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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI C.N. PRASAD & SHRI RAMIT KOCHAR
सुनवाई क" तार"ख /Date of Hearing : 10-08-2016 घोषणा क" तार"ख /Date of Pronouncement : 25-10-2016 आदेश / O R D E R
PER RAMIT KOCHAR, Accountant Member
This appeal, filed by the assessee, being 1st October, 2014 passed by learned Commissioner of Income Tax (Appeals)- 40, Mumbai (hereinafter called “the CIT(A)”), for the assessment year 2011-12, the appellate proceedings before the learned CIT(A) arising from the penalty order dated 26th September, 2013 passed by the learned Assessing Officer (hereinafter called “the AO”) u/s 271 AAA of the Income-tax Act,1961 (Hereinafter called “the Act”).
ITA 828/Mum/2015 2
The grounds of appeal raised by the assessee in the memo of appeal filed with the Income Tax Appellate Tribunal, Mumbai (hereinafter called “the Tribunal”) read as under:-
1. The Learned Commissioner of Income Tax, Appeal - 40 erred in law & on facts confirming penalty u/s. 271AAA of the Income Tax Act amounting to Rs. 63,611/-.
At the time of hearing before us, none appeared on behalf of the 3. assessee. Therefore, we proceed to dispose of the appeal after hearing the learned D.R..
The brief facts of the case are that the assessee was covered during the search action on the Kanakia Group on 29th March, 2011. During the course of the search operations, the assessee admitted providing bogus bills amounting to Rs. 2,54,44,602/- in the statement recorded u/s 132(4) of the Act, for the year under consideration. These bogus bills were provided to the Kanakia Group of Companies. The assessee admitted earning commission income 0.75% of the value of the accommodation bills as his undisclosed income earned by providing accommodation bills. During the course of the assessment proceedings , the assessee's statement was recorded on 19th March, 2013 u/s 131 of the Act and in this statement the assessee declared his undisclosed income on the above accommodation bills @ 2.5% of the value of the accommodation bills. This income amounted to Rs. 6,36,116/- was declared in his return of income filed after recording of this statement u/s 131 of the Act on 19-03-2013. The assessee also admitted undisclosed jewellery worth Rs. 4,71,590/-. The A.O. initiated penalty proceeding u/s 271AAA of the Act against the assessee . Notices were issued and in response thereof, the assessee filed written submissions vide letter dated 23.08.2013 explaining why penalty u/s 271AAA of the Act should not be levied. The assessee has submitted that he had admitted undisclosed income @ 0.75% of the value of the accommodation bills , during the time of search . The ITA 828/Mum/2015 3 assessee later agreed to undisclosed income @ 2.5% of the total value of the accommodation bills. The assessee submitted that he had made the disclosure during the search and the assessment proceedings “to buy peace and avoid protracted litigation”. Regarding jewellery, the assessee has submitted that the same had been purchased out of commission income from the bogus bills. However, this issue of levying penalty on alleged un-explained jewellery is not before us as the ld. CIT(A) has deleted the penalty u/s 271 AAA of the Act with respect to the addition of unexplained jewellery and the Revenue is not in appeal before us. The only issue before us is the assessee’s admission of commission income @ 2.5% subsequently on the accommodation bills provided by the assessee to Kanakia group of the total value of accommodation bills , over and above as against 0.75% admitted at the time of search.
The A.O. observed that the assessee has routed bogus bills through its books on which the assessee has offered additional undisclosed income . Thus , it was observed by the AO that the declarations are squarely covered within the meaning of Section 271AAA of the Act as undisclosed income on which penalty is leviable u/s 271AAA of the Act as the same is not covered by immunity u/s 271AAA(2) of the Act. The AO was of the view that in order to claim and enjoy immunity from penalty u/s 271AAA of the Act the assessee needs to explain the manner of earning undisclosed income and also substantiate the manner of having earned such commission income @ 2.5% of the accommodation bills provided as against the original disclosure @ 0.75%. It was also observed by the AO that the section 271AAA of the Act does not allow the assessee any immunity from penalty u/s 271AAA of the Act on the account “to buy peace and avoid protracted litigation”. It was observed by the AO that the assessee is not able to prove the manner of earning of undisclosed income. The assessee himself admitted as under:-
ITA 828/Mum/2015 4 “It can be appreciated that the assessee had during the course of search proceedings u/s 132(4) admitted to have earned .75 % on the accommodation bills provided to the Kanakia group. However, since the assessee was not able to prove the payment of 2.5 % on accommodation bills procured against which accommodation bills provided to Kanakia group & earned 3.25 % on the same, assessee to buy peace & avoid protracted litigation agreed for undisclosed income @ 2.5 % instead of .75 % on accommodation bills provided to Kanakia group in the statement recorded u/s 131 in pursuance to the statement recorded u/s 132(4}.”
Thus the AO observed that the assessee is not able to prove and substantiate the manner of earning of the undisclosed income @ 2.5% on the accommodation bills provided and hence the assessee was not granted immunity from the levy of penalty u/s 271 AAA of the Act and the plea of the assessee was rejected by the AO. Accordingly, the A.O. levied penalty @ 10% of the afore-stated undisclosed income, vide penalty order dated 26.09.2013 passed by the AO u/s 271AAA of the Act.
Aggrieved by the penalty order dated 26.09.2013 passed by the A.O. u/s. 271AAA of the Act, the assessee filed first appeal before the ld. CIT(A).
The appeal filed by the assessee before the ld. CIT(A) was rejected by ld. CIT(A) who upheld and sustained the penalty orders dated 26.09.2013 passed by the A.O. u/s. 271AAA of the Act. The learned CIT(A) observed that the assessee initially admitted commission income at the rate of 0.75% on the accommodation bills provided to Kanakia group in his statement recorded u/s 132(4) of the Act on 30/03/2011 during the course of search. This issue was probed further during assessment proceedings and the assessee admitted additional income @2.5% on such transactions , over and above 0.75% admitted at the time of search. The ld. CIT(A) held that the assessee is liable for penalty u/s 271AAA of the Act in respect of additional income of Rs.6,36,115/- surrendered during the course of assessment proceedings while recording statement u/s. 131 of the Act on 19/03/2013 in respect of ITA 828/Mum/2015 5 bogus transactions with Kanakia Group detected during the course of search and since the amount of Rs.6,36,115/- has not even been surrendered during the course of search while recording statement u/s 132(4) of the Act and explaining the manner of deriving such income and substantiating the same, which is utmost necessary to claim immunity from penalty u/s 271 AAA of the Act, the AO's action in levying penalty u/s.271 AAA of the Act on this ground was held to be justified by the learned CIT(A) which penalty order of the AO was upheld/sustained by learned CIT(A) vide appellate orders dated 01-10-2014 passed by learned CIT(A).
7. Aggrieved by the appellate orders dated 01-10-2014 passed by the ld. CIT(A), the assessee is in appeal before the Tribunal.
8. None appeared for the assessee. The ld. D.R. submitted that penalty u/s 271AAA of the Act was levied by the A.O. on the amount of Rs. 6,36,115/- which was not surrendered by the assessee during the course of search while recording the statement u/s 132(4) of the Act on 30.03.3011 while the additional commission income @2.5% over and above 0.75% commission income on accommodation bills provided by the assessee to Kanakia group was surrendered during assessment proceedings while recording statement u/s. 131 of the Act on 19/03/2013. During the course of search, the statement was recorded u/s 132(4) of the Act on 30/03/2011 whereby the assessee admitted to have earned income @ 0.75 % on the accommodation bills provided to Kanakia group. However, in order to buy peace and avoid protracted litigation with the Revenue, the assessee admitted to have earned additional commission income @ 2.5% over and above 0.75% commission income earned on providing accommodation entries to Kanakia group during the course of assessment proceedings vide statement recorded on 19/03/2013 u/s 131 of the Act . The ld. D.R. submitted that the ITA 828/Mum/2015 6 authorities below have rightly levied the penalty u/s 271AAA of the Act and he relied upon the orders of the authorities below.
We have heard the ld. D.R. , perused the orders of the authorities below and also perused the material available on record. We have observed that the assessee was searched along with the Kanakia Group of cases on 29/03/2011. Statements of the assessee were recorded u/s 132(4) of the Act on 30/03/2011 whereby the assessee had admitted that the assessee had earned commission income @ 0.75% on the accommodation entries provided by him to Kanakia Group . The assessee during the course of assessment proceedings while recording statement u/s 131 of the Act on 19/03/2013 declared additional undisclosed commission income from accommodation bills to Kanakia group @2.5% of the value of accommodation bills . The difference amount of Rs.6,36,116/- was offered by the assessee to tax through a revised return filed on 23/03/3013 with the Revenue during the course of assessment proceedings with due taxes paid to the Revenue . The assessee vide reply to question number 2 while recording statement on 18/05/2011 has stated and confirmed his statement recorded u/s 132(4) of the Act on 30-03-2011 that he earned commission @0.75% on turnover of Rs.4,41,19,702/- from his firm G. Chimanlal and Company and on turnover Rs. 82,79,200/- from M/s Isha Trade Links which material have been procured from M/s Karma Ispat and a sum of Rs.71,32,487/- from M/s G.Chimanlal and Co. and sum of Rs.18,78,856/- from M/s Isha Trade Links which has been procured from M/s Elpro Packaging Limited .The detailed party wise and year wise break-up was submitted by the assessee (refer page 5-6 / CIT(A) order) while recording statement on 18/05/2011, whereby the assessee confirmed the statement recorded u/s 132(4) of the Act on 30-03- 2011 during search operations. The assessee explained the modus operandi of earning commission income on accommodation bills while replying to question no 5 in the statement recorded u/s. 131 of the Act during ITA 828/Mum/2015 7 assessment proceedings on 19/03/2013 wherein he submitted that the assessee is providing accommodation entries to Kanakia group whereby on receipt of the payment against the accommodation bills through cheque which was deposited in the bank and against this cheque the assessee hand over another cheque to Karma Ispat or Elpro Packaging, from whom the assessee used to take accommodation bills of bogus purchases passed onto the Kanakia group through brokers who used to handover cash to the assessee after deducting 2.5% of the amount of commission on the accommodation bill on the sale day or the very next day. The assessee then handover cash directly to Charles Rumao of the Kanakia group after having deducted 3.25% of the value of the accommodation bill amount and from the entire transaction the assessee earned net commission income @ 0.75% of the accommodation bill amount. The assessee had submitted that in order to procure the accommodation bills for the Kanakia group, the assessee had to pay the brokers commission @ 2.25% to 2.5% on each accommodation bill amount which the assessee used to match the said material in the accommodation bills supplied to Kanakia group against the said material purchased against the accommodation purchase bills taken from M/s Karma Ispat or Elpro Packaging through brokers wherein the assessee used to earn net commission income@0.75% of each accommodation bill, as the gross commission income charged was 3.25% while brokerage paid was around 2.25-2.5% leaving a gap of net commission income of 0.75% on accommodation bills provided by the assessee to Kanakia group. The assessee in reply to question no 7 in his statement recorded u/s 131 of the Act on 19/03/2013 had stated that he has earned commission income @ 0.75% on accommodation bills supplied to Kanakia group, which in-fact matches with the initial statement of the assessee that he earned commission income @0.75% of the accommodation bills while recording statement on 30/03/2011 u/s 132(4) of the Act. It is a different matter that owing to non availability of brokers to whom commission expenditure @2.25-2.5% out of ITA 828/Mum/2015 8 books was paid after a gap of long time as also due to obvious reasons that these brokers to whom commission expenditure was paid out of books are now not coming forward to incriminate themselves and to face wrath of the Revenue and hence the assessee will not be eligible for deduction of these commission paid by the assessee @2.5% against the gross commission income earned @3.25% on accommodation bills provided by the assessee to Kanakia group. It was submitted that brokers through whom transactions were carried out are now not available to testify the payment of brokerage to them by the assessee @2.25-2.5% in connection with the accommodation bills provided by the assessee due to sales tax action against them. The assessee had submitted that he did not had any other evidence to prove that he has actually earned net 0.75% commission income on accommodation bills and have actually paid the balance 2.25% to such brokers out of books. However, the assessee in order to buy peace of mind and to avoid protracted litigation , admitted 2.5% of the undisclosed income from these accommodation bills over and above 0.75% declared in the statement recorded u/s 132(4) of the Act recoded on 18/05/2011 as the assessee was unable to prove the payment of commission @2.25-2.5% to the brokers and offered to be taxed at 3.25% being gross commission income earned on accommodation bills provided by the assessee to the Kanakia group without claiming deduction of brokerage paid by the assessee w.r.t. these accommodation bills provided by the assessee to the Kanakia group. The assessee agreed to file revised return of income with enhanced undisclosed income of 2.5% of the value of admitted accommodation bills and pay taxes , with the understanding that no penalty shall be levied against the assessee and no prosecution shall be launched against the assessee.
We find that the assessee has duly disclosed the undisclosed income from commission income @0.75% earned on accommodation bills provided to Kanakia group at the time of search action while recording statement u/s ITA 828/Mum/2015 9 132(4) of the Act on 30/03/2011 that he has earned @ 0.75 % commission income on accommodation bills provided by him. The assessee also detailed the manner in which the said commission income 0.75% on accommodation bills have been generated out of books during course of search while recording statement u/s 132(4) of the Act. In these transactions which are entered into out of books on which no taxes are paid being undisclosed income , the transactions cannot be proved to the hilt as the recipient of the brokerage would not like to come forward and self incriminate themselves for the obvious reasons of safe-guarding themselves from the wrath of the Revenue , which led the assessee to surrender additional commission income @ 2.5% of accommodation bills issued by the assessee to the Kanakia group. The Revenue has also not made any efforts to summon the said brokers u/s 131 of the Act or to issue notices u/s 133(6) of the Act to call information from the brokers to whom commission was paid by the assessee out of books. In our considered view, the assessee has come out with bonafide explanations to fulfill the mandate of Section 271AAA(2) of the Act and the assessee is entitled for immunity granted from penalty as all the conditions are met . The assessee has substantiated the claim with respect to the manner of earning of the earning of undisclosed income by way of additional commission income @2.5% on accommodation bills provided by the assessee. In our considered view, the assessee has made truthful declaration while recording the statement u/s 132(4) of the Act whereby the assessee claimed that he earned commission income @0.75% of the accommodation bills provided by the assessee and also explained the manner in which the said commission income on accommodation bills is derived , while it is a different matter that at later stage while recording statement u/s 131 of the Act in 19/03/2013, the assessee is not able to produce the brokers to whom commission expenditure @ 2.25% was paid during the course of assessment proceedings in 2013 to prove such payments out of books due to obious reasons cited by us as set out above and the assessee was left with no choice ITA 828/Mum/2015 10 but to surrender additional 2.5% to buy peace and to avoid protracted litigation with the Revenue but the fact remains that the assessee earned 0.75% net commission income on accommodation bills provided by the assessee , while it is a different matter that the assessee declared net commission income 0.75% of the accommodation bills provided by the assessee, after claiming expenditure of 2.5% towards brokerage payable by the assessee to brokers which was ultimately surrendered by the assessee during assessment proceedings as these brokers were not traceable due to sales tax raid on them and the assessee was unable to prove brokerage expenditure incurred by him due to reasons set out above. Thus, based on our above detailed discussions and reasoning as set out above , in our considered view, the penalty is not leviable in the instant case u/s 271AAA of the Act as the assessee is entitled for immunity from penalty u/s 271AAA(2) of the Act and the penalty levied by the AO and as sustained by learned CIT(A) u/s 271AAA of the Act is hereby ordered to be deleted. We order accordingly.
In the result, appeal filed by the assessee in 2011-12 is allowed.