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

आदेश / O R D E R PER RAVISH SOOD,JM:

“The appellant would like to amend the grounds of appeal as under:-

1. On the facts and circumstances of the appellants case and in law the Ld. CIT(A) erred in confirming the penalty levied by the Ld. A.O on Rs. 2,91,237/- being estimated undisclosed income by invoking the provisions of Sec. 271(1)(c) of the Income-tax Act, 1961. The appellant prays before the Hon’ble Tribunal to delete the penalty made by the A.O to the extent confirmed by the Ld. CIT(A).”

2. Briefly stated, the facts of the case are that survey proceedings were conducted at the business premises of the assessee on 23.09.1998, in the course of which as claimed by the department, certain incriminating documents were found and Xerox copies of the same were obtained by the survey team. That though the partner of the assessee firm Sh. Rafique Charolia in his statement recorded during the course of the survey proceedings had offered an additional income of Rs. 15 lac for A.Y. 1997-98 and Rs. 20 lac for A.Y. 1998-99, however the same was thereafter not offered for tax by the assessee firm in its returns of income filed for the said respective years.

3. That the A.O during the course of the original assessment proceedings recorded the statement of the partner Sh. Rafique Charolia (supra) on 07.02.2001, who confirmed his confession made during the course of the survey proceedings, but on the very next date, viz. 08.02.2001 the said partner retracted from his statement recorded during the course of the survey proceedings. The A.O however going by the offer of additional income by the partner in his statement recorded during the course of the survey proceedings, therein assessed the income of the assessee firm at Rs. 20,50,270/-. The assessment framed by the A.O was upheld in appeal by the CIT(A)-15, vide his order dated. 29.11.2001. The assessee filed an appeal with the Tribunal, which vide its order dated. 24.12.2004 restored the matter to the file of the CIT(A) for deciding the same afresh after affording reasonable opportunity of being heard to the assessee. The CIT(A) thereafter reheard the matter and once again dismissed the appeal of the assessee and confirmed the order passed by the A.O. The assessee firm carried the order of the CIT(A) in appeal before the Tribunal, which vide its order dated. 14.06.2006 restored the matter to the file of the A.O for framing fresh assessment, therein observing as under:- “4. In these circumstances, while we are not inclined to uphold the additions sustained in appeal by the CIT(A) because the additions so sustained are as per the statement recorded during the course of survey, which cannot be used as a sole material against the assessee, we also think it fit and proper to remit the matter to the file of the Assessing Officer for adjudication de novo and deciding the matter afresh in light of his findings and uninfluenced by the declaration made by the assessee through his partner. In the impugned orders, a stand is taken that ‘corroborative circumstantial evidence during the survey further substantiates that the entire receipts from customers have not been disclosed’ but then, in such a situation , the Assessing Officer is to make his estimation of income of the assessee based on the material so gathered during the course of survey and confront the assessee with the same, for the purpose of ascertaining as to what is the correct income of the assessee. The assessee is also to be given a fair and reasonable opportunity of presenting the facts on merits in support of what the assessee claims to be his correct income. It is for the assessee to substantiate his return of income and the income returned, and, when he fails to do so, the Assessing Officer has to estimate income of the assessee on a fair and reasonable basis, but before adopting such estimate, the assessee must be given an opportunity to be heard in respect of the same. We direct the Assessing Officer to frame the fresh assessment in light of our above observations.”

4. 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. 20 lac and vide his assessment order dated. 26/12/2007 assessed the income at Rs. 20,50,270/-. That the A.O while framing the assessment also initiated penalty proceedings u/s 271(1)(C) for concealment of income and tax.

5. The assessee assailed the ‘fresh assessment’ order before the CIT(A). The CIT(A) duly appreciating that the A.O had acted in complete defiance of the clear ‘directions’ given by the Tribunal vide its order dated. 14.06.2006, therefore set aside the additions made by the A.O. The CIT(A) thereafter going by the directions of the Tribunal therein estimated the income of the assessee @8% of its gross receipts, and as such vide his order dated. 29.01.2010 estimated the income of the assessee firm for the year under consideration, viz. A.Y. 1997-98 at Rs.2,91,237/- (i.e 8% of gross receipts of Rs.36,40,459/-). The order of the CIT(A) was assailed by the department before the Tribunal, however the Tribunal vide its order dated. 27.04.2011 dismissed the appeal of the department and upheld the order passed by the CIT(A).

6. 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 were 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 initiated by him, instead of restricting himself to the assessed income of Rs. 2,91,237/- as so remained after the order passed by the CIT(A) in the quantum appeal, therein most arbitrarily finding faults with the order of the CIT(A), thus proceeded with and vide his order dated. 18.03.2011 imposed a penalty of Rs. 7 lac on the assessee, i.e on the basis of the assessment framed by him. That the assessee carried the order of the A.O imposing penalty of Rs. 7 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.

7. 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 recorded during the course of the survey proceedings had wrongly been acted upon by the A.O for making an addition of Rs. 20 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 those 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 are rather surprised to find that despite tall claims that substantial corroborative evidence in the nature of incriminating documents was unearthed by the department during the course of the survey proceedings Xerox copies of the same had been obtained during the course of the said proceedings, the A.O however during the course of the original assessment proceedings had only referred to and acted upon a set of 4 documents 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, for justifying the addition of Rs. 15 lac in A.Y. 1997-98 and Rs. 20 lac in A.Y. 1998-99, which too were undisputedly found to be relatable to the period relevant to A.Y. 1999-2000. We are unable to understand that despite specific directions by the Tribunal to the A.O to make additions on the basis of the ‘material’ gathered by the department during the course of the survey proceedings, what stopped him from so doing. We are of the considered view that such failure on the part of the lower authorities to make and support additions in the hands of the assessee by placing on record ‘material’ obtained during the course of the survey proceedings, can logically only be explained for the reason that there is no such incriminating material pertaining to the year under consideration lying available with the department. We are thus of the considered view that in the backdrop of the aforesaid facts, though on the basis of the conduct of the assessee an estimated addition was justifiably called for and as such made in its hands, but falling short of any such corroborative material which could inescapably and rather irrebutably prove the factum of concealment of income on the part of the assessee firm, the levy of penalty under Sec. 271(1)(c) as regards the said addition which is solely based on a simpliciter estimation of the income of the assessee by the CIT(A), cannot be justified. That as regards the contention of the Ld. D.R that as the assessee had 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, had thus conceded 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, we find is absolutely a misconceived contention on the part of the Ld. D.R. That a perusal of the order of the CIT(A) reveals beyond any scope of doubt that the assessee had only brought to the notice of the CIT(A) the said serious infirmity in the penalty order of the A.O, but had at no stage given up its main contention that no penalty u/s 271(1)(C) was called for in its case. Thus in totality of the facts of the present case, we are of the considered view that the penalty imposed in the hands of the assessee u/s 271(1)(c) cannot be sustained, and therefore set aside the same. The penalty imposed in the hands of the assessee under Sec. 271(1)(c) is thus vacated.