Income Tax Appellate Tribunal - Pune
Acit, Pune vs Marvel Realtors.& Developers Ltd., ... on 30 December, 2016
आयकर अपील
य अ धकरण "बी" यायपीठ पण
ु े म ।
IN THE INCOME TAX APPELLATE TRIBUNAL "B" BENCH, PUNE
ी आर. के. पांडा, लेखा सद य, एवं ी #वकास अव थी, या%यक सद य के सम& ।
BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM
आयकर अपील सं. / ITA No. 2439/PN/2012
%नधा(रण वष( / Assessment Year : 2007-08
ACIT, Central Circle - 1(1),
Pune
.......अपीलाथ / Appellant
बनाम/Vs.
Marvel Realtors & Developers Limited,
Jewel Towers, Second Floor, Lane No. 5,
Above Hotel Great Punjab, Koregaon Park,
Pune
PAN : AAFCM6433R
......
यथ / Respondent
आयकर अपील सं. / ITA No. 2473/PN/2012
%नधा(रण वष( / Assessment Year : 2007-08
Marvel Realtors & Developers Ltd.,
MZSK & Associates, Chartered Accountants,
Level 3, Business Bay, Plot No. : 84,
Wellesley Road, Near RTO, Pune - 411001
PAN : AAFCM6433R
.......अपीलाथ / Appellant
बनाम/Vs.
Asstt. Commissioner of Income Tax ,
Central Circle - 1(1), Pune
......
यथ / Respondent
Assessee by : Shri Sharad Shah
Revenue by : Shri Hitendra Ninawe
सन
ु वाई क तार ख / Date of Hearing : 22-11-2016
घोषणा क तार ख / Date of Pronouncement : 30-12-2016
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ITA Nos. 2439 & 2473/PN/2012, A.Y. 2007-08
आदे श / ORDER
PER VIKAS AWASTHY, JM :
These cross appeals by the Revenue and assessee are directed against the order of Commissioner of Income Tax (Appeals)-I, Pune dated 26-07-2012 for the assessment year 2007-08 confirming levy of penalty u/s. 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to as "the Act").
2. The brief facts of the case as emanating from records are : The assessee is a builder and developer. A search action u/s. 132 of the Act was carried out at the business premises of the assessee and at residence of its Managing Director Shri Vishwajeet Subhash Jhavar on 22-05-2008 at Pune. Apart from aforesaid search, survey action u/s. 133A was also carried out at the business premises of erstwhile Director of Marvel Group Shri Pandoo P. Naig at Mumbai. During the course of survey certain loose papers, excel sheets, note books were seized/impounded by the Department from the premises of Shri Pandoo P. Naig. Incriminating documents seized from Shri Pandoo P. Naig indicated receipt of unaccounted sale proceeds and its utilization for development of the project by the assessee. Shri Vishwajeet Subhash Jhavar, Managing Director of the company in his statement recorded u/s. 132(4) admitted undisclosed income of `11,00,00,000/- for all its group concerns on the basis of material found during search and agreed to pay taxes on the same. The assessee claimed before the Assessing Officer that unaccounted income on the basis of material found in search was admitted from the real estate business, therefore, 3 ITA Nos. 2439 & 2473/PN/2012, A.Y. 2007-08 the same are required to be computed and assessed on project completion method. The Assessing Officer accepted the method of computation of income as proposed by the assessee in respect of disclosed transaction appearing in the regular books of account but in respect of unaccounted transaction, the Assessing Officer held that the same is assessable in the year of its taking place. The Assessing Officer, thereafter, computed undisclosed profit from different group concern by bifurcating the receipts and the expenditure found in the seized paper from the business premises of the assessee at Pune for the respective financial years. In respect of unaccounted expenses, the Assessing Officer made disallowance u/s. 40A(3) and u/s. 40(a)(ia) for determining allowable unaccounted expenses against the unaccounted receipts. For determining unaccounted income of assessment year under appeal, the Assessing Officer treated the figures available in the documents found from the premises of Shri Pandoo Naig, former director at Mumbai as separate from the papers found at Pune. The Assessing Officer completed the assessment for assessment year 2007-08 vide order dated 31-12-2010 passed u/s. 143(3) r.w.s. 153A of the Act. The Assessing Officer made addition of `65,62,669/- u/s. 69C of the Act on account of negative cash balance and `3,70,00,000/- u/s. 68 of the Act on account of undisclosed receipts. Against the said assessment order, the assessee did not prefer appeal and accepted the addition. The Assessing Officer initiated penalty proceedings u/s. 271(1)(c) of the Act. The Assessing Officer vide order dated 30-06-2011 levied penalty of `1,46,63,195/- for concealment of income of `4,35,62,669/-.
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ITA Nos. 2439 & 2473/PN/2012, A.Y. 2007-08 Aggrieved by the order dated 30-06-2011 levying penalty u/s. 271(1)(c), the assessee preferred appeal before the Commissioner of Income Tax (Appeals). Before the Commissioner of Income Tax (Appeals), the assessee inter alia raised the ground that addition of `65,62,669/- has been made u/s. 69C of the Act on account of unexplained expenditure and `3,70,00,000/- u/s. 68 as unexplained cash credits which does not confirm to any legal provision or accounting principle. The Assessing Officer should have granted the benefit of telescoping to the assessee in respect of above additions. The Commissioner of Income Tax (Appeals) partly accepted the appeal of the assessee by the directing the Assessing Officer to give the benefit of telescoping while computing penalty. Against, the findings of Commissioner of Income Tax (Appeals) now, both, the Revenue and the assessee are in appeal before the Tribunal.
3. The Revenue has assailed the findings of Commissioner of Income Tax (Appeals) by raising following grounds :
1. "On the facts and it the circumstances of the case, the Ld. CIT(A) has erred in giving direction to the Assessing Officer to re-compute the undisclosed income for levying penalty u/s. 271(1)(c) after giving telescopic benefit on negative cash balance of ``65,62,669/- although question of benefit of telescopy does not arise;
2. The Appellant prays that the order of the Ld. CIT(A) be vacated and the of the AO's order may be restored.
3. The appellant craves leave to add, alter, amend, modify any of the above grounds raised, any other grounds at the time of proceedings before the Hon'ble Tribunal which may please be granted."5
ITA Nos. 2439 & 2473/PN/2012, A.Y. 2007-08
4. The grounds raised by the assessee impugning the order of Commissioner of Income Tax (Appeals) are as under :
1. "On facts and circumstances prevailing in the case and as per provisions & scheme of the Act it be held that, no penalty is leviable in terms of provisions of Section 271(1)(c). It further be held that, penalty proceedings initiated by the AO u/s. 271 (1) (c) & levy of penalty by the AO in terms of the said section is unwarranted, unjustified improper and deserves to be deleted. The penalty imposed by the AO u/s. 271(1)(c) be deleted. The 1st appellate authority should have deleted the penalty imposed by the Assessing officer as per provisions of law and facts prevailing in the case. The appellant be granted just and proper relief in this respect.
2. Without prejudice to ground No: 1 and in alternative it be held that order passed by the 1st appellate authority restoring the issue for re-
adjudication by the AO is improper, unjustified and unwarranted. The 1st appellate authority should have deleted the penalty imposed by the AO in terms of provisions of sec, 271(1) (c) of the Act. The appellant be granted just and proper relief in this respect.
3. The appellant prays to be allowed to add, amend, modify, rectify, delete, raise any grounds of appeal at the time of hearing."
5. Shri Sharad Shah appearing on behalf of the assessee submitted that the authorities below have erred in levying penalty in respect of additions made u/s. 68 of the Act. The ld. AR pointed that though the assessee has not assailed the quantum addition and has accepted the addition but that would not mean that penalty would be attracted automatically on such additions. The ld. AR submitted that penalty proceedings are different and separate from assessment proceedings, therefore, the assessee can raise new plea during penalty proceedings. In support of his submissions the ld. AR placed reliance on the decision rendered by Hon'ble Supreme Court of India in the case of Commissioner of Income Tax Vs. Khoday Eswarsa and Sons reported as 6 ITA Nos. 2439 & 2473/PN/2012, A.Y. 2007-08 83 ITR 369 and in the case of Commissioner of Income Tax Vs. J.K. Synthetics Limited reported as 219 ITR 267. The ld. AR contended that in the present case addition u/s. 68 has been made on account of alleged incriminating documents found during survey at the premises of Shri Pandoo P. Naig, former director of the assessee company at Mumbai. Addition u/s. 68 can only be made where cash credits are found in the books of account of the assessee. It has been alleged that loose paper bundle impounded from the business premises of Shri Pandoo P. Naig reflect entries in the name of V.J. Appa. The relevant extract of the entries purportedly found in the loose paper bundle impounded from Mumbai are as under :
Date Particulars Amount (Rs.) A.Y.
7/4/2007 VJ 1,39,000 2008-09
28/11/2006 VJ 1,50,00,000 2007-08
29/1/2007 VJ 2,20,00,000 2007-08
29/5/2007 Appa - Investment 1,00,00,000 2008-09
29/5/2007 Appa - Investment 1,36,00,000 2008-09
22/5/2007 Appa-INT 1,24,00,000 2008-09
TOTAL 7,31,39,000
5.1 The ld. AR submitted that the Hon'ble Punjab and Haryana High
Court in the case of Smt. Shanta Devi Vs. Commissioner of Income Tax reported as 171 ITR 532 has held that addition in respect of cash credit entries found in the books of account of partnership firm in which the assessee was a partner cannot be made in assessee's hand. The ld. AR submitted that if the addition itself is not sustainable then there is no question of levy of penalty on such addition. Merely because assessment proceedings have been completed resulting in some additions and the additions have not been challenged would not result in necessarily imposition of penalty. Penalty proceedings are not 7 ITA Nos. 2439 & 2473/PN/2012, A.Y. 2007-08 continuations of assessment proceedings. To support his submissions the ld. AR placed reliance on the decision of Hon'ble Bombay High Court in the case of Commissioner of Income Tax Vs. Dharamchand L. Shah reported as 204 ITR 462.
5.2 The ld. AR further submitted that in respect of addition made u/s. 69C the assessee has furnished detailed submissions before the authorities below but the same were brushed aside in an arbitrary and unjustified manner. The ld. AR pointed that `65,62,669/- represented cash deficit as worked out by the Assessing Officer being the difference between on-money received and expended. The Assessing Officer has worked out on-money received at `45,,00,000/- and spent `1,10,62,669/- and treated the said figures as authentic and made addition of the difference between two as deficit u/s. 69C of the Act. The ld. AR reiterated his submissions in respect of levy of penalty on additions made u/s. 69C of the Act.
6. On the other hand Shri Hitendra Ninawe representing the Department vehemently supported the findings of Commissioner of Income Tax (Appeals) in upholding the levy of penalty in respect of addition of `3.70 crores made u/s. 68 of the Act. The ld. DR further submitted that the Commissioner of Income Tax (Appeals) has erred in granting the benefit of telescoping with respect to additions made u/s. 69C and u/s. 68 of the Act. The ld. DR prayed for modifying the order of Commissioner of Income Tax (Appeals) and upholding the order passed by the Assessing Officer levying penalty u/s. 271(1)(c) of the Act.
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ITA Nos. 2439 & 2473/PN/2012, A.Y. 2007-08
7. We have heard the submissions made by the representatives of rival sides and have perused the orders of the authorities below. We have also considered the various decisions on which the ld. AR of the assessee has placed reliance to fortify his submissions. Penalty has been levied in respect of additions of `65,62,669/- made u/s. 69C and `3.70 crores u/s. 68 of the Act. It is an undisputed fact that the assessee accepted the additions and has not filed any appeal assailing the same. Thus, the assessment order attained finality. Thereafter, the penalty proceedings were initiated against the assessee in respect of aforesaid additions on account of concealment of income u/s. 271(1)(c) of the Act. It is a well settled law that assessment proceedings and penalty proceedings are two separate proceedings. The Hon'ble Jurisdictional High Court in the case of Commissioner of Income Tax Vs. Dharamchand L. Shah (supra) has held :
"It is by now trite law that the assessment proceedings and penalty proceedings are two separate and distinct proceedings. The fact that certain additions were made in the assessment proceedings would not automatically justify the Revenue to impose penalty under section 271(1)(c) of the Act."
Thus, any addition made during assessment ipso facto would not result in levy of penalty.
8. The ld. AR has pointed that the addition of `3.70 crores made u/s. 68 of the Act is not sustainable as the addition has been made in violation of provisions of section 68 of the Act. Before proceedings further it would be relevant to explain section 68 of the Act :
"68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation 9 ITA Nos. 2439 & 2473/PN/2012, A.Y. 2007-08 offered by him is not, in the opinion of the [Assessing] Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year."
A bare perusal of the provisions of section 68 would show that addition u/s. 68 can be made only where any amount is found credited in the books of assessee and the assessee has failed to offer any valid explanation or the explanation furnished by the assessee in the opinion of Assessing Officer is not satisfactory.
In the present case, we find that addition u/s. 68 has been made on the basis of entries in the diaries found during survey at the premises of one of the former Director of the assessee company. There is no evidence on record to show that any transfer of money either through cheque or cash during the year under consideration was recorded in the books of account of the assessee. Under such circumstances we are of the opinion that the addition u/s. 68 is not sustainable. The Hon'ble Punjab and Haryana High Court in the case of Smt. Shanta Devi Vs. Commissioner of Income Tax (supra) deleted the addition u/s. 68 in the hands of assessee, where cash credit entries were found in the books of account of the partnership firm in which the assessee was partner. The relevant extract of the judgment of Hon'ble Punjab and Haryana High Court in the case of Smt. Shanta Devi Vs. Commissioner of Income Tax (supra) is as under :
8. It is not in dispute that in case the books of account of the partnership firm are not to be treated as those of the individual partner, then the amount of Rs. 8,400 which represents alleged undisclosed income, could not be brought to tax along with the income of the assessee for the assessment year 1963-64, because in that case, the provisions of section 69 of the Income tax Act shall be applicable.10
ITA Nos. 2439 & 2473/PN/2012, A.Y. 2007-08
9. Perusal of section 68 of the Income tax Act would show that in relation to the expression " books ", the emphasis is on the word "assessee". In other words, such books have to be the books of the assessee himself and not of any other assessee.
10. In the present case, admittedly, the assessee maintained no books of account. The cash credit entry of which the sum in question forms part, was found in the books the account of the partnership firm which in its own right is an assessee.
11. In the above view of the matter, the books of account of the partnership firm herein cannot be considered as those of the individual assessee herein and, therefore, section 68 of the Income tax Act would not be attracted to the present case."
9. Since, the addition made u/s. 68 is itself not sustainable there is no question of levy of penalty on such addition. Thus, we are of the considered view that levy of penalty u/s. 271(1)(c) of the Act on addition made u/s. 68 of the Act is liable to be set aside.
10. The second addition on which penalty has been levied is with respect to `65,62,669/- u/s. 69C of the Act. The Commissioner of Income Tax (Appeals) has granted the benefit of telescoping by observing as under :
"9. Now coming to the computation of penalty @ 100% of the tax sought to be evaded at Rs.1,46,63,195/- on the undisclosed income determined in the assessment order at Rs.4,35,62,669/-, it is noted that undisputedly the same suffers from some defects. The AO has computed the aforesaid income after disallowing undisclosed expenses available in the seized documents u/s 40A(3) and u/s 40(a)(ia) and also without giving the telescopic benefit of shortage of Rs.65,62,669/- (receipt over expenses in this year). However the appellant has claimed in their letter dtd. 17/7/2012, which has been further elaborated in their letter dtd. Nil filed on 20/7/2012, that the computation of the undisclosed income on which penalty can be held to be leviable was 11 ITA Nos. 2439 & 2473/PN/2012, A.Y. 2007-08 defective. This claim of the appellant has been carefully considered, and I am of the considered view that even though the appellant has accepted the finding given in the assessment order by not filing any appeal, it is an admitted fact that application of sec.40A(3) and sec.40(a)(ia) are issues on which different Courts have different views and therefore it will be incorrect to include the impact of these disallowances for computing the penalty u/s 271(1)(c). Similarly the issue of granting telescopic benefit atleast in respect of the same assessee for the same assessment year has to be considered. The AO has not given any reason in the assessment order for not granting this benefit in a manner which can justify levy of penalty for denial of such benefits. In view of the above I am of the opinion that the computation of penalty is faulty. The income sought to be evaded on which the penalty has been levied @ 100% requires reworking. The appellant has submitted a computation as per which the net undisclosed income, which on the principle discussed above, can be accepted, for computing the penalty or the income sought to be evaded, has been shown at Rs.1,90,91,256/-. I find the same to be acceptable. However, the AD is directed to verify this computation on the materials available on record and if the computation of Rs.1,90,91,256/- is found to be correct after excluding the disallowances of expenses made u/s 40A(3) and u/s 40(a)(ia) and granting telescopic benefit as discussed above, then the aforesaid sum of Rs.1,90,91 ,256/- has to be taken as the undisclosed income sought to be evaded on which penalty u/s 271(1)(c) @ 100% should be computed. The appellant has computed this penalty on the aforesaid principle, without prejudice to their claim for full relief at Rs.64,26,115/-. The AO can verify the computation and reduce the penalty accordingly. Aforesaid grounds 1 to 10 are treated as partly allowed."
One of the contention of the assessee before the First Appellate Authority was to grant the benefit of telescoping in penalty proceedings in respect of the additions made during assessment. The Commissioner of Income Tax (Appeals) rejecting the contentions of the assessee on merits and accepting the alternate submissions of the assessee granted the benefit of telescoping. Neither the ld. AR nor the ld. DR could substantiate the error in the findings of Commissioner of 12 ITA Nos. 2439 & 2473/PN/2012, A.Y. 2007-08 Income Tax (Appeals) in extending the benefit of telescoping. Thus, we uphold the benefit of telescoping granted by the Commissioner of Income Tax (Appeals). Accordingly, the solitary ground raised by the Department in appeal and the submissions of the assessee assailing penalty on addition made u/s. 69C are dismissed.
11. In the result, the appeal of the assessee is partly allowed and the appeal of the Revenue is dismissed.
Order pronounced on Friday, the 30th day of December, 2016.
Sd/- Sd/-
(आर. के. पांडा / R.K. Panda) (!वकास अव"थी / Vikas Awasthy)
लेखा सद"य / ACCOUNTANT MEMBER $या%यक सद"य / JUDICIAL MEMBER
पुणे / Pune; &दनांक / Dated : 30th December, 2016
RK
आदे श क+ ,%त.ल#प अ/े#षत / Copy of the Order forwarded to :
1. अपीलाथ / The Appellant.
2. यथ / The Respondent.
3. आयकर आयु'त (अपील) / The CIT(A)-I, Pune
4. आयकर आयु'त / The CIT (Central), Pune
5. !वभागीय %त%न,ध, आयकर अपील य अ,धकरण, "B" ब/च, पुणे / DR, ITAT, "बी" Bench, Pune.
6. गाड1 फ़ाइल / Guard File.
//स या!पत %त // True Copy// आदे शानस ु ार / BY ORDER, %नजी स,चव / Private Secretary, आयकर अपील य अ,धकरण, पुणे / ITAT, Pune