Income Tax Appellate Tribunal - Mumbai
Mangatram Arora Finance Ltd, Mumbai vs Acit Cen Cir 41, Mumbai on 23 February, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL " I" BENCH, MUMBAI
BEFORE SRI MAHAVIR SINGH, JM AND SRI G. MANJUNATHA, AM
IT (SS) 03/Mum/2011
(From 01.04.1990 to 07.02.2001)
Mangatram Arora Finance Ltd. The Asst. Commissioner of
Flat No. 701, Mehar Deep Chs Income Tax, 6(3), Circle -41,
Vs.
Ltd. Santacruz (W ), Mumbai
Mumbai-400 054
Appellant .. Respondent
PAN No. AAACM5684P
Assessee by : Madhur Agarwal, AR
Revenue by : Saurabh Rai, DR
Date of hearing: 28-12-2017 Date of pronouncement : 23-02-2018
ORDER
PER MAHAVIR SINGH, JM:
This appeal by the assessee is arising out of the order of Commissioner of Income Tax (Appeals)-12, Mumbai, [in short CIT(A)] in appeal No. CIT(A)-12/ACIT-6(3)/12/09-10 dated 24-11-2010. The Assessment was framed by the Asst. Commissioner of Income Tax, Circle-41, Mumbai (in short ACIT) for the block year 01-04-1990 to 07-02- 2001 order dated 28-02-2003 under section 158BC(c) of the Income Tax Act, 1961(hereinafter 'the Act'). The penalty was levied by the AO for concealment of income and also for furnishing of particulars of income under section 158BFA(2) of the Act vide order dated 20.05.2009.
2. The only issue in this appeal of assessee is against the order of CIT(A) confirming the levy of penalty by the AO under section 158BFA(2) of the Act. For this assessee has raised the following ground No.: -
"On the facts and circumstances of the case and in law, the penalty order passed under section.2
I T ( S S ) . 0 3 / Mu m / 2 0 1 1 154BFA(2) of the I.T. Act, 1961 is invalid and bad in law.
Without prejudice to ground No.1 and on the facts and in the circumstances of the case and in law, the learned CIT(A) erred in approving the order of penalty of Rs. 4628040/- levied under section 154BFA(2) by the learned assessing officer and that too without fully and properly appreciating the facts of the case."
3. Briefly stated facts are that the assessee is a finance company registered under the Indian Companies Act 1956. The main objective of the assessee is that of financing and for this purpose it obtained finances from various persons on the one hand and financed to various persons on the other hand. The company's main source of income is interest/gain on loans. A search under section 132 of the Act was conducted by the department on the business & residential premises of the assessee on 07-02-2001. In consequences to search, notice under section 158 BC of the Act was issued to the assessee and in response to the notice assessee filed its block return for the block period 01-04-1990 to 07-02- 2001. The AO while completing the block assessment referred to the statement of Shri Mangat Ram Arora explaining the entries recorded in the diary found from the residence of the assessee which contains day to day transaction regarding cash collection and disbursement from various parties relating to financing of Mangat Ram Arora Finance Ltd and in the personal capacity of Sh Mangatram Arora. The AO in view of the above statement assessed sum of ₹ 55 lacs as seed money for carrying on the business of financing and treated the same as undisclosed income for the block period in the hands of the assessee company. The CIT(A) also confirmed the addition made by the AO as undisclosed income. The Block assessment became final after the order of the Tribunal and matter was not carried further in appeal before Hon'ble High Court. The AO 3 I T ( S S ) . 0 3 / Mu m / 2 0 1 1 started penalty proceedings under section 158BFA(2) and levied the penalty on seed money of ₹ 55 lacs and consequential interest on this seed money estimated from February 1999 to February 2001 amounting to ₹ 21,58,200/- and also being unaccounted payments to Manjitji and Kasai amounting to ₹ 35,760 and 19,440 respectively. For this AO observed as under: -
'4. However, the assessee's contention is not acceptable. During the course of search, the Director of the assessee company himself admitted to have carried out cash transactions. Further, the assessee company was neither able to prove at the time of the assessment proceedings nor before the appellate authorities the source of the sum of Rs 55 lakhs and the accrued interest thereon Despite numerous opportunities given. it could not provide the basic details of USG such as name, address. PAN etc. for verification. This proves that the assessee had willfully concealed as income and furnished inaccurate particulars of income for the block period and hence is liable for levy of penalty u/s. 158BFA(2) of the Act The income sought to be evaded comes to Rs 77,13,400/- i.e. Rs. 55,00,000/- on account of seed money Rs. 21,58,200/- on account of accrued interest from February. 1999 to February 2001 and Rs 35,760/- and Rs 19,440/- being unaccounted payments made to Manjitji and Kasai"
4. Aggrieved assessee preferred the appeal before CIT(A), who confirmed the action of the AO levying penalty by observing in Para 5 as under: -
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"5. I have carefully considered the assessment order of the AO dated 28/2/2003, - perused the order of the learned CIT(A) dated 3/3/2006, the order of the honorable ITAT 'I' Bench, Mumbai dated 24/11/2008 and the submission of the appellant. I find that the contention of the appellant wherein it has been stated that no penalty for concealment is to be levied against it cannot be accepted. From the reading of the above details/records it is clear that there was undisclosed income to the tune of Rs. 55,00,000/- in the case of the appellant and this fact had been admitted by the Director during the course of search. At no point has the appellant been able to bring anything on record to counter this finding and for this reason the addition made by the Assessing Officer has been confirmed both by the learned CIT(A) and the honorable ITAT. Mumbai. Similarly, the direction given by the learned CIT(A) to the Assessing Officer to add Rs. 35,760/- and Rs. 19,440/- being unaccounted payments also stands confirmed by the honorable ITAT and I find that at no stage has the appellant been able to rebut this issue. I find that this is a case wherein the Assessing Officer has been able to establish that the appellant has concealed income and that penalty under section 158 BFA (2) of the Income Tax Act is clearly attracted in its case. This is also a case wherein the assessing officer has been able to quantify the exact amount of undisclosed income which has further been enhanced at the appellate stage by the order of the learned CIT(A). I find that this is a case wherein the applicant has been unable to offer an explanation and is also unable to substantiate the explanation that has been offered 5 I T ( S S ) . 0 3 / Mu m / 2 0 1 1 by him in respect of factual details of the amount concerned. The appellant has at no stage been able to establish the identity of the person from whom the said loan has been received. The appellant has also not been able to establish the mode of loan received. This is not a case wherein an explanation has been offered and has been summarily rejected by the Assessing Officer on presumption and surmises. This is a case wherein the Director of the company has confessed to the fact that there is an in undisclosed income. This is also a case wherein at no stage retraction has been made. This is a case wherein an undisclosed income has been declared during the course of search and the manner in which such income is derived has not been disclosed. In fact, it is seen that appellant has at no stage given any details regarding the quantum in question besides making a general statement that it is a loan received from one Mr USG. When an amount is claimed in any of the accounts of a person it is for that person to prove that the said amount is verifiable and thus discharge the onus placed on. It is true that the assessment proceedings and penalty proceedings are two different proceedings and therefore concealment does not automatically result on account of any addition made in the quantum hearings. However, the addition so made become the basis of the penalty unless through an explanation the appellant is able to satisfy that even though there is a quantum addition there was no concealment or filing of inaccurate particulars on its part. This has not been done by the appellant. Under the circumstances there would be no immunity to the 6 I T ( S S ) . 0 3 / Mu m / 2 0 1 1 appellant provided from the levy of penalty. Reliance here is placed on the judgement of the honorable Bombay High Court in the case of Indus Engineering Co. Vs. CIT 184 taxman 269 (Bom). In view of the above discussion, I find that there is no need to interfere with the order of the Assessing Officer levying the penalty on the appellant under section 158 BFA (2) of the Income Tax Act. The action of the Assessing Officer is therefore upheld and confirmed."
Aggrieved, now assessee is in second appeal before Tribunal
5. Before us, the learned Counsel for the assessee took us through the question No. 9 of the statement dated 12-04-2001 which reads as under: -
"Q-9 Please give exact details of total cash loan taken from time to time USG?
Ans As it is clear from page 90 of Annexure-A-5 that total of ₹ 55 lakhs is taken from him on which interest is payable on 10th of every month. My entire business of cash finance is done from this fund of ₹ 55 lakhs."
The learned Counsel for the assessee stated that this loan is taken from one Ustadji which is given on page 90 of the diary Annexure-A-5, which clearly states as under: -
"Page No 90- This is dated 9.9.99. This also relates to transaction with Ustadji such as 15L (₹15 Lakhs), 10L(₹10 lakhs). & 15 L (₹ 15 lakhs) against date. This page gives aggregate of cash of ₹ 55 lakhs taken from USG over a period of time. It also includes interest calculation till 10/09/."7
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6. The learned Counsel for the assessee further stated that the assessee has correctly explain the source of Rs. 55 lacs which is accepted by the AO as well as by CIT(A). He also explained that the lower authorities have not denied that the assessee has received loans from Ustadji on various date during the year 1999. The learned Counsel for the assessee also took us through annexure A6 which clearly shows that this diary marked as 1999 containing pages 1-88, which contains day to day transaction regarding cash collection and disbursement from various parties relating to finance business of Mangatram Arora Finance Ltd. as well as personal of the assessee. He referred relevant detail of annexure A6 prepared by the department which reads as under: -
"This is a diary marked as 1999 containing written pages 1 to 88. This is related to the period starting from 12/9/1999. This diary contains day to day transactions regarding cash collection and disbursement from various parties related to financing business of MAFL and personal. This diary is maintained for memorandum purpose. Part of the transactions are accounted and part of the transactions are not accounted. On an average my daily cash collection against finance is ₹ 25,000 to ₹ 30,000 which is again collective against finance is ₹ 25,000 to ₹ 30,000 which is again either given to the parties, or partly deposit in bank. On these small financing, I charge interest of 18% per annum. Page 84 of this diary contains transactions of ₹ 10 lakhs, out of which ₹ 1,32,390/- is to be given. I presently do not remember with whom this transaction is entered."
Further, the learned Counsel for the assessee stated that no doubt the addition is made in the hands of the assessee company but it is clear that the diary contains day to day transaction for the period regarding cash 8 I T ( S S ) . 0 3 / Mu m / 2 0 1 1 collection and disbursement from various parties related to finance agent of Mangatram Arora Finance Ltd. The relevant Para of the assessment order reads as under: -
"During search proceedings diaries for the period 1998 to 2001 were found and seized from the residence of the assessee. The diaries contains day to day transactions regarding cash collection and disbursement from various parties related to financing agents of Mangatram Arora Finance Ltd. These diaries were maintained by him for memorandum purpose. The part of the transactions are accounted and part of the transactions are not accounted."
7. The learned Counsel for the assessee before us, explained that it is doubtful whether the undisclosed income of Rs. 55 lacs belong to the assessee company or the individual of Shri Mangatram Arora. The learned Counsel for the assessee also took us through the entire statement recorded dated 12-04-2001 which clearly states that the entire statement by Shri Mangatram Arora is on behalf of individual and not on behalf of the company in entirety. Even in the penalty order, the AO has not proved that the assessee concealed the particular of income or furnished inaccurate particulars of income. On the other hand, the learned Sr. Departmental Representative has relied on the decisions of lower authorities.
8. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the undisclosed income consists of Rs. 55 lac which is mentioned in the diary as loan received from one Ustadji on day to day transactions and accrued interest thereon. We find that the AO while framing the assessment has noted the fact that the assessee has received this seed money in the name of Mangatram 9 I T ( S S ) . 0 3 / Mu m / 2 0 1 1 Arora Finance Ltd. and also for personal. In view of the explanation given by the learned Counsel for the assessee whether it pertains to individual or to the company, it is not clear from the statement recorded during the course of search on 12-04-2001 that the seed money belongs to individual or to the assessee company. It is highly debatable whether the income is in the hands of Assessee Company or in the hands of Shri Mangatram Arora, the individual. This fact is not clear from the documents or the assessment order and it is also not clear from the seized diary and which starts with an investment of ₹ 2.00 crore as Shri Mangatram invested in Arora Poultry Ltd. as well as the assessee company but this fact is not clear from the statement recorded that what is the quantum of amount in each of the hands i.e. in the present assessee company or the individual or Arora Poultry Ltd. In view of these facts, we are of the view that it is highly debatable addition of seed money of ₹ 55 lacs in the hands of the Assessee Company and consequent interest charged. Whether it is to be assessed in the hands of the individual Shri Mangatram Arora or the present assessee Mangatram Arora Finance Pvt. Ltd.
9. Now we will deal with the case law relied on by the assessee of Hon'ble Gujarat High Court in the case of National Textiles Vs. CIT(2001) 249 ITR 125 (Guj), wherein it is held as under:-
"20. The question before us is whether the abovementioned facts which resulted in addition of the cash credits as income of the assessee in themselves, without any further evidence, are sufficient for imposition of penalty by recourse to Explanation 1 of section 271(1)(c) as it stood in the relevant assessment year or at the time when the penalty proceedings were initiated and concluded. We do not consider it necessary to go into the question as to whether the Explanation 10 I T ( S S ) . 0 3 / Mu m / 2 0 1 1 1below section 271(1)(c) is a provision of substantive law or procedural law and whether it is prospective or retrospective in operation. The Explanation is to the effect that where in respect of any fact or material for purposes of his assessment, an assessee offers an explanation which is found by the Assessing Officer or the Deputy Commissioner (Appeals) to be false or where the assessee is unable to substantiate his explanation, then the amount added to his income shall be deemed to represent his concealed income. The newly introduced Explanation 1 considerably reduces, but does not altogether remove the department's onus to prove concealment in assessment based on unexplained cash credit or unexplained investment and like. (See Addl. CIT vs.. Mangalsen Mohanlal [1982] 136 ITR 9051 (All.). There has not been any significant difference by the introduction of new Explanation 1 in place of original Explanation 1 with effect from 1-4-1976. The previous Explanation used the expression "deemed to have concealed the particulars of his income or furnish inaccurate particulars of such income for the purpose of clause (c) of this sub-section". While the present Explanation 1 reads : "Such income shall be deemed to represent the income in respect of which particulars have been concealed." In effect, this makes explicit what was implicit in the previous Explanation - CIT v. Rupabani Theatres (P.) Ltd. [1981] 130 ITR 747(Cal.).2
21. The provisions of section 68 permitting the Assessing Officer to treat unexplained cash credit as income are enabling provisions for making 11 I T ( S S ) . 0 3 / Mu m / 2 0 1 1 certain additions, where there is failure by the assessee to give an explanation or where the explanation is not to the satisfaction of the Assessing Officer. However, the addition made on this count would not automatically justify imposition of penalty under section 271(1)(c) by recourse only to Explanation 1 below section 271(1)(c).
22. In order to justify the levy of penalty, 2 factors must co-exist, (i) there must be some material or circumstances leading to the reasonable conclusion that the amount does represent the assessee's income. It is not enough for the purpose of penalty that the amount has been assessed as income and
(ii) the circumstances must show that there was animus, i.e., conscious concealment or act of furnishing of inaccurate particulars on the part of the assessee. The Explanation has no bearing on factor No. (i) but it has bearing only on factor No. (ii). The explanation does not make the assessment order conclusive evidence that the amount assessed was in fact the income of the assessee. No penalty can be imposed if the facts and circumstances are equally consistent with the hypothesis that the amount does not represent concealed income as with the hypothesis that it does. If an assessee gives an explanation which is unproved but not disproved, i.e., it is not accepted but circumstances do not lead to the reasonable and positive inference that the assessee's case is false, the Explanation cannot help the department because there will be no material to show that the amount in question was the income of the assessee.12
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23. Alternatively treating the Explanation as dealing with both the ingredients (i) and ( ii) above, 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 mens rea or guilty mind on his part. Even in this view of the matter, the Explanation alone cannot justify the levy of penalty. Absence of proof acceptable to the department cannot be equated with fraud or wilful default. As we find no material difference between the original Explanation 1 and Explanation 1 as substituted, in our opinion, it has to be so construed as to harmonise it with basic principles of justice and fairness, as in the case of original Explanation. We are guided by the commentaries of the learned authors Kanga & Palkhiwala Law and Practice of Income-tax Vol. 1. Pages 1637, 1639 to 1640.
24. In the instant case, the cash credits were not satisfactorily explained by evidence and documents. The parties who had advanced the alleged temporary loans were neither disclosed with their particulars nor any supporting documents were on record. Only 2 entries were explained. The accountant who had arranged the loans was not produced stating that he had left the service and relations with him are strained. On this state of accounts and evidence in the quantum proceedings, the department was justified in treating the cash credit as income of the assessee but merely on that basis by recourse to Explanation 1, penalty under section 271(1)(c) could not have been imposed without the department making any other effort to 13 I T ( S S ) . 0 3 / Mu m / 2 0 1 1 come to a conclusion that the cash credits could in no circumstances have been amounts received as temporary loans from various parties. The assessee in the quantum proceedings failed to produce the accountant but the department also in penalty proceedings made no effort to summon him.
Applying the test (ii) discussed above, therefore, it was a case where there was no circumstance to lead to a reasonable and positive inference that the assessee's case - that the cash credits were arranged as temporary loans, was false. The facts and circumstances are equally consistent with the hypothesis that it could have been sundry loans in small amounts obtained from different parties. In our opinion, therefore, even taking recourse to Explanation 1, same circumstances or state of evidence on which the cash credits were treated as income, could not by themselves justify the imposition of penalty without anything more on record produced by the assessee or the department.
10. We have also considered the case law of Hon'ble Kerala High Court relied on by the learned Counsel for the assessee in the case of CIT Vs. P.K. Narayanan (1999)238 ITR 905 (Ker), wherein it is held as under:-
"12. So far as the onus is concerned, we have already pointed out that under Explanation 1, additions/disallowances made by the Assessing Officer and sustained by the appellate authorities, will represent the concealed income of the assessee, provided no explanation is furnished or explanation furnished is found to be false or the assessee is not able to substantiate the explanation or the explanation is not bona fide. It is not a case of 14 I T ( S S ) . 0 3 / Mu m / 2 0 1 1 'no explanation'; also it is not a case where the explanation filed by the assessee, can be said to be false nor has it been so established by the revenue. The explanation furnished is not per se mala fide or untenable. On these facts, no penalty can be sustained simply on the strength of Explanation 1.
13. No doubt, the Tribunal has not referred to Explanation 1 to section 271(1)(c) in this case. But considering the explanation of the assessee and the facts and circumstances of the case in its entirety, the Tribunal was of the view that the presumption initially available to the revenue, was successfully rebutted. It is vehemently argued before us for the revenue that the Tribunal wrongly placed the burden of proof on the revenue and, hence, the common order is vitiated. The order of the Tribunal has to be seen in entirety and not in a truncated fashion. The Tribunal discussed the explanation of the assessee threadbare and other facts and circumstances and found that the explanation was satisfactory. This is how it held that the explanation was neither proved to be false (this onus is on the revenue), nor could it be said that it was not bona fide or that the assessee was not able to substantiate the same. This being so, no penalty could be sustained under Explanation 1 on the facts and in the circumstances of the case. The Tribunal did not delete the penalty on the ground that the revenue failed to discharge its initial onus. The common order of the Tribunal cannot, therefore, be said to be vitiated on the ground of onus."
11. From the above facts, it is clear that there is a debate whether income is to be assessee in the hands of the assessee company or in the 15 I T ( S S ) . 0 3 / Mu m / 2 0 1 1 individual Shri Mangatram Arora because it is not clear from the diary marked as 1999 containing written pages 1-88 relates to the assessee company or in the personal capacity of Shri Mangatram Arora. Accordingly, once there is a debate as regards to assessibility of income in whose hands and there are two opinions about assessibility on the said issue and making such claim bonafide on the basis of possible view could not be treated as concealment of income by the assessee or furnishing of inaccurate particulars of income so as to attract the panel provisions under section 158BFA(2) of the Act. In our view, the findings recorded in the assessment proceedings can be good piece of evidence in favour of Revenue but it cannot be called conclusive for the purpose of proof required for imposition of penalty for concealment. Even the explanation submitted by the assessee before us clearly supports the case of the assessee and hence, we are of the view that this is not a fit case for levy of penalty under section 158BFA(2) of the Act. We delete the penalty and reverse the orders of the lower authorities. The appeal of the assessee is allowed.
12. In the result, the appeal of assessee is allowed.
Order pronounced in the open court on 23-02-2018.
Sd/- Sd/-
(G. MANJUNATHA) (MAHAVIR SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 23-02-2018
Sudip Sarkar /Sr.PS
16
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Copy of the Order forwarded to:
1. The Appellant
2. The Respondent.
3. The CIT (A), Mumbai.
4. CIT
5. DR, ITAT, Mumbai BY ORDER,
6. Guard file.
//True Copy//
Assistant Registrar
ITAT, MUMBAI