ACIT 27(3), NAVI MUMBAI vs. SHRINIWAS REDDY PICHHI MUKKU, MUMBAI

The assessee being resident individual was assessed u/s 143(3) read with Section 147 on 28/11/2013 wherein the returned income filed by the assessee on 30/03/2013 in response to notice u/s 148, was accepted. The assessee was subjected to survey proceedings u/s 133A on 03/01/2013 wherein the assessee declared an additional income of Rs.84.57 Lacs to account for the discrepancies noticed during the survey proceedings in purchase transactions carried out by the assessee. The assessee offered the additional income in the return of income and paid due taxes thereupon. Consequently, penalty proceedings u/s 271(1)(c) were initiated in the quantum assessment order for concealment and furnishing of inaccurate particulars of income. Finally, the assessee has been saddled with impugned penalty of Rs.27.98 Lacs vide order dated 28/05/2014 against additional income of Rs.84.57 Lacs offered by the assessee consequent to survey proceedings.

Aggrieved, the assessee contested the same with success before Ld. CIT(A) vide impugned order dated 23/01/2017, wherein Ld. CIT(A) deleted the impugned penalty, inter-alia, on the premise that the returned income has been accepted and therefore, the penalty was not leviable. Aggrieved, the revenue is in further appeal before us. The Ld. DR has supported the stand taken by Ld. AO and submitted that the additional income has been offered by the assessee only due to survey action and therefore, the penalty was justified under the circumstances.

We have carefully heard the contention and perused relevant material on record. The undisputed fact is that the assessee offered Shriniwas Reddy Pichhi Mukku Assessment Year-2009-10 certain additional income during survey proceedings u/s 133A since it failed to substantiate certain purchases stated to be made from alleged hawala dealers. However, the sales turnover achieved by the assessee were not disputed by the revenue and further, there was no conclusive evidence or corroborative material on record to demonstrate that the stated purchases were entirely bogus. This income was offered in the return of income filed in response to notice u/s 148 and due taxes were paid thereupon. This return has been accepted by the revenue as such without making any further additions. Upon due consideration of factual matrix, we are of the opinion that the concealment or furnishing of inaccurate particulars of income should be in the return of income filed by the assessee so as to justify imposition of penalty. Further, it is trite law that statements / admissions made during survey proceedings do not carry much evidentiary value unless these are substantiated by any corroborative or circumstantial evidences on record, which are absent in the present case before us. The assessee, in the present case, could not substantiate the discrepancies to the satisfaction of revenue authorities and consequently, offered the additional income so as to make up for those discrepancies. Nevertheless, the aforesaid fact, in our opinion, does not entail imposition of penalty on the assessee. Our view is duly supported by the judgment of Hon’ble Bombay High Court rendered in ITO Vs Ramsons Castings Pvt. Ltd. [85 Taxmann.com 90 20/07/2017] wherein the Hon’ble Court after considering the judgment of Hon’ble Apex Court rendered in Mak Data Pvt. Ltd. Vs CIT [358 ITR 593] has concluded the matter, under similar circumstances, as under:-

Shriniwas Reddy Pichhi Mukku Assessment Year-2009-10 12. We find that the decision of the Apex Court in Mak Data (P.) Ltd. (supra) was rendered on 30th October, 2013 i.e. after impugned order of the Tribunal dated 30th November, 2012. Thus, normal course would have been to restore the issue to the Tribunal to pass a decision keeping in view the decision of the Apex Court in Mak Data (P.) Ltd. (supra). However, such an exercise is not called for in this case as neither of the two authorities i.e. CIT (A) and the Tribunal have deleted the penalty on account of the respondent-Assessee declaring additional income to buy peace/avoiding litigation. Both, the CIT (A) and the Tribunal have on merits found that the conduct of the respondent-Assessee did not justify any penalty under Section 271(1)(c) of the Act. Therefore, we would examine the appeal of the Revenue on merits in the context of the findings by the Authorities under the Act.

In the matter of imposition of penalty where two authorities have concurrently come to finding that no penalty is imposable, this Court would normally not interfere, in absence of the finding being perverse. However, it is settled position in law that the assessment proceedings and penalty proceedings are two independent and separate proceedings. Therefore, mere addition to the declared income during assessment proceedings would not ipso-facto lead to an imposition of penalty upon the party. The imposition of penalty under Section 271(1)(c) of the Act can only take place where there has been either concealment of income or filing of inaccurate particular of income on the part of the respondent and the explanation is not found satisfactory.

In the present proceedings, the Assessing Officer accepted the revised return of income filed by the respondent-Assessee declaring additional income of Rs. 1.40 crores. The Assessing Officer did not independently either in the Assessment proceedings or even in the penalty proceedings examine the contention of the respondent-Assessee that there was no excess stock as found by the Income Tax Officer during the survey proceedings. Neither any exercise was done independently to find out whether the excess stock alleged was supported by any other evidence. This particularly in the face of the respondent-Assessee asserting that the stock taking was not properly done. In-fact, at the very first instance, the respondent- Assessee did point out that no exercise was done to weigh the stock to determine the shortage if any. In-fact, the shortage was arrived at on basis of estimate and the respondent-Assessee had itself surrendered additional income to buy peace of mind and avoid unnecessary litigation. It did not accept that actual stock was more than that recorded in its books and during the proceedings also submitted a chart showing no excess stock.

It is now a settled position of law after the Apex Court order in Mak Data (supra) that an Assessee is not absolved of penalty because the additional income has been declared to buy peace. It must follow therefore that the above strategy (buy peace) by itself will not justify imposition of penalty, unless the requirement of the section under which the penalty is imposed are satisfied.

It is the above context that the Revenue places strong reliance upon paragraph 10 of the decision of the Apex Court Mak Data (P.) Ltd. (supra) to contend that facts are identical, therefore, penalty must follow. The Assessee in the above case had during survey operation made voluntary disclosure of income. Similar to the present Shriniwas Reddy Pichhi Mukku Assessment Year-2009-10 case submits the Revenue. However, the distinction in this case is that the respondent-Assessee had at the first opportunity i.e. when statement has been recorded, contended that the manner and method of quantification of stock done during the course of survey proceeding was not correct. In-fact, even after that it was consistently writing to the Authorities that there is no excess stock and the manner in which the stock taking has been done is not correct. This was not so in the case of Mak Data (P.) Ltd. (supra). In the case of Mak Data (P.) Ltd. (supra), the Assessee did not dispute the facts of undisclosed income at any time/stage. Therefore, paragraph 10 of the decision in Mak Data (supra) will have no application in absence of the Revenue being able to show that there has been a conduct which would warrant penalty upon the respondent-Assessee namely either concealment of income or filing of inaccurate particulars of income. In the present facts, the respondent-Assessee was consistently stating that there is no excess stock in his possession. That, it was subject to central excise control and no proceeding for clandestine removal of goods etc. were initiated against the respondent-Assessee. Further, in these facts, the respondent-Assessee, the CIT (A) and the Tribunal have held that no penalty is imposable, as the respondent-Assessee herein has consistently contended that there is no excess stock. This contention has not been examined and commented upon the Revenue before imposing of penalty. Thus, the impugned order of the Tribunal calls for no interference.

In the above view, both the substantial questions of law for our consideration are answered in the affirmative i.e. in favour of the respondent-Assessee and against the appellant-Revenue. We find the circumstances of the above case are quite similar to case before us. Therefore, respectfully following the same, we confirm the stand of Ld. first appellate authority.

The appeal stands dismissed. Order pronounced in the open court on 21st August, 2018.