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Income Tax Appellate Tribunal, “B” BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI S. JAYARAMAN
आदेश/ O R D E R
PER S. JAYARAMAN, ACCOUNTANT MEMBER:
Consequent to the directions of the Hon’ble Jurisdictional High Court in TC(A) No. 854/2009 dated 10.04.2019, wherein, this tribunal order in for assessment year 1989-90 dated
:-2-: ITA No.1642/Mds/2007 04.12.2008 was set aside to decide the appeal on merits, this appeal was taken up.
The Ld. AR submitted that while making the assessment for assessment year 1989-90, the AO examined the introduction of share capital of Rs. 11,30,000/- from share holders and required the assessee to file confirmation letters from the share holders. The Assessing Officer summoned the shareholders to prove the genuineness of money introduced by them. There was response to the extent of Rs. 8,10,000/- and hence the AO considered the balance to be an unexplained income and added to the income and initiated penalty proceedings. During the penalty proceedings, the assessee submitted by its letter dated 05.09.1992 before the Deputy Commissioner, Special Range (the AO) that the list of share holders, their holdings and other particulars have been properly filed with the Assessing Officer. Even the letters required with regard to the sources of share holders and directors for their investments in company have been filed. Some of the letters might have been received by the AO after he has passed the order. Even if the contribution of any particular share holder or director is not explained, it cannot be assessed in the hands of the company.
Such amount should be taken as income of the particular shareholder or director and assessed in his hands only. However, the Ld. AO without
:-3-: ITA No.1642/Mds/2007 considering the them and without affording any opportunity to the assessee levied the penalty u/s. 271(1)(c) to the assessee, inter alia, on this issue. Aggrieved, the assessee filed an appeal before the CIT(Appeals)-1, Madurai. Inviting our attention to the statements of facts and grounds of appeals filed before the Ld. CIT(A), the Ld. AR submitted that the contents of assessee’s reply by its letter dated 05.09.1192 was brought to the notice of the Ld. CIT(A). Further, it was submitted before the Ld. CIT(A) that the MD was personally present with all relevant facts, books, documents etc., on appointed date and time before the AO during the penalty proceedings, but he was not given an opportunity to explain the matter. On the contrary, the order has been passed by the Deputy Commissioner on 17.09.1992. Thus, it was established that the assessee has not been given an opportunity of being heard. Further, it was brought to the notice of the Ld. CIT(A) that the Deputy Commissioner is wrong in saying that there is no response from the shareholders to the extent of Rs. 3,20,000/-. He has not stated the names of the shareholders from whom confirmation has not been received. In fact, except two shareholders namely Shri.
Kanagasabapathy (shares for Rs. 10,000/-) and Shri K.S. Krishna Pillai (shares for Rs. 15,000/-), confirmation letters have been filed from all other shareholders. Confirmation from the above two shareholders could not be got as they were deceased at the time of the letters from :-4-: ITA No.1642/Mds/2007 the Deputy Commissioner. However, the Ld. CIT(A) upheld the above levy without appreciating the facts and circumstances of the case properly. Further, the Ld. AR submitted that the company commenced its operation of manufacturing during the year 1988 only and thus, the year under appeal is the first year of assessment. Therefore, it is clear that the Ld. AO without examining the material placed before him, without considering the facts and circumstances of the case and without affording due opportunity to the assessee levied the penalty. Although, the entire facts were brought before the Ld. CIT(A), the Ld. CIT(A) also without considering the facts and circumstances, upheld the penalty and therefore, the Ld. AR pleaded that the impugned penalty be deleted.
Per contra, the Ld. DR submitted that with regard to the share capital, the assessee has not discharged its responsibility of proving the genuineness of its receipts. The mere identification of shareholders is not sufficient, it is for the assessee to prove genuineness of the share capital with reference to the financial strength of the parties. In the assessee’s case, the AO took steps, issued notice not only to the assessee, but also to the shareholders also. Since, some of the shareholders responded, part of the share capital was accepted as genuine. With regard to the remaining portion, there was no attempt on the assessee’s part to establish its claim. Since, the assessee failed
:-5-: ITA No.1642/Mds/2007 to furnish clear and convincing reply with regard to genuineness of the share capital, the AO was forced to draw adverse inference. Therefore, it is a case of deliberate concealment of particulars. Therefore, the levy of penalty is justified. Therefore, the Ld. DR supported the orders of the lower authorities.
We heard the rival submissions. It is clear from the assessee’s submissions that the assessee company commenced its operation of manufacturing during the year 1988 only and thus, the year under appeal is the first year of assessment. The assessee in its letter dated 05.09.1992, filed before the Assessing Officer during the penalty proceedings clearly submitted that but for the two persons, confirmation letters have been filed in respect of all others. However, the AO without dealing on this aspect and without affording any opportunity to the assessee on its explanation levied the impugned penalty. On this ground alone the penalty is not sustainable. Further, the assessee has brought to the notice of the Ld. CIT(A) in the statements of facts and grounds of appeal all the above aspects. The Ld. CIT(A) also without considering the assessee’s plea disposed the appeal. From the above, it is clear that the assessee’s explanation has not been properly considered while levying the penalty and in sustaining the penalty.
Therefore, the levy of penalty cannot be sustained on these grounds :-6-: ITA No.1642/Mds/2007 also. In this case, the penalty is levied only on the basis of the assessment proceedings. The proceedings for imposition of penalty emanate from the assessment proceedings, are essentially independent and separate proceedings. Findings given in the assessment proceedings are certainly relevant and have probative value, but such findings are material alone and may not justify the imposition of penalty if the concealment is not proved by the Assessing Officer . In this case, though the assessee laid relevant material during the penalty proceedings, the AO levied the penalty without appreciating those material and other attending circumstances available on record. Thus, the levy lacks definite finding about the concealment in the order.
Since, the AO has not brought any material to prove the concealment of income, the levy of penalty can’t be sustained on this ground also. On the totality, the penalty levied on the assessee is unjustified and hence, we direct the AO to delete the penalty.
In the result, the assessee’s appeal is allowed.
Order pronounced on 23rd December, 2019 at Chennai.