M/s. C.K.K. Catering Services, Mangalore V. DCIT, Mangalore

ITA 18/BANG/2009

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9537 (ITAT-BANGALORE)
• Duration Of Justice: 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2000-2001
• Appeal Filed On: 06-01-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V S SREELEKHA
• Assessee Lawyers: ITA NO B PAGE; R KRISHNA IYER ITSSA NO B
• Keywords: Recovery proceedings; Business income; Document seized; Bonafide belief; Difference of opinion; Block assessment; Onus to prove; Documents seized
• Section: 271(1)(c); 143(3); 205; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER IT(SS)A NO.2/BANG/2007 ASSESSMENT YEAR: BLOCK PERIOD 1.4.1989 TO 7.2.2000 THE DY. COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE, MANGALORE. : APPELLANT VS. M/S. C.K.K. CATERING SERVICES, NO.2 PLATFORM, RAILWAY STATION, MANGALORE. : RESPONDENT ITA NO.18/BANG/2009 ASSESSMENT YEAR: 2000-01 M/S. C.K.K. CATERING SERVICES, NO.2 PLATFORM, RAILWAY STATION, MANGALORE. : APPELLANT VS. THE DY. COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE, MANGALORE. : RESPONDENT REVENUE BY : SMT. V.S. SREELEKHA ASSESSEE BY : SHRI R. KRISHNA IYER IT(SS)A NO.2/B/07 & ITA NO.18/B/09 PAGE 2 OF 22 O R D E R PER A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER THESE ARE TWO APPEALS, ONE - PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE LD.CIT(A)-VI, BANGALORE FO R THE BLOCK PERIOD 1/4/1989 TO 7/2/2000 (IN IT(SS)A NO:2/07 ) AND ANOTHER BY C.K.K CATERING SERVICES [IN ITA NO:18/09 ], AGGRIEVED BY THE FINDING OF THE LD.CIT(A)-VI FOR THE ASSESSMENT YEAR 2000-01 . 2. THE REVENUE, IN ITS GROUNDS OF APPEAL, HAS RAISE D TEN GROUNDS. HOWEVER, ON A PERUSAL, WE FIND THAT GROUND NOS: 1, 9 AND 10 ARE GENERAL AND NOT SPECIFIC WHICH, IN OUR CONSIDERED VIEW, DO NOT SURVIVE FOR ADJUDICATION. IN THE REMAINING GROUNDS, THE ESSEN CE AND THE CRUX OF THE ISSUE IS, MAINLY, THAT THE LD.CIT(A)ERRED IN CANCELING PENALTY OF RS.14.9 9 LAKHS LEVIED U/S 158BFA(2) OF THE ACT, HOLDING THAT IT WAS BASIC ALLY A DIFFERENCE OF OPINION REGARDING ESTIMATION OF GROSS PROFIT PER CENTAGE. 3. THE ASSESSEE FIRM, IN ITS GROUNDS OF APPEAL, HAS RAISED NINE GROUNDS. ON A CAREFUL PERUSAL OF THE SAME, WE FIND THAT GROUND NOS: 1, 8 AND 9 ARE NOT VERY SPECIFIC AND GENERAL IN NATURE W HICH, IN OUR OPINION, WILL NOT SURVIVE FOR ADJUDICATION AND, THEREFORE, DISMIS SED AS NOT MAINTAINABLE. IN THE REMAINING GROUNDS, THE GRIEVANCE OF THE ASSESSEE FIRM REVOLVES AROUND THE LD. CIT (A)S ACTION IN CONFIRMING LEVY OF PENALTY U/S 271(1) (C) OF THE ACT BY THE AO. IT(SS)A NO.2/B/07 & ITA NO.18/B/09 PAGE 3 OF 22 4. AS THE ISSUES RAISED BY THE REVENUE AS WELL AS T HE ASSESSEE FIRM ARE SIMILAR AND INTER-LINKED, BOTH THE APPEALS ARE CONSIDERED TOGETHER AND DISPOSED OFF IN THIS COMMON ORDER, FOR THE SAKE OF CONVENIENCE. IT (SS) A NO:2/B/07 REVENUES APPEAL: 5. THE ASSESSEE FIRMS PREMISES WERE SUBJECTED TO A CTION U/S 132 OF THE ACT ON 7/2/2000. THEREAFTER, NOTICE U/S 158BC W AS SERVED, REQUIRING THE ASSESSEE FIRM TO FURNISH ITS RETURN OF INCOME F OR THE BLOCK PERIOD FROM 1/4/89 TO 7/2/2000 AND, ACCORDINGLY, THE ASSESSEE F IRM FURNISHED ITS ROI, ADMITTING UNDISCLOSED INCOME OF RS.4 LAKHS. AFTER DETAILED REASONS SET-OUT IN THE ASSESSMENT ORDER, THE AO HAD ADOPTED THE GRO SS PROFIT RATE OF 30% AND 28% ON UNACCOUNTED SALES AND ARRIVED AT THE UND ISCLOSED INCOME AT RS.50 LAKHS. 5.1. ON AN APPEAL, THE CIT(A)-VI, BANGALORE IN HIS ORDER IN ITA NO:17/CC/MLORE/CIT(A)-VI/01-02 DATED: 30/4/2002, A FTER MUCH DELIBERATIONS HAD DIRECTED THE AO TO ADOPT RS.10.72 LAKHS AS UNDISCLOSED INCOME IN PLACE OF RS.50.00 LAKHS DETERMINED BY THE AO. 5.2. AGITATED, THE REVENUE TOOK UP THE ISSUE WITH T HE HONBLE TRIBUNAL. THE HONBLE TRIBUNAL IN IT (SS) A NO: 12/PANJ/2002 DATED: 21.10.2005 AFTER ANALYZING THE ISSUE IN A COMPREHENSIVE MANNER , CAREFULLY CONSIDERING THE RIVAL SUBMISSIONS AND ALSO PERUSING THE VARIOUS JUDICIAL PRECEDENTS, HAD OBSERVED THAT 6.THE AO FOUND THAT THE PROPORTION OF UNDISCL OSED TURNOVER IS 50%. HOWEVER, CONSIDERING THE SEASON A ND NON- IT(SS)A NO.2/B/07 & ITA NO.18/B/09 PAGE 4 OF 22 SEASON, THE ESTIMATE WAS MADE AT THE RATE OF 40% AS UNDISCLOSED TURNOVER. THE PARTNER HIMSELF HAS CONFIRMED THAT O NLY 75% OF THE TOTAL TURNOVER IS ACCOUNTED IN THE BOOKS. WE ACCOR DINGLY HOLD THAT THE UNDISCLOSED TURNOVER SHOULD BE ADOPTED AT THE R ATE OF 25% AS AGAINST 40% TREATED BY AO 5.3. AGGRIEVED, THE ASSESSEE FIRM HAD APPROACHED THE HONBLE HIGH COURT OF KARNATAKA FOR REDRESSAL. THE HONBLE HIGH COURT IN ITA NO: 353/2006 DATED 4/7/2006 WAS PLEASED TO ORDER THAT 3. WE SEE FROM THE PROCEEDINGS THAT THE ASSESSEE W AS SUCCESSFUL BEFORE THE COMMISSIONER, AND IT IS ONLY IN THE TRIB UNAL, THE ASSESSEE HAS LOST THE CASE. 4. THIS COURT HAS CHOSEN TO ADMIT THE APPEAL AND F RAMED VARIOUS QUESTIONS OF LAW AS WE SEE FROM THE ORDER SHEET. I N THE LIGHT OF THREAT OF RECOVERY PROCEEDINGS, AND ON THE FACTS OF THIS CASE, WE DEEM IT PROPER TO ACCEPT THIS I.A. INTERIM STAY OF THE ORDER OF THE TRIBUNAL DATED 21/10/2005 IS ORDERED SUBJECT TO THE ASSESSEE PROVIDING SECURITY OF IMMOVABLE PROPERTY TO THE SAT ISFACTION OF THE ASSESSING AUTHORITY. 6. REVERTING BACK TO THE MAIN ISSUE, VIDE NOTICE U/ S 158BFA (2), THE ASSESSEE WAS REQUIRED TO SHOW-CAUSE AS TO WHY PENAL TY SHOULD NOT BE LEVIED ON UNDISCLOSED INCOME. AFTER CONSIDERING TH E ASSESSEE FIRMS CONTENTIONS AND ALSO DREW STRENGTH FROM THE FINDING OF THE HONBLE TRIBUNAL DATED: 21/10/2005, THE AO HAD LEVIED A PENALTY OF R S.14.99 LAKHS U/S 158BFA (2) OF THE ACT DATED: 23/6/2006 . [THE HONBLE HIGH COURT OF KARNATAKA IN ITA NO: 353/2006 DATED: 4/7/2006 HAD O RDERED INTERIM STAY OF THE ORDER OF THE TRIBUNAL DATED 21/10/2005]. IT(SS)A NO.2/B/07 & ITA NO.18/B/09 PAGE 5 OF 22 6.1. AGITATED OVER THE ACTION OF THE AO IN LEVYING PENALTY U/S 158BFA (2) OF THE ACT, THE ASSESSEE FIRM HAD APPROACHED THE CI T (A) FOR REDRESSAL. QUOTING VARIOUS CASE LAWS, THE ASSESSEE FIRM CONTEN DED BEFORE THE CIT (A) THAT THE AO WAS NOT JUSTIFIED IN LEVYING PENALTY. AFTER ANALYZING THE ASSESSEE FIRMS CONTENTIONS AND ALSO EXTENSIVELY QU OTING VARIOUS JUDICIAL PRECEDENTS, THE CIT (A) HAS OBSERVED THUS THE APPELLANT HAS ALSO REFERRED TO THE CASE OF DR LODAYA OF BANGALORE ITAT, THAT THE EXPLANATION DOES NOT LEAD TO AUTOMATIC LEVY OF PENALTY, UNLESS THE EXPLANATION IS FALSE. THESE CITATIONS GIVE A PREPONDERANCE OF PRONOUNCEMENTS HOLDING THAT THE AO HAS DISCRETION WHICH SHOULD BE EXERCISED IN A REASONABL E MANNER AND ONLY WHEN THERE IS A CLEAR CUT CASE OF CONCEALMENT, PENALTY SHOULD BE LEVIED. IN THIS CASE, IT IS BASICALLY A DIFFERE NCE OF OPINION REGARDING ESTIMATION OF GROSS PROFIT PERCENTAGE, EV EN ON WHICH THE ISSUE IS BEFORE THE HONBLE HIGH COURT. IN VIEW OF THE ABOVE CITATIONS AND CIRCUMSTANCES OF THE CASE, IT CANNOT BE HELD THAT IT IS A CASE OF CONCEALMENT U/S 158BFA (2). ACCORDINGLY, T HE PENALTY LEVIED IS DELETED. 6.2. AGGRIEVED, THE REVENUE HAS COME UP WITH THE PR ESENT APPEAL. IT WAS VEHEMENTLY CONTENDED THAT (I) THE CIT(A) HAD GROSSLY ERRED IN HOLDING THAT IN THI S CASE IT WAS BASICALLY A DIFFERENT OF OPINION REGARDING ESTIMATI ON OF GROSS PROFIT PERCENTAGE; (II) THE CIT(A) ERRED IN NOT TAKING COGNIZANCE OF THE FA CT THAT THE TRIBUNAL HAD NOTED THAT THE ASSESSEE HAD ADMITTED I N STATEMENT U/S 132(4) THAT THE ASSESSEE WAS SUPPRESSING ITS TURNOV ER AND WAS DECLARING ONLY 75% OF THE RECEIPTS. THE ITAT HAD A LSO NOTED THAT IN THE CASE OF INTER CITY EXPRESS, THOUGH THERE WAS HIGH TURNOVER, THE ENTRY IN BOOKS OF ACCOUNT WAS MUCH LESS; (III) THE CIT(A) ERRED IN NOT CONSIDERING THE FACT THAT T HE ITAT HAD GIVEN A FINDING OF FACT, BASED ON MATERIAL FOUND AS A RESULT OF SEARCH AND INFORMATION AVAILABLE WITH THE AO RELATA BLE TO SUCH EVIDENCE, THAT THE ASSESSEE WAS NOT CORRECTLY DECLA RING ITS TURNOVER; IT(SS)A NO.2/B/07 & ITA NO.18/B/09 PAGE 6 OF 22 (IV) THE CIT(A) ERRED IN NOT TAKING COGNIZANCE OF THE FA CT THAT THE ITAT HAD HELD THAT THE UNDISCLOSED TURNOVER SHOULD BE AD OPTED AT 25% AS AGAINST 40% TREATED BY THE AO; (V) THE CIT(A) ALSO ERRED IN NOT CONSIDERING THE FACT T HAT THE TRIBUNAL HELD THAT ADVANCE-TAX OF RS.90000/- CAN BE CONSIDER ED TOWARDS INCOME THAT WOULD HAVE BEEN DISCLOSED AND THAT THE ASSESSEE WAS IN THE HABIT OF NOT DISCLOSING THE ENTIRE TURNOVER AND UNDISCLOSED INCOME HAD TO BE ESTIMATED ON THE BASIS OF EVIDENCE FOUND; & (VI) THE CIT(A) ALSO ERRED IN CANCELING THE PENALTY WHEN S.158BFA(2) STIPULATES THAT PENALTY WAS LEVIABLE ON UNDISCLOSED INCOME DETERMINED BY THE AO UNDER CLAUSE (C) OF S.158BC. RELIANCE WAS PLACED ON THE FOLLOWING CASE LAW S: (A) CIT V. POPULAR JEWELLERS (1999) 238 ITR 676 (DEL) (B) CIT(ADDL) V. SMT.CHANDRAKANTA AND ANOTHER (1994) 20 5 ITR 607 (MP) 6.3. ON THE OTHER HAND, THE FORCEFUL CONTENTIONS OF THE LD. A R ARE SUMMARIZED AS UNDER: (A) THE AO ESTIMATED THE UNACCOUNTED SALES AT 40%, EST IMATED THE GP @ 30% FOR 96-97, 28% FOR 97-98 AND 31% FROM 1.4.99 TO 31.1.2000; (B) THE AO HAD ACCEPTED THE UNDISCLOSED INCOME OF R S.50000/- FOR 95-96, RS.1 LAKH EACH FOR 98-99 AND 99-00 AS PER THE RETUR N; (C) ON AN APPEAL, THE CIT(A) HAD PARTLY ALLOWED TH E APPEAL AND HELD THAT POSSIBLE UNACCOUNTED SALE FOR 96-97, 97-98 CAN BE 2 0% OF THE TOTAL SALES I.E., RS.33.6 LAKHS. GROSS PROFIT ESTIMATED AT 25% AS AGAINST 28% AND 30% BY THE AO; (D) ON APPEALS BY EITHER PARTIES, THE HONBLE TRIBU NAL ESTIMATED THE SUPPRESSION AT 25% AS AGAINST 20% BY THE CIT(A) AND 40% BY THE AO; (E) FOR THE AY 2000-01, THE ASSESSEE HAD PAID ADVAN CE TAX OF RS.90000/- BEFORE THE DATE OF SEARCH; (F) THE CIT(A) DELETED THE UNDISCLOSED INCOME AND O BSERVED THAT THE AO WAS FREE TO TAKE UP ANY UNDISCLOSED INCOME FOR THE PURP OSE OF REGULAR ASSESSMENT U/S 143(3) FOR THIS PERIOD. HOWEVER, TH E HONBLE TRIBUNAL OBSERVED THAT THE ADVANCE OF RS.90000/- CAN BE CONS IDERED TOWARDS UNDISCLOSED INCOME THAT WOULD HAVE BEEN UNDISCLOSED . ON AN APPEAL, THE HONBLE HIGH COURT OF KARNATAKA VIDE ITS ORDER DATE D: 4/7/2006 HAD IT(SS)A NO.2/B/07 & ITA NO.18/B/09 PAGE 7 OF 22 GRANTED INTERIM STAY OF THE ORDER OF THE TRIBUNAL D T:21/10/2005 AND THE MATTER IS STILL PENDING BEFORE THE HONBLE COURT; UNDISCLOSED INCOME AS PER THE AO RS.5000614 AS PER THE CIT(A)S ORDER 1072000 AS PER THE TRIBUNALS ORDER 2499665 (G) ADDITIONS WERE MADE BASED ON THE SEIZED SHEETS FROM 30/1/00 TO 4/2/00 AND 1/2/00 TO 6/2/00. IN FACT, THE TURNOVERS AS PE R THE SEIZED SHEETS HAVE BEEN CORRECTLY RECORDED IN THE BOOKS OF ACCOUNTS; (H) REJECTING THE EXPLANATION OFFERED, THE AO HAD C ONSIDERED THE DIFFERENCE BETWEEN THE UNDISCLOSED INCOME AS PER THE TRIBUNAL S ORDER AND AS PER THE RETURN [ RS.2499665 4 LAKHS]. THE PENALTY WAS LE VIED ON THE BASIS OF THE STATEMENT OF THE MANAGING PARTNER WHOSE ADMISSION O F SUPPRESSION OF 25%. SEARCH WAS CONDUCTED IN THE PREMISES OF THE PARTNER S OF THE FIRM AND CERTAIN RECORDS WERE SEIZED. HOWEVER, THERE WAS NO EVIDENC E OF UNACCOUNTED SALE/INCOME/INVESTMENT. THE ASSESSMENT WAS BASED O N ESTIMATES. SALES TURNOVER WAS ESTIMATED AND THE GP TOO WAS ESTIMATED . THERE WAS NO DIFFERENCE IN SALES TURNOVER AS PER THE SEIZED RECO RDS, BUT, THE ESTIMATION WAS BASED ONLY ON THE SEIZED SHEETS. THE CIT (A) A S WELL AS THE TRIBUNAL HAVE MADE THE ADDITIONS ONLY ON THE BASIS ESTIMATED SALES TURNOVER AND THE GP. THE ASSESSEE FIRM HAD NOT CONCEALED ANY INCOME OR PARTICULARS SO AS TO LEVY PENALTY; (I) IN CONCLUSION, UNDISCLOSED INCOME WAS ESTIMATED BY THE AO WHICH WAS REDUCED BY THE CIT(A) SUBSTANTIALLY AND AGAIN THE S AME WAS MODIFIED BY THE ASSESSEE. FINALLY, THE ASSESSMENT WAS COMPLETED ON LY ON ESTIMATED BASIS NOT ONLY ON THE TURNOVER BUT ALSO ON THE GP. THE AO HA D ACCEPTED THE UNDISCLOSED INCOME FOR THE YEARS 95-96,98-99 AND 99 -00. NO INCRIMINATING DOCUMENTS WERE SEIZED, THE ADDITIONS WERE MADE BASE D ON THE SEIZED SHEETS. IN FACT THE TURNOVER AS PER THE SEIZED SHEETS HAS B EEN CORRECTLY RECORDED IN THE BOOKS OF ACCOUNTS. AS SUCH, THE ASSESSMENT W AS NOT BASED ON ANY SEIZED RECORD EXCEPT THE STATEMENT OF THE MANAGING PARTNER AND THE ADMISSION OF SUPPRESSION OF 25% WITHOUT ANY SUPPORT ING EVIDENCE. THE ASSESSMENT PROCEEDINGS AND THE PENAL PROCEEDINGS AR E DIFFERENT. (J) RELIANCE IS PLACED ON THE FOLLOWING CASE LAWS: - ITO V. SMT.PRAMILA PRATAP SHAH (100 ITD 160) MUMBAI BENCH H; - DCIT V. KOATEX INFRASTRUCTURE LTD. (100 ITD 51 0) MUMBAI BENCH E; IT(SS)A NO.2/B/07 & ITA NO.18/B/09 PAGE 8 OF 22 - SMT.MALA DAYANITHI V. DCIT- HONBLE ITAT, BANGA LORE BENCH - NEMICHAND V. ACIT (INV) ITAT, BANGALORE BENCH - GANDHI SERVICE STATION V. ACIT ITAT, AHMEDABA D C BENCH - DR.R.M.LODAYA (IND) CO LODAYA HOSPITAL, V. ACIT ITAT BANGALORE BENCH IN IT (SSA NOS:19 22/B/04 ? - CIT V. SUBHASH TRADING COMPANY 221 ITR 110 (GUJ ) - K.A.SAKKUR V. II ITO (1979) 8 TTJ 43 (MAD) - KANHAIYALAL CHELBEHARI LAL V. ITO (1981) 11 TTJ 4 62 (JP) - 265 ITR 562 (SC) -DILIP N SHROFF V. JCIT & ANR. (2007) 291 ITR 519 (SC) - UNION OF INDIA V. DHARMENDRA TEXTILE PROCESSORS 3 06 ITR 277 (SC) - CIT V. DODSAL LTD (2009) 312 ITR 112 (BOM) 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS. WE HAVE ALSO PERUSED THE RELEVANT RECORDS AND ALSO THE VOLUMINO US PAPER BOOKS [I, 2, 3 & 4] CONTAINING, INTER ALIA, COPIES OF THE ORDERS O F THE CIT(A), HONBLE TRIBUNAL, HONBLE HIGH COURT OF KARNATAKA, COPIES O F VARIOUS JUDICIAL PRONOUNCEMENTS ETC. FURNISHED BY THE LD. A R. 7.1. THE ISSUE IN BRIEF IS THAT THE AO HAD ES TIMATED THE UNACCOUNTED SALES AT 40%, ESTIMATED THE GP AT 30% FOR 96-97, 28 % FOR 97-98 AND 31% FROM 1.4.99 TO 31.1.2000. HE HAD ACCEPTED THE UNDI SCLOSED INCOME OF RS.50000 FOR 95-96, RS.1 LAKH EACH FOR 98-99 AND 99 -00 AS RETURNED BY THE ASSESSEE. ON APPEAL, THE CIT(A) HAD, AFTER CONSIDE RING THE RIVAL SUBMISSIONS, HELD THAT THE POSSIBLE UNACCOUNTED SAL E FOR 96-,97 AND 97-98 CAN BE 20% OF THE TOTAL SALES OF RS.33.6 LAKHS AND ESTIMATED THE GP AT 25% AS AGAINST 28% AND 30% BY THE AO. 7.2. AGGRIEVED BY THE DECISION OF THE CIT(A), THE H ONBLE TRIBUNAL WAS APPROACHED BY THE RIVAL PARTIES WITH THEIR RESPECTI VE GRIEVANCES. THE HONBLE TRIBUNAL HAD, AFTER MUCH DELIBERATION, ORDE RED IN ITS FINDING DATED: IT(SS)A NO.2/B/07 & ITA NO.18/B/09 PAGE 9 OF 22 21/10/2005 THAT THE SUPPRESSED INCOME IS TO BE ESTI MATED AT 25% AS AGAINST 20% BY THE CIT (A) AND 40% BY THE AO. 7.3. NOT SATISFIED, THE ASSESSEE FIRM HAD CHALLENGE D THE RULING OF THE HONBLE TRIBUNAL BEFORE THE HONBLE HIGH COURT OF K ARNATAKA. THE HONBLE HIGH COURT IN ITA NO: 353/2006 DATED: 4/7/2006 WAS PLEASED TO ORDER THAT - 4..INTERIM STAY OF THE ORDER OF THE TRIBUNAL D ATED 21.10.2005 IS ORDERED SUBJECT TO THE ASSESSEE PROVI DING SECURITY OF IMMOVABLE PROPERTY TO THE SATISFACTION OF THE ASSES SING AUTHORITY. ACCORDING TO THE LD. A R, THE MATTER IS STILL PENDI NG BEFORE THE HONBLE HIGH COURT. 7.4. REVERTING BACK TO THE ISSUE ON HAND, THE AO, G IVING EFFECT TO THE ORDER OF THE HONBLE TRIBUNAL, HAD ARRIVED AT THE T OTAL UNDISCLOSED INCOME AT RS.24,99,665/- (WHICH INCLUDES RS.4 LAKHS AS ADMIT TED BY THE ASSESSEE FIRM). AFTER CONSIDERING THE EXPLANATION FURNISHED BY THE ASSESSEE FIRM IN COMPLIANCE WITH THE NOTICE U/S 158BFA(2) AND ANALYZ ING THE VARIOUS JUDICIAL PRECEDENTS, THE AO HAD CONCLUDED THUS 12. THE ASSESSMENT HAS BEEN MADE ON THE BASIS OF SEIZED MATERIALS RRA-32 & RRA-33. IT IS ALSO BASED ON THE ADMISSION BY THE MANAGING PARTNER, SHRI C.K.K. MOIDOO THAT THE A SSESSEE FIRM IS SHOWING ONLY 75% OF THE RECEIPTS AND SUPPRESSING 25 %. THE MANAGING PARTNER HAS ALSO ADMITTED THAT THE EVIDENC ES RELATING TO THE ACTUAL RECEIPTS HAVE BEEN DESTROYED. THEREFORE , IT CANNOT BE SAID THAT THE UNDISCLOSED INCOME IS BASED ONLY ON E STIMATE. 13. FURTHER, AS PER SEC.158BFA(2), THE ASSESSEE I S LIABLE TO PAY BY WAY OF PENALTY A SUM WHICH SHALL NOT BE LESS THAT T HE AMOUNT OF TAX LEVIABLE, BUT WHICH SHALL NOT EXCEED THREE TIMES TH E AMOUNT OF TAX SO LEVIABLE, IN RESPECT OF THE UNDISCLOSED INCOME DETE RMINED BY THE ASSESSING OFFICER UNDER CLAUSE (C ) OF S.158BC. CO NSIDERING THE ABOVE FACTS, I AM OF THE OPINION THAT THIS IS A FIT CASE FOR LEVY OF PENALTY U/S 158BFA (2) IT(SS)A NO.2/B/07 & ITA NO.18/B/09 PAGE 10 OF 22 7.5. AFTER DUE CONSIDERATION OF THE ISSUE, THE CIT(A) IN THE IMPUGNED ORDER, FOR THE REASONS SET-OUT [PARAGRAPH 6.1.SUPR A] HAD CANCELLED THE PENALTY LEVIED. 8. THE CRUX OF THE ISSUE BEFORE US IS, WHETHER THE AO WAS JUSTIFIED IN LEVYING OF PENALTY U/S 158BFA (2) OF THE ACT? (I) THE HONBLE ITAT, MUMBAI BENCH E IN THE CASE OF DCI T V. KOATEX INFRASTRUCTURE LTD [100 ITD 510] HAS HELD TH AT IN SUB- SECTION (2) OF S.158BFA, THE EXPRESSION EMPLOYED MA Y DIRECT THAT A PERSON SHALL PAY CLEARLY INDICATE THE DISCRET IONARY NATURE OF THE PENALTY. THE EXPRESSION MAY EMPLOY ED IN THIS SECTION SPECIFICALLY POSTULATE THAT DISCRETION LIES ON THE ASSESSING OFFICER OR COMMISSIONER (APPEALS) AS THE CASE MAY B E (II) IN THE CASE OF A.DAYANITHI V. DCIT, THE HONBLE TRI BUNAL IN IT (SS)A NO:15/BANG/2004 DATED: 17.3.2006, HAS HELD TH AT, 3THOUGH THE AMOUNT CAN BE CONSIDERED AS INCOM E FOR FAILURE TO SUBSTANTIATE THE CREDIT, IT DO NOT AUTOM ATICALLY TURN OUT TO BE INCOME IN RESPECT OF WHICH PARTICULARS ARE CO NCEALED. THE DECISION RELIED BY THE LEARNED COUNSEL FOR ASSESSEE FULLY SUPPORTS THE ABOVE VIEW. WE ACCORDINGLY HOLD THAT THE ASSES SEE WAS UNDER BONAFIDE BELIEF AT ALL TIMES FOR NOT OFFERING SUCH INCOME IN THE RETURN FOR BLOCK PERIOD. AS RIGHTLY CANVASSED BY S HRI PARTHASARATHI, MERELY BECAUSE THE INCOME IS TREATED AS UNDISCLOSED INCOME, IT CANNOT BE SAID TO BE CONCEAL ED INCOME OR INCOME IN RESPECT OF WHICH INACCURATE PARTICULARS A RE FILED. THE IT(SS)A NO.2/B/07 & ITA NO.18/B/09 PAGE 11 OF 22 DECISION OF ITAT, BANGALORE IN THE CASE OF MRS. MAL A DAYANITHI (SUPRA) WILL SQUARELY APPLY. ACCORDINGLY, WE CANCE L THE PENALTY LEVIED IN THIS REGARD. (III) IN THE CASE OF NEMICHAND V. ACIT (INV) REPORTED IN (2005) 93 TTJ (BANG) 564, THE HONBLE TRIBUNAL HAS OBSERVED THUS IT HAS NOW BEEN WELL RECOGNISED THAT A PROVISION D EALING WITH PENALTY MUST BE STRICTLY CONSTRUED. PENALTIES ARE TO BE CONSTRUED WITHIN THE TERM AND LANGUAGE OF THE PARTICULAR STAT UE. PENALTY PROVISION SHOULD BE INTERPRETED AS IT STANDS AND IN CASE OF DOUBT IN A MANNER FAVOURABLE TO THE TAXPAYER. IF THE COU RT FINDS THAT THE LANGUAGE OF A TAXING PROVISION IS AMBIGUOUS OR CAPA BLE OF MORE MEANINGS THAN ONE, THEN THE COURT HAS TO ADOPT THE INTERPRETATION WHICH FAVOURS THE ASSESSEE, MORE PARTICULARLY SO WH ERE THE PROVISION RELATES TO THE IMPOSITION OF PENALTY. TH E LEGISLATURE HAS MISERABLY FAILED TO BRING IN S.158BFA (2) WHAT NATU RE OF OFFENCE RESULTS IN THE PENALTY THAT IS SPECIFIED IN THAT SE CTION. IN OTHER WORDS, THE LEGISLATURE HAS NOT BROUGHT THE CHARGE I N THE PROVISIONS OF SUB-S.(2). THE LEGISLATURE SIMPLY EN ABLES THE AO TO IMPOSE A PENALTY, BUT IT IS SILENT ABOUT THE CIRCUM STANCES, WHICH ATTRACT THIS PENALTY;. IT CAN ALSO BE SAID THAT TH E PROVISIONS ARE TOTALLY AMBIGUOUS AND DO NOT CLEARLY DEFINE THE SCO PE FOR ITS OPERATION. SUB-SECTION (2) HAS MISERABLY FAILED TO BRING ANY CHARGE TO SURFACE SO THAT THE AO MAY LOOK AT THE GR AVITY OF THE CHARGE IN ORDER TO IMPOSE THE PENALTY; WHAT THE RE VENUE IS TRYING TO CANVASS IS THAT THE PROVISO ENABLES THE IMPOSITI ON OF PENALTY. THE PROVISO TO S. 158BFA (2) GIVES THE SITUATIONS A ND PRESCRIBES THE CIRCUMSTANCES UNDER WHICH PENALTY SHALL NOT BE LEVIED. THE AO, THE CIT(A) AND THE DEPARTMENTAL REPRESENTATIVE ARE TRYING TO CANVASS THAT IF THESE CIRCUMSTANCES ARE NOT SATISFI ED CUMULATIVELY, THE ASSESSEE IS AUTOMATICALLY LEVIED WITH PENALTY, WHICH PROPOSITION CANNOT BE ACCEPTED. THE LEGISLATURE HA S NOT PRESCRIBED THE CIRCUMSTANCES UNDER WHICH THE PENALT Y HAS TO BE LEVIED. IT HAS ONLY SAID THE CIRCUMSTANCES UNDER W HICH NO PENALTY IS LEVIABLE. THAT DOES NOT MEAN THAT IN EVERY OTHE R CIRCUMSTANCE THE PENALTY IS AUTOMATIC AND HAS TO BE LEVIED. ONE SHOULD NOT FORGET THAT THE WORDS USED IN SUB-S. (2) ARE THAT T HE AO MAY DIRECT THE IMPOSITION OF PENALTY. IT MEANS THAT THE PENAL TY IS NOT AUTOMATIC AND DE HORS THE COMMITTAL OF THE OFFENCE OR THE OFFENCE FOR WHICH THE LEGISLATURE HAS PRESCRIBED THE PENALT Y. SUB-S.(2) HAS MISERABLY FAILED TO PROVIDE FOR CIRCUMSTANCES J USTIFYING THE PENALTY. IT IS NOT POSSIBLE TO SUSTAIN THE PENALT Y LEVIED BY THE AO IT(SS)A NO.2/B/07 & ITA NO.18/B/09 PAGE 12 OF 22 IN THE FACTS AND CIRCUMSTANCES OF THE CASE. THE PR OVISO, WHICH DEALS WITH THE EXCEPTIONS FOR IMPOSITION OF PENALTY , CANNOT ACT AS A PROVISO, WHICH ENABLES THE AO TO IMPOSE THE PENAL TY, AND ALSO THE EXCEPTION CLAUSE CANNOT ACT AS A MAIN RULE FOR IMPOSITION OF PENALTY. THE FINANCE BILL, 1995, AND THE CBDT CIRC ULAR NO.717, DATED: 14 TH AUG., 1995, ALSO DO NOT THROW ANY LIGHT ON THE NAT URE OF OFFENCE ON WHICH PENALTY IS IMPOSABLE UNDER S.15 8BFA(2). (IV) THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. DODSAL LTD. REPORTED IN (2009) 312 ITR 112 WAS PLEASED TO OBSERVE THAT , THE AUTHORITIES BELOW HAD RECORDED REASONS FOR EXE RCISE OF THEIR DISCRETION. THE REVENUE HAD NOT CHALLENGED THE FIN DING OF FACT AS TO THE EXERCISE OF DISCRETIONARY POWER. THE DECISI ON OF THE TRIBUNAL THAT SECTION 158BFA (2) WAS DIRECTORY AND NOT MANDATORY WAS TO BE UPHELD. - THE DEPARTMENTS SPECIAL LEAVE PETITION AGAINST T HE JUDGMENT DATED JULY 2, 2008 OF THE BOMBAY HIGH COURT IN I.T. A.NO:30 OF 2008 REPORTED IN 312 ITR 112, WHEREBY THE HIGH C OURT UPHELD THE ORDER OF THE TRIBUNAL DELETING THE PENAL TY LEVIED UNDER SECTION 158BFA (2) HOLDING THAT THE LANGUAGE USED IN THE FIRST PROVISO TO SECTION 158BFA (2) IS DIRECTOR Y AND NOT MANDATORY : CIT V. DODSAL LTD, : S.L.P ( C) NO:7004 OF 2009. 8.1. IT IS PERTINENT TO MENTION HERE THAT THE IMPUG NED PENALTY ORDER WAS PASSED ON THE BASIS OF THE FINDING OF THE HONBLE TRIBUNAL DATED 21.10.2005 WHICH HAS BEEN STAYED BY THE HONBLE HIGH COURT OF KARNATAKA VIDE ITS ORDER DATED: 4/7/2006. THE FINDING OF THE HONBLE TRIBUNAL HAS SINCE BEEN STAYED BY THE HONBLE COURT REFERRED SUPRA, BASED ON WHICH THE IMPUGNED PENALTY ORDER FRAMED BY THE A O, IN OUR CONSIDERED VIEW, HAS NO LEGAL SANCTITY. WE HAVE ALSO PERUSED THE CASE LAWS ON WHICH THE REVENUE HAS PLACED STRONG RELIANCE. WITH RESPEC TS, WE ARE OF THE CONSIDERED VIEW THAT THEY ARE NOT DIRECTLY APPLICAB LE TO THE ISSUE ON HAND AND, THUS, DISTINGUISHABLE. IT(SS)A NO.2/B/07 & ITA NO.18/B/09 PAGE 13 OF 22 8.2. IN OVER ALL CONSIDERATION OF THE FACTS AND CIR CUMSTANCE OF THE ISSUE AND RESPECTFULLY FOLLOWING THE DECISIONS OF THE HON BLE TRIBUNALS REFERRED SUPRA, WE ARE OF THE FIRM VIEW THAT THE CIT(A) WAS JUSTIFIED IN CANCELING THE PENALTY ORDER PASSED U/S 158BFA (2) OF THE ACT . IT IS ORDERED ACCORDINGLY. ITA NO:18/09 A Y 2000-2001 - ASSESSEES APPEAL : 9. THE ASSESSEE FIRM, FOR THE ASSESSMENT YEAR IN DI SPUTE, HAD ADMITTED AN INCOME OF RS.4.55 LAKHS AND THE ASSESSMENT WAS CONCLUDED, DETERMINING ITS INCOME AT RS.30.72 LAKHS WHICH INCL USIVE OF SUPPRESSED SALES COMPUTED [ESTIMATING THE GP AT 40%] BASED ON TURNOVER ESTIMATED ON THE BASIS OF LOOSE SHEETS FOUND DURING THE SEARC H OPERATION. ON APPEAL, THE CIT (A) REDUCED THE ESTIMATED GP AT 20% WHICH W AS CONFIRMED BY THE HONBLE TRIBUNAL. THE AO, FOR THE REASONS SET OUT IN HIS IMPUGNED ORDER LEVIED A PENALTY OF RS.2,37,268/- U/S 271(1)(C) OF THE ACT. 10. AGGRIEVED, THE ASSESSEE FIRM TOOK UP THE ISSUE WITH THE CIT(A). THE MAIN CONTENTION OF THE ASSESSEE FIRM WAS THAT THE E STIMATION OF INCOME WAS BASED ON THE SEIZED PAPERS AND SUCH ESTIMATION DIFFERS FROM AUTHORITY TO AUTHORITY AND, THUS, PENALTY WAS NOT LEVIABLE. AS THE ESTIMATION WAS A FLUCTUATION AND ONE CANNOT FORESEE WHAT WOULD BE ES TIMATION AND, THEREFORE, SHOULD NOT THRUST HIS DECISION THAT THER E WAS A CONCEALMENT OF INCOME OR FILING OF INACCURATE PARTICULARS. 10.1 CONSIDERING THE SPIRITED ARGUMENT OF THE ASSES SEE FIRM, THE CIT(A) WAS OF THE VIEW THAT , 5(A) ESTIMATION CAN FORM THE BASIS OF PENALTY FO R IT(SS)A NO.2/B/07 & ITA NO.18/B/09 PAGE 14 OF 22 CONCEALMENT WHEN IT WAS BASED ON SEIZED DOCUMENTS. THE VERACITY OF SUCH SEIZED DOCUMENTS HAS STATUTORY PRESUMPTION OF TRUTH FULNESS U/S 132(4A) R.W.S.292C OF I.T. ACT. BESIDES, THE ITAT HAD CONFI RMED THE ADDITION ON ACCOUNT OF SUPPRESSED SALE IN QUANTUM APPEAL. THUS , THE ASSESSEE WAS CONCLUSIVELY FOUND TO BE CONCEALING ITS INCOME FROM UNACCOUNTED SALE BY THE ITAT, THE HIGHEST FACT FINDING AUTHORITY. THEREFOR E, EVEN IF THE SUPPRESSED SALE IS ON ESTIMATED BASIS, THE ELEMENT OF CONCEALM ENT IN IT ATTRACTS LEVY OF PENALTY U/S 271(1) (C) OF I.T. ACT. 11. AGITATED, THE ASSESSEE FIRM CAME UP WITH THE PR ESENT APPEAL. THE MAIN CONTENTIONS OF THE LD. A R WERE REVOLVED MAINL Y AROUND THE FOLLOWING: (I) THE AUTHORITIES BELOW OUGHT TO HAVE FOUND THAT THE AO ESTIMATED THE UNACCOUNTED TURNOVER AT 40% OF THE TOTAL TURNOV ER AS PER THE ACCOUNTS AND INCOME WAS ESTIMATED AT 31% WHICH, ON APPEAL, WAS REDUCED THE ESTIMATED SALES AT 20% AND THE GP A T 20% (ON ESTIMATION) AS AGAINST 31% ESTIMATED BY THE AO. IT IS, THUS, CLEAR THAT THE ADDITIONAL INCOME WAS ESTIMATED ON THE TUR NOVER AND AGAIN GP WAS ALSO ESTIMATED. THE AO AS WELL AS THE CIT (A) HAVE ONLY ESTIMATED THE TURNOVER AND GP WHICH HAVE NO BA SIS, BUT, ONLY ON ESTIMATION. AS SUCH, PENALTY ON SUCH ESTIMATED INCOME WAS NOT WARRANTED; (II) THE ASSESSMENT WAS CONCLUDED ON ESTIMATION, MAINLY ON THE BASIS OF SLIPS SEIZED ON 31.1.00, 1.2.00 TO 6.2.00. THERE WAS NO DIFFERENCE BETWEEN THE SEIZED SHEETS AND THE BOOKS OF ACCOUNT AND, THEREFORE, THE ENTIRE ASSESSMENT WAS BASED ON THE S LIPS WHICH CANNOT BE A BASIS FOR ASSESSMENT AS WELL AS LEVY OF INTEREST. THE AO HAD ONLY ESTIMATED THE SUPPRESSED INCOME AND THE RE WAS NO EVIDENCE OF THE AO HAD NO CASE THAT THE ASSESSEE FI RM HAD SUPPRESSED THE INCOME AND AS SUCH, THE LEVY OF PENA LTY WAS UNWARRANTED; (III) REBUTTING THE CIT(A)S OBSERVATION THAT ONCE SEIZE D PAPER SHOW CONCEALMENT, THE PENALTY AUTOMATICALLY BECOMES LEVI ABLE IRRESPECTIVE OF THE FACT THAT DIFFERENT ESTIMATION OF INCOME THEREON AND DISCRETIONARY POWER TO LEVY PENALTY IS TAKEN AW AY, THE CONTENTION WAS THAT THE TURNOVER HAD BEEN PROPERTY ACCOUNTED FOR IT(SS)A NO.2/B/07 & ITA NO.18/B/09 PAGE 15 OF 22 AS PER THE SLIPS SEIZED ON 31/1/00, 1/2/00 TO 6/2/0 0, IT CANNOT BE SAID THAT ANY PAPER HAD BEEN SEIZED OR FOUND OUT SH OWING UNACCOUNTED SALE; (IV) REFERENCE WAS DRAWN TO THE DECISION OF HONBLE APEX COURT REPORTED IN 306 ITR 277, THE QUESTION AROSE IN THAT CASE WAS REGARDING S.11 AC OF THE CENTRAL EXCISE ACT. IN TH AT CASE, PENALTY RELATED TO S.271(1)(C ) OF I.T.ACT. THE QUESTION I S WHETHER THE DECISION OF THE HONBLE SUPREME COURT IS APPLICABLE TO THE PRESENT CASE. - EXPLANATION TO S.271(1)( C) ENTIRELY INDICATES THE ELEMENT OF STRICT LIABILITY ON THE ASSESSEE. AS SUCH, WHETHER THE EXPLANATION IS APPLICABLE WHERE THE ASSESSEE OFFERS EXPLANATION WHICH HE IS NOT ABLE TO SUBSTANTIATE WI TH SOME OF THE FACTS AND MATERIALS RELATING TO THE COMPUTATION OF TOTAL INCOME, THE PENALTY IS SPARED. IN THIS CASE, PROPE R EXPLANATION HAS BEEN FILED. RELIANCE IS PLACED ON THE FOLLOWING CASE LAWS : (A) RAJAN H SHINDE V. DCIT - 311 ITR (AT) 454 (PUNE) (B) KANBAY SOFTWARE INDIA (P) LTD DCIT 22 DTR (PUNE) (TRIB)481 (C) VEEJAY SERVICE STATION V. ACIT (2009) 22 DTR (DEL)( TRIB) 527 (D) CIT V. POPULAR JEWELLERS (1999) 238 ITR 676 (DEL) (E) K.C.BUILDERS AND ANR. V. ACIT (2004) 265 ITR 562(SC ) (F) DILIP N.SHROFF V. JCIT & ANR. (2007) 291 ITR 519(SC ) 11.1. IN CONCLUSION, IT WAS URGED THAT THE INCOME W AS ADDED ONLY ON ESTIMATED BASIS. THE AO ESTIMATED THE UNACCOUNTED SALE AT 40% WHICH WAS REDUCED TO 20% BY THE CIT (A). GROSS PROFIT WA S ESTIMATED AT 31% BY THE AO WHICH WAS REDUCED TO 20% BY THE CIT (A). IT WAS, THEREFORE, PLEADED THAT ADDITIONS WERE MADE ON ESTIMATED BASIS AND AS SUCH, THE PENALTY LEVIED REQUIRES TO BE CANCELLED. 11.2. ON THE OTHER HAND, THE LD. D R VEHEMENTLY ARG UED THAT THE ASSESSEE FIRM HAS CONCEALED ITS PARTICULARS OF INCO ME AND ALSO FURNISHED INACCURATE PARTICULARS OF SUCH INCOME WHICH HAS BEE N COMPREHENSIVELY IT(SS)A NO.2/B/07 & ITA NO.18/B/09 PAGE 16 OF 22 BROUGHT OUT BY THE AO IN THE PENALTY ORDER. IT WAS, THEREFORE, URGED THE PENALTY ORDER OF THE AO WHICH HAS BEEN CONFIRMED B Y THE CIT(A) IN A JUDICIOUS MANNER DOESNT REQUIRES ANY INTERFERENCE AT THIS STAGE. THE REVENUE HAS PLACED RELIANCE ON THE FINDINGS OF THE (I) HONBLE HIGH COURT OF DELI IN THE CASE OF CIT V. POPULAR JEWELLERS (1999) 238 ITR 676 AND (II) CIT (ADDL.) V. SMT. CHANDRAKANTA AND ANOTHER REPORTED I N (1994) 205 ITR 607 ( MP) 12. WE HAVE DULY CONSIDERED THE SPIRITED ARGUMENTS OF THE RIVAL PARTIES AND ALSO PERUSED THE PAPER BOOK FURNISHED BY THE LD .A R. IT IS AN ADMITTED FACT THAT THE INCOME OF THE ASSESSEE FIRM WAS INDEE D ADDED ON ESTIMATED BASIS ONLY. THE AO HAD ESTIMATED THE UNACCOUNTED S ALE AT 40% WHICH GOT A SLASH BY THE FINDING OF THE CIT (A) AT 20%. WHEN THE QUANTUM APPEAL WAS BEFORE THE HONBLE TRIBUNAL, NONE WAS PRESENT F ROM THE ASSESSEE FIRMS SIDE TO PUT FORTH ITS VIEWS. THE HONBLE TRI BUNAL HAD, THEREFORE, DISMISSED THE APPEAL AS THERE WAS NO ASSISTANCE FRO M THE ASSESSEES SIDE. 12.1. ON A CLOSE SCRUTINY OF THE PENALTY ORDER PAS SED BY THE AO, WE FIND THAT THE AO HAD IN FACT NARRATED THE SEQUEN CE ON WHICH HOW THE ASSESSMENT PERTAINING TO THE BLOCK PERIOD OF THE AS SESSEE FIRM WAS DEALT WITH BY THE AO, THE CIT(A) AND THEN BY THE HONBLE TRIBUNAL. DEALING WITH THE PRESENT AY 2000-01, THE AO HAD ST ATED THAT 9.IT IS THE SAME AS IN THE BLOCK ASSESSMENT Y EAR. IN THE BLOCK ASSESSMENT ORDER ALSO, THE SUPPRESSED SALES HAS BEE N ESTIMATED, BASED ON THE MATERIAL FOUND AT THE TIME OF SEARCH AND THE ST ATEMENTS RECORDED AT THE TIME OF SEARCH. SINCE SEARCH HAS TAKEN PLACE ON 7/ 2/2000, WHICH FALLS WITHIN THE ACCOUNTING YEAR 1.4.99 TO 31.3.00 RELEVA NT TO THE AY 00-01, THE FACTS AND EVIDENCES FOUND AT THE TIME OF SEARCH ARE RELEVANT FOR THIS IT(SS)A NO.2/B/07 & ITA NO.18/B/09 PAGE 17 OF 22 ASSESSMENT YEAR. THIS IS MORE SO, IN VIEW OF THE F ACT THAT THE LEARNED CIT(A), IN HIS ORDER MENTIONED ABOVE, HAS HELD THAT THE UNDISCLOSED INCOME ON ACCOUNT OF SUPPRESSION OF SALES FOR THE BROKEN P ERIOD HAS TO BE ASSESSED IN THE REGULAR ASSESSMENT. 11.C. THE ASSESSMENT FOR THE ASST. YEAR 2000-01 HA S BEEN MADE ON THE BASIS OF SEIZED MATERIALS RRA-32 & RRA-33. IT IS ALSO BA SED ON THE ADMISSION BY THE MANAGING PARTNER, SHRI C K K MOIDOO THAT THE ASSESSEE-FIRM IS SHOWING ONLY 75% OF THE RECEIPTS AND SUPPRESSING 25 %. THE MANAGING PARTNER HAS ALSO ADMITTED THAT THE EVIDENCES RELATI NG TO THE ACTUAL RECEIPTS HAVE BEEN DESTROYED. THEREFORE, IT CANNOT BE SAID T HAT THE UNDISCLOSED INCOME IS BASED ONLY ON ESTIMATE.. CONSIDERING THE ABOVE, THE AO WENT AHEAD WITH IN LE VYING OF PENALTY U/S 271(1) (C) OF THE ACT. 13. LET US NOW ANALYZE THE LEGAL POSITION: (A) IN THE CASE OF RAJAN H SHINDE V.DCIT REPORTED I N (2009) 311 ITR (AT) 454 (PUNE), THE HONBLE TRIBUNAL HAS HELD THAT - THERE COULD BE NO PENALTY UNDER SECTION 271(1)(C ) IN RESPECT OF GROSS PROFIT ADDITION MADE ON ESTIMATE BASIS. THE ASSESSING OFFICER HIMSELF HAD RECORDED THAT THE ASSESSEE WAS ASKED TO PRODUCE VOUCHERS FOR SALE AND PURCHASES. HE FOUND THAT THE SALES WERE SUPPORTED BY VOUCHERS WHEREAS THE PURCHASES WERE NO T SUPPORTED BY VOUCHERS. IT WAS CLEAR THAT THE PURCHASE AND SA LES, INDIRECTLY, WERE NOT DISPUTED. THERE COULD NOT BE ANY SALE WIT HOUT PURCHASES. IF THE SALES WERE VOUCHED, CONSEQUENCES NATURALLY F OLLOW. ONLY FOR EN ROUTE PURCHASES, THERE WERE NO VOUCHERS. IN THE NATURE OF PURCHASE, THIS WAS NOT POSSIBLE EITHER. THESE WERE FROM VARIOUS PARTIES AND THE ASSESSEE HIMSELF WAS IN THE FIRST Y EAR OF HIS BUSINESS. SECONDLY, THE ASSESSEE HAD SHOWN MORE SALES IN THE FAIR BOOK THAN THE SEIZED MATERIAL. WHILE RECASTING THE ACCOUNTS IN THE ASSESSMENT ORDER, THE TRANSPORTATION CHARGES REFLECTED WERE MU CH LESS IN THE FAIR BOOK. EVEN THE MILK PROCESSING CHARGES ESTIMA TED BY THE ASSESSING OFFICER WAS AT LOWER FIGURE THAN THE ACTU AL PROCESSING CHARGES SHOWN BY THE ASSESSEE. ALL THESE INDICATED THAT THE ESTIMATION WAS NOT COMPLETELY AND CLEARLY ON THE BA SIS OF SEIZED MATERIAL (B) IN THE CASE OF KANBAY SOFTWARE INDIA (P) LTD. V. DC IT REPORTED IN (2009) 22 DTR (PUNE)(TRIB) 481, THE HONBLE TRIBUNAL HAS H ELD THAT - IT(SS)A NO.2/B/07 & ITA NO.18/B/09 PAGE 18 OF 22 THERE WAS NEVER A CONTROVERSY ABOUT THE NECESSARY PRECONDITION FOR IMPOSITION OF PENALTY BY WAY OF AO SATISFYING H IMSELF THAT THERE IS CONCEALMENT OF INCOME BY THE ASSESSEE, OR THAT T HERE IS FURNISHING OF INACCURATE PARTICULARS OF INCOME BY THE ASSESSEE , OR THAT THE CASE OF THE ASSESSEE IS COVERED BY DEEMING FICTION COVER ED BY ONE OF THE EXPLANATIONS APPENDED TO S .271(1)( C). UNLESS THE AO IS SATISFIED THAT THE CASE OF THE ASSESSEE FALLS IN ONE OF THESE CATEGORIES, THE VERY FOUNDATION FOR IMPOSITION OF PENALTY DOES NOT EXIST . THE CONTROVERSY WAS WHETHER EVEN AFTER THE AO IS SATISFIED THAT THE ASSESSEE HAS CONCEALED INCOME OR THE ASSESSEE HAS FURNISHED INAC CURATE PARTICULARS, OR EVEN AFTER THE AO IS SATISFIED THAT THE CASE OF THE ASSESSEE IS COVERED BY DEEMING FICTION BY ONE OF TH E EXPLANATIONS APPENDED TO S. 271(1)( C), IS THERE ANYTHING FURTHE R REQUIRED TO BE DONE BY THE AO? IN DILIP N. SHROFFS CASE, A DIVISI ON BENCH OF THE SUPREME COURT THOUGHT SO. IT WAS THEIR ESTEEMED VI EW THAT THE ONUS OF PROOF IS ON THE AO THAT THERE WAS AN ELEMENT OF MENS REA. OBVIOUSLY, THIS WAS IN ADDITION TO THE SATISFACTION OF CONDITIONS LAID DOWN IN S. 271(1)(C )R/W EXPLANATIONS THERETO. IN DHARAMENDRA TEXTILE PROCESSORS CASE, A LARGER BENCH OF THE SUP REME COURT DID NOT SHARE THIS PERCEPTION AND WAS OF THE ESTEEMED V IEW THIS ADDITIONAL PRECONDITION FOR IMPOSITION OF PENALTY U NDER S.271(1)( C), I.E., ESTABLISHING EXISTENCE OF MENS REA , WAS WRONGLY BEING READ INTO THE PROVISIONS OF THE ACT. IT WAS IN THIS CONTEXT THAT THEIR LORDSHIPS HAVE OBSERVED THAT A PENALTY UNDER S.271(1)(C ) IS A CIVIL LIABILITY IN CONTRADISTINCTION WITH PROSECUTION UNDER S;276C WHI CH IS A CRIMINAL LIABILITY. ON ACCOUNT OF PENALTY UNDER S.271(1)(C ), ONLY CONSEQUENCES IN THE CIVIL LAW, IE., PAYMENT OF A SP ECIFIED AMOUNT AS DAMAGES OR AS COMPENSATION, FOLLOW, BUT ON ACCOUNT OF PENALTY UNDER S. 276C, CONSEQUENCES UNDER CRIMINAL LAW, I.E ., LOSS OF INDIVIDUAL LIBERTY BY JAIL SENTENCE, FOLLOW. IT IS , HOWEVER, INCORRECT TO INFER THAT JUST BECAUSE A LIABILITY HAS BEEN HEL D TO BE CIVIL LIABILITY IT CANNOT BE PENAL IN CHARACTER. THERE IS NO CONTRADICTION IN A LIABILITY BEING A CIVIL LIABILITY AND THE SAME LIABILITY BEING PENAL LIABILITY AS WELL, THOUGH A CIVIL LIABILITY CANNOT CERTAINLY BE CRIMINAL LIABILITY AS WELL. THE ONLY IMPACT OF A LIABILITY BEING CIVIL LIABILITY IS THAT MENS REA OR THE INTENTIONS OF THE ASSESSEE NEED NOT BE PROV ED. A MERE CONTRAVENTION OF STATUTORY OBLIGATION IS ENO UGH TO TRIGGER THE PENALTY PROVISION, BUT THEN THERE HAS TO BE A CONTR AVENTION OF THE STATUTORY OBLIGATION FIRST-WILFUL OR NOT. UNLESS T HAT CONTRAVENTION OF LAW TAKES PLACE AND UNLESS THE CONDITIONS FOR IMPOS ITION OF PENALTY UNDER S.271(1)( C) ARE SATISFIED, EVEN A CIVIL LIAB ILITY CANNOT BE INVOKED. AS LONG AS THE INFORMATION GIVEN IN THE I T RETURN IS CORRECT AND COMPLETE TO THE BEST OF ASSESSEES KNOWLEDGE AN D BELIEF, IT CANNOT BE SAID THAT THE STATUTORY OBLIGATION UNDER S.139(1) IS CONTRAVENED WHICH, EVEN FOR A CIVIL LIABILITY FOR P ENALTY BEING IMPOSED, IS A SINE QUA NON. AN ADDITION TO INCOME DOES NOT ALWAYS IT(SS)A NO.2/B/07 & ITA NO.18/B/09 PAGE 19 OF 22 HAVE A CAUSE AND EFFECT RELATIONSHIP WITH THE DISCH ARGE OF ASSESSEES OBLIGATIONS UNDER S.139(1), BECAUSE EVEN WHEN AN AS SESSEE DULY DISCHARGES HIS OBLIGATIONS UNDER S.139(1), THERE CA N STILL BE ADDITIONS TO, OR DISALLOWANCE FROM, THE RETURNED IN COME DUE TO A VARIETY OF REASONS. WHEN AN ADDITION TO RETURNED I NCOME PER SE CANNOT EVEN BE A LEGALLY ACCEPTABLE FOUNDATION OF I NITIATION OF PENALTY PROCEEDINGS UNDER S.271(1)(C ) BECAUSE EVEN BEFORE INITIATING THE PENALTY PROCEEDINGS, THE AO MUST REC ORD SATISFACTION THAT IT IS A FIT CASE FOR INITIATING THE PENALTY PR OCEEDINGS, IT IS FUTILE TO SUGGEST THAT SUCH AN ADDITION SIMPLICITOR IS TO BE VISITED WITH IMPOSITION OF PENALTY. IN THE CASE OF DILIP N.SHROFF V. JCIT & ANR. REPORT ED IN (2007) 291 ITR 519, THE HONBLE SUPREME COURT HAS HELD THAT, PENALTY UNDER S.271(1)(C ) IS NOT AUTOMATIC. ONLY IN THE EVENT THE FACTORS EN UMERATED IN CLAUSES (A) AND (B) OF EXPLANATION 1 ARE SATISFIED AND A FINDIN G IN THIS BEHALF IS ARRIVED AT BY THE AO, THE LEGAL FICTION CREATED THERE-UNDER WOULD BE ATTRACTED. FOR THE SAID PURPOSE, THE AO MUST ARRIVE AT A SATISFACT ION IN THE BEHALF. THE PRIMARY BURDEN OF PROOF OF FURNISHING INACCURATE PA RTICULARS OF INCOME IS O N THE REVENUE AND IT IS ONLY ON DISCHARGE OF PRIMAR Y BURDEN THAT SECONDARY BURDEN N OF PROOF WOULD SHIFT ON THE ASSESSEE. 13.1. FROM THE ABOVE LEGAL POSITION, THE VITAL POI NTS EMERGED ARE - LEVY OF PENALTY U/S 271(1)(C ) IS NOT AUTOMATIC; - IN THE EVENT THE FACTORS ENUMERATED IN CLAUSES (A) AND (B) OF EXPLANATION 1 ARE SATISFIED AND A FINDING IN THIS B EHALF IS ARRIVED AT BY THE AO, THEN ONLY THE LEGAL FICTION C REATED THERE- UNDER WOULD BE ATTRACTED; - THE PRIMARY BURDEN OF PROOF OF FURNISHING INACCURAT E PARTICULARS OF INCOME IS ON THE REVENUE; - THERE COULD BE NO PENALTY U/S 271(1)(C )IN RESPECT OF GROSS PROFIT ADDITION MADE ON ESTIMATE BASIS; - THE NECESSARY PRECONDITION FOR IMPOSITION OF PENALT Y BY WAY OF AO SATISFYING HIMSELF THAT THERE WAS A CONCEALMENT OF INCOME BY THE ASSESSEE, OR THAT THERE WAS FURNISHING OF IN ACCURATE PARTICULARS OF INCOME BY THE ASSESSEE, OR THAT THE CASE OF THE IT(SS)A NO.2/B/07 & ITA NO.18/B/09 PAGE 20 OF 22 ASSESSEE WAS COVERED BY DEEMING FICTION COVERED BY ONE OF THE EXPLANATIONS APPENDED TO S.271(1)(C ); - UNLESS THE AO WAS SATISFIED THAT THE CASE OF HE ASS ESSEE FALLS IN ONE OF THESE CATEGORIES, THE VERY FOUNDATION FOR IM POSITION OF PENALTY DOES NOT EXIST. 13.2. IN THE PRESENT CASE, NONE OF THE CONDITIO NS REFERRED ABOVE HAVE BEEN FULFILLED. AS POINTED OUT EARLIER, THE PENALT Y ORDER WAS MAINLY BASED ON THE ESTIMATED INCOME OF THE ASSESSEE FIRM. 13.3. WITH RESPECTS, WE HAVE PERUSED THE FIND ING OF THE HONBLE HIGH COURT OF DELHI IN THE CASE OF CIT V. POPULAR JEWELL ERS REFERRED SUPRA ON WHICH THE REVENUE HAS PLACED RELIANCE. IN THE CAS E ON HAND, INCOME WAS ARRIVED AT ON ESTIMATED BASIS BY THE AO ON CERTAIN PERCENTAGE WHICH WAS REDUCED BY CERTAIN PERCENTAGE BY THE CIT(A) ON APPE AL. ON FURTHER APPEAL, THE HONBLE TRIBUNAL HAD ENHANCED THE ESTIMATION OF INCOME WITH CERTAIN PERCENTAGE. AGAINST THIS, THE ASSESSEE FIRM HAD CH ALLENGED THE ENHANCEMENT OF INCOME ON ESTIMATION BY THE TRIBUNA L BEFORE THE HONBLE HIGH COURT OF KARNATAKA. THE HONBLE HIGH COURT I N ITS INTERIM ORDER DATED 4/7/2006 HAS STAYED THE OPERATION OF THE TRIBUNALS ORDER AND THE MATTER IS STILL PENDING BEFORE THE HONBLE HIGH COURT. THUS, THE CASE LAW ON WHICH THE REVENUE PLACED RELIANCE IS DISTINGUISHABLE. 13.4. IN OVER ALL CONSIDERATION OF THE FACTS AND C IRCUMSTANCES OF THE ISSUE, THE PENAL PROCEEDINGS WERE INITIATED AND PEN ALTY WAS LEVIED ON THE BASIS OF THE ESTIMATED INCOME AND ALSO BASED ON TH E FINDINGS OF THE HONBLE TRIBUNAL DATED: 21/10/2005 [THE HONBLE TRI BUNALS ORDER HAS SINCE BEEN STAYED BY THE HONBLE HIGH COURT OF KARNATAKA REFERRED SUPRA] AND RESPECTFULLY FOLLOWING THE JUDICIAL PRECEDENTS AS A NALYZED SUPRA, WE ARE OF IT(SS)A NO.2/B/07 & ITA NO.18/B/09 PAGE 21 OF 22 THE CONSIDERED VIEW THAT THE AO WAS NOT JUSTIFIED IN LEVYING THE PENALTY U/S 271(1)(C ) OF THE ACT. IT IS ORDERED ACCORDINGLY. 14. BEFORE PARTING WITH, WE WOULD LIKE POINT THAT THE CIT(A) HAD, IN THE IMPUGNED ORDER, MENTIONED THAT, 5(A)..BESIDES IN QUANTUM APPEAL, THE ITAT HAS CONFIRMED THE ADDITION ON ACCO UNT OF SUPPRESSED SALE. THUS THE ASSESSEE WAS CONCLUSIVELY FOUND TO BE CONC EALING ITS INCOME FROM UNACCOUNTED SALE BY THE ITAT, THE HIGHEST FACT FIND ING AUTHORITY. THEREFORE EVEN IF THE SUPPRESSED SALE IS ON ESTIMATED BASIS, THE ELEMENT OF CONCEALMENT IN IT ATTRACTS LEVY OF PENALTY U/S 271(1)(C ) OF I. T.ACT. THE ASSERTION OF THE CIT (A) SUBSTANTIATE BEYOND ANY IOTA OF DOUBT THAT THE LEVY OF PENALTY WAS BASED ON THE SUPPRESSED SALE ARRIVED AT ON ESTIMATED BASI S. 15. IN THE RESULT, THE REVENUES APPEAL [IN IT(SS)A/2/07] IS DISMISSED AND THE ASSESSEE FIRMS APPEAL [IN ITA NO:18/09] IS ALLOWED . PRONOUNCED IN THE OPEN COURT ON THIS 21 ST DAY OF AUGUST, 2009. SD/- SD/- ( GEORGE GEORGE K.) (A. MOHAN ALANKAMONY ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 21 ST AUGUST, 2009. DS/- IT(SS)A NO.2/B/07 & ITA NO.18/B/09 PAGE 22 OF 22 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE (1+1) BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.