Income Tax Appellate Tribunal - Amritsar
Income-Tax Officer vs Manjit Singh Baldev Singh Commission ... on 28 August, 1998
Equivalent citations: [1999]69ITD197(ASR)
ORDER
Shri G. L. Garoo, Accountant Member
1. The revenue has filed appeal against the order passed by the CIT(A) vide A. No. CIT(A)/IT/BTI/391/91-92 dated 23-3-1992 and taken following grounds in appeal :
"1. That on the facts and in the circumstances of the case the ld. CIT(A) has erred in deleting the penalty of Rs. 22,500 imposed under section 271(1)(c) of the IT Act.
2. That it is prayed that the order of the ld. CIT(A) be set aside and that of the Assessing Officer be restored."
2. During the assessment proceedings, Assessing Officer completed assessment under section 143(3) of the IT Act and initiated penalty proceedings under section 271(1)(c). The penalty proceedings were initiated on account of addition amounting to Rs. 1,12,000 made by the ITO based on the calculation of the peak of the credit and surrendered by the appellant. The appellant filed reply in response to show-cause notice and pleaded that the appellant has surrendered peak credit of agricultural cash credits only to avoid any further litigation and harassment and such surrender was made subject to no penalty proceedings of concealment. The appellant relied on the decision of CIT v. Bhimji Bhanjee & Co. [1984] 146 ITR 145 (Bom). The appellant took plea before the Assessing Officer in the penalty proceedings to allow him to produce the creditors. The Assessing Officer rejected the plea that there is no use to produce the creditors at the penalty stage. The Assessing Officer has made following observations which will require further discussion :
"The assessee having agreed to have the matter disposed of in a particular way cannot change the course of events by rising further disputes. It is no where written in the letter dated 15-1-1991 that in case its offer is not acceptable by the department in toto the creditors will be produced."
The matter was agitated upon before the ld. CIT(A) and the ld. CIT(A) has given following observations :-
"4. I have given careful consideration to the arguments of the ld. counsel and my findings are as under :-
(i) The Assessing Officer has imposed the penalty mainly on the ground that addition was not based on the assessee's surrender and this was called for on merits as the assessee failed to produce the creditors. The Assessing Officer has also rejected the plea of the assessee that assessee wanted to produce the creditors at the penalty stage and their evidence has not been recorded. After due consideration of the matter, I find that Assessing Officer has wrongly refused an opportunity to produce the creditors at the penalty stage since penalty proceedings are entirely independent and assessee had legal right to produce the creditors even if they were not produced at assessment stage. The plea of the Assessing Officer is also incorrect that addition was made since it was called for on merits. This fact has been dealt with in appeal in appeal order No. CIT(A)/IT/BTI/317/91-92 dated 25-7-1991 and it has already been held by me vide para-5 that addition was made on the basis of letter of surrender which was subject to no penalty under section 271(1)(c). For the sake of facility, the letter of surrender is reproduced below :-
'It is respectfully submitted in response to your query amount the production of following cash credits of agriculturist viz :
Serve Shree Rs. Tarsem Singh 20,000 Pala Singh 15,000 Narinder Singh 27,000 Balwinder Singh 15,000 Ajit Singh 25,000 Sarvinder Singh 10,000
I surrender the peak deposits stand in their name only to avoid any further litigation and harassment subject to no penalty of concealment. The date-wise accretion statement of creditors is attached herewith.
I hope the aforesaid explanation will satisfy your goodself if any further information is requested that will be duly supplied.
Thanking you, Dated 15-1-1991 Yours faithfully, Sd/-
Manjit Singh For Manjit Singh Baldev Singh Zira...' From this letter, it would be seen that the amount was surrendered only to avoid further litigation and harassment subject to no penalty of concealment. The assessment has been framed on the basis of this letter as is evident from para-2 of the assessment order and the Assessing Officer never gave any independent finding nor the letter of surrender was rejected. As such the agreement is binding on the assessee as well as department and penalty has been wrongly imposed which is in contravention of letter of surrender. This view has been upheld by the Hon'ble Punjab & Haryana High Court in the case of Banta Singh Kartar Singh v. CIT [1980] 125 ITR 239. As such penalty is not exigible in this case since addition was made on agreed basis subject to no penalty of concealment. Moreover, the Assessing Officer was not justified in refusing to record the evidence of creditors at penalty stage and as such penalty has been imposed without giving proper opportunity to the assessee.
(ii) Reliance placed by the ld. counsel in the case of CIT v. Bhimji Bhanjee & Co. [1984] 146 ITR 145 (Bom.) appears to be correct. The assessee had surrendered the credits in order to avoid further litigation and harassment and thus it was never admitted that assessee had concealed its income. In similar circumstances in the case of Bombay High Court referred to above, it was held by the Hon'ble High Court that penalty under section 271(1)(c) was not exigible."
3. The ld. DR has heavily relied on the order passed by the Assessing Officer. The ld. DR pleaded that the cash creditors should have been examined at the level of CIT(A). He has pleaded that the matter may be referred back to the ld. CIT(A) with the direction to allow the opportunity to produce the case creditors.
4. The ld. counsel of the appellant on the other hand pleaded that it is the duty of the Assessing Officer to allow the reasonable opportunity to the appellant for rendering the explanation in the penalty proceedings. The ld. counsel of the assessee pleaded that addition was made after making surrender subject to no penalty proceedings. The ld. counsel of the assessee pleaded that the penalty proceedings originate from the order passed by the Assessing Officer and it is the satisfaction of the Assessing Officer that is the relevant position for imposing or not imposing penalty under section 271(1)(c). The ld. counsel pleaded that the examination of creditors by the ld. CIT(A) will not matter much because the Assessing Officer has taken into account all the relevant situations available before him at the time of imposition of the penalty.
5. We have given thoughtful consideration to the issues involved in the impugned order of Assessing Officer as well as CIT(A).
6. During the assessment proceedings, the entire proceedings were closed after the Assessing Officer received letter of surrender which is reproduced above through which peak deposits in the name of various creditors were surrendered to avoid any further litigation and harassment subject to no penalty of concealment. In this letter the appellant also requested the Assessing Officer that if he requires further information the same will be supplied to him. The Assessing Officer passed a very brief and short order where the offer of the appellant was accepted and addition of Rs. 1,12,000 was made in the assessment order. The order clearly shows that the agreement was accepted by the Assessing Officer and no further clarification or information was called for from the appellant. After closing the assessment the Assessing Officer initiated penalty proceedings under section 271(1)(c). The first gross infirmity has been created in the assessment order by initiating penalty proceedings under section 271(1)(c). The surrender letter was loud clear that he is agreeable to surrender the peak credit only if same surrender is subject to no penalty of concealment. The Assessing Officer should have either accepted the total offer or he should have written and informed the appellant that his surrender is not accepted and investigated the matter as was called for under the facts and circumstances of the case.
7. The second infirmity created by the Assessing Officer relates to refusal of production of cash creditors in penalty proceedings. In the penalty order the Assessing Officer is categorically saying that after having agreed to surrender the income in a particular way he cannot open the chapter of genuineness of the credit. These observations of the Assessing Officer are not legally maintainable on two counts. The first count relates to right of appellant to take afresh look and stand in the penalty proceedings. Secondly, the appellant has surrendered subject to the fact that the Assessing Officer will not initiate penalty proceedings. The Assessing Officer cannot eat the cake from both sides. The question of allowing the CIT(A) to examine afresh the cash credit will also not be correct appreciation of fact because the satisfaction of imposing and not imposing the penalty in the IT Act is relatable to the Assessing Officer. The judicial authorities have to analysis the material available before them and give their opinion whether the material available before the Assessing Officer was sufficient enough to arrive at a conclusion that there was satisfactory explanation regarding concealment of income or filing of inaccurate particulars of income. In the penalty proceedings the evidence has to be produced before the Assessing Officer.
8. The appellant has relied on the decision of Bhimji Bhanjee & Co.'s case (supra). The ld. CIT(A) is of the opinion that facts and circumstances of the case are applicable.
9. We have gone through the case of Bhimji Bhanjee & Co. (supra). We are not in agreement with the Assessing Officer that the facts are not applicable on the facts and circumstances of the case of the appellant. The Hon'ble High Court has given following finding :-
"The submission of Mr. Sajnani, the ld. counsel for the Revenue, is that the assessee had in fact admitted the concealment of income and hence it was not necessary for the Revenue to prove the same. It was submitted by him that in view of this the burden was on the assessee to show that there was no concealment and the conclusion arrived at by the Tribunal was erroneous. He placed strong reliance on the decision of a Division Bench of this Court in Western Automobiles (India) v. CIT [1978] 112 ITR 1048 (Bom.). In our view, it is not possible to accept the submission of Mr. Sajnani. The facts, which we have narrated earlier, clearly show that the assessee nowhere admitted that it had concealed any income. All that the assessee did was to admit that there were certain cash credits in its books of account in favour of named parties and that the assessee was unable to produce evidence to show that these cash credits were genuine as the assessee was not in a position to call the parties in whose favour the cash credits appear, the reason given by the assessee being that it was always heavily indebted and unable to trouble its creditors to give evidence. The aforesaid stand by the assessee can, in our view, never be considered as an admission by the assessee that it has concealed any income. As far as the decision in Western Automobiles (India) v. CIT [1978] 112 ITR 1048 (Bom.) is concerned, the facts of that case are altogether different from the facts of the case before us. In that case, when the ITO discovered in the account books of the assessee loans to the tune of Rs. 90,000, he came to the prima facie conclusion that these represented concealed income. The assessee-firm agreed to the addition of the aforesaid amount of Rs. 90,000 as its business income for that year and the addition was made by the ITO as the assessee's concealed income from business and not as income from undisclosed sources. In the present case, the assessee has nowhere admitted that it has concealed its income and even the ITO has not added the said amount of Rs. 10,590 as concealed income from business but as from undisclosed sources. In view of this, the said decision in the case of Western Automobiles (India) v. CIT [1978] 112 ITR 1048 (Bom.) is clearly applicable to the present case."
10. In the case of the appellant even in the surrender letter he has clearly mentioned that the surrender is subject to no concealment. This clearly shows that the assessee is not admitting that the income is concealed. It was, therefore, duty of the Assessing Officer to establish concealment during the penalty proceedings, at least should have allowed the appellant to produce the cash creditors which was denied to him depending upon the same surrender agreement in which appellant has categorically pleaded that the surrender is subject to no concealment. This type of situation has been dealt by the Hon'ble Supreme Court in the case of Sir Shadilal Sugar & General Mills Ltd. v. CIT [1987] 168 ITR 705/33 Taxman 460A. The Hon'ble Supreme Court has given findings, the effective portion are reproduced below :
"We find That the assessee admitted that these were the incomes of the assessee but that was not an admission that there was deliberate concealment. From agreeing to additions, it does not follow that the amount agreed to be added was concealed income. There may be a hundred and one reasons for such admission i.e. when the assessee realises the true position, it does not dispute certain disallowances but that does not absolve the Revenue from proving the mens rea of a quasi-criminal offence. In Udhavdas Kewalram v. CIT [1967] 66 ITR 462 (SC) the Court held that the Income-tax Appellate Tribunal performed a judicial function under the Income-tax Act and it was invested with authority to determine finally all questions of fact. The Tribunal must in deciding an appeal, consider with due care all the material facts and record its findings on all contentions raised by the assessee and the Commissioner in the light of the evidence and the relevant law. The Tribunal was undoubtedly competent to disagree with the view of the Appellate Assistant Commissioner; but in preceding to do so, it had to act judicially i.e. to consider all the evidence in favour of and against the assessee. An order recorded all the evidence in favour of and against the assessee. An order recorded on a review of only a part of the evidence and ignoring the remaining evidence could not be regarded as conclusively determinative of the question of fact raised before the Tribunal."
11. In Sir Shadilal Sugar & General Mills Ltd.'s case (supra) the assessee surrendered two sums for making addition. The ITO imposed penalty under section 271(1)(c). The Tribunal was of the view that the mere fact amounts agreed to be taken into account by the assessee did not ipso facto indicate any concealment, or intention to conceal income or any portion of the income and the Hon'ble Supreme Court has held that there may be hundred and one reasons for agreeing to the addition but the mere fact that the assessee has agreed to an addition will not automatically attract penalty provisions under section 271(1)(c). After land-mark decision in Sir Shadilal Sugar & General Mills Ltd.'s case (supra) various courts have followed the interpretation of law and consistently given the decision that the concealment cannot be invoked in case of the surrendered addition, if surrender is made specifically on the condition that no penalty will be levied or if the surrender is made with a view to buy peace or avoid harassment or litigation. The Hon'ble Bombay High Court in the case of CIT v. Kiran & Co. [1996] 217 ITR 326/[1994] 74 Taxman 168 have dealt with the issue. In that case, the appellant made a conditional offer and offered an amount for taxation and in the letter specifically stated that no penalty should be levied on the assessee as, according to the assessee, no penalty was leviable. The Hon'ble High Court relied on their earlier decision in CIT v. Haji Gaffar Haji Dada Chini [1988] 169 ITR 33 (Bom.) and quashed the penalty order. In case of Haji Galfar Haji Dada Chini (supra), the assessee who offered the credits for assessment also stated that the penalty be imposed on merit. But Hon'ble Bombay High Court did not confirm the imposition of penalty.
12. The Hon'ble Madras High Court has also decided the issue in CIT v. Adamkhan. In this case the appellant also agreed for addition to income on the condition that the penalty will not be imposed. The appellant surrendered interest on the peak loan advances on the condition that no penalty proceedings should be initiated against him. The Hon'ble Punjab & Haryana High Court in the case of Krishan Lal Shiv Chand Rai v. CIT [1973] 88 ITR 293 has also dealt with the similar issue. In this case, the assessee gave statement surrendering amounts of certain credits on the basis of Hundis shown in the name of third party and the ITO accepted this surender. In this case, the assessee did not make surrender subject to no penalty. But during the penalty proceedings, he pleaded before the Assessing Officer that the surrendered amounts were in fact credit of genuine part and as such he wanted an opportunity to prove the genuineness of these parties. The Assessing Officer refused to give such opportunity and levied penalty. The Tribunal decided the case against the appellant. The matter went to Hon'ble jurisdictional High Court. The Hon'ble High Court has given following finding :-
"This to our mind was not a legal way of proceeding with the matter. Even treating the fact of surrender as an admission of the concealment of undisclosed income, with which we do not agree, the Inspecting Assistant Commissioner could not deny the assessee its right to prove that the fact of surrender was no such admission and that the so-called admission was in fact wrong and the surrender was made simply to avoid botheration.
It is an established principle of law that a party is entitled to show and prove that the admission made by him previously is in fact not correct and true. In the instant case the assessee had definitely alleged that the amounts surrendered were not in fact his undisclosed income, that the hundis in favour of the creditors were genuine and that the surrender was made simply to avoid botheration. That being so, it was incumbent upon the Inspecting Assistant Commissioner to have afforded the assessee full opportunity to prove his assertions, it was an indisputable right which had been denied to the assessee without any justification. it appears that there is a wrong notion prevailing with the authorities deciding the penalty proceedings that once a surrender is made of any amount, the assessee can be straightway penalised without asking the department to supply some other material an 'd further proof establishing the dishonest concealment of the undisclosed income and the falsity of the return and without affording the assessee an opportunity to show that 'the surrendered amounts were in reality not for certain reasons that he had made surrender of the amount. Apparently, it is this notion that has prevailed with the Inspecting Assistant Commissioner in deciding the instant penalty cases as is manifestly evident from the order the relevant portion of which has been reproduced above.
It is to be borne in mind that the penalty proceedings are distinct from the assessment'proccedings and are in the nature of quasi-criminal proceedings. The onus was on the department to positively prove and produce for that purpose, certain other material besides the factum of surrender that the amounts in dispute were the undisclosed income of the assessee. We agree with Mr. Sharma, learned counsel for the assessee, that the mere fact of surrender could not necessarily be an admission of the assessee that the amounts surrendered were its undisclosed income. The surrender by the assessee could have been for more than one reason in spite of the fact that it was his income and that fact alone could not be the basis of imposing penalty as has been done in the present case. This view of ours finds full support from Bench decision of this Court in Gumani Ram Siri Ram v. CIT, wherein, in similar circumstances, it was held that there may be hundred reasons for the assessee to surrender the amount irrespective of the fact whether it was his income or not and it was incumbent for the Income-tax Officer to find on evidence that the amount surrendered represented the income of the assessee."
13. The Hon'ble Gujarat High Court has decided in the case of CIT v. Navnitlal Pochalal [1995] 213 ITR 69 that the admission of the assessee to surrender an amount because,he has no proper explanation, did not absolve the revenue of its burden of proving that the amount surrendered was income of the appellant and there was any concealment or negligence on the part of the appellant in not reflecting that income.
14. A different approach was developed by the Hon'ble Karnataka High Court in the case of CIT v. K. P. Sampath Reddy [1992] 197 ITR 232. The Hon'ble High Court has analysed the facts of the case and then gave the finding. The facts of the case before the Hon'ble Kerala High Court were different because on the given situation discussed by the Assessing Officer revealed difference in stocks, sales and cash credit entries followed by a survey conducted on the business premises of the assessee. The Assessing Officer issued a notice under section 148 and the assessee disclosed income of Rs. 3,00,840 for three assessment years. Even after the surrender, the ITO gave a finding that the books were not reliable and income in revised return was unacceptable. It was only on the conclusion of the assessment proceedings, the assessee surrendered income of Rs. 6,00,000 for the assessment years 1972-73 to 1977-78. The Assessing Officer imposed penalty which was deleted by the ITAT. The Hon'ble High Court gave following finding :-
'We are constrained to reject the assessee's contention. We are pained to note that the Appellate Tribunal completely ignored the assessment order which was not based on any concession by the assessee. Concealment of income in the return filed by the assessee is a glaring fact, in the instant case. It is not possible to infer any agreement by the Revenue, either in clear terms or by necessary implication, to act on the basis of the, assessee's letter. The assessee has to thank himself that the Income-tax Officer levied the minimum penalty only.'
15. In this case, the Hon'ble High Court has observed that the assessment was not made on any concession or offer by the assessee. The assessee has not offered the condition subject to no penalty. The offer of assessment has come after long drawn investigation. Therefore, facts and circumstances of the case of K. P. Sampath Reddy (supra) are not applicable on the facts and circumstances of the case of the appellant. All other High Courts are in tone With the observations discussed above. The Hon'ble Calcutta High Court in case of CIT v. Nuruddin & Bros. [1990] 185 ITR 481, has observed that if the appellant agrees to certain addition and disallowance that itself will not give power to the Assessing Officer to impose penalty and presume that the appellant has concealed the income or filed inaccurate particulars of income. Similar view is held by the Madhya Pradesh High Court in the case of CIT v. Punjab Tyres [1986] 162 ITR 517 and Kerala High Court in the case of CIT v. Shri Pawan Kumar Dalmia [1987] 168 ITR 1.
16. Keeping in view the above observation, penalty imposed is cancelled.
17. C.O. 46 (ASR)/1992 The cross objection filed by the assessee being infructuous is also dismissed.
18. In the result both the appeal filed by the revenue and C.O. filed by the assessee are dismissed.