9911796707
TMI Blog2015 (7) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... t, the Assessing Officer has not recorded satisfaction in clear terms and therefore, section 271(1)(1B) is not applicable to the present case. 4. That the Ld. CIT(A) has erred in confirming the penalty despite the fact that the proceeding initiated and conducted by the Assessing Officer u/s 147/148 of the Act, in pursuance to which the penalty proceeding was initiated, was not in accordance with law. 5. That the Ld. CIT(A) has erred in confirming the penalty despite the fact that the surrender of Rs. 50 lacs made by the assessee was bonafide. 6. That the Ld. CIT(A) has erred in confirming the penalty ignoring the material fact that the Assessing Officer had accepted the surrender; it is a well established principle that the surrender made by the assessee is either to be accepted in toto or was to be rejected in toto. 7. That the Ld. CIT(A) has erred in observing that the assessee had concealed the income. In fact the assessee had disclosed the amount of Rs. 50 lacs in his books of accounts and that the copy of bank account issued by Canara Bank was already before the Assessing Officer at the time of original assessment proceeding. 8. That the Ld. CIT(A) has erred in obser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nbsp; Total 57,13,535/- 5. The AO initiated the proceedings u/s 271(1)(c) of the Act. In the meantime, a rectification order u/s 154 of the Act was passed and income of the assessee was recomputed at Rs. 59,97,425/- since the returned income in the assessment order dated 29.12.2010 u/s 143(3) of the Act had been erroneously taken as Rs. 41,683/- instead of Rs. 2,84,890/-. Against the said order, the assessee preferred an appeal before the ld. CIT(A) who vide order dated 29.11.2011, deleted the addition of Rs. 7,13,535/- made on account of unexplained expenditure but upheld the addition of Rs. 50,00,000/- made on account of undisclosed business income. The AO after receiving the order of the ld. CIT(A) of issued a notice u/s 271(1)(c) of the Act and the assessee furnished a written reply stating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... left except to make the surrender, the assessee surrendered the income of Rs. 50,00,000/- and paid the tax at Rs. 10,00,000/- on it. Accordingly, the penalty of Rs. 16,88,730/- u/s 271(1)(c) of the Act was levied by the AO. 8. Being aggrieved the assessee carried the matter to the ld. CIT(A) and furnished the written submissions which are incorporated in para 4 of the impugned order and reproduced verbatim as under: "The basic issue involved in the present appeal is, whether the Assessing Officer was correct in law and on facts in imposing the penalty of Rs. 17 lac u/s 271(1)(c) of the Act and whether the Assessing Officer is correct in law in imposing the penalty in pursuance to the invalid and illegal re-assessment proceeding. FACTS a) The appellant carrying on the business from its proprietary concern M/s Macro Industries, Rampuri, Muzaffarnagar. b) Return u/s 139(1) was filed by the assessee on 31.07.2007 declaring an income of Rs. 2,76,890/-. c) Case was selected for scrutiny, notice u/s 143(2) and 142(1) were issued in response to which, assessee appeared through counsel and filed required details time to time. d) On 21.12.2009, the books of accounts alongwi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the reasons the Assessing Officer had recorded that he had called for the bank account of assessee from Canara Bank u/s 133(6) & the same was stated to be received after 30.12.2009 i.e. after passing the assessment order. He found certain anomalies in the copy of account directly furnished by the bank and copy of account furnished by the assessee, as a result of which the income to the extent of Rs. 57,95,000/- had escaped the assessment for the AY 2007-08 and accordingly, he had issued notice u/s 148. n) Assessee issued a letter to Canara Bank on 17.07.2010 seeking information as to when the Department sought account statement of assessee and when they supplied the same. o) Vide letter dated 17.07.2010 itself, Canara Bank informed that they had supplied the copy of bank statement of the assessee to the Department on 24.12.2009 by hand to the official in pursuance to their letter-dated 24.12.2009. The true copy of the letter-dated 17.07.2010 issued by the Canara Bank is enclosed herewith as Annexure-"G". p) Thereafter, assessee sought inspection of assessment on 06.08.2010 which was allowed to him. Vide letter-dated 25.08.2010, assessee requested for certified copies of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso to purchase peace of mind. Withdrawing of objection was also as a matter of condition. To show the bonafide, assessee also handed over the cheque for Rs. 10 lac towards tax liability with a request to accept the surrender of Rs. 50 lac, the balance amount of tax was requested to be paid on framing the assessment, from the family fund and the interest was requested to be waived. The true copy of the letter-dated 15.11.2010 issued by the assessee making conditional surrender of Rs. 50 lac is enclosed herewith as Annexure-"K". t) That the assessee made surrender despite the fact that the amount was explainable. During the statement on 14.12.2010 as well as in the letter- dated 15.11.2010, assessee has explained that the amount of Rs. 50 lac was not the income of M/s Macro Industries but the same was savings of his family kept for unforeseen events and was deposited in the bank account for preparation of DD to be issued to M/s Dhar Cements Limited for purchase of Plant & Machinery in an auction carried on by the official liquidator Indore. Since the said DD was cancelled on 16.05.2006 due to failure of bid in the auction, the amount was withdrawn by way of six cheques, fiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the bank on 24.12.2009 could not be taken cognizance. Regarding surrender of Rs. 50 lac, CIT(A) observed that since the assessee had surrendered the same, it could not have been appealed against. However, CIT(A) granted relief to the assessee by deleting the addition of Rs. 7,13,535/- made by the Assessing Officer due to alleged difference in accounts. The true copy of the order passed by CIT(A) is enclosed herewith as Annexure-"O". x) That despite the conditional surrender, the Assessing Officer issued a show-cause notice to the assessee as to why penalty u/s 271(1)(c) of the Act be not levied. Assessee filed a detailed reply dated 10.05.2012 and explained that he had fulfilled all the conditions under surrender 'and paid the full tax. Therefore, no penalty could be levied. He also relied upon certain case law and submitted that the provisions of Evidence Act are not strictly applicable to the income tax proceeding as the same are not the criminal proceeding. Accordingly, he requested to drop the penalty proceeding. The true copy of the reply-dated 10.05.2012 is enclosed herewith as Annexure-"P". y) However, the Assessing Officer did not convince with the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of assessment proceeding. Hence, Assessing Officer has to form his opinion and record his satisfaction before conclusion of assessment proceeding. A finding must be recorded that assessee has been guilty of concealment or of furnishing inaccurate particulars of income. 03) The Assessing Officer has not arrived at a requisite satisfaction during the assessment proceeding when he has merely initiated the penalty proceeding separately without observing as to whether it was a case of concealment of income or furnishing of inaccurate particulars of income. Various High Courts have observed that to arrive at a satisfaction as to concealment of income or furnishing of inaccurate particulars of income is a prerequisite for initiating penalty proceeding. Hon'ble Delhi High Court in the case of CIT vs Ram Commercial Enterprises (246 ITR 568), after relying on the judgment of Supreme Court in the case of D M Manasvi (86 ITR 557) and S V Angidi Chettiar (44 ITR 739) had repelled the argument of the revenue that all the facts available on record coupled with the direction by Assessing Officer to initiate the proceeding u/s 271(1)(c) of the Act in the assessment order itself leads to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. An invalid assessment cannot give rise to valid penalty proceeding, since penalty proceeding under section 271 are initiated in the course of assessment proceeding which should mean only valid proceeding. Supreme Court in C.A. Abraham vs ITO (41 ITR 425) have held that penalty though discretionary, is part of the machinery for assessment of tax liability and has the character therefore, of an additional tax. Hence penalty proceeding should be vulnerable in a case where assessment proceeding is bad in law. The present case is the glaring instance where the reassessment proceeding is not sustainable in law for the following amongst other reasons:- i) The reasons recorded by the Assessing Officer u/s 148 are incorrect when it stated that the information u/s 133(6) were called from Canara Bank but the same was not received till 30.12.2009 i.e. the date of passing the assessment order u/s 143(3) of the Act. In fact, the copy of bank statement was furnished by the Canara Bank on 24.12.2009 itself and the same was before the Assessing Officer at the time of passing assessment order. Rather, Assessing Officer had satisfied himself about the entries of Rs. 50 lac, which were existin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regular course of business by stating that the account namely Mohd. Irshad Personal Fund Account was not existing in the immediately preceding and subsequent assessment years. Such an observation by the Assessing Officer shows non-application of mind or the very feeble knowledge of the accounting policies on his part. It is needless to say that each year is a separate year. Accounts in the ledgers are nothing but posting of entries from the principal book of accounts. If the entries are in the basic books i.e. cash book or the bank book or the journal then the same would be reflected in the Ledger. The entries regarding Rs. 50 lac were in the bank book of the assessee in the relevant year and therefore, were existing in the ledger. There were no entries pertaining to "Mohd Irshad Personal Fund Account" in the immediately preceding and subsequent year and therefore, the said account was not existing in the ledger of those years. Hence, the conclusion drawn by the Assessing Officer that the books of accounts of the assessee were fabricated is incorrect in the facts and circumstances of the case. Hence, the reassessment proceeding initiated by the Assessing Officer was not sustainabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d surrendered the same. Hence, the observation of the Assessing Officer that the assessee had concealed and furnished inaccurate particulars of income was incorrect. 06) In S V Kalyanam vs ITO (327 ITR 477), Madras High Court have held that section 69 is a deeming provision and the same cannot be extended to penalty proceeding. The Department cannot presume that there is a concealment. There must be an independent finding by the Assessing Officer that the assessee had concealed the income or had furnished inaccurate particulars of income. 07) In CIT vs Mahavir Irrigation (P) Ltd. (202 Taxmann 415), Delhi High Court have held that where assessee had disclosed receipt of impugned amount from a party, though as, a liability and Assessing Officer had also gone into that aspect specifically and did not treat the said receipt as income, such fact would demonstrate that assessee had not concealed particulars of income nor had it deliberately furnished inaccurate particulars of income. 08) In CIT vs Rajdev Singh & Company (202 Taxmann 433), Delhi High Court have held that where assessee had disclosed amount in entirety, produced books of accounts and claimed deduction which was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der is made, inference of concealment of income cannot be drawn u/s 58 of Evidence Act. 16) In CIT vs Gujamgadi (M.M.) (290 ITR 168), Karnataka High Court have held that where the assessee concedes an addition, it does not automatically follow that the amount conceded represented concealed income. Additions were made on account of cash credits because of inability of the assessee, in spite of his best efforts, to produce the creditors, such concession and consequent addition can only be taken to be addition for lac of proofs and not any positive concealment. 17) In National Textiles vs CIT (249 ITR 125), Gujarat High Court have held where assessee's explanation is unproved but not disproved by the Assessing Officer, reliance on explanation 1 to section 271(1)(c) is not enough for levy of penalty. 18) The Assessing Officer has levied the penalty stating that there is no promissory estoppel against statute and therefore, no condition can be attached with agreed addition for surrender. It is submitted that estoppel has been held to be only a rule of evidence and not a cause of action. It is not a basis of liability to assessment order under the Act. Hence, the assessment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luntarily" means out of free will without any compulsion. If Department has incriminating material with regard to disclosed income, disclosure is not voluntary and vice versa. K L Swamy vs CIT (Kar) 239 ITR 386 - search in third party's premises M N Rajaraman vs ACIT (ITAT, Chennai) 119 ITD 362 Simply because assessee agreed to addition of concealed income after detection thereof and filed return in response to notice u/s 148 offering additional income, assessee cannot escape from penalty u/s 271(1)(c) P C Joseph & Bros vs CIT (Ker) 243 ITR 818 CIT vs Rakesh Suri (All) 331 ITR 458 CIT vs Sushma Devi Agarwal (ITAT, Kol- TM) 67 DTR 430 b) Whether assessee has concealed the particulars of income or has furnished inaccurate particulars of income is a finding of fact and depends upon the facts and circumstances of the case. Hence each case has to be examined by the facts involved therein. In all these afore cited cases, concealment has been detected why the Department before the disclosure made by the assessee and therefore, it is observed that the disclosure made by the assessee was not voluntary and in good faith. Each case has been briefly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e valid. iii) 239 ITR 386 (Kar) K L Swamy vs CIT In this case, assessee had filed application for waiver of penalty which had been rejected by the CIT against which, writ petition was filed. Karnataka High Court held that the disclosure had come after an initial denial of making of payment towards purchase of estate and only when the seller offered himself for cross examination in support of his version that such a payment was made. Assessee is entitled to waiver of penalty only when he had made a disclosure by filing revised return voluntarily ending good faith. iv) 230 ITR 855 (AII) Bhairav Lal Verma vs UOI Full Bench of the Allahabad High Court in this case, have curled out the following principle: The word "voluntarily" in section 273A of the Act means out of free will without any compulsion. Voluntary disclosure of income means the disclosure of income out of free will without any compulsion/constraint. As a principle of law it cannot be held that the disclosure of the concealed income after the raid or search cannot be voluntary. It is a question which has to be decided by the Department in each case on the basis of the material available on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the original return. However, in the present case, no incriminating material was in the possession of AO to prove that the amount surrendered by the assessee was concealed income. In the assessment proceeding itself, assessee had explained that the amount of Rs. 10 lac (out of total Rs. 50 lac) was received from the father during family arrangement and Rs. 40 lac was the advance money received in April 2006 for sale of two houses at Charthawal and Muzaffarnagar. Despite the reassessment proceeding, opined to be invalid by the legal consultants, assessee surrendered the amount of Rs. 50 lac. Surrender was bonafide and was made with clean hands to avoid any dispute in future, to avoid any litigation and to purchase peace of mind subject to no penal action. Thus assessee had explained the source of Rs. 50 lac, which were duly entered into the books of accounts. Explanation offered by the assessee was bonafide. d) It is submitted that mere agreement to addition of income or surrender of income does not imply concealment of income. i) where the assessee failed to give satisfactory proof of certain cash credits and surrendered them for addition to the income, it was not open to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al promise which is intended to create legal relations or effect a legal relationship to arise in the future, knowing or intending that it would be acted upon by the other party to whom the promise is made and it is in fact so acted upon by the other party, the promise would be binding on the party making it and he would not be entitled to go back upon it, if it would inequitable to allow him to do so having regard to the dealings which have taken place between the parties. What is necessary for the principle to apply to a given case is only that the promise should have altered his position in reliance on the promise. The party asserting the estoppel must have acted upon the assurance given to him must have relied upon the representations made to him. The alteration of position by the party is the only indispensable requirement of the doctrine. In the present case, on the basis of surrender made by the assessee the Department has not altered his position. Had the Department acted upon the statement of the assessee then the assessee would have been stopped from saying that the amount was not chargeable to tax at all. Thus in the present case, there are no circumstances existing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO had imposed the penalty u/s 271(1)(c) of the Act on the ground that the surrender made at Rs. 50,00,000/- was made by the assessee under compelling circumstances when the assessee had no other choice and the conditions laid down for surrender were rejected by the AO. The ld. CIT(A) further observed that the assessee furnished a copy of current bank account No. 1682 with Canara Bank, Roorkee Road, Muzaffarnagar and in this fabricated copy of bank account, the bank account entry dated 21.04.2006 showing cash deposit at Rs. 50,00,000/- and subsequent withdrawal of the same amount for preparation of DD on the same date was deliberately omitted and the AO completed the assessment making addition of Rs. 50 lac and later on imposed penalty on such addition. On the argument of the assessee that satisfaction of concealment was not recorded by the AO, the ld. CIT(A) observed that the AO in his last sentence of the assessment order has mentioned that 'penalty notice u/s 271(1)(c) of the Act is being issued separately'. The ld. CIT(A) was of the view that the initiation of penalty proceedings coupled with the observations made by the AO, in the body of assessment order left no scope for any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rically stated that the AO after making the inquiry from Canara Bank, Muzaffarnagar, gathered that the assessee had deliberately omitted transactions to the extent of Rs. 50 lac regarding which the assessee had no explanation at all and the surrender of Rs. 50 lac was neither made at the time of original assessment nor at the time of filing of return u/s 148 of the Act but only when the copy of bank statement as furnished by the aforesaid bank was confronted to the assessee. Thus, surrender of income was not voluntarily made but was made after detection by the department and after the assessee had no escape route. Therefore, the proceeding offered by the assessee was not bonafide and the same was made after the positive detection by the department. It was also observed that the assessee had not been able to establish that the explanation offered was bonafide. According to the ld. CIT(A), the surrender from the assessee was a mercy petition filed before the AO accepting the undisclosed income of Rs. 50 lac and the acceptance of cheque of Rs. 10,00,000/- towards taxes by the AO should not be understood that he agreed for non-initiation of penalty. The ld. CIT(A) was of the view that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that as per the provisions of section 271(1)(c) of the Act, the AO has to satisfy himself during the assessment proceedings that the assessee had concealed the particulars of income or has furnished the inaccurate particulars of income but no such satisfaction had been arrived at by the AO during the assessment proceedings and the satisfaction arrived at during the penalty proceedings cannot be substituted for the satisfaction to be arrived at during the assessment proceedings. It was stated that the assessee surrendered Rs. 50,00,000/- himself during reassessment proceedings, the said surrender was bonafide and made with clean hands to avoid any dispute in future, to avoid any litigation and to purchase peace of mind subject to no penal action. It was emphasized that the assessee handed over the cheque of Rs. 10 lac towards tax liability, in the said surrender of Rs. 50 lac the assessee had also explained the source as Rs. 10 lac out of Rs. 12 lac received from father before 40 years in pursuance to family arrangement and Rs. 40 lac as advance money received for sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceedings initiated on the basis of change of opinion was bad-in-law. The reliance was placed on the following case laws: Ø CIT VS Usha International Limited 348 ITR 485 (FB) (Del) Ø S V Kalyanam Vs ITO 327 ITR 477 (Mad) Ø CIT Vs Mahavir Irrigation (P) Ltd. 202 Taxmann 415 (Del) Ø CIT Vs Rajdev Singh & Company 202 Taxmann 433 (Del) 13. It was stated that the AO accepted the surrender made by the assessee but had not accepted the conditions subject to which surrender was made. It was further stated that as per the established principle of law the admissions have to be read as a whole and in the context in which, they were made and not de hors the context and the admission cannot be a basis for leaving the penalty when it is made for purchase of peace with the department. The reliance was placed on the following case laws: ØCIT Vs Paripushpam (S.I.) 249 ITR 550 (Mad) ØCIT Vs Garg Trader 253 ITR 736 (P&H) ØCIT Vs Suresh Kumar Bansal 254 ITR 130 (P&H) ØCIT Vs Jalaram Oil Mills 253 ITR 192 (Guj) ØCIT Vs Pioneer Engineering Syndicate 188 ITR 287 (Mad) ØCIT Vs Punjab Tyres 162 ITR 517 (MP) ØCIT VS Sara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the AO and the ld. CIT(A) was justified in upholding the same. 16. We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it is an admitted fact that in the original assessment proceedings u/s 143(3) of the Act, the AO had made an addition of Rs. 7,000 only, however the case was reopened on the basis that the assessee deposited of Rs. 50 lac in his bank account. During the course of assessment proceedings, the assessee explained the source of the deposit which was Rs. 10 lac claimed to have been received from his father during family arrangements and Rs. 40 lac on account of advance money received in April 2006 for sale of two houses. However, the assessee during the course of assessment proceedings agreed for addition of Rs. 50 lac in spite of the fact that the amount was recorded in his books of accounts, the said surrender was made to buy peace of mind and to avoid litigation and subject to no penalty u/s 271(1)(c) of the Act. In the present case, the AO also made another addition of Rs. 7,13,535/- on account of unexplained expenditure but the same was deleted by the ld. CIT(A) and the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s an addition or disallowance without arriving at a prima facie satisfaction with respect to infraction by the assessee of clause (c) of sub-section (1) of section 271 of the Act. A requirement, which is mandated by the provision itself". 18. Similarly the Hon'ble Delhi High Court in the case of CIT Vs Ram Commercial Enterprises Ltd. 246 ITR 568 (supra) held as under: "The satisfaction as to the assessee having concealed the particulars of his income or furnished inaccurate particulars of such income is to be arrived at by the Assessing Officer during the course of any proceedings under the Act, which would mean the assessment proceedings, without which, the very jurisdiction to initiate the penalty proceedings is not conferred on the assessing authority by reference to clause (c) of sub-section (1) of section 271 of the Income Tax Act, 1961. A bare reading of the provisions of section 271 and the law laid down by the Supreme Court makes it clear that, it is the assessing authority who has to form his own opinion and record his satisfaction before initiating the penalty proceedings. Merely because the penalty proceedings have been initiated it cannot be assumed that such a satis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee or the income for which inaccurate particulars were furnished by the assessee. 20. On a similar issue the Hon'ble Karnataka High Court in the case of CIT Vs M. M. Gujamgadi 290 ITR 168 (supra) held as under: "A reading of sections 271 and 271(1)(c) of the Income Tax Act, 1961, and the Explanation appended thereto manifestly makes it clear that every addition of income by the Income-tax Officer will not automatically attract levy of penalty. It is clear from Explanation 1(B) to section 271(1)(c) of the Act that while computing the total income of an assessee, if the assessee fails to prove that such explanation is bonafide then there will be a deemed concealment by the assessee." It has been further held as under: "The explanation offered by the assessee was available on record. Bona fide failure on the part of the assessee in not substantiating his claim was also available on record. The Income-tax Officer, while passing the order of penalty under section 271(1)(c) of the Act, had not considered the available explanation of the assessee and whether the explanation so offered was bonafide or not. The concellation of penalty was justified." 21. We, therefore, considering ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
