Penalty for undisclosed income can be imposed under section 271AAA and not under Section 271(1)(c)

By | December 7, 2015

As per  Section 271AAA (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) of Section 271AAA.

IN THE ITAT AHMEDABAD BENCH

Dr. Naman A. Shastri

v.

Assistant Commissioner of Income-tax, Central Circle 2 (3), Ahmedabad

PRAMOD KUMAR, ACCOUNTANT MEMBER
AND RAJPAL YADAV, JUDICIAL MEMBER

IT(SS) APPEAL NOS. 561 TO 563 (AHD.) OF 2011
[ASSESSMENT YEAR 2008-09]

SEPTEMBER  29, 2015

Mukesh M. Patel and Paridhi J. Patel for the Appellant. J.P. Jhangid and Narendra Singh for the Respondent.

ORDER

Pramod Kumar, Accountant Member – These three appeals involve a common issue, arising out of the same set of facts and were heard together. As a matter of convenience, therefore, all the three appeals are being disposed of by way of this consolidated order.

2. While material facts of all the cases are the same, inasmuch as all the three appellants before us are medical professionals associated with Care Cardiologists and Consultants Private Limited which was subjected to search and seizure operation on 21st August 2008, we are taking up the case of Dr Naman A Shastri as the lead case, and whatever we decide in this case, as the learned representatives fairly agree, will apply mutatis mutandis in other two cases as well.

3. In ITA No. 561/Ahd/11, the assessee, i.e. Dr Shastri, has called into question correctness of the order dated 8th September 2011 passed by the CIT(A), in the matter of penalty of Rs 23,20,000 imposed on the assessee under section 271(1)(c) of the Income Tax Act, 1961, for the assessment year 2008-09.

4. Grievances raised by the assessee are as follows:

1. That the learned CIT(A) erred in law and on facts in confirming the imposition of penalty of Rs 23,20,000 levied under section 271(1)(c) of the Income Tax Act, 1961.
2. That the learned CIT(A) erred in law and on facts in rejecting the legal contention of the appellant that no penalty under section 271(1)(c) could be lawfully levied in the appellant’s case, since it was governed by the provisions of Section 2 71AAA(3) which reads as under:
“No penalty under the provisions of clause (c) of sub section (1) of Section 271 shall be imposed on the assessee in respect of undisclosed income referred to sub section (1)”
3. That the learned CIT(A) grievously erred in not appreciating the merits of the appellant’s submissions that both on facts and in the circumstances of the appellant’s case, as well as in law, the order under section 271(1)(c) of the Income Tax Act levying a penalty of Rs 23,20,000 was prima facie bad in law and not maintainable, keeping in view the elaborate reasons as highlighted in the statement of facts along with the grounds of appeal in form no. 35.

5. The relevant material facts are like this. The assessee before us is a heart surgeon associated with Care Cardiologists and Consultants Private Limited which was subjected to search and seizure operation on 21st August 2008. On 30th November 2009, the assessee filed an income tax return disclosing an income of Rs 98,70,610. In the income tax return so filed, the assessee, inter alia, disclosed an income of Rs 68,00,000, as income from other sources, which was in respect of cash payment for his contribution for the acquisition of land for the hospital project. During the course of scrutiny assessment proceedings of this return, in a statement recorded under section 131(1), the assessee “confirmed the fact of having paid cash of Rs 68,00,000 towards the purchase of land for the hospital project”. It was in this backdrop that the Assessing Officer initiated the penalty proceedings under section 271AAA by observing that “if the search under section 132 of the Act had not taken place, the assessee would not have disclosed this amount and the same would have gone undetected”. Even though the penalty proceedings were initiated under section 271AAA, as is evident from the copy of assessment order filed before us- which has remained uncontroverted, the Assessing Officer changed his mind and finally imposed the penalty, amounting to Rs 23,20,000, under section 271(1)(c) of the Act in respect of this income of Rs 68,00,000 which was treated as an undisclosed income of the assessee. Aggrieved, assessee carried the matter in appeal but without any success. The assessee is not satisfied and is in further appeal before us.

6. We have heard the rival contentions, perused the material on record and duly considered the facts of the case in the light of the applicable legal position.

7. We consider it appropriate to reproduce, for ready reference, Section 271AAA of the Act:

‘271AAA. Penalty where search has been initiated.— (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, 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—
(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 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;
(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. The scheme of Section, which governs penalty on undisclosed income for the ‘specified previous year’, is like this. In the cases in which search is initiated, the penalty under section 271AAA will come into play in respect of ‘undisclosed income’ of ‘specified previous year’, and, to that extent, the provisions of Section 271(1)(c) will not be applicable. In other words, so far as penalty in respect of undisclosed income is concerned, Section 271AAA will apply to the extent of the ‘specified previous year’ and, for the other previous years, the provisions of Section 271(1)(c) will continue to hold the field. The expression ‘specified previous year’ refers to the previous year in which the search is conducted or the year which has ended but the due date for filing of income tax return in respect of the same has not ended. Coming to the facts of the present case, the search took place on 21st August 2008, and, accordingly, the due date of filing income tax return in respect of the income of this previous year was on or before 30th September 2008. Clearly, even though the previous year ending 31st March 2008 relatable to the assessment year 2008-09, which is the year before us, had ended on 31st March 2008, the due date of filing of the income tax return had not lapsed. The year before us was, therefore, covered by the definition of ‘specified previous year’ as per Explanation (b) to Section 271AAA. It is not in dispute that the income in question has been assessed as income of the assessment year 2008-09, i.e. specified previous year on the facts of this case. The Assessing Officer himself has treated the undisclosed income of the assessee as such. Once we come to the conclusion that the year before us is a ‘specified previous year’, and the undisclosed income belongs to this year, an inevitable corollary to this finding, in view of the discussions above, is that the provisions of Section 271AAA will come into play. It is also important to bear in mind the fact that the situations in which provisions of Section 271AAA and the provisions of Section 271(1)(c) can apply are inherently mutually exclusive as Section 271AAA(3) clearly states that, “(n)o 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) (of Section271AAA)“. Accordingly, the provisions of Section 271(1)(c) cannot be put into service here. Learned counsel has also invited our attention to the fact that, on the same set of facts and in connection with the same investment in the land-cash component of which has been treated as ‘income from other sources’ in the hands of all the persons jointly making this investment, penalties have been levied under section 271AAA in the cases of Dr Anil Jain, Dr Vishal Gupta and B Srinivas Mallaya. It is contended that it cannot be open to the Assessing Officer to take different stand in the cases of different assessees placed in the same situation. However, we see no need to deal with this contention since we have upheld the plea of the assessee on merits that the penalty for undisclosed income’, on the given facts and in respect of the assessment year before us, could only be imposed, if at all, only under section 271AAA and not under section 271(1)(c). In any case, once the penalty is initiated under section 271AAA in the assessment order, there cannot be any occasion to impose the penalty under section 271(1)(c). We have perused the copy of the assessment order filed by the assessee which specifically states that the penalty is initiated under section 271AAA and no other document, suggesting that penalty was initiated under section 271(1)(c), has been filed before us. Be that as it may, as have held that penalty under section 271(1)(c) could not have been imposed on the facts of this case, the initiation aspect of the penalty is anyway no more than academic. In view of these discussions, the Assessing Officer was clearly in error in invoking the provisions of Section 271(1)(c) on the facts of this case. We, therefore, delete the impugned penalty.

9. Learned counsel, however, shows, what appears to be, a somewhat rare gesture of fairness. He submits that even though the time for imposition of penalty under section 271AAA has expired by now, since the assessee had no objection to the penalty being imposed under section 271AAA anyway, he does not mind the order being confirmed to that extent or to the fresh levy of penalty under section 271AAA. He submits that his clients, as law abiding citizens, are content with the relief legally due to them and they do not wish to capitalize on the technicalities. While this plea does seem to reflect an exceptionally responsible and gracious conduct on the part of the taxpayers and their advisors, which will hopefully inspire many more to follow such a path, we may only say that it is not open to us to suitably modify this penalty order under section 271(1)(c), or to partially confirm the order, to the extent of what would have been the quantum of penalty due under section 271AAA. We take learned counsel’s submission on record and leave it for the Assessing Officer and the assessees to take the matter further. The impugned penalty, in our considered view, is unsustainable in law and, for that reasons, we have deleted it. The matter rests at that so far as this forum is concerned.

10. As learned representatives have fairly agreed, whatever we decide in the case of Dr Shastri in IT(SS)A No. 561/Ahd/2011 will equally apply in the cases of Dr Mehta, in IT(SS)A No. 562/Ahd/2011, and Dr Trivedi, in IT(SS)A No. 563/Ahd/2011, as well. The date of search operation as also the due date of filing of returns are the same in these cases. It was in connection with the same investment in the land-cash component of which has been treated as ‘income from other sources’ in the hands of all the persons jointly making this investment, that the related quantum additions were made in the hands of these two assessees as well- though of Rs 59,50,000 and Rs 17,00,000 respectively. All the material facts, but for differences in quantum, are the same. There is no dispute on this aspect at all, and the same consequences must, therefore, follow. Accordingly, the penalties of Rs 20,25,000 and Rs 5,80,000 imposed on Dr Mehta and Dr Trivedi also stand deleted and our observations above apply mutatis mutandis in these cases as well. As for the offer of paying the penalty under section 271AAA is concerned, as we have stated earlier, it is between the Assessing Officer and the assessee.

11. In the result, all the three appeals are allowed.

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