Income Tax Appellate Tribunal - Chandigarh
Jagan Nath Ram Sahai vs Assistant Commissioner Of Income Tax. ... on 17 May, 1995
Equivalent citations: (1995)52TTJ(CHD)377
ORDER
J. KATHURIA, A.M. :
These cross-appeals one by the assessee and the other by the Revenue - and the assessee's cross-objection pertain to asst. yr. 1990-91. The only issue is regarding the penalty imposed under s. 271(1)(c) of the IT Act.
2. Brief facts of the case are these. The assessee is a firm carrying on the business of purchase and sale of gold and silver jewellery and ornaments. For the year relevant to asst. yr. 1990-91, the assessee-firm consisted of two partners, namely, Shri Ram Pal and Shri Narinder Kumar with equal shares. There was a search by the IT authorities at the business premises of the assessee-firm and the residential premises of the partners on 27/28th February, 1990. Later on, the bank locker was also operated on 5th March, 1990. During the course of search, the firm as well as the partners made certain surrenders which are as follows :
A. In the hands of the assessee-firm :
Rs.
(i) 4,60,000 cash seized and found at the assessee's shop.
(ii) 32,000 in respect of certain loose chits found from the residence of Shri Ram Pal partner.
(iii) 63,000 value of silver found in excess at the assessee's shop
(iv) 50,000 to cover up any items including the value of 'nags' Rs. 10,000 6,05,000 total surrender in the firm's hands B. In the hands of Shri Ram Pal Partner :
(i) 1,26,000 value of 405 grams of gold jewellery found at the first floor of the shop
(ii) 1,00,000 on account of household articles, etc.
(iii) 3,28,314 value of ornaments found in locker as per valuer's report 5,14,314 total surrender in the hands of Shri Ram Pal partner C. In the hands of Shri Narinder Kumar Partner :
(i) 1,24,000 value of 400 grams of gold ornaments found at the first floor of the shop
(ii) 1,25,000 on account of household articles and loose chits
(iii) 40,000 value of jewellery found in the locker 2,89,400 total surrender in the hands of Shri Narinder Kumar partner
3. While framing the assessments of the assessee firm and the two partners, most of the amounts surrendered in the relevant hands were accepted by the Assessing Officer. There was, however, a departure in respect of two items. There was an amount of Rs. 90,097 in respect of certain loose chits. This was surrendered by Shri Narinder Kumar partner is his hands. The Assessing Officer, however, held that this was assessable in the hands of the assessee firm. No addition was accordingly made of the amount of Rs. 90,097 in the hands of Shri Narinder Kumar partner and instead, an addition of equivalent amount was made in the hands of the assessee firm for asst. yr. 1990-91.
4. The other departure was in respect of income of Rs. 2,50,580 for which the facts are these. At the time of search of the business premises of the assessee, jewellery weighing 805 grams was found from the iron safe placed at the first floor of the shop. Initially the stand taken by the assessee was that it had nothing to do with the jewellery weighing 805 grams recovered from the first floor of the shop. Initially the stand taken by the assessee was that it had nothing to do with the jewellery weighing 805 grams recovered from the first floor of the shop. On 28th February, 1990 when the search was still in progress, Shri Ram Pal partner, however, made it clear that the iron safe placed at the first floor of the shop contained the cash of Rs. 3,50,000 which belonged to the assessee firm but there was some gold jewellery which was lying in the said safe which belonged to him individually and to his brother and partner Shri Narinder Kumar individually. Later on, the plea taken was that jewellery weighing 405 grams valued at Rs. 1,26,000 belonged to Shri Ram Pal partner and jewellery weighing 400 grams valued at Rs. 1,24,580 belonged to Shri Narinder Kumar partner. It was, therefore, submitted that the aforesaid jewellery valued at Rs. 2,50,580 belonged to the partners individually and not to the assessee firm. As stated above, a sum of Rs. 1,26,000 was surrendered in the hands of Shri Ram Pal partner and a sum of Rs. 1,24,400 in the hands of Shri Narinder Kumar partner. The Assessing Officer while completing the assessment of the assessee firm was of the opinion that the said jewellery belonged to the assessee firm and not to the partners. He accordingly made an addition of Rs. 2,50,580 in the hands of the assessee firm. A sum of Rs. 1,26,000 was assessed on a protective basis in the hands of Shri Ram Pal partner on the ground that he had made a surrender of this amount in his hands. No protective assessment in respect of the amount of Rs. 1,24,400 was, however, made in the hands of Shri Narinder Kumar partner. At the appellate stage, Shri Ram Pal partner submitted in his individual case before the learned CIT(A) that he had no objection to the addition of Rs. 1,26,000 being deleted from his hands and being assessed in the hands of the assessee firm. Since the Assessing Officer had not made similar addition of Rs. 1,24,400 in the hands of Shri Narinder Kumar partner, no such situation arose in the appellate proceedings before the learned CIT(A). It is in this manner that an addition of Rs. 2,50,580 came to be made in the hands of the assessee firm.
5. The Assessing Officer initiated penalty proceedings under s. 271(1)(c) in respect of the additions of Rs. 90,097 and Rs. 2,50,580 and imposed a penalty of Rs. 1,83,965 vide order dt. 19th November, 1992.
6. The learned CIT(A), however, held that penalty was not imposable under s. 271(1)(c) of the Act in respect of the addition of Rs. 90,097. Penalty under s. 271(1)(c) in respect of the addition of Rs. 2,50,580 was, however, confirmed by the first appellate authority. While the assessee is aggrieved against the confirmation of penalty in respect of the addition of Rs. 2,50,580, the Revenue is in appeal against the deletion of penalty under s. 271(1)(c) in respect of the amount of Rs. 90,097. The cross-objection of the assessee is merely formal and supports the order of the learned CIT(A) on deleting the penalty in respect of the addition of Rs. 90,097.
7. We shall first take up the issue whether penalty is exigible in respect of the addition of Rs. 90,097 or not. It may be mentioned in this context that the addition of Rs. 90,097 made in the hands of the assessee-firm by the Assessing Officer, was confirmed by the learned CIT(A). The assessee however, preferred second appeal before the Tribunal and the Tribunal vide order dt. 24th January, 1995 in ITA No. 9/Chd./1992 held that the amount of Rs. 90,097 could not be assessed in the hands of the assessee-firm. The Tribunal also observed that the Department burnt its boat by not accepting the surrender of Rs. 90,097 in the hands of Shri Narinder Kumar and instead foisted the addition on the assessee firm. For the detailed reasons mentioned by the Tribunal, the addition of Rs. 90,097 was deleted from the total income of the assessee-firm. Since the very basis on which penalty in respect of the addition of Rs. 90,097 had been imposed by the Assessing Officer has disappeared, apart from the reasons given by the learned CIT(A) with which we concur, there was no justification for levying penalty in respect of the said addition. We, therefore, dismiss the Revenue's appeal. Since we have dismissed the Revenue's appeal, the formal cross-objection of the assessee has become infructuous and is also dismissed.
8. Now we come to the penalty levied in respect of the addition of Rs. 2,50,580. It must be noted immediately that though initially a protective addition was made of Rs. 1,26,000 in the hands of Shri Ram Pal partner, ultimately the stand taken by the partners was that the amount of Rs. 2,50,580 may be assessed in the hands of the assessee-firm, provided on such additions were made in the hands of the partners. The result is that the addition of Rs. 2,50,580 in the hands of the assessee-firm has become final.
9. Now the question arises as to whether penalty in respect of the aforesaid addition of Rs. 2,50,580 was exigible in the hands of the assessee-firm or not. Shri Sudhir Sehgal, the learned counsel for the assessee, vehemently argued that all the amounts surrendered by the assessee-firm and the two partners were accepted by the Revenue in one form or the other. It was pointed out that only two departures were made in respect of the income of Rs. 90,097 and Rs. 2,50,580 which have been discussed hereinabove. It was submitted that the Department had not found out anything and that the basis of penalty was what had been surrendered by the assessee-firm and the two partners. It was submitted that the surrender was made by the assessee-firm and the partners only to purchase peace of mind. It was also submitted that the partners in good faith had offered amounts of Rs. 1,26,000 and Rs. 1,24,400 in their hands because the tax effect was more beneficial to the Revenue. It was, for instance, submitted with reference to the paper book at page 9 and 10 that the total tax effect of the additions of Rs. 2,50,580 if offered in the hands of the firm was of the order of Rs. 7,66,180 whereas if the amounts of Rs. 1,26,000 and Rs. 1,24,400 were offered in the partners' hands, the tax effect would have been more, i.e., Rs. 7,97,130 and the Revenue would have gained a sum of Rs. 30,000 by way of extra tax. It was also submitted that the assessee agreed to the addition being made in the hands of the assessee-firm only to purchase peace of mind and not to prolong the agony of protracted litigation. It was submitted that the Department had accepted in part the disclosure made by the assessee-firm and the partners and rejected the other part. It was forcefully argued that the plea of the partners that they had income from brokerage and speculation had been accepted by the Assessing Officer by accepting certain surrenders in the hands of the partners. The learned counsel for the assessee, therefore, wondered as to why the additions of Rs. 1,26,000 and Rs. 1,24,400 could not belong to the partners individually and had to be assessed in the hands of the assessee-firm. It was submitted that the main business of the assessee-firm was being carried on, on the ground floor and out of the total jewellery of about 10,000 grams found at the time of search only jewellery weighing 805 grams was recovered from the iron safe lying on the first floor. It was submitted that on 28th February, 1990, the position was clarified by the partners in which it was submitted that 405 grams belonged to Shri Ram Pal partner and 400 grams to Shri Narinder Kumar partner. It was submitted that the very fact that this jewellery was kept apart in an iron safe on the first floor and not mixed up with the stock-in-trade of the assessee-firm clearly showed that this jewellery was not of the firm. Inviting our attention to the assessment order passed by the Assessing Officer it was submitted that the Assessing Officer had mentioned that it was improbable that the jewellery of the partners was kept in the safe whereas the cash of Rs. 3,50,000 belonging to the firm was also kept in the same safe. It was submitted that the expressions "improbable", "doubt", etc. used by the Assessing Officer clearly showed that he himself was not sure of the correct position. It was also submitted that the Assessing Officer had relied on the statement of one Shri Kultar Singh, who was the employee of the tenant of the assessee on the first floor without giving an opportunity of cross-examination to the assessee-firm. It was submitted that the Assessing Officer had not imposed any penalty on the other amounts offered by way of surrender either in the hands of the firm or in the hands of the partners and that it was only in respect of the two amounts of Rs. 2,50,580 and Rs. 90,097 that the Assessing Officer had departed from the norms and imposed the penalty. It was submitted that the total surrender made by the assessee-firm and the partners had been accepted by the Revenue in one shape or the other and that no additional information had been brought on record to justify the levy of penalty. It was also submitted that the evidence may be sufficient for making an assessment in the hands of the assessee-firm but not for levy of penalty under s. 271(1)(c) of the Act.
10. Relying on the Bombay High Court decision in the case of CIT vs. Haji Gaffar Haji Dada Chini (1987) 63 CTR (Bom) 130 : (1988) 169 ITR 33 (Bom), it was submitted that the assessee's agreement to the income of Rs. 2,50,580 being assessed in the hands of the assessee-firm cannot be treated an admission of concealment of income in the hands of the assessee-firm.
11. Relying on the Punjab & Haryana High Court decision in the case of CIT vs. Jagir Singh (1985) 44 CTR (P&H) 260 : (1985) 154 ITR 633 (P&H), it was submitted that if the explanation offered by the assessee was plausible then no penalty for concealment of income/wealth could be levied. Reliance was also placed on the Madhya Pradesh High Court judgment in the case of CIT vs. Punjab Tyres (1986) 56 CTR (MP) 7 : (1986) 162 ITR 517 (MP) for the proposition that it cannot be held as an inflexible rule that when an assessee agrees to have certain items included in his total income, he makes an admission which by itself would warrant the imposition of penalty.
12. Relying on the Supreme Court decision in the case of Sir Shadilal Sugar & General Mills Ltd. (1987) 64 CTR (SC) 199 : (1987) 168 ITR 705 (SC), it was submitted that from the assessee agreeing to additions to its total income, it does not follow that the amount agreed to be added was concealed income. The Supreme Court further observed that there may be 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 quasi-criminal evidence.
13. The learned counsel for the assessee also relied on the Madras High Court judgment in the case of CIT vs. Rudrappan & Co. (1984) 147 ITR 204 (Mad) for the proposition that the mere fact that an addition was made on account of unexplained cash credits could not, on the strength of such an assessment and without more, justify levy of penalty for concealment of income. Reliance was also placed on the Tribunal's decision in the case of Raj Engg. Co. vs. ITO (1986) 17 ITD 171 (All) for the proposition that the fact that the assessee had agreed to the addition did not amount to concealment of income or of any particulars thereof and, therefore, no penalty was imposable under s. 271(1)(c). The learned counsel for the assessee also relied on the Tribunal's decision in the case of ITO vs. B. D. Yadav & M. R. Meshram (1994) 48 ITD 54 (Nag) for the proposition that it is well settled that penalty proceedings and assessment proceedings are different proceedings and stricter proof and evidence is required to enable the Department to impose penalty for concealment of income.
14. Relying on the Tribunal's decision in the case of Steel Trading Co. vs. ITO (1994) 49 ITD 496 (Chd) (SMC), it was submitted that where the assessee had acted bona fide and placed all facts and material relating to computation of its total income, no penalty under s. 271(1)(c) was exigible. In short, it was submitted that there was no justification for imposing penalty in respect of the addition of Rs. 2,50,580.
15. The learned Departmental Representative relied on the order of the learned CIT(A) on the point.
16. We have carefully considered the rival submissions as also the facts on record. One thing that immediately strikes us is that, in the present case, the Department has based the levy of penalty on what had been surrendered by the assessee either in the hands of the firm or in the hands of the partners, and that no independent material has been brought on record to justify the levy of penalty in respect of the addition of Rs. 2,50,580. The aforesaid amount had been surrendered by the two partners in their individual hands but the Revenue in its wisdom did not accept the plea of the partners in that regard and foisted the addition in the hands of the assessee-firm. It had been demonstrated by the learned counsel for the assessee that had the partners' plea been accepted, the Department would have benefited to the extent of about Rs. 30,000 by way of additional tax. This at least shows that the assessee-firm and the partners acted in a bona fide manner when the surrenders were made in the hands of the partners. It is also not that the individual surrenders in the hands of the partners have been rejected and all those additions have been made in the hands of the assessee-firm. In fact, the details extracted above clearly showed that a sum of Rs. 4,28,304 was added in the hands of Shri Ram Pal partner and that addition was made on the basis of surrender made by the partner. Similarly a sum of Rs. 1,65,000 was added in the hands of Shri Narendra Kumar partner which was based on his surrender. It is only in respect of the surrender of Rs. 1,26,000 by Shri Ram Pal and Rs. 1,24,400 by Shri Narendra Kumar that the Assessing Officer made a departure and instead of making assessment of those amounts in the hands of the individual partners, made an aggregate addition of Rs. 2,50,580 in the hands of the assessee-firm. The alacrity with which the partners agreed to surrender the aforesaid amount of Rs. 2,50,580 in the assessee-firm's hands clearly shows that they were anxious to buy peace of mind and put to an end all this litigation with the Department. They had made a clean breast of their affairs before the Revenue authorities during the course of search and on all other points, their surrender was accepted but in respect of these two additions aggregating to Rs. 2,50,580 the Department took a contrary view. In our opinion when the surrender as a whole was accepted and no penalty proceedings in respect of other additions were made in the hands of the assessee-firm or the individual partners, there was no justification for making an exception in respect of the aforesaid addition of Rs. 2,50,580 by imposing a penalty under s. 271(1)(c) of the Act. They very fact that the Assessing Officer has used the expressions like "improbable", "doubt", etc., shows that he himself was not very clear or categorical that the aforesaid amount of Rs. 2,50,580 in fact belonged to the assessee-firm. His conclusion is based not on a definite information but on probabilities and possibilities. Some more proof in our opinion of the Act is needed for imposition of penalty under s. 271(1)(c). Such suppositions and probabilities may be relevant for making an assessment but imposition of penalty under s. 271(1)(c) is of a different genre. The mere fact that the assessee-firm and the partners agreed to the addition of Rs. 2,50,580 being made in the hands of the assessee-firm by deleting the additions from the total income of the individual partners does not mean any admission of concealment on the part of the assessee as held by various authorities cited by the learned counsel for the assessee. The recording of various statements and the surrender of various amounts in the hands of the partners as well as the assessee-firm clearly exhibit the anxiety of the assessee-firm and the partners to put a stop to interminable litigation involved in such matters/and the assessee-firm should not be penalised for coming forward and agreeing that the additions instead of being made in the hands of the individual partners be made in the hands of the assessee-firm.
17. Penalty under s. 271(1)(c) has to be levied or justified on the facts and circumstances of each case. After going through the facts and circumstances of the present case, we have no hesitation to say that penalty under s. 271(1)(c) in the present case on the addition of Rs. 2,50,580 was not justified. We hold accordingly. The penalty levied end sustained on account of the aforesaid addition of Rs. 2,50,580 is hereby deleted.
18. In the result, while the assessee's appeal succeeds, the cross-appeal of the Revenue and the cross-objection of the assessee stand dismissed.