Income Tax Appellate Tribunal - Mumbai
Ninth Income-Tax Officer vs V.R. Bendre And Co. on 4 May, 1990
Equivalent citations: [1990]34ITD480(MUM)
ORDER
J.P. Bengra, Judicial Member
1. This is an appeal by the revenue against an order of the CIT (A) -1, Bombay, pertaining to the Assessment year 1974-75.
2. The grievance of the Revenue is that the CIT (A) erred in cancelling the penalty of Rs. 98,860 levied by the ITO under Section 271(1)(c) of the Income-tax Act, 1961.
3. The business of the assessee is to represent the agriculturists before the defence authorities or authorised officers with regard to the acquisition of their land and if necessary to represent the case before the Court of Law. For the services rendered, he used to charge a commission of 10% of the compensation payable to the land owners. The case of the assessee was that in order to get clients, he has engaged persons to whom he has in turn paid commission to the extent of 50% of the commission received by him from the clients brought in by such persons. The assessment of the assessee for Assessment Year 1974-75 was completed by the ITO, wherein the assessee was allowed a deduction in respect of commission payment of Rs. 1,11,565 to one Bachubhai Jamnadas & Co. for introducing to assessee three parties, viz. (1) Bilasrai Joharmal and others, (2) Smt. Gaimain Cawasji Trombaywalla and (3) Smt. Dhanbai R. Trombaywalla for representing in High Court matters pertaining to acquisition proceedings in respect of their lands for Military Projects at Mandala and Trombay Villages. These parties paid commission to the assessee at the rate of 10% of the compensation received by them. The case of the assessee was that 50% of the commission received from these parties was paid in turn as commission to M/s. Bachubhai Jamnadas & Co. vide stamped receipt dated 13-4-1973. It is the case of the assessee that a search had taken place in the premises of M/s Bachubhai Jamnadas and during the search, Shri Bachubhai Jamnadas made a statement denying the receipt of the commission from the assessee. On the basis of this statement made by Jamnadas in the proceedings under Section 132 of the IT Act, ITO of the assessee reopened the assessment of assessee under Section 147A of the IT Act. Since the said Jamnadas denied the receipt of commission from the assessee, the assessee instead of going into litigation, in order to buy peace with the Department, offered this amount of Rs. 1,11,565 for taxation as the income of his firm. Since the assessee had agreement for levying tax on this amount of Rs. 1,11,565 by inclusion as his income, the ITO initiated proceedings under Section 271(1)(c) read with Section 274 of the IT Act. As he was not satisfied with the reply received from the assessee against the proposal for the levy of penalty, he levied a penalty of Rs. 98,860 under Section 271(1)(c) of the Act. In his reply, the assessee submitted that he has agreed to the disallowance of the commission only to buy peace with the department and there was no element of income to the assessee and there was no inaccurate furnishing of particulars of income by the assessee, and therefore, provisions of Section 271(1)(c) 'are not attracted. Rejecting the contentions of the assessee, ITO, as stated above, levied a penalty of Rs. 98,860.
4. Before the CIT(A) on appeal it was contended for the assessee that the assessee has not concealed any particulars of income and has not furnished any inaccurate particulars of such income. He has paid commission to M/s. Bachubhai Jamnadas by cheque and under stamped receipt and the assessee received even a letter of acknowledgement of the cheque, besides other correspondence. However, Shri Jamnadas in the course of proceedings in his premises under Section 132 of the Act, gave a statement that he has not received any commission. In view of this fact, in order to avoid litigation and with a view to buy peace with the Department, assessee had agreed to the disallowance to this commission and offered this amount for taxation, though the fact remains that commission was paid all and the particulars relating to the commission were furnished to the ITO at the time of the original assessment proceedings and considering the same ITO allowed this commission. However, this original decision of ITO was reversed by the successor ITO merely on the confessional statement of Shri Bachubhai Jamnadas during the proceedings under Section 132, and the assessee under several compulsions, as stated above, thought it expedient to offer the amount for taxation. But, it does not mean that this amount represents concealed income of the assessee. According to the counsel for the assessee, the ITO has not examined the land owners and did not make any investigations with the land owners whose names, the assessee had given to verify whether they were introduced to the assessee by Shri Bachubhai Jamnadas or not. It was submitted that since the assessee agreed for disallowance of this commission and offered the same for taxation though commission was in fact paid to Bachubhai Jamnadas, since Jamnadas denied having received it in the course of proceedings under Section 132, only to avoid litigation and to buy peace the assessee has not concealed any income, nor has he furnished any inaccurate particulars of the income and therefore, provisions of Section 271 (1)(a) are not attracted. Considering these submissions of the assessee and the fact that the assessee had not sought to capitalise this amount as the payment had actually been made to Shri Bachubhai Jamnadas, the CIT(A) following the decision of Supreme Court in the case of Anantharam Veerasinghaiah & Co. v. CIT [1980] 123 ITR 457, and the Calcutta High Court decision in the case of Bhagwanji Bhawanbhai & Co. v. CIT [1983] 141 ITR 640, deleted the penalty levied by the ITO. Revenue is aggrieved and has come in appeal before us.
5. Learned departmental representative, Shri Keshav Prasad very vehemently argued that the fact that the assessee himself had offered this amount for taxation makes it clear that this is the concealed income of the assessee and therefore no more proof is required, and the ITO was consequently right in levying the penalty under Section 271(1)(c).
6. As against this, learned counsel for the assessee, Shri Khurana, pointed out that the particulars of commission and the parties who were introduced by M/s. Bachubhai Jamnadas and Co. were before the assessing officer at the time when he had made the original assessment. It is pointed out that these payments were made by cheque and stamped receipt was obtained from Shri Bachubhai Jamnadas, which was brought to the notice of the ITO at the time of original assessment and the position was again reiterated again at the time of reassessment and the penalty proceedings. Since raid has taken place in the premises of Shri Bachubhai Jamnadas and papers connected with this commission were found in his possession, he denied the receipt of commission and the confession should not have been believed and thorough investigation should have been made in the matter, since assessee had named the parties introduced by M/s. Bachubhai Jamnadas & Co. as stated above. He submitted that it was the duty of the ITO to have examined the land-owners and verify from them whether they were introduced to the assessee by M/s. Jamnadas & Co. Having not done so, it cannot be said that the burden cast on the department was discharged and consequently case cannot be made out for levy of penalty. Even though the assessee himself offered this amount for taxation for several reasons as stated above, the onus lies on the department to prove that the amount now offered for taxation is concealed income of the assessee or that the assessee has furnished inaccurate particulars of his income, which the department has failed to prove. It is also submitted that the assessee is an old man with over 65 years of age. The firm which was running business of the assessee was dissolved and partners thought it proper in the circumstances to avoid protracted litigation and to buy peace with the Department and therefore, this amount was offered for taxation. It is also pointed out that a petition under Section 273 A was moved, but the same was rejected by the CIT(A) on a mere technical ground without going into the merits of the case. Continuing his arguments, the learned counsel for assessee pointed out that the amount offered for taxation has not been capitalised by the assessee, nor was this amount available with the assessee for making any investment. He submitted that the assessee has documentary proof to establish the genuineness of the transaction, which are filed in pages 25 to 30 of the paper-book. However, in order to avoid litigation, assessee has offered the amount on his own for taxation, which should not mean that the assessee should be fastened with penalty. In this connection, reliance was placed on the decision of Supreme Court in the case of Anantharam Veerasinghaiah & Co. (supra), on the decision of Calcutta High Court in the case of Bhagwanji Bhawanbhai & Co. (supra) the decision of Punjab & Haryana High Court in in case of (Krishan Lal Shiv Chand Rai v. CIT[l973]88 ITR 293; the decision of Madhya Pradesh High Court in the case of Addl. CIT v. Jeewandas Gyanchand [1983] 144 ITR 881; the decision of Calcutta High Court in the case of CIT v. Amalendu Paul [1983] 13 Taxman 325, the decision of Allahabad High Court in the case of CIT v. Net Ram Ram Swarup [1973] 88 ITR 213; the decision of Supreme Court in the case of CIT v. Ashoka Marketing Ltd. [1976] 103 ITR 543; the decision of Madhya Pradesh High Court in the case of Ratanlal Ramprasad v. CIT[1983] 139 ITR 64; the decision of Orissa High Court in the case of Bhajuram Ganpatram v. CIT [1970] 75 ITR 285; the decision of Calcutta High Court in the case of CIT v. M.B. Engg. Works (P.) Ltd. [1985] 22 Taxman 173; the decision of Bombay High Court in the case of CIT v. Balraj Sahani [1979] 119 ITR 36; the decision of Patna High Court in the case of CIT v. Novelty Bar & Restaurant [1985] 154 ITR 338/22 Taxman 402 the decision of Delhi High Court in the case of Addl. CIT v. Free Wheels India Ltd. [1982] 137 ITR 378; the decision of Andhra Pradesh High Court in the case of Addl. CIT v. Sarvaraya Textiles Ltd. [1982] 137 ITR 369; the decision of Supreme Court in the case of Sir Shadilal Sugar & General Mills Ltd. v. CIT [1987] 168 ITR 705/33 Taxman 460A; the decision of Kerala High Court in the case of CIT v. Pawan Kumar Dalmia [1987] 168 ITR 1/35 Taxman 136.
7. We have considered the rival submissions. The factual position in this case is very much clear. Section 271(1)(c) is applicable, where it is proved that the assessee has concealed the particular income, or furnished inaccurate particulars of such income. In this context, we have to see whether in the given facts and circumstances, the case of assessee falls within the provisions of this section. From the facts of the case on file, it is clear that the assessee was carrying on business of representing land owners before the military authorities and courts of law, with regard to the acquisition of their lands in Mandala and Trombay villages, for military projects of Government of India. For the services rendered, the assessee was charging commission at the rate of 10% of the compensation realised by the landowners. The assessee was maintaining its books of accounts and bank account for that purpose. It is the case of the assessee that whenever clients are introduced by parties, he gave 50% of the commission received by him to such parties. One such party was M/s. Bachubhai Jamnadas & Co., who introduced three parties, whose names were given as above. Assessee accordingly passed on 50% of the commission received from these parties to M/s. Jamnadas & Co. It is not in dispute that at the time of the original assessment, assessee was allowed deduction in respect of this commission paid to M/s. Bachubhai Jamnadas & Co. It is also not disputed that a raid has taken place on the premises of the said M/s. Jamnadas & Co., during the course of which the receipt of this commission was denied when papers in connection with the same were found by the revenue authorities. On the basis of this statement of Shri Bachubhai Jamnadas, assessment of the assessee was reopened and during the reassessment proceedings, assessee in order to avoid litigation and to buy peace with the department, since Shri Bachubhai Jamnadas denied the receipt of commission, agreed to its inclusion in his income and offered the same for taxation. Since assessee offered this amount for taxation, proceedings under Section 271(1)(c) were initiated and penalty was levied as stated above. In this connection, first of all, it is necessary to see the bona fides of the assessee with regard to the payment of the commission. To prove his bona fides, the assessee has produced a letter dated 20-9-1972 addressed to M/s. Bachubhai Jamnadas & Co. agreeing to given i.e., 1/2 of the processional charges as commission and the reply to that letter of M/s. Bachubhai Jamnadas and Co. dated 27th October, 1972, which is at page 26 of the paper-book agreeing to the said commission. There is another letter dated 13th April, 1973, which is filed at page 27 of the paper-book, which forwards the cheque towards the commission, and a stamped receipt filed at page 28, which shows the receipt of the said payment of commission by M/s. Bachubhai Jamnadas & Co. The stamped receipt of M/s. Bachubhai Jamnadas & Co. discloses the GIR. No. A-I/419-B. Besides, the assessee has also filed a copy of a note dated 28th March, 1977 explaining the special circumstances under which commission was paid at 50% of the total fees payable by the clients, and a letter of authority from various land-owners authorising the assessee to represent their cases and to negotiate with Ministry of Defence and Court of Law on their behalf with regard to the compensation due to them on the lands acquisitioned by the Government. Besides all this, the assessee has also filed copy of Income and Expenditure Account, and other statements of accounts, wherein he has shown receipt of professional charges of Rs. 2,26,483.00 on income side and on the expenditure side shown the payment of commission of Rs. 1,12,315.00. These statements also proved that the assessee has been maintaining his regular books of accounts, and that he has been carrying on a business in which he was getting income through commission on the amount of compensation received by the land-owners, out of which he in turn was paying half of such commission, as commission to the parties who introduced such clients to him. As stated above the assessee has produced the Stamped receipt of M/s. Jamnadas & Co., in which Shri Bachubhai Jamnadas has given the GIR No. of the firm. The factual position pointed out by the CIT(A) and narrated above supports the arguments of the learned counsel for the assessee and establishes the bona fides of the assessee with regard to payment of this commission.
8. Now, the question that arises for consideration is where the assessee has offered an amount for taxation and agreed for its inclusion in his total income, whether the provisions of Sub-section (c) of Section 271 (1) would still be applicable. It may be pointed out at the outset that penalty proceedings are distinct and different from assessment proceedings. Findings in the assessment proceedings are not conclusive but are relevant. The entire material available should be considered afresh by the authorities before imposing penalty. Even after the addition of the Explanation to Section 271(1)(c), conscious concealment is necessary. The Explanation provides only a rule of evidence raising a rebuttable presumption in certain circumstances. No substantive right is created or annulled thereby. The substantive law relating to levy of penalty is preserved. The initial burden of proof is cast on the assessee to displace the presumption arising in certain cases. The assessee can discharge the onus either by direct evidence or circumstantial evidence, or both. The cumulative effect of all facts should be taken into consideration. The assessee is entitled to show and establish by the material and relevant facts which may go to affect his liability or the quantum of penalty. The burden is cast on the assessee to prove a negative fact. This can be discharged either by independent evidence led during the penalty proceedings or by a closer scrutiny or appraisal of the existing facts and data available. This will take in even the materials available at the assessment stage. The presumption under the Explanation to Section 271(1 )(c) can be displaced by the assessee proving that the failure to return the correct income did not arise from any fraud or gross or wilful neglect. Similar question has arisen before the Hon'ble Supreme Court in the case of Anantharam Veerasinghaiah & Co. (supra) wherein, the assessee, an abkari contractor, submitted a return disclosing a particular income on a particular turnover. On an examination of the assessee's books, the ITO found that on two dates expenditure was in excess of the disclosed available cash and also noticed cash deposits in the name of certain sendhi shop-keepers. The assessee's explanation was that excess expenditure was met from amounts deposited by some shop-keepers but not entered in the books and alternatively the expenditure incurred earlier had been recorded later; and that cash deposits represented amounts deposited with it as security. This explanation was rejected and the ITO made certain additions to book profits which were reduced by the Tribunal. In the penalty proceedings initiated, the assessee reiterated the explanation, which was rejected and penalty was levied. On these facts, the Hon'ble Supreme Court held as under-
An order imposing a penalty is the result of quasi-criminal proceedings and the burden lies on the revenue to establish that the disputed amount represents income and that the assessee has consciously concealed the particulars of his income or has deliberately furnished inaccurate particulars. Since the burden of proof in a penalty proceeding varies from that involved in an assessment proceeding, a finding in an assessment proceeding that a particular receipt is income cannot automatically be adopted as a finding to that effect in a penalty proceeding. In the penalty proceeding the taxing authority is bound to consider the matter afresh on the material before it and, in the light of the burden to prove resting on the revenue, to ascertain whether a particular amount is a revenue receipt. No doubt, the fact that the assessment order contains a finding that the disputed amount represents income constitutes good evidence in the penalty proceedings but the finding in the assessment proceeding cannot be regarded as conclusive for the purposes of the penalty proceeding. Before a penalty can be imposed the entirety of the circumstances must be taken into account and must point to the conclusion that the disputed amount represents income and that the assessee has consciously concealed particulars of his income or deliberately furnished inaccurate particulars. The mere falsity of the explanation given by the assessee is insufficient without there being, in addition, cogent material or evidence from which the necessary conclusion attracting a penalty could be drawn.
In the case of Bhagwanji Bhawanbhai & Co. (supra), before the Hon'ble Calcutta High Court, the facts of the case were that the assessees filed a petition under Section 271(4A) in 1965 before the CIT(A) surrendering hundi loans, the peak credit of which was Rs. 2,45,000, with a request to spread it over a period of ten years, and the sum was later brought in the assessee's accounts as its own capital, and the ITO reopened the assessment for the assessment year 1957-58 and also sought to impose penally under Section 271(1)(c). On these facts, the Calcutta High Court observed that the facts and circumstances and the terms and conditions under which the assessee had offered the amount for taxation must be looked into. The mere fact that the assessee had offered an amount for addition, spread over a period in respect of a peak credit of hundis, would not absolve the Revenue from the onus of proving that the amount not disclosed was the income of the assessee in the year in question.
9. In a recent decision in the case of Sir Shadilal Sugar & General Mills Ltd. (supra), the facts involved were that the assessee company derived income from manufacture and sale of sugar, and confectionery. Three items of debit were added to its income. These additions were not challenged by the assessee in appeal, the reason given by the assessee being that though the additions were unwarranted, it wanted to maintain good relations with the Revenue. The IAC imposed a penalty under Section 271 (1)(c) of the Income-tax Act, 1961, finding that the debits were based on false claims. When the question came up for consideration before the Supreme Court, the Hon'ble Supreme Court held as under:-
Held, reversing the decision of the High Court on that question, that the Tribunal had considered all the facts and the admission made by the appellant as well as the time of the admission. The appellant had only accepted certain amounts as taxable; it had not been accepted by the appellant that it had deliberately furnished inaccurate particulars or concealed any income. This was not a case where there was no evidence to support the Tribunal's conclusion. Nor had the Tribunal acted on material which was irrelevant to the enquiry or considered material partly relevant and partly irrelevant or based its decision partly on conjecture, surmises or suspicion. If preferring one view to another view of factual appreciation, the High Court transversed the limits of its jurisdiction on a reference in answering the question that it had reframed against the appellant. From the assessee agreeing to additions to his income, it does not follow that the amount agreed to be added was concealed income. There may be hundred and one reasons for such admission, i.e., when the assessee realises the true position, it does not dispute certain disallowances but that does not absolve the Revenue from proving the mens rea of quasi-criminal offence. Non-application of the evidence may give rise to a question of law but not mere misappreciation, even if there be any from a certain angle. Change of perspective in viewing a thing does not transform a question of fact into a question of law.
From the decisions of the Hon'ble Supreme Court and the Calcutta High Court cited above, it is clear that mere fact that the assessee has agreed to additions to his income, does not automatically mean that the amount agreed to be added was concealed income of the assessee. There may be hundred and one reasons for the assessee to agree to such additions, but that does not absolve the Revenue from proving the mens rea of quasi-criminal offence. Though there are several decisions of other High Courts on this point, referred to and relied upon by the learned counsel for the assessee, in view of the decisions of the Hon'ble Supreme Court and Calcutta High Court discussed above, which are squarely applicable to the facts of the present case, we do not deem it necessary to consider those decisions and discuss the same here. Consequently, applying the principle laid down by the Hon'ble Supreme Court and the Calcutta High Court to the facts of the present case, we do not find any justification for levy of penalty. We find that in this case the assessee has agreed to the addition of this amount of commission only to buy peace and in order to avoid litigation with the department, despite the fact he has actually made payment of commission to M/s. Bachubhai Jamnadas & Co. and has documentary proof in support of such payment. The circumstances that the firm has been dissolved and this amount has not been capitalised and has not been invested in any way, after it was being offered for taxation go to show the bona fides of the assessee. Therefore, we are of the opinion that merely because this amount was offered for taxation, it cannot be presumed to be concealed income of the assessee, nor can it be presumed that the assessee has furnished inaccurate particulars of his income. We accordingly hold that provisions of Section 271 (1)(c) are not applicable to the present case, and hereby confirm the finding of CIT(A).
10. In the result, Revenue's appeal is dismissed.
R.N. Singhal, Accountant Member
1. I agree with my learned brother. Department's appeal deserves to be dismissed. I need, however, highlight the following three factual aspects:-
(i) The penalty order is rather too brief.
(ii)The department has not resolved the contradiction between the stamped acknowledgements given by the recipient of the commission and his subsequent denial orally.
(iii) The department has not even proved the ultimate destination of the cheques or the amounts given for commission.