Income Tax Appellate Tribunal - Mumbai
Marathon Nextgen Realty & Textiles Ltd. ... vs Assessee on 18 October, 2011
1
ITA No. 3073/M/2008 & 3972/M/2008
M/s. Marathon Nextgen Reality & Textiles Ltd.
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES " B ", MUMBAI
BEFORE SHIRI B.R. MITTAL, JM AND SHRI R.K. PANDA, AM
ITA No. : 3073/Mum/2008
Assessment Year : 2005-06
M/s. Marathon Nextgen Reality DCIT,
& Textiles Ltd. Central Circle-38,
Marathon House, Mumbai-400 080
Devidayal Road, Mulund (W), Vs.
Mumbai-400 080
PAN NO: AAACP 8032 E
(Appellant) (Respondent)
ITA No. : 3972/Mum/2008
Assessment Year : 2005-06
DCIT, M/s. Marathon Nextgen Reality
Central Circle-38, & Textiles Ltd.
Mumbai-400 080 Marathon House,
Devidayal Road,
Vs. Mulund (W),
Mumbai-400 080
PAN NO: AAACP 8032 E
(Appellant) (Respondent)
Assessee by : Shri Sashi Tulsiyan
Department by : Shri P. C. Maurya
Date of hearing : 18.10.2011
Date of Pronouncement : 14.12.2011
ORDER
Per R. K. Panda (AM) :
These are cross appeals. The first one is filed by the assessee and the second one filed by the Revenue and are directed against the order dated 24.03.2008 passed by the Ld. CIT(A) Central VI, Mumbai relating 2 ITA No. 3073/M/2008 & 3972/M/2008 M/s. Marathon Nextgen Reality & Textiles Ltd.
to Assessment Year 2005-06. For the sake of convenience these appeals were heard together and are being disposed of by this common order.
2. The assessee in the grounds of appeal has challenged the order of the Ld. CIT(A) in sustaining the penalty levied by the AO u/s. 271(1)(c) of the I.T. Act in respect of 'on money' receipt of `.1.63 crores. The revenue in its grounds of appeal has challenged the order of the Ld. CIT(A) in deleting the penalty levied by the AO u/s. 271(1)(c) of the I.T. Act in respect of addition of `.110.50 lakhs.
3. The brief facts leading to the levy of penalty by the AO are as under :
A search u/s.132 of the I.T. Act was initiated on 02nd December, 2004 in the case of the assessee along with M/s. Marathon Realty Ltd. and other group cases. During the course of the said search various documents, books of accounts etc. were found and seized. During the course of search action at the residence of Shri Virendra Shetty, Senior Executive of the assessee group companies residing at C-401, Saidham Complex, PK Road Extension, Mulund (W), Mumbai-80, a file marked as 'Annexure A-1' containing pages 1 to 10 as per panchanama dated 02.12.2004 was found and seized. Page no. 6 (both sides) and 7 of this file pertains to the assessee. In the statement recorded at the time of search proceedings from Shri Virendra Shetty and Shri Mayyur Shah, Director of the assessee company they admitted the fact that the contents of the pages 6 & 7 pertains to the assessee group companies.
The page no.6 revealed that the cash reflected in the seized paper was received by Shri Virendra Shetty on various dates between 04.09.2004 to 01.12.2004 on behalf of the assessee and was ultimately handed over 3 ITA No. 3073/M/2008 & 3972/M/2008 M/s. Marathon Nextgen Reality & Textiles Ltd.
periodically to the Directors/Family members of the group. This cash amount referred therein are received by the assessee group as 'on- money' charged by Marathon Group in its various pages as appearing in the said paper. This page refers to the projects of the assessee i.e. M/s. Marathon Nextgen Realty & Textiles Ltd. and M/s. Marathon Realty Ltd.
3.1 During the course of post-search proceedings and assessment proceedings, the assessee company was asked to explain the contents of the documents being pg. no.6 of file A/1 seized from the residence of Shri Virendra Shetty. During the post-search enquiry i.e. on 22.01.2005, Shri Mayur Shah was also confronted with the statement of Shri Virendra Shetty recorded on 02.12.2004 wherein Shri Mayur Shah has also confirmed the fact of having received the on-money on sale of flats in their projects.
4. The AO noted that although the total amount of on-money details found was `.449.48 lacs, the assessee has offered only `.123.85 lacs in its books as against `.402.53 lacs mentioned in the seized paper regarding on-money and pertaining to the assessee company. He noted that the balance on-money of `.46.95 lacs pertains to Marathon Realty Ltd. for the Assessment Year 2005-06.
4.1 The AO asked the assessee company to justify its claim on certain amounts which were not actually received claiming as not having been acknowledged by way of signature of the Directors/Family members of the assessee group. According to the AO all the particulars being date, parties name, project name, amount and remarks are found noted in the seized paper, except for the initial of receiver. He noted that Shri 4 ITA No. 3073/M/2008 & 3972/M/2008 M/s. Marathon Nextgen Reality & Textiles Ltd.
Virendra Shetty being Sales Executive received the cash on behalf of the assessee group companies only. The assessee is in receipt of the said cash amounts for which acknowledgement (signature) of the Directors/Family members of Marathon group remained to be obtained on seized paper. The money has been received on behalf of the assessee company by Shri Virendra Shetty. Only the signature part was pending. Therefore, this in no way takes away from the facts of the receipt of the on-money by the assessee company. The AO also asked the assessee to substantiate its claim of having incurred expenditure as unaccounted business expenses of `.25 lacs and payments made to Middleman of `.138 lacs and its allowability in computation of total income of the assessee company as deduction from the gross amount of cash of `.4.49 crore as appearing in the seized paper. The AO noted that the assessee could not submit any details being nature of such expenses, persons to whom payments made, bills, vouchers or any of the relevant documents. Regarding middle man payments the assessee could not give any details as to names of persons who acted as middle man. According to him even otherwise also those payments are to be considered as illegal payment, since the assessee could not substantiate the claim of such expenditure or payments to middleman. The AO asked the assessee to show cause as to why the total of transaction recorded in the seized papers being `.4,49,48,800/- should not be treated as "undisclosed income" of the assessee on account of on-money receipts.
4.2 The assessee in its reply filed its submissions which read as under:
"There was search & Seizure action u/s 132 of IT Act 1961 at the Premises of Marathon group as on 02.12.2004 & 03.12.2004. At that time we had declared an undisclosed Income of `.1,23,85,000/- (in A.Y. 2005-2006). The total offer 5 ITA No. 3073/M/2008 & 3972/M/2008 M/s. Marathon Nextgen Reality & Textiles Ltd.
of Income by the group in statement u/s. 132(4) was in following manner and was determined on the basis of cash found at the time of search:
Marathon Nextgen Realty & Textiles Ltd. `.1,23,85,000 Marathon Realty Ltd. `.46,95,000 United Builders `.4,40,000 `.1,75,20,000 After completion of the search proceedings we had filed the return of income for A.Y. 2005-2006 u/s 153A of IT act 1961 inclusive of declared income of `.1,23,85,000/-.
During the course of search some papers were found from possession of one of the employee's being Mr. Virendra Shetty and the assessee group had explained all the seized papers. We were asked to show cause why total of transactions recorded In paper seized from him being `.4,49,48,800/- should not be treated as undisclosed income of the group and we had submitted explanations on the basis of which explanations for following items was accepted subject to verification at the time of assessment:
`.10,00,000/- For Era IV Project-as the papers were unsigned `.1,00,50,000/- For Innova Project as the Papers were Unsigned.
`.25,00,000/- Unaccounted expenses - though they were genuine expenses the Assessee is not in position to justify the same with supporting Documents `.1,38,00,000/- Payment made to Middle man for removal of Encroachments from the Land which is actual expenses for the assessee but cannot be justified U/s.37 (1) of IT act.
`.5,18,800/- Miscellaneous expenses `.2,78,68,800/-
The assesee has furnished detailed explanation on each of the above issues during the course of assessment 6 ITA No. 3073/M/2008 & 3972/M/2008 M/s. Marathon Nextgen Reality & Textiles Ltd.
proceedings and the assessee submits that the same cannot be treated as income of the assessee.
However, with a view buy peace and avoid litigation, the assessee seeks to offer the said amount by way of income subject to the condition that no penal proceedings shall be initiated nor any penalty levied. After addition of `.2,78,68,800/- to the disclosed amount of `.1,23,85,000/-, the total additional income to `.4,02.53,800/- for MRNTL. On addition of undisclosed income for Marathon Realty Ltd. Of `.46,95,000/- the total undisclosed income for Marathon group comes to `.4,49,48,800/-.
We had not charged on-money in the various projects since the Projects though commenced in February 2004 the booking of the flats was started in September 2004. Since these were relatively new projects there, is no question of charging on- money previously. Whatever amount collected by us were to meet expenses of middle man for freeing the property of encroachments and other expenses to meet for the same purpose. These is not the normal business practice of us. All the above amounts stated though the same are genuine expenses for us, we are not in the position to justify the same with income tax department.
We want to buy peace of mind and to avoid protracted litigation we have no objection if the Income tax department made addition to its undisclosed income at the tune of `.2,78,68,800/- as discussed above.
We request that the IT department should not levy penalty proceedings u/s 271 (1) (c) of IT Act 1961 taking into consideration the fact that we have always cooperated with the IT department on all issues."
5. However, the AO was not convinced with the explanation given by the assessee. He observed that the seized paper found from the residence of Shri Virendra Shetty as well as unaccounted cash found from the residence of directors clearly show that the assessee group has charged on-money on the sale of flats and commercial premises in its projects referred to in the said seized documents which are not 7 ITA No. 3073/M/2008 & 3972/M/2008 M/s. Marathon Nextgen Reality & Textiles Ltd.
accounted in the regular books of accounts of the assessee company. Since an amount of `.46,95,000/- has been treated as "undisclosed income" pertaining to M/s. Marathon Realty Ltd. and is considered in its assessment for the Assessment Year 2005-06, the AO treated the balance amount of `.4,02,53,800/- as "additional income" of the assessee pertaining to Assessment Year 2005-06. Since the assessee has disclosed additional income of `.1,23,85,000/- in its return of income, the AO made an addition of `.2,78,68,800/- as the "additional income" being on-money receipts of the assessee company.
5.1 Subsequently the AO initiated penalty proceedings u/s. 271(1)(c) of the I. T. Act. It was explained by the assessee that the total amount of on-money receipts shown in page 6 of Annexure-1 was `.4,02,53,800/- (total `.4,49,48,800/- out of which `.46,95,000/- related to Marathon Realty Ltd.), two amounts of `.10 lacs and `.100.50 lacs were not received and the same did not also bear initial of any person on the last column of page 6 of Annexure A-1. Out of the balance amount remaining expenses were claimed to the extent of `.1,68,18,800/- and thus, the balance amount of `.1,23,85,000/- was offered for tax in the return of income filed for the A.Y. 2005-06. In the course of assessment proceedings, the assessee filed a letter. On the basis of the letter so filed and the additional income so offered, the AO made addition of `.2,78,68,800/- to the returned income of `.2,40,76,210/-.
5.2 It was submitted that so far as the amount of `.1,23,85,000/- is concerned, the assessee has offered the said amount during the course of search in the statement recorded u/s 132(4) as additional income in the return of income filed for the Assessment Year 2005-06, and for 8 ITA No. 3073/M/2008 & 3972/M/2008 M/s. Marathon Nextgen Reality & Textiles Ltd.
which the financial year was not ended at the time of search action conducted on 02.12.2004. The assessee has thus disclosed the amount in the return of income filed, disclosed in the statement recorded u/s.132(4) and the manner of earning the said income has also been disclosed and the tax on the same has also been paid. Therefore, the assessee falls within the scope of immunity provided under Explanation 5 to section 271(1)(c) of the Act.
5.3 So far as the balance amount of `.2,78,68,800/- is concerned, it was submitted that during the course of assessment proceedings it was explained before the AO that `.110.50 lacs was not received at all, as there was no initials of any family member receiving such amount in the loose papers seized, on the basis of which the addition is made. So far as the balance amount of `.1,68,18,800/- is concerned it was categorically stated during the course of search proceedings itself that this was incurred as expenses for removing encroachments etc. It was submitted that merely because the explanation given could not be substantiated, that by itself would not lead to concealment of income or furnishing of inaccurate particulars of income and hence, the penalty proceedings initiated may be dropped.
5.4 Various decisions were also cited before the AO. It was submitted that during the course of assessment proceedings the assessee had offered the entire amount of `.2,78,68,800/- by filing a letter wherein the amount offered was a conditional offer for not to initiate or levy penalty proceedings u/s 271(1)(c) of the Act. Referring to the decision of Hon'ble Bombay High Court in the case of Ramnath Jagannath vs. State of Maharashtra (1984) reported in 57 STC 46 (Bom) at page 51 it was 9 ITA No. 3073/M/2008 & 3972/M/2008 M/s. Marathon Nextgen Reality & Textiles Ltd.
submitted that an offer is coupled with conditions which are not reasonable or one which cannot be accepted in law completely would not render, unconditional the offer which is in terms made on a condition. If it is not possible to accept that condition, the only result would be that that offer must be rejected. But where an offer is coupled with conditions, which cannot be accepted fully, the offer cannot be treated as an unconditional offer merely on that count. Referring to the decision of Hon'ble Calcutta High Court in the case of CIT vs. Amalendu Paul (1984) reported in 145 ITR 439 it was submitted that when a cash credit was included in revised return with a prayer that no penalty be levied, it was held that a conditional admission of the assessee cannot be made basis for penalty. Various other decisions were also cited before the AO to the proposition that no penalty u/s.271(1)(c) of the I.T. Act. should be levied.
5.5 However, the AO was not convinced with the explanation given by the assessee. According to him on-money of `.110.50 lakhs was received by Shri Virendra Shetty, Marketing Executive of the assessee company which itself shows that the money has been received by the assessee group. Similarly, the assessee has also not given any explanation with evidence to the satisfaction of the AO regarding the expenditure of `.1,68,18,800/-. Therefore, the AO relying on a couple of decisions, held that the assessee has concealed its income by furnishing inaccurate particulars of income of an amount of `.2,78,68,800/-. The explanation offered by the assessee is not substantiated with evidence. He, therefore, levied penalty of `.1,01,97,891/- u/s 271(1)(c) of the Act being 100% of the tax sought to be evaded.
10 ITA No. 3073/M/2008 & 3972/M/2008M/s. Marathon Nextgen Reality & Textiles Ltd.
6. Before the Ld. CIT(A) the assessee reiterated the same submissions as made before the AO. It was submitted that the assessee has surrendered the additional income during the assessment proceedings just to buy peace and to avoid prolonged litigation and with a specific prayer / condition that no penalty should be levied in respect of this addition. Thus in the assessment order the addition was made by way of agreed assessment, for which the assessee did not prefer any appeal against the addition. The addition was made on the basis of assessee's offer of the amount and there is no other independent material / evidence on record to establish that the amount of addition represented the assessee's income so as to conclude that the assessee has concealed the particulars of its income. It was submitted that in this case since the AO had made the addition on the basis of offer/surrender by the assessee, and has thus accepted the offer, therefore, the offer has to be accepted along with the condition and not without that. The department cannot blow hot and cold at the same time. It cannot accept the offer to make the addition and reject the attaching condition to impose the penalty. It was submitted that the department in the instant case has not made any independent enquiry. Therefore, if the assessee's conditional offer is removed, there remains nothing on record to establish or even to suggest that the amount of `.110.50 lacs, which does not bear initials of the recipient in the last column on pg.6 of Annexure 'A-1' was indeed received. Similarly, there is no evidence with the department that the amount of `.1,68,18,800/- had not been incurred as expenditure. It was submitted that in the Explanation 1 to Section 271, the initial burden is on the Department to prima facie establish concealment of income or furnishing of inaccurate particulars by assessee and, thereafter, only the assessee's explanation is to be considered as to whether the same is false, bonafide or has not been 11 ITA No. 3073/M/2008 & 3972/M/2008 M/s. Marathon Nextgen Reality & Textiles Ltd.
substantiated etc. The provisions of section 271(1)(c) of the I.T. Act was brought to the notice of the Ld. CIT(A). Further, the statements recorded u/s.132 (4), during the course of search action from Shri Virendra Shetty and Shri Mayur Shah, Director of the assessee company were bought to the notice of the Ld. CIT(A) to substantiate that the amount of `.110.50 lakhs was not received and an amount of `.1,68,18,800/- has been incurred as expenses. Relying on a couple of decisions it was submitted that no penalty u/s.271(1)(c) of the I.T. Act should be levied.
6.1 Based on the arguments advanced by the assessee, the Ld. CIT(A) deleted the penalty levied by the AO u/s.271(1)(c) of the I.T. Act. on addition of `.110.50 lacs and sustained the penalty levied by the AO on the balance amount of `.1.63 crores. While doing so he held that so far as the on-money of `.110.50 lakhs claimed by the assessee as not received is concerned, it is an undisputed fact that there were no signature as a token of receipt of money taken against the two entries of `.100.5 lacs and `.10 lacs in the document found and seized during the course of search. The Marketing Executive of assessee company Shri Virendra Shetty in his statement recorded u/s.132(4) during the course of search in response to answer to question no.8 has also categorically stated that the amount has not been received. A Director of the assessee company Shri Mayur Shah has also given detailed explanation in the course of assessment proceedings that out of the total income of `.4,02,53,800/- two amounts of `.10 lacs and `.100.50 lacs were not received and the same did not have initials of any persons on the last column of the document. The AO has not controverted the above submissions of the responsible persons. According to him the assessee had offered an explanation with reference to the non receipt of the said two amounts and has been able to substantiate the same with the help 12 ITA No. 3073/M/2008 & 3972/M/2008 M/s. Marathon Nextgen Reality & Textiles Ltd.
of statement of Shri Virendra Shetty as well as the absence of initials against the said entries in the seized documents. The above explanation has not been proved to be false or untrue. Therefore, the penalty u/s.271(1)(c) of the I.T. Act. cannot be levied on the amount of `.110.50 lakhs.
6.2 So far as the other two amounts i.e. 1.38 crores and 25 lakhs are concerned, he noted that the same has been claimed to be expenditure on account of payments made to middleman to settle property encroachments and business expenditure respectively. However, no evidence was filed to substantiate the said statement, no documents indicating any such expenses having been incurred were found and seized during the course of search action. Therefore, the expenditure cannot be accepted as genuine merely on the basis of statement without filing any document or evidence to corroborate the said statement. The submissions of the assessee that disclosure was made only to buy peace of mind and avoid protracted litigation has not much truth, since it is a matter of record, that material was found during the course of search indicating the receipt of on-money and no such evidence was found during the course of search regarding any expenditure. In the instant case, there was material in the possession of the Department to corroborate the theory of receipt of on-money but the assessee has no material to corroborate its theory of expenses having been incurred. Therefore, he concurred with the finding of the AO that the assessee has not been able to substantiate its claim of having incurred expenditure on unaccounted business expenses of `.25 lacs and payments made to middlemen of `.138 lacs and its allowability in the computation of the total income of the assessee as deduction from the gross amount of cash of `.4.49 crores as appearing in the seized paper. The assesee also could 13 ITA No. 3073/M/2008 & 3972/M/2008 M/s. Marathon Nextgen Reality & Textiles Ltd.
not submit any details regarding the nature of such expenses, persons to whom payments were made, bills, vouchers or any other relevant document. The assessee could not give the names of the middleman and the addresses of the middleman who received payments aggregating to `.138 lacs. He, accordingly, confirmed the levy of penalty u/s.271(1)(c) of the I.T. Act. on `.138 lacs and Rs. 25 lacs respectively.
7. Aggrieved with such part relief given by the Ld. CIT(A), the assessee as well as the revenue are in appeal before us.
8. The Ld. Counsel for the assessee reiterated the same submissions as made before the AO and the Ld. CIT(A). He submitted that the penalty in this case was levied on agreed assessment. Referring to the copy of assessment order, the Ld. Counsel for the assessee drew the attention of the Bench to page no.2 and 3 of the assessment order and submitted that the contents of the seized paper which has been extracted by the AO does not contain any on-money receipt and are written in coded language such as P.P, F.P, L, CRS, MRS, ARS and SCS etc. The Revenue was not able to decipher the coded language without the help of the assessee. Referring to the copy of statement of Shri Virendra Shetty recorded by the department during the course of search on 02.12.2004 u/s.132(4) of the I.T. Act, the Ld. Counsel for the assessee drew the attention of the Bench to Q.No.8 put to Shri Virendra Shetty and the reply given by him, according to which the amount mentioned against date 16.10.2004 and 20.10.2004 were to be received. But any how the money was not received and, therefore, there is no signature. Persons who use to receive the cash have made statements before the search party itself that the amount of `.100.50 lakhs and `.10 14 ITA No. 3073/M/2008 & 3972/M/2008 M/s. Marathon Nextgen Reality & Textiles Ltd.
lacs were never received. Referring to the statement of Shri Mayur Shah, Director of the assessee company recorded by the search party on 22.01.2005 u/s.132(4) of the Act, the Ld. Counsel for the assessee drew the attention of the bench to Q.No.7 put by the DDI and the reply given by him according to which an amount of `.3.38 crores only are received which are duly acknowledged. He submitted that in response to Q.No.8, the Director had stated that out of `.3.38 crores received, `.1.75 crores was found and the balance amount was spent. Further, the Director had also given the break up of expenditure according to which an amount of `.25 lacs was incurred for business needs and an amount of `.1.38 crores was paid to Middleman to settle property encroachment. Referring to the answer given by the Director in reply to the Q.No.10 put by the DDIT, the Ld. Counsel for the assessee submitted that the Director at that time had stated that due to business exigencies, he is unable to disclose their names. Referring to the letter addressed to the AO on 26.12.2006, copy of which is placed at paper book page number 21 and 22, he submitted that the assessee had made a conditional offer to the AO for making the addition of `.2,78,68,800/-. It was offered to buy piece of mind and to avoid prolonged litigation. Under these circumstances, the assessee had no objection for the amount of `.2,78,68,800/- to be added to the total income of the assessee with a request not to initiate the penalty proceedings u/s.271(1)(c) of the I.T. Act.
8.1 He submitted that the disclosure was on the basis of one loose paper. The department has not brought any material whatsoever which has been accepted by the assessee. Referring to a number of decisions including the decision of Hon'ble Supreme Court in the case of CBI vs. V.C. Shukla & others reported in AIR 1998 Supreme Court 1406, he 15 ITA No. 3073/M/2008 & 3972/M/2008 M/s. Marathon Nextgen Reality & Textiles Ltd.
submitted that loose sheets of papers contained in files are not books of account and cannot be reliable. He submitted that when a statement is recorded from the assessee and addition is made on the basis of the statement recorded then the same statement has to be accepted in full or rejected in full. The revenue cannot pick up and choose that portion which is favourable to the department and against the assessee. For this proposition, he relied on the decision of the Tribunal in the case of Shri Prakash K. Kothari vide IT(SS)A No.241/Mum/2005 order dated 20.04.2006 for the Block Period 01.04.1995 to 21.02.2002. He submitted that in the instant case the revenue has not brought out anything by conducting any independent enquiry. The Ld. Counsel for the assessee drew the attention of the bench to Clause 2 of Explanation 5 to Section 271(1)(c) of the I.T. Act. according to which no penalty u/s.271(1)(c) of the I.T. Act. can be imposed, if the assessee in the course of search makes a statement under sub section 132(4) that the undisclosed asset has been acquired out of his income which has not been disclosed in his return of income to be furnished before the expiry of time specified in sub-section (1) of section 139 and also specifies in the statement the manner in which such income has been derived and pays the tax, together with interest, if any, in respect of such income. He submitted that the assessee in the instant case has met all the conditions of the Explanation 5 to Section 271(1)(c) of the I.T. Act. Referring to the provisions of Explanation 1 to Section 271(1)(c) of the I.T. Act, he submitted that the assessee in the instant case has offered an explanation to the AO who has not brought out anything on record to show that such explanation is false. The assessee has also substantiated the disparity made by it giving the gross and net amount. He submitted that the bonafide of the assessee shows that the statement given at the time of search was not an after thought.
16 ITA No. 3073/M/2008 & 3972/M/2008M/s. Marathon Nextgen Reality & Textiles Ltd.
8.2 Referring to the decision of Pune Bench of the Tribunal in the case of Kanbay Software India (P) Ltd. vs. DCIT reported in 22 DTR 481 he drew the attention of the bench to para 60 to 68 of the order and submitted that when an explanation is offered by the assessee in discharge of the onus cast upon him by Explanation 1 to section 271(1)(c) of the I.T. Act., it is not for the AO to ponder over what should have happened in ideal circumstances, and reject the explanation because what has actually happened is less than such an imaginary ideal situation; he has to consider the explanation objectively and unless he finds the same against the human probabilities or unless there are any real inconsistencies or factual errors in such an explanation, the AO ought to accept the same. It cannot always be feasible to prove the claim of bona fides to the hilt, nor the assessee can be expected to do so. The explanation for bonafide needs to be considered in a fair and objective manner and in the light of the human probabilities. He submitted that the assessee in the instant case is a builder and as such payments of the type explained earlier are normal in such type of business. The statement was given u/s.132(4) explaining the nature of expenses incurred and the business exigency for non disclosure of the names of the middleman. Therefore, the assessee discharged the onus cast on it by making an explanation.
8.3 Referring to the decision of the Hon'ble Supreme Court in the case of CIT vs. Reliance Petro Products Ltd. 322 ITR 158 he submitted that mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing of inaccurate particulars.
17 ITA No. 3073/M/2008 & 3972/M/2008M/s. Marathon Nextgen Reality & Textiles Ltd.
8.4 Referring to the decision of the Tribunal in the case of Tarachand Ghanshyamdas v. CIT reported in 59 ITR 378 he submitted that when the offer was conditional, the AO cannot go to that part of the offer which is favourable to the department and against the assessee. He also relied on a couple of decisions as per the written submissions and submitted that the penalty levied by the AO and confirmed by the Ld. CIT(A) should be deleted and the portion on which penalty levied by the AO has been deleted by the Ld. CIT(A) should be upheld. In sum and substance he submitted that no penalty u/s.271(1)(c) of the I.T. Act. can be levied in the instant case.
9. The Ld. DR on the other hand, while supporting the order of the AO submitted that this is a fit case for levy of penalty u/s.271(1)(c) of the I.T. Act. Refuting the submission of the Ld. Counsel for the assesee that the seized document contain coded language which could not be decipher without the help of the assessee, he submitted that there is no code as such since it is crystal clear from the language itself. So far as the submissions of the Ld. Counsel for the assessee that it was a conditional offer, he submitted that conditional offer has no legal sanctity as far as Income Tax proceedings are concerned. Referring to the decision of Hon'ble Supreme Court in the case of V.C. Shukla (supra) relied on by the Ld. Counsel for the assessee, he submitted that the ratio of the said decision is not applicable to the facts of the present case. He submitted that when the assessee during the course of search proceedings and assessment proceedings has admitted the receipt of on- money, no further enquiry was required by the department.
18 ITA No. 3073/M/2008 & 3972/M/2008M/s. Marathon Nextgen Reality & Textiles Ltd.
9.1 The Ld. DR also relied on the decision in the case of Dy. Director of Income Tax v. Chirag Metal Rolling Mills Ltd. reported in 305 ITR 29 (MP) and the decisions reported in 153 ITR 376 (Madras), 243 ITR 618 (Kerala) and 124 ITR 376 (Madras). So far as the amount of `.110.50 crores is concerned, the Ld. D.R submitted that although the signature is not there but all other conditions are fulfilled such as specific date, name of the project, area, amount etc. Since the assesseee has offered the amount during the course of assessment proceedings, it is not correct to say that the amount has not been received. Since the Ld. CIT(A) has not given any cogent reason while deleting the penalty on this amount, he submitted that the penalty levied by the A.O on this amount should be upheld.
10. The Ld. Counsel for the assessee in his rejoinder submitted that the document seized during the course of search on the basis of which addition has been made was in fact in coded form. Only on the basis of the explanation given by the assessee, the Revenue was able to decipher the same.
11. We have considered the rival submissions made by both the sides, perused the orders of the AO and the Ld. CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. There is no dispute to the fact that during the course of search a file marked Annexure A-1 containing page 1 to 10 as per the Panchnama dtd. 2.12.2004 was found and seized. There is also no dispute to the fact that page No. 6 & 7 of the said Annexure A-1 pertains to the assessee which contains receipt of 'on money' by the assessee from various persons in respect of its various projects. We find out of 19 ITA No. 3073/M/2008 & 3972/M/2008 M/s. Marathon Nextgen Reality & Textiles Ltd.
the total on money of Rs. 449.48 lacs, an amount of Rs. 46.95 lacs pertains to Marathon Reality Ltd., an associate concern. Out of the balance amount of Rs. 402.53 lacs, the assessee had offered only Rs. 123.85 lacs in the return filed. Out of the balance amount of Rs. 2,78,68,800/- it was explained during the search proceedings that an amount of Rs. 1,10,50,000/- was not received by the assessee since it does not contain initial of any of the family members acknowledging receipt of the said amount. It was further explained that an amount of Rs. 25 lacs was spent for various expenses, an amount of Rs. 1,38,00,000/- was paid to middleman for removal of encroachment from the land and an amount of Rs. 5,18,800/- was incurred for miscellaneous expenses. However, during the course of assessment proceedings, the assessee offered the amount of Rs. 2,78,68,800/- as additional income with a condition that no penalty should be levied. It was also explained that the same is being offered as the assessee is not in a position to substantiate with evidence and to buy peace and to avoid prolonged litigation. We find the A.O. was not convinced with the explanation given by the assessee and levied penalty on the amount of Rs. 1,10,50,000/- and Rs. 1,63,00,000/- respectively which is the dispute in the impugned cross appeals.
11.1 We find the ld. CIT(A) deleted the penalty levied by the A.O. on the amount of Rs. 110.50 lacs on the ground that there is no signature on the seized document as a token of receipt of on money against the entries of Rs. 100.5 lakhs and Rs. 10 lakhs respectively. Further Shri Virendra Shetty in his statement recorded u/s 132(4) had stated non- receipt of the said amount and the Director Shri Mayyur Shah had also stated during the assessment proceedings about non-receipt of the said amount. However, he sustained the penalty on Rs. 1.63 crores on the 20 ITA No. 3073/M/2008 & 3972/M/2008 M/s. Marathon Nextgen Reality & Textiles Ltd.
ground that no documentary evidence was filed to substantiate that such expenditure has been incurred. It is the submission of the ld. Counsel for the assessee that the amount of Rs. 1,10,50,000/- was not received by the asessee as on money since it does not contain initial of any of the family members which is supported by the statement of Shri Virendra Shetty during the course of search and of Shri Mayyur shah during the course of assessment proceedings. Further the amount of Rs. 1.63 crores has been spent for the purpose of business and since the assesee had no supporting evidence, it offered the same as additional income to buy peace and avoid prolonged delay, therefore, no penalty is called for. It is the submission of the ld. D.R. that although no initial is there but the paper contains all other particulars which gives strong indication of receipt of on money of Rs. 1,10,50,000/-. The assessee has offered the same as additional income. Therefore, penalty u/s 271(1)(c) is attracted on this amount. So far as the amount of Rs. 1,63,00,000/- is concerned, no evidence whatsoever was filed to substantiate that such expenditure has been incurred. Therefore, the penalty u/s 271(1)(c) is attracted on this amount. However, he sustained the penalty levied by the A.O. on the addition of Rs. 1,63,00,000/-.
11.2 So far as the grounds raised by the Revenue regarding the deletion of penalty on amount of Rs. 110.50 lacs is concerned we find no infirmity in the order of the ld. CIT(A). Admittedly, the basis of addition was the notings in the seized document which contains the date, name, project, area, total, remarks and initial of receiver. Admittedly, the amount of Rs. 100.50 lacs on 16.10.2004 and Rs. 10 lacs on 20.10.2004 does not contain initials of any receiver. We find Shri 21 ITA No. 3073/M/2008 & 3972/M/2008 M/s. Marathon Nextgen Reality & Textiles Ltd.
Virendra Shetty in his statement recorded u/s 132(4) of the Act on 2.12.2004 vide his answer to Question No. 8 has categorically stated that the amount mentioned on 16.10.2004 was to be received but anyhow it was not received and therefore there is no signature of our director against the date. Nothing has been brought on record to disprove the above statement given by Shri Virendra Shetty during the course of search recorded u/s 132(4) of the Act. We further find the director Shri Mayyur Shah gave detail explanation during the course of assessment proceedings that two amounts of Rs. 10 lacs and 100.50 lacs respectively were not received and the same did not bear initial of any person on the last column of the document. When the Marketing Executive Shri Virendra Shetty and the director of the company Shri Mayyur Shah has categorically stated that the amount of Rs. 10 lacs and 100.50 lacs were not received and when the seized document does not contain the signature or initial of any family member or director of the assessee company acknowledging the receipt of the same, therefore, merely because the assessee has offered the same as additional income during the course of assessment proceedings, the same in our opinion does not call for levy of penalty u/s 271(1)(c) of the Act. In this view of the matter and in view of the detailed discussion by the ld. CIT(A) on this issue and in absence of any contrary material brought to our notice against the findings of the ld. CIT(A) on this issue we do not find any infirmity in his order deleting the penalty levied on Rs. 1,10,50,000/-. We accordingly uphold the same and the ground raised by the Revenue is dismissed.
22 ITA No. 3073/M/2008 & 3972/M/2008M/s. Marathon Nextgen Reality & Textiles Ltd.
12. Now coming to the ground raised by the assessee, we find the director of the assessee company Shri Mayyur Shah in his statement recorded u/s 132(4) of the Act on 22.1.2005 vide Question No. 8 has categorically stated that the amount of Rs. 25 lacs was spent as business expenditure and not debited in the regular books of account. Similarly Rs. 1.38 crores was given to various middlemen to settle the property encroachment. We find Shri Mayyur Shah in his reply to Question No. 10 had stated that for business exigency he is unable to disclose the names of the middleman to whom the payments of Rs. 1.38 crores was given. No doubt, the assessee has offered the above 2 amounts as additional income during the course of assessment proceedings on the ground that it is not in a position to substantiate with evidence and therefore to buy peace and to avoid prolonged litigation it wants to offer the same as additional income. Since the assessee offered the same as additional income, the A.O. was justified in making the addition. But the addition by itself will not amount to concealment of income or furnishing of in-accurate particulars of income to attract the levy of penalty u/s 271(1)(c) of the Act. The assessee would not have offered the amount if he had the supporting documents to substantiate the expenditure. We also find merit in the submission of the ld. Counsel for the assessee that the nature of expenditure explained during the course of search is common in real estate business. Since the assessee was unable to substantiate the claim with supporting evidence it offered the same as additional income to buy peace and to avoid prolonged litigation. The Revenue has not brought anything on record to suggest that the amount has not been spent by the assessee or it has been utilised for acquiring some other 23 ITA No. 3073/M/2008 & 3972/M/2008 M/s. Marathon Nextgen Reality & Textiles Ltd.
assets. The entire addition has been made on the basis of admission by the assessee in shape of the covering letter offering the same as additional income We therefore find force in the submission of the ld. Counsel for the assessee that when a statement is recorded from the assessee and addition is made on the basis of the statement recorded then the same statement has to be accepted in full or rejected in full. The Revenue cannot pick-up and choose that portion which is favourable to the Department and against the assessee. . Therefore, in our opinion, the addition made on the basis of the offer letter of the assessee does not call for levy of penalty u/s 271(1)(c) of the Act.
12.1 We find the Hon'ble Supreme Court in the case of Reliance Petroproducts Pvt. Ltd. reported in 322 ITR 158 has held as under:-
(Short Notes):
"A glance at the provisions of section 271(1)(c) of the Income- tax Act, 1961, suggests that in order to be covered by it, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. The meaning of the word "particulars" used in section 271(1)(c) would embrace the details of the claim made. Where no information given in the return is found to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing inaccurate particulars. In order to expose the assessee to penalty, unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By no stretch of imagination can making an incorrect claim tantamount to furnishing inaccurate particulars. There can be no dispute that everything would depend upon the return filed by the assessee, because that is the only document where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise. To attract penalty, the details supplied in the return must not be accurate, not exact or correct, not according to the truth or erroneous.24 ITA No. 3073/M/2008 & 3972/M/2008
M/s. Marathon Nextgen Reality & Textiles Ltd.
Where there is no finding that any details supplied by the assessee in its CIT v. return are found to be incorrect or erroneous or false there is no question of inviting the penalty under section 271(1)(c). A mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing inaccurate particulars".
12.2 We find the offer by the assessee admitting the additional income was a conditional offer wherein the assessee had offered the additional income and at the same time requested for non-levy of penalty u/s 271(1)(c) of the I.T. Act. We find the Hon'ble Bombay High Court in the case of Ramnath Jagannath v. State of Maharastra (supra) has held as under:- (Shortnotes):-
"Thc assessee carried on the business of buying and selling provisions. For the assessment years 1st April 1955. to 31st March, 1956, and 1st April. 1956. to 31st March, 1957, the Sales Tax Officer passed assessment orders disallowing the claim of the assessee for deductions under the first proviso to section 9 of the Bombay Sales Tax Act, 1953, on the ground that the assessse had produced bogus declarations in: K forms. The asepsis's appeals to the Assistant Commissioner were dismissed and penalty was levied under the provisions of sub-section (4) of section 16 of the Act for late payrnent by the Assistant Commissioner. The assessee then filed applications for revision to the Deputy Commissioner before whom the assesses's counsel made an oral offer if the post- assessment penalty which was levied by the Assistant Commissioner was remitted in full, in order to put an end to the proceedings, the assessee was agreeable to pay the entire amount of tax to which it was assessed. The Deputy Commissioner asked the counsel of the assessee to put down the assesses's offer in writing and accordingly a letter was addressed to the Deputy Commissioner by the counsel of assessee. No communication was made to the counsel by the Deputy Commissioner. The Deputy Commissioner dismissed the revision application holding that it was not a proper and fit case to waive or reduce the post-assessment penalty and that the counsel of the assessees unconditionally gave up the claim under the first proviso to section 9 of the Act and only argued for the waiver or reduction of the Penalty. The Tribunal in 25 ITA No. 3073/M/2008 & 3972/M/2008 M/s. Marathon Nextgen Reality & Textiles Ltd.
further revision held that the assessee agreed to get its claim for deduction under first proviso to section 9 of the Act rejected unconditionally but did not agree to the post-assessment penalty. On reference :
Held, that on a plain reading of the letter of assesses's counsel to the Deputy and in the light of the facts, it was clear that the offer-made in the letter to give up the claim of deduction under first proviso to section 9 of the Act was clearly a conditional offer on the post-assessment penalty levied and leviable being given up. If it was rejected by the Deputy Commissioner he was bound to deal with the claim of the assessees for deduction under the first proviso to section 9 of the Act on merits.
That an offer is coupled with conditions which are not reasonable or one which cannot be accepted in laid completely would not render unconditional the offer which is in terms made on a condition. If it is not possible to accept that condition, the only result would be that offer must be rejected. But where an offer is coupled with conditions which cannot be accepted fully, the offer cannot be treated as an unconditional offer merely on that count."
12.3 Considering the totality of the facts of the case and considering the fact that the assessee during the course of search in the statement recorded u/s 132(4) had stated that the amount of Rs. 25 lacs was unaccounted expenses though they were genuine expense and an amount of Rs. 1.38 crores has been paid to middleman for removal of encroachment in the land and since the Department has not proved that the amount has not been spent and has been utilised for some other purpose and further considering the fact that the assessee made a conditional offer, therefore, although the same is justified for addition in the quantum assessment, however, the same is not sufficient to attract the levy of penalty u/s 271(1)(c). In this view of the matter we are of the considered opinion that no penalty u/s 271(1)(c) of the Act can be levied on the amounts of Rs. 25 lacs and 1.35 crores respectively. Therefore, the ground raised by the assessee is allowed.
26 ITA No. 3073/M/2008 & 3972/M/2008M/s. Marathon Nextgen Reality & Textiles Ltd.
13. In the result, the appeal filed by the Revenue is dismissed and the appeal filed by the assessee is allowed.
Order pronounced on this 14th day of December, 2011.
Sd/-
-sd/-
( B.R. MITTAL ) ( R.K. PANDA )
JUDICIAL MEMBER ACCOUNTANT MEMBER
MUMBAI,
Dt: 14.12.2011.
Copy forwarded to :
1. The Appellant,
2. The Respondent,
3. The C.I.T.
4. CIT (A)
5. The DR, - Bench, ITAT, Mumbai
//True Copy//
BY ORDER
ASSISTANT REGISTRAR
ITAT, Mumbai Benches, Mumbai
Roshani/RK