R.Natarajan, Salem V. ACIT, Salem

ITA 3106/CHNY/2014

• Counselvise Citation: 310621714 RSA 2014
• Duration Of Justice: 10 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-11-2015
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 21-09-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 24-12-2014
• Court: TRIBUNAL
• Department Lawyers: DR B NISCHAL
• Assessee Lawyers: G BASKAR
• Keywords: Bonafide belief; Initiation of penalty proceedings

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI . . . , ! ' , # $% BEFORE SHRI N.R.S.GANESAN, JUDICIAL MMBER AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ./ ITA NO. 3106/MDS/2014 / ASSESSMENT YEAR : 2008-09 R. NATARAJAN, NO.22-C SHIVA PLAZA, SARADHA COLLEGE ROAD, SALEM 636 016. PAN ABEPN1204A ( / APPELLANT) VS THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-I(2), NO.3, GANDHI ROAD, SALEM 636 007. ( /RESPONDENT) / APPELLANT BY : SHRI. G. BASKAR, ADVOCATE / RESPONDENT BY : DR. B. NISCHAL, JCIT /DATE OF HEARING : 21.09.2015 ! /DATE OF PRONOUNCEMENT : 06.11.2015 / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL BY THE ASSESSEEE IS DIREC TED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) D ATED 28.11.2014 FOR THE ASSESSMENT YEAR 2008-09. ITA 3106/14 :- 2 -: 2. THE ONLY GRIEVANCE IN THIS APPEAL IS WITH REGARD TO LEVY OF PENALTY U/S.271(1)(C) OF THE I.T.ACT, 1961. 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A N INDIVIDUAL ENGAGED IN THE BUSINESS OF TRADING IN DENTAL CONSUM ABLE PRODUCTS AND A COMMISSION AGENT FOR DENTAL EQUIPMEN TS. THE ASSESSE FILED HIS RETURN OF INCOME ON 30.9.2008 DIS CLOSING A TOTAL INCOME OF 7,25,980/- . THE CASE WAS TAKEN UP FOR SCRUTINY A ND THE ASSESSMENT WAS COMPLETED UNDER SEC.143(3) OF TH E ACT, AFTER ADDING 13,76,604/- TO THE DECLARED INCOME TOWARDS DISALLOWANCE IN TRADE CREDITOR BALANCE AND THUS, IN COME WAS ASSESSED AT 21,02,584/- AS AGAINST THE RETURNED INCOME. ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE WA S ASKED TO CONFIRM THE SUNDRY CREDITORS WHERE THE BALANCE OUTS TANDING IS IN EXCESS OF 2 LAKHS. IN RESPONSE TO THE SAME, THE ASSESSE FIL ED CONFIRMATION FROM VARIOUS CREDITORS AND AFTER VERIF YING THE SAME, IT WAS NOTICED BY THE AO THAT THERE IS A DIFFERENCE OF 13,69,082/- IN THE CASE OF ONE CREDITOR BY NAME CONFIDENTIAL DE NTAL GROUP. THE ASSESSEE EXPRESSED HIS INABILITY TO RECONCILE T HE SAME AND THE SAME WAS ADMITTED TO OFFER AS INCOME VIDE A LET TER DATED 29.11.2010. FURTHER, IN THE CASE OF ONE MORE CRED ITOR, THERE WAS A DIFFERENCE OF 7,522/-, FOR WHICH NO RECONCILIATION WAS FILED BY ITA 3106/14 :- 3 -: THE ASSESSE. THE ASSESSING OFFICER INITIATED PENAL TY PROCEEDINGS U/S.271(1)(C) OF THE ACT. BEFORE THE AO, DURING TH E COURSE OF PENALTY PROCEEDINGS, THE ASSESSEE SUBMITTED AS UNDE R : SO FAR AS THE ASSESSE IS CONCERNED, AMOUNTS CREDITED ARE DUE TO THE COMPANY ACCORDING TO HIS BOOKS OF ACCOUNTS, WHICH ARE PAID BY CHEQUES. NO PAYMENT WAS MADE OUTSIDE ACCOUNTS. THE DIFFERENCE BETWEEN THE CLOSING BALANCE ACCORDING TO THE BOOKS OF ACCOUNT OF ASSESSEE AND THE COMPANY DOES NOT REPRESENT ANY INCOME EARNED BY THE ASSESSEE DURING THE YEAR ENDED(ING) 31.03.2008. AS AN AGENT DEPENDING ON THE COMPANY FOR BUSINESS, THE COMPANY COULD NOT BE PERSUADED TO PROVIDE NECESSARY DETAILS TO RECONCILE THE DIFFERENCE. IN THESE CIRCUMSTANCES, THE DIFFERENCE WAS AGREED TO BE DEEMED AS TAXABLE INCOME OF THE ASSESSEE, THIS DIFFERENCE WAS OFFERED AS INCOME UNDER A BONAFIDE BELIEF THAT NO PENALTY WOULD BE LEVIED. NO INFORMATION WAS GATHERED BY THE DEPARTMENT FROM ANY SOURCE OTHER THAN THE ASSESSEE. NOTHING WAS HIDDEN FROM THE DEPARTMENT. NO PARTICULARS FURNISHED WERE FOUND TO BE INACCURATE. THE PURCHASES MADE BY THE ASSESSEE FROM THE COMPANY HAVE BEEN ACCEPTED AS GENUINE. NO BOGUS OR INFLATED PURCHASE HAS BEEN POINTED OUT. 3.1 HOWEVER, THE ASSESSING OFFICER REJECTED THE PLE A OF THE ASSESSEE ON THE GROUND THAT THE ONUS IS ON THE ASSE SSEE TO PROVE ITA 3106/14 :- 4 -: THAT THE ENTRIES IN HIS BOOKS OF ACCOUNTS ARE TRUE AND SO THAT THE TRUE INCOME IS REFLECTED BY THE ASSESSEE. HOWEVER, THE ASSESSEE COULD NOT PROVE THE ENTRY IN HIS BOOKS OF ACCOUNT B UT M/S. CONFIDENT DENTAL GROUP, BANGALORE HAD CONFIRMED THA T THE BALANCE OUTSTANDING IS ONLY 15,25,538/- AS PER THEIR BOOKS OF ACCOUNT AND NOT THE AMOUNT OF 28,94,620/-, AS CLAIMED BY THE ASSESSEE. ACCORDINGLY, THE AO LEVIED PENALTY OF 4,67,907/-. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER BEFORE T HE CIT(APPEALS). THE CIT(APPEALS) AGREED WITH THE FIN DING OF THE AO. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE LD. AR SUBMITTED THAT THE ASSESSEE HAS FILE D THE DETAILS OF RECONCILIATION BEFORE THE CIT(APPEALS) AND IN SP ITE THIS, THE CIT(APPEALS) OBSERVED THAT THE ASSESSEE HAS NOT REC ONCILED THE DIFFERENCE BETWEEN THE ASSESSEES ACCOUNTS AND ACCO UNTS OF CONFIDENT DENTAL GROUP. FURTHER, IT WAS SUBMITTED THAT THERE WAS CERTAIN DIFFERENCE IN THE SUNDRY CREDITOR, IN THE C ASE OF CONFIDENT DENTAL GROUP. IN THE CASE OF CONFIDENTIAL DENTAL G ROUP, THE RECONCILIATION WAS MADE AS FOLLOWING: B ALANCE PER LEDGER OF R.NATARAJAN ` 28,94,620 LESS: OPENING BALANCE DIFFERENCE ` 6,01,987 ` 22,92,633 ITA 3106/14 :- 5 -: ADD: SALES DEBITED TO R.NATARAJAN ACCOUNT BY SUPPLIER (TRANSACTIONS HAD DIRECT WITH ULTIMATE CUSTOMERS - COMMISSION ADMITTED BY R.NATARAJAN ` 4,70,657) 21,10,597 44,03,230 LESS: PAYMENTS MADE BY THE CUSTOMERS DIRECT 24,09,791 19,93,439 LESS: COMMISSION NET OF TDS SEPARATELY TRANSA CTED 4,22,180 ( 4,70,657 - 48,477)- ADMITTED BY APPELLANT BALANCE PER ACCOUNT COPIES OF CONFIDENT DENTAL GROUP ` 15,71,250 ========= FURTHER, THE BALANCE OUTSTANDING WAS PAID TO THE PA RTY AFTER 31.3.2008 THROUGH BANK CHANNEL AND THE EXPLANATION WAS FOUND TO BE FALSE BY THE CIT(APPEALS). FURTHER, THE LD. AR DREW OUR ATTENTION TO THE DEMAND REPORT SENT BY THE AO TO TH E FIRST APPELLATE AUTHORITY. 5. THE LD. DR SUBMITTED THAT THE ASSESSEE DURING TH E COURSE OF ASSESSMENT PROCEEDINGS EXPRESSED HIS INABILITY TO P RODUCE RECONCILIATION OF THE CREDIT BALANCES RESULTING IN TOTAL ADDITION OF ` 13,76,604/- TO THE RETURNED INCOME. IN THE CASES C ITED BY THE ASSESSEE BEFORE THE CIT(A), THE COURTS HAVE HELD TH AT INABILITY TO GIVE CORRECT NAMES OF CREDITORS SHOULD NOT NEGATE T HE REALITY OF PURCHASES. HOWEVER, IN THIS CASE. IT IS NOT THE INA BILITY OF THE ASSESSEE TO GIVE THE CORRECT NAME OF THE CREDITOR T HAT RESULTED IN ITA 3106/14 :- 6 -: THE ADDITION BUT THE FACT THAT THE CREDITORS HAD CO NFIRMED LESSER AMOUNTS TO HAVE BEEN PAYABLE BY THE ASSESSEE TO THE M THAN WHAT WAS RECORDED IN THE BOOKS OF THE ASSESSEE. FUR THER, THE RECORD ALSO DOES NOT INDICATE THAT THE ASSESSEE HAD IN ANY MANNER CONFIRMED THE FACT THAT THE GOODS PURCHASED WERE RECORDED IN HIS STOCK REGISTER AND SALES WERE MADE OUT OF SUCH STOCK. THEREFORE, THE LD. ARS ARGUMENT IS MISPLACE D. 5.1 ACCORDING TO THE LD. DR, THE FACT THAT THE TWO CREDITORS HAD CONFIRMED LESSER BALANCES THAT WHAT WAS RECORDED IN THE BOOKS OF THE ASSESSEE CLEARLY INDICATES THAT THE AMOUNT PAYA BLE TO THE CREDITORS WERE INFLATED AND THIS IS BECAUSE OF THE FACT THAT THE AMOUNT OF PURCHASES HAVE BEEN INFLATED. 5.2 THEREFORE, THE LD. DR SUBMITTED THAT THE AO WAS JUSTIFIED IN THE LEVYING OF THE PENALTY U/S 271(1)(C) OF THE I.T . ACT. ACCORDING TO THE LD. DR, THE EXPLANATION TO THE PROVISIONS OF SEC. 271(1)(C) CLEARLY STATES THAT WHERE IN RESPECT OF ANY FACTS M ATERIAL TO THE COMPUTATION OF THE TOTAL INCOME OF ANY PERSON UNDER THIS ACT, SUCH PERSON FAILS TO OFFER AN EXPLANATION OR OFFERS AN EXPLANATION WHICH IS FOUND TO BE FALSE OR SUCH PERSON OFFERS AN EXPLANATION WHICH HE IS NOT ABLE TO SUBSTANTIATE AND FAILS TO P ROVE THAT ALL THE FACTS RELATING TO THE SAME AND MATERIAL TO THE COMP UTATION OF HIS ITA 3106/14 :- 7 -: TOTAL INCOME HAVE BEEN DISCLOSED BY HIM, THEN THE A MOUNT ADDED OR DISALLOWED IN COMPUTING THE TOTAL INCOME OF SUCH PERSON AS A RESULT THEREOF SHALL, FOR THE PURPOSES OF SEC. 271( 1){C) DEEMED TO REPRESENT THE INCOME IN RESPECT OF WHICH PARTICULAR S HAVE BEEN CONCEALED. 5.3 THE LD. DR FURTHER SUBMITTED THAT THE FACTS OF THE CASE OF THE ASSESSEE IS SQUARELY COVERED BY EXPLANATION TO THE PROVISION OF SEC 271(1){C) IN AS MUCH AS THAT THE ASSESSEE WAS U NABLE TO RECONCILE AND PROVE CREDIT BALANCE STANDING IN THE BOOKS IN RESPECT OF THE TWO CREDITORS. WITH REGARD TO THE C ORRECTNESS OF THE LEVY OF THE PENALTY U/S. 271(1){C) RELIANCE IS PLACED BY THE LD. DR, ON THE JUDGMENT OF THE MADRAS HIGH COURT IN THE C ASE OF KAMAL BASHA VS DCIT (316 ITR 58), WHEREIN ON SIMILAR FACT S THE COURT HAD UPHELD LEVY OF PENALTY U/S. 271(1)(C) HOLDING THAT THE ASSESSEE HAD COME FORWARD VOLUNTARILY TO OFFER THE INCOME ONLY AFTER SCRUTINY AND QUERY HAD BEEN MADE BY THE DEPAR TMENT. RELIANCE IS ALSO PLACED ON THE JUDGMENT OF THE MADR AS HIGH COURT IN THE CASE OF CIT VS KRISHNA & CO. (MAD) 120 ITR 144, WHEREIN IT IS STATED THAT WHEN AN ASSESSEE HIMSELF HAS ADMITTE D THAT AN AMOUNT WAS HIS OWN INCOME, NO FURTHER EVIDENCE REQU IRED TO PROVE THAT THIS WAS HIS INCOME AND THAT IT WAS CONC EALED, ITA 3106/14 :- 8 -: RESULTING IN INITIATION OF PENALTY PROCEEDINGS. IT IS FURTHER SUBMITTED THAT IN THE CASE OF ANAND LIQUORS VS CIT (KER) 232 ITR 35, IT WAS HELD THAT PENALTY CAN BE LEVIED EVEN THOUGH THE ASS ESSEE HAS SUBMITTED A LETTER STATING THAT 'PENALTY MAY NOT BE LEVIED' AS IT WAS HELD THAT THERE IS NO PROVISION IN THE STATUTE WHICH PERMITS A COMPROMISE ASSESSMENT. IN VIEW OF THE ABOVE FACTS, THE LD. DR SUBMITTED THAT THE LEVY OF THE PENALTY U/S.2 71(1)(C) OF THE I.T. ACT. 1961 IN THE CASE OF THE ABOVE ASSESSEE NEEDS TO BE UPHELD. ACCORDING TO THE LD. DR RECONCILIATION STATEMENT FI LED BY THE ASSESSEE IS AN AFTER-THOUGHT AND IT CANNOT BE RELIA BLE. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. AFTER CAREFUL CONSIDERATION OF THE ABOVE SUBMISSIONS, WE ARE OF THE OPINION THAT IN THIS CASE, THE ASSESS EE HAS GIVEN AN EXPLANATION BY FURNISHING RECONCILIATION STATEMENT, WHICH IS UNPROVED BUT NOT DISPROVED I.E. IT IS NOT ACCEPTED BY THE LOWER AUTHORITIES BUT CIRCUMSTANCES DO NOT LEAD TO THE RE ASONABLE AND POSITIVE INFERENCE THAT THE ASSESSEES CASE IS FALS E, THEN PENALTY IS NOT IMPOSABLE. IN THE PRESENT CASE, THE ASSESS EE SURRENDERED BEFORE THE AO AND CONSENTED THE ADDITION AND THE EX PLANATION OF THE ASSESSEE REMAINED UNPROVED BUT IT CANNOT BE SAI D AS DISPROVED. THE PROVISIONS OF SEC.68 OF THE ACT, AR E ENABLING ITA 3106/14 :- 9 -: PROVISIONS FOR MAKING ADDITION, WHERE THE ASSESSE F AILS TO GIVE AN EXPLANATION REGARDING CASH CREDIT OR WHERE THE EXPL ANATION IS NOT TO THE SATISFACTION OF THE AO. SUCH ADDITION WOULD NOT AUTOMATICALLY JUSTIFY IMPOSITION OF PENALTY U/S.271 (1)(C) READ WITH EXPLANATION 1 THERETO. IN ORDER TO JUSTIFY PENALTY , THERE MUST BE SOME MATERIAL LEADING TO A REASONABLE CONCLUSION TH AT THE AMOUNT DOES NOT REPRESENT THE ASSESSEES INCOME AND THE CI RCUMSTANCES MUST SHOW THAT THERE WAS A CONSCIOUS ACT OF FURNISH ING OF INACCURATE PARTICULARS. FROM A BARE READING OF SE C.271(1)(C), IT IS CLEAR THAT THE PROVISIONS OF EXPLANATION 1 TO SEC.2 71(1)(C) DO NOT MAKE THE ASSESSMENT ORDER CONCLUSIVE EVIDENCE THAT THE AMOUNT ASSESSED WAS, IN FACT, THE INCOME OF THE ASSESSE A ND THAT THE ASSESSE DID NOT SATISFACTORILY EXPLAIN THE CASH CRE DITS BY PRODUCING EVIDENCE. 7. IN THE PRESENT CASE, WE OBSERVE THAT THE ASSESSE AGREED TO THE ADDITION TO AVOID FURTHER LITIGATION AND TO BUY PEACE AND INSTEAD OF OFFERING FURTHER EXPLANATION. AT THE ST AGE OF ASSESSMENT, THE ASSESSEE ACCEPTED THE ADDITION BEFO RE THE TAX AUTHORITIES AND PAID THE TAX IMPOSED BY THE AO. IN THE ABSENCE OF FURTHER APPEAL BY THE ASSESSEE TO THE CIT(APPEAL S), THAT PART OF THE ASSESSMENT HAS REACHED TO ITS FINALITY, BUT TH E ASSESSMENT ITA 3106/14 :- 10 -: ORDER IS NOT CONCLUSIVE EVIDENCE THAT THE AMOUNT AS SESSED WAS, IN FACT, THE INCOME OF THE ASSESSEE AND IT CANNOT BE PRESUMED THAT THERE WAS A CONSCIOUS ACT OF FURNISHING OF INA CCURATE PARTICULARS BY THE ASSESSEE. THE EXPLANATION GIVEN BY THE ASSESSE IN FORM OF RECONCILIATION STATEMENT, AT THE STAGE OF APPELLATE ORDER IS A REASONABLE ONE, WHICH IS NOT D ISPUTED BY THE DEPARTMENT. IN OUR OPINION, THE PENALTY CANNOT BE LEVIED ON ACCOUNT OF CERTAIN DISCREPANCIES FOUND IN THE BOOKS OF ACCOUNT OF THE ASSESSEE AND THE ENTRIES MADE BY THE THIRD PART Y IN THEIR ACCOUNTS. ACCORDINGLY, THE EXPLANATION OFFERED BY THE ASSESSEE TOWARDS DISCREPANCIES FOUND IN THE BOOKS OF ACCOUNT HAS TO BE ACCEPTED AS GENUINE. IN VIEW OF THE ABOVE, WE ARE INCLINED TO DELETE THE PENALTY AND ALLOW THE APPEAL OF THE ASSE SSEE. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED ON FRIDAY, THE 6 TH DAY OF NOV., 2015 , AT CHENNAI. SD/- SD/- ( ' . . ' . #$ ) ( % & ' ( ) ) N.R.S.GANESAN * )+,-./0-1223-04* 5 67 /JUDICIAL MEMBER 6789::2;.<-.<=>?@>0 %5 /CHENNAI, A6 /DATED, THE 6 TH NOV., 2015. MPO* ITA 3106/14 :- 11 -: 6$ BCDC /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. E)* /CIT(A) 4. E /CIT 5. CF# G /DR 6. #HI /GF.