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Before: Shri Bhavnesh Saini & Shri L.P. Sahu
ORDER Per L.P. Sahu, A.M.: This is an appeal filed by the assessee against the order dated 19.05.2014 of ld. CIT(A), Noida for the assessment year 2009-10, challenging the sustenance of penalty u/s. 271(1)(c) of the IT Act, 1961 (for short ‘the Act’), on the following grounds :
“1. That under the facts and circumstances, levy of penalty of Rs.11,63,947/- u/s. 271(1)(c) is unsustainable in law as well as on merits. 2. That the ld. CIT(A) did not appreciate as well as did not adjudicate various contentions as per law and thus erred in sustaining the action of imposition of penalty u/s. 271(1)(c).
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3. That under the facts and circumstances, all the additions for which penalty has been levied are outside the scope and ambit of Sec. 271(1)(c) as none of the additions is in the nature of concealment of income within the meaning of sec. 271(1)(c).”
The appellant has also raised an additional ground for admission having been raised for the first time before the Tribunal, which reads as under : “That under the facts and circumstances Ist SCN dtd. 14.11.2011 is premature and other 2 SCN’s dtd. 23.12.2011 and 03.04.2012 do not precisely specify the charge, therefore illegal and unsustainable in law, hence, penalty order passed in pursuance to such invalid notices is un- sustainable in law and without jurisdiction”.
The brief facts of the case are that assessment of assessee was completed at a total income of Rs.42,06,490/- as against the returned income of Rs.4,56,490/-. In the assessment proceedings, the AO noticed that the assessee had made investment of Rs.1,57,50,000/- in purchase of a property (Rs.1,50,00,000 as sale consideration + Rs.7,50,000/- as stamp duty), out of which a sum of Rs.1,02,50,000/- was invested during the period relevant to assessment year under consideration. On being asked for the source of investment, the assessee explained that during the year, she had taken unsecured loans of Rs.30.00 lacs from following seven persons, who were stated to be friends and relatives : (1). Unsecured loan from Sh. Bishan Sroop Rs.5,00,000/- (2). Unsecured loan from Smt. Dropadi Sharma Rs.1,00,000/- (3). Unsecured loan from Sh. Durgesh Sharma Rs.1,00,000/-
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(4). Unsecured loan from Sh. Atvir Sharma Rs.5,00,000/- (5). Unsecured loan from Sh. Anil Sharma Rs.5,00,000/- (6). Unsecured loan from Sh. Alok Kumar Gupta Rs.3,00,000/- (7). Unsecured loan from Smt. Malti Upadhyaya Rs.10,00,000/-
On being asked to explain the nature, source and genuineness of above loan transactions, the assessee furnished confirmations & bank statements of all the above creditors along with ITRs of Malti Upadhyay and Bishan Swaroop. On perusal of the bank statements of the above creditors, the AO noticed that the above creditors had deposited cash in their bank accounts almost equal to the amount of unsecured loans advanced to the appellant immediately prior to issuance of cheques towards loans to the appellant. He, therefore, directed the appellant to produce all the seven creditors for examination. The assessee, however, could produce only two creditors, namely, Shri Bishan Swaroop and Shri Alok Gupta, whose statements were recorded on oath. The assessee failed to produce remaining creditors for examination. With respect to payment of Rs.7,50,000/- as stamp duty, the explanation of the assessee was that it was invested from her past savings, but no evidence to substantiate the explanation was laid on record. The AO, therefore, having considered the attending facts & circumstances and the entire material available on record, concluded that the alleged loan transactions were not genuine nor the creditworthiness of the creditors stood proved within the meaning of section 68 of the IT Act. He, accordingly, made
ITA No. 3728/Del./2014 4 addition of Rs.37,50,000/- to the total income of the assessee. The assessee did not challenge the addition in quantum appeal before the ld. CIT(A), but accepted the addition made by the AO. Based on the above findings and addition, the AO initiated penalty proceedings u/s. 271(1)(c) of the Act for furnishing inaccurate particulars of income and accordingly levied penalty of Rs.11,63,947/- against the appellant.
The appellant challenged the penalty order in appeal before the ld. CIT(A), who after considering detailed submissions of the assessee and various case laws cited, dismissed the appeal observing as under : “I have carefully considered the written submissions of the appellant and also the contents of the penalty order and perused the relevant material available on record and after having carefully considered the entire facts and circumstances of the case, my conclusions on the issues raised in the grounds of appeals are as under : The only issue involved in the appeal in hand is imposition of penalty u/s 271(1)(c) which is being discussed and adjudicated in following paras of this order: Part-I:(Penalty with respect to unexplained investment of Rs. 7,50,000/- on account of Stamp Duty) In this regard vide written submission dated 25/3/2014 it has simply been stated that above expenditure has been incurred out of funds available with the assessee. However, no detail or supporting evidence in this regard has been submitted during the appellate proceeding. Moreover, in the course of hearing with respect to above appeal the counsel of the appellant did not press for it and hence this ground of appeal is being dismissed.
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Part-II: (Penalty with respect to unexplained unsecured loan amounting to Rs.30,00,000/-) In this case the assessee purchased a property and made a total investment of Rs. 1,57,50,000/-, out of which investment of Rs. 1,02,50,000/- was made during the year under consideration and in this regard, besides other loans, the assessee had taken unsecured loan to the extent of Rs,30,00,000/- from seven persons, the details of which are as under:- Sr. Name of the assessee Amount 1 Sh. Bishan Swaroop Rs. 5,00,000/- 2. Sh. Alok Kr. Gupta Rs. 3,00,000/- 3. Sh. Dropadi Sharma Rs. 1.00.000/- 4. Sh. Durgesh Sharma Rs. 1,00,000/- 5. Sh.Atvir Sharma Rs. 5,00,000/- 6. Sh. Anil Sharma Rs. 5,00,000/- 7. Sh. Malti Upadhay Rs. 10,00,000/- TOTAL Rs.30,00,000/-
During the assessment proceeding the assessee was asked to explain the genuineness of the loan transaction and prove identity and creditworthiness of the creditors. In this regard the assessee furnished the ITRs, bank statements etc. and also produced two lenders for cross examination. After careful perusal of all the relevant materials available on record it is observed as under:- That all the above creditors had deposited cash in their bank accounts almost equal to the amount of unsecured loan advanced to the appellant immediately prior to issuance of cheque towards loan to the appellant. Without any doubt, such co-incidence in the normal course is quite rare raising big question mark over the genuineness of above loan transaction and also strongly suggesting that there existed some mala fide connivance between the assessee and the lenders. Further, on scrutiny of the creditor's bank account, no other instance of such a huge cash deposit was noticed. Moreover, in some cases when AO asked to explain the source of cash
ITA No. 3728/Del./2014 6 deposits in creditors' bank account it has been stated that the cash has been borrowed by the creditors from several other persons, which means that the creditors for extending loan to the assessee has themselves borrowed cash loan from others which is also not convincing and appears a weak and false explanation for the reasons that the creditors failed to adduce reliable evidence in its support. So far as creditworthiness of the creditor is concerned, on perusal of their pass book and ITR it is quite clear that the earning capacity of the creditors are very low if compared with the amount of loan given to the appellant. In view of above discussion it clearly appears that the creditors did not have sufficient creditworthiness to advance such a big amount of unsecured loans to the appellant. During the appellate proceedings vide submission dated 25/3/2014 the counsel of the appellant has pleaded not to treat the amount of loan as concealed income to the extent the creditors had in their account prior to introduction of impugned cash in their bank account, which amounts to indirect admittance by the appellant that the cash deposited in the lender's bank accounts are not explainable deserving to be treated as undisclosed income in the hands of the assessee. Moreover, this issue could have been raised in quantum appeal which has not been preferred for the reason best known to the appellant only. Therefore, appellant's above contention does not appear to be tenable. From material available on record it is noticed that only two lenders were produced before the AO for cross examination though sufficient time and opportunity was given to the appellant to produce all the seven lenders for examination which also indicate that the lenders were avoiding to appear before the AO since they had no material to explain or substantiate the impugned cash credit in their bank account and unsecured loan given by them to the appellant which only indicate that the cash deposit prior to issuance of cheque to the assessee was just an accommodation entry and there was mala fide connivance between the lender and appellant just to evade tax and conceal the income. It is a well settled proposition that in respect of cash credit u/s. 68 the onus lies on the assessee to explain the identity, creditworthiness (capacity) of the lender and genuineness of the transaction which the assessee has failed to discharge. In this regard, I have noticed that during the penalty proceedings the assessee was given sufficient time and ITA No. 3728/Del./2014 7 opportunity to defend his contention and furnish proper reply with supporting evidence but the assessee has not filed any reply which indicate that assessee has no relevant and proper evidence in support of his contention and has nothing to say against the additions made in assessment as all the additions were accepted by her. Moreover, the appellant did not even prefer appeal against the above said additions merely to avoid litigation and buy peace of mind and that she could concentrate on her business. The above submission of the assessee is not convincing and has no force in it. It is very difficult to believe that an assessee will give up her hard earned lacs of money for tax purposes without availing all the legal remedy available to her only just to buy peace and avoid litigation until and unless there are some other compelling reasons which are best known to the appellant only. As per Explanation 1(B) of section 271(1)(c), where in respect of any facts material to the computation of total income of any person, additions are made because such person offers an explanation which he/she is not able to substantiate and fails to prove that such explanation is bonafide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, the amount so added shall be deemed to be the income in respect of which particulars have been concealed. During the appellate proceedings the appellant, in support of her contention, has cited various case laws and has argued that her case was not covered by the provisions of section 271(1)(c) of the I.T. Act. However, on perusal of above citations, discussed in detail by the appellant in her written submission, as reproduced in forgoing paras of this order, I find that the facts of the case in hand are not covered by above judicial pronouncements and thus are not relevant in context of present appeal. In view of the above discussion and keeping in view all the above facts and circumstances of the case and relevant provisions of the Act I am of the considered view that the assessee has completely failed to substantiate her explanation to prove the creditworthiness and genuineness of loan transactions and was also unable to establish and prove that the explanation given by her are bona fide and that all the relevant facts were disclosed by the appellant with respect to above unsecured loan transactions despite having been given sufficient time and opportunities during the assessment as well as penalty proceedings. Even during the appellate proceedings the appellant has failed to come out with any new
ITA No. 3728/Del./2014 8 facts and arguments so as to defend her case. Accordingly, as per Explanation, 1(B) to section 271(1)(c) of the Income Tax Act, 1961, I find that the AO was fully justified in holding the assessee guilty of furnishing inaccurate particulars of income to the extent of Rs. 37,50,000/- which attract penalty provisions of Section 271(1)(c) and hence, I confirm the penalty of Rs.11,63,947/- as imposed by the AO vide his order dated 07.06.2012 passed u/s. 271(1)(c) of the Income Tax Act.”
Aggrieved by the above order, the appellant is in appeal before the Tribunal.
During the course of hearing, the ld. AR of the assessee, addressing to the additional ground raised, submitted that the show cause notice issued to the appellant nowhere spells out any specific charge whether the penalty proceedings were being initiated for concealment or particulars of income or for furnishing inaccurate particulars thereof. The assessment order also does not contain the satisfaction of the AO to initiate penalty proceedings specifying the charge against the assessee as contemplated u/s. 271(1)(c). This failure on the part of Assessing Officer itself makes the initiation of penalty proceedings as invalid and bad in law in view of following decisions :
(i). CIT v. Manjunatha Cotton & Ginning Factory, 359 ITR 565 (Kar), which stood approved by Hon’ble Apex Court in CIT vs. SSA’s emerald Meadows, 242 Taxman 180 (SC).
(ii). Order dated 16.01.15 of ITAT Delhi Bench in Fortune Polymers Industries (P) Ltd. (ITA No. 1036/Del./2013)
(iii). Order dated 22.12.2015 of ITAT Mumbai in Sanghavi Savla Commodities Brokers (P) Ltd. v. ACIT (ITA No. 1746/Mum./2011).
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(iv). Order dated 06.11.2015 of ITAT Kolkata in Suvaprasanna Bhatacharya v. ACIT (ITA No. 1303/Kol/2010).
The ld. AR of the assessee submitted that this ground, being purely legal in nature, can be raised at any point of time in view of decision of Hon’ble Supreme Court in National Thermal Power Company Ltd. 229 ITR 383 (SC) and of Delhi High Court in Gedore Tools Pvt. Ltd., 238 ITR 268 (Del.).
On merits, the ld. AR submitted that stamp duty expenses of Rs.7.50 lacs was from personal sources; that no satisfaction for imposition of penalty on this addition was recorded in assessment order; that additions made in assessment order were not challenged to buy peace of mind and to avoid the exaggerated enquiries and to concentrate on business; that the loans were through banking channel; onus on appellant stood discharged by filing confirmations and bank statements of all the creditors, two creditors personally admitted to have advanced money to appellant in their statements; that doubt on source of source is no ground for treating the amount as concealed income; that non-production of all the creditors is no ground to impose penalty and that the identity and creditworthiness of creditors stood proved.
The ld. AR also raised an alternative contention that the source of loan to the extent of Rs.2,51,492/- which already existed in the accounts of various creditors prior to introduction of cash deposit, should not be taken as unexplained and as such penalty imposed on whole of the additions cannot be sustained. The details of existing credit balance in bank accounts of creditors prior to cash deposits therein, have been given in the written synopsis of the ITA No. 3728/Del./2014 10 appellant. The ld. AR has also relied on plenty of decisions for the proposition that doubting source of source is not ground of penalty; that non-production of creditors does not warrant penalty; that the assessment and penalty proceedings are distinct and that no penalty can be imposed simply because the assessee did not challenge the additions. Reliance is placed on the following decisions :
(i). Bharatesh Jain vs. ITO, 137 TTJ (Del.) 200 (ii). ITO vs. Ramesh Kumar Ved Parkash, 15 TTJ (Chd) 112 (iii). Gordhandas Ramdas vs. ITO 20 TTJ (Ind) 291 (iv). Labchand Deokaran vs. ITO, 13 TTJ (Pune)90 (v). CIT vs. Agarwal Pipe Co. 240 ITR 880 (Del.) (vi). CIT v. Khimji Bhanjee & Co. 32 CTR (Bom) 296 (vii). National Textiles vs. CIT 249 ITR 125 (Guj) (viii). CIT vs. Shiv Dhooti Pearls & Inv. Ltd., 237 Taxman 104 (Del.) Several other decisions have also been relied on by the ld. AR of the assessee.
On the other hand, the ld. DR reiterated the findings reached by the ld. Authorities below in the impugned orders and submitted that the ld. Authorities below had no occasion to adjudicate upon the legal ground raised by the assessee for the first time before the Tribunal on the validity of notice u/s. 271(1)(c) of the Act. It was submitted that the satisfaction of the Assessing Officer that the assessee has concealed the particulars of her income is well discernible from the assessment order itself. Since the assessee failed to justify the investments and the cash credits were found non-genuine and further that the explanations given by the assessee were not substantiated, the ld. Authorities below have committed no error while imposing penalty resorting to Explanation 1(b) to section 271(1)(c) of the Act.
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We have considered the rival submissions and have gone through the entire material available on record. We first proceed to take up the additional ground raised
before us which being legal in nature is fit to be admitted in view of the decision of Hon’ble Supreme Court in the case of NTPC Ltd. (supra). Most of the decisions relied by the assessee in support of this ground are based on the mute question whether the Assessing Officer has recorded its satisfaction specifying a particular facet of section 271(1)(c) , i.e., concealment of particulars of income or furnishing of inaccurate particulars of income before initiating the penalty proceedings. In this context, it has been settled by Hon’ble Supreme Court in the case of MAK Data (P) Ltd. vs. CIT, 358 ITR 593 (SC) that the satisfaction of the Assessing Officer should be discernible from the assessment order for imposition of penalty, and he is not required to record his satisfaction in a particular manner or reduce it to writing. The relevant observations of Hon’ble Court read as under :
9. We are of the view that the surrender of income in this case is not voluntary in the sense that the offer of surrender was made in view of detection made by the AO in the search conducted in the sister concern of the assessee. In that situation, it cannot be said that the surrender of income was voluntary. A O during the course of assessment proceedings has noticed that certain documents comprising of share application forms, bank statements, memorandum of association of companies, affidavits, copies of Income Tax Returns and assessment orders and blank share transfer 8 deeds duly signed, have been impounded in the course of survey proceedings under Section 133A conducted on 16.12.2003, in the case of a sister concern of the assessee. The survey was conducted more than 10 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
ITA No. 3728/Del./2014 12 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 277 read with Section 274 of the Income Tax Act, 1961.
10. The AO has to satisfy whether the penalty proceedings be initiated or not during the course of the assessment proceedings and the AO is not required to record his satisfaction in a particular manner or reduce it into writing......."
In the instant case, a study of the assessment order as a whole indicates that the satisfaction of the Assessing Officer regarding initiation of penalty proceedings for furnishing inaccurate particulars of income is quite discernible from the assessment order itself. It is no doubt true that in last para of assessment order, the AO has mentioned “Issue notice u/s. 271(1)(c), read with explanation (B) for penal proceedings which are being initiated separately”. However, at the same time, the AO has mentioned in last lines of para 5 of assessment order as under :
“The assessee has failed to disclose the correct details regarding the income as well as the investments made by him, penal proceedings u/s. 271(1)(c) read with explanation (B) are being initiated against her.”
From the above observations of the AO and on composite reading of assessment order, we find that the satisfaction of AO was discernible from the assessment order that the penalty proceedings were proposed to be initiated for furnishing inaccurate particulars of income. This alludes that the assessee was aware of the facets of section 271(1)(c), under which the penalty
ITA No. 3728/Del./2014 13 proceedings were proposed to be initiated, as is discernible from the assessment order. As such now there lies nothing in the mouth of assessee to contend that penalty is bad in law for want of specific charge against her. Therefore, we find that the facts of the case in hand are not existing in the judicial pronouncements relied by the assessee and thus are not relevant to the context of the present appeal before us in the peculiar facts and circumstances. Therefore, the additional ground raised by the assessee deserves to fail.
On going through the findings reached by the ld. Authorities below and the examinations of documentary evidence furnished by assessee made by AO, we find that the creditors had made cash deposits in their bank accounts almost equal to the amounts of unsecured loans advanced to the assessee immediately prior to issuance of cheques/DDs in favour of the assessee. The ld. CIT(A) has rightly observed that in such a scenario, cash deposits of huge amounts prior to issue of cheques cannot be a co-incidence in case of each and every creditors under consideration, particularly when no such other instances of huge cash deposit were found in the bank statements. Moreover, one of the creditors, Mr. Bishan Swaroop admitted in his statement that he borrowed money from several persons to advance loan to the appellant, which also does not appear credible for want of any supporting documents on record. ITRs submitted with respect to two of the creditors showing meager income, do not justify the creditworthiness of the creditors to advance huge loans to the appellant. The alternative plea taken by the assessee has also been properly dealt with by the ld. CIT(A), stating that such a plea could be raised by the assessee in quantum additions, which the assessee did not prefer to challenge in appeal, thereby accepting the additions so made by the AO. No cogent evidence were laid on record to prove the creditworthiness of ITA No. 3728/Del./2014 14 the creditors, the onus of which lay upon the assessee u/s. 68 which he failed to discharge. In view of the attending facts and circumstances, and considering the explanations of the assessee, we find that the assessee failed to substantiate its explanation and to prove that the explanation so offered was bonafide, therefore, the addition made by the AO has rightly been treated as income in respect of which particulars were concealed by the assessee within the meaning of Explanation 1(B) of Section 271(1)(c) of the Act. There being no parity of attending facts, the decisions cited by the assessee are not applicable to the present case. In the totality of facts and circumstances of the case, we, therefore, are not inclined to interfere with the conclusions reached by the ld. CIT(A) in the impugned order. Accordingly, the appeal of the assessee is found to have no merits and is liable to be dismissed.