SH. MANINDER SINGH PROP. M/S DASHMESH BRICKS,BATHINDA vs. THE INCOME-TAX OFFICER, BATHINDA

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR (SMC) BEFORE SH. SANJAY ARORA, ACCOUNTANT MEMBER I.T.A No.440/Asr/2017 Assessment Year:2011-12

Maninder Singh, vs. Income Tax Officer, Prop. M/s. Dashmesh Bricks Ward-2(1), Bathinda Manufacturing, Bathinda [PAN:ABVPS 1859B] (Appellant) (Respondent) Appellant by: Written Submissions Respondent by: Sh. Charan Dass (D.R) Date of hearing: 13.12.2018 Date of pronouncement: 31.12.2018 ORDER Per Sanjay Arora, A.M This is an Appeal by the Assessee agitating the order by the Commissioner of Income Tax (Appeals), Bathinda [‘(CITA)’ short for] dated 04.05.2017, dismissing the assessee’s appeal contesting the confirmation of the levy of penalty under section 271(1)(c) of the Income Tax Act, 1961 (‘the Act’ hereinafter) for Assessment Year (A.Y.) 2011-12 vide order dated 18/2/2016.

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Shri Babu Singh, who had sold lands for Rs. 8.51 lacs during October/November, 2008. The purpose of the ‘advance’ was stated to be ‘safe custody’. Another Rs.3 lacs was stated to be similarly received from Shri Harjeet Singh, the assessee’s brother-in-law. Both were summoned by the AO to verify the assessee’s claims, and examined on oath in the presence of the assessee and his counsel (on 28/ 01/2014), who also identified them. Shri Babu Singh, an agriculturist, stated to be maintaining a bank account (with PNB), in which he would deposit Rs.3-4 lacs cash on the sale of crop. He had sold some lands during the year 2010, proceeds of which were used by him for agricultural activities, i.e., purchase of agricultural inputs; maintenance; making payments to the landlord/s toward lease of land. Giving and receiving money to/from the assessee was admitted by him, i.e., as and when required, without charging any interest. He, however, did not remember the amount given by him to the assessee. Sh. Harjeet Singh, who again had a saving bank account, stated of having given money to the assessee during the year for purchase of a tractor, which though was not purchased, and the money returned back by the assessee in February, 2013. The assessee’s explanation of cash deposits being sourced from these two persons was, in view of the observed inconsistencies, rejected by the AO, who deemed the same as his unexplained money u/s. 69A. In appeal, the first appellate authority, while confirming the AO’s action, i.e., treating Rs.25.10 lacs, out of the total cash deposits of Rs. 47.60 lacs in his bank account by the assessee, as unexplained, allowed the assessee telescoping benefit, reducing the said income to Rs.12.66 lacs, on which the AO, accordingly, levied penalty u/s. 271(1)(c) of the Act for concealment of particulars of income at 100% of the tax sought to be evaded. The same being confirmed in first appeal, the assessee is in second appeal.

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be made to the decision in NTPC Ltd. v. CIT [1998] 229 ITR 383 (SC), wherein it stands clarified that a legal ground could be admitted by an appellate authority even if taken before it for the first time provided the facts necessary for its’ adjudication are on record and not disputed. The least the assessee was required to do was to place the said notice on record, and take a specific ground in its’ respect. The assessee’s plea is, accordingly, inadmissible. Without prejudice, the claim is untenable. The satisfaction recorded by the AO in the assessment proceedings, separately for Rs.22.10 lacs and Rs.3 lacs, toward initiating penalty proceedings u/s.271(1)(c), is categorical, i.e., for concealment of particulars of income. It is on the basis of this satisfaction that the AO derives the necessary jurisdiction to initiate penalty proceedings and issue the show cause notice u/s. 274, which only seeks to put the assessee to notice as to why penalty u/s. 271(1)(c) in the facts and circumstances of its case be not levied. How could, one may ask, the notice u/s. 274 be construed as not in terms of the said satisfaction? The limb of sec. 271(1)(c) under which the penalty may, where so, be finally levied, is determined only subsequently, i.e., upon considering the assessee’s explanation. How could then the absence of the said specification in the notice, particularly where the satisfaction of the AO in the assessment proceedings giving rise to the said notice, is not under challenge, be fatal to the proceedings? The difference between the two limbs, which signify omission and commission respectively, may in the facts of a case, or considering the explanation furnished, be very thin or even overlap (refer: A.M. Shah v. CIT [1999] 238 ITR 415 (Guj)). The penalty u/s. 271(1)(c), it was further explained, could in either case be levied only where there is a failure to disclose fully and truly particulars of his income by the assessee, and that there could be no straitjacket formula for ascertaining the two charges. In the instant case, in fact, both the satisfaction as well as the levy of

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penalty is qua concealment of particulars of income. A defective notice, even assuming so, would not defeat the proceedings. The law in the matter is trite, toward which reliance stands placed before me by the Revenue on the decision in Kantamani Venkata Narayana & Sons vs. First Additional ITO [1967] 63 ITR 638 (SC) (copy on record). The facts of the said case are telling, though it may not be necessary to recount them here, where the intent is to give an overview of the matter. The decision is under the 1922 Act, even as the notice under the Act, even if construed as defective, is protected u/s. 292B of the Act. In fact, on this precise issue, i.e., the legal impact of the non-specification of the limb of sec.271(1)(c) in the notice u/s. 274, there are several decisions by the Hon’ble High Courts, as in CIT v. Manu Engineering Works [1980] 122 ITR 306 (Guj); CIT vs. Mithila Motors (P.) Ltd. [1984] 149 ITR 751 (Pat); CIT v. Chandulal [1985] 152 ITR 238 (AP); CIT vs. Kaushalya & Ors. [1994] 216 ITR 660 (Bom), holding it to be of little consequence, also clarifying the import of the notice u/s. 274. Again, it may be noted that these decisions are either under the 1922 Act or prior to the insertion of section 292B on the statute-book w.e.f. 1/10/1975 saving any omission in the notice. Further, reference in this context may also be made to decisions in H. P. State Forest Corporation Ltd. v. CIT [2004] 267 ITR 285 (HP) and CIT v. Maharaj Krishnan [2000] 246 ITR 327 (Del), rendered without noticing s. 292B. That substance is to prevail over form is even otherwise trite law. The decision by the Hon’ble High Court in SSA’s Emrald Meadows’ case, which stands not interfered with by the Apex Court by dismissing the Revenue’s SLP, is rendered following the decision by the same court in CIT v. Manjunatha Cotton & Gaining Factory [2013] 359 ITR 565 (Kar). The same is, firstly, without reference to the judicial precedents, some of which are cited above. Two, as explained by the Tribunal in many case, as in Earthmoving Equipment Service

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Corporation vs. Dy. CIT (in ITA No. 617/Mum/ 2014, dated 02/5/2017), relied upon by the Revenue before me, the assessee’s appeal was allowed by the Hon’ble High Court in Manjunatha Cotton & Gaining Factory (supra) considering multiple factors, and not solely on the basis of a defect in the notice u/s. 274. The said decision, followed by the High Court in the case of SSA’s Emrald Meadow’s case, as noted above, is without reference to judicial precedents. The Apex Court, while dismissing the assessee’s SLP has clearly stated that the final findings of the Hon’ble High Court which stand challenged before it do not raise any substantial question of law for its determination. Reliance thereon, thus, would not be of much assistance to the assessee. As regards the issue on merits, what all, as a bare reading of the relevant provision (s.271(1)(c)) would reveal, the assessee is to do is to render a bona fide explanation, substantiating it (Explanation 1). This explains the ambit of the penalty proceedings u/s. 271(1)(c), also exhibiting as to how these are, thus, different from the assessment proceedings. A plausible explanation, thus, saves penalty. The requirement of substantiation, it may be appreciated, is toward establishing the truth of the explanation furnished. The burden to so explain is though on the assessee, failing which the assessee is deemed by law to have concealed the particulars of his income. The penalty would stand equally attracted where the assessee fails to give any explanation, or that furnished by him is found to be false by the Revenue. The law in the matter is trite, explained by the Hon’ble Apex Court per a series of decisions, viz. Mak Data (P.) Ltd. vs. CIT [2013] 358 ITR 593 (SC); Union of India v. Dharmendra Textile Processors [2008] 306 ITR 277 (SC); K.P. Madhusudhanan vs. CIT [2001] 251 ITR 99 (SC); B.A. Balasubramaniam and Bros v. CIT [1999] 236 ITR 977 (SC); Addl. CIT vs. Jeevan Lal Shah [1994] 205 ITR 244 (SC); CIT vs. K. R. Sadayappan [1990] 185 ITR 49

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(SC), to cite some, followed by Hon’ble High Courts throughout the country, as by the jurisdictional High Court in CIT v. Lalchand Tirath Ram [1997] 225 ITR 675 (P&H); Prem Pal Gandhi v. CIT (in ITA No. 353 of 2009, dated 22/7/2009), the latter also relied upon by the Revenue before me. Continuing further, in my opinion, both clauses (A) and (B) of Explanation 1 to the section are attracted in the present case. Limb (A) of Explanation 1, i.e., where the assessee either fails to furnish an explanation or renders one which is found false, becomes applicable as the assessee has not, at any stage of the proceedings, either in quantum or penalty, explained as to why the bank account was not disclosed to the Revenue. None of the transactions for nearly Rs. 50 lacs in this bank account are claimed to have been reported or otherwise disclosed to the Revenue. The disclosure of the account in the assessment proceedings cannot be regarded as ‘voluntary’ inasmuch as the assessee knew that his return (for the relevant year) has been subject to the verification proceedings under the Act under CASS; the Revenue having specific information on cash deposits in his bank account (refer para 1 of the assessment order). All the cash transactions are through this account, further suggesting of being transactions which were not intended to be disclosed to the Revenue. The explanation is, further, false. The assessee states of his brother, Babu Singh, giving him money for safe custody as he did not have a bank account for want of PAN. The source of money is stated to be the sale of lands by his brother in 2008, i.e., two years earlier, also giving details of the sale deeds (pg. 3 of the assessment order). Sh. Babu Singh, on the other hand, states of having a bank account in which he regularly deposits cash on sale of his agricultural produce. The money realized on the sale of lands in 2010, the relevant period, had not been lent to the assessee but utilized for his own purposes. The same itself implies that the money received by him, similarly, in 2008 had since

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been invested or utilized, and was no longer available. For, why else would he sell his lands in 2010 to finance or meet regular expenditure? Again, if the assessee indeed owed him money, he would not sell his land/s but recall his money from him. A general statement of his giving cash loans to his brother and, vice versa, receiving cash from him, in times of need, without charging interest, cannot in any manner be regarded as substantiating the assessee’s claim of his brother having advanced Rs. 22.10 lacs to him during the year, the source of which, therefore, is unknown. Further, where is the question of safe custody when the assessee has not retained that amount in his bank account, but withdrawn it; the closing balance as at the year-end being only at Rs.6.97 lacs, and which may include that out of the other cash deposits made during the year as well. The explanation is both false and unsubstantiated. The statement of the assessee’s co-brother is, again, impugning of the assessee’s case. The amount has not been, as stated, given for safe custody, but for, as stated, purchase of a tractor, falsifying the assessee’s explanation. Further, why, then, was the tractor not purchased, with, again, the money, rather than being returned back immediately or even in due course, i.e., on the non-fulfillment of the purpose for which it was given, utilized by the assessee for his purposes? It is inconceivable that an amount given, assuming so, under trust by a close relative for a specific purpose/need, presumably urgent, is, as stated, retained for years, for which there is again no explanation. Why did not the assessee state the truth? A tractor, rather, could be purchased directly by his brother-in-law, even if by taking guidance from the assessee in the matter, if that was the reason, or from a dealer known to the assessee, where that was the case. No purchase of a tractor is shown in the relevant year or even subsequently. If indeed it was for the purchase of the tractor, his co-brother would have asked back the amount for acquiring it, rather than leaving it with the assessee to use the same and return it on his whim and

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fancy. The return of money, as it’s giving, is without evidence. The statements of both, the assessee and Shri Harjeet Singh, are totally unconvincing, besides being contrary. Finally, the very fact that the assessee seeks a telescoping benefit, which he is allowed by the first appellate authority, again, strongly suggests of the money deposited in the account being kept out of books for being utilized for personal purposes or for rotation in his business. The decisions relied upon are not applicable in the facts & circumstances of the case. In Agrochemicals (India) (supra) the Honb’le Court declined to interfere as in it’s view no substantial question of law arose for its determination. In the facts of National Textiles (supra) the Revenue had no positive evidence, as in the form of statements of the stated lenders in the present case, that the explanation furnished by the assessee was false, so that the Hon’ble Court found it to be a case where the facts and circumstances were equally consistent with the hypothesis that the credits under reference were actually, as stated, sundry loans in small amounts obtained from different parties. On the contrary, the levy of penalty in the present case is wholly consistent with settled law as explained by the Apex Court as well as by the Hon’ble jurisdictional High Court, referring to two decisions, cited supra, by it. The assessee’s claim of the untenability of the impugned penalty as it is based on estimation, raised before the ld. CIT(A), only needs to be stated to be rejected. There is no question of any estimation, and the penalty is qua cash found deposited in the assessee’s bank account, the nature and source of which he though is unable to explain.

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Rs. 13 lacs. The AO shall verify the same from his record, i.e., the appeal giving effect order passed on receiving the order of the first appellate authority in quantum proceedings, and levy penalty accordingly.