PRABODH J. KOTHARI, MUMBAI V. ACIT CEN CIR 9,

ITA 5932/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 101232 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-10-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 07-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PREMANAND J
• Keywords: Bogus purchase; Search and seizure; Peak credit; Revised return
• Section: 143(3); 133A; 6; 12; 2; 92; 11

Judgement Text

SHRI PRABODH J KOTHARI ITA S 5 9 2 6 TO 5932 /M/ 20 1 3 1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C , MUMBAI , , BEFORE SHRI G S PANNU , ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDICIAL MEMBER ITA NO. : 5926 /MUM/20 13 (ASSESSMENT YEAR :2002 - 03) ITA NO. : 592 7 /MUM/20 13 (ASSESSMENT YEAR :2003 - 04) ITA NO. : 592 8 /MUM/20 13 (ASSESSMENT YEAR :2004 - 05) ITA NO. : 592 9 /MUM/20 13 (ASSESSMENT YEAR :2005 - 06) ITA NO. : 59 30 /MUM/20 13 (ASSESSMENT YEAR : 2006 - 07) ITA NO. : 59 31 /MUM/20 13 (ASSESSMENT YEAR :2007 - 08) ITA NO. : 59 32 /MUM/20 13 (ASSESSMENT YEAR :2008 - 09) SHRI PRABODH J KOTHARI , PLOT NO. 18, NUTAN LAXMI SOCIETY PRASAD BUILDING, 1 ST FLOOR, N S ROAD NO. 9, JVPD SCHEME, VILE PARLE (WEST), MUMBAI 40 0 049 .: PAN: AA BPK 0845 M VS A CIT CENTRAL CIRCLE - 9 , AAYAKAR BHAVAN, M K ROAD, MUMBAI - 400 020 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI V I JAY MEHTA & SHRI GOVIND JAVERI RESPON DENT BY : SHRI PREMANAND J /DATE OF HEARING : 0 7 - 0 7 - 201 5 / DATE OF PRONOUNCEMENT : 05 - 10 - 201 5 ORDER , . . : PER AMIT SHUKLA, J M : THE A FORESAID APPEALS HAVE FILED BY THE ASSESSEE A GAINST IMPUGNED COMMON ORDER DATED 26.07.2013 PASSED BY CIT(A) - 37 , IN RELATION TO THE PENALTY PROCEEDINGS U/S 271(1)(C) FOR THE AYS SHRI PRABODH J KOTHARI ITA S 5 9 2 6 TO 5932 /M/ 20 1 3 2 2002 - 03; 2003 - 04; 2004 - 05; 2005 - 06; 2006 - 07; 2007 - 08 AND 2008 - 09. SINCE THE ISSUE INVOLVED IN ALL THE APPEALS ARE COMMON A RISING OUT OF IDENTICAL SET OF FACTS THEREFORE, THEY WE RE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY WAY OF THIS CONSOLIDATED ORDER. THE DETAILS OF PENALTY LEVIED IN VARIOUS ASSESSMENT YEARS ARE AS UNDER : ASSESSMENT YEAR PENALTY LEVIED 2002 - 03 6,97,007 2003 - 04 9,81,949 2004 - 05 3,01,363 2005 - 06 4,34,875 2006 - 07 3,89,900 2007 - 08 97,121 2008 - 09 11,91,321 2. BRIEF FAC TS OF THE CASE ARE THAT , ASSESSEE IS A PARTNER IN VARIOUS CONCERNS OF KOTHARI GROUP , WHICH IS MAINLY ENGAGED IN THE BUSINESS OF CHEMICALS AND OTHER ALLIED PRODUCTS. FOR ALL THE ASSESSMENT YEARS IN QUESTION, THE ASSESSEE HAD FILED ITS RETURN OF INCOME U/S 1 39(1) , THAT IS ON RESPECTIVE DUE DATES. A SEARCH AND SEIZURE ACTION WAS CARRIED OUT IN THE CASE OF A DIFFERENT PERSON, SHRI JITENDRA DOSHI AND HIS ASSOCIATES / CONCERNS ON 26.07.2007. DURING THE COURSE OF SUCH SEARCH & SEIZURE ACTION, IT WAS FOUND THAT , SH RI JITENDRA DOSHI AND H IS GROUP WAS ENGAGED IN ISSUING ACCOMMODATION BILLS TO VARIOUS PARTIES, INCLUDING THE ASSESSEE AND HIS GROUP CONCERN S . IN PURSUANCE OF SUCH AN INFORMATION AND MATERIAL, SUMMON U/S 131 WAS ISSUED TO THE ASSESSEE BY THE INVESTIGATION W ING AND ALSO SIMULTANEOUS S URVEY ACTION U/S 133A WAS CARRIED OUT AT THE BUSINESS PREMISES OF KOTHARI TRADING COMPANY AND OTHER CONCERNS. DURING THE COURSE OF SURVEY, SHRI BHARAT KOTHARI, BROTHER OF THE ASSESSEE AND ONE OF THE PARTNERS OF KOTHARI GROUP MADE A STATEMENT AND SUBMITTED A LETTER DATED 26.12.2007, WHEREIN IT WAS CATEGORICALLY ADMITTED THAT THE ASSESSEE AND HIS GROUP HAD OBTAINED BOGUS PURCHASE BILLS FROM JITENDRA DOSHI GROUP TO THE TUNE OF RS. 35 CRORES , IN VARIOUS ASSESSMENT YEARS. THE MODUS OP ERANDI OF THE KOTHARI GROUP FIRMS SHRI PRABODH J KOTHARI ITA S 5 9 2 6 TO 5932 /M/ 20 1 3 3 USED TO BE THAT, IT PURCHASE S CERTAIN GOODS FROM GREY MARKET IN CASH FROM VARIOUS SUPPLIERS AND THE SE PURCHASES WERE REGULARIZED IN THE BOOKS OF ACCOUNTS BY GETTING ACCOMMODATION BILLS FROM JITENDRA DOSHI AND HIS GROUP AND PAYING CHEQUE TO THEM. THE CHEQUE AMOUNT WAS THEN RETURNED BACK IN CASH. ASSESSEE AFTER ADMITTING THIS FACT GAVE A DETAILED WORKING OF PEAK INVESTMENT FOR EACH YEAR IN RESPECT OF PURCHASES OF GOODS F ROM THE GREY MARKET . IN SUCH WORKING, THE ASSESSEE COMPU TED THE PEAK INVESTMENT DURING THE SIX ASSESSMENT YEARS AT RS. 4,57,27,182/ - , WHICH WAS OFFERED AS UNDISCLOSED INCOME IN THE HANDS OF SHRI BHARAT KOTHARI (RS. 40,96,841/ - ) ; ASSESSEE (RS. 2,14,52,862/ - ) ; AND SHRI KEKI J VAKIL (RS. 2,01,77,182/ - ) . NOW IN WAK E OF SUCH A N OFFER, THE AFORESAID THREE PERSONS REVISED THEIR RETURN OF INCOME ON 27.03.2008 AND 29.04.208 FOR VARIOUS ASSESSMENT YEARS, WHEREIN INCOME OFFERED ON PEAK BASIS WAS DECLARED AND ADDITIONAL TAXES WERE PAID FOR IN THE MONTH OF MARCH, 2008. SUCH REVISED RETURNS FOR AY 2002 - 03 TO 2006 - 07 WERE BEYOND THE STATUTORY TIME LIMIT OF SECTION 139(5). LA TER ON , NOTICE S U/S 153C WAS ISSUED TO THE ASSESSEE ON 04.09.2009 AND IN COMPLIANCE THEREOF, THE ASSESSEE FILED HIS RETURN OF INCOME ON 23.09.2009 , DECLARIN G SAME INCOME AS WAS SHOWN IN THE REVISED RETURN OF INCOME. THEREAFTER, THE AO COMPLETED THE ASSESSMENT U/S 143(3) R.W.S. 153C AFTER MAKING THE FOLLOWING ADDITIONS : - AY ESTIMATION OF DISALLOW ANCE BY AO AFTER APPLYING GP RATE OF 25% ON PURCHASES MADE F ROM GREY MARKET IN CASH RS. PEAK OFFERED BY BY THE ASSESSEE RS. NET ADDITION MADE RS. 02 - 03 22,77,801 --- 03 - 04 34,78,894 25,49,253 9,29,641 04 - 05 25,37,244 6,19,872 19,17,372 05 - 06 52,71,013 7,91,765 44,79,248 06 - 07 82,94,354 30,62,508 52,31,846 07 - 08 1,20,79,823 1,08,76,281 12,03,542 08 - 09 35,71,614 ------- 35,71,614 3,52,32,942 2,01,77 ,480 1,73,33,263 THUS, THE ADDITION MADE BY THE AO IN THE ASSESSMENT ORDER WAS BY WAY OF ESTIMATING THE GROSS PROFIT @ 25% ON GREY MARKET SHRI PRABODH J KOTHARI ITA S 5 9 2 6 TO 5932 /M/ 20 1 3 4 PURCHASE MADE IN CASH ON THE GROUND THAT IT WILL COVER THE HIGHER PROFIT FROM SUCH TRANSACTION . THE LD. AO HOWEVER TELESCOPED THE PEAK CREDIT OFFERED BY THE ASSESSEE IN THE VARIOUS YEARS , THAT IS, THE INCOME OFFERED BY THE ASSESSEE WAS SUBSUMED IN THE GP ADDITION. 3. IN THE FIRST APPEAL, THE LD. CIT(A) AFTER DETAILED DISCUSSION, HELD THAT 2% OF THE GP RATE ON GREY MARKET PURCHASES WOULD MEET THE END OF JUSTICE. HOWEVER, FROM SUCH AN ADDITION, HE DID NOT GIVE TELESCOPIC EFFECT OF PEAK CREDIT OF INVESTMENT AND CONFIRM ED THE DISCLOSURE OF RS. 2,14,52,862/ - ON ACCOUNT OF PEAK INVESTMENT O N GREY MARKET PU RCHASES. IN OTHER WORDS, THE LD. CIT(A), FIRSTLY, PARTLY CONFIRMED THE ADDITION ON ACCOUNT OF GP RATE OF 2% ON ALLEGED BOGUS PURCHASES, AND SECONDLY, RESTOR ED THE PEAK INVESTMENT AS DECLARED BY THE ASSESSEE. SINCE , THERE WAS NO GP ADDITION MADE BY THE AO I N ASSESSMENT YEAR 2002 - 03, THEREFORE, ONLY THE PEAK INVESTMENT OFFERED BY THE ASSESSEE AT RS. 22,77,801/ - STOOD CONFIRMED. HOWEVER, THE LD. CIT(A) VIDE PARA 3.2.8 MADE VERY IMPORTANT OBSERVATION AFTER CONSIDERING ALL THE FACTS , WHICH ARE VERY RELEVANT : - THE APPELLANT'S GROUP CONCERNS HAS REGULARLY MAINTAINED AND TAX AUDITED ITS BOOKS OF ACCOUNTS AND NO IRREGULARITY IS POINTED IN THE ASSESSMENT. THE REQUISITE DETAILS OF PURCHASES ARE FURNISHED. THE RELEVANT MATERIALS SHOWING DETAILS OF PURCHASE OF MATERI ALS AND ITS USE IN TRADING IS FURNISHED AND ACCEPTED BY THE LD. ASSESSING OFFICER. 2. THE BOOKS OF ACCOUNTS HAVE NOT BEEN REJECTED. THE BOOK RESULTS HAVE NOT BEEN ATTRIBUTED BY THE LD. ASSESSING OFFICER. THE ASSESSING OFFICER HAS NOT BROUGHT ANY POSITIV E MATERIAL ON RECORD TO PROVE THE FALSITY OF THE ENTRIES IN THE BOOKS OF ACCOUNTS. 3. NO ENQUIRY WAS CONDUCTED TO PROVE CONTRARY THAT THE MATERIALS WERE NOT RECEIVED BY THE APPELLANT. 4. NO MATERIAL EVIDENCE WAS FOUND NOR SEIZED FROM THE APPELLANT'S PRE MISES IN THE SURVEYS CONDUCTED ON 29/7/2003 SHRI PRABODH J KOTHARI ITA S 5 9 2 6 TO 5932 /M/ 20 1 3 5 IN WHICH APPELLANT'S ALL BUSINESS, OFFICE, FACTORY PREMISES WERE COVERED BY THE INCOME TAX AUTHORITIES BUT OF NO AVAIL. 5. THE G.P. RATE SHOWN BY THE APPELLANT'S GROUP CONCERNS WAS REASONABLE OR ABOVE THE MARKET RATE AND NO REASONS CITED BY THE LD. ASSESSING OFFICER TO ESTIMATE HIGHER AND MORE THAN FORTY PERCENT G.P. RATE WHICH IS UNREASONABLE AND ARBITRARY. BOOKS OF ACCOUNTS HAVE NOT BEEN REJECTED. 6. IN CASE THE PURCHASE OF RAW MATERIAL ARE TREATED AS BOGUS TH EN IT IS IMPOSSIBLE TO PRODUCE 'ALPENO' PRODUCTS USED FOR SIZING OF YARNS AND WHICH IS SOLD BY THE APPELLANT OUT OF MAIZE STARCH AND BINDER, COLOURS, DYES AND PRESERVATIVES IN A PRE - CALCULATED RATIO. THE APPELLANT HAS PAID PRESCRIBED SALES TAX AND VAT AND, OTHER DUTIES AND EVEN INCOME - TAX ON SUCH PRODUCTION AND SALES. SALES TAX ASSESSMENT ORDERS ACCEPTING SALES AND PURCHASES HAS NOT BEEN DISPUTED BY THE LD. ASSESSING OFFICER. 4. IN THE SECOND APPEAL, THE TRIBUNAL VIDE ORDER DATED 28.12.2011 PASSED IN BUN CH OF GROUP CASES INCLUDING THAT OF THE ASSESSEE, UPH E LD THE GP ADDITION OF 2% OF PROFIT ON GREY MARKET PURCHASE TRANSACTION, I.E. THE FIRST LIMB OF ADDITION MADE BY CIT(A), HOWEVER, GAVE SET OFF OF TELESCOPING THE PEAK OF AMOUNT ON INVESTMENT DECLARED BY THE ASSESSEE FROM SUCH GP ADDITION . THE RELEVANT CONCLUSION OF THE TRIBUNAL ARE AS UNDER : - 17. AFTER GIVING OUR ANXIOUS CONSIDERATION TO THE ENTIRETY OF THE FACTS WE ARE OF THE OPINION THAT THE ORDERS OF THE LD. CIT (A) NEED TO BE UPHELD RESTRICTING G.P . ADDITION TO 2%. WE, ACCORDINGLY, CONFIRM THE ORDERS OF THE LD. CIT (A) IN ALL THESE THREE ASSESSEES BEFORE US AND ACCORDINGLY GROUND NO.1 IN ALL THE ASSESSEES APPEAL IS DISMISSED AND ALL THE GROUNDS IN THE REVENUES APPEALS ARE ALSO DISMISSED. 19. TH E LD. COUNSEL SUBMITS THAT THE BENEFIT OF THE TELESCOPING MAY BE GIVEN TO ASSESSE E S, AS ADMITTEDLY, THE SHRI PRABODH J KOTHARI ITA S 5 9 2 6 TO 5932 /M/ 20 1 3 6 EXTRA PROFIT GENERATED WAS USED FOR THE PURPOSE OF THE INVESTMENT FOR BUYING MATERIAL/GOODS IN THE GREY MARKET. HE SUBMITS THAT THE A.O. HIMSELF HAS ADM ITTED THIS FACTUAL POSITION AND HENCE, HAS GIVEN THE BENEFIT OF TELESCOPING TO THE ASSESSEES AND ON THE SAME LINE, IF THE GP ADDITION IS SUSTAINED THEN TO THAT EXTENT THE PEAK AMOUNT MAY BE REDUCED. 20 IN OUR OPINION, WE HAVE TO ACCEPT ALTERNATE PLEA O F THE ASSESSEES AS ADMITTEDLY IT IS ALSO ACCEPTED BY THE A.O. THAT PROFIT GENERATED FROM GREY MARKET TRANSACTIONS IS USED IN FURTHER TRANSACTIONS IN GREY MARKET FOR MAKING PURCHASES. WE, THEREFORE, ALLOW ALTERNATE PLEA OF THE ASSESSES AND DIRECT THE A.O. T HAT TO THE EXTENT OF 2% ADDITION TOWARDS GREY MARKET TRANSACTIONS, BENEFIT OF TELESCOPING OR SET OFF SHOULD BE GIVEN IN IMMEDIATE NEXT YEAR FROM THE PEAK OF AMOUNTS DECLARED BY THESE ASSESSEES. FOR EXAMPLE, ADDITION OF 2% OF PROFIT/BENEFIT TOWARDS GREY MA RKET TRANSACTIONS SUSTAINED IN A.Y. 2002 - 03, SHOULD BE SET OFF IN IMMEDIATE NEXT A.Y. 2003 - 04 FROM PEAK OF AMOUNTS OFFERED BY THE ASSESSEES AND LIKE WISE IN ALL OTHER YEARS. ACCORDINGLY, GROUND NO.2 IN ALL ASSESSES APPEALS IS PARTLY ALLOWED. ACC ORDIN GLY, ADDITION SUSTAINED FROM AYS 2003 - 04 TO 2008 - 09 WAS ON ACCOUNT OF GP ADDITION OF 2% OF THE ALLEGED CASH PURCHASES AND FOR AY 2002 - 03 THE PEAK INVESTMENT AMOUNT OF RS. 22,77,801/ - . NOW PENALTY HAS BEEN LEVIED AND CONFIRMED ON THE ADDITIONS SUSTAINED BY THE TRIBUNAL. 5. IN THE PENALTY PROCEEDINGS, THE ASSESSEE G A VE DETAILED SUBMISSIONS AS TO WHY THE PENALTY CANNOT BE LEVIED, THE RELEVANT SUBMISSIONS HAVE BEEN INCORPORATED BY THE AO AT PARA 5 OF THE PENALTY ORDER. HOWEVER, THE LD. AO INVOKED THE PROVISIO N OF EXPLANATION 5A TO SECTION 271(1)(C) AND HELD THAT IT IS A CASE OF DEEMED CONCEALMENT OF INCOME. HIS MAIN REASON FOR CONFIRMING SHRI PRABODH J KOTHARI ITA S 5 9 2 6 TO 5932 /M/ 20 1 3 7 THE PENALTY WAS THAT PEAK AMOUNT IN RESPECT OF INVESTME NT IN THE GREY MARKET PURCHASES WAS OFFERED BY THE ASSESSEE ONLY WH EN SEARCH AND SEIZURE ACTION WAS CARRIED OUT IN THE CASE OF JITENDRA DOSHI GROUP AND KOTHARI GROUP. THUS IT WAS NOT SUO MOTU OFFER OR VOLUNTARY DISCLOSURE BUT WHEN ASSESSEE WAS CONFRONTED WITH THE ADVERSE MATERIAL AND WAS CALLED UPON AND ; SECONDLY, IF SUCH AN ACTION WOULD NOT HAVE BEEN TAKEN, THE ASSESSEE WOULD NOT HAVE SHOWN SUCH AN INCOME AT ALL. A CCORDINGLY, HE LEVIED 100% PENALTY ON THE INCOME SEIZED. 6. BEFORE THE CIT(A), VERY EXHAUSTIVE SUBMISSIONS WERE MADE INCLUDING THE CONTENTION THAT E XPLANATION 5A CANNOT BE HELD TO BE APPLICABLE AT ALL IN THIS CASE AND ALSO ON THE MAIN PROVISION OF SECTION 271(1)(C) . THE ASSESSEES DETAILED SUBMISSIONS HAVE BEEN INCORPORATED BY THE CIT(A) FROM PAGES 7 TO 15 OF THE APPELLATE ORDER. 7. THE LD. CIT(A) HELD THAT, THE AO HAS NOT INVOKED E XPLANATION 5A AND NOWHERE IN THE PENALTY ORDER THE AO HAS STATED THAT PENALTY IS BEING LEVIED UNDER EXPLANATION 5A. IT WAS MAINLY REFERRED BY THE AO ONLY TO REBUT THE PLEA OF THE ASSESSEE REGARDING REVISED RETURNS FILED SUO MOTU . L D. CIT(A), HOWEVER, HELD THAT REVISED RETURN FILED BY THE ASSESSEE W ERE NOT SUO MOTU OR VOLUNTARY BUT INCOME WAS OFFERED ONLY IN THE FACE OF DIRECT EVIDENCE FOUND DURING THE SEARCH IN THE CASE OF SHRI DOSHI AND INABILITY OF THE ASSESSEE TO ESTABLISH THE G ENUINENESS OF THE PURCHASE FROM THE DOSHI GROUP. AFTER DETAILED DISCUSSION AND REFERRING TO VARIOUS CASE LAWS, HE CONFIRMED THE PENALTY FOR THE AY 2002 - 03 AND ALSO FOR ALL THE ASSESSMENT YEAR S FROM 2003 - 04 TO 2008 - 09. REGARDING ASSESSEES PLEA THAT, ULT IMATELY , THE ADDITION HAS BEEN MADE ON ESTIMATED PROFIT THEREFORE, NO PENALTY SHOULD BE LEVIED, LD. CIT(A) HELD THAT THERE IS NO GENERAL PRINCIPLE THAT NO PENALTY CAN BE LEVIED WHERE INCOME IS ASSESSED ON ESTIMATE BASIS AND IN SUPPORT OF THE SAME, HE REFER RED TO VARIOUS JUDICIAL AUTHORITIES IN PARA 10.5 OF THE ORDER. SHRI PRABODH J KOTHARI ITA S 5 9 2 6 TO 5932 /M/ 20 1 3 8 8 . BEFORE US, LD. COUNSEL , SHRI VIJAY MEHTA SUBMITTED THAT ASSESSEE HAS REFLECTED ALL PURCHASES IN THE BOOKS OF ACCOUNTS BUT INSTEAD OF MAKING FROM PARTY A IT HAS MADE FROM PARTY B . I N ASS ESSEES LINE OF TRADE, IDENTITY OF SUPPLIERS AND CUSTOMERS ARE NOT DISCLOSED BECAUSE THEY MOSTLY SELL IN GREY, I.E. IN CASH THEREFORE, THE ASSESSEE WAS REQUIRED TO PROCURE THE GOODS FROM GREY MARKET AND THEREAFTER SAME WAS REGULARIZED BY TAKING ACCOMMODATI ON BILLS. FURTHER, THE ASSESSEE HAS OFFERED NEGATIVE PEAK OF INVESTMENT WHICH WAS NOT BASED ON ANY EVIDENCE ALBEIT WAS TAXED ON VARIOUS ASS UMP T IONS, LIKE ASSESSEE DID NOT HAD ANY CREDIT PERIOD AND THE CASH PAYMENTS WERE MADE ON THE SAME DAY AND OTHER FACTO RS WHICH ARE OTHERWISE NOT CORRECT . THE ENTIRE DECLARATION WAS MADE TO BUY PEACE AND WAS ON VOLUNTARY BASIS WITHOUT ANY IOTA OF EVIDENCE FOUND AT THE TIME OF SURVEY TH A T ASSESSEE HAS MADE ANY UNDISCLOSED CASH INVESTMENT FOR PURCHASES . FURTHER, THE ADDITION HAS BEEN SUSTAINED FROM THE STAGE OF THE TRIBUNAL BY APPLYING GP RATE OF 2% ON THE CASH PURCHASES AND THE ENTIRE PEAK INVESTMENT FROM 2003 - 04 ONWARDS HAVE BEEN TELESCOPED FROM SUCH ADDITION. THUS, NO PENALTY CAN BE LEVIED ON SUCH AN ESTIMATED INCOME. ON T HE ISSUE OF DEEMED PENALTY UNDER E XPLANATION 5A, HE SUBMITTED THE SAME CAN NOT BE HELD TO BE APPLICABLE, FIRSTLY, THE LD. CIT(A) HIMSELF HAS CLARIFIED THAT E XPLANATION 5A HAS NOT BEEN INVOKED BY THE AO; SECONDLY, E XPLANATION 5A WILL APPLY WHERE THERE IS A S EARCH IN CASE OF A PERSON, HERE IN THIS CASE THERE WAS NO SEARCH IN CASE OF ASSESSEE AS T HE PROCEEDINGS HAVE BEEN INITIATED U/S 153C . L ASTLY, HE SUBMITTED THAT THE INVESTMENTS WERE DISCLOSED IN THE HANDS OF VARIOUS CONCERNS AND IF ANY GP ADDITION IS CALLED FOR, THEN SAME SHOULD HAVE BEEN MADE IN THE HANDS OF THE CONCERNS AND NOT IN THE CASE OF THE ASSESSEE. S UCH A PLEA CAN BE RAISED DURING THE COURSE OF PENALTY PROCEEDINGS, BEING SEPARATE FROM ASSESSMENT PROCEEDINGS. THE DETAILS OF THESE CONCERNS ARE AL READY THERE IN THE RECORDS ( WHICH IS EVIDENT FROM PAGE 9 OF THE CIT(A)S ORDER IN THE QUANTUM PROCEEDINGS ) . THESE CONCERNS WERE, M/S S KOTHARI CHEMICALS INDUSTRIES; M/S ABR INDUSTRIES; M/S BHARAT COMMERCIAL AND SHRI PRABODH J KOTHARI ITA S 5 9 2 6 TO 5932 /M/ 20 1 3 9 COMPANY; M/S EMPIRE DYCHEM ; AND M/S D R DYCHE M INDUSTRIES PVT LTD. IN SUPPORT OF HIS CONTENTION THAT PENALTY CANNOT BE INVOKED WHEN ASSESSMENT HAS BEEN FINALIZED ON ESTIMATE BASIS, HE RELIED UPON VARIOUS DECISIONS, THE COMPILATION OF WHICH HAVE BEEN FILED SEPARATELY, WHICH INCLUDES DECISION OF DELHI HIGH COURT IN THE CASE OF CIT VS SAS PHARMACEUTICALS [2011] 3 35 ITR 359. 9 . ON THE OTHER HAND THE LD. DR SUBMITTED THAT , AO HAS GIVEN VERY ELABORATE REASONS FOR LEVY OF PENALTY , NOT ONLY UNDER THE D EEMING PROVISIONS OF EXPLANATION 5A BUT ALSO UNDER THE M AIN PROVISION OF SECTION 271(1)(C) . THE ASSESSEE HAS DECLARED THE PEAK INVESTMENT ONLY WHEN IT WAS FOUND DURING THE COURSE OF SEARCH IN THE CASE OF JITENDRA DOSHI GROUP THAT ASSESSEE WAS ENGAGED IN GETTING ACCOMMODATION BILL FROM THEM, THUS INCOME WHICH HA S BEEN OFFERED BY THE ASSESSEE WAS NOT VOLUNTARILY OR SUO MOTU BUT ONLY WHEN MATERIAL AND INFORMATION WAS GATHERED AND CONFRONTED TO THE ASSESSEE. HENCE PENALTY U/S 271(1)(C) HAS RIGHTLY BEEN CONFIRMED. HE THUS STRONGLY RELIED UPON THE ORDER OF THE CIT(A) AND ALSO THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. SUDH ARSHAN SILKS A ND SAREES, REPORTED IN 253 ITR 145 (KARNATAKA). 1 0 . WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE RELEVANT MATERIAL ON RECORD AND ALSO THE FINDING GIVEN IN THE IMPUGNED ORDERS. THE ASSESSEE AND HIS GROUP CONCERNS WERE ENGAGED MOSTLY IN THE BUSINESS OF TRADING IN CHEMICALS. IN THE COURSE OF SEARCH AND SEIZURE ACTION IN THE CASE OF JITENDRA JOSHI GROUP, IT WAS GATHERED THAT ASSESSEE AND HIS GROUP CONCERNS WERE PROCURING ACCOMMODATION BILLS FOR THE PURCHASE OF CHEMICALS/MATERIALS. THE MODUS OPERANDI BEING THAT, ASSESSEE USED TO PURCHASE MATERIALS IN CASH FROM THE GREY MARKET FROM VARIOUS SUPPLIERS AND TO REGULARIZE SUCH PURCHASES IN THE BOOKS OF ACCOUNT, THE ASSE SSEE USED TO PROCURE ACCOMMODATION PURCHASE BILLS FROM JITENDRA DOSHI GROUP BY PAYING THE PURCHASE AMOUNT THROUGH ACCOUNT PAYEE CHEQUES. IN TURN, JITENDRA DOSHI AND HIS GROUP CONCERNS PAY BACK THE SHRI PRABODH J KOTHARI ITA S 5 9 2 6 TO 5932 /M/ 20 1 3 10 AMOUNT IN CASH TO THE ASSESSEE WHICH AGAIN WAS USED TO MAKE THE PAYMENTS FOR PURCHASES. WHEN CONFRONTED WITH SUCH AN INFORMATION AND SIMULTANEOUS SURVEY ACTION, THE ASSESSEE OFFERED FOR SURRENDERING OF ADDITIONAL INCOME IN FORM OF CASH INVESTMENT AFTER WORKING OUT THE PEAK INVESTMENT IN RESPECT OF PURCHASES MADE F ROM THE GREY MARKET FOR EACH YEAR, THE DETAILS OF WHICH HAVE BEEN INCORPORATED ABOVE. SUCH AN OFFER FOR ADDITIONAL INCOME WAS MADE THROUGH REVISED RETURN FOR ALL THE ASSESSMENT YEARS IN QUESTION, EXCEPT FOR THE FACT THAT FOR THE ASSESSMENT YEAR 2002 - 03 TO ASSESSMENT YEAR 2006 - 07, THE REVISED RETURNS WERE NOT VALID AS IT WAS BEYOND THE STATUTORY TIME LIMIT OF 139(5). THESE REVISED RETURNS WERE LATER ON REITERATED IN THE RETURN FILED IN RESPONSE TO NOTICE U/S 153C. IN THE ASSESSMENT ORDER, THE ADDITION WAS N OT MADE ON ACCOUNT OF PEAK INVESTMENT OFFERED BY THE ASSESSEE BUT , BY ESTIMATING THE GROSS PROFIT @ 25% ON THE ALLEGED CASH PURCHASES MADE IN THE IMPUGNED ASSESSMENT YEARS FROM THE GREY MARKET. THE AO TELESCOPED THE PEAK INVESTMENT OFFERED BY THE ASSESSEE FROM THE GP ADDITION, I.E., THE ADDITION WAS RESTRICTED TO GP ADDITION. HOWEVER SO FAR AS AY 2002 - 03 IS CONCERNED, THE ADDITION WAS SUSTAINED AT RS. 22,77,807/ - , WHICH WAS THE AMOUNT DECLARED AND OFFERED BY THE ASSESSEE IN THE RETURN OF INCOME ON ACCOUNT OF PEAK INVESTMENT. AS DISCUSSED ABOVE, NOW FOR THE ASSESSMENT YEARS 2003 - 04 TO 2008 - 09, THE ADDITION HAS BEEN RESTRICTED TO 2% OF GROSS PROFIT ON ALLEGED CASH PURCHASED FROM THE GREY MARKET, FROM THE STAGE OF THE TRIBUNAL. THE ENTIRE PEAK INVESTMENT HAS B EEN TELESCOPED FROM SUCH A GP ADDITION BARRING FOR AY 2002 - 03. IN OTHER WORDS, AS A RESULT OF ITAT ORDER, FROM ASSESSMENT YEAR 2003 - 04 TO ASSESSMENT YEAR 2008 - 09, THE ADDITION SUSTAINED IS ONLY ON ACCOUNT OF GROSS PROFIT OF 2% ON CASH PURCHASES, WHEREAS FO R THE AY 2002 - 03, THE ADDITION STANDS ON ACCOUNT OF PEAK INVESTMENT OF RS. 22,77,804/ - . 1 1 . NOW, UNDER THESE FACTS AND CIRCUMSTANCES, WE HAVE TO EXAMINE, WHETHER PENALTY FOR CONCEALMENT OF INCOME CAN BE LEVIED SHRI PRABODH J KOTHARI ITA S 5 9 2 6 TO 5932 /M/ 20 1 3 11 U/S 271(1)(C) OR NOT. SO FAR AS ISSUE OF EXP LANATION 5A TO SECTION 271(1)(C), THE SAME IS NOT IN DISPUTE BEFORE US, AS THE LD. CIT(A) HAS CLARIFIED THAT EXPLANATION 5A WAS NOT INVOKED BY THE AO BUT WAS RESORTED TO REBUT THE ASSESSEES EXPLANATION. EVEN BEFORE US, IT IS NOT THE CASE OF THE REVENUE TH AT EXPLANATION 5A IS TO BE INVOKED, THEREFORE, THE PENALTY PROVISIONS ARE TO BE SEEN UNDER THE MAIN PROVISION OF SECTION 271(1)(C). 1 2 . SO FAR AS THE ASSESSMENT YEAR 2002 - 03 IS CONCERNED, THE PENALTY HAS BEEN LEVIED ON THE GROUND OF SURRENDER OF PEAK I NVESTMENT MADE BY THE ASSESSEE ON CASH PURCHASE S IN THE RETURN OF INCOME FILED IN RESPONSE TO NOTICE U/S 153C. FROM THE FACTS AS DISCUSSED ABOVE, IT IS QUITE CLEAR THAT THE ASSESSEE WAS FOUND TO BE ENGAGED IN MAKING CASH PURCHASES OF CHEMICALS AND MATERIAL S FROM THE GREY MARKET AND TO REGULARIZE THE SAME, HE WAS INVOLVED IN GETTING THE ACCOMMODATION BILLS FROM JITENDRA DOSHI GROUP. IT IS ALSO TRUE THAT SUCH MODUS OPERANDI OF REGULARIZING CASH PURCHASE, WOULD NOT HAVE SURFACED, HAD THERE NOT BEEN ANY SEARCH OR SURVEY ACTION. BUT IT IS EQUALLY BORNE OUT FROM THE RECORD, THAT NOTHING WAS FOUND THAT ASSESSEE WAS MAKING THE PURCHASES FROM THE SOURCES OUTSIDE THE BOOKS OF ACCOUNT. AT THE TIME OF SURRENDERING THE PEAK INVESTMENT, THE ASSESSEE VIDE LETTER DATED 11.0 3.2008 HAD STATED AS UNDER : I WOULD LIKE TO MENTION HERE THAT TO KEEP THE IDENTITY OF OUR SUPPLIERS AND OU R CUSTOMERS BOTH, SECRET, WE NEED TO PROCURE THE GOODS FROM GREY MARKET AND THEREAFTER THE SAME WAS REGULARIZED BY TAKING ACCOMMODATION BILL FROM S HRI JITENDRA DOSHI AND HIS GROUP. WE HAD FROM TIME TO TIME MADE CHEQUE PAYMENT TO SHRI JITENDRA DOSHI AND HIS CONCERNS AND IN RETURN WE HAD RECEIVED CASH FROM HIM WHICH WAS UTILIZED FOR MAKING THE PURCHASES. FURTHER, THERE WAS SUBSTANTIAL DISCOUNTS IF THE GOODS WERE PURCHASED IN CASH AND THE ABOVE SYSTEM WAS FOLLOWED SINCE MANY YEARS DUE TO THE BUSINESS EXPEDIENCY SHRI PRABODH J KOTHARI ITA S 5 9 2 6 TO 5932 /M/ 20 1 3 12 AND OTHER RELEVANT FACTORS IN THE INTEREST OF THE BUSINESS. WE WOULD HAVE TO LOST MAJOR CLIENTS , I F THIS SYSTEM IS NOT ADHERE TO. THE SAID SYSTEM WAS CARRIED OUT REGULARLY AND DUE TO PASSAGES OF TIME, WE WERE ALSO GETTING CREDIT FROM THE SUPPLIERS IN THE GREY MARKET AND THEY WERE PAID AS AND WHEN CASH WAS RECEIVED FROM SHRI JITENDERA DOSHI. HOWEVER, SINCE WE DO NOT HAVE ANY CONCRETE EVIDENCE TO PRO VE THE SAME AND FURTHER IN ORDER TO BUY MENTAL PEACE AND TO AVOID PROLONGED LITIGATI O N WE HAD OFFERED THE PEAK OF INVESTMENTS IN THE HANDS OF VARIOUS PARTNERS/PERSONS FOR THE VARIOUS ASSESSMENT YEARS, SINCE THE ACTIVITY OF PURCHASE IN GREY MARKET WAS DONE BY PERSONS IN THEIR INDIVIDUAL CAPACITY, THE SAME MAY BE TREATED AS INTRODUCTION OF CAPITAL BY THE ABOVE PERSONS IN THE RESPECTIVE FIRMS. OTHER THAN THE ASSESSEES WORKING OF PEAK INVESTMENT, THERE IS NO MATERIAL EVIDENCE FOUND THAT ACTUAL CASH INVESTM ENT OUTSIDE THE BOOKS OF ACCOUNTS WAS MADE BY THE ASSESSEE OR HIS GROUP CONCERNS . IF THE ASSESSEE HAS BEEN PAYING THE MONEY FOR CASH PURCHASE FROM THE SOURCE RECORDED IN THE BOOKS OF ACCOUNT IN THE FORM OF ACCOUNT PAYEE CHEQUE S TO SHRI JITENDRA DOSHI GROUP WHO IN TURN W AS GIVING CASH TO THE ASSESSEE , THEN THE SAME CASH CONSTITUTES THE SOURCE OF INVESTMENT FOR MAKING THE PURCHASES IN THE GREY MARKET. ONCE , WE TAKE INTO FACTOR OF REASONABLE CREDIT PERIOD ALLOWED TO THE ASSESSEE , THEN THERE IS HUGE POSSIBILITY THAT THERE WAS NO REQUIREMENT OF CASH INVESTMENT FOR MAKING THE PAYMENT ON THE SAME DAY OUTSIDE THE BOOKS . THE EXPLANATION OF THE ASSESSEE THAT THE WORKING OF THE PEAK INVESTMENT WAS SOLELY TO BUY PEACE SANS ANY MATERIAL OR EVIDENCE FOUND EITHER IN THE CO URSE OF SEARCH ABOUT UNEXPLAINED CASH IN THE CASE OF JITENDRA DOSHI OR ANY ENQUIRY BY THE DEPARTMENT , IS A BONA FIDE AND PROBABLE EXPLANATION WHICH HAS NOT BEEN REBUTTED BY ANY OF THE AUTHORITIES EITHER IN THE COURSE OF THE ASSESSMENT PROCEEDINGS OR IN THE COURSE OF THE PENALTY PROCEEDINGS. THOUGH, THE ADDITION HAS BEEN MADE IN SHRI PRABODH J KOTHARI ITA S 5 9 2 6 TO 5932 /M/ 20 1 3 13 THE QUANTUM PROCEEDINGS BUT THAT ALONE IS NOT A MATERIAL FACTOR SO AS TO COME TO A CONCLUSION THAT ASSESSEE IS GUILTY FOR CONCEALMENT OF INCOME. IN ADJUDGING AS TO WHETHER THE ASSESS EE IS GUILTY OF CONCEALMENT OR OF FURNISHING OF INACCURATE PARTICULARS THER EOF, THE MATTER HAS TO BE REAPPRAISED AFRESH AND CANNOT BE SOLELY GUIDED BY THE FINDINGS GIVEN ON THE QUANTUM SIDE. EVEN THOUGH THE ASSESSEE MAY HAVE SURRENDERED THE PEAK INVESTMENT BUT SUCH A PEAK INVESTMENT WAS NOT CORROBORATED BY ANY FACTUAL EVIDENCE OR MATERIAL THAT ASSESSEE HAS INTRODUCED CASH OUTSIDE THE BOOKS OF ACCOUNTS FOR MAKING THE PURCHASES . THE ASSESSEES EXPLANATION AS GIVEN IN THE PENALTY PROCEEDINGS BEFORE THE AO AS W ELL AS BEFORE THE CIT(A) ST ANDS UN REBUTTED. HERE THE PENALTY HAS BEEN LEVIED MAINLY ON THE GROUND THAT ASSESSEE HAS NOT OFFERED THE PEAK INVESTMENT VOLUNTARILY ALBEIT ONLY WHEN H E WAS CORNERED. THIS FACTUM MAY HAVE GREAT PROBATIVE VALUE FOR INITIATION OF P ENALTY PROCEEDINGS OR ARRIVING AT A SATISFACTION, BUT THAT ALONE IS NOT A CONCLUSIVE FACT TO LEVY THE PENALTY. P RESUMPTION AS CAST UPON THE ASSESSEE U N DER EXPLANATION 1 IS A REBUTT ABLE PRESUMPTION AND IF SUCH A ONUS UPON THE ASSESSEE HAS BEEN REBUTTED WITH PROPER EXPLANATION AND FACTS, THEN NO PENALTY CAN BE LEVIED, WITHOUT ANY MATERIAL EVIDENCE TO CONTROVERT THE ASSESSEES EXPLANATION OR FACTS . SUCH MATERIAL FACTS WHICH RAISES THE PRESUMPTION IN FAVOUR OF THE ASSESSEE ARE THAT , FIRSTLY, THE BOOKS OF ACCOUN T AND TRADING RESULT FOR AY 2002 - 03 HAS BEEN ACCEPTED BY THE AO INASMUCH AS NO DEFECT WHATSOEVER HAS BEEN FOUND EITHER IN THE QUANTITATIVE TALLY OF THE PURCHASES MADE AND THE VALUE OF PURCHASES ; SECONDLY, THE SOURCE OF PURCHASES HAVE BEEN EXPLAINED FROM TH E BOOKS OF ACCOUNTS AND THERE IS NO OTHER MATERIAL TO SHOW THAT ASSESSEE HAS MADE PURCHASES OUTSIDE THE BOOK OTHER THAN ROTATING THE CHEQUE PURCHASES TO CASH PURCHASES ; LASTLY, ONE OF THE MOST CRUC IAL EXPLANATION WHICH STANDS UN REBUTTED IS THAT, ASSESSEE H AD STATED THAT ALL THESE PURCHASES WERE MADE BY VARIOUS CONCERNS BELONGING TO THE ASSESSEE AND HIS FAMILY MEMBERS / GROUP , FROM WHICH THESE TRADING OF CHEMICALS W ERE CARRIED OUT. IF AT ALL ANY PEAK INVESTMENT SHRI PRABODH J KOTHARI ITA S 5 9 2 6 TO 5932 /M/ 20 1 3 14 WAS TO BE ADDED THEN THE SAME SHOULD HAVE BEEN EXAMINED IN THE HANDS OF THE FIRM. BE THAT AS IT MAY, ALL THESE MATERIAL FACTS POINTS OUT THAT PREPONDERANCE OF PROBABILITY IS IN FAVOUR OF THE ASSESSEE, BECAUSE ALL THE PROBABLE FACTORS GIVEN BY THE ASSESSEE HAS NEITHER BEEN DISBELIEVED NOR HAS BEEN REBUT TED BY ANY ENQUIRY OR EVIDENCE GATHERED BY THE AO. THUS, WE ARE OF THE OPINION THAT NO PENALTY IS LEVIABLE ON SUCH PEAK INVESTMENT OF RS. 22,27,804/ - MADE FOR THE ASSESSMENT YEAR 2002 - 03. ACCORDINGLY, THE PENALTY LEVIED FOR THE ASSESSMENT YEAR 2002 - 03 STAN DS DELETED. 13. SO FAR AS LEVY OF PENALTY ON THE GROSS PROFIT ADDITIONS MADE FOR THE AYS 2003 - 04 TO 2008 - 09, WE AGREE WITH THE CONTENTION OF THE ASSESSEE THAT NO PENALTY CAN BE LEVIED; FIRSTLY, FOR THE REASON THAT ADDITION ON ACCOUNT OF PEAK INVESTME NT STANDS DELETED IN SO FAR AS IT HAS BEEN SUBSUMED IN THE GP ADDITION, WHICH ULTIMATELY HAS BEEN MADE ON ESTIMATE BASIS AND SECONDLY, APPLICATION OF 2% OF GROSS PROFIT ON CASH PURCHASES IS PURELY ON AD - HOC BASIS WITHOUT THERE BEING ANY MATERIAL ON RECORD TO SUGGEST THAT ASSESSEE HAS EARNED PROFIT OVER AND ABOVE WHAT HAS BEEN DISCLOSED IN THE BOOKS OF ACCOUNT. THE LD. CIT(A) IN THE COURSE OF THE QUANTUM PROCEEDINGS, HAVE GIVEN A VERY CATEGORICAL FINDING OF FACT IN PARA 2.3.8, (THE SUMMARY OF WHICH HAVE BEE N INCORPORATED IN THE FOREGOING PARAGRAPHS), WHICH STANDS UNREBUTTED, ASSUMES QUITE SIGNIFICANCE SO FAR AS PENALTY PROCEEDINGS ARE CONCERNED THAT, FIRSTLY, BOOKS OF ACCOUNT HAVE NOT BEEN REJECTED; SECONDLY, ALL THE DETAILS OF PURCHASES INCLUDING CASH PURCH ASES AND QUANTITY AS RECORDED IN THE BOOKS OF ACCOUNTS HAVE NOT BEEN DISTURBED; AND LASTLY, NO MATERIAL OR EVIDENCE WHATSOEVER HAVE BEEN FOUND SUGGESTING THAT ASSESSEE WAS SUPPRESSING THE GROSS PROFIT ON CASH PURCHASES. ANOTHER VERY IMPORTANT FACT, WHICH IS BORNE OUT FROM THE FINDING GIVEN IN THE QUANTUM PROCEEDINGS AND ALSO FROM THE MATERIAL ON RECORD IS THAT, THE ASSESSEE HAD DISCLOSED ALL THE PURCHASES IN THE BOOKS I.E. INSTEAD OF ACTUAL PURCHASES MADE FROM PARTY A IN CASH, THE ASSESSEE HAS SHOWN THE PURCHASES FROM SHRI PRABODH J KOTHARI ITA S 5 9 2 6 TO 5932 /M/ 20 1 3 15 PARTY B IN CHEQUE. THE AMOUNT ENCASHED OUT OF CHEQUE HAS BEEN UTILIZED FOR MAKING THE PAYMENT OF PURCHASE. NO VARIATION IN THE QUANTITY OF PURCHASE OR THE VALUE HAS BEEN POINTED OUT BY THE AO. THIS INTER ALIA MEANS THAT, THE GROSS PROFIT S HOWN IN THE BOOK RESULTS TOO HAVE BEEN ACCEPTED. THUS, ON THESE FACTS OF THE CASE NO PENALTY CAN BE LEVIED FOR CONCEALMENT OF INCOME ON THE ADDITION MADE ON AD - HOC BASIS/ESTIMATE BASIS BY APPLYING OF 2% OF THE GP RATES ON CASH PURCHASES. ACCORDINGLY, PENAL TY LEVIED FOR THE ASSESSMENT YEAR 2003 - 04 TO 2008 - 09 STANDS DELETED. 14. IN THE RESULT, APPEAL FOR ASSESSMENT YEARS 2002 - 0 3 TO 2008 - 09 ARE TREATED AS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH OCTOBER , 2015. SD/ - SD/ - ( ) ( ) ( G S PANNU ) ( AMIT SHUKLA ) ACCOUNTANT MEMBER JUDICIAL ME MBER MUMBAI, DATE: 5 TH OCTOBER , 2015 / COPY TO: - 1 ) / THE APPELLANT. 2 ) / THE RESPONDENT. 3) THE CIT (A) - 37 , MUMBAI. 4 ) THE CIT CENTRAL - I , MUMBAI. 5 ) , , / THE D.R. C BENCH, MUMBAI. 6 ) \ COPY TO GUARD FILE. / BY ORDER / / TRUE COPY / / / , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI * . . *CHAVAN, SR.PS