ITO , SARD- 1 (2) THANE, THANE vs. MAK RUBBER PRODUCTS, MUMBAI

O R D E R

PER AMARJIT SINGH, JM:

1. GROUNDS OF APPEAL I. "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the penalty levied u/s 271(I)(c) without properly appreciating the decision of the A.Y.2009-10 Hon'ble Apex Court in the case of Mak Data Pvt. Ltd. Vs err Civil Appeal No. 9772 of 2013)". 2. "Whether on the facts and in the circumstances of the case and in law, the 11d. CIT(A) was justified in deleting the penalty levied u/s 271(1 )(c) without appreciating the fact that there was a definite finding in the assessment order in respect of bogus purchases and of furnishing inaccurate particulars o income relating to purchases resulting into concealment of income.

3. The appellant craves leave to add, amend, alter or delete any ground of appeal.

4. The order of the CIT(A) may be vacated, and that of the assessing officer restored.”

3. The brief facts of the case are that the assessee filed its return of income on 21.08.2009 declaring total income to the tune of Rs.9,70,666/- for the A.Y.2009-10. The return was processed u/s 143(1) of the I. T. Act, 1961. The assessee firm was engaged in the business of Re-Rubbering of Textile & Printing Rolls. The AO observed that the assessee has made the bogus purchase of Rs.5,02,702/- from the various parties whose list has been shown by Sales Tax Authorities as Hawala Operators. The assessment of the assessee was reopened by giving the notice u/s 148 of the Act. Necessary notices were issued and served upon the assessee. Thereafter, the AO raised the addition of bogus purchase in sum of Rs.5,02,702/- in the income of the assessee and the total income of the assessee was assessed to the tune of Rs.14,73,370/-. Thereafter, the penalty proceeding was initiated and the AO levied the penalty to the tune of Rs.1,55,334/-. Feeling aggrieved, the assessee filed an appeal before the CIT(A) who deleted the penalty, therefore, the revenue has filed the present appeal before us.

6 I have carefully considered the submissions of the appellant, the observations of the AO in the penalty order; case laws relied upon by the appellant and the facts of the case. The AO has levied the penalty because the appellant had offered the said purchased by filing revised return. The AO is therefore of the opinion that the he has concealed particulars of income. On the other hand, the appellant has stated that the purchases of materials are genuine for which payments are made by cheque. There were corresponding sales against the said purchases. The only reason for filing revised return was that the firm was closed and due to old age of partners it was not possible to produce the suppliers, therefore in order to avoid litigation, the return was revised. In view of these contentions it can be noticed that the AO has not given any finding to establish that the purchases were bogus or the explanation of the assessee was not correct. The AO is required to point out specific discrepancies in assessment order. Further, the assumption that penalty is merely consequential in the sense that it is automatic, once addition is found to be sustainable, is not correct. Assessment and penalty proceedings are different. The fact that an explanation is disbelieved in assessment does not ipso facto justify penalty as has been held by Hon'ble Supreme Court in CIT Vs. Khoday Eswara & Sons reported in 83 ITR 369 (SC). A.Y.2009-10 6.1. Penalty proceedings are not automatic It is a settled precedent that assessment proceedings and penalty proceedings are independent proceedings as held by following judgments. i. In T. Ashok Pai-,161 TAXMAN 340,292 ITR 11,210 CTR 259, Hon’ble Supreme Court held as under: The order imposing penalty is quasi-criminal in nature and, thus, the burden lies on the Department to establish that the assessee had concealed his income. Since the burden of proof in penalty proceedings varies from that in the assessment proceeding, a finding in an assessment proceeding that a particular receipt is income cannot automatically be adopted, though a finding in the assessment proceeding constitutes good evidence in the penalty proceeding. In the penalty proceedings, thus, the authorities must consider the matter afresh as the question has to be considered from a different angle. It is now a well-settled principle of law that the more stringent the law, the more strict a construction thereof would be necessary. Even when the burden is required to be discharged by an assessee, it would not be as heavy as the prosecution. (See P. N. Krishna Lal v. Government of Kerala [1995] Supp 2SCC 187). The omission of the word deliberate", thus, may not be of much significance. ii. Further, the assumption that penalty is merely consequential in the sense that it is automatic, once addition is found to be sustainable, is not correct. In Mayar India Ltd. (2005) (2005) 142 Taxman 230(Del) held as under. A bare reading of the provisions of S. 271 and the law laid down by the Supreme Court it is clear that the Assessing Authority which has to form its own opinion and record its satisfaction before initiating the penalty proceedings. Merely because the penalty proceedings have been initiated, it cannot be assumed that such a satisfaction was arrived at in the absence of the same being spelt out by the order of the assessing authority'. iii. In the case of Reliance Petro-products P. Ltd. reported in 322 ITR 158, it has been held by the Hon'ble Supreme Court that in order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. iv. In the case of Balaji Constructions 2017(2)TMI — 1104, it was held by ITAT Mumbai held that basis adopted by the AO for making addition or disallowance may or may not be justified as far as legality of the addition made in the quantum proceeding is concerned, but for the A.Y.2009-10 levy of penalty these basis are indeed insufficient and not tenable in the eyes of law. It is well established law that parameters making addition/disallowance are different from levy of penalty u/s 271(1)(c). 6.2. In view of above discussion, the imposition of penalty in this case is not justifiable as the AO has not given any finding to establish that the purchases were bogus or the ) explanation of the assessee was not correct. Therefore, the penalty imposed by the AO 17° is deleted and the appeal is allowed.”

“3.4.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncements cited. On a perusal of the impugned order, it is seen that the CIT(A) has deleted the penalty of Rs.14,53,833/- holding as under at paras 3.3 to 3.6 as under:- “3.3 I have carefully considered the above submissions of the appellant, material available on record and the impugned penalty order. On perusal of the para 3.4& 3.5 of the penalty order which are as under: 3.4 Thus, from the above extract of stamen recorded of Shri Manoj Sharma, it was seen that the assessee had offered Rs. 47,04,960/ - [ difference between bogus purchases of Rs. 2,15,28,000/- and bogus sales of Rs. 1,68,23,040/-] as 'undisclosed income' for the assessment year under consideration, i.e., A. Y.2010-11. 3.5 Accordingly, the same was added to the total income of the assessee as "undisclosed income' offered by the assessee on account of bogus purchases and bogus sales thereof The said "undisclosed income" 0 Rs. 47,04,960/- was offered by the assessee, as a result of survey action u/s.133A conducted on A.Y.2009-10 08.01.2013 as the business premises of the assessee firm. Addition was made on the basis of income offered by the appellant as undisclosed income on account of the difference of bogus purchase and sales. Penalty was levied by AO on this addition by concluding that income was offered as undisclosed income. But circumstances under which he offered income should not be given as much importance which are required before levy of penalty. The appellant offered income because disputed parties are co-operate with appellant and appellant is also not in a position to substantiate his claim with full evidence. Therefore, in order to buy peace and to avoid lengthy litigations, offered income which is out rightly accepted by AO. Claim not substantiate with document cannot be lead to inaccurate particulars. Therefore, the same cannot be subjected to initiation of penalty proceedings under the pretext of concealment of income or furnishing of inaccurate particulars u/s 271(1)(c). As the addition was made offered by appellant and accepted by AO does not mean that appellant is also agree for the penalty. Thus, in case of addition made on agreed basis penalty cannot be levied because addition was made because of concealment it was made for peace. 3.4. In support of my view I placed reliance on decision of Hon'ble Madras High Court in case of CIT VIs Jayaraj Talkies (1999) 239 ITR 914 (Mad HC) held that:- The Revenue contends that as the assessee-owner of the theatre who had derived income from leasing the same, had after filing a return claiming deduction of a sum of Rs. 4,125 and Rs. 16,348 towards building maintenance and furniture repairs respectively, himself volunteered to offer these sums as part of his income on account of the difficulty encountered by him in securing necessary vouchers and receipts. That conduct of the assessee according to the Revenue was by itself sufficient to show that there was concealment. The Supreme Court in the case of Sir Shadilal Sugar and General Mills Ltd. v. CIT [1987] 168 ITR 705, has pointed out that not every case of nondisclosure warrants imposition of penalty as the assessee may forgo a deduction or offer higher sums for taxation for a hundred and one different reasons and all of them cannot be regarded as reasons which are unworthy 0] acceptance. The Supreme Court in that case held that the Tribunal which had held that penalty was not imposable having regard to the circumstances in the case had held so rightly. The Supreme Court observed that from the assessee agreeing to additions to his income, it does not follow that the amount agreed to be added was concealed income. There may be a hundred and one reasons for such admission. The reasons offered in the case has rightly been held by the Tribunal to be relevant reasons. The question referred to us is therefore, answered in favour of the assessee and against the Revenue. In present case also appellant offered income because of non- corporation of party and his inability to prove transaction with A.Y.2009-10 supporting documents. But does not mean that there is concealment of income. 3.5. I further reply on following decisions for my view that penalty cannot be levied on addition made on agreed basis. a) CIT V/s Suaraj Bhan (2007) 294 ITR 481 (P&H HC) b) CIT V/s Suresh Chandra Mittals (2001) 251 ITR 9 (SC) c) CIT vs. Manjunatha Cotton and Ginning Factory (Ker HC) d) Sir Shadi Lal Sugar & General Mills Ltd. V/s CIT (1987) 168 ITR 705 (SC) 3.6. In view of the above discussion, In my opinion penalty cannot be levied in present case. Thereby, the assessing officer is directed to delete the penalty u/s 271(1)(c) amounting to Rs. 14,53,833/- . Hence, these ground of appeal is ALLOWED” 3.4.2 From a perusal of the finding of the CIT(A) in the impugned order it is seen that the addition of Rs.47,04,960/-, on the basis of which penalty under section 271(1)(c) of the Act was levied by the Assessing Officer, was on account of undisclosed income on account of bogus purchases and sales. On an appreciation of the material on record we are inclined to concur with the view of the CIT(A) that the explanation put-forth by the assessee in the penalty proceedings was a plausible one, inasmuch as, the circumstances on which the additional income was offered was because the disputed parties with whom these transactions were made were noncooperative and the assessee having no control over those parties was, therefore, not able to substantiate its claim with necessary material evidence. Therefore, the assessee was constrained in order to avoid lengthy litigation to offer the additional income, which was accepted as such the Assessing Officer. The Hon’ble Apex Court in the case of Mak Data P. Ltd. (2013) 358 ITR 593(SC) while considering the provisions of Explanation 1 to section 271(1)(c) of the Act observed that the general principles of law in respect of penalty for concealment of income, does not grant the assessee automatic immunity from penalty on account of surrender or voluntary disclosure of income. As per the provisions of Explanation 1 to section 271(1)(c) of the Act, the question is whether the assessee has offered any explanation for concealment of income or furnishing of inaccurate particulars of income. In the case own hand we find that the requirement laid down by the Hon’ble Court has been met by the assessee inasmuch as, as observed by the CIT(A), the assessee’s explanation (supra) which appears plausible and which explanation, though brushed aside by the Assessing Officer as an afterthought, has not been brought out or found to be false in respect of furnishing of particulars. We, therefore, uphold this view of the CIT(A) and consequently uphold her order directing the Assessing Officer to delete the penalty levied in the case on hand for assessment year 2009-

10. Consequently, Revenue’s grounds raised at S.No.1 to 6 are dismissed. 3.4.2 Another contention of the assessee raised in the course of hearing before the Bench was that penalty under section 271(1)(c) of the Act may be levied either for concealment of particulars of income or ITA No. 5416/M/2018 A.Y.2009-10 furnishing of inaccurate particulars of income and that the Assessing Officer is entitled to levy the penalty under the limib under which the proceedings were initiated. The attention of the Bench was drawn to the order of assessment wherein the Assessing Officer has initiated penalty proceedings under section 271(1)(c) of the Act for “concealment of particulars of income” ( para 6.5 of assessment order). Inviting our attention to the penalty order (para 10) the Ld. Representative for the assessee submitted that the Assessing Officer levied penalty for ‘willfully furnishing inaccurate particulars of income’ leading to concealment. In these circumstances, it is contended that the penalty levied under section 271(1)(c) of the Act in the case on hand is not sustainable. Even though this legal issue may not have been urged before the authorities below, since the same is a purely legal issue and all facts relating thereto are available on record. The same are admitted for adjudication before us in this appeal in keeping with the decision in the case of the Hon’ble Apex Court in NTPC (229 ITR 383)(SC). There is no dispute with regard to the fact that the Assessing Officer initiated penalty proceedings under section 271(1)(c) of the Act in the order of assessment for ‘concealment of particulars of income’ but however proceeded to levy the said penalty for ‘ furnishing of inaccurate particulars of income’ leading to concealment. We find that an identical issue has been considered by the co-ordinate bench of the Tribunal in the case of Smt.Shalini Karan Kumar in dated 02/09/2016, wherein following the decision in the case of Dharni .Developers (2015) (61 taxman.com 208), it has been held as under at para 6 and 7 thereof:- 6. The identical observations have been made by the Assessing Officer in other years under consideration also. Since the penalty notices are issued during the course of assessment proceedings, in our view, the said notices have to be read along with the assessment order. Accordingly, even if the Assessing Officer has failed to strike down anyone of the two defaults, the intention of the Assessing Officer for initiating the penalty proceedings could be ascertained from the assessment order. In all the years under consideration, the solitary addition made by the Assessing Officer was related to unaccounted business receipts. The above said observations made by the Assessing Officer in the assessment orders would show that the penalty proceedings were initiated for "concealment of particulars at come" only. However in the penalty order, the Assessing Officer has concluded as under: "Thus it is clear that the assessee has tried to evade the taxes on income by filing inaccurate particulars of their income and thereby concealing the same. I therefore, hold that the assessee in this case has deliberately furnished inaccurate particulars of their income for relevant previous year thereby attracting penalty provision under section 271 (l)( c) of the Income-tax Act. I am therefore, satisfied that this is a fit case for levy of penalty under section A.Y.2009-10 271(l)(c) of the Act, 1961."

7. Thus, it can be noticed that the Assessing Officer, after having initiated proceedings for "concealing the particulars of income", has levied penalty for "furnishing of inaccurate particulars of income". Following the aforesaid decision of the Co-ordinate benches in the case of Smt. Shalini Karan Kumar(supra) and Dharni Developers (supra), we find there is merit in the contention of the assessee on the legal issue urged by it and, therefore, hold that the impugned penalty levied under section 271(1)(c) of the Act is not sustainable and cancel the same on this ground also.”

7. Taking into account all the facts and circumstances mentioned above and by relying upon the decision of Hon’ble ITAT in the case of M/s. Unisynth Chemicals (supra), we are of the view that the CIT(A) has decided the matter of the matter of controversy judiciously and correctly which is not liable to be interfere with at this appellate stage. Accordingly, we decide these issues in favour of the assessee against the revenue.