Income Tax Appellate Tribunal - Pune
Rajan H. Shinde vs Deputy Commissioner Of Income-Tax, ... on 11 May, 2006
Equivalent citations: [2006]10ITD360(PUNE)
ORDER
B.L. Chhibber, Accountant Member
1. These cross appeals arise out: of the order of the CIT(A), Kolhapur, giving partial relief in the quantum of penalty levied by the Assessing Officer under Section 271(1)(c) of the Income-tax Act. Both the parties are aggrieved by the order of the Id. CIT(A).
2. The return for the assessment year 1989-90 was filed on 28-8-1990 declaring income at Rs. nil The income shown in the return was share profit from M/s. Venkateshwara Bulk Carriers, profit from the proprietary concern M/s. Shree Balaji Traders and income from plying of trucks. Subsequently, revised return was filed on 9-7-1991 again declaring nil income, but after the revised claim of carried forward depreciation. The revised return was necessary because the assessee had not shown his share of profit of Rs. 10,850 from M/s. Kolhapur Ice & Cold Storage.
3. During the course of assessment proceedings, the Assessing Officer dealt with the proprietary business of M/s. Shree Balaji Traders. This business was newly started by the assessee from November, 1987 to 31-3-1989. For the detailed reasons given by him and also based on certain diaries found during the course of search, the Assessing Officer made a G.P. addition of Rs. 7,36,323. For this addition, penalty proceedings were initiated.
4. The Assessing Officer brought to tax an amount of Rs. 40,000 which represented the cash deposited by the assessee in November, 1987 which deposit was not reflected in the books of account. For this addition also, penalty was initiated. The third addition was on account of disallowance of depreciation Rs. 2,30,374 in respect of vehicle No. CRA 5402. According to the Assessing Officer, though the truck was registered with the R.T. authorities as on 30-3-1989, there was no evidence that the said truck was used for the purpose of business. For this addition also, penalty proceedings were initiated.
5. Subsequently, the Assessing Officer levied penalty under Section 271(1)(c) of the Act in respect of the following additions:
(i) Addition on account of G.P. Rs. 7,36,323 (ii) Unexplained investment in deposit Rs. 40,000 (iii) Disallowance of depreciation Rs. 2,30,374
While the minimum penalty was leviable at Rs. 5,24,756, the Assessing Officer imposed a penalty of Rs. 10 lakhs.
6. In appeal, the Id. CIT(A) for the reasons discussed in detail in paras 5 and 6 of his order, held that no penalty was leviable in respect of G.P. addition. This conclusion of the CIT(A) was based mainly on account of the fact that there was no evidence that there was any suppression of sales. In fact, he gave reference to the specific finding of the Assessing Officer in para 13 of the assessment order that sales were supported by vouchers. According to the CIT(A) that action of the Assessing Officer itself indicated that there was neither suppression of sales nor inflation of purchases nor was there any finding during the course of search and seizure or during the course of scrutiny that some suppression of sales or inflation of purchases had taken place. In fact, it was pointed out by the assessee that the trading account which was seized during the course of the search did not correctly incorporate the actual figures of sales and expenses. In fact, the assessee himself had shown more sales in the fair books. In recasting the accounts in the assessment order transportation charges were assumed by the Assessing Officer on estimate basis, whereas actual transport charges were much less. On the other hand, processing charges were estimated by the Assessing Officer at a lower figure than actual processing charges shown by the assessee which were more. Thus, the working made by the Assessing Officer for supporting the estimate of G.P. itself was based on estimated figures. The CIT(A), relying on the decision of the Bombay High Court in the case of CIT v. Devandas Perumal & Co. held that no penalty was leviable merely on account of estimate of profit where no suppression of sales or inflation of purchases was detected. To the same effect was the decision of the Hon'ble Punjab & Haryana High Court in CIT v. Metal Products of India . Referring to the decision of the Madras High Court in Addl. CIT v. E. Bhoopathy [1978] 113 ITR 188, the CIT(A) held that in that case sales were found to be not correctly shown and they were enhanced. In the case under consideration, however, sales have been accepted.
7. After observing that no penalty was justified on the G.P. addition of Rs. 7,36,323 the CIT(A) held that as far as the amount of Rs. 3,00,704 was concerned which was claimed to be capitalised by the assessee with reference to his investment in Balaji Apartments in the year under appeal, penalty was justified. He, therefore, upheld penalty in respect of the amount of Rs. 3,00,704.
8. In regard to the addition of Rs. 40,000, the CIT(A) observed that the said cash was deposited in November 1987 and the addition under Section 69 should have been made in the assessment year 1988-89 and not in the assessment year 1989-90 which was under appeal. He, therefore, held that if addition itself could not have been made for the year under appeal, penalty was not leviable with reference to the sum of Rs. 40,000.
9. In regard to the third addition of Rs. 2,30,374 the CIT(A) observed that penalty was imposed on Rs. 2,30,374 which was cost of the asset itself and not on depreciation. Secondly, he held that there was no dispute that the truck was registered on 30-3-1989 and it was owned by the assessee. The assessee owned 5 trucks in his name and the moment the new truck was passed by the R.T.O., it was an asset ready to use. If the machinery was kept ready for use, it would be considered to have been used for the purpose of depreciation. Reliance was placed by the assessee on the decision of the Madras High Court in CIT v. Vayithri Plantations Ltd. and decision of the Delhi High Court in the case of Capital Bus Service (P.) Ltd. v. CIT . The CIT(A) accepted this claim of the assessee and held that no penalty was leviable.
10. Thus, out of the three additions, the CIT(A) confirmed penalty with reference to the addition of Rs. 3,00,704 on which he directed that penalty should be calculated at the minimum level.
11. The said order of the CIT(A) is subject to challenge by the Revenue as well as by the assessee. In Revenue's appeal (ITA No. 455/PN/94) the Id. CIT (DR) relied on the order of the Assessing Officer in levying penalty. He submitted that it is not rule of law that merely because income is estimated no penalty is leviable. The additions made had become final and this certainly warranted levy of penalty. The Id. CIT (DR) relied on the decision of the Hon'ble Supreme Court in the case of B.A. Balasubramaniam & Bros. Co. v. CIT where the Supreme Court has held that where the difference between the assessed income and returned income was more than 20 per cent, Explanation to Section 271(1)(c) as applicable in those years applied and it was for the assessee to discharge the onus as contemplated in the said Explanation and since this onus was not discharged, the High Court order confirming penalty was justified. The Id. CIT (DR) also relied on the decision of the Allahabad High Court in Sushil Kumar Sharad Kumar v. CIT where the Hon'ble High Court had confirmed the penalty in a case where additions were made to the income based on estimate. He also relied upon the decision of the Kerala High Court in CIT v. Gates Foam & Rubber Co. .
12. Shri K.A. Sathe, the learned Counsel for the assessee, on the, other hand, relied on the order of the CIT(A). In regard to the G.P. addition apart from the decisions referred to by the CIT(A), he pointed out two more decisions of the Bombay High Court, viz., CIT v. Mohammed Yakub Mohd. Ibrahim & Co. and CIT v. B.D. Ramchandra . He also relied on the decision of the Delhi Tribunal in Janta Wine Store v. ITO [1984] 10 ITD 348 for the proposition that merely because estimate by the Assessing Officer was not challenged in appeal was not the reason for sustaining the penalty. He relied on the decision of the Bangalore Bench in ITO v. Nandi Steel Worlds (P.) Ltd. [1997] 63 ITD 364. In regard to the addition of Rs. 40,000 representing the deposit made by the assessee, he submitted that the CIT(A) was right in cancelling the penalty in view of the fact that the said addition did not pertain to assessment year 1989-90. He referred to the decision of the Bombay High Court in this behalf in Jainarayan Babulal v. CIT in which case on similar facts, the Bombay High Court had upheld cancellation of penalty.
13. With reference to the disallowance of depreciation, Shri Sathe submitted that in view of the decision of this Bench in the case of Mirje Bros. v. Asstt. CIT [IT Appeal No. 1620 (Pune) of 1991, dated 17-5-1999], the CIT(A)'s finding that depreciation was allowable to the assessee because the concerned truck was registered with the R.T. authorities during the year under consideration and therefore the same was ready for use. He therefore submitted that for the disallowance of depreciation no penalty was justified.
14. In the assessee's appeal (ITA No. 423/PN/94) Shri K.A. Sathe submitted that since in the year for 1988-89 the CIT(A) had taken a correct view that there was nothing on record to suggest that the investment in Balaji Apartments was made by the assessee, except his own voluntary statement, that too based on the settlement made by the assessee with Shri Banne, the ostensible owner of the property, no penalty was leviable. He therefore requested deletion of penalty with reference to the addition of Rs. 3,00,704.
15. Shri Rajkumar, the Id. CIT (DR) relied upon his arguments advanced during the course of hearing relating to assessee's appeal (ITA No. 423/P/94).
16. We have considered the rival submissions and perused the facts on record. In our opinion, the CIT(A) has rightly deleted the penalty in respect of G.P. addition because the same was based on estimate and penalty under Section 271(1)(c) is not leviable in respect of estimated additions as held by the Bombay High Court in CIT v. Mohammed Yakub Mohd. Ibrahim & Co.'s case (supra) and B.D. Ramchandra's case (supra). Accordingly we concur with the findings of the CIT(A). In regard to the addition of Rs. 40,000 representing deposit made by the assessee, the same did not pertain to the assessment year 1989-90 and accordingly, the CIT(A) is justified in holding that no penalty is leviable on this amount during the year under appeal. With reference to the disallowance of depreciation also, the view taken by the CIT(A) is correct and no interference is called for. Accordingly, we dismiss the department's appeal.
17. As regards the appeal of the assessee, we find that in the earlier year, i.e., 1988-89 the CIT(A) has taken a correct view and there was nothing on record to suggest that the investment in Balaji Apartments was made by the assessee, except his own voluntary statement, that too, based on the settlement with Shri Banne, the ostensible owner of the property, and therefore, no penalty is leviable for the reasons discussed in detail in our order in ITA No. 850/PN/97 relating to the assessment year 1988-89. Accordingly, the penalty sustained by the CIT(A) in respect of the amount of Rs. 3,00,704 is deleted.
18. In the result, Revenue's appeal is dismissed and the assessee's appeal is allowed.
U.B.S. Bedi, Judicial Member
19. After having gone through the proposed order of the learned Accountant Member I do not find myself to be in agreement with any of findings and conclusions arrived at by him with respect to assessee's appeal as well as department's appeal and my reasons for being so, are given hereunder.
20. So far as the facts of the case and arguments of both the sides are concerned, I find that those have been appropriately recorded and hence not repeated for the sake of brevity.
21. The Assessing Officer made the following three additions:
(a) Addition on account of G.P. Rs. 7,36,323 (b) Unexplained investment in deposit Rs. 40,000 (c) Disallowance of depreciation Rs. 2,30,374
The Assessing Officer also initiated penalty proceedings after due opportunity to the assessee and penalty of Rs. 10 lakhs has been imposed on the assessee against the minimum penalty leviable at Rs. 5,24,756 under Section 271(1)(c) of the Act.
22. The assessee took up the matter in appeal and the learned CIT(A) while holding that no penalty is leviable in respect of gross profit addition, unexplained investments in deposits and depreciation but restricted such penalty with relation to the amount of Rs. 3,00,704 being the amount which was capitalized by the assessee with respect to the investments made in Balaji Apartments in the year under appeal and the same reduced to minimum imposable penalty amount.
23. The assessee is in further appeal against the amount in relation to which, the relief in penalty has not been given by the learned CIT(A) whereas the department is in appeal against the relief allowed.
24. As regards the penalty leviable on the gross profit addition is concerned, the Assessing Officer made discussion in paras 4,4.1, 4.2 and concluded in para 4.3 of the penalty order. The relevant observations at paras 4.1, 4.2 and conclusion in 4,3 are reproduced as under:
4.1 There was a search and seizure action at the premises of the assessee. One of the seized documents showed the working of profit for the period from November 1987 to June 1988 at Rs. 12,09,266. While calculating the above profit, the milk processing charges were not considered. On total sales of Rs. 1,92,20,768 profit of Rs. 12,09,266 is worked out for the above period of 8 months. The proportionate milk processing charges on the sales amounting to Rs. 1,92,20,768, works out to Rs. 4,68,812. So the gross profit after considering the proportionate milk processing charges for the above period of 8 months, on the basis of seized register should be (Rs. 12,09,266 minus Rs. 4,68,812) = Rs. 7,40,454. After considering both the transport charges and milk processing charges, the percentage of G.P. works out to 3.85 per cent. As this percentage was for the initial period and the sales picked up in the subsequent period due to overall increase in performance, the G.P. for the year, as per the Assessing Officer, should not be less than 4 per cent. The Assessing Officer also pointed out in para 13 of the assessment order that the purchases are not supported by vouchers and bills and no quantity account is maintained. In para 15 the Assessing Officer has pointed out that in the petition before the CIT, Kolhapur, on 8-3-1991 out of the total investment as construction expenses of Balaji Apartments of Rs. 2,50,000 admitted for the assessment year 1989-90, Rs. 1,76,974 are shown as made from the additional net profit of proprietary concern M/s. Shree Balaji Traders, not disclosed in the books of account as per cash flow statements filed. Considering the above facts and the basis mentioned below the books of account were rejected on the following grounds:
(i) Non-maintenance of bills/vouchers for en route purchases to the extent of Rs. 2,23,49,616;
(ii) Non-maintenance of day-to-day stock registers;
(iii) Admission of assessee himself of profits undisclosed in M/s. Shree Balaji Traders as utilized for construction of Balaji Apartment;
(iv) Evidence collected during search and seizure action;
(v) Further unexplained investment seen from books of M/s. Shree Balaji Traders, discussed in detail in para 18 of the assessment order dated 29-11-1991.
(vi) Too low of G.P. declared.
In view of the above discussion, the Assessing Officer estimated the G.P. of 4 per cent on total sales of Rs. 6,74,14,018 which works out to Rs. 27,04,560. As the G.P. declared by the assessee was Rs. 19,68,237, an addition of Rs. 7,36,323 was made. It was in this background that the Assessing Officer initiated the penalty proceeding under Section 271(1)(c).
4.2 The assessee in his explanation dated 14-5-1992 states:
This addition is made on account of law G.P. declared as per books of account. The G.P. as per books of account was 2.91 per cent. The addition is made taking the G.P. ratio of 4 per cent. The addition on this ground is intangible one. Out of this addition, the assessee has claimed the investment to the extent of Rs. 2,67,704 being the investment in Balaji Apartment and Rs. 33,000 being the investment in T.V., Freeze etc. In this connection your kind attention is invited to Explanation 2 of Section 271(1)(c) of the Income-tax Act, 1961. The penalty under Section 271(1)(c) if attracted, it will be leviable on, to the extent of investment claim out of intangible additions.
4.3 I have carefully considered the submissions of the assessee. It is clear that the assessee is making contradictory statements. On one hand, the assessee claims the additions to be intangible additions. On the other hand, the assessee himself claims capitalization out of these intangible additions. In fact, as stated by the Assessing Officer in para 25 of the assessment order dated 29-11-1991 under Section 143(3) for the assessment year 1989-90, separate addition on account of various valuable items valued at Rs. 33,000 and found in the residential promises was made. Since the assessee claimed to have made these expenses out of the undisclosed income earned from M/s. Shree Balaji Traders. Also as per para 26 of the said assessment order, no separate addition on account of investment in the building 'Balaji Apartments' amounting to Rs. 2,67,704 was made on the same reasoning. This proves that out of undisclosed income of Rs. 7,36,323, the assessee had utilized at least amount of Rs. 3,00,704 (being Rs. 2,67,704 + Rs. 33,900). Thus, it is undisputed that the G.P. addition of Rs. 7,36,323 made in the assessment order and not disclosed by the assessee in his return of income, represents the real income of the assessee.
The learned CIT(A) restricted the penalty with respect to the addition relatable to a sum of Rs. 3,00,704 as per para 6 of his order as under:
I have considered the case as relied upon by the appellant, Le., in 140 ITR 943 where the Hon'ble Bombay High Court held that no penalty would be sustained merely on account of estimate of profit where no suppression of sales or inflation of purchases was detected. As held in 106 ITR 720 (All.) and 110 ITR 532 (Gau.) a finding has to be reached and recorded that the difference between the income returned and the income assessed was due to the fraud or gross or wilful neglect on the part of the assessee. In 150 ITR 714 (Punj.), it has been held that merely because the addition has been made on estimate under the first proviso to Section 145(1) by adopting the view that the gross profit shown in the books of account was too low as there were defects in the method of accounting employed cannot automatically lead to the conclusion that there was failure to return the correct income by means of fraud or gross or wilful neglect. In the case as relied upon by the Assessing Officer, the sales were found as not correctly shown and they were enhanced. However, in the case under consideration, the sales have been accepted as such. Therefore, the Assessing Officer was not justified in levying the penalty on the entire sum of Rs. 7,36,323. However, the appellant's contention that no penalty can be levied on the sum of Rs. 3,00,704 (being Rs. 2,67,014 + Rs. 33,000) cannot be accepted He has claimed capitalization against the tangible investment out of the addition made on account of intangible estimate. Therefore, in terms of Explanation (2) to Section 271(1)(c), penalty has to be levied to the extent of this sum. The Assessing Officer, is therefore, directed to levy minimum penalty on the amount of Rs. 3,00,704.
25. After hearing both the sides and considering the material on record and the case law, I find that as regards the penalty on the estimated addition is concerned, the Hon'ble Kerala High Court in the case of CIT v. Gates Foam & Rubber Co. has opined that as under:
The presumption provided for in Section 271(1)(c) applied to the facts of the case and penalty had to be imposed.
Yet, in another case, the headnotes appended to decision of the Allahabad High Court in Sushil Kumar Sharad Kumar v. CIT , reads as under:
Penalty - Concealment of income - Addition made to income based on estimate - Tribunal considering evidence in penalty proceedings and finding that assessee had concealed his income - Imposition of penalty was valid - Income-tax Act, 1961 Section 271(1)(c).
While arriving at the above conclusion, the Hon'ble High Court in the above case has held as under:
.. .But in a case where after detailed investigation the assessee was confronted with evidence and materials and he failed to dislodge the factual position on the basis of which additions were made, the case stands on a different footing. In such a case, it is always open to draw an inference of concealment or of furnishing inaccurate particulars of income, resulting from deliberate underestimate of income. In other words, the income-tax authorities must be satisfied on examination of the cumulative effect or the entirety of the circumstances that the only reasonable inference from such factors or material that could be drawn was that the disputed amount added as a result of estimate, represented income and that the assessee had concealed particulars of income or had furnished inaccurate particulars thereof.
The Hon'ble Supreme Court in the case of B.A. Balasubramamam & Bros. Co. v. CIT , while following CIT v. B.A. Balasubramamam & Bros. Co. , CIT v. Mussadilal Ram Bharose , CIT v. K.R. Sadavappan and Addl CIT v. Jeevan Lal Sah , has held as under:
Difference between the income assessed and the income returned being more than 20 per cent, the Explanation to Section 271(1)(c) became applicable and the ITO was justified in imposing penalty because the assessee bad not been able to discharge the onus which was on it under the said Explanation notwithstanding the fact that income was assessed on estimate basis.
In recently pronounced judgment, on the point of applying precedents, in the case of State Financial Corporation v. Jagdamba Oil Mills the Hon'ble Supreme Court of India has held as under:
Circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases. Disposal of cases by blindly placing reliance on a decision is not proper.
26. Since on the basis of search and seizure operation conducted, documents seized and detailed investigation made in this case, Assessing Officer has reached to the conclusion that there is non-maintenance of bills/vouchers for en-route purchases to the extent of Rs. 2,23,49,616, non-maintenance of day-to-day stock register, admission of the assessee himself of the profits undisclosed in M/s. Shree Balaji Traders having been utilized for construction of Balaji Apartments, and further unexplained investments seen from books of M/s. Shree Balaji Traders and too low G.P. declared as discussed in detail and addition made in this regard having been confirmed I am of the view that ratio of the above decisions is fully applicable to the facts of the present case and the impugned penalty on estimated addition, in view of the facts and circumstances could validly be imposed. Therefore, action of the learned CIT(A) in restricting such penalty imposable on the amount of Rs. 3,00,704 is not proper. But so far as restricting of such penalty at minimum imposable amount is concerned, that part of the order of the learned CIT(A) is found to be justified. As such, while modifying the order of the learned CIT(A), I hold that the penalty under Section 271(1)(c) is imposable with respect to entire amount of Rs. 7,36,323 being G.P. addition, and not with respect to Rs. 3,00,704 as considered by the learned CIT(A). So, his order to this extent gets reversed, but as regards other part of the order is concerned, I confirm his action to restrict such penalty to minimum imposable amount ie., 100 per cent of the tax sought to be evaded with respect to this addition.
27. So far as the decisions as relied upon by the learned Counsel for the assessee are concerned, these are not found to be on the point at issue and moreover in the light of the Supreme Court decision B.A. Balasuhramaniam & Bros. Co. v. CIT , preference cannot be given to either the High Court decision or Tribunal decision.
28. As regards penalty on addition of Rs. 40,000 is concerned, the same is found to have been deposited in cash in November, 1987 which remained unexplained and the CIT(A) deleted the same on the plea that the addition should be made in the year 1988-89 and not in 1989-90 as per Section 69 of the Act.
29. After hearing both the parties and considering the material on record, I find that the accounting period of the assessee is transitional period and that the month November not only falls in the said period but close to the relevant financial year covered within the previous year of the assessee. Since the period falls in the previous year relevant to the assessment year under consideration and the assessee was unable to explain the source of the deposit for obtaining a bank guarantee therefore, the addition has properly been made and the penalty in this regard is attracted. Therefore, the action of the Assessing Officer is found to be proper and the CIT(A) is unjustified in deleting the penalty with respect to this amount. Therefore, while upholding the penalty in this regard, I restore the order of the Assessing Officer on this issue but restrict such penalty to minimum imposable.
30. As regards the penalty relatable to addition of Rs. 2,30,374 is concerned, the addition in this regard is made for claiming depreciation on the truck, which was not put to use in the year under consideration. It is the case of the assessee that since the truck was registered on 30-3-1989 therefore, it was ready for use and the assessee is entitled to depreciation and even if it is not allowed, penalty cannot be imposed on the amount relatable to disallowance on account of depreciation, whereas the learned DR has taken a stand that the assessee has not been able to show as to how the vehicle can be considered to be ready for use when after registration, the assessee is required to obtain permit and certain other the amount is required to be incurred for making the vehicle ready for use. Nothing is found to have been shown to have been spent as per books of account either for obtaining a permit or other expenditure for diesel, oil and other related expenditure. Therefore, the Assessing Officer rejected the claim of the assessee for depreciation and for making a wrong claim the penalty is attracted.
31. After hearing both the sides and considering the material, I find that except the plea that the vehicle was registered on 30-3-1989 no other evidence or material has been produced to show that even the vehicle was ready to use. There is no mention about incurring of expenditure on obtaining the permit or having made any other expenditure for oil, diesel etc. or any salary was paid to the driver. Therefore, in the absence of these items, in my considered view, the action of the Assessing Officer in not allowing the claim of the assessee on depreciation is justified and for making a wrong claim, the penalty under Section 271(1)(c) is attracted. So far as reliance on the decisions in Capital Bus Service (P.) Ltd v. CIT , CIT v. Vayithri Plantations Ltd. , the assessee has not been able to show as to how the vehicle can be said to be ready for use when it has not been shown that the road permit has either been obtained or any expenditure on diesel oil and other material necessary for making the vehicle ready to use has been incurred. So in my considered view, action of the Assessing Officer is proper and the CIT(A) is unjustified in deleting the penalty with respect to this amount. His action being not in conformity with law is set aside and that of the Assessing Officer is restored but so far as the quantum of penalty is concerned, it is directed to be restricted to minimum imposable amount.
32. As a result, the appeal of the assessee is dismissed and that of the revenue is partly accepted.
ORDER UNDER Section 255(4) OF THE INCOME-TAX ACT, 1961 B.L. Chhibber, Accountant Member
1. As there is a difference of opinion between the Accountant Member and the Judicial Member, the matter is being referred to the President of the Income-tax Appellate Tribunal with a request that the following questions may be referred to a Third Member or to pass such orders as the President may desire:
I.T.A No. 423/PN/94Whether on the facts and in the circumstances of the case, the CIT(A) is justified in confirming the penalty levied by Assessing Officer under Section 271(1)(c) of the Act in respect of the amount of Rs. 3,00,704 on account of alleged undisclosed investment by the assessee in Balaji Apartments ?"I.T.A No. 455/PN/94
Whether on the facts and circumstances of the case, the CIT(A) is justified in deleting the penalty levied by the Assessing Officer under Section 271(1)(c) of the Act in respect of the following additions:
(i) Addition on account of G.P. Rs. 7,36,323 (ii) Unexplained investment in deposit Rs. 40,000 (iii) Disallowance of depreciation Rs. 2,30,374 THIRD MEMBER ORDER K.P.T. Thangal, Vice President
1. As there arose a difference of opinion between the Members, the Hon'ble President referred the following questions under Section 255(4) of the Income-tax Act, 1961, for my opinion as Third Member:ITA No. 423/PN/1994
Whether on the facts and in the circumstances of the case, the CIT(A) is justified in confirming the penalty levied by Assessing Officer under Section 271(1)(c) of the Act in respect of the amount of Rs. 3,00,704 on account of alleged undisclosed investment by the assessee in Balaji Apartments ?ITA No. 455/PN/1994
Whether on the facts and circumstances of the case, the CIT(A) is justified in deleting the penalty levied by the Assessing Officer under Section 271(1)(c) of the Act in respect of the following additions:
(i) Addition on account of GP Rs. 7,36,323 (ii) Unexplained investment in deposit Rs. 40,000 (iii) Disallowance of depreciation Rs. 2,30,374 2. Facts, briefly, is as under:
Assessee filed the return for the assessment year 1989-90 on 28-8-1990 declaring nil income. The income declared was share profit from Venkateshwara Bulk Carriers, income from proprietary concern M/s. Shree Balaji Traders and from plying of trucks. Subsequently, the assessee revised the return on 9-7-1991 again declaring nil income but assessee claimed carried forward depreciation. According to the assessee, the revised return was necessary because assessee had not shown the share of profit of Rs. 10,850 from M/s. Kolhapur Ice & Cold Storage.
3. The business of M/s. Shree Balaji Traders was newly commenced by the assessee in November 1987 and the period is up to 31-3-1989. Assessing Officer made an addition of Rs. 7,36,323 and penalty proceedings were also initiated.
4. Assessing Officer also brought to tax a further amount of Rs. 40,000 being cash deposit by the assessee in November 1987, which was not reflected in the books of account. Again penalty proceedings initiated on this count as well.
5. The third addition was depreciation claimed but disallowed amounting to Rs. 2,30,374 in respect of vehicle No. CRA 5402. The truck was registered with RTA on 30-3-1989 but there was no evidence that the truck was used for business purposes. Penalty proceedings were initiated.
6. Minimum penalty leviable on these three counts was Rs. 5,24,756 but the Assessing Officer imposed penalty of Rs. 10 lakhs.
7. Assessee appealed before the CIT(A). He held that no penalty could be levied in respect of GP addition for the reason that in fact there was no evidence, and no case for the Assessing Officer even that there was suppression of sales. According to the CIT(A), the notings of the Assessing Officer was indicative of the fact that there was neither suppression of sales nor inflation of purchases, because the Assessing Officer himself has made a specific reference in para 13 of his order that sales were supported by vouchers. It was further noted that the trading account seized during the course of search and seizure action did not correctly incorporate the actual figures of sales and expenses. It was noticed, in fact the assessee himself shown more sales in the fair books than the seized papers. Similarly, in recasting the accounts, transportation charges were assumed by the Assessing Officer, on estimate basis, was less than actually reflected in the transport charges account. Processing charges also estimated on a lesser figure whereas the actual shown by the assessee was more. Hence, it was contended and accepted that the GP addition made on estimate basis is without any basis. Relying upon the decision of the jurisdictional High Court in the case of CIT v. Devandas Perumal & Co. , CIT(A) held that no penalty could be levied on account of estimate of profit, where suppression of sales or inflation of purchases not detected. He also taken note of the decision of the Hon'ble Punjab & Haryana High Court in the case of CIT v. Metal Products of India . He distinguished the decision of the Hon'ble Madras High Court in the case of Addl CIT v. E. Bhoopathy [1978] 113 ITR 188 and held that in that case sales were found to be not correctly shown and sales were enhanced; whereas in the case of the assessee, sales are accepted. He held, there cannot be penalty on the GP addition of Rs. 7,36,323, but for the remaining amount of Rs. 3,00,704, which was claimed to be capitalised by the assessee himself being investment in Balaji Apartments, penalty was justified.
8. Coming to the other addition of Rs. 40,000, CIT(A) observed that the deposit was made in November 1987 and therefore addition could be made in the assessment year 1988-89 and not in the assessment year 1989-90. Hence the CIT(A) cancelled the penalty levied on this amount as well.
9. Coming to the third addition of Rs. 2,30,374, CIT(A) observed that penalty was imposed on Rs. 2,30,374, which was cost of the asset itself and not on depreciation. He held, there was no dispute that the truck was registered on 30-3-1989 and was owned by the assessee. Assessee owned five trucks and the moment new truck was registered by the RTO, it was ready for use. Hence the assessee's claim that depreciation is allowable was favourably considered and accepted by the CIT(A), relying upon the decision of the Hon'ble Madras High Court in the case of CIT v. Vayithri Plantations Ltd. and also decision of the Hon'ble Delhi High Court in the case of Capital Bus Service (P.) Ltd. v. CIT .
10. Revenue appealed against the cancellation items whereas the assessee objected confirmation of minimum penalty on Rs. 3,00,704.
11. Revenue relied upon the decision of the Hon'ble Supreme Court in the case of B.A. Balasubramaniam & Bros. Co. v. CIT , in support of the contention that where the difference between the assessed income and returned income was more than 20 per cent, Explanation to Section 271(1)(c) as applicable and it was for the assessee to discharge the onus as contemplated in the said Explanation and the onus had not been properly discharged. Revenue also relied upon the decision of the Hon'ble Allahabad High Court in the case of Sushil Kumar Sharad Kumar v. CIT , wherein penalty was confirmed in a case where additions were made to the income based on estimate. Revenue also relied upon the decision of the Hon'ble Kerala High Court in the case of CIT v. Gates Foam & Rubber Co. .
12. On the other hand, in regard to GP addition, assessee relied upon the decisions of the jurisdictional High Court in the case of CIT v. Mohammed Yaqub Mohd. Ibrahim & Co. and in the case of CIT v. B.D. Ramachandra . Assessee also relied upon the decisions of the Tribunal in Janta Wine Store v. ITO [1984] 10 ITD 348 (Delhi) and ITO v. Nandi Steel Works (P.) Ltd. [1997] 63 ITD 364 (Bang.). In regard to the addition of Rs. 40,000 representing deposit made, assessee relied upon the decision of the jurisdictional High Court in the case of Jainamyan Babulal v. CIT . Coming to the penalty on account of disallowance of depreciation, assessee relied upon the decision of the Pune Bench of the Tribunal in the case of Mirje Bros. v. Asstt. CIT [IT Appeal No. 1620 (Pune) of 1991, dated 17-5-1999], which in turn followed the decision of the jurisdictional High Court in the case of Whittle Anderson Ltd. v. CIT and the decision of the Hon'ble Madras High Court in the case of Vayitiri Plantations Ltd. (supra).
13. The learned AM confirmed the deletion of the addition made on account of unexplained investment in deposit and disallowance of depreciation. Coming to the GP addition, he noted that in the earlier year, i.e. 1988-89, the CIT(A) himself had taken a view that there was nothing on record to suggest that the investment in Balaji Apartments was made by the assessee, except assessee's own voluntary statement, that too based on the settlement with Shri Banne, the ostensible owner of the property.
14. However, the learned JM differed on all these points with the proposed order of the AM. Placing reliance upon the decision of the Hon'ble Kerala High Court in the case of CIT v. Gates Foam & Rubber Co. , wherein the Hon'ble High Court observed "the presumption provided for in Section 271(1)(c) applied to the facts of the case and penalty had to be imposed", learned JM held, the same decision is applicable in the instant case of the assessee also. Again he agreed with the learned CIT DR and placed reliance upon the decision of the Hon'ble Allahabad High Court in the case of Sushil Kumar Sharad Kumar v. CIT , wherein the Hon'ble High Court held that addition made to the income based on estimate, considering the evidences, penalty proceedings initiated should be upheld. The relevant observation of the Hon'ble High Court has been reproduced at pages 11 and 12 of the order of JM. He also placed reliance upon the decision of the Hon'ble Supreme Court in the case of B.A. Balasubramaniam & Bros. Co. v. CIT .
15. Learned JM held, since on the basis of search material and after detailed enquiry/investigation Assessing Officer reached the conclusion that there was non-maintenance of bills/vouchers for en-route purchases to the extent of Rs. 2,23,49,616, non-maintenance of day-to-day stock register, admission of the assessee himself that the undisclosed income has been invested in the construction of Balaji Apartments and GP declared was too low, the penalty on estimated addition was justified and validly imposed. He held, therefore, the restriction on penalty imposable on Rs. 3,00,704 was not justified.
16. Coming to revenue's appeal, deleting the penalty on Rs. 40,000, learned JM held, the accounting period involved is transitional period and the month of November falls in this transitional period and also close to the relevant financial year covered within the previous year of the assessee. Assessee was unable to explain the source of deposit for obtaining the bank guarantee. Hence the addition was rightly made and therefore penalty, he held, was attracted and order of the CIT(A) was reversed on this point.
17. Coming to the addition of Rs. 2,30,374, ie., made on account of disallowance of depreciation on truck, learned JM noted, the case of the assessee is that it was registered on 30-3-1989 but there was no evidence of use and no evidence of even kept ready for use. He further noted, nothing found to have been shown spent as per the books of account either for obtaining a permit or any expenditure on account of diesel, oil or any other related expenditure. Hence, he held penalty was attracted.
18. Learned Counsel for the assessee, inviting my attention to para 16 of the proposed order of the AM, submitted that the GP addition was made on estimate basis and therefore the learned AM came to the conclusion that penalty under Section 271(1)(c) is not leviable in respect of estimated additions. Learned Counsel relied upon the decisions of the jurisdictional High Court in the case of Mohammed Yaqub Mohd. Ibrahim & Co. (supra) and in the case of Devandas Perumal & Co. (supra). He also relied upon the decision of the jurisdictional High Court in the case of B.D. Ramchandra (supra). Learned Counsel submitted, if no suppression/inflation of sales or purchase is detected, mere estimation of profits does not follow that there was a failure to return correct income due to fraud or gross or wilful neglect. Learned Counsel further submitted, the decision relied upon by the revenue in the case of A.K. Bashu Sahib v. CIT [1977] 108 ITR 736 (Mad.) was considered by the Hon'ble Madras High Court again in the case of CIT v. Smt. K. Meenakshi Kutty and thereafter it was held that the estimation made does not lead to the conclusion that there was concealment of income or gross or wilful neglect in estimating the income. Learned Counsel, again relying upon the decision of the Hon'ble Rajasthan High Court in the case of Shiv Lal Tak v. CIT [2001] 251 ITR 373 : [2002] 121 Taxman 99 submitted, mere addition to returned income by applying flat gross profit rate agreed to by the assessee is not sufficient ground to levy the penalty, even if the assessee is not in a position to vouch each and every detail of expenses entered in the books of account. He also relied upon the decision of the Hon'ble Punjab & Haryana High Court in the case of CIT v. MM. Rice Mills .
19. Coming to the revenue's appeal against the cancellation of penalty, learned Counsel for the assessee submitted, relying upon the decision of the jurisdictional High Court in the case of Jainarayan Babulal (supra), mere addition of an amount from undisclosed source in a particular year will not ipso facto lead to penalty in that year. The issue can still be considered. Learned Counsel submitted, previous year for income from undisclosed source is financial year. Hence he supported the order of the CIT(A) on this point. For the same proposition, he also relied upon the Third Member decision of the Tribunal in the case of ITO v. Patil Automobiles [2003] 79 TTJ (Pune) (TM) 359 : 131 Taxman 224 (Mag.). In this case the Third Member held, mere offering of an additional income because the assessee could not explain the credits owing to adverse circumstances, in the absence of any detailed enquiries regarding these credits by the revenue authorities, and also in the absence of any incriminating evidence against the assessee, is not sufficient to levy the penalty under Section 271(1)(c).
20. Coming to the depreciation point, wherein the revenue is in appeal, learned Counsel for the assessee supported the order of the CIT(A) and submitted, even if the addition is made correctly, penalty cannot survive and it was rightly deleted by the CIT(A).
21. As against this, the learned Departmental Representative submitted, the additions were made on account of seized materials; particularly, he brought my attention to para 3 of the assessment order. There was building construction going on and undisputedly the assessee made the investment, which was claimed to be made from certain income offered under voluntary disclosure, vide letter dated 8-3-1991, addressed to CIT, Kolhapur. In other words, assessee himself admits undeclared income. This fact has been rightly taken note of by the Assessing Officer while levying the penalty. Learned DR particularly submitted, the GP disclosed by the assessee was too low. The evidences were collected during the search and seizure action. Even according to the assessee there were unexplained investments and these investments are reflected in the books of account of the assessee, i.e. M/s. Shree Balaji Traders. As per the seized material for the period November 1987 to June 1988, the profit works out to Rs. 12,09,266. The total sale for the period was Rs. 1,92,20,768. The milk processing charges were not considered. On this basis, Assessing Officer noticed that the total sale of milk for the year was Rs. 6,75,81,784. So the proportionate milk processing charges comes to Rs. 4,68,812. From the above, the profit after considering the proportionate milk processing charges for the period comes to Rs. 7,40,454. Learned DR submitted, the gross profit was calculated after taking note of transport charges and proportionate milk processing charges at 3.85 per cent. Hence the learned DR submitted, higher gross profit estimated by the Assessing Officer was on the basis of seized materials and was not mere guesswork. He submitted, even the assessee himself has admitted that he had made investment in the building "Balaji Apartments" at Rs. 2,67,704 and Rs. 33,000 in residential premises. There is no justification in cancelling penalty levied on this count. Hence the learned DR submitted, penalty was rightly held as leviable on the entire amount of Rs. 7,36,323 by the learned JM.
22. The learned DR also submitted that the unexplained investment in deposit amounting to Rs. 40,000 was not explained by the assessee and hence this amount was rightly considered by the Assessing Officer while levying the penalty and upheld by the learned JM.
23. Coming to the other addition of Rs. 2,30,374 being the disallowance of depreciation, which was considered for levy of penalty, learned DR submitted, there was no evidence that the truck was put to use in the year under consideration. The truck was registered only on 30-3-1989. Assessee had not claimed any expenses for petrol, diesel, etc. Learned DR submitted that the learned JM rightly noted that there was no evidence to come to the conclusion that the vehicle was kept ready for use after registration.
24. The learned DR further submitted, the assessee has not preferred any appeal on quantum, which itself tacitly an admission that the additions were rightly made. He brought my attention to the decision of the Hon'ble Madras High Court in the case of P. Govindaswamy v. CIT and submitted, admission by the assessee that certain amounts added to his income, constitute concealed income and penalty is leviable. Relying upon the decision of the Hon'ble Karnataka High Court in the case of CIT v. Aboo Mohmed , learned DR submitted, assessee cannot claim immunity under amnesty scheme in respect of the amount detected as a result of search. Again the learned DR relied upon the decision of the Hon'ble High Court in the case of Sushil Kumar Sharad Kumar (supra), wherein their Lordships upheld the penalty levied under Section 271(1)(c) on an estimated addition. Relying upon the decision of the Hon'ble Rajasthan High Court in the case of Yashwant Singh v. CIT [1995] 212 ITR 207, learned DR submitted that in the instant case the additions were made after detailed enquiry and confronting the assessee with the evidences. Assessee could not rebut the factual position; hence, the penalty was rightly levied by the Assessing Officer. On this point also the learned DR supported the order of the learned JM. Learned DR, supporting the order of the learned JM and the decision relied upon in the case of Addl. CIT v. Jeevan Lal Sah , submitted that in the instant case of the assessee, assessee has not been able to discharge the onus which was on him under the Explanation notwithstanding the fact that, income was assessed on estimate basis.
25. Replying to the above, learned Counsel for the assessee submitted, Section 3 of the Income-tax Act, 1961, has been amended and now the previous year means financial year and this is applicable for the pending appeals as well.
26. Replying to the contention of the learned DR that the additions were made on the basis of seized material, learned Counsel submitted, as far as the assessee is concerned, there is no suppression. Assessee has shown more sales and less expenses than the paper seized indicate. One of the points noted by the Assessing Officer against the assessee is that the assessee has not kept stock register. This alone is not sufficient to vitiate the assessee with adverse consequences. In fact, Balaji Apartments does not belong to the assessee. Learned Counsel distinguished the decisions relied upon by the learned DR in P. Govindaswamy v. CIT , CIT v. Aboo Mohmed and Sushil Kumar Sharad Kumar v. CIT . He submitted, it is true that CIT v. Anwar Ali is no more a good law but the assessee's explanations were bona fide and on facts, therefore, even under the Explanation, penalty cannot be levied upon the assessee. Mere absence of supporting evidence, is not sufficient and equal to say that the expenses are inflated. Learned Counsel produced a copy of the order of the Tribunal in the case of Illumination India v. Asstt. CIT [IT Appeal Nos. 943 to 945 (Pune) of 1994, dated 30-5-2005] wherein the Tribunal deleted the penalties holding that the offer of higher income to avoid protracted litigation and to buy peace alone is not sufficient to attract the penalty. In such a case, Tribunal held, the burden is on the Department to prove that the income had actually been concealed in the original return. This is particularly so, where in the assessment order no specific finding on discrepancies are brought out. Hence, the learned Counsel submitted that the penalty is liable to be deleted even on the portion, i.e., to say Rs. 3,00,704 retained by the CIT(A).
27. Considering the rival submissions and going through the orders of the revenue authorities, I am of the opinion that the view taken by the learned AM is to be accepted as the correct view. As rightly noted by the learned AM, jurisdictional High Court has taken clear view in the case of CIT v. Mohammed Yaqub Mohd. Ibrahim & Co. (supra) and in the case of B.D. Ramachandra (supra), that there cannot be penalty under Section 271(1)(c) in respect of GP addition made on estimate basis. The learned JM, on the other hand, held that the decision of the Hon'ble Supreme Court is to be preferred over the decision of the High Court or of the Tribunal. On this proposition there cannot be any controversy. The decision of the Hon'ble Supreme Court in the case of B.A. Balasubramaniam & Bros. Co. v. CIT [1999] 236 ITR 977 is clearly distinguishable on facts. This was a case wherein the Hon'ble Supreme Court held, invoking Explanation to Section 271(1)(c), that the assessee had not been able to discharge the onus, which was on it under the Explanation. Coming to the instant case of the assessee, the distinguishing facts can be summed up as under:
At para 13 of the assessment order, Assessing Officer himself records that assessee was asked to produce vouchers for sale and purchases. He found that the sales are supported by vouchers whereas the purchases are not supported by vouchers. From the above, it is clear that the purchase and sales, indirectly, are not disputed. There cannot be any sale without purchases. If the sales are vouched, consequences naturally follow. Only for en-route purchases, there were no vouchers. In the nature of purchase, this is not possible either. These were from various parties and the assessee himself was in the first year of his business. Secondly, assessee had shown more sales in the fair book than the seized material. While recasting the accounts in the assessment order, the transportation charges are assumed on estimate basis by the Assessing Officer whereas actual transportation charges reflected are much less in the fair book. Even the milk processing charges estimated by the Assessing Officer is a lower figure than the actual processing charges shown by the assessee. All these indicate that the estimation was not completely and clearly on the basis of seized material.
28. Coming to the second addition of Rs. 40,000, the learned AM had taken the view that this addition could be made only in the assessment year 1988-89 and not in the assessment year 1989-90 since the deposit was made in November 1987 and rightly so.
29. Coming to the third addition of Rs. 2,30,374, which was also one of the components for imposing the penalty, I am of the view that the learned CIT(A) rightly held that this cannot be treated for levy of penalty and the learned AM rightly accepted this view for the reason that the truck was registered on 30-3-1989 and it was kept ready for use. I am of the view that the learned JM's reasoning that no expenditure on petrol, diesel, etc. has been claimed and therefore in spite the fact that the vehicle has been registered in the name of the assessee the truck cannot be treated as kept ready for use, is without merit. Mere non-filling of petrol, diesel, etc. does not lead to a conclusion that the vehicle was not ready. It only indicates that it was not on actual use. At that point of time the jurisdictional High Court was taking the view that if the vehicles were kept ready for use; that was sufficient to claim depreciation.
30. The decisions relied by the learned DR are distinguishable on facts. In the case of Sushil Kumar Sharad Kumar (supra), the Hon'ble Allahabad High Court held that under what circumstances penalty can be levied, where the additions were made on estimate basis. The relevant portion reads as under:
The findings recorded in the assessment order constitute good evidence in the penalty proceedings but those findings cannot be regarded as conclusive for the purposes of the penalty proceedings. In deciding whether penalty can be imposed in a given case, the entirety of the circumstances must be taken into account. There may be cases where additions may be made purely on estimate without reference to any evidence/ materials being on record. In such a case, it could be argued with same force that penalty cannot be levied on the figures which are merely based on guess work or estimate. But in a case where after detailed investigation, the assessee was confronted with evidence and materials and he failed to dislodge the factual position on the basis of which additions were made, the case stands on a different footing. In such a case, it is always open to draw, an inference of concealment or of furnishing inaccurate particulars of income, resulting from deliberate underestimate of income. In other words, the income-tax authorities must be satisfied on examination of the cumulative effect or the entirety of the circumstances that the only reasonable inference from such factors or material that could be drawn was that the disputed amount added as a result of estimate, represented income and that the assessee had concealed particulars of income or had furnished inaccurate particulars thereof.
31. Offering of income by the assessee ipso facto, does not tantamount to admission of suppression and does not lead to penalty. From the decisions cited and quoted, it is clear that in addition to the offer by the assessee, the revenue has to analyse the seized material to come to an independent finding to that effect. Coming to the facts in the case of the assessee, addition is made on account of GP. The discrepancy in the calculation of GP and enhancement by the Assessing Officer has been clearly brought out hereinabove in para 27. In short, I am of the view that this is not a fit case to levy the penalty and therefore I concur with the order of the learned AM.
32. The matter will now go before the regular Bench for deciding the appeals in accordance with the opinion of the majority.
ORDER C.L. Sethi, Judicial Member.
1. In this case, these two appeals, one by the assessee and the other by the Revenue, were heard by the Division Bench of this Tribunal. As a result of difference of opinion between the Accountant Member and the Judicial Member in regard to the following questions, the issues were referred to a Third Member by the Hon'ble President, ITAT, under Section 255(4) of the Act:ITA No. 423/PN/94
Whether on the facts and in the circumstances of the case, the CIT(A) is justified in confirming the penalty levied by Assessing Officer under Section 271(1)(c) of the Act in respect of the amount of Rs. 3,00,704 on account of alleged undisclosed investment by the assessee in Balaji Apartments ?ITA No. 455/PN/94
Whether on the facts and circumstances of the case, the CIT(A) is justified in deleting the penalty levied by the Assessing Officer under Section 271(1)(c) of the Act in respect of the following additions:
(i) Addition on account of GP Rs. 7,36,323 (ii) Unexplained investment in deposit Rs. 40,000 (iii) Disallowance of depreciation Rs. 2,30,374
2. With regard to the question referred to in appeal filed by the assessee (ITA No. 423/PN/94), the Id. Accountant Member of the Bench came to the conclusion that no penalty under Section 271(1)(c) is leviable for the reasons discussed in detail in Tribunal's order in ITA No. 850/PN/97 relating to the assessment year 1988-89 and accordingly, penalty sustained by the CIT(A) in respect of the amount of Rs. 3,00,704 was not justified, whereas the Id. Judicial Member held otherwise that penalty under Section 271(1)(c) was imposable with respect to the said amount.
3. With regard to the question referred to in appeal filed by the Revenue (ITA No. 455/PN/94), the Id. Accountant Member of the Bench came to the conclusion that the CIT(A) was justified in holding that no penalty is leviable in respect of the gross profit addition, disallowance of depreciation and as well with regard to the deposit, whereas the Id. Judicial Member held otherwise that the CIT(A) was unjustified in deleting the penalty with respect to these amounts.
4. The Hon'ble Vice-President (MZ), Shri KPT Thangal, as a Third Member, vide his order dated 11-5-2006, agreed with the view of the Id. Accountant Member on the issues referred to him.
5. Thus, by majority view, we hold that the CIT(A) was not justified in confirming the penalty levied by the Assessing Officer under Section 271(1)(c) of the Act in respect of the amount of Rs. 3,00,074 on account of alleged undisclosed investment by the assessee in Balaji Apartments, and the CIT(A) was justified in deleting the penalty levied by the Assessing Officer under Section 271(1)(c) in respect of the addition on account of gross profit of Rs. 7,36,323, unexplained investment in deposit of Rs. 40,000 and disallowance of depreciation of Rs. 2,30,374.
6. No other issues were involved in these appeals filed by the assessee as well as by the Revenue.
7. In the result, the appeal filed by the assessee is allowed and the appeal filed by the Revenue is dismissed.
8. This confirmatory order was announced in the open Court on 25-5-2006.