TMI Blog2008 (12) TMI 315X X X X Extracts X X X X X X X X Extracts X X X X ..... he income from such sales. He has not given any explanation to say as to why such sales were not disclosed in the original return. The explanation for not disclosing such sales is not forthcoming. Only explanation given is that the income has been surrendered to purchase peace and to avoid litigation. As held by the Hon'ble apex Court in the case of Onkar Saran Sons [ 1992 (3) TMI 1 - SUPREME COURT] , one has to see the concealment in the original return. In the original return, the assessee has not disclosed the entire sales. This fact was material to the computation of the total income. No explanation has been offered as to why such sales were not reflected in the original return. The only explanation now submitted is that the assessee agreed for the addition to purchase peace. Such explanation cannot be considered as bona fide because the documents relating to such unaccounted sales were found. It was also found that the assessee was having unaccounted debtors. Hence, in the instant case, Expln. 1 is squarely applicable for imposition of penalty. AO has recorded his satisfaction or not - HELD THAT:- As per s. 271(1B), there is deemed satisfaction in respect of addi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en income estimated at 7 per cent by him and 5 per cent returned by the assessee stands invested in any form. Hence, there is no material to suggest that penalty is leviable in respect of the addition made by the AO. Therefore we delete the penalty in respect of addition made on account of applying net profit of 7 per cent as against 5 per cent by the assessee. Thus, the penalty is leviable to the extent of net profit estimated at 5 per cent by the assessee. Similarly, other income disclosed in the return filed in response to notice u/s. 153A consisted of income declared on account of stone polishing and melting operation of aluminium. Since such income was not declared in the original return, therefore, these amounts will have to be considered for the purpose of imposition of penalty u/s. 271(1)(c). We are not inclined to accept the contentions of the ld AR that in view of second proviso to s. 153A, the original return abates and therefore, there is no concealment. Concealment is to be seen on the basis of the original return. In respect of six assessment years mentioned in s.153A, assessments are to be made u/s.153A and any assessment or reassessment proceedings pending on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he scrap mainly to the customers from Delhi and these sales were totally unaccounted, as the parties declined to accept the sales vide bills. The assessee used to declare only the accounted sales to the Sales Tax Department and to the Income-tax Department. Unaccounted sales are available in the loose sheets and these loose sheets were seized. Statement of the assessee was recorded on 9-11-2004 i.e., on the day of the search and the assessee admitted that the sales were unaccounted. Notice under section 153A was issued for the assessment years 1999-2000 to 2004-05 on 16-2-2005 proposing to reassess the income and the assessee was required to file the returns within 30 days from the date of service of notice. The assessee filed the returns on 12-4-2005 for all the years under consideration and additional income was admitted. The assessee admitted that the seized material relating to sales of scrap and aluminium ingots has been taken into consideration while admitting additional income. It was contended that sales in the seized material is out of purchase, which are also not accounted in regular books of account. Hence, the assessee requested the Assessing Officer to accept the incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not mean that the income as assessed was actually earned. 5. Return under section 153A of the Act is to be seen independently of other proceedings. In view of this, there is no default since the returned income has been accepted. 6. Explanation 5 to section 271(1)(c) of the Income-tax Act is also not applicable as this year no income is sought to be related to any unaccounted money, bullion, jewellery or other valuable articles or things. 3.2 As per the Assessing Officer, none of the explanations offered by the assessee were acceptable. The assessee was assessed to tax and was filing his returns of income regularly before the jurisdictional Assessing Officer. The additional income came to be offered only on account of search. The income has been quantified after taking into consideration and books and documents seized during the course of search. This does not mean that the income returned has been accepted and the assessee has not concealed the particulars of income. The assessee came with the revised return of income consequent to search. The Assessing Officer further mentioned that the quantification of unaccounted turnover was adopted after the same was got reconciled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this case has been levied under the substantive provisions of section 271(1)(c) which case heavy burden on the revenue to bring the assessee's case within the mischief of the main provisions of section 271(1)(c). More so when the Explanation to that section has not been invoked. The assessment proceedings and penalty proceedings are two separate and distinct proceedings and the mere fact that certain addition were made in the assessment proceedings on the basis of assessee's declaration/surrender would not automatically justify the imposition of penalty under section 271(1)(c) . 3.5 During the course of proceedings before us, the learned DR drew our attention to copy of the statement of the assessee recorded under section 132(4) and available in the paper book filed by the assessee. In the statement recorded on 9-11-2004, the assessee in his reply to question No. 9, admitted that he has made unaccounted sales to various parties. In answer to question No. 8, he admitted that he is making purchase from unregistered dealers and purchase vouchers for such purchases are not available. In answer to question No. 10, the assessee stated that the unaccounted sale details are ke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d at a later date to match the sale figures for which there are specific records. The purchases are made from the hawkers but no account is prepared. Purchase vouchers are created at regular intervals depending upon the sales. In answer to question No. 7, the assessee admitted that pages from 38 to 60 are bills for sales made to various parties who did not accept the bills taken. Therefore, these were unaccounted sales. After drawing our attention to the replies given by the assessee in his statement recorded under section 132(4), the learned DR pointed out that the assessee was fully aware of the fact that he is making unaccounted sales. It was also admitted by him that purchase vouchers were being created and such purchase vouchers were not genuine purchase vouchers. Hence, it is not a case where the assessee was not aware of the fact of earning undisclosed income through unaccounted sales. However, the assessee was showing the deflated sales. Looking to the quantum of unaccounted sales and the admissions made by the assessee in his statement recorded under section 132(4) of the Income-tax Act, the learned DR stated that these facts show that the assessee has consciously declared ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earch proceedings. There was finding by Tribunal that omission to include such income in original return was not due to mistake. The Hon'ble Madras High Court upheld the levy of penalty. 3.7 During the course of proceedings before us, the learned AR has filed three paper books. The first paper book contains 58 pages. It contains the copies of Panchanama as well as the copies of the returns and computation of income filed along with the return under section 153A. Paper book-2 contains 72 pages. It contains copies of assessment orders for various assessment years under section 153A. It contains copy of original assessment order for assessment year 2001-02, copies of computation mechanism forming basis of returns under section 153A. It contains copy of the statement recorded under section 132(4) and it also contains copy of notice under section 271(1)(c). Paper book-3 contains 227 pages. These 227 pages are copies of the judgments of Tribunals/High Courts/Supreme Court on which the assessee has placed reliance. Third paper book also contains the brief summary of contentions. Brief summary of contentions are in four pages. The learned AR submitted that return of income was file ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on that there has been a concealment.In the present case, no such satisfaction has been recorded. A mere mention in the assessment order that penalty proceedings may separately be initiated does not amount to a recording of satisfaction. For this proposition, the learned AR relied on the following judgments : Rajendra D. Runwal v. ITO, ITAT Bang. Bench. V.V. Projects Investments (P.) Ltd. v. Dy. CIT [2008] 300 ITR 40 (AP). CIT v. Rajan Co. [2007] 291 ITR 340 (Delhi). Everplus Securities Finance Ltd. v. Dy. CIT [2006] 285 ITR (AT) 112 (Delhi). CIT v. Auto Lamps Ltd. [2005] 278 ITR 32 (Delhi). CIT v. Super Metal Re-rollers (P.) Ltd. [2004] 265 ITR 82 (Delhi). CIT v. Vikas Promoters (P.) Ltd. [2005] 277 ITR 337 (Delhi). Diwan Enterprises v. CIT [2000] 246 ITR 571 (Delhi). CIT v. Munish Iron Store [2003] 263 ITR 484 (Punj. Har.) CIT v. Ram Commercial Enterprises Ltd. [2000] 246 ITR 568 (Delhi). CIT v. B.R. Sharma [2005] 275 ITR 303 (Delhi). 3.9 Thereafter, the learned AR drew our attention to section 271(1B) introduced by the Finance Act, 2008 with retrospective effect from 1-4-1989. As per section 271(1B), satisfaction is presumed only to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y and penalty is not to be imposed in case certain conditions are satisfied. It was argued that FDs or debtors would not be covered within the Explanation 5. It was argued that residuary portion of Explanation 5 to section 271(1)(c) only covers tangible movable items. For this proposition, the learned AR relied on the decision of Pune Bench in the case of Dy. CIT v. Mahadik Bros. [2003] 84 ITD 1 and that of Hon'ble Allahabad High Court in the case of CIT v. Mohan Lal Sharma [2006] 281 ITR 384. Hence, it was argued that FDs or debtors are not covered within the Explanation 5. It was further, argued that Explanation 5 to section 271(1)(c) is attracted in respect of assets that have been acquired out of undisclosed income. Debtors cannot be said to have been acquired. Hence, if the penalty is not leviable in view of Explanation 5, then it cannot be sustained by resorting to other explanations like Explanation 2. For this purpose, reliance is placed on the ratio of Supreme Court decision in Kerala State Co-operative Marketing Federation Ltd. v. CIT [1998] 231 ITR 814. 3.13 Explanation 2 was argued to be not applicable as the same is applicable in respect of a deposit, investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.16 In respect of the fact that inapplicable portions in the show-cause notice under section 271(1)(c) was not struck off, the learned DR relied on the section 292B of the Income-tax Act. As per section 292B, a notice is not to be deemed invalid merely by reason of any mistake, the defect or omission in such notice if such notice is in substance and in fact in conformity with or according to the intent and purpose of the Act. It was argued that the assessee clearly understood the purpose for which the show-cause notice has been issued and no reference has been made in the reply submitted that the notice is vague. The penalty order is specific and the learned AR has not pointed out that the Assessing Officer while imposing penalty has not specified the charge for which penalty has been levied. 3.17 The learned DR drew our attention towards Memo explaining provisions in the Financial Bill, 2003 as sections 153A to 153C were introduced from financial year 2003. He drew our attention to page 219 (St.) of 260 ITR to show that in the Memo Explaining Provisions in the Finance Bill, it was mentioned that the procedure of making block assessment postulates two parallel streams of assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer has rightly imposed penalty on the difference between the assessed income as per order under section 153A and the income declared in the original return. The learned DR also drew our attention to the decision of the Hon'ble Apex Court in the case of K.P. Madhusudhanan v. CIT [2001] 251 ITR 9 9 in which it has been held that the decision in the case of Sir Shadilal Sugar General Mills Ltd. (supra) is not a good law after introduction of explanation. 3.19 We have heard both the parties. Search proceedings in the case of the assessee were commenced on 9-11-2004. Statement of the assessee was recorded under section 132(4) of the Income-tax Act. Before proceeding further, it will be relevant to reproduce the following questions and answers from the statement so that the fact as found from the search can be considered for the purpose of deciding these appeals: Q.7 Are you aware of all the business transactions carried out by your business concern and also your associates ? Ans: Yes, I am aware of all the transactions. Q.8 Pl. state are there any purchases for which you do not have purchase bills ? Ans : Yes, I make URD purchases from hawkers and small time ven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 24,34,709 Q.15 Kindly go through the seized material marked A/NMS/02 to 14 and A/NMS/17 with reference to your working of unaccounted sundry debtors and confirm? Ans. : I have gone through the above seized materials and confirm the balance receivable from sundry debtors as on date is Rs. 24,34,709. Q.17 I am showing you seized material marked as A/NMS/18 and explain the contents therein? Ans. : I have gone through the seized material marked as A/NMS/18 and intimate that there are the transactions of unaccounted sales made to various parties and receipts of cash from them. Statement dated 23-11-2004 Q.1 Please identify yourself? Ans. : I am Shri K. Natarajan S/o Late Ganapathy aged 55 years. I am the sole proprietor of M/s. Nataraj Metal Stores, M/s. N.P. Stone Polishing works. Q.6 I am showing you seized material A/NMS-1/13 to A/NMS-1/22 seized during the course of search proceeding on 23-11-2004 from your business premise at No. 4, PVR Road, Ranasinghpet, Bangalore. Please explain what these pertain to? Ans. : These are purchase vouchers for the purchases made by us from various hawkers. These vouchers are prepared at a later dates to m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctories Boilers [1996] 6 SCC 665. 4. R.S. Joshi, Sales Tax Officer v. Ajit Mills Ltd. [1977] 4 SCC 98. 5. Gujarat Travancore Agency v. CIT [1989] 3 SCC 52. 6. Swedish Match AB v. SEBI [2004] 11 SCC 641. 7. SEBI v. Cabot International Capital Corpn. [2005] 123 Comp. Cas. 841 (Bom.). The Hon'ble Apex Court in the judgment under reference has also reproduced section 271(1)(c) of the Income-tax Act. The Hon'ble Apex Court at para 25 observed as under : The Explanations appended to section 271(1)(c) of the Act entirely indicates the element of strict liability on the assessee for concealment or for giving inaccurate particulars while filing return. The judgment in Dilip N. Shroff's case (supra) has not considered the effect and relevant of section 276C of the Income-tax Act. Object behind enactment of section 271(1)(c) read with Explanations indicate that the said section has been enacted to provide for a remedy for loss of revenue. The penalty under that provision is a civil liability. Wilful concealment is not an essential ingredient for attracting civil liability as is the case in the matter of prosecution under section 276C of the Income-tax Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... introduction of Explanation to section 271(1)(c). The Hon'ble Apex Court held that specific reference to Explanation dealing with deemed concealment is not necessary. The Hon'ble Apex Court observed as under to say that whatever laid by the Apex Court in the case of Sir Shadilal Sugar General Mills Ltd. (supra) is not applicable : Learned counsel for the assessee then drew our attention to the judgment of this court in Sir Shadilal Sugar General Mills Ltd. v. CIT [1987] 168 ITR 705. He submitted that the assessee had agreed to the additions to his income referred to hereinabove to buy peace and it did not follow therefrom that the amount that was agreed to be added was concealed income. That it did not follow that the amount agreed to be added was concealed income is undoubtedly what was laid down by this court in the case of Sir Shadilal Sugar General Mills Ltd. [1987] 168 ITR 705 and that, therefore, the revenue was required to prove the mens rea of a quasi-criminal offence. But it was because of the view taken in this and other judgments that the Explanation to section 271 was added. By reason of the addition of that Explanation, the view taken in this case ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y worth Rs. 15 lakhs. During the course of search it was revealed that the assessee used to sell the scrap mainly to the customers from Delhi and these sales were totally unaccounted, if the party refuse the bill. The assessee use to declare only the accounted sales to sales tax department and also Income-tax department. These unaccounted sales have been monitored by means of loose sheets and they have been seized and marked as A/NMS2, A/NMS3, A/NMS4, A/NMS5, A/NMS7, A/NMS8, A/NMS9, A/NMS10, A/NMS11, A/NMS12 and A/NMS14. Assessee's statement to this effect was recorded on 9-11-2004 to which the assessee has admitted that the sales were unaccounted. The assessee manufactures aluminium ingots in his factory at Nayandanahalli, Mysore Road, Bangalore. The nature of business, location of the factory or income earned were not declared to the department. On the other hand the assessee declared the factory as a godown and the sale of aluminium ingots as sale of scrap which is not accounted. The assessee is also running another factory in the name of M/s. N.P. Stone Polishing as a proprietary concern. Even the income earned out of this business is not declared in the regular re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legal. The case law relied upon by the assessee in Ram Commercial Enterprises Ltd.'s case (supra) is distinguishable on facts inasmuch as in that case the Assessing Officer in his assessment order had merely observed/directed penalty proceedings under section 271(1)(c) to be initiated separately against the assessee. Where as in the present case the Assessing Officer has in fact formed the satisfaction and initiated penalty proceedings in course of assessment proceedings. 4.3 Hence, relying on the above decision of the Tribunal and considering the facts as mentioned above, we hold that the Assessing Officer was satisfied before initiating the proceedings under section 271(1)(c). 5. Now the next issue before us is as to whether the penalty is not imposable on account of defect in the notice. 5.1 It is true that the show-cause notice does not contain the specific allegation i.e., whether it is in respect of concealment of income or furnishing of inaccurate particulars of income. The notice is to be read along with the assessment order during the course of which proceedings has been initiated. The proceedings have been initiated for concealment of income. The assessee in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vant para is as under : (c)(B) As per the existing Explanation 5 to section 271(1) of the Income-tax Act, if at the time of search, assets which are not recorded in the books of account are found, a taxpayer is liable to penalty for concealment even if he declares the full value of those assets as his income in the return filed after the search. This provision has been found to operate even in cases where the assessee has no intention to fabricate any evidence and he includes in his return the income out of which such assets have been acquired. Hence, by the Amending Act, it has been provided that if an assessee in such cases makes a statement during the course of the search admitting that the assets found at his premises or under his control have been acquired out of his income which has not been disclosed so far in his return of income to be furnished before the expiry of time prescribed in clause (a) or (b) of section 139(1) and specifies in the statement the manner in which such income has been derived and pays the taxes that are due thereon, no penalty shall be leviable. 5.4 The assessee vide his statement dated 9-11-2004 in answer to question No. 34 in which he was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the provisions of Explanation 5 in entirety to the assessee concerned and the authorized officer cannot stop short at a particular stage so as to permit the revenue to take advantage of such a lapse in the statement. Hence, if the statement does not specify the manner in which the income has been earned then it is not detrimental until and unless specific question is asked and the assessee does not give the reply.In the instant case, tax has been paid. The requirement of Explanation 5 to section 271(1)(c) for providing immunity from penalty is that tax along with interest is paid. There is no prescription as to the point of time when the tax has to be paid qua the amount of income declared in the statement under section 132(4).In the instant case, the assessee has paid the tax. The return filed in response to section 153A were not processed. The payment of interest was created at the time of assessment and it is not the case of the revenue that such payment has not been paid. Hence we are of the opinion that no penalty is leviable in respect of sum of Rs. 24,34,709 as declared in the statement under section 132(4) for which the tax stands paid. It is true that the assessee has a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld not have the effect of exonerating the assessee from the liability for penalties as the revised return was filed only on the basis that he has concealed his income during the earlier years. The imposition of penalty was confirmed. 5.8 The Hon'ble Rajasthan High Court in the case of CIT v. Mohd. Mohtram Farooqui [2003] 259 ITR 132 had an occasion to consider the imposition of penalty in a case where the cash was seized by the police authorities and it was explained that part of cash belong to third parties. However, there was no evidence to explanation and the assessee surrendered the amount for assessment by filing the return. The Hon'ble Rajasthan High Court upheld the penalty and observed that after the insertion of Explanation to section 271(1)(c), the requirement as the department should establish that there has been a conscientious concealment of particulars of income or a deliberate failure to furnish accurate particulars is no longer necessary. In case additions are made and the explanations submitted by the assessee is not satisfactory, the income added should be treated as deemed concealment. In this case, the assessee has filed the return and declared the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rallel proceedings, one for the regular assessment and the other for the assessment in consequence of the search. Whatever is mentioned in the second proviso is that the assessment or reassessment proceedings shall abate. It does not say that the return for the earlier will abate and will not to be considered for the purpose of the Act. As per section 234B(3), if recomputation is made under section 153A then the amount on which interest was payable under section 234B(1) will have to be increased. This shows that the earlier assessment will not abate because the interest to be increased for the period starting with the date of order under section 143(1) was regular assessment and ending with the date on which recomputation under section 153A is made. Hence, we are not inclined to accept the contentions of the learned AR that in view of second proviso to section 153A, the original return abates and therefore, there is no concealment. Concealment is to be seen on the basis of the original return. In respect of six assessment years mentioned in section 153A, assessments are to be made under section 153A and any assessment or reassessment proceedings pending on the date of search shall ..... X X X X Extracts X X X X X X X X Extracts X X X X
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