PRINCIPAL COMMISSIONER OF INCOME TAX 2 V. M/S PATDI COMMERCIAL AND INVERSTMENT LTD

TAXAP/174/2019

AI Insights

The case involves the Principal Commissioner of Income Tax as the appellant and M/s Patdi Commercial and Investment Ltd as the respondent. The core issue was whether the Income Tax Appellate Tribunal erred in confirming the order of the CIT(A) which deleted the penalty imposed under section 271AAA of the Income Tax Act, 1961. The penalty was initially levied following a search operation where undisclosed income was admitted by the director of the assessee company. The Tribunal and the CIT(A) found that the assessee had met the conditions for immunity from penalty under section 271AAA(2), which was contested by the revenue in the appeals.

• Counselvise Citation: [2019] 140 COUNSELVISE.COM (IT) 764434 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 17-09-2019
• Assessment Year: misc
• Other Referred Cases: PCIT vs. Smt. Ritu Singal, PCIT vs. Sun Corporation, PCIT vs. Backbone Enterprise Ltd., PCIT vs. Mukeshbhai Ramanlal Prajapati, PCIT vs. Swapna Enterprise, Mahendra C. Shah vs. State, Assistant Commissioner of Income Tax vs. Gebilal Kanhailal, Mak Data (P) Ltd vs. Commissioner of Income Tax
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: TUSHAR HEMANI; VAIBHAVI PARIKH
• Assessee Lawyers: NIKUNT RAVAL; KALPANAK RAVAL
• Keywords: Assessment Order; Income Tax; Penalty; Search operation; Undisclosed income
• Section: 143(3); 153; 132; 271AAA(2)

Judgement Text

"C/TAXAP/174/2019 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 174 of 2019 With R/TAX APPEAL NO. 540 of 2019 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE J.B.PARDIWALA Sd/- and HONOURABLE MR.JUSTICE A.C. RAO Sd/- ========================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? NO 2 To be referred to the Reporter or not ? NO 3 Whether their Lordships wish to see the fair copy of the judgment ? NO 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder ? NO ========================================================== PRINCIPAL COMMISSIONER OF INCOME TAX 2 Versus M/S PATDI COMMERCIAL AND INVERSTMENT LTD ========================================================== Common Appearance: MR NIKUNT RAVAL with MRS KALPANAK RAVAL(1046) for the Appellant/s MR TUSHAR HEMANI with MS VAIBHAVI K PARIKH(3238) for the Opponent/s ========================================================== CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA and HONOURABLE MR.JUSTICE A.C. RAO Date : 17/09/2019 Page 1 of 26 C/TAXAP/174/2019 JUDGMENT ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE A.C. RAO) 1.00. As common question of law arises in both these appeals, the same are heard, decided and disposed of by this common judgement and order. 2.00. Both these appeals are admitted to consider the following substantial question of law :- “Whether on the facts and in the circumstances of the case and in law, the Hon'ble ITAT erred in confirming the order of the CIT(A) deleting the penalty by ignoring the fact that the assessee has not fulfilled the pre-conditions laid down u/s. 271AAA(2) ?” 3.00. Since in both the appeals similar issue is involved, Tax Appeal No.174 of 2019 is treated as main Appeal and facts of the said appeal are narrated hereinbelow: 3.01. Assessment order u/s.143(3) r.w.s. 153 of the Income Tax Act, 1961 (\"the Act\" for short) was finalized on 26/3/2013 for A.Y. 2011-12 determining total income at Rs.15,59,55,240/-. While finalization of the assessment order, penalty proceedings u/s.271AAA of the Act was initiated in respect of undisclosed income of Rs.15,00,00,000/- for year under consideration. Thereafter, penalty u/s.271AAA of the Act was levied on 27/9/2013 at Rs.1.50,00,000/-. 3.02. A search operation u/s. 132 of the Act was carried Page 2 of 26 C/TAXAP/174/2019 JUDGMENT out in the case of Builder Group on 8/6/2010. During the course of search, Patdi Commercial & Investment was also covered u/s. 132 of the Act. During the course of search of Mr.Jerambhai Patel, the director of the assessee company had admitted undisclosed income of Rs.15,00,00,000/- as unaccounted cash receivable, for the year under consideration. 3.03. Penalty notice was served on the assessee and demand notice was issued to the assessee. The assessee filed reply and contended that he had already disclosed the additional income during the search in a statement under section 132(4) substantiating the manner in which the undisclosed income was derived and paid the tax with interest on undisclosed income and thereby he claimed immunity for penalty under section 271AAA of the Act. 3.04. The A.O. held that the assessee has failed to substantiate the offered income of Rs.1,50,00,000/- and the manner in which the income was derived; the assessee has not produced any supporting evidence to support his case and he failed in substantiating the manner in which undisclosed income was derived. According to the A.O. the assessee has failed to fulfill the conditions laid down under section 271AAA(ii) of the Act. The A.O. was of the opinion that the aforesaid director of the assessee company failed to satisfy the manner of deriving of his undisclosed income and the assessee's submission was not accepted by the A.O. and ultimately, A.O. held that the assessee is liable to pay penalty The A.O. imposed penalty u/s.271AAA of the Act on the undisclosed income at Rs.1,50,00,000/-. Page 3 of 26 C/TAXAP/174/2019 JUDGMENT 3.05. Being aggrieved by the said assessment order, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals) and the Commissioner in the appeal held that the A.O. was not justified in imposing penalty under section 271AAA of the Act and consequently deleted the penalty imposed by the A.O. on the undisclosed income. 3.06. Against the aforesaid order of the Commissioner, the revenue preferred further appeal before the Income Tax Appellate Tribunal, Surat Bench, Surat (\"the tribunal\" for short) being ITA No.1815/AHD/2014/SRT. The Tribunal dismissed the appeal vide order dated 10/10/2018. 3.07. Heard Mr.Nikunt Raval, learned counsel appearing for the revenue and Mr.Tushar Hemani, learned senior counsel appearing for the respective assessee in both the Appeals at length and considered the material on record. ARGUMENTS OF THE REVENUE :- 4.00. Mr.Raval, the learned counsel appearing for the revenue has vehemently contended that the tribunal has failed to consider that during the course of search, Mr.Jerambhai Patel, the director of the assessee company had admitted undisclosed income of Rs.15,00,00,000/- as unaccounted cash receivable, for the year under consideration. 4.01. Mr.Raval contended that the assessee has not specified the manner in which the undisclosed income was derived. The assessee has not given any details and manner of earning of undisclosed income. The assessee failed to Page 4 of 26 C/TAXAP/174/2019 JUDGMENT substantiate the manner of earning of undisclosed income. The assessee has not kept any separate account for undisclosed income and consequently the manner of earning and substantiation of offered undisclosed income is not proved and therefore, the assessee has not entitled to immunity from penalty under section 271AAA of the Act. 4.02. Mr.Raval further contended that the tribunal failed to consider that the assessee has not satisfied condition Nos.(i) and (ii) and the assessee has satisfied condition No.(iii) only of section 271AAA of the Act and therefore, the assessee is not entitled for immunity from penalty. 4.03. Mr.Raval further contended that the tribunal has wrongly relied on the decision in the case of Mahendra C. Shah reported in [2008] 299 ITR 305 (Gujarat), because penalty imposed on the assessee in the said case was not under section 271AAA of the Act but penalty under section 271(1)C) of the Act. 4.04. Mr.Raval contended that the impugned order passed by the tribunal is illegal, bad in law and contrary to the settled legal position. 4.05. Mr.Raval, learned counsel for the revenue in support of his contentions and case, has relied on the decision of the Delhi High Court in the case of PCIT vs. Smt. Ritu Singal reported in [2018] 92 taxmann.com 224 (Delhi). Submissions on behalf of the Assessees : 5.00. Mr.Tushar Hemani, learned senior counsel Page 5 of 26 C/TAXAP/174/2019 JUDGMENT appearing for the respective assessee has contended that the impugned order passed by the tribunal is just, legal and in consonance with the provision of law and as per the evidence on record and hence the interference of this Court is not called for. 5.01. Mr.Hemani relied on the decision of the Co-ordinate Bench of this Court in the case of PCIT Vs. M/s.Sun Corporation rendered in Tax Appeal No.1150 of 2018 dated 17/9/2018. It is contended that in the said case, the Co-ordinate Bench of this Court noted that the question put to the partner of the firm was \"kindly elaborate on the details of undisclosed income of Rs.34 crores and how it is earned by you and your group.\" and in reply the partner had stated that the undisclosed income was earned out of land related transaction and the same was not recorded in the books. This Court in the decision in the said case held that such answer was specifically in compliance with the requirement of establishing the manner in which the income was earned. That he could not give break up of income person wise or firm wise would not be of much relevance as firstly, this was sufficient compliance of requirement of manner of earning income and secondly, Assessing Officer had made additions taxing the admitted amounts in respective hands. Mr.Hemani, however contended that as it is evident from the statement reproduced by the CIT(A), there has been \"sufficient compliance\" of requirement of section 271AAA(2)(i) and (ii) of the Act as per the cited decisions. He has also drawn our attention to the statement of the Director of the assessee which is annexed with the Paper Book at page nos.13 to 24. He contended that in response to question Nos.7 and 8 (page Nos.23 & 24 of the Page 6 of 26 C/TAXAP/174/2019 JUDGMENT Paper Book) he has explained that the income was earned out of booking / selling shops and has specified the buildings. It is contended that in any case the Co-ordinate Bench of this Court has held that not giving break up of income person wise or firm wise would not be of much relevance. It is contended that the the aforesaid decision of the coordinate Bench of this Court in the case of M/s.Sun Corporation is squarely applicable to the facts of the case on hand. 5.02. Mr.Hemani also relied on the decision of the Co- ordinate Bench of this Court in the case of PCIT Vs. Backbone Enterprise Ltd. rendered in Tax Appeal No.836 of 2018 dated 10/7/2018. It is contended that in the said case, the Co-ordinate Bench of this Court followed its decision in the case of PCIT vs. Mukeshbhai Ramanlal Prajapati rendered in Tax Appeal No.434 of 2017 to delete the penalty. It is contended that in the said decision it has been held that where the revenue had failed to question the assessee while recording the statement under section 132(4) of the Act as regards the manner of deriving such income, it cannot jump to the consequential or laster requirement of substantiating the manner of deriving the income. It is contended that in the decision in the case of Mahendra C. Shah would not hold the field even in case of section section 172AAA(2) of the Act. It is only when the officer elicits a response that such a requirement, the assessee's responsibility to substantiate 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. Mr.Hemani therefore, contended that after the director responded to question nos.7 and 8, nothing further was asked Page 7 of 26 C/TAXAP/174/2019 JUDGMENT and hence in light of the aforesaid decisions, he cannot be faulted for not giving further details. 5.03. Mr.Hemani thereafter relied on the decision of the Co-ordinate Bench of this Court in the case of PCIT Vs. Swapna Enterprise, reported in [2018] 401 ITR 488 (Gujarat) and contended that in the said case, the Co- ordinate Bench of this Court has held, \"8. Thus, insofar as the satisfaction of clause(i) and (ii) of sub-section (2) of section 271AAA of the Act is concerned, both the Commissioner (Appeals) as well as the tribunal have recorded concurrent findings of fact that Shri Kotadia, during the course of recording of his statement at the time of the search, had stated that the income was earned by accepting on-money in its building project. Therefore, the manner in which the income had been derived has been clearly specified in the statement made by Shri Kotadia. Insofar as substantiating the manner in which the undisclosed income was derived is concerned, the tribunal has recorded that it had been pointed out that the undisclosed income was received by the assessee as on-money. It is not the case of the appellant that during the course of recording of the statement of Shri Kotadia any specific questions had been asked to substantiate the manner in which the income was derived. Thus, it cannot be said that the findings recorded by the Commissioner (Appeals) and tribunal regarding satisfaction of clauses (i) and (ii) of sub- section (2) of section 271AAA of the Act suffers from any legal infirmity. Relying on the observations made in the aforesaid decision Mr.Hemani contended that the said decision in the case of Swapna Enterprise is squarely applicable to the facts of the case on hand. Page 8 of 26 C/TAXAP/174/2019 JUDGMENT 5.04. Mr.Hemani submitted that in view of the above, the grounds taken by the revenue do not survive. It is further contended that the ground taken by the appellant that the decision of this Court in the case of Mahendra C. Shah (supra) is not applicable having been rendered under section 271(1) (c) of the Act no longer survives as it has been followed in the context of sections 271AAA of the Act in the case of PCIT Vs. Sun Corporation in Tax Appeal No.1150 of 2018. Making above submissions and relying upon above decisions, Mr.Hemani submitted that as the assessee has sufficiently complied with the conditions laid down under section 271AAA of the Act, no interference of this Court in the impugned order is required and both the appeals deserve to be dismissed. 6.00. Having heard the learned counsel for the respective parties and considering the material on record, the relevant section 271AAA is required to be considered and it is to be considered whether the assessee has complied with the conditions laid down under section 271AAA of the Act or not. Section 271AAA reads thus :- \"Section 271AAA : \"Penalty where search has been initiated. 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 Page 9 of 26 C/TAXAP/174/2019 JUDGMENT penalty, in addition to tax, if any, payable by him, a sum computed at the rate of ten percent 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 1323, admits the undisclosed income and specifies the manner in which such income has been derived; (ii) substantiate 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). (4) The provisions of sections 274 and 274 shall, so far as may be, apply in relation to the penalty referred to in this section. Explanation.- For this purposes of this section. - (a) \"undisclosed income\" means- (i) any income of the specified previous year represented, either wholly or partly, by way of Page 10 of 26 C/TAXAP/174/2019 JUDGMENT money, bullion, jewellery or other valuable article or thing or any entry in the books of account or other documents or transactions found in the course of a search under section 1323, which has - (A) not been recorded on or before the date of search in the books of account or other documents maintained in the normal course relating to such previous year; or (B) otherwise not been disclosed to the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner before the date of search; or (ii) Any income of the specified previous year represented, either wholly or partly, by any entry in respect of an expense recorded in the books of account or other documents maintained in the normal course relating to the specified previous year which is found to be false and would not have been found to be so had the search not been conducted; (b) \"specified previous year\" means the previous year- (i) which has ended before the date of search, but the date of filing the return of income under sub-section (1) of section 139 for such year has not expired before the date of search and the assessee Page 11 of 26 C/TAXAP/174/2019 JUDGMENT has not furnished the return of income for the previous year before the said date; or (ii) in which search was conducted\". 6.01. So far as the satisfaction to clause (i) and (ii) of sub-section (2) of section 271AAA is concerned, both, the Commissioner (Appeals) as well as the tribunal have recorded concurrent finding of fact that during the course of search of Mr.Jerambhai Patel, the Director of the assessee company had admitted undisclosed income of Rs.15,00,00,000/- as unaccounted cash receivable, for the year under consideration i.e. F.Y. 2010-2011. The said director of the assessee in his statement, in response to Question Nos.7 and 8, which are at page Nos.23 & 24 of the Paper Book, has explained that the income was earned out of booking / selling shops and has specified the buildings. The relevant Question and Answer Nos.7 and 8 reads thus : \"Question No.7 : We are once again showing you BS-7, 8 & 9 and after viewing the same, please explain that which type of and related to which project these diaries contains booking transactions? Answer No.7 : BS-7 contains details of booking in cash of Financial Year 2010-11 of flats of Krish Enclave Project, which is organized by the Vinodbhai Jearambhai Patel. BS-8 contains details of cash transaction towards booking / selling of R, T & U wings of RKTM Page 12 of 26 C/TAXAP/174/2019 JUDGMENT Market. The selling after the construction work is done by M/s. Krish Corporation. This related to financial year 2010-11. BS-9 contains details of booking in cash of Patdi Commercial and Investment of RKT Market which related to financial year 2010-11. Above diaries are found from our office at RKTM Market and in these diaries my and my office staffs handwriting is there. Question No.8 : Considering the material found during search and as per the Annexure-BS, statement etc., it appears that you have earned \"unaccounted on money\" of Radha Krishna Textile Market & Krish Enclave which is not shown in regular books of Patdi Commercial and Investment Ltd. and Krish enclave. Please clarify the same. Answer No.8 : Considering various documents that are kept & found during the search at our various premises and also considering the various document at our office premises at C-1 175, Radha Krishan Textile market, I would like to inform you that from the shop of Radha Krishna Textile Market and shops of RTU Wings of Radha Krishna Textile Market and towards Krish Enclave Flats sales, we have earned in the form of \"unaccounted income on money\" which is our unaccounted cash receivable and its Page 13 of 26 C/TAXAP/174/2019 JUDGMENT account are in diaries of BS-7, BS-8 & BS-9 as above. In which RKT Market's account upto 31/3/2011 and account of booking upto J-Wings and also account of R, T, U division of krish corporation and also booking's account of Krish Enclave whcih is unaccounted. Considering the same, I am disclosing the unaccounted undisputed income of the financial year 2010-11 as follows : a) Patdi Commercial and Investment Rs.15 Crore. b) Krish Corporation Rs.20 Crore. c) Vinodbhai J. Patel Rs.06 Crore. ------------------ Total unaccounted income Rs.41 Cores (Rupees Fourty One Crore) ======== This (Rs.Fourty One Crore), Rs.41,00,00,000 is our above concerns net unaccounted income and we will not claim any expenses or deduction from it. This Rs.41,00,00,000 (Rs.Fourty One Crore) is our relevant business concerns income apart from our regular income and according in return of income also this unaccounted income of Rs.41,00,00,000/- (Rupees Fourty One Crore) will pay income tax accordingly in time.\" Thus, from the aforesaid statement and answer to the question nos.7 and 8 it is clear that the director of the assessee Company has disclosed the unaccounted income and the manner in which the unaccounted income has been derived. Thus, it cannot be said that the the finding of the Page 14 of 26 C/TAXAP/174/2019 JUDGMENT tribunal regarding satisfaction under clause (i) and (ii) of sub- section (2) of section 271AAA suffers from any infirmity. 6.02. The tribunal while dismissing the appeal has observed and held under :- \"10. Therefore, on vigilant and careful reading and analysis of the questions poser to Shri Jerambhai Patel by the statement recording authority, it is clear that there was no occasion for Shri Jerambhai Patel to state and make averments in the exact format as stipulated and required under clauses (i) & (ii) of sub-section (2) of section 271AAA of the Act and in this scenario and considering the environment in which statement u/s. 132(4) of the Act is recorded, it is not practically possible and correct to expect from the assessee, whether educated or uneducated, to specify and to point out the facts complying with the requirement of conditions stipulated in the clauses (i) and (ii) of sub-section(2) of Section 271AAA of the Act. In this situation, and on the basis of foregoing discussion, we reach to a logical conclusion that the ld. CIT(A) was right in granting relief to the assessee by following ratio of the decision of Hon'ble Gujarat High Court in the case of Mahendra C. Shah (supra), which has been referred by Hon'ble Jurisdictional High Court in its subsequent judgements in the cases of PCIT Vs. emirates Technologies Pvt. Ltd. (supra) and PCIT vs. Swapna Enterprises (supra). We are unable to see Page 15 of 26 C/TAXAP/174/2019 JUDGMENT any ambiguity perversity or any other valid reason to interfere with the same. Hence, we uphold the same. Accordingly, grounds of appeal of revenue being devoid of merits are dismissed the order of ld.CIT(A). 6.03. The manner in which the undisclosed income derived has been clearly specified in the statement made by Mr.Jerambhai Patel, the Director of the assessee Company. He has disclosed the details of cash transaction towards booking / selling of R, T & U wings of RKTM Market. The selling after the construction work is done by M/s. Krish Corporation. He has also stated the details of booking in cash of Patdi Commercial and Investment of RKT Market which related to financial year 2010-11. The Commissioner as well as the tribunal have held that there has been \"sufficient compliance\" of requirement of section 271AAA(2)(i) and (ii) of the Act. 6.04. As per settled legal position, where the revenue had failed to question the assessee while recording the statement under section 132(4) of the Act as regards the manner of deriving such income, it cannot jump to the consequential or laster requirement of substantiating the manner of deriving the income. It is only when the officer elicits a response that such a requirement, the assessee's responsibility to substantiate 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. After the director responded to question Nos.7 and 8, nothing further was asked and hence he cannot be faulted for not giving further details. Page 16 of 26 C/TAXAP/174/2019 JUDGMENT 6.05. The Co-ordinate Bench of this Court in the case of Swapna Enterprise (supra) has observed thus : \"11. A conjoint reading of the provisions of clause (iii) of sub-section (2) of section 271AAA of the Act and Explanation 5 to section 271 of the Act shows that the language employed in the second exception under Explanation 5 to section 271(1) is, \"pays the tax together with interest, if any, in respect of such income\" and clause (iii) of sub- section (2) of section 271AAA of the Act employs the language \"pays the tax, together with interest, if any, in respect of the undisputed income\". Thus, the language employed in both the sections is similar. Therefore, the Tribunal as well as the Commissioner (Appeals) were wholly justified in applying the principles enunciated by this High Court in Mahendra C. Shah's case (supra) while interpreting the provisions of sub-section (2) of section 271AAA of the Act. Accordingly, the assessee has also satisfied the third condition laid down under sub-section (2) of section 271AAA of the Act. The Tribunal was, therefore, wholly justified in upholding the deletion of penalty under section 271AAA of the Act.\" 6.06. The Delhi High Court in the case of Smt. Ritu Singal (supra) in paras 11 to 15 has observed thus : \"11. Explanation 5(2) of Section 271(1)(c) was Page 17 of 26 C/TAXAP/174/2019 JUDGMENT considered by the Supreme Court in Assistant Commissioner of Income Tax v. Gebilal Kanhailal [2012] 25 taxmann.com 214/210 taxmann.com 244/348 ITR 561. It was held that Explanation 5 (2) to Section 271 (1) (c) provides, where, in the course of search under Section 132, the assessee, found to be owner of unaccounted assets, claims that such assets have been acquired by him by utilizing, wholly or partly, his income for any previous year which has ended before the date of search or which is to end on or after the date of search, then, notwithstanding that such income is declared by him in any return of income furnished on or after the date of search, he shall be deemed to have concealed particulars of his income for the purpose of imposition of penalty, but there are exceptions to such deeming provision or to such a presumption of concealment. The Court then said: \"It provides that where, in the course of search under Section 132, the assessee is found to be the owner of unaccounted assets and the assessee claims that such assets have been acquired by him by utilizing, wholly or partly, his income for any previous year which has ended before the date of search or which is to end on or after the date of search, then, in such a situation, notwithstanding that such income is declared by him in any return of income furnished on or after Page 18 of 26 C/TAXAP/174/2019 JUDGMENT the date of search, he shall be deemed to have concealed the particulars of his income for the purposes of imposition of penalty under Section 271(1)(c). The only exceptions to such a deeming provision or to such a presumption of concealment are given in Sub-Clauses (1) and (2) of Expln. 5. In this case, we are concerned with interpretation of Clause (2) of Expln. 5, which has been quoted above. Three conditions have got to be satisfied by the assessee for claiming immunity from payment of penalty under Clause (2) of Expln. 5 to Section 271(1)(c).The first condition was that the assessee must make a statement under Section 132(4) in the course of search stating that the unaccounted assets and incriminating documents found from his possession during the search have been acquired out of his income, which has not been disclosed in the return of income to be furnished before expiry of time specified in Section 139(1). Such statement was made by the Karta during the search which concluded on 1-8-1987. It is not in dispute that condition No. 1 was fulfilled. The second condition for availing of the immunity from penalty under Section 271(1)(c) was that the assessee should Page 19 of 26 C/TAXAP/174/2019 JUDGMENT specify, in his statement under Section 132(4), the manner in which such income stood derived. Admittedly, the second condition, in the present case also stood satisfied. According to the Department, the assessee was not entitled to immunity under clause (2) as he did not satisfy the third condition for availing the benefit of waiver of penalty under Section 271(1)(c) as the assessee failed to file his return of income on July 31, 1987, and pay tax thereon particularly when the assessee conceded on August 1, 1987 that there was concealment of income. The third condition under clause (2) was that the assessee had to pay the tax together with interest, if any, in respect of such undisclosed income. However, no time limit for payment of such tax stood prescribed under clause (2). The only requirement stipulated in the third condition was for the assessee to \"pay tax together with interest\". In the present case, the third condition also stood fulfilled. The assessee has paid tax with interest up to the date of payment. The only condition which was required to be fulfilled for getting the immunity, after the search proceedings got over, was that the assessee had to pay the tax Page 20 of 26 C/TAXAP/174/2019 JUDGMENT together with interest in respect of such undisclosed income up to the date of payment. Clause (2) did not prescribe the time limit within which the assessee should pay tax on income disclosed in the statement under Section 132(4). For the above reasons, we hold that the assessee was entitled to immunity under Clause (2) of Expln. 5 to Section 271(1) (c). 12. Like in that case, the first condition under Section 271AAA is that the assessee must make a statement under Section 132(4) in the course of search stating that the unaccounted assets and incriminating documents found from his possession during the search have been acquired out of his income, which has not been disclosed in the return of income to be furnished before expiry of time specified in Section 139(1). The second condition for availing of the immunity from penalty under Section 271(1)(c) is that the assessee should specify, in his statement under Section 132(4), the manner in which such income stood derived. The revenue contended Gebilal Kanhailal that though the second condition stood satisfied, the third condition was not sought. It urged that the assessee was not entitled to immunity under Clause (2) as he did not satisfy the third condition for availing the benefit of waiver of penalty under Section 271(1)(c) as he failed to file his return of Page 21 of 26 C/TAXAP/174/2019 JUDGMENT income on 31st July, 1987 and pay tax thereon particularly when the assessee conceded on 1st Aug., 1987 that there was concealment of income. The third condition under Clause (2) was that the assessee had to pay the tax together with interest, if any, in respect of such undisclosed income. The court held that no time-limit for payment of such tax stood prescribed under Clause (2) and that the only requirement stipulated in the third condition was for the assessee to \"pay tax together with interest\". It was held in Gebilal Kanhailal (supra) that the third condition was also fulfilled as the assessee paid tax with interest upto the date of payment. The only condition which was required to be fulfilled for securing the immunity, after the search proceedings got over, was that the assessee had to pay the tax together with interest in respect of such undisclosed income upto the date of payment. Explanation 5 (2) did not prescribe the time-limit within which the assessee should pay tax on income disclosed in the statement under Section 132(4). 13. In the present case, during the course of the statement made by the assessee, during the course of the search on 4 March, 2010, that she had lent 16 crores in aggregate to three individuals during financial year 2009-2010. This was in response to a query by the revenue officials during the course of search when the basis of Page 81 of Exhibit A-3 was sought to be questioned. To the next question, the Page 22 of 26 C/TAXAP/174/2019 JUDGMENT assessee replied that the said amount of Rs.16 crores is my unaccounted income for the Financial Year 2009-2010 relevant for AY 2010-2011. However, the requirement of the assessee having to \"(ii) substantiates the manner in which the undisclosed income was derived\" was satisfied. Although a general statement that the undisclosed income was the source of 16 crores was disclosed, no \"substantiation\" of the \"manner\" of deriving such undisclosed income was revealed. 14. In construing Section 271AAA one must not lose sight of its essential purpose which resulted in its enactment. There is a penalty at the rate of 10% of the undisclosed amount declared, if the conditions in Section 271AAA (2) are not met with. This is quite different from the penal provision under Section 271 (1) (c) of the Act, which directs that if income is concealed or inaccurate returns are filed, which are disallowed by the AO, the penalty shall be \"three times the amount of tax sought to be evaded\". In the case of amounts disclosed during the course of search, the penalty amount is only ten percent of the undisclosed income. Parliament has, therefore, given a different treatment to the latter category. At the same time, if an assessee were to successfully urge the \"escape route\" so to say, of Section 271AAA (2), all three conditions mentioned in the provision, (as held in Gebilal Kanhailal's case (supra) in respect of pari material provisions) have to necessarily be fulfilled. In the preset case, the Page 23 of 26 C/TAXAP/174/2019 JUDGMENT assessee, while declaring the \"undisclosed income\" also stated, that the surrender is being made subject to no penal action of Section 271(1)(c). 15. While dealing with a case of similar surrender- but made in the course of survey proceedings, by an assessee (which led to imposition of penalty), the Supreme Court, in Mak Data (P) Ltd v Commissioner of Income Tax 358 ITR 539 (SC) held as follows: \"7. The AO, in our view, shall not be carried away by the plea of the assessee like \"voluntary disclosure\", \"buy peace\", \"avoid litigation\", \"amicable settlement\", etc. to explain away its conduct. The question is whether the assessee has offered any explanation for concealment of particulars of income or furnishing inaccurate particulars of income. Explanation to 271 raises a presumption of concealment, when a difference is noticed by the AO, between reported and assessed income. The burden is then on the assessee to show otherwise, by cogent and reliable evidence. When the initial onus placed by the explanation, has been discharged by him, the onus shifts on the Revenue to show that the amount in question constituted the income and not otherwise. 8. Assessee has only stated that he had Page 24 of 26 C/TAXAP/174/2019 JUDGMENT surrendered the additional sum of Rs.40,74,000/- with a view to avoid litigation, buy peace and to channelize the energy and resources towards productive work and to make amicable settlement with the income tax department. Statute does not recognize those types of defences under the explanation 1 to 271 (1) (c) of the Act. It is trite law that the voluntary disclosure does not release the Appellant-assessee from the mischief of penal proceedings. The law does not provide that when an assessee makes a voluntary disclosure of his concealed income, he had to be absolved from penalty. 9. We are of the view that the surrender of income in this case is not voluntary in the sense that the offer of surrender was made in view of detection made by the AO in the search conducted in the sister concern of the assessee. In that situation, it cannot be said that the surrender of income was voluntary. AO during the course of assessment proceedings has noticed that certain documents comprising of share application forms, bank statements, memorandum of association of companies, affidavits, copies of Income Tax Returns and assessment orders and blank share transfer deeds duly signed, have been impounded in the course of survey proceedings under Section 133A conducted on Page 25 of 26 C/TAXAP/174/2019 JUDGMENT 16.12.2003, in the case of a sister concern of the assessee.\" 6.07. The appellant's contention that the assessee has failed to fulfill the preconditions laid down under section 271AAA(2) is devoid of merits. the assessee has stated in the answer that from where the income was earned. Thereafter he cannot be blamed that he has not substantiated the manner in which the disclosed income was derived. If there was any doubt in the mind of the revenue, they should have asked further question about it when initial onus placed by the explanation has been discharged by him, the onus shifts on the revenue. If no further question are asked, the matter ends there. 7.00. In light of the above discussion, there is no infirmity or otherwise in the impugned order passed by the tribunal. Both the appeals are therefore, fail and deserve to be dismissed and are accordingly dismissed. The common substantial question of law framed in both the appeals is answered in favour of the assessee and against the revenue. Sd/- (J. B. PARDIWALA, J) Sd/- (A. C. RAO, J) RAFIK.. 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