A.P. Explochem(Present Merged with Regency Industries P. Ltd), Hyd, Hyderabad V. ACIT Circle -1(1), Hyderabad

ITA 1077/HYD/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 53602 (ITAT-HYDERABAD)
• Duration Of Justice: 3 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2003-2004
• Appeal Filed On: 06-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NIVEDITA BISWAS
• Assessee Lawyers: S RAMA RAO
• Section: 131

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 1077/HYD/2011 (ASSESSMENT YEAR 2003-04) M/S. A.P. EXPLOCHEM (PRESENTLY MERGED WITH REGENCY INDUSTRIES PVT. LTD.) HYDERABAD PAN: AADCA3694D VS ASST. CIT CIRCLE-1(1) HYDERABAD APPELLANT RESPONDENT APPELLANT BY: SHRI S. RAMA RAO RESPONDENT BY: SMT. NIVEDITA BISWAS DATE OF HEARING: 13.09.2011 DATE OF PRONOUNCEMENT: 16.09.2011 ORDER PER ASHA VIJAYARAGHAVAN, J.M. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF THE CIT(A)-II, HYDERABAD DATED 30.03.2010 FOR ASSES SMENT YEAR 2003-04. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE-COMP ANY HAD FILED A RETURN OF INCOME ON 28.11.2003 DECLARING LO SS OF RS. 24,93,301. IN THE COURSE OF ASSESSMENT PROCEEDINGS , THE ASSESSING OFFICER EXAMINED THE SHARE APPLICATION MO NEY RECEIVED BY THE ASSESSEE DURING THE YEAR. ON ENQUIRY BY THE ASSESSING OFFICER, THE LEARNED AR EXPLAINED THAT WITH REGARD TO INVESTMENT OF RS. 1,20,000 BY SHRI K. SANDEEP REDDY, THE ASSESSEE WAS UNABLE TO FURNISH INFORMATION AS SHRI SANDEEP REDDY WAS WO RKING ABROAD, I.E., IN USA. WITH REGARD TO OTHER THREE PERSONS T HE AR FURNISHED THE CONFIRMATION LETTERS. HOWEVER, THE DOCUMENTS I N RESPECT OF THEIR SOURCES COULD NOT BE OBTAINED. WITH A VIEW NOT TO PROLONG THE PROCEEDINGS THE AMOUNT OF INVESTMENTS IN RESPECT OF THE FOUR PERSONS TOTALLING TO RS. 11,20,000 WAS OFFERED TO T AX IN THE HANDS OF I.T.A. NO. 1077/HYD/2011 M/S. A.P. EXPLOCHEM ==================== 2 THE COMPANY. THE ASSESSING OFFICER ADDED THIS AMOU NT AS UNEXPLAINED INCOME U/S. 68 OF THE INCOME-TAX ACT, 1 961 TO THE INCOME RETURNED. PENALTY PROCEEDINGS WERE ALSO INI TIATED BY THE ASSESSING OFFICER. 3. IN RESPONSE TO THE SHOW-CAUSE NOTICE ISSUED DURI NG THE PENALTY PROCEEDINGS, THE ASSESSEE STATED THAT ALL T HE CONFIRMATIONS HAD BEEN ALREADY FILED DURING THE COURSE OF ASSESSM ENT PROCEEDINGS AND THE ADDITION WAS ACCEPTED BECAUSE I N SOME CASES THE SOURCES OF INVESTMENT COULD NOT BE FULLY EXPLAI NED. 4. HOWEVER, THE ASSESSING OFFICER HELD THAT THE ASS ESSEE HAS NO PROPER EXPLANATION TO OFFER AND HAD FURNISHED IN ACCURATE PARTICULARS OF INCOME INTENTIONALLY AND, THEREFORE, PENALTY PROCEEDINGS U/S. 271(1)(C) HAS TO BE INITIATED. AC CORDINGLY, THE ASSESSING OFFICER LEVIED A MINIMUM PENALTY OF RS. 4 ,12,000. 5. AGGRIEVED WITH THE ORDER OF THE ASSESSING OFFICE R, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) AND SUBMITTED THAT ONLY ONE LETTER OF CONFIRMATION IN RESPECT OF ONE P ERSON I.E., IN RESPECT OF SHRI SANDEEP REDDY WAS NOT FILED WHEREAS IN RESPECT OF ALL OTHERS THE ASSESSEE FILED LETTERS OF CONFIRMATI ON. THE LEARNED AR FURTHER SUBMITTED THAT INSOFAR AS THE SHARE CAPI TAL IS CONCERNED, IT IS ENOUGH IF THE INVESTMENT IS PROVED AND THE SH AREHOLDERS ACCEPTED THE FACT OF INVESTMENT MADE BY THEM. THE LEARNED AR RELIED ON THE DECISION IN THE CASE OF CIT VS. LOVEL Y EXPORTS (P) LTD., 216 CTR 195 (SC). 6. THE LEARNED AR FURTHER SUBMITTED THAT EXCEPT FOR THE LETTER OF ACCEPTANCE PROVIDED BY THE ASSESSEE THERE IS NO MAT ERIAL ON RECORD TO SHOW THAT THERE IS ANY CONCEALMENT OF INC OME AND IT IS A FACT THAT TO PURCHASE PEACE WITH THE DEPARTMENT, TH E ASSESSEE ACCEPTED FOR THE ADDITION. 7. DURING THE COURSE OF PENALTY PROCEEDINGS BEFORE THE CIT(A), THE LEARNED AR FILED A LETTER RECEIVED BY THE ASSES SEE ON 15.5.2006 I.T.A. NO. 1077/HYD/2011 M/S. A.P. EXPLOCHEM ==================== 3 THROUGH EMAIL FROM SHRI K. SANDEEP REDDY WHO CONFIR MED THAT HE HAD INVESTED RS. 1,20,000 AND ALSO STATED THAT HE I S NOW A RESIDENT OF U.K. 8. THE LEARNED AR FURTHER SUBMITTED THAT THE ADDITI ON U/S. 68 OF THE ACT ITSELF CANNOT BE MADE BY THE ASSESSING OFFI CER IN VIEW OF THE DECISION OF THE SUPREME COURT IN THE CASE OF ST ELLAR INVESTMENTS REPORTED IN 251 ITR 263. HOWEVER, IT W AS SUBMITTED THAT THE ASSESSEE DID NOT CONTEST THE ADDITION AS T HE ASSESSMENT HAS RESULTED IN LOSS. THE ASSESSEE RELIED ON THE D ECISION OF THE ITAT IN THE CASE OF CIT VS. DEEDAR AHMED REPORTED I N 97 ITD 240 WHEREIN IT HAS BEEN HELD THAT IT IS NOT CORRECT TO LEVY PENALTY U/S. 271(1)(C) JUST BASED ON THE ADDITION WHICH HAS BEEN ACCEPTED BY THE ASSESSEE. THE LEARNED AR ALSO RELIED ON THE DE CISION OF CIT VS. SEN MUKHERJEE &CO., 49 CTR 21 (CAL) AND CIT VS. SHREE BAJRANG TRADING & SUPPLY CO., 187 ITR 299 (CAL). T HE CIT(A) PASSED HIS ORDER HOLDING THAT THE ASSESSING OFFICER WAS RIGHT IN LEVYING THE PENALTY FOR THE FOLLOWING REASONS: A) THE APPELLANT ACCEPTED THE ADDITION U/S. 68 DURI NG ASSESSMENT PROCEEDINGS AND HAS NOT PREFERRED APPEAL BEFORE THE CIT(A) ON THIS COUNT, THEREBY ADMITTING THE SAME AS HIS UNDISCLOSED INCOME AND H AS NOT ADDUCED ANY CONVINCING REASONS AS TO WHY PENALTY SHOULD NOT BE LEVIED ON THE ABOVE ADDITION U/S. 68. B) RELIANCE WAS PLACED ON CIT VS. LALCHAND TIRATH R AM (P&H) 225 ITR 675 WHERE IT WAS HELD THAT MERE OFFER ING EXPLANATION IS NOT SUFFICIENT, EXPLANATION TO BE SUBSTANTIATED BY COGENT AND RELIABLE EVIDENCE. C) THE CIT(A) PLACED RELIANCE ON CIT V. P. MOHANAKA LA [(2007) 291 ITR 278 (SC)]. D) RELIANCE WAS ALSO PLACED ON PC JOSEPH & BROS. V. CIT, 240 ITR 818 (KER.), WHERE IT WAS HELD THAT SIMPLY BECAUSE THE APPELLANT AGREED TO ADDITION OF CONCEAL ED INCOME AFTER DETECTION THEREOF AND FILED RETURN IN RESPONSE TO NOTICE U/S. 148 OFFERING ADDITIONAL INC OME, APPELLANT CANNOT ESCAPE FROM PENALTY U/S. 271(1)(C) . I.T.A. NO. 1077/HYD/2011 M/S. A.P. EXPLOCHEM ==================== 4 9. THE CIT(A) CONCLUDED THAT THE ASSESSEE HAS CONCE ALED INCOME BY FURNISHING INACCURATE PARTICULARS AND HAS NO PROPER AND COGENT EXPLANATION FOR THE CASH CREDITS APPEARING I N THE BOOKS OF ACCOUNT AND, THEREFORE, CONFIRMED THE PENALTY U/S. 271(1)(C) LEVIED BY THE ASSESSING OFFICER. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 10. THE LEARNED DR RELIED ON THE ORDERS OF THE LOWE R AUTHORITIES. 11. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SAME CONTENTIONS THAT WERE MADE BEFORE THE CIT(A). 12. WE HAVE HEARD BOTH THE PARTIES. IN THE CASE OF BAJRANG TRADING & SUPPLY CO. (SUPRA), THE ASSESSEE FIRM HAS RETURNED AN INCOME OF RS. 69,359 FOR THE ASSESSMENT YEAR 1964-6 5. THE INCOME-TAX OFFICER, HOWEVER, TREATED THE CASH CREDI TS STANDING IN THE NAMES OF K, H AND S AS THE ASSESSEE'S INCOME FR OM UNDISCLOSED SOURCES ON THE GROUND THAT HE WAS DOUBT FUL ABOUT THE GENUINENESS OF THE LOANS. THESE PARTIES HAD STATED , IN RESPONSE TO THE NOTICES ISSUED UNDER SECTION 131 OF THE INCOME- TAX ACT, 1961, THAT THEY HAD ADVANCED LOANS TO THE ASSESSEE. FURT HER, THE INCOME-TAX OFFICER DISALLOWED THE ASSESSEE'S CLAIM FOR DEDUCTION OF RS. 16,083 BEING THE INTEREST PAID ON THE AFORESAID LOANS AND TWO OTHER LOANS. THE INCOME-TAX OFFICER ALSO IMPOSED P ENALTY ON THE ASSESSEE UNDER SECTION 271(1)(C). THE TRIBUNAL CAN CELLED THE PENALTY. 13. ON A REFERENCE THE CALCUTTA HIGH COURT HELD THA T APART FROM DISBELIEVING THE EXPLANATION OF THE ASSESSEE, THERE WAS NO OTHER MATERIAL TO PROVE CONCEALMENT OF INCOME. THE QUEST ION WHETHER THERE HAS BEEN CONCEALMENT OF INCOME IS PURELY A QU ESTION OF FACT. IT WAS FOUND THAT THE CONCERNED CREDITORS HAD RESPO NDED TO THE SUMMONS ISSUED UNDER SECTION 131 OF THE ACT. ALL O F THEM HAD CONFIRMED THAT THEY HAD ADVANCED LOANS TO THE ASSES SEE. THE TRIBUNAL UPHELD THE ALLOWANCE OF INTEREST TO THOSE LOAN CREDITORS I.T.A. NO. 1077/HYD/2011 M/S. A.P. EXPLOCHEM ==================== 5 AND THE COURT HELD THAT THE TRIBUNAL WAS, THEREFORE , JUSTIFIED IN CANCELLING THE PENALTY. 14. FURTHER MERELY BECAUSE THE ADDITION IS AGREED T O INASMUCH AS THE ASSESSEE VOLUNTARILY CAME FORWARD BEFORE THE ASSESSING OFFICER, IT HAS BEEN HELD THAT UNLESS THERE IS EVID ENCE SHOWING THE ASSESSEE HAS CONSCIOUSLY CONCEALED THE PARTICULARS OF HIS INCOME, THE FAILURE ON THE PART OF THE ASSESSEE TO CONTEST IT IN APPEAL WILL NOT ITSELF WARRANT IMPOSITION OF PENALTY AS HELD IN THE CASE OF CIT VS. SURESHCHANDRA MITTAL, 251 ITR 9 (SC). IN THIS CASE , THE DEPARTMENT HAS NOT BROUGHT OUT ANY MATERIAL BESIDES THE FACTUM OF SURRENDER TO SHOW THAT THE AMOUNTS IN DISPUTE CONST ITUTE UNDISCLOSED INCOME. MERELY BECAUSE ADDITIONS HAVE BEEN MADE TO INCOME IT WOULD NOT AUTOMATICALLY LEAD TO THE CONCL USION THAT THERE WAS FAILURE TO RETURN THE CORRECT INCOME BY MEANS O F FURNISHING INCORRECT PARTICULARS OF INCOME ATTRACTING THE PROV ISIONS OF SECTION 271(1)(C) OF THE ACT. IT IS NOT THE CASE THAT THE ASSESSEE FURNISHED INACCURATE PARTICULARS OF INCOME OR CONCEALMENT OF INCOME WHICH WOULD BE VISITED BY THE PROVISIONS OF SECTION 271(1 )(C) OF THE ACT. 15. FURTHER ASSESSEE HAS FILED THE CONFIRMATIONS FO R THE 3 PERSONS DURING THE COURSE OF ASSESSMENT PROCEEDINGS ITSELF EXCEPT FOR RS. 1,20,000 FROM SHRI K. SANDEEP REDDY WHO HAS ALSO CONFIRMED IT BY EMAIL AND HENCE THE ASSESSEE HAS OF FERED AN EXPLANATION WHICH IS SUBSTANTIATED. 16. ON FACTS THE ASSESSEE HAS EXPLAINED THAT AMOUNT S FROM ALL THE FOUR PERSONS WHO HAD INVESTED IN SHARE APPLICAT ION MONEY. IN ORDER FOR THE DEEMING PROVISION OF EXPLANATION 1 TO S. 271(1)(C) TO APPLY IT MUST BE SHOWN EITHER THAT (A) THE ASSESSEE FAILS TO OFFER AN EXPLANATION, OR (B) HE OFFERS AN EXPLANATION WHICH IS FOUND TO BE FALSE, OR (C) HE OFFERS AN EXPLANATION WHICH CANNOT BE SUBSTANTIATED OR SHOWN TO BE BONA-FIDE. IN THIS CASE THE ASSESSE E HAS FILED CONFIRMATIONS WHICH HAVE BEEN SUBSTANTIATED WITH PR OPER I.T.A. NO. 1077/HYD/2011 M/S. A.P. EXPLOCHEM ==================== 6 EXPLANATION. THEREFORE, WE ARE OF THE OPINION THA T THE PENALTY CONFIRMED BY THE CIT(A) IS ERRONEOUS. WE DELETE TH E SAME. 17. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH SEPTEMBER, 2011. SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER SD/- (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER HYDERABAD, DATED THE 16 TH SEPTEMBER, 2011 TPRAO COPY FORWARDED TO: 1. M/S. A.P. EXPLOCHEM, C/O. SHRI S. RAMA RAO, ADVO CATE, 3-6- 643, SHRIYA'S ELEGANCE, FLAT NO. 102, ST. NO. 9, HI MAYAT- NAGAR, HYDERABAD-29. 2. THE ASST. CIT, CIRCLE-1(1), HYDERABAD. 3. THE CIT(A)-II, HYDERABAD. 4. THE CIT-I, HYDERABAD. 5. THE DR, A-BENCH, ITAT, HYDERABAD.