Shri Bhadresh L. Soni, L/h of Lare Labhubhai M.Soni, Dist.Bhavnagar V. The Income tax Officer, Ward-2(4), Bhavnagar

ITA 1472/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5911 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 2 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 16-06-2010
• Assessment Year: 1989-1990
• Appeal Filed On: 12-04-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GAURAV BATHAM
• Keywords: Loose papers; Source of fund
• Section: 143(3); 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI D.C.AGARWAL, ACCOUNTANT MEMBER ITA NO. 1472 /AHD/ 2007 ASSESSMENT YEAR 1989-1990 DATE OF HEARING:16.6.10 DRAFTED:16.6.10 LATE SHRI LABHUBHAI M. SONI L/H SHRI BHADRESH L. SONI LIMDA (HANUBHANA), TAL. UMRALA, DIST. BHAVNAGAR. V/S . THE INCOME TAX OFFICER, WARD-2(4), BHAVNAGAR. (APPELLANT) .. (RESPONDENT) ASSESSEE BY :- SMT. URVASHI SHODHAN, AR REVENUE BY:- SHRI GAURAV BATHAM, DR O R D E R PER MAHAVIR SINGH, J.M. THIS APPEAL BY THE ASSESSEE IS ARISING OUT OF THE ORDER OF CIT(A)-XVIII, AHMEDABAD IN APPEAL NO. CIT(A)-XVIII/129/2005-06 VI DE ORDER DATED 20-11-2006. THE ASSESSMENT WAS FRAMED BY THE ACIT, INV. CIR1(1), BHAVNAGAR UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (H EREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 18-03-1992 FOR THE ASSES SMENT YEAR 1989-1990. THE PENALTY UNDER DISPUTE WAS LEVIED BY THE INCOME TAX OFFICER, WARD2(4), BHAVNAGAR UNDER SECTION 271(1)(C) OF THE ACT VIDE ORDER DATED 30-11-2006. 2. THE ONLY ISSUE IN THIS APPEAL OF THE ASSESSEE IS AGAINST THE ORDER OF CIT(A) IN CONFIRMING THE LEVY OF PENALTY UNDER SECTION 271(1) (C) OF THE ACT. FOR THIS THE ASSESSEE HAS RAISED THE FOLLOWING AFFECTIVE GROUNDS : 2.0 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS )-XVIII, AHMEDABAD (HEREINAFTER REFERRED TO AS THE CIT(A)] ERRED IN LAW AND ON FACTS IN CONFIRMING THE LEVY OF PENALTY U/S. 271(1)(C) OF THE INCOME TA X ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) AT 200% IN RESPECT OF ADD ITIONS OF RS.38,887/- AND RS.50,000/- RESPECTIVELY ON ACCOUNT OF ESTIMATED PO ST SEARCH INTEREST AND ITA NO.1472/AHD/07 LATE SHRI LABHUBHAI M. SONI, BHAVNAGAR V. ITO, WARD-2(4), BHA VNAGAR. PAGE 2 ESTIMATED MAJOORI INCOME. THE PENALTY U/S. 271(1)( C) OF THE ACT MAY KINDLY BE DELETED. 3. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE T HAT THE ASSESSEE, AN INDIVIDUAL, WAS ASSESSED TO TAX BY THE INCOME-TAX OFFICER, WARD -2(4), BHAVNAGAR. HE WAS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADIN G OF GOLD ORNAMENTS AS ALSO MONEY LENDING BUSINESS. A SEARCH U/S 132 OF THE AC T, WAS CARRIED OUT AT THE RESIDENTIAL PREMISES OF THE ASSESSEE ON 30.03.1988 AND HE FILED RETURN OF INCOME FOR THE RELEVANT ASSESSMENT YEAR ON 30.08.1989 DECLARIN G THE TOTAL INCOME AT RS.5,41,670/-, WHICH WAS ARRIVED AT AFTER CONSIDERI NG THE ADMITTED INCOME OF RS.6,40,000/-, SHORT TERM CAPITAL LOSS OF RS.22,100 /- AND DEDUCTION CLAIMED U/S. 80(C) AND 80L OF THE ACT. THE ASSESSING OFFICER FINALIZE D THE ASSESSMENT VIDE ORDER UNDER SECTION 143(3) OF THE ACT DATED 18.03.1992, ASSESSI NG THE TOTAL INCOME AT RS.8,26,540/- BY MAKING VARIOUS ADDITIONS/DISALLOWA NCES. AGGRIEVED, THE ASSESSEE AGAINST THE QUANTUM ADDITION, FILED AN APPEAL AGAIN ST THE ASSESSMENT ORDER BEFORE THE COMMISSIONER OF INCOME TAX (APPEAL)-I RAJKOT. THE CIT(A) DECIDED THE APPEAL VIDE APPELLATE ORDER DATED 17.03.1999 WHEREIN SUBST ANTIAL RELIEF HAS BEEN GRANTED, BUT, DIRECTED TO CONSIDER INCOME OF RS.6,40,000/- A DMITTED BY THE ASSESSEE WITHOUT ALLOWING SET OFF OF EXPENSES AND FURTHER SUSTAINED THE FOLLOWING ADDITIONS MADE BY THE AO. (I) ADDITION OF RS.38,887/- ON ACCOUNT OF ALLEGED I NTEREST EARNED BUT NOT SHOWN IN THE RETURN OF INCOME. (II) ADDITION OF RS.50,000/- ON ACCOUNT OF ALLEGED ESTIMATED MAJOORI INCOME FROM MANUFACTURING GOLD ORNAMENTS. (III) ADDITION OF RS.3,654/- ON ACCOUNT OF ALLEGED SERVICE CHARGE EARNED. AGGRIEVED AGAINST THE DELETION, THE DEPARTMENT FILE D AN APPEAL BEFORE THE TRIBUNAL, RAJKOT BENCH, RAJKOT, AGAINST THE ORDER OF THE CIT( A), WHICH WAS DISMISSED BY THE ITAT VIDE ORDER DATED 18.05.2005. HOWEVER, THE ASS ESSEE HAS NOT CHALLENGED THE ADDITIONS RETAINED BY THE CIT(A). THE ASSESSING OF FICER INITIATED THE PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT VIDE HIS ASSESSMENT ORDER DATED 18- 03-1992 AND FURTHER ISSUED SHOW CAUSE NOTICE DATED 22-06-2005 AS TO WHY PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) SHOULD NOT BE L EVIED. THE RELEVANT PORTION OF SHOW CAUSE NOTICE READS AS UNDER: ITA NO.1472/AHD/07 LATE SHRI LABHUBHAI M. SONI, BHAVNAGAR V. ITO, WARD-2(4), BHA VNAGAR. PAGE 3 2. IN THIS CONNECTION, I WOULD LIKE TO REQUEST YOU TO PLEASE EXPLAIN AS TO WHY THE PENALTY SHOULD NOT BE LEVIED ON BELOW MENTIONED UNE XPLAINED CONCEALMENT OF INCOME FOR WHICH PENALTY IS IMPOSABLE ON ACCOUNT OF POSITION STANDS AFTER APPELLATE ORDER. I. INTEREST INCOME EARNED OUT OF BOOKS PARA-7 OF OR DER. RS.38887/- II. SEIZED LOOSE PAPERS 27 & 41- PARA 9. RS.416 03/- III. UNEXPLAINED PROFIT EARNED PARA-13. RS.365 46/- IV. MAJOORI INCOME FROM ORNAMENTS PARA-22 RS.5000 0/-. 4. THE ASSESSEE REPLIED THE ABOVE SHOW CAUSE NOTICE STATING THAT THE FOLLOWING ADDITIONS ARE SUSTAINED BY CIT(A): (A) INTEREST INCOME EARNED OUT OF BOOKS OF RS.38,8 87/- (B) MAJOORI INCOME FROM ORNAMENTS OF RS. 50,000/- (C) UNEXPLAINED LABOUR CHARGES OF GOLD ORNAMENTS R S.3,654/- @ 1%. THE ASSESSEE STATED THAT THESE ADDITIONS ARE SUSTAI NED BECAUSE THE ASSESSEES EXPLANATION WAS NOT CONSIDERED AS SATISFACTORY BY T HE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE ASSESSEE STA TED THAT THE INTEREST INCOME EARNED WAS ADDED BY THE ASSESSING OFFICER AT RS.2,0 1,473/-, BUT THE CIT(A) REDUCED AFTER MAKING ESTIMATE AT RS.38,887/- BY RECORDING A REASON THAT THE ASSESSEE AT THE TIME OF SEARCH AND THEREAFTER WAS CONTINUING THE MO NEY LENDING BUSINESS AND IT IS IMPOSSIBLE TO ACCEPT THE EXPLANATION THAT HE HAS ST OPPED THE BUSINESS ALL OF A SUDDEN AND EVEN THE CLAIM THAT INCOME WAS ADMITTED ON CASH BASIS IS NOT CORRECT. ACCORDINGLY, AFTER GOING THROUGH OUTSTANDING AMOUNT S OF DEBTS, HE NOTED THAT THESE DEBTS MIGHT HAVE CARRIED INTEREST AND THE ASSESSEE MUST HAVE REALIZED SUCH INCOME AND ACCORDINGLY, THE ADDITION TO THE EXTENT OF RS.3 8,887/- WAS SUSTAINED ON THE BASIS OF ESTIMATE. AS REGARDS THE ADDITION OF 3654 UPHEL D BY CIT(A) ON THE BASIS OF EARLIER YEARS TURNOVER, BY HOLDING THAT THE ASSESSEE MIGHT HAVE EARNED SERVICE CHARGES FOR RENDERING SERVICES OF BUYING GOLD ORNAMENTS ON BEHA LF OF CUSTOMERS AND THE PROFIT WAS ESTIMATED AT 1%. AS REGARDS TO THE ADDITION OF MAJOORI INCOME ON MANUFACTURING OF GOLD ORNAMENTS, THE CIT(A) HAD EXA MINED THE ISSUE IN DETAIL AND POINTED OUT THAT THE ASSESSEE DURING SEARCH HAD ADM ITTED UNDISCLOSED INCOME OF RS.6,40,000/-, WHICH INCLUDED MAJOORI INCOME ALSO A ND FOR THE PERIOD AFTER SEARCH, THE ASSESSEE CLAIMED TO HAVE NOT EARNED SUCH INCOME AND IT WAS STATED THAT HE COULD NOT DEVOTE ANY TIME FOR HIS JOB WORK OF REPAI RING ORNAMENTS AND NO SUCH ITA NO.1472/AHD/07 LATE SHRI LABHUBHAI M. SONI, BHAVNAGAR V. ITO, WARD-2(4), BHA VNAGAR. PAGE 4 INCOME WAS EARNED. THE ABOVE EXPLANATION WAS FOUND TO BE UNACCEPTABLE BY THE CIT(A). ACCORDINGLY, INCOME OF RS.50,000/- ESTIMAT ED WAS UPHELD. IN VIEW OF THESE EXPLANATIONS THE ASSESSEE REQUESTED THE ASSESSING O FFICER NOT TO LEVY PENALTY UNDER SECTION 271(1)(C) ON THE ABOVE ITEMS. BUT, THE ASS ESSING OFFICER LEVIED THE PENALTY AT 200% BY GIVING FOLLOWING FINDINGS: IT MAY BE MENTIONED HERE THAT THE ASSESSEE HAS NOT PREFERRED AN APPEAL AGAINST THE APPELLATE ORDER OF THE CIT(A). THUS, I T IS EVIDENT THAT THE ASSESSEE HAS ACCEPTED THE ADDITIONS MADE IN THE ASSESSMENT O RDER WHICH THE CIT(A) HAS CONFIRMED IN HIS APPELLATE ORDER. FROM THE ABOVE FACTS AND DISCUSSION, IT IS CLEAR T HAT THE ASSESSEE HAS CONCEALED HIS INCOME AND FURNISHED INACCURATE PARTI CULARS OF HIS INCOME. I AM, THEREFORE, SATISFIED THAT THIS IS A FIT CASE FO R IMPOSITION OF PENALTY U/S. 271(1)(C) OF THE ACT. THE MINIMUM PENALTY COMES TO RS.1,40,425/- (RS. ONE LAC FORTY THOUSAND FOUR HUNDRED TWENTY FIVE ONLY.) WHICH IS 100% OF TAX SOUGHT TO BE EVADED WHEREAS MAXIMUM PENALTY U/S. 271[1][C] OF THE ACT COMES TO RS.4,21,275/- RS. FOUR LACS TWENTY ONE THOUSAND TWO HUNDRED SEVENTY FIVE ONLY] WHICH IS 300% OF TAX SOUGHT TO BE EVADED. I THEREFORE, IMPOSE PENALTY OF RS.2,80,850/- [RS. TWO LACS EIGHTY THOUSAND EIGH T HUNDRED FIFTY ONLY] WHICH IS 200% OF TAX SOUGHT TO BE EVADED FOR A.Y. 1989-90 . 5. AGGRIEVED AGAINST THE LEVY OF PENALTY BY THE ASS ESSING OFFICER UNDER SECTION 271(1)(C) OF THE ACT, THE ASSESSEE PREFERRED APPEAL BEFORE CIT(A). THE CIT(A) ALSO CONFIRMED THE PENALTY BY GIVING FOLLOWING FINDINGS IN PARA 3.1, 3.3 AND 3.5 AS UNDER: 3.1 NOW, IT IS NECESSARY TO EXAMINE THE SPECIFIC CL AIMS IN RESPECT OF ADDITIONS UPHELD. FIRST ITEM OF ADDITION OF RS.38,887/- WAS WITH REFERENCE TO INTEREST FROM MONEY LENDING BUSINESS FOR THE PREVIOUS YEAR. THE A.O. HAD MADE ADDITION OF RS.2,40,360/- IN RESPECT OF INTEREST EA RNED IN MONEY LENDING BUSINESS FOR THE PERIOD SUBSEQUENT TO THE SEARCH. THE APPELLANT HAD ARGUED THAT NO INTEREST WAS EARNED AFTER THE SEARCH DUE TO THE DIFFICULTIES FACED BY HIM BY THE SEARCH. THE CIT(A) HAD EXAMINED THE CON TENTIONS AND POINTED OUT THAT THE EXPLANATION FURNISHED WAS TOTALLY INCREDIB LE. THE APPELLANT ALSO DID NOT MAINTAIN ANY BOOKS OF ACCOUNTS WHATSOEVER AND O NLY ON THE BASIS OF DIARIES AND NOTE-BOOKS, THE INCOME WAS ASCERTAINED. THE CALCULATION OF INTEREST BY THE A.O. FOR THE WHOLE PERIOD UP TO 31/ 3/1989 WAS FOUND TO BE ITA NO.1472/AHD/07 LATE SHRI LABHUBHAI M. SONI, BHAVNAGAR V. ITO, WARD-2(4), BHA VNAGAR. PAGE 5 ACCEPTABLE. THE DIFFERENCE AMOUNTING TO RS.38,887/ - WAS UPHELD BY THE CIT(A) AS INCOME BY WAY OF INTEREST. THOUGH THE AP PELLANT ARGUED THAT THERE WAS NO JUSTIFICATION FOR LEVY OF PENALTY ON THE AMO UNT OF ADDITION UPHELD IN THIS REGARD, IT IS CLEAR THAT THE APPELLANT HAD ADMITTED INCOME BY WAY OF INTEREST AS PER STATEMENT RECORDED U/S. 132(4) OF THE I.T. ACT. UP TO THE DATE OF SEARCH, NO BOOKS OF ACCOUNTS WERE MAINTAINED AND THE INCOME WAS ASCERTAINED ON THE BASIS OF PAPERS SEIZED DURING SEARCH. SUBSEQUE NT TO SEARCH ALSO THE APPELLANT EITHER DID NOT MAINTAIN BOOKS OF ACCOUNTS OR DID NOT PRODUCE SUCH BOOKS BEFORE THE A.O. THE EXPLANATION THAT HE COUL D NOT EARN INCOME FROM INTEREST AFTER THE SEARCH WAS FOUND TO BE NOT CREDI BLE AT ALL. AT THE TIME OF SEARCH AND THEREAFTER HE WAS CONTINUING THE MONEY L ENDING BUSINESS AND IT IS IMPOSSIBLE TO ACCEPT THAT HE HAD STOPPED BUSINESS A LL OF A SUDDEN. THE CLAIM THAT INCOME WAS ADMITTED ON CASH BASIS IS ALSO NOT CORRECT. OUTSTANDING AMOUNTS OF DEBTS SHOULD HAVE CARRIED INTEREST AND T HE APPELLANT MUST HAVE REALIZED SUCH INCOME. EVEN THOUGH THE INTEREST INC OME EARNED AFTER THE PERIOD OF SEARCH WAS ASSESSED ON ESTIMATE BASIS, TH ERE IS A SOUND BASIS FOR ESTIMATING SUCH INCOME. THE APPELLANT COULD NOT FU RNISH ANY REASONABLE EXPLANATION FOR HAVING NOT ADMITTED SUCH INCOME. T HE INCOME EARNED AMOUNTING TO RS.38,887/- IS TREATED AS CONCEALED IN COME FOR LEVY OF PENALTY. 3.3 THE LAST ITEM OF ADDITION IS IN RESPECT OF MAJO ORI INCOME ON MANUFACTURING OF ORNAMENTS. THE A.O. HAD POINTED O UT THAT THE APPELLANT DID NOT ADMIT ANY MAJOORI INCOME FROM MANUFACTURING ORN AMENTS FOR THE PERIOD FROM 1/4/88 TO 31/3/89, I.E. AFTER THE SEARCH. HE E STIMATED SUCH INCOME AT RS.50,000/-. THE CIT(A) HAD EXAMINED THE ISSUE IN DETAIL AND POINTED OUT THAT THE APPELLANT DURING SEARCH HAD ADMITTED UNDIS CLOSED INCOME OF RS.6,40,000/-, WHICH INCLUDED MAJOORI INCOME ALSO. FOR THE PERIOD AFTER SEARCH, THE APPELLANT CLAIMED TO HAVE NOT EARNED SU CH INCOME AND IT WAS STATED THAT HE COULD NOT DEVOTE ANY TIME FOR HIS JO B WORK OF REPAIRING ORNAMENTS AND NO SUCH INCOME WAS EARNED. THE ABOVE EXPLANATION WAS FOUND TO BE UNACCEPTABLE BY THE CIT(A). ACCORDINGL Y, INCOME OF RS.50,000/- ESTIMATED WAS UPHELD. ON GOING THROUGH THE FACTS, I AM OF THE OPINION THAT THE APPELLANT DID NOT MAINTAIN BOOKS OF ACCOUNTS OR OTHER DOCUMENTS FOR THE PERIOD AFTER THE SEARCH. HE DID NOT FURNISH PROPER EXPLANATION FOR THE LACK OF INCOME DURING THE PERIOD. THE AVAILABLE SET OF FAC TS AND INFORMATION ITA NO.1472/AHD/07 LATE SHRI LABHUBHAI M. SONI, BHAVNAGAR V. ITO, WARD-2(4), BHA VNAGAR. PAGE 6 SUBSTANTIATED THE ESTIMATE OF INCOME FOR THIS PERIO D. THE APPELLANT FAILED TO FURNISH ANY PROPER EXPLANATION AND ACCORDINGLY, THE ESTIMATE OF INCOME OF RS.50,000/- IS LIABLE TO BE TREATED AS CONCEALED IN COME. 3.5 THE APPELLANT ALSO ARGUED THAT LEVY OF PENALTY @ 200% WAS UNJUSTIFIED. ON CONSIDERING THE ISSUE, I FIND THAT THE APPELLANT DID NOT MAINTAIN BOOKS OF ACCOUNTS OR OTHER DETAILS EVEN AFTER THE SEARCH AND NO CREDIBLE EXPLANATION WAS FURNISHED REGARDING THE INCOME FOR THE POST-SEA RCH PERIOD. AS SUCH THERE IS NO JUSTIFICATION FOR HOLDING THAT THE RATE OF PE NALTY WAS UNJUSTIFIED. THE ARGUMENT IN THIS REGARD IS DISMISSED. THE A.O. IS ACCORDINGLY, DIRECTED TO RECOMPUTED THE AMOUNT OF PENALTY TAKING INTO ACCOUN T THE INCOME OF RS.88,887/- AS INCOME ON WHICH TAX WAS SOUGHT TO BE EVADED. 6. AGGRIEVED AGAINST THE ACTION OF THE CIT(A) CONFI RMING THE LEVY OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT, THE ASSESSEE PR EFERRED SECOND APPEAL BEFORE TRIBUNAL AND RAISED THE ABOVE MENTIONED GROUNDS (IN PARA 2 OF THIS ORDER). BEFORE US THE LEARNED COUNSEL FOR THE ASSESSEE SMT. URVASHI S ODHAN ARGUED ON BEHALF OF THE ASSESSEE AND STATED THAT THESE ADDITIONS HAVE BEEN MADE ON ESTIMATE BASIS AND EVEN THE PENALTY IS ALSO LEVIED ON ESTIMATE BASIS. SHE STATED THAT THE ESTIMATION OF LABOUR WORK INCOME AND INTEREST, ADDITION IS REDUCE D SUBSTANTIALLY BY THE CIT(A) IN QUANTUM APPEAL AS MENTIONED IN THE ABOVE FACTS. AC CORDINGLY, SHE STATED THAT ONCE THE CIT(A) HAS FURTHER REDUCED THE ESTIMATION, THE SATISFACTION RECORDED BY THE ASSESSING OFFICER FOR INITIATION OF PENALTY PROCEED INGS DOES NOT STAND. SHE RELIED ON THE ARGUMENTS MADE BEFORE THE LOWER AUTHORITIES BY THE ASSESSEE AND ACCORDINGLY URGED THE BENCH TO DELETE THE PENALTY. 7. ON THE OTHER HAND THE LD. SR. DR SHRI. GAURAV BA THAM RELIED ON THE PENALTY ORDER PASSED BY THE ASSESSING OFFICER AND ALSO ON T HE ORDER OF CIT(A) AND HE PARTICULARLY REFERRED TO PARA 3.5 OF THE ORDER OF C IT(A) AND STATED THAT THE ASSESSEE HAS NOT MAINTAINED THE BOOKS OF ACCOUNTS AND OTHER DETAILS AND OFFER NO CREDIBLE EXPLANATION WITH REGARD TO ADDITION OF INCOME. ACC ORDING TO HIM AS SUCH THERE IS NO JUSTIFICATION OR EXPLANATION FROM THE ASSESSEE, THE PENALTY LEVIED BY THE ASSESSING OFFICER AND CONFIRMED BY CIT(A) BE UPHELD. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESS EE WAS ENGAGED IN THE BUSINESS ITA NO.1472/AHD/07 LATE SHRI LABHUBHAI M. SONI, BHAVNAGAR V. ITO, WARD-2(4), BHA VNAGAR. PAGE 7 OF MANUFACTURING AND TRADING OF GOLD ORNAMENTS AS A LSO MONEY LENDING BUSINESS AND SEARCH U/S 132 OF THE ACT, WAS CARRIED OUT AT THE R ESIDENTIAL PREMISES OF THE ASSESSEE ON 30.03.1988 AND HE FILED RETURN OF INCOM E DECLARING THE TOTAL INCOME AT RS.5,41,670/-, WHICH WAS ARRIVED AT AFTER CONSIDERI NG THE ADMITTED INCOME OF RS.6,40,000/-. THE ASSESSING OFFICER FINALIZED THE ASSESSMENT AT RS.8,26,540/- MAKING ADDITIONS/DISALLOWANCES. THE CIT(A) SUSTAINE D THE FOLLOWING ADDITIONS MADE BY THE AO. (IV) ADDITION OF RS.38,887/- ON ACCOUNT OF ALLEGED INTEREST EARNED BUT NOT SHOWN IN THE RETURN OF INCOME. (V) ADDITION OF RS.50,000/- ON ACCOUNT OF ALLEGED E STIMATED MAJOORI INCOME FROM MANUFACTURING GOLD ORNAMENTS. (VI) ADDITION OF RS.3,654/- ON ACCOUNT OF ALLEGED S ERVICE CHARGE EARNED. AGGRIEVED AGAINST THE DELETION, THE DEPARTMENT FILE D AN APPEAL BEFORE THE TRIBUNAL, WHICH WAS DISMISSED BY THE ITAT VIDE ORDER DATED 18 .05.2005. HOWEVER, THE ASSESSEE HAS NOT CHALLENGED THE ADDITIONS RETAINED BY THE CIT(A). THE ASSESSING OFFICER LEVIED THE PENALTY UNDER SECTION 271(1)(C) OF THE ACT AND CIT(A) CONFIRMED THE PENALTY ON THE FOLLOWING:- (A) INTEREST INCOME EARNED OUT OF BOOKS OF RS.38,8 87/- (B) MAJOORI INCOME FROM ORNAMENTS OF RS. 50,000/- THE ASSESSEE BEFORE US ARGUED THAT THESE ADDITIONS ARE SUSTAINED BECAUSE THE ASSESSEES EXPLANATION WAS NOT CONSIDERED AS SATISF ACTORY BY THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS. WE FIN D FROM RECORDS THAT INTEREST INCOME EARNED WAS ADDED BY THE ASSESSING OFFICER AT RS.2,01,473/-, BUT THE CIT(A) REDUCED AFTER MAKING ESTIMATE AT RS.38,887/- BY REC ORDING A REASON THAT THE ASSESSEE AT THE TIME OF SEARCH AND THEREAFTER WAS C ONTINUING THE MONEY LENDING BUSINESS AND IT IS IMPOSSIBLE TO ACCEPT THE EXPLANA TION THAT HE HAS STOPPED THE BUSINESS ALL OF A SUDDEN AND EVEN THE CLAIM THAT IN COME WAS ADMITTED ON CASH BASIS IS NOT CORRECT. ACCORDINGLY, AFTER GOING THROUGH O UTSTANDING AMOUNTS OF DEBTS, HE NOTED THAT THESE DEBTS MIGHT HAVE CARRIED INTEREST AND THE ASSESSEE MUST HAVE REALIZED SUCH INCOME AND ACCORDINGLY, THE ADDITION TO THE EXTENT OF RS.38,887/- WAS SUSTAINED ON THE BASIS OF ESTIMATE. AS REGARDS TO T HE ADDITION OF MAJOORI INCOME ON MANUFACTURING OF GOLD ORNAMENTS, WE FIND THAT THE C IT(A) HAD EXAMINED THE ISSUE IN ITA NO.1472/AHD/07 LATE SHRI LABHUBHAI M. SONI, BHAVNAGAR V. ITO, WARD-2(4), BHA VNAGAR. PAGE 8 DETAIL AND POINTED OUT THAT THE ASSESSEE DURING SEA RCH HAD ADMITTED UNDISCLOSED INCOME OF RS.6,40,000/-, WHICH INCLUDED MAJOORI INC OME ALSO AND FOR THE PERIOD AFTER SEARCH, THE ASSESSEE CLAIMED TO HAVE NOT EARNED SUC H INCOME AND IT WAS STATED THAT HE COULD NOT DEVOTE ANY TIME FOR HIS JOB WORK OF RE PAIRING ORNAMENTS AND NO SUCH INCOME WAS EARNED. THE ABOVE EXPLANATION WAS FOUND TO BE UNACCEPTABLE BY THE CIT(A)BUT WITHOUT ANY REASON OR ANY DOCUMENTARY EVI DENCE. ACCORDINGLY, INCOME OF RS.50,000/- ESTIMATED WAS UPHELD. 9. WE FURTHER FIND THAT THE LOWER AUTHORITIES HAS G IVEN FINDING THAT THESE ITEMS OF INCOME ARE MADE ON ESTIMATE BASIS AND EVEN THE CIT( A) HAS REDUCED THE SAME DRASTICALLY LOW THAT OF INTEREST INCOME AT RS.38,88 7/- FROM THE TOTAL ADDITION ON THIS ITEM OF INTEREST AT RS.2,40,360/-. THE LOWER AUTHO RITIES HAVE NOT GONE INTO THE ARGUMENT OF THE ASSESSEE THAT NO INCOME WAS EARNED FOR THE PERIOD 31-3-88 TO 31-3- 89 BECAUSE HE WAS BUSY AND PRE-OCCUPIED ALL THE TIM E WITH THE FOLLOW UP PROCEEDINGS OF THE SEARCH UNDER THE INCOME TAX ACT. THE ENTIRE PREMISE OF THE LOWER AUTHORITIES FOR MAKING ADDITION AND FOR CONFI RMING PENALTY WAS THAT THE ASSESSEE AT THE TIME OF SEARCH, WAS FOUND TO HAVE E ARNED SUBSTANTIAL INCOME AND THE ASSESSEE ACCEPTED THE INCOME OF SUBSTANTIAL AMO UNTS U/S. 132(4). WE FIND THAT THE ASSESSEE DID NOT MAINTAIN ANY BOOKS OF ACCOUNT WHATSOEVER AND ONLY ON THE BASIS OF DIARIES AND NOTE BOOKS THE ESTIMATE TO THE INCOME WAS MADE BY THE LOWER AUTHORITIES. IN VIEW OF THESE CIRCUMSTANCES, THE A SSESSING OFFICER AS WELL AS CIT(A) CALCULATED INTEREST INCOME FOR THE PERIOD UP TO 31- 3-89. WE FIND THAT THE CIT(A) HAS NOTED THE FACT IN THE APPELLATE ORDER PASSED DURING QUANTUM APPEAL THAT, THERE MAY HAVE BEEN SOME SET BACK IN THE MONEY LENDING BUSINE SS FOR A SHORT PERIOD BECAUSE OF THE SEARCH AND SUBSEQUENT ACTION BY THE INCOME T AX DEPARTMENT, BUT TO CONCLUDE THAT THIS SOURCES OF INCOME COMPLETELY DRIED UP, DO ES NOT APPEARED TO BE COMPREHENSIBLE. IT IS TRUE THAT THE TRIBUNAL ALSO HAS HELD THAT THE APPELLANT WAS NOT TRADING IN GOLD AND SILVER ORNAMENTS, BUT THAT DOES NOT GIVE A CONCLUSION THAT THEE WERE NO OTHER SOURCES OF INCOME LIKE OUT OF MONEY L ENDING AND INCOME ON INVESTMENTS, ETC. TAKING AN OVERALL VIEW OF THE MATTER, I AM OF THE O PINION THAT THIS NET INCOME OF RS.50,000/- ALONG WITH INTEREST INCOM E OF RS.38,887/-, FOR THE PERIOD BEYOND 30-3-88 UP TO THE END OF THE PREVIOUS YEAR, AS UPHELD IN PARA 15 OF THIS ORDER ABOVE, CAN BE CONSIDERED AS THE NET INCOME OF ONE Y EAR AFTER THE DATE OF SEARCH. THIS AMOUNT IS NOT MUCH KEEPING IN VIEW THE EXTENT OF BUSINESS ACTIVITIES OF THE ITA NO.1472/AHD/07 LATE SHRI LABHUBHAI M. SONI, BHAVNAGAR V. ITO, WARD-2(4), BHA VNAGAR. PAGE 9 APPELLANT AS FOUND AT THE TIME OF SEARCH AND IN COU RSE OF ASSESSMENT PROCEEDINGS FOR THE ASSESSMENT YEAR UNDER CONSIDERATION AND EAR LIER ASSESSMENT YEARS. IN VIEW OF THE ABOVE FACTS, WE FIND THAT THE LOWER AUT HORITIES HAVE NEVER REJECTED THE EXPLANATION OF THE ASSESSEE THAT THE ASSESSEE STOPP ED THE MONEY LENDING BUSINESS AS WELL AS THE BUSINESS OF REPAIRING OF GOLD ORNAME NTS AND THEREBY COULD NOT HAVE EARNED INTEREST INCOME OR LABOUR INCOME FROM REPAIR ING OF GOLD ORNAMENTS. 10. IN VIEW THE ABOVE FACTS, WE FIND THAT THE LOWER AUTHORITIES HAVE MADE ADDITIONS ON ESTIMATE BASIS AND EVEN DURING THE COURSE OF PEN ALTY PROCEEDINGS THE EXPLANATIONS FURNISHED BY THE ASSESSEE HAS NOT BEEN REJECTED. ONCE THE EXPLANATION FURNISHED BY THE ASSESSEE IS NOT REJECT ED, THIS ITEM CANNOT BE SUBJECT MATTER OF LEVY OF PENALTY UNDER SECTION 271(1)(C) O F THE ACT. ACCORDINGLY, WE DELETE THE PENALTY AND THE ORDERS OF THE LOWER AUTHORITIES ARE REVERSED. 11 . IN THE RESULT, THIS APPEAL OF THE ASSESSEE IS ALLOW ED. ORDER PRONOUNCED IN OPEN COURT ON 18/06/2010 SD/- SD/- (D.C. AGARWAL) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD, DATED: 18/06/2010 ANKIT* COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)-IV, BARODA 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD