M/s Haji Mulla Mohammedali Mulla Shaikhali Bombaywala, Baroda V. The ACIT, Baroda Cir. -5, Baroda

ITA 2502/AHD/2004

• Counselvise Citation: [2010] 137 COUNSELVISE.COM (IT) 0190 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 04-01-2010
• Assessment Year: 1993-1994
• Appeal Filed On: 24-08-2004
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEETA SHAH
• Assessee Lawyers: MEHUL K PATEL
• Keywords: Income from undisclosed sources; Retraction
• Section: 143(3)

Judgement Text

1 1 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'B' (BEFORE S/SHRI T K SHARMA AND N S SAINI) ITA NO.2502/AHD/2004 (ASSESSMENT YEAR:- 1993-94) M/S HAJI MULLA MOHAMMEDALI MULLA SHAIKHALI BOMBAYWALA, OPP. JIBILEE BAUG, BARODA V/S THE ASSISTANT COMMISSIONER OF INCOME- TAX, BARODA CIRCLE-5, BARODA [APPELLANT] [RESPONDENT] APPELLANT BY :- SHRI MEHUL K PATEL RESPONDENT BY:- SMT. NEETA SHAH, SR. DR O R D E R PER N S SAINI (ACCOUNTANT MEMBER): THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LEARN ED COMMISSIONER OF INCOME-TAX (APPEALS) DATED 12-07-20 04 RAISING THE FOLLOWING EFFECTIVE GROUNDS OF APPEAL: 1 THE LEARNED CIT(A) ERRED IN HOLDING THAT YOUR APPEL LANT COMMITTED A DEFAULT IN TERMS OF SEC. 271(1)(C) OF T HE ACT IN RESPECT OF THE ALLEGED UNACCOUNTED INCOME OF RS.1,00,000/-. 2 THE LEARNED CIT(A) FURTHER ERRED IN CONFIRMING THE LEVY AND EXCESSIVE PENALTY OF RS.44,800/- LEVIED BY THE AO U/S 271(1)(C). 2 THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E FIRM FILED ITS RETURN OF INCOME DECLARING INCOME OF RS.4 ,89,202/-. THE ASSESSMENT WAS FINALIZED U/S 143(3) ON AN INCOME OF 2 2 RS.18,85,940/-. IN APPEAL, THE CIT(A), BARODA VIDE HIS ORDER DATED 22 ND MAY, 1996 DELETED THE ADDITIONS MADE IN THE ASSESSMENT ORDER. IN APPEAL BEFORE THE ITAT, THE IT AT AHMEDABAD VIDE ITS ORDER DATED 3 RD JULY, 2003 RESTORED THE ADDITION OF RS.1 LAC BEING DISCLOSURE MADE BY THE P ARTNER OF THE ASSESSEE FIRM DURING THE COURSE OF SEARCH PROCEEDIN GS. ON THE BASIS OF THESE FACTS, THE AO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE FIRM IMPOSED PENALTY U/S 271(1)(C) IN RESPECT OF ADDITION SUSTAINED BY THE ITAT. 3 IN APPEAL BEFORE THE LEARNED COMMISSIONER OF INCO ME-TAX (APPEALS) THE ASSESSEE STATED THAT DURING THE COURSE OF SEARC H, THE PARTNER OF THE ASSESSEE FIRM MADE A DISCLOSURE OF RS.17 LACS UNDER VARIOUS HEADS. THIS DISCLOSURE WAS ACCEPTED IN PART BY THE ASSESSEE FIR M IN ITS ASSESSMENT PROCEEDINGS AND THE SAME WAS OFFERED FOR TAX IN THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION. THE ASSESSEE STATED THAT IN RESPECT OF THE DISCLOSURE OF STOCK OF RS. 1 LAC. MADE BY THE PARTNER IN THE H ANDS OF THE ASSESSEE FIRM, A DETAILED EXPLANATION WAS SUBMITTED DURING THE ASSES SMENT PROCEEDINGS, WHICH WAS REJECTED BY THE ASSESSING OFFICER. THE C IT(A) IN HIS ORDER ACCEPTED THE CONTENTION OF THE ASSESSEE AND DELETED THE ADDITION OF RS. 1 LAC ALONG WITH THE OTHER ADDITIONS. AGAINST THE SAID OR DER THE DEPARTMENT PREFERRED AN APPEAL BEFORE THE ITAT AND THE AHMEDAB AD BENCH OF THE ITAT VIDE ITS ORDER DATED 3RD JULY, 2003 RESTORED THE AD DITION OF RS. 1 LAC. THE ASSESSEE ALSO SUBMITTED THAT IN RESPECT OF STOCK A ND IN RESPECT OF OTHER ADDITION DELETED BY THE CIT(A), THE ITAT UPHELD THE ORDER OF THE CIT(A), BARODA. 4 IT WAS FURTHER SUBMITTED THAT THE ENTIRE ADDITIO N OF RS.1 LAC IN RESPECT OF UNDISCLOSED STOCK WAS SUSTAINED BY THE ITAT ON T HE BASIS OF STATEMENT OF 3 3 THE MAIN PARTNER, SHRI ABBASALI KANCHWALA ON 6TH JU LY, 1992. THE ENTIRE ADDITION IN RESPECT OF STOCK SUSTAINED BY THE TRIBU NAL IS MERELY ON THE BASIS OF ADMISSION IN THE STATEMENT OF THE PARTNER MADE D URING THE COURSE OF SEARCH. IN RESTORING THE AMOUNT OF RS.1 LAC, THE TR IBUNAL DID NOT ACCEPT THE EXPLANATION FURNISHED BY THE ASSESSEE DURING THE CO URSE OF ASSESSMENT PROCEEDINGS AND ALSO THE WRITTEN SUBMISSION MADE DU RING THE APPELLATE PROCEEDINGS. IT WAS EXPLAINED THAT THE TRIBUNAL WAS OF THE VIEW THAT SINCE THE ASSESSEE HAD ACCEPTED THE DISCLOSURE IN RESPECT OF 'ON MONEY' FOR PURCHASE OF SHOP, THE DISCLOSURE MADE BY IT FOR EXCESS STOCK U/S. 132(4) OF THE I.T. ACT IS TO BE INCLUDED. THE ASSESSEE OBJECTING THE LEVY OF PENALTY CONTENDED THAT AS PER PROVISIONS OF SECTION 271(L)(C), THE PENALTY PR OCEEDINGS CAN BE INITIATED AND LEVIED ONLY IN CASES WHERE THE EXPLANATION FURN ISHED BY THE ASSESSEE IS FOUND TO BE FALSE OR IS NOT SUBSTANTIATED BY PROPER FACTS. ACCORDINGLY IT WAS SUBMITTED THAT IN RESPECT OF DISCLOSURE OF RS.1 LAC WHICH WAS RETRACTED BY THE ASSESSEE, A DETAILED EXPLANATION WAS SUBMITTED WHICH HAD BEEN REJECTED BOTH BY THE ASSESSING OFFICER AND THE TRIBUNAL. THE ASSESSEE SUBMITTED THAT EVEN IF THE SAID AMOUNT IS TREATED AS UNRECORDED SA LES, THE SAME FALLS WITHIN THE AMOUNT DISCLOSED AT THE TIME OF SEARCH AND BENE FIT OF IMMUNITY BE ALLOWED TO THE ASSESSEE. 5 THE ASSESSEE RELIED ON THE DECISION OF CIT VS. VEGETABLE PRODUCTS LTD. 88 1TR 192, 195 WHEREIN IT HAS BEEN H ELD THAT PENALTY PROVISION SHOULD BE INTERPRETED AS IT STANDS AND IN CASE IF THE COURT FINDS THE LANGUAGE OF A TAXING PROVISION IS AMBIGUOUS OR CAPA BLE OF MORE MEANING THAN ONE THE COURT HAS TO ADOPT THE INTERPRETATION WHICH FAVOURS THE ASSESSEE MORE PARTICULARLY SO WHEN THE PROVISION RELATES TO THE IMPOSITION OF PENALTY. 6 THE ASSESSEE FURTHER OBJECTED TO THE LEVY OF PENA LTY BY STATING THAT: 4 4 (A) AN ORDER IMPOSING PENALTY FOR FAILURE TO CARRY OUT A STATUTORY OBLIGATIONS IS THE RESULT OF A QUASI-CRIMINAL PROCEEDINGS AND P ENALTY WILL NOT ORDINARILY BE IMPOSED UNLESS THE PARTY OBLIGED EITHER ACTED DE LIBERATELY IN DEFIANCE OF LAW OR WAS GUILTY OF CONDUCT CONTUMACIOUS OR ACTED IN CONSCIOUS DISREGARD OF ITS OBLIGATIONS. (B) PENALTY PROCEEDINGS ARE SEPARATE AND DISTINCT F ROM THE ASSESSMENT PROCEEDINGS AND FINDING IN THE ASSESSMENT PROCEEDIN GS CANNOT BE MADE A GROUND FOR LEVY OF PENALTY. 7 IT IS FURTHER SUBMITTED THAT THE ASSESSING OFFICE R IN HER' PENALTY ORDER ON PAGE-3 HAS GIVEN FINDING THAT THE ASSESSEE HAD E ARNED SALES OUTSIDE BOOKS OF ACCOUNTS FROM WHICH IT HAD EARNED PROFIT OF RS.1 LAC. IT IS CANVASSED THAT THIS CONTENTION OF THE ASSESSING OFFICER IS BASED O N CONJECTURE AND SURMISES AND WITHOUT ANY BASIS. THE ASSESSEE SUBMITTED THAT NO EVIDENCE REGARDING UNACCOUNTED SALES WAS FOUND DURING THE COURSE OF SE ARCH AND THEREFORE, THE CONTENTION OF THE ASSESSING OFFICER THAT THE ASSESS EE HAD EARNED AN AMOUNT OF RS.1 LAC BY EFFECTING SALES OUTSIDE THE BOOKS OF AC COUNTS, IS MERELY INCORRECT, BASELESS AND UNJUSTIFIED. THE ASSESSEE A S STATED ABOVE HAS ALREADY SUBMITTED THAT EXPLANATION OF THE ASSESSEE HAD BEEN REJECTED BOTH BY THE ASSESSING OFFICER AS WELL AS THE ITAT. ON THE OF AC CEPTANCE OF EXPLANATION THE ASSESSEE HAS RELIED UPON THE OBSERVATIONS MADE BY THE HON. SUPREME COURT IN THE CASE OF SREELEKHA BANNERJEE VS. CIT 49 ITR 112 IN FOLLOWING WORDS. 'BEFORE THE DEPARTMENT REJECTS SUCH EVIDENCE IT MUS T EITHER SHOW AN INTEREST WEAKNESS IN THE EXPLANATION OR REBUT IT BY PUTTING TO THE ASSESSEE SAME INFORMATION OR EVIDENCE WHICH IT HAS IN ITS POSSESSION. THE DEPARTMENT CANNOT BY MERELY REJECTING UNREASONA BLY A GOOD EXPLANATION CONVERT GOOD PROOF INTO NO PROOF.' 8 IT WAS FURTHER SUBMITTED THAT THE ENTIRE WORKING OF EXCESS STOCK FOUND DURING THE COURSE OF SEARCH HAS BEEN MADE ON INCORR ECT BASIS AS THE SEARCH PARTY HAD VALUED THE STOCK AT SALE PRICE WITHOUT RE DUCING THE GROSS PROFIT 5 5 MARGIN. THE FURTHER OBJECTION OF THE ASSESSEE IS T HAT IN RESPECT OF SLOW MOVING ARTICLES/ITEMS, THE RATE ADOPTED BY THE SEAR CH PARTY WAS SALE PRICE AGAINST NIL VALUE BEING ADOPTED BY THE APPELLANT IN ITS BOOKS OF ACCOUNTS. IT IS FOR THIS REASON, THAT AS PER THE COUNSEL, AS ENT IRE WORKING OF STOCK WAS BASED ON AN INCORRECT PREMISE, THE ASSESSEE DID NOT RESPECT THE DISCLOSURE OF RS. 1 LAC OFFERED BY SHRI ABBASALI KANCHWALA IN ITS COMPUTATION OF INCOME. THE ASSESSEE FURTHER TRIED TO EXPLAIN THAT THE BOOK S OF ACCOUNTS OF THE ASSESSEE FIRM HAD BEEN ACCEPTED IN THE PAST AND NO ADDITION WHATSOEVER HAD BEEN MADE ON THE POINT OF STOCK. IT WAS ALSO STATED THAT NO EVIDENCE OR RECORD FOR INCORRECT SALES, PURCHASES, OR ANY LOOSE PAPER WERE FOUND TO INDICATE THE INVESTMENT IN EXCESS ALLEGED TO HAVE BEEN FOUND DUR ING THE COURSE OF SEARCH. AS PER THE ASSESSEE, THE ADDITION OF RS.1 LAC MADE BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER U/S. 143(3) WAS MADE WITHOUT P ROPER APPRECIATION OF FACTS AND ONLY ON THE BASIS OF STATEMENT OF PARTNER . 9 AS PER THE ASSESSEE, VARIOUS COURTS HAVE HELD THA T PRESUMPTION U/S 132(4) IS REBUTTAL AND SUCH PRESUMPTION REGARDING S TATEMENT U/S 132(4) ARE ONLY FOR PURPOSE OF MAKING AN ORDER U/S 132(5). THE COUNSEL RELIED ON THE DECISION OF ALLAHABAD HIGH COURT IN THE CASE OF PUS HKAR NARAYAN 50 TAXMAN 213. 10 THE ASSESSEE ALSO STATED THAT THE ENTIRE ADDITIO N IS REVOLVING AROUND THE STATEMENT OF PARTNER AND THE EVIDENCE REGARDING THE VALUATION OF STOCK, ADOPTION OF GROSS PROFIT RATE, THE VALUATION OF NON MOVING ITEMS HAVE BEEN IGNORED BOTH IN THE APPELLATE PROCEEDINGS BY THE TR IBUNAL AS WELL AS IN THE PENALTY PROCEEDINGS BY THE AO. IN THE LAST, IT WAS STATED THAT AO HAS NOT ESTABLISHED IN ANY MANNER AS TO HOW THE APPELLANT I S LIABLE TO PENALTY U/S 271(1)(C) AND CONSIDERING THESE FACTORS AND SUBMISS IONS, IT WAS PLEADED THAT THE PENALTY OF RS.44,800/- BE DELETED. 6 6 11 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) AFTER CONSIDERING THE ABOVE SUBMISSIONS OBSERVED THAT DURING THE COUR SE OF SEARCH THE ASSESSEE MADE DISCLOSURE OF THE FOLLOWING AMOUNTS. RS.7 LAC S M/S HAJI MULLA, RS.7 LACS M/S MEKINS AND RS.3 LACS M/S GLASS & PLYWO OD CENTRE AS UNACCOUNTED INCOME. THE ASSESSEE FURTHER SUBMITTED THAT IT HAS EARNED THIS UNACCOUNTED INCOME BY EFFECTING SALES OUTSIDE THE B OOKS OF ACCOUNTS AND WAS READY TO PAY TAX ON THIS AMOUNT AND ALL PARTNER S OF ALL THREE CONCERNS CONFIRMED THIS DISCLOSURE AND REQUESTED TO GRANT TH E ASSESSEE AND ALL PARTNERS IMMUNITY FROM PENALTY, INTEREST AND PROSECUTION. 12 ASSESSEE HAS FILED RETURN OF INCOME ON 31.03.94 DECLARING THEREIN TOTAL INCOME OF RS.4,89,202/-. ASSESSMENT WAS FINALIZED U NDER SECTION 143(3) OF THE I.T. ACT BY AN ORDER DATED 12-2-96 AND THE TOTA L INCOME WAS DETERMINED AT RS.18,55,940/-. ASSESSEE PREFERRED AN APPEAL WIT H THE CIT (A) AND DUE TO APPELLATE DECISION NO. CAB/II-454/95-96 DATED 22.05 .1996 THE TOTAL INCOME OF THE ASSESSEE WAS REVISED TO RS.4,89,200/-. THE D EPARTMENT, WENT IN SECOND APPEAL AGAINST THE ORDER OF LD. CIT (A). DUE TO THE DECISION OF THE HON'BLE ITAT IN APPEAL NO.3212/AHD./1996, ORDER DATED 3-7-0 3 INCOME WAS REVISED TO RS.5,89,200/-. 13 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) FURTHER OBSERVED THAT THE AO CATEGORICALLY STATED THAT THE INCOME OF RS.1 LAC OFFERED IN REPLY TO QUESTION NO.17(2) OF STATEM ENT OF SHRI ABBASALI DATED 6-7-92 IS SUFFICIENT PROOF OF UNRECO RDED SALES. THE STATEMENT SO RECORDED U/S 132(4) CONTAINS TRUE FACTS AND NO RETRACTION IS VALIDLY POSSIBLE, ON THE FACTS AND CI RCUMSTANCES OF THE PRESENT CASE. 7 7 14 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) FURTHER OBSERVED THAT THE FACTS REVEAL THAT THE PENALTY HAS BEEN LEVIED ON THE ADDITION OF RS. ONE LAC WHICH WAS DISCLOSED BY THE APPELLANT AT THE TIME OF SEARCH BUT NOT HONOURED WHILE FILING THE RETURN OF INCOME BY THE ASSESSEE THE CONTENTION OF THE ASSESS EE TO GRANT IMMUNITY IS THEREFORE, NOT ACCEPTABLE. 15 THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASS ESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) AND THE LEARNE D DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS). 16 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABL E ON RECORD. IN THE INSTANT CASE, THE LEARNED ASSESSING OFFICER LEV IED PENALTY OF RS.44,800/-U/S 271(1)(C) OF THE ACT ON THE GROUND T HAT HE WAS SATISFIED THAT THE ASSESSEE HAS EARNED RS.1 LAC BY EFFECTING SALES OUTSIDE THE BOOKS OF ACCOUNT. ACCORDING TO THE LEAR NED ASSESSING OFFICER, THE STATEMENT GIVEN BY SHRI ABBA SALI KANCHWALA DURING THE COURSE OF THE SEARCH ON 6 TH JULY, 1992 U/S 132(4) WAS THE SUFFICIENT EVIDENCE TO CONCLUDE THAT THE ASSESSEE EARNED RS.1 LAC OUTSIDE THE BOOKS OF ACCOUNT. THE L EARNED ASSESSING OFFICER REJECTED THE SUBMISSION OF THE AS SESSEE THAT THERE WAS NO DIFFERENCE OF STOCK FOUND IN HIS CASE DURING THE COURSE OF SEARCH. THE LEARNED COMMISSIONER OF INCOM E-TAX (APPEALS) CONFIRMED THE ABOVE ACTION OF THE LEARNED ASSESSING OFFICER. WE FIND THAT THE ADDITION OF RS.1 LAC WAS MADE BY THE LEARNED ASSESSING OFFICER IN THE ORIGINAL ASSESSMEN T WAS DELETED 8 8 BY THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) AND THE SAME WAS RESTORED BY THE TRIBUNAL ON THE BASIS OF T HE DECLARATION MADE U/S 132(4) OF THE ACT. WE FURTHER OBSERVE THAT THE REVENUE HAS BROUGHT NO MATERIAL ON RECORD TO SHOW THAT THE ASSESSEE WAS ACTUALLY ENGAGED IN EFFECTING ANY UNRECORDED SALES. THE STATEMENT GIVEN WAS THE ONLY EVIDENCE WHICH WAS REL IED UPON BY THE REVENUE FOR LEVYING PENALTY U/S 271(1)(C) OF TH E ACT. IN THE STATEMENT GIVEN U/S 132(4) TO EXPLAIN THE MANNER IN WHICH INCOME WAS EARNED WHICH WAS FOUND INVESTED IN THE U NRECORDED STOCK IT WAS EXPLAINED THAT THE SAME WAS EARNED BY MAKING UNRECORDED SALES. IN OUR CONSIDERED VIEW, PENALTY P ROCEEDING IS DIFFERENT FROM ASSESSMENT PROCEEDING AND DIFFERENT CONSIDERATION APPLY IN BOTH THE PROCEEDINGS. THE STATEMENT RECORD ED U/S 132(4) IN A GIVEN CASE MAY LEAD TO MAKING OF ADDITION IN T HE ASSESSMENT PROCEEDINGS BUT IN ABSENCE OF ANY CORROBORATIVE MAT ERIAL WHICH WAS FOUND DURING THE COURSE OF SEARCH BEING BROUGHT ON RECORD, THE SAME CAN NOT BE BASIS FOR LEVY OF PENALTY U/S 2 71(1)(C) OF THE ACT. IN THE INSTANT CASE, WE FIND THAT THE REVENUE COULD NOT BRING ANY SEARCH MATERIAL ON RECORD TO SHOW THAT ANY MATE RIAL WAS FOUND DURING THE COURSE OF THE SEARCH WHICH EVIDENC ED THAT THE ASSESSEE WAS ACTUALLY ENGAGED IN EFFECTING UNRECORD ED SALES. FURTHER, THE REVENUE HAS BROUGHT NO MATERIAL ON REC ORD TO CONTROVERT THE SUBMISSION OF THE ASSESSEE THAT NO D ISCREPANCY OF STOCK WAS FOUND IN HIS CASE. IN THE ABOVE FACTS AND CIRCUMSTANCES, IN OUR CONSIDERED OPINION, LEVY OF P ENALTY U/S 271(1)(C) OF THE ACT MERELY ON THE BASIS OF STATEM ENT OF SHRI ABBASALI KANCHWALA RECORDED U/S 132(4) IS UNSUSTAIN ABLE. WE 9 9 THEREFORE DELETE THE PENALTY OF RS.44,800/- LEVIED U/S 271(1)(C) OF THE ACT AND ALLOW THE APPEAL OF THE ASSESSEE. ORDER PRONOUNCED IN THE OPEN COURT TODAY ON 08-01-2 010 SD/- SD/- (T K SHARMA) JUDICIAL MEMBER (N S SAINI) ACCOUNTANT MEMBER DATE : 08-01-2010 COPY OF THE ORDER FORWARDED TO : 1. M/S HAJI MULLA MOHAMMEDALI MULLA SHAIKHALI BOMBAYWALA, OPP. JIBILEE BAUG, BARODA 2. THE ACIT, BARODA CIRCLE-5, BARODA 3. CIT CONCERNED 4. CIT(A)-V, BARODA 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABA