After a search I filed higher income in my section 153A return and the officer accepted it. Can he levy concealment penalty just because the figure went up?
No, not by itself. The Delhi High Court held that once the assessing officer accepts a return filed under section 153A, that return takes the place of the original return under section 139 for all purposes, including penalty, and penalty under section 271(1)(c) can only be on income assessed over and above the income returned under section 153A. A mere increase over the original return, without incriminating evidence, does not show concealment. Explanation 5 could not be invoked either, because no assets relating to assessment years 2005-06 and 2006-07 were found; the cash was found in the year of search. The Revenue's four appeals were dismissed.
Decided by the High Court (High Court of Delhi at New Delhi, Division Bench — S. Ravindra Bhat J (author) and Najmi Waziri J) on 2017-02-09, reported as ITA 463/2016, ITA 464/2016, ITA 465/2016 and ITA 466/2016 (Delhi High Court). It bears on section 271(1)(c), section 153A, section 132(4) of the Income Tax Act 1961, in Penalty and Search, Survey & Block Assessment matters.
This is the answer to the assessing officer who treats every post-search disclosure as automatic concealment. Two propositions do the work. First, section 153A opens with a non obstante clause excluding section 139 and, read with sections 153B and 153C, is a complete code for post-search assessment; the return filed under it displaces the original return, so the comparison for penalty is between the section 153A return and the assessed income, not between the section 153A return and the original one. The Court adopts the Gujarat High Court's formulation in Kirit Dahyabhai Patel. Second, Explanation 5 is a deeming fiction with defined ingredients: assets found in the search, claimed by the assessee to have been acquired out of his income for a particular previous year, that income then declared in a post-search return. If the assets do not relate to the assessment year in question, the Explanation cannot be stretched to it on the presumption that the assessee held the cash throughout the block. The judgment also collects the High Court authority that a higher revised return is not by itself a ground for penalty.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The assessee belonged to the J.M. Estate Developers Pvt Ltd group. For assessment year 2005-06 he returned income of Rs 1,72,799 under section 139(1) on 30 December 2005. A search under section 132 was carried out on 11 January 2007 at the premises of the group companies and directors, in the course of which the group disclosed Rs 16 crore under section 132(4) on behalf of various directors and relatives. Cash of Rs 5,26,530 and jewellery worth Rs 17,85,785 were found at the assessee's premises and lockers; Rs 4,06,930 of cash was seized and no jewellery was seized. On notice under section 153A issued on 26 February 2008 the assessee filed a return on 23 October 2008 declaring Rs 23,38,731, an additional Rs 21,65,932. The assessing officer completed the assessment under section 153A read with section 143(3) accepting that income, while initiating penalty on the view that a disclosure consequent on search is concealment, and levied Rs 1,34,640 by reference to concealed income of Rs 4,00,000. The Commissioner set that penalty order aside under section 263 as erroneous for having taken Rs 4,00,000 rather than Rs 21,65,932, and on 29 September 2011 the assessing officer imposed penalty of Rs 7,29,100 on the larger figure. The CIT (Appeals) deleted the penalty and the Tribunal confirmed that on 19 August 2015. The Revenue appealed under section 260A in four matters covering assessment years 2005-06 and 2006-07 for two assessees.
All four appeals were dismissed and the question of law answered in favour of the assessee. Once the assessee files a return under section 153A, that return is treated for all other provisions of the Act, including penalty under section 271(1)(c), as the return filed under section 139, and penalty is to be levied on income assessed over and above the income returned under section 153A, if any. The mere fact that the assessee filed a return disclosing higher income than the original, in the absence of any other incriminating evidence, does not show concealment. Explanation 5 could not assist the Revenue for assessment years 2005-06 and 2006-07 because no material was recovered in the search relating to those years: the cash was found on 11 January 2007, falling in assessment year 2007-08, and there was no finding that the assessee claimed it was owned by him in the earlier years. The addition of Rs 21,65,932 was not relatable to any sum recovered or article seized, and penalty cannot rest on surmise and conjecture.
On the meaning of concealment the Court traced the history: the word 'deliberately' was dropped from section 271(1)(c) by the Finance Act 1964, and Dilip N. Shroff was overruled in Dharmendra Textile Processors, but Reliance Petroproducts confined that overruling to the requirement of mens rea, leaving intact the meaning of 'conceal'. So the officer must still show conduct from which a conscious intention to hide income appears. The assessing officer here reasoned only that the disclosure followed a search and was therefore not voluntary, which is not the same thing. The Court then collected High Court authority that a higher revised return does not by itself justify penalty — Suraj Bhan, Bhadra Advancing, Suresh Chand Bansal and S.M.J. Housing, the last two dealing specifically with post-search offers accepted in assessment. Next it read section 153A structurally: it opens with a non obstante clause excluding sections 139, 147, 148, 149, 151 and 153, saves sections 153B and 153C, and provides that the return called for shall be treated as if required under section 139, pending assessments abating under the second proviso. Sections 153A to 153C are therefore a complete code for post-search assessment, and the section 153A return replaces the original — a second chance which incidentally lets the assessee make good an omission. Kirit Dahyabhai Patel is to the same effect. Finally the Court analysed Explanation 5 as a deeming fiction inserted, as K.P. Madhusudan explains, to displace the Sir Shadilal line under which an agreed addition did not prove concealment. Its ingredients require assets found in the search which the assessee claims were acquired out of his income of a particular previous year, that income being declared in the post-search return; the assets must relate to the assessment year whose penalty is in issue, since assessment and penalty are year-specific, as Kanhaiyalal holds. If a mere increase in a post-search return were itself concealment, the deeming fiction would be otiose.
once the assessee files a revised return under Section 153A, for all other provisions of the Act, the revised return will be treated as the original return filed under Section 139.
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Handle my notice → Ask a CA on WhatsAppNo, not by itself. The Delhi High Court held that once the assessing officer accepts a return filed under section 153A, that return takes the place of the original return under section 139 for all purposes, including penalty, and penalty under section 271(1)(c) can only be on income assessed over and above the income returned under section 153A. A mere increase over the original return, without incriminating evidence, does not show concealment. Explanation 5 could not be invoked either, because no assets relating to assessment years 2005-06 and 2006-07 were found; the cash was found in the year of search. The Revenue's four appeals were dismissed. This was decided by the High Court (High Court of Delhi at New Delhi, Division Bench — S. Ravindra Bhat J (author) and Najmi Waziri J) and bears on section 271(1)(c), section 153A, section 132(4) of the Income Tax Act 1961. It is reported as ITA 463/2016, ITA 464/2016, ITA 465/2016 and ITA 466/2016 (Delhi High Court). This is the answer to the assessing officer who treats every post-search disclosure as automatic concealment. Two propositions do the work. First, section 153A opens with a non obstante clause excluding section 139 and, read with sections 153B and 153C, is a complete code for post-search assessment; the return filed under it displaces the original return, so the comparison for penalty is between the section 153A return and the assessed income, not between the section 153A return and the original one. The Court adopts the Gujarat High Court's formulation in Kirit Dahyabhai Patel. Second, Explanation 5 is a deeming fiction with defined ingredients: assets found in the search, claimed by the assessee to have been acquired out of his income for a particular previous year, that income then declared in a post-search return. If the assets do not relate to the assessment year in question, the Explanation cannot be stretched to it on the presumption that the assessee held the cash throughout the block. The judgment also collects the High Court authority that a higher revised return is not by itself a ground for penalty. If it applies to you, the first step is this: Compare the section 153A return with the assessed income, not with the original return, and say so in the reply to the penalty notice.
The assessee belonged to the J.M. Estate Developers Pvt Ltd group. For assessment year 2005-06 he returned income of Rs 1,72,799 under section 139(1) on 30 December 2005. A search under section 132 was carried out on 11 January 2007 at the premises of the group companies and directors, in the course of which the group disclosed Rs 16 crore under section 132(4) on behalf of various directors and relatives. Cash of Rs 5,26,530 and jewellery worth Rs 17,85,785 were found at the assessee's premises and lockers; Rs 4,06,930 of cash was seized and no jewellery was seized. On notice under section 153A issued on 26 February 2008 the assessee filed a return on 23 October 2008 declaring Rs 23,38,731, an additional Rs 21,65,932. The assessing officer completed the assessment under section 153A read with section 143(3) accepting that income, while initiating penalty on the view that a disclosure consequent on search is concealment, and levied Rs 1,34,640 by reference to concealed income of Rs 4,00,000. The Commissioner set that penalty order aside under section 263 as erroneous for having taken Rs 4,00,000 rather than Rs 21,65,932, and on 29 September 2011 the assessing officer imposed penalty of Rs 7,29,100 on the larger figure. The CIT (Appeals) deleted the penalty and the Tribunal confirmed that on 19 August 2015. The Revenue appealed under section 260A in four matters covering assessment years 2005-06 and 2006-07 for two assessees. The matter was decided on 2017-02-09 by the High Court (High Court of Delhi at New Delhi, Division Bench — S. Ravindra Bhat J (author) and Najmi Waziri J). On those facts the High Court held as follows. All four appeals were dismissed and the question of law answered in favour of the assessee. Once the assessee files a return under section 153A, that return is treated for all other provisions of the Act, including penalty under section 271(1)(c), as the return filed under section 139, and penalty is to be levied on income assessed over and above the income returned under section 153A, if any. The mere fact that the assessee filed a return disclosing higher income than the original, in the absence of any other incriminating evidence, does not show concealment. Explanation 5 could not assist the Revenue for assessment years 2005-06 and 2006-07 because no material was recovered in the search relating to those years: the cash was found on 11 January 2007, falling in assessment year 2007-08, and there was no finding that the assessee claimed it was owned by him in the earlier years. The addition of Rs 21,65,932 was not relatable to any sum recovered or article seized, and penalty cannot rest on surmise and conjecture.
On the meaning of concealment the Court traced the history: the word 'deliberately' was dropped from section 271(1)(c) by the Finance Act 1964, and Dilip N. Shroff was overruled in Dharmendra Textile Processors, but Reliance Petroproducts confined that overruling to the requirement of mens rea, leaving intact the meaning of 'conceal'. So the officer must still show conduct from which a conscious intention to hide income appears. The assessing officer here reasoned only that the disclosure followed a search and was therefore not voluntary, which is not the same thing. The Court then collected High Court authority that a higher revised return does not by itself justify penalty — Suraj Bhan, Bhadra Advancing, Suresh Chand Bansal and S.M.J. Housing, the last two dealing specifically with post-search offers accepted in assessment. Next it read section 153A structurally: it opens with a non obstante clause excluding sections 139, 147, 148, 149, 151 and 153, saves sections 153B and 153C, and provides that the return called for shall be treated as if required under section 139, pending assessments abating under the second proviso. Sections 153A to 153C are therefore a complete code for post-search assessment, and the section 153A return replaces the original — a second chance which incidentally lets the assessee make good an omission. Kirit Dahyabhai Patel is to the same effect. Finally the Court analysed Explanation 5 as a deeming fiction inserted, as K.P. Madhusudan explains, to displace the Sir Shadilal line under which an agreed addition did not prove concealment. Its ingredients require assets found in the search which the assessee claims were acquired out of his income of a particular previous year, that income being declared in the post-search return; the assets must relate to the assessment year whose penalty is in issue, since assessment and penalty are year-specific, as Kanhaiyalal holds. If a mere increase in a post-search return were itself concealment, the deeming fiction would be otiose. In the words reproduced by the source cited on this page: "once the assessee files a revised return under Section 153A, for all other provisions of the Act, the revised return will be treated as the original return filed under Section 139."
It was decided by the High Court on 2017-02-09 and is reported as ITA 463/2016, ITA 464/2016, ITA 465/2016 and ITA 466/2016 (Delhi High Court). Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 271(1)(c), section 153A, section 132(4), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. All four appeals were dismissed and the question of law answered in favour of the assessee. Once the assessee files a return under section 153A, that return is treated for all other provisions of the Act, including penalty under section 271(1)(c), as the return filed under section 139, and penalty is to be levied on income assessed over and above the income returned under section 153A, if any. The mere fact that the assessee filed a return disclosing higher income than the original, in the absence of any other incriminating evidence, does not show concealment. Explanation 5 could not assist the Revenue for assessment years 2005-06 and 2006-07 because no material was recovered in the search relating to those years: the cash was found on 11 January 2007, falling in assessment year 2007-08, and there was no finding that the assessee claimed it was owned by him in the earlier years. The addition of Rs 21,65,932 was not relatable to any sum recovered or article seized, and penalty cannot rest on surmise and conjecture. It arises in Penalty and Search, Survey & Block Assessment matters, on section 271(1)(c), section 153A, section 132(4) of the Income Tax Act 1961, and was decided by High Court of Delhi at New Delhi, Division Bench — S. Ravindra Bhat J (author) and Najmi Waziri J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Where Explanation 5 is invoked, ask which asset was found, in which year, and whether you ever claimed it was acquired out of income of the year under penalty; the Explanation fails if that link is missing. Point out that the assessing officer accepted the return without any addition; the High Courts treat an accepted post-search return as inconsistent with a finding of concealment. Insist on evidence of conscious concealment; the word 'conceal' still requires conduct showing an intention to hide income, notwithstanding Dharmendra Textile Processors on mens rea.
Still good law. A Division Bench judgment of February 2017; the source page records it cited in five later matters. No later decision was available here to check it against. The judgment turns on Explanation 5, which applies to searches initiated on or before 1 June 2007; Explanation 5A, which governs later searches and is worded differently, is referred to but not decided upon. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The reasoning on Explanation 5 is confined to searches initiated on or before 1 June 2007 — this search was on 11 January 2007 — and the Court expressly notes, through the passage it adopts from Prem Arora, that Explanation 5A is differently worded. The judgment does not decide what the position would be under Explanation 5A. It also does not address the section 264 and section 263 proceedings beyond narrating them. The source page carries no reporter citation, so the appeal numbers are given instead. The facts are taken from ITA 463/2016; the figures for the other three appeals are not separately set out. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
All four appeals were dismissed and the question of law answered in favour of the assessee. Once the assessee files a return under section 153A, that return is treated for all other provisions of the Act, including penalty under section 271(1)(c), as the return filed under section 139, and penalty is to be levied on income assessed over and above the income returned under section 153A, if any. The mere fact that the assessee filed a return disclosing higher income than the original, in the absence of any other incriminating evidence, does not show concealment. Explanation 5 could not assist the Revenue for assessment years 2005-06 and 2006-07 because no material was recovered in the search relating to those years: the cash was found on 11 January 2007, falling in assessment year 2007-08, and there was no finding that the assessee claimed it was owned by him in the earlier years. The addition of Rs 21,65,932 was not relatable to any sum recovered or article seized, and penalty cannot rest on surmise and conjecture.
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
Valuables were found at my premises and I say they are not mine. Who has to prove ownership?
Is penalty under s.271(1)(c) criminal, quasi-criminal or civil?
The officer disallowed your claim. Does a disallowance automatically bring penalty with it?
They recorded your statement in a survey. Can the addition rest on that alone?