ACIT, Cen. Cir. Aurangabad, Aurangabad V. Mulay Construction P.Ltd., Aurangabad

ITA 119/PUN/2012

• Counselvise Citation: 11924514 RSA 2012
• Duration Of Justice: 1 year(s) 5 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 20-01-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: HEMANT KUMAR LUAVA
• Keywords: Unexplained expenditure; Business income; Business expenditure; Income from undisclosed sources; Search and seizure; Document seized; Retrospective amendment; Reasonable cause; Documents seized
• Section: 69C; 153A; 148; 132; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH ES A , PUNE BEFORE SHRI G .S. PA NNU , ACCO U NTANT MEMBER AND SHRI R. S. PA D VEK A R , JUDICIAL MEMBER I.T.A. NO. 116 TO 119/ PN/ 20 1 2 [ A.Y. 2003 - 04 , 2004 - 05, 2005 - 06 AND 2006 - 07 ] ASSTT. CIT CEN. CI R. AURANGABAD APPELLANT VS. MULAY CONSTRUCTIONS P. LTD., 1 ST FLOOR, TAPADIYA TERRACES ADALAT ROAD AURANGABAD PAN AADCM 1853 B RESPONDENT ITA NO. 1644/PN/2011: A.Y. 2006 - 07 MULAY CONSTRUCTIONS P. LTD., 1 ST FLOOR, T APADIYA TERRACES ADALAT ROAD AURANGABAD PAN AADCM 1853 B APPELLANT VS. DY. CIT CEN. CIR. AURANGABAD RESPONDENT C.O. NO. 7, 8 & 9/PN/2013 ARISING OUT OF I.T.A. NO. 116 TO 119/PN/2012: [ A.Y. 2003 - 04, 2004 - 05, 2005 - 06 AND 2006 - 07 ] MULAY CONSTRUCTIONS P. LTD., 1 ST FLOOR, TAPADIYA TERRACES ADALAT ROAD AURANGABAD PAN AADCM 1853 B CROSS OBJECTOR VS. ASSTT. CIT CENT. CIR., AURANGABAD APPELLANT - IN - APPEAL. A SS ESSEE BY : SHRI S UNIL GANOO DEPARTMENT BY: S HRI HEMANT KUMAR LUAVA DATE OF HEARING: 2 2 - 5 - 2013 DATE OF PRONOUNCEMENT: 25 - 6 - 2013 O R D E R PER R.S. PADVEKAR, JM THIS BATCH OF FIVE APPEALS AND THREE CROS S OBJECTIONS ARE ARISING OUT OF COMMON ORDER PASSED BY THE LD. CIT(A) , AURANGABAD DATED 2 19 - 10 - 2011 FOR A.Y. 2003 - 04, 2004 - 05 , 2005 - 06 AND 2006 - 07. THE REVENUE HAS FILED APPEALS FOR THESE FOUR ASSESSMENT YEARS WHEREAS THE ASSESSEE HAS FILED AN APPEAL FOR A.Y. 2006 - 07 AND CROSS O BJECTI O N S [INSHORT C.O.] FOR A.Y. 2003 - 04, 204 - 05 AND 2005 - 06 . ALL THESE APPEALS AND CROSS O BJECTIONS ARE ARISING OUT OF PENALT IES LEVIED BY THE A.O . U/S. 271(1)(C) OF THE INCOME - TAX ACT (IN SHORT ACT). 2. THE REVENUE HAS TAKEN FOLLOWING GROUNDS IN THE APPEALS WHICH ARE IDENTICAL SAVE THE QUANTUM OF PENALTY MENTIONED IN THE A.YS. 2003 - 04, 2004 - 05 AND 2005 - 06. 1. ON THE FACTS AND M THE CIRCUMSTANCES OF THE CASE THE LEARNED CIT (A) ERRED IN DELETING PENALTY OF RS. 4,27,614/ - LEV IED BY THE ASSESSING OFFICER UNDER SECTION 271(L)(C) OF THE ACT. 2. ON THE FACT AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) ERRED IN ALLOWING SET - OFF OF UNDISCLOSED INCOME AGAINST UNEX PLAINED EXPENDITURE AND TO HOLD THAT THE EXPENDITURE NO LONG ER REMAINED UNEXPLAINED. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) ERRED IN HOLDING THAT PENALTY IS NOT IMPOSABLE ON UNEXPLAINED EXPENDITURE ADDED UNDER SECTION 69C OF THE ACT, WHEREAS IN THE ASSESSMENT YEAR 2006 - 07 THE CIT(A) HELD THAT PENALTY IS IMPOSABLE ON UNEXPLAINED EXPENDITURE WHICH IS CONTRADICTORY TO HIS FINDING IN PARA 10.4 OF ITS ORDER. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED CIT (A) ERRED IN HOLDING THAT; THE PENALTY IS IMPOSABLE ONLY ON INA DMISSIBLE UNEXPLAINED EXPENDITURE. 3. IN THE APPEAL FOR THE A.Y. 2006 - 07 THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED CIT (A) ERRED IN REDUCING THE AMOUNT OF UNEXPLAINED EXPENDITURE BY AMOUNT OF UNDISCLOSED INCOME FOR LEVY OF PENALTY UNDER SECTION 271(1) (C) OF THE ACT. 3 2. ON THE FACT AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) ERRED IN CONFIRMING PENALTY TO THE EXTENT OF EXCESS OF UNEXPLAINED EXPENDITURE OVER UNDISCLOSED INCOME, BY O BSERVING THAT THE ASSESSEE HAD UNEXPLAINED EXPENDITURE MORE THAN THE UNDISCLOSED INCOME. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED CIT (A) ERRED IN ALLOWING SET - OFF OF UNDISCLOSED INCOME AGAINST UNEXPLAINED EXPENDITURE AND TO HOLD TH AT THE EXPENDITURE NO LONGER REMAINED UNEXPLAINED. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED CIT (A) ERRED IN HOLDING THAT THE PENALTY IS NOT IMPOSABLE ON UNEXPLAINED EXPENDITURE ADDED UNDER SECTION69C OF THE ACT. 5. ON THE FACTS A ND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED CIT (A) ERRED IN HOLDING THAT THE PENALTY IS IMPOSABLE ONLY ON INADMISSIBLE UNEXPLAINED EXPENDITURE. 4. THE ASSESSEE HAS ALSO FILED A CROSS APPEAL FOR THE A.Y. 2006 - 07 AND HAS TAKEN THE FOLLOWING EFFECTIVE G ROUND: ON THE FACTS AND IN THE CIRCUMSTANCES PREVAILING IN THE CASE AND AS PER THE PROVISIONS OF LAW, THE CIT(APPEAL) HAS ERRED IN CONFIRMING THE PENALTY ORDER UNDER SECTION 271(1)(C) PASSED BY DCIT CENTRAL CIRCLE AURANGABAD TO THE TUNE OF RS.604380/ - , OU T OF RS.870879/ - . CONSIDERING THE FACTS AND EVIDENCES PRESENTED BEFORE HIM AND EXPLANATION FILLED BY THE APPELLANT, THE CIT(APPEAL) IS NOT JUSTIFIED IN CONFIRMING THE PENALTY OF RS.604380/ - . THE AFORESAID CONFIRMATION OF THE PENALTY ORDER PARTLY IS NOT L EGALLY SUSTAINABLE BEING ARBITRARY AND DEVOID OF MERITS, THE SAME MAY PLEASE BE DELETED. 5. THE ASSESSEE HAS FILED THE CROSS OBJECTION S IN A.YS. 2003 - 04, 2004 - 05 AND 2005 - 06 AND HAS TAKEN THE FOLLOWING GROUNDS WHICH ARE COMMON IN ALL THE ASSESSMENT YEARS : 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, IT MAY PLEASE BE HELD THAT NO PENALTY U/S. 271(1)(C) OF THE I.T. ACT, 1961 CAN 4 BE LEVIED ON THE DIFFERENT BETWEEN THE INCOME DECLARED IN THE ORIGINAL RETURN OF INCOME AND THE INCOME DECLARED IN TH E RETURN OF INCOME FILED IN RESPONSE TO NOTICE ISSUE U/S. 153A OF THE I.T. ACT, 1961. 2. THE ORDER PASSED BY THE LEARNED C.I .T.(A) CANCELLING THE IMPUGNED PENALTY LEVIED BY THE LEARNED ASSESSING OFFICER U/S. 271(1)(C) OF THE I.T. ACT, 1961 . 6 . THE FACTS WHICH ARE REVEAL FROM THE RECORD AS UNDER. THE ASSESSEE - COMPANY IS ENGAGED IN THE BUSINESS OF CONSTRUCTION. A SEARCH AND SEIZURE OPERATION U/S 132 OF THE ACT WAS CARRIED OUT IN THE CASE OF THE ASSESSEE AND ITS GROUP CONCERNS ON 10 - 10 - 2007. NOTICES U/S 1 53A OF INCOME TAX ACT WERE ISSUED TO THE ASSESSEE FOR FILING THE RETURNS OF INCOME AND IN RESPONSE TO THE SAID NOTICES, THE ASSESSEE FILED RETURNS OF INCOME. THE ASSESSMENTS HAVE BEEN COMPLETED BY THE A.O U/S 153A OF THE ACT. THE A.O ALSO INITIATED PENAL TY PROCEEDINGS AND LEVIED THE PENALT IES. THE INCOME OFFERED BY THE ASSESSEE, ADDITION MADE BY THE A.O AND THE AMOUNT OF PENALT IES LEVIED AN D QUANTUM OF INCOME WHICH IS SU BJECTED TO THE PENALTY CAN BE SUMMARISED FOR ALL THE FOUR AS SESSMENT YEARS AS UNDER: A.Y. ADDITIONAL INCOME OFFERED TO TAX (RS.) ADDITION MADE BY THE AO (RS.) QUANTUM OF I NCOME (RS.) AMOUNT OF P ENALTY (RS.) 2003 - 04 10,48,574 1,15,000 11,63,574 4,27,614 2004 - 05 7,47,229 5,55,000 13,02,229 4,67,175 2005 - 06 29,88,724 7,38,198 37,26, 922 14,63,562 2006 - 07 24,14,045 1,73,238 25,87 ,283 8,70,879 7 . THE ASSESSEE CHALLENGED ALL THE PENALTY ORDER S BEFORE LD. CIT(A). T HE LD. CIT(A) GAVE SET OFF OF THE UNRECORDED INCOME FOUND IN THE COURSE OF SEARCH WHICH WAS NOT DECLARED IN THE RETURN S FILED BY THE ASSESSEE IN RESPONSE TO THE NOTICE S U/S 153A OF THE ACT AND THAT RESULTED IN THE PARTIAL AS WELL AS FULL DELETION OF THE PENALTIES . THE POSITION OF THE UNACCOUNTED INCOME VIS - - VIS THE UNRECORDED EXPENDITURE CAN BE SUMMARIZED AS UNDER: - 5 A.Y . UNACCOUNTE D EXPENDIT URE (RS.) INADMISSIBLE EXPENDITURE OUT OF UNACCOUNTED EXPENDITURE (RS.) ADMISSIBLE EXPENDITURE OUT OF UNACCOUNTED EXPENDITURE (RS.) UNACCOUNTED INCOME (RS.) EXCESS OF ADMISSIBLE EXPENDITURE OVER UNACCOUNTED INCOME (RS.) 2003 - 04 10, 43,004 2,93,978 7,49,026 6,95,000 54,026 2004 - 05 7,44,304 3,13,952 4,30,352 5,00,165 -- 2005 - 06 11,00,682 3,71,994 7,28,688 10,93,690 -- 2006 - 07 23,57,180 20,14,601 3,42,579 1,62,706 1,79,873 8 . WHILE GIVING SET OFF OF THE UNRECORDED INCOM E FOUND DURING THE COURSE OF SEARCH, THE LD. CIT(A) HELD AS UNDER: I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND RIVAL CONTENTIONS ON PERUSAL OF THE SAME, IT HAS BEEN OBSERVED THAT THE APPELLANT HAD DECLARED UNRECORDED EXPENDITURE IN THE RETURN O F INCOME AND THE AO HAS ALSO ASSESSED THE SAID UNRECORDED BUSINESS EXPENDITURE AFTER MAKING SOME FURTHER ADDITIONS TOWARDS UNRECORDED BUSINESS EXPENDITURE AND HAS LEVIED PENALTY U/S 271(1)(C) IN RESPECT OF THE SAID UNEXPLAINED/UNRECORDED EXPENDITURE. IT I S UNDISPUTED FACT THAT THE SAID UNRECORDED EXPENDITURE IS TO BE ADDED U/S 69C OF THE ACT TO THE EXTENT THE UNRECORDED EXPENDITURE NOT SUPPORTED BY SOURCE OUT OF WHICH THE SAID EXPENDITURE HAS BEEN INCURRED. IN THE CASE UNDER APPEAL, IT IS UNDISPUTED FACT THAT THE APPELLANT HAS ALSO EARNED INCOME WHICH HAS NOT BEEN RECORDED IN THE BOOKS OF ACCOUNTS. THE UNRECORDED EXPENDITURE IS, THEREFORE, CAN BE SOURCED OUT OF THE SAID UNRECORDED BUSINESS INCOME AND HENCE , TO THAT EXTENT THE UNRECORDED BUSINESS EXPENDITU RE DOES NOT REMAIN UNEXPLAINED AND HENCE CANNOT BE ASSESSED AS INCOME US 69C OF THE ACT. IT IS ESTABLISHED LAW THAT THE ASSESSMENT PROCEEDINGS AND PENALTY PROCEEDINGS ARE TOTALLY DIFFERENT. IN VIEW OF THE ABOVE FACTS AND DISCUSSION, I AM OF THE CONSIDERED VIEW THAT THE AO IS NOT JUSTIFIED IN LEVYING PENALTY ON THE UNEXPLAINED/UNRECORDED EXPENDITURE WITHOUT GIVING SET OFF OF UNEXPLAINED/UNRECORDED INCOME. THE AO IS , THEREFORE, DIRECTED T O GIVE THE SET OFF OF UNRECORDED INCOME AGAINST THE UNRECORDED EXPENDIT URE AS CLAIMED BY THE APPELLANT WHILE CONSIDERING AMOUNT OF INCOME FOR LEVYING PENALTY U/S 271(1)(C). GROUND NO. 2 FOR ALL THE ASSESSMENT YEARS UNDER APPEAL STANDS ALLOWED. 9 . THE ASSESSEE ALSO CONTENDED THAT WHAT THE ASSESSEE HAD OFFERED IS THE AMOUNT OF EXPENDITURE AND HENCE , EXPLANATION 5A TO SEC. 271(1)(C) OF THE ACT HAS NO APPLICATION. THE LD. CIT(A) ACCEPTED THE PLEA OF THE ASSESSEE THAT THERE IS NO INCOME WHICH IS OFFERED BY THE ASSESSEE BUT IT IS THE ONLY EXPENDITURE WHICH IS OFFERED BY THE ASSE SSEE IN THE RETURNS OF INCOME. THE OPERATIVE PART OF THE FINDINGS OF THE CIT(A) IS AS UNDER: 10.4 IN VIEW OF THE ABOVE PROVISION, THE CONTENTION OF THE APPELLANT THAT PENALTY U/S 271(1)(C) IN RESPECT OF INADMISSIBLE BUSINESS EXPENDITURE IS NOT COVERED BY THE PROVISIONS OF EXPLANATION 5A IS FOUND TO BE ACCEPTABLE AS THE SAID EXPLANATION 5A(II) REFERS TO ANY INCOME FOUND NOTED IN ANY DOCUMENTS REPRESENTS THE INCOME OF THE ASSESSEE. IN THE CASE UNDER APPEAL, UNDISPUTEDLY THE SEIZED MATERIAL ALSO CONTAINS NOTINGS OF ADMISSIBLE BUSINESS EXPENDITURE 6 ON WHICH THE AO HAS LEVIED PENALTY U/S 271(1)(C) OF THE ACT. IN VIEW OF THE ABOVE FACTS AND DISCUSSION, I AM OF THE CONSIDERED VIEW THAT THE AO IS NOT JUSTIFIED IN LEVYING IN PENALTY ON ADMISSIBLE UNRECORDED BUSI NESS EXPENDITURE. IN RESPECT OF ASSESSMENT YEARS 2003 - 04, 2004 - 05 AND 2005 - 06, THE UNACCOUNTED INCOME OF THE APPELLANT IS MORE THAN INADMISSIBLE UNRECORDED EXPENDITURE POINTED OUT BY THE AO AND HENCE , THE SAID EXPENDITURE CAN BE OUT OF UNACCOUNTED INCOME AND HENCE DOES NOT REMAIN UNEXPLAINED. THE PENALTY U/S 271(1)(C) IS THEREFORE NOT LEVIABLE ON THE UNRECORDED EXPENDITURE FOR A.Y. 2003 - 04, 2004 - 05 AND 2005 - 06 THE AO IS DIRECTED ACCORDINGLY. GROUND NO. 3 AND 4 FOR A.Y. 2003 - 04, 2004 - 05 AND 2005 - 06 ARE ALL OWED. 11.5 IN RESPECT OF A.Y. 2006 - 07, IT HAS BEEN NOTICED THAT THE INADMISSIBLE UNEXPLAINED EXPENDITURE IS MUCH MORE THAN UNACCOUNTED INCOME OF THE APPELLANT AND HENCE , THE SAME IS CERTAINLY THE INCOME OF THE APPELLANT LIAB LE TO TAX AND REPRESENTS INCOME LIABLE TO PENALTY. THEREFORE, THE PENALTY U/S 271(1)(C) IN A.Y. 2006 - 07 IS TO BE CONFIRMED. THE A.O IS DIRECTED ACCORDINGLY. GROUND NO. 3 AND 4 FOR A.Y. 2006 - 07 ARE PARTLY ALLOWED. 10 . IN SUM AND SUBSTANCE, THE LD. CIT(A) GAVE PART RELIEF TO THE ASSES SEE. AGAINST THE RELIEF GIVEN BY THE LD. CIT(A), THE REVENUE IS IN APPEALS BEFORE US IN ALL FOUR ASSESSMENT YEARS. S O FAR AS THE ASSESSMENT YEAR S, 2003 - 04, 2004 - 05 AND 2005 - 06 ARE CONCERNED , THE ASSESSEE HAS FILED CROSS OBJE CTIONS AND FOR THE A.Y. 2006 - 0 7 THE ASSESSEE HAS FILED THE CROSS APPEAL 11 . THE LD. COUNSEL FOR THE ASSESSEE VEHEMENTLY ARGUED THAT THE INCOME OFFERED BY THE ASSESSEE PERTAINS TO THE EXPENDITURE FOUND DURING THE COURSE OF SEARCH AND SEIZURE OPERATION. HE FURTHER ARGUES THAT THE ASS ESSEES CASE IS SQUARELY COVERED BY THE DECISION OF THIS BENCH IN THE CASE OF SMT. PRAMILA D. ASHTEKAR AND OTHERS VS. ITO CENTRAL II PUNE IN ITA NO. 354 TO 3 67 /PN/2010 DATED 14 - 9 - 2012. THE LD. COUNSEL REFERRED TO PARA NOS. 6 AND 7 OF THE SAID DECISION AN D SUBMITS THAT THE TRIBUNAL HAS CATEGORICALLY HELD THAT SO FAR AS THE EXPLANATION 5A IS CONCERNED, WHICH IS INSERTED IN THE ACT W.E.F. 1 - 6 - 2007, THE SAID EXPLANATION IS APPLICABLE FROM THE A.Y. 2007 - 08. HE FURTHER ARGUES THAT SO FAR AS THE PRESENT ASSESSM ENT YEAR S ARE CONCERNED, THESE ARE PRIOR TO ASSESSMENT YEAR 2007 - 08 AND HENCE , IN VIEW OF THE DECISION IN THE CASE S OF SMT. PRAMILA D. ASHTEKAR AND OTHERS (SUPRA) EXPLANATION 5A BELOW SEC. 7 271(1)(C) CANNOT BE APPLIED. HE ALSO RELIED ON THE DECISION OF IT AT PUNE IN THE CASE OF SANJAY D. KAKADE VS. ACIT CENT. CIR. 2(2) PUNE IN ITA NO. 12 TO 15/PN/2013 , ORDER DATED 30 - 4 - 2013. HE THEREFORE, PLEADED THAT THE VIEW TAKEN BY THE LD CIT(A) IS SUPPORTED BY THE ABOVE TWO DECISIONS OF THE TRIBUNAL. HE OPENED ANOTHE R PAGE OF HIS ARGUMENT AND SUBMITS THAT EVEN IF EXPLANATION 5A IS APPLICABLE, BUT THE SAID EXPLANATION IS NOT APPLICABLE SO FAR AS THE INCOME DECLARED BY THE ASSESSEE IN THE RETURNS FILED IN RESPONSE TO NOTICE U/ S EC. 153A OF THE ACT , AS EXPLANATION 5A(II) CONTEMPLATES DETECTION OF THE INCOME. THE LD. COUNSEL REFER ES TO THE DEFINITION OF INCOME AS GIVEN IN SEC. 2( 24 ) OF THE ACT AND SUBMITS THAT IN ITS WISDOM THE PARLIAMENT HAS INSERTED THE DEFINITION OF INCOME BUT TH ERE IS NO REFERENCE OF SEC /S . 68/ 69/69A /69C, ETC. H E , THEREFORE, PLEADS THAT INCOME OFFERED BY THE ASSESSEE PERTAINS TO THE EXPENDITURE AND HENCE , NO PENALTY IS OTHERWISE ALSO LEVIABLE. HE ALSO PLACED RELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF EMIL WEBBER VS. CIT (19 93) 200 ITR 483 (SC) WHEREIN THE DEFINITION OF INCOME U/S 2(24) IS EXPLAINED . HE THEREFORE, CONCLUD S HIS ARGUMENT BY SUBMITTING THAT NO PENALTY IS LEVIABLE AT ALL AND THE LD. CIT(A) WAS NOT JUSTIFIED IN CONF IRMING THE PENALTY FOR A.Y. 2006 - 07. WE HAVE ALSO HEARD THE LD. DR. 12 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. IN THIS CASE, THERE ARE TWO TYPES OF INCOME S WHICH ARE SUBJECTED TO THE PENAL CONSEQUENCES U/S 271(1)(C) OF THE ACT. THERE WAS SEARCH AND SEIZURE OPERATION CARRIED OUT AGAINST THE ASSESSEE ON 10 - 10 - 2007. THE ASSESSEE FILED RETURN OF INCOME DECLARING UNDISCLOSED INCOME. IT IS TRUE THAT IN THE COURSE OF SEARCH AND SEIZURE OPERATION, IT WAS REVEALED THAT THE ASSESSEE HAS EARNED INCOME WHICH WAS NOT RECORDED AS WELL A S THERE WAS EXPENDITURE WHICH WAS NOT RECORDED IN THE REGULAR BOOKS OF ACCOUNT. THE ASSESSEE ADMITTED AND OFFERED THE AMOUNT COVERED BY THE EXPENDITURE WHICH WAS FOUND UNRECORDED IN THE DOCUMENTS SEIZED. THE ASSESSEE DID NOT DECLARE THE INCOME WHICH WAS DETECTED IN CONSEQUEN CE 8 OF THE SEARCH AND SEIZURE OPERATION . THE DETAILS OF THE UNRECORDED EXPENDITURE ARE GIVEN IN TH IS ORDER ITSELF HEREINABOVE. 1 3 . NOW THE ISSUE BEFORE US IS WHETHER THE INCOME OFFERED BY THE ASSESSEE IN THE RETURN FILED IN RESPONSE TO NOTICE U/S 153A OF THE ACT CAN BE SUBJECTED TO PENALTY U/S 271(1)(C) OF THE ACT. IT IS PERTINENT TO NOTE HERE THAT THE ASSESSEE HAS PLACED HEAVY RELIANCE ON THE DECISION IN THE CASE OF S MT. PRAMILA D. ASHTEKAR AND OTHERS (SUPRA). IN THOSE CASES T HE SE ARCH AND SEIZURE OPERATION U/S 132(1) OF THE ACT WAS CONDUCTED ON 26 - 10 - 200 5 . THE A.O LEVIED PENALTY ON THE INCOME DECLARED IN THE RETURNS OF INCOME FILED IN RESPONSE TO NOTICES ISSUED UNDER SEC. 153A OF THE ACT . THE TRIBUNAL EXAMINED THE DETAILS OF THE DISCLOSURE MADE BY TH OSE ASSESSEE S IN THE RETURN S FILED. THE TRIBUNAL NOTED THAT THERE WAS NO DISCLOSURE IN RESPECT OF ANY MONEY, BULLION, JEWEL R Y OR ANY VALUABLE ASSET S OR THINGS . THE TRIBUNAL , THEREFORE, HELD THAT SO FAR AS THE EXPL . 5 TO SEC. 271(1)( C) IS CONCERNED, IT IS NOT APPLICABLE WHICH IS A DEEMING PROVISION WHICH CREATES LEGAL PRESUMPTION AGAINST THE ASSESSEE IN A SITUATION MENTION THEREIN THAT THERE IS CONCEALMENT OF INCOME OR FILING OF INACCURATE PARTICULARS OF INCOME. THE TRIBUNAL FOLLOWED THE DECISION IN THE CASE OF CHANDAN K. SHEWANI VS. DCIT ITA NO. 235 AND 236/PN/2010, ORDER DATED 29 - 8 - 2012. THE OPERATIVE PART OF THE FINDINGS OF THE TRIBUNAL IN THE CASE OF SMT. PRAMILA D. ASHTEKAR AND OTHERS (SUPRA) IS AS UNDER: 6. WE FIND THAT THE ASS ESSEES CASE IS OTHERWISE SQUARELY COVERED VIDE THE DECISION OF ITAT,PUNE IN THE CASE OF CHANDAN K. SHEWANI VS. DCIT, ITA NOS. 235 & 236/PN/2010. IN THE SAID CASE, THE ADDITIONAL INCOME WAS DECLARED DURING THE COURSE OF SEARCH TO COVER UP THE EXPENDITURE AS WELL AS DEPOSIT IN BANK A/CS. THE TRIBUNAL CONSIDERED THE EXPLANATIONS - 3, 5 & 5A TO SEC. 271(1)(C ) OF THE ACT AND HELD AS UNDER : 8. WHILE DECIDING ASSESSEES APPEAL FOR A.YS. 1999 - 2000 AND 2001 - 02, THE PENALTY LEVIED ON THE INCOME OFFERED TOWAR DS THE PERSONAL EXPENDITURE OF THE ASSESSEE AND HIS DIVORCEE SISTER HAS BEEN DELETED. EVEN THOUGH THE PARLIAMENT HAS INSERTED EXPLANATION 5A TO SEC. 271(1)(C), SAID EXPLANATION IS APPLICABLE IN RESPECT OF THE SEARCH INITIATED U/S. 132 ON OR AFTER 1 ST JUN E 2007. SECTION 5A IS INTRODUCED TO PATCH OUT THE LACUNAE IN THE EXISTING PROVISIONS MORE 9 PARTICULARLY TO OVERCOME THE JUDICIAL INTERPRETATION OF EXPLANATION - 5. IF THE SEARCH IS INITIATED U/S. 132 ON OR AFTER 1 ST JUNE 2007 THEN THERE IS A LEGAL PRESUMPT ION THAT ANY INCOME BASED ON ANY ENTRY IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS OR TRANSACTIONS, WHICH IS CLAIMED AS INCOME BY THE ASSESSEE, THE SAME WOULD BE TREATED AS DEEMED CONCEALMENT OF THE PARTICULARS OF INCOME OR FURNISHING INACCURATE PARTICULAR S OF INCOME. SO FAR AS THE PRESENT ASSESSEE IS CONCERNED, THE DATE OF SEARCH IS 15.6.2004 AND HENCE, EXPLANATION 5A TO SEC. 271(1)((C ) IS NOT APPLICABLE. IT IS WELL SETTLED RULE OF INTERPRETATION OF THE PENALTY PROVISIONS THAT THE SAME SHOULD BE STRICT LY INTERPRETED AND THERE IS NO SCOPE FOR ANY PRESUMPTION FOR LEVY OF THE PENALTY UNLESS STATUTE SPECIFICALLY PROVIDES SAME. 9. SO FAR AS THE EXPLANATION - 3 TO SEC. 271(1)(C) IS CONCERNED, WHICH READS AS UNDER : EXPLANATION 3. - WHERE ANY PERSON FAILS, WIT HOUT REASONABLE CAUSE, TO FURNISH WITHIN THE PERIOD SPECIFIED IN SUB - SECTION (1) OF SECTION 153 A RETURN OF HIS INCOME WHICH HE IS REQUIRED TO FURNISH UNDER SECTION 139 IN RESPECT OF ANY ASSESSMENT YEAR COMMENCING ON OR AFTER THE 1 ST DAY OF APRIL, 1989, AND UNTIL THE EXPIRY OF THE PERIOD AFORESAID, NO NOTICE HAS BEEN ISSUED TO HIM UNDER CLAUSE (I) OF SUB - SECTION (1) OF SECTION 142 OR SECTION 148 AND THE ASSESSING OFFICER OR THE COMMISSIONER (APPEALS) IS SATISFIED THAT IN RESPECT OF SUCH ASSESSMENT YEAR S UCH PERSON HAS TAXABLE INCOME, THEN, SUCH PERSONAL SHALL, FOR THE PURPOSES OF CLAUSE (C ) OF THIS SUB - SECTION, BE DEEMED TO HAVE CONCEALED THE PARTICULARS OF HIS INCOME IN RESPECT OF SUCH ASSESSMENT YEAR, NOTWITHSTANDING THAT SUCH PERSON FURNISHES A RETURN OF HIS INCOME AT ANY TIME AFTER THE EXPIRY OF THE PERIOD AFORESAID IN PURSUANCE OF A NOTICE UNDER SECTION 148. THE SAID EXPLANATION PRESUMES THAT THERE IS A CONCEALMENT OF PARTICULARS OF INCOME OR FILING OF THE INACCURATE PARTICULARS OF INCOME IN THE SITUATION WHERE THE ASSESSEE DID NOT FILE RETURN OF INCOME U/S. 139 OR WITHIN THE TIME LIMIT PRESCRIBED U/S. 153(1) OF THE ACT BUT FILES THE RETURN OF INCOME IN RESPONSE TO NOTICE U/S. 148. THE SAID EXPLANATION IS ALSO SILENT IN THE SITUATION IF THE AS SESSEE HAS NOT FILED THE RETURN OF INCOME FOR ANY PARTICULAR A.Y. BUT FILED THE RETURN OF INCOME FOR THE FIRST TIME IN RESPONSE TO NOTICE U/S. 153A, THEN WHAT WOULD BE THE LEGAL PRESUMPTION ? IN OUR OPINION, EXPLANATION - 3 HAS NO APPLICATION, WHEN THE RET URN IS FILED IN RESPONSE TO NOTICE U/S. 153A. WE, THEREFORE, HOLD THAT AS PER THE FACTS OF THIS CASE AND LAW APPLICABLE, THERE IS NO JUSTIFICATION TO LEVY THE PENALTY FOR THE A.Y. 2002 - 03 IN THE INCOME DECLARED BY THE ASSESSEE IN THE RETURN OF INCOME IN RESPONSE TO NOTICE U/S. 153A EVEN FOR THE SAID INCOME IS BASED ON SOME ENTRIES FOUND IN THE DIARIES OR OTHER DOCUMENTS OR EVEN BANK ACCOUNT DURING THE COURSE OF SEARCH. WE, ACCORDINGLY DELETE THE PENALTY SUSTAINED BY THE LD CIT(A). 7. IN ALL THE APPEAL S BEFORE US, EXPLANATION - 3 CANNOT BE APPLIED, AS HELD IN THE CASE OF CHANDAN K. SHEWANI (SUPRA). SO FAR AS EXPLANATION 5A IS CONCERNED, IT IS BROUGHT ON THE STATUTE BOOK W.E.F. 1.6.2007 I.E. FROM THE ASSESSMENT YEAR 2007 - 08 SO FAR AS THE ASSESSMENTS IN A LL THESE CASES ARE CONCERNED, NO ADDITION IS MADE BY THE ASSESSING OFFICER OVER AND ABOVE THE INCOME DECLARED IN THE RETURNS OF INCOME FILED IN RESPONSE TO NOTICE U/S. 153A AS THE EXPRESSION TAX SOUGHT TO BE EVADED APPEARING IN CLAUSE (C) TO SEC. 271( 1) IS TO BE UNDERSTOOD AS A DIFFERENCE BETWEEN THE INCOME 10 DECLARED BY THE ASSESSEE IN THE RETURN OF INCOME AND THE INCOME FINALLY ASSESSED. AFTER INTRODUCTION OF SEC. 153A W.E.F. 1.6.2003, THERE IS NO SPECIFIC PENALTY PROVISION TO DEAL WITH THE ASSESSMENT S FRAMED IN CONSEQUENCE OF SEARCH AND SEIZURE ACTION U/S. 132 OF THE ACT. IN THE PRESENT CASE, AS THE RETURNED INCOME AND INCOME ASSESSED ARE THE SAME, OTHERWISE ALSO, NO PENALTY CAN BE LEVIED. WE, THEREFORE, HOLD THAT IN ALL THE APPEALS BEFORE US, THE A SSESSING OFFICER WAS NOT JUSTIFIED IN LEVYING THE PENALTY U/S. 271(1)(C ) OF THE ACT. WE, ACCORDINGLY, DELETE THE PENALTIES LEVIED BY THE ASSESSING OFFICER IN ALL THE APPEALS FOR THE ABOVE MENTIONED REASONS. 1 4 . IT IS NOTICED THAT IN PARA 7, THE TRIBU NAL HAS MADE OBSERVATION SO FAR AS EXPLANATION 5A IS CONCERNED, IT IS BROUGHT ON THE STATUTE BOOK W.E.F. 1.6.2007 I.E. FROM THE ASSESSMENT YEAR 2007 - 08 . T HE LD. COUNSEL SUBMITS THAT THE SAID OBSERVA TION IS FINDING OF THE TRIBUNAL. W ITH DUE RESPECT, WE AR E UNABLE TO ACCEPT TH E SUBMISSION OF THE LD. COUNSEL. ADMITTEDLY, IN A VERY CLEAR TERMS, THE TRIBUNAL HAS HELD THAT THE FACTS IN THE CASES OF SMT. PRAMILA ASHTEKAR AND OTHERS (SUPRA) ARE CLEARLY COVERED BY THE DECISION IN THE CASE OF CHANDAN K . SHEWANI (S UPRA) AND THE TRIBUNAL FOLLOWED THE DECISION OF CHANDAN K. SHEWANI (SUPRA). WHILE REPRODUCING THE OBSERVATIONS IN THE SUMMARIZED FORM , IT APPEARS THAT THERE IS A MISTAKE IN PARA NO. 7 IN THE ORDER OF SMT. PRAMILA K. ASHTEKAR AND ORS. (SUPRA). A DMITTEDLY , NO INTERPRETATION IS MADE BY THE TRIBUNAL TO MAKE OUT A DIFFERENT CASE THAN CHANDAN K. SHEWANI (SUPRA). IT IS ALSO PERTINENT TO NOTE THAT THOUGH THE CONSTITUTION OF ANOTHER BENCHE IS DIFFERENT WHICH HAS RENDERED THOSE DECISIONS BUT THE AUTHOR MEMBER IS TH E SAME IN BOTH THOSE CASES . IN OUR OPINION, RELIANCE PLACED BY THE LD. COUNSEL IS NOT HELPFUL AS IN THE CASE OF CHANDAN K. SHEWANI (SUPRA) WHICH DECISION HAS BEEEN FOLLOWED FOR DECIDING THE CASE S OF PRAMILA D. ASHTEKAR AND OTHERS (SUPRA) , T HE TRIBUNAL HAS EXPLAINED THE SCOPE OF EXPL . 5A BELOW SEC. 271(1)(C) WHICH IS AS UNDER: EXPLANATION 5A WHERE, IN THE COURSE OF A SEARCH INITIATED UNDER SECTION 132 ON OR BEFORE THE 1 ST DAY OF JUNE 2007, THE ASSESSEE IS FOUND TO BE THE OWNER OF (I) ANY MONEY, BULLION , J EWELER OR OTHER VALUABLE ARTICLE OR THING (HEREINAFTER IN THIS EXPLANATION REFERRED TO AS ASSETS) AND THE ASSESSEE CLAIMS THAT SUCH ASSETS HAVE BEEN ACQUIRED BY HIM BY UTILIZING (WHOLLY OR IN PART) HIS INCOME FOR ANY PREVIOUS YEAR; OR 11 (II) ANY OTHER INCOME BA SED ON ANY ENTRY IN ANY BOOKS OF ACCOUNT OR OTHER DOCUMENTS OR TRANSACTIONS AND HE CLAIMS THAT SUCH ENTRY IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS OR TRANSACTIONS REPRESENTS HIS INCOME (WHOLLY OR IN PART) FOR ANY PREVIOUS YEAR, W HICH HAS ENDED BEFORE T HE DATE OF SEARCH AND (A) WHERE THE RETURN OF INCOME FOR SUCH PREVIOUS YEAR HAS BEEN FURNISHED BEFORE THE SAID DATE BUT SUCH INCOME HAS NOT BEEN DECLARED THEREIN OR (B) THE DUE DATE FOR FILING THE RETURN OF INCOME FOR SUCH PREVIOUS YEAR HAS EXPIRED BUT THE ASSESS EE HAS NOT FILED THE RETURN THEN, NOTWITHSTANDING THAT SUCH INCOME IS DECLARED BY HIM IN ANY RETURN OF INCOME FURNISHED ON OR AFTER THE DATE OF SEARCH, HE SHALL, FOR THE PURPOSES OF IMPOSITION OF A PENALTY UNDER CLAUSE (C) OF SUB - SECTION (1) OF THIS SECTI ON, HE DEEMED TO HAVE CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME. 1 5 . THE LD. COUNSEL ALSO RELIED ON THE DECISION IN THE CASE OF SANJAY D. KAKADE (SUPRA) IN WHICH, THE DECISION IN THE CASE OF SMT. PRAMILA ASHTEKAR AND OTHERS (SUPRA) IS FOLLOWED BY THE TRIBUNAL. THERE IS NO INDEPENDENT INTERPRETATION ON THE APPLICABILITY OF EXPLANATION 5A. WE WOULD LIKE TO MAKE IT CLEAR THAT IN THE CASE OF CHANDAN K. SHEWANI (SUPRA) , THE SEARCHES WERE PRIOR TO 1 - 6 - 2007 AND HENCE, THE QUESTION OF APPLICABILITY OF A.Y. 07 - 08 WAS NEVER BEFORE THE TRIBUNAL. WE , THEREFORE, REJECT THE ARGUMENT OF THE LD. COUNSEL THAT THE ISSUE ARISING IN TH IS APPEAL IS CLEARLY COVERED BY THE DECISION OF SMT. PRAMILA ASHTEKAR AND OTHERS (SUPRA) TO THE EXTENT OF THE INCOME DECLARED IN THE RETURN FILED IN RESPONSE TO NOTICE U/S 153A OF THE ACT. 1 6 . THE NEXT LIMB OF ARGUMENT OF THE LD. COUNSEL IS THAT EXPLANATION 5A(II) CONTEMPLATES INCOME AND NOT THE EXPENDITURE. IN THIS CASE, IT IS UNDISPUT ED FACT THAT THE ASSESSEE CAME FORWARD AND DECLARED INCOME WHICH WAS PERTAINING TO THE AMOUNT COVERED BY THE UNRECORDED EXPENDITURE BUT THE FACT REMAINS THAT THE ASSESSEE DID NOT DECLARE ANY EXPENDITURE BUT IT IS ONLY THE INCOME. T HE LD. COUNSEL REFERR ED TO THE DEFINITION OF THE INCOME GIVEN IN SEC. 2(24) OF THE ACT. THE SCOPE OF THE SAID DEFINITION HAS BEEN EXPLAINED BY THE HONBLE SUPREME COURT IN THE 12 CASE OF EMIL WEBBER (SUPRA) WHICH HAS BEEN RELIED UPON BY THE LD. COUNSEL THE RELEVANT PORTION IS IN PARA NO 7 WHICH READS AS UNDER: 7. THE DEFINITION OF 'INCOME' IN CLAUSE (24) OF SECTION 2 OF THE ACT IS AN INCLUSIVE DEFINITION. IT ADDS SEVERAL ARTIFICIAL CATEGORIES TO THE CONCEPT OF INCOME BUT ON THAT ACCOUNT THE EXPRESSION 'INCOME' DOES NOT LOSE I TS NATURAL CONNOTATION. INDEED, IT IS REPEATEDLY SAID THAT IT IS DIFFICULT TO DEFINE THE EXPRESSION 'INCOME' IN PRECISE TERMS. ANYTHING WHICH CAN PROPERLY BE DESCRIBED AS INCOME IS TAXABLE UNDER THE ACT UNLESS, OF COURSE, IT IS EXEMPTED UNDER ONE OR THE OT HER PROVISION OF THE ACT. IT IS FROM THE SAID ANGLE THAT WE HAVE TO EXAMINE WHETHER THE AMOUNT PAID BY BALLARPUR BY WAY OF TAX ON THE SALARY AMOUNT RECEIVED BY THE ASSESSEE CAN BE TREATED AS THE INCOME OF THE ASSESSEE. IT CANNOT BE OVERLOOKED THAT THE SAID AMOUNT IS NOTHING BUT A TAX UPON THE SALARY RECEIVED BY THE ASSESSEE. BY VIRTUE OF THE OBLIGATION UNDERTAKEN BY BALLARPUR TO PAY TAX ON THE SALARY RECEIVED BY THE ASSESSEE AMONG OTHERS, IT PAID THE SAID TAX. THE SAID PAYMENT IS, THEREFORE, FOR AND ON BEHA LF OF THE ASSESSEE. IT IS NOT A GRATUITOUS PAYMENT. BUT FOR THE SAID AGREEMENT AND BUT FOR THE SAID PAYMENT, THE SAID TAX AMOUNT WOULD HAVE BEEN LIABLE TO BE PAID BY THE ASSESSEE HIMSELF HE COULD NOT HAVE RECEIVED THE SALARY WHICH HE DID BUT FOR THE SAID P AYMENT OF TAX. THE OBLIGATION PLACED UPON BALLARPUR BY VIRTUE OF SECTION 195 OF THE INCOME TAX ACT CANNOT ALSO BE IGNORED IN THIS CONTEXT. IT WOULD BE UNREALISTIC TO SAY THAT THE SAID PAYMENT HAD NO INTEGRAL CONNECTION WITH THE SALARY RECEIVED BY THE ASSES SEE. WE ARE, THEREFORE, OF THE OPINION THAT THE HIGH COURT AND THE AUTHORITIES UNDER THE ACT WERE RIGHT IN HOLDING THAT THE SAID TAX AMOUNT IS LIABLE TO BE INCLUDED IN THE INCOME OF THE ASSESSEE DURING THE SAID TWO ASSESSMENT YEARS. 1 7 . AS PER INTERPRETA TION MADE BY THE HON'BLE SUPREME COURT OF SEC. 2(24) OF THE ACT, IT IS CLEAR THAT IT IS AN INCLUSIVE DEFINITION AND IT COVERS ALL INCOME COME UNDER CHARGING PROVISIONS OF THE ACT. IF THE ARGUMENT OF THE LEARNED COUNSEL IS TO BE ACCEPTED THEN NO INCOME CAN BE TAXED U/S. 68, 69, 69A, 69B, 69 C & 69 D. 18. IT IS NECESSARY TO REFER TO EXPLANATION 5A WHICH READS AS UNDER: EXPLANATION 5A WHERE, IN THE COURSE OF A SEARCH INITIATED UNDER SECTION 132 ON OR BEFORE THE 1 ST DAY OF JUNE 2007, THE ASSESSEE IS F OUND TO BE THE OWNER OF (I) ANY MONEY, BULLION , JEWELER OR OTHER VALUABLE ARTICLE OR THING (HEREINAFTER IN THIS EXPLANATION REFERRED TO AS ASSETS) AND THE ASSESSEE CLAIMS THAT SUCH ASSETS HAVE BEEN ACQUIRED BY HIM BY UTILIZING (WHOLLY OR IN PART) HIS INCOME FOR ANY PREVIOUS YEAR; OR (II) ANY OTHER INCOME BASED ON ANY ENTRY IN ANY BOOKS OF ACCOUNT OR OTHER DOCUMENTS OR TRANSACTIONS AND HE CLAIMS THAT SUCH ENTRY IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS OR TRANSACTIONS REPRESENTS HIS INCOME (WHOLLY OR IN PART) FO R ANY PREVIOUS YEAR, WHICH HAS ENDED BEFORE THE DATE OF SEARCH AND 13 (A) WHERE THE RETURN OF INCOME FOR SUCH PREVIOUS YEAR HAS BEEN FURNISHED BEFORE THE SAID DATE BUT SUCH INCOME HAS NOT BEEN DECLARED THEREIN OR (B) THE DUE DATE FOR FILING THE RETURN OF INCOME F OR SUCH PREVIOUS YEAR HAS EXPIRED BUT THE ASSESSEE HAS NOT FILED THE RETURN THEN, NOTWITHSTANDING THAT SUCH INCOME IS DECLARED BY HIM IN ANY RETURN OF INCOME FURNISHED ON OR AFTER THE DATE OF SEARCH, HE SHALL, FOR THE PURPOSES OF IMPOSITION OF A PENALTY U NDER CLAUSE (C) OF SUB - SECTION (1) OF THIS SECTION, HE DEEMED TO HAVE CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME. 1 9 . SO FAR AS THE PRESENT ASSESSEE IS CONCERNED, CLAUSE (II) TO EXPLANATION 5A IS APPLICABLE . ADMITTEDLY, THE EXPENDITURE WHICH WAS NOT RECORDED HAS BEEN FOUND BY WAY OF ENTRIES IN THE SEIZED DOCUMENTS. WHILE EXPLAINING THE SCOPE OF EXPLANATION 5A IN THE CASE OF CHANDAN K. SHEWANI (SUPRA) THE TRIBUNAL HAS HELD THAT TO PATCH OUT THE LACUNA DUE T O THE JUDICIAL INTERPRETATION OF EXPL . 5 OF SEC. 271(1)(C) WHICH WAS ON THE STATUTE BOOK UPTO 31 - 5 - 2007 , EXPLANATION 5A HAS BEEN SUBSTITUTED FOR EXPL. 5 BY THE FINANCE ACT, 200 7 W.E.F 1 - 6 - 2007 . THE SAID EXPLANATION WAS FURTHER AMENDED BY THE FINANCE(NO.2) ACT, 2009 WITH RETROSPECTIVE EFFECT FROM 01 - 07 - 2007 WHICH IS REPRODUCED HEREINABOVE. THE LD. COUNSEL HAS RAISED A N IMPORTANT LEGAL QUESTION WHETHER THE INCOME DECLARED BY THE ASSESSEE WHICH IS PERTAINING TO THE UNRECORDED EXPENDITURE CAN SAID TO BE THE IN COME WHICH IS CONTEMPLATED IN EXPLANATION 5A(II) ? THE ANSWER TO THIS QUESTION IS IN SEC. 69 - C WHICH READS AS UNDER: - WHERE IN ANY FINANCIAL YEAR AN ASSESSEE HAS INCURRED ANY EXPENDITURE AND HE OFFERS NO EXPLANATION ABOUT THE SOURCE OF SUCH EXPENDITURE OR PART THEREOF, OR THE EXPLANATION, IF ANY, OFFERED BY HIM IS NOT, IN THE OPINION OF THE [ASSESSING] OFFICER, SATISFACTORY, THE AMOUNT COVERED BY SUCH EXPENDITURE OR PART THEREOF, AS THE CASE MAY BE, MAY BE DEEMED TO BE THE INCOME OF THE ASSESSEE FOR SUCH F INANCIAL YEAR ; 20 . SO FAR AS THE EXPL . - 5 WHICH WAS ON THE STATUTE BOOK, THE COURTS HAVE TAKEN A VIEW THAT IT WAS HAVING A LIMITED APPLICATION ONLY TO THE 14 EXTEND OF THE MONEY, BULLION, JEWELLERY OR ANY VALUABLE ASSETS OR THINGS WHICH WERE FOUND DURING T HE COURSE OF SEACH AND SEIZER OPERATION AND OWNED BY THE ASSESSEE. BUT THE OTHER INCOME WHICH WAS FOUND RECORDED BY ANY ENTRY IN THE DOCUMENT SEIZED OR OTHERWISE WAS NOT COVERED. IT IS PERTINENT TO NOTE THAT SEC. 69C PROVIDES THAT IF ANY UNRECORDED EXPEN DITURE IS FOUND AND THE ASSESSEE FAILS TO EXPLAIN THE SOURCE OF THE SAID EXPENDITURE OR EXPLANATION OF THE ASSESSEE IS NOT SATISFACTORY, THEN TO THE EXTENT OF THE AMOUNT COVERED BY SUCH EXPENDITURE IS TREATED AS INCOME. ULTIMATELY WHAT IS TAXED UNDER SEC. 69 C OF THE ACT IS NOT THE EXPENDITURE BUT I T IS BASICALLY THE UNDISCLOSED INCOME WHICH HAS BEEN APPLIED FOR INCURRING THE UNRECORDED EXPENDITURE. IN OUR VIEW, THERE IS NO MERIT IN THE ARGUMENT OF THE LD. COUNSEL THAT THE ASSESSEE HAS ONLY DECLARED THE AMOUNT EXPENDITURE. WE THEREFORE, HOLD THAT TO THE EXTENT OF THE INCOME OFFERED BY THE ASSESSEE PERTAINING TO THE EXPENDITURE IN THE RETURNS FILED IN RESPONSE TO NOTICE U/S 153A , EXPLANATION - 5A IS APPLICABLE AND AS THERE IS A LEGAL PRESUMPTION AGAINST THE ASSESSEE IN RESPECT OF THE SAID INCOME DETECTED DURING THE COURSE OF SEARCH AND SEIZURE OPERATION, THE ASSESSEE CASE IS SQUARELY COVERED BY EXPLANATION - 5(I I ) AS THE ASSESSEE HIMSELF HAS ADMIT TED THE SAID UNDISCLOSED INCOME. 21. ANOTHER LIM B OF THE ARG UMENT OF THE LD. COUNSEL IS THAT UNDISCLOSED INCOME IS ALSO DETECTED AND HENCE , THE LD. CIT(A) IS JUSTIFIED IN GIVING THE SET OFF OF THE SAID UNDISCLOSED INCOME AGAINST THE AMOUNT OF EXPENDITURE FOR DETERMINING THE AMOUNT OF INCOME FOR THE PURPOSE OF LEVYI NG THE PENALTY. WE FIND THAT THE LD. CIT(A) HAS MADE THE CLASSIFICATION OF THE EXPENDITURE IN TWO PARTS (I) INADMISSIBLE UNRECORDED EXPENDITURE AND (II) ADMISSIBLE RECORDED EXPENDITURE. THE CLASSIFICATION MADE BY THE LD. CIT(A) IS REPRODUCED IN PARA NO. 4 OF THIS ORDER. THE LD. CIT(A) HAS OBSERVED THAT SOME EXPENDITURE WAS ADMISSIBLE AS BUSINESS EXPENDITURE ONLY AND T HE ASSESSING OFFICER IS NOT JUSTIFIED IN LEVYING T HE PENALTY U/S. 271(1)(C) OF THE ACT ON SAID EXPLANATION . HE HAS ALSO NOTED THAT THERE W AS UNRECORDED INCOME WHICH WAS ALSO DETECTED FROM THE 15 SEIZED MATERIAL. THE LD. CIT(A) ALLOWED THE SET OFF OF THE UNRECORDED INCOME AGAINST THE ADMISSIBLE UNRECORDED BUSINESS EXPENDITURE IN THE A.YS. 2003 - 04, 2004 - 05 AND 2005 - 06. IN THE A.Y. 2006 - 07, T HE UNACCOUNTED INCOME OF THE ASSESSEE WAS FOUND TO BE MORE THAN INADMISSIBLE UNRECORDED EXPENDITURE AS POINTED OUT BY LD. CIT(A) AND HENCE , THE SAME WAS HELD TO BE LIABLE FOR THE PENALTY U/S. 271(1)(C). IN RESPECT OF UNRECORDED ADMISSIBLE EXPENDITURE THE LD. CIT(A) HELD THAT THE SAME CANNOT BE SUBJECTED TO PENALTY U/S. 271(1)(C). IN OUR OPINION THE LOGIC APPLIED BY THE LD. CIT(A) IS NOT CORRECT. SO FAR AS SEC. 269( C ) IS CONCERNED, IT PROHIBITS THE DEDUCTION IN RESPECT OF THE UNRECORDED EXPENDITURE UNDER ANY HEAD OF THE INCOME . W HAT IS TAX ED U/S. 269 C IS THE AMOUNT COVERED BY THE UNRECORDED EXPENDITURE AND ULTIMATELY IT IS NOTHING BUT INCOME APPLIED. ADMITTEDLY, UNRECORDED INCOME WAS ALSO FOUND, SO IN OUR OPINION, TO THE EXTENT OF THE QUANTUM OF UNRECORDED INCOME RELATING TO THESE FOUR ASSESSMENT YEARS THE ASSESSEE HAS SOURCE TO INCUR THE UNRECORDED EXPENDITURE AND HENCE, WITHOUT MAKING ANY CLASSIFICATION OF UNACCOUNTED EXPENDITURE FOUND DURING THE COURSE OF SEARCH , THE SET OFF OF THE UNACCOUNTED INCOME HAS TO BE GIVEN AS UNDER: A.Y. TOTAL UNACCOUNTED EXPENDITURE TOTAL UNACCOUNTED INCOME EXCESS OF UNACCOUNTED EXPENDITURE OVER UNACCOUNTED INCOME 2003 - 04 RS.10,43,004/ - RS.6,95,000/ - RS.348004/ - 2004 - 05 RS.7,44,304/ - RS.5,00,165/ - RS.244139/ - 2005 - 06 RS.11,0 0,682/ - RS.10,93,690/ - RS.6992/ - 2006 - 07 RS.23,57,180/ - RS.1,62,706/ - RS.2194474/ - 22. WE, THEREFORE, DIRECT THE ASSESSING OFFICER TO WORK OUT THE PENALTY ON THE NET OF THE UNRECORDED EXPENDITURE (UNRECORDED EXPENDITURE UNRECORDED INCOME) AS SHOW N ABOVE FOR ALL THE ASSESSMENT YEARS. 16 23 . IN THE RESULT, ALL THE FOUR APPEALS FILED BY THE REVENUE FOR A.YS. 2003 - 04 TO 2006 - 07 ARE PARTLY ALLOWED, THE ASSESSEES APPEAL FOR THE A.Y. 2006 - 07 IS DISMISSED AND ALL THE CROSS OBJECTION S OF THE ASSESSEE ARE AL SO DISMISSED. PRONOUNCED IN THE OPEN COURT ON 25 TH DAY OF JUNE 2013. ( G. S. PANNU ) ( R.S. PADVEKAR ) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE , DATED THE 25 TH JUNE 2013 ANKAM COPY FORWARDED TO: (1) ASSESSEE (2) DEPARTMENT ( 3 ) CIT (A) I II PUNE (4) CIT - I II PUNE ( 5 ) THE D.R. A BENCH, I.T.A.T. PUNE (6) GUARD TILE //TRUE COPY// BY ORDER S R. PS. ITAT , PUNE