New User   Login      
Tax Management India .com TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2016 (7) TMI 662 - ITAT CHANDIGARH

2016 (7) TMI 662 - ITAT CHANDIGARH - TMI - Penalty u/s 271(1)(c) - whether the assessee firm has discharged its onus by establishing the identity of the creditors who are the partners of the firm, creditworthiness of the creditors / partners and genuineness of the transactions? - Held that:- Where there was no intention on the part of the assessee to conceal income and the assessee had agreed to offer sundry credits which were carried forward from the previous year as income as a measure of purc .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

lty u/s 271(1)(c) of the Act for furnishing inaccurate particulars of income can be validly levied in this case. In that view of the matter, impugned penalty cancelled. - Decided in favour of assessee. - ITA No. 699/Chd/2011 - Dated:- 9-3-2016 - SHRI H.L.KARWA, HON'BLE VICE PRESIDENT For The Appel lant By : Sh. Rakesh Jain For The Respondent By : Sh. S.K. Mittal This appeal filed by the assessee is directed against the order of Ld. CIT(A), Karnal dated 24.3.2011 in confirming the penalty of .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

scrutiny and during the course of which, addition in capital account of partners were noticed as under:- (i) Sh. Sunil Choupal (addition in capital ₹ 11,70,000/-) (ii) Sh. Sudhir Choupal (addition in capital ₹ 5,65,000/-) During the course of assessment proceedings, the Assessing Officer required the assessee firm to explain the sources of addition in capital account of partners made during the year under consideration. The assessee firm vide its reply dated 7.12.2007 submitted the e .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d from Sh. Pritpal Singh ₹ 100000/- Cash loan received from Sh. Phool Singh ₹ 100000/- Addition out of current year income ₹ 65000/- The Assessing Officer accepted the explanation of the assessee regarding the source of addition in capital account to the extent of ₹ 3,15,000/- (Rs. 1,50,000/- + ₹ 65,000/-). In other words, the Assessing Officer accepted the explanation of the assessee regarding ₹ 1 lakh being the amount withdrawn from B.S. Enterprises, ₹ .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ii) Out of current year income - ₹ 1,01,000/- (iii) Cash loans received from certain friends and relatives - ₹ 3,14,000/- Out of ₹ 5,65,000/-, the Assessing Officer accepted the explanation of the assessee regarding the source of addition in capital account to the extent of ₹ 2,51,000/-. However, the Assessing Officer did not accept the explanation of the assessee regarding cash loans received from friends and relatives to the extent of ₹ 3,14,000/- 3. The Assessing .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

red ₹ 11,69,000/- as income of the firm from undisclosed sources, subject to no penalty u/s 271(1)(c) of the Act. Thus, the Assessing officer made the addition of ₹ 11,69,000/- as income of the firm from undisclosed sources u/s 68 of the Act. The addition was made in the assessment order passed u/s 143(3) of the Act, dated 20.12.2007. 4. The Assessing officer initiated the penalty proceedings u/s 271(1)(c) of the Act and issued a show cause notice u/s 274, read with section 271(1)(c) .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

he return filed and the verification made therein is false and held that assessee is liable to penalty u/s 271(1)(c) of the Act. The Assessing officer levied the minimum penalty of ₹ 4,27,770/- u/s 271(1)(c) of the Act. 5. Aggrieved by the order of the Assessing officer, the assessee carried the matter in appeal before the CIT(A) and the Ld. CIT(A) confirmed the penalty imposed by the Assessing officer and, hence, the assessee is in appeal before the Tribunal. 6. I have heard Shri Rakesh J .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

made by the partners. The Assessing officer made the addition of ₹ 11,69,000/- out of total contribution of partners to the extent of ₹ 17,35,000/- made in the assessee firm. He emphasized that the creditworthiness of the creditors to advance the money cannot be judged with reference to each entry of the creditor. He further pointed out that the assessee firm has started its production from January, 2005. In order to substantiate the said claim, the assessee has filed certain docume .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e source of the capital introduced and in case having failed to discharge the onus then such deposits could be added in the hands of the partners only, while assessee firm started its production from January, 2005. He further submitted that the Assessing officer has levied impugned penalty overlooking that assessee firm has no other sources of income after the execution of partnership deed on 7.11.2003 to December 2005 and the assessee has not undertaken any business of whatsoever nature upto Ja .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the assessee firm. 7. Shri S.K Mittal Ld. DR submitted that one of the partner Shri Sunil Chopal vide his letter dated 18.12.2007 of the firm has surrendered ₹ 11,69,000/- as undisclosed income of the firm of the assessment year 2005-06. He, therefore, submitted that in view of the surrender made by the assessee firm, the Assessing officer was right in imposing the penalty u/s 271(1)(c) of the Act on the amount of ₹ 11,69,000/-. 8. I have carefully considered the rival submissions a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

arise in assessment proceedings. It is true that the penalty can be imposed in a given case but the entirety of circumstances must be taken into account. In the case of CIT v. Ishtiaq Hussain (1998) 232 ITR 673 (All.), the Hon'ble Allahabad High Court held that the findings given in the assessment proceedings would be relevant and admissible materials in penalty proceedings, but those findings cannot operate as res judicata because the considerations that arise in penalty proceedings are dif .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nder:- "18.12.2007 To The Income Tax Officer, Ward-III, Yamunanagar Sub: Assessment proceedings in the case of M/s Chopal Plywood assessment year 2005-06. Respected Sir, I, hereby surrender the following amounts subject to no penalty (a) Addition in the capital account of Shri Sunil Chopal partner M/s Chopal Plywood in the FY 2004-05 is ₹ 1,17,000.00 - out of this I hereby surrender ₹ 8,55,000/- as Loan introduced in the capital a/c of Shri Sunil Chopal. (b) Addition in the capi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

. Goel)" 9. In view of the above letter, the Revenue authorities concluded that the firm itself has surrendered the income as income of the firm. Furthermore, the Assessing officer stated that the offer of surrender is not applicable because the same was made after detecting / pointing out the unexplained credit in the capital account of the partners by the Revenue. It is also observed that the Revenue authorities relied on the findings given in the assessment order, wherein it was mentione .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ntion of the assessee that addition on account of unexplained capital cannot be made in the case of the firm being it is the first year of the firm. According to CIT(A), the assessee firm itself offered the amount as unexplained capital introduced in the hands of the partners as income of the firm. Shri S.K. Mittal Ld. DR supported the above reasons given by the Revenue authorities while holding the assessee guilty u/s 271(1)(c) of the Act. It is worthwhile to state here that the case of the ass .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

partners Amount Remarks Date Chq No./cash through which payment to firm by partner amount 4.4.2004 Gift from Sh. Sunder Lal Chaupal in cash 85,000 Disputed by Assessing officer 4.4.2004 Cash 85,000 6.4.2004 Cash withdrawn from B.S. Enterprises 1,00,000 Accepted by Assessing officer 6.4.2004 cash 1,00,000 20.4.2004 Gift from Sh. Sunder Lal Chaupal in cash 1,00,000 Disputed by Assessing officer 20.4.2004 cash 1,00,000 26.4.2004 Wheat Sale in cash 15,000 Accepted by Assessing officer 26.4.2004 cas .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

lture income in cash 1,00,000 50,000 Disputed by Assessing officer. Accepted by Assessing officer 13.7.2004 Chq No. 410302 1,50,000 15.7.2004 Cash loan recd from Pritpal Singh. Cash loan received from Phool Singh 1,00,000 1,00,000 Disputed by Assessing Officer. Disputed by Assessing Officer 15.7.2004 Chq No. 410302 2,00,000 Similarly, the details of capital introduced and sources of capital of Shri Sudhir Choupal, the submissions of the assessee are as under:- Date Source from whom amount receiv .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

,000/- Disputed by Assessing Officer 28.5.2004 Cash loan from friends & relatives 2,50,000/- disputed by Assessing officer 13.7.2004 Chq No. 160448 2,50,000 10. On a perusal of the assessment order, it is clear that Assessing officer made the addition of ₹ 8,55,000/- in the hands of the firm out of ₹ 11,70,000/- on account of capital introduced by Shri Sunil Choupal. Similarly, the Assessing officer made the addition of ₹ 3,14,000/- in the hands of the firm out of ₹ 5 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ings. However, in quantum proceedings, while making the addition on account of unexplained cash credits, such findings may be relevant. In the instant case, the Revenue authorities have accepted that out of ₹ 17,55,000/-, ₹ 5,66,000/- has been deposited by the partners in their respective capital account. In other words, the Revenue authorities below have accepted partly that the partners have deposited the money in their respective capital account. Now, this aspect of the matter is .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

firm to produce the above six persons to enable him to verify the genuineness of its claims but the assessee firm failed to produce these persons. Similarly, the assessee firm also submitted the affidavits of all the persons from whom Shri Sudhir Choupal (partner) had taken loans. However, the assessee failed to produce these persons in order to verify the genuineness of the cash loans and, therefore, the Assessing officer drew the adverse inference against the assessee firm. In the instant case .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

racted litigation, therefore, Shri Rakesh Jain, Ld. Counsel for the assessee submitted that imposition of penalty u/s 271(1)(c) of the Act was not justified. He also pointed out that as per the partnership deed dated 7.11.2003, no partner was authorized to make any statement, declaration and surrender in income tax proceedings on behalf of the other partners of the firm. According to him, the partner was not authorized to make the surrender which may be against the provisions of Indian Partnersh .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ee firm has started its production from January 2005, which fact is evident from the purchase and sale bills and assessment order under Haryana VAT Act, 2003. The contention of Shri Rakesh Jain, Ld. Counsel for the assessee is that the firm has started its business from January 2005. In the assessment order at page-1, the Assessing officer has admitted this fact that the assessee started its production during January, 2005. The relevant observations made by the Assessing officer at page 1 of the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

m has received capital from partners during the period 1.4.2004 to 13.7.2004, as per the details reproduced herein above, i.e. before the assessee firm started its business in January, 2005. Thus, it was for the partners to explain the source of the capital introduced and in case of having been failed to discharge the onus, then such deposits could be added in the hands of the partners of the firm; particularly when the assessee firm started its business in January, 2005. There is no evidence on .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ssee firm before the assessee firm started its production, therefore, deposits cannot be taken to be income of the firm from undisclosed sources. In the case of India Rice Mills v CIT (1996) 218 ITR 508 (All), the Hon'ble High Court held (head note) as under:- "The Tribunal should have taken note of the fact that all the deposits aggregating to ₹ 1,43,000 represented the capital contribution of the partners in the firm and they were made before the firm started its business. It wa .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d its business only after the credits had been made in its books. The Tribunal was not correct in law in invoking s. 68/69 and treating the sum as income from undisclosed source of the petitioner-firm when the petitioner-firm had not yet even commenced its business - CIT Vs. Kapur Bros. (19790 10 CTR 208 : (1979) 118 ITR 741 (All): TC42R. 1396 distinguished." In the above case, the Hon'ble Allahabad High Court ruled that the partners of the assessee firm made capital contribution before .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e's books be added in the hands of the assessee. There was no material before the Tribunal to hold that the capital introduced by the minor partner at the time of starting of the business, was income of the assessee-firm. The Tribunal erroneously came to the conclusion that the deposits represented undisclosed income of the assessee-firm. All the three authorities below committed the same mistake and in this regard their orders cannot be allowed to stand." 12. At this stage, I may also .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

, first sale bill of the assessee firm is dated 1.1.2005. Admittedly, the assessee firm is manufacturing and trading in plywood. The Assessing officer himself has admitted that the assessee firm had started its production from January 2005. There is no dispute that the partners introduced the capital in the assessee firm during the period between 1.4.2004 to 31.7.2004, which is before the firm started its business in January, 2005. Thus, authorities below were not justified in holding that unexp .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

014, wherein the Hon'ble High Court concluded that where there was no intention on the part of the assessee to conceal the income and assessee had agreed to offer sundry credits which were carried forward from the previous year as income as a measure of purchasing peace, imposition of penalty u/s 271(1)(c) of the Act was not justified. In the instance case also, the contention of the Revenue is that one of the partners of the assessee firm has surrendered ₹ 11,69,000/- as undisclosed i .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Thereupon the assessee agreed for treating those two amounts as 'income'. Accordingly, the addition was made in the assessment order and tax was paid on the said addition. The Assessing officer initiated penalty proceedings u/s 271(1)(c) of the Act, proposing to levy penalty, in respect of above two amounts. The Assessing officer imposed the penalty u/s 271(1)(c) of the Act. On appeal, the CIT(A) accepted the plea of the assessee holding that there was no intention on the part of the ass .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t must be established. If not a deliberate intention, at least, intention, as such, must be proved to be existing. The intention of this nature may not be equated to the concept of mens rea. At the same time, the minimum contrast with an instance of mere omission, or failure must be made. Otherwise, every inadvertent omission, or a bona fide understanding of a particular provision, which is not accepted by the Income Tax Officer may expose the assessee to penalty. If that time is pursued, Act ma .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ing tax. The very fact that quite large number of remedies in the form of appeals at various stages is provided for, discloses that even the understanding of the assessing or adjudicatory authorities; not absolute. The levy of penalty is not going to leave the matter at that. It would expose the assessee to prosecution also by treating him as an economic offender. An assessee can be made to suffer such far reaching consequences, if only facts of the case support, and it emerges that the assessee .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of very word concealment. That can occur, only when the person is in full knowledge of the state of affairs and even while being under obligation to make it known to others, and in particular the authorities under the Act fails or refuses to do so. It is then, and only then, that he can be said to have concealed and once the factum of concealment is proved, his attempt to voluntarily disclose it does not save him. In the instant case, we do not find any ingredients of concealment. We do not fin .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version