ACIT CEN CIR 34, MUMBAI vs. JATIN J.SHAH, MUMBAI

Common grounds are involved in all the appeals, wherein penalty was levied for the income surrendered in the revised return, therefore, all the appeals were heard together and now decided by this common order.

As per the details in the penalty order dated 17.3.2008 it transpires that in this case return of income declaring total income at Rs.5,54,628/- has been filed on 30.10.2005. Subsequently survey u/s.133A of the Act was conducted on the business premises of the assessee at 121, Vasant Udyog Bhavan, Senapati Bapat Marg, Lowe Parel, Mumbai along with Search action in Shah Group on 11.10.2006. During the course of survey u/s.133A when the assessee was confronted with purchase bills of the concerns M/s Prakash Textiles and M/s Chirag Textiles, partners of the assessee firm namely M/s Jay Feb admitted that some purchases shown during the year could not be explained and offered the same for taxation to avoid protracted litigation. On verification of the impounded material, it was found that these purchases totaled to Rs.30,68,935/-. Subsequent to the survey conducted on 11.10.2006 assessee filed revised return of income for A.Y.2005-06 on 29.3.2007 declaring additional income of Rs.30,68,935/- with the following note :- “Survey u/s.133A was conducted on 11.10.2006 and during the course of survey action to avoid unwarranted litigation and to buy peace from the department subject to non-levy of penalty as per provision we have declared the sum of Rs.30,68,935/- and to honour our commitment with the department we have paid taxes on such declared amount and computed revised total income.” The AO completed the assessment u/s.143(3) of the Act on 27.12.2007 by making a reference to the revised return filed and accepting the invalidity of the revised return or rejecting it as a invalid return. After the order u/s.143(3) of the Act was passed, the AO proceeded to initiate penalty proceedings u/s.271(1)(c) of the Act for furnishing inaccurate particulars of income or concealment of income of Rs.30,68,935/-. Penalty proceedings u/s.271(1)(c) of the Act were initiated in the said assessment order and consequent to the completion of assessment, the proceedings were commenced calling upon the assessee to show cause u/s.271(1)(c) of the Act should not be levied. After taking into account the reply of the assessee, the AO was of the view that this is a fit case for levy of penalty u/s.271(1)(c) of the Act and if the returned income was accepted. The AO further stated that additional income was declared subsequent to survey operation only and had the survey operation not taken place, the assessee would not have declared additional income at all and therefore additional income was not voluntary. The AO in the penalty order passed has held that declaration of undisclosed income by way of revised return of income is subsequent to survey action in the case of the assessee and the revised return of income has been filed after the completion of assessment u/s.143(1) of the Act and, therefore, the revised return filed by the assessee was invalid. Therefore, levied a penalty of Rs.12,00,000/- u/s. 271(1)(c) of the Act.

By the impugned order the CIT(A) deleted the penalty after having following observation :- “2.5 I have carefully considered and examined the assessment order dated 27.12.07, the penalty order dated 17.3.08, the Shah, Partner of M/s Jay Feb recorded on 12.10.2006 and the case laws cited. I n this case it is seen that this is a case wherein during the survey operations carried on the appellant had offered Rs.30,68,935/- for taxation voluntarily to buy peace and avoid protracted litigation. The appellant being a firm dealing with trading gray yarn and cloth could not explain the deficiencies pointed out in certain purchase bills had suo moto offered the amount for taxation. It had then revised its return of income on 29.3.2007 and paid taxes accordingly. Consequent to this the Assessing Officer had assessed his income u/s.143(3) of the IT Act, 1961 on 27.12.2007 accepting this revision of income. The operative part of the Assessing Officer's order is as under: "The assessee is engaged in the business of trading of grey yearn and clothes. In the accounts, sales are shown at Rs.17.31 crores on which gross profit is shown at Rs. 82,50, 671/- and book profit is shown at Rs.8,54, 628/-. After allowing remuneration at Rs.3lakhs to partners, net profit is shown at Rs.5,54,628/- in the accounts. Facts of the case are that an action u/s 133A of the IT Act was carried out on 11.10.2006 at the assessee's premises at 121, Vasan Udyog Bhavan, Senapati Bhapat Marg, Lower Parel, Mumbai along with the search action in Shah group. During the course of survey u/s 133A, the partner of the firm Mr Sharad R Shah, admitted that no stock register was maintained by the firm. He also admitted that some purchases shown during the year were not genuine. During the year under consideration, the assessee firm had shown purchases from the following parties: Sl.No. Name of the party Amount

6 Consequently penalty u/s 271(1)(c) has been imposed on the appellant. The appellant is aggrieved by the fact that as the appellant had suo moto and voluntarily offered the complete amount in question for taxation, levy of penalty u/s 271 (1 )(c) was not justified in his case.

8 The appellant has mainly relied upon the pronouncement made by the juri ictional bench of the Hon'ble Tribunal regarding penalty u/s 271 (1)(c) levied on the surrender made during surveys and stated that his case is covered by the said judgements of the juri ictional courts and should be considered keeping them in view the said judgements are :- i) Bhagat & Company Vs. ACIT, ITAT Mumbai D Bench (2006) 101 Along with the above mentioned judgements the appellant also made references to the cases cited earlier on in the order. As the judgements relied upon related to the juri ictional bench of the Hon'ble ITAT the case was examined keeping the same in view and I find that the contention of the appellant carries weight. A reading of the operative part of the recorded statement reproduced below Qn.

During the course of survey, I never verified the files of purchase of grey and finished fabrics for the period from 1.4.99 onwards of different concerns. In respect of purchases of fabric made by M/s Cotex, Hetvi Fashions, Shah Impex, Archana Impex and Jay Fab from M/s Deepak Textiles, Prakash Textiles, Chirag Textiles, Cosmos Textiles and Supreme Textiles, it is found that the bills of purchases do not contain the delivery challan and LR whereas in the case of most of the other purchases, the evidence of receipt of delivery of the goods is invariably available. Such bills of purchases made from M/s Deepak Textiles, Prakash Textiles, Chirag Textiles, Cosmos Textiles and Supreme Textiles by difference concerns of your group have been impounded as per Annexure A1 to A5 vide order u/s.133A(3)(a) dtd.12.10.2006. in this regard, you are requested to explain with evidence as to how these purchases made from the said parties as per details given below are genuine? Name of the concern Financial Year Amount Rs. Jay Fab 2004-05 3068935 Jay Fab 2002-03 5566654 Hetvi Fashions 2004-05 1917290 Archana Impex 2004-05 3460109 Shah Impex 2002-03 3372294 Shah Impex 2003-04 1167472 Cotex 2005-06 34272035 Ans: In this regard, I have to admit before you that these bills have been obtained from them due to various business constraints. Hence, without prejudice, voluntarily on our part and to buy peace with the department, and also to avoid protracted litigation which may hamper our business prospect and day to day business, " as a head of the business concerns mentioned above and after consulting other managing partners, offer these purchases of Rs.5,28,224 789/- as income of the respective years in which these purchases have been booked in the different concerns. In this regard, I may further mention that out of the total purchases of Rs.3,42,72,035/- by M/s Cotes in Financial Year 2005-06 the payments have been made of Rs. 78,09,726/- so far and the amount of Rs.2,64,62,309/- is outstanding as on date. Accordingly, the amount offered for tax in Assessment Year 2006-07 will be Rs. 78,09,726/- and for Assessment Year 2007-08 will be of Rs. 2,64,62.309/-. We will pay the advance tax in the current financial year and the taxes due for earlier years in due course of time and will file the return of income for Assessment Year 2006-07 and also revise the return of income for earlier years on our own volition including the income declared as above. The evidence thereof will also be produced before you." in due course of time. On account of voluntarily disclosure on our part and cooperation extended, the department is requested to take lenient and sympathetic view for non imposition of penalty". indicates that the partner of the appellant had nowhere stated that the purchases were bogus. It is also seen that in the concerned question there was no query raised or issue pointed out vide which the said purchases were categorized as bogus or not genuine. The partner of M/s. Jay Fab offered the same for taxation as he could not explain the deficiency on account of non maintenance of stock register. He has further stated that the total amount is offered for taxation to buy peace and avoid litigation which will hamper his day to day working. The facts of the case clearly show that the appellant had filed revised return of income declaring additional income merely for the purpose of purchasing peace and the appellant has paid taxes on the entire amount declared and not capitalized the same. Therefore the contention of the appellant as if-produced in para 2.3 of the order appears to be correct and, can be accepted. p.. perusal of the statement accompanying the Revised Return of Income confirms the above. I find, in the assessment order the Assessing Officer has accepted the revised return without any analysis or further corroboration or evidences to prove that these purchases were not genuine. He has held them to be bogus without stating why. There is an absence of positive evidence of concealment regarding the additional income declared on survey. The onus to prove the concealment has not been discharged especially if one considers the statement of the partner wherein nowhere it has been questioned or accepted that these purchases are bogus. An independent inquiry which is a must is absent. The action of the Assessing Officer in adding the additional amount that the conditional offer was accepted. The books of accounts of the appellant were also not rejected and held to be unreliable. These expenses were recorded purchases and as such needed to be examined in detail and that statement of the partner of the appellant firm vide which surrender has been made out no mention of bogus purchases made should have been further analysed to prove bogus purchases. As this has not been done concealment has not been proved Hence, it is clear section 271(1)(c) would not be attracted. Penalty for concealment is not automatic. It is for the Assessing Officer to prove the concealment. This, it is seen, has not been done. The Assessing Officer in the penalty order also has simply relied upon the findings in the assessment order are automatically levied penalty, thus making the ground weak as no objective material has been brought on record. The trading results of the appellant has not been, questioned and the Assessing Officer has not anywhere pointed out that correct income has not been declared. In the penalty order, I find that the Assessing Officer has nowhere highlighted the issue regarding conditional surrender and that it cannot be accepted on account of concealment detected and proved by the department and was not bonafide. The. issue has remained confined between original return of income and the revised return of income and penalty u/s 271(1)(c), it is seen, cannot be levied on surrender unless concealment is established. Mere surrender made is not a .ground basis of addition and establishment of concealment as surrender may be a result of various circumstances that need to be examined and investigated into. In this case, it is seen, surrender was on account of the fact that discrepancies in certain bills could not be explained. The purchase was not denied at all. Keeping in mind the above discussion and respectfully following the decision of the Hon'ble Tribunal Mumbai, I find that the appellant's case is squarely covered by the orders of the juri ictional Tribunal, Mumbai. In view of it, it is seen that the levy of penalty u/s 271 (1 )(c) of the I.T. Act in this case cannot survive and therefore I have no option but to delete the penalty u/s. 271(1)(c) of the IT. Act levied and allow the grounds of appeal.” ITA Nos.2724/Mum/10(A.Y.:2003-04)

Similar to the A.Y.2005-06, the revenue is aggrieved for deleting the penalty imposed in the A.Y.2003-04 also with respect to income surrendered in the revised return. The AO in his penalty order has observed that the assessee has filed return of income declaring total income of Rs.4,73,900/-. Further, the assessee has filed revised return of income declaring total income of Rs.62,13,920/- . As per AO the revised original return but due to the additional income so surrendered. Thereafter the AO levied penalty u/s.271(1)(c) of the Act. The assessee in reply to penalty notice has explained that assessee has filed the revised return and declared the income which was disclosed during the course of survey action. At the time of declaration during the course of survey action, the assessee has declared the said amount without prejudice and subject to waiver of penalty, and such other consequential effects to avoid unwanted, unlimited litigation with the department, and with the said intention, the assessee has declared the said amount and paid the taxes accordingly. The assessee has filed the revised income-tax return, and paid the taxes on suo moto basis voluntarily, though notice u/s.148 was not issued. The revised return filed by the assessee has been accepted by the department. Therefore, there is no concealment of income as such.

By the impugned order the CIT(A) deleted the penalty after observing as under :- “1.9 I have considered the reply of the appellant and perused the penalty order. A search and seizure operation was conducted on 11.10.2006 in the residence of the partner of the appellant firm and survey u/s.133A was also conducted in the business premises of the appellant. During the survey u/s. 133A, statement of Shri Sharad Shah, partner of the firm was recorded. In reply to question No. 14, Shri Sharad Shah, partner of the firm has admitted that these bills have been obtained due to various business constraints. Hence, without prejudice, voluntarily on our part and to buy peace with the Department and also to avoid protracted litigation which may hamper our business prospect and day-to-day business, I as a head of the business concerns mentioned above and after consulting other managing partners, offer these purchases of Rs.5,28,24,789/- as income of the respective years in which these purchases have been booked in the different concerns. We will pay the tax due thereon in due course of time and will file the return of income for A.Y. 2006-07 and also revise the return of income for earlier year on our own volition including the income declared as above. The evidence thereof will also be produced before you in due course of time. On account of voluntarily disclosure on our part and co-operation extended, the department is requested to take lenient and sympathetic view for non-imposition of penalty.

Against the above order of CIT(A), the revenue is in further appeal before us.

Ld. DR relied on the order of AO and contended that assessee has filed revised return only after survey was conducted, therefore, the AO has correctly levied the penalty. Ld. DR also relied on the decision in the case of Mak Data Pvt. Ltd. 38 taxmann.com 448. 10. In ITA No.2725/Mum/2009, penalty so imposed by the AO u/s.271(1)(c) was deleted by the CIT(A) after having the following observations :- “1.9 I have considered the reply of the appellant and perused the penalty order. A search and seizure operation was conducted on 11.10.2006 in the residence of the proprietor i.e. the appellant firm and survey u/s. 133A was also conducted in the business premises of the proprietor. During the survey u/s, 133A, statement of Shri Sharad Shah was recorded and the same was rectified by the appellant. In reply to question No. 14, Shri Sharad Shah has admitted that these bills have been obtained due to various business constraints. Hence, without prejudice, voluntarily on our part and to. buy peace with the Department and also to avoid protracted litigation which may hamper cur business prospect and day-to-day business, as a head of the business concerns mentioned above and after consulting other managing partners, offer these purchases of Rs.5,28,24,789/- as income of the respective years in which these purchases have been booked in the different concerns. We will pay the tax due thereon in due course of lime and will file the return of income for A.Y. 2006-07 and also revise the return of income for earlier year on our own volition including declared as above. The evidence thereof will also be produced before you in due course of time. On account of voluntarily disclosure on our part and co-operation extended, the department is requested to take lenient and sympathetic view for non- imposition of penalty.

On the other hand, ld. AR relied on the order of Kolkata High Court in the case of Tata Metaliks, 268 ITR 643 in support of the proposition that intimation u/s.143(1) is not an assessment so as to disentitle the assessee to file revised return. Reliance was also placed on the decision of Hon’ble Allahabad High Court in the case of Jai Palace, wherein it was held that where the assessee voluntarily surrendered an amount pertaining to cash credit in revised return to purchase peace of mind and to avoid litigation, the penalty was not sustainable. Further reliance was placed on the decision reported in 217 ITR 336, 286 ITR 51. 10. Rival contentions have been heard and record perused. We had also deliberated on the judicial pronouncements cited at bar by ld. AR and DR during the course of hearing before us. We had also dealt with the judicial pronouncements referred by the AO and the CIT(A) in their respective orders with reference to the factual matrix of the case. From the record, we found that assessee has offered income in the revised return. The income so offered was accepted by the AO without any change. The income so offered in the revised return pertains to purchases which could not be fully explained by the assessee. In the assessment year the AO has accepted the revised return without any analysis or further corroboration or evidence to prove that these purchases were not genuine. Thus, there is an absence of positive evidence of concealment regarding the additional income declared in revised return after survey. The CIT(A) has recorded a categorical finding to the effect that onus to prove the concealment has not been discharged especially if one considers the statement of the partner wherein nowhere it has been questioned or accepted that these purchases are bogus. An independent inquiry which is a must is absent. The action of the Assessing Officer in adding the additional amount while making assessment without any further investigation shows that the conditional offer was accepted. The books of accounts of the assessee were also not rejected nor held to be unreliable. The CIT(A) observed that these purchases needs to be made, it should have been further analysed to prove bogus purchases. As this has not been done concealment has not been proved, therefore, the provision of section 271(1)(c) is not attracted. There is no dispute to the well settled legal proposition that penalty for concealment is not automatic. It is for the AO to prove the concealment, which has not been done in the instant case. Even if in the penalty order the AO has relied upon the findings in the assessment order, thus, no objective material has been brought on record to establish concealment of income. Furthermore, the trading results of the assessee has not been questioned and the Assessing Officer has not anywhere pointed out that correct income has not been declared. Even in respect of concealment of income, unless the concealment is established penalty cannot be levied u/s.271(1)(c) of the Act. Mere surrender made is not a ground for levying penalty because surrender may be a result of various circumstances that need to be examined and investigated into. In the instant case, it is seen, surrender was on account of the fact that discrepancies in certain bills could not be explained. Nowhere the AO has denied the purchases. As per the statement made by the assessee in survey proceedings, no where it was stated that purchases made by assessee are bogus or not genuine. The said amount was voluntarily offered in the revised return which was accepted by the AO. We also found that the amount was offered by the assessee on account of lack of evidence and the trading results of the accepted by the AO. It is very crucial fact that books of account were accepted and the AO has not proved by any independent evidence that the said purchases were bogus and not genuine. The discrepancies in certain bills could not be explained by the assessee in survey proceeding would not amount to concealment or inaccurate filing of particulars within the meaning of section 271(1)(c) of the Act.

The voluntary revised return filed by the assessee was accepted by the AO. The AO has simply accepted the offer made by the assessee and has not made any attempt to further examine or investigate the concerned issue. Merely because the return was filed after intimation u/s 143(1) the same cannot treated as revised return or not filed in time. The Calcutta High Court in the case of Tata Meteliks Ltd v. CIT (368 ITR 643), after following the ratio of Supreme Court in case of CIT v. Rajesh Jhaveri Stock Brokers Pvt. Ltd '(291 ITR 500) has held that intimation u/s 143(1)(a) does not constitute Assessment so as to disentitle assessee to file revised return u/s 139(5) of the Act. Similar view is also taken by Punjab and Haryana High Court in the case of Tarsem Kumar V. ITO (256 CTR 116).

Furthermore, in the following decisions a view has been taken that even in case of belated return, pursuant to notice u/s 148, once the AO accepts the return of income and which is brought to tax, no penalty can be levied u/s 271 (1 )(c) of the Act. The words 'in the course of any proceedings under this Act' in section 271 (1) are prefaced by the satisfaction of the Assessing Officer or the Commissioner (Appeals). When a survey is conducted by a survey team, the question of satisfaction of Assessing Officer or the Commissioner (Appeals) or the Commissioner does not arise. One has to keep in mind that it is the Assessing Officer who initiates penalty proceedings and directs the payment of penalty. He cannot record any satisfaction during the course of survey. Decision to initiate penalty proceedings is taken while making assessment order. It is thus obvious that the expression 'in the course of any proceedings under this Act' cannot have the reference to survey proceedings. It necessarily follows that concealment of particulars of income or furnishing of inaccurate particular of income by the assessee has to be in the return filed by him. The assessee can furnish the particulars of income in his return and everything would depend upon the return filed by the assessee. This view gets supported by Explanations 4, 5 and 5A of section 271(1). Obviously no penalty can be imposed unless the conditions stipulated in the said provisions are duly and unambiguously satisfied. Section 271(1)(c) 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 asseesee had made a complete disclosure in the return and offered the surrendered amount for the purposes of tax. (i) Muniganga Reddy vs. ACIT, 37 (Taxmann.com 440) (ii)Vipul Life Sciences Ltd Vs. DCIT (Mum) (ITA No.5948 & 5949/Mum/2014) (iii) CIT V. SAS Pharmaceuticals (335 ITR 259) (iv) Vasavi Shelters Vs. ITO ( ITA No. 499 & 500/Ban/2012)

The ITAT Mumbai in the case of Bhagat & Co. vs ACIT 101 17] 553 Ritesh Agarwal, (50 TAxmann.com 9,para 7), however, the assessee has paid taxes on the entire amount disclosed in survey proceedings and further has not capitalised the said amount which they are entitled to do so. The Assessee's offer was subject to the condition of non-levy of penalty and therefore penalty is not called for in view of the decision in case of ACIT vs. Indica Exports 129 TT J 269 (Del).

The case law relied upon by the department in case of Mak Data (P) Ltd 38 Taxmann.com 448 is distinguishable on facts and not applicable to the case of the assessee. As in the case no explanation was offered by the assessee as against which in the case of present assessee an explanation is offered for declaring the additional income, which has not been reflected or dealt by any reliable evidence by the AO. The said decision of Hon'ble Supreme Court distinguished by Madras High Court in the case of CIT vs. M/s Gem Granites (Kamataka).

In view of the above discussion and applying the proposition of law discussed in various judicial pronouncements as narrated above to the facts of the instant case, we do not find any infirmity in the order of CIT(A) for deleting penalty so imposed.

The facts and circumstances in ITA No.2725 /M/2010 are exactly similar to the facts and circumstances in ITA No.2724/M/2010 discussed above, following the reasoning given hereinabove, we confirm the action of the CIT(A) for deleting the penalty in ITA No.2725/Mum/2010 also.

In the result, all appeals of the revenue are dismissed. Order pronounced in the open court on this 16/12/2015. (SANDEEP GOSAIN) (R.C.SHARMA) न्यानयक सदस्य / JUDICIAL MEMBER ऱेखा सदस्य / ACCOUNTANT MEMBER भुंफई Mumbai; ददनांक Dated 16/12/2015 प्र.कु.मभ/pkm, नन.स/ PS आदेश की प्रनिलऱपप अग्रेपषि/Copy of the Order forwarded to : अऩीराथी / The Appellant 1. प्रत्मथी / The Respondent. 2. आदेशाि सार/ BY आमकय आमुक्त(अऩीर) / The CIT(A), Mumbai.

ORDER, आमकय आमुक्त / CIT 4. ववबागीम प्रनतननधध, आमकय अऩीरीम अधधकयण, भुंफई / DR, ITAT, Mumbai 5. उप/सहायक पुंजीकार गार्ा पाईर / Guard file.

(Asstt.