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Income Tax Appellate Tribunal, “SMC” BENCH, AHMEDABAD
Before: SHRI WASEEM AHMED&
PER Ms. MADHUMITA ROY - JM:
The instant appeal filed by the assessee is against the order dated 11.11.2014 passed by the Commissioner of Income Tax (Appeals) - Gandhinagar [Ld. CIT(A) in short] for Assessment Year (AY) 2010-11 arising out of the penalty order u/s. 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") dated 25.09.2013 passed by the ITO, Ward-1, Gandhinagar with the following grounds: 1. “On the facts and circumstances of the case, the learned CIT(A) has erred in levying penalty on addition made of unsecured loans of Rs.1,15,500/-. 2. On the facts and circumstances of the case, the learned CIT(A) has erred in levying penalty on addition made of unsecured creditors of Rs.1,50,360/- as unexplained. The appellant reserves its right to add, amend, alter or modify any of the grounds stated hereinabove either before or at the time of hearing.”
- 2 - ITA No.419/Ahd/2015 Dipakkumar Keshavlal Patel vs. ITO Asst.Year – 2010-11 2. The assessee is a civil contractor declared total income of Rs.7,17,790/- by filing return on 21.09.2010. The assessment was finalized u/s 143(3) of the Act with an addition of Rs.1,15,500/- on account of unsecured loan and Rs.1,50,360/- being disallowance of bogus creditors namely Ms. Gayatri Trading Co. In fact, unsecured loans to the tune of Rs.7,96,300/- were obtained by the assessee, details whereof was called for by the Learned AO upon which following were submitted: 1. Bhanumatiben J Patel Rs.19,500/- 2. Bhavik Patel Rs.19,500/- 3. Dilipbhai J. Patel Rs.19,500/- 4. Hetal Patel Rs.19,500/- 5. Dalpat Mama Rs.19,500/- 6. Mohanlal Patel Rs.18,500/- Total Rs.1,15,500/-
Therefore, show-cause was issued as to why such unsecured loans should not be treated as sham. Such addition was claimed to have been agreed upon by the assessee in terms of the order sheet entry dated 25.02.2013.
Penalty proceeding was initiated on the alleged ground of furnishing of inaccurate particulars of income in the return of income of the assessee. It is the case of the assessee that from the ledger account of the M/s. Gayatri Trading Co. it is established that though total transaction was made to the tune of Rs.1,50,360/- nothing was paid to it hence creditors in the balance sheet of the assessee. Further that, the assessee has not furnished the address of M/s. Gayatri Trading Co. Ultimately addition was made by the Learned AO in the absence of any details furnished by the assessee.
In the penalty proceeding show-cause was issued to the assessee by and under a notice dated 17.07.2013. In response thereof the assessee filed its reply dated 31.08.2013 with the following explanation: “...The assessee had not concealed any income not furnished inaccurate particular of income hence he don't fall in the category for the penalty
- 3 - ITA No.419/Ahd/2015 Dipakkumar Keshavlal Patel vs. ITO Asst.Year – 2010-11 proceedings because your attention is invited in the balance sheet of the assessee the assessee had shown a unsecured loan of Rs.1,15,500/- and the same was already been offered for the purpose of taxation. During the course of the assessment proceedings the appellant had submitted confirmation along with the ledger account duly signed by both the party hence identity of the payee and genuineness of the payment was established by the assessee. In your assessment order para 4.1 it was stated by you that confirmation of account was not filed this statement is not correct. We had fully discharged the burden of proof to prove the genuineness of this deposit account, hence no objection material was collected by you to prove that this deposit is not genuine no summons was issued nor no information was called for u/s.133(6) of the income tax act. Further to avoid any litigation and to obtain peace of mind I agreed for the same addition.
Addition of Rs.1,50,360/- on account of sundry creditors I have to state that during this year I had purchased a building material from Gayatri Trading Co. After receiving the goods from this party we found quality of this good was not satisfactory to us and there was a disputed matter in this issue. I had tried our level best to set-aside this issue before the close of the accounting year. Thereafter this party was came forward to Settle this issue and this account was settled in the F.Y.2011-12 hence it was a disputed matter and some information was not provided by the party to us therefore details was not furnished under this circumstances it cannot be treated as a bogus purchase because payment of purchase was fulfilled next year.
During the course of the assessment proceedings the document submitted was fully accepted by the income tax officer and no aby defects found in those documents. It is decided in the following cases that assessee offered an income to be tax in this circumstances no penalty is leviable. 1) CIT V/s. Vinaychand Harilal 120 ITR 752(Guj HC) 2) CIT V/s. Navneetlal Pchalal 213 ITR 69(Guj HC) 3) CIT V/s. Millax Cable Industries 261 ITR 675(Guj HC) 4) CIT V/s. Sureshchandra Mital 251 ITR (SC)
In view of the above facts and submission we request you to drop the penalty proceedings."
It is the finding of Learned Assessing Officer while imposing penalty that the assessee has failed to discharge its onus of proving his bonafide regarding identity, creditworthiness and genuineness of the transaction. No prima facie evidence and/or details as to the identity and/or the creditworthiness of the creditors and genuineness of
- 4 - ITA No.419/Ahd/2015 Dipakkumar Keshavlal Patel vs. ITO Asst.Year – 2010-11 the transaction were furnished by the assessee. Neither any cogent document and/or evidence has been submitted by the assessee in support of his statement that details regarding of the transaction during the course of assessment proceedings was filed by the assessee as also observed by the Learned AO in the said order of penalty. In fact, it was further observed that the assessee though claimed of making payment to the tune of Rs.1,50,360/- to M/s. Gayatri Tading Co. no payment actually was made to the said party and the entire amount was shown as outstanding at the end of the year. It is the finding of the Learned AO that the address of the said party was not provided by the assessee during the assessment proceedings and the assessee also expressed its inability to furnish details and offered the amount for taxation. Thus, it is the clear case where the assessee has furnished inaccurate particular of income to the tune of Rs.1,50,360/- on account of sundry creditors. The Learned AO further observed as follows: “Explanation 1 to sec.271(1)( c) is clearly applicable in both the above issues in as much as assessee has failed to furnish material evidence which was necessary for computation of income and that the explanation of the assessee cannot be termed as bonafide. The assessee has not given any confirmation letter or address of depositors/Sundry Creditors. These are material evidence for the purpose of making assessment as it would have enabled the AO to carry out the enquiries.
Further the assessee never proved that he is prevented by sufficient cause from furnishing details required by the AO. Therefore non furnishing of the details preventing the AO to carry out its verification would be the case squarely covered within the meaning of explanation 1 to sec.271(1)(c) as this is lack of disclosure of such particulars.
The assessee has referred to some case laws in reply furnished. The facts of the case of the assessee are different to that of the case laws referred to and, are therefore, nor comparable.”
At the time of the hearing of the instant appeal, the Learned Counsel appearing for the assessee vehemently argued on this particular point that there is no concealment of income by the assessee at any stage nor there is any case of furnishing of inaccurate particulars of income by the assessee. In fact, the assessee established the identity,
- 5 - ITA No.419/Ahd/2015 Dipakkumar Keshavlal Patel vs. ITO Asst.Year – 2010-11 creditworthiness and genuineness of the transaction. He has relied upon the documents appearing from page 1 to 14 of the Paper Book to justify the repayment made by the assessee to parties concerned. According to the Learned AR even if the details of the parties were not provided by the assessee to the Learned AO during assessment proceeding, the Learned AO could have direct the assessee to provide the same during penalty proceeding which is the duty incumbent upon the authorities below for making enquiry before coming to the conclusion of imposition of punishment. In support of his argument he relied upon the judgment passed by the Hon’ble Jurisdictional High Court in the case of National Textile-vs.-CIT. On the contrary, the Learned DR relied upon the order passed by the authorities below.
We have heard the respective parties, perused the relevant materials available on record, we find that the penalty proceeding was issued on the premise that the assessee has furnished inaccurate particulars of income in the return of income relating to unsecured loans and proceeded particularly on the finding that the assessee has failed to satisfactorily discharge its onus of prove his bonafide regarding identity, creditworthiness and genuineness of the transactions. In the assessment proceeding, even assuming, that the assessee failed to submit such details of the parties as asked for by the Revenue no deliberation has been made by the Learned AO to make an enquiry by calling for such details from the assessee in the penalty proceeding before imposing penalty. No effort, whatsoever was made by the Department for such enquiry to come to a conclusive finding that the assessee has committed default u/s 271(1)(c) of the Act by not furnishing inaccurate particulars of income. The addition on this account as made by the Learned AO in the quantum proceeding would not automatically justify imposition of penalty u/s 271(1)(c) of the Act by recourse to Explanation-1, of Section 271(1)(c) in the absence of a fresh enquiry conducted by the Assessing Officer in the penalty proceeding. We find that while imposing penalty the Assessing Officer pointed out the lacuna on the part of the assessee during the assessment proceeding in the manner as follows:
- 6 - ITA No.419/Ahd/2015 Dipakkumar Keshavlal Patel vs. ITO Asst.Year – 2010-11 “The assessee in his reply to the penalty notice has claimed that he had file confirmation alongwith ledger account and signed by both the party, is without any supporting evidence. As it can clearly seen in order sheet entry dated 11/02/2013 duly signed by assessee's Authorized Representative that the assessee has not filed any confirmation in the above case of unsecured loan. Further the Authorized Representative vide order sheet entry dated 25/02/2013 has shown his inability to provide any details and has offered the same for taxation.
From the above, it is clear that during the course of assessment proceedings the assessee has failed to satisfactorily discharge its onus of proving his bonafide regarding identity, creditworthiness and genuineness of the transaction., Even in the course of penalty proceedings no prima facie evidence or details as to the identity and/or the creditworthiness of creditors and genuineness of the transactions were furnished by the assessee. Moreover now the assessee is making a false claim that it has filed details the course of assessment proceeding without submitting any cogent evidence. This is clear case where the assessee has furnished inaccurate particulars of income to the extent of rs.1,15,000/-.
Further during the course of assessment proceedings the AO noticed that the assessee has made total transaction of Rs.1,50,360/- with Gayatri Trading Co. and no payment was made to the party and this entire amount was shown as outstanding at the end of the year. The AO vide note sheet entry dated 12/12/2012 was asked the assessee to provide address of Gayatri Trading Co to make enquiry. Again vide note sheet entry dated 20/12/2012 assessee was again requested to file address of the party. The assessee did not file the address of Gayatri Trading Co. Vide order sheet entry dated 11/02/2013 the assessee was asked to show caused as to why addition should not made as the details called for was not provided inspite of repeated reminders. Finally vide note sheet entry dated 25/02/2013, the assessee expressed its inability to furnish details and offered the amount for taxation.”
The judgment cited by the Learned Counsel on this aspect clearly deals with the proposition as argued by him, the operative Para whereof is as follows: 51. The order imposing penalty is quasi-criminal in nature and, thus, burden lies on the department to establish that the assessee had concealed his income. Since burden of proof in penalty proceedings varies from that in the assessment proceeding, as finding in an assessment proceeding that a particular receipt is income cannot automatically be adopted, though a finding in the assessment proceeding constitute good evidence in the penalty proceeding. In the penalty proceedings, thus, the authorities must consider the matter afresh as the question
- 7 - ITA No.419/Ahd/2015 Dipakkumar Keshavlal Patel vs. ITO Asst.Year – 2010-11 has to be considered from a different angle. [See Anantharam & Co. v. CIT., Andhra Pradesh, 1980 Supp SCC 13]. ……
Further that, the operative part of the Judgment pronounced in the case of National Textiles-vs-CIT [2001] 249 ITR 125 (Guj) deciding the ratio on this aspect is also required to be narrated. Relevant portion whereof is as follows: “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 are strained. On this state of accounts and evidences 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 could have 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 (i) discussed above, therefore it was a case where there was no circumstances to lead to a reasonable and positive inference that the assessee’s case-that the cash credit were arranged as temporary loans, was false. The facts and circumstances are equally consistent with the hypothesis that it could have been sundry loans in small amounts obtained from different parties. In our opinion, therefore even taking recourse to Explanation1, the same circumstances or state of evidence on which the cash credits were treated as income, could not by themselves justify imposition of peantly without anything more on record produced by the assessee or the Department.”
If the ratio of the judgment is made to be applicable in the instant case before us then without any hesitation we would like to observe that the finding on the basis of the observation on the conduct of the assessee before the assessment proceeding as made by the Learned AO in the penalty order is of no consequence in the absence of fresh enquiry conducted by him by asking the assessee to produce the details of those parties during the penalty proceeding in order to come to a conclusive finding of guilt by the assessee for imposing penalty. Admittedly, though it is incumbent upon the authorities below while
- 8 - ITA No.419/Ahd/2015 Dipakkumar Keshavlal Patel vs. ITO Asst.Year – 2010-11 dealing the issue in a quasi Judicial proceeding, the same has not been performed by the Learned AO nor by the First Appellate Authority. The documents so placed before us though were available before the Learned CIT(A) was not taken into consideration in its proper prospective. If those documents were really insufficient to reach the level of satisfaction to assess the bonafide of the assessee the Learned CIT(A) could have called for details from the assessee in the penalty appeal proceeding, instead of doing so, simply on the basis of the finding of the Assessing Officer, the Learned CIT(A) confirmed the penalty which in our considered view is arbitrary, erroneous and of course not in accordance with law. We, therefore, respectfully relying upon the judgment passed by the Jurisdictional High Court decide the issue against the Revenue. We find that the order imposing penalty as made by the Learned AO, confirmed by the Learned CIT(A) is without any firm basis and/or independent enquiry which failed to have been conducted by the Authorities below. Such finding culminating into the order of the imposition of penalty is bad and liable to the quashed. We, thus, allow the appeal filed by the assessee.
In the result, assessee’s appeal is thus allowed. This Order pronounced in Open Court on 01/01/2019
Sd/- Sd/- ( WASEEM AHMED ) ( Ms. MADHUMITA ROY ) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 01/01/2019 Priti Yadav, Sr.PS
- 9 - ITA No.419/Ahd/2015 Dipakkumar Keshavlal Patel vs. ITO Asst.Year – 2010-11
आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-Gandhinagar. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad