. Rejecting the explanation given by the assessee and

distinguishing the decision of the Hon'ble Supreme Court in the

case of Reliance Petro Products Pvt. Ltd., (Supra) cited before him

the Assessing Officer levied penalty of Rs.6,58,884/- u/s.271(1)(c)

of the I.T. Act being 100% of tax sought to be evaded.

6. Before CIT(A) the assessee submitted that the income of

Rs.19,57,468/- has been offered to tax in the hands of the

assessee only to avoid protracted litigation and to buy peace of

mind. The said income represents profit on alleged suppressed sale

of Kalika Steel Alloys Pvt. Ltd., in which the assessee is a Director.

Therefore, as held by the CIT(A), Aurangabad while deciding the

appeals in the cases of Kalika Steel Alloys Pvt.Ltd. for A.Ys.2004-05

to 2010-11 and Kalika Steel Jalna Pvt. Ltd. for A.Ys.2006-07 to

2010-11 vide orders dated 14/05/2012, the income from

manufacturing activity of the companies is to be assessed in the

hands of the said companies and not in the hands of the Directors.

It was further argued that the CIT(A), Aurangabad has not allowed

telescoping of profit of the said companies on account of alleged

suppressed sale against the same profit offered to tax in the hands

of the Directors as the status of the companies and Directors are

different. It was submitted that in view of the above facts, it is

evident that the said income of Rs.19,57,468/- as held by CIT(A) is

income of Kalika Steel Alloys Pvt.Ltd. It was argued that it is the

settled law that the income incorrectly offered in the hands of any

assessee is not liable to penalty u/s.271(1)(c) of the Act, as the 6

income itself is incorrectly offered and taxed, the concealment

penalty has no legs to stand.

7. Based on the arguments advanced by the assessee the

Ld.CIT(A) deleted the penalty levied u/s.271(1)(c) of the I.T. Act by

observing as under :

"8. I have carefully considered the facts of the case and rival contentions. It is undisputed fact that during the course of search & post search proceedings, the companies of Kalika Group have offered to tax profit on their alleged suppressed sale to buy peace of mind, which has been offered to tax in the hands of the Directors. The relevant portion of statement recorded on 17/08/2009 giving details of the said income offered is extracted below -

"Q.No.4 It is to be noted that, as the assessee had claimed all expenses, direct and indirect, during the respective years, hence the total value of the goods so removed shall be unaccounted income of the assessee. Please comment.

Ans:- I deny contention of DGCI that the members of Kalika group as mentioned in Q.No.2 had clandestinely removed the products. Even if it is assumed that such products are removed then a fact may be considered that all indirect expenses were already debited. However, since the purchase of the raw material was not accounted for, hence the credit should be given to the assessee for the same. It is to be considered that the amount of Raw material is incurred @ 60-70% in the case of manufacturing of Ingots/Billets and that of 85-90% for the manufacturing of bars. Hence it would be reasonable to compute the GP @ 35% and 15% respectively of the unaccounted sale so effected. From the record of the company, it can be seen that the cost of the material in the case of the KSAPL & KSJPL is as follows -

KSAPL KSJPL FY 06-07 61.50% FY 06-07 87.80%

FY 07-08 68% FY 07-08 87.70%

Thus, even if the GP rates are accepted 35% and 15% respectively, the unaccounted income would be as follows -

Sr. Name of company F.Y. Amount of goods GP% as No. removed Undisclosed income 1 Kalika Steel Alloys Pvt.Ltd. 06-07 11185330.00 @35-3914936 11107800.00 @35-3887730 2 Kalika Steel Jalna Pvt. Ltd. 06-07 16167552.00 @15-2425133 39954004.00 @i5-5993101 56810071.00 @15-8521511 7

3 Giriraj Re-Rolls Pvt. Ltd. 05-06 2225850.00 @35-779048 3794717.00 @35-1328151 4 Bhoomi Re-Rolls Pvt. Ltd. 07-08 3514942 @35-1230230

TOTAL 144760566.00 28079840

I want to state that I am disclosing the said amounts to buy peace of mind, however in principle, I am not accepting such result unaccounted sale. The details of the same are as follows -

Sr.No Name of Directors FY 05-06 FY 06-07 FY 07-08 company 1 Kalika Ghanshyam -- 1957468 1943865 Steel Alloys G Goyal Pvt.Ltd.

Arun -- 1957468 1943865 Agrawal 2 Kalika Anil Goyal 2996551 1212567 4260756 Steel Jalna Pvt.Ltd. Naresh 2996551 1212567 4260756 Jindal 3 Giriraj Re- Ghanshyam 779048 -- 1328152 Rolls Pvt.Ltd. G Goyal

4 Bhoomi Re- Anil Goyal -- 615115 Rolls Sunil Goyal -- -- -- 615115 Pvt.Ltd. TOTAL 6772150 6340070 1,49,67,624

From the above charts, it is evident that the profit offered to tax by the Directors of the above mentioned companies, including the appellant, in their hands in fact belonged to the said companies which have been earned by the said companies from their manufacturing activity. Therefore, the income from alleged suppressed sale is to be taxed in the hands of the companies and not the Directors. While deciding the quantum appeals in the cases of Kalika Steel Alloys Pvt. Ltd. for A.Ys.2004-05 to 2010-11 and Kalika Steel Jalna Pvt.Ltd. for A.Ys.2006- 07 to 2010-11 vide orders dated 14/05/2012, it has been held by the undersigned that the profit on suppressed sale of the companies is to be taxed in the hands of the manufacturing companies and not in the hands of the Directors. Further as the status of companies & various Directors are different telescoping of income was also not allowed. It is settled position that in order to levy penalty u/s 271(1)(c), there has to be "income" of the assessee in respect of which particulars have been concealed. If the amount on which the penalty u/s 271(1)(c) has been levied is not in fact the "income" of the assessee, the penalty u/s 271(1)(c) cannot be levied by invoking either Explanation-1 or Explanation-5A to section 271(1)(c) of the Act. In view of the above facts and discussion, I am of the considered view that as the income of Rs.19,57,468/- is not assessable in the hands of 8

the appellant but is assessable in the hands of the manufacturing companies, penalty u/s 271(1)(c) is not leviable in the case of the appellant. In view of the above facts and discussion, I am of the considered view that the A.O. is not justified in levying penalty u/s 271(1)(c) on the amount of Rs.19,57,468/-. The penalty u/s 271(1)(c) of Rs.6,58,884/- on the amount of Rs.19,57,468/- is, therefore, cancelled. The A.O. is directed accordingly.

The appellant has also raised another contention without prejudice to above contention that the A.O. has invoked Explanation-5A for levying penalty u/s 271(1)(c) of the I.T. Act which is applicable only when the ownership of any asset such as money, bullion, jewellery or other valuable article or thing, is found and it is found that the said asset was acquired out of income which was not disclosed; in the case of the appellant no such facts existed and the income has been offered during search action to buy peace of mind and to avoid protracted litigation. This contention of the appellant is not required to be adjudicated as the first contention of the appellant is accepted and penalty has been cancelled."

Ground Nos. 2 & 3 are allowed."

8. Aggrieved with such order of the CIT(A) the Revenue is in

appeal before us with the following grounds :

"1) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the penalty of Rs. 6,58,884/- imposed u/s 271(1)(c) of the Act.

2) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in holding that the amount on which penalty is levied, was not income of the assessee, ignoring the fact that such income was offered by the assessee himself in the return of income, which renders the decision perverse on facts and in law.

3) The appellant craves leave to add, alter, modify, delete, and amend any of the grounds, as per the circumstances of the case.

4) The appellant prays leave to adduce such further evidence to substantiate its case, as the occasion may demand."

9. The Ld. Departmental Representative strongly opposed the

order of the CIT(A) cancelling the penalty. Referring to the

statement of Shri Ghanshyam Goyal recorded u/s.132(4) on 18-07-

2009 the Ld. Departmental Representative submitted that in

response to Question No.50 Shri Ghanshyam Goyal had declared

an amount of Rs.14 crores in the hands of 4 directors @ Rs.3.5

crores each. He submitted that in his reply he has also mentioned

that the said disclosure is to cover up all the 9

discrepancies/differences in the books of account, difference in

stock and difference of opinion in regard to the issues raised and

also in relation to personal balance sheet discrepancies of partners,

directors or any other assessee of this group. He submitted that

the income declared by these assessees is on account of income

earned by them and not on account of discrepancies found in the

case of the companies. Thus, the assessee has not explained the

source of income and merely to buy peace of mind has declared the

income without substantiating the source of the same. Therefore,

the penalty u/s.271(1)(c) of the I.T. Act is clearly attracted. He

accordingly submitted that the order of the CIT(A) be reversed and

that of the order of the Assessing Officer be restored.

10. The Ld. Counsel for the assessee while supporting the order

of the CIT(A) drew the attention of the Bench to Question Nos. 46,

47 and 48 of the said statement and submitted that these

statements are in respect of alleged clandestine removal of goods

in the case of Kalika Steel Alloys Pvt. Ltd. and Kalika Steel Jalna

Pvt. Ltd. Referring to the statement of Shri Ghanshyam Goyal

recorded u/s.131 of the I.T. Act by the search party on 17-08-

2009, a copy of which is placed at pages 18 to 30 of the paper

book, the Ld. Counsel for the assessee drew the attention of the

Bench to the reply of the assessee to Question No.4 wherein the

gross profit of various companies are worked out on alleged

clandestine removal of goods for the F.Yrs. 2005-06, 2006-07 and

2007-08 at Rs.2,80,79,840/-. Referring to the said statement he

drew the attention of the Bench to the income declared in the

respective financial years by respective individuals. Referring to

Question No.16 of the said statement (page 27 and 28 of the paper

book) he submitted that the final tally of declaration of 10

Rs.14,01,61,595/- is income and in that the first item is

unaccounted sale as per details mentioned in Question in 2 & 3

amounting to Rs.2,80,79,840/- which is the amounts relating to

clandestine removal of goods by these companies. He submitted

that it is clear from the above that the income declared by these

individuals in A.Yrs. 2006-07 to 2008-09 on which penalty

u/s.271(1)(c) has been levied is the income on account of alleged

clandestine removal of goods by these companies which has been

offered in the hands of the individuals. He submitted that it is also

clear from the above that the income offered by these individuals in

A.Y. 2010-11 is on account of their personal income earned by

them which is clearly mentioned in Question No.50 of the

statement recorded u/s.132(4) on which heavy reliance has been

placed by the Revenue. He submitted that since the search took

place on 08-07-2009 relating to A.Y. 2010-11 the return of income

was not due to be filed on the date of search and therefore the

same has been declared by these individuals in the return of

income and paid taxes and accordingly the penalty u/s.271AAA

has also been correctly deleted by the CIT(A). He submitted that

since the income declared by the assessee in the return of income

does not belong to him and no particulars of income has been

concealed by the assessee, therefore, penalty cannot be levied

u/s.271(1)(c) of the I.T. Act on this issue and therefore the CIT(A)

was fully justified in cancelling the penalty.

11. The Ld. Counsel for the assessee further submitted that the

Assessing Officer has levied penalty by applying the provisions of

section 5A to section 271(1)(c) of the I.T. Act. He submitted that

Explanation 5A is applicable where search takes place on or after

01-06-2007, i.e. from A.Y. 2007-08 which can be leviable only after 11

the assessee is found to be the owner on any asset such as money,

bullion, jewellery or other valuable etc. or owner of any income

based on any entry in books of account and he claims that such

entry in the books of account represents his income. In short in

the second limb of Explanation 5A it is provided that no penalty

can be levied if the assessee does not claim that such an entry

represents his income. Referring to Question No.50 put by the

search party and the reply thereof he submitted that no such facts

existed and the assessee in his statement recorded u/s.132(4) has

categorically stated that he is offering the income to buy peace of

mind and to avoid protracted litigation. Relying on various

decisions the Ld. Counsel for the assessee submitted that if the

assessee filed return of income in response to notice u/s.153A,

declared undisclosed income and the return was accepted by the

Assessing Officer (except small amount of bank interest of

Rs.1,769/- which was not offered by mistake which is bonafide one

since it is exempt u/s.80L which was previously there in the

statute) penalty u/s.271(1)(c) of the I.T. Act cannot be levied. For

the above proposition he relied on the following decisions :

1. Smt. Pramila D. Ashtekar Vs. ITO - (2014) 61 SOT 113

2. Dilip Kedia Vs.ADIT (2013) 40 taxmann.com 102

3. DCIT Vs. Purti Sekhar Karkhana (2013 59 SOT 29

4. Devidas Sukhani Vs. DCIT (2013) 158 TTJ 42

5. CIT Vs. Mahendra Shah (2008) 299 ITR 305

6. CIT Vs. Kirit Dahyabhai Patel (2009) 121 ITD 159

7. CIT Vs. Shri Inderchand Surajmal Bothra - ITA No.137/PN/2010 order dated 30-11-2011.

11.1 He submitted that when the income has been declared

u/s.132(4) with the condition that no penalty should be levied then

the statement should be accepted in totality and not in part. He

submitted that during the course of search the statement of Shri

Ghanshyam Goyal was recorded u/s.132(4) in the presence of Shri 12

Naresh B. Jindal, Shri Arun S. Agrawal and Shri Anil N. Goyal,

Accordingly, the declaration u/s.132(4) was conditional to the fact

that no concealment of the penalty should be levied.

12. Referring to the decision of the Mumbai Bench of the

Tribunal in the case of DCIT Vs.Goyal Properties and Estates Pvt.

Ltd. vide ITA No.7132/Mum/2010 order dated 07-05-2012 he

submitted that the Tribunal in the said decision has held that

when the assessee has given the declaration during the course of

the survey to file the revised return of income to withdraw the

claim of deduction u/s.80IB(10) with the clear understanding and

assurance that no penalty is to be levied the Department cannot

accept one part of the declaration, i.e., filing of the revised return of

income withdrawing the claim and ignore the other part of income,

i.e. assuring not to levy penalty.

13. Referring to the decision of the Hon'ble Bombay High Court

in the case of CIT Vs. Kiran and Company reported in 217 ITR 326

he submitted that the Hon'ble High Court has upheld the order of

the Tribunal deleting the penalty where the assessee had made

conditional offer of settlement stating that no penalty should be

levied on the assessee. Since the order was made with the clear

understanding that no penalty should be levied penalty levied

u/s.271(1)(c) of the I.T.Act was held as not justified. He also relied

on the following decisions on the above principle :

1. Bhagat & Company Vs. ACIT (2006) 101 TTJ (Mum) 553

2. DCIT Vs. Dr. Satish B. Gupta (2011) 135 TTJ (Ahd) 611

3. Amit Chand Vs. Ito (1994) 49 ITD 606

He accordingly submitted that the Ld.CIT(A) has rightly deleted the

penalty levied u/s.271(1)(c) of the I.T. Act and therefore the

grounds raised by the Revenue should be dismissed.

13 14. The Ld. Departmental Representative in his rejoinder

submitted that after disclosing the additional income the assessee

has not filed the balance sheet as to the manner of its utilisation.

So far as the conditional offer is concerned the Ld. Departmental

Representative referred to the decision of Hon'ble Supreme Court

in the case of Mak Data P. Ltd. reported in 358 ITR 593 and

submitted that the Hon'ble Supreme Court has already decided the

issue under such situation which is against the assessee.

Therefore, the order of the CIT(A) should be reversed and that of

the order of the Assessing Officer be restored.

15. We have considered the rival arguments made by both the

sides, perused the orders of the Assessing Officer and the CIT(A)

and the Paper Book filed on behalf of the assessee. We have also

considered the various decisions cited before us. We find in the

instant case a search took place in the residential premises of

different persons/associate concerns of the Kalika group of Jalna.

The statement of Shri Ghanshyam C. Goyal, who is the main

person of the group, was recorded u/s.132(4) of the I.T. Act in

which he has declared undisclosed income of Rs.14 crores in the

name of 4 persons @ Rs.3.5 crores each, the details of which are as

under :

1. Shri Ghanshyam Chunilal Goyal Rs.3.50 Crores

2. Shri Arun Shrikishan Agrawal Rs.3.50 Crores

3. Shri Anil Nandkishor Goyal Rs.3.50 Crores

4. Shri Naresh Banarasidas Jindal Rs.3.50 Crores

-------------------

Total Rs. 14 Crores ------------------

15.1 We find in response to Question No.4 recorded u/s.131 on

17-08-2009 Shri Ghanshyam C. Agrawal had replied as under :

14 "Q.No.4 It is to be noted that, as the assessee had claimed all expenses, direct and indirect, during the respective years, hence the total value of the goods so removed shall be unaccounted income of the assessee. Please comment.

Ans:- I deny contention of DGCI that the members of Kalika group as mentioned in Q.No.2 had clandestinely removed the products. Even if it is assumed that such products are removed then a fact may be considered that all indirect expenses were already debited. However, since the purchase of the raw material was not accounted for, hence the credit should be given to the assessee for the same. It is to be considered that the amount of Raw material is incurred @ 60-70% in the case of manufacturing of Ingots/Billets and that of 85-90% for the manufacturing of bars. Hence it would be reasonable to compute the GP @ 35% and 15% respectively of the unaccounted sale so effected. From the record of the company, it can be seen that the cost of the material in the case of the KSAPL & KSJPL is as follows -

KSAPL KSJPL FY 06-07 61.50% FY 06-07 87.80%

FY 07-08 68% FY 07-08 87.70%

Thus, even if the GP rates are accepted 35% and 15% respectively, the unaccounted income would be as follows -

Sr. Name of company F.Y. Amount of goods GP% as No. removed Undisclosed income 1 Kalika Steel Alloys Pvt.Ltd. 06-07 11185330.00 @35-3914936 11107800.00 @35-3887730 2 Kalika Steel Jalna Pvt. Ltd. 06-07 16167552.00 @15-2425133 39954004.00 @i5-5993101 56810071.00 @15-8521511 3 Giriraj Re-Rolls Pvt. Ltd. 05-06 2225850.00 @35-779048 3794717.00 @35-1328151 4 Bhoomi Re-Rolls Pvt. Ltd. 07-08 3514942 @35-1230230

TOTAL 144760566.00 28079840

I want to state that I am disclosing the said amounts to buy peace of mind, however in principle, I am not accepting such result unaccounted sale. The details of the same are as follows -

15

Sr.No Name of Directors FY 05-06 FY 06-07 FY 07-08 company 1 Kalika Ghanshyam -- 1957468 1943865 Steel Alloys G Goyal Pvt.Ltd.

Arun -- 1957468 1943865 Agrawal 2 Kalika Anil Goyal 2996551 1212567 4260756 Steel Jalna Pvt.Ltd. Naresh 2996551 1212567 4260756 Jindal 3 Giriraj Re- Ghanshyam 779048 -- 1328152 Rolls Pvt.Ltd. G Goyal

4 Bhoomi Re- Anil Goyal -- 615115 Rolls Sunil Goyal -- -- -- 615115 Pvt.Ltd. TOTAL 6772150 6340070 1,49,67,624

15.2 Similarly we find in reply to Question No.16 of the said

statement he has given the bifurcation of the amount of

Rs.14,01,61,595/- the details of which are as under :

"Q.No.16 Would you like to say anything further?

Ans: Yes, want to state that as a result of the search action I am offering the amount of Rs.14,01,61,595/-. The details of the same are as follows :

Sr.No. Particulars Amount 1. On account of unaccounted sale as 2,80,79,844 per details mentioned in (Question No.2 & 3) 2. Investment in Stock (Question 2,55,52,503 No.14) 3. Unaccounted sale/petty loans in 10,00,000 case of Shri Anil R. Goyal (Question No.6) 4. Investment in Construction 86,48,831 (Question No.5) 5. Investment in stock of Sagar 24,35,417 Paridhan Pvt. Ltd., (Question No.7) 6. Investment in furniture in Sagar 5,00,000 Paridhan Pvt. Ltd., (Quesetion No.7) 7. Unaccounted Income from badla 85,10,000 transaction (Question No.10) 16

8. Unaccounted transactions as 6,54,35,000 explained (Question No.13) TOTAL 14,01,61,595

The assessee declared an amount of Rs.19,57,468/- as

undisclosed income for the impugned assessment year which is a

part of unaccounted sale of the companies at Rs.2,80,79,844/- and

which has been accepted by the Assessing Officer in the return of

income. However, he initiated penalty proceedings u/s.271(1)(c) of

the I.T. Act read with Explanation 5A and levied penalty of

Rs.6,58,884/-. We find the Ld.CIT(A) deleted the penalty holding

that the profit offered to tax by the directors of the different

companies including the assessee in their hands in fact belongs to

the said companies which have been earned by the said companies

from their manufacturing activity. Therefore, such income has to

be taxed in the hands of the respective companies and not in the

hands of the directors. According to the Ld.CIT(A) it is the settled

proposition of law that in order to levy penalty u/s.271(1)(c) there

has to be income of the assessee in respect of which particulars

have been concealed. Since in the instant case it is not the income

of the assessee and the income belongs to that of the respective

companies, therefore, penalty u/s.271(1)(c) of the I.T. Act cannot

be levied by invoking either Explanation 1 or Explanation 5A to

provisions of section u/s.271(1)(c) of the I.T. Act. He accordingly

deleted the addition. We do not find any infirmity in the above

finding given by the Ld.CIT(A). Even in the hands of the company,

the assessee in principle has not accepted the result of such

unaccounted sale which has been categorically stated by Shri

Ghanshyam C. Goyal in his reply to Question No.4. As per the

provisions of Explanation 5A to section 271(1)(c) penalty can be

levied if search took place on or after 01-06-2007 and the assessee 17

is found to be the owner of any asset such as money, bullion,

jewellery or other valuables etc or owner of any income based of

any entry in books of account and he claims that such entry in the

books of accounts represents his income. Therefore, in the instant

case although the search has taken place after 01-06-2007,

however, the fact remains that in view of second limb of the

Explanation 5A no penalty can be levied if the assessee does not

claim that such an entry represents his income. In the instant

case the income declared and accepted by the assessee in the

return filed in response to notice u/s.153A as undisclosed income

actually belongs to the company and he is not the owner of such

income. The Ld. Counsel for the assessee also made a statement

at the Bar that the assessee has not taken any benefit out of the

amount disclosed. The tax paid on such undisclosed income has

gone waste as no benefit out of such income has been availed by

the assessee. Therefore, we are of the considered opinion that this

is not a fit case for levy of penalty u/s.271(1)(c) read with

Explanation 5A. The order of the CIT(A) is therefore upheld and

the grounds raised by the Revenue are dismissed.

16. Similar penalty of Rs. 6,63,642/- has been deleted by CIT(A)

in A.Y. 2008-09 for which Revenue has filed appeal vide ITA

No.1432/PN/2013. Facts being similar, therefore, following same

reasonings, the appeal filed by the Revenue for A.Y. 2008-09 is also

dismissed.

ITA Nos. 1441 & 1442/PN/2013-Shri Ghanshyam C. Goyal - (A.Yrs. 2007-08 & 2008-09) :

ITA Nos.1446, & 1447/PN/2013-Shri Anil Nandkishor Goyal (A.Yrs. 2007-08 & 2008-09) :

18

17. After hearing both the sides, we find penalty has been levied

by the Assessing Officer u/s.271(1)(c) of the I.T. Act which has

been deleted by the CIT(A), the details of which are as under :

Name Asst. year Income declared Penalty levied Shri Ghanshyam 2007-08 27,56,978/- 6,79,388/- C. Goyal Shri Ghanshyam 2008-09 32,72,017/- 11,13,338/- C. Goyal Shri Anil Goyal 2007-08 12,12,567/- 4,01,967/- Shri Anil Goyal 2008-09 48,25,871/- 16,67,256/-

18. Aggrieved with such order of the CIT(A) the Revenue is in

appeal before us.

19. After hearing both the sides, we find the facts of the above

appeals are identical to the facts in ITA No.1433/PN/2013. We

have already decided the issue and the order of the CIT(A) deleting

the penalty has been upheld. Following the same reasoninigs, the

order of the CIT(A) in the above appeals are also upheld and the

grounds raised by the Revenue are dismissed.

ITA No.1439/PN/2013 - Shri Gopal Ghanshyam Goyal (A.Y. 2010-11) :

20. Facts of the case, in brief, are that the assessee is an

individual. A search u/s.132 of the I.T. Act was conducted in the

residential premises of the assessee along with the group concerns

and related parties. In response to notice u/s.142(1) the assessee

filed the return of income on 05-12-2011 declaring total income at

Rs.1,86,13,321/- which was as per declaration u/s.132(4). This

declaration was found out to be on account of Hundi, Petty loans,

purchase, sales receivable etc. The Assessing Officer accepted the

income so declared and thereafter initiated penalty proceedings

u/s.271AAA. The assessee in response to the same submitted that

during the course of search the group has declared additional 19

income of Rs.14 crores in the hands of different members. The

assessee had already declared such income u/s.132(4) and paid

taxes. It has also cooperated during the course of search and

declared undisclosed income which was calculated on the basis of

seized materials. It was also submitted that such income has been

derived from the profit earned from other sources like

sale/purchase of immovable properties. The assessee has paid

taxes together with interest in respect of such undisclosed income.

It has substantiated the undisclosed income by specifying the

manner in which such undisclosed income was derived on the

basis of statement of assets and liabilities prepared for each

assessee. The provisions of section 271AAA was brought to the

notice of the Assessing Officer according to which penalty cannot

be levied u/s.271AAA if the assessee admits in the course of

proceedings u/s.132(4) any undisclosed income and paid taxes

together with interest on such income and specifies and

substantiates the manner in which the undisclosed income was

derived. It was argued that the assessee fulfils the conditions for

immunity from penalty u/s.271AAA and therefore the proceedings

should be dropped.

21. However, the Assessing Officer was not satisfied with the

explanation given by the assessee. He noted that assessee has not

been able to substantiate the income so derived at the time of

search. Although the assessee has mentioned that income was

substantiated on the basis of statement of assets and liabilities

prepared for each assessee, however, such income declaration was

not substantiated with respective assets on the date of search. The

assessee also could not give the details of income declared and it

had shown the income so declared in the profit and loss account as 20

income from other sources. This according to the Assessing Officer

shows that the income declared was not supported by any asset on

the date of search, therefore, the income declared has to be

considered as not substantiated. The Assessing Officer accordingly

imposed penalty of Rs.16,35,875/- u/s.271AAA of the I.T. Act.

22. Before CIT(A) the assessee submitted that the group has

declared major amount of Rs.7,39,74,375/- in the hands of the

different assessees which is as under :

Name of the appellant Hundi, petty loans, Badla income Total Rs.

sales receivable Rs. Rs.

1) Sunil Goyal _ 1,13,58,750 21,27,500 1,34,86,250

2) Nandkishor Goyal 50,00,000 - 50,00,000

3) Narendra Agrawal 1,63,88,125 21,27,500 1,85,15,625

4) Jaibhagwan Jindal 1,13,58,750 21,27,500 1,34,86,250

5) Banarasidas Jindal 50,00,000 - 50,00,000

6) Gopal Agrawal 1,63,58,750 - 1,63,58,750

7) Ghandshyamdas Goyal -- 21,27,500 21,27,500 Total 6,54,64,375 85,10,000 7,39,74,375

23. Referring to the above table it was submitted that the

assessee has declared an amount of Rs.1,63,58,750/- being

Hundi, petty loans, sales receivable etc. Relying on various

decisions it was submitted that the assessee fulfils the conditions

prescribed u/s.271AAA for immunity from penalty and therefore

the penalty levied by the Assessing Officer should be deleted.

24. Based on the arguments advanced by the assessee the

Ld.CIT(A) deleted the penalty levied by the Assessing Officer by

observing as under :

"8. I have carefully considered the facts of the case and rival contentions. On perusal of the same it has been noticed that the A.O. has levied the penalty stating the only reason that the appellant has not fulfilled the condition of substantiating the income declared during; search action as required by provisions of section 271AAA(2) 21

of the Act. In this regard, the A.O. has claimed that the income declared by the appellant is not supported by any assets on the date of the search action. On the other hand the appellant has claimed that the said income offered to tax has been invested in/supported by the assets mentioned in the seized material found; the said income has been credited to profit & loss account and reflected in capital account appearing in the balance sheet filed with the return of income; the assets in the balance sheet are sourced out of capital account and liabilities appearing in the other side of the balance sheet. The AR of the appellant has pointed out that the said income is represented by the assets i.e. receivable hundi, loans, sales etc. On verification of the assessment record, the above contention of the appellant is found to be correct.

8.1 In order to decide the issue under appeal, provisions of section 271AAA are relevant and the relevant portion of the same is reproduced below -

"271AAA (1) The Assessing Officer may notwithstanding anything contained in any other provisions of this Act, direct that in the case where search has been initiated u/s 132 on or after the 1st day of June 2007, the assessee shall pay by way of penalty,, in addition to tax, if any, payable by him, a sum computed @10% 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 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 to Whether with interest, if any, in respect of the undisclosed income.

(3) . . . . .

Explanation.-For the purpose of this section,-

(a) "undisclosed income" means -

(i) any income of 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 mentioned 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 expense recorded in books of account or documents maintained in the normal course relating to 22

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) "specified previous year" means the previous year,..

(i) which has ended before the date of search but the date of filing the return of income under sub-section (1) of section 139 for such year has not expire before the date of search and the assessee has not furnished the return of income for the previous year before the said date; or

(ii) in which the search was conducted."

8.2 From the above provision of the Act it has been noticed that the term "specified manner" has not been defined or explained in this section, however, the term "undisclosed income" has been explained. It has also been noticed that the appellant has filed return of income declaring the said "undisclosed income" under the head "Declaration u/s 132(4) of the Act" and the A.O. has assessed the same as declared. Further, it has been noticed that neither at the stage of recording of statement of the assessee nor at the stage of assessment proceedings, the assessee was asked either by authorized officer or by the A.O., to substantiate manner in which such undisclosed income was derived. The penalty u/s 271AAA is, therefore, not leviable. The above propositions of law are supported by the following decisions -

(a) Ashok Kumar Sharma Vs. DCIT (2012) 77 DTK 241 (Ctk.Trib.)

In this case, it has been held that the assessee having disclosed concealed income while giving statement u/s 132 (4) during the course of search and paid tax thereon and showed the said undisclosed income in the return under the head "Income from Business" which has been accepted by the Department, penalty u/s 271AAA is not leviable.

(b) Pramod Kumar Tain Vs. DCIT (2012V 77 DTR 244 (Ctk.Trib.)

In this case, it has been held that the assessee having surrendered certain income for the relevant assessment year in the statements during the course of search and filed return declaring the same pursuant to notice u/s 153A which has been accepted by the A.O., levy of penalty u/s 271AAA was not justified on the ground that the assessee has made disclosure but failed to specify the manner in which such income had been derived.

(c) DCIT Vs. Rajendra Prasad Dokania (2012) 32 CCH 260 I Ahd.Trib.)

In this case, the Hon'ble ITAT has laid down that, neither at the stage of recording the statement of the assessee nor at the stage of assessment proceedings, the assessee was asked, either by authorized officer or by the A.O., to substantiate manner in which such undisclosed income was derived. Under these circumstances, the assessee be deemed to have discharged his onus of substantiating the manner in which the undisclosed income was derived by him.

8.3 It is worth mentioning here that the Hon'ble Cuttack Bench of ITAT in the case of Pramod Kumar Jain Vs. DCIT (2012) 77 DTK 244 has laid down that "the Ld. Counsel for the assessee supported the 23

views expressed by the Tribunal in both the orders in so far as conditions for invoking the provisions of section 271AAA as noted in sub-section (2) thereof have to be considered together and not in isolation. The condition with respect to the manner specific for the purpose of invoking the provisions has not been defined but accepted by the Assessing Officer in as many words. The definition of "undisclosed income" clarified the manner in so far as the Assessing Officer, after the search only can initiate penalty u/s 271AAA when these three conditions together are not satisfied. Penal provisions are punitive and not part of tax structure in so far as the intention of the legislation was not to take 10% over and above the tax as a matter of levy of penalty u/s 271AAA automatically." The Hon'ble Cuttack Bench of ITAT has further stated that the said provisions of sub-section (2) of section 271AAA does not become redundant as claimed by the Departmental Representative as the assessee has to fulfill the condition of surrendering the income during search action, offering the undisclosed income in return of income, to pay tax and interest, on the said income and substantiate the manner of earning the income. The Hon'ble Court has further observed that even if all conditions are fulfilled except one of the purported condition which is not fulfilled, the penalty u/s 271AAA may not be levied. In the case under appeal, the conditions of surrendering the income during the search action, offering the said income in return of income and payment of tax have been undisputedly fulfilled and the A.O, has accepted the undisclosed income offered to tax in return as declared.

8.4 In view of the above facts and discussion and in view of the ratio laid down in the above referred decisions, I am of the considered view that the A.O, is not justified in holding that the appellant has not substantiated the income declared at the time of search as the income so declared was not supported by any assets on the date of search and accordingly holding that he is liable to penalty u/s 271AAA of the Act, The penalty of Rs.16,35,875/- levied by the A.O. u/s 271AAA is, therefore, cancelled. The A.O. is directed accordingly. Ground Nos.2 & 3 are allowed."

25. Aggrieved with such order of the CIT(A) the Revenue is in

appeal before us with the following grounds :

"1) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the penalty of Rs.16,35,875/- imposed u/s 271AAAof the Act.

2) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not appreciating the fact that on the date of search, the income declared by the assessee was not represented by any asset.

3) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in relying upon the decisions of Hon'ble ITAT, Cuttack Bench, and Hon'ble ITAT, Ahmedabad Bench, the facts of which are distinguishable from the facts of the assessee's case.

4) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in holding that penalty u/s 271AAA could be initiated only when all three conditions together are not satisfied, 24

which is contrary to the extant provisions of Section 271AAA of the Act, since the penalty can be imposed even if one of the conditions is not fulfilled, which renders the decision perverse on facts and in law.

5) The appellant craves leave to add, alter, modify, delete, and amend any of the grounds, as per the circumstances of the case.

6) The appellant prays leave to adduce such further evidence to substantiate its case, as the occasion may demand."

26. The Ld. Departmental Representative heavily relied on the

order of the Assessing Officer.

27. The Ld. Counsel for the assessee while supporting the order

of the CIT(A) submitted that the assessee during the course of

search in his statement recorded u/s.132(4) has accepted

undisclosed income and substantiated the manner in which such

income was derived. While filing the return u/s.153A the assessee

declared such undisclosed income in the computation statement

and paid taxes on the same. Therefore, penalty cannot be levied in

accordance with the provisions of sub-section (2) of section

271AAA. He further submitted that during the course of search

while recording the statement u/s.132(4) the search party has not

asked any query about the manner in which such undisclosed

income has been derived and to substantiate the same. Referring

to Question No.50 he submitted that the search party has simply

asked the assessee to say anything else for availing the benefit of

section 271AAA. After Shri Ghanshyam Goyal declared additional

income of Rs.14 crores for the group no further question was asked

regarding the manner in which undisclosed income has been

derived and about its substantiation.

28. Referring to various decisions he submitted that since the

assessee has accepted undisclosed income on the basis of the

seized papers found during the course of search and paid the taxes 25

and interest there on while filing the return of income in response

to notice u/s.153A, therefore, penalty u/s.271AAA is not leviable.

He accordingly submitted that the order of the CIT(A) should be

upheld and the grounds raised by the Revenue should be deleted.

He relied on the following decisions where under identical facts and

circumstances penalty levied u/s.271AAA has been deleted.

1. Neerat Singal Vs. ACIT (2013) 37 TAxmann.com 189 (Delhi Tribunal)

2. Ashok Kumar Sharma Vs. DCIT (2013 33 TAxmann.com 652 (Cuttack Tribunal (2012) 149 TTJ 33 (Cuttack Tribunal)

3. Pramod Kumar Jain Vs. DCIT (2013) 33 Taxmann.com 651/(2012) 149 TTJ 63 (Cuttack Tribunal)

4. Rajendra Prasad Dokania Vs. DIT - ITA No.525/Ahd/2012 dated 04-05-2012

5. ACIT Vs. Munish Kumar Goyal (2014) 45 TAxmann.com 563 (Chandigarh Tribunal)

6. ACIT Vs. M/s. Kanakia Spaces Pvt. Ltd., - ITA No. 6763/Mum/2011

7. DCIT Vs. Pioneer Marbles & Interiors Pvt. Ltd., (2012) 50 SOT 571

8. ACIT Vs. Shri Sushil Kumar Gupta order dated 14-08-2014 -ITA No. 3856/Del/2013 - 2014-TIOL-544-ITAT-Del

29. We have considered the rival arguments made by both the

sides, perused the orders of the Assessing Officer and the CIT(A)

and the Paper Book filed on behalf of the assessee. We have also

considered the various decisions cited before us. There is no

dispute to the fact that during the course of search an amount of

Rs.14 crores was declared by Shri Ghanshyam Goyal the main

person of the group in the hands of 4 different persons @ Rs.3.5

crores each, the details of which are already given at para 15 of

the impugned order. In response to Question No.16 the bifurcation

of the declared income was given which amounts to

Rs.14,01,61,595/-. The break-up of Rs.6,54,35,000/- and 26

Rs.85,10,000/- totalling to Rs.7,39,74,375/- has already been

given at para 22 of this order. Accordingly, the assessee had

declared an amount of Rs.1,63,68,750/- as his undisclosed income

being income from Hundi, petty loans, sales receivable etc. It is an

undisputed fact that the assessee has paid the taxes and interest

due thereon in the return filed in response to notice u/s.153A. It

is the case of the revenue that assessee has not substantiated the

manner in which the undisclosed income was derived and has not

specified the manner in which such income has been derived. It is

the case of the assessee that in his statement during the course of

search, he has clearly specified the manner in which such income

has been derived and has substantiated the manner in which the

undisclosed income was derived.

30. From the statement recorded during the course of search

from the main person of the group Shri Ghanshyam C. Goyal and

subsequent statement recorded u/s.131 we find the authorised

officer has not raised any query regarding the manner in which

undisclosed income has been derived and about its substantiation.

On a pointed query by the Bench the Ld. Departmental

Representative has fairly conceded that no such query was raised

regarding the manner in which undisclosed income has been

derived and about its substantiation.

31. We find the Delhi Bench of the Tribunal in the case of Neerat

Singhal (Supra) has held that levy of penalty u/s.271AAA is not

justified in absence of any query raised by the authorised officer

during the course of recording of statement u/s.132(4) about the

manner in which undisclosed income has been derived and about

its substantiation. The Chandigarh Bench of the Tribunal in the

case of Munish Kumar Goyal (Supra) has held that where the 27

assessee surrendered certain income in the course of search, filed

the return disclosing the said amount and paid taxes thereon,

there was sufficient compliance of provisions of section 271AAA(2)

and penalty u/s.271AAA is not leviable.

32. We find the Mumbai Bench of the Tribunal in the case of

Kanakia Spaces Pvt. Ltd. (Supra) while dismissing the appeal filed

by the revenue where the CIT(A) has deleted the penalty levied

u/s.271AAA has observed as under :

"4. After considering the rival submissions, we do not see any reason to interfere with the order of CIT(A). The order is in tune with the principles laid down by various co-ordinate Benches and High Courts particularly with reference to disclosure made under section 132(4). In the case of CIT vs. Mahendra C. Shah (299 ITR 305) the Hon'ble Gujarat High Court considered similar statement under section 132(4) to grant immunity under section 271(1)(c). The Hon'ble High Court held as under:-

"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. 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 in the second exception while making statement 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."

4.1 In this case, the assessee was asked to explain the entries in the 'work-in-progress sheet' and assessee in the course of statement offered the income with a plea not to initiate penalty proceedings. The assessee was not asked about the manner in which such income was earned and also to substantiate the manner in which undisclosed income was derived. The provision of clause-2 of Explanation-V appended to section 271(1)(c) are similar to section 271AAA(2). The scope and meaning has been lucidly explained by the Hon'ble Allahabad High Court in the case of CIT vs. Radha Kishan Goel (2005) 278 ITR 454 (All.), which was followed by the Hon'ble Gujarat High Court in the above referred case. In view of the above principles laid down, we are of the opinion that immunity provided under s/s.(2) of section 271AAA is applicable and accordingly, the order of CIT(A) does not require any modification. Revenue's grounds are rejected." 28

33. We find the Kolkata Bench of the Tribunal in the case of

Pioneer Marbles & and Interiors Pvt. Ltd. (Supra) has held that

penalty u/s.271AAA could not be levied where assessee paid entire

tax and interest within time limit provided in notice of demand

u/s.156 and also well before penalty proceedings were concluded.

34. In view of the decisions cited (Supra) and considering the fact

that the assessee has filed the return disclosing the income

declared during the course of search on the basis of seized material

and paid the taxes thereon we are of the considered opinion that

the assessee has substantiated the manner in which the

undisclosed income was derived and the immunity provided

u/s.271AAA(2) are applicable. In this view of the matter and in

view of the detailed order passed by Ld.CIT(A) relying on various

decisions, we find no infirmity in his order cancelling the penalty

levied u/s.271AAA of the I.T. Act. Grounds raised by the Revenue

are accordingly dismissed.

ITA No.1437/PN/2013-Shri Narendra S. Agrawal - (A.Y.2010-11) : ITA No.1448/PN/2013-Shri Nandkishor T. Goyal (A.Y. 2010-11):

35. After hearing both the sides, we find the Revenue has

challenged the order of the CIT(A) in deleting the penalty of

Rs.18,51,562/- and Rs. 5 lakhs respectively levied u/s.271AAA of

the I.T. Act by the Assessing Officer. We find the facts in the above

appeals are identical to the facts in ITA No.1439/PN/2013. Here

also the respective assessees have filed the return offering the

income declared during the course of search and paid the taxes

thereon. Therefore, following the reasoning given in ITA

No.1439/PN/2013 we find no reason to interfere with the order of 29

the CIT(A) and accordingly the same is upheld. Grounds raised by

the Revenue are dismissed.

36. In the result, all the appeals filed by the Revenue are

dismissed.

Pronounced in the open court on 26-06-2015.

Sd/- Sd/- (VIKAS AWASTHY) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER

satish Pune Dated: 26th June, 2015

Copy of the order forwarded to :

1. Assessee 2. Department 3. CIT(A), Aurangabad 4. CIT, Aurangabad 5. The D.R, "B" Pune Bench 6. Guard File

By order

// True Copy // Senior Private Secretary ITAT, Pune Benches, Pune