Income Tax Appellate Tribunal - Ahmedabad
Snita Transport Pvt. Ltd.,, Baroda vs Assessee on 25 January, 2012
-1-
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "C"
BEFORE SHRI D K TYAGI - JM
AND SHRI A MOHAN ALANKAMONY - AM
ITA no.999/Ahd/2006
(Assessment Year:-2001-2002)
M/s Snita Transport Pvt. V/s The Asst. Commissioner
Ltd., Opp. Yogeshwar of Income-tax, Circle-4,
Petrol Pump, Dumad Baroda
Chokdi, Vadodara
PAN: AAFCS 4221 D
[Appellant] [Respondent]
Assessee by :- Shri S N Soparkar, AR
Revenue by:- Shri Vinod Tanwani, Sr. DR
Date of Hearing:- 25-01-2012
Date of Pronouncement:- 16-02-2012
ORDER
PER D K TYAGI (JM):- This is assessee's appeal against the order dated 28-02-2006 passed by the learned CIT(A)-III, Baroda for Assessment Year 2001-02, whereby the learned CIT(A) has confirmed the action of AO in levying penalty of Rs.43,16,890/- u/s 271(1)(c) of the Income-tax Act, 1961.
2 Brief facts of the case as they emerge from the penalty order are that the return of income was filed by the assessee on 19.10.2001 declaring total income at Rs.9,86,384/- which was processed u/s 143(3) on 24.12.2002 determining the returned income. Notice u/s 143(2) issued on 26.12.2002 which was 2 served on 29.10.2002. A survey u/s 133A of the Act was conducted on 30.01.2003.
3 The assessee company had filed revised return of income on 11.03.2003 declaring total income at Rs.90,69,750/-.The regular assessment u/s 143(3) was completed on 13.03.2003 determining the total income at Rs.93,59,280/-. This total income include following amounts for which penalty proceedings u/s 271(1)(c) were initiated.
(1) Rs.1,06,45,488/- On account of Bogus Expenses Debited to P&L A/c.
(2) Rs. 2 60,526/- On account of shortage claim 4 During the course of survey, it was detected that audited books of accounts did not contain the name of 34 creditors which, in fact appeared in the details filed along with the return and the credit amount have accumulated because of the claim of expenses on the part of the assessee. These names of the creditors appeared in the trial balance which was found during the course of survey. On verification/examination of the accounts, etc., it transpired that the expenses claimed against these creditors were bogus and in fact the same was admitted by the assessee. The total of such expenses was calculated by the Assessing Officer at the time of assessment at Rs.1,06,45,448/-
and addition to that extent was made in the assessment order. The assessee had admitted this addition of bogus claim.
5 Further on examining the trial balance the Assessing Officer, found that the "shortage account" was debited by Rs.11,11,281/- and credited by Rs.13,80,807/- and the credit 3 balance of Rs.2,69,525/- was shown in the list of sundry creditors. The assessee claimed that this amount was to be paid to Drivers. However, no documentary evidence of any such payment was found at the time of survey or produced during the assessment. Assessee had not maintained a separate account for the driver's claim. The assessee could not establish/evidence that the assessee had made any such payment in the past to any driver in this regard. The Assessing Officer, therefore, considered the said balance to be the assessee's income.
6 The Assessee had preferred appeal to CIT(A), Baroda. The Id. CIT(A) has decided the appeal of the assessee vide order dated 21.08.2003. Both the additions made by the Assessing Officer are confirmed by CIT(A), Baroda.
7 Thereafter, the AO proceeded to levy penalty with the following observations:-
"7 The notices u/s 271(1)(c) of the Act were again issued to assessee on 03.01.2001 and 13.01.2006. The assessee had submitted its written submission wherein the assessee has pleaded that books of accounts maintained by the company were proper because the entry for non-existent of creditors is not entered. The assessee has also pleaded that it had filed revised return or income as a result of survey and thus it does not tantamount to concealment. The assessee also had cited some case laws in lavour of its case, I have carefully gone through the submission tiled by the assessee but it is not acceptable on following grounds:-
* The assessee itself admitted during the course of survey proceedings about the bogus creditors and that it has debited the total amount under various heads in its books of accounts.
* The plea of assessee that books of accounts were proper as entries against the non-existing creditors was not found lacks 4 force while the entries may be absent in the manual books, the entries were made in computerized account and return was filed accordingly. Thus, the bogus creditors and bogus expenses were very much present in the return of income. In fact, this reinforces the finding that there was concealment by the assessee.
* The revised return per se has been treated nonest as it was revised after the Department pointed out the concealment. Thus, the plea of assessee on ground of revised return is not accepted. It may be mentioned here that the Ld. CIT (Appeals) has discussed the issues at length in his order and has upheld that the second return can not be treated as revised return.
* The assessee had put forward few case laws which are not applicable to the facts and circumstances of the case. In this case, the revised return was not "revised" as per I.T. Act, 1961. In the assessee's case, the case was already under scrutiny and further verification survey action was carried out. The assessee filed second return of income only after the Department detected concealment. The cited case laws do not pertains to these kinds or facts and therefore do not assist the assessee.
* The ld. CIT(A) has not only confirmed the additions made by the Assessing Officer on which penalty proceedings are initiated, but also given clear finding that the second return can not be treated as revised return.
8 Therefore, considering the facts and circumstances available on records and decision given by CIT(A), Baroda, I levy the penalty on addition sustained at Rs.1,09,15,013/- by the ld. CIT(A), Baroda, keeping in view that the assessee had concealed particulars of income and levy minimum penalty @ 100% of tax sought to be evaded comes to Rs.43,16,890/- and maximum penalty @ 300% of tax sought to be evaded comes to Rs.1,29,50,670/-. Looking to the facts and circumstances of the case, I hereby levy penalty of Rs.43,16,890/- u/s 271(1)(c) of the Act."
8 Aggrieved by the order of the AO, the assessee filed an appeal before the first appellate authority. Before the learned CIT(A), the assessee submitted as under:-
5"7 Before me, the appellant submitted that the expenses debited were incurred for business purpose only and therefore these cannot be termed as bogus. The appellant referred to the following Question No. 4 of the statement dated 30-1-2003 of Shri Vijay Nair and for ready reference, the reply of the appellant to Question No. 4 is given below:
"Qs. 4: This means that there is no genuine concern and the expenses debited in their names are bogus?
Ans. 4: The expenses are debited under the head repairing and maintenance, however, the same is expended for other business purpose."
7.1 It was also submitted that non availability of vouchers/bills may be valid for the purpose of making addition. However, the same may not be valid for the purpose of levying penalty. The appellant argued that it is not a case where the appellant has not offered an explanation; that the appellant had offered an explanation; that, there is no allegation that, the said expenses debited by the appellant are income of the appellant; that except the non availability of the vouchers/bills there is no material on record to prove that the amounts represent the income of the appellant; that the explanation given by the appellant at the time of survey is not found to be false. The appellant argued that the fact of having incurred this expenditure is apparent as no excess cash or unaccounted assets or other things were found during the course of survey.
7.2 The appellant contended that Explanation-1 to section 271(1)(c) is not applicable as the assessee offered an explanation which was not found to be false and which it was able to substantiate and it was only after the particulars provided by the appellant that the assessment was finalized. The appellant also contended that at no point of time any information furnished by the assessee was found to be inaccurate.
7.3 It was argued that the claims of the assessing officer are although valid for making additions under regular assessment but are not valid for initiation of penalty proceedings [Shiv Lal Tak v. CIT (251 ITR 373 Raj.)].
7.4 The appellant also argued that it would not be correct for the AO to levy penalty on the amount already declared in the revised 6 return filed by the appellant before completing the assessment; that the appellant filed the revised return under a bonafide belief that the same would take care of mistakes in the accounts and would bring an end to the litigation; that it was categorically stated at the time of survey itself that the expenses were incurred for business purpose.
7.5 The appellant further stated that the appellant company is managed by 3 Directors. None of the Directors have any knowledge of accounts or income tax. The directors are not even 10th Pass. Due to inadequate knowledge they were not aware of the mistakes in the accounts and as soon as the AO pointed out the mistakes the accounts were rectified and revised return was filed. The appellant argued that it had acted in a good faith, and therefore, it would not be correct to penalize it by levying a huge penalty of Rs.43,16,890/-It was submitted that the appellant in order to avoid litigation filed a revised return on 11-3-2003 (before the completion of assessment) and declared the amount for which the bills/vouchers were not available in the revised return. It was submitted that the Hon'ble SC in the case of CIT v. Suresh Chandra Mittal 251 ITR 9 held that additional income declared by the assessee to avoid long drawn litigation and to buy peace can be treated as bonafide ground to delete the penalty. Reliance was also placed on the following decisions in support of the contention that penalty is not leviable for mere filing of revised return:
a. K Deedar Ahmed v ITO 97 ITD 240 (Hyd)
b. A V R Prasad v ITO 97 ITD 325 (Hyd)
c. Harikrishna Silk Mills v. ACIT 107 Taxman 78 (Ahd)
(Mag.)
d. E R Trust v. ACIT 73 ITD 426 (Mum) (SM)
e. ACIT v. Smt. Geeta Devi 79 ITD 347 (Delhi) (SMC - II)
7.6 The appellant also invited my attention to Explanation 5 to Section 271(1)(c) of the Act and stated that as per the said Explanation 5, when an assessee, during the-^course of search and while recording statement u/s 132 (4) makes the disclosure about the income found during the course of search, then no penalty is leviable. The appellant submitted that in the present case, there was a survey at the premises of the Appellant. During the course of survey, the appellant made a disclosure of the additional income and also filed the return of income including the said amount disclosed and paid taxes thereon. It was argued that the case is therefore squarely covered by the provisions of Explanation 5 of section 271(1)(c) of the Act and therefore no penalty 7 can be levied on the appellant. It was stated that in the present case, the appellant had already filed the return of income, but the income disclosed during the course of survey was not disclosed in the return of income. It was submitted that the benefit of Explanation 5 to Section 271 (1)(c) is also available in cases where the returns of income have been furnished before the date of search. Reliance was placed on the decision of Allahabad Tribunal in the case of Shyam Biri Works Pvt. Ltd. v. ACIT 70 TTJ (All) 880. It was strongly argued that if an assessee makes a disclosure during the course of search, he is given immunity from the penalty, there is no reason why the same immunity should not be given to the assessee when he makes a disclosure of the income and makes a clean breast of the income not disclosed during the course of survey.
7.7 As regards the levy of penalty on the addition made on account of shortages of Rs.2,69,525/-, the appellant submitted that it is in the business of transportation of chemicals in trucks. There is predefined percentage of loss in transportation of chemicals which is termed as normal loss. If the loss on account of transportation is more than the normal loss then the appellant is paid less by the party. The party deducts the amount of loss-from the payment to be made to the appellant and that the account of shortages in fact represents loss incurred by the appellant.
7.8 The appellant also argued that in the assessment order or in the penalty order, the charge has not been specified as to whether the penalty proceedings are initiated for concealment or for furnishing inaccurate particulars of income.
7.9 Reliance was placed on following decisions:
> CIT v. Manu Engineering Works 122 ITR 306 (Guj)
> Ramila R. Shah 60 TTJ 1.71 (Ahd)
> Navin M, Patel 27 ITD 411 (Ahd)
> K. M. Bhatia 193 ITR 379 (Guj)
> Advance Construction Co. Pvt. Ltd. v. ACIT (ITA No.
5033/A/1994)
9 After considering the aforesaid submissions made by the
assessee, the learned CIT(A) has confirmed the levy of penalty with the following observations:
8"8 I have carefully considered the facts of the case and the appellant's submissions. In the present case, the assessee had filed original return disclosing income of Rs.9,86,384/-. It was, during the course of survey that it was detected by the Department that the audited books of accounts did not contain the name of 34 creditors whose names were appearing in the trial balance. When confronted by the Department, the Managing Director of the company admitted that these parties were non-existent and non-genuine and that it had debited bogus expenses in the name of these parties. Not only during the course of survey, but even one month after the survey, the Managing Director admitted that these creditors were non-genuine. The appellant argued that even at the time of survey, it was explained by the Managing Director that the expenses were debited under the head "repairs and maintenance" but were expended for some other business purpose and therefore, the amount represented by the entries in the accounts of creditors does not represent assessee's income. This contention of the assessee is not correct. A perusal of schedule J- (Direct operating & transporting expenses) to the balance sheet as on 31-3-2001 shows that the assessee had debited only an amount of Rs.33,58,258/-under the head "repairs and maintenance", whereas the expenses debited in the name of 34 non-genuine creditors amounted to Rs.1,06,45,488/-. Therefore, the assessee's contention that the expense were debited under the head "repairs and maintenance" is a false statement. Further, the assessee has also not explained and produced any evidence as to for which business purpose, the expenses were incurred. No details of these expenses were also furnished. Thus, the appellant's reliance on the reply to Question No.4 of the statement on oath does not help the case of the assessee.
8.1 The appellant argued that it had filed revised return of income to buy peace and therefore, no penalty ought to have been levied. It has been held by various High Courts in large number of cases [Vadilal Ichhachand v. CIT 32 ITR 569 (Bom), Calicut Trading Co. v. CIT, 178 ITR 430 (Ker), Special Leave petition dismissed by Supreme Court (180 ITR) (Statute 40) (SC), Bachhumal Uttammal v. CIT 111 Taxation 424 (Raj)], that the subsequent filing of revised return or surrender of income in the revised return, which was not voluntary but was a result of detection by the Assessing Officer, is of no help as far as levy of penalty is concerned [Bilandram Hargandas v. CIT 171 ITR 390 (All)]. It has been held by the Hon'ble Kerala High court in the case of Jugal Kishore Hargopaldas 243 ITR 220 that:
9"There is no general principle laid down in the said case [ Sir Shadilal Sugar & General Mills Ltd. v. CIT [(1987) 168 ITR 705 (SC)] that whenever addition is made of an amount offered by assessee to be added, there cannot be any levy of penalty, or that the assessee is not required to explain sources. The actual position in law is that merely because the assessee had agreed to the assessment, that cannot automatically bring in levy of penalty. If the assessee offers an explanation, the revenue authorities have to consider the acceptability of the explanation and pass necessary orders. If the explanation is found acceptable, notwithstanding the addition made by treating the amount offered by the assessee as income from undisclosed sources, penalty may not be levied. But if the explanation is found to be vague or fanciful and without any foundation or basis, it is certainly open to the revenue authorities to impose penalty. It would all depend upon the acceptability of the explanation offered by the assessee in the background of the statutory provisions as prevailing at the relevant time."
8.2 On the issue of levy of penalty in case of surrender of income, the Hon'ble Supreme Court in the case of K.P.Mdhusudan 251 ITR 99 observed that:
"Learned counsel for the assessee then drew our attention to the judgment of this court in Sir Shadilal Sugar and General Mills Ltd v. CIT [1987] 168 ITR 705. He submitted that the assessee had agreed to the additions to his income referred to hereinabove to buy peace and it did not follow therefrom that the amount that was agreed to be added was concealed income. That, it did not follow that the amount agreed to be added was concealed income, is undoubtedly what was laid down by this Court in the case of Sir Shadilal Sugar and General Mills Ltd. [1987] 168 ITR 705 and that, therefore, the Revenue was required to prove the mens rea of a quasi-criminal offence. But it was because of the view taken in this and other judgments that the Explanation to section 271 was added. By reason of the addition of that Explanation, the view taken in this case can no longer be said to be applicable."
Accordingly, in this case, even though the assessee had surrendered the income, levy of penalty was upheld by the Hon'ble Supreme Court.
108.3 In the present case, the revised return was not filed by the assessee on its volition and before the concealment was detected by the Department, but was filed only when the Department had conducted survey and had found discrepancies in the books of account and which discrepancies, the assessee could not explain and therefore, admitted that it had debited bogus expenses in the name of certain parties. It is not a simple case where the assessee committed a bonafide mistake in not disclosing income or in claiming excess expenditure but it is case where the assessee deliberately debited expenses in the name of non-existent parties and did not record these transactions in the audited books of accounts. Therefore, since the revised return was filed only when the assessee was cornered and had no explanation or supporting documents, that the assessee decided to withdraw the claim and filed a revised return. It is also not a simple case of non-availability of vouchers, but a case where the assessee in a well-thought out manner debited expenses in the name of non- existence entities in order to suppress its correct taxable income. The appellant argued that the Assessing Officer has not shown that the bogus expenditure was assessee's income, this argument of the assessee does not have any force. By claiming bogus expenditure, the assessee has reduced its total income and therefore, though the expenses per-se are not income, the correct particulars of income were concealed by claiming these expenses. Thus, the tax was evaded. It is also seen that the Assessing Officer's case of addition to income and levy of penalty is not dependent upon only the statement made by the assessee. At the time of survey, it was detected that expense in the name of certain concerns were debited in books of account. No vouchers for expenses were found at the time of survey. Even subsequently during assessment proceedings, the assessee was given opportunity by the Assessing Officer and was asked to justify the claim of expenses in the name of these entities. However, even in subsequent statement, the Managing Director admitted that these parties were non-existent 8.4 The assessee also argued that the Assessing Officer was not correct in observing that the revised return was not a valid return u/s. 139(5). This contention of the assessee is also not correct. Section 139(5) has application to a limited category of cases i.e. cases where in the original return there was any omission or wrong statement. Section 139(5) is applicable only when a person discovers that inadvertent omission or an unintended wrong statement had crept in 11 the return filed by him. If a person who furnished the return was aware of the falsity of the statement and the correctness of the particulars of income even at the time when he filed the original return, there was no question of that person subsequently discovering the existence of the omission or creeping in of the wrong statement in the return already filed by him [CIT v. J.K.A Subramania Chettiar, (1977) 110 ITR 602, 614-15 609 (Mad)]. A return filed so as to include concealed income cannot be treated as a revised return u/s. 139(5) because omission to file the correct income in the original return cannot be said, in such circumstances, due to any bonafide mistake or omission [Gangaprasad v. CIT 123 ITR 349 (All), Badshah Prasad v. CIT 127 ITR 601 (Patna)].
8.5 In the present case, the revised return has been filed not because there was inadvertent omission unintended wrong statement but was filed because in the original return, the assessee had claimed bogus expenditure and therefore, the revised return cannot be considered as valid return u/s.139(5) of the Act.
8.6 The appellant further argued that the expense in the name of non-genuine parties were claimed as the Directors were uneducated and illiterate and did not understand the accounts or income-tax law. This explanation of the assessee is totally un-convincing. The Directors of the company had been running fairly big business and dealing with reputed clients. The volume of the assessee is also quite high (total turnover 5.94 crores). Such turnover could not have been achieved unless the Directors had full control over the affairs of the company. Therefore, it is difficult to believe that bogus expenses were claimed in the name of non-genuine entities without their knowledge. In fact, no such explanation was given at the time of survey and when the Director was confronted, he immediately accepted that the alleged creditors were non-genuine. Also, the quantum of non-genuine expenditure is so big as compared to the retuned income that the Director would have immediately come to know regarding the fall in profit. In any case, the employees or the Accountant did not have anything to gain by claiming expenditure and ultimately it is the Directors who were the beneficiaries of the benefit obtained by concealing the income and by evading the taxes. Therefore, from the facts, it is seen that the assessee had in a well-thought out manner made an attempt to debit bogus expenditure. In fact, bogus expenditure in the name of three associate concerns was also debited and it could not have been without the knowledge of the assessee. If 12 the Managing Directors did not know about the debiting of bogus expenses in the name of non-genuine parties, how could he at the time of survey, say that these were non-existing parties and how could he offer the income for tax. Thus, it is not a simple case of mistake in accounts but a case of falsification of accounts by debiting the bogus expenditure and thus inflating the expenditure but at the same time, not making the entries regarding the alleged creditors in the books of account.
8.7 The appellant also argued that in view of Explanation 5 to section 271(l)(c), no penalty ought to have been levied. This contention of the assessee is without any basis. Explanation 5 is applicable only when during the course of search, the assessee is found to be owner of any money, bullion, jewellery or other valuable article or thing. Thus, Explanation 5 is not applicable in case of survey. The assessee has not brought to my notice any Court decision wherein it has been held that Explanation 5 is applicable in case of statement given even during the course of survey.
8.8 The appellant argued that the Assessing Officer in the assessment order has not specified the default. However, a perusal of the assessment order shows that in para 3.10, the Assessing Officer has categorically recorded that the expenses of Rs.1,06,45,488/- were bogus. Further, in the same paragraph, he recorded the satisfaction regarding initiation of penalty proceedings u/s. 271(1)(c) of the Act. Similar satisfaction were recorded in para 4.3 of the assessment order regarding addition of Rs.2,69,525/- on account of credit balance in shortage account. Thus, the1, satisfaction regarding concealment of particulars of income or furnishing of inaccurate particulars of income was recorded during the course of assessment proceedings which culminated on passing of assessment order.
8.9 The appellant also argued that in the assessee's case Explanation 1 to section 271(1)(c) is not applicable as the assessee offered an explanation and such explanation was not found to be false. In my opinion, the assessee's case is covered under the main section itself i.e. section 271(1)(c) of the Act. The facts discovered during the course of survey and the assessee's further admission of inflating the expense by debiting bogus expenditure clearly prove that the assessee had concealed the particulars of its true income and had also furnished inaccurate particulars regarding the expenditure claimed. In any case, 13 even Explanation 1 is also applicable. The explanation offered by the assessee that it had incurred expenses on various items but debited the expenses under the head "repairs and maintenance" has been shown to be false. Further the assessee could not substantiate the explanation that the expenditure was in fact incurred for business purpose. Also facts material to the computation of total income were not disclosed in the original return of income or even in the revised return.
8.10 The assessee argued that the Assessing Officer's claim of disallowance of expenditure can be valid for assessment purposes but the same is not valid for levy of penalty. In the appellant's case, it has been proved beyond doubt by the Department that the expenses debited in the name of non-genuine parties were bogus. The assessee accepted this fact at the time of survey as well as subsequently. The assessee could not produce any evidence at the time of assessment or penalty proceedings or appellate proceedings to show that the expenses claimed in the name of the parties were genuine expenses. Therefore, the Assessing Officer was not required to prove anything further. As per*judicial opinion, the assessee could have adduced further evidence during penalty proceedings. However, the assessee did not make any such attempt.
8.11 The appellant has relied on a large number of decisions. The levy of penalty is essentially a question of fact. However, some of the decisions relied upon by the assessee are briefly discussed. In the case of Gitadevi (surpa), it was held on facts that the sales were inadvertently recorded in earlier months whereas the purchases were affected in subsequent months. In the case of A.V.R Prasad (surpa), the penalty was deleted on the ground that the Department could not prove that the differential income declared in the revised return was detected by the Department before the assessee came forward to furnish the revised return. In the case of E.R.Trust (surpa), penalty was levied on notional interest on debit balances of certain parties offered for tax in revised return in order to avoid litigation. In the case of Harikrishnan Silk Mills (surpa), the penalty was deleted on the ground that but for the assessee having filed the revised return and agreeing to the addition, even the amount of Rs.5 lakhs offered by the assessee could not have been added to the total income . In the case of K.Deedar Ahmed (surpa), while deleting the penalty, the Hon'ble ITAT observed that the very fact that the income returned in response to notice u/s.148 was assessed on protective basis goes to show that on the date of filing revised return, the Assessing Officer had not detected 14 concealment of income of the assessee. As regards the case of Sureshchandra Mittal (surpa), a perusal of Hon'ble Supreme Court & High Court order shows that complete facts of the case leading to filing of revised return have not been discussed in the decision. In contrast, in the present case, the Department during the course of survey found sufficient evidence that expenses in the name of non- genuine concerns were debited. This fact was admitted by the managing Director in the course of survey as well as subsequently. No bills or vouchers in the name of these parties were found at the time of survey. Even during assessment proceedings, the assessee could not lead any evidence to show that these parties were genuine parties or the expenses claimed were in fact incurred by it. It is only when the assessee was cornered by the Department that the assessee filed a revised return withdrawing the claim of bogus expenditure. Such revised return is, therefore, not a voluntary act. Thus, the Court decisions relied upon by the assessee, are distinguishable on facts.
8.12 As regards penalty with regard to addition of Rs.2,69,525/-, the appellant stated that the account of shortages represents loss incurred by the appellant. The assessee had explained to the Assessing Officer that the shortages are recovered from the drivers and the credit amount represents such recovery. The assessee could not produce any evidence before the A.O regarding excess credit in that account and why that amount was not treated as income. Therefore, the credit in shortage account also represents assessee's concealed income.
8.13 Considering the totality of facts and circumstances of the case and the above discussion, it is held that the Assessing Officer was justified in levying penalty of Rs.43,16,890/- for concealing the particulars of true income as well as for furnishing inaccurate particulars of income by debiting bogus expenditure and by not offering the excess credit balance in the shortage account. The penalty levied is confirmed."
10 Aggrieved by the order of the learned CIT(A), now the assessee is in appeal before us. At the time of hearing, the learned counsel of the assessee submitted that on similar facts, penalty imposed by the AO has been deleted by the learned CIT(A) during AY 2002-03 and the Revenue has not filed any 15 appeal against that order before the Tribunal, thus, accepting deletion of the penalty. Therefore, this penalty deserves to be deleted. He further submitted that the AO while initiating the penalty proceedings has not categorically mentioned whether the penalty proceedings have been initiated for concealment of income or for furnishing of inaccurate particulars of income and, therefore, this penalty order deserves to be cancelled in view of the decision of the Hon'ble Gujarat High Court in the case of 122 ITR 306. He also placed reliance on the decision of the Hon'ble Supreme Court in the case of Dilip N Shroff vs. Joint CIT (2007) 291 ITR 519 (SC), in which same proposition has been upheld. He also relied on the decision of the Hon'ble Gujarat High Court in the case of K M Bhatia vs. CIT (1992) 193 ITR 379 (Guj), wherein penalty proceedings were initiated for filing of inaccurate particulars of income but penalty was levied for concealment of income which was not held to be valid. He also placed reliance on the decision of the ITAT Special Bench in the case of 113 ITD 13 and the decision of the Hon'ble Supreme Court in the case of CIT vs. Reliance Petroproducts Pvt. Ltd. (2010) 322 ITR 158 (SC) for the proposition that if all the facts have been disclosed as has been done by the assessee by way of filing revised return of income, no penalty can be levied for concealment of income.
The learned counsel of the assessee also submitted that out of total addition of Rs.1,06,45,480/- on account of bogus expenses debited to P&L Account, atleast expenses debited against the names of three inhouse companies, viz. Bachhu Gaurage, Auto 16 Link and Auto Care, be not considered for levy of penalty as in their cases only vouchers in respect of expenses were not produced and since these parties were in existence unlike the other bogus parties, expenses debited against them cannot be treated as bogus expenses.
As regards levy of penalty with regard to the addition of Rs.2,69,525/- on account of shortage of material supplied by the assessee, the assessee's submission was that it was in the business of transportation of chemicals in trucks. There is pre- defined percentage of loss in transportation of chemicals which is termed as "normal loss". If the loss on account of transportation is more than the "normal loss", then the assessee is paid less by the party. The party deducts the amount of loss from the payment to be made to the assessee and that the account of shortage in fact, represents the loss incurred by the assessee. Since similar loss has been claimed by the assessee during this year following the practice of earlier years, even if the addition has been made on this account, penalty for concealment is not leviable.
Concluding his arguments, he submitted that the penalty imposed by the AO and confirmed by the learned CIT(A) may kindly be deleted.
11 The learned DR, on the other hand, submitted that the argument of the learned counsel that the Revenue has accepted the order of the learned CIT(A) for AY 2002-03 deleting the penalty on similar facts, is misplaced as appeal has not been filed 17 before the ITAT by the Revenue due to pendency of rectification application by the AO before the ld. CIT(A) on the ground that the order passed by him is on wrong facts. The outcome of this rectification application is being awaited.
The learned DR further submitted that in view of the fact that the revised return filed by the assessee was held to be invalid by the ITAT in quantum appeal, the revised income shown by the assessee cannot absolve the assessee from penalty proceedings.
In reply to the argument of the learned counsel of the assessee that the AO while initiating penalty proceedings has not mentioned as to whether penalty proceedings have been initiated for concealment of income or for furnishing inaccurate particulars of income, the learned DR submitted that after the insertion of section 271(1)(1B) w.e.f. 01-04-1989, for initiating penalty proceedings, no such requirement is there. For making these submissions, the learned DR relied upon the following case-laws:-
(i) Ms. Madhushree Gupta vs. Union of India (2009) 317 ITR 107 (Del)
(ii) DCIT vs. Ms. Madh Raj Lalwani (2011) 132 ITD 209 (Del)
(iii) Kailashbhai Ambalal Shah vs. ITO (2011) 129 ITD 135 (Ahd)
(iv) Gujarat State Financial Services Ltd. vs. ACIT (2010) 39 SOT 570 (Ahd)
(v) Pearey Lal & Sons (EP) Ltd. (2009) 308 ITR 438 (P&H) 18 He further submitted that as far as the penalty order is concerned, there is no such discrepancy as the AO has imposed the penalty for concealment of income. Concluding his arguments, the learned DR submitted that the penalty imposed by the AO and sustained by the learned CIT(A) may be confirmed as the additions on the basis of which penalty has been levied, have been confirmed by the ITAT also in quantum appeal.
12 We have heard both the parties and perused the records. We have also gone through various decisions relied upon by the parties before us. We find that on the basis of the documents found during the course of survey, and their comparison with the audited books of accounts, it was detected that audited books of accounts did not contain the names/accounts of 34 creditors. Statement on oath of Shri Vijay R. Nair, Managing Director of the company was recorded. He was asked to explain about the discrepancy found in the trial balance vis-a-vis audited books of account. Shri Vijay Nair admitted that all the 34 parties (except 3 related parties viz. Bachhu Garage, Autolink, & Autocare) whose names were appearing in the trial balance but not in the audited accounts, were nonexistent and non-genuine. Shri Nair explained that the entries debiting bogus expenses and crediting non- genuine parties, were directly fed on computers by way of journal entries. No vouchers were also prepared by the assessee. Another statement of Shri Nair was recorded on 24-2-2003 wherein Shri Vijay Nair further admitted that one more party viz. M/s. Perfect Sales 8r Service was also a non-genuine creditor in addition to the 34 bogus creditors identified on the date of 19 survey. The assessee filed a revised return on 11-3-2003 wherein the bogus expenditure of Rs.l,06,45,488/- appearing in the name of these non-genuine parties was added back. The Assessing Officer, however, held that the revised return was not a valid return u/s 139(5), as there was no omission or wrong statement in the original return and it was only due to detection of non- existent creditors that the assessee filed a revised return and therefore, it cannot escape the penal provisions of section 271(1)(c) of the Act.
During the course of assessment proceedings, it was also noticed that "shortage account" was debited by Rs.11,11,281/- and credited by Rs.13,80,807/- leaving the credit balance of Rs.2,69,525/-. The assessee explained to the Assessing Officer that as per the understanding with the consignor, it had to compensate to the consignor for the loss on account of shortage of material, if any, during transportation of goods and such shortage was recovered from the drivers. The amounts recovered from drivers were adjusted against the shortages. It was also explained that the amount received from drivers is finally adjusted or paid at the time of termination of services of the drivers. Since, no primary record of repayment of such credit balance to the drivers was found during the course of survey, nor such proof was produced during assessment proceedings, the Assessing Officer treated the credit balance of Rs.2,69,525/- as income of the company. Penalty proceedings u/s 271(1)(c) of the Act, on both the above discussed issues were initiated.
20In response to penalty show-cause, the assessee argued before the Assessing Officer that as it had field revised return of income and therefore there was no concealment. The Assessing Officer, however, held that the assessee admitted that it had debited bogus purchases in its books of account; that the books of accounts were not proper as entries against the non-existing creditors were made in the books of account; that the revised return was filed only when the concealment was detected during survey and that the additions made were confirmed by the CIT(A). The Assessing Officer levied penalty of Rs.43,16,890/- being 100% of the tax sought to be evaded, which has been confirmed by the learned CIT(A) in appeal. In the meanwhile, the additions on which penalty has been levied, have been confirmed by the ITAT vide order dated 26-10-2007 in quantum appeal.
13 Before us, the order of the learned CIT(A) has been challenged mainly on legal grounds. The first argument advanced by the learned counsel of the assessee is regarding the initiation of penalty proceedings by the AO being vague in nature as according to the learned counsel the AO has not categorically mentioned whether the penalty proceedings have been initiated for concealment of income or for furnishing inaccurate of particulars of such income. Reliance was placed by the assessee on various case law, which according to us are no more good law in view of insertion of section 271(1)(1B) with effect from 1-4- 1989. For initiating penalty proceedings no such requirement is there. The contention of the learned DR gets support from the decision in the case of Ms. Madhushree Gupta vs. Union of India 21 (2009) 317 ITR 107 (Delhi). The relevant portion of the judgment with Head-Note reads as under:
"PENALTY - CONCEALMENT OF INCOME - PROVISION INTRODUCING FICTION WITH RETROSPECTIVE EFFECT THAT DIRECTION IN ASSESMENT ORDER TO INITIATE PENALTY PROCEEDINGS TO BE DEEMED SATISFACTION OF ASSESSING OFFICER - VALID - BUT SUCH SATISFACTION MUST BE DISCERNIBLE FROM ASSESSMENT ORDER -
SATISFACTION ONLY PRIMA FACIE - RETROSPECTIVE OPERATION GIVEN TO SECTION NOT VIOLATIVE OF ARTICLE 14 - INCOME-TAX ACT, 1961, SS. 271(1)(c), (IB), 274, 275 - CONSTITUTION OF INDIA, ARTS. 14, 226.
By a deeming fiction in section 271(1B) inserted in the Income-tax Act, 1961 by the Finance Act, 2008, with retrospective effect from April 1,1989, where any amount is added or disallowed in computing the total income or loss of any assessee in order of assessment or reassessment and if such order contains a direction for initiation of penalty proceedings under sub-section (1), such an order of assessment or reassessment shall be deemed to constitute satisfaction of the Assessing Officer for initiation of the penalty proceedings under sub-section (1).
There is no cogent reason articulated as to why section 271(1B) of the Act was made effective retrospectively from April 1, 1989. But the cut off date of April 1, 1989 does not create discrimination nor is it a violation of the equality clause under article 14 of the Constitution, for the reason that if an assessee has fallen foul of the law, that is, penalty provisions are otherwise applicable to him, he cannot be heard to say that the rigours of law ought not to apply him because another person similarly placed has not been exposed to such a rigour. There is no equality in illegality. Section 271 (IB) of the Act is not violative of article 14 of the Constitution.
While considering a challenge to the vires of a statute, the court is required to lean in favour of its validity, preferring an interpretation that would preserve its constitutionality as the Legislature, it is presumed, does not exceed its jurisdiction.22
The legal position that power to impose penalty under section 2711 Act depends upon the satisfaction of the Income-tax Officer in the course of the proceedings under the Act remains the case even after the insertion of section 271(1B). Prima facie satisfaction of the Assessing Officer as reflected in the record as against his "final conclusion" should be discernible clearly from the order passed during the course of such proceedings. The provision only provides that an order initiating penalty cannot be declared bad in law only because it states that penalty proceedings are initiated, if otherwise it is discernible from the record, that the Assessing Officer has arrived at prima facie satisfaction for initiation of penalty proceedings. The issue is of discernibility of the "satisfaction" arrived at by the Assessing Officer during the course of proceeding before him. Section 271(1)(c) has to be read in consonance with section 272(1B). The presence of prima facie satisfaction for initiation of penalty proceedings was and remains a jurisdictional fact. The contention that prima facie satisfaction of the Assessing Officer need not be reflected the stage of initiation but only at the stage of imposition of penalty would render the provision arbitrary. The Assessing Officer would in such a situation be in a position to pick a case for initiation of penalty merely because there is an addition or disallowance without arriving at a prima facie satisfaction with respect to infraction by the assessee of clause (c) of sub-section (1) of section 271 of the Act.
"Prima facie" satisfaction of the Assessing Officer that the case may deserve the imposition of penalty should be discernible from the order passed during the course of the proceedings. Obviously, the Assessing Officer would arrive at a decision, i.e., a final conclusion only after hearing the assessee. The initiation of penalty proceedings cannot be set aside only on the ground that the assessment order states "penalty proceedings are initiated separately" if otherwise, it conforms to the parameters set out.
If there is no material to initiate penalty proceedings, an assessee will be entitled to have recourse to a court of law. On the other hand, if the Assessing Officer's prima facie satisfaction is discernible from the record ordinarily, an assessee would be required to approach the authorities under the statute.
At the stage of initiation of penalty proceedings the order passed by the Assessing Officer need not reflect satisfaction vis-a-vis each and 23 every item of addition or disallowance if the overall sense gathered from the order is that a further prognosis is called for. The inter- relation of additions or disallowance, if any, may be unravelled only at the conclusion of the penalty proceedings. It would be sufficient compliance with the law that there is prima facie evidence of concealment of particulars of income or furnishing inaccurate particulars of income. This is so as the Legislature does not enjoin a full fledged investigation at the stage of initiation of penalty proceedings. To that extent the contention that the provision gives arbitrary power to the Assessing Officer to pick and chose assessees against whom penalty proceedings may be initiated even though similar additions and disallowances are made or that even though there are five or six items of additions and disallowances and infraction of clause (c) of section 271(1) is vis-a-vis only one or two such items of income or deduction, notice for initiation under the impugned provision will issue in respect of all, is not tenable as purported hardship cannot be a ground for striking down the provision. However, this would not debar an assessee from furnishing evidence to rebut the "prima facie" satisfaction of Assessing Officer, since penalty proceeding are not a continuation of assessment proceedings.
Under section 271(1)(c) to initiate penalty proceedings the following pre-requisites should obtain: (1) The Assessing Officer should be "satisfied" that: (a) the assessee has either concealed particulars of his income; or (b) furnished Inaccurate particulars of his income; or (c) infracted both (a) and (b). (ii) This "satisfaction" should be arrived at during the course of "any" proceedings. These could be assessment, reassessment or rectification proceedings, but not penalty proceedings.
(iii) If ingredients contained in (i) and (ii) are present a notice to show cause under section 274 of the Act shall issue setting out therein the infraction the assessee is said to have committed. The notice under section 274 of the Act can be issued both during or after the completion of assessment proceedings, but the satisfaction of the Assessing Officer that there has been an infraction of clause (c) of sub-section (1) of section 271 should precede conclusion of the proceedings pending before the Assessing Officer. (iv) The order imposing penalty can be passed only after assessment proceedings are completed. The time frame for passing the order is contained in section 275 of the Act. Due compliance would be required to be made in respect of the provisions of sections 274 and 275 of the Act.24
The Legislature has plenary powers to enact a law both prospectively and retrospectively subject to certain constitutional limitations, as long its competency to do so is not under challenge and it is not unfair or unreasonable, i.e., falls foul article 14 of the Constitution. The Legislature having expressly made a retrospective amendment by inserting section 271(1B) with effect from April 1, 1989 the fact that retrospectively is limited to this date cannot ensure to the benefit of those to whom the amendment law is to apply. The offence of concealment is committed on the date on which the original return is filed."
14 In view of the above, we find no infirmity in the initiation of penalty proceedings by the AO in this case.
15 The second argument advanced by the learned counsel of the assessee was that in view of the revised return filed by the assessee, the assessee has disclosed all the material facts relevant to assessment at the stage of assessment proceedings and therefore in view of the decision in the case of Reliance Petrochemicals no penalty is leviable because full particulars were disclosed before the AO. This argument of the assessee is also not acceptable as the Tribunal in the quantum appeal has held the revised return filed by the assessee to be not valid return. So it cannot be said that the assessee disclosed all the material facts relevant to assessment during the course of assessment proceedings. For the sake of convenience, the relevant portion of the Tribunal's order is reproduced as under:-
"5 From the above, ft is noticed that the assessee filed revised return on 11.03.2003 after survey was conducted by the department under section 133A of the Act on 30,0142003. The Revenue has found that the assessee has claimed bogus expenses in the original return and declared immediately an income of Rs.9,86,384/- by fifing the return 25 of income on 19.10.2001. Before us as well as before CIT(A) it was contended that the mistake was not deliberate because of any fault on the part of assessee and it happened that the Director* of the company are somewhat illiterate and they do not understand intricacies of income-tax law as well as of the accounts. From the records it is seen that assessee company's turnover was at Rs.5,94,36,301/- and they are dealing with big corporate like IPCL, Asian Paints, Berger Paints, Deepak Nitrite etc. It seems that the Directors have vast experience in. the line of business and particularly claiming this huge expenditure it cannot be said that this is due to mistake and that to the extent of Rs.1,06,45,488/-. We agree with the finding of the CIT(A) that the Directors were fully aware of the bogus claim of expenses and in fact the three of such creditors namely - Bachhu Gaurage, Auto Link and Auto Care are in-house concerns and bills/invoices for maintenance and repairing expenses in their names were prepared in the assessee's office itself. It is also a fact that assesses has not discovered the omission or wrong statement in the original return but it was detected by the Revenue during the course of survey under section 133A of the Act where the assessee accepted the wrong statement. In view of these facts, we arc In full agreement with the finding of CIT(A) that the wrong statement in claiming bogus expenses in the original return was not bona fide or due to mistake. Accordingly CIT(A) as well as the Assessing Officer has rightly refused to recognize revised Return there being no omissions or any wrong statement* Therefore, revised return filed by the assessee after detection by the Revenue, can be no revised return in the eyes of law. Accordingly this issue of the assessee's appeal is dismissed and the order of the CIT(A) is confirmed."
As regards the submission of the assessee in respect of three inhouse companies that atleast expenses debited against their names be not considered for levy of penalty, we find no material difference about the expenses debited to the accounts of these three companies or in the names of bogus companies accepted by the assessee in his statement at the time of survey proceedings. The assessee's explanation that these expenses were debited under the head "Repairs and Maintenance" but were expended for other business purposes and therefore the amount represented by 26 the entries in the accounts of creditors did not represent his income, was found to be false by the AO as the assessee could not substantiate this claim made by him in respect of all the parties including these three inhouse companies. We are, therefore, not inclined to accept the contention of the learned counsel of the assessee that the expenses debited against these three parties should not be treated as bogus expenses and therefore should not be considered for levy of penalty.
As regards other addition of Rs.2,69,525/- we find that the argument advanced by the learned counsel of the assessee before us was not before the AO which is clear from para-8.12 of the order of the learned CIT(A) which is as under:
"8.12 As regards penalty with regard to addition of Rs.2,69,525/-, the appellant stated that the account of shortages represents loss incurred by the appellant. The assessee had explained to the Assessing Officer that the shortages are recovered from the drivers and the credit amount represents such recovery. The assessee could not produce any evidence before the A.O regarding excess credit in that account and why that amount was not treated as income. Therefore, the credit in shortage account also represents assessee's concealed income."
OR even before ITAT in quantum appeal, as is clear from para-6 of ITAT's order dated 26-10-2007, which reads as under:
:6. The next issue in the appeal is that the ld CIT(A) III Baroda has erred in law and in facts in confirming the addition of Rs.2,69,525/- being the amount recovered as deposit from the drivers of the appellant company against the shortages that are found in the material transported on behalf of the appellant's client. The addition of Rs.2,69,525/- being contrary to facts and being bad in law deserves to 27 be deleted. At the outset the ld. counsel of the assessee has not pressed this issue and hence the same is dismissed as not pressed."
The plea now taken by the assessee before us is therefore not tenable.
16 In view of above discussion, we feel no need to interfere with the well reasoned speaking order passed by the learned CIT(A) and the same is hereby upheld.
17 In the result, the assessee's appeal is dismissed.
Order pronounced in the court today on 16-02-2012 Sd/- Sd/-
(A MOHAN ALANKAMONY) (D K TYAGI)
ACCOUNTANT MEMBER JUDICI AL MEMBER
Date : 16-02-2012
Copy of the order forwarded to:
1. M/s Snita Transport Pvt. Ltd., Opp. Yogeshwar Petrol Pump, Dumad Chokdi, Vadodara
2. The Asst. Commissioner of Income-tax, Circle-4, Baroda
3. CIT concerned
4. CIT(A)-III, Baroda
5. DR, ITAT, Ahmedabad Bench-C, Ahmedabad
6. Guard File BY ORDER Deputy Registrar Assistant Registrar ITAT, AHMEDABAD