Income Tax Appellate Tribunal - Jaipur
Late Hari Shankar Khandelwal, ... vs Acit, Bharatpur on 29 August, 2017
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
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BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YADAV, AM
vk;dj vihy la-@ITSSA No. 15/JP/2011
fu/kZkj.k o"kZ@Assessment Years Block Period : 1987-88 to 97-08.
Shri Gaurav Khandelwal cuke The ACIT,
Shri Ashish Khandelwal Vs. Circle,
L/H of Late Hari Shankar Khandelwal, Bharatpur.
S/o L. Sh. Murari Lal
Through L/H Smt. Kamlesh Khandelwal
R/O Kumher (Bharatpur)
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No. ACMPK 5670 Q
vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrh dh vksj ls@Assessee by : Shri P.C. Parwal (CA)
jktLo dh vksj ls@ Revenue by : Smt. Rolly Agarwal (CIT)
lquokbZ dh rkjh[k@ Date of Hearing : 17.08.2017.
?kks"k.kk dh rkjh[k@ Date of Pronouncement : 29/08/2017.
vkns'k@ ORDER
PER SHRI KUL BHARAT, J.M.
This appeal by the assessee is directed against the order of ld. CIT (Appeals), Alwar dated 15.07.2011 pertaining to Block Period 1987-88 to 1997-98 (upto 25.02.1997). The assessee has raised the following grounds of appeal :-
1. As per facts, circumstances and legal position of the case the ld.
CIT (A) has grossly erred by confirming and enhancing the penalty imposed by the AO of Rs. 11,55,246/- u/s 158 BFA (2) of the Income Tax Act, 1961.
2. No proper opportunity has been provided by Ld. CIT (A) to the assessee.
2ITSSA 15/JP/2011 Late Hari Shankar Khandelwal
2. Briefly stated the facts of the case are that a search under section 132 of the Income Tax Act, 1961 (hereinafter referred to as the Act) was carried out at the premises of the assessee on 25.02.1997. A notice under section 158BC of the Act was issued on the assessee on 05.08.1997 requiring the assessee to file return of income. In compliance to the notice, the assessee filed return of income on 06.10.1997 for the block period 01.04.1986 to 25.02.1997 declaring total undisclosed income of Rs. 82,500/-. The AO framed the assessment under section 158BC(c) at a total undisclosed income at Rs. 43,78,571/- on 26.02.1999 and initiated penalty proceedings under section 158 BFA (2) by issue of notice u/s 158BFA(2) of Act. Aggrieved by this order, the assessee preferred an appeal before ld. CIT (A) who vide his order dated 05.05.2003 reduced the total undisclosed income at Rs. 21,43,018/-. Against this order, the revenue as well as the assessee had preferred appeal to the ITAT, who vide its order dated 23.11.2004 reduced the total undisclosed income at Rs. 20,07,910/-. The miscellaneous application filed by the assessee against this order was rejected by the Tribunal.
2.1. Subsequently, the AO framed the penalty order under section 158BFA(2) dated 27.06.2005, wherein he imposed penalty on account of total undisclosed income of Rs. 19,25,410/-. Aggrieved by this order, the assessee preferred an appeal before the ld. CIT (A), Alwar, who vide his order dated 15.07.2011 confirmed and enhanced the penalty.
3. Now the assessee is in appeal before this Tribunal.
3ITSSA 15/JP/2011 Late Hari Shankar Khandelwal
4. The solitary ground agitated by the assessee is regarding confirming and enhancing the penalty imposed by the AO of Rs. 11,55,246/- under section 158BFA(2) of the Act.
4.1. The ld. Counsel for the assessee reiterated the submissions as made in the written brief. The submissions of the assessee are reproduced as under :-
"At the outset it is submitted that the undisclosed income determined by the AO at Rs.19,25,410/- and by CIT(A) at Rs.24,66,998/- is incorrect. In working out such undisclosed income both the lower authorities have considered the various assets which has been disclosed in the return for block period but ignored the various claims which is allowed by the lower authorities in quantum appeal. The correct difference between the returned income and assessed income is only Rs.18,53,654/- as detailed below:-
Particulars As per As per AO After After Difference
return CIT(A) ITAT
order order
Cash & bank balances 21,061/- 23,663/- 21,061/- 2 1,061/- -
Pawned Advances 93,000/- 1,37,000/- 99,680/- 99,680/- 6,680/-
Int. on pawned advances - 1,09,130/- - - -
Unsecured Loan - 9,59,570/- - - -
Debtors 7,62,850/- - 7,62,850/ 7,62,850/- -
Interest on loan - 90,438/- - - -
Investment in FDR, 63,900/- 1,81,650/- 1,80,150/- 1,26,150/- 62,250/-
shares etc.
Interest on above - 30,443/- - - -
Motorcycle 10,000/- 10,000/- 10,000/- 10,000/- -
Gold & Silver - 2,53,790/- 71,393/- 71,393/- 71,393/-
Excess Stock 1,00,000/- 4,15,167/- 1,70,167/- 1,70,167/- 70,167/-
Household Expenses+ 2,66,500/- 12,16,752/- 3,72,000/- 5,04,000/- 2,37,500/-
Land Purchased
Unexplained investment - 31,080/- 31,080/- 31,080/- 31,080/-
in demand draft
Security Amount 8,00,000/- 8,00,000/- 8,00,000/- 8,00,000/- -
Receivable from Apollo
Interest income from - 75,388/- 75,388/- 75,388/- 75,388/-
Apollo Tyres
FDR pledged for 51,000/- 51,000/- 51,000/- 51,000/- -
obtaining bank limit
Total 21,68,311/- 43,85,071/- 26,44,769/- 27,22,769/- 5,54,458/-
Less:-
Asset as on 01.04.1986 1,80,000/- - 1,80,000/- 1,80,000/- -
Agricultural Income 2,90,000/- - 2,00,000/- 2,58,055/- 31,945/-
Sale of agricultural land 1,33,750/- - 8,000/- 8,000/- 1,25,750/
4
ITSSA 15/JP/2011
Late Hari Shankar Khandelwal
Loan against FDR 6,500/- 6,500/- 6,500/- 6,500/- -
Sundry Creditors 10,76,501/- - - - 10,76,501/-
Income below taxable 3,85,500/- - 1,88,000/- 3,20,500/- 65,000/-
limit
LIC Policy credit 13,560/- - - 13,560/- -
Net undisclosed 82,500/- 43,78,571/- 20,62,269/- 19,36,154/- 18,53,654/-
income
Difference in appeal - - 71,751/- 71,751/- 71,751/-
effect
Total 82,500/- 43,78,571/- 21,34,020/- 20,07,905/- 19,25,405/-
Out of the above differences, the AO/ CIT(A) picked certain difference and imposed penalty ignoring the additions which finally remained after the order of ITAT/AO in set aside proceedings. Further it is ignored that the additions are on estimated basis or by incorrect appreciation of facts & documents on record. It is a settled law that penalty proceeding & assessment proceeding are independent proceeding. The lower authorities in penalty proceeding have not examined the issues independently. They mechanically imposed the penalty even on that income which is disclosed by the assessee in the return. Hence, penalty imposed by AO and enhanced by CIT(A) without appreciation of facts and proper application of mind is unjustified and be deleted.
2. So far as the individual additions which remained to the undisclosed income declared by the assessee in the return, penalty is not imposable for the reasons stated hereunder:-
Cash & Bank Balance Rs.21,061/-
In search cash & bank balance was found at Rs.23,663/- out of which Rs.21,0611/- is considered by assessee himself in the return for block period. This is finally accepted . Thus, when this amount is already offered by the assessee in the return no penalty on this amount is imposable u/s 158BFA(2). Hence, both the lower authorities have erred in imposing the penalty on this amount.
Advance against pawned jewellery Rs.99,680/-
(i) In course of search pawned gold jewellery of net weight of 358 gms was found and seized as per Annexure JX dated 25.2.97 (PB 12). Inspite of repeated request vide letter dt. 3.3.97, 20.5.97 and 3.10.97 the list of actual pawned advances given against these items were not prepared. The assessee therefore on estimated basis took the amount of advance against these items at Rs.93,000/- while preparing the block return (PB 5). The assessing officer thereafter vide letter dt. 28.1.99 provided following details of these advances stated to be prepared at the time of search:
Item Net Wt. Date Int Rate Name Amount
Dastane Pair 1 54 gms Pose sudi 3, 2048 1.25% Not clear
40,000
Dastane Pair 2 45 gms Pose sudi 3, 2048 1.25% Not clear
Gold Bangles 4 24 gms Asoj Budi 4, 2051 1.35% Dhanesh Chand 10,000
Gold Bangles 4 55 gms Asoj Budi 4, 2049 1.35% Dhanesh Chand 42,000
Mohar Pcs. 4 180 gms Falgun Budi 7, 2044 1.35% Panna Lal Jain 45,000
Total 358 gms 1,37,000
5
ITSSA 15/JP/2011
Late Hari Shankar Khandelwal
The AO treated the amount of Rs.1,37,000/- as pawned advances and assessed the same as undisclosed income for the block period. (Page 5, para 10 - P.B. 51)
(ii) In appeal, the CIT(A) reduced the same to Rs.99,680/- by giving following finding (Para 6.3 at page 6- P.B.65): -
"The value taken by the AO is (not) considered reasonable in view of the fact that the whole jewellery taken against pawned advances cannot be said to be of standard gold of 24 carats. The submission of the ld. AR can be accepted to the extent of 70% of total weight towards pawned advances. Therefore, the total unexplained investment amount comes to Rs.99,680/- as against Rs.93,000/- declared by the appellant assessee."
(iii) The Hon'ble ITAT uphold the order of CIT(A) by giving following finding:-
(P.B.87-88) "The ld. CIT(A) opined that about 70% of the value of pawned jewellery is normally given as an advance to pawnee. After appreciation of facts we find that the order of the ld. CIT(A) is not laconic in any manner. Hence we decline to interfere with his order"
(iv) From the above facts it can be noted that the assessee has disclosed the value of pawned advances on estimated basis in the absence of list of actual pawned advances. Therefore, in the absence of the actual list, the ld. CIT(A) estimated that advance has been given at 70% of the total weight and estimated the amount advances at Rs.99,680/-. This was upheld by the ITAT. Thus the difference of Rs.6,680/- between investment declared by the assessee and that finally assessed is only on account of estimation. However, ignoring this fact, the lower authorities have imposed penalty on the entire amount of Rs.99,680/- which is apparently incorrect & against the provision of section 158BFA(2). In any case since addition is on estimate basis, no penalty is leviable as held in various cases relied at Para No. 3 below.
Unsecured Advances Rs,6,69 850/-
In search debtors of Rs.7,62,850/- were found as per -annexure A-20 & A-2. This was considered by the assessee in filing the block return. The AO, however wrongly considered it as unsecured advances at Rs.9,59,570/-. The CIT(A) at para (PB 68) held that addition of Rs.9,59,570/- made by the AO is to be deleted and this is to be substituted by the debtors disclosed by the assessee at Rs.7,62,850/-. This is affirmed by Hon'ble ITAT (Para 10, PB 89). In the penalty order the AO noted that out of Rs.7,62,850/-, an amount of Rs.93,000/- is shown by the assessee and therefore he took the unsecured advance at Rs.6,69,850/- on which penalty was imposed. However, CIT(A) considered it at Rs.7,62,850/- on which the levy of penalty is confirmed. It may be pointed out that the lower authorities have not appreciated the fact that when the assessee himself has considered the amount of debtors in the block return in computing the undisclosed income, no penalty can be imposed on this amount u/s 158BFA(2). Hence, the levy of penalty of this amount is uncalled for and needs to be deleted.
6ITSSA 15/JP/2011 Late Hari Shankar Khandelwal Investment in FDR, shares etc. for Rs.1,26,450/-
(i) In course of search valuables as per Annexure S (P.B. Page 15-17) were found and seized, details of which are as under:-
Name in which Nature of investment Amount
Investment held
Shri Hari Shanker Shares & debentures 13,750
Units 35,900 49,650
Smt. Kamlesh Units 10,000
Shares 2,000
IVP dated 14.9.96 1,500
FDR dated 1.10.96 51,000 64,500
Gulab Devi FDR dated 13.6.96 54,000
Promissory Note 12,000 66,000
dt.22.11.90
1,80,150
(ii) The total investment as per Annexure S is of Rs.1,80,150/- but wrongly taken by the AO at Rs.1,81,650/- (AO page 2-3, para 4, PB 48-49) (by considering the maturity value of IVP at Rs.3,000/- instead of its face value at Rs.1,500/-). The assessee considered valuables of Rs.63,900/- as unexplained investment while computing the undisclosed income for the block period.
(iii) The CIT(A) (PB 70, para 9.3) confirmed the addition for unexplained investment at Rs.1,81,650/- by holding that the assessee failed to substantiate his arguments with documentary evidence for investment made in his name and in name of his wife and mother.
(iv) The Hon'ble ITAT (PB Page 100-104) did not accept the explanation of assessee that investment in the name of Smt. Karnlesh Khandelwal, wife is from her own sources by holding that she was not having any source of income and no nexus has been established between the amount received from partnership firm M/s Moran Lai Kapoor Chand and the investments said to be made by Smt. Kamlesh. In respect of investment of Smt. Gulab Devi, mother of the assessee, the matter was restored to the file of the AO for verifying that the FDR's were purchased out of the LTC amount received on death of her husband. On verification the AO found that the source of FDR in name of Smt. Gulab Devi was out of the LIC amount received and thus addition to this extent was reduced from the income of the assessee. The total investment in FDR/shares was thus finally considered at Rs.1,26,150/-.
7ITSSA 15/JP/2011 Late Hari Shankar Khandelwal
(v) From the above it can be noted that the correct amount of investment which is to be considered in the hands of the assessee is Rs.1,26,150/- but the CIT(A) has wrongly considered it at Rs.1,27,650/- while imposing the penalty. The difference of Rs.1,500/- is on account of taking the maturity value of IVP instead of its face value. Against this assessee has considered Rs.63,900/- in computing the undisclosed income. Thus, the difference in the amount considered by the assessee in the return and that finally assessed is on account of treating the investment of Smt. Kamlesh Khandelwal as investment of assessee. It may be noted that if the statement of assessee and his wife is considered in totality it is apparent that the investment in name of assessee's wife belongs to her only. This is clear from following facts:-
- The assessee in reply to Q. No. 6 (PB 20-21) stated that his wife only knows about her movable assets.
- In reply to Q. No. 12, (PB 23) assessee stated that the FDR of Rs.51000/- in the name of his wife was purchased by her from the amount received by her on marriage and out of savings of 20 years.
- The assessee's wife in reply to Q. No. 4 (PB 27) stated that she owns IVP/KVP of Rs.6,000/- or Rs.10,000/-. Thus on the one side she stated that she has no source of income and on the other side she also explained holding of investment This is because of the fact that what she understood by source of income is regular income from business and not from investment.
- The assessee's wife was a partner in M/s Murarilal Kapoor Chand up to AY 1983-84 as is evident from the assessment order of firm (PB 31-32). At that time she had a capital of Rs.21,518/- as per copy of her capital a/c (PB 31-34). The firm got dissolved on 15.11.82 and the amount was received by her. Thus she had an investment of Rs.2l,518/- in firm even in Nov, 1982, hence it is not unreasonable for her to hold investment of Rs.64,500/- which was found at the time of search.
- The assessee's wife after the search filed her return for A.Y 1996-97 and 1997- 98 wherein her capital is shown at Rs.18,500/- as an 31.03.96. All the above facts clearly indicate that the investment in name of assessee's wife belongs to her and she has sufficient funds even prior to commencement of block period to hold these investments.
(vi) From the above facts it can be noted that Smt. Kamlesh Khandelwal categorically accepted that investment in her name belongs to her. The AO has no material to hold that these investments are acquired out of the undisclosed income of the assessee. His explanation is bonafide and not proved to be false. The Hon'ble ITAT has upheld the finding of the CIT(A) solely for the reason that assessee's wife has not filed any return prior to the date of search and nexus of the capital with the firm vis-a vis the investment has not been established. It however ignored the preliminary statement of the assessee and his wife. Only on presumption the investment of assessee's wife were considered in the hands of the assessee. Hence 8 ITSSA 15/JP/2011 Late Hari Shankar Khandelwal on such assumption, without any positive evidence, penalty u/s 158BFA(2) is not leviable on this amount.
(vii) Otherwise also penalty has been levied by the lower authorities on the entire investment whereas the assessee has already disclosed investment of Rs.63,900/- in the return. Hence the penalty levied on the entire amount of Rs.1,26,150/- is incorrect.
Investment in silver for Rs.71,393/-
(i) In course of search gold jewellery weighing 292 gms was found as per Annexure J. (PB 12-14) out of which 13 gms. were found from the room of Smt Gulabi Devi. Further 20.127 Kg of silver items were also found which included 0.557 Kg from the room of Gulabi Devi. The assessee in his preliminary statement stated that around 10 tole of gold ornaments belonging to her marni Smt. Asarfi Devi is also lying with him. Considering all these the search party did not seize any gold ornament and out of silver ornament 18 Kg of silver was seized. In return the assessee treated the gold and silver found as explained. The silver of 18 kg was claimed as ancestral property.
(ii) The AO considered entire gold and silver ornaments as unexplained. However, the CIT(A) deleted the addition in respect of Gold Jewellery but in respect of addition for silver ornaments he stated that it cannot be held that these were acquired from undisclosed income only during block period. Therefore, he held that 5 Kg silver items as ancestral assets acquired prior to the block period and rest 14.57 Kg is acquired from unexplained sources (PB 73, para 10.7). By considering 70% purity and rate of Rs.7,000/- per Kg he sustained the addition to the extent of Rs.71,393/-.
(iii) The Hon'ble ITAT (PB 92, para 17) held that by considering the statement of Smt Kamlesh and looking to the status of the family, CIT(A) had rightly considered that 5 kgs of silver items should be treated as ancestral assets acquired prior to block period and rest 14.570 kgs acquired from unexplained sources during the block period and confirmed the addition to the extent of Rs.71,393/-.
(v) From the above it can be noted that the addition of Rs.71,393/- is in respect of silver of 14.570 kg. This is the ancestral property. The CIT(A) and 1TAT only on estimate basis treated part of the silver as ancestral property. Even the search party verified that these silver items are old and therefore in the panchnama itself it is mentioned that silver of 18 kg is old (PB 14). In search no evidence of purchase of silver was found. Thus the entire addition is on estimation. No evidence was found to indicate that these are the investment for the block period. Hence on such estimated addition penalty u/s 158BFA(2) is not leviable. Reliance in this connection is placed on various cases relied at para 4 below.
9ITSSA 15/JP/2011 Late Hari Shankar Khandelwal Addition on account of excess stock for Rs.70,167/- considered by CIT(A) at Rs.1,70,167/-
(i) A survey was conducted at the assessee's business premises on 25.2.97. In course of survey stock found were valued by the survey party at Rs.4,15,167/- (PB 29-
30) which included stock of Rs.3,15,000/- on account of 35 "Claim Reject Tyres"
valued at Rs.9,000/- per tyre. In the block return, the assessee took the value of stock as on 25.2.97 at Rs.1,00,000/- by stating that the value of claim reject tyres is not more than Rs.100/- per tyre. The AO took the value of stock at Rs.4,15,167/- as per inventory prepared at the time of survey.
(ii) The ld. CIT(A) in (Para 11.3 at page 15-16 - PB 74-75) reduced the addition to Rs.1,70,167/- by holding as under: -
"AO has also not examined the hooks of accounts of the business and without examining the cost or sale price of such 35 rejected truck tyres from the market. The dispute is only as to what cost should be taken for 35 rejected tyres. The AO does not appear to reject the assessee's claim of rejected tyres for replacement. Considering the facts in totality with the sense of equity and justice, it will be fair to take the value of 35 rejected tyres at Rs.2,000/- per tyre. Therefore Rs.1,70,167/- out of total addition of Rs.4,15,167/- is confirmed and the rest Rs.2,45,000/- is deleted."
(iii) Hon'ble ITAT confirmed the findings of CIT(A) by holding as under: (PB 92-93) "We find that in this case the dispute is only as to what cost should be taken for 35 rejected tyres. The AO did not reject the assessee's claim of rejected tyres for replacement. Therefore, the Ld. CIT(A) rightly estimated the value of the rejected tyres @ Rs.2,000/- per tyre and had rightly sustained the partial addition on this account. Therefore we decline to interfere with his order."
(iv) The assessee explained that these tyres were old. The company rejected the claim for replacement of these tyres and the customer did not take back these tyres. Accordingly these tyres were lying with the assessee. The tyres were totally rejected and there was no functional use of these tyres as evident from the description used by the survey party itself while preparing the inventory of stock. These tyres were scrap material for the assessee. The market value of these tyres was not more than Rs.100/- per tyre whereas in the inventory list it has been taken at Rs.9,000/- per tyre and CIT(A) valued it at Rs.2,000/- per tyre. Hence the inclusion of these defective tyres in the value of stock by the AO as well as CIT(A) is incorrect. After excluding the value of these tyres, the value of stock comes to Rs.1,00,000/- only which is also taken by the assessee himself while filing the return for the block period.
(v) From the above it can be noted that addition has been confirmed by including the estimated value of the rejected tyres at Rs.2,000/- per tyre ignoring that such tyre has no value except the scrap value of Rs.100/- per tyre. Thus, the entire addition confirmed is on estimation basis. On such estimated addition no penalty is leviable as held in various cases referred in pars 4 below.
10ITSSA 15/JP/2011 Late Hari Shankar Khandelwal
(vi) The CIT(A) however directed to levy the penalty with reference to the excess stock of Rs.1,70,167/- instead of the penalty levied by the AO with reference to the addition of Rs.70,167/-. These directions of CIT(A)is incorrect as when the assessee himself has considered excess stock at Rs.1,00,000/- in computing the undisclosed income, no penalty can be levied u/s 158BFA(2) with reference to such amount.
Variation on account of household expenditure for Rs.2,42,000/- considered by CIT(A) at Rs.5,04,000/-
(i) The assessee is living in Tehsil Kumher which is a small village having a population of 30-35 thousand. The assessee's family consists of assessee himself, his wife and four minor children. In the block return the assessee took the amount of household expenses for the block period at Rs.2,62.000/-.
(ii) The AO alleged that this was quite low looking to average standard of living and size of his family. He therefore estimated Rs.2.000/- per adult per month and Rs.1,000/- per child per month for the financial year 1996-97. For the other years he has given deduction of 10% for every year and estimated the household expenses for the block period Rs.9,96,752/-. Further considering the social status of the assessee and tradition of providing gifts on occasion and marriage and another ceremony a sum of R.s.20,000/- per year is considered as expenditure other than normal household expenses. Accordingly the total household and other expenses were estimated at Rs.9,96,752/- + Rs.2,20,000/- = Rs.12,16,752/-.
(iii) In appeal, the CIT(A) held that the estimate as made by the AO is not fully justified in view of the fact that the assessee is residing in a small town and he has no conveyance like motorcycle and other facilities. Since the books of accounts have not been maintained there can be a fair estimate only and he estimated the same at Rs.3,72,000/- (PB 78) by estimating the monthly expenditure for the AY 1997-98 till the AY 1995-96 at Rs.4,000/- and Rs.3,000/- per month for the next three preceding year and Rs.2,500/- for the next three preceding years.
(iv) The Hon'ble ITAT estimated the household expenses of the family at Rs.5,04,000/- (PB 94-97) by holding as under:-
"Having regards to the facts and totality of the facts and circumstances of the case we consider it reasonable to estimate the monthly expenditure for the assessment year 1995-96 to assessment year 1997-98 at Rs.5,000/- per month and Rs.4000/- per month is taken for A.Y. 1992-93 to 1994-95 and Rs.3,000/- for AY 1987-88 to 1991-92. The order of the CIT(A) would be modified to this extent and the AO is directed to work out the addition in this way"
(v) From the above it can be noted that the addition is made only on surmises, assumption, presumptions. No document was found in search to suggest that the household expenses of the family are more than that shown by the assessee. The following facts were not considered while estimating the household expenses:-
- The assessee lives in his ancestral house at a small place of Kumher having population of 30-35 thousand.11
ITSSA 15/JP/2011 Late Hari Shankar Khandelwal
- The standard of living of assessee can be seen from the fact that assessee was not having fridge, colour TV, two wheeler vehicle. This fact was also observed by the search party. Only an old Black & White TV was found at the house.
- Children of the assessee are studying in Government Schools,
- The living is very simple and the crops like wheat etc. grown in the agricultural land of assessee were used. Even cattle like cow/buffallow were kept in most of the year falling in the block period and milk was hardly purchased from market,
- In course of search statement of assessee was recorded where he has stated that his household expenses is around Rs.3,000/- per month.
- In case of assessee's brother Shri Kapoor Chand who's family consisted of 7 members full details of house hold expenses for two years was found recorded in course of search and in that case also the actual house hold expenses in financial year 1996-97 was Rs.3,600/- per month approximately. On similar facts, entire addition made on account of household withdrawals in case of Shri Kapoor Chand Khandelwal and Shri Vishnu Khandelwal (brothers of the assessee, residing in the same village) has been deleted by Hon'ble ITAT. Hon'ble Rajasthan High Court in case of Rajendra Prasad Gupta 248 ITR 350 has also held that addition dehors material cannot be made in the block assessment.
(vi) From the above facts it is evident that the entire addition confirmed by the ITAT is on estimate basis. Further CIT(A)has erred in directing to impose the penalty with reference to the amount of Rs.5,04,000/- estimated by ITAT for household expenses ignoring that assessee himself has considered Rs.2,62,000/- towards household expenses while filing the block return. In any case since the addition for household expenses is on estimation basis and not with reference to any incriminating material found in search, no penalty u/s 158BFA(2) is leviable on such amount.
Investment in purchase of demand draft for Rs.31,080/-
(i) In course of search a memorandum book at Annexure A-3 (PB 35-37) was found.
In this book assessing officer found that on 29-10-94 assessee has purchased a draft of Rs.57,075/- whereas he was having balance of Rs.52,000/- only. Further on 31-10-94 he purchased a draft of Rs.6,005/- whereas he was not having balance on that day. Accordingly assessing officer made the addition of Rs.31,080/-.
(ii) CIT(A) (PB 79) confirmed the addition by holding that the assessee could not substantiate his explanation by way of any cogent material/documents.
(iii) Hon'ble ITAT (PB 105-106) confirmed the addition by holing that the assessee cannot be allowed the benefit for the investment in the purchase of bank draft as this has not been reflected in the statement of affairs filed by the assessee.
(iv) It may be pointed out that Annexure A-3 is a memorandum cash-book. On the one side receipt from various sources are mentioned and on the other side payment to 12 ITSSA 15/JP/2011 Late Hari Shankar Khandelwal various persons was mentioned. Neither the opening cash balance was written nor closing balance was mentioned on each day. The assessing officer considered the receipt during the day and payment during the day without considering the opening balance. Relevant pages of the memorandum cash book is at PB 35-37. From the copy of the paper it is apparent that no opening balance was written. Therefore, even the addition for this difference is not justified. Further in present case income is computed on investment and expenditure basis. On this basis investments as on the date of search is considered. The drafts were prepared in the name of Apollo Tyres from where assessee purchases tyres. The stock of tyres as well as debtors of this business as on the date of search is already considered separately. Hence, addition of this amount has resulted into double addition. These aspects were not properly appreciated by Hon'ble ITAT in quantum appeal and also not reconsidered by lower authorities in penalty proceeding. Therefore, on such addition levy of penalty u/s 158BFA(2) is unwarranted.
Security amount receivable from Apollo Tyres Rs.8,00,000/- In search it is found that the assessee has made security deposit of Rs.8,00,000/- with M/s Apollo Tyres. The assessee accordingly while filing the return for block period has included the same. Hence on this amount no penalty can be imposed u/s 158BFA(2) and therefore levy of penalty by the lower authorities on this amount is uncalled for.
FDR Pledged for obtaining hank limit Rs.51,000/-
In search it is found that the assessee has pledged FDR of Rs.51,000/- in bank for obtaining bank limit. The assessee accordingly while filing the return for block period has included the same. Hence on this amount no penalty can be imposed u/s 158BFA(2) and therefore levy of penalty by the lower authorities on this amount is uncalled for.
Investment in motor cycle Rs.10,000/-
The assessee ahs considered this investment while filing the return for the block period. The AO has not levied any penalty on this amount but the CIT(A) has directed to consider this amount for levy of penalty. This is incorrect as no penalty u/s 158BFA(2) is leviable on undisclosed income which is offered in the return by the assessee. Hence, the penalty on this amount be directed to be deleted.
Interest income from Apollo Tyres Rs.75,388/-
(i) The assessee filed the return for the block period on the basis of investment/ expenditure theory and thereof income is not considered as the same is reflected by way of investment/ expenses.
(ii) The AO (PB 50) observed that interest of Rs.75,388/- has accrued to the assessee from Apollo Tyres on the security deposit for the period 03.08.95 to 03.08.96 as per the TDS certificates issued by it. He therefore made the addition.
(iii) CIT(A) in para 14.2 (PB 78) observed that assessee has not included interest income of Rs.75,388/- on accrual basis and therefore he confirmed the addition. Hon'ble ITAT at para 45-47 (PB 104) confirmed the finding of CIT(A) by holding that assessee has received Rs.35,388/- as interest on security deposit from M/s Apollo Tyres which is included by the assessee in the undisclosed income.
13ITSSA 15/JP/2011 Late Hari Shankar Khandelwal
(iv) Both the lower authorities have failed to consider the fact that M/s Apollo Tyres is paying the interest by crediting the same to the account of the assessee. This is evident from the copy of the assessee in the books of Apollo Tyres placed at PB 39-45 for the period 01.06.96 to 24.02.97. After crediting such interest to the account of the assessee, an amount of Rs.10,76,501/- was payable by the assessee to the Apollo Tyres which is claimed by the assessee as his liability (PB 6) while filing the block return. This liability has not been allowed by CIT(A)/ ITAT against which assessee appeal before the High Court is admitted (PB 127). In any case since the interest income is already credited to the account of the assessee and after such credit amount of Rs.10,76,501/- was payable by the assessee to the Apollo Tyres, no separate addition for interest income was required in computing the undisclosed income on asset/ expenditure theory. These facts has not been considered by CIT(A) while directing the AO to impose penalty with reference to this amount. Hence, the levy of penalty on this amount is uncalled for and be deleted.
3. It is submitted that undisclosed income finally computing after the order of ITAT is Rs.19,36,154/- as tabulated in para 1 above. Therefore, the direction of CIT(A) to impose the penalty with reference to the undisclosed income determined by him at Rs.24,66,998/- is otherwise incorrect and therefore the direction given by the CIT(A) to this extent needs to be modified.
4. Section 158BFA(2) provides that the assessing officer may direct that a person shall pay by way of penalty...". The word 'may' indicates discretion of the authority either to levy or not to levy a penalty. In other words the imposition of penalty is not mandatory. It would depend on the facts and circumstances of each case. The assessing officer is not obliged to levy the penalty in each and every case in a routine manner. He has to apply his mind as to whether the facts and circumstances of the case justify imposition of penalty. Discretion is to be exercised judicially having regard to the nature and extent of breach and other relevant circumstances. The lower authorities have imposed the penalty without appreciating the provisions of section 158BFA(2). The penalty has been imposed even on estimation of undisclosed income and on additions made on surmises and conjectures. On such addition penalty is not leviable as held in the following cases:-
CIT Vs. Satyendra Kumar Dosi 315 ITR 172 (HC) (Raj.) From a plain reading of sec. 158BFA(2) it does not appear that in all cases where undisclosed income is determined by the AO under cl. (c) of s. 158BC, the imposition of penalty shall follow as a natural consequence thereof. A discretion is vested with the AO to levy penalty in respect of undisclosed income. It cannot be inferred that the absence of the circumstances enumerated in the proviso to s. 158BFA(2) will attract penalty automatically. Also, there is no presumption that imposition of penalty is automatic for any failure or violation in respect of cases other than those covered by s. 273B. In the instant case, the CIT(A) and the Tribunal have concurrently found that the difference between the undisclosed income assessed and the undisclosed income shown in the return is the result of the estimation of the opening capital prior to the block period and that the capital possessed by the assessee prior to the block period as revealed by the ledger and the material seized during search could not be treated as undisclosed income of the first assessment year in the block period. Thus, no substantial question of law arises from the order of the Tribunal upholding the order of the CIT(A) deleting the levy of penalty under s. 158BFA(2).14
ITSSA 15/JP/2011 Late Hari Shankar Khandelwal CIT vs. Dr. Giriraj Agarwal Giri (2012) 346 ITR 152 (Raj.)(HC) Imposition of penalty depends on facts and circumstances of each case. The AO imposed the penalty on so called three items of so called concealed income. Each item was examined, thoroughly and in detail, by the Commissioner of Income-Tax (Appeals) as well as the Income Tax Appellate Tribunal and by a reasoned order, both came to a conclusion that additions are based on estimation only. A fact or allegation based on estimation, cannot be said to be correct only, it can be incorrect also. Therefore, in the facts and circumstances of the case, penalty was wrongly imposed by the Assessing Officer. Therefore appeal filed by Appellant rejected.
CIT Vs. Dodsal Ltd. 312 ITR 112 (Bom.) (HC) Terminology of s. 158BFA(2) makes it clear that there is a discretion in the AO to direct payment of penalty. It is only if the authority decides to impose penalty then it would not be less than the tax leviable but shall not exceed three times the tax so leviable. Merely because the expression used is "shall not be less than the amount of tax leviable but which shall not exceed three times the amount of tax so leviable", the first part of the section cannot be read as mandatory. Both CIT(A) and Tribunal have recorded reasons for exercise of their discretion in cancelling penalty which did not warrant interference.
ACIT vs. Shanti Kumar Chabara 2 DTR 263 (Jaipur) (Trib.) Additions in block assessment having been made on estimate basis, no penalty under s. 158BFA(2) could be imposed in the absence of any positive finding regarding concealment or suppression of income on the part of the assessee. It is not the intention of legislature to impose penalty under the said provisions on every finally sustained addition in undisclosed income and the condition precedent for imposing penalty under s. 158BFA(2) is that there must be concealment or suppression of income on the part of the assessee to avoid payment of tax thereon Dr. Hakeem S.A. Syed Sathar vs. ACIT 24 DTR 379 (Chennai) (Trib.) Additions having been made on estimate basis, penalty under s. 158BFA(2) cannot be levied. Addition on the basis of estimate does not ipso facto supply evidence of concealment so as to justify penalty.
ACIT v. Ramniwas Bansal ITSSA No 89/JP/03 (Jaipur) The addition made on estimation will not fall within the definition of undisclosed income given in section 158B(b) and therefore on such addition no penalty can be levied.
ACIT v. Dr. Randhir Singh ITSSA No. 153/JP/2003 (Jaipur) No penalty u/s 158BFA(2) can be levied where the addition have been made on estimation without any material/paper found in search.
DCIT Vs. Koatex Infrastructure Limited 100 ITD 510 (Mum.) Levy of penalty u/s 158BFA(2) is not automatic. Where assessee could demonstrate that it was not humanly possible to compute alleged true undisclosed income from the voluminous papers and difference is not a result of intentional concealment but for bona fide mistakes, penalty u/s 158BFA(2) is not imposable.15
ITSSA 15/JP/2011 Late Hari Shankar Khandelwal Mala Dayanithi v. DCIT 91 lTD 46 (Banglore) Penalty u/s 158BFA(2) is optional. On addition made on estimate basis penalty is not leviable.
In view of the above the penalty levied by the AO and enhance by CIT(A) is unwarranted and unjustified and the same be directed to be deleted."
4.2. On the contrary, the ld. D/R opposed the submissions and supported the orders of the authorities below.
4.3. In re-joinder, ld. Counsel for the assessee submitted that the penalty order is not sustainable as the penalty is imposed on legal heir of the deceased assessee.
The ld. Counsel for the assessee has taken us through the provisions of section 159 of the Act in support of his contention. He also placed reliance on the decision of Coordinate Bench rendered in the case of Srikishan Agarwal vs. DCIT in ITA No. 69/JP/2013.
4.4. On the contrary, the ld. D/R opposed the submissions and placed reliance on the another Coordinate Bench decision rendered in the case of late Iqbal Hussain vs. ITO (2007) 111 TTJ 717 (All.). The ld. D/R submitted that this ground was not taken before the ld. CIT (A) and has not even taken before this Tribunal.
4.5. We have heard rival contentions. We find that no ground was taken before ld.
CIT (A) that penalty cannot be imposed on the legal heir(s) of the deceased assessee. Even before this Tribunal also, the assessee has merely made submission and no separate ground is taken. We, therefore, dismiss this ground of the assessee's appeal.
5. Now coming to the merits, ld. Counsel for the assessee reiterated the submissions as made in the written brief, the same are reproduced herein above.
5.1. On the contrary, ld. D/R opposed the submissions.
16ITSSA 15/JP/2011 Late Hari Shankar Khandelwal 5.2. We have heard rival contentions and perused the material on record. There is no dispute that the addition related to sundry creditors has been deleted by the Hon'ble High Court. Therefore, no penalty is called for on this amount.
6. In respect of investment in FDR, shares etc., after relief from the Tribunal the difference remains of Rs. 62,250/-. It is contended by the ld. Counsel for the assessee that the amount of FDR belonging to assessee's wife. She has already accepted the same. The AO has not brought on record any material to hold that these investments are acquired out of the undisclosed income of the assessee. The ld. Counsel submitted that the ITAT has upheld the finding of the ld. CIT (A) solely for the reason that assessee's wife has not filed any return prior to the date of search and nexus of the capital with the firm vis-à-vis the investment has not been established. It however ignored the preliminary statement of the assessee and his wife. Only on presumption the investment of assessee's wife were considered in the hands of the assessee. Hence without any positive evidence, penalty u/s 58BFA(2) is not leviable on this amount. Otherwise also penalty has been levied by the lower authorities on the entire investment whereas the assessee has already disclosed investment of Rs. 63,900/- in the return. Hence the penalty levied on the entire amount of Rs. 1,26,150/- is incorrect.
6.1. The ld. D/R has not controverted the submissions of the assessee.
6.2. We have heard rival contentions and perused the material on record. Taking into consideration all the relevant facts and circumstances of the case and the case laws as relied by the ld. Counsel for the assessee, we find merit into the contentions of the ld. Counsel for the assessee. Therefore, we hereby delete the penalty.
17ITSSA 15/JP/2011 Late Hari Shankar Khandelwal
7. In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 29/08/2017.
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fnukad@Dated:- 29/08/2017.
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vkns'k dh izfrfyfi vxzfs 'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- Shri Gaurav Khandelwal, Shri Ashish Khandelwal L/H late Hari Shankar Khandelwal, through : L/H Smt. Kamlesh Khandelwal, Kumher (Bharatpur).
2. izR;FkhZ@ The Respondent- The ACIT Circle, Bharatpur.
3. vk;dj vk;qDr@ CIT
4. vk;dj vk;qDr@ CIT(A)
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur
6. xkMZ QkbZy@ Guard File {ITSSA No.15/JP/2011} vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar