ACIT, Trichy V. Shri G.Thirumoorthy, Trichy

ITSSA 25/CHNY/2010

• Counselvise Citation: [2011] 124 COUNSELVISE.COM (IT) 8266 (ITAT-CHENNAI)
• Duration Of Justice: 9 month(s) 7 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 11-07-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 28-06-2011
• Assessment Year: misc
• Appeal Filed On: 04-10-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S SRIDHAR
• Keywords: Gross profit estimation; Unexplained investment; Revision of order; Peak credit; Bad and doubtful debts; Agreed addition; Block assessment; Onus to prove
• Section: 143(3); 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHENNAI BENCH A : CHENNAI [BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT AND SHRI HARI OM MARATHA, JUDICIAL MEMBER] I.T.(SS)A NOS.24 & 25/MDS/2010 BLOCK PERIOD FROM 1996-97 TO 2002-03 (UPTO 5.12.200 1) THE ACIT CENTRAL CIRCLE II TIRUCHIRAPALLI VS SHRI G.TIRUMOORTHY 54C JAFFERSHA STREET TRICHY - 18 [PAN ACDPT4006A ] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SHAJI P. JACOB RESPONDENT BY : SHRI S. SRIDHAR O R D E R PER HARI OM MARATHA, JUDICIAL MEMBER: THESE ARE TWO APPEALS FILED BY THE REVE NUE, PERTAINING TO SAME ASSESSEE, THEREFORE, WE PROCEED TO DECIDE THEM BY A COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. I.T.(SS)A.NO. 24/MDS/2010 THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A), TIRUCHIRAPALLI, DATED 2.6.2011, CANCELING T HE PENALTY IMPOSED U/S 158BFA(2) OF THE ACT, AMOUNTING TO ` 22,24,924/- [ ` 24,64,924 2,40,000]. THE REVENUE HAS RAISED THE FOLLOWING GR OUNDS: IT(SS)A 24&25/10 :- 2 -: 1A. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED IN CANCELLING THE PENALTY U/S 158BFA(2) AMOUNTING TO ` 22,24,924 ( ` 24.64,924 - ` 2,40,000). 1B THE LEARNED CIT(A) HAS FAILED TO NOTE THAT AS PER THE PROVISIONS OF SECTION158BFA(2) PENALTY SHALL BE IM POSED ON THAT PORTION OF UNDISCLOSED INCOME DETERMINED WHICH IS IN EXCESS OF THE AMOUNT OF UNDISCLOSED INCOME SHOWN IN THE RETURN' AND THAT THE A O. HAS RIGHTLY INVOKED THE P ROVISION IN THE LIGHT OF RELIEF GRANTED BY THE CIT(A) RELATING TO T HE QUANTUM ADDITIONS. 1C THE LEARNED CIT(A) HAS FAILED TO NOTE THAT THE DECISION OF THE SUPREME COURT IN CIT VS RELIANCE PETRO PRODUCTS P LTD (23 CTR 320) IS NOT APPLICABLE TO THIS CASE SINCE THE H ON'BLE SUPREME COURT HAS HELD THAT 'REJECTION OF GENUINE C LAIM CANNOT CONSTITUTE CONCEALMENT' WHEREAS IN THIS CASE VARIO US CLAIMS OF THE ASSESSEE ARE NOT GENUINE. 1.D THE LEARNED CIT(A) HAS FAILED TO NOTE THE TH AT THE DECISION OF THE SUPREME COURT IN CIT VS RELIANCE PETRO PRODU CTS P LTD (23 CTR 320) IS NOT APPLICABLE TO THIS CASE SINCE I N THAT DECISION CONCEALMENT U/S 271(L)(C) IS CONSIDERED WHEREAS THE AO. HAS LEVIED PENALTY U/S 158BF A(2) ON 'UNDISCLOSED INCOM E'. 2A THE LEARNED CIT(A) HAS FAILED TO NOTE THAT THE ASSESSEE'S REPRESENTATIVE VIDE HIS REPLY DATED 23.07.2003 TO THE AO. HAS STATED THAT THE 'OPENING UNDISCLOSED STOCK WAS ONLY ON ESTIMATE' AND THAT THE ADDITION TOWARDS EXCESS STOCK IS NOT O N ESTIMATE BASIS AND THAT THE EXCESS STOCK FOUND DURING THE CO URSE OF SEARCH IS ONLY A POSITIVE EVIDENCE INDICATING UNDIS CLOSED INCOME. 2B THE LEARNED CIT(A) HAS FAILED TO NOTE THAT IN THE FOLLOWING CASES THE JURISDICTIONAL HIGH COURT HAS HELD THAT P ENALTY U/S 271(L)(C) IS EXIGIBLE EVEN THOUGH THE ADDITIONS HAV E BEEN MADE UNDER DEEMING PROVISIONS/ ESTIMATED BASIS. I) CIT T.N. IV.VS KRISHNA AND COMPANY. 120 ITR144 (AGREED ADDITION OF PEAK CREDIT ON BOGUS BORROWALS) II) RATHNAM AND CO.VS LAC, RANGE 1 MADRAS, AND ANOTHER.124 ITR 376 (AGREED ADDITION ON ACCOUNT OF LOW GROSS PROFIT) IT(SS)A 24&25/10 :- 3 -: III) CIT. T.N. I, MADRAS. VS E. V. RAJAN.151 ITR 18 9 (ASSESSMENT MADE ON THE BASIS OF ESTIMATE) IV) CIT VS BALAKRISHNA TEXTILES AND OTHERS.193 ITR 361 (ASSESSMENT MADE ON THE OASIS OF ESTIMATE) . 3. THE LEARNED CIT (A) HAS FAILED TO NOTE THAT THE CLAIM FOR BAD DEBTS WAS NOT GENUINE. 4A THE LEARNE D C I T(A) H AS FA IL E D T O NO T E TH A T T H E AS S ESSEE H A S NOT S UBSTANTI A T E D THA T HI S F AI LU RE TO OFFER T HE INT E R ES T O N ACCR U A L BA S IS WAS ON L Y AS A RES U LT OF B ONAFID E BE L IE F TH A T TH E SA ID INCOME I S NOT ASSESSA BL E O N ACCR U A L B AS I S . 4B THE LEAR N ED C I T(A) H AS FAILED TO NOTE THAT T HE A M O U N T WAS ASSESSED A S UNDI SC L OSE D IN C OME W HICH W A S AL S O UP H ELD B Y THE L E ARNED C I T(A) AND AS SUCH PE N A L T Y U/S 158B FA(2) ON ' UN D IS C L OSE D IN CO M E' IS EX I G IBL E . 5 THE LEA RN E D C IT (A) O U G HT TO H A V E CONF I R M E D P E N A LT Y U/S 158 B FA(2 ) ON ` 6 L A KH S A T ` 3. 6 L AK H S R E L A T A BLE T O 'O N MO N EY P AYMEN T ' W H EREAS H E H A S CONFIRMED O NL Y A S UM O F ` 2.4 L AK H S RE L ATABLE TO ` 4 L AK H S . 6 THE APPEL L ANT CR A VE S LEAV E T O , A DD T O AMEND O R A L TER THE A B OVE GRO U ND S O F A PP EA L AS M AY BE D EE M E D N ECESSA R Y. 2. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAV E CAREFULLY PERUSED THE ENTIRE MATERIAL AVAILABLE ON RECORD. THE PENALTY U/S 158BFA(2) WAS LEVIED CONSEQUENT UPON THE ASSESSMENT MADE U/S 158BC R.W.S 143(3) AS A RESULT OF SEARCH CONDUCTED ON 5.12.2001, IN ASSESSEES PREMISES. THE DIFFERENCE BETWEEN THE IN COME RETURNED AND INCOME ASSESSED HAS BEEN TABULATED BY THE ASSESSING OFFICER AS UNDER: IT(SS)A 24&25/10 :- 4 -: GROUNDS OF ADDITION AMOUNT RETURNED AMOUNT ASSESSED DIFFERENCE EXCESS STOCK OF COVERING JEWELLERY 37,78,700 66,26,324 28,47,624 UNEXPLAINED INVESTMENT IN FIXED DEPOSITS 20,05,000 21,67,825 1,62,825 INTEREST ON ABOVE 3,00,000 7,97,759 4,97,759 ON-MONEY PAYMENT 12,00,000 16,00,000 4,00,000 PAYMENT FOR GOODWILL 4,00,000 4,00,000 TOTAL 41,0 8,210 3. AFTER CONSIDERING THE OBJECTIONS OF THE ASSESSEE AG AINST THE PROPOSED PENALTY U/S 158BFA(2), THE ASSESSING OFFIC ER HAS LEVIED A PENALTY OF ` 24,64,924/-. THIS ACTION OF THE ASSESSING OFFICER WAS CHALLENGED BEFORE THE LD. CIT(A), WHO, IN TURN, HAS DELETED THIS PENALTY TO THE EXTENT OF ` 22,24,924/- AGAINST WHICH THE REVENUE IS IN APPEAL BEFORE US. 4. IT WAS ARGUED BY THE LD.DR THAT PENALTY TO THE EXTE NT OF ` 22,24,924/- HAS BEEN CANCELLED AND TO THE EXTENT OF ` 2,40,000/- HAS BEEN CONFIRMED BY THE LD. CIT(A). IN THIS CASE, PE NALTY HAS BEEN LEVIED ON ACCOUNT OF THE FOLLOWING (I) EXCESS STOCK OF COVERING JEWELLERY, (II) UNEXPLAINED INVESTMENT IN FIXED DEPOSITS, (III) INTEREST ON FIXED DEPOSITS, (IV) ON MONEY PAYMENT; AND (V) PAYMENT OF GOODWILL. 5. THE ADDITION ON ACCOUNT OF EXCESS STOCK OF COVER ING JEWELLERY WAS FOUND TO BE BASED ON ESTIMATES ONLY. THERE WAS A DIFFERENCE OF ` 28,47,624/- BETWEEN THE AMOUNT ASSESSED UNDER THIS HEAD AND THE IT(SS)A 24&25/10 :- 5 -: INCOME RETURNED BY THE ASSESSEE. THE BASIS OF RETU RN OF THE ASSESSEE WAS FROM THE VALUE OF EXCESS STOCK BASED ON SALE PR ICE AS QUANTIFIED BY THE SEARCH PARTY AND FROM THERE THE ASSESSEE HAD SOUGHT EXCLUSION OF SALES TAX, EXCISE DUTY AND GROSS PROFIT TO ARRIV E AT THE COST. THE ASSESSEE HAS ALSO CLAIMED THAT A SUM OF ` 9,44,675/- WAS AVAILABLE AS STOCK AS ON 1.4.1995 BEING THE DATE OF BEGINNING OF THE BLOCK PERIOD AND A SUM OF ` 26,50,000/- FOUND AT THE RESIDENCE WAS PHYSICALLY EXAMINED BY THE ASSESSING OFFICER AND FOUND THAT TH EY JEWELLERY WERE BROKEN AND DAMAGED BUT STILL THE ASSESSING OFFICER HAS ESTIMATED THE VALUE AT 50% OF THE SALE VALUE WHICH WAS REDUCED TO 40% BY THE LD. CIT(A). 6. IN OUR CONSIDERED OPINION, THIS IS SIMPLY AN ESTIM ATED ADDITION WHICH CANNOT BE MADE A BASIS FOR LEVY OF PENALTY. SECTION 158BFA(2) IS NOT A MANDATORY SECTION BUT IS DEFINITELY A DISC RETIONARY ONE. ALL PROVISIONS RELATING TO THE IMPOSITION OF PENALTY UN DER THIS ACT WHICH ADMIT REASONABLE AND SUFFICIENT CAUSE WOULD APPLY, MUTATIS MUTANDIS, TO THIS PROVISION ALSO. THE PARTICULARS OR DETAILS FURNISHED BY THE ASSESSEE IN THIS REGARD ARE NOT FOUND TO BE WRONG O R INACCURATE. THE ADDITIONS ARE SIMPLY ESTIMATED. IN VIEW OF THE DEC ISION IN THE CASE OF CIT VS ARJUN PRASAD AJIT KUMAR, 214 CTR 255, PENALT Y CANNOT BE LEVIED. IT(SS)A 24&25/10 :- 6 -: 7. THE DIFFERENCE OF ` 1,62,825/- TOWARDS UNEXPLAINED INVESTMENT IN FIXED DEPOSITS WAS FOUND TO BE DUE TO THE FACT T HAT THE CLAIM OF BAD DEBTS WAS NEGATIVED BY THE ASSESSING OFFICER AGAINS T WHICH THE ASSESSEE DID NOT FILE ANY APPEAL. IN OUR VIEW, IN VIEW OF THE DECISION OF HON'BLE MADRAS HIGH COURT RENDERED IN THE CASE O F CIT VS KARVY SOFTWARE SOLUTIONS LTD, NO PENALTY CAN BE LEVIED A S THE CONDITIONS LAID DOWN U/S 158BFA(2) ARE NOT FULFILLED. 8. REGARDING PENALTY QUA INTEREST ON FIXED DEPOSITS, THE FACTS ARE THAT THE ASSESSEE RETURNED A SUM OF ` 3 LAKHS ON CASH BASIS AND THE INCOME HAD BEEN ASSESSED ON ACCRUAL BASIS. THE ASS ESSEE HAS INVESTED IN MANY FINANCE FIRMS WHICH BECAME BANKRUP T. THE DEPOSITS IN BANK WAS MADE ON REINVESTMENT BASIS AND THE ASSE SSEE WAS ENTITLED TO ADOPT CASH OR MERCANTILE BASIS FOR HIS INCOME FR OM OTHER SOURCES. THE CHANGE IN METHOD OF ACCOUNTING, PRESUMABLY, HAS BEEN AGREED TO BY THE ASSESSEE TO AVOID FURTHER LITIGATION. IN OU R OPINION, THIS CANNOT BE A BASIS FOR LEVY OF PENALTY. 9. REGARDING ON-MONEY PAYMENT, IT WAS STATED THAT DU RING ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS AGREEABLE FOR AN ADDITION OF ` 6 LAKHS SINCE THE SELLER OF THE PROPERTY WAS SERIO USLY ILL AND THE ASSESSEE WAS NOT ABLE TO CROSS EXAMINE HIM AND THER EFORE, AGREED TO IT(SS)A 24&25/10 :- 7 -: THIS ADDITION STATING SPECIFICALLY THAT HE HAD TO PURCHASE PEACE WITH THE DEPARTMENT AND TO AVOID FURTHER LITIGATION. TH EREFORE, THIS ALSO CANNOT BE MADE A BASIS FOR LEVY OF PENALTY. CONSEQ UENTLY, WE CONFIRM THE APPELLATE ORDER AND DISMISS THE APPEAL OF THE R EVENUE. 10. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS D ISMISSED. I.T.(SS)A.NO. 25/MDS/2010 11. THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A), TIRUCHIRAPALLI, DATED 2.6.2010 WHICH EM ANATES FROM THE BLOCK ASSESSMENT ORDER PASSED BY THE ACIT, CENTRAL CIRCLE-II, TIRUCHIRAPALLI, U/S 143(3) R.W.S 263 OF THE ACT, FO R THE PERIOD 1.4.1995 TO 5.12.2001. 12. IN THIS CASE, BLOCK ASSESSMENT ORDER WAS REVISED U/S 263 AGAINST WHICH THE ASSESSEE HAD NO OBJECTION. THE O RIGINAL BLOCK ASSESSMENT WAS MADE ON 31.12.2003. SUBSEQUENTLY, THE ASSESSMENT WAS SET ASIDE BY THE LD. CIT U/S 263 DIRECTING THE ASSESSING OFFICER TO RECONSIDER THE STATEMENT GIVEN BY THE ASSESSEE POST SEARCH ON 12.8.2002. ACCORDINGLY, THE ASSESSMENT WAS REFRAM ED ON 27.12.2006. WHILE GIVING EFFECT TO THIS REVISIONAL ORDER, THE A SSESSING OFFICER HAS MADE AN ADDITION OF ` 10 LALKHS. THE DIRECTION OF THE LD. CIT WAS THAT I F IT(SS)A 24&25/10 :- 8 -: ` 10 LAKHS IS FOUND TO BE UNDISCLOSED THEN ONLY ADDI TION CAN BE MADE. BUT THE ASSESSING OFFICER, BASING THIS FINDING ONLY ON THE STATEMENT RECORDED ON 12.8.2002, STATING THAT HE HAD PROVIDED A SUM OF ` 10 LAKHS TO HIS BROTHER FOR FUNDING THE REAL ESTATE BU SINESS BY HIM, WAS MADE THE BASIS FOR ADDITION OF ` 10 LAKHS. THIS ADDITION HAS BEEN REDUCED TO ` 1,19,320/- BY THE LD. CIT(A). NOW THE REVENUE IS AGGRIEVED AND HAS RAISED THE FOLLOWING GROUNDS: 1.A. ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADDITIONS MADE BY THE AO AMOUNTING TO ` 8,80,680 (10,00,000 - 1,19,320) ON ACCOUNT OF UNEXPLAINED INVESTMENT IN BHARATHI NAGAR REAL ES TATES. 1B THE LEARNED CIT(A) HAS FAILED TO NOTE THAT TH E ADDITION OF ` 10 LAKHS MADE BY THE A.O. IS DIFFERENT FROM THE AD DITION MADE IN THE HANDS OF SRI.G.UMANATH . . LC THE LEARNED CIT(A) HAS FAILED TO NOTE THAT THE AO. HAS GIVEN CREDIT FOR ` L5 LAKHS IN THE HANDS OF SRI G. THIRUMOORTHY, BROTHER OF THE ASSESSEE CONSEQUENT TO A CLAIM OF ` L5,24,612 AS ADVANCES RECEIVED FROM RELATIVES AND FRIENDS, AND T HAT THE AO. HAS ASSESSED ` L0 LAKHS IN THE HANDS OF THIS ASSESSEE SINCE THE ASSESSEE COULD NOT PROVE THE SOURCES FOR THE AMOUNT S STATED TO BE OBTAINED FROM FRIENDS AND RELATIVES AND GIVEN TO SRI G.THIRUMOORTHY. 1D THE LEARNED CIT(A) HAS FAILED TO NOTE THAT TH E MATTER REGARDING INVESTMENT IN BHARATHI NAGAR REAL ESTATES WAS SUBJECT TO VERIFICATION AT THE TIME OF SEARCH AND T HAT UNDISCLOSED INCOME U/S L58BB CANNOT BE CORRECTLY COMPUTED WITH OUT VERIFYING THE SOURCES. 1.E THE LEARNED CIT(A) HAS FAILED TO NOTE THAT T HE BURDEN OF PROOF REGARDING SOURCE IS ONLY ON THE ASSESSEE AND IN THE ABSENCE OF SUFFICIENT PROOF, THE ASSESSEE HAS OFFER ED ` 10 LAKHS WHICH WAS ASSESSED BY THE AO. 2. THE APPELLANT CRAVES LEAVE TO, ADD TO AMEND OR ALTER THE ABOVE GROUNDS OF APPEAL AS MAY BE DEEMED NECESSARY. IT(SS)A 24&25/10 :- 9 -: 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE P ERUSED THE ENTIRE RECORD. IT IS TRUE THAT THE BROTHER OF THE ASSESSEE, SHRI G.UMANATH HAD DISCLOSED A SUM OF ` 8,80,680/- IN HIS BLOCK ASSESSMENT AS INVESTMENT MADE IN THE REAL ESTATE B USINESS. THE ASSESSING OFFICER HAS NOT CONTROVERTED THE CLAIM OF THE ASSESSEE THAT THE INVESTMENT DISCLOSED BY HIS BROTHER AND THE INV ESTMENT MADE BY HIM ARE ONE AND THE SAME. THE ASSESSING OFFICER HA S NOT GIVEN A FINDING THAT THIS INVESTMENT IS OVER AND ABOVE THE INVESTMENT OFFERED BY HIS BROTHER. AGAIN, NO SEIZED MATERIAL IS THERE TO SUPPORT THIS ADDITION UNDER CHAPTER XIVB. THE STATEMENT OF THE ASSESSEE WAS RECORDED AFTER EIGHT MONTHS FROM THE DATE OF SEARCH WHICH CANNOT BE RELATED IN VIEW OF THE DECISION OF THE HON'BLE SUPR EME COURT RENDERED IN THE CASE OF CIT VS P.V.KALYANASUNDARAM, 294 ITR 49(SC) WHEREIN IT HAS BEEN HELD THAT THE STATEMENT RECORDED AFTER THE SEARCH CANNOT CONSTITUTE SEIZED RECORD AND SUCH STATEMENTS WITHOU T ANY CORROBORATIVE EVIDENCE, CANNOT BE USED FOR MAKING A N ASSESSMENT. IN THIS REGARD, DECISION OF HON'BLE JURISDICTIONAL HIG H COURT RENDERED IN THE CASE OF CIT VS. K.BHUVANENDRAN AND OTHERS, 303 ITR 235, ALSO SUPPORTS OUR ABOVE CONTENTION. IN OUR CONSIDERED O PINION, NO CASE HAS BEEN MADE OUT BY THE ASSESSING OFFICER THAT THE INVESTMENTS ARE DISTINCT AND EXCLUSIVE AND THAT THE INVESTMENT DISC LOSED BY THE BROTHER OF THE ASSESSEE IS DIFFERENT FROM THAT FUND ED BY THE ASSESSEE. IT(SS)A 24&25/10 :- 10 - : WE ARE IN AGREEMENT WITH THE SUBMISSION OF THE LD.A R THAT ONLY THE STATEMENT RECORDED POST SEARCH, CANNOT BE MADE A BA SIS FOR MAKING ADDITION UNDER CHAPTER XIV. THE LD. CIT HAS DONE J USTICE BY SUSTAINING THE ADDITION OF ` 1,19,320/- AGAINST NO APPEAL HAS BEEN PREFERRED BY THE ASSESSEE. WE, THEREFORE, CONFIRM THE APPELLATE ORDER AND DISMISS THE APPEAL OF THE REVENUE. 14. TO SUMMARIZE THE RESULT, BOTH THE APPEALS OF THE RE VENUE STAND DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11.7.2011. SD/- SD/- (DR. O.K. NARAYANAN) VICE-PRESIDENT (HARI OM MARATHA) JUDICIAL MEMBER DATED: 11 TH JULY, 2011 RD COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR