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Before: SHRI R. K. PANDA & MS SUCHITRA KAMBLE
These appeals are filed by the assessee against the order dated 29/8/2013 passed by CIT(A)-I, Dehradun for Assessment Year 2002-03 & 2003-04 respectively.
The grounds of appeal are as under:-
I.T.A .No. 5860/DEL/2013 (A.Y 2002-03)
“1. That in view of the facts and circumstances of the case the Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the penalty of rs.100000/- imposed u/s 271(1)(c) of the Income Tax Act by the Learned Assessing Officer .”
I.T.A .No. 5861/DEL/2013 (A.Y .2003-04)
“1. That in view of the facts and circumstances of the case the Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the penalty of Rs.100000/- imposed u/s 271(1)(c) of the Income Tax Act by the Ld. Assessing Officer .”
Survey u/s 133A of the I.T.Act was conducted in this case on 25.03.2003 and loose- sheets containing the following notings were impounded: Page Nature of Document Date of Document Amount Involved No. Sale Bill No. 4695 06.03.2002 10 Gold Ornaments weighing 29,900 Grams Sale Bill No. 4696 06.03.2002 11 Gold Ornaments weighing 19.570 Grams 33 Loose Sheet 11.08.2001 Rs. 59,990/- 34 Loose Sheet 01.02.2002 Rs. 1690/00 50 Loose Sheet 22.10.2001 Rs36,670/ 49 Loose Sheet 27.03.* Rs.52,844/*
Page No.53, date 20.12.2001 and amount involved of Rs.26,414/ was inadvertently mentioned in the notice u/s 142(1) dated 07.03.2001.
The Assessing Officer did not accept the explanation of the assessee that the loose sheets do not belong to the assessee and concluded that the assessee was doing unaccounted business transactions. The Assessing Officer estimated the assessee’s turnover as well as the G.P. rate upwards and made an addition of Rs.3,53,527/. The Assessing Officer made a separate addition of Rs. 1,42,004/ towards the cost of jewellery which, according to him, had been sold outside the books of account through impounded documents. Thus, total addition of Rs.4,95,531/ was made in original assessment on the basis of the impounded documents. In appeal (No.92/DDN/2005-06), the CIT(A)-I, Dehradun, vide order dated 15.11.2006, reduced the estimate of turnover while upholding the G.P. rate applied by the AO. Thus, the addition to net profit on account of estimate of higher turnover-cum-GP rate was reduced to Rs.55,154/-. Further, according to CIT(A), separate addition for the loose sheets was made to the extent of the peak of investment and cost of goods sold outside the regular books of account. This amount was worked out by the CIT(A) at Rs.1,82,834/. Thus, total addition was reduced to Rs.2,37,988/ by the CIT(A). In further appeal (ITA No.406/Del/07), the ITAT Delhi, vide its order dated 17.10.2008, held as below:
“....However, we find the addition that is sustained is excessive having regard to the facts of the case and material found in course of the search. We are of the opinion that whatever loose papers were found the same should be treated as part of the turnover and should be added to the disclosed turnover and the gross profit in any case disclosed by the assessee when the assessee has sales outside the books of accounts cannot be accepted. We direct the AO to take 25% of both the sales as gross profit percentage and make the addition accordingly. The AO is directed to rework the addition on these lines. In place of two additions that are made by the AO we sustain one addition in respect of the gross profit which is worked out on the sales after including the sale of the jeweler on the basis of the loose papers. The AO is directed to rework the addition.”
The ITAT deleted the separate addition on account of the loose sheets, i.e. the cost of the goods sold as per the documents, i.e. Rs.1,82,834/. But, the ITAT fixed the GP rate @25% approximately while the lower authorities had estimated differential rate of 21% on manufacturing account and 5% on trading account. The effect of this was that the addition was actually higher than what had been sustained by the CIT(A) and a contradiction arose between the ITAT’s observation [that addition sustained by the CIT(A) was excessive] and its decision. When this discrepancy was brought to its notice, ITAT recalled its order on 09.10.2009. In the final order made on 31.12.2009, the ITAT upheld the CIT(A)’s estimated G.P. But, simultaneously, it restored the issue of separate addition on the basis of loose sheets to the AO for fresh decision. The Assessing Officer in fresh assessment made on 31.11.2010, took into account the second order of the ITAT dated 31.12.2009 but actually gave effect to the first order dated 17.10.2008. The Assessing Officer added the amount of Rs.2,63,320/- as per the loose sheets to the disclosed turnover and estimated G.P. @ 25% of the sale. In second round of appeals, the CIT(A)-II, Dehradun, vide order dated 12.03.2012 corrected the error and directed the Assessing Officer to adopt the estimate of turnover and G.P. as per the order of the CIT(A) in the first round (vide order dated15.11.2006) and as upheld by the ITAT in its order dated 31.12.2009. On the issue of treatment to the loose sheets separately, he held that the amount of Rs.2,63,320/- represented undisclosed turnover and had to be added separately to the assessee’s income. Thus, the total addition was again revised to Rs.3,18,474/-.
In the meanwhile the penalty proceedings u/s 271(1)(c) of the Act were finalized and penalty was levied on the additions of Rs.2,62,630/- and Rs. 1630/- made on basis of loose papers found during the course of survey proceedings on 25.09.2003 in the premises of assessee. Thus, levied the penalty of Rs. 1,00,000/- by the Assessing Officer.
In the appeal against the penalty before the CIT(A), the assessee reiterated that the loose sheets had not been written by any partner and did not belong to it. According to it, these sheets might have been left behind by some customer or supplier. Hence, according to it, the AO was not correct in imposing penalty with reference to the addition made on the basis of these loose sheets. The CIT(A) held that this issue was considered by the appellate authorities in the past while hearing the appeals against the assessment. It further held uniformly that, since the documents were found in the assessee’s possession, they were presumed to be belonging to it. Whether they were in the handwriting of any partner or not has not been considered material. In this background, the CIT(A) held that it was not possible to reach a different conclusion about the relevance of these documents for the assessee’s business or its income at this stage. Of course, if the AO had imposed penalty with reference to the composite addition of Rs.3,18,474/, a point could be raised whether, in so far as double additions had been made with reference to the same impounded documents (by estimating higher turnover as well as GP and also by separately estimating the undisclosed sale), such penalty was not excessive. But, that occasion does not exist because the AO imposed penalty only with reference to one addition, i.e. Rs.2,63,320/-. It is held that the assessee’s explanation of the impounded documents was not substantiated and the assessee failed to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of its total income was disclosed by it. Consequently, the CIT(A) held that the Assessing Officer was correct in imposing the penalty and confirmed the penalty.
The Ld. AR submitted that when the original ITAT order does not attract penalty u/s 271(1)(c) of the Act which was given effect and simply added the amount of Rs.2,63,320/- as per the loose sheets to the disclosed turnover and estimated GP at 25% of the sale, the same cannot be stated as concealment of income or inaccurate particulars. The Ld. AR submitted that the decision in case of CIT Vs. Padmini Mishra order dated 27/5/2014 wherein it is held that the initiation of penalty proceedings is based upon the satisfaction of one who is empowered to do so. The addition of 2,63,320/- were not originally added by the Assessing Officer but was directed by the second order of the ITAT by adding the same as per the loose sheets. Thus, the provision u/s 271(1)(c) will not at all attract. The Ld. AR also relied on the decision of the Hon’ble Calcutta High Court in case of CIT Vs. Anand Patrika Bazar 116 ITR 416.
The Ld. DR relied upon the penalty order passed u/s 271(1)(c) of the Act.
We have heard both the parties and perused the material available on record. The Ld. AR demonstrated that the addition on which the penalty was imposed was not on the initial additions made in original assessment order, but the penalty is imposed on the amount which was sustained by the appellate authority. Therefore, the addition on which the initiation of penalty u/s 271(1)(c) of the Act was made in fact was not in the original assessment order. When the original basis of initiation of the penalty proceedings is elaborated or modified by the appellate authority, the authority initiating the penalty proceedings has no jurisdiction thereafter to proceed on the basis of the findings of the appellate authority. The case laws cited by the Ld. AR are in support of the assesse. The CIT(A) totally ignored the facts that in the original assessment order, the Assessing Officer has not initiated the penalty as he levied penalty on the enhancement of additions later on made by the appellate authorities. Thus very basis of the initiation of penalty is non-existent. Therefore, the order of the CIT(A) does not survive. In A.Y. 2003-04 also the facts are similar, therefore, the order of the CIT(A) is set aside.
In result, the appeals of the assessee are allowed.
Order pronounced in the Open Court on 22th September, 2017.