The Commissioner of Income Tax vs. Shri Byru Venkateswarlu

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 341 / 2005 Malpani House Of Stones, A Registered Partnership Firm, Pitaliyas Building, Pitaliyon Ka Chowk, Johari Bazar Jaipur though its partner Shri Shyam Das Malpani s/o Shri Shrikrishan Malpani. ----Appellant Versus Commissioner of Income Tax, Income Tax Office, New Central Revenue Building, Statue Circle, Jaipur. ----Respondent _____________________________________________________ For Appellant(s) : Mr. Prakul Khurana For Respondent(s) : Mr. Anuroop Singhi _____________________________________________________ HON'BLE THE ACTING CHIEF JUSTICE HON'BLE MR. JUSTICE VINIT KUMAR MATHUR Judgment Per Hon’ble Jhaver, Acting CJ. 01/03/2017 1. By way of this appeal, the appellant has challenged the judgment and order of the Tribunal whereby the Tribunal has partly allowed the appeal of the assessee and remanded the matter back to the Assessing Officer. 2. This Court while admitting the appeal on 01.03.2006 has framed the following substantial question of law: “Whether penalty can be levied under Section 271(1)(c) solely because the additions were confirmed in the quantum appeal, without examining the issue again in penalty proceedings with reference to the law and principles underlying the levy of penalty?”

(2 of 10) [ITA-341/2005] 3. Counsel for the appellant has contended that the Assessing Officer has considered the case of the assessee and observed as under: “As for bogus purchases of cut goods shown in the name of the said two parties, it is to stated that the sources of purchase are not explained as these parties have not been produced for my examination and that the same are not available at the given addresses. It is the assessee itself who introduced own money as invested in the shape of above purchase/shown initially as credit purchases in the name of the persons who do not exist. The assessee introduced its own unaccounted money in the shape of these purchases which were later on labled as credit purchases so as to give them colour of genuineness. The assessee has, therefore, made investment in the shape of credit purchases in the name of the above persons. Accordingly, the investment in the alleged unproved purchases represented assessee’s own income from undisclosed sources. Such purchases amount of Rs.1,06,717/- represents assessee’s income from undisclosed sources.” 4. Counsel for the appellant has further contended that the CIT(A) while considered the case of the assessee has observed as under: “As regards the unproven purchases and sales with R.S. Corporation and Sunrise Jewellers, it was stated that these were existing concerns and the AO had not taken into consideration the fact that Shri Ram Gopal Gupta, proprietor of R.S. Corporation, had been examined by the AO in the case of the Shri Murli Shyam Jaju. It was stated that these parties were registered dealers with the sales Tax Department, their bank account had been traced and simply because these parties were not produced

(3 of 10) [ITA-341/2005] before the AO, the onus of which did not lie on the assessee, no adverse inference could be drawn. Once the transaction was over, the assessee could not be expected to keep a watch on the activities and the addresses of these parties. The AO had come to the erroneous conclusion that in the jewellery trade, goods are taken from other persons and rough stones are shown as sold whereas they are not actually sold and are got processed by the jewellers themselves at their own end to dispose of the cut stones out of the books of account and thereby earning fabulous profit. No evidence has been brought on record by the AO in support of his this belief. In the case of the purchases shown to have been made of ready goods from Shanu Traders for Rs.65,200 on 28.01.1987, the appellant had already informed the AO that complete details regarding the sales-tax number, bank A/c etc., had been given to the AO to prove the genuineness of the transaction. All the transactions and purchases & sales were through brokers, which is the usual practice in this trade. In fact, the payment against the invoice is also collected by the brokers. Under these circumstances, it is not necessary that the purchaser personally knows the seller. The appellant, therefore, could not be penalized for the fact that he was not aware of the existence of the other parties, especially when the transactions were supported by proper invoices papers etc. It was stated that the payments had been made to Shanu Traders by cheques drawn on the bank of Baroda, the details of which had been supplied to the AO. The AO made no enquiry and still he refused to entertain the pieces of evidence filed by the appellant. The AO had not independently examined the issue in the penalty proceedings. The AO had not brought on record any evidence to show that the purchases were bogus.” 5. It has further been contended that the Tribunal while considering the case in para 3 has observed as under: “After hearing both the parties and on perusal of material available on record, it

(4 of 10) [ITA-341/2005] appears that in quantum appeal (ITA No.1874 to 1877/JP/95) dated 26.09.2002 the Tribunal finally reduced the additions to Rs.2,23,945/- pertaining to the following components: Trading Addition Rs.39,092/- ITAT Page 11 Bogus Purchase Rs.1,71,917/- 2-9 Salarly to Babu Bhai Rs.10,800/- 14 Disallowance of Dalali Rs.2,136/- 15” 6. Counsel for the appellant has further contended that the Gujarat High Court in the case of National Textiles vs. Commissioner of Income Tax reported in 249 ITR 0125 in para 21-24 has observed as under: “21. The provisions of section 68 permitting the assessing officer to treat unexplained cash credit as income are enabling provisions for making certain additions, where there is failure by the assessee to give an explanation or where the explanation is not to the satisfaction of the assessing officer. However, the addition made on this count would not automatically justify imposition of penalty under section 271(1)(c) by recourse only to Explanation 1 below section 271(1)(c). 22. In order to justify the levy of penalty, two factors must co-exist, (i) there must be some material or circumstances leading to the reasonable conclusion that the amount does represent the assessee's income. It is not enough for the purpose of penalty that the amount has been assessed as income, and (ii) the circumstances must show that there was animus i.e., conscious concealment or act of furnishing of inaccurate particulars on the part of the assessee. The Explanation has no bearing on factor No. 1 but it has bearing only on factor No. 2. The Explanation does not make the assessment order conclusive evidence that the amount assessed was in fact the income of the assessee. No penalty can be imposed if the facts and circumstances are equally consistent with

(5 of 10) [ITA-341/2005] the hypothesis that the amount does not represent concealed income as with the hypothesis that it does. If a assessee gives an explanation which is unproved but not disproved i.e., it is not accepted but circumstances do not lead to the reasonable and positive inference that the assessee's case is false, the Explanation cannot help the department because there will be no material to show that the amount in question was the income of the assessee. 23. Alternatively, treating the Explanation as dealing with both the ingredients (i) and (ii) above, where the circumstances do not lead to the reasonable and positive inference that the assessee's explanation is false, the assessee must be held to have proved that there was no mens rea or guilty mind on his part. Even in this view of the matter, the Explanation alone cannot justify levy of penalty. Absence of proof acceptable to the department cannot be equated with fraud or willful default. As we find no material difference between the original, Explanation 1 and Explanation 1 as substituted, in our opinion it has to be so construed as to harmonise it with basic principles of justice and fairness, as in the case of original Explanation. We are guided by the commentaries of the learned authors Kanga & Palkhiwala, Law and Practise of Income Tax, Vol., 1, pp. 1637, 1639 to 1640. 24. In the instant case, the cash credits were not satisfactorily explained by evidence and documents. The parties who had advanced the alleged temporary loans were neither disclosed with their particulars nor any supporting documents were on record. Only 2 entries were explained. The accountant who had arranged the loan was not produced stating that he had left the service and relations with him are strained. On this state of accounts and evidence in the quantum proceedings, the department was justified in treating the cash credit as income of the assessee but merely on that basis by recourse to Explanation 1, penalty under section 271(1)(c) could not have been imposed without the department

(6 of 10) [ITA-341/2005] making any other effort to come to a conclusion that the cash credits could in no circumstances would have been amounts received as temporary loans from various parties. The assessee in the quantum proceedings failed to produce the accountant but the department also in penalty proceedings made no effort to summon him. Applying the test (ii) discussed above, therefore, it was a case where there was no circumstance to lead to a reasonable and positive inference that the assessee's case that the cash credits were arranged as temporary loans, was false. The facts and circumstances are equally consistent with the hypothesis that it could have been sundry loans in small amounts obtained from different parties. In our opinion, therefore, even taking recourse to Explanation 1, same circumstances or state of evidence on which the cash credit were treated as income, could not by themselves justify imposition of penalty without anything more on record produced by the assessee or the department.” 7. Counsel for the appellant has also relied upon the decision of Delhi High Court in the case of Commissioner of Income Tax vs. Oasis Hospitalities (P) Ltd. reported in (2011) 33 ITR 0119 wherein in para 47 & 48, the Delhi High Court has observed as under: “47. This appeal relates to penalty proceedings which were initiated against M/s. Vijay Power Generator Ltd. (appellant in the aforesaid ITA No.514 of 2007) after making additions in the assessment order. As noted above, though the addition was sustained by the Tribunal in the quantum proceedings, insofar as penalty is concerned, the Tribunal vide impugned orders dated 31.08.2007 has deleted the penalty imposed by the AO and Revenue is in appeal. As can be seen from the discussion in ITA No.514 of 2007 above, the assessee had produced certain documents before the CIT (A). However, in the remand report sought by the CIT (A), the AO had

(7 of 10) [ITA-341/2005] stated that no comments can be offered at this stage without necessary verification. Exact contents of that report are also produced above. This would show that the assessee had given certain documents to prove the identity and creditworthiness of the

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applicants,

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the creditworthiness of these persons could not be proved because of gap of substantial period and the fact that those persons were not produced by the assessee with necessary documentary evidence originally in support of their identity and creditworthiness. It was, thus, a case where the assessee could not discharge the onus and it cannot be said that it was the case of the concealment of the case by the assessee. 48. Thus, while not accepting all the observations made by the Tribunal in the impugned order, we are of the view that the Tribunal is right in holding that insofar as penalty proceedings are concerned, case against the assessee of concealment of income is not made out. We would not like to interfere with the order of the Tribunal on this aspect and dismiss this appeal of the Revenue a no substantial question of law arises.” 8. Counsel for the appellant has contended that the view taken by the Tribunal is required to be reversed. 9. Counsel for the department has contended that the Supreme Court in the case of Commissioner of Income Tax vs. Reliance Petroproducts Pvt. Ltd. reported in [2010] 322 ITR 158 (SC) has observed in para 10 & 11 as under: “10. We are not concerned in the present case with the mens rea. However, we have to only see as to whether in this case, as a matter of fact, the assessee has given inaccurate

particulars.

Webster's Dictionary, the word "inaccurate" has been defined as:- "not accurate, not exact or correct; not according to truth; erroneous;

(8 of 10) [ITA-341/2005] as an inaccurate statement, copy or transcript". 11. We have already seen the meaning of the word "particulars" in the earlier part of this judgment. Reading the words in conjunction, they must mean the details supplied in the Return, which are not accurate, not exact or correct, not according to truth or erroneous. We must hasten to add here that in this case, there is no finding that any details supplied by the assessee in its Return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under Section 271(1)(c) of the Act. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the Return cannot amount to the inaccurate particulars.” 10. Counsel for the respondent has further relied upon the decision of Gujarat High Court in the case of Aiyub Umarji Patel vs. Income Tax Officer in Tax Appeal No.502 of 2012 decided on 12.02.2013 wherein in para 2 to 4 it has been observed as under: “2. Having heard learned counsel for the appellant, we are of the opinion that the entire issue has been considered at length by the revenue authorities and the Tribunal. It was found that though sizable amount of money was credited in the account of the assessee, he could give no explanation about the source or the creditworthiness of the payee. This was certainly not a case where the revenue was insisting on gathering source of the source from the assessee. In that view of the matter, decision of this Court relied upon by the counsel for the assessee in case of Deputy Commissioner of Income Tax Vs. Rohini Builders reported in 256 ITR 360 and in case of Murlidhar Lahorimal Vs. Commissioner of Income Tax reported in [2006] 280 ITR 512 would have no applicability. 3. We may notice that the Tribunal and the

(9 of 10) [ITA-341/2005] revenue authorities relied on the decision of Apex Court in case of Commissioner of Income Tax Vs. P. Mohanakala reported in [2007] 291 ITR 278 wherein, it was observed that in cases where explanation offered by the assessee about the nature and source of the sums found credited in the books is not satisfactory, there is, prima facie, evidence against the assessee viz. the receipt of money. The burden would be on the assessee to rebut the same, and, if he fails to do so, it can be held against the assessee that it was a receipt in the nature of an income. 4. In the present case, the assessee, when confronted with the sizable credits in his account, merely stated that the sums were received from his brother without giving any further details of either the source or the creditworthiness thereof. Though before us counsel for the revenue contended that the amounts were received for the construction of a hospital before the Revenue Authorities all throughout apparently, the stand of the assessee was that such amount was received as loan from his brother. In the result, tax appeal is dismissed.” 11. We have heard counsel for both the sides. 12. Taking into consideration the observations which are made by the Assessing Officer, CIT(A) and the Tribunal, the expenses or the credits which were shown by the creditors cannot be proved, therefore, no substantial tax is paid. Therefore, in that view of the matter, on the basis of the observations made by the Delhi High Court and Gujarat High Court, in our view, the issue is required to be answered in favour of the assessee and against the department. 12.1.Therefore, the issue is answered in favour of the assessee and against the department.

(10 of 10) [ITA-341/2005] 13. The appeal stands allowed.

(VINIT KUMAR MATHUR)J. (K.S. JHAVERI) ACTING CJ. Asheesh Kr. Yadav/41