TMI Blog2003 (1) TMI 290X X X X Extracts X X X X X X X X Extracts X X X X ..... ined investment in cash certificate credits of Syndicate Bank of Rs. 50,000 each in the name of Smt. Smita B. Patil and Shri Deelip P. Patil. Again on 30th March, 1998, the assessee filed another revised return declaring sum of Rs. 50,000 on account of unexplained investment in Vikas Cash Certificates of Syndicate Bank in the name of late Shri Bhika Punju Patil. The Assessing Officer completed the assessment under section 143(3) and initiated the penalty proceedings for the year under consideration on account of additional income of Rs. 1,50,000. In response to the penalty proceedings, the assessee contended before the Assessing Officer as under: "1. The assessment proceedings for the assessment year 1986-87 were reopened while the firm was offered the additional income for assessment year 1985-86 for which no prior notice was issued by the Department; 2. The facts have been disclosed by the firm itself the Department cannot claim the right of detection; 3. The revised return is filed before issuing notice under section 148; 4. The amounts were deposited in the bank and the same were transferred directly in the CC loan a/cs of the firm 5. The firm has furnished revised re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer was assessing the additional income on account of surrender of unexplained investments made on 14th March, 1984, then of purchase of cash certificates of Rs. 1.50 lakhs, then the income would have been assessed as income of the assessment year 1985-86. On the financial year basis, it would belong to the assessment year 1984-85. If he was assessing the income on the basis of cash credit entries appearing in the appellant's books of account on 3rd July, 1985, then the income would have been assessed on the previous year basis in the assessment year 1986-87. The Assessing Officer has merely accepted the offer of the appellant in the year under consideration without correctly relating to the year to which the income pertained. As the things stand, the AO has assessed the income offered by the appellant voluntarily before issue of notice. Therefore, it cannot be related to the unexplained investments as 14th March, 1984, which date pertains to the assessment year 1984-85, nor to the appearing of the credits in the books of the appellant on 3rd July, 1985, which pertains to the assessment year 1986-87. Further, apart from the appellant's own disclosure, there is no material on reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd restoring that of the Assessing Officer. The learned Departmental Representative further submitted that the assessee, in this case, when called upon to reply certain queries, in assessment proceedings for assessment year 1986-87, which had link with unexplained investment in assessment year 1985-86, filed the so-called revised returns - one on 18th Dec, 1987, and another on 30th March, 1988, declaring additional incomes of Rs. 1,00,000 and Rs. 50,000, respectively. Since the so-called revised returns of income were filed by the assessee after completion of the regular assessment and that too beyond the date permitted for filing of the revised return, so this cannot be taken as revised returns. In order to regularize the proceedings, the Assessing Officer issued notice under section 148 after filing of the first revised return. The assessee thereafter, filed the second so-called revised return and the assessment was completed by making addition of Rs. 1,50,000 in the income declared in the original return filed. Therefore, the action of the assessee cannot be held to be voluntary. As regards year of taxability of the amounts not disclosed in the original return and taxed in the y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he previous year ending 31st Dec, 1984, relevant to assessment year 1985-86, so it filed first so-called revised return offering Rs. 1,00,000 as additional income and in the second return filed, after issue of notice under section 148, further additional income of Rs. 50,000 was offered as it was not able to offer any explanation about these amounts which could not be otherwise substantiated from any known sources of income. 8. Moreover, the assessee, in this case, filed following explanation with regard to these amounts in appeal proceedings for the earlier assessment year: "3. On 14th March, 1984, Shri Bhikan Patil, Smt. Smita Bhikan Patil (his wife) and Shri Dilip Patil (his brother) purchased cash certificates called 'Vijay Certificates' of Syndicate Bank of Rs. 50,000 each. The investment was made out of the 8th individual resources of the parties. The certificates were to carry interest at the rate of 13 per cent. The appellant-firm applied and got the cash credit of Rs. 1,50,000 from the Syndicate Bank. Apart from the personal security, the above cash certificates were given as collateral security to the bank. As on 31st Dec, 1984, relevant to the assessment year 1985-86 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fferent and not applicable under the 1961 Act as in that case, dispute relates to the period prior to the period when 1922 Act was applicable and relevant para of the above decision is reproduced as under: "The entries aggregating to the said amount of Rs. 24,600 were made during the course of the financial year that began on 1st April, 1948, and ended on 31st March, 1949. The relevant assessment year for that financial year was the assessment year 1949-50. The assessment of the said amount of Rs. 24,600 as income from undisclosed sources for the assessment year 1950-51 would, therefore, appear to have been made in error. At any rate, no penalty can be imposed for non-disclosure of that income for the assessment year 1950-51. Needless to say, this position obtains because the provisions of the 1922 Act are applicable. The position would be different under the 1961 Act." From the above important observation of Hon'ble jurisdictional High Court, it can be held that learned CIT(A)'s reliance on the above-noted decision to delete the penalty is misplaced. 10. Otherwise, the relevant period pertains to the previous year of the assessee and financial year 1983-84 also ends on 31s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es with the bank, the cash credit was closed on 8th July, 1985, on which date the cash certificates were prematurely encashed by the owners. The principal amount of Rs. 50,000 plus interest of Rs. 4,525 were adjusted against the cash credit. Since these certificates were utilised in clearing the cash credit account of the assessee-firm, the account was opened in the name of above three owners and Rs. 54,525 each was credited in that account. Thus, in assessment year 1986-87, i.e., year after the year under appeal, there were three credits of Rs. 54,525 in the books of the firm. 4. During the course of scrutiny for the assessment year 1986-87, a summon was issued to explain the investment of the creditors. Since Shri B.P. Patil had strained relations with his brother Dilip and did not want his wife Smt. Smita Patil who came from orthodox family to go before the Assessing Officer, it was decided to offer Rs. 1,00,000 as income of the firm for the assessment year 1985-86 (year under appeal) at the behest of the Assessing Officer, though the amount was proposed to be offered in the assessment year 1984-85 in the hands of the investor. Hence, a return offering additional income of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee against the above order, the learned CIT(A) cancelled the penalty. He observed that nowhere in the assessment order or penalty order the Assessing Officer had made it clear whether the income was treated as income of the year under consideration on account of unexplained investment or on account of cash credits appearing in the books of the firm. If the Assessing Officer wanted to assess the additional income as investment made on 14th March, 1984, then the income could not be assessed as income of the assessment year 1985-86. It was assessable on financial year basis in assessment year 1984-85. If he was assessing the income on the basis of entries appearing in the books on 3rd July, 1985, the income was assessable in assessment year 1986-87. The CIT(A), therefore, held that the Assessing Officer merely accepted the offer of the assessee in the year under consideration without correctly relating the year to which the income pertained. It was further held that apart from the assessee's disclosure, there was no material to hold that the impugned amount belonged to the assessee and not to the concerned persons who were having substantial agricultural income. The learned C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1985, in the books of the firm was a matter of consideration, then these credits were obviously to be considered in view of section 68 as income of the assessment year 1986-87, and not in the year under appeal. Here also what was credited was not any amount received by the firm as such. The credits really represented the liability of the firm to three holders of cash certificates whose certificates were liquidated to clear the dues of the firm. The nature and source of the credits was clearly explained and in any case to be considered in the assessment year 1986-87. 12. If thus the Department could not have taxed the amount of Rs. 1,50,000 on its own for the assessment year 1985-86 and it did so only because of the declaration made by the assessee, it could not have ignored the condition attached not to levy penalty. 13. In the context of a conditional offer of this nature, in Variety Cloth Centre v. ITO [1996] 59 ITD 377 (Pune)(SMC), this Bench has held as under: "It was legally optional for the Assessing Officer at that stage of the proceedings, either to make addition on agreed basis or to launch enquiry/investigation. Once he had made the addition on agreed basis, it wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Hon'ble High Court. The first was whether it was open for an assessee to raise a question in penalty proceedings whether the income at all could be assessed in assessment year 1950-51. Relying on their earlier judgment in the case of CIT v. Gokuldas Harivallabhdas [1958] 34 ITR 98 (Bom.) the Hon'ble High Court held that proceedings under section 28(1)(c) are penal proceedings and a decision given in assessment proceedings cannot be binding on the authority in levy of penalty. It is open for the ITO in penalty proceedings to consider his earlier finding that a particular receipt constituted income for a particular assessment year, but he was not bound by that finding. On the basis of this principle, the High Court considered the issue of assessability of the cash credits in assessment year 1950-51. It is in this context that the Hon'ble High Court held that as per the law then existing that the cash credits were assessable on financial year basis in assessment year 1949-50 and not in assessment year 1950-51. Since this was the law in regard to the cash credits which underwent a change in Income-tax Act, 1961, their Lordships observed as under: "Needless to say, this positio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... difference of opinion between the Members on the Bench, following point of difference is being referred to Hon'ble President for hearing on such point/s or for nominating the Third Member or to pass such orders as the Hon'ble President may deem fit and proper: "On the facts and circumstances of the case, whether the order of the Judicial Member reversing the impugned order is justified or the order of the Accountant Member deleting the penalty while accepting the appeal is justified?" R.V. Easwar, J.M. (As a Third Member). -The following question has been referred to me under section 255(4) by the Hon'ble President, on a difference of opinion between the Members who heard the appeal originally: "On the facts and circumstance of the case, whether the order of the Judicial Member reversing the impugned order is justified or the order of the Accountant Member deleting the penalty while accepting the appeal is justified". 2. The brief facts are that the assessee is a partnership firm consisting of two partners. They are Bhikaji Patil and Mrs. Choudhary. In respect of the assessment year 1985-86, which is the year under appeal, for which the accounting year was the calendar yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -firm that on 14th March, 1984, Bhikaji Patil, Smita Patil and Dilip Patil purchased cash certificates from Syndicate Bank of the face value of Rs. 50,000. The assessee-firm also took loan of Rs. 1,50,000 from Syndicate Bank. The cash certificates were given as a colateral security for the loan. Due to certain disputes between the assessee-firm and the bank the loan was closed on 8th July, 1985. The interest on the cash certificate amounted to Rs. 4,525 in respect of each certificate and, therefore, the amount of Rs. 54,525 in each of the names of Bhikaji Patil, Smita Patil and Dilip Patil were adjusted against the loan account. In other words, the proceeds of the cash certificates upto 8-7-1985, were used by the firm for repaying the loan with interest. Accordingly, entries were made in the firm's account on 8-7-1985, crediting the amount of Rs. 54,525 in each of the aforesaid names, as stated earlier. It was these credits which were sought to be verified by the Assessing Officer while completing the assessment proceedings for the assessment year 1986-87, since the credits appeared on a date which fell within the accounting year relevant to that assessment year. The assessee's exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urrendered the additional income shown in the revised returns, the Assessing Officer has nowhere observed whether the income was the income of the year under consideration either as unexplained investment or as unexplained credits appearing in the books of account. According to him, if the case is treated as one of unexplained investment, then the cash certificates having been purchased on 14th March, 1984, could not have been assessed as income for the assessment year 1985-86. On financial year basis, as per section 69, they could have been assessed only in the assessment year 1984-85. If, on the other hand, Assessing Officer had assessed the cash credits appearing in the books on 3rd July, 1985/8th July, 1985, then the assessment could have been made only for assessment year 1986-87, relevant to the previous year ended 1st April, 1985 to 31st March, 1986. CIT(A) further noted that the Assessing Officer has merely accepted the assessee's offer without correctly relating the income to the proper year. Assessee had offered the income in the revised returns voluntarily before the issue of any notice. Apart from the assessee's own disclosure, there was no material on record to indicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Revenue not to act on such offer and proceed to assess the income on its own merits and on the basis of the enquiry and evidence it possesses. According to the learned Accountant Member, if the Department had to act on its own, it had no basis whatsoever to assess the income in the assessment year 1985-86 because the investment in the cash certificate was made on 14th March, 1984, by three persons of whom only one was a partner of the assessee-firm, which date fell in the financial year 1983-84 and as per section 69 of the Act it could be assessed only in the assessment year 1984-85. Going by the date of credit, the income could have been assessed under section 68 to the Act only in the assessment year 1986-87, since the credits appeared in the assessee's books on 3rd July, 1985 /8th July, 1985. The learned Accountant Member further observed that even if section 69 were to be applied, there has to be evidence to show that the investment came out of the undisclosed sources and that the persons in whose name the investment stood had no means to make the same. Further, the Department also had to prove the nexus between those persons and the assessee-firm. If the provisions of sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case. There is nothing to show that the Assessing Officer had made such detailed enquiries in the course of the proceedings for the assessment year 1986-87 regarding credit that the assessee was cornered and had no option but to surrender the income. My attention was not drawn by the learned Departmental Representative to any such evidence or material in the possession of the Department. Even in the penalty order what I find is only a reference in para 6 to the fact that when the assessment for the assessment year 1986-87 was taken up for hearing, assessee realised that for the immediately preceding year i.e., assessment year 1985-86 some inaccurate particulars had been furnished. I have to therefore, proceed on the basis that no incriminating evidence or evidence which could demnify the assessee-firm came to the possession of the Assessing Officer when he took up the assessment proceedings for the assessment year 1986-87. Even the assessment order for the assessment year 1985-86 does not contain any such finding. Under these circumstances, it would be reasonable to presume that only a routine query was raised about the credits and since, under the circumstances outlined by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 69 only in the assessment year 1984-85 or under section 68 in the assessment year 1986-87. Even then the other questions would arise viz., whether the investment really came out of the assessee's resources or whether the three persons who made the investment had no means to invest the money and so on so forth. All these aspects would have had to be considered. Even if the income is assessed under section 68 in the assessment year 1986-87, the question whether it is a cash credit proper will have to be considered in the light of the facts that the monies were merely utilized for the purposes of paying off the loan taken by the assessee from Syndicate Bank. All these questions would have cropped up and would have had to be examined. We are not concerned with these aspects because the Assessing Officer merely accepted the offer of the assessee and brought the amount of Rs. 1,50,000 to tax in the assessment year 1985-86 without examining the question whether it was properly assessable in that year at all. I, therefore, agree with the learned AM that in these circumstances, apart from the question of any condition being imposed for not levying the penalty, even on merits, there was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d before me the following judgments: (1) S.S. Ratanchand Bholanath v. CIT [1994] 210 ITR 682 (MP) (2) CIT v. Abdul Gani Bhat [2000] 246 ITR 607 (J K) On perusal, I find that these two cases are not of any assistance to the Revenue in the present case. The other submission made by the learned Departmental Representative that there can be no conditional offer of income has already been considered by me earlier. This aspect of the matter has also been dealt with by the learned Accountant Member in paras 10 to 12 of his order with which I respectfully agree. 11. In the result, I agree with the learned Accountant Member that the order of the CIT(A) cancelling the penalty was justified. 12. The matter will now go before the regular Bench for deciding the appeal in accordance with the opinion of the majority. Per U.B.S. Bedi, Judicial Member. - As there was a difference of opinion between the AM and the JM, following question was referred to a Third Member: "On the facts and circumstances of the case, whether the order of the Judicial Member reversing the impugned order is justified or the order of the Accountant Member deleting the penalty while accepting the appeal is just ..... X X X X Extracts X X X X X X X X Extracts X X X X
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