DCIT, NEW DELHI vs. M/S BRIJWASI IMPEX PVT. LTD.,, DELHI

4.1 I have considered the submissions of the AR, assessment order, penalty order and order of CIT(A) against the assessment order. The AO has levied penalty in respect of the following additions confirmed by CIT(A)-I new Delhi. i. Addition on account of "loss in property business" Rs.34,95,000/-. ii. Disallowance on account of silver claimed to be belonging to Karigars Rs. 21,27,200/-. 4.2 The first addition relates to the claim of the appellant that it had incurred loss in property business due to forfeiture advances given by them to agriculturists towards purchase of land. The appellant had made advances by account payee cheques towards purchase of land before the date of search. However, due to the search and subsequent creation of tax liability it could not complete the deal for the purchase of land. The said advances were forfeited by the prospective sellers. The above submission of the appellant has not been accepted by the AO. While disallowing the claim he has made the following observations on the issues in the assessment order. The assessee has debited a sum of Rs. 34,95,000/- under the head loss in property business in Profit & Loss account. The assessee was requested vide point No. 25 of questionnaire dated 21.11.2007 to furnish the complete details of aforesaid loss in the Property business alongwith the documentary evidences. The assessee did not furnish any concrete evidence in this regard and as such loss of Rs.34,95,000/- is disallowed. This will result in an addition of Rs.34,95,000/- to the income of the assessee.

4.3 The first appellant authority has examined this issue in detail. It is stated in the appeal order that the appellant had debited an amount of Rs.34,95,000/- in the P&L account under the head "loss in property business". During the course of assessment proceedings as well as during the appeal proceedings, the appellant could not substantiate why the loss incurred in the purchase of land should be allowed as business expenses of the appellant. Sale and purchase of land was not the regular business of the assessee. The assessee is in the business of bullion and jewellery and the loss is a capital loss. The CIT(A)-I therefore, dismissed the appellant's ground on the issue. 4.4 During the present proceedings, the submissions made before the assessing officer as well as the first appellate authority have been repeated on merit. The AR has further argued that it was a mere claim made in the return of income by debiting the P&L account with the loss incurred in the property business. Neither the AD nor the CIT(A) who decided the appeal against the assessment order have disbelieved the whole transactions involving the loss incurred by the appellant. He explained that the grievance of the AO was that the appellant had not established the logic behind its claim of deduction from the profits of the business. He therefore, relying upon the decision of Hon'ble Apex Court in the case of Reliance Petro Products Pvt. Ltd. (322 ITR 158), submitted that merely because assessee had claimed expenditure which claim was not accepted by the Revenue, that by itself could not amount to concealment of penalty u/s 271(1)(c).

4.5 I agree with the submissions of the AR on the issue. The appellant merely made a claim for deduction and had not with held any fact before the AO. Both the AO and the CIT(A)-I had not doubted the transaction per se. The disallowance has been made as the same has been held to be capital loss and not a Revenue loss. In view of this, respectfully following the ratio laid down by Hon'ble Apex Court in the case of Reliance Petro Products Pvt. Ltd. (Supra), I hold that the concealment penalty cannot be levied on the addition made on the issue. 4.6 The next addition due to which concealment penalty has been levied relates to disallowance of appellant's claim that the value of silver Rs.21,27,200/- relates to the Karigars. From the assessment order it is noted that the appellant has filed a revised return wherein it had declared additional income of Rs.1,54,824/- as under:

Income As per Seized Records Value of unaccounted Gold chain found at Haryana Chain As per seized record 22,82,024 Less: Value of Silver belonging to Karigars / Suppliers as per Seized record found at 1140, Kucha Mahajani 21,27,200 1,54,824 4.7 The AO had made a total addition of Rs.74,68,116/- which included the value of unaccounted gold chain found at Haryana Chain as per seized records which was declared by the appellant in the revised return as above. CIT(A)-I has dealt with this issue in detail at page 18 & 19 of his order. He has not accepted the version of the appellant that out of the excess silver articles found and seized and brought to tax (Rs.52,85,904/-) certain silver belonged to the Karigars and therefore, the same represented liability of the appellant. He has dismissed the said ground of the appellant on the ground that there were no authentic documentary evidences to establish that the items belonged to the Karigars and the suppliers. 4.8 During the present proceedings the AR has pleaded that the assessing officer and the first appellate authority had rejected the appellant's claim that certain silver belonged to the Karigrs and therefore, addition has been made to the total income. There was no concealment of any facts from the assessing officers and therefore, no concealment of penalty is leviable as per the decision of Hon'ble Supreme Court in the case of Reliance Petro Products Pvt. Ltd. (Supra). 4.9 I agree with the AR that the AO and the first appellate authority merely rejected the appellant's claim for that there existed certain liability. That by in itself would not amount to concealment of income as decided by Hon'ble Apex count in the above case cited by the AR. 4.10 In the above background and in view of the decision of the Hon'ble Apex Court in the case of Reliance Petro Products Pvt.

Ltd. (Supra) I do not find merit in levy of concealment penalty of Rs.16,88,755/- and the same is deleted.”

1. On the facts and in the circumstances of the case, the CIT (A) has erred in deleting the penalty of Rs.16,88,755/- imposed by the A.O. under section 271(1)(c) of the Income Tax Act, 1961.

2. On the facts and in the circumstances of the case, the CIT (A) has erred in deleting the penalty on the issue of addition on account of unexplained investment in silver and ignoring the fact that the assessee itself was not in a position to establish that the silver valued at Rs.21,27,200/- was actually belonged to karigars/suppliers.”

6. Ld. DR, while relying on the order of the Assessing Officer, submitted that the additions on which the penalty was levied by the AO was also confirmed by the ITAT vide order dated 30.10.2015. She submitted that the ld. CIT (A) erred in deleting the penalty when the additions are confirmed by him in the quantum appeals and subsequently, it was partly confirmed by the Tribunal. Ld. DR also submitted a compilation of judgments. She, therefore, pleaded to set aside the order of the CIT (A) and restore the order of the AO in the light of Tribunal order in quantum appeal.

7. Ld. AR for the assessee, while relying on the order of the ld. CIT (A), reiterated the submissions made before him and ld. AR has also filed written submissions before us. The relevant submissions made by the ld. AR against the penalty on the basis of additions sustained are reproduced as under :-

“a. Addition on account of loss in property business Rs.34,95,000/- The grounds taken in First Appeal against disallowance of above mentioned loss were dismissed by CIT(A) observing that 'the appellant had debited an amount of Rs.34,95,000/- in the P & L Account under the head "Loss in Property Business". The appellant had made advance to agriculturists for purchase of land which were forfeited by the sellers of land for not fulfilling the commitment of payments of the balance amount in time. During the course of assessment proceedings as well as the appellate proceedings the appellant could not substantiate while the loss incurred in the purchase of land should be allowed as business expenses of the appellant. Sale and purchase of land is not the regular business of the assessee. The assessee deals in the business of bullion and jewellery in the regular course of business. The loss is a capital loss. In view of the above the claim of the appellant on this ground is dismissed'.

In the present case the assessee advanced various payments through account payee cheques in the name of villagers in order to purchase eight huge pieces of land at Riwari (Haryana)(PB-33). The names of the Villagers were provided along with the total amount settled, due date and the amount paid with bank particulars (PB-35). It would be seen in most of these cases due dates were of the month of October or November, 2005. The payments were made in the month of April and May, 2005 through a/c payee cheques. Since, the assessee was about to complete the deals in the month of October, November as agreed upon but due to good business in this festival season it sought more time. That on 09.12.2005 search took place the office and residential premises of the directors due to which huge tax liability was created against the assessee company and so it could not complete the deal. A legal notice was sent on 16.01.2006 (PB-36-37) but assessee was already in severe financial crisis on account of Income-tax raid due to which it could not take any action for arrangement of funds for purchase of pieces of land.

In the assessment and appellate proceedings, genuinity about the investments made by the appellant towards the purchase of land were not doubted. Ld. A.O. has disallowed the amount as 'loss in property business'. It has been held by the Hon'ble Supreme Court in the case of CIT Vs. Reliance Petro Products Pvt. Ltd 322 ITR 158 (SC) that merely because assessee had claimed expenditure which claim was not accepted or was not acceptable to revenue, that by itself would not attract penalty u/s 271(1)(c). b. Disallowance on account of silver from Karigars Rs.21,27,200/- The above disallowance results from netting off of the additional income Rs.22,82,024/- offered for taxation at Rs.1,54,824/-, income declared in revised return. Conversely amount of Rs.21,27,200/ - pertains to value of silver claimed to have been belonging to Karigars. Therefore, the amount was considered as a liability deductible from the additional income. The claim was made on the basis of loose papers seized during the search, as per Annexure-13 containing page 1 to 32. We enclose herewith photocopy of the Annexure along-with it's summary. From the summary of these ledger accounts of Karigars, it may be noted that the total quantity of pure silver received in excess from them was 163.540 Kgs and amounts due to them against labour charges was Rs.1,68,969/-. The excess silver 163.540 was valued @13,000/- per kg, the prevailing rate at that time, and the amount of Rs.21,27,200/ - was considered due to them in addition to labour charges Rs.1,68,969/-.

It is submitted that, since the assessee company has already included value of silver amounting to Rs.52,85,904/- in the balance sheet and has considered the same as income, the liability Rs.21,27,200/ - payable to the Karigars towards silver belonging to them is deductible.

The explanations offered for the additions made were bona-fide and the deductions claimed were duly disclosed in the return of income filed by the assessee. Therefore, there has been no concealment of income or filing of in-accurate particulars of such income by the assessee company.

5. While imposing penalty, Ld. AO has not considered the facts and explanations advanced before him but mechanically imposed the penalty observing that "As the First appellate authority has confirmed the addition to the extent of Rs.50,17,096/ -,the request of the assessee regarding to keep the penalty proceedings in abeyance till the decision of assessee's appeal filed in ITAT cannot be accepted as per provision of Act in this regard. Further, the assessee has simply repeated his earlier submission filed during assessment proceedings. In the above submissions he has referred certain enclosures / Annexures alongwith its reply but enclosures / Annexures has not been filed by the assessee except copy of Form No.36 and copy of acknowledgement of filing of appeal before ITAT". The above observation is general and does not consider any evidence or fact which refers to concealment of income by the assessee company or filing of in-accurate particulars of income. The amount of loss in property business is supported by the evidence of payments by cheques to various agriculturists. Ld. AO has not questioned the actual payment but has disallowed the loss claimed by it. The bona-fide explanations of the assessee in connection of the loss has been ignored by him. In connection with claim of liability of Rs.21,27,200/- towards amount payable to Karigars against silver items found at the business premises of the assessee company at the time of search, explanation of the assessee have not been considered. Ld. CIT(A) has granted relief of Rs.52,85,904/-, against addition made towards stock of silver items at Rs.68,08,000/ -. He has allowed relief of Rs.52,85,904/ - against the silver items since the same was disclosed in the balance sheet of the assessee company and the said amount was offered for taxation as other income for the A.Y. 2006-2007. Kindly appreciate that it is a common practice in the business of silver jewellery and article, the Karigars leave material with the traders for approval and sale. The department has found papers at the time of search which were containing details of amount due to such Karigars (PB-59 and PB-60 -107). Therefore, the claim of assessee that the material belonging to Karigars was it's liability, is not baseless or false, although the deduction has been denied on the ground that the same has not been accounted for.

The Assessing Officer is required to arrive at a finding that the explanation offered by the assessee, in the event he offers one, was false. He must be found to have failed to prove that such explanation was not only not bona fide but all the facts relating to the same which are material to the income were not disclosed by him. Thus apart from his explanation being not bona fide, it should be found as a fact that he has not disclosed all the facts which were material for the computation of his income. The order imposing penalty is quasi-criminal in nature and the burden lies on the Department to establish that the assessee has concealed his income. Since the burden of proof in penalty proceedings varies from that in the assessment proceeding, a finding in an assessment proceeding that a particular receipt is income cannot automatically be adopted, though a finding in the assessment proceeding constitutes good evidence in the penalty proceedings. In the penalty proceedings the authorities must consider the matter afresh as the question has to be considered from a different angle. It is now a well-settled principle if law that the more the law is stringent, more strict a construction thereof would be necessary. Even when the burden is required to be discharged by an assessee, it would not be as heavy as that on the prosecution. P.N. Krishna Lal V. Government of Kerala [1995J Supp 2 SCC 187 followed.

The documents referred to in the submissions are enclosed in the Paper Book, for your kind consideration. In view of the above, we submit that the penalty imposed on the assessee u/s 271 (l)(c) for concealing particulars of income or furnishing inaccurate particulars of income is unjustified. The assessee has offered bona fide explanations and all the facts relating to the same and material to the computation of his total income has been disclosed by him.”

8. We have heard both the sides and perused the material on record. We find that search and seizure operation was carried out at the premises of the assessee on 09.12.2005 and the assessee declared total income by filing the return of income on 30.11.2006. Thereafter, the assessee revised the income on 05.12.2007 and declared total income of Rs.25,07,480/-. After the scrutiny, the AO made various additions and the total income was assessed as Rs.6,86,22,050/-. In the quantum appeal, the ld. CIT (A) granted certain reliefs and sustained the addition of Rs.34,95,000/- against loss in property business and Rs.21,27,200/- on account of liability towards karigars against value of silver. On appeal in quantum before the ITAT, the Tribunal was pleased to partially allow the claim of the assessee in respect of liability towards karigars in respect of silver items to the tune of Rs.15,22,096/- and sustained addition of Rs.21,27,200/-. Now, we take note that the penalty proceedings were initiated by the AO when the quantum appeal was pending before the ITAT. Though the assessee requested the AO to await the outcome of the quantum appeal before the ITAT, the same was turned down by the AO and he proceeded to levy a penalty of Rs.16,88,755/- on the ground that the assessee is guilty of deliberate concealment and furnishing of inaccurate particulars of income amounting to Rs.50,17,096/-. According to the AO, the CIT (A) has allowed a relief of Rs.52,85,904/- on account of unexplained investment in silver and thus confirming the addition of balance amount of Rs.15,22,096/-. The AO then took note of the addition of Rs.34,95,000/- disallowed for loss of property business claimed by the assessee, which was also confirmed by the ld. CIT (A), and the same was added to arrive at the figure of Rs.50,17,096/- and levied a penalty of Rs.16,88,755/-. The ld. CIT (A), relying on the order of the Hon’ble Supreme Court in the case of Reliance Petro Products Pvt. Ltd. – 322 ITR 158, deleted the penalty. The ld. CIT (A) has made a finding that in the quantum appeal before the CIT (A), while adjudicating the loss in property business of Rs.34,95,000/-, he has not disbelieved the transaction which was done through account payee cheque and the advances thus given were forfeited by the sellers of the property because the assessee was in financial hardship due to search and seizure operation of the department. The disallowance in quantum assessment was basically done on the ground that assessee was not into property business and the loss was capital loss and not a business loss. So, the ld. CIT (A) rightly applied the ratio of the decision of Reliance Petro Products Pvt. Ltd. (supra) wherein the Hon’ble Supreme Court has held that merely because assessee had claimed expenditure which claim was not accepted by the Revenue that by itself could not amount to concealment of penalty u/s 271(1)(c). We also find that the assessee had disclosed the said transaction before the AO and the advances given to the sellers of the property have not been disbelieved by the authorities below. So, the claim of expenditure which has not been accepted by the revenue cannot be a ground for levying a penalty. Therefore, we are of the considered opinion that the ld. CIT (A) has rightly deleted the penalty on this addition and we confirm the said order of the CIT (A) on this issue. 8.1 Next is the penalty on disallowance of Rs.15,22,096/- with regard to the value of silver relates to the karigars. We find that the assessee had disclosed excess silver articles which were found and seized and brought to tax amounting to Rs.52,85,904/- which was claimed by the assessee that certain silver belongs to karigars, but that was not accepted by the AO and addition was made in its hands. We find that out of the amount, only Rs.15,22,096/- has been sustained by the Tribunal. It is not the case of the department that the assessee has not disclosed any facts before the AO, so there cannot be a charge of concealment against the assessee. Therefore, the ld. CIT (A) has rightly deleted the penalty on this addition and we find no infirmity in the said order of the ld. CIT (A). Accordingly, we uphold the order of the ld. CIT (A) deleting the penalty levied by the AO.