THE DCIT-3(1), INDORE vs. M/S. MODERN LABORATORIES, INDORE

आदेश /O R D E R PER KUL BHARAT, J.M. : These two cross appeals by the Revenue and the

assessee are directed against the order of CIT(A)-I, Indore,

dated 28.11.2016.

135/Ind/2017, wherein the Revenue has raised the

following grounds of appeal :-

(i) Whether in the facts and circumstances of the

case, the Ld. CIT(A) has erred in law by deleting

the penalty imposed by the AO u/s 271(1)(c) of

the Act amounting to Rs. 11,19,895/- for

committing default within the meaning of the

provision of Section 271(1)(c) of the Act.

-: 3 :- Modern Laboratories P.Ltd., Indore. (ii) Whether in the facts and circumstances of the

case, the Ld. CIT(A) has erred in law by deleting

the penalty imposed by the AO u/s 271(1)(c) of

the Act amounting to Rs. 11,19,895/- whereas

the Ld. CIT(A) has confirmed the addition of Rs.

31,91,080/- out of the addition made of Rs.

63,82,160/- as disallowance of commission

expenses.

is against deletion of penalty of Rs. 11,19,895/-.

assessment u/s 143(3) of the Income-tax Act, 1961,

(hereinafter referred to as the ‘Act’) was framed by the AO

and during the course of assessment proceedings, the AO

made addition in respect of disallowance of Rs.

63,82,160/-, unexplained credit of Rs. 1,48,00,000/- and

disallowance of interest on credits of Rs. 1,46,660/-. On

-: 4 :- Modern Laboratories P.Ltd., Indore. these additions, the AO initiated penalty proceedings and

subsequently the AO imposed penalty u/s 271(1)(c) of the

Act in respect of the additions sustained by the Ld. CIT(A)

in appeal of Rs. 16 lakhs.

the Ld. CIT(A), who after considering the submissions

partly allowed the appeal, thereby the Ld. CIT(A) deleted

penalty of Rs. 11,19,895/- out of total penalty of Rs.

16,00,000/-. Aggrieved by this, both the Revenue and

assessee have filed appeal before this Tribunal.

submitted that in quantum appeal, this Tribunal was

pleased to delete the addition in respect of the penalty for

which Revenue is in appeal. He has drawn our attention to

the order passed by the Tribunal in assessee’s own case in

I.T.A.No. 277 & C.O.No.16/Ind/2014 dated 10.08.2017. In

view of the fact that the addition has already been deleted

-: 5 :- Modern Laboratories P.Ltd., Indore. on which penalty was levied by the AO and the Revenue is

in appeal against the deletion of such penalty. Grounds

raised in Revenue’s appeal are dismissed. 7. Now we take up assessee’s appeal in I.T.A.No.

04/Ind/2017. 8. The assessee has raised following grounds of appeal :-

penalty of Rs. 4,80,105/- u/s 271(1)(c) on

account of alleged unproved cash credits. 2. It was proved before the Ld. CIT(A) that the loans

have been taken through banking channel and

have been confirmed by the creditors and as such

the transactions were genuine. Under no

circumstances the penalty can be levied even

though the additions are made by not accepting

the explanation of the assessee.

-: 6 :- Modern Laboratories P.Ltd., Indore. 9. Briefly stated the facts of the case are that the AO has

levied the penalty on the concealed income of Rs.

47,21,765/- holding that the assessee had furnished

inaccurate particulars in respect of the above amount. The

amount of Rs. 47,21,765/- consists of Rs. 31,91,080/-

being commission payment confirmed in appeal by CIT(A),

Rs. 15,00,000/- being cash credit u/s 68 of the Act and Rs.

30,685/- interest on the above Rs. 15,00,000/- confirmed

by CIT(A). The AO noticed that in the case of Palasia

Leasing & Investment Pvt.Ltd. from whom Rs. 15,00,000/-

was received by the assessee, the AO recorded a finding

that the company is not traceable at the address given by

the assessee. Even during remand proceedings no details

were produced regarding the present whereabouts of the

company and assessee did not produce any documents to

establish the creditworthiness of the company and bank

statement was not produced. On the addition of cash credit

-: 7 :- Modern Laboratories P.Ltd., Indore. of Rs. 15,00,000/- and interest thereon at Rs. 30,685/-,

the Ld. CIT(A) levied the penalty of Rs. 4,80,105/-, against

which the assessee is in appeal before this Tribunal. 10. The Ld. Counsel for the assessee has reiterated the

submission made before Ld. CIT(A). The Ld. Counsel for the

assessee contended that regarding cash credit of Rs.

15,00,000/- and interest thereon, confirmations in respect

of all the creditors alongwith balance-sheet, bank

statement, ITR, Acknowledgement were filed and the

additions were made merely on the ground that companies

belonged to Lunkad Group and there were deposits in the

bank accounts prior to issue of loan cheque to the assessee

ignoring the facts that the deposits in bank account were

by cheques and not cash and confirmations were filed by

the depositors in response to notice u/s 133(6) of the Act.

The Ld. Counsel for the assessee contended that there was,

thus, no case for levy of penalty.

-: 8 :- Modern Laboratories P.Ltd., Indore. 11. The Ld. Departmental Representative supported the orders of the lower authorities. 12. We have considered the facts, rival submissions and perused the material available on record. We find that the

Ld. CIT(A) has sustained the penalty on the basis that the assessee failed to prove creditworthiness of the creditor. It

is not in dispute that the penalty has been sustained on the addition made u/s 68 in respect of cash credits. Ld.

Counsel for the assessee, Shri S.S.Deshpande vehemently argued that since the addition is made u/s 68 of the Act,

penalty should not be sustained, as the assessee has discharged initial onus. The Ld. Counsel for the assessee in

support of this has placed reliance on the judgement of the Hon'ble Madhya Pradesh High Court rendered in the case

of CIT vs. Chirag Ingots Private limited, (2005) 275 ITR 310 (MP), judgement of Punjab & Haryana High Court rendered

in the case of CIT vs. Agro Chemicals (India), (2007) 288

-: 9 :- Modern Laboratories P.Ltd., Indore. ITR 149 ( P & H ), decision of Hon'ble Delhi High Court

rendered in the case of CIT vs. Oasis Hospitalities (P)

Limited, (2011) 198 TAXMAN 247 (Delhi). The decision of

the Coordinate Bench in the case of Vikram Bhatia vs. ITO,

(2014) 47 taxmann.com 365 (Luck-Trib). We are unable to

accept this contention of the assessee and the case laws as

relied by the Ld. Counsel for the assessee are

distinguishable under the facts of the present case. In the

present case, it is categorically observed by the authorities

below that the credit, which was obtained from the party in

other case, the Hon'ble High Court has examined the

creditworthiness of the party and came to the conclusion

that the party had no creditworthiness. We are of the view

that where the conduct of the creditor is suspicious and

has been found indulged in the entry providing business,

such cases require thorough investigation and there is a

heavy onus remains on the assessee to prove the identity of

-: 10 :- Modern Laboratories P.Ltd., Indore. creditor, genuineness of the transaction and creditworthiness of such creditor. In the present case, the Ld. CIT(A) in para 5.4 of his order has given following finding of fact :- “5.4 As regards, the addition of cash credit of Rs. 15,00,000/- and the interest thereon however, the appellant has reiterated that all documents were submitted including bank accounts statement and confirmat.ion s were filed. However, it is to be noticed that in the case of Palasia Leasing & Investment Pvt. Ltd. from whom Rs.15,00,000/- was received the AO has recorded a finding that the company was not the traceable at the address given by appellant. Even during remand proceedings no details were produced regarding the present whereabouts of the company and appellant did not produce any documents to establish the creditworthiness of the company, not even the bank statement was produced. The director of the company was also not produced. All these facts assumed significance in the light of the findings recorded in the case of CIT vs. Rathi Finlease Limited, (2008) 215 CTR MP 429 in which the court had approved that cash credits from Palasia Leasing & Investment Pvt. Ltd. were not explained as the said company was not found to be traceable. From the above facts, it. is thus evident that the particulars submitted by the appellant in

-: 11 :- Modern Laboratories P.Ltd., Indore. respect of the cash credit for Palasia Leasing & Investment Pvt. Ltd. were inaccurate and false and the appellant failed to establish that the said company had actually given the loan and had the capacity to give such loan. In view of the findings recorded the onus was of the appellant which was not discharged. It thus leads to the conclusion that the amount was wrongly stated to be cash credit from Palasia Leasing & Investment Pvt. Ltd. and represented income of the appellant. Penalty u/s 271(1)(c) of the Act is therefore attracted and the AO was justified in levying penalty of the above amount. Considering the above the AO is directed to restrict the penalty on the addition of Rs. 15,30,685/- and levy minimum penalty on the above addition which works out to Rs. 4,80,105/-. The appellant therefore gets relief of Rs. 11,19,895/-. These grounds of the appellant are therefore partly allowed.” 13. The above finding is not rebutted by the assessee by placing any contrary material on record. Law is well settled that an error or omission in bona fide by an honest tax payer, would not attract penal action. However, where the foundation is based on suspicion and the creditor is found to be involved in malpractice of accommodation entry

-: 12 :- Modern Laboratories P.Ltd., Indore. providing, in such cases, the leniency of law is not available. Thus, the appeal of the assessee is dismissed. 14. In the result, both the appeals of the Revenue and assessee are dismissed. The order pronounced in the open court on 04.07.2018.

Sd/- Sd/- (मनीष बोरड) (कुल भारत) लेखा सद�य �या�यक सद�य (KUL BHARAT) (MANISH BORAD) ACCOUNTANT MEMBER JUDICIAL MEMBER Indore; �दनांक Dated : 04/07/2018 CPU*/SPS Copy to: Assessee/AO/Pr. CIT/ CIT (A)/ITAT (DR)/Guard file. By order Private Secretary/DDO, Indore