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Income Tax Appellate Tribunal, ‘’ SMC ’’ BENCH, AHMEDABAD
Before: SHRI RAJPAL YADAV & SHRI WASEEM AHMED
PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned two appeals have been filed at the instance of the Assessee. The first appeal is filed against the order of the Commissioner of Income Tax (Appeals) IV– Baroda [Ld.CIT(A) in short] dated 20/09/2013 arising in the matter of assessment order passed under s.143(3) r.w.s. 147 of the Income Tax Act, 1961 (here-in-after referred to as "the Act") and the second appeal is filed against the order of Commissioner of Income Tax (Appeals)-2, (Ld.CIT(A) in short) dated 14/08/2015 arising in the matter of
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penalty order passed u/s 271(1)(c) of the Act dated 25/03/2014 relevant to Assessment Years (AY) 1996-1997.
The assessee has raised following grounds of appeal. 1. The ''Ld.CIT(Appeals) has erred in law and on facts of the appellant’s case in confirming the action of ''Ld.AO of making an addition of Rs.34,15,000/- u/s 68 of the I.T Act 1961 on the erroneous plea that the same is unexplained cash credit. The appellant most humbly submits that on the facts and the circumstances of its case in law no part of same can be considered as unexplained cash credit us/68 of the Act and prays that Hon’ble Tribunal be pleased to hold so now and delete the said addition. 2. Both the lower authorities has erred in law and on facts of the appellant’s case in not appreciating the fact that the sources of alleged unexplained cash credit is loans and advances granted by the appellant to the said depositers/ots concerns and hence there is no unexplained cash credit as alleged. 3. The initiation of penalty proceedings u/s.271(c) of the Act is not justified. 4. The levy of interest U/s 234A/B/C of the Act is not justified. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before hearing of the appeal.
2.1 The solitary issue raised by the assessee is that Ld. CIT (A) erred in confirming the addition made by the AO for Rs. 34,15,000/- under section 68 of the Act on account of unexplained cash credit.
The facts of the case are that the assessee is a limited company and engaged in the activity of investment. The assessee in its balance sheet as on 31st March 1996 has shown investment in equity shares in a company known as SK Lea Finvest Ltd amounting to Rs. 29 lakhs. The assessee besides the
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above has also shown advances to SK Lea Finvest Ltd amounting to Rs. 5,15,000.00. Thus the total amount invested in the company was Rs. 34.15 lakhs.
The assessee has explained the source of investment as discussed above in the following manner:
Sr.No Name & Address Amount Rs. Date Mode of Correspondin & PAN Payment g loan given & Name by the CO. of Bank 1. Harshadbhai M. 250000.00 26.09.95 Cheque No. loan from Patel Pij Road, No.269331 the Co. Nadiad 2. Yogesh C. 32000.00 16.10.95 29990-97 Ch.no.34989 Brahmbhatt dt.16.10.95 Trimurti Complex, Rs.320000 Station Road, given to Viral Nadiad Tours & Travels Copy of Bank a/c enclosed. 3. Rajubhai B. Patel, 100000.00 26.09.95 269029. Rs.500000 Garden Vareli, 300000.00 13.10.95 JCB No. given to Trimurti Complex, 200000.00 13.10.95 loan from ‘’Yogi’’ Station Road, the 7585- owned by Nadiad 87 JCB R.B. Patel Co.Ch Copy of Bank no.34983 statement 7588-89 enclosed. JCB dt.13.10.9 5 4. Subhashbhai R. 100000.00 26.09.98 179949 Ch.no.34978 Pankabi, Trimurti 500000.00 16.10.95 Natpu & dt.05.10.95 & Complex, Station 23919 JCB Ch.no.34987- 88 for Rs.300000 & 350000 & 150000 given to ‘’Swagat’’ Page 3 of 14
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owned by Mr.Punjabi Copy of Bank statement enclosed. 5. Sumanbhai B. 11000.00 28.09.95 37671 No loan from Shekh Alkapuri 14000.00 18.10.99 vaso the Co College Road 37680 Nadiad vaso 6. Heshbhai P. Shah 500000.00 16.10.95 272552 Rs.800000 1-B Jagdanva 400000.00 16.10.95 21371JCB given to S.K. Cokkege Riad 115000.00 28.9.95 263142JC Investment a Nadiad B firm of Mr.Mesh Shah & Mr. Mukesh Patel vide ch.no.34991 dt.16.10.95 Rs.500000 givn on 28.9.95 vide ch.no.34976 given to the firm S.K. Investment 7. Mukeshbhai M. 00000.00 16.10.95 21370JCB Rs.400000 as Patel Shripalnagar 115000.00 28.9.95 272563JC per detail Society Petlad B given here in Road, Nadiad above for Mr.Hesh P. Shah NO. other loan from the Co. 8. Girish N. Dalwadi 5000.00 26.9.95 Cash No loan from Trimurti Complex the Co. Station Road, Nadiad 9. Hardik 85000.00 01.10.95 Cash from No laon from InvestmentTrimurt small the Co. hi Complex, investors Station Road, Nadiad Total Rs.3415000.
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5.1 The assessee in support of his claim has also filed the confirmation along with the ledger accounts from the parties as detailed under: i. Shri Y.C. Brahmbhatt ii. Shri Rajendra B. Patel iii. Shri S.R. Punjabi iv. Shri Sumanbhai B. Shekh v. Shri Ilesh Bhai P. Shah vi. Shri Mukesh M. Patel
5.2 The assessee in support of his contention has also filed the copy of the account of SK Lea Finvest Coll. A/c to justify the investment along with the source of investment.
However, the AO observed certain facts during the assessment proceedings as detailed under: i. The assessee failed to produce the books of accounts. ii. On scrutiny of the bank statement, it was seen that the assessee had circular transactions with the aforesaid parties. Such circular transactions were shown as the liability and the investment in SK Lea Finvest Ltd. iii. These circular transactions were carried out by the assessee up to 2nd November 1995. As such till 2nd November 1995, there was no transfer of money to the company namely SK Lea Finvest Ltd for the acquisition of the shares. iv. Further after 2nd November 1995, there were various deposits in the impugned bank account mostly in cash which was paid to SK Lea Finvest Ltd for the acquisition of the shares for Rs. 29 lakhs and advance for Rs. 5.15 lakhs. Page 5 of 14
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v. The assessee failed to offer any explanation for the deposit of cash in its bank after 2nd November 1995. In view of the above, the AO disagreed with the contentions of the assessee and treated the source of investment as unexplained cash credit under section 68 of the Act. Accordingly, the AO disallowed the same and added to the total income of the assessee.
The aggrieved assessee preferred an appeal to Ld. CIT(A). The assessee before the Ld. CIT (A) submitted that it had furnished the necessary details of the parties from whom the money was received.
7.1 The assessee further claimed that firstly, it had given the loan to the parties described above which were returned by them either out of the same account or using the account of their sister concern. The amount was returned on the same day as all the parties were maintaining the account with the Janta Co-operative bank. As such there was not any real transaction with the parties as discussed above and therefore there cannot be any element of income leading to the addition on such circular transactions.
However the Ld. CIT (A) observed that the amount shown by the assessee having been received from the parties are not matching with the submissions filed during proceedings.
8.1 Similarly, the name of the parties to whom the assessee has issued cheques and the name of the parties from whom it has received cheques did not appear in the bank statement of the respective parties.
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8.2 Furthermore, the plea of the circular transaction was not taken during the assessment proceedings as well as original proceedings before the Ld. CIT (A).
In view of the above the Ld. CIT (A) after considering the order of his predecessor confirmed the addition made by the AO under section 68 of the Act.
Being aggrieved by the order of Ld. CIT (A), the assessee is in appeal before us.
The Ld. AR before us filed a paper book running from pages 1 to 27 and submitted that the investment in SK Lea Finvest Ltd was shown after carrying out the circular transactions. As such the same money was circulated among the parties to justify the investment in the shares. It was explained that such adjustments were made so to strengthen the balance sheet of SK Lea Finvest Ltd to bring the public issue.
10.1 The Ld. AR further submitted that in the subsequent year, both the liabilities and investment were squared off with each other. The Ld. AR in support of his claim filed the balance sheet as on 31st March 1998 and the bank statement beginning from 26-09-1995 up-to-the-date of 16-04-2005.
On the other hand the Ld. DR vehemently supported the order of authorities below.
We have heard the rival contentions and perused the materials available on record. The controversy in the instant case revolves regarding the source of Page 7 of 14
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advances made and shares acquired of the company namely SK Lea Finvest Ltd aggregating to Rs. 34,15,000.00 only. The AO alleges that the assessee has made the investment as discussed above out of the deposits (mostly in cash) in the bank account after 2 November 1995 which were not suitably explained during the assessment proceedings.
12.1 Regarding this, we referred the bank statement for the relevant period and found that only a few entries were representing the deposit of cash. As such most of the entries were through the deposit of cheques. Therefore we do not concur with the finding of the AO. The copy of the bank statement for the relevant period is placed on pages 50 to 52 of the paper book.
12.2 Besides the above, we also note that the names of the parties who have deposited cheques in the bank account of the assessee were also appearing in the bank statement. But the AO has not verified the claim of the assessee from such parties despite the fact that the addresses of the parties were available with him.
12.3 We further find that the learned CIT (A) confirmed the order of the AO by observing that the names of the parties from whom the cheques were received and the details of the parties to whom the cheques were issued were not matching. Regarding this, we note that the assessee has furnished all the necessary details of the parties which were available on record. Therefore in case of any doubt on the genuineness of the parties, the learned CIT (A) was under the obligation to carry out the cross verification from such parties. As such in the absence of cross verification or any contrary concrete information as the case may be, the claim of the assessee cannot be denied.
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12.4 We also note that the AO in his order has duly admitted that the assessee has carried out circular transactions with the parties which support the contention of the assessee. Thus if there are circular transactions between the assessee and other parties then it can be inferred that the amount received by the assessee from such parties do not represent the income of the assessee. The relevant finding of the AO is extracted below: “On going through the bank account it is seen that the so-called loans and so-called share application money mentioned in para-3 above have been circulated i.e. once cheque issued to relative or sister concerns have come back the form of cheques in the guise of share application money. This circulation of cheques continued upto 16.10 1995 which can also be seen from the list of share application money submitted by the assessee co with the letter dtd. 24.11.00”
In view of the above finding of the AO, we disagree with the finding of the learned CIT (A) that the plea of the circular transaction was not taken before the AO.
12.5 We further note that the assessee during the assessment proceedings has given confirmation of various parties except few to the AO which has been elaborated in the preceding paragraph. There was no defect pointed out in such confirmation furnished by the assessee by any of the authorities below. Therefore we are not inclined to uphold the finding of the authorities below.
12.6 Before parting, we further find that the assessee failed to substantiate its claim that it has received the loan in respect of certain parties by way of filing the confirmation. The details of such parties stand as under: i. Harshad Bhai M. Patel Rs. 2,50,000.00 ii. Girish N. Dalwadi Rs. 5,000.00
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iii. Hardik Investment Rs. 85,000.00
12.7 In the absence of the confirmation from the parties, we are inclined to uphold the addition made by the AO on account of an unexplained cash credit to the extent of Rs. 3,40,000.00 only. Hence the ground of appeal of the assessee is partly allowed.
12.8 In the result, the appeal of the assessee is partly allowed.
Coming to the ITA 3103/AHD/2015 13. The assessee has raised the following grounds of appeal: 1. The Id CIT(Appeals) erred both in law and on facts in confirming the penalty.of Rs. 15,70,900/~ levied under section 271(1)© of the Income tax Act. 1961 in respect of alleged undisclosed income added u/s 68 of the Income tax Act, 1961. The Id CIT(Appeals) failed to appreciate that the addition so made had been set aside by the Hon'ble ITAT and the same were again added without considering the appellant's submission which cannot attract penalty u/s 271 (1)©. It be so held now. 2. The Id CIT(Appeals) erred in law and on facts in confirming the order levying penalty u/s 271(1)© when the explanation furnished by the appellant was not found to be false and since penalty proceedings are quite independent of assessment proceedings, the penalty ought not to have been levied based on mere addition. It be so held now and penalty levied by AO and confirmed by the CIT(Appeals) be cancelled.
The Id CIT(Appeals) further erred in law and on facts in not considering the binding judgment s of the jurisdictional High Court and the jurisdictional Tribunal and adjudicating the ground No. 4 regarding absence of firm charge as to concealment of particulars or inaccuracy in furnishing particulars. It be so held now and orders of the lower authorities being illegal and invalid, be cancelled. 4. The Id CIT( Appeals) ought to have held that order passed by AO levying penalty is illegal, invalid and against the sanction of law. It be so held now.
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The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal. 14. The assessee in this appeal has challenged the penalty levied by the AO and confirmed by the learned CIT (A) for Rs. 15,70,900.00 under section 271(1)(c) of the Act.
14.1 The assessee in the year under consideration has shown a certain amount of cash credit which was not explained by it during the assessment proceedings. Accordingly, the AO treated the same as unexplained cash credit under section 68 of the Act. Thus the addition for Rs. 34,15,000 was made to the total income of the assessee by the AO in his assessment order dated 31- 01-01. The AO subsequently issued notices under section 274/271(1)(c) of the Act for initiating the penalty on account of concealment of income and furnishing inaccurate particulars of income. The AO subsequently in his order dated 25.3.14 levied the penalty of Rs. 15,70,900.00 being 100% of the amount of tax sought to be evaded on the charge of concealment of income and also furnishing of inaccurate particular of income.
The aggrieved assessee preferred an appeal to Ld. CIT (A) who has also confirmed the order of the AO.
Being aggrieved by the order of the Ld. CIT (A) the assessee is in appeal before us.
The learned AR before us submitted that the assessee has neither concealed particulars of income nor furnished inaccurate particular of income.
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Therefore there cannot be any question of levying the penalty under section 271(1)(c) of the Act.
On the other hand, the learned DR vehemently supported the order of the authorities below.
We have heard the rival contentions and perused the materials available on record. At the outset, we also note that the AO levied the penalty with respect to the cash credit amounting to Rs. 34.15 lakhs which was also confirmed by the Ld. CIT (A). However, we have reduced the quantum addition from Rs. 34.15 lakhs to Rs. 3.40 lakhs only vide paragraph no. 12 of this order. As we have reduced the quantum addition to Rs. 3.40 lakhs only then, the penalty will be initiated concerning the amount of Rs. 3.40 lacs only and the question for levying the penalty on the balance amount of Rs. 30,75,000.00 does not arise.
19.1 It is settled law that the penalty proceedings are distinct from the assessment proceedings. Therefore the addition made during the assessment proceedings does not authorize the AO ipso facto to levy the penalty under section 271(1)(c) of the Act. As such the AO is under the obligation to carry out the necessary verification before reaching to the conclusion that the assessee has furnished any inaccurate particular of income or concealed the purchase of income. In the instant case, the penalty was initiated on account of the addition made for unexplained cash credit under section 68 of the Act. The AO was aware of the addresses and other details of the parties who have given cash credit to the assessee. But the AO without verifying the genuineness of the transactions has levied the penalty merely on the ground that such cash credits were treated as unexplained during the quantum Page 12 of 14
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proceedings. As such the penalty proceedings being distinct and separate from the assessment proceedings, the AO is under the obligation to carry out the fresh verification as held by the Hon’ble Gujarat High Court in the case of National Textiles reported 249 ITR 125. The relevant extract of the judgment is extracted below:
“In the instant case, the cash credits were not satisfactorily explained by evidence and documents. The parties who had advanced the alleged temporary loans were neither disclosed with their particulars nor any supporting documents were on record. Only two entries were explained. The accountant who had arranged the loan was not produced stating that he had left the service and relations with him were strained. On this state of accounts and evidence in the quantum proceedings, the department was justified in treating the cash credits as income of the assessee but merely on that basis by recourse to Explanation 1, penalty under section 271(1)(c) could not have been imposed without the department making any other effort to come to a conclusion that the cash credits could in no circumstances had been amounts received as temporary loans from various parties. The assessee in the quantum proceedings failed to produce the accountant but the department also in penalty proceedings made no effort to summon him. Applying the test (ii) discussed above, therefore, it was a case where there was no circumstance to lead to a reasonable and positive inference that the assessee’s case, that the cash credits were arranged as temporary loans, was false. The facts and circumstances were equally consistent with the hypothesis that it could have been sundry loans in small amounts obtained from different parties. Therefore, even taking recourse to Explanation 1, the circumstance or state of evidence on which the cash credits were treated as income, could not by themselves justify imposition of penalty without anything more on record produced by the assessee or the department. It was, accordingly, held that the Tribunal was not justified in law in confirming the penalty levied under section 271(1)(c).”
In view of the above, we hold that the AO cannot just levy the penalty merely on the ground that the additions were made during the quantum proceedings. As such the AO has to carry out necessary verification by issuing the notice to the parties before levying the penalty.
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19,2 In view of the above, we are of the view that no penalty can be levied under section 271(1)(c) of the Act for the reasons as stated above. Hence the ground of appeal of the assessee is allowed.
19.3 In the result, the appeal of the assessee is allowed
In the combined result, the appeal bearing ITA 2721/AHD/2013 is partly allowed, and the appeal bearing ITA 3103/AHD/2015 for A.Y.1996-97 is allowed.
Order pronounced in the Court on 18/04/2019 at Ahmedabad.
-Sd- -Sd- (RAJPAL YADAV) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 18/04/2019 Manish
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