TMI Blog2004 (9) TMI 368X X X X Extracts X X X X X X X X Extracts X X X X ..... ciation of Rs. 3,73,279. Further, addition of Rs. 80,000 was made on account of unexplained margin money of truck. Penalty under section 271(1)(c) was initiated for the additions made. The assessment was taken in appeal challenging the value of property known as Balaji Apartments as adopted and the CIT(A) granted reduction of Rs. 71,836 from the assessed income. No further appeal was filed. 3. Thereafter, penalty proceedings were initiated and penalty was levied in respect of the addition made on account of investment in Balaji Apartment as also on account of unexplained investment in margin money in purchase of truck of Rs. 80,000. A minimum penalty of Rs. 3,31,627 was levied under section 271(1)(c) of the Income-tax Act. For the detailed reasons given by the CIT(A), the entire penalty has been cancelled and the department is in appeal challenging the deletion of the penalty. 4. Before adverting to the department's contentions, it would be necessary to note certain facts as have been brought out by the authorities concerned, as also by the assessee in the paper book. In his application to the CIT dated 8-3-1991, the assessee has given his antecedents. It is seen from this that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f retirement from the firm M/s. Hotel Govind. 6. Thus, after purchasing undivided one-half shares from the assessee Shri R.H. Shinde and Smt. T.B. Shirodkar, Shri Banne started constructing the property called Shree Balaji Apartment. It appears from the settlement agreement between Shri R.H. Shinde and Shri R.S. Banne that there were 9 flats in the said building. Shri Banne had filed a Deed of Apartment Declaration on 2-1-1990. He had also taken some amounts from the customers as booking advances for construction. During the course of construction, Shri Banne had received Rs. 2,25,000 from the assessee Shri R.H. Shinde during the year 1987-88. Shri Banne had spent Rs. 1,54,000 towards purchase of plot and Rs. 9 lakhs or about on the construction cost of the building. Total cost of the building including value of the plot was stated to be of Rs. 10,54,000. 7. Initially, the investment as above was disclosed by Shri R.B. Banne in his own assessment. Shri Banne made a petition for disclosure of income on 20-4-1989. In this petition, Banne disclosed his income for the assessment years 1983-84 to 1987-88. This petition was accompanied by a cash flow statement and balance sheet as on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted to Shri Banne and remaining flats were to be taken over by the assessee and on sale of these flats, money was to be adjusted against the dues. It was also the term of the agreement that the land and building shall be offered for taxation by the assessee in his hands and Income-tax liability thereon shall be paid by the assessee. Shri Banne stated that he would withdraw his petition before the CIT in respect of the building and he shall also transfer 5 flats in Balaji Apartments in favour of the assessee. 9. Consequently on 8-3-1991 the assessee made a petition to the CIT for voluntary disclosure of additional income for the assessment years 1987-88 to 1989-90. At the time of this petition, assessment of the assessee for the assessment year 1987-88 was already completed while assessment for the assessment year 1988-89 (under appeal) and assessment year 1989-90 were pending. Alongwith this voluntary petition for the purposes of declaring additional income, the assessee gave a cash flow statement in which the construction of building of Balaji Apartment was shown at Rs. 6,50,000 and as a result of cash flow statement, additional income of Rs. 5,54,288 was offered for taxation a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investment of assessee in respect of building disclosed by assessee in the return dated 8-3-1991, filed before the CIT, Kolhapur. Hence Rs. 6,65,010 are added on a protective basis in the hands of the assessee for this year. Penalty proceedings under section 271(1)(c) are initiated." It is this addition of Rs. 6,65,010 in the construction of Balaji Apartments which is subject-matter of penalty in the present case. 10. In para 3 of the assessment order, the Assessing Officer noted that in purchasing tanker M WK 463 the assessee had paid an amount of Rs. 80,000 in cash out of truck plying business. This cash was said to have been paid on 20-7-1987. However, since no evidence was produced in respect of the source of the cash of Rs. 80,000 because the assessee was unable in absence of books to show the said cash of R.s 80,000 was available to him out of truck plying business, an addition of Rs. 80,000 was made by the Assessing Officer. 11. On 13-3-1992, the Assessing Officer passed an order for the assessment year 1988-89 stating that the addition of Rs. 6,65,010 made on protective basis was requested by the assessee by his application dated 12-3-1992 to be treated as addition o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee has received the sale consideration. (2) The department accepted the sale of one-half portion of the plot of Smt. T.B. Shirodkar which was on a stamp paper of Rs. 40 and rejected the sale of one-half portion standing in the name of Shri R.H. Shinde which was registered before the registering authorities prior to the date of search. In the property Cards, the property stood in the name of Shri Banne and the flats in the building also were shown as sold by Shri Banne. Remaining two flats as per settlement between the assessee and Shri Banne dated 26-2-1991 still stood in the name of Shri Banne. (3) Shri Banne had explained the investment in the construction of the property out of his own resources, i.e. agricultural income, truck income and amount received from booking of flats. The receipt of deposits from the flat purchasers was accepted by the DCIT by issuing summons under section 131. (4) If the assessee had stated that the building belonged to him, it was only to give effect to the agreement between him and Shri Banne dated 26-2-1991. The petition of the assessee was only after this settlement on 8-3-1991. (5) In spite of declaration made at the time of assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of completion of assessment. (9) The settlement deed also showed that the investment was made by Shri Banne himself out of his own resources and as a result of which he was given consideration for the investment by allotment of two flats by the assessee. (10) It was a case of change of opinion and not finding of fact of any independent proof. A protective assessment was converted into regular assessment on the basis of same facts which were prevailing when the original assessment was made and, therefore, the basis on which penalty could have been levied did not exist. 14. In considering the arguments of the assessee, the ld. CIT(A) concluded in para 6 of his order, accepting more or less the contentions raised by the assessee, as under: (i) The statement that investment in Balaji Apartments was made by Shri Banne is supported by certain documentary evidence like the deed made in July 1987 selling plot to Shri Banne, statement of Shri Shirodkar that the plot was sold by Smt. Shirodkar as well as by the assessee to Shri Banne, statement of two purchasers of the flats, registered deed dated 28-3-1991 showing transfer of plot to the assessee and the property card of the City Su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contradictory statements of the assessee and Shri Banne regarding ownership of flats and documentary evidence indicates that investment might be relating to Shri Banne subject to verification, it could not be conclusively said that the assessee had concealed any particulars of investment while filing the return of income. The penalty, therefore, on unexplained investment in Balaji Apartments was concelled. (iv) As regards the addition of Rs. 80,000, the CIT(A) stated that the assessee had not maintained books of account in respect of his truck plying business. The assessee had produced cash flow statement for the year and on that basis income was assessed. A general view therefore of the availability of the cash had to be taken. Remaining investment in the truck had been made through cheques and the assessee himself had claimed that Rs. 80,000 was out of cash balance. Chart of receipts and payments as reproduced by the CIT as on 2-7-1987 showed that the assessee had sufficient receipts so as to enable him to invest Rs. 80,000 on 20-7-1987. On this ground also, there was no case for levying penalty. 15. Shri Rajkumar, the ld. CIT (DR) after taking us through the penalty order a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the Kerala High Court in the case of CIT v. D.K.B. Co. [2000] 243 ITR 618. The ld. CIT (DR) further submitted that the ld. CIT(A) instead of considering the findings of the Assessing Officer has re-done the assessment and therefore, such exercise was not warranted in the present case. The concealment being very clear, there was no justification for cancellation of the penalty. 16. The ld. CIT drew our attention to the department's appeal for the assessment year 1989-90, and submitted that this appeal had also a bearing on the merits of the appeal for the assessment year 1988-89. In that appeal, the Assessing Officer had levied penalty in respect of gross profit additions made to the assessee's income from dairy business. The assessee had sought to take benefit of this gross profit addition of Rs. 3,00,704 in explaining the investment made in the assessment year 1989-90 in respect of the building construction of Balaji Apartments. In deciding the appeal against this penalty, the ld. CIT(A) deleted the penalty as far as the gross profit addition was concerned, but at the same time, he directed to levy minimum penalty on the amount of Rs. 3,00,704 which, according to the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epted the investment in the hands of Shri Banne. 19. According to Shri Sathe, penalty proceedings were initiated in the course of the assessment, but the assessment itself shows that even the assessee's alleged admission that the property belonged to him was not acceptable to the department and they wanted to make further investigation. Thus, when the Assessing Officer himself was not sure whether addition was to be made in the hands of the assessee or not, initiation of proceedings in such a protective assessment itself vitiated the entire proceedings. Reliance in this behalf was placed on the decision of the Calcutta High Court in the case of CIT v. Super Steel (Sales) Co. [1989] 178 ITR 451 Shri Sathe further submitted that the assessee owned up the investment not because he was the real owner, but there were compelling circumstances as has been revealed by the settlement agreement. The document itself shows that the investment was made by Shri Banne and in return for that investment two flats were to be allotted to Shri Banne and he continued to be the owner of the said two flats. Thus, the agreement was not on the basis that the assessee was the owner, but on the ground that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es an Explanation denying charge of concealment. The Revenue has a heavy burden to be discharged as per the substantive provisions of section 271(1)(c) in spite of Explanation 1 appended to the said provisions. In this connection, reference is invited to the decision of Calcutta High Court in the case of CIT v. Nuruddin Bros. [1990] 185 ITR 481. 21. In Hari Ram Sri Ram's case, the assessee HUF had filed a return and subsequently the ITO found from the information that the assessee had received a number of drafts in the name of his employees and in the name of coparceners. He issued notice under section 148. The assessee, however, explained that these amounts belonged to coparcener's individual capacity and did not belong to it. The ITO did not believe the explanation and added the amount as assessee's income. On appeal to the AAC, the assessee agreed to the addition in order to avoid litigation and hardship. The penalty imposed by the ITO was cancelled by the Tribunal on the ground that there was no positive evidence to show that HUF had concealed income when the assessee had all along claimed that the disputed amounts belonged to individual and not to HUF. It was held by the H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uliar facts and whether in a given case penalty is leviable or not would depend on the peculiar facts of that case. Only legal propositions will have to be considered which are being laid down by the Courts. In this behalf, the well accepted legal position is that penalty is leviable if the assessee is found to be conscious of his non-declaration of income at the time of filing of the return. In the present case, there is nothing to show that the assessee was aware of the subsequent developments, such as settlement with Shri Banne etc. There is no independent evidence to show that Shri Banne was not owner of the property. In fact, the whole case of the department is based on the declaration of the assessee that the investment belongs to him. If that declaration is taken out, there are no facts to show that the assessee was the owner of the investment and he had failed to show it in the return of income. It would therefore mean that the assessee is to be penalised on the basis of declaration which was not even believed in at the time of original assessment. 25. The reliance placed by the ld. CIT on the order relating to assessment year 1989-90 is not relevant because the facts rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... U.B.S. Bedi, Judicial Member.- I have gone through the proposed order of the learned Accountant Member but despite my best persuasion of myself, I have not been able to agree with the findings and conclusions arrived at by him and my reasons for being so, are given hereunder. 30. This is revenue's appeal against the order of deletion of penalty of Rs. 3,31,627 imposed under section 271(1)(c) of the Income-tax Act, 1961 by the Assessing Officer. In this case, return of income for the assessment year 1988-89 was filed on 8-8-1988 declaring total income at Rs. NIL as computed below: (I) Income from house property (Rs.) Residential flat No. 19B Mansmruti Co-op. Housing Society, Takala, Kolhapur NIL (II) Profits and Gains from business (a) Share profit from firm: M/s. Shree Venkateshwar Bulk Carriers Kolhapur 2,235 (b) Income from truck plying business Net loss as per P L a/c 1,38,279 Add: Depreciation 3,73,279 ---------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as disclosed by the assessee. (b) To reduce a sum of Rs. 80,314 from the cost of construction of building (as valued by the departmental valuer) being the contractor's profit as the construction of building is self supervised. After taking into account the assessee's arguments, the CIT(A) Kolhapur vide his order dated 13-3-1991 has granted reduction of Rs. 71,836 from the assessed total income. After the decision of the CIT(A), Kolhapur, a reminder was issued and served on the assessee on 18-1-1992 to seek his explanation, if any, to finalize the penalty proceedings under section 271(1)(c) of the Act. The assessee has filed his written submission on 27-1-1992 as under: "I have filed the return of income on 8-8-1988 declaring total income of Rs. NIL. The search and seizure action was carried out on 28-9-1988. In order to purchase the peace of mind and settle the income-tax matters, I have filed the petition for disclosure of additional income to the CIT, Kolhapur on 8-3-1991. The returned income was NIL and the income assessed was voluntarily offered by me through petition to CIT Kolhapur. I have also fully cooperated to the department in the matter of assessment and payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt order that the assessee could not prove the source of this money. Even the assessee did not raise this issue in his appeal before the CIT(A). The explanation offered by the assessee is also silent on this point. All these facts show that the assessee has no say in the matter." In view of the above facts that the Assessing Officer was satisfied that this is a fit case to levy penalty as the assessee has deliberately concealed the particulars of his income and accordingly he levied the penalty of Rs. 3,31,627 under section 271(1)(c) of the Act being minimum imposable. 31. Aggrieved by this order of the Assessing Officer the assessee took up the matter in appeal and the learned CIT(A) while taking on record certain new documents and so-called settlement dated 26-2-1991 stated to have been executed between the assessee and Shri Banne concluded to delete the entire penalty against which the revenue is in appeal. 32. So far as the arguments of both sides are concerned, for the sake of brevity they are not being repeated and adopted as recorded in the proposed order. 33. After hearing both sides and going through the record as well as the case law cited by rival parties, I find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from truck plying business and investments in construction activity. Actually, the plot at 532 Shahupuri, Kolhapur and the building constructed thereon is belong to Shri R.H. Shinde even though the same is in my name. And the truck/tankers belongs to Shri M.R. Mahadik. You are requested to consider my request sympathetically and allow me to withdraw the petition without levying any penalty/interest/prosecution, if any." 35. In another letter filed on 2-8-1991, placed at page 31 of the paper book, the assessee, inter alia contended as under. "I have filed the revised return of income on 9-7-1991. Vide a petition filed to the CIT, Kolhapur on 8-3-1991, the cost of construction of building Balaji Apartment has been offered by me for taxation in assessment years 1988-89 and 1989-90 as the building is actually owned by me. In the petition, on the basis of my cash flow statement, I have offered Rs. 1,76,974 as my additional income out of profit of Shree Balaji Traders, which have been utilized for construction of the building, Balaji Apartment. This amount has remained to be shown in my return filed on 9-7-1991. This may kindly brought to tax and my computation of income may be tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which it would become difficult for the assessee to avoid substantial addition warranted in such circumstances. Even assuming that filing of the letter was not under the compulsion when the detection was made during the investigation made after search and seizure, yet the same would not by itself lead to the conclusion that there was no intention on the part of the assessee to conceal its income when he filed his original/revised return. The question whether there was any such intention would depend upon the facts and circumstances of each case that would throw light on the mental process of the assessee at the relevant time. Subsequent conduct may be one of the factors which can be taken note of but mere filing of a letter may not be sufficient to exonerate the assessee. Even if the department had not come across any further tangible evidence in regard to the concealment, yet so long as the question whether there was any such concealment was open before the Department, and the latter had the option to initiate appropriate proceedings, the submission of a letter by the assessee cannot be viewed in isolation. 37. Since filing of letter showing additional income can be equated with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nning the assessee consciously tried to conceal the investment made by him in the building Balaji Apartment, the assessee's admission in a petition dated 8-3-1991 came only after detailed investigation after search and seizure operation and during the course of assessment proceedings. Similarly, Shri Banne also reversed his stand and in a letter dated 19-3-1991 addressed to the CIT Kolhapur wherein he had admitted that the ownership of the building and plot actually belong to Shri Shinde. All these factual position show that the assessee, in concurrence with Shri Banne made a conscious and deliberate efforts to conceal his investment in the building. His disclosure came only after the Assessing Officer probed into the matter. The sequence of the events and stands and contra-stands taken by the assessee at different stages negative the assessee's stand that he has made the disclosure voluntarily and co-operated with the department. Even otherwise also when the fact of concealment of income is established, any subsequent act of voluntary disclosure by filing a letter would not affect the imposition of penalty because it does not erode the assessee's earlier guilt. Therefore, in my co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ismissed. 2. In the result, the appeal is dismissed. THIRD MEMBER ORDER Per M.K. Chaturvedi, Vice President - This appeal came before me as a Third Member, to express my opinion on the following question:- "Whether on the facts and in the circumstances of the case, the CIT(A) is justified in canceling penalty of Rs. 3,31,627 levied by the Assessing Officer under section 271(1)(c) of the Income-tax Act, 1961?" 2. I have heard the rival submissions in the light of material placed before me and precedents relied upon. For the relevant assessment year the assessee filed his return on 8-8-1988, declaring total income at Mi On 29-8-1988 search operation was conducted. 3. The assessee purchased plot at 532-E, Shahupuri, Kolhapur, along with Smt. T.B. Shirodkar in November, 1986, for a sum of Rs. 1,50,000. The investment in the said plot was disclosed at that point of time. The department did accept it. At the time of search, a statement of Shri S.B. Shirodkar, son of the co-owner was recorded. It was stated that the building was purchased with the intention of constructing flats. Plan for construction was made in the joint name of the owners. It was submitted to the Kolhapur M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Banne. The dispute was eventually settled on 26-2-1991. Deed of settlement was prepared. Shri Banne made it clear in the said agreement that due to the attachment of the flats by the Department, loan proposals of the flat holders who made the bookings were not sanctioned by the banks and due to this the persons were not interested for completing the agreement. Shri Banne requested the assessee to take over the building. His investment in the building was to the tune of Rs. 10,54,000. A sum of Rs. 2,25,000 was payable to the assessee. Thus, after deducting this amount, Shri Banne was to receive Rs. 8,29,000. 6. Instead of paying the said amount of Rs. 8,29,000 flat Nos. 4 and 5, as per the Apartment Declaration were to be allotted to Shri Banne and the remaining flats were to be taken over by the assessee. On sale of these flats the money was to be adjusted against the dues. 7. It was also agreed that the land and building shall be offered for taxation by the assessee. Income-tax liability shall be paid by the assessee. Shri Banne stated that he would withdraw his petition before the CIT in respect of the building and transfer five flats in Balaji Apartments in favour of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment in the building styled as Balaji Apartments is treated as an addition on regular basis instead of 'on protective basis'." 12. The contents of the assessee's letter dated 12-3-1992, on the basis of which the aforesaid order was passed are reproduced here as under:- "Respected Madam, The investment in the building styled as 'Balaji Apartment' has been taxed on protective basis. I had filed the petition to the Commissioner of Income-tax, Kolhapur on 8-3-1991 and through that petition; I had offered the investment in said building in my hand. The appeal in respect of assessment year 1988-89 is already been decided. The investment in the said building which is included on protective basis, be taxed in my hand on regular basis, as the said investment is not taxed in the hands of any other person." 13. The additional income was disclosed by petition dated 8-3-1991. Thereafter, on 2-8-1991, the assessee has given the letter to DCIT, Special Range I, Kolhapur, which reads as under:- "I have filed the revised return of income on 9th July, 1991. Vide a petition filed to the CIT Kolhapur on 8-3-1991, the cost of construction of building Balaji Apartment has been offered by me fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rces. The assessee made the disclosure petition after the settlement on 8-3-1991 with Shri Banne. It was only the admission of the assessee and the denial of Shri Banne about the investment. Subsequently, as a consequence of the settlement deed dated 26-2-1991 that the investment was shown in the name of the assessee. Nothing incriminating was found at the time of search from the premises of the assessee. 17. The learned counsel for the assessee submitted that a protective assessment was converted into regular assessment on the basis of very facts which are prevailing when the original assessment was made. This amply demonstrates that the Assessing Officer was not sure as to in whose hands the income is to be assessed. The income which was to be assessed in the hands of Shri Banne was assessed in the hands of the assessee because of his admission. The admission was made consequent upon settlement with Shri Banne. As such, there is no iota of concealment in the deal. 18. Reliance was placed on various precedents. The learned Departmental Representative relied on the decision of the Hon'ble Apex Court rendered in the case of K.P. Madhusudhanan v. CIT [2001] 251 ITR 99. The learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s projected by the Department in its appeal vide. Ground No. 2 is as under:- "On the facts and in the circumstances of the case and in law, the CIT(A) has failed to appreciate the fact that the assessee did not disclose the investments in Balaji Apartments and milk tanker in his income-tax return filed on 8-8-1988 nor it revised the return though there was sufficient time to do so. The assessee also did not come forward for disclosure of the above investments at the time of search conducted on 28-9-1988 by the Department when the Department found certain documents which showed investment in Balaji Apartments in the name of Shri R.B. Banne - a benami." 22. From the aforesaid discussion it is quite clear that the disclosure was necessitated due to settlement with Shri Banne. Nothing incriminating was found at the time of search requiring disclosure of income. The declaration was purely voluntary. There is absolutely nothing on record to indicate that it was made under lurking fear of detection. 23. In regard to the payment of Rs. 80,000 out of truck plying business, it was stated that the cash was paid on 20-7-1987. The assessee was not maintaining the books of account. As such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of penalty. In the present case we find that protective assessment was made substantive at the request of the assessee. The Department did not prove the fact of concealment. The concealment was presumed to be made because the assessee offered additional income. There is no independent finding as to the concealment. Penalty proceedings being of a quasi-criminal nature, the facts necessary to attract the provisions should be proved beyond doubt. It must be proved that the assessee has consciously made the concealment or furnished inaccurate particulars of his income. The mere fact that the assessee had agreed to be assessed at higher than the returned income, is not a proof of admission of concealment by the assessee. That fact alone cannot give a good foundation to the imposition of penalty. It is incumbent on the Assessing Officer to examine, before he makes an order imposing a penalty. The facts and circumstances of the case must be examined meticulously. Fact of concealment must be proved independently. Unless the concealment is so proved, penalty cannot be imposed. 28. I have perused the conflicting orders and the various reasonings adduced to buttress the point by the lear ..... X X X X Extracts X X X X X X X X Extracts X X X X
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