Income Tax Appellate Tribunal - Ahmedabad
Gandhi Service Station vs Assistant Commissioner Of Income Tax on 13 January, 2006
Equivalent citations: (2006)100TTJ(AHD)1143
ORDER
R.P. Tolani, J.M.
1. This is assessee's appeal against order of CIT(A) dt. 14th Sept., 2005. Sole ground raised in the appeal is as under :
1. On the facts and in circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming action of the AO in levying penalty of Rs. 11,40,780 under Section 158BFA(2) of the IT Act, 1961 without providing reasonable opportunity to the assessee.
2. Brief facts are - assessee is partnership firm and running petrol pump at Kadodara. In one of the partner's, Shri Ashikali Narsinh ("AN" for short) residence, search and seizure operation under Section 132 were carried out on 29th June, 1999. Search was not carried out in assessee's premises, however, a rough cash book was found at the residential premises of said AN, therefore, AO took proceedings under Section 158BD by issuing a notice on 31st May, 2001. After search, the said rough cash book recovered from premises of AN was compared with regular books of the assessee firm which tallied. However, DDI made post-search inquiry under Section 131(1A) where regular books of accounts maintained by the assessee were produced. On page No. 3 of assessment order, AO has given a finding that rough cash seized tallied with regular books of accounts. Books seized pertain to period 1st Oct., 1998 to 6th March, 1999 and it is the claim of the assessee that addition made on account of cash credit pertains to period after this date. Controversy about cash credit can be summarized as - the said AN used to carry cash to his residence at Kadodara from petrol pump for the purpose of depositing into bank leaving a nominal balance of about Rs. 2,000. Cash was deposited into bank account maintained at Surat. This entry was debited in the books through Silak account. Subsequently, it was found that partner has deposited more amounts in the bank account than the amount shown in the said Silak account. When asked, partner contended that he had raised certain loans on various dates, which were deposited on behalf of the firm, along with Silak account in bank, this fact was not known to accountant who used to keep books. These entries were corrected in the books of accounts, AO raised objections on these overwriting, insertion etc., assessee furnished confirmation from all the depositors and explained reasons for making corrections, overwriting, insertion in the books of accounts. Claim of assessee is, at any stage of proceedings, AO did not ask assessee to produce depositors, seeing this assessee showed its willingness to produce lenders and AO gave only one day's time. AO made addition, which was carried to the Tribunal, where the assessee challenged merits of addition and raised legal plea that addition has been made not on the basis of seized material; seized material was only rough cash book, which tallied with regular books maintained by the assessee and AO has recorded a finding to this effect, Addition has been made on the basis of books subsequently produced by the assessee which contained these corrections, therefore, same does not constitute material found during the course of search or connected thereto. Reliance was placed on Section 158BB(1) provisions of which stood at that time as under :
158BB. (1) The undisclosed income of the block period shall be the aggregate computed in accordance with the provisions of Chapter IV, on the basis of evidence found as a result of search or requisition of books of account or documents and such other materials or information as are available with the AO, as reduced by the aggregate of the total income, or as the case may be, as increased by the aggregate of the losses of such previous years, determined--
It was contended that since corrected regular books of accounts of the assessee were neither part of the seized material nor connected thereto, any addition under Chapter XIV-B cannot be made on this amount. Tribunal, however, by order dt. 20th Sept., 2004 in IT(SS)A No. 497A/2004 confirmed addition. AO initiated penalty proceedings under Section 158BFA(2) and levied penalty mainly relying on the facts that there were many overwriting, cash balances changed on all dates, assessee's confirmation letters were merely cyclostyled forms etc. Penalty was confirmed by the CIT(A) relying on the order of AO. Aggrieved assessee is before us.
3. Learned Counsel for the assessee reiterated and contends as under:
(i) It is abundantly clear that what was seized from the premises of AN during the course of search under Section 132 was rough cash book and not other documents, which were tallied with regular books maintained by the assessee-firm. AO has accepted this fact, thereafter assessee produced corrected regular books of account before DDI while making inquiries where these corrections and insertions were noted. Material on the basis of which, addition has been made in block assessment was not found at the time of search, therefore, this addition should not have been made in block assessment at all.
(ii) Assessment and penalty proceedings are separate and distinct and merely because addition has been made, same cannot automatically lead to concealment proceedings.
(iii) Plea about corrected books of account being not the seized material was raised before Tribunal at the time of hearing, which is evident from the order of the Tribunal at page Nos. 3 and 4 by following observations.
In the course of appellate proceedings, it is submitted that assesses explained the discrepancy in best possible manner. Assessee also explained reasons for making erasing and overwriting in the books of account. Assessee filed confirmations of all depositors with their names and addresses. At any stage of proceeding, the Revenue has never asked assessee to produce lenders. It is the assessee who showed his willingness to produce the lenders. However, the AO has not given reasonable time for producing lenders. He allowed time of only one day for producing lenders. As assessee and other partners were not searched, no evidence was collected in regard to borrowings. It is natural that accountant cannot have knowledge of each and every transaction of the firm. The lenders are person of means. The amounts were borrowed free of interest owing to asscssee's close relation with lenders. Moreover, only sum of Rs. 16,35,000 represents loans and balance sums represent, other things as indicated at para no. 9. The amount deposited into bank out of sale proceeds cannot be disbelieved. The credits of Rs. 2,50,000 represent the rectification entries. In this connection, it is submitted that the assessee's practice is to debit the account of Kadodara Silak account when the cash is transferred to partner's custody for the purpose of depositing it in bank at Surat. When this cash is deposited, this Kadodara Silak account is credited and bank account is debited by way of adjustment entry. However, many times, the assessee made double entries by debiting Kadodara account and also debiting bank account in the cash book and thereby the cash has been reduced doubly. To rectify these errors, the assessee credited the impugned sums of Rs. 80,000 and Rs. 70,000 without any narration.
As indicated at paras 3 & 4, no evidence was found in the course of search regarding alleged borrowings. The bank account in which the cash was deposited out of cash balance of assessee was not found. No search action was conducted either in case of assessee or partners except Shri Ashikali. The inquiry was made by DDI under Section 131 of the Act. The materials collected during this inquiry have been used for the purpose of making alleged addition. The assessment of undisclosed income can be made on the basis or evidence found as a result of search and such other materials or information as are available with the AO and relatable to such evidence. The reliance is placed on following decisions :
(i) CIT v. Com Industries Ltd.
(ii) CIT v. Shambhulal C. Bachkaniwala
(iii) N.R. Paper & Board Ltd. v. Dy. CIT
(iv) Dy. CIT v. Shaw Wallace & Co. Ltd.
(v) Malawi Bankers v. Asstt. CIT
(vi) CIT v. Ravi Kant Jain (2001) 167 CTR (Del) 566 : (2001) 250 ITR 141 (Del).
Though this legal issue was specifically raised before Tribunal in quantum proceedings, Tribunal did not address to this issue and confirmed addition by observations in para 19 and 20. Since Tribunal has not considered this legal issue in quantum proceedings, assessee has right to raise this in penalty proceedings which are separate and distinct.
4. Learned Counsel for the assessee, thereafter, relied on the decision in the case of Smt. Mala Dayanidhi v. Dy. CIT (2005) 92 TTJ (Bang) 270, wherein it is held that penalty under Section 158BFA(2) is not mandatory by following observations:
Search and seizure--Block assessment--Penalty under Section 158BFA(2)--Penalty under Section 158BFA(2) is not mandatory--If the assessee offers a convincing reason or if any reasonable cause is demonstrated for non inclusion of such income, the penalty is not attracted--Addition not based on material found during search or material in possession of AO, but based on difference in valuation of property as disclosed by assessee and as estimated by DVO--There was no concealment attracting penalty under Section 158BFA(2) It was contended that this judgment further laid down that additions which are not based on material found during the course of search, but based on subsequent investigation, cannot be added by following observations:
6. In view of the above principle, let us examine whether there was any reasonable cause or bona fide belief on the part of the assessee for not disclosing the so-called income brought to tax under Section 158BC. In the present case, it is seen that the income assessed is the difference between the value as determined by the DVO and as disclosed by the assessee. There is no finding that any material was found during search which suggested additional investment by the assessee in acquisition of the property leading to computation of undisclosed income. It is merely an estimate but not conclusively proved that such investment has been made by the assessee. It is not even conclusively proved that the same was spent out of the undisclosed income of the assessee found as a result of search. In the circumstances, the assessee was justified in not disclosing such amount in the return of income. Originally, the AO determined the undisclosed income at Rs. 12.36 lakhs. The learned CIT(A) reduced the same to Rs. 6.58 lakhs. Both are based on estimates. In such a situation the assessee is well deserved of making his own disclosure. Thus, no fault can be found with the assesses. Even the addition is not sustainable in view of the decision of Hon'ble Supreme Court in Smt. Amiya Bala Paul's case (supra) and the decision of Bombay High Court in Vinod Danchand Ghodawat's case (supra) as undisclosed income under Chapter XIV-B. In such a situation to levy further penalty is perpetuation of injustice to the assessee. We therefore, hold that there is no case for levy of penalty in respect of undisclosed income being difference in valuation of house property. Similarly, the addition of Rs. 1,52,655 is not found during the course of search or in the material in possession of the AO. It is only during the course of the assessment when the assesses filed the statement of affairs. The AO found that the amount payable to contractors is not proved and, hence, addition was made. In our opinion, this addition also should not have been made under Chapter XIV-B as undisclosed income as nothing is found as a result of search. Penalty under Section 158BFA(2) is accordingly, not attracted for this item of addition also. Non filing of appeal by the assessee before Tribunal cannot be viewed against the assessee so as to attract the penalty under Section 158BFA(2). No other income is treated as undisclosed. We accordingly, cancel the levy of penalty.
It was contended that provisions of Section 158BA are akin to penalty proceedings under Section 271(1)(c), and therefore, provisions are analogous to Section 271(1)(c) main clause to which Supreme Court judgment in the case of CIT v. Anwar Ali , which laid clown that burden to prove concealment is on the Department. In the instant case, assessee has furnished all the confirmations to the AO with their names and addresses. AO did not make any effort to issue summons to them. Assessee expressed his willingness to produce lenders, AO did not ask for it initially and when asked, gave only one day's time to produce them, which was humanly impossible; assessee having furnished confirmations, names and addresses discharged its part of burden, therefore, penalty cannot be imposed on assessee who has discharged its burden.
Regarding discharge of burden, reliance was placed on Supreme Court judgment in the case of CIT v. Oiissa Corporation . Assessee furnished explanation about ignorance of accountant, who wrote cash book without knowing that partner at Surat had borrowed some amounts and deposited in the bank. If the AO had any objections, accountant should have been called and enquired. AO, without examining all these vital aspects, levied penalty without establishing fact of concealment of undisclosed income, addition of which itself is questionable. Further reliance was placed on :
(A) CIT v. Jalaram Oil Mills for the following proposition.
Penalty under Section 271(1)(c)--Concealment--Unexplained cash credits--Merely because addition has been made by invoking the provisions of Section 68 penalty under Section 271(1)(c) would not follow as a natural corollary--De hors the said provision it cannot be stated with certainty that the assessee has failed to return the correct income due to any fraud or any gross or wilful neglect on its part--Assessee has merely conceded that the entries in question may be treated as its income By virtue of provisions of Section 68--Tribunal has recorded a finding of fact that there is no instance to show that the assessee had been earning business income outside books in the past or in the year under consideration--Penalty could not be sustained.
(B) National Textiles v. CIT (2000) 164 CTR (Guj) 209 : (2001) 249 ITR 125 (Guj) for the following proposition:
"Penalty under Section 271(1)(c)--Concealment--Unexplained cash credits--Provisions of Section 68 are enabling provisions for making additions where the assessee fails to give an explanation regarding cash credit or where the explanation is not to the satisfaction of the AO--Such addition would not automatically justify imposition of penalty under Section 271(1)(c) r/w Expln. 1 thereto--In order to justify levy of penalty there must be some material or circumstances leading to reasonable conclusion that the amount does represent assessee's income and the circumstances must show that there was conscious concealment or act of furnishing of inaccurate particulars--Expln. I does not make the assessment order conclusive evidence that the amount assessed was in fact the income of the assessee--Assessee did not satisfactorily explain the cash credits by producing evidence and documents--Neither the parties who are said to have advanced temporary loans nor the accountant who had allegedly arranged the loans was produced--Though the Department was justified in treating the cash credits as income of assessee there was nothing to lead to a reasonable and positive inference that the assessee's explanation was false--Circumstances do not justify imposition of penalty even by taking recourse to Expln. 1 to Section 271(1)(c).
(C) Nemichand v. Asstt. CIT (Inv.) (2005) 93 TTJ (Bang) 564 for the proposition that--
Search and seizure--Penalty under Section 158BFA(2)--Scope and leviability--Section 158BFA(2) does not prescribe nature of offence for levy of penalty--Though an enabling provision, Section 158BFA(2) is silent about the circumstances attracting penalty--Being penalty provisions, they have to be strictly construed and being totally ambiguous, have to be construed in favour of the assessee--Proviso to Section 158BFA(2) enumerates circumstances under which penalty shall not be levied and the argument that absence of those circumstances will automatically attract penalty is not acceptable, more so, when the main section uses the word "may" which gives a discretion to the AO and such discretion should have been exercised in favour of assessee in view of the fact that assessee had filed return only after a delay of 15 days and declared most of income, accepted the additions and did not file appeal against assessment--Under Section 158BFA(2), the AO may demand 240 per cent of undisclosed income by way of tax plus penalty (60 per cent + 180 per cent) which is obnoxious--The Finance Bill, 1995 and the CBDT Circular No. 717, dt, 14th Aug., 1995, also do not throw any light on the nature of offence on which penalty is imposable under Section 158BFA(2)--Provisions read down.
(D) Morarjee Goculdas Spg. & Wvg. Co. Ltd. v. Dy. CIT (2005) 98 TTJ (Mum)(TM) 201 : (2005) 95 JTD 1 (Mum)(TM) for the proposition that--
Search and seizure--Block assessment--Computation of undisclosed income--Documents in respect of certain lease agreements found during search--AO taking the transactions to be paper transactions and adding back 100 per cent depreciation allowance--Not justified--Entries regarding income from lease agreements were already found recorded in the books of assessee and interest and depreciation was claimed--No contrary evidence collected by Revenue during the course of search--Matter beyond the ambit of Chapter XIV-B and assessment under Section 158BC invalid--If any material is collected by the Revenue after the search, that may not give authority to Department to make the computation of undisclosed income under Section 158BB or assessment under Section 158BC--Further, the lease rent received by the assessee on disputed transactions has been duly offered and assessed in asst. yrs. 1995-96 to 2002-03 and Revenue cannot be allowed to retain the assessment of the rental income and disallow depreciation on same leased assets.
5. Learned Departmental Representative, on the other hand, relied on CIT v. Elegant Homes (P) Ltd. for the purpose of block assessment under Chapter XIV-B and other provisions are applicable and material collected during the course of inquiry of undisclosed income and additions made on the basis of post-search inquiry can be subject to penalty also.
6. We have heard rival submissions and perused material available on record. We shall take up merits of the case first. It emerges from the record that rough cash book found at the residential premises of the said AN was tallied with regular books of account maintained by the assessee-firm at the time of search. Subsequently, assessee produced its regular books of account before DDI in which some insertions, corrections were there, apropos which, explanation of the partner is that petrol pump was at village and cash was carried to Surat which was deposited in the bank by the partners together with loans. Accountant was not aware of these loans and wrote books accordingly. When the assessee came to know about these discrepancies, necessary entries were corrected in the cash book in place of writing new sets of books. One of the reasons may be, perhaps, that regular books of accounts were subject-matter of search proceedings. Assessee filed, confirmations of all the depositors, which contained names and addresses, in consideration of all these material, assessee furnished explanation in respect to corrections, insertions and cash credits. Assessee volunteered to produce creditors but only one day's time was given. Be that as it may, additions are now confirmed and we are concerned with imposition of penalty under Section 158BFA(2). Assessee relied on Tribunal judgment in the case of Nemichand v. Asstt. CIT (Inv.) (supra) and Smt. Mala Dayanidhi v. Dy. CIT (supra). Tribunal has taken a view that Section 158BFA is not mandatory but discretionary and the assessee's explanation has to be considered. We find merit in the contentions of the learned Counsel that this penalty proceeding is akin to Section 271(1)(c) proceedings, main clause and in sum and substance Department has to prove factum of concealment. Quantum and penalty proceedings are distinct and separate and while deciding the issue of penalty, facts can be reconsidered. In the given facts and circumstances, assessee's explanation to confirmations, etc. have been rejected on assumptions drawing adverse inference based on probabilities, i.e., existence of insertions and corrections and probability of accountant knowing fact of cash credits. Since we hold that it was burden of the Department, AO should have separately investigated matter in penalty proceedings by calling these parties and accountant to discharge burden. In the given facts and circumstances, assessee has discharged its burden of giving explanations as well as supporting the same by filing confirmations. Our views are supported by Hon'ble Supreme Court judgment in the case of Orissa Corporation (supra). Department would have discharged its burden by proving that assessee's explanation was false based on only finding of facts and not on assumptions. Our views are further fortified by the decision of Hon'ble Supreme Court in the case of CIT v. Smt P.K. Noorjahan wherein it has been held that the word "may" in Section 69 cannot be interpreted to be "shall". The same word appears in same context in Section 68 dealing with cash credit, which is applicable to assessee's case. In view thereof, we delete penalty. Since we have deleted penalty on merits, we need not address to the technical issue about applicability of provisions of Section 158BA(1).
7. In the result, the appeal of the assessee is allowed.