AHAMEDSAIB BABU,VELLORE vs. ITO, VELLORE

आदेश / O R D E R PER BENCH

The brief facts of the case are that the assessee filed his return of income for the A.Y 2011-12 admitting a total income of `2,41,850/- and an agricultural income of `3,00,000/- on 24.0 01.2012. The case was selected for scrutiny. During the course of assessment proceedings, the assessee had stated that out of cash deposits in the current and savings bank account of `1,37,13,230/-, an amount to the extent of `91,10,351/- was his undisclosed sales receipt excluding sales, job work receipts, agricultural receipts of `25 lakhs and miscellaneous income. The AO estimated the profit on business receipts @ 10% of `96,l0,351/-, which worked out at `9,61,035/- instead of 8% of `96,10,351/- against `7,28,828/- offered by the assessee during the assessment proceedings and completed the assessment by making an addition on account of estimated profit at business receipts of `96,10,351/- which comes to `9,61,035/-.

According to Assessing Officer, assessee himself has accepted the undisclosed turnover of `91,10,351/- which clearly establishes that assessee’s turnover exceeded the prescribed limit to get his accounts audited u/s.44AB. The assessee did not file the audited report & 201/Mds./16 :- 3 -: u/s.44AB, penalty proceedings were initiated and penalty to the tune of `52,750/- was levied u/s.271B of the Act. Aggrieved, the assessee carried the appeal before the Ld.CIT(A).

2.1 Before the Ld.CIT(A), the assessee protested the levy of penalty u/s.271B of the Act. According to Ld.CIT(A), as the assessee has not furnished report u/s.44AB (Audited Report) and the return was filed after the due date, prescribed u/s.139(2) of the Act, the penalty notice u/s.271B was issued on 20.03.2014, posting case for hearing on 27.04.2014. There was no response from the assessee. Afterwards, the Department issued letters dated 01.07.2014 & 07.08.2014 posting the case for hearing on 25.07.2014 & 12.08.2014. Even then the assessee has neither filed a letter nor appeared, either personally nor through any representative. Finally, a letter dated 27.08.2014 was issued to the assessee to appear without fail on 05.09.2014. The assessee chose not to appear for the one more opportunity given.

Though in the hearing letter it is clearly mentioned that no further opportunity will be given, the assessee willfully avoiding to present his case. According to Ld.CIT(A), since the assessee accepted clearly in the assessment stage, that the undisclosed receipts are so much, he would not have any more explanation of offer. Therefore, Ld.CIT(A) observed that this case is fit for levy of penalty/s.271B of the Act.

Accordingly, Ld.CIT(A) confirmed penalty at 0.5% on the total turnover & 201/Mds./16 :- 4 -: of `1,05,49,155/- (turnover admitted +undisclosed turnover) excluding the agricultural receipts of `20 lakhs. Thus, penalty of `52,750/- was levied u/s.271B of the Act. Against the order of Ld.CIT(A) confirming the levy of penalty u/s.271B of the Act, now the assessee is in appeal before us.

3.1 At this stage, it is pertinent to go through the judgment of Rajasthan High Court in the case of Bajrang Oil Mills vs. ITO, 295 ITR 314, wherein it was held that Sub-section (9) of section 139 operates where a return has been submitted by the assessee and the Assessing Officer & 201/Mds./16 :- 5 -: considers whether the return of income furnished by the assessee is defective. It requires the Assessing Officer where he finds that the return submitted by the assessee is defective, he must give him an opportunity to rectify the defect within a period of fifteen days from the date of such intimation or within such further period which, on an application made in this behalf, the Assessing officer may, in his discretion, allow; and if the defect is not removed within the said period of fifteen days or within the extended period as may be allowed by the Assessing Officer, the return has to be treated as invalid and the assessee is considered to have failed to furnish the return. The provisions of section 139(9) is of singular importance from the point of view to allow a chance to the assessee to make his return complete and specify the defects which are curable and for the purpose of curing that defect an opportunity has to be offered to the assessee before the consequences of such defects follow. In other words, the consequence of noncompliance with the requirement of furnishing of a valid return takes effect only after the assessee fails to remove the defects within the time allowed until the assessee has opportunity to remove such defects, the consequence of such failure to comply with such defects cannot follow. If no such report is submitted the question may not carry further as in that event the return itself becomes invalid and it becomes a case where it is to be deemed that the assessee has failed to submit any return which may lead to consequence of default in filing the return. Hence, it cannot be said that there is any failure on the part of the assessee to furnish the audit report u/s.44AB of the Act at the request of the ld. Assessing Officer. Being so, by & 201/Mds./16 :- 6 -: placing reliance on the judgment of Rajasthan High Court in the case of Bafrang Oil Mills (supra), we are inclined to delete the penalty levied u/s. 271B of the Act.

The issue in this appeal is with regard to levy of penalty u/s.271(1)(c) of the Act at `4 lakhs.

5.1 The facts of the case are similar to earlier appeal herein, only difference is levy of penalty u/s.271(1)(c) of the Act.

5.2 Penalty proceedings u/s.271(1)(c) of the Act were initiated by A.O as the assessee had not furnished the full particulars of income and penalty to the tune of `4 lakhs was levied. Aggrieved by the order of ld. Assessing Officer, the assessee carried the appeal before the Ld.CIT(A). On appeal, the Ld.CIT(A) observed that voluntary disclosure of concealed income does not absolve from penalty but it can only be a circumstance in determining the quantum of penalty.

According to Ld.CIT(A), the AO had only levied minimum amount. It cannot be laid down as a general proposition that no penalty can be levied for agreed assessment; assessee having admitted that out of cash deposits of `1,37,13,230/-, the sum of `91,10,351/- were the undisclosed sale receipts and further out of `25 lakhs shown as & 201/Mds./16 :- 7 -: agricultural receipts, assessee admitted that `5 lacks were undisclosed timber business receipts, thus in all assessee has admitted total of undisclosed business receipts for `96,10,351/- and on such undisclosed business receipts AO has quantified the unaccounted profit @10% which was agreed upon by the assessee in the assessment proceedings. Thus penalty u/s 271(1)(c ) was clearly levied on concealed income of the assessee. Considering the same, the AO has first found out income which was not disclosed before the Department and from the undisclosed receipts estimated the unaccounted income of the assessee. According to ld.CIT(A), it is a clear cut of case of concealment of income and the AO is right in levying penalty u/s.271(1)(c) of the I.T.Act, 1961. Hence, the imposition of penalty is confirmed by Ld.CIT(A). Against the order of Ld.CIT(A), now the assessee is in appeal before us.

receipts. The contention of the ld.AR is that the income is estimated herein, therefore, penalty cannot be levied as there is no conclusive proof for undisclosed income of the assessee. The ld.DR relied on the order of the lower authorities.

6.1 In our opinion, in the present case the penalty has been levied only on the basis of estimated income. The income of the assessee has been estimated in respect of business carried on by the assessee as seen from the facts of the case. It is also noted that the other income is considered as undisclosed income is on account of admission by the assessee. Being on this count also penalty cannot be levied. In entirety, in this case the income of the assessee has been determined on estimate basis. There is no conclusive material to show that there is actual concealment of income. Though the addition is confirmed by the CIT(A), it does not prove that the Assessing Officer has the material to suggest that the assessee earned exact amount of profit as determined by the Assessing Officer out of these unaccounted transactions.

6.2 In our opinion, the penalty is not mandatory if the assessee offers convincing reasons or if any reasonable cause demonstrated for non-inclusion of such income, penalty is not attracted.

6.3 In the case of Smt. Mala Dayanidhi v. Dy. CIT [2004] 91 ITD 46(Bang.) it was held that addition not based on material found during & 201/Mds./16 :- 9 -: the search or material in possession of Assessing Officer but based on difference in valuation of property, as disclosed by the assessee and as estimated by the DVO, there was no concealment attracting penalty u/s. 158BFA(2) of the Act. In the instant case there was a estimate at the level of Assessing Officer as well as at the level of CIT(A) in respect of the undisclosed income. From the entire facts of the present case, it would be clear that the income of the assessee was estimated and material on record by the Assessing Officer is not enough to levy penalty for concealment of income. In our opinion, unless there is conclusive material showing the exact amount of concealment of income no penalty is leviable on the addition if made on estimate basis. While taking such a view, we are fortified by the judgement of Punjab & Haryana High Court in the case of CIT v. Prem Das (No. 1)

[2001] 248 ITR 234/ 118 Taxman 619(Punj. & Har.), wherein it was held at page 236 as under:

"We have heard learned counsel for the Revenue and the assessee. It appears that the assessee had claimed deduction of expenses from the gross freight receipts in respect of his own trucks on estimate basis and had shown income from commission at 7 per cent of the gross receipts in respect of the trucks owned by others. The AO had allowed expenditure at 80 per cent. The CIT(A) allowed expenditure at 84 per cent. Similarly, whereas the AO had estimated income from commission at 10 per cent, the CIT allowed it at 8 per cent. The Tribunal found that the difference between the returned and the assessed income was due to the difference of opinion about the estimated rates of income and expenditure. Income had been enhanced by the AO by adopting a lower estimate in respect of & 201/Mds./16 :- 10 -: the expenditure and higher estimate with regard to the income from commission. The AO determined the income of the assessee on estimate basis. The Tribunal noticed that since the difference in estimates was based on a difference of opinion, there was no positive proof regarding concealment of income by the assessee. The assessee had shown expenditure as also the income from commission on estimate basis. The rates of estimate were varied by the AO. These were further varied by the CIT(A). The Tribunal, therefore, cancelled the penalty on the ground that there was no positive evidence to prove suppression of income. On a consideration of the matter, it is noticed that the assessee had returned income on estimate basis. The AO and the CIT adopted different estimates. It was, thus, a case of difference of opinion."

6.4 From the above judgement, it is clear that when the Assessing Officer and the CIT(A) adopted figures of income on estimate basis and it is a case of difference of opinion between the assessee as well as the Department and that reason cannot be a basis for levy of penalty. Being so, whatever said by the Punjab & Haryana High Court in the case cited supra with regard to provisions of section 271(1)(c) of the Income-tax Act is applicable to the present case. Further as noted from the argument of the learned counsel for the assessee various Tribunals have held that unless any positive concealment is found, no penalty is leviable on the additions made on estimate basis. In the case of Harigopal Singh v. CIT [2002] 258 ITR 85/ 125 Taxman 242(Punj. & Har.) it was held that where the assessment is made on estimate basis, no penalty u/s. 271(1)(c) of the Act can be imposed. In that case it was observed that on account of mere difference of & 201/Mds./16 :- 11 -: opinion as regards the estimation of income penalty cannot be levied.

Since the Assessing Officer and the Tribunal adopted different assessments for ascertaining the income of the assessee, it could not be said that the assessee had concealed the particulars of his income so as to attract penalty u/s. 271(1)(c) of the Act. In the present case there is a difference in estimating the income of the assessee by the assessee itself and by the Department. Being so, the difference is only on account of difference in opinion in determining the income. That difference in opinion among the parties cannot result in levy of penalty.

6.5 Further the Supreme Court in the case of Hindustan Steel Ltd. (83 ITR 26) held as under:

"An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi criminal proceedings and penalty will not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of law was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of provisions of the Act or which the breach flows from a & 201/Mds./16 :- 12 -: bona fide belief that the offender is not liable to act in the manner prescribed by the statute."

6.6 In the light of the above observations, we are of the opinion that it would be within the power of the Income-tax authorities not to levy penalty having regard to the nature of mistake or omission committed by the assessee and general conduct of the assessee in the course of assessment proceedings and such other relevant factors.

6.7 In the case of CIT v. Suresh Chandra Mittal [2001] 251 ITR 9/ 119 Taxman 435(SC) the Hon'ble Supreme Court held that where the assessee claimed that he offered additional income only to buy peace and avoid litigation and the Department did not prove concealment but simply rested its conclusion on the voluntary surrender of income by assessee in good faith, no penalty for concealment of income can be levied. In our opinion, the facts of the case before us are fully covered by this decision of the Hon'ble Apex Court.

6.8 In the case of CIT v. Khoday Eswarsa & Sons [1972] 83 ITR 369(SC) Hon'ble Apex Court held that before levying penalty the Department must show that assessee had consciously concealed the particulars of his income and deliberately furnished inaccurate particulars of the same. In the present case, the Department is not & 201/Mds./16 :- 13 -: able to establish either conscious or deliberate concealment of income or furnishing of inaccurate particulars of income by the assessee. The assessee deliberately has not concealed the particulars.

6.9 The assessee has accepted the addition only with the sole intention to avoid litigation and because the assessee has not gone in appeal against the quantum addition, it does not automatically qualify for levy of penalty and it does not entail the Department to levy penalty. Penalty proceedings are not automatic and the assessment proceedings and the penalty proceedings are two different proceedings. The Revenue authorities are required to examine the penalty proceedings independently and on the basis of material available on record. As seen from the arguments of the assessee, it is amply clear that the assessee had accepted the addition only to avoid litigation and to buy peace with the Department. The provisions of section 271(1)(c) gives discretionary power to assessing officer to levy penalty. This discretion should have been used by the Assessing Officer in favour of the assessee because the additions are confirmed either by the CIT(A) on estimated basis. Being so, where the provisions begin with the word "may" and not "shall" and the word & 201/Mds./16 :- 14 -:

"may direct" in section 271(1)(c)) do indicate that a discretionary power is available with the Assessing Officer and the CIT(A) to levy penalty even where technically the provisions are attracted. Being so, in the light of the judgement of Supreme Court in the case of Hindustan Steel Ltd., postulates the situation that penalty should not be levied in the present case.

7.1 In the result, this appeal of the assessee is allowed.

Order pronounced on 27th September, 2017, at Chennai.