The ITO, Ward-4(2)., Visakhapatnam V. Smt P Sowmya, Visakhapatnam

ITA 94/VIZ/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 0637 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2004-2005
• Appeal Filed On: 29-01-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G S S GOPINATH
• Keywords: Business income; Rectification of order; Source of fund; Agreed addition
• Section: 271(1)(c); 154

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH: VISAKHAPATNAM BEFORE: SRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SRI B.R. BASKARAN, ACCOUNTANT MEMBER I.T.A. NO.93/VIZAG/2008 ASSESSMENT YEAR : 2004-05 ITO, WARD-4(2) VISAKHAPATNAM VS. SMT. PERICHARLA SOWMYA, W/O L/R OF LATE SRI P.B.R. SUDHIR VARMA VISAKHAPATNAM (APPELLANT) (RESPONDENT) PAN NO.AAHPV 7528 H I.T.A. NO.94/VIZAG/2008 ASSESSMENT YEAR : 2004-05 ITO, WARD-4(2) VISAKHAPATNAM VS. SMT. PERICHARLA SOWMYA, VISAKHAPATNAM (APPELLANT) (RESPONDENT) PAN NO .ACKPP 7335 C APPELLANT BY : SHRI G.S.S. GOPINATH, DR RESPONDENT BY : SHRI G.V.N. HARI, CA O R D E R PER SHRI B.R. BASKARAN, ACCOUNTANT MEMBER : THESE TWO APPEALS FILED AT THE INSTANCE OF THE REV ENUE ARE DIRECTED AGAINST THE ORDERS PASSED BY LD. CIT(A)-I VISAKHAPATNAM CAN CELING THE PENALTY LEVIED U/S 271(1)(C) OF THE ACT IN THE HANDS OF BOTH THE A SSESSEES FOR THE ASSESSMENT YEAR 2004-05. SINCE THE ISSUE AGITATED IN BOTH THE CASES ARISES OUT OF COMMON SET OF FACTS, BOTH THE APPEALS WERE HEARD TOGETHER AND THEY ARE DISPOSED OF BY THIS COMMON ORDER. 2 2. THE FACTS RELATING TO THE ISSUE ARE SET OUT IN B RIEF. THE ASSESSEES HEREIN ARE RELATED TO EACH OTHER AS HUSBAND AND WIFE. BOT H THE ASSESSEES, ALONG WITH THEIR RELATIVE NAMED SMT. M.VALLI, CONSTRUCTED A BU ILDING AT BUTCHIRAJUPALEM, GOPALAPATNAM AREA. THE CONSTRUCTION OF THE BUILDING WAS FINALLY COMPLETED IN MAY, 2005. THE COST INCURRED UP TO 31.3.2004 FOR C ONSTRUCTION OF THE BUILDING WAS ADMITTED AT RS.54,04,763/-. THE ASSESSEES DID NOT MAINTAIN DETAILED CONSTRUCTION ACCOUNT. HENCE, THEY OBTAINED AN INTE RIM REPORT FROM A REGISTERED VALUER FOR THE CONSTRUCTION CARRIED OUT UP TO 31.3. 2004, WHO ESTIMATED THE COST OF CONSTRUCTION UP TO 31.3.2004 AT RS.68,11,236/-. THE ASSESSING OFFICER NOTED THAT THE REGISTERED VALUER DID NOT INCLUDE THE COST OF BALCONIES THAT HAD BEEN CONSTRUCTED IN THE GROUND AND FIRST FLOOR OF THE BU ILDING. THE ASSESSING OFFICER ESTIMATED THE COST OF BALCONIES AT RS.2,10,880/- AN D THUS THE TOTAL COST OF CONSTRUCTION UP TO 31.3.2004 WAS ESTIMATED BY THE A O AT RS.70,22,116/-. THE DIFFERENCE IN COST OF CONSTRUCTION BETWEEN THE COST DECLARED BY THE ASSESSEE AND THE REGISTERED VALUERS ESTIMATE PLUS COST OF BALCO NIES WAS ARRIVED AT RS.16,17,353/-. WHEN CONFRONTED, BOTH THE ASSESSEE S AGREED TO OFFER THE SAID DIFFERENCE IN THEIR HANDS EQUALLY. ACCORDINGLY, TH E ASSESSING OFFICER ADDED RS.8,08,676/- IN THE HANDS OF EACH OF THE TWO ASSES SEES. IN THE HANDS OF SRI P.R.B. SUDHIR VARMA, THE ASSESSING OFFICER SUBSEQUE NTLY PASSED AN ORDER U/S 154 OF THE ACT, BY WHICH THE ADDITION ON ACCOUNT OF DIF FERENCE IN COST OF CONSTRUCTION WAS REDUCED TO RS.5,90,239/- BY MAKING CORRESPONDIN G INCREASE IN THE ADDITION MADE ON ACCOUNT OF DIFFERENCE IN THE CAPITAL ACCOUN T OF THAT ASSESSEE. 2.1 APART FROM THE COMMON ADDITION DISCUSSED IN THE EARLIER PARAGRAPH, THE A.O. ALSO MADE SEPARATE ADDITIONS IN THE HANDS OF E ACH OF THE ASSESSEES. IN THE CASE OF P.R.B. SUDHIR VARMA THE ASSESSING OFFICER D IRECTED THE ASSESSEE TO FURNISH THE BALANCE SHEET AS ON 31.3.2003 AND 31.3.2004. S INCE THE ASSESSEE DID NOT MAINTAIN ANY REGULAR BOOKS OF ACCOUNTS, HE PREPARED THE BALANCE SHEETS ON BOTH THE DATES ON AN ESTIMATED BASIS. BASED ON THE CAPI TAL BALANCE SHOWN AS ON 31.3.2003 AND AVAILABLE SOURCES OF INCOME DURING TH E FINANCIAL YEAR 2003-04, THE A.O. FOUND THAT THE CAPITAL BALANCE AS ON 31.3.2004 WAS SHOWN IN EXCESS BY RS.12,52,420/-. THE ASSESSEE OFFERED THE SAID DIF FERENCE ALSO AS HIS INCOME. IN THE RECTIFICATION ORDER PASSED U/S 154 OF THE ACT, THE DIFFERENCE IN CAPITAL ACCOUNT WAS ENHANCED TO RS.14,70,858/- IN VIEW OF THE REDUC TION IN THE DIFFERENCE IN COST 3 OF CONSTRUCTION. IN THE CASE OF SMT. P. SOWMYA, SH E HAD DECLARED AN AGRICULTURAL INCOME OF RS.80,000/-. THE A.O. ESTIMATED THE AGRI CULTURAL INCOME AT RS.46,500/- AND DIFFERENCE AMOUNT OF RS.33,500/- WA S TREATED AS INCOME OF THE ASSESSEE FROM OTHER SOURCES TO WHICH THE ASSESSEE A GREED. 2.2 BOTH THE ASSESSEES SUBMITTED BEFORE THE AO T HAT THEY HAVE AGREED TO THE ABOVE SAID ADDITIONS IN ORDER TO PURCHASE PEACE FRO M THE DEPARTMENT AND WITH A FURTHER REQUEST NOT TO LEVY PENALTY U/S 271(1)(C) O F THE ACT . HOWEVER, THE ASSESSING OFFICER INITIATED PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT AND LEVIED A PENALTY OF RS.6,84,645/- IN THE HANDS OF S HRI P.R.B. SUDHIR VARMA AND RS.2,74,403/- IN THE HANDS OF SMT. P. SOWMYA. BOTH THE PENALTIES WERE DELETED BY LD. CIT(A). HENCE, THE REVENUE IS IN APPEAL BEF ORE US ASSAILING THE DECISION OF LD. CIT(A). 3. LD DR SUBMITTED THAT THE LD CIT(A) WAS UNDER THE IMPRESSION THAT THE DELIBERATE OMISSION/COMMISSION BY THE ASSESSEE IS A N IMPERATIVE REQUIREMENT OF THE LAW WHICH WILL LEAD TO PENAL CONSEQUENCES. THE HONBLE SUPREME COURT, IN THE CASE OF UNION OF INDIA VS. DHARMENDRA TEXTILE P ROCESSORS (2007) 212 CTR 438 HAS HELD THAT THERE WAS NO NECESSITY OF MENS RE A FOR LEVYING PENALTY AND THE PROCEEDING U/S 271(1)(C) IS A CIVIL LIABILITY. BY PLACING RELIANCE ON THE DECISION OF THIS BENCH DATED 04-3-2009 IN THE CASE OF P.MALAKON DIAH IN ITA NO.428/V/2005, THE LD DR CONTENDED THAT THE ISSUE SHOULD BE SET AS IDE TO THE FILE OF LD CIT(A), SINCE THE FIRST APPELLATE AUTHORITY HAS TAKEN INTO ACCOUNT THE INAPPROPRIATE CONCEPT OF MENS REA FOR DECIDING THE ISSUE. LD D R FURTHER CONTENDED THAT THE AGREED ADDITION WILL NOT TAKE AWAY THE LIABILITY TO PENALTY AND IN THIS REGARD HE RELIED UPON THE DECISION OF THE SMC BENCH OF THIS BENCH IN ITA NO.183/V/2005 IN THE CASE OF KVR POULTRIES WHICH WAS RENDERED ON 29. 5.2006. 4. HOWEVER, LD AR HEAVILY PLACED HIS RELIANCE O N THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. RELIANCE PETRO PRODUCTS (P) LTD (2010) 36 DTR 449 (SC) (322 ITR 158) TO CONTEND THAT THE PENA LTY IS NOT LEVIEBLE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. WITH REGARD TO THE DECISION OF SMC BENCH IN THE CASE OF KVR POULTRIES, LD AR SUBMITTED THAT THE FACTS OF THAT CASE ARE DISTINGUISHABLE. WITH REGARD TO THE ADDITION ON AC COUNT OF DIFFERENCE IN CAPITAL 4 BALANCES, LD AR SUBMITTED THAT THE AO HAS MADE THE ADDITION ON THE BASIS OF TWO INACCURATE BALANCE SHEETS (STATEMENT OF AFFAIRS) WH ICH WERE PREPARED ON AN ESTIMATED BASIS. ACCORDING TO LD AR, THE SAID STAT EMENT OF AFFAIRS CANNOT BE GIVEN MUCH CREDENCE IN THE ABSENCE OF REGULAR BOOKS OF ACCOUNT. WITH REGARD TO THE ADDITION RELATING TO THE DIFFERENCE IN THE COST OF CONSTRUCTION, LD AR SUBMITTED THAT PENALTY IS NOT LEVIEBLE ON THE BASIS OF ESTIMATE PREPARED BY THE REGISTERED VALUER THAT TOO IN AN INTERIM PERIOD OF CONSTRUCTION. LD AR FURTHER SUBMITTED THAT WHEN THE CONSTRUCTION WAS FINALLY CO NCLUDED THERE WAS A SMALL DIFFERENCE OF ABOUT ONE LAC ONLY BETWEEN THE REPORT OF THE REGISTERED VALUER AND THE COST DISCLOSED BY THE ASSESSEE. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND CARE FULLY PERUSED THE RECORD. ON A CAREFUL PERUSAL OF THE ORDER OF LD CIT(A), WE NOTIC E THAT THE FIRST APPELLATE AUTHORITY HAS CONSIDERED THE FACTS OF THE CASES IN DETAIL. THE OBSERVATIONS OF LD CIT(A) ARE SUMMARIZED BELOW: A) THE ADDITION ON ACCOUNT OF DIFFERENCE IN CAPIT AL ACCOUNT WAS ABSOLUTELY BASED ON BALANCE SHEETS PREPARED ON ESTIMATE BY THE ASSESSEE AS WELL AS ADJUSTMENTS MADE BY THE AO ON ESTIMATES ONLY. B) IN THE FINAL REPORT OBTAINED AFTER COMPLETION OF CONSTRUCTION, THE DIFFERENCE IN THE COST OF CONSTRUCTION WAS MINOR. C) THE ADDITION MADE ON ACCOUNT OF DIFFERENCE I N COST OF CONSTRUCTION AND DIFFERENCE IN CAPITAL ACCOUNT OVER LAP EACH OTH ER. D) THE COURTS HAVE CONSISTENTLY HELD THAT THE AD DITION MADE ON THE BASIS OF REPORT OF THE VALUER WILL NOT LEAD TO PENALTY. C IT V MOHAMMED KUMHI (87 ITR 189 (KERALA)); CIT VS. SARDAR BHAGAT SINGH (142 ITR 836 (PATNA)); CIT VS. SADANAND SAHU (136 ITR 726 (ORI)); BHAGIRATH PRASAD BINGAIYA VS. CIT (139 ITR 902 (MP)) AND T.P.K. RAMALINGAM VS. CIT (211 ITR 52 0 (MAD)) . E) THE EXPLANATION TO SECTION 271 PLACES THE ONUS UPON THE ASSESSEE AND THE ASSESSEE HAS DISCHARGED THE SAID ONUS BY OFFERI NG AN EXPLANATION IN THE COURSE OF PENALTY PROCEEDINGS. THE ASSESSEE HAS EX PLAINED THE AVAILABILITY OF AGRICULTURAL INCOME FOR HIS FAMILY AND ALSO SUBMITT ED EVIDENCES IN SUPPORT OF LAND HOLDINGS AND ALSO SUBMITTED THE DETAILS OF RETURNS OF INCOME PERTAINING TO THE FAMILY MEMBERS. 5 F) THE ASSESSEE HAS SUBMITTED THAT THE FAMILY HA D SUFFICIENT FUNDS AND IN THE ABSENCE OF BOOKS OF ACCOUNT, HE COULD NOT PROVE THE NEXUS BETWEEN THE AVAILABILITY OF FUNDS AND ITS UTILIZATION. AGAINST THE SAID CLAIM OF THE ASSESSEE, THE AO HAS NOT BROUGHT OUT ANY NEW FACT OTHER THAN FIND INGS MADE IN THE ASSESSMENT ORDER TO REBUT THE CLAIMS OF THE ASSESSEE. THE FIN DINGS RECORDED IN THE ASSESSMENT ORDER CONSTITUTE GOOD EVIDENCE IN THE PE NALTY PROCEEDINGS, BUT THOSE FINDINGS CANNOT BE REGARDED AS CONCLUSIVE FOR THE P URPOSES OF PENALTY PROCEEDINGS. (ANANTHARAM VEERASINGHAIAH & CO. VS. C IT (123 ITR 457 (SC)). G) THE ASSESSEE AGREED TO THE VARIOUS ADDITIONS W ITH A REQUEST NOT TO INITIATE AND IMPOSE PENALTY U/S 271(1)(C). THE HON BLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. SARAN KHANSARI SUGAR WORKS (246 ITR 216) HAS HELD THAT A CONDITIONAL SURRENDER OF CASH CREDITS OR AGREEMENTS TO CERTAIN ASSESSMENT DOES NOT AFFECT PENALTY PROCEEDINGS. HOWEVER, THE HONB LE HIGH COURT HELD THAT THIS WAS A FINDING OF FACT AND SIMILARLY THE FINDING THA T NO ACTUAL CONCEALMENT WAS ESTABLISHED WAS ALSO A FINDING OF FACT. IN THE INS TANT CASE, THE CIRCUMSTANCE UNDER WHICH THE OFFER HAS BEEN MADE BY THE ASSESSEE HAS BEEN CLARIFIED AND IT IS VERY CLEAR THAT THERE WAS NO MALA FIDE INTENTION IN OFFERING THE AMOUNT, EXCEPT TO AVOID LITIGATION. THUS, WE NOTICE THAT THE LD CIT(A) HAS CONSIDERED T HE ISSUE ON MERITS OF THE CASE; OFFER OF INCOME ON CONDITIONAL BASIS AND FINA LLY CONCLUDED THAT THERE WAS NO MALA FIDE INTENTIONS. 6. IN THE CASE OF PRB SUDHIR VARMA, THE PENALTY HAS BEEN LEVIED ON THE FOLLOWING TWO ADDITIONS. A) ADDITION ON ACCOUNT OF DIFFERENCE IN COST OF C ONSTRUCTION. B) ADDITION ON ACCOUNT OF DIFFERENCE IN CAPITAL B ALANCE. IN THE CASE OF SMT. P. SOWMYA, THE PENALTY HAS BEEN LEVIED ON THE FOLLOWING TWO ADDITIONS. A) ADDITION ON ACCOUNT OF DIFFERENCE IN COST OF CONSTR UCTION. B) ADDITION ON ACCOUNT OF REDUCTION IN AGRICULTURAL IN COME. WITH REGARD TO THE ADDITIONS MADE IN THE ASSESSMENT PROCEEDINGS, THE EXPLANATION 1 TO SECTION 271 DEEMS THAT THE ADDITIO NS SO MADE SHALL BE DEEMED TO BE THE INCOME IN RESPECT OF WHICH PARTICULARS HA VE BEEN CONCEALED. FOR THE SAKE OF CONVENIENCE, WE REPRODUCE THE SAID EXPLANAT ION BELOW. 6 [EXPLANATION 1. WHERE IN RESPECT OF ANY FACTS MA TERIAL TO THE COMPUTATION OF THE TOTAL INCOME OF ANY PERSON UNDER THIS ACT,-- (A) SUCH PERSON FAILS TO OFFER AN EXPLANATION OR OFFERS AN EXPLANATION WHICH IS FOUND BY THE [ASSESSING] OFFIC ER OR THE [COMMISSIONER (APPEALS)] [OR THE COMMISSIONER] TO B E FALSE, OR (B) SUCH PERSON OFFERS AN EXPLANATION WHICH HE IS NOT A BLE TO SUBSTANTIATE [AND FAILS TO PROVE THAT SUCH EXPLANAT ION IS BONA FIDE AND THAT ALL THE FACTS RELATING TO THE SAME AND MAT ERIAL TO THE COMPUTATION OF HIS TOTAL INCOME HAVE BEEN DISCLOSED BY HIM], THEN, THE AMOUNT ADDED OR DISALLOWED IN COMPUTING T HE TOTAL INCOME OF SUCH PERSON AS A RESULT THEREOF SHALL, FO R THE PURPOSES OF CLAUSE (C) OF THIS SUB-SECTION, BE DEEMED TO REP RESENT THE INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CO NCEALED. DURING THE COURSE OF PENALTY PROCEEDINGS, THE ASSES SEES HEREIN HAVE OFFERED EXPLANATIONS WITH REGARD TO THE ADDITIONS MADE IN T HEIR HANDS. WITH REGARD TO THE INVESTMENT IN THE BUILDING AND DIFFERENCE IN CA PITAL ACCOUNT, IT WAS SUBMITTED THAT THE BUSINESS INCOME AND AGRICULTURAL INCOME TH AT WERE AVAILABLE WITH THE PARENTS OF SHRI PRB SUDHIR VARMA WERE SUFFICIENT EN OUGH TO COVER THE SAID DIFFERENCES. EVIDENCES WITH REGARD TO THE AVAILABI LITY OF INCOME IN THEIR HANDS WERE ALSO PRODUCED. BESIDES THE ABOVE, THE FACT RE MAINS THAT THE DIFFERENCE IN THE COST OF CONSTRUCTION WAS ARRIVED ON THE BASIS O F INTERIM REPORT OF A REGISTERED VALUER AND NOT ON THE BASIS OF ANY TANGIBLE MATERIA L. THUS THE ADDITION ON ACCOUNT OF DIFFERENCE IN COST OF CONSTRUCTION HAS B EEN MADE ON ESTIMATED BASIS. SIMILARLY THE ADDITION ON ACCOUNT OF DIFFERENCE IN THE CAPITAL BALANCES WAS ALSO MADE ON THE BASIS OF CALCULATIONS MADE BY THE AO ON ESTIMATED BASIS. THE AO HAS PLACED RELIANCE ON THE BALANCE SHEETS WHICH WER E PREPARED ON ESTIMATED BASIS AND NOT ON THE BASIS OF ANY REGULAR BOOKS OF ACCOUNT. IN THE SAME MANNER, THE REDUCTION IN AGRICULTURAL INCOME WAS AL SO MADE ON ESTIMATED BASIS. THE ASSESSEES HAVE AGREED TO THE ADDITIONS IN ORDER TO PURCHASE PEACE FROM THE DEPARTMENT. 7. THUS THE ASSESSEES HAVE OFFERED EXPLANATIONS WITH REGARD TO THE ADDITIONS, WHICH WERE NOT FOUND TO BE FALSE BY THE AO. HENCE, IN OUR OPINION, THE ASSESSEES HAVE DISCHARGED THE ONUS PLACED UPON THEM BY EXPLANATION 1 TO SECTION 271. ON MERITS, THE VARIOUS ADDITIONS HAVE BEEN MADE ONLY ON ESTIMATED BASIS WITH OUT MAKING REFERENCE TO ANY CREDIBLE MAT ERIAL. HENCE THE CONCEALMENT OF INCOME CANNOT BE SAID TO HAVE BEEN ESTABLISHED O N THESE ADDITIONS. THUS WE 7 ARE OF THE VIEW THAT THE PENALTY U/S 271(1)(C) IS N OT EXIGIBLE IN THE FACTS AND CIRCUMSTANCES OF THE CASES. ACCORDINGLY WE DO NOT FIND ANY INFIRMITY IN THE DECISION OF LD CIT(A) IN CANCELING THE PENALTY IN B OTH THE CASES. 8. IN THE RESULT, BOTH THE APPEALS OF THE REVEN UE ARE DISMISSED. PRONOUNCED ACCORDINGLY ON 22 ND JUNE, 2010. SD/- SD/- (SUNIL KUMAR YADAV) (B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM DATE : 22-06-2010 A COPY OF THIS ORDER IS FORWARDED TO : 01 ITO, WARD-4(2), VISAKHAPATNAM 02 SMT. PERICHARLA SOWMYA, W/O L/R OF SRI P.B.R. SU DHIR VARMA, D.NO.2- 137, OPP. POLICE STATION, GOPALAPATNAM, VISAKHAPATN AM 03 SMT. P. SOWMYA, 2-137, OPP: POLICE STATION, GOPA LAPATNAM, VISAKHAPATNAM 04 THE CIT, VISAKHAPATNAM 05 THE CIT (A)-I, VISAKHAPATNAM 0 6 THE DR, ITAT, VISAKHAPATNAM 07 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY ITAT, VISAKHAPATNAM BENCH