SANSUI STEELS P.LTD,MUMBAI vs. ITO 7(2)(2), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “A” MUMBAI BEFORE SHRI MAHAVIR SINGH (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA No. 1403/MUM/2015 Assessment Year: 2008-09 Sansui Steel Pvt. Ltd. ITO-7(2)(2), 401-C, Gokul Building, Room No. 621-A, Vs. 80A Baroda Street, Ayakar Bhavan, M.K. Iron Market, S.T. Road, Marg, Carnac Bunder, Mumbai-400020. Mumbai-400009 PAN No.AAACS8834K Appellant Respondent Assessee by : Mr. K. Gopal & Ms. Neha Paranjpe, AR Revenue by : Mr. Rajesh Kumar Yadav, DR Date of Hearing : 27/09/2017 Date of pronouncement : 30/11/2017

ORDER PER N.K. PRADHAN, A.M. This is an appeal filed by the assessee. The relevant assessment year is 2008-09. The appeal is directed against the order of the Commissioner of Income Tax (Appeals)-14, Mumbai and arises out of the penalty u/s 271(1)(c) of the Income Tax Act 1961, (the ‘Act’). 2. The grounds of appeal filed by the assessee read as under: 1. The CIT(A)-14, Mumbai erred in passing the order dated 23.12.2014 upholding the order dated 25.09.2013 passed by the Ld. AO levying the concealment penalty of Rs.4,63,500/- u/s 271(1)(c) of the Act without appreciating the facts and circumstances of the case. Hence,

Sansui Steel Pvt. Ltd. 2 ITA No. 1403/Mum/2015 the levy of concealment of penalty is not at all justified and the same may be deleted. 2. The Ld. CIT(A) failed to appreciate that the appellant had not concealed any particular of income or furnished any inaccurate particulars. Hence, the levy of concealment of penalty of Rs.4,63,500/- u/s 271(1)(c) is without any basis and the same may be deleted. 3. Briefly stated, the facts of the case are that the assessee-company filed its return of income for the AY 2008-09 on 09.07.2008 declaring total income of Rs.11,49,410/-. During the course of assessment proceedings, the Assessing Officer (AO) was informed by the investigation Unit-I, Mumbai that a search and seizure action u/s 132 was conducted by the Revenue in the case of M/s Mahasagar Securities Pvt. Ltd. (now Alag Securities Pvt. Ltd.). During the course of search, it was revealed that M/s Mahasagar Securities Pvt. Ltd. and its related group of around 36 companies run by Mr. Mukesh Choksi were not engaged in any genuine business but involved in fraudulent billing activities and providing bogus speculation profit/loss, short term capital gains/loss, share application money, profit/loss on commodity trading (through MCX). It was further revealed that the assessee-company had given share application money of Rs.5,00,000/- from M/s Jaihind Syntetics Ltd. and Rs.10,00,000/- from M/s Talent Infoway Ltd. totalling Rs.15,00,000/-. 3.1 On the basis of the above specific information, the AO issued notice u/s 148 on 21.02.2012. In response to it, the assessee submitted on 29.02.2012 that the original return filed on 09.07.2008 be treated as return filed in response to notice u/s 148.

Sansui Steel Pvt. Ltd. 3 ITA No. 1403/Mum/2015 3.2 During the course of reassessment proceedings, the AO asked the assessee to explain the source of application money amounting to Rs.15,00,000/-. The assessee submitted before the AO on 20.03.2013 an affidavit of its Director, Shri Vishwanathan H. Iyer, stating that the above amount of Rs.15,00,000/- represents its income and it offered the same to tax to buy peace with the Department and accordingly paid the tax. The AO, thus, completed the assessment u/s 143(3) r.w.s. 147 on 22.03.2013 making an addition of Rs.15,00,000/- as unexplained cash credit u/s 68. 4. The AO, then, imposed a minimum penalty of Rs.4,63,500/- u/s 271(1)(c) on the reason that (i) in the original return of income filed on 09.07.2008 the assessee had not disclosed the above facts, (ii) the notice u/s 148 was issued on 21.02.2012 and the assessee filed the said affidavit only on 20.03.2013, (iii) even in the affidavit filed, the assessee has not explained the manner in which the said income was earned and genuine reason, if any, for not offering the said income to tax in the original return of income or in response to notice issued u/s 148. 5. Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) observed that in the case of Mak Data Pvt. Ltd. vs. CIT (Civil Appeal No. 9772 of 2013), the Hon’ble Supreme Court has held that the AO should not be carried away by the plea of the assessee like “voluntary disclosure”, “buy peace”, “ avoid litigation”, “amicable settlement”, etc. to explain away its conduct. The question is whether the assessee has offered any explanation for concealment of particulars of income or furnishing inaccurate

Sansui Steel Pvt. Ltd. 4 ITA No. 1403/Mum/2015 particulars of income. The Ld. CIT(A) found that the assessee-company was unable to give any explanation why the amount has been shown as share application money in the name of the said two entities which was found to be accommodation entries. The mere plea that the same was done with a view to buy peace with the Department did not carry any weightage in favour of the assessee. Thus the Ld. CIT(A) upheld the penalty of Rs.4,63,500/- levied by the AO. 6. The assessee has filed an additional ground before the Tribunal. “The Ld. CIT(A) as well as the Ld. AO failed to appreciate that the notice dated 22.03.2013 issued u/s 274 r.w.s. 271 of the Income Tax Act, 1961 is not discernable as to whether the penalty proceedings is initiated for concealment of income or furnishing of inaccurate particulars of income. Hence, the notice dated 22.03.2013 u/s 274 r.w.s. 271 of the Act and the subsequent penalty order u/s 271(1)(c) of the Act is bad in law and the same may be quashed.” 6.1 We are of the considered view that the above additional ground raised by the assessee is purely a legal ground and the same goes to the root of the instant case. In view of the ratio laid down in NTPC vs. CIT (1998) 229 ITR 383 (SC), we admit the above additional ground filed by the assessee. 7. Now we consider the merit of the additional ground filed by the assessee. We find that in the assessment order dated 22.03.2013 completed u/s 143(3) r.w.s. 147, the AO has initiated the penalty proceedings u/s 271(1)(c) on the ground that the assessee has furnished inaccurate particulars of its income. In the penalty order

Sansui Steel Pvt. Ltd. 5 ITA No. 1403/Mum/2015 dated 25.09.2013, the AO has levied penalty on the assessee for furnishing inaccurate particulars of income. 7.1 In Mak Data Pvt. Ltd. (supra), the Hon’ble Supreme Court has held at para 10 the following: “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. The scope of Section 271(1)(c) has also been elaborately discussed by this Court in Union of India vs. Dharmendra Textile Processors (2008) 13 SCC 369 and CIT vs. Atul Mohan Bindal (2009) 9 SCC 589.” 7.2 In the case of CIT vs. Smt. Kaushalya and Others (1995) 216 ITR 660 (Bom), the Hon’ble Bombay High Court held: “9. We will first take up the show-cause notice dated March 29, 1972, pertaining to the assessment years 1968-69 and 1969-70. The assessment orders were already made and the reasons for issuing the notice under section 274 read with section 271(1)(c) were recorded by the Income-tax Officer. The assessee fully knew in detail the exact charge of the Department against him. In this background, it could not be said that either there was non-application of mind by the Income-tax Officer or the so-called ambiguous wording in the notice impaired or prejudiced the right of the assessee to reasonable opportunity of being heard. After all, section 274 or any other provision in the Act or the Rules, does not either mandate the giving of notice or its issuance in a particular form. Penalty proceedings are quasi-criminal in nature. Section 274 contains the principle of natural justice of the assessee being heard before levying penalty. Rules of natural justice cannot be imprisoned in any straight-jacket formula. For sustaining a complaint of failure of the principles of natural justice on the ground of absence of

Sansui Steel Pvt. Ltd. 6 ITA No. 1403/Mum/2015 opportunity, it has to be established that prejudice is caused to the concerned person by the procedure followed. The issuance of notice is an administrative device for informing the assessee about the proposal to levy penalty in order to enable him to explain as to why it should not be done. Mere mistake in the language used or mere non-striking of the inaccurate portion cannot by itself invalidate the notice. The entire factual background would fall for consideration in the matter and no one aspect would be decisive. In this context, useful reference may be made to the following observation in the case of CIT v. Mithila Motor's (P.) Ltd. [1984] 149 ITR 751 (Patna) (head note): Under section 274 of the Income-tax Act, 1961, all that is required is that the assessee should be given an opportunity to show cause. No statutory notice has been prescribed in this behalf. Hence, it is sufficient if the assessee was aware of the charges he had to meet and was given an opportunity of being heard. A mistake in the notice would not invalidate penalty proceedings." 7.3 In CIT vs. Samson Perincherry (ITA No. 953, 1097, 1154 & 1226 of 2014), the Hon’ble Bombay High Court held: “Therefore, the satisfaction of the Assessing Officer with regard to only one of the two breaches mentioned under Section 271(1)(c) of the Act, for initiation of penalty proceedings will not warrant/permit penalty being imposed for the order breach. This is more so, as an Assessee would respond to the ground on which the penalty has been initiated/notice issued. It must, therefore, follow that the order imposing penalty has to be made only on the ground of which the penalty proceedings has been initiated, and it cannot be on a fresh ground of which the assessee has no notice.”

Sansui Steel Pvt. Ltd. 7 ITA No. 1403/Mum/2015 hereinbefore at para 7, 7.1,7.2 & 7.3 , we find that the additional ground raised by the assessee is devoid of merit. Hence, the same is dismissed. 9. Now we dwell on the merit of the case. Before us, the Ld. counsels of the assessee in support of their arguments have filed a Paper Book containing (i) acknowledgement of filing return of income for AY 2008- 09 along with computation of total income, (ii) details of shareholders along with number of shares held by them, (iii) notice issued u/s 148 along with reasons recorded for reopening of the assessment for AY 2008-09, (iv) reply of the notice u/s 142 of the Act dated 02.03.2013, (v) reply to the notice u/s 142 of the Act dated 12.03.2013, (vi) details of additional shares issued, (vii) resolution passed on 09.07.2007 by Talent Infoway Ltd. along with details of shares, confirmation letter, share application form, (viii) resolution passed on 09.07.2007 by Jai Hind Synthetics Ltd. along with details of shares, confirmation letter, share application form (ix) affidavit of Mr. Vishwanathan H. Iyer, (x) assessment order u/s 143 r.w.s. 147 of the Act dated 22.03.2013, (xi) tax payment receipt, (xii) annual return, (xiii) return of allotment along with details of shares, (xiv) receipt from Ministry of Corporation Affairs, (xv) form of filing profit and loss account and other document, (xvi) written submission. (xvii) acknowledgement of filing return, audit report including Form 3CD along with annexures, (xviii) the Balance Sheet, Profit & Loss Accounts along with schedules, (xix) the Return of allotment in Form 2 pursuant to section 75(1) of the Companies Act 1956 showing that the share were allotted in the subsequent year at same rate of premium.

Sansui Steel Pvt. Ltd. 8 ITA No. 1403/Mum/2015 10. Per contra, the Ld. DR relies heavily on the order of the Ld. CIT(A). 11. We have heard the rival submissions and perused the relevant materials on record. The reasons of our decisions are given below. The sequence of events as narrated hereinbefore is : (i) the assessee-company filed its return of income for the AY 2008-09 on 09.07.2008 disclosing total income of Rs.11,49,410/-, (ii) the AO issued notice u/s 148 on 21.02.2012, (iii) the assessee filed an affidavit on 20.03.2013 offering Rs.15,00,000/- to tax and (iv) the AO complete the assessment on 22.03.2013 making an addition of Rs.15,00,000/- to the income shown by the assessee. 11.1 The background as delineated hereinbefore is that during the course of search and seizure action u/s 132 conducted in the case of M/s Mahasagar Securities Pvt. Ltd., it was revealed that these were fraudulent transactions. This led the assessee-company to offer Rs.15,00,000/- to tax by filing an affidavit before the AO on 20.03.2013. Therefore, the submission of the Ld. counsel of the assessee delineated at para 9 hereinbefore loses its significance. 11.2 Where the assessee himself voluntarily concedes that a particular item of income had been concealed by him and surrenders such income for the purpose of assessment, there is nothing left for the Revenue to prove the factum of it being assessee’s income and also the factum of it having been concealed by him. In such cases, such concession by the assessee may afford sound foundation for the imposition of penalty. A plethora of precedents on the subject in which we are presently

Sansui Steel Pvt. Ltd. 9 ITA No. 1403/Mum/2015 concerned compels us, in order to avoid prolixity, to refer only a few decisions. These are : Durga Timber Works vs. CIT, (1971) 79 ITR 63 (Del); Banaras Chemicals Factory vs. CIT, (1977) 108 ITR 96 (All), Ayyasami Nadar & Bros. vs. CIT, (1956) 30 ITR 565 (Mad); India Sea Foods vs. CIT, (1978) 114 ITR 124 (Ker); H.V. Venugopal Chettiar vs. CIT, (1985) 153 ITR 376 (Mad); Western Automobiles (India) vs. CIT, (1978) 112 ITR 1048 (Bom); CIT vs. Krishna & Co., (1979) 120 ITR 144 (Mad); CIT vs. P.B. Shah & Co. Pr. Ltd. (1978) 113 ITR 587 (Cal); CIT vs. Dr. R.C. Gupta & Co. (1980) 122 ITR 567 (Raj). 11.3 In Mak Data Pvt. Ltd. (supra), their Lordships of the Hon’ble Supreme Court at para 8 have held: “8. Assessee has only stated that he had surrendered the additional sum of Rs.40,74,000/- with a view to avoid litigation, buy peace and to channelize the energy and resources towards productive work and to make amicable settlement with the income tax department. Statute does not recognize those types of defences under the explanation 1 to Section 271(1)(c) of the Act. It is trite law that the voluntary disclosure does not release the Appellant-assessee from the mischief of penal proceedings. The law does not provide that when an assessee makes a voluntary disclosure of his concealed income, he had to be absolved from penalty.” 11.4 To recapitulate, the AO issued the notice u/s 148 on 21.02.2012. The assessee-company filed an affidavit on 20.03.2013 offering Rs.15,00,000/- to tax. The said affidavit filed by the assessee has not explained the manner in which the said income was earned and the reason, if any, for not offering the said income to tax in the original return filed or in response to the notice issued u/s 148.

Sansui Steel Pvt. Ltd. 10 ITA No. 1403/Mum/2015 12. Examined on the touch-stone of the aforesaid enunciation of law delineated at para 11.2 & 11.3, we uphold the order of the Ld. CIT(A). 13. Consequently, the appeal, being devoid of merit, stands dismissed. Order pronounced in the open Court on 30/11/2017. Sd/- Sd/- (MAHAVIR SINGH) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 30/11/2017 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, //True Copy// (Dy./Asstt. Registrar) ITAT, Mumbai