Income Tax Appellate Tribunal - Ahmedabad
Acid & Chemicals Co.,, Ahmedabad vs Assessee on 27 August, 2004
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IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "A" AHMEDABAD
Before S/Shri T.K. Sharma, JM and D.C.Agrawal, AM
ITA No.157/Ahd/2006
Asst. Year :2000-01
M/s Acid & Chemicals V/s. Income-tax Officer,
Co.,31, Anant Ward 12(2),
Industrial Estate, Nr. Ahmedabad.
Comet Chemicals.
Rakhial, Ahmedabad.
(Appellant) .. (Respondent)
Appellant by :- Shri Sakar Sharma, AR
Respondent by:- Shri Anand Mohan, Sr.D.R.
ORDER
Per D.C.Agrawal, Accountant Member.
This is an appeal filed by the assessee against the order of ld. CIT(A) in confirming levy of penalty. It has raised following grounds :-
1. The ld. CIT(A) has erred in law and on facts in holding the imposition of penalty on cash credit of Rs. 30 lacs sustainable.
2. The ld. CIT(A) has erred in law and on facts in confirming the imposition of penalty on payment of interest of Rs.5,48,000/- on deposits which were assessed as cash credit.
3. The ld. CIT(A) has erred in law and on facts on not considering various submissions made by the appellant during the course of hearing with the ld. ITO and during the course of appeal proceedings.
2. The facts of the case are that assessment was completed under section 143(3) on 21.10.2002 on a total income of Rs.36,24,261/- as against returned income of Rs.43,987/-. The AO proposed the following additions :-
1. Unexplained cash credits u/s 68 Rs.30,00,000/-
2. Interest expenses Rs. 5,40,000/-
3. Excess depreciation Rs. 40,271/-
3. The ld. A.O. in the course of assessment proceedings found that assessee is trading in acid and chemicals. It had credited deposits of Rs.30,00,000/- in the books of accounts as on 1.4.99 in the names of following family members as under :-
Amount Date of deposit 1. Bhartiben Jagdishbhai Patel Rs.7,50,000/- 01.04.1999 2. Neetaben Umeshbhai Patel Rs.7,50,000/- 01.04.1999 3. Provinaben Rameshbhai Patel Rs.5,00,000/- 01.04.1999 4. Diptiben Hasmukhbhai Patel Rs.5,00,000/- 01.04.1999 5. Sharmilaben Dineshbhai Patel Rs.5,00,000/- 01.04.1999
The AO issued summons to these persons but none of them attended before the AO and replied that their representative is busy in filing the returns. However, on subsequent occasion, above ladies appeared before the AO. Their statements under section 131 were recorded. They in common accepted following facts :-
"-that the accounting of the firm was handled entirely by Shri Jagdish Sombhai Patel, Partner.
-that Shri Jagdish Sombhai Patel, was the only person who could offer any explanation about the cash credits.
-that whatever explanation was offered by him would be binding on all of them."2
Statement of Shri Jagdish Patel was also recorded who admitted that entire amount of 30 lacs was unaccounted income of the firm but earned during the period 1987-88 to 2000-01. The manner in which such income was earned was also explained. It was stated by Shri Jagdish Patel that income was earned on commission basis. During the course of business the partners of the firm had acted as mediator on number of occasions between the buyers and the seller and earned commission from such deals. This was not accounted for and he was unable to give year-wise bifurcation. Ld. CIT(A) confirmed the addition. The matter went to the Tribunal which vide its order in ITA No.508/Ahd/2003 for Asst. Year 2000-01, dated 27.8.2004, also confirmed the addition. In this regard it is relevant to refer to para 7 to 10 from the order of the Tribunal as under :-
"7. We have carefully considered the arguments of both the parties and perused the material placed before us. The ld. Counsel for the assessee has contended that as per statement of Shri Jagdish Somabhai Patel, the sum of Rs.30 lacs is unaccounted income of the preceding year. Therefore, the same cannot be taxed in the year under consideration. However, we find that the Revenue has not made any addition on the basis of statement of Shri Jagdish Somabhai Patel. The Assessing Officer has made the addition of Rs,30 lakhs because of unexplained credit in the name of five creditors in the assessee's books of accounts during the accounting year relevant to the asst. year under consideration. Coming to the contention of the ld. counsel that since the credit was on the 1st day of the accounting year, sec,68 would not be applicable, we find that the Hon'blo Jurisdictional High Court as well as Hon'ble Apex Court have held agains the assessee in this respect. In the case of Mansurali Vallbhani Dudhani (supra) the Assessing Officer has made the addition of Rs.72,000/- for unexplained cash credits. The same was sustained by the AAC. However, the ITAT deleted the addition on the ground that the credit was made on the 1st day of the year of account and the assessee could not have earned so much amount on the 1st day of the year of account. On appeal by the Revenue, the Hon. Jurisdictional High Court reversed the finding of the ITAT and held that the sum of Rs.72,000/- shown credited in the capital account is liable to be added as income u/s 68 of the Act.3
8. The Hon'ble Apex Court also considered similar arguments. In the case of Orissa Corporation P.Ltd, (supra). At page 82 of the Reports. Their Lordships have distinguished the provisions of sec.68 in the Income-tax Act, 1961 with its similar provision in the Income-tax Act, 1922 and observed at page 82 of the Reports as under :-
"Under the 1922 Act, where a large amount of cash was found credited on the very first day of the accounting year, and considering the extent of the business, it was not possible that the assessee earned a profit of that amount in one day, the amount could not be assessed as the income of the year on the first day on which it was credited in the books. Under this section even in such a case, the unexplained cash credit might be assessed as the income of the accounting year for which the books are maintained. See, in this connection, the observation in Kanga and Palkhiwala's Income-tax, Seventh Edicition, VolI, pages 609 and 610."
In view of above decisions of the Hon. Apex Court as well as Jurisdictional High Court, it is evident that sec.68 is applicable even when there is credit on the first day of the accounting year. The ld. Counsel for the assessee has relied upon the decision of Hon. Jurisdictional High Court in the case of Mitesh Rolling Mills (P) Ltd. (supra) to support his claim that addition u/s 68 cannot be made when the credit is on the 1st day of the accounting year. However, we find that the facts in that case were slightly different. In that case, there were credits in the books of accounts of the assessee which was a private limited company and had not commenced the business. On that fact, the Hon. Jurisdictional High Court remanded the matter to the Tribunal for fresh consideration. Therefore, in that case, no law has been laid that if there is a credit on the 1st day of the accounting year sec.68 will not be applicable. On the other hand, the Hon. Jurisdictional High Court only directed the Tribunal to re-adjudicate the matter considering the fact that when there is a credit in the assessee's books of accounts, the assessee company has not even commenced the business. The facts in the case of the assessee were altogether different. The assessee company is already running the business since past several years. Therefore, the above decision of Hon. Jurisdictional High Court would not be of any help to the assessee.
9. It is a settled law that when there is a credit in the assessee's books of accounts, the burden is upon the assessee to establish the identity of the creditor, the creditworthiness of the creditor and genuineness of the transaction. In this case, the assessee has not been able to discharge the above burden. In fact, when the creditors appeared before the AO, they denied having any knowledge about the credits in their names.
4Thereafter, the assessee has also not produced any evidence to establish that the amount is actually deposited by the above creditors and has not given any details with regard to the creditworthiness of the creditors. Therefore, in this case, neither the creditworthiness of the creditors nor the genuineness of the transactions has been proved.
10. The ld. counsel for the assessee has further argued that even if the Assessee is unable to discharge the burden of proving the genuineness of the credits, it is not necessary that addition should be made u/s 68 because sec.68 gives discretion to the AO to make such addition or not to make the addition because the word used u/s 68 is 'may' and not 'shall'. In support of this contention, he relied upon the decision of Hon. Apex Court in the case of Smt. P.K. Noorjahan and also of the Gauhati High Court in the case of Nemi Chand Kothari (supra). We find that in the case of P.K.Noorjahan (supra), the facts were altogether different. In that case, the assessee who was Muslim lady aged about 20 years at the relevant time, had purchased agricultural land for Rs. 34,628/- for Asst. Year 1968-69. The Assessing Officer accepted the assessee's explanation with regard to source of above investment partly and made the addition of Rs.32,628/-.When the matter reached to the Tribunal, the ITAT deleted the addition and held that even though the explanation about the nature and source of purchase was not satisfactory, but in the facts and circumstances of the case, it was not possible for the assessee to earn the amount invested in the property and that by no stretch of imagination could the assessee be credited with having earned this income in the course of the assessment year or was even in a position to earn it for a decade or more. On the above facts, the Hon'ble Apex Court sustained the order of the Tribunal and held that the discretion u/s.69 was not properly exercised by the Income-tax Officer and the Tribunal rightly deleted the addition. However, the facts in appeal before us are altogether different. The assessee is a firm which is in the business of acid and chemicals since several years. There was huge credit of Rs.30 lakhs in the assessee's books of accounts in the names of five ladies who are wives or close relatives of the partners of the assessee firm. The above creditors appeared before the Assessing Officer and stated that they are not aware of any credit in their names in the books of accounts and Shri Jagdish Somabhai Patel, partner of the firm would be able to explain the above credits. When the statement of Shri Jagdish Somabhai Patel was recorded, he fairly admitted that it is unrecorded Income of the firm. Of course, he claimed that it is the income of the past years. However, during the course of hearing before us, the Ld. Counsel for the assessee has fairly admitted that despite the above statement given by the partner Shri Jagdish Somabhai Patel the above income of Rs.30 lakhs is not 5 disclosed in any of the preceding years. In our opinion, sec. 68 has been brought on the statute book to cover the cases where the assessee credits his unrecorded income in his books of accounts in the names of others. Therefore, the present case is the fittest case where sec. 68 should be applied and, therefore, in our opinion, has rightly been applied by the Assessing Officer. We, therefore, uphold the addition of Rs.30 lakhs for unexplained cash credits and reject ground No.1 of the assessee's appeal."
4. Thereafter the AO proceeded to levy the penalty. During the course of penalty proceedings following explanation was submitted by the assessee vide his letter dated 18.6.2005 :-
"During the assessment proceedings the entire facts were submitted to the AO and there was nothing which was concealed.
The detailed discussion of our submissions during the assessment and appellate proceedings will reveal that in the statement recorded, the income of the firm earned during last several years was admitted. However, the addition has been made for the year under reference and there was no positive proof of any concealment of income for the year under reference nor any mala-fide intension. The facts were stated but on account or not being able to satisfy the appeal authorities, the addition was made for assessment year 2000-01 only.
We submit that merely because the fiction of u/s 68 is applied and addition made it could not amount to concealment of income of the year.
As held in CIT vs. Jalaram Oil Mills 253 ITR 192 (Guj) wherein the Hon. High Court after relying upon the Supreme Court decision in P. K. Noor Jahan 237 ITR 570 and earlier decision of the Gujarat High Court has held that even in case of admission (Page 196 para 2 of the judgment), it cannot be said with certainty that the admitted amount was concealed income of year of addition. Also at para E-F at page 197, the high courts has again reiterated that dehors the provision of making addition u/s 68, it is not possible to state with certainty that the said sum would be 'concealed income' of the assessee for the year under consideration. It was also emphasized that the de0partment had to prove that the amount in question was assessee's income of the year under consideration.6
It is respectfully submitted that in view of the above judgment and also considering the bona fide the addition made by not accepting the admission in to does not amount to concealment of income nor any deliberate or malafide attempt on the part of the firm.
Reliance is also placed on the following case laws:-
- CIT vs. Haji Gafar Haji Dadachini 169 ITR 33 (Bom)
- ITO vs. Devibai 84 ITD 342 (Mumbai) It may also be stated that against the confirmation of addition by the appellate authorities, proceedings are being preferred further.
Taking overall view of the matter, and in view of the statements recorded and the submission made earlier as also considering the binding force of the above judgment, we request you to please drop the penalty proceedings initiated by you."
The AO considered the submissions of the assessee and rejected the explanation on the ground that explanation of the assessee that unaccounted income pertaining to earlier years was not found satisfactory as assessee could not adduce any evidence in respect of the claim. He accordingly levied a penalty of Rs.13,78,404/- being 100% of the tax sought to be evaded.
5. The ld. CIT(A) confirmed the levy of penalty. His reasonings are summarised as under :-
"-1. Shri Jagdish Patel in his statement recorded on 20.8.2002 has clearly stated that amount of Rs.30 lacs shown in Asst. Year 2000- 01 in the names of the family members in the books of the assessee was in fact income earned by way of commission on transaction of sale and purchases between different parties;
-2. No specific year-wise amount was given;
-3. Such income was not accounted for in the books;7
-4. No evidence was furnished in respect of years in which it was earned;
-5. The element of concealment is established in the present case; &
-6. It is a case of automatic levy of penalty on the addition of cash credit."
6. He also confirmed the levy of penalty in respect of addition of Rs.5,40,000/- being the amount of interest debited as paid to the creditors.
7. Before us, ld. AR for the assessee submitted that levy of penalty is not justified because amount was credited on the first day of accounting year and assessee company could not have earned this much of income on the very first day. He submitted that it is a good case for making addition, but not for levying penalty as no positive proof of concealment has been found. Further AO has not mentioned any defects in the maintenance of books of account. The income earned pertained to earlier years and, therefore, cannot be said to be concealed income of Asst. Year 2000-01. Further the department has not reopened any assessment of earlier years so as to find any concealment. The ld. AR further submitted that statement of Shri Jagdish Patel should be accepted as a whole. If it is accepted that sum of Rs.30 lacs is unaccounted income of assessee firm then other part of the statement that it pertained to earnings in earlier years should also be accepted.
8. Against this, ld. DR submitted that once the partner has admitted the sum to be unaccounted income no further evidence is required to be collected. The explanation is not found satisfactory as assessee failed to prove that such unaccounted income pertained to earlier years. The Tribunal has confirmed the addition holding that assessee has failed to 8 prove the identity, creditworthiness and genuineness of the transaction. The ld. DR referred to the following decisions:
(1) Balwant Rai & Co. vs. CIT (2005) 274 ITR 269 (All) (2) Nainu Mal Het Chand vs. CIT (2007) 294 ITR 185 (All) (3) Chuharmal vs. CIT (1988) 172 ITR 250 (4) CIT vs. Aboo Mohmed (2001) 250 ITR 313 (Kar) (5) B-TEX Corporation vs. ITO (1993) 46 TTJ (Bom)(TM) 668 for the proposition that where assessee failed to explain the cash credits or failed to substantiate explanation penalty can be levied.
9. We have considered the rival submissions and perused the material on record. In our considered view there is no reason for interference in the order of ld. CIT(A). The reasons are that - the partner of the firm who is managing the affairs of the firm has clearly admitted that what was invested on first April, 1999 was unaccounted income of the firm. In this regard we refer to the question-answer relied on by the AO as under :-
"Question -4 Today all the partners of your firm and the lady depositors who are the partners' wives have stated on oath that the clarification regarding deposits of Rs.30 lacs will be given by Jagdish S. Patel as he is the one who knows about the same. Please explain.
Answer -5 In reply to the above, I have to state that whatever the other partners of the firm and the lady depositors have stated is true and binding on me. As regards deposit of Rs.30 lacs this amount has been collected bit by bit and has been credited in the names of the lady depositors.
Question -6 Over how many years has this sum been collected ? Answer-6 My father Shri Sombhai Shivrambhai Patel was handling the accounts till 1987 after which this responsibility was given to me. Since then this amount has been collected bit by bit. This sum has been collected out of the business income of M/s Acit & Chemicals Co.
Question -7 Have you maintained any year wise details/accounts of this amount for the period 1987 to 2000.9
Answer -7 No. I have not maintained any year wise details/accounts. Question -8 In reply to Q.5 you have stated that the sum of Rs.30 lacs has been collected bit by bit. Has this been accounted for in the books of the firm?
Answer-8 No. This amount has not been accounted for year-wise in the books of the firm but has been taken to the balance sheet in this year.
Question -9 Has this income been earned out of purchases/sales of Acid and Chemicals Co. or by any other means ? Please explain the modus operandi.
Answer -9 Yes. The purchase and sale is of acids & chemicals (products) but not of purchase & sale of M/s Acid & Chemicals Co. We have acted as mediators between purchasers and sellers of these products and out of the deals finalized between such third parties, we have received commission income. This income is therefore the commission income from third parties.
Question-10 Are you earning the above commission income from both purchasers and sellers ? Please clarify.
Answer-10 This type of income/commission is usually charged from sellers only but sometimes, depending on urgency of the purchasers requirement, we earn the commission from purchasers also. I wish to emphasize that there is no fixed percentage of such commission.
Question-11 Are such purchasing and selling parties from whom you have earned commission fixed i.e. regular?
Answer-11 No. such purchasers and sellers are not fixed. Even the goods traded in are not fixed. Acids & Chemicals are of thousand varieties in majority of dealings the products traded in are mainly acids or chemicals and very rarely any other item.
Question-12`Why has the amount of Rs.30 lacs been shown in the balance sheet for Asst. Year 2000-01only. Please clarify.
Answer-12 This amount had been collected since long. In order that this should not be a cause for difference amongst partners, this amount was credited in the books in the names of all five partners wives.
Question-16 Can you give the names and address of at least 2 or 3 persons from who whom you have earned the commission income?10
Answer-16 I do not remember any such parties."
From the above statement following things are apparent :-
(1) Sum of Rs.30 lacs is unaccounted income of the firm. (2) No year-wise details or account has been maintained. (3) It is claimed that the sum has been collected out of business income of the firm from 1987 onwards.
(4) The amount is not recorded in the regular books. (5) This amount represented commission charged from parties for whom sales and purchases were arranged.
(6) The sum of Rs.30 lacs is not shown in the balance sheet. (7) He does not remember the details of parties who have paid this commission income.
(8) The amount was credited in the books to avoid the differences among the partners.
No doubt this much of evidence is sufficient for sustaining the addition as held by the Tribunal in its order on quantum addition and which is referred to above, but it is not necessary that AO is always bound to collect further evidence over and above what is used in assessment proceedings. It is to be examined whether evidence collected during the course of assessment proceedings is sufficient to sustain levy of penalty. If in a case where addition is sustained merely by rejecting the explanation of the assessee then for the purpose of levy of penalty such rejection of explanation will not be sufficient and AO has to further bring positive material to show that addition represents concealed income of the assessee or in respect of which assessee has furnished inaccurate particulars. Prior to 1.4.1964 the requirement for levying penalty was to establish mens rea. If AO was not able to collect evidence in respect of mens rea of the assessee then penalty could not have been sustained. After removal of the word "deliberate" from the provision of section 271(1)(c) the material to establish mens rea was no longer considered necessary. Still certain courts have held that word concealment itself 11 contains an ingredients of mens rea and, therefore, to some extent AO is bound to collect evidence to show that assessee has concealed the particulars of income or furnished inaccurate particulars of income. Subsequently after 1.4.1989 explanation was added to the provisions of section 271(1)(c) providing therein two clauses (A) & (B). If penalty could not be levied under the main provision then it could be levied under Explanation-1 to section 271(1)(c) if ingredients mentioned in terms of explanation are satisfied. When those ingredients are satisfied a deeming fiction is invoked for treating the amount of addition as the amount in respect of which assessee has concealed particulars of income or furnished inaccurate particulars of income. It is not necessary that while initiating penalty proceedings AO should specifically mention invoking either the main provision or explanation. If penalty is initiated under the main provision then it could be levied under explanation also. It is not necessary that there should be any specific reference to the explanation dealing with deemed concealment of income. We derive support from the decision of Hon. Supreme Court in the case of K.P. Madhusudan vs. CIT (2001) 251 ITR 99 (SC). In the present case penalty is not only leviable under main provisions but also under the explanation. Therefore, the arguments of ld. AR that AO was not specific in mentioning the main provisions or the explanation and on that ground penalty should be cancelled, is not sustainable. When we apply the main provision for levying penalty the ingredients required to satisfy are -
(1) Assessee has concealed the particulars of income; (2) Or furnished inaccurate particulars of such income.
While filing the return of income the assessee has shown the amount of Rs.30 lacs as cash credit of the ladies in the firm and it accordingly treated them and claimed interest expenditure thereon as a whole. On the 12 other hand enquiry carried out by the AO revealed that the amount represented income of the firm not accounted for. It was clearly furnishing of inaccurate particulars in the return of income. No doubt for showing what is inaccurate onus is on the AO. Here it is shown that correct facts are that the credits represented unaccounted income of the assessee and not were actually genuine cash credits. Once it is established that Rs. 30 lacs represented unaccounted income of the assessee then charge laid down in the main provision is established. There is no further duty cast on the AO to bring more material in support of what is finally admitted by the partner of the firm. This statement was not controverted/retracted in any of the proceedings. The AO had called the ladies partners and recorded their statement who showed their ignorance about the money deposited in their names in the firm and referred to the name of the managing partner Shri Jagdish Patel. Therefore, it is not a case where AO relied only on the surrender made by the managing partner but he relied also on the statements of the creditors being the ladies members of the family. Since money was deposited in cash in the firm there was no scope of carrying out any further enquiry and collect more material as sought to be argued by the ld. AR. Where money is deposited in cash as credit, creditor is called his/her statement is recorded and when they deny any knowledge or connection with the money deposited in their names in the firm, and thereafter, managing partner admits the same as undisclosed business income of the firm then it is not a case of mere surrender and addition thereon but it is a case where all possible avenues of enquiries have been explored by the AO and, thereafter addition has been made.
10. In Balwant Rai & Co. vs. CIT (supra) the facts before Hon. Allahabad High Court were that AO made addition of Rs.13,000/- being 13 cash credit and imposed penalty under section 271(1)(c) by invoking Explanation-1 to section 271(1)(c) of the Act. It was held that assessee did not offer any explanation regarding the source of deposit of Rs.13,000/- in the assessment proceedings or in penalty proceedings. Accordingly in view of clause (A) of Explanation-1 to section 271(1)(c) the amount of rs.13,000/- had to be deemed income in respect of which particulars had been concealed by the assessee.
11. In Nainu Mal Het Chand vs. CIT (supra) the facts before Hon. Allahabad High Court were that the deposits of Rs.1,65,000/- appeared in the name of minors as cash credits which was added in the hands of assessee firm. The explanation of the assessee was found to be false by all the authorities including the Tribunal. On the issue of levy of penalty under section 271(1)(c) Hon. Allahabad High Court held that profits of the firm have been diverted through the deposits. The assessee was not able to substantiate the explanation to the effect that depositors had received gifts in any previous year or had any independent source of income or to prove that explanation was bona fide. There was no documentary evidence in support of the assessee's contentions giving the names of the persons from whom alleged gifts were received. No such evidence was disclosed to the department. Minor depositors were intimately related to the persons of the assessee firm. On this basis penalty was held valid.
12. In Chuharmal vs. CIT (supra) watches of foreign make valuing Rs.87,455/- were seized by Customs Authorities from the assessee's bed room. No statement was given by the assessee. Subsequent opportunities granted were not availed. He also did not avail personal hearing and opportunity of cross-examination of the witnesses in whose presence 14 Panchnama was prepared. In the return for the Asst. Year 1974-75 value of those watches were not declared by the assessee and, therefore, the same was added as assessee's deemed income under section 69A. Penalty for concealment was also levied by invoking the explanation to section 271(1)(c) as the assessee failed to discharge the onus lying on him of proving that watches did not belong to him. The Hon. High Court confirmed the levy of penalty in appeal. In further appeal, Hon. Supreme Court held that onus of proving that assessee was not owner of the goods found in his possession was on that person and revenue authorities can invoke the principles of Evidence Act in the proceedings before them. Under the circumstances where returned income was less than 80% of the seized income, penalty was leviable within the meaning of explanation to section 271(1)(c).
13. In CIT vs. Aboo Mohmed (supra), the facts before Hon. Karnataka High Court were that a cash of Rs.10,51,650/- was seized on 1.1.86 from the assessee by Customs and Central Excise Authorities. This amount was requisitioned by the Income-tax Department under section 132A on 3rd January, 1986. The assessee filed return of income on July, 1986 and including therein the seized cash. The addition was sustained in appeal. The AO levied penalty under section 271(1)(c). Even though penalty was cancelled by the Tribunal, Hon. Karnataka High Court held that assessee failed to prove the source of acquisition of that money and ultimately had offered the amount for taxation.
14. B-TEX Corporation vs. ITO (1993) 46 TTJ (Bom) (TM) 668 (supra) the assessee had filed revised return showing further income and assessments were made ex parte. In all appeals assessments were set aside. The assessee further revised the return by admitting higher income.
15The assessments were completed on the revised return. It was held that levy of penalty is justified because no creditor appeared before the AO and assessee surrendered further income on questioning by the department. The filing of the revised return was not voluntary and there was material on record to show that the department was enquiring into the genuineness as well as creditworthiness of the loan at which point of time assessee came forward with the filing of voluntary returns thereby preventing the department from pursuing the matter further.
15. When we apply the principles laid down in above cases to the facts of the present case, we find that the AO had carried out enquiries into the cash credit of Rs.30 lacs, summoned the creditors recorded their statements, who expressed their ignorance about the creds and informed the AO that Shri Jagdish Patel knew every thing. It was only after this that the AO summoned Jagdish Patel, recorded his statement, who finally surrendered the sum of Rs.30 lacs as an income of the firm. Secondly the creditors were not strangers to the firm and they were wives of the partners or close relations. Their names were used to introduce the unaccounted income of the firm. Thirdly, no evidence has been furnished by the firm so as to show as to in which year such income was earned. No name of any party allegedly giving commission to the firm was given. The information provided by Shri Jagdish Patel was unsubstantiated and was also not subjected to any verification by the department as no verifiable information was provided.
16. From the discussion held above we hold that penalty is also leviable within the meaning of Explanation 1(B) of section 271(1)(c). There are three ingredients which are required to be satisfied. They are -
(i) assessee offers an explanation which he is not able to substantiate, (ii) 16 he fails to prove that such explanation is bona fide & (iii) he fails to prove that all the facts relating to the explanation and material to computation of his total income has been disclosed by him. The explanation furnished by the assessee firm is that the cash represented unaccounted income earned in earlier years particularly from 1987 onwards. This unaccounted income was earned by way of commission charged from parties for whom the firm mediated as mediator for effecting their sales and purchases. This explanation was not substantiated in as much as no specific year of earning income was informed, no name of the parties for whom such mediation was done was given, no rate of commission was also provided. No documentary evidence in support of explanation was furnished. Therefore, not only assessee was unable to substantiate the explanation furnished by him but also failed to prove that all the facts relating to the explanation are disclosed by him. Once the ingredients of clause (B) to Explanation-1 to section 271(1)(c) are fulfilled and AO has clearly established that clause (B) can be invoked then levy of penalty has to follow. In view of this, levy of penalty is confirmed and appeal of the assessee is dismissed.
17. In the result, the appeal filed by the assessee is dismissed.
Order pronounced in Open Court on 23/4/2010
Sd/- Sd/-
(T.K. Sharma) (D.C.Agrawal)
Judicial Member Accountant Member
Ahmedabad,
Dated : 23/4/2010
Mahata/-
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Copy of the Order forwarded to:-
1. The Appellant.
2. The Respondent.
3. The CIT(Appeals)-
4. The CIT concerns.
5. The DR, ITAT, Ahmedabad
6. Guard File.
BY ORDER,
Deputy/Asstt.Registrar
ITAT, Ahmedabad
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