M/s. Nikky Enterprises (P) Ltd., CHENNAI V. ACIT, CHENNAI

ITSSA 73/CHNY/2008

• Counselvise Citation: [2010] 124 COUNSELVISE.COM (IT) 8829 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 3 month(s) 27 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 12-11-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 09-11-2010
• Assessment Year: misc
• Appeal Filed On: 15-07-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P B SEKARAN
• Assessee Lawyers: S SRIDHAR
• Keywords: Search and seizure; Principle of natural justice; Reasonable cause; Block assessment; Bonafide mistake
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHENNAI BENCH B : CHENNAI [BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI ABRAHAM P GEORGE, ACCOUNTANT MEMBER] I.T.(SS)A.NO.73/MDS/2008 BLOCK PERIOD FROM 1.4.1987 TO 11.9.1997 M/S NIKKY ENTERPRISES (P) LTD 184, RANGARAJAPURAM MAIN ROAD KODAMBAKKAM CHENNAI 600 024 VS THE ACIT COMPANY CIRCLE IV(4) CHENNAI [PAN - AAACN2010K] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S. SRIDHAR RESPONDENT BY : SHRI P.B SEKARAN O R D E R PER HARI OM MARATHA, JM: THIS APPEAL OF THE ASSESSEE, FOR THE BLOCK PERIOD COMPRISING 1.4.1987 TO 11.9.2007, IS DIRECTED AGAINST THE ORD ER OF THE LD. CIT(A) DATED 23.4.2007. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE- COMPANY IS ENGAGED IN THE BUSINESS OF EXPORT OF GRA NITES. A SEARCH AND SEIZURE OPERATION WAS CONDUCTED ON 11.09.1997 I N THE CASE OF SMT A.V. SANTHI, ONE OF THE DIRECTORS OF THE COMPANY. THIS SEARCH RESULTED INTO ISSUANCE OF NOTICE DATED 22.6.1999 U/S 158BD O F THE ACT TO THE IT(SS)A 73/08 :- 2 -: ASSESSEE-COMPANY. THE ASSESSEE-COMPANY RESPONDED BY FILING RETURN OF UNDISCLOSED INCOME ON 2.9.1999 FOR THIS BLOCK PE RIOD. BLOCK ASSESSMENT WAS COMPLETED U/S 143(3) R.W.S 158BD OF THE ACT ON 28.6.2001 DETERMINING UNDISCLOSED INCOME AT ` 59,40,762/- WHICH ALSO INCLUDED INTEREST U/S 158BFA(1) OF THE ACT. IN THE BLOCK ASSESSMENT ORDER PASSED, FOLLOWING ADDITIONS WERE MADE: (A) A SUM OF ` 5,84,399/- WAS ADDED BACK ON ACCOUNT OF ERRONEOUS ADJUSTMENT OF INADMISSIBLE LOSS. (B) A SUM OF ` 50,00,000/- WAS ADDED BACK ON ACCOUNT OF REPAYMENT OF LOAN SOURCE OF WHICH REMAINED UNEXPLAINED. 3. BOTH THE ABOVE ADDITIONS WERE SUSTAINED UPTO TRIBUN AL LEVEL. THE ASSESSEE EXHAUSTED CHANNELS OF TWO APPEALS, FIR ST, BEFORE THE LD. CIT(A) AND SECOND BEFORE THE ITAT, CHENNAI BENCH, B UT FAILED TO GET ADDITIONS DELETED. WHEN THE ADDITIONS MADE IN THE BLOCK ASSESSMENT ORDER WERE UPHELD EVEN BY THE ITAT, VIDE ITS ORDER DATED 13.3.2005, THE ASSESSING OFFICER COMPLETED PROCEEDING U/S 158 BFA(2) WHICH WAS HENCEFORTH KEPT IN ABEYANCE DURING THE PENDENCY OF THESE APPEALS. THIS PENALTY ORDER WAS FINALLY PASSED ON 5.9.2005 W HEREBY A MINIMUM PENALTY OF ` 35,64,256/- WAS LEVIED AS PER LAW AFTER OBTAINING PRIOR APPROVAL OF ADDL. CIT, COMPANY RANGE IV, CHENNAI, T O NO AVAIL. HENCE, THIS APPEAL HAS BEEN FILED BEFORE US. THE F ACTS LEADING TO THIS IT(SS)A 73/08 :- 3 -: APPEAL ARE THAT DURING BLOCK ASSESSMENT PROCEEDING S, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD ADMITTED UNDI SCLOSED INCOME IN THE BLOCK RETURNS FILED, BUT HAD SET OFF UNABSORBED LOSSES AMOUNTING TO ` 5,84,399/- PERTAINING TO THE ASSESSMENT YEARS 1997- 98 AND 1998-99 AGAINST UNDISCLOSED INCOME WHICH WAS NOT PERMISSIBL E IN LAW AND HENCE, THIS AMOUNT WAS TREATED AS ASSESSEES UNDISC LOSED INCOME FOR THE BLOCK PERIOD. IT WAS ALSO NOTICED BY THE ASS ESSING OFFICER THAT AS PER THE BALANCE SHEET AS ON 31.3.1995, THE ASSESSEE HAD OBTAINED LOAN OF ` 50,00,000/- FROM BANK OF INDIA, PONDICHERRY BRANCH , BUT IT WAS FOUND ON VERIFICATION THAT THE LOAN WAS ACTUALL Y OBTAINED FROM CATHOLIC AND SYRIAN BANK, PONDICHERRY AND THAT AS O N 31.3.1995, THE LIABILITY DID NOT ACTUALLY EXIST BECAUSE THE SAME S TOOD COLLECTED BY THE BANK THROUGH THIRD PARTY DEPOSITS. THE ASSESSING O FFICER INFERRED FROM THESE FACTS THAT THE BANK LOAN HAD BEEN REPAID BY U TILIZING THE DEPOSITS STANDING IN THE NAMES OF OTHER PERSONS WHOSE SOURCE COULD NOT BE EXPLAINED DURING ASSESSMENT PROCEEDINGS. HENCE, TH E ASSESSING OFFICER TREATED A SUM OF ` 50,00,000/- AS UNDISCLOSED INCOME OF THE ASSESSEE. ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE COULD NOT OFFER SATISFACTORY EXPLANATION REGARDING THE ERRONE OUS CLAIM OF SET OFF OF LOSSES AND REGARDING THIRD PARTY DEPOSITS, HENCE , HE FOUND IT GUILTY OF DELIBERATELY CONCEALING PARTICULARS OF INCOME, T HEREBY PROVISIONS OF IT(SS)A 73/08 :- 4 -: SECTION 158BFA(2) ARE FOUND ATTRACTED. AS A RESULT , HE HAS QUANTIFIED THE MINIMUM PENALTY OF ` 35,64,456/-, BEING 100% OF THE TAX SOUGHT TO BE EVADED AND THE MAXIMUM PENALTY OF ` 1,06,93,368/-, BEING 300% OF TAX SOUGHT TO BE EVADED. BUT THE ASSESSING OFFICER CHOSE TO LEVY MINIMUM PENALTY U/S 158BFA(2) KEEPING IN VIEW THE FACTS AND CIRCUMSTANCES OF THE CASE. IN FIRST APPEAL ALSO, THE ASSESSEE COULD NOT SUCCEED. NOW, THIS APPEAL HAS BEEN FILED BY RAISIN G FOLLOWING GROUNDS: 1. THE ORDER OF THE COMMISSIONER OF INCOME TAX (AP PEALS) V, CHENNAI - 600 034 DATED 23-4-2007 IN I.T.A.NO.317/0 5-06 FOR THE ABOVE ASSESSMENT YEAR IS CONTRARY TO LAW, FACTS , AND IN THE CIRCUMSTANCES OF THE CASE. 2. THE CIT (APPEALS) ERRED IN CONFIRMING THE LEVY O F PENALTY U/S 158 BFA(2) OF THE ACT WITHOUT ASSIGNING PROPER REAS ONS AND JUSTIFICATION. 3. THE CIT (APPEALS) FAILED TO APPRECIATE THAT THE PROVISIONS OF SECTION 158 BFA (2) OF THE ACT HAD NO APPLICATION T O THE FACTS OF THE CASE. 4. THE CIT (APPEALS) FAILED TO APPRECIATE THAT THE FINDINGS IN PARA 4.1.3 OF THE IMPUGNED ORDER WERE WRONG, INCORR ECT, UNJUSTIFIED, ERRONEOUS AND NOT SUSTAINABLE BOTH ON FACTS AND IN LAW. 5. THE CIT (APPEALS) FAILED TO APPRECIATE THAT THE ORDER IMPOSING PENALTY IS PASSED OUT OF TIME, INVALID, PA SSED WITHOUT JURISDICTION AND NOT SUSTAINABLE BOTH ON FACTS AND IN LAW. 6. THE CIT (APPEALS) FAILED TO APPRECIATE THAT THE ORDER OF BLOCK ASSESSMENT WAS PASSED WITHOUT ADHERING TO THE PROVI SIONS IN SECTION 2 (35) OF THE ACT AND HENCE THE CONSEQUENTI AL PENALTY PROCEEDINGS WAS INVALID AND ERRONEOUS. IT(SS)A 73/08 :- 5 -: 7. THE CIT (APPEALS) FAILED TO APPRECIATE THAT THE BLOCK ASSESSMENT WAS FRAMED WITHOUT ANY REFERENCE TO SEIZED MATERIAL S AS ENVISAGED IN DEFINITION OF 'UNDISCLOSED INCOME' AND CONSEQUENTLY THE ORDER OF BLOCK ASSESSMENT AS WELL AS THE PENALTY PROCEEDINGS WERE INVALID AND UNJUSTIFIED. 8. THE CIT (APPEALS) FAILED TO APPRECIATE THAT THE BANK/LOAN ACCOUNT WHICH WAS THE BASIS FOR THE ADDITION OF UNDISCLOSED INCOME AND CONSEQUENTIAL LEVY OF PENALTY WAS DISCLOSED IN THE REGULAR RETURN FILED FOR THE ASSESSMENT YEAR 1995-96 BEFORE THE DATE OF SEARCH AND HENCE THE PENALTY PROCEEDINGS UNDER CONSIDERATION WAS INV ALID AND ERRONEOUS. 9. THE CIT (APPEALS) FAILED TO APPRECIATE THAT THE TWO ADJUSTMENTS MADE TO THE RETURNED INCOME IN THE BLOCK PROCEEDING S WOULD NOT COME WITHIN THE AMBIT OF THE SAID PROVISIONS GOVERNING T HE FRAMING OF THE BLOCK ASSESSMENT AND AS SUCH THE PRESENT PROCEEDING S IN IMPOSING PENALTY UNDER SECTION 158BFA(2) OF THE ACT WAS INVA LID AND UNJUSTIFIED. 10. THE CIT (APPEALS) FAILED TO APPRECIATE THAT ADD ING BACK OF A SUM OF RS.5,84,399/- BEING THE ADJUSTMENT OF LOSS IN TH E COMPUTATION WAS WRONG, INCORRECT, UNJUSTIFIED, ERRONEOUS AND NOT SU STAINABLE BOTH ON FACTS AND IN LAW. 11. THE CIT (APPEALS) FAILED TO APPRECIATE THAT THE ADDITION OF RS.50 LAKHS BEING THE REPAYMENT OF THE LOAN TAKEN FORMING PART OF THE REGULAR RETURN OF 1995-96 FILED BEFORE THE DATE OF SEARCH WAS WRONG, INCORRECT, UNJUSTIFIED, ERRONEOUS AND NOT SUSTAINAB LE BOTH ON FACTS AND IN LAW. 12. THE CIT (APPEALS) FAILED TO APPRECIATE THAT THE PROCEEDINGS IN THE QUANTUM AND THE PROCEEDINGS IMPOSING PENALTY ARE DI STINCT AND SEPARATE AND THE PENALTY PROCEEDINGS ENVISAGE DISCR ETION ON THE PART OF THE ASSESSING OFFICER IN THE LEVY OF SUCH PENALT Y WHICH DISCRETION WAS NOT JUDICIOUSLY USED IN FAVOUR OF THE APPELLANT ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE. 13. THE CIT (APPEALS) FAILED TO APPRECIATE THAT THE QUANTUM PROCEEDINGS HAS NOT BECOME FINAL AND THE FURTHER PR OCEEDINGS ARE PENDING FOR DECISION. IT(SS)A 73/08 :- 6 -: 14. THE CIT (APPEALS) FAILED TO APPRECIATE THAT THE RE WAS NO PROPER OPPORTUNITY GIVEN BEFORE PASSING THE PENALTY ORDER AS WELL AS BEFORE PASSING THE IMPUGNED ORDER AND ANY ORDER PASSED IN VIOLATION OF THE PRINCIPLES OF NATURAL JUSTICE IS NULLITY IN LAW. 15. THE APPELLANT CRAVES LEAVE TO FILE ADDITIONAL GROUNDS/ARGUMENTS AT THE TIME OF HEARING. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND THE MA TERIAL AVAILABLE ON RECORD. THE EXPLANATION OF THE ASSES SEE WHICH WAS TAKEN BEFORE THE LOWER AUTHORITIES AND ALSO REPEATED BEFO RE US IS AS UNDER: THE ORDER OF THE A.O IS CONTRARY TO LAW AND FACTS OF THE CASE. IT IS ALSO VIOLATIVE OF THE PRINCIPLES OF EQ UITY AND NATURAL JUSTICE. THE PENALTY ORDER WAS SERVED ON A PERSON WHO IS NOT RESPONSIBLE FOR THE AFFAIRS OF THE APPEL LANT COMPANY AND THEREFORE, THE PENALTY ORDER SHOULD BE DEEMED TO BE A NULLITY. NO UNDISCLOSED INCOME WAS DETECTED IN THE COURSE OF BLOCK ASSESSMENT . THERE WERE ONLY TWO ADJUSTMENTS MADE TO THE RETURNED INCOME. CERTAIN LOSSES WHICH WERE ADJUSTED BY THE APPELLANT AGAINST INCOME WERE DISALLOWED BY THE A.O. FURTHER , LIABILITY ERRONEOUSLY DISCLOSED AS A LIABILITY TO O NE BANK ACTUALLY TURNED OUT TO BE A LIABILITY TO ANOTHER BA NK. THE ADJUSTMENT OF LOSSES CANNOT BE DEEMED TO BE FALSE. AT BEST, IT REPRESENTED A CLAIM MADE PREMATURELY. THE SECOND ADDITION OF ` 50,00,000/- CANNOT PARTAKE THE CHARACTER OF UNDISCLOSED INCOME. THE EVIDENCE OF T HE BANK LIABILITY WAS PART OF THE SEARCH MATERIAL. AT BEST, A CONFUSION AROSE IN RELATION TO THE IDENTITY OF THE BANK. NO UNDISCLOSED INCOME WAS UNEARTHED BY THE A.O DURING THE ASSESSMENT PROCEEDINGS. SECTION 158B(B) STATES THA T THE UNDISCLOSED INCOME SHOULD BE IN THE FORM OF MONEY, BULLION, OR JEWELLERY OR ENTRY IN THE BOOKS OF ACCO UNT. SINCE ` 50,00,000/- REPRESENTED A BANK LIABILITY ONLY, THE SAME DID NOT CONSTITUTE THE UNDISCLOSED INCOME. THE BLO CK ASSESSMENT ORDER DID NOT BRING ON RECORD ANY FINDI NG ABOUT THE UNDISCLOSED INCOME CONCEALED BY THE APPEL LANT OR ABOUT ANY FALSE DISCLOSURE. THE A.O DID NOT FOR M ANY OPINION OR RECORD HIS SATISFACTION BEFORE INITIATIN G PENALTY PROCEEDINGS THAT THE APPELLANT HAD CONCEALED INCOME . IT(SS)A 73/08 :- 7 -: THEREFORE, THE INSTANT PENALTY PROCEEDINGS WAS AB I NITIO VOID. 5. THE LD.AR, SHRI SRIDHAR, DREW OUR ATTENTION TOWARDS PARA 5 OF THE TRIBUNAL ORDER IN SUPPORT OF HIS CONTENTION THAT TH E EVIDENCE OF LOAN ACCOUNT WAS AVAILABLE WITH THE ASSESSING OFFICER EV EN BEFORE THE DATE OF SEARCH BECAUSE THE ASSESSEE HAD FILED THE RETURN OF INCOME FOR ASSESSMENT YEAR 1995-96 ON 25.3.1996 WITH COMPANY C IRCLE I(5) AND THE ASSESSEE HAS ALSO DISCLOSED THE DETAILS OF BANK LOAN IN ITS RETURN OF INCOME. ON THE OTHER HAND, THE LD.DR HAS VEHEMENTL Y CONTESTED THE DELETION OF THIS PENALTY. 6. AFTER COGITATING THE ENTIRE RECORDS, IT IS FOUND TH AT THE ASSESSEE HAD DISCLOSED THE FACTUM OF LOAN ACCOUNT WAS AVAILA BLE WITH THE ASSESSING OFFICER EVEN BEFORE THE DATE OF SEARCH IN THE RETURN FILED FOR ASSESSMENT YEAR 1995-96 ON 25.3.1996 WITH COMPANY C IRCLE 1(5) AND THE DETAILS OF BANK LOAN WAS ALSO DISCLOSED IN ITS RETURN. THE ASSESSEE HAS NOT DENIED THAT LOAN AMOUNT OF ` 50,00,000/- WAS REPAID, BUT IT WAS SUBMITTED THAT BY MISTAKE THE LOAN WAS SHOWN AS OUTSTANDING WITH BANK OF INDIA ALTHOUGH THE LOAN WAS TAKEN FROM A DIFFERENT BANK WHICH WAS ALREADY DISCLOSED BEFORE THE DEPARTMENT A S CATHOLIC AND SYRIAN BANK AND THIS IS A SHEER TYPOGRAPHICAL OR CL ERICAL MISTAKE. IT IS IT(SS)A 73/08 :- 8 -: TRUE THAT WHEN THE ASSESSEE IS NOT ABLE TO SATISFY THE ASSESSING OFFICER WITH HIS EXPLANATION REGARDING A PARTICULAR ITEM OF INCOME, ADDITION CAN BE MADE, BUT THE PENALTY PROCEEDINGS VEER BETWEEN T WO PARAMETERS WHICH GIVE SCOPE TO THE ASSESSEE TO EXPLAIN THE SUF FICIENCY OF THE REASONS FOR ANY SUCH BONAFIDE MISTAKE HAVING BEEN C OMMITTED BY IT, MEANING THEREBY EVEN PENALTY PROCEEDINGS U/S 158BFA (2) DO ADMIT REASONABLE CAUSE AND SUFFICIENT REASON; AND IF IT C AN BE SHOWN TO EXIST, IT BECOMES EXONERABLE CIRCUMSTANCE. IN THIS REGAR D, THE LD.AR HAS PLACED RELIANCE ON NUMEROUS DECISIONS, THE RATIO OF WHICH IS THAT THE LEVY OF PENALTY U/S 158BFA(2) IS DIRECTORY BUT NOT MANDATORY AND THERE IS ALWAYS A DISCRETION IN THE ASSESSING OFFICER T O IMPOSE PENALTY AND IF THE REASONS ARE FOUND TO BE SUFFICIENT AND REASO NABLE FOR CANCELING SUCH A PENALTY, THE SAME CAN BE CANCELLED. OUT OF THE VARIOUS DECISIONS RELIED ON, WE QUOTE SOME OF THE DECISIONS AS UNDER: CIT VS DODSAL LTD, 312 ITR 112 (BOMBAY) CIT VS SATYENDRA KUMAR DOSI, 315 ITR 172 (RAJ) CIT VS HARKARAN DAS VED PAL, 16 DTR 348 (DELHI) CIT VS SMT. ANJU R. INNANI, 323 ITR 626 (BOMBAY) CIT VS MALLINATH SHARNAYYA SWAMI, 323 ITR 562 (BOMB AY) CH. SURESH REDDY VS ACIT, ITAT CHENNAI BENCH, 120 I TD 428 DR. HAKEEM S.A. SYED SATHAR VS ACIT, ITAT CHENNAI B ENCH, 120 ITD 1 SUPER METAL INDUSTRIES VS DY. CIT, ITAT MUMBAI, [TM ], 119 ITD 153 DY. CIT VS KOATEX INFRASTRUCTURE LTD, ITAT MUMBAI B ENCH, 100 ITD 510(MUMBAI) IT(SS)A 73/08 :- 9 -: 7. IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THE ASSESSEE HAD ALREADY DISCLOSED THESE INCOMES AN D SIMPLY BY WRITING THE NAME OF THE BANK AS DIFFERENT BANK BY M ISTAKE AND SHOWING THE LIABILITY DUE TO MISTAKE OF ACCOUNTANT WOULD NOT MAKE ANY DIFFERENCE AND HENCE, THIS IS A FIT CASE FOR CANCEL LATION OF PENALTY AND WE EXERCISE OUR DISCRETION IN FAVOUR OF CANCELLATIO N OF PENALTY BY FOLLOWING THE VARIOUS DECISIONS (SUPRA) INCLUDING T HE DECISIONS OF THIS BENCH MENTIONED ABOVE. ACCORDINGLY, WE ORDER TO CA NCEL THE PENALTY IMPOSED U/S 158BFA(2) OF THE ACT. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 12.11.2010. SD/- SD/- (ABRAHAM P GEORGE) ACCOUNTANT MEMBER ( HARI OM MARATHA ) JUDICIAL MEMBER DATED: 12 TH NOVEMBER, 10 RD COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR