M/s Dhanalakshmi Jewellers, Shimoga V. ACIT, Shimoga

ITSSA 23/BANG/2007

• Counselvise Citation: [2011] 124 COUNSELVISE.COM (IT) 8564 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 9 month(s) 10 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 18-02-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 09-02-2011
• Assessment Year: misc
• Appeal Filed On: 08-05-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRABHAKAR REDDY
• Assessee Lawyers: BALRAM B RAO
• Keywords: Search and seizure; Opportunity of being heard
• Section: 132

Judgement Text

PAGE 1 OF 10 IT(SS)A NO.23/BANG/2007 1 IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH B BEFORE SHRI GEORGE GEORGE K, J.M. AND SHRI A MOHAN ALANKAMONY, A.M IT(SS)A NO.23/BANG/2007 (BLOCK PERIOD 1/4/1987 TO 9/12/1997) M/S DHANALAKSHMI JEWELLERS, NEHRU ROAD, SHIMOGA. - APPELLANT VS THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-1, SHIMOGA. - RESPONDENT APPELLANT BY : SHRI BALRAM B RAO, ADVOCATE RESPONDENT BY : SHRI PRABHAKAR REDDY ORD ER PER GEORGE GEORGE K : THIS APPEAL INSTITUTED BY THE ASSESSEE IS DIRECTE D AGAINST THE ORDER OF LEARNED CIT(A), HUBLI DATED 23 /2/2007 IN RELATION TO BLOCK PERIOD 1/4/1987 TO 9/12/1997. THE IMPUGNED ORDER OF THE CIT(A) EMANATES FROM THE ORDER OF ASS. CIT PASSED U/S 158BFA(2) OF THE I T ACT. 2. THE SOLITARY ISSUE THAT IS RAISED IS WHETHER THE CIT(A) IS JUSTIFIED IN CONFIRMING PENALTY LEVIED U/S 158BFA (2) AMOUNTING TO RS.1 LAKH. PAGE 2 OF 10 IT(SS)A NO.23/BANG/2007 2 3. BRIEF FACTS OF THE CASE ARE AS FOLLOWS:- THE ASSESEE IS A FIRM. THERE WAS A SEARCH AND SE IZURE OPERATION U/S 132 OF THE I T ACT ON 23/12/1997 IN T HE BUSINESS PLACE AS WELL AS THE RESIDENTIAL PREMISES OF THE PA RTNERS. NOTICE U/S 158BC WAS ISSUED. IN PURSUANCE TO THE SAME, TH E ASSESSEE FILED THE RETURN OF INCOME DECLARING AN UNDISCLOSED INCOM E OF RS.1,99,196. THE UNDISCLOSED INCOME OF RS.1,99,916 /-, DECLARED IN THE RETURN OF INCOME PERTAINS TO ASST. YEAR 1998-99 AND REPRESENTS THE VALUE OF EXCESS GOLDEN JEWELLERY FOUND DURING T HE SEARCH AND SEIZURE. THE ASSESSMENT U/S 158BC WAS COMPLETED FI XING A TOTAL INCOME OF RS.12,12,360/- BY LEVYING THE FOLLOWING ADD ITIONS:- A) UNDISCLOSED INCOME (ESTIMATED FROM UNACCOUNTED SALES) RS. 6,47,360 B) UNDISCLOSED INVESTMENT (UNACCOUNTED SUNDRY DEBTORS) RS. 5,65,000 RS.12,12,360 4. AGGRIEVED BY THE ORDER OF ASSESSMENT, THE ASSESS EE CARRIED THE MATTER BEFORE THE CIT(A). 5. THE CIT(A) DELETED THE ADDITION OF RS.5,65,000/ -. WITH REGARD TO THE ADDITION OF RS.6,47,360/-, THE C OMMISSIONER GAVE PARTIAL RELIEF. 6. BOTH THE REVENUE AND THE ASSESSEE CARRIED THE M ATTER IN APPEAL BEFORE THE INCOME TAX APPELLATE TRIBUNAL. PAGE 3 OF 10 IT(SS)A NO.23/BANG/2007 3 7. THE TRIBUNAL IN ITS ORDER DATED 10/3/2006 (IT(S S)A NO.4 & 5/BANG/2003) CONFIRMED THE ORDER OF THE CIT( A) IN DELETING RS.5,65,000/-. WITH REGARD TO THE ADDITIO N OF RS.6,47,360/-, THE TRIBUNAL HELD THAT THE ASSESSEE IS ENTITLED TO 50% OF RELIEF OF RS.6,47,360/-. 8. THEREAFTER, NOTICE U/S 158BFA WAS ISSUED AND TH E ASST. CIT LEVIED A PENALTY OF RS.1,00,000/- FOR THE ADDITION SUSTAINED BY THE TRIBUNAL IN THE QUANTUM ASSESSMENT. THE ORDER OF PENALTY OF THE ACIT WAS AFFIRMED BY THE FIRST APPELLA TE AUTHORITY. 9. THE ASSESSEE, BEING AGGRIEVED BY LEVY OF PENALTY U /S 158BFA, IS IN APPEAL BEFORE US RAISING THE FOLLOWIN G GROUNDS:- I) THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THAT THE APPELLANT HAD UNDISCLOSED INCOME OF RS.1,99,196/- BUT AFTER GIVING EFFECT TO THE ORDER OF THE TRIBUNAL, THE UNDISCLOSED INCOME THAT IS LIABLE TO BE ASSESSED STOOD AT RS.88,191/- AND CONSEQUENTLY NO PENALTY WAS EXIGIBLE IN THE HANDS OF THE APPELLANT. II) THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THAT THE ADDITIONS AS RETAINED BY THE HONBLE TRIBUNAL WAS ON ACCOUNT OF VARIATION IN THE VALUATION OF STOCK AT A HIGHER RATE AND CONSEQUENTLY, HE OUGHT NOT TO HAVE CONFIRMED THE LEVY OF PENALTY AS THE VALUATION WAS DONE ONLY ON ESTIMATE BASIS. III) THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THAT THERE WAS NO CONCEALMENT MUCH LESS FURNISHING OF INACCURATE PARTICULARS OF INCOME AND CONSEQUENTLY NO PENALTY U/S 158BFA(2) WAS LIABLE TO BE LEVIED. PAGE 4 OF 10 IT(SS)A NO.23/BANG/2007 4 IV) WITHOUT PREJUDICE, THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THAT NO SATISFACTION HAVING BEEN RECORDED IN THE COURSE OF THE ASSESSMENT PROCEEDINGS, NO PENALTY U/S 158BFA(2) WAS LIABLE TO BE MADE. V) THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THAT THE PROVISO TO SECTION 158BFA(2) APPLIED AND IF THE ASSESSED INCOME IS LESS THAN THE RETURNED INCOME, NO PENALTY U/S 158BFA(2) WAS LIABLE TO BE CONFIRMED. 10. THE ASSESSEE REITERATED THE SUBMISSION MADE BE FORE THE AUTHORITIES BELOW WHEREAS THE LEARNED DR SUPPOR TED THE FINDING OF THE AUTHORITIES BELOW. 11. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL ON RECORD. SECTION 158BFA(2) READS AS FO LLOWS:- 158BFA(2) - THE ASSESSING OFFICER OR THE COMMISSIONER (APPEALS) IN THE COURSE OF ANY PROCEEDINGS UNDER THIS CHAPTER, MAY DIRECT THAT A PERSON SHALL PAY BY WAY OF PENALTY A SUM WHICH SHALL NOT BE LESS THAN AN AMOUNT OF TAX LEVIABLE BU T WHICH SHALL NOT EXCEED THREE TIMES THE AMOUNT OF TAX SO LEVIABLE IN RESPECT OF THE UNDISCLOSED INCOME DETERMINED BY THE AO UNDER CLAUSE OF SECTION 158BC. PROVIDED THAT NO ORDER IMPOSING PENALTY SHALL BE MADE IN RESPECT OF A PERSON IF (I) SUCH PERSON HAS FURNISHED A RETURN UNDER CLAUSE (A) OF SECTION 158BC; (II) THE TAX PAYABLE ON THE BASIS OF SUCH RETURN HAS BEEN PAID OR, IF THE ASSETS SEIZED CONSIST OF PAGE 5 OF 10 IT(SS)A NO.23/BANG/2007 5 MONEY, THE ASSESSEE OFFERS THE MONEY SO SEIZED TO BE ADJUSTED AGAINST THE TAX PAYABLE; (III) EVIDENCE OF TAX PAID IS FURNISHED ALONG WITH THE RETURN; AND (IV) AN APPEAL IS NOT FILED AGAINST THE ASSESSMENT OF THAT PART OF INCOME WHICH IS SHOWN IN THE RETURN: PROVIDED FURTHER THAT THE PROVISIONS OF THE PRECEDING PROVISO SHALL NOT APPLY WHERE THE UNDISCLOSED INCOME DETERMINED BY THE ASSESSING OFFICER IS IN EXCESS OF THE INCOME SHOWN IN THE RETURN AND IN SUCH CASES THE PENALTY SHALL BE IMPOSED ON THAT PORTION OF UNDISCLOSED INCOME DETERMINED WHICH IS IN EXCESS OF THE AMOUNT OF UNDISCLOSED INCOME SHOWN IN THE RETURN. 11.1 READING THE ABOVE PROVISION, IT IS CLEAR THAT THE LEVY OF PENALTY U/S 158BFA(2) NOT AUTOMATIC. JUDICIAL DIS CRETION IS VESTED IN TAXING AUTHORITIES NOT TO LEVY PENALTY WHERE THERE ARE FACTS AND CIRCUMSTANCES TO EXERCISE SUCH DISCRETION. THE REA SON WE SAY SO IS FOR THE FOLLOWING REASONS:- I) PENALTY PROCEEDINGS ARE IN THE NATURE OF QUASI- CRIMINAL II) THE LEGISLATURE HAS USED THE MAY INSTEAD OF THE WORD SHALL. III) THE LEGISLATURE HAS PROVIDED THAT BEFORE THE LEVY OF PENALTY A REASONABLE OPPORTUNITY OF BEING HEARD IS TO BE GRANTED TO THE ASSESSEE. 11.2 IN THE INSTANT CASE, PENALTY OF RS.1,00,000/- HAS BEEN IMPOSED, BASED ON THE QUANTUM ADDITION SUSTAINED BY THE TRIBUNAL PAGE 6 OF 10 IT(SS)A NO.23/BANG/2007 6 AMOUNTING TO RS.3,23,680/-, BEING UNDISCLOSED INCOM E (ESTIMATED FROM UNACCOUNTED SALES). IN THE QUANTUM ASSESSMENT , THE AO HAS DETERMINED THE UNDISCLOSED INCOME (ESTIMATED FROM U NDISCLOSED SALES) AT RS.6,47,360/-. ON FURTHER APPEAL, THE CIT (A) GRANTED A RELIEF FROM THE ABOVE ADDITION TO THE EXTENT OF RS. 76,160/-. ON FURTHER APPEAL BY THE ASSESSEE, THE TRIBUNAL SUSTAI NED 50% OF RS.6,47,360/-. THE ABOVE ADDITION WAS MADE FOR THE SE REASONS. IT WAS NOTICED IN THE COURSE OF SEARCH THAT THE ASSESS EE HAD EFFECTED TWO TYPES OF SALES - A) DIRECT SALE OF GOLD ARTICLES, WHEREIN A SALE BILL I S DRAWN DIRECTLY; B) SALE OF GOLD TO ORDER. IN THIS CASE CUSTOMERS ORDER FOR A PARTICULAR ITEM AND MAY GIVE GOLD FOR THE SAME. WHEN THE ITEM IS READY, A RECEIPT BILL IS PREPARED AND THEN A SALE BILL FOR THE BALANCE GOLD INCURRED BY THE FIRM AFTER ADDING THE WASTAGE AND MAKING CHARGES. IN THE SECOND TYPE OF SALES, THERE IS AN ORDER NO .1683 DATED 6.11.1997 (SEIZED ANNEX.A/DJ/3 MATERIAL NO.23 ). AS PER THE ORDER, ONE SMT. PARVATHAMMA WAS SAID TO HAVE ORDERE D FOR A GOLD ORNAMENT OF 32 GRAMS AND CLAIMED TO HAVE GIVEN OLD GOLD OF 31.1 GRAMS. THIS ITEM HAS BEEN PREPARED AND A RECEIPT BILL NO.1271 DATED 3.12.1997, AS PER WHICH THE TOTAL AMOUNT COME S TO RS.806.30 (RS.506.3 TOWARDS 1.22 GRAMS OF GOLD AND RS.300 TOW ARDS MAKING CHARGES). HOWEVER, ON THE BACK SIDE OF THE ORDER F ORM SEIZED, THE FOLLOWING WRITING MADE BY THE PARTNER SRI RAMACHANDR A (PARTNER) IS NOTICED: PAGE 7 OF 10 IT(SS)A NO.23/BANG/2007 7 13280 250 13480 12000 RECEIVED 1480 BALANCE DURING THE COURSE OF SEARCH, SHRI RAMACHANDRA WAS ASKED TO EXPLAINED THE ENTRIES FOUND THEREIN. IN T HE SWORN STATEMENT RECORDED ON 10 TH DECEMBER, 1997, HE HAS STATED AS UNDER:- Q.NO.5 PLEASE REFER TO THE ORDER NO.1683 DT.6.11.97 . PLEASE TELL ME THE DETAILS. ANS: VIDE THE ABOVE ORDER FORM, SMT. PARVATHAMMA HA S GIVEN ORDER FOR 32 GMS AND HAS GIVEN OLD GOLD OF 31.1 GMS. Q.NO.6 HAVE YOU PREPARED RECEIPT BILL FOR THIS? ANS: YES. THE RECEIPT BILL PREPARED IS NO.1271 DT.3.12.97. THE TOTAL VALUE OF THE BILL IS RS.506. 30 TOWARDS THE VALUE OF GOLD AND RS.300/- TOWARDS LABOUR CHARGES. Q.NO.7 I AM SHOWING YOU THE BACK SIDE OF ORDER FORM NO.1683. PLEASE IDENTIFY THE HANDWRITING. ANS: THE HANDWRITING IS MINE. Q.NO.8 IF SO, PLEASE TELL ME WHAT IS THAT? ANS: THE PARTY HAS PURCHASED AN ORNAMENT ON APPROVA L BASIS FOR A SUM OF RS.13,480/- OUT OF WHICH A SUM OF RS.12,000/- WAS PAID BY THEM. THE BALANCE AMOUNT IS TO BE RECEIVED BY ME. Q.NO.18 THE FACT THAT A SUM OF RS.12,000/- OUT OF T HE SALE PRICE OF RS.13,480/- AMOUNTING TO 90% HAS BEEN RECEIVED BY YOU. THIS FACT GOES TO PROVE THAT THE CUSTOMER HAS ACCEPTED THE ITEM. WHAT PREVENTED YOU FROM DRAWING THE BILL AFTER RECEIVING SUCH A HUGE ADVANCE? ANS: THE PARTY HAS RETURNED THE APPROVAL ARTICLES W HILE TAKING THEIR OWN GOLD ARTICLES. PAGE 8 OF 10 IT(SS)A NO.23/BANG/2007 8 11.3 BASED ON THE EVIDENCE AND THE STATEMENT OF TH E ASSESSEE, THE AO CONCLUDED THAT THE ITEMS SOLD FOR CASH IS A REGULAR SALE AND THE ASSESSEE HAD SUPPRESSED THE SA LE BY CAMOUFLAGING THE SAME INTO ORDER FORM TRANSACTION A ND ACCOUNTING ONLY THE MAKING CHARGES AND THE VALUE OF DIFFERENCE OF GOLD. THEREFORE, HE COMPARED THE ORDER FORMS AND THE AMOU NTS THAT ARE RECORDED IN THE BOOKS OF ACCOUNTS BASED ON THE ORDE R FORMS AND ON THE BASIS OF THIS COMPARISON, HE CONCLUDED THAT THE RATIO BETWEEN THE ACCOUNTED SALES AND THE UNACCOUNTED SALES WAS T O THE TUNE OF 1:8. 11.4 THE ASSESSEE OBJECTED TO THE ABOVE ADDITION A ND CONTENDED THAT THE ORDER SLIPS REPRESENTS GENUINE O RDER TRANSACTION WITH THE CUSTOMERS AND THEY ARE NOT SAL ES. IT WAS SUBMITTED THAT THE ASSESSEE HAD SHOWN THE ACTUAL SA LE RECEIPT BILLS CORRESPONDING TO THESE ORDER FORM RECEIPTS. THE AD DITION IS BASED ON THE STATEMENT OF THE ASSESSEE THAT THE PURCHASE OF ORNAMENTS IS ON APPROVAL BASIS AMOUNTING TO RS.13,280/- WAS N OT BILLED AND BASED ON THE SAME, AN ESTIMATION WAS MADE. SO THE CONCRETE EVIDENCE FOR NOT BILLING THE SALE IS IN RESPECT OF ONLY RS.13,280/-. HOWEVER, THE ASSESSEE HAS EXPLAINED THE SAME AS NOT BILLED AND IS NOT A SALE EFFECTED BY IT FOR THE REASON THAT THE PU RCHASE OF ORNAMENTS ARE ON APPROVAL BASIS AND IF THE SAME IS NOT APPROVED, THE ORNAMENTS ARE RETURNED AND THE ASSESSEE RETURNS THE CASH TO THE CUSTOMER. THIS VERSION/STORY OF THE ASSESSEE WA S DISBELIEVED FOR MAKING THE ESTIMATED ADDITION. PAGE 9 OF 10 IT(SS)A NO.23/BANG/2007 9 11.5 IN THE INSTANT CASE, WHEN THE SALE OF GOLD IS EFFECTED AS PER ORDER, THE CUSTOMER WILL GIVE SPECIFICATION OF THE ORNAMENTS TO BE MADE AND ALSO HE MAY ENTRUST OLD JEWELLERY FOR MAKING THESE ORNAMENTS. WHEN THE ITEM IS READY, A RECEIPT BILL I S PREPARED AND THEN A SALE BILL FOR THE BALANCE GOLD UTILIZED BY TH E ASSESSEE FIRM AFTER ADDING MAKING CHARGES IS ISSUED. HERE, THE A SSESSEE, IN THE COURSE OF ASSESSMENT PROCEEDINGS, HAS BEEN ABLE TO CORRELATE THE SALE RECEIPTS CORRESPONDING TO THE ORDER FORM RECEI PTS. THE ORDER FORM CONTAINS THE DETAILS OF OLD GOLD RECEIPT FROM THE CUSTOMERS FOR MAKING THE NEW DESIGN JEWELLERY AS PER THE SPECI FICATION OF THE CUSTOMERS. THEREFORE, THE ADDITION MAY BE JUSTIFIED IN AN ASSESSMENT PROCEEDING FOR COMPUTING TAX BUT PENALTY CANNOT BE LEVIED SOLELY ON THE BASIS OF REASON GIVEN IN THE OR DER OF ASSESSMENT. THE PENALTY PROCEEDINGS ARE PENAL IN C HARACTER. THE ADDITION IS BASED PURELY ON AN ESTIMATE BASIS WHICH WAS REDUCED BY THE CIT(A) AND FURTHER REDUCED BY THE INCOME TAX APP ELLATE TRIBUNAL IN THE QUANTUM ASSESSMENT. FOR THE ABOVE REASONS, WE FIND ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LE VY OF PENALTY AMOUNTING TO RS.1,00,000/- IS NOT JUSTIFIED AND WE CANCEL THE SAME. IT IS ORDERED ACCORDINGLY. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSE E IS ALLOWED. PAGE 10 OF 10 IT(SS)A NO.23/BANG/2007 10 THE ORDER PRONOUNCED ON FRIDAY, THE 18 TH DAY OF FEBRUARY, 2011 AT BANGALORE. SD/- SD/- (A MOHAN ALANKAMONY) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER COPY TO : 1. THE REVENUE 2. THE ASSESSEE 3. THE CIT CONCERNED. 4. THE CIT(A) CONCERNED. 5. DR 6. GF MSP/14/2/ BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.