Shri K.P.Chandradasan, Calicut V. A.C.Joseph, Wynad

ITSSA 43/COCH/2007

• Counselvise Citation: [2012] 124 COUNSELVISE.COM (IT) 7693 (ITAT-COCHIN)
• Duration Of Justice: 4 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 17-02-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 14-02-2012
• Assessment Year: misc
• Appeal Filed On: 25-10-2007
• Court: TRIBUNAL
• Department Lawyers: VIJAYAPRABHA
• Assessee Lawyers: V P MOHANDAS
• Keywords: Search and seizure; Block assessment

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE: SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI B.R. BASKARAN, ACCOUNTANT MEMBER IT(SS)A NO. 43/COCH/2007 BLOCK PERIOD : 1986-87 TO 1997-98 SHRI K.P. CHANDRADASAN, CONTRACTOR, LAKSHMI NIVAS, PANTHEERANKAVU P.O., CALICUT-19 [PAN: 46-014-PZ-5604] THE ASSISTANT COMMISSIONER OF INCOME-TAX,CIRCLE-2(1), KOZHIKODE. (APPELLANT) VS. (RESPONDENT) APPELLANT BY: SHRI V.P. MOHANDAS, ADV. RESPONDENT BY: SMT. VIJAYAPRABHA, JR. DR DATE OF HEARING: 14/02/2012 DATE OF PRONOUNCEMENT: /02/2012 ORDER PER SHRI B.R.BASKARAN, ACCOUNTANT MEMBER:- THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 27-07-2007 PASSED BY LD CIT(A)-I, CALICUT AND IT RELATES TO TH E BLOCK PERIOD ENDING 05.3.1997. THE PENALTY OF RS.7,83,600/- LEVIED BY THE AO U/S 158BF A(2), HAVING BEEN CONFIRMED BY THE LD CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 2. THE FACTS RELATING TO THE ISSUE UNDER CONSID ERATION ARE STATED IN BRIEF. THE ASSESSEE IS A CIVIL CONTRACTOR. HE WAS ALSO RUNNIN G A THEATRE AND WAS ALSO A PARTNER IN THE FIRM NAMED M/S K.P.CHANDRADASAN & CO. THE DEPAR TMENT CARRIED SEARCH AND SEIZURE OPERATIONS IN THE HANDS OF THE ASSESSEE ON 05.3.1997. AS AGAINST THE NIL INCOME DECLARED BY THE ASSESSEE IN THE BLOCK RETURN , THE AO DETERMINED THE UNDISCLOSED INCOME AT RS.36.16 LAKHS. THE MATTER W ENT UP TO THE TRIBUNAL AND AFTER GIVING EFFECT TO THE ORDER OF THE TRIBUNAL, THE UND ISCLOSED INCOME CAME TO BE ASSESSED I.T.(SS)A. NO. 43/COCH/2007 2 AT RS.13.06 LAKHS. THE DETAILS OF INCOME, WHICH CO MPRISED OF UNDISCLOSED INCOME, WERE NOT SUBMITTED BEFORE US. THE LD A.R, HOW EVER, RES TRICTED HIS ARGUMENT WITH REGARD TO THE INCOME ESTIMATED FROM CIVIL CONTRACT WORKS. AC CORDINGLY, WE INFER THAT THE ASSESSEE DO NOT HAVE OBJECTION TO THE PENALTY LEVIED IN RESP ECT OF OTHER ITEMS, IF ANY. 3. WE SHALL DISCUSS BRIEFLY ABOUT THE BACKGROUN D WHICH LED TO THE ESTIMATE OF INCOME FROM CIVIL CONTRACT WORKS. ON THE BASIS OF SEIZED RECORD, THE AO CAME TO THE CONCLUSION THAT THE ASSESSEE IS NOT PROPERLY DETERMINING THE W ORK IN PROGRESS AS AT THE YEAR END, WHICH IS VITAL FOR DETERMINING THE CORRECT PROFIT F ROM THE CONTRACT WORKS. THE ASSESSEE DID NOT CO-OPERATE FOR CONDUCTING THE SPECIAL AUDIT . FINALLY, THE AO RESORTED TO ESTIMATE THE INCOME FROM CONTRACT WORKS FOR THE BLOCK PERIOD @ 7.5% OF THE CONTRACT RECEIPTS, WHICH WORKED OUT TO RS.10.75 LAKHS FOR THE BLOCK PE RIOD. BEFORE THE AO AS WELL AS THE LD CIT(A), THE ASSESSEE CONTENDED THAT THE PENALTY U/S 158BFA(2) IS NOT LEVIEABLE AS THE INCOME FROM CONTRACT WORKS WAS ESTIMATED BY THE AO AFTER REACHING AGREEMENT WITH THE ASSESSEE. THE SAID CONTENTION WAS NOT ACCE PTED BY THE TAX AUTHORITIES. THE LD CIT(A) OPINED THAT THE FACT OF CONCEALMENT OF INCOM E WAS UNEARTHED AS A RESULT OF SEARCH ONLY AND THE QUANTUM OF INCOME WAS ONLY DETE RMINED IN THE BLOCK ASSESSMENT. ACCORDINGLY THE LD CIT(A) CONFIRMED THE PENALTY LEV IED BY THE AO. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE LD A.R, BY PLACING RELIANCE ON THE FOLLO WING CASE LAW, CONTENDED THAT THE PENALTY U/S 158BFA(2) COULD NOT BE IMPOSED IN THE I NSTANT CASE, AS THE INCOME FROM CONTRACT WORKS WAS ONLY ESTIMATED BY THE AO. (A) CIT VS. HARKARAN DAS VED PAL (2009)(22 2 CTR (DEL) 438) (B) DR. HAKEEM S.A. SYED SATHAR VS. A.C.I.T (2009) (120 ITD 1)(CHENNAI) ALTERNATIVELY, THE LD AR SUBMITTED THAT THE INCOME FROM CONTRACT WORKS WAS ESTIMATED AFTER REACHING AGREEMENT WITH THE ASSESSEE AND ACCO RDINGLY CONTENDED THAT THE PENALTY COULD NOT BE LEVIED, IF THE ADDITION IS MADE ON AGR EED BASIS. I.T.(SS)A. NO. 43/COCH/2007 3 5. ON THE CONTRARY, THE LD DR REITERATED THE VI EW OF THE LD CIT(A) THAT THE QUANTUM OF INCOME ONLY HAS BEEN ESTIMATED, BUT THE FACT OF CONCEALMENT WAS FOUND OUT DURING THE COURSE OF SEARCH. ACCORDINGLY SHE SUBMITTED THA T THE LD CIT(A) HAS RIGHTLY CONFIRMED THE PENALTY. WITH REGARD TO THE CONTENTI ON OF THE ASSESSEE THAT THE IMPUGNED ESTIMATION WAS MADE ON AGREED BASIS, THE L D D.R SUBMITTED THAT PENALTY COULD BE LEVIED, EVEN IF THE ADDITION WAS MADE ON A GREED BASIS. FOR THIS PROPOSITION, SHE RELIED UPON THE DECISION REPORTED IN 98 ITD 237 (MUMBAI ITAT). 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND CARE FULLY PERUSED THE RECORD. IT IS A WELL SETTLED PROPOSITION THAT THE PENALTY SHOULD BE LEVI ED AFTER CONSIDERING ALL THE FACTS AND CIRCUMSTANCES OF THE CASE. IT IS WELL SETTLED THA T THE MERE FACT THAT THE ADDITION HAS BEEN MADE ON AGREED BASIS CANNOT BE THE ONLY GROUND TO EXONERATE AN ASSESSEE FROM THE BURDEN OF PENALTY. THE FACTS AND CIRCUMSTANCES SURROUNDING THE ADDITION WILL CARRY MORE WEIGHT IN SUCH TYPES OF CASES. STILL, THE ASS ESSEE HAS GOT THE RESPONSIBILITY TO OFFER PROPER EXPLANATIONS IN RESPECT OF THE ADDITIO NS MADE IN THE ASSESSMENT PROCEEDINGS. EQUALLY TRUE IS THE FACT THAT THE IMPO SITION OF PENALTY IS NOT AUTOMATIC IN RESPECT OF ALL THE ADDITIONS. IN THE INSTANT CASE, THE FACT REMAINS THAT THE ASSESSEE DID NOT MAINTAIN BOOKS PROPERLY AND THAT HE DID NOT CO- OPERATE WITH THE SPECIAL AUDITORS ARE EVIDENT FROM THE ASSESSMENT ORDER. HENCE, THE AO W AS CONSTRAINED TO ESTIMATE THE INCOME FROM CIVIL CONTRACT WORKS. INITIALLY, THE A O PROPOSED TO ESTIMATE THE INCOME AT 10.35%, WHICH WAS REDUCED TO 7.5% BY THE AO AFTER H AVING DISCUSSIONS WITH THE ASSESSEE. HENCE, MERE AGREEMENT TO THE RATE OF 7.5 % WOULD NOT AUTOMATICALLY EXONERATE THE ASSESSEE FROM THE LEVY OF PENALTY. 7. THE NEXT QUESTION THAT ARISES IS WHETHER PEN ALTY COULD BE LEVIED ON THE INCOME ESTIMATED BY THE AO. WE FIND THAT THE ASSESSEE GET S SUPPORT IN THIS REGARD FROM THE CASE LAW RELIED UPON BY LD A.R, WHICH ARE DISCUSSED BRIEFLY HERE UNDER:- (A) IN THE CASE OF CIT VS. HARKARAN DAS VED PAL, S UPRA, THE HONBLE DELHI HIGH COURT HELD THAT THE DETERMINATION OF UNDISCLOSED IN COME SHOULD BE ON THE BASIS OF EVIDENCE FOUND AS A RESULT OF SEARCH. IF THE CO MPUTATION OF INCOME IS NOT BASED ON ANY SEIZED MATERIAL, THE SAME COULD NOT BE CONSIDERED AS UNDISCLOSED I.T.(SS)A. NO. 43/COCH/2007 4 INCOME AND HENCE NO PENALTY CAN BE IMPOSED IN SUCH A CASE. ACCORDINGLY IT WAS HELD THAT THE PENALTY U/S 158BFA(2) COULD NOT BE I MPOSED ON THE SURRENDER OF INCOME MADE BY THE ASSESSEE. (B) IN THE CASE OF DR. HAKEEM S.A.SYED SATHAR, SUP RA, THE CHENNAI BENCH OF ITAT HELD THAT THE ADDITION MADE ON THE BASIS OF ES TIMATE DOES NOT IPSO FACTO SUPPLY EVIDENCE OF CONCEALMENT SO AS TO JUSTIFY PEN ALTY. FROM THE ASSESSMENT ORDER, WE NOTICE THAT THE AO FO UND FAULT WITH THE QUANTUM OF WORK IN PROGRESS THAT WAS DETERMINED BY THE ASSESSE E EVERY YEAR. AFTER MAKING CERTAIN DELIBERATIONS, THE AO CAME TO THE CONCLUSIO N THAT IT WOULD NOT POSSIBLE TO ARRIVE AT THE CORRECT AMOUNT OF WORK IN PROGRESS AS ON THE DATE OF SEARCH. THOUGH THE AO PROPOSED TO ESTIMATE THE INCOME AT 10.35% OF THE CO NTRACT RECEIPTS, YET HE FINALLY DETERMINED THE INCOME BY ADOPTING THE RATE OF 7.5%. IT IS PERTINENT TO NOTE THAT THE AO, EXCEPT COMMENTING ON THE WORK IN PROGRESS, DID NOT BRING ANY OTHER MATERIAL ON RECORD TO SUGGEST THAT THERE WAS CONCEALMENT OF INC OME. IN THE INSTANT CASE, THE BLOCK ASSESSMENT HAS BEEN MADE FOR THE PERIOD FROM 01.4.1 986 TO 05.03.1997, I.E. ABOUT 11 YEARS. THE SUPPRESSION OF WORK IN PROGRESS AT THE END OF ONE YEAR WOULD AUTOMATICALLY GET OFFSET IN THE SUCCEEDING YEAR, AS THE CLOSING W ORK IN PROGRESS OF AN EARLIER YEAR BECOMES THE OPENING WORK IN PROGRESS OF THE SUCCEED ING YEAR. THUS THE UNDERSTATEMENT OF WORK-IN-PROGRESS OF ONE YEAR WOUL D BE OFFSET IN THE SUCCEEDING YEAR. HENCE, IN THE BLOCK PERIOD, THE CONCEALED IN COME, IF ANY, COULD BE ASCERTAINED ONLY IF THE CLOSING WORK IN PROGRESS AS ON THE DATE OF SEARCH, I.E. 05.03.1997 HAD BEEN DETERMINED CORRECTLY. IN THE INSTANT CASE, THE AO HAS HIMSELF HAS STATED THAT IT WAS NOT POSSIBLE TO ARRIVE AT THE CORRECT WORK IN PROGRESS AS ON THE DATE OF SEARCH (PAGE 7 OF THE ASSESSMENT ORDER). ACCORDINGLY, WE HAVE TO COM E TO THE CONCLUSION THAT THE INCOME FROM CIVIL CONTRACT WORKS HAS BEEN DETERMINE D IN THE INSTANT CASE ONLY ON ESTIMATED BASIS. IN THAT CASE, IN OUR VIEW, SUCH ESTIMATE IS NOT SUSCEPTIBLE TO PENALTY U/S 158BFA(2) OF THE ACT. OUR VIEW IS SUPPORTED BY THE DECISIONS RELIED UPON BY THE ASSESSEE, WHICH HAVE BEEN DISCUSSED IN THE EARLIER PARAGRAPHS. I.T.(SS)A. NO. 43/COCH/2007 5 8. IN VIEW OF THE FOREGOING DISCUSSIONS, WE SET ASIDE THE ORDER OF LD CIT(A) IN SO FAR AS IT RELATES TO THE INCOME FROM CIVIL CONTRACT WOR KS AND DIRECT THE AO TO DELETE THE PENALTY RELATING THERE TO. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. PRONOUNCED ON -02-2012 - (N.R.S.GANESAN) (BR BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER ERNAKULAM DATED: FEBRUARY, 2012 GJ COPY TO: 1 SHRI K.P. CHANDRADASAN, CONTRACTOR, LAKSHMI NIVAS , PANTHERANKAVU P.O., CALICUT-19 2 THE ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE-2 (1), KOZHIKODE. 3 THE COMMISSIONER OF INCOME-TAX(APPEALS)-I, CALICU T. 4 THE COMMISSIONER OF INCOME-TAX, CALICUT. 5. THE DR, ITAT, COCHIN BENCH. 6 GUARD FILE. BY ORDER A SSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH