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AMICUS AI
Citation Codes
Equivalent Citations
citation codes
Case Number
Advocates
  • Ashwani Kumar
Judges
  • G.D. AGRAWALI. C. SUDHIR
Acts
  • provisions of clause (c) of sub-section (1) of section 271
  • sub-section (1). (4) The provisions of sections 274
  • Income Tax Act 1961 by the Finance Act, 2007
  • clause 2 of Explanation 5 to section 271(1)
  • u/s 132(4) of the Income-tax-Act, 1961. (2)
  • u/s 271AAA of the Income Tax Act 1961.
  • u/s 132(4) of the Income Tax Act 1961
  • sub section 4 of section 132,(i),
  • u/s 132(4) of the I.T. Act 1961
  • sub-section (4) of Section 132,
  • sub-section (1) of Section 139
  • 5 (2) to section 271(1)
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Cites
Cited by
Citation Codes
Equivalent Citations
citation codes
Case Number
Advocates
  • Ashwani Kumar
Judges
  • G.D. AGRAWALI. C. SUDHIR
Acts
  • provisions of clause (c) of sub-section (1) of section 271
  • sub-section (1). (4) The provisions of sections 274
  • Income Tax Act 1961 by the Finance Act, 2007
  • clause 2 of Explanation 5 to section 271(1)
  • u/s 132(4) of the Income-tax-Act, 1961. (2)
  • u/s 271AAA of the Income Tax Act 1961.
  • u/s 132(4) of the Income Tax Act 1961
  • sub section 4 of section 132,(i),
  • u/s 132(4) of the I.T. Act 1961
  • sub-section (4) of Section 132,
  • sub-section (1) of Section 139
  • 5 (2) to section 271(1)
See more information ...
Smart Summary

Structured Summary of the Tribunal Opinion in ITA No-337/Del/2013

Factual and Procedural Background

A search under section 132 of the Income Tax Act was conducted at the assessee's premises in March 2010 (the opinion records both 3.3.2010 and 4.3.2010 in different paragraphs). Documents seized during the search led the assessee to surrender undisclosed income of Rs. 125 crore, which he declared in his return for assessment year 2010-11 and paid taxes and interest thereon. The Assessing Officer (AO) imposed a penalty of Rs. 12,50,00,000 under section 271AAA (10% of Rs. 125 crore). The Commissioner of Income Tax (Appeals) upheld the AO's penalty. The assessee appealed to the Tribunal. The principal contested question on appeal was whether the assessee had "specified and substantiated" the manner in which the undisclosed income was derived so as to avoid penalty under section 271AAA.

Legal Issues Presented

  1. Whether the assessee, during the course of the search and in statements and subsequent written submissions, sufficiently "specified and substantiated the manner in which the undisclosed income was derived" so as to exempt him from liability to penalty under section 271AAA of the Income Tax Act, 1961.

Arguments of the Parties

Appellant's (Assessee's) Arguments — as advanced by Ld. AR

  • The assessee specified the manner in which the undisclosed income was derived: the income arose from forward/speculative and property transactions carried out in FY 2009-10, as stated in the statement under section 132(4) and in subsequent letters/submissions.
  • The assessee substantiated the manner of derivation by production of documents seized during the search and by detailed written explanations submitted to the Investigation wing and the AO (letters dated 03/06/2010, 25/2/2011, 8/6/2012, 20/6/2012 and written submission to CIT(A) dated 12/12/2012).
  • The undisclosed income amount and its character were accepted in the assessment proceedings (taxes and interest were paid before filing of return and accepted), and there was no further query from the AO questioning manner of derivation — acceptance by the department is evidence that the statutory criteria for exemption were satisfied.
  • There is no prescribed format or procedure in the statute for "specifying and substantiating" the manner of derivation; compliance can be through statements and documentary material provided and accepted.
  • Relied upon several judicial decisions (as listed in the record) that, according to the AR, support deletion of the penalty where the manner is specified/substantiated or where no specific question was put by the authorized officer during recording of the statement.

Respondent's (Revenue's) Arguments — as advanced by Ld. DR

  • The onus under section 271AAA(2) is on the assessee to both specify and substantiate the manner in which undisclosed income was derived; section 271AAA differs from section 271(1) in requiring substantiation in addition to specification.
  • During the statement recorded under section 132(4) the assessee admitted the unaccounted income but did not answer as to its source (i.e., did not specify the manner of derivation). The DR referred to the content and answers to question Nos. 4, 5 and 6 in the recorded statement to support this position.
  • The judicial authorities cited by the assessee are distinguishable on facts and do not assist the assessee in this case, according to the DR.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
ACIT vs. Gebilal Kanhiyalal (HUF) (2012) 252 CTR (SC) 345 Interpreting Explanation 5 to section 271(1): the Supreme Court held that immunity under clause (2) of Explanation 5 can apply even where tax was not paid by the original due date, if tax is paid subsequently; the three conditions in clause (2) can be satisfied. The Tribunal relied on this decision to show that formal lapses in timing or non-compliance with exact wording should not defeat immunity; used for comparison between Explanation 5 to section 271(1) and section 271AAA.
CIT vs. Mahendra C. Shah (2008) 299 ITR 305 (Guj) Requirement on authorized officer to explain Explanation 5 when recording statements; a statement recorded in question-answer form may not contain the exact statutory language and such omissions should not be fatal where the conditions are substantially complied with. The Tribunal followed this principle, emphasizing that authorized officers must elicit necessary information and that the formality of precise wording in statements should not be used to deny immunity under the penal provision.
CIT vs. Radha Kishan Goel (2005) 278 ITR 454 (All) Held that mere non-statement of the manner in which undisclosed income was derived in the section 132(4) statement does not make Explanation 5(2) inapplicable; a subsequent statement specifying manner can suffice; absent specific questioning by officer, the person is not expected to volunteer specifics. The Tribunal relied on this decision to hold that since the authorized officer did not put a specific question about manner of derivation, omission in the record was not fatal and subsequent explanations/letters could meet the statutory requirement for exemption under section 271AAA.
Mothers Pride Education Personna Pvt. Ltd. vs. DCIT, ITA No. 3372/D/2011 (Delhi Tribunal) The Tribunal decision (Delhi Bench) had deleted penalty under section 271AAA relying on earlier Tribunal and High Court precedents (including Raj Rani Gupta, Radha Kishan Goel and Mahendra C. Shah). The present Tribunal noted and followed the Delhi Tribunal's approach in similar factual circumstances, treating it as supportive authority for deletion of penalty where specification/substantiation was found to be satisfied.
Shri Ashok Kumar Sharma & Others vs. DCIT (ITA Nos. 476 to 480/CTK/2011) Tribunal (Cuttack Bench) deleted penalty under section 271AAA where assessee disclosed concealed income in statement under section 132 and paid tax, and returns were accepted by department. The Tribunal cited this decision as directly supporting deletion of penalty where the undisclosed income was declared, taxed and accepted, thus falling within section 271AAA(2).
Sulochanadevi A. Agarwal, Suran vs. ITO (ITA No. 1052/Ahmedabad/2012) This precedent was cited in the list of authorities relied upon by the assessee; the opinion does not elaborate the precise rule or principle from this decision. The Tribunal listed this decision among those referred to by the assessee; no specific discussion of its application is recorded in the opinion.
Shri Pramod Kumar Jain vs. DCIT and others (ITA No. 131 to 133/CTK/2012) Tribunal (Cuttack Bench) deleted penalty where assessee had disclosed unaccounted income but had not specified manner in statement; held no prescribed method is required and definition of "undisclosed income" in the statute can discharge onus. Used by the Tribunal as supporting authority for the proposition that statutory definition and accepted disclosure can satisfy the requirement of specifying/substantiating manner under section 271AAA.
DCIT vs. Shri Inderchand Surajmal Brothers (ITA No. 139/Pune/2010) Tribunal (Pune) held that in certain circumstances it was not required to specify the manner in which income was earned in respect of amount offered to tax for immunity from penalty under Explanation 5 to section 271(1). The Tribunal cited this decision to illustrate earlier Tribunal practice that mere formal omission of specific wording in statements does not necessarily defeat immunity from penalty.
Smt. Raj Rani Gupta (referenced in Tribunal decisions) The opinion refers to Raj Rani Gupta as an earlier Tribunal decision relied upon by the Delhi Bench in Mother Pride; the opinion does not set out specific principles from this decision. Mentioned as part of the chain of Tribunal authorities that the Tribunal followed or relied upon in similar cases; no detailed application of its ratio is reproduced in the opinion.

Court's Reasoning and Analysis

The Tribunal's analysis proceeded in the following steps (as recorded in the opinion):

  1. Identification of the sole issue: whether the assessee had specified and substantiated the manner in which the undisclosed income was derived so as to avoid the penalty under section 271AAA(1) read with clause (2) of that section.
  2. Comparison of statutory provisions: the Tribunal compared section 271AAA with Explanation 5 to section 271(1), observing that both provisions exempt penalty where the assessee admits undisclosed income in a section 132(4) statement, specifies the manner of derivation and pays tax with interest. Section 271AAA adds an explicit requirement to "substantiat[e]" the manner of derivation in addition to specification.
  3. Examination of the factual record: the Tribunal reviewed the statement recorded under section 132(4) (questions and answers reproduced in the record) and the subsequent letters and submissions made by the assessee (dates and contents specifically noted in the opinion). The assessee admitted various amounts as unaccounted income and stated that such amounts arose from forward/speculative and property transactions in FY 2009-10; the assessee also furnished documents seized during the search (Annexure A3 pages noted) and paid tax and interest on the surrendered amount which was accepted in assessment.
  4. Key factual finding on questioning: the Tribunal found that the authorized officer did not put any specific question during the recording of the section 132(4) statement about the "manner" of derivation of the undisclosed income. The Tribunal reproduced the relevant Q&A (Questions 4, 5, 6 and 7) and concluded that no specific enquiry was made by the officer about the manner of derivation.
  5. Reliance on precedent and statutory purpose: the Tribunal relied on decisions of the Supreme Court, High Courts and Tribunals (as enumerated) which, in similar contexts, held that (a) precise statutory language may not appear in a Q&A statement recorded under section 132(4) and that omission of the statutory format is not necessarily fatal; (b) if the officer did not specifically question the manner of derivation, the assessee is not expected to volunteer detailed narrative; and (c) subsequent written explanations and acceptance by the department can satisfy the requirement of specifying/substantiating the manner of derivation.
  6. Application to the present case: given (i) the absence of a specific question by the authorized officer on manner of derivation during the statement; (ii) the assessee's admissions in the Q&A that the amounts were unaccounted income arising from forward/speculative and property transactions; (iii) the production of seized documents and subsequent letters explaining the transactions; and (iv) payment of taxes and interest and acceptance of the declared income in assessment, the Tribunal concluded that the assessee had satisfied the statutory conditions in section 271AAA(2) for exemption from penalty.
  7. Conclusion and direction: the Tribunal found the AO unjustified in imposing the penalty and set aside the penalty orders, directing deletion of the penalty of Rs. 12,50,00,000/- levied under section 271AAA.

Holding and Implications

Holding: Appeal allowed; the penalty of Rs. 12,50,00,000/- imposed under section 271AAA of the Income Tax Act, 1961 is deleted.

Implications (direct effect on the parties):

  • The Assessing Officer is directed to delete the penalty of Rs. 12,50,00,000/- levied under section 271AAA.
  • The assessee's surrender of undisclosed income (Rs. 125 crore), payment of tax and interest, and acceptance of that income in assessment were treated as satisfying the conditions for exemption under section 271AAA(2) in the facts of this case.

The opinion does not state that it is creating any new legal precedent; it expressly relies on and follows earlier decisions of higher courts and Tribunals in reaching its conclusion.

Order Details (from the Opinion)

Order pronounced in open court on 24th June 2013. The Bench comprised Vice President G.D. Agrawal and Judicial Member I.C. Sudhir. The decision records that the appeal is allowed and the penalty is deleted.

Show full summary ...

    Neeraj Singal, New Delhi v. ACIT, New Delhi

    PER I.C. SUDHIR, JUDICIAL MEMBER The assessee has impugned first appellate order whereby the Ld. CIT(A) has upheld the action of the Ld. Asstt. Commissioner of Income Tax in imposing penalty of Rs. 12,50,00,000/- u/s 271AAA of the Income Tax Act 1961.

    2. We have heard and considered the arguments advanced by the parties in view of orders of the authorities below, material available on record and the decisions relied upon.

    3. The relevant facts are that search operation u/s 132 of the Act was carried out at the premises of the assessee on 3.3.2010. On the basis of certain documents found and ITA No-337/Del/2013 2 seized, the assessee had surrendered a sum of Rs. 125 crore as an undisclosed income which was also declared in his return of income for the assessment year 2010-11. Due taxes thereon was also paid before the filing of the return and the same has been accepted. In his statement u/s 132 (4) the assessee had stated that the said income was derived from forward / speculative and property transactions carried out by him during the period 1.4.2009 to 4.3.2010 i.e. financial year 2009-10. The AO being not satisfied with the explanation of the assessee has imposed penalty u/s 271AAA of the Act at Rs. 12,50,00,000/- @ 10% of the undisclosed income of Rs. 125 crore. The same has been upheld by the Ld. CIT(A) against which the assessee is in appeal before the Tribunal.

    4. In support of the ground the Ld. AR submitted that the assessee had duly specified the manner in which the undisclosed income had been derived which was also duly substantiated by the documents seized during the course of search. As such all the conditions for exemption from levy of penalty u/s 271AAA of the Act were duly satisfied. The AO has however injudiciously rejected the explanation of the assessee regarding the actual position. The averments made on behalf of the assessee as well as duly accepted legal position has been ignored by the A.O while proceeding for imposing the penalty of Rs. 12,50,00,000/- u/s 271AAA of the Act. The Ld. AR referred page Nos.

    1 to 13 of the paper book with the submission that queries raised during the recording of the statement u/s 132 (4) of the Act were answered by the assessee. In this regard, he referred answer of the assessee to relevant question Nos. 4,5,6 & 7. In these reply the assessee has answered what was inquired by the officer while recording the statement u/s

    132 of the Act. He submitted that it is prerogative of the officer to raise such questions which he deems fit. Thus what was inquired by the officer it was replied by the assessee. The Ld. AR submitted further that the matter relating to specifying the source of such additional income and the manner in which it was earned was replied vide letter dated 03/06/2010 to the Ld. Astt. Director of Income Tax (Inv.) and vide letters dated ITA No-337/Del/2013 3 25/2/2011, 8/6/2012 and 20/6/2012 to the A.O during the assessment proceedings. In these replies it was further specified and substantiated the manner in which the undisclosed income has been earned. He submitted that the documents seized and the consequent surrender was duly accepted both with respect to the quantum and the manner in which the income had been earned. In view of the entire sequence and record of proceedings would make it undoubtedly and emphatically clear that no further doubt or question arose in the minds of the authorities at any stage to question further the manner in which the income had been earned/derived and the need for any further clarification or enquires in this regard.

    5. Ld. AR submitted that section 271AAA inserted into the Income Tax Act 1961 by the Finance Act, 2007 provides that in a case where search has been initiated u/s

    132 on or after 1.6.2007, the assessee shall be liable to pay by way of penalty, in addition to tax, if any payable by him, a sum computed @10% of the undisclosed income of the specified period. However the said penalty is not leviable, if an assessee in a statement recorded during the course of search admits the undisclosed income ,specified and substantiated the manner in which it has been derived and pays the taxes together with interest thereon. He submitted that the question of specifying the manner in which the income has been derived is duly answered which refers to the fact that the same is relatable to undisclosed forward/speculative transactions and property transactions carried out by him. In so far as the question of substantiating i.e. providing facts to support the surrender made and the manner in which the income has been derived is concerned the said test stands duly prove the fact of undisclosed income having been derived from the forward/speculative and property transactions. The Ld. AR submitted that the assessee is an individual who took decisions on his own and was, accordingly, neither obliged to nor had the necessary infrastructure to maintain detailed records. The amount surrendered represented the undisclosed income relatable to the abovementioned ITA No-337/Del/2013 4 activities and the department was itself suo moto convinced as to the quantum of undisclosed income attributable to such activities and the manner of its earning as would be evident from it being accepted as such in the assessment proceedings. Ld. AR submitted further that in the absence of any specific format/procedure prescribed in the Act for specifying and substantiating the undisclosed income, the fact that the same has been accepted, without any variation by the AO is by itself enough evidence of the said criteria having been made and satisfied. The Ld. AR referred page numbers 1 to 45 of the paper book i.e. copies of statement of Shri Neeraj Singal recorded u/s 132(4) of the Act on 4.3.2010, letter dated 3.6.1010 filed before the Ld. Asstt. Director (Investigation) letters dated 25.7.2011, 8.6.2012 and 20.6.2012 filed before the Ld. Asstt. Commissioner, Central Circle and written submission dated 12.12.2012 filed before the Ld. CIT(A). Ld. AR also placed reliance on the following decisions :-

    i) ACIT vs. GEBILAL Kanhiyalal (HUF) (2012) 252 CTR (SC) 345 ii) CIT vs. Mahendra C.Shah (2008) 299 ITR 305 (Guj) iii) CIT vs. Radha Kishan Goel (2005) 278 ITR 454 (All) iv) Mothers Pride Education Personna Pvt. Ltd. vs. DCIT ITA No. 3372/D/2011

    v) Shri Ashok Kumar Sharma & Otehrsw vs. DCIT in ITA Nos. 476 to 480/CTK/2011 vi) Sulochanadevi A. Agarwal, Suran vs. ITO ITA No. 1052/Ahmedabad/2012 vii) Shri Pramod Kumar Jain vs. DCIT and others, ITA No. 131 to 133/CTK/2012 viii) DCIT vs. Shri Inderchand Surajmal Brothers ITA No. 139/Pune/2010

    6. Ld. DR on the other hand tried to justify orders of the authorities below. He submitted that provisions u/s 271AA and u/s 271(1) are substantially different since the provision laid down u/s 271AAA are applicable in the case of search only. U/s 271AAA (2) onus lies on the assessee to specify and substantiate the manner in which undisclosed income was derived whereas no such requirement is there under the provisions of section 271(1) of the Act. He submitted that during the course of ITA No-337/Del/2013 5 statement recorded u/s 132(4) of the Act the assessee accepted the unaccounted income but did not reply its source. In this regard, he referred contents of question Nos. 4,5 and 6 raised to the assessee while recording his statement u/s 132(4) of the Act and his answer thereto. He submitted further that the decisions relied upon by the Ld. AR having distinguishable facts and these are not helpful to the assessee.

    7. In the rejoinder Ld. AR referred contents of para No. 6 of the penalty order wherein the submission of the assessee specifying the manner in which the undisclosed income has been derived and substantiated has not been rebutted by the AO despite the fact that submissions in detail having been made by the assessee before him.

    8. Considering above submissions we find that the only issue involved in the present case is as to whether the manner in which the undisclosed income derived was specified and substantiated by the assessee to avoid the application of penal provision u/s 271AAA of the Act. For a ready reference the provisions u/s 271 AAA are being reproduced herein:- (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 u/s 132 on or after the 1st day of June, 2007[but before the 1st day of July, 2012], 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 percent of the undisclosed income of the specified previous year. (2) Nothing contained in sub- section (1) shall apply if the assesssee,___

    (i) in the course of the search, in a statement under sub-section (4) of Section 132, admits the undisclosed income and specified the manner in which such income has been derived;

    (ii) Substantiates the manner in which the undisclosed income was derived;

    (iii) pays the tax, together with interest, if any, in respect of the undisclosed income. ITA No-337/Del/2013 6 (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 u/s 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 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.] ITA No-337/Del/2013 7

    9. Thus it is clear that in a case where search has been initiated u/s 132 on or after 1.6.2007, the assessee shall be liable to pay by way of penalty in addition to tax if any payable by him the sum computed @10% of the undisclosed income of the specified previous year. However the said penalty is not leviable if an assessee in his statement recorded during the course of search u/s 132 of the Act,

    i) admits the undisclosed income ii) specifies and substantiates the manner in which it has been derived ; and iii) pays the taxes due thereon together with interest

    10. In the present case there is no dispute that the assessee has paid due tax together with interest on the admitted undisclosed income. The only dispute is as to whether while doing so the assessee has specified and substantiated the manner in which it was derived .

    11. When we compare Explanation 5 to section 271(1) of the Act with the provisions laid down u/s 271AAA of the Act we find a lot of similarity therein under which penalty is not attracted in a case of search on the undisclosed income. As per Explanation 5 to section 271(1) of the Act if the assessee in the course of search makes a statement under sub section (4) of section 132 that any money, bullion, jewellery or other valuable article or things 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, then the assessee for such income will not be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income to attract the penalty therein. Similarly under the provisions of section 271AAA of the Act penalty is not leviable where search has been ITA No-337/Del/2013 8 initiated u/s 132 on or after 1.6.2007 but before 1.7.2012, and the assessee in the course of search, in a statement under the sub section 4 of section 132,(i), admits the undisclosed income (ii) specifies and substantiates the manner in which such income has been derived, and (iiii) pays the tax together with interest, if any, in respect of the undisclosed income. From the reading of both these penal provisions we find that one requirement is common for non attraction of the penal provisions under both the sections i.e. if the assessee in his statements recorded u/s 132(4) of the Act admits the undisclosed income and 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. The only additional requirement in the case of section 271AAA in this regard is that the assessee will also have to substantiate the manner in which the undisclosed income was derived besides specification of the manner in which such income was derived. The other difference is in the application of the provisions under both the sections. The penal provision u/s 271(1) under Explanation 5 thereto is applicable in such cases where search u/s 132 was initiated before 1.6.2007 whereas u/s 271AAA, the provisions therein are applicable in a case where search u/s 132 of the Act has been initiated on or after 1.6.2007 but before 1.7.2012. Thus the intention of the legislature is clear to this extent that in a case wherein search was initiated before 1.6.2007, provisions u/s 271(1) will be applicable and in search initiated after 1.6.2007 (but before 1.7.2012) provisions u/s 271AAA of the Act will be applicable. These provisions are thus not applicable simultaneously but these are period specific. As discussed above, the only additional requirement for non attraction of penal provision u/s 271AAA of the Act in comparison to this u/s 271(1) is that besides specifying the manner in which the admitted an undisclosed income has been derived, the assessee will also have to substantiate this manner. In view of this relative study of both the provisions when we go through the decisions relied upon by the Ld. AR, we find that in the case of ACIT vs. GEBILAL Kanhialal (HUF) (supra) before the Honble Supreme Court the Karta of the asseseee HUF had made a statement u/s 132 (4)admitting ITA No-337/Del/2013 9 concealed income in the course of search and specified the manner in which such income stood derived. In this statement the Karta also surrendered an amount of Rs. 42,32,000/-. The Karta however neither filed return of income u/s 139 (1) on due date nor paid due tax on the surrendered income. Later on he also retracted from his statement recorded u/s 132(4) about surrender. The Honble Supreme Court after deliberating in detail on different Explanations to section 271(1) has been pleased to hold that the assessee was entitled to immunity under clause (2) of Explanation 5 to section 271(1) of the Act. In that case failure to file return of income on 31st July 1987 and failure to pay tax thereon was the mere reason relied upon by the department to deny to the assessee the benefit of immunity under clause (2) of Explanation 5 to section 271(1) of the Act. According to the department the assessee had complied with all the conditions of clause 2 of Explanation 5 except payment of tax in time. Honble Supreme Court pleased to hold that no time limit has been prescribed for payment of tax under clause 2 of Explanation 5 and the assessee having paid tax upto the date of payment in respect of the undisclosed income surrendered by it in the course of search, all the three conditions laid down in clause 2 of Explanation 5 to section 271(1) stood fulfilled and therefore the assessee is entitled to immunity under clause (2) of Explanation 5 to section 271(1) of the Act. In the case of CIT vs. Radha Kishan Goel (supra) before the Honble Allahabad High Court the issue raised was as to whether mere non-statement of manner in which undisclosed income was derived would make Explanation 5 (2) to section 271(1) inapplicable. The further question raised was as to whether in a case manner in which income has been derived has not been stated in the statement u/s 132(4) but is stated subsequently, that amounts to compliance with Explanation 5 (2) to section 271(1) and no penalty would be leviable under said section.. Both these questions have been replied in affirmative in the decision of the Honble Allahabad High Court. As per the decision mere non statement of manner in which undisclosed was derived would not make Explanation 5 (2) to section 271(1) inapplicable. Similarly in a case manner in which income has been ITA No-337/Del/2013 10 derived has not been stated in statement u/s 132(4) but is stated subsequently that amounts to compliance with Explanation 5 (2) to section 271(1) and no penalty would be leviable. Similarly in the case of CIT vs. Mahendra G. Shah before the Honble Gujarat High Court the basic requirement for immunity form the levy of penalty under Explanation 5 to section 271(1) of the Act has been discussed as per which the first requirement is disclosure in statement made u/s 132(4) and payment of tax before the assessment was completed. Following ratio laid down in this decision of Honble Gujarat High Court, Pune Bench of the Tribunal in the case of DCIT vs. Shri Inderchand Surajmal Bothra (supra) wherein penalty u/s 271(1) was levied held that it is not required to specify the manner in which the income was earned in respect of the amount offered to tax in the return of income filed to search action by paying taxes thereon for adopting immunity from penalty under Explanation 5 of section 271(A) (C) of the Act. The cuttak Bench of the Tribunal in the case of Shri Ashok Kumar Sharma (HUF) and others vs. DCIT (supra) wherein penalty u/s 271 AAA was levied the assesee had disclosed concealed income while giving statement u/s 132 of the Act during the course of search and had paid the tax thereon and showed the said undisclosed income filed under the head income from business and department had accepted these returns and accordingly passed the assessment order. Penalty u/s 271AAA was levied. It was held that undisputedly the assessee had shown the undisclosed income under the head income from business in the returns filed by them and that was accepted by the department by passing the assessment orders accordingly, therefore the case of the assessee falls exactly within the purview of sub section 2 of section 271aaa. Thus the impugned penalty levied contrary to the provisions contained in section 271AAA (2) is not sustainable. The penalty was accordingly deleted. In the case of Shri Pramod Kumar Jain and another vs. JCIT (supra) before the Cuttak Bench of the Tribunal, the assesee had disclosed the unaccounted income but had failed to specify the manner in which such income had been derived. The department accordingly levied penalty u/s 271AAA of the Act. The same ITA No-337/Del/2013 11 was upheld by the first appellate authority. The Tribunal has however deleted the penalty on the basis that there is no prescribed method to indicate the manner in which income was generated where the definition of undisclosed income has been defined in the Act itself when no income of the specified previous year represented either wholly or partly which onus lay upon the assessee stood discharged. The Delhi Bench of the Tribunal in its recent decision in the case of Mother Pride Education Personna Pvt. Ltd,.vs. DCIT (supra) while placing reliance on its earlier decision in the case of Smt. Raj Rani Gupta (supra) and following the ratio of the decision of Honble High Courts in the case of CIT vs. Radhi Kishan Goel (supra) (All) and CIT vs. Mahendra C. Shah (supra) (Guj) has deleted the penalty. The Honble Allahabad High Court in the case of CIT vs. Radha Kishan Goel (supra) has been pleased to hold that u/s 132(4) of the I.T. Act 1961 unless the authorized officer puts specific question with regard to the manner in which income has been derived, it is not expected from the person to make a statement in this regard and in case in the statement the manner in which income has been derived has not been stated but has been stated subsequently, that amounts to the compliance with Explanation

    5 (2) to Section 271 (1) (C) of the Act. It was further held that in case there is nothing to the contrary in the statement recorded u/s 132(4) of the Act in the absence of any specific statement about the manner in which such income has been derived, it can be inferred that such undisclosed income was derived from the business which he was carrying on or from other sources. The object of the provision is achieved by making the statement admitting the non-disclosure of money, bullion, jewellery etc. It was thus held that much importance should not be attached to the statement about the manner in which such income has been derived. It can be inferred on the facts and circumstances of the case, in absence of anything to the contrary. Therefore, mere non statement of the manner in which such income was derived would not make Explanation 5 (2) inapplicable, held the Honble High Court. ITA No-337/Del/2013 12

    12. The Honble Gujarat High Court in the case of CIT vs. Mahendra C. Shah has been pleased to held as under :- In so far as the alleged failure on the part of the assessee to specify in the statement u/s 132(4) of the Income Tax Act 1961 regarding the manner in which such income has been derived, suffice it to state that when the statement is being recorded by the authorized officer it is incumbent upon the authorized officer to explain the provisions of Explanation 5 in its entirety to the assessee concerned and the Authorized Officer cannot stop short at a particular stage so as to permit the Revenue to take advantage of such a lapse in the statement. The reason is not far to seek. In the first instance, the statement is being recorded in the question and answer form and there would be no occasion of an assessee to stage and make averments in the exact format stipulated by the provisions considering the setting in which such statement is being recorded, as noted by the Allahabad High Court in he case of CIT Vs. Radha Kishan Goel (2005) 278 ITR 454. Secondly, considering the illiterate, to be specific and to the point regarding the conditions stipulated by exception no.2 while making statement u/s 132(4) of the Income tax Act, 1961. The view taken by the Tribunal as well as the Allahabad High Court to the effect that even if the statement does not specify the manner in which the income is derived, if the income is declared and tax thereon paid, there would be substantial compliance not warranting any further denial of the benefit under exception no.2 in Explanation 5 is commendable.

    13. In the present case before us during the course of search at the residential premises of the assessee on 4.3.2010 certain documents relating to the transactions in properties undertaken by the assessee were found and seized as per page Nos. 4 & 5 of Annexure A3 in SR4. As per such papers the assessee had an outstanding sum of Rs. 3 crore and Rs. 6 crore from various person which was duly disclosed as additional income for asstt. year 2010-11 while making statement u/s 132(4) of the Act. In addition, as per page No. 6 of Annexure A3 in SR4 the assessee had paid in cash a sum of Rs. 17,86,57,781/- for purchase of land by Bhushan Steel Limited (however at the time of statement recorded it was ITA No-337/Del/2013 13 inadvertently mentioned as Bhushan Energy Ltd.) which was also declared as additional income for the asstt. year 2010-11 while making a statement u/s 132(4) of the Act. As per the said statement the assessee had admitted that he had entered into various forward/speculative and property transaction during the period from 1.4.2009 to 4.3.2010. Keeping in view the same an income of Rs.

    125 crores arising out of the said transactions was declared in the statement recorded during the course of search which included the said amount as undisclosed. Subsequently the taxes due thereon were also paid and the same income declared in the return of income filed for the assessment year 2010-11 was also accepted by the Department.

    14. On having gone through the query raised while recording the statement of assessee u/s 132(4) of the Act, we find substance in the contention of the Ld. AR that nowhere the authorized officer has asked a specific question with regard to the manner in which the undisclosed income has been derived. The relevant questions are question Nos. 4,5,6 and 7. For a ready reference these questions and reply by the assesee thereto are being reproduced hereunder:-

    4 For facility of reference and as in aid for further analysis and discussion the relevant part of the statement recorded during the course of search is as follows:- Q 4. I am drawing your attention to annexure A-3 at Page No-6. Please go through the same and explain the content thereof? Ans. This paper depicts details regarding purchase of various lands on various dates by M/s Bhushan Energy Ltd in Kolkata. As mentioned in this paper in the entire transaction an amount of Rs. 178657781/- was paid in cash on 02/05/2009. This cash was paid out of my own unaccounted ITA No-337/Del/2013 14 funds which was never l disclosed for taxation purpose. I hereby accept the above amount to be my unaccounted income in the shape of investment in the current financial year and the same is offered for taxation. Q5. I am drawing your attention towards annexure A-3 at Page NO-5 found from your residence, please explain to whom this paper belongs and under whose hand writing this has been written. Please go through the same and explain the content thereof? Ans. Yes, I accept that this sheet of paper was found from my bed room at this premise, I own this paper and all the contents of this paper are written by me only. The notings on this paper depicts the fact that I have advanced certain amounts to some person on different dates. The details of which is furnished below:- List of advances outstanding on 31.01.2010 Atma Ram 11.0 Cr Shiv Prakash 15.0 Cr Devender Kumar 17.0 Cr Prem Singh 6.0 Cr Kundan Singh Negi 9.5 Cr Prembir Singh 5.5 Cr Sureinder Singh 5 Cr 69.0 Cr This is the amount given by me to the above persons during the current financial year outstanding as on 31.01.2010. Q.6 What is the source of this amount of Rs. 69 Crores? Ans. The above amount of Rs. 69 crores is my unaccounted income for the current financial year generated from undisclosed sources. By means of ITA No-337/Del/2013 15 t his statement I hereby accept the above amount of Rs. 69 Cr to be my unaccounted income from the current F.Y and offer it for taxation. Q.7. I am drawing your attention towards anneuxre-A-3 at page NO-4 found from your residence. Please explain to whom this paper belongs and under whose hand writing this has been writtteen. Please go through the same and explain the content thereof? Ans. Yes, I accept that this sheet of paper belongs to me, I own this paper and all the contents of this paper have been written by me only. The notings on the paper depicts the fact that I had advanced an amount of Rs.3.0 cr on 9.6.2009 for the purpose of purchase of property at Q1- A, Hauz Khias Enclave, New Delhi. In respect of this amount I hereby state that this amount is my unaccounted income not offered for taxation for the current financial year. On the basis of my reply to questions numbers 5, 6 and 7 I reiterate to have accepted a total amount of Rs. 90Cr (Rupees Ninety crores only) to be my unaccounted income for the current financial year, which I hereby offer for taxation.

    15. We find further that vide its reply dated 03.6.2010, addressed to the Asstt. Director of Income Tax (Investigation) and dated 25/7/2011, 8/6/2012 and 20/6/2012 to the Asstt. Commissioner of Income Tax the assessee has tried to explain the undisclosed income of Rs. 125 crore surrendered by the asseseee in his statement recorded u/s 132(4) of the Act. The contents of para No. 1 & 2 of the letter dated 25.7.2011 are being reproduced hereunder :- ITA No-337/Del/2013 16 (1) With regard to Your Honours query regarding income of Rs.125 crores for F.Y 2009-10 disclosed during the course of search u/s 132, it is submitted that during the course of the said search at the residential premises of the Assessee on 04 March 2010 certain documents relating to transactions in properties undertaken by him were found as per page Nos.

    4 & 5 of Annexure A-3 in SR- 4. As per the said papers the Assessee had an outstanding of a sum of Rs. 3,00,00,000/- and Rs. 69,00,000/- from various persons which were declared as additional income of A/Y 2010- 1\2011 while making a statement u/s 132(4) of the Income-tax Act, 1961. In addition , as per page No-6 of Annexure A-3 in SR-4, the Assessee had paid in cash a sum of Rs. 17,86,57,781/- for purchase of land by M/s Bhushan Steel Limited however, at the time of statement recorded it was inadvertently mentioned as M/s Bhushan Energy Ltd, which was also declared as additional income for A.Y 2010-2011 while making a statement u/s 132(4) of the Income-tax-Act, 1961. (2) As per the statement recorded during the course of search the Assessee himself had admitted that he had entered into various forward/speculative transactions and also transactions related to properties during the period from 1/4/2009 to 4/3/2010 i.e. Financial Year 2009-2010 relevant to Assessment Year 2010-2011. The said transactions were carried out in an unorganized manner and neither any accounting records nor any documentary evidence/support in respect of transactions/activities carried out were maintained. The only documentary evidence in respect of the said transaction was as per the page Nos. 4, 5 & 6 of Annexure-A-3 in SR-

    4 and no other detailed record of transactions were either maintained or preserved. Keeping in view the situation mentioned above, the income of ITA No-337/Del/2013 17 Rs.125,00,000/- arising out of the said transactions was declared in the statement recorded during the course of search u/s 132 which included the said amount as per page Nos. 4, 5 & 6 of Annexure A-3 in Sr-4. Subsequently, the taxes due thereon were also paid and the said income declared in the return of income filed for A.Y 2010-11.

    16. In view of above facts of the present case wherefrom it is evident that during the course of search proceedings the authorized officer of the department had not raised any specific query regarding the manner in which the undisclosed income has been derived and on the contrary the assessee has tried to explain the earning of the undisclosed income in question in its reply during the course of recording of his statement u/s 132(4) of the Act and thereafter. We thus respectfully following the ratio of above cited decisions of Honble Allahabad High Court and Honble Gujarat High Court hold that in absence of query raised by the authorized officer during the course of recording of statement u/s 132 (4) about the manner in which the undisclosed income has been derived and about its substantiation, the AO was not justified in imposing penalty u/s 271AAA of the Act specially when the offered undisclosed income has been accepted and due tax thereon has been paid by the assessee. We thus while setting aside orders of the authorities below in this regard direct the AO to delete the penalty of Rs. 12,50,00,000/- levied u/s 271AAA of the Act. The ground is accordingly allowed. In the result appeal is allowed. ` Order pronounced in the open court on 24th June 2013. Sd/- Sd/- (G.D. AGRAWAL) ( I.C. SUDHIR ) VICE PRESIDENT JUDICIAL MEMBER ITA No-337/Del/2013 18 Date 24th June, 2013 Veena/ R.N Copy of order forwarded to:

    1. Appellant

    2. Respondent

    3. CIT(A)

    4. CIT

    5. DR By Order Deputy Registrar, ITAT New Delhi ITA No-337/Del/2013 19 ITA No-337/Del/2013 20

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