Income Tax Appellate Tribunal - Cochin
P.K. Narayanan vs Assistant Commissioner Of Income Tax; ... on 9 May, 1995
Equivalent citations: (1995)53TTJ(COCH)181
ORDER
G. SANTHANAM, A.M. :
Of these appeals, one is by the assessee and the other two are by the Revenue. Financial year is the previous year and we are concerned with the asst. yrs. 1981-82 and 1982-83.
2. The assessee is an Abkari contractor dealing in toddy, arrack and Indian made foreign liquor. He also derived income from property and share income from firms. On 29th Jan., 1982 the assessees residence was searched under S. 132 of the IT Act, during the course of which several documents, books and statements were seized. One of the items seized was the accounts of M/s. Narayanan & Co., of which the assessee was the managing partner. The accounts seized related to the period 22nd Aug., 1980 to 14th Dec., 1980 and as per the same the net withdrawals by the assessee from the firm during the above period amounted to Rs. 6,02,195. Apart from the above, the officer also found that the assessee had drawn amounts totaling to Rs. 4,25,100 during the same period from various banks. Thus, the total withdrawals made by the assessee amounted to Rs. 10,27,295. The Assessing Officer noticed that as per the current account of the assessee in the books of M/s. Narayanan & Co., and as per his accounts with Bank of Cochin, Parur Central Bank and South Indian Bank, the assessee had made investments totalling to Rs. 12,37,800 during the same period. Since the withdrawals by the assessee during the year amounted to Rs. 10,27,295 only, the Assessing Officer asked the assessee to explain the source for the difference of Rs. 2,10,505 (Rs. 12,37,800 minus Rs. 10,27,295). The assessees explanation in this regard was as under :
"In meeting the total investment during the period 22nd Aug., 1980 to 21st Dec., 1980 you have only considered the withdrawals from the firm, banks and loan from M/s. Archana Vessels from that period alone. The cash in hand available with me from earlier withdrawals from the firm, temporary loans from my relations and friends were not considered."
The Assessing Officer did not accept the explanation of the assessee. According to him, the assessee had neither pointed out the details of the persons from whom the alleged loans had been taken nor furnished any evidence in support of the claim. As regard the claim of availability of cash from earlier withdrawals, the officer held that since such withdrawals had been fully utilised during those periods themselves, the claim could not be accepted. Accordingly, he added the amount of Rs. 2,10,505 as unexplained investment made by the assessee. In appeal, the CIT(A) accepted the assessees claim regarding the availability of opening cash balance of Rs. 80,000 and also income from two lorries. Accordingly, he held that a further amount of Rs. 1,10,505 could be treated as explained and that the balance of Rs. 1,00,000 alone need to be assessed as unexplained investment. This has become final as assessee did not go in appeal against the additions sustained by the learned CIT(A). On the above basis, the Assessing Officer held that the unexplained investments in banks in an extent of Rs. 1 lakh was the concealed income of the assessee on which penalty was exigible under S. 271(1)(c) of the IT Act, 1961. The assessee appealed. The learned CIT(A) held that apart from stating that the assessee had raised loans from friends and relatives, he had not substantiated this fact in any way. Hence, he held that penalty was rightly levied. The assessee is in appeal before us on the levy of penalty in respect of the unexplained investments to the tune of Rs. 1 lakh.
3. The assessees contention is that the Revenue has considered the total of the deposits for the period from 22nd Aug., 1980 to 14th Dec., 1980 and the withdrawals in the same period and had not considered the availability of earlier withdrawals and also the withdrawals from the lorry account as found in the diaries. Further, the opening cash balance of Rs. 80,000 was only an estimated figure as made by the learned CIT(A). If regard is had to these factors, it cannot be said that the investments represented the concealed income of the assessee.
4. The learned Departmental Representative submitted that the unexplained investment has been taken at Rs. 1,00,000 by the CIT(A) in the quantum proceedings, and the assessee cannot reopen the issue in penalty proceedings. Further he has not adduced any evidence for raising of funds from friends and relatives and, therefore, penalty was rightly sustained by the learned CIT(A).
5. We have carefully considered rival submissions. It is seen that the Assessing Officer has determined the investments for the period from 22nd Aug., 1980 to 14th Dec., 1980 as follows :
Rs.
Bank of Cochin 7,59,800 Parur Central Bank 1,13,000 South Indian Bank 1,15,000 Building construction 2,50,000 12,37,800 As against this, he gave credit for withdrawals from 22nd Aug., 1980 to 14th Dec., 1980 from banks and from the account of M/s. Narayanan & Co., in an extent of Rs. 10,27,295 and took the difference as unexplained investments. The learned CIT(A) estimated the opening cash balance, i.e., cash balance available as on 1st April, 1980 at Rs. 80,000 on estimate basis. He gave credit for lorry income in a sum of Rs. 48,000 and thus determined the unexplained investments at Rs. 1,00,000. It is on this, penalty has been levied. The assessees explanation, is that the withdrawals prior to 22nd Aug., 1980 from the firm M/s. Narayanan & Co. and from banks were not considered in determining the unexplained investments. From the order dt. 15th Oct., 1984 in the assessment, it is seen that the Assessing Officer has met this argument partly and only partly in para 4 of his order, wherein he stated that "the other explanations that cash was available from his earlier withdrawals is also not accepted for the reason that the withdrawals made earlier have all been utilised during that period itself as per the copy of the personal account with M/s. Narayanan & Co. filed by the assessee himself". There is no reference to the utilization of the withdrawals prior to 22nd Aug., 1980 that is from such earlier period from the banks and other firms in the assessment order or in the appellate order in the quantum proceedings and, therefore, we find force in the contention of the learned representative of the assessee that any possible savings out of the withdrawals from banks in the period prior to 22nd Aug., 1980 had not been considered in determining the quantum of unexplained investment. In this view of the matter, it cannot be said that the sum of Rs. 1 lakh being the amount of unexplained investments determined by the learned CIT(A) can be said to represent the assessees concealed income. Penalty on this count is vacated.
6. The next issue is against the levy of penalty on a sum of Rs. 1 lakh being the amount paid to one Mohammed on 14th Oct., 1980. According to the ITO during the course of search the authorities found two agreements regarding purchase of certain property. As per one of the agreements the assessee had agreed to purchase a property at Kodungallur from one Mohammed and the assessee also paid advance of Rs. 1,00,000 on 14th Oct., 1980. Another agreement between Mohammed and one Subramonie Marar was for the sale of the property in question. During the course of search these two agreements were also seized by the authorities. As per the agreement entered into between Mohammed and Subramonie Marar on 13th Oct., 1980, Mohammed had advanced Rs. 1,00,000 to Subramonie Marar for purchase of the said property. The assessee was asked to explain the source of Rs. 1,00,000 advanced by him on 14th Oct., 1980 for the purchase of the property. According to the assessee, the agreement between himself and Mohammed did not materialise. According to the assessee though he had tentatively agreed to purchase the property from Mohammed, he came to understand that Mohammed had agreed to purchase this property from Nair Seva Sangam Trust, Kodungallur, for a much lesser sum. Mohammed was examined as desired by the assessee. Mohammed deposed that he was engaged in the business of selling petty items during festival seasons and that he had signed an agreement regarding the property with Sri Subramonia Marar, but he had not paid any amount as mentioned in the agreement to Marar. As regards the agreement with the assessee Mohammed could not remember as to when he signed the agreement and appeared to doubt his signature in the agreement. He deposed that he was not very sure whether it was his own signature as he did not remember to have signed any such agreement. The ITO was not convinced with the explanation offered by the assessee regarding the source for the advance of Rs. 1,00,000 paid by the assessee, and assessed the same under S. 69 of the IT Act, 1961, in the hands of the assessee. On appeal, the first appellate authority confirmed the addition. On second appeal, the Tribunal in its order dt. 20th Feb., 1991 held that the agreement seized from the residential premises of the assessee clinched the issue and, therefore, the addition of Rs. 1,00,000 was justified under S. 69 of the IT Act.
7. Sri R. Krishna Iyer, the learned Chartered Accountant for the assessee contends that there was no material before the Tribunal to hold that there was sufficient proof that the assessee has paid the impugned amount to Sri Mohammed for purchasing the property. Sri Mohammed had denied having received the amount from the assessee. Secondly, Sri Subramonia Marar to whom Shri Mohammed is alleged to have advanced Rs. 1,00,000 on 13th Oct., 1980 was not examined. Further, neither Sri Marar nor Sri Mohammed had any title over the property which was the subject-matter of negotiation. From the search it will be evident that the assessee was in the habit of writing out in detail all his investment and expenses and there was no diary entry in respect of the alleged payment of Rs. 1,00,000 to Sri Mohammed. Therefore, it cannot be said in this appeal that the assessee had, in fact, paid the amount under the agreement and the levy of penalty was unjustified.
8. Sri C. Abraham, the learned senior Departmental Representative relied on the order of the Tribunal.
9. We have carefully considered the submissions made before us. Sri Mohammed had denied the transaction. The assessee had also denied the transaction. Sri Subramonia Marar, to whom Sri Mohammed is alleged to have advanced Rs. 1 lakh on 13th Oct., 1980 was not examined. Further, the impugned property is stated to belong to the Nair Seva Sangham Trust, Kodugellur, and it has to be seen whether there was any agreement between Sri Subramonia Marar and Nair Seva Sangham Trust, Kodungallur for the purchase of the property. It is also seen from the assessment order that the assessees relatives have purchased the property after sometime and if so it has to be seen whether the alleged payment of Rs. 1,00,000 said to have been made by the assessee to Sri Mohammed or to Sri Subramonia Marar has been acknowledged in the sale deed effected by Nair Seva Sangham Trust. All these aspects have to be enquired into before coming to a definite conclusion that the payment was made by the assessee towards the purchase of the property on 14th Oct., 1980. For this limited purpose, we set aside the order of the learned CIT(A) on the levy of penalty in respect of this sum of Rs. 1,00,000 and restore the issue to the file of the Assessing Officer to examine the issue afresh after giving adequate opportunity to the assessee and draw such conclusion as he may deem fit in accordance with law on the basis of the material before him.
10. Turning to the Departmental appeal for the asst. yr. 1981-82, the Revenue is aggrieved against the cancellation of penalty in respect of income from two lorries and income and credits from Archana Jewellery and also in restricting the quantum of penalty to the minimum leviable. The seized materials included two diaries containing notings regarding receipts and expenditure in respect of two lorries, viz., KRF 9956 and KRF 4685. The notings also showed that the assessee had drawn moneys from lorry receipts from time to time. The assessees contention that the diaries belonged to his uncles son Sri Raghavan who was residing with him was rejected on the basis of the presumption found in S. 132(4A) of the IT Act. Further, the bank account of the assessees wife showed certain payments to M/s. Sundaram Finance Ltd., in respect of the lorries in the name of Sri Raghavan. Therefore, the lorry business was held to be the benami business of the assessee and income therefrom was included in the hands of the assessee. This was confirmed in appeal. On the above basis penalty was levied. The learned CIT(A) was of the view that though the addition was sustained by the Tribunal the materials before him were not sufficient to warrant penalty under, S. 271(1)(c) of the IT Act. The lorries were registered in the name of Sri Raghavan. Sri Raghavan is the assessees uncles son and he used to reside with the assessee and, therefore, the mere presence of the diaries containing entries in respect of lorry income cannot lead to a definite conclusion that the lorries belonged to the assessee. The addition was made on the presumption created under S. 132(4A) of the Act, and such presumption was not be enough to levy penalty on the amount added. The Revenue is aggrieved.
11. Having heard rival submissions, we decline to interfere with the order of the learned CIT(A). The presence of the diaries in the residential premises of the assessee at the time of the search stands explained by the fact that Sri Raghavan in whose name the lorries were registered was residing with the assessee and that even the presumption created in S. 132(4A) of the IT Act would stand rebutted as there was valid explanation for the presence of the diaries in the premises of the assessee. Even otherwise while addition can be made on preponderance of probabilities of the case, for levy of penalty there should be material to suggest mens rea. In the case before us, Sri Raghavan has not been examined. The vehicles stand in his name. The presence of the diaries in the premises of the assessee stands explained by the fact that Sri Raghavan used to stay with the assessee as he happens to be his uncles son. In the circumstances, we hold that the learned CIT(A) was justified in holding that the Revenue has not discharged its burden as against the assessee. His orders for the asst. yrs. 1981-82 and 1982-83 are upheld.
12. The next point at dispute is against the cancellation of penalty in respect of the income and credits from Archana Jewellery. The case of the Revenue is that Archana Jewellery is a benami concern of the assessee and the assessee failed to admit the income therefrom and hence, penalty was leviable on the same. The CIT(A) held that in relation to the asst. yrs. 1979-80 and 1980-81, the Tribunal had cancelled the levy of penalty even though the income from Archana Jewellery was included in the hands of the assessee and following that decision of the Tribunal, the learned CIT(A) cancelled the levy of penalty on the income from Archana Jewellery. The Revenue is aggrieved.
13. Sri C. Abraham, the learned senior Departmental Representative, vehemently contends that in the quantum appeal, the Tribunal has upheld the inclusion of the income from Archana Jewellery and, therefore, there was no need to depart from that finding in the penalty appeal. The assessee has furnished a copy of the order of the Tribunal dt. 21st Sept., 1993 in ITA No. 401/Coch/88 for the asst. yr. 1979-80 and ITA No. 114/Coch/1991 for the asst. yr. 1980-81. The Tribunal dealt with the issue of penalty on the income from Archana Jewellery from pages 13 to 21 of its order. On an elaborate discussion, the Tribunal held that enquiries were not made with Sri Ramesh or Sri Challappan Achari and an incomplete document did not confer any right on the assessee over the business of Archana Jewellery. At the worst only suspicions can be raised. Further, the Tribunal noticed that the assessment of Sri Chellappan Achary of Archana Jewellery was made only after scrutiny and after the search and upon depositions mad by him before the ITO. There were evidence to show that the assessee was only making loans and advances to Sri Chellappan Achary to enable him to carry on the business, but that does not mean that the business of Archana Jewellery could belong to the assessee. Confirmation letters for the loans taken were also given and are found in the assessment records of Sri Chellappan Achary. The lease agreement and the papers regarding valuation of stock are not sufficient to point to the benami nature of the transaction. Payments made were all cheque payments of Archana Jewellery and the payees were not examined to indicate the complicity of the assessee. Further, the books of accounts of Archana Jewellery were not found with the assessee at the time of search. One Mohan who introduced Sri Chellappan Achary to the Bank of Chochin was not examined. The 18 guarantors of Sri Chellappan Achary were not shown to be assessees relatives or employees. No enquiry was conducted on such question. It was further held that the fact that the assessee has given guarantee or offered security for the loans taken by Shri Chellappan Achary or that he had advanced loans to Sri Chellappan Achary can also be viewed as a normal activity of a friendly person and it is important to remember in this context that Sri Chellappan Achary and the assessee are friends. Therefore, the Tribunal held in its order dt. 21st Sept., 1993 at para 20 that "even though the addition was sustained in the hands of the assessee with regard to the income from Archana Jewellery the Revenue has not discharged its onus that the business of Archana Jewellery really belonged to the assessee even if these materials are taken into account cumulatively. For these reasons, we cancel the penalty on the income attributable to Archana Jewellery". For the impugned assessment year there is no fresh material before us to take a view different from that taken by us in our order dt. 21st Sept., 1993. Therefore, we uphold the order of the learned CIT(A) in cancelling the penalty on the income from Archana Jewellery for the asst. yr. 1981-82.
14. The Revenue is aggrieved against the order of the learned CIT(A) in restricting the quantum of penalty to the minimum leviable.
15. We have heard rival submissions. We find that considering the fact that the Assessing Officer has levied penalty on a number of items, part of which was not sustained by the learned CIT(A) and taking into account the circumstances of the case, the CIT(A) has chosen to exercise the discretion to restrict the quantum of penalty to the minimum leviable under the Act. It has not been shown that there is wrongful exercise of discretion or that the discretion was not exercised judiciously. In the circumstances, we decline to interfere with the direction of the learned CIT(A) to levy minimum penalty on the sums sustained by him. Further, the Tribunal in this order has deleted the penalty sustained by the CIT(A) on the sum of Rs. 1,00,000 being the unexplained investment and has set aside the levy of penalty on another sum of Rs. 1,00,000 in respect of the alleged payment made for purchase of property. Thus, both the items of penalty sustained by the learned CIT(A) stand either deleted or set aside. In the circumstances, the Revenues grievance about the levy of minimum penalty cannot also survive. For all these reasons, we reject the Revenues contention.
16. In the appeal of the Revenue for the asst. yr. 1982-83 the only point is against the cancellation of penalty of Rs. 1,25,000 levied under S. 271(1)(c) in respect of the income from Archana Jewellery.
17. The issue has been discussed threadbare in para 13 of our order. There is no fresh material before us to take a different view. In this view of the matter, we uphold the cancellation of penalty and reject the ground of the Revenue.
18. In the result, the assessees appeal for the asst. yr. 1981-82 is partly allowed. The Revenues appeals for the asst. yrs. 1981-82 and 1982-83 are dismissed.