TMI Blog2003 (2) TMI 158X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee which as per the assessee's books of account were as follows:-- Name of the party Assessment year Amount involved S.D. Parikh 1980-81 Rs. 25,000 M.M. Goel 1980-81 Rs. 25,000 M/ s. Harish Trading Corpn. 1982-83 Rs. 25,000 Chandrakant P. Shah 1982-83 Rs. 50,000 3. By application dated 29-6-1983 the assessee filed a petition under section 273A before the learned CIT, Bombay City VIII, Bombay, declaring additional income of Rs. 35 lakhs and odd which included the surrender of claim of loans received in the names of various parties. Thereafter notices under section 148 were served upon the assessee for a large number of assessment years. The learned CIT, however, vide his order dated 29-10-1985 rejected the assessee's petition under section 273A on the ground that the disclosure made by the assessee was not voluntary. On completion of reassessments under section 147 the Assessing Officer initiated penalty proceedings under section 271(1)(c). Subsequently, penalties were imposed in the following manner:-- Assessment year Am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loans are genuine. As pointed out by the learned counsel for the assessee, the assessee has not been allowed capitalisation of this additional amount subjected to tax. The assessee has paid taxes on the additional income disclosed of more than Rs. 15lakhs. A perusal of the reports of field/investigation officer shows that they were satisfied that the disclosure was voluntary and made before any enquiry in this direction of loans was conducted. The assessment orders were made only on the basis of settlement petition, there is nothing in them to show that besides this petition certain other material vis-a-vis these loans was detected by the revenue or found in course of action under section 132. Except, in the case of the following four parties, viz., (1) M/s. Harish Trading Corpn., Rs. 25,000 Assessment year; 1982-83 (2) S.D. Parikh Assessment year; 1980-81 Rs. 25,000 (3) M.M. Goel Assessment year; 1980-81 Rs. 25,000 (4) Chandrakant P. Shah 1982-83 . Rs. 50,000 As per the report of the ITO dated 19-6-1985 placed by the Departmental Representative on record, these parties denied having advanced any of the above loans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... maximum rate, the minimum imposable for that year being only Rs. 36,792. 5. Aggrieved by penalty orders the assessee preferred appeal before the learned CIT(A). The learned CIT(A) concurred with the findings of the Assessing Officer and dismissed the appeals filed by the assessee for both these years. Still aggrieved, assessee is in appeal before us. 6. During the course of hearing before us, the learned authorised representative of the assessee addressed us at large on the merits of the case and relied upon large number of Court pronouncements. In nutshell, the learned authorised representative of the assessee argued that merely because assessee's explanation regarding cash credit was not accepted, did not justify levy of penalty under section 271(1)(c). The assessee had agreed to assessment of additional income only with a view to buy peace and the same did not signify admission of any concealed income on the part of the assessee. He argued that after considerable length of time, the assessee could not be burdened with the onus to prove the cash credits. A number of case laws were relied upon for these propositions. He in particular emphasised the judgments of Hon'ble Suprem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to have his say at that stage itself but he chose to surrender the amounts in the wake of the enquiry made by the Department. Thereafter when the assessee was granted further opportunity, the assessee did not avail of the same merely under the pretext of lapse of time. Under the provisions of Explanation 1 to section 271(1)(c), burden to prove that there was no concealment entirely lay upon the assessee. This explanation was applicable on the assessee all along whether or not he surrendered the amounts voluntarily or otherwise. The learned DR placed reliance on the Hon'ble Supreme Court judgment in the case of K.P. Madhusudhanan v. CIT [2001] 251 ITR 99 in this respect. 8. We have carefully considered the rival submissions. In this case we have not heard an appeal against the original orders of penalty under section 271(1)(c) made by the Assessing Officer. As pointed out earlier, the Assessing Officer levied penalty under section 271(1)(C) involving huge amounts for a very large number of assessment years. The same were heard together by ITAT, Bombay Bench 'C' and all the contentions of the assessee, on merits, were considered and after consideration the Tribunal was agreeable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is that while from the surrender of additional income with a view to buy peace the Department cannot infer concealment, the burden would nonetheless remain on the assessee to be discharged during the course of penalty proceedings under section 271(1)(c), and to establish that the additional income as surrendered did not represent concealed income of the assessee. Thus, after having surrendered the amounts of cash credits during the course of assessment proceedings the assessee was free all along to establish that the cash credits were genuine. It was for this purpose that the matter had been remitted back to the Assessing Officer but the assessee failed to avail of further opportunity directed to be given to it by the Tribunal. 10. We shall now deal with the contention of the assessee that penalty orders passed by the Assessing Officer on 31-3-1992 are barred by limitation of time. The learned authorised representative of the assessee has placed reliance on the provisions of section 275(1)(a) in this respect. The limitation of time envisaged under the provisions of section 275(1)(a) is in respect of penalty orders to be made for the first time. It is not the case of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case. Originally a penalty under section 271(1)(c) was levied on the assessee on account of addition of loan amount and interest paid thereon and the appeal preferred with the CIT(A) was dismissed. The assessee preferred 2nd appeal to the Tribunal against the said Order of the CIT(A). The Tribunal Bombay vide their Order dated 15-3-1990 for the assessment years 1972-73 to 1985-86 allowed substantial relief to the assessee and accepted the contention of the assessee that additional income had been disclosed by the assessee in petition under section 273A of the Act mainly with a view to buy peace and the same do not indicate concealment of income in all other aspects except the four cash creditors in respect of which the creditors denied having made loan to the assessee. The Tribunal noted that as per the submissions of the Ld. Counsel for the assessee, copies of their confessional statements were not made available to the assessee, thus denying to it the chance of cross-examination. The Tribunal therefore in so far as penalty relatable to these four parties for the assessment years 1980-81 and 1982-83, remitted the matter back to ITO with the directions to give adequate opportuni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enuine loans is far too strong and dismissed the appeals of the assessee. Against this Order passed by the CIT(A), the assessee is in appeal before us. 3. Before concentrating on the merits of the case I want to make it clear that in my view the contention of the assessee that penalty Orders passed by the Assessing Officer on 31-3-1992 are barred by limitation of time, has no force. I agree to the legal ground of limitation of time as detailed in para No. 10 of the proposed Order of my Ld. Brother rejecting the plea of the assessee relating to limitation of time. 4. On merits of the case, in my considered opinion the assessee in the facts of the case cannot be penalised for concealment of income under section 271(1)(c) of the Act. It is relevant to note that the matter has already been considered and decided by the Tribunal in its first innings wherein it was held by the Tribunal vide its Order dated 15-3-1990 that adequate opportunity of hearing was not afforded to the assessee and accordingly remitted the matter back to the Assessing Officer with the directions to redecide this issue according to law after giving adequate opportunity of hearing to the assessee. In the light o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this case the suspicion of non-genuine loans is far too strong", In my considered view the suspicion howsoever strong can not take place of proof and is not sufficient to uphold the charge of concealment of income, Even on merits of the case since the loans were deposited and repaid per account payee cheques through brokers and the confirmations were filed on record and PAN Numbers of the creditors were filed before the Assessing Officer at the first opportunity during the course of assessment proceedings, in the absence of any proof against the assessee, it cannot be penalised on account of unproved cash credits. The assessee has explained, that it has offered the amount of loan as income purely to buy peace and to avoid litigation and in these facts the ratio of decision of the Hon'ble Supreme Court in the case of Suresh Chandra Mittal is applicable. The Explanation to section 271(1)(c) was not invoked by the Assessing Officer in this case. The decision of the Hon'ble Supreme Court in the case of Suresh Chandra Mittal and in the case of K.P. Madhusudhanan were considered by the Mumbai Tribunal in ITA No. 4016/Mum/2001 dated 21-12-2001 and it was held that in the Act of voluntary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25,000 Chandrakant P. Shah 1982-83 Rs. 50,000 3. In the original assessments, the explanation apropos the cash credit was accepted by the revenue. On 27-4-1983 a search under section 182 of the Income-tax Act, 1961 (hereinafter called 'the Act') was conducted at the premises of the assessee. During the course of the search certain enquiries were made. The aforesaid cash creditors denied having made loans to the assessee. Assessee filed a petition under section 273A of the Act, before the CIT, declaring therein additional income. Among others the aforesaid loans were also surrendered. Petition under section 273A of the Act was rejected on the ground that it was not voluntary. Penalties were levied for the assessment years 1972-73 to 1985-86. Tribunal, vide its order dated 15-3-1990 accepted the fact that the additional income was disclosed by the assessee mainly with a view to buy peace and the same did not indicate concealment of income in all the years, except for the years 1980-81 and 1982-83. In respect of these assessment years, creditor denied having made loan to the assessee. It was found that confessional statements were not made available to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffers an explanation which is found by the Assessing Officer or the Commissioner (Appeals) to be false, or (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 been concealed. Provided that nothing contained in this Explanation shall apply to a case referred to in clause (B) in respect of any amount added or disallowed as a result of the rejection of any explanation offered by such person, if such explanation is bona fide and all the facts relating to the same and material to the computation of his total income have been disclosed by him." 7. As because penalty was levied on the basis of the confession made by the creditor, as such the learned AM invoked the Explanation 1. He found the explanation offered in the context as false and bereft of bona fide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ajinder v. State of Haryana JT 1995 (5) SC 272, 283 has held that Court has to endeavour to separate the grain from the chaff and accept that part (sic). 11. As per Explanation 1, if the Assessing Officer finds that the explanation offered by the assessee is false, then penalty can be levied on the amount which is found to be concealed therefore, the whole idea behind Explanation 1 is that the Assessing Officer has to first record reasons for arriving at a conclusion that there is a failure on the part of the assessee. Hence, after seeking an explanation if the authority comes to a conclusion that it is false, then the Assessing Officer can proceed to levy the penalty. Therefore, this Explanation cast a duty on the Assessing Officer that he should first record reasons that there has been concealment of income and then the explanation is sought. These are the basic requirements of natural justice desired by the Legislature for providing this Explanation. Therefore, the initial burden is on the Department to prima facie record that there was concealment and thereafter the explanation is to be sought and in case the explanation is found to be false, then to the extent the income is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vide its judgment dated July 26, 2001 affirmed the view taken by the Hon'ble Madhya Pradesh High Court in the case of Suresh Chandra Mittal. The following order is passed:-- "We have read the order of the High Court and the statement of case. Given the facts and circumstances, we do not think that any interference with the order of the High Court is called for." 13. Adverting to the decision of the Apex Court rendered in the case of K.P. Madhusudhanan learned Departmental Representative submitted that this decision was rendered on August 21, 2001. Hence, the ratio of this decision is to be followed. In this case, assessee took certain Bank drafts for payments to suppliers of rice in Andhra Pradesh. Entries were made in the accounts not on the dates on which the drafts were obtained but a few days later. It was explained that sufficient cash balance was not available on those dates. Loans were obtained from friends. These loans were payable within a short time, as such no entries were made in the books. Since the assessee was unable to furnish evidence of such loans, it offered the amount for addition. Penalty proceedings were initiated. Assessing Officer did not accept the expl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e parties were not directly known to the assessee. In the context of the provisions of section 68 of the Act, it would not be out of place to mention that one has to keep in mind the legal maxim:--'LEX NON COGIT AD IMPOSSIBILIA" (which means the law does not compel a man to do which he cannot possibly perform). Experiencing these difficulties the assessee surrendered the amount for taxation. As said in the petition, the purpose was to buy peace and avoid litigation. Indisputebly the loans were deposited and repaid by account payee cheques. Confirmations were filed. These confirmations bear the Permanent Account Numbers of the creditors. Assessing Officer did not record any finding that the explanation offered by the assessee was false and the bona fide was not proved. As such, the conditions precedent for invoking Explanation 1 to section 271(1)(c) of the Act did not exist in the facts and circumstances of the present case. Once it is held that the case of the assessee falls beyond the ken of Explanation 1 to section 271(1)(c), the conclusion is irresistible that the case does not come within the sweep of the ratio laid down by the Apex Court in the case of K.P. Madhusudhanan. It c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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