THE PR. COMMISSIONER OF INCOME TAX (CENTRAL) V. M/S SILEMANKHAN AND MAHABOOBKHAN

ITTA/11/2021

AI Insights

The case revolves around the appeal by the Income Tax Department against the decision of the ITAT, which set aside the penalty imposed under Section 271AAB of the Income Tax Act. The penalty was initially imposed following a search operation under Section 132 and subsequent proceedings under Section 153C against M/s.N.S. Vaishno Devi Developers (India) Pvt. Ltd, where undisclosed income was admitted. However, the ITAT found that the penalty was incorrectly applied as the search was not directly conducted on the assessee firm but on another entity, and the proceedings against the assessee were merely consequential to the search. The High Court upheld the ITAT's decision, emphasizing that the legal provision for penalty under Section 271AAB requires a direct search on the assessee, which was not the case here.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 731740 (HC-ANDHRA_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 12-07-2021
• Assessment Year: misc
• Other Referred Cases: Suresh H. Kerudi Vs. Income Tax Officer, DCIT Vs. M/s. Volga Dresses, Rajendra Kumar Jain Vs. DCIT, DCIT Vs. M/s. Shreeji Corporation
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Assessee Lawyers: M
• Keywords: Income Tax; Legal interpretation; Penalty; Search operation; Survey operation; Unaccounted income
• Section: 143(3); 132; 153A; 153C; 133A; 260A; 271AAB; 132(4)

Judgement Text

"THE HON’BLE SRI JUSTICE JOYMALYA BAGCHI AND THE HON’BLE SRI JUSTICE K.SURESH REDDY I.T.T.A. No.11 of 2021 (Taken up through video conferencing) JUDGMENT: (Per Hon’ble Sri Justice Joymalya Bagchi) The Appeal is filed under Section 260A of the Income Tax Act, 1961 (for short, ‘the Act’) and prayer has been made for its admission on the following questions of law: “1. Whether the Hon’ble ITAT is right in holding that penalty cannot be invoked u/s.271AAB in a case where the partner of assessee firm admitted unaccounted income u/s.132(4) of the I.T.Act during the search, wherein the assessee firm was covered by survey operation u/s.133A of the I.T.Act as consequent to search operation? 2. Whether the Hon’ble ITAT is right in holding that penalty u/s.271AAB is to be invoked only in the cases of persons where assessment completed u/s.153A of the I.T.Act where as the provisions speak of search case and not searched persons? 3. Whether the Hon’ble ITAT is right in holding that penalty levied u/s.271AAB is not relevant section in a case where assessment was completed u/s.153C in connection with the search initiated u/s.132? 4. Whether the Hon’ble ITAT is right in referring in phrase ‘search initiated u/s.132’ in the Section 271AAB of the I.T.Act is limited to a person on whom search was conducted where as the intention of law is to cover entire search case? 5. Any other ground that may urged at the time of hearing.” Ms.M.Kiranmayee, learned Senior Standing Counsel for Income Tax appearing for the appellant, submits that the Income Tax Appellate Tribunal, Visakhapatnam Bench, Visakhapatnam (for short, ‘the Tribunal’) erred in law in setting aside the penalty 2 imposed under Section 271AAB of the Act as the undisclosed income had been found in the course of search conducted under Section 132 of the Act. She submitted that in the statements recorded under Section 132(4) of the Act the partners of the firm admitted on money receipt from one M/s.N.S.Vaishno Devi Developers (India) Pvt. Ltd for sale of property and pursuant to such statement jurisdictional assessing officer issued notice under Section 153C of the Act upon the assessee-firm whereupon the firm submitted return admitting the additional income of Rs.15,73,00,000/- and additional tax was imposed on the assessee upon assessment by the assessing Officer under Section 143(3) read with 153C of the Act. Thereafter, penalty proceeding under Section 271AAB of the Act was initiated and the penalty imposed. As the undisclosed income was found in the course of search, imposition of penalty under Section 271AAB of the Act was lawful and the Tribunal erred in setting aside the penalty. We have considered the issue in the light of the materials on record and the settled principle of law relating to imposition of penalty under Section 271AAB of the Act. Relevant portion of Section 271AAB of the Act reads as follows: “271AAB.Penalty where search has been initiated- (1) The Assessing Officer may, notwithstanding anything contained in any other provisions of this Act, direct that, in a case where search has been initiated under section 132 on or after the 1st day of July, 2012 (but before the date on which the Taxation Laws (Second Amendment) Bill, 2016 receives the assent of the President), the assessee shall pay by way of penalty, in additional to tax, if any, payable by him,-” 3 A plain reading of the said provision makes it amply clear that penalty under the provision may be imposed only when search has been initiated against the assessee. Admittedly, in the present case, search was conducted under Section 132 of the Act in the group cases of M/s. Khan Mohammed Diamonds and Jewellers Private Limited, Guntur, on 19.10.2016 and not against the respondent-assessee. Pursuant to such search, survey operation under Section 133A of the Act was conducted and notice was issued under Section 153C of the Act on the assessee, whereupon the latter submitted return of income admitting the additional income. The Tribunal referring to the proposition of law that no penalty under Section 271AAB of the Act be imposed when search under Section 132 of the Act has not been conducted against the assessee as appearing from the consistent view taken by various benches of the Tribunal in Suresh H.Kerudi Vs. Income Tax Officer1, DCIT Vs. M/s. Volga Dresses2, Rajendra Kumar Jain Vs. DCIT3 and DCIT Vs. M/s. Shreeji Corporation4 came to a finding that the imposition of penalty was without authority of law. The unequivocal legal position appearing from the aforesaid discussion is that no penalty under Section 271AAB of the Act may be imposed where search under Section 132 of the Act has not been conducted against the assessee. It is admitted no search under Section 132 of the Act had been conducted in the premises of the assessee-firm. On the other hand, in the course of search under Section 132A of the Act against M/s.N.S. Vaishno Devi Developers (India) Pvt. Ltd, statements of partners of the firm were 1 (2019) 76 ITR (Trb) 44 (ITAT (Bang) 2 ITA Nos.201 & 201/PAN/2016 for Ays 2013-14 & 2014-15, delivered on 27.03.2017 3 ITA No.80 & 81/Viz/2017 delivered on 11.08.2017 4 recorded and pursuant thereto notice under Section 153C of the Act was issued upon the assessee-firm. When return of income is filed in response to notice under Section 153C of the Act by a person other than the penalty who has not been searched in execution of warrant under Section 132 of the Act penalty under Section 271AAB of the Act cannot be imposed. Notice under Section 153C of the Act is incidental to the search proceedings under Section 132 thereof and cannot be a foundation to impose penalty on the assessee who has not been searched. In view of such fact, we are of the opinion there is no perversity or illegality in the finding of the Tribunal which is as follows: “5.3 In the instant case, no search was conducted u/s 132 and only survey u/s 133A was conducted and the assessment order was passed u/s 153C r.w.s.143(3) of the act. Therefore, respectfully following the view taken by the coordinate bench of ITAT we hold that the Ld.CIT(A) has rightly cancelled the penalty levied u/s 271AAB of the Act and we do not find any reason to interfere with the order of the Ld.CIT(A) and the same is upheld. Accordingly, the appeal of the revenue is dismissed.” This legal position is based on the clear and unequivocal meaning transpiring from the words used in section and cannot yield to any other interpretation. The view has been consistently followed by various benches of the Tribunal, as aforesaid, and has become binding on the Department in those cases. No contrary view either of any High Court or the Apex Court has been placed before us. In the light of the settled proposition of law that Section 271AAB of the Act cannot be invoked to impose penalty when search has not been conducted under Section 132 of the Act against the assessee and return of income is in response to notice 4 IT(SS)A No.73 & 74/Ahd/2017 for Ays 2012-13 and 2013-14 5 under Section 153C of the Act which is a consequential or incidental proceeding, we are of the opinion no question of law much less a substantial one is made out in the facts of the case. In the light of the aforesaid discussion, we are not inclined to admit the appeal on the proposed questions of law. The Appeal is, thus, dismissed. There shall be no order as to costs. As a sequel, Miscellaneous Petitions, if any, pending in this Appeal shall stand closed. ______________________________ JUSTICE JOYMALYA BAGCHI _____________________________ JUSTICE K.SURESH REDDY Date: 12.07.2021 Ivd 6 THE HON’BLE SRI JUSTICE JOYMALYA BAGCHI AND THE HON’BLE SRI JUSTICE K.SURESH REDDY I.T.T.A. No.11 of 2021 (Per Hon’ble Sri Justice Joymalya Bagchi) Dated: 12.07.2021 Ivd "