Income Tax Appellate Tribunal - Mumbai
Narendra J. Ashar , Navi Mumbai vs Assessee on 24 June, 2008
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES, 'B', MUMBAI
BEFORE SHRI R V EASWAR, PRESIDENT AND
SHRI J SUDHAKAR REDDY, ACCOUNTANT MEMBER
S.No I T A No. Assessment Appellant Respondent
Year
1. 1757/Mum/2009 2003-04 Narendra J Ashar HUF, Deputy Commi-
Navi Mumbai ssioner of Income
(PAN: AAAHN2029J) Tax, Central Circle
23, Mumbai
2. 1758/Mum/2009 2001-02 Mr Narendra J Ashar, -do-
Navi Mumbai
(PAN: AABPA1921H)
3. 1759/Mum/2009 2002-03 -do- -do-
4. 1760/Mum/2009 2003-04 -do- -do-
5. 1761/Mum/2009 2004-05 -do- -do-
6. 1762/Mum/2009 2005-06 -do- -do-
7. 1763/Mum/2009 2006-07 -do- -do-
8. 1764/Mum/2009 2000-01 Mr Rajal Narendra -do-
Ashar, Navi Mumbai
(PAN: AABPA1919K)
9. 1765/Mum/2009 2003-04 -do- -do-
10. 1766/Mum/2009 2004-05 -do- -do-
11. 1767/Mum/2009 2005-06 -do- -do-
12. 1768/Mum/2009 2003-04 Mrs Usha Narendra -do-
Ashar, Navi Mumbai
(PAN: AABPA1918J)
13. 1769/Mum/2009 2004-05 -do- -do-
Appellants by: S/Shri G C Srivastava / Girish Dave / H S Raheja
Respondent by: S/Shri Vikram Gaud / S S Rana
ORDER
PER BENCH:
These are a batch of thirteen appeals directed against penalties imposed under section 271(1)(c) of the Income Tax Act, 1961, consequent to block assessments made on the respective assessees. In the case of Mr Narendra J Ashar (individual), there are six appeals and one appeal in his HUF status. In the case of Mr Rajal Narendra Ashar, who is the son of Mr Narendra J Ashar there are four appeals and in the case of Mrs Usha Narendra Ashar there 2 ITA No: 1757 to 1769/Mum/2009 are two appeals making a total of thirteen appeals in all. Since all of them were heard together and involve common facts, they are disposed of by a single order for the sake of convenience.
2. The common facts giving rise to the appeals may be briefly noticed. Typically we can take the case of Narendra J Ashar (HUF) in ITA No: 1757/Mum/2009 as a representative case. All the assessees were carrying on business in Dates. The above particular assessee was carrying on the said business in the name and style of M/s Bait AL Tamur at No.E-42, APMC Market, Vashi. There was a search operation in the premises under section 132 of the Act on 25.11.2005. In the course of the search certain documents were seized which are referred to in the assessment order as Annexure 2. The pages in these documents contained the purchase bills of wet Dates from various parties. In all there were eleven bills from six parties. The search party also found some original PAN cards and photos of some persons. It would appear that a statement was recorded on oath from Mr Rajal N Ashar and he was asked to peruse the copies of the ledger accounts of the eleven parties in the books of account pertaining to the last few years and explain the said bills since they did not carry the Sales Tax Registration Number and they also bore the same address and he was also asked to state whether those parties can be produced for verification. Mr Rajal N Ashar gave the following answer: -
"Ans: The above bills are purchase bills for which I may not be able to produce the parties as they are non existent. The goods mentioned therein were not actually purchased but the bills were arranged to inflate the purchases. The amount reflected in the ledger account amounting to Rs.214.7 lacs represents 3 ITA No: 1757 to 1769/Mum/2009 my accounted income, and I therefore offer the same for taxation in a period appearing in the ledger account. I would also like to offer an additional amount of Rs.7 lacs towards gold chain, bangles lying in the locker no.1466 at India Safety Vault, Kemps Corner standing in the name of Usha N Ashar. I would further like to offer sum of Rs.28.30 lacs towards other assorted jewellery lying in the three lockers attached by you lying at home which I may not be able to tally and towards other miscellaneous expenses, investments or discrepancies in respect of my income/assets, and of the family and also towards any item I am not able to explain from the loose paper seized at our office premises, E-42, New Mumbai and other office at Mumbai, Residence which could relate to either me or the family member in respect of any of the previous years".
During the search the assessee filed a declaration which was given to the search wing declaring a sum of Rs.2.50 crores as income of all the four assessees. The breakup of the disclosed income was given both assessee-wise as well as assessment year-wise. A copy of this declaration has been filed before us in the course of the hearing. This declaration was explained by way of a Note which is reproduced in pages 2 to 4 (Para 3.2) of the assessment order. Briefly stated what was explained in the Note is that the imported Dates generally cost around Rs.10/- to Rs.15/- per kg and after sorting they are sold at prices ranging from Rs.30/- to Rs.60/- per kg. The inferior quality of Dates are sold at prices ranging between Rs.8/- and Rs.10/- per kg. In the past unsupported purchases had been made at rates ranging around Rs.54/- a kg and the correct profit on the sales were not declared. The sales of such superior quality Dates were booked at Rs.10/- to Rs.15/- per kg instead of the higher sale values realized and to balance the sales at higher rates, corresponding purchase bills were taken at Rs.54/- a kg. In 4 ITA No: 1757 to 1769/Mum/2009 short, what was stated in the Note was that the higher sale prices of superior quality Dates were sought to be offset by showing higher purchase prices. It was further stated in the Note that the bills showing purchases at Rs.54/- per kg were taken locally and the assessees were not in a position to fully substantiate the same. The assessees attached a list of such unsupported purchases year- wise and they were offered as income of the respective assessment years forming part of the total declaration of Rs.2.50 crores. Actually the declaration of income on the above basis came to Rs.1,79,88,269/-. In addition to this figure, several items were added in the hands of Mr Narendra J Ashar and Mr Rajal Ashar, such as brokerage payment in cash, income from trading with STC, scrap sales, cash loans, investment in Nerul property and jewellery etc. and after adding all these items the total disclosure came to Rs.2,35,94,143/-. In order to reach the disclosed figure of Rs.2.50 crores, the balancing figure of Rs.14,05,857/- was added as "any other if found" and thus the total disclosed figure of Rs.2.50 crores was reached.
3. Returns of income were filed pursuant to notice under section 153A of the Act, on the above basis. In the course of the assessment proceedings the assessees were asked to produce the details of the working of the undisclosed income on account of bogus transactions along with all supporting documents. It appears that the assessees filed revised returns. The comparative position of the income disclosed in the original and revised returns, assessee-wise and assessment year-wise is as under: - 5 ITA No: 1757 to 1769/Mum/2009
Mr Narendra J Ashar Mr Rajal Narendra Ashar Mrs Usha Narendra Narendra Ashar (individual) Ashar (HUF) A.Y. First Return Revised First Return Revised First Revised First Revised of Income Return of Income Return Return of Return Return of Return Income Income 2000-01 1,07,907 4,43,478 - - - - - -
2001-02 2,62,997 3,38,321 - - - - - -
2002-03 5,36,059 13,20,109 - - - - - -
2003-04 77,91,803 93,25,688 91,440 16,16,634 3,39,018 4,03,533 3,33,059 3,33,059
2004-05 55,84,967 70,37,720 16,98,260 10,69,565 1,91,392 2,41,229 - -
2005-06 2,04,991 10,50,144 10,46,376 4,89,196 - - - -
11,42,88,724 1,95,15,440 28,36,076 31,75,395 5,30,410 6,45,062 3,33,059 3,33,059
It may be seen from the above that whereas in the first returns an aggregate income of Rs.1,79,88,269/- was shown in the aggregate, in the revised returns the income shown was Rs.2,36,68,976/- in the aggregate. As regards the other items there was no change except that no income was disclosed as "any other if found", with the result that the aggregate income disclosed in the revised returns came to Rs.2,68,34,154/-.
4. Assessments were completed under section 153A of the Act by the AO and the additional incomes disclosed in the revised returns were brought to tax as part of the business income of the assessees. The assessments were accepted by the assessees and no appeals were filed. Consequent to the assessments the AO initiated penalty proceedings for concealment of income and called upon the assessees to show cause why penalties cannot be imposed. The assessees submitted that once notices under section 153A were issued, all the assessment or reassessment proceedings which were pending would abate and the returns of income filed in the past are of no consequence with the result that the return filed in response to notice under section 153A is to be 6 ITA No: 1757 to 1769/Mum/2009 treated as the only return filed by the assessee and consequently the income included therein should be taken to have been included voluntarily and since the assessments were made in accordance with these returns, there can be no question of any concealment of income. It is only the addition made by the AO in the assessments, over and above what has been declared as the undisclosed income, which can be considered, if at all, as concealed income for purposes of levying penalty. It was submitted that the assessees were entitled to the benefit of immunity under Explanation 5 to section 271(1)(c) of the Act since all the relevant transactions were recorded in the books of account. It was further submitted that it is only a case of the assessees not being in a position to prove the purchases of Dates on account of anticipated non cooperation from the eleven parties and that for the assessees' inability to prove the transactions in the manner required by the Department no penalty was imposable.
5. The AO did not accept the assessees' submission. According to him the profit on the sale and purchase of Dates had not been disclosed in the original returns of income and since they were disclosed in the returns filed under section 153A, the assessees were liable to penalties for concealment of income. According to him the intention of the law was not to put an honest taxpayer at a disadvantageous position as against a person on whom search action was taken. The AO further pointed out that the assessments were accepted. As regards the assessees' contention that they were merely unable to prove the local purchases due to 7 ITA No: 1757 to 1769/Mum/2009 non cooperation from the parties, and the further contention that no corresponding assets were found during the search, the AO held that even at the time of search the authorities had identified the local suppliers as bogus parties and it was only because of this that the assessees had come forward with further declaration of income and that the absence of any assets representing the concealed income during the search was not relevant in judging the assessees' guilt. As regards the contention that the transactions were recorded in the books of account and therefore the immunity from penalty was available, the AO opined that though they were recorded but they were not properly recorded in the books and that is the reason why the assessees had to come forward with additional disclosure of income. He held that the assessees could not establish the correctness of the recorded transactions in the books of account. He referred to several authorities to conclude that this is a case where additional income had been offered only as a result of the search and, therefore, the assessees were liable to penalty for concealment of income. Accordingly he imposed the following penalties: -
Assessee Assessment Year Penalty (Rs.)
Narendra J Ashar (HUF) 2003-04 1,04,914
Mr Narendra J Ashar 2001-02 1,55,699
(Individual)
-do- 2002-03 1,32,421
-do- 2003-04 4,15,808
-do- 2004-05 37,38,850
-do- 2005-06 23,84,112
-do- 2006-07 2,84,484
Mr Rajal Narendra Ashar 2000-01 2,75,616
-do- 2003-04 28,804
-do- 2004-05 5,60,426
-do- 2005-06 3,60,140
Mrs Usha Narendra Ashar 2003-04 1,06,790
-do- 2004-05 57,418
8 ITA No: 1757 to 1769/Mum/2009
6. The CIT(A) passed orders confirming the levy of penalties. He agreed with the AO that the additions made in the assessments were based on detection of concealed income during the search operation. According to him the disclosure made by the assessees was not an honest disclosure as it came only after the discovery of particulars of income during the search. The CIT(A) also agreed with the AO's conclusion that since the assessees had not properly recorded the purchase transactions in the books of account, they were not entitled to the immunity from penalty offered by Explanation 5 to section 271(1)(c) of the Act. On the question whether the returns filed by the assessees in response to the notice under section 153A should be taken as the first returns because the earlier proceedings which were pending would abate, the CIT(A) held that the original return would be still relevant to see if there was any suppression of income therein vis-à-vis the return filed under section 153A of the Act. He thus agreed with the AO and confirmed the levy of penalties except for a direction regarding the quantum of penalty vis-à-vis the contention of the assessees that it contained certain errors of working.
7. It is against the aforesaid orders of the CIT(A) that all the assessees are in further appeal before the Tribunal. The learned counsel for the assessees took us through the chronological events starting from the search and the various working sheets filed by the assessees in support of the disclosure of income filed before the search authorities as also in the returns filed under section 153A. He also filed a copy of the statement of Mr Rajal N Ashar, son of Mr 9 ITA No: 1757 to 1769/Mum/2009 Narendra J Ashar, said to have been recorded under section 132(4) on 26.11.2005 at 9.30 am. Copies of the eleven bills for purchase of the Dates, which are the bone of contention, were also filed before us. He contended that there was no definitiveness in the passing of the penalty orders in the sense that there was no finding of concealment of income on the part of the assessees. According to him the gist of the penalty orders was merely that the assessees were unable to prove the local purchases in the manner required by the Department for which no penalty can be imposed. It was pointed out that it was only when the Department asked the assessees whether the parties could be produced that the assessees, anticipating that the parties will not cooperate, came forward with the disclosure of income and that should not be taken as an admission of guilt. It was submitted that the parties had been issued PAN cards by the Income Tax Department which was evidence that they were real and existing parties and, therefore, there is no substance in saying that the purchases from them were not genuine. The learned counsel for the assessees submitted that the answer of Mr Rajal N Ashar to Question No.12 in the statement should be read as a whole and the statement therein that the goods were not actually purchased but the bills were arranged to inflate the purchases should be read in context and sought to explain that the statement only meant that the assessees cannot produce the parties or otherwise prove the purchases and in the light of the surrounding circumstances and the PAN cards issued by the Department, the statement cannot be read to mean that the 10 ITA No: 1757 to 1769/Mum/2009 purchases were bogus. The learned counsel for the assessees in this connection drew our attention to page 105 of the Paper Book which is actually the assessment order of Mr Narendra J Ashar (individual) for the assessment year 2001-02. Since the assessment orders are almost identical in all the cases, we may take this as representative of all the assessment orders. The statement referred to by the learned counsel for the assessees is the statement made by the AO in this paragraph of the assessment order that the assessee had booked bogus purchases as well as bogus local sales but the bogus local sales were shown at a lower rate than the cost of purchase and by this method the assessee had booked losses. It was submitted by the learned counsel for the assessees that these are only inferences by the AO but not findings because the assessees at no stage of the proceedings had declared that the sales were bogus. Our attention was drawn to the bills (eleven of them) on the basis of which the assessees had declared additional income. It was submitted on behalf of the assessees that the bills by themselves did not indicate any concealment of income or that the purchases shown in them were bogus. They contained the name and address of the party, the nature of the business, the bill number, description and rate of the goods, telephone numbers, etc. It was further pointed out that no verification was carried out by the Income Tax authorities or the search authorities on the basis of the bills and it was not established by them that the parties were non-existent and it was not even their case that the PAN cards issued to them were wrongly 11 ITA No: 1757 to 1769/Mum/2009 issued. All the bills, it was pointed out, fell in the financial year ended 31.03.2005 and related to the assessment year 2005-06. The assessees had declared the income with reference to the bills of the above financial year in the assessment year 2004-05 but the AO had mechanically accepted and had also imposed the impugned penalties which showed the perfunctory nature of the penalty orders. The learned counsel for the assessees submitted further that no shortage of stock was found during the search and nothing to that effect had been mentioned in the Panchnama and what was referred to as shortage in the assessment order is the regular shortage in the Dates claimed on account of handling, wastage, etc. It was urged that the assessees' offer of additional income was voluntarily made and in good faith and the AO was not in a position to show any incriminating material at the time when the declaration was made. According to the learned counsel for the assessees, apart from the declaration of the assessee, there was no other material before the AO on the basis of which the income could be assessed under section 153A of the Act, and the declaration having been made voluntarily and in good faith and before any detection and without confronting the assessees with any material found during the search, there was no justification for the conclusion that the assessees had concealed their income.
8. It was further submitted by the learned counsel for the assessees that even on the working of the additional income, no dispute was raised by the AO. It was pointed out that when the first declaration was made to the search wing declaring income of 12 ITA No: 1757 to 1769/Mum/2009 Rs.2.5 crores, there was no verification thereof by the AO. Based on this declaration the assessees had filed returns of income under section 153A of the Act. In these returns a particular method of working out the additional income was followed, as explained in the working sheets filed before us. The method followed was to first arrive at the average purchase price of the Dates at Rs.56.51 per kg. These Dates which were purchased for a price of above Rs.55/- per kg were shown to have been sold at the average price of Rs.63.54 per kg. The difference in the average selling and purchase prices came to Rs.7.03 per kg and for 17220 kgs the income offered was Rs.1,21,057/-. It was on this basis that the original declaration as well as the first returns under section 153A were filed. These returns were revised on the basis that the average purchase price of Rs.56.51 per kg was not correct and the correct average was Rs.30.75 per kg only. There was thus a difference of Rs.25.75 per kg and for 17220 kgs, the figure came to Rs.4,43,477/-. This was the figure shown in the revised returns. These figures have been taken by the assessee with reference to the case of Mr Narendra J Ashar (individual) for the assessment year 2000-01. The learned counsel for the assessees pointed out that the revised returns filed under section 153A were prepared and filed on this method in all the cases. The contention of the learned counsel for the assessees, on the basis of the above example, was that the attempt of both the assessees on the one hand and the AO on the other hand was to somehow reach the figure of Rs.2.50 crores which was the declaration made before the search wing. It 13 ITA No: 1757 to 1769/Mum/2009 was pointed out that the focus and attention of the AO was only towards adjusting the figures of additional income in such a manner that somehow the assessees' declared income of Rs.2.50 crores in the returns is consistent with their declaration made before the search wing. He drew our attention to page 2 of the working sheet filed before us and pointed out that the aggregate income declaration in the revised returns was still only Rs.2,36,68,976/- which fell short of Rs.2.50 crores but the assesses chose to stick to the declaration of other items such as brokerage in cash, trading with STC, scrap sales, Nerul property, jewellery, etc. and adding the incomes declared on these counts to the income declaration in the revised returns, the aggregate came to Rs.2,68,34,154/-. In short, what the learned counsel for the assessees submitted was that both parties merely tried different methods of working out the additional income so that the offer of additional income at the time of the search was honoured and it was never in the mind of the AO, at any stage during the assessment proceedings, that the figures have to be verified so as to ascertain their correctness or accuracy and it was also not possible for the AO to do so for the simple reason that there was no material or evidence which had been collected by him either during the search or during the assessment proceedings, on the basis of which the additional income could be assessed as undisclosed income. It was submitted that in any case the AO merely accepted the working produced by the assessees on estimate, without any material or evidence which can hardly give rise to the finding that the assessees concealed their income. 14 ITA No: 1757 to 1769/Mum/2009
9. Having made the aforesaid submissions on facts, the learned counsel for the assessees raised two legal contentions. The first was that on the date of search, i.e. 25.11.2005, the assessments for the assessment years 2003-04 to 2005-06 were pending and those proceedings abated under the second proviso to sub-section (1) of section 153A of the Act, with the consequence that the returns filed originally cannot be looked into for the purpose of comparison with the returns of income filed under section 153A. The further contention is that if those returns cannot be looked into, then the income offered in the returns and the revised returns filed under section 153A having been accepted and the assessments having been completed on that basis, there is no question of any concealment of income. In support of this legal submission, strong reliance was placed on the judgment of the Jharkhand High Court in Abhay Kumar Shroff vs. CIT (2007) 290 ITR 114 (Jharkhand).
10. The second legal contention raised was that the assessee is entitled to the immunity from penalty under Explanation 5 below section 271(1)(c) of the Act. It was submitted that this plea had been raised by the assessee in the letter dated 24.06.2008 written to the AO in reply to the penalty notice, a copy of which is at page 54 of the Paper Book. The argument is applicable to all the assessees and all the assessment years involved in the appeals. It is two-fold. The first plea is that the entries relating to the purchases have been recorded in the books of account and therefore the provisions of Explanation 5(b)(1) below section 271(1)(c) applies and in support of this argument it is pointed out 15 ITA No: 1757 to 1769/Mum/2009 that the books of account have not been rejected by the AO in any of the cases and further the order of the Jabalpur Bench of the Tribunal in ACIT vs. Dulichand Devendra Kumar (1998) 64 ITD 67 (Jab) is cited. The second part of the argument is that Explanation 5(b)(2) below section 271(1)(c) applies and it is submitted that under this provision, the assessee, in order to get immunity from penalty, can file returns including the income for all the years and not merely the income of the year for which the return of income under section 139(1) was yet to be filed. In support of this contention strong reliance was placed on the judgment of the Madras High Court in CIT vs. S.D.V. Chandru (2004) 266 ITR 175 (Mad) and that of the Rajasthan High Court in CIT vs. Kanhaiyalal (2008) 299 ITR 19 (Raj). Reference was also made to the judgment of the Rajasthan High Court in CIT vs. Mishrimal Soni (2007) 289 ITR 77 (Raj) in which case it was held that the disclosure of the income in the returns filed by the assessee need not relate to tangible assets only such as money, bullion, jewellery or other valuable article or thing found in the assessee's possession or control. The alternative submission on this part of the argument was that in any case, to the extent the jewellery declared by the assessee was telescoped into the income, no penalty can be levied even assuming that the judgment of the Rajasthan High Court in CIT vs. Kanhaiyalal cited above is held to be not applicable to the present case.
16 ITA No: 1757 to 1769/Mum/2009
11. On the basis of the above factual and legal submissions, the learned counsel for the assessees strongly urged that the penalties imposed were not justified and should be cancelled.
12. On the other hand the contention of the Department, articulated by Mr S S Rana, the learned CIT DR and Mr Vikram Gaud, the learned Senior DR are as follows. During the search eleven bills relating to six parties for purchase of Dates were found and along with them the original PAN cards and photos of some of them were also found in the search of the residential premises of the assessees. It is noteworthy, according to the Department, that all the bills had the same address, namely, 93/95 Kazi Sayeed Street, Sugar House, 4th Floor, Mumbai 400 003 and even some common telephone numbers. In answer to Question No.9, Mr Rajal N Ashar had stated in the statement recorded under section 132(4) that they have purchased some quantity of wet Dates from the above parties and had asked them to give us the zerox copy of the PAN cards but those parties sent the original PAN cards which have to be returned to them. The photographs, according to Mr Rajal N Ashar, had been sent by those parties to open some Demat accounts but he was not aware why the photographs of the children were sent. According to the Department, this answer creates suspicion about the existence of the parties in the sense that it does not properly explain why their PAN cards and photographs should be found with the assessees. Referring to the answer to Question No.12, which we have already extracted, it was argued that it contained an admission on the part of the assessees that the 17 ITA No: 1757 to 1769/Mum/2009 purchases were not genuine. It was contended that the assessees obviously did not want the Department to carry out investigations into the purchases and having preempted the Department from doing so, it is now not open to the assessees to contend that the purchases have not been found by the Departmental authorities to be non genuine. It was clarified that it is not the case of the Department that the parties to whom PAN cards were issued by the Department never existed, but the argument is that the issue of PAN cards does not necessarily vouch for the genuineness of the transactions which the assessees claim to have had with them. A PAN card, it was clarified, is issued by the Department on application and the issue of a PAN card does not necessarily establish that all the transactions carried out with the holder of the PAN card are necessarily genuine.
13. It was further contended on behalf of the Department that it was open to the AO to assess the entire inflated purchases aggregating to Rs.214.7 lakhs as the assessees' income having regard to the judgment of the Delhi High Court in CIT vs. La Medica (2001) 250 ITR 575 (Del). On the question as to the enquiries conducted by the Department into the local purchases, the learned DR produced letters issued by the AO to the parties under section 133(6) which were all returned unserved, though the addresses were provided by the assessees. According to the learned DR, in the background of the statement of Mr Rajal N Ashar that the parties never existed, it is not surprising that the letters came back unserved on them. This circumstance, according to the learned 18 ITA No: 1757 to 1769/Mum/2009 DR, shows that the parties did not have any transactions with the assessees.
14. With reference to the argument of the learned counsel for the assessees that the additions were made on estimate, the learned DR submitted that three different workings of the additional income had been submitted by the assessees before the search wing as well as the AO, by extrapolating the figures and by adopting different methods of working out the additional income and there was nothing wrong in the AO accepting the final working of the additional income which was also reflected in the returns or the revised returns filed under section 153A of the Act. It was submitted that once concealment is established, the fact that the precise amount of the concealed income cannot be ascertained and an estimate on reasonable basis has to be resorted to, does not mean that there is no concealment. According to the learned DR, the assessee was in the full and complete knowledge of the facts and it was for him to come clean about the additional income to be assessed and inaccuracies in the estimate of the additional income can be no ground to say that there is no concealment. In this connection, the Department contended that a return of income filed under section 153A in response to the notice issued by the AO cannot be revised since there was no provision to do so in the section which was a code by itself. It was contended that the other provisions of the Income Tax Act including section 139(5) which permits a revised return to be filed in certain circumstances apply to an assessment made under section 153A only "so far as may be" 19 ITA No: 1757 to 1769/Mum/2009
as stated in clause (a) of sub-section (1) of section 153A. It was argued that even if section 139(5) is held applicable to an assessment to be made under section 153A, a revised return can be filed only if any omission or wrong statement in the return is discovered by the assessee and the revised return is to be filed within a period of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier. In the present cases, the original returns were filed sometime in October 2006 and the revised returns were filed on 24.12.2007. The revised returns were therefore filed beyond the time and hence not valid. The judgment of the Supreme Court in G C Agarwal vs. CIT (1991) 186 ITR 571 (SC) was cited in support of the proposition. It was further argued that even if the addition is made on estimate, penalty can be imposed so long as concealment of income is established. In support of this contention, the judgment of the Gujarat High Court in CIT vs. Chandra Vilas Hotel (2007) 291 ITR 202 (Guj) and that of the Punjab & Haryana High Court in Vidya Sagar Oswal vs. CIT (1977) 108 ITR 861 (P&H) were cited.
15. In the alternative it was argued by the Department that even if the revised returns were validly filed, they were not filed voluntarily but were filed in the face of enquiries made by the Department and, therefore, they were not bona fide. In support of this submission the learned DR produced a file containing a notice issued on 06.11.2007 by the AO and it was submitted that this was an example of the enquiries launched by the Department and the 20 ITA No: 1757 to 1769/Mum/2009 revised returns filed on 24.12.2007 were prompted by the enquiries and hence were not bona fide. Support was sought to be derived from the judgment of the Supreme Court in the case of K P Madhusudhanan vs. CIT (2001) 251 ITR 99 (SC).
16. With reference to the legal contention taken on behalf of the assessees to the effect that when action is taken under section 132 all earlier pending proceedings abate and the returns filed earlier also abate, the learned DR strongly opposed the same on the basis of the order of the Kolkata Bench of the Tribunal in LMJ International Ltd. vs. DCIT (2008) 22 SOT 315 (Kol) and the order of the Third Member, Ahmedabad Bench in ACIT vs. Kirit Dahyabhai Patel (2009) 125 TTJ (Ahd) (TM) 145. As regards the argument of the assessees that immunity from penalty was available under Explanation 5(2) below section 271(1)(c), the learned DR submitted that the assessee was not entitled to the immunity because the assessees were not found to be the owner of any money, bullion, jewellery or any other valuable article or thing which is a necessary pre-condition for getting the immunity. For this argument also the learned DR drew support from the Third Member order of the Ahmedabad Bench cited above.
17. In addition to the above common arguments, an additional argument was raised by the Department in ITA No: 1764/Mum/2009 (assessment year 2000-01) where the additional income included investment in property at Nerul. It was submitted that the penalty was rightly levied with reference to the extra payments made by the assessee in respect of the above property and strong reliance was 21 ITA No: 1757 to 1769/Mum/2009 placed on para 2.2 of the order of the CIT(A). Our attention was drawn to the fact that the assessee in that appeal (Mr Rajal N Ashar) had paid on-money of Rs.7,75,200/- with respect of this property as declaration under section 132(4) and therefore penalty was rightly imposed on this amount also.
18. On the basis of the above submissions, factual and legal, the Department made a fervent plea for retention of the penalties.
19. The learned counsel for the assessees put forward a fairly detailed argument by way of his reply.
(a) As regards the PAN cards of the parties who had issued bills to the assessees for supply of Dates, the contention was that they proved the existence of the parties. The assessees' explanation for possession of the PAN cards in the reply given by Mr Rajal N Ashar to Question No.9 in the statement under section 132(4) was not probed further by the Income Tax authorities. There is nothing in the assessment order or the penalty order on this aspect and no material has been brought on record to link the PAN cards with the bills in an attempt to show that the bills were not genuine. It is pointed out by the learned counsel for the assessees that no passbooks or cheque books of the PAN card holders were found in the assessees' premises. The presence of the PAN cards in the assessees' premises therefore is not relevant at all for the purpose of levying penalty.
(b) As regards the existence or otherwise of the parties who issued the bills to the assessees', it was argued that the statement of Mr Rajal N Ashar that those parties were not in existence is 22 ITA No: 1757 to 1769/Mum/2009 clearly contradicted or negatived by the documents such as PAN cards issued by the Department itself and therefore the statement cannot be taken as Gospel truth especially when it is not the case of the Department itself, as stated by the learned DR, that the parties cannot be said to be non-existent in the light of issue of PAN cards. The existence of the parties is also proved by other means such as the fact that they were paid by cheques and in this connection our attention was drawn to pages 49 and 52 of the Paper Book. Page 49 is part of the letter dated 24.03.2007 written by Mr Narendra J Ashar to the AO in response to the questionnaire issued by the AO. Item No.13 of the letter (at page 49 of the Paper Book) states that all the payments were made by crossed cheques / Demand Drafts / Pay Orders and that since there is huge volume of business, if other relevant documents were required they will be furnished in due course. Page 52 is another letter written by the assessees' representative to the AO in which year-wise details of local purchases, inter alia, were furnished. It was submitted that bank accounts cannot possibly be opened by the parties without proving their identity and since no link has been established between the assessees and the bank accounts of the parties issuing the bills, all these circumstances should be taken into consideration while evaluating the correctness of the statement made by Shri Rajal N Ashar under section 132(4) vis-à-vis existence of the parties.
(c) The statement of Shri Rajal N Ashar is to be read with the "Note relating to declaration" which is reproduced in the 23 ITA No: 1757 to 1769/Mum/2009 assessment orders. Since the Note has not been found to be false and has not been rejected as untrue, the assessee's statement must be read along with the same. In this Note it was never stated that the parties are non-existent and all that was stated therein was that the assessees were not in a position to substantiate the purchases.
(d) On the question whether there was inflation of purchases, it was contended that all the eleven bills contained the details of the weight and value and since the weight of the Dates is mentioned in the bill and there is a quantity tally, the Department is not right in saying that the value alone has been inflated. It is again submitted that no discrepancy in the stock of Dates was noticed or recorded during the search. The case of CIT vs. La Medica (supra) was sought to be distinguished on the ground that there were very strong facts against the assessee in that case including the finding that it was the assessee who had opened and operated the bank accounts of the suppliers. There is no such link between the assessees herein and the bank accounts of the parties issuing the bills. It is therefore contended that the Department's claim that the value alone is inflated has no legs to stand.
(e) As regards the letters issued by the AO under section 133(6) to the six parties which returned unserved, it was submitted by the learned counsel for the assessees that in respect of four parties the postal remark made on29.09.2007 and 01.10.2007 was "always found closed" and even with regard to the other two parties similar postal remarks were found on 03.10.2007 and 14.10.2007. From 24 ITA No: 1757 to 1769/Mum/2009 this it was argued that the bills were all issued during the financial year 2004-05 and the enquiry letters were issued by the AO after three years, i.e. in 2007, by which time it was quite possible that those parties had changed their business location. When the AO asked for confirmation of the purchases, the assessees produced ledger accounts of the parties in its books of account signed by those parties with PAN numbers. It is submitted that after these confirmations were filed, no further query was raised by the AO. The contention of the learned counsel for the assessees is that this is not a case of the AO accepting the assessees' alleged admission without making any further enquiry.
(f) The learned counsel for the assessees reiterated his plea that there was no definite finding in the penalty orders that the purchases were found to be bogus. There was no precise quantification of the so called bogus purchases or sales except on the basis of a hypothetical formula based on various assumptions, which according to him is good enough for making an addition, but is not sufficient for the purpose of levying penalty on the ground of concealment of income.
(g) The points raised by the assessees in reply to the show cause notice issued under section 271(1)(c) have not been controverted in the penalty orders.
(h) It was strongly contended that the assessee did not make the offer of additional income in the face of any incriminating material or evidence. All that was asked by the search authorities in Question No.12 was that the assessee should explain the bills in 25 ITA No: 1757 to 1769/Mum/2009 view of the fact that they did not carry in Sales Tax Registration Number, carried the same address and whether the parties can be produced for verification. It was at this stage that Mr Rajal N Ashar agreed to offer Rs.214.7 lakhs as unaccounted income. It was therefore not correct on the part of the Departmental authorities to say that the offer of additional income came in the face of incriminating or damning material.
(i) Even the revised returns were filed voluntarily and not after any detection. They were filed on the basis of the revised working of the additional income on estimate basis and even at that stage the AO had not collected any material or evidence against the assessees. It was fairly stated that penalty for concealment of income can be imposed even when the income is estimated but that would depend on the facts and circumstances of each case. It was contended that where the fact of concealment has been clearly established, the mere difficulty in arriving at the exact income concealed should not be an impediment to the levy of penalty and in such a case it was possible to resort to an estimate of an income concealed on the basis of the available material and the surrounding circumstances. However, if the fact of concealment itself is not an established one and the Department proceeds to act on the offer of additional income made by the assessee, an estimate of income, however well founded it may be, cannot result in penalty being imposed for concealment of income. The estimate may be good enough for assessment purposes but not for the purpose of levying penalty.
26 ITA No: 1757 to 1769/Mum/2009
(j) As regards the submission of the Department that a return of income filed under section 153A cannot be revised, the learned counsel for the assessees submitted that such a return can be revised in view of the affirmative statement in section 153A(1)(a) that all the provisions of the Act would apply to the return which includes section 139(5) also. He submitted that in all these cases the assessments under section 153A have been made only on the basis of the revised returns and such revised returns which were good enough for making the assessments cannot become invalid when it comes to the question of applying the penalty provisions of section 271(1)(c) of the Act.
(k) Coming to the legal issue of abatement of the earlier returns which were pending, it was contended by the learned counsel for the assessees that under the second proviso to section 153A(1) the assessment or reassessment relating to any assessment year falling within the period of six assessment years referred to in the sub-section pending on the date of initiation of the search under section 132 shall abate and if the assessment or reassessment proceedings abate, it is not possible to conceal of a situation where the original returns would survive. According to the learned counsel, when the assessment or reassessment proceedings which are pending on the date of search abate, the returns also abate and they are no longer returns in the eye of law. In this connection he submitted that the point decided by the Kolkata Bench of the Tribunal in LMJ International Ltd. vs. DCIT (2008) 22 SOT 315 (Kol) was different in the sense what was decided there was whether an 27 ITA No: 1757 to 1769/Mum/2009 addition can be made in an assessment under section 153A which is not supported by any seized material. The precise question about abatement of the original returns did not arise in that case, according to the learned counsel for the assessees.
(l) With reference to the other legal contention that the assessees are eligible for the immunity conferred under Explanation 5 to section 271(1)(c), the learned counsel for the assessees reiterated his submission made on the basis of the judgment of the Madras High Court in CIT vs. S.D.V. Chandru (supra). As regards the contention of the Department that in the absence of any assets such as money, bullion, jewellery or other valuable article or thing found in the possession or control of the assessee, the assessee will not be entitled to the immunity, it was submitted by the learned counsel for the assessees that this was not a condition precedent for obtaining the immunity as held by the Rajasthan High Court in CIT vs. Kanhaiyalal (supra). He drew our attention to the Panchnama at pages 5 and 39 of the Paper Book and submitted that jewellery was in fact found at the residence and the locker of Mr Narendra J Ashar and his wife Mrs Usha N Ashar and they were released on payment of Rs.33.00 lakhs. Our attention was also drawn to the assessment order for the assessment year 2006-07 in the case of Mr Narendra J Ashar (individual) where in paragraph 5 there is a discussion of unexplained jewellery and there is also a reference to the fact that during the search of the assessees' residence, business premises and lockers, jewellery amounting to Rs.2,22,12,673/- was found. It was also pointed out by the learned 28 ITA No: 1757 to 1769/Mum/2009 counsel for the assessees that penalty proceedings were initiated with reference to the jewellery but ultimately no penalty was levied.
(m) With reference to the case of Mr Rajal N Ashar (ITA No:
1764/Mum/2009) for the assessment year 2000-01, and the argument of the learned DR that penalty for on-money payment for Nerul property was rightly imposed, the contention of the learned counsel for the assessees was that no investigation had been carried out by the Department, that no incriminating material had been found during the search or later and that the declaration made by Mr Rajal N Ashar and given to the investigation wing after the search contained the declaration of cash amount paid for purchase of the flat. It was submitted that in these circumstances no concealment can be inferred and the penalty levied with reference to the alleged on-money payment for the property should also be cancelled.
20. We have carefully considered the facts and the rival contentions. It appears to us that no strong grounds have been made out for imposing penalties for concealment of income. The assessee, Narendra J Ashar (HUF) is the proprietor of M/s Bait AL Tamur. His son Rajal N Ashar is the proprietor of "Dates R Delicious". Mrs Usha N Ashar is also in the same business. All the three concerns import Dates. In the case of M/s Bait AL Tamur the sales are generally on wholesale basis and so also in the case of Mrs Usha N Ashar, whereas in the case of 'Dates R Delicious' the sale is both by way of wholesale and retail. During the search 29 ITA No: 1757 to 1769/Mum/2009 conducted on 25.11.2005 the crucial material which was found were the eleven purchase bills showing purchase of Dates as follows: -
Sr.No. Name of the Party Bill Date / No. Amount 1. Kanak Priya Enterprises 12.01.05/001 46,570/- 2. -do- 18.01.05/002 25,032/- 3. Aishwarya Trading Co. 29.03.05/021 1,27,354/- 4. -do- 29.03.05/022 1,28,680/- 5. Geeta Priya Enterprises 10.07.04/931 4,03,700/- 6. -do- 12.07.04/936 1,28,650/- 7. Renuga Sales Corpn. 30.04.04/013 3,36,075/- 8. -do- 07.05.04/015 1,53,150/- 9. Bhawya Trading Co. 29.03.05/018 58,370/- 10. -do- 22.03.05/017 1,42,909/- 11. Aishwarya Trading Co. 18.03.05/013 2,50,223/-
Copies of the bills have been filed at pages 913 to 923 of the Paper Book. A statement was recorded from Mr Rajal N Ashar at 9.30 am on 26.11.2005 and it is stated to be under section 132(4) of the Act.
He stated that all the three concerns were carrying on business from the same premises, namely, E-42, APMC Market, Turbhe, Navi Mumbai. He also stated that all the three concerns have filed the Income Tax returns up to the assessment year 2005-06 in Central Circle 23, Mumbai. He was asked to explain the contents of pages 1 to 19 of Annexure A-1 which he did and nothing much turns on his answer. However, what is important for our purposes is his replies to Question Nos 4 and 12. We have already referred to these replies. To recapitulate, he was asked by Question No.4 to explain why the PAN cards and some photographs were lying in the premises during the search. Mr Rajal N Ashar's answer was as below:
"We have purchased some quantity of wet Dates from these parties and thus had asked them to give us the zerox copy of PAN card but the parties sent us the original PAN card which we have to be returned to them. The photographs had been sent by them to 30 ITA No: 1757 to 1769/Mum/2009 open some Demat account however I am not aware why photographs of the children have been sent."
In reply to Question No.12 by which he was asked to furnish the details of the eleven bills and also asked to produce the parties for verification, he replied, and this has been reproduced in the earlier part of our order, to the effect that he may not be able to produce them as they were non-existent and that the goods mentioned therein were not actually purchased but bills were arranged to inflate the purchases. He also stated that he is offering the amount of Rs.214.7 lakhs reflected in the ledger accounts (for all the six years) as his unaccounted income. He also offered additional income in respect of gold chains and bangles, assorted jewellery, miscellaneous expenses, investments and other discrepancies in the income or assets which he was not able to explain.
21. Pursuant to the aforesaid statement, a Note relating to the declaration was filed before the search wing, a copy of which is at pages 40 to 42 of the Paper Book filed by the assessee. It refers to the fact that a sum of Rs.2.50 crores was declared by the assessees in the course of the search and seizure action. A breakup thereof was attached to the Note and these are available at pages 43 to 45 of the paper Book. A perusal of the Note shows that it was prepared on the following phases. The import cost of Dates ranges from Rs.10/- to Rs.15/- per kg and after sorting and grading the best Dates are sold for Rs.30/- to Rs.60/- per kg. Dates of inferior quality are sold for Rs.8/- to Rs.10/- per kg. Dates of mixed quality were sold at the best rates fetchable in the market. It is further stated that the three concerns in the past had made 31 ITA No: 1757 to 1769/Mum/2009 unsupported purchases at rates ranging around Rs.54/- per kg and have thus not declared the correct profit. It is further stated that the sales of superior quality Dates were booked at Rs.10/- to Rs.15/- per kg, instead of higher sale price realized. In order to balance the sale at higher rates, it was stated that the corresponding purchase bills were taken at Rs. 54/- per kg and these are the bills which were locally taken. It was also stated that the three concerns were not in a position to fully substantiate the local purchases. It was further stated that since the goods which were sold at higher price were booked at lower price, the difference on account of booking of the sale at the higher price was made up by the local unsupported purchases at higher price. In addition to the above declaration, certain other items were also disclosed, which we have already referred to. Attached to the Note was the working of the declaration on account of local purchases which came to Rs.1,42,28,725/- in the hands of M/s Bait AL Tamur, Rs.28,36,076/- in the hands of Dates R Delicious and Rs.5,30,410/- in the hands of Mrs Usha N Ashar. The details of the declaration and the calculations were also given as working sheets and copies of the same have been given to us also. The total declaration came to Rs.2.50 crores in the aggregate.
22. The aforesaid declaration was revised and revised returns were filed declaring aggregate income of Rs.2,68,34,154/-. In these revised returns the declaration on account of the local purchases came to Rs.2,36,68,976/- and the details thereof have already been given by us in the form of a chart. According to the working sheets 32 ITA No: 1757 to 1769/Mum/2009 filed in support of the revised returns, a different working of the additional income was adopted in the sense that the average sale price and the average purchase price was taken and the difference was shown as additional income. This resulted in higher incomes being shown in the revised returns than what was shown in the declaration filed before the search wing. To take a typical case, in the case of Mr Narendra J Ashar for the assessment year 2001-02 (ITA No: 1758/Mum/2009) the revised working has been referred to in paragraph 5.4 of the assessment order. In this case, whereas as per the declaration made before the search wing the additional income came to Rs.1,07,907/-, the additional income as per the working made for the purpose of filing revised return came to Rs.4,43,587/-. After referring to the assessee's working in paragraph 5.4 of the assessment order, the AO in paragraph 5.5 has stated as under: -
"5.5 Accordingly, an amount of Rs.4,43,587/- is brought to tax as undisclosed income of the assessee on account of bogus transactions as against Rs.1,07,907/- already offered by the assessee in its return of income filed in pursuance to notice u/s 153A of the Income-tax Act. Hence, a further addition of undisclosed income of Rs.3,35,680/- is made on account of bogus transactions. However, the assessee has already offered the above undisclosed income vide revised return of income filed on 24.12.2007. As per sub-section (5) of section 139 of the Income-tax Act....................".
Thereafter the AO has held that the revised return was not valid. However, the revised return has been acted upon and the income declared therein has been taken for the purpose of computing the taxable income.
33 ITA No: 1757 to 1769/Mum/2009
23. It may be seen from the above narration that no enquiry into the methods of calculating the additional income was seriously made by the AO. The declaration made before the search wing was first Rs.214.7 lakhs as per the statement of Mr Rajal N Ashar under section 132(4) of the Act. Thereafter declaration of Rs.2.50 crores was made which included Rs.1,79,88,269/- as additional income on account of local purchases. Again this was revised to Rs.2,68,34,154/- which included Rs.2,36,68,976/- as additional income on account of local purchases. Different calculations and workings of the additional income were submitted at different stages of the proceedings. Our attention was not drawn to any enquiry made into those calculations by the AO and it appears to us that he was satisfied so long as higher income was offered by the assessees. There is force in the argument of the learned counsel for the assessees that there is no precision or definiteness in the method or manner in which the additional income was offered at three different stages. The amount of Rs.214.7 lakhs represented the amount reflected in the ledger accounts of the eleven parties from whom local purchases were made. The disclosure of Rs.2.50 crores is based on a different method and the last disclosure of Rs.2.68 crores was made on yet another basis, taking the difference between the average sale rate and the average purchase rate, on the assumption that in order to offset the higher sale prices shown, the local unsupported purchases were shown at a higher price on average basis. All the workings are based on various assumptions and estimates. The turn of events starting from the 34 ITA No: 1757 to 1769/Mum/2009 search till the culmination of the assessment proceedings broadly indicates that the additional income was calculated only on estimates and the attempt was to somehow arrive at a mutually accepted figure of additional income.
24. That still has to explain the statement made by Mr Rajal N Ashar, especially his answer to Question No.12, wherein he has stated that the goods mentioned in the bills were not actually purchased but were arranged to inflate the purchases and that the parties were non-existent. So far as the statement that the parties were non-existent is concerned, it must be stated in fairness to the learned Senior DR who appeared before us that he did not contend that the parties were non-existent and this was because PAN cards have been issued to them and it would be preposterous to suggest that the Department would have issued PAN cards without duly verifying the existence of the parties and their credentials. The AO had also written letters under section 133(6) to the eleven parties but they were all returned unserved. Enquiries were thus made, though in a limited manner, but could not proceed further because the letters could not be served on the eleven parties. The existence of the parties in the light of the issue of PAN cards to them, cannot, therefore be seriously doubted. Mr Rajal N Ashar had stated under section 132(4) that he had asked the parties from whom wet Dates were purchased to give the zerox copy of the PAN cards but the parties had sent the original PAN cards which remained to be returned to them. This statement was not found incorrect or false. In the light of this statement by Mr Rajal N Ashar in answer to 35 ITA No: 1757 to 1769/Mum/2009 Question No.4, his answer to Question No.12 that the parties were not existing and that bills were arranged to inflate purchases cannot be taken at face value but has to be viewed with some reservations. The more reasonable inference would be to understand the statement to mean that it would be difficult for the assessee to establish the genuineness of the purchases in the aforesaid circumstances and, therefore, the purchases for six years aggregating to Rs.214.7 lakhs as per the ledger accounts will be offered as additional income. In addition to the above is the fact that the purchases were paid for by cheques as we have noted from pages 49 and 52 of the Paper Book, which are replies made by the assessee to the AO's questionnaire. It is nobody's case that the amounts have not reached the suppliers of the Dates or having reached them they have found their way back to the coffers of the assessees. The fact that cheques were issued to the eleven parties and that they had bank accounts also show that they are not persons who can be said to be non-existent. All that it boils down to is that the assessees were unable to prove the purchases in the manner required by the Department. It may be recalled that in Question No.12 the AO had called upon Mr Rajal N Ashar to explain the bills which did not bear the Sales Tax Registration Number and bore the same address, by producing the parties for verification. The assessee was unable to produce them for verification and it was more on this score that additional income of Rs.214.7 lakhs was offered in the statement. It therefore appears to us that this is more a case where the penalties were being levied 36 ITA No: 1757 to 1769/Mum/2009 for the inability of the assessees to prove the local purchases in the manner required by the Department than an admission that the assessees claimed bogus or inflated purchases and thereby suppressed the income.
25. It is also noteworthy that in the bills the weight and rate were mentioned. According to the Department it is only the value that has been inflated and not the weight. The consequence of the argument is that the purchases were real quantity-wise but the rates were inflated to claim higher deduction. If that is the case, that would have to be strictly proved. The learned counsel for the assessees is right in his submission that no discrepancy in the stock was found during the search and that since the assessees were unable to produce the parties for verification, and thus prove the purchases, they should be taken as unsupported purchases and the income may be added. In CIT vs. La Medica (supra), the Delhi High Court held that there can be no argument that to offset bogus purchases the assessee indulged in bogus sales and that additions were permissible rejecting the argument. However, in the cited case there were very strong facts against the assessee in the sense that there was evidence found to prove that it was the assessee who opened and operated the bank accounts of the parties and thus there was a clear link established between the assessee in that case and the parties. In the present cases the Department has not been able to show any such link. In fact when the AO asked for confirmation from the parties for the purchases, the assessee produced the ledger accounts of the parties in its books duly signed 37 ITA No: 1757 to 1769/Mum/2009 by the parties with PAN numbers. After these confirmations were filed the AO did not make any further enquiry. It is thus not a case of the AO accepting the assessees' admission without making any further enquiry. Not only did the AO asked for confirmation from the parties, but he also issued enquiry letters under section 133(6) to all the eleven parties.
26. It is also significant that at the time when Mr Rajal N Ashar made the statement, the only material that has been found by the search authorities was the eleven bills issued for the local purchases and nothing else. There was no other incriminating evidence or material to show that the purchases were not genuine or they were inflated. The offer of additional income in such circumstances was voluntary in our opinion and not provoked by any adverse material, after the assessees were cornered.
27. We may now take up the contention of the Revenue that the revised returns filed by the assessees on 24.12.2007 were out of time and that in any case section 153A does not permit revised returns to be filed. The revised returns were acted upon by the AO for the purposes of making the assessments and we have cited the example of the case of Mr Rajal N Ashar for the assessment year 2001-02. It is a fact that the additional income offered in the revised returns were accepted for assessment purposes but when it comes to the penalty proceedings the Revenue raises the contention that they are invalid. We are not here concerned with the validity of the revised returns that much as we are concerned with the bona fide of the assessees in filing the revised returns. We have already seen 38 ITA No: 1757 to 1769/Mum/2009 that the calculations of additional income to be offered by the assessees kept on changing. Whereas the initial offer was made in November 2005 during the search, the first returns were filed in October 2006 and in those returns the income offered had gone up to Rs.2.50 crores. This figure was further revised upward to Rs.2.68 crores in the revised returns filed in December 2007. The parties - both the assessees as well as the AO - were into the exercise of estimating on a reasonable basis the additional income to be offered on the assumption that the local purchases cannot be substantiated. In carrying out this exercise different methods were adopted in an attempt to approximate towards a mutually acceptable figure of additional income. Ultimately when both sides were agreeable to the figure of Rs.2.68 crores, assessees filed revised returns incorporating the enhanced figures therein. It was in this spirit that the AO had accepted the revised returns for assessment purposes. It is our humble view that even for penalty purposes the revised returns should be viewed in the same spirit. It is not necessary for us to examine the question whether a return filed under section 153A can be revised at all nor the question as to whether the revised returns filed in December 2007 were out of time or not. As a step in showing their bona fide, the assessees filed revised returns which were accepted in the background of the fact that the attempt of both the sides was to arrive at a reasonable figure of additional income on account of local purchases. Thus even if there is no possibility of filing a revised return under section 153A or even if such a return was out of time, it certainly served to 39 ITA No: 1757 to 1769/Mum/2009 underline the sincerity and eagerness of the assessees to estimate the additional income in such a manner that it is acceptable to the AO. In this view of the matter we hold that the filing of the revised returns cannot be held against the assessees but should be looked upon as an act showing the sincerity and bona fide of the assessees. The revised returns were also not prompted by any incriminating material or evidence gathered by the AO because the offer of additional income had already been made on 26.11.2005 by Mr Rajal N Ashar. What happened subsequently till the completion of the assessments was only an attempt to try out different calculations for the purpose of reaching the figure of Rs.2.50 crores. It needs to be clarified that though in the statement made by Mr Rajal N Ashar under section 132(4) he had referred to Rs.214.7 lakhs as local purchases and Rs.28.30 lakhs for assorted jewellery, it appears that in the aggregate a sum of Rs.2.50 crores had been declared as additional income. This is clear from the Note relating to declaration (page 40 of the Paper Book) which refers to this sum in the very first sentence. The Note has been reproduced in the assessment orders and no objection or dispute has been raised by the AO to the contents thereof. In the revised returns, as we have already seen, the aggregate income offered was Rs.2,68,34,154/- which is higher than the initial offer of additional income. Thus at different stages of the proceedings starting from the search, the figure of additional income went on moving upwards, presumably after mutual discussions and in a spirit of cooperation. It needs to be added that there was no exact quantification of the additional 40 ITA No: 1757 to 1769/Mum/2009 income, but it was made more on an estimated or hypothetical basis. This would be sufficient for assessment purposes and may even constitute good evidence for purposes of levying penalty but cannot constitute conclusive evidence of concealment of income. This is the well settled legal position which applies to the present cases. There is, in the orders of the Income Tax authorities, no clear or precise finding that the purchases are bogus.
28. In the above circumstances we are unable to say that the Departmental authorities were justified in imposing the penalties. We cancel the same.
29. In the case of Mr Rajal N Ashar for the assessment year 2000-01 the penalty has also been imposed for alleged on-money payment for the Nerul property. In the Note relating to the declaration filed before the search authorities (pages 40 to 42 of the Paper Book) the assessee declared certain other items which included cash amount paid for purchase of flat by Mr Rajal N Ashar amounting to Rs.7,31,290/-. According to the assessment order, certain documents seized during the search showed unaccounted payments for purchase of the property. No such incriminating documents have been referred to in the statement made by Mr Rajal N Ashar under section 132(4) of the Act. What those documents are has not been stated in the penalty order. The assessment order however refers to Panchnama (Annexure A-7). It states that as per the seized documents the assessee had made unaccounted cash payments for purchase of the property at Balaji Tower, Nerul, Navi Mumbai. The assessee declared unaccounted 41 ITA No: 1757 to 1769/Mum/2009 income of Rs.7,75,200/- in the return filed pursuant to notice under section 153A of the Act. This included cash of Rs.7,31,290/- paid in respect of the aforesaid property. Though the assessment order refers to Annexure A-7 of the Panchnama, our attention was not drawn to any such Annexure in the course of the arguments nor were we referred to any evidence or material to show that the Department had unearthed the fact that the assessee made unaccounted payments for purchase of the property. The learned DR had drawn our attention to page 2 of the order of the CIT(A) which shows that the on-money payment was taken at Rs.8,35,200/- in the assessment order as against Rs.7,31,290/- declared in the return filed under section 153A of the Act. However, there is no specific finding either in the penalty order or in the order of the CIT(A) as to what was the seized material on the basis of which the penalty was sought to be levied. There does not appear to be any further enquiry made by the AO on this aspect in the course of the assessment proceedings. Taking all these facts into consideration and having regard to the declaration of the assessee even at the time of the search and the Note on declaration filed before the search authorities, we are of the view that there is no justification for levying penalty on Mr Rajal N Ashar for the assessment year 2000-01 for alleged on-money payment for Nerul property. For these reasons we cancel the penalty levied on this score.
30. In the view we have taken on the merits of the matter we do not consider it necessary or proper to decide the legal questions 42 ITA No: 1757 to 1769/Mum/2009 such as the claim for immunity from penalty under Explanation 5 to section 271(1)(c) or the question whether the returns originally filed by the assessee abate by virtue of the second proviso to sub- section (1) of section 153A of the Act.
31. In the result, the penalties are cancelled and the appeals of the assessees are allowed with no order as to costs.
Order pronounced in the Open Court on 20th August 2010.
Sd/- Sd/-
(J Sudhakar Reddy) (R V Easwar)
Accountant Member President
Mumbai, Dated 20th August 2010
saldanha
copy to:
1. Narendra J Ashar HUF
2. Mr Narendra J Ashar
3. Mr Rajal Narendra Ashar
4. Mrs Usha Narendra Ashar
E-42, APMC Market-1, Phase II
Turbhe, Navi Mumbai 400 705
5. DCIT, Central Circle 23, Mumbai
6. CIT-Central II, Mumbai
7. CIT(A)-Central V, Mumbai
8. DR "B" Bench
TRUE COPY BY ORDER
ASSTT. REGISTRAR, ITAT, MUMBAI