Subhsh Deshmukh & Co., Solapur V. Assistant Commissioner of Income-tax,

ITA 835/PUN/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 0970 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 4 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 21-07-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 24-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S N DOSHI
• Keywords: Business income; Depreciation; Income from undisclosed sources; Peak credit; Valuation report

Judgement Text

] IQ.KS ] IQ.KS ] IQ.KS ] IQ.KS IQ.KS IQ.KSIQ.KS IQ.KS IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE , . . , # BEFORE MS. SUSHMA CHOWLA, JM AND SHRI R.K. PANDA, AM . / ITA NO.835/PN/2014 % % / ASSESSMENT YEAR : 2008-09 SUBHASH DESHMUKH & COMPANY, 13A, SAHYADRI NAGAR, HOTGI ROAD, NEAR VIKAS NAGAR, SOLAPUR 413 003 PAN NO. AAFFS4171F . / APPELLANT V/S JCIT, RANGE-2, SOLAPUR . / RESPONDENT / APPELLANT BY : SHRI S.N. DOSHI / RESPONDENT BY : SHRI SUHAS KULKARNI / ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 11-02-2014 OF THE CIT(A)-III, PUNE RELATING TO THE ASSESSMENT YEAR 2008-09. 2. THE ASSESSEE IN THE GROUNDS OF APPEAL HAS CHALLENGED THE ORDER OF THE CIT(A) IN SUSTAINING THE PENALTY OF RS.21,15,000/ - LEVIED BY THE AO U/S.271(1)(C) OF THE I.T. ACT. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS A REGISTERED FIRM AND IS ENGAGED IN THE BUSINESS OF REGISTER ED CONTRACTING UNDER VARIOUS DEPARTMENTS, CARRYING OUT ASP HALT AND / DATE OF HEARING :21.07.2016 / DATE OF PRONOUNCEMENT:31.08.2016 2 ITA NO.835/PN/2014 RCC ROAD CONSTRUCTION AND IS ALSO A REGISTERED DEALER OF BHARAT PETROLEUM CORPORATION LTD, MUMBAI FOR CARRYING OUT ASPHALT SALE. IT FILED ITS RETURN OF INCOME ON 29-09-2008 DECLARING TOTAL INCOME OF RS.3,15,07,616/-. DURING THE COURSE OF ASSESSMENT PROC EEDINGS THE AO NOTICED THAT THERE WAS AN ADDITION OF RS.81,40,000 /- TO THE FIXED ASSETS AS PER THE DEPRECIATION CHART ANNEXE D TO THE RETURN OF INCOME. THE AO ASKED THE ASSESSEE TO PRODUCE ALL THE DETAILS OF THE ASSETS ACQUIRED DURING THE YEAR. THE ASSE SSEE PRODUCED THE VALUATION REPORT OF ONE SHRI ARUN T. KULKARN I DATED 08-03-2007 IN RESPECT OF THE MACHINERY BELONGING TO M/S . SAMARTH INDUSTRIES, KONDI, SOLAPUR, VALUING THE SAID MACHINE RY AND ASSETS AT RS.99,97,920/-. THIS REPORT WAS APPARENTL Y PREPARED AFTER HE INSPECTED THE MACHINERY AT THE PREMIS ES OF M/S SAMARTH INDUSTRIES ON 28-02-2007. THE ASSESSEE STATED THAT, AS PER THE TRANSFER DEED DATED 18-07-2007 BETWEEN ITSELF A ND M/S. SAMARTH INDUSTRIES, THE SAID MACHINERY AND ASSETS WERE TO BE TRANSFERRED TO THE ASSESSEE FOR A TOTAL CONSIDERATION OF RS.81,40,000/- WHICH AMOUNT WAS DUE TO BE PAID TO THE AS SESSEE ON ACCOUNT OF REGULAR TRANSACTIONS BETWEEN THE TWO PARTIES. 4. THE AO PROCEEDED TO EXAMINE THE GENUINENESS OF THE CLAIM OF ACQUISITION OF FIXED ASSETS AND RESULTANT DEPRECIATION AN D ASKED THE ASSESSEE TO CLARIFY THE INCOME TAX DETAILS AND PRODU CE THE AUDIT REPORT OF M/S. SAMARTH INDUSTRIES FOR THE RELEVANT YEAR AS ALSO THE PARTNERSHIP DEED AND THE LOAN PAPERS PERTAINI NG TO LIABILITY OF M/S SAMARTH INDUSTRIES TOWARDS LOKMANGAL AGRO INDUSTRIES LTD AND SUBHASH S. DESHMUKH (HUF) THAT WAS T AKEN OVER BY THE ASSESSEE, TO THE TUNE OF RS. 30,80,101/- AND RS. 21,35,773/- RESPECTIVELY. THE DETAILS OF THE BUSINESS 3 ITA NO.835/PN/2014 TRANSACTIONS BETWEEN THE TWO PARTIES WERE ALSO CALLED FOR . FINALLY THE AO ISSUED A SHOW CAUSE NOTICE DATED 22-12-2010. IN VIEW OF THE FACT THAT NO INDEPENDENT EVI DENCE HAVING BEEN PRODUCED TO SHOW THE WDV OF THE ASSETS IN THE HANDS OF M/S SAMARTH INDUSTRIES AND THE NATURE OF TRANSACTION S BETWEEN THE TWO PARTIERS AS ALSO THE FACT THAT THE ASS ETS HAD NOT BEEN PUT TO ANY MEANINGFUL USE, THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY THE DEPRECIATION OF RS.12,21,000/- CLAIMED BY TH E ASSESSEE DURING THE YEAR SHOULD NOT BE DISALLOWED. THE AO ALSO PROPOSED THAT SINCE M/S. SAMARTH INDUSTRIES WAS NEITHER ASSESSED TO TAX NOR HAD PAN NOR HAD APPARENTLY MAINT AINED BOOKS OF ACCOUNT, WHY THE VALUE OF THE SO-CALLED TRANSFER MAY NOT BE ASSESSED AS CAPITAL GAINS IN THE HANDS OF M/S SAMARTH INDUSTRIES WHILE MAKING PROTECTIVE ADDITION IN THE HANDS OF THE ASSESSEE. 5. THE AO ALSO DEPUTED THE INSPECTOR ATTACHED TO HIS O FFICE TO CONDUCT ON THE SPOT INSPECTION OF THE PLACE WHERE THE ASSETS THAT WERE TAKEN OVER FROM M/S SAMARTH INDUSTRIES, WERE SUPP OSEDLY KEPT. THE ENQUIRY REPORT OF THE INSPECTOR, REPRODUCED AT PARAS 11 AND 12 OF THE ASSESSMENT ORDER, SHOWED THAT SOME MAC HINERY OF SMALLER VALUE (ITEMS 1-18 AND 20 OF THE VALUER'S REPORT) W AS FOUND LYING IN THE OPEN IN DISUSED AND SCRAP CONDITION. SO FAR AS THE FABRICATED MS NEEDLE GATES WERE CONCERNED, AMOUNTING IN A LL TO 2683 NUMBERS, ONLY AROUND 450/500 PIECES OF THE SAME W ERE FOUND SCATTERED IN THE PREMISES IN UNUSED AND CORRODING CONDITION. IT WAS ALSO REPORTED THAT THE PURCHASE BILLS PE RTAINING TO THE MACHINERY WERE NOT AVAILABLE ON THE SITE. THE INSPE CTOR'S REPORT WAS SUPPORTED BY PHOTOGRAPHIC EVIDENCE, WHICH C LEARLY 4 ITA NO.835/PN/2014 DEMONSTRATED THAT ALL THE MATERIAL WAS NOT ONLY LYING UN USED BUT ALSO WAS INCAPABLE OF EVER BEING USED IN THE FUTURE. THE A SSESSEE ALSO EXPRESSED ITS INABILITY TO PRODUCE THE BILLS OF THE SAID MACHINERY OR TO PRODUCE THE BOOKS OF ACCOUNTS OF M/S. S AMARTH INDUSTRIES SINCE THEIR PRESENT WHEREABOUTS WERE NOT KN OWN. IN THE LETTER DATED 29-12-2010 ADDRESSED TO THE AO, THE ASSESSEE ALSO EXPLAINED THAT PART OF THE MS NEEDLE GATES MIGHT HAV E BEEN UTILIZED FOR INTERNAL CONSUMPTION BUT IT WAS POSSIBLE THAT SO ME OF THE GATES WOULD HAVE GOT MISPLACED OR PILFERED. ACCORDINGLY , THE ASSESSEE OFFERED FOR TAXATION TOTAL AMOUNT OF RS. 62,19,977/ - FOR THE IMPUGNED A.Y. 2008-09, WHICH INCLUDED DEPRECIATION OF RS. 12,21,000/- AND AN ADDITIONAL INCOME OF RS, 49,98,977/-. IT W AS CLAIMED THAT EVEN THOUGH THE BOOKS OF ACCOUNTS HAVE BE EN AUDITED AND THE TRANSACTIONS ARE FULLY SUPPORTED, THE INC OME WAS BEING OFFERED TO TAX TO BUY PEACE OF MIND AND TO AVOID P ROLONGED LITIGATION. IT WAS ALSO REQUESTED THAT NO PENALTY MAY BE LE VIED U/S 271(1)(C) IN VIEW OF THE COOPERATION EXTENDED BY THE ASSESS EE TO END THE PROCEEDINGS BY OFFERING ADDITIONAL INCOME TO TAX. 6. HOWEVER THE AO WAS NOT SATISFIED WITH THE ARGUMENTS ADVANCED BY THE ASSESSEE. HE NOTED THAT THE ASSESSE E HAD OFFERED ADDITIONAL INCOME TO TAX ONLY AFTER THE ON-SITE INSPECTION BY THE INSPECTOR WHICH SHOWED THAT THE ENTIRE TRANSACTION IN TH E BOOKS OF ACCOUNT WAS RECORDED IN ORDER TO FRAUDULENTLY CLAIM DEPRECIATION. THE ASSESSEE'S EXPLANATIONS THAT THE NEEDLE GATES WERE USED FOR INTERNAL CONSUMPTION OR MAY HAVE BEEN PILFER ED WERE SEEN AS AN EXCUSE WHICH WAS NOT SUPPORTED BY TH E FIRST HAND EXPERIENCE BY THE INSPECTOR, BACKED BY PHOTOGRAPH IC EVIDENCES OR BY CIRCUMSTANTIAL EVIDENCES SUCH AS POLICE FI R. EVEN 5 ITA NO.835/PN/2014 OTHERWISE, AS PER THE ASSESSEE'S OWN SUBMISSION, SINCE TH E NEEDLE GATES HAD NOT BEEN USED FOR ANY PRODUCTION NOR ANY DOCUMENTATION REGARDING ITS UTILIZATION HAD BEEN PRODUCED , DEPRECIATION ON THE SAME WAS OTHERWISE ALSO NOT ALLOWAB LE. ACCORDINGLY, WHILE BRINGING TO TAX AN AMOUNT OF RS. 62,21,000/-, THE AO INITIATED PENALTY PROCEEDINGS U/S.271(1)(C) FOR THE IMPUGNED ASSESSMENT YEAR. 7. DURING THE COURSE OF PENALTY PROCEEDINGS, THE ASSESSE E CONTENTED THAT IT WAS ASSESSED TO TAX REGULARLY FOR MO RE THAN ONE DECADE. THE ASSESSEE FIRM HAD PURCHASED THE ASSETS FROM M/S. SAMARTH INDUSTRIES, INCLUDING THE PLANT AND MACHINERY. IT WAS STATED THAT THE SOURCE OF ACQUISITION FOR THE SAME WAS FU LLY PROVED BY THE BOOKS OF ACCOUNTS AND WAS FULLY ACCOUNTE D FOR. THERE IS NO DISPUTE ABOUT OWNERSHIP OF THE ASSET. THE ON LY REASON WHY THE AMOUNT WAS OFFERED TO TAX WAS THAT THE ASSESSEE WAS UNABLE TO PROVIDE ANY FURTHER INFORMATION ON M/S. SAMARTH INDUSTRIES, DUE TO GENUINE REASONS. REGARDING THE SHORT AVAILABILITY OF THE FABRICATED NEEDLE GATES, THE ASSESSEE HAD ALREADY SUBMITTED ITS EXPLANATION THAT THE SAME HAD BEEN MISPLACED OR PILFERED OR USED SOMEWHERE ELSE, ETC AND IT WA S NOT FOUND THAT THIS EXPLANATION WAS NOT BONAFIDE. THE ASSESSEE CLARIFIED THAT EXPLANATION 1 TO SECTION 271(1)(C) WAS NOT APPLICABLE AS THE ASSESSEE HAD NOT FURNISHED ANY INACCURA TE PARTICULARS OF ITS INCOME. EXPLANATION 2 TO SECTION 271(1)(C) WA S NOT APPLICABLE EITHER AS THE ASSESSEE HAD EXPLAINED THE S OURCE OF THE INVESTMENT DURING THE YEAR AND THE SAME WAS DULY ACCOUNTE D FOR IN THE BOOKS. EXPLANATION 3 TO SECTION 271(1)(C) WAS ALSO NOT APPLICABLE AS THE ASSESSEE HAD FURNISHED THE RETURN OF IN COME IN 6 ITA NO.835/PN/2014 TERMS OF SECTION 139(1). THE ASSESSEE HAD NOT CONCEALED A NY INFORMATION BUT HAD COOPERATED BY FURNISHING ALL THE DESIRE D INFORMATION AS SOUGHT FOR. RELIANCE WAS ALSO PLACED ON CERTA IN CASE DECISION FOR THE PROPOSITION THAT INCORRECT CLAIM OF DEPRECIATION AS WELL AS OTHER CLAIMS MADE WAS HELD TO BE N OT APPROPRIATE AND ADEQUATE REASON FOR LEVY OF CONCEALMENT PENALTY. 8. HOWEVER, THE AO WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE AND HELD THAT THE CLAIM OF THE ASS ESSEE THAT THE ENTIRE TRANSACTIONS HAD BEEN PROVED WITH DOCUMENTA RY EVIDENCE WAS INCORRECT. THE ASSESSEE HAD IN FACT, FILED THE RETURN ON THE BASIS OF FORGED DOCUMENTS AND THE ORIGINAL PURCHA SE BILLS AND EVEN BANK ACCOUNT STATEMENTS HAD NOT BEEN FILED EV EN DURING THE PENALTY PROCEEDINGS. THAT IS THE REASON WHY THE ASS ESSEE HAD COME FORWARD TO DISCLOSE ADDITIONAL INCOME REPRESENTING THE INVESTMENT IN THE PLANT AND MACHINERY AND THE DEPRECIAT ION CLAIMED THEREON. REGARDING THE EXPLANATION THAT THE ASSES SEE HAD ONLY DISCLOSED THE AMOUNT BECAUSE IT WAS NOT ABLE TO PR ODUCE THE ORIGINAL PURCHASE BILLS OR BALANCE SHEET OF M/S. SAMARTH INDUSTRIES, THE AO HELD THAT EVEN THE EXISTENCE OF M/S. S AMARTH INDUSTRIES AND THE PERSON FROM WHOM THE SO-CALLED ASSET S WERE PURCHASED COULD NOT BE PROVED BY THE ASSESSEE. HE FOUN D IT HARD TO BELIEVE THAT A PERSON, WHO WAS HAVING ASSETS WORTH R S.99.97 LAKHS DID NOT POSSESS A PAN. HE, THEREFORE, HELD THAT THE MAIN PROVISIONS OF SECTION 271(1)(C) WERE ATTRACTED AND THE ASSESSEE HAD FILED THE RETURN DISCLOSING INACCURATE PARTICULARS WITH THE INTENTION TO CONCEAL THE INCOME. HE HELD THAT THE ASSESSEE HAD NOT VOLUNTARILY SURRENDERED THE WRONGFUL CLAIMS BUT HAD ONLY DISCLOSED THE VALUE OF THE INVESTMENT AS ALSO THE DEPRECIA TION 7 ITA NO.835/PN/2014 CLAIM AFTER THE CLINCHING EVIDENCES HAD BEEN GATHERED DURIN G THE COURSE OF FIELD INVESTIGATIONS BY THE OFFICERS OF THE DEPARTM ENT. REJECTING THE EXPLANATION OF THE ASSESSEE THAT THE MACH INERY IN QUESTION HAD BEEN EITHER UTILIZED OR MISPLACED/PILFERED, HE HE LD THAT CONCEALMENT PENALTY WAS ATTRACTED BOTH UNDER THE MAIN PROVISIONS OF SECTION 271(1)(C) AS ALSO UNDER EXPLANATION 1 TO SECTION 271(1)(C). HE ACCORDINGLY LEVIED PENALTY OF RS.21,15,000/ - BEING 100% OF THE TAX SOUGHT TO BE EVADED. 9. BEFORE THE CIT(A) THE ASSESSEE MADE ELABORATE SUBMISS IONS BASED ON WHICH THE LD.CIT(A) CALLED FOR A REMAND REPORT FRO M THE AO. REJECTING THE VARIOUS EXPLANATIONS GIVEN BY THE ASSE SSEE THE LD.CIT(A) UPHELD THE PENALTY LEVIED BY THE AO U/S. 271(1)(C) OF THE I.T. ACT. WHILE DOING SO, SHE HELD THAT THE PROVISIONS OF EXPLANATION (1) TO SECTION 271(1)(C) OF THE ACT IS APPLICABLE SINC E THE ASSESSEE HAD FILED INACCURATE PARTICULARS OF INCOME. SH E OBSERVED THAT NO COGENT EVIDENCE HAS BEEN FILED BY THE ASSESSEE TO SUPPORT THE ACQUISITION OF MACHINERIES. SHE ALSO RAISED THE DOUBT ABOUT THE SOURCES FOR ACQUIRING PLANT AND MACHINERY. SHE OBSERVED THAT THE ASSESSEE IS NOT COMING CLEAN WITH ALL T HE FACTS AND ITS CLAIM IS NOT BONAFIDE. THE CLAIM OF DEPRECIATION IS NO T SUPPORTED BY EXPLAINING THE ACTUAL USE, INSTALLATION ETC., AND THE ASSESSEE HAS MADE A FRAUDULENT CLAIM BY ACQUIRING THE MACHINERIES AND CLAIMED DEPRECIATION ON THE SAME. SHE FURT HER OBSERVED THAT IT IS NOT KNOWN WHETHER THE ASSETS WERE PHYSICALLY AVAILABLE WITH THE TRANSFEROR WHEN THE VERY EXISTENCE OF T HE TRANSFEROR IS DOUBTFUL. RELYING ON VARIOUS DECISIONS SHE UPHELD THE PENALTY LEVIED BY THE AO. 8 ITA NO.835/PN/2014 10. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. 11. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY CHALLENGED THE ORDER OF THE CIT(A). REFERRING TO PAGE 11 OF THE PAPER BO OK THE LD. COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENC H TO THE CERTIFICATE OF REGISTRATION GRANTED BY THE REGISTRAR OF FIRM S TO M/S. SAMARTH INDUSTRIES VIDE REGISTRATION NO. MPA-39386 DATED 28-06-1999. REFERRING TO PAGES 12 TO 16 OF THE PAPER B OOK THE LD. COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENC H TO THE CERTIFICATE OF REGISTRATION BY THE DIRECTOR OF INDUSTRIES AS A SSI UNIT. REFERRING TO THE SAID CERTIFICATE THE LD. COUNSEL FOR T HE ASSESSEE DREW THE ATTENTION OF THE BENCH TO THE VARIOU S PLANT AND MACHINERY HELD BY SUCH SSI UNIT. REFERRING TO PAGES 17 A ND 17 OF THE PAPER BOOK THE LD. COUNSEL FOR THE ASSESSEE DREW T HE ATTENTION OF THE BENCH TO THE MSEB METER APPLICATION AND BILL OF M/S. SAMARTH INDUSTRIES. REFERRING TO PAGES 18 TO 21 OF T HE PAPER BOOK HE DREW THE ATTENTION OF THE BENCH TO THE LOAN ST ATEMENT OF THE ASSESSEE WITH THE LAXMI COOPERATIVE BANK LTD., SOLAPUR. 12. REFERRING TO THE FIXED ASSETS SCHEDULE INCORPORATED IN THE ASSESSMENT ORDER AT PAGE 2 HE SUBMITTED THAT ADDITION OF RS.81,40,000/- HAS BEEN SHOWN AS ADDITION FOR ACQUISITION OF PLANT AND MACHINERY AND DEPRECIATION OF RS.12,21,000/- HAS BEEN CLAIMED FOR SUCH ASSETS. REFERRING TO PAGE 8 OF THE ASSES SMENT ORDER HE DREW THE ATTENTION OF THE BENCH TO THE EXTRA CT OF LEDGER ACCOUNT OF M/S. SAMARTH INDUSTRIES. HE SUBMITTED THAT TH E TRANSACTION OF ACQUIRING PLANT AND MACHINERY OF RS.81,40,000 /- IS RECORDED BY A JOURNAL ENTRY CREDITED TO M/S. SAMARTH I NDUSTRIES. 9 ITA NO.835/PN/2014 REFERRING TO THE DEBIT TO M/S. SAMARTH INDUSTRIES ACCOUN T HE SUBMITTED THAT THE ASSESSEE WAS TO RECEIVE RS.81,40,000/ - AND THEREAFTER BY REASON OF TRANSFER DEED EXECUTED WITH M/S. SAMARTH INDUSTRIES, THE ASSESSEE TOOK OVER THE PLANT AND MACHIN ERY OF M/S. SAMARTH INDUSTRIES. THEREFORE, THIS TRANSACTION OF ACQUISITION OF PLANT AND MACHINERY DOES NOT INVOLVE ANY INVESTMENT ACTUALLY MADE BY THE ASSESSEE BUT THE SAME IS PAID BY ADJUSTING THE AMOUNT RECEIVABLE. NOTHING HAS BEEN PAID OR INVESTED AS SUCH AND THEREFORE THE ASSESSEE AT THE OU TSET HAD NO REASON TO MAKE SUCH AN OFFER EXCLUSIVELY BASED ON AN ER RONEOUS UNDERSTANDING AS IF ASSETS ARE ACQUIRED OUT OF UNDISCLO SED INCOME. THIS OFFER WAS TOTALLY UNCALLED FOR AND THEREFORE TH ERE WAS NO QUESTION OF ANY LITIGATION OR BUYING PEACE OF MIND. THIS COST OF PLANT AND MACHINERY IS SHOWN AS AN ASSET AND IS CERTAINLY NOT CLAIMED AS AN EXPENDITURE IN THE PROFIT AND LOSS ACCOU NT. THUS, THE COST OF ASSET OF RS.81,40,000/- GETS SUPPORTED BY THE SOURCES EXPLAINED ABOVE. HE SUBMITTED THAT INADVERTENTL Y THE ASSESSEE HAD OFFERED DURING THE COURSE OF ASSESSMENT PR OCEEDINGS FOR THE ADDITION. REFERRING TO PAGE 14 OF THE ASSESSMENT ORDER HE SUBMITTED THAT THE ASSESSEE HAD BIFURCATED THE OFFERING O F RS.81,40,000/- IN 3 ASSESSMENT YEARS NAMELY 2008-09, 200 9-10 AND 2010-11. THE AMOUNT ATTRIBUTABLE TO A.Y. 2008-09 IS RS.62,19,977/- OUT OF WHICH RS.12,21,000/- IS CONSIDERED AS OFFERED BY WAY OF AGREEING TO THE DISALLOWANCE OF DEPRECIATIO N AND THE BALANCE AMOUNT OF RS.49,98,977/- WHICH WAS ROUNDED TO RS.50 LAKHS HAS BEEN OFFERED AS UNDISCLOSED INCOME. HE SUBMITTED THAT DESPITE SUCH OFFERING OF RS.50,00,000/- EMERG ING FROM THE TOTAL FIXED ASSETS OF RS.81,40,000/- BY ANY STAN DARD 10 ITA NO.835/PN/2014 SHOULD NOT HAVE BEEN OFFERED AS UNDISCLOSED INCOME. AT TH E MOST, IT CAN BE HELD THAT THE FIXED ASSETS TO THE TUNE OF RS.5 0 LAKHS HAS BEEN ADDED WITHOUT THERE BEING SUCH ASSETS IN EXISTENCE OR NOT UNDER USE. NOTHING HAS BEEN PAID FOR ACQUISITION OF THESE FIXED ASSETS AND THE SOURCE GETS FULLY SATISFIED. HE ACCORDINGL Y SUBMITTED THAT THERE BEING NO UNDISCLOSED INVESTMENT IN ACQUISITION OF ASSET OR UNDISCLOSED INCOME THIS ADDITION AT T HE OUTSET WAS NOT AT ALL WARRANTED. MERELY BECAUSE ADDITIO N HAS BEEN ERRONEOUSLY OFFERED THERE IS NO QUESTION OF INVOKING THE PROVISIONS OF SECTION 271(1)(C) OF THE I.T. ACT. 13. AS REGARDS THE SURRENDER OF THE DEPRECIATION HE SUB MITTED THAT THE SAME HAS ALSO BEEN OFFERED DURING THE COURSE O F ASSESSMENT PROCEEDINGS DUE TO WRONG APPRECIATION OF FACT S. THE CLAIM OF THE ASSESSEE IS SUPPORTED BY VARIOUS ITEMS OF PLAN T AND MACHINERY ACQUIRED FROM M/S. SAMARTH INDUSTRIES AS PER T HE TRANSFER DEED AND DULY APPROVED BY THE APPROVED VALUE R. THE ASSESSEE HAD FURNISHED ALL THESE PARTICULARS ALONG WITH THE RETURN OF INCOME ITSELF AND IT IS NOT A CASE THAT DEPRECIATION HAS BEEN CLAIMED WITHOUT THERE BEING ANY BASIS. THOSE PLANT AND MACHINERIES AS FOUND BY THE AO SUGGESTING UNUTILISABLE FOR A NY BUSINESS PURPOSE PER SE DOES NOT MEAN THAT DEPRECIATIO N CANNOT BE CLAIMED. HE SUBMITTED THAT ALTHOUGH THE ASSESSEE HAD OFFERED THE ADDITION ERRONEOUSLY, HOWEVER, HE HAS NOT CLAIMED CAPITALIZATION OF THE SAME. RELYING ON VARIOUS DECISIONS HE SUBMITTED THAT IN A CASE WHERE INCOME IS MERELY OFFERED FO R TAXATION AND NOT ACTUALLY EARNED AND THEREFORE NOT ACC OUNTED IN THE BOOKS OF ACCOUNT NO PENALTY IS LEVIABLE. 11 ITA NO.835/PN/2014 14. REFERRING TO THE DECISION OF THE HONBLE BOMBAY HIGH C OURT IN THE CASE OF CIT VS. BHIMJI BHANJEE & CO REPORTED IN 1 46 ITR 145 HE SUBMITTED THAT THE HONBLE HIGH COURT IN THE SAID DECISION HAS HELD THAT ALL THAT THE ASSESSEE DID WAS TO ADMIT THA T THERE WERE CERTAIN CASH CREDITS IN ITS BOOKS OF ACCOUNT IN FAVOU R OF CERTAIN PARTIES AND THAT THE ASSESSEE WAS UNABLE TO PR ODUCE EVIDENCE TO SHOW THAT THESE CASH CREDITS WERE GENUINE. THE AFORESAID STAND OF THE ASSESSEE COULD NEVER BE CONSIDER ED AS AN ADMISSION BY THE ASSESSEE THAT IT HAD CONCEALED ANY INCO ME. EVEN THE AO HAD NOT MADE THE ADDITION AS CONCEALED INCO ME FROM BUSINESS BUT AS FROM UNDISCLOSED SOURCES. FOR THESE REA SONS, THE PENALTY LEVIED U/S.271(1)(C) WAS HELD TO BE NOT LEVIABLE. HE A LSO RELIED ON THE FOLLOWING DECISIONS : 1. CIT VS. SURESH CHANDRA MITTAL REPORTED IN 251 ITR 9 2. SHRI HAFEEZ S. VS. ACIT ITA NO.6222 & 6223/MUM /2013 ORDER DATED 02-09-2015 3. SHRI SAMSON PERINCHERY VS. ACIT ITA NO.4625/MUM /2013 AND OTHER CONNECTED APPEALS ORDER DATED 11-10-2013 15. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND HEAVILY RELIED ON THE ORDER OF THE CIT(A). HE SUBMITTED TH AT THE CIT(A) HAD GIVEN CATEGORICAL FINDING THAT NO COGENT EVIDENCE HAVE BEEN FILED BY THE ASSESSEE TO SUBSTANTIATE THE ACQUISITIO N OF THE PLANT AND MACHINERY. THERE WAS NO SOURCE AVAILABLE WITH T HE ASSESSEE FOR ACQUISITION OF SUCH HUGE PLANT AND MACHINERY AND THE ASSESSEE WAS NOT COMING CLEAR WITH ALL THE FACTS. FUR THER THE CIT(A) HAD ALSO GIVEN A FINDING THAT THE ASSESSEE MADE A FRAUDULENT CLAIM AND THE ASSESSEE HAS DELIBERATELY AND WILLFU LLY CONCEALED ITS PARTICULARS OF INCOME. HE ACCORDINGLY SUBMITT ED 12 ITA NO.835/PN/2014 THAT THE PENALTY LEVIED BY THE AO AND UPHELD BY CIT(A) S HOULD BE CONFIRMED. 16. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOT H THE SIDES, PERUSED THE ORDERS OF THE AO AND CIT(A) AND THE P APER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDER ED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND THE ASSESSEE IN THE INSTANT CASE IS A CIVIL CONTRACTOR AND MAINLY UNDERTAKE S THE WORK FOR GOVERNMENT DEPARTMENTS. THE ASSESSEE IN ITS ACCOUN TS HAD SHOWN ADDITION OF RS.81,40,000/- TOWARDS ACQUISITION OF PLANT AND MACHINERY AND HAD CLAIMED DEPRECIATION OF RS.12,21,000/- . ON BEING QUESTIONED BY THE AO REGARDING THE GENUINENESS OF SUCH ASSETS INTRODUCED AND CLAIM OF DEPRECIATION THEREON, THE ASSESSEE INITIALLY SUBMITTED THAT THE ASSETS OF M/S. SAMAR TH INDUSTRIES WERE TAKEN OVER BY IT WHICH HAS BEEN ADJUST ED TOWARDS THE AMOUNT RECEIVABLE FROM THEM. HOWEVER, ON BEING UNABLE TO SATISFY THE AO AND ON THE BASIS OF THE REPORT OF THE IN SPECTOR WHO HAD STATED THAT CERTAIN MACHINERIES WERE LYING OPEN, UNU SED AND IN SCRAP CONDITION AND WERE SCATTERED HERE AND THERE A ND THE ASSESSEE WAS UNABLE TO PRODUCE FULL DETAILS OF SUCH ASSETS , THE ASSESSEE OFFERED FOR TAXATION AN AMOUNT OF RS.61,19,977/- FO R A.Y. 2008-09 WHICH INCLUDED DEPRECIATION OF RS.12,21,000/- AND ADDITIONAL INCOME OF RS.49,98,977/- ROUNDED OFF TO RS.50 LAKHS. THE ASSESSEE DID NOT PREFER ANY APPEAL. SUBSEQUENTLY, T HE AO LEVIED PENALTY U/S.271(1)(C) OF THE ACT AND LEVIED PENALTY OF RS.21,15,000/- ON THE ADDITION OF RS.50 LAKHS WHICH HAS BEEN UPHELD BY THE CIT(A). 13 ITA NO.835/PN/2014 17. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESS EE THAT THE ASSESSEE HAD ACQUIRED THE PLANT AND MACHINERY OF M /S. SAMARTH INDUSTRIES WHICH WAS A PARTNERSHIP FIRM AND THE SAME HAS BEEN ADJUSTED AGAINST THE DEBIT BALANCE OF THE SAID PARTY. FURTHER CERTAIN MACHINERIES WERE FOUND BY THE INSPECTOR ON SPOT VERIFICATION ALTHOUGH SUCH AMOUNT MAY NOT EXACTLY TALLY W ITH THE ASSETS THAT HAVE BEEN TAKEN OVER. THEREFORE, MERELY BECAUS E THE ASSESSEE HAD ADMITTED/SURRENDERED THE ADDITIONAL INC OME OF RS.50 LAKHS THAT DOES NOT PER SE ATTRACT PENALTY PROVI SIONS U/S.271(1)(C) OF THE I.T ACT. 18. WE FIND SOME FORCE IN THE ABOVE ARGUMENTS OF THE LD. COUNSEL FOR THE ASSESSEE. WE FIND THE ASSISTANT REGISTRAR OF FIRMS HAD ISSUED CERTIFICATE OF REGISTRATION TO M/S. SAMARTH INDUSTRIES VIDE REGISTRATION NO. MPA-39286 DATED 28-06- 1999. THE DIRECTOR OF INDUSTRIES VIDE REGISTRATION NO. 112306855 DATED 21-01-1999 HAD ISSUED THE CERTIFICATE OF REGISTRATION TO M /S. SAMARTH INDUSTRIES AS A SMALL SCALE INDUSTRY. THE MAHAR ASHTRA STATE ELECTRICITY DISTRIBUTION COMPANY LTD. HAD GIVEN ELECTR ICITY CONNECTION TO THE SAID SMALL SCALE INDUSTRY. SIMILARLY, THE LAXMI COOPERATIVE BANK LTD., SOLAPUR HAS ALSO GRANTED LOAN TO M/S. SAMARTH INDUSTRIES, COPY OF WHICH ARE PLACED AT PAGES 1 8 TO 22 OF THE PAPER BOOK. FROM THE ABOVE DOCUMENTS, IT IS AMPLY C LEAR THAT M/S. SAMARTH INDUSTRIES WAS IN EXISTENCE. MERELY BECAUS E IT HAS NOT AVAILED PAN NUMBER CANNOT BE A GROUND TO DISBELIEVE THE EXISTENCE OF THE SAID COMPANY. FURTHER, IN THE BOOKS OF THE ASSESSEE, M/S. SAMARTH INDUSTRIES WAS SHOWN AS DEBTOR TO THE EXTENT OF RS.81,40,000/- AND THE SAME HAS NOWHERE BEEN DISPUTED BY THE REVENUE. EVEN ON THE DATE OF VISIT BY T HE 14 ITA NO.835/PN/2014 INSPECTOR, HE HAD FOUND CERTAIN SPARES, PLANT AND MACHINE RY ETC. SCATTERED HERE AND THERE. ALTHOUGH THOSE MACHINERIES W ERE NOT IN A USABLE CONDITION OR THE ASSESSEE MIGHT HAVE OVER VALUED SUCH PLANT AND MACHINERY, HOWEVER, THE VARIOUS EVIDENCES FILED I N THE PAPER BOOK DO INDICATE THAT THE ASSESSEE HAD ACQUIRED CERTAIN PLANT AND MACHINERY FROM M/S. SAMARTH INDUSTRIES WHICH HA S BEEN ADJUSTED AGAINST THE AMOUNTS RECEIVABLE FROM THEM. THEREFORE, MERELY BECAUSE THE ASSESSEE DURING THE COUR SE OF ASSESSMENT PROCEEDINGS HAD AGREED FOR THE ADDITION OF RS .50 LAKHS THE SAME, IN OUR OPINION, DOES NOT CALL FOR LEVY OF PENA LTY. IT IS THE SETTLED POSITION OF LAW THAT ASSESSMENT PROCEED INGS AND PENALTY PROCEEDINGS ARE DISTINCT AND DIFFERENT. THE ASSES SEE MAY ADVANCE FRESH ARGUMENTS DURING PENALTY PROCEEDINGS. IN THE INSTANT CASE, WE FIND THE ACQUISITION OF PLANT AND MACHINERY IS SUPPORTED BY A TRANSFER DEED AND A VALUATION REPORT. SUCH COST OF PLANT AND MACHINERY HAS BEEN ADJUSTED AGAINST THE AMOU NT DUE FROM M/S. SAMARTH INDUSTRIES. THE VARIOUS DOCUMENTS FILED IN THE PAPER BOOK NAMELY, REGISTRATION CERTIFICATE GRANTED B Y THE REGISTRAR OF FIRMS, REGISTRATION CERTIFICATE ISSUED BY THE DI RECTOR OF INDUSTRIES CERTIFYING THE UNIT AS SMALL SCALE INDUSTRY U NIT, ELECTRICITY CONNECTION CERTIFICATE AND THE LOAN STATEMENT C LEARLY INDICATE THE EXISTENCE OF M/S. SAMARTH INDUSTRIES. THEREFO RE, WE ARE OF THE CONSIDERED OPINION THAT WHILE UNDER THE FACTS A ND CIRCUMSTANCES OF THE CASE ADDITION OF RS.50 LAKHS SURRENDE RED BY THE ASSESSEE ON ACCOUNT OF ACQUISITION OF PLANT AND MACHIN ERY IS SUSTAINABLE, HOWEVER, THE SAME DOES NOT CALL FOR LEVY OF PEN ALTY U/S.271(1)(C) OF THE I.T. ACT. 15 ITA NO.835/PN/2014 19. WE FIND A SOMEWHAT SIMILAR ISSUE HAD COME UP BEFORE TH E HONBLE BOMBAY HIGH COURT IN THE CASE OF BHIMJI BHANJEE & CO. (SUPRA). IN THAT CASE THE ASSESSEE WAS A REGISTERED FIRM CARRYING ON KIRANA BUSINESS. THE AO WHILE SCRUTINIZING THE BOOKS FOU ND CERTAIN CASH CREDITS. ON BEING ASKED BY THE AO TO PROV E THE GENUINENESS OF SUCH CASH CREDITS, THE ASSESSEE EXPRESSE D HIS INABILITY TO PRODUCE THE PERSONS TO PROVE THE GENUINENES S OF THE CREDITS. THE AO WORKED OUT THE PEAK CREDITS AND MADE ADDITION OF RS.10,590/- AS INCOME FROM UNDISCLOSED SOURCE. ASSESSEE DID NOT PREFER ANY APPEAL. THE AO THEREAFTER LEVIED PENALTY U/S.271(1)(C) OF THE I.T. ACT. THE TRIBUNAL DELETED THE PENALT Y. ON APPEAL FILED BY THE REVENUE, THE HONBLE HIGH COURT DISM ISSED THE APPEAL OF THE REVENUE BY HOLDING AS UNDER : 'WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL HAS ERRED IN LAW IN HOLDING THAT THE PENALT Y LEVIED ON THE ASSESSEE UNDER SECTION 271(1)(C) OF THE ACT FOR THE ASSESSME NT YEAR 1968-69 WAS NOT SUSTAINABLE ?' THE SUBMISSION OF MR. SAJNANI, THE LEARNED COUNSEL FOR THE REVENUE, IS THAT THE ASSESSEE HAD IN FACT ADMITTED THE CONCEALME NT OF INCOME AND HENCE IT WAS NOT NECESSARY FOR THE REVENUE TO PROV E THE SAME. IT WAS SUBMITTED BY HIM THAT IN VIEW OF THIS THE BURDEN W AS ON THE ASSESSEE TO SHOW THAT THERE WAS NO CONCEALMENT AND THE CO NCLUSION ARRIVED AT BY THE TRIBUNAL WAS ERRONEOUS. HE PLACED ST RONG RELIANCE OIL THE DECISION OF DIVISION BENCH OF THIS COURT IN WE STERN AUTOMOBILES (INDIA) V. CIT [1978] 112 ITR 1048. IN O UR VIEW, IT IS NOT POSSIBLE TO ACCEPT THE SUBMISSION OF MR. SAJNANI. THE F ACTS, WHICH WE HAVE NARRATED EARLIER, CLEARLY SHOW THAT THE ASSESSEE N OWHERE ADMITTED THAT IT HAD CONCEALED ANY INCOME. ALL THAT THE ASSESSEE DID WAS TO ADMIT THAT THERE WERE CERTAIN CASH CREDITS IN I TS BOOKS OF ACCOUNT IN FAVOUR OF NAMED PARTIES AND THAT THE ASSESSEE WAS UNABLE TO PRODUCE EVIDENCE TO SHOW THAT THESE CASH CREDITS WER E GENUINE, AS THE ASSESSEE WAS NOT IN A POSITION TO CALL THE PARTIES IN WHOSE FAVOUR THE CASH CREDITS APPEAR, THE REASON GIVEN BY THE ASSESSEE BEING THAT IT WAS ALWAYS HEAVILY INDEBTED AND UNABLE TO TROUBLE ITS CREDITORS TO GIVE EVIDENCE. THE AFORESAID STAND BY THE ASSESSEE CAN, I N OUR VIEW, NEVER BE CONSIDERED AS AN ADMISSION BY THE ASSESSEE THAT IT HAS CONCEALED ANY INCOME. AS FAR AS THE DECISION IN WESTERN AUTOMOBILES (INDIA) [1978] 112 ITR 1048 (BOM) IS CONCERNED, THE FACTS OF THAT CASE ARE ALTOGETHER DIFFERENT FROM THE FACTS OF THE C ASE BEFORE US. IN THAT CASE, WHEN THE ITO DISCOVERED IN THE ACCOUNT BOO KS OF THE ASSESSEE LOANS TO THE TUNE OF RS. 90,000, HE CAME TO THE PRIMA FACIE 16 ITA NO.835/PN/2014 CONCLUSION THAT THESE REPRESENTED CONCEALED INCOME. T HE ASSESSEE FIRM AGREED TO THE ADDITION OF THE AFORESAID AMOUNT OF RS. 90,000 AS ITS BUSINESS INCOME FOR THAT YEAR AND THE ADDITION WAS M ADE BY THE ITO AS THE ASSESSEE'S CONCEALED INCOME FROM BUSINESS AND NOT AS INCOME FROM UNDISCLOSED SOURCES. IN THE PRESENT CASE, TH E ASSESSEE HAS NOWHERE ADMITTED THAT IT HAS CONCEALED ITS INCOME AND EVEN THE ITO HAS NOT ADDED THE SAID AMOUNT OF RS. 10,590 AS CONC EALED INCOME FROM BUSINESS BUT AS FROM UNDISCLOSED SOURCES. IN VIEW OF T HIS, THE SAID DECISION IN THE CASE OF WESTERN AUTOMOBILES (INDIA) [1978] 112 ITR 1048 (BOM) IS CLEARLY INAPPLICABLE TO THE PRESENT CASE. IN THE RESULT, THE QUESTION REFERRED TO US IS ANSWERED I N THE NEGATIVE AND IN FAVOUR OF THE ASSESSEE. THE COMMISSIONER TO PAY T HE COSTS. 20. IN VIEW OF THE ABOVE DISCUSSION AND RELYING ON THE D ECISION OF THE HONBLE BOMBAY HIGH COURT CITED (SUPRA) WE ARE OF THE CONSIDERED OPINION THAT IT IS NOT A FIT CASE FOR LEVY OF PENA LTY U/S.271(1)(C) OF THE I.T. ACT. WE THEREFORE SET ASIDE THE OR DER OF THE CIT(A) AND CANCEL THE PENALTY LEVIED BY THE AO. 21. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31-08-2016. SD/- SD/- ( SUSHMA CHOWLA ) ( R.K. PANDA ) JUDICIAL MEMBER ACCOUNTANT MEMBER IQ.KS PUNE ; DATED : 31 ST AUGUST, 2016. LRH'K ' (*+ ,+ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. % ( ) - THE CIT(A)-III, PUNE 4. % S / THE CIT-III, PUNE 5. ( ++, , , , IQ.KS / DR, ITAT, A PUNE; 6. 0 / GUARD FILE. / BY ORDER , ( + //TRUE COPY // COPY // 23 + , / SR. PRIVATE SECRETARY ,, IQ.KS / ITAT, PUNE