ACIT, NEW DELHI vs. M/S JUHI INVESTMENT CO. PVT. LTD.,, NEW DELHI

ORDER PER H.S. SIDHU : JM The Revenue has filed the present appeal against the impugned order dated 31/5/2011 passed by the Ld. Commissioner of Income Tax (Appeals)-VII, New Delhi on the following grounds:-

1. The order of the Ld. CIT(A) is erroneous and contrary to facts and law.

2. On the fact and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the penalty of Rs. 19,00,000/- levied under section 271(1)(c) of the I.T. Act.

2.1 The Ld. CIT(A) ignored the finding recorded by the AO and fact that the assessee filed inaccurate particulars of its income by suppressing the closing stock and by not disallowing any expense on account of exempt income.

3. The appellant craves leave to add, to alter, or amend any grounds of the appeal raised above at the time of hearing.

4. Now the Revenue is aggrieved against the impugned order and filed the present appeal before the Tribunal.

“4.1 The findings of the A.O. in respect of the quantum order & the penalty order and the submission made on behalf of the appellant have also been carefully considered. With regard to the addition of Rs.60,58,065/- on account of suppression in closing stock, which according to the assessee was surrendered voluntarily during the assessment proceedings, it is to be examined as to whether the income surrendered by the assessee is voluntary or bona fide one. In this case, the Assessing officer had taken up the case for scrutiny and issued notice under sec. 143(2) that was served upon the assessee. The AO also raised certain questionnaire and in response thereto certain details were filed by the assessee. During the assessment proceedings, the assessee had admittedly made voluntary disclosure of additional income of Rs.60,58,065/- on account of difference in the valuation of closing stock vide letter dated 08.8.2006 and revised computation of taxable income. The findings of the Assessing officer in respect of the voluntary disclosure of additional income of Rs.60,58,065/- are as under:-

"The reply of the assessee company has been carefully considered and is not acceptable on account of the following reasons:

(a)Surrender in closing stock of Rs. 60,58,065 made by the assessee company vide its letter dated 8.8.2006 tantamount to filing of a revised return, which is not permissible as the due date of filing the same u/s 139(5) i.e. 31.3.2006 has already elapsed. The assessee is well aware of this fact and that is why instead of filing a revised return, it has filed a revised computation of income. The provisions of the I.T. Act do not extend any credibility to a computation of income if it is not accompanied by the Income-tax return in the prescribed proforma. Accordingly, no cognizance shall be taken of the revised computation of income filed by the assessee company".………………………………………………………………….

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Thus, no cognizance shall be taken of the revised computation of income filed by the assessee company.

The facts remains that the assessee company has deliberately understated its closing stock by an amount of Rs. 60,58,065, which was surrendered by it only after prior detection made by the undersigned. This fact also conveys that the books of accounts maintained by the assessee company are also deficient as they do not reflect the true and correct particulars of income of the assessee company. The aforesaid discussions clearly establish that the assessee company intentionally underdeclared its closing stock in its books of accounts to suppress its profits. Accordingly, the books of accounts maintained by the assessee company are hereby rejected.

Hence, an amount of Rs. 60,58,065 is added to the total income of the assessee company on account of suppression in closing stock".

4.2. The meaning of word "Voluntarily" has recently been explained by the Hon'ble Allahabad High Court in the case of CIT v. Shri Rakesh Suri vide order dated 13-5-2010 reported in (2011) 9 Taxmann.com 5 as under:-

"41. A Full Bench of the Allahabad High Court in the case reported in (1998) 230 ITR 855 : Bhairav Lal Verma v. Union of India [l998] 230 ITR 855, while interpreting the word voluntarily given in Section 273(A) of the Act held that voluntarily means out of free will without any compulsion. When the assessee concealed the incriminating material with regard to income so disclosed cannot be held to be voluntary. It shall be appropriate to reproduce the relevant portion from the judgment of Bhairav Lal Verma [1988J 230 ITR 855 (All) as under (page 862):

'The position thus settled is that the word "voluntarily" in section 273A of the Act means out of free will without any compulsion. Disclosure of concealed income after the Department has seized the incriminating material with regard to the income so disclosed, cannot be voluntary disclosure, because it was made under the constraint of exposure to adverse action by the Department. But it cannot be held as a principle of law that the disclosure of income made after the search/raid cannot be voluntary. It is a question which has to be decided by the Department in each case on the basis of the material on the record. If on record there is incriminating material with regard to the disclosed income, the disclosure cannot be voluntary. But if the Department has no incriminating material with regard to the income disclosed, the disclosure is liable to be treated as voluntary having been made without any compulsion or constraint of exposure to adverse action by the Department. In a case where the assessee has disclosed not only the income regarding which the Department has incriminating material, but has also disclosed the income with regard to which no incriminating material was seized by the Department, the disclosure of the income with regard to which the Department has no incriminating material, is liable to be treated as voluntary. For example, if an assessee is having five accounts and the Department has incriminating material with regard to one of those accounts only, the disclosure of income relating to four accounts with regard to which the Department has no incriminating material, is voluntary, because it was made without any constraint or compulsion, even though the disclosure of the income relating to the Juhi Investment Co. Pvt. Ltd. account regarding which the Department has incriminating material, is liable to be treated as non-voluntary. ' Dictionary:

42. Black's Law Dictionary (Seventh Edition) defines 'voluntarily' as intentionally or without coercion. It shall be appropriate to reproduce meaning of "voluntarily" and 'voluntary' as given in Black's Law Dictionary, which is as under:

Voluntarily, adv. Intentionally; without coercion.

Voluntary, Adj. 1. Done by design or intention. 2.

Unconstrained by interference; not impelled by outside influence. 3. without valuable consideration; gratuitous. 4. Having merely nominal consideration -voluntariness, n.'.

43. In the Law Lexicon by P. Ramanatha Aiyar, meaning of Voluntary has been given as, to quote Voluntary - Of one's free will, impulse of choice; not constringed by another; acting voluntarily or willingly [S 2(2), Sale of Goods ActJ; [Art. 101 (3), prov., Const.] Voluntary-The expression 'voluntary is used in this section to some states have adopted at different times. T.E. Mohomed Usman v. State of Madras, AIR 1961 Mad 129, 138. [Citizenship Act, 1955, S 9(1)J 'Means doing of something as the result of the free exercise of the will but not something done under a legal duty. " "Where a person obtained a passport acted on his own volition and knew the nature of his act and did not act in performance of a legal duty, nor due to coercion or fraud or misrepresentation or mistake he has acted voluntarily. 'Abdul Salam v.

Union of India, AIR 1969 All. 223 at 228.

[Citizenship Rules (1956) R. 30]"

4.3 From the said decision it is thus clear that voluntarily means out of free will without any compulsion. It is also observed therein that when the assessee concealed incriminating material with regard to the income disclosed by the assessee, disclosure cannot held to be voluntarily. Disclosure of income after the department has collected incriminating material with regard to the income so disclosed, cannot be voluntary disclosure, because it was made under the constraint of exposure to adverse action by the Department. In the present case, the AO has not collected any incriminating material against the assessee with regard to the closing stock of shares of Apollo Tyres valuing Rs. 60,58,065/- . The disclosure was made by the assessee through revised computation of income vide letter dated 8/8/06 and not under the constraint of exposure to adverse action by the AO.

It is, thus, the case where disclosure has been made voluntarily and out of free will, but not under compulsion. Taking the entire gamut of the case into account, I am of the considered view that there was no case for the AO that the explanation offered by the assessee was not bona fide or there was a concealment. In taking this view, reliance is placed on the decision of the Hon'ble ITAT, Delhi Bench in the case of Prem Chand Garg (supra) Addl. CIT v.

Prem Chand Garg (2009) 31 SOT 97 (Delhi)(TM)/ (2009) 123 TTJ (Del)(TM) and that of the Hon'ble Punjab and Haryana High Court in the case of CIT v. Balbir Singh (2008) 304 ITR 125/ (2007) 164 Taxman 65 (Punj. & Har.). Therefore, such levy of penalty in respect of the addition of Rs.60,58,065/- on account of suppression in closing stock is deleted.

4.4 With regard to the other four additions, I have considered the written submission on behalf of the appellant, the findings of the Assessing Officer and the facts on record. There is no dispute to the well- settled legal proposition that the penalty proceedings are distinct and different from assessment proceedings. Findings in the assessment proceedings are not conclusive. The entire material available should be considered afresh by the Assessing Officer before imposing penalty uls 271(1)(c) of the Act. The Explanation to section 271(1)(c) provides a rule of evidence raising a rebuttable presumption in certain circumstances.

No substantive right is created or annulled thereby.

The substantive law relating to levy of the penalty is preserved. The initial burden of proof is cast on the assessee to establish the presumption arising- irr certain cases. The assessee can discharge the onus either by direct evidence or circumstantial evidence or by both. The cumulative effect of all facts should be taken into consideration. During the course of penalty proceedings, the assessee is entitled to show and establish by the material and relevant facts, which may go to affect and having direct bearing on the liability for penalty. Whether there is a concealment to make the penalty exercisable is normally a question of fact. Where the burden of proof in a given case has been discharged on a set of facts, is also a question of fact. The burden is cast on the assessee to offer a bona fide explanation. There is also a plethora of judgments to the effect that findings recorded or conclusion drawn in deciding the quantum appeal, are neither conclusive nor binding. For this proposition reliance may be placed on the judgment of Hon'ble Kerala High Court in the case ofCIT Vs. Pawan Kumar Dalmia [1987] 168 ITR 1 and the judgment of the Hon'ble Allahabad High Court in the case of Banaras Texturium Vs. CIT [1988] 169 ITR 782 and also the judgments of the Hon'ble Delhi High Court in the case of CIT V s. Chetandan Lachhmandas [1995] 214 ITR 726 and CIT v. lK.

Synthetics Ltd. [1996] 219 ITR 267 (Delhi).

4.5 It is trite law that merely because an addition has been made in the assessment order and confirmed in appeal, levy of penalty is not automatic. In National Textiles Vs. CIT [2001] 249 ITR 125 the Gujarat High Court held that it is not enough for the purpose of penalty that the amount has been assessed as income, the circumstances must show that there was animus i.e. conscious concealment or act of furnishing inaccurate particulars on the part of the assessee.In the present case, the appellant's conduct and the explanation offered by it shows that there was no conscious or intentional act of appellant to conceal or furnish inaccurate particulars of income.

4.6 In the instant case, the assessee had not furnished the inaccurate particulars of his income when it furnished the return as the appellant has disclosed the impugned expenses in its Profit and loss account filed along with the return of income.

There is only difference of opinion on the relevant issues. If an assessee gives an explanation which is unproved but not disproved i.e., it is not accepted but circumstances do not lead to the reasonable and positive inference that the assessee's case is false. Hon'ble Punjab & Haryana High Court in the case of CIT Vs. Ajaib Singh & Co. [2002] 253 ITR 630 have observed that merely because of certain expenses claimed by the assessee are disallowed by an authority, it cannot mean that particulars furnished by the assessee were wrong. It was held that mere disallowance of expenses per se cannot mean that assessee has furnished inaccurate particulars of its income. It is repeatedly held by the Courts that the penalty on the ground of concealment of particulars or non-disclosure of full particulars can be levied only when in the accounts/ return an item has been suppressed dishonestly or the item has been claimed fraudulently or a bogus claim has been made. When the facts are clearly disclosed in the return of income, penalty cannot be levied and merely because an amount is not allowed or taxed to income, it cannot be said that the assessee had filed inaccurate particulars or concealed any income chargeable to tax. Further, conscious concealment is necessary. Even if some deduction or benefit is claimed by the assessee wrongly but bonafide and no malafide can be attributed, the penalty would not be levied.

Reliance is also placed on the judgment of the Supreme court in the case of CIT vs. Reliance Petroproducts Pvt. Ltd.(2010) 322 ITR 158.

4.7 From the decisions cited above, it can be concluded that mere disallowance or addition will not be sufficient for levy of penalty u/s. 271(1)(c).

Though it may be argued that not filing correct return of income is equal to filing incorrect return of income and therefore the assessee can be said to be guilty of filing inaccurate particulars of income but for levy of penalty u/s. 271(1)© this status is not sufficient. The A.O. has to show by some positive material with which he can compare that what was filed by the assessee was inaccurate or was false leading to the inference that the assessee has concealed income or filed inaccurate particulars of income. Mere disallowance or not accepting the claim of the assessee will not be sufficient. In view of the above and taking into consideration the fact that the appellant had disclosed all material facts, it is held that there is no case of concealment or furnishing of inaccurate particulars of its income in respect of the disallowances totaling break-up of which is given in Para-3 above. Therefore, it is held that AO was not justified in levying penalty u/s. 271(1)© in respect of the said disallowances.

Accordingly, the same is cancelled. As a result, grounds nos. 1 to 5 of the appeal are allowed.”

7.1 After going through the findings of the Ld. CIT(A), as aforesaid, we find that the Assessing officer had taken up the case for scrutiny and issued notice under sec. 143(2) of the I.T. Act, 1961 that was served upon the assessee. The AO also raised certain questionnaire and in response thereto certain details were filed by the assessee. During the assessment proceedings, the assessee had admittedly made voluntary disclosure of additional income of Rs.60,58,065/- on account of difference in the valuation of closing stock vide letter dated 08.8.2006 and revised computation of taxable income.

7.2 We note that the meaning of word "Voluntarily" has recently been explained by the Hon'ble Allahabad High Court in the case of CIT v. Shri Rakesh Suri vide order dated 13-5-2010 reported in (2011) 9 Taxmann.com 5 as under:-

"41. A Full Bench of the Allahabad High Court in the case reported in (1998) 230 ITR 855 : Bhairav Lal Verma v. Union of India [l998] 230 ITR 855, while interpreting the word voluntarily given in Section 273(A) of the Act held that voluntarily means out of free will without any compulsion. When the assessee concealed the incriminating material with regard to income so disclosed cannot be held to be voluntary. It shall be appropriate to reproduce the relevant portion from the judgment of Bhairav Lal Verma [1988J 230 ITR 855 (All) as under (page 862):

'The position thus settled is that the word "voluntarily" in section 273A of the Act means out of free will without any compulsion. Disclosure of concealed income after the Department has seized the incriminating material with regard to the income so disclosed, cannot be voluntary disclosure, because it was made under the constraint of exposure to adverse action by the Department. But it cannot be held as a principle of law that the disclosure of income made after the search/raid cannot be voluntary. It is a question which has to be decided by the Department in each case on the basis of the material on the record. If on record there is incriminating material with regard to the disclosed income, the disclosure cannot be voluntary. But if the Department has no incriminating material with regard to the income disclosed, the disclosure is liable to be treated as voluntary having been made without any compulsion or constraint of exposure to adverse action by the Department. In a case where the assessee has disclosed not only the income regarding which the Department has incriminating material, but has also disclosed the income with regard to which no incriminating material was seized by the Department, the disclosure of the income with regard to which the Department has no incriminating material, is liable to be treated as voluntary. For example, if an assessee is having five accounts and the Department has incriminating material with regard to one of those accounts only, the disclosure of income relating to four accounts with regard to which the Department has no incriminating material, is voluntary, because it was made without any constraint or compulsion, even though the disclosure of the income relating to the Juhi Investment Co. Pvt. Ltd. account regarding which the Department has incriminating material, is liable to be treated as non-voluntary. ' Dictionary:

Voluntarily, adv. Intentionally; without coercion.

Voluntary, Adj. 1. Done by design or intention. 2. Unconstrained by interference; not impelled by outside influence. 3. without valuable consideration; gratuitous.

7.3 From the said decision it is thus clear that voluntarily means out of free will without any compulsion. It is also observed therein that when the assessee concealed incriminating material with regard to the income disclosed by the assessee, disclosure cannot held to be voluntarily. Disclosure of income after the department has collected incriminating material with regard to the income so disclosed, cannot be voluntary disclosure, because it was made under the constraint of exposure to adverse action by the Department. In the present case, the AO has not collected any incriminating material against the assessee with regard to the closing stock of shares of Apollo Tyres valuing Rs. 60,58,065/- . The disclosure was made by the assessee through revised computation of income vide letter dated 8/8/06 and not under the constraint of exposure to adverse action by the AO. It is, thus, the case where disclosure has been made voluntarily and out of free will, but not under compulsion. Taking the entire gamut of the case into account, we note that there was no case for the AO that the explanation offered by the assessee was not bona fide or there was a concealment. In taking this view, Ld. CIT(A) has rightly relied upon the decision of the TAT, Delhi Bench in the case of Prem Chand Garg (supra) Addl. CIT v. Prem Chand Garg (2009) 31 SOT 97 (Delhi)(TM)/ (2009) 123 TTJ (Del)(TM) and that of the Hon'ble Punjab and Haryana High Court in the case of CIT v. Balbir Singh (2008) 304 ITR 125/ (2007) 164 Taxman 65 (Punj. & Har.).

Therefore, such levy of penalty in respect of the addition of Rs.60,58,065/- on account of suppression in closing stock was rightly deleted.

7.4 We further note that penalty with regard to the other four additions is concerned, we find that there is no dispute to the well- settled legal proposition that the penalty proceedings are distinct and different from assessment proceedings. Findings in the assessment proceedings are not conclusive. The entire material available should be considered afresh by the Assessing Officer before imposing penalty uls 271(1)(c) of the Act. The Explanation to section 271(1)(c) provides a rule of evidence raising a rebuttable presumption in certain circumstances. No substantive right is created or annulled thereby. The substantive law relating to levy of the penalty is preserved. The initial burden of proof is cast on the assessee to establish the presumption arising in certain cases. The assessee can discharge the onus either by direct evidence or circumstantial evidence or by both. The cumulative effect of all facts should be taken into consideration. During the course of penalty proceedings, the assessee is entitled to show and establish by the material and relevant facts, which may go to affect and having direct bearing on the liability for penalty. Whether there is a concealment to make the penalty exercisable is normally a question of fact. Where the burden of proof in a given case has been discharged on a set of facts, is also a question of fact. The burden is cast on the assessee to offer a bona fide explanation. There is also a plethora of judgments to the effect that findings recorded or conclusion drawn in deciding the quantum appeal, are neither conclusive nor binding. For this proposition Ld. CIT(A) rightly relied upon the judgment of Hon'ble Kerala High Court in the case of CIT Vs. Pawan Kumar Dalmia [1987] 168 ITR 1 and the judgment of the Hon'ble Allahabad High Court in the case of Banaras Texturium Vs. CIT [1988] 169 ITR 782 and also the judgments of the Hon'ble Delhi High Court in the case of CIT V s. Chetandan Lachhmandas [1995] 214 ITR 726 and CIT v. lK. Synthetics Ltd. [1996] 219 ITR 267 (Delhi).

7.5 We further find that it is trite law that merely because an addition has been made in the assessment order and confirmed in appeal, levy of penalty is not automatic. In National Textiles Vs. CIT [2001] 249 ITR 125 the Gujarat High Court held that it is not enough for the purpose of penalty that the amount has been assessed as income, the circumstances must show that there was animus i.e. conscious concealment or act of furnishing inaccurate particulars on the part of the assessee. In the present case, the assessee’s conduct and the explanation offered by it shows that there was no conscious or intentional act of assessee to conceal or furnish inaccurate particulars of income.

7.6 In view of the above, we are of the considered view that the assessee had not furnished the inaccurate particulars of his income when it furnished the return as the assessee has disclosed the impugned expenses in its Profit and loss account filed along with the return of income. There is only difference of opinion on the relevant issues. If an assessee gives an explanation which is unproved but not disproved i.e., it is not accepted but circumstances do not lead to the reasonable and positive inference that the assessee's case is false. Hon'ble Punjab & Haryana High Court in the case of CIT Vs. Ajaib Singh & Co. [2002] 253 ITR 630 have observed that merely because of certain expenses claimed by the assessee are disallowed by an authority, it cannot mean that particulars furnished by the assessee were wrong. It was held that mere disallowance of expenses per se cannot mean that assessee has furnished inaccurate particulars of its income. It is repeatedly held by the Courts that the penalty on the ground of concealment of particulars or non-disclosure of full particulars can be levied only when in the accounts/ return an item has been suppressed dishonestly or the item has been claimed fraudulently or a bogus claim has been made. When the facts are clearly disclosed in the return of income, penalty cannot be levied and merely because an amount is not allowed or taxed to income, it cannot be said that the assessee had filed inaccurate particulars or concealed any income chargeable to tax. Further, conscious concealment is necessary. Even if some deduction or benefit is claimed by the assessee wrongly but bonafide and no malafide can be attributed, the penalty would not be levied. Hence, Ld. CIT(A) has rightly placed reliance on the judgment of the Supreme Court in the case of CIT vs. Reliance Petroproducts Pvt. Ltd.(2010) 322 ITR 158.

7.7 From the decisions cited above, it can be concluded that mere disallowance or addition will not be sufficient for levy of penalty u/s. 271(1)(c). Though it may be argued that not filing correct return of income is equal to filing incorrect return of income and therefore the assessee can be said to be guilty of filing inaccurate particulars of income but for levy of penalty u/s. 271(1)© this status is not sufficient. The AO has to show by some positive material with which he can compare that what was filed by the assessee was inaccurate or was false leading to the inference that the assessee has concealed income or filed inaccurate particulars of income. Mere disallowance or not accepting the claim of the assessee will not be sufficient. In view of the above and taking into consideration the fact that the assessee had disclosed all material facts, it is held that there is no case of concealment or furnishing of inaccurate particulars of its income in respect of the disallowances. In view of above, we note that the case law relied upon by Ld. DR in the case of Mak Data (P) Ltd. vs. CIT-II (Sura) is relating to voluntary disclosure and hence, distinguished to the facts and circumstances of the present case. In view of the above, we are of the considered opinion that Ld. CIT(A) has rightly held that the AO was not justified in levying penalty u/s. 271(1)© in respect of the said disallowances.

Accordingly, the same was rightly cancelled, which does not need any interference on our part, hence, we uphold the action of the Ld. CIT(A) in deleting the penalty in dispute and reject the ground raised by the assessee.