Income Tax Appellate Tribunal - Ahmedabad
Smt. Ramilaben Ratilal Shah vs Assistant Commissioner Of Income-Tax on 15 October, 1997
ORDER
Nathu Ram, A.M.
1. The appeal preferred by the assessee is directed against the order of the CIT(A) for the asst. yr. 1984-85 confirming the penalty levied at Rs. 2,12,834 under s. 271(1)(c).
2. The facts in brief are that the assessee filed a return for the asst. yr. 1984-85 declaring total income at Rs. 37,510 on 30th June, 1984. The assessee derived income from the share of profit from the firms M/s Vijay Corpn., Vijay Kumar Nilesh Kumar and Nilesh Kumar Mohanlal and also income from other sources. The income declared was accepted by the AO under s. 143(1) on 21st January, 1987.
3. There was a search in the case of her husband Shri Ratilal H. Shah at their residence on 6th November, 1985 and during the course of search there was found and seized among others one telephone-cum-address diary containing 1 to 53 pages. Page No. 53 of the diary was written in Gujarati and its verbatim translation in English is as under :
"S.Y. 2039 Sravan-sud-5 and Saturday dt. 13th August, 1983 (August), the first floor of the house property at Athugar Street Nanpura, Surat admeasuring about 1512 sq. ft. purchased from Shri Jagdish Bhai for Rs. 3,76,121. An agreement to sale dt. 7th October, 1983."
As per the entires so made in the diary the assessee purchased a house property from Shri Jagdish Bhai for a consideration of Rs. 3,76,121 but its value in her balance sheet as well as in wealth tax return for the asst. yr. 1985-86 was shown at Rs. 1,90,221. There was thus found a difference of Rs. 1,85,000.
4. During the course of search in the statement recorded under s. 132(4) the assessee failed to give necessary details about the property purchased and the party from whom it was purchased. She however admitted the ownership of the property and claimed to have shown it in her records. Shri Ratilal, husband of the assessee in the statement recorded under s. 132(4) claimed that the diary belonged to him but he also showed ignorance about the said entry made in the diary about the purchase of the property. The said entry was also not found to be recorded either in the hands of the assessee or in the hands of her husband Shri Ratilal. It is also mentioned here that the Department during the course of search also seized certain valuables from her husband and in the order passed under s. 132(5) in the case of her husband Shri Ratilal on 4th March, 1986. The difference of Rs. 1,85,900 paid in the purchase of the said property was held as representing the unexplained investment of her husband Shri Ratilal since the assessee did not have full information about the purchase of the property.
5. The AO while finalising the assessment of Shri Ratilal for the asst. yr. 1984-85 noted that the assessee Smt. Ramilaben in her statement recorded was not found fully aware about the purchase of the property and because of her lack of knowledge the AO held the view that everything was done by her husband Shri Ratilal. Since no concrete evidence could be found during the course of search to prove the assessee as benami of her husband in purchase of the property he made an addition of Rs. 1,85,900 in the case of her husband Shri Ratilal on protective basis in the order passed under s. 143(3) on 24th March, 1987. While completing the assessment the ITO also initiated penalty proceedings under s. 271(1)(c).
6. The addition so made was confirmed by the first appellate authority in the hands of her husband Shri Ratilal with the observations that since assessment/reassessment in the case of assessee Smt. Ramilaben has not yet been made the addition made is confirmed on protective basis. The first appellate authority thus decided the appeal in the case of Shri Ratilal by his order dt. 29th March, 1988. The AO also levied penalty at the minimum leviable at Rs. 1,23,160 under s. 271(1)(c) in the case of Shri Ratilal, husband of the assessee.
7. The AO initiated reassessment proceedings in the case of the assessee under s. 147(a) by issue of a notice under s. 148 on 31st March, 1989 to assess the income escaped of Rs. 1,85,900 on account of difference found in the purchase of the said property. The AO has noted that during the course of assessment proceedings when the assessee's husband was confronted with the entry made in the diary he stated that they have paid the sale consideration for the property as per document but he was not aware about the noting made in the telephone diary. The assessee in the statement recorded at the time of search deposed that she purchased the house but she did not remember the actual cost paid, and the party from whom it was purchased. She, however, admitted that in her wealth tax return for asst. yr. 1985-86 the value of the house property purchased was shown at Rs. 1,90,221 correctly. When confronted with the entry made in the diary the assessee showed her ignorance and claimed that she did not know whose handwriting it was. She also showed ignorance about the party from whom the property was purchased. During the course of assessment proceedings she appeared before the AO on 5th January, 1990 and submitted that the said residential property was acquired out of her own resources. She also claimed that she is partner in the firm M/s Vijay Corpn. and was being assessed to tax for the last 20 years. She denied her handwriting and that of her husband in the said entry made in the diary. She also filed an affidavit dt. 4th January, 1990 reiterating the ownership of the property and denied having made any 'on money' payment in the purchase of the property. The AO also summoned and recorded the statement of Shri Jagdish Bhai, seller of the property. He denied having received any amount other than what was written in the sale document. He also emphasised that the statement of assertion of an opposite party is not binding on him under the law. He however admitted that the said property was co-owned by him along with his four brothers and it was sold to the assessee on the 1st August, 1983. He admitted having received payment of Rs. 1,76,121 by cheque and the same was deposited in the bank account but he could not recollect in whose bank account it was deposited without looking into the books. He however denied having received any 'on money' or unaccounted amount on sale of the property. The AO was not satisfied with the explanation offered and evidence given and made the following observations :
(i) The content on page No. 53 of the telephone/address diary is too clear and lucid to leave any scope for the doubt.
(ii) It does not give rise to any other interpretation or ambiguity.
(iii) The payment of consideration of Rs. 3,76,121 is mentioned explicitly and with precise details like exact date and day of payment. It may be interesting to mention that the date of payment is mentioned as per S.Y. as well as C.Y. Since the diary in question was seized from the residence of Shri Ratilal H. Shah, the presumption becomes the diary and its writing is of Shri Ratilal H. Shah, himself. However, while accepting the ownership of diary, its writing has been disowned by Shri Ratilal H. Shah.
Even though handwriting of the diary does not tally with handwriting of either Shri Ratilal Hazarimal Shah or the assessee Smt. Ramilaben R. Shah, the facts remained that its contents refer to property at Athugar Street, Nanpura, Surat and no other property.
(iv) If 'on money' had not been paid there was no occasion to mention the content in the diary as it is done painstakingly".
In view of the above facts, the AO made the addition of Rs. 1,85,900 in the hands of the assessee in substantive basis while completing the reassessment under s. 143(3) on 28th February, 1990. While completing the assessment the AO also initiated penalty proceedings under s. 271(1)(c) in regard to concealed income of Rs. 1,85,900 among others.
8. On appeal, the first appellate authority confirmed the addition made with the following observations :
"I have considered the facts and the appellant's submissions. The AO has adopted the value of the purchase consideration as given in the diary seized as a result of the action under s. 132 in the case of the appellant's husband. Despite sufficient opportunity given by the AO the appellant has not been able to prove as to how the purchase consideration mentioned in details in the diary can be disbelieved. It is an established principle that the facts which are self-evident need no further proof. Considering the detailed narration given in the diary, the AO's action in adopting the purchase price of the flat at Rs. 3,76,121 stands confirmed. Considering the totality of the facts discussed in detail in the impugned assessment order, the addition of Rs. 1,85,900 stands confirmed".
9. The Tribunal dismissed the appeal of the assessee against the order of the CIT(A) on the issue for the reasons recorded in para 10 of the order dt. 9th March, 1992 in ITA No. 4249/Ahd/90. The Tribunal also deleted the addition made on protective basis in the case of her husband Shri Ratilal in its aforesaid order. The Tribunal has however referred the following questions of law arising out of the order of the Tribunal for the opinion of the Hon'ble Gujarat High Court in its order dt. 2nd February, 1993 in RA No. 422/Ahd/1992 :
1. Whether, in the facts and circumstances of the case, the Tribunal was right in holding that reopening of the assessment under s. 147(a) of the IT Act, 1961 could not be reagitated after the said point was consciously waived by the assessee vide letter dt. 10th August, 1990 submitted to the CIT(A) ?
2. Whether, on the facts and circumstances of the case, the Tribunal was right in law in holding that the assessing authority had jurisdiction to initiate proceedings for reassessment under s. 147(a) of the Act ?
3. Whether, on the facts and circumstances of the case, the Tribunal was justified in confirming the addition of Rs. 1,85,900 representing the difference between purchase price of the first floor of the house property at Athugar Street, Nanpura, Surat as recorded in the seized diary and the purchase price shown in the agreement for purchase of the said property ?"
10. During the course of penalty proceedings initiated under s. 271(1)(c) in the case of the assessee it was explained on behalf of the assessee that the consideration paid is duly recorded in the books of accounts and no 'on money' was paid. A noting found in the telephone diary has no evidential value when books of account does not support it. Books of account and other accounts maintained are verifiable and as such no undue importance should be attached to the contents of the seized diary. It was also contended that entry in the diary of Rs. 3,76,121 in place of Rs. 1,76,121 is attributed to slip of pen and unintentional jotting in the seized diary and as a matter of fact it should be read as 1,76,121 in place of Rs. 3,76,121. It was also claimed that onus is on the Department to explain the source of such controversial entry and to prove the same as correct. It was also contended that the finding given in the assessment proceedings is relevant and admissible material but such finding cannot be operated as res judicata because the penalty proceedings are different from those of assessment proceedings. Even if the explanation offered is disbelieved and amount is assessed it does not ipso facto justify imposition of penalty. It was therefore pleaded that there was no conscious or deliberate concealment of income on the part of the assessee and accordingly penalty for concealment is not called for. In support, following decisions were cited :
1. Pullengode Rubber Products Co. Ltd. vs. State of Kerala (1970) 91 ITR 18 (SC)
2. J. S. Palkar vs. V. B. Palkar (1974) 94 ITR 616 (Bom)
3. CIT vs. Balkrishna (1981) 130 ITR 138 (Mad)
4. Bhagirath vs. CIT (1983) 139 ITR 902 (MP)
5. Banaras Textorium vs. CIT (1988) 169 ITR 782 (All)
6. CIT vs. Khoday Easwarsa & Sons (1972) 83 ITR 369 (SC)
7. CIT vs. Anwarali (1970) 76 ITR 696 (SC) The AO reiterating the facts recorded in the assessment order and those in the appellate orders held the view that the facts and material on records are strong enough to prove the explanation offered as false and therefore, the case is covered by cl. A to the Expln. (1) to s. 271(1)(c). The AO, therefore, imposed penalty at 200 per cent. of the tax sought to be evaded on the concealed income of Rs. 1,85,900 which worked out to Rs. 2,12,834 vide his order dt. 8th January, 1991 made under s. 271(1)(c).
11. On appeal the first appellate authority considering the arguments advanced on behalf of the assessee noted that looking to the contents of the diary seized the reliance placed by the assessee in the judgment of the Hon'ble Supreme Court reported in (1970) 76 ITR 696 (SC) (supra), (1972) 83 ITR 369 (SC) (supra) and (1987) 168 ITR 705 (SC) (supra) is of no help. He also noted that in the case of Rukmani Bahu vs. Addl. CIT, the Hon'ble Allahabad High Court has observed that the Supreme Court judgments reported in (1970) 76 ITR 696 (SC) (supra) and (1972) 83 ITR 369 (SC) (supra) related to the provisions of s. 28(1)(c) of the Indian IT Act, 1922 and s. 271(1)(c) of the 1961 Act before its amendment in 1964 and the principles laid down in both the judgments of the Hon'ble Supreme Court applies to the penalty proceedings under s. 271(1)(c) prior to its amendment in 1964 when from 1st April, 1964 the word 'deliberately' was omitted from s. 271(1)(c) and Explanation was added. He further observed that similar view is taken by the Hon'ble Patna High Court in the case of CIT vs. Nathulal Agarwala & Sons (1985) 153 ITR 292 (Pat) (FB). The first appellate authority having so observed and considering the entry made in the seized diary about the sale consideration paid for purchase of the property at Rs. 3,76,121 against that recorded at Rs. 1,90,221 confirmed the penalty levied at Rs. 2,12,834. The assessee is now in appeal before us against the finding so given by the first appellate authority.
12. The learned counsel for the assessee reiterating the submissions made before the lower authorities has submitted that in the penalty order it has been mentioned that Explanation given is false and so the case is covered by cl. (A) of Expln. (1) to s. 271(1)(c) and so inference be drawn that the penalty has been levied by invoking the Explanation. The CIT(A) confirmed the penalty levied on the footing that assessee's case is covered by Expln. to s. 271(1)(c). He invited our attention to the notice issued under s. 274 r/w s. 271(1)(c) of the IT Act and pointed out that the AO has neither tickmarked or specified whether the show cause notice issued was for concealing the particulars of income or for furnishing inaccurate particulars of income. There is no mention made in the show cause notice issued about invoking the Expln. to s. 271(1)(c). The assessee was thus denied opportunity of being heard about invoking Expln. (1) to s. 271(1)(c) while levying penalty and accordingly the penalty levied is invalid. In support he has cited the decision in the case of CIT vs. P. M. Shah (1993) 203 ITR 792 (Bom), wherein on identical facts the penalty levied under the Explanation was not held sustainable. He has further submitted that since in the show cause notice Expln. to s. 271(1)(c) was not invoked, burden was on the Revenue to prove concealment of income. The addition made on account of unexplained investment in the property was treated as deemed income under s. 69A but that would not automatically lead to inference that income has been concealed. There is otherwise no proof adduced by the Revenue to prove concealment of income and in the absence of any such evidence the penalty under s. 271(1)(c) could not be imposed and in support he placed reliance on the decision in the case of CIT vs. Dharamchand L. Shah (1993) 204 ITR 462 (Bom), wherein it was found that penalty was imposed under s. 271(1)(c) merely on the ground that certain additions were made in assessment proceedings on agreed basis and since the AO failed to invoke provisions of Expln. to s. 271(1)(c) penalty was held not leviable. He also placed reliance on Tribunal decisions reported in (1994) 49 ITD 583 (Nag) and (1995) 54 ITD 694 (Mad). He further submitted that for levying penalty for concealment of income, conscious concealment has to be proved by the Revenue. He sought support in this regard from the decisions reported in (1970) 76 ITR 696 (SC) (supra) (1972) 83 ITR 215 (SC) (supra) and (1972) 83 ITR 369 (SC) (supra). The learned counsel further argued that there can be deemed income but there cannot be deemed concealment unless the case is brought under any of the Expln. to s. 271(1)(c) he relied upon the judgment in the case of CIT vs. Vinay Chand Harilal (1979) 120 ITR 752 (Guj), wherein it was held that unexplained demand draft encashed by the assessee taxed under s. 69A does not attract penalty under s. 271(1)(c). He also sought support from the Tribunal decision in the case of Patel Engg. Co. vs. ITO (1988) 31 TTJ 134 (Ahd), wherein it was held that before considering whether there was conscious concealment or default the finding in respect of deemed income on account of unexplained investment have to be converted into an actual income of the year. He further cited the decision of the Hon'ble Gujarat High Court in the case of CIT vs. Baroda Tin Works (1996) 221 ITR 661 (Guj), wherein it was held that fiction created under s. 68, 69, 69A and 69C by itself cannot be extended to penalty proceedings to raise a presumption about concealment of such income. According to the learned counsel, the source of the income of the assessee was from share income from registered firms and interest income. The assessee as well as her husband were not running any business in proprietorship. There is otherwise no direct material or evidence to prove that the assessee concealed any income earned during the year. The deemed income which has been taxed in the hands of the assessee cannot be said to be belonging to the assessee.
12.1 The learned counsel has further argued that even if it is assumed that the AO has rightly invoked Expln. (1) to s. 271(1)(c) the decisions cited above still hold good as the presumption raised by Explanation has been rebutted on the basis of balance of probability. The learned counsel has further submitted that the said entry was found recorded in telephone-cum address diary. The diary was obviously not meant for recording the financial transactions. The said entry gives the date of transaction as 13th August, 1983, but it also mentioned the date of agreement for sale as 7th October, 1983. The agreement executed on 7th October, 1983, in fact shows the sale consideration at Rs. 1,76,121 whereas sale consideration shown in the said entry of 13th August, 1983, is at Rs. 3,76,121. This in itself is contradictory. The agreement found at the time of search showed sale consideration at Rs. 1,76,121. There was no agreement found showing sale at Rs. 3,76,121 on search. According to the learned counsel the entry made in the diary was neither in the hand of assessee nor in the hand of her husband and whoever recorded such entry through a slip of pen he mentioned 3 in place of 1 in the figure of lakh. The explanation so offered is most plausible. Moreover, the party who sold the property has denied having received any amount over and above the consideration shown in the sale documents. The explanation so offered fully rebuts the presumption raised under the Explanation.
12.2 Arguing further, the learned counsel has pointed out that the CIT(A) confirmed the penalty by leading case law wherein penalty for concealment was sustained on the basis of Explanation inserted from 1st April, 1964. This Explanation has since been deleted w.e.f. 1st April, 1976 and new Expln. (1) inserted. However, the principles laid down by Courts in the case of Explanation inserted from 1st April, 1964, hold good also for the purpose of Expln. (1) inserted from 1st April, 1976. The Courts have held that Explanation only lays down rule of evidence but the presumption under Explanation can be rebutted. Once the initial burden cast on the assessee as per Expln. (1) is discharged the burden shifts to the Department to prove that the explanation offered is false and in support he has placed reliance on the following decisions :
1. CIT vs. Mussadilal Ram Bharose (1987) 165 ITR 14 (SC)
2. CIT vs. K. Sadayappan (1990) 185 ITR 49 (SC)
3. CIT vs. Jeevan Lal Shah (1994) 205 ITR 244 (SC)
4. CIT vs. S. P. Bhatt (1973) 92 ITR 705 (Guj)
5. CIT vs. Drapco Electric Corporation (1980) 122 ITR 341 (Guj)
6. CIT vs. Nathulal Agarwala & Sons (1985) 153 ITR 292 (Pat) (FB)
7. Viswakarma Industries vs. CIT (1982) 135 ITR 652 (P&H) (FB)
8. CIT vs. Hari Ram Sri Ram (1987) 167 ITR 578 (All)
9. Saraf Trading Corpn. vs. CIT (1987) 167 ITR 909 (Ker)
10. CIT vs. P. M. Shah (1993) 203 ITR 792 (Bom).
The learned counsel has further pointed out that the Tribunal in the case of ITO vs. Bakul Cashew Co. (1988) 27 ITD 197 (Coch) has held that decisions though rendered under the old Expln. to s. 271(1)(c) the ratio thereof would apply with equal force in respect of Expln. (1) to s. 271(1)(c) also. Similar view is expressed in the case of ITO vs. Arun Kumar Bhuwalka (1992) 40 ITD 373 (Cal) that the principles laid down by the Supreme Court in the case reported in 165 ITR 14 (supra) are applicable with equal force while construing the provisions of Expln. (1) and its proviso to s. 271(1)(c).
12.3 The learned counsel has further submitted that the assessee filed the original return on 30th June, 1984, and as such the law that would be applicable is the law that was prevailing at that time [CIT vs. Omkar Saran & Sons (1992) 195 ITR 1 (SC) and Varkey Chacko vs. CIT (1993) 203 ITR 885 (SC)]. As per pre-amended Expln. (1) the assessee shall be deemed to have concealed income if (A) he offers no explanation or the assessee offers an explanation which the AO considers to be false; or (B) the assessee offers an explanation which he is not able to substantiate. However, in respect of (B) there is proviso to Expln. (1) which provides that if the explanation is Bona fide and all facts and material to the computation of total income have been disclosed nothing contained in Expln. (1) shall apply. The assessee discharged the onus cast upon it. The assessee as well as her husband denied having given any 'on money' in respect of the property in the statements recorded under s. 132(4) itself. The statement recorded under s. 132(4) were spontaneous and were given without any kind of preparation. These statements should, therefore, be believed to be true particularly when the assessee and her husband gave similar statements about the property without any contradiction.
12.4 The learned counsel has also submitted that the presumption under s. 132(4A) does not apply to the assessee as the warrant of authorisation under s. 132(1) was in the name of her husband Ratilal. Even otherwise presumption under s. 132(4A) cannot be extended to penalty proceedings without independent enquiry connecting the information with guilty frame of mind as held by the Tribunal in the case of P. K. N. Narayanan vs. ITO (1994) 48 TTJ 125 (Coch) wherein reliance was placed in the case of Pushkar Narayan Shroff vs. CIT (1990) 183 ITR 388 (All).
12.5 According to the learned counsel the AO invoked Expln. (1A) to s. 271(1)(c) on the basis that there was in fact difference of Rs. 1,85,900 and not of Rs. 2,00,000. As the evidence has been fabricated the explanation given is false. Had the AO believed the difference of Rs. 2 lakh he would not have held that the explanation was false. Moreover, the Tribunal has granted reference under s. 256(1) to the Gujarat High Court on questions of law raised about the addition confirmed of Rs. 1,85,900 based on the said entry in the diary. Placing reliance in the case of Diamond Trust Investment (P) Ltd. vs. Asstt. CIT (1994) 51 ITD 123 (Bom) he has submitted that grant of reference under s. 256(1) or 256(2) can be one of the valid considerations for cancelling the penalty levied under s. 271(1)(c). So the explanation offered was not false as it was not disproved although it may be treated as unproved. The burden to prove that explanation is false rests on the Department.
12.6 The learned counsel has also pointed out that the IAC (Acqn) on receipt of necessary information from the registration authority asked for necessary information about the purchase of the property and on the assessee having made full compliance the IAC (Acqn) did not initiate acquisition proceedings about the property purchased. This implies that apparent consideration shown in the sale deed was found correct as per prevailing market rate giving no cause for acquisition proceedings.
12.7 The learned counsel has further submitted that though the addition has been sustained by the Tribunal based on the said entry in the diary seized but for levy of penalty for concealment further corroborative evidence was required to establish the said amount as concealment of the current year. Moreover, levy of penalty is not the automatic consequence of the addition sustained. In the absence of sufficient material the penalty is liable to be cancelled. In support he placed reliance on the following decisions :
1. CIT vs. Devi Dayal Aluminium Industries (P) Ltd. (1988) 171 ITR 683 (All)
2. ITO vs. P. Palaniswamy (1986) 26 TTJ (Mad) 42 : (1986) 16 ITD 529 (Mad)
3. Raj Engg. Co. vs. ITO (1988) 17 ITD 171 (All)
4. ITO vs. Moti Ram Subhash Chand Jain (1988) 27 ITD 44 (Del)
5. Doon Roller Flour Mills (P) Ltd. vs. IAC (1989) 31 ITD 238 (Del)
6. Kishan Gupta vs. ITO (1989) 31 ITD 448 (Del)
7. V. Ramachandra Rao vs. ITO (1990) 33 ITD 650 (Hyd)
8. ITO vs. Kumar Metal Industries (1991) 36 ITD 261 (Bom)
9. Smt. Shanta Kumari vs. ITO (1991) 38 ITD 175 (Del)
10. Nuchem Ltd. vs. Dy. CIT (1994) 49 ITD 441 (Del)
11. Nathu Ram & Co. vs. ITO (1994) 50 ITD 360 (Chd)
12. Diamond Trust Investment (P) Ltd. vs. Asstt. CIT (1994) 51 ITD 123 (Bom)
13. Ram Motors vs. ITO (1995) 54 ITD 542 (Del)
14. Eagle International Ltd. vs. Asstt. CIT (1996) 57 ITD 512 (Cal)
15. Anand Smart & Co. vs. ITO (1994) 50 TTJ 611 (Hyd) 12.8 The learned counsel has also submitted that the Department made addition on account of 'on money' paid for purchase of property in the hands of the assessee in substantive basis and also in the hands of her husband, Ratilal, on protective basis. Penalty for concealment has also been levied in both the cases though in the case of the husband, penalty was levied only at the rate of 100 per cent. of the tax sought to be evaded whereas in the case of the assessee penalty levied was at 200 per cent. The learned counsel has further contended that as per s. 271(1)(c), the AO should be satisfied in the course of assessment proceedings that the assessee concealed particulars of income or furnished inaccurate particulars of income. As per decisions in the case of Ram Commercial Enterprises Ltd. vs. Addl. CIT (1995) 52 ITD 147 (Del), satisfaction of the AO during assessment proceedings is a condition precedent for imposition of penalty. Further, as per the decision in the case of Asstt. CIT vs. Oriental (1995) 22 ITD 631 (Ind), it is necessary for the AO to entertain satisfaction in the assessment proceedings that there is concealment of income and such concealment of income is for the concerned assessment year. Since additions were made in the case of the assessee as well as her husband it cannot be said that the AO was satisfied only about the concealment of income in the case of the assessee. It is also pointed out that in the case of the assessee penalty proceedings were initiated where the addition in the case of her husband was subsisted. Since the satisfaction of the AO about the concealment of income was not exclusively in the case of the assessee and such satisfaction being precedent to initiation of penalty proceedings the initiation of penalty and consequent levy of penalty was not valid.
12.9 The learned counsel has, therefore, pleaded that both on facts and in law the penalty levied in the case of the assessee being neither justified nor valid deserves to be cancelled.
13. The learned Departmental Representative on the other hand, strongly relied on the orders of the lower authorities and further submitted that the said entry found recorded in the diary seized shows the sale consideration of the property at Rs. 3,76,121 whereas the assessee showed the apparent consideration paid only at Rs. 1,76,121 as per the sale documents. This is a clinching evidence establishing unexplained investment to the extent of Rs. 1,85,900 in purchase of the property and the lower authorities were fully justified in levying and confirming the penalty under s. 271(1)(c) particularly when the addition made was sustained by the Tribunal. In support, the learned Departmental Representative placed reliance on the following decisions :
1. Banaras Textorium vs. CIT (1988) 169 ITR 782 (All);
2. Capital Cinema vs. CIT (1989) 179 ITR 628 (P&H);
3. Addl. CIT vs. Motisingh (1983) 144 ITR 133 (MP);
4. CIT vs. Shri Pavankumar Dalmia (1987) 168 ITR 1 (Ker);
5. Badri Prasad Om Prakash vs. CIT (1987) 163 ITR 440 (Raj);
6. D. Vaman Padmanabh vs. CIT (1952) 22 ITR 339 (Nag);
7. CIT vs. Anwar Ali (1970) 76 ITR 696 (SC);
8. CIT vs. Prathi Hardware Stores (1993) 203 ITR 641 (Ori).
The learned Departmental Representative further made a submission that the Expln. to s. 271(1)(c) has rightly been invoked and looking to the facts and case law cited the penalty levied is fully justified and the same requires no interference.
14. We have given considerable thought to the facts, material on records, rival submissions and also gone through the various papers and documents placed in the compilation to which our attention was invited during the course of hearing. Various decisions cited have also been perused. We find that the assessee was partner in the firms M/s Vijay Corpn., M/s Vijaykumar Nileshkumar and Nileshkumar Mohanlal and was receiving share income and also income from interest. She agreed to purchase the property involved co-owned by S/Shri Vinod Chandra Hasmukhlal, Jagdishchandra and Vymeshchandra and Pradipkumar for a consideration of Rs. 1,76,121 as per agreement executed on 7th October, 1983. The payment was made from the firm M/s Vijay Corpn. through cheque to various co-owners as per the details below :
Sr. No. Amount Name Date
Rs.
1. 5,001 Vinodchandra Ramanlal 07-10-1983
2. 10,224 Vinodchandra Ramanlal 14-10-1983
3. 15,224 Hasmukh Ramanlal 14-10-1983
4. 15,224 Jagdish Ramanlal 14-10-1983
5. 15,224 Vyomesh Ramanlal 14-10-1983
6. 15,224 Pradip Ramanlal 14-10-1983
7. 20,000 Hasmukh Ramanlal 23-11-1983
8. 20,000 Jagdish Ramanlal 23-11-1983
9. 20,000 Vyomesh Ramanlal 23-11-1983
10. 20,000 Pradip Ramanlal 23-11-1983
11. 20,000 Vinodchandra Ramanlal 31-08-1984
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1,76,121 Total amount
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The amount paid was debited to her share capital account by the firm Vijay Corpn. The sale deed for transfer of the property was, however, executed on 31st August, 1984. The assessee during the current year paid total amount of Rs. 76,121 to the vendors and this is reflected in her balance sheet for the current year as asset under property account. The balance amount of Rs. 1 lakh was paid in the following asst. yr. 1985-86. Apart from payment made of Rs. 1,76,121 to the vendors she also incurred expenses on stamp paper at Rs. 14,100. Thus, the total investment in the property was at Rs. 1,90,221 and this is reflected in her balance sheet for the asst. yr. 1985-86 under property account.
15. The assessee filed a return declaring total income at Rs. 37,510 on 30th June, 1984 along with necessary documents such as computation of income, capital account, balance sheet, etc. The return so filed was accepted under s. 143(1) on 21st November, 1987. During the pendency of return there was a search in the case of her husband at the residential premises on 6th November, 1985, and during the course of search there was found and seized a telephone-cum-diary containing 1 to 53 pages and on page No. 53 of the diary the said house property was shown as purchased from Shri Jagdishbhai, one of the co-owners, for Rs. 3,76,121 as per agreement to sale dt. 7th October, 1983. The assessee at the time of search admitted and having purchased such property as per the sale document but she showed her ignorance about the consideration paid, date of purchase and the party from whom purchased. She also denied having paid any 'on money'. Her husband Shri Ratilal in his statement at the time of search also denied having paid any amount over and above the apparent consideration. The AO also examined Shri Jagdishbhai, one of the co-owners of the property, and he also denied having received any 'on money' beside the apparent consideration. The assessee as well as her husband Shri Ratilal when confronted with the entry made about the transaction in the diary denied any knowledge thereof and also denied having recorded the same in their own handwriting. It has also been admitted by the Revenue that the said noting was not made in the diary either by the assessee or by her husband. When required to explain the discrepancy between the sale consideration shown in the noting and that shown in the sale deed it was explained that the sale consideration as recorded in the agreement as well as the sale deed is Rs. 1,76,121 whereas in the said noting the sale consideration shown is Rs. 3,76,121. It was explained that possibly it was through slip of pen that figure '3' was written in place figure '1' in the figure of lac and claimed that this was a bona fide mistake. Moreover, the amount has been written only in figure and not in words and since the noting was made by a third person the figure of lakh was recorded wrongly through slip of pen. We also note that in the said noting apart from mentioning the sale consideration at Rs. 3,76,121, it also refers to the purchase as per sale agreement dt. 7th October, 1983. Sale agreement was found at the time of search which provided sale consideration at Rs. 1,76,121 and not Rs. 3,76,121. When there is a mention of sale consideration and sale agreement in the same noting the sale amount referred should have been the same but it was not so. There is thus a contradiction in the said noting made.
16. The Department examined Shri Jagdishbhai about the 'on money' paid if any but it seems no enquiry was made by the Revenue from other co-owners of the property though payment was made to all the co-owners as per details nor any enquiry was made about the deposits or investments made by the co-owners during the relevant period so as to see the unexplained investment if any on account of 'on money' received as alleged. There is, therefore, no evidence brought on record to corroborate the sale consideration shown in the said noting made in the diary of sale consideration of Rs. 3,76,121. On the other hand, evidence recorded of the assessee as well as her husband at the time of search and later on under s. 131 affidavit given by the assessee, evidence recorded of Jagdishbhai, one of the co-vendors and agreement to sale and also the sale deed is sufficient enough to believe that the property was purchased for the apparent consideration of Rs. 1,76,121 and there is preponderance of probabilities that the third person while making the noting in the diary through slip of pen had written figure of lakh '3' in place of '1'. The explanation offered is considered to be reasonable and bona fide though the assessee could not substantiate the explanation offered by leading any evidence but the same has also not been disproved by the Revenue by bringing any corroborative material on record by showing actual payment at Rs. 3,76,121 in place of 1,76,121. It is also worth noting that the said noting about the purchase of the property was made in telephone-cum-diary which is meant to be kept alongside the telephone instrument and not at a secreted place. Had the assessee actually paid Rs. 3,76,121 against the sale consideration recorded at Rs. 1,76,121 in the agreement to sale and sale deed such noting could not have been made in telephone diary but would have been made on other papers to be kept secret. The diary was also not meant for keeping such records. The evidence of noting in the diary may be sufficient for making addition in the total income on account of unexplained investment but looking to the other material evidence available and also the circumstantial evidence it is not considered sufficient enough to hold the assessee guilty of concealment of income for the purpose of levy of penalty under s. 271(1)(c) of the IT Act.
17. As regarded the validity of penalty levied we find that the AO while initiating penalty proceedings under s. 271(1)(c) recorded his satisfaction about the concealment of income. However, in the show cause notice issued under s. 274 r/w s. 271(1)(c) the assessee was charged with the following :
"Have concealed the particulars of income or furnished inaccurate particulars of such income."
The charge thus made against the assessee in the show cause notice was not precise and definite as to whether it was for concealing the particulars of income or for furnishing inaccurate particulars of income. While the first situation proceeds on the ground that the particulars of income have not at all been furnished the latter proceeds on the footing that such particulars had been furnished but the same were found inaccurate. Both these situations cannot be together and obviously mutually exclusive. The position being so, it is but necessary on the part of the AO to give a clear show cause as to whether he is going to impose the penalty for concealment of particulars of income or for his failure to furnish accurate particulars of such income. This view is supported by the decision of the Tribunal in the case of Navinbhai M. Patel vs. ITO 27 ITD 411 (Ahd) and decision of the Hon'ble High Court in the case of CIT vs. Manu Engg. Works (1980) 122 ITR 306 (Guj) and K. M. Bhatia (Quarry) vs. CIT (1991) 193 ITR 379 (Guj). The AO in the present case was not precise about the charge while giving the show cause notice and as such the penalty levied is liable to be cancelled on this score alone, the show cause notice given being invalid.
17.1 As mentioned above the AO initiated penalty proceedings for concealment of income/furnishing of inaccurate particulars of income. However, he imposed penalty under cl. (A) to Expln. (1) to s. 271(1)(c). Thus, the basis for issuing show cause notice for levy of penalty was concealment of income or furnishing inaccurate particulars of income under s. 271(1)(c) but the AO levied the penalty under Expln. (1) to s. 271(1)(c). The penalty thus levied under Expln. to s. 271(1)(c) was, therefore, without affording opportunity of being heard under Expln. to s. 271(1)(c). It is clear from the provisions of s. 271(1)(c) that the Explanation makes a considerable difference to what was contained in s. 271(1)(c). For proper appreciation Expln. (1) to s. 271(1)(c) is reproduced hereunder :
Explanation (1) : Where in respect of any facts material to the computation of the total income of any person under this Act -
(A) such person fails to offer an explanation or offers an explanation which is found by the AO or the Dy. CIT(A) or the CIT(A) 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 persons as a result thereof shall, for the purposes of cl. (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed."
It would be seen that the Explanation creates a legal fiction in certain circumstances to the effect that the assessee is deemed to have concealed the particulars of income or furnished inaccurate particulars of income in the circumstances set out therein and but for such a legal fiction it could never have been said that there was any concealment of income. The Explanation also shifts the burden of proof to the assessee. Therefore, when the Explanation is invoked by the AO in the penalty proceedings it is essential on the part of the AO to inform the assessee that penalty proceedings against him have been commenced under Expln. 1 to s. 271(1)(c). This view is fully supported by the decision in the cases of CIT vs. P. M. Shah (1993) 203 ITR 792 (Bom), Auto Bharti vs. ITO (1994) 49 ITD 583 (Nag), CIT vs. Dr. T. N. Venkataraman (1995) 54 ITD 694 (Mad). In view of the ratio of these decisions the penalty levied under Expln. 1 to s. 271(1)(c) is not legally valid and the same deserves to be struck of on this count also.
18. We also note that Form No. 37G submitted before the registration authority about the sale of the property was received by the IAC (Acqn) and thereon the IAC (Acqn.) in his letter dt. 17th January, 1985, required the assessee to furnish necessary documents relating to the sale of property such as agreement to sale, deed of conveyance, etc., and in response the assessee in her letter dt. 29th January, 1985, furnished copy of conveyance deed, copy of agreement to sale, details about the date on which documents were presented before the registration authority, etc. As mentioned above, the agreement to sale and deed of conveyance showed the sale consideration at Rs. 1,76,121. The IAC (Acqn.) having regard to the prevailing market price took no action for acquisition of the property from which it implies that the IAC (Acqn.) was satisfied about the apparent consideration shown at prevailing market price. There is no evidence brought on record by the Revenue also to establish that market price of the property involved was more than that shown in the sale documents.
19. We also note that though the Tribunal has sustained the addition made of Rs. 1,85,900 on the basis of the said noting made in the diary seized but the Tribunal consequently has made a reference to the Hon'ble Gujarat High Court under s. 256(1) of the IT Act raising questions of law as reproduced elsewhere for opinion. The decision of the Tribunal on the addition made is subject to the ultimate opinion given by the Hon'ble High Court and therefore, it is not final at this stage. The Revenue has imposed penalty based on the finding given in the assessment about the addition made. Since the addition made has not yet become final some further evidence was required to prove and establish the concealment and there being no additional evidence brought on record during penalty proceedings the penalty levied cannot be justified.
20. We have also perused the various case laws cited by the Revenue in support of the penalty levied and we find that the facts of those cases are different and distinguishable and ratio of those decisions are not fully applicable to the present case. Moreover, in the case reported in (1989) 179 ITR 628 (P&H) (supra), (1988) 169 ITR 782 (All) (supra), (1982) 144 ITR 133 (MP) (supra), (1987) 168 ITR 1 (Ker) (supra) penalty has been levied invoking the old Explanation under s. 271(1)(c), i.e., for the period prior to 1st April, 1976 and since the present case falls in the later period the ratio of those decisions is otherwise not applicable.
21. Having considered all the facts and circumstances of the case we are of the opinion that it is not a fit case for levy of penalty under s. 271(1)(c) both on facts and law and accordingly the same is directed to be cancelled.
22. In the result the assessee's appeal is allowed.