SANDEEP BHIMRAO LAD,MUMBAI vs. DCIT CIRCLE-3, THANE

अपीलाथीकीओरसे/ Appellant : Shri Subodh Ratnaparkhi, AR by प्रत्यथीकीओरसे/Respondentby : Shri V. Vinod Kumar, DR सुनवाईकीतारीख/ : 10.10.2019 Date of Hearing घोषणाकीतारीख / : 31.10.2019 Date of Pronouncement आदेश / O R D E R

Per S. Rifaur Rahman, Accountant Member:

2. All the appeals are heard together and all the facts in these appeals are similar, for the sake of convenience, it is disposed off by this common order. To dispose off these appeals, we have taken facts from AY 2009-10 bearing ITA No. 1620/Mum/18.

3 to 1620/Mum/2018 Sandeep Bhimrao Lad & Sunny Ashok Lad from the sales tax department, Maharashtra. The above information contained the details of certain person who had provided bogus purchase bills to the assessee for accommodation entries. The assessing officer noticed that one of the party was a provider of bogus purchase bills, accordingly notices under section 148 along with reason for reopening. When the assessee was not in a position to substantiate the above purchase, at the same time assessing officer issued show cause notice under section 133(6) of the Act and the notices were returned unserved. Accordingly assessing officer treated the above bogus purchases as income of the assessee.

4. Subsequently penalty proceedings were initiated by issue of notice under section 274 of the Act on 04.03.2014 and served on the assessee. In response assessee filed a letter dated 01.07.2014, for the sake of convenience, it is reproduced below:

'1. In the order of assessment, you honour had disallowed the purchases of F. Y. 200&-09 amounting to Rs. 27,57,768/- stating purchases are from suspicious dealers as recognized by Maharashtra Sales Tax department. I had purchased material which are 4 to 1620/Mum/2018 Sandeep Bhimrao Lad & Sunny Ashok Lad genuine purchases & already submitted in submission invoice copy, bank statement\& related records showing payment details for your kind consideration. 2.1 being government contractor have to work in stipulated time & procure the material as per the site requirements. Some time there is a problem of working capital to procure the goods on credit from unknown parties for various sites. Due to the non availability of time it is very difficult to judge the -genuineness of the party & being a proprietary concern where the activities of the business are not divided amongst various departments due to which all decisions are taken by the me & due to the limitation pf expertise Man power decision making becomes very difficult & therefore this type pf Suspicious dealers may misguide us.

3. I had agreed for the disallowance with the intension to avoid litigation and to cooperate with the department provided penalty u/s 271(l)(c) is not initiated. Since the addition was accepted by me by making addition in the return & by recomputation of tax liability to avoid long drawn litigation, and for peace of mind, penalty u/s 271(l)(c) cannot be imposed. \

5 to 1620/Mum/2018 Sandeep Bhimrao Lad & Sunny Ashok Lad 4. That the penalty cannot be imposed when the addition is accepted conditionally in view of the decisions of the various courts as given below.

(i) CIT Vs. Kiran & Co. - 217 ITR 326 (Bom)

(ii) ITO Vs. Majit Singh Baldev Singh Commission Agents - 69ITD197 (Amritsar) (1999)

(iii) OT Vs. Sir Shadilat Suggasr & Gen. Mills Ltd. - 168 ITR 705 (SC)

(iv) CIT Vs. Suresh Chandra Mittal - 241ITR124 (MP)

(v) ACIT Vs. Hernam Singh Bishan Singh Jewellers Pvt. Ltd. -69 TTJ 14 (Delhi) (2000)

Our above say is also supported by the following judicial decisions on the issue: - (i) CIT -vs- Kiran & Co. 217 ITR 326 (Bombay) (1996)

6 to 1620/Mum/2018 Sandeep Bhimrao Lad & Sunny Ashok Lad The assessee had made an conditional offer of an amount to taxation subject to non- levy of penalty u/s 271(1)(c). The penalty levied u/s 271(1)(c) was cancelled by the Bombay High Court holding that assumption of concealment of income was without any, basis.

(ii) ITO -vs- Manjit Singh Baldev Singh Commission Agents 69ITD197(Amritsar) (1999)

In this case the assessee surrendered peak of cash credits during asst. proceedings vide a letter which stated that the assessee was agreeable to surrender the peak credits only if such surrender was not subject to penalty proceedings u/s 271(1)(c). However, penalty u/s 271(1)(c) was levied. It was held that the A.O. should have either accepted the total offer or he should have written and informed the appellant that his surrender is not accepted. It was stated that the A.O. cannot eat cake from both sides. The penalty u/s 271(1)(c) was deleted.

(iii) Sir Shadilal Sugar & Gen. Mills Ltd. - vs- CIT 168 ITR 705 (SC)

In this case the assessee surrendered two sums for making addition. The TTO imposed penalty u/s 271(l)(c). The apex court stated that assessee had 7 to 1620/Mum/2018 Sandeep Bhimrao Lad & Sunny Ashok Lad admitted that the amounts surrendered were his Income but it was not an admission that there was a deliberate concealment. From agreeing to additions, 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, (iv) CIT-Vs-Suresh Chandra Mittal 241 ITR 124 (MP)

Assessee had declared additional income by way of revised returns after persistent queries by AO. Once the revised returns have been regularized by the revenue the explanation of the assessee that he has declared additional income to buy peace and to come out of vexed litigation could be treated as bonafide and penalty u/s 271(l)(c) was not leviable, (v) Harnam Singh Bishan Singh Jewellers Pvt. Ltd. -vs- ACTT 69 TTJ 14 (Delhi) (2000)

Where income disclosed by assessee voluntarily at the time of survey was assessed in its hand on the basis of admission which was conditional that penalty would be imposed, penalty u/s 271(1)(c) could not be levied.

6. Non-filing of appeal has no bearing on penalty

8 to 1620/Mum/2018 Sandeep Bhimrao Lad & Sunny Ashok Lad (i) The appellant had not preferred appeal against the addition by adherence to the promise made under the letter dt. 25.02.2014. We submit that non-filing of appeal should not be constructed to mean that the addition is correct by law.

(ii) On this issue, reliance is placed on the decision in the case of Laxmi Jewellery - vs-CIT, 171 ITR 649 (AP) wherein the Hon. Court has held that the mere fact that the assessee did not appeal against the assessment would not indicate that It has accepted the correctness of the addition. It is further submitted that appellant pursuant to levy of penalty u/s 271(l)(c) has preferred appeal against the quantum addition also.

7. That the full facts have been disclosed to the department and hence the penalty was not imposable In the case of the assessee in view of the decision in the case of CIT Vs. Reliance Petro Products Pvt. Ltd. - 322 ITR 158 (SC).

9 to 1620/Mum/2018 Sandeep Bhimrao Lad & Sunny Ashok Lad 5. After considering the submissions of the assessee, assessing officer observed that the assessee has got accommodation entries from hawala operators with an intention to suppress his income, further he observed that the primary onus is on the assessee to substantiate the alleged purchases made from the parties identified as hawala operator as genuine since assessee has failed to prove and circumstances reasonably point to that the assessee has consciously concealed the particulars of income or has deliberately furnished inaccurate particulars of income. The assessing officer concluded that the assessee has concealed the income or furnished inaccurate particulars of income and levied the penalty of Rs. 9,37,365/-.

6. Aggrieved with the above order, assessee preferred an appeal before CIT(A) and CIT(A) confirmed the penalty. Even though the assessee has objected before him that assessee has brought on record that concern purchases were genuine and supported by adequate evidences and further assessee objected to the fact that assessing officer has not specified as to which specific limb of section 271(1)(c) of the Act under which the alleged offence held to have been committed.

1. The Hon. CIT (A) erred in confirming the penalty of Rs. 9,37,365/- levied u/s 271(1)(c) not appreciating that the penalty was levied for the reason that the appellant held concealed the income or furnished inaccurate particulars of income, thereby not specifying the specific limb of section 271(l)(c) under which the alleged offence is held to have been committed, resulting in the levy of penalty being bad in law and void-ab-initio.

2. The Hon. CIT (A) erred in confirming penalty of Rs. 9,37,365/- levied u/s 271(1)(c) r.w.s 274 of the I. Tax Act 1961, in respect of addition made on account of disallowance of purchases from one party, M/s. Coral Trading Co. not appreciating that the said purchases were genuine purchases, duly supported by substantial evidences and that the material purchased was consumed by the appellant in civil construction work and could not be deemed to be the concealed income or furnishing of inaccurate particulars of income by the appellant. The penalty of Rs. 9,37,365/- levied u/s 271(1)(c) of the I.T. Act being not warranted by facts and in law may please be cancelled.

11 to 1620/Mum/2018 Sandeep Bhimrao Lad & Sunny Ashok Lad 3. The appellant craves leave to add, alter, amend and/or vary the ground of appeal/relief claimed at any time before the decision of the appeal.

8. Before us, Ld. AR submitted that in Para 6 of the penalty order, assessing officer levied the penalty with the observation, he has satisfied that the assessee has concealed the income or furnished inaccurate particular of such penalty. He submitted that assessing officer has levied the penalty without satisfying himself in which limb of section 271(1)(c) of the Act, he is levying the penalty. He submitted that penalty was charged on both issues, it is against the provision of the law. He submitted that assessing officer has not investigated or proved that the alleged purchases were not genuine and merely charged a penalty, in that process, Ld. AR relied in the case law HPCL Mittal Energy Ltd vs ACIT (2018) 97 Taxmann.com 3 (Amritsar), in which the Honourable third member observed as below:

21. Apart from the above three situations in which the AO has clear-cut satisfaction, there can be another fourth situation as well. It may be when it is definitely a case of under-reporting of income by the assessee for which an addition/disallowance has been made, but the 12 to 1620/Mum/2018 Sandeep Bhimrao Lad & Sunny Ashok Lad AO is not sure at the stage of initiation of penalty proceedings of the precise charge as to `concealment of particulars of income’ or `furnishing of inaccurate particulars of income’. In such circumstances, he may use slash between the two expressions at the time of initiation of penalty proceedings. However, during the penalty proceedings, he must get decisive, which should be reflected in the penalty order, as to whether the assessee is guilty of `concealment of particulars of income’ or `furnishing of inaccurate particulars of such income’. Uncertain charge at the time of initiation of penalty, must necessarily be substituted with a conclusive default at the time of passing the penalty order. If the penalty is initiated with doubt and also concluded with a doubt as to the concealment of particulars of income or furnishing of inaccurate particulars of such income etc., the penalty order is vitiated. If on the other hand, if the penalty is initiated with an uncertain charge of `concealment of particulars of income/furnishing of inaccurate particulars of income’ etc., but the assessee is ultimately found to be guilty of a specific charge of either `concealment of particulars of income’ or `furnishing of inaccurate particulars of income’, then no fault can be found in the penalty order.

13 to 1620/Mum/2018 Sandeep Bhimrao Lad & Sunny Ashok Lad 27. In view of the foregoing discussion, I am satisfied that the penalty was wrongly imposed and confirmed in all the four appeals under consideration. I, ergo, agree with the ld. JM. in striking down all the penalty orders. The question posed is, therefore, answered in affirmative to the effect that where the satisfaction of the AO while initiating penalty proceedings u/s 271(1)(c) of the Income Tax Act, 1961 is with regard to alleged concealment of income by the assessee, whereas the imposition of the penalty is for ‘concealment/furnishing inaccurate particulars of income’, the levy of penalty is not sustainable.

With regard to the imposition of penalty the Assessing Officer has rightly imposed the penalty and the Ld. Commissioner of Income ax (Appeal) has rightly confirmed the order of the Assessing officer. I, therefore, rely the order of the Ld.CIT (A) and the Assessing officer and the findings thereon. However, in this case, it is humbly submitted that the following decisions may kindly be considered with regard to levy of penalty u/s 271(1)(c) of I.T. Act.

3. GIT Vs Zoom Communication (P.) Ltd. M91 Taxman 179 (Delhi VF201 01 327 ITR 510 (Delhi)/ [2010] 233 CTR 465] where Hon'ble Delhi High Court held that If assessee makes a claim which is not only incorrect in law, but is also wholly without any basis and explanation furnished by him for making such a claim is not found to be bona fide, Explanation 1 to section 271(1)(c) would come into play and assessee will be liable to penalty

4. CIT Vs Moser Baer India Ltd. (184 Taxman 8 (SCVf.20091 315 ITR 460 (sc)/[2009] 222 CTR 213) where Hon'ble Supreme Court confirmed Penalty under section 271 (1 )(c) for wrong adjustment of Unabsorbed Depreciation.

5. CIT Vs Gold Coin Health Food (P.) Ltd (172 Taxman 386 (SC)/[2008] 304 ITR 308 (SC)/[2008] 218 CTR 359) where Hon'ble Delhi Supreme Court held that amendment made in Explanation 4 to section 271(1)(c)(iii) with effect from 1-4-2003 is clarificatory

17 to 1620/Mum/2018 Sandeep Bhimrao Lad & Sunny Ashok Lad months before the assessee filed its return of income. Had it been the intention of the assessee to make full and true disclosure of its income, it would have filed the return declaring an income inclusive of the amount which was surrendered later during the course of the assessment proceedings. Consequently, it is clear that the assessee had no intention to declare its true income. It is the statutory duty of the assessee to record all its transactions in the books of account, to explain the source of payments made by it and to declare its true income in the return of income filed by it from year to year. The AO, in our view, has recorded a categorical finding that he was satisfied that the assessee had concealed true particulars of income and is liable for penalty proceedings under Section 271 read with Section 274 of the Income Tax Act, 1961."

9. Steel Ingots Ltd vs. CIT [296 ITR 228] where Hon'ble Madhya Pradesh High Court held that in case of concealment of true income chargeable to tax by making bogus claim, levy of penalty u/s 271(1)(c) read with Explanation 1 is justified

11. CIT Vs R.M.P. Plasto (P.) Ltd [184 Taxman 372 (SC)/[2009] 313 ITR 397 (SC)/[2009] 227 CTR 635] where Hon'ble Supreme Court held that Confirmed penalty upon assessee for concealment of income under section 271(1)(c) because positive income of 12.K.P. Madhusudhanan Vs CIT [[2001] 118 Taxman 324 (SC)/[2001] 251 ITR 99 (SC)/[200t] 169 CTR 489 (SC)] where Hon'ble Supreme Court held that where assessee was unable to furnish evidence for loans and it offered amount of transaction as additional income, Assessing Officer was justified in imposing penalty u/s 271(1)(c) after finding the explanation to be unacceptable and applying Explanation 1(B) of the section.

16.UOI v/s Raiasthan Spinning & Weaving Mills (2010)1GSTR 66(SC) 17 CIT V/s Atul Mohan Bindal (2009) 317 ITR 1 (SC)

21.Maharai Garage & Co. V/s CIT Naqpur 85 taxmann.comSG (Bombay

21 to 1620/Mum/2018 Sandeep Bhimrao Lad & Sunny Ashok Lad particulars" would not operate as res judicata in the penalty proceedings. It is open to the assessee to contest the said proceedings on merits. However, the validity of the assessment or reassessment in pursuance of which penalty is levied, cannot be the subject matter of penalty proceedings. The assessment or reassessment cannot be declared as invalid in the penalty proceedings.

23 to 1620/Mum/2018 Sandeep Bhimrao Lad & Sunny Ashok Lad 13. With regard to other assessment years, we notice that assessing officer has made the addition without establishing or without making any investigation on bogus purchases. He made the addition merely because it is not established by assessee and observed that as the onus on assessee to prove the genuineness of the purchases. It may be acceptable to make addition in the return of income but when it comes to penalty, he has to establish that the purchases were made in order to conceal the income. Further we notice that assessee has accepted the addition in order to buy peace. We observe that the AO has not established that the above purchases are not genuine, the addition was made merely because assessee accepted the same as so. In the similar circumstances, the coordinate bench held as below:

24 to 1620/Mum/2018 Sandeep Bhimrao Lad & Sunny Ashok Lad was surrendered by assessee with a request not to initiate any penalty proceedings. The AO passed order u/s.143(3) adding surrendered amount u/s.69A on the plea that assessee has surrendered amount only after issue of notice. It is not disputed by the department that sum which was added u/s.69A was one which was surrendered by the assessee itself. Neither there was any detection nor there was any information in the possession of the department except for the amount surrendered by the assessee and in these circumstances it cannot be said that there was any concealment. In case of CIT vs. Suresh Chandra Mittal 251 ITR 9 (SC), Hon’ble Supreme Court observed that if the assessee has offered the additional income to buy peace of mind and to avoid litigation penalty u/s.271(1)(c) of the Act cannot be levied. In the instant case, there was no malafide intention on the part of the assessee and the AO had not brought any evidence on record to prove that there was concealment of income. At the time of surrender itself contention of not initiating any penalty

25 to 1620/Mum/2018 Sandeep Bhimrao Lad & Sunny Ashok Lad proceedings was there. No additional matter was discovered to prove that there was concealment of income. The AO has included the amount of share capital in the total income of assessee merely on the basis of assessee’s declaration/surrender. The AO did not point out or refer any evidence or material to show that the amount of share capital received by the assessee was bogus. It is also not the case of the revenue that material was found at the assessee’s premises to indicate that share application money received was an arranged affair to accommodate assessee’s unaccounted money. Thus there was no detection by the AO that share capital was not genuine. The surrender of share capital after issue of the notice u/s.143(2) could not lead to any inference that it was not voluntary. Admittedly the assessee has offered the amount of share capital for taxation voluntarily and it was not the case of revenue that the same was done after its detection by the department. It is quite clear from the record that this entire transaction was not 26 to 1620/Mum/2018 Sandeep Bhimrao Lad & Sunny Ashok Lad detection of the AO that the share capital was not genuine and that the assessee had offered the amount without any specific query. Even surrender of amount by the assessee after receipt of questionnaire could not be lead to any inference that it was not voluntary, in the absence of any material on record to suggest that it was bogus or untrue. The contention that in every case where surrender is made inference of concealment of income must be drawn under S.58 of Evidence Act, cannot be accepted in view of the decision of Punjan & Haryana High Court in the case of Careers Education & Infotech (P) Ltd., (2011) 336 ITR 257 (P&H). Not an iota of evidence was narrated to support the addition made except the surrender made by the assessee itself. When no concealment was ever detected by the AO, no penalty was impossible. Recently, Hon’ble Punjab & Haryana High Court in the case of Siddharth Enterprises vide order dt. 14th July, 2009 held after considering the decision of Hon’ble Supreme Court in the case of Union of India & Ors. vs.

27 to 1620/Mum/2018 Sandeep Bhimrao Lad & Sunny Ashok Lad Dharamendra Textile Processors & Ors. (2008) 306 ITR (SC) 277 that the judgment of Hon’ble Supreme Court in the case of Dharmendra Textiles (supra) cannot be read as laying down that in every case where particulars of income are inaccurate, penalty must follow. What has been laid down is that qualitative difference between criminal liability under s. 276C and penalty under s. 271(1)(c) had to be kept in mind and approach adopted to the trial of a criminal case need not be adopted while considering the levy of penalty. Even so, concept of penalty has not undergone change by virtue of the said judgment. It was categorically observed that penalty should be imposed only when there is some element of deliberate default and not a mere mistake. This being the position, the furnishing of inaccurate particulars was simply a mistake and not a deliberate attempt to evade tax. Hon’ble Supreme Court in the case of CIT vs. Suresh Chandra Mittal 251 ITR 9 (SC) observed that where assessee has surrendered the income after persistence queries by the 28 to 1620/Mum/2018 Sandeep Bhimrao Lad & Sunny Ashok Lad AO and where revised return has been regularized by the Revenue, explanation of the assessee that he has declared additional income to buy peach of mind and to come out of waxed litigation could be treated as bona fide, accordingly levy of penalty under s. 271(1)(c) was held to be not justified.