Shri Sheetal P. Banthia,, vs Department Of Income Tax

income of Rs.21,12,640/-. The assessment u/s.143(3)

r.w.s.153B(b) of the Act was completed on 31-12-2008 2

determining total income at Rs.21,12,640/. In the return of

income, the assessee disclosed income which was offered for

taxation as detailed below :

Income from proprietary business : Rs.16,53,327/- (M/s. Sheetal Jewellers Rs.1,43,896/-

& M/s. Kesharchand Anandram Banthia Rs.15,09,437/-) Income offered as per statement u/s.132(4) : Rs.5,00,000/- Income from other source : Rs. 64,419/- ------------------

Total income : Rs.22,17,746/- Less : Ded. u/s.VIA : Rs. 1,05,110/- ------------------

Net Taxable income : Rs.21,12,636/- ------------------

3. During the course of search and seizure action excess

stock of silver articles amounting to Rs.13,37,100/- was found.

Accordingly, the statement of the assessee u/s.132(4) was

recorded wherein he had offered this amount of Rs.13,37,100/-

as undisclosed income. The Assessing Officer further noted

that in reply to Question No.7 of the statement, the assessee

has also admitted undisclosed additional income of Rs.5 lakhs

on account of construction of a house, Keshavanand Niwas and

accordingly the total amount of Rs.18,37,100/- was disclosed

u/s.132(4) of the I.T. Act. The assessee has also disclosed

admitted income of Rs.18,37,100/- in the return of income filed

on 31-08-2007. On account of income disclosed u/s.132(4) and

finally offered for taxation in the return of income at

Rs.18,37,100/-, the Assessing Officer initiated penalty

proceedings u/s.271(1)(c) of the I.T. Act vide show cause notice

dated 31-12-2008. Since there was no compliance another 3

notice dated 03-06-2009 was issued. The assessee in response

to the same vide reply dated 10-06-2009 submitted its reply

according to which the income admitted u/s.132(4) has been

shown in the return of income filed on 31-08-2007 which has

been accepted in the order passed u/s.143(3) r.w.s.153B(b). It

was further submitted that on the date of search the due date

of filing of return for the year u/s.139(1) had not expired and

the income admitted has been duly disclosed in the return of

income. All conditions laid down in Explanation 5 to section

271(1)(c) were fully complied with. It was accordingly

submitted that penalty u/s. 271(1)(c) of the Act is not attracted.

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

explanation given by the assessee. According to the Assessing

Officer the above said undisclosed income of Rs.18,37,100/-

has been admitted by the assessee during the course of search

and therefore it is a foolproof case for levy of penalty u/s.

271(1)(c) of the I.T. Act. According to the Assessing Officer this

income is admittedly unaccounted and was offered for taxation

only on confronting the assessee during the course of search

action. Had the search action not taken place this income

would not have come to the light of the department. Thus, it is

a clear case of admitted concealment of income by the assessee.

However, the assessee has not explained the manner in which

such income was derived in the statement recorded u/s.132(4)

of the I.T. Act. Further, the income disclosed during the course

of search was not recorded in the regular books of account till

the date of search. Relying on various decisions the Assessing

Officer levied penalty of Rs.6,21,700/- being the minimum

penalty leviable u/s.271(1)(c) of the I.T. Act. 4

5. Before CIT(A) it was argued that penalty u/s.271(1)(c) of

the I.T. Act is not attracted to the assessee as the declaration

made by him is covered by cause (2) to Explanation 5 to section

271(1)(c) of the I.T. Act which excludes levy of penalty in case of

search and seizure cases. As far as the issue of the assessee

having not specified the manner in which income has been

earned it was argued that even in such event the assessee

would be entitled to the benefit of exclusion from levy of penalty

as provided under Explanation 5 to section 271(1)(c) of the I.T.

Act. Relying on various decisions it was argued that penalty

u/s.271(1)(c) of the I.T. Act is not leviable.

6. Based on the arguments advanced by the assessee the

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

Act. While doing so, he observed that the assessee had

disclosed Rs.13,37,100/- u/s.132(4) on account of excess stock

of jewellery and Rs.5 lakhs on account of unrecorded

investment in construction of a house. Thus, the disclosure

was made on account of unexplained assets in the nature of

investments. Therefore, the case of the assessee is covered by

the provisions of Explanation 5 to section 271(1)(c) of the I.T.

Act. However, since the financial year relevant to the

assessment year under consideration has not expired as on the

date of search he held that the case of the assessee falls under

clause (b) to Explanation 5 and exception (2) provided therein.

He further observed that if the entries relating to the

undisclosed income are not recorded in the books of account as

on the date of search, then as per clause (2) of the Explanation

5, the income disclosed in the return of income shall not be 5

deemed to be the concealed income if a disclosure is made

u/s.132(4) and tax thereon are paid. He accordingly held that

in view of the above legal position the conditions for exemption

from penalty u/s. 271(1)(c) of the I.T. Act relating to the

disclosure u/s.132(4) in respect of the unexplained assets and

payment of tax are satisfied. Therefore, the observation of the

Assessing Officer that had there been no search assessee would

not have disclosed the income are irrelevant.

7. So far as the manner of disclosure is concerned he

observed that merely because the manner in which the income

was earned was not specified, the benefit of exemption from

penalty as provided in Explanation 5 to section 271(1)(c) cannot

be denied. He further noted that under similar facts and

circumstances in the case of Shri Vilas M. Kathori a person in

the assessee's group of cases the penalty was cancelled by the

CIT(A) and the order of the CIT(A) has been upheld by the

Tribunal. Similarly, in another group concerns, the penalty so

levied by the Assessing Officer was cancelled by the CIT(A) and

the Mumbai Bench of the Tribunal has upheld the order of the

CIT(A). It was held by the Mumbai Bench of the Tribunal that

it is incumbent on the authorised officer to explain the

provisions to the assessee while recording statement and he

cannot stop at particular stage so as to permit revenue to take

advantage of lapse regarding manner of earning. Even if the

statement does not specify the manner in which the income is

derived, it would be sufficient for immunity if income is

declared and tax thereon is paid. He accordingly held that the

assessee is eligible for immunity contained in the provisions of

Explanation 5 to section 271(1)(c) and therefore it is not a case 6

for imposition of penalty. He accordingly cancelled the penalty

levied by the Assessing Officer at Rs.6,21,700/- u/s.271(1)(c) of

the I.T. Act.

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)-I, Thane has erred in cancelling the penalty u/s 271(1)(c) of Rs.6,21,700/-, without appreciating the fact that the conditions laid down in Explanation-5 to Section 271(1)(c) have not been met in as much as the assessee is not able to explain the manner in which the income disclosed was earned by her.

2. The appellant prays the order of the Ld. CIT(A)-I, Thane, may be vacated and that of the Assessing Officer be restored.

3. The appellant craves leave to add, amend or alter any ground/grounds, which may be necessary.

9. The Ld. Departmental Representative strongly supported

the order of the Assessing Officer. He submitted that since the

assessee in his statement recorded u/s.132(4) has not specified

the manner in which the income disclosed has been derived at

and has also not furnished any satisfactory explanation

regarding the unaccounted income, therefore, the Ld.CIT(A)

was not justified in cancelling the penalty. He submitted that

the conditions as laid down in Explanation 5 to section

271(1)(c) have not been fulfilled. He accordingly submitted that

the order of the CIT(A) be reversed and that of the Assessing

Officer be restored.

10. The Ld. Counsel for the assessee on the other hand

strongly relied on the order of the CIT(A). He submitted that

under identical facts and circumstances of the case the penalty

levied by the Assessing Officer u/s.271(1)(c) in the hands of the 7

father of the assessee was cancelled by the CIT(A) and on

further appeal by the Revenue the Tribunal upheld the order of

the CIT(A) and dismissed the appeal filed by the Revenue.

Therefore, this being a covered matter the order of the CIT(A)

should be upheld and the grounds raised by the Revenue

should be dismissed.

11. 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. In

this case a search and seizure action u/s.132 of the I.T. Act

was conducted at the residential-cum-business premises of the

assessee on 04-10-2006. During the course of search the

statement of the assessee was recorded u/s.132(4) wherein he

has offered an amount of Rs.13,37,100/- being excess stock of

silver articles found during the course of search and seizure

action and further admitted undisclosed additional income of

Rs.5 lakhs on account of construction of a house. The assessee

filed his return of income on 31-08-2007 declaring total income

of Rs.21,2,670/- which included the income declared during

the search and which was accepted by the Assessing Officer in

the order passed u/s.143(3) r.w.s. 153B(b) of the I.T. Act

accepting the returned income. The Assessing Officer levied

penalty u/s.271(1)(c) of the I.T. Act on the ground that

although the time for filing of the return u/s.139(1) was

available but apparently the intention of the assessee was not

to disclose unaccounted income voluntarily. Had there been no

search, the assessee would not have disclosed such additional

income and assessee has not explained the manner in which 8

such income was derived in the statement recorded u/s.132(4).

The Assessing Officer accordingly levied penalty of

Rs.6,12,700/- u/s.271(1)(c) of the I.T. Act. In appeal the

Ld.CIT(A) cancelled such penalty on the ground that assessee is

eligible for immunity contained in provisions of Explanation 5

to section 271(1)(c) of the I.T. Act. While doing so, he also

relied on the decisions of the Coordinate Benches of the

Tribunal in other related cases of the same group.

12. We find an identical issue had come up before the

Mumbai Bench of the Tribunal in the case of Shri Pannalal K.

Banthia, father of the assessee wherein penalty levied by the

Assessing Officer u/s.271(1)(c) was cancelled by the CIT(A). On

further appeal by the Revenue the Tribunal vide ITA

No.6145/Mum/2010 order dated 25-07-2012 for A.Y. 2009-10

upheld the order of the CIT(A) and dismiss the appeal filed by

the Revenue by observing as under :

"7. We have considered the rival submissions and also perused the relevant material on record. It is observed that in his statement recorded during the course of search u/s.132(4), the undisclosed income found as a result of search was surrendered by the assessee and after payment of tax in respect of such income, the same was duly declared by the assessee in the return of income for the year under consideration. In the assessment completed u/s.143(3) r.w.s. 153B(b) of the Act, the income so declared in the return of income by the assessee was accepted by the AO. Subsequently, the AO however initiated penalty proceedings u/s.271(1)(c) and also imposed penalty under the said provision denying the immunity claimed by the assessee as per the relevant provisions contained in Explanation 5 on the ground that in his statement recorded u/s.132(4), the manner in which undisclosed income had been earned was not specified by the assessee as required by the provisions of Explanation 5. It is observed that a similar issue had come up for consideration before the Hon'ble Gujarat High Court in the case of CIT vs. Mahendra C. Shah (supra) wherein penalty u/s.271(1)(c) was levied by the AO by denying the benefit of Explanation 5 for the reason that the assessee had not explained in the statement recorded u/s.132(4), the manner in which undisclosed income was derived and the penalty imposed by the AO was held to be unsustainable by the Hon'ble Gujarat High court allowing the 9

benefit of immunity to the assessee as provided under Explanation 5 to sec.271(1)(c) by observing as under:

"Insofar as the alleged failure on the part of the assessee to specify in the in the statement u/s 132(4) regarding the manner in which such income has been derived, suffice it to state that when the statement is being recorded by the authorized officer it 5 ITA 6145/Mum/2010 Shri Pannalal K. Banthia is incumbent upon the authorized officer to explain the provisions of Expl. 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 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 Exception No. 2 while making statement under s. 132(4). The view taken by the Tribunal to the effect that even if the statement does no specify the manner in which the income is derived, if the income is declared and tax thereon paid, there would substantial compliance not warranting any further denial of the benefit under Exception No. 2 in Expl. 5 is commendable. Hence, the Tribunal was justified in coming to the conclusion that insofar as the value of diamonds was concerned, the assessee having made a declaration under s. 132(4) and paid taxes thereon, had fulfilled all the conditions for availing the benefit of immunity from levy of penalty as provided under ExpI. 5 to s. 271(1)(c)."

8. To the similar effect is the decision of Hon'ble Allahabad High Court in the case of CIT vs. Radha Kishan Goel (supra) wherein it was held that much importance should not be attached to the statement about the manner in which undisclosed income has been derived and mere non-statement of the manner in which such income was derived would not make explanation 5(2) to sec.271(1)(c) of the Act inapplicable. Keeping in view the decision of Hon'ble Gujarat High Court in the case of Mahendra C. Shah (supra) as well as that of Allahabad High Court in the case of Radha Kishan Goel (supra) and 6 ITA 6145/Mum/2010 Shri Pannalal K. Banthia having regard to the facts of the case, we are of the view that the penalty imposed by the AO u/s.271(1)(c) was rightly cancelled by the Ld. CIT (A) allowing the benefit of immunity contained in the provisions of Explanation 5 to sec.271(1)(c). In that view of the matter, we uphold the impugned order of the Ld. CIT (A) cancelling the penalty levied by the AO and dismiss this appeal filed by the revenue.

9. In the result, appeal of the revenue is dismissed."

13. Since the facts of the instant case are identical to the

facts of the case decided by the Mumbai Bench of the Tribunal,

therefore, respectfully following the decision of the Mumbai 10

Bench of the Tribunal and in view of the detailed discussion by

the Ld.CIT(A) we find no infirmity in the order of the CIT(A)

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

Accordingly, the order of the CIT(A) is upheld and the grounds

raised by the Revenue are dismissed.

14. In the result, the appeal filed by the Revenue is

dismissed.

Pronounced in the open court on 29-04-2015.

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

satish Pune Dated: 29th April, 2015

Copy of the order forwarded to :

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

By order

// True Copy // Assistant Registrar ITAT, Pune Benches, Pune