SRI RAJ KUMAR BANSAL,KOLKATA vs. I.T.O WD - 42(1),KOLKATA, KOLKATA

This appeal by assessee is arising out of order of CIT(A)-XII, Kolkata vide appeal No. 148/XII/42(1)/10-11 dated 12.03.2013. Assessment was framed by ITO, Wd-42(1), Kolkata u/s. 143(3)/263 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for Assessment Year 2004-05 vide his order dated 31.12.2009. Penalty was imposed by ITO, Wd-42(1), Kolkata u/s. 271(1)(c) of the Act vide his order dated 29.10.2010.

The only issue in this appeal of assessee is against the order of CIT(A) confirming the penalty imposed by AO u/s. 271(1)(c) of the Act on income estimated by CIT(A) and confirmed by Tribunal.

Briefly stated facts are that the assessee is engaged in the business of transportation and AO during the reassessment proceedings i.e. after revision order of CIT u/s. 263 of the Act, and going through the submissions and details noted that the assessee has maintained same set of books of account wherein he could not furnish the party wise break-up of freight charges paid at Rs.68,80,433/- as against the total claim of Rs.71,22,093/-. According to AO, the assessee could produce only the break-up of freight charges at Rs.2,41,600/- as the same was produced in the original assessment proceedings. Accordingly, he treated the balance freight charges of Rs.68,80,433/- as freight expenses remained unverifiable and disallowed and added to the total income of the assessee. Aggrieved, assessee preferred

Aggrieved, assessee preferred appeal before CIT(A), who also confirmed the action of AO by observing as under: “I have considered the finding of the AO and written submission filed by the assessee. As the Ld. ITAT, Kolkata has dismissed the appeal of the department against the order of the CIT(Appeal)-XII, Kolkata and the cross objection filed by the assessee, therefore, the addition of income estimated by the CIT(Appeal)-XII, Kolkata, however, it cannot be said that the estimation was without any basis. It is also important to note that in this case the estimation of income was not by rejecting the expenses of the assessee only. This estimation was based on facts and figures and, therefore, the Hon’ble ITAT, Kolkata confirmed the addition sustained by CIT(Appeal)-XII, Kolkata. Hence, assessee’s argument that penalty u/s. 271(1)(c) should not be confirmed on estimated income does not have merit. Accordingly, assessee’s appeal on this issue is dismissed.”

We have heard rival submissions and gone through facts and circumstances of the case. We find that this is a case of pure estimation of net profit by applying net profit rate. The AO estimated the income at Rs.3,00,316/-. The assessee is a truck operator not owning any trucks on his own. During the course of assessment proceedings, appellate proceedings and proceedings before Tribunal, the assessee produced complete freight register which contains complete details of individual consignment i.e. date, CN No., truck no., destination, consignor’s name, consignee’s name, advance paid for freight, date of payment, payable freight, balance freight payable, date of payment, corresponding bill no., bill date, party name, bill amount, advance received and balance receivable in columnar form. We find from the penalty order that the case of assessee is simply on estimate basis and there is no Sri Raj Kumar Bansal, AY 2004-05 iota of suppression of facts or the assessee has furnished inaccurate particulars of income. This is not a case of concealment of income because the assessee has disclosed all particulars before the AO during original assessment proceedings and even proceedings during assessment framed u/s. 143(3)/263 of the Act. The AO has no where proved concealment or he is satisfied for initiation of penalty or levy of penalty. The entire onus is on revenue firstly that he has to prima facie prove that the assessee has concealed the particulars of income despite the fact that all the details were available before him during original assessment proceedings or penalty proceedings. The Hon’ble Delhi High Court in the case of CIT Vs. Rampur Engineering Co. Ltd. 309 ITR 143 (Del.) (FB) has noted that how the AO has to reach satisfaction before imposing penalty. The Hon’ble court has observed that power to impose penalty u/s. 271(1) depends upon satisfaction of AO in course of assessment proceedings and it cannot be exercised if he is not satisfied and has not recorded his satisfaction about existence of conditions specified in clauses (a), (b) and (c) of sub section (1) of section 271 before proceedings are concluded; though mere absence of words ‘I am satisfied’ in assessment order may not be fatal, yet such a satisfaction must be spelt out from order of AO as to concealment of income or deliberately furnishing of inaccurate particulars and in absence of a clear finding as to concealment of income or deliberately furnishing of inaccurate particulars, initiation of penalty proceedings u/s. 271(1)(c) would be without jurisdiction. Even the coordinate Bench of ITAT, Kolkata, in the case of Suvaprasanna Bhattacharya Vs. ACIT, AY 2006-07 dated 06.11.2015 has held as under: “6. We shall now deal with the question whether proper satisfaction was arrived at by the AO for initiating penalty proceedings u/s.271(1)(c), in the course of concluding the assessment proceedings, wherein the additions in respect of which penalty was imposed were made. On the above issue, the first aspect which, we notice is that in the order of assessment, which we have extracted in the earlier part of this order, nowhere spells out or indicates that the AO was of the view that the assessee was guilty of either concealing particulars of income or furnishing inaccurate particulars of income. The offer to tax of income by the assessee has just been accepted. It is no doubt true that it is not the requirement of the law that the satisfaction has to be recorded in a particular manner, especially after the introduction of the provisions of Sec.271(1B) of the Act with retrospective effect from 1.4.1989. Nevertheless, as laid down by the Hon’ble Delhi High Court in the case of Ms.Madhushree Gupta (supra), the position of law both pre and post Sec.271(1B) of the Act is similar, inasmuch, the AO will have to arrive at a prima facie satisfaction during the course of proceedings with regard to the assessee having concealed particulars of income or furnished inaccurate particulars, before he initiates penalty proceedings ‘prima facie’ satisfaction of the AO that the case may deserve the imposition of penalty should be discernible from the order passed during the Sri Raj Kumar Bansal, AY 2004-05 course of the proceedings. At the stage of initiation of penalty proceeding, the order passed by the AO need not reflect satisfaction vis-a-vis each and every item of addition or disallowance, if overall sense gathered from the order is that a further prognosis is called for. The decision of the Hon’ble Supreme Court in the case of MAK Data (P) Ltd. (supra) has to be understood in the context of the facts of the said case. The relevant portion of the judgment in the aforesaid case, reads thus: “9. We are of the view that the surrender of income in this case is not voluntary in the sense that the offer of surrender was made in view of detection made by the AO in the search conducted in the sister concern of the assessee. In that situation, it cannot be said that the surrender of income was voluntary. AO during the course of assessment proceedings has noticed that certain documents comprising of share application forms, bank statements, memorandum of association of companies, affidavits, copies of Income Tax Returns and assessment orders and blank share transfer 8 deeds duly signed, have been impounded in the course of survey proceedings under Section 133A conducted on 16.12.2003, in the case of a sister concern of the assessee. The survey was conducted more than 10 months before the assessee filed its return of income. Had it been the intention of the assessee to make full and true disclosure of its income, it would have filed the return declaring an income inclusive of the amount which was surrendered later during the course of the assessment proceedings. Consequently, it is clear that the assessee had no intention to declare its true income. It is the statutory duty of the assessee to record all its transactions in the books of account, to explain the source of payments made by it and to declare its true income in the return of income filed by it from year to year. The AO, in our view, has recorded a categorical finding that he was satisfied that the assessee had concealed true particulars of income and is liable for penalty proceedings under Section 271 read with Section 274 of the Income Tax Act, 1961.

The AO has to satisfy whether the penalty proceedings be initiated or not during the course of the assessment proceedings and the AO is not required to record his satisfaction in a particular manner or reduce it into writing…….”

The Revenue places reliance only on the sentence appearing in para-10 of the judgment without reading it in the context of the observations in the last portion of para-9 of the said judgment. Therefore even the Hon’ble supreme court’s decision suggests that the satisfaction need not be recorded in a particular manner but from a reading of the assessment order as a whole such satisfaction should be clearly discernible. If the AO accepts all the contentions of the assessee and the offer of income that has not been declared in the return of income to tax without indicating either directly or indirectly that the assessee has concealed particulars of income or furnished inaccurate particulars of income, it cannot be said that satisfaction for initiation of penalty proceedings is discernible from the order of assessment. If the assessee in good faith offers income to tax voluntarily prior to any positive detection by the AO, such voluntary offer cannot be taken advantage of by the AO to initiate penalty proceedings against the assessee without specifying the reasons why penalty proceedings are initiated u/s.271(1)(c) of the Act. In the present case, we have read the order of assessment as a whole and are satisfied that satisfaction for initiation of penalty proceedings is not discernible from the order of assessment. We therefore concur with the argument of the learned counsel for the assessee that initiation of penalty proceedings was not proper in the present case and on that ground the imposition of penalty u/s.271(1)( c) of the Act is unsustainable.”