R. Kondal Rao., Hyderabad vs Assessee

R. Kondal Rao, Hyderabad. vs. Asst. Commissioner of Income-tax, Central Circle -1, PAN - AABCC4795L Hyderabad.

(Appellant) (Respondent)

Assessee by : Shri S. Rama Rao Revenue by : Shri Ramakrishna Bandi

Date of hearing 02-06-2015 Date of pronouncement 19-06-2015

O RDE R

PER SAKTIJIT DEY, J.M.:

These appeals by assessee are directed against a common order dated 09/12/2013 of ld. CIT(A)-I, Hyderabad confirming penalty imposed u/s 271(1)(c) for the AYs 2005-06 to 2009-10. As facts and issues involved in the aforesaid appeals are common and identical, the same were clubbed and heard together, therefore, the same are being disposed of by way of this common order for the sake of convenience.

2. As facts are common in all these appeals, for the sake of brevity we will refer to the facts as involved in AY 2005-06 being ITA No. 526/Hyd/2014. Assessee an individual, at the relevant point of time, was working as Manager in JB Education Society. A search and seizure operation u/s 132 of the Act was conducted in case of JB 2 ITA Nos. 526 to 530 /Hyd/2014 Shri R. Kondal Rao

Group of Institutions as well as their trustees on 10/09/2009. Simultaneously, a search and seizure operation was also conducted in case of assessee. In pursuance to search and seizure operation, notices u/s 153A of the Act were issued to assessee calling upon him to furnish his return of income for AYs 2005-06 to 2009-10. In response to the said notice, assessee filed his return of income for the impugned assessment year on 20/12/2010 declaring total income of Rs. 1,14,840 which was also the income declared in the original return filed on 02/01/2006. During the assessment proceeding, AO on the basis of information available with him found that assessee has moved an application before Settlement Commission wherein it has been stated that while working as Manager with JB Group of Institutions, he acted as consultant in getting students for being admitted and in the process he has collected excess fee over the prescribed amount without the knowledge of management. Therefore, he offered to disclose the excess fees collected by him as his income and paid taxes thereon. In accordance with the offer made by assessee in the application filed before the Settlement Commission, assessee not only computed undisclosed income of Rs. 8,18,63,700 for AYs 2005-06 to 2009-10 but also paid taxes thereon amounting to Rs. 4,39,59,547. The details of income offered and taxes paid as mentioned in the application filed before the Settlement Commission for different assessment years are as under:

A.Y. Income Income offered Revised total returned before the ITSC income

2004-05 1,16,276 0 0 2005-06 1,14,840 44,36,000 45,50,840 2006-07 1,16,890 2,87,60,000 2,88,76,890 2007-08 98,700 93,00,000 93,98,700 2008-09 2,07,500 2,59,32,500 2,61,40,000 2009-10 3,02,250 1,34,35,200 1,37,37,450 Total 9,56,456 8,18,63,700 8,27,03,880 3 ITA Nos. 526 to 530 /Hyd/2014 Shri R. Kondal Rao

3. On the basis of the income declared by assessee before the Settlement Commission, AO completed the assessment u/s 143(3) read with section 153A vide order dated 30/12/2011 by determining the total income at Rs. 45,50,840 including additional income offered before the Settlement Commission. Pursuant to the assessment order passed, AO issued a notice directing assessee to show cause as to why penalty u/s 271(1)(c) shall not be imposed for furnishing inaccurate particulars of income/concealment of income. In response to the said notice, assessee submitted its explanation stating therein that as assessment in case of assessee has been completed by accepting the income offered by assessee before the Settlement Commission and no other additions have been made neither there can be furnishing of inaccurate particulars of income nor concealment of income. AO after going through the explanation of assessee, observed that though assessee before the Settlement Commission offered additional income, but, he did not offer the income so disclosed in the returns filed. AO observed that since assessee has earned income which he should have declared in the return of income, but, did not do so, he is liable to be visited with penalty u/s 271(1)(c) in view of explanation 1 and 5A of section 271(1)(c). Accordingly, AO proceeded to pass impugned order u/s 271(1)(c) imposing penalty of Rs. 14,90,314 being 100% of tax component of the alleged undisclosed income. Similar orders imposing penalties were also passed in AYs 2006-07 to 2009-10. Being aggrieved of the penalty orders, so passed, assessee preferred appeal before ld. CIT(A).

4. Before ld. CIT(A), assessee submitted that additional income was offered by assessee not only at the time of search and seizure operation when statement was recorded from him u/s 132(4), but, it was also declared in the application filed before the Settlement Commission and taxes were also paid. It was submitted, assessment order was also passed solely on the basis of the declaration made by 4 ITA Nos. 526 to 530 /Hyd/2014 Shri R. Kondal Rao

assessee before the Settlement Commission. Therefore, there cannot be any concealment of income or misrepresentation of facts by assessee. It was further submitted, AO has not found any income that was not known to the department. In support of his contention, assessee relied on certain judicial precedents. Ld. CIT(A) after considering the submissions of assessee in the context of facts and materials on record, noted that though assessee in the application made before the Settlement Commission had offered additional income of Rs. 8,18,63,700 for the AYs 2005-06 to 2009-10 and also paid taxes on them, however, the Settlement Commission rejected application on the ground that unaccounted income disclosed in the application filed by assessee was not true and did not pertain to him. She further noted that in case of M/s JB Educational Society and M/s Joginapally BR Educational Society appeals were filed before ITAT challenging similar additions made. In course of hearing before ITAT, a sworn affidavit of Shri R. Kondal Rao, present assessee, was filed wherein he stated that the excess fees/capitation fees collected by him is his own income, which he collected without approval of the management and without revealing it to the management. She further noted that on the basis of the affidavit filed, the Tribunal held that since the excess fees/capitation fees has been admitted as undisclosed income by Shri R. Kondal Rao, no addition of the said amount can be made at the hands of the institution/society. On the basis of the observation made by ITAT in case of Educational Institutions, ld. CIT(A) held that penalty imposed u/s 271(1)(c) is valid as assessee has filed inaccurate particulars of income thereby concealed the income. Being aggrieved, assessee is before us.

5. Ld. AR more or less reiterating the submissions made before the departmental authorities submitted, from the stage of search and seizure operation itself, assessee had admitted excess fees collected by him from students as his additional income. In this context, he referred to the statement of assessee, a copy of which is in paper 5 ITA Nos. 526 to 530 /Hyd/2014 Shri R. Kondal Rao

book. Further referring to application made before the DDIT(Inv.) during the post search proceeding, ld. AR submitted, though, the money was collected from the students over and above the prescribed fees, but, the same was utilized for charitable purpose of meeting the expenses of 500 bedded hospital run by JB group. It was stated in the said letter that though the excess fees was collected by assessee along with other persons namely CH. Krishna Rao and Shri Prakash Rao, but, assessee offered to declare entire income at his hands in application filed before the Settlement Commission and also paid taxes. Ld. AR referring to the order passed by the Settlement Commission submitted before us, while rejecting assessee's application, however, the Settlement Commission held that undisclosed declared by assessee do not pertain to him. Therefore, in this situation, it cannot be said that assessee has either furnished inaccurate particulars or concealed the particulars of income. Ld. AR submitted, the excess fees collected at the time of admission of students were also added at the hands of educational institutions in their assessments. When the appeals pertaining to these educational institutions came up for hearing before the Tribunal, an affidavit of Shri R. Kondal Rao filed wherein it is stated that Sri R. Kondal Rao has admitted excess fees collected as his additional income before the Settlement Commission. On the basis of the declaration made by Sri R. Kondal Rao in the affidavit, Tribunal deleted the addition made at the hands of educational institutions since already the amount has been assessed at the hands of Sri R. Kondal Rao. Ld. AR submitted, in the aforesaid facts and circumstances, it cannot be said that assessee has concealed his income considering the fact that the departmental authorities themselves were not sure at whose hands income is to be assessed. Ld. AR referring to the decision of ITAT Hyderabad in case of Sun Infra Vs. ACIT, 30 ITR (Trib) 451 submitted, when assessee from initial stage of search and seizure operation proceeding has consistently offered the additional income and there is no other material before AO to either prove concealment 6 ITA Nos. 526 to 530 /Hyd/2014 Shri R. Kondal Rao

of income or furnishing of inaccurate particulars of income, rather, on the basis of the declaration made by assessee, assessments have been completed, imposition of penalty is not justified.

6. Ld. DR, on the other hand, submitted before us, assessee even though declared additional income in application filed before the Settlement Commission, but, he nevertheless failed to offer the said additional income in the returns filed for AYs 2005-06 to 2009-10 in response to notice u/s 153A of the Act. Therefore, assessee having not made any voluntary disclosure of additional income and on the contrary having failed to disclose the income even though he has earned such income, the provisions of section 271(1)(c) are clearly attracted. He further submitted, since there is no voluntary disclosure by assessee, explanation 1 and 5A of section 271(1)(c) are clearly attracted. Ld. DR submitted, explanation 5A to section 271(1)(c) is a deeming provision, hence, no leniency can be shown to assessee in the matter of levy of penalty. In support of such contention, he relied upon a decision of Hon'ble Supreme Court in case of Mak Data P. Ltd. Vs. CIT and the decision of Hon'ble Delhi High Court in case of Kamal Chand Jain Vs. ITO, [2005] 277 ITR 429 (Del.)

7. We have considered the submissions of the parties and perused the materials on record as well as the orders of revenue authorities. As can be seen from the materials on record, during the search and seizure operation, it was found that excess fees has been collected from admission of students without accounting for in the books of account of educational institutions. However, Shri R. Kondal Rao, present assessee, who was working as Manager of the Educational Institutions run by society filed an application before DDIT(Inv.) wherein he admitted of having collected excess fee along with two others without the knowledge of the management, but, the amount so collected was not utilized for their personal benefits but utilized in charitable activity of providing medical facility in 500 beded hospital run by society free of cost. It is also a fact on record that in 7 ITA Nos. 526 to 530 /Hyd/2014 Shri R. Kondal Rao

application filed before the Settlement Commission assessee not only reiterated these facts but also offered excess fees collected amounting to Rs. 8,18,63,700 as additional income in different assessment years and also paid taxes due thereon. However, the Settlement Commission rejected the application of assessee observing as under:

"9 i) We find that at the time of search, seized documents No. JB/AA/1 to 10 were scrutinized thoroughly by the I.T. Department and it was found that this material established receipt of unaccounted capitation fees in cash. In fact, Shri Vamsidhar Rao admitted this position and offered an undisclosed income of Rs. 7.5 crores for taxation on this account. This was on 10/09/2009 (Answer to Q. No. 45 of the Statement of Shri J. Vamsidhar Rao.) This declaration was later on confirmed not only by Shri J.Bhaskar Rao who is the main person of the group but also by his other son Shri J.K. Rao. The offer of disclosure of such income has been reiterated a number of times by Shri J. Bhaskar Rao and his sons.

ii) We also find that Shri K. Ashok Mehta Reddy, Shri Purnachandra Rao Pusti and Shri Ganji Meghnath have categorically stated in their statements that they were merely negotiating on behalf of Shri Bhaskar Rao and whatever unaccounted capitation fees was received in cash was handed over to Shri Bhaskar Rao. They have further admitted that even the quantum of unaccounted capitation fees was fixed in consultation with Shri J. Bhaskar Rao. We have noted that, at different points of time both during and after the search, Shri Bhaskar Rao, Shri Vamsidhar Rao and Shri J.K. Rao have confirmed the correctness not only of their own statements but also those given by Shri Purnachandra Rao Pusti, Shri K. Ashok Mehta Reddy and Shri Ganji Meghnath. These statements are not retracted by any one. In addition, J. Bhaskar Rao declined to cross-examine these persons when such an opportunity was given to them.

iii) The statements of the applicant recorded during the search or later nowhere indicate that it was he who finalized/collected/utilized the unaccounted cash receipts.

iv) We do not find any merit in the contention of the ld. AR that the applicant had embezzled the funds which have been received by way of unaccounted capitation fees and applied it for charitable purposes. It is totally inconceivable that, for the sake of charity, any person in his right senses would take a risk which may invite serious criminal consequences. We find that 8 ITA Nos. 526 to 530 /Hyd/2014 Shri R. Kondal Rao

all evidence including statements of various persons clearly establishes that the unaccounted income disclosed in the settlement application filed by the applicant did not pertain to him. Hence, we find that the disclosure made by the applicant is not true."

8. On perusal of the assessment order, it is patent and obvious that AO solely on the basis of the declaration made by assessee before the Settlement Commission has computed the income of assessee and he has not referred to any other incriminating material to indicate earning of additional income by assessee. Penalty u/s 271(1)(c) has also been imposed by AO solely on the reason that though assessee offered additional income in the application filed before the Settlement Commission, but, he failed to disclose it in the return of income filed. Ld. CIT(A) has also confirmed the imposition of penalty by observing that there is collusion between assessee and the management of the society to mislead the department. However, the Settlement Commission has made categorical observations that there being no material which could indicate that assessee embezzled funds of society, claim of assessee that unaccounted income belong to him cannot be accepted. That being the observation of the Settlement Commission, ld. CIT(A), in our view, could not have observed that management should have taken action against assessee for embezzling funds of society. Moreover, it is a fact on record that additional income offered by assessee representing excess fees/capitation fees received from students were also added at the hands of educational institutions. From these facts, it is clear that departmental authorities themselves were not sure as to at whose hands income is to be assessed or whether the income actually belongs to assessee. Further even though, assessee offered additional income before the Settlement Commission, but, the Settlement Commission on appreciation of evidences available before it refused to accept assessees claim that additional income is pertaining to assessee. Therefore, when the departmental authorities are themselves not sure about the real owner of income and in fact 9 ITA Nos. 526 to 530 /Hyd/2014 Shri R. Kondal Rao

when there is conflict of opinion between the Settlement Commission and A.O. on the ownership of income, assessee cannot be proceeded for imposition of penalty u/s 271(1)(c) only because he has come forward to offer such income or it has been assessed in his hands for whatever may be the reason.

9. Though, it may be a fact that in course of hearing of appeal in case of educational institutions before ITAT, an affidavit was filed by Sri R. Kondal Rao, present assessee, wherein it is stated that excess/capitation fees collected was not handed over to the management and it is his income but on scrutiny of the said affidavit, as has been extracted in the order passed by Tribunal in ITA No. 29/Hyd/2013 and others dated 28/10/2013, it is very much clear that statements made in the affidavits are almost identical to the facts mentioned in the application filed before the Settlement Commission by assessee. No doubt, similar addition made in the hands of educational institutions were deleted by the tribunal on the basis of the affidavit filed by the assessee Sri R. Kondal Rao. However, the conclusion drawn by the Tribunal is not because of any positive evidence on record to conclusively prove the fact that the additional income belongs to assessee, but more driven by the principle that same income cannot be assessed in more than one hand. Therefore, as the additional income has already been assessed at the hands of assessee, the Tribunal deleted similar additions made in case of institutions. As stated herein before, there is nothing in assessment order to suggest that additional income assessed at the hands of assessee is as a result of any incriminating material. Neither at the stage of assessment nor at the time of penalty proceeding, AO has brought any material on record to show that additional income really belongs to assessee. Only because assessee offered additional income at his hand that will not automatically lead to the conclusion that assessee has concealed his income or furnished inaccurate particulars of income. For imposing penalty u/s 271(1)(c), AO has to 10 ITA Nos. 526 to 530 /Hyd/2014 Shri R. Kondal Rao

prove the fact of concealment by virtue of willful negligence or deliberate act by assessee. One more aspect which needs deliberation is, though in the penalty order, AO has in clear terms mentioned that imposition of penalty is for concealment of income and not furnishing of inaccurate particulars of income, but, ld. CIT(A) has observed that assessee has furnished inaccurate particulars of income. From the aforesaid facts, it is clear that the departmental authorities are not sure as to which limb of the penalty provision is attracted. Therefore, considering the totality of facts and circumstances and keeping in view, the observations made by Settlement Commission, we are of the opinion that since no conclusive finding or material has been brought on record to prove either concealment of income or furnishing of inaccurate particulars of income, imposition of penalty in the facts and circumstances of the present case is not justified. As far as the decisions relied upon by learned D.R. are concerned, though we fully agree with the principles laid down therein, however, they cannot be applied uniformly to all cases divorced from the facts on the basis of which such principle are decided. After careful analysis of the decisions, we are of the view that they will not apply to the facts of the present case. In aforesaid view of the matter, we are of the opinion that imposition of penalty under section 271(1)(c) in the facts of the present case is not justified. Accordingly, we delete the same.

10. As the facts and materials are materially identical in other appeals under consideration to that of AY 2005-06 (supra), following our conclusions drawn therein, we also delete the penalties imposed in these appeals.

11 ITA Nos. 526 to 530 /Hyd/2014 Shri R. Kondal Rao

11. In the result, all the appeals under consideration are allowed.

Pronounced in the open court on 19 th June, 2015.

Sd/- Sd/- (INTURI RAMA RAO) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER

Hyderabad, Dated: 19 th June, 2015 kv

Copy to:-

1) Shri R. Kondal Rao, C/o M/s Mahesh, Virender & Sriram, CAs., 6-3-788/36 & 37A, Ameerpet, Hyderabad.

2) ACIT, Central Circle - 1, Hyderabad 3 CIT(A)-I, Hyderabad

4) CIT(Central), Hyderabad

5) The Departmental Representative, I.T.A.T., Hyderabad.