Income Tax Appellate Tribunal - Ahmedabad
Kanaiyalal C. Thakor, Valsad vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "D", AHMEDABAD
Before Shri Mahavir Singh,JM & Shri A.N. Pahuja, AM
I.T.A. No.635/Ahd/2006
(Assessment year 2001-02)
Shri Kanaiyalal C Thakor vs ITO, Ward-2
Prop of B Sejal Gas Agency Valsad
New Vegetable Market
Valsad
[PAN : AAJPT0877B]
(Appellant) (Respondent)
Assessee by : None (written submissions)
Revenue by : Shri CK Mishra, DR
ORDER
A.N. Pahuja : This appeal the assessee is directed against an order dated 27- 12-2005 of the ld. CIT(A), Valsad , upholding the penalty of Rs.1,07,355/-levied u/s 271(1)(c) of the Income-tax Act, 1961 (hereinafter called as the 'Act').
2. Facts, in brief, as per relevant orders are that the return declaring income of Rs. 2,20,990/- filed on 30.10.2001 by the assessee, a dealer of HPCL LPG cooking gas, was taken up for scrutiny with the issue of notice u/s 143(2) of the Act 25.10.2002. The assessment was subsequently completed on an income of Rs.5,01,950/- vide order dated 27.2.2004,inter alia, with the following additions:
(In Rs.)
i) Agricultural income treated as income From undisclosed sources . 42,360
ii) Difference in freight receipts 32,371
iii) Freight expenses 76,627
iv) Double claim of donation 5,000
v) Unexplained cash credit 1,01,000 2.1 With regard to claim of exemption of agricultural income of Rs. 42,360/- , the assessee, when during the course of assessment proceedings called upon 2 ITA No.635/Ahd/2006 to produce proof of ownership of the land, documentary evidence of sale of agricultural products, details of expenses incurred on seeds , labour etc. for carrying out the agricultural operations, produced merely a copy of 7/12, 8A extracts of the land and did not produce any other supporting evidence in connection with the agricultural activities claimed to have been carried out on the said land. Even the 7/12 and 8A extracts showed that the assessee held the land in question during FY 2003-04 and there was no proof of having the land in the year under consideration. Moreover, this land was not wholly owned by the assessee and there were 12 co-owners. According to the Assessing Officer[AO in short], since the assessee was claiming the exemption, onus was on him to prove that the income earned was agricultural income. In the absence of any evidence of carrying on of agricultural operations and sale of agricultural produce, the AO rejected the claim for exemption of the agricultural income.
2.2 As regards addition of Rs.32,371/- on account of difference in freight charges, the AO noticed that the assessee claimed credit for TDS amounting to Rs.20,931/- and on that basis, the corresponding freight receipts worked out to Rs.9,51,313/- . This amount was not reflected in the profit and loss account. To a query by the AO, the assessee explained that they had debited Rs.9,18,942/- in the Profit & Loss Account as having been paid to Shri Deepakbhai B Patel as transport rent vis-à-vis freight receipts of Rs.9,51,313/-. Since the assessee did not explain the difference of Rs.32,371/-, the AO added the said amount.
2.3 Regarding freight expenses of Rs.76,627, though the assessee claimed that transport rent was paid to Shri Dipakbhai B Patel , the following entries narrated as freight were without any name of the respective parties:
Sr.No. Date of entry Amount (Rs.)
1. 7-8-2000 18,672
2. 9.9.2000 19,655
3. 10.11.00 17,750
3 ITA No.635/Ahd/2006
4. 12.12.00 20,650
76,627/-
Since the assessee did not offer any explanation, the AO disallowed the amount.
2.4 Besides, since the assessee debited an amount of Rs.5,000/- paid towards Chief Minister's Relief Fund in the profit & loss account and also claimed deduction of 100% of the same amount in the computation of income, the AO added the amount claimed twice, the assessee having admitted the mistake.
2.5 The AO further noticed that the assessee raised a loan of Rs.1,01,000/- in the name of Shri Ragnesh R Desai. Despite several opportunities, the assessee did not furnish confirmation nor could produce the said creditor. Subsequently, the assessee filed a confirmation letter dated 26-02-2004 signed by one Smt. Nina @ Ami R Desai. The AO noticed that as per the details accompanying the balance-sheet, the depositor had been mentioned as Shri Raghnesh R Desai whereas in the confirmation letter Smt. Nina @ Ami R Desai is claimed to have advanced loan of Rs.66,000 on 1.8.2000 and Rs. 35,000 on 1.1.2001 to the assessee through cheques drawn on ICICI Bank Valsad On further enquiry, it transpired that as per the return of income filed by Smt. Nina, she had income of Rs.47,667/- under the head salary and income of Rs.17,574/- under the head "Income from other sources" during the year. Since Smt. Nina neither appeared before the AO nor produced any evidence in support of her claim of having advanced the loan in the manner stated in the confirmation while shri Raghnesh R Desai denied having advanced any loan to the assessee, the AO inferred that the assessee failed to discharge the onus of proving the cash credit. The AO also obtained a copy of bank statement from ICICI bank after ascertaining the account number 00680100574of the assessee and found that entries of Rs.66,000/- and Rs.35,000/- advanced by Smt. Nina were not recorded therein. Accordingly, the entire amount was added u/s 68 of the Act, the assessee having 4 ITA No.635/Ahd/2006 failed to establish the identity of the creditor, genuineness of the transaction and capacity of the creditor .
2.6 Inter alia, penalty proceedings u/s 271(1)(c) of the Act read with explanation-1 thereto were initiated for furnishing inaccurate particulars of income as aforesaid.
3. The assessee filed an appeal against all the above additions, except the disallowance of double claim of donation and the ld. CIT(A) upheld the said additions. Thereafter, in response to a show cause notice by the AO before levy of penalty u/s 271(1)(c) of the Act, the assessee submitted that an appeal having been filed against the order of the ld CIT(A), penalty proceedings may be kept in abeyance till the decision of the ITAT. However, the AO did not accept this plea of the assessee and imposed a penalty of Rs.1,07,355/- u/s 271(1)(c) of the Act read with explanation 1 thereto @ 100% of the tax sought to be evaded for concealing the income or furnishing inaccurate particulars thereof. .
4. On appeal, the ld CIT(A) upheld the levy of penalty after referring to relevant provisions of sec. 271(1)(c) of the Act and explanation-1 thereto in the light of facts and circumstances of the case, holding as under:
"5.5 It would thus be seen that the amount added or disallowed in the above process of computation is deemed to represent the income in respect of which particulars have been concealed. In other words, the addition of the amount or otherwise disallowance of the amount in the computation of the total income would assure a deemed character of concealment by reason of Explanation 1. Therefore, the statutory requirement of section 271(1)(c) requiring satisfaction of the Officer as regards concealment gets understood in the light of the above deeming situations. In the process of computation of total income if the A.O. makes an addition to the amount or in the other process disallows some amount in the process of computation, the two events or occasions would have to be deemed to represent the character of concealment in regard thereto.
5 ITA No.635/Ahd/20065.6 Explanation 1 automatically comes into operation when, in respect of any facts material to the computation of total income of any persons, there is failure to offer an explanation or an explanation is offered which is found to be false by the Assessing Officer or an explanation is offered which is not substantiated. In such a case, the amount added or disallowed in computing the total income is deemed to represent the income in respect of which particulars have been concealed.
5.7 The explanation of the assessee for the purpose of avoidance of penalty must be an acceptable explanation; it should not be fantastic or fanciful one. Otherwise, the consequence follows as a matter of law. The burden is on the assessee. If he fails to discharge the burden, the presumption that he had concealed the income or furnished inaccurate particulars thereof is available to be drawn [CIT v. Prathi Hardware Stores (1993) 203 ITR 641, 649-50 (Ori)] 5.8 Mere offering of an explanation would not absolve an assessee from the liability of penalty. It is necessary for the assessee to offer an explanation and also to substantiate it (CIT v. Lal Chand Tirath Ram (1997) 225 ITR 675, 683 (Punj)].
5.9 Under Explanation 1, a presumption will arise that if any addition made by the Assessing Officer is sustained by the appellate authority, then that will represent the concealed income of an assessee and the onus will be on the assessee to rebut the presumption. A presumption under Explanation-1 is obviously available, when an assessee fails to offer an explanation or offers an explanation which is found by the Assessing Officer to be false or if the assessee offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fid4e and that all the facts relating to the same and material to the computation of his total income have been disclosed by him.
6. Going through the facts of the case, it is observed that the assessee never brought any material on record (which may or which may not have been relied by the AO) in support of "Freight Expenses", and "Difference in Freight Expenses". Thus, the assessee clearly failed to discharge initial onus placed upon him by law. Further, both represented income of the assessee which was not disclosed in the return of income. Thus, both of them are clear cut case of furnishing of inaccurate particulars and the failure to offer an explanation and are therefore liable to penalty as per the Explanation 1 to section 271(1)(c) of the Act. I, therefore, uphold the decision of A.O. in these two counts.
6 ITA No.635/Ahd/20066.1 In case of "Agricultural Income", the assessee furnished cultivation and ownership evidence. However, the evidence were apparently contrary and no further explanation or material was submitted. Thus, here also incorrect particulars were filed by the appellant and there was a deliberate attempt to conceal regular income as exempt income. Here, the assessee offered an explanation which was false and also was unable to substantiate the explanation offered by him, and therefore, liable to penalty as per the Explanation 1 to section 271(1)(c) of the Act. I, therefore, uphold the decision of the A.O. on this point.
6.2 Finally, in the matter of "Cash Credit in the name of Mr. Ragneshbhai Desai", the assessee produced copies of bank statement of Shri Ragneshbhai and Smt. Nina before C.I.T (Appeals), Surat which showed withdrawals. It is mentioned as transfer entry, but it is not clear to whom it has given. In the case of ICICI Bank, Bulsar A/C No.00680000357, the withdrawal of Rs.35,000/- was in the name of B. Sejal Gas Agency contrary to what the appellant is saying. The appellant has been changing stand on different occasions. In the books of accounts, it has been shown in the name of Shri Ragnesh Desai. During the assessment proceedings, the assessee has furnished confirmation in the name of Nina Desai. Nina Desai did not appear before the A.O. or produced the Bank Statement. During the appellate proceedings before the CIT(A), Surat, copy of Account of Ami R. Desai, the third person has been filed and one of the withdrawal in it was a transfer entry. Another withdrawal was in the name of B. Sejal Gas Agency. From the above, it is clear that the appellant has neither proved the identity of the creditor nor genuineness of the transaction. Further, it is not even clear as who is the creditor. The genuineness of the transaction is highly in doubt, in view of the changing stand of the appellant. The appellant has failed to prove the identity of the person, genuineness of the transaction and capacity of the creditor. Thus, here also incorrect particulars were filed by the appellant and there was a deliberate attempt to conceal the income. Thus, here, the assessee offered an explanation which was false and also was unable to substantiate the explanation offered by him, and therefore, liable to penalty as per the Explanation 1 to section 271(1)(c) of the Act. I, therefore, uphold the decision of the A.O. on this point.
6.3 In view of the above discussion, the levy of penalty of Rs.1,07,355/- by the A.O. u/s 271(1)(c) read with Explanation-1 is upheld. The appeal of the appellant is dismissed."
7 ITA No.635/Ahd/20065. The assessee is now in appeal before us. None appeared before us on behalf of the assessee and instead written submissions have been filed. In his written submissions, the assessee, at the outset , while relying on a decision of Ahmedabad Bench in the case of Dy.CIT Vs. GSFC Ltd reported in (2010), 1 ITR (Trib) 361 (Ahmedabad),contended that when penalty is levied for furnishing of inaccurate particulars, explanation 1 cannot be invoked. It was further pointed out that in penalty show cause notice the AO stated that "Have concealed the particulars of your income or furnished inaccurate particulars of income. Since it was not clear whether the AO intended to levy penalty for furnishing inaccurate particulars or for concealment of income, penalty order is required to be quashed in view of decision in CIT v. Manu Engineering Works (1980) 122 ITR 306 (Guj), Navinbhai M. Patel v. ITO (1988) 27 ITD 411 (Ahd-Trib); and Tarlochan Singh & Sons (HUF) Vs. ITO (2008) 114 TTJ 82. As regards merit of penalty, the assessee submitted that right from the beginning, assessee's income has been accepted by the department and even in subsequent years also, such income is accepted. Besides the agricultural land is an ancestral property of the assessee and therefore , there is no case for furnishing of inaccurate particulars of the income which empowered the AO to levy penalty. In this connection, the assessee relied upon decision in CIT Vs. Proagro Seeds Co. Ltd., 296 ITR
235.As regards freight receipts and expenses, the assessee submitted that the assessee is not liable to show any income in his ROI, pertaining to TDS & therefore, question of treating Rs.32,371/- as assessee's income doesn't arise. Likewise w.r.t. freight expenses, the entries identified by the AO in para no.3 of assessment order were mere J.V. entries for which no claim of expenses was made by the assessee in his P & L A/c. As regards cash credit of Rs.1,01,000/- , the assessee mentioned that the assessee having filed loan confirmation of Smt. Nina @ Ami R. Desai being spouses by relation & both above cheques having issued from their joint bank account while error was committed by the accountant in mentioning the name of the depositor, penalty could not be levied in view of decisions in the case of National Textiles v. CIT (2001) 249 ITR 125 (Guj),Shri Nirmal Commercial Ltd vs CIT (2008) 218 CIT (Bom) 581; and ITO Vs. 8 ITA No.635/Ahd/2006 Rakesh Gupta 107 TTJ (Asr.Trib) 909. On the other hand, the ld. D.R. while supporting the impugned order contended that malafide intention is not relevant for imposing the penalty u/s 271(1)(c ) of the Act.
6. We have heard both the parties and gone through the facts of the case. At the outset, we notice that though the assessee in his paper book claimed to have enclosed a copy of penalty showcause notice, no such notice is found at pages 48 & 49 of the paper book. Instead a reply dated 24.2.2005 in Gujrati and its English transalation is placed on these pages. Therefore, plea on behalf of the assessee in the written submissions that in the showcause notice, the AO stated both concealed the particulars of income or furnished inaccurate particulars of income, was not verifiable nor the ld. DR could throw light on this aspect. Even otherwise, we find that after receipt of order of the ld. CIT(A) , in response to a showcause notice issued by the AO on 21.12.2004, the assessee replied vide letter dated 24.2.2005 to keep the penalty proceedings in abeyance till decision of their appeal before the ITAT and did not furnish any explanation whatsoever. Thereafter , the AO after about two months imposed a penalty of Rs. 1,07,355/- vide his order 21.4.2005.There is nothing to suggest as to whether or not the AO on receipt of reply dated 24.2.2005 allowed further opportunity to the assessee for his explanation nor any such explanation is evident from the impugned orders of the AO or the ld. CIT(A) . It is now well settled that explanation 1 to sec. 271(1)(c) of the Act automatically comes into operation when in respect of any facts material to the computation of total income of any assessee, there is failure to offer an explanation or an explanation is offered which is found to be false by the Assessing Officer or an explanation is offered, which is not substantiated. In such a case, the amount added in computing the total income is deemed to represent the income in respect of which the particulars have been concealed and, consequently, the assessee becomes liable to the penalty provided by section 271(1)(c) of the Act. In nutshell ,the explanation shifts the burden of proof on the assessee. [K.P.Madhusudnan Vs. CIT,251 ITR 99(SC). In the present case, the assessment had been completed 9 ITA No.635/Ahd/2006 on an income of Rs. 5,01,950/- as against returned income of only Rs.2,20,290/- and undisputedly, the onus was on the assessee to submit an explanation in respect of the difference. Therefore, on receipt of the showcause notice, the assessee was required to submit his explanation on the amount of difference between the returned income and assessed income. However, the assessee merely requested for keeping the penalty proceedings in abeyance and the AO did not pursue the matter further and without having any explanation from the assessee imposed the penalty. It can not be said that in such circumstances the assessee had been given a reasonable opportunity of hearing before the order imposing penalty was passed. Moreover, admittedly whatever reply or details have been submitted , these were submitted before the learned CIT(A). The learned CIT(A) without confronting the said reply and details to the AO, passed the impugned order. In this connection , it may be pointed out that the rules of natural justice are not codified nor are they unvarying in all situations, rather they are flexible. They may, however, be summarized in one word : fairness. In other words, what they require is fairness by the authority concerned. Of course, what is fair would depend on the situation and the context. In the facts and circumstances of the case, we are of the opinion that a mere ritual or empty formality will not be an opportunity as contemplated by law. It will be a "pretence" or "make believe". This is not a case of a mere routine or simple matter..Over the years by a process of judicial interpretation two rules have been evolved as representing the principles of natural justice in judicial process, including therein quasi judicial and administrative process. They constitute the basic elements of fair hearing, having their roots in the innate sense of man for fairplay and justice. Justice should not only be done but should manifestly be seen to be done.
6.1. In view of the foregoing , especially when no explanation had been furnished by the assessee before the AO nor fair opportunity had been allowed by the AO before imposing penalty u/s 271(1)(c) of the Act, in the interest of substantial justice, the impugned order is set aside and the matter is remitted 10 ITA No.635/Ahd/2006 back to the AO for fresh disposal after giving sufficient opportunity of hearing to the assessee. The AO may, thereafter, pass such order as he deems proper, in accordance with law. The assessee is also directed to submit his explanation before the AO. With these directions, grounds raised in the appeal are disposed of.
7. In the result, appeal is allowed, but for statistical purposes.
Order pronounced in the open court on 26-2-2010
Sd/- Sd/-
(Mahavir Singh) (A.N. Pahuja)
Judicial Member Accountant Member
Ahmedabad,
Dated :26th February, 2010
Pk/-
Copy to:
1. The assessee
2. ITO, Ward-2, Valsad
3. CIT(A), Valsad
4. CIT, Valsad By order
5. DR, "D" Bench
Deputy Registrar, ITAT, Ahmedabad