ACIT, CHENNAI V. M/s. P.A.S.Oil Private Limited, CHENNAI

ITA 1262/CHNY/2011

• Counselvise Citation: 126221714 RSA 2011
• Duration Of Justice: 2 year(s) 11 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-06-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 18-06-2014
• Assessment Year: 2003-2004
• Appeal Filed On: 07-07-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: GURU BHASHYAM
• Assessee Lawyers: S SRIDHAR
• Keywords: Unexplained cash credit; Unexplained investment; Business income; Search and seizure; Principle of natural justice; Wrong claim
• Section: 143(3); 234B; 131

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI . , . . , ! ' [BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMB ER AND SHRI S. S. GODARA, JUDICIAL MEMBER] ./ I.T.A.NOS.1262, 1263 & 1264/MDS/2011 / ASSESSMENT YEARS : 2003-04 AND 2004-05 THE ASSTT. COMMISSIONER OF INCOME-TAX CIRCLE V(1) CHENNAI VS. M/S P.A.S. OIL PVT. LTD 16, NAINAR NADAR STREET MYLAPORE CHENNAI 600 018 [PAN AAACP 1929 L] ( #$ / APPELLANT) ( %&#$ /RESPONDENT) / APPELLANT BY : SHRI GURU BHASHYAM, JCIT /RESPONDENT BY : SHRI S. SRIDHAR, ADVOCATE / DATE OF HEARING : 18-06-2014 ! / DATE OF PRONOUNCEMENT : 26-06-2014 ' / O R D E R PER S.S.GODARA, JUDICIAL MEMBER THESE REVENUES APPEALS FOR ASSESSMENT YEARS 2003 -04 AND 2004-05, ARE DIRECTED AGAINST SEPARATE ORDERS O F THE COMMISSIONER OF INCOME-TAX(APPEALS)-V CHENNAI, ALL DATED 4.4.2011, PASSED IN I.T.A.NOS.627/08-09, 283/06-07 AND 375/06 -07 RESPECTIVELY. THE RELEVANT PROCEEDINGS ARE UNDER S ECTION 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT) IN I.T.A.NOS 1262 AND I.T.A.NOS.1262, 1263 & 1264/11 :- 2 -: 1264/MDS/2011; WHEREAS IN CASE I.T.A.NO.1263/MDS/20 11, THEY ARE UNDER SECTION 271(1)(C) OF THE ACT. I.T.A.NOS.1262 & 1263/MDS/2011 A.Y 2003-04 2. IN THESE APPEALS, THE REVENUE PLEADS THAT THE CIT(A ) OUGHT TO HAVE UPHELD IMPUGNED DISALLOWANCE AND PENALTY OF ` 32,85,600/- AND ` 12,07,238/- RESPECTIVELY; AS MADE BY THE ASSESSING OFFICER. BRIEF FACTS COMMON TO BOTH CASES MAY BE NOTICED. THE ASSESSEE/A COMPANY IS ENGAGED IN THE BUSINESS OF IMPORT AND SALE OF SUPERIOR KEROSENE OIL. ON 1.12.2003, IT HAD FILED ITS RETURN DISCLOSING INCOME OF ` 21,82,830/-. THE SAME WAS SUMMARILY PROCESSED. 3. IN SCRUTINY, THE ASSESSING OFFICER NOTICED FROM T HE ASSESSEES BOOKS AN EXPENDITURE OF ` 32,85,600/- QUA COMMISSION PAID FOR BROKERAGE AND SALES @ 2% THEREOF. IT PLEADED T O HAVE MADE PAYMENTS OF ` 8,36,273/- TO SHRI SIVASUBRAMANIAM, ` 8,44,052/- TO SHRI RAJALINGAM, ` 5,84,654/- TO SHRI MANOHARAN AND ` 8,48,127/- TO SHRI SHANMUGANATHAN COUPLED WITH TDS DEDUCTED OF ` 1,72,494/- @ 5.2% ALONGWITH INTEREST OF ` 17,249/-. IN LETTERS DATED 2.2.2006 AND 7.2.2006 ADDRESSED TO THE ASSESSING OFFICER, THE A SSESSEE SUBMITTED TO HAVE MADE THE AFORESAID PAYMENTS BY WAY OF FOUR DIFFERENT CHEQUES DATED 21.1.2004 AND 11.2.2004 ISSUED TO THE SAID FO UR PAYEES/RECIPIENTS ENCASHED AT TAMILNADU MERCANTILE BANK, ROYAPETTAH, I.T.A.NOS.1262, 1263 & 1264/11 :- 3 -: CHENNAI. ON THIS, THE ASSESSING OFFICER ISSUED A SECTION 131 NOTICE TO THE BANK DATED 16.2.2006 SEEKING PHOTOCOPIES OF THE CHEQUES WITH ALL DETAILS. IN RESPONSE, THE BANK WROTE A LETTER DATED 22.2.2006 ENCLOSING PHOTOCOPIES OF THE ABOVE STATED CHEQUES A ND CLARIFIED THAT PAYEES NAMES THEREIN STOOD INTERPOLATED WITH CAS H AND THE ASSESSEES DIRECTORS, NAMELY, SHRI SHARAVANA KUMAR AND SHRI S. SENTHILKUMAR HAD ENCASHED THE SAME. BASED ON THIS INFORMATION, THE ASSESSING OFFICER FORMED AN OPINION THAT THE ASSES SEE HAD RAISED A FALSE/BOGUS CLAIM OF COMMISSION AND BROKERAGE EXPE NDITURE. IN THE MEANWHILE, THE ASSESSEES AUTHORIZED REPRESENTATIVE FILED A LETTER AGREEING FOR THE AFORESAID DISALLOWANCE/ADDITION FO R WANT OF PAYEES ADDRESSES AND ALSO PAID A SUM OF ` 6 LAKHS AS TAX. CONTENTS OF THIS LETTER DATED 1.3.2006 AT PAGE NO.11 OF THE PAPER B OOK ARE EXTRACTED AS FOLLOWS: FROM P.A.S.OIL PRIVATE LIMITED NO.16, NAINAR NADAR STREET, MYLAPORE, CHENNAI - 600 004. TO THE ASST COMMISSIONER OF INCOME TAX, CORN ANY CIRCLE V (I), 121, MAHATMA GANDHI ROAD, NUNGAMBAKKAM, CHENNAI - 600 034. I.T.A.NOS.1262, 1263 & 1264/11 :- 4 -: SIR, SUB FURNISHING PARTICULARS FOR THE A.Y.2003-2004-REG. REF PAN: AAACP1929L IN CONTINUATION TO THE DISCUSSION MY AUTHORISED R EPRESENTATIVE HAD WITH YOUR GOODSELF, I AM FURNISHING HEREWITH THE FOLLOWING PARTICULARS. 1. THE BUSINESS OF IMPORT OF SUPERIOR KEROSENE OIL WAS RESTRICTED BY THE GOVERNMENT AND IMPORT OF SKO WAS BANNED DURING THE YEAR 2004. WE HAVE ENGAGED THE SERVICE OF THE B ROKERS WHO PROCURE ORDERS FOR US FROM ALL OVER THE STATE. IN C ONSIDERATION OF THEIR SERVICE WE HAVE PAID A SUM OF RS.32,85,600 AS BROKERAGE AND COMMISSION TO THEM AFTER DULY DEDUCTION TAX AT SOURCE. SINCE THE BUSINESS OF SKO IS DISCONTINUED WE ARE NOT HAVI NG ANY TRANSACTION WITH THE BROKERS AT PRESENT, HENCE WE A RE UNABLE TO FURNISH YOU THE RESENT ADDRESS OF THE BROKERS IMME DIATELY. IN VIEW OF THE ABOVE IN ORDER TO PURCHASE PEACE WITH T HE DEPARTMENT, WE HEREBY OFFER THE SUM OF RS.32,85,600 WHICH IS PAID AS BROKERAGE FOR ASSESSMENT. IN THIS CONNECTIO N WE ARE ENCLOSING HEREWITH THE REVISED COMPUTATION AFTER DU LY ADDING BACK THE ABOVE SUM. WE HEREBY UNDERTAKE TO PAY THE TAX T HEREON. WE HAVE ALSO PAID A SUM OF RS.6,00,000/- ON 27.02. 2006 AT INDIAN BANK, DR.RADHAKRISHNAN SALAI BRANCH. IT IS REQUESTE D THAT SINCE THE PAYMENTS COULD NOT BE PROVED WHICH IS BEYOND OU R CONTROL PENALTY MAY NOT BE INITIATED. REVISED COMPUTATION OF TOTAL INCOME RETURNED INCOME 21,82,800 ADD: BROKERAGE & COMMISSION DISALLOWED 32,85,600 52,68,430 TAX WORKING TAX ON ABOVE 18,43,950 ADD: SURCHARGE @ 5% 92,197 19,36,147 LESS: TDS 1,07,000 18,29,147 LESS: ADVANCE TA X 15.3.2004 3,00,000 15,29,147 ADD: INTEREST U/S 234B 1,07,037 U/S 234C 89,371 1,96,408 17,25,555 LESS: 140A 4,71,714 12,53,841 ADD: INTEREST U/S 234B 29 MONTHS 3,63,602 16,17,443 LESS: TAX ON REGULAR ASSESSMENT PAID ON 27.2.2006 6,00,000 10,17,443 I.T.A.NOS.1262, 1263 & 1264/11 :- 5 -: WE ARE ENCLOSING HEREWITH THE COPY OF TAX PAID CHAL LAN TOGETHER WITH ORIGINAL FOR YOUR PERUSAL AND RETURN. SINCE THE BUSINESS OF SKO IS STOPPEN AND IN THE ABSENCE OF LI QUID RESOURCES , WE HEREBY UNDERTAKE TO PAY THE BALANCE AMOUNT OF TAX WITHIN ONE MONTH FROM THE DATE OF ORDER. THANKING YOU, YOURS FAITHFULLY, FOR P.A.S. OIL PVT. LTD SD/- PLACE: CHENNAI DATE: 01.03.2006 FURTHER WE NOTICE AT PAGE 13 OF THE PAPER BOOK PH OTOCOPY OF THE CHALLAN FOR PAYMENT OF TAX OF ` 6 LAKHS ALONGWITH ASSESSEES POWER OF ATTORNEY AUTHORIZING ITS REPRESENTATIVE M/ S R. KRISHNA KUMAR & ASSOCIATES, CHARTERED ACCOUNTANTS, TO REPRESENT I TS CASE BEFORE THE ASSESSING OFFICER. ACCORDINGLY, THE ASSESSING OFF ICER VIDE ASSESSMENT ORDER DATED 13.3.2006 MADE THE IMPUGNED DISALLOWANC E/ADDITION OF ` 32,85,600/- IN ASSESSEES INCOME. 4. IT IS FURTHER TO BE SEEN FROM THE PAPER BOOK THAT P OST ASSESSMENT ORDER I.E ON 18.8.2006 AND 1.9.2006, THE ASSESSEE SUBMITTED VARIOUS REPRESENTATIONS TO THE CIT, CHENN AI-III SEEKING STAY OF COLLECTION OF TAX AND FOR LIFTING THE BANK ATTA CHMENT AS WELL AS RECOVERY OF PENALTY U/S 271(1)(C) OF THE ACT. TH EREIN THE ASSESSEE HAD EXPRESSED ITS KNOWLEDGE AND AGREEMENT WITH THE LETTER DATED 1.3.2006(SUPRA.) I.T.A.NOS.1262, 1263 & 1264/11 :- 6 -: 5. IT IS REVEALED FROM THE CASE FILE THAT THE ASSESS EE FILED AN APPEAL BEFORE THE CIT(A) CHALLENGING IMPUGNED DISAL LOWANCE OF ` 32,85,600/- WHICH STANDS ALLOWED AS FOLLOWS: AS REGARDS THE DISALLOWANCE OF COMMISSION PAYMENT S, IT IS CLEAR THAT THE A.O HAD ACTED ON THE BASIS OF THE LETTER DATED 01-03-2006 SIGNED BY THE CHARTERED ACCOUNTANT WHO REPRESENTED THE APPELLANT'S CASE BEFORE THE A.O. IT IS SUBMITTED THAT THE PURPORTED CONFESSION WAS MADE BY THE CHART ERED ACCOUNTANT WITHOUT THE CONSENT OF THE APPELLANT WHICH TRANSPIRES THE FACT THAT THE C.A. HAD SIGNED THE IM PUGNED LETTER ON BEHALF OF THE APPELLANT COMPANY WITHOUT DISCLOSI NG HIS NAME. IT IS PERTINENT TO MENTION THAT THE LETTER WAS GIVEN NOT IN LETTER HEAD OF THE C.A. OR THE APPELLANT COMPANY. T HE COPY OF THE SAID LETTER WAS AVAILABLE TO THE APPELLANT COMP ANY ONLY AFTER GETTING THE ENTIRE RECORDS FROM THE EARLIER CHARTER ED ACCOUNTANT AT THE TIME OF APPOINTMENT OF A NEW CHARTERED ACCOUNTANT. THE MANA GING DIRECTOR OF THE APPELLANT COMPANY HAS FILED A DULY SWORN IN AFFIDAVIT IN THIS REGARD TO SUBSTANTIATE THE CIRCUM STANCES AND TO FORTIFY THE CLAIM THAT THE SURRENDER REGARDING THE COMMISSION PAYMENT WAS DONE WITHOUT THE APPELLANT'S CONSENT. WHILE DISALLOWING THE CLAIM OF COMMISSION PAYMENT, THE A.O HAD EXTENSIVELY REFERRED TO THE RESULTS OF THE INVESTIGATION CARRIED OUT BY HIM IN THE TAMILNADU MERCANTILE BANK LIMITED. THE INVESTIGATION RESULTS WITH REFERENCE TO THE BAN KING TRANSACTIONS WERE NEVER PUT TO THE APPELLANT BY THE A.O FOR REBUTTAL AND HENCE THERE WAS CLEAR, VIOLATION OF THE PRINCIPLES OF NATURAL JUSTICE. THE NATURE OF THE APPELLANT'S BUSI NESS WAS TOTALLY OVERLOOKED BY THE A.O, WHILE DISALLOWING TH E COMMISSION CLAIM. IN THE APPELLANT'S CASE THE CASH SALES ACCOU NTED FOR ONLY 20% OF THE TOTAL SALES WHICH PROVES THE NECESSITY F OR PAYING COMMISSION WHILE RECOVERING THE SALE PROCEEDS. THE A.O HAD WRONGLY UNDERSTOOD THE COMMISSION PAYMENTS WITH REF ERENCE TO THE MARKETING OF THE KEROSENE. THE PERCENTAGE OF TH E COMMISSION PAYMENT IS BELOW 2% OF THE TOTAL TURNOVE R ACHIEVED BY THE APPELLANT DURING THE YEAR. THE CASH WITHDRAW N FROM THE BANK ACCOUNT WAS ONLY UTILISED FOR THE PURPOSE OF P AYING COMMISSION TO THE DISTRIBUTORS/BROKERS. THE NON-PRO DUCTION OF FOUR RECIPIENTS OF THE COMMISSION CANNOT, IN ANY WA Y, AFFECT THE CLAIM OF DEDUCTION. IT IS AN ADMITTED FACT THAT THE IMPORT OF KEROSENE OIL WAS BANNED BY THE GOVERNMENT OF INDIA WITH EFFECT FROM NOVEMBER, 2003. CONSEQUENTLY THE APPELLANT WAS NOT IN A POSITION TO TRACE THE BROKERS TO SUBSTANTIATE THE P AYMENT OF COMMISSION IN CASH, BECAUSE THE CONCERNED BROKERS H AD APPARENTLY GONE UNDERGROUND. HAVING NOT DISPUTED TH E I.T.A.NOS.1262, 1263 & 1264/11 :- 7 -: NECESSITY FOR COMMISSION PAYMENT AND THE NATURE OF BUSINESS, THE A.O, WHILE DISALLOWING THE COMMISSION PAYMENTS, WAS MISLED BY THE RESULTS OF THE BANK INVESTIGATIONS AS WELL AS BY THE UNAUTHORIZED LETTER ISSUED BY THE CHARTERED ACC OUNTANT. SINCE DURING THE RELEVANT ACCOUNTING YEAR THE IMPOR T OF KEROSENE WAS THE APPELLANT'S NEW LINE OF BUSINESS, IT HAD TO HEAVILY DEPENDS ON THE DISTRIBUTORS/BROKERS ESPECIA LLY IN THE SPHERE OF COLLECTION OF THE SALE PROCEEDS. IT IS WO RTHWHILE TO MENTION THAT APPELLANT'S DEPENDENCE ON BROKERS DID ACTUALLY REDUCE IN THE SUBSEQUENT YEARS. BEFORE MAKING PAY MENTS TO THE COMMISSION AGENTS THE TAX WAS DULY DEDUCTE D AT SOURCE AND THE SAID TDS WAS DULY REMITTED TO T HE GOVERNMENT ACCOUNT WITHIN THE PRESCRIBED TIME LI MIT. DUE TO THE PRACTICAL PROBLEMS RELATING TO THE HANDLI NG OF THE BROKERS, THE CASH HAD TO BE WITHDRAWN FROM TH E BANK ACCOUNT AND PAYMENT HAD TO BE MADE IN CASH UND ER COMPELLING CIRCUMSTANCES, BECAUSE THE BROKERS WERE ALWAYS RELUCTANT TO RECEIVE PAYMENTS THROUGH CHEQUE S. THERE WAS AN ABSOLUTE NECESSITY FOR MAKING CASH PAYMENTS TOWARDS COMMISSION TO THE AGENTS FOR MARKE TING AS WELL AS COLLECTING THE SALE PROCEEDS AT VARIOUS PLACES IN THE INTERIORS OF TAMILNADU, KARNATAKA AND KERALA. NON- PRODUCTION OF THE RECIPIENTS AT THE TIME OF ASSESSM ENT WAS ON ACCOUNT OF THE PROHIBITION OF IMPORT OF KEROSENE OIL AND ITS DISTRIBUTION BY THE GOVERNMENT OF INDIA IN THE SUBSEQUENT PERIOD. DUE TO THE SAID PROHIBITION, TH E COMMISSION AGENTS WERE NON-AVAILABLE, BECAUSE THEY MIGHT HAVE GOT SCARED OF THE DIFFERENT ENQUIRIES AR ISING OUT OF THE BANNED KEROSENE SALE. THE NECESSITY FOR MAK ING COMMISSION PAYMENT WAS NOT DISPUTED BY THE A.O IN T HE ASSESSMENT ORDER AND UNDER SUCH CIRCUMSTANCES, THE DISALLOWANCE OF ENTIRE CLAIM WAS UNJUSTIFIED. THE A.O HAS FAILED TO APPRECIATE THAT THE COMMISSION PAYMENT WA S SUBJECTED TO TDS AND THE SAME WAS DULY REMITTED TO THE GOVERNMENT ACCOUNT. THE A.O WHILE DISALLOWING THE CLAIM OF COMMISSION DID NOT MAKE AN ATTEMPT TO ASCERTAIN THE INDUSTRY STANDARDS FOR THE PURPOSE OF COMPARISON TO DECIDE T HE CORRECTNESS OF THE APPELLANTS CLAIM EITHER IN THE ASSESSMENT PROCEEDINGS OR IN THE PENALTY PROCEEDING S. ANY SUCH FAILURE ON THE PART OF THE A.O IS IN VIEW OF THE GROSS VIOLATION OF THE PRINCIPLES OF LEGITIMATE EXP ECTATIONS. I.T.A.NOS.1262, 1263 & 1264/11 :- 8 -: AFTER CAREFULLY ANALYZING THE FACTS RELATING TO THE APPELLANTS CASE, I FIND THAT THE APPELLANTS INITI AL CLAIM REGARDING PAYMENT OF COMMISSION THROUGH CHEQUES MAY HAVE BEEN PROVED WRONG, AS A RESULT OF THE BANK ENQ UIRIES CONDUCTED BY THE A.O SUBSEQUENTLY. BUT AT THE SAME TIME, THE A.O DID NOT ESTABLISH WITH THE HELP OF COGENT E VIDENCES THAT THE CASH WITHDRAWALS MADE BY THE APPELLANTS MANAGING DIRECTOR ON RELEVANT DATES WERE UTILIZED F OR PURPOSES OTHER THAN THE COMMISSION PAYMENTS. I FIN D THAT THE A.O HAS ALSO NOT DISPUTED THE TAX DEDUCTED AT S OURCE FROM THE IMPUGNED COMMISSION PAYMENTS AND DEPOSIT THEREOF IN THE GOVERNMENT ACCOUNT. THE A.O IS FOUN D TO HAVE EXCLUSIVELY RELIED UPON THE LETTER DATED 01.03 .2006 OF THE APPELLANTS ERSTWHILE CHARTERED ACCOUNTANT. SI NCE THE CHARTERED ACCOUNTANT HAD NOT GIVEN THE CONFESSION L ETTER IN HIS OR COMPANYS LETTER HEAD THERE REMAINS AMPLE SC OPE FOR DOUBTING THE CREDIBILITY AND AUTHORITY OF THE S AID CHARTERED ACCOUNTANT IN MAKING THE SO CALLED VOLUNT ARY ADMISSION ON BEHALF OF THE APPELLANT COMPANY WHICH THROUGH A SOLEMNLY AFFIRMED AFFIDAVIT OF THE MANAG ING DIRECTOR HAD CLEARLY DENIED HAVING GIVEN CONSENT TO THE C.AS CONFESSION LETTER WHICH CONSTITUTED THE MAIN PIVOT FOR THE DISALLOWANCE OF COMMISSION CLAIM BY THE A.O. NOTWITHSTANDING THE ABSENCE OF CLINCHING EVIDENCE IN SUPPORT OF THE COMMISSION PAYMENTS, IT CAN STILL BE OPINED THROUGH NORMAL PRUDENCE THAT HAVING REGARD T O THE HUGE VOLUME OF KEROSENE OIL IMPORTED AND IN THE FAC E OF STIFF AND CUT- THROAT COMPETITION, COMMISSION PAYMENTS BELOW 2% OF THE TOTAL TURNOVER WAS NOT VERY UNREASONABLE OR UNJUSTIFIABLE ON ACCOUNT OF THE BROKERS' RESPONSIBI LITY IN THE DISTRIBUTION OF KEROSENE THROUGH VARIOUS STREET VEN DORS IN THE INTERIOR PARTS OF TAMIL NADU, KARNATAKA AND KERALA AND THEIR FURTHER RESPONSIBILITY IN COLLECTING THE SALE PROCE EDS IN CASH AND THEREAFTER REMITTING THE SAME TO THE APPELLANT COMP ANY HEADQUARTERED IN CHENNAI. IN THE COURSE OF PROCEEDI NGS THE A.O IS FOUND TO HAVE INITIATED INDEPENDENT ENQUIRY FOR PROVING THE BOGUS NATURE OF THE COMMISSION PAYMENTS AND THE INVOLVEMENT OF THE APPELLANT'S MENS REA, I HOLD THAT SINCE THE COMMISSION AGENTS COULD NOT BE PRODUCED BEFORE THE A.O NOR THEIR CONFIRMATIONS COULD BE FURNISHED IN THE COURS E OF ASSESSMENT PROCEEDING AND SINCE ALSO THE APPELLANT' S ERSTWHILE CHARTERED ACCOUNTANT AGREED TO THE DISALL OWANCE OF RS. 32,85,600/- ON THE GROUND OF HIS INABILITY TO F URNISH THE CURRENT WHEREABOUTS OF THE BROKERS, THE SAME MAY CO NSTITUTE A NOT SUFFICIENT GROUND FOR MAKING ADDITION. ON THE C ONTRARY I AM I.T.A.NOS.1262, 1263 & 1264/11 :- 9 -: MORE INCLINED TO AGREE WITH THE CONTENTIONS OF THE APPELLANT IN THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE, N O OPPORTUNITY WAS GIVEN TO THE APPELLANT TO THE EVIDE NCES GATHERED BY THE A.O., PROBABLY INVESTIGATIONS WERE MADE AT THE FAG END OF THE TIME BARRING ASSESSMENT. BE THAT AS IT MAY, THE ADDITION AS IT STANDS, AND T HE MANNER IN WHICH IT IS MADE, CANNOT STAND THE TEST O F JUDICIAL SCRUTINY. IF THERE IS REASON TO DISBELIEVE THE APPE LLANT, THERE MUST BE MATERIAL ON RECORD TO DO SO. IN THE FACTS A ND CIRCUMSTANCES OF THE CASE, I AM AFRAID THERE IS PRE CIOUS LITTLE MATERIAL TO SUSTAIN THE ADDITION. AS A RESULT THE ADDITION TOWARDS THE PAYMENT OF COMMISSION IS DELETED. THEREFORE, THE REVENUE IS IN APPEAL. 6. WE HAVE HEARD BOTH PARTIES AND GONE THROUGH THE CAS E FILE. THE SOLE ISSUE WHICH ARISES FOR OUR CONSIDERATION I S AS TO WHETHER CIT(A)S ORDER DELETING THE AFORESAID DISALLOWANCE OF ` 32,85,600/- IS LIABLE TO BE AFFIRMED OR NOT. PROCEEDING ON THIS, WE FIND THAT THE CIT(A) HAS HELD THE ASSESSEES LETTER DATED 1.3.2 006 TO BE SIGNED BY ITS CHARTERED ACCOUNTANT ONLY. THEN, HE PROCEEDS T O DEAL WITH INTRICACIES OF ASSESSEES BUSINESS MODEL AND NECES SITY OF THE AFORESAID COMMISSION AND BROKERAGE EXPENDITURE ETC. COMING T O THE ISSUE OF AGREED DISALLOWANCE, HE HOLDS THAT THE ASSESSEE S MANAGING DIRECTOR HAD FILED DULY SWORN IN AFFIDAVIT THAT THE SURREND ER DATED 1.3.2006 HAD BEEN MADE WITHOUT HIS CONSENT. IN THIS REGARD, WE FIND THAT THE SUBSEQUENT LETTERS DATED 18.8.2006 AND 1.11.2006(SU PRA) NOWHERE FIND MENTION IN THE LOWER APPELLATE ORDER. IN THE COURSE OF HEARING I.T.A.NOS.1262, 1263 & 1264/11 :- 10 -: BEFORE US, THE ASSESSEE HAS FAILED TO DISPUTE THE FACT OF HAVING WRITTEN THESE LETTERS TO THE CIT(SUPRA). THE FACT ALSO REM AINS THAT THE LETTER DATED 1.3.2006 IS NOT SIGNED BY THE ASSESSEE ITSEL F ON ITS LETTER HEAD BUT SUBMITTED BY THE AUTHORIZED REPRESENTATIVE. HO WEVER, THE ASSESSEES ACTION OF PAYING ` 6 LAKHS AS TAX AND SUBSEQUENT TWO LETTERS THROUGH ITS MANAGING DIRECTOR/DIRECTOR SHR I S.SHARAVANA KUMAR DO PROVE ITS DUE CONSENT IN AGREED DISALLOWANCE. THAT BEING THE CASE, THE ASSESSEE IS ESTOPPED FROM RAISING ANY DO UBT ABOUT AUTHENTICITY OF THE SURRENDER ON 1.3.2006. COUPLED WITH THIS, PAYMENT OF ` 6 LAKHS AS AGREED TAX COULD NOT BE ATTRIBUTED TO I TS REPRESENTATIVE ALONE. SO, WE OBSERVE THAT THE ASSESSEES SURRE NDER DATED 1.3.2006 WHOSE CONTENTS HAVE BEEN REPRODUCED HEREINABOVE IS A VALID AND AN AGREED ONE. THUS, WE HOLD THAT WITH SO MUCH OVERWH ELMING EVIDENCE, THE ASSESSEE COULD NOT HAVE TAKEN A COMPLETE U-TUR N BEFORE THE CIT(A). 7. NOW, WE COME TO THE CIT(A)S OTHER OBSERVATIONS IN SUPPORT OF THE NECESSITY AND QUANTUM OF THE COMMISS ION PAYMENTS @ 2% IN ASSESSEES BUSINESS ACTIVITY. WE REITERATE THAT THE PRESENT IS NOT A CASE RAISING ANY ISSUE OF LEGALITY AND VALIDI TY OF COMMISSION PAID AS THE DISPUTE ONLY PERTAINS TO THE ASSESSEES ONU S TO PROVE THE SAME. IT HAS FAILED TO DISCHARGE ITS BURDEN AS THERE IS NO MATERIAL PLACED ON RECORD. IN OUR CONSIDERED OPINION, ONCE THE ASSE SSEE HAS FAILED TO I.T.A.NOS.1262, 1263 & 1264/11 :- 11 -: DISCHARGE ITS ONUS ON ITS OWN, THE OTHER FINDINGS OF THE CIT(A) ARE NOT SUPPORTED BY ANY SUPPORTIVE MATERIAL IN THE CASE FI LE. THUS, THE REVENUES ARGUMENTS SUCCEED AND IMPUGNED DISALLOWAN CE OF COMMISSION AND BROKERAGE EXPENDITURE OF ` 32,85,600/- IS RESTORED. I.T.A.NO.1262/MDS/2011 IS ALLOWED. 8. NOW, WE COME TO PENALTY ISSUE IN I.T.A.NO.1263/MDS /2011. HEREIN, IT IS FOUND THAT WHILST PASSING ASSESSMENT ORDER DATED 13.3.2006, THE ASSESSING OFFICER HAD INITIATED PENA LTY PROCEEDINGS AGAINST THE ASSESSEE FOR HAVING CONCEALED AND FURN ISHED INACCURATE PARTICULARS OF INCOME U/S 271(1)(C) OF THE ACT. IN PENALTY ORDER DATED 17.8.2006, THERE IS NO EXPLANATION FOUND TO HAVE BE EN TENDERED AT THE ASSESSEES BEHEST. IN PENALTY PROCEEDINGS, THE ASS ESSING OFFICER WAS HEAVILY SWAYED BY THE ASSESSEES LETTERS DATED 2.2 .2006, 7.2.2006 AND 1.3.2006(SUPRA) AND BANKS CLARIFICATION. THEREFOR E, HE HELD THAT THE AGREED SURRENDER ONLY AFTER INITIATION OF INVESTI GATION WITH BANKING AUTHORITIES (SUPRA) COULD NOT BE TREATED AS A VOLU NTARY ONE, BUT IT AMOUNTED TO CONCEALMENT AND FURNISHING OF INACCURAT E PARTICULARS OF INCOME. ACCORDINGLY, THE ASSESSING OFFICER IMPO SED MINIMUM PENALTY OF ` 12,07,238/-. 9. IN ASSESSEES APPEAL, THE CIT(A) HAS DEALT WITH TH E PENALTY AS FOLLOWS: I.T.A.NOS.1262, 1263 & 1264/11 :- 12 -: 5. NOTWITHSTANDING THE ABSENCE OF CLINCHING EVIDE NCE IN SUPPORT OF THE COMMISSION PAYMENTS, IT CAN STILL BE OPINED THROUGH NORMAL PRUDENCE THAT HAVING REGARD TO THE HUGE VOLUME OF KEROSENE OIL IMPORTED AND IN THE FACE OF STIFF AND CUT-THROA T COMPETITION, COMMISSION PAYMENTS BELOW 2% OF THE TOTAL TURNOVER WAS NOT VERY UNREASONABLE OR UNJUSTIFIABLE ON ACCOUNT OF TH E BROKERS' RESPONSIBILITY IN THE DISTRIBUTION OF KEROSENE THRO UGH VARIOUS STREET VENDORS IN THE INTERIOR PARTS OF TAMIL NADU, KARNATAKA AND KERALA AND THEIR FURTHER RESPONSIBILITY IN COLL ECTING THE SALE PROCEEDS IN CASH AND THEREAFTER REMITTING THE SAME TO THE APPELLANT COMPANY HEADQUARTERED IN CHENNAI. IN THE COURSE OF PENALTY PROCEEDINGS THE A O IS FOUND TO HAVE INITIATED NO INDEPENDENT ENQUIRY FOR PROVING THE BOGUS NATURE OF THE COMMISSION PAYMENTS AND THE INVOLVEMENT OF THE APPELLANT'S MENS REA, I HOLD THAT SINCE THE COMMISSION AGENTS COULD NOT BE PRODUCED BEFORE THE A O NOR THEIR CONFIRMATIONS COULD BE FURNISHED IN THE COURSE OF A SSESSMENT PROCEEDING AND SINCE ALSO THE APPELLANT'S ERSTWHILE CHARTERED ACCOUNTANT AGREED TO THE DISALLOWANCE OF RS. 32,85,6007- ON THE GROUND OF HIS INABILITY TO FURNI SH THE CURRENT WHEREABOUTS OF THE BROKERS, THE SAME MAY CONSTITUTE A SUFFICIENT GROUND FOR MAKING ADDITION IN THE QUANTU M ASSESSMENT ORDER, BUT WOULD DEFINITELY NOT SERVE AS A SUFFICIENT MATERIAL FOR IMPOSING PENALTY U/S 271 (1)(C). THE A DDITION MADE BY THE A O ON THE BASIS OF THE VOLUNTARY CONFESSION OF THE APPELLANT'S ERSTWHILE CHARTERED ACCOUNTANT DOES NOT ENTAIL A CONDITION FOR LEVY OF PENALTY U/S 271( 1 )(C), AS HELD BY THE HON'BLE MADRAS HIGH COURT AND THE HON'BLE SU PREME COURT IN THE CASES CITED SUPRA. I AM OF THE CONSIDE RED OPINION THAT THE JUDGEMENTS OF THE SAID HON'BLE HIGH COURT AND THE HON'BLE APEX COURT ARE SQUARELY APPLICABLE TO THE APPELLANT'S CASE. WE FURTHER NOTICE THAT IN VIEW OF HIS FINDINGS IN QUANTUM PROCEEDINGS, THE CIT(A) HAS ACCEPTED THE ASSESSEE S CONTENTIONS FOR DELETING THE PENALTY. 10. WE HAVE HEARD BOTH PARTIES AND GONE THROUGH THE CAS E FILE. UNDISPUTEDLY, THE IMPUGNED PENALTY HAS ARISEN DUE T O THE FACT THAT THE ASSESSEE HAD TAKEN DIFFERENT STANDS IN QUANTUM PROC EEDINGS I.E FIRST OF ALL IT PLEADED TO HAVE MADE PAYMENTS THROUGH CHEQUE S. THEREAFTER, I.T.A.NOS.1262, 1263 & 1264/11 :- 13 -: WHEN THE ASSESSING OFFICER FOUND THAT ITS DIRECTORS HAD THEMSELVES ENCASHED THE SAME AFTER INTERPOLATIONS IN PAYEES NAMES, ONLY THEN ASSESSEE CHOSE TO MAKE THE SO CALLED VOLUNTARY SU RRENDER. ADMITTEDLY, THERE IS NO DISTINCTION ON BASIC FACTS IN QUANTUM AS WELL AS PENALTY PROCEEDINGS. THE ASSESSEE HAS ARGUED T HAT THESE TWO PROCEEDINGS STAND ON AN ALTOGETHER DIFFERENT FOOTIN GS AND EVERY DISALLOWANCE/ADDITION WOULD NOT IPSO FACTO LEAD TO IMPOSITION OF PENALTY. THERE IS NO DISPUTE ABOUT THIS TRITE PROP OSITION OF LAW. AT THE SAME TIME, THE FACT REMAINS THAT BEFORE ITS LETTERS DATED 2.2.2006 AND 7.2.2006, THE ASSESSEES DIRECTORS SHRI S. SHARAVA NA KUMAR AND SHRI SENTHILKUMAR HAD THEMSELVES ENCASHED THE AFORESAID CHEQUES ON 21.1.2004 AND 11.2.2004. MEANING THEREBY THAT ASS ESSEES CLAIM RAISED OF HAVING MADE THE PAYMENTS THROUGH CHEQUES WAS A FALSE PLEA TAKEN IN SUBSEQUENT CORRESPONDENCE IN FEBRUARY 2006 . MOREOVER, IN QUANTUM CASE, WE HAVE ALREADY RESTORED THE ASSESS ING OFFICERS FINDINGS THAT THE ASSESSEES CLAIM OF EXPENSES WAS A PATENTLY FALSE CLAIM. THAT BEING THE CASE AND IN ABSENCE OF ANY O THER COGENT EXPLANATION TENDERED AT THE ASSESSEES BEHEST, WE HOLD THAT ITS FALSE CLAIM OF BROKERAGE AND COMMISSION EXPENSES AMOUNTS TO CONCEALMENT AND FURNISHING OF INACCURATE PARTICULAR S OF INCOME U/S 271(1)(C) OF THE ACT. RECENTLY, THE HON'BLE JURISD ICTIONAL HIGH COURT IN THE CASE OF N.RANJIT VS CIT TAX CASE APPEAL NO.298 OF 2010, DECIDED I.T.A.NOS.1262, 1263 & 1264/11 :- 14 -: ON 18.6.2013, HAS HELD THAT IF AN ASSESSEE MAKES A SURRENDER AFTER BEING POINTED OUT BY THE ASSESSING OFFICER IN COURS E OF A DETAILED INVESTIGATION, IT AMOUNTS TO AN ACT OF CONCEALMENT AND FURNISHING OF INACCURATE PARTICULARS OF INCOME U/S 271(1)(C) OF T HE ACT. THUS, WE ACCEPT THE REVENUES ARGUMENTS AND REVIVE PENALTY OF ` 12,07,238/-. I.T.A.NO.1263/MDS/2011 IS ACCEPTED. 11. NOW, WE COME TO REVENUES APPEAL I.T.A.NO. 1264/MDS/2011 FOR ASSESSMENT YEAR 2004-05. 12. IN THIS APPEAL, THE REVENUE PLEADS THAT THE CIT(A) OUGHT TO HAVE UPHELD ADDITION OF ` 32,93,784/- AS UNEXPLAINED CASH CREDITS U/S 68, DISALLOWANCE OF ` 14,48,750/- PERTAINING TO BROKERAGE AND COMMISSION AND ` 1,81,650/- MADE U/S 69B AS UNEXPLAINED INVESTMENTS IN NRD CHITS. 13. FACTS GIVING RISE TO THIS APPEAL ARE THAT DURING S CRUTINY, THE ASSESSING OFFICER HAD NOTICED FROM ASSESSEES BANK ACCOUNT OPERATED WITH TAMILNADU MERCANTILE BANK LTD, ROYAPETTAH ROAD , CASH DEPOSITS FROM 17.6.2003 TO 4.9.2003 OF ` 32,93,784/-. THE ASSESSMENT ORDER RECORDS THAT FROM 26.9.2005 TILL ASSESSMENT ORDER D ATED 7.11.2006, THE ASSESSEE HAD BEEN GRANTED NINE OPPORTUNITIES TO PRO VE ITS CASE. THEREAFTER, ON ITS FAILURE IN PROVIDING SOURCE OF D EPOSITS, PROOF OF I.T.A.NOS.1262, 1263 & 1264/11 :- 15 -: BROKERAGE EXPENDITURE ETC., THE ASSESSING OFFICER P ROCEEDED TO MAKE THE AFORESAID ADDITIONS/DISALLOWANCES. 14. IN LOWER APPELLATE ORDER, THE CIT(A) ATTRIBUTES THE SE CASH DEPOSITS TO CASH BALANCES IN ASSESSEES BOOKS AS WE LL AS ITS EXPLANATION THAT THE DEPOSITS HAD COME THROUGH A NETWORK OF RE TAILERS AND DISTRIBUTORS FROM ACROSS 59 PLACES IN THE REMOTE AR EAS OF TAMILNADU AND KERALA. HE OBSERVES THAT THE ASSESSING OFFICE R DID NOT GIVE ANY FINDINGS TO THE EFFECT THAT THESE TRANSACTIONS WERE NOT GENUINE. THE CIT(A) HAS AGREED WITH THE ASSESSEES CONTENTIONS TO HAVE EXPLAINED SOURCE OF THE CASH DEPOSITS AMOUNTING TO ` 32,93,784/-. 15. BEFORE US, THE REVENUE STRONGLY ARGUES THAT THE AS SESSEE HAD NOT FILED ANY EXPLANATION AND PROOF BEFORE THE ASSESSING OFFICER AND THE CIT(A) HAS WRONGLY DELETED THIS IMPUGNED AD DITION WITHOUT EVEN CONFIRMING SOURCE OF THE CASH DEPOSITS IN QU ESTION. 16. OPPOSING THIS, THE ASSESSEES ARGUMENT IS THAT THE CIT(A) HAS RIGHTLY DELETED THE IMPUGNED ADDITION. 17. WE HAVE HEARD BOTH PARTIES AND GONE THROUGH THE CAS E FILE. IT IS FOUND THAT THE ISSUE IN QUESTION HAS ARISEN F ROM DEPOSITS IN QUESTION OF ` 32,93,784/- U/S 68 OF THE ACT AS UNEXPLAINED CA SH CREDITS. UNDOUBTEDLY, IT WAS ASSESSEES BURDEN TO EXPLAIN SOURCE I.T.A.NOS.1262, 1263 & 1264/11 :- 16 -: THEREOF WITH A GENUINE AND CREDIBLE EXPLANATION. AS STATED HEREINABOVE, IT HAD FAILED TO FILE ANY EXPLANATIO N DURING ASSESSMENT. IN LOWER APPELLATE ORDER, THE CIT(A) HAS PROCEEDED TO ACCEPT ITS ARGUMENTS WITHOUT SENDING EVEN A SINGLE VERIFICATIO N LETTER TO VERIFY AUTHENTICITY OF THE ASSESSEES PLEAS. IN OTHER WOR DS, WHATEVER THE ASSESSEE HAD ARGUED BEFORE THE CIT(A), THE SAME STA NDS ACCEPTED. IN OUR VIEW, THIS COURSE ADOPTED BY THE CIT(A) IN D ELETING IMPUGNED ADDITION DOES NOT SATISFY THE BASIC INGREDIENTS OF IDENTITY, CREDITWORTHINESS AND GENUINENESS OF THE ASSESSEES VERSION. SO, WE DEEM IT APPROPRIATE TO REMIT THIS ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION AS PER LAW. NEEDLES S TO SAY, THE ASSESSEE SHALL BE AT LIBERTY TO PROVE ITS CASE AFRE SH AS WELL. THE REVENUES RELEVANT GROUNDS ARE ACCEPTED FOR STATIST ICAL PURPOSES. 18. NOW, WE COME TO THE OTHER ISSUES DISALLOWANCE OF BR OKERAGE AND COMMISSION OF ` 14,48,750/- AND UNEXPLAINED INVESTMENTS IN NRD CHITS OF ` 1,81,650/-. AS THE MAIN ISSUE OF UNEXPLAINED CREDITS HAS BEEN RESTORED TO THE ASSESSING AUTHORITY AND TH ERE HAS ALSO BEEN NO ATTEMPT TO CONDUCT FACTUAL VERIFICATION ON THE C IT(A)S PART TO VERIFY THE COMMISSION PAYMENTS IN QUESTION, IT IS DEEMED F IT TO RESTORE THESE GROUNDS AS WELL TO THE ASSESSING OFFICER WHO SHALL DECIDE THE SAME AFRESH ALONGWITH THE SAME. THESE GROUNDS OF THE RE VENUE ARE ALSO ACCEPTED FOR STATISTICAL PURPOSES. I.T.A.NOS.1262, 1263 & 1264/11 :- 17 -: THE REVENUES APPEAL I.T.A.NO.1264/MD/2011 IS ALL OWED FOR STATISTICAL PURPOSES. 19. TO SUM UP, THE REVENUES APPEALS I.T.A.NOS.1262 AND 1263/MDS/2011 ARE ALLOWED WHEREAS I.T.A.NO.1264/MDS /2011 IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THURSDAY, THE 26 TH OF JUNE, 2014, AT CHENNAI. SD/- SD/- ( . ) (A. MOHAN ALANKAMONY) / ACCOUNTANT MEMBER ( . . ) (S. S. GODARA) ! / JUDICIAL MEMBER '# / CHENNAI $% / DATED: 26 TH JUNE, 2014 RD %& '()( / COPY TO : 1 . / APPELLANT 2 . / RESPONDENT 3. *+, / CIT(A) 4. * / CIT 5. (-. / / DR 6. .01 / GF