VIVEK VASANT GANDHI,,RATNAGIRI vs. ASSISTANT COMMISSIONER OF INCOME TAX,,

आदेश / ORDER

PER PARTHA SARATHI CHAUDHURY, JM :

These two appeals on quantum and penalty preferred by the assessee emanates from the order of Ld.CIT(Appeals)-2, Kolhapur dated 25.10.2016 for the assessment year 2010-11 as per grounds of appeal on record.

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These cases were heard together. Since issues common and facts are

similar, these appeals are being disposed of vide this consolidated order.

First, we would take quantum appeal in ITA No.2880/PUN/2016.

ITA No.2880/PUN/2016 (Quantum Appeal) Assessment Year 2010-11

filed return of income on 30.09.2010 declaring total income at

Rs.12,78,330/-. There was survey action u/s.133A of the Income Tax Act,

1961 (hereinafter referred to as ‘the Act’) in the case of the assessee on

03.02.2010. During the course of survey certain incriminating documents in

the form of a diary was impounded. These documents indicates that the

assessee has made investments in house renovation and godown shed repairs

which were not recorded in the books of accounts. When confronted with the

same during the course of his sworn statement, the assessee offered the same

to tax. However the Assessing Officer noted that the godown repair expenses

of Rs.11,80,000/- and house renovation expenses of Rs.19,91,750/- even

though recorded in the diary and admittedly made outside the books, were

not disclosed by the assessee in his return of income. Similarly during the

course of the survey excess quantitative stock was found with the assessee

which he agreed to surrender. Once again the same was not included in his

return of income. The Assessing Officer therefore asked the assessee to

explain the circumstances in which he has not offered these amounts as

income. In response, the assessee stated before the Assessing Officer that the

house renovation expenses noted in the diary are merely estimates and that

the house has been shown in the balance sheet at a value of Rs 1,92,470 and

therefore the alleged expenses towards repair of the house of Rs 19,91,750 is

an impossibility. He further stated that no purchase bills for cement or other

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raw materials were found at the time of the survey. Similarly in the case of

godown repair expenses, the assessee stated the same i.e no bills towards the

same were found and that the entries made in the diary were mere estimates.

The Assessing Officer however did not agree with the assessee and held that

the entries in the diary have been made in the own handwriting of the

assessee as admitted by him and were exact figures and therefore cannot be

estimates. The Assessing Officer, therefore, added the amounts of

Rs.11,80,000/- and Rs.19,91,750/- to the total income of the assessee.

with the assessee during the survey and the inventory for the same was

prepared by the survey team. On valuation of the same, the stock was found

in excess of the book stock by Rs.38,30,310/-. The assessee stated before the

Assessing Officer that the inventory of the stock was wrongly made and

without understanding the implication of the same and under pressure, the

declaration was extracted from the assessee. The assessee stated that the

stock declaration part was obtained without proper inventory and also

without considering the availability of any space in the godown. He therefore

stated that nothing can be added on this count. The Assessing Officer then

rebutted the claim of the assessee by examining the stock inventory wherein

the assessee has signed on each and every page. The Assessing Officer held

that if the stock was wrongly taken, then it is not known as to how the

assessee signed on the same. He accordingly added Rs.38,30,310/-.

CIT(A) Kolhapur. As there was no compliance before the CIT(A), the appeal of

the assessee was dismissed.

4 ITA Nos.2880 & 2881/PUN/2016 A.Y.2010-11

Bench of the Tribunal in ITA No.1910/PN/2013 and the Tribunal vide order

dated 25.11.2014, set aside the matter back to the file of the Ld. CIT(A)

directing him to decide the appeal afresh after granting reasonable

opportunity to the assessee.

additions towards repair of house and godown has held as under:

“5.1 Ground No.1 : This is against the additions towards repairs of the house and godown. From the submissions of the appellant before me as reproduced above, it is seen that in respect of the godown expenses, the appellant states that the total area of the godown itself is 280 sft. carpet area and that expense of Rs.11,80,000/- for repairing the same works out to Rs.4000/- per sft. This according to the appellant is more than the construction rate. The appellant also stated that the entries in this regard in the diary are mere estimates and therefore have no evidentiary value. I have also perused the retraction letter of the appellant dated 18.03.2013 which also mentions the same things as submitted before the AO. In respect of the renovation of house also, the appellant stated before me that the house area is 2000 sft. Of builp up area consisting of 6 rooms of about 10ft x 30 ft. The cost of renovation works out to Rs 1000 per sft which according to the appellant is the cost of new construction. He therefore stated that by no stretch of imagination can the cost of renovation be Rs 1000 per sft. The same submissions are mentioned in the retraction letter of the appellant. The appellant then went on to rely upon a number of case laws including a CBDT circular regarding the evidentiary value of confessions in sworn statements. I have carefully considered the matter. I specifically requested the appellant to furnish copies of the diary impounded which is the basis of these additions. This diary consists totally of 9 written pages all written in Marathi. The relevant pages of the diary for the house renovation and godown renovation are pages 2 & 3 respectively. The same are reproduced hereunder:

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6 ITA Nos.2880 & 2881/PUN/2016 A.Y.2010-11

From the above it could be seen that there are exact figures mentioned regarding; each item of expenditure. On page 2 of the diary there are 4 items of expenditure for house renovation: Fabrication Rs 1,00,990; Furniture Rs 11,99,870; Woodwork Rs 1,56,533 and Tiles Rs 1,90,987. Similarly on page 3 is the detail of godown renovation. There are 8 items of expenditure:- Cement Rs 3,49,320; Sand Rs 87,890; Dabar Rs 34,000; Steel Rs 3,99,877; Bricks Rs 45,667; Koba Rs 25,653; Light Rs 38,686 and Fabrication Rs 1,98,907. It is admitted that these diary notings are in the handwriting of the appellant and these are also signed on each page by the appellant. There are other entries in the diary too from pages 4 to 9 which mention sundry household expenditure. In spite of this clear evidence, the appellant would have me believe that the addition is based merely on his sworn statement. The facts actually indicate the opposite. The AO has made the addition based on these noting in the diary and not on the sworn statement of the appellant. His statement is merely corroborative and also confirms the existence of the diary and the fact that the same is in his handwriting. The appellant instead of explaining the notings in the diary or explaining the source of funds in his hands is trying to side step the issue by raising theoretical issues about the cost of renovation. He has made bland statements before me that the cost of renovation per square foot is exorbitant. It would not be out of place to mention that the diary is the primary evidence and the opinion of the appellant that the cost of renovation is exorbitant remains a mere opinion without the weight of evidence. The claim of the appellant that the notings in the diary are mere estimates I again a bland statement without the backing of any evidence. In fact it is to be noted that the figures of expenses as noted in the diary and reproduced above are exact figures. I fail to understand how such exact and odd figures could ever be estimates. To my mind the notings in the diary are crystal clear and the appellant has not been able to explain the source of funds in his hands for incurring this expenditure. I am therefore of the opinion that the AO has correctly assessed the sums of Rs.11,80,000 and Rs 19,91,750 as unexplained investment of the appellant. The various case laws including the CBDT Circular are of no help to the appellant on facts. These refer to cases where the addition has been made merely on the statement recorded from the assessee and do not apply to cases where the addition is based on incriminating material found during survey. I am therefore, of the view that the diary impounded is the primary evidence in this case and has to be believed or disbelieved in toto. One cannot believe the entries therein based on one’s convenience. I therefore, uphold the additions of Rs.11,80,000/- and Rs.19,91,750/- made by the AO. Ground No. 1 is dismissed.”

to the findings of the Ld. CIT(Appeals). The facts emerged in this case show

that it is admitted the notings in the diary are hand writing of the assessee

and they are also signed on each of the page by assessee. There are other

entries in the diary too from pages 4 to 9 which mention sundry household

expenditure. In spite of this clear evidence, the assessee has strongly argued

that the addition has been made merely on the basis of his sworn statement.

7 ITA Nos.2880 & 2881/PUN/2016 A.Y.2010-11

However, the facts indicate otherwise. The Assessing Officer has made the

additions based on these notings in the diary and not on the sworn statement

of the assessee. His statement is merely corroborative and also confirms the

existence of the diary and the fact that the same is in his hand writing.

We further observe that the assessee has himself agreed with the

notings in the diary are in his own hand writing and that it pertains to repair

and maintenance of the house. We also observe that these pages are duly

signed by the assessee himself. Therefore, we do not find any infirmity with

the findings of the Ld. CIT(Appeals) and additions made of Rs.11,80,000/-

and Rs.19,91,750/- are sustained. Thus, this ground of appeal raised by

the assessee is dismissed.

of Rs.38,30,301/- towards undisclosed stock made by the Assessing Officer.

The Ld. CIT(Appeals) on this issue has held as under:

“5.2 Ground 2: This is against the addition of excess stock. Once again I find that there is excess stock quantity wise found during the course of the survey. The physical stock inventory runs into 55 pages and the physical stock inventory is very meticulously taken. The inventory mentions the quantity, description of stock, sale rate and the valuation at sale price. Once again I find that the appellant has signed on each page and certified the physical stock as being found in his business premises. The only defence of the appellant both before the AO, in appeal as well as in the so called retraction letter is that it is not physically possible to store the stock found in his business premises. This begs the question as why wasn't this issue raised at the time of survey itself. On one hand, the appellant has certified the physical quantity of stock found, while on the other he later offers an opinion and a roundabout theory about how the stock cannot be stored in the quantities found. The defence of the appellant remains a mere opinion without any basis or evidence. In spite of the categorical concurrence of the appellant regarding the physical stock found during survey, the appellant would have me believe his defence now. I am afraid I cannot agree with the appellant. The basis of addition is the physical stock inventory and not the sworn statement. In fact on this issue, there is no requirement of referring to the sworn statement. Therefore the various case laws quoted by the appellant are of no use to him. I therefore have no hesitation in upholding the addition of Rs.38,30,301/-towards undisclosed stock made by the AO. Ground 2 is dismissed.”

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circumstances in this case. We find that there is excess stock quantity wise

found during the course of the survey. The physical stock inventory runs into

55 pages and the physical stock inventory is very meticulously taken. The

inventory mentions the quantity, description of stock, sale rate and the

valuation at sale price and the assessee has signed on each page and certified

the physical stock as being found in his business premises. When this has

been done, there does not remain any other grievance for the assessee with

respect to this addition.

At the time of hearing, the Ld. AR of the assessee stated that hand

writings in the diary and signature in each of the pages in stock inventory

were not genuine. We find that this plea taken by the assessee at this

particular stage is of no help to the assessee since the entire facts on records

proves conclusively that whatever action the Revenue Authorities have taken

it has been agreed upon by the assessee himself. In view of the matter, this

addition of Rs.38,30,301/- towards undisclosed stock made by the Assessing

Officer and confirmed by the Ld. CIT(Appeals) is hereby sustained. This

ground of appeal raised by the assessee is dismissed.

No.2880/PUN/2016 is dismissed.

ITA No. 2881/PUN/2016 ( Penalty Appeal) Assessment year 2010-11

Penalty u/s.271(1)(c) of the Act has been imposed on the assessee with regard

9 ITA Nos.2880 & 2881/PUN/2016 A.Y.2010-11

to the quantum addition made in respect of repair of house and godown and

excess stock found during survey.

proceedings and the penalty proceedings are altogether different in character

and they cannot be clubbed into one single transaction. It is true in the case

of the assessee the quantum additions have been sustained in respect of

renovation of house and godown and also in respect of excess stock found at

the time of survey and these additions have been confirmed based on the

facts on records. However, penalty u/s.271(1)(c) of the Act is completely

different procedure. Altogether, there has to be definite findings and specific

evidence either for ‘concealment of income’ or ‘furnishing of inaccurate

particulars of income’. There cannot be any ambiguity or doubt in so far as

the case of penalty is concerned. Probably, it is for this reason that the legal

proposition goes that if the addition has been made on estimation basis,

penalty u/s.271(1)(c) of the Act is not leviable. This more so, if there is any

alternative argument and probability involved in the facts and circumstances,

levy of penalty u/s.271(1)(c) of the Act is not justifiable. It is not the case that

when addition has been confirmed, penalty is automatically imposed. In the

instant case, when the assessee states that price of his house is lesser than

the amount of expenditure he has alleged to have incurred for renovation

which therefore is impossible, so this indicates that for the plausible view in

the matter which is not entirely clarified in the order of Revenue Authorities.

that it is physically not possible to store the stock found in his business

premises because the space of store in godown was too small. This is also a

matter of plausible view taken by the assessee which is not directly rebutted

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by the Department. The ground mentioning for confirmation of addition is the own signature of the assessee in all pages in the inventory. Therefore, though the additions are confirmed but in the totality of facts and circumstances, levy of penalty u/s.271(1)(c) of the Act in the case of the assessee is not justifiable. Thus, in view of the matter, we set aside the order of Ld. CIT(Appeals) and direct the Assessing Officer to delete the penalty from the hands of the assessee.

पुणे / Pune; �दनांक / Dated : 07th March, 2019. SB आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT(Appeals)-2, Kolhapur. 4. The Pr. CIT-2, Kolhapur. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “बी” ब�च, 5. पुणे / DR, ITAT, “B” Bench, Pune. गाड� फ़ाइल / Guard File. 6.

// True Copy // आदेशानुसार / BY ORDER,

�नजी स�चव / Private Secretary आयकर अपील�य अ�धकरण, पुणे / ITAT, Pune.

11 ITA Nos.2880 & 2881/PUN/2016 A.Y.2010-11

Date 1 Draft dictated on 06.03.2019 Sr.PS/PS 2 Draft placed before author 07.03.2019 Sr.PS/PS 3 Draft proposed and placed JM/AM before the second Member 4 Draft discussed/approved by AM/JM second Member 5 Approved draft comes to the Sr.PS/PS Sr. PS/PS 6 Kept for pronouncement on Sr.PS/PS 7 Date of uploading of order Sr.PS/PS 8 File sent to Bench Clerk Sr.PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R 11 Date of dispatch of order