HOTEL CRYSTAL (MUMBAI) CONDUCTORS,MUMBAI vs. ITO 15(2)(2), MUMBAI

The Tribunal while restoring the matter to the file of the A.O for framing fresh assessment had thus categorically directed that the A.O while framing the fresh assessment was not to be guided by the offer of the additional income made by the partner of the assessee firm during the course of the survey proceedings, but was to estimate the income of the assessee firm on the basis of the ‘material’ gathered during the course of survey proceedings, and that too after confronting the same to the assessee. The A.O in blatant violation of the principles of judicial discipline, therein acted in clear defiance of the aforesaid directions of the Tribunal and without relying upon and confronting any such ‘material’ as was obtained during the course of the survey proceedings, once again, solely on the basis of the statement of the partner of the assessee firm, viz. Sh. Rafique Charolia (supra), therein made an addition of Rs. 15 lac and vide his assessment order dated. 26/12/2007 assessed the income at Rs. 15,35,110/-. That the A.O while framing the assessment also initiated penalty proceedings u/s 271(1)(C) for concealment of income and tax.

That despite the fact that the additions made by the A.O in the denovo assessment on being found to be in complete disregard and disrespect to the directions of the Tribunal was thus ‘set aside’ by the CIT(A) vide his order passed on 29.01.2010, the A.O however in the course of the penalty proceedings, instead of restricting himself to the assessed income of Rs. 2,43,488/- as so remained after the order passed by the CIT(A) in the quantum appeal, however finding faults with the order of the CIT(A), therein proceeded with and most arbitrarily vide his order dated. 18.03.2011 imposed a penalty of Rs. 6 lac on the assessee. That the assessee carried the order of the A.O imposing penalty of Rs. 6 lac u/s 271(1)(c) in appeal before the CIT(A), who observing that the assessee had failed to report its correct income and as such had furnished inaccurate particulars of its income, therein held that the penalty imposed on the assessee u/s 271(1)(c) for concealment of income was justified, but however duly appreciating that the quantum of penalty to be imposed on the assessee was to be determined on the basis of the assessed income as so remained after giving effect to the order passed by the CIT(A) on 21.01.2010 while disposing of the quantum appeal of the assessee, and not on the basis of the income assessed by the A.O, thus directed the latter to impose minimum penalty in pursuance to his directions.

The assessee being aggrieved with the order of the CIT(A), to the extent the latter had sustained the penalty imposed by the A.O u/s 271(1)(c), had therein carried the matter in appeal before us. That during the course of hearing of the appeal the Ld. Authorized representative (for short ‘A.R’) of the assessee submitted that no penalty could be sustained on the basis of an addition which in itself was backed by an estimation. The Ld. A.R taking us through Para 2.1 of the order of the CIT(A), dated 29.01.2010, passed in the quantum appeal of the assessee, therein submitted that while for the statement of the partner of the assessee firm, viz. Sh. Rafique Charolia (supra) recorded during the course of the survey proceedings had wrongly been acted upon by the A.O for making an addition of Rs. 15 lac in the hands of the assessee as the same was retracted by the partner as on 08.02.2001, while for the copies of the 4 pages which were obtained by the survey officials during the course of the survey proceedings, viz. Bill No. HCS/011/98, dated. 05.07.1998, Page titled as R-105/106 and Receipt No. 868, dated. 25.08.1998, and thereafter were taken support of by the A.O for justifying the addition of Rs. 15 lac in A.Y. 1997-98 and Rs. 20 lac in A.Y. 1998-99 in the hands of the assessee, therein glaringly revealed that they were relatable to the period relevant to A.Y. 1999- 2000, and did not pertain to the year under consideration. It was thus averred by the Ld. A.R that in the backdrop of the very fact that no incriminating material pertaining to the year under consideration had emerged in the course of the survey proceedings, and the addition made by the A.O had been set aside by the CIT(A), who had thereafter merely substituted the same by an addition which was only backed by an estimation, therefore no penalty u/s 271(1)(c) could justifiably have been imposed in the hands of the assessee. It was thus averred by the Ld. A.R that the penalty imposed in hands of the assessee, to the extent the same had been sustained by the CIT(A) may therein be vacated. The Ld. A.R in order to drive home his contention that no penalty was liable to be imposed in case of estimation of income, therein placed reliance on the judgment of the Hon’ble High Court of Rajasthan in the case of : Shiv Lal Tak Vs. CIT (2002) 121 Taxman 99 (Raj). That on the other hand the Ld. Departmental representative (for short ‘D.R’) therein submitted that the conduct of the assessee could be gathered from the very fact that on being called upon to produce the ‘books of accounts’ during the course of the assessment proceedings, the latter evaded the same by claiming that the same had been destroyed by white ants. The Ld. D.R further referring to Page 3 – Para 3.4 of the CIT(A) order, therein submitted that the assessee had as a matter of fact averred before the first appellate authority that the A.O ought to have levied penalty u/s 271(1)(c) only as regards the addition upheld by the CIT(A), and not on the basis of the addition made during the course of the assessment proceedings. It was thus submitted by the Ld. D.R that now when there was a concession on the part of the assessee as regards levy of penalty to the extent the income had been estimated by the CIT(A), therefore he could not thereafter be permitted to turn around and agitate the upholding of the penalty by the CIT(A) to the said extent. It was thus averred by the Ld. D.R that the penalty for concealment of income u/s 271(1)(c) had rightly been imposed in the hands of the assessee firm, which thus was liable to be sustained.

We have heard the authorized representatives of both the parties, perused the orders of the lower authorities and the material placed on our record. We have given a thoughtful consideration to the facts of the case and find that when the quantum appeal of the assessee came up before the Tribunal in the course of the second round of litigation, therein the Tribunal vide its order dated. 14.06.2006, while restoring the matter to the file of the A.O for framing a ‘fresh assessment’ had specifically issued directions on the following two counts:- (i). The A.O was directed that while framing the assessment he was not to be influenced by the declaration made by the partner of the assessee firm. (ii). The A.O was directed to estimate the income of the assessee firm on the basis of the ‘material’ obtained during the course of survey proceedings, and that too after confronting the same to the assessee and affording him reasonable opportunity to put forth an explanation as regards the same, so that the correct income of the assessee could be ascertained. We find that the A.O in the course of the denovo assessment proceedings knowingly acted in defiance of the directions of the Tribunal, and rather proceeded with and again framed the assessment on the basis of the statement of the partner of the assessee firm, viz. Sh. Rafique Charolia. That still further no material gathered during the course of the assessment proceedings was ever acted upon by the A.O for making or even supporting the addition of Rs. 15 lac made by him in the course of the ‘fresh assessment’. Thereafter the CIT(A) finding that the A.O had clearly acted in defiance of the directions of the Tribunal, therein corrected the same and after setting aside the additions made by the A.O therein substituted the same by an estimate, viz 8% of the gross receipts of the assessee firm, which had resulted to a consequential estimation of the income of the assessee firm for the year under consideration at Rs. 2,43,488/-.

We have given a thoughtful consideration to the facts of the case and though are not oblivious of the fact that everything was not correct with the ‘books of accounts’ of the assessee firm for the year under consideration, and rather the failure on the part of the assessee to produce the same before the A.O during the course of the original assessment proceedings by claiming that the same had been destroyed by the white ants, therein does not inspire any confidence as regards the conduct of the assessee and rather raises serious doubts as regards the genuineness and veracity of the financial statements filed by the assessee firm with the department. That still further we are not at all impressed by the retraction of the statement by the partner of the assessee firm, viz. Sh. Rafique Charolia as on 08.02.2001, i.e after lapse of a period of about 2 years 3 months. However, then we cannot also loose sight of the very fact that the survey team, as claimed by the department was in possession of the Xerox copies of the incriminating material pertaining to the business of the assessee firm, and it was for the said very reason that the Tribunal in light of the backing out by the partner of the assessee firm, viz. Sh. Rafique Charolia from his statement recorded during the course of the survey proceedings, had directed the A.O to frame ‘fresh assessment’ on the basis of the ‘material’ obtained during the course of the survey proceedings and make additions after confronting the same to the assessee and affording him reasonable opportunity to put forth an explanation as regards the same. That in light of the aforesaid ‘directions’ of the Tribunal, it was though but obligatory for the A.O to frame the ‘fresh assessment’ in strict compliance to the same, which we are sad to observe was however not so done by the A.O. We find that though the CIT(A) finding that the ‘fresh assessment’ framed by the A.O was not in conformity with the directions of the Tribunal had therein set aside the additions so made by the A.O. The CIT(A) further duly appreciating that everything was not correct with the ‘books of accounts’ and state of affairs of the assessee firm as was projected before the department, had thus determined the income of the assessee firm on the basis of an estimation, viz. @ 8% of the gross receipts of the assessee firm, therein leading to a consequential assessment of the income of the assessee firm at Rs. 2,43,488/- which thereafter had been upheld by the Tribunal while dismissing the appeal of the department vide its order dated. 27.04.2011. We though are of the considered view that in the backdrop of the totality of the facts of the present case, the estimation of the income of the assessee firm was duly justified, but then in light of the fact that the lower authorities till date had failed to place on record any such incriminating material gathered during the course of the survey proceedings, which could establish beyond any scope of doubt the ‘concealment of income’ on the part of the assessee, and therein irrebutably prove that the ‘financial statements’ of the assessee firm so filed with the department were far from the true state of affairs, the levy of penalty u/s 271(1)(c)