ITO, Dindigul V. M/s Dhanapackiam Jewellers, Dindigul

ITSSA 70/CHNY/2007

• Counselvise Citation: [2011] 124 COUNSELVISE.COM (IT) 8123 (ITAT-CHENNAI)
• Duration Of Justice: 4 year(s) 4 month(s) 26 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 26-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 24-08-2011
• Assessment Year: misc
• Appeal Filed On: 30-03-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K E B RANGARAJAN JUNIOR
• Assessee Lawyers: T N SEETHARAMAN
• Keywords: Income from undisclosed sources; Bonafide belief; Question of law; Block assessment
• Section: 260A; 27; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER I.T (SS) A. NO. 70/MDS/2007 [BLOCK ASSESSMENT PERIOD : 1998-99 TO 2001-02 (TI LL 02.02.02)] THE INCOME TAX OFFICER, WARD I(1), DINDIGUL 624 002. (APPELLANT) V. M/S DHANAPACKIAM JEWELLERS, 290, DHARAPURAM ROAD, ODDANCHATRAM, DINDIGUL DISTRICT. PAN : AADFD5766D (RESPONDENT) APPELLANT BY : SHRI K.E.B. RANGARAJAN, JUNIOR STANDING COUNSEL RESPONDENT BY : SHRI T.N. SEETHARAMAN, ADVOCATE DATE OF HEARING : 24.08.2011 DATE OF PRONOUNCEMENT: 26.08.2011 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY THE REVENUE, ITS GRIEVANCE IS THAT LD. CIT(APPEALS) DELETED LEVY OF PENALTY OF ` 12,70,000/- IMPOSED UNDER SECTION 158BFA(2) OF INCOME-TAX ACT, 1961 (IN SHORT THE ACT). AS PER THE REVENUE, THERE WERE CONCURRENT FINDINGS OF LD. CIT(APPEALS) AND TRIBUNAL THAT UNDISCLOSED INCOME ATTRIBUTABLE T O UNACCOUNTED I.T (SS) A. NO. 70/MDS/07 2 JEWELLERY OF ASSESSEE-FIRM WAS NOT EXPLAINED THROUG H THE AFFIDAVIT FILED BY ONE PARTNER SHRI K. KULANDAIVEL. AS PER T HE REVENUE, THE PENALTY PROCEEDING UNDER SECTION 158BFA(2) WAS DIFF ERENT FROM A PENALTY PROCEEDING FOR CONCEALMENT UNDER SECTION 27 1(1)(C) OF THE ACT. 2. SHORT FACTS APROPOS ARE THAT ASSESSEE HAD IN THE RETURN OF INCOME FILED FOR BLOCK PERIOD, PURSUANT TO SEARCH I N ITS PREMISES, ADMITTED UNDISCLOSED INCOME COVERING VALUE OF 6645. 900 GRAMS OF GOLD JEWELLERY. AT THE TIME OF SEARCH, AN EXCESS O F 9645.900 GRAMS OF GOLD JEWELLERY WAS FOUND. FOR THE BALANCE 3000 GRA MS OF GOLD JEWELLERY WHICH WAS NOT ADMITTED IN THE RETURN FILE D PURSUANT TO THE SEARCH, EXPLANATION OF THE ASSESSEE WAS THAT IT WAS JEWELLERY ACCUMULATED BY SHRI K. KULANDAIVEL, ONE OF THE PART NERS, WHO WAS CARRYING ON THE BUSINESS AS A PROPRIETARY CONCERN D URING THE PERIOD 21.10.1991 TO 30.1.1995. AN AFFIDAVIT OF SHRI K. K ULANDAIVEL WAS FILED IN THIS REGARD. HOWEVER, ASSESSING OFFICER FOUND T HAT NO CORROBORATING DOCUMENTARY EVIDENCE WAS FILED BY THE ASSESSEE IN SUPPORT OF ITS CONTENTION THAT 3000 GRAMS OF GOLD J EWELLERY, REPRESENTED ACCUMULATED BALANCES DURING THE PERIOD WHEN SHRI K. KULANDAIVEL WAS CARRYING ON BUSINESS IN HIS INDIVID UAL CAPACITY. HE, I.T (SS) A. NO. 70/MDS/07 3 THEREFORE, TREATED THE VALUE THEREOF ALSO AS UNDISC LOSED INCOME OF THE ASSESSEE UNDER SECTION 69A OF THE ACT. THIS ADDITI ON WAS LATER CONFIRMED BY LD. CIT(APPEALS) AND IN FURTHER APPEAL , BY THIS TRIBUNAL. THE FINDING RECORDED BY THIS TRIBUNAL AS APPEARING IN PARA 13 OF ITS ORDER DATED 29 TH MARCH, 2005, IS REPRODUCED HEREUNDER:- 13. THE ADMITTED FACTS OF THE CASE IS THAT 9645.900 GRAMS GOLD JEWELLERY WAS FOUND EXCESS WHEN COMPARED TO THE STOCK REGISTER. THE ASSESSEE CLAIMED THAT 3000 GMS OF GO LD JEWELLERY BELONGS TO MR. KULANDAIVEL WHEN HE WAS CONDUCTING T HE BUSINESS AS PROPRIETORSHIP CONCERN. FROM THE RECORDS, WE FI ND THAT THE PARTNERSHIP FIRM HAS TAKEN OVER 465.190 GMS OF GOLD JEWELLERY FROM THE P CONCERN. THE ASSESSEE-FIRM HAS SHOWN TH E ABOVE SAID 465.190 GMS OF GOLD JEWELLERY AS OPENING STOCK. SHR I KULANDAIVEL ADMITTEDLY FILED A DECLARATION UNDER VOLUNTARY DECLAR ATION OF INCOME SCHEME, 1997 SHOWING A CASH OF ` 3,00,000/-. THE DECLARATION HAS NOT DISCLOSED THE VALUE OF 3000 GMS OF GOLD JEWELLERY. THE ASSESSEE APPEARS TO HAE FILED AN AFF IDAVIT BEFORE THE ASSESSING OFFICER WHICH IS AVAILABLE AT PAGE 14 OF THE PAPER- BOOK. THE SAID KULANDAIVEL IN THE AFFIDAVIT SAYS TH AT THE VALUE OF GOLD JEWELLERY WAS UNDERSTATED IN THE ACCOUNT AND TH E SALES AND PURCHASE WERE NOT FULLY REFLECTED IN THE ACCOUNTS. THE SAID KULANDAIVEL FURTHER SAYS IN THE AFFIDAVIT HE FILED A DECLARATION UNDER VOLUNTARY DECLARATION OF INCOME SCHEME, 1997. HE FURTHER SAYS THAT EVEN THOUGH THE ACCUMULATED UNACCO UNTED STOCK OF GOLD JEWELLERY WAS AVAILABLE AT THE TIME OF FILING DECLARATION UNDER VOLUNTARY DECLARATION OF INCOME SC HEME, 1997, HE HAS DISCLOSED ONLY THE UNACCOUNTED CASH. T HEREFORE, THE SAID KULANDAIVEL STATED IN THE AFFIDAVIT THAT T HE DECLARATION FILED UNDER VOLUNTARY DECLARATION OF INCOME SCHEME, 1997 WAS NOT COMPLETE DECLARATION AND IT WAS CONFINED TO UNA CCOUNTED CASH ONLY. THEREFORE, THE SAID KULANDAIVEL CLAIMS THAT T HE EXCESS GOLD JEWELLERY OF 3000 GMS WAS ATTRIBUTABLE TO THE PERIOD 21.10.91 TO 31.3.95 (ASSESSMENT YEAR 1992-93 TO 1995-96). THE F ACT REMAINS THAT AS PER THE RECORDS, ONLY 465.190 GMS OF GOLD I.T (SS) A. NO. 70/MDS/07 4 JEWELLERY WAS TAKEN OVER BY THE PARTNERSHIP FIRM FROM THE PROPRIETORSHIP CONCERN. IF REALLY 3000 GMS OF GOLD JEWELLERY WAS IN EXCESS, IT COULD NOT HAVE BEEN PASSED OVER TO TH E PROPRIETORSHIP FIRM WITHOUT THE KNOWLEDGE OF EITHER MR. KULANDAIVEL OR ANY OTHER PARTNERS OF THE PRESENT FIR M. THE PARTNERSHIP FIRM MIGHT HAVE PAID UNACCOUNTED MONEY F OR ACQUIRING THE EXCESS JEWELLERY OF 3000 GMS OR THE PR OPRIETORSHIP CONCERN MIGHT HAVE PASSED ON THE EXCESS STOCK OF 30 00 GMS OF GOLD JEWELLERY WITHOUT COLLECTING ANY MONEY SINCE THE PROPRIETOR CONTINUES TO BE THE PARTNER OF THE PARTNERSHIP FIRM . THE FACT REMAINS THAT AS ON 19.8.98, EXCESS STOCK OF 9645.90 0 GMS OF GOLD JEWELLERY WAS FOUND. THEREFORE, IT IS OBVIOUS THAT THE ASSESSEE- FIRM MIGHT HAVE INVESTED THE UNDISCLOSED INCOME FOR ACQUIRING THE ABOVE EXCESS JEWELLERY OF 3000 GMS OR IT MIGHT H AVE BEEN PASSED ON TO THE ASSESSEE-FIRM WITHOUT ANY CONSIDERA TION, SINCE THE PROPRIETOR CONTINUES TO BE THE PARTNER OF THE F IRM. IN EITHER CASE, THE EXCESS JEWELLERY OF 3000 GMS CONSTITUTES T HE UNDISCLOSED INVESTMENT OF THE ASSESSEE-FIRM. IN TH OSE FACTUAL CIRCUMSTANCES, WE ARE UNABLE TO ACCEPT THE EXPLANAT ION OF THE ASSESSEE THAT THE 3000 GMS OF GOLD JEWELLERY BELONG S TO KULANDAIVEL AND NOT TO THE ASSESSEE-FIRM. IN OUR O PINION, IN THE ABSENCE OF ANY OTHER MATERIAL AND THE SATISFACTORY EX PLANATION, THE 3000 GMS OF GOLD JEWELLERY BELONGS TO THE ASSESS EE AND NOT TO MR. KULANDAIVEL. THEREFORE, IT HAS TO BE ASSESS ED ONLY IN THE HANDS OF THE ASSESSEE-FIRM. IN RESPECT OF REMAININ G 6645.900 GMS OF GOLD JEWELLERY, THE ASSESSEE ADMITS THAT IT IS UNDISCLOSED INCOME. IN VIEW OF OUR CONCLUSION THAT THE 3000 GM S OF GOLD JEWELLERY WAS ALSO THE UNDISCLOSED INCOME OF THE ASS ESSEE-FIRM, THE ENTIRE 9645.900 GMS OF GOLD JEWELLERY HAS TO BE CONSIDERED AS UNDISCLOSED INCOME OF THE ASSESSEE-FIRM. THEREAFTER NOTICE UNDER SECTION 158BFA(2) WAS ISSUE D TO THE ASSESSEE AS TO WHY A PENALTY SHOULD NOT BE LEVIED. IN REPLY TO SUCH NOTICE, ASSESSEE SUBMITTED THAT THE ORIGIN OF GOLD JEWELLERY WITH SHRI K. KULANDAIVEL WAS TRACEABLE AND THE ADDITION WAS M ADE INVOKING SECTION 69A OF THE ACT. ACCORDING TO ASSESSEE, THE RE WAS NO ATTEMPT I.T (SS) A. NO. 70/MDS/07 5 OR INTENTION ON ITS PART TO CONCEAL ANY INCOME OR F URNISH ANY INACCURATE PARTICULARS. AS PER THE ASSESSEE, JUST BECAUSE THE EXPLANATION WAS NOT CONSIDERED TO BE NOT ACCEPTABLE , IT WOULD NOT AUTOMATICALLY LEAD TO A CONCLUSION THAT THERE WAS A NY INCOME WHICH WAS NOT DISCLOSED BY THE ASSESSEE. AS PER THE ASSE SSEE, TRIBUNAL ITSELF EXPRESSED DOUBTS REGARDING THE SOURCE OF 300 0 GRAMS OF GOLD JEWELLERY AND ALSO MENTIONED THE POSSIBILITY OF SHR I K. KULANDAIVEL OWNING 3000 GRAMS OF GOLD JEWELLERY. ACCORDING TO THE ASSESSEE, SECTION 69A OF THE ACT GAVE A DISCRETIONARY POWER T O THE ASSESSING OFFICER TO MAKE AN ADDITION, BUT SUCH AN ADDITION W OULD NOT LEAD TO AN AUTOMATIC LEVY OF PENALTY. ASSESSEE ALSO RELIED ON DECISION OF BANGALORE BENCH IN THE CASE OF SMT. MALA DAYANITHI V. DCIT (91 ITD 46) FOR ARGUING THAT LEVY OF PENALTY UNDER SECTION 158BFA(2) WAS NOT MANDATORY AND AUTOMATIC. ARGUMENT OF THE ASSESSEE WAS THAT PENALTY UNDER SECTION 158BFA(2) OF THE ACT WAS AKIN TO PENALTY LEVY UNDER SECTION 271(1)(C) OF THE ACT AND HENCE JUDICI AL DECISIONS PERTAINING TO LATTER SECTION WOULD BE APPLICABLE HE RE AS WELL. HOWEVER, A.O. WAS NOT IMPRESSED. ACCORDING TO HIM, OUT OF THE EXCESS STOCK FOUND AT THE TIME OF SEARCH, ASSESSEE COULD NOT EXPLAIN 3000 GRAMS OF GOLD JEWELLERY. FURTHER, ACCORDING T O A.O., ALL THE CASE LAWS RELIED ON BY THE ASSESSEE RELATED TO SECTION 2 71(1)(C) AND NOT I.T (SS) A. NO. 70/MDS/07 6 SECTION 158BFA(2) OF THE ACT. A.O. ALSO NOTED THAT ASSETS AND LIABILITIES OF PROPRIETARY BUSINESS, WHEN TAKEN OVE R BY THE ASSESSEE, DID NOT SHOW ANY EXCESS STOCK IN THE BOOKS OF ACCOU NTS. EVEN WHEN SHRI K. KULANDAIVEL MADE A DECLARATION UNDER VDIS-1 997, HOLDING OF 3000 GRAMS OF GOLD JEWELLERY WAS NOT DISCLOSED BY H IM. THERE WAS NO TANGIBLE PROOF PRODUCED BY THE ASSESSEE WITH REG ARD TO ITS CLAIM THAT 3000 GRAMS OF GOLD JEWELLERY BELONGED TO SHRI K. KULANDAIVEL AND ASSESSEE HAD ALSO NOT SATISFIED ANY OF THE CONDITIO NS SPECIFIED UNDER THE PROVISO TO SECTION 158BFA(2) OF THE ACT. HE, T HEREFORE, LEVIED PENALTY ` 12,70,000/- BEING THE VALUE ADOPTED FOR 3000 GRAMS OF GOLD JEWELLERY, NOT DISCLOSED BY THE ASSESSEE. 3. IN ITS APPEAL BEFORE LD. CIT(APPEALS), ARGUMENT OF THE ASSESSEE WAS THAT THE PENALTY WAS LEVIED ONLY BASED ON REJEC TION OF ITS EXPLANATION, BUT SECTION 69A OF THE ACT ITSELF BEIN G A DEEMING PROVISION, EVIDENCE OUGHT HAVE BEEN ADDUCED BY THE A.O. FOR LEVY OF PENALTY. AS PER THE ASSESSEE, TRIBUNAL ITSELF HAD USED THE WORDS MIGHT IN RELATION TO ADDITION MADE TO 3000 GRAMS OF GOLD JEWELLERY AND THEREFORE, THERE WAS NO CONCLUSIVE FINDING THAT THERE WAS ANY CONCEALMENT OF INCOME. FURTHER ARGUMENT WAS THAT N O EVIDENCE I.T (SS) A. NO. 70/MDS/07 7 WHATSOEVER WAS FOUND FOR ANY UNACCOUNTED PURCHASE M ADE BY THE ASSESSEE NOR FOR ANY UNACCOUNTED SALES. LD. CIT(AP PEALS) WAS APPRECIATIVE OF THESE CONTENTIONS. AFTER HOLDING T HAT SECTION 158BFA(2) OF THE ACT WAS SIMILAR TO SECTION 271(1)( C) OF THE ACT AND LEVY OF PENALTY NOT MANDATORY IN EVERY CASE, LD. CI T(APPEALS) HELD AT PARA 7.1 OF HIS ORDER, AS UNDER:- 7.1 FROM THE ABOVE, IT IS TO BE EXAMINED WHETHER TH E APPELLANT HAS DISCHARGED THE ONUS CAST ON IT BY PROVING ITS BO NAFIDE AND REASONABLENESS OF THE CLAIM. ADMITTEDLY THERE WERE NO EVIDENCES GATHERED AT THE TIME OF SEARCH REGARDING UNACCOUNTE D PURCHASES AND SALES BY THE FIRM EXCEPT THERE WAS UNEXPLAINED J EWELLERY TO THE EXTENT OF 9645.9 GRAMS OF GOLD JEWELLERY. FURTH ER, THERE WERE NO EVIDENCES REGARDING SUPPRESSION OF TURNOVER BY THE APPELLANT FIRM DURING THE BLOCK PERIOD. IN THE ABS ENCE OF EVIDENCES REGARDING UNACCOUNTED PURCHASES AND SALES , THE EXPLANATION OF THE APPELLANT THAT PART OF THE JEWEL LERY BELONGED TO SHRI K. KULANDAIVEL WHEN HE CONDUCTED THE BUSINE SS IN HIS INDIVIDUAL CAPACITY IS REASONABLE AND BONAFIDE AND S UCH BONAFIDE BELIEF WAS PROVED BY FILING AN AFFIDAVIT FROM SHRI K. KULANDAIVEL. FURTHER AS CONTENDED BY THE REPRESENTATIVE, THE APPE LLANT FIRM COULD NOT HAVE EARNED VERY HIGH INCOME DURING THE SH ORT PERIOD OF ITS EXISTENCE FROM 19.8.98 TO THE DATE OF SEARCH IN A SMALL PLACE LIKE ODDANCHATRAM. AS SUCH, THE CONTENTION O F THE APPELLANT THAT PART OF THE UNEXPLAINED JEWELLERY REP RESENTS UNACCOUNTED INCOME EARNED BY SHRI KULANDAIVEL PRIOR TO THE BLOCK PERIOD IS REASONABLE. IN VIEW OF THE ABOVE, I FIND THAT THE ONUS CAST ON THE APPELLANT IS DISCHARGED BY PROVING ITS B ONAFIDE WHICH INCLUDES FILING OF AFFIDAVIT AND THE IMPOSSIBILITY O F EARNING HUGE INCOME DURING SHORT PERIOD. THE CLAIM OF THE APPEL LANT WAS BONAFIDE AND MERELY BECAUSE THE SAME WAS NOT ACCEPT ABLE, THE PENALTY CANNOT BE IMPOSED. I, THEREFORE, DIRECT THE ASSESSING OFFICER TO DELETE THE PENALTY IMPOSED. I.T (SS) A. NO. 70/MDS/07 8 4. NOW BEFORE US, LEARNED D.R., STRONGLY ASSAILING THE ORDER OF LD. CIT(APPEALS), SUBMITTED THAT EVEN IF SECTION 158BFA (2) OF THE ACT WAS NOT CONSIDERED MANDATORY, STILL PENALTY WAS VER Y MUCH LEVIABLE IN THE PRESENT CASE. ACCORDING TO HIM, SHRI K. KULAND AIVEL HAD AVAILED VDIS-1997 SCHEME EARLIER, BUT NEVER DISCLOSED ANY G OLD JEWELLERY TO HAVE BEEN HELD BY HIM IN ADDITION TO WHAT WAS HELD BY HIM IN HIS PROPRIETARY BUSINESS. LEARNED D.R. SUBMITTED THAT IF SUCH UNACCOUNTED GOLD JEWELLERY WAS WITH SHRI K. KULANDA IVEL, IT WOULD HAVE AUTOMATICALLY BEEN BROUGHT IN THE PARTNERSHIP FIRM WHEN THE PARTNERSHIP FIRM TOOK OVER THE BUSINESS. LEARNED D .R. FURTHER ARGUED THAT 3000 GRAMS OF GOLD JEWELLERY WAS NEVER REFLECT ED IN THE BOOKS OF PARTNERSHIP FIRM AND WHAT WAS CONSIDERED WAS ONLY T HE EXCESS STOCK FOUND AT THE TIME OF SEARCH. LEARNED D.R. SUBMITTE D THAT OUT OF TOTAL EXCESS STOCK FOUND, ASSESSEE ITSELF ADMITTED IN THE RETURN FILED PURSUANT TO SEARCH, 6645.900 GRAMS, BUT HAD KNOWING LY EXCLUDED 3000 GRAMS, SIMPLY BASED ON AN AFFIDAVIT OF SHRI K. KULANDAIVEL. LEARNED D.R. POINTED OUT THAT HON'BLE JURISDICTIONA L HIGH COURT CONFIRMED THE ADDITION FOR 3000 GRAMS OF JEWELLERY DISMISSING ASSESSEES APPEAL UNDER SECTION 260A OF THE ACT VID E ORDER DATED 08.06.2011 IN TCA NO.189 OT 2005 (PAPER-BOOK PAGE 3 4 TO 41). IN ANY CASE, ACCORDING TO HIM, LEVY OF PENALTY UNDER S ECTION 158BFA(2) I.T (SS) A. NO. 70/MDS/07 9 OF THE ACT COULD NOT BE ON THE SAME FOOTING AS THAT OF LEVY OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT. THE EXPLANATIO N OFFERED BY THE ASSESSEE BEING NOT SUPPORTED, PENALTY WAS RIGHTLY L EVIED AND LD. CIT(APPEALS) GAVE UNDUE IMPORTANCE TO THE AFFIDAVIT FILED BY SHRI K. KULANDAIVEL, THOUGH IT WAS NOT SUPPORTED BY ANY COR ROBORATIVE MATERIAL. 5. PER CONTRA, LEARNED A.R. SUPPORTING THE ORDER OF LD. CIT(APPEALS), SUBMITTED THAT IN THE FIRST PLACE, TH E ADDITION WAS MADE UNDER SECTION 69A OF THE ACT, WHICH WAS DEEMING PRO VISION. THERE WAS NO DISPUTE THAT SHRI K. KULANDAIVEL, ONE OF THE PARTNERS, WAS DOING THE BUSINESS EARLIER AS A PROPRIETARY CONCERN . THERE WAS ALSO NO DISPUTE THAT SHRI K. KULANDAIVEL FILED AN AFFIDA VIT OWNING OF 3000 GRAMS OF GOLD JEWELLERY, AS ACCUMULATED BY HIM DURI NG THE PERIOD WHEN HE WAS DOING THE BUSINESS AS A PROPRIETARY CON CERN. ACCORDING TO HIM, THOUGH SUCH AFFIDAVIT WAS NOT ACCEPTED BY T HE A.O. OR THE APPELLATE AUTHORITIES, SUCH EXPLANATION WAS NEVER F OUND TO BE WRONG. ACCORDING TO HIM, PROCEEDINGS FOR LEVY OF PENALTY A ND PROCEEDINGS FOR ASSESSMENT WERE ON DIFFERENT FOOTING. ON A PROBABI LITY, AN ASSESSMENT COULD BE MADE BUT ON A MERE PROBABILITY, PENALTY COULD NOT BE LEVIED. FURTHER, AS PER LEARNED A.R., EVEN THOUGH THE CLAIM I.T (SS) A. NO. 70/MDS/07 10 WAS NOT ACCEPTED, THERE WAS NO FINDING OF THE A.O. THAT IT WAS NOT A BONAFIDE ONE AND HENCE, THERE WAS NO QUESTION OF LE VY OF PENALTY UNDER SECTION 158BFA(2) OF THE ACT. LEARNED A.R. P OINTED OUT THAT THE TRIBUNAL HAD ALSO EXPRESSED DOUBT AT PARA 13 OF ITS ORDER THAT THERE WAS A POSSIBILITY THAT THE EARLIER PROPRIETOR WHOSE BUSINESS WAS TAKEN OVER BY PARTNERSHIP MIGHT HAVE PASSED ON THE EXCESS GOLD JEWELLERY TO THE ASSESSEE-FIRM. THEREFORE, ACCORDI NG TO HIM, AFFIDAVIT FILED BY SHRI K. KULANDAIVEL DID HAVE SUBSTANTIAL E VIDENTIARY VALUE IN THIS REGARD. IN ANY CASE, ACCORDING TO HIM, THE MA TTER HAD TRAVELLED UPTO JURISDICTIONAL HIGH COURT AND ONE OF THE QUEST IONS CONSIDERED BY THE JURISDICTIONAL HIGH COURT AS INVOLVING SUBSTANT IAL QUESTION OF LAW WAS WITH REGARD TO THE ADDITION MADE FOR 3000 GRAMS EXCESS GOLD JEWELLERY. RELYING ON THE DECISION OF THIRD MEMBER OF THIS TRIBUNAL IN THE CASE OF RUPAM MERCANTILES LTD. V. DCIT (91 ITD 237), LEARNED A.R. SUBMITTED THAT THE CLAIM HAVING BEEN HELD BY H ON'BLE HIGH COURT TO GIVE RISE TO SUBSTANTIAL QUESTION OF LAW, SUCH A CLAIM COULD NOT BE TREATED AS FRIVOLOUS OR MALAFIDE IN ORDER TO ATTRAC T LEVY OF PENALTY. FURTHER RELIANCE WAS PLACED ON THE DECISION OF HON' BLE APEX COURT IN THE CASE OF CIT V. RELIANCE PETROPRODUCTS PVT. LTD. (322 ITR 158) AND ALSO DECISION OF HON'BLE BOMBAY HIGH COURT IN THE C ASE OF CIT V. DHARAMCHAND L. SHAH (204 ITR 462). I.T (SS) A. NO. 70/MDS/07 11 6. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL C ONTENTIONS. UNDISPUTED FACT IS THAT EXCESS GOLD JEWELLERY OF 96 45.900 GRAMS WAS FOUND AT THE TIME OF SEARCH. OUT OF THIS, 6645.900 GRAMS WAS OFFERED BY THE ASSESSEE AS A PART OF ITS UNDISCLOSED INCOME . WITH REGARD TO BALANCE 3000 GRAMS, EXPLANATION OF THE ASSESSEE WAS THAT THE SAID GOLD JEWELLERY BELONGED TO SHRI K. KULANDAIVEL, ERS TWHILE PROPRIETOR WHO CARRIED ON THE BUSINESS BEFORE THE ASSESSEE TOO K OVER IT. HOWEVER, THIS EXPLANATION OF THE ASSESSEE WAS NOT F OUND TENABLE BY THE A.O. NOR BY LD. CIT(APPEALS) NOR BY THE TRIBUNA L IN THE SUCCESSIVE PROCEEDINGS. ASSESSEE HAD MOVED BEFORE HON'BLE JUR ISDICTIONAL HIGH COURT AND HON'BLE JURISDICTIONAL HIGH COURT IN ITS ORDER DATED 8.6.2011 IN TAX CASE (APPEAL NO.189 OF 2005 HELD AT PARA 9 O F ITS ORDER, AS UNDER:- 9. IT IS A MATTER OF FACT THAT THE SEARCH CONDUCTED IN THE PREMISES OF THE ASSESSEE-FIRM UNDER THE INCOME-TAX ACT, 1961 ON 20.02.2002 DISCLOSED UNACCOUNTED STOCK OF GOLD J EWELLERY, SILVER ARTICLES AND CASH. IT IS NOT DISPUTED BY THE ASSESSEE HEREIN THAT THE PARTNER KULANDAIVEL HAD BROUGHT IN THE ASSETS OF HIS PROPRIETARY CONCERN INTO THE STOCK OF THE PARTNE RSHIP FIRM. EVEN THOUGH THE ASSESSEE MIGHT HAVE PROJECTED THAT THE PROPRIETARY CONCERN WAS HAVING 3000 GRAMS OF UNACCO UNTED STOCK PRIOR TO THE FORMATION OF THE PARTNERSHIP FIRM, YET GOING BY THE FACT THAT THE BUSINESS PROPRIETARY CONCERN, IN ENTIR ETY, WAS BROUGHT INTO PARTNERSHIP FIRM, IT STANDS TO REASON THAT WHATEVER STOCK FOUND AS ON THE DATE OF SEARCH HAS TO BE TREA TED AS AN UNDISCLOSED INCOME OF THE FIRM ONLY. EXCEPT FOR GIV ING A I.T (SS) A. NO. 70/MDS/07 12 STATEMENT ON THE AVAILABILITY OF UNACCOUNTED STOCK, THERE IS NOTHING TO SHOW THAT THE SAID 3000 GRAMS REMAINED W ITH THE PARTNER KULANDAIVEL NEVER TO BE PLOUGHED INTO THE P ARTNERSHIP BUSINESS. ON THE ADMITTED FACT THAT 3000 GRAMS OF GOLD JEWELLERY WAS AN UNACCOUNTED STOCK OF PROPRIETARY CON CERN BROUGHT INTO THE HANDS OF THE FIRM AND FOUND IN FAC T AS EXCESS STOCK, WE DO NOT FIND ANY JUSTIFICATION IN THE CONTE NTION OF THE ASSESSEE THAT THE 3000 GRAMS OF GOLD JEWELLERY BE EX CLUDED AT THE HANDS OF THE APPELLANT HEREIN. THUS EXCEPT FOR HIS SWORN STATEMENT HEREIN AND THE CLAIM THAT THE DETAILS GIV EN WERE SUPPORTED BY THE ACCOUNTS MAINTAINED BY THE SAID KULA NDAIVEL, WE DO NOT FIND ANY MATERIALS FOR ACCEPTING THE SAID PLE A TO EXCLUDE 3000 GRAMS OF GOLD JEWELLERY FROM THE ASSESSMENT AT THE HANDS OF THE ASSESSEE. IT IS ALSO AN ADMITTED FACT THAT THE SAID KULANDAIVEL, EVEN THOUGH HAD VOLUNTARILY DISCLOSED ` 3,00,000/- AS AN UNDISCLOSED INCOME, THERE WAS NO WHISPER AS TO T HE POSSESSION OF UNACCOUNTED GOLD JEWELLERY AT THE TIME OF FILING DECLARATION UNDER THE VOLUNTARY DISCLOSURE SCHEME. IF REALLY 300 0 GRAMS OF GOLD JEWELLERY WAS KEPT SEPARATELY FROM BEING PASSED ON TO THE PARTNERSHIP FIRM, NOTHING PREVENTED THE SAID KULAND AIVEL TO SAY SO WHILE FORMING THE PARTNERSHIP FIRM. IN THE CIRCUMS TANCES, WE ARE SATISFIED WITH THE FINDINGS GIVEN BY THE TRIBUNAL IN PARAGRAPH 13 OF ITS ORDER. WE DO NOT FIND ANY GOOD GROUND TO ACC EPT THE PLEA OF THE ASSESSEE HEREIN THAT THE UNDISCLOSED INCOME OF 3000 GRAMS OF GOLD JEWELLERY BELONGED TO THE ERSTWHILE PR OPRIETARY CONCERN OF KULANDAIVEL AND CONSEQUENTLY, QUESTION NO S.1 AND 2 STAND ANSWERED AGAINST THE ASSESSEE. THE BURDEN OF PROVING THAT ANY UNDISCLOSED INCOME BELONGED TO THE ASSESSEE, HIS PARTNER IN HIS ERSTWHILE BUSINESS IS ON THE ASSESSEE, WHICH, W E DO NOT FIND, THAT THE ASSESSEE HAD DISCHARGED. CONSEQUENTLY, THE APPEAL FAILS ON THIS ASPECT. HON'BLE JURISDICTIONAL HIGH COURT HAS GIVEN A CLEAR FINDING THAT EXCEPT FOR SWORN STATEMENT OF SHRI K. KULANDAIVEL AND THE CLAIM THAT THE DETAILS GIVEN WERE SUPPORTED BY ACCOUNTS MAINTAINED BY SHRI K. KULANDAIVEL, THERE WAS NO OTHER MATERIAL FOR ACCEPT ING THE PLEA OF THE I.T (SS) A. NO. 70/MDS/07 13 ASSESSEE FOR EXCLUDING 3000 GRAMS OF GOLD JEWELLERY . THERE IS ALSO A CLEAR FINDING THAT ASSESSEE COULD NOT DISCHARGE ITS BURDEN OF PROVING THAT THE UNDISCLOSED INCOME BELONGED TO ITS PARTNER IN HIS ERSTWHILE BUSINESS. HOWEVER, WE DO NOT FIND ANYTHING IN THE ORDER OF HON'BLE JURISDICTIONAL HIGH COURT NOR THAT OF TRIBUNAL TO C OME TO A CONCLUSION THAT EXPLANATION OFFERED BY THE ASSESSEE WAS MALAFI DE OR NOT ARISING OUT OF A BONAFIDE BELIEF. IT MIGHT BE TRUE THAT AS SESSEE WAS NOT ABLE TO PROVE HOW 3000 GRAMS OF GOLD JEWELLERY WAS ACCUM ULATED BY SHRI K. KULANDAIVEL DURING THE PERIOD WHEN HE WAS CARRYI NG ON THE BUSINESS AS PROPRIETARY CONCERN AND WHY IT WAS NOT ENTERED IN THE BOOKS. NEVERTHELESS, HON'BLE JURISDICTIONAL HIGH C OURT CONSIDERED IT AS SUBSTANTIAL QUESTION OF LAW AND THE APPEAL OF TH E ASSESSEE WAS ADMITTED FOR DECIDING SUCH SUBSTANTIAL QUESTION OF LAW. RELEVANT SUBSTANTIAL QUESTION OF LAW ANSWERED BY HON'BLE JUR ISDICTIONAL HIGH COURT ARE GIVEN AS UNDER:- 2. WHETHER THE APPELLATE TRIBUNAL WAS RIGHT IN LAW IN HOLDING THAT EVEN THOUGH 3000 GRAMS OF EXCESS GOLD JEWELLER Y MAY HAVE BEEN THE UNACCOUNTED STOCK TAKEN OVER FROM THE ERST WHILE PROPRIETARY CONCERN, SUCH EXCESS JEWELLERY IS NEVERTH ELESS ASSESSABLE AS THE APPELLANT FIRMS UNDISCLOSED INC OME? 3. WHETHER THE APPELLATE TRIBUNAL HAVING FOUND THA T THE UNACCOUNTED STOCK OF GOLD JEWELLERY WAS GENERATED IN VARIOUS FINANCIAL YEARS IS RIGHT IN LAW IN HOLDING THAT THE GOLD RATE ON THE DATE OF SEARCH SHOULD BE ADOPTED FOR DETERMINING TH E I.T (SS) A. NO. 70/MDS/07 14 UNDISCLOSED INCOME FOR ASSESSMENT PURPOSES AND NOT THE GOLD RATE FROM YEAR TO YEAR? BANGALORE BENCH OF THIS TRIBUNAL IN THE CASE OF SMT . MALA DAYANITHI V. DCIT (91 ITD 46) HAS CLEARLY HELD THAT PENALTY U NDER SECTION 158BFA(2) OF THE ACT IS NOT MANDATORY. THIS DECISI ON WAS RELIED ON BY LD. CIT(APPEALS) IN GIVING RELIEF TO THE ASSESSE E. IT WAS ALSO HELD BY THE SAID BENCH THAT PENALTY FOR CONCEALMENT OF P ARTICULARS OF INCOME UNDER SECTION 158BFA(2) OF THE ACT WAS SIMIL AR TO PROVISIONS CONTAINED IN SECTION 271(1)(C) OF THE ACT AND THERE FORE, RATIO LAID DOWN BY VARIOUS COURTS WHILE DEALING WITH PENALTY R ELATING TO CONCEALMENT OF INCOME WOULD APPLY HERE AS WELL. TH E ISSUE WHETHER LEVY OF PENALTY UNDER SECTION 158BFA(2) OF THE ACT WAS MANDATORY OR NOT, IN OUR OPINION, STANDS SETTLED IN FAVOUR OF AS SESSEE NOT ONLY BY THE DECISION OF BANGALORE BENCH IN SMT. MALA DAYANI THI (SUPRA) BUT ALSO BY DECISIONS OF VARIOUS HIGH COURTS, NAMELY, T HAT OF HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF CIT V. SATYENDR A KUMAR DOSI (315 ITR 172), THAT OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT V. DODSAL LTD. (312 ITR 112), TO NAME A FEW. NO DE CISION WAS CITED BY LEARNED D.R. WHICH WOULD PERSUADE US TO TAKE A V IEW DIFFERENT FROM THE ONE TAKEN BY THE BANGALORE BENCH IN SMT. M ALA DAYANITHIS CASE (SUPRA) THAT PENALTY PROCEEDINGS UNDER SECTION 158BFA(2) OF I.T (SS) A. NO. 70/MDS/07 15 THE ACT SHOULD NOT BE SEEN IN THE SAME FOOTING AS P ENALTY UNDER SECTION 271(1)(C) OF THE ACT. ASSESSEE HAD RAISED A CLAIM WHICH WAS NOT ACCEPTED, BUT THE CLAIM WAS NEVER FOUND TO BE M ALAFIDE. JUST BECAUSE THE CLAIM WAS NOT ACCEPTED, WE CANNOT SAY T HAT THERE WAS ANY CONCEALMENT AND AS HELD BY HON'BLE APEX COURT I N THE CASE OF RELIANCE PETROPRODUCTS PVT. LTD. (SUPRA), DISALLOWA NCE OF A CLAIM WOULD NOT AUTOMATICALLY ATTRACT LEVY OF PENALTY FOR CONCEALMENT. EVEN OTHERWISE, AS ALREADY MENTIONED BY US, THE ISSUE WA S CONSIDERED TO BE A SUBSTANTIAL QUESTION OF LAW BY HON'BLE JURISDI CTIONAL HIGH COURT AND IN THE CASE OF RUPAM MERCANTILES LTD. (SUPRA), THIRD MEMBER BENCH OF AHMEDABAD, ITAT HAS CLEARLY HELD THAT A CL AIM WHICH WAS HELD BY THE HIGH COURT TO GIVE RISE TO A SUBSTANTIA L QUESTION OF LAW, CANNOT BE TREATED TO BE FRIVOLOUS OR MALAFIDE ONE S O AS TO ATTRACT LEVY OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT. NO DOUBT, THIS DECISION WAS GIVEN IN RELATION TO SECTION 271(1)(C) OF THE A CT, BUT, AS ALREADY MENTIONED BY US, BANGALORE BENCH OF THIS TRIBUNAL H AS TAKEN A VIEW THAT DECISIONS IN RELATION TO PENALTY PROCEEDINGS U NDER SECTION 271(1)(C) WOULD APPLY TO LEVY OF PENALTY UNDER SECT ION 158BFA(2) OF THE ACT. THAT THE FINDINGS OF THE AUTHORITIES BELO W REGARDING EXCESS GOLD JEWELLERY OF 3000 GRAMS AS UNDISCLOSED INCOME OF THE ASSESSEE- FIRM WAS BASED ON PROBABILITY IS CLEAR FROM PARA 13 OF THE ORDER OF THIS I.T (SS) A. NO. 70/MDS/07 16 TRIBUNAL DATED 29 TH MARCH, 2005 AND THE RELEVANT FINDING IS REPRODUCED HEREUNDER:- THEREFORE, IT IS OBVIOUS THAT THE ASSESSEE-FIRM MIG HT HAVE INVESTED ITS UNDISCLOSED INCOME FOR ACQUIRING THE A BOVE SAID EXCESS JEWELLERY OF 3000 GRAMS OR IT MIGHT HAVE BEEN PASSED ON TO THE ASSESSEE-FIRM WITHOUT ANY CONSIDERATION, SINC E THE PROPRIETOR CONTINUES TO BE THE PARTNER OF THE FIRM. IN EITHER CASE, THE EXCESS JEWELLERY OF 3000 GRAMS CONSTITUTE S THE UNDISCLOSED INVESTMENT OF THE ASSESSEE-FIRM. FOR ALL THESE REASONS, WE ARE OF THE OPINION THAT T HIS IS NOT A FIT CASE FOR IMPOSING PENALTY UNDER SECTION 158BFA(2) OF THE ACT. THE LEVY IS DELETED. 7. IN THE RESULT, THE APPEAL FILED BY REVENUE IS DI SMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON 26 TH AUGUST, 2011. SD/- SD/- (GEORGE MATHAN) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 26 TH AUGUST, 2011. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A)-II, MADURAI (4) CIT, CENTRAL-II, CHENNAI (5) D.R. (6) GUARD FILE