SH. RAVI KHURANA,NEW DELHI vs. ITO, NEW DELHI

This appeal by the assessee arises out of the order passed by the CIT(A) on 19.9.2014 confirming penalty of Rs.2,96,680/- imposed by

ITA No.5961/D/2014

the Assessing Officer (AO) u/s 271(1)(c) read with section 254 of the

Income-tax Act, 1961 (hereinafter also called ` the Act’) in relation to

the assessment year 1998-99.

Succinctly, the facts of the case are that the assessee is engaged in

trading of asbestos sheets. A return declaring income of Rs.42,170/-

was filed. The AO issued and served several statutory notices on the

assessee calling upon him to comply with the requirements detailed

therein for completing the assessment. In compliance, the assessee filed

only partial details for examination. From such details and documents

filed along with return of income and the books of account, the AO

found several unsecured creditors aggregating to Rs.6,87,000/-, as

under:-

S. No. Name Amount 1. Sh. Shri Ashok Shah 19,000/- 2. Dharampal 18,900/- 3. Dinkar 19,000/- 4. Janak Khurana 1,94,000/- 5. Kanwal Jeet 19,000/- 6. Laxmi Narayan 10,000/- 7. Nargis Dutta 19,000/- 8. Pankaj 18,000/- 2

ITA No.5961/D/2014

addresses of the above creditors and also the source of their deposits

along with the documentary evidence, the AO show caused the assessee

as to why such credits be not added u/s 68 of the Act. Still no

documentary evidence was filed regarding the nature and source of

deposits in the name of above 29 persons. Left with no alternative, the

AO made addition of Rs.6,87,800/- u/s 68 of the Act. During the course

ITA No.5961/D/2014

of the first appellate proceedings, the assessee came out with a new and

revised list of the creditors consisting of 29 persons. The ld. CIT(A)

found that only one name was common in both the lists, viz., the one

complied by the AO from the books of account and other documents

annexed with the return of income and that filed before him for the first

time. The common name was that of Shri Janak Khurana, in whose

account the brought forward balance of Rs.1,70,000/- was there as on

31.3.1997 which increased to Rs.1,94,000/- as at the end of the relevant

year. The ld. CIT(A) refused to accept the new list. He, however,

deleted the addition to the extent of opening balance in the account of

Shri Janak Khurana amounting to Rs.1,70,000/- and sustained the

remaining addition of Rs.5,70,000/- (Rs.6,87,000-Rs.1,70,000/-). The

assessee challenged the addition before the Tribunal in quantum

proceedings. The Tribunal vide its order dated 31.5.2006, a copy

placed on page 82 onwards of the paper book, observed that the assessee

failed to file any evidence to support his contention that the wrong list of

depositors was filed with the return of income. It further held that the

onus was on the assessee to lead evidence in this regard, which it did 4

ITA No.5961/D/2014

not. That is how, the addition came to be upheld by the tribunal in the

quantum proceedings. Here it is pertinent to mention that there is

nothing to demonstrate that the assessee challenged the order of the

tribunal or such order got modified or reversed by the Hon’ble High

Court in any manner. Thereafter, the AO imposed penalty u/s 271(1)(c)

of the Act to the tune of Rs.2,96,680/- on the amount of addition

confirmed by the Tribunal in its quantum order to the extent of

Rs.5,17,800/-. Such penalty was confirmed by the first appellate

authority. In the proceedings before the Tribunal against the

confirmation of penalty, the assessee contended that the books of

account were produced before the AO during the course of penalty

proceedings with the list of all the creditors, but, the AO did not examine

such books. It was also argued that most of the creditors with respect to

whom penalty was levied had brought forward balances from the earlier

years and, therefore, at least to the extent of such opening balances no

penalty could have been imposed. The assessee again accentuated on the

revised list of creditors. The Tribunal, vide its order dated 19.6.2009,

restored the matter to the file of AO with the following observations:- 5

ITA No.5961/D/2014

“We have considered the rival contention, carefully gone through the orders of authorities below as well as the order of Tribunal in assessee's own case wherein penalty levied by the Ld. AO in the immediately preceding A. Y. was held to be not justified. There is no dispute to the well settled legal proposition that both the quantum and penalty proceedings are independent of each other. In the penalty proceedings, the assessee is given chance to show that why the penalty be not imposed with reference to the addition made or confirmed in the quantum proceeding and if the assessee succeeds in explaining his case, then no penalty can follow a d vice versa. It is therefore amply clear that the confirmation of addition by the Tribunal in the quantum proceedings cannot mean that a penalty be automatically confirmed. In the Instant case we found that during the assessment proceedings, the assessee has not produced the books of accounts so as to verify the alleged cash creditors. However, during penalty proceedings not only books of account were filed before the AO but the correct list of creditors was also furnished. However, the AO did not verify the books of account and the entries made therein on account of cash credit merely on the plea that during the original assessment proceedings, the same were not produced for examination. In view of the penalty proceedings being independent, there is no merit in the action of the AO for not examining the books of account and correct list of cash creditors subsequently furnished before him during penalty proceedings. It was also the contention of the Ld. AR that some of the creditors for which penalty was imposed in the earlier year and the Same was not found to be justified by the Tribunal to the extent of those creditors, order of Tribunal in assessee's own case ought to have been followed and no penalty should have been imposed with respect to these creditors. In the interest of justice and fair play, we restore the entire appeal to the file of the AO with a direction to the AO to examine the books of accounts so produced with reference to the entries made therein on account of cash credit and to find its genuineness and otherwise for deciding the question of levy of penalty u/s 271 (1}(c). We further direct the AO to verify the revised

ITA No.5961/D/2014

list of creditor furnished during penalty proceeding and if some of the creditor brought forward from the earlier years on which no penalty was held to be leviable by the Tribunal and if the creditor confirms the continuity of the same loan during the year under consideration, then not to levy penalty in respect of those creditors. We direct accordingly.”

Misconstruing the direction of the Tribunal as the one for making a fresh

assessment, the AO issued notice dated 22.2.2010 along with the

questionnaire, whose copy is available at page 108 of the paper book.

Through this notice, the assessee was required to furnish the details for

making a de novo assessment. The assessee objected to the same by

contending that there were no pending proceedings and, hence, such

notice should not have been issued. Again, notice u/s 142(1) dated

2.7.2010, a copy of which is placed at page 114 of the paper book was

issued requiring the assessee to furnish details. The assessee again

refused to furnish any details. The assessee, on his visit to the AO’s

office, was shown a copy of the order passed by the Tribunal remanding

the penalty proceedings to the AO for a fresh determination. The

assessee stuck to his stand that no proceedings were pending and hence

ITA No.5961/D/2014

no information could be furnished. A final show cause notice u/s

271(1)(c) was issued on 11.10.2010 fixing the date of compliance on

21.10.2010. In such show cause notice, the AO mentioned complete

facts of the case. Vide para 3 of the show cause notice, the assessee was

made aware that it should be taken as a final opportunity to furnish

replies to the questionnaire along with the books of account and

supporting documents. Once again, the assessee remained non-

compliant. This led to the passing of order imposing penalty of

Rs.2,96,680/- @ 200% on the amount of tax sought to be evaded qua the

addition u/s 68 sustained in the quantum proceedings to the tune of

Rs.5,17,800/-. The ld. CIT(A) upheld the penalty order against which

the assessee has come up in appeal before me.

material on record. It is noticed that there was 29 creditors as per the

books of the assessee which have been tabulated by the AO in his

assessment order. It was during the course of appellate proceedings in

quantum that the assessee came out with a fresh list, again of 29

ITA No.5961/D/2014

creditors totaling Rs.6,87,800/-. In both the lists, there is one common

name of Shri Janak Khurana, in whose account balance has been shown

at Rs.1,94,000/-. The revised list of the creditors along with the

assessee’s claim of certain brought forward balances in some of the

creditors, is as under:-

Name 31.03.1997 31.03.1998 1. Aman Verma 8,000.00 19,000.00 2. Deepak Gupta 8,000.00 19,000.00 3. Harjeet Kaur 18,000.00 19,000.00 4. Inderjeet Singh 13,000.00 19,000.00 5. Janak Khurana 170,000.00 1,94,000.00 6. Leena Roy 10,000.00 18,900.00 7. Naveen Gupta 17,000.00 19,000.00 8. Nona Bhalla 6,300.00 18,000.00 9. Om Prakash 6,000.00 19,000.00 10. Piyush Kumar 10,000.00 19,000.00 11. Rajan Malhotra 6,500.00 19,000.00 12. Ravinder 14,000.00 19,000.00 13. Rohit Mittal 16,000.00 19,000.00 14. Surbhi Sardana 15,000.00 16,700.00 15. Usha Arora 9,500.00 13,000.00 16. Vineeta 8,000.00 19,000.00 17. Wahid Khan 18,000.00 19,500.00 18. Ashok Khurana 19,000.00 19. Rajender Vashisth 19,000.00 20. Pawan K. Chadha 15,000.00 21. Sanjay Upreti 19,000.00 22. Prem Pal Khurana 19,000.00 23. J.N. Bhalla 3,000.00 24. Santosh Bhalla 19,000.00 25. S.S. Arora 19,000.00 26. Shama 19,000.00 27. Minal Chadda 9,700.00 28. Narender Vashisth 19,000.00 29. Heena Bhalla 19,000.00 362,300.00 687,800.00

ITA No.5961/D/2014

account and the documents filed along with the return of income as

tabulated by the AO as verbatim reproduced in an earlier para vis-à-vis

the one filed in the course of appellate proceedings as extracted in the

immediately preceding para that except for Shri Janak Khurana, which

is appearing in both the lists, all other 28 names are different and in each

case the amount of loan has been shown at less than Rs.20,000/-. It is

not understandable as to how names of 28 creditors out of a total list of

29 creditors underwent change when the original list as reproduced in

the assessment order was drawn from the books of account etc. The

assessee failed to furnish any justification for such a large-scale change

in the list of creditors before the authorities below. When this plea was

raised before the Tribunal in the first round of penalty proceedings, the

Tribunal restored the matter: “with a direction to the AO to examine the

books of account so produced with reference to the entries made therein

on account of cash credit and to find its genuineness and otherwise for

deciding the question of levy of penalty u/s 271(1)(c).” The AO was

ITA No.5961/D/2014

further directed: “to verify the revised list of creditors furnished during

penalty proceedings and if some of the creditors had brought forward

balance from earlier year, then, no penalty should be levied.” Despite

this clear-cut direction by the Tribunal, the assessee remained adamant

before the AO in not producing any documentary evidence in support of

the genuineness of the creditors. What to talk of satisfactorily

explaining the identity and capacity of the alleged creditors along with

the genuineness of transactions, the assessee did not put in any effective

appearance by submitting the details as called for and hence adopted

hostile and non-cooperative attitude.

for making the assessment instead of examining the genuineness of the

creditors from the angle of penalty. However, in his notice dated

22.2.2010 issued in the fresh proceedings, the AO along with certain

other details not germane to the issue of penalty, did specifically require

the assessee to furnish the details of unsecured loans vide para 6, which

reads as under:-

ITA No.5961/D/2014

“6. Provide details of unsecured loan taken during the previous year under consideration or repaid during the year, including date & mode of loan. Please give name, complete address and relationship of the lender. credit balance as on 31.03.1997 & 31.03.1998, amount of interest paid, TDS made and date of deposit into government account (Give copy of challan) along with copies of their ledger accounts, inclusive of squared up accounts as appearing in our books of accounts, Certificate / Confirmation from them or confirmed copies of their ledger accounts or copies of your ledger accounts in their books of accounts, mentioning their PAN & Ward. In case there is any new cash credit/ loan/ deposit during the year under consideration, please establish the identity & creditworthiness of the cash creditor / lender and furnish evidence regarding genuineness of loan transaction supported by copies of their Bank statement/ Pass Book (indicating the name and address of bank and account number) wherefrom loan amount was withdrawn, explaining the source of major credit entries made therein, copy of their capital account/ balance sheet/ statement of affairs reflecting the loan amount and copy of their Income Tax Return for the relevant Assessment Year.”

there was no fresh assessment required to be made, the assessee was

duty bound to satisfy the AO as regards the genuineness of creditors in

terms of order rendered by the Tribunal restoring the matter to the file of

AO and also as required by the AO vide para 6 of his notice reproduced

above. The requirements of notice other than those seeking details about

the cash creditors, have been rightly held by the ld. CIT[A] as not

ITA No.5961/D/2014

vitiating the proceedings because defects of such kind are manifestly

curable in terms of section 292B of the Act. I, therefore, hold that the

assessee was under obligation to comply with the requirements of the

AO in these notices to the extent these were applicable to the cash

creditors, which he did not.

first round of penalty proceedings to the AO for examining the books of

account with reference to the entries made on account of cash creditors

and the AO did inquire about that, the assessee was under strict

obligation to comply with the direction and furnish the details as called

for. A blunt refusal to furnish any details worth the name, despite the

direction given by the Tribunal, is akin to bypassing the due process of

law, which is totally unacceptable. The crux of the matter is that the

tribunal vide its order in the first round, which order has admittedly

attained finality, directed the AO to examine the assessee’s claim of the

revised list of creditors with reference to the books of account; and the

assessee without producing any books of account or the details or even

ITA No.5961/D/2014

without effectively appearing before him, is seeking deletion of penalty

at the level of the tribunal, which is nothing short of travesty of justice.

There can be no question of the deletion of penalty without the assessee

complying with the directions given by the tribunal in the first round,

pursuant to which the instant proceedings were initiated.

requirement of filing complete addresses of the creditors which are

available on pages 3 and 4 of the paper book and if the AO was not

satisfied with the genuineness of the creditors he ought to have

conducted inquiry at his own.

which he furnished addresses of 29 persons before the AO during

penalty proceedings in the first round. Such detail as given by the

assessee in the original penalty proceedings, is as under:-

ITA No.5961/D/2014

ITA No.5961/D/2014

ITA No.5961/D/2014

the alleged creditors have been given in a very sketchy manner. For

example, the first name is Aman Verma, whose addressee has been

shown as ‘Geeta’ Keshav Colony, Camp Road, Amravati, Maharashtra.

There is no reference to any house number. No letter can be served on

such an incomplete address. Similar is the position about the address of

the second alleged creditor Shri Deepak Gupta. Again, there is no

reference to any house number. Except for a few creditors, the

addresses of all other alleged creditors given by the assessee are

incomplete. For example, at Sl. no.22, the address of Shri Prem Pal

Khurana has been given as ‘Sabnis Plots, Amravti, Maharashtra. I fail to

understand as to how any sort of inquiry could have been possibly

conducted by the AO from such deficient addresses. As such, the

contention of the ld. AR that the assessee furnished addresses of the

creditors and discharged his onus, in my considered opinion is

fallacious. In that view of the matter, the argument that the creditors

were at the most unproved and not disproved, does not stand anywhere.

When the assessee failed to furnish complete addresses of the creditors, 17

ITA No.5961/D/2014

he cannot claim to have discharged his onus of proving the genuineness

of the creditors. It is further pertinent to note that the above list of

addresses of the alleged creditors was filed by the assessee in the

original penalty proceedings. When the tribunal did not delete the

penalty and restored the matter to the AO for fresh adjudication, it

implies that it was not satisfied with such an explanation of the assessee.

In the otherwise situation, the tribunal, if satisfied, with such a vague list

of addresses, would have suo motu recorded a positive finding in favour

of the assessee on this score. The restoration of the matter to the AO

with a direction to decide the issue afresh and non-compliance by the

assessee in such proceedings, does not add any further weight to the

genuineness of the creditors.

deleting penalty u/s 271[1][c] is again misplaced. The facts of such

preceding year were of unproved credits leading to the deletion of

penalty. There was nothing like altogether altering the names of the

creditors in the penalty proceedings and the wholesale non-cooperation

ITA No.5961/D/2014

as are the highlights peculiar to the year under consideration. What to

talk of proving the genuineness of the creditors, the assessee has even

not yet proved the identity of 28 out of 29 alleged creditors. As such, the

order for the preceding year is of no help to the assessee as there is a sea

change in the factual matrix for the current year.

assessment order that the AO did not record any satisfaction for

imposition of penalty in the assessment order. In support of the

contention that penalty should not have been imposed in such

circumstances, he relied on the judgment of the Hon’ble Karnataka High

Court in A.P. Shanmugaraj vs. MWP Ltd. (2014) 264 CTR 502 (Kar).

The ld. AR also relied on certain other decisions for the same

proposition. This was strongly refuted by the ld. DR, who submitted that

this is a fresh issue, which the assessee cannot take in the second round

of proceedings pursuant to the order of the tribunal.

entire appeal was restored to the AO and it was not a case of limited

ITA No.5961/D/2014

remand. Be that as it may, since this is a legal issue, the assessee is at

liberty to raise it at any stage of the proceedings because there can be no

estoppel against the Act.

naught by the appellate authorities due to non/improper recording of

satisfaction of concealment etc. by the AO in the respective assessment

orders. The legislature in its wisdom thought of correcting such a

position and introduced sub-section (1B) to section 271 by the Finance

Act, 2008 with retrospective effect from 01.04.1989, reading as under :-

`(1B) Where any amount is added or disallowed in computing the total income or loss of an assessee in any order of assessment or reassessment and the said order contains a direction for initiation of penalty proceedings under clause (c) of sub-section (1), such an order of assessment or reassessment shall be deemed to constitute satisfaction of the Assessing Officer for initiation of the penalty proceedings under the said clause (c).’

amount is added and the assessment order contains a direction for

initiation of penalty proceedings u/s 271(1)(c), such an order of

assessment shall be deemed to constitute satisfaction of the AO for 20

ITA No.5961/D/2014

initiation of penalty proceedings under clause (c) of section 271(1). As

the assessment year under consideration is 1998-99 and sub-section (1B)

of section 271 has been made retrospectively applicable from 1.4.89, this

provision will govern the instant assessment year also.

and Others (2009) 226 CTR 308 (Del), has held the assessment order to

be covered by sub-section (1B) of section 271 in the circumstances

almost similar to those as are obtaining in the extant case. Since, in that

case, the Tribunal deleted the penalty by noticing that the AO did not

record satisfaction, the Hon’ble Delhi High court set aside the Tribunal

order and remitted the matter to the Tribunal for hearing on merits.

Similar view has been reiterated by the Hon’ble Delhi High court in CIT

vs. ECS Ltd. (2010) 231 CTR 255 (Del). In fact, there is no dearth of the

judgments of the Hon’ble jurisdictional High Court on this issue. In

view of the clear enunciation of law by the Hon’ble Delhi High Court, I

am of the considered opinion that the AO properly recorded the

satisfaction in terms of section 271(1)(c).

ITA No.5961/D/2014

that the AO has reproduced the names of 29 creditors and, then, required

the assessee to prove their genuineness by adducing complete addresses

and their source of deposit, etc. When the assessee did not furnish any

reply, the AO vide para 3 of his order, noted as under:-

“The assessee has shown unsecured loans in the name of 29 persons totaling to Rs.6,87,800/-. The assessee has failed to file any documentary evidence regarding the nature and source of deposits, in the name of 29 persons, as discussed in show cause notice dated 15.1.2001. Therefore, entire amount of Rs.6,87,800/- is held as unexplained and added to the income of the assessee under section 68 of the IT Act, 1961, as income from undisclosed sources.”

proceedings….. 271(1)(c) are initiated separately.” When I consider the

assessment order on this issue and the initiation of penalty proceedings

at the end of the order, there remains no doubt whatsoever that the AO

did record proper satisfaction as stipulated in the provision. Since this

issue is squarely covered by the aforenoted judgments of the Hon’ble

jurisdictional High Court, I am unable to countenance the contrary

contention of the ld. AR on this issue. This argument, ergo, fails.

ITA No.5961/D/2014

the books of account with reference to the entries made therein vis-à-vis

the correct list of creditors, which direction has not been fulfilled, I am

of the considered opinion that the assessee should be given one more

opportunity to comply with the direction of the Tribunal and cooperate

with the AO in the fresh proceedings. The impugned order is, therefore,

set aside and the matter is restored for a fresh adjudication at the AO’s

end. In such proceedings, the AO will examine both the lists of

creditors, being, the original as reproduced in the assessment order and

the second one which is available on page 5 of the paper book and will

thereafter decide the genuineness or otherwise of the creditors, after

seeking details in this regard from the assessee. If the contention of the

assessee turns out to be correct that the revised list was correct and in

accordance with the books of account, in that case, no penalty should be

imposed in respect of the brought forward balances of some of the

creditors. In such fresh proceedings, the AO will also examine the

assessee’s contention about the notice issued u/s 271(1)(c) as not

correctly specifying the charge as to whether it was a case of concealing 23

ITA No.5961/D/2014

the particulars of income or furnishing of inaccurate particulars of

income, as such a notice, whose copy is placed at page 64 of the paper

book, is illegible. Needless to say, the assessee will be allowed adequate

opportunity of being heard. It is made clear that if the assessee once

again intentionally fails to extend due co-operation during the fresh

proceedings, the AO will be free to draw an adverse inference against

the assessee. However, in the given circumstances, the penalty, if any

exigible, should be restricted by the AO to 100% instead of 200% as

originally imposed and confirmed.

that the ld. AR, inter alia, referred to the imposition of penalty by the

AO u/s 271[1][b] of the Act and its deletion by the ld. CIT[A]. Some

sort of credit was sought to be taken from this deletion in the context of

the instant penalty u/s 271[1][c] of the Act. In my considered opinion,

the proceedings under these two provisions are poles apart. No mileage

can be taken by the either side from the confirmation or deletion of

ITA No.5961/D/2014

penalty under one provision in the context of penalty under the other

provision.

The order pronounced in the open court on 17.10.2016.

Sd/-

[R.S. SYAL] ACCOUNTANT MEMBER Dated, 17th October, 2016. dk Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT (A) 5. DR, ITAT

AR, ITAT, NEW DELHI.