TMI Blog2011 (3) TMI 579X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee was that for business point of view he was not required to maintain the record of full address and identity of those persons. - Penalty to be deleted. - IT APPEAL NO. 623/AHD./2007 - - - Dated:- 31-3-2011 - MUKUL SHRAWAT, D.C. AGRAWAL, JJ. J.P. Shah for the Appellant. K. Madhusudan for the Respondent. ORDER Mukul Shrawat, Judicial Member. This is an appeal at the behest of the assessee which has emanated from the order of the Learned CIT(Appeals)-I, Surat dated 1-12-2006 in respect of levy of penalty of Rs. 12,61,087 under section 271(1)(c) of the Act. 2. Several grounds have been raised through which it was agitated that the reasons for levy of penalty was not as per law; for ready reference relevant portions are reproduced below :-- "(1) The ld. Commissioner of Income-tax (Appeals) has erred in law and on facts in confirming the levying of penalty under section 271(1)(c) of the Act in respect of addition of Rs. 8,85,000 made on the ground of unexplained cash found during survey. (2) The ld. Commissioner of Income-tax (Appeals) has erred in law and on facts in confirming the levying of penalty under section 271(1)(c) of the Act in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e names and the amount was as under :-- Sr. No. Name Amount (Rs.) 1. Shankardas Desai 426,520 2. Hari Textiles 157,819 3. Ganesh Steel Industries 256,740 Total 841,079 3.2 The same was held as unexplained amount and taxed under section 69 of the Income-tax Act, 1961. It has also been informed that the impugned amount was affirmed in First Appeal. In the quantum appeal when the matter has reached to the ITAT "D" Bench (by way of ITA No. 2830/Ahd./2004 for assessment year 2001-02) relief to the extent of Rs. 8,41,079 was granted vide its order dated 14-5-2010 by setting aside the issue to the file of the Assessing Officer with the directions for certain clarifications, however, the balance amount of Rs. 43,922 was affirmed. For ready reference, relevant paragraph No. 4 is reproduced below:-- "4. We have heard the rival submissions and perused the materials available on record. In the instant case the assessee is engaged in the business of discounting of drafts/cheques on commission basis. A survey under section 133A of the Act was conducted in the case of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were not in the possession of the assessee. In respect of balance amount of Rs. 43,922 which was found excess during the course of the survey, the Learned Authorised Representative of the assessee admitted that addition to that extent was justified. In the above facts and circumstances, in our considered view, the lower authorities were not justified in making the addition by rejecting the explanation of the assessee without making any attempt to verify the genuineness of the explanation either from the bank or from the three parties directly. In our considered opinion, power under sections 133(6) and 131 are made available by the Act with the Income-tax authorities with a view that the same shall be exercised by them to render justice when the situation so warrants. Therefore in our considered opinion, the lower authorities were not justified in confirming the addition without exercising those powers. Therefore, it shall be just and fair and in the interest of justice to set aside the addition of Rs. 8,41,079 back to the file of the Learned Assessing Officer for proper verification of the explanation of the assessee by excising the power available under the Act with him and therea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Director of the assessee company explained that the said cash belong to him in his individual capacity and was out of maturity proceeds of Fixed deposits, which was fully disclosed in his individual balance sheet. During the course of the assessment proceedings, the Learned Assessing Officer observed that cash of Rs. 9,10,000 was withdrawn from the personal account of Shri Arvindbhai I. Shroff but the said withdrawal was on 11-9-2000 i.e., 35 days before the date of the survey. According to the Learned Assessing Officer, the assessee could not bring any material to show that the cash found during the survey was out of that cash which was withdrawn 35 days earlier. Therefore, he made the addition of Rs. 4,13,500 to the income of the assessee by treating it as unexplained cash of the assessee. The Learned Commissioner of Income-tax (Appeals) also confirmed the above action of the Learned Assessing Officer for the same reasons. We find that Shri Arvindbhai I. Shroff Director of the Assessee company during the course of survey itself claimed that the cash of Rs. 4,13,500 belong to him in his individual capacity. To establish the same, the assessee also produced material before the Lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TOTAL 2,140,838 9. It is interesting to note at the outset that the Assessing Officer has remarked that the assessee-company had credited its account with various, alleged to be in, fictitious names. On account of the said allegation, it was asked to furnish names, addresses, confirmation with evidence, identity of the persons, genuineness of transaction along with their creditworthiness. Since the compliance was not proper, hence, the Assessing Officer has also remarked that the complete books of account could not be produced by the assessee. Rather it was told to the Assessing Officer that as far as the furnishing of addresses of those creditors was concerned, the assessee-company had not maintained such details due to the peculiar nature of the business. The Assessing Officer has, thus, concluded that the assessee had failed to substantiate the genuineness of the creditors by furnishing cogent evidence. However, the response of the assessee was that its business being a discounting agent, hence, conducting its business as a Shroff. It was explained that when a seller of the goods receives a crossed cheque or draft, the same was endorsed by the purch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter the lapse of 60 to 75 days on receiving the cheque/draft. The Assessing Officer had made a tabulation-sheet of few persons depicting the date of receipt of the amount on one hand and the date of re-payment of the amount on the other hand. In the opinion of the Assessing Officer, no prudent business man would deposit a cheque for more than two months for the discounting purpose and such a practice was not prevalent. It was also commented by the Assessing Officer that when the maximum transactions were with the known parties, then how the assessee has contended that he was least concerned about the identity of the customers. Basically, the Assessing Officer has discarded all the explanations of the assessee on the ground that the primary onus is about the transactions was not discharged by the assessee. After discussing few case laws, the Assessing Officer has taxed the amount by invoking the provisions of the section 68 of the Income-tax Act, 1961. When the matter was carried to the first appellate authority, the action of the Assessing Officer was affirmed primarily on the ground that the onus was not discharged by the assessee though ample opportunities were granted. It was h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... draft provider. The assessee also contended that in view of the large volume of the business, it was also not practically possible to maintain full record of addresses and other details of the parties. In our considered opinion, such explanation of the assessee cannot be accepted in view of the specific provision of law contained in section 68 of the Act. In our considered opinion, when the assessee claims to have received cheque or draft on credit i.e., cash is not immediately given to the cheque or draft provider then the law requires the assessee to prove the nature and source of such credit by establishing identity and genuineness of the transaction. In the above circumstances, we do not find any error in the order of the Learned Commissioner of Income-tax (Appeals). Therefore, this ground of appeal of the assessee is dismissed." 9.1 Since the quantum was affirmed, therefore, the penalty proceedings under section 271(1)(c) of the Income-tax Act, 1961 were enforced. Facts as narrated above have been reiterated. The Assessing Officer has noted that once the amount was re-paid in cash after 60 to 75 days of deposit of the cheque, then it was a clear indication that they were not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se-B of Explanation-1. Therefore, first we shall discuss clause(c) of section 271(1). It is a known fact that earlier there was a word "deliberately" in this clause, which was omitted with effect from 1-4-1964. Now the clause(c) reads as "has concealed the particulars of income or furnished inaccurate particulars of such income". To this clause, our humble interpretation is that either this is a concealment or furnishing of inaccurate particulars, both are in respect of the income of the assessee which has not been disclosed. To further elaborate this clause, the concealment has a direct nexus in respect of the income of the assessee, as well as inaccuracy also has a direct link with the income of the assessee. This section is to be applied in two situation , one is that the particulars of income has been concealed and the other is that the particulars of income are inaccurately furnished. Therefore, the concealment of income or inaccuracy of income, both has the main ingredient for levy of penalty under section 271(1)(c). If the revenue Department has detected either of the two; i.e., the assessee was found concealed the income or he was found of furnishing of inaccurate particula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve that the material through which the explanation is substantiated and the explanation itself is untrue or false in nature. In a way, by insertion of Explanation-1 the Department's onus has considerably been reduced, if not altogether removed from the statute because the first onus is on the assessee to offer an explanation that too be duly substantiated. 11.1 Clause-B of Explanation-1 has significant role to play because of the selection of the words by the law makers while enacting this sub-clause, therefore, reproduced below :-- Explanation 1.--Where in respect of any facts material to the computation of the total income of any person under this Act,-- (A) ** ** ** (B) such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ged his primary onus or whether he has actually concealed the income in question. A survey was conducted on the assessee but this is not the case of the revenue that the above referred alleged creditors were not found recorded in the books of account of the assessee. As per the assessment order, only during the course of assessment proceedings and on verification of books of account, undisputedly audited accounts, the Assessing Officer had made certain enquiries which were found recorded as "sundry creditors" appearing as on 31-3-2001. An elaborate explanation was furnished and we have already considered the said explanation in above paras. We have also noticed the nature of business, i.e., cheque discounting and saraffi business. The assessee has made vehement submission both during the assessment proceedings as well as during penalty proceedings that a system was evolved, considering the large number of transaction, to record the names only. It was also vehemently contested that the assessee used to provide discounting facility daily in average to 50 persons. Even the Respected Co-ordinate Bench had also noted that when the cheques are received from the different parties and afte ..... X X X X Extracts X X X X X X X X Extracts X X X X
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