BETA MASCHINENFABRIK (P) LTD.,NOIDA vs. DCIT, CIRCLE- 1, NOIDA

Briefly the facts of the case are that the assessee is a Company. The assessee filed original return of income on 30th September,2009 declaring taxable income of Rs.6,02,829/-. The A.O. reopened the assessment by issuing notice u/s 148 of the Act dt. 22nd March, 2013. The assessee submitted that return filed originally may be considered as return having ITA 87/Del/2018 A.Y.:2009-10 Beta Maschinenfabrik (P) Ltd. vs. DCIT, Circle-1 filed in compliance to notice u/s 148 of the Act. The assessee attended the re-assessment proceedings and furnished details/replies to the queries raised during the course of re-assessment proceedings. The assessee is engaged in the business of manufacturing of engineering equipments. During the year under consideration assessee had shown gross turnover of Rs.2,37,92,000/- and gross profit of Rs.29,31,000/- resulting net profit of Rs.6,03,000/-.

In this case information was received from DIT (Investigation), Delhi that during the search/survey action u/s 132/133A of the Act was conducted at the residential and business premises of SK Jain Group in which evidence of certain companies/firms were found which showed that accommodation entries in the form of bogus share capital/premium/loan were obtained. In the case of assessee evidence regarding accommodation entries amounting to Rs.10 lakhs was found by Investigation Wing for A.Y. under appeal. The assessee produced details in support of its income and produced books of accounts and other materials which were verified and test checked. The assessee was asked to furnish details of share capital money and confirmation of parties and was confronted with the report received from Investigation Wing about accommodation entries. The assessee furnished details of parties from whom share application money was received along with affidavits of Directors confirming the same. The assessee filed letter dt. 19th March, 2014 disputing the allegation of accommodation entry but in the same letter the assessee surrendered Rs.10 lakhs subject to no penalty as suggested by A.O. The A.O. accordingly ITA 87/Del/2018 A.Y.:2009-10 Beta Maschinenfabrik (P) Ltd. vs. DCIT, Circle-1 made addition of Rs.10 lakhs u/s 68 of the Act and initiated penalty proceedings for concealment of particulars of income. The assessee challenged the addition before Ld.CIT(A). However, appeal of assessee was dismissed vide order dt. 30.10.2015 by Ld.CIT(A)-I, Noida, copy of which is placed on record.

The A.O. in the background of these facts, issued notice for penalty, in which the assessee filed reply. The A.O. however, considering the fact that the appeal of the assessee has been dismissed by Ld.CIT(A)-I, Noida levied penalty u/s 271(1)(c) of the Act. Ld.CIT(A) vide impugned order confirmed the penalty and dismissed the appeal of the assessee because the assessee had accepted the impugned amount as his income and paid tax thereon. It is also noted in the impugned order that the assessee made surrender after A.O. confronted the assessee of the fact that the assessee had taken accommodation entries.

I have heard Ld. Representatives of both the parties and perused the material on record. 6. The Ld.Counsel for assessee referred to paper book p.50 which is reply dt. 15 January, 2014 filed before the A.O. in which the assessee explained that the additional capital funds of Rs.35 lakhs by way of allotment of fresh share capital were received from 5 parties which is supported by documentary evidences. The names of the same are as under: Sl.No. Name Amount Received: Rs. i. M/s Harman Chits (P) Ltd. 5,00,000/- ii. M/s V I P Leasing and Finance Ltd. 5,00,000/- iii. M/s Crystal International Limited 5,00,000/- iv. M/s Lotus Realcon (P) Limited 5,00,000/- v. M/s Timesinfo Data Solutions (P) Ltd. 15,00,000/- ----------------- Total: Rs. 35,00,000/- ITA 87/Del/2018 A.Y.:2009-10 Beta Maschinenfabrik (P) Ltd. vs. DCIT, Circle-1 He has referred to paper book p.51 which is details of allotment of equity shares to these parties, paper book p.52 is another reply before the A.O. in which the assessee submitted that all the confirmations, documents and bank statement have been filed on record. It was also explained that after almost 5 years the address of the company and their Directors have changed and assessee submitted latest company Master details which have been down loaded from web site of Ministry of Corporate Affairs. It was therefore, submitted that relevant details may be considered. Paper book p.53 is details of these investor companies and list of names and addresses of the Directors. Paper book p.54-63 are the details obtained from web site of Ministry of Corporate Affairs. Paper book p.6-49 are the documentary evidences submitted along with reply in order to prove the identity of investors, their credit worthiness and genuineness of the transactions in the matter which are affidavits of Directors of the investor companies, their application form for equity shares, resolution of companies, acknowledgement of filing of the Income Tax returns, copy of cheque and bank statements. Paper book p.64 is reply dated 19 March, 2014 referred to by the A.O. in the assessment order in which the assessee similarly explained that all the evidences of investor companies having filed, all investors are genuine and ultimately the assesse surrendered Rs.10 lakhs as suggested by the A.O. Ld.Counsel for the assessee submitted that all the details were filed before the A.O. which prove the genuineness of the amounts received, therefore, even if part amount is surrendered for taxation, it would not make out a case of levy of penalty for concealment.

On the other hand Ld.Sr.D.R. relied upon the orders of authorities below and relied upon the following decisions: (i) Union of India vs. Dharmendra Textile Processors (2007) 295 ITR 244 in which Hon’ble Supreme Court held that penalty u/s 271(1)(c ) is a civil liability. (ii) MAK Data P.Ltd. vs. CIT (2013) 358 ITR 593 (SC) in which Hon’ble Supreme Court held that under Explanation 1 to S.271(1)(c) voluntary disclosure of concealed income does not absolve assessee of penalty u/s 271(1)(c) if the assessee fails to offer an explanation which is bonafide and proves that all the material facts have been disclosed. Page 4 of 8 ITA 87/Del/2018 A.Y.:2009-10 Beta Maschinenfabrik (P) Ltd. vs. DCIT, Circle-1 (iii) Mohd. Raza vs. CIT (2016)-TIOL-2026(HC Del) in which Hon’ble Delhi High Court held that it is open to A.O. to levy penalty in case, where only upon the assessment being picked up in scrutiny for further enquiry, the assessee has come out with details and had surrendered the income for taxation. (iv) Pr.CIT vs. Dr.Vandana Gupta 92 Taxmann.com 229 (Del) in which the Hon’ble Delhi High Court held that mere voluntary offer of a sum during survey in absence of any explanation for sources of income, invites concealment penalty when original return was silent about the said sum.

Ld.Counsel for the assessee in the rejoinder submitted that the facts of these decisions are clearly distinguishable and also filed certain case laws in support of his contention that penalty is not leviable in the matter.

I have considered rival submissions. It is not in dispute that at the assessment stage the assessee was asked to file details of share capital money along with documents. The assessee was confronted with the report of Investigation Wing for receipt of accommodation entries. The assessee admittedly furnished complete details of all the five parties above, along with documentary evidences. The A.O. noted in the assessment order that assessee furnished the details along with affidavits of the Directors confirming the same. Assessee furnished affidavits of all the Directors of the Investor companies, application for allotment of shares, PAN details, acknowledgement of filing of the return, resolution of investors, copy of the cheques, through whom amount was invested in assessee company with bank statement of all the investor companies. In cases of first four parties, the assessee has received Rs.5 lakhs each as share application money. In the case of fifth party M/s Timesinfo Data Solutions (P) Ltd. the assessee has received Rs.15 lakhs through the cheques of Rs.5 lakhs and Rs.10 lakhs. The A.O. confronted the assessee that it has received accommodation entry of Rs.10 lakhs without specifying which of Rs.10 lakhs is the accommodation entry received from which of the parties. The assessment order is silent about this particular fact. The A.O. also did not mention any fact in the assessment order as to against which 5 investor parties, the assessee had surrendered Rs.10 lakhs on account of accommodation entry. Even the reply of assessee dated 19 March, 2014 ITA 87/Del/2018 A.Y.:2009-10 Beta Maschinenfabrik (P) Ltd. vs. DCIT, Circle-1 referred to by A.O. in the assessment order is silent against which party the assessee had surrendered Rs.10 lakhs for taxation. The assessee in his letter had surrendered Rs.10 lakhs as suggested by A.O. in order to extend cooperation with the department. Therefore, the material facts have not been brought on record as to on which account, Rs.10 lakhs has been surrendered by assessee on advise of the A.O. Therefore it is difficult to believe that assessee has concealed particulars of income to the extent of Rs.10 lakhs because no particulars of parties have been referred to for the purpose of surrendering the amount in question. It is relevant to note here that assessee in the same letter of surrender has disputed its liability to pay tax and claimed the genuineness of amounts received from five investor parties. Therefore in the absence of any particulars or details mentioned in the assessment order or the penalty order, it is clear that no Particulars of income have been concealed by the assessee. When all the documentary evidences were before the A.O. at the assessment stage, it is his duty to mention the particulars of all the five parties in the assessment order and then pass an order as to which parties have provided accommodation entry to the assessee. The A.O. should also specify in the assessment order as to against which parties the assessee has made surrender of Rs.10 lakhs. Since in all five investor companies cheques of Rs.5 lakhs each have been received by assessee, therefore, it is difficult to identify as to against which two investor companies, assessee had received accommodation entries of Rs.10 lakhs. It is well settled law that findings given in the assessment proceedings are relevant and have probative value, but such findings alone may not justify imposition of penalty because the consideration that arise in penalty proceedings are different from those that arise in assessment proceedings. It is therefore well settled law that penalty and quantum proceedings are different and distinct proceedings. The findings given in the quantum assessment order alone are not sufficient to levy penalty u/s 271(1)(c) of the Act against the assessee automatically in each and every case. I rely upon the decisions of Hon’ble Allahabad High Court in the cases of (i) CIT vs. MK Gupta reported in 113 ITR 473, (ii) Banaras ITA 87/Del/2018 A.Y.:2009-10 Beta Maschinenfabrik (P) Ltd. vs. DCIT, Circle-1 Textorium vs. CIT, 169 ITR 782 and (iii) CIT vs. Ishtiaq Hussain, 232 ITR 673. 9.1. The A.O. in the penalty order merely by following the order of Ld.CIT on quantum, levied penalty against assessee which is similarly confirmed by the Ld.CIT(A). The authorities below have failed to consider that it is not a case of absence of any Explanation for source of share application money received by assessee. The assessee offered Explanation for receipt of genuine share application money which is supported by all the documentary evidences on which A.O. did not make any adverse comments. The A.O. was silent on documentary evidences filed by assessee and did not make any enquiry on the same. It therefore appears that the A.O. instead of making any enquiry on the documents filed by assessee merely suggested the assessee to surrender Rs.10 lakhs for the purpose of tax without considering the fact that assessee has received fresh share capital money of Rs.35 lakhs in the A.Y. under appeal from the five investor parties. Therefore why information was received for accommodation entry of Rs.10 lakhs only by assessee and surrender made by assessee of Rs.10 lakhs only at the assessment stage is not clarified by authorities below in the impugned orders. In my view the assessee had offered proper explanation regarding identity of investor companies, their credit worthiness and genuineness of the transactions in the matter. Therefore surrender of part amount of Rs.10 lakhs u/s 68 of the Act on suggestion of A.O. would not establish that assessee has concealed the particulars of income because the A.O. has not mentioned the particulars of such concealed income in the Assessment order or in the penalty orders. Therefore the facts and circumstances of the case clearly establish that even if amount of Rs.10 lakhs have been added u/s 68 of the Act, but it is not a fit case for levy of penalty on the same facts, and that the case laws relied upon by Ld.DR would not support the case of Revenue. It may be noted that A.O. in assessment order, initiated the penalty proceedings for concealed income but in penalty order levied penalty for furnishing inaccurate particulars of his income. A.O. was not