THE ACIT, TRICHUR vs. ST.ANTONY'S TIMBER DEP, THRISSUR

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ITA 294/COCH/2018Status: DisposedITAT Cochin01 March 2019AY 2008-0916 pages
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What did the Tribunal hold?

The Tribunal held that the CIT(A) erred in reducing the penalty amount based on a partial contribution from the assessee. The matter was restored to the CIT(A) to consider the entire undisclosed investment for penalty purposes.

What were the facts?

During a search, a document indicated that the actual cost of a land purchase was Rs. 99.90 lakhs, significantly higher than the registered consideration. The assessee initially claimed two other individuals contributed to this purchase.

What were the issues?

Whether the penalty for concealment of income should be levied on the entire undisclosed investment or only on the portion attributable to the assessee, considering the seized document and subsequent denials.

Which sections of the Income-tax Act were involved?

Section 132,Section 153A,Section 143(3),Section 271(1)(c),Section 274,Section 254

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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN

For Appellant: Shri C.B.M. Warrier, CA
For Respondent: Smt. A.S. Bindhu, Sr. DR, Shri C.B.M. Warrier, CA
Hearing: 26/02/2019Pronounced: 01/03/2019

Heard together (2 matters)

I.T.A. No.294/Coch/2018
C.O. No. 63/Coch/2018

Read from the judgment's own cause title. This page is filed under one of them.

Per CHANDRA POOJARI, AM:

This appeal filed by the Revenue is directed against order of the CIT(A)-III,

Kochi dated 28/03/2018 for the assessment year 2008-09. The assessee has filed

Cross Objection in C.O. No. 63/Coch/2018 against the Revenue appeal.

2.

The facts of the case are that the assessee is a firm with four partners and

engaged in the business of Timber Trading. In this case, a search u/s. 132 of the

Act was conducted on 23/10/2008. Post search, a notice dated 18/02/2010 u/s.

153A(a) was issued and served upon the assessee. In response to the notice the

assessee filed its return declaring a total income of Rs.1,28,32,920/-. The

assessment was completed u/s.143(3) r.w.s 153A and the total income was

assessed at Rs.2,15,59,239/-. The main addition made was of an amount of Rs.

81.60 lacs on account of investment in immovable property being land admeasuring

30.5 cents at Chembukavu Thrissur. The Assessing Officer held this investment as

made out of its undisclosed income of the assessee.

2.1 The said land had been purchased by an agreement dated 24/04/2007 for a

recorded consideration of Rs.18.30 lacs. However, during the search, one of the

seized documents viz. page no. 10 of SJ-3 seized from the residence of Shri Babu

John, Managing Partner of the firm, contained notings that indicated that the actual

cost of purchase of the said land at Chembukavu was Rs. 99.90 lakhs. In addition to

I.T.A. No.294/Coch/2018 & CO No.63/coch/2018 this fact, Shri Babu John admitted in his statement recorded u/s. 132(4), that the

purchase consideration of the land at Chembukavu was indeed Rs.99.90 lakhs. The

notings on the seized paper were also deciphered by him. The A.O. pointed this to

the assessee's authorised representative but as he had no convincing and

satisfactory explanation, the difference between 99.90 lakhs and 18.30 lakhs

amounting to Rs.81.60 lakhs was added to the total income as assessee's

investment out of undisclosed income.

2.2 Penalty proceedings u/s. 271(I)(c) were initiated and notice dated 31.12.2010

u/s 274 r.w.s 271(l)(c) was duly issued alongwith the assessment order and served

upon the assessee. The penalty proceedings were kept in abeyance since appeal

had been filed by the assesse.

3.

On appeal, the CIT(A) confirmed the addition of Rs.81.60 lakhs . Thereafter, the

assessee filed appeal to the ITAT who agreed with the finding of the CIT(A) and

confirmed the evidentiary value of the seized document and that of the statement

given by the partner. However, it was observed that although the registration of the

property had been done only in the firm's name, the assessee had put an

alternative claim that two other persons named Shri David and Shri Pavunny whose

names also appeared on the seized document (page 10 of SJ-3) contributed equally

with the assessee in the investment and the said contention had not been verified

by lower authorities- If it was correct, the addition in assessee's hands would have

I.T.A. No.294/Coch/2018 & CO No.63/coch/2018 to be limited to 1/3 rd of the amount of Rs.81.60 lakhs. The matter was therefore

set aside by the ITAT vide it's order dated 05/04/2013 and restored to the file of the

Assessing Officer to examine whether there was investment by two persons other

than the assessee in purchasing the land.

4.

Accordingly, the A.O made enquiries with Shri A.A.Davis and Shrl P. T.Pavunny

with regard to their share of investment, if any, in the property purchased i.e 30.5

cents of land at Chembukavu, which had been registered in the name of the

assessee i.e .M/s. St. Antony's Timber Depot. In response, both of the said persons

vide letters dated 26/02/2014 denied having made any investment in the purchase

of property made by M/s St. Antony's Timber Depot at Chembukavu. In fact, the

authorised representative of the assessee had himself produced the two deponents

before the Assessing Officer and he also signed on the proceedings.

4.1 Consequent to the denial letters filed by Shri A.A. Davis and Shri P.T. Pavunny,

the A.O issued letter dated 27/02/2014 confronting the assessee with their denials

and directing it to file its explanations / objections if any against the confirmation

letters on or before 05-03-2014. In response, the authorised representative of the

assessee submitted letter dated 04/03/2014 on the letter head of the assessee

firm.The said letter reads as follows:

" With reference to the above, we may be permitted to submit that these two persons namely A.A. Davis and P. T. Pavunny had actually invested 1/3rd each in the property at Chembukavu and this fact is available from the seized records itself. However we do not have any other documentary proof to establish that

I.T.A. No.294/Coch/2018 & CO No.63/coch/2018 these persons had contributed to the purchase of the said property. In view of the above, we have no objection against these confirmation letters. Please note that the above acceptance does not mean that the entire investment had been met by us. However in order to avoid prolonged litigation and to purchase peace with the department the issue is agreed to be settled as such. This may,' kindly be taken into account while considering the penalty proceedings, if any, that may be initiated against us. "

4,2 Thereafter, the A.O passed order dated 25/03/2014 u/s 143(3) r.w.s 254 of

the Income Tax Act,1961. In this order he considered the letters filed by the two

other persons and the submission filed by the assessee and completed the

reassessment by retaining the addition of Rs.81.60 lakhs on account of undisclosed

investment. The A.O also initiated penalty u/s 271(l)(c) of the Act and served the

show cause notice u/s 274 r.w.s 271(1)(c). In response, the assessee neither

attended on the appointed date nor filed any written submission. Thereafter, a fresh

opportunity of hearing was granted by the Assessing Officer. In response, the

authorised representative of the assessee made submissions vide his letter dated

26/09/2014. The submissions made reads as follows:

"1 The assessment for the above mentioned assessment year is completed by the learned assessing officer by retaining the addition of Rs.81,60,000 being the alleged difference in the investment made in acquiring the property at Chembukavu, Trichur.

2.

We beg to submit that we have not concealed any income and all the relevant information were furnished and available in the financial statements filed and had also furnished all details asked during the assessment proceedings and had furnished all information asked for.

3.

We have made payment of the tax as per the return of income filed and the addition on account of disallowance (sic) expenses were not anticipated at the time of filing the original return of income.

I.T.A. No.294/Coch/2018 & CO No.63/coch/2018 4. The addition towards alleged investment in immovable property was made without any supporting evidence and disbelieving the explanations offered by us. The seized document on the basis of which the addition was made clearly showed that the investment was contributed by two other person also. The above addition has been made overlooking the statutory provision contained in the section 132 of the 1.T. Act that the contents of the seized documents should be considered as correct. We have very clearly mentioned in our letter dated 04.03.2014 that the additional investment, though not actually made by us, is accepted to avoid prolonged litigation and in order to purchase peace with the department and also with an understanding that the above acceptance should be considered positively while imposing penalties. A copy of the letter is enclosed as ready reference.

5.

It has been held in ITO v Roborant investment Pvt. Ltd (2006) 7 SOT 181 (Mumbai) that penalty cannot be levied in cases involving genuine difference of opinion on matters between the assesses and the Assessing Officer. Further, it has been held that penalty cannot be levied where additions are made by the Assessing Officer rejecting the explanation of the assessee since it does not amount to concealment of income within the meaning of Explanation to section 271.(Devki Nandan v. Assessing Officer(2006) 150 Taxman 44)

6.

Considering the above explanations it is humbly requested that the proposed penalty proceedings may kindly be dropped.

5.

After considering the submissions, the Assessing Officer observed that during the

course of search, documentary evidence of unaccounted payment in cash towards

purchase of land was found and seized. The Assessing Officer referred to Section

292C of the Income Tax Act which provides for inter alia a presumption that where

books of accounts or documents etc are found in the possession or control of any

person in the course of search u/s. 132, it may, in any proceeding under the

Income Tax Act, be presumed -

a) that such books of account, other document etc belong to that person

b) that the contents of such books of account and other documents are true

and

I.T.A. No.294/Coch/2018 & CO No.63/coch/2018 c) that it is signed / written by such person where it is purported to be so

signed and written.

5.1 In this regard, the Assessing Officer noticed that there had not been any

rebuttal of the presumption by the assessee. The Managing Partner of the firm Shri

Babu John did retract his statement given during search admitting to paying Rs.

99.90 lakhs for the purchase of the impugned land. However, the CIT(A) and ITAT

both held that the retraction made after 26 months is only an afterthought and

cannot be accepted. Notwithstanding the fact that the seller of the land showed only

the consideration mentioned in the conveyance deed, and deposed accordingly, the

ITAT noted that the evidence found from the assessee showed that the

consideration paid for the impugned land was Rs.99.90 lakhs. Thus, according to the

Assessing Officer, there was unanimity of opinion that the evidence in the form of

noting on seized documents in this case had clinching evidentiary value. Therefore, it

was held that the charge of concealment of particulars of taxable income is

adequately and beyond doubt proved by such evidence.

5.2 On the one hand, the Assessing Officer found that the facts concealed by the

assessee had been unearthed by the department during the course of search, in the

search action, the Managing partner had truthfully deposed about the concealment

and unaccounted transaction. However, on the other hand, it was found that in the

return filed in response to the notice u/s. 153A, the income admitted during the

I.T.A. No.294/Coch/2018 & CO No.63/coch/2018 search had not been offered. Thus, the Assessing Officer observed that the assessee

had again concealed the particulars of its income in the return of income.

5.3 The A.O confronted the assessee about the seized documents during the course

of assessment proceedings. The A.O also confronted the assessee about the

statement of Shri Babu John, Managing Partner, Still the assessee had no

convincing and satisfactory explanation. It also did not come out with any true facts

or confirm the stand taken during the search. Instead after 26 months, there has

been retraction. In the circumstances, the A.O went by the seized documents and

the statement of Shri Babu John and added the amount of Rs. 81.60 lacs being

difference between the actual amount paid i.e Rs.99.90 lakhs and the amount

mentioned in the deed of conveyance i.e. Rs. 18.30 lakhs.

5.4 The AO observed that the submissions made by the assessee are completely

devoid of any merit. Though it had been contented that no income had been

concealed, the AO found that the assessee not only concealed the particulars of it's

income but having once admitted to concealment during the search action, it again

concealed the particulars of such income by not offering it in the return filed by him.

Though it was contended that the assessee had co-operated with the department

during the assessment proceedings and furnished all the information asked for,

according to the Assessing Officer, the assessee retracted the admission of income

and had failed to disclose the true facts relating to the transaction. After the matter

was set aside by the ITAT to the file of the A.O to examine whether there was

I.T.A. No.294/Coch/2018 & CO No.63/coch/2018 investment by two persons other than the assessee in purchasing the land, the

assessee's authorised representative had himself produced the two other persons

viz. Shri A.A. Davis and Shri P.T. Pavunny and they submitted letters denying their

role in the transaction. However, considering the notings on the seized documents,

the Assessing Officer observed that one of the possibility is that these persons also

contributed to the purchase and have been subsequently repaid or agreed to be

repaid in cash by the assessee. The Assessing Officer observed that when the two

persons introduced by the assessee's representative had submitted that they did not

make any investment in the purchase of property by the firm, effectively the

assessee is estopped from taking a contrary stand and without prejudice to this, the

onus of rebutting their statement is that of the assesse and not that of the A.O and

this onus has not been discharged in any manner by the assessee. Thus, it is clear

that the assessee was not co-operating with the department. Therefore, the

inclusion of the concealed income amounting to Rs.81.60 lakhs in the hands of the

assessee is conclusive.

5.5 The assessee relied in the case of I.T.O Vs.Roborant Investment Pvt. Ltd.

(2006) 7 SOT 181 in which it is held that penalty cannot be levied in cases involving

genuine difference of opinion on matters between the A.O and the assessee. The

reliance was also placed on the decision of Devki Nandan Vs. A.O (2006) 150

Taxman 44, in which it was held that penalty cannot be levied where additions are

made by the A.O rejecting the explanation of the assessee since it does not amount

I.T.A. No.294/Coch/2018 & CO No.63/coch/2018 to concealment of income within the meaning of Explanation to section 271. With

regard to these submissions, the Assessing Officer observed that the assessee's

case is one in which concealment of the particulars of income was proved on the

basis of strong documentary evidence and statement on oath. Therefore, the

assessee's case was totally distinguishable from the cases relied upon. In

conclusion, the Assessing Officer stated that the provisions of Explanation 1 to

section 271(1)(c) is squarely applicable to this case. The said Explanation provides

that where in respect of any facts material to the computation of the total income of

any person -

(A) such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner (Appeals) or the Principal Commissioner or Commissioner to be false, or

(E) such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him,

then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub- section, be deemed to represent the income in respect of which particulars have been concealed.

In the instant case, the Assessing Officer concluded that the charge of concealment

of particulars of income is also proved in terms of the Explanation 1 to section

271(1)(c) of the Act.

5.6. In view of the above discussion of the facts and provisions of law, the

Assessing Officer was satisfied that this is a fit case for imposing penalty u/s

I.T.A. No.294/Coch/2018 & CO No.63/coch/2018 271(l)(c) as the assessee had concealed the particulars of its income. The minimum

penalty @ 100% of the tax sought to be evaded works at Rs.27,73,587/-and the

maximum penalty @ 300% works out to Rs.83,20,761/-. Considering the absence of

any clear mitigating factors, the Assessing Officer impoed penalty u/s.271(l)(c) of an

amount of Rs.30,00,000/- (Rupees Thirty lakhs only) upon the assessee and direct

the same shall be paid by the assessee.

6.

After going through the penalty order and facts of this case, the CIT(A)

observed that it is a settled legal position now that assessment proceedings and

penalty proceedings are separate proceedings. According to the CIT(A), every

addition made or accepted by the assessee does not automatically mean that the

assessee has concealed his income or has furnished inaccurate particulars of

income. In the instant case, the CIT(A) observed that the addition was based on a

document found and seized during the course of search and this document related

to purchase of a property for a consideration in the name of the assessee firm.

According to the CIT(A), the recorded consideration for the purchase of the

property was Rs.18.30 lakhs and another consideration of Rs.81.60 lakhs was paid

which was treated as unaccounted income. Shri Babu John was a partner of the firm

and his statement was recorded during the course of search, wherein he admitted

that on money payment was made for the purchase of property and he deciphered

the contents of the seized document. The CIT(A) referred to page No.10 of the

seized document, on which it was written as under:

I.T.A. No.294/Coch/2018 & CO No.63/coch/2018 1/3 C 1/3 D 1/3 P 27 cent @ 3,70,000 99,90,000 Commission 1,00,000 1,00,90,000

Regn. Charge 2,96,100 1,03,86,100 Agreement Advance 5,00,000 98,86,100

C 32 95 367

D 32 95 367

P 32 95 367

The CIT(A) observed that the contents of the seized document showed that money

was paid by three persons and C stood for the assessee, D stood for Davis and P

stood for Pavunny. Since seized document was found at the premises of the

assessee firm and since Mr. Davis and Mr. Pavunny denied having made any

payment, the assessee firm accepted the addition of entire amount in his own

hands and therefore, the AO levied penalty on the entire amount in the case of the

assessee. According to the CIT(A), the basic document on the basis of which

addition was made and penalty was levied, showed that payment was made by

three people names of which were known to the Department and this document

cannot be said to be an after thought as the same was found during the course of

search and was definitely written much earlier. According to the CIT(A), the

veracity of the document is beyond doubt and the assessment was completed on

I.T.A. No.294/Coch/2018 & CO No.63/coch/2018 the basis of the same. This document was deciphered at the time of search, i.e.

much before the assessment proceedings and penalty proceedings were completed. The assessee had consistently maintained the stand that only 1/3rd of the consideration was paid by the assessee and balance 2/3rd was paid by Shri Davis

and Shri Pavunny, which was borne out from the seized document itself. The

CIT(A) was of the opinion that it is a failure on part of the AO that he could not

gather evidence to be able to make addition in the hands of Mr. Davis and Mr.

Pavunny, in spite of seized material being found. The assessee accepted the

addition, because the document was found in his premises and to avoid prolonged

litigation. In view of these facts and clear content of the seized material, the CIT(A) levied penalty only at 1/3rd of the total amount, as that was the amount, which

was conclusively proved to be assessee's concealed income. Thus, out of the total

penalty levied of Rs.30,00,000/-, penalty of Rs.20,00,000/- was deleted and penalty

of Rs.10,00,000/- was confirmed.

7.

Against this, both assessee as well as Revenue are in appeal before us.

8.

We have heard the rival contentions and perused the record. The Assessing

Officer made the addition of Rs.81.60 lakhs on account of undisclosed investment in

purchase of property admeasuring 27 cents at Chembukavu, Thrissur. The property

was purchased in the name of the assessee as follows:

I.T.A. No.294/Coch/2018 & CO No.63/coch/2018 1/3 C 1/3 D 1/3 P 27 cent @ 3,70,000 99,90,000 Commission 1,00,000 1,00,90,000

Regn. Charge 2,96,100 1,03,86,100 Agreement Advance 5,00,000 98,86,100

The contents of the seized document showed that money was paid by three persons

and C stood for the assessee, D stood for Davis and P stood for Pavunny. However, the CIT(A) was of the opinion that only 1/3rd of the above unaccounted

cost of land was relating to the assessee and accordingly, he sustained the penalty

at Rs.10 lakhs and deleted the penalty of Rs.20 lakhs made by the Assessing

Officer. However, it has been seen that in the assessment order, undisclosed

investment of Rs.81.60 lakhs was considered and it is not proper on the part of the CIT(A) to consider only 1/3rd of the amount of Rs.81.60 lakhs for the levy of

penalty. Accordingly, we vacate the findings of the CIT(A) and restore the issue

back to his file to consider the entire undisclosed amount of Rs.81.60 lakhs. It is

admitted that these two persons, Shri Davis and Shri Pavunny have not made any

payment towards the purchase of the said property and also it was on record that

the assessee had accepted the addition of the entire amount in his own hands.

Accordingly, we remit this issue to the file of the CIT(A) for fresh consideration and

decide the issue in accordance with law after giving opportunity of hearing to the

I.T.A. No.294/Coch/2018 & CO No.63/coch/2018 assessee. This ground of appeal of the Revenue is partly allowed for statistical

purposes.

C.O. No. 63/Coch/2018 : AY 2008-09

9.

Since we have remitted the Revenue’s appeal to the file of the CIT(A) for fresh

consideration, the Cross Objection filed by the assessee in C.O. No.63/Coch/2018

has become infructuous and the same is dismissed as infructuous.

10.

In the result, the appeal of the Revenue is partly allowed for statistical

purposes and the Cross Objection filed by the assessees is dismissed. Order pronounced in the open Court on this 01st March, 2019

sd/- sd/- (GEORGE GEORGE K.) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER

Place: Kochi Dated: 01st March, 2019 GJ Copy to: 1. St. Antony’s Timber Depot, Chevoor P.O., Thrissur-680 027. 2. The Assistant Commissioner of Income Tax, Circle-2(1), Thrissur. 3. The Commissioner of Income-tax(Appeals)-III, Kochi. 4. The Pr. Commissioner of Income-tax, Thrissur. 5. D.R., I.T.A.T., Cochin Bench, Cochin. 6. Guard File. By Order

(ASSISTANT REGISTRAR) I.T.A.T., Cochin

I.T.A. No.294/Coch/2018 & CO No.63/coch/2018

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