Dy.CIT, Central Circle-3, Vadodara V. Raoof Razak Dhanani, Mumbai

ITA 235/AHD/2022

AI Insights

The case involves Raoof Razak Dhanani, who was subjected to search and seizure operations under section 132 of the Income Tax Act, 1961, on February 11, 2011. Following the search, the Assessing Officer made significant additions to the assessee's income for the assessment year 2011-12, which were partly upheld by the CIT(A). The CIT(A) later deleted the penalty imposed under section 271(1)(c) for these additions, stating that the penalty should have been levied under section 271AAA, which is specific to cases where undisclosed income is admitted during a search. The Revenue appealed against this decision, arguing that the CIT(A) erred in law by suggesting the penalty should be under section 271AAA without appreciating the facts discussed by the Assessing Officer.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 133557 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-07-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 19-04-2023
• Assessment Year: 2011-2012
• Appeal Filed On: 15-06-2022
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Search and seizure
• Section: 132; 271(1)(c); 143(3)

Judgement Text

आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरणआयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण, अहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठअहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठ ‘C’ अहमदाबाद। अहमदाबाद।अहमदाबाद। अहमदाबाद। IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, VICE-PRESIDENT AND SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA No.235/Ahd/2022 Assessment Year : 2011-12 DCIT, Cent.Cir.3 Vadodara. Vs. Raoof Razak Dhanani 281, 28 th Floor, Kalpatru Heights, Dr.A Nair Road Mumbai 400 001. PAN : ACTPD 1157 A (Applicant) (Responent) Assessee by : Shri Sakar Sharma, AR Revenue by : Shri Rakesh Jha, Sr.DR स ु नवाई क तार ख/D a t e o f H e a r i n g : 2 0 / 0 4 / 2 0 2 3 घोषणा क तार ख /D a t e o f P r o n o u n c e m e n t : 0 5 / 0 7 / 2 0 2 3 आदेश/O R D E R PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER Present appeal has been filed by the assessee against the order of the ld.Commissioner of Income Tax (Appeals)-12, Ahmedabad dated 11.3.2022 passed under section 250(6) of the Income Tax Act, 1961 (hereinafter referred to as “the Act” for short),vide which the ld.CIT(A) has deleted the penalty imposed by the AO under section 271(1)(c) of the Act for the Asst.Year 2011-12. 2. Brief facts relating to the case are that search and seizure proceedings under section 132 of the Act was initiated in the case of Transworld Furtichem Group (Dhanani Group) of cases on 11.2.2011. This group mainly comprised of business concerns of ITA No.235/Ahd/2022 2 three brothers viz. shri Yusuf Razak Dhanani, Shri Saji R. Dhananiand the assessee. The search and seizure proceedings were carried out at two residential premises belonging to one of the brothers Shri Raoof R. Dhanani (assessee before). Subsequently, assessment under section 143(3) of the Act was framed making addition to the tune of Rs.10,07,83,682/- to the returned income of the assessee under various heads. The matter went in appeal before the ld.CIT(A) who upheld the addition to the tune of Rs.9,83,23,914/- deleting the balance and on the addition confirmed by the ld.CIT(A) penalty under section 271(1)(c) of the Act was initiated and thereafter levied by the AO. The additions on which penalty was levied are as under: Para No. Nature of addition Amount of addition disputed before the ITAT 7 Addition on account of admission of income in assessment u/s.132(4) but to the extent not disputed in the return of income. Income admitted Rs.10 crores. Income disclosed in the return Rs.70 lacs. 9,30,00,000/- 9 Addition for unexplained jewellery found in the course of search. 22,05,147/- 10 Unexplained marriage expenses noticed in the course of search 31,18,767/- Total Rs.9,83,23,914/- 3. The assessee carried the matter in appeal before the ld.CIT(A) who deleted the penalty holding that in the facts and circumstances of the case, the penalty levied under section 271(1)(c) was under aninapplicable provision of the Act and the penalty ought to have been levied under section 271AAA of the Act. He therefore held the penalty to be invalid and not sustainable and directed the deletion of the same. While holding so, the ld.CIT(A) carefully considered the provisions of section 271AAA of the Act and found that penalty ITA No.235/Ahd/2022 3 under the said section was leviable on assessee’s where search has been conducted after 1 st day of June,2007 and is leviable on undisclosed income of specified previous year. Theld.CIT(A) went through the Explanation to the section defining the meaning of term “undisclosed income” and “specified previous year” and found that the term “specified previous year” included the year in which search was conducted and in the case of the assessee the assessment year involved was the search year only,. Further, he noted that all the issues on which addition was made in the case of the assessee were covered under the definition of “undisclosed income” which was defined in the section as any income of the specified previous year represented either wholly or partly, by any entry in respect of any expense recorded in the books of accounts or other documents maintained so in the transaction found during the course of search and which have not been recorded on before due date of search in the books of accounts or other documents maintained in the normal course. Noting that the addition made in the case of assessee on which penalty had been levied related to the admission of income based on entries in a note book, unexplained jewellery and unexplained marriage expenses, he held that all the additions were covered under the definition of “undisclosed income”. Accordingly, finding the assesses case squarely falling u/s 271AA of the Act, he held that penalty ought to have been levied under the said section and the AO had wrongly levied the same under section 271(1)(c) of the Act. His detailed findings in this regard at para 5.4 to 5.6 of his order is as under: ITA No.235/Ahd/2022 4 ITA No.235/Ahd/2022 5 ITA No.235/Ahd/2022 6 4. The Revenue has challenged this order of the ld.CIT(A) raising the following grounds before us: “(1) On the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in deleting the penalty levied of Rs.3,27,00,000/- u/s. 27l(l)(c) of the I.T-. Act by observing that the penalty in this case has been imposed under Sec.271(l)(c) of the Act and not under the correct section i.e. Section 271 AAA of the Act, without appreciating the facts of the case discussed by the Assessing Officer on merits. (2) On the facts and in the circumstances of the case in law, the Ld.CIT(A) has erred in deleting the penalty by observing that the penalty was imposed under incorrect section, ignoring the prevailing jurisprudence that if an authority has a power under the law and merely because while exercising the power, the source of power is not specifically referred to or a reference is made to a wrong provision of law, that by itself does not vitiate the exercise of power so long as the power does exist and can be traced to a source available in law. ITA No.235/Ahd/2022 7 (3) On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in concluding that the correct section for levy of penalty is 271 AAA of the Act, ignoring the provisions of Section 271(l)(c) of the Act, which is applicable in the circumstances when the assessee has concealed the particulars of income or when he has furnished inaccurate particulars (4) On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in observing that there was lack of application of mind by the AO, despite the fact that show cause notice for levy of penalty was issued under Sec.271(l)(c) of the Act and penalty was also imposed under the same section and also ignoring the fact that the assessee has not raised any such objections during the course of penalty proceedings. (5) On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in observing that in the show cause notice issued, the essential part of the notice was not strike off, ignoring the fact that a detailed show cause notice was also given to the assessee providing an opportunity of being heard and to furnish his reply before passing the penalty order. (6) It is, therefore, prayed that the order the Ld. CIT(A)-4, Surat may be set aside and that of the AO may be restored to the above extent.” 5. The grounds no.1& 3 raised by the Revenue challenges the finding of the ld.CIT(A) that correct section for levy of penalty in the present case is section 271AAA of the Act and the AO had invoked incorrect provisions of i.e. 271(1)(c) of the Act for levy of penalty in present case. 6. Briefly put, the case of the Department is that the AO had rightly levied penalty under section 271(1)(c) of the Act. As noted above by us, the ld.CIT(A) in his order has analysed the provisions of section 271AAA of the Act and given a categorical finding that in terms of the said section, the assessee’s case qualified for levy of penalty under the said section. He noted that the requirements for levy of penalty under section 271AAA of the Act were – (i) search action should have been initiated after 1 st June, 2007, (ii) there is “undisclosed income” and (iii) the undisclosed income relates to a “specified previous year”. ITA No.235/Ahd/2022 8 7. The ld.CIT(A) noted that the assessee fulfilled first condition since search in the present case was conducted in February, 2011. He noted fulfillment of the second condition of there being undisclosed income noting that all income found in the case of the assessee represented by entries in books of accounts or other documents found during the search, unexplained jewellery and unexplained marriage expenses were included in the definition of undisclosed income as per the Explanation to the section. He noted fulfillment of the other condition, that the impugned assessment year qualified as “specified previous year” since as per the definition of “specified previous year” it included the year in which search was concluded, which he found was the fact in the present case. Accordingly, he noted, assessee fulfilled all the conditions for levy of penalty under section 271AAA of the Act. 8. The Ld.DR was unable to controvert the above findings of the Ld.CIT(A) Therefore, we do not find any infirmity in the order of the ld.CIT(A) holding that the correct section for levy of penalty in the present case was under section 271AAA of the Act and not section 271(1)(c) which was invoked by the AO. We accordingly, find no merit in the ground no.1&3 raised by the Revenue, and the same are therefore dismissed. 9. Ground No.2 raised by the Revenue is to the effect that mere invocation of incorrect section would not invalidate order. The plea being that, if an authority has a power under the law, which he does not specifically refer to or a reference was made to a wrong provision of law while exercising his power that by itself will not vitiate the exercise of power so long as the power does exist. ITA No.235/Ahd/2022 9 10. This ground raised by the assessee, we find, is wholly misplaced and is without taking note of the specific provision of law contained in section 271AAA of the Act itself in sub-section (3) stating that inrespect of undisclosed income referred to in section 271AAA(1) no penalty under section 271(1)(c) shall be imposed. The relevant provisions of section 271AAA of the Act are reproduced herebelow: 271AAA. (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 June, 2007 but before the 1st day of July, 2012, the assessee shall pay by way of penalty, in addition to tax, if any, payable by him, a sum computed at the rate of ten per cent of the undisclosed income of the specified previous year. (2) Nothing contained in sub-section (1) shall apply if the assessee,— (i) in the course of the search, in a statement under sub-section (4) of section 132, admits the undisclosed income and specifies the manner in which such income has been derived; (ii) substantiates the manner in which the undisclosed income was derived; and (iii) pays the tax, together with interest, if any, in respect of the undisclosed income. (3) No penalty under the provisions of clause (c) of sub-section (1) of section 271 shall be imposed upon the assessee in respect of the undisclosed income referred to in sub-section (1). 11. It is therefore clear from the same that the AO had no power to levy penalty under section 271(1)(c) of the Act, which had been expressly denied by sub-section (3) of section 271AAA of the Act. Therefore, plea of the Revenue that the AO having power to levy penalty ,he could have exercised the same by levying either under section 271AAA or under section 271(1)(c) of the Act, we hold is wholly misplaced and contrary to law. Ground No.2 is dismissed. 12. Ground No.4 and 5 raised by the Revenue refer to the deletion of penalty by the ld.CIT(A) noting that there was no application of ITA No.235/Ahd/2022 10 mind by the AO and relevant part of the notice specifying the default for which penalty was levied, was not taken stricken off by the AO. 13. We do not consider it necessary to adjudicate both these grounds since we have upheld the order of the ld.CIT(A) deleting the penalty on account of incorrect invocation of section for levy of penalty. Adjudication of these grounds is a mere academic exercise. The grounds of the Revenue challenging the order of the Ld.CIT(A) deleting the penalty for other reasons also, is therefore not being dealt with by us. 14. In the result, appeal of the Revenue is dismissed in above terms. Order pronounced in the Court on 5 th July, 2023 at Ahmedabad. Sd/- Sd/- (RAJPAL YADAV) VICE-PRESIDENT (ANNAPURNA GUPTA) ACCOUNTANT MEMBER Ahmedabad,dated 05/07/2023