J.R DIAMONDS P.LTD, MUMBAI V. DCIT CEN CIR 1, MUMBAI

ITA 5771/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 2279 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-10-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: J
• Assessment Year: 2007-2008
• Appeal Filed On: 12-09-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KAILASH GAIKWAD
• Keywords: Business income; Search and seizure; Initiation of penalty proceedings; Revised return
• Section: 143(3); 10AA; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI , , BEFORE SHRI AMIT SHUKLA , JM AND SHRI RAJESH KUMAR , AM ./ I.T.A. NO. 5771 AND 5772 /MUM / 201 4 ( / ASSESSMENT YEAR S : 20 0 7 - 08 AND 2008 - 09 ) M/S J R DIAMONDS PVT .LTD. , 806, THE PLAZA, 8 TH FLOOR, 55, GAMDEVI, GRANT ROAD, MUMBAI - 400007 / VS. DY. COMMISSIONER OF INCOME TAX, CENTRAL C IRC LE 1, MUMBAI ( / APPELLANT ) ( / RESPONDENT ) ./ PAN : AAAC J1241R ( / APPELLANT ) .. ( / RESPONDENT ) / A SSESSEE BY : SHRI RAJESH P SHAH / RE VENUE BY : SHRI KAILASH GAIKWAD / DATE OF HEARING : 10. 10 . 2016 / DATE OF PRONOUNCEMENT : 10. 2016 / O R D E R PER RAJESH KUMAR , AM : THESE ARE THE TWO APPEALS FILED BY THE ASSESSEE AGAINST THE TWO SEPARATE ORDER S DATED 16.6.2014 PASSED BY THE LD. CIT(A) - 36 , MUMBAI FOR THE ASSESSMENT YEAR S 200 7 - 08 AND 2008 - 09. THE ISSUE S INVOLVED IN THESE APPEALS ARE IN RESPECT OF CONFIRMATION OF PENALTY LEVIED U/S 271(1)( C) OF THE INCOME TAX AC T, 1961 BY THE LD.CIT(A) AS IMPOSED BY THE AO. SINCE ITA NO. 5771 /M/201 4 AND ITA NO.5772/MUM/2014 2 THESE APPEALS PERTAIN TO THE SAME ASSESSEE THESE WERE CLUBBED AND HEARD TOGETHER AND ARE BEING DECIDED BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE ONLY ISSUE RAISED IN ALL THE GROUNDS OF APPEAL IS AGAINST THE CONFIRMATION OF PENALTY OF RS.42,07,500/ - BY THE LD. CIT(A) AS IMPOSED BY THE AO U/S 271 (1)( C ) OF THE ACT. THE V ARIOUS GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE AS UNDER : 1. ON THE FACTS AND UNDER THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN CONFIRM ORDER OF THE AO OF LEVYING PENALTY U/S 271(1)(C) OF RS. 42,07,500/ - . 2. ON THE FACTS AND UNDER THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT (A) ERRED IN CONFIRMING PENALTY U/S 271(1)(C) EVEN THOUGH THERE WAS NO CONCEALMENT OR FILING OF INACCURATE DETAILS AND NOTHING WAS FOUND BY THE AO WHICH TANTAMOUNT TO FILING OF INACCURATE DETAILS/CONCEALMENT OF INCOME AS ALLEGED BY THE AO. 3. ON THE FACTS AND UNDER THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN DISTINGUISHING THE CASE LAWS CITED BY THE AR. ALSO CIT(A) FAILED TO APPRECIATE THAT THE INCOME OF RS. 1 CRORES WAS DISCLOSED SUO MOTTO BY THE APPELLANT TO BUY PEACE OF MIND EVEN - THOUGH NOTHING WAS FO UND BY SEARCH PARTY. . . 4. ON THE FACTS AND UNDER THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN LEVY PENALTY U/S 271(1)(C) WITHOUT APPRECIATING THE FACT WHILE COMPLETING ASSESSMENT U/S 143(3) R.W.S. 15 3C THERE WAS NO ADDITION OR DISALLOWANCE. WHICH COULD ATTRACT PENALTY U/S 271(1)(C). THE AO HAS RECORDED ANY REASON OF HIS SATISFACTION WHILE INITIATING PENALTY IN HIS ASSESSMENT ORDER U/S 143(3) R. W.S. 153C. THEREFORE, THE PENALTY ORDER IS VOID AB INITIO. 5. ON THE FACTS AND UNDER THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN CONCLUD ING THAT THE PROVISIONS OF EXPLANATION SA OF SEC 271(1)(C) ARE APPLICABLE TO THE APPELLANT WHERE IT IS FOR THAT THE ASSESSEE IS THE OWNER OF ANY MONEY, BULLION ETC OR ANY INCOME BASED ON A NY ENTRY PR OVIDE D IN C LAUSE (I) OR (II) ITA NO. 5771 /M/201 4 AND ITA NO.5772/MUM/2014 3 OF THE SAID EXPLANATION. THE AO HAS NOT FOUND ANY SUCH THINGS OWNED BY THE APPEAL DURING THE SEARCH. THE DISCLOSURE MADE B Y THE APPELLANT WAS TO BUY PEACE OF MIND AND AVOID LITIGATION . 3. THE FACTS OF THE CASE ARE THAT A SEA RCH AND SURVEY OPERATION UNDER SECTION 132(1) WAS CONDUCTED ON 22.8.2008 IN THE PREMISES OF SU - RAJ DIAMOND AND JEWELLERY LTD AND ITS G ROUP CONCERNS INCLUDING THE ASSESSEE COMPANY . THE ASSESSEE WAS ONE OF THE CONCERN BELONG ING TO THE SAID GROUP OF CO MPANIES. DURING THE COURSE OF SEARCH ACTION MR JATIN R MEHTA, CHAIRMAN AND MANAGING DIRECTOR OF TH E GROUP M/S SU - RAJ DIAMOND AND JEWELLERY LTD DISCLOSED A SUM OF RS.10 CR AS ADDITIONAL INCOME OF THE ASSESSEE COMPANY FOR THE ASSESSMENT YEAR 2007 - 08 A ND 2008 - 09 COMPRISING RS. 7.88 C R ON ACCOUNT OF WITHDRAWAL OF EXEMPTION U/S 10AA OF THE INCOME TAX ACT, 1961 IN RESPECT OF SEZ., CHENNAI AND A SUM OF RS.2.12 C R ON ACCOUNT OF VARIATION IN VALUATION OF STOCK AND ANY SUCH DISCREPENCY . THE ASSESSEE IN QUESTION WAS COVERED BY THE PROVISIONS OF SECTION 153C OF THE ACT AND FILED RETURN OF INCOME ON 3.5.2010 DECLARING A TOTAL INCOME OF RS.1,08,80,835/ - W HICH INCLUDED ADDITIONAL INCOME OF RS. 1.25 CRORES IN THE SEARCH OPERATION IN RESPONSE TO NOTICE I SSUED U/S 153C OF THE ACT . THE ASSESSMENT WERE FRAMED AND COMPLETED BY AN ASSESSMENT ORDER DATED 24.12.2010 PASSED UNDER SECTION 143(3) READ WITH SECTION 153C ASSESSING THE TOTAL INCOME AT RS.1,76,38,130/ - . A PENALTY PROCEEDINGS UNDER SECTION 271( 1)(C) OF THE ACT WAS INITIATED BY ISSUING NOTICE DATED 24.12.2010 U/S 274 R.W.S ITA NO. 5771 /M/201 4 AND ITA NO.5772/MUM/2014 4 271(1)( C ) OF THE ACT WAS DULY SERVED . S INCE ASSESSEE FAILED TO REPLY THE SAID NOTICE , ANOTHER FRESH SHOW CAUSE NOTICE DATED 26.11.2012 WAS ISSUED WHICH WAS REPLIED BY T HE ASSESSEE VIDE LETTER DATED 7.2.2013 WHICH IS REPRODUCED BY THE AO IN PARA 2.3 OF THE PENALTY ORDER. THE AO AFTER CONSIDERING THE REPLY OF THE ASSESSEE CAME TO THE CONCLUSION THAT THE ASSESSEE HAS DISCLOSED ADDITIONAL INCOME TO COVER VARIOUS DISCREPAN CIES IN THE RETURN OF INCOME FILED BEFORE SEARCH OPERATION AND THE ADDITIONAL INCOME WAS ONLY DISCLOSED BY THE ASSESSEE IN THE RETURN OF INCOME FILED IN RESPONSE TO THE NOTICE ISSUED U/S 153C OF THE ACT WHICH WAS NOT DISCLOSED IN THE RETURN FILED ORIGINALL Y UNDER SECTION 139(1) OF THE ACT . HAD THE ASSESSEE COMPANY AND OTHER GROUP CONCERNS NOT BEEN SUBJECT TO SEARCH/SURVEY ACTION, THE ASSESSEE WOULD NOT HAVE DISCLOSED ADDITIONAL INCOME AS THE DISCLOSURE WAS MADE DURING THE COURSE OF SEARCH ACTION ON THE BAS IS OF SPECIFIED FAC T S , INFORMATION AND MATERIALS . THE AO FURTHER OBSERVED THAT THE ASSESSEE COULD NOT ALLOW ED THE BENEFIT OF ABSENCE OF ANY SPECIFIC DISCREPANCY BEING POINTED OUT IN THE ASSESSMENT ORDER AS DISCLOSURE OF ADDITIONAL INCOME OF RS.1.25 CRORES WAS SUFFICIENT TO IMPOSE PENALTY WHICH WAS NOT DISCLOSURE IN THE RETURN FILED U/S 139(1) OF THE ACT AND THUS IMPOSED THE PENALTY EQUAL TO 100% OF THE TAX SOUGHT TO BE EVADED I.E. RS.42,07,500/ - BY INVOKING THE EXPLANATION 1 TO SECTION 271 OF THE ACT VIDE ORDER DATED 28.3.2013 PASSED UNDER SECTION 271(1)( C) OF THE ACT. ITA NO. 5771 /M/201 4 AND ITA NO.5772/MUM/2014 5 4. IN THE APPEAL PROCEEDINGS, THE LD. CIT(A) ALSO DISMISSED THE APPEAL OF THE ASSESSEE BY HOLDING THAT SURRENDER/DISCLOSURE OF INCOME IN THE STATEMENT RECORDED U/S 132(4) O F THE ACT DURING THE SEARCH OPERATION COULD NOT BE CONSIDERED AS SURRENDER/DISCLOSURE VOLUNTARILY MADE AS SURRENDER/DISCLOSURE WAS ON THE BASIS OF INFORMATION GATHERED DURING THE SEARCH AND SURVEY WHICH WAS BASED ON THE ADMISSION AND NON DISCLOSURE OF I NCOME IN THE RETURN FILED U/S 139(1) OF THE ACT. THE LD. CIT(A) ALSO OBSERVED THAT IMMUNITY PROVIDED U/S EXPLANATION 5 OF SECTION 271(1)(C) WOULD NOT BE APPLICABLE TO THE ASSESSEE AS HE DID NOT SATISFY NECESSARY PARAMETERS FOR FALLING THE CASE OF T HE ASSESSEE UNDER THE SAID EXPLANATION. IT WAS ALSO OBSERVED THAT THE ADDITIONAL INCOME WAS DISCLOSED BY THE APPELLANT IN THE RETURN OF INCOME FILED IN RESPONSE TO THE NOTICE ISSUED U/S 153C OF THE ACT WHICH COULD NOT BE CONSIDERED AS VOLUNTARY DISCLOSURE MADE BY THE ASSESSEE. FINALLY, THE LD. CIT(A) UPHELD THE ORDER OF IMPOSING THE PENALTY U/S 271(1)( C) EXPLANATION (1) TO THE SECTION BY OBSERVING THAT THE ASSESSEE HAD FURNISHED INACCURATE PARTICULARS OF INCOME FILED UNDER SECTION 139(1) OF THE ACT A ND ALSO NOT FURNISHED ANY SATISFACTORY EXPLANATION TO THE INCOME DISCLOSED IN THE SEARCH PROCEEDINGS. 5. THE LD. AR VEHEMENTLY SUBMITTED BEFORE US THAT THE AO HAS WRONGLY IMPOSED THE PENALTY AND THE LD. CIT(A) WRONGLY CONFIRMED THE SAME SPECIFICALLY WHEN NO INCRIMINATING MATERIAL WAS FOUND DURING THE SEARCH PROCEEDINGS AGAINST THE ASSESSEE. THE LD. AR FURTHER SUBMITTED THAT THE ITA NO. 5771 /M/201 4 AND ITA NO.5772/MUM/2014 6 DISCLOSURE WAS MADE ONLY TO BUY PEACE OF MIND WITHOUT BEING ANY CORROBORATING MATERIAL S FOUND BY THE SEARCH TEAM DURING THE SEARC H PROCEEDINGS. THE LD. AR DREW OU R ATTENTION TO QUESTION NO. 28 AND ANSWER THERETO BY REFERRING TO THE STATEMENT RECORDED ON OATH OF SHRI JATIN R MEHTA ON 22.8.2008 , THE RELEVANT EXTRACT OF WHICH HAVE BEEN PLACED AT PAGES 37 TO 41 OF THE ASSESSEES PAPER BOOK. THE LD. AR ARGUED THAT TOTAL OF RS.22 CRORES WAS DISCLOSED DURING THE COURSE OF SEARCH OPERATION IN THE ENTIRE GROUP, THE DETAILS THEREOF WERE GIVEN TO INVESTIGATION WING ON 23.10.2008 WHICH IS PLACED AT PAGES 45 TO 47 OF THE PAPER BOOK . THE LD. AR ALSO SUBMITTED THAT THE ASSESSEE HAS DULY DISCLOSED THE INCOME OF RS.1,25,00,000/ - IN THE ASSESSMENT YEAR 2007 - 08, RS.6.7 CRORES IN THE ASSESSMENT YEAR 2008 - 09 WHICH WAS SUBSEQUENTLY REVISED TO RS.8.75 CRORES . THE LD. AR DREW OUR ATTENTI ON TO PAGE 27 OF THE ASSES SMENT ORDER WHICH IS PLACED AT PAGE 26 TO 32 OF THE PAPER BOOK AND THE RELEVANT DISCLOSURE MADE BY THE ASSESSEE U/S 153C HAS BEEN INCORPORATED IN THE SAID ASSESSMENT ORDER AS UNDER : 3. IN THE RETURNS OF INCOME FILED U/S.153C, THE ASSESSEE HAS INCORPOR ATED DISCLOSURE MADE DURING SEARCH IN THE FOLLOWING MANNER: I ) IN RETURN OF INCOME OF AY.07 - 08, IT HAS DISCLOSED ADDITIONAL AMOUNT OF RS.1,25,00,0001 - VOLUNTARILY OFFERED FOR T AX CONSEQUENT TO THE SEARCH. II ) IN RETURN OF INCOME O F AY.08 - 09, IT HAS DISCLOSED ADDITION AL AMOUNT OF RS.6,75,00,0001 - VOLUNTARILY OFFERED FOR TA X CONSEQUENT TO THE SEARCH. ITA NO. 5771 /M/201 4 AND ITA NO.5772/MUM/2014 7 III ) IN THE REVISED RETURN OF INCOME OF AY.08 - 09 FILED ON 06/12/2010, IT HAS ENHANCED THE ADDITIONAL INCOME OF RS.6,75,00,0001 - TO RS.8,75 ,00,0001 - VOLUNTARILY OFFERED FOR TAX CONSEQUENT TO THE SEARCH ACTION. II) THEREFORE, THE ASSESSEE HAS DISCLOSED ADDITIONAL INCOME OF RS.10,00,00,000 / - IN THE RETURN OF INCOME FILED U/S.153C FOR AY.07 - 08 AND AY.08 - 09 AS PER THE DISCLOSURE MADE DURING SEA RCH PROCEEDINGS. WHILE DISCLOSING ADDITIONAL INCOME IN THE RETURNS U/S.153C, THE ASSESSEE HAS CLAIMED EXEMPTION U/S.10AA, THE ALLOWABILITY OF WHICH IS DISCUSSED SUBSEQUENTLY. ON REFERRING TO PAGE 31 WHICH IS PAGE 6 OF THE ASSESSMENT ORDER PASSED U/S 143( 3) R.W.S. 153C OF THE ACT PLACED IN THE PAPER BOOK, THE LD.AR POINTED OUT THAT THE EXEMPTION U/S 10AA WAS ALLOWED WHILE COMPUTING THE BUSINESS INCOME AT RS.1,02,10,433/ - AS CLAIMED BY THE ASSESSEE IN THE RETURN OF INCOME AND THEREAFTER THE ADDITIONAL INCO ME DECLARED DURING THE SEARCH ACTION ON 22.8.2008 WAS ADDED TO THE TOTAL INCOME OF TH E ASSESSEE THEREBY ASSESSING THE TOTAL INCOME AT RS.RS.1,76,38,130/ - . THUS, THE LD. AR ARGUED THAT THERE WAS NO DISCREPANCY OR DEFECT NOTICED OR MATERIAL FOUND DURING TH E COURSE OF SEARCH OPERATION. THE LD. AR ALSO DREW OUR ATTENTION TO PARA 2.3 OF THE PENALTY ORDER IN WHICH THE ASSESSEE HAS CLEARLY SUBMITTED THAT NOT A SINGLE DEFECT WAS POINTED OUT EITHER IN THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE NOR ANY CORRO BORATING MATERIAL WAS FOUND DURING THE SEARCH HOWEVER A VOLUNTARY DISCLOSURE OF RS.22 CRORES MADE DURING THE SEARCH ACTION IN ORDER TO BUY PIECE OF MIND . IN PARA 2.4 OF THE PENALTY ORDER, THE AO HIMSELF ADMITTED THAT THERE IS NO SPECIFIC ITA NO. 5771 /M/201 4 AND ITA NO.5772/MUM/2014 8 DISCREPANCY POINT ED OUT IN THE ASSESSMENT ORDER, BUT HE PROCEEDED TO LEVY PENALTY O N THE BASIS O F MERE ADMISSION MADE DURING THE SEA RCH ACTION AT THE TIME OF RECORDING THE STATEMENT ON OATH UNDER SECTION 132(4) OF THE ACT. FINALLY, THE LD. AR SUBMITTED THAT SINCE THERE W AS NO INCRIMINAT ING MATERIAL FOUND BY THE SEARCH AND SEIZURE TEAM AND THE GROUP DISCLOSURE OF RS.22 CRORES WAS VOLUNTARY IN ORDER TO BUY PEACE OF MIND WHICH WAS SUPPORTED BY THE OBSERVATIONS OF THE AO IN THE PENALTY ORDER STATING THAT NO SPECIFIC DIS CREPANCY WAS POINTED OUT IN THE ASSESSMENT ORDER. THEREFORE, THE IMPOSI TION THE PENALTY BY THE AO WAS WRONG AND THE LD. CIT(A) HAS ALSO WRONGLY CONFIRMED THE SAME BY UPH OLDING THE APPLICATION OF EXPLANATION 1 TO SECTION 271(1)(C) OF THE ACT . FINAL LY THE LD AR PRAYED THAT THE PENALTY BE DELETED WITH COSTS . 6. THE LD.DR RELIED HEAVILY RELIED ON THE ORDERS PASSED BY THE AUTHORITIES BELOW BY SUBMITTING THAT THE ASSESSEE DISCLOS ED RS.1.25 CRORES IN THE RETURN OF INCOME FILED IN RESPONSE TO NOTICE ISSUE D U/S 153C OF THE ACT AND NOT UNDER SECTION 139(1) OF THE ACT. I T WAS ONLY AFTER SEARCH ACTION CONDUCTED ON THE ASSESSEE AND THE GROUP COMPANIES THAT A DISCLOSURE WAS MADE AND I T WAS IMMATERIAL THAT NO DEFECT IN THE BOOKS OF ACCOUNT OF ANY CORROBORATIVE EVIDENCE WAS FOUND DURING THE COURSE OF SEARCH ACTION. THE ADMISSION OF THE ASSESSEE WAS SUFFICIENT FOR THE IMPOSITION OF PENALTY U/S 271(1)(C) OF THE ACT. ITA NO. 5771 /M/201 4 AND ITA NO.5772/MUM/2014 9 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND RECORDS INCLUDING THE IMPUGNED ORDERS O F AUTHORITIES BELOW. WE FIND THAT THE ASSESSEE DURING THE COURSE OF SEARCH ACTION CONDUCTED ON 22.8.2008 MADE DISCLOSURE OF RS.22 CRORES IN THE GROUP OF COMPANIES, THE DETAILS WHEREOF WERE FILED VIDE LETTER DATED 23.10.2008 WHICH IS PLACED AT PAGES 45 O F THE PAPER BOOK. DURING THE COURSE OF RECORDING THE STATEMENT U/S 132(4) OF THE ACT ON 22.7.2008 THE IN RESPONSE TO QUERY NO.28 THE ASSESSEE REPLIED THAT : ANS : I HAVE CONSIDERED THE DISCREPANCIES IN THE BOOKS OF ACCOUNTS , STOCK AND CLAIM U/S 10AA/10B OF THE IT ACT, 1961. TO COMPENSATE FOR THE SAME, I HEREBY OFFER ADDITIONAL/UNDISCLOSED INCOME OF RS.22 CRORES FOR TAXATION. THE B REAK UP OF T HE ADDITIONAL /UNDISCLOSED INCOME WILL BE SUBMITTED BY ME WITHIN 7 DAYS AFTER CONSULTING MY CHARTERED ACCOUNTANT AND ALSO AFTER GOING THROUGH MY BOOKS OF ACCOUNT AND OTHER DOCUMENTS . I WILL ALSO SUBMIT THE DETAILS OF PERIOD TO WHICH THIS INCOME RELATES AND ALSO THE HEADS UNDER WHICH THE SAME IS EARNED WITHIN PERIOD OF 7 DAYS. IN RESPONSE TO QUERY NO.30 QUA PAYME NT OF TAXES , THE ASSESSEE REPLIED THAT : I HEREBY CONFIRM THAT THE TAX WILL BE PAID TO THE ADDITIONAL/UNDISCLOSED INCOME OF RS.22 CRORES IN INSTALLMENTS OF RS.1 CRORES PER MONTH STARTING FROM SEPTEMBER, 2008 AND UP TO MARCH, 2009) ON PERUSAL OF TH E ABOVE AND ALSO THE ASSESSMENT ORDER PASSED U/S 143 ( 3) R.W.S. 153C OF THE ACT , IT IS CLEAR THAT NO SPECIFIC DEFECT JUSTIFYING THE INITIATION OF PENALTY PROCEEDINGS U/S 271(1)( C ) OF THE ACT WAS GIVEN NOR ANY SPECIFIC OBSERVATIONS WAS MADE WHILE PASSI NG THE PENALTY ORDER JUSTIFYING THE IMPOSITION OF PENALTY. IN OUR VIEW, THE IMPOSITION OF PENALTY ITA NO. 5771 /M/201 4 AND ITA NO.5772/MUM/2014 10 UNDER SECTION 271(1)( C ) READ WITH EXPLANATION 1 WAS NOT CORRECT AS THE ASSESSEE HAS MADE VOLUNTARY DISCLOSURE DURING THE COURSE OF SEARCH ACTION M ERELY TO BUY PEACE OF MIND WHEN THERE WAS NO INCRIMINATING DOCUMENTS OR MATERIAL FOUND BY THE S EARCH PARTY OR NO SPECIFIC DEFECTS WERE POINTED OUT BY THE AO WHILE FRAMING THE ASSESSMENT ORDER . WE ARE NOT IN AGREEMENT WITH THE AO AND THE LD. CIT(A) THAT THE ADMISSION MADE BY THE ASSESSEE DURING THE COURSE OF SEARCH OPERATION WAS SUFFICIENT TO INVOKE THE PROVISIONS OF SECTION 271(1)( C ) OF THE ACT AND THE FACT THAT THE ASSESSEE HAS NOT DISCLOSED THE INCOME IN THE RETURN FILED U/S 139(1) OF THE ACT BUT THE ADDITIONAL INCOME WAS SHOWN IN THE RETURN OF INCOME FILED IN RESPONSE TO NOTICE U/S 153C OF THE ACT AFTER SEARCH OPERATION WAS CONDUCTED ON THE ASSESSEE. IN OUR OPINION, THE ACT OF THE LD.CIT(A) IN UPHOLDING THE ORDER OF AO IS NOT JUSTIFIED, PARTICUL ARLY WHEN THE DISCLOSURE WAS MADE DURING THE RECORDING OF STATEMENT U/S 132(4) OF THE ACT QUA EXEMPTION U/S 10AA IN RESPECT OF SEZ CHENNAI AND VARIATION IN VALUATION OF STOCKS AND OTHERS AS STATED IN THE LETTER DATER 23.10.2008 TO THE INVESTIGATION WIN G AND THEREAFTER THE ASSESSMENT WAS FRAMED UNDER SECTION 143(3) READ WITH SECTION 153 C OF THE ACT VIDE ORDER DATED 24.10.2010 ALLOWING EXEMPTION U/S 10AA AT RS. 1,02,10,433/ - AS CLAIMED BY THE ASSESSEE. IT CANNOT BE A CASE OF IMPOSITION OF PENALTY WHE N THE ASSESSEE OFFERED A DISCLOSURE TOWARDS WITHDRAW AL OF EXEMPTION U/S 10AA OF THE ACT WHICH WAS DULY ALLOWED BY THE AO IN THE ASSESSMENT ORDER WHICH ITSELF PROVE D THAT THERE ITA NO. 5771 /M/201 4 AND ITA NO.5772/MUM/2014 11 IS NO APPLICATION OF MIND ON THE PART OF THE AO AT THE TIME OF PASSING THE AS SESSMENT ORDER U/S 143(3) R.W.S 153C OF THE ACT . FOR THE SAKE OF BE T TER UNDERSTANDING OF THE ISSUE A ND FOR CONVENIENCE WE REPRODUCE THE RELEVANT EXTRACTS QUA DISCLOSURE OF RS.22 CRORES MADE BY THE ASSESSEE IN THE LETTER DATED 23.10.2008 AS UNDER : AY NAME OF COMPANIES AMOUNT IN CRORES ASSET/SOURCE/EXPLAN ATION 2005 - 06 SU - RAJ DIAMOND INDUSTRIES LTD. FOREVER PRECIOUS JEWELLERY & DIAMONDS LTD. 2.98 WITHDRAWAL OF EXEMPTION UNDER SECTION 10A IN RESPECT OF SEZ AT SACHIN, SURAT. 2006 - 07 TO 2008 - 09 J R DIAMOND P LTD. 7.88 WITHDRAWAL OF EXEMPTION UNDER SECTION 10A A IN RESPECT OF SEZ AT CHENNAI 2006 - 07 TO 2008 - 09 J R DIAMOND P LTD. AND SU - RAJ DIAMOND INDUSTRIES LTD. 2.12 ON ACCOUNT OF VARIATION IN VALUATION OF STOCK AND ANY SUCH DISCREPAN CIES 2009 - 10 J R DIAMOND P LTD. AND SU - RAJ DIAMOND INDUSTRIES LTD. 7.50 ON ACCOUNT OF VARIATION IN VALUATION OF STOCK AND ANY SUCH DISCREPANCIES 2009 - 10 J R DIAMOND P LTD. 1.40 WITHDRAWAL OF EXEMPTION UNDER SECTION 10AA IN RESPECT OF SEZ AT CHENNAI 2009 - 10 FAMILY MEMBERS 0.12 ON ACCOUNT OF DIFERENCE IN VALUATION OF JEWELLERY AND WEALTH TAX RETURNS OF FAMILY MEMBERS. TOTAL 22.00 ITA NO. 5771 /M/201 4 AND ITA NO.5772/MUM/2014 12 FROM THE ABOVE TABLE IT IS CLEAR THAT THE ASSESSEE DISCLOSED ADDITIONAL INCOME FOR RS.7.88 CORERS FROM ASSESSMEN T YEAR 2006 - 07 TO 2008 - 09 TOWARDS WITHDRAWAL OF EXEMPTION U/S 10A A IN RESPECT OF SEZ AT CHENNAI BUT WHILE FRAMING THE ASSESSMENT THE DU RING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO ALLOWED THE DEDUCTION U/S 10AA OF THE ACT AND ALSO NO DISCREPANCY WAS POINTED OUT WHILE INITIATING THE PENALTY U/S 271(1) AND EVEN OBSERVED IN THE PENALTY ORDER THAT THE PENALTY WAS IMPOSED FOR MERE ADMISSION OF ASSESSEE DURING THE COURSE OF SEARCH ACTION AND ALSO THAT THE ADDTIUONAL INCOME WAS DISCLOSED IN THE RETURN FILED IN RESPONSE TO NOTICE U/S 153C OF GTHE ACT. IN VIEW OF THE FACTS W E ARE OF THE CONSIDERED OPINION THAT THE ORDER OF THE LD.CIT(A) SUSTAINING AND UPHOLDING THE PENALTY IS WRONG. WE ACCORDINGLY SET ASIDE THE ORDER OF CIT(A) BY ALLOWING THE APPEAL OF THE ASSESSEE AND THE AO IS DIRECTED TO DELETE THE PENALTY. I.T.A. NO.5772 /MUM / 2014 9 . GROUNDS OF APPEAL TAKEN BY THE ASSESSEE IN THIS APPEAL ARE AS UNDER : 1. ON THE FACTS AND UNDER THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO ERRED IN L EVYING PENALTY U/S 271(1)(C) OF RS. 2,97,41,250/ - INSTEAD OF SECTION 271AAA. 2. ON THE FACTS AND UNDER THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE NOTICE ISSUED AND THE PENALTY ORDER PASSED U/S 271(1)(C) IS ILLEGAL, BAD IN LAW AND WITHOU T JURISDICTION AS SEARCH HAD TAKEN PLACE AFTER 0.1.6.2007 AND NO PENALTY U/S 271(1)(C) CAN BE IMPOSED IN RESPECT OF THE ALLEGED INCOME OFFERED BY THE APPELLANT ITA NO. 5771 /M/201 4 AND ITA NO.5772/MUM/2014 13 10 . THE COMMON ISSUE RAISED IN THE GROUNDS OF APPEAL BY THE APPELLANT IS THAT THE AO IMPOSE D THE PENALTY U/S 271(1)( C ) OF RS. 2,97,41,250/ - WHICH WAS BAD IN LAW AND WITHOUT JURISDICTION BECAUSE THE SEARCH AND SEIZURE ACTION WAS TAKEN AFTER 1.4.2007 AND THEREFORE NO PENALTY UN D ER SECTION 271)(1)(C) OF THE ACT COULD HAVE BEEN IMPOSED AS NE W PROVISIONS U/S 271AAA WERE IN FORCE WITH EFFECT FROM 1.6.2007 APPLICABLE FROM ASSESSMENT YEAR 2007 - 08 11 . WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE PARTIES, PERUSED THE MATERIAL PLACED BEFORE US INCLUDING THE ORDERS OF AUTHORITIES BELOW. TH E LD. AR ARGUED BEFORE US THAT SEARCH IN THE CASE OF ASSESSEE WAS CONDUCTED ON 20.2.2008 AND THEREFORE THE PENALTY AS LEVIED BY THE AO UNDER SECTION 271(1)(C) OF THE ACT WAS LEGALLY NOT SUSTAINABLE AS HAS BEEN HELD BY THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF SMT.HIRAL HIMANSHU KANAKIA V/S ACIT IN ITA NO.2028/MUM/2012 (AY - 2008 - 09) VIDE ORDER DATED 19.7.2013 . THE LD. AR SUBMITTED THAT IN CASE SEARCH ACTION U/S 132 OF THE ACT WAS INITIATED AFTER 1.6.2007 , PENALTY U/S 271(1) (C) OF THE ACT C OULD NOT BE IMPOSED BY VIRTUE OF INSERTION OF NEW PROVISIONS ON THE STATUTE BOOK FOR LEVY OF PENALTY IN THE CASE OF SEARCH UNDER SECTION 271AAA OF THE ACT W.E.F. AY 2007 - 08 AND THEREFORE THE PENALTY AS IMPOSED BY THE AO AND CONFIRMED BY THE LD.CIT(A) HA S TO BE DELETED. THE LD. DR HEAVILY RELIED UPON THE ORDER S OF AUTHORITIES BELOW. 12. WE FIND MERIT IN THE SUBMISSION S OF THE LD.AR THAT IN CASE OF THE ITA NO. 5771 /M/201 4 AND ITA NO.5772/MUM/2014 14 ASSESSEE THE SEARCH WAS CARRIED OUT ON 20.2.2008 WHICH WAS AFTER 1.6.2007 AND PENALTY C OULD ONLY BE IMPOSED U/S 271AAA OF THE ACT AND NOT UNDER SECTION 271(1)(C) OF THE ACT. THE CA S E OF THE ASSESSEE IS SUPPORTED BY THE DECISION OF THE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF SMT.HIRAL HIMANSHU KANAKIA (SUPRA), WHEREIN IT HAS BEEN HELD AS UNDE R : 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE RELEVANT A.Y. UNDER CONSIDERATION IS 2008 - 09. IT IS AN ADMITTED FACT THAT A SEARCH U/S 132 HAS BEEN CARRIED OUT ON 19.07.2007 IN KANAKIA GROUP TO WHICH THE ASSESSEE BELONGS. FRO M THE PROVISIONS OF SECTION 271 AAA OF THE INCOME TAX ACT, IT IS CLEAR THAT WHERE SEARCH HAS BEEN INITIATED UNDER SECTION 132 ON OR AFTER 01.06.2007, PENALTY CAN BE LEVIED ONLY UNDER SECTION 271 AAA AND NOT U/S 271(1)(C) OF THE ACT. THUS, IN VIEW OF THE FA CT THAT THE AO HAS NOT INVOKED THE CORRECT PROVISIONS OF LAW FOR LEVYING THE PENALTY IN THE PRESENT CASE, THE LD.CIT(A) IS NOT JUSTIFIED IN CONFIRMING THE LEVY OF PENALTY. IN VIEW OF THAT MATTER, THE IMPUGNED PENALTY IS DELETED WE, THEREFORE, RESPECTFULL Y FOLLOWING THE RATIO LAID DOWN IN T HE ABOVE MENTIONED DECISIONS SET ASIDE THE ORDER OF CIT(A) AND DIRECT THE AO TO DELETE THE PENALTY. 17 . IN THE RESULT, THE APPEALS FILED BY THE ASSESSEE ARE ALLOWED ORDER PRONOUNCED IN THE OPEN COURT ON 26TH OCTOBE R, 2016 26TH OCTOBER , 2016 S D SD ( AMIT SHUKLA ) ( RAJESH KUMAR ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 26 / 10 /2016 ITA NO. 5771 /M/201 4 AND ITA NO.5772/MUM/2014 15 . . ./ SRL , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPON DENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . / BY ORDER, T RUE COPY / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI