Ratilal G. Solanki, Pune V. Asstt.CIT, Cir.5, Pune, Pune

ITA 18/PUN/2010

• Counselvise Citation: 1824514 RSA 2010
• Duration Of Justice: 1 year(s) 5 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: misc
• Appeal Filed On: 05-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANN KAPTHUMA
• Assessee Lawyers: S N DOSHI
• Keywords: Peak credit; Bad and doubtful debts
• Section: 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER I.T.A. NO. 18/PN/2010 (BLOCK PERIOD: 1996-97 TO 2002-03) RATILAL G SOLANKI, .. APPELLANT 22 INDRAPRASTHA COMPLEX, RASTA PETH, PUNE PAN ADXPS3264L VS. ASSTT. COMMISSIONER OF INCOME-TAX, .. RESPONDENT CIR. 5, PUNE APPELLANT BY: SHRI S N DOSHI RESPONDENT BY: ANN KAPTHUMA ORDER PER G.S. PANNU, AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-III, PUNE DATED 10.11.2009 WHICH, IN TURN, HAS ARISEN FROM PENALTY ORDER DATED 28.8.2007 PASSED BY THE ASSESSING OFFICER UNDER SEC TION 158BFA(2) OF THE INCOME-TAX ACT, 1961 (IN SHORT TH E ACT), PERTAINING TO THE BLOCK PERIOD 1996-97 TO 2002-03. 2. THE GRIEVANCE OF THE ASSESSEE IN THIS APPEAL RELATES T O THE SUSTENANCE OF PENALTY OF RS 4,78,398/- LEVIED BY THE ASS ESSING OFFICER UNDER SECTION 158BFA(2) OF THE ACT. THE FACTS, IN BRIEF, ARE THAT AN ACTION UNDER SECTION 132(1) OF THE ACT WAS CARRIED OUT AT THE RESIDENTIAL 2 PREMISES OF THE ASSESSEE. IN RESPONSE TO A NOTICE ISSUED U NDER SECTION 158BC, ASSESSEE FILED BLOCK RETURN DECLARING UNDISCLOSED I NCOME AT RS 7,40,064/- ON ACCOUNT OF COMMISSION BUSINESS IN FINANCING CA SH LOANS ON SAHUKARI BASIS. IN THE COURSE OF SEARCH, A POCKET DIARY WAS F OUND WHEREIN THE ASSESSEE HAD MADE NOTINGS WITH RESPECT TO MONEY RECEI VED FROM VARIOUS PARTIES AND PAID TO OTHER PARTIES. IT WAS EXPLA INED BY THE ASSESSEE THAT HE HAD BEEN WORKING AS FINANCIAL BROKER FOR A RRANGING CASH LOANS FOR WHICH HE USED TO CHARGE BROKERAGE @ % OF T HE INTEREST PAID TO VARIOUS PARTIES. THE ASSESSEE FURNISHED DATE-WISE AND PARTY -WISE DETAIL OF THE AMOUNTS PAID AS WAS SHOWN IN DIARIES. BASED ON TH E SAME, THE ASSESSING OFFICER WORKED OUT THE PEAK DEBIT BALANCE REPRE SENTING INTRODUCTION OF UNDISCLOSED CASH FOR GIVING LOANS AT RS 9, 71,133/-. THE MATTER REACHED THE TRIBUNAL AND AFTER GIVING EFFECT T O THE ORDER OF THE TRIBUNAL, THE ULTIMATE REVISED TOTAL UNDISCLOSED INCOME WAS WORKED OUT AT RS 12,61,197/-. 3. DURING THE PENALTY PROCEEDINGS UNDER SECTION 158BF A(2), IT WAS SUBMITTED BY THE ASSESSEE THAT IN THE ABSENCE OF BOOKS OF ACCOUNT, HE HAD CONSIDERABLE DIFFICULTY IN WORKING OUT THE UNDISCLO SED INCOME AND EVEN THEN HE HONESTLY WORKED OUT THE UNDISCLOSED INCOME B Y CALCULATING THE BROKERAGE @ 6% OF THE AVERAGE OF THE AMOUNTS RECEI VED AND FINANCED IN THE RESPECTIVE ASSESSMENT YEARS. IT WAS FURTHE R SUBMITTED BY THE ASSESSEE THAT THE METHOD ADOPTED BY HIM COULD NOT B E CONSIDERED TO BE INCORRECT OR DISHONEST AND THAT HE HAD A BONA FIDE B ELIEF THAT THE METHOD ADOPTED BY HIM WAS CORRECT METHOD AND HE COULD N OT ANTICIPATE DIFFERENT METHOD AS HAD BEEN ADOPTED BY THE ASSESSING O FFICER. 3 ACCORDINGLY, IT WAS PLEADED THAT NO PENALTY BE LEVIED I N THE CASE OF THE ASSESSEE. 4. AGGRIEVED WITH THE IMPOSITION OF PENALTY BY THE A SSESSING OFFICER, ASSESSEE WENT IN APPEAL BEFORE THE COMMISSIONER OF INCOME- TAX (APPEALS) AND FILED WRITTEN SUBMISSIONS, WHICH HAVE BEEN EXTRACTED IN DETAIL BY THE COMMISSIONER OF INCOME-TAX (APPEALS) IN P ARA 6 OF THE IMPUGNED ORDER. THE SUM AND SUBSTANCE OF THE ASSESSEES SU BMISSION WAS THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN LEVYING THE PENALTY AT THE RATE OF 150% AND THAT THE IMPUGNED PENALTY BE CA NCELLED. IN THE ALTERNATIVE, IT WAS PRAYED THAT MINIMUM PENALTY OF 10 0% BE LEVIED, IF AT ALL ANY PENALTY WAS LEVIABLE. AFTER CONSIDERING THE VARIED S UBMISSIONS OF THE ASSESSEE, THE COMMISSIONER OF INCOME-TAX (APPEALS) CONFIRME D THE LEVY OF PENALTY OF RS 4,78,393/- UNDER SECTION 158BFA(2) O F THE ACT BY HOLDING AS UNDER: 7. I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE APPEL LANT IN THE LIGHT OF THE FACTS OF THE CASE. PROVISIONS OF SECTION 158BFA(2) ARE ATTRACTED IN A CASE WH ERE UNDISCLOSED INCOME ASSESSED U/S 158BC R.W.S. 158BD IS MORE THAN THE UNDISCLOSED INCOME SHOWN IN THE BLOCK RETURN. SINCE IN THE CASE OF THE APPELLANT, THE ASSESSED INCOME IS MORE THAN THE INCOME SHO WN IN THE BLOCK RETURN, PROVISIONS OF SECTION 158BFA(2) CAN BE INVOKED. HOWEVER, THE MAIN CONTENTION OF THE APPELLANT IS THAT NO PENALTY BE LEVIED AS THE DIFFERENCE BETWEEN THE INCOME ASSESSED BY THE AO A ND THAT SHOWN BY THE APPELLANT IS ON ACCOUNT OF THE DIFFERENCE IN THE METHOD OF ESTIMATION O F INCOME AND BOTH THESE METHODS ARE UNRECOGNIZED METHODS. I FEEL HESITATION IN ACCEPTING TH E CONTENTION OF THE APPELLANT. IN MY OPINION, IT IS NOT CORRECT TO SAY THAT THE METHOD ADOPTED BY THE AO I S NOT A RECOGNIZED METHOD. WORKING OUT OF UNDISCLOSED INCOME BY ARRIVING AT THE PEAK BALANCE ON THE BASIS OF ENTRIES IN DIARY SEIZED DURING THE COURSE OF SEARCH IS AN ACCEPTED METHOD, FOLLOWED BY THE DE PARTMENT AS WELL AS ASSESSEES AND APPROVED BY JUDICIAL AUTHORITIES. IT CANNOT BE SAID THAT THE METHOD APPLIED BY THE AO IS A NOVEL METHOD HITHERTO UNKNOWN TO THE APPELLANT. THEREFORE, I FIND MERIT IN THE OBSERVATIONS OF THE AO THAT THE APPELLA NT FOLLOWED METHOD WHICH SUITED HIS INTEREST AND THEREFO RE, THE INTENTION OF THE APPELLANT CANNOT BE SAID TO BE BONA FIDE. HAD THE APPELLANT HAVE BONA FIDE INTE NTION, HE WOULD HAVE FOLLOWED THE MOST ACCEPTED AN REGULARLY FOLLOWED METHOD AND WOULD NOT HAVE STUMBLED UPON THE OTHER METHOD. ON THE FACTS OF THE CASE, I HOLD THAT THE AO IS JUSTIFIED IN VISITING THE AP PELLANT WITH THE PENAL PROVISIONS OF SECTION 158BFA(2) AND IN LEVYING PENALTY IN AN AMOUNT OF RS 4, 78,398/-. HIS ACTION IN DOING SO IS UPHELD AND THE ORDER U/S 158BFA(2) IS CONFIRMED. 5. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE VEHEM ENTLY POINTED OUT THAT THE UNDISCLOSED INCOME OF THE BLOCK PERIOD WAS RETURNED BY THE ASSESSEE ON THE BASIS OF THE SEIZED MATERIAL AND COMPUTED BY ADOPTING A PARTICULAR METHOD. IT WAS POINTED OUT THAT HAVING REG ARD TO THE ABSENCE OF 4 THE ACCOUNT BOOKS AND THE SEIZED MATERIAL ONLY AN ESTIMAT ION OF THE UNDISCLOSED INCOME WAS POSSIBLE, WHICH WAS CARRIED OUT BY THE ASSESSEE. THE ASSESSING OFFICER DID NOT AGREE WITH THE EXPLA NATION OF UNDISCLOSED INCOME WORKED OUT BY THE ASSESSEE AND INSTEAD, T HE UNDISCLOSED INCOME WAS COMPUTED BY CARRYING OUT AN EXERCIS E OF CALCULATING THE PEAK DEBIT BALANCE. THIS RESULTED IN A VA RIATION IN THE UNDISCLOSED INCOME CALCULATED BY THE ASSESSEE. IN THIS BACKGRO UND, IT WAS POINTED OUT THAT MERE DIFFERENCE IN ESTIMATION OF UNDISCLOSED INCOME DOES NOT JUSTIFY THE IMPOSITION OF PENALTY UNDER SECTION 158BFA(2) OF THE ACT AND IN SUPPORT, RELIANCE WAS PLACED ON THE FOLLOWIN G DECISIONS: I) DCIT V KOATEX INFRASTRUCTURE LTD. 100 ITD 510 (MU M), II) CIT V IQBAL SINGH & CO. 180 TAXMAN 355 (P&H), III) HARIGOPAL SINGH V CIT 258 ITR 85 (P&H), IV) RAJAN H SHINDE V DCIT 103 ITD 360 (PUNE), V) MANSUKH DASS SONI V ACIT 99 TTJ 894 (JODH.), AND VI) DEEPALI JEWELLERS V ACIT, VIDE ITA NO 889/PN/02, OR DER DATED 25.10.2004 6. APART THEREFROM, IT HAS BEEN POINTED OUT THAT TH E UNDISCLOSED INCOME HAS BEEN FINALLY COMPUTED BY THE ASSESSING OFFICER WITHOU T ALLOWING ANY CREDIT FOR OPENING BALANCE AND THE BAD DEBTS FOR UNRE COVERABLE LOANS, WHICH WERE CLAIMED BY THE ASSESSEE. IT WAS POINTED OUT TH AT ON THE THEORY OF PROBABILITY, THE EXISTENCE OF OPENING BALA NCE CAN BE PRESUMED WHICH WOULD JUSTIFY CARRYING ON OF BUSINESS AND WITH REG ARD TO THE CLAIM OF BAD DEBTS, IT WAS POINTED OUT THAT THE SAME WAS ALSO DISCL OSED IN THE STATEMENT GIVEN BY THE ASSESSEE IN THE COURSE OF SEARCH UND ER SECTION 132(4) OF THE ACT. FOR ALL THE ABOVE REASONS, IT HAS B EEN CONTENDED THAT THE DIFFERENCE BETWEEN UNDISCLOSED INCOME RETURNED BY THE ASSESSEE AND 5 THAT FINALLY COMPUTED BY THE INCOME-TAX AUTHORITIES W AS NOT MALA FIDE AND COULD NOT BE SUBJECT TO THE PENALTY UNDER SECTION 158BF A(2) OF THE ACT. 7. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPR ESENTATIVE, APPEARING FOR THE REVENUE, HAS DEFENDED THE IMPOSITION OF PENALTY BY RELYING ON THE REASONING MADE OUT BY THE COMMISSIONER OF INCOME-TAX (APPEALS) IN PARA 7 OF THE IMPUGNED ORDER, WHICH WE H AVE ALREADY EXTRACTED IN THE EARLIER PART OF THIS ORDER AND THUS, THE SAME IS NOT BEING REPEATED FOR THE SAKE OF BREVITY. 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. SECTI ON 158BFA(2) OF THE ACT EMPOWERS AN ASSESSING OFFICER OR THE COMMISSIONER OF INCOME-AX (APPEALS), AS THE CASE MAY BE, T O IMPOSE A PENALTY IN RESPECT OF THE UNDISCLOSED INCOME DETERMINED BY THE ASSESSING OFFICER UNDER CLAUSE (C) OF SECTION 158BC OF THE ACT . THE FIRST AND SECOND PROVISO TO SECTION 158BFA(2), INTER ALIA, PR OVIDE THAT LEVY OF PENALTY IS IMPOSABLE ON THE PORTION OF THE UNDISCLOSED INCOME DETERMINED WHICH IS IN EXCESS OF THE AMOUNT OF UNDISCLOSE D INCOME SHOWN IN THE RETURN. IN THIS CASE, THE UNDISCLOSED INCOM E HAS BEEN FINALLY DETERMINED AT RS 12,61,197/- AS AGAINST UNDISCLOSED INCOME RETURNED AT RS 7,40,064/-. ACCORDINGLY, THE PENALTY UNDER SECTION 15 8BFA(2) OF THE ACT HAS BEEN IMPOSED ON UNDISCLOSED INCOME OF RS 5,21,132/ -, WHICH IS THE DIFFERENCE BETWEEN THE ASSESSED UNDISCLOSED INCOME AND THE RETURNED UNDISCLOSED INCOME. THE PENALTY HAS BEEN IMPO SED UNDER SECTION 158BFA(2) AT THE RATE OF 150% OF THE TAX CORR ESPONDING TO THE AFORESAID QUANTUM OF UNDISCLOSED INCOME. 6 9. WE HAVE PERUSED THE RELEVANT MATERIAL AND FIND THAT UNDISCLOSED INCOME HAS BEEN COMPUTED ON THE BASIS OF THE SEIZED MATE RIAL WHICH SHOWED INCOME EARNED BY THE ASSESSEE AS A FINANCIAL BROKE R. DURING THE COURSE OF SEARCH, CERTAIN DOCUMENTS WERE SEIZED WHICH SHOWED AMOUNTS BEING RECEIVED BY THE ASSESSEE FOR FINANCING AND THE AMO UNTS ADVANCED ON BEHALF OF THE FINANCERS. FOR THE VARIOUS ASSESSMENT YEAR S, ASSESSEE COMPUTED THE UNDISCLOSED INCOME BY WAY OF COMMISSION BROKER AGE AT THE RATE OF 6%, I.E. RS 7,40,064/-. THE ASSESSING OFFICER , HOWEVER, RECOMPUTED THE INCOME FROM THE BROKERAGE COMMISSION BY A NALYZING THE ENTRIES FOUND IN THE SEIZED MATERIAL. THE ASSESSING OFFICER WORKED OUT A CASH FLOW STATEMENT AND ASCERTAINED THE PEAK BALANCE AND O N THAT BASIS RECOMPUTED THE INCOME FROM FINANCIAL BROKERAGE. THE E STIMATION OF INCOME SO MADE BY THE ASSESSING OFFICER WAS A SUBJECT-MATTER OF APPEAL PROCEEDINGS AND AFTER THE ORDER OF THE TRIBUNAL IN TH E QUANTUM PROCEEDINGS DATED 23.6.2006, UNDISCLOSED INCOME HAS BEEN FINALLY DETERMINED AT RS 12,61,197/-. ON THE BASIS OF THE AFOR ESAID, IT IS CONTENDED BY THE ASSESSEE THAT THERE IS NO STANDARD METHOD OLOGY TO ESTIMATE INCOME ON THE BASIS OF THE SEIZED MATERIAL IN TH E ABSENCE OF THE REGULAR BOOKS OF ACCOUNT. IT WAS POINTED OUT THAT THE EN TRIES FOUND IN THE SEIZED MATERIAL WERE CONSIDERED BY THE ASSESSEE AND THEREAF TER INCOME FROM SUCH DOCUMENTS WAS ESTIMATED AND RETURNED AS UNDISCLO SED INCOME. THE ONLY DIFFERENCE IN ASSESSED INCOME IS FOR TH E REASON THAT THE ASSESSING OFFICER HAS CHOSEN A DIFFERENT METHODOLOGY TO EST IMATE UNDISCLOSED INCOME ON THE BASIS OF THE VERY SAME SEIZED MA TERIAL. WE FIND THAT THE EXPLANATION OFFERED BY THE ASSESSEE IS NOT MALA FIDE. MOREOVER, AS NOTED BY THE MUMBAI BENCH OF THE TRIBUNA L IN THE CASE OF 7 KOATEX INFRASTRUCTURE LTD.(SUPRA), ELEMENT OF CONCEALME NT OF PARTICULARS OF INCOME IS NOT A CONDITION PRECEDENT FOR LEVY OF PENA LTY UNDER SECTION 158BFA(2) OF THE ACT BECAUSE INCOME FOR THE BLOCK PERIO D IS TO BE DETERMINED ON THE BASIS OF THE SEIZED MATERIAL, WHICH I S ALREADY IN THE POSSESSION OF THE DEPARTMENT. THE ASSESSEE HAS ONLY TO EXPLA IN AS TO WHY IT WAS NOT ABLE TO COMPUTE THE TRUE UNDISCLOSED INCO ME FROM THE SEIZED MATERIAL, AS HAS BEEN FINALLY DETERMINED BY THE ASSESSING OFFICER. IT IS QUITE EVIDENT IN THE PRESENT CASE THAT THE FACTUM OF THE ASSESSEE HAVING EARNED UNDISCLOSED INCOME FROM FINANCIAL BROKERAG E IS NOT DISPUTED AND SUCH UNDISCLOSED INCOME HAS ASO BEEN RETURN ED, ALBEIT ON ESTIMATE BASIS. EVEN THE ASSESSING OFFICER HAS FINALLY RESTED THE ASSESSMENT OF SUCH UNDISCLOSED INCOME ON THE BASIS OF THE VER Y SAME SEIZED MATERIAL AND THAT TOO ON AN ESTIMATE BASIS BY AP PLYING A METHODOLOGY DIFFERENT FROM THE ASSESSEE. IT CAN BE SEEN THAT THE INSTANT IS NOT A CASE WHERE ASSESSEE HAS BEEN FOUND WANTING IN RE TURNING UNDISCLOSED INCOME FROM A PARTICULAR SOURCE, BUT IS A CASE WHERE THERE IS ONLY A VARIATION IN ESTIMATING OF UNDISCLOSED INCOME ON T HE BASIS OF THE SEIZED MATERIAL. UNDER THESE CIRCUMSTANCES, IN OUR VIEW, THE DISCRETION VESTED IN THE INCOME-TAX AUTHORITIES IN VIEW OF THE PRESE NCE OF EXPRESSION MAY IN SECTION 158BFA(2) COMES TO THE RESCUE OF THE ASSES SEE AND SUCH DISCRETION DESERVED TO HAVE BEEN INVOKED IN FAVOUR OF THE ASSESSE IN THE PRESENT CASE. APART FROM THE SEIZED MATERIAL, WH ICH HAS FORMED THE BASIS TO ESTIMATE UNDISCLOSED INCOME BY THE ASSESSEE AS WEL L AS BY THE ASSESSING OFFICER, THERE IS NO OTHER MATERIAL REFERRED BY THE ASSESSING OFFICER TO JUSTIFY HIGHER ASSESSMENT OF UNDISCLOSED INCOME AND, THEREFORE, WE FIND THAT THE PENALTY IMPOSABLE UNDER SECTION 158BF A(2) IN THE 8 PRESENT CASE IS NOT JUSTIFIED. WE ACCORDINGLY DIRECT THE A SSESSING OFFICER TO DELETE THE IMPUGNED PENALTY OF RS 4,78,398/- LEVI ED UNDER SECTION 158BFA(2) OF THE ACT. THUS, ASSESSEE SUCCEEDS IN ITS APPEAL. 10. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF JUNE, 2011. SD/- SD/- (SHAILENDRA KUMAR YADAV) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT M EMBER PUNE, DATED: 30 TH JUNE, 2011 B COPY TO:- 1) ASSESSEE 2) DEPARTMENT 3) THE CIT (A)III PUNE 4) CIT-III, PUNE 5) DR, B BENCH, ITAT, PUNE. 6) GUARD FILE BY ORDER TRUE COPY ASST. REGISTRAR, I.T.A.T., PUNE