Income Tax Appellate Tribunal - Delhi
Ishwar Enterprises vs Joint Commissioner Of Income Tax on 29 October, 2004
Equivalent citations: (2005)96TTJ(DELHI)508
ORDER
P.N. Parashar, J.M.
1. This appeal, preferred by the assessee, is directed against the order of CIT(A) dt. 15th March, 2004, relating to asst. yr. 1997-98.
2. Shri R.S. Singhvi FCA appeared on behalf of the assessee whereas Shri Sanjay Avasthi senior Departmental Representative represented the Department.
3. The assessee has taken following grounds :
"1. That, on the facts and circumstances of the case, the CIT(A) was not justified in confirming penalty of Rs. 8,00,000 on the alleged ground of concealment of income.
That the CIT(A) has not correctly considered the facts of the case and submission furnished during the assessment and appellate proceedings and passed penalty order on mechanical basis without dealing with the specific grounds raised.
2. That the penalty order is illegal and invalid as :
(i) There was no satisfaction recorded during the course of assessment proceedings or under Section 250.
(ii) That there is no finding about nature of concealment and evidence and material in support of the same.
(iii) That surrender itself was illegal and arbitrary and this fact is self-evident from the statement recorded at the time of surrender and observation of CIT(A) during appellate proceedings for asst. yr. 1996-97.
(iv) That imposition of penalty is merely on the basis of surrender made before the end of financial year and having declared the surrendered amount voluntarily, there cannot be any presumption or inference about concealment."
4. The facts, as given in the appellate order, are that the assessee, who was engaged in the work of civil constructions, filed return on 31st Oct., 1996, disclosing income of Rs. 32,890. Subsequently, a survey was conducted in the case of the assessee on 14th Feb., 1997. During survey proceedings, statement of Shri V.D. Narang, partner of the assessee-firm was recorded. While recording the statement of Shri Narang, several questions were put to him. In reply to question No. 18, Shri Narang had submitted as under:
"The books of account may be with the part-time accountant who works books at his residence. The same will be produced in your office on 19th Feb., 1997. However, to buy peace with the Department and to avoid litigation, I offer an additional income of Rs. 20,00,000 on account of unexplained creditors and unvouched expenses. Refund return will be filed in your office on 19th Feb., 1997, declaring additional income as stated above."
4.1. Thus, surrender of Rs. 20,00,000 was made on behalf of the assessee. The assessee also filed revised return for asst. yr. 1996-97 on 19th Feb., 1997, by including the amount of Rs. 20,00,000 surrendered. In the assessment order dt. 22nd Jan., 1999, for asst. yr. 1996-97, the assessment was completed at Rs. 20,32,890, i.e., by including the surrendered income of Rs. 20,00,000. The AO also initiated penalty proceedings by observing that "penalty proceeding under Section 271(1)(c) is being initiated separately".
4.2. Both the assessment order as well as the penalty order were challenged before the learned CIT(A) who vide common order dt. 28th Jan., 2000, allowed the appeals of the assessee. So far as the manner of surrender is concerned the learned CIT(A) made the following observations :
"3.7. Before I conclude my order, I must explain the reasons for condoning the delay on the part of the assessee in filing the appeal against the order under Section 143(3) of the IT Act, 1961 for asst. yr. 1996-97. The said order was passed by the Jt. CIT, Special Range-19, on 22nd Jan., 1999. The jurisdiction for appeals against the order of the said officer vests in the office of the undersigned. The record had been explained at length while hearing the assessee's appeal against the order under Section 271(1)(c) of the IT Act, 1961 in appeal No. 117/99-2000. The perusal of the assessment records revealed at that time that the said survey operation under Section 133A(1) of the IT Act, 1961, was a deliberate harassment to the assessee for withholding the refund even after processing of the original return filed on 31st Oct., 1996. Statutory powers are conferred upon the Departmental authorities to detect cases of tax evasion by the unscrupulous taxpayers and certainly not to cause such avoidable harassment to the unsuspecting and genuine taxpayers. Therefore, with a view to prevent such abuse of power and authority, I had to exercise my discretion judiciously to condone the delay in filing of the said appeal."
4.3. The learned CIT(A) also cancelled the penalty by observing as under:
"3.6. As the addition of Rs. 20,00,000 for the asst. yr. 1996-97, has been deleted, I am of the considered opinion that no penalty for concealment of income in this context can be levied upon the assessee. Under the circumstances, the penalty levied by the AO under Section 271(1)(c) of the IT Act, 1961 for asst. yr. 1996-97, is hereby cancelled."
4.4. However, the learned CIT(A) issued directions that the surrendered income is to be taxed in asst. yr. 1997-98. This observation is as under:
"3.5.2. While holding the revised return as non est, I am of the considered view that the additional income offered by the assessee with a view to buy peace and avoid litigation is still taxable in the hands of the assessee for asst. yr. 1997-98, as the said offer was made by the assessee during the period relevant to the said assessment proceedings and further confirmed by the factum of the revised return though for a wrong assessment proceeding and with which the assessee is still committed as on the date. The AO is hereby directed to include the said additional income of Rs. 20,00,000 in the total income of the assessee for asst. yr. 1997-98. Further, the refund as determined after the processing of the original return along with the interest thereupon may be adjusted against the said additional income for asst. yr. 1997-98, treating the said refund as payment under Section 210 of the IT Act."
4.5. In compliance to this order, the assessment order was again passed for asst. yr. 1996-97 vide order dt. 15th March, 2000. In the said assessment order, the AO again made following observations : "Initiate penalty under Section 271(1)(c)". The AO also passed penalty order dt. 27th March, 2001, and imposed penalty of Rs. 8,00,000 for asst yr. 1997-98. This order was challenged before the learned CIT(A) in the second round and the learned CIT(A) vide order dt. 15th March, 2004 upheld the order by observing as under:
"I have carefully considered the submissions of the appellant and the penalty order in question. Explanation 5 to Section 271(1)(c) creates a legal fiction, an artificial onus on the assessee to prove that his intentions were not mala fide. It also creates a presumption that if he has furnished inaccurate particulars of his income, then his intentions are considered mala fide for purposes of imposition of this penalty. This presumption is rebuttable but it can only be rebutted with the positive evidence of the appellant's bona fide intentions. In this case it is a fact that inaccurate, particulars have been furnished. The appellant has failed to forward any cogent reason for the furnishing of these inaccurate particulars. In view of the lack of positive evidence from the appellant about the bona fide of his intentions, there is no option but to fall back on the original presumption upheld by their Lordships in the Supreme Court decision in the case of K.P. Madhusundanan v. CIT . Humbly agreeing with their Lordships in the case cited (supra), I hereby confirm the penalty imposed on the appellant under Section 271(1)(c)."
5. The learned counsel for the assessee has submitted detailed arguments in support of the grounds taken before the Tribunal. He has specifically raised the following pleas :
(1) The surrender was not genuine and voluntary in this case. Rather it was elicited and extracted from the partner of the assessee-firm by causing harassment to him. According to the learned counsel, the circumstances under which the surrender was made have been duly appreciated by the learned CIT(A) in the appellate order dt. 28th Jan., 2000.
(2) That the assessee made the surrender to avoid confrontation with the Department to purchase peace and under the impression that no further proceedings would be initiated against him. The surrender was not on the basis of any incriminating material found by the Department during the survey or otherwise.
(3) The Department wanted to harass the assessee and survey was done only with a view to deprive the assessee of the refund due to him. This aspect has also been considered by the learned CIT(A) in the order dt. 28th Jan., 2000.
(4) The books were produced by the assessee before the AO during the assessment proceedings for asst. yrs. 1996-97 and 1997-98.
(5) There was no concealment on the part of the assessee. It is only on account of unverifiable creditors and unvouched expenses that the surrender was made.
(6) The surrender was made during the close of the asst. yr. 1996-97, and the imposition of penalty was not justified.
(7) Neither in the original assessment order nor in the penalty order nor in the appellate orders the satisfaction regarding concealment of income by the assessee has been recorded.
5.1. In support of the above submissions, the learned counsel for the assessee has placed reliance on the following decisions :
(i) CIT v. Super Metal Re-Rollers (2004) 265 ITR 82 (Del);
(ii) DM. Manasvi v. CIT ;
(iii) CIT v. Ram Commercial Enterprises Ltd. ;
(iv) CIT v. Munish Iron Store ;
(v) Sir Shadi Lai Sugar & General Mills Ltd. & Am. v. CIT ;
(vi) CIT v. Suresh Chandra Mittal (2001) 251 FIR 9 (SC);
(vii) CIT v. Mecon Builders & Engineers ;
(viii) Banaras Textorium v. CIT (1988) 169 ITR 782 (All); (ix) CIT v. Ishtiaq Hussain (1988) 232 ITR 673 (All); (x) CIT v. T. Govindankutty Menon (1998) 178 ITR 509 (Ker);
(xi) CIT v. Ravail Singh & Co. .
6. The learned Departmental Representative, on the other hand, supported the order of learned CIT(A). He also placed reliance on the ratio of decisions in the cases of Shyam Biri Works (P) Ltd. v. CIT ; and Om Prakash Gupta v. ITO (2002) 75 TTJ (Chd) 984 : (2002) 81 ITD 55 (Chd).
7. We have carefully considered the entire material on record and the rival submissions. On going through the assessment order for asst. yr. 1996-97, it is found that the AO has not recorded satisfaction regarding concealment. In the second assessment order dt. 19th Sept., 2000, passed under Section 250 of the IT Act for asst. yr. 1997-98, [in pursuance to order of CIT(A) dt. 28th Jan., 2000, for asst. yr. 1996-97], also no satisfaction has been recorded.
7.1. So far as the circumstances under which survey operation was conducted, are concerned) the learned CIT(A) vide his order dt. 28th Jan., 2000, has considered the same in detail. His observations in para 3.7 of his order have been reproduced above and on going through his observations it will be apparent that the survey was conducted with oblique motive and mala fide designs by the Department. It is borne out from the record and the circumstances narrated by the learned CIT(A) that the assessee was harassed perhaps for depriving him against his claim for refund or for any other reason,' but the substratum of truth is that the surrender of Rs. 20,00,000 made by the assessee was only to avoid harassment and to purchase peace with the Department. It is also true that, Department could not find out any adverse material on survey or otherwise. Even from the books of account of the assessee no concealment was detected.
7.2. Another strange and peculiar feature of this matter is that the Department itself was not sure as to in which year the surrendered income should be added. Initially it was added in asst. yr. 1996-97, but on appeal the addition was deleted and penalty for concealment was also cancelled in that assessment year. At the direction of the learned CIT(A) the assessment was made again and the income of Rs. 20,00,000 was added in asst. yr. 1997-98,. The penalty for concealment was also initiated and imposed following the same course.
7.3. The contention of the learned Departmental Representative that, since the assessee himself surrendered the income of Rs. 20,00,000, it is itself evident that it had concealed particulars of income, cannot be accepted. The burden was on the Department to have established that the assessee had concealed the income. In the case of CIT v. Narang & Co. , the Hon'ble Delhi High Court has observed as under:
"Section 271(1) is not only penal or quasi-criminal in nature, but departs from the normal well-established rule which would throw the burden of proof on the Revenue to establish that the assessee had consciously concealed the particulars of his income or deliberately furnished inaccurate particulars in respect thereof. The onus of proof, on the other hand, has been placed by the Explanation to Section 271(1) on the assessee, who is required to prove the negative, that is, the absence of fraud or gross or willful neglect on his part. The assessee is to be afforded an opportunity to furnish this proof. He would, in these peculiar circumstances, be taken to have discharged the onus if he, in the absence of any proof to the contrary, can raise probabilities in his favour or point out circumstances which can create doubts, the benefit of which can be given to him.
Penalty proceedings are distinct from assessment proceedings and even if the assessee had failed to give a satisfactory explanation in respect of cash credits in the assessment proceedings, it would be open to him in the penalty proceedings to offer explanation on the basis of fresh material.
7.4. In the case of CIT v. Suresh Chand Mittal the Hon'ble Madhya Pradesh High Court has also considered the issue relating to surrender of income and filing of the revised return. In that case also, the assessee filed first returns and thereafter action under Section 132 was taken against him, which led to the reopening of the assessment. The assessee filed revised return in pursuance of notice under Section 148 showing higher income. The assessment orders were passed and the returns were regularized. The AO initiated penalty proceedings and levied penalty. The contention of the assessee was that he had revised his returns suo motu and had offered additional income to buy peace of mind and to avoid litigation. The Hon'ble High Court held, that no penalty for concealment can be imposed under such circumstances. The relevant observations of the Hon'ble High Court is as under:
"Held, that the assessment was made by the Revenue and once the assessing authority had failed to take any objection in the matter, the declaration of income made by the assessee in his revised returns and the explanation that he had done so to buy peace with the Department and to come out of vexed litigation could be treated as bona fide in the facts and circumstances of the case. Accordingly, no penalty could be levied for concealment."
7.5. It may be pointed out that the decision of Hon'ble Madhya Pradesh High Court (supra), has since been affirmed by the Hon'ble Supreme Court in CIT v. Suresh Chand Mittal (supra), dismissing the Departmental appeals by holding that no interference with the order of the High Court was called for.
7.6. In view of the above decision of Hon'ble apex Court, penalty for concealment is not imposable merely on the basis of surrendered income and revised return. In the present case, the only basis for imposition of penalty being surrender of income and no other basis being proved by the Department to establish the concealment of income, penalty on such ground alone is not sustainable.
7.7. Now, we consider the plea of the learned counsel for the assessee that, since no satisfaction was recorded by the AO regarding concealment of income by the assessee, in the assessment order itself, on this basis also, penalty imposed is not sustainable. In support of this plea the learned counsel placed heavy reliance on various decisions including the decisions of Hon'ble Delhi High Court in the case of CIT v. Ram Commercial Enterprises and in the case of CIT v. Super Metal Re-rollers (supra).
7.8. The learned Departmental Representative, on the other hand, opposed this plea and placed reliance on the decision of Hon'ble Allahabad High Court in the case of Shyam Bin Works v. TTO (supra) and on the order of Tribunal reported in (2002) 75 TTJ (Chd) 984 : (2002) 81 TTD 55 (Chd) (supra).
7.9. We have carefully considered this plea also. In the latest case of CIT v. Super Metal Re-Rollers (supra) the Hon'ble Delhi High Court following its earlier decision in the case of CIT v. Ram Commercial Enterprises Ltd. (supra) has held that it is the assessing authority which has to form its own opinion and record its satisfaction before initiating the penalty proceedings. It was further observed that merely because penalty proceedings have been initiated, it cannot be assumed that such a satisfaction was arrived at, in the absence of the same being spelt out by the order of the assessing authority. In view of the above decision also, the penalty cannot be sustained for want of recording of satisfaction by the AO in the assessment proceedings. As, in the present case such satisfaction is lacking, the imposition of penalty by the AO cannot be sustained.
7.10. The learned Departmental Representative has placed reliance on the order of Tribunal in the case of Om Prakash v. ITO (supra). In that case, the assessee had submitted that it had taken the advance from 51 parties. Notices were issued to these parties and except one, all the notices were returned by the postal authorities with the remarks, "no such person exists" or with the remark "insufficient address". Thus, only one person received the notice. In the facts and circumstances of that case it was held that books of account of the assessee had shown receipt of Rs. 4,08,300 in the names of 51 parties as advance and the assessee had miserably failed to prove that these advances were genuine and, therefore, it should be held that the assessee had also furnished inaccurate particulars in respect of income of Rs. 4,08,300. It was also observed in that case that nowhere the assessee had made the submissions that it had not furnished inaccurate particulars. In view of these circumstances the imposition of penalty was found justifiable. The facts of the present case being different, the decision is not applicable.
7.11. So far as the other authority in the case of Shyam Bin Works v. CIT (supra) is concerned, in that case the Hon'ble High Court of Allahabad has taken a different view than taken by the Hon'ble Delhi High Court in the case of CIT v. Ram Commercial Enterprises Ltd. (surpa), regarding recording of satisfaction. The Hon'ble Allahabad High Court has observed that whenever AO has to record his satisfaction under the IT Act, it is specifically mentioned, for example, Section 148(2) of the IT Act and Section 273 do not have a similar provision requiring recording the reason for satisfaction and, therefore, it is to be inferred that Parliament never intended that before initiating penalty proceedings and issuing notice under Section 273, the AO must record his reasons in writing for doing so. It may be observed that the view taken by the Hon'ble Delhi High Court in the case of Ram Commercial Enterprises (supra), which has again been affirmed in the subsequent decision in the case of Super Metal Re-Rollers (supra), has got binding authority, being the decision of Jurisdictional High Court. Therefore, we have to respectfully follow the same. The assessee had also placed reliance upon the aforesaid decisions before the learned CIT(A) but the learned CIT(A) has not considered the same although the decisions have been cited on p. 3 of his order.
7.12. In view of the above discussion, we are unable to concur with the learned CIT(A) and set aside his order. Accordingly, penalty of Rs. 8 lakh imposed by the AO and sustained by the learned CIT(A) under Section 271(1)(c) of the IT Act is cancelled.
8. In the result, assessee's appeal is allowed.