O/TAXAP/1181/2010 JUDGMENT IN HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 1181 of 2010 With TAX APPEAL NO. 1182 of 2010 TO TAX APPEAL NO. 1185 of 2010 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER 1 Whether Reporters of Local Papers may be allowed to see judgment ? 2 To be referred to Reporter or not ? 3 Whether their Lordships wish to see fair copy of judgment ? 4 Whether this case involves substantial question of law as to interpretation of Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to civil judge ? KIRIT DAHYABHAI PATEL....Appellant(s) Versus ASSISTANT COMMISSIONER OF INCOME TAX....Opponent(s) Appearance: MR. SAURABH M SOPARKAR, SENIOR COUNSEL WITH MRS SWATI SOPARKAR, ADVOCATE for Appellant(s) No. 1 Page 1 of 17 HC-NIC Page 1 of 17 Created On Sat Dec 10 18:01:31 IST 2016 O/TAXAP/1181/2010 JUDGMENT MR. P.G. DESAI, ADVOCATE WITH MR SUDHIR M MEHTA, ADVOCATE for Opponent(s) No. 1 CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER Date : 03/12/2014 COMMON ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. As all these arise out of common order of Income Tax Appellate Tribunal, they are being disposed of by this common judgment. 2. By way of these appeals, appellants assessees have challenged common order dated 17. 07.2009, passed by Income Tax Appellate Tribunal [for short Tribunal ] in ITA Nos. 2344, 2345, 2346, 2348 and 2389/Ahd/2007, whereby appeal preferred by revenue were partly allowed by Tribunal. 3. In all these appeals, facts and question of law are identical, therefore, we discuss only facts of Tax Appeal No.1181 of 2010 for convenience. 4. appellant assessee had filed its return of income for Assessment Year 2002 03 on 07.06.2002, declaring total income at Rs.1,30,900/ . search under Section 132 of Income Tax Act, 1961 [for short act ] was conducted in assessee s residential and office premises on 04.09.2003. In Page 2 of 17 HC-NIC Page 2 of 17 Created On Sat Dec 10 18:01:31 IST 2016 O/TAXAP/1181/2010 JUDGMENT response to notice under Section 153(1)(a) of Act, assessee appellant disclosed additional income over and above income which was declared in original return. Thereafter, assessment proceedings under Section 153(1)(b) of Act were completed on 20.03.2006 and return of income in pursuance to search was accepted. Simultaneously, penalty proceedings were also initiated under Section 271(1)(C) of Act as appellant disclosed additional income in pursuance of search. However, Assessing Officer rejected contention of appellant and levied penalty @ 100% of tax sought to be evaded. 4.1. Against order of Assessing Officer, appellant preferred appeal before Commissioner of Income Tax (Appeals). CIT(A) allowed said appeal and deleted penalty imposed by Assessing Officer. Against order of CIT(A), respondent revenue preferred appeal before Income Tax Appellate Tribunal. However, there was difference of opinion between Accountant Member and Judicial Member and both rendered their separate orders on 24.02.2009. Therefore, matter was referred to Third Member, who, after giving his opinion referred matter to Division Bench of Tribunal for passing final order. Thereafter, Division Bench of Tribunal passed final order and allowed revenue s appeal by its order dated 17.07.2009. Hence, these appeals are filed at instance of Page 3 of 17 HC-NIC Page 3 of 17 Created On Sat Dec 10 18:01:31 IST 2016 O/TAXAP/1181/2010 JUDGMENT assessees. 5. While admitting these appeals on 29.08.2011, Court has formulated following substantial question of law: Whether in facts and circumstances of case, Income Tax Appellate Tribunal was right in law in restoring penalty imposed under Section 271(1)(c) of Act holding that benefit under explanation 5 to Section 271(1)(c) of Act would be available only for period where due date for filing return under Section 139(1) of Act had not expired ? 6. Mr. Soparkar, learned senior counsel for appellants has submitted that Tribunal has committed error in restoring penalty imposed by Assessing Officer and in setting aside order of CIT(A). He further submitted that Tribunal has failed to appreciate fact that penalty under Section 271(1)(c) of Act could be levied only if there is no variation between income assessed and income filed in return under Section 153A of Act. 6.1. Learned counsel for appellants contended that Tribunal has failed to appreciate fact that Assessing Officer had dropped penalty proceedings in case of another member of same Page 4 of 17 HC-NIC Page 4 of 17 Created On Sat Dec 10 18:01:31 IST 2016 O/TAXAP/1181/2010 JUDGMENT group for Assessment Years 2003 04 and 2004 05. 6.2. Learned senior counsel for appellants has taken us to order of CIT (Appeals) as well as judgment of Tribunal and contended that Tribunal has relied upon decision of other Tribunals and decision of Bombay High Court for passing impugned judgment, however, it has ignored judgments of Madras High Court and Rajashtan High Court, which squarely govern issue involved in these appeals. Therefore, learned counsel for appellant submitted that decision of Tribunal is required to be quashed and set aside. 6.3. In support of his contentions, he relied following judgments: (i) Commissioner of Income Tax Vs. Chhabra Emporium [264, ITR 249(Delhi)] (ii) Commissioner of Income Tax Vs. S.D.V. Chandru [266 ITR 175 (madras)] (iii) Gebilal Kanbhaialal (HUF) Vs. Assistant Commissioner of Income Tax [270 ITR 523 (Rajashtan)] (iv) Assistant Commissioner of Income Tax Vs. Gebilal Kanhailal HUF [ 348ITR 561 (SC) ] (v) Commissioner of Income Tax Vs. Kanhaiyalal Page 5 of 17 HC-NIC Page 5 of 17 Created On Sat Dec 10 18:01:31 IST 2016 O/TAXAP/1181/2010 JUDGMENT [299 ITR 19 (Rajashtan)] (vi) Commissioner of Income Tax Vs. Radha Kishan Goel [ 278 ITR 454 (Allahabad)] (vii) Commissioner of Income Tax Vs. Abdul Rashid [40 taxman.com 244 (Chattisgarh)] (viii) S.M.J. Housing Vs. Commissioner of Income Tax, Central II [ 2013] 38 taxman.com 203 (Madras). (ix) Commissioner of Income Tax, West Bangal Vs. Vegetable Products Ltd.[88 ITR page 192]. 6.4. Learned senior counsel for appellants contended that in view of above submissions and in view of above decisions, present appeals deserve to be allowed. 7. On other hand, learned advocate for respondent revenue has supported order of Tribunal and submitted that order of Tribunal is just and proper and no interference is required to be called for. He has relied upon decision of Delhi High Court in case of Shourya Towers (P.) Ltd. Vs. Deputy Commissioner of Income Tax, reported in [2013] 30 taxmann.com 10, more particularly paragraph Nos. 13 and 14, which reads as under: 13. From record, this Court notices Page 6 of 17 HC-NIC Page 6 of 17 Created On Sat Dec 10 18:01:31 IST 2016 O/TAXAP/1181/2010 JUDGMENT that after search, and statement recorded under Section 132 (4), assessee, on being issued with notice under Section 153A did not file any return. notice under Section 153A was issued on 20 7 2006. It was only when assessment proceedings were taken up for consideration, did 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 notice under Section 153A. Much later, it sought to revise its computation, on 14 12 2007. Therefore, this Court is of opinion that escape route , provided by Clause (2) to Explanation 5 in this case, was not available to assessee. It has to be reiterated that said provision is available, not merely when assessee, in his statement offers or surrenders, to tax amount in question which is later assessed, but also complies with other conditions, of having filed return. allusion to Section 139 (1) is significant in this regard, because notice and consequent search assessment pursuant to Section 153A stands excluded, altogether, by virtue of non obstante clause to latter (Section 153A) provision. Even if other view, more favourable to assessee were to be taken, and for moment, return Page 7 of 17 HC-NIC Page 7 of 17 Created On Sat Dec 10 18:01:31 IST 2016 O/TAXAP/1181/2010 JUDGMENT under Section 153A were to, arguendeo be assumed to be covered as one under Section 139 (1), fact remains, that in this case, assessee did not include it, pursuant to notice issued, and instead chose to merely reiterate its return originally filed on 31 10 2005. 14. This Court is also of opinion that 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 opinion of Court, extends to those cases, falling in clause (b) of excepted part, i.e. where return of year is yet to be filed, in respect of previous year, during which search took place. This is because of expression in his return of income to be furnished before 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 structure and placement of main provision, which is specially intended to cover search assessments, such intention would have been manifest if there were no reference to Section 139 (1) and instead, Section 153 were to be used. That this is Page 8 of 17 HC-NIC Page 8 of 17 Created On Sat Dec 10 18:01:31 IST 2016 O/TAXAP/1181/2010 JUDGMENT correct position is also evident from non obstante clause under Section 153A, which was resorted to by AO in this case. 8. We have heard learned advocates for parties and perused material on record. Before dealing with contentions, it would be relevant to reproduce Explanation 5 to Section 271 (1) (c) of Income Tax Act, which reads as under: Explanation 5. Wherein in course of [search initiated under section 132 before 1st day of June, 2007], assessee is found to be owner of any money bullion, jewellery or other valuable article or thing (hereafter in this Explanation referred to as assets) and 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 date of search, but return of income for such year has not been furnished before said date or, wherein such return has been furnished before said date, such income has not been declared therein; or (b) for any previous year which is to end Page 9 of 17 HC-NIC Page 9 of 17 Created On Sat Dec 10 18:01:31 IST 2016 O/TAXAP/1181/2010 JUDGMENT on or after date of search, then, notwithstanding that such income is declared by him in any return of income furnished on or after date of search, he shall, for purposes of imposition of penalty under clause(c) of sub section (1) of this section, be deemed to have concealed particulars of his income or furnished inaccurate particulars of such income, unless, (1) Such income is, or transactions resulting in such income are recorded, (i) in case falling under clause(a), before date of search; and (ii) in case falling under clause(b), on or before such date; in books of account, if any, maintained by him for any source of income of such income is otherwise disclosed to [principal Chief Commissioner or Commissioner or] Chief Commissioner or [Principal Commissioner or] Commissioner] before said date; or (2) he in course of search, makes statement under sub section (4) of Page 10 of 17 HC-NIC Page 10 of 17 Created On Sat Dec 10 18:01:31 IST 2016 O/TAXAP/1181/2010 JUDGMENT section 132 that any money, bullion, jewelery or other valuable article of 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 expiry of time specified in sub section (1) of Section 139 and also specifies in statement manner in which such income has been derived and pays tax, together with interest, if any, in respect of such income. 9. High Court of Madras in case of S.D.V.Chandru (supra) held that in case where asseessee had not disclosed his income in returns filed for previous year which have ended prior to date of search and, in statement given under Section 132(4) assessee admitted receipt of undisclosed income for those years and also specified manner in which such income had been derived and thereafter pays tax on that undisclosed income with interest, then such undisclosed income would get immunised from levy of penalty. 10. Looking to facts and circumstances of case, it would be relevant to refer decision relied upon by learned senior advocate for appellant in case of Gebilal Kanbhaialal (HUF) Page 11 of 17 HC-NIC Page 11 of 17 Created On Sat Dec 10 18:01:31 IST 2016 O/TAXAP/1181/2010 JUDGMENT (supra), wherein Apex Court in paragraph No.6 has observed as under: 6. Explanation 5 is deeming provision. It provides that where, in course of search under Section 132, assessee is found to be owner of unaccounted assets and 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 date of search or which is to end on or after date of search, then, in such situation, notwithstanding that such income is declared by him in any return of income furnished on or after date of search, he shall be deemed to have concealed particulars of his income for purpose of imposition of penalty under Section 271(1) (C). only exceptions to such deeming provision or to such presumption of concealment are given in sub clauses (1) and (2) of Explanation 5. In this case, we are concerned with interpretation of clause (2) of Explanation 5, which has quoted above. Three conditions have got to be satisfied by assessee for claiming immunity from payment of penalty under clause (2) of Explanation 5 to Section 271(1(C). first condition was that assessee must make statement under Section 132(4) in course Page 12 of 17 HC-NIC Page 12 of 17 Created On Sat Dec 10 18:01:31 IST 2016 O/TAXAP/1181/2010 JUDGMENT of search stating that unaccounted assets and incriminating documents found from his possession during search have been acquired out of his income, which has not been disclosed in return of income to be furnished before expiry of time specified in Section 139(1). Such statement was made by Karta during search which concluded on August 1, 1987. It is not in dispute that condition No.1 was fulfilled. second condition for availing of immunity from penalty under Section 271(1)(C) was that assessee should specify, in his statement under Section 132(4), manner in which income stood derived. Admittedly, second condition, in present case also stood satisfied. According to department, assessee was not entitled to immunity under Clause (2) as he did not satisfy the condition for availing benefit of waiver of penalty under Section 271(1)(c) as assessee failed to file his return of income on 31st July, 1987 and pay tax thereon particularly when assessee concealed on August 1, 1987 that there was concealment of income. third condition under clause (2) was that assessee had to pay tax together with interest, if any, in respect of such undisclosed income. However, no time limit for payment of such tax stood Page 13 of 17 HC-NIC Page 13 of 17 Created On Sat Dec 10 18:01:31 IST 2016 O/TAXAP/1181/2010 JUDGMENT prescribed under clause(2). only requirement stipulated in third condition was for assessee to pay tax together with interest . In present case, third condition also stood fulfilled. assessee has paid tax with interest upto date of payment. only condition which was required to be fulfilled for getting immunity, after search proceedings got over, was that assessee had to pay tax together with interest in respect of such undisclosed income upto date of payment. Clause(2) did not prescribe time limit within which assessee should pay tax on income disclosed in statement under Section 132(4). 11. Even, High Court of Chattisgarh in case of Abdul Rashid(supra) has held that in order to get benefit of immunity under clause(2) of explanation 5 to Section 271(1)(c) of Income Tax Act, it is not necessary to file return before due date provided that assessee had made statement, during search and explained manner in which surrendered amount was derived, and paid tax as well as interest on surrendered amount. 12. At this stage, it is required to be noted that Apex Court in case of Commissioner of Income Tax, West Banagal I Vs. Vegetable Products Page 14 of 17 HC-NIC Page 14 of 17 Created On Sat Dec 10 18:01:31 IST 2016 O/TAXAP/1181/2010 JUDGMENT Ltd. (supra), has held that if Court finds that language of taxing provision is ambiguous or capable of more meaning than one, then Court has to adopt interpretation which favours assesee, more particularly so where provision relates to imposition of penalty. 13. Considering facts and circumstances of case and also considering decisions relied upon by learned senior advocate for appellant, we are of considered opinion that view taken by Tribunal is erroneous. CIT(A) rightly held that it is not relevant whether any return of income was filed by assessee prior to date of search and whether any income was undisclosed in that return of income. In view of specific provision of Section 153A of I.T. Act, return of income filed in response to notice under Section 153(a) of I.T. Act is to be considered as return filed under Section 139 of Act, as Assessing Officer has made assessment on said return and therefore, return is to be considered for purpose of penalty under Section 271(1)(c ) of I.T. Act and penalty is to be levied on income assessed over and above income returned under Section 153A, if any. 14. Further, in present case, it appears from record that assessees had satisfied all conditions which are required for claiming immunity from payment of penalty under Section 271(1) Page 15 of 17 HC-NIC Page 15 of 17 Created On Sat Dec 10 18:01:31 IST 2016 O/TAXAP/1181/2010 JUDGMENT of Act. provision does not specify any time limit during which aforesaid amount i.e. amount of penalty with interest has to be paid. Admittedly when assessees herein have paid entire amount with interest, Assessing Officer ought to have granted them immunity available under Section 271(1)(C ) of Income Tax Act. 15. decision relied upon by learned advocate for respondent will not apply to facts of present case. 16. In view of aforesaid facts of case and also principle laid down in decisions relied upon by learned senior counsel for appellant more particularly principle laid down in case of Assistant Commissioner of Income Tax Vs. Gebilal Kanhailal (supra) and Commissioner of Income Tax Vs. Abdul Rashid (supra), we are of considered opinion that penalty under Section 271(1)(C) of Income Tax Act cannot be levied on income shown in return filed under Section 153 of I.T. Act. 17. Considering facts and circumstances of case and also considering decision of Madras High Court in case of S.D.V. Chandu (supra), we are of opinion that appellant is entitled to benefit of provisions of Explanation 5(2) to Section 271(1)(c) of Income Tax Act. Page 16 of 17 HC-NIC Page 16 of 17 Created On Sat Dec 10 18:01:31 IST 2016 O/TAXAP/1181/2010 JUDGMENT 18. For foregoing reasons, present appeals stand allowed. order of Tribunal is quashed and set aside. Consequently, order of CIT(A) is restored. question of law involved in this appeals is answered in favour of assessee and against revenue. (K.S.JHAVERI, J.) (K.J.THAKER, J) pawan Page 17 of 17 HC-NIC Page 17 of 17 Created On Sat Dec 10 18:01:31 IST 2016 Kirit Dahyabhai Patel v. Assistant Commissioner of Income-tax