Income Tax Appellate Tribunal - Mumbai
Ramkumar Jalan vs Income Tax Officer. (Also Ito V. ... on 15 December, 1997
ORDER
H.C. Srivastava, A.M.
1. As all these appeals concern the same group of the assessee, involve penalties imposed under ss. 271(1)(c), 273(c), 273(a) and 273(2)(a), they are being disposed off by this common order for the sake of convenience.
2. The assessment in this case has a chequered history. The assessee is a registered firm and in the books of accounts, following cash credits appear in the books of Jalan HUF Amanat Account/Lohia Agricultural account.
Asst. yr. P. Y. (Samvat year) Total cash credit
appearing in Jalan
HUF Amanat A/c/
Lohia Agrl. Farm A/c.
(Rs. in lakhs)
------------------------------------------------------------------------
1976-77 2031 25.49 1977-78 2032 219.00 1978-79 2033 213.00 1979-80 2034 36.00 1980-81 2035 15.00 1981-82 2036 25.00
3. For asst. yr. 1976-77 the return of income was filed on 22nd January, 1977, and the assessments for asst. yrs. 1976-77 and 1977-78 were completed under s. 143(3) r/w s. 144B of the Act. The assessee failed in the first appeal. However, on the second appeal, the Tribunal restored the matter back to the file of the CIT(A) who in his turn set aside the order of the AO directing that reasonable opportunity of being heard to the assessee should be provided.
4. On examination of books of accounts of Jalan Trading Company, Bombay, cash credits amounting to Rs. 25.49 lakhs stood in the name of Jalan HUF/Lohia Agricultural Farm. A further scrutiny of two other concerns of the same group where close relations of the partner of the assessee-firm, were partners, revealed cash credits of Rs. 11,40,000 and Rs. 7 lakhs, respectively for the asst. yr. 1976-77. Thus, a total cash credit of Rs. 43.89 lakhs appeared in the books of this assessee in the account of Lohia Agricultural Farm A/c in different concerns of the assessee from 26th November, 1974 to 7th October, 1975. The assessee was asked to explain the sources of cash credit and explanations with regard to the same, if any. The assessee was further required to produce books of account of Lohia Agricultural Farm (LAF) for the relevant period, details of land and cultivation carried on the same, details of the land of LAF, acquired by the LAF during the land ceiling proceedings, land and quantity of produce obtained, names and addresses of the parties to whom produce was sold along with price and evidences in this regard. It was found that various members of Jalan family were the partners of LAF. The assessee submitted as below :
(i) the credits in the above accounts have come from LAF.
(ii) No books of accounts of LAF are available.
(iii) Detailed investigation was made by the Department by holding camps where the Farm was located and several witnesses were examined.
(iv) It was found that 200 acres of land was allotted to Uma Shankar Lohia for farming. This land was located in 5 or 6 villages of District Baharaich.
(v) The entire land of 2000 acres was under cultivation.
(vi) Certified copies of the agricultural records show to the extent of land located in different villages in the District which included 41 acres of land belonging to Gram Sabha.
(vii) The farm was irrigated fully mechanised having tubewells, tractors, fencing, etc. It was using fertilisers, improved seeds and was raising 3 crops in a year.
(viii) The produce was taken away to far and distant places by road or rail transport.
(ix) Rs. 70 lakhs were spent for development of the farm in the early years of allotment.
(x) The Department has also accepted during Voluntary Disclosure Scheme of Settlement of 1975 that a sum of Rs. 70 lakhs was spent for development of the farm.
The income from the Farm was computed as below :
------------------------------------------------------------------------
Years Acreage Income per Income X No. Gross
available for year per acre of years Income
cultivation
Rs.
------------------------------------------------------------------------
1951-55 500 X 100 50,000 X 5 2,50,000
1956-60 1000 X 500 5,00,000 X 5 25,00,000
1961-65 1100 X 750 8,25,000 X 5 45,25,000
1966-70 1100 X 1000 11,00,000 X 5 55,00,000
1971-72 1100 X 2000 22,00,000 X 2 44,00,000
----------
61,75,000
----------
Rs.
b/f 1,67,75,000
Less : Expenses for development of the farm 70,00,000
------------
97,75,000
------------
The entire sum of Rs. 97,75,000 was not taxed as it was treated as agricultural income. According to the AO it was because of this reason that the Department did not go into detail. The AO did not accept the contention on the ground that there was not a single piece of evidence pertaining to the years under consideration of the income from the farm. No details of any Khatauni and no details regarding names and addresses of the parties to whom the goods were sold were given by the assessee. The AO however insisted upon the assessee to provide the evidence regarding irrigation of the farm and its full mechanisation and using of fertilisers of improved seeds, etc. It was submitted that after conducting enquiries during the asst. yr. 1974-75 at Baharaich and examining several witnesses, the Department made various additions in the cases of debtors of LAF which were ultimately confirmed by the Tribunal. It was submitted that during VDS-cum-settlement of 1975, the CIT(A) has accepted that an income of Rs. 2,000 per year per acre should be estimated. The officer, however, found out that the land of 2000 acres was ultimately reduced to 500 acres only. It was stated that an average income per year per acre was Rs. 3,000 to Rs. 6,000. It was submitted that the finding of the CIT(A), Central-I, Bombay that there was 1100 acres of land cannot be challenged any more. The AO, however, did not accept this plea on the ground that such statements were not supported by any other material on record. When the AO decided to visit Baharaich himself, the assessee stated that the firm was closed down from 1982 and they did not have any connection with the firm. The ITO however was not satisfied with the explanation regarding the income from the firm and also found that the income from the farming the VDS was shown only upto 1972 only and not after that. He further held that the assessee tried to introduce his own income as income from agricultural farm. He further held that the VDS-cum-settlement was made on insufficient material and the income estimated from agriculture for earlier years cannot be adopted as a matter of course without ascertaining the production and sale of agricultural commodities in an assessment order. Besides this, various members of Jalan group came forward with huge amounts of disclosure of concealed income which was shown earlier as agricultural income. As the assessee has failed to give the details of sellers and purchasers, the AO held that the income was not true. He also found that the cash credits of 1977-78 and 1978-79 have almost been used for the payment of taxes under the VDS scheme. When the ITO visited Baharaich, none attended on behalf of the assessee. The agricultural records during the years 1975 to 1980 showed that some land was found to be in the names of the family members of the assessee, but, they were at that time in adverse possession of other parties. On the basis of the above, he came to the conclusion that the LAF did not possess much of land. He also found that the assessee failed to give names and addresses of the sellers and purchasers of the assessee. The ITO found undisclosed income on the part of the assessee appearing in various books shown as borrowals from LAF as under :
Rs.
(1) Lohia Agrl. Farm 2,88,12,000
(2) UP Cattle Development Corpn. 10,40,000
(3) Phulia Paper & Board Mills 24,76,400
(4) Lokenath Tolaram (Old Firm) 63,10,818
(5) Adjustment amounts 1,86,956
(6) Interest on the above 32,74,867
(7) Cash credits from Nepal Parties 20,92,500
(8) Interest on the above 27,23,909
(9) Cash credits 18,75,163
(10) Other credits 35,12,504
(11) Investment in flat at lands-end 80,000
(12) Jewellery 2,50,000
(13) Flat in the name of Mohanlal Jalan 50,000
---------------
5,26,75,117
---------------
He also found that no IT or WT returns were filed by the HUFs which were supposed to declare in their income or wealth. On the basis of the above material, the ITO came to the conclusion that the cash credits attributable to agricultural income amounted to Rs. 2,98,52,000 while the total agricultural income upto 1972 was estimated at Rs. 1,67,75,000 and after considering the expenses, it was estimated only at Rs. 97,75,000. The position of the income-tax returns of LAF was equally dismal. On the basis of the above material, the AO was of the opinion that the cash credits amounting to Rs. 25,41,000 was not properly explained and added back to the total income of the assessee. Proceedings under s. 271(1)(c) were also initiated against the assessee.
5. The CIT(A) in a very detailed order dismissed the appeal of the assessee. He accepted the findings of the AO.
6. When the matter was brought to the Tribunal, another detailed order was passed confirming that order. While the matter was in appeal before the CIT(A) in quantum, the AO gave an opportunity of being heard to the assessee with regard to the imposition of penalty under s. 271(1)(c) of the Act and it was held as below:
(i) The assessee failed to produce any evidence regarding taxable income.
(ii) The assessee failed to co-operate with the Department and the AO proceeded to the firm of LAF.
(iii) He also found that the agricultural income has been accepted upto the year 1972.
(iv) No details regarding growth of crops were given.
(v) He, therefore, held that the assessee concealed the particulars of income and as such was liable for penalty of concealment under s. 271(1)(c) of the Act.
7. The CIT(A) confirmed the penalty. Similar penalties were imposed for other years and they were all confirmed by the CIT(A). Penalty under s. 273(a) was also imposed by the AO and the same was confirmed by the CIT(A). The assessee is in appeal before us.
8. The AO in the last para of his order as mentioned as under for penalty under s. 273(a) :
"In view of the facts mentioned above, it is clear that the assessee had furnished an estimate under s. 212(1) which it had reason to believe to be untrue and committed a default in terms of s. 273(a). It, therefore, levy a penalty under s. 273(a) amounting to Rs. 10,00,000 as against minimum penalty leviable at Rs. 3,11,577.
Penalty levied at Rs. 10,00,000 as above. Issue demand notice and challan accordingly."
For penalty levied under s. 271(1)(c) :
"Considering the facts and circumstances of the case as mentioned above and law as it exists, I am satisfied that the assessee has concealed the particulars of its income and furnished inaccurate particulars of income to the extent of Rs. 24,49,000 representing unexplained cash credits appearing in the books of accounts of the assessee-firm for the relevant period which attracts the provisions of ss. 271(1)(c) read with Explanations to that section of the IT Act, 1961. Accordingly, a penalty of Rs. 38,78,578 is levied on the assessee at the rate of 200 per cent of the tax sought to be evaded r/w s. 271(2) which comes to Rs. 19,39,289.
Penalty levied under s. 271(1)(c) is Rs. 38,78,578. Issued demand notice and challan."
The assessee's counsel submitted that the AO issued a notice under s. 271(1)(c) to the assessee which did not mention that the Explns. to s. 271(1)(c) are proposed to apply in this case. It was submitted that the assessee was deprived of offering explanation with regard to the application of Explanation to the section. It was submitted that in view of the Bombay High Court decision in the case of CIT vs. P. M. Shah (1993) 203 ITR 792 (Bom), if the show-cause notice does not mention that the reliance was being placed on the Explanation to the section from confirming of the penalty, the notice was invalid and the penalty cannot be imposed. Our attention was also invited to the decision of the Bombay High Court in the case of Bombay Inventors Industrial Corpn. vs. CIT (1991) 194 ITR 548 (Bom) and in the case of Ahmedabad Electricity Comp. Ltd. vs. CIT (1992) 199 ITR 351 (Bom) (FB). It was submitted that in view of the fact that the AO never informed the assessee that the penalty was being imposed under one of the Explanations applicable to s. 271(1)(c) of the Act and that order was illegal and has to be quashed.
9. Coming to the merits of the case, the assessee's counsel submitted that even if it is conceded that the assessee has failed to prove that LAF had sufficient agricultural income, there cannot be any dispute that LAF had some agricultural income. The LAF agreed to have advanced the amounts in question to the assessee and its group of companies, hence if they did not have that capacity to advance that much of money have been made in their hands thus and the additions on account of unexplained sources of income should have been made in their hands. It was not done so. It was also submitted that during the assessment and penalty proceedings, the AO visited the places after several years after the stoppage of agricultural activities by the assessee. It was submitted that in spite of the above there were some material on record that at the relevant time, the lands in different villages were in existence in the names of different persons of the group of the families of this assessee. It was, therefore submitted that even if the explanation of the assessee is not believed regarding the earning of agricultural income, it cannot be said that the assessee's case was completely devoid of any truth. It was submitted that in view of the fact that no Expln. to s. 271(1)(c) could be applied due to lack of any notice, the Department had to prove a case under the main section under s. 271 itself. It was submitted that as far as the main section is concerned, the Department has to prove that the assessee has furnished inaccurate particulars of income and has concealed the particulars of the income. It was submitted that in this case, it has not been proved conclusively that the explanation offered by the assessee was completely false. It was submitted that even mere falsity of explanation given by the assessee cannot be made a reason for imposition of penalty under the main section itself. In this connection it is notable in the original grounds of appeal, the assessee had not raised the issue regarding application of Expln. to s. 271(1)(c) or its consequential effects. The additional ground of appeal was raised before us and was permitted to be argued before us.
10. The standing counsel for the Department very ably presented the case for the Department. He submitted that this group of the assessees for quite some time had planned to show agricultural income with a view to introduce various cash credits from that source in different books of accounts of different assets. Attention was also invited to the fact that even during the so called Voluntary Disclosure Scheme, no detailed investigations were made by the Departmental officers, whatsoever was stated was accepted and a credit of Rs. 97,75,000 was given to the LAF on account of agricultural income. It could not be taxed as it was agricultural income. It was, therefore, submitted that the decision of the Supreme Court in the case of McDowell & Co. Ltd. vs. CTO (1985) 154 ITR 148 (SC), is clearly applicable to the facts of the instant case. This assessee, right from the beginning submitted false documents, showed false expenses, false purchases and false sales. It was submitted that when the assessee was asked during the regular assessment proceedings to prove its case, it has miserably failed to do so. He also invited our attention to the decision of Bombay High Court in the case of CIT vs. Smt. Kaushalya & Ors. (1995) 216 ITR 660 (Bom). It was submitted that the assessee very well knew the malafide charges against him were there and did not defend himself at all properly. It was, therefore, submitted that the decision of the Gujarat High Court in the case of CIT vs. Lakhdhir Lalji (1972) 85 ITR 77 (Guj) is also of some importance. Taking to the facts of the case, it was submitted that right from the beginning, the assessee had manufactured a lot of evidence to prove that it was having agricultural income which was later on found to be incorrect. It was further submitted that as the quantum added to the total income by the Asstt. CIT & Dy. CIT which had been confirmed by both the CIT(A) and the Tribunal. It should be held that the assessee had concealed the particulars of income and, therefore, the penalty in this regard should be upheld. In reply, the assessee's counsel again submitted that in view of the fact that the Explanation has been used by the AO for imposing penalty without giving a show-cause notice, the orders are illegal and should be cancelled. He further emphasised the fact that the Department has failed to prove its case under main section of s. 271(1)(c).
11. We have heard the parties. There is no denial of fact that the AO in this case issued only a proforma notice and did not send any other covering letter with the same. At no given time, the AO gave the assessee an opportunity of being heard on this account. The order of the AO imposing penalty is also vague in this regard. It talks about "attracts the provisions of s. 271(1)(c) read with the Explanations". He does not talk about one Explanation and he talks about the Explanations. The assessee has not been given any opportunity in this regard to explain his conduct. In our opinion, a proper reading of s. 271(1)(c) makes it quite clear that the addition of Explanation makes it considerable difference to what is contained in s. 271(1)(c) of the Act. The Explanations create legal fictions in certain circumstances to the effect that the assessee is deemed to produce or furnish inaccurate particulars of income in the circumstances set out in the Explanation. The fact of this case clearly indicate that the assessee failed to prove that the LAF had sufficient funds to advance credits to different parties. At the same time, the Department failed to prove that the LAF was not in a position to advance any amount to these parties. Even the later investigations by the AO revealed that LAF had some agricultural farms even in late 1980s. Even after consolidation of land holdings between 1975 to 1980, some land was shown in the names of various members of the LAF. It is possible to hold that the members of LAF had large agricultural income out of which they could extend the said credits. Thus, the assessee has failed to prove the genuineness of the cash credits but at the same time, the Explanation does not suffer from falsity. Therefore, the provisions of main s. 271(1)(c) can only be applied in this case. As discussed by Hon'ble Bombay High Court in the case of (1992) 203 ITR 792 (Bom) (supra), but for such legal fiction of Explanation, it could never have said that there would be concealment or furnishing of inaccurate particulars of income at all. This Explanation has shifted the burden of proof to the assessee and therefore when the Explanation was resorted to by the ITO or by the IAC in penalty proceedings, it was necessary that the assessee must have been informed that the penalty proceedings against him were commenced under the Expln. to s. 271(1)(c) of the Act.
12. The reliance of the standing counsel for the Department on (1995) 216 ITR 660 (Bom) (supra) is not very helpful to the Department. In that case, the Hon'ble High Court gave a clear finding that the assessee fully knew in detail the exact charge of the Department against her. In this case, the assessee did not know when the notice was served on him that Expln. to s. 271(1)(c) will be applied against him. Under the facts and the circumstances of the case, we are of the opinion that it is not a case of mere vagueness of notice and it is case of complete denial of opportunity to the assessee. Under the circumstances, we are of the opinion that the penalty imposed by the AO and confirmed by the CIT(A) is not valid and it is to be cancelled.
13. The assessee had raised another legal ground relating to the jurisdiction of the IAC levying the penalty, so I consider it necessary to decide the additional ground which being related to jurisdiction goes to the root of the cause.
14. After hearing the arguments on both the parties on the point of admissibility of additional ground, the Bench at the time of hearing itself had decided to admit the additional ground because the same being of legal nature, goes to the root of the cause.
15. The assessee's counsel after referring to the copies of penalty notices initiating the proceedings under s. 271(1)(c) - placed at pp. Nos. 3 to 18 of the assessee's paper-book; submitted that penalty proceedings under s. 271(1)(c) were initiated by the ITO as is evident from the stamp put on the notices, whereas the penalty orders have been passed by the IAC, and, therefore, the order are bad in law because jurisdiction of the ITO levying penalty under s. 271(1)(c) was omitted w.e.f. 1st April, 1976, by the Taxation Laws (Amendment) Act, 1975. According to the assessee's counsel, all the assessment years being relating to the previous years, starting after 1st April, 1976, IAC had no jurisdiction to impose the penalty. The learned Departmental Representative on the other hand, first of all was taken aback by the disclosure of the fact that proceedings were initiated by the ITO whereas the penalty orders have been passed by the IAC and was not able to refute the submissions made by the assessee's counsel except expressing his surprise as to why such a glaring mistake occurred in such a big matter. When the Bench, after going through the penalty order, pointed out that the penalty has been imposed by the Asstt. CIT, Asstt. Range, and not by the IAC (Admn.) and enquired from the Departmental Representative as to the notification relating to the concurrent jurisdiction of the IAC under s. 125A(1) as well as the notification of the IAC (Asstt.) divesting the ITO of his jurisdiction under s. 125A(2), the Departmental Representative expressed his ignorance about such notifications.
16. After considering the rival submissions and to decide the issue involved, it is necessary to consider the law relating to the concurrent jurisdiction of the IAC, which was prevailing during the period 1st October, 1975 till 31st March, 1976, by virtue of the provisions of s. 125A, which were in the following terms.
"Prior to its omission, s. 125A, as amended by the Finance (No. 2) Act, 1977, w.e.f. 10th July, 1978, stood as under :
(1) The CIT may, by general or special order in writing, direct that all or any of the powers or functions conferred on, or assigned to, the ITO or ITOs by or under this Act in respect of any area, or persons or classes of persons, or income or classes of income, or cases or classes of cases, shall be exercised or performed concurrently by the IAC.
(2) Where under sub-s. (1), an IAC exercises concurrent jurisdiction with one or more ITOs in respect of any area, or persons or classes of persons, or incomes or classes of income, or cases or classes of cases, the ITO or ITOs shall exercise the powers and perform the functions under this Act in relation thereto as the IAC may direct.
(3) Without prejudice to the generality of the provisions contained in sub-s. (3) of s. 119, every ITO shall also observe and follow such instructions may be issued to him for this guidance by the IAC within whose jurisdiction he performs his functions in relation to any particular proceeding or the initiation of any proceeding under this Act.
Provided that no instructions, which are prejudicial to the assessee, shall be issued before an opportunity is given to the assessee to be heard. Explanation : For the purposes of this sub-section no instruction as to the lines on which an investigation connected with the assessment should be made shall be deemed to be an instruction prejudicial to the assessee.
(4) Where an order is made under sub-s. (1) and the IAC exercises the powers or performs the functions of an ITO in relation to any area, or persons or classes of persons, or incomes or classes of income, or cases or classes of cases, references in this Act or in any rule made thereunder to the ITO shall be construed as references to the IAC and any provision of this Act requiring approval or sanction of the IAC shall not apply."
17. From the analysis of provisions of s. 125A it is noticed that as per the provisions of sub-s. (1), the CIT could direct the IAC to exercise, any of the powers or carry on the functions conferred on or assigned to any ITO/ITOs, whereas, according to the provisions of sub-s. (2), the ITO/ITOs vested with the concurrent jurisdiction was to exercise or carry on the functions as per the directions of the IAC already directed to exercise the powers and functions by the CIT as per sub-s. (1) of s. 125A, meaning thereby that an ITO could not be divested of his jurisdiction unless/until the IAC authorised under sub-s. (1) by the CIT issues orders under s. 125A(2) directing the ITO to exercise or not to exercise a particular function.
18. As far as the present case is concerned, the penalty proceedings having been initiated by the ITO he could be divested of his jurisdiction to impose penalty, only by virtue of directions issued by the IAC as required by the provisions of sub-s. (2) of s. 125A, who in turn had already been directed by the CIT to exercise the powers and functions of an ITO. As the Revenue has not placed any evidence before us to show that the IAC who had passed the penalty orders was concerned with the concurrent jurisdiction by way of an order of the CIT as required under sub-s. (1) of s. 125A and also that there was any direction of the IAC passing the penalty order to divest the ITO of his jurisdiction who had initiated the penalty proceedings of his jurisdiction for imposing the penalties which could be imposed only by the ITO due to omission of sub-s. (2) to s. 274, we have no alternative, but to hold that there were no such orders at all.
19. In view of the above facts and circumstances, I am of the opinion that penalty orders under s. 271(1)(c) in all these assessment years having been passed by the IAC (Asst.), Range, were without jurisdiction and consequently void ab initio. The penalty orders under s. 271(1)(c) for all these assessments, are, therefore, cancelled on this ground also.
20. With regard to the penalties imposed under s. 273, we are of the opinion that during the previous financial year, when according to the Department, the assessee had income from 'undisclosed sources', there was any material on record to show that the contention of the Department is correct. The assessee during the previous financial year could never be under the impression that the income claimed by it as agricultural income will be treated as income from 'other sources' and will not be believed as having been source of cash credits. Therefore, in our opinion, there was no reason for the assessee to have come to the conclusion that it had income which was liable for advance taxes in the previous financial year. Accordingly, the penalties levied under s. 273 are also cancelled.
21. In the result, the appeals by the assessee are allowed.
Department's appeals
22. In view of our decision in assessee's appeals the Revenue's appeals are dismissed.