Income Tax Appellate Tribunal - Pune
Deputy Commissioner Of Income Tax vs Rajan H. Shinde on 13 September, 2004
Equivalent citations: [2005]93ITD1(PUNE), (2004)85TTJ(PUNE)178
JUDGMENT
B.L. Chhibber, A.M. March, 2002
1. This appeal is directed against the cancellation of penalty of Rs. 3,31,627 under Section 271(1)(c) by the CIT(A), Kolhapur.
2. The assessee is an individual. He filed his return of income for the asst. yr. 1988-89 on 8th Jan., 1988 declaring total income at Rs. nil. The income consisted of income from self-occupied residential property, share profit from the firm M/s Venkatesh Bulk Carriers, Kolhapur, and income from truck plying business. Income from business had been computed at nil in view of depreciation claimed on the truck. The total income assessed as per the assessment order dt. 25th March, 1991 was Rs. 6,08,970. In computing the income, the AO made an addition on protective basis on account of unexplained investment in Balaji Apartments allegedly belonging to the assessee. The income from truck was computed at Rs. 2,35,000 subject to depreciation of Rs. 3,73,279. Further, addition of Rs. 80,000 was made on account of unexplained margin money of truck. Penalty under Section 271(1)(c) was initiated for the addition made. The assessment was taken in appeal challenging the value of property known as Balaji Apartments Rs. 71,836 from the assessed income. No further appeal was filed.
3. Thereafter, penalty proceedings were initiated and penalty was levied in respect of the addition made on account of investment in Balaji Apartment as also on account of unexplained investment in margin money in purchase of truck of Rs. 80,000. A minimum penalty of Rs. 3,31,627 was levied under Section 271(1)(c) of the IT Act. For the detailed reasons given by the CIT(A), the entire penalty has been cancelled and the Department is in appeal challenging the deletion of the penalty.
4. Before adverting to the Department's contentions, it would be necessary to note certain facts as have been brought out by the authorities concerned, as also by the assessee in the paper book. In his application to the CIT dt. 8th March, 1991 (p. 22 of the paper book), the assessee has given his antecedents. It is seen from this that the assessee was assessed from asst. yr. 1984-85. After the completion of his education, he joined Mahadik Group as a partner in M/s Venkatesh Bulk Carriers. Initially his income consisted of share profit from this firm and also income from truck plying. In 1987, he started a new line of business, i.e. trading in milk under the name M/s Balaji Traders as a proprietary business. (Income from this business is subject-matter of consideration in asst. yr. 1989-90).
5. The facts leading to purchase of plot at 532-E Shahupuri, Kolhapur, and the construction made thereon are stated to be as follows. This plot was purchased by the assessee Shri R.H. Shinde with Smt. T.B. Shirodkar in November, 1986 for a sum of Rs. 1,50,000 from Shri Ramesh Velshi and Shri Prakash Velshi. The investment in the said plot was disclosed in the hands of Smt. T.B. Shirodkar and Shri R.H. Shinde and the said investment was accepted by the Department. Shri S.B. Shirodkar, who was the son of Smt. T.B. Shirodkar, had in his statement recorded at the time of search that took place on 28th Sept., 1988 on Mahadik Group of cases, stated that the plot was purchased with the intention of constructing flat type of buildings. Accordingly, plan for construction was made in the joint names of Shri R.H. Shinde and Smt. T.B. Shirodkar which was submitted to the Kolhapur Municipal Corporation in January, 1987 and the plan was sanctioned in April, 1987. In May, 1987, Shri S.B. Shirodkar retired from the firm M/s Venkatesh Bulk Carriers and the same time, Shri R.H. Shinde retired from the firm M/s Hotel Govind. On account of dispute between Shri R.H. Shinde and Shri S.B, Shirodkar it was decided to dispose of the plot instead of constructing building on the plot. At that time, some minor construction had started. Both the owners, therefore, entered into sale agreement with one Shri R.B. Banne. One-half share of Shri R.H. Shinde was transferred by a registered deed on or about 23rd Sept., 1988 for a sum of Rs. 77,000. One-half share of Smt. T.B. Shirodkar was agreed to be sold again to Shri Banne in July, 1987 for Rs. 77,000. In his statement at the time of search Shri S.B. Shirodkar has stated that the said half-share in the plot was sold to Shri R.B. Banne for Rs. 77,000 and Shri R.H. Shinde was asked to receive the amount from Shri Banne and to adjust it against the amount payable to him on account of retirement from the firm M/s Hotel Govind.
6. Thus, after purchasing undivided one-half shares from the assessee Shri R.H. Shinde and Smt. T.B. Shirodkar, Shri Banne started constructing the property called Shree Balaji Apartment. It appears from the settlement agreement between Shri R.H. Shinde and Shri R.B. Banne (p. 20 of the paper book) that there were 9 flats in the said building. Shri Banne had filed a deed of apartment declaration on 2nd Jan., 1990. He has also taken some amounts from the customers as booking advances for construction. During the course of construction, Shri Banne had received Rs. 2,25,000 from the assessee Shri R.H. Shinde during the year 1987-88. Shri Banne had spent. Rs. 1,54,000 towards purchase of plot and Rs. 9 lakhs or about on the construction cost of the building. Total cost of the building including value of the plot was stated to be of Rs. 10,54,000.
7. Initially, the investment as above was disclosed by Shri R.B. Banne in his own assessment. Shri Banne made a petition for disclosure of income on 20th April, 1989. In this petition. Banne disclosed his income for the asst. yrs. 1983-84 to 1987-88. This petition was accompanied by a cash flow statement and balance sheet as on 31st March, 1988. In the cash flow statement for the year ending on 31st March, 1988 Banne disclosed investment of Rs. 1,54,000 in purchase of land and construction expenses of Rs. 4,40,000. In the cash account given, he had shown advance received at Rs, 5 lakhs in the said statement (p. 12 of paper book), cost of construction and land was shown at Rs. 5,94,000 and after addition of estimated profit, the work-in-progress had been shown at Rs. 7,10,000. It was stated that Shri Banne filed returns as per the petition made to the CIT and this is subjected to further enquiry in his assessment. Shri Banne had disclosed agricultural income and income from truck plying. Investment in construction of the building was shown to be out of agricultural income, truck plying business and amount received towards booking of the flats.
8. On the basis of information given in respect of advances received against flat booking, Dy. CIT, Spl. Range had examined some persons by issuing summons under Section 131. The Dy. CIT had accepted the amounts in respect of one Shri Shivaji R. Patil Rs. 1,30,000 and Shri D.S. Patil at Rs. 1,05,000 as deposits. In the course of these enquiries, it appears that on 25th Feb., 1991 property of Shri Banne was attached by the Department under Section 281B. As a result of this, certain dispute arose between the assessee and Shri Banne. The assessee had advanced an amount of Rs. 2,25,000 to Shri Banne. The dispute was eventually settled on 26th Feb., 1991 on which date a settlement agreement was made between Shri R.B. Banne on one hand and Shri R.H. Shinde, the assessee on the other. In the settlement agreement it was stated by Shri Banne that due to attachment of flats by the IT Department, loan proposals of the flat holders who had made bookings were not sanctioned by the banks and due to this, the persons were not interested for completing the agreement. Shri Banne had invested total earnings of his life in the said building arid he could not wait till completion of income-tax matters. In these circumstances, he requested the assessee to take over the building, as his own. It was proposed by Shri Banne that he had invested total amount of Rs. 10,54,000 of which Rs. 2,25,000 was payable to the assessee. Thus, after deducting this amount, Shri Banne was to receive Rs. 8,20,000. Instead of paying the said amount of Rs. 8,20,000, flat Nos. 4 and 5 as per the apartment declaration were to be allotted to Shri Banne and remaining flats were to be taken over by the assessee and on sale of these flats, money was to be adjusted against the dues. It was also the term of the agreement that the land and building shall be offered for taxation by the assessee in his hands and income-tax liability thereon shall be paid by the assessee. Shri Banne stated that he would withdraw his petition before the CIT in respect of the building and he shall also transfer 5 flats in Balaji Apartments in favour of the assessee.
9. Consequently on 8th March, 1991 the assessee made a petition to the CIT for voluntary disclosure of additional income for the asst. yrs. 1987-88 to 1989-90. At the time of this petition, assessment of the assessee for the asst. yr. 1987-88 was already completed while assessment for the asst. yr. 1988-89 (under appeal) and asst. yr. 1989-90 were pending. Along with this voluntary petition for the purposes of declaring additional income, the assessee gave a cash flow statement in which the construction of building of Balaji Apartment was shown at Rs. 6,00,000 and as a result of cash flow statement, additional income of Rs. 5,54,288 was offered for taxation as additional net profit of Balaji Traders (milk business of the assessee which had been started). Further construction expenses of Rs. 2,50,000 were disclosed in the asst. yr. 1989-90 and additional net profit of Rs. 1,76,974 was offered for asst. yr. 1989-90. Shri Banne also wrote a separate letter to the CIT on 19th March, 1991 (p. 29. of paper book) withdrawing his disclosure petition dt. 20th April, 1989. In this petition, Shri Banne disclosed that the plot and building at 332 Shahpuri Kolhapur belonged to the assessee, even though the same stood in his name and truck tankers belonged to Shri H.R. Mahadik. On the same date Smt. T.B. Shirodkar also wrote a letter stating that she had sold her one-half share in the plot of land to Shri Shinde in July, 1987 for Rs. 77,000. After these respective applications made by the concerned parties in March, 1991, the assessee wrote a letter to the AO on 2nd Aug., 1991 (p. 31 of the paper book) stating that he had filed an application to the CIT, Kolhapur, on 8th March, 1991 in which the cost of construction of Balaji Apartments was offered by him for taxation in the asst. yrs. 1988-89 and 1989-90 on the ground that the building is actually owned by him. On the basis of his cash flow statement, the assessee had offered Rs. 1,76,974 as his additional income from the profit of Balaji Traders. This amount was not shown by him in his return for the asst. yr. 1989-90. He had requested that this should be brought to tax and income should be computed on this basis. As a result of declaration made by the parties to the CIT in the month of March, 1991 assessment in the present case was completed by the AO. In the said assessment order in paras 2.3 and 2.10, the AO wrote as under :
"2.3 : As the assessee has offered the acquisition of plot and construction of building Balaji Apartment in his hand, for the purpose of present assessment, without prejudice to the ultimate decision regarding ownership of this building to be taken after complete investigation, the source of acquisition of plot and cost of construction are being considered in assessee's hand on a protective basis."
Then on para 2.10 the AO wrote :
"2.10 : So, even if assessee's sources are considered as explained by it, the credit of Rs. 2,26,700 only can be given and balance investment of (Rs. 8,91,710 minus Rs. 2,28,700) at Rs. 6,65,010 remains undisclosed investment of assessee in respect of building disclosed by assessee in the return dt. 8th March, 1991, filed before the CIT, Kolhapur. Hence Rs. 6,65,010 are added on a protective basis in the hands of the assessee for this year. Penalty proceedings under Section 271(1)(c) are initiated."
It is this addition of Rs. 6,65,010 in the construction of Balaji Apartments which is subject-matter of penalty in the present case.
10. In para 8 of the assessment order, the AO noted that in purchasing tanker MWK 463 the assessee had paid an amount of Rs. 80,000 in cash out of truck plying business. This cash was said to have been paid on 20th July, 1987. However, since no evidence was produced in respect of the source of the cash of Rs. 80,000 because the assessee was unable in absence of books to show the said cash of Rs. 80,000 was available to him out of truck plying business, an addition of Rs. 80,000 was made by the AO.
11. On 13th March, 1992, the AO passed an order for the asst. yr. 1988-89 stating that the addition of Rs. 6,65,010 made on protective basis was requested by the assessee by his application dt. 12th March, 1992 to be treated as addition on regular basis. After considering the facts of the case, the assessee's contentions were accepted and the addition of Rs. 6,65,010 made on account of undisclosed investment in Balaji Apartments was considered as an addition on regular basis instead of on protective basis. The impugned penalty order has been passed after this order on 30th March, 1992.
12. Far levying the penalty, the AO gave the following reasons :
(1) The assessee's admission in a petition dt. 8th March, 1991 came only after detailed investigation during the course of assessment proceedings. Shri Banne also revised his stand and stated in his letter to the CIT on 19th March, 1991 that the building and plot actually belonged to Shri Shinde.
(2) The factual position showed that the assessee in concurrence with Shri Banne made a conscious and deliberate attempt to conceal investment in the building. His disclosure came only after the AO probed into the matter. There is therefore no merit in the assessee's stand that he had made disclosure voluntarily and to co-operate with the Department. Even otherwise once the fact of concealment of income was established any subsequent act of voluntary disclosure could not affect the imposition of penalty because it would not wipe out the assesses's earlier stand.
(3) In regard to the addition on account of unexplained margin money of Rs. 80,000, the assessee could not prove the source of the money. The addition was not even challenged in appeal.
In view of the above, the AO levied a penalty of Rs. 3,31,627 under Section 271(1)(c) of the Act.
13. In appeal before the CIT(A), the assessee made the following, submissions :
(1) There is ample evidence to show that Shri Banne was the legal owner of the plots. The sale deed by the assessee of his one-half share was made in the name of Shri Banne by registered sale deed dt. 23rd Sept., 1988 before the date of the search. Similarly, Smt. T.B. Shirodkar had also transferred her share in favour of Shri Banne and if she had stated that consideration of Rs. 77,000 was received by the assessee, it was only because of arrangement between her son and the assessee in regard to the amounts receivable by the assessee from the firm M/s Hotel Govind. Though therefore the statement of Smt. T.B. Shirodkar was factual, in the context in which it was made, it was not on account of the fact that the assessee has received the sale consideration.
(2) The Department accepted the sale of one-half portion of the plot of Smt. T.B. Shirodkar which was on a stamp paper of Rs. 40 and rejected the sale of one-half portion standing in the name of Shri R.H. Shinde which was registered before the registering authorities prior to the date of search. In the property cards, the property stood in the name of Shri Banne and the flats in the building also were shown as sold by Shri Banne. Remaining two flats as per settlement between the assessee and Shri Banne dt. 26th Feb., 1991 (p. 20 of paper book) still stood in the name of Shri Banne.
(3) Shri Banne had explained the investment in the construction of the property out of his own resources, i.e. agricultural income, truck income and amount received from booking of flats. The receipt of deposits from the flat purchasers was accepted by the Dy. CIT by issuing summons under Section 131.
(4) If the assessee had stated that the building belonged to him, it was only to give effect to the agreement between him and Shri Banne dt. 26th Feb., 1991. The petition of the assessee was only after this settlement on 8th March, 1991.
(5) Inspite of declaration made at the time of assessment, the AO was not satisfied about the disclosure made by the assessee nor did he rely on such declaration and the AO further noted that further investigation was necessary.
(6) At the time when the assessee filed his return of income on 8th Aug., 1988 the deed of settlement dt. 26th Feb., 1991 was not before him and he was of the bona fide belief that since the plot was sold to Shri Banne who was carrying on the construction thereon, no investment was required to be shown in the return of income.
(7) All the written evidences such as registered agreement, settlement petition of Shri Banne offering investment in his hand, statement of son of Smt. T.B. Shirodkar' records of city survey office showing plot and flats in the name of Shri Banne, were all clearly pointer to the fact that the construction belonged to Shri Banne. It was only the admission of the assessee and denial of Shri Banne about the investment subsequently as a consequence of the settlement deed dt. 26th Feb., 1991 that investment was shown to have been in the name of the assessee.
(8) The AO's observation that it was on account of investigation carried out in the course of assessment proceedings that the assessee came forward was factually incorrect. According to the assessee, there was absolutely no reference to the enquiry conducted. During the course of search also which took place on 28th Sept., 1988 the Department had not come across any papers shown that the apartments belonged to the assessee. The construction expenses were not found as debited in the firm M/s Venkatesh Bulk Carriers where the assessee was a partner. The file containing bills of Balaji Apartments was seized from M/s Venkatesh Bulk Carriers, but there was no evidence in the above file to show that the expenditure of the building was incurred by the assessee nor any bills, etc. pertaining to the expenditure were found. The investment was taxed by the AO in the hands of the assessee only on the basis of admission of the assessee and denial of ownership by Shri Banne made in consequence of settlement deed dt. 26th Feb., 1991. No enquiry was conducted by the AO in making assessment or while levying penalty. On the contrary, para 2.3 of the order showed the investigation had not even been started in regard to the investment, but it was only contemplated at the time of completion of assessment:
(9) The settlement deed also showed that the investment was made by Shri Banne himself out of his own resources and as a result of which he was given consideration for the investment by allotment of two flats by the assessee.
(10) It was a case of change of opinion and not finding of fact of any independent proof. A protective assessment was converted into regular assessment on the basis of same facts which were prevailing when the original assessment was made and, therefore, the basis on which penalty could have been levied did not exist.
14. In considering the arguments of the assessee, the learned CIT(A) concluded in para 6 of his order, accepting more or less the contentions raised by the assessee, as under :
(i) The statement that investment in Balaji Apartments was made by Shri Banne is supported by certain documentary evidence like the deed made in July, 1987 selling plot to Shri Banne, statement of Shri Shirodkar that the plot was sold by Smt. Shirodkar as well as by the assessee to Shri Banne, statement of two purchasers of the flats, registered deed dt. 28th March, 1991 showing transfer of plot to the assessee and the property card of the city survey office showing the plots in the name of Shri Banne. Shri Banne had also made settlement petition before the CIT offering amount of investment in his hands. The settlement deed dt. 26th Feb., 1991 indicated that construction was carried out by Shri Banne and investment was taken over by the assessee by way of allotment of two flats to Shri Banne to meet the cost of investment. On the other hand, there are settlements for surrender of investments in the hands of the assessee, retraction of Shri Banne from offering the amounts in his hands and the assertion of the assessee's representative before the AO that the investment belonged to the assessee and Shri Banne was a name lender. However, there is no supporting independent evidence to the assertion. The circumstances indicate that the investment may have belonged to Shri Banne and not to the assessee, but these circumstances required an enquiry before holding that the apartments belonged to Shri Banne or otherwise and this position is admitted in para 2.3 of the assessment order.
(ii) Final finding as to whether the investment belonged to the assessee and whether he failed to disclose the investment in the original return was not available in the order. This could have been available only on further enquiry to be conducted as per AO's observation in the assessment orders. For this purpose, the assessment in the case of Shri Banne was reopened under Section 147 and the addition was made on protective basis in the case of the assessee. On perusal of the assessment records, it was found that proceedings under Section 147 in the case of Shri Banne were dropped on the ground that the assessee had moved a petition on 8th March, 1991 owning up the investment. This showed that enquiry which was required to be made as per para 2.3 of the assessment order was not made. Therefore, amongst contradictory claims as well as agreements and available evidence, there is no conclusive evidence to show as to whom the property belonged, apart from the admission of the assessee which even the AO while making assessment did not rely upon conclusively. The protective assessment was made into regular assessment only on the basis of the assessee's letter. Protective assessment as well as substive assessments are made only on the basis of assessee's surrender of the amounts.
(iii) As there are contradictory statements of the assessee and Shri Banne regarding ownership of flats and documentary evidence indicates that investment might be relating to Shri Banne subject to verification, it could not be conclusively said that the assessee had concealed any particulars of investment while filing the return of income. The penalty, therefore, on unexplained investment in Balaji Apartments was cancelled.
(iv) As regards the addition of Rs. 80,000, the CIT(A) stated that the assessee had not maintained books of account in respect of his truck plying business. The assessee had produced cash flow statement for the year and on that basis income was assessed. A general view therefore of the availability of the cash had to be taken. Remaining investment in the truck had been made through cheques and the assessee himself had claimed that Rs. 80,000 was out of cash balance. Chart of receipts and payments as reproduced by the CIT as on 2nd July, 1987 showed that the assessee had sufficient receipts so as to enable him to invest Rs. 80,000 on 20th July, 1987. On this ground also, there was no case for levying penalty.
15. Shri Raj Kumar, the learned CIT (Departmental Representative) after taking us through the penalty order as well as the CIT(A)'s order, contended that the fact that Shri Banne was a Benami owner of the land was not disputed by the assessee and, therefore, the CIT(A) was not justified in deleting the penalty. The onus in this case was not on the Department, because once crime was committed and admitted, there could be no case of placing any burden on the Department. In this behalf, reliance was placed on the following decisions :
(i) CIT v. Gurbachan Lal (2001) 250 ITR 157 (Del)
(ii) CIT v. Mussadilal Ram Bharose (1987) 165 ITR 14 (SC)
(iii) Addl. CIT v. Jeevanlal Shah (1994) 205 ITR 244 (SC).
The learned CIT (Departmental Representative) further submitted that if the assessee was owner of the property, penalty had to be levied whether or not his declaration was voluntary or otherwise, because he was accountable for the investment. According to the learned CIT, the assessee's conduct shows that he was owner right from the beginning and had knowingly concealed the investments made in the construction of the property. Reliance was also placed on the decision of the Hon'ble Supreme Court in the case of K.P. Madhusudhanan v. CIT (2001) 251 ITR 99 (SC) for the proposition that provisions of Explanation were applicable. In the same context, reliance was also placed on the following decisions:
(i) CIT v. Jugalkishore Hargopaldas (2000) 243 ITR 220 (Ker)
(ii) Madras-Bangalore Transport Co. v. CIT (1991) 190 ITR 679 (Bom).
In the context of the contention that once the admission of concealment is made no further burden lies on the Department, the learned CIT places reliance on the decision of the Bombay High Court in the case of Western Automobiles India Ltd. v. CIT (1978) 112 ITR 1048 (Bom) as also on the decision of the Rajasthan High Court in the case of CIT v. Dr. R.C. Gupta and Co. (1980) 122 ITR 567 (Raj) and of the Calcutta High Court in the case of CIT v. P.B. Shah and Co. (P) Ltd. (1978) 113 ITR 587 (Cal). The learned CIT further submitted that the fact that the assessee himself admitted the income did not mean that there was any agreement not to levy penalty. When the statute puts a liability on the assessee, no agreement with the Department could entitle it to avoid that liability, because there could be no agreement or estoppel against statute. In this behalf, reliance was placed on the decision of the Delhi High Court in the case of Tube Fabrico (I) Ltd. v. CIT (1994) 210 ITR 1035 (Del) and on the decision of the Kerala High Court in the case of CIT v. D.K.B. and Co. The learned CIT (Departmental Representative) further submitted that the learned CIT(A) instead of considering the findings of the AO has redone the assessment and therefore, such exercise was not warranted in the present case. The concealment being very clear, there was no justification for cancellation of the penalty.
16. The learned CIT drew our attention to the department's appeal for the asst. yr. 1989-90, and submitted that this appeal had also a bearing on the merits of the appeal for the asst. yr. 1988-89. In that appeal, the AO had levied penalty in respect of gross profit additions made to the assessee's income from diary business. The assessee had sought to take benefit of this gross profit addition of Rs. 3,00,704 in explaining the investment made in the asst. yr. 1989-90 in respect of the building construction of Balaji Apartments. In deciding the appeal against this penalty, the learned CIT(A) deleted the penalty as far as the gross profit addition was concerned, but at the same time, he directed to levy minimum penalty on the amount of Rs. 3,00,704 which, according to the assessee, was available to him for the purpose of investment in Balaji Apartments. According to the learned CIT (Departmental Representative), the learned CIT(A) in the asst. yr. 1988-89 completely deleted the penalty in reference to the investment made in Balaji Apartments, while in the asst. yr. 1989-90 the same CIT(A) had confirmed the. penalty with reference to an amount of Rs. 3,00,704 referable to the investment in Balaji Apartments. According to him, therefore, the CIT(A) was not justified in his approach and ought to have confirmed the penalty in asst. yr. 1988-89.
17. Shri K.A. Sathe, the learned counsel for the assessee, at the very outset, pointed out that the facts relating to asst. yr. 1989-90 are entirely different. He also pointed out that the appeal for the asst. yr. 1989-90 was decided on 31st Jan., 1994 by the CIT(A) before considering the appeal for the asst. yr. 1988-89 which was decided on 2nd May, 1997. In the appeal for the asst. yr. 1989-90, all that the assessee did was to make an alternate claim that if any gross profit addition was made in that year, the same would cover the investment, if any, made by the assessee in Balaji Apartments, but the fact remained that the said contention of the assessee was always subject to his contention in the asst. yr. 1988-89 that, apart from his voluntary declaration which was made in consequence of the settlement with Shri Banne, there was no evidence with the Department to show that the construction was made by the assessee. In fact, he said against sustaining penalty with reference to the addition of Rs. 3,00,704 for the asst. yr. 1989-90 that the assessee had filed an appeal and he would rely on the observations of the learned CIT(A) for the asst. yr. 1988-89 where he cancelled the penalty with reference to the addition of the investment in Balaji Apartments. According to the assessee's representative, the issue for the asst. yr. 1988-89 in any case had to be decided independently.
18. Shri Sathe heavily relied upon the order of the learned CIT(A) and submitted that there was substantial evidence to show that Shri Banne was owner of the building and if no admission had come from the assessee, the Department had absolutely no evidence to show that the impugned investment was that of the assessee. In fact, if the declaration of the assessee is removed, the Department had virtually accepted the investment in the hands of Shri Banne.
19. According to Shri Sathe, penalty proceedings were initiated in the course of the assessment, but the assessment itself shows that even the assessee's alleged admission that the property belonged to him was not acceptable to the Department and they wanted to make further investigation. Thus, when the AO . himself was not sure whether addition was to be made in the hands of the assessee or not, initiation of proceedings in such a protective assessment itself vitiated the entire proceedings. Reliance in this behalf was placed on the decision of the Calcutta High Court in the case of CIT v. Super Steel Sales Co. (1989) 178 ITR 451 (Cal). Shri Sathe further submitted that the assessee owned up the investment not because he was the real owner, but there were compelling circumstances as has been revealed by the settlement agreement. The document itself shows that the investment was made by Shri Banne and in return for that investment two flats were to be allotted to Shri Banne and he continued to be the owner of the said two flats. Thus, the agreement was not on the basis that the assessee was the owner, but on the ground that to avoid income-tax proceedings in the case of Shri Banne the assessee was to show the investment in his own hands. The event of settlement agreement was a subsequent event and the assessee at the time of filing return could not have anticipated further developments and it could not therefore be said that the assessee ought to have disclosed the investment and resources thereof in his return. The learned counsel further submitted that in the context of Benami transaction, penalty cannot be levied in view of the judgment of the Allahabad High Court in CIT v. Hari Ram Shriram (1987) 167 ITR 578 (All). The learned counsel also placed reliance on the decision of the Kerala High Court in the case of CIT v. M. George and Bros. (1986) 160 ITR 511 (Ker) and that of the Madhya Pradesh High Court in CIT v. Punjab Tyres (1986) 162 ITR 517 (MP). Thereafter, Shri Sathe made reference to ground No. 2 of the Department's appeal wherein it has been contended that the CIT(A) had failed to appreciate the fact that the assessee did not disclose the investment in Balaji Apartments and milk diary in the return filed on 8th Aug., 1988 nor did it revise the return, though there was sufficient time to do so. On the basis of this contention, the learned counsel submitted that it appears from this that if the return had been filed, the Department would not have levied the penalty. Thus, the case of the Department is only on a technicality whether revised return should have been filed while making declaration that the investment, belonged to the assessee. Lastly, the learned counsel concluded that the CIT(A) had given sufficient and cogent reasons for his conclusion that penalty was being levied merely for change of opinion and his order needs to be upheld.
20. We have considered the rival submissions and perused the facts on record. In the present case, penalty is sought to be imposed only on the basis of admission made by the assessee, that too because of peculiar circumstances of his agreement with Shri Banne and in these circumstances in absence of any independent finding based on any valid enquiry regarding concealment of income, penalty was not leviable. In our opinion, to assess a person on admission or confession is one thing and to penalise is altogether a different thing. The Revenue has to firmly establish mens rea under the substantive provisions of Section 271(1)(c), after the assessee furnishes an explanation denying charge of concealment. The Revenue has a heavy burden to be discharged as per the substantive provisions of Section 271(1)(c) inspite of Expln. 1 appended to the said provisions. In this connection, reference is invited to the decision of Calcutta High Court in the case of CIT v. Nuruddin and Bros. (1990) 185 ITR 481 (Cal).
21. In CIT v. Han Ram Sriram (supra), the assessee HUF had filed a return and subsequently the ITO found from the information, that the assessee had received a number of drafts in the name of his employees and in the name of coparceners. He issued notice under Section 148. The assessee, however, explained that these amounts belonged to coparceners' individual capacity and did not belong to it. The ITO did not believe the explanation and added the amount as assessee's income. On appeal to the AAC, the assessee agreed to the addition in order to avoid litigation and hardship. The penalty imposed by the ITO was cancelled by the Tribunal on the ground that there was no positive evidence to show that HUF had concealed income when the assessee had all along claimed that the disputed amounts belonged to individual and not to HUF. It was held by the Hon'ble High Court that even assuming that Explanation to Section 271(1)(c) . had applied, the said Explanation was merely a rule of evidence and once the entire material had been placed before the Tribunal by both the authorities, the question of burden of proof under the Explanation lost its importance and ultimately everything depended upon the findings recorded by the Tribunal in that behalf. Moreover, the burden to be discharged under the Explanation was a negative one and in this case, the Tribunal had found that there was no evidence to show that the assessee had concealed his income. Cancellation of penalty was therefore upheld. The Hon'ble Allahabad High Court also relied on the decision of the Supreme Court in the case of Anantharam Veera Singhaiah and Co. v. CIT (1980) 123 ITR 457 (SC) where the Supreme Court held that the assessee must be conscious of having concealed particulars of income. According to the High Court, the said position holds good even after the insertion of Explanation to Section 271(1)(c) of the Act.
22. In the present case, the declaration was made by the assessee of the investment only as a result of settlement he had arrived with Shri Banne so as to relieve Shri Banne from tax liability and to release his own investments. The declaration was purely voluntary and there was total absence of any evidence to show that any investigation was carried out by the Revenue. For the proposition that no penalty can be levied for the amounts offered for buying peace, reliance was placed on the decision of the Kerala High Court in the case of CIT v. M. George and Bros. (supra) and that of Madhya Pradesh High Court in the case of CIT v. Punjab Tyres (supra). Concealment has to be seen in the context of the entire proceedings as held in CIT v. J.K.A. Rajappa Chettiar (1985) 153 YTR 215 (Mad) and if we judge the concealment in the context of entire proceedings, same does not stand established.
23. Coming to the argument of the learned CIT (Departmental Representative) that once crime was committed and admitted, no further burden lay upon the Revenue, we find that the assessee had merely offered the investment for taxation purpose and the alleged crime of concealment was never admitted. The Revenue has still to discharge the basic burden of showing that the assessee had concealed income.
24. In regard to the various cases cited by the learned CIT, we are of the opinion that each case of penalty turns on its peculiar facts and whether in a given case penalty is leviable or not would depend on the peculiar facts of that case. Only legal propositions will have to be considered which are being laid down by the Courts. In this behalf, the well accepted legal position is that penalty is leviable if the assessee is found to be conscious of his non-declaration of income at the time of filing of the return. In the present case, there is nothing to show that the assessee was aware of the subsequent developments, such as settlement with Shri Banne etc. There is no independent evidence to show that Shri Banne was not owner of the property. In fact, the whole case of the Department is based on the declaration of the assessee that the investment belongs to him. If that declaration is taken out there are no facts to show that the assessee was the owner of the investment and he had failed to show it in the return of income. It would therefore mean that the assessee is to be penalised on the basis of declaration which was not even believed in at the time of original assessment.
25. The reliance placed by the learned CIT on the order relating to asst. yr. 1989-90 is not relevant because the facts relating to asst. yr. 1989-90 are entirely different. The appeal for the asst. yr. 1989-90 was decided on 31st March, 1994 by the CIT(A) before considering the appeal for the asst. yr. 1988-89 which was decided on 2nd May, 1997. In appeal for the asst. yr, 1989-90, all that the assessee did was to make an alternate claim that if any gross profit addition was made in that year, the same would cover the investment, if any, in Balaji Apartments, but the fact remained that the said contention of the assessee was always subject to his contention in the asst. yr. 1988-89, that apart from his voluntary declaration which was made in consequence of the settlement with Shri Banne, there was no evidence with the Department to show that the construction was made by the assessee. In fact, the assessee said against sustaining penalty with reference to the addition of Rs. 3,00,704 for the asst. yr. 1989-90 that he had filed an appeal and he would rely on the observations of the CIT(A) for the asst. yr. 1988-89 where he cancelled the penalty with reference to the addition of the investment in Balaji Apartments. Accordingly, in our opinion, the issue for the asst. yr. 1988-89, in any case, has to be decided independently and accordingly, the reliance placed by the learned CIT (Departmental Representative) on the order for the year 1989-90 is of no assistance to the Revenue.
26. We further find that in the present case, the AO has not factually relied on the provisions of Explanation while levying penalty. In the context of the Explanation, what is to be seen is whether the assessee's explanation is one which is bona fide and whether all the facts relating to the same have been disclosed by him. Once this is done, the Department has still to discharge the burden of proving the concealment. In the present case, there is nothing to show that the explanation given by the assessee was found to be false or that there was no explanation. This was a case where a bona fide explanation was rejected and penalty was being levied. Even assuming, therefore, that the explanation was to be invoked, there was no penalty leviable merely because of rejection of explanation.
27. In the light of above discussion, we hold that the learned CIT(A) is justified in deleting the impugned penalty. We accordingly decline to interfere.
28. In the result, the appeal is dismissed.
U.B.S. Bedi, J.M.:
8th May, 2002
29. I have gone through the proposed order of the learned AM but despite my best persuasion of myself, I have not been able to agree with the findings and conclusions arrived at by him and my reasons for being so, are given hereunder.
30. This is Revenue's appeal against the order of deletion of penalty of Rs. 3,31,627 imposed under Section 271(1)(c) of the IT Act, 1961 by the AO. In this case, return of income for the asst. yr. 1988-89 was filed on 8th Aug., 1988, declaring total income at Rs. nil as computed below :
(I) Income from house property Residential flat No. 19B Mansmruti Co-op. Housing Nil Society, Takala, Kolhapur (II) Profits and gains from business
(a) Share profit from firm :
M/s Shree Venkateshwar Bulk 2,235
Carriers, Kolhapur
(b) Income from truck plying business
Net loss as per P&L a/c 1,38,279
Add : Depreciation 3,73,279
--------------
2,35,000
------------
2,37,236
Less : Depreciation 2,37,236
---------------
Gross total income Nil
Less: Deduction under Section 80C, LIP 1026 Nil
--------
Total income Nil
---------------
Unabsorbed depreciation carried forward 1,36,043
---------------
Subsequently on 29th Aug., 1988, the Department has taken search and seizure action at the premises of the assessee along with other persons connected/ related to Shri M.R. Mahadik, a resident of Pulachi Shrili. On the basis of material seized at the time of search and seizure action and information gathered and investigation made subsequently, the assessment for the asst. yr. 1988-89 was completed on 25th March, 1991 on total income of Rs. 6,08,970. During the course of assessment proceedings, the penal proceedings under Section 271(1)(c) of the Act were initiated in respect of following additions made :
(a) Undisclosed investment of Rs. 6,65,010 in the building styled as Balaji Apartments (the said addition is subsequently treated as an addition on regular basis as per order dt. 13th March, 1992 passed in view of assessee's letter dt. 12th March, 1992.
(b) Unexplained investment of Rs. 80,000 in the milk tanker MWK 463.
Principally accepting the nature and purpose of additions made by the AO, the assessee filed an appeal before the CIT(A) only for limited purposes of following issues.
(a) While working out the cost of construction of building the AO has taken the cost of plot at Rs. 88,600 as valued by the Department instead of Rs. 77,000 as disclosed by the assessee.
(b) To reduce a sum of Rs. 80,314 from the cost of construction of building (as valued by the Departmental valuer) being the contractor's profit as the construction of building is self-supervised.
After taking into account the assessee's arguments, the CIT(A), Kolhapur vide his order dt. 13th March, 1991 has granted reduction of Rs. 71,836 from the assessed total income.
After the decision of the CIT(A), Kolhapur, a reminder was issued and served on the assessee on 18th Jan., 1992 to seek his explanation, if any, to finalise the penalty proceedings under Section 271(1)(c) of the Act. The assessee has filed his written submission on 27th Jan., 1992 as under :
"I have filed the return of income on 8th Aug., 1988 declaring total income of Rs. nil. The search and seizure action was carried out on 28th Sept., 1988. In order to purchase the peace of mind and settle the income-tax matters, I have filed the petition for disclosure of additional income to the CIT, Kolhapur on 8th March, 1991.
The returned income was nil and the income assessed was voluntarily offered by me through petition to CIT, Kolhapur. I have also fully co-operated to the Department in the matter of assessment and payment of taxes."
The explanation offered by the assessee was not found to be convincing by the AO who observed as under :
"(a) So far as undisclosed investment in the building viz. Balaji Apartments are concerned, as is seen from para 2 of the assessment order, the assessee and one Shri R.B. Banne, took different and contrary stands on different occasions. In a petition filed after the search before the CIT, Kolhapur, in April, 1989, Shri Banne disclosed the building in his name. During the course of assessment proceedings, initially the assessee in his letter dt. 10th Oct., 1990 himself admitted that he had sold the plot to Shri R.B. Banne and he had nothing to do with the building Balaji Apartments. Again in petition dt. 8th March, 1991 addressed to the CIT, the assessee took a contrary stand admitting that the plot and building factually belong to him. The same stand is reiterated by the assessee in his letter dt. 12th Feb., 1992, asking the Department to treat the addition in question on regular basis, which was previously made on protective basis at the time of finalisation of assessment.
(b) From the above sequence of events it is clearly seen that in the beginning the assessee consciously tried to conceal the investment made by him in the building Balaji Apartments. The assessee's admission in a petition dt. 8th March, 1991 came only after detailed investigation during the course of assessment proceedings. Similarly Shri Banne also reversed his stand and in a letter dt. 19th March, 1991 addressed to the CIT, Kolhapur, he admitted that the ownership of building and plot actually belong to Shri Shinde. All these factual position shows that the assessee, in concurrence with Shri Banne made .a conscious and deliberate effort to conceal his investment in the building. His disclosure came only after the AO probed into the matter. The sequence of the events and stands and contra stands taken by the assessee at different stages negativates the assessee's stand that he has made the disclosure voluntarily and co-operated with the Department. Even otherwise once the fact of concealment of income is established, any subsequent act of voluntary disclosure would not affect the imposition of penalty, because it does (sic) not without the assessee's earlier guilt.
(c) So far as unexplained margin money of truck at Rs. 80,000 is concerned, it is seen from the assessment order that the assessee could not prove the source of this money. Even the assessee did not raise this issue in his appeal before the CIT(A). The explanation offered by the assessee is also silent on this point. All these facts show that the assessee has no say in the matter"
In view of the above facts that the AO was satisfied that this is a fit case to levy penalty as the assessee has deliberately concealed the particulars of his income and accordingly be levied the penalty of Rs. 3,31,627 under Section 271(1)(c) of the Act, being minimum imposable.
31. Aggrieved by this order of the AO the assessee took up the matter in appeal and the learned CIT(A) while taking on record certain new documents and so-called settlement dt. 26th Feb., 1991 stated to have been executed between the assessee and Shri Banne concluded to delete the entire penalty against which the Revenue is in appeal.
32. So far as the arguments of both sides are concerned, for the sake of brevity they are not being repeated and adopted as recorded in the proposed order.
33. After hearing both sides and going through the record as well as the case law cited by rival parties, I find that during the penalty proceedings in response to show-cause notice issued by the Department, no plea other than the one taken earlier during assessment proceedings was taken, i.e., in order to purchase the peace of mind and settle the income-tax matters, the assessee filed petition for disclosure of additional income to the CIT, Kolhapur on 8th March, 1991. The relevant portion of the said letter is reproduced as under :
"In the process of expansion of business, I have purchased plot at 532, E, Shahupuri, Kolhapur along with Smt. T.B. Shirodkar in November, 1986 and constructed the building styled as Balaji Apartments in asst. yrs. 1988-89 and 1989-90. Due to misguidance, I tried to construct the said building in the name of Shri R.B. Banne. The plot at 432 E Shahpuri, Kohlapur and the building on the said plot styled as Balaji Apartments factually belong to me".
It was further submitted that the returned income was nil and income assessed was voluntarily offered by him through petition and he has fully co-operated with the Department in the matter of assessment. The AO did not accept the plea of the assessee not to impose the penalty and rather observed that he did not agree with the above explanation and by discussing the investments in Balaji Apartments and making reference to para 2 of the assessment order, the AO concluded to observe that even otherwise the fact of concealment is established in subsequent act of voluntary disclosure which too would attract the imposition of penalty. It is also an admitted position of fact that Shri Banne was Benami owner of the land and the CIT(A) was not justified in deleting the penalty. To support this view reliance was placed on the decisions reported in CIT v. Mussadilal Ram Bharose (1987) 165 ITR 14 (SC) and Addl. CIT v. Jeevanlal Sah (1994) 205 ITR 244 (SC) and the same was relied upon by the Delhi High Court in the case reported in CIT v. Gurbachan Lal (2001) 250 ITR 157 (Del).
34. Subsequently, Shri R.B. Banne filed letter dt. 19th March, 1991, placed at paper book p. 29, whereby he sought permission to withdraw the petition filed on 20th April, 1989 inter alia, contending as under :
"I have filed the petition for disclosure of income for and from asst. yrs. 1985-86 to 1988-89 on 20th April, 1989. I am an illiterate person. Due to misguidance, I have filed the said petition. The petition consists of income from truck plying business and investments in construction activity. Actually, the plot at 532 Shahupuri, Kolhapur and the building constructed thereon belongs to Shri R.H. Shinde even though the same is in my name. And the truck/tankers belong to Shri M.R. Mahadik.
You are requested to consider my request sympathetically and allow me to withdraw the petition without levying any penalty/interest/prosecution, if any".
35. In another letter filed on 2nd Aug., 1991, placed at p. 31 of the paper book, the assessee, inter alia, contended as under :
"I have filed the revised return of income on 9th July, 1991. Vide a petition filed to the CIT, Kolhapur on 8th March, 1991, the cost of construction of building Balaji Apartment has been offered by me for taxation in asst. yrs. 1988-89 and 1989-90 as the building is actually owned by me. In the petition, on the basis of my cash flow statement, I have offered Rs. 1,76,974 as my additional income out of profit of Shree Balaji Traders, which have been utilised for construction of the building, Balaji Apartment. This amount has remained to be shown in my return filed on 9th July, 1991. This may kindly be brought to tax and my computation of income may be treated as revised to that extent".
In a further petition dt. 12th March, 1992 placed at p. 32 of the paper, the assessee, inter alia, contended to treat the investment in the building styled as "Balaji Apartments" on substantial basis instead of protective one in the following words.
"The investment in the building styled as 'Balaji Apartment' has been taxed on protective basis. I had filed the petition to the CIT, Kolhapur on 8th March, 1991 and though that petition, I had offered the investment in said building in my hand. The appeal in respect of asst. yr. 1988-89 has already been decided. The investment in the said building which is included on protective basis be taxed in my hand on regular basis, as the said investment is not taxed in the hands of my other person".
And on the basis of this letter, AO vide order dt. 13th March, 1992 concluded to treat investment in the building styled as 'Balaji apartment' on substantive basis.
36. After due consideration of arguments of both sides and looking into the record I find that the assessee has admitted the investment in the property known as 'Balaji Apartment' to be his income by disclosing the same in the file with the Department in order to cover the originally undisclosed income. Now it is to be seen whether the income disclosed latter which was not disclosed in the return could be a ground for not imposing the penalty or would it amount to concealment for levy of penalty. Filing of the letter of disclosure by the assessee does not in itself either establish his bona fide nor does it necessarily imply that he has concealed his income. The circumstances in which the said letter is filed would really matter. The said letter come to be filed by the assessee under the circumstances and in the background that cannot be divorced from the question of bona fide of the assessee. This letter was filed after search and seizure action and further investigation in the case was done. What is important is that the entire process of concealment of investment and modus operandi adopted by the assessee having been discovered on search and seizure and investigation made thereafter in this case. Filing of letter could not be said to be aimed at correcting any bona fide error in the disclosure of the particulars of income. Filing of letter was not under the compulsion or circumstances that had come to light in which it would become difficult for the assessee to avoid substantial addition warranted in such circumstances. Even assuming that filing of the letter was not under the compulsion when the detection was made during the investigation made after search and seizure, yet the same would not by itself lead to the conclusion that there was no intention on the part of the assessee to conceal its income when he filed his original/revised return. The question whether there was any such intention would depend upon the facts and circumstances of each case that would throw light on the mental process of the assessee at the relevant time. Subsequent conduct may be one of the factors which can be taken note of but mere filing of a letter may not be sufficient to exonerate the assessee. Even if the Department had not come across any further tangible evidence in regard to the concealment, yet so long as the question whether there was any such concealment was open before the Department, and the latter had the option to initiate appropriate proceedings, the submission of a letter by the assessee cannot be viewed in isolation.
37. Since filing of letter showing additional income can be equated with filing of revised return disclosing additional income, so following case law Would be relevant for the proposition.
38. In the case of CIT v. K. Mahim (1984) 149 ITR 737 (Ker), the Kerala High Court has taken the following view.
"However, mere filing of a revised return by the assessee at any time prior to the Department cornering the assessee in relation to a particular concealed income, would not be sufficient to exonerate the assessee from the penal consequences. The mere fact that investigation by the Department is afoot, though nothing tangible had come into the possession of the Department at any particular point of time, may induce a dishonest assessee to submit a revised return. Such an exercise will not absolve him of the consequences flowing from an act Which on his part had already been completed, namely, the concealment of income or the particulars thereof".
To the same effect is the judgment of the Kerala High Court in Indian Cloth Depot v. CIT (1988) 173 ITR 330 (Ker) wherein the plea of the assessee that the revised returns were voluntary which could not be made a basis for levy of penalty was rejected by the IAC, the Tribunal and even the High Court on reference. Yet in another case, similar view has been taken by the Karnataka High Court in the case of CIT v. Sudharshan Silks and Sarees (2002) 253 ITR 145 (Kar). The headnotes of the said decision is reproduced hereunder :
Penalty--Concealment of income--Search and seizure operations showing that assessee had concealed its income--Revised returns filed showing greater income--Mere filing of revised returns not sufficient--No evidence that Revenue had. agreed not to levy penalty--Imposition of penalty valid--IT Act, 1961, Section 271(1)(c).
39. From the contents of various correspondence as reproduced in earlier paragraphs, it is amply clear that from the very beginning assessee is the factual owner of the plot of land as well as investment made thereon which he has not disclosed in his return of income and had there been no search and seizure action in the premises of the assessee along with other persons related/connected to Shri M.R. Mahadik, material not seized and investigation not made thereafter, the assessee could not come forward to disclose the said investment in the said property. From the above sequence of events it is clearly found that in the beginning the assessee consciously tried to conceal the investment made by him in the building Balaji Apartment. The assessee's admission in a petition dt. 8th March, 1991 came only after detailed investigation after search and seizure operation and during the course of assessment proceedings. Similarly, Shri Banne also reversed his stand and in a letter dt. 19th March, 1991 addressed to the CIT Kolhapur wherein he had admitted that the ownership of the building and plot actually belong to Shri Shinde. All these factual position shows that the assessee, in concurrence with Shri Banne made a conscious and deliberate effort to conceal his investment in the building. His disclosure came only after the AO probed into the matter. The sequence of the events and stands and centra-stands taken by the assessee at different stages negative the assessee's stand that he has made the disclosure voluntarily and co-operated with the Department. Even otherwise also when the fact of concealment of income is established, any subsequent act of voluntary disclosure by filing a letter would not affect the imposition of penalty because it does not erode the assessee's earlier guilt. Therefore, in my considered view, the explanation offered by the assessee has rightly been held by the AO to be not satisfactory in view of the facts and circumstances of the present and as such it is a fit case for levy of penalty.
40. Similarly, so far as penalty with regard to. unexplained margin money of truck at Rs. 80,000 is concerned, it is noted from the assessment order that the assessee could not prove the source of money and even in quantum appeal, the assessee did not raise this issue before the CIT(A). Moreover, explanation offered by the assessee before the AO is found to be silent on this point, Therefore, with regard to this point, no explanation has been offered at all before the AO. So the AO is found to have rightly concluded that the assessee is liable for penalty on this amount too. So far as working about creation of capital to the extent of Rs. 80,000 at the first appellate stage is concerned, it is without any basis and material and the learned CIT(A)'s action in holding that the assessee was having cash to this extent on the date of deposit of margin money is unfounded and unsupported and in my considered view, the penalty is attracted on this amount too.
41. Therefore, I hold that the assessee to be liable for penalty as imposed by the AO and the CIT(A)'s action being unjustified is not sustainable. Thus, while accepting appeal of the Revenue, I reverse the order of the learned CIT(A) and restore that of the AO.
42. As a result, the appeal of the Revenue gets accepted.
REFERENCE UNDER Section 255(4) OF THE IT ACT, 1961 B.L. Chhibber, A.M.:
16th May, 2002 As there is a difference of opinion between the AM and the JM, the matter is being referred to the President of the Tribunal with a request that the following question may be referred to a Third Member or to pass such orders as the President may desire :
"Whether, on the facts and in the circumstances of the case, the CIT(A) is justified in cancelling penalty of Rs.. 3,31,627 levied by the AO under Section 271(1)(c) of the IT Act, 1961?"
M.K. Chaturvedi, Vice President (As Third Member) :
1st Sept., 2004 This appeal came before me as a Third Member, to express my opinion on the following question :
"Whether, on the facts and in the circumstances of the case, the CIT(A) is justified in cancelling penalty of Rs. 3,31,627 levied by the AO under Section 271(1)(c) of the IT Act, 1961?"
2. I have heard the rival submissions in the light of material placed before me and precedents relied upon. For the relevant assessment year the assessee filed his return on 8th Aug., 1988, declaring total income at nil. On 29th Aug., 1988 search operation was conducted.
3. The assessee purchased plot at 532-E, Shahupuri, Kolhapur, along with Smt. T.B. Shirodkar in November, 1986, for a sum of Rs. 1,50,000. The investment in the said plot was disclosed at that point of time. The Department did accept it. At the time of search, a statement of Shri S.B. Shirodkar, son of the co-owner was recorded. It was stated that the building was purchased with the intention of constructing flats. Plan for construction was made in the joint name of the owners. It was submitted to the Kolhapur Municipal Corporation in January, 1987 and the plan was sanctioned in April, 1987. On account of dispute between the co-owners, the idea of construction was abandoned. At that time some minor construction was done. Both the co-owners entered into sale agreement with one Shri R.B. Banne. The assessee transferred by a registered deed, his one-half share for a consideration of Rs. 77,000. The other co-owner also transferred to Shri R.B. Banne, her one-half share for Rs. 77,000. Thereafter, Shri Banne started the construction work under the name and style of "Balaji Apartments". Nine flats were constructed. Shri Banne filed a deed of apartment declaration on 2nd Jan., 1990. He took some amount from the customers as booking advances for construction. During the course of construction, Shri Banne had received Rs. 2,25,000 from the assessee in 1987-88. Shri Banne had spent Rs. 1,54,000 towards purchase of plot and Rs. 9,00,000 approximately on the construction of the building. The total cost was stated to be around Rs. 10,54,000.
4. Initially Shri Banne disclosed this amount in his own assessment. He made a petition for disclosure of income on 20th April, 1989. The income was disclosed for the asst. yrs. 1983-84 to 1987-88. He filed cash flow statement and balance sheet as on 31st March, 1988. In the cash flow statement for the year ending 31st March, 1988, Shri Banne disclosed investment of Rs. 1,54,000 towards purchase of land and Rs. 4,40,000 towards construction expenses. Besides, he received advances of Rs. 5,00,000. The cost of construction was reflected at Rs. 5,94,000. After adjusting the estimated profit, the work-in-progress was shown at Rs. 7,10,000. Shri Banne disclosed agricultural income and income from truck plying. The investment in construction was shown to be out of agricultural income, truck plying business and amount received towards booking of the flats.
5. Pursuant to the aforesaid disclosure, Dy. CIT, Special Range, examined some persons by issuing summons under Section 131 of the Act. The amount in respect of one Shri Shivaji R. Patil Rs. 1,30,000 and Shri D.S. Patil Rs. 1,05,000 shown as deposits were accepted. On 25th Feb., 1991, the property of Shri Banne was attached by the Department under Section 281B of the Act. It was submitted that thereafter the dispute arose between the assessee and Shri Banne. The assessee had advanced an amount of Rs. 2,25,000 to Shri Banne. The dispute was eventually settled on 26th Feb., 1991. Deed of settlement was prepared. Shri Banne made it clear in the said agreement that due to the attachment of the flats by the Department, loan proposals of the flat holders who made the bookings were not sanctioned by the banks and due to this the persons were not interested for completing the agreement. Shri Banne requested the assessee to take over the building. His investment in the building was to the tune of Rs. 10,54,000. A sum of Rs. 2,25,000 was payable to the assessee. Thus, after deducting this amount, Shri Banne was to receive Rs. 8,29,000.
6. Instead of paying the said amount of Rs. 8,29,000, flat No. 4 and 5, as per the Apartment Declaration were to be allotted to Shri Banne and the remaining flats were to be taken over by the assessee. On sale of these flats the money was to be adjusted against the dues.
7. It was also agreed that the land and building shall be offered for taxation by the assessee. Income-tax liability shall be paid by the assessee. Shri Banne stated that he would withdraw his petition before the CIT in respect of the building and transfer five flats in Balaji Apartments in favour of the assesgee.
8. Ex consequenti on 8th March, 1991 the assessee made a petition to the CIT for voluntary disclosure of additional income for the asst. yrs. 1987-88 and 1989-90. At the time of this petition, the assessment of the assessee for the asst. yr. 1987-88 was already completed, while the assessment for the asst. yr. 1988-89 was. under appeal and the assessment for the asst. yr. 1989-90 was pending. Along with the petition for clearing the additional income, the assessee submitted a cash flow statement in which the construction of Balaji Apartments was shown at Rs. 6,50,000. In view of the availability of funds as per cash flow statement, the additional income of Rs. 54,288 was offered for taxation as net profit of Balaji Traders. This firm was doing milk business. Besides, construction expenses of Rs. 2,50,000 were disclosed in the asst. yr. 1989-90 and additional net profit of Rs. 1,76,974 was offered for the asst. yr. 1989-90.
9. On 19th March, 1991, Shri Banne had withdrawn his disclosure petition dt. 20th April, 1989. On the same date the other co-owner, Smt. T.B. Shirodkar had given a letter to the Department stating that she had sold her one-half share in the plot of land to the assessee in July, 1987 for Rs. 77,000.
10. Consequent upon these developments, the assessee informed to the CIT, Kolhapur, on 8th March, 1991 the actual position and offered the additional amount for taxation on the ground that Balaji Apartments belong to him. From the aforesaid factual details it is clear that the disclosure was not made consequent upon the search. It was made because the assessee took over the property from Shri Banne.
11. The learned counsel for the assessee invited my attention to the order dt. 13th March, 1992, passed by the Dy. CIT, Special Range, I, Kolhapur. This reads as under :
"The assessee by his application dt. 12th March, 1992 has requested that in view of his petition dt. 8th March, 1991 made to the CIT, Kolhapur and his admission at the time of assessment proceedings, that the investment and ultimate ownership of the building viz. Balaji Apartments belong to the assessee, the addition of undisclosed investment of Rs. 6,65,010 made on protective basis may be treated as an addition on regular basis.
2. After considering the facts of the case the assessee's contentions are accepted and the addition of Rs. 6,65,010 made on account of undisclosed investment in the building styled as Balaji Apartments is treated as an addition on regular basis instead of on protective basis'.
12. The contents of the assessee's letter dt. 12th March, 1992, on the basis of which the aforesaid order was passed are reproduced here as under :
"Respected Madam, The investment in the building styled as 'Balaji Apartment' has been taxed on protective basis, I had filed the petition to the CIT, Kolhapur on 8th March, 1991 and through that petition; I had offered the investment in said building in my hand. The appeal in respect of asst. yr. 1988-89 has already been decided. The investment in the said building which is included on protective basis, be taxed in my hand on regular basis, as the said investment is not taxed in the hands of any other person".
13. The additional income was disclosed by petition dt. 8th March, 1991. Thereafter, on 2nd Aug., 1991, the assessee has given the letter to Dy. CIT, Special Range, I, Kolhapur, which reads as under :
"I have filed the revised return of income on 9th July, 1991. Vide a petition filed to the CIT, Kolhapur on 8th March, 1991, the cost of construction of building Balaji Apartment has been offered by me for taxation in asst. yrs. 1988-89 and 1989-90 as the building is actually owned by me. In the petition, on the basis of my cash flow statement, I have offered Rs. 1,76,974 as my additional income out of profit of Shree Balaji Traders which have been utilised for construction of the building, Balaji Apartment. This amount has remained to be shown in my return filed on 9th July, 1991. This may kindly be brought to tax and my computation of income may be treated as revised to that extent."
14. Smt. Tarabai B. Shirodkar, the other co-owner of the plot, vide her letter dt. 19th March, 1991, intimated the sale of plot to the Dy. CIT, Kolhapur, as under:
"I have purchased plot at 532, E, Shahupuri, Kolhapur in November, 1986 from Shri Shah Prakash Chandra Chhotalal, for Rs. 75,000. I have purchased that plot out of withdrawals from building loan account of M/s Hotel Govinda. The said plot is sold, to Mr. R.H. Shinde in July, 1987 for Rs. 77,000. I have received that amount from Shri R.H. Shinde but the agreement for the said plot was in the name of Shri R.B. Banne, at the behest of Shri R.H. Shinde."
15. I have also examined the petition filed by Shri Ramchandra B. Banne dt. 19th March, 1991. He made, a request for the withdrawal of petition filed on 20th April, 1989. This petition reads as under:
"I have filed the petition for disclosure of income for and from asst. yrs. 1985-86 to 1988-89 on 20th April, 1989. I am an illiterate person. Due to misguidance, I have filed the said petition. The petition consists of income from truck plying business and investments in construction activity. Actually, the plot at 532, E, Shahupuri, Kolhapur and the building constructed thereon belongs to Shri R.H. Shinde, even though, the same is. in my name. And the truck/tankers belongs to Shri M.R. Mahadik.
You are requested to consider my request sympathetically and allow me to withdraw the petition without levying any penalty/interest/prosecution if any".
16. It is palpable from the perusal of records that Shri Banne was the de jure owner of the plot. The sale deed was duly executed in his favour. It was registered before the date of search. Smt. T.B. Shirodkar also transferred her share in favour of Shri Banne. The Department accepted the sale of one-half portion of the plot of Mr. T.B. Shirodkar. Shri Banne explained the investment in the construction of the property out of his own resources. The assessee made the disclosure petition after the settlement on 8th March, 1991 with Shri Banne. It was only the admission of the assessee and the denial of Shri Banne about the investment. Subsequently, as a consequence of the settlement deed dt. 26th Feb., 1991 that the investment was shown in the name of the assessee. Nothing incriminating was found at the time of search from the premises of the assessee.
17. The learned counsel for the assessee submitted that a protective assessment was converted into regular assessment on the basis of very facts which are prevailing when the original assessment was made. This amply demonstrates that the AO was not sure as to in whose hands the income is to be assessed. The income which was to be assessed in the hands of Shri Banne was assessed in the hands of the assessee because of his admission. The admission was made consequent upon settlement with Shri Banne. As such, there is no iota of concealment in the deal.
18. Reliance was placed on various precedents. The learned Departmental Representative relied on the decision of the Hon'ble apex Court rendered in the case of K.P. Madhusudhanan v. CIT (2001) 251 ITR 99 (SC). The learned counsel for the assessee placed his reliance on the decision of the Hon'ble apex Court rendered in the case of CIT v. Suresh Chandra Mittal (2001) 251 ITR 9 (SC). According to the learned Departmental Representative, the assessee agreed for the addition and the ratio laid down in the case of Sir Shadilal Sugar and General Mills Ltd. v. CIT (1987) 168 ITR 705 (SC), held not good law after the addition of the Explanation to Section 271 by the Hon'ble Supreme Court in K.P. Madhushdhanan's case (supra). As such, penalty was rightly levied. He vehemently supported the order of learned JM.
19. The learned counsel for the assessee relied on the decision of the Tribunal rendered in the case of ITO v. Smt Devibai H. Parmani (2003) 79 TTJ (Mumbai) 493 : (2003) 84 ITD 342 (Mumbai). In this case the Tribunal held that there was absolutely no conflict between the decisions of the Hon'ble apex Court rendered in the case of CIT v. Suresh Chandra Mittal (supra) and K.P. Madhusudhanan v. CIT (supra). These two decisions were rendered in the context of two different situations. Therefore, it is necessary to see the text and context of the decisions before applying the ratio decidendi. The implication of the decision of K.P. Madhusudhanan is that if the case of the assessee comes within the ken of Explanation, then shelter of Sir Shadilal Sugar and General Mills Ltd.'s decision cannot be taken. However, if the assessee's explanation is found not to be false and bona fide is proved, then there can be no penalty for concealment.
20. In order that a penalty for concealment may be imposed, the factum of concealment must be proved beyond the shadow of doubt. It is incumbent on the AO to examine, before he makes an order imposing a penalty, the facts and circumstances of the case and then come to a finding whether concealment has been proved independently from the mere rejection of assessee's explanation regarding the items suspected to have been concealed. Unless the concealment is so proved, penalty cannot be imposed. Concealment for the purpose of Section 271(1)(c) must be conscious concealment. Conscious concealment would mean concealment which is not accidental or unintentional but concealment with a guilty mind to evade or avoid tax. Thus, for the purposes of bringing a case within the said sub-section, the state of mind of the assessee becomes relevant.
21. The grievance which is projected by the Department in its appeal vide Ground No. 2 is as under :
"On the facts and in the circumstances of the case and in law, the CIT(A) has failed to appreciate the fact that the assessee did not disclose the investment in Balaji Apartments and milk tanker in his income-tax return filed on 8th Aug., 1988 nor it revised the return though there was sufficient time to do so. The assessee also did not come forward for disclosure of the above investments at the time of search conducted on 28th Sept., 1988 by the Department when the Department found certain documents which showed investment in Balaji Apartments in the name of Shri R.B. Banne a Benami."
22. From the aforesaid discussion it is quite clear that the disclosure was necessitated due to settlement with Shri Banne. Nothing incriminating was found at the time of search requiring disclosure of income. The declaration was purely voluntary. There is absolutely nothing on record to indicate that it was made under lurking fear of detection.
23. In regard to the payment of Rs. 80,000 out of truck plying business, it was stated that the cash was paid on 20th July, 1987. The assessee was not maintaining the books of account. As such the evidence could not be produced with reference to the books. The assessee produced before the Revenue authorities cash flow statement for the year. Availability of cash was explained with reference to the said statement. Chart" of receipts and payments, as reproduced by the CIT, proves that the assessee had sufficient funds to enable him to make investment of Rs. 80,000. As such, penalty was not justified on this count also.
24. Hon'ble Madras High Court in the case of CIT v. J.K.A. Rajappa Chettiar (1985) 153 ITR 215 (Mad) has held that where, on the basis of a true disclosure of the assessee's source of income and where, in the absence of direct materials, the determination of the taxable income had to be taken up as a matter of estimate, the question of concealment of income did not arise.
25. In the case of National Textiles v. CIT (2001) 249 ITR 125 (Guj), at p. 136, the Hon'ble High Court has held that where the circumstances do not lead to the reasonable and positive inference that the assessee's explanation is false/the assessee must be held to have proved that there was no mans rea or guilty mind on his part. Even in this view of the matter, the Explanation alone cannot justify levy of penalty. Absence of proof acceptable to the Department cannot be equated with fraud or wilful default.
26. In the case of Shiv Lal Tak v. CIT (2001) 251 ITR 373 (Raj) it was held that the explanation of the assessee not false but not accepted because the assessee failed to substantiate it, cannot raise a presumption about deliberate concealment and lack of bona fides.
27. The word "concealment" inherently carries with it the element of mens rea. Therefore, the mere fact that some figure or particulars have been disclosed by itself, even if it takes out the case from the purview of nondisclosure, it cannot be construed to be a case of furnishing inaccurate particulars. The process of enquiry into the veracity and accuracy of the particulars furnished by the assessee cannot be shut at the threshold by looking at the return. That would negative and render otiose the very provisions of the statute. As per the rules of evidence, there is distinction between set of facts "not proved" and facts disproved and facts proved. As such, penalty cannot be imposed on a protective basis. Under the law, a protective order of assessment can be passed but not a protective order of penalty. In the present case we find that protective assessment was made substantive at the request of the assessee. The Department did not prove the fact of concealment. The concealment was presumed to be made because the assessee offered additional income. There is no independent finding as to the concealment. Penalty proceedings being of a quasi-criminal nature, the facts necessary to attract the provisions should be proved beyond doubt. It must be proved that the assessee has consciously made the concealment or furnished inaccurate particulars of his income. The mere fact that the assessee had agreed to be assessed at higher than the returned income, is not a proof of admission of concealment by the assessee. That fact alone cannot give a good foundation to the imposition of penalty. It is incumbent on the AO to examine, before he makes an order imposing a penalty. The facts and circumstances of the case must be examined meticulously. Fact of concealment must be proved independently. Unless the concealment is so proved, penalty cannot be imposed.
28. I have perused the conflicting orders and the various reasonings adduced to buttress the point by the learned members. I am inclined to agree with the view taken by the learned AM.
29. The matter will now go before the Regular Bench for deciding the appeal in accordance with the opinion of the majority.
H.L. Karwa, J.M. 13th Sept., 2004 The learned Third Member by his opinion dt. 1st Sept., 2004 having concurred with the view of the learned AM and in accordance with the majority view, the appeal is dismissed.
2. In the result, the appeal is dismissed.