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Income Tax Appellate Tribunal, F Bench, Mumbai
Before: Shri Jason P. Boaz & Shri Sandeep Gosain
This appeal by Revenue is directed against the order of the CIT(A)-34, Mumbai dated 31.07.2014 for A.Y. 2010-11 deleting the penalty of `14,53,833/- levied under section 271(1)(c) of the Income Tax Act, 1961 (in short 'the Act').
The facts of the case, briefly, are as under: - 2.1 The assessee, a firm engaged in manufacture and trading of chemicals, filed its return of income for A.Y. 2010-11 on 25.09.,2010 declaring total income of `2,45,67,888/-. The return was processed under section 143(1) of the Act and the case was taken up for scrutiny. On the basis of information received from DGIT (Inv), the Assessing Officer (AO) conducted a survey action under section 133A of the Act on 08.01.2013 at the business premises of the assessee. In the course of survey statement of Shri Manoj Sharma, partner in the assessee firm was recorded wherein he admitted income of `47,04,960/- as difference of disputed/bogus purchases and sales for the year under consideration. The assessment was M/s. Unisynth Chemicals completed under section 143(3) of the Act vide order dated 28.01.2013, wherein the income of the assessee was determined at `2,95,08,260/-, inter alia, mainly on account of undisclosed income of `47,04,960/- admitted in the course of survey action and penalty proceedings under section 274 r.w.s. 271 of the Act were initiated simultaneously for concealment of income. No appeal was preferred by the assessee against the order of assessment and the matter attained finality. 2.2. `The Assessing Officer took up penalty proceedings initiated under section 271(1)(c) of the Act and issued letter dated 30.03.2013 to the assessee calling upon it to explain as to why penalty should not be levied thereunder. The assessee furnished its reply (extracted on pg. 4 of the penalty order) submitting that the income in respect of disputed/bogus purchases of `47,04,960/- was made only due to the fact that the parties referred to in the order of assessment to/from whom sales and purchases were made had disowned the transactions and did not cooperate with it and therefore the assessee was not in a position to substantiate its claim with evidence to prove that the dealings with these parties were in order. The AO brushed aside the explanation put forth observing that the same appears to have been furnished for the sake of giving an explanation and that since the assessee could not produce the parties from whom purchases were made, the purchases are found to be from non-existent party and therefore the very existence of purchase is negated. After observing that the parties from whom purchases were made were non- existent, the AO states the purchase parties in question have deposed before Sales Tax authorities that they have neither made any purchase/sales and are simply involved in issuing of bills. In that view of the matter, the AO proceeded to levy penalty of `14,53,833/- under section 271(1)(c) of the Act @100% of tax sought to be evaded on such purchases amounting to `47,04,060/-. 2.3 Aggrieved by the order levying penalty of `14,53,833/- under section 271(1)(c) of the Act for A.Y. 2005-06, the assessee preferred an appeal before the CIT(A)-34, Mumbai. The learned CIT(A) allowed the assessee’s
M/s. Unisynth Chemicals appeal and deleted the aforesaid penalty levied under section 271(1)(c) of the Act vide order dated 31,07.2014. 3.1 Revenue, being aggrieved by the order of the CIT(A)-34, Mumbai dated 31.07.2014 deleting the penalty of `14,53,883/- levied under section 271(1)(c) of the Act for A.Y. 2005-06 has preferred this appeal raising the following grounds: - “
1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the penalty levied u/s.271(1)(c) of Rs.14,53,833/- on the addition made on the basis of admitted undisclosed income of Rs,47,04,960/- during the course of survey u/s. 1 33A of the I.T. Act. which proved concealment of income.
2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in concluding that the addition is on account of offered & accepted income which does not mean that the assessee has agreed for penalty.
3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) failed to note that the assessee himself in Question No. 11 in the statement recorded under oath admitted that the purchases are bogus and the assessee himself arrived at the undisclosed income of Rs.47,04,960/-. The CIT(A) failed to note that the admitted additional income was due to the investigations carried out by the department and it is not a voluntary offer.
4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in ignoring the fact that the onus to establish the identity and genuineness of any purchase appearing in the books lies with the assessee which assessee had failed to satisfy during the assessment proceedings.
5. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in ignoring the fact that the assessee did not prefer appeal against the order passed u/s.143(3) of the Act.
6. The appellant prays that the order of the CIT(A) be set aside and matter may be decided according to law. The appellant craves leave to amend or alter any ground or add new ground which may be necessary." 3.2 The learned D.R. was heard in support of the grounds raised (supra). It was further submitted that voluntary surrender of income by the assessee in the course of survey proceedings, subject to dropping of penalty proceedings, does not absolve the assessee from liability or penalty. In support of this proposition the learned D.R. placed reliance on M/s. Unisynth Chemicals the decision of the Hon'ble Apex Court in the case of Mak Data P. Ltd. vs. CIT (2013) 358 ITR 593 (SC).
3.3.1 Per contra, the Ld. Representative for the assessee placed strong support on the impugned order of the CIT(A) deleting the penalty levied under section 271(1)(c) of the Act for the assessment year 2005-06. The Ld. Representative for the assessee reiterated the factual submissions and legal propositions put forth by it before the CIT(A) and extracted at para 3.2 at pages 3 to 19 thereof in further written submissions filed before the Bench. In submissions put-forth the Ld. Representative for the assessee, inter-alia, canvassed the following propositions:- (i) When the assessee has voluntarily surrendered income under survey/search proceedings as in the case on hand to avoid litigation or to buy peace, the same cannot be considered as a fit case for levy of penalty under section 271(1)(c) of the Act for concealment of income or furnishing of inaccurate particulars of income. (ii) The non-co-operation of parties should not be made a ground for treating the assessee’s case as erroneous, fictitious or concealment, merely because the non-acceptance of other parties to the transactions entered to with the assessee, and should not be the reason behind levy of penalty under section 271(1)(c) of the Act. (iii) Penalty under section 271(1)(c) of the Act not exigible only for the reason that no appeals were filed against the quantum additions, as penalty proceedings are different from assessment proceedings. (iv) While penalty proceedings in the case on hand were initiated by Assessing Officer in the show cause notice on one limb of Sec.271(1)(c) of the Act for concealment of particulars of income the penalty under section 271(1)(c) of the Act the AO has levied the penalty on another limb of section 271(1)(c) of the Act for furnishing of inaccurate particulars of income. Reliance was placed on the decisions of the Co-ordinate Bench of ITAT, Mumbai in the case of (i) Miss Shalini Karan Kumar vs. ACIT (In this appeal No.5457/Mum/
M/s. Unisynth Chemicals 2011 dated 02/09/2016 and (ii) Dharni Developers v. ACIT (2015) (40 ITR (Tribunal) 120) (Mumbai –Trib).
3.3.2 An affidavit dated 10/6/2016 sworn to by Shri Manoj Sharma, Partner in the assessee firm has also been filed in which it is stated that pursuant to the survey action under section 133A of the Act in the assessee’s case on 08/01/2013, additional income was declared for three years as under on the same income:- S.No. Asst.Year Amount in (Rs.) 1. 2009-10 59,77,088 2. 2010-11 47,04,960 3. 2011-12 36,72,900 Total 1,43,54,948/- It is stated that while penalty proceedings were initiated by the Assessing Officer for all these assessment years (supra), penalty under section 271(1)(c) of the Act was only levied for this assessment year i.e.2010-11 and not for the other two years. Other arguments stated therein was in respect of the proposition put up in its sub missions before the CIT(A). The Ld. Representative for the assessee prayed that the order of the CIT(A) deleting the penalty levied under section 271(1)(c) of the Act be upheld and Revenue’s appeal dismissed.
3.4.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncements cited. On a perusal of the impugned order, it is seen that the CIT(A) has deleted the penalty of Rs.14,53,833/- holding as under at paras 3.3 to 3.6 as under:-
“3.3 I have carefully considered the above submissions of the appellant, material available on record and the impugned penalty order. On perusal of the para 3.4& 3.5 of the penalty order which are as under:
3.4 Thus, from the above extract of stamen recorded of Shri Manoj Sharma, it was seen that the assessee had offered Rs. 47,04,960/ - [ difference between bogus purchases of Rs. 2,15,28,000/- and bogus sales of Rs. 1,68,23,040/-] as 'undisclosed income' for the assessment year under consideration, i.e., A. Y.2010-11.
3.5 Accordingly, the same was added to the total income of the assessee as "undisclosed income' offered by the assessee on account of bogus purchases and bogus sales thereof The said "undisclosed income" 0 Rs. 47,04,960/- was offered by the assessee, as a result of survey action u/s.133A conducted on 08.01.2013 as the business premises of the assessee firm.
Addition was made on the basis of income offered by the appellant as undisclosed income on account of the difference of bogus purchase and sales. Penalty was levied by AO on this addition by concluding that income was offered as undisclosed income. But circumstances under which he offered income should not be given as much importance which are required before levy of penalty. The appellant offered income because disputed parties are co-operate with appellant and appellant is also not in a position to substantiate his claim with full evidence. Therefore, in order to buy peace and to avoid lengthy litigations, offered income which is out rightly accepted by AO. Claim not substantiate with document cannot be lead to inaccurate particulars. Therefore, the same cannot be subjected to initiation of penalty proceedings under the pretext of concealment of income or furnishing of inaccurate particulars u/s 271(1)(c). As the addition was made offered by appellant and accepted by AO does not mean that appellant is also agree for the penalty. Thus, in case of addition made on agreed basis penalty cannot be levied because addition was made because of concealment it was made for peace.
3.4. In support of my view I placed reliance on decision of Hon'ble Madras High Court in case of CIT VIs Jayaraj Talkies (1999) 239 ITR 914 (Mad HC) held that:-
The Revenue contends that as the assessee-owner of the theatre who had derived income from leasing the same, had after filing a return claiming deduction of a sum of Rs. 4,125 and Rs. 16,348 towards building maintenance and furniture repairs respectively, himself volunteered to offer these sums as part of his income on account of the difficulty encountered by him in securing necessary vouchers and receipts. That conduct of the assessee according to the Revenue was by itself sufficient to show that there was concealment.
The Supreme Court in the case of Sir Shadilal Sugar and General Mills Ltd. v. CIT [1987] 168 ITR 705, has pointed out that not every case of nondisclosure warrants imposition of penalty as the assessee may forgo a deduction or offer higher sums for taxation for a hundred and one different reasons and all of them cannot be regarded as reasons which are unworthy 0] acceptance. The Supreme Court in that case held that the Tribunal which had held that penalty was not imposable having regard to the circumstances in the case had held so rightly. The Supreme Court observed that from the assessee agreeing to additions to his income, it does not follow that the amount agreed to be added was concealed income. There may be a hundred and one reasons for such admission. The reasons offered in the case has rightly been held by the Tribunal to be relevant reasons.
The question referred to us is therefore, answered in favour of the assessee and against the Revenue. In present case also appellant offered income because of non-corporation of party and his inability to prove transaction with supporting documents. But does not mean that there is concealment of income. 3.5. I further reply on following decisions for my view that penalty cannot be levied on addition made on agreed basis. a) CIT V/s Suaraj Bhan (2007) 294 ITR 481 (P&H HC) b) CIT V/s Suresh Chandra Mittals (2001) 251 ITR 9 (SC) c) CIT vs. Manjunatha Cotton and Ginning Factory (Ker HC) d) Sir Shadi Lal Sugar & General Mills Ltd. V/s CIT (1987) 168 ITR 705 (SC) 3.6. In view of the above discussion, In my opinion penalty cannot be levied in present case. Thereby, the assessing officer is directed to delete the penalty u/s 271(1)(c) amounting to Rs. 14,53,833/-. Hence, these ground of appeal is ALLOWED”
3.4.2 From a perusal of the finding of the CIT(A) in the impugned order it is seen that the addition of Rs.47,04,960/-, on the basis of which penalty under section 271(1)(c) of the Act was levied by the Assessing Officer, was on account of undisclosed income on account of bogus purchases and sales. On an appreciation of the material on record we are inclined to concur with the view of the CIT(A) that the explanation put-forth by the assessee in the penalty proceedings was a plausible one, inasmuch as, the circumstances on which the additional income was offered was because the disputed parties with whom these transactions were made were non- cooperative and the assessee having no control over those parties was, therefore, not able to substantiate its claim with necessary material evidence. Therefore, the assessee was constrained in order to avoid lengthy litigation to offer the additional income, which was accepted as such the Assessing Officer. The Hon’ble Apex Court in the case of Mak Data P. Ltd. (2013) 358 ITR 593(SC) while considering the provisions of Explanation 1 to section 271(1)(c) of the Act observed that the general principles of law in respect of penalty for concealment of income, does not grant the assessee automatic immunity from penalty on account of surrender or M/s. Unisynth Chemicals voluntary disclosure of income. As per the provisions of Explanation 1 to section 271(1)(c) of the Act, the question is whether the assessee has offered any explanation for concealment of income or furnishing of inaccurate particulars of income. In the case own hand we find that the requirement laid down by the Hon’ble Court has been met by the assessee inasmuch as, as observed by the CIT(A), the assessee’s explanation (supra) which appears plausible and which explanation, though brushed aside by the Assessing Officer as an afterthought, has not been brought out or found to be false in respect of furnishing of particulars. We, therefore, uphold this view of the CIT(A) and consequently uphold her order directing the Assessing Officer to delete the penalty levied in the case on hand for assessment year 2009-10. Consequently, Revenue’s grounds raised at S.No.1 to 6 are dismissed.
3.4.2 Another contention of the assessee raised in the course of hearing before the Bench was that penalty under section 271(1)(c) of the Act may be levied either for concealment of particulars of income or furnishing of inaccurate particulars of income and that the Assessing Officer is entitled to levy the penalty under the limib under which the proceedings were initiated. The attention of the Bench was drawn to the order of assessment wherein the Assessing Officer has initiated penalty proceedings under section 271(1)(c) of the Act for “concealment of particulars of income” ( para 6.5 of assessment order). Inviting our attention to the penalty order (para 10) the Ld. Representative for the assessee submitted that the Assessing Officer levied penalty for ‘willfully furnishing inaccurate particulars of income’ leading to concealment. In these circumstances, it is contended that the penalty levied under section 271(1)(c) of the Act in the case on hand is not sustainable. Even though this legal issue may not have been urged before the authorities below, since the same is a purely legal issue and all facts relating thereto are available on record. The same are admitted for adjudication before us in this appeal in keeping with the decision in the case of the Hon’ble Apex Court in NTPC (229 ITR 383)(SC). There is no dispute with regard to the fact that the Assessing Officer initiated penalty proceedings under section 271(1)(c) of the Act in the order of assessment for ‘concealment of particulars of income’ but however proceeded to levy the said penalty for ‘ furnishing of inaccurate particulars of income’ leading to concealment. We find that an identical issue has been considered by the co-ordinate bench of the Tribunal in the case of Smt.Shalini Karan Kumar in dated 02/09/2016, wherein following the decision in the case of Dharni .Developers (2015) (61 taxman.com 208), it has been held as under at para 6 and 7 thereof:-
The identical observations have been made by the Assessing Officer in other years under consideration also. Since the penalty notices are issued during the course of assessment proceedings, in our view, the said notices have to be read along with the assessment order. Accordingly, even if the Assessing Officer has failed to strike down anyone of the two defaults, the intention of the Assessing Officer for initiating the penalty proceedings could be ascertained from the assessment order. In all the years under consideration, the solitary addition made by the Assessing Officer was related to unaccounted business receipts. The above said observations made by the Assessing Officer in the assessment orders would show that the penalty proceedings were initiated for "concealment of particulars ot come" only. However in the penalty order, the Assessing Officer has concluded as under:
"Thus it is clear that the assessee has tried to evade the taxes on income by filing inaccurate particulars of their income and thereby concealing the same. I therefore, hold that the assessee in this case has deliberately furnished inaccurate particulars of their income for relevant previous year thereby attracting penalty provision under section 271 (l)( c) of the Income-tax Act. I am therefore, satisfied that this is a fit case for levy of penalty under section 271(l)(c) of the Act, 1961."
Thus, it can be noticed that the Assessing Officer, after having initiated proceedings for "concealing the particulars of income", has levied penalty for "furnishing of inaccurate particulars of income".
Following the aforesaid decision of the Co-ordinate benches in the case of Smt. Shalini Karan Kumar(supra) and Dharni Developers (supra), we find there is merit in the contention of the assessee on the legal issue urged by it and, therefore, hold that the impugned penalty levied under M/s. Unisynth Chemicals section 271(1)(c) of the Act is not sustainable and cancel the same on this ground also.