M/S. SHARP TANKS & STRUCTURALS P.LTD., MUMBAI V. DY.C.I.T. RG.8(3), MUMBAI

ITA 2907/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49282 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 26-05-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 07-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C G K NAIR
• Assessee Lawyers: M VISHWAS V MEHENDALE
• Keywords: Business income; Business expenditure; Loose papers; Revised return
• Section: 142(1); 133A; 131

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E, MUMBAI BEFORE SHRI P.M. JAGTAP, A.M. AND SHRI V. DURGA RAO , J.M. S. NO. ITA NO AY 1. 2907/MUM/09 2002-03 2. 2908/MUM/09 2003-04 3. 2909/MUM/09 2004-05 4. 2910/MUM/09 2005-06 5. 1021/MUM/09 2000-01 6. 1022/MUM/09 2001-02 M+/S SHARP TANKS & STRUCTURALS PVT. LTD., AP PELLANT 301, WHITE ROSE APARTMENTS, S.B. MARG, J.B. NAGAR, ANDHERI (E) (PAN AABCS1445B) VS. DY. COMMISSIONER OF INCOME-TAX, RESPONDENT RANGE 8(3), MUMBAI. APPELLANT BY : MR. M. VISHWAS V. MEHENDALE RESPONDENT BY : MR. C.G.K. NAIR ORDER PER V. DURGA RAO, J.M.: THESE SIX APPEALS FILED BY THE ASSESSEE ARE DIRECTE D AGAINST SIX SEPARATE ORDERS PASSED BY THE LEARNED CIT(A)-XXIX, MUMBAI, WHERE BY HE CONFIRMED THE PENALTIES LEVIED BY THE AO U/S 271 (1)(C), AS UNDER:- S. NO. AY PENALTY(IN RS.) 1. 2002-03 76,090/- 2. 2003-04 43,170/- 3. 2004-05 3,45,540/- + ITA NOS. 2907-10 & 1021-22/M/09 M/S SHARP TANKS & STRUCTURALS PVT. LTD. 2 4. 2005-06 1,33,200/- 5. 2000-01 6,30,510/- 6. 2001-02 10,13,990/- 3. SINCE THE FACTS IN ALL THESE APPEALS ARE MATERIA LLY IDENTICAL, TO DISPOSE OF THESE APPEALS, WE REFER TO THE FACTS OF THE CASE IN AY 2005- 06 BEING ITA NO. 2910/MUM/09. 4. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E ASSESSEE IS ENGAGED IN THE BUSINESS OF ENGINEERING, FABRICATION , ERECTION, WELDING, TESTING ETC. ON TURNKEY BASIS AS WELL AS ON LABOUR JOB BASIS. ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2005-06 DECLARING TOTAL INCOME AT RS. 66,97,124/-, WHICH WAS PROCESSE D U/S 143(1) OF THE ACT. SUBSEQUENTLY, THE AO HAD RECEIVED INTIMATI ON FROM THE ADIT(INV.), UNIT 1(3), MUMBAI THAT A SURVEY U/S 133 A OF THE ACT WAS CARRIED ON 21/03/07 AT THE BUSINESS PREMISES AND FA CTORY PREMISES OF THE ASSESSEE. THE ASSESSEE HAD FILED REVISED RETURN ON 26/06/2007 DECLARING TOTAL INCOME AT RS. 70,68,420/-. THE AO H AD OBSERVED IN THE ASSESSMENT ORDER THAT DURING THE COURSE OF SURVEY C ERTAIN LOOSE PAPERS INDICATING VARIOUS PAYMENTS WERE FOUND AND I MPOUNDED AND STATEMENT OF SHRI VADAKEDATH VIJAYAN NAIR, CHAIRMAN AND MANAGING DIRECTOR OF THE ASSESSEE COMPANY WAS RECORDED U/S 1 31 OF THE ACT. SUBSEQUENTLY, NOTICES U/S 143(2) AND 142(1) WERE IS SUED AND THE INCOME DECLARED BY THE ASSESSEE BY WAY OF REVISED R ETURN OF INCOME WAS ACCEPTED AND TOTAL INCOME OF THE ASSESSEE WAS ASSESSED ACCORDINGLY. THEREAFTER, THE AO INITIATED PENALTY P ROCEEDINGS U/S 271(1)(C) OF THE ACT. IN RESPONSE TO THE NOTICE ISS UED BY THE AO, THE ASSESSEE FILED ITS REPLY VIDE LETTER DATED 15/04/08 , THE CONTENTS OF WHICH ARE AS UNDER:- THE ADDITIONAL INCOME OFFERED BY ME AS PER ITEM NO. 1(RS. 1,11,300?_) IS MISAPPROPRIATION OF FUND BY OUR CHI EF ACCOUNTANT DURING THIS PERIOD AND ITEM II (RWS. 60,000/-) IS S OME OF THE SITE EXPENSES WHICH WE HAVE NOT SHOWN IN OUR BOOKS OF AC COUNT DUE TO INAPPROPRIATE SUPPORTING DOCUMENT. ITA NOS. 2907-10 & 1021-22/M/09 M/S SHARP TANKS & STRUCTURALS PVT. LTD. 3 SINCE I HAVE UNDERGONE AN ANGIOPLASTY AND ASKED TO TAKE REST FOR SOME TIME I WAS NOT ATTENDING THE OFFICE. MR. SATIS H POOJARI WAS HANDLING THE COMPLETE ACCOUNTS AND HE USED TO RELEA SE PAYMENT. DURING THIS PERIOD MR. POOJARI HAD OPENED A CURRENT ACCOUNT IN SBI, MIDC BRANCH IN THE NAME OF ESSVEE TRAVELS AND MR. POOJARI WAS THE PROPRIETOR OF THE ESSVEE TRAVELS. MR. POOJA RI MADE FICTITIOUS INVOICE FOR VARIOUS EXPENSES AND DEPOSIT ED SMALL PAYMENTS IN HIS ABOVE ACCOUNTS AMOUNTING TO RS. 20, 67,866/-. APART FROM THE ABOVE, WE COULD TRACE OUT OF MALPRAC TICE FROM THE PETTY CASH ACCOUNT TO THE TUNE OF RS. 6,58,570/-. H ENCE, THE TOTAL FRAUD WE COULD TRACE WAS RS. 20,67,866/- PLUS RS. 6 ,58,570/- I.E. RS. 27,26,436/-. THE MOMENT WE TRACED THIS FRAUD WE COULD GET MR. SA TISH POOJARI FROM HIS NATIVE PLACE AND QUESTIONED HIM ABOUT THES E ENTRIES. MR. SATISH POOJARI FINALLY AGREED THE SAME IN HIS CONFE SSION. ( A COPY OF HIS CONFESSION LETTER IS ENCLOSED HEREWITH FOR Y OUR PERUSAL IN ANNEXURE-1). FINALLY, HE HAD SURRENDERED HIS RESIDE NTIAL FLAT VALUED RS. 8,75,000/- AT THAT TIME AND AFTER ADJUST ING THIS VALUE FROM THE TOTAL OF RS. 27,26,436/- AN AMOUNT OF RS. 18,51,431/- HAVE OFFERED IN RESPECTIVE ASSESSMENT YEAR FOR TAXA TION. ACCORDINGLY AN AMOUNT OF RS. 1,11,300/- HAS BEEN DE CLARED FOR TAXATION AGAINST ASSESSMENT YEAR 2005-06. ON THE BA SIS OF THIS ADI HAS ASKED US TO GIVEN THE ABOVE DECLARATION OF ADDITIONAL INCOME FOR TAXATION AGREEING THAT A LENIENT VIEW SH ALL BE TAKEN AND NO PENAL PROVISIONS WOULD BE TAKEN. IN RELATION TO ITEM NO. II COMMISSION PAYMENT, WE H AVE TO EXPLAIN THAT WE WERE DOING MAINLY SUB-CONTRACTING OF LABOUR JOBS. SINCE WE HAVE STARTED DOING PROJECTS JOBS DIRECTLY AS A C ONTRACT WE WERE TO SPEND SOME CASH AS OUT OF POCKET EXPENSES F OR THE SMOOTH RUNNING OF SITES. ACTUALLY WE COULD HAVE CLA IMED THESE AS A GENUINE BUSINESS EXPENSES IF WE HAVE ACCOUNTED TH ESE PROPERLY. SINCE WE WERE NOT HAVING DOCUMENTARY SUPP ORTING EVIDENCE WE HAVE NOT SHOWN THESE EXPENSES IN OUR AC COUNTS AND THE MONEY GENERATED FOR THESE EXPENSES ARE BY SELLI NG SMALL SCRAPS THAT ARE GENERATED DURING THAT PERIOD. SINCE WE HAVE NOT ACCOUNTED THE EXPENSES, WE HAVE NOT SHOWN THE SAID INCOME ALSO IN OUR ACCOUNTS. HOWEVER, WE KEPT A NOTE FOR MONITO RING THE EXPENSES AND THE SAME DOCUMENT HAS BEEN FOUND DURIN G THE COURSE OF SURVEY. HENCE ADI HAS ASKED US TO GIVE TH E ABOVE EXPENSES AS ADDITIONAL INCOME FOR TAXATION. DURING THE ASSESSMENT YEAR 2005-06 WE HAVE DECLARED AN AMOUNT OF RS. 60,000/- FOR TAXATION AGAINST THIS COMMISSION AND O THER EXPENSES. WE HAVE PAID THE TAXES AS REQUESTED AND H ENCE REQUEST YOUR GOODSELF TO KINDLY DROP THE PENALTY P ROCEEDINGS U/S 271(1)(C). ITA NOS. 2907-10 & 1021-22/M/09 M/S SHARP TANKS & STRUCTURALS PVT. LTD. 4 YOU MAY KINDLY REFER TO DOCKET NO. 1 (ITEM NO. 21 O F MY EXPLANATION SUBMITTED TO THE ADI(INV.) UNIT 1(3), M UMBAI DATED 9 TH APRIL, 2007 WHEREIN WE HAVE EXPLAINED IN DETAIL HOW THE FRAUD HAPPENED. AT THAT TIME WE WERE NOT KNOWING THE EXAC T MAGNITUDE OF THE FRAUD AND HENCE IN ORDER NOT TO SPOIL THE LI FE OF A MAN, WHO SERVED ME MORE THAN 10 YEARS, WE DID NOT LODGE ANY POLICE COMPLAINT ON HUMANITARIAN CONSIDERATION. YOU MAY O BSERVE FROM THIS THAT EVEN THOUGH WE LOST HEAVILY ON ACCOUNT OF THIS FRAUD, WE VOLUNTARILY DECLARED AND PAID THE TAX WITHOUT ANY H ESITATION. A COPY OF THE SAID PORTION OF THE EXPLANATION IS ALSO ENCLOSED FOR YOUR PERUSAL (ANNEXURE-II). SIR, I AM A VERY HONEST BUSINESSMAN & DO NOT INDULG E IN TO SUCH SORT OF ACTIVITIES TO EVADE TAX. THE CLAIM OF WRONG EXPENSES IS PURELY NON-INTENTIONAL. AS STATED IN THE STATEMENT AT THE TIME OF SURVEY, WE HAD ALSO TAKEN UP THE ISSUE OF EMBEZZLEM ENT BY MR. POOJARI. IT CAN ALSO BE SEEN THAT THE ONLY FLAT OWN ED BY MR. POOJARY SAME ALSO HAS BEEN SURRENDERED BY HIM IN CO MPANYS FAVOUR IN ORDER TO AVOID ANY CRIMINAL ACTION AGAINS T HIM. I HAVE ALSO TO BRING TO YOUR KIND NOTICE THAT HONBLE SUPR EME COURT HAS DECIDED IN THE CASE OF DILIP SARAF VS. CIT REPORTED IN 291 ITR 581 AND IN CASE OF BADRIDAS DAGA VS. CIT (1958) REPORTE D IN 34 ITR 10 (SC) WHEREIN THE APEX COURT HELD THAT LOSS ON AC COUNT OF CASH EMBEZZLEMENT MALPRACTICE OR MISAPPROPRIATION OF AC COUNT IS DULY AN ALLOWABLE DEDUCTION. I COULD HAVE VERY WELL CLAI MED THESE IN OUR ACCOUNTS, BUT BEING AN HONEST CITIZEN AND A PRO VEN BUSINESSMAN, I THOUGHT IT BETTER TO AVOID LITIGATIO N AND THUS MADE VOLUNTARY DISCLOSURE OF ADDITIONAL INCOME & MADE PA YMENT OF ADDITIONAL TAX THEREON WITHOUT ANY HESITATION. 5. HOWEVER, THE AO LEVIED PENALTY ON THE GROUND THA T IF THE SURVEY U/S 133A IS NOT CONDUCTED ON THE ASSESSEE, THE ASSE SSEE WOULD NOT HAVE DISCLOSED ADDITIONAL INCOME AND THE ASSESSEE H AD DECLARED ADDITIONAL INCOME OF RS. 3,07,300/- AFTER SURVEY AC TION, WHICH REPRESENTS EXCESS CLAIM OF EXPENSES. THEREFORE, THE DECLARATION MADE BY THE ASSESSEE IS NOT VOLUNTARY BUT MADE ONLY AFTE R DETECTION BY THE DEPARTMENT. HE FURTHER HELD THAT THE ASSESSEE HAD R EVISED ITS RETURN OF INCOME, WHICH SHOWS THAT THE ASSESSEE HAD GUILTY MIND AS THE ORIGINAL RETURN WAS FILED WITHOUT OFFERING ADDITION AL INCOME. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEA L BEFORE THE CIT(A). 6. IT WAS SUBMITTED BEFORE THE CIT(A) THAT ASSESSEE S EMPLOYEE MR. SATISH POOJARI, ACCOUNT, WHO WAS HANDLING ACCOUNTS HAD OPENED ITA NOS. 2907-10 & 1021-22/M/09 M/S SHARP TANKS & STRUCTURALS PVT. LTD. 5 CURRENT ACCOUNT IN SBI IN THE NAME OF ESSVEE TRAVEL S AND MR. POOJARI WAS THE PROPRIETOR OF THE SAID TRAVELS. MR. POOJARI MADE FICTITIOUS INVOICES FOR VARIOUS EXPENSES AND DEPOSI TED SOME PAYMENTS IN CURRENT ACCOUNT, WHICH AMOUNTING TO RS. 20,67,86 6/-. MISAPPROPRIATION OF FUND WAS TRACED OUT IN THE MONT H OF OCTOBER05 AND MR. POOJARI HIMSELF ADMITTED THAT HE HAS MISAPP ROPRIATED THE FUNDS. IT WAS FURTHER SUBMITTED BEFORE THE CIT(A) T HAT AT THE TIME OF SURVEY, THERE WAS NO PROOF AVAILABLE AGAINST EMBEZZ LEMENT OF THE FUNDS BUT NOW SUFFICIENT PROOF IS AVAILABLE. IT WAS SUBMITTED THAT THE ASSESSEE HAD NEITHER CONCEALED THE INCOME NOR FURNI SHED INACCURATE PARTICULARS OF INCOME, BUT, DUE TO MISAPPROPRIATION OF FUNDS BY THE ACCOUNTANT, HE HAD COMPELLED TO OFFER ADDITIONAL FO R TAXATION. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASS ESSEE OBSERVED THAT THE ASSESSEE FILED REVISED RETURN ONLY AFTER SURVEY U/S 133A CARRIED OUT AND CONCEALMENT WAS DETECTED DURING THE SURVEY OPERATION. THUS, RETURN FILED BY THE ASSESSEE CANNOT BE SAID TO BE V OLUNTARY ONE AND THERE WAS A CLEAR DIFFERENCE IN INCOME BETWEEN THE ORIGINAL RETURN FILED AND THE INCOME ASSESSED. THE CIT(A) FURTHER O BSERVED THAT THE ASSESSEE HAD NOT FILED FIR OR TAKEN ANY ACTION AGAI NST THE EMPLOYEE, WHO MISAPPROPRIATED THE FUNDS, THEREFORE, THE QUEST ION OF BONAIFDE BELIEF THAT EXPENSES CLAIMED BY THE ASSESSEE WERE G ENUINE. ACCORDINGLY, HE CONFIRMED THE PENALTY LEVIED BY THE AO U/S 271(1)(C) OF THE ACT. BEING AGGRIEVED, THE ASSESSEE FILED IN APPEAL BEFORE US. 7. THE LEARNED COUNSEL FOR THE ASSESSSEE SUBMITTED THAT IN RESPONSE TO THE NOTICE ISSUED BY THE AO IN THE COUR SE OF PENALTY PROCEEDINGS, THE ASSESSEE HAS SUBMITTED DETAILED EX PLANATION, BUT, THE AO WITHOUT CONSIDERING THE EXPLANATION OFFERED BY THE ASSESSEE LEVIED PENALTY U/S 271(1)(C). EVEN DURING THE COURS E OF APPELLATE PROCEEDINGS BEFORE THE CIT(A), THE ASSESSEE GAVE DE TAILED EXPLANATION WITH REGARD TO EMBEZZLEMENT OF FUNDS BY THE ACCOUNT ANT OF THE ASSESSEE COMPANY, BUT, THE CIT(A) WITHOUT GIVING AN Y REASONS SIMPLY DISBELIEVED THE EXPLANATION OFFERED BY THE ASSESSEE ON THE GROUND THAT ITA NOS. 2907-10 & 1021-22/M/09 M/S SHARP TANKS & STRUCTURALS PVT. LTD. 6 THE ASSESSEE HAS NOT TAKEN ANY ACTION AGAINST THE A CCOUNTANT, WHO IS RESPONSIBLE FOR EMBEZZLEMENT OF FUNDS. HE FURTHER S UBMITTED THAT DURING THE COURSE OF SURVEY PROCEEDINGS THE ASSESSE E HIMSELF ADMITTED IN ANSWER TO QUESTION NO. 6, WHICH IS AS UNDER:- Q6: PLEASE STATE WHETHER AT ANY POINT OF TIME DID Y OUR COMPANY ENGAGE THE SERVICES OF M/S KROMBACH INDIA PVT. LT.D , PLOT NO. 5 & 6, SHAH INDUSTRIAL ESTATE, NANGARGAON, LONAWALA 4 10 401 FOR PROCURING THE WORK ORDERS. IF YES, PLEASE SPECIFY T HE NATURE OF SERVICES RENDERED BY THE ABOVE ENTITY AND THE COMMI SSION PAID TO THE SAID PARTY ? ANS.: WE HAVE NOT ENGAGED THE ABOVE M/S KROMBACH IN DIA PVT. LTD., LONAWALA FOR PROCURING ANY OF THE ORDERS FROM OUR CLIENTS AT ANY TIME IN THE PAST. 8. IN RESPONSE TO QUESTION NO. 12, THE ASSESSEE ANS WERED THAT AS SOON AS IT WAS FOUND THAT SIPHONING OF FUNDS, MR. P OOJARI REMOVED FROM THE SERVICES OF THE COMPANY AND FLAT BELONGING TO MR. POOJARI ADMEASURING 550 SQ.FT. AT SHRADA CO.OP SOCIETY, KAN DIVALI(E) WAS ACQUIRED BY THE COMPANY IN ORDER TO PARTLY SET OFF THE EMBEZZLED AMOUNT. THE LEARNED COUNSEL FOR THE ASESSSEE INVITE D OUR ATTENTION TO PAGE 14 OF THE PAPER BOOK WHEREIN MR. POOJARI HIMSE LF ACCEPTED THAT HE MISAPPROPRIATED FUNDS AMOUNTING TO RS. 50.00 LAK HS. THE LEARNED COUNSEL, THEREFORE, CONTENDED THAT THE ASSESSEE NEI THER CONCEALED THE INCOME NOR FILED INACCURATE PARTICULARS OF INCOME. THE LEARNED COUNSEL FURTHER SUBMITTED THAT WHEN THERE IS EMBEZZ LEMENT COMMITTED BY THE EMPLOYEE OF THE ASSESSEE, AS A RES ULT, ANY LOSS CAUSED, IT CAN BE CLAIMED AS BUSINESS LOSS/DEDUCTIO N. FOR THIS CONTENTION, HE RELIED UPON THE FOLLOWING CASE LAWS: - 1. BADRIDAS DAGA, 34 ITR 10 (SC) 2. CIT VS. NINITAL BANK, 55 ITR 707 (SC) 3. DANDEKAR MACHINE WORKS LTD. VS. CIT, 202 ITR 16 1 (BOM.) 4. CIT VS. SMT. PUKHRAJWATI BUBBER, 296 ITR 290 (P &H) 5. BOMBAY FORGINGS PVT. LTD. VS. CIT, 206 ITR 562 9. THE LEARNED DR, ON THE OTHER HAND, SUBMITTED THA T THE ASSESSEE HAS NOT TAKEN ANY LEGAL ACTION AGAINST THE ACCOUNTA NT OF THE COMPANY, ITA NOS. 2907-10 & 1021-22/M/09 M/S SHARP TANKS & STRUCTURALS PVT. LTD. 7 WHO HAS MISAPPROPRIATED THE FUNDS OF THE ASSESSEE. HE STRONGLY RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 10. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF TH E PARTIES AND PERUSED THE RECORD AS WELL AS GONE THROUGH THE ORDE RS OF THE AUTHORITIES BELOW AND DECISIONS CITED. IN THIS CASE , THE ASSESSEE FILED ORIGINAL RETURN OF INCOME DECLARING TOTAL INCOME OF RS. 66,97,124/-. SUBSEQUENTLY, A SURVEY ACTION U/S 133A WAS CARRIED OUT IN WHICH THE ASSESSEE WAS ASKED TO EXPLAIN WHETHER THE ASSESSEE COMPANY ENGAGED THE SERVICES OF M/S KROMBACH INDIA PVT. LTD., LONA WALA, THE MD OF THE ASSESSEE COMPANY SUBMITTED THAT THEY HAVE NOT E NGAGED ANY SERVICES OF M/S KROMBACH INDIA PVT. LTD., LONAWALA . TO THIS EFFECT, THE LEARNED COUNSEL REFERRED PAGE 9 OF THE PAPER BO OK. THE ASSESSEE FILED REVISED RETURN OF INCOME DECLARING INCOME AT RS. 70,68,420/- AND THE SAME WAS ACCEPTED. THE ASSESSEE PAID TAXES ACCORDINGLY. SUBSEQUENTLY, THE AO INITIATED PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT AND THE ASSESSEE OFFERED DETAILED EXPLANATI ON IN THE PENALTY PROCEEDINGS STATING THAT THE EMPLOYEE OF THE ASSESS EE MR. SATISH POOJARI OPENED BANK ACCOUNT IN SBI AND DIVERTED THE COMPANY FUNDS INTO HIS ACCOUNT. MR. POOJARI WAS HANDLING COMPANY ACCOUNTS AND HE USED TO RELEASE THE PAYMENTS. MR. POOJARI MADE FICT ITIOUS INVOICES FOR VARIOUS EXPENSES AND DEPOSITED SOME PAYMENTS IN CUR RENT ACCOUNT, WHICH AMOUNTING TO RS. 20,67,866/-. WHEN IT CAME TO THE NOTICE OF THE ASSESSEE, THE ASSESSEE CAUGHT HOLD OF MR. POOJA RI AND MR. POOJARI HIMSELF ADMITTED THAT HE MADE EMBEZZLEMENT OF FUNDS BELONGING TO ASSESSEE COMPANY AMOUNTING TO RS. 50.00 LAKHS VIDE PAGE 14 OF THE PAPER BOOK OF THE ASSESSEE. IN RESPECT OF COMMISSIO N PAYMENTS, IT WAS EXPLAINED BEFORE THE AO THAT TO RUN DAY TO DAY BUSI NESS, THESE EXPENSES WERE INCURRED, WHICH WERE NOT SHOWN IN THE BOOKS OF ACCOUNT SINCE NO DOCUMENTARY EVIDENCE IS AVAILABLE, BUT, KEPT A NOTE FOR MONITORING THESE EXPENSES AND THE SAME DOCUMENT S HAVE BEEN FILED DURING THE COURSE OF SURVEY. IT WAS ALSO SUBM ITTED BEFORE THE AO THAT A RESIDENTIAL FLAT BELONGING TO MR. POOJARI WA S RECOVERED FOR ITA NOS. 2907-10 & 1021-22/M/09 M/S SHARP TANKS & STRUCTURALS PVT. LTD. 8 SETTING OFF THE EMBEZZLEMENT OF FUNDS. THE AO, HOWE VER, WITHOUT CONSIDERING THE EXPLANATION OFFERED BY THE ASSESSEE I.E. WHETHER THE EXPLANATION OFFERED BY THE ASSESSEE IS GENUINE OR N OT WENT ON A DIFFERENT FOOTING THAT IF THE DEPARTMENT HAS NOT CA RRIED OUT THE SURVEY, THE ASSESSEE WOULD NOT HAVE BEEN OFFERED ADDITIONAL INCOME AND THE ASSESSEE HAS DECLARED ADDITIONAL INCOME ONLY AFTER THE SURVEY CONDUCTED BY THE DEPARTMENT AND PROCEEDED TO LEVY P ENALTY U/S 271(1)(C) OF THE ACT. THE LEARNED CIT(A) SIMPLY DI SBELIEVED THE EXPLANATION OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE HAS NOT TAKEN ANY LEGAL ACTION AGAINST THE EMPLOYEE OF THE ASSESSEE, WHO HAD EMBEZZLED THE FUNDS OF THE COMPANY. WE ARE OF THE V IEW THAT WHEN THE ASSESSEE OFFERED DETAILED EXPLANATION BEFORE THE AO AS WELL AS CIT(A) WITHOUT EXAMINING THE GENUINENESS OF THE SAME, THE AO PROCEEDED TO LEVY PENALTY U/S 271(1)(C) ON THE GROUND THAT THE A SSESSEE OFFERED ADDITIONAL INCOME ONLY AFTER SURVEY U/S 133A. WHEN THE ASSESSEE HAS EXPLAINED THE REASONS FOR OFFERING THE ADDITIONAL I NCOME, IT IS THE DUTY OF THE AO TO CONSIDER THE SAME AND EXAMINE WHETHER THE EXPLANATION IS BONA-FIDE OR NOT. EVEN CIT(A) ALSO DISBELIEVED T HE EXPLANATION OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE HAS NOT TA KEN LEGAL ACTION AGAINST THE EMPLOYEE OF THE ASSESSEE, WHO EMBEZZLED THE FUNDS OF THE COMPANY. IN FACT THE EMPLOYEE OF THE ASSESSEE HIMSE LF CONFESSED THAT HE HAS MISAPPROPRIATED THE FUNDS AMOUNTING TO RS. 5 0.00 LAKHS AND HE HIMSELF VOLUNTARILY OFFERED HIS FLAT AGAINST THE SAID EMBEZZLEMENT, THEREFORE, THE ASSESSEE HAS NOT FILED ANY COMPLAINT AGAINST THE EMPLOYEE, WHO IS AN ACCOUNTANT. THERE MAY BE MANY R EASONS FOR NON- FILING OF COMPLAINT AGAINST MR. POOJARI. SIMPLY ON THE ABOVE BASIS, THE ENTIRE EXPLANATION GIVEN BY THE ASSESSEE CANNOT BE DISBELIEVED. THE ADDITION, ON WHICH SURRENDER MADE BY THE ASSESSEE, NO INCOME ACCRUED TO THE ASSESSEE AND THE SAID AMOUNT HAVING BEEN SIPHONED OF BY THE EMPLOYEE OF THE ASSESSEE, THE ASSESSEE WOULD HAVE CLAIMED IT AS EXPENDITURE. IN THIS CONTEXT, THE HONBLE SUPREM E COURT IN THE CASE OF BADRIDAS DAGA VS. CIT, HELD THAT EMBEZZLEMENT BY AN AGENT, WHO IS AUTHORIZED TO OPERATE THE BANK OF THE MONEY LENDER, THE ASSESSEE ITA NOS. 2907-10 & 1021-22/M/09 M/S SHARP TANKS & STRUCTURALS PVT. LTD. 9 INCIDENTAL TO CARRYING OUT THE BUSINESS AND THE L OSS IS ALLOWABLE AS BUSINESS LOSS. IN THE CASE OF NINITAL BANK, 55 ITR 707, THE HONBLE SUPREME COURT HELD THAT LOSS OF CASH BY DACOITING I S ADMISSIBLE DEDUCTION IN COMPUTING INCOME OF BUSINESS INCOME. T HE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF DANDEKAR M ACHINE WORKS LTD. VS. CIT, 202 ITR 161 (BOM.) HELD THAT EMBEZZLEMENT AMOUNT FROM ASSESSEES CURRENT ACCOUNT BY WAY OF SECURING DEMAN D DRAFT ON THE BASIS OF THE LETTER WITH FORGED SIGNATURE OF ASSESS EE COMPANY IS ALLOWABLE AS BUSINESS LOSS. IN THE CASE OF CIT VS. SMT. PUKHRAJWATI BUBBER, 296 ITR 290 (P&H), THE HONBLE P&H HIGH COU RT HELD THAT LOSS OCCURRING TO AN ASSESSEE ON ACCOUNT OF EMBEZZL EMENT OF MONEY BY A RECOVERY AGENT IS INCIDENTAL TO THE CARRYING ON T HE BUSINESS AND AS A DIRECT AND PROXIMATE ACTION WITH THE BUSINESS OPERA TION OF THE ASSESSEE AND, THEREFORE, THE SAME IS ALLOWABLE AS A DEDUCTION. IN THE CASE OF BOMBAY FORGINGS PVT. LTD. VS. CIT, 206 ITR 562 (BOM.), THE HONBLE JURISDICTIONAL HIGH COURT HELD THAT LOSS OF STOCK-IN-TRADE DUE TO EMBEZZLEMENT BY THE EMPLOYEE ALLOWABLE AS DEDUCT ION IN THE YEAR IN WHICH IT TOOK PLACE AND NOT WHEN IT WAS DETECTED BY THE ASSESSEE. 11. IT IS CLEAR FROM THE ABOVE JUDGEMENTS INCLUDING JURISDICTIONAL HIGH COURT THAT WHEN THERE WAS AN EMBEZZLEMENT BY T HE EMPLOYEE, THE SAME AMOUNT MAY BE ALLOWABLE AS A DEDUCTION. IN THE PRESENT CASE, EMPLOYEE OF THE ASESSSEE, WHO WAS LOOKING AFT ER THE ENTIRE ACCOUNTS COMMITTED EMBEZZLEMENT OF FUNDS AND TRANSF ERRED TO HIS CURRENT ACCOUNT AND HE CONFESSED THE EMBEZZLEMENT. THE ASSESSEE RECOVERED FROM THE EMPLOYEE A FLAT AGAINST EMBEZZLE MENT. WHEN THE EMPLOYEE SIPHONED OFF THE FUNDS IN THE COURSE OF B USINESS, THE SAME CAN BE CLAIMED AS DEDUCTION. IN THE PRESENT CASE, T HE ASSESSEE HAS OFFERED THE SAME FOR TAXATION. THEREFORE, IN OUR C ONSIDERED VIEW, THE ASESSSEE NEITHER CONCEALED INCOME NOR FURNISHED INA CCURATE PARTICULARS OF INCOME. IN SO FAR AS COMMISSION PAYM ENT IS CONCERNED, THE ASSESSEE HAS EXPLAINED THAT THE ABOVE EXPENDITU RE INCURRED TO RUN DAY TO DAY BUSINESS AND IT WAS ALSO EXPLAINED THAT THE SOURCE OF THE ITA NOS. 2907-10 & 1021-22/M/09 M/S SHARP TANKS & STRUCTURALS PVT. LTD. 10 ABOVE EXPENDITURE WAS BY SELLING SMALL SCRAPS. THIS EXPLANATION WAS NEITHER DOUBTED NOR REJECTED BY BOTH THE AUTHORITIE S BELOW. WE, THEREFORE, TAKING INTO CONSIDERATION ALL THE FACTS AND CIRCUMSTANCES OF THE CASE, HOLD THAT THIS IS NOT A FIT CASE TO IM POSE PENALTY U/S U/S 271(1)(C) OF THE ACT AND THE SAME IS HEREBY CANCELL ED. 12. THE ISSUES RAISED IN ALL OTHER YEARS UNDER CONS IDERATION ARE ALSO IDENTICAL TO THAT OF AY 2005-06, FOLLOWING THE CONC LUSIONS DRAWN BY US IN AY 2005-06(SUPRA), WE CANCEL THE PENALTIES IN TH OSE YEARS ALSO. 13. IN THE RESULT, ALL THE APPEALS OF THE ASSESSEE ARE ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF JUNE, 2011. SD/- SD/- (P.M. JAGTAP) (V. DURG A RAO) ACCOUNTANT MEMBER JUDI CIAL MEMBER MUMBAI, DATED: 30 TH JUNE, 2011 KV COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, E BENCH, I.T .A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., MUMBAI. KV