IN INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH , HYDERABAD BEFORE SMT P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA Nos. 96 and 1625/Hyd/2014 Assessment Years: 2008-09 & 2007-08 M/s Saikrishna Constructions, vs. Income-tax Officer, Hyderabad. Ward 8(1), Hyderabad. PAN AAOFSo684A (Appellant) (Respondent) Assessee by : Shri V. Raghavendra Rao Revenue by : Shri A. Sitarama Rao Date of hearing 02-08-2016 Date of pronouncement 28-09-2016 O RDE R PER S. RIFAUR RAHMAN, A.M.: Both these appeals are preferred by assessee against separate orders of learned Commissioner of Income-tax(A) - III, both, dated 12/11/2013 Hyderabad for AY 2007-08 and 2008-09. As identical issue is involved in both appeals, they were clubbed and heard together, therefore, common order is passed for sake of convenience. 2. Briefly facts, as taken from AY 2008-09, are that assessee firm filed return of income for asst. year 2008-09 on 31-03-2009 electronically declaring total income of Rs. 11,90,200/-. receipts shown as per Profit and Loss account is Rs.2,27,79,621/- and net profit was shown at Rs. 11,90,200/-. survey u/s. 133A of I.T. Act was conducted on 11-08-2009 in this case. During course of survey, it was found that assessee was maintaining small registers in which actual receipts from sale of 2 ITA Nos. 96 & 1625/Hyd/14 M/s Sai Krishna Constructions, Hyd. flats were being recorded and same were impounded. receipts recorded in small registers were compared with actual receipts accounted for in books and shown in Profit and loss account. It is seen from same that assessee has not disclosed actual receipts for A.Y. 2008-09. As per these two registers, total receipts for F.Y. 2007-08 worked out to Rs. 4,45,77,577/-. When confronted, managing Partner, Sri P. Babu Rao in his statement given u/s. 131 of I.T. Act on 21-08-2009 has agreed for above discrepancies noticed but submitted that difference in receipts should not be entirely treated as income as there are some payments incurred for business which was not properly accounted for. In his statement given u/s. 131 of I.T. Act, consequent to survey, he admitted additional income for this assessment year based on estimation of income @ 10% of total receipts. On this basis, assessee offered additional income of Rs. 32.70 lakhs for this assessment year. In conformity with same, assessee filed revised return of income for A.Y. 2008-09 on 08-09-2009 admitting total income of Rs. 44,57,760/- as against Rs. 11,90,200/- admitted in original return of income filed on 31-03- 2009. In revised return assessee offered additional income of Rs, 32,67,560/.The assessment was re-opened u/s 147 of I.T. Act and assessment was completed u/s 143(3) r.w.s. 147 of I.T. Act on 31-03-2010. Thus, addition is made to this extent in assessment. 2.1 Thereafter, AO has initiated penalty proceedings on ground that assessee has furnished inaccurate particulars and thereby concealed income. 2.2 In reply filed vide letter dated 24-09-2010, assessee stated that assessee has voluntarily come forward to file revised computation of income offering higher income and co- operated with Department in assessment proceedings. It is also stated that assessment was completed by adopting profit rate 3 ITA Nos. 96 & 1625/Hyd/14 M/s Sai Krishna Constructions, Hyd. of 10% on gross receipts. assessee in its reply has also cited some decisions as under: i. Where income was voluntarily offered for assessment year after search proceedings, Gujarat High Court held in case of CIT Vs Shankerlal Nebhumal (311 ITR 327) ,penalty cannot be levied. ii. Pubjab & Haryana High Court held in case of CIT Vs. Rajiv Garg & Others (313 ITR 256) that where higher income was voluntarily offered even after issue of notice u/s, 148, penalty u/s. 271(1)(c) cannot be levied. Supreme Court rejected SLP filed against judgment. iii. full bench of Delhi High Court held in case of CIT Vs. Rampur Engg. Company Ltd and others that penalty v/s 271(1)(c) cannot be levied unless satisfaction can be spelt out in assessment order. iv. There is also case law where it was held that where income is assessed on estimate basis, penalty cannot be levied u/s, 271(1)(c). 2.3 AO rejected explanation of assessee for following reasons: i. It is fact that assessee has not declared entire receipts in Profit and Loss account filed along with return of income which assessee has also accepted in his statement. assessee filed revised return of income only after date of survey and due to certain discrepancies noticed during course of survey. As assessee was not able to quantify expenditure, profit was adopted @ 10% of gross receipts. ii. decisions cited are not applicable and relevant to facts of case. decision of Gujarat High Court is related to search proceedings and that too, with regards to Explanation 5 to Sec. 271(1)(c). Whereas, assessment proceedings completed in assessee's case is based on survey findings. 4 ITA Nos. 96 & 1625/Hyd/14 M/s Sai Krishna Constructions, Hyd. iii.. Similarly, decision of Punjab and Haryana Court is relating to offering of higher income after issue of notice u/s. 148 of I.T. Act. Whereas in assessee's case, notice u/s 148 is issued only to regularize revised return of income. higher income offered in revised return of income is due to discrepancies noticed during course of survey u/s 133A. Further, decision of Delhi High Court is overcome by insertion of Sec. 271(1)(c) by Finance Act 2008 w.r.e.f. 01- 04-1989 which reads as under:. "Where any amount is added or disallowed in computing total income or loss of assessee in any order of assessment or reassessment and said order contains direction for initiation of penalty proceedings under clause (c) of sub-section (1), such order of assessment or re-assessment shall be deemed to constitute satisfaction of Assessing Officer for initiation of penalty proceedings under said clause (c)" 2.4 AO observed that income admitted by assessee in revised computation of income is not actually voluntary, but same was admitted only after survey u/s 133A conducted by department and suppression of receipts were pointed out based on impounded material. He, therefore, concluded that it is fit case for levy of penalty u/s 271(1)(c) of Act. Thus, income sought to be evaded is worked out as under: Difference in receipts determined consequent to survey Rs. 2,17,97,956 Income determined on such receipts @ 10% Rs. 21,79,795 income sought to be evaded was worked out at Rs. 21,79,795/-, on which minimum penalty worked out to Rs. 7,49,910/- u/s 271(1)(c) of Act. 3. When assessee carried matter in appeal before CIT(A), CIT(A) after considering submissions of assessee confirmed action of AO by observing that it is clear that right 5 ITA Nos. 96 & 1625/Hyd/14 M/s Sai Krishna Constructions, Hyd. from beginning assessee has meticulously planned and executed strategy of tax evasion. Sales were reported selectively and duplicate books were maintained wherein actual sales were written. Had income tax department not conducted survey, duplicate books would never have been disclosed to department and taxes would have been evaded by huge amounts. 4. Aggrieved by order of CIT(A), assessee is in appeal before us raising following grounds of appeal: 1. learned Commissioner of Income Tax (Appeals) - III, Hyderabad (CIT(A))erred on facts and in law in dismissing appeal of assessee. 2. learned CIT(A) is not justified in sustaining penalty levied of Rs. 7,40,910/- u/s 271(1)(c) of I T Act, 1961. 3. learned CIT (A) is not justified in holding that additional income offered by way of revised computation was not voluntary. 4. learned CIT (A) and AO who levied penalty omitted to notice in their respective orders finding of AO vide assessment order that assessee "Voluntarily came forward", in his statement given u/s 131 of IT Act to admit 'additional income'. 5. learned CIT(A) having accepted that estimate is made in cases where accounts do not reflect correct state of financial years, failed to notice that AO rejected accounts of assessee vide assessment order precisely for that reason. learned CIT (A) has erred in sustaining penalty u/s 271(1)(c) where assessment is made on .the basis of estimate. 6. learned CIT(A) has erred in not noticing order of jurisdictional Bench in case of ACIT Vs M/s Siddi Jewellers, Hyderabad in ITA No. 381/Hyd/2012 dt 17-06-2013 and ratio laid down therein which is applicable to facts of assessee's case. 7. learned AO erred in holding that judgment of Punjab & Haryana High Court in case of CIT Vs Rajiv Garg & Others (313 ITR 256) does not apply to facts of case which is actually on better footing because unlike in that case, here assessee offered income before and not after issue of notice u/s 148. 6 ITA Nos. 96 & 1625/Hyd/14 M/s Sai Krishna Constructions, Hyd. 8. learned AO erred in holding that judgment of Gujarat High Court in case of CIT Vs Shanerlal Nebhumal (311 ITR 327) does not apply because that was case of search. ratio is applicable to survey cases also which are less rigorous proceedings than search. principle for levy of penalty is more rigorous in case of search. 9. learned CIT(A) has erred in holding that discussion in assessment order points to satisfaction for initiation of proceedings u/s 271(1)(c) while it is actually other way. 10. learned CIT(A) ought to have considered case law cited before AO and also in Statement of Facts. 11. For these and any other grounds that may be urged at j before date of hearing it is prayed that penalty levied be cancelled. 5. Ld. AR submitted that AO relied solely on assessment order for levying penalty without any further evidence as to mens rea or malafide conduct of assessee. He submitted that assessment was completed on agreed basis. In interest of agreed assessment, much higher rate of 10% on receipts was adopted. Ld. AR submitted that conduct of assessee throughout shows that assessee was highly cooperative and admission of amounts noticed in registers being accepted as sales receipts and not merely advances was to avoid any litigation with department and not because all amounts noted there were receipts in which income and tax are embedded. Ld. AR submitted that there was no observation in AO that contumacious conduct or deliberate defiance of law by assessee to avoid taxes. Ld. AR relied on following cases: 1. Godavari Townships (P) Ltd. Vs. DCIT, ITA No. 54/Vizag/12, dated 29/01/14. 2. Rajesh C. Gandhi Vs. ITO, ITA No. 3158/Mum/09, dated 09/03/2010. 3. ACIT Vs. Malu Electrodes (P) Ltd., ITA No. 271/Nag/08, dt. 12/08/09. 4. DCIT Vs. Ms. Aishwarya Rai, ITA No. 2637/Mum/02, dtd. 25/08/06. 7 ITA Nos. 96 & 1625/Hyd/14 M/s Sai Krishna Constructions, Hyd. 6. Ld. DR, on other hand, relied on orders of revenue authorities. 7. Considered submissions of both parties and perused material facts on record as well as orders of revenue authorities. We have also gone through case law cited by ld. AR. It is observed that assessee filed return of income originally on 31/03/2009 admitting total income of Rs. 11,90,200/-. Thereafter, survey u/s 133A of Act was conducted on 11/08/2009. Consequent to survey, assessee voluntarily came forward to admit additional receipts for this AY and requested for estimation of income @ 10% of total receipts. Accordingly, assessee filed revised return of income at Rs. 44,57,760/- on 08/09/2009 as against Rs. 11,90,200/- admitted in return filed on 31/03/2009. Thus, assessee offered additional income of Rs. 32,67,560/-. Assessment was completed u/s 143(3) rws 147 of Act assessing income of assessee at Rs. 32,67,560/-. contention of assessee is that since return of income filed by assessee has been accepted by AO and since income declared in return of income was due to findings in survey u/s 133A of Act, there can be no imposition of penalty for concealment of income. 7.1 legal position would be understood if we go through provisions of section 271(1)(c) of Act together with Expln. 3, 5 & 5A thereunder, which is as under: "Sec.271- Failure to furnish returns, comply with notices, concealment of income, etc.-(1) If Assessing Officer or Commissioner (Appeals) or Commissioner in course of any proceedings under this Act, is satisfied that any person- (a) to (b)** ** ** (c) has concealed particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty,- (d) to (ii)** ** ** 8 ITA Nos. 96 & 1625/Hyd/14 M/s Sai Krishna Constructions, Hyd. (iii) in cases referred to in clause (c) or clause (d), in addition to tax, if any, payable by him, sum which shall not be less than but which shall not exceed three times amount of tax sought to be evaded by reason of concealment of particulars of his income or fringe benefits or furnishing of inaccurate particulars of such income or fringe benefits: Explanation 1 - Where in respect of any facts material to computation of total income of any person under this Act,- (A) such person fails to offer explanation or offers explanation which is found by Assessing Officer or Commissioner (Appeals)or Commissioner to be false, or (B) such person offers explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all facts relating to same and material to computation of his total income have been disclosed by him, then, amount added or disallowed in computing total income of such person as result thereof shall, for purposes of clause (c) of this sub-section be deemed to represent income in respect of which particulars have been concealed. Explanation 3 - Where any person, fails, without reasonable cause, to furnish within period specified in sub-section (1) of section 153 return of his income which he is required to furnish under section 139 in respect of any assessment year commencing on or after 1st day of April, 1989, and, until expiry of period aforesaid, no notice has been issued to him under clause (i) of sub-section (1) of section 142 or section 148 and Assessing Officer or Commissioner (Appeals) is satisfied that in respect of such assessment year such person has taxable income, then, such person shall, for purposes of clause (c) of this sub-section, be deemed to have concealed particulars of his income in respect of such assessment year, notwithstanding that such person furnishes return of his income at any time after expiry of period aforesaid in pursuance of notice under section 148. Explanation 5 - Where in course of search initiated under section 132 before 1 st 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 utilizing (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, where such return has been 9 ITA Nos. 96 & 1625/Hyd/14 M/s Sai Krishna Constructions, Hyd. furnished before said date, such income has not been declared therein; or (b) for any previous year which is to end 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 subsection (l) 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 or such income is otherwise disclosed to Chief Commissioner or Commissioner before said date; or (2) he, in course of search, makes 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 expiry of time specified in sub-section (l) 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. Explanation 5A - Where, in course of search initiated under section 132 on or after 1 st 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 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,- (a) where return of income for such previous year has been furnished before said date but such income has not been declared therein; or 10 ITA Nos. 96 & 1625/Hyd/14 M/s Sai Krishna Constructions, Hyd. 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." 7.2. Explanation-3 is exception to rule that when income which is ultimately brought to tax is declared in return of income, there can be no question of treating Assessee as having "concealed particulars of income or furnished inaccurate particulars of income". Explan.-4(b) to Sec.271(1) of Act makes this clear. Expln.-4 to Sec.271 (l) of Act lays down what is "the amount of tax sought to be evaded" on which penalty can be imposed and clause (b) lays down in any case to which Explanation 3 applies, means tax on total income assessed as reduced by amount of advance tax, tax deducted at source, tax collected at source and self assessment tax paid before issue of notice under section 148. This means that income declared in return of income can be ignored and penalty can be imposed even in respect of such income. Explanation 3 of section 271(1)(c)(iii) applies also in case of assessees, who have not been assessed as yet. According to this section, if person fails, without reasonable cause, to furnish return of his income voluntarily under section 139 within period specified under section 153(1), i.e., within two years from end of assessment year in which income was first assessable, he shall be deemed to have concealed particulars of his income in respect of such assessment year if he has taxable income for that year. But this is subject to two limitations - firstly, it applies to assessment year 1989-90 and subsequent years and secondly, no notice under section 142(1) or 148 was issued within said period of two years. In other words, Explanation 3 shall have no application if notice under section 142(1) or 148 was issued within two years. But if assessee files return of his income after period of two years in response 11 ITA Nos. 96 & 1625/Hyd/14 M/s Sai Krishna Constructions, Hyd. to notice under section 148, he would be caught within mischief of this Explanation. 7.3 In present case, Expln.-3 to sec.271(1) of Act will not apply because, as we have seen Assessee filed original return of income on 09.06.2010 and in response to notice u/s. 148 of Act by letter dated 16.9.2010, requested AO to treat return filed earlier as return filed in response to notice u/s.148 of Act. Thus return of income was filed within period of 2 years from end of AY 08-09. Moreover notice u/s.148 had been issued in present case prior to 16.9.2010 which is within two years from end of AY 07-08. Therefore Explanation 3 will not apply to present case. 7.4 There can be no concealment or non-disclosure, as assessee had made complete disclosure in IT return and offered surrendered amount for purposes of tax and therefore no penalty under s. 271 (1)( c) could be levied. words 'in course of any proceedings under this Act' in Sec. 271(1)(c) of Act are prefaced by satisfaction of AO or CIT(A). When survey is conducted by survey team, question of satisfaction of AO or CIT(A) or CIT does not arise. One has to keep in mind that it is AO who initiates penalty proceedings and directs payment of penalty. He cannot record any satisfaction during course of survey. Decision to initiate penalty proceedings is taken while making assessment order. It is, thus, obvious that expression 'in course of any proceedings under this Act' cannot have reference to survey proceedings. It necessarily follows that concealment of particulars of income or furnishing of inaccurate particular of income by assessee has to be in IT return filed by it. assessee can furnish particulars of income in his return and everything would depend upon IT return filed by assessee. This view gets supported by Explanations 4 as well as 5 and 5A of s. 271. Obviously, no penalty can be imposed unless conditions stipulated in said 12 ITA Nos. 96 & 1625/Hyd/14 M/s Sai Krishna Constructions, Hyd. provisions are duly and unambiguously satisfied. Since assessee was exposed during survey, may be, it would have not disclosed income but for said survey. However, there cannot be any penalty only on surmises, conjectures and possibilities. Sec. 271 (1)( c) has to be construed strictly. Unless it is found that there is actually concealment or non-disclosure of particulars of income, penalty cannot be imposed. There is no such concealment or non-disclosure as assessee had made complete disclosure in IT return and offered surrendered amount for purposes of tax. 7.5 Expln.5 and 5A are also exception to rule that when income which is ultimately brought to tax is declared in return of income, there can be no question of treating Assessee as having "concealed particulars of income or furnished inaccurate particulars of income". Those Explanations will also not apply in present case because those Explanations are applicable only when there is search u/s.132 of Act and not to case of Survey u/s.133A of Act. 7.6. For reasons given above we hold that there can be no justification for imposition of penalty on income offered in return of income by Assessee, because there cannot be any penalty on income which is declared in return of income, on facts and circumstances of present case. 7.7 Accordingly, we set aside orders of CIT(A) and direct AO to cancel penalty levied in both AYs under consideration. 8. In result, both appeals of assessee are allowed. Pronounced in open court on 28 th September, 2016. Sd/- Sd/- (P. MADHAVI DEVI) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, Dated: 28 th September, 2016 13 ITA Nos. 96 & 1625/Hyd/14 M/s Sai Krishna Constructions, Hyd. kv Copy to:- 1) M/s Sai Krishna Constructions, 8-3-988/4 & 18, Sripada Towers, SBH Colony, Srinagar Colony, Hyderabad. 2) ITO, Ward 8(1), Hyderabad. 3) CIT(A) - II, Hyderabad 4 CIT - II , Hyderabad 5) Departmental Representative, I.T.A.T., Hyderabad. 6) Guard File M/s Saikrishna Constructions v. Income-tax Officer, Ward 8(1), Hyderabad