DCIT CEN CIR-1, THANE V. KISHORE M. SHAH, MUMBAI

ITA 2212/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 2084 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-05-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 23-04-2010
• Assessment Year: 2001-2002
• Appeal Filed On: 08-04-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANDEEP DAHIYA
• Assessee Lawyers: R G TALSHAWALA
• Keywords: Sale consideration of property below Jantri Value; Business income; Search and seizure; Document seized; Fair market value; Documents seized
• Section: 143(3); 5(2); 133A; 153A; 132; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI. BEFORE SHRI R.V. EASWAR, SENIOR VICE PRESIDENT AND SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER. S. NO. I.T.A. NO. ASSTT. YEAR. 1. 2212/MUM/2009 2001-02 2. 2213/MUM/2009 2002-03 3. 2214/MUM/2009 2003-04 4. 2215/MUM/2009 2004-05. DY. COMMISSIONER OF SHRI KISHORE M. SHAH, INCOME TAX, VS. P ROP. SHREE RAJLAXMI DEVELOPERS, CENTRAL CIRCLE-1, THANE. RAJL AXMI COMPOUND, KALHER, BHIWANDI. AAWPH 9061 N. APPELLANT RESPONDENT APPELLANT BY : SHRI SANDEEP DAHIYA. RESPONDENT BY : SHRI R.G. TALSHAWALA. O R D E R PER J. SUDHAKAR REDDY, A.M. ALL THESE APPEALS ARE FILED BY THE REVENUE AND AR E DIRECTED AGAINST SEPARATE BUT IDENTICAL ORDERS OF THE CIT(AP PEALS)-I, THANE DATED 31-12-2008 WHEREIN HE HAD DELETED THE PENALTY LEVIE D U/S 271(1)(C) OF THE ACT BY THE AO. AS THE FACTS ARE THE SAME AND THE AP PEALS BELONG TO THE SAME ASSESSEE, FOR THE SAKE OF CONVENIENCE, THEY AR E HEARD TOGETHER AND DISPOSED OF BY WAY OF THIS COMMON ORDER. 2 2. FACTS IN BRIEF: THE ASSESSEE IS AN INDIVIDUAL AND CARRIES ON THE BUSINESS OF CONSTRUCTION OF GODOWN/GALAS AND COMMERCIAL COMPLEX ES, UNDER THE NAME AND STYLE OF, A PROPRIETARY CONCERN, SHREE RAJ LAXMI DEVELOPERS. HE ALSO DERIVES RENTAL INCOME. THE ASSESSEE IS ALSO A PARTNER IN SOME FIRMS AND EARNS SHARE INCOME/ PROFIT FROM THOSE FIRMS. 3. THE ASSESSEE HAD STARTED CONSTRUCTION BUSINESS OF HIS PROPRIETARY CONCERN AT VILLAGE, KALHAR, BHIVANDI. T HE ASSESSEE TOOK LAND FROM THE VILLAGERS BY ENTERING INTO DEVELOPMENT AGR EEMENT. THE LAND OWNERS WERE TO BE GIVEN 40% OF THE CONSTRUCTED GALA S/GODOWNS, FREE OF COST AND THE BALANCE 60% WAS TO BE RETAINED BY THE ASSESSEE. THE ASSESSEE WAS SELLING HIS SHARES OF GALAS/GODOWNS. THE ASSESS EE WAS FILING RETURN OF INCOME IN KALYAN WARD. REGULAR RETURNS OF INCOME WE RE FILED UPTO THE ASSESSMENT YEAR 2002-03. ON 28-8-2003 A SURVEY ACTI ON U/S 133A OF THE ACT WAS CARRIED OUT AGAINST THE ASSESSEE. THE ASSES SEE CLAIMS THAT ALL HIS RECORDS WERE SEIZED BY THE INCOME TAX DEPARTMENT D URING THE COURSE OF SURVEY ACTION, AND HENCE THE ASSESSEE WAS NOT ABLE TO FILE THE RETURNS FOR THE ASSESSMENT YEAR 2003-04 AND 2004-05, IN TIME. 4. A SEARCH AND SEIZURE ACTION WAS CONDUCTED ON TH E ASSESSEE U/S 132 OF THE I.T. ACT ON 20-9-2005. THE BUSINESS AND RESIDENTIAL PREMISES WERE COVERED IN THE SEARCH ACTION. DURING THE COURSE OF SEARCH ACTION, VARIOUS DOCUMENTS WERE FOUND AND SEIZED AND THE STATEMENT OF THE ASSESSEE WAS ALSO RECORDED. DURING THE COURSE OF ST ATEMENT, THE ASSESSEE DECLARED A TOTAL ADDITIONAL INCOME OF RS.6.95 CRORE S FOR ALL THE 7 ASSESSMENT YEARS. THE INCOME WAS OFFERED ON AN ESTI MATE BASIS, ON THE SALE FIGURES, WHICH WERE WORKED OUT. THE ASSESSEE H AD LISTED OUT THE AREAS AND THE RATES AT WHICH THE PROPERTY HAS BEEN SOLD, AND THESE ACTUAL RATES 3 WERE AVERAGED, AND THEREAFTER TOTAL SALES FIGURE WA S WORKED OUT AT RS.69.52 CRORES FOR THE PERIOD OF 7 YEAR. 10% OF TH E SALES WERE DECLARED AS INCOME AND OFFERED FOR TAXATION. RETURNS U/S 153 A WERE FILED FOR ALL THE 7 ASSESSMENT YEARS. THE ASSESSEE ESTIMATED NET PROF IT OF 8% OF SALES PER YEAR FOR THE INITIAL ASSESSMENT YEARS, AND THEREAFT ER GRADUALLY INCREASED THE NET PROFIT RATE TO 13% OF SALES FOR ASSESSMENT YEAR 2006-07. THUS HE CLAIMS THAT, THE NET PROFIT OFFERED TO TAX U/S 153A WAS RS.8.33 CRORES AND THAT, THIS IS HIGHER THAN THE NET PROFIT OFFERED IN A STATEMENT U/S 132(4). THERE IS NO DISPUTE ON THE AREA CONSTRUCTED OR ON T HE AREA SOLD IN ANY OF THE ASSESSMENT YEARS. THE AO ISSUED A NOTICE TO TH E ASSESSEE, ASKING HIM TO JUSTIFY THE AVERAGE RATE, IN RESPECT OF SALE OF GALAS, VIS--VIS THE INCRIMINATING EVIDENCE FOUND. THE ASSESSEE REPLIED THAT THE BOOKING OF GALAS STARTED FROM THE YEAR 1998 AND HENCE THE AVER AGE RATE WORKED OUT WAS JUSTIFIED. HE GAVE A DETAILED EXPLANATION. THE AO CALLED FOR INFORMATION U/S133(6) FROM THE OFFICE OF THE SUB RE GISTRAR, BHIVANDI REQUESTING HIM TO PROVIDE THE MARKET VALUE ADOPTED, FOR STAMP DUTY PURPOSES, IN RESPECT OF GALAS/GODOWNS, IN VARIOUS A REAS FOR THE FINANCIAL YEAR 1999-2000 TO FINANCIAL YEAR 2005-06. ON RECEIP T OF INFORMATION THE AO WANTED TO ADOPT THE MARKET VALUATION AS PER THE OFFICE OF THE REGISTRAR, STAMP DUTY AND ARRIVE AT THE SALE CONSID ERATION IN PLACE OF THE AVERAGE RATE ADOPTED BY THE ASSESSEE. THE ASSESSEE DISPUTED THE SAME. THEREAFTER THE AO, HAD ESTIMATED THE RATE, AS PER H IS BEST OF JUDGMENT AND ARRIVED AT THE SALE CONSIDERATION . IN THIS PROCESS THE AO DID NOT FOLLOW THE VALUATION AS PER THE STAMP DUTY AUTHORITY OF TH E STATE GOVERNMENT. FOR ASSESSMENT YEAR 2000-01 FOR E.G. ,HE ADOPTED A RATE OF RS.200/- PER SQ.FT. WHEREAS THE SUB REGISTRAR FIXED THE VALUATI ON AT RS.335/- PER SQ.FT. THE AO NOTED THAT THERE ARE NO BOOKS OF ACCOUNT AND AUDIT REPORT U/S 44AB OF THE ACT. ON SUCH ESTIMATED SALES TURNOVER, PROFIT WAS ESTIMATED 4 AT 10% AND ADDITION MADE. THE ASSESSEE ACCEPTED THI S ORDER OF THE AO AND HAS NOT FILED FURTHER APPEAL. 5. THEREAFTER THE AO INITIATED PENALTY PROCEEDINGS UNDER THE PROVISIONS OF SECTION 271(1)(C) OF THE ACT. AFTER C ONSIDERING THE EXPLANATION GIVEN BY THE ASSESSEE, PENALTY WAS LEVI ED U/S 271(1)(C) OF THE ACT. THE AO APPLIED THE JUDGMENT OF THE HONBLE SUP REME COURT IN THE CASE OF K.P. MADHUSUDAN VS. CIT 251 ITR 98. HE HELD THAT THE INCRIMINATING EVIDENCE GATHERED DURING THE SEARCH, INFORMATION COLLECTED FROM THE SUB REGISTRAR, COUPLED WITH THE ADMISSION OF THE ASSESSEE DURING THE COURSE OF SEARCH, CLEARLY REFLECTS THAT THE ASS ESSEE HAD NOT SHOWN HIS TRUE AND CORRECT INCOME. HE HELD THAT THE ASSESSEE TRIED TO EVADE TAX AND WHEN FACED WITH THE VARIOUS FACTS GATHERED BY THE R EVENUE, THE ASSESSEE HAD NO OPTION BUT TO COME OUT CLEAN. HE HELD THAT T HE ASSESSEE OUGHT TO HAVE FILED TRUE AND CORRECT INCOME U/S 153A OF THE ACT. HE LEVIED A PENALTY, BEING THE DIFFERENCE BETWEEN THE INCOME RE TURNED U/S 139 OF THE ACT AND THE INCOME ASSESSED, POST SEARCH U/S 153A READ WITH SECTION 143(3) OF THE ACT. IT SHOULD BE NOTED THAT THE AO D ID NOT LEVY PENALTY FOR THE LAST TWO ASSESSMENT YEARS I.E. 2005-06 AND 2006 -07. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL FOR ALL THE 5 ASSESSMENT YEARS. THE FIRST APPELLATE AUTHORITY CONSIDERED THE VARIOUS SU BMISSIONS OF THE ASSESSEE AND GRANTED RELIEF ON THE GROUND THAT 1) THE AOS ACTION OF SUBSTITUTING THE AVERAGE OF THE ACTUAL SALES RATE P ER SQ.FT. OF THE GALAS/GODOWNS, WITH THE SALE RATES OBTAINED FROM TH E OFFICE OF THE SUB REGISTRAR, BHIWANDI WAS LEGALLY NOT CORRECT, AS THE SAME CAN BE CONSIDERED U/S 50C, ONLY FOR THE COMPUTATION OF CAP ITAL GAINS AND NOT FOR SALE OF STOCKS. 2) THE AO HAS NOT BROUGHT ON RECOR D ANY EVIDENCE TO SHOW THAT THE ASSESSEE RECEIVED CERTAIN AMOUNTS FRO M THE PURCHASERS OF GALAS/GODOWNS OVER AND ABOVE WHAT WAS RECORDED IN T HE SALE DEED 5 EXECUTED BY THE ASSESSEE AND THUS THE ADDITION MADE TO THE TOTAL INCOME OF THE ASSESSEE WAS ONLY ON ESTIMATE BASIS. ESTIMAT ED INCOME CANNOT BE TREATED AS CONCEALMENT ; 3) THAT THE JUDGMENT IN TH E CASE OF K.P. MADHUSUDAN (SUPRA) IS NOT APPLICABLE TO THE FACTS O F THE CASE; 4) THAT EXPLANATION 5 TO SECTION 271(1)(C) IS APPLICABLE TO THE ASSESSEES CASE AND THE PENALTY CANNOT BE LEVIED IN VIEW OF SUB-CLAUSE (II) OF EXPLANATION 5 TO SECTION 271(1)(C). HE DELETED THE PENALTY. 6. AGGRIEVED, THE REVENUE HAS FILED THESE APPEALS FOR FOUR ASSESSMENT YEARS FROM 2001-02 TO 2004-05 ON THE FOL LOWING GROUNDS. FOR THE ASSESSMENT YEAR 2000-01, NO APPEAL HAS BEEN FIL ED. 1. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DEL ETING THE PENALTY LEVIED U/S 271(1)(C) BY THE A.O. 2. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT THE P ENALTY WAS LEVIED ON THE ON THE ADDITIONAL INCOME BROUGHT TO T AX CONSEQUENT TO THE SEARCH & SEIZURE ACTION U/S 132 OF THE I.T. ACT , IN THE CASE OF ASSESSEE. 3. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT THE I NCOME FROM CONSTRUCTION BUSINESS WAS COMPUTED ON THE BASIS OF COGENT EVIDENCES FOUND DURING THE SEARCH AS WELL AS GUIDELINE RATES OBTAINED FROM THE SUB-REGISTRAR. 4. THE LD. CIT(A) HAS ERRED IN HOLDING THAT EXPLANATIO N 5 TO 271(1)(C) IS APPLICABLE IN THE CASE OF ASSESSEE. 5. THE LD. CIT() OUGHT TO HAVE CONSIDERED THE SAID EXP LANATION 5 IS APPLICABLE ONLY IN RESPECT OF ASSETS REFERRED TO IN EXPLANATION I.E. MONEY BULLION, JEWELLERY ETC. AND NOT TO THE NATURE OF UNDISCLOSED INCOME BROUGHT TO TAX IN THE ASSESSMENT ORDER. 6. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND MODIFY ANY OF THE ABOVE GROUNDS OF APPEAL. 7. FOR THESE GROUNDS AND OTHERS THAT MAY BE URGED AT T HE TIME OF HEARING, THE ORDER OF THE LD. CIT(A) BE VACATED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 7. THE LEARNED DR, SHRI SANDEEP DAHIYA, SUBMITTED THAT THE ASSESSEE HAS NOT MAINTAINED REGULAR BOOKS OF ACCOUN T NOR HAS HE FILED 6 REGULAR RETURNS OF INCOME NOR HAS HE DISCLOSED THE ACTUAL SALE CONSIDERATIONS AS WELL AS PROFITS FOR ALL THE IMPUG NED ASSESSMENT YEARS IN QUESTION. HE SUBMITTED THAT THE INCRIMINATING EVIDE NCE WAS FOUND DURING THE COURSE OF SEARCH DISCLOSING THAT THE ASSESSEE H AD RECEIVED SALE CONSIDERATION OVER AND ABOVE THAT WHICH WAS DISCLO SED TO THE REVENUE. HE SUBMITTED THAT THE ASSESSEE WAS CONSTRUCTING 5 L AKHS SQ.FT. OF COMMERCIAL AREA AND HE HAS NOT CHOSEN TO TRULY DIS CLOSE THE PROFITS AND STATE OF AFFAIRS. HE SUBMITTED THAT BUT FOR THE SEA RCH AND CONSEQUENT SEIZURE OF MATERIAL, THE CONCEALMENT WOULD NOT HAVE BEEN FOUND. HE READ SUB-CLAUSE (II) TO EXPLANATION 5 TO SECTION 271(1)( C) AND SUBMITTED THAT THE SAME DOES NOT APPLY TO THE FACTS OF THE CASE. H E RELIED ON THE ORDER OF THE AO AND SUBMITTED THAT THE SAME SHOULD BE UPHELD . 8. THE LEARNED COUNSEL FOR THE ASSESSEE MR. R.G. TALSHAWALA, ON THE OTHER HAND, STRONGLY SUPPORTED THE ORDER OF THE FIRST APPELLATE AUTHORITY. HE SUBMITTED THAT THE ASSESSEE HAS REGUL ARLY FILED RETURNS OF INCOME AFTER THE ASSESSMENT YEAR 2002-03 AND AS TH E RECORDS WERE SEIZED BY THE DEPARTMENT DURING THE COURSE OF SURVEY U/S 1 33A, RETURN FOR THE ASSESSMENT YEARS 2003-04 AND 2004-05 HAVE NOT BEEN FILED. HE POINTED OUT THAT THE RETURNS FOR THE ASSESSMENT YEARS 2005- 06 AND 2006-07 WERE FILED WITHIN THE TIME PERMITTED UNDER THE STATUTE. HE FILED A PAPER BOOK RUNNING INTO 307 PAGES AS WELL AS A FACT SHEET WHIC H IS FROM PAGES 308 TO 328. HE SUBMITTED THAT ACTUAL SALE PROCEED AND RATE S, AS RECORDED IN THE REGISTERED DOCUMENTS WERE LISTED OUT AND THE AVERAG E OF SUCH ACTUAL RATES WERE ADOPTED BY THE ASSESSEE FOR THE PURPOSE OF COM PUTING THE TOTAL SALE CONSIDERATION. HE POINTED OUT THAT FOR ALL THE 7 AS SESSMENT YEARS IN QUESTION I.E. FOR ASSESSMENT YEAR 2000-01 TO 2006-0 7, TOTAL SALES WERE ESTIMATED BY APPLYING AVERAGE SALE RATE FOR ALL THE 7 YEARS, TO THE SELLABLE AREA OF EACH YEAR AND THEREAFTER ESTIMATED PROFIT A T THE RATE OF 10%. HE 7 POINTED OUT THAT THOUGH NET PROFIT ESTIMATED FOR TH E INITIAL YEARS WAS 8%, IT GRADUALLY INCREASED TO 13% FOR ASSESSMENT YEAR 2006 -07 THEREBY GIVING AN AVERAGE NET PROFIT OF 12.30%. HE SUBMITTED THAT THE NET PROFIT OFFERED IN THE RETURNS OF INCOME FILED U/S 153A WAS RS.8.33 CRORES, WHICH IS HIGHER THAN THE INCOME OF RS.6.95 CRORES OFFERED I N A STATEMENT U/S 132(4). HE SUBMITTED THAT THE AO APPLYING THE NET P ROFIT RATE OF 10% FOR ALL THE ASSESSMENT YEARS, AND THEREAFTER ON REALISI NG HIS MISTAKE THAT FOR THE ASSESSMENT YEAR 2006-07 THE ASSESSEE HAD OFFERE D A HIGHER RATE OF NET PROFIT, I.E. 13.58%, HE PASSED AN ORDER U/S 154. ON THESE FACTS THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CIT(APP EALS) WAS RIGHT IN DELETING THE PENALTY. THE PROPOSITIONS CANVASSED BY MR. R.G. TALSHAWALA, ARE - 1) THE DIFFERENCE IN INCOME IS DUE TO ESTIMATION O F NET PROFIT ON SALES MADE AND ON SUCH ESTIMATION OF INCOME NO PENA LTY CAN BE LEVIED. HE SUBMITTED THAT WHILE THE ASSESSEE HAD TAKEN THE ACTUAL SALE PROCEEDS INTO CONSIDERATION AND THEN WORKED OUT THE AVERAGE, THE AO HAD ESTIMATED THE SALE CONSIDERATION BASED ON THAT INFORMATION OB TAINED BY THE STAMP DUTY AUTHORITY. HE RELIED ON THE JUDGMENT OF HONBL E CALCUTTA HIGH COURT IN THE CASE OF CIT VS. SURESH CHAND BANSAL 223 CTR (CAL.) 128 FOR THE PROPOSITION THAT WHEN ADDITION IS NOT MADE ENTIRELY ON THE SEIZED MATERIAL AND WHEN THE OFFER IS SAID TO BE MADE TO AVOID LITI GATION AND IT IS AN ESTIMATE OF INCOME THAT MIGHT NOT HAVE BEEN TAXED, NO PENALTY CAN BE LEVIED. 2) IN THE WRITTEN SUBMISSIONS HE LISTED OUT A NUMBE R OF CASE LAWS BUT AS THEY WERE NOT SPECIFICALLY ARGUED OR PR OPOSITIONS EMANATING FROM SUCH JUDGMENTS, MENTIONED BEFORE THE BENCH AT THE TIME OF HEARING, WE DO NOT PROPOSE TO DISCUSS THE PLETHORA OF CASE LAWS MADE PART OF THE FACT SHEET. IN OTHER WORDS, WE WOULD DISCUSS ONLY T HOSE CASE LAWS, WHICH 8 THE COUNSELS OF BOTH THE PARTIES RELY AND POINT OUT THE PROPOSITIONS DURING THE COURSE OF ARGUMENTS. 3) SUFFICE TO SAY THAT THE PROPOSITION RELIED UPON BY THE LEARNED COUNSEL OF THE ASSESSEE IS THAT, WHEN ADDITIONS ARE MADE IN THE ASSESSMENT ORDER ON ESTIMATE BASIS, THE LEVY OF PENALTY IS NO T JUSTIFIED. 4) THAT THE DELETION OF PENALTY BY THE CIT(APPEALS ) FOR THE ASSESSMENT YEAR 2000-01 WAS ACCEPTED BY THE REVENUE . SIMILARLY THE DELETION OF PENALTIES FOR THE OTHER ASSESSMENT YEAR S SHOULD HAVE ALSO BEEN ACCEPTED. 5) NO PENALTY WAS LEVIED FOR THE ASSESSMENT YEARS 2005-06 AND 2006-07 GRANTING IMMUNITY UNDER EXPLANATION 5(2) TO SECTION 271(1)(C). SIMILAR VIEW SHOULD HAVE TAKEN BY THE AO FOR ALL TH E ASSESSMENT YEARS. 6) SALE CONSIDERATION TAKEN ON THE BASIS OF RATES ADOPTED BY STAMP DUTY AUTHORITIES, IS NOT APPLICABLE TO BUSINE SS INCOME AND SUCH THE MODE OF COMPUTATION OF SALE PROCEEDS, IS BAD IN LA W AND HENCE NO PENALTY CAN BE LEVIED. RELIANCE WAS PLACED ON THE J UDGMENT OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF INDERL OK HOTELS (P) LTD. VS. ITO 122 TTJ 145. 7) FOR THE ASSESSMENT YEARS 2003-04 AND 2004-05 PE NALTY CANNOT BE LEVIED AS NO ORIGINAL RETURN WAS FILED. T HE PROPOSITION IS THAT WHEN NO RETURN HAS BEEN FIELD, THERE IS NO CONSEQUE NCE OF PENALTY U/S 271(1)(C). RELIANCE IS PLACED ON THE DECISION OF TH E ITAT, CHENNAI BENCH-B IN THE CASE OF T. KODEEWARAN L/H OF LATE A. THANGAM VS. ITO REPORTED IN (2009) 123 TTJ 230 AND ITO VS. BOMBAYWA LA READYMADE STORES (2004) 271 ITR (AT) 1 (AHD)(TM) WHEREIN IT W AS HELD THAT RETURNS 9 WERE FILED U/S 153A AND THEREAFTER ASSESSMENT ORDER WAS PASSED ON ESTIMATION BASIS AND HENCE PENALTY COULD NOT BE LEV IED. 8) THAT THE DECISION IN THE CASE OF K.P. MADHUSUDA N (SUPRA)IS NOT APPLICABLE TO THE FACTS OF THIS CASE BUT THE DE CISION IN THE CASE OF CIT VS. SURESH CHANDRA MITTAL 251 ITR 9 APPLIES. 9) THAT PENALTY CAN BE LEVIED ONLY WITH RESPECT TO RETURN OF INCOME FILED. 10) HE SUBMITTED THAT HE ALSO RELIES ON THE DECISIO N AT PAGE 25 PARA 6 OF THE CIT(APPEALS) ORDER. 9. IN HIS REJOINDER, THE LEARNED DR MR. SANDEEP DA HIYA, SUBMITTED THAT THE ASSESSEE IS GIVING AN EXCUSE OF SEIZURE OF DOCUMENTS DURING THE COURSE OF SURVEY, FOR NOT FILING THE RET URN OF INCOME FOR THE ASSESSMENT YEARS 2003-04 AND 2004-05. HE SUBMITTED THAT COPIES OF THE DOCUMENTS ARE TAKEN BY THE ASSESSEE. THERE IS NO RE ASONABLE CAUSE FOR NOT FILING THE RETURN OF INCOME. HE SUBMITTED THAT EXPL ANATION 5(2) TO SECTION 271(1)(C) DOES NOT APPLY TO THE FACTS OF THE CASE F OR THE REASON THAT THE TIME TO FURNISH THE RETURN OF INCOME U/S 139(1) HAD EXPIRED. 10. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDER ATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND A PERUSAL O F THE PAPERS ON RECORD AND THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE CASE LAWS CITED, WE HOLD AS FOLLOWS. 11. THE RETURNS OF INCOME BASED ON WHICH THE ASSES SMENTS HAVE BEEN COMPLETED FOR ALL THE FOUR ASSESSMENT YEARS IS THE RETURN FILED U/S 153A IN RESPONSE TO A NOTICE ISSUED U/S 153A(A) DAT ED 03-03-2006. NOWHERE IN THE ASSESSMENT ORDER A REFERENCE HAS BEE N MADE TO THE 10 ORIGINAL RETURN FILED FOR THE ASSESSMENT YEARS 200 1-02 AND 2002-03. THE ASSESSEE IN HIS RETURN U/S 153A IN FORM NO. 2D, WHE REIN HE DECLARED CERTAIN INCOME FOR EACH OF THE IMPUGNED ASSESSMENT YEARS. THE BASIS OF SUCH DECLARATION IS THAT THE ACTUAL RATES FOR WHICH THE ASSESSEE SOLD GALAS/GODOWNS TO VARIOUS PARTIES, WERE LISTED OUT AND AFTER DIVIDING SUCH ACTUAL SALES PROCEEDS RECEIVED, WITH THE TOTAL SELL ABLE AREA, THE ASSESSEE ARRIVED AT THE AVERAGE SALE RATE FOR EACH OF THE AS SESSMENT YEARS. THE ASSESSEE VIDE HIS LETTER DATED 8-10-2007, IN RESPON SE TO A SHOW CAUSE NOTICE DATED 28-9-2007, EXPLAINED THE REASONS FOR L OWER AVERAGE RATE OF SALE AS WELL AS THE METHOD OF COMPUTATION. AT PAGE 5 OF THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2000-01 THE ASSESSEE S REPLY IS EXTRACTED BY THE AO. IT COULD BE SEEN FROM THE SAME, THAT THE S ALES CHART IS EXTRACTED FROM THE RATES FOUND IN SEIZED RECORDS. THE AO INST EAD OF PINPOINTING, FROM THE SEIZED RECORDS SALE INSTANCES, WHICH ARE H IGHER THAN THAT WHICH ISTABULATED BY THE ASSESSEE, CHOSE TO WRITE TO THE STAMP DUTY AUTHORITY I.E. SUB REGISTRAR, TALUKA BHIWANDI AND BASE ON THE MARK ET VALUE RATES ADOPTED FOR STAMP DUTY PURPOSES, RECOMPUTED THE SA LE CONSIDERATION AS PER HIS OWN ESTIMATE. HE HAS NOT ADOPTED THE SALE R ATE GIVEN BY THE SUB- REGISTRAR. THE NET PROFIT RATE OFFERED BY THE ASS ESSEE HAS BEEN ACCEPTED. IN FACT FOR A LATER ASSESSMENT YEAR, THE NET PROFIT RATE ADOPTED BY THE AO, WAS LOWER THAN THE NET PROFIT RATE OFFERED BY THE A SSESSEE AND THE AO RECTIFIED HIS MISTAKE U/S 154. 12. BE AS IT MAY, THE POINT OF REFERENCE FOR LEVY OF PENALTY IS THE AMOUNT OF INCOME RETURNED U/S 153A. IT IS CLEAR THA T PENALTY HAS NOT BEEN LEVIED BASED ON THE INCOME DECLARED IN THE RETURN O F INCOME FILED U/S 139(1). IT IS CLEAR FROM THE FACTS NARRATED ABOVE THAT THE ADDITIONS MADE BY THE AO, TO THE RETURNED INCOME U/S 153A, IS ONLY ON THE BASIS OF AN ESTIMATE AND NOT WITH REFERENCE TO ANY PARTICULAR S EIZED MATERIAL. 11 13. THE HONBLE CALCUTTA HIGH COURT IN THE CASE O F SURESH CHAND BANSAL (SUPRA) WAS CONSIDERING A CASE WHERE T HE ASSESSEE CONSEQUENT TO SEARCH, FILED RETURNS U/S 153A AND OF FERED ADDITIONAL INCOME FOR VARIOUS ASSESSMENT YEARS. THE FIRST APPE LLATE AUTHORITY FOUND THAT NO ADDITIONAL FACTS WERE BROUGHT ON RECORD AND THAT THERE IS NOTHING TO INDICATE THAT THE ASSESSEE HAS NO EXPLANATION RE GARDING THE SEIZED DOCUMENTS. THE CONTENTS OF THE SEIZED DOCUMENTS WER E NEVER DISCUSSED. UNDER SUCH CIRCUMSTANCES, WHEN THE INCOME IS HELD T O HAVE BELONGED TO THE ASSESSEE BASED ON THE OFFER OF THE ASSESSEE AND NOT ENTIRELY ON THE SEIZED DOCUMENTS, THE PENALTY IS HELD TO HAVE BEEN RIGHTLY CANCELLED. THE HONBLE COURT HELD AS FOLLOWS : ADDITIONAL INCOME OFFERED BY THE ASSESSEE AFTER T HE SEARCH HAVING BEEN ACCEPTED IN ITS ENTIRETY WITHOUT DETAIL ED DISCUSSION OF THE SEIZED DOCUMENTS AND WITHOUT MAKING ANY ATTEMPT TO OBTAIN THE EXPLANATION OF THE ASSESSEE, PENALTY U/S 271(1)(C) IS NOT LEVIABLE. 14. THE CHENNAI B-BENCH OF THE TRIBUNAL IN THE CAS E OF T. KODEESWARAN L/H OF LATE A. THANGAM VS. ITO 123 TTJ 230 HELD AS FOLLOWS : IN THE PRESENT CASE, THE MAIN ITEM OF ADDITION OF RS.15,15,284, REPRESENTING INCOME FROM ARRACK SHOPS , WAS WORKED OUT BY THE AO ON THE BASIS OF PURE ESTIMATION. THE INCOME FROM OTHER BUSINESS ACTIVITIES WAS ALSO ESTIMATED IN A S IMILAR MANNER. ONE CAN SEE FROM A PLAIN READING OF EXPLN. 5 THAT I T IS APPLICABLE TO A SITUATION WHERE, IN THE COURSE OF A SEARCH UNDER S. 132, THE ASSESSEE IS FOUND TO BE THE OWNER OF ANY MONEY, BUL LION, JEWELLERY OR OTHER VALUABLE ARTICLE OR THING AND THE ASSESSEE CLAIMS THAT SUCH ASSETS HAD BEEN ACQUIRED BY HIM BY UTILIZING, WHOLL Y OR IN PART, HIS INCOME FOR ANY PREVIOUS YEAR WHICH HAD ALREADY ENDE D BEFORE THE DATE OF THE SEARCH OR WHICH IS TO END ON OR AFTER T HE DATE OF THE SEARCH. MANIFESTLY, THE AFORESAID ADDITIONS, TO WHI CH THE PROVISIONS OF EXPLN. 5 HAVE BEEN APPLIED BY THE CIT(A), DO NOT REPRESENT MONEY, BULLION, JEWELLERY, OR OTHER VALUABLE ARTICL E OR THING, OF SHICH THE ASSESSEE WAS FOUND TO BE THE OWNER, IN TH E COURSE OF 12 SEARCH. THEREFORE, THE CIT(A) ERRED IN APPLYING THE PROVISIONS OF EXPLN. 5 TO THE ADDITIONS MADE BY THE AO ON ACCOUNT OF ESTIMATED INCOME FROM VARIOUS SOURCES. THE EXPLN. 5 ENACTS A DEEMING PROVISION HAVING APPLICATION TO A PARTICULAR SITUAT ION. A DEEMING PROVISION IS A LEGAL FICTION WHICH ASSUMES THE EXIS TENCE OF A FACT WHICH DOES NOT REALLY EXIST. A DEEMING PROVISION MA Y BE INTENDED TO ENLARGE THE MEANING OF A PARTICULAR WORD OR TO I NCLUDE MATTERS WHICH OTHERWISE MAY OR MAY NOT FALL WITHIN THE MAIN PROVISION. IN CONSTRUING A LEGAL FICTION IT IS NECESSARY TO ASSUM E ALL THOSE FACTS ON WHICH ALONE THE FICTION CAN OPERATE. BUT, IT CANNOT BE EXTENDED BEYOND THE PURPOSE FOR WHICH IT IS CREATED OR BEYON D THE LANGUAGE OF THE SECTION BY WHICH IT IS CREATED. IT CANNOT BE EXTENDED BY IMPORTING ANOTHER FICTION. A LEGAL FICTION CANNOT B E EXTENDED FURTHER BY SO INTERPRETING IT AS TO GO BEYOND THE L EGISLATURES INTENTION IN CREATING THE FICTION. THIS IS BECAUSE LEGAL FICTIONS ARE CREATED ONLY FOR A DEFINITE PURPOSE AND THEY ARE LI MITED TO THE PURPOSE FOR WHICH THEY ARE CREATED AND SHOULD NOT B E EXTENDED BEYOND THEIR LEGITIMATE FIELD. A LEGAL FICTION, NO DOUBT, HAS TO BE CARRIED TO ITS LOGICAL CONCLUSION BUT, THAT MUST BE WITHIN THE FRAMEWORK OF THE PURPOSE FOR WHICH IT IS CREATED. A LEGAL FICTION HAS TO BE CARRIED TO ITS LOGICAL CONCLUSION AND NOT TO AN ILLOGICAL LENGTH. ONE SHOULD NOT ALLOW ONESELF TO BE SO CARRI ED AWAY BY A LEGAL FICTION AS TO IGNORE THE WORDS OF THE VERY SE CTION WHICH INTRODUCES IT OR ITS CONTENT OR SETTING IN THE STAT UTE WHICH CONTAINS HAT SECTION. ALSO ONE SHOULD NOT LOSE SIGHT OF THE PURPOSE FOR WHICH THE LEGAL FICTION WAS INTRODUCED. PENALTY IS ACCORD INGLY LIABLE TO BE CANCELLED. 15. AS STATED EARLIER, IN ALL THE ASSESSMENT ORDER S WHICH ARE DATED 22 ND AND 23 RD NOV., 2008, NO REFERENCE WHATSOEVER HAS BEEN MADE TO ANY RETURN OF INCOME FURNISHED EARLIER U/S 139 OR THE A CTION TAKEN BY THE AO ON SUCH A RETURN FILED. IN FACT FOR THE ASSESSMENT YEARS 2003-04 AND 2004- 05, ADMITTEDLY NO RETURN WAS FILED U/S 139(1). THE ISSUE ARISES ONLY FOR THE ASSESSMENT YEAR 2001-02 AND 2002-03. 16. THUS, IN OUR HUMBLE OPINION, AS IN THIS CASE T HE ENTIRE ASSESSMENTS ARE BASED ON THE RETURN FILED U/S 153A AND THE ADDITION WAS 13 MADE ONLY TO THIS RETURNED INCOME, AND IT IS BASED UPON AN ESTIMATE, ON GATHERING INFORMATION ON LAND VALUES FOR THE PURPOS E OF LEVY OF STAMP DUTY, FROM THE SUB REGISTRAR, BHIWANDI, AND THEREAF TER MAKING HIS OWN ESTIMATE OF FAIR MARKET VALUE, IN OUR HUMBLE OPINIO N, NO PENALTY CAN BE LEVIED ON SUCH ESTIMATE. WHILE THE ASSESSEE HAS QU ANTIFIED THE TURNOVER BASED ON ACTUAL RECEIPTS TABULATED AND THEN AVERAGE D, THE AO ESTIMATED A FAIR MARKET VALUE WHICH IS DIFFERENT FROM NOT ONLY THE ACTUAL RECEIPTS OF THE ASSESSEE BUT ALSO DIFFERENT FROM THE VALUE STAT ED BY THE SUB REGISTRAR, WHO IS THE AUTHORITY FOR LEVY OF STAMP DUTY. THE BA SIS OF ADOPTING CERTAIN ESTIMATION OF SALE PRICE BY THE AO IS NOT GIVEN. JU ST BECAUSE THE ASSESSEE DID NOT DISPUTE THIS RATE IN QUANTUM PROCEEDINGS, I T DOES NOT GIVE SANCTITY TO THE ESTIMATES. THUS ON THESE FACTS AND CIRCUMST ANCES, THE ADDITIONS MADE FOR THE ASSESSMENT YEAR 2001-02 AT RS.11,60,23 9/-, FOR ASSESSMENT YEAR 2002-03 AT R.17,23,265/-, FOR ASSESSMENT YEAR 2003-04 AT RS.16,65,330/- AND FOR ASSESSMENT YEAR 2004-05 AT R S.2,44,511/- ARE JUST BASED ON PURE ESTIMATES AND NO PENALTY CAN BE LEVIE D WHEN ADDITIONS ARE MADE TO RETURNED INCOME ON A PURE ESTIMATE BASIS. 17. COMING TO THE FINDING OF THE CIT(APPEALS) ON S UB-SECTION (2) EXPLANATION 5 TO SECTION 271(1)(C), WE HOLD THA T THIS EXPLANATION DOES NOT APPLY TO THE FACTS OF THE CASE F AS THE TIME S PECIFIED IN SUB-SECTION (1) OF SECTION 139 FOR ALL THE FOUR CASES HAS EXPIRED. IN VIEW OF THE ABOVE 14 DISCUSSION, WE UPHOLD THE ORDER OF THE FIRST APPELL ATE AUTHORITY, THOUGH FOR DIFFERENT REASONS AND DISMISS ALL THE APPEALS OF TH E DEPARTMENT. 18. IN THE RESULT, THE APPEALS FILED BY THE REVENU E ARE DISMISSED. ORDER PRONOUNCED ON THIS 14 TH DAY OF MAY, 2010. SD/- SD/- (R.V. EASWAR) (J. SUDHAKAR REDDY) SENIOR VICE PRESIDENT ACCOUNTANT MEMBER. MUMBAI, DATED : 14 TH MAY, 2010. WAKODE COPY FORWARDED TO : 1. APPELLANT. 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, G-BENCH. (TRUE COPY) BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI BENCHES, MUMBAI.