SURGEMS, MUMBAI V. DCIT 16(2), MUMBAI

ITA 2417/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1449 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 11-06-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 16-04-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MOHANTEY
• Assessee Lawyers: MRS AARTI VISSANJI
• Section: 271(1)(c)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I, MUMBAI BEFORE SHRI D.K. AGARWAL, J.M. AND SHRI A.L. GEHLOT , A.M. ITA NO. 2417/M/09 ASSESSMENT YEAR: 2004-05 M/S SURGEMS, APPELLANT 1402 PRASAD CHAMBERS OPERA HOUSE, MUMBAI 400 004. (PAN AAAFS2996R) VS. DY. COMMISSIONER OF INCOME TAX, RESPONDENT 16(2), MATRU MANDIR, TARDEO, MUMBAI. APPELLANT BY : MRS. AARTI VISSANJI RESPONDENT BY : MR. S.K. MOHANTEY ORDER PER A.L. GEHLOT, A.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF CIT(A)-XVI, MUMBAI, PASSED ON 28.01.2009 FOR THE ASSESSMENT YEAR 2004- 05. 2. THE GROUND RAISED BY THE ASSESSEE IS IN RESPECT OF PENALTY OF RS. 17,50,000/- U/S 271(1)(C) OF THE ACT. 3. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE FIRM IS ENGAGED BOTH IN THE MANUFACTURING AND EXPORT OF POLISHED DIAMOND S. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASS ESSEE HAS SHOWN LOW G.P. IN COMPARISON TO THE LAST YEAR. THE AO DID NOT SATISFY WITH THE BOOKS OF ACCOUNT AND STOCK REGISTER MAINTAINED BY THE ASSESS EE, THEREFORE, HE REJECTED THE BOOKS OF ACCOUNT AND ESTIMATED THE PRO FIT BY CALCULATING 2% OF ITA NO. 2417/M/09 M/S SURGEMS 2 THE TURNOVER OF WHICH CALCULATION COMES TO RS 1,18, 60,106/- AND MADE ADDITION ACCORDINGLY. IN THE QUANTUM MATTER THE ITA T UPHELD THE ADDITION TO THE EXTENT OF RS. 50.00 LAKHS. THE AO LEVIED PEN ALTY U/S 271(1)(C) OF THE ACT ON THE GROUND THAT THE ASSESSEE HAD FURNISHED I NACCURATE PARTICULARS OF INCOME BY NOT MAINTAINING PROPER BOOKS OF ACCOUNT. THE CIT(A) CONFIRMED THE PENALTY LEVIED BY THE AO OBSERVING THAT IN ABSE NCE OF PROPER STOCK REGISTER IT IS DIFFICULT TO ASCERTAIN THE CORRECT A MOUNT OF PROFIT EARNED BY THE ASSESSEE, WHICH WAS A SERIOUS ENOUGH LAPSE TO WARRA NT AN ADDITION. 4. THE LEARNED AR SUBMITTED THAT THE MAIN REASON FO R DISREGARDING THE BOOK RESULTS OF THE ASSESSEE WERE NON-MAINTENANCE O F QUALITY-WISE RECORDS OF DIAMONDS AND FALL IN GP. THE LEARNED AR FURTHER SUBMITTED THAT THE AO HAS TOTALLY IGNORED THE FACT THAT THE PURCHASES AND SALES AS PER THE PROFIT AND LOSS A/C HAVE BEEN FULLY ACCEPTED BY THE AO. SH E FURTHER SUBMITTED THAT ALL OTHER ITEMS OF P&L A/C HAVE BEEN FULLY ACCEPTED , SO ALSO ALL THE ITEMS OF THE BALANCE SHEET. THE LEARNED AR SUBMITTED THAT NO EVIDENCE REGARDING CONCEALMENT OF PURCHASES OR EXPENSES HAD BEEN FOUND BY THE AO. THE LEARNED AR FURTHER SUBMITTED THAT ITAT ALSO ACCEPTE D THAT THE ASSESSEE HAS SHOWN BETTER YIELD IN THIS YEAR. THERE WAS A COMPLE TE TALLY AS PER THE STOCK REGISTER PRODUCED BEFORE THE AO. THE LEARNED AR CON TENDED THAT THE ADDITION HAS BEEN MADE PURELY ON GUESS WORK, THEREF ORE, THERE IS NO QUESTION OF LEVYING PENALTY U/S 271(1)(C) ON SUCH A DDITION. THE LEARNED AR FURTHER SUBMITTED THAT THE AO HAS ERRED IN CALCULAT ING THE QUANTUM OF TAX SOUGHT TO BE EVADED AT RS. 17,50,000/- AS WITHOUT G IVING EFFECT TO THE FACT THAT THE ASSESSEE ENTITLED TO DEDUCTION U/S 80 HHC OF THE ACT. 5. THE LEARNED DR, ON THE OTHER HAND, RELIED UPON T HE ORDER OF CIT(A). THE LEARNED DR SUBMITTED THAT THE BOOKS OF ACCOUNT REJECTED BY THE AO HAVE BEEN CONFIRMED BY THE ITAT. HE SUBMITTED THAT THE ASSESSEE HAS SUPPRESSED THE INFORMATION FROM THE AO AS HE DID NO T MAINTAIN THE CORRECT STOCK STATEMENT. THE LEARNED DR SUBMITTED THAT IN T HESE CIRCUMSTANCES THERE IS PRESUMPTION OF CONCEALMENT AND THE ONUS LI ES ON THE ASSESSEE. WHEN THE ASSESSEE FAILED TO DISCHARGE ONUS, THE AO IS IN THE PRESUMPTION ITA NO. 2417/M/09 M/S SURGEMS 3 THAT THE ASSESSEE HAS CONCEALED ITS INCOME OR FURNI SHED INACCURATE PARTICULARS OF INCOME LEADING TO LEVY OF PENALTY U/ S 271(1)(C) AND EVEN IN SUCH CIRCUMSTANCES ESTIMATION OF INCOME IS A BONAFI DE EXERCISE OF THE AO. 6. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES AND PERUSED THE RECORD. THE CRUX OF THE MATTER TO BE EXAMINED IS WHETHER PE NALTY UNDER SECTION 271(1) READ WITH THE EXPLANATION-1 OF SEC TION 271(1) IS APPLICABLE TO THE FACTS OF THE CASE UNDER CONSIDERATION. THE P ROCEEDINGS UNDER SECTION 271(1) (C) CAN BE INITIATED ONLY IF THE A.O OR THE FIRST APPELLATE AUTHORITY IS SATISFIED IN THE COURSE OF ANY PROCEEDINGS UNDER TH E ACT. IF HE IS SATISFIED AS PER CLAUSE (C) THAT ANY PERSON HAS CONCEALED THE PA RTICULARS OF HIS INCOME OR HAS FURNISHED INACCURATE PARTICULARS OF SUCH INC OME, HE MAY DIRECT THAT SUCH PERSON SHALL PAY BY WAY OF PENALTY THE SUM MEN TIONED IN SUB-CLAUSE (III) OF CLAUSE (C). THE EXPRESSION USED IN CLAUSE (C) IS HAS CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME. THEREFORE, BOTH IN CASES OF CONCEALMENT AN D INACCURACY THE PHRASE PARTICULARS OF INCOME ARE USED. IT WILL BE NOTED THAT AS REGARDS CONCEALMENT, THE EXPRESSION IN CLAUSE (C) IS HAS C ONCEALED THE PARTICULARS OF HIS INCOME AND NOT HAS CONCEALED HIS INCOME. THE EXPRESSIONS 'HAS CONCEALED THE PARTICULARS OF INCOME' AND 'HAS FURNI SHED INACCURATE PARTICULARS OF INCOME' HAVE NOT BEEN DEFINED EITHER IN SECTION 271(1)(C) OR ELSEWHERE IN THE ACT. ONE THING IS CERTAIN THAT THE SE TWO CIRCUMSTANCES ARE NOT IDENTICAL IN DETAIL ALTHOUGH THEY MAY LEAD TO T HE SAME EFFECT, NAMELY, KEEPING OFF A CERTAIN PORTION OF INCOME. THE FORMER IS DIRECT AND THE LATTER MAY BE INDIRECT IN ITS EXECUTION. 7. THE WORD 'CONCEAL' IS DERIVED FROM THE LATIN CONCELARE WHICH IMPLIES CON+CELARE TO HIDE. WEBSTER IN HIS NEW INTERNATIONA L DICTIONARY EQUATES ITS MEANING 'TO HIDE OR WITHDRAW FROM OBSERVATION, TO COVER OR KEEP FROM SIGHT; TO PREVENT THE DISCOVERY OF; TO WITHHOLD KNOWLEDGE OF'. THE OFFENCE OF CONCEALMENT IS THUS A DIRECT ATTEMPT TO HIDE AN ITE M OF INCOME OR A PORTION THEREOF FROM THE KNOWLEDGE OF THE INCOME-TAX AUTHOR ITIES. THERE IS STRICT LIABILITY ON THE ASSESSEE FOR CONCEALMENT OR FOR GI VING INACCURATE PARTICULARS ITA NO. 2417/M/09 M/S SURGEMS 4 WHILE FILING THE RETURN. THE PENALTY UNDER THAT PRO VISION IS A CIVIL LIABILITY. WILLFUL CONCEALMENT IS NOT AN ESSENTIAL INGREDIENT FOR ATTRACTING CIVIL LIABILITY. IT IS OBVIOUS THAT THE PENAL PROVISIONS WOULD OPERATE WHEN THERE IS CONCEALMENT OF PARTICULARS OF INCOME OR A FAILURE O F DUTY TO DISCLOSE FULLY AND TRULY PARTICULARS OF INCOME, IMPOSED UNDER THE ACT AND THE RULES THERE UNDER. THE DUTY IS ENJOINED UPON A PERSON TO MAKE A CORRECT AND COMPLETE DISCLOSURE OF HIS INCOME AND IT IS ONLY WHEN HE FAI LS IN HIS DUTY BY NOT DISCLOSING HIS INCOME OR PART THEREOF, HE CONCEALS THE PARTICULARS OF HIS INCOME. THE DUTY IS ENJOINED UPON HIM TO MAKE A COM PLETE DISCLOSURE OF HIS INCOME AS WELL AS A CORRECT DISCLOSURE. THEREFORE, IF THE DISCLOSURE MADE OF THE PARTICULARS OF INCOME IS INCORRECT, THEN ALSO H E COMMITS BREACH OF HIS DUTY. SUCH DEFAULTS ENTAIL THE PENAL CONSEQUENCES C ONTEMPLATED BY SECTION 271(1)(C)(III). 8. IN ADDITION TO MAIN PROVISIONS OF CONCEALMENT HAS CONCEALED THE PARTICULARS OF HIS INCOME OR HAS FURNISHED INACCU RATE PARTICULARS OF SUCH INCOME THERE ARE DEEMED TO REPRESENT THE INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED .THE DEEMED CONCEAL MENT IS PROVIDED IN EXPLANATIONS .OFTEN A QUESTION AROSE WHETHER IN CAS ES WHERE ADDITIONS OR DISALLOWANCES MADE BY THE ITO THE PENAL PROVISIONS OF SECTION271 (1) WOULD ATTRACT. EXPLANATION 1 TAKES CARE OF THIS SIT UATION. THE EXPLANATION TO SECTION 271(1) OF THE ACT READS AS UNDER:- EXPLANATION 1.-WHERE IN RESPECT OF ANY FACTS MATE RIAL TO THE COMPUTATION OF THE TOTAL INCOME OF ANY PERSON UNDER THIS ACT,- (A) SUCH PERSON FAILS TO OFFER AN EXPLANATION OR O FFERS AN EXPLANATION WHICH IS FOUND BY THE ASSESSING OFFICER OR THE COMM ISSIONER (APPEALS) OR THE COMMISSIONER TO BE FALSE, OR (B) SUCH PERSON OFFERS AN EXPLANATION WHICH HE IS NOT ABLE TO SUBSTANTIATE AND FAILS TO PROVE THAT SUCH EXPLANATI ON IS BONA FIDE AND THAT ALL THE FACTS RELATING TO THE SAME AND MATERIA L TO THE COMPUTATION OF HIS TOTAL INCOME HAVE BEEN DISCLOSED BY HIM, THE N, THE AMOUNT ADDED OR DISALLOWED IN COMPUTING THE TOTAL INCOME O F SUCH PERSON AS A RESULT THEREOF SHALL, FOR THE PURPOSES OF CLAUSE (C) OF THIS SUB- SECTION, BE DEEMED TO REPRESENT THE INCOME IN RESPE CT OF WHICH PARTICULARS HAVE BEEN CONCEALED. ITA NO. 2417/M/09 M/S SURGEMS 5 9. A CONSPECTUS OF THE EXPLANATION MAKES IT CLE AR THAT THE STATUTE VISUALISED THE ASSESSMENT PROCEEDINGS AND PENALTY P ROCEEDINGS TO BE WHOLLY DISTINCT AND INDEPENDENT OF EACH OTHER. IN ESSENCE, THE EXPLANATION IS A RULE OF EVIDENCE. PRESUMPTIONS WHICH ARE REBUTTING TABLE IN NATURE ARE AVAILABLE TO BE DRAWN. THE INITIAL BURDEN OF DISCHA RGING THE ONUS OF REBUTTAL IS ON THE ASSESSEE. THE RATIONALE BEHIND THIS VIEW IS THAT THE BASIC FACTS ARE WITHIN THE SPECIAL KNOWLEDGE OF THE ASSESSEE. SECTI ON 106 OF THE INDIAN EVIDENCE ACT, 1872, GIVES STATUTORY RECOGNITION TO THIS UNIVERSALLY ACCEPTED RULE OF EVIDENCE. THERE IS NO DISCRETION CONFERRED ON THE ASSESSING OFFICER AS TO WHETHER HE CAN INVOKE THE EXPLANATION OR NOT. EXPLANATION 1 COMES INTO OPERATION WHEN, IN RESPECT OF ANY FACTS MATERI AL TO THE COMPUTATION OF TOTAL INCOME OF ANY PERSON, THERE IS FAILURE TO OFF ER AN EXPLANATION OR AN EXPLANATION IS OFFERED WHICH IS FOUND TO BE FALSE B Y THE ASSESSING OFFICER OR THE FIRST APPELLATE AUTHORITY, OR AN EXPLANATION IS OFFERED WHICH IS NOT SUBSTANTIATED. IN SUCH A CASE, THE AMOUNT ADDED OR DISALLOWED IN COMPUTING THE TOTAL INCOME IS DEEMED TO REPRESENT T HE INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED. AS PER THE P ROVISION OF EXPLANATION 1, THE ONUS TO ESTABLISH THAT THE EXPLANATION OFFER ED WAS BONA FIDE AND ALL FACTS RELATING TO THE SAME AND MATERIAL TO THE COMP UTATION OF HIS INCOME HAVE BEEN DISCLOSED BY HIM WILL BE ON THE PERSON CH ARGED WITH CONCEALMENT. THE EXPLANATION OF THE ASSESSEE FOR THE PURPOSE OF AVOIDANCE OF PENALTY MUST BE AN ACCEPTABLE EXPLANATION; IT SHOULD NOT BE A FANTASTIC OR FANCIFUL ONE. AS INDICATED ABOVE, THE CONSEQUENCE FOLLOWS AS A MATTER OF LAW. THE BURDEN IS ON THE ASSESSEE. IF HE FAILS TO DISCHARGE THAT BURDEN, THE PRESUMPTION THAT HE HAD CONCEALED THE INCOME OR FUR NISHED INACCURATE PARTICULARS THEREOF IS AVAILABLE TO BE DRAWN. 10. IN THE CASE UNDER CONSIDERATION, THE AO MADE TH E ADDITION ON THE GROUND THAT THE GP SHOWN BY THE ASSESSEE IS LOW THA N THE LAST YEAR AND HE ALSO REJECTED THE BOOKS OF ACCOUNT ON THE GROUND TH AT THEY WERE NOT MAINTAIN PROPERLY, ESPECIALLY, THE ASSESSEE HAS NOT MAINTAINED STOCK REGISTER PROPERLY. THE SUBMISSIONS OF THE LEARNED AR ARE THAT THE AO H AS ITA NO. 2417/M/09 M/S SURGEMS 6 TOTALLY IGNORED THE FACT THAT THE PURCHASES AND SAL ES AS PER THE PROFIT AND LOSS A/C HAVE BEEN FULLY ACCEPTED BY THE AO. HER FU RTHER SUBMISSIONS ARE THAT ALL OTHER ITEMS OF P&L A/C HAVE BEEN FULLY ACC EPTED, SO ALSO ALL THE ITEMS OF THE BALANCE SHEET. SHE CONTENDED THAT NO E VIDENCE REGARDING CONCEALMENT OF PURCHASES OR EXPENSES HAD BEEN FOUND BY THE AO. THESE SUBMISSIONS OF THE LEARNED AR WERE NOT CONTROVERTED BY THE REVENUE. NOR SUCH MATERIAL IS AVAILABLE ON RECORD. IT IS A CASE WHERE INCOME IS ESTIMATED AFTER REJECTION OF BOOKS OF ACCOUNT. THE ESTIMATION OF INCOME WAS MADE ON THE BASIS OF THE PARTICULARS/MATERIAL FURNISHED BY THE ASSESSEE. THE REVENUE FAILED TO POINT OUT THE SPECIFIC PARTICULAR WHICH WAS EITHER CONCEALED BY THE ASSESSEE OR THAT WAS INACCURATE. T HE CASE OF THE REVENUE IS THAT THE ASSESSEE DID NOT MAINTAIN PROPER BOOKS OF ACCOUNT. IF AN ASSESSEE DID NOT MAINTAIN PROPER BOOKS OF ACCOUNT HE IS LIAB LE TO PENALTY UNDER RELEVANT SECTION NOT UNDER SECTION 271(1) OF THE A CT. IN ORDER TO EXPOSE THE ASSESSEE TO PENALTY, UNLESS THE CASE IS STRICTLY CO VERED BY THE PROVISION, THE PENALTY PROVISION CANNOT BE INVOKED. IN THIS REGARD S WE WOULD LIKE TO REFER ONE J JUDGMENT OF THE APEX COURT IN THE CASE OF CIT VS. RELIANCE PETROPRODUCTS PVT. LTD., [2010] 322 ITR 158 (SC)WHE RE IN THE LAW LAID DOWN IS AS UNDER:- A GLANCE AT THE PROVISIONS OF SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961, SUGGESTS THAT IN ORDER TO BE COVERED BY IT, T HERE HAS TO BE CONCEALMENT OF THE PARTICULARS OF THE INCOME OF THE ASSESSEE. SECONDLY, THE ASSESSEE MUST HAVE FURNISHED INACCURATE PARTICU LARS OF HIS INCOME. THE MEANING OF THE WORD PARTICULARS USED IN SECTI ON 271(1)(C) WOULD EMBRACE THE DETAILS OF THE CLAIM MADE. WHERE NO INF ORMATION GIVEN IN THE RETURN IS FOUND TO BE INCORRECT OR INACCURATE, THE ASSESSEE CANNOT BE HELD GUILTY OF FURNISHING INACCURATE PARTICULARS. I N ORDER TO EXPOSE THE ASSESSEE TO PENALTY, UNLESS THE CASE IS STRICTLY CO VERED BY THE PROVISION, THE PENALTY PROVISION CANNOT BE INVOKED. BY NO STRETCH OF IMAGINATION CAN MAKING AN INCORRECT CLAIM TANTAMOUN T TO FURNISHING INACCURATE PARTICULARS. THERE CAN BE NO DISPUTE THA T EVERYTHING WOULD DEPEND UPON THE RETURN FILED BY THE ASSESSEE, BECAU SE THAT IS THE ONLY DOCUMENT WHERE THE ASSESSEE CAN FURNISH THE PARTICU LARS OF HIS INCOME. WHEN SUCH PARTICULARS ARE FOUND TO BE INACCURATE, T HE LIABILITY WOULD ARISE. TO ATTRACT PENALTY, THE DETAILS SUPPLIED IN THE RETURN MUST NOT BE ACCURATE, NOT EXACT OR CORRECT, NOT ACCORDING TO TH E TRUTH OR ERRONEOUS. WHERE THERE IS NO FINDING THAT ANY DETAILS SUPPLIED BY THE ASSESSEE IN ITS RETURN ARE FOUND TO BE INCORRECT OR ERRONEOUS O R FALSE THERE IS NO QUESTION OF INVITING THE PENALTY UNDER SECTION 271( 1)(C). A MERE MAKING ITA NO. 2417/M/09 M/S SURGEMS 7 OF A CLAIM, WHICH IS NOT SUSTAINABLE IN LAW, BY ITS ELF, WILL NOT AMOUNT TO FURNISHING INACCURATE PARTICULARS REGARDING THE INC OME OF THE ASSESSEE. SUCH A CLAIM MADE IN THE RETURN CANNOT AMOUNT TO FU RNISHING INACCURATE PARTICULARS. 9. IN THE LIGHT OF THE ABOVE DISCUSSION AND IN THE LIGHT OF RATIO LAID DOWN BY THE APEX COURT IN THE CASE OF RELIANCE PETR OPRODUCTS PVT. LTD. CITED SUPRA, WE ARE OF THE CONSIDERED VIEW THAT THE CASE UNDER CONSIDERATION IS NEITHER A CASE OF CONCEALMENT OF PARTICULARS OF INC OME NOR FURNISHING OF INACCURATE PARTICULARS OF ITS INCOME AS THE ASSESSE E HAS FURNISHED ALL THE PARTICULARS AND INCOME WAS ESTIMATED ON THE BASIS O F THOSE PARTICULARS WHICH WERE FURNISHED BY THE ASSESSEE. THEREFORE, WE HEREBY CANCEL THE PENALTY LEVIED U/S 271(1)(C) OF THE ACT. 10. IN THE RESULT, THE APPEAL IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 18 TH DAY OF JUNE, 2010. SD/- SD/- (D.K. AGARWAL) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTANT M EMBER DATED: 18 TH JUNE, 2010 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, I BENCH, I.T .A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., MUMBAI. KV S.NO. DESCRIPTION DATE INITLS 1. DRAFT DICTATED ON 11.6.10 SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR 16.06.10 SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE JM/AM ITA NO. 2417/M/09 M/S SURGEMS 8 SECOND MEMBER 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER