GAUTAM CONSTRUCTION vs. A.C.I.T.

O/TAXAP/151/2001 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 151 of 2001 With TAX APPEAL NO. 152 of 2001 With TAX APPEAL NO. 155 of 2001

FOR APPROVAL AND SIGNATURE:

HONOURABLE MR.JUSTICE KS JHAVERI Sd/-

and HONOURABLE MR.JUSTICE K.J.THAKER Sd/-

================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? Yes 2 To be referred to the Reporter or not ? Yes 3 Whether their Lordships wish to see the fair copy of the judgment ? No 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? No 5 Whether it is to be circulated to the civil judge ? No ================================================================ GAUTAM CONSTRUCTION....Appellant(s) Versus A.C.I.T.....Opponent(s) ================================================================ Appearance: MR JP SHAH, ADVOCATE for the Appellant(s) No. 1 MR KM PARIKH, ADVOCATE for the Opponent(s) No. 1 Page 1 of 13

O/TAXAP/151/2001 JUDGMENT ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER

Date : 09/12/2014

ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE K.J.THAKER) 1. Heard learned Advocates for the respective parties. 2. The assessee being aggrieved by the order of the Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench “C” has preferred all the above Appeals in ITA Nos.3000 to 3002/Ahd/1994 for the Assessment Years 1988-1989 to 1990-1991. The Assessee made a declaration of Rs.15,00,000/= on account of inaccurate profits for two assessment years. 3. The common question of law posed for our appreciation in all the three Tax Appeals is as under :- “Whether, on the facts and in the circumstances of the case, the Tribunal was right in upholding the notice under sec.271(1)(c) when the show-cause notice was alleged to be vague as to the charge?” Page 2 of 13

O/TAXAP/151/2001 JUDGMENT 4. The facts in brief which give rise to the following Appeals are as under :- The assessee firm derives income from construction business on contract basis. Search operations were conducted on the business premises of the assessee u/s. 32 of the Income Tax Act which resulted into seizure of various documents and records. Statement of one of the partner of the assessee firm was recorded u/s. 132(4) wherein it was admitted that money receipts received in cash were not credited in the books of accounts. Further extra work had been done on the houses constructed by the assessee and payments received in respect of the same were not accounted for in the books. 5. Learned Advocate for the appellant Mr. J.P. Shah took us through the record and proceedings and submitted that the penalty imposed cannot be sustained in view of the decision of this Court in the case of Commissioner of Income-tax-I v. Jyoti Ltd. reported in [2013] 34 taxmann.com 65(Gujarat) and Commissioner of Income- tax, Ahmedabad-IV v. Whiteford India Ltd. reported in [2013] 38 taxmann.com 15 (Gujarat) and more particularly, he has Page 3 of 13

O/TAXAP/151/2001 JUDGMENT taken us through the decision of the Apex Court in the case of Dilip Shroff. Learned Advocate has taken us extensively to various paragraphs of the decision and submitted that penalty could not have been imposed by the authorities below. The authorities have committed a grave error and once, the decision of the Apex Court is available which is time and again followed by this Court, the levy of penalty was uncalled for in the facts of this case. Learned Advocate has even relied on the decision of the Apex Court in Assistant Commissioner of Income-Tax v. Gebilal Kanhaialal, HUF reported in [2012] 348 Income Tax Reports 561 (SC) and urged that all the Appeals require to be allowed in favour of the assessee. 6. It cannot be said that at the outset, while going through the order of the Assessing Officer, the notice given was vague under Section 271 of the Income Tax Act. More particularly, Section 271 of the Income Tax Act reads as follows :- [Failure to furnish returns, comply with notices, concealment of income etc.] 271. (1) If the Assessing Officer or the Commissioner (Appeals)] [or the [Principal Commissioner or] Commissioner] ]in the course of Page 4 of 13

O/TAXAP/151/2001 JUDGMENT any proceedings under this Act, is satisfied that any person- (a) [] (b)has failed to comply with a notice [under sub-section (2) of section 115WD or under sub- section(2) of section 115WE or] under sub-section (1) of section 142 or sub-section(2) of section 143 [or fails to comply with a direction issued under sub-section (2A) of section 142], or (c)

has

concealed

the particulars of his income or []

furnished

inaccurate particulars of [such income, or] [(d)

has

concealed

the particulars of the fringe benefits

furnished inaccurate particulars of such fringe benefits,] he may direct that such person shall pay by way of penalty,- (i) [] (ii) in the cases referred to in clause (b), [in addition to tax, if any, payable by him, [a sum of ten thousand rupees] for each such failure; (iii) in the cases referred to in clause (c) [or clause (d)], [in addition to tax, if any, payable] by him a sum which shall not be less than, but which shall not exceed [three times], the amount of tax sought to be evaded by reasons of

the

concealment

of particulars of his income [or Page 5 of 13

O/TAXAP/151/2001 JUDGMENT fringe benefits] or the furnishing

inaccurate particulars of such income [or fringe benefits]. 7. The reply of the assessee was discussed by the Assessing Officer in Paragraphs 7, 8 and 9 of the order dated 05.03.1993, which we propose to reproduce as under :- 7. The assessee submitted its reply of the show cause on 13.01.1993. In regard to no-money receipts of Rs.3,38,701 (as per Annexure E-10 seized by the department) and Rs.5,50,000/- (As per Annexure E-9 seized by the department), the assessee stated that 2% of the total receipts amounting to Rs.8,88,701/- should be taken to be the Net Profit on the construction work against which the above amounts were received

during

the

year. However, the contention of the assessee is devoid of any merits for the simple reason that the assessee has not advanced any sound reasons as to why 2% of the net profit should be adopted. Therefore, the argument of the assessee that 2% of the amount of Rs.8,88,701/- should be taken to be Net Profit is rejected and the entire amount of Rs.8,88,701/- is added to the total income as “On- Money” on EXTRA WORK undertaken independently by the assessee. Page 6 of 13

O/TAXAP/151/2001 JUDGMENT 8. The assessee vide his application u.s,144-A of the I.T. Act, 1961 dtd.11.02.1993 moved an application

before

the

Dy. Commissioner of Income tax, Range- 2, Baroda, on two issues : i) For set-off of expenses against on-money earned by the firm and ii) Adoption of Net Profit at the rate of 4.5% of the total receipts of the firm during the year. 8.1. The Dy.C.I.T., Range-2, Baroda has given his verdict vide his

letter

No.SR.2/S&S/144- A/GCC/Inv.Cir.2/92-93 dtd.04.03.1993. He has directed to give set-off of all such expenses appearing in the seized book E-9 against the on-money receipts

the

firm. Accordingly,

the

assessee's expenses

Rs.6,18,503/- (Rs.4,77,875/- + Rs.1,40,628/-) is set off against the on-money receipts of Rs.8,88,701/- by the firm during the year under consideration.

Accordingly, addition made on account of expenses is also deleted. 9. While going through the books of accounts of the assessee, it is observed that the assessee has accepted a deposit amount to Rs.50,000/- on 3.10.1988 from two persons viz. Shri Nandlal M. Shah and Shri Lallubhai C. Patel. Confirmation letters of both the Page 7 of 13

O/TAXAP/151/2001 JUDGMENT depositors are on record. However, since the assessee has accepted loan exceeding Rs.20,000/- in cash, it has violated the provisions of Section 269SS and thereby exposed itself to penal section u/s.271-D on amount of Rs.50,000/-. Shri Nandlal M. Shah had

given

Rs.21,200/-

and Lallubhai C. Patel had given Rs.30,000/-. 8. The ITAT also held that CIT(A) committed a grave error in furnishing no reasons given except that detailed reasons were given in the Assessment Year 1988- 1989 and the facts were identical. 9. CIT(A)'s order was carried by the Revenue in Appeal. The Tribunal while discussing the said issue have in Paragraph 4 on factual scenario held that the assessee is a habitual tax evader, because in Assessment Years 1988-1989 and 1990-1991 also the assessee suppressed on-money receipts for for both those assessment years, penalty proceedings u/s.271(1)(c) of the Act were separately initiated. Therefore, there was levy of penalty and the findings of the Assessing Officer were upheld. 10. Learned Advocate Mr. K.M. Parikh for Page 8 of 13

O/TAXAP/151/2001 JUDGMENT the respondent has relied on the reasonings given by the Tribunal. The question which has been posed for our consideration has to be answered in affirmative.

The

Tribunal

more particularly in Paragraphs 14 and 15, has given elaborate reasons which read as under :- “14. Further with regard to invocation of the Explanation to sec.271(1)(c) the ld. Counsel argued that since the explanation has not been invoked by the A.O. while levying the penalty, any reference to the said explanation by the CIT(A) is superfluous and no such explanation can be invoked at the appellate stage by the revenue. In support of his contention ld. Counsel placed reliance on the two decisions of the Bombay High Court reported in 203 ITR 792 and 204 ITR 462. Concluding his arguments the ld. Counsel

submitted

that

the penalties have been rightly concealed by the ld. CIT(A). 15. We have given our thoughtful consideration

the

rival submissions and carefully gone through the facts and material on record as well as the judicial pronouncements cited before us. We have no hesitation in reaching the conclusion that the facts and evidence available on record fully Page 9 of 13

O/TAXAP/151/2001 JUDGMENT justify

the

imposition

of penalties u/s.271(1)(c) for the three assessment years viz. 1998- 89 to 90-91. The documents and record seized during the course of search operations carried on by the I.T. Authorities including inter alia seized registers No. E- 9, E-10 etc. clearly prove that the assessee has been charging on money in the construction business which has not been accounted for in the books of account. The facts regarding charging of on money and not accounting for the same in the books has been explicitly admitted by Shri Mahendra G. Shah, partner during the statement recorded u/s.132(4) on 8.3.90. The charge of concealment is further established by the fact that the assessee has been filing revised returns shown certain extra income from contract business which had not been disclosed in the original returns for the assessment years under question. In the circumstances the impugned orders of the ld. CIT(A) cancelling the impugned penalties cannot be sustained. The CIT(A) has referred to the conduct of the assessee involving disclosure of Rs.15 lakhs u/s. 132(4) and paying taxes on the basis thereof. We feel that admission of concealed income by the assessee during the course of search operations particularly after documents and records showing unaccounted income have Page 10 of 13

O/TAXAP/151/2001 JUDGMENT been found by the I.T. Authorities would not absolve the assessee of the default committed u/s.271(1) (c) whereby the assessee has concealed the particulars of income in the returns filed for the three assessment years. Even if these returns have been revised subsequently after the factum of concealment has become evident as a consequence of search operations would not exclude the operation of the penal provisions u/s. 271(1) (c). From the facts indicated above, it would be seen that in the original returns filed for the three

assessment

years

the assessee

committed

default u/s.271(1)(c) and thereafter for each assessment year the assessee has proceeded to file revised returns

two

successive occasions. The conduct of the assessee has manifested in the facts and circumstances of the case do not in our opinion reflect a bonafide conduct in the matter of making full and true disclosure of income while filing the return.“ It is further submitted that when the provisions of law are clear and when the Tribunal found that the defaulter concealed particulars of income as well as furnished inaccurate particulars of income, the same would go against the assessee and the parameters issued by the Page 11 of 13

O/TAXAP/151/2001 JUDGMENT Apex Court and this Court will have to answer against the appellant. In that view of the case, it is submitted that the decision of the Apex Court relied on by learned Counsel Mr. J.P Shah will not enure for the benefit of the Assessee as in those cases, the particulars of income nor the income was concealed after search. This is not a case where inaccurate particulars of income are given but the assessee was given ample opportunity of being heard and to disclose true facts which he has concealed. 11. These Appeals will have to be dismissed for the reasons given by the Tribunal as the Assessing Officer and the tests to be applied as per the decision of the Apex Court in the case of Assistant Commissioner of Income-Tax v. Gebilal Kanhaialal, HUF (supra), we are in complete agreement with the well reasoned order passed by the Tribunal in reversing the decision of the CIT(A). The ITAT has particularly allowed the Appeal by reducing the penalty from 200% to 100% which in our view was just and proper in the facts of this case. The decisions cited herein above by learned Counsel for the appellant will not apply to the facts Page 12 of 13

O/TAXAP/151/2001 JUDGMENT of this case as the facts are glaring and breach is proved. 12. This decision is rendered in the peculiar facts and circumstances of the case and the question posed is answered likewise, i.e. in favour of revenue and against the assessee. It cannot be said that notice issued was vague. However, the above may not be treated as a precedent.

the

aforesaid circumstances, the Tax Appeals are dismissed. Sd/- (K.S. JHAVERI, J.) Sd/- (K.J. THAKER, J) CAROLINE Page 13 of 13