Income Tax Appellate Tribunal - Mumbai
Janata Glass Works , Navi Mumbai vs Department Of Income Tax on 9 February, 2012
IN THE INCOME TAX APPELL ATE TRIBUNAL
MUMBAI BENCHES, 'J', M UMBAI
BEFORE SHRI D.K. AGARWAL(JM) AND SHRI P.M.J AGTAP(AM)
IT(SS)A No.71/Mum/2007
(Block Assessment Period 1991-92 to 2001-02)
Dy. Commissioner of M/s Janata Glass Works,
Incom e Tax, Parekh Market,
22(1), M.G.Road,
Tower No.6, Ghatkopar (E),
Room No.12B Mumbai-400077.
4 t h Floor, V/s
PAN:AAAF J1800F
Vashi Rail way station
Complex,
Vashi,
Navi Mumbai-400705.
APPELLANT RESPONDENT
Date of Hearing : 9.2.2012
Date of Pronouncement : 24 .2.2012
Appellant by : Mrs.Kusum Ingale
Respondent by : Shri M.Subramanian
O R D E R
PER D.K.AGARWAL (JM) This appeal preferre d by the Reve nue is dire cted against the o rder dated 22.2.2007 passed by the ld. CIT(A) for the Block Assessment Period 1991-92 to 2001-02.
2. Briefly stated facts of the case are that the assessee is a partnershi p firm and is a deale r of glass bottles, primarily supplying them to pharmace utical 2 IT(SS)A No.71/Mum/2007 (Block Assessment Period 1991-92 to 2001-02) companies, distilleries and breweries, etc. The assessee' s premises was searche d by the Income Tax Department under section 132 of the Income Tax Act, 1961(the Act) o n 20.2 .2001. According to the AO during the course of search cash of Rs.3,48,000/- was found and seized and bank locke r No.245, with Bank of Rajasthan Ltd, Garodia Nagar Brach, Ghatkopar (E), Mumbai was found empty. The notice u/s 158BC was issued and in response the assessee filed its block return admitting undisclosed income of Rs.1,00,00,000/- as against the declaration of Rs.2,00,00,000/- made at the time of search. The amount of undisclosed income shown by the assessee in the block return was to wards inflated expense s, viz. travelling, transportation, breakages & re jections etc. during each of the years in the block pe riod in respect of Mumbai as well as Baroda Office. Assessment was completed under section 158BC in which the AO made several addi tions aggregating to Rs.2,10,00,000/- in the entire block period. The addition made by the AO on account of inflated expenses related to travelling, transportation, breakages and rejections and moulds. The addition of Rs.1,10,00,000/- was made by the 3 IT(SS)A No.71/Mum/2007 (Block Assessment Period 1991-92 to 2001-02) AO on the ground that, in mo st of the cases proper bills/vouchers were not maintained with the result that all the expenses claimed by the assessee were not found ve rifiable /ascertainable. The AO also noted that the assessee had made a declaration vide affidavit dated 2.3.2001 whe rein the assessee had admitted undisclosed income amounting to Rs.2 crores towards inflated expense s. It is in this background that the AO has added a sum of Rs.1,10,00,000/- to the undisclosed income and accordingly completed the assessment at an income of Rs.2,10,00,000/-. On appeal, the learned CIT(A) deleted the entire addition except a sum of Rs.3,95,305/- on the ground that there was no scope for making disallowance on ad hoc basis in a block asse ssment. On further appeal by the Revenue before the Tribunal, the Tribunal while relying on the affidavit of the assessee obse rved that the quantification of undisclosed income at Rs.1.50 crores towards inflated expenses has bee n done by the assessee and no t by the AO, held that the CIT(A) was not justified in deleting the addition to the extent of Rs.1.50 crores and hence it re versed the order passed by the ld.CIT(A) and restored the order 4 IT(SS)A No.71/Mum/2007 (Block Assessment Period 1991-92 to 2001-02) of the AO on this account. With regard to the addition of Rs.50,00,000/-, the Tribunal observed that the AO has not identified any precise discrepancy in the claim of the assessee with refere nce to the seized materials except obse rving that the expenses were not verifiable , upheld the order of the ld.CIT(A) in deleting the addition of Rs.50,00,000/- made by the AO.
3. While completing the assessment, the AO also initiated penalty proceedings u/s 158BFA(2) o f the Act and accordingly a show cause notice was issued as to why penalty u/s 158BFA(2) should not be imposed. In re sponse, it was interalia submitted by the assessee that the declaration was made to buy peace. However, the AO added the same on the estimate basis only. In appeal, the ld. CIT(A) almost delete d the entire additions which the Tribunal has tried balance the estimate by arriving at its own estimate of Rs.50,00,000/-. It was further submitted that there is no evidence on record to justify such additio n. Thus, it was prayed that the penalty proceedings initiated be dropped. Ho wever, the AO 5 IT(SS)A No.71/Mum/2007 (Block Assessment Period 1991-92 to 2001-02) while relying on the decision of the Tribunal observed that it is clear that the addition made by the AO of undisclosed income to Rs.1.50 crores towards inflated expenses had actually been done by the assessee itself and not by the AO and hence it is a fit case for imposition of penalty and accordingly he imposed penalty of Rs.33,60,000/- vide order dated 28.11.2006 passed u/s 158BFA(2) of the Act. On appeal, the ld. CIT(A) observe d that if the appellant gives an explanation which is unproved but not disproved i.e. it is not accepted but do not lead to the reasonable and positive inference that the assessee's case is false, the explanation remains a legitimate explanation to have bee n considered within the meaning of provisions of section 158BFA(3)(a) of the Act and the AO could have refrained from imposing the penalty u/s 158BFA (2 ) of the Act. T he ld. CIT(A) while relying on the decision of the Hon'ble Supreme Court in the case of CIT V/s Suresh Chandra Mittal (2001) 251 ITR 009 (SC) held that since in this case, the de partme nt acted upon solely on the disclosure of the assessee u/s 132(4) that was to buy 6 IT(SS)A No.71/Mum/2007 (Block Assessment Period 1991-92 to 2001-02) peace and avoid litigation with the department, delete d the penalty imposed by the AO.
4. Being aggrieved by the order of the ld. CIT(A), the Revenue is in appeal before us challenging in all the grounds the deletion of penalty imposed by the AO u/s 158BFA(2) of the Act.
5. At the time of hearing, the ld. DR while relying on the orde r of the AO and the order passed by the Tribunal in quantum proceedings upholding the additio n of Rs.1.50 crores submits that in view of the additio n of undisclosed income at Rs.1.50 crores towards inflated expenses which has been done by the assessee itself and not by the AO, the AO was fully justified in imposing the penalty u/s 158BFA(2) of the Act and the penalty imposed by the AO be restored. The reliance was also placed in JRD Stock Brokers (P) Ltd. V/s ACIT (2009) 124 TTJ (Del) 566 and in DCIT V/s Spark Electro Communication Systems (2006) 98 ITD 237 (Mum).
6. On the other hand, the ld. Counsel for the assessee which reiterating the same submissions as 7 IT(SS)A No.71/Mum/2007 (Block Assessment Period 1991-92 to 2001-02) submitted before the AO and the ld. CIT(A), further submits that during the course of search except cash of Rs.3,84,000/- no incriminating material was found and seized. He further submits that in the definition of 'undisclosed income' u/s 158B(b), the expression "or any expense, deduction or allowance clai med unde r this Act which is found to be false" has been inserted by the Finance Act, 20 02 with retrospective effect from 1.7.1995. In the case of the assessee, the search took place on 20.2.2001 and the return was filed on 20.6.2001 (wrongly me ntio ned by the AO in the impugned penalty order as 20.6.2002) i.e prior to the amendment made by the Finance Act, 2002, therefore, even if, the assessee has made declaration of inflate d expenses, the penalty is not leviable as the disallowance of expenses does not come unde r the definition of 'undisclosed income' and for this proposition, the reliance was also placed in CIT V/s Hindustan Electro Graphites Ltd.(2000) 243 ITR 48 (SC) which has been followe d by the Ho n'ble Juri sdictional High Court in the case of CIT V/s M/s Mars Foo ds Services in ITA No.5750 of 2010, dated 2.12.2011 holding that where the additional liability 8 IT(SS)A No.71/Mum/2007 (Block Assessment Period 1991-92 to 2001-02) is imposed on account of the retrospective amendment introduced by the Act, penalty cannot be levied. The ld. Counsel for the assessee while distinguishing the decisions relied on by the ld. DR also relied on (a) Seahorse Ship Age ncies Pvt.Ltd. V/s DCIT in IT(SS)A No.107/Mum/200 1 (Block Assessment Pe riod: 1.4.1989 to 30.6.1999) dated 15.3.2002, (b) Shri Pradeep J Shah V/s ACIT in IT(SS)A No.128/Mum/2007 (Block assessment period :1.4.1990 to 26.2.2001) dated 30.10.2009, (c ) ACIT V/s M/s Aarti Industries Ltd. in IT(SS)A No.297/Mum/2002 (Block assessment period 1989-90 to 1999-2000) dated 24.8.2005, (e) Gandhi Service Station V/s ACIT (2006) 100 TTJ (Ahd) 1143 and (f) Nemichand V/s ACIT (2005) 93 TTJ (Bang) 564. He, the refore, submits that the order passed by the ld. CIT(A) in deleting the penalty be upheld.
7. We have carefully considered the submissions of the rival parties and perused the material available on reco rd. We find that there is no dispute that during the course of search e xcept the cash of Rs.3,48,000/- and empty bank locker No.245, in the name of the 9 IT(SS)A No.71/Mum/2007 (Block Assessment Period 1991-92 to 2001-02) assessee with Bank of Rajasthan Ltd, Garodia Nagar Brach, Ghatkopar (E), Mumbai, no incriminating material was found and seized. We further find that during the course of search, the asse ssee has made a declaration of undisclose d income of Rs.1.50 crore s towards inflated expenses and Rs.50 lakhs to cover any other discrepancy totaling to Rs.2 crores, supporte d by a sworn affidavit dated 2.3.2001 of Shri Umesh J.Mehta, one of the partners of the firm. However, while filing the re turn of block period, the assessee has shown undisclosed income of Rs.1 crore as against the declaration of Rs.2 crores. The AO after examining the details of the account and the vouchers of the expenses while observing that the expenses claimed by the assessee are not vouched and verifiable made an adhoc disallowance of Rs.1.10 crores as undisclosed income of the asse ssee for the block period and there by completed the assessment at an income of Rs.2.10 crores. On appeal, the ld. CIT(A) deleted the entire addition except the sum of Rs.3,95,304/- on the gro und that the re was no scope for making disallowance on adhoc basis in block assessment. However, the Tribunal while relying on 10 IT(SS)A No.71/Mum/2007 (Block Assessment Period 1991-92 to 2001-02) the declaration made by the assessee suppo rted by the affidavit restored the addition of undisclosed income of Rs.1.50 crores and upheld the order of the ld. CIT(A) in de leting the addition of Rs.50 Lakhs. Thus from the above it is clear that the declaration of Rs.2 crores made by the assessee supported by an affidavit was not fully accepted even up to the stage of Tribunal. In other wo rds, there was a difference of o pinion in the amount of disclosure. According to the ld. CIT(A), there was no scope for making the disallowance on adhoc basis in block assessment except to the extent of Rs.3,95,305/- whereas according to the Tribunal the addition of the disclosure of Rs.1.50 crores is justified and balance amount of Rs.50 lakhs of the same disclosure has rightly been deleted by the ld. CIT(A).
8. In Spark Electro Communication Systems(supra), the assessee having not disclosed entire income in response to notice u/158BD but disclosed the same in piecemeal basis subsequently by se parate le tters, penalty u/s 158BFA(2) was rightly impose d. 11
IT(SS)A No.71/Mum/2007 (Block Assessment Period 1991-92 to 2001-02)
9. In JRD Stock Brokers (P) Ltd.(supra), the assessee had income not recorde d in the books having been found during search and ye t the assessee having filed 'Nil' re turn for block assessme nt, it has been held that the Revenue was justified in levying penalty u/s 158BFA(2).
10. Whe reas in the case before us the declaration of Rs.2 crores, without any seized material, was reduced by the Tribunal in quantum proceedings, to Rs.1.50 crores as against Rs.1 crore shown by the assessee in the return of income of the block period and accepted by the ld.CIT(A) e xcept Rs.3,95,905/-. Thus, at every stage there was a difference of opinion or two views. Therefore, both the decisions relied on by the ld. DR are distinguishable and no t applicable to the facts of the prese nt case.
11. In CIT V/s Dodsal Ltd ( 2009 ) 312 ITR 112 (Bom ), it has been held that the provisions of section 158BFA(2) are discretionary and not mandatory.
12. In CIT V/s Re liance Petroproducts Pvt. Ltd. (2010) 322 ITR 158(SC), it has been held (Placitum 12,page 166): "......Me rely because the assessee had 12 IT(SS)A No.71/Mum/2007 (Block Assessment Period 1991-92 to 2001-02) claimed the expenditure , which claim was not accepted or was not acceptable to the Revenue, that by itself would no t, in our opinion, attract the penalty under section 271(1)(c). If we accept the contention of the Revenue then in case of every return where the claim made is not accepted by the Assessing Officer for any reason, the assessee will invite penalty under section 271(1)(c). That is clearl y not the intendment of the Le gislature.".
13. In all the cases relied upon by the ld. Counsel for the asse ssee, it has been consistently held that no penalty can be imposed on estimated addition in block assessment.
14. Applying the ratio of the above decisions to the facts of the present case we hold that since the additio n was based on estimate basis without any seized material and even the declaration of undisclosed income made by the assessee in his affidavit was not fully accepted by the Tribunal, thus there was a difference of opinion at every stage, therefore, it is not a case of concealment of income in accordance with the strict provisions of law including 13 IT(SS)A No.71/Mum/2007 (Block Assessment Period 1991-92 to 2001-02) the provisions of sectio n 158B(b) read with the decision of the Hon'ble Apex Court in Hindustan Electro Graphites Ltd.(supra) and M/s Mars Foods Services (Bom)(supra) and hence the penalty imposed by the AO is no t sustainable in law and accordingly, the order passed by the ld. CIT(A) in deleting the penalty is upheld. The grounds taken by the Revenue are, therefore, rejected.
15. In the result, the Revenue's appeal stands dismissed.
Order pronounced in the open co urt on 24th Feb.,2012.
Sd sd
(P.M.JAGTAP) (D.K.AGARWAL)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, 24th February, 2012
SRL:
Copy to:
1. Appellant
2. Respondent
3. CIT Co ncerned
4. CIT(A) concerned
5. DR conce rned Bench
6. Guard file.
BY ORDER
True co py
ASSTT. REGISTRAR,
ITAT, MUMBAI