The ACIT, (OSD)Circle-9, Ahmedabad V. Shri Rajesh N. Patel, Ahmedabad

ITA 2872/AHD/2009

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1979 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2006-2007
• Appeal Filed On: 16-10-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C K MISHRA
• Keywords: Onus to prove; Revised return; Reassessment proceedings; TDS
• Section: 271(1)(c); 40(a)(ia); 201; 68; 10

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'D' (BEFORE S/SHRI T K SHARMA AND D C AGRAWAL) ITA NO.2872/AHD/2009 (ASSESSMENT YEAR:- 2006-07) THE ASSISTANT COMMISSIONER OF INCOME- TAX (OSD), CIRCLE-9, AHMEDABAD V/S SHRI RAJESH N PATEL, PROP. N K PATEL & CO., GROUND FLOOR, VITHALBHAI BHAVAN, NR. S P COLONY, RAILWAY CROSSING, AHMEDABAD [APPELLANT] [RESPONDENT] APPELLANT BY :- SHRI C K MISHRA, DR RESPONDENT BY:- NONE O R D E R PER D C AGRAWAL (ACCOUNTANT MEMBER): THIS IS AN APPEAL FILED BY THE REVENUE RAISING THE FOLLOWING GROUNDS: 1 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-XV , AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE PENALTY IMPOSED ON ADDITION OF RS.731662/- U/S 40(A)(IA) OF THE INCOME-TAX ACT, 1961. 2 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-XV , AHMEDABAD OUGHT TO HAVE UPHELD THE ORDER OF THE ASS ESSING OFFICER. 3 IT IS THEREFORE PRAYED THAT THE ORDER OF THE LEARNE D COMMISSIONER OF INCOME-TAX (APPEALS)-XV, AHMEDABAD MAY BE SET-AS IDE AND THAT OF THE AO BE RESTORED. 2 2 IN THIS CASE THE LEARNED ASSESSING OFFICER HAS L EVIED A PENALTY U/S 271(1)(C) OF THE INCOME-TAX ACT, 1961 [ THE ACT FOR SHORT] IN RESPECT OF ADDITIONS MADE BY HIM U/S 40(A )(IA) OF THE ACT BY DISALLOWING THE EXPENDITURE ON THE GROUND TH AT THE ASSESSEE FAILED TO DEDUCT TDS AND AFTER DEDUCTING, NOT DEPOSITING THE SAME IN THE GOVERNMENT ACCOUNT BEFORE DUE DATE. TDS WAS DEPOSITED IN THE GOVERNMENT ACCOUNT ONLY ON 29-05-2 006 AS AGAINST REQUIRED TO BE DEPOSITED BY 31-03-2006. IN RESPONSE TO SHOW CAUSE NOTICE BEFORE LEVY OF PENALTY, THE ASSES SEE FURNISHED REPLY WHICH IS QUOTED BY THE AO IN HIS ORDER. THE G IST OF THE EXPLANATION IS THAT THE MISTAKE COMMITTED BY THE AS SESSEE IS BONA FIDE, ALL THE DETAILS RELATING TO TAX DEDUCTION HAV E BEEN SUBMITTED TO THE DEPARTMENT, NO MATERIAL FACTS RELATING TO TD S DEDUCTION HAS BEEN WITHHELD OR CONCEALED. THE LEARNED ASSESSI NG OFFICER, HOWEVER, DID NOT AGREE AND LEVIED THE PENALTY BY FO LLOWING THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F DHARMENDRA TEXTILESS WHEREIN EMPHASIS WERE LAID DOWN THAT MAL A FIDE INTENTION IS NOT NECESSARY TO BE PROVED FOR LEVY OF PENALTY. 3 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) CANCELLED THE PENALTY ON THE GROUND THAT BREACH COM MITTED BY THE ASSESSEE WAS TECHNICAL. 4 WE HAVE HEARD THE LEARNED DR AND PERUSED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW, THERE I S NO CASE FOR INTERFERENCE IN THE ORDER OF THE LEARNED COMMISSION ER OF INCOME-TAX (APPEALS). THE CASE OF THE AO IS NEITHER COVERED IN EXPLANATION (1A) NOR IN EXPLANATION (1B) TO SECTION 271(1)(C) OF 3 THE ACT. THE ASSESSEE HAS FURNISHED THE EXPLANATION WHICH HAS BEEN QUOTED BY THE ASSESSING OFFICER IN THE PENALTY ORDER. THEREFORE, THE ASSESSEE HAS SATISFIED EXPLANATION ( 1A). FOR INVOKING EXPLANATION (1B) THE ASSESSING OFFICER HAS TO SIMULTANEOUSLY SATISFY (I) THAT THE ASSESSEE HAS FA ILED TO SUBSTANTIATE THE EXPLANATION; (II) THAT THE EXPLANA TION OF THE ASSESSEE IS NOT BONA FIDE; AND (III) THAT THE ASSES SEE HAS NOT DISCLOSED ALL THE MATERIAL FACTS NECESSARY FOR ASSE SSMENT. SIMILAR VIEW WE HAVE TAKEN IN THE CASE OF STAR INTERNATIONA L (P) LTD. VS. ACIT (2008) 23 SOT 88 (LUCKNOW), WHEREIN VIDE PARAS 12 TO 18, THE ISSUE HAS BEEN DISCUSSED IN DETAIL AS UNDER: 12. THE CLAIM OF THE REVENUE IS THAT THE CASE OF THE A SSESSEE SQUARELY FALLS UNDER EXPLANATION 1 ( B ) OF SECTION 271(1)( C ). FOR THE SAKE OF CONVENIENCE, WE REPRODUCE EXPLANATION 1 TO SECTION 271(1)( C ) AS UNDER : [ EXPLANATION I. WHERE IN RESPECT OF ANY FACTS MATERIAL TO THE COMP UTATION OF THE TOTAL INCOME OF ANY PERSON UNDER THIS ACT, ( A ) SUCH PERSON FAILS TO OFFER AN EXPLANATION OR OFFE RS AN EXPLANATION WHICH IS FOUND BY THE [ASSESSING] OFFICER OR THE [COMMISSION ER (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 EXPLANATION IS BONA FIDE AND THAT ALL THE FACTS RELATING TO THE SAME AND MATERIAL TO THE COMPUTATION OF HIS TOT AL INCOME HAVE BEEN DISCLOSED BY HIM], THEN, THE AMOUNT ADDED OR DISALLOWED IN COMPUTING T HE TOTAL INCOME OF SUCH PERSON AS A RESULT THEREOF SHALL, FOR THE PURPOSES OF CLAUSE ( C ) OF THIS SUB-SECTION, BE DEEMED TO REPRESENT THE INCOME IN RESPECT OF WHI CH PARTICULARS HAVE BEEN CONCEALED. 13. ADMITTEDLY EXPLANATION 1 ( A ) WOULD NOT BE APPLICABLE BECAUSE THE ASSESSEE HAD OFFERED AN EXPLANATION FOR THE CLAIM AND THE AS SESSING OFFICER HAD NOT FOUND SUCH EXPLANATION FALSE. REGARDING EXPLANATION 1 ( B ), THERE ARE THREE CONDITIONS 4 WHICH ARE REQUIRED TO BE SATISFIED SIMULTA- NEOUSLY . (1) THE ASSESSEE OFFERS AN EXPLANATION WHICH HE IS NOT ABLE TO SUBSTANTIATE; ( 2) HE FAILS TO PROVE THAT SUCH EXPLANATION IS BONA FIDE AND (3) ALL THE FACTS RELATING TO THE SAME AND MAT ERIAL TO THE COMPUTATION OF TOTAL INCOME HAVE BEEN DISCLOSED BY HIM. UNLESS THE ASSESSING OFFICER GIVES A FINDING ON THE BASIS OF MATERIAL ON RECORD THAT ALL THE THREE CONDITIONS ARE CUMULATIVELY AND SIMULTANEOUSLY SATI SFIED, PENALTY UNDER SECTION 271(1)( C ) READ WITH EXPLANATION 1 ( B ) CANNOT BE LEVIED. IN OUR CONSIDERED VIEW THE ASSESSEE HAD OFFERED AN EXPLANATION WHICH ON THE FA CE OF IT APPEARS TO BE BONA FIDE INASMUCH AS THE ADDRESSES OF THE PERSONS GIVEN BY T HE ASSESSEE WERE FOUND CORRECT AND THERE IS NO FINDING BY THE ASSESSING OFFICER TH AT THOSE ARE NOT THE ADDRESSES OF ARTISANS CLAIMED OR THAT THOSE PERSONS DID NOT RECE IVE ANY COMMISSION FROM THE ASSESSEE. PAYMENT OF COMMISSION TO VILLAGERS/ARTISA NS/UNEDUCATED PERSONS THROUGH BEARER CHEQUES IS A COMMON PHENOMENON. UNLESS IT IS FOUND THAT MONEY OF BEARER CHEQUES DID NOT REALLY GO TO THE PAYEE, IT CANNOT B E PRESUMED THAT PAYMENT AS CLAIMED WAS ACTUALLY NOT SO MADE. ONCE, THE ASSESSI NG OFFICER HAD EXAMINED BEARER CHEQUES, HE OUGHT TO HAVE CONSIDERED AND GIV EN A FINDING THAT MONEY DID NOT REALLY GO TO THE CLAIMANTS, I.E., ARTISANS. THE EXTENT AND LEVEL OF ENQUIRIES CANNOT RESULT IN A FINDING THAT EXPLANATION FURNISH ED BY THE ASSESSEE WAS NOT BONA FIDE. SO FAR AS SUBSTANTIATING THE EXPLANATION IS CONCERN ED IN OUR VIEW FURNISHING OF NAMES AND ADDRESSES OF THE ARTISANS ALONG WITH T HE AMOUNT SO PAID TO THEM, A REGULAR FEATURE ABOUT PAYMENT OF COMMISSION FROM YE AR TO YEAR AS BORNE OUT FROM THE DETAILS GIVEN ABOVE, IS PRIMA FACIE SUFFICIENT TO SHOW THAT THE ASSESSEE IS PAYING COMMISSION FOR FURTHERING ITS SALES. THE LEA RNED ASSESSING OFFICER HAS NOT POINTED OUT AS TO WHAT OTHER MATERIAL FACT THE ASSE SSEE HAD NOT DISCLOSED IN SUPPORT OF HIS CLAIM. THE PENALTY IS LEVIED ONLY ON THE GRO UND THAT THE ASSESSEE FAILED TO PRODUCE THE ARTISANS. IT MAY SUFFICIENT FOR ADDITIO N, BUT IN OUR CONSIDERED VIEW THIS CANNOT BE THE SOLE REASON FOR COMING TO THE CONCLUS ION THAT THE ASSESSEE HAD FILED INACCURATE PARTICULARS. 14. NOW WE COME TO VARIOUS DECISIONS REFERRED TO BY TH E PARTIES. THE LEARNED D.R. HAS FIRST REFERRED TO THE DECISION OF THE HONBLE S UPREME COURT IN DILIP N. SHROFF V. JT. CIT [2007] 291 ITR 519 1 . THIS IS ON THE ISSUE OF SATISFACTION WHICH IS NOT IN DISPUTE IN THE PRESENT CASE. NEXT AUTHORITY REFERRE D TO BY THE LEARNED CIT, (DR) IS THE DECISION OF THE HONBLE KERALA HIGH COURT IN CIT V. D.K.B. & CO. [2000] 243 ITR 618 2 . IT IS HELD THEREIN THAT EVEN WHERE ASSESSEE AGREE S TO ADDITION WITH THE CONDITION THAT NO PENALTY BE IMPOSED, AS IN THE PRE SENT CASE, THE DEPARTMENT IS STILL NOT PRECLUDED FROM PENALTY PROCEEDINGS. THE TRIBUNA L HAD CANCELLED THE PENALTY ON ABOVE GROUND AND, THEREFORE, HONBLE KERALA HIGH COURT REMANDED THE MATTER BACK TO THE TRIBUNAL TO CONSIDER THE EXPLANATION OF THE ASSESSEE AND DECIDE THE ISSUE ON MERIT. THE LEARNED D.R. THEN REFERRED TO T HE DECISION OF THE HONBLE KERALA HIGH COURT IN ANAND LIQUORSS CASE ( SUPRA ). IN THIS CASE A FINDING WAS GIVEN THAT THE BOOKS OF ACCOUNT ARE NOT MAINTAINED PROPERLY. THE CLAIM OF SALARY, COMMISSION, ETC. WERE MADE. THERE WERE NO VOUCHERS TO SUPPORT EXPENDITURE. THE CASH CREDITS IN THE NAMES OF THE PARTNERS WERE ALSO NOT EXPLAINED. THEREFORE, THE 5 ASSESSEE AGREED TO A PROPOSED ADDITION OF RS. 4.48 LAKHS. IT WAS HELD THAT LEVY OF PENALTY IS JUSTIFIED. IN THE PRESENT CASE THE UNDIS PUTED FACT IS THAT THE BOOKS OF ACCOUNT OF THE ASSESSEE ARE AUDITED AND IN THE ASSE SSMENT ORDER THEY ARE NOT BEING REJECTED. WE HAVE GONE THROUGH THE ASSESSMENT ORDER AND DO NOT FIND ANY DISCUSSION ABOUT THE NATURE OF BOOKS, METHOD OF ACC OUNTING AND THEIR ACCEPTANCE. ON THE OTHER HAND, THE ASSESSEE HAD FILED TAX AUDIT REPORT IN FORM NO. 3CA DATED 4-9-2001. ACCORDINGLY, THIS AUTHORITY WOULD BE OF N O HELP TO THE REVENUE. LEARNED D.R. THEN REFERRED TO THE DECISION OF THE HONBLE A LLAHABAD HIGH COURT IN THE CASE OF BENARAS CHEMICAL FACTORY ( SUPRA ) WHEREIN IT IS HELD THAT WHERE THE ASSESSEE IS MAKING VOLUNTARY DISCLOSURE OF INCOME HE IS NOT ABS OLVED FROM PENALTY. WE NOTE THAT THERE WAS FINDING IN THAT CASE THAT THE ASSESS EE WAS GUILTY OF CONCEALMENT. IN THE PRESENT CASE , WE DO NOT FIND ANY SUCH FINDING BY THE AUTHORITIES. ON THE OTHER HAND, WE NOTICE THAT THE CASE OF THE ASSESSEE DOES NOT FALL CLEARLY IN EXPLANATION 1 OF SECTION 271(1)( C ). 15. THE LEARNED D.R. THEN REFERRED TO THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN A.M. SHAH & CO.S CASE ( SUPRA ). THE LEARNED D.R. HAS DRAWN OUR ATTENTION TO PAGE 432 OF THE REPORT WHEREIN HONBLE ALLAHABAD HIGH COURT HAD DISCUSSED THE CONCEPT OF FILING INACCURATE PARTICUL ARS OF INCOME AS UNDER : IF A PERSON OBLIGED TO FURNISH THE PARTICULARS OF HIS INCOME, OMITS TO FURNISH THEM, HE THEREBY CONCEALS THE PARTICULARS. THIS CONCEALME NT MAY TAKE VARIOUS FORMS. A GLARING ILLUSTRATION OF CONCEALMENT WOULD BE WHERE THE ASSESSEE DOES NOT DISCLOSE OR FULLY DISCLOSE IN THE RETURN, THE INCOME DERIVED BY HIM WHICH WOULD FALL IN A PARTICULAR HEAD, E.G., INCOME FROM OTHER SOURCES WHILE DISCLOSING HIS I NCOME FALLING UNDER OTHER HEADS OF INCOME PRESCRIBED BY S ECTION 14 OF THE ACT. TO THE EXTENT HE DOES NOT DISCLOSE THAT INCOME, HE CONCEAL S THE PARTICULARS OF INCOME. THE OBLIGATION IS NOT ONLY TO DISCLOSE PARTICULARS OF I NCOME BUT TO DISCLOSE THEM CORRECTLY AND COMPLETELY. IF WHILE DISCLOSING THE P ARTICULARS OF INCOME IN THE RETURN HE PUTS THEM UNDER A WRONG HEAD, HE CAN BE S AID TO BE FURNISHING INACCURATE PARTICULARS OF INCOME. THE PARTICULARS OF INCOME CA N BE MADE INACCURATE IN A VARIETY OF WAYS, A GLARING ILLUSTRATION OF WHICH WO ULD BE WHERE THE ASSESSEE WHILE STATING THE INCOME UNDER A PARTICULAR HEAD, WORKS O UT THE INCOME CHARGEABLE TO TAX AFTER MAKING DEDUCTIONS WHICH ARE FALSELY MADE. SUC H A PROCESS WOULD MAKE THE PARTICULARS OF INCOME INACCURATE. IN ALL SUCH CASES WHERE THE INCOME IS NOT DISCLOSED AGAINST THE CONSTITUENT ITEM OF THE RETUR N IN WHICH IT FALLS OR IS PARTLY NOT DISCLOSED, OR THE PARTICULARS OF INCOME GIVEN IN TH E RETURN ARE INCORRECTLY STATED BY ANY MACHINATION, THE IMPACT IS BOUND TO BE ON THE F IGURE OF GROSS TOTAL INCOME TO BE MENTIONED UNDER VARIOUS HEADS OF INCOME AND ALSO ON THE TOTAL INCOME CHARGEABLE TO TAX. IN FACT, REDUCING THE FIGURE OF INCOME THAT WOULD BE CHARGEABLE TO TAX WOULD BE THE PURPOSE OF CONCEALMENT OF PARTI CULARS OF INCOME OR GIVING INACCURATE PARTICULARS OF INCOME. THE EXPRESSION P ARTICULARS OF INCOME WOULD HAVE RELEVANCE TO ALL THE PARTICULARS OF INCOME WHI CH THE ASSESSEE IS REQUIRED TO GIVE IN HIS RETURN FULLY AND TRULY INCLUDING THE PA RTICULARS OF INCOME CHARGEABLE TO TAX UNDER VARIOUS HEADS AND THE TOTAL INCOME. THERE FORE, ANY CONCEALMENT OR INACCURACY IN THE PARTICULARS OF INCOME IN THE RETU RN OCCURRING AT ANY STAGE UP TO 6 AND INCLUSIVE OF THE ULTIMATE STAGE OF WORKING OUT OF TOTAL INCOME WOULD ATTRACT THE PENALTY PROVISION OF SECTION 271(1)( C ) OF THE ACT. EVERY FIGURE IN THE RETURN WHICH IS SET OPPOSITE TO THE ITEM OF INCOME IS A PA RTICULAR OF INCOME, WHETHER THE FIGURE IS ONE WHICH IS STATED INDEPENDENTLY OF ANYT HING ELSE THAT APPEARS IN THE RETURN OR THE DOCUMENTS ACCOMPANYING IT OR WHETHER IT IS SOMETHING DERIVED FROM OTHER FIGURES ELSEWHERE STATED IN SUCH RETURN OR DO CUMENTS. FALSE RESULT MAY BE PRODUCED BY THE FALSITY OF ONE OR MORE OF THE CONST ITUENT ITEMS IN THE RETURN. THE WORDS INACCURATE PARTICULARS WOULD COVER FALSITY IN THE FINAL FIGURE AS ALSO THE CONSTITUENT ELEMENTS OR ITEMS. THEY SIMPLY WOULD ME AN INACCURATE IN SOME SPECIFIC OR DEFINITE RESPECT WHETHER IN THE CONSTIT UENT OR SUBORDINATE ITEMS OF INCOME OR THE END RESULT. 16. FROM ABOVE IT IS CLEAR THAT HONBLE GUJARAT HIGH C OURT HELD THAT PARTICULARS WILL BE INACCURATE WHEN DEDUCTIONS ARE FALSELY MADE OR WHERE INCOME GIVEN IN THE RETURN ARE INCORRECTLY STATED BY ANY MACHINATION. I T IS TO BE SHOWN BY THE ASSESSING OFFICER THAT THE ASSESSEE HAD SHOWN FALSE RESULTS AND SUCH FALSITY CAN BE IN ANY CONSTITUTION ITEMS IN THE RETURN. IN OUR CON SIDERED VIEW THE HONBLE GUJARAT HIGH COURT HAS SAID THAT THERE SHOULD BE SOMETHING WITH THE ASSESSING OFFICER WHICH WOULD SHOW THAT WHAT IS FILED BY THE ASSESSEE WAS INACCURATE OR NOT CORRECT. MERELY DISBELIEVING ON THE CLAIM WOULD NOT BE SUFFI CIENT. ONCE IT IS TO BE HELD THAT THE PARTICULARS FURNISHED BY THE ASSESSEE ARE INACC URATE, IT WOULD SIMPLY REQUIRE THE ASSESSING OFFICER TO SHOW AS TO WHAT IN FACT SH OULD BE THE ACCURATE PARTICULARS . THUS THERE ARE TWO THINGS TO BE COMPARED. ONE WHA T IS FURNISHED BY THE ASSESSEE AND OTHER BY THE ASSESSING OFFICER EITHER FROM THE ASSESSEE OR FROM THE THIRD PARTY WHICH HE CONSIDERS TO BE ACCURATE. FURTHER THIS INA CCURACY SHOULD HAVE MATERIAL BEARING ON THE COMPUTATION OF INCOME. IF INACCURACY IS OF SUCH A NATURE WHICH DOES NOT AFFECT THE COMPUTATION OF INCOME THEN THAT INACCURACY WILL NOT ATTRACT THE LEVY OF PENALTY. THUS A POSITIVE ACT ON THE PART OF THE ASSESSING OFFICER TO PROVE THAT THE PARTICULARS FURNISHED BY THE ASSESSEE ARE INACCURATE IS NECESSARY. MERE DEPENDING ON REJECTION OF THE CLAIM IS NOT SUFFICIE NT FOR THE PURPOSES OF THE PENALTY. 17. NOW WE COME TO THE AUTHORITIES REFERRED TO BY THE LEARNED A.R. FIRST AUTHORITY REFERRED TO IS THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN NATIONAL TEXTILES CASE ( SUPRA ). IT IS HELD THEREIN THAT MERE ADDITION MADE UNDER SECTION 68 BY NOT FINDING EXPLANATION FROM THE ASSESSEE WOULD NOT JUS TIFY THE PENALTY UNDER SECTION 271(1)( C ). THIS AUTHORITY PERTAINS TO THE ASSESSMENT YEAR 1 974-75. THE EXPLANATION 1 WAS INTRODUCED IN THE STATUTE BOOK BY THE TAXATION LAW (AMENDMENT) ACT, 1975 WITH EFFECT FROM 1-4-1976. A CCORDINGLY, THIS AUTHORITY IS NOT RELEVANT IN THE PRESENT CASE. NEXT AUTHORITY RE FERRED TO BY THE LEARNED A.R. IS A DECISION OF THE HONBLE MADRAS HIGH COURT IN JANKIRAM MILLS LTD.S CASE ( SUPRA ). THIS AUTHORITY IS NOT ON CONCEALMENT OF INCOME BUT MERELY REFERS TO THE DECISION AS TO WHETHER CERTAIN EXPENDITURE IS OF CAPITAL OR REVENUE IN NATURE. THIS DECISION IS OVERRULED BY THE HONBLE SUPREME COURT IN THE CA SE OF CIT V. SARAWANA SPG. MILLS (P.) LTD. [2007] 293 ITR 201 1 AND IT DOES NOT RELATE TO LEVY OF PENALTY. IT HAS 7 NO HELP TO THE PRESENT CASE. LAST AUTHORITY REFERRE D TO BY THE LEARNED A.R. IS THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CA SE OF CAFCO SYNDICATE SHIPPING CO. ( SUPRA ). IN THIS CASE A FINDING WAS GIVEN BY THE TRIBUNAL THAT MERE ADDITION OF INCOME BY DISALLOWING EXPENSES IS NOT C ONCEALMENT OF INCOME. IT WAS HELD THAT PENALTY CANNOT BE IMPOSED. FOR THE SAKE O F CONVENIENCE, WE REFER TO THE HEAD NOTES FROM THIS DECISION AS UNDER. THE OBJECT OF AN EXPLANATION TO A STATUTORY PROVISION IS ( A ) TO EXPLAIN THE MEANING AND INTENDMENT OF THE ACT ITSELF, ( B ) WHERE THERE IS ANY OBSCURITY OR VAGUENESS IN THE MAIN ENACTMENT TO CLARIFY IT SO AS TO MAKE IT CONSISTENT WITH THE DOMINANT OBJECT WHICH IT SEEMS TO SUBSERVE, ( C ) TO PROVIDE ADDITIONAL SUPPORT TO THE DOMINANT OBJECT OF THE ACT IN ORDER TO MAKE IT MEANINGFUL AND PURPOSEFUL, ( D ) AN EXPLANATION CANNOT IN ANY WAY INTERFERE WITH OR CHANGE THE ENA CTMENT OR ANY PART THEREOF BUT WHERE SOME GAP IS LEFT WHICH IS RE LEVANT FOR THE PURPOSE OF THE EXPLANATION IN ORDER TO SUPPRESS THE MISCHIEF AND ADVANCE THE OBJECT OF THE ACT, IT CAN HELP OR ASSIST THE COURT IN INTERPRETING THE TR UE PURPORT OR INTENDMENT OF THE ENACTMENT, AND ( E ) IT CANNOT HOWEVER, TAKE AWAY A STATUTORY RIGHT WI TH WHICH ANY PERSON UNDER A STATUTE HAS BEEN CLOTHED OR SET AT N AUGHT THE WORKING OF AN ACT BY BECOMING A HINDRANCE IN ITS INTERPRETATION. THE ASSESSEE, ENGAGED IN THE BUSINESS OF CLEARING A ND FORWARDING OF IMPORT AND EXPORT CARGO, FILED ITS RETURN OF INCOME. DURING TH E COURSE OF SURVEY AT THE BUSINESS PREMISES OF THE ASSESSEE, IT WAS NOTICED T HAT SOME OF THE VOUCHERS OF EXPENSES WERE SELF-VOUCHERS AND THEY WERE NOT SUPPO RTED BY THIRD PARTY RECEIPTS, VOUCHERS, ETC. THE ASSESSEE FILED A REVISED RETURN. THE ASSESSING OFFICER HELD THAT SINCE THE EXPENDITURE WAS NOT SUPPORTED BY PROPER V OUCHERS, THE ASSESSEE SHOULD NOT HAVE CLAIMED THE EXPENDITURE FOR DEDUCTION, ESP ECIALLY WHEN THE AMOUNT INVOLVED WAS HUGE. THEREFORE, HE HELD THAT THE ASSE SSEE HAD CONCEALED INCOME AND IMPOSED PENALTY UNDER SECTION 271(1)( C ) OF THE INCOME-TAX ACT, 1961. ON APPEAL THE COMMISSIONER (APPEALS) HELD THAT THE ASSESSING OFFICER HAD NOT PROVED THAT SUCH EXPENSES WERE NOT INCURRED BY THE ASSESSEE. TH E TRIBUNAL ON FURTHER APPEAL BY THE REVENUE HELD THAT MERE ADDITION OF INCOME BY DISALLOWING EXPENSES WOULD NOT BE REGARDED AS CONCEALMENT OF INCOME AND THEREF ORE LEVY OF PENALTY UNDER SECTION 271(1)( C ) WAS NOT JUSTIFIED IN SUCH CASES AND CONFIRMED THE ORDER PASSED BY THE COMMISSIONER (APPEALS). ON FURTHER APPEAL: HELD, DISMISSING THE APPEAL, THAT THE ONE AND ONLY REASO N FOR THE ASSESSEE TO FILE THE REVISED RETURN WAS THAT IT WAS NOT ABLE TO PROD UCE THE PROPER VOUCHERS FOR THE EXPENSES INCURRED. THE PRIMARY BURDEN OF PROOF WAS ON THE REVENUE. THE BOOKS OF ACCOUNT REVEALED THAT THE EXPENSES WERE INCURRED BY THE ASSESSEE BUT THE ONLY INCAPACITY ON THE PART OF THE ASSESSEE WAS THAT IT WAS NOT ABLE TO PRODUCE PROPER VOUCHERS FOR THE EXPENSES INCURRED AND THAT WOULD N OT AMOUNT TO CONCEALMENT OF INCOME. THE IMPOSITION OF PENALTY UNDER SECTION 271 (1)( C ) WAS IMPERMISSIBLE. IN OUR CONSIDERED VIEW THE FACTS IN THIS CASE ARE C LOSELY SIMILAR TO THE FACTS OF THE PRESENT CASE. HONBLE MADRAS HIGH COURT HELD THAT I F THE ASSESSEE IS NOT ABLE TO 8 PRODUCE PROPER VOUCHERS FOR THE EXPENSES INCURRED T HEN IT WOULD NOT AMOUNT TO CONCEALMENT OF INCOME. 18. ANOTHER AUTHORITY RELEVANT FOR OUR PURPOSE AND AS REFERRED TO BY THE LEARNED A.R., IS DECISION OF THE HONBLE ALLAHABAD HIGH COU RT IN BHARAT RICE MILLS CASE ( SUPRA ). IN THAT CASE CERTAIN SHARE OF LEVY SUGAR WAS FOU ND NOT INCLUDED IN THE CLOSING STOCK ON THE LAST DATE OF PREVIOUS YEAR REL EVANT TO THE ASSESSMENT YEAR 1981-82. WHEN THE ASSESSEE WAS CONFRONTED WITH THE ABOVE FACTS, HE FILED A REVISED RETURN INCLUDING THE VALUE OF UNDISCLOSED G . RICE AND ASSESSEES SHARE OF K. RICE. REASSESSMENT WAS COMPLETED INCLUDING THE V ALUE OF AFORESAID STOCK. THE ASSESSING OFFICER IMPOSED THE PENALTY. THE ASSESSIN G OFFICER LEVIED THE PENALTY WHICH WAS UPHELD BY THE TRIBUNAL. IT WAS HELD BY TH E HONBLE ALLAHABAD HIGH COURT THAT CONCEALMENT INHERENTLY CARRIES AN ELEMEN T OF MENS REA. ONCE THE EXPLANATION OF THE ASSESSEE IS BONA FIDE AND ADDITIONAL INCOME HAS BEEN DECLARED BY WAY OF FILING OF RETURN, THEN NO PENALTY CAN BE IMPOSED. IN THIS REGARD WE REFER TO THE HEAD NOTE FROM THE ABOVE DECISION AS UNDER : THE APPELLATE AUTHORITY HAS POWER TO PERMIT THE PA RTY TO RAISE AN ADDITIONAL GROUND WHICH HAS NOT BEEN RAISED IN THE MEMORANDUM OF APPEAL AND IN THE PENALTY PROCEEDINGS FRESH MATERIAL CAN BE CONSIDERED WHICH WAS NOT AVAILABLE AT THE TIME OF THE ASSESSMENT OR WHILE PASSING THE PENALTY ORDE R. HOWEVER EVEN A VOID ORDER OR DECISION RENDERED BETWEEN PARTIES CANNOT BE SAID TO BE NON-EXISTENT IN ALL CASES AND IN ALL SITUATIONS. ORDINARILY, SUCH AN ORDER WI LL, IN FACT, BE EFFECTIVE INTER PARTIES UNTIL IT IS SUCCESSFULLY AVOIDED OR CHALLEN GED IN A HIGHER FORUM. WHERE A REASSESSMENT HAD BECOME FINAL BETWEEN THE PARTIES U NLESS AND UNTIL IT IS SPECIFICALLY CHALLENGED IN APPROPRIATE PROCEEDINGS, EITHER BY WAY OF AN APPEAL, REVISION OR BY WAY OF WRIT PETITION UNDER ARTICLE 2 26 OF THE CONSTITUTION OF INDIA, NO ADVANTAGE CAN BE TAKEN BY THE ASSESSEE REGARDING INVALIDITY OF THE REASSESSMENT PROCEEDINGS IN THE COLLATERAL PROCEEDINGS ARISING O UT OF THE PENALTY PROCEEDINGS. THE ASSESSEE-FIRM FILED A RETURN OF INCOME FOR THE ASSESSMENT YEAR 1981-82 SHOWING AN INCOME OF RS. 6,390. THE ASSESSMENT WAS ORIGINALLY COMPLETED ON APRIL 5, 1982, ON A TOTAL INCOME OF RS. 12,390. SUB SEQUENTLY, WHILE COMPLETING THE ASSESSMENT PROCEEDINGS FOR THE ASSESSMENT YEAR 1982-83, THE INCOME-TAX OFFICER NOTICED THAT THE ASSESSEE HAD SOLD 209 QUIN TALS OF G. RICE IN THE FIRST WEEK OF APRIL, 1981, WHEREAS TILL THE DATE OF THE SALE, THERE HAD BEEN NO HULLING OF PADDY, NOR WAS THERE ANY OPENING STOCK OF G. RICE. ON BEING ASKED TO EXPLAIN THIS DISCREPANCY, THE ASSESSEE SUBMITTED THAT IT HAD 309 QUINTALS OF G. RICE AS ITS CLOSING STOCK OF THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 1981-82 AND THAT IT WAS THIS STOCK WHICH WAS SOLD IN APRIL 1981. THE INCOME-TAX OFFICER FURTHER NOTICED THAT THE ASSESSEE HAD UNDERTAKEN HULLING OF GOVERNMENT PADDY DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 1981- 82 AND HAD RECEIVED 433.04 QUINTALS OF K. RICE, AS ITS OWN SHARE OUT OF THE GO VERNMENT RICE HULLING. THIS SHARE OF THE ASSESSEE WAS SHOWN IN THE LEVY REGISTER OF T HE RELEVANT PREVIOUS YEAR, BUT WAS NOT INCLUDED IN THE CLOSING STOCK ON THE LAST D ATE OF THE PREVIOUS YEAR RELEVANT 9 TO THE ASSESSMENT YEAR 1981-82. WHEN THE ASSESSEE W AS CONFRONTED WITH THE AFORESAID FACTS, THE ASSESSEE FILED A REVISED RETUR N OF INCOME FOR THE ASSESSMENT YEAR 1981-82 INCLUDING THE VALUE OF THE UNDISCLOSE D G. RICE AND THE ASSESSEES SHARE OF K. RICE RECEIVED ON ACCOUNT OF GOVERNMENT HULLING. REASSESSMENT WAS COMPLETED INCLUDING THE VALUE OF AFORESAID STOCK AT RS. 37,548. WHILE COMPLETING THE REASSESSMENT, THE INCOME-TAX OFFICER ISSUED PEN ALTY NOTICE TO THE ASSESSEE IN TERMS OF SECTION 271(1)( C ). IT WAS EXPLAINED ON BEHALF OF THE ASSESSEE BEFOR E THE INCOME-TAX OFFICER THAT NON-DISCLOSURE OF CLOSING STOCK OF G. RICE WAS NOT INTENTIONAL AND IT WAS ONLY A MISTAKE BY THE ACCOUN TANT NOT TO HAVE INCLUDED IT IN THE CLOSING STOCK. SIMILARLY REGARDING NON-DISCLOS URE OF THE ASSESSEES SHARE OF RICE IN CUSTOM HULLING, IT WAS STATED THAT THE ASSE SSEE WAS UNDER THE IMPRESSION THAT IT CAN INCLUDE ITS SHARE ONLY WHEN IT WAS SOL D. THE INCOME-TAX OFFICER DID NOT ACCEPT THE EXPLANATION AND IMPOSED PENALTY. THE COMMISSIONER (APPEALS) CONFIRMED IT. ON FURTHER APPEAL TO THE TRIBUNAL THE ASSESSEE RAISED THE ADDITIONAL GROUND THAT THE REASSESSMENT WAS VOID AB INITIO. THE TRIBUNAL ADMITTED THE ADDITIONAL GROUND BUT HELD THAT THE REASSESSMENT WA S VALID. IT ALSO UPHELD THE ORDER OF PENALTY. ON A REFERENCE : HELD, ( I ) THAT THE REASSESSMENT ORDER HAVING NOT BEEN CHALL ENGED IN AN APPEAL OR ANY OTHER PROCEEDING, IT COULD NOT BE SAID TO BE A VOID ORDER IN A COLLATERAL PROCEEDING. ( II ) THAT THE WORD CONCEALMENT INHERENTLY CARRIES WI TH IT THE ELEMENT OF MENS REA . THE EXPLANATION OFFERED BY THE ASSESSEE IN THE PR ESENT CASE WAS BONA FIDE AND ALSO STOOD SUBSTANTIATED SPECIALLY WHEN THE CLOSING STOCKS OF G. RICE AND K. RICE THOUGH NOT DISCLOSED IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR IN QUESTION HAD BEEN VOLUNTARILY DISCLOSED IN THE REVI SED RETURN FILED BY THE ASSESSEE AND WHICH STOCKS HAD BEEN BONA FIDE DISCLOSED BY THE ASSESSEE IN THE SUBSEQUENT ASSESSMENT YEAR, I.E., 1982-83, AND HAD ALSO BEEN SUBJECTED TO TAX IN THA T YEAR APART FROM BEING SUBJECTED TO TAX IN THE ASSESSMENT YEAR 1981-82 BY THE REASSESSMENT ORDER. PENALTY COULD THEREFORE NOT BE IMPOSED. IT IS THUS CLEAR THAT NO PENALTY FOR CONCEALMENT OF INCOME CAN BE LEVIED BY MERELY DISBELIEVING ON EXPLANATION BY THE ASSESSEE. THERE HAS TO BE SOME POSITIVE MATERIAL COLLECTED AND REFERRED BY THE ASSESSING OF FICER WHICH WOULD SHOW THAT EITHER THE ASSESSEE HAS CONCEALED THE PARTICULARS O F INCOME OR FURNISHED INACCURATE PARTICULARS. THERE HAS TO BE SOMETHING FOR COMPARIS ON TO PROVE THAT WHAT WAS CLAIMED BY THE ASSESSEE WAS FALSE OR INACCURATE. ME RE DISBELIEVING ON THE CLAIM MADE BY THE ASSESSEE IS NOT SUFFICIENT. THE ASSESSI NG OFFICER COULD HAVE IN THE PRESENT CASE ENQUIRED AND SHOWN THAT THE ADDRESSES OF THE ARTISANS ARE NOT CORRECT, OR THEY HAVE NOT RECEIVED THE PAYMENT OR THAT THEY HAVE DENIED TO HAVE RENDERED ANY SERVICES, OR MONEY ON BEARER CHEQUES HAVE NOT G ONE TO THE ARTISANS/MECHANICS OR HAS BEEN RECEIVED BACK BY THE ASSESSEE OR THINGS SIMILAR TO THIS HIGHLIGHTING THE INACCURACY IN THE STORY OR EXPLANATION FURNISHED BY THE ASSESSEE. IN THE ABSENCE OF SUCH FINDING AND MATERIAL RELATING TO THESE, IT IS NOT POSSIBLE TO HOLD THAT THE ASSESSEE HAD CONCEALED PARTICULARS OF HIS INCOME BY WAY OF CLAIMING EXPENSES ON COMMISSION OR HAS FILED INACCURATE PARTICULARS RELA TING THERETO. AS A RESULT, PENALTY 10 SO CONFIRMED BY THE LEARNED CIT(A) CANNOT BE UPHELD . IT IS ACCORDINGLY CANCELLED. 5 IN THE PRESENT CASE, THE ASSESSEE HAS FURNISHED THE EXPLANATION WHICH IS PRIMA FACIE BONA FIDE. HE HAS FURTHER SUBSTANTIATED THE EXPLANATION THAT THE TAX WAS DEPO SITED THOUGH BELATEDLY AND THERE IS NO ALLEGATION THAT ANY MATER IAL FACT IS CONCEALED. ACCORDINGLY, RESPECTFULLY FOLLOWING THE DECISION REFERRED TO ABOVE, WE UPHOLD THE ORDER OF THE LEARN ED COMMISSIONER OF INCOME-TAX (APPEALS). 6 IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT TODAY ON 31-12-2 009 SD/- SD/- (T K SHARMA) JUDICIAL MEMBER (D C AGRAWAL) ACCOUNTANT MEMBER DATE : 31-12-2009 COPY OF THE ORDER FORWARDED TO : 1. SHRI RAJESH N PATEL, PROP. N K PATEL & CO., GROU ND FLOOR, VITHALBHAI BHAVAN, NR. S P COLONY, RAILWAY CROSSING, AHMEDABAD 2. THE ACIT (OSD), CIRCLE-9, AHMEDABAD 3. CIT CONCERNED 4. CIT(A)-XV, AHMEDABAD 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABA