VKJ Latest News Update

VKJ Law Offices of Vinay K. Jain Advocates & Solicitors

Conditions u/s 271(1)(c) for imposing penalty are not satisfied by AO’s opinion per se of assessee having not declared undisclosed income if not for Survey proceedings conducted u/s 133A: HC

2019-TIOL-1672-HC-AHM-IT

IN THE HIGH COURT OF GUJARAT

AT AHMEDABAD

R/Tax Appeal No. 498 Of 2019

PRINCIPAL COMMISSIOENR OF INCOME TAX (CENTRAL)
SURAT

Vs

SHREE SAI DEVELOPERS

J B Pardiwala & A C Rao, JJ

Dated: July 23, 2019

Appellant Rep by: Mrs Mauna M Bhatt(174)
Respondent Rep by: 
None

Income Tax – Sections 133A & 271(1)(c)

Keywords – Conjectures – Survey – Undisclosed income

THE Revenue conducted survey upon the assessee. In the course of the survey proceedings, the assessee firm declared unaccounted income. Later, the assessee filed its return declaring its total income including the unaccounted income. During the scrutiny assessment proceedings, the AO while accepting the return, levied a penalty u/s 271(1)(c) for furnishing inaccurate particulars of his income in previous AY which led to concealment of income. The CIT(A) deleted the penalty levied by the AO. The Appellate Tribunal dismissed the Revenue’s appeal and affirmed the CIT(A)’s order.

Having heard the parties, the High Court held that,

Whether a greater benchmark to satisfy the conditions stipulated u/s 271(1)(c) can be fulfilled merely on conjectures of the AO that the assessee might not have declared undisclosed income in its return if not for the survey conducted u/s 133A – NO: HC

++ following the rational of apex court’s ruling in CIT vs. SAS Pharmaceuticals and Mak Data Pvt. Ltd. vs. CIT, the appeal of the Revenue is dismissed.

Revenue’s appeal dismissed

Cases followed:

CIT vs. SAS Pharmaceuticals – 2011-TIOL-291-HC-DEL-IT

Mak Data Pvt. Ltd. vs. Commissioner of Income Tax – 2013-TIOL-58-SC-IT

Principal Commissioner of Income Tax vs. Valibhai Khanbhai Mankad – 2015-TIOL-2164-HC-AHM-IT

JUDGEMENT

Per: J B Pardiwala:

1. This Tax Appeal under Section 260-A of the Income Tax Act, 1961 (for short “the Act, 1961”) is at the instance of the Revenue and is directed against the order passed by the Income Tax Appellate Tribunal, Surat Bench, Surat, dated 25.01.2019 in the ITA No.3175/Ahd/2016 for the Assessment Year 2012-13.

2. The Revenue has proposed the following three substantial questions of law for the consideration of this Court:

“[A] Whether on the facts and circumstances of the case and in law, the Appellate Tribunal was right in deleting the penalty of Rs.55,15,650/- levied under Section 271(1)(c) of the Act.

[B] Whether on the facts and circumstances of the case and in law, the Appellate Tribunal erred in not appreciating that penalty u/s 271(1)(c) is attracted for concealment detected in the course of any proceeding under the Act, which cannot be limited to assessment proceeding and should have been held to include survey proceeding u/s 133A(1)?

[C] Whether on the facts and circumstances of the case and in law, the Appellate Tribunal erred in not appreciating that even clause (a) of explanation 4 to section 271(1)(c) does not refer to returned income so as to limit the penalty u/s 271(1)(c) with reference to difference between tax on Assessed Income and Returned Income?”

3. It appears form the materials on record that survey under Section 133A of the Act was carried out on 17.07.2012. In the course of the survey proceedings, the assessee firm declared unaccounted income of Rs.1,78,50,000/- received during A.Y. 2012-13. Later, the assessee filed its return of income on 28.09.2012 declaring its total income of Rs.2,59,11,800/- including the unaccounted income of Rs.1,78,50,000/- disclosed during the course of the survey proceedings. The case of the assessee firm was selected for scrutiny under the CASS and notice under Section 143(2) of the Act was issued on 23.09.2013. The assessment order under Section 143(3) of the Act came to be passed on 30.03.2015 and the income was assessed at Rs.2,59,11,800/-, meaning thereby, the returned income was accepted as the assessed income.

3.1 The Assessing Officer vide his order dated 22.09.2015 levied a penalty of Rs.55,15,650/- under Section 271(1)(c) of the Act on the premise that the assessee had furnished inaccurate particulars of his income which led to concealment of his income.

3.2 The assessee being dissatisfied with the assessment order passed by the AO preferred an appeal before the CIT(A). The CIT(A) deleted the penalty levied by the AO.

3.3 The Revenue being dissatisfied with order of the CIT(A) preferred an appeal before the Appellate Tribunal. The Appellate Tribunal dismissed the appeal preferred by the revenue and thereby affirmed the order passed by the CIT(A).

3.4 Being dissatisfied with the order passed by the Tribunal, the Revenue is here before this Court with the present appeal.

4. Mrs. Mauna Bhatt, the learned senior standing counsel appearing for the Department submitted the following :

“(a) In this case, it is found that the assessee disclosed income of Rs.1,78,50,000/- only on account of Survey proceeding conducted by the Income-tax department. Had there been no Survey action, undisclosed income of Rs.1,78,50,000/- would have remained undetected and the entire amount would have escaped from the gaze of tax.

(b) Further, assessee’s intention to avoid payment of taxes is clear from the fact that entries in the diary found during the survey proceeding were not entered in the books of account.

(c) Penalty u/s 271(1)(c) of the Act is attracted for concealment found in the course of any proceeding under this Act, which includes also proceeding u/s 133A(1). Moreover, during the penalty proceeding, the assessee had failed to give any justification or acceptable explanation for furnishing inaccurate particulars of income.

(d) The imposition of penalty u/s 271(1)(c) as per clause (a) of explanation 4 to section 271(1)(c) does not refer to returned income, but merely to the amount in respect of which particulars have been concealed.”

5. The Tribunal while dismissing the appeal preferred by the Department, held as under :

“13. Thus the basis for levy of penalty is return of income. If any amount has been shown in the return of income, then it cannot be said that assessee has concealed any particular about that income or furnished inaccurate particulars in relation thereto. There cannot be any concealment prior to filing of return. Question of consideration whether assessee is liable for action under section 271(1)(c) would arise only when return of income is scrutinized by the AO and he finds some more items of income or additional income over an above what is declared in the return. If it is so, the assessee would be liable for action under section 271(1)(c) in respect of such items only which are discovered by the AO on the scrutiny of return of income or after carrying out investigation and discovering some more items of income not found declared or mentioned in the return of income. Prior to filing of return of income there is no concept of concealment or furnishing of inaccurate particulars.

14. The initial phrase used in section 271(1)(c) suggests that AO has to find in the course of any proceedings under this Act that assessee has concealed the particulars of his income or furnished inaccurate particulars of such income. In fact, the proceedings against the assessee would start only after return of income is filed by the assessee or after issuance of statutory notice against him such as under section 142(1) or u/s 143(2). Carrying out survey under section 133A is not at all any proceedings. Proceedings as used in section 271(1)(c) are statutory proceedings initiated against the assessee either by issuance of statutory notice or after filing of return of income. Survey u/s. 133A or search under section 132 or issuance of notice u/s. 133(6) for example, are only means of collecting evidence against the assessee and are not equivalent to statutory proceedings. Another criteria of finding out ks to be seen whether it can be brought to a legal conclusion against the assessee by determining his right or liability. Merely carrying out survey under section 133A does not create any liability against the assessee which in created only through assessment proceedings or penalty proceedings. Therefore, the Ld.DR. is incorrect in his submission that survey being a proceedings and AO has discovered concealment during survey, therefore, the assessee is liable for penalty under section 271(1)(c).

18. The ld.DR has relied on the judgment of Mak Data Pvt. Ltd. vs. CIT [2013] 358 ITR 593 (SC) = 2013-TIOL-58-SC-IT, however, same is not applicable in the present case as in that case the survey was conducted more than 10 months before filing of returns and the disclosure was made by the assessee later during the course of assessment proceedings, whereas in the present case the amount disclosed during survey was duly included in the original return of income filed after the date of survey. Therefore, the facts of the said case are distinguishable. Further, there is no difference in the return of income and the income.

19. In the light of above facts and circumstances and case laws we are of the considered opinion that it is not a case of furnishing inaccurate particulars of income, as in the Income Tax Return, particulars of income have been duly furnished and the surrendered amount of income was duly reflected in the Income Tax Return nor there is a tax sought to be evaded on the basis of return of income as the assessee has not evaded any tax on the return income. The Hon’ble Delhi high Court in the case of SAS Pharmaceuticals [2011] 335 ITR 259 (Del) = 2011-TIOL-291-HC-DEL-IT has considered the expression in the course of any proceedings under this Act appearing in section 271 of the Act and held that the said expression cannot have reference to the survey proceedings. It has also held that penalty proceedings would depend upon the return of income filed by the assessee.”

6. Having regard to the materials on record, the question would be as to whether penalty can be imposed under Section 271(1)(c) of the Act when the assessee has shown his income in the Income Tax Return filed by it and contends that he had voluntarily declared the same in the “regular return filed for the relevant year.

6.1 Section 271 clause 1(c) reads as under :

“(1) If the Assessing Officer or the Commissioner (Appeals) or the Principal Commissioner or Commissioner in the course of any proceedings under this Act, is satisfied that any person –

(c) has concealed the particulars of his income or furnished inaccurate particulars of such income;”

6.2 The principle argument of Mrs. Bhatt is that the assessee disclosed income of Rs.1,78,50,000/- only on account of the survey proceedings conducted by the Income Tax Department. According to Mrs. Bhatt, if there would have been no survey action, the undisclosed income of the said amount would have remained undetected and the entire amount would have escaped.

6.3 In CIT vs. SAS Pharmaceuticals [2011] 335 ITR 259 (Delhi) = 2011-TIOL-291-HC-DEL-IT, the Supreme Court had the occasion to consider the very same issue. A.K. Sikri, J. (as his Lordship then was) after considering the language of Section 271(1)(c) of the Act, held as under :

“12. After considering the respective submissions of the learned counsel for the parties, we are of the view that the argument of the learned counsel for the assessee has to prevail as it carried substantial weight. It is to be kept in mind that Section 271(1)(c) of the Act is a penal provision and such a provision has to be strictly construed. Unless the case falls within the four-corners of the said provision, penalty cannot be imposed. Subsection (1) of Section 271 stipulates certain contingencies on the happening whereof the AO or the Commissioner (Appeals) may direct payment of penalty by the assessee. We are concerned herewith the fundamentality provided in Clause (c) of Section 271 (1) of the Act, which authorizes imposition of penalty when the AO is satisfied that the assessee has either;

(a) Concealed the particulars of his income; or

(b) Furnished inaccurate particulars of such income.

13. It is not the case of furnishing inaccurate particulars of income, as in the income-tax return, particulars of income have been duly furnished and the surrendered amount of income was duly reflected in the income tax return. The question is whether the particulars of income were concealed by the assessee or not. It would depend upon the issue as to whether this concealment has reference to the income tax return filed by the assessee, viz., whether concealment is to be found in the income tax return.

14. We may, first of all, reject the contention of the learned counsel for the Revenue relying upon the expression “in the course of any proceedings under this Act” occurring in Sub-section (1) of Section 271 of the Act and contending that even during survey when it was found that the assessee had concealed the particular of his income, it would amount to concealment in the course of “any proceedings”. The words “in the course of any proceedings under this Act” are prefaced by the satisfaction of the Assessing Officer or the Commissioner of Income Tax (Appeals). When the survey is conducted by a survey team, the question of satisfaction of Assessing Officer or the Commissioner (Appeals) or the Commissioner does not arise. We have to keep in mind that it is the Assessing Officer who initiated the penalty proceedings and directed the payment of penalty. He had not recorded any satisfaction during the course of survey. Decision to initiate penalty proceedings was taken while making assessment order. It is, thus, obvious that the expression “in the course of any proceedings under this Act” cannot have the reference to the survey proceedings, in this case.

15. It necessarily follows that concealment of particulars of income or furnishing of inaccurate particular of income by the assessee has to be in the income tax return filed by it. There is sufficient indication of this in the judgment of this Court in the case of CIT v. Mohan Das Hassa Nand [1983] 141 ITR 203 (Delhi) and in Reliance Petroproducts Pvt. Ltd. [2010] 322 ITR 158 (SC) = 2010-TIOL-21-SC-IT the Supreme Court has clinched this aspect, viz., the assessee can furnish the particulars of income in his return and everything would depend upon the income tax return filed by the assessee. This view gets supported by Explanation 4 as well as Explanation 5 and Explanation 5A of Section 271 of the Act as contended by the learned counsel for the Respondent.

16. No doubt, the discrepancies were found during the survey. This has yielded income from the assessee in the form of amount surrendered by the assessee. Presently, we are not concerned with the assessment of income, but the moot question is to whether this would attract penalty upon the assessee under the provisions of Section 271(1)(c) of the Act. Obviously, no penalty can be imposed unless the conditions stipulated in the said provisions are duly and unambiguously satisfied. Since the assessee was exposed during survey, may be, it would have not disclosed the income but for the said survey. However, there cannot be any penalty only on surmises, conjectures and possibilities. Section 271(1) (c) of the Act has to be construed strictly. Unless it is found that there is actually a concealment or nondisclosure of the particulars of income, penalty cannot be imposed. There is no such concealment or nondisclosure as the assessee had made a complete disclosure in the income tax return and offered the surrendered amount for the purposes of tax.”

6.4 The Supreme Court in the case of Mak Data Pvt. Ltd. vs. Commissioner of Income Tax reported in [2013] 358 ITR 593 (SC) = 2013-TIOL-58-SC-IT considered Section 271(1)(c) of the Act. The Supreme Court took the view that the voluntary disclosure would not release the assessee from the mischief of penal proceedings. According to the Supreme Court, the law does not provide that when an assessee makes a voluntary disclosure of his concealed income he is to be absolved from penalty. The moot question which should be considered according to the Supreme Court is whether the assessee had offered any explanation for the concealment of particulars of income or furnished any inaccurate particulars of income? The Tribunal in its impugned order has considered both the decisions i.e. the Delhi High Court decision in the case of SAS Pharmaceuticals (supra) as well as the Supreme Court decision in the case of Mak Data Pvt. Ltd. (supra). The Tribunal distinguished Mak Data Pvt. Ltd. on the ground that in Mak Data Pvt. Ltd., the survey was conducted more than ten months before the filing of return and the disclosure was made by the assessee later during the course of the assessment proceedings. The Tribunal took notice of the fact that in the case on hand, the amount disclosed during the survey was duly included in the original return of income filed after the date of survey. It took the view that there is no difference as such in the return of income and the income.

6.5 In the peculiar facts of the present case, the Tribunal arrived at the conclusion that the case is not one of furnishing inaccurate particulars of income. At this stage, we deem it appropriate to reproduce the relevant findings recorded by the CIT(A), which ultimately, came to be affirmed by the Tribunal in its impugned order :

“A survey action was carried out at the business premises of the appellant form. The income declared in return of income filed by the appellant included the amount surrendered by the appellant during the course of survey operations conducted by the department at business premises. During the course of survey operations, certain incriminating documents were found and one of the partners of the assessee firm Shri Jayantibhai Virjibhai Babariya declared addition income of Rs.1,78,50,000/- for A.Y. 2012-13.

The survey team did not make further enquiries nor was it established that these represented any other income. It is not a case where it was found / established that the income disclosed was not full and true.

The department has not built a case where the explanation of the appellant has been proved to be false or not bona fide. Even the conditions or Explanation 1 of section 271(1)(c) are not applicable in such a case.”

6.6 We may also refer to one decision of this High Court in the case of Principal Commissioner of Income Tax vs. Valibhai Khanbhai Mankad, Tax Appeal No.445 of 2015 decided on 7th September, 2015 = 2015-TIOL-2164-HC-AHM-IT. In the said decision, the Assessing Officer had made various disallowances and additions under Sub-section (3) of Section 143 of the Act. The Assessing Officer also initiated penalty proceedings under Section 271(1)(c) of the Act. The very same argument was canvassed before the coordinate Bench that the penalty had been levied by the Assessing Officer as the assessee had shown additional income after the same was detected during the course of survey action under Section 133A of the Act. It was argued before the coordinate Bench that the Tribunal had failed to appreciate the fact that the assessee had filed his return beyond the period prescribed under Sub-section (1) of Section 139 of the Act. It was also pointed out that the assessee had filed the return of income consequent to the survey under Section 133A of the Act and thereby could be said to have furnished inaccurate particulars of income. This Court negatived the contention referred to above and ultimately held as under :

“5. From the findings recorded by the Tribunal, it is evident that the factum of deletion of addition in respect of non-deduction of tax by the assessee was not controverted by the revenue. The Tribunal has further found that the penalty had been levied on the amount which was reflected in the original return as income. That it was an undisputed fact that the assessee had declared this income in his original return of income, although it was a belated return. The Tribunal was of the view that as per the provisions of section 271(1)(c) of the Act, penalty can be imposed if the assessee had concealed the particulars of income or has furnished inaccurate particulars of such income. That in the present case, there was no dispute with regard to the fact that the particulars of income were reflected in the return of income. Moreover, it was not the case of the revenue that the returns of income filed were invalid and in fact, the Assessing Officer had proceeded on the basis of the return filed by the assessee and particulars furnished therein. From the findings recorded by the Tribunal, it is evident that the Tribunal has found as a matter of fact that there was no concealment of particulars of income on the part of the respondent assessee and in fact, the Assessing Officer had proceeded on the basis of the return filed by the assessee and particulars furnished therein. Under the circumstances, in the absence of any concealment of the particulars of income or furnishing of inaccurate particulars of income on the part of the assessee, no infirmity can be found in the impugned order passed by the Tribunal in confirming the order passed by the Commissioner (Appeals) in deleting the penalty under section 271(1)(c) of the Act. In the absence of any infirmity in the impugned order passed by the Tribunal, it is not possible to state that the impugned order gives rise to any question of law much less, any substantial question of law so as to warrant interference. The appeal is accordingly dismissed.”

7. In the overall view of the matter, we have reached to the conclusion that no error not to speak of any error of law could be said to have been committed by the Tribunal in passing the Impugned order. No interference is warranted in this appeal under Section 260-A of the Act. In the result, this appeal fails and is hereby dismissed.

Leave a Reply

Close Menu
%d bloggers like this: