RAJARAM STOCK BROKING CO. (MUMBAI),MUMBAI vs. ITO WD 4(2)(1), MUMBAI

Date of Hearing 21/07/2020 Date of Pronouncement 29/07/2020 आदेश आदेश / O R D E R आदेश आदेश PER G.MANJUNATHA (A.M):

This appeal filed by the assessee is directed against, the order of the Ld. Commissioner of Income Tax (Appeals)–9, Mumbai, dated 12/03/2018 and pertains to Assessment Year 2004-05.

1.1) The learned Commissioner of Income Tax (Appeals) erred in upholding the order of the Assessing Officer and confirming the penalty u/s 271(1)(c) amounting to Rs. 2.96,254/-. 1.2) The Appellants submit that on the facts and circumstances of the case as well as in the law, the order imposing penalty u/s 271(1)(c) is bad in law and therefore, the same ought to have been quashed.

Rajaram Stock Broking Co.(Mumbai) Pvt.Ltd. 1.3) The Appellants submit that on the facts and the circumstances of the case as well as in the law the penalty ought to have been deleted by the learned Commissioner of Income Tax (Appeal). 2. The Appellant craves leave to add, alter, delete or modify all or any the above grounds at the time of hearing.

4. Subsequently, The has initiated penalty proceedings u/s 271(1)(c) of the I.T.Act, 1961 and called upon the assessee to explain as to why penalty shall not be levied for concealment of particulars of income. Thereafter, the order imposing penalty was passed on 30/09/2014 levying penalty @ 100% tax sought to be evaded, in respect of additions made towards unexplained cash credit of Rs.8,88,762/- and levied penalty of Rs. 2,96,254/-. The relevant findings of the Ld. AO are as under:-

3.1. Separate penalty proceedings were also initiated by issuing notice u/s.274 r.w.s,271 of the Income tax Act ,1961 on 27.03.2014. The assessee furnished reply vide dt.28.04.2014. 3.2 It was stated by the assessee that an order u/s.27l(1)(c) in imposing a penalty of Rs. 6,45,750/- was made against the assessee and the question of passing any further order of penalty under the provision of section 271(1)© in respect of the same alleged concealed income does not arise and as such the notice issued u/s.274 r.w.s,271(1)(c)) is bad in law. It was further argued by the assessee that the assessee had withdrawn his right to cross examine the witness only if the assessment was completed on the basis of conditional offer of agreed addition of Rs.806132/- and not otherwise. The assesses was not allowed and opportunity to cross examine. 3.3. The submissions of the assessee have been carefully considered. As per the direction of the Hon'ble ITAT, the set aside assessment in this case was completed and the amount of addition u/s.68 of the I.T.Act 1961 was made at Rs.8,06,132/-. This amount of addition was made after considering the submissions of the assessee and as per the assessee's working. The contention of the assessee that the agreed addition was conditional does not carry much water. The additions were made after verifying all the material on record and considering all the submissions of the assessee. The addition was made on the basis that cash or cheque from other banks were deposited and loans were advanced to the assessee company by M/s,Ruchita Enterprises and M/s.Antima Corporation. Accounts in the names of these concerns were opened with an aim to provide accommodation entries.

Rajaram Stock Broking Co.(Mumbai) Pvt.Ltd. credits, on the ground that the assessee has voluntarily surrendered additions, not for any of the reasons, but to buy peace and to end litigations. Therefore, the same cannot be considered as concealment of particulars of income. The Ld.CIT(A) after considering relevant submissions of the assessee and also by relied upon various judicial precedents confirmed penalty levied by the Ld. AO u/s 271(1)(c) of the Act, on the ground that even though, the ITAT had set aside the matter especially for the purpose of providing opportunity to the assessee for cross-examining of M/s Kailash Kabra, the fact is that the assessee could not avail the said opportunity legitimately for whatsoever reasons. From the above, it is very clear that the assesee has surrendered peak credit of unsecured loans, when it was not able to substantiate unsecured loans taken from those parties, but not voluntarily to buy peace or to end litigations. Therefore, there is no error in the findings recorded by the Ld. AO, while levying penalty u/s 271(1)(c) of the I.T.Act, 1961. The relevant findings of the Ld.CIT(A) are as under:-

5. I have perused the farts of the case rind appellant's submissions carefully. 1 find that in original assessment order u/s 143(3), the addition was made in respect of peak cash credit from 3 parties, i.e. (i) M/s Deepak Corporation, (ii) M/s Ruchita Enterprises, & (Hi) M/s Antima Corporation. The assessee had claimed that these are concerns of one Shn Kailash Kabra in his statement, on oath, Shri Kailash Kabra had admitted to have given funds to assessee company through his proprietary concern M/s Deepak Corporation. As for the other two concerns, viz. M/s Ruchita Enterprises & M/s Antima Corporation, Shri Kailash Kabra stated that the transactions were done by the assessee company but the cheques were signed by him on behalf of the assessee company. Therefore, Shri Kailash Kabra disowned the said two concerns as owned by him. During appellate proceedings before CIT(A), the director of assessee company requested for cross examination of Shri Kailash Kabra at the remand stage, but Shri Kailash Kabra did not present himself on appointed days. Based on the facts, the CIT(A) confirmed the addition of Rs. 18.00,000/-. Subsequently, the Hon'ble Tribunal directed the assessing officer to allow one more opportunity to assesses company to cross examine Shri Kailash Kabra. In the assessment proceedings u/s 143(3) r.w.s. 254, the assessing officer issued summons u/s 131 to Mr. Devakikrishna R. Keni, director of assesses company for appearing for cross examination of Mr. Kailash Kabra, The assesses tried to send his authorised representative for cross examination, which was not allowed by the assessing officer. Later, by letter dated 04.03.2014, the assessee company citing old age and ill health of designated directors, Mr. Devakikrishna R. Keni & Mrs. Sumangala D. Keni and to buy mental peace, requested to restrict the disallowances to Rs.8,06,132/-, which was the peak unexplained credit from M/s Ruchita Enterprises & M/s Antima Corporation. According to assessee, the cash credit from M/s Deepak Corporation \vas explained since Mr. Kailash Kabra had earlier categorically admitted that said concern was his proprietary concern. In the said letter dated 04.03.2014, the assessee offered the net addition of Rs. 8,06,132/-proviried no penalty he levied and no adverse inference is drawn. 1 however find that firstly, the said letter dated 04.03.2014 does not bear the acknowledgement stamp of the AO's office; and secondly, even if the assessee might have made such offer subject to condition that no penalty be levied, it was for the AO to accept such condition or not. The fact is that the AO in his order u/s 143(3) r.w.s. 254 has indeed restricted the addition for unexplained expenditure to Rs. 8.06.132/-. However, he has initiated penalty proceedings u/s 271(1 )(c) of the Act as well. I find that while the Hon'ble ITAT's had set aside the matter especially for the purpose of providing opportunity to the assesse for cross examination of Mr. Katlash Kabra, the fact is that she assessee could not avail the said opportunity legitimately for whatsoever reasons. The appellant's objection to not allowing cross - examination by its authorised representative could not have been sustained, because the assessee had been Issued Summons u/s 131 of the Act for the purpose, which is always personal and, therefore, in which case, the assessee himself was required to attend personally in view of section 288(1) of the Act. Hence, the AO cannot be blamed for not allowing cross examination to the assesse. In any case, the fact is that the assessee itself has agreed to the addition to the tune of Rs. 8,06,132/- which is quiet a meaningful admission and therefore, it is undisputed now that the said amount constituted unexplained cash credit in hands of the appellant.

In the matter of penalty imposable in case of surrender of income to buy mental peace, the appellant has relied upon some case laws, e.g. CIT vs. Marsh Talwar 335 1TR 200 (Del.}, CIT vs. SLN Traders 243 CTR 407 (Kar), Ramruith Jagannath vs. State of Maharashtra 57 STC 46 (Bom) etc. I find the same to be distinguishable, since in present case, the income surrendered is nothing but the peak credit in respect of 2 \ concerns i.e. M/s Ruchita Enterprises & M/s Antima Corporation, which were already part of addition made in original assessment order. Hence, in effect, the appellant had asked for relief in respect of cash credit from 3rd concern i.e. M/s Deepak Corporation, based on certain explanation which was accepted by the AO, There was no plausible explanation available with the assessee in respect of M/s Ruchita Enterprises & M/s Antima Corporation, that's why, it has agreed to said addition. In such case, any condition attached unilaterally by the assessed to such Rajaram Stock Broking Co.(Mumbai) Pvt.Ltd. acceptance of addition in the guise of buying mental peace, cannot be the ground to discard the penalty proceedings u/s 271(l) (c) of the Act. The appellant company had taken interest, tree loans from these two concerns, and there was large scale cash deposits in said concerns, which is sufficient to prove that the appellant's own unaccounted funds were routed through said concerns, in such case, I find that the imposition of penalty u/s 271(1)(c) was not uncalled for. In fact, I find AO to be very generous in that he has levied only 100% penalty whereas the litigation by assessee was quiet protracted and finally, ended in a whimper with assessee" refusal to avail opportunity accorded by Tribunal. Accordingly, the penalty of Rs. 2.96.254/- deserves to be confirmed, and therefore, the grounds of appeal are dismissed.

Rajaram Stock Broking Co.(Mumbai) Pvt.Ltd. (2016) 242 Taxmann 180 (SC). The assessee has also relied upon the decision of Hon’ble Bombay High Court, in the case of CIT vs Samson Perinchery in dated 05/12/2017.

9. Having said so, let us examine the legal ground taken by the assesse challenging validity of notice issued u/s 274 r.w.s 271 of the Act. The assessee has filed copy of notice issued u/s 274 r.w.s. 271(1)(c) of the Act, dated 27/03/2014, which is enclosed in the paper book filed at page No.7. On perusal of notice issued by the Ld. AO, we find that the Ld. AO has issued printed form of notice without striking off, or ticking relevant portion of the notice, which is applicable to the facts of the present case. Further, on perusal of assessment order passed by the Ld. AO, we find that the Ld. AO has initiated penalty proceedings for concealment of particulars of income. But, in the penalty order passed on 30/09/2014, the Ld. AO has levied penalty u/s 271(1)(c) of the Act for concealment of particulars of income and for furnishing inaccurate particulars of income. From the above, it is very clear that the Ld. AO has not arrived at clear satisfaction as to under which limb of provisions of section 271(1)(c) of the Act, the proposed penalty proceedings has been initiated, which is evident from the fact that there is no clear satisfaction in the assessment order and the notice is absolutely silent on this aspect. The said lapse is continued even in penalty order passed u/s 271(1)(c) of the Act, which is evident from the fact that where the penalty has been levied on both limbs. It is a well settled proposition of law that penalty cannot be initiated for the limb, which is different from the limb for which proposed penalty proceedings has been initiated. Further, if the penalty proceedings

Rajaram Stock Broking Co.(Mumbai) Pvt.Ltd. has been initiated for one limb and levied under different limb, then the whole penalty proceedings become vitiate. Further the Ld. AO has to arrived at clear satisfaction regarding the limb under which, he proposed to levy penalty before issue of notice u/s 274 r.w.s 271(1)(c) of the Act. This legal proposition is supported by the decision of Hon’ble Karnataka High court in the case of CIT vs. Manjunatha cotton & Ginning Factory (supra) and was upheld by the Hon'ble Supreme court, in the case of CIT vs M/s SSA's Emerald Meadows (supra). Hon’ble Jurisdiction Bombay High court in the case CIT vs Samson Perinchery (supra) has held that if notice issued for one limb and penalty levied for another limb then, the whole proceedings become void ab-inito and liable to be quashed. In this case, on perusal of facts, we find that the Ld. AO has failed to arrive at clear satisfaction, as regards, the limb under which the proposed penalty proceedings has been initiated and said lapse was even continued in the order imposing penalty. Therefore, we are of the considered view that the order imposing penalty passed by the Ld. AO u/s 271(1)(c) of the Act is illegal and bad in law. Therefore, we quashed penalty order passed by the Ld. AO and direct the Ld. AO to delete consequent penalty levied u/s 271(1)(c) of the I.T.Act, 1961.

Order pronounced in the open court on this: 29/07/2020