Citation Codes

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Case Number

ITA 131/CTK/2012

Advocates

S.N. Padhee

Judges

K.K. GuptaK.S.S. PRASAD RAO

Acts

provisions of Section 69C I.T.A.Nos.131,132 and 133/CTK/2012 4
Section I.T.A.Nos.131,132 and 133/CTK/2012 3 271AAA(2)
u/s.271AAA of the Income-tax Act,1961 in ITA Nos.131

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Smart Summary

Structured Summary of the Tribunal Order (20.07.2012)

Factual and Procedural Background

These consolidated appeals (ITA Nos. 131, 132 and 133/CTK/2012) arise from penalty orders under section 271AAA of the Income-tax Act, 1961. The appellants are Shri Pramod Kumar Jain (ITA Nos.131 & 132) for AYs 2007-08 and 2008-09 and M/s JRC Resources (P) Ltd. (ITA No.133) for AY 2008-09 (in which Shri Pramod Kumar Jain is a director). The appeals were heard together as they involve a common issue.

During search and seizure operations, statements on oath were recorded under section 132(4). The assessees surrendered income for the impugned assessment years and filed returns pursuant to notice under section 153A. The Assessing Officer accepted the surrendered income as returned: in Shri Pramod Kumar Jain’s case the surrender related to enhancement in value of a constructed house; in M/s JRC Resources’ case the surrender related to purchase of trucks (the assessee is a transporter).

The Assessing Officer initiated penalty proceedings under section 271AAA (via show cause) on the ground that the assessee had not specified the manner in which the surrendered income had been derived, and imposed penalty at 10% of the amount surrendered under section 132(4). The first appellate authority (CIT(A)) considered the matter, reduced some penalty amounts in part in one case, but confirmed penalties in other instances. Aggrieved, the assessees appealed to the Tribunal. The Tribunal delivered its order dated 20.07.2012 allowing the appeals.

Legal Issues Presented

Whether penalty under section 271AAA can be levied where the assessee has surrendered income under section 132(4), included it in returns filed pursuant to section 153A and paid tax with interest, but the Assessing Officer records that the assessee has not specified the "manner" in which such income was derived.
Whether the conditions in section 271AAA(2) must be read and satisfied together (and thus whether failure to meet one condition automatically attracts penalty), particularly in cases where the undisclosed income has been accepted and taxed following a search.

Arguments of the Parties

Appellant's Arguments (Assessees)

The assessees had surrendered income under section 132(4), included that amount in returns filed under section 153A and paid tax along with interest.
The statement on oath and the subsequent returns (and entries in books) sufficiently identified the assets and the manner of representation of undisclosed income (for example, trucks and enhanced house value were identified as the representation of surrendered income).
The Assessing Officer had accepted the returned/surrendered amounts (i.e., accepted that the assets were represented by part business income), and therefore could not insist on a further separate specification of "manner" when the surrendered income had already been accepted and taxed; had the AO been of a different view he could have taxed under other provisions such as section 69C or section 68, but he did not.
Reliance was placed on earlier Tribunal decisions (Ashok Kumar Sharma & Others v. DCIT and DCIT v. Pioneer Marbles & Interiors P Ltd) where penalties under section 271AAA were cancelled by considering the conditions in sub-section (2) together and not in isolation.
Penal provisions are punitive and should not be imposed automatically; once the undisclosed income has been identified, returned and taxed, the onus on the assessee is discharged and penalty under section 271AAA should not follow.

Respondent's Arguments (Revenue)

The Revenue submitted that surrendering income and proceeding under section 153A does not by itself preclude imposition of penalty under section 271AAA; the assessee must specify the manner in which the income was earned at the time of levy of penalty.
If the requirement to specify manner were ignored, the penalty provision would become redundant and futile. The conditions of section 271AAA(2) must be satisfied together for avoidance of penalty.
The Revenue supported confirmation of the penalties by the lower authorities and argued that the Assessing Officer was not obliged to and did not determine the exact year of earning, only the specified previous year as defined in the Act.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Ashok Kumar Sharma & Others v. DCIT (consolidated ITA Nos.476 to 480/CTK/2011), order dated 22.12.2011	Tribunal decision cancelling penalty under section 271AAA where the conditions in subsection (2) were considered together and not applied in isolation; supports non-automatic imposition of penalty where surrendered income has been returned and taxed.	The Bench followed this decision as demonstrating that penalty under section 271AAA is not automatic and that where surrendered income has been accepted and taxed, penalty cancellation is appropriate; the Tribunal applied the same approach to the present cases and cancelled the penalties.
DCIT v. Pioneer Marbles & Interiors P Ltd (citation as recorded in the order: (92012) 014 ITR (Trib) 0608)	Supports the principle that the conditions of section 271AAA(2) must be read together; reinforces that the requirement to specify the "manner" is not susceptible to a rigid/formalistic requirement where the search-recorded statement and returns identify the representation of undisclosed income.	The Tribunal relied on this decision, treating it as corroborative authority for cancelling the penalty in the present matters on similar facts where the Assessing Officer had accepted the surrendered amounts and tax with interest had been recovered.

Court's Reasoning and Analysis

The Tribunal examined the facts and the rival contentions and proceeded in a stepwise manner:

The Tribunal noted that statements on oath recorded under section 132(4) during the search operation and subsequent accounting (entries in books and returns filed pursuant to section 153A) serve to specify the manner in which the assessee was prepared to pay tax on the surrendered income.
The Assessing Officer had accepted the surrendered income — identifying it as represented by trucks (in the case of the company) and enhanced house value (in the case of the individual) — and had proceeded to accept returns and recover tax and interest. The Tribunal treated this acceptance as bearing on the "manner" requirement.
The Tribunal observed that existing case law (as cited by the assessee) indicates that penalty under section 271AAA is not automatic merely because one of the conditions in sub-section (2) is not in the Assessing Officer’s express wording; instead the conditions must be considered together and in context.
The Tribunal rejected the Revenue's contention that allowing non-imposition of penalty in these circumstances would render section 271AAA redundant. The Tribunal pointed out that the penalty was levied after tax and interest had been recovered; this recovery lessens the force of the Revenue’s argument that the provision would otherwise be rendered futile.
The Tribunal emphasized that there is no prescribed format or rigid formalism for specifying the "manner" in which surrendered income was derived; the search-party's record and the subsequent accounting in books accepted by the Assessing Officer are material to that requirement. On the facts before it, the Tribunal found that the assessee's disclosures (statement on oath, returns and accounting entries) discharged the onus regarding the manner of representation of undisclosed income.
Applying the reasoning in the cited precedents, and given the factual acceptance and taxation of the surrendered amounts, the Tribunal concluded that the levy of penalty under section 271AAA in these particular cases was not justified.

Holding and Implications

Holding: The Tribunal allowed the appeals and cancelled the penalty imposed under section 271AAA for the assessment years under consideration in the respective cases.

Direct consequences for the parties

The penalties levied under section 271AAA in the appeals before the Tribunal were set aside; the appeals filed by the assessees were allowed.
The order records that tax and interest had already been recovered; the cancellation of penalty affects only the penalty component imposed under section 271AAA.

Broader implications

The Tribunal's decision follows earlier Tribunal precedents and applies the principle that conditions in section 271AAA(2) should be read together; it treats statements on oath, entries in books and acceptance by the Assessing Officer as relevant to the "manner" requirement. The order does not purport to lay down a novel statutory interpretation beyond following those precedents; it applies them to the facts at hand. The text does not state that a new binding precedent was created beyond this application.

Order and Administrative Details

The order was pronounced on 20.07.2012 by the Cuttack Bench of the Income Tax Appellate Tribunal (Judicial Member and Accountant Member signatures are recorded in the order). The parties and concerned authorities were served as per the order's distribution list included in the record.

Note: This summary is drawn solely from the content of the provided Tribunal order. No information beyond what is contained in that order has been added.

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Pramod Kumar Jain, Bargarh v. DCIT, Sambalpur

. . , , Shri K.K.Gupta, Accountant Member. These appeals relate to a common issue being penalty levied u/s.271AAA of the Income-tax Act,1961 in ITA Nos.131 and 132/CTK/2012 of Shri Pramod Kumar Jain for the AYs 2007-08 and 2008-09 and in ITA No.133/CTK/2012 of M/s.JRC Resources (P) Ltd., for the Assessment Year 2008-09 in which Shri Pramod Kumar Jain is a Director. We propose to dispose all these appeals together the issue being common by way of this common order for the sake of convenience and brevity.

2. The brief facts as have been brought on record that the assessee was subjected to search and seizure operation when during the course of search

I.T.A.Nos.131,132 and 133/CTK/2012 statements were taken on oath and assessee surrendered respective income for the impugned AYs and filed returns declaring the same in their returns pursuant to notice u/s.153A. The Assessing Officer accepted the income as returned by the assessees being disclosure of assets made during the search operation which in the case of Pramod Kumar Jain happened to be the enhancement in the value of the house constructed and in the case of JRC Resources towards the purchase of trucks, the assessee being a transporter. Although the Assessing Officer did not initiate penalty proceedings in the assessment for the Assessment Year 2007-08 and had actually considered initiation of penalty proceedings u/s.271(1)(c). However, the Assessing Officer corrected himself in the Assessment Year 2008-09 for Pramod Kumar Jain and M/s.JRC Resources when he initiated penalty proceedings in the assessment order u/s.143(3) r.w.s. 153A. The assessees are transporters and retail traders in cement, Asbestos sheets and undertake labour contracts. The Assessing Officer after issuing show cause u/s.271AAA observed that the assessee has made disclosure for the respective amounts but failed to specify the manner in which such income had been derived and therefore in view of Explanation (a) to Section 271AAA imposed penalty being 10% of the amount surrendered u/s.132(4) as well as accepted by the Assessing Officer with a minor difference in the case of M/s.JRC Resources when he sought to compute the disclosure partly in the hands of the assessee Shri Pramod Kumar Jain by reducing the same in the hands of the assessee M/s.JRC Resources P Ltd.

3. Aggrieved, the assessees appealed before the first appellate authority who scrupulously considered the cases of the assessees by holding that penalty would not have been levied only if all the conditions of Section

I.T.A.Nos.131,132 and 133/CTK/2012 271AAA(2) are satisfied. He agreed that the assessee had made disclosure, showed it in its return and paid tax along with interest thereon but has not substantiated the manner of deriving the same. On the basis of reduction in the surrendered amount by the assessee M/s.JRC Resources P Ltd., the learned CIT(A) partly reduced the amount of penalty from 2,22,000 to 1,90,000 whereas he confirmed the penalty of 2,30,000 for the Assessment Year 2007-08 and 2,42,000 for the Assessment Year 2008-09 in case of the assessee Shri Pramod Kumar Jain.

4. The learned Counsel for the assessees submitted that the assessee had made disclosure u/s.132(4), included it in its return the said amount and paid the tax and interest thereon. The definition of undisclosed income has been defined in the said Section itself when the Assessing Officer took note of the fact that the assets acquired from the said income are to be identified for the purpose of accepting the undisclosed income surrendered by the assessee u/s.132(4).The manner was also accepted by the Assessing Officer in the light of the fact that the business entities of the assessee being a Company and the individuals are being accepted by the Assessing Officer when the law provides that the undisclosed income is the income of a specified previous year represented either wholly or partly by any money, bullion or jewellery etc. Having accepted the returns with the declared income being the surrendered income, the Assessing Officer could not insist on defining the manner in which the same was given insofar as he had acknowledged that the income had been in the form of trucks and buildings which value was enhanced on the basis of part income generated from business was identified. If that had not been so, the Assessing Officer ought to have brought to tax this income under the provisions of Section 69C

I.T.A.Nos.131,132 and 133/CTK/2012 insofar as the endeavor of the Assessing Officer to consider the case of the assessees was computation of undisclosed income. He pointed out that the manner has been defined by the Act itself when it was not the satisfaction of the Assessing Officer which has to be brought on record once the manner has been given or disclosed by the assessee. Having accepted the surrendered income on the basis of returns filed by the assessee, it was not the case of the Assessing Officer to tax the same u/s.68 applies to the manner in which an income has been earned which satisfaction has to be reached by the Assessing Officer identifying the genuineness, creditworthiness etc. Therefore, the learned Counsel for the assessee submitted that on similarly placed facts, this Bench of ITAT, in the case of Ashok Kumar Sharma & Others v. DCIT in a consolidated order pronounced on 22.12.2011 in ITA Nos.476 to 480/CTK/2011, has cancelled the penalty levied u/s.271AAA , which copy is placed on record may kindly be considered. On the legal point therefore, he also relied on the decision of ITAT, Kolkata A Bench in the case of DCIT v. Pioneer Marbles & Interiors P Ltd [(92012) 014 ITR (Trib) 0608]. The learned Counsel for the assessee supported the views expressed by the Tribunal in both the orders insofar as the conditions for invoking the provisions of Section 271AAA as noted in sub- section (2) thereof has to be considered together and not in isolation. The condition with respect to the manner specific for the purpose of invoking the provisions has not been defined but accepted by the Assessing Officer in as many words. The definition of undisclosed income clarifies the manner insofar as the Assessing Officer after the search only can initiate penalty u/s.271AAA when these three conditions together are not satisfied. Penal provisions are punitive and not part of the tax structure insofar as the

I.T.A.Nos.131,132 and 133/CTK/2012 intention of the legislation was not to take 10% over and above the tax as a matter of levy of penalty u/s.271AAA automatically. To conclude his argument, he submitted that the penalty has been levied by creating a fiction in the explanation there to when there was no specific finding with respect to the manner the income has to be derived. Therefore he submitted that lacking the manner to be satisfied for which no format has been prescribed but having accepted the returned income available in the form of entry in the books of account which both the authorities below acknowledge are in the form of trucks which are being utilised for the purpose of claiming depreciation and construction of house which is being utilised for rendering income from house property at no point of time can be subjected to have been taxed u/s.69C.He prayed that the penalty so levied may kindly be deleted.

5. The learned DR opposed the contentions of the learned Counsel for the assessee. He submitted that having declared or surrendered the income is satisfied by the proceedings being undertaken u/s.153A therefore cannot be taken together with for non-imposition of penalty as it would result in futility of the very provision of Section 271AAA. The law provides that at the time of levy of penalty, the assessee has to specify the manner in which the income was earned. Had no search taken place, the assessee would have gone scot free even if the income was generated from the same source when part of the income was rendered to tax by way of regular business income. It was not the case of the Assessing Officer to determine in which year the assessee had earned that income when the specified previous year has been defined in the Act. Therefore, the learned CIT(A) rightly considered that conditions mentioned in Section 271AAA(2) are to be satisfied together was

I.T.A.Nos.131,132 and 133/CTK/2012 justified in confirmation of the penalty so levied. He fully supported the orders of the authorities below for his part of submissions.

6. We have heard the rival contentions and perused the material available on record. On consideration of the facts and circumstances of the case, we are inclined to hold that no definition could be given to the specified manner insofar as the very statement on oath u/s.132(4) specifies the manner on which the assessee is prepared to pay tax thereon. The inscribing in the books of account was taken care of by the assessee when he filed the returns in pursuance to notice u/s.153A accounting the assets. Therefore, the case laws cited at the Bar clearly indicate that the penalty is not automatic if one of the purported condition is not fulfilled although all the conditions have been agreed to of having fulfilled by the Assessing Officer insofar as the tax and interest has been recovered. Penalty has been levied after the tax has been recovered therefore answers the queries raised by the learned DR for that the said provisions become redundant was not the intention of the legislation. The manner, during the search operation, is noted by the search party which the Assessing Officer has acceded to. Therefore, following the decisions as relied upon by the learned Counsel for the assessee, wherein the Tribunal was pleased to consider cancelling the penalty so levied are also applicable to the assessees cases before us insofar as there is no prescribed method to indicate the manner in which income was generated when 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. In view of the above, we are of the considered view that the levy of penalty u/s.271AAA in the instant cases are not justified and as such, we cancel the

I.T.A.Nos.131,132 and 133/CTK/2012 penalty so levied u/s.271AAA for the AYs under consideration in the case of respective assessees.

7. In the result, all the appeals filed by the assessees are allowed. Sd/- Sd/- (... ), (K.S.S.Prasad Rao), Judicial Member (. . ), , (K.K.Gupta), Accountant Member. ()Date: 20.07.2012 Copy of the order forwarded to:

1. 1. / The Appellant : Sri Pramod Kumar Jain, Bargarh

2. M/s.JRC Resources (P) Ltd, C/o.Shri S.S.Agrawal, Advocate, Hospital Road, Bargarh.

2 / The Respondent: Deputy Commissioner of Income-tax, Circle 2(1), Sambalpur.

3. /The CIT,

4. ()/The CIT(A),

5. /DR, Cuttack Bench

6. Guard file. /True Copy, / By order, APPENDIX XVII SEAL TO BE AFFIXED ON THE ORDER SHEET BY THE SR. P.S./P.S. AFTER DICTATION IS GIVEN

1. Date of dictation 16.07.2012.

2. Date on which the typed draft is placed before the Dictating Member 17.07.2012Other Member .

3. Date on which the approved draft comes to the Sr. P.S./P.S.

4. Date on which the fair order is placed before the Dictating Member for pronouncement....

5. Date on which the fair order comes back to the Sr. P.S./P.S .

6. Date on which the file goes to the Bench Clerk 20.07.2012

7. Date on which the file goes to the Head Clerk ..

8. The date on which the file goes to the Assistant Registrar for signature on the order ................

9. Date of Despatch of the Order .. ( ), (H.K.Padhee), Senior.Private Secretary.

Pramod Kumar Jain, Bargarh v. DCIT, Sambalpur

Structured Summary of the Tribunal Order (20.07.2012)

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellant's Arguments (Assessees)

Respondent's Arguments (Revenue)

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Order and Administrative Details

Pramod Kumar Jain, Bargarh v. DCIT, Sambalpur

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