SATISH SARAF, MUMBAI V. DEPUTY COMMISSIONER CENTRAL CIRCLE-4(3), CENTRAL RANGE-4, MUMBAI

ITA 6567/MUM/2017

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 4023 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-02-2020
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: J
• Assessment Year: 2010-2011
• Appeal Filed On: 10-11-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: V VINOD KUMAR
• Assessee Lawyers: A K GHOSH
• Keywords: Income from undisclosed sources; Search and seizure; Document seized; Agreed addition; Accommodation entries; Assessment record; Documents seized; Capital Gains
• Section: 271(1)(c); 143(3); 133A; 153A; 274; 191; 142(2A); 13; 119; 22; 131; 148; 132

Judgement Text

IN THE INC OME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE SHRI PAWAN SINGH, J M & SHRI S . RIFAUR RAHMAN, AM ./ I.T.A. NO . 6567 , 6605 & 6568 / MUM/ 2017 ( / ASSESSMENT YEAR: 20 10 - 11 , 2012 - 13 & 2013 - 14 ) SATISH SARAF, C - 2201, RUSTOM JEE ELENZA, NEAR INORBIL MALL, MALAD (W), M UMBAI - 400 064 / VS. D CIT CC 4(3 ) , AIR INDIA BUILDING, NARIMAN POINT, MUMBAI 400 021 ./ ./ PAN NO. A AGPS 5830 G ( / APPELLANT ) : ( / RESPONDENT ) / APPELL ANT BY : SHRI A. K. GHOSH, AR / RESPONDENTBY : SHRI V. VINOD KUMAR , DR / DATE OF HEARING : 27 .11 .2019 / DATE OF PRONOUNCEMENT : 05.02.2020 / O R D E R PER S. RIFAUR RAHMAN (ACCOUNTANT MEMBER) : THE PRESENT THREE ( 3 ) APPEAL S HAVE BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. COMMIS S IONER OF INCOME TAX 2 I.T.A. NO. 6567, 6605 & 6568/MUM/2017 SATISH SARAF (APPEALS) - 51 , MUMBAI, IN SHORT LD. CIT(A) DATED 10.08.2017 FOR AY 2010 - 11, 2012 - 13 & 2013 - 14 RESPECTIVE LY. 2. SINC E THE ISSUES RAISED IN ALL THE APPEALS ARE ID ENTICAL, THEREFORE, FOR TH E SAKE OF CONVENIENCE, THESE APPEALS ARE CLUBBED, HEARD AND DISPOSED OF BY THIS CONSOLIDATED ORDE R. FIR STLY, WE ARE TAKING ITA NO. 6567/MUM/2017 FOR AY 20 10 - 11 F ILED BY THE ASSESSEE. 3 . THE BRIEF FACTS OF THE CASE ARE THAT A SEAR CH AND SEIZURE OPERATION U/S 132 OF THE ACT WAS CARRIED OUT ON ASSESSEES GROUP COMPANY ON 01.10.13 BASED ON THE INFORMATION RECEIVED FROM INVESTIGATION WING, GUJARAT. IN THE SEARCH PROCEEDINGS, IT WAS FOUND THAT ASSESSEE INDULGED IN GIVING ACCOMMODATION E NTRIES IN THE FORM OF L OANS /ADVANCES GIVEN BY COMPANIES CONTROLLED AND MANAGED BY ASSESSEE. IN THE STATEMENT RECORDED ON OATH U/S 132(4) OF THE ACT ON 01.10.1 3, THE ASSESSEE IN PRINCIPAL AGREED THAT HE IS INDULGED IN GIVING ACCOMMODATION ENTRIES AND NO AC TUAL BUSINESS WAS CONDUCTED IN THE CONCERNS CONTROLLED BY THE ASSESSEE AND HIS TEAM. 3 I.T.A. NO. 6567, 6605 & 6568/MUM/2017 SATISH SARAF 4. THE ASSESSEE IN HIS POST SEARCH STATEMENT VOLUNTARILY ACCEPTED TO TAX @ 0.03% OF THE ACCOMMODATION ENTRIES. THE AO FOUND THE COMMISSION @ 0.03% AS REASONABLE AND ACCO RDINGLY TAXED. AS PER THE ABOVE, THE TAXABLE AMOUNT WAS DETERMINED AS PER THE BELOW STATEMENT: - PARTICULARS AMOUNT OF ADDITION A.Y. 2010 - 11 A.Y. 2011 - 12 A.Y, 2012 - 13 A.Y 2013 - 14 A.Y 20M - L> SHARE APPLICATION GIVEN BY COMPANIES CONTROLLED & MANAGED BY GROUP 1188000 226627 220023 109486 37693 -- LOANS / ADVANCES GIVEN BY COMPANIES CONTROLLED AND MANAGED BY GROUP -- -- -- ..... -- -- SHARE APPLICATION GIVEN TO SHIRISH THROUGH VARIOUS COMPANIES AND CONTROLLED BY OTHER OPERATORS IN KOLKATA & SELF CONTROLLED COMPANIES 3036000 435919 535665 38183 2200 -- LTCG IN DIFFERENT COMPANIES 2454000 -- -- -- -- 818000 SHARE APPLICATION RECEIVED FROM SHIRISH 1140000 217320 211565 105062 361 13 -- COMM ODITY TRADING PROFIT 726000 57 154691 11 4663 90650 3025 SHARE APPLICATION TO OTHER BENEFICIARIES BY OTHER KOLKATA OPERATORS 1 449000 -- -- '* -- SUB CONTRACT AGREEMENT TO VARIOUS PARTIES 948000 -- -- -- -- -- AMOUNT TO BE TAXED 11157000 879922 1121943 367395 166656 821 025 4 I.T.A. NO. 6567, 6605 & 6568/MUM/2017 SATISH SARAF 5. CONSIDERING THE ABOVE, THE TAXABLE INCOME OF THE ASSESSEE, WAS DETERMINED AT RS. 8,79,922 AS COMMISSION FOR PROVIDING ACCOMMODATION ENTRIES AND ACCORDINGLY BROUGHT TO TAX. SUBSEQUENTLY, PENALTY PROCE EDING U/S 271(1)(C) OF THE ACT WAS INITIATED ON CONCEALMENT OF INCOME. IN RESPONSE, AR OF THE ASSESSEE SUBMITTED THE FOLLOWING SUBMISSIONS: - 'IN THIS RESPECT, IT IS SUBMITTED THAT A SEARCH AND SEIZURE ACTION WAS CONDUCTED IN THE CASE OF SATISH SARAF GROUP ON 01.10.2013. SATISH SARAF GROUP COMPRISES OF SHRI SATISH SARAF HIMSE LF, SHRI SHRI RAJEEV JHUNJHUNWALA, SHRI RAHUL JHUNJHUNWAL A AND SHRI VISHAL BHUWANIA. DURING THE COURSE OF SEARCH, IN THE STATEMENT RECORDED U/S. 132(4) ON 01.10.2013, SHRI SATISH SARAF H AS STATED AND ACCEPTED THAT HE HAS ACTED AS AN INTERMEDIARY FOR ARRANGING ACCOMMODATION ENTRIES BETWEEN TWO PARTIES. HE ALSO STATED THE VARIED RATE OF COMMISSION EARNED ON DIFFERENT TYPE OF ACCOMMODATION ENTRIES ARRANGED BY THE GROUP . IN THE POST SEARCH PR OCEEDINGS, SHRI SATISH SARAF IN HIS STATEMENT RECORDED HAS VOLUNTARILY ACCEPTED TO TAX @ 0.03% OF THE ACCOMMODATION ENTRIES ARRANGED BY HIM. FURTHER, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, 5 I.T.A. NO. 6567, 6605 & 6568/MUM/2017 SATISH SARAF YOUR HONOUR HAS RECORDED MY STATEMENT U/S. 131 OF THE ASSESSE S ON 03.03.2016. THE RELEVANT QUESTIONS AND ANSWERS THEREOF AS REPRODUCED ON PAGE 8 & 9 OF THE ASSESSMENT ORDER ARE EXTRACTED BELOW: - ' Q.54 PLEASE STATE THE COMMISSION AMOUNT CHARGED ON ACCOMMODATION ENTRIES GIVEN BY YOU? ANS. I HAVE ARRANGED FOR LOANS /A DVANCES, SHARE APPLICATION TO OTHER BENEFICIARIES AND SUB - CONTRACT AGREEMENTS WHEREIN COMMISSION @ 0.01% TO @ 0.05% WAS CHARGED ON THE SAME. Q.55 IT IS OBSERVED FROM THE APPRAISAL REPORT THAT YOU ARE IN RECEIPT OF COMMISSION RANGING BETWEEN @ 0.025% TO 0.5 % FOR VARIOUS NATURE OF ACCOMMODATION ENTRIES. IN THIS REGARD, YOU ARE REQUESTED TO PLEASE EXPLAIN AS TO WHY COMMISSION @ 0.5% SHOULD NOT BE CHARGED ON THE SAID ACCOMMODATION ENTRIES? ANS. SIR, I CONFIRM THAT I HAVE ARRANGED FOR ACCOMMODATION ENTRIES FOR W HICH COMMISSION @ 0.025% TO @ 0.05% WAS EARNED AND HENCE REQUEST YOUR GOOD O FFICE TO TAX ONLY 1 PAISE ON ALL THE ACCOMMODATION ENTRIES. Q.56 IT IS OBSERVED FROM THE ASSESSMENT RECORDS THAT FOR A. Y. 2011 - 12 YOU HAVE OFFERED 3 PAISE AS 6 I.T.A. NO. 6567, 6605 & 6568/MUM/2017 SATISH SARAF COMMISSION INCOME FOR ACCOMMODATION ENTRY AND ACCORDINGLY WHY 3 PAISE SHOULD NOT BE CHARGED ON THE ACCOMMODATION ENTRY FOR SHARE APPLICATION, LONG TERM CAPITAL GAINS, SUB - CONTRACTS. PLEASE EXPLAIN ANS. I CONFIRM THAT COPY OF ASSESSMENT ORDER HAS BEEN READ AND REQUEST TO TAX CO MMISSION @ 0.03% OF THE ACCOMMODATION ENTRIES. Q. 57 DO YOU WANT TO SAY ANYTHING? ANS. SIR, I ONCE AGAIN REITERATE YOUR GOOD OFFICE TO CHARGE COMMISSION @ 0.03% ON THE ACCOMMODATION ENTRIES...' AS RIGHTLY CONFRONTED BY YOUR HONOUR IN Q.56 THAT SH RI SATIS H SARAF VOLUNTARILY OFFERED 3 PAISA ON ACCOMMODATION ENTRIES AND THE AS SESSEE IN REPLY HAS CONFIRM THAT HE HAS READ THE STATEMENT OF SATISH SARAF. HOWEVER, THE ASSESSEE REQUESTED TO TAX COMMISSION @ 0.02% OF THE ACCOMMODATION ENTRIES. IT MAY BE NOTED THAT A SURVEY ACTION U/S. 133A TOOK PLACE ON 26.08.2010 AT THE BUSINESS PREMISES OF SHRI SATISH SARAF AND IN THE STATEMENT RECORDED U/S. 131 DATED 23.09.201 0, IN REPLY TO Q NO. 14 SH RI SATISH SARAF ADMITTED THAT' ON AN AVERAGE OF 3 PAISA HAVE BEEN EARNED APPRO XIMATELY 16.25 LAKHS WHICH I HAVE RECEIVED IN CURRENT FINANCIAL YEAR. AFTER MEETING 7 I.T.A. NO. 6567, 6605 & 6568/MUM/2017 SATISH SARAF EXPENSES OF STAFF SALARY AND OFFICE EXPENSES ETC. I VOLUNTARILY SURRENDER AN AMOUNT OF RS, 12,00,0001 - IN THE CURRENT FY 2010 - 11 ON WHICH I AGREE TO. PAY TAXES ON SCHEDULE'. THEREFORE, IN THE RETURN OF INCOME FILED U/S. 139, SHRI SATISH SARAF HAS OFFERED 3 PAISA AS COMMISSION INCOME FOR ACCOMMODATION ENTRIES FOR THE AY 2011 - 12. ACCORDINGLY, THE TOTAL COMMISSION @ 3 PAISA AMOUNTING TO R S. 16,25,000/ - WAS OFFERED AS GROSS COMMI SSION AS AGAINST THE SAME SHRI SATISH SARAF HAD CLAIMED EXPENDITURE OF RS. 4 25, 000 / - AND NET COMMISSION INCOME OF RS. 12,00, 000 / - WAS OFFERED TO TAX FOR THE AY 2011 - 12. IT MAY BE NOTED THAT THE ENTIRE TRANSACTIONS UPTO THE DATE OF SURVEY WAS CONSIDERED IN THE HANDS OF SATISH SARAF THE LD. AO PASSED ASSESSMENT ORDER U/S. 143(3) ON 18.06.2013 AND HE HAS ACCEP TED THE GROSS COMMISSION INCOME @ 3 PAISA AMOUNTING TO RS. 16,25, 000 / - IN THE CASE SHRI SAT I SH SARAF. HOWEVER, THE AO DISALLOWED EXPENDITURE OF RS. 1,00 , 000 / - OUT OF EXPENDITURE OF RS. 4,25, 000 / - CLAIMED BY SHRI SATISH SARAF. IN THE ASSESSMENT ORDER, YOUR H ONOUR HAS ALSO ADMITTED THAT SHRI SATISH SARAF IN HIS POST SEARCH STATEMENT HAS VOLUNTARILY ACCEPTED TO TAX @ 0 . 03% OF THE ACCOMMODATION ENTRIES AND A/ SO STATED THAT THE STATEMENT OF THE ASSESSEE TO TAX 0.02% IS CONSIDERED AND FOUND TO BE UNACCEPTABLE. THEREFORE, FINALLY YOUR 8 I.T.A. NO. 6567, 6605 & 6568/MUM/2017 SATISH SARAF HONOUR HAS ESTIMATED THE COMMISSION INCOME @ 0.03% ON THE ACCOMMODATION ENTRIES ON THE BASIS OF THE ADMISSION OF SHRI SATISH SARAF AND HIS EARLIER ASSESSMENT ORDER U/S. 143(3) FOR THE AY 2011 - 12. WHILE ESTIMATING THE COMMISSION INCOME @ 0.03% OF THE ACCOMMODATION ENTRIES, YOUR HONOUR HAS NOT AL LOWED ANY EXPENDITURE, WHICH WAS ALLOWED IN THE REGULAR ASSESSMENT ORDER FOR THE A Y 2011 - 1 2 IN THE CASE OF SHRI SATISH SARAF. IT MAY BE NOTED I N THE REGULAR ASSESSMENT ORDER FOR THE AY 2011 - 12 IN THE CASE OF SHRI SATISH SARAF, THE AO AL LOWED ESTIMATED EXPENDITURE @ 18.46% OF THE GROSS ESTIMATED COMMISSION INCOME. FURTHER, IN THE AY 2011 - 12 IN T HE CASE OF SHRI SATISH SARAF, THE AO ALSO DROPPED THE PENALTY PROCEEDINGS INITIATED U/S 271(1)(C). IT IS SUBMITTED THAT SINCE THE ASSESSES HAS VOLUNTARILY ACCEPTED TO TAX @ 0.02% OF THE ACCOMMODATION ENTRIES AND YOUR HONOUR HAS ALSO ESTIMATED THE COMMISSIO N I NCOME @ 0.03% IN THE ASSESSMENT ORDER PASSED U/S. 143(3 ) R.W.S 153A OF THE ACT, NO PENALTY IS LEVIABLE U/S.27/( 1 )(C) OF THE ACT. FOR THIS PROPOSITION, RELIANCE IS PLACED, ON THE FOLLOWING DECISIONS : - (I) HARIGOPAL SINGH VS. CIT REPORTED IN 125 TAXMANN 2 521258 ITR 85 (P & H). (II) CIT VS. SMT. K. MEENAKSHT KUTTY 258 ITR 494(MAD). 9 I.T.A. NO. 6567, 6605 & 6568/MUM/2017 SATISH SARAF (II I) CIT(A) VS. VALIMKBHAI H. PATE/ 280 ITR 487(GUJ). (IV) CIT(A) VS. RAJ BANS SINGH 276 ITR 351 (ALL). (V) CIT VS. LALLUBHAI JOGIBHAI PATE/ 261 ITR 216(GUJ) (VI) CIT VS. SHIVNA RAYAN JAMNALAL & CO. 232 ITR 311 (NIP). (VII) NAVJIVAN OIL MILLS VS. CIT[252 ITR 417 (GUJ)] (VIII) CIT VS. RAVAIL SINGH & CO. [254 ITR 191 (P&H)] (IX) CIT VS. SANGRUR VANASPATI MILLS LTD. [216 CTR 92 (P&H)] (X) CIT VS. DM/O/7 RICE MILLS [256 ITR 447 (P&H)] RELIANCE IS FURTHER PLACED ON THE FOLLOWING DECISIONS OF VARIOUS HIGH COURTS/ TRIBUNALS WHEREIN, IT HAS BEEN CATEGORICALLY HELD THAT PENALTY CANNOT BE IMPOSED IN RESPECT OF ADDITIONS MADE ON THE BASIS, OF ESTIMATION OF PROFIT RATE. THESE DECISIONS ARE DIR ECTLY APPLICABLE TO THE FACTS OF ASSESSES'S CASE AND HENCE, NO PENALTY COULD BE IMPOSED. (A) CIT VS. V.K.L MANGAL SAIN 107 ITR 598 (ALL.) (B) DCIT VS. MADAD ALL ANSARI & CO. 69 TTJ 279 (JD.) (C) ITO V. C, CHHOTALAL TEXTILES PVT. LTD. 95 TTJ 436 (MUM.) 10 I.T.A. NO. 6567, 6605 & 6568/MUM/2017 SATISH SARAF IN V IEW OF THE ABOVE, WE REQUEST YOUR HONOUR TO DROP THE PENALTY PROCEEDINGS INITIATED U/S.271(1 )(C) OF THE ACT.' 6. CONSIDERING THE ABOVE, AO REJECTED THE CONTENTIONS OF THE ASSESSEE AND LEVIED THE MINIMUM PENALTY OF RS. 2,30,930/ - U/S 271(1)(C) OF THE ACT. 7 . AGGRIEVED WITH THE ABOVE, ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT(A) AND MADE BEFORE HIM AN ELABORATE SUBMISSION INCLUDING ISSUE OF DEFECTIVE NOTICE U/S 274 OF THE ACT. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE, LD. CIT(A) DISMISSED THE APPEAL OF THE ASSESSEE AND ALSO DISMISSED THE ISSUE OF DEFECTIVE NOTICE U/S 274 OF THE ACT. LD. CIT(A) DISMISSED THE GROUNDS WITH THE FOLLOWING OBSERVATIONS: - 8.1.1 IN THE SUBMISSIONS MADE DURING APPELLATE PROCEEDINGS, THE ASSESSEE HAS CONTENDED THAT THE ACTION OF THE AO OF LEVYING PENALTY U/S. 271(1)(C) IS INCORRECT PRIMARILY FOR THE FOLLOWING REASONS : - I) HE HAD VOLUNTARILY AGREED FOR ADDITION OF HIS UNACCOUNTED INCOME OF RS 8,89,9227 - AT THE RATE OF 0.03% ON THE ACCOMMODATION ENTRIES PROVIDED. 11 I.T.A. NO. 6567, 6605 & 6568/MUM/2017 SATISH SARAF II) THE ADDIT IONS MADE BY THE AO ARE ON ESTIMATE BASIS BEING 0,03% ON THE TOTAL ACCOMMODATION ENTRIES PROVIDED BY HIM. III) THE AO WHILE ISSUING THE NOTICE HAS NOT STRUCK OFF THE REDUNDANT WORDS IN THE SHOW CAUSE NOTICE ISSUED U/S. 274 AND THEREFORE, AS PER THE DECISIO N OF THE KARNATAKA HC IN THE CASE OF MANJUNATHA COTTON AND GINNING FACTORY (359 ITR 565),WHICH HAS BEEN FOLLOWED BY THE HON'BLE BOMBAY HC IN THE CASE OF SAMSON PERINCHERY IN ITA NO 1154 OF 2014 VIDE ORDER DATED 05.01.2017, THE PENALTY IS INVALID. WHETHER T HE AGREED ADDITION OF UNACCOU NTED INCOME OF RS 8,79, 922/ - CAN BE CONSIDERED AS VOLUNTARILY: 8.1.2 THE ASSESSEE CONTENDS THAT ITS DISCLOSURE IS VOLUNTARILY MADE AND THEREFORE IT IS NOT LIABLE FOR LEVY OF PENALTY. 'VOLUNTARILY' MEANS OUT OF FREE WILL I.E. WI THOUT ANY COMPULSION. IT HAS BEEN HELD IN THE CASES OF K.L. SWAMY VS. CIT (KAR) 239 ITR 386, BHAIRAV LAL VERMA VS. UNION OF INDIA (ALL) 230 ITR 855 AND M.N. RAJARAMAN VS. ACIT (ITAT, CHENNAI) 119 ITD 362 THAT IF THE DEPARTMENT HAS INCRIMINATING MATERIAL WI TH REGARD TO THE UNDISCLOSED INCOME, THE DISCLOSURE MADE BY THE ASSESSEE CANNOT BE CONSIDERED TO BE VOLUNTARY. FURTHER, IN THE CASES OF P.C. JOSEPH & 12 I.T.A. NO. 6567, 6605 & 6568/MUM/2017 SATISH SARAF BROS. VS. CIT (KER) 240 ITR 818, CIT VS, RAKESH SURI (ALL) 331 ITR 458 AND CIT VS. SUSHMA DEVI AGARWAL (IT AT, KOL - TM) 67 DTR 430, IT HAS BEEN HELD THAT SIMPLY BECAUSE THE ASSESSEE AGREED FOR ADDITION OF UNDISCLOSED INCOME SUBSEQUENT TO DETECTION THEREOF AND FILED RETURN IN RESPONSE TO NOTICE U/S. 148 OFFERING THE SAID AMOUNT AS ADDITIONAL INCOME, THE ASSESSEE CANNOT ESCAPE LEVY OF PENALTY U/S. 271(1)(C). IN THE SAID CASES CITED, IT CAN BE OBSERVED THAT EVEN WHEREIN THE ASSESSEE HAD DULY INCLUDED THE UNACCOUNTED INCOME IN ITS RETURN OF INCOME BUT SUBSEQUENT TO THE DETECTION, THE HON'BLE COURTS HAVE HELD THAT PEN ALTY U/S. 271(1)(C) IS LEVIABLE. HOWEVER, IN THE INSTANT CASE, DESPITE THE ADMISSION MADE BY THE ASSESSEE IN THE STATEMENTS ON OATH RECORDED IN THE COURSE OF THE SURVEY ACTION AND THE SUBSEQUENT SEARCH ACTION OF HAVING EARNED COMMISSION INCOME @ 0.03% OF T HE ACCOMMODATION ENTRIES PROVIDED, HE FILED HIS RETURN OF INCOME U/S. 153A WITHOUT INCLUDING THE SAID ADDITIONAL INCOME ADMITTED IN COURSE OF THE SURVEY ACTION AND THE SUBSEQUENT SEARCH ACTION. IN COURSE OF THE SEARCH ASSESSMENT PROCEEDINGS U/S 153A, STATE MENT ON OATH OF THE ASSESSEE WAS AGAIN RECORDED, WHEREIN HE ONCE AGAIN ADMITTED TO HAVE EARNED UNACCOUNTED INCOME @ 0.03% OF THE ACCOMMODATION ENTRIES PROVIDED AND AGREED THAT THIS UNACCOUNTED INCOME MAY 13 I.T.A. NO. 6567, 6605 & 6568/MUM/2017 SATISH SARAF BE ADDED TO HIS TOTAL INCOME. IT CAN THUS BE OBSERVE D THAT THE ASSESSEE VOLUNTARILY AGREED FOR INCLUDING THE SAID UNACCOUNTED INCOME TO HIS TOTAL INCOME ONLY AFTER BEING THOROUGHLY INVESTIGATED AND CONFRONTED AT VARIOUS STAGES VIZ. SURVEY ACTION, SEARCH ACTION AND ASSESSMENT PROCEEDINGS. THUS, THE CLAIM OF THE ASSESSEE THAT HE HAD VOLUNTARILY ACCEPTED THE INCLUSION OF THE SAID AMOUNT TO ITS TOTAL INCOME IS NOT ACCEPTABLE. 8.1.3 THE FACTS OF THE CASE OF THE ASSESSEE ARE QUITE SIMILAR TO THE CASES DECIDED BY THE HON'BLE SUPREME COURT IN THE CASES OF MAK DATA ( P) LTD (38 TAXMAN.COM 448) AND K P MADHUSUDANAN (118 TAXMAN 224) WHEREIN THE ASSESSEES HAD COME FORWARD WITH AN OFFER OF UNDISCLOSED INCOME IN COURSE OF THE ASSESSMENT PROCEEDINGS ON BEING CONFRONTED WITH ADVERSE EVIDENCES, HOWEVER, THE LEVY OF PENALTY ON THE UNDISCLOSED INCOME OFFERED WAS UPHELD. THEREFORE, THE CONTENTION OF THE ASSESSEE THAT IT HAD VOLUNTARILY OFFERED THE SAID UNDISCLOSED INCOME AND THEREFORE PENALTY IS NOT LEVIABLE, IS REJECTED. WHETHER PENALTY IS LEVIABLE EVEN IN CASES WHERE ACCOUNTED I NCOME HAS BEEN ESTIMATED: 8.1.4 IT HAS FURTHER BEEN CONTENDED BY THE ASSESSEE THAT THE ADDITIONS HAD BEEN MADE BY THE AO ON ESTIMATE BASIS AND THEREFORE, PENALTY U/S. 271(1)(C) CANNOT BE 14 I.T.A. NO. 6567, 6605 & 6568/MUM/2017 SATISH SARAF LEVIED. FROM THE SEQUENCE OF EVENTS NARRATED IN THE PROCEEDING PARAS, IT CAN BE OBSERVED THAT THE ASSESSEE WAS TAKING A CHANCE BY SITTING ON A FENCE DESPITE THE FACT THAT THERE WAS A SURVEY ACTION FOLLOWED BY A SEARCH ACTION IN HIS CASE WHEREIN ON THE BASIS OF INCRIMINATING DOCUMENTS AND OTHER EVIDENCES, THE ASSESSEE HAD AD MITTED TO HAVE EARNED UNACCOUNTED COMMISSION INCOME AT THE RATE OF 0.03% OF THE ACCOMMODATION ENTRIES PROVIDED. IT IS CLEAR THAT THE INTENTION OF THE ASSESSEE WAS TO TAKE A RISK AND DISCLOSE A LESSER INCOME THAN WHAT HE WAS ACTUALLY EARNING. IN THIS CASE, THE QUANTUM OF ACCOMMODATION ENTRIES PROVIDED BY THE ASSESSEE HAS NOT BEEN ESTIMATED BUT IT IS ONLY THE PROFIT EARNED FROM PROVIDING OF ACCOMMODATION ENTRIES, WHICH HAS BEEN ESTIMATED @ 0.03%. THEREFORE, THE BENEFIT OF NON LEVY OF PENALTY CANNOT BE EXTENDE D TO THE ASSESSEE. IN SUPPORT OF THIS VIEW, RELIANCE IS PLACED ON THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF KALINDI RAIL NIRMAN ENQQ. LTD. 51 TAXMANN. COM 523 (DELHI) WHEREIN LEVY OF PENALTY ON THE ADDITIONS MADE BY ESTIMATING THE INCOME OF THE ASSESSEE BY APPLYING RATE OF 11% (AGREED BY THE ASSESSEE) ON THE GROSS RECEIPTS HAS BEEN UPHELD. THEREFORE, THE CONTENTION OF THE ASSESSEE THAT PENALTY IS NOT LEVIABLE IN ITS CASE SINCE THE 15 I.T.A. NO. 6567, 6605 & 6568/MUM/2017 SATISH SARAF UNACCOUNTED INCOME HAS BEEN DETERMINED BY THE AO ON ESTIMAT E BASIS IS REJECTED. 8 . AGGRIEVED WITH ORDER OF LD. CIT(A), ASSESSEE IS IN APPEAL BEFORE US. 9 . BEFORE US, L D. AR SUBMITTED THAT AO HAS ESTIMATED THE COMMISSION INCOME @ 0.03% WHICH WAS VOLUNTARILY DISCLOSED BY THE ASSESSEE IN THE POST SEARCH STATEMENT AN D BROUGHT TO OUR NOTICE PAGE NO. 9 OF THE PAPER BOOK. HE FURTHER SUBMITTED THAT AO CANNOT LEVY PENALTY WHEN THE INCOME OF THE ASSESSEE WAS ON ESTIMATION. FOR THAT PURPOSE, HE RELIED ON CASE LAWS SIMILAR TO THE SUBMISSION MADE BEFORE LD. CIT(A). FURTHER, HE SUBMITTED THAT THE NOTICE ISSUED U/S 274 OF THE ACT WAS DEFECTIVE AND THE COPY OF THE NOTICE PLACED AT PAGE NO. 1 OF THE PAPER BOOK IN WHICH AO HAS NOT NOTIFIED ON WHICH LIMB OF THE PENALTY CHARGES, HE IS PROCEEDING WITH. FOR THAT PROPOSITION, HE SAID THA T THE NOTICE ISSUED U/S 274 OF THE ACT IS DEFECTIVE AND RELIED UPON THE FOLLOWING CASE LAWS: - I) CIT VRS. MANJUNATHA COTTON & GINNING FACTORY REPORTED IN359 ITR 565 (KARNATAKA HC) 16 I.T.A. NO. 6567, 6605 & 6568/MUM/2017 SATISH SARAF II) CIT VRS. SAMSON PERINCHERY (ITA NO. 1154 OF 2014) (BOM HC) III) KISHOR J . JANANI IN ITA NO. 6138 & 6139/2011 (TRIB.) IV) CIT VRS. SSAS EMERALD MEADOWS (ITA NO. 380 OF 2015) (SC). 10 . ON THE OTHER HAND , LD DR SUBMITTED THAT NO DOUBT THE INCOME OFFERED BY THE ASSESSEE IS VOLUNTARY . HOWEVER, THE ASSESSEE HAS COME FORWARD TO ACCE PT THE ESTIMATED INCOME ONLY DUE TO PROCEEDING U/S 132 OF THE ACT. HE OBJECTED TO THE SUBMISSION OF LD. AR THAT PENALTY CANNOT BE LEVIED ON ESTIMATION OF INCOME AND HE RELIED ON CASE LAWS ON WHICH LD. CIT(A) HAS HEAVILY RELIED UPON, IN WHICH HONBLE DELHI HIGH COURT IN THE CASE OF KALINDI RAIL NIRMAN ENGG. LTD. 51 TAXMAN.COM 523 (DEL) AND WITH REGARD TO DEFECTIVE NOTICE U/S 274 OF THE ACT, HE RELIED UPON THE FINDINGS OF LD. CIT(A) AT PAGE NO. 15 OF THE ORDER. 11 . CONSIDERED THE RIVAL SUBMISSIONS AND MATERI AL PLACED ON RECORD. WE NOTICE THAT ASSESSEE HAS DISCLOSED THE COMMISSION INCOME EARNED FROM ACCOMMODATION ENTRIES PROVIDED BY HIM 17 I.T.A. NO. 6567, 6605 & 6568/MUM/2017 SATISH SARAF WHICH VARIES FROM TRANSACTION TO TRANSACTION BETWEEN @ 0.02% TO 0.05% AND ASSESSEE CAME FORWARD VOLUNTARILY OFFERED 0.02% AS COMMISSION INCOME. AO HAS ESTIMATED THE SAME @ 0.03% AND ASSESSEE HAS AGREED THE SAME AND PAID THE RELEVANT TAX AS APPLICABLE. SUBSEQUENTLY, AO INITIATED PENALTY PROCEEDINGS AND PENALTY WAS LEVIED 100% OF THE TAX SOUGHT TO BE EVADED . LD. CIT(A) HAS CONFIRM ED THE PENALTY BY RELYING ON KALINDI RAIL NIRMAN ENGG . LTD. (SUPRA) THAT PENALTY ON THE ADDITIONS MADE BY ESTIMATING THE INCOME OF THE ASSESSEE IS LEVIABLE. AS PER THE DECISION RELIED BY LD. AR THAT PENALTY CANNOT BE LEVIED ON THE INCOME WHICH IS ESTIMATED , WHEREAS THE CASE LAWS RELIED BY THE LD. CIT(A) IN THE CASE OF KALINDI RAIL NIRMAN ENGG . LTD. (SUPRA), WHEREIN THE HONBLE DELHI HIGH COURT HAS CONFIRMED THE LEVY OF PENALTY WHEN THE AO ESTIMATED THE INCOME IN THE FOLLOWING CIRCUMSTANCES: - ASSESSEE IS A RAILWAY CONTRACTOR UNDERTAKING ON TURNKEY PROJECTS AND SEVERAL DISCREPANCIES WERE NOTED IN SPECIAL AUDIT CONDUCTED U/S 142(2A) OF THE ACT. THE HONBLE COURT NOTICED THAT THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE WERE WHOLLY NOT RELIABLE AND ASSESSEE HAS ESTIMATED THE INCOME AT 3%, WHEREAS 18 I.T.A. NO. 6567, 6605 & 6568/MUM/2017 SATISH SARAF AO HAS ESTIMATED THE INCOME @ 11% ON THE GROSS CONTRACT RECEIPT AND GAVE DUE OPPORTUNITY TO THE ASSESSEE TO EXPLAIN THE DISCREPANCY AND ALSO TO SHOW WHY THE PROFIT RATE OF 11% CANNOT BE ADOPTED. BUT, THESE OPPORTUNIT IES WERE NOT AVAILED BY THE ASSESSEE. FURTHER, ASSESSEE WAS PERMITTED TO INSPECT THE ASSESSED DOCUMENTS AND WAS GIVEN PHOTO COPIES OF THE DESIRED DOCUMENTS. 12. THE HONBLE COURT FURTHER OBSERVED, WHICH IS REPRODUCED BELOW: - 12. WE ARE BOUND BY THE RATI O OF THE DECISION OF THIS COURT. THE NUMBER OF DISCREPANCIES AND IRREGULARITIES LISTED BY THE SPECIAL AUDITOR IN HIS REPORT WHICH ARE REPRODUCED IN THE ASSESSMENT ORDER BEAR TESTIMONY TO THE FACT THAT THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE WERE WH OLLY UNRELIABLE. IF THEY WERE SO, THERE CAN BE NO SANCTITY ATTACHED TO THE FIGURE OF GROSS CONTRACT RECEIPTS OF RS. 20,30,74,024 ON WHICH THE ASSESSEE ESTIMATED 3 PER CENT, AS ITS INCOME. IT IS TRUE THAT THE ASSESSING OFFICER DID NOT ENHANCE THE FIGURE OF GROSS RECEIPTS BUT THAT IS NOT BECAUSE HE GAVE A CLEAN CHIT TO THE BOOKS OF ACCOUNT ALLEGEDLY MAINTAINED BY THE ASSESSEE; HE COULD NOT HAVE GIVEN A CLEAN CHIT IN THE FACE OF THE DEFECTS, DISCREPANCIES AND IRREGULARITIES 19 I.T.A. NO. 6567, 6605 & 6568/MUM/2017 SATISH SARAF REPORTED BY THE SPECIAL AUDITOR. IN ORDER TO TAKE CARE OF THOSE DISCREPANCIES HE RESORTED TO A MUCH HIGHER ESTIMATE OF THE PROFITS BY ADOPTING 11 PER CENT, ON THE GROSS CONTRACT RECEIPTS. HE GAVE DUE OPPORTUNITY TO THE ASSESSEE TO EXPLAIN THE DISCREPANCIES AND ALSO TO SHOW WHY THE PROFIT RAT E OF 11 PER CENT, CANNOT BE ADOPTED BUT THESE OPPORTUNITIES WERE NOT AVAILED OF BY THE ASSESSEE. HE ALSO HAS RECORDED IN THE ASSESSMENT ORDER THAT THE ASSESSEE WAS PERMITTED TO INSPECT THE SEIZED DOCUMENTS AND WAS GIVEN PHOTOCOPIES OF THE DESIRED DOCUMENTS (PARAGRAPH 7). THIS IS NOT DENIED BY THE ASSESSEE. IN THESE CIRCUMSTANCES, THE MERE FACT THAT THE ESTIMATE WAS REDUCED BY THE TRIBUNAL TO 8 PER CENT, WOULD IN NO WAY TAKE AWAY THE GUILT OF THE ASSESSEE OR EXPLAIN ITS FAILURE TO PROVE THAT THE FAILURE TO R ETURN THE CORRECT INCOME DID NOT ARISE FROM ANY FRAUD OR ANY GROSS OR WILFUL NEGLECT ON ITS PART. IT APPEARS TO US THAT THE ASSESSEE WAS TAKING A CHANCE - SITTING ON THE FENCE - DESPITE THE FACT THAT THERE WAS A SEARCH TOWARDS THE CLOSE OF THE RELEVANT ACCOUNT ING YEAR IN THE COURSE OF WHICH INCRIMINATING DOCUMENTS WERE FOUND. IT APPEARS TO US THAT THE INTENTION OF THE A SSESSEE WAS TO TAKE A RISK AND DISCLOSE A LESSER INCOME THAN WHAT IT ACTUALLY EARNED AND RELY UPON THE MINOR VARIATIONS IN THE RATE O F PROFITS A DOPTED BY THE TAXING AUTHORITIES AND THE TRIBUNAL AS A DEFENCE IN THE PENALTY PROCEEDINGS. THE 20 I.T.A. NO. 6567, 6605 & 6568/MUM/2017 SATISH SARAF PLEA - ACCEPTED BY THE TRIBUNAL - THAT THE ASSESSEE AGREED TO BE ASSESSED AT 11 PER CENT, OF THE GROSS RECEIPTS ONLY 'TO BUY PEACE' AND 'AVOID LITIGATION' CANNOT BE ACCEPTED BY US IN VIEW OF THE JUDGMENT OF THE SUPREME COURT IN MAK DATA (P.) LTD. (SUPRA). THE TRIBUNAL, IN OUR VIEW, WAS IN ERROR IN UPHOLDING THE ORDER OF THE COMMISSIONER OF INCOME - TAX (APPEALS) CANCELLING THE PENALTY. WE, ACCORDINGLY, ANSWER THE SUBSTA NTIAL QUESTIONS OF LAW FRAMED BY US AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE. 13. FROM THE FACTS OF THE ABOVE DECISION, IT I S CLEAR THAT ASSESSEE HAS NOT COME CLEAN BEFORE THE AO AND NOT COOPERATE D WITH THE AO FOR EVEN ON PROPER ESTIMATION OF THE INCOME AND THE ASSESSEE JUST TOOK THE CHANCE SITTING ON THE FENCE I.E. ASSESSEE TOOK A RISK AND DISCLOSED LESSER INCOME THAN WHAT IS ACTUALLY EARNED. WHEREAS IN THE GIVEN CASE, THAT IS NOT THE ISSUE BUT ASSESSEE HAS COMPLETELY GAVE THE INFORMATION WHICH IS AGREEABLE TO THE AO AND COOPERATED TO COMPLETE THE ASSESSMENT WITH REAL INCOME. A CCORDINGLY, AO MADE REASONABLE ESTIMATION ON THE PROFIT. THEREFORE, THE CASE LAW RELIED BY THE LD. CIT(A) IS DISTINGUISHABLE, WHEREAS ASSESSEE RELIES ON FOLLOWING CASE LAW: - 21 I.T.A. NO. 6567, 6605 & 6568/MUM/2017 SATISH SARAF (I) HARIGOPAL SINGH VS. CIT REPORTED IN 125 TAXMANN 252/258 ITR 85 (P &H). (II) CIT VS. SMT K. MEENAKSHI KUTTY 258 ITR 494(MAD). (ILL) CIT(A) VS. VALIMKBHAIH. PATEL 280 ITR 487(GUJ). (IV) CIT(A) VS. RAJ BANS SINGH 276 ITR 351 (ALL). (V) CIT VS. LALLUBHAI J OGIBHAI PATEL 261 ITR 216(GUJ) (VI) CIT VS. SHIVNARAYAN JAMNALAL & CO. 232 ITR 311 (MP). (VII) NAVJIVAN OIL MILLS VS, CIT[252 ITR 417 (GUJ)J (VLII) CIT VS. RAVAIL SINGH & CO. [254 ITR 191 (P&H)] (IX) CIT VS. SANGRUR VANASPATI MILLS LTD. [216 CTR 92 (P&H)] (X) CIT VS. DHILLON RICE MILLS [256 ITR 447 (P&H)] RELIANCE IS FURTHER PLACED ON THE FOLLOWING DECISIONS OF VARIOUS HIGH COURTS/ TRIBUNALS WHEREIN, IT HAS BEEN CATEGORICALLY HELD THAT PENALTY CANNOT BE IMPOSED IN RESPECT OF ADDITIONS MADE ON THE BASIS OF E STIMATION OF PROFIT RATE. THESE DECISIONS ARE DIRECTLY APPLICABLE TO THE FACTS OF ASSESSEE'S CASE AND HENCE, NO PENALTY COULD BE IMPOSED. (A) CIT VS. V.K.L MANGAL SAIN 107 ITR 598 (ALL.) (B) DCITVS. MADAD ALL ANSARI & CO. 69 TTJ 279 (JD.) (C) ITO V. C. CHH OTALAL TEXTILES PVT LTD. 95 TTJ 436 (MUM.) 22 I.T.A. NO. 6567, 6605 & 6568/MUM/2017 SATISH SARAF 14. THEREFORE, BY CONSIDERING THE RATIOS OF THE ABOVE DECISIONS AND AS HELD THAT THE PENALTY CANNOT BE IMPOSED WHEN THE INCOME OF THE ASSESSEE IS ESTIMATED, WE ARE INCLINED TO FOLLOW THE ABOVE DECISION AND ACCORDI NGLY, THE PENALTY LEVIED ON THE ESTIMATION OF INCOME IS DELETED . 15. WITH REGARD TO ISSUE OF DEFECTIVE NOTICE, LD. AR RELIED ON VARIOUS CASE LAW AND SUBMITTED THAT THE NOTICE ISSUED BY THE AO IS DEFECTIVE SINCE AO HAS NOT BROUGHT OF RECORD THE REASON F OR LEVY OF PENALTY. WE NOTICE THAT IN THE ASSESSMENT ORDER, AO HAS MADE IT CLEAR THAT PENALTY PROCEEDINGS ARE INITIATED SEPARATELY FOR FURNISHING INACCURATE PAR T ICULARS OF INCOME, THEREFORE THE AO HAS ALREADY INDICATED THAT WHY THE PENALTY PROCEEDINGS ARE INITIATED. THEREFORE, WE REJECT THE CONTENTION OF THE ASSESSEE THAT NOTICE IS DEFECTIVE. 16. CONSEQUENTLY, THE APPEAL FILED BY THE ASSESSEE STANDS A LLOWED . 17 . THE FACTS AND GROUNDS OF OTHER APPEAL S OF ASSESSEE ARE SIMILAR TO THE FACTS IN ITA NUMBER 6567 /MUMBAI/2017 , THERE FORE, THE GROUNDS RAISED IN OTHER APPEAL S ARE ALSO ALLOWED . 23 I.T.A. NO. 6567, 6605 & 6568/MUM/2017 SATISH SARAF 18 . IN THE NET RESULT, ALL THE APPEAL S FILED BY THE ASSESSEE ARE DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH FEB 2020 . SD/ - SD/ - (PAWAN SINGH ) (S. RIFAUR RAHMAN ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED : 05 . 02 .2020 SR.PS. DHANANJAY / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE / BY ORDER, . / ( DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI