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TMI Blog2006 (5) TMI 172X X X X Extracts X X X X X X X X Extracts X X X X ..... spect of the addition on account of gross profit, unexplained investment in deposit and disallowance of depreciation. In the result, the appeal filed by the assessee is allowed and the appeal filed by the Revenue is dismissed. - HON'BLE K.P.T. THANGAL, VICE PRESIDENT, B.L. CHHIBBER AND AHMAD FAREED, ACCOUNTANT MEMBERS AND U.B.S. BEDI AND C.L. SETHI, JUDICIAL MEMBERS For the Appellant : K.A. Sathe, Adv. For the Respondent : Satya Prakash, Adv. ORDER B.L. Chhibber, Accountant Member 1. These cross appeals arise out of the order of the CIT(A), Kolhapur, giving partial relief in the quantum of penalty levied by the Assessing Officer under section 271(1)(c) of the Income-tax Act. Both the parties are aggrieved by the order of the ld. CIT(A). 2. The return for the assessment year 1989-90 was filed on 28-8-1990 declaring income at Rs. nil The income shown in the return was share profit from M/s. Venkateshwara Bulk Carriers, profit from the proprietary concern M/s. Shree Balaji Traders and income from plying of trucks. Subsequently, revised return was filed on 9-7-1991 again declaring nil income, but after the revised claim of carried forward depreciation. The revised return was nece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was seized during the course of the search did not correctly incorporate the actual figures of sales and expenses. In fact, the assessee himself had shown more sales in the fair books. In recasting the accounts in the assessment order transportation charges were assumed by the Assessing Officer on estimate basis, whereas actual transport charges were much less. On the other hand, processing charges were estimated by the Assessing Officer at a lower figure than actual processing charges shown by the assessee which were more. Thus, the working made by the Assessing Officer for supporting the estimate of G.P. itself was based on estimated figures. The CIT(A), relying on the decision of the Bombay High Court in the case of CIT v. Devandas Perumal Co. [1983] 140 ITR 943 held that no penalty was leviable merely on account of estimate of profit where no suppression of sales or inflation of purchases was detected. To the same effect was the decision of the Hon'ble Punjab Haryana High Court in CIT v. Metal Products of India [1984] 150 ITR 714. Referring to the decision of the Madras High Court in Addl. CIT v. E. Bhoopathy [1978] 113 ITR 188, the CIT(A) held that in that case sales were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vy of penalty. The ld. CIT (DR) relied on the decision of the Hon'ble Supreme Court in the case of B.A. Balasubramaniam Bros. Co. v. CIT [1999] 236 ITR 977 where the Supreme Court has held that where the difference between the assessed income and returned income was more than 20 per cent, Explanation to section 271(1)(c) as applicable in those years applied and it was for the assessee to discharge the onus as contemplated in the said Explanation and since this onus was not discharged, the High Court order confirming penalty was justified. The ld. CIT (DR) also relied on the decision of the Allahabad High Court in Sushil Kumar Sharad Kumar v. CIT [1998] 232 ITR 588 where the Hon'ble High Court had confirmed the penalty in a case where additions were made to the income based on estimate. He also relied upon the decision of the Kerala High Court in CIT v. Gates Foam Rubber Co. [1973] 91 ITR 467. 12. Shri K.A. Sathe, the learned counsel for the assessee, on the, other hand, relied on the order of the CIT(A). In regard to the G.P. addition apart from the decisions referred to by the CIT(A), he pointed out two more decisions of the Bombay High Court, viz., CIT v. Mohammed Yakub M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court in CIT v. Mohammed Yakub Mohd. Ibrahim Co.'s case and B.D. Ramchandra's case. Accordingly we concur with the findings of the CIT(A). In regard to the addition of Rs. 40,000/- representing deposit made by the assessee, the same did not pertain to the assessment year 1989-90 and accordingly, the CIT(A) is justified in holding that no penalty is leviable on this amount during the year under appeal. With reference to the disallowance of depreciation also, the view taken by the CIT(A) is correct and no interference is called for. Accordingly, we dismiss the department's appeal. 17. As regards the appeal of the assessee, we find that in the earlier year, i.e., 1988-89 the CIT(A) has taken a correct view and there was nothing on record to suggest that the investment in Balaji Apartments was made by the assessee, except his own voluntary statement, that too, based on the settlement with Shri Banne, the ostensible owner of the property, and therefore, no penalty is leviable for the reasons discussed in detail in our order in ITA No. 850/PN/97 relating to the assessment year 1988-89. Accordingly, the penalty sustained by the CIT(A) in respect of the amount of Rs. 3,00,704 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e period of 8 months. The proportionate milk processing charges on the sales amounting to Rs. 1,92,20,768/-, works out to Rs. 4,68,812/-. So the gross profit after considering the proportionate milk processing charges for the above period of 8 months, on the basis of seized register should be (Rs. 12,09,266 minus Rs. 4,68,812/-) = Rs. 7,40,454/-. After considering both the transport charges and milk processing charges, the percentage of G.P. works out to 3.85 per cent. As this percentage was for the initial period and the sales picked up in the subsequent period due to overall increase in performance, the G.P. for the year, as per the Assessing Officer, should not be less' than 4 per cent. The Assessing Officer also pointed out in para 13 of the assessment order that the purchases are not supported by vouchers and bills and no quantity account is maintained. In para 15 the Assessing Officer has pointed out that in the petition before the CIT, Kolhapur, on 8-3-1991 out of the total investment as construction expenses of Balaji Apartments of Rs. 2,50,000/- admitted for the assessment year 1989-90, Rs. 1,76,974/- are shown as made from the additional net profit of proprietary conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,000/- and found in the residential promises was made. Since the assessee claimed to have made these expenses out of the undisclosed income earned from M/s. Shree Balaji Traders. Also as per para 26 of the said assessment order, no separate addition on account of investment in the building 'Balaji Apartments' amounting to Rs. 2,67,704/- was made on the same reasoning. This proves that out of undisclosed income of Rs. 7,36,323/-, the assessee had utilized at least amount of Rs. 3,00,704/- (being Rs. 2,67,704/- + Rs. 33,900/-). Thus, it is undisputed that the G.P. addition of Rs. 7,36,323/- made in the assessment order and not disclosed by the assessee in his return of income, represents the real income of the assessee. The learned CIT(A) restricted the penalty with respect to the addition relatable to a sum of Rs. 3,00,704/- as per para 6 of his order as under: I have considered the case as relied upon by the appellant, i.e., in 140 ITR 943 where the Hon'ble Bombay High Court held that no penalty would be sustained merely on account of estimate of profit where no suppression of sales or inflation of purchases was detected. As held in 106 ITR 720 (All.) and 110 ITR 532 (G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion the assessee was confronted with evidence and materials and he failed to dislodge the factual position on the basis of which additions were made, the case stands on a different footing. In such a case, it is always open to draw an inference of concealment or of furnishing inaccurate particulars of income, resulting from deliberate underestimate of income. In other words, the income-tax authorities must be satisfied on examination of the cumulative effect or the entirety of the circumstances that the only reasonable inference from such factors or material that could be drawn was that the disputed amount added as a result of estimate, represented income and that the assessee had concealed particulars of income or had furnished inaccurate particulars thereof. The Hon'ble Supreme Court in the case of B.A. Balasubramaniam Bros. Co. v. CIT [1999] 236 ITR 977, while following CIT v. B.A. Balasubramaniam Bros. Co. [1985] 152 ITR 529 (Mad.), CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14 (SC), CIT v. K.R. Sadayappan [1990] 185 ITR 49 (SC) and Addl. CIT v. Jeevan Lal Sah [1994] 205 ITR 244 (SC), has held as under: Difference between the income assessed and the income returned being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cisions as relied upon by the learned counsel for the assessee are concerned, these are not found to be on the point at issue and moreover in the light of the Supreme Court decision B.A. Balasubramaniam Bros. Co. v. CIT [1999] 236 ITR 977, preference cannot be given to either the High Court decision or Tribunal decision. 28. As regards penalty on addition of Rs. 40,000/- is concerned, the same is found to have been deposited in cash in November, 1987 which remained unexplained and the CIT(A) deleted the same on the plea that the addition should be made in the year 1988-89 and not in 1989-90 as per section 69 of the Act. 29. After hearing both the parties and considering the material on record, I find that the accounting period of the assessee is transitional period and that the month November not only falls in the said period but close to the relevant financial year covered within the previous year of the assessee. Since the period falls in the previous year relevant to the assessment year under consideration and the assessee was unable to explain the source of the deposit for obtaining a bank guarantee therefore, the addition has properly been made and the penalty in this regard i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... permit has either been obtained or any expenditure on diesel oil and other material necessary for making the vehicle ready to use has been incurred. So in my considered view, action of the Assessing Officer is proper and the CIT(A) is unjustified in deleting the penalty with respect to this amount. His action being not in conformity with law is set aside and that of the Assessing Officer is restored but so far as the quantum of penalty is concerned, it is directed to be restricted to minimum imposable amount. 32. As a result, the appeal of the assessee is dismissed and that of the revenue is partly accepted. ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 Per B.L. Chhibber, Accountant Member 1. As there is a difference of opinion between the Accountant Member and the Judicial Member, the matter is being referred to the President of the Income-tax Appellate Tribunal with a request that the following questions may be referred to a Third Member or to pass such orders as the President may desire: I.T.A No. 423/PN/94 Whether on the facts and in the circumstances of the case, the CIT(A) is justified in confirming the penalty levied by Assessing Officer under section 271(1)(c) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... flected in the books of account. Again penalty proceedings initiated on this count as well. 5. The third addition was depreciation claimed but disallowed amounting to Rs. 2,30,374/- in respect of vehicle No. CRA 5402. The truck was registered with RTA on 30-3-1989 but there was no evidence that the truck was used for business purposes. Penalty proceedings were initiated. 6. Minimum penalty leviable on these three counts was Rs. 5,24,756/- but the Assessing Officer imposed penalty of Rs. 10 Iakhs. 7. Assessee appealed before the CIT(A). He held that no penalty could be levied in respect of GP addition for the reason that in fact there was no evidence, and no case for the Assessing Officer even that there was suppression of sales. According to the CIT(A), the notings of the Assessing Officer was indicative of the fact that there was neither suppression of sales nor inflation of purchases, because the Assessing Officer himself has made a specific reference in para 13 of his order that sales were supported by vouchers. It was further noted that the trading account seized during the course of search and seizure action did not correctly incorporate the actual figures of sales and expense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in the case of Capital Bus Service (P.) Ltd. v. CIT [1980] 123 ITR 404. 10. Revenue appealed against the cancellation items whereas the assessee objected confirmation of minimum penalty on Rs.3,00,704/-. 11. Revenue relied upon the decision of the Hon'ble Supreme Court in the case of B.A. Balasubramaniam Bros. Co. v. CIT [1999] 236 ITR 977, in support of the contention that where the difference between the assessed income and returned income was more than 20 per cent, Explanation to section 271(1)(c) as applicable and it was for the assessee to discharge the onus as contemplated in the said Explanation and the onus had not been properly discharged. Revenue also relied upon the decision of the Hon'ble Allahabad High Court in the case of Sushil Kumar Sharad Kumar v. CIT [1998] 232 ITR 588, wherein penalty was confirmed in a case where additions were made to the income based on estimate. Revenue also relied upon the decision of the Hon'ble Kerala High Court in the case of CIT v. Gates Foam Rubber CO. [1973] 91 ITR 467. 12. On the other hand, in regard to GP addition, assessee relied upon the decisions of the jurisdictional High Court in the case of CIT v. Mohammed Yaqub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M. He also placed reliance upon the decision of the Hon'ble Supreme Court in the case of B.A. Balasubramaniam Bros. Co. v. CIT [1999] 236 ITR 977. 15. Learned JM held, since on the basis of search material and after detailed enquiry/investigation Assessing Officer reached the conclusion that there was non-maintenance of bills/vouchers for en-route purchases to the extent of Rs. 2,23,49,616/-, non-maintenance of day-to-day stock register, admission of the assessee himself that the undisclosed income has been invested in the construction of Balaji Apartments and GP declared was too low, the penalty on estimated addition was justified and validly imposed. He held, therefore, the restriction on penalty imposable on Rs. 3,00,704/- was not justified. 16. Coming to revenue's appeal, deleting the penalty on Rs. 40,000/-, learned JM held, the accounting period involved is transitional period and the month of November falls in this transitional period and also close to the relevant financial year covered within the previous year of the assessee. Assessee was unable to explain the source of deposit for obtaining the bank guarantee. Hence the addition was rightly made and therefore pen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he cancellation of penalty, learned counsel for the assessee submitted, relying upon the decision of the jurisdictional High Court in the case of Jainarayan Babulal, mere addition of an amount from undisclosed source in a particular year will not ipso facto lead to penalty in that year. The issue can still be considered. Learned counsel submitted, previous year for income from undisclosed source is financial year. Hence he supported the order of the CIT(A) on this point. For the same proposition, he also relied upon the Third Member decision of the Tribunal in the case of ITO v. Patil Automobiles [2003] 79 TTJ (Pune) (TM) 359. In this case the Third Member held, mere offering of an additional income because the assessee could not explain the credits owing to adverse circumstances, in the absence of any detailed enquiries regarding these credits by the revenue authorities, and also in the absence of any incriminating evidence against the assessee, is not sufficient to levy the penalty under section 271(1)(c). 20. Coming to the depreciation point, wherein the revenue is in appeal, learned counsel for the assessee supported the order of the CIT(A) and submitted, even if the addition i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ying the penalty and upheld by the learned JM. 23. Coming to the other addition of Rs. 2,30,374/- being the disallowance of depreciation, which was considered for levy of penalty, learned DR submitted, there was no evidence that the truck was put to use in the year under consideration. The truck was registered only on 30-3-1989. Assessee had not claimed any expenses for petrol, diesel, etc. Learned DR submitted that the learned JM rightly noted that there was no evidence to come to the conclusion that the vehicle was kept ready for use after registration. 24. The learned DR further submitted, the assessee has not preferred any appeal on quantum, which itself tacitly an admission that the additions were rightly made. He brought my attention to the decision of the Hon'ble Madras High Court in the case of P. Govindaswamy v. CIT [2000] 244 ITR 510 and submitted, admission by the assessee that certain amounts added to his income, constitute concealed income and penalty is leviable. Relying upon the decision of the Hon'ble Karnataka High Court in the case of CIT v. Aboo Mohmed [2001] 250 ITR 313, learned DR submitted, assessee cannot claim immunity under amnesty scheme in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses are inflated. Learned counsel produced a copy of the order of the Tribunal in the case of Illumination India v. Asstt. CIT [IT Appeal Nos. 943 to 945 (Pune) of 1994, dated 30-5-2005] wherein the Tribunal deleted the (penalties holding that the offer of higher income to avoid protracted litigation and to buy peace alone is not sufficient to attract the penalty. In such a case, Tribunal held, the burden is on the Department to prove that the income had actually been concealed in the original return. This is particularly so, where in the assessment order no specific finding on discrepancies are brought out. Hence, the learned counsel submitted that the penalty is liable to be deleted even on the portion, i.e., to say Rs. 3,00,704/- retained by the CIT(A). 27. Considering the rival submissions and going through the orders of the revenue authorities, I am of the opinion that the view taken by the learned AM is to be accepted as the correct view. As rightly noted by the learned AM, jurisdictional High Court has taken clear view in the case of CIT v. Mohammed Yaqub Mohd. Ibrahim Co. and in the case of B.D. Ramachandra, that there cannot be penalty under section 271(1)(c) in respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this view for the reason that the truck was registered on 30-3-1989 and it was kept ready for use. I am of the view that the learned JM's reasoning that no expenditure on petrol, diesel, etc. has been claimed and therefore in spite the fact that the vehicle has been registered in the name of the assessee the truck cannot be treated as kept ready for use, is without merit. Mere non-filling of petrol, diesel, etc. does not lead to a conclusion that the vehicle was not ready. It only indicates that it was not on actual use. At that point of time the jurisdictional High Court was taking the view that if the vehicles were kept ready for use; that was sufficient to claim depreciation. 30. The decisions relied by the learned DR are distinguishable on facts. In the case of Sushil Kumar Sharad Kumar, the Hon'ble Allahabad High Court held that under what circumstances penalty can be levied, where the additions were made on estimate basis. The relevant portion reads as under:- The findings recorded in the assessment order constitute good evidence in the penalty proceedings but those findings cannot be regarded as conclusive for the purposes of the penalty proceedings. In deciding whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act: ITA No.423/PN/94 Whether on the facts and in the circumstances of the case, the CIT(A) is justified in confirming the penalty levied by Assessing Officer under section 271(1)(c) of the Act in respect of the amount of Rs. 3,00,704/- on account of alleged undisclosed investment by the assessee in Balaji Apartments? ITA No. 455/PN/94 Whether on the facts and circumstances of the case, the CIT(A) is justified in deleting the penalty levied by the Assessing Officer under section 271(1)(c) of the Act in respect of the following additions: (i) Addition on account of GP Rs. 7,36,323/- (ii) Unexplained investment in deposit Rs. 40,000/- (iii) Disallowance of depreciation Rs. 2,30,374/- 2. With regard to the question referred to in appeal filed by the assessee (ITA No. 423/PN/94), the ld. Accountant Member of the Bench came to the conclusion that no penalty under section 271(1)(c) is leviable for the reasons discussed in detail in Tribunal's order in ITA No. 850/PN/97 relating to the assessment year 1988-89 and accordingly, penalty sustained by the CIT(A) in respect of the amount of Rs. 3,00,704/- was not justified, whereas the ld. Judicial Member held otherwise that penalty ..... X X X X Extracts X X X X X X X X Extracts X X X X
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