* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on: 22.01.2018
Pronounced on: 12.03.2018
+ ITA 672/2016
PRINCIPAL COMMISSIONER OF INCOME TAX
(CENTRAL)-I .... Appellant
Through: Mr. Rahul Chaudhary, Sr. Standing
Counsel with Mr. Sanjay Kumar, Jr. Standing
Counsel.
versus
SMT. RITU SINGAL .... Respondent
Through: Mr. Ajay Vohra, Senior Advocate
with Mrs. Kavita Jha and Ms. Devika Jain,
Advs.
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE A.K. CHAWLA
S. RAVINDRA BHAT, J.
%
1. The question of law in the present appeal by the revenue, framed in
this case reads as follows:
Did the ITAT fall into error in deleting the penalty under
Section 271AAA of ` 20,000,000/- added pursuant to search
in the overall circumstances of the case?
2. The Bhushan Steel Group of companies were subjected to search
under Section 132 of the Income Tax Act ("the Act" hereafter) on
03.03.2010. The assessee too was covered by the search. She filed return
of income for AY 2010-11, electronically, declaring an income of
` 20,47,14,190/- on 31.07.2010. The notice under Section 143(2) of the
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Act was issued and served on her on 13.01.2011. Another notice under
Section 143(2) of the Act was issued on 11.02.2011. Subsequently an
order under Section 143(3) of the Act was passed 30.12.2011 assessing
the total income of ` 20,47,14,190/- at the returned income. During
assessment proceedings, the AO noticed that the assessee had reported
undisclosed income earned during financial year 2009-10 (relevant to AY
2010-11) to the extent of ` 20 crores during the course of search and after
the search proceedings, relating to material found and seized during
search. The AO also noticed that provisions of section 271AAA of the
Act, was applicable in respect to the undisclosed income found during the
course of search and declared by the assessee in her return of income for
AY 2010-11. He therefore initiated the penalty proceedings under Section
271AAA during assessment proceedings on the ground that assessee had
not specified the manner in which the undisclosed income was earned and
failed to substantiate it. The penalty of ` 2 crore was issued on the
assessee by order dated 27.06.2012 under Section 271AAA. Being
aggrieved with the aforesaid penalty order, assessee appealed before the
CIT (A), who by impugned order dated 05.07.2013 deleted the penalty
and allowed the assessee's appeal.
3. The CIT (A), while deleting the penalty imposed by the AO, had
reasoned as follows, after quoting Section 271AAA:
3.3. Keeping in view the above provisions of law and
changes brought therein, in the case of Sh. Neeraj Singhal for
AY 2010-11 (Appeal No. 51112-13) vide my order dated
17.12.2012, I have held as under:
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"I have considered the assessment order and
submissions filed by the appellant. From the chart
given in para 3.3 above, it is clear that to escape the
penalty of 10% on undisclosed income admitted during
the course of search, the taxpayer has to fulfill the
clause "substantiates the manner in which the
undisclosed income was derived." Search in the case
was conducted on 3.3.2010. Therefore, the law
applicable is as per Column C in the table given in
para 3.3 above. The AO has held in this case that the
appellant has not substantiated the manner in which the
undisclosed income was derived to the extent of Rs.
90,00,00,000/- and has also failed to disclose the sum
of Rs. 35,00,00,000/- in the statement recorded u/s.
132(4). The AO, therefore, imposed penalty @ 10 % on
the entire amount of Rs. 125,00,00,000/-. What would
constitute "substantiates" in section 271AAAi(2)(ii) is
nowhere indicated and this word itself is not defined
anywhere in the Act. The law provides that where a
word is not defined, the ordinary and common sense
meaning of the word is to be construed. The word
'substantiate' is defined as to "provide evidence to
support or prove the truth of" in the Oxford dictionary
(source Internet). In the present case, admittedly, the
undisclosed income was on the basis of documents
seized during the course of search. On the basis of the
seized documents (primary evidence in the case), the
advances outstanding to the appellant from various
persons as on 31.1.2010 was found to be Rs. 69 crore
and in another document the appellant was shown to
have advanced an amount of Rs. 3 crore on 9.6.2009
for purchase of a property at Q I-A, Hauz Khas
Enclave, New Delhi. Based on these documents, the
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appellant admitted an amount of Rs. 90 crore as his
undisclosed income in his statement recorded u/s.
132(4). As to the question about the source of the
amount of Rs. 69 crore, the appellant merely stated that
"it is my unaccounted income for the current financial
year generated from undisclosed sources". This
statement of the appellant cannot be said to have
fulfilled the condition in section 271AAA(2)(ii) so as to
provide evidence to support or prove the truth of the
claim made by the appellant. The amount of Rs. 35
crore does not appear in the statement given by the
appellant u/s. 132(4). It is to be noted that a cardinal
principle of law in India is that no person can be forced
to give evidence against himself. Therefore, both the
legality and the efficacy of this clause are questionable.
However, the law is to be implemented as it exists and
passed by the Parliament in its wisdom. As rightly held
by the AO, all the conditionalities imposed u/s.
271AAA, which are inclusive and not exclusive of each
other, are not fulfilled in the case. Accordingly, I hold
that the AO was correct in imposing the penalty u/s.
271AAA of 10% of the income sought to be evaded of
Rs. 125 crore. The appeal of the appellant is according
dismissed."
3.4. However, Ld. AR now points out that subsequently, in
that case, the Hon'ble ITAT (Delhi) has held as under:-
In view of above facts of the present case wherefrom it
is evident that during the course of search proceedings
the authorized officer of the department had not raised
any specific query regarding the manner in which the
undisclosed income has been derived and on the
contrary the assessee has tried to explain the earning of
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the undisclosed income in question in its reply during
the course of recording of his statement u/s. 132(4) of
the Act and thereafter. We thus respectfully following
the ratio of above cited decisions of Hon'ble Allahabad
High Court and Hon'ble Gujarat High Court hold that
in absence of query raised by the authorized officer
during the course of recording of statement u/s. 132(4)
about the manner in which the undisclosed income has
been derived and about its substantiation, the AO was
not justified in imposing penalty u/s. 271AAA of the Act
specially when the offered undisclosed income has been
accepted and due tax thereon has been paid by the
assessee."
3.5. The appellant and Sh. Neeraj Singal belong to the same
group of cases, and the facts in the two cases are the same.
After pronouncement of the above cited ruling by the Hon'ble
ITAT, I am bound by the ruling. The appeal is, therefore,
allowed and penalty imposed is cancelled."
4. The ITAT affirmed the reasoning of the CIT (A) after noticing that
its previous order in Neeraj Singal's case too had affirmed that appellate
authority's order, in regard to interpretation of Section 271AAA and the
grant of relief.
5. The revenue argues that the interpretation adopted and repeated
mechanically by the ITAT- at least in this case, is contrary to the express
intent of the provision, which clearly requires that the assessee should not
only admits the undisclosed income and specifies the manner in which
such income has been derived or substantiates the manner in which the
undisclosed income was obtained. Here, the assessee did not in any
ITA 672/2016 Page 5 of 17
manner specify the income, its sources or particulars required of her,
much less to the satisfaction of the officer. In the circumstances, the
Tribunal went wrong in directing that the penalty imposed should be set
aside.
6. Counsel for the assessee argues that Section 271AAA is phrased
identically to Explanation 5 (2) to Section 271 of the Act. It was argued
that in the case of all other parties searched by the revenue, the
explanation given was accepted. In the present case, the revenue was not
justified in singling out the assessee and imposing penalty. Learned
counsel urged that the approach of the tribunal was justified in the
circumstances of the case, given that the assessee had made the
appropriate disclosures. He relied on the judgment of the Gujarat High
Court in Commissioner of Income Tax v. Mahendra C. Shah [2008] 299
ITR 305; Commissioner of Income Tax v. Radha Kishan Goel [2005] 278
ITR 454 [2006] 152 Taxman 290 (All.) and the tribunal's bench decision
in Mothers Pride Education Personnel (P.) Ltd. v. Dy. Commissioner of
Income Tax (ITA Appeal No. 3372 (Delhi) of 2011, dated 12-10-2012)
and Neeraj Singal vs. Assistant Commissioner of Income Tax, (decided on
24.06.2013 - ITAT Delhi). It was also urged that the disclosure made by
the assessee was common to the one made and considered in other
connected/related parties' cases.
Analysis and conclusions
7. Section 271AAA, which is involved in the present case, reads as
follows:
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"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 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).
(4) The provisions of sections 274 and 275 shall, so far as
may be, apply in relation to the penalty referred to in this
section.
Explanation.--For the purposes of this section,--
(a) "undisclosed income" means--
(i) any income of the specified previous year
represented, either wholly or partly, by any 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 132, which has--
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(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
has not furnished the return of income for the
previous year before the said date; or
(ii) in which search was conducted.
8. This provision was brought into force with effect from 01.04.2007.
Its scope and effect was explained by Circular of the Central Board of
Direct Taxes (CBDT) dated 12.03.2008 (Circular No.3) in the following
terms:
68. Provision for penalty for concealment in search and
seizure cases.-68.1 A new section 271AAA has also been
inserted so as to provide that, in a case where search has
been initiated under section 132 on or after 1st June, 2007,
the assessee shall be liable to pay by way of penalty, in
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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. However, provisions of this section shall not be
applicable if the assessee (i) in a statement under sub-
section (4) of section132 in the course of the search, 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. It is further provided that no penalty
under the provisions of clause (c) of sub-section (1) of section
271 shall be levied or imposed upon the assessee in respect of
the undisclosed income referred to in this section. It is also
provided that the provisions of section 274 and section 275
shall, so far as may be, apply in relation to the penalty
leviable under the new section.
68.2 For the purposes of this section, undisclosed income
has been defined to mean (i) any income of the specified
previous years represented, either wholly or partly, by any
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
132, which has 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 which
has otherwise not been disclosed to the Chief Commissioner
or Commissioner before the date of the 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.
68.3 For the purposes of this section, specified previous year
has been defined, so as to mean the previous year --
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(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 has not furnished the return of income for
the previous year before the said date; or
(ii) in which search was conducted.
68.4 An appeal to the Commissioner against levy of penalty
under the proposed new section 271AAA has also been
provided.
68.5 Applicability- This amendment will take effect from the
1st day of June, 2007 and will accordingly apply in relation to
assessment year 2007-2008 and subsequent years in cases
where search under section 132 is initiated on or after 1st
June, 2007.
9. Section 271AAA was amended by the Finance Act, 2012 with
effect from 01.04.2012. The effect of the amendment was that it became
applicable in all cases where search was initiated under Section 132 on or
after 01.06.2007 but before 01.07.2012.Section 271AAA and its
amendments are part of series of amendments with respect to the effect of
presumption in the case of search cases under Section 132(4A). These
were introduced simultaneously with the omission of Explanation 5 to
Section 271(1)(c) on the one hand and insertion of Explanation 5A as
well as Section 292C. The provision applies to income of the specified
period, i.e. period for which return had not yet become due and the
broken periods starting from the beginning of the financial years till the
date of the search. It provides for 10% penalty of such income through a
statutory inference or presumption that such amount or income was not
ITA 672/2016 Page 10 of 17
intended to be disclosed as they were not reflected in the books, soon at
the time of the search.
10. One of the conditions that results in the inapplicability of Section
271AA is payment of tax. Since the assessability and quantification of the
amount of undisclosed income can be legitimately computed only at the
stage of assessment, it was held by the Tribunal concurring with the first
appellate authority, that the outer time limit for payment of tax is not
prior to the conclusion of assessment proceedings. Where there was a
short payment by way of self-assessment tax but made good in response
to the notice of demand on completion of the assessment it was held that
there was no scope for penalty under section 271AAA as was held in
Mahendra C. Shah (supra) while interpreting Explanation 5 to Section
271(1)(c).
11. Explanation 5(2) of Section 271(1)(c) was considered by the
Supreme Court in Assistant Commissioner of Income Tax v. Gebilal
Kanhailal [2012] 348 ITR 561 (SC). 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
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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 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 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,
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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 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
ITA 672/2016 Page 13 of 17
under Section 271(1)(c) as he failed to file his return of 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 assessee replied that
the said amount of ` 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
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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 in respect of
pari material provisions) have to necessarily be fulfilled. In the preset
case, the 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:
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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 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 16.12.2003, in
the case of a sister concern of the assessee.
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16. That the income which was ultimately brought to tax pursuant to
the disclosure made, which was voluntary on the part of the assessee is
stating the obvious. The assessee merely stated that the sums advanced
were undisclosed income. However, she did not specify how she derived
that income and what head it fell in (rent, capital gain, professional or
business income out of money lending, source of the money etc). Unless
such facts are mentioned with some specificity, it cannot be said that the
assessee has fulfilled the requirement that she, in her statement (under
Section 132 (4)) substantiates the manner in which the undisclosed
income was derived. Such being the case, this court is of opinion that
the lower appellate authorities misdirected themselves in holding that the
conditions in Section 271AAA (2) were satisfied by the assessee.
17. For the above reasons, it is held that the impugned order is in error;
the substantial question of law is answered in favour of the revenue and
against the assessee. The appeal is consequently allowed. No costs.
S. RAVINDRA BHAT, J
A.K. CHAWLA, J
MARCH 12, 2018
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