TMI Blog2001 (3) TMI 285X X X X Extracts X X X X X X X X Extracts X X X X ..... 88. At that time, one Shri Ajit Joshi, Chartered Accountant, was the assessee's tax consultant. 3. During the course of search, only stock register and some few dead stock etc. were found, but since no regular books of account were maintained nothing else was found as far as the assessee firm was concerned. In the entire Mahadik Group, other individual cases of the partners, such as Mr. M.R. Mahadik, Mr. V.R. Mahadik, Mr. R.S. Shinde etc. some other papers and documents were found. Immediately after the search, the assessee reviewed its position and decided to come forward for settlement with the Department, so that a fair assessment could be made for all the pending years and the assessee can devote its time and energy for running the business. With that end in view, the assessee firm and the partners entrusted their work to Mr. R.B. Wast, Chartered Accountant, but unfortunately, Mr. R.B. Wast could not make any significant progress in the matter of settlement, though applications were made with the CIT, Kolhapur. During the pendency of the application for settlement for Mahadik Group, inevitable delays on account of the transfer of the CIT and other officials and due to time ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ----- --------- 36,04,216 39,03,908 --------- --------- The difference between the income returned and income assessed for these three years is of Rs. 2,99,000. The difference in valuation of land and building is of Rs. 3,00,719. Thus, there is only a difference of Rs. 1,027 between the income returned and income assessed. This shows that the Assessing Officer had entirely relied upon the disclosure petition on the basis of which income was returned. 4. Since the income assessed for the assessment year 1988-89 was Rs. 9,84,996 as against income returned at Rs. 4,67,756, the Assessing Officer initiated penalty proceedings under section 271(1)(c). Similar proceedings were also initiated for assessment years 1989-90 and 1990-91. 5. In making the addition in the assessment year 1988-89, the Assessing Officer did not take the cost of building as reported by the Valuation Officer which was arrived at by deducting 7 1/2 per cent for carrying out the work departmentally. Thus, the Valuation Officer had allowed a deduction of Rs. 1,14,774 against gross value of the building At Rs. 15,30,325 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. It did not agree for being assessed on net accretion basis at the time of search. Subsequent and much delayed offer of the assessee for being assessed on accretion to asset basis cannot be said to be an offer under section 132(4) of the Act. Returns of income on accretion basis were filed after department had gathered all the evidence against the assessee and it could not be said that the assessee had filed returns voluntarily. In fact when the assessee became sure that the department had gathered all the evidence against the assessee and the department was in a position to frame the assessment without any help from the assessee, only then the assessee in a tactical move and in order to convert necessity into virtue filed the petition for disclosure. The offer was not thus voluntary. The assessments were also not on agreed basis, because in that case, there should not have been any appeal to the CIT(A), Kolhapur and no neces sity for the CIT(A) to grant relief of Rs. 1,15,000. (iii) There are number of decisions on the point that penalty under section 271(1)(c) can be imposed even when the assessee agrees inclusion of an amount to the assessment. He relied for this purpose on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of N.C. Budharaja Co., where the Supreme Court held that the word 'article' did not include immovable property like building. Then he referred to the judgment of the Cochin Bench of the Tribunal in the case of South Indian Finance which had considered the effect of Explanation 5 to section 271(1)(c). Since the assessee was yet to file the return of income when the search took place and since Explanation 5 to section 271(1)(c) was not applicable, the assessee could not be said to have concealed any particulars of income, so far as the investment in plot and building was concerned. Since Explanation 3 to section 271(1)(c) was not applicable, no penalty was leviable on account of under-valuation of dead stock of Rs. 5,951 and on account of closing stock of Rs. 736. 10. The ld. CIT(A) next considered whether the difference in valuation could lead to levy of penalty. The difference in valuation of land was of Rs. 4,25,000, while difference in value of construction was Rs. 85,551. In dealing with the difference in valuation on account of land, the CIT(A) held that the land in question was plot Nos. 123/1A and 123/1B admeasuring 99,990 sq. ft. Out of this land, agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the construction of both the office complex and workshop started in the previous year and that therefore the entire land could be said to have been acquired only in assessment year 1988-89. The learned CIT(A) accepted this contention and held that valuation of Rs. 5,75,000 by the Valuation Officer as against Rs. 5 lakhs was only on account of estimation. 11. Dealing with the difference in cost of construction which after CIT(A) in quantum appeal was reduced to Rs. 85,551, the CIT(A) held that this difference was also on estimate and was less than 6 per cent. This could be attributed to honest difference of opinion and with reference to this difference also, no penalty could be leviable. The CIT(A) accordingly deleted the impugned penalty. 12. Shri K. Srinivasan, the learned D.R. strongly supported the order of the Assessing Officer. His first contention was that the entire income shown in the return was after the search. There is room for stating that the assessee would not have disclosed the income voluntarily because if these were the case of an honest assessee who wanted to come forward with his correct income, he would not have taken such a long time of three years to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Explanation 5 were attracted. 14. The third submission made by the learned D.R. was that the difference between the returned income and assessed income in any case, even on merits, represented concealed income. Anticipating the assessee's reliance on the Bombay High Court decisions in CIT v. P.M. Shah [1993] 203 ITR 792 and in CIT v. Dharamchand L. Shah [1993] 204 ITR 462, the learned D.R. relied on the decision of the Kerala High Court in CIT v. K.P. Madhusudanan [2000] 246 ITR 218 wherein the Hon'ble Kerala High Court had dissented from the view of the Hon'ble Bombay High Court in the above two cases. Lastly, the learned DR. submitted that the addition on account of land as well as cost of construction could not be brushed aside merely as difference in valuation, but they represented investment made by the assessee and were evidenced by the report of the Valuation Officer. Relying on the order of the Assessing Officer in levying penalty, the ld. D.R. submitted that the penalty was rightly levied and should have been upheld by the CIT(A). 15. Shri K.A. Sathe, the learned counsel for the assessee, on the other hand, strongly supported the order of the CIT(A). His first submiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penalty was leviable with reference to difference in the income assessed and income returned. The difference was only on account of valuation and no facts have been brought out by the department to show that there was any concealment on the part of the assessee. In support of this contention, he placed reliance on the decisions of the Hon'ble Bombay High Court in the cases of P.M. Shah and Dharamchand L. Shah. 17. The last contention of the learned counsel was that on facts also the difference in the value of land and building was bona fide difference on account of valuation and in respect of land also on account of the fact that income was assessed wrongly in one year. 18. We have considered the rival submissions and perused the facts on record. Penalty proceedings are penal in nature. Elementary principles of Criminal Law will apply. It is a quasi-criminal proceeding. There should be conscious concealment. Penalty proceedings are distinct and different from assessment proceedings. Findings in the assessment proceedings are not conclusive, but are relevant. The entire material should be considered afresh by the authorities below before imposing penalty. Even after addition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to make the assessment, are both wrong. In fact, the assessment has been made on the basis of statements prepared by the assessee on asset accretion basis. There was no material found as far as the assessee firm is concerned and there was no enquiry except one with reference to the assessee's application for settlement that the department had to make. The fact that for an overall period of three years the difference between the returned and assessed income, leaving aside difference on account of valuation, was only of Rs. 1,027, as has been pointed out in para 3 supra, clearly shows that the assessee has shown the income based on the settlement petition and the same has been accepted by the department, except to the extent of difference in valuation. In Anand Kumar Saraf v. CIT [1995] 211 ITR 562, the Hon'ble Calcutta High Court has clearly held that merely seizure of papers cannot mean detection (in this case no papers were seized) and that when detection has not taken place, if the assessee were to come forward with a disclosure under the Amnesty Scheme (in this case by way of settlement petition) he is very well eligible for all the benefits as envisaged under the Amnesty Sch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he decision at all. In fact, in that case also return was filed in response to notice under section 148. The next point of distinction which the ld. D.R. made was that items of income considered in the assessment, such as salary and capital gain were such which were known to the department and which in any case were not kept outside the knowledge of the department whereas in the assessee's case the sources of income were not known. We may state that this distinction is not borne out from the facts of Yeshwant B. Chigteri's case. In that case, the Assessing Officer's case was that but for the search the assessee would not have filed the return of income showing capital gain of Rs. 2,86,470 on sale of shares. According to the Assessing Officer, there was nothing on record to show that the assessee would have disclosed the entire capital gain even if the search action would not have taken place. In rejecting the contention of the department that there could be no concealment with reference to the income returned, this Bench did not base its decision either on the fact that return was filed without delay or that sources were known to the department; but we based our decision on the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he context of this that proceedings under section 132 are envisaged. If, therefore, search could not have been initiated for the acquisition of immovable property or for construction of the property, Explanation 5 could not have any relevance. Moreover, Explanation 5 itself uses the expression "any money, bullion, jewellery or other valuable article or thing" with reference to which the provisions apply. In this expression "other valuable article or thing" has to be read ejusdem generis with the earlier words "money, bullion, jewellery". Therefore, "other valuable article or thing" have necessarily to be movable articles which are capable of having a value. In this sense neither the word "article" or "thing" could include any immovable property. In the context of section 32A similar Explanation was considered by the Hon'ble Supreme Court in the case of N.C Budharaja Co. The Hon'ble Apex Court held that the words "article or thing" in the context of section 32A were used interchangeably. In the scheme and context of the provision, it would not be right to isolate the word "thing", ascertain its meaning with reference to the Law Lexicons, and attach to it a meaning which it was nev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 271(1)(c) was not invoked. The assessee bad not replied to the showcause notice and the IAC proceeded to levy penalty on the assessee which was cancelled by the Tribunal. These facts prima facie clearly show that these are much worse than those obtaining in [tic case before us. Even then because Explanation to section 271(1)(c) was not invoked, the Hon'ble Bombay High Court held that no penalty was leviable merely because an addition had been made in the assessment. In view of the above judgment of the jurisdictional High Court, in the present case there is no justification for levy of penalty since Explanation 1 to section 271(1)(c) has not been invoked and penalty has been levied on the basis of main section. 22. Factually speaking also, the CIT(A) was justified in deleting the penalty in regard to the difference in the value of land. He has rightly referred to the fact that the Assessing Officers assumption in the assessment that the entire land was purchased in one year was factually incorrect. In fact, substantial portion of the land was acquired after end of the assessment year and this was borne out from the fact that construction of the workshop area situated on ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
