Income Tax Appellate Tribunal - Ahmedabad
Vinaykumar Yadav, Baroda vs Assessee
-1-
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "C" AHMEDABAD
Before S/Shri T. K. Sharma, JM and D.C.Agrawal, AM
ITA No. Asst. Year
1941/Ahd/2006 1994-95
1942/Ahd/2006 1995-96
1943/Ahd/2006 1995-96
1944/Ahd/2006 1995-96
1945/Ahd/2006 1992-93
1946/Ahd/2006 1994-95
1947/Ahd/2006 1995-96
1. Shri VinayKr. Yadav, V/s. Income-tax Officer,
c/o. Vivek Roadlines, Wd-2(4), Baroda.
R/15, Hareram Complex,
Opp. Post Office, Baroda
2. Shri Vinay Kr. Yadav, -do-
Baroda.
3. Shri Vinay Kr. Yadav, -do-
Baroda
4. Shri Rakesh Kr. Yadav, -do-
Baroda
5. Smt. Vandana Yadav, -do-
Baroda
6. Smt. Vandana Yadav, -do-
Baroda
7. Smt. Vandana Yadav, -do-
Baroda
Appellant by :- Smt. Urvashi Shodhan, AR
Respondent by:- Shri M. C. Pandit, Sr. DR
ORDER
Per Bench.
These are seven appeals for different assessment years filed by three assesses - three by Shri Vinay Kumar Yadav, one by Shri Rakesh Kumar Yadav and three by Smt. Vandana Yadav, against confirmation of levy of penalty under section 271(1)(c) of the Income-tax Act, 1961.
2. The facts of the case are that there is a firm by the name M/s Vivek Roadlines, in which four persons -namely Shri Vinay Kumar Yadav, Shri Rakesh Kumar Yadav, Smt. Vandana Yadav and Shri Sunil Kumar Yadav, were partners. During the course of assessment proceedings of the firm for Asst. Year 1995-96, the AO noticed that there were opening credit entries in the capital account of the partners in kind viz. trucks introduced in the firm, respectively valuing at Rs.4.45 lacs, Rs. 4.0 lacs, 8.70 lacs and Rs.3.5 lacs totaling to Rs.20.70 lacs. In addition, there were cash credit entries aggregating to Rs.11.83 lacs in the names of these four partners in the books of the firm. The firm failed to produce any evidence in support of the capital introduction of Rs.11.83 lacs. The assessment was completed under section 144 on 23.09.1998 and was subsequently set aside by ld. CIT(A)-III, Baroda on 31.03.1999. In the set aside proceedings opportunities were given to the assessee firm as well as partners but introduction of cash amounting to Rs.11.83 lacs was not explained and accordingly this sum was assessed in the hands of the firm on substantive basis under 2 section 68 and on protective basis in the hands of the four partners by taking a recourse under sec. 147. Ld. CIT(A) confirmed the assessment on substantive basis in the hands of the partners but also accepted the explanation to the extent of Rs.9,62,610/-. The matter traveled to the Tribunal which deleted the addition from the hands of the firm entirely but confirmed the addition in the hands of the partners by partially reversing the order of ld. CIT(A) as under :-
Sl.No. Name of the partner Addition upheld by the
Hon.ITAT for Asst. Year
1995-96
1. Shri Vinay Yadav Rs.2,50,000/- para 24(i)
2. Smt. Vandana Yadav Rs.Nil -para 16
3. Shri Sunil Yadav Rs.1,55,000/- para 31(i)
4. Shri Rakesh Yadav Rs.1,50,000/- para 27(i)
3. In addition to cash credit in respect of which the addition was confirmed in the hands of partners as above, there was introduction of capital in kind by the partners in the firm. This transfer in kind, violated the provisions of section 45(3). The difference of value of the trucks credited in the capital account and written down value of the trucks was brought to tax. Though the addition was deleted by the ld. CIT(A) but was restored by the Tribunal as under :-
Sl.No. Name of the partner Addition made u/s 45(3) as upheld by the Hon. ITAT for Asst. Year 1995-96
1. Shri Vinay Yadav Rs.1,00,000/- para 24(ii)
2. Smt. Vandana Yadav Rs.2,60,000/- para 17
3. Shri Sunil Yadav Rs.1,40,000/- Para 31(ii)
4. Shri Rakesh Yadav Rs.2,80,000/- para 27(ii) 3
4. In addition to application of provisions of section 45(3), the AO had further found investment in the trucks made by the partners. Following additions were confirmed by the Tribunal in respect of investment in the trucks:-
Sl.. Name of the partner Addition u/s 69 as Addition u/s 69 as No. confirmed by ITAT Asst. confirmed by ITAT Asst.
Year 1995-96 Year 1994-95 1. Shri Vinay Yadav - Rs.2,37,500/- para 20 2. Smt. Vandana Yadav - Rs.2,62,500/- para 13 3. Shri Sunil Yadav Rs.1,24,600 para 31(ii) - 4. Shri Rakesh Yadav Rs.1,26,500 para 28 -
5. Fourth item of addition relates to addition under section 44AE. The partners had not declared any income from truck plying which was computed in accordance with the provisions of section 44AE. The Tribunal finally confirmed the following additions in the hands of the partners:-
Sl.. Name of the partner Addition u/s 44AE Addition u/s 44AE as Addition u/s 44AE No. as confirmed by confirmed by ITAT as confirmed by ITAT Asst. Year Asst. Year 1994-95 ITAT for Asst.
1995-96 Year 1996-97 1. Shri Vinay Yadav - Rs.4,000 para 21 24,000/- 2. Smt. Vandana Yadav - Rs.28,000 para 14 - 3. Shri Sunil Yadav Rs.24,600 - - 4. Shri Rakesh Yadav Rs.24,000 - 24,000/-
6. In addition to these four items AO noted in the case of Smt. Vandana Yadav an investment of Rs.4 lacs was further made in the purchase of the truck in Asst. Year 1992-93 which was not satisfactorily explained. The Tribunal, however, gave the benefit of probable 4 accumulated savings of Rs.1 lac and confirmed the addition of Rs.3 lacs under section 69.
7. The AO initiated penalty proceedings under section 271(1)(c). In response to show cause notice a common reply was furnished which is reproduced by the AO in his penalty order. For the sake of convenience we reproduce the same as quoted by the AO in the penalty order in the case of Vinay Kumar Yadav for Asst. Year 1995-96 which is as under :-
"I am in receipt of letter dated 6-5-2005 for penalty proceedings U/s,271(1)(c) for A.Y. 95-96. Relevant facts of the case are as under:
Assessee had filed his return at Kanpur declaring total income of Rs.l0000/-, The Assessing Officer, Baroda has initiated penalty proceedings U/s.271(1)(c} on the addition made in the assessment order. The details is as under:
Addition U/s.69 ; 437500 U/s.44AE : 4000 Total addition : 441500 Agr. income : 20000
The assessee has preferred appeal to Hon'ble CIT(A) and against the order of CIT(A) appeal was preferred to the Hon'ble ITAT and against the order of CT(A) Department has also filed appeal to Hon. lTAT and assessee has filed Cross objection against the appeal filed by the department.
AO disbelieved the assessee's explanation and has added Rs.437500 and also estimated U/s.44AE Rs.4000/- as income of the assessee.
Relevant observations of the ITO in order is read as under:
For Addition U/s.69;
The sources of funds for investments in truck were verified at length during the course of assessment proceedings in the case of M/s Vivek Roadlines and it was found that assessee was unable to explain source of these investment. It is therefore decided (refer para 10 of asstt. order of M/s Vivek Road lines) to add the amount of investment of Rs.437500/- in the total income of Asst. Year 1994-95 u/s 69 of the Act in the case of assessee. An addition of Rs.437500/- is therefore made u/s 69C of the IT Act, 1961 to the total income of the assessee."
After it the assesses reproduced the order of Hon. C1T(A) which has no relevance at this stage as he said order stands merged with the order of Hon'ble ITAT. Further, 5 the assessee has also objected vide reply dated 9-6-2005 against levying of penalty U/s.271(1)(c). The said reply is reproduced below.
"Penalty U/s.271(1)(c) should not be levied because of the following facts.
Nowhere the Id, ITO has pointed out that the addition will he treated as a concealed income or inaccurate particulars of income attracting penalty u/s 271(1)(c) of the Act. It is only on the page of his order the AO has mentioned that issue show cause nonce for levy of penalty Ui's.271(1)(c) of the Act. "
So, from the above it is clear that the proceedings were initiated without recording the requisite satisfaction.
The assessee is a partner in the firm M/s Vivek Roadlines. The sources of income is from the and income from truck plying, The AO, Baroda has initiated penalty proceedings U/s.271(1)(c) on the additions made in the assessment order. Details is as under:
Addition U/s.69 ; 437500 U/s 44AE : 4000 Total addition : 441500 Agr. income : 20000
Assessing officer disbelieved the assessee's explanation and has added Rs.4,37,500 and also estimated u/s 44AE Rs.4000/- as income of the assessee.
For additions u/s 69 The sources of funds for investments in truck were verified at length during the course of assessment proceedings in the case of M/s Vivek Roadlines and it was found that assessee was unable to explain source of these investment. It is therefore decided (refer para 10 of asstt. order of M/s Vivek Roadlines) to add the amount of investment of Rs.437500/- in the total income of Asst. Year 94-95 u/s 69 of the Act in the case of assessee. An addition of Rs.437500/- is therefore made u/s 69C of the IT Act 1961 to the total income of the assessee.
Addition was made on account of addition u/s 69. The assessee explanation that it was reflected in the books of accounts maintained by him viz. receipt and payment account, capital account and balance sheet for each financial year. The AO vide his order made an addition of the amount of Rs.461500/- in the total income and passed the order.
So from the above, it is dear that nowhere the ld IT has pointed out that the addition he treated as concealed income or inaccurate particulars of income attracting penalty U/s.271(1)(c) of the Act. it is only on the last page of his order the AO has mentioned that show cause notice fur levy of penalty u/s 271(l)(c) of the Act.
6The provisions of sec.271(1)(c) of the Income-tax Act, 1961 contemplate recording of a satisfaction by the AO which would form the basis of discretions exercisable by such authority under the provisions. The discretion that is indicated by the legislature by using the expression "may" is of wide connotation. It is settled cannot of interpreted jurisprudence that the discretion vested in the authorities performing particulars quasi judicial or judicial functions has to be exercised for just and proper reasons and in consequence with the settled principles of law.
So, from the above. it is clear that proceedings were initialed without recording the requisite satisfaction "
Reliance is placed on the judgement of CIT vs. BTR Sharm, Delhi, reported in (2005), 275 ITR 303. Head note of the case is read as under :
Penalty -Concealing of income - Assessing Officer must record his satisfaction that there has been concealment of income - Assessment order not stabling concealment or furnishing- No evidence of concealment- Penalty cannot be levied- Income Tax Ad 1961 Sec. 271(1)(c) The Hon. Delhi High Court in the case of C1T Vs. Ram Commercial Enterprises Ltd. (2000) 246 ITR 568 and Diwan Ennterprises (2000) 246 ITR 571 where after discussing the matter at some length, the court held as under (page 578):
In spite of the above said plea of the petitioner having been rejected, the penalty imposed U/s.271{1)(c) has still to be set aside though for a different reasons and because the very foundation for initiation of the penalty proceedings is conspicuous by its absence. The opening clause of sub-section (1) of section 271 itself contemplates finding as regard satisfaction of availability of grounds under clause © being recorded during the assessment proceedings. Recently in CIT vs. Ram Commercial Enterprises Ltd. (ITC No.13 of 1996 decided on October 8, 1998 since reported in (2000) 246 ITR 568 (Delhi) following the law laid down by their Lordships of the Supreme Court in DM Manasvi vs. CIT (1972) 86 ITR 557 and CIT vs. S.V. Angidi Chettiar (1962) 44 ITR 739 (SC) we have held that unless requisite satisfaction was recorded in the proceedings under the Act which would mean the assessment proceedings the jurisdiction to initiate the penalty proceedings could not have been exercise. Satisfaction has to be before the issue of issue or initiation of any steps for imposing penalty. In the case at hand we find the AO having nowhere recorded till the conclusion of the assessment proceedings his satisfaction that the assessee had concealed the particulars of his income or furnished inaccurate particulars of such income. This is a jurisdiction defect which cannot be cured. The initiation of the penalty proceedings was itself bad and, consequently, all the subsequent proceedings leading upto the passing of the penalty order must fail. CWP No.3869 of 1997 is therefore, liable to be allowed.
It is clear from the above referred judgment that the consistent view of this court has been that the AO is under an obligation to record satisfaction prior to the initiation of the penalty proceedings in terms of section 271(1)(c) of the Act. The order of the AO should apparently show that there is application of mind. Application of mind can only be gathered by the reasons stated in the order and reference to other records may not be very relevant for this purpose. The satisfaction contemplated u/s 271(1)(c) of 7 the Act may be subjective built it must be arrived at objectively so that the underlining of these provisions which would require the strict construction. The provisions being penalty in nature, would stand frustrated.
In view of the above legal position, I request your honor to cancel the notice U/s.271(1)(c) and not to levy penalty U/s.271 (1)(c)"
8. The AO considered the reply but rejected it and levied the penalty in respect of seven cases the amount of addition sustained and final amount of penalty is summarised as below:
Name of the assesses ITA No, Additions on which Additions confirmed Final amount of
penalty initialed by ITAT penalty
Sunilkumar Yadav 1941/06 u/s 68 - Rs. 3, 55, 000/- Rs, 1,55,000/- Rs, 1.79,800/-
Legal Representative u/s 69 - Rs. 1,24, 600/- Rs. 1,24. 600/- Vinaykumar Yadav AY u/s 45(3)-Rs.1,40,000/- Rs. 1,40,000/-
1995/96 u/s.44AE-Rs.24, 000/- Rs, 24, 000/-
Vinaykumar Yadav 1942/06 u/s 69 - Rs. 4, 37, 500/- Rs. 2, 37, 500/- Rs. 86, 800/-
A. Y. 1994/95 u/s 44AE-Rs. 4,000/-/- Rs. 4, 000/-
Vinaykumar Yadav 1943/06 U/s 69-Rs, 3, 50.000/- Rs, 2, 50, 000/- Rs. 1,31,400/-
A. Y. 1995/96 u/s 45(3)-Rs, 1,00,000/- Rs. 1,00,000/-
Name of the aasessee 1TA No. Additions on which Additions confirmed by Final amount of
penalty initiated ITAT penalty
Rakeshkumar Yadav 1944/06 u/s 68 - Rs. 3,50, 000/- Rs. 1,50, 000/- Rs, 1,64,200/-
A. Y. 1995/96 u/s 69 - RS. 1,48. 500/- Rs. 1,26, 500/-
u/s45(3)-R^2, 80, OGQ/- Rs. 1,00,000/-
u/s44AE-Rs, 24,000/'- Rs. 24,000/-
Vandana Yadav 1945/06 u/s 69 - Rs. 4, 00, 000/- Rs. 3, 00, 000/- Rs. 1,55, 200/-
A. Y. 1992/93
Vandana Yadav 1 946/06 u/s 69 - RS. 4, 62, 500/- Rs, 2, 62, 500/- Rs, 1, I4.700/-
A.Y. 1994/95 u/s 44AE-Rs,28,000/' Rs 28, 000/-
Vandana Yadav 1947/06 u/s 69 -Rs. 1:28,000/- Deleted Rs. 90, 200/-
A. Y, 1995/96 u/s 45(3|-Rs.2.60,000/- Rs.2, 60,000/-
8
9. The ld. CIT(A) confirmed the levy of penalty; the reasons advanced by him are summarised below :-
(1) During the course of assessment proceedings of the firm M/s Vivek Road-lines several opportunities were afforded to the assessee. Number of show cause notices were issued but no compliance was made to explain the nature and source of investment in the truck or in respect of cash credits.
(2) The capital account of the partners did not reflect basic details such as date, amount and mode of receipts of Rs.11.83 lacs. Similarly details regarding introduction in the form of truck into capital account were also not available. In response to show cause notice issued by the AO and even after lot of opportunities given, no details of investment in the truck or in respect of cash credits were given. No explanation was offered as to what detained the assessee from furnishing such basic details.
(3) Initially the partners sought to explain the funds to the tune of Rs.23 lacs in cash as accumulated with them over a period of 13 years from FY 1981-82 to 1993-94 from earnings of business, agriculture, marriage gifts & other gifts and tuition. Thus there was according to the assessee progressive figures of accumulation of funds.
(4) Thereafter the four assesses changed their stand and tried to explain the source of funds for investment in their capital account as repayment of loans earlier given by them to friends/relatives, personal savings, income of HUF or trust of the partners. The new stand was incompatible with the stand earlier taken and was concocted and fictional. No evidence in support of various statements and explanations were filed. In respect of claim of agricultural income no evidence in the form of bill for sale of agricultural commodities, etc. were filed. In the return of income in Asst.
Year 1994-95 to 1996-97 agricultural income only to the extent of Rs.14,500/- to Rs.22,000/- in the cases of Vinay Kr. Yadav, Sunil Kr. Yadav and Shri Rakesh Kr. Yadav were declared whereas agricultural income to the extent of Rs.50,000/- annual was claimed. In the case of Vandana Yadav no evidence of her giving tuition was filed except some letters from guardians from few pupils. No evidence in respect of gift on marriage etc. were filed and they were merely self-serving statement. In respect of gift no confirmation letters were filed from the donors.
9(5) The story of having accumulated cash of Rs.23 lacs over a period of 13 years and kept in hand, despite all banking facilities is not believable.
(6) It is incorrect to say that additions sustained are merely on estimate basis because Tribunal has given relief by taking into account the possibility of assessees' having received some gifts or having some savings.
(7) Even in the penalty proceedings no evidence of assesses having past savings was filed.
Ld. CIT(A) thereafter discussed various authorities referred to by the ld. AR for the assessee and met out successfully that they are not applicable to the facts of the present case.
10. Before us ld. AR for the assessee practically repeated the same arguments as were taken before ld. CIT(A). To summarise they are as under :-
(1) Addition sustained by the Tribunal are merely on estimate basis and no penalty can be levied in respect of addition sustained merely on estimate basis.
(2) Secondly, the assessees had substantial evidence of having agricultural income and past savings before the Tribunal but that does not mean that assessee does not have savings to the extent claimed. The explanation furnished by the assessee is bona fide and merely it is not accepted, penalty should not be levied. For different propositions, ld. AR relied on following authorities :-
(1) Addition sustained in quantum proceedings no basis for confirming penalty:10
125 ITR 184 (MP), 131 ITR 619 (Raj), 138 ITR 682 (Bom), 153 ITR 215 (Mad), 113 ITD 133 (SB( (Ahd), 18 DTR 358 [Chennai (Trib)] (2) Explanation offered not accepted is no basis for confirming penalty 257 ITR 355 (Guj), 79 ITD 26 ™(Ahd) (3) No recording of satisfaction by AO of concealment 246 ITR 568 (Guj), 275 ITR 571 (Del), 309 ITR 143 (Del) (4) Addition sustained on estimation 249 ITR 125 (Guj), 303 ITR 53 (P & H) SLP dismissed, 308 ITR 18 (St.) SC) (5) Bona fide belief in respect of genuine claim 302 ITR 43 (P & H) (6) Initiation of penalty proceedings without specifying whether assessee is guilty of concealment of income or guilty of furnishing inaccurate proceedings 282 ITR 642 (Guj), 122 ITR 306 (Guj)
11. Against this, ld. DR submitted that it is incorrect to say that additions were made merely on estimate basis. There were definite investments by the partners in the firm and there is no question of any estimate therein. It was only the source which was not fully explained and accordingly the Tribunal had partially accepted the source of investment. Therefore, those authorities which have held that no penalty can be levied if income is estimated would not be applicable here because income is assessed on definite basis, it is only the explanation of investment which was partially accepted. Thus in respect of part of investment for which 11 explanation is not accepted the penalty is leviable under explanation -IB to section 271(1)(c).
12. We have considered the rival submissions and perused the material on record. In order to understand the nature of addition, we may refer to the order of the Tribunal in ITA No.2074/Ahd/2002 and others in the case of M/s Vivek Road-lines and its partners decided on 29.11.2004. In the case of Smt. Vandana Yadav for Asst. Year 1992-93 the issue was about investment of Rs. 4 lacs by her in the purchase of truck on 5.10.1991. The Tribunal accepted the accumulated savings of Rs.1 lacs and sustained the addition of Rs.3 lacs which remained unexplained. In her case for Asst. Year 1994-95 the Tribunal accepted that for investment of Rs.4,62,500/- in purchase of new trucks in Asst. Year 1994-95 she would have accumulated savings of Rs.2 lacs only. Accordingly addition to the extent of Rs.2,62,500/- was confirmed. In her case for Asst. Year 1995-96 computation of capital gains under section 45(3) was confirmed at Rs.2,60,500/-.
13. In the case of Shri Vinay Kr. Yadav for Asst. Year 1994-95, the issue was investment of Rs.4,37,500/- in the purchase of truck in January, 1994. The Tribunal accepted accumulated savings of Rs.2 lacs and balance of Rs.2,37,500/- remained unexplained. In his case for Asst. Year 1995-96 the issue was investment of Rs.3,50,000/- as unexplained investment in the firm. The Tribunal accepted accumulated savings of Rs.1 lacs and treated Rs.2,50,000/- as unexplained.
14. In the case of Shri Rakesh Kr. Yadav for Asst. Year 1995-96 the issue was investment of Rs.3,50,000/- with the firm M/s Vivek Road- lines. The Tribunal accepted accumulated savings at Rs.2 lacs and 12 sustained the addition of Rs.1,50,000/-. The addition of Rs.2,80,000/- was also sustained being capital gains taxable under section 45(3). For Asst. Year 1995-96 another issue was of investment of Rs.1,26,500/- in the purchase of truck. Since accumulated savings of Rs.2 lacs was already considered in his hands no further benefit was given and entire investment of Rs.1,26,500/- was sustained as unexplained investment.
15. In the case of Smt. Vandana Yadav the first issue was an addition of Rs.50,000/- being investment in the firm. It was explained out of repairs and job work and agricultural income. The Tribunal accepted savings at Rs.2 lacs and sustained addition of Rs.1,55,000/-. Addition under section 45(3) for Rs.1,40,000/-was also sustained. In respect of investment in the trucks entire addition of Rs.1,24,000/- was sustained as no further sum was available for investment as entire accumulated capital of Rs.2 lacs was already considered while accepting part explanation for Rs.3,50,000/-.
16. The assessee was not able to substantiate the explanation in respect of investment in trucks or any cash investment in the firm or why income from the directors was not declared which was finally estimated under section 44AE. It is a case where investment has been partially treated as explained and partially treated as not explained. The income is not estimated as claimed by the ld. AR for the assessee but it is the investment in respect of which explanation was partly accepted. It is for the assessee to show that it had definite and reliable evidence to show accumulated savings to the extent for which investment is made in the firm by the partners.
1317. A perusal of penalty order reveals that AO has invoked explanation
-1 to section 271(1)(c). The ld. CIT(A) also held that explanation-1 is applicable on the facts of the present case. Therefore, we are to examine this aspect. For the sake of convenience we reproduce section 271(1)(c) explanation-1 as under :-
"Sec. 271(1) -If the Assessing Officer or the Commissioner (Appeals) [or the Commissioner] in the course of any proceedings under this Act, is satisfied that any person -
(a).......
(b).......
(c) has concealed the particulars of his income or furnished inaccurate particulars of such income, or
(d)......
He may direct that such person shall pay by way of penalty -
Explanation -1 -Where in respect of any facts material to the computation of the total income of any person under this Act,-
(A) such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner(Appeals) or the Commissioner to be false or (B) such person offers an explanation which he is not able to substantiate and [fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him], Then the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section be deemed to represent the income in respect of which particulars have been concealed."
In the present case it is quite clear that assessee has furnished explanation and there is no finding that this explanation is false. Therefore, in our opinion Explanation-1A would not be applicable on the facts of the present case. For invoking Explanation-1B the AO has to show that all the three ingredients of that clause are simultaneously satisfied. They are
-(i) the assessee offers an explanation which he is not able to substantiate; (ii) he fails to prove that such explanation is bona fide and
(iii) that all the facts relating to the same material to the computation of 14 total income have been disclosed by him. From a combined reading of quantum orders and penalty orders it has to be judged whether all the three ingredients are satisfied and accordingly deeming fiction created in explanation-1B can be invoked. Regarding the first ingredient of explanation -1B, we find that explanation of the assessee is that they had past savings from agriculture, earning of business, marriage gifts, other gifts and/or from tuition but was not really substantiated in the sense that acceptable evidences in relation to the claim of savings were not furnished. Had there been so it would not have been difficult for the Tribunal to accept the accumulated savings and gifts and accept the explanation of the assessee about source and investment in the trucks and cash introduced in the firm. The addition has been sustained only in respect of that portion of alleged savings which the assessee was not able to substantiate. Therefore, it will not be legally correct to hold that in penalty proceedings assessee was able to substantiate the explanation in respect of entire investment when in quantum proceedings a finding has come that assessee was not able to substantiate his explanation of the savings to the extent for which additions were sustained. Accordingly, the first limb of clause (B) of explanation-1 is clearly not satisfied. Regarding the second limb we find that explanation of the assessee that he had accumulated savings from business, agriculture, marriage gifts, other gifts and/or tuition would not be bona fide because he made a turn around and furnished another explanation that capital account in the firm showing introduction of truck and of cash was repayment of loans earlier given by partners to friends and relatives, personal savings, income from HUF or trust of the partners. Had the assessee stuck to only one explanation then probably there would not have been any material to hold against the assessee that his explanation is not bona fide. Furnishing another explanation would clearly show that earlier explanation furnished by him 15 was not bona fide. In either case adequate and acceptable evidences were not furnished. It was for this reason that the Tribunal in quantum proceedings allowed partial relief by accepting some accumulated savings without referring to any source thereof. Therefore, in our considered view second limb of clause (B) of Explanation-1 is also not satisfied. Regarding third limb of explanation 1(B) we find that assessee has failed to furnish all the material facts relating to introduction of capital in the firm and investment in the truck. In fact it failed to indicate in the return of income that capital gain is chargeable on transfer of trucks to the firm by virtue of section 45E and also that income from plying of the truck was required to be disclosed in the return of income which was ultimately assessed in accordance with section 44AE. Here material fact would also mean income assessable to tax but not disclosed like in the present case being capital gains and income from plying of the trucks. In respect of investment in truck and introduction of cash in the firm complete evidences of accumulated savings was not disclosed inasmuch as there was no evidence of any bank account where accumulated savings could be kept. In fact there is an apparent failure of the assessees to prove that all the material facts relating to the computation of their income have been disclosed by them. Accordingly in our considered view explanation 1(B) to section 271(1)(c) is clearly attracted in respect of all the additions sustained by the Tribunal.
18. Now coming to the authorities referred to by the assessee before us, we notice that decision of Hon. M.P. High Court in Sohanlal G. Sanghi vs. Addl.CIT (1980) 125 ITR 184 (M.P.), Addl. CIT vs. Aggarwal Misthan Bhandar 131 ITR 619 (Raj), CIT vs. B.S. Badve & Anr 138 ITR 682 (Bom), CIT vs. J.K.A.Rajappa Chettiar 153 ITR 215 (Mad) relating to the period where deliberate or conscious concealment of income was 16 required to be established by the Revenue before levy of penalty. After amendment in the law w.e.f. 1.4.1964 and after decision of Hon. Supreme Court in Union of India & Ors. Vs. Dharmendra Textile Processors & Ors (2008) 306 ITR 277(SC) wherein it is held that penalty under section 271(1)(c) is a civil liability and authorities are not required to prove the mens rea the requirement of proving deliberations or mens rea is no longer necessary. Accordingly, all these authorities referred to by the ld. AR would be of no help. The proposition that additions sustained in quantum proceedings are no basis for confirming penalty is equally counter balanced by the argument that reasoning given for sustaining addition in quantum proceedings do constitute relevant evidence for considering to sustain the penalty.
19. The ld. AR further referred to the decision of Hon. Gujarat High Court in Sarabhai Chemicals (P) Ltd. vs. CIT (2002) 257 ITR 355 (Guj) for the proposition that where explanation offered by the assessee is not accepted then it will not be a basis for conferring the penalty. In that case business was transferred to wholly owned subsidiary. Agreement provided for payment of interest on unpaid purchase price. Through a resolution date of accrual of interest was shifted. On the basis that there was no finding that resolution was sham or bogus Hon. High Court held that all the relevant particulars on the basis of which income of the assessee can be computed were disclosed by the assessee and a claim was put up that interest could not be said to be accrued.
20. In the present case, facts are different. The assessee failed to substantiate the explanation in respect of investment made by him and also made a turn around to offer another explanation. It was not the case where all the facts relating to computation of income are disclosed and a 17 claim of exemption is made as was the case in Sarabhai Chemicals (P) Ltd. (supra).
21. The assessee cited authorities for the proposition that AO has not recorded satisfaction before initiating penalty proceedings. These authorities are as under :-
(1) CIT vs. Ram Commercial Enterprises Ltd. 246 ITR 568 (Del), (2) 275 ITR 571 (Del) (3) 309 ITR 143(Del) These authorities are no longer applicable in view of section 271(1)(1B) inserted by Finance Act, 2008 with retrospective effect from 1.4.1989.
22. Ld. AR further referred to the authorities for the proposition that penalty cannot be levied if addition is sustained on the basis of estimation. They are -
(1) National Textiles vs. CIT 249 ITR 125 (Guj)
(2) CIT vs. Sangrur Vanaspati Mills Ltd. 303 ITR 53 (P& H)
wherein SLP has been dismissed 308 ITR 18 (St)(SC)
23. We have already discussed above that it is not a case of income estimated but it is a case where definite investment were found recorded in the books of account and for which no satisfactory explanation was forth-coming. They are taxable under section 69 to the extent not found satisfactory. It is only a case of estimation of accumulated savings and not a case of estimation of income. Accordingly these authorities are not applicable to the facts of the case.
1824. The next proposition which is canvassed by ld. AR is that where there was a bona fide belief of the assessee in respect of the claim which was genuine no penalty could be levied. For this ld. AR relied on the decision of Hon. Punjab & Haryana High Court in CIT vs. SSP (P) Ltd. 302 ITR 43 ( P& H). However, we are of the view that claim of the assessee that it saved out of agricultural income or out of gifts etc. could not be said to be bona fide because it has changed the stand and submitted another explanation that it was return of loans from the friends and relatives to whom assessees had given money earlier.
25. The last proposition relied on by the ld. AR is that initiation of penalty proceedings without satisfaction that assessee is guilty of concealment of income or guilty of furnishing inaccurate particulars of income will not be valid. For this proposition ld. AR relied on the decisions of Hon. Gujarat High Court in New Sorathia Co. vs. CIT 282 ITR 642 (Guj) and CIT vs. Manu Engineering Works 122 ITR 306 (Guj).
26. In our considered view these authorities would no longer be applicable in view of the decision of Hon. Supreme Court in the case of K.P. Madhusudanan vs. CIT (2001) 251 ITR 99 (SC) wherein it has been held that provisions of section 271(1)(c) includes explanation also. But in any case AO has invoked the provisions of Explanation-1 to section 271(1)(c), therefore, on facts also this proposition canvassed by ld. AR would not be applicable. The ld. AR further relied on authorities referred to by the assessee before ld. CIT(A) but she could not point out as to how ld. CIT(A) was in error in distinguishing all those authorities and holding that they are not applicable to the facts of the present case. We accordingly uphold the decision given by ld. CIT(A) in not relying upon the authorities cited upon by the assessee before him.
1927. Thus summing up, we hold that the four assessees are liable for penalty under section 271(1)(c) read with Explanation 1(B).
28.. In the result, all the appeals filed by the assessee are dismissed.
Order pronounced in Open Court on 18/2/2010
Sd/- Sd/-
(T.K. Sharma) (D.C.Agrawal)
Judicial Member Accountant Member
Ahmedabad,
Dated : 18/2/
2010
Mahata/-
Copy of the Order forwarded to:-
1. The Appellant.
2. The Respondent.
3. The CIT(Appeals)-
4. The CIT concerns.
5. The DR, ITAT, Ahmedabad
6. Guard File.
BY ORDER,
Deputy/Asstt.Registrar
ITAT, Ahmedabad
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