ITO WD 1(2), KALYAN V. KANTILAL PURUSHOTTAM DESHMUKH, BHIWANDI

ITA 2004/MUM/2010

• Counselvise Citation: 200419914 RSA 2010
• Duration Of Justice: 1 year(s) 10 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 12-03-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUBODH L RATNAAPARKHI
• Keywords: Income from undisclosed sources; Search and seizure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI A BENCH, MUMBAI [CORAM : SHRI B R MITTAL JM AND SHRI PRAMOD KUMAR AM] ITA NO. 2004/MUM /2010 ASSESSMENT YEAR: 2005-06 INCOME TAX OFFICER WARD 1(2), KALYAN ....APPELLANT VS. KANTILAL PURUSHOTTAM DESHMUKH ...RESPON DENT 2311, WANI ALLEY, BHIWANDI PAN : ADFPD4613A APPEARANCES: P K B MENON, FOR THE APPELLANT SUBODH L RATNAAPARKHI, FOR THE RESPONDENT DATE OF HEARING : JANUARY 10, 2012 DATE OF PRONOUNCEMENT : JANUARY 31 , 2012 O R D E R PER PRAMOD KUMAR : 1. BY WAY OF THIS APPEAL, THE ASSESSING OFFICER HAS CHALLENGED CORRECTNESS OF CIT(A)S ORDER DATED 30 TH NOVEMBER 2009, IN THE MATTER OF PENALTY UNDER SECT ION 271(1)(C) OF THE INCOME TAX ACT, 1961 FOR THE ASSES SMENT YEAR 2005-06, ON THE FOLLOWING GROUNDS : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN CANCELLING THE PENALTY UNDER SECTION 271(1)(C) WHEN THE PENALTY IS LEVIED ON THE CONCEAL ED INCOME OF RS 77,60,000 WHICH WAS ARRIVED AT BY THE CIT(A) AS INC OME OF THE ASSESSEE FROM THE BUSINESS OF DE-ADDICTION FROM ALCOHOL. 2. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LEARNED CIT(A) WAS JUSTIFIED IN HOLDING THAT TH E PENALTY IS LEVIED ON ADDITIONS MADE ON ESTIMATE BASIS, WHEN THE ADDITION S WERE MADE ON THE BASIS OF RECORDS/ DOCUMENTS AND STATEMENT OF THE AS SESSEE DURING THE COURSE OF SEARCH. I.T.A NO.2004/ MUM/2010 ASSESSMENT YEAR: 2005-06 2 3. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LEARNED CIT(A) IS RIGHT IN HOLDING THAT THE ASS ESSEE IS NOT GUILTY OF CONCEALING HIS INCOME WHEN THE ASSESSED INCOME IS R S 78,78,241, AFTER APPEAL EFFECT, AS AGAINST THE RETURNED INCOME OF RS 11,57,240, THE ADDITIONS BEING MADE ON THE BASIS OF MATERIAL FOUND DURING THE SEARCH. 2. THE MATERIAL FACTS GIVING RISE TO THIS DISPUTE B EFORE US ARE AS FOLLOWS. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANDAP CONTR ACTORS AND DE-ADDICTION OF ALCOHOL. A SEARCH AND SEIZURE OPERATION WAS CARRIE D OUT ON ASSESSEES PREMISES ON 27.1.2005, AND SOME DOCUMENTS AND REGISTERS, REGARD ING HIS CLIENTS FOR DE-ADDICTION, WERE FOUND. IN THE INCOME TAX SUBSEQUENTLY FILED BY THE ASSESSEE, INCOME FROM DE- ADDICTION WAS DISCLOSED AT RS 10,51,000. THE AS SESSING OFFICER, HOWEVER, NOTICED THAT AS PER SEIZED RECORD- REGISTER NO. 8, 1760 PAT IENTS VISITED THE ASSESSEE BETWEEN APRIL 2004 TO JANUARY 2005, AND AS PER SEIZED RECOR D- REGISTER NO. 9, 1144 FURTHER PATIENTS VISITED THE ASSESSEE FROM JULY 2004 TO JAN UARY 2005. HE ALSO NOTED THAT, AS ADMITTED BY THE ASSESSEE HIMSELF DURING THE SEARCH OPERATIONS, THE ASSESSEE WAS CHARGING RS 5,000 PER PATIENT PER VISIT. ACCORDINGL Y, GROSS REVENUES FROM DE ADDICTION WERE COMPUTED AT RS 1,45,20,000. THE ASSE SSING OFFICER ALLOWED UNACCOUNTED EXPENSES, COMPUTED @ 25% OF SUCH REVENU ES, AT RS 36,30,000. APART FROM SO COMPUTING THE REVENUES AT RS 1,08,90,000, THE ASSESSING OFFICER, INTER ALIA, MADE FURTHER ADDITIONS OF RS 15,00,000 IN RESPECT O F DE-ADDICTION REVENUES FOR POST SEARCH PERIOD IN THE RELEVANT PREVIOUS YEAR. WHEN THE MATTER TRAVELLED IN APPEAL, THE ADDITION WAS RESTRICTED, THE CIT(A) HELD THAT, AS AGAINST REDUCTION OF 25% FROM REVENUES ON ACCOUNT OF UNACCOUNTED EXPENSES, THE GR OSS RECEIPTS SHOULD BE REDUCED BY 50% ON ACCOUNT ON UNACCOUNTED EXPENSES AND FREE PATIENTS. THE UNACCOUNTED INCOME FROM DE-ADDITION BUSINESS WAS THUS COMPUTED AT RS 77,60,000. AGGRIEVED BY THE STAND SO TAKEN BY THE CIT(A), ASSESSING OFFICER CARRIED THE MATTER IN APPEAL BEFORE A COORDINATE BENCH OF THIS TRIBUNAL, BUT WIT HOUT ANY SUCCESS. IT IS IN RESPECT OF THIS QUANTUM ADDITION THAT THE ASSESSING OFFICER ALSO IMPOSED A PENALTY UNDER SECTION 271(1)(C) AT A RATE EQUIVALENT TO 100% OF T AX SOUGHT TO BE EVADED. WHILE DOING SO, THE ASSESSING OFFICER NOTED THAT THE ASSE SSEE DOES NOT HAVE ANY EXPLANATION FOR THE INCOME, WHICH CAME TO BE TAXED AS A RESULT OF THE SEIZED MATERIAL, AND THAT THE I.T.A NO.2004/ MUM/2010 ASSESSMENT YEAR: 2005-06 3 PROVISIONS OF EXPLANATION 5 TO SECTION 271(1)(C) AR E CLEARLY ATTRACTED IN THIS CASE. HOWEVER, WHEN ASSESSEE CARRIED THE GRIEVANCE AGAINS T THE PENALTY IN APPEAL BEFORE THE CIT(A), THE CIT(A) DELETED THE PENALTY BY OBSER VING AS FOLLOWS: 4.4. I HAVE CONSIDERED THE VIEW OF THE AO, THE CIT( A) AND THE SUBMISSION OF THE APPELLANT. FOR THE FOLLOWING REASONS, I HOLD THAT THIS IS NOT A FIT CASE FOR LEVY OF PENALTY UNDER SECTION 271(1)(C): I. NO UNACCOUNTED ASSETS HAVE BEEN FOUND BY THE SEARCH PARTY DURING THE SEARCH NOR THE AO HAS FOUND THE SAME DURING THE ASSESSMENT PROCEEDINGS. II. THE INCOME HAS BEEN ESTIMATED BY THE AO ON THE BASE D ON SEIZED MATERIAL AND STATEMENTS. ON THE BASIS OF THE STATEM ENT OF THE APPELLANT, THAT HE WAS CHARGING RS 10,000 FOR TWO S ITTINGS AND IN THE BASIS OF STATEMENT RECORDED FROM A FEW PATIENTS AND A PERSON RUNNING CANTEEN OPPOSITE THE PREMISES OF THE APPELL ANT, THAT 40 TO 50 PATIENTS WERE VISITING THE APPELLANT PER CONSULT ING DAY AND THE ASSESSEE WAS CHARGING RS 5,000 PER VISIT, THE AO ES TIMATED THE RECEIPT AND, AFTER ALLOWING THE EXPENSES @ 25%, DET ERMINED THE INCOME. III. THE CIT(A) HAS REDETERMINED THE INCOME AFTER ALLOWI NG FURTHER 25% OF EXPENSES. THE CIT(A) HAS DELETED THE OTHER TWO A DDITIONS OF RS 10 LAKHS AND RS 15 LAKHS. THAT IS THE CIT(A) HAS RE-DE TERMINED THE TOTAL INCOME AT RS 77,60,000 AS AGAINST THE ASSESSE D INCOME OF RS 1,34,96,240. IV. VARIOUS COURTS AND JUDICIAL FORAS HAVE HELD THAT P ENALTY CANNOT BE LEVIED ON INCOME WHICH IS ESTIMATED. THE RATIO OF C ASES RELIED UPON BY THE APPELLANT ARE RELEVANT. FURTHER, PENALTY UNDER SECTION 271(1)(C) CANNOT BE LEVIED UNLESS AND UNTIL IT IS ESTABLISHED THAT THE ASSESSEE WAS GUILTY OF C ONCEALING HIS INCOME OR FURNISHING INACCURATE PARTICULARS OF HIS INCOME. PE NALTY UNDER SECTION 271(1)(C) IS NOT LEVIABLE ON ADDITIONS MADE ON ESTI MATE BASIS AS HELD IN THE CAASE OF ITO VS BHAGAT SINGH (172 TAXATION 109) AND ITO VS MADAN LAL (78 TTJ 573). ACCORDINGLY, I CANCEL THE PENALTY. 3. AGGRIEVED BY THE STAND SO TAKEN BY THE CIT(A), T HE ASSESSING OFFICER IS IN APPEAL BEFORE US. I.T.A NO.2004/ MUM/2010 ASSESSMENT YEAR: 2005-06 4 4. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTUAL MATRIX OF THE CASE AS ALSO THE A PPLICABLE LEGAL POSITION. 5. WE FIND THAT THE ASSESSEE DID NOT OFFER ANY EXPL ANATION WHATSOEVER BEFORE THE ASSESSING OFFICER IMPOSING THE PENALTY, AND THE EXP LANATION WAS OFFERED FOR THE FIRST TIME BEFORE THE CIT(A). THE CIT(A) HAS BEEN SUPERFI CIAL IN THIS APPROACH INASMUCH AS HE HAS COMPLETELY DISREGARDED THE FACT THAT THE ADDITION IS MADE ON THE BASIS OF SEIZED MATERIAL WHICH INDICATES THAT CERTAIN NUMBER OF PATIENTS VISITED HIM, AND IT IS ONLY ELEMENTARY THAT ALL THESE PATIENTS CANNOT BE F REE PATIENTS. THE STATEMENT OF THE CANTEEN OWNER, WHO HAD STATED THAT 40-50 PATIENTS V ISIT THE ASSESSEE EVERYDAY, HAS NOT AT ALL BEEN TAKEN INTO ACCOUNT SO FAR AS QUANTU M ADDITION IN RESPECT OF THE PRESENT PENALTY IS CONCERNED; THIS ADDITION IS BASED ON ACT UAL NUMBER OF PATIENTS WHO HAVE VISITED THE ASSESSEE AND WHOSE NAMES HAVE BEEN RECO RDED IN THE REGISTERS MAINTAINED BY THE ASSESSEE. THE INCOME IS COMPUTED ON THE BASIS OF STATEMENT MADE BY THE ASSESSEE ABOUT THE FEE CHARGED BY HIM, AND T HE STATEMENT SO GIVEN BINDS THE ASSESSEE AS IS THE MANDATE OF SECTION 132(4) OF T HE ACT. ON THE QUESTION OF MATERIAL FOUND DURING SEARCH OPERATIONS, THERE IS N O EXPLANATION AT ALL SO FAR AS REGISTER NO. 8 IS CONCERNED, IT HAS BEEN SUBMITTED THAT THERE IS SOME OVERLAPPING IN REGISTER NO. 8 AND REGISTER NO. 9, INASMUCH THE LAT TER CONTAINS NAMES OF ONLY CURED PATIENTS AND THEREFORE, ACCORDING TO THE ASSESSE, SUBMISSION OF THE RESPONDENT IS THAT ENTRIES IN BUNDLE NO. 9 SHOULD NOT BE CONSIDER ED FOR DETERMINING INCOME FROM DE- ADDICTION OF ALCOHOL. EVEN BEFORE US THERE IS THU S NO EXPLANATION FOR REGISTER NO. 8, AND, TO THAT EXTENT, ONLY CASE OF THE ASSESSEE IS T HAT THE INCOME IS ASSESSED ON ESTIMATE BASIS, BUT THEN THE INCOME IS NOT ON THE B ASIS OF A PURE ESTIMATE; THE INCOME IS COMPUTED ON THE BASIS OF THE FIGURES OF PATIENT S AS PER REGISTER FOUND AND AS PER FEES CHARGED BY THE ASSESSEE, ACCORDING TO HIS OWN ADMISSION. EVEN AFTER COMPUTING INCOME ON THIS BASIS, A FURTHER DEDUCTION OF 50% IS GIVEN FOR THE ESTIMATED EXPENSES AND THE FREE PATIENTS. AT LEAST TO THE EXTENT OF IN COME COMPUTED ON THE BASIS OF REGISTER NO. 8, WHICH REFLECTS 1,760 PATIENTS, THER E IS NO EXPLANATION BY THE ASSESSEE AND THE PENALTY IN RESPECT OF THE SAME DESERVES TO BE UPHELD. THE INCOME COMPUTED I.T.A NO.2004/ MUM/2010 ASSESSMENT YEAR: 2005-06 5 ON THIS BASIS, BY COMPUTING GROSS FEES @ RS 5,000 P ER PATIENT AND THEN ALLOWING 50% OF GROSS REVENUES FOR FREE PATIENTS AND UNACCOUNT ED EXPENDITURE, WORKS OUT TO RS 44,00,000. TO THIS EXTENT, THE CIT(A) CLEARLY OVERL OOKED ALL THESE FACTS AND PROCEEDED ON THE BASIS OF VAGUE GENERALITIES, EVEN THOUGH THE RE COULD INDEED BE SOME SUBSTANCE IN EXPLANATION WITH RESPECT OF THE REST OF THE INCO ME, NOTWITHSTANDING THE FACT THAT SAID EXPLANATION MAY NOT BE SUFFICIENT FOR THE PURP OSE OF DELETING THE QUANTUM ADDITION. IN THE PENALTY PROCEEDINGS, AN EXPLANATIO N NEED NOT BE PROVED TO THE HILT AND AS LONG AS NO INCONSISTENCY OR INCORRECTNESS IS FOUND IN THE SAME, THE EXPLANATION CAN SUFFICE FOR TAKING THE ASSESSEE OUT OF THE RIGO UR OF CONCEALMENT PENALTY. WE ARE, THEREFORE, OF THE CONSIDERED VIEW THAT THE ORDER OF THE CIT(A) DESERVES TO BE VACATED TO THE EXTENT OF PENALTY IN RESPECT OF ABOVE QUANTU M ADDITION OF RS 44,00,000 IS CONCERNED. THE AO WILL RECOMPUTE THE PENALTY @ 100 % IN RESPECT OF THE TAX SOUGHT TO BE EVADED IN RESPECT OF THIS ADDITION. GRIEVANC E OF THE ASSESSING OFFICER IS UPHELD TO THIS LIMITED EXTENT. 5. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED IN T HE TERMS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT TODAY ON 31 ST DAY OF JANUARY, 2012. SD/- SD/- (B R MITTAL ) (PRAMOD KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; 31 ST DAY OF JANUARY , 2011 . COPY FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER , MUMBAI 4. DEPARTMENTAL REPRESENTATIVE, BENCH, MUMBAI 5. GUARD FILE TRUE COPY BY ORDER ETC. ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, MUMBAI