GOLANI BROTHERS,MUMBAI vs. DCIT CEN CIR 7(2), MUMBAI

O R D E R PER R.C.SHARMA (A.M): These are the appeals filed by the assessee against the order of CIT(A) for the assessment year 2007-2008 to 2010-2011 in the matter of imposition of penalty under Section 271(1)(c) in respect of income surrender during course of survey on account of purchases.

Q.13 Please state as to who looks after the purchase requirements of M/ s Golani Brothers. Ans. Sir, as mentioned earlier the partnership firm has undergone several changes in its constitution. Mr. N D Golani, my uncle and the founder partner having 36% stake, was in charge of purchase requirements and procurements thereof. After his demise on 17.02.2011, Mr. B D Golani. my other uncle who was assisting him earlier had been looking after of the purchase & procurement work. He also passed away on 18.09.2011. Subsequently. I was left with no choice but manage the purchase along with project execution works of this firm. Q.14 Please state the modus operandi of purchase of material by M/ s Golani Brothers. Ans. Sir, as stated earlier I was not handling the purchases and hence am not aware of the exact modus operandi followed by earlier persons, who looks after the purchases. After I have taken over the reigns of purchase from 18.09.2011 (After Death of Mr. BD Golani), I am trying to follow a streamline the purchase procedures which is a under:- As per the requirement we make local enquires and after negotiation we place order through phone, email etc. The material is directly supplied by the supplier to the concerned site alongwith a delivery challan, weightment slip, LP etc. The delivery challan. is duly signed by the concerned person at site and same is returned to the supplier. The supplier raise the tax invoice and same is forwarded to us alongwith the said delivery challan. Even otherwise at the time of receipt of material a copy of deliver challan, weightment slip, LR etc is maintained at out site office. Upon receipt of the tax invoice, the payment is released to the supplier after confirming the delivery of the material and the documents mentioned above. The payment is mostly made through account payee cheque, RTGS etc. In this context, I would like to mention that being a technical person I am facing difficulties in handling the conduct of business and development thereof and I am in process if limiting my business so that I can handle it better with the limited available resources. This can be 5 (A.Y.2007-2008 to 2011-12) M/s. Golani Brothers,Mumbai illustrated by the fact that our turnover has been consistently falling since FY 2010-11. The details are as under:-

FY2010-11 RS.42.53 crores FY 2011-12 RS. 33.66 crores FY 2012-13 RS. 20.77 crores (till today -19.03.2013)

Q.22 Kindly persue your books of account and give details of purchase affected from M/ s. Mainsh & Barkha and MI s Thane Steel Pvt. Ltd for last six years. Ans. The details of purchase affected from MI s Manish &Barkha and MI s Thane Steel Pvt Ltd and MI s Parshva& CO. for the last six years are as under:-

Name of FY FY FY FY FY FY FY Grand Purchase 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 Total Parties M/s. Thane 80,62,640 17,37,075 1,02,98,048 1,86,85,097 81,92,315 0 0 4,69,75,175 Steel Pvt. Ltd., M/s. 43,60,189 8,68,342 38,95,619 0 0 0 0 91,24,150 Manish & Barkha M/s. 0 0 7,21,966 0 0 0 0 7,21,966 Parshva & Co., Total 1,24,22,829 26,05,417 1,49,15,633 1,86,85,097 81,92,315 0 0 5,68,21,291

Q.24 After examination of the bills of MI s Manish &Barkha and MI s Thane Steel, it is observed that the same are not supported by test certificate, delivery challan, and purchase orders. However, it is observed that purchases from other parties included test certificate, delivery challan, purchase order etc, kindly refer to the standardized purchase procedure adopted by your company and also peruse the statement of Shri Ashok Asrani (Prop. Manish &Barkha) and offer your comments regarding the genuineness of the purchase claimed from MI s Manish &Barkha and MI s Thane Steel Private Limited.

6 (A.Y.2007-2008 to 2011-12) M/s. Golani Brothers,Mumbai Ans. Sir, I have perused the said documents and statement of Shri Ashok Asrani. I am of view that purchase were made. But, I agree that there are certain discrepancies and procedural lapses regarding the documentation involved in the purchases shown from MI s Manish & Barkha and M/s Thane Steel Private. Limited. As I was not involved in the purchase process earlier 1 am not in position to establish the genuineness of the purchases claimed from the said concerns. Hence, I take this opportunity to offer adhoc amount of 50% of the purchases, debited on account of above said two parties and also in respect of M/s Parshva& Co., as my additional income and promise to revise my returns and pay tax accordingly.

Q.25 Please refer to your answer to Q.No.24 above wherein you have admitted to withdraw the claim of 50% of the purchases made from MI s Manish & Barkha, MI s Thane Steels Private Limited and MI s Parshva& co., Please state the basis of such working particularly since the entire purchases shown from the said two parties are not having the requisite supporting documents and also it is seen from the statement of Shri Ashok Asrani Prop: MI s Manish & Barkha that the entire purchases were without any actual delivery of material. Further, M/s Parshva& co. has been declared hawala operated by the Sales Tax Department. In view of the above please why entire purchases from M/s Manish & Barkha, M/s. Thane Steels Private Limited & M/s Parshva& Co., Should not be treated as non- genuine. Ans. Sir, I am technical person handling the construction contract works at the site. I distinctly remember to have received material from the said two parties and also I would like to state that steel TMT bars were purchased from these two parties. As a technical person and qualified civil engineer, I would like to categorically state that the construction contract works completed by us during the relevant period would not have been possible without delivery and consumption of quantity of TMT bars represented by the purchases bills of the said two parties. However, since we are unable to produce the complete documentation, and with a view to avoid litigation and to but peace of offering a sum of RS.2,84,10,644/- as under which represents, 50% of the purchases from the said two parties in respective assessment years as additional income over and above the regular income of M/s Golani Brothers. I also promise to revise my returns and pay taxes accordingly.

Name of FY FY FY FY FY FY FY Grand Purchase 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 Total Parties M/s. Thane 40,31,320 8,68,537 51,49,024 93,42,548 40,96,157 0 0 2,34,87,586 Steel Pvt. Ltd., M/s. 21,80,094 4,34,171 19,47,809 0 0 0 0 45,62,075 Manish & Barkha M/s. 0 0 3,60,983 0 0 0 0 3,60,983 Parshva & (7,21,966/2) Co., Total 62,11,414 13,02,708 74,57,816 93,42,548 40,96,157 0 0 2,84,10,644

(i) The reliance by the Revenue upon the decision of the Apex Court in Mak Data P. Ltd 358 ITR 593 (SC) to contend that the justification of having deleted and accepted the amount of Rs.1.62 Crores as business income, to buy peace is not available. We find that the facts in that case are completely distinguishable and the observations made therein would not be universally applicable. In that case, a sum of Rs.40.74 lakhs had never been disclosed to the Revenue. During the course of survey, the assessee therein had surrendered that amount with a covering letter that this surrender has been made to avoid litigation and buy peace with the Revenue. In the aforesaid circumstances, the Apex Court held that the words like “to avoid litigation and buy peace” is not sufficient explanation of an assessee’s conduct. It held that the assessee had to offer an explanation for the concealment of income and/or furnishing of inaccurate particulars of income by leading cogent and reliable evidence. The Apex Court further records that in the facts of the case before it the surrender of income was not voluntary but was made only on the account of detection by the Assessing Officer during the course of survey. Further, the Apex Court also records the fact that the survey was conducted more than 10 months before the assessee filed its return of income. However, the assessee therein had not declared this income in its return of income filed subsequent to the survey which again indicated the fact that he had no intention to declare its true income. In any event, the facts in the present case as found by the CIT(A) and the Tribunal is that the Respondent assessee had disclosed an amount of Rs.1.62 Crores in the original return by crediting the same to its capital account being Long Term Capital Gain on the sale of share. Thus, the Appellant was under bonafide belief that the income from long term capital gain was exempt from tax. Thus, the decision of the Apex Court would not apply to the facts arising in the present case

(ii) The contention on behalf of the Revenue that in case there is a tax impact by virtue of change of head during the assessment proceedings then penalty is imposable and the decision of this Court in M/s. Bennett Coleman (supra) would not apply. In such a case, Mr. Malhotra, for the Revenue emphasized the fact that in M/s Bennett Coleman (supra) the Court was dealing with the change of head of income but not with regard to a claim for full exemption from payment of tax as in this case. We are unable to accept the aforesaid submission. According to us, the distinction sought to made on behalf of the Revenue is not acceptable as the ratio of the decision in M/s Bennett Coleman (supra) is where complete disclosure of income had been made in the return of income and head of the income undergoes

10 (A.Y.2007-2008 to 2011-12) M/s. Golani Brothers,Mumbai a change at the hands of the Assessing Officer would not by itself justify the imposition of penalty under Section 271(1)(c) of the Act.

(iii) We find that the Commissioner of Income Tax(A) during the penalty proceedings had again examined the issue whether the claim of capital gain made in the regular return of income to the extent of Rs.1.62 Crores with the particulars in support of the same. On examination, the CIT(A) reaches a prima facie conclusion that the income could be regarded as long term capital gain. Once the aforesaid conclusion has been reached coupled with two further facts viz. the authorities have rendered a finding of fact that the Respondent-assessee had not concealed its income nor filed inaccurate particulars attributable to capital gains in its regular return of income, the view taken to delete the penalty is a possible view.

(iv) In the present fact, the view taken by the CIT(A) as well as the Tribunal is a reasonable and possible view. Nothing has been shown to us to hold that the findings of the CIT(A) and Tribunal was perverse and/or arbitrary warranting any interference by this Court. It may be pointed out that even in the Memo of Appeal, it is not urged by the Revenue that the finding of the CIT(A) and Tribunal are in any manner perverse.

In the above view, we see no reason to entertain the question as proposed, as it does not give rise to any substantial question of law. Accordingly, the Appeal is dismissed. No order as to costs.

11 (A.Y.2007-2008 to 2011-12) M/s. Golani Brothers,Mumbai could be treated as situation in which any income was concealed by the assessee. The precise observation of the tribunal was as under:- 37.We are also supported by the order of the coordinate bench of Pune in the case of Kanboy Software India(P) Ltd., vs. Dy. CIT (2009) 31 SOT 153 (Pune), it was held, “… it is not for AO to ponder over what should have happened in ideal circumstances and reject explanation but he is to consider explanation objectively and unless he finds some against human probabilities or unless there are any real inconsistencies or factual errors in such an explanation, AO ought to accept the same”. In the instant cases before us, we have found that the revenue authorities have accepted that the purchases had been made and rightly recorded in stock book and books of account and giving out correct result. The AO did not disturb anything, but went on to levy the penalty, which even he could not substantiate under the phrase, “inaccurate particulars of income.” We are in acceptance with the argument of the AR that if the revenue authorities were holding the purchase of Rs.3,18,55,857/- in 2009-10 and Rs.2,44,98,719/- as bogus in assessment year 2010-11, why accept asessee’s declaration of peak amounts and not add back the purchase taken to be bogus, by rejecting the books. 38.The fact that the revenue authorities accepted the books of accounts go to prove that accept for the reliance on assessee’s statement, and the statements of 18 persons, whose statements were taken at the back of the assessee and without affording an opportunity for cross examination, the revenue authorities did not have anything to show and prove that here is the concealment of income, resulting from furnishing of inaccurate particulars of income. This is so because there has been nothing with the revenue authorities to prove and show that any income has been concealed. The assessee filed its ROI declaring the amount surrendered. This income was accepted by the AO. By no stretch of logic, this situation could be treated as a situation in which any income was concealed by the assessee. We, therefore, set aside the orders of the CIT(A) and cancel the orders passed by the AO levying penalty u/s 271(1)(c) in assessment years 2009-10 and 2010-11.

12 (A.Y.2007-2008 to 2011-12) M/s. Golani Brothers,Mumbai 11. Reliance was also placed by learned AR on the decision of Bankgalore Tribunal in the case of Muninaga Reddy vs. ACIT 37 taxmann.com 440 in support of the proposition that where assessee consequent to survey conducted under Section 133A had declared income from business at Rs.81 lakhs and further in return of income filed and declared said income, which was accepted and brought to tax, Assessing Officer was wrong in imposing penalty under Section 271 (1) ( c).

In the circumstances, it is apparent that the same income, namely the amounts in the bank accounts alongwith interest thereon, have been assessed in the hands of the assessee as well as different family members. Hence, even the Department is not certain as to the right person who is amenable to tax que the said income in the circumstances, the Tribunal rightly came to the conclusion that no penalty is exigible under the provisions of section 271(1) ( c) of the Act when the Tribunal has found that admittedly the family members have not been treated as benamidars of the assessee nor have the family members stated that they are the benamidars of the assessee.

13 (A.Y.2007-2008 to 2011-12) M/s. Golani Brothers,Mumbai 13. We found that CIT(A) has wrongly applied explanation 1 to Section 271(1) (c) in so far as Explanation 1 to section 271(1)(c) applies when the assessee failed to give an explanation which is not acceptable to the AO. However, in present case the assessee offered the explanation that additional income was offered due to some procedural laps and demises of earlier partners. Even AO has independently verified the details so filed of M/s Thane Steel Pvt Ltd. to the effect that it is genuine party and all the details are in order. Therefore, Ld. AO accepted the explanation of the assessee and assessed the income as offered by the assessee. If the details were not in order or purchases are bogus, then the Ld. AO would have made the entire addition and not had restricted the same to 50% as offered by the assessee. This facts shows that department also accept the genuineness of the purchases by not making the addition of purchases. This is evident from assessment order itself where the Ld. AO mentioned that:-

The assessee company submitted copies of Invoice, ledger account, payment details and reconciliation of the same with the bank statement. The assessee also filed details of Thane Steel P Ltd from the Maharashtra Government Sales Tax website in which the companies status is shown as active. This fact was independently verified and was found in order. It is pertinent to mention here that M/ s Thane Steel Private Limited is also a registered company under companies Act, 1956 and is also Excise Registered and ISO certified company. In addition to this the assessee submitted VAT audit report for the financial year.

14 (A.Y.2007-2008 to 2011-12) M/s. Golani Brothers,Mumbai In the light of the above discussion, 50% of the purchases made during the year, as offered by the assessee is hereby added to the Income assessed vide order u/s 143(3) of the IT Act dated 15.12.2009 at an income ofRs.1,34,62,840/-. 14. When the explanation was accepted by the Ld. AO, then there is no question of invoking explanation 1 to Section 271(1)(c).

15 (A.Y.2007-2008 to 2011-12) M/s. Golani Brothers,Mumbai CIT(A) failed to consider that in that case also survey operation conducted on 22.11.2012, wherein the assessee declared Rs. 34,73,047/- in AY 2009-10 and based on the surrender, the AO initiated reassessment proceedings u/s.

16 (A.Y.2007-2008 to 2011-12) M/s. Golani Brothers,Mumbai 19. Furthermore, penalty under Section 271(1)(c) cannot be levied on estimated addition. Since AO has made addition on 50% of the alleged purchase, the same was on estimation without pointing out which part of purchase was genuine and which part was non-genuine.

SN Case Laws Observations 1 CIT v/s. Jayaraj Talkies (1999) 239 ITR 914 Mere agreement to addition of income or (Mad HC) surrender of income did not imply concealment of income 2 CIT v/s M George & Brothers (1987)59 CTR Where the assessee for one reason or the (Ker HC) 298 other agrees or surrenders certain amounts for assessment, the imposition of penalty 18 (A.Y.2007-2008 to 2011-12) M/s. Golani Brothers,Mumbai solely on the basis of assessee’s surrender will not be well founded. 3 CIT v/s. SuarajBhan (2007) 294 ITR 481 Penalty cannot be imposed merely on (P&H HC) account of higher income having been subsequently declared. CIT v/s. Suresh Chandra Mittals (2001) 251 ITR 9 (SC) 4 CIT vs Manjunatha Cotton and Ginning Sec. 271(1)( c) penalty not leviable where Factory (Ker HC) assessee agree to additions to buy peace.

Order pronounced in the open court on this 21/10/2016.