Assistant Commissioner of Income-Tax, Central Circle -1(1), Pune V. Prabhat Chandra Sawailal Jain, Mumbai

ITA 454/PUN/2022

AI Insights

The case involves cross-appeals by the Revenue and the assessee, Shri Prabhatchandra Sawailal Jain, against the order of the CIT(A), Pune, which pertained to a penalty under Section 271AAA of the Income Tax Act, 1961, for the assessment year 2010-11. The penalty was imposed following a search operation that uncovered undisclosed income of Rs. 8 crores. The primary legal issue was whether the assessee had adequately specified and substantiated the manner of earning this undisclosed income during the proceedings. The Tribunal referenced several precedents, including decisions from the Bombay High Court and other jurisdictions, which supported the assessee's position that the manner of earning the income need not be specified unless directly questioned during the statement recording under Section 132(4).

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 137549 (ITAT-PUNE)
• Duration Of Justice: 10 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-04-2023
• Appeal Filed By: Department
• Order Result: DismissedDismissed
• Bench Allotted: B
• Next Hearing Date: 10-04-2023
• Assessment Year: 2010-2011
• Appeal Filed On: 06-06-2022
• Other Referred Cases: PCIT vs. Phoenix Mills Ltd., CIT vs. Radha Kishan Goel, CIT vs. Mahendra C. Shah, Principal CIT vs. Mukeshbhai Ramanlal Prajapati
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Search and seizure
• Section: 132; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH “B”, PUNE BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER AND SHRI G.D. PADMAHSHALI, ACCOUNTANT MEMBER ITA No. 454 & 474/PUN./2022 Assessment Year 2010-2011 The DCIT, Central Circle-1(1), Aaykar Sadan, Bodhi Tower, Pune . Maharashtra. vs. Shri Prabhatchandra Sawailal Jain Vatsalya, N.S. 6 th Road, JVPD Scheme, Vile Parle, Mumbai – 400 056. Maharashtra. PAN AAKPJ3257E Appellant Respondent & Cross Appellant Assessee by : Shri Naresh Jain And Shri Akshay Jain Revenue by : Shri M.G. Jasnani Date of Hearing : 11.04.2023 Date of Pronouncement : 26.04.2023 आदेश / ORDER PER SATBEER SINGH GODARA, JM : These Revenue’s and assessee’s cross-appeals ITA.Nos.454 & 474/Pun./2022 for assessment year 2010-11, arise against the CIT(A), Pune-11, Pune's Din & Order No.ITBA/ APL/S/ 250/2022-23/1042845042(1), dated 25.04.2022, involving proceedings u/s. 271AAA of the Income Tax Act, 1961 (in short “the Act”). Heard both the parties. Case files perused. 2. It emerges during the course of hearing that the sole substantive issue that arises for our apt adjudication in both these cross-appeals is correctness of the Assessing Officer’s action imposing sec.271AAA penalty of Rs.80 lakhs i.e., @ 10% of the 2 ITA.No.454 & 474/PUN./2022 Shri Prabhatchandra Sawailal Jain, Mumbai. undisclosed income of Rs. 8 crores detected during the course of search dated 20.01.2010, order dated 19.08.2016, as restricted to Rs.5 lakhs only in the CIT(A)'s order under challenge. The latter’s lower appellate discussion to this effect reads as under : “6. I have considered the facts of the case and submissions made by the appellant. In the present case, in the statement recorded u/s 132(4) of the Act, a disclosure of Rs.8,00,00,000/- was made by the appellant. At that time, no question was put to the appellant for specifying the manner in which such income was derived. However, a perusal of assessment order suggests that vide questionnaire dated 12/09/2011, specific question on this issue was asked from the assessee requesting him to specify the manner in which such undisclosed income was earned and as to whether taxes are paid on this admitted undisclosed income. In response to this, the appellant submitted the manner in which said income of Rs.8,00,00,000/- was earned which has been reproduced in para 4 of this order. The assessment order does not suggest that the Assessing Officer was not satisfied with this explanation of the appellant regarding the manner in which Rs.8,00,00,000/- was earned and accepted this explanation. 7. The penalty order suggests that the only reason mentioned by the Assessing Officer for levying the penalty, is the failure of the assessee in specifying and substantiating the manner 3 ITA.No.454 & 474/PUN./2022 Shri Prabhatchandra Sawailal Jain, Mumbai. regarding the earning of undisclosed ' income in the statement recorded u/s 132(4) of the Act. As discussed above, various benches of Hon’bie ITAT have held that the assessee' is not expected or required to specify the manner unless a question is put to him 'while recording the statement u/s 132(4) of the Act. It has also been held by that the requirement of substantiating the manner in which undisclosed income was derived can be fulfilled even during the assessment proceedings. Thus, the ratio laid down by various decisions as relied upon by the appellant, is clearly applicable to the facts of the present case. 8. However, it is seen from the submission of the appellant that he furnished specific details regarding manner of earning income to the extent of Rs.7,50,00,000/- only. In fact, on some of these items, as mentioned in the table reproduced earlier in this order, the appellant has referred to specific documents as well. However, an amount of Rs.50,00,000/- was disclosed as sundry misc. income for which no specific details are available. Therefore, it cannot be said that the appellant has specified the manner or substantiated the manner in which this undisclosed income of Rs.50,00,000/- was earned. Accordingly, it is held that out of an amount of Rs.8,00,00,000/- surrendered in the statement recorded u/s 132(4) of the Act, the appellant has failed to specify and substantiate the manner in which undisclosed income to the extent of Rs.50,00,000/- (surrendered as sundry misc. income) was earned. Accordingly, 4 ITA.No.454 & 474/PUN./2022 Shri Prabhatchandra Sawailal Jain, Mumbai. this amount will not be covered by the exceptions provided in sub section 2 or section 271AAA of the Act. Hence, out of an amount of Rs.80,00,000/-, penalty to the extent of Rs.5,00,000/- is upheld. The ground no.1 raised by the appellant is PARTLY ALLOWED.” 3. We have given our thoughtful consideration to the vehement rival stands. There would be hardly any dispute that sec.271AAA of the Act comes into play wherein an assessee fails to state the manner of having derived corresponding undisclosed income followed by its substantiation and payment of taxes thereupon. It is at this stage that the Revenue invited our attention not only to the Assessing Officer’s assessment order dated 30.12.2011 but also the penalty findings dated 19.08.2016 that the assessee’s action in declaring his undisclosed income could not satisfy the foregoing clinching parameters. We find no merit in the Revenue’s stand seeking to revive the impugned penalty for the reason that no such question was put to the assessee during the search regarding all these three aspects. Hon’ble jurisdictional high court’s recent decision in PCIT vs. Phoenix Mills Ltd. [2019] 307 CTR 700 (Bom.) has rejected the Revenue’s identical stand to this effect as under : “2. The issue pertains to imposition of penalty under s. 271AAA of the IT Act ("the Act" for short). During search the assessee in the statement recorded under s.132(4) of the Act 5 ITA.No.454 & 474/PUN./2022 Shri Prabhatchandra Sawailal Jain, Mumbai. had admitted certain undisclosed income. The AO however was of the opinion that since the assessee had not disclosed the manner of earning such income, the assessee cannot claim immunity from penalty. In this context, the reference was made to sub-s.(2) of s.271AAA which requires that in addition to admitting the undisclosed income in statement under sub-s.(4) of s.132, the assessee also specifies the manner in which such income has been derived. In the opinion of the AO, this later requirement of the assessee specifying the manner in which such income has been derived, was not specified. When the issue ultimately reached the Tribunal, the Tribunal by impugned judgment deleted the penalty relying on the decision of Allahabad High Court in case of CIT vs. Radha Kishan Goel (2006) 200 CTR (All) 300: (2005) 278 ITR 454 (All) and that of the Gujarat High Court in case of CIT vs. Mahendra C. Shah (2008) 215 CTR (Guj) 493; (2008) 3 DTR (Guj) 1; (2008) 299 ITR 305 (Guj). 3. Having heard learned counsel for the parties and having perused the documents on record, we do not find any error in the view of the Tribunal. The requirement in question flowing from cl. (i) of sub-s. (2) of s.271AAA of the Act is similar to one specified in sub-cl.(2) of Expln. 5 to s.271 of the Act. In context of this provision the Allahabad High Court in case of Radha Kishan Goel (supra) had held that unless the authorized officer recording the statement under s.132(4)(a) of the Act puts the 6 ITA.No.454 & 474/PUN./2022 Shri Prabhatchandra Sawailal Jain, Mumbai. specific question with regard to the manner in which income has been derived, it cannot be expected from a person to make a statement in this regard and in case in the statement the manner in which income has been derived has not been stated, but has been stated subsequently, it amounts to compliance with Expln. 5(2). 4. In case of Mahendra C. Shah (supra), Gujarat High Court reiterated this position and held that: “15. Insofar as the alleged failure on the part of the assessee to specify in the statement under s.132(4) of the Act 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 is incumbent upon the authorized officer to explain the provisions of Expln. 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 the 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, as noted by Allahabad High Court in case of CIT vs. Radha Kishan 7 ITA.No.454 & 474/PUN./2022 Shri Prabhatchandra Sawailal Jain, Mumbai. Goel {2006) 200 CTR (All) 300: (2005) 278 ITR 454 (All.). 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) of the Act. The view taken by the Tribunal as well as Allahabad High Court to the effect that even if the statement does not specify the manner in which the income is derived, if the income is declared and tax thereon paid, there would be substantial compliance not warranting any further denial of the benefit under exception No.2 in Expln.5 is commendable." 5. This decision of the Gujarat High Court in case of Mahendra C. Shah (supra) came up for consideration before the said High Court in case of Principal CIT vs. Mukeshbhai Ramanlal Prajapati in Tax Appeal No. 434 of 2017 in the context of the penalty provision under s. 271 AAA of the Act. The Revenue's appeal was dismissed by an order dt. 24th July, 2017 making following observations : "10. It can thus be seen that this Court in case of CIT vs. Mahendra C. Shah (supra) and Allahabad High Court in case of CIT vs. Radha Kishan Goel (supra) have put considerable stress on the recording of the statement under s.132(4) of the Act in the context of the requirement of the assessee to disclose the manner 8 ITA.No.454 & 474/PUN./2022 Shri Prabhatchandra Sawailal Jain, Mumbai. in which the undisclosed income was derived in order to avoid penalty. The High Court in case of CIT vs. Mahendra C. Shah (supra), in particular, observed that considering the social environment, it is not possible to expect from an assessee to be specific and to the point regarding the conditions stipulated by exception No. 2 while making statement under s. 132(4) of the Act. The Court went on to observe that if the income is declared and tax is paid thereon, there would be substantial compliance. 11. It is this principle which the CIT(A) and the Tribunal have applied in the present case. As noted, CIT(A) was specific that no question was put to the assessee while recording statement under s. 132 regarding the manner of deriving the undisclosed income. Counsel for the Revenue, however, vehemently contended that in the present case, the penalty was being imposed under s. 271AAA of the Act and the statutory provisions enabling the assessee to avoid such a penalty are entirely different as compared to Expln. 5 to s. 271. 12. Sub-s.(1) of s.271AAA provides for a penalty in addition to tax at the rate of ten per cent of the undisclosed income in case where the search has been initiated under s. 132 of the Act on or after 1st day of June, 2007 but before 1st day of July, 2012. Such penalty may, however, be avoided if the 9 ITA.No.454 & 474/PUN./2022 Shri Prabhatchandra Sawailal Jain, Mumbai. conditions specified under sub-s.(2) are satisfied which are as under: ‘(2) Nothing contained in sub-s. (1) shall apply if the assessee- (i) in the course of the search, in a statement under sub-s.(4) of s.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.’ 13. Sub-s.(2) of s.271AAA thus while retaining the other requirements of avoiding penalty as provided in cl.(ii) of Expln. 5 has now introduced an additional requirement of the assessee having to substantiate the manner in which, the undisclosed income was derived. It is this requirement which the counsel for the Revenue would place great emphasis on. According to her, onus is now entirely shifted on the assessee not only to make a disclosure of the undisclosed income but also to specify the manner, in which, the income has been derived and to substantiate the same. It was therefore, contended that the earlier decisions of this Court in case of CIT vs. Mahendra C. Shah 10 ITA.No.454 & 474/PUN./2022 Shri Prabhatchandra Sawailal Jain, Mumbai. (supra) and the decision of Allahabad High Court in case of CIT vs. Radha Kishan Goel (supra) rendered in backdrop of different statutory provisions would not automatically apply. 14. We do not reject this contention totally. However, insofar as the facts of the present case are concerned, the field would still be held by the decision of this Court in case of CIT vs. Mahendra C. Shah (supra). Sub-s. (2) of s. 271 AAA imposes an additional condition of the assessee having to substantiate the manner in which, the undisclosed income was derived. This requirement, however, must be seen as consequential to or corollary to the base requirement of specifying the manner, in which, the undisclosed income was derived. It is only when such declaration is made, the question of substantiating such disclosure or claim would arise. If, as in the present case, the Revenue failed to question the assessee while recording his statement under s. 132(4) of the Act as regards the manner of deriving such income, the Revenue cannot jump to the consequential or later requirement of substantiating the manner of deriving the income. In the context of the requirement of the assessee specifying the manner of deriving the income the decision of this Court in case of CIT vs. Mahendra C. Shah (supra) would hold the field even in the context of sub-s.(2) of 11 ITA.No.454 & 474/PUN./2022 Shri Prabhatchandra Sawailal Jain, Mumbai. s.271AAA of the Act. It is only when the officer of the raiding party recording the statement of the assessee under s.132(4) of the Act elicits a response from the assessee’s this requirement, the assessee’s responsibility to substantiate the manner of deriving such income would commence. When the base requirement itself fails, the question of denying the benefit of no penalty would not arise." 6. In the result, this appeal is dismissed.” 3.1. Faced with the situation, we accept the assessee’s arguments and reject the Revenue’s stand to delete the entire penalty of Rs.80 lakhs imposed by the Assessing Officer. That being the case, the former’s appeal ITA.No.474/PUN./2022 is accepted and Revenue’s appeal ITA.No.454/Pun./2022 fails in very terms. Ordered accordingly. 4. To sum-up, the Revenue’s appeal ITA.No.454/PUN./2022 is dismissed and assessee’s cross-appeal ITA.No.474/PUN./2022 is allowed. A copy of this common order be placed in the respective case files. Order pronounced in the Open Court on 26.04.2023. Sd/- Sd/- (G.D. PADMAHSHALI) (SATBEER SINGH GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER Pune, Dated 26 th April, 2023 VBP/- 12 ITA.No.454 & 474/PUN./2022 Shri Prabhatchandra Sawailal Jain, Mumbai. Copy of the Order is forwarded to: 1. The Appellant; 2. The Respondent; 3. The CIT(A), Pune-11, Pune. 4. 5. 6. The Pr. CIT (Central), Pune The DR ‘B’, ITAT, Pune Guard File BY ORDER, // True Copy // Senior Private Secretary : ITAT : Pune