DCIT, Kanpur V. M/s. Som Tobacco India Ltd.,

ITA 273/LKW/2010

• Counselvise Citation: 27323714 RSA 2010
• Duration Of Justice: 1 year(s) 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 28-04-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 19-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAGDISH
• Keywords: Unexplained investment; Unexplained expenditure; Loose papers; Bonafide belief; Retrospective amendment; Initiation of penalty proceedings; Onus to prove; Revised return
• Section: 143(3); 5(2); 139(5); 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, LUCKNOW BENCH 'B', LUCKNOW BEFORE SHRI H. L. KARWA, HON'BLE VICE PRESIDENT AND SHRI N. K. SAINI, ACCOUNTANT MEMBER I.T.A. NO.273/LKW/10 ASSESSMENT YEAR: 2006-2007 DY. C. I. T., VS. M/S SOM TOBACCO INDIA LTD., CENTRAL CIRCLE-1, VILL P.O. NATHUPUR, KUNDLI, KANPUR. DISTT. SONEPAT (HARYANA) PAN:AAICS5492H (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI JAGDISH, CIT, D. R. RESPONDENT BY : SHRI AMIT SHUKLA, ADVOCATE DATE OF HEARING : 25/08/2011 DATE OF PRONOUNCEMENT : 26/08/2011 O R D E R PER N. K. SAINI: THIS APPEAL, FILED BY THE DEPARTMENT, IS DIRECTED AGAINST THE ORDER DATED 04/02/2010 OF CIT(A)-I, KANPUR RELATING TO ASSESSMENT YEAR 2006- 2007. IN THIS APPEAL THE DEPARTMENT HAS RAISED THE FOLLOWING GROUNDS: 1. THAT THE CIT (APPEALS) HAS ERRED IN NOT CONSIDERING THE FACT THAT THE ASSESSEE IS DEEMED TO HAVE CONCEALED INCOME UNDER EXPLANATION (5) OF SECTION 271(1) (C) OF THE ACT. 2. THE ORDER OF THE CIT (APPEALS) IS PERVERSE IN AS MUCH AS HE OBSERVES THAT THE AO HAS NOT RECORDED SATISFACTION REGARDING CONCEALMENT OF SURRENDERED 2 INCOME WHEREAS THE AO IN THE BODY OF THE ORDER HAS GIVEN AN ELABORATE DISCUSSION REGARDING WHY THE INCOME SURRENDERED DOES NOT QUALIFY FOR IMMUNITY UNDER EXPLANATION (5) TO SECTION 271(L)(C) 3. THE CIT (APPEALS) ERRED IN HOLDING THAT PENALTY IS NOT LEVIABLE AS SURRENDERED INCOME HAS BEEN SHOWN IN THE REVISED RETURN IGNORING THE PROVISIONS OF EXPLANATION 5(2) OF SECTION 271(L)(C) WHICH CLEARLY STATES THAT TAX ON SUCH INCOME HAS TO BE PAID BEFORE FILING OF RETURN WHICH WAS NOT COMPLIED WITH IN THIS CASE. 4. THAT THE ORDER OF THE LD. CIT (APPEALS) BEING ERRONEOUS IN LAW AND ON FACTS BE VACATED AND THE ORDER OF THE A.O. BE RESTORED. ' 5. THAT THE APPELLANT CRAVES LEAVE TO AMEND ANYONE OR MORE OF THE GROUNDS OF THE APPEAL AS STATED ABOVE AS AND WHEN NEED FOR DOING SO MAY ARISE. 2. FROM THE ABOVE GROUNDS IT WOULD BE CLEAR THAT THE ONLY GRIEVANCE OF THE DEPARTMENT IN THIS APPEAL RELATES TO THE CANCELLATION OF PENALTY U/S 271(1)(C) OF THE I.T. ACT, 1961 (IN SHORT, THE ACT) LEVIED BY THE ASSESSING OFFICER. 3. THE FACTS RELATED TO THIS CASE, IN BRIEF, ARE THAT THE ASSESSEE IS A COMPANY MAINTAINING ITS BOOKS OF ACCOUNT IN THE REGULAR COURSE OF BUSINESS WHICH WERE SUBJECTED TO STATUTORY AUDIT U/S 227 OF THE COMPANIES ACT, 1956 AND THE TAX AUDIT U/S 44AB OF THE ACT. THE ASSESSEE FILED THE RETURN OF INCOME ON 24/11/2006 SHOWING A LOSS OF ` 35,73,116/-. IN THIS CASE A SEARCH & SEIZURE OPERATION WAS CARRIED OUT BY THE DEPARTMENT ON 3 01/09/2005 U/S 132(1) OF THE ACT AT THE BUSINESS AND RESIDENTIAL PREMISES OF DILBAGH GROUP OF CASES. A SURVEY U/S 133A(1) OF THE ACT WAS ALSO CARRIED OUT IN THE FACTORY PREMISES OF THE ASSESSEE SITUATED AT VILLAGE NATHUPURA, KUNDLI, SONEPAT, HARYANA ON 08/09/2005. THE ASSESSEE REVISED ITS RETURN OF INCOME SHOWING TOTAL INCOME AT ` 8,49,510/- ON 26/12/2007. IN THE REVISED RETURN, THE ASSESSEE ITSELF SURRENDERED THE INCOME UNDER THE FOLLOWING HEADS: 1. EXCESS RAW MATERIAL ` 4854069/- 2. EXCESS CASH ` 1030534/- 3. EXCESS FINISHED GOODS ` 3795/- 4. EXCESS INVESTMENT IN MACHINERY 644680/- THE ASSESSMENT WAS COMPLETED ON TOTAL INCOME OF ` 63,27,050/- U/S 143(3) OF THE ACT. THE ASSESSING OFFICER MADE THE FOLLOWING ADDITIONS WHILE COMPLETING THE ASSESSMENT: AMOUNT (RS) 1. PAYMENT TO WORKERS 3,28,126/- 2. SHARE APPLICATION MONEY 5,00,000/- 3. UNSECURED LOAN 5,26,774/- 4. UNEXPLAINED CASH 50,879/- 5. INVESTMENT ON WASTE MATERIAL 4,76,200/- 6. SUPPRESSION OF SALES A) GROSS PROFIT 2,89,531/- B) UNEXPLAINED INVESTMENT IN STOCK 12,92,082/- 4. AGGRIEVED WITH THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL TO THE LEARNED CIT(A)-I, KANPUR WHO VIDE ORDER DATED 18/06/2008 4 HAD DELETED ALL THE ADDITIONS EXCEPT THE ADDITION OF ` 2,89,531/- WITH REGARD TO UNACCOUNTED GROSS PROFIT. AGAINST THE ORDER OF THE LEARNED CIT(A), BOTH THE PARTIES I.E. THE DEPARTMENT AND THE ASSESSEE FILED THEIR APPEALS BEFORE ITAT, LUCKNOW WHEREIN ADDITION OF ` 2,89,531/- WAS CONFIRMED. IN THIS CASE, DURING THE COURSE OF SURVEY 87 MACHINES WERE FOUND IN THE FACTORY PREMISES WHEREAS AT THE TIME OF SEARCH THERE WERE 95 MACHINES FOUND INSTALLED IN THE FACTORY PREMISES WHILE IN THE BOOKS OF ACCOUNT OF THE ASSESSEE, ONLY 83 POUCH MAKING MACHINES WERE FOUND RECORDED. THE ASSESSING OFFICER DID NOT ACCEPT THE PRODUCTION/SALE SHOWN BY THE ASSESSEE BY OBSERVING THAT STOCK AT THE TIME OF SEARCH AND SURVEY WAS NOT TALLYING WITH THE BOOKS OF ACCOUNT. HE ESTIMATED NUMBER OF POUCH PRODUCED PER DAY AT 3,60,000 AND CONSIDERED THE WORKING IN THE YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION AT 114 DAYS. ACCORDINGLY, TOTAL SALE WAS WORKED OUT AT ` 2,61,68,096/- AS AGAINST THE SALE SHOWN BY THE ASSESSEE AT ` 2,22,87,676/-. THUS, SUPPRESSED SALE WAS TAKEN AT ` 38,60,420/-. ON THE SAID SALE, THE ASSESSING OFFICER APPLIED THE GROSS PROFIT RATE OF 7.5% AND ACCORDINGLY MADE THE ADDITION OF ` 2,89,531/- THE SAID ADDITION WAS SUSTAINED BY THE LEARNED CIT(A) AS WELL AS BY THE I.T.A.T. THE ASSESSING OFFICER INITIATED THE PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT AND REQUIRED THE ASSESSEE TO SHOW CAUSE AS TO WHY 5 THE PENALTY UNDER THE SAID SECTION BE NOT LEVIED. THE ASSESSEE SUBMITTED BEFORE THE ASSESSING OFFICER THAT PRINCIPLES OF CRIMINAL JURISPRUDENCE WOULD APPLY TO PENALTY PROCEEDINGS, PRESENCE OF MENS REA, OR GUILTY MIND BEHIND THE VIOLATION IS ESSENTIAL FOR LEVY OF PENALTY AND NO PENALTY WAS LEVIABLE WHERE BREACH FLOWS FROM BONAFIDE BELIEF. IT WAS ALSO SUBMITTED THAT THERE WAS NOT AN IOTA OF EVIDENCE ON THE RECORD TO SHOW ANY POSITIVE CONCEALMENT SINCE THE ADDITION WAS MADE ON ESTIMATE BASIS WHICH ITSELF DID NOT LEAD TO THE CONCLUSION THAT THE ASSESSEE EITHER CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME. THE ASSESSING OFFICER DID NOT FIND MERIT IN THE SUBMISSIONS OF THE ASSESSEE AND OBSERVED THAT ON THE DAY OF SEARCH ON 01/09/2005, 95 POUCH MAKING MACHINES WERE FOUND INSTALLED WHEREAS ON THE DAY OF SURVEY I.E. 08/09/2005, ONLY 87 POUCH MAKING MACHINES WERE FOUND INSTALLED AND 83 MACHINES WERE FOUND RECORDED IN THE BOOKS OF ACCOUNT AND THAT THE ASSESSEE GENERATED UNACCOUNTED PRODUCTION WITH THE AID OF THESE MACHINES WHICH WERE NOT FOUND ACCOUNTED IN THE BOOKS OF ACCOUNT. HE FURTHER OBSERVED THAT SUPPRESSED SALE WAS WORKED OUT ON THE BASIS OF EXTRA NUMBER OF POUCH MAKING MACHINES FOUND AND THAT THE WASTE MASALA WEIGHING 5760 KG., LIME 1500 KG. AND ELAICHI CHHIKA 160 KG. ALONG WITH LARGE QUANTITY OF BOXES AND BAGS CONTAINING RAW MATERIALS AND FINISHED 6 MASALA WERE FOUND. THE ASSESSING OFFICER FURTHER OBSERVED THAT DURING THE COURSE OF SURVEY ON 08/09/2005 IT CLEARLY ESTABLISHED THAT THE ASSESSEE WAS ENGAGED IN UNACCOUNTED PRODUCTION WHICH WAS NOT PROPERLY RECORDED IN THE BOOKS OF ACCOUNT, THEREFORE, THE ADDITION WAS MADE ON THE BASIS OF EVIDENCE AND NOT ON ESTIMATE BASIS AND THIS ADDITION, AFTER CONSIDERING THE EVIDENCE ON RECORD, WAS UPHELD BY BOTH APPELLATE AUTHORITIES. ACCORDING TO THE ASSESSING OFFICER, THERE WAS SUFFICIENT EVIDENCE ON RECORD WHICH ESTABLISHED THAT THERE WAS MENS REA ON THE PART OF THE ASSESSEE IN NOT DISCLOSING CORRECT NUMBER OF POUCH MAKING MACHINES IN THE BOOKS OF ACCOUNT. HE, THEREFORE, WAS OF THE VIEW THAT THE ASSESSEE CONCEALED THE PARTICULARS OF ITS INCOME AND HAD THERE BEEN NO SEARCH/SURVEY ACTION UNDERTAKEN BY THE DEPARTMENT AGAINST THE ASSESSEE, DIFFERENCE IN NUMBER OF POUCH MAKING MACHINES COULD HAVE NOT BEEN UNEARTHED RESULTING INTO SUPPRESSION OF PRODUCTION. THE ASSESSING OFFICER ALSO DISTINGUISHED THE FOLLOWING CASE LAWS RELIED BY THE ASSESSEE. (I) T. ASHOK PAI VS. CIT [2007] 161 TAXMAN 340, 292 ITR 11 (SC) (II) HARI OM KUMAR UMESH CHAND VS. INCOME TAX OFFICER [2002] 124 TXAMAN 213 (AGRA TRIB) (III) DY. CIT VS. M/S TRIBHUVAN INDUSTRIES [2006] 8 MTC 1021 (LKO TRIB) (IV) CIT VS. SANGRUR VANASPATI MILLS LTD. [2008] 303 ITR 53 (P&H) (V) ACIT VS. KAKA CARPETS [2008] 12 MTC 774 (ALL. TRIB) (VI) HINDUSTAN STEELS LTD. 83 ITR 26 (SC) 7 (VII) KHODAY ESWARA 83 ITR 369 (SC) (VIII) GOKUL DAS HARIBALLABHDAS 34 ITR 98 (IX) ANWAR ALI 76 ITR 676 (SC) (X) ANNATHARAM VEERASINGALAH & COMPANY 123 ITR 457 (SC) (XI) CIT VS. LALLU BHAI JOGIBHAI PATEL [2003] 182 ITR 371 (GUJ.) (XII) HARIGOPAL SINGH VS. CIT [2002] 258 ITR 85 (XIII) SHIV LAL TAK VS. CIT [2001] 251 ITR 37 (XIV) CIT VS. SURESH KUMAR BANSAL & ANOTHER [2002] 258 ITR 85 (P&H) (XV) CIT VS. RAJ BANS SINGH [2005] 276 ITR 351 (ALL) (XVI) CIT VS. PUNJAB TYRES 162 ITR 517 (MP) (XVII) CIT VS. K. MEENAKSHI KUTTY [2002] 256 ITR447 (MAD) (XVIII) CIT VS. POPULAR LUNGHI COMPANY 147 CTR 467 (MAD) 4.1 ACCORDING TO THE ASSESSING OFFICER, PRESENCE OF MENS REA OR GUILTY MIND VERY MUCH EXISTED IN THE CASE OF THE ASSESSEE AS IT FAILED TO DISCLOSE CORRECT AND TRUE FIGURES OF INCOME. HE ALSO OBSERVED THAT DURING THE COURSE OF SEARCH & SEIZURE OPERATIONS CONDUCTED ON 01/09/2005, STOCK OF RAW MATERIALS, FINISHED GOODS, EXTRA MACHINES AND CASH WAS FOUND WHICH WERE NOT FOUND RECORDED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE AND THIS FACT WAS IN THE KNOWLEDGE OF DIRECTOR OF COMPANY AND IT TANTAMOUNT THAT PRESENCE OF 'MENS REA' OR GUILTY MIND EXISTED IN CONCEALING THE CORRECT AND TRUE FIGURES OF INCOME IN THE BOOKS OF ACCOUNT OF THE ASSESSEE AS WELL AS IN RETURN OF INCOME. THE ASSESSING OFFICER POINTED OUT THAT THE ASSESSEE ITSELF DEPOSED TO HAVE SURRENDERED INCOME OF ` 25,00,000/- UNDER THE HEAD UNEXPLAINED STOCK DURING THE COURSE OF SEARCH OPERATION U/S 132(4) OF ACT WHICH ESTABLISHED THAT THERE WAS SOME UNACCOUNTED/UNRECORDED VALUE OF 8 STOCK AVAILABLE IN FACTORY PREMISES AND THE ASSESSEE PREFERRED TO SURRENDER AN INCOME ` 25,00,000/- UNDER THE HEAD UNEXPLAINED STOCK BUT FAILED TO DISCLOSE THE SAME IN ITS BOOKS OF ACCOUNT AND ALSO IN ITS RETURN OF INCOME ON 24/11/2006 DESPITE THE FACT THAT SUFFICIENT TIME WAS AVAILABLE WITH IT FOR FINALIZATION OF ITS BOOKS OF ACCOUNT ENDING ON 31/03/2006 AND THEREAFTER FILING OF RETURN OF INCOME. ACCORDING TO THE ASSESSING OFFICER THE AMOUNT ADDED IN ASSESSMENT ORDER CORRECTLY REPRESENTED ASSESSE'S INCOME AND THE FINDING IN THE ASSESSMENT ORDER WAS MADE ON THE BASIS OF EVIDENCE OF CONCEALMENT OF INCOME AND THIS FINDINGS HAS SUBSTANTIAL RELEVANCE FOR LEVY OF PENALTY. ACCORDING TO THE ASSESSING OFFICER, THE PROVISIONS CONTAINED IN EXPLANATION 5 TO SECTION 271 (1) (C ) OF ACT WERE APPLICABLE IN THE ASSESSEES CASE. THE ASSESSING OFFICER POINTED OUT THAT THE ASSESSEE FILED THE REVISED RETURN OF INCOME ON 26/12/2007 INCLUDING THEREIN INCOME AGGREGATING TO ` 65,33,078/- (INVESTMENT IN RAW MATERIAL ` 48,54,069/-, IN CASH ` 10,30,535/-, INVESTMENT IN FINISHED GOODS ` 3,795/- AND ` 6,44,680/- INVESTMENT IN MACHINERY). HE, THEREFORE, WAS OF THE VIEW THAT THE PROVISIONS OF SECTION 271(1)(C) WERE APPLICABLE IN THE ASSESSEES CASE WHO CONCEALED THE PARTICULARS OF INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME TO THE EXTENT OF ` 65,33,078/- AND AS SUCH CONCEALED THE INCOME AGGREGATING TO ` 68,22,609/- ( ` 2,89,531/- + 9 ` 65,33,078/-) AND FURNISHED INACCURATE PARTICULARS OF SUCH INCOME. THE ASSESSING OFFICER POINTED OUT THAT THE TAX ON CONCEALED INCOME OF ` 68,22,609/- COMES TO ` 20,46,782/- AND TAX SOUGHT TO BE EVADED ON CONCEALED INCOME @100% AND @300% COMES TO ` 20,46,782/- AND 61,40,348/- RESPECTIVELY. THE ASSESSING OFFICER LEVIED THE PENALTY OF ` 41 LACS U/S 271(1)(C) OF THE ACT. 5. THE ASSESSEE CARRIED THE MATTER TO THE LEARNED CIT(A) AND THE SUBMISSIONS MADE BEFORE HIM AS INCORPORATED IN PARA 9 OF THE IMPUGNED ORDER ARE REPRODUCED VERBATIM AS UNDER: 1. SEARCH WAS CONDUCTED ON THE APPELLANT ON 01.09.2005 AND AT THE TIME OF RECORDING OF STATEMENT U/S 132(4) OF THE ACT READ WITH THE EXPLANATION FOR NOT LEVYING THE PENALTY THE APPELLANT HAD OFFERED INCOME OF ` 25,00,000/-. 2. ORIGINAL RETURN OF INCOME WAS FILED ON 21.11.2006 WHEREIN, INADVERTENTLY AND BY MISTAKE, THE INCOME OFFERED U/S 132(4) OF THE ACT WAS LEFT OUT FROM BEING INCORPORATED THEREIN. 3. THE APPELLANT IN ORDER TO RECTIFY THE MISTAKE, REVISED ITS RETURN OF INCOME ON 26.12.2007 WHEREIN THE INCOME OFFERED IN THE STATEMENT RECORDED U/S 132(4) OF THE ACT WAS DULY INCORPORATED AND ACCORDINGLY AN AMOUNT OF ` 65,33,078/- ALONGWITH ORIGINAL INCOME RETURNED WAS OFFERED IN THE RETURN FILED AS PER PROVISIONS OF SECTION 139(5) OF THE ACT. IT MAY FURTHER BE SUBMITTED THAT THE REVISED RETURN WAS UNDER THE PARAMETERS OF LAW AS 10 SPECIFIED IN SECTION 139(5) OF THE ACT AND ACCORDINGLY THE REVISED RETURN WAS REPLACING THE ORIGINAL RETURN FILED. THE ALLAHABAD HIGH COURT IN THE CASE OF DHAMPUR SUGAR MILLS LTD. V. CIT [1973] 90ITR 236 (PAGES 239 AND 240) MADE A POINTED DISTINCTION BETWEEN A REVISED RETURN AND CORRECTING A RETURN ALREADY FILED FOR MAKING AMENDMENTS THEREIN, IT WOULD NOT MEAN THAT HE HAS FILED A REVISED RETURN. IT WILL STILL RETAIN THE CHARACTER OF AN ORIGINAL RETURN, BUT ONCE A REVISED RETURN IS FILED, THE ORIGINAL RETURN MUST BE TAKEN TO HAVE BEEN WITHDRAWN AND TO HAVE BEEN SUBSTITUTED BY AFRESH RETURN FOR THE PURPOSE OF ASSESSMENT. 4. THE LD. AO. ACCEPTED THE REVISED RETURN AND ACCORDINGLY INCORPORATED THE FACTS IN THE BODY OF THE ASSESSMENT ORDER DATED 31.12.2007 ITSELF. ONCE THE REVISED RETURNS HAVE BEEN REGULARIZED BY REVENUE, THE EXPLANATION OF THE APPELLANT THAT THE INCOME SURRENDERED U/S 132(4) OF THE ACT WHICH WAS INADVERTENTLY OMITTED IN THE ORIGINAL RETURN BUT LATER INCORPORATED IN THE REVISED RETURN SHOULD BE TREATED AS BONAFIDE AND PENALTY UNDER SEC. 271(L)(C) WAS NOT LEVIABLE. COMMISSIONER OF INCOME TAX VS.SURESH CHANDRA MITTAL 170 CTR 182 (SC). 5. WHILE FRAMING THE ASSESSMENT ORDER THE LD. AO OTHER THEN THE INCOME SHOWN, MADE TWO ADDITIONS AS UNDER: A) UNEXPLAINED EXPENDITURE/RECEIPTS UNDER VARIOUS AND INVESTMENTS IN WASTE MATERIAL ` 31,74,061.00 B) EXTRA PROFIT ADDITION ON ESTIMATED BASIS ` 2,89,531.00 6. THE APPELLANT PREFERRED AN APPEAL BEFORE THE LEARNED CIT (APPEALS)-!, KANPUR AND GOT RELIEF ON THE ADDITION MADE OF ` 31,74,061.00 VIDE APPEAL ORDER DATED 18.06.2008. 11 7. THE DEPARTMENT AS WELL AS THE APPELLANT PREFERRED TO FILE APPEAL BEFORE THE HON'BLE IT AT, LUCKNOW WHERE THE ORDER OF LD. CIT (APPEAL) WAS UPHELD AS SUCH. 8. THE LD. AO HAD RECORDED THE SATISFACTION ABOUT THE INITIATION OF PENALTY PROCEEDINGS IN ITS ASSESSMENT ORDER DATED 31.12.2007 SPECIFICALLY WITH REFERENCE TO THE TWO ADDITIONS ONLY I.E. A) EXTRA PROFIT ADDITION ON ESTIMATED BASIS ` 2,89,531.00 B) ADDITION ON ACCOUNT OF INVESTMENT IN STOCK IN BUSINESS SAID TO HAVE BEEN OUTSIDE THE BOOKS OF ACCOUNTS ` 12,92,082.00 HOWEVER, LATER, IN THE APPELLATE PROCEEDINGS THE ADDITION OF ` 12,92,082.00 STOOD DELETED. THUS, THE ONLY ADDITION THAT SURVIVED FOR CONSIDERATION IN PENALTY PROCEEDINGS RELATED TO ` 2,89,531/- ONLY. HOWEVER, THE LD. AO WHILE IMPOSING PENALTY HAS CONSIDERED THE SUMS AGGREGATING TO ` 65,33,078/- TO BE INCOME THAT THE APPELLANT HAD CONCEALED AND THE INCOME IN RESPECT OF WHICH IT HAD FURNISHED INACCURATE PARTICULARS OF SUCH INCOME, WHICH IS AGAINST LAW AND IS UNCALLED FOR BECAUSE HE HAD NOT RECORDED HIS SATISFACTION FOR THE SAME. WHICH MEANT THAT THE LD. AO HAD APPLIED HIS MIND IN DETERMINING WHICH INCOMES WERE TO BE TREATED TO BE CONCEALED AND OTHERS WHICH DID NOT. IT WAS HELD AS UNDER BY THE HON'BLE DELHI HIGH COURT THAT- 'IN RAM COMMERCIAL ENTERPRISES 246ITR 568 (DEL) {AFFIRMED IN RAMPUR ENGINEERING 309 ITR 143 (DEL) (FB)}, THE DELHI HIGH COURT HELD THAT IF THE AO DID NOT RECORD HIS SATISFACTION THAT THE APPELLANT HAD CONCEALED PARTICULARS OF HIS INCOME BEFORE COMPLETION OF THE ASSESSMENT PROCEEDINGS, THE INITIATION OF PENALTY PROCEEDINGS WAS BAD IN LAW AND THE ORDER IMPOSING PENALTY WAS INVALID. TO SUPERSEDE THIS LAW, SUB-SEC (IB) WAS INSERTED IN S. 271 BY THE FINANCE ACT, 2008 WITH RETROSPECTIVE EFFECT FROM 1.4.1998 TO PROVIDE THAT IF THE ASSESSMENT ORDER CONTAINED A DIRECTION FOR INITIATION OF 12 PENALTY PROCEEDINGS UNDER 271 (1) (C) IT WOULD BE DEEMED TO CONSTITUTE SATISFACTION OFTHEAO. S. 271 (IB). RAM COMMERCIAL (AND OTHER JUDGMENTS) DO NOT LAY DOWN THAT REASONS HAVE TO BE RECORDED. THE EMPHASIS IS ON RECORDING OF SATISFACTION AND THAT THE PRIMA FACIE SATISFACTION REACHED BY THE AO MUST BE REFLECTED AND/OR APPARENT FROM THE ASSESSMENT ORDER ITSELF. THIS LAW IS NOT CHANGED BY S. 271 (IB). THE REVENUE CANNOT URGE THAT PRIOR TO S. 271 (IB), 'SATISFACTION' BOTH AT THE INITIATION STAGE AND THE IMPOSITION STAGE WAS REQUIRED BUT AFTER S. 271 (IB) IT IS REQUIRED ONLY AT THE STAGE OF IMPOSITION AND NOT AT THE STAGE OF INITIATION. S. 271 (IB) MERELY PROVIDES THAT AN ORDER INITIATING PENALTY CANNOT BE DECLARED BAD IN LAW ONLY BECAUSE IT STATES THAT PENALTY PROCEEDINGS ARE INITIATED. HOWEVER, IT MUST STILL BE DISCERNIBLE FROM THE RECORD THAT THE ASSESSING OFFICER HAS ARRIVED AT PRIMA FACIE SATISFACTION FOR INITIATING PENALTY PROCEEDINGS. THE REVENUE'S SUBMISSION THAT PRIMA FACIE SATISFACTION OF THE AO NEED NOT BE REFLECTED AT THE STAGE OF INITIATION IS NOT ACCEPTABLE. THE PRESENCE OF PRIMA FACIE SATISFACTION FOR INITIATION OF PENALTY PROCEEDINGS WAS AND REMAINS A JURISDICTIONAL FACT WHICH CANNOT BE WISHED AWAY EVEN POST AMENDMENT. IF AN INTERPRETATION SUCH AS THE ONE PROPOSED BY THE REVENUE IS ACCEPTED THEN S. 271 (IB) WILL FALL FOUL OF ARTICLE 14 OF THE CONSTITUTION AS IT WILL THEN BE IMPREGNATED WITH THE VICE OF ARBITRARINESS. THE AO WOULD THEN BE IN A POSITION TO PICK A CASE FOR INITIATION OF PENALTY MERELY BECAUSE THERE IS AN ADDITION OR DISALLOWANCE WITHOUT ARRIVING AT A PRIMA FACIE SATISFACTION WITH RESPECT TO INFRACTION OF S. 271 (L)(C). [MS. MADHUSHREE GUPTA VS. UNION OF INDIA [2009] 183 TAXMAN100 (DEL)].' 9. AS, THE APPELLANT, AT THE TIME OF SEARCH, IN HIS STATEMENT RECORDED U/S 132(4) OF THE ACT, OFFERED AN AMOUNT OF 13 ` 65,33,078/-, WHICH WAS INCORPORATED IN THE REVISED RETURN FILED ON 26.12.2007, WHICH WAS ACCEPTED IN THE ASSESSMENT ORDER PASSED BY THE LD. A. O AND THE ONLY ADDITION SURVIVED WAS OF ` 2,89,531/- BEING ON ESTIMATED BASIS. THE VIEW TAKEN BY THE LD. AO, IN SO FAR AS IT RELATED TO THE SUM OF ` 65,33,078/- IS WHOLLY ERRONEOUS AS BEING IN CONSISTENT WITH THE PROVISIONS OF LAW AS WELL AS FACTS OF THE CASE. THEREFORE, THE APPELLANT ENJOYED COMPLETE IMMUNITY FROM THE LEVY OF PENALTY WITH RESPECT TO THE SAID SUM OF ` 65,33,078/- AND LEVIABILITY OF PENALTY U/S 271(L)(C) STOOD SQUARELY COVERED IN THE FAVOUR OF THE APPELLANT BY VIRTUE OF APPLICABILITY OF EXPLANATION (5) TO SECTION 271(L)(C) OF THE ACT. 10. THE ORDER-IMPOSING PENALTY IS QUASI CRIMINAL IN NATURE AND, THUS, BURDEN LIES ON THE DEPARTMENT TO ESTABLISH THAT THE APPELLANT HAD CONCEALED HIS INCOME. SINCE BURDEN OF PROOF IN PENALTY PROCEEDINGS VARIES FROM THAT IN THE ASSESSMENT PROCEEDINGS, A FINDING IN AN ASSESSMENT PROCEEDINGS THAT A PARTICULAR RECEIPT IS INCOME CANNOT AUTOMATICALLY BE ADOPTED, THOUGH A FINDING IN THE ASSESSMENT PROCEEDING CONSTITUTE GOOD EVIDENCE IN THE PENALTY PROCEEDING. IN THE PENALTY PROCEEDINGS, THUS, THE AUTHORITIES MUST CONSIDER THE MATTER AFRESH AS THE QUESTION HAS TO BE CONSIDERED FROM A DIFFERENT ANGLE. ANANTHRAM VEERASINGHAIH & CO. V. CIT1980 (SUPP.) SCC 11. IN THE PENALTY ORDER THE LD. AO HAS TRIED TO ESTABLISH PRESENCE OF MENS REA ON THE BASIS OF MACHINES PRESENT (TREATED AS UNDISCLOSED BY REJECTING THE EXPLANATION FILED BY THE ASSESSEE). IT MAY BE SUBMITTED THAT MERE PRESENCE OF MACHINES IN ADDITION TO THOSE MACHINES WHICH WERE IN RUNNING ORDER AND ARE IN BUSINESS OF MANUFACTURING THE PRODUCT OF THE ASSESSEE FOR ITS SUBSEQUENT SALES DOES NOT MEAN THAT THE MACHINES LYING IDLE WERE IN USE FOR MANUFACTURING PURPOSES. IT MAY FURTHER BE SUBMITTED THAT THE BILLS AND VOUCHERS RELATING TO PURCHASE AND SALES FOUND AT THE TIME OF SEARCH WERE DULY RECORDED IN THE BOOKS OF ACCOUNTS ALSO FOUND DURING 14 THE COURSE OF SEARCH. NO ADVERSE VIEW HAS BEEN TAKEN ON THIS ASPECT OF BILLS AND VOUCHERS WHICH WERE FOUND AND RECORDED BY THE LD. AO VIS-A-VIS THE MACHINES THAT WERE FOUND DURING THE COURSE OF SEARCH. ON THE OTHER HAND NO UNRECORDED PURCHASE OR SALE BILLS OR LOOSE PAPERS WERE FOUND AND SEIZED AT THE TIME OF SEARCH WHICH MAY SUGGEST OF SUPPRESSED SALE BEING MADE. THE ASSESSEE, WHEN CONFRONTED BY THE LD. AO. ABOUT THE EXCESS MACHINES DURING THE ASSESSMENT PROCEEDINGS, OFFERED DETAILED SUBMISSION AND EXPLANATION, SUBMITTED IN THE PAPER BOOK, FOR THE SAME WHICH WERE NOT ACCEPTED BY HIM. THE REJECTION OF THE EXPLANATION OFFERED BY THE ASSESSEE DOES NOT NECESSARILY LEAD TO THE CONCLUSION OF UNACCOUNTED PRODUCTION AND SUPPRESSED SALE THEREBY FURTHER LEADING TO ALLEGED CONCEALMENT OF INCOME. THE SUPPRESSED SALES WORKED OUT IS NOT SUPPORTED BY ANY EVIDENCE BUT IS RATHER BASED ON MERE ESTIMATE, ASSUMPTION AND ON PRESUMPTION THAT SALES WOULD HAVE BEEN MADE OUT OF THE REFERRED MACHINES. THE OPINION OF THE LD. AO. WITH REGARD TO PRESENCE OF MENS REA AND THE SUPPRESSED SALES BEING NOT ON ESTIMATE GET REBUTTED AS SUCH. ON ACCOUNT OF THIS ADDITION OF EXTRA PROFIT WORKED OUT ON THE BASIS OF APPLYING G.P RATE AND THAT TOO ON SUPPRESSED SALES (NOT BASED ON ANY EVIDENCE/ MATERIAL) IS NOTHING BUT A PURE GUESS WORK, ESTIMATE, ASSUMPTION AND A CAUSE OF ADDITION BASED ON NO EVIDENCE WHICH MAY BE SAID TO HAVE BEEN MADE ON THE BASIS OF FILING ANY INACCURATE PARTICULARS OF INCOME OR CONCEALMENT OF INCOME. HENCE AS FAR AS ADDITION OF ` 2,89,531/- IS CONCERNED NO PENALTY IS LEVIABLE BECAUSE THE SAME HAS BEEN ASSESSED ON AN ESTIMATED BASIS WITHOUT BRINGING ANY COGENT MATERIAL ON RECORD DURING THE ASSESSMENT PROCEEDINGS AND ALSO DURING THE PENALTY PROCEEDINGS. T. ASHOK PAI VS. CIT [2007] 161 TAXMAN 340 (SC) THAT THE LD. AO. HAS APPLIED GROSS PROFIT RATE ON ESTIMATED SALES, WHICH HAVE FURTHER BEEN CALCULATED ON ESTIMATION OF PRODUCTION OF 20 BAGS OF MASALA PRODUCTION PER DAY SPREAD OVER A PERIOD OF SIX DAYS AS HAVING BEEN ADMITTED BY THE LD. 15 AO IN HIS ASSESSMENT ORDER. ALL SUCH ESTIMATED CALCULATION HAVE BEEN MADE IN THE ABSENCE OF ANY CONCRETE EVIDENCE ABOUT CONCEALMENT OR INCRIMINATING DOCUMENTS SUCH AS PURCHASE VOUCHERS OR SALE BILLS FOUND NOT ENTERED IN THE BOOKS OF ACCOUNTS AT THE TIME OF SEARCH. PENALTY WILL NOT ORDINARILY BE IMPOSED UNLESS THE APPELLANT EITHER ACTED DELIBERATELY IN DEFIANCE OF LAW OR WAS GUILTY OF CONDUCT CONTUMACIOUS OR DISHONEST OR ACTED IN CONSCIOUS DISREGARD OF ITS OBLIGATION. HINDUSTAN STEEL LTD. VS STATE OF ORRISA (1972) 83 ITR 26 (SC). EVEN OTHERWISE WHEN THE APPELLANT HAD ALREADY SURRENDERED THE AFORESAID SUM OF ` 65.33.078/- THE ADDITION ON THE GROUND OF ESTIMATED GROSS PROFIT STOOD TELESCOPED IN THE SURRENDERED AMOUNT. THUS, ON THIS ACCOUNT ALSO NO PENALTY WAS LEVIABLE WITH RESPECT TO ADDITION OF ` 2,89,531/-. THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V RAJ BANS SINGH (2005) 276 ITR 351 (AM) OBSERVED THAT PENALTY FOR CONCEALMENT CAN NOT BE LEVIED WHERE ADDITION WAS MADE ON ESTIMATE BASIS. SIMILAR VIEWS WERE HELD IN THE FOLLOWING CASES; A. CIT VADAM KHAN (1997) 223 ITR 264 (MAD) B. SHIVLAL TAK VCIT (2001) 251 ITR 373 (RAJ) 12. THEREFORE, PENALTY U/S 271(1)(C) CANNOT BE LEVIED ON THE APPELLANT AS NEITHER ANY INCOME HAD BEEN CONCEALED NOR ANY INACCURATE PARTICULARS OF INCOME HAVE BEEN FILED. 13. THE APPELLANT RELIES ON RATIO LAID DOWN IN THE FOLLOWING CASE LAWS; A) DURING COURSE OF SEARCH OPERATIONS, CONDUCTED AT RESIDENTIAL AND BUSINESS PREMISES OF ASSESSEE AND OTHER PERSONS OF GROUP TO WHICH APPELLANT BELONGED, CASH AND JEWELLERY WERE SEIZED - ASSESSEE HAD MADE A STATEMENT UNDER SECTION 132 (4) AND SURRENDERED CERTAIN AMOUNT AS UNDISCLOSED CASH -WHETHER IN VIEW OF DECISION OF 16 ALLAHABAD HIGH COURT IN CIT V. RADHA KISHAN GOEL [2005] 278ITR 454, ASSESSEE 'S CASE WAS COVERED BY EXPLANATION 5 (2) TO SECTION 271 (1) (C) AND NO PENALTY WAS LEVIABLE - HELD, YES. CIT, KANPUR VS. MAHESH CHAND AGARWAL [2006] 157 TAXMAN539 (ALL) G. C. AGARWAL V. CIT (1990) 186 ITR 571(SC) CIT V. NEM KUMAR JAIN (2006) 151 TAXMAN187 & 188 (ALL.) B) REJECTION OF ACCOUNTS ADDITIONS TO GROSS PROFIT ON ESTIMATE BASIS -LEVY OF PENALTY FOR CONCEALMENT / FURNISHING OF INACCURATE PARTICULARS -NOT JUSTIFIED. ACIT VS. KAKA CARPETS (2008) 12 MTC 774 (TRIB- ALLD)) C) WHETHER WHEN ADDITION HAD BEEN MADE ON BASIS OF ESTIMATE AND NOT ON ACCOUNT OF ANY CONCRETE EVIDENCE OF CONCEALMENT, THEN PENALTY UNDER SECTION 271(L)(C) WAS NOT LEVIABLE HELD, YES CIT, PATIALA V. SANGRUR VANASPATI MILLS LTD. [2008] 171 TAXMAN 320 (PUNJ & HAR.) SLP OF THE DEPARTMENT HAS BEEN DISMISSED BY THE SUPREME COURT IN (2009) 183 TAXMAN-MAG 156 (SC) C) WHETHER NO PENALTY UNDER SECTION 271(1)(C) IS IMPOSABLE ON ESTIMATED ADDITION BECAUSE FACTUM OF EITHER CONCEALMENT OF PARTICULARS OF INCOME OR FURNISHING INACCURATE PARTICULARS OF INCOME IS NOT PROVED-HELD, YES HARI OM KUMAR UMESH CHAND V. ITO (AGRA -TRIB) [2002] 124 TAXMAN213 (MAG.).' 5.1 THE LEARNED CIT(A), AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, OBSERVED THAT THE ASSESSEE FILED THE RETURN OF INCOME ON 17 24/11/2006 WHICH WAS IN TIME IN VIEW OF SECTION 139(1) OF THE ACT. SUBSEQUENTLY, THE ASSESSEE REVISED THE RETURN OF INCOME ON 26/12/2007 WHICH HAS TO BE CONSIDERED A VALID RETURN KEEPING IN VIEW THE PROVISIONS OF SECTION 139(5) OF THE ACT. ACCORDING TO THE LEARNED CIT(A), THE REVISED RETURN REPLACES THE ORIGINAL RETURN FILED AND ANY INCOME INCORPORATED THEREIN IS TO BE CONSIDERED AS THE RETURN FOR THE PURPOSE OF ASSESSMENT AND THAT THE REVISED RETURN RETAINS THE CHARACTER OF AN ORIGINAL RETURN AND ONCE A REVISED RETURN IS FILED, THE ORIGINAL RETURN MUST BE TAKEN TO HAVE BEEN WITHDRAWN AND TO HAVE BEEN SUBSTITUTED BY A FRESH RETURN FOR THE PURPOSE OF ASSESSMENT AS HAS BEEN HELD BY THE HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF DHAMPUR SUGAR MILLS LTD. V. CIT [1973] 90 ITR 236. THE LEARNED CIT(A) WAS OF THE VIEW THAT THE CASE OF THE ASSESSEE FALLS FAIR AND SQUARE WITH THE OBSERVATION MADE IN THE AFORESAID REFERRED TO CASE AND ACCORDINGLY IT SHALL BE THE REVISED RETURN WHICH IS TO BE CONSIDERED FOR ASSESSMENT. HE FURTHER OBSERVED THAT THE ASSESSING OFFICER ALSO ACCEPTED THE REVISED RETURN AND DID NOT TREAT IT AS NON EST OR OF NO CONSEQUENCE AND ACCORDINGLY THE REVISED RETURN WAS FOUND TO BE IN ORDER. THE LEARNED CIT(A) OBSERVED THAT THE INCOME OFFERED TO TAX IN THE STATEMENT RECORDED U/S 132(4) OF THE ACT READ WITH EXPLANATION 5 OF SECTION 271(1)(C) OF THE ACT WAS INCORPORATED AND FORM PART OF THE INCOME RETURNED IN THE REVISED 18 RETURN. THEREFORE, THE REVISED RETURN WAS TO BE CONSIDERED AS THE RETURN FOR THE PURPOSE OF ASSESSMENT AND SINCE THE AMOUNT OF ` 65,33,078/- WAS FORMING PART OF THE INCOME OF REVISED RETURN, IT COULD NOT BE SUBJECTED TO LEVY OF PENALTY AS THE AMOUNT DID NOT RELATE EITHER TO CONCEALMENT OF INCOME OR FILING OF INACCURATE PARTICULARS OF SUCH INCOME. THE LEARNED CIT(A) THEREFORE OBSERVED THAT, AS PER THE PROVISIONS OF SECTION 271(1)(C) OF THE ACT, THE ASSESSING OFFICER MUST BE SATISFIED THAT PERSON HAS CONCEALED THE PARTICULARS OF INCOME AND FURNISHED INACCURATE PARTICULARS OF INCOME, THUS THE SATISFACTION WAS TO BE RECORDED IN THE ASSESSMENT PROCEEDINGS ITSELF. THE LEARNED CIT(A) ALSO OBSERVED THAT THE ASSESSING OFFICER IN HIS ASSESSMENT ORDER HAD RECORDED HIS SATISFACTION ONLY WITH RESPECT TO ADDITION MADE ON ACCOUNT OF ESTIMATED GROSS PROFIT AND NO SUCH SATISFACTION AS CONTEMPLATED BY THE SECTION HAS BEEN RECORDED ON ACCOUNT OF INCOME SURRENDERED BY THE ASSESSEE AND SINCE THE INCOME HAD ALREADY BEEN INCORPORATED IN THE REVISED RETURN, NO PENALTY NEEDS TO BE LEVIED U/S 271(1)(C) OF THE ACT. HE ALSO POINTED OUT THAT THE ADDITION OF ` 2,89,531/- WAS SEPARATE AND HAS NO CONNECTION WITH THE INCOME RELATING TO THE AMOUNT OF ` 65,33,078/- BUT THE SAID INCOME WAS MERE ESTIMATE AND HAD NO CORROBORATED EVIDENCE IN THE SHAPE OF ANY LOOSE PAPER/INCRIMINATING DOCUMENTS/BILLS ETC. THOUGH SUPPORTED BY THE FACT THAT ADDITION ON ACCOUNT 19 OF EXTRA/UNRECORDED MACHINES AND WASTE MATERIAL WAS MADE AND SUSTAINED BY THE APPELLATE AUTHORITIES, DID NOT GIVE SUFFICIENT EVIDENCE AND SUPPORT WHICH MAY PROMPT THE ASSESSING OFFICER TO CONCLUDE THAT DEFINITE QUANTUM OF SALES AND PROFIT THEREON EXISTED. ACCORDING TO THE LEARNED CIT(A) CERTAIN AMOUNT OF ESTIMATION, ASSUMPTION AND GUESS WORK BECOMES INEVITABLE DURING THE COURSE OF ASSESSMENT PROCEEDINGS BUT IN THIS CASE AS WELL THOUGH THE ASSESSING OFFICER WAS JUSTIFIED IN MAKING ADDITION ON ACCOUNT OF EXTRA MACHINES AND WASTE MATERIAL FOUND AT THE TIME OF SEARCH BUT EXISTENCE OF GUESS WORK AND ESTIMATES COULD NOT BE OVERLOOKED IN THE CONTEXT OF PENALTY PROCEEDINGS PARTICULARLY WHEN THE ASSESSMENT PROCEEDINGS AND THE PENALTY PROCEEDINGS ARE TWO DIFFERENT AND DISTINCT PROCEEDINGS. THE LEARNED CIT(A) WAS OF THE VIEW THAT THE ADDITION MADE IN THE ASSESSMENT PROCEEDINGS COULD BE MATERIAL BUT IT WAS NOT CONCLUSIVE AND CONCRETE EVIDENCE TO PROVE THAT THE ASSESSEE HAS CONCEALED THE PARTICULARS OF INCOME OR HAS FURNISHED INACCURATE PARTICULARS OF INCOME TO THE EXTENT OF THE ADDITION MADE AND THAT IN THE INSTANT CASE, THE ESTIMATED ADDITION HAD BEEN MADE ON THE BASIS OF ESTIMATED GROSS PROFIT ON ALLEGED ESTIMATED SALES/PRODUCTION OUTSIDE THE BOOKS OF ACCOUNT. THE LEARNED CIT(A) CATEGORICALLY STATED THAT THE ASSESSING OFFICER HAD MADE THE ADDITION BY ESTIMATING THE SALES OUTSIDE THE BOOKS OF ACCOUNT AND THE 20 ESTIMATE WAS MADE ON THE BASIS THAT THERE WERE UNRECORDED MACHINES AND WASTE MATERIAL. HOWEVER NO EVIDENCE WAS BROUGHT ON RECORD TO SHOW THAT THE ASSESSEE VIDE THOSE UNRECORDED MACHINES AND WASTE MATERIAL HAD MADE THE SALES OUTSIDE THE BOOKS OF ACCOUNT AND THAT IT WAS ALSO NOT BROUGHT ON RECORD THAT IF ANY SALE WAS MADE OUTSIDE THE BOOKS OF ACCOUNT, TO WHOM THAT SALE WAS MADE. ACCORDING TO THE LEARNED CIT(A), SOME SALES MIGHT HAVE BEEN MADE OUTSIDE THE BOOKS OF ACCOUNT, HOWEVER, THERE WAS NO CONCLUSIVE EVIDENCE TO PROVE THAT THE SALES ESTIMATED BY ASSESSING OFFICER TO THE EXTENT OF ` 38,60,420/- WERE MADE OUTSIDE THE BOOKS OF ACCOUNT, TO THAT EXTENT THE ASSESSEE HAD EARNED INCOME OUTSIDE THE BOOKS OF ACCOUNT. THE LEARNED CIT(A) POINTED OUT THAT THE CIT(A) AND THE I.T.A.T. HAD CONFIRMED THE ADDITION OF ` 2,89,531/- BY TAKING INTO CONSIDERATION THE PRESENCE OF UNRECORDED MACHINES AND THE SURRENDER OF EXCESS STOCK, BUT SAME DID NOT LEAD TO THE CONCLUSION THAT THE ASSESSEE HAD CONCEALED ITS INCOME, IT COULD NOT BE HELD THAT THERE WAS CONCLUSIVE EVIDENCE TO PROVE THAT THE ASSESSEE, IN FACT, HAD CONCEALED THE INCOME TO THE EXTENT OF THE ADDITION AS REQUIRED UNDER THE PENAL PROVISIONS THAT CONCEALMENT SHOULD BE CONCLUSIVELY PROVED. THE LEARNED CIT(A) WAS OF THE VIEW THAT THE PENALTY WAS NOT LELVIABLE ON THE ADDITION OF ` 2,89,531/- ALSO. RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: 21 (I) CIT VS. RAJ BANS SINGH [2005] 276 ITR 351 (II) CIT VS. ADAM KHAN [1997] 223 ITR 264 (MAD) (III) SHIV LAL TAK VS. CIT [2001] 251 ITR 373 (RAJ) (IV) CIT VS. PATIALA VS. SANGRUR VANASPATI MILLS LTD. [2008] 171 TAXMAN 320 (PUNJ) ACCORDINGLY THE PENALTY LEVIED BY THE ASSESSING OFFICER WAS DELETED. NOW THE DEPARTMENT IS IN APPEAL. 6. THE LEARNED CIT, D.R. STRONGLY SUPPORTED THE ORDER OF THE ASSESSING OFFICER AND SUBMITTED THAT THE ASSESSEE FILED THE RETURN OF INCOME U/S 139(I) OF THE ACT ON 24/11/2006, WHICH WAS FILED SUBSEQUENT TO THE SEARCH ON 01/09/2005, SHOWING TOTAL LOSS OF ` 35,73,116/- AND THEREAFTER REVISED ITS RETURN OF INCOME ON 26/12/2007 SHOWING TOTAL INCOME OF ` 8,49,510/-. IN THE REVISED RETURN OF INCOME, THE ASSESSEE SURRENDERED THE INCOME UNDER THE FOLLOWING HEADS: (I) EXCESS RAW MATERIAL ` 4854069/- (II) EXCESS CASH ` 1030534/- (III) EXCESS FINISHED GOODS ` 3,795/- (IV) EXCESS INVESTMENT IN MACHINERY ` 6,44,680/- AND THE ASSESSMENT WAS COMPLETED ON TOTAL INCOME OF ` 63,27,050/- U/S 143(3) OF THE ACT ON 31/12/2007. IT WAS FURTHER STATED THAT AFTER CONSIDERING THE SEIZED MATERIAL, DOCUMENTS/PAPERS AND REPLIES OF THE ASSESSEE, CERTAIN ADDITIONS WERE MADE UNDER THE FOLLOWING HEADS IN THE ASSESSMENT ORDER: 22 (I) PAYMENT TO WORKERS ` 3,28,126/- (II) SHARE APPLICATION MONEY ` 5,00,000/- (III) UNSECURED LOAN ` 5,26,774/- (IV) UNEXPLAINED CASH ` 50,879/- (V) INVESTMENT IN WASTE MATERIAL ` 4,76,200/- (VI) SUPPRESSION SALES A) GROSS PROFIT ` 2,89,531/- B) UNEXPLAINED INVESTMENT IN STOCK ` 12,92,082/- IT WAS FURTHER STATED THAT AGGRIEVED WITH THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE LEARNED CIT(A)-I, KANPUR WHO VIDE ORDER DATED 18/06/2008 HAD DELETED ALL ADDITIONS EXCEPT ADDITION WITH REGARD TO UNACCOUNTED GROSS PROFIT OF ` 2,89,531/-. THEREAFTER, BOTH THE DEPARTMENT AND THE ASSESSEE FILED RESPECTIVE APPEALS BEFORE ITAT, LUCKNOW ON DIFFERENT GROUNDS OF APPEAL WHEREIN, VIDE ITS ORDER DATED 26/09/2008, THE ADDITION OF ` 2,89,531/- WAS CONFIRMED. IT WAS SUBMITTED THAT THE ASSESSEES CASE WAS COVERED UNDER EXPLANATION 5 TO SECTION 271(1) (C) OF THE ACT AS THE ASSESSEE FILED ITS REGULAR RETURN OF INCOME ON 24/11/2006 AND IN THE SAID RETURN OF INCOME THE ASSESSEE HAD FAILED TO SHOW INCOME ON ACCOUNT OF EXCESS RAW MATERIAL AMOUNTING TO ` 48,54,069/- EXCESS CASH ` 10,30,534/-, EXCESS FINISHED GOODS ` 3,795/- AND EXCESS INVESTMENT IN MACHINERY ` 6,44,680/- IN ITS BOOKS OF ACCOUNT AND ALSO FAILED TO PAY TAX THEREON. IT WAS CONTENDED THAT THE ASSESSEE FILED THE REVISED 23 RETURN OF INCOME ON 26/12/2007 AND PAID TAX THEREON. THE LEARNED CIT, D.R. SUBMITTED THAT THE PENALTY WAS LEVIED ON ACCOUNT OF FAILURE BY THE ASSESSES FOR NOT RECORDING THE INCOME IN ITS BOOKS ALTHOUGH FOR THE RELEVANT YEAR THE BOOKS OF ACCOUNTS WERE NOT FINALIZED ON THE DATE OF SEARCH AS WELL AS TIME FOR FILING OF RETURN OF INCOME WAS AVAILABLE TO THE ASSESSEE COMPANY AND THEREBY THE RELEVANT INCOME WAS NOT BROUGHT TO THE RETURN OF INCOME FILED U/S 139(1) OF THE ACT AFTER THE DATE OF SEARCH, THEREFORE, THE TAX WAS NOT PAID AND AS SUCH THE PROVISIONS OF EXPLANATION 5 TO SECTION 271(1)(C) WERE CLEARLY ATTRACTED AND THE ASSESSING OFFICER WAS JUSTIFIED IN LEVYING THE PENALTY U/S 271(1)(C) OF THE ACT. RELIANCE WAS PLACED IN THE CASE OF COMMISSIONER OF INCOME-TAX VS RAKESH SURI 331 ITR 458 (ALL). 7. IN HIS RIVAL SUBMISSIONS, THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT THE ASSESSEE DISCLOSED ALL THE RELEVANT FACTS RELATING TO ITS INCOME IN THE REVISED RETURN WHICH WAS FILED WITHIN TIME AND NO TAX WAS EVADED AND NO INCOME WAS CONCEALED. IT WAS FURTHER SUBMITTED THAT THE DEPARTMENT IN THE GROUNDS OF APPEAL CHALLENGED THE PENALTY LEVIED ON INCOME SURRENDERED MAINLY ON THE GROUND THAT IMMUNITY GRANTED IN THE EXPLANATION (5) OF SECTION 271(1)(C) OF THE ACT WILL NOT BE AVAILABLE TO THE 24 ASSESSEE FOR THE REASON THAT TAXES ON SUCH INCOME WAS NOT PAID BEFORE THE FILING OF ORIGINAL RETURN. IT WAS STATED THAT THE PROVISIONS OF EXPLANATION (5) OF SECTION 271(1)(C) OF THE ACT DO NOT APPLY TO THE ASSESSEES CASE BECAUSE CLAUSE (2) OF THE SAID SECTION DOES NOT SAY THAT TAX ALONG WITH THE INTEREST SHOULD BE DEPOSITED BEFORE FILING OF THE RETURN. THE RELIANCE WAS PLACED ON THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. NEM KUMAR JAIN [2006] 202 CTR 328 (ALL). IT WAS CONTENDED THAT THE ASSESSEE DEPOSITED THE TAX BEFORE FILING THE REVISED RETURN OF INCOME ON 26/12/2007, THEREFORE, NO PENALTY WAS LELVIABLE ON THE INCOME DISCLOSED BY THE ASSESSEE IN THE REVISED RETURN. IT WAS FURTHER CONTENDED THAT THE PROVISIONS OF SECTION 271(1)(C) OF THE ACT ARE NOT APPLICABLE TO THE ASSESSEES CASE BECAUSE THE ASSESSEE HAD SHOWN THE INCOME IN THE REVISED RETURN UNDER THE PROVISIONS OF SECTION 139(5) OF THE ACT WHICH WAS A VALID RETURN AND HAS BEEN ACCEPTED BY THE ASSESSING OFFICER AND THAT PRIOR TO THE FILING OF REVISED RETURN ASSESSMENT PROCEEDINGS FOR THE ASSESSMENT YEAR 2006-07 HAD NOT BEEN COMMENCED AND THE LEARNED CIT(A) HAD DULY TAKEN NOTE OF THIS FACT WHILE DELETING THE PENALTY. THE RELIANCE WAS PLACED ON THE ORDER OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CHEAP CYCLE STORES VS. CIT [2006] 281 ITR 166 (ALL). RELIANCE WAS ALSO PLACED ON THE FOLLOWING CASE LAWS: 25 (I) CIT VS. RADHA KISHAN GOEL [2005] 278 ITR 454 (ALL) (II) CIT VS. MAHENDRA C. SHAH [2008] 299 ITR 305 (GUJ) (III) CIT VS. NEM KUMAR JAIN [2005] 202 CTR (ALL) 328 (IV) CIT VS. E. V. BALASHANMUGHAM [2006] 286 ITR 626 (MAD) 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CAREFULLY GONE THROUGH THE MATERIALS AVAILABLE ON THE RECORD. IN THE PRESENT CASE IT IS NOT IN DISPUTE THAT THE ASSESSEE FILED THE ORIGINAL RETURN OF INCOME U/S 139(1) OF THE ACT ON 24/11/2006 AND SUBSEQUENTLY THE ASSESSEE REVISED THE RETURN OF INCOME U/S 139(5) OF THE ACT ON 26/12/2007. THE SAID REVISED RETURN WAS A VALID RETURN AND HAD BEEN CONSIDERED WHILE FRAMING THE ASSESSMENT. IN THE REVISED RETURN, THE ASSESSEE DECLARED THE FOLLOWING INCOME AND INCLUDED THE SAID INCOME FOR TAX PURPOSES AND PAID THE TAX THEREON: (A) EXCESS STOCK OF RAW MATERIAL ` 48,54,069/- (B) EXCESS STOCK OF FINISHED GOODS ` 3,795/- (C) CASH FOUND IN EXCESS THAN RECORDED IN ` 10,30,534/- IN BOOKS OF ACCOUNT (D) INVESTMENT IN PLANT & MACHINERY ` 6,44,680/- AS REPRESENTED BY UNUSABLE MACHINES --------------- ` 65,33,078/- IN THE PRESENT CASE, THE ASSESSING OFFICER WHILE FRAMING THE ASSESSMENT ON THE BASIS OF THE REVISED RETURN MADE THE FOLLOWING ADDITIONS: 1. PAYMENT TO WORKERS 3,28,126/- 26 2. SHARE APPLICATION MONEY 5,00,000/- 3. UNSECURED LOAN 5,26,774/- 4. UNEXPLAINED CASH 50,879/- 5. INVESTMENT ON WASTE MATERIAL 4,76,200/- 6. SUPPRESSION OF SALES C) GROSS PROFIT 2,89,531/- D) UNEXPLAINED INVESTMENT IN STOCK 12,92,082/- HOWEVER THE LEARNED CIT(A) DELETED ALL THE ADDITIONS EXCEPT AN ESTIMATED ADDITION ON ACCOUNT OF GROSS PROFIT AMOUNTING TO ` 2,89,351/- VIDE ORDER DATED 18/06/2008. THE SAID ADDITION OF ` 2,89,351/- WAS CONFIRMED BY THE I.T.A.T. VIDE ITS ORDER DATED 26/09/2008. THEREFORE, IT CAN BE SAID THAT ALL THOSE ADDITIONS, WHICH WERE MADE BY THE ASSESSING OFFICER IN THE INCOME DECLARED BY THE ASSESSEE IN ITS REVISED RETURN, HAD BEEN DELETED EXCEPT THE ESTIMATED ADDITION AMOUNTING TO ` 2,89,351/- MADE BY APPLYING THE GROSS PROFIT RATE ON THE UNDISCLOSED SALES. IN THE PRESENT CASE, THE ASSESSING OFFICER LEVIED THE PENALTY U/S 271(1)(C) OF THE ACT IN RESPECT OF THOSE INCOME WHICH FOUND PLACE IN THE REVISED RETURN BUT NOT IN THE ORIGINAL RETURN OF INCOME FILED BY THE ASSESSEE. THE ASSESSING OFFICER INVOKED THE PROVISIONS OF EXPLANATION (5) TO SECTION 271(1)(C) OF THE ACT. NOW THE QUESTION ARISES AS TO WHETHER THE INCOME DISCLOSED BY THE ASSESSEE IN THE VALID REVISED RETURN CAN BE CONSIDERED A CONCEALED INCOME FOR THE PURPOSE OF SECTION 271(1)(C) OF THE ACT. IN THIS REGARD, THE HON'BLE JURISDICTIONAL 27 HIGH COURT IN THE CASE OF CHEAP CYCLES STORE VS. CIT [2006] 281 ITR 166 (ALL) HELD AS UNDER: THAT THE ASSESSEE HAVING FILED THE ORIGINAL RETURN WITHIN THE STATUTORY PERIOD AS PROVIDED UNDER SECTION 139(1) OF THE ACT, IT WAS ENTITLED TO FILE A REVISED RETURN UNDER THE PROVISIONS OF SECTION 139(5) OF THE ACT. THUS, THE REVISED RETURN FILED UNDER SECTION 139(5) OF THE ACT WAS A VALID RETURN AND WAS TO BE TAKEN INTO CONSIDERATION. NO CONCEALMENT HAVING BEEN FOUND IN THE REVISED RETURN, THE PENALTY PROCEEDINGS IN RESPECT OF THE INCOME DECLARED IN THE RETURN ORIGINALLY FILED COULD NOT HAVE BEEN TAKEN AS THE CONCEALMENT HAD NOT YET BEEN DETECTED BY THE ASSESSING OFFICER UP TILL THE TIME THE REVISED RETURN WAS FILED. PENALTY COULD NOT BE IMPOSED UNDER SECTION 271(1)(C). 8.1 IN THE INSTANT CASE ALSO THE ASSESSING OFFICER LEVIED THE PENALTY ON THE SUM OF ` 68,22,609/- ( ` 65,33,078/- DECLARED BY THE ASSESSEE IN THE REVISED RETURN + ` 2,89,531/- ADDED BY THE ASSESSING OFFICER ON ACCOUNT OF ESTIMATED ADDITION). SINCE THE AMOUNT OF ` 65,33,078/- WAS DECLARED BY THE ASSESSEE IN ITS REVISED RETURN FILED U/S 139(5) OF THE ACT WHICH WAS A VALID RETURN AND WAS TAKEN INTO CONSIDERATION BY THE ASSESSING OFFICER FOR FRAMING THE ASSESSMENT, THEREFORE, IN VIEW OF THE RATIO LAID DOWN BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE AFORESAID REFERRED TO CASE OF CHEAP CYCLE STORES, THE PENALTY U/S 271(1)(C) OF THE ACT WAS NOT LEVIABLE ON THE AMOUNT OF ` 65,33,078/-. 28 8.2 AS PER THE PROVISIONS CONTAINED IN SECTION 271(1)(C) OF THE ACT, THE ASSESSING OFFICER MUST BE SATISFIED THAT A PERSON HAS CONCEALED THE PARTICULARS OF INCOME AND FURNISHED INACCURATE PARTICULARS OF INCOME BUT IN THE INSTANT CASE THE ASSESSING OFFICER RECORDED HIS SATISFACTION ONLY IN RESPECT TO THE ADDITION AMOUNTING TO ` 2,89,351/- MADE ON ACCOUNT OF ESTIMATED GROSS PROFIT BUT NO SUCH SATISFACTION, AS CONTEMPLATED BY THE SECTION 271(1)(C), HAS BEEN RECORDED IN RESPECT OF THE INCOME ALREADY DISCLOSED BY THE ASSESSEE AMOUNTING TO ` 65,33,078/-. AS REGARDS TO THE PENALTY ON THE ESTIMATED ADDITION, THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. SANGRUR VANASPATI MILLS LTD. [2008] 171 TAXMAN 320 HELD THAT WHEN AN ADDITION HAD BEEN MADE ON THE BASIS OF ESTIMATE AND NOT ON ACCOUNT OF CONCRETE EVIDENCE OF CONCEALMENT THEN PENALTY U/S 271(1)(C) WAS NOT LEVIABLE. AGAINST THE SAID ORDER OF THE HON'BLE HIGH COURT THE DEPARTMENT FILED A SLP TO THE HON'BLE SUPREME COURT WHICH HAS BEEN DISMISSED AS REPORTED IN CIT VS. SANGRUR VANASPATI MILLS LTD. [2009] 183 TAXMAN 156. 8.3 A SIMILAR VIEW WAS TAKEN BY THE I.T.A.T. IN THE CASE OF RAJ BANS SINGH AND THE HON'BLE JURISDICTIONAL HIGH COURT UPHELD THE VIEW OF THE TRIBUNAL BY HOLDING THAT THE ASSESSEE HAD NOT DELIBERATELY CONCEALED THE 29 INCOME, NO PENALTY U/S 271(1)(C) WAS IMPOSABLE AS REPORTED IN CIT VS. RAJ BANS SINGH [2005] 276 ITR 351 (ALL). 8.4 A SIMILAR VIEW HAS BEEN TAKEN BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF HARIGOPAL SINGH VS. CIT [2002] 258 ITR 85 WHEREIN IT HAS BEEN HELD THAT: IN ORDER TO ATTRACT CLAUSE (C) OF SECTION 271(1) OF THE INCOME- TAX ACT, 1961, IT IS NECESSARY THAT THERE MUST BE CONCEALMENT BY THE ASSESSEE OF THE PARTICULARS OF HIS INCOME OR FURNISHING OF INACCURATE PARTICULARS OF SUCH INCOME. THE PROVISIONS OF SECTION 271(1)(C) OF THE ACT ARE NOT ATTRACTED TO CASES WHERE THE INCOME OF AN ASSESSEE IS ASSESSED ON ESTIMATE BASIS AND ADDITIONS ARE MADE THEREIN. 8.5 IN THE PRESENT CASE ALSO THE ADDITION OF ` 2,89,351/- HAS BEEN MADE ONLY ON ESTIMATE BASIS, THEREFORE, THE PENALTY U/S 271(1)(C) ON THIS INCOME WAS NOT CALLED FOR. 8.6 IN THE INSTANT CASE THE ASSESSING OFFICER INVOKED THE PROVISIONS OF EXPLANATION (5) TO SECTION 271(1)(C) MAINLY ON THE GROUND THAT TAX ON THE INCOME DISCLOSED IN REVISED RETURN WAS NOT PAID BEFORE THE FILING OF ORIGINAL RETURN. IN THIS REGARD THE HON'BLE THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. NEM KUMAR JAIN [2006] 202 CTR (ALL) 328 HAS HELD AS UNDER: 30 IT IS NOT THE CASE THAT TAX ALONG WITH INTEREST HAS NOT BEEN DEPOSITED. CASE OF REVENUE THAT TAX WAS NOT DEPOSITED BEFORE FILING OF THE RETURN. CLAUSE (2) OF EXPLN. 5 TO S. 271(1)(C) DOES NOT SAY THAT THE TAX ALONG WITH INTEREST SHOULD BE DEPOSITED BEFORE FILING OF THE RETURN. 8.7 IN THE PRESENT CASE ALSO THE ASSESSEE ALTHOUGH DID NOT DEPOSIT THE TAX WHILE FILING THE ORIGINAL RETURN HOWEVER, THE TAX ON THE RETURN DISCLOSED IN THE REVISED RETURN HAS BEEN DEPOSITED BEFORE FILING THE REVISED RETURN. 8.8 ON A SIMILAR ISSUE THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. MAHENDRA C. SHAH 299 ITR 305 HELD AS UNDER: THAT IN THE PRESENT CASE, ADMITTEDLY THE ASSESSMENT YEAR BEING 1988-89 AND THE SEARCH HAVING TAKEN PLACE ON JULY 3, 1987, THE RETURN OF INCOME WAS NOT DUE BEFORE JULY 31, 1988. SO FAR AS THE VALUE OF DIAMONDS WAS CONCERNED, THE ASSESSEE, HAVING MADE A DECLARATION UNDER SECTION 132(4) AND PAID TAXES THEREON, HAD FULFILLED ALL THE CONDITIONS FOR AVAILING OF THE BENEFIT OF IMMUNITY FROM LEVY OF PENALTY AS PROVIDED UNDER EXPLANATION 5 TO SECTION 271(1)(C). CANCELLATION OF THE PENALTY WAS VALID. 8.9 IN THE PRESENT CASE ALSO THE ASSESSEE DECLARED THE INCOME IN THE REVISED RETURN AND PAID THE TAX THEREON, THEREFORE, THE PENALTY U/S 271(1)(C) WAS RIGHTLY CANCELLED BY THE LEARNED CIT(A). THEREFORE, CONSIDERING THE TOTALITY OF THE FACTS, AS DISCUSSED HEREIN ABOVE, WE ARE OF THE VIEW THAT THE LEARNED CIT(A) WAS JUSTIFIED IN CANCELLING THE PENALTY LEVIED BY THE 31 ASSESSING OFFICER U/S 271(1)(C) OF THE ACT. IN THAT VIEW OF THE MATTER, WE DO NOT SEE ANY VALID GROUND TO INTERFERE WITH THE FINDINGS OF THE LEARNED CIT(A). AS SUCH WE DO NOT SEE ANY MERIT IN THIS APPEAL OF THE DEPARTMENT. 9. IN THE RESULT, THE APPEAL IS DISMISSED. (THE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 26/08/2011) SD/. ( H. L. KARWA ) VICE PRESIDENT SD/. (N. K. SAINI) ACCOUNTANT MEMBER DATED: 26/08/2011 *SINGH 25/2608 COPY FORWARDED TO THE: - 1. APPELLANT. 2. RESPONDENT. 3. CIT (A) 4. CIT 5. DR. ASSISTANT REGISTRAR