J C ANTIQUES AND CRAFTS,JAIPUR vs. DCIT CIRCLE-7, JAIPUR

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”SMC” JAIPUR Jh lanhi xkslkbZ] U;kf;d lnL; ,oa Jh jkBkSM+ deys'k t;arHkkbZ] ys[kk lnL; ds le{k BEFORE: SHRI SANDEEP GOSAIN, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA No. 416/JP/2022 fu/kZkj.k o"kZ@Assessment Years : 2013-14 cuke J C Antiques & Crafts DCIT Vs. G- 165 to 167, Sanganer Sitapura, Circle-07, Jaipur Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AACFJ 4249 A vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Sh. Manish Agarwal (CA) jktLo dh vksj ls@ Revenue by : Smt Monisha Chaudhary (Addl. CIT) lquokbZ dh rkjh[k@ Date of Hearing : 21/03/2023 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 11/04/2023 vkns'k@ ORDER PER: RATHOD KAMLESH JAYANTBHAI, AM

This appeal is filed by assessee and is arising out of the order of the National Faceless Appeal Centre, Delhi dated 30/09/2022 [here in after ld. NFAC/CIT(A) ] for assessment year 2013-14 which in turn arise from the order dated 07.07.2021 passed under section 271(1)(c) of the Income Tax Act, 1961 [ here in after to as Act ] by the National Faceless Assessment Centre.

“1. On the facts and in the circumstances of the case, the Ld. CIT(A) has grossly erred in confirming penalty in respect of additional income of Rs. 4,00,000/- surrendered during the course of survey and duly offered for taxation in return of Income filed in response to notice u/s 148 of the Income Tax Act, arbitrarily. 1.1 That, ld. CIT(A) has further erred in confirming the penalty imposed by ld. AO in respect of additional income of Rs. 4,00,000/- by brushing aside the fact that surrender was made during survey to buy peace of mind. Appellant prays that penalty proceedings are independent and though conclusion drawn in assessment proceedings may be relevant, the same cannot be solely relied upon for imposition of penalty, therefore penalty levied by ld. AO deserves to be delted. 1.2 The appellant craves the right to add, delete or amend any of the grounds of appeal either before or at the time of hearing of appeal.”

3. Succinctly, the fact as culled out from the records is that the assessee firm engaged in the business of Manufacturing and Trading of Handicraft items of Wooden, Iron, Brass, Clay, Aluminium, Ceremic. In this case, the return of income was e-filed on 30.09.2013 Vide acknowledgement No. 807989941300913 declaring total income of Rs. 95,39,490/-. A survey action was carried out on 18.02.2016. Statement of partners of the firm were also recorded during the course of survey proceedings and the assessee firm has disclosed Rs. 4,00,000/- in the head of Bogus Payment to M/s Ravi Garment Prop. Shri Ravi Memrot as its undisclosed income for the A.Y. 2013-14. Notice u/s 148 of the I.T. Act was issued to the assessee on 28.03.2016 after permission of the Addl. CIT, Range-7, Jaipur. declaring total income of Rs. 1,03,10,410/-. Hence, notice under section 143(2) of the Income tax Act, 1961 was issued on 28.09.2016 which was duly served upon the assessee. Thereafter, a fresh notice u/s 142(1) along with questionnaire was issued on 15.11.2016 which was also duly served upon the assessee. In compliance of this notice A/R of the assessee attended and furnished copy of acknowledgement of return of income and computation of income along with copy of audit report u/s 44AB with financial statements and furnished the details and documents as placed on record. As the assessee has revised his return of income on 27.04.2016 declaring total income of Rs. 1,03,10,410/- hence, penalty proceeding u/s 271(1)(c) r.w.s. 274 of the I.T. Act, 1961 for concealment of income, furnished separately initiated in the assessment order, as the assessee has disclosed the surrendered income after the survey proceedings. As the penalty proceeding were initiated a show cause notice was issued to the assessee dated 13.05.2021 and thereafter reminder dated 19.05.2021. In response the assessee contended that the additional income was offered in the ITR u/s. 148 which was not on the basis of any evidence found during the survey but was offered to buy peace of mind. The ld. AO contended that voluntary disclosure does not release assessee from mischief of penal submission made does not absolve the assessee from penalty for not disclosing the truthful income in the original return filed u/s. 139(1) before detection of the same by the department. Had there been no assessment proceeding u/s. 147, the undisclosed income would never have been detected. Based on these contentions and the various decision cited ld.AO levied the penalty for a sum of Rs. 2,38,214/-.

5. Aggrieved from the order of the National Faceless Assessment Center, assessee preferred and appeal before the ld. CIT(A). A propose to the grounds so raised the relevant finding of the ld. CIT(A) is reiterated here in below:

“6.2. The uncontroverted fact remains that the appellant firm had admitted to a sum of Rs.4,00,000/- during the course of survey which formed the basis for reopening of assessment u/s.

CIT(A), the assessee has preferred this appeal before this tribunal on the grounds as stated here in above. To support the grounds so raised the ld. AR appearing on behalf of the assessee has placed their written submission on record the same is extracted in below; Ground of Appeal

No. 1 to 1.1 In these grounds of appeal, assessee has challenged the action of ld. CIT(A) in confirming the penalty in respect of additional income of Rs.4,00,000/- surrendered by assessee during the course of survey, which was included in the total income in the return filed in response to notice u/s 148 of the Income Tax Act. Brief facts of the case are that a survey was carried out by the department at the business premises on 18.2.2016 and during the course of survey, statements of partners and employees were recorded including of Shri Sumer Singh Charan (APB 28- 48) wherein in reply to question No.

9. (APB 32) he admitted that the payments made towards job charges to M/s Ravi Garments as bogus. On the basis of such statements, survey officials obtained surrender of Rs.4,00,000/- from partner of assessee firm pertaining to the year under appeal. It would not be out of place to mention here that statements were recorded during survey, under charged atmosphere and were on dotted lines and were recorded on oath. This also got strengthen from the fact that in fact in the year under appeal assessee has not made any single payment towards job charges to M/s Ravi Garments (prop. Mr. Ravi Mamrot) nor claimed any expenses however, not only admitted the bogusd expenses but also declared additional income on this account in the return filed u/s 148. For computing the additional income assessee prepared a cash flow statements of the transaction carried out by it for which surrender was obtained during the course of survey wherein all the entries representing additional income / expenses are incorporated, including entries not actually undisclosed income however, admitted during survey to avoid litigation. In peak working so prepared, peak balance of the payments to M/s Ravi Garments was computed at Rs 7,75000/- and included Rs. 7,75,000/- as additional income in the return filed u/s 148 as against Rs.4,00,000/- admitted during survey. It is submitted that additional income so computed by assessee was not on the basis of any document whatsoever found during the course of survey rather was solely on the basis of statements recorded on oath. It is submitted that during the course of survey carried out u/s 133A, statements of the managing partner Shri S.S. Charan were recorded on oath though all the facilities were 6 J C Antiques & Crafts, Jaipur vs. DCIT, Circle-07, Jaipur provided to the survey team and at no stage of the proceedings it is alleged by the survey official that assessee or any of the partner/ connected person has not cooperated with them. Further in the statements Shri S.S. Charan had signed on the dotted lines and had not even referred the books of accounts etc. before making any such assertion. It is submitted that ld.AO imposed penalty on entire additional income disclosed in Return of Income filed in response to notice u/s 148. On appeal, ld. CIT(A) deleted the penalty in respect of additional income over and above Rs. 4.00 lacs admitted during the survey by stating that there was no material on the basis of which the same could be treated as concealment, mere revision of income cannot be ground for levy of penalty, whereas sustained penalty on additional income of Rs.4,00,000/- which was admitted during survey. In this regard, a stated above, it is reiterated that entire additional income of Rs 7,75,000/- was computed by assessee as peak balance of transactions with M/s Ravi Garments, thus when ld. CIT(A) has specifically noted that there was no material on the basis of which additional income worth Rs 3,70,920/- could be treated to have been concealed, then confirming penalty in respect of part of such peak balance i.e. Rs.4,00,000/- is absolutely arbitrary. It is submitted that Rs.4,00,000/- is part of additional income of Rs 7,75,000/- and no material whatsoever was referred by ld. AO while initiating the penalty proceedings or imposing the penalty. Your honours would appreciate that assessee has in fact included higher income in revised return than that admitted during survey and has paid additional tax on it even though ld. CIT(A) in penalty proceedings has accepted that there was no material with ld.AO in this regard. It is submitted that the series of events itself clarifies that additional income was admitted by assessee solely to avoid litigation, otherwise there would be definitely some material referred in statements or in Assessment order or at least Penalty Order. It is submitted that the surrender for additional income of Rs.4,00,000/- was obtained from assessee during survey by treating payments made to one of the job worker Shri Ravi Mamrot Prop. Of M/s Ravi Garments as bogus, on the basis of his statements recorded during survey. Actually, as submitted above, assessee never made any bogus payment to the job worker nor any evidences was either found during the course of the survey or brought on record during the assessment proceedings It is submitted that ld.AO has levied penalty solely on the basis of additional income offered in Return of Income filed in response to notice u/s 148 and has not established as to how the additional income amounts to concealment. It is submitted that for the year under consideration, assessee has not paid/claimed any job work charges to Sh. Ravi Mamrot, which is evident from the copy of ledger of Sh. Ravi Mamrot as appearing in the books of assessee, copy enclosed. There were certain transactions with Ravi

7 J C Antiques & Crafts, Jaipur vs. DCIT, Circle-07, Jaipur Mamrot, which were in the nature of advances and not expenses. However, assessee had made certain payments to Ravi Mamrot on behalf of its sister concern, i.e. Natural World and therefore partner, during the course of statements has stated that no job work services were provided by Ravi Mamrot. However, surrender of Rs.4,00,000/- was obtained from him under pressure. Moreover, it is submitted that, it is settled law that penalty proceedings are separate and distinct proceedings and the conclusion drawn in assessment proceedings cannot be made sole basis for levy of penalty. In penalty proceedings also no enquiry what so ever were carried out before drawings conclusion that assessee has concealed any income. If any enquiry was carried out, the truth that no job charges were paid would come to the surface. Moreover from the perusal of the penalty order ld.AO has failed to justify the conditions laid down in Explanation 1 to section 271(1)(c) as neither in the assessment nor in the penalty proceedings, ld. AO tried to visit the books of accounts of the assessee to hold that assessee has filed inaccurate particulars of income with respect to the job charges claimed. It is settled position that assessment proceedings and penalty proceedings are separate and distinct and as held by Hon’ble Supreme Court in the case of Anantharaman Veerasian Co. Vs. CIT, 123 ITR 457, the findings in the assessment proceedings cannot be regarded as conclusive for the purposes of the penalty proceedings. It is also well settled that the criterion and yardsticks for the purpose of imposing penalty u/s 271(1)(c) of the Act are different than those applied for making or confirming the addition. It is, therefore, necessary to re-appreciate and reconsider the matter so as to find out as to whether the addition or disallowance made in the quantum proceedings actually represents the concealment on the part of the assessee as envisaged in section 271 (1)(c) of the Act, and whether it is a fit case to impose the penalty by invoking the said provisions. Hon’ble Apex court in the case of Eilly Lilly & Company reported in 312 ITR 225 has held that the penalty proceedings is not an automatic or mandatory fallout of the addition made during the assessment proceedings, therefore, the same should not be levied in routine manner. Hon’ble Jaipur Bench of ITAT in its decision dated 29.11.2019, delivered the case of Shri Rajendra Shirangi vs DCIT in ITA No. 1087/JP/2019 (compilation of case law 1-13) has held as under: “3. Thus the Hon’ble High Court has held that the concealment of particulars of income or furnishing of inaccurate particulars of income by the assessee has to be in the income tax return filed by it. Even if some discrepancies were found during the survey resulting in surrender of income by the assessee, once the assessee has declared the said income in the return of income filed under section 139(1) of the Act, then the penalty cannot be levied on the surmises, conjectures and possibilities 8 J C Antiques & Crafts, Jaipur vs. DCIT, Circle-07, Jaipur that the assessee would not have disclosed the income but for survey. Accordingly, following the earlier decision of this Tribunal as well as the decision of Hon’ble Delhi High Court in case of CIT vs. SAS Pharmaceuticals (supra), the penalty levied by the AO and confirmed by the ld. CIT (Appeals) in respect of the amount of Rs. 3 crore is not sustainable, the same is deleted.” Hon’ble Jaipur Bench of ITAT in its decision dated 07.08.2018, delivered the case of ACIT vs Harbans Lal Sethi in ITA No. 455/JP/2017 (compilation of case law 14-20) has held as under: 4. Having considered the rival submissions as well as the relevant material on record, we note that if the assessee has not declared the surrendered income in the return of income and also not filing revised return of income, then the case of the assessee would certainly fall in the category of furnishing incorrect particulars of income in the return of income as the assessee had already declared and surrendered the said income during the course of survey proceedings under section 133A. However, in the case in hand the assessee has paid the due tax on the said income prior to the filing of the return of income and further this amount was duly reflected in the books of account of the assessee. Once the assessee has considered the additional income surrendered during the survey in the books of accounts and also paid the tax on the same, then mere non inclusion of the said income in the return of income due to inadvertence and bonafide mistake would not lead to the conclusion that the assessee has concealed particulars of income or furnishing inaccurate particulars of income particularly when the assessee did not claim any refund of the advance tax paid on such income……. ……………..

10 J C Antiques & Crafts, Jaipur vs. DCIT, Circle-07, Jaipur 16. No doubt, the discrepancies were found during the survey. This has yielded income from the assessee in the form of amount surrendered by the assessee. Presently, we are not concerned with the assessment of income, but the moot question is to whether this would attract penalty upon the assessee under the provisions of section 271(1)(c) of the Act. Obviously, no penalty can be imposed unless the conditions stipulated in the said provisions are duly and unambiguously satisfied. Since the assessee was exposed during survey, may be, it would have not disclosed the income but for the said survey. However, there cannot be any penalty only on surmises, conjectures and possibilities. Section 271(1)(c) of the Act has to be construed strictly. Unless it is found that there is actually a concealment or non-disclosure of the particulars of income, penalty cannot be imposed. There is no such concealment or non-disclosure as the assessee had made a complete disclosure in the income-tax return and offered the surrendered amount for the purposes of tax.” CIT vs. Careers Education and Infotech (P.) Ltd. (P & H High Court) [2011] 336 ITR 257 (compilation of case law 21-23) Penalty-Concealment of Income-Surrender of Income during survey- Finding by Tribunal that there was no material from which concealment of income could be inferred- Penalty could not be imposed- Income-Tax Act, 1961, s. 271(1) (c). In every case where surrender is made an inference of concealment of income cannot be drawn under section 58 of the Indian Evidence Act, 1872. Where the assessee surrendered additional income during the course of an Income-Tax Survey to buy peace with the Department and filed a revised return accordingly, and the Tribunal recorded a categorical finding that there was no material to infer concealment of income or furnishing of inaccurate particulars: Head accordingly, that penalty could not be imposed under section 271(1)(c) of the Income- tax Act, 1961. Relevant extracts of Hon’ble ITAT in above case, which are identical to the facts of the assessee, are as under: “From the record, we found that the addition of Rs. 15 lakhs was made only on the basis of surrender made during the course of survey and by accepting the revised return filed by the assessee. In the assessment order, the Assessing Officer has not pointed out even a single defect either in the books of account or vouchers etc. maintained by the assessee or in the system of accounting being followed for disclosing true and correct income. Not only the survey team but during the course of assessment the Assessing Officer had all the materials before him to find out if there are any 11 J C Antiques & Crafts, Jaipur vs. DCIT, Circle-07, Jaipur discrepancies which can be co-related to the amount of surrender made by the assessee. However, the Assessing Officer has not uttered a single word in the assessment order to say that there was any concealment of income of the assessee having noticed by the survey team or by the Assessing Officer himself. The offer of additional income of Rs. 15 lakhs was made to buy peace at the time of survey in order to avoid the harassment at the hands of the survey team. Even after surrender, all kinds of enquiries were made by the survey team as well as by the Assessing Officer while framing assessment on the basis of the seized documents, books of account, vouchers etc. maintained by the assessee, and after thorough enquiry, the income of the business was accepted at original returned income along with the additional income offered by the assessee. The Assessing Officer has imposed the penalty considering the additional income as income from undisclosed sources and has alleged the assessee has filed revised return only after detection of concealed income during the course of survey. In case there was any detection of concealed income either by the survey team or by the Assessing Officer, why the same has not been pointed out in the assessment order. Not an iota of evidence was narrated to support the addition made except the surrender made by the assessee himself. When no concealment was ever detected by the survey team or by the Assessing Officer, no penalty was imposable. Recently, the hon’ble Punjab and Haryana High Court in the case of Sidhartha Enterprises [2010] 322 ITR 80 (P&H), vide order dated July 14, 2009, held after considering the decision of the hon’ble Supreme Court in the case of Union of India v. Dharamendra Textile Processors [2008] 306 ITR 277 (SC) that the judgment of the hon’ble Supreme Court in the case of Dharamendra Textile Processors [2008] 306 ITR 277 (SC) cannot be read as laying down that in every case where particulars of income are inaccurate, penalty must follow. What has been laid down is that qualitative difference between criminal liability under section 276C and penalty under section 271(1)(c) had to be kept in mind and approach adopted to the trial of a criminal case need not be adopted while considering the levy of penalty. Even so, the concept of penalty has not undergone a change by virtue of the said judgment. It was categorically observed that penalty is imposed only when there is some element of deliberate default and not a mere mistake. This being the position, the furnishing of inaccurate particulars was simply a mistake and not a deliberate attempt to evade tax. The hon’ble Supreme Court in the case of CIT v. Suresh Chandra Mittal [2001] 251 ITR 9 (SC) observed that where the assessee has filed a revised return showing higher income and the assessee has surrendered the income after persistent queries by the Assessing Officer and where the revised return has been regularized by the Revenue, the explanation of the assessee that he has declared the additional income to buy peace of mind and to come out of vexed litigation could be treated as bona fide, accordingly the levy of penalty under section 271(1)(c) was held to be not justified. In the instant case before us, as per the surrender made by the assessee, a revised return was filed and which has been 12 J C Antiques & Crafts, Jaipur vs. DCIT, Circle-07, Jaipur accepted as it is without making any alteration therein nor was there any adverse observation in the assessment order with regard to any discrepancies to correlate the same with the amount of surrender. We accordingly do not find any merit in the action of the lower authorities for imposing penalty under section 271(1)(c). On the facts and circumstances, the instant case is not a fit case for levy of penalty.” It is further stated that even in the cases where additions are made solely on the basis of statements recorded and without corroborating the same with any other material, such additions have been deleted by courts. In the present case, assessee has suo moto honoured the income admitted (even though no documentary evidence were found/impounded during survey) and ld.AO has not even tried to verify the very basic facts i.e. how much job work charges were paid to Ravi Mamrot (actually no job work charges were paid for the year under consideration) and whether payments were in cash/through cheque what were the nature of services etc. nor any effort was made to correlate the statements with books of accounts. In the scenario, imposition of penalty even without establishing how assessee had concealed income, is absolutely arbitrary. Hon’ble Jaipur bench of ITAT in the case of DCIT vs Maverick Share brokers Pvt. Ltd. in ITA NO. 701/JP/2012 (Case Law compilation pages 38-49) dismissed the appeal of department by holding that addition made by AO was not justified simply on the basis of surrender made during the course of survey as no incriminating material was found during the course of survey on the basis of which assessee can disclose additional income. In that case, assessee had not offered additional income as surrendered during survey and such order of Hon’ble ITAT was affirmed by Hon’ble jurisdictional High Court in DB Appeal No. 14/2016 (Case Law compilation pages 50-55). Your honours would appreciate that case of assessee is on a far better footing as assessee has honoured the surrendered income even though no job work charges were paid to Sh. Ravi Mamrot, which were alleged to be bogus, thus further penalizing the assessee by levy of penalty is against the settled legal position. Reliance is also placed on following case laws: 25-TW-117/118 Shri Ganesh Sizing Factory Vs. ITO (ITAT, Jaipur Bench) Section 271 (1) (c) of IT Act – In this case as a result of survey carried out u/s 133A, concealment was detected and substantial additions made to total income – Later on penalty u/s 271 (1) (c) of the Act was also imposed which stood confirmed by CIT(A) – Now the tribunal have deleted the penalty – Whether discrepancy and defect found in the original assessment can justifiable lead to the conclusion of concealment of the income by assessee ? Held no. 20-TW-76/77/78 Ramsaran Gupta Vs. ACIT, ITAT, Jaipur Bench

13 J C Antiques & Crafts, Jaipur vs. DCIT, Circle-07, Jaipur (Dated 20.01.1997) Simply on the basis of assessee’s agreeing to addition penalty cannot be sustained. Revenue must prove measrea. CIT V. K.R. Chinni Krishna Chetty [2000] 246 ITR 121 (Mad.) Mere revision of income to a higher figure by the assessing authority does not automatically warrant an inference of concealment of income. It is submitted that ld.AO has relied upon various decisions, which are factually distinguishable insofar as in all the cases the additional income surrendered was supported by specific documentary evidences, whereas in the case of assessee it is solely on the basis of statements recorded. In view of the facts and circumstances of the case, it is requested that penalty confirmed by ld. CIT(A) in respect of sum of Rs.4,00,000/-, being additional income offered in return of Income, solely on the basis of statements recorded during survey, deserves to be deleted.”

It is not in dispute that the income which the assessee disclosed in the survey is not disclosed in the returned filed in response to notice u/s. 148 of the Act. It is also not in dispute that the order of the penalty deal only the income disclosed by the assessee in the survey for an amount of Rs. the disclosure upon which the same is made. Thus, we note that the assessee has declared the surrendered income in the return of income and also filed the return in response to notice u/s. 148 along with the tax additionally required to be paid by the assessee along with the interest thereupon. The assessee has already paid the tax before filling this return in response to notice u/s. 148 of the Act. Once the assessee has considered the additional income surrendered during the survey and also offered the additional income by payment of due tax, then mee non inclusion of the said income in the return of income would not lead to the conclusion that the assessee has concealed the particulars of income or furnished the inaccurate particulars of income. The fact that the assessee has offered this additional income and has paid the tax while filling the return u/s. 148 is not disputed before us. On the similar issue the Delhi High Court in the case of CIT Vs. M/s. SAS Pharmaceuticals held as under the ld. AR relied on the following finding:

“15. It necessarily follows that concealment of particulars of income or furnishing of inaccurate particular of income by the assessee has to be in the income tax return filed by it. There is sufficient indication of this in the judgment of this Court in the case of Commissioner of Income Tax, Delhi-I Vs. Mohan Das Hassa Nand 141 ITR 203 and in Reliance Petroproducts Pvt. Ltd. (supra), the Supreme Court has clinched this aspect, viz., the assessee can furnish the particulars of income in his return and everything would depend upon the income tax return filed by the assessee. This view gets

15 J C Antiques & Crafts, Jaipur vs. DCIT, Circle-07, Jaipur supported by Explanation 4 as well as 5 and 5A of Section 271 of the Act as contended by the learned counsel for the Respondent.

In the result, appeal of the assessee is allowed.

Sd/- Sd/- ¼ lanhi xkslkbZ ½ ¼ jkBkSM deys’k t;arHkkbZ ½ (Sandeep Gosain) (Rathod Kamlesh Jayantbhai) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 11/04/2023 *Ganesh Kumar आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. The Appellant- J C Antiques & Crafts, Jaipur 2. izR;FkhZ@ The Respondent- DCIT, Circle-07, Jaipur vk;dj vk;qDr@ The ld CIT 3. vk;dj vk;qDr¼vihy½@The ld CIT(A) 4. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 5. 6. xkMZ QkbZy@ Guard File (ITA No. 416/JP/2022) vkns'kkuqlkj@ By order,

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