Shourya Towers Pvt Ltd vs Dcit
2012 Latest Caselaw 7096 Del

*      IN THE HIGH COURT OF DELHI AT NEW DELHI
                                              Reserved on : 22.11.2012
                                               Decided on : 12.12.2012
+                          ITA 170/2012

SHOURYA TOWERS PVT LTD                                      ..... Appellant
                     Through : Sh. Anoop Sharma, Advocate.

                                 versus

DCIT                                                        ..... Respondent
               Through : Sh. Sanjeev Sabharwal, Sr. Standing Counsel with
                         Sh. Puneet Gupta, Jr. Standing Counsel.
CORAM:

HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE R.V.EASWAR

MR. JUSTICE S.RAVINDRA BHAT

%    Facts:

1.     This is an assesse's appeal under Section 260-A of the Income Tax
Act 1961 ("the Act") assailing the order of the Income Tax Appellate
Tribunal, Delhi Bench (ITAT) dated 25-3-2011 in ITA No. 701/D/09. The
assessee urges that the substantial question which arises in this case, is that
the ITAT erred in not applying clause (2) to Explanation 5 to Section 271 (1)
(c) of the Act, in the facts and circumstances of the present case.




ITA 170/2012                                                                  Page 1
 2.    The facts of the case are that the assessee filed a return of income on
31.10.2005 declaring total loss of `.19,08,840/-. Thereafter, search and
seizure operations were conducted in the Nitishree Group, and survey was
also conducted at the business premises of the assessee. In the course of
search, the statement of Mr. Anil Jain was recorded on oath under Section
132(4) of the Act on 17.02.2006. It was interalia deposed that unaccounted
income of various years was invested, benami in the share capital of some
companies. Shri Kahshinath Shukla, Director of the assessee company, also
introduced unaccounted money benami name as share capital. The details of
these were not known to him on the date of search. However, the total
amount was quantified at `.15 crores. These details were furnished on
31.07.2006.

3.    According to the statement, the assessee's benami share investment
for the two years, i.e., assessment years 2005-06 and 2006-07, were shown
at `.121 lakhs and `.521.95 lakhs respectively. The total unaccounted
income for seven assesses of the group was shown as `.1522.98 lakh.
Subsequent to the searches, a notice under Section 153A of the Act was
issued to the assessee. In response, it was stated that the return filed under
Section 139(1) may be treated as return under Section 153A. Assessment
under Section 153A read with section 143(3) was completed on 31.12.2007,
in which the surrendered amount of `.121 lakh was deducted from the loss
of `.19,08,840/- shown in the return. Thus, the total income was computed at




ITA 170/2012                                                            Page 2
 `.1,01,91,160/-. Penalty proceedings were initiated under Section 271(1)(c)
of the Act. These proceedings were completed on 30.06.2008 by levying
minimum penalty of `.44,27,692/-. The Assessing officer, in his order,
stated that neither in the original return nor in the letter in response to notice
under Section 153A, was the income has declared. Such a conduct was with
the aim of concealing income that was surrendered under Section 132(4)
from the purview of taxation. It is only in the course of proceedings u/s
153A that the assessee has filed a revised computation of income in which
the surrendered income has been taken to be revised return. Thus, if no
specific query had been made, even the surrendered income would have
escaped assessment. The CIT (A) and the ITAT successively rejected the
assessee's appeals.

4.    The primary contention of the assessee is that the case falls under
Explanation 5(a)(1) to Section 271(1)(c) of the Act as the income mentioned
therein or transactions were recorded in the books in the form of share
capital of other concerns of the groups. The counsel for the assessee has
relied on the case of Commissioner Of Income-Tax v. Chhabra Emporium,
reported in 2003 (264) ITR 249 (Del). In that case, it was held that when
surrender of the asset has been made on the date of search and when such
surrender falls within the explanation 5 to section 271(1)(c) of the Act, the
penalty was bound to be cancelled.




ITA 170/2012                                                                Page 3
 5.    The assessee argued that since the undisclosed income was admitted
in the statement given on 17.02.2006, i.e., the date of search, the same could
not be included in the return which was filed on 12.01.2005 which was prior
to the search. Moreover, no return was filed pursuant to the notice u/s 153A.
Therefore, there is no question of retracting from the statement made on oath
under section 132(4) and thus, no concealment of income is there. Thus, no
penalty should be imposed on the assessee. Further, reliance has been placed
on the judgment of Sir Shadilal Sugar and General Mills Ltd. v.
Commissioner of Income-tax reported in [1987] 168 ITR 705 (SC) wherein
the Supreme Court has held that it is the duty of the Tribunal to consider the
facts and evidence with due care and caution. However, the counsel for the
assessee has contended that the assessee disclosed the income during search.
However, the department has erroneously levied penalty on the assessee,
when assessee made all efforts to buy peace by surrendering the amount of
income while search.

6.    The assessee also contended that since penalty is in quasi-criminal
form, it is the duty of the department to establish that the assessee has
concealed income. Reliance has been placed on the judgment of T. Ashok
Pai v.CIT reported in (292 ITR 11)(SC) 3. Thus, the revenue has not
established that the assessee has deliberately concealed income. On the other
hand, the assessee has surrendered the income. Thus, imposition of penalty
on the assessee is bad in law. The assessee placed reliance on the judgment
of CCE Vs. Pepsi Foods Limited reported in 2010 (260) ELT 481 (SC)



ITA 170/2012                                                            Page 4
 where the Court held that it is essential to establish mens rea for purposes of
levying penalty. In the instant case, the assessee has no motive to conceal
income, nor has any intention to escape income from assessment. The same
can be stated based on the fact that the assessee has disclosed and
surrendered income on oath u/s 132(4) of the Act. Thus, there is no way that
the assessee intended to conceal income which should attract penalty u/s
271(1)(c) of the Act.

7.    The revenue contended that it is clear that, the assessee has, neither in
the original return nor in the letter in response to the notice u/s 153A, has
declared the income. Such a conduct amounted to conceal even the income
surrendered under Section 132(4) from the purview of taxation. It is only in
the course of proceedings under 153A on 14.02.2007 that the assessee filed a
revised computation of income in which the surrendered income has been
taken into account. Such computation cannot be taken to be revised return.
Therefore, the assessee was taken chance prior to filing the statement and if
specific query had not been made, even the surrendered income would have
escaped income.

8.    The Respondent relied on CIT v. S. Kumar & Ors, (2009) 120 TTJ
(Bangalore) 361 where it was held that if the assessee surrenders undisclosed
income and the assessee files return and pays taxes on it, then the penalty is
not leviable. However, in the instant case, the assessee has not filed returns
declaring the undisclosed income. The return filed under Section 139(1) did




ITA 170/2012                                                             Page 5
 not include any such income, neither did the assessee file the returns after
notice u/s 153A. Thus, it is not incorrect on the part of the Revenue to levy
penalty on the assessee. It was also contended that immunity under
Explanation 5 of Section 271(1) (c) cannot be availed by the assessee.
Relying on the decision of CIT vs. S.D.V. Chandru 266 ITR 175 (Mad.), the
Respondent argues that it is necessary for the assessee to declare the mode in
which the income was acquired. In the instant case, leaving aside the mode
of acquisition of income, even the return was not filed of the entire income
before the search was made. Thus, immunity under this explanation cannot
be granted to the assessee.

9.    The Respondent also relied on the judgment in S. Kumar & Ors.
(Supra) on the issue of benami transaction. It is clear that the facts are
distinguishable as the benami investments, do not stand recorded in the
books of the assessee, and the surrender was withdrawn on deemed filing of
the return. Further, the income from which benami investments were made,
had not been surrendered. What was surrendered are the assets found in the
possession of the assessee. Thus, the respondent is of the view that no
immunity is available under Explanation 5 for the assessee.

10.   The Respondent has argued, moreover, that the surrender made by the
assessee was retracted, and the mode and manner of earning the income has
not been disclosed at any stage. Although, income was offered to tax on
14.12.2007, yet, that cannot obliterate the act of concealment, committed




ITA 170/2012                                                            Page 6
 twice in filing return under Sections 139(1) and return u/s 153A for the
reason that the assessee has used dilatory tactics in payment of tax and
interest. Thus, no immunity accrues on the assessee from the liability. It is
highlighted that the assessee in fact did not file any return, and only chose to
revise the return originally filed, only on 14-12-2007, after declaring that its
original return (of 31-10-2005) be treated as its response to the notice under
Section 153A. In the facts of this case, the provision of clause (2) of
Explanation 5 to Section 271 (1) (c) did not apply.

11.   Before a further discussion, it would necessary to extract the relevant
provision, i.e. Explanation 5 to Section 271 (1) (c); it is as follows:

      "Section 271. FAILURE TO FURNISH RETURNS, COMPLY
      WITH NOTICES, CONCEALMENT OF INCOME, ETC.
      (1) If the Assessing Officer or the Commissioner (Appeals) in the
      course of any proceedings under this Act, is satisfied that any person -
      (a) Omitted
      (b) Has failed to comply with a notice under sub-section (1) of section
      142 or sub-section (2) of section 143 or fails to comply with a
      direction issued under sub-section (2A) of section 142; or
      (c) Has concealed the particulars of his income or furnished
      inaccurate particulars of such income, he may direct that such person
      shall pay by way of penalty, -
      ..................

.....................

Explanation 1 : Where in respect of any facts material to the computation of the total income of any person under this Act, -

ITA 170/2012 Page 7 (A) Such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner (Appeals) to be false, or (B) Such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section be deemed to represent the income in respect of which particulars have been concealed.

........................ ......................... Explanation 5 : Where in the course of a search under section 132, the assessee is found to be the owner of any money, bullion, jewellery or other valuable article or thing (hereafter in this Explanation referred to as assets) and the assessee claims that such assets have been acquired by him by utilising (wholly or in part) his income, -

(a) For any previous year which has ended before the date of the search, but the return of income for such year has not been furnished before the said date, or, where such return has been furnished before the said date, such income has not been declared therein; or

(b) for any previous year which is to end on or after the date of the search, then, notwithstanding that such income is declared by him in any return of income furnished on or after the date of the search,

he shall, for the purposes of imposition of a penalty under clause (c) of sub-section (1) of this section, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income,

Unless, -

ITA 170/2012 Page 8 (1) Such income is, or the transactions resulting in such income are recorded, -

(i) In a case falling under clause (a), before the date of the search; and

(ii) In a case falling under clause (b), on or before such date, in the books of account, if any, maintained by him for any source of income or such income is otherwise disclosed to the Chief Commissioner or Commissioner before the said date; or (2) He, in the course of the search, makes a statement under sub-

section (4) of section 132 that any money, bullion, jewellery or other valuable article or thing found in his possession or under his control, has been acquired out of his income which has not been disclosed so far in his return of income to be furnished before the expiry of time specified in sub-section (1) of section 139, and also specifies in the statement the manner in which such income has been derived and pays the tax together with interest, if any, in respect of such income."

12. Explanation 5- to Section 271 (1) (c) is a deeming provision. It enacts 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 presumption of concealment are given in sub-clauses (1)

ITA 170/2012 Page 9 and (2) of Explanation 5. The assessee here argues that it is covered by clause (2) of Explanation 5. Three conditions have to be satisfied by the assessee for claiming immunity from payment of penalty under clause (2) of Explanation 5 to Section 271(1)(c):

(i) 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 have not been disclosed in the return of income to be furnished before expiry of time specified in Section 139(1).

(ii) the assessee should specify, in his statement under Section 132(4), the manner in which such income was earned.

(iii) the should pay the tax together with interest, if any, in respect of such undisclosed income.

13. From the record, this Court notices that after the search, and the statement recorded under Section 132 (4), the assessee, on being issued with notice under Section 153A did not file any return. The notice under Section 153A was issued on 20-7-2006. It was only when assessment proceedings were taken up for consideration, did the assessee, by letter dated 14-8-2007, request, that its return, filed on 31-10-2005, be treated as its return filed in response to the notice under Section 153A. Much later, it sought to revise its computation, on 14-12-2007. Therefore, this Court is of the opinion that the "escape route", provided by Clause (2) to Explanation 5 in this case, was not

ITA 170/2012 Page 10 available to the assessee. It has to be reiterated that the said provision is available, not merely when the assessee, in his statement offers or surrenders, to tax the amount in question which is later assessed, but also complies with the other conditions, of having filed the return. The allusion to Section 139 (1) is significant in this regard, because a notice and consequent search assessment pursuant to Section 153A stands excluded, altogether, by virtue of the non-obstante clause to the latter (Section 153A) provision. Even if the other view, more favourable to the assessee were to be taken, and for a moment, a return under Section 153A were to, arguendeo be assumed to be covered as one under Section 139 (1), the fact remains, that in this case, the assessee did not include it, pursuant to the notice issued, and instead chose to merely reiterate its return originally filed on 31-10-2005.

14. This Court is also of the opinion that a plain reading of Clause (2) to Explanation 5 (to Section 271 (1) (c)) altogether excludes its application to cases where returns are filed under Section 139 (1). This clause, in the opinion of the Court, extends to those cases, falling in clause (b) of the excepted part, i.e. where the return of year is yet to be filed, in respect of a previous year, during which the search took place. This is because of the expression "in his return of income to be furnished before the expiry of time specified in sub-section (1) of section 139..". If Parliament had intended clause (2) (to Explanation 5) to cover all other categories, then, having regard to the structure and placement of the main provision, which is specially intended to cover search assessments, such intention would have

ITA 170/2012 Page 11 been manifest if there were no reference to Section 139 (1) and instead, Section 153 A were to be used. That this is the correct position is also evident from the non obstante clause under Section 153A, which was resorted to by the AO in this case.

15. In view of the above discussion, it is held that the Tribunal did not commit any error of law; no substantial question of law arises for consideration. The appeal, being devoid of merits, is consequently dismissed.

                                                 S. RAVINDRA BHAT, J




December 12, 2012                                       R.V.EASWAR, J




ITA 170/2012                                                        Page 12