Krishnakanth Agarwal v. Deputy Commissioner of Income Tax, Central Circle-2 HYDERABAD
[Citation -2016-LL-0923-96]

Citation 2016-LL-0923-96
Appellant Name Krishnakanth Agarwal
Respondent Name Deputy Commissioner of Income Tax, Central Circle-2 HYDERABAD
Court ITAT-Hyderabad
Relevant Act Income-tax
Date of Order 23/09/2016
Assessment Year 2004-05
Judgment View Judgment
Keyword Tags deduction of tax at source • concealment of income • search proceedings • additional income • concealed income • interest income • search warrant
Bot Summary: While the new explanation does away with the exemption from penalty if the Assessee offers the payment in the course of statement u/s 132(4), but under this explanation as it stood at the time of introduction, deemed concealment of income assessed in consequence of search applied only if the Assessees had not had filed a return of income before the due date for filing of return in the respective years. In the Circular No 5/2010 dated 3.6.2010 issued by the CBDT explaining the provisions of the Finance Act 2009, the amendment to explanation 5A was explained as under: 53.2 By substituting the Explanation 5A it has been clarified that the scope extends to the cases where the assessee has filed the return of income for any previous year and the income found during the course of search relates to such previous year and had not been disclosed in the said return, then such income shall represent deemed concealment of income and assessee shall be liable to pay penalty under section 271. The Supreme Court in the cases of Addl CIT v Onkar saran has held that in case of return filed in response to Notice u/s 148, law prevailing as on the date of filing of return will govern the levy of penalty by holding as under: Shri Krishnakanth Agarwal :- 8 -: Smt. Rannodevi Agarwal Even in a case where a return filed in response to a notice under section 148 involved an element of concealment, the law applicable would be the law as it stood at the time when the original return was filed for the assessment year in question and not the law as it stood on the date on which the return was filed in response to the notice under section 148. Further analysis of the provisions in a similar case, wherein that assessee also filed returns after the amendment was brought on Statute, was analysed by the coordinate Bench at Hyderabad in the case of Santosh Kumar Agarwal in ITA No. 665/Hyd/2015, wherein it was held as under: 10. In the event a search has occurred before the 1st day of June, 2007, i.e. after filing of return by the assessee, and on or before the day S.5A has been introduced, then assessee s case would have been governed by Explanation 5, in which case, as assessee has disclosed the amounts under S.132(4) followed by the return, no penalty could be levied as per the provisions of Explanation 5 available upto the date 30th May, 2007. The Supreme Court in the case of Addl CIT v Onkar Saran has held that in case a return is filed in response to Notice u/s 148, law prevailing as on the date of filing of return will govern the levy of penalty. Considering all these aspects and the fact that the assessee has a good case on merits and that the provisions of Explanation 5A are not Shri Krishnakanth Agarwal :- 10 -: Smt. Rannodevi Agarwal applicable on the date of filing of the original return, we are of the opinion that Explanation 5A as it stood on the date of filing the return in response to notice under S.153A by the assessee would not cover the case of the assessee, so as to warrant levy penalty under S.271(1)(c).


IN INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B , HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA No. Asst. Year Appellant Respondent 976/Hyd/2015 2004-05 Shri Krishnakanth Deputy 977/Hyd/2015 2007-08 Agarwal, Commissioner of 978/Hyd/2015 2008-09 HYDERABAD Income Tax, [PAN: AAYPA9056E] Central Circle-2 HYDERABAD ITA No. Asst. Year Appellant Respondent 979/Hyd/2015 2004-05 Smt. Rannodevi Deputy 980/Hyd/2015 2007-08 Agarwal, Commissioner of 981/Hyd/2015 2008-09 HYDERABAD Income Tax, 982/Hyd/2015 2009-10 [PAN: ABLPA4263B] Central Circle-2 HYDERABAD For Assessee : Shri K.C. Devdas, AR For Revenue : Shri K.J. Rao, & Smt. U. Minichandran, DRs Date of Hearing : 19-09-2016 Date of Pronouncement : 23-09-2016 ORDER PER BENCH: These are group of appeals by assessees, both wife and husband, against confirmation of penalty by Commissioner of Income Tax (Appeals)-XI, Hyderabad dated 17-04-2015 in each Shri Krishnakanth Agarwal & :- 2 -: Smt. Rannodevi Agarwal of assessee s case. appeals involve penalty u/s. 271(1)(c) of Income Tax Act [Act] being confirmed by CIT(A). Shri Krishnakanth Agarwal: 2. facts of case are that assessee, Shri Krishnakanth Agarwal was searched on 12-08-2009. By that time assessee has filed returns of income for impugned assessment years as under: Asst. Year Date of filing Income declared original return (Rs) 2004-05 30-10-2004 4,74,090 2007-08 29-10-2007 3,74,130 2008-09 19-09-2008 3,22,720 2.1. Consequent to search operations and on basis of declaration u/s. 132(4) given during course of search, assessee filed revised returns of income in response to notices u/s. 153A on 16-06-2011, revising incomes as under: Asst. Year Income declared in Enhanced Income ROI filed in (Rs) response to notice u/s. 153A (Rs) 2004-05 9,56,920 4,82,830 2007-08 5,99,050 2,24,920 2008-09 4,80,850 1,58,130 enhanced incomes are mostly pertaining to business income in AY. 2004-05 and in other years, major part involves interest income. AO in scrutiny proceedings has accepted incomes returned. It may be noted that in intervening years of 2005-06 and 2006-07, assessee has not enhanced any income and Shri Krishnakanth Agarwal & :- 3 -: Smt. Rannodevi Agarwal therefore, there are no penalty proceedings. AO initiated proceedings u/s. 271(1)(c) and invoking provisions of Explanation-5A to Section 271(1)(c), has levied penalty as under: Asst. Year (Rs) 2004-05 1,68,957 2007-08 68,825 2008-09 48,863 3. When it was contended before Ld. CIT(A) that provisions of Explanation-5A introduced by Finance Act, 2009 would not apply to assessee, Ld. CIT(A) confirmed penalty by stating as under: 05.4 jurisdictional ITAT (Hyd) Bench 'A' in case of Dilip Kedia vs ACIT (2013) taxmann.com 102 has also dealt with issue in detail. Hon'ble Members discussed in detail provisions of section 271(1)(c) rws 132 & 271AAA and Explanation 5 & 5A to section 271(1)(c) of IT.Act, 1961. It also dealt with question whether amendment to Explanation 5A though applicable to searches initiated after 1-6-2007 would apply to returns filed before amended Explanation became part of Statute in 2009. It concluded that amendment to Explanation SA was not applicable in case before it as return of income pursuant to notice u/s153A was filed much before amendment became part of statute and Assessing Officer in view of provisions of section 271(1)(c) as they stood at relevant time in that case had not brought on record other material or evidence for coming to conclusion that appellant had concealed any income except for statement recorded u/s132(4) of Act. 05.5 This is not so in case of appellant. amendment to Explanation 5A is fully applicable on appellant. return of income in response to notice u/s153A of IT Act was filed much after amendment to Explanation SA became part of Statute in 2009. search had also taken place on 12-8-2009. Disclosure was made by appellant u/s 132(4) only when incriminating material was confronted to him. appellant has relied on decision of ITAT, Pune 'B' Bench in case of Pramila D.Ashtekar & others vs ITO(2013) 154 TTJ 0046. But on other hand, Hon'ble ITAT (Hyderabad) has discussed in detail conditions under which deeming provisions of Explanation 5A Shri Krishnakanth Agarwal & :- 4 -: Smt. Rannodevi Agarwal to section 271(1)(c) of IT.Act, 1961 can be applied. case of appellant is squarely covered by said decision of jurisdictional ITAT. In view of this, penalty imposed by Assessing Officer u/s. 271(1)(c) read with Explanation 5A is sustained for three assessment years under consideration . 4. Contesting above, it was contention of Ld. Counsel that on merits, assessee had admitted income in proceedings u/s. 132(4) itself and as per declaration made before investigating authorities, assessee had filed returns and paid taxes, which were accepted by AO without any further additions. Since assessee has filed returns in order to settle matters, there cannot be any penalty. Further, it was contended that provisions of Explanation-5A to Section 271(1)(c) cannot be invoked as assessee s search was conducted much before amended provision was approved by Hon'ble President on 13-08-2009. Therefore, decision of Co- ordinate Bench in case of Shri Santosh Kumar Agarwal in ITA No. 665/Hyd/2015 dt. 14-10-2015 is applicable. It was further submitted that Ld. CIT(A) has wrongly considered principles laid down by Co-ordinate Bench decision in case of Dilip Kedia Vs. ACIT [40 Taxman.com 102] dt. 26-07-2013, which in fact is favourable to assessee. It was submitted that since search proceedings have been conducted before Explanation-5A was brought on Statute, same are not applicable to returns filed. 5. Ld. DR however, relied on orders of AO and CIT(A) to submit that returns were filed much after provisions Shri Krishnakanth Agarwal & :- 5 -: Smt. Rannodevi Agarwal were amended. Therefore, Explanation-5A is applicable to facts of case. He supported orders of penalty. 6. We have considered rival submissions and perused material on record. We find that assessee has originally filed returns in respective assessment years declaring incomes as noted in facts above. In response to notices u/s. 153A, assessee has filed revised returns admitting incomes which are declared in statement u/s. 132(4), mainly consisting of business income in AY. 2004-05 and interest incomes in all years. AO has completed assessments u/s. 143(3) r.w.s. 153A accepting incomes disclosed in later returns. main question to be considered in this case is legal question as to applicability of Explanation-5A to Section 271(1)(c) of Act in present case. said Explanation has come on Statute by virtue of insertion of same below Section 271(1)(c) by Finance (No.2) Act, 2009, with retrospective effect from 01-06-2007 which was approved by Hon'ble President on 13-08-2009. analysis of Section 271(1)(c) r.w.s. Explanation-5 and Explanation-5A was done in detail by Co-ordinate Bench of Tribunal in case of Dilip Kedia Vs. ACIT [40 Taxman.com 102] dt. 26-07-2013 (supra) in paras 18 to 23, which reads as under: 18. Explanation 5 has been amended by finance Act 2007 to restrict application of that explanation to searches initiated before 1.6 2007. Hence Assessee cannot seek exemption under Explanation 5 to sec 271(1)(c). cases cited by Assessee wherein penalty was deleted applying Explanation 5, relate to search initiated prior to 1.6.2007 and hence are not applicable to instant case. Shri Krishnakanth Agarwal & :- 6 -: Smt. Rannodevi Agarwal 19. new explanation 5A was introduced by Finance Act 2007, w.e.f 1.6.2007 to cover searches initiated after 1.6.2007 which read as under: Explanation 5A. Where in course of search initiated under section 132 on or after 1st day of June, 2007, assessee is found to be owner of, (i) any money, bullion, jewellery or other valuable article or thing (hereinafter in this Explanation referred to as assets) and assessee claims that such assets have been acquired by him by utilizing (wholly or in part) his income for any previous year ; or (ii) any income based on any entry in any books of account or other documents or transactions and he claims that such entry in books of account or other documents or transactions represents his income (wholly or in part) for any previous year, which has ended before date of search and due date for filing return of income for such year has expired and assessee has not filed return, 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. 20. While new explanation does away with exemption from penalty if Assessee offers payment in course of statement u/s 132(4), but under this explanation as it stood at time of introduction, deemed concealment of income assessed in consequence of search applied only if Assessees had not had filed return of income before due date for filing of return in respective years. Explanation 5A was further amended by Finance Act (no.2) 2009 as under: Explanation 5A.- Where, in course of search initiated under section 132 on or after 1st day of June, 2007, assessee is found to be owner of- (i) 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 for any previous year ; or (ii) any income based on any entry in any books of account or other documents or transactions and he claims that such entry in books of account or other documents or transactions represents his income (wholly or in part) for any previous year, which has ended before date of search and,- Shri Krishnakanth Agarwal & :- 7 -: Smt. Rannodevi Agarwal (a) where return of income for such previous year has been furnished before said date but such income has not been declared therein ; or (b) due date for filing return of income for such previous year has expired but assessee has not filed return, 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. 21. In Circular No 5/2010 dated 3.6.2010 issued by CBDT explaining provisions of Finance Act (no. 2) 2009, amendment to explanation 5A was explained as under: 53.2 By substituting Explanation 5A it has been clarified that scope extends to cases where assessee has filed return of income for any previous year and income found during course of search relates to such previous year and had not been disclosed in said return, then such income shall represent deemed concealment of income and assessee shall be liable to pay penalty under section 271. 22. Thus as per existing Explanation 5A prior to amendment by Finance (No.2) Act 2009, if Assessee had filed return of income for years covered by search, then addition made shall not be considered as deemed concealment. It is only by Amendment to explanation 5A by Finance (no.2) Act 2009,(which received assent of president on 13.8.2009), that addition made in course of assessment u/s 153A, will be deemed to be concealed income, even if Assessee had filed return of income earlier for relevant Assessment Year. Prior to amendment, if assessee had already filed return of income, addition made in assessment made u/s 153A cannot be deemed to be concealed income. 23. No doubt amendment to Explanation 5A has been made with retrospective effect from 1.6.2007 and is applicable to searches initiated after 1.6.2007, issue is whether this amendment to Explanation will apply to returns filed before amended explanation became part of Statute in 2009. In instant case Assessee had filed return of income on 7.7.2008. He filed revised return pursuant to notice u/s 153A on 12.11.2008. Thus both original return as well as revised return was filed before amendment to Explanation5A became part of Statute. Supreme Court in cases of Addl CIT v Onkar saran (195 ITR 1) has held that in case of return filed in response to Notice u/s 148, law prevailing as on date of filing of return will govern levy of penalty by holding as under: Shri Krishnakanth Agarwal & :- 8 -: Smt. Rannodevi Agarwal Even in case where return filed in response to notice under section 148 involved element of concealment, law applicable would be law as it stood at time when original return was filed for assessment year in question and not law as it stood on date on which return was filed in response to notice under section 148. 6.1. Further analysis of provisions in similar case, wherein that assessee also filed returns after amendment was brought on Statute, was analysed by coordinate Bench at Hyderabad in case of Santosh Kumar Agarwal in ITA No. 665/Hyd/2015 (supra), wherein it was held as under: 10. In this case, even though both returns were not filed before Explanation 5A was introduced, it is fact that original return has been filed much before said provision came on to statute. It is to be noted that assessee filed original return of income on 10.10.2005. In event search has occurred before 1st day of June, 2007, i.e. after filing of return by assessee, and on or before day S.5A has been introduced, then assessee s case would have been governed by Explanation 5, in which case, as assessee has disclosed amounts under S.132(4) followed by return, no penalty could be levied as per provisions of Explanation 5 available upto date 30th May, 2007. In event search has occurred after 1st day of June, 2007, but before 13.8.2009, i.e. amendment of S.271(1)(c) by insertion of Explanation 5A, by Finance Act, 2009, then Explanation 5A as it is existing would make assessee free from provisions of S.271(1)(c). If in that period assessee has filed return, Explanation 5A would not have been applicable, and assessee would have been exempt from penalty. Since date of search happened to be 8.9.2010, i.e. after new Explanation 5A was brought on statute, assessee was covered by new Explanation 5A. As considered above in different eventualities, assessee was not visited with penalty, except in last considered situation of search being conducted after 13.8.2009. 11. Supreme Court in case of Addl CIT v Onkar Saran (195 ITR 1) has held that in case return is filed in response to Notice u/s 148, law prevailing as on date of filing of return will govern levy of penalty. It observed that even in case where return filed in response to notice under section 148, which involved element of concealment, law applicable would be law as it stood at time when original return was filed for assessment year in question and not law as it Shri Krishnakanth Agarwal & :- 9 -: Smt. Rannodevi Agarwal stood on date on which return was filed in response to notice under section 148. 12. This was followed by Apex Court in case of B.N.Sharma V/s. CIT (226 ITR 442). Therefore law prevailing as on date of filing of return should be basis of levy of penalty and not on subsequent amendment, even if amendment is retrospective. Delhi High Court in case of Engineers Impex (P) Ltd. & Ors. Vs. D.D. Sharma (244 ITR 247) has held as under: 12. Penal provisions in statutes have to be considered strictly in sense that if there is reasonable interpretation which would avoid penalty, that interpretation ought to be adopted. When legislature imposes penalty, words imposing it must be clear and distinct. [CIT vs. T.V. Sundaram Iyenger & Sons (P) Ltd. 1976 CTR (SC) 25 : AIR 1976 SC 255 : TC 68R.372]. 13. If by amendment in existing statute or by enactment ex post facto offence is created, it will be violative of Art. 20(1) of Constitution. Art. 20(1) is designed to prevent person from being prosecuted for act or omission which was considered innocent when done. [G.P. Nayyar vs. State (Delhi Admn) AIR 1979 SC 602]. Explanation is appended to section to explain meaning of words contained in section and normally is to be read to harmonise with and to clear up any ambiguity in main section. However, in present case, Explanation inserted has widened scope of main section and has created obligation breach of which entails penalty and subjects to criminal prosecution. This Explanation to s. 194A has been inserted w.e.f. 1st June, 1987, and obviously is prospective and not retrospective. In case, it was to have retrospective effect, it would be violative of Art. 20(1) of Constitution. As Explanatory Note noticed above itself states, liability for deduction of tax at source from interest payable under existing provisions arises only if interest was actually paid or credited to "account of payee". This also clarified correct scope of s. 194A as existed before Explanation was inserted and that scope of this section has been widened by insertion of Explanation w.e.f. 1st June, 1987, which has created liability and obligation to deduct tax on interest even where interest income is credited to any account in books of account of payee including credit given in account called "interest payable account" or "suspense account". Similar view is also taken by coordinate bench of Tribunal in case of Dilip Kedia V/s. ACIT (supra), wherein penalty was not sustained as both returns were filed much before Explanation 5A was brought on statute. 13. Considering all these aspects and fact that assessee has good case on merits and that provisions of Explanation 5A are not Shri Krishnakanth Agarwal & :- 10 -: Smt. Rannodevi Agarwal applicable on date of filing of original return, we are of opinion that Explanation 5A as it stood on date of filing return in response to notice under S.153A by assessee would not cover case of assessee, so as to warrant levy penalty under S.271(1)(c). Since assessee bona-fidely declared additional income in course of search and filed return and paid taxes thereon, we are of opinion that penalty levied on such amount cannot be sustained. Accordingly, we allow appeal of assessee and delete penalty of Rs.12,84,177 sustained by CIT(A) . 6.2. Since in this case also, Explanation-5A was not on Statute at time of filing original returns and amended Explanation-5A was also not on Statute on day search has occurred, we are of opinion that considering all aspects and fact that assessee has good case on merits, provisions of Explanation-5A are not applicable on date of filing of original returns. We are also of opinion that facts of assessee would not get attracted to penalty u/s. 271(1)(c). In this case, as seen from orders of AO and CIT(A), only Explanation-5A was invoked and in our opinion, same would not be applicable as same was not on Statute when original returns were filed. Since assessee bonafidely declared additional income in course of search and filed returns and paid taxes thereon, we are of opinion that penalty levied on such amount cannot be sustained. It is also to be noted that there were no additions in assessment completed. Accordingly, we allow appeals of assessee, delete penalties levied in impugned assessment years. 7. In result, all appeals of Shri Krishnakanth Agarwal are accordingly allowed. Shri Krishnakanth Agarwal & :- 11 -: Smt. Rannodevi Agarwal Smt. Rannodevi Agarwal: 8. Facts in this case are also similar to above case. In this case, assessee filed returns for impugned assessment years as under: Asst. Year Date of original Income declared return (Rs) 2004-05 02-09-2004 3,07,080 2007-08 26-07-2007 3,08,380 2008-09 30-07-2008 3,30,910 2009-10 24-07-2009 4,76,260 8.1. Consequent to notices u/s. 153A, assessee filed returns on 16-06-2011 admitting following incomes: Asst. Year Enhanced Income (Rs) 2004-05 6,15,698 3,08,621 2007-08 4,61,900 1,53,511 2008-09 4,68,550 1,37,636 2009-10 5,99,265 1,37,636 8.2. incomes were assessed as such and AO invoking Explanation-5A to Section 271(1)(c), has levied penalty in respective assessment years as under: Asst. Year (Rs) 2004-05 1,07,957 2007-08 46,977 2008-09 42,531 2009-10 35,564 Shri Krishnakanth Agarwal & :- 12 -: Smt. Rannodevi Agarwal 9. Ld. CIT(A) confirmed penalties and reasons are similar to reasons stated above in case of Shri Krishnakanth Agarwal extracted above. 10. Assessee having come to know that there were no search and seizure proceedings in her case, has raised Ground No. 1 on issue that entire assessment made u/s. 143(3) r.w.s. 153A is void ab-initio. This ground having not been raised before CIT(A) became additional ground and accordingly, assessee filed petetions praying for admission of additional grounds. AO when enquired whether search and seizure operations were conducted, vide letter dt. 13-06-2016 has stated as under: 2. It is submitted that while submitting assessment records vide this office letter dated 26.05.2016, copy of search warrant in case of Shri Krishna Kant Agarwal was also submitted. Subsequently, another copy of search warrant in case of Shri Krishna Kant Agarwal dated 12.08.2009 was also submitted on oral requisition made by Inspector Shri Meena. 3. As per search folder received from DCIT, Central Circle-1(2), Hyderabad, only one warrant copy in case of Sri Krishna Kant Agarwal is available, which has been already submitted. No separate search warrant in case of Smt. Rannodevi, wife of Sri Krishna Kant Agarwal is available in said search folder . 10.1. Since no warrant was issued in case of assessee, technically speaking, Explanation-5A of Section 271(1)(c) does not apply to facts of case. This explanation is applicable to case where Search and Seizure operations were conducted. In that view, penalty as levied by AO invoking Explanation-5A itself is bad in law. For that reason alone, penalties levied in impugned years cannot be confirmed. Not only that, for Shri Krishnakanth Agarwal & :- 13 -: Smt. Rannodevi Agarwal reasons stated above in case of Shri Krishnakanth Agarwal also, facts of case does not attract levy of penalty. For these reasons, we have no hesitation in cancelling penalties u/s. 271(1)(c) levied in these cases. Accordingly, grounds are allowed. 11. In result, appeals of Smt. Rannodevi Agarwal are allowed. 12. To sum-up, all appeals of both assessees are allowed. Order pronounced in open Court on 23rd September, 2016 Sd/- Sd/- (P. MADHAVI DEVI) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, Dated 23rd September, 2016 TNMM Shri Krishnakanth Agarwal & :- 14 -: Smt. Rannodevi Agarwal Copy to : 1. Shri Krishnakanth Agarwal, Hyderabad. C/o. Kapasi Bangad & Co., Chartered Accountants, 3-6-140/A, Flat No. 402, City Centre, Himayat Nagar, Hyderabad. 2. Smt. Rannodevi Agarwal, Hyderabad. C/o. Kapasi Bangad & Co., Chartered Accountants, 3-6-140/A, Flat No. 402, City Centre, Himayat Nagar, Hyderabad. 3. Dy. Commissioner of Income Tax, Central Circle-2, Hyderabad. 4. CIT(Appeals)-XI, Hyderabad. 5. Pr.CIT (Central), Hyderabad. 6. D.R. ITAT, Hyderabad. 7. Guard File. Krishnakanth Agarwal v. Deputy Commissioner of Income Tax, Central Circle-2 HYDERABAD
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