M/s M.C. Enterprises (AOP), Bangalore V. ITO, Bangalore

ITA 1279/BANG/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51348 (ITAT-BANGALORE)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 31-10-2012
• Assessment Year: 1987-1988
• Appeal Filed On: 15-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUNDAR RAJAN
• Keywords: Invalid notice; Search and seizure; Document seized; Opportunity of being heard; Bonafide belief; Valuation report; Agreed addition; Documents seized
• Section: 148; 132; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRI BNAL BANGALORE BENCH C, BANGALORE BEFORE SHRI N.V.VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER ITA NOS.1279 TO 1281(BNG.)/2011 (ASSESSMENT YEARS : 198 7-88) M/S M.C.ENTERPRISES (AOP) THE INCOME-TAX OFFICER, CONSISTING OF ITS MEMBERS CHANDRU WARD-6(2) , K MATTA & MANOHAR CHABBRIA, BANGALO RE. G13, EMBASSY COURT, CRESCENT ROAD, BANGLORE PAN NO. ABJPM9607P VS APPELLANT RESPONDENT ASSESSEE BY : SHRI RAGHAVENDRA CHAKRAVARTHY, CA REVENUE BY : SHRI SUNDAR RAJAN, JCIT DATE OF HEARING : 31-10-2012 DATE OF PRONOUNCEMENT : 09- 11-2012 O R D E R PER SHRI N.V.VASUDEVAN, JM: ITA NO. 1278/BANG/2011: THIS IS AN APPEAL BY THE A SSESSEE AGAINST THE ORDER DATED 26-09- 2011 OF CIT(A)-III, BANGALORE RE LATING TO AY: 1987-88. 2. IN THIS APPEAL THE ASSESSEEE HAS CHALLENGED THE ORDER OF THE CIT(A) WHEREBY THE CIT(A) CONFIRMED THE ORDER OF THE AO IM POSING PENALTY U/S 271(1)(C) OF THE IT ACT. THE CIRCUMSTANCES UNDER W HICH THE PENALTY U/S 271(1)(C) OF THE ACT WAS IMPOSED ON THE ASSESSEE BY THE AO ARE AS FOLLOWS; ITA NO.1279 & 1281(B)/2011 2 3. THERE WAS AN AOP BY NAME M/S M.C.ENTERPRISES CO NSISTING OF SHRI CHANDRU K MATTA AND SHRI MANOHAR CHABBRIA AS ITS ME MBERS. A SEARCH AND SEIZURE U/S 132(1) OF THE IT ACT, WAS CONDUCTED IN THE CASE OF SHRI MANOHAR CHABBRIA AND SHRI CHANDRU K MATTA ON 12-02- 1988. AS FAR AS THE AOP IS CONCERNED, IN THE COURSE OF SEARCH, SEVE RAL DOCUMENTS, PROMOTES, CHEQUES ETC WERE FOUND AND SEIZED. THE SE IZED MATERIALS REVEALED THAT THE ASSESSEE WAS ENGAGED IN ARRANGING FINANCES ON COMMISSION BASIS. A NOTICE U/S 148 OF THE IT ACT, 1961 (THE ACT) WAS ISSUED TO BRING TO TAX THE COMMISSION INCOME ON A T URNOVER OF RS.1,84,75,000/- WHICH WAS REVEALED BY THE SEIZED D OCUMENTS. IN RESPONSE TO THE NOTICE U/S 148 OF THE ACT ON THE AO P, THE AOP FILED RETURN OF INCOME ON 10-08-1989. AN ORDER OF ASSESSMENT W AS PASSED ON 29-12- 1989. THE ASSESE CHALLENGED THE AFORESAID ORDER O F ASSESSMENT ON THE GROUND THAT THE NOTICE U/S 148 DID NOT BEAR THE STA TUS OF THE ENTITY AND THEREFORE, THE ASSESSMENT FRAMED CONSEQUENT TO SUCH INVALID NOTICE WAS BAD IN LAW. THE SAME WAS ACCEPTED BY THE APPELLAT E AUTHORITIES. 4. CONSEQUENT TO THE ASSESSMENT BEING HELD TO BE I NVALID, THE AO INITIATED FRESH PROCEEDINGS BY ISSUANCE OF ANOTHER NOTICE U/S 148 OF THE ACT ON 23-06-1994. IN THE SAID RE-ASSESSMENT PROCE EDINGS, THE ASSESSMENT WAS COMPLETED ADOPTED 0.75% OF THE TURNO VER DISCLOSED BY THE SEIZED DOCUMENTS AS COMMISSION INCOME OF THE AS SESSEE. THIS ORDER OF ASSESSMENT WAS PASSED ON 31-03-1995. THIS WAS A LSO CHALLENGED BY ITA NO.1279 & 1281(B)/2011 3 THE ASSESSEE BEFORE THE HONBLE ITAT ON THE GROUND THAT THE ASSESEE WAS NOT GIVEN COPY OF THE REASONS RECORDED FOR RE-OPENI NG OF THE ASSESSMENT AND ALSO COPY OF THE SEIZED DOCUMENTS. THE HONBLE ITAT IN ITA NO.44(BANG)/1999 DATED 19-10-2006 SET ASIDE THE ORD ER OF ASSESSMENT DATED 31-03-1995 AND DIRECTED THE AO TO FRAME THE A SSESSMENT FRESH AFTER GIVING THE ASSESSEE REASONS RECORDED FOR RE-O PENING THE ASSESSMENT AS WELL AS SEIZED DOCUMENTS AND FRAMED AN ASSESSMEN T AFTER AFFORDING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 5. IN THE PROCEEDINGS, AFTER REMAND BY THE TRIBUNA L, THE MEMBERS OF THE AOP APPEARED BEFORE THE AO ON 14-12-2007 AND FILED A LETTER DATED 14- 12-2007 STATING THEREIN THAT THEY WOULD LIKE TO SET TLE LONG PENDING DISPUTE AND TO BUY PEACE FROM THE DEPARTMENT. THEY WITHDREW ALL THE OBJECTIONS IN RESPECT OF NOTICE U/S 148 AND DO NOT NEED ANY SE IZED DOCUMENTS ETC., THEY ALSO REQUESTED TO TAKE THE TURNOVER OF THE BUS INESS AT RS.1,84,75,000/- STATED THAT THE RATE OF COMMISSION ADOPTED AT 0.75% B Y THE THEN AO WAS TOO MUCH ON HIGHER SIDE AND AGREED FOR ADOPTING THE COMMISSION AT 0.60% ON THE TURNOVER. THEY FURTHER REQUESTED THAT AGAINST AN EXPENDITURE OF RS.15,000/- ALLOWED BY TH E THEN AO A SUM OF RS.50,0-00/- MAY BE ALLOWED, AND WAIVE THE INTEREST AND PENALTY ETC., IF PERMISSIBLE AS PER LAW. SUBJECT TO THE ABOVE, THEY AGREED THAT THE ASSESSMENT PROCEEDINGS MAY BE CONCLUDED. ITA NO.1279 & 1281(B)/2011 4 6. THE AO CONSIDERING THE SUBMISSIONS MADE BY SHRI CHANDRU K MATTA AND MANOHAR CHAABBRIA WITH A VIEW TO SETTLE LONG PE NDING CASE, ADOPTED RATE OF COMMISSION AT 0.60% ON TURNOVER OF RS.1,84, 75,000/- WHICH WORKED OUT TO RS.1,10,850/-. CONSIDERING THE MEMBER S OF THE AOPS REQUEST FOR CONSIDERING THE EXPENSES MET BY THEM TO WARDS SALARY, TELEPHONE CHARGES AND CONVEYANCE ETC. A SUM OF RS.3 0,000/- WAS ALLOWED TOWARDS THESE OVERHEAD EXPENSES AND ASSESSMENT WAS COMPLETED COMPUTING THE TOTAL INCOME OF THE ASSESSEE AS UNDER ; COMMISSION@0.60% ON RS.1,84,75,000 RS.1,10,850.00 LESS : OVERHEAD EXPENSES AS DISCUSSED ABOVE RS. 3 0,000.00 NET TAXABLE INCOME RS. 80,850.00 (RS.EIGHTY THOUSAND EIGHT HUNDRED FIFTY ONLY) 7. THE AO INITIATED PENALTY PROCEEDINGS U/S 271(1) (C) OF THE IT ACT. ACCORDING TO THE AO THE ASSESSEE BY NOT FURNISHING THE RETURN OF INCOME ON DUE DATE HAS CONCEALED THE PARTICULARS OF INCOME AND ACCORDINGLY, THE AO IMPOSED PENALTY ON THE ASSESSEE U/S 271(1)(C) OF THE IT ACT. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT THE ADDITION IN QUESTION WAS AN AGREED ADDITION AND THAT THE ASSESSEE AGREED THE AD DITION ONLY WITH A VIEW TO BUY PEACE AND WITH A CONDITION THAT NO PENALTY P ROCEEDINGS WILL BE INITIATED. THE ASSESSEE ALSO NARRATED THE CIRCUMST ANCES, UNDER WHICH THE SURRENDER WAS MADE. THE ASSESSEE RELIED ON THE DEC ISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS VASANT K HANDIGUND 327 ITR ITA NO.1279 & 1281(B)/2011 5 233 (KAR.) WHEREIN THE HONBLE KARNATAKA HIGH COURT HELD THAT THERE COULD BE NO IMPOSITION OF PENALTY WHEN AN ADDITION IS MADE ACCEPTING THE SURRENDER BY AN ASSESSEE TO BUY PEACE AND AVOID LIT IGATION. THE CIT(A) DID NOT AGREE WITH THE SUBMISSIONS MADE ON BEHALF OF TH E ASSESEEE AND HE HELD AS FOLLOWS; 5. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MA DE BEFORE ME, AND PERUSED THE ORDER OF ASSESSMENT PASSED BY T HE AO. THE ASSESSEE HAS NOT FILED ANY RETURNS OF INCOME TILL T HE SEARCH ACTION U/S 132 WAS CONDUCTED IN ITS CASE AND ALSO SUBSEQUENTLY. THE ASSESSMENT PROCEEDINGS THEREFORE , HAD TO BE INITIATED BY ISSUE OF NOTICE U/S 148. WHEREAS THE FIRST NOICE U/S 148 DID NOT MENTION THE STATUS AND WAS THEREFORE, A NNULLED BY THE ITAT, THE ITAT SET ASIDE THE SECOND ASSESSMENT WHICH WAS MADE IN PURSUANCE OF ANOTHER NOTICE U/S 148, SINCE IT HELD THAT THE ASSESSMENT WAS MADE AS AN AOP WITHOUT CONSIDERI NG THE OBJECTIONS OF THE ASSESSEE. IT WAS IN THE COURSE OF THIS THIRD ROUND OF ASSESSMENT PROCEEDINGS THAT THE ASSESSEE A PPROACHED THE AO WITH THE REQUEST TO COMPUTE THE INCOME @0.60 % OF THE TURNOVER OF RS.1,84,75,000/- WHICH THE AO AGREED WI TH AND THE ASSESSMENT WAS COMPLETED ACCORDINGLY. AGAINST THIS ASSESSMENT THERE WAS NO FURTHER APPEAL BY THE ASSES SEE. I FIND FROM A PERUSAL OF THE CASE THAT THE FOLLOWING WAS T HE TIME LINE OF THE ASSESSMENT PROCEEDINGS WHICH WERE FINALLY CONCL UDED AT AN ACCEPTED FIGURE OF RS.80,850/- DATE OF SEARCH ACTION 12.02.1988 DATE OF FIRST ASSESSMENT 29.12.1989 DATE OF SECOND ASSESSMENT 31.03.1995 DATE OF FINAL ASSESSMENT 14.12.2007 5.1 FROM THE ABOVE, IT CAN BE SEEN THAT THE PROCEE DINGS DRAGGED ON FOR ALMOST 20 LONG YEARS ONLY TO BE CONC LUDED FINALLY AT THE RATHER MEAGER FIGURE OF RS.80,850/- WHEN THE ASSESSEE CAME FORWARD ON 14.12.2007 TO RESOLVE THE ISSUE BY A VOLUNTARY ACCEPTANCE OF A RATE OF COMMISSION EARNED FROM ARRA NGING OF LOANS ETC. 5.2 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MA DE BY THE ASSESSEES AR AND ALSO THE REASONING GIVEN BY THE A O IN HIS PENALTY ORDER. FROM A PERUSAL OF THE ASSESSMENT O RDER AND THE SUBMISSIONS MADE BY THE AR OF THE ASSESSEE, THE MAJ OR AREAS OF DISPUTE APPEAR TO HAVE BEEN WITH REGARD TO THE STAT US OF THE ITA NO.1279 & 1281(B)/2011 6 ASSESSEE AND THE ISSUE OF NOTICE U/S 148 AND THE AP PELLATE PROCEEDINGS INVOLVING TWO ORDERS OF ITAT SEEM TO HA VE DULY COGNIZED THESE ISSUES. THE ORIGINAL ASSESSMENT ORDE R WAS PASSED ON 29-12-1989 AND QUANTIFIED A FIGURE OF INC OME FROM ARRANGING FINANCES ON COMMISSION BASIS. IT IS SIG NIFICANT TO NOTE THAT THERE WAS NO RETURN FILED BY THE ASSESSEE AND THE ASSESSMENT WAS COMPLETED ON THE BASIS OF THE MATERI ALS FOUND DURING THE SEARCH. THIS ASSESSMENT WA SET ASIDE B Y THE ITAT ON THE ROUND THAT THE STATUS OF THE ASSESSEE AS AOP WAS TO BE RE-EXAMINED. THE SECOND ASSESSMENT WAS COMPLETED ON 31.3.1995 ON A TOTAL UNDISCLOSED INCOME OF RS.1,38, 562/- RAISING A DEMAND OF RS.1,36,938/-. THIS WAS AGAIN SET ASIDE BY THE ITAT CITING NON-PROVIDING OF OPPORTUNITY, AND I T WAS DURING THE COURSE OF THE THIRD PROCEEDING FOR ASSESSMENT T HAT THE VOLUNTARY APPEARANCE OF THE MEMBERS OF THE ASSESSEE AOP HAPPENED. BEFORE THIS DATE 14.12.2007, THE AO NOTES THAT OPPORTUNITIES WERE GIVEN TO THE ASSESSEE ON 30.11.2 007 AND 10.12.2007 BUT THERE WAS NO COMPLIANCE. THE NOTICE OF PENALTY PROCEEDINGS U/S 271(1)(C ) OF THE IT ACT ITSELF WAS SERVED ON THE ASSESSEE ON 20.12.2007 BUT THE AO NOTES THAT THERE WAS NO COMPLIANCE. ANOTHER OPPORTUNITY WAS GIVEN ON8.2.200 8 BUT ONCE AGAIN THERE WAS NO REPLY OR COMPLIANCE. THEREAFTER, THE AO PASSED THE ORDER ON 16.5.2008 IMPOSING A PENALTY OF RS.22,670/- U/S 271(1)(C ) OF THE ACT. 5.3 FROM THE CIRCUMSTANCES ABOVE, IT IS SEEN THAT THE NON- COMPLIANCE WITH THE NOTICES OF PENALTY LEFT THE AO WITH NO OPTION BUT TO IMPOSE THE PENALTY SINCE THE ASSESSEE IGNORE D TWICE THE OPPORTUNITIES GIVEN TO HIM TO APPEAR BEFORE THE AO AND CLARIFY HIS POSITION AS TO THE INTENTION TO CONCEAL/DECLARE INACCURATE PARTICULARS OF INCOME DETECTED AS A CONSEQUENCE OF THE SEARCH. WHEREAS THE ASSESSEEE IN HIS GROUNDS OF APPEAL STAT ES THAT THE AO DID NOT REACH NOR RECORD ANY SATISFACTION FOR IM POSING THE PENALTY, IT IS EQUALLY TRUE THAT THE ASSESSEE HIMSE LF DID NOT COOPERATE WITH THE PROCEEDINGS. THIS WAS GENERALLY TRUE OF HIS CONDUCT BOTH AT THE STAGES OF ASSESSMENT AND PENALT Y PROCEEDINGS. YET IN THE STATEMENT OF FACTS, THE ASS ESSEE RAISES THE POINT THAT THE AO DID NOT GIVEN ADEQUATE OPPORT UNITY. I FIND THAT THIS IS NOT BORNE OUT BY THE DATES RECORDED BY THE AO IN THE ORDER (AND NOT CHALLENGED BY THE ASSESSEE IN THE GR OUNDS OF APPEAL). 5.4 IT IS PERTINENT TO MENTION THAT THE FINAL ACCE PTANCE OF THE ASSESSEE OF THE ASSESSMENT ORDER HAPPENED AFTER ALM OST TWO DECADES OF WRANGLING OVER FORMALITIES LIKE STATUS, CORRECTNESS OF ISSUING NOTICE U/S 148 ETC. HENCE IT CANNOT BE SAID THAT THE ITA NO.1279 & 1281(B)/2011 7 ASSESSEE CAME FORWARD TO DECLARE HIS INCOMES EXPEDI TIOUSLY AND IN GOOD FAITH CLOSELY FOLLOWING HE SEARCH ACTIO N OR THE PASSING OF THE FIRST ASSESSMENT ORDER. MUCH WATER HAD FLOWN UNDER THE BRIDGE BY THE TIME THE STEP FORWARD WAS T AKEN BY THE ASSESSEE. IT COULD HAVE BEEN DUE TO THE PROLONG ED DURATION OF THE PROCEEDING THAT THE ASSESSEE FINALLY DECIDED TO BUY PEACE WITH HIS VOLUNTARY ACCEPTANCE. IN THE CIRCUM STANCES, I FIND THAT THE ASSESSEE FAILED TO VOLUNTARILY DECLAR E HIS CORRECT PARTICULARS OF INCOME BY FILING THE RETURN (EVEN TH OUGH HE CLAIMS TO HAVE HAD RESERVATIONS ABOUT THE STATUS TO BE ADOPTED, THAT BY ITSELF CANNOT BE A REASON NOT TO D ISCHARGE HIS STATUTORY LIABILITY) AND ALSO DISPLAYED A PROACTIV E TOWARDS STALLING THE DEPARTMENTS DETERMINING OF HIS CORREC TIVE INCOME BY HIS PERSISTENT NON-COMPLIANCE WITH THE ASSESSMEN T PROCEEDINGS AND ALSO CHALLENGING THE SAME OVER TWO ROUNDS OF APPEALS BEFORE FINALLY ACQUIESCING. HENCE, I FIND THAT THOUGH THE AO ADMITTEDLY, DID NOT CITE SPECIFIC SATISFACTI ON AS ALLEGED BY THE ASSESSEE IN THE GROUNDS, THIS WAS NOT POSSIB LE DUE TO NON-COOPERATION BY THE ASSESSEE WHICH HOWEVER SPEAK S ITS OWN STORYASA ALREADY STATED ABOVE. HENCE I FIND H AT I AM NOT CONVINCED OF THE ABSENCE OF MENS REA TOWARDS IMPRO PER DECLARATION OF INCOMES IN THE CONDUCT OF THE ASSESS EE OVER THE YEARS (BEGINNING WITH THE VERY NON-FILING OF THE RE TURN EITHER BEFORE OR AFTER THE SEARCH) AND AM CONSTRAINED, IN PRINCIPLE ( NOTWITHSTANDING THE SMALLNESS OF THE AMOUNT INVOLVE D) TO CONFIRM THE PENALTY IMPOSED BY THE AO U/S 271(1)(C ) OF THE ACT FOR AN AMOUNT OF RS.22,670/- (WHICH IS ALSO THE MIN IMUM AMOUNT OF PENALTY IMPOSABLE UNDER THIS SECTION) 5.5 THE KARNATAKA HIGH COURT DECISION CITED BY THE AR OF THE ASSESSEE AT 327 ITR 233 INVOLVES MATERIALLY DIFFERE NT CIRCUMSTANCES OF VALUATION OF PROPERTY AS A CONSEQU ENCE OF SURVEY ACTION U/S 133A. THE ASSESSEE IN THAT CASE ACCEPTED THE VALUATION REPORT OF THE DVO AT THE FIRST AVAILA BLE OPPORTUNITY AND THE ASSESSMENT WAS ACCORDINGLY CONC LUDED. IN THE RESENT CASE, THE ASSESSEE CHALLENGED THE ASS ESSMENT ORDER TWICE ON SEPARATE GROUNDS, AND PERSISTENTLY R EFUSED TO COMPLY WITH THE NOTICES AND HEARINGS OVER YEARS OF PROCEEDINGS. HENCE, I AM OF THE OPINION THAT THE FACTS OF THIS CASE DO NOT ALIGN WITH THOSE INVOLVED IN THE CASE B EFORE THE HONBLE HIGH COURT AND THE LATER CANNOT BE ACCORDI NGLY RELIED UPON BY THE ASSESSEE AS A BINDING PRECEDENT. ITA NO.1279 & 1281(B)/2011 8 8. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSES SEEE PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. WE HAVE HEARD THE SUBMISSION OF LEARNED COUNSEL FOR THE ASSESSEE AS WELL AS BY THE LEARNED DR. 9. THE LEARNED COUNSEL FOR THE ASSESSEE BROUGHT TO OUR NOTICE THE CIRCUMSTANCES UNDER WHICH THE PROCEEDINGS REMAINED PENDING FOR A LONG TIME. IT WAS THE SUBMISSION OF THE LEARNED AR THAT THE ASSESSEE HAD RAISED BONAFIDE DISPUTES REGARDING THE LEGALITY OF THE ACTION TAKEN BY THE REVENUE AUTHORITIES WHICH WAS ALSO ACCEPTED BY THE APPELLATE AUTHORITIES UNDER THE ACT. HIS SUBMISSION WAS THAT THE APPROACH OF THE CIT(A) IN CONSIDERING THE TIME SPAN OF LITIGATION A S A GROUND TO IMPOSE PENALTY CANNOT BE SUSTAINED. THE LEARNED COUNSEL RE ITERATED THE PLEA THAT THE ADDITION WAS MADE PURELY TO BUY PEACE OF M IND AND TO AVOID LITIGATION. THE LEARNED COUNSEL FOR THE ASSESSEE RELIED ON THE DECISION OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE C ASE OF HARIGOPAL SINGH VS CIT 258 ITR 85 WHEREIN IT WAS HELD THAT WH EN AN ASSESSMENT ORDER MADE ON ESTIMATE BASIS, PENALTY CANNOT BE IMP OSED. THE LEARNED DR RELIED ON THE ORDER OF THE CIT(A). 10. WE HAVE HEARD THE RIVAL SUBMISSIONS. IT IS CL EAR FROM THE FACTS AS NARRATED IN THE EARLIER PART OF THIS ORDER THAT THE ASSESSEE HAS RAISED BONAFIDE DISPUTES WITH REGARD TO THE LEGALITY OF TH E FIRST ORDER OF ASSESSMENT U/S 148 AS WELL AS THE SECOND ORDER OF A SSESSMENT U/S 148 OF THE ACT. IN FACT, THE CONTENTION OF THE ASSESS EE WAS FOUND ACCEPTABLE ITA NO.1279 & 1281(B)/2011 9 BY THE APPELLATE AUTHORITIES. IN OUR VIEW, THE CIT( A) APPROACH IN CONSIDERING THE FACT THAT THE PROCEEDINGS DRAGGED D OWN FOR ALMOST 20 YEARS CANNOT BE A GROUND TO SUSTAIN THE PENALTY IMP OSED BY THE AO. FROM THE PERUSAL OF THE ORDER OF ASSESSMENT, IT IS CLEAR THAT THE ASSESSMENT HAS BEEN FRAMED PURELY ON THE BASIS OF S URRENDER BY THE ASSESSEE WITH A VIEW TO AVOID LITIGATION AND PURCHA SE OF PEACE OF MIND. NEITHER IN THE ORDER OF ASSESSMENT NOR IN THE ORDER IMPOSING PENALTY, FACTS HAVE BEEN BROUGHT OUT, AS TO HOW THE SURRENDE R BY THE ASSESSEE WAS NOT VOLUNTARY. IN FACT THERE WAS NO OCCASION T O EXAMINE THE TURNOVER OF THE BUSINESS AS REVEALED BY THE SEIZED DOCUMENTS NOR THE PROBABLE COMMISSION THAT THE ASSESSEE WOULD HAVE EA RNED FROM SUCH BUSINESS. IN OUR VIEW, THE DECISIONS RELIED UPON B Y THE LEARNED COUNSEL FOR THE ASSESSEE IS SQUARELY SUPPORTS THE PLEA OF T HE ASSESSEE THAT UNDER THE FACTS AND CIRCUMSTANCES OF THE ASSESSEES CASE NO PENALTY OUGHT TO HAVE BEEN IMPOSED. WE THEREFORE, HOLD THAT THIS IS NOT A FIT CASE FOR IMPOSING PENALTY U/S 271(1)(C) OF THE ACT. WE THER EFORE, CANCEL THE PENALTY IMPOSED ON THE ASSESSEE. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. 11. ITA NO.1281/BANG/2011: THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 26-09-2011 OF CIT(A)-III, BANGALORE RELATING TO AY: 1987-88. ITA NO.1279 & 1281(B)/2011 10 12. IN THIS APPEAL THE ASSESSEE HAS CHALLENGED THE ORDER OF THE CIT(A) WHEREBY THE CIT(A) IMPOSED PENALTY U/S 273(2)(B) OF THE IT ACT. THE PENALTY U/S 273(2)(B) IS IMPOSED ON AN ASSESSEE FO R ITS FAILURE TO FILE AN ESTIMATE OF INCOME FOR THE PURPOSE OF PAYMENT OF AD VANCE TAX. THE CIT(A) ON THE ABOVE ISSUE, HAS TAKEN THE FOLLOWING VIEW; 6. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS M ADE BEFORE ME, AND PERUSED THE ORDER OF ASSESSMENT PASSED BY T HE AO. THE ASSESSEE HAD NOT FILED ANY RETURNS OF INCOME TILL T HE SEARCH ACTION U/S 132 WAS CONDUCTED IN ITS CASE AND ALSO SUBSEQUENTLY. THE ASSESSMENT PROCEEDINGS THEREFOR E, HAD TO BE INITIATED BY ISSUE OF NOTICE U/S 148. I HAVE ALSO CONSIDERED THE SUBMISSIONS MADE BY THE ASSESSEES AR AND ALSO THE REASONING GIVEN BY THE AO IN HIS PENALTY ORDER. IT IS SIGNIF ICANT TO NOTE THAT THERE WAS NO RETURN FILED BY THE ASSESSEE AND THE A SSESSMENT WAS COMPLETED ON THE BASIS OF THE MATERIALS FOUND D URING THE SEARCH. THE NOTICE OF PENALTY PROCEEDINGS U/S 273(2 )(B) ITSELF WAS SERVED ON THE ASSESSEE ON 20.12.2007 BUT THE AO NOTES THAT THERE WAS NO COMPLIANCE. ANOTHER OPPORTUNITY WAS GIVEN ON 8.2.2008 BUT ONCE AGAIN THERE WAS NO REPLY OR CO MPLIANCE. THEREAFTER, THE AO PASSED THE ORDER ON 16.5.2008 IM POSING A PENALTY OF RS.10,000/- U/S 273(3)(B) FROM THE CIRCUMSTANCES ABOVE, IT CAN BE SEEN THAT T HE NON- COMPLIANCE WITH THE NOTICES OF PENALTY LEFT THE AO WITH NO OPTION BUT TO IMPOSE THE PENALTY SINCE THE ASSESSEE IGNORE D TWICE THE OPPORTUNITIES GIVEN TO HIM TO APPEAR BEFORE THE AO AND CLARIFY HIS POSITION AS TO THE NON-FILING OF ESTIMATE OF AD VANCE TAX AS REQUIRED BY THE LAW FOR THE AY: 1987-88. WHEREAS THE ASSESSEE IN HIS GROUNDS OF APPEAL STATES THAT HE WAS NOT REQ UIRED TO FILE AN ESTIMATE AND PAY ADVANCE TAX, THIS IS NOT CORREC T SINCE HE FINALLY (AFTER ALMOST TWO DECADES) DECLARED AN INCO ME FOR THE YEAR AS A CONSEQUENCE OF MATERIALS FOUND IN COURSE OF SEARCH, BUT HAD REFRAINED FROM FILING THE RETURN OR SUBMITT ING THE ESTIMATE OF ADVANCE TAX ON THIS INCOME BEFORE THE S EARCH ACTION TOOK PLACE. HE WAS LEGALLY BOUND TO SUBMIT THIS ES TIMATE FOR THE FINANCIAL YEAR 1986-87 AS PER THE LAW THAT STOOD AT THE TIME OF THE SEARCH, SINCE HE DID EARN THE INCOME DURING HAT PERIOD. HENCE, I FIND THAT THE PLEAS RAISED BY THE ASSESSEE DO NOT HOLD WATER AND I AM ACCORDINGLY CONSTRAINED TO CONFIRM T HE IMPOSITION OF PENALTY AMOUNT OF RS.10,000/- U/S 273(3)(B) BY T HE AO. ITA NO.1279 & 1281(B)/2011 11 13. WE HAVE HEARD AND CONSIDERED THE SUBMISSIONS O F THE LEARNED COUNSEL FOR THE ASSESSEE AND THE LEARNED DR. AS WE HAVE ALREADY OBSERVED THE CIRCUMSTANCES UNDER WHICH THE ASSESSME NT WAS MADE ON THE ASSESSEE CLEARLY SHOW THAT THE SAME WAS MADE ON LY ON THE ADMISSION OF THE ASSESSEE. WE HAVE ALREADY SEEN T HAT THE ASSESSEE ADMITTED AND OFFERED TO TAX THE INCOME ONLY WITH A VIEW TO AVOID LITIGATION AND TO BUY PEACE. WE HAVE ALSO SEEN WHI LE DEALING WITH THE APPEAL RELATING TO IMPOSITION OF PENALTY U/S 271(1) (C ) OF THE IT ACT THAT THE ASSESSEE WAS NOT PREVIOUSLY ASSESSED TO TAX AND IT WAS NOT POSSIBLE FOR THE ASSESSEE TO ESTIMATE HIS INCOME FOR THE ASS ESSMENT YEAR 1987- 88. IN FACT, IT IS ONLY AT THE TIME OF SURRENDER IN THE YEAR 2007 THAT THE ASSESSEE KNEW OF ITS LIABILITY TO TAX. WE FEEL THA T THE CIRCUMSTANCES OF THE CASE DO NOT JUSTIFY IMPOSITION OF PENALTY U/S 2 73(3)(B) OF THE IT ACT, 1961. WE ACCORDINGLY DIRECT THAT THE PENALTY IMPO SED BE CANCELLED. 14. ITA NO.1280/BANG/2011: THIS IS AN APPEAL BY T HE ASSESSEE AGAINST THE ORDER DATED 26-09- 2011 OF CIT(A)-III, BANGALOR E RELATING TO AY: 1987-88. 15. IN THIS APPEAL THE ASSESSEEE HAS CHALLENGED THE ORDER OF THE CIT(A) WHEREBY THE CIT(A) IMPOSED PENALTY U/S 271(1)(A) OF THE IT ACT I.E. FOR THE FAILURE OF THE ASSESSEE TO FURNISH VOLUNTARY RE TURN OF INCOME. AS WE ITA NO.1279 & 1281(B)/2011 12 HAVE ALREADY SEEN IN THE NARRATION OF FACTS, THE AS SESSEE FILED ITS RETURN OF INCOME ONLY ON 10-08-1989, ONLY THREE YEARS OF T HE COMMENCEMENT OF THE FIRST PROCEEDING U/S 148 OF THE ACT. IT IS THE CASE OF THE REVENUE THAT THE ASSESSEE WAS FULLY CONSCIOUS OF THE FACT THAT I TS TOTAL INCOME FOR THE ASSESSMENT YEAR 1987-88 WAS MUCH ABOVE THE TAXABLE LIMIT AND THE ASSESSEE OUGHT TO HAVE VOLUNTARILY FILED ITS RETURN OF INCOME. THE CIT(A) ON THE ABOVE ISSUE HAS HELD AS FOLLOWS; 6 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MADE BEFORE ME, AND PERUSED THE ORDER OF ASSESSMENT PASSED BY THE AO. T HE ASSESSEE HAS NOT FILED ANY RETURNS OF INCOME TILL THE SEARCH ACT ION U/S 132 WAS CONDUCTED IN ITS CASE AND ALSO SUBSEQUENTLY. THE A SSESSMENT PROCEEDINGS THEREFORE, HAD TO BE INITIATED BY ISSUE OF NOTICE U/S 148. WHEREAS THE FIRST NOTICE U/S 148 DID NOT MENTION TH E STATUS AND WAS THEREFORE, ANNULLED BY THE ITAT, THE ITAT SET ASIDE THE SECOND ASSESSMENT WHICH WAS MADE IN PURSUANCE OF ANOTHER N OTICE U/S 148, SINCE IT HELD THAT THE ASSESSMENT WAS MADE AS AN AO P WITHOUT CONSIDERING THE OBJECTIONS OF THE ASSESSEE. IT WAS IN THE COURSE OF THIS THIRD ROUND OF ASSESSMENT PROCEEDINGS THAT THE ASSE SSEE APPROACHED THE AO WITH THE REQUEST TO COMPUTE THE INCOME @0.60 % OF THE TURNOVER OF RS.1,84,75,000/- WHICH THE AO AGREED WI TH AND THE ASSESSMENT WAS COMPLETED ACCORDINGLY. AGAINST THIS ASSESSMENT THERE WAS NO FURTHER APPEAL BY THE ASSESSEE. I FIN D FROM A PERUSAL OF THE CASE THAT THE FOLLOWING WAS THE TIME LINE OF TH E ASSESSMENT PROCEEDINGS WHICH WERE FINALLY CONCLUDED AT AN ACCE PTED FIGURE OF RS.80,850/- DATE OF SEARCH ACTION 12.02.1988 DATE OF FIRST ASSESSMENT 29.12.1989 DATE OF SECOND ASSESSMENT 31.03.1995 DATE OF FINAL ASSESSMENT 14.12.2007 6.1 FROM THE ABOVE, IT CAN BE SEEN THAT THE PROCEED INGS DRAGGED ON FOR ALMOST 20 LONG YEARS ONLY TO BE CONCLUDED FI NALLY AT THE RATHER MEAGER FIGURE OF RS.80,850/- WHEN THE ASSESS EE CAME ITA NO.1279 & 1281(B)/2011 13 FORWARD ON 14.12.2007 TO RESOLVE THE ISSUE BY A VOL UNTARY ACCEPTANCE OF A RATE OF COMMISSION EARNED FROM ARRA NGING OF LOANS ETC. 6.2 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MAD E BY THE ASSESSEES AR AND ALSO THE REASONING GIVEN BY THE A O IN HIS PENALTY ORDER. FROM A PERUSAL OF THE ASSESSMENT O RDER AND THE SUBMISSIONS MADE BY THE AR OF THE ASSESSEE, THE MAJ OR AREAS OF DISPUTE APPEAR TO HAVE BEEN WITH REGARD TO THE STAT US OF THE ASSESSEE AND THE ISSUE OF NOTICE U/S 148 AND THE AP PELLATE PROCEEDINGS INVOLVING TWO ORDERS OF ITAT SEEM TO HA VE DULY COGNIZED THESE ISSUES. THE ORIGINAL ASSESSMENT ORD ER WAS PASSED ON 29-12-1989 AND QUANTIFIED A FIGURE OF INCOME FRO M ARRANGING FINANCES ON COMMISSION BASIS. IT IS SIGNIFICANT T O NOTE THAT THERE WAS NO RETURN FILED BY THE ASSESSEE AND THE ASSESSM ENT WAS COMPLETED ON THE BASIS OF THE MATERIALS FOUND DURIN G THE SEARCH. THIS ASSESSMENT WAS SET ASIDE BY THE ITAT ON THE RO UND THAT THE STATUS OF THE ASSESSEE AS AOP WAS TO BE RE-EXAMINED . THE SECOND ASSESSMENT WAS COMPLETED ON 31.3.1995 ON A TOTAL UN DISCLOSED INCOME OF RS.1,38,562/- RAISING A DEMAND OF RS.1,36 ,938/-. THIS WAS AGAIN SET ASIDE BY THE ITAT CITING NON-PROVIDIN G OF OPPORTUNITY, AND IT WAS DURING THE COURSE OF THE TH IRD PROCEEDING FOR ASSESSMENT THAT THE VOLUNTARY APPEARANCE OF THE MEMBERS OF THE ASSESSEE AOP HAPPENED. BEFORE THIS DATE 14.12. 2007, THE AO NOTES THAT OPPORTUNITIES WERE GIVEN TO THE ASSESSEE ON 30.11.2007 AND 10.12.2007 BUT THERE WAS NO COMPLIANCE. THE NOT ICE OF PENALTY PROCEEDINGS U/S 271(1)(A ) OF THE IT ACT IT SELF WAS SERVED ON THE ASSESSEE ON 20.12.2007 BUT THE AO NOTES THAT THERE WAS NO COMPLIANCE. ANOTHER OPPORTUNITY WAS GIVEN ON 8.2 .2008 BUT ONCE AGAIN THERE WAS NO REPLY OR COMPLIANCE. THEREA FTER, THE AO PASSED THE ORDER ON 4.6.2008 IMPOSING A PENALTY OF RS.10,428/- U/S 271(1)(A ) OF THE ACT. 6.3 IN THE CIRCUMSTANCES, I FIND THAT THE ASSESSEE FAILED TO VOLUNTARILY DECLARE HIS CORRECT PARTICULARS OF INCO ME BY FILING THE RETURN (EVEN THOUGH HE CLAIMS TO HAVE HAD RESERVATI ONS ABOUT THE STATUS TO BE ADOPTED, THAT BY ITSELF CANNOT BE A RE ASON NOT TO DISCHARGE HIS STATUTORY LIABILITY) EVEN IN COURSE O F THE PENALTY PROCEEDINGS, THE ASSESSEE DID NOT CARE TO APPEAR BE FORE THE AO AND JUSTIFY HIS NON-FILING OF THE RETURN. HENCE, I CONCLUDE THAT THE AO IMPOSED PENALTY ON A CORRECT PREMISE AND AI AM C ONSTRAINED THE PENALTY IMPOSED BY THE AO U/S 271(1)(A) OF THE ACT FOR AN AMOUNT OF RS.10,428/- ITA NO.1279 & 1281(B)/2011 14 16. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSE SSEE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTIES. WE HAVE ALREADY O BSERVED WHILE DECIDING THE APPEAL OF THE AGAINST THE ORDER OF IMP OSING PENALTY U/S 271(1)(C) OF THE ACT THAT THE ISSUE RAISED BY THE A SSESSEE ON THE VALIDITY OF THE FIRST AND SECOND RE-ASSESSMENT PROCEEDINGS U /S 148 OF THE ACT WERE BONAFIDE ISSUES. THESE ISSUE HAVE BEEN FOUND TO BE ACCEPTABLE EVEN BY THE APPELLATE AUTHORITIES. AS FAR AS THE P ENALTY U/S 271(1)(B) IS CONCERNED, IT HAS TO BE SEEN WHETHER THERE WAS ANY BONAFIDE BELIEF ON THE PART OF THE ASSESSEE THAT ITS TAXABLE INCOME FO R THE ASSESSMENT YEAR 1987-88 WAS BELOW THE LIMITS WHICH IS NOT CHARGEABL E TO TAX. IN THIS REGARD, WE FIND THAT THE ASSESSEE WAS NOT PREVIOUSL Y ASSESSED TO TAX. IT IS ALSO SEEN THAT EXCEPT ADMISSION OF THE ASSESSEE REGARDING ITS INCOME, THERE WERE NO OTHER MATERIALS TO SHOW THAT THE ASSE SSEE EARNED INCOME WHICH WAS ABOVE THE TAXABLE LIMITS. THE ADMISSION BY THE ASSESSEE AS WE HAVE ALREADY SEEN IS TO PURCHASE PEACE. IN OTHE R WORDS THE ASSESSMENT OF ASSESSEES INCOME WAS ONLY BASED ON A DMISSION OF THE ASSESSEE WHICH ADMISSION WAS MADE ONLY TO PURCHASE PEACE AND PUT AN END TO THE LITIGATION. IN THE CIRCUMSTANCES, WE AR E OF THE VIEW, THAT IT WOULD NOT BE JUST AND APPROPRIATE TO IMPOSE PENALTY ON THE ASSESSEE ITA NO.1279 & 1281(B)/2011 15 U/S 271(1)(A) OF THE IT ACT. WE THEREFORE, CANCEL THE PENALTY IMPOSED AND ALLOW THE APPEAL IN THIS REGARD. 17. IN THE RESULT, ALL THE APPEALS FILED BY THE AS SESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 9 TH NOVEMBER, 2012. SD/- SD/- (JASON P BOAZ) (N.V.VASUD EVAN) ACCOUNTANT MEMBER JUDICIAL MEMBE R BANGALORE: D A T E D : 09-11-012 AM* COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A), MYSORE 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE (1+1) BY ORDER SR. PRIVATE SECRETARY, ITAT, BANGALORE