The Employees Co.Op.Credit & Consumers So.Ltd., V. The ACIT,Circle-3, Baroda

ITA 1096/AHD/2008

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 8997 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 03-09-2009
• Assessment Year: 2003-2004
• Appeal Filed On: 27-03-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M C
• Assessee Lawyers: S N DIVATIA
• Section: 271(1)(c); 68

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'C' [BEFORE SHRI R V EASWAR VICE-PRESIDENT] AND SHRI P K BANSAL - ACCOUNTANT MEMBER] ITA NO.1096/AHD/2008 (ASSESSMENT YEAR: 2003-04) THE EMPLOYEES CO-OP. CREDIT AND CONSUMER SOCIETY LTD., NEAR KHASI WADI, OPP. TALUKA PANCHAYAT BORSAD, DIST. ANAND V/S THE ASSISTANT COMMISSIONER OF INCOME- TAX, CIRCLE-3, BARODA (APPELLANT) (RESPONDENT) PAN NO.: AAAAT 2320 H APPELLANT BY :- SHRI S N DIVATIA RESPONDENT BY:- SHRI M C PANDIT, SENIOR DR O R D E R PER P K BANSAL (ACCOUNTANT MEMBER) : THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT( A) DATED 18 TH DECEMBER, 2007, BY WHICH THE CIT(A) HAS CONFIRMED T HE PENALTY OF RS.1,20,000/- LEVIED BY THE AO U/S 271(1)(C) OF THE INCOME- TAX ACT, 1961 [THE ACT FOR SHORT]. 2 THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A CO-OPERATIVE SOCIETY REGISTERED UNDER GUJARAT CO-OP ERATIVE SOCIETIES ACT. IT IS INVOLVED IN PROVIDING CREDIT F ACILITIES AND SUPPLYING CONSUMER PRODUCTS TO ITS MEMBERS. THE ASS ESSEE FILED A RETURN OF INCOME DECLARING TOTAL LOSS OF RS.91,95 ,659/- WHICH WAS ASSESSED AT A LOSS OF RS.87,32,680/-. THE AO MA DE TO 2 ADDITIONS: [I] THE ASSESSEE HAD PASSED AN ENTRY FOR REVERSAL OF EXCESS PROVISIONS OF BONUS PAYABLE TO STAFF IN THE RESERVE FUND INSTEAD OF CREDITING TO THE P&L ACCOUNT. THE AO ADD ED TO THE TOTAL INCOME NOTING THAT THE ASSESSEE HAD NO OBJECT ION TO THE SAME. [II] A CREDIT NOTE ON GAS CYLINDER REBATE WAS ORIGINALLY ENTERED ON 31-03-2001 AND WAS AGAIN ENTERED ON 25-0 5-2001 INADVERTENTLY, ALLEGEDLY DUE TO THE MISTAKE OF THE ACCOUNTANT. THIS MISTAKE WAS CORRECTED AND THE CREDIT ENTRY WAS REVERSED BY DEBITING THE ACCOUNT ON 31-07-2002. THE AO HELD THA T THE MISTAKE HAD BEEN RECTIFIED IN AY 2003-04 AND RS.2,0 9,830/- HAD BEEN CHARGED TO THE P&L ACCOUNT THOUGH IT WAS NOT A N EXPENDITURE OF THE YEAR UNDER CONSIDERATION. HE DIS ALLOWED THIS AMOUNT AND ADDED TO THE TOTAL INCOME. ON THE BASIS OF THESE FACTS, THE AO INITIATED PENALTY PROCEEDINGS. THE AS SESSEE SUBMITTED THAT EVEN AFTER THE ADDITIONS MADE THERE WAS NO POSITIVE INCOME AND A LOSS OF OVER RS.87 LAKHS HAD BEEN ASSESSED AND ALLOWED TO BE CARRIED FORWARD. THE ASSESSEE IN THIS REGARD RELIED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT V PRITHIPAL SINGH 249 ITR 670 FOR THE PROPOS ITION THAT NO PENALTY WAS LEVIABLE UNDER THESE CIRCUMSTANCES. HOW EVER, THE AO REJECTED THE EXPLANATION OFFERED BY THE ASSESSEE AND LEVIED THE IMPUGNED PENALTY. WHEN THE MATTER WENT BEFORE T HE CIT(A), THE CIT(A) CONFIRMED THE ORDER OF THE AO. 3 BEFORE US, THE LEARNED AR REITERATED THE SUBMISS IONS MADE BEFORE THE AO AS WELL AS BEFORE THE CIT(A) AND CONTENDED THAT THE ACCOUNTING ENTRIES ARE PASSED BONA FIDE AN D WERE IN THE NORMAL COURSE OF THE BUSINESS TO GIVE EFFECT OF COM PLIANCE OF OBSERVATIONS OF AUDITORS. THERE IS NO TAX INCIDENCE ON THE ASSESSEE AND THERE IS NO TAX SOUGHT TO BE EVADED. F URTHER, THE 3 INCOME FROM ACTIVITIES OF THE ASSESSEE OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS QUALIFIES FOR DEDUCTION U /S 80P(2)(A)(I) OF THE ACT. THE LEARNED DR, ON THE OTHER HAND, RELI ED ON THE ORDER OF THE AUTHORITIES BELOW. 4 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND, PERUSED THE MATERIAL ON RECORD ALONG WITH THE ORDER OF THE TAX AUTHORITIES BELOW. WE HAVE ALSO GONE THROUGH TH E CASE LAWS AS CITED BEFORE US. SECTION 271(1)(C) READS AS UNDE R: 271.(1) IF THE ASSESSING OFFICER OR THE COMMISSIONE R (APPEALS) [OR THE COMMISSIONER] IN THE COURSE OF AN Y PROCEEDINGS UNDER THIS ACT, IS SATISFIED THAT ANY P ERSON - (A) .. (B) .. (C) HAS CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME, OR (D) .. HE MAY DIRECT THAT SUCH PERSON SHALL PAY BY WAY OF PENALTY, - EXPLANATION 1- WHERE IN RESPECT OF ANY FACTS MATERI AL TO THE COMPUTATION OF THE TOTAL INCOME OF ANY PERSON UNDER THIS ACT, - (A) SUCH PERSON FAILS TO OFFER AN EXPLANATION OR OF FERS AN EXPLANATION WHICH IS FOUND BY THE ASSESSING OFFICER OR THE COMMISSIONER (APPEALS) OR THE COMMISSIONER TO BE FA LSE OR (B) SUCH PERSON OFFERS AN EXPLANATION WHICH HE IS N OT ABLE TO SUBSTANTIATE AND [FAILS TO PROVE THAT SUCH EXPLA NATION IS BONA FIDE AND THAT ALL THE FACTS RELATING TO THE SA ME AND MATERIAL TO THE COMPUTATION OF HIS TOTAL INCOME HAV E BEEN DISCLOSED BY HIM], THEN, THE AMOUNT ADDED OR DISALLOWED IN COMPUTING T HE TOTAL INCOME OF SUCH PERSON AS A RESULT THEREOF SHALL, FO R THE PURPOSES OF CLAUSE (C) OF THIS SUB-SECTION BE DEEME D TO 4 REPRESENT THE INCOME IN RESPECT OF WHICH PARTICULAR S HAVE BEEN CONCEALED. AS PER THE PROVISIONS OF SECTION 271(1)(C) THE PENA LTY UNDER THIS SECTION IS LEVIABLE IF THE AO IS SATISFIED IN THE C OURSE OF ANY PROCEEDING UNDER THIS ACT THAT ANY PERSON HAS CONCE ALED THE PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE P ARTICULARS OF SUCH INCOME. THE PENALTY PROCEEDINGS AND THE ASSESS MENT PROCEEDINGS BOTH ARE DIFFERENT. EXPLANATION 1 TO SE CTION 271(1)(C) IN RESPECT OF ANY FACT RELATING TO THE CO MPUTATION OF TOTAL INCOME STATES THAT THE AMOUNT ADDED OR DISALL OWED IN COMPUTING THE TOTAL INCOME OF AN ASSESSEE SHALL BE DEEMED TO BE THE INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEE N CONCEALED. THIS DEEMING PROVISION FOR CONCEALMENT IS NOT ABSOL UTE ONE. EXPLANATION 1 TO SECTION 271(1)(C) PROVIDES THAT AN AMOUNT ADDED OR DISALLOWED IN COMPUTING THE TOTAL INCOME OF A PE RSON FALLING UNDER CLAUSE (A) OR (B) OF EXPLANATION 1 SHALL, FOR THE PURPOSE OF SECTION 271(1)(C), BE DEEMED TO REPRESENT THE INCOM E IN RESPECT OF WHICH PARTICULARS HAD BEEN CONCEALED. EXPLANATIO N 1 REFERS TO TWO SITUATIONS IN WHICH PRESUMPTION OF CONCEALMENT CREATED BY EXPLANATION 1 IS AVAILABLE. THE FIRST SITUATION IS WHERE THE ASSESSEE, IN RESPECT OF ANY FACTS MATERIAL TO THE C OMPUTATION OF HIS TOTAL INCOME, FAILS TO OFFER AN EXPLANATION OR OFFERS AN EXPLANATION WHICH IS FOUND BY THE AO OR THE COMMISS IONER TO BE FALSE. THE SECOND SITUATION IS WHERE THE ASSESSEE, IN RESPECT OF ANY FACTS MATERIAL TO THE COMPUTATION OF HIS TOTAL INCOME, OFFERS AN EXPLANATION WHICH HE IS NOT ABLE TO SUBSTANTIATE AND ALSO FAILS TO PROVE THAT SUCH EXPLANATION WAS BONA FIDE AND TH AT ALL THE FACTS RELATING TO THE COMPUTATION OF TOTAL INCOME H AVE BEEN 5 DISCLOSED BY HIM. THE PRESUMPTION AVAILABLE UNDER E XPLANATION 1 CANNOT BE DRAWN UNLESS THE CASE OF THE ASSESSEE FAL LS UNDER EITHER OF THE CLAUSES, VIZ., CLAUSE (A) OR CLAUSE (B). THE PRESUMPTION UNDER EXPLANATION 1 IS REBUTTABLE A ND NOT CONCLUSIVE. THE ASSESSEE CAN SUBMIT THE EXPLANATION AS THE ONUS SHIFTED ON THE ASSESSEE TO PROVE THAT HE HAS NOT CO NCEALED THE PARTICULARS OF THE INCOME. THE ASSESSEE IN THIS CA SE HAS DULY SUBMITTED THE EXPLANATION. NO COGENT MATERIAL OR EV IDENCE WAS BROUGHT TO OUR KNOWLEDGE WHICH MAY PROVE THAT THE R EVENUE HAS DETECTED THE CONCEALMENT OR THE EXPLANATION SUBMITT ED BY THE ASSESSEE WAS FALSE ONE. EVEN THERE IS NO MATERIAL W HICH MAY PROVE THAT THE ASSESSEE WAS NOT ABLE TO SUBSTANTIAT E ITS EXPLANATION. MERELY THE ADDITION HAS BEEN MADE IN T HE ASSESSMENT IN OUR OPINION THE ASSESSEE CAN NOT BE E NTRUSTED WITH THE PENALTY BY SIMPLY INVOKING EXPLANATION 1. 5 THE EXPLANATION SUBMITTED BY THE ASSESSEE, IN OU R OPINION, PROVED THAT THE ASSESSEE HAS DISCHARGED HI S ONUS AND HAS REBUTTED THE PRESUMPTIONS AVAILABLE TO THE REVENUE UNDER EXPLANATION 1 TO SECTION 271(1)(C). THIS EXPLANATIO N GIVEN BY THE ASSESSEE CANNOT BE REGARDED TO BE A FALSE EXPLANATI ON UNTIL AND UNLESS, IN OUR OPINION, THE REVENUE PROVES THAT THE EXPLANATION GIVEN BY THE ASSESSEE IS FALSE. IN OUR OPINION, NO PENALTY U/S 271(1)(C) CAN BE IMPOSED ON THE ASSESSEE. 6 IN THE CASE OF NATIONAL TEXTILES V CIT 249 ITR 1 25 (GUJ) THE QUESTION BEFORE THE HONBLE GUJARAT HIGH COURT WAS ABOUT THE LEVY OF PENALTY U/S 271(1)(C) IN RESPECT OF THE ADDITION MADE U/S 68 BY RECOURSE TO EXPLANATION 1 BELOW SECT ION 6 271(1)(C). IN THIS CASE THE HONBLE GUJARAT HIGH CO URT WHILE HOLDING THE IMPOSITION OF PENALTY WAS NOT JUSTIFIED OBSERVED:- IN ORDER TO JUSTIFY THE LEVY OF PENALTY, TWO FACTO RS MUST CO-EXIST, (I) THERE MUST BE SOME MATERIAL OR CIRCUMSTANCES LEADIN G TO THE REASONABLE CONCLUSION THAT THE AMOUNT DOES REPRESEN T THE ASSESSEES INCOME. IT IS NOT ENOUGH FOR THE PURPOSE OF PENALTY THAT THE AMOUNT HAS BEEN ASSESSED AS INCOME, AND (II) THE CIRCUMSTA NCES MUST SHOW THAT THERE WAS ANIMUS, I.E., CONSCIOUS CONCEALMENT OR ACT OF FURNISHING OF INACCURATE PARTICULARS ON THE PART OF THE ASSESS EE. EXPLANATION 1 TO SECTION 271(1)(C) HAS NO BEARING ON FACTOR NO.1 BUT HAS A BEARING ONLY ON FACTOR NO.2. THE EXPLANATION DOES NOT MAKE THE ASSESSMENT ORDER CONCLUSIVE EVIDENCE THAT THE AMOUNT ASSESSED WAS IN FACT THE INCOME OF THE ASSESSEE. NO PENALTY CAN BE IMPOSED IF THE F ACTS AND CIRCUMSTANCES ARE EQUALLY CONSISTENT WITH THE HYPOT HESIS THAT THE AMOUNT DOES NOT REPRESENT CONCEALED INCOME WITH THE HYPOTHESIS THAT IT DOES. IF THE ASSESSEE GIVES AN EXPLANATION WHIC H IS UNPROVED BUT NOT DISPROVED, I.E., IT IS NOT ACCEPTED BUT CIRCUMSTANC ES DO NOT LEAD TO THE REASONABLE AND POSITIVE INFERENCE THAT THE ASSESSEE S CASE IS FALSE, THE EXPLANATION CANNOT HELP THE DEPARTMENT BECAUSE THER E WILL BE NO MATERIAL TO SHOW THAT THE AMOUNT IN QUESTION WAS TH E INCOME OF THE ASSESSEE. ALTERNATIVELY, TREATING THE EXPLANATION A S DEALING WITH BOTH THE INGREDIENTS (I) AND (II) ABOVE, WHERE THE CIRCU MSTANCES DO NOT LEAD TO THE REASONABLE AND POSITIVE INFERENCE THAT THE A SSESSEES EXPLANATION IS FALSE, THE ASSESSEE MUST BE HELD TO HAVE PROVED THAT THERE WAS NO MENS REA OR GUILTY MIND ON HIS PART. E VEN IN THIS VIEW OF THE MATTER THE EXPLANATION ALONE CAN NOT JUSTIFY LE VY OF PENALTY. ABSENCE OF PROOF ACCEPTABLE TO THE DEPARTMENT CANNO T BE EQUATED WITH FRAUD OR WILLFUL DEFAULT. 7 IN VIEW OF THE AFORESAID FACTS, WE REVERSE THE O RDER OF THE CIT(A) AND DELETE THE IMPUGNED PENALTY. 8 IN THE RESULT, THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18-09-2009 SD/- SD/- (R V EASWAR) VICE-PRESIDENT (P K BANSAL) ACCOUNTANT MEMBER DATE : 18-09-2009 7 COPY OF THE ORDER FORWARDED TO : 1. THE EMPLOYEES CO-OP. CREDIT AND CONSUMER SOCIETY LTD., NEAR KHASI WADI, OPP. TALUKA PANCHAYAT BORSAD, DIST . ANAND 2. THE ACIT, CIRCLE-3, BARODA 3. THE CIT CONCERNED 4. THE CIT(A)-I, BARODA 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY.R/AR, ITAT, AHMEDABAD