The ACIT, Circle-8, Ahmedabad V. Unique Mercantile Services Pvt.Ltd., Ahmedabad

ITSSA 156/AHD/2007

• Counselvise Citation: [2010] 124 COUNSELVISE.COM (IT) 9092 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 8 month(s) 6 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 13-08-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 21-07-2010
• Assessment Year: misc
• Appeal Filed On: 07-12-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K M MAHESH
• Assessee Lawyers: P M MEHTA; S N SOPARKAR
• Keywords: Unexplained investment; Depreciation; Rectification of order; Retrospective amendment
• Section: 154

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'C' BEFORE SHRI G D AGARWAL, VICE-PRESIDENT AND SHRI T K SHARMA, JUDICIAL MEMBER IT(SS)A NO.156/AHD/2007 [BLOCK PERIOD: 01-04-1988 TO 17-03-1999] THE ASSISTANT COMMISSIONER OF INCOME- TAX, CIRCLE-8, AHMEDABAD V/S UNIQUE MERCANTILE SERVICES PVT. LTD., F/7, VISHAL COMMERCIAL CENTRE, NR. DINESH HALL, AHMEDABAD PA NO. AAACU 1981 B [APPELLANT] [RESPONDENT] APPELLANT BY :- SHRI K M MAHESH, SR. DR RESPONDENT BY:- SHRI S N SOPARKAR AND SHRI P M MEHTA, AR O R D E R PER T K SHARMA (JM): THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 07-09-2007 PASSED BY LEARNE D COMMISSIONER OF INCOME-TAX (APPEALS)-XIV, AHMEDABAD [THE CIT(A)]. THE ONLY EFFECTIVE GROUND RAISED BY THE REVENUE IN ITS APPEAL IS AS UNDER:- THE LD. CIT(A)-XIV, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE PENALTY OF RS.16,46,610/- LEVIED U/S 1 58BFA(2) OF THE ACT. 2 BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT TH E ASSESSEE IS A PRIVATE LIMITED COMPANY CAME INTO EXISTENCE IN APRI L, 1996 AND 2 ENGAGED IN THE BUSINESS OF PROVIDING FACILITY CARDS TO ITS MEMBERS ON PAYMENT OF PRESCRIBED MEMBERSHIP FEES. S EARCH AND SEIZURE OPERATIONS WERE CONDUCTED ON 17-03-1999 AT THE PREMISES OF THE ASSESSEE AND IN PURSUANCE OF THAT A NOTICE U /S 158BC OF THE INCOME-TAX ACT, 1961 [THE ACT] FILED ITS RETURN O F INCOME FOR THE BLOCK PERIOD FROM 01-04-1988 TO 17-03-1999 ON 0 5-09-2000, DISCLOSING TOTAL INCOME AT RS.12,65,000/-. THE AFOR ESAID INCOME WAS WORKED OUT BY THE ASSESSEE AS UNDER:- PARTICULARS AMOUNT (RS. IN LACS) UNACCOUNTED INVESTMENT IN VARIOUS BUSINESS ASSETS OF THE COMPANY 45.36 LESS: DEPRECIATION AS PER THE IT ACT ON THE SAID INVESTMENT 7.27 38.09 TOTAL INCOME (LOSS) FOR AY 1998-99 COMPUTES AS PER CHAPTER IV OF THE RETURN OF INCOME FOR THIS AY HAVING BEEN EXPIRED AND NO RETURN HAVING BEEN FILED TILL THE DATE OF SEARCH 25.44 INCOME OFFERED TO TAX 12.65 3 ON FILING THE RETURN OF INCOME FOR THE PERIOD OF BLOCK, ASSESSMENT PROCEEDINGS WERE DONE AND AS PER THE ASS ESSMENT ORDER DATED 30-03-2001, U/S 158BC OF THE ACT, THE T OTAL INCOME OF THE ASSESSEE WAS ASSESSED AT RS.2,52,87,391/-. 4 AFTER THE CIT(A)S ORDER, TOTAL ASSESSED INCOME O F THE ASSESSEE WAS FINALLY ARRIVED AT RS.40,09,350/-. THE AFORESAID ORDER OF THE CIT(A) WAS NOT ACCEPTED BY THE DEPARTM ENT AND SECOND APPEAL WAS FILED BEFORE THE TRIBUNAL. AS PER THE ORDER OF 3 THE TRIBUNAL, THE UNDISCLOSED INCOME OF THE ASSESSE E STOOD UNCHANGED AS PER THE FIRST APPELLATE ORDER. THE ABOVE FINALLY ASSESSED INCOME WAS WORKED OUT AS FOLLOWS: PARTICULARS AMOUNT (RS.) INCOME OFFERED TO TAX AS PER RO1 12,65,000 ADD. DISALLOWANCE OF TOTAL LOSS OF AY 1998-99 COMPUTED AS PER CHAPTER IV OF THE ACT ON ACCOUNT OF RETROSPECTIVE AMENDMENT TO SECTION 158BB OF THE ACT. 25,44,350 ADD: 50% OF EXPENDITURE INCURRED FOR TAKING OVER THE BUSINESS OF UNIQUE MERCANTILE SERVICES (MAHARASTRA) P. LTD. IN CASH 2,00,000 TOTAL INCOME 40,09,350 5 THUS, ACCORDING TO THE AO, THERE WAS A TOTAL DIFF ERENCE OF RS.27,44,350/- BETWEEN THE RETURNED INCOME AND THE ASSESSED INCOME. FURTHER, PENALTY U/S. 158BFA(2) OF THE ACT WAS LEVIED ON THE SAID AMOUNT OF RS.27,44,000/-. 6 THE A.O. HAS LEVIED THE PENALTY BY OBSERVING THAT 'FOR THE PURPOSE OF LEVY OF PENALTY U/S 158BFA(2), THE ONLY CRITERIA IS THE DIFFERENCE BETWEEN THE UNDISCLOSED INCOME DECLARED BY THE ASSESSEE AND THE UNDISCLOSED INCOME DETERMINED BY T HE AO UNDER CLAUSE (C) OF SEC. 158BC OF THE ACT. 4 7 AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PR EFERRED AN APPEAL BEFORE THE CIT(A). THE LEARNED CIT(A) DELETE D THE ADDITION WITH THE FOLLOWING OBSERVATIONS:- 2.2 DURING THE COURSE OF APPELLATE PROCEEDINGS, TH E APPELLANT SUBMITTED THAT WITH REFERENCE TO THE PENALTY IMPOSE D ON THE ALLEGED ADDITION OF RS.25.44 LACS PERTAINING TO SET OFF OF BROUGHT FORWARD LOSS OF RS.25.44 LACS CLAIMED AGAINST UNDISCLOSED INCOME OF THE APPELLANT BY THE ASSESSING OFFICER, THE APPELLANT WOULD LIKE TO STATE AS UNDER: WHILE COMPUTING TOTAL INCOME IN THE RETURN OF INCOM E FOR THE BLOCK, WHICH WAS FILED BY THE APPELLANT ON 05-09-1' 000, THE; APPELLANT HAD CLAIMED SET OFF OF BROUGHT FORWARD LO SS OF RS.25.44 LACS AGAINST UNDISCLOSED INCOME OF THE APP ELLANT. THE AFORESAID LOSS REPRESENTED TOTAL LOSS FOR ASSESSMEN T YEAR 1993- 1999, COMPUTED AS PER CHAPTER - IV OF THE INCOME TA X ACT, 1961. THE SAID LOSS WAS DUE FOR THE ASSESSMENT YEAR 1998-1999, HAVING BEEN EXPIRED AND NO RETURN HAVING BEEN FILED TILL THE DATE OF SEARCH. THE APPELLANT HAD ALSO PROVIDED DETAILS WITH REGARDS TO THE SAME VIDE PARA 5 OF THE NOTES ATTACHED TO AN D FORMING PART OF THE RETURN OF THE PERIOD OF BLOCK. HOWEVER, ON P AGE 31 OF THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAD DISALLO WED THE CLAIM OF THE SAID LOSS. THE APPELLANT HAD FILED AN APPEAL AGAINST THE SAID DISALLOWANCE BEFORE THE LD. CIT (A)-I, AHMEDABAD. THE LD. CIT (A ) HAD ALLOWED THE SAID APPEAL IN THE FAVOUR OF THE APPELL ANT BY ALLOWING THE APPELLANT TO DEDUCT THE LOSS DETERMINE D FOR THE ASSESSMENT YEAR 1998-1999 AMOUNTING TO RS.25.44 LAC S. THE RELEVANT PORTION IS IN PARA 5 OF THE SAID ORDER. IT CAN BE CLEARLY SEEN THAT THE LD. CIT(A) HAD DELE TED THE ADDITION MADE BY THE ASSESSING OFFICER OF SET OFF CLAIMED OF BROUGHT FORWARD LOSS OF RS.25.44 LACS AGAINST UNDISCLOSED INCOME OF THE APPELLANT AND DIRECTED TO DEDUCT THE SAME FROM TOTAL INCOME, ON T HE BASIS OF THE SECTION AS IT STOOD IN THE STATUTE ON THAT DACE. THERE AFTER, THE APPELLANT WAS SERVED WITH A RECTIF ICATION ORDER U/S. 154 OF THE ACT, DATED 10-06-2002, WHICH WAS PA SSED BY THE 5 ACIT, CENTRAL CIRCLE - 1 (1), AHMEDABAD, WHICH WAS PASSED ON THE BASIS IF THE AMENDMENT , CARRIED OUT TO SECTION 158BB OF THE ACT VIDE FINANCE ACT 2002, GIVING RETROSPECTIVE EFF ECT. AS PER THE SAID ORDER, AS A RESULT OF RETROSPECTIVE EFFECT OF THE AMENDMENT OF THE PROVISIONS OF SECTION 158 BB OF TH E ACT, THERE AROSE A MISTAKE APPARENT FROM RECORD IN THE A SSESSMENT ORDER, WHICH WAS MODIFIED BY THE ORDER GIVING EFFEC T TO C1T (A)'S ORDER. THUS, BY PASSING THE RECTIFICATION ORDER U/S. 154 O F THE ACT AND BY GIVING THE EFFECT OF AMENDED PROVISIONS OF SECTION 158 BB OF THE ACT, THE LD. ACIT HAD INCREASED THE INCOME OF THE APPELL ANT BY ADDING BACK THE BROUGHT FORWARD LOSS OF WHICH SET OFF WAS CLAIMED BY THE APPELLANT AGAINST ITS UNDISCLOSED INCOME. FURTHER, THROUGH THE MEDIUM OF PENALTY ORDER, THE D. DEPUTY COMMISSIONER OF IN COME TAX LEVIED PENALTY U/S 158BFA (2) OF THE ACT ON THE SAID DISAL LOWANCE. IN THIS REGARD, THE APPELLANT WOULD LIKE TO SUBMIT THAT THE CLAIM WAS SPECIFIC AND WAS FULLY DISCLOSED IN THE RETURN OF I NCOME FILED FOR THE PERIOD OF BLOCK. AS SUCH, THERE WAS NO ATTEMPT ON T HE PART OF THE APPELLANT OF CONCEALMENT. HOWEVER, THE LD. DEPUTY C IT HAS ERRED IN CONSIDERING THE SET OFF CLAIMED BY THE APPELLANT OF THE BROUGHT FORWARD LOSSES OF ASSESSMENT YEAR 1998-1999 AS CONCEALMENT ON THE PART OF THE APPELLANT. IN THIS MATTER, THE APPELLANT WOULD FURT HER LIKE TO INVITE YOUR KIND ATTENTION TO THE FACT THAT THE ABOVE PROVISION S OF SECTION 158BB OF THE ACT WERE INSERTED BY THE FINANCE ACT, 2002 AND WHICH WERE MADE RETROSPECTIVELY EFFECTIVE FROM 01-07-1995. THUS, AT THE TIME WHEN THE APPELLANT FILED ITS RETURN OF INCOME (I.E. AS ON 05 -09-2000) FOR THE PERIOD OF BLOCK, THE AFORESAID (AMENDED) PROVISIONS OF SECTION 158BB OF THE ACT WERE NOT IN EXISTENCE AND THE SAME CAME IN TO EFFECT BY THE FINANCE ACT, 2002 W.E.F 01-07-1995, WHICH ITSELF MA KES IT CLEAR THAT THERE WAS NO ATTEMPT ON THE PART OF THE APPELLANT O F CONCEALMENT. FURTHER, IT REQUIRES TO BE NOTED THAT AT THE TIME O F ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HAD DISALLOWED T HE SET OFF CLAIMED OF THE BROUGHT FORWARD LOSS AGAINST THE UNDISCLOSED INCOME OF THE APPELLANT AND AT THE SAME TIME PROPOSED TO IMPOSE P ENALTY U/S. 158BFA (2) OF THE ACT ON THE SAME. HOWEVER, THE SAI D DISALLOWANCE WAS CANCELLED BY THE LD. CIT(A), WHO ALLOWED THE AP PELLANT TO SET OFF THE SAID BROUGHT FORWARD LOSS. THUS, IT CAN BE CLEA RLY UNDERSTOOD THAT AS FAR AS THE OLD PROVISIONS OF SECTION 158BB OF TH E ACT ARE CONCERNED, I.E. THE PROVISIONS OF SECTION 158BB OF THE ACT BEF ORE FINANCE ACT, 2002, THERE WAS NO ANY CONCEALMENT ON THE PART OF T HE APPELLANT AND 6 THE RETURN OF THE BLOCK FILED BY IT WAS A BONAFIDE ONE AND NO PENALTY COULD HAVE BEEN IMPOSED U/S. 158BFA (2) OF THE ACT. ACCORDINGLY, AS A RESULT OF RETROSPECTIVE AMENDMENT OF SECTION 158BB, THE SET OFF OF BROUGHT FORWARD LOSS CLAIMED BY THE APPELLANT WAS DISALLOWED. FURTHER, THERE WAS NO. INSTRUCTION IN THE SAID RECTIFICATION ORDER OF LEVYING PENALTY U/S, 158BFA( 2) OF THE ACT, THE LD. DCIT HAS 'ERRED BY IMPOSING PENALTY ON THE SAID DISALLOWANCE OF BROUGHT FORWARD LOSS AND HENCE SHOULD BE DELETED AC CORDINGLY. WITH REFERENCE TO THE PENALTY IMPOSED ON THE ALLEGE D ADDITION OF 50% OF THE EXPENDITURE INCURRED FOR TAKING OVER THE BUS INESS OF UNIQUE MERCANTILE SERVICES (MAHARASTRA) P. LTD. IN CASH BY THE ASSESSING OFFICER, THE APPELLANT WOULD LIKE TO STATE ASUNDER: WHILE PASSING THE ASSESSMENT ORDER, THE ASSESSING O FFICER VIDE PARA 5 DISALLOWED AMOUNT OF RS.4.00 LACS, CONSIDERING THE SAME AS UNDISCLOSED INCOME OF THE ASSESSEE, WHICH RELATES T O ASSESSMENT YEAR 1999-2000. THE LD. CIT (A) HAD DIRECTED THE ASSESSING OFFICER TO TREAT THE EXPENDITURE INCURRED TO THE EXTENT OF 50% AS REVENU E EXPENDITURE AND ALLOW THE SAME ACCORDINGLY. HERE, ON THE BASIS OF T HE ABOVE PARA, THE ASSESSEE WOULD LIKE TO INVITE YOUR HONOR'S KIND ATT ENTION TO THE FACT THAT THE LD. CIT (A) HAD MADE THE ADDITION OF THE REST O F RS.2.00 LACS TO THE RETURNED INCOME OF THE APPELLANT MERELY ON THE ESTI MATION BASIS. HOWEVER, THE AFORESAID ADDITIONS HAVE NOT BEEN MADE ON ANY CONCRETE BASIS MORE SO THERE IS NO ELEMENT OF CONCEALMENT BY THE APPELLANT. THE APPELLANT FURTHER STATES THAT THE ASSESSMENT PROCEE DINGS AND PENALTY PROCEEDINGS ARE DISTINCT THINGS. ONLY BECAUSE: THE AMOUNT IS TREATED AS UNDISCLOSED INCOME IN SEARCH ASSESSMENT PROCEEDINGS , THE SAME DOES NOT AMOUNT TO CONCEALED INCOME FOR LEVY OF PENALTY UNDER SECTION 158BFA(2). CONSIDERING THE ABOVE, THE APPELLANT WOULD LIKE TO STATE THAT THE ASSESSING OFFICER HAS GROSSLY ERRED IN LEVYING PENA LTY U/S. 158BFA (2) ON THE AFOREMENTIONED ADDITIONS OF RS.2.00 LACS AS NO PENALTY CAN BE LEVIED ON THE ADDITIONS WHICH ARE MERELY MADE ON TH E ESTIMATION BASIS. : 2.3 I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS AS ADVANCED BY THE APPELLANT. I AM INCLINED TO AGREE W ITH THE VIEWS OF THE 7 APPELLANT. AS PER HON. IT AT MUMBAI'S DECISION IN T HE CASE OF DCIT VS. KOATEX INDUS. LTD., 285 ITR(AT)040 MUMBAI, THE PENALTY U/S. 158 BFA(2) IS NOT MANDATORY, BUT DISCRETIONARY. FUR THER, THE HON. IT AT CALCUTTA BENCH HAS HELD IN THE CASE OF DCIT VS. SURESH KUMAR, 284 ITR (AT) 0104 (CAL) THAT PENALTY U/S. 158 BFA(2 ) IS NOT MANDATORY, BUT DISCRETIONARY. THE PROVISION OF SEC. 271(1)(C) AND THE RATIO OF DECISIONS OF VARIOUS COURTS WHILE DEALING WITH PENALTY RELATING TO CONCEALMENT OF INCOME WOULD APPLY MUTATIS MUTAND IS TO THE PROVISION OF SEC. 158 BFA(2). THE APPELLANT CLAIMED SET OFF OF LOSS OF EARLIER YEARS AND FULLY DISCLOSED THE SAME IN THE R ETURN OF INCOME FILED FOR THE BLOCK PERIOD. THE AMENDMENT WAS MADE U/S. I 58BB OF THE FINANCE ACT, 2002, WHICH HAS RETROSPECTIVE EFFECT F ROM 1-7-95. I AM IN AGREEMENT WITH THE VIEWS OF THE APPELLANT THAT THER E WAS NO ATTEMPT ON THE PART OF THE APPELLANT FOR CONCEALING THE INCOME . THE OTHER DISALLOWANCE OF RS.2 LAKHS, WHICH WAS SUSTAINED IN APPEAL, WAS OF THE EXPENDITURE INCURRED FOR TAKING OVER THE BUSINESS O F UNIQUE MERCANTILE SERVICES (MAHARASHTRA) PVT. LTD., AND IT WAS ON ESTIMATE BASIS ONLY. LOOKING TO THE FACTS OF THE CASE AND TH E APPELLANT'S SUBMISSION, I HOLD THAT IT IS NOT A FIT CASE FOR LE VYING THE PENALTY FOR CONCEALMENT. THE AO IS, THEREFORE, DIRECTED TO DELE TE THE PENALTY LEVIED U/S. 158 BFA(2) OF THE I.T. ACT. 8 AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENUE HAS COME IN APPEAL BEFORE US. SHRI K M MAHESH, LEARNED SENIOR DR APPEARED ON BEHALF OF THE ASSESSEE AND RELYING ON T HE REASONING GIVEN BY THE AO IN THE PENALTY ORDER, CONTENDED THA T THE CIT(A) WAS NOT JUSTIFIED IN CANCELING THE PENALTY. 9 THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTHE R HAND, REITERATED THE SUBMISSIONS MADE BEFORE THE CIT(A) A ND SUPPORTED THE ORDER OF THE CIT(A). 10 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE HAVE ALSO GONE THROUGH THE ORDER OF THE AUTHORITIES BELOW. WE FIND THAT THE 8 LEARNED CIT(A) HAS RIGHTLY OBSERVED THAT THE PROVIS ION OF SEC. 271(1)(C) AND THE RATIO OF DECISIONS OF VARIOUS COU RTS WHILE DEALING WITH PENALTY RELATING TO CONCEALMENT OF INC OME WOULD APPLY MUTATIS MUTANDIS TO THE PROVISION OF SEC. 158 BFA(2). THE ASSESSEE CLAIMED SET OFF OF LOSS OF EARLIER YEARS A ND FULLY DISCLOSED THE SAME IN THE RETURN OF INCOME FILED FO R THE BLOCK PERIOD. THE AMENDMENT WAS MADE U/S. I58BB OF THE FI NANCE ACT, 2002, WHICH HAS RETROSPECTIVE EFFECT FROM 1-7-95. T HE LEARNED CIT(A), THEREFORE, HELD THAT THERE WAS NO ATTEMPT O N THE PART OF THE APPELLANT FOR CONCEALING THE INCOME. IN THIS VI EW OF THE MATTER, WE DO NOT FIND ANY INFIRMITY IN THE ORDER O F THE CIT(A) IN DELETING THE IMPUGNED PENALTY. WE ACCORDINGLY UPHOL D THE ORDER OF THE CIT(A). 7 IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT TODAY ON 13-08-2 010 SD/- SD/- (G D AGRAWAL) VICE-PRESIDENT (T K SHARMA) JUDICIAL MEMBER DATE : 13-08-2010 COPY OF THE ORDER FORWARDED TO : 1. UNIQUE MERCANTILE SERVICES PVT. LTD., F/7, VISHA L COMMERCIAL CENTRE, NR. DINESH HALL, AHMEDABAD 2. THE ACIT, CIRCLE-8, AHMEDABAD 3. CIT CONCERNED 4. CIT(A)-XIV, AHMEDABAD 5. THE DR, ITAT, AHMEDABAD 9 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABA