IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH F DELHI ] BEFORE SHRI R. P. TOLANI, JM AND SHRI K. D. RANJAN, AM

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1 IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH F DELHI ] BEFORE SHRI R. P. TOLANI, JM AND SHRI K. D. RANJAN, AM Assessment year : Shri Prem Arora, Dy. Commissioner of Income-tax, C/o. Vinod Kumar Bindal & Co., V s. Central Circle: 25, NEW DELHI Chartered Accountants Shiv Sushil Bhawan, D 219, Vivek Vihar, Phase I, N E W D E L H I P A N / G I R No. AAH BK 9790 L. ( Appellant ) ( Respondent ) Assessee by : Shri Vinod Kumar Bindal, C. A.; Department by : Shri Sudesh Garg [CIT] D. R.; PER K. D. RANJAN, AM : O R D E R. This appeal by the assessee for assessment year arises out of order of the ld. CIT (Appeals)-I, New Delhi. The ground of appeal raised by the assessee is as under :- The ld. Appellate Authority erred in law and on facts in confirming the penalty of Rs.47,51,579/- levied under section 271(1)(c

2 2 in response to the notice under section 153-A of the Act, while selec) on additional income offered in the return of income filed by the appellant tively ignoring parts of the submissions made and also ignoring that no such penalty can be imposed on the basis of entries in the books of account or documents / loose papers seized in a search carried between 1/6/03 to 31/5/07. Thus, the penalty so levied should be cancelled. 2. The only issue for consideration relates to imposition of penalty under section 271(1)(c) at Rs.47,51,579/-. The facts of the case stated in brief are that a search and seizure action under section 132(1) of the Act was carried out in the case of assessee on 22/11/2006. During the course of search at the residence and business premises of the assessee cash of Rs.1,11,45,350/- was found. A number of loose papers containing incriminating material were found and seized vide annexure A-1 to A-9 of H-6. On the basis of entries recorded in the documents it was found that the assessee had been carrying on unaccounted business activities which was not disclosed in the returns of income. The assessee filed returns of income including return for assessment year under section 153A of Income Tax Act, 1961 on 23 rd April, 2008 admitting income of Rs.1,43,41,002/- from undisclosed business activities. The assessing officer completed assessment accepting the returned income filed under section 153A for assessment year While completing assessment, the assessing officer issued notice under section 271(1)(c) read with section 274 of the Act. 3. During the course of penalty proceedings, it was submitted by the assessee that penalty under section 271(1)(c) could not be levied on the income declared in any of the returns filed in response to notice under section 153A as the income declared has to be treated as income duly disclosed to the Department and there

3 3 will be no concealment of income or furnishing of inaccurate particulars regarding the said income. It was also submitted that return filed in response to notice under section 153A could also not be compared with the incomes declared in the returns filed under section 139 of the Act in order to determine the undisclosed income as the returns filed earlier were abated and hence non-est. It was also submitted that levy of interest under section 234A(3) has been determined from the expiry of the period prescribed upto the filing of the return of income in response to notice under section 153A of the Act. It was further submitted that on insertion of Explanation 5A to section 271(1)(c) and section 271AAA in the statute with effect from 1/06/2007 by the Finance Act, 2007, made it clear that the additional income offered by the assessee in response to notice under section 153A was liable to imposition of penalty. Since the search was conducted before 1/06/2007 and in the absence of these sections, the additional income offered by the assessee in the returns filed under section 153A could not be held as concealed income. The return of income filed after the search in response to notice under section 153A is a voluntary return having no element of concealment of income and the fact that the returns of income filed under section 139 of the Act had become non-est. Therefore, the return filed by the assessee was only to be considered for levy of penalty of concealment. It was, therefore, submitted that as per the existing provisions as on the date of search the assessee was liable for penalty only in respect of additional incomes brought to tax by the efforts of the Department due to search operation after first return under section 153A was filed by the assessee. 4. The assessing officer examined the contention of the assessee in the light of provisions of Explanation 5 of section 271(1)(c) of the Act. Explanation 5 was inserted with effect from 1/10/1984 introducing the deeming fiction of concealment and on plain reading of provisions of Explanation 5 to section 271(1)(c) would show that assessee will be liable for deemed concealment (a) if

4 4 assets found during the search are claimed to represent the income for any previous year which has ended before the date of search, but the return for such year has not been furnished; (b) if the assets found during the search are claimed representing the income for any previous year which has ended before the date of search and the return has been filed without declaring such income; (c) the previous year relatable to valuable found is yet to end after the date of search and the assessee declares such income in the return of income. However, there are certain exceptions to above situations i.e. if the assessee shows that the income in question has been recorded in his books before the date of search, he cannot be deemed to be guilty of concealment. In case if assessee shows that the income in question has been recorded in the books on or before the date of search he cannot be deemed to be guilty of concealment of income. In order to provide benefit to the assessee from penalty provisions Explanation 5 was amended by the Taxation Laws (Amendment & Misc. Provisions) Act, 1986, according to which if the assessee in the course of search makes a statement under section 132(4) that any money, bullion, jewellery or other valuable article 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 section 139(1) and also specifies in the statement recorded u/s 132(4) the manner in which income has been derived and pays the tax together with interest, if any, in respect of such income. However, the ld. assessing officer observed that the assessee declared additional income of Rs.1,43,41,002/- representing undisclosed income from business only after the search had taken place. Thus the return in response to notice under section 153A cannot be said to be voluntary. It was only when the assessee realized that the evidence of concealment of undisclosed income from business activities was with the Income-tax authorities, the same was declared in the return after the search. Therefore, provisions of Explanation 5 to section

5 5 271(1)(c) of the Act were clearly attracted. He also noted that the assessee did not disclose this income in the original return of income filed under section 139. The return of income filed by the assessee showing undisclosed income from the business activities was filed on 23 rd April, 2008 which was clearly after the time allowed to file the revised return u/s 139 of the Act. He also observed that provisions of Explanation 5(b) were clearly applicable in the case of the assessee. As regards the contention of the assessee that return of income filed under section 153A was filed voluntary he relied on the CBDT Circular dated 30/09/1969 wherein word voluntary has been explained. According to CBDT Circular the voluntary in its primary sense means from one s own free will or without compulsion. In its secondary sense implies without any legal obligation or not prompted by inducement. If there is seizure of incriminating material in the course of search and penalties and prosecutions are imminent and the disclosure is as a sequel to such search, it would not be possible to treat the disclosure as voluntary. The assessing officer relying on various decisions observed that return filed by the assessee was not voluntary. 4.1 As regards the second contention of the assessee, the assessing officer noticed that interest and penalty provisions are entirely different and are not dependent on each other. Moreover the period for charging interest under section 234A (3) does not render the original return void. Moreover in part (a)/(b) of the Explanation 5 the legislature has given importance to the first return filed under section 139(1). 4.2 As regards the last argument of the assessee that in the absence of provisions like Explanation 5A to section 271(1)(c) and section 271AAA of the Act, no penalty for concealment would be imposed, the assessing officer observed

6 6 that provisions of section 271(1)(c) of the Act were applicable even prior to 1/06/2007. The amendments were made from time to time to keep pace with the Income-tax policy changes. The assessing officer, therefore, rejected the contention of the assessee and proceeded to impose penalty at the rate of 100 per cent of the tax sought to be evaded. 5. Before the ld. CIT (Appeals) the assessee made similar arguments. The ld. CIT (Appeals) relying on the decision of the ITAT in the case of Ajit B. Jota Vs. ACIT 40 SOT 543 (Mum.) held that since the assessee has filed returns after the search and had not disclosed income in the original return, Explanation 5 to section 271(1)(c) could not give impunity to the assessee. The ld. CIT (A) also concurred with the view of the AO that in the absence of Explanation 5A to section 271(1)(c) and 271AAA, penalty could be imposed under section 271(1)(c). He placed reliance on the decision of Hon ble Allahabad High Court in the case of ACIT Vs. Rupesh Bholidas Patel 309 ITR 217 (All.). The ld. CIT (A), accordingly, upheld the penalty. 6. Before us the ld. AR of the assessee submitted that penalty under section 271(1)(c) is not at all attracted firstly, because there is no satisfaction of any concealment in the impugned assessment order as the returned income filed u/s 153A only had been accepted. There is no direction in the statute to refer to earlier completed assessment proceedings for comparison of declared incomes while recording any such satisfaction, which is the beginning of the penalty proceedings. Secondly, no penalty can be imposed where the additional income was declared in return filed under section 153A of the Act on the basis of seized documents and papers. He further submitted that the regular return for assessment year

7 7 was filed prior to the date of search and provisions of Explanation 5A to section 271(1)(c) and section 271AAA of the Act were inserted after the date of search. 6.1 He further submitted that the proceedings u/s 153A are independent of proceedings in pursuance of the original return of income filed. Once notice u/s 153A is issued, the return of income filed u/s 153A is, as if, it is the return of income in pursuance of section 139. The return of income originally filed has no relevance. The assessed income u/s 153A is the same as the returned income and hence, no income has been concealed or inaccurate particulars of such income have not been filed, within the meaning of section 271(1)(c) of the Income-tax Act. Till the insertion of Explanation-5A w.e.f , the Revenue had no enabling powers to impose penalty u/s 271 (1)( c ) in the cases where search had taken place after 1/6/2003, if the returned income filed in pursuance of section 153A was not less than assessed income. Further Explanation-5 of section 271(1)(c) of the I.T. Act is not applicable to the assessee as the assessee is not found to be the owner of any money bullion, jewellary or any other valuable article or things. 6.2 The ld AR of the assessee further submitted that cases relied upon by ld CIT are not applicable to the facts of the assessee s case. In the case of In Ajit B Zota (supra) the Hon'ble Third Member referring to the decision in the case of Kirit Dahyabhai Patel (Ahd) specifically has held that since the counsel of the assessee had not challenged that penalty U/S 271(1)(c) of the Act is not leviable, the said issue has not been examined by him and the issue discussed before him was whether immunity under Explanation 5(2) of section 271(1)(c) of the Act is available to the assessee. In Ajit B Zota again the issue in hand was not at all discussed but the decision of Kirit Dahyabhai Patel was applied though in para 14

8 8 it has been held that the Explanation 5 is not applicable when no valuable assets were found. Further the judgment of the jurisdictional High Court in SAS Pharmaceutical was not available for consideration of the Benches of Hon'ble ITAT at the time of those decisions. Ld AR of the assessee on the contrary relied on the decision of Hon ble Delhi High Court in the case of S.S. Pharmaceuticals and Hon ble Calcutta High Court in the case of Suresh Chand Bansal 223 CTR (Cal) 128. Further the decisions in ACIT vs. Kirit Dahyabhai Patel 121 ITD 159 and Ajit B. Zota vs. ACIT 40 SOT to 543, though on identical proposition, were not applicable as the arguments made in those cases were different from the arguments made in the case of the assessee. 7. On the other hand ld. CIT(DR) submitted that the assessee had admittedly carried out unaccounted business right from the F.Y till the date of search. Neither the investments in this business nor the income generated out of this business was ever declared in the returns of income filed prior to the date of the search. Thus the assessee on account of the aforesaid admitted unaccounted business was in possession of unaccounted cash during the entire duration from April till the date of search as is evident from the cash book prepared by the assessee himself. The assessee came forth to admit the aforesaid unaccounted state of affairs only on account of search u/s 132 which resulted not only into seizure of plethora of incriminating documents but also the possession of undisclosed cash amounting to Rs. 1,11,43,350/-. As per assessee's own cash flow statements/cash book/balance sheets the appellant was admittedly in possession of unaccounted cash of Rs. 2,20,07,726/- on the date of search out of this Rs.1,11,43,350/- was actually found by the search party. It was also submitted that the assessee was compelled to declare unaccounted income and admit his huge unaccounted affairs only on account of search which resulted into seizure of huge unaccounted cash as

9 9 well as large number of incriminating documents. 7.1 Ld CIT(DR) further submitted that the normal invocation of section 271(1)(c) pre-supposes furnishing of inaccurate particulars of income or concealment of income. Explanation-5 to section 271 which was introduced in the year 1984 brings out entirely independent architecture for imposition of penalty in search cases. Explanation-5 brings on the statute the concept of deemed concealment which has very wide and large amplitude. Explanation-5 gets triggered only in case of any assessee in whose case search u/s 132 is carried out. The assessee should be found to be the owner of any money bullion jewellary or other valuable article or things. The assessee should claim that such asset have been acquired by him using either the income of his current year or income of a year which has ended before the date of search but the return of income for that year either has not been furnished or if filed that income has not been declared by him in any return of income furnished or after the date of search. However, two exceptions are provided vide amendments inserted on which may help avoidance of application of Explanation 5. Firstly such income or the transaction resulting in such income are recorded in the books of account on or before the date of search or the same is otherwise disclosed to the CCIT or CIT before the date of search. Secondly, in the course of search the assessee makes the statement u/s 132(4) that such assets have 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 u/s 139(1) and also specifies in the statement the manner in which such income has been derived and pays tax and interest. It was, therefore, submitted that Explanation 5 is fully applicable to the facts of assessee s case for the reasons that : (a) it is undisputed that search in the case of the assessee was carried out on

10 (b) it is undisputed and admitted that the assessee was carrying on undisclosed business during the entire period of till the date of search and this unaccounted business not only resulted into undisclosed income to the assessee but also resulted into possession of unaccounted cash consistently during the period till the date of search. (c) documents admittedly pertaining to the unaccounted business and establishing undisclosed assets were found and seized during the course of search. (d) the assessee was admittedly in possession of unaccounted cash for the entire duration from till i.e. the date of search. Conditions for invocation of Explanation 5 are, therefore, fully met even if it considered that Explanation 5 can be invoked for assets only and not for documents/entry in books etc. (e) the fact that assessee incorporated the undisclosed income in his return of income filed in pursuance of notice u/s 153A does not help the assessee as Explanation 5 itself clearly lay down that for the purpose of section 271(1)(c) even if such income is declared by him in any return of income furnished on or after the date of search, he shall be liable for imposition of penalty u/s 271(1)( c). (f) the assessee admittedly had not mentioned anything about this undisclosed business in his return of income filed originally u/s 139 which is available on page 173 of the assessee's paper book. The original return of

11 11 income was just for Rs.7,21,250/- and no income as such from the undisclosed business were mentioned in the original return. The assessee's efforts to raise controversy regarding insertion of Explanation-5A from , is absolutely unnecessary as the insertion of Explanation- 5A does not mean that Explanation-5 was not valid before Ld CIT(DR) further submits that the assessee s arguments are not tenable either on law or equity or prudence. Facts of the case in ACIT vs. Kirit Dahyabhai Patel 121 ITO 159 are identical to the facts of the assessee's case in as much that the returned income u/s 153A was accepted as assessed income. In this case reference to Third Member (Sh. R.V. EASWAR, then VICE PRESIDENT) was also made. In the judgment it was inter-alia held that the return of income filed u/s 153A cannot be considered as voluntary return as the same has been filed after the assessee was subjected to search u/s 132 and it was this search and the fact of seizure of incriminating documents/assets which resulted into filing of enhanced income u/s 153A. The act of concealment was done when the assessee had filed original return of income in which the income was suppressed. Reliance on several High Court and Supreme Court judgments was made for this purpose. Enhanced income u/s 153A in itself is admission of concealment of income. If it is interpreted that penalty cannot be initiated, if the return of income is enhanced u/s 153A then it will lead to unacceptable and undesirable situation and the assessee will be tempted either not to file return of income or not to declare correct income in the return in the normal course. Explanation-5 is attracted in 153A cases even if returned income is accepted. Subsequent insertion of section 271AAA or Explanation 5A has no bearing on the case. 7.3 In Ajit B. Zota VS. ACIT (supra), the assessee had originally claimed

12 12 exempt long term capital gains which were admitted to be undisclosed income during 132(4) statement. The assessee incorporated the disclosed income u/s 153A. The return income u/s 153A was accepted as assessed income, still the Hon'ble Tribunal held the assessee be liable for penalty u/s 271 (1)( c ) for the logic given in Kirit Dahyabhai Patel case. Assessee was held to be liable for concealment even if Explanation-5 was not invoked/ attracted in assessee's case. 7.4 In view of above ld CIT(DR) has submitted that the assessee is liable for penalty u/s 271(1)(c), even if, the deeming provisions of Explanation-5 are not applicable to the facts of the assessee s case. Hence the assessee is liable for penalty u/s 271(1)(c) under the normal provisions as well as deeming provisions of Explanation 5. It was also submitted that if the Bench is of the view that provisions of section 271(1)(c) are not attracted, the matter may be referred to Special Bench for resolution of the controversy. 8. In rejoinder to the written submissions of the ld CIT(DR) it has been submitted by the ld AR of the assessee that the pleading of the Revenue that the impugned appellate proceedings should be referred to a Special Bench is devoid of any merit as the issue in this appeal has not at all been adjudicated by the Hon'ble Tribunal so far. In the two decisions relied by the Revenue, the counsel of the assessee had conceded that penalty provisions u/s 271(1)(c) are applicable to the facts of their case but according to assessee facts of the case are not at all covered by the said two decisions. The assessee has stated that penalty u/s 271(1)(c) of the Act is not at all attracted here firstly there is no reason for any satisfaction of any concealment in the impugned assessment proceedings as the returned income only has been accepted. There is no direction in the statute to refer to the earlier completed assessment proceedings for comparison of declared incomes while

13 13 recording any such satisfaction which is the beginning point for these proceedings. Secondly no such penalty can be imposed where the additional income was declared in the return filed u/s 153A of the Act on the basis of seized documents and papers and valuables in respect of searches undertaken during the period from o to The Learned DR has incorrectly mentioned that the assessee admitted that the said two decisions are on identical proposition. The same are on levy of penalty u/s 271(l)(c) read with the section 153A of the Act but on different reasons altogether. He has also incorrectly averred that the Hon'ble ITAT opined that the judgment of the jurisdictional High Court in S.A.S. Pharmaceuticals is not applicable. The Bench during the course of hearing did observe that Suresh Chand Bansal relied on Dilip N Shroff (2007) 291 ITR 519 (SC) which has been overruled by the larger Bench of the Apex Court later in an excise duty case in the case of Dharmendra Textile Processors (2008) 174 Taxman 571 (SC). However, factually the same was disapproved on a limited issue. In said judgment in para 25 it was held by the Apex Court that if the assessee does not meet the provisions of the Explanations u/s 271(1)(c) then the penalty is compulsory and the assessing officer has no discretion, which means that the assessing officer must show that the Explanations under the said sections are applicable to the facts of the case by specifically meeting the submissions of the assessee. On perusal of the para 25 of the said judgment, it would be seen that the Apex Court never overruled Dilip N Shroff as such but stated that an income-tax penalty u/s 271(1)(c) is a civil liability and mens rea is not necessary there as it is necessary for filing prosecution u/s 276C. The Apex Court has also held that the object behind enactment of the penalty provisions is to provide for a remedy for loss of revenue. Thus, if the revenue's loss is remedied in one manner or the other, than the penalty under the

14 14 said section is not at all leviable. It was also stated therein that the judgment of Dilip N. Shroff did not consider this aspect and to that extent the decision was disapproved. Thus the ruling in Suresh Chand Bansal is still valid as far as findings for application of Explanations 1 and 5 of section 271(1) of the Act are concerned. In this judgment also the facts were similar to the facts of the assessee s case and the income was offered on the basis of seized documents and papers. 8.2 The assessee has specifically challenged imposition of penalty u/s 271(1)(c) of the Act on the amounts of additional income declared in the returns filed u/s 153A of the Act on the basis of seized incriminating material in respect of search undertaken from to Admittedly in several assessing charges in the income-tax department have not initiated such penalty proceeding on the additional income declared in the returns of income filed after the search u/s 153A of the Act. Thus definitely two views are possible and then no penalty is imposable otherwise. 8.3 Penalty is a quasi civil and criminal action and is based on some presumptions and deemed concealed income. Thus these provisions have to be strictly applied. Penalty has never been automatic on all the additional income assessed. Specific statutory provision is required to attract such action. Income can be deemed but penalty cannot be. The fresh penalty provisions inserted U/S 271AAA and Explanation 5A of section 271(1) w.e.f clearly support the contention of the assessee. Further these provisions have not been discussed in the two decisions relied by the Revenue but specifically discussed on behalf of the assessee in the impugned appellate proceedings. 8.4 The jurisdictional High Court in S.A.S. Pharmaceuticals judgment has

15 15 specifically held that penalty u/s 271(1)(c) cannot be imposed on the amount of additional income returned after survey on the plea that in absence of survey the assessee would not have disclosed the said additional income. The High Court has also specifically considered the above mentioned newly inserted provisions of penalty after search in para 15 on internal page 13 of the said order. Thus it cannot be said that the said judgment is only applicable to survey proceedings but is also applicable in respect of additional incomes offered in the returns submitted after search as the Explanations 5 and 5A are applicable only in respect of incomes assessed u/s 153A of the Act after search proceedings. However, there is a difference that after survey the original return stands on the record but w.e.f. 01/06/2003, after a search, the earlier proceedings technically become non est and the assessing officer is duty bound to pass assessment orders u/s 153A for seven years whether there was any earlier assessment or not. 8.5 Further the assessee had filed the return declaring additional income on the basis of the seized papers and documents and not on the basis of cash found. The Explanation 5 of section 271(1) of the Act can only apply when the assessee declares that the cash found belongs to any particular year or period but for which averment, no evidence is found. It aims only to assess the valuables found as deemed income without reference to the seized books of account or incriminating material. The said Explanation does not refer to nor is applicable to income computed on basis of the seized books of account, papers and documents which has been specifically provided in Explanation 5A w.e.f Had it been already included in the earlier Explanation 5, as is being argued on behalf of the Revenue, then what was the necessity to insert the Explanation 5A that too prospectively? The legislature could well insert the same retrospectively or could state the same as a clarificatory amendment. Thus no importance to the cash found

16 16 at the time of search in November 2006 can be given in the penalty proceedings for the impugned AY as the additional income declared for this assessment year was not with reference to the cash found but on the basis of seized material other than valuables. Thus it is not a case which requires any reference to a Special Bench or where Explanation 5 to sec. 271(1)(c) of the Act is applicable. 9. We have heard both the parties and gone through the material available on record. The first contention of ld. AR of the assessee is that the return of income filed under sec. 153A is voluntary and assessee can declare the income, which was not earlier disclosed. On the other hand, the contention of the Revenue is that the return filed under sec. 153A, is not voluntary and is intended to assess the undisclosed income. Sec. 153A was inserted into statute with effect from 1 st June, 2003 by the Finance Act, 2003 which reads as under: 153A. 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 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 :

17 17 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 applicable to such assessment year. 10. On bare reading of Sec. 153A it is seen that this section starts with a nonobstante clause relating to normal assessment procedure covered by Sections 139, 147, 148, 149, 151 and 153 in respect of searches made after 31 st May, The sections, so excluded, relate to filing of return, assessment and re-assessment proceedings. Further section 153A intends to assess or reassess 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. Thus the legislative intention is not to assess escaped income as in section 147 or undisclosed income as was assessed u/s 158BC of the Act. The First Proviso to sec. 153A makes it clear, that notice under sec. 153A will be for each such six assessment years for assessment or re-assessment of total income. Second Proviso to Section 153A provides that such notice will have the effect of abating all the pending assessment or re-assessment proceedings, so as to avoid multiplicity of proceedings, which was a feature of block assessment. Hon ble Allahabad High Court in the case CIT (Central), Kanpur v Shaila Agarwal [2011] 16 taxmann.com 232 (All.) has held that the word 'abatement' is referable to something, which is

18 18 pending alive, or is subject to deduction. The abatement refers to suspension or termination of the proceedings either of the main action, or the proceedings ancillary or collateral to it. The word is commonly used in the legislations, which provide for abatement of action/suit; abatement of legacies; abatement of nuisance; and all actions for such nature, which have the pendency or continuance. The proceedings, which have already terminated are not liable for abatement unless statute expressly provides for such consequence thereof. The word 'pending' occurring in the second proviso to section 153A of the Act, is also significant. It is qualified by the words on the date of initiation of the search, and makes it abundantly clear that only such assessment or reassessment proceedings are liable to abate. The pendency of an appeal in the Tribunal against the order of assessment against which an appeal has been decided by Commissioner (Appeals) is not a continuation of the proceedings of assessment. 11. Thus while section 153A prescribes for assessment or reassessment of total income in search cases, section 153B prescribes the time limit for completion of assessment under sec. 153A. Section 153C relates to the cases where books of accounts or documents or assets seized under sec. 132 or requisition made under sec. 132A belong to a person other than a person in whose case search under sec. 132 or requisition under sec. 132A was made. Thus provisions of sections 153A, 153B and 153C are complete code for search assessments wherein search has been initiated after 31 st May, The existence of the words all other provisions of this Act shall apply to the assessment made under this section in Explanation (i) of section 153A makes it clear that in search assessments, amongst others the provisions relating to penalty and prosecution will also be applicable. However, when normal assessment procedure covered by Sections 139, 147, 148, 149, 151 and 153 has been completely excluded by operation of non-obstante clause

19 19 Notwithstanding anything contained the search assessments made u/s section 153A of the Act cannot be treated as continuance of normal assessment proceedings whether abated or not. Thus there is complete detachment of assessment proceedings u/s 143 or 147 from search proceedings u/s 153A of the Act. When scheme of search assessment as designed by the Legislature does not prescribe to take into account the earlier assessment proceedings whether abated or not, it will not be proper or justified to refer to returned income u/s 139 for the purpose imposition of penalty u/s 271(1)(c) of the Act. It follows that the concealment of income has to be seen with reference to additional income brought to tax over and above returned by the assessee in response to notice issued u/s 153A of the Act. Accordingly in our considered opinion for the purpose of imposition of penalty u/s 271(1)(c) resulting as a result of search assessments made u/s153a, the original return of income filed u/s 139 cannot be considered. 12. Further in case of search initiated after a return of income is always filed on issue of notice u/s 153A. As held above the penalty u/s 271(1)(c) is imposable when there is variation in assessed and returned income. If there is no variation, there will be no concealment. When there is no concealment, question levy of penalty u/s 271(1)(c) of the Act will not arise. This is settled position of law. The concept of voluntary return of income may be important in penalty proceedings initiated in course of normal assessment proceedings made u/s 143(3) or 147 but not u/s 153A. From above discussion it follows that where retuned income filed u/s 153A is accepted by the assessing officer, there will be no concealment of income and consequently penalty u/s 171(1)(c) cannot be imposed. 13. The second contention of the assessee is that the penalty under section 271(1)(c) is not at all attracted because there is no reason for any satisfaction of

20 20 any concealment in the impugned assessment proceedings as the returned income only had been accepted by the assessing officer. In order to answer this question we will refer to assessment made u/s 153A of the Act which is the foundation of imposition of penalty u/s 271(1)(c) of the Act. The facts as seen from assessment order and other material on record are that the assessee, Shri Prem Kumar Arora during the relevant period covered by search was carrying business under the name & style M/s Nanak Enterprises. During this period he was main purchaser for MDH Ltd and purchased items from Khari Baoli, Delhi through his proprietorship concern M/s Nanak enterprises. Proper books of account were maintained for this business activity. During the course of search conducted on 22/11/2006 it came to notice of the department that the assessee in addition to his disclosed business carried on in the name of Nanak Enterprises was also carrying on unaccounted trading activities in partnership with one sh. Vimalji, the profits therefrom were not disclosed to the department. The search at the residence and business premises(m/s Nanak Enterprises) of the assessee resulted in seizure of a number of loose papers containing incriminating material which were seized vide annexure A-1 to A-9 of H-6. The seized material included a printed note pad (Annexure A-6 / H-6) of MDH Ltd (an advertisement material of MDH Ltd.). Cash of cash of Rs.1,11,45,350/- was also found and a sum of Rs 1,11,00,000/- was seized. The assessee during the course of search offered an amount of Rs 5 crores to tax u/s 132(4) of the Act and the amount of Rs 1,11,00,000/- was appropriated towards payment of tax. Subsequently the assessee retracted from offer made u/s 132(4) when returns of income were filed u/s 153A of the Act. 14. The assessing officer issued notice under section 153A of the Act for assessment years to The assessee worked out cash flow

21 21 statement on the basis of seized material and filed returns of income admitting undisclosed income detailed as under :- Assessment year Undisclosed income admitted Rs. 31,47,828/ Rs. 8,29,565/ Rs.1,43,41,002/ Rs. 15,91,395/ Rs. 47,53,056/ Rs. 11,19,926/ The assessing officer examined the entries recorded in note pad (Annexure A-6/ H-6) seized from the business premises of Nanak Enterprises owned by Shri Prem Kumar Arora. The note pad contained details of date wise purchase of spices and dry fruits (magaz and iliachi) from 10 th April, 2005 to 31 st May, The assessing officer observed that many items of raw material like Zeera, Dhania, Magaz, Imli, Podina, Aizvine required in manufacturing of spices were purchased in large quantity and could be only for a large undertaking like MDH Ltd. The entries recorded in the said note pad have four columns. As per assessing officer the first column contains quantity; second column contains descriptions of the items purchased; the third column contains the rate of item and the fourth column contains the name of the party in codes from whom these items were purchased. These purchases were not recorded in the books of accounts of M/s. Nanak Enterprises. The assessing on the basis of entries recorded in the note pad worked out turnover of Rs. 3,35,19,690/- for the period from 10 th April to 31 st May From these figures the assessing calculated the monthly average purchases of

22 22 Rs.1,67,59,845/-. The assessing officer, thus, came to the conclusion that the assessee was not only making unaccounted sales but also making unaccounted purchases on large scale. The assessing officer further noted that these purchases were made in cash for MDH Ltd. The entries recorded on note pad contained only the name of the supplier such as, HCS, RJCS etc. and not the name of purchaser. Since Sh. Prem Kumar Arora was exclusively purchasing for MDH Ltd., the name of MDH Ltd was not considered necessary for recording by Shri Arora and thus concluded that all the purchases were made on behalf of MDH Ltd. Further availability of huge cash of more than Rs. 1,00,00,000/- also indicated that Shri Arora was handling unaccounted cash of MDH Ltd., as he himself was a dedicated supplier of MDH Ltd and financial standing did not explain the availability of huge cash found with him. 16. The AO further noted that in the cash flow statement the assessee had offered only 1% commission on these purchases. The items purchased were mostly magaz and Illiachi. For the same items the assessee had shown commission income in the range of almost 10 per cent, as evidenced from page 28 of H-6/A-1 which had been admitted by the assessee as his undisclosed income in the cash flow statement. Further the assessee had admitted that the entries recorded on page 27 of H-6/A-1 were his unaccounted purchases. Another feature in the cash flow statement noted by the AO was that whatever income was earned by the assessee from the unaccounted transactions had been shown to be available in the form of cash. In this manner the cash balance in the hands of the assessee had been built up to Rs.2,20,07,726/- as on 22/11/2006 (the date of search) from a mere cash balance of NIL as on 1/04/2000. The AO, therefore, concluded that the cash flow statement was a self serving statement which has been filed to use the evidence, which was seized at the time of search to paint a picture that the assessee was

23 23 doing unaccounted business off and on and not on a continuous basis. The assessing officer also observed that even after search the assessee had failed to come out with the complete truth as regards his unaccounted business. 17. The assessing officer on the basis of entries recorded in note pad estimated turnover for assessment year at Rs.20,11,18,140/- by taking average monthly purchases of Rs.1,67,59,845/-. The assessing officer took the estimated average growth of 20 per cent in the business and estimated the turnover for assessment years to as under:- Assessment year Turnover Rs.20,11,18,140/ Rs.16,08,94,512/ Rs.12,87,15,609/ Rs.10,29,72,487/ Rs.8,23,77,990/ Rs.6,59,02,392/- The assessing officer on the basis of above mentioned estimated sales estimated profit at the rate of 10 per cent for assessment years to based on the evidence contained on page 28 of H-6/A-1 as against 1% commission income admitted in the return of income. The assessing officer estimated the undisclosed income from trading in spices as under:- Assessment year Profit Rs.2,01,11,814/ Rs.1,60,89,451/ Rs.1,28,71,560/ Rs.1,02,97,248/ Rs. 82,37,799/ Rs. 65,90,239/- Thus the assessing officer for assessment year estimated undisclosed income of Rs.1,28,71,560/- as against estimated by the assessee at Rs.1,43,41,002/-

24 24 on the basis of seized material. We may like to mention here that basis of estimation of sales by the assessing officer based on entries recorded in Annexure A-6/H-6 was not approved by the Ld CIT(A) and this Tribunal in the case of MDH Ltd. In the case of the assessee, however ld CIT(A) upheld the stand of the assessing officer but the Tribunal reversed the decision of CIT(A) in line with the decision of the Tribunal in the case of MDH Ltd. by observing as under: 19. In this regard we would also like to record our findings about the note pad maintained by Shri Prem Kumar Arora. The assessing officer has estimated the unaccounted purchases on the basis of third column, which according to the assessing officer is the rate. On the other hand, according to the assessee the third column represents the lot No. on the ground that the new paisa cannot be in three figures e.g. 7856/260 cannot be read as Rs.7,856 and 260 paise. Likewise 7898/100 cannot be Rs.7,898 and.100 paise. According to the assessee it is lot No. For example at page No. 139 of the paper book, the sales as on 20th April, 2005 has been recorded. Some of the entries are as under: 25K Magaz 6191/KDI (SLCS) 25K Magaz 50/DL (SLCS) The entry 25K represents some unit in form of katta or bag which is evident the total made at 100 items. Therefore, it is not the weight in Kgs., but quantity in kattas / bags. Likewise for Magaz the rate cannot be Rs.6191/KDI and for another quantity of 25 katta the rate cannot be Rs.50/DL. The figures taken as sale price does not reflect the price, but it could be either lot no or something else because new paisa cannot be in three digits as had been mentioned at several places. Merely because the entries had been recorded on note pad of "MDH Masala" it cannot be presumed that the purchases outside the books of accounts were made by the

25 25 assessee. These entries nowhere reflect that unaccounted purchases were made. Therefore, the ld. CIT (A) was correct in coming to the conclusion that the entries recorded on note pads / note books cannot represent the purchases made by the assessee. From the decision of the ld. CIT (A) it is evident that there was no material with the assessing officer to estimate the undisclosed purchases. The Revenue has not filed appeal against this finding of the ld. CIT (A). Therefore, no adverse inference can be drawn on the basis of entries recorded on the note pad maintained by Shri Prem Kumar Arora. 20. In the case MDH Ltd ld. CIT(A) had held that no addition could be made on account of entries recorded in the same very diary. The ITAT has recorded its findings on column 3 that they do not represent rates of item purchased. However in the case of assessee before us the said note pad was recovered from the possession of the assessee wherein he has recorded entries in respect of various dry fruits purchased on behalf of his customers on commission basis. There is no dispute about the fact that the entries recorded in this note pad pertain to his undisclosed business of commission agency. Ld CIT(A) in the case of MDH Ltd has held that the note pad does not relate to business of MDH Ltd. However, the ld CIT(A) in the case of assessee has upheld the estimation of purchases and estimation of profits thereon. We may also like to mention some of the entries to demonstrate that third column does not reflect the rate of a particular item/dry fruit. This is being done as the ld. CIT(DR) has argued that no finding has been given in the case of the assessee. The entries recorded are similar on all the days. The details of some of such entries of column 3 are as follows: Page No.100 (internal page 6 )

26 26 Jeera Green 6629 Kishmish 5966/57 Giri 7116 Page No. 101 : (internal page 8 ) Magaz 5153/100 Pista 15453/451 Dal Chini 7848/103 Page No. 102 : (internal page 9 ) Saugi 6341 Magaz 6973/DL Page No. 103 : (internal page 10 ) Kala Zeera 6603/48 Pista 15453/331 From above entries it is clear that the figures mentioned in 3 rd column cannot be rate per kg. We are again in agreement with the findings of the ITAT in the case of MDH Ltd. about the entries recorded in 3 rd column of the said note pad/diary. Therefore, the estimation of unaccounted purchases for the previous year relevant to assessment year based on such entries cannot be upheld. Therefore, the estimation of purchases is not based on any material seized during the course of search and seizure operation. Hence, such estimation of unaccounted purchases has to be treated based on surmises and conjectures. Once estimated purchases for assessment year is held based surmises and conjectures, the estimation of unaccounted purchases for earlier years by extrapolating the figures of assessment year cannot be upheld. Once the estimation of unaccounted purchases is not upheld, the question of estimation of profit by applying 10 per cent of profit would not arise. The assessee had admitted income from commission business based on seized material which was not disclosed. Therefore, no addition can be made on the basis of estimation of unaccounted purchases.

27 It may be noted from above that on one hand the assessing officer had rejected the cash flow statement prepared from seized material for all the six assessment years and estimation of commission income by the assessee. On the other hand he had accepted the returned undisclosed income of Rs. 1,43,41,002/- declared by the assessee in response to notice u/s 153A of the Act being higher than the estimated income by him at Rs.1,28,71,560/ There is no dispute that the assessee was indulging in unaccounted business activities for last so many years. It is also evident from the above facts that the estimation of undisclosed income by the assessee and the assessing officer is based on two different methods. The assessee estimated the undisclosed income based on seized materials by drawing cash flow statement resulting into availability of Rs. 2,20,07,726/- as on the date of search. However, the assessing officer presumed on the basis of entries recorded on note pad that Shri Prem Arora was handling unaccounted cash of MDH Limited for making purchases in cash of various raw materials such as spices required for manufacturing of various products of MDH Limited. He presumed certain entries on note pad for lot numbers as rates and quantities of certain spices/dry fruits and by multiplying the assumed quantities and rates estimates sales for the period from to at Rs 3,35,19,690/-. He has completely ignored the other seized material which has been taken into consideration by the assessee while estimating undisclosed commission income. The assessing officer extrapolated sales based on estimation of sales of 52 days ( to ) for financial year He further extrapolated sales figures backward for the period relevant to assessment years to by presuming that there was 20% growth in business in each year. He has further estimated profits by presuming profits of