Income Tax Appellate Tribunal - Mumbai
Haresh K. Dalal, Mumbai vs Assessee on 19 January, 2010
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH 'C ' MUMBAI BEFORE SHRI R K GUPTA, JM & SHRI B RAMAKOTAIAH, AM ITA Nos. 3621 & 3622/Mum/06 (Asst Years 1991-92 & 92-93 ) Shri Haresh K Dalal 7 Balkrishna 1st Floor 98 Sion Road (E) Manav Seva Sangh Mumbai 22 Vs The Income Tax Officer Wad 21(2)(1), Mumbai (Appellant) (Respondent) PAN AAAPD3598R Assessee by: Shri R R Vora Revenue by: Dr P Daniel (Special Counsel) ORDER
PER R K GUPTA:
These are two appeals by the assessee against confirming the levy of penalty u/s 271(1)(c) relating to assessment years 1991-92 and 1992-93.
2 First we will take up the appeal for AY 1991-92 in ITA No.3621/Mum/06.
2.1 Briefly stated the facts are that the assessee was a Member of Bombay Stock Exchange. During the year under consideration the main source of income was brokerage and Badla income. The assessee filed his return of income on 31.10.1991 and the assessment was finalised u/s 143(3) on 30.4.1994.
2.2 A search and seizure action u/s 132(1) of the Act was taken place at the premises on 16.10.92 and continued till 14.6.1993 (nearly for 8 months). During the course of search proceedings, floppies were seized from the assessee's premises containing trial book. About Rs.9 crores of assets were found and seized during the course of search. However, the AO noted that these assets were pertaining to AYs 1993-94; therefore, they were not taken into consideration for the purpose of assessment of the years under consideration. As per the accounts, brokerage was shown at Rs. 1.34 crores by the assessee in its P&L account. During the assessment proceedings, the AO noticed that brokerage income shown by the assessee is not correct as many accounts were found to have been maintained by the assessee in respect of the brokerage business. In these accounts, the brokerage income was found to be higher as compared to the same as per the return of income and the assessee was asked to explain the difference.
2.3 The assessee's explanation was that these were only trial books or trial account and they were not the final account which were neither found or seized by the search authorities as they were lying in the first floor of the assessee's old office in Gundecha Chambers, that the final books were prepared with the help of the trial books and the return was filed on the basis of the final books. It was further explained that the trial books contained many errors due to the lack of familiarity of the operations of the computer with the nature of the assesee's business and the various transactions, that the mistake were also compounded because of the special features of computer software which resulted in many accounts being opened in the computer by the operator and therefore, the brokerage income cannot be properly deduced from such erroneous and incomplete accounts which were only trail accounts. It was further pointed out that the trial books were written with the help of a vallan statement which is basically a complete account of all the transactions pertaining to the assessee's business and the amounts due to payable to the stock exchange at the end of a settlement period which is generally two weeks. These vallan statements had to be prepared after getting the complete particulars of the transactions during the relevant period. The assessee was operating under the control of a major broker namely Shri Munubhai Maniklal. The assessee's Stock Exchange Card was being operated by Shri Munubhai Maniklal who was known to be a big badla financier in the stock market. The assessee had no control over the transactions entered into by Shri Munubhai Maniklal, who used the assesse's card. It was therefore, much difficult to get the complete particulars of all the transactions relating to the vallan statement from Shri Munubhai Maniklal. Shri Munubhai Maniklal did not discharge his obligations to the assessee in a correct and proper manner. Whatever details of statements received from him were also entered in the books, which were found during the course of search and did not reflect and therefore, for these reasons did not reflect the true and correct figures of the various trial balances found recorded in the floppies and accordingly, it was explained that finally the accounts have been prepared on which basis the return was filed.
2.4 The AO did not accept the contention of the assessee. The turnover declared by the assessee was not accepted as in his view; the turnover would not be less than Rs. 2000 crores. Accordingly, he proceeded to estimate the turnover and the turnover of the assessee was estimated at Rs. 2000 crores. Thereafter, the AO proceeded to estimate the brokerage income. The AO noted that in response to the query as to why the brokerage income should not be estimated at 1% of the turnover. The assessee stated that the turnover consisted of 80% as speculative turnover on which the brokerage was only 0.25% and in respect of the balance turnover, it was stated that it ranges between 0.10% to 0.15%. However, the AO was not satisfied with the reply of the assessee; accordingly, he estimated the profit of the assessee at Rs.5,08,88,469/- by applying a profit rate of 0.25%. The CIT(A) also confirmed the action of the AO.
2.5 The assessee preferred appeal before the Tribunal. The contentions raised before the lower authorities were reiterated before the Tribunal. After considering the submissions and perusing the relevant material on record, the Tribunal came to the conclusion that on the facts of the present case, the estimation of brokerage has to be made. While holding so, the Tribunal in para 10 of its order observed that;
" Having given careful consideration to the matter, we are also of the opinion that in a case like this where a huge mess off accounts are involved and there are both trial accounts as well as final accounts, the reasonable course to adopt would be to estimate the brokerage income. It is no doubt true that a reconciliation has been attempted by the assessee and has also been furnished in the course of the assessment proceedings. But in the absence of complete details relating to the transactions that have been recorded, there is limited scope for getting them cross verified. The ld Sr.DR has fairly stated that an estimate of the brokerage income would be reasonable solution. In fact, the department, in its appeal does not appear to have challenged the order of the CIT(A) on the ground that an estimate is the only solution to the problem. This is presumably because the entire addition has been sustained by the CIT(A), but u/s 253(2) of the Income Tax Act, the department is entitled to file an appeal even if it 'objects' to an order passed by the CIT(A) and it is not necessary that it should be 'aggrieved' by such order."
2.6 Thereafter, the Tribunal analysed the reconciliation filed on behalf of the assessee and found that the turnover shown by the assessee at Rs. 1182.01 is correct. In para 10, the Tribunal has recorded that;
"the assessee has also stated that he has undertaken transactions for other brokers on accommodation basis in respect of which no brokerage was charged and such turnover amounted to Rs. 343.70 crores. A note in this connection has been filed at page 85 of the paper book no.1.Thus, the gross turnover was Rs. 1525.71 crores. As regards the rate of brokerage, which has been taken at 0.25% by the AO, the assessee has stated that the rate of brokerage adopted is very high and it should be adopted in the range of 0.10% to 15% only. The figures given in regard to the turnover have not been doubted by the CIT(A) nor is there anything in his order to show that the AO, who was present during the hearing before him took any objection to them or found any fault in them."
2.7 Taking into account these facts, the Tribunal accepted the turnover shown by the assessee at Rs. 1182.01 crores and on account of transaction for other brokers at Rs. 343.70 crores totalling to Rs.1525.71 crores. The Tribunal applied the rate at 0.25% on the turnover of Rs. 1181.01 crores; however on Rs. 343.70, the profit was applied at 0.15% which resulted the profit of Rs. 3,47,05,750/- against the profit of Rs.5,08,88,469/- estimated by the AO.
2.8 Certain other additions which were also made were deleted by the Tribunal; however, an addition of Rs. 1 lacs u/s 68 and an addition of Rs.30,000 on account of inflated sub-brokerage was sustained by the Tribunal.
2.9 Thereafter, the AO issued penalty notice on the assessee. At page 2 of the AO's order, it has been recorded that penalty notice is issued in respect to concealment of income of Rs. 2,12,95,989/- on account of suppressed brokerage income and Rs. 1 lacs on account of unexplained loans added u/s 68 and on account of inflated sub-brokerage of Rs. 30,000/-
2.10 After considering the submissions and the order of the Tribunal and other various case laws, the AO came to the conclusion that penalty is leviable on the amount concealed by the assessee. Accordingly, he levied penalty @ 150% of the tax evaded being Rs.1,79,97,830/- u/s 271(1)(c). The assessee preferred appeal before the CIT(A), who also confirmed the action of the AO; however, the rate of penalty was reduced from 150% to 100% of tax evaded. Item wise additions have been discussed by the CIT(A) and concluded that the AO was correct in levying penalty on the three additions sustained by the Tribunal.
3 As stated above, penalty was reduced to Rs. 1,19,98,553/- which resulted a part relief to the assessee of Rs. 59,99,277/- Now, the assessee is in appeal here before the Tribunal.
4 Detailed written submissions were filed by the ld counsel of the assessee and also by the ld Special counsel of the department. Copies of the same were given to each other. The written submissions were explained by both the parties in brief and reliance has been placed on various case laws mentioned therein in their respective written submissions.
5 We have heard the rival submissions and have taken into consideration the written submissions filed on behalf of the assessee as well as on behalf of the department. We have also taken into consideration the various case laws relied upon by both the parties through their respective written submissions.
5.1 In para 9 of the written submissions filed on behalf of the assessee, it has been stated that penalty u/s 271(1)(c) of the Act is not automatic. Penalty proceedings are different from assessment proceedings. Merely if an addition has been confirmed in the quantum proceeding, the penalty does not become automatically leviable. It has been further stated that penalty cannot be levied on debatable issues and also penalty cannot be levied on estimated additions because penalty u/s 271(1)(c) of the Act is quasi criminal in nature. Development post Dharmendra Textiles Processor's decision has also been explained.
5.2 It is settled position in law now that levy of penalty is not automatic as in the Act itself, it has been provided that penalties are levied only in appropriate cases. The explanation 1 to section 271(1)(c) of the Act provides that penalty cannot be imposed by the AO unless the Explanation offered by the assessee is found false or is not proved bonafide. Assessment proceedings and penalty proceedings are distinct and separate.
5.3 In the case of Suresh Chandra Mittal in 251 ITR 9 (SC), the findings of the Hon'ble Madhya Pradesh High Court in the case of Suresh Chandra Mittal in 241 ITR 124 have been affirmed; wherein it has been held that when the assessee has declared the income in his revised returns and has given the explanation that he had done so to buy peace with the department and to come out of vexed litigation, then it could be treated as bonafide in the facts and circumstances.
5.4 In various other cases, the Hon'ble Supreme Courts and Tribunal have held that in absence of any finding that the explanation offered by the assessee was false and that bonafide was not proved, penalty imposed by recourse of Explanation 1 to sec. 271(1)(c) of the Act was invalid. Such decisions are pronounced in the cases of KC Builders & Another in 265 ITR 562 (SC); in the case of Smt Devibai H Parmani in 84 ITD 342 (Mum); in the case of Kumar Agencies (India) in 87 ITD 69 (Mum) and in the case of Star International P Ltd in 23 SOT 88 (Lko).
6 In view of these observations, we hold that penalty leviable u/s 271(1)(c) is not automatic. There is also no dispute that penalty proceedings are distinct from the assessment proceedings as held by the Hon'ble Supreme Court in the case of T Ashok Pai reported in 292 ITR 11 wherein it has been held that;
"Penalty proceedings are independent proceedings. Since penalty proceedings are independent of the quantum proceedings, the matter has to be considered afresh in the light of the applicable penalty provisions."
6.1 Similar view has been expressed in various other cases i.e. in the case of Banaras Textorim in 169 ITR 782 (All); in the case of Ajaib Singh & Co in 253 ITR 630 (P&H); in the case of Inden Bislers in 240 ITR 943(Mad) and in the case of Shivlal Desai & Sons in 114 ITR 377.
7 In view of the above case laws, we hold that since the penalty are distinct to the assessment proceedings; therefore, on the facts of the particular case, it has to be judged whether on these facts, penalty u/s 271(1)(c) is leviable or not.
8 In the present case, most of the additions have been made on account of estimation of turnover at Rs.2000 crores by the AO by applying a profit rate of brokerage @ 0.25% of the total turnover. The CIT(A) has also confirmed the action of the AO. However, on second appeal before the Tribunal, the Tribunal has accepted the turnover disclosed by the assessee at Rs. 1182.01 crores and transactions undertaken for other brokers on accommodation basis at Rs.343.70 crores, totalling to Rs. 1525.71 crores. The Tribunal has applied two rates of profit on the turnover. On the turnover of Rs.1182.01 crores, the Tribunal has applied @ 0.25% as brokerage commission and on Rs. 343.70 crores, the Tribunal has applied 0.15% profit, which resulted profit of Rs. 3,47,05,750/- against the profit of Rs. 5,08,88,469/- computed by the AO. In view of the above facts and circumstances, the issue has become debatable in nature now.
9 The AO estimated some turnover; however, the Tribunal has accepted the turnover declared by the assessee and the rate of profit was also changed by the Tribunal as the AO applied @ 0.25% on whole of the turnover which was estimated at Rs.2000 crores whereas the Tribunal has applied two rates of profit @ 0.25% in case of direct transactions of the assessee and @ 0.15% on the transactions conducted in the case of other parties.
10 This case of the assessee is a case of income on estimated basis. The ld Special counsel of the department, through its written submission had categorically stated that concealment proceedings can be initiated in the case of estimated income. No doubt, in the case of estimated income, penalty can be levied but the nature of the estimation has to be taken into consideration. Where no sales were found recorded in the books of account and there were in fact sales were found during the course of search or otherwise then of course, in that case, on the sales effected estimation of income have to be made and on this type of estimation of income, penalty can be levied. However, on the facts of the present case, where the turnover disclosed by the assessee has been accepted, then in our considered view, where the profit is estimated, penalty cannot be levied. In our considered view, no inaccurate particular of income has also been furnished by the assessee. The assessee declared profit ranges between 0.10% and 0.15% as brokerage commission; however, the AO applied @ 0.25% rate whereas the Tribunal has applied two rates i.e. @ 0.25% and @ 0.15%. Therefore, this is a change of opinion for estimation of profit and change of opinion for estimation of profit, in our considered view are not hit by the provisions of section 271(1)(c).
11 The Hon'ble Punjab & Haryana High Court in the case of Dhillon Rice Mills in 256 ITR 447 held that penalty u/s 271(1)(c) cannot be levied on estimated profit. In other cases i.e. Metal Products of India in 150 ITR 714, the Hon'ble Court has observed that;
"if additions are made on estimated basis by adopting the view that gross profit shown in the books of account was too low, then that does not automatically lead to the conclusion that there was failure on the part of the appellant to disclose correct income by mans of fraud or gross or wilful neglect."
11.2 Similar view has been expressed in the cases of Suresh Kumar Bansal in 254 ITR 130 (P&H); in the case of Sangrur Vanaspati Mills in 303 ITR 53 (P&H); in the case of Subhash Trading Co in 221 110 (Guj); in the case of Harigopal Singh 258 ITR 85 (P&H); in the case of Narendra Kumar in 94 TTJ 156; in the case of Rajan H Shinde in 103 ITD 360 (Pune)(TM) and in the case of Devandas Perumal & Co in 140 ITR 943 (Bom).
11.3 The Hon'ble Supreme Court in the case T Ashok Pai in 291 ITR 11 held that;
"Penalty levied u/s 271(1)(c) is quasi criminal in nature and the burden lies on the department to establish that the assessee has concealed his income."
12 Merely by holding that the addition made by the AO have been confirmed by the Tribunal; therefore, penalty u/s 271(1)(c) leviable, in our considered view does not hold-good.
13 The turnover declared by the assessee has been accepted by the Tribunal; there was a difference of opinion in respect to application of profit rate and therefore, penalty is not leviable.
14 Heavy reliance has been placed by the department in the case of Dharmendra Textiles Processor's decision in 306 ITR 277 (SC).
14.1 After the decision in the case of Dharmendra Textiles Processor, the Hon'ble Supreme Court in the case of Rajasthan Spinning and Weaving Mills in 23 DTR 158 dealt with the issue of levy of penalty u/s 11AC of the Excise Act, 1944 and have discussed the relevance of the recent Supreme Court in the case of Dharmendra Textiles Processors (supra). The Hon'ble Supreme Court held that Dharmendra Textile Processors decision (supra) only concluded that tax authority had no discretion in the matter of quantification of penalty which is otherwise leviable, without laying down that the imposition of penalty follows as a matter of course, in respect of each and every addition or disallowance. Therefore, in light of the decision in the case of Rajasthan Spinning & Weaving Mills because of each assessee has to be seen on the facts of that case where any penalty is leviable or not even where additions are sustained.
14.2 In a recent decision in the case of K K Patel Foundation, the Hon'ble Supreme Court has dismissed the SPL filed by the department against non-levy of penalty u/s 271(1)(c). By confirming the deletion of penalty, the Hon'ble Supreme Court held that;
"imposition of penalty u/s 271(1)(c) of the Act was not warranted on the peculiar facts of the case."
14.3 The Pune Bench of the Tribunal in the case of Kanbay Software India Pvt Ltd in 31 SOT 153 after taking into consideration the decision of the Hon'ble Supreme Court in the case of Dharmendra Textiles Processors (supra) held that;
"the penalty can only be levied if the department proved that any income has been concealed."
While holding so, the Tribunal has observed that penalty u/s 271(1)(c), irrespective of whether it is a civil liability or a criminal liability can only be imposed when the scheme of the Act permits or requires so as it is not an automatic consequence of an addition being made to the income."
14.4 It is further observed that if assessee fulfils the statutory obligation by filing return u/s 139(1) to give correct and complete information then in that case there is no contravention which attracts even a civil liability.
14.5 In the case of VIP Industries Ltd reported in 30 SOT 254, the Mumbai 'A' Bench of the Tribunal after taking into consideration the decision in the case of Dharmendra Textile Processors (supra) have held that "the mere fact that an addition is confirmed cannot per-se lead to the confirmation of the penalty because quantum and penalty proceedings are independent of each other."
14.6 The Hon'ble Punjab & Haryana High Court in the case of Haryana Warehousing in 314 ITR 215, after taking into consideration the decision of the Apex Court in the case of Dharmendra Textile Processors(supra) have held that;
"Penalty cannot be imposed though the claim was wrong as the assessee had not furnished any inaccurate particulars nor concealed its income."
15 On the facts of the present case where the turnover disclosed has been accepted; however, the additions have been sustained on account of difference of opinion in applying profit rate; in our considered view, the penalty provisions u/s 271(1)(c) are not attractive.
16 This is also a matter of fact that search and seizure operation was carried out on the assessee for about 8 months. However, no valuable assets or cash in hand were found. Floppies containing share dealing transactions were found to the extent of Rs. 9 crores pertains to assessment year 1993-94 and on the basis of share transactions, no additions were made for the year under consideration. No adverse inference was drawn against the assessee in respect to the share entries of Rs. 9 crores found during the course of search. Neither any cash nor any valuable assets were found to suggest that the assessee has invested his income from undisclosed sources. Therefore, from this angle also it is amply proved that no concealment of income was detected by the department.
16.1 It is also a matter of fact that Stock Exchange Card on which basis income has been earned by the assessee as brokerage commission was used by Shri Munubhai Maneklal. It can be a strong case of presumption that if any income over and above has been generated that might have been generated by Shri Munubhai Menklal but not by the assessee.
17 In view of these facts and circumstances and in view of various case laws considered above, we hold that penalty levied and confirmed by the lower authorities were not justified on account of brokerage commission; accordingly, the same is cancelled.
18 An addition of Rs. 1 lacs was made u/s 68. The AO has also levied penalty on this amount. The CIT(A) has also confirmed the levy of penalty.
19 After taking into consideration the submissions of both sides, we find that on this amount also penalty is not leviable. Two loans of Rs. 50,000/- each were taken from Shri P P Doshi and Shri Mahendra Shah through account payee cheque and the loan amounts have been returned by account payee cheque. Since the persons were not available; therefore, confirmation could not be filed. However, bonafide intention of the assessee cannot be doubted that this was a loan because taking of loan and returning of loan is through account payee cheque. Though addition has been confirmed by the Tribunal; however, in our considered view, this is not a case of furnishing inaccurate particulars. The assessee has filed explanation that due to non availability of these two persons, confirmation could not be filed. The explanation neither was found false or incorrect. Therefore, in our considered view, at least penalty should not have been levied on this amount. Accordingly, we cancel the levy of penalty on account addition of the loan of Rs. 1 lacs sustained u/s 68 of the Act.
20 Next issue in dispute is levy of penalty on account of inflated sub-brokerage payment of Rs. 30,000/-.
20.1 There were 121 debits entries shown in account no.1119, out of 121 entries, 114 were appearing in the brokerage account and rest 7 entries are not appearing in the final accounts.
20.2 The AO asked to reconcile the account no.1119 as to why 7 entries are not appearing in the final accounts. The assessee explained that there were voluminous transactions and these transactions were entered by accountant and hence, it is not possible to verify each and every entry. The AO pointed out that the amount of brokerage shown in trial balance account in respect of 5 brokers and the amount appearing in the bank statement is same but the amount shown in the final ledger account is excess by Rs. 30,000/- it means the brokerage was inflated by Rs. 30,000/-. The AO made addition which has been confirmed upto the stage of the Tribunal. Thereafter, penalty was levied on this amount. The CIT(A) confirmed the action of the AO.
21 After considering the submissions, we find that the assessee could not substantiate his claim by filing any explanation as to why the amount of Rs. 30,000/- was recorded in excess. Therefore, in our considered view, on this amount, the AO was justified in levying penalty. Accordingly, to this extent, the levy of penalty u/s 271(1)(c) is confirmed.
22 Now we will take up the appeal for Assessment Year 1992-93 in ITA No 3622/Mum/06.
23 In appeal for AY 1992-93, the assessee is objecting in confirming the levy of penalty u/s 271(1)(c) of Rs.39,26,356/- @ 100% of the amount of income sought to be evaded as against 150% levied by the AO.
23.1 For this year, the assessee has filed his return of income declaring a total income of Rs. 13,75,420/- on 15.10.1993. The assessment was originally finalized on 29.3.1995. While making the original assessment several additions have been made and the income had originally been assessed at Rs. 7,77,00,150/-. The assessee preferred appeal before the CIT(A), who had given substantial relief to the assessee. Against the order of the CIT(A), appeals were preferred before the Tribunal by both the parties i.e. assessee and the department. The Tribunal substantially confirmed the relief granted by the CIT(A) and confirmed the following additions:
i) Disallowance of bad debts/theft of Rs. 32,48,857/-
ii) Addition on account of unaccounted shareholding of Rs. 5,83,140/-
iii) Addition on account of securities transactions with Bank of Karad amounting to Rs. 32,24,154/-
23.2 After the order of the Tribunal, the AO issued penalty notice u/s 271(1)(c). After taking into consideration the explanation of the assessee and taking into consideration the order of the AO, who made the additions while passing order u/s 143(3) and taking into consideration the order of the Tribunal by which the above mentioned three additions were confirmed, the AO concluded that the assessee had furnished inaccurate particulars for concealing the income; therefore, penalty is leviable u/s 271(1)(c). Accordingly, the AO levied a penalty of Rs.58,89,540/- @ 150% of tax evaded. The assessee preferred appeal before the CIT(A), who also confirmed the action of the AO in levying of penalty. However, he reduced the rate of penalty from 150% to 100% of tax evaded. In this way, levy of penalty was confirmed to the extent of Rs. 39,26,356/- by giving relief to the assessee of Rs. 19,63,184/-. Now, the assessee is in appeal here before us.
24 The ld counsel of the assessee as well as the Special counsel of the department have filed their respective similar written submissions as were filed for assessment year 1991-92.
25 We have taken into consideration the written submissions filed on behalf of the assessee as well as on behalf of the department along with various case laws mentioned therein.
26 First point of dispute is in respect to levy of penalty on account of disallowance of bad debts/theft of Rs.32,48,857/-.
26.1 The facts in this case are that Shri Manubhai Maneklal, a Bombay Stock Exchange member was operating the assesee's stock exchange card and also that of Shri R R Bohra and Shri M M Patel. After certain exercise between the staff members of the assessee and Shri R R Bohra at the time of closing of accounting year, it was concluded that certain shares remained to be delivered to Shri Bohra by the assessee. It was found that the shares worth of Rs. 32,48,857/- were misappropriated/stolen which were not delivered to Shri Bohra. A complaint was lodged with the police and staffs were suspended. However, later on, the assessee himself had purchased those shares and delivered the same to Shri R R Bohra. It was submitted before the AO that Shri Manubhai Maneklal was operating his card and had total control over the transactions. The transactions with Shri Bohra were done by Shri Manubhai Maneklal with the Stock Exchange Card of the assessee. It was also submitted that the non-delivery to Shri R R Bohra was not on account of transactions done by the assessee. However, the AO rejected the explanation given by the assessee and made addition on account of bad debts/theft. Action of the AO has been confirmed upto the stage of the Tribunal.
27 After considering the submissions, we find that on this amount, penalty u/s 271(1)(c) levied and confirmed by the CIT(A) is not justified. The facts that Shri Manubhai Maneklal was operating stock exchange card of the assessee has been accepted by the Tribunal. The Tribunal in para 36 has been recorded that;
"it also appears that the revenue authorities failed to appreciate the true essence of Shri R R Bohr's statement. Moreover, if Shri Bohara's statement was considered to be adverse to the assessee, in all fairness the AO should have given an opportunity to the assessee to cross examine Shri Bohra before reaching a conclusion regarding the transaction of the assessee with him. This has not been done"
27.1 From these observations, it is clear that Exchange Card was used by Shri Manubhai Maneklal and transactions were made through Shri Bohra etc. Misappropriation of the shares were done while using Exchange Card of the assessee at the behest of Shri Manubhai Maneklal. Therefore, the claim of bad debts/theft was made; however, the same could not be substantiated. Therefore, the claim of bad debts/theft was not accepted by the CIT(A) and then by the Tribunal. However, in our considered view, since all the particulars relating to bad debts/theft were disclosed while filing return of income. The explanation of the assessee was filed; however, the same was not accepted. The contents of the explanation neither found false nor incorrect. Therefore, in our considered view, levy of penalty u/s 271(1)(C) at least is not justified.
27.2 We have also discussed the issue that penalty proceedings are distinct to the assessment proceedings while disposing the penalty appeal for AY 1991-92 above. It has been held that merely on the basis of addition sustained, penalty cannot be levied. This is not a case of furnishing inaccurate particulars for concealing income; accordingly, we hold that penalty on the amount of bad debts/theft is not justified; therefore, the same is deleted.
28 Next point of dispute is in respect of penalty levied on account of unaccounted shareholding of Rs. 5,83,140/-.
28.1 The AO made an addition of Rs. 5,83,140/- u/s 69 of the Act as unexplained shareholding on the ground that the shareholding of the assessee could not be reconciled in the enquiries with various listed companies.
28.2 The assessee was treated as holder of certain shares of the value of Rs. 5,83,140/- as on 31.3.1992 based on the records of various companies. On receipt of the information from various companies, the assessee was requested to reconcile the position of his shareholdings as on 31.3.1992. It was submitted that there were certain shares which could not be reconciled with the books of account of the assessee. It was further submitted that some of the shares were held temporarily on behalf of his clients as a result of either book bandh/vandha objection etc., could not be handed over back to them. It was further submitted that the assessee has not received any dividend from sale of shares. Merely because full details pertain to customers and not submitting the timing of the share transaction, it cannot be treated as unexplained income of the assessee. However, the AO was not satisfied with the explanation of the assessee; accordingly, he made addition u/s 68. The addition made is confirmed upto the stage of the Tribunal.
28.3 Thereafter, the AO levied penalty u/s 271(1)(c) on this amount. The ld CIT(A) has also confirmed the levy of penalty; however, the penalty has been reduced from the rate of 150% to 100%.
29 After considering the submissions of both parties, the explanation given by the assessee is not satisfactory. Neither the claim of share holding is substantiated nor was reconciliation filed. Therefore, on the particular facts of the case, we hold that the levy of penalty was justified. Accordingly, we confirm the levy of penalty on the amount of Rs.5,83,140/- on account of share holding of the assessee as on 31.3.1992.
30 The remaining point of dispute is levy of penalty on account of securities transactions with Bank of Karad amounting to Rs. 32,24,154/-.
30.1 The AO in the original assessment order passed on 29.3.1995 discussed securities transaction carried out through assessee's stock exchange card at page 55 of his order. It was stated that the details were sent to the Assessing Officer of the appellant by the AO of Bank of Karad (BoK) that certain transactions have taken place between the bank and the assessee. The assessee, in his account in BoK has received two receipts amounting to Rs.17,46,654/- and Rs. 14,70,000/- supposedly received from M/s B C Devidas (BCD). The assessee has shown that the amount received from BCD and credited the account of BCD in its books. However, subsequently, a journal entry has been passed and the amounts have been transferred to the account of Shri Ketan Goradia and M/s V H Investments. The amount was shown as received against the receivable from the parties. However, the AO, while passing the order u/s 143(3) relying on the information and details received from the AO of BoK treated that the assessee has sold certain securities, which have been purchased at free of cost and hence the credit of Rs 32,24,154/ to the account of the assessee by BoK is towards sale of securities and is the income of the assessee from undisclosed sources and hence, addition has been made of Rs. 32,24,154/-.
30.2 The contention of the assessee that this addition was made without making proper enquiries were accepted; accordingly, the matter was set aside by the CIT(A) to the file of the AO with certain directions. However, the assessee challenged the order of the CIT(A) setting aside the order to the AO. However, the Tribunal confirmed the action of the CIT(A) in setting aside the issue to the file of the AO. Thereafter, the AO gave the effect of the order of the CIT(A) on 24.4.2001. While giving effect to the order, the AO has reconfirmed the addition. While reconfirming, the AO has observed that BoK or BCD are not able to give information or confirmation about the said amount, onus is on the assessee to prove that it is not his income. The AO has mentioned in his order that there was no information or clarification available either from BoK or BCD; therefore, he confirmed the addition made originally.
30.3 It was submitted on behalf of the assessee that the assessee was never dealing or investing in government securities. It was the securities of BCD which were sold by BoK and the money was transferred to the assessee. Directions were also given that this amount was to be adjusted towards the dues of Mr Ketan Goradia and of M/s V H Investment from whom the amounts were receivable by the assessee. Accordingly, journal entries were passed in the accounts of the assessee. However, as stated above, the AO was not satisfied with the contention of the assessee raised in the original proceedings. Therefore, he repeated the addition in the reassessment proceedings.
30.4 The CIT(A) has also confirmed the addition by observing that the addition was made originally on the ground that explanation offered was only narrative without any evidences and records maintained in this regard by him are simple ledger entries.
31 It was submitted before the Tribunal that it was for BoK and BCD who had to clarify the transfer of the funds and it was the duty of the assessing authority to verify the same from the parties. As there was no information or clarification available either from BoK or BCD, the receipt of the amount could not be treated as the income of the assessee.
31.1 However, the Tribunal was also not satisfied with the explanation of the assessee. The Tribunal while confirming the addition has observed that it is for the assessee to prove that a particular amount which is shown as a credit to his account is not his income; it is not the duty of the assessing authority to search for evidences to prove that a particular amount credited to the account of the assessee is his income; the primary onus remains on the assessee; the assessee other than pointing fingers at other two persons has not been able to produce any confirmation letter of any form or produced the concerned persons for examination of the assessing authority to prove his entries; the said entries are not supported by vouchers or contract notes; accordingly, primary onus placed upon the assessee is not discharged.
32 Thereafter, penalty proceedings were started and taking into consideration the explanation, the AO concluded that the assessee has concealed the particulars of income; accordingly, he levied penalty @ 150% of the tax evaded. The CIT(A) has confirmed the levy of penalty; however, the quantum of penalty has been reduced at the rate of 100% against the rate of 150% applied by the AO.
33 Through the written submissions it has been argued by the ld counsel of the assessee that in the first round, the CIT(A) and the Tribunal has casted the onus on the assessing authority to justify the addition made based on the information received from the AO of BoK. At the time of first round proceedings, the assessee provided that he does not have any evidence and factual aspect related to the transfer of funds from BoK. It was submitted that if the AO was relying on evidences in the form of statements or entries in the books of BCD and BoK, it was the duty of the AO to prove that the entries belong to assessee relating to assessee's transactions.
33.1 In the second round of proceedings, the Tribunal has shifted the onus to the assessee to prove and provide the evidences relating to transfer of funds from BoK. As already submitted at the time of first round of proceedings only, the assessee has declared that it is impossible for him to provide any evidence or factual aspect relating to the transaction in the account of BoK and in the account of BCD.
33.2 It was submitted that Miscellaneous Application has been filed against the order of the Tribunal requesting to recall the order; however, the Miscellaneous Application of the assessee has been rejected.
34 After considering the submissions, we find that penalty levied on this amount is also deserves to be deleted. It is seen that the order of the AO passed originally was set aside by the CIT(A) and the order of the CIT(A) was confirmed by the Tribunal. The Tribunal has observed that;
" this issue is restored to the AO for deciding the same afresh after making detailed enquiries with the concerned AO of Bank of Karad and other parties connected. The transaction of securities and it necessary, the relevant records of Bank of Karad should be summoned and examined to unravel the truth. The Assessing Officer should call for the contract notes, banker's note, confirmation slips etc. relating to these securities transactions after examinations of these relevant documentary evidence further enquiries as may be deemed necessary. The assessee may be conveyed the result of enquiries and opportunity be given to state his case on such information and evidence which the Assessing Officer may decide to use against the assessee."
34.1 Thereafter, the AO gave effect to the CIT(A)'s order on 24.8.2001. While giving effect to the order, the AO has reconfirmed the addition even though, there was no evidence brought on record as per the directions of the CIT(A). The AO has observed that since the BoK and BCD are not able to give information or confirmation about the said amount, onus is on the assessee to prove that it is not his income. The findings of the AO have been confirmed by the CIT(A) and then by the Tribunal.
34.2 The Tribunal while dismissing the issue of the assessee in second round oberved that it is for the assessee to prove that the particular amount which has been shown as credit to his account is not his income. It is not the duty of the AO to search for evidences to prove that particular amount credited to the account of the assessee is his income. Primary onus remains on the assessee. By observing these observations, the Tribunal has confirmed the addition.
35 The ld counsel of the assessee has stated during the original assessment as well as in the appellate proceedings, the assessee never invested in government securities. It was the securities of BCD, which was sold by BoK and the money was transferred to the assessee. Directions were also given that this amount was to be adjusted towards the dues of Mr Ketan Gorodia of Rs.17,46,654/- and M/s V H Investment of Rs.14,70,000/- from whom the amounts were receivable by the assessee.
35.1 The above stated explanation given by the assessee neither found false or incorrect. No material was brought on record neither by the AO or by the CIT(A) that the assessee was dealing in sale of securities or investment of securities. Therefore, possible presumption and explanation of the assessee should have been accepted.
35.2 This is also a matter of fact that two Benches of the Tribunal have given two different findings. In the first round, the Bench has clearly held that CIT(A) was correct in directing the AO to call upon the relevant records of BoK and the same should be examined. The AO should call for the contract notes, banker's note; confirmation slips etc., and also call upon BCD to unravel the truth. The AO instead of following the above directions held that since BoK and BCD are unable to give information or confirmation, onus on the assessee to prove that the amount is not is income.
35.3 In the second round, the Tribunal held that onus is on the assessee to prove that the amounts received from BoK is not his income. These are two different findings of the Tribunal; therefore, benefit of doubt goes in favour of the assessee while considering the aspect of levy of penalty.
36 It is well settled position in law that penalty proceedings and assessment proceedings are distinct to each other and merely addition confirmed in the quantum proceedings, levy of penalty is not automatic. This aspect has been discussed in detail while deciding the appeal for AY 1991-92 above.
37 Neither the Bank has confirmed that these amount which relates to the income of the assessee nor BCD has stated that securities sold by BoK related to the assessee. It is also surprising matter that the securities were allotted to the assessee free of cost as noted by the AO in his order and how these securities are allotted is not known as there was no information or confirmation was gathered from BoK.
37.1 Therefore, in view of these facts and circumstances, we hold that the levy of penalty on the amount of transaction with BoK amounting to Rs. 32,24,154/-, penalty is not leviable. Accordingly, we cancel the penalty.
38 In the result, the appeals of the assessee are allowed in part.
Order pronounced on 19.1.2010
Sd/- Sd/-
( B RAMAKOTAIAH )
( R K GUPTA )
Accountant Member
Judicial Member
Place: Mumbai : Dated: 19th, Jan 2010
Raj*
Copy forwarded to:
1
Appellant
2
Respondent
3
CIT
4
CIT(A)
5
DR
/TRUE COPY/
BY ORDER
Dy /AR, ITAT, Mumbai
ITA Nos. 3621 & 3622/Mum/06
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