JAYABEN RATILAL SORATHIA vs ASSISTANT COMMISSIONER OF INCOME TAX,
- Court
- Gujarat High Court
C/TAXAP/632/2017 JUDGMENT DATED: 14/10/2026
(GJHC240570442017)
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO.632 of 2017
FOR APPROVAL AND SIGNATURE :
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE NIRZAR S. DESAI
=========================================
Approved for Reporting Yes No
NO
=========================================
JAYABEN RATILAL SORATHIA
Versus
ASSISTANT COMMISSIONER OF INCOME TAX
=========================================
Appearance :
MR B S SOPARKAR for the Appellant.
MAUNIL G YAJNIK for the Opponent.
=========================================
CORAM: HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE NIRZAR S. DESAI
Date : 14/10/2026
JUDGMENT
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)
1. Heard Mr. B. S. Soparkar, learned advocate for the
appellant – assessee and Mr. Maunil G. Yajnik, learned Senior
Standing Counsel for the respondent – revenue.
2. This appeal is filed under Section 260-A of the Income
Tax Act, 1961 (for short ‘the Act’) challenging the order dated
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17.4.2017 passed by the Income Tax Appellate Tribunal, Rajkot
Bench, Rajkot (for short ‘the Tribunal’) in ITA No.68/RJT/2010 for
the Assessment Year 2006-07.
3. This appeal is admitted by order dated 29.8.2017 for
consideration of the following substantial question of law :-
“[A] Whether the Income Tax Appellate Tribunal
committed an error in confirming imposition of
penalty by the Assessing Officer in the order of
assessment under section 153A read with section
153C of the Act, there was no addition to the
returned income ?”
4. The brief facts of the case are as under :-
4.1 A search was carried out in the case of the son of the
appellant at the premises of Shri Sanjay R. Sorathia on 11.10.2006.
During the course of search, statement of the son of the assessee
was recorded under Section 132 (4) of the Income Tax Act, 1961
(for short ‘the Act’) wherein the son of the assessee admitted the
undisclosed income of Rs.64.54 Lacs in the case of the assessee.
By letter dated 14.8.2008, the assessee informed the Assessing
Officer that pursuant to the search action as per the statement of
her son, extra sale proceeds in respect of the property known as
Madhuban Green Villas was yet to be recorded in the books of
account and it was also explained as to why such income was not
offered for tax in the return which was filed under Section 139 (1)
of the Act on 31.3.2007.
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4.2 Thereafter, notice under Section 153C of the Act was
issued on for the Assessment Year 2006-07. The assessee
furnished the return of income for the year under consideration in
response to the said notice on 23.10.2008 declaring the income of
Rs.64,28,970/-. The assessee also paid the tax on the income
declared in the return filed under Section 153A pursuant to the
notice under Section 153C of the Act.
4.3 The Assessing Officer completed the assessment on the
return of income disclosed without any inquiry as to from where
the additional income so disclosed was earned. The Assessing
Officer initiated the penalty proceedings as the additional income
so disclosed in the return filed under Section 153A pursuant to the
notice under Section 153C of the Act as the concealed income for
the year for consideration because the said income was not shown
in the return filed under Section 139 (1) of the Act for the year
under consideration by the assessee. After considering the reply of
the assessee, the Assessing Officer imposed the penalty of
Rs.21,16,092/- under Section 271(1)(c) of the Act for the year under
consideration on the additional income of Rs.64.65 Lacs disclosed
in the return filed pursuant to the notice under Section 153C of the
Act.
4.4 Being aggrieved by the penalty order, the assessee
preferred an appeal before the Commissioner of Income Tax
(Appeals) (for short ‘CIT (Appeals)’). The CIT (Appeals) deleted the
penalty relying upon the decision of the Rajkot Tribunal in the case
of M/s. Balaji Multiflex Private Limited delivered on 10.08.2010 in
IT(SS) No.64 & 65/RJT/2009 by observing as under :-
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“3.3 I have carefully considered the submission of
the Learned Counsel and also considered the
penalty order so passed by the Assessing Officer. I
have also gone through the decisions relied upon by
the Ld. Counsel including the decision dated of the
the Hon'ble Rajkot Tribunal in the case of M/s.
Balaji Multiflex P Ltd delivered on 10.08.2010 in
IT(SS) No. 64 & 65/RJT/2009. The Assessing
Officer had imposed the penalty basically on the
ground that though the appellant had disclosed the
income u/s 132(4) and declared the income in the
return filed u/s 153C but the required taxes had not
been paid and therefore, the appellant cannot
derive support from the decision of the Hon'ble
Gujrat High Court in Mahendra C. Shah 299 ITR
355 (Guj.). However, the Ld. Counsel has
categorically submitted that such finding of the
Assessing Officer is factually untrue. It is evident
from the correspondence of the appellant that the
taxes due as per return of income were paid by the
appellant. The cash seized was not appropriated
against the tax liability by the department even
after written request of the appellant cannot be
considered as non- payment of taxes.
3.4 First of all, I would like to bring it on record
that I have confirmed the penalties imposed by the
Assessing Officers of Central Circles of Rajkot and
Baroda which were imposed on the additional
income disclosed in the 153A returns. These
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penalties were confirmed by me by relying on the
decisions of the Hon'ble Delhi Tribunal in the case
of Smt. Kiran Devi vs. Asstt. CIT [2009] 125 TTJ
(Delhi) 631, Hon'ble Bangalore Tribunal in the case
of Dy.CIT vs. K. Natarajan [2009] 33 SOT 92 (Bang.)
and Hon'ble Ahmedabad Tribunal in the case of
ACIT vs. Kirit Dahyabhai Patel [2009] 121 ITD 159
(Ahd.) (TM). In some of the cases, reliance was
placed on the decision of the Hon'ble Calcutta High
Court in the case of CIT vs. Suresh Chand Bansal
223 CTR (Cal.) and on the decision of the Hon'ble
Rajasthan High Court in the case of CIT vs.
Kanhaiyalal 214 CTR (Ral.) 611 on behalf of the
appellants which were not considered on account of
the decision of the Hon'ble Ahmedabad Tribunal in
the case of ACIT vs Kirit Dahyabhai Patel [2009]
121 ITD 159 (Ahd.) (TM).
3.5 However, Hon'ble Rajkot Tribunal, which is
the jurisdictional Tribunal for the CIT(A)-IV,
Ahmedabad, had changed the entire scenario in the
case of Dy.CIT vs. M/s Balaji Multiflex P. Ltd. for
the A.Y. 2004-05 and A.Y.-2005-06 by dismissing the
departmental appeals vide order dated 10.08.2010
in IT(SS) No. 64 & 65/RJT/2009. In the aforesaid
cases of both the years, the penalties imposed by
the Assessing Officer were deleted by my
predecessor by holding that the Assessing Officer
had not discharged the burden to prove the
concealment of income. The penalty was levied
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purely on the basis of additional income disclosed in
the returns filed u/s 153C of the Act. He had also
held that in a case where all the necessary
particulars are declared by the assessee in the
return of income, it cannot be said that the assessee
has concealed his income or furnished inaccurate
particulars of income in respect of the undisclosed
income. The matter was carried to the Tribunal by
the department. The Hon'ble Rajkot Tribunal in the
cases of Dy.CIT vs. M/s Balaji Multiflex P. Ltd.
(supra) has dismissed the departmental appeals for
both the years. The decision of the Hon'ble Rajkot
Tribunal is binding on CIT(A)-IV, Ahmedabad being
Jurisdictional Tribunal if the facts of the case
resembles. As is evident, the Hon'ble Tribunal in
their order had relied on the decisions of Hon'ble
Calcutta High Court in the case of CIT vs. Suresh
Chand Bansal 223 CTR (Cal.) 128, Hon'ble
Allahabad High Court in the case of Bhairav Lal
Verma vs. UOI 146 CTR (AII.) 16, Hon'ble Rajasthan
High Court in the case of CIT vs. Kanhaiyalal 214
CTR (Ral.) 611 and Hon'ble MP High Court in the
case of CIT vs. Suresh Chand Mittal 241 ITR 124
(MP) which was latter on affirmed by the Hon'ble
Supreme Court in the case of CIT vs. Suresh Chand
Mittal 251 ITR 9 (SC). The Hon'ble Tribunal
however, distinguished the decision of the Third
Member Bench of the Hon'ble Ahmedabad Tribunal
in the case of ACIT vs. Kirit Dahyabhai Patel 121
ITD 159 (A hd.)(TM).”
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4.5 After considering the decision of the Rajkot Bench
Tribunal in the case of Dy. CIT v. M/s. Balaji Multiflex Private
Limited, the CIT (Appeals) deleted the penalty and observed as
under :-
“3.6 I have carefully gone through the facts of the
case and aforesaid finding of the Hon'ble Rajkot
Tribunal. The Hon, ble Rajkot Tribunal, relying on
the decision of Hon'ble Calcutta High Court in the
case of CIT vs. Suresh Chand Bansal 223 CTR (Cal.)
128, has held vide para-7.1 of the order that "In the
present case too, the offer of additional income was
held to be good offer. All these together present the
factual context which must be considered before
taking a decision about whether the appellant
should be held guilty of concealment of income
offered in each of the assessment years. The
conclusion that income belonged to the assessee, is
based on the offer of the assessee and not entirely
on the seized documents. As the said offer is said to
have been made to avoid litigation and is an
estimate of income that might not have been taxed
and as no attempt was made even to find out the
locus of the earning and the person who concealed
such earning, penalty u/s 271(1)(c) fails to stand."
3.7 The Hon'ble Tribunal vide para-8 while
distinguishing the case of the Hon'ble Ahmedabad
Tribunal had observed that In the case of Kirit
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Dahyabhai Patel, substantial incriminating
documents were found which led to the adverse
inference that the assessee had concealed the
particulars of his income. Whereas, in the case of
the present assessee, there is no incriminating
material which draws adverse inference. Where
there is no evidence of concealment, the very
leviability of concealment penalty does not arise.
Reference was made to the decision of the
Allahabad High Court in the case of Bhairav Lal
Verma Vs. Union of India (1998) 146 CTR (All) 16
wherein it was held that "As a principle of law it
cannot be held that the disclosure of the concealed
Income after the raid or search cannot be voluntary.
It is a question which has to be decided by the
department in each case on the basis of the
material available on the record. The criteria for
deciding this question is to find out as to whether
the department has any incriminating material with
regard to the disclosed income. If the answer is in
the affirmative, the disclosure cannot be said to be
voluntary. But if the department has no
incriminating material with regard to the income
disclosed, the disclosure is liable to be treated as
voluntary even if it was made after search."
3.8 It was held vide para-9 of the order that "It is
also pertinent to point out that the Hon'ble High
Court of Kolkata in the case of CIT vs Suresh Chand
Bansal (supra) held that, additional income offered
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by the assessee after the search having been
accepted in its entirety without detailed discussion
of the seized documents and without making any
attempt to obtain the explanation of the assessee,
penalty u/s 271(1)(c) is not leviable."
3.9 Therefore, in view of the facts of the case and
by following the binding decision of the Hon'ble
Rajkot Tribunal as aforesaid, it is held that the
appellant had not concealed the particulars of
income. The disclosure of additional income in the
return filed in response to the notice issued u/s
153C of the Act was voluntary and the same was
accepted by the Assessing Officer in its entirety
without linking it to any material recovered or
seized during the course of search and without
making any attempt to obtain the explanation of the
assessee. The Explanation-5 to sec. 271(1) of the
Act cannot be applied in the case of the appellant as
the Assessing Officer had no where established that
the assessee was found to be the owner of any
money, bullion, jewellery or other valuable article
or thing, which had not been accounted for. Even if,
it is accepted that the assessee was found in
possession of unexplained records in the course of
search and in the course of the recording of the
statement it was inter alia deposed that such
income was unrecorded, the deeming fiction should
be that the assessee concealed the income
representing the quantum of such
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income/investment and this fiction comes to an end
when the corresponding amount was offered for
taxation and the source of investment was also
explained. The assessee offered the amount of
additional income for tax in the respective years,
which had not been challenged by the Assessing
Officer. Therefore, the benefit of Explanation 5 is
available to the assessee on the facts and in the
circumstances of the case. This view is supported
by the finding of the Hon'ble Tribunal recorded in
para-10 of their order. The charge against the
assessee is concealment of particulars of income.
Where the charge is of concealment, the Assessing
Officer has to establish that the assessee has not
disclosed the particulars of income under the main
provisions or the case of the assessee falls within
the scope of the deeming fictions created under the
explanations. The burden is upon the Assessing
Officer to establish the existence of the charge on
the basis of material on record. Reference may be
made to para-11 of the order of the Hon'ble
Tribunal dated 10.08.2010. The Assessing Officer
could not establish the charge of concealment of
income on the appellant. Considering these specific
facts, no penalty was imposable on the appellant for
concealment of particulars of income for the year
under consideration.
3.10 In view of the above discussion in para-3 3 to
para-3.9 and respectfully following the aforesaid
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decision of the Hon'ble Rajkot Tribunal in the case
of Dy.CIT vs. M/s Balaji Multiflex P. Ltd. (supra), it
is held that the Assessing Officer was not justified
in imposing the penalty u/s 271(1)(c) of the Act for
concealment of particulars of income in the case of
the appellant for the A.Y. 2006-07. The penalty so
levied for Rs. 21,16,092/- is hereby deleted.”
4.6 Being aggrieved, the revenue preferred appeal before
the Income Tax Appellate Tribunal, Rajkot Bench, Rajkot
(hereinafter referred to as ‘the Tribunal’) and the Tribunal after
considering the submissions made by both the sides, set aside the
order of the CIT (Appeals) and restored the order of the Assessing
Officer for levy of the penalty under Section 271(1)(c) of the Act as
under :-
“6. We have considered the rival submissions and
perused the orders of the lower authorities both
concerning quantum proceedings as well as penalty
proceedings. The short question in dispute is
whether in given facts, penalty under s.271(1)(c)
can be imposed on income declared in the return
filed under s.153C of the Act pursuant to search
proceedings or not. During the course of search
under s.132 of the Act at the residential premises of
the assessee, certain incriminating documents were
found wherein details of sale of plot of land was
found to be recorded. The son of the assessee based
on the incriminating document made a disclosure of
undisclosed income of Rs.65 lakhs during the
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course of search. However, in spite of disclosure,
the return filed under s.139(1) after search did not
include the admitted undisclosed income of Rs.65
lakhs and in original return so filed (after search), a
business loss of Rs.2,30,089/- was declared in total
disregard of the income disclosed at the time of
search. It is only after proceedings under s.153C
were initiated, the undisclosed income in the form
of extra sale proceeds to the tune of Rs.64,54,000/-
was credited to the capital account of the assessee
and brought to tax. The AO did not consider the
aforesaid action of declaring the additional income
after issuance of notice under s.153C of the Act in
the realm of bonafide. It is the case of the assessee
that Explanation-5 to section 271(1)(c) is not
applicable in the facts of the present case in view of
the escape route provided in clause(2) to
Explanation-5. In confirmity thereto, the CIT(A)
observed that Explanation-5 to section 271(1)(c)
cannot be applied against the assessee as the AO
has not established that the assessee was found to
be owner of any money, bullion, jewellery or other
valuable article or thing in which has not been
accounted for. The CIT(A) also observed that the
default committed by assessee, if any, towards
concealment had come to an end when the
corresponding amount was offered for taxation and
the source of investment was also explained. The
CIT(A) noted that the assessee has offered the
additional income for tax in respective which has
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not been challenged by the AO. Therefore, the
benefit of exception provided for inapplicability of
Explanation-5 is available to the assessee.
7. We fail to comprehend the rationale for grant
of relief by CIT(A). We observe that the AO has
clearly recorded a finding of fact that certain
incriminating documents were found from the
premises of the assessee wherefrom the details of
transaction carrying specific identification [RS
No.107 of Madhuben Green Villas Project] of asset
was unearthed. The disclosure of the aforesaid
amount was also admitted on behalf of the
assessee. In spite of this, the return filed after the
search in the regular course under s.139(1) of the
Act (and more pertinently after search) was without
the inclusion of the aforesaid undisclosed income. It
was only after the case of the assessee was clubbed
with other search matter, and proceedings under
s.153C were initiated, the undisclosed income in
the form of extra sale proceeds (equivalent to
money) was declared by way of two returns filed on
the same date, one as revised return under s.139(4)
and other under s.153C of the Act. Therefore, the
sequence of event would show that the assessee has
not readily offered the income in the return filed
after the search. It was only after pursuance by way
of notice issued under s.153C that the return filed
after search was grudgingly revised to include the
aforesaid income. Thus, it is difficult to hold that
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assessee has satisfied the cumulative conditions
provided in Sub-clause (2) to. Explanation-5 to
escape the clutches of penalty. We also do not find
merit in the argument on behalf of the assessee that
the assessee was not found to be the owner of any
money, bullion, jewellery or other valuable article
or thing as a condition precedent for invocation of
Explanation-5 to section 271(1)(c) of the Act. The
incriminating documents found clearly
demonstrated the unaccounted sale proceeds on
sale of plot which is nothing but unaccounted
money in the control of assessee as hidden from the
Income Tax Department. The opportunity was
available to the assessee to come out clean on such
disclosure which was not initially availed. The
income was ultimately declared when the assessee
was left with no choice and taxes were also paid
belatedly albeit before the completion of the
assessment.”
4.7 The Tribunal after referring to the decision of this
Court in the case of Kirit Dahyabhai Patel v. ACIT (2015) 280
CTR 216 , as relied upon on behalf of the assessee, held that the
same is misplaced and referred to and relied upon the decision of
the coordinate Bench of the Tribunal in the case of Vijay K. Shah v.
ITO in IT(ss)A No.54/Ahd/2014 for Assessment Year 2003-04 for
restoration of the penalty, by observing as under :-
“9. In the present case as noted above, the facts
are gross and peculiar. The assessee was found to
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be a reluctant tax compliant who in spite of having
the opportunity to come with clean hands did not
choose to do so and continued to defy his own
admission of undisclosed income unearthed backed
by specific details. Thus, the decision of the Hon'ble
Jurisdictional Gujarat High Court rendered in the
case of Kirit Dahyabhai Patel (supra) is of no
assistance to the assessee. The order of the CIT(A)
in granting relief is dictated by misappreciation of
facts and law. Accordingly, the order of the CIT(A) is
quashed and the order of the AO imposing the
penalty is restored.”
5. Learned advocate Mr. B. S. Soparkar for the appellant
submitted that the appellant - assessee filed a return under Section
153A pursuant to the notice under Section 153C of the Act in which
the undisclosed additional income of Rs.64.54 Lacs was disclosed
as per the statement made by her son under Section 132 (4) of the
Act and paid the tax. It was submitted that reliance placed by the
Tribunal on the return filed under Section 139(1) of the Act prior to
after the search but before the return filed under Section 153C of
the Act to attribute mens rea on the part of the assessee is not
correct as per the scheme of the Act. It was submitted that once a
return under Section 153A pursuant to the notice under Section
153C is filed, the pending returns which are yet to be processed
have to be ignored as the same would be abated and, therefore, the
return filed by the assessee under Section 139(1) or the revised
return filed under Section 139 (4) of the Act would be of no
consequence as the only return which is required to be processed
would be the return filed under Section 153A in response to the
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notice under Section 153C of the Act. In support of his
submissions, reliance was placed on the decision of the Hon’ble
Bombay High Court in the case of Principal Commissioner of
Income Tax v. JSW Steel Limited, reported in (2020) 422 ITR
71 (Bom) . It was, therefore, submitted that as per the provisions
of Section 271(1)(c) read with Section 271(iii) and Explanation 4 (c)
of the said Section, there is no difference between the tax paid by
the assessee and the tax made payable as per the assessment order
passed and as such, there is no tax sought to be evaded by the
assessee so as to levy the penalty under Section 271(1)(c) of the
Act.
6. On the other hand, learned Senior Standing Counsel
Mr. Maulin G. Yajnik for the revenue submitted that in the peculiar
set of facts of the case, the assessee had already an opportunity to
file a regular return under Section 139 (1) of the At which the
assessee did not do and subsequently after pursuant to the
issuance of notice under Section 153C, the assessee filed two
returns, one revised return filed under Section 139(4) and another
revised return filed under Section 153A in response to the notice
under Section 153C of the Act. It was, therefore, submitted that as
the Tribunal was justified in restoring the penalty as the assessee
though having opportunity to come with clean hands, did not chose
to do so and had continued to defiance his own admission of
undisclosed income unearth during the course of search in case of
her son. It was, therefore, submitted that the reliance placed on
the decision of this Court by the assessee before the Tribunal in the
case of Kirit Dahyabhai Patel v. ACIT (2015) 280 CTR 216 was
rightly not considered by the Tribunal as the same would not be
applicable in the facts of the present case. It was further submitted
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that benefit of Explanation 5 to Section 271(1)(c) granted by the
CIT (Appeals) is also rightly rejected by the Tribunal as it was the
case of the assessee only that Explanation 5 would not be
applicable inspite of that, the CIT (Appeals) has recorded that
Explanation 5 would be applicable only in case of a searched
person only from whom any money, bullion, jewellery etc. is found
during the course of the search and the same would not be
applicable in the case of other than a searched person to whom
notice under Section 153C of the Act could have been issued. It
was, therefore, submitted that the question of law may be
answered in favour of the revenue and against the assessee.
7. Having heard learned counsel for the respective parties
and considering the facts of the case, the following undisputed
facts emerge from the record :-
(I) That the assessee was subjected to the notice under
Section 153C of the Act pursuant to search conducted at the
residential premises in case of her son on 11.10.2006.
(II) That during the course of the search, the son of the
assessee admitted that the assessee was having undisclosed
income of Rs.64.65 Lacs in the case of the assessee.
(III) The assessee filed return under Section 139(1) on
31.3.2007 without disclosing the additional income of Rs.64.54
Lacs. Thereafter, notice under Section 153C of the Act was issued
by the Assessing Officer.
(IV) The assessee after receipt of the notice under Section
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153C, filed a revised return under Section 139 (4) as well as return
under Section 153A of the Act disclosing the additional income of
Rs.64.54 Lacs on 23.10.2008.
(V) The Assessing Officer passed an assessment order in
the return filed under Section 153A in pursuance of the notice
issued under Section 153C of the Act for the year under
consideration i.e. Assessment Year 2006 – 07 and accepted the
return income as well as the tax paid by the assessee. The
Assessing Officer initiated the penalty proceedings under Section
271(1)(c) of the Act for the alleged concealment of income of
Rs.64.65 Lacs.
The Assessing Officer has observed in the assessment
order as under :-
“4. During the course of search u/s.132 of the
Act, at the residential premises of the assessee
Incriminating papers, which are contained in small
diary placed in one loose paper file as per Annexure
A-1 was seized. In this diary, the detalls of the sale
of plots of land of R. S. No.107 of Madhuban Green
Villas project are recorded. Shri Sanjay R. Sorathla,
son of the assessee had, based on this small diary,
seized In the loose paper file Annexure A-1, made
disclosure of undisclosed Incorne of Rs.65,00,000/-
during the course of search. Still, however, in the
return of income filed u/s.139(1), after search, this
admitted undisclosed income of Rs.65,00,000/- was
not shown and the return filed after search and
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return of income showing business loss of
Rs.2,30,089/- was filled with Assessing Officer at
Gandhidham in total disregard to the Income
disclosed as above. It is only pursuant to the fact
that the case was assigned to this Circle through a
separate order passed u/s.127, and, that the
proceedings u/s.153C of the Act were Initiated from
Central Circle 1, Rajkot, that the undisclosed
Income in the form of extra sale proceeds to the
tune of Rs.64,54,000/- has been credited to the
capital account of the assessee and brought to tax
as above. In the same way extra sale proceeds to
tune of Rs.16,29,612/- have also been shown in the
return of Income for A.Y.2007-08 filed on the same
day i.e. on 23-10-2008. In view of above, penalty
proceedings u/s.271(1)(c) of the Act are Initlated for
concealment of Income of Rs.64,65,000/- for the
year under consideration.
5. Subject to above, the total Income of the
assessee is determined as under :-
Total Income as per return of incomeRs. 64,28,970/-
Total assessed Income Rs.64,28,970/-
===============
Agricultural Income for rate purpose Rs. 21,100/-
Assessed u/s.153C of the IT Act, 1961. Charge tax.
Charge interest u/s.234-A,234-B,234-C. Give credit
for prepaid taxes after due verification. Demand
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notice and challan Issued accordingly. Issue penalty
notice u/s.274(2) r.w.s. 271(1)(c) of the Act for
concealment of income.”
(VI) Thereafter, in the penalty proceedings, the Assessing
Officer levied the penalty discarding the reply and explanation
tendered by the assessee on the ground that the assessee has
concealed the income of Rs.64.65 Lacs levied the penalty by
observing as under :-
“6. I have carefully considered the submissions
made by the assessee. The assessee's submission is
not acceptable for the reasons stated as under :
(1) The assessee vide a statement u/s.132(4) of
the I.T.Act 1961 had admitted the undisclosed
income of Rs.65,00,000/-.
(2) In the post search return of income filed by
the assessee, the assessee ought to have included
the admitted disclosure of Rs.65,00,000/- and filed
the return of income accordingly.
(3) In total disregard of the above factual
position, the assessee filed a return of Income
declaring a loss f Rs.2,30,089/- with the ITO having
territorial jurisdiction.
4) Although the assessee had filed a revised
return of income declaring the said disclosed
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income on 27.10.2008. However, the said return
was considered to be invalid being it filed beyond
the time limit prescribed by the Act.
(5) The assessee had filed a return of income in
response to notice u/s.153C. However, it is noticed
that the assessee has not made the required
payment of taxes on the declared amount for the
year in question, as the amount claimed by the
assessee to have paid pertains to Asstt. year 2007-
08 and not to the Asstt. year 2006-07, the asstt.
year in question.
(6) Thus, although the assessee made the
disclosure of undisclosed income u/s.132(4) of the
Act, she has not made the payment of taxes.
Therefore, with due respect to the Hon'ble High
Court, the ratio of its decision in the case of CIT Vs.
Mahendra C Shah 299 ITR 355 will not apply to the
present case.
(7) Thus, the assessee had committed a default of
concealing the income which is punishable
u/s.271(1)(c) of the I.T. Act.
Thus, despite the assessee had admitted u/s.132(4)
of the Act disclosure of Rs.65,00,000/- for the sale
of plot of land which ought to have declared by the
assessee on his own, she had knowingly and
intentionally avoided the inclusion of the said
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income and concealed the income.
7. In view of the above, I am satisfied that this is
a fit case for levy of penalty u/s.271(1)(C) of the Act.
The computation of penalty leviable is as under:-
(a) Amount of income on which
tax is sought to be evaded.
64,65,000/-
(b) Amount of tax evaded. 21,16,092/-
(c) Penalty levied u/s. 271(1)(c)
for concealment of income at
the rate of 100% of tax evaded.
21,16,092/-
(d) Penalty u/s.271(1)(c) at the
rate of 300% of tax evaded.
63,48,276/-
8. I, therefore, impose a penalty of
Rs.21,16,092/- (Rupees twenty one lac sixteen
thousand ninety two only) being 100% of the tax
sought to be evaded as against maximum penalty
leviable of Rs.63,48,276/- at the rate 300% of tax
sought to be evaded.”
(VII) The CIT (Appeals) as observed herein above deleted the
penalty by relying upon Explanation 5 to Section 271(1) of the Act
by applying the decision of the Tribunal, Rajkot Bench in the case
of M/s. Balaji Multiflex Private Limited.
(VIII) The Tribunal thereafter set aside the order passed by
the CIT (Appeals) and restored the order of penalty relying upon
the coordinate Bench of the Tribunal in the case of Vijay K. Shah v.
ITO in IT(ss)A No.54/Ahd/2014 on the ground that the assessee did
not come with clean hands inspite of giving opportunity and
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continued to defy his own admission of undisclosed income
unearthed backed by specific details. Reliance placed by the
assessee on the decision of this Court in the case of Kirit Dahyabhai
Patel v. ACIT (2015) 280 CTR 216 was also held to be misplaced by
the Tribunal.
8. It would, therefore, be germane to refer to the relevant
provisions of the Act as under :-
8.1 Section 271 (1) (c) & 271 (1) (iii) of the Act with
Explanation 4 & 5 reads as under :-
“ 271. Failure to furnish returns, comply
with notices, concealment of income, etc.
(1) If the Income-tax Officer or the Appellate
Assistant Commissioner in the course of any
proceedings under this Act, is satisfied that any
person -
( a ) ……….
(b) has failed to comply with a notice [under sub-
Section (2) of Section 115WD or under sub-Section
(2) of Section 115WD or under sub-section (1) of
section 142 of sub-section (2) of section 143 or fails
to comply with a direction issued under sub-section
(2A) of section 142, or
( c ) has concealed the particulars of his income or
furnished inaccurate particulars of such income or
(d) has concealed the particulars of the fringe
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benefits or furnished inaccurate particulars of such
fringe benefits,],
he may direct that such person shall pay by way of
penalty, —
[( i ) ….
(ii) in the cases referred to in clause (b), in
addition to tax, if any, payable by him a sum of ten
thousand rupees for each such failure;]
(iii) in the cases referred to in clause (c) or clause
(d), [in addition to tax, if any, payable] by him, a sum
which shall not be less than, but which shall not
exceed [three times], the amount of tax sought to be
evaded by reason of the concealment of particulars
of his income [or fringe benefits] or the furnishing of
inaccurate particulars of such income [or fringe
benefits].”
Explanation 4 - For the purposes of clause (iii) of
this sub-section, the expression "the amount of tax
sought to be evaded", -
(a) in any case where the amount of income in
respect of which particulars have been concealed or
inaccurate particulars have been furnished has the
effect of reducing the loss declared in the return or
converting that loss into income, means the tax that
would have been chargeable on the income in
respect of which particulars have been concealed or
inaccurate particulars have been furnished had such
income been the total income;]
(b) in any case to which Explanation 3 applies,
means the tax on the total income assessed;
(c) in any other case, means the difference between
the tax on the total income assessed and the tax that
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would have been chargeable had such total income
been reduced by the amount of income in respect of
which particulars have been concealed or inaccurate
particulars have been furnished.]
Explanation 5 . —Where in the course of a search
initiated under Section 132, the assessee is found to
be the owner of any money, bullion, jewellery or
other valuable article or thing (hereafter in this
Explanation referred to as assets) and the assessee
claims that such assets have been acquired by him
by utilising (wholly or in part) his income,—
( a ) for any previous year which has ended before
the date of the search, but the return of income for
such year has not been furnished before the said
date or, where such return has been furnished
before the said date, such income has not been
declared therein; or
( b ) for any previous year which is to end on or
after the date of the search, then, notwithstanding
that such income is declared by him in any return of
income furnished on or after the date of the search,
he shall, for the purposes of imposition of a penalty
under clause ( c ) of sub-section (1) of this section, be
deemed to have concealed the particulars of his
income or furnished inaccurate particulars of such
income, unless,—
( 1 ) such income is, or the transactions resulting
in such income are recorded,—
( i ) in a case falling under clause ( a ), before the date
of the search; and
( ii ) in a case falling under clause ( b ), on or before
such date, in the books of account, if any,
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maintained by him for any source of income or such
income is otherwise disclosed to the Chief
Commissioner or Commissioner before the said
date; or
( 2 ) he, in the course of the search, makes a
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 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.”
8.2 Section 153A (1) of the Act reads as under :-
“153A. Assessment in case of search or
requisition.
(1) Notwithstanding anything contained in
section 139, section 147, section 148, section 149,
section 151 and section 153, in the case of a person
where a search is initiated under section 132 or
books of account, other documents or any assets are
requisitioned under section 132A after the 31st day
of May, 2003, the Assessing Officer shall —
(a) issue notice to such person requiring him to
furnish within such period, as may be specified in
the notice, the return of income in respect of each
assessment year falling within six assessment years
referred to in clause (b), in the prescribed form and
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verified in the prescribed manner and setting forth
such other particulars as may be prescribed and the
provisions of this Act shall, so far as may be, apply
accordingly as if such return were a return required
to be furnished under section 139;
(b) assess or reassess the total income of six
assessment years immediately preceding the
assessment year relevant to the previous year in
which such search is conducted or requisition is
made :
Provided that the Assessing Officer shall assess or
reassess the total income in respect of each
assessment year falling within such six assessment
years:
Provided further that assessment or reassessment, if
any, relating to any assessment year falling within
the period of six assessment years referred to in this
section pending on the date of initiation of the
search under section 132 or making of requisition
under section 132A, as the case may be, shall abate:
Explanation — For the removal of doubts, it is
hereby declared that -
(i) save as otherwise provided in this section,
section 153B and section 153C, all other provisions
of this Act shall apply to the assessment made under
this section;
(ii) in an assessment or reassessment made in
respect of an assessment year under this section,
the tax shall be chargeable at the rate or rates as
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applicable to such assessment year.”
8.3 Section 153C of the Act reads as under :-
“Assessment of income of any other person.
153C. (1) Notwithstanding anything contained in
Section 139, Section 147, Section 148, Section 149,
Section 151 and Section 153, where the Assessing
Officer is satisfied that any money, bullion, jewellery
or other valuable article or thing or books of
account or documents seized or requisitioned,
belongs or belongs to a person other than the
person referred to in Section 153A, then, the books
of account or documents or assets, seized or
requisitioned shall be handed over to the Assessing
Officer having jurisdiction over such other person
and that Assessing Officer shall proceed against
each such other person and issue such other person
notice and assess or reassess the income of the
other person in accordance with the provisions of
Section 153A;
Provided that in case of such other person, the
reference to the date of initiation of the search
under Section 132 or making of requisition under
Section 132A in the second proviso to Section 153A
shall be construed as reference to the date of
receiving the books of account or documents or
assets seized or requisitioned by the Assessing
Officer having jurisdiction over such other person.
(2) Where books of account or documents or assets
seized or requisitioned as referred to in sub-section
(1) has or have been received by the Assessing
Officer having jurisdiction over such other person
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after the due date for furnishing the return of
income for the assessment year relevant to the
previous year in which search is conducted under
Section 132 or requisition is made under Section
132A and in respect of such assessment year —
( a ) no return of income has been furnished by
such other person and no notice under sub-section
(1) of Section 142 has been issued to him, or
( b ) a return of income has been furnished by
such other person but no notice under sub-section
(2) of Section 143 has been served and limitation of
serving the notice under sub-section (2) of Section
143 has expired, or
( c ) assessment or reassessment, if any, has been
made, before the date of receiving the books of
account or documents or assets seized or
requisitioned by the Assessing Officer having
jurisdiction over such other person, such Assessing
Officer shall issue the notice and assess or reassess
total income of such other person of such
assessment year in the manner provided in Section
153A.”
9. On perusal of the above provisions, it is clear that once
notice under Section 153C is issued, any pending return filed by
the assessee for any of the assessment year would abate.
Therefore, the return of income filed by the assessee under Section
139(1) or 139(4) will not be considered as a valid return for the
purpose of framing the assessment. Admittedly, the assessee in the
return filed under Section 153A in response to the notice under
Section 153C has disclosed the additional income of Rs.64.65 Lacs
and paid the tax thereon. Therefore, considering the provisions of
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Section 271(1)(iii) read with Explanation 4 (c), there is no tax
sought to be evaded which can be considered for the levy of
penalty under Section 271(1)(c) even if it is presumed that the
assessee has concealed the income in the return filed under
Section 139(1) or a revised return filed under Section 153A of the
Act. Therefore, reliance placed by the CIT (Appeals) on
Explanation 5 is rightly held by the Tribunal as not applicable. On
perusal of Explanation 5, the same would apply only in case of a
searched person from whom the money, bullion, jewellery etc. is
found during the course of search and searched person has paid
the tax on the amount of such value of such money, bullion,
jewellery etc. after the search, there would be no penalty under
Section 271(1)(c) of the Act on the ground of concealment.
10. However, in the facts of the case, when the assessee
has disclosed the additional income by way of return of income
filed under Section 153A in response to the notice issued under
Section 153C of the Act and when the Assessing Officer has
accepted such return without any further addition, the provision of
Section 271(1)(c) of the Act would not be applicable.
11. The Bombay High Court in the case of Principal
Commissioner of Income Tax v. JSW Steel Limited (Supra)
while considering the scope of application of the return filed under
Section 153A of the Act, has held in paragraphs 8.1 to 9 as under :-
“8.1. In other words, Section 153-A(1) provides that
where a person is subjected to a search under
Section 132 or his books of accounts, etc. are
requisitioned under Section 132-A after 31.05.2003,
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the assessing officer is mandated to issue notice to
such person to furnish return of income in respect
of each assessment year falling within six
assessment years immediately preceding the
assessment year relevant to the previous year in
which search is conducted or requisition is made.
Such returns of income shall be treated to be
returns of income furnished under Section 139.
Once returns are furnished, income is to be
assessed or re-assessed for the six assessment
years immediately preceding the assessment year
relevant to the previous year in which such search
is conducted or requisition is made. Thus, once
Section 153-A(1) is invoked, assessment for 6
assessment years immediately preceding the
assessment year in which search is conducted or
requisition is made becomes open to assessment or
re-assessment. Two aspects are crucial here. One is
use of the expression “notwithstanding” in sub-
section (1); and secondly, that returns of income
filed pursuant to notice under Section 153-A (1)(a)
would be construed to be returns under Section
139. The use of non obstante clause in sub-section
(1) of Section 153-A i.e., use of the expression
“notwithstanding” is indicative of the legislative
intent that provisions of Section 153-A(1) would
have overriding effect over the provisions contained
in Sections 139, 147, 148, 149, 151 and 153.
8.2. Having noticed the above, we may also refer
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to the second and the third proviso to Section 153-
A(1). For the sake of convenience, the second and
the third proviso to Section 153A(1) of the said Act
which is relevant is reproduced below and reads
thus :
“Provided further that assessment or reassessment,
if any, relating to any assessment year falling within
the period of six assessment years referred to in
this [sub-section] pending on the date of initiation
of the search under section 132 or making of
requisition under section 132A, as the case may be,
shall abate:
Provided also that the Central Government may by
rules made by it and published in the Official
Gazette (except in cases where any assessment or
reassessment has abated under the second proviso),
specify the class or classes of cases in which the
Assessing Officer shall not be required to issue
notice for assessing or reassessing the total income
for six assessment years immediately preceding the
assessment year relevant to the previous year in
which search is conducted or requisition is made.”
8.3. The second proviso says that any assessment
or re-assessment proceedings falling within the said
period of six assessment years pending on the date
of initiation of search under Section 132 or making
of requisition under Section 132-A shall abate. The
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third proviso mentions that the Central Government
may frame rules to specify such class or classes of
cases in which the assessing officer shall not be
required to issue notice for assessing or re-
assessing the total income for the said six
assessment years.
8.4. Reverting back to the second proviso what is
to be noticed is that as per this proviso, any
assessment or re-assessment in respect of any
assessment year falling within the said period of six
assessment years is pending on the date of
initiation of search or making of requisition, those
assessment or re-assessment proceedings shall
abate. In other words, pending assessment or re-
assessment proceedings on the date of initiation of
search or making of requisition shall abate.
8.5. That brings us to the crucial expression,
which is ‘abate’. The ordinary dictionary meaning of
the word ‘abate’, as per Concise Oxford English
Dictionary, Indian Edition, is to reduce or remove (a
nuisance). Derivative of abate is abatement. In
Black’s Law Dictionary, Eighth Edition, ‘abatement’
has been defined to mean an act of eliminating or
nullifying; the suspension or defeat of a pending
action for a reason unrelated to the merits of the
claim. In Supreme Court on Words and Phrases
(1950-2008), “abating” has been defined to mean
“an extinguishment of the very right of action
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itself”; to “abate”, as applied to an action, is to
cease, terminate, or come to an end prematurely.
9. Therefore, from a critical analysis of the
provisions contained in Section 153-A(1) of the Act
more particularly the key expressions as referred to
above, it is evident that assessments or re-
assessments pending on the date of initiation of
search would stand abated. Return of income filed
by the person concerned for the six assessment
years in terms of Section 153-A(1)(a) would be
construed to be a return of income under Section
139 of the Act.”
12. In view of the above detailed explanation given by the
Hon’ble Bombay High Court for applicability to Section 153A and
abatement of the returns filed prior to which are pending for
further process at the time of filing of such return, the Tribunal was
not justified in considering the return filed by the assessee under
Section 139(1) or 139(4) for the purpose of holding that the
assessee had not come with clean hands inspite of giving an
opportunity and as such, the Tribunal was not justified in restoring
the order of penalty. It is pertinent to note that the reasoning
given by the CIT (Appeals) was not in accordance with law though
the conclusion was correct. Therefore, without going into further
merits, we hereby quash and set aside the order dated 17.4.2017
passed by the Income Tax Appellate Tribunal, Ahmedabad Bench,
Ahmedabad in I.T.(ss) A. No.68/RJT/2010 for levy of the penalty on
the ground that once the assessee has disclosed the additional
income in the return filed under Section 153A in response to the
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notice issued under Section 153C, the returns filed earlier under
Section 139(1) or 139(4) which are yet to be processed had abated
and, therefore, in absence of any further difference in the tax
payable and the tax paid, resulting into there is no tax sought to be
evaded as per Explanation 4 (c) of Section 271 of the Act, no
penalty could have been levied in the facts of the case. The
question of law is, therefore, answered in favour of the assessee
and against the revenue.
The appeal is accordingly allowed.
(BHARGAV D. KARIA, J)
(NIRZAR S. DESAI,J)
SAVARIYA
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