The ITO, Ward-5(2), Ahmedabad V. Parna Industries Ltd., Ahmedabad

ITA 274/AHD/2006

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 9043 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-02-2010
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 02-02-2010
• Assessment Year: 1999-2000
• Appeal Filed On: 03-02-2006
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Period of limitation; Onus to prove; Time period of passing order; Set aside
• Section: 271(1)(c); 133A; 147; 131; 68; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C, AHMEDABAD BEFORE SHRI BHAVNESH SAINI, JM & SHRI A.N. PAHUJA, AM I.T.A. NO.274/AHD/2006 (ASSESSMENT YEAR 1999-2000) ITO, WARD-5(2) VS PARNA INDUSTRIES LTD AHMEDABAD 503-504, ANAND MANGAL CG ROAD, AHMEDABAD (APPELLANT) (RESPONDENT) REVENUE BY : SHRI SANJEEV KASHYAP, DR ASSESSEE BY : NONE O R D E R AN PAHUJA : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST AN ORDER DATED 30- 11-2005 OF THE LD. CIT(A)-XI, AHMEDABAD , CANCELLIN G PENALTY OF RS. 52,24,233/- LEVIED U/S 271(1)(C) OF THE INCOME-TAX ACT,1961 [HE REINAFTER REFERRED TO AS THE ACT]. 2. FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT DURING THE COURSE OF SURVEY U/S 133A OF THE ACT CONDUCTED IN THE BUSINESS PREMI SES OF THE ASSESSEE ON 14- 03-2000, IT TRANSPIRED THAT EVEN THOUGH THE UNAUDI TED BOOKS OF ACCOUNT RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION REVEALED NET PROFIT OF RS.30,56,195/-. THE ASSESSEE, A PUBLIC LIMITED COMPANY, HAD NOT FIL ED ITS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION. INTER ALIA, DURING THE SURVEY,SEVERAL DOCUMENTS / LETTER HEADS RELATING TO THE FOLLOWING PARTIES WERE ALSO F OUND: 1) PARNA SALES INDUSTRIES 2) MINAKSHI ENTERPRISES 3) SANJAY SALES AGENCY 4) SHIV SHAKTI TRADING CO 5) PALAK TEA TRADERS PVT LTD 6) MANI BHADRA MARKETING 7) UPHAR TRADERS 8) PRATIK SALES ITA 274/AHD/2006 2 9) RIDDHI SALES 10) SHRINATHJI CORPORATION 11) BHANU TRADING CO 12) SHIV SHAKTI ENTERPRISE 13) UTSAV CORPORATION 14) DUGAR TEA COMPANY 15) PAYAL TEA CO 16) BHUMI FINANCE IT WAS NOTICED THAT THE ABOVE PARTIES HAD CARRIED OUT TRANSACTIONS INVOLVING HUGE AMOUNTS AND THEREFORE, IT WAS PROPOSED TO HOLD THES E PARTIES AS BENAMI CONCERNS OF THE ASSESSEE. TO A QUERY BY THE AO, THE ASSESSEE DID NOT REPLY. BESIDES,DURING THE COURSE OF SURVEY, STATEMENT OF SHRI MAHENDRA YADAV, THE PERSON WHO WAS HANDLING THE DAY TO DAY WORK AT ASLA LI GODOWN WAS RECORDED U/S 131 OF THE ACT ,WHEREIN IN REPLY TO QUESTIONS NOS .7 & 8 HE STATED THAT WHATEVER SHOWN AS A PENDING BLEND WAS NOT CORRECT, BUT IN FACT, IT WAS ALREADY BLENDED AND PACKING WAS ALSO COMPLETED. SINCE SHRI YADAV W AS THE EMPLOYEE OF THE ASSESSEE, FROM HIS STATEMENT, THE AO INFERRED THAT THE ASSESSEE COMPANY WAS NOT MAINTAINING THE CORRECT STOCK & SALES POSITION AND CONSEQUENTLY, IT WAS HELD THAT THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSE E COMPANY DID NOT GIVE CORRECT AND COMPLETE PICTURE. THE AO FURTHER NOTICE D THAT THE ASSESSEE WAS MAINTAINING TWO SETS OF BALANCE SHEETS, MAINTAINING BOGUS BANK ACCOUNTS, NOT FILING ITS RETURN OF INCOME AND THEREFORE, THE BOOK S MAINTAINED BY THE ASSESSEE WERE NOT REFLECTING TRUE PICTURE OF ITS AFFAIRS. WHEN SHOW CAUSED TO EXPLAIN WHY THE BOOK RESULTS SHOULD NOT BE REJECTED AND NET PRO FIT ESTIMATED BY INVOKING PROVISIONS OF SECTION 145 OF THE ACT, THE ASSESSEE DID NOT REPLY. ACCORDINGLY, THE AO REJECTED THE BOOK RESULTS, INVOKING THE PROVISI ONS OF SECTION 145 OF THE ACT AND APPLIED GROSS PROFIT @ 11% ON ESTIMATED SALES OF RS. 15 CRORES AS AGAINST THE DECLARED SALES OF RS.14,59,23,600/- AND THE GRO SS PROFIT OF RS.1,48,04,820/- ,BESIDES DISALLOWANCE OF 20% OF THE EXPENSES ,RESUL TING IN ESTIMATION OF NET PROFIT OF RS. 71,01,100/-. ITA 274/AHD/2006 3 2.1 THE AO ALSO NOTICED FROM THE BALANCE-SHEET T HAT THERE WAS AN INCREASE IN CAPITAL UNDER THE HEAD SHARE APPLICATION MONEY AM OUNTING TO RS.80 LAKHS. WHEN SHOW CAUSED, THE ASSESSEE SUBMITTED THAT THE O UTSTANDING UNSECURED LOAN COMPRISES OPENING BALANCE OF EARLIER YEARS AS WELL AS RECEIVED DURING THE YEAR AND THAT NO ADDITION CAN BE MADE U/S 68 IN RESPECT OF OPENING BALANCE. THOUGH THE ASSESSEE ASSURED TO SUBMIT THE DETAILS OF THE P ERSONS WHO MADE DEPOSITS, UNTIL THE PASSING OF THE ASSESSMENT ORDER, THE ASS ESSEE DID NOT FURNISH THE SAME, DESPITE NUMBER OF OPPORTUNITIES AFFORDED. SI NCE A DUPLICATE BALANCE SHEET WAS FOUND DURING THE SURVEY WHICH WAS DIFFERENT FRO M THE BALANCE SHEET ATTACHED WITH THE AUDIT REPORT AND THE ASSESSEE FAILED TO ES TABLISH THE GENUINENESS OF THE SHARE APPLICATION MONEY, THE AO ADDED THE ENTIRE AM OUNT OF RS. 80 LACS U/S 68 OF THE ACT. 2.2 MOREOVER, THE ASSESSEE COMPANY DID NOT FURN ISH THE DETAILS OF INCOME / BUSINESS, BANK STATEMENTS OF THE VARIOUS FIRMS CONT ROLLED BY IT THROUGH SHRI NAVIN P THAKKAR WHILE IT WAS INFORMED THAT SANJAY SALES AGENCY, SHIV SHAKTI TRADING CO, BHANU TRADING CO AND SHIV SHAKTI ENTERPRISE WER E THE PROPRIETORY CONCERNS OF SHRI KANTILAL M THAKKAR AND HIS FAMILY MEMBERS , ON FURTHER ENQUIRIES, THE AO FOUND THAT THE BANK ACCOUNTS , CLAIMED TO BE PERTAI NING TO SHRI KANTILAL THAKKER AND HIS FAMILY MEMBERS, REVEALED TRANSACTIONS OF HU NDREDS OF CRORES OF RUPEES. ACCORDING TO THE AO, IT WAS HARD TO BELIEVE THAT A PERSON HAVING ONLY A TABLE SPACE IN THE OFFICE OF THE ASSESSEE COMPANY IS HAVI NG MORE BUSINESS / TURN OVER, ALMOST 10 TIMES MORE THAN THE THREE GROUP COMPANIES OF ASSESSEE. THE DIRECTOR OF THE ASSESSEE COMPANY ACCEPTED THAT THE ASSESSEE WAS DOING BUSINESS THROUGH BANK ACCOUNTS IN THE NAME OF OTHER PERSONS, MOSTLY FAMILY MEMBERS. ACCORDINGLY, THE AO CONCLUDED THAT ALL THE CONCERNS BELONGED TO THE ASSESSEE GROUP, VIZ. PARNA INDUSTRIES LTD, PRASIDDHI TEA CO PVT LTD AND PRAKRUTI NOURISHERS PVT LTD AND SHRI NAVIN P THAKKER WAS THE MAIN PERSON WHO CONTROLLED THE MANAGEMENT OF ALL THESE THREE CONCERNS AS WELL AS THE BENAMI CONCERNS. THIS FACT WAS ADMITTED BY SHRI NAVIN P THAKKER IN HIS STATEMENT RECORDED U/S 131 OF THE ACT. HE ALSO ADMITTED THAT ALL THE REMA INING DIRECTORS DID NOT KNOW OF ITA 274/AHD/2006 4 THEIR BUSINESS ACTIVITIES. WHEN ASKED TO FURNISH T HE DETAILS OF ALL BANK ACCOUNTS, SHRI NAVIN P THAKKER DID NOT FURNISH. THEREFORE, O N THE BASIS OF DETAILS COLLECTED AS A RESULT OF ENQUIRIES, THE AO FOUND THE FOLLOWI NG DEPOSITS IN VARIOUS BANK ACCOUNTS : NAME OF THE BENAMI CONCERN PERIOD AMOUNT OF DEPOSIT PAYAL TEA CO 24-11-98 TO 31-03-99 7,70,20,000 PRATIK SALES 24-11-98 TO 31-03-99 10,08,13,000 BHANU TRADING CO 01-04-98 TO 31-03-99 4,36,30,0 00 SHIVSHAKTI ENTERPRISE 01-04-98 TO 31-03-99 9,61, 15,000 SANJAY SALES AGENCY 01-04-98 TO 31-03-99 4,87,77 ,000 BHUMI FINANCE 01-11-98 TO 31-03-99 2,62,89,000 RIDDHI SALES 24-11-98 TO 31-03-99 4,04,40,000 PARNA INDUSTRIES 01-04-98 TO 11-04-9 14,79, 675 ------------------ TOTAL 43,35,65,675 ------------------ SINCE THE DOCUMENTS RELATING TO ALL THE ABOVE BENAM I CONCERNS WERE FOUND IN THE PREMISES OF THE ASSESSEE COMPANY, THEY WERE ASKED T O PROVE THE GENUINENESS OF THE EXISTENCE, NATURE OF BUSINESS, ASSOCIATION W ITH THE ASSESSEE COMPANY, ETC. OF THE ABOVE CONCERNS. IN THE ABSENCE OF ANY REPLY AND THE NET PROFIT RATIO AS PER AUDIT REPORT FOUND DURING THE COURSE OF VAR YING BETWEEN 0.61% TO 2.09%, THE AO ESTIMATED THE INCOME OF THE BENAMI CONCERNS @ 1% OF THE AMOUNT DEPOSITED IN THE BANK ACCOUNTS DURING YEAR UNDER CO NSIDERATION, I.E. RS.43,45,65,675, WHICH WORKED OUT TO RS.43,45,656. SINCE THIS INCOME REPRESENTED THE INCOME EARNED BY ALL THE THREE COMP ANIES OF ASSESSEE GROUP THROUGH THESE BENAMI CONCERNS, THEREFORE, ON THE BA SIS OF DETAILS AVAILABLE WITH THE AO, THE AO TREATED 1/3 RD OF THIS ESTIMATED TOTAL INCOME OF RS.43,45,656/- I.E. RS.14,48,552/- AS THE INCOME OF THE ASSESSEE COMPAN Y FOR THE YEAR UNDER CONSIDERATION. ITA 274/AHD/2006 5 2.3 AS A RESULT, TOTAL INCOME WAS ASSESSED AT RS.1,65,49,650/- U/S 144 READ WITH SEC. 147 OF THE ACT. INTER ALIA, PENALTY PROCE EDINGS U/S 271(1)(C) OF THE ACT WERE ALSO INITIATED DURING THE COURSE OF ASSESSMEN T PROCEEDINGS FOR FURNISHING INACCURATE PARTICULARS OF INCOME. 3. ON APPEAL, THE LD. CIT(A) WHILE UPHOLDING THE R EJECTION OF BOOKS AND ACCEPTING THE TURNOVER REFLECTED BY THE ASSESSEE, APPLIED GP RATE OF 9.74% PREVAILING IN THE IMMEDIATELY PRECEDING YEAR AND T HUS REDUCED THE ADDITION. THE DISALLOWANCE OF EXPENSES WAS ALSO REDUCED FROM 20 % TO 10%. AS REGARDS ADDITION U/S 68 OF THE ACT , SINCE THE ASSESSEE FAI LED TO ESTABLISH THE GENUINENESS OF THE TRANSACTIONS IN RELATING TO SHARE APPLICATI ON MONEY EVEN BEFORE THE LD. CIT(A), WHILE RELYING UPON HIS OWN ORDER IN THE PRE CEDING ASSESSMENT YEAR THE LD. CIT(A) UPHELD THE ADDITION. LIKE WISE, SINCE TH E ADDITION OF RS. 14,48,452/- WAS MADE ON THE BASIS OF FACTS FOUND DURING THE COU RSE OF THE SURVEY, THE LD. CIT(A) UPHELD THE SAME. 4. AFTER RECEIPT OF ORDER DATED 29.12.2003 O F THE LD. CIT(A), SINCE THE ASSESSEE DID NOT FURNISH ANY REPLY IN RESPONSE TO A SHOWCAUSE NOTICE ISSUED ON 18.6.2004 AND AGAIN ON 7.2.2005 BEFORE LEVY OF PENA LTY , THE AO IMPOSED PENALTY OF RS.52,24,233/- @ 100% OF THE TAX SOUGHT TO BE EVADED ON THE INCOME OF RS.1,49,26,380 DETERMINED AFTER APPEAL EFFECT. 5. ON APPEAL, THE ASSESSEE SUBMITTED BEFORE THE LD. CIT(A) THAT THE ENTIRE ADDITION WAS MADE ON THE BASIS OF A PROJECT REPORT OF ASSESSEE COMPANY ACCOMPANIED BY THE BALANCE SHEETS OF LAST FOUR YEAR S I.E. 1997, 1998, 1999 AND 2000 FOR OBTAINING FINANCE FROM THE BANKS / FINANCI AL INSTITUTIONS AND THE SAME WERE PREPARED TO FLOAT A ROSY PICTURE OF THE STATE OF AFFAIRS OF THE COMPANY AS PER THE NORMAL PREVAILING PRACTICE IN THE INDUSTRY IN O RDER TO MEET THE REQUIREMENTS OF THE BANKS / FINANCIAL INSTITUTIONS. SECONDLY, THE STATEMENT OF SHRI MAHENDRA YADAV RECORDED U/S 131 OF THE ACT DURING THE COURSE OF SURVEY PROCEEDINGS AND ALSO RELIED UPON BY THE AO FOR DRAWING ADVERSE INFE RENCE AND MAKING THE ITA 274/AHD/2006 6 IMPUGNED ADDITION WAS PROVIDED ONLY AFTER SPECIFIC REQUEST AND THAT ALSO AT THE FAG END OF THE LIMITATION PERIOD AND NO CROSS-EXAMI NATION WAS GRANTED. NO EVIDENTIARY VALUE CAN BE ATTACHED TO THE STATEMENT OF THIS PERSON. FURTHER, THE STATEMENT OF SHRI YADAV DID NOT BEAR THE SIGNATURE OF THE AUTHORISED OFFICER AND THEREFORE, THE VERY CREDIBILITY OF THE STATEMENT AN D AVERMENTS MADE THEREIN ARE IN DOUBT AND NO COGNIZANCE OF THE SAME IS REQUIRED TO BE TAKEN IN CASE OF THE ASSESSEE. THE ASSESSING OFFICER HAS NOT BROUGHT AN Y INDEPENDENT MATERIAL ON RECORD IN SUPPORT OF HIS ESTIMATION OF GROSS PROFI T AT 11% AND NO COMPARATIVE CASE WAS QUOTED. AS REGARDS ADDITION OF RS.80 LAKH S ON ACCOUNT OF CASH CREDITS, THE ASSESSEE REITERATED THE ARGUMENTS IT HAD ADVANC ED IN THE QUANTUM PROCEEDINGS BEFORE THE CIT(A) AND PLEADED THAT SINC E NO MATERIAL / EVIDENCES HAVE BEEN BROUGHT ON RECORD EITHER DURING THE ASSES SMENT PROCEEDINGS OR IN THE PENALTY PROCEEDINGS FOR JUSTIFYING THE ADDITION AND THE SAME BEING BASED ON SURMISES, CONJECTURES AND CONTRARY TO THE MATERIAL AVAILABLE ON RECORD, THE PENALTY LEVIED ON THE ADDITION REQUIRES TO BE DELET ED. FOR THE OTHER ADDITION PERTAINING TO ADOPTION OF NET PROFIT @1%, THE ASSE SSEE SUBMITTED THAT THE AO RELIED ON BANK STATEMENTS OF VARIOUS CONCERNS AND T HE SAID PERCENTAGE HAS BEEN TAKEN BY THE AO ON THE BASIS OF NET PROFIT RATE SHO WN BY THE ASSESSEE COMPANIES IN THE AUDITED ACCOUNTS AS WELL AS THE BALANCE SHEE T FOUND DURING THE COURSE OF SURVEY PROCEEDINGS, WHICH VARIED FROM 0.25% TO 2.32 %. THIS ESTABLISHED THE CONTRARY STAND TAKEN BY THE AO BY MAKING ONE ADDITI ON WHICH GIVES THE NET PROFIT RATE AT 4.5% TO 5% AND ANOTHER ADDITION @ 1% FOR TH E VERY SAME YEAR. THE LEARNED COUNSEL SUBMITTED THAT THE BURDEN OF PROVIN G BENAMI NATURE OF TRANSACTIONS IS CLEARLY ON THE ASSESSING AUTHORITY. FOR THIS PROPOSITION, THE ASSESSEE RELIED ON THE DECISION IN THE CASE OF PRAK ASH NARAIN VS CIT (182) 134 ITR 364 (SC); MANOHAR LAL VS ITO (1991) 37 ITD 96 ( JP)(TM); GL CHABADA VS ITO (1995) 52 TTJ 319; CIT VS K MAHIM UDMA (2000) 2 42 ITR 133 (KER). THE ASSESSEE FURTHER PLEADED THAT THE CASE OF THE ASSES SEE CANNOT BE VISITED WITH PENALTY AS TWO ADDITIONS WERE MADE ON ESTIMATE WHI LE THE OTHER ADDITION OF RS.80 LAKHS ON ACCOUNT OF CASH CREDITS IS MADE ON C ONJECTURES AND SURMISES. WHILE RELYING ON THE JUDGMENTS IN THE CASE OF BANAR AS TEXTORIUM VS CIT (1998) ITA 274/AHD/2006 7 169 ITR 782 (ALL); CIT VS DHARAMCHAND L SHAH (1993) 204 ITR 462 (BOM); NATIONAL TEXTILE CORPORATION VS CIT (2000) 164 CTR 209 (GUJ); NATIONAL PICTURES CORPORATION SOCIETY CINEMA VS ITO (2002) 120 TAXMAN 91 (CHD); VINOD KAPUR VS ITO (2003) TAXMAN 53 (MUM); AND CIT VS JALARAM O IL MILLS (2001) 171 CTR 426 (GUJ), THE ASSESSEE CONTENDED THAT PENALTY PRO CEEDINGS AND ASSESSMENT PROCEEDINGS BEING DISTINCT AND SEPARATE,QUANTUM ADD ITION DOES NOT JUSTIFY THE IMPOSITION OF PENALTY . AS REGARDS LEVY OF PENALTY ON ESTIMATED ADDITIONS, THE ASSESSEE RELIED ON THE JUDGMENTS IN THE CASE OF CIT VS SUBHASH TRADING CO 221 ITR 110 (GUJ); CIT VS MUSSADILAL RAM BHAROSE (1987) 165 ITR 14 (SC); PARAMOUNT RADIO SERVICES VS ITD (1990) 36 TTJ 464 ( AHD); JUMABHAI PREMCHAND (HUF) VS CIT (2000) 243 ITR 812 (GUJ); CI T VS SURESH KUMAR BANSAL (2002) 254 ITR 130 (P&H); ITO VS KWALITY SPI NNERS (2003) SOT 323 (CHD); HARIGOPAL SINGH VS CIT (2002) 258 ITR 85 (P& H); HARYANA DELHI TPT. COMMISSION AGENCY VS ACIT (2001) 79 ITD 145 (AGRA); CIT VS PREM DAS (NO.1)(2001) 248 ITR 234 (P&H); CIT VS RA VAIL SING H & CO (2002) 122 TAXMAN 831 (P&H); HARI OM KUMAR UMESH CHAND VS ITO (2002) 124 TAXMAN 213 (AGRA)(MAG); DR RAVI PAUL VS ACIT (2002) 74 TTJ 146 (ASR); CIT VS MM RICE MILLS (2002) 123 TAXMAN 308 (P&H); ITO VS SMT. PUIR NIMA DEVI GUPTA (2004) 3 SOT 753 (JODH); BIPRA INVESTMENTS & RUSTS (P) LTD V S ACIT (2004) 3 SOT 897 (AHD); SAMAJ RAM SONI VS ACIT (2004) 84 TTJ 27 (JOD H); CIT VS AARKAY SAREE MUSEUM 187 ITR 147 (BOM); BALAMAKRISHNA ENGG CONSTR UCTION CORPORATION VS DCIT 56 ITD 411 (HYD). 5.1 IN RESPECT OF LEVY OF PENALTY ON ADDITION ON A CCOUNT OF CASH CREDITS, THE ASSESSEE PLEADED THAT THERE MUST BE CONCRETE EVIDEN CE OR CIRCUMSTANCES LEADING TO A CONCLUSION THAT THE AMOUNT DOES REPRES ENT ASSESSEES INCOME AND THE CIRCUMSTANCES MUST SHOW THAT THERE WAS CONSCIOU S CONCEALMENT OR ACT OF FURNISHING OF INACCURATE PARTICULARS. EXPLANATION 1 TO SECTION 271(1)(C) OF THE ACT DOES NOT MAKE THE ASSESSMENT ORDER A CONCLUSIVE EVI DENCE SO AS TO ESTABLISH THAT THE AMOUNT ASSESSED IS, IN FACT, THE INCOME OF THE ASSESSEE AND THE ASSESSEE RELIED ON THE DECISIONS IN THE CASE OF CIT VS RAMASWAMY NAIDU (1994) ITA 274/AHD/2006 8 208 ITR 377 (MAD); CIT VS UNIVERSITY PRINTERS (1991 ) 188 ITR 206 (CAL); ADDL CIT VS SAWAN MOTOR STORES (1977) 109 ITR 660 (AP); CIT VS SHRI BAJRANG TRADING & SUPPLY CO (1991) 187 ITR 299 (CAL); PSS BOMMANNA CHETTIAR VS CIT (1969) 73 ITR 26 (MAD),AND ITO VS BOMBAYWALA READYM ADE STORES (2004) 91 ITD 225 (AHD)(TM). 6 IN THE LIGHT OF AFORESAID SUBMISSIONS, THE LEARN ED CIT(A), CANCELLED THE PENALTY, HOLDING AS UNDER: 5. I HAVE CAREFULLY PERUSED THE SUBMISSIONS AND TH E DECISIONS RELIED UPON BY THE A.R. OF THE APPELLANT. I HAVE A LSO GONE THROUGH THE OBSERVATIONS OF THE ASSESSING OFFICER IN THE PE NALTY ORDER. 5.1 IT IS SEEN THAT SALES ARE ESTIMATED AND NET PRO FIT WAS ALSO ESTIMATED. HOWEVER, IT IS ALSO SEEN THAT THE ALLEG ED SALES AND ALLEGED PROFITS ESTIMATED THEREON ARE NOT CONCLUSIV ELY PROVED THAT THE APPELLANT REALLY HAD CONCEALED INCOME. THEREFO RE, FOR LEVYING PENALTY MERELY ON ESTIMATED INCOME DOES NOT APPEAR TO BE VERY VALID GROUND. SIMILARLY PENALTY WAS LEVIED ON ALLE GED UNSECURED LOANS WHICH WERE ADOPTED BY THE ASSESSING OFFICER F OR ADDITION PURPOSE BASED ON THE PROJECT REPORT ALSO CONCLUSIVE LY DOES NOT INDICATE THAT APPELLANT HAD ANY CONCEALED CREDITS. NO ENQUIRY, WHATSOEVER WAS MADE TO PROVE THE A.OS CLAIM. THERE FORE, EVEN THIS ADDITION IS NOT FIT FOR LEVY OF PENALTY. 5.2 THE ASSESSING OFFICER HAS LEVIED PENALTY ON ADD ITION WHICH WAS ADDED TOWARDS THE ALLEGED BENAMI COMPANIES SALE S. IT IS SEEN THAT AO HAD NO SUFFICIENT EVIDENCES TO TREAT THE SA LES OF ABOVE MENTIONED COMPANIES AS APPELLANTS AND OTHER TWO CO MPANIES BENAMI AND THEREBY TREATING PART OF THE SALES OF TH E SAID COMPANIES AS APPELLANTS SALES. THE APPELLANTS LENGTHY WRIT TEN SUBMISSIONS IS PERUSED. I AM CONVINCED THAT THE PENALTY IS NOT TO BE LEVIED ON THESE STANDS BECAUSE A.O. HAS NOT ESTABLISHED THAT THE ABOVE REFERRED 8 COMPANIES ARE THE BENAMI COMPANIES OF TH E APPELLANT. 5.3 THEREFORE, IN THE LIGHT OF ABOVE DISCUSSION, TH E PENALTY LEVIED UNDER SECTION 271(1)(C) OF I.T. ACT, 1961 IS CANCEL LED. 7. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A). NONE APPEARED ON BEHALF OF THE ASSE SSEE DESPITE SERVICE OF NOTICE THROUGH AFFIXURE. ON THE OTHER HAND, THE LD. DR SUBMITTED THAT IMPUGNED ITA 274/AHD/2006 9 ORDER OF THE LD. CIT(A) IS QUITE CRYPTIC. THE ASSES SEE DID NOT SUBMIT ANY EXPLANATION BEFORE THE AO DURING THE PENALTY PROCEE DINGS WHILE BEFORE THE LD. CIT(A) DETAILED SUBMISSIONS WERE MADE. WITHOUT CONF RONTING THESE SUBMISSIONS TO THE AO, THE LD. CIT(A) CANCELLED THE PENALTY. SI NCE THE AO HAD NO OCCASION TO EXAMINE THE REPLY SUBMITTED BY THE ASSESSEE BEFORE THE LD. CIT(A), MATTER NEEDS TO BE RESTORED TO THE FILE OF THE AO, THE LD. DR ADDED. 8. WE HAVE HEARD THE LD. DR AND GONE THROUGH THE F ACTS OF THE CASE. WE FIND THAT AFTER RECEIPT OF ORDER DATED 29. 12.2003 OF THE LD. CIT(A), SINCE THE ASSESSEE DID NOT FURNISH ANY REPL Y IN RESPONSE TO A SHOWCAUSE NOTICE ISSUED ON 18.6.2004 AND AGAIN ON 7.2.2005 , THE AO HAD NO ALTERNATIVE BUT TO IMPOSE THE PENALTY . THE LD. CIT(A) WHILE IGNORING THE FACT THAT THE ASSESSEE DID NOT F URNISH ANY REPLY IN RESPONSE TO SHOWCAUSE NOTICES ISSUED BY THE AO ,CAN CELLED THE PENALTY WITHOUT AFFORDING ANY OPPORTUNITY TO THE AO . IT IS NOW WELL SETTLED THAT EXPLANATION 1 TO SEC. 271(1)(C) OF THE ACT AUTOMATICALLY COMES INTO OPERATION WHEN IN RESPECT OF ANY FACTS M ATERIAL TO THE COMPUTATION OF TOTAL INCOME OF ANY ASSESSEE, THERE IS FAILURE TO OFFER AN EXPLANATION OR AN EXPLANATION IS OFFERED WHICH I S FOUND TO BE FALSE BY THE ASSESSING OFFICER OR AN EXPLANATION IS OFFERED, WHICH IS NOT SUBSTANTIATED. IN SUCH A CASE, THE AMOUNT ADDED IN COMPUTING THE TOTAL INCOME IS DEEMED TO REPRESENT THE INCOME IN RESPECT OF WHICH THE PARTICULARS HAVE BEEN CONCEALED AND, CONSEQUENTLY, THE ASSESSEE BECOMES LIABLE TO THE PENALTY PROVIDED BY SECTION 271(1)(C) OF THE ACT . IN NUTSHELL ,THE EXPLANATION SHIFTS THE BURDEN OF PROOF ON THE ASSESSEE . [K.P.MADHUSUDNAN VS. CIT,251 ITR 99(SC).IN THE INSTANT CASE, THE ASSESSEE DID NOT DI SCHARGE THAT BURDEN BEFORE THE AO. EVEN OTHERWISE, WE FIND THAT THE LD. CIT(A) DID NOT APPLY MIND TO THE FACTS OF THE CASE NOR PAS SED A SPEAKING ORDER. MERELY BECAUSE ADDITION HAS BEEN MADE ON EST IMATE, DOES NOT IMPLY THAT PENALTY CAN NOT BE IMPOSED[CIT VS. CHANDRA VILAS ITA 274/AHD/2006 10 HOTEL,291 ITR 202(GUJ), , AM SHAH & CO. VS. CIT(GUJ ),ADDL. CIT VS. CHANDRAKANTHA & ANOTHER,205 ITR 607(MP) BESIDES A N UMBER OF OTHER DECISIONS ] . THE APPLICATION OF MIND TO THE MATERIAL FACTS AND THE ARGUMENTS SHOULD MANIFEST ITSELF IN THE ORDER. SECTION 250(6) OF THE INCOME TAX ACT MANDATES THAT THE ORDER OF THE C IT(A) WHILE DISPOSING OF THE APPEAL SHALL BE IN WRITING AND SHA LL STATE THE POINTS FOR DETERMINATION, THE DECISION THEREON AND THE REA SON FOR THE DECISION. THE REQUIREMENT OF RECORDING OF REASONS BY THE QUASI- JUDICIAL AUTHORITIES IS AN IMPORTANT SAFEGUARD TO E NSURE OBSERVANCE OF THE RULE OF LAW. IT INTRODUCES CLARITY, CHECKS T HE INTRODUCTION OF EXTRANEOUS OR IRRELEVANT CONSIDERATIONS AND MINIMIZ ES ARBITRARINESS IN THE DECISION-MAKING PROCESS. WE MAY REITERATE TH AT A DECISION DOES NOT MERELY MEAN THE CONCLUSION. IT EMBRACES WITHIN ITS FOLD THE REASONS FORMING BASIS FOR THE CONCLUSION.[MUKHT IAR SINGH VS. STATE OF PUNJAB,(1995)1SCC 760(SC)]. IT IS WELL SET TLED THAT REASONS ARE THE LINKS BETWEEN THE MATERIAL ON RECORD AND TH E CONCLUSION ARRIVED AT BY THE COURT [CIT VS. SURENDRA SINGH PAH WA (1995) 79 TAXMAN 298] AND THE APPELLATE AUTHORITY BEING A QU ASI JUDICIAL AUTHORITY,THE ORDER PASSED BY HIM SHOULD SHOW THAT HE HAS APPLIED HIS MIND AND TAKEN INTO CONSIDERATION THE BASIC REQ UIREMENTS GERMANE TO THE ISSUE [V.N. PURUSHOTHAMAN VS. AG.I TO (1984) 149 ITR 120 (KER.)]. IN VIEW OF THE FOREGOING, ESPECIA LLY WHEN THE ASSESSEE DID NOT SUBMIT ANY EXPLANATION BEFORE THE AO NOR THE LD. CIT(A) ALLOWED ANY OPPORTUNITY TO THE AO OR EVEN A PPLIED HIS MIND TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE CON SIDER IT FAIR AND APPROPRIATE TO SET ASIDE THE ORDER OF THE LD. CIT(A ) AND RESTORE THE MATTER TO HIS FILE FOR DECIDING THE MATTER AFRESH I N ACCORDANCE WITH LAW, AFTER ALLOWING SUFFICIENT OPPORTUNITY TO BOTH THE PARTIES. NEEDLESS TO SAY THAT WHILE REDECIDING THE APPEAL, T HE LEARNED CIT(A) SHALL PASS A SPEAKING ORDER, KEEPING IN MIND, INTER ALIA, THE MANDATE ITA 274/AHD/2006 11 OF PROVISIONS OF SEC. 250(6) OF THE ACT. WITH THESE OBSERVATIONS, GROUND NO.1 IN THE APPEAL IS DISPOSED OF. 9. GROUND NOS. 2 & 3 BEING GENERAL IN NATURE, DO NO T REQUIRE ANY SEPARATE ADJUDICATION AND ARE, THEREFORE, DISMISSED. 10. IN THE RESULT, APPEAL IS ALLOWED, BUT FOR STA TISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 5 TH DAY OF FEBRUARY, 2010. SD/- SD/- (BHAVNESH SAINI) (A.N. PAHUJA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD, DATED : 5TH FEBRUARY, 2010 PK/- COPY TO: 1. THE ASSESSEE 2. ITO, WARD-5(2), AHMEDABAD 3. CIT(A)-XI, AHMEDABAD 4. CIT CONCERNED. 5. DR, C BENCH BY ORDER DEPUTY REGISTRAR, ITAT, AHMEDABAD