9911796707
TMI Blog2001 (3) TMI 285X X X X Extracts X X X X X X X X Extracts X X X X ..... on 28-9-1988. At that time, one Shri Ajit Joshi, Chartered Accountant, was the assessee's tax consultant. 3. During the course of search, only stock register and some few dead stock etc. were found, but since no regular books of account were maintained nothing else was found as far as the assessee firm was concerned. In the entire Mahadik Group, other individual cases of the partners, such as Mr. M.R. Mahadik, Mr. V.R. Mahadik, Mr. R.S. Shinde etc. some other papers and documents were found. Immediately after the search, the assessee reviewed its position and decided to come forward for settlement with the Department, so that a fair assessment could be made for all the pending years and the assessee can devote its time and energy for running the business. With that end in view, the assessee firm and the partners entrusted their work to Mr. R.B. Wast, Chartered Accountant, but unfortunately, Mr. R.B. Wast could not make any significant progress in the matter of settlement, though applications were made with the CIT, Kolhapur. During the pendency of the application for settlement for Mahadik Group, inevitable delays on account of the transfer of the CIT and other officials and due ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; Rs. 1988-89 4,67,756 9,84,996 1989-90 24,81,250 25,70,969 1990-91 6,55,210 3,47,943 --------- --------- 36,04,216 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imply stated that penalty proceedings are initiated under section 271(1)(c) in respect of the total income assessed. Accordingly, the Assessing Officer has not given prima facie reasons for initiation of penalty. 6. The assessee filed appeal to the CIT(A) against the above assessment order. The CIT(A) allowed deduction of Rs. 1,14,774 representing deduction allowed by the Valuation Officer being difference on account of doing the work departmentally. Thus, the addition on account of construction of the building was reduced from Rs. 2,00,325 to Rs. 85,551. 7. In response to the show-cause notice, following submissions were made before the Assessing Officer: (i) The difference between the returned income and assessed income was due to difference in valuation of land and building. The said difference was accepted by the assessee to purchase peace of mind and to avoid further litigation. (ii) Explanation 3 to section 271(1)(c) was not applicable, as the assessee was previously assessed Lo tax. (iii) Explanation 5 to section 271(1)(c) was also not applicable in respect of investment in immovable properties. In this behalf, the assessee relied on the decision of the Cochin Bench of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or a long time, maximum enalty at 200 per cent was levied at Rs. 9,90,674. 9. The assessee filed appeal to the CIT(A) who, for the detailed reasons given by him in para 8 onwards in his order, held that no penalty was leviable. His decision is mainly based on the fact that Explanation 3 to section 271(1)(c) was not applicable as the assessee was an old assessee. As regards investment in plot and building, he relied on the decision of the Hon'ble Kerala High Court in M.K. Gabriel Babu v. ADI (Inv.) [1990] 186 ITR 435 and CIT v. M.K Gabriel Babu [1991] 188 ITR 464; Sardar Parduman Singh v. Union of India [1987] 166 ITR 115(Delhi); decision of the Gujarat High Court in Bhagwandas Narayandas v. CIT [1975] 98 ITR 194 and the decision of the Hon'ble Supreme Court in CII v. N.C. Budharaja & Co. [1993] 204 ITR 412. According to the CIT(A), the wording in Explanation 5 to section 271(1)(c) is identical to the words used in section 132(1)(c). The decisions of Kerala, Delhi and Gujarat High Courts were in regard to the provisions of section 132(1)(c). Action under section 132 is justified if the person was in possession of any money, bullion, jewellery or other valuable articles or thing and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer observed that since the construction of the office complex and workshop on this land was started during the period relevant to assessment year 1988-89, possession of the entire land must have been taken and, therefore, the assessee would have paid the entire money before he started construction. Since actual details of payments were not there, the Assessing Officer adopted the cost of land as if it was paid in the assessment year 1988-89 and the cost was to be at Rs. 5,75,000 as against Rs. 5 lakhs admitted by the assessee. According to the assessee, the cost admitted by him, was Rs. 5 lakhs whereas the value estimated by the Valuer at Rs. 5,75,000 was only on estimate and it was only to avoid further litigation with the Department that the assessee agreed for the said valuation. Similarly, the Assessing Officer's observation that the construction of land had started in the assessment year 1988-89 was factually incorrect. In fact, as per the Valuation Officer's report, only construction of office complex was made on total area of 2757 sq. ft. which started in April, 1987 and was completed in June, 1988. For that purpose, the assessee had purchased land on 14-8-1987 of 24 gu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered during the search. This was because concealment was to be found with the income returned as held by the Supreme Court in Brij Mohan v. CIT [1979] 120 ITR 1. According to the learned D.R., the facts in the case of Yeshwant B. Chigteri were also distinguishable and here also return was filed immediately on 31-8-1992 after the raid which was on 23-1-1992. Moreover, income assessed, i.e. income from salary, capital gain and other sources could not be said to be of the nature as would suggest any attempt to concealment of income from unknown sources, whereas in the assessee's case the sources were unknown because income was only on asset accretion basis. 13. The second contention of the learned D.R. was that difference of returned income and assessed income was covered by Explanation 5 appended to section 132 because Explanation 5 was rule of evidence. The distinction made by the CIT(A) that Explanation 5 was not applicable to immovable property was without difference, because what is being considered is not immovable property as such, but the investment in such immovable property. The learned D.R. further pointed out that the assessee could come out of the rigors of Explana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s arguments in the penalty proceedings were similar to those as have been raised in this case. He drew our attention to the assessee's reply to the show-cause notice under section 271(1)(c) for the assessment year 1989-90. The learned counsel submitted that it is worth noting that the Assessing Officer dropped the penal proceedings for assessment year 1989-90 as also 1990-91. According to the learned counsel, even assuming that penalty for the assessment year 1990-91 was dropped because the income was assessed at a figure lesser than what was shown, for the assessment year 1989-90 it appears that the Assessing Officer was satisfied about the explanation of the assessee and correctly dropped the penalty proceedings for the assessment year 1989-90. If consistent stand is to be taken by the department in this case, it would appear that penalty for the assessment year 1988-89 under appeal also deserves to be cancelled. 16. The learned counsel's second submission was that since Explanation 3 was not applicable therefore there was no case for levying penalty with reference to the returned income in view of the decision of this Bench in the case of Yeshwant B. Chigteri. The third content ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd and it was with reference to these materials the assessee was proposing to get the whole matter settled with the CIT. It was with that end in view that the assessee made application for settlement of the cases. These facts are not denied by the Department. The assessee in the course of three years had faced a number of difficulties. Its Tax Consultant Shri Ajit Joshi was changed and in his place Shri Wast was appointed, but till 1990-91 he could not make any significant progress in the matter of settlement. It was only in March 1991 when the present consultant Shri N.T. Jadhav, Chartered Accountant took over the matter that there was progress in the matter. The delay was also caused partly because after the application for settlement was made to the C.I.T., Kolhapur, there were changes in the incumbent in office and sometime was also taken by the office of the Commissioner in obtaining reports from the Assessing Officer. This was with reference to the entire Mahadik Group and in totality the entire delay of about three years was for bona fide reasons. We may state that in fact the reasons for the delay came up for consideration before this Tribunal in appeal against the penalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue especially hidden or disguised' character or 'to discover or determine the existence, presence or fact' (see Webster's Third New International Dictionary, 1976 Edn.). In the instant case, certain documents and papers were seized. They might or might not reveal concealment. Even the seizure could not lend to a prima facie belief as to concealment as the contents, purport and the implications of the documents were yet to be gone into. Therefore, at the point of time the return under the Amnesty Scheme was filed, the Assessing Officer admittedly had no idea as to whether the seized papers would reveal any concealment. The mere fact that the petitioner appellant's case was awaiting a probe with reference Lo his past records as well as extrinsic sources could not lead to his ouster from the scope of the scheme." We find that though the assessee took three years to file returns, but during these three years, the Revenue did not carry out any investigation in respect of the search material and accordingly, the ratio laid down by the Calcutta High Court in the case of Anand Kumar Saraf squarely applies here. Since Explanation 3 was not applicable as the assessee was an old assessee, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come other than the income from the above two sources was earned. It was only because the accounts were not maintained that income was returned on the basis of asset accretion. We therefore hold that in regard to income assessed no penalty could have been levied by the Assessing Officer as he did and for this we take support from our order in the case of Yeshwant B. Chigteri. 19. We find that the second objection of the Revenue that Explanation 5 was applicable to the facts of the case is equally untenable. The entire Explanation has been linked with the search proceedings under section 132 and the opening words of Explanation itself show that it is with reference to the money, bullion or jewellery or other valuable articles or things that the provisions are applicable. These very expressions are used in section 132(1)(c). In the context of section 132(1)(c), the three decisions which the CIT(A) has referred, viz., decision of the Kerala High Court in M.K. Gabriel Babu's case [1990] 186 ITR 435, of Delhi High Court in Sardar Parduman Singh's case and decision of the Gujarat High Court in Bhagwandas Narayandas's case clearly establish that proceedings under section 132 cannot be ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not satisfy the exceptions to Explanation 5 has no relevance. 20. Coming to the learned D.R's argument that the decision of the Cochin Bench in the case of South Indian Finance was distinguishable because in that case the assessee had conic forward immediately after the raid was a distinction without difference. What one has to see is the ratio of the decision and not the other facts which have no relevance or bearing on the decision given by the Bench. Moreover, the assessee has relied on the decision of the Cochin Bench in the case of South Indian Finance for the proposition that Explanation 5 is not applicable and we have agreed with the learned counsel's submission in para 19 supra. 21. Coming now to the argument of the learned D.R. based on the decision of the Kerala High Court in the case of K.P. Madhusudhan we are of the opinion that the decisions in P.M. Shah's case and Dharamchand L. Shah's case given by the Hon'ble jurisdictional High Court are binding on this Tribunal. Particularly the facts in D.L. Shah are worth noting. In that case, the assessee along with an accomplice, was apprehended by the Customs Authorities and gold biscuits with foreign markings weighing 400 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from Rs. 1,50,000 to, Rs. 5,75,000, because the difference arose on account of certain wrong assumptions made by the Assessing Officer in taking the entire value of the land in one year. Even though the assessee had not preferred any appeal on this point, it was only because the assessee did not want to litigate further, but it is not as if that even though he did not dispute the point in the assessment that he could not dispute it again in the penalty proceedings as held by us supra that penalty proceedings are distinct from assessment proceedings. 23. As regards the difference in valuation of the building, the CIT(A) has rightly pointed out that the ultimate difference was of Rs. 85,551 and this was much less than 10 per cent of the cost shown by the assessee. In these circumstances, increase in the value cannot be attributed to any concealment but such difference can arise on account of honest difference of opinion and, accordingly, we hold that no penalty was leviable in respect of that item. 24. In the light of the above discussion, we hold that there is no justification for the impugned penalty and the CIT(A) has rightly deleted the same. We accordingly decline to interfer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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