Income Tax Appellate Tribunal - Agra
Hari Om Kumar Umesh Chand vs Income-Tax Officer on 17 October, 2001
Equivalent citations: [2001]257ITR121(AGRA)
ORDER
Keshaw Prasad, Accountant Member
1. The appeal has been directed by the assessee against confirming the penalty of Rs. 70,000 under Section 271(1)(c) of the Act pertaining to the assessment year 1989-90.
2. Briefly the facts of the case are that the return of income was filed declaring the income at Rs. 58,200. However, the assessment was completed on an income of Rs. 1,72,300 by making two additions, namely, the addition of Rs. 45,000 on account of peak investment in the purchase of drafts and further addition of Rs. 69,100 on account of extra profit by applying the provisions of Section 145 of the Act. The Assessing Officer initiated proceedings under Section 271(1)(c) of the Act, accordingly. As no appeal was filed against such addition, the Assessing Officer issued a show-cause notice as to why the penalty under Section 271(1)(c) may not be imposed. In reply, the assessee stated that the assessee was engaged in the cloth business. Various cloth dealers from the villages approach the assessee to purchase the drafts. They give the cash to the assessee, who purchases the draft in his name. The list of persons for whom the drafts were purchased, were also submitted before the Assessing Officer. All the six persons on behalf of whom, drafts have been purchased, were in the cloth business for so many years. Their addresses were also furnished. They have also confirmed that they did not have any bank account in the city and, therefore, they requested the assessee to purchase drafts in his name. The six parties supplied money to the assessee for purchase of such drafts. Even, two persons were produced before the Assessing Officer for examination. The assessee, therefore, claimed that even if the assessee was not able to substantiate his explanation, his explanation was bona fide in view of various evidences on record. Thus, in view of the Explanation 1 to Section 271(1)(c), no penalty was imposable on this amount.
3. Regarding the trading addition, it was claimed that while rejecting the books of account of the assessee the Assessing Officer had estimated the sales as well as rate of gross profit. Thus, the addition made by the Assessing Officer was only an estimated addition, no penalty on this addition was also called for. Reliance was placed on the decisions reported in Addl. CIT v. Mohd. Shafi Mohd. Nabi [1991] 192 ITR 102 (All) ; CIT v. Gurudayalram Mukhlal [1991] 190 ITR 39 (Gauhati); CIT v. Dajibhai Kanjibhai [1991] 189 ITR 41 (Bom) and CIT v. Ratanlal Surekha [1991] 190 ITR 367 (Cal).
4. However, the explanation furnished by the assessee did not find favour with the Assessing Officer, who imposed penalty of Rs. 70,000 under Section 271(1)(c) of the Act by observing that the assessee has failed to substantiate his explanation.
5. Aggrieved by the order of the Assessing Officer an appeal was filed. The Commissioner of Income-tax (Appeals) also confirmed the penalty against which the assessee is in appeal before us.
6. Learned counsel raised a preliminary objection to the effect that the notice under Section 274 issued by the Assessing Officer did not mention as to whether the penalty being imposed for concealment of income or for furnishing inaccurate particulars of income. He stated that the penalty under Section 271(1)(c) could be imposed for one of the offences and not for both. Reliance was placed on the decision reported in Smt. Ramilaben Ratilal Shah v. Asst. CIT [1998] 60 TTJ 171 (Ahd.). He also argued that in his order, the Assessing Officer has not invoked the explanation therefore was not justified in stating that the assessee has failed to substantiate his explanation.
7. On the merits, learned counsel argued that the penalty can be imposed only if the assessee has concealed the particulars of income or has furnished inaccurate particulars of income. It is also settled law that no penalty can be imposed merely because the assessee has not challenged the addition by way of appeal. The penalty proceedings and the assessment proceedings are two separate proceedings. An addition to the income, does not automatically lead to the conclusion that the penalty under Section 271(1)(c) was mandatory. Reliance was placed on the decision of the Supreme Court in the case of Sir Shadilal Sugar and General Mills ltd. v. CIT [1987] 168 ITR 705. Learned counsel argued that even if it is presumed that the Assessing Officer has invoked Explanation 1 to Section 271(1)(c), both the ingredients of such Explanation were not fulfilled in this case. The Assessing Officer has only held that the explanation furnished by the assessee was not substantiated. The Assessing Officer has not commented as to whether the explanation furnished by the assessee was bona fide or not. In the absence of any adverse comments by the Assessing Officer, it is presumed that the explanation furnished by the assessee was bona fide and no penalty under Section 271(1)(c), was imposable. Learned counsel further argued that on the basis of facts, it is clear that the explanation furnished by the assessee was bona fide. He stated that the penalty has been imposed on the addition of Rs. 45,000 which represented peak investment in the purchase of bank drafts. He stated that during the course of assessment proceedings when the assessee was asked to explain the nature of these drafts, it furnished explanation before the Assessing Officer, which is placed at page 19 of the paper book. The assessee also furnished the list of the persons giving their addresses on behalf of whom the drafts were purchased. All the six persons on behalf of whom, the drafts were purchased were cloth dealers from outskirts area. All of them have confirmed that the assessee purchased the drafts on their behalf and they had supplied money for purchase of the drafts. They had also confirmed that they did not have any bank account from where the bank drafts should be purchased. Two main persons on behalf of whom, the drafts were purchased, were also produced before the Assessing Officer, whose statements were also recorded. In their statements, they have confirmed having advanced money to the assessee for purchase of drafts. It was also stated that the Assessing Officer did not ask the assessee to produce other parties. Even if, there were certain deposits in the accounts of these persons, only they can be asked to explain the sources thereof. Reliance was placed on the decision of the Patna High Court in the case of Sarogi Credit Corporation v. CIT [1976] 103 ITR 344. On the basis of these evidences, learned counsel argued that even if the assessee has failed to substantiate his explanation, its explanation was bona fide. Regarding other addition, learned counsel stated that the assessee has declared a gross profit of Rs. 2.19 lakhs on the total sales of Rs. 38.40 lakhs, which gives a gross profit rate of 5.70 per cent. While rejecting the books of account, the Assessing Officer had estimated the sales at Rs. 48 lakhs and applied a gross profit rate of six per cent. Thus, the addition on account of extra profit was made on estimated basis and no penalty under Section 271(1)(c) can be imposed where additions have been made on estimate basis. Reliance was placed on the decision of the Jaipur Bench of the Tribunal in the case of CIT (Asst.) v. Milap Textile Mills [1994] 74 Tax-Mag 326 and the decision of the Amritsar Bench of the Tribunal in the case of CIT (Asst.) v. Vardhman Traders [1999] 106 Taxman 306 (Tax-Mag). Learned counsel, therefore, argued that the penalty sustained by the Commissioner of Income-tax (Appeals) was not justified and deserves to be cancelled. On the other hand, learned Departmental Representative stated that the assessee has failed to show as to why he was getting drafts prepared in his own name. If the funds were supplied by various customers, the drafts could have been purchased in the name of those respective parties. He also stated that it was for the drafts exceeding Rs. 50,000 that the bank account was needed. As none of the drafts exceeded Rs. 50,000, there was no requirement that the purchaser of the drafts must have a bank account. He, therefore, argued that the bona fide of the explanation has not been proved. The learned Departmental Representative also stated that out of six persons on behalf of whom the drafts were claimed to have been purchased, only two persons could be produced and other four persons, were not produced. This itself shows that the bona fide of the persons have not been proved. The Commissioner of Income-tax (Appeals) was, therefore, justified in sustaining the penalty under Section 271(1)(c) of the Act.
8. We have considered the rival submissions. It is settled law that before levying penalty under Section 271(1)(c) it has to be held that the assessee has either concealed the particulars of income or has furnished inaccurate particulars of income. Merely because, certain amount has been added to the total income of the assessee with the consent of the assessee or the assessees have not preferred any appeal against such addition, such income will not amount to concealed income attracting penalty under Section 271(1)(c). This view was taken by the Supreme Court in the case of Sir Shadilal Sugar and General Mills Ltd. v. CIT [1987] 168 ITR 705. The Delhi Bench of the Tribunal in the case of Nuchem Ltd. v. CIT (Deputy) [1994] 49 ITD 441 and the Jaipur Bench of the Tribunal in the case of S. L Ganeriwal v. ITO [1994] 48 ITD 11 have taken the view that even where the additions were sustained by the Tribunal, it would not ipso facto mean that it was a fit case for penalty under Section 271(1)(c) of the Act.
9. Recently, the Supreme Court has taken the view that for invoking the Explanation to Section 271(1)(c), it was not necessary that the same should be mentioned in the order. The Supreme Court has held that in imposing penalty, the Explanation has been automatically invoked. It appears that the Assessing Officer has invoked Explanation 1 to Section 271(1)(c). This is evident from the fact that in his order, the Assessing Officer has mentioned that the assessee has failed to substantiate his explanation. But for imposing penalty under Section 271(1)(c) it is not enough. Penalty can be imposed only if the assessee has failed to substantiate his explanation and has also failed to prove its bona fide. It is admitted position that the assessee has failed to substantiate his explanation. But what is to be seen was whether the explanation furnishe4 by the assessee was bona fide or not. In case the explanation furnished by the assessee was bona fide, no penalty under Section 271(1)(c) can be imposable even if the assessee failed to substantiate his explanation. We, therefore, examined the facts of the assessee's case. Originally, the assessment was completed by issue of intimation under Section 143(1)(a). The assessment was reopened under Section 147 on the basis of information regarding some cash drafts purchased by the assessee from Canara Bank, Belanganj. During the course of reassessment proceedings, the assessee filed the explanation before the Assessing Officer. It was claimed that the drafts did not concern with the business of the assessee. These drafts were purchased for and on behalf of the village traders, who were unable to deal with the banks. This facility was provided for sales promotion, as all the six parties on behalf of whom the bank drafts were purchased, were the customers of the assessee. In order to prove that the drafts were purchased on behalf of the six parties the assessee furnished the complete address of those parties. Confirmation from them was also furnished. They have also confirmed that they did not have any bank account in the city and, therefore, they requested the assessee to purchase the drafts in its names. Two main persons on whose behalf the drafts were purchased, were also produced before the Assessing Officer whose statements were also recorded. This has been also mentioned by the Assessing Officer as well as the Commissioner of Income-tax (Appeals) in their orders. We find that the Assessing Officer did not ask the assessee to produce the balance parties. We find that this is second year of operation and no such activity of this type was done in the earlier years. All these evidences go to show that the explanation furnished by the assessee was bona fide. Once the addition under Section 69 of the Act, has been made by the Assessing Officer, the onus was on him to prove that it was undisclosed investment of the assessee. This was held so in the case reported in Sarogi Credit Corporation v. CIT [1976] 103 ITR 344 (Patna). None of the persons have denied that the drafts were not purchased on their behalf. Under these circumstances, it could not be said that the assessee has failed to prove that its explanation was bona fide.
10. We are of the opinion that once the explanation furnished by the assessee was bona fide, no penalty under Section 271(1)(c) can be imposed even under Explanation 1 to Section 271(1)(c) of the Act.
11. Similarly, the other addition on the basis of which the penalty has been imposed, was the trading addition. The facts clearly indicate that the trading addition has been made by the Assessing Officer on estimate basis. Whether the penalty was attracted under Section 271(1)(c) where the estimated addition has been made, was considered by the Jaipur Bench and the Amritsar Bench in the cases referred to earlier. In the cases reported in CIT v. B. S. Badve [1982] 138 ITR 682 (Bom); CIT v. Metal Products of India [1984] 150 ITR 714 (P&H); CIT v. Ajay Hari Dalmia [1986] 157 ITR 145 (Delhi) and Bombay Hardware Syndicate v. CIT [1978] 114 ITR 586 (Mad), the courts have taken the view that no penalty under Section 271(1)(c) was imposable on estimated addition because the factum of either concealment of particulars of income or furnishing inaccurate particulars of income, were not proved. Looking to these facts, we are of the view that no penalty under Section 271(1)(c) was imposable even on the trading addition. We, therefore, hold that the Commissioner of Income-tax (Appeals) was not justified in sustaining the addition under Section 271(1)(c) imposed by the Assessing Officer. We, therefore, cancel the same.
12. In the result, the appeal directed by the assessee is allowed.