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TMI Blog2015 (7) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... cepted and no fault was found in the said account, even when assessment was framed u/s 143(3) of the Act. However, letter on the case was reopened u/s 147 of the Act by issuing the notice u/s 148 of the Act and the AO inquired about the source of ₹ 50 lac which was entered in the books of accounts by the assessee, the source of the said amount was explained as advance money amounting to ₹ 40 lac received on account of sale of two houses at Charthawal and Muzaffarnagar. The another amount of ₹ 10 lac was claimed to have been received from the father during the family arrangements in the earlier years, but the assessee was unable to produce the parties from whom the advances were received. He, therefore, surrendered the amount of ₹ 50 lac voluntarily and paid the tax on the said surrendered amount subject to no penal action. In the instant case the assessee himself agreed for surrender, so it was a good case to make the addition, however the said surrender itself cannot be considered as a concealment of particulars of income because all the relevant information were already available with the AO who framed the original assessment u/s 143(3) of the Act, it can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cealed the income. In fact the assessee had disclosed the amount of ₹ 50 lacs in his books of accounts and that the copy of bank account issued by Canara Bank was already before the Assessing Officer at the time of original assessment proceeding. 8. That the Ld. CIT(A) has erred in observing that the assessee had not explained the source from where the amount of ₹ 50 lacs was received. In fact, the assessee had explained the source since he was not able to produce the party, he had surrendered the amount which was voluntary and bonafide. Hence no penalty could have been imposed by the Assessing Officer. 9. That the observation of CIT(A) is vague when he held that the assessee had failed to adduce any satisfactory explanation in rebuttal of the presumption that the amount of ₹ 50 lacs represented his unexplained money. In fact, the assessee himself had surrendered the amount offering the same as unexplained money. 10. That the Ld. CIT(A) has misdirected himself in not appreciating the fact that the assessee had adduced the explanation in respect of ₹ 50 lacs, there was a difference of opinion between the assessee and the Assessing Officer an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed business income. The AO after receiving the order of the ld. CIT(A) of issued a notice u/s 271(1)(c) of the Act and the assessee furnished a written reply stating therein as under: (i) the assessee being illiterate person, in order to avoid any dispute and to purchase peace of mind and to avoid litigations, surrendered the amount of ₹ 50,00,000/- for taxation subject to no penal action, as there is no concealment of any income. The assessee has made this offer to tax ₹ 50,00,000/- with clean hands and his disclosure is true to avoid any dispute in future, as he is not conversant with the laws being illiterate. He has enclosed a cheque no. 123584 dated 15.11.2010 for ₹ 10,00,000/- drawn in favour of the Income Tax Officer, Muzaffarnagar towards income tax payable on ₹ 50.00 lac and to accept the offer. (ii) That the conditional surrender of ₹ 50,00,000/- was accepted by accepting the advance tax payment on this amount by deposit of submitted cheque in the Government account. Thereafter, the proceeding of re-assessment started and concluded vide assessment order dated 29.12.2010. It was also agreed at the point of surrender that the tax pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce u/s 143(2) and 142(1) were issued in response to which, assessee appeared through counsel and filed required details time to time. d) On 21.12.2009, the books of accounts alongwith bills and vouchers were produced by the assessee, which were examined by the Assessing Officer and the case was discussed by him. e) Thereafter, the assessee was telephonically informed that there is certain discrepancy in the page number of cash book mentioned in the sales tax assessment order and the computerized cash book produced before him. Accordingly, he again required the assessee to produce the books of accounts on 30.12.2009. f) On 30. 12.2009, the assessee again produced the books of accounts, which were re-examined by the Assessing Officer. He explained the alleged discrepancy in cash book page no stated in sales tax order and the cash book produced before him. In fact, there was no discrepancy. In sales tax order, the number mentioned was of manual cash book whereas the cash book produced before him was computerized version of manual cash book. After duly satisfying himself and after due verification/examination of the books of accounts, the Assessing Officer proposed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the letter-dated 17.07.2010 issued by the Canara Bank is enclosed herewith as Annexure- G . p) Thereafter, assessee sought inspection of assessment on 06.08.2010 which was allowed to him. Vide letter-dated 25.08.2010, assessee requested for certified copies of certain documents which were provided to him on 31.08.2010. The true copy of the letter-dated 25.08.2010 issued by the assessee and the copy of letter-dated 31.08.2010 alongwith documents provided by the Assessing Officer are enclosed herewith as Annexure- H and I . q) On going through these documents, it came to know that the Assessing Officer had called for information from Trade Tax Department vide letter-dated 18.12.2009 and from Canara Bank vide letter-dated 24.12.2009, which was received by them on 18.12.2009 26.12.2009 respectively. However, entries with respect to sending of these letters and receiving information were not made by the Assessing Officer in the order sheet. It may be presumed that the Trade Tax Department might have sent the sales tax assessment order after 21.12.2009 but before 30.12.2009 as the Assessing Officer had made a specific query with respect, to discrepancy i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and was deposited in the bank account for preparation of DD to be issued to M/s Dhar Cements Limited for purchase of Plant Machinery in an auction carried on by the official liquidator Indore. Since the said DD was cancelled on 16.05.2006 due to failure of bid in the auction, the amount was withdrawn by way of six cheques, five for an amount of ₹ 9 lac each and the sixth cheque for an amount of ₹ 5 lac. The said amount was also credited and debited to the assessee's personal fund account which was duly existing in the ledger produced before the Assessing Officer during the original assessment proceeding. Assessee had also explained that a sum of ₹ 10 lac (out of ₹ 50 lac) was received by him from his father before 40 years during family arrangement and ₹ 15 lac and ₹ 25 lac (totaling to ₹ 40 lac) was received by the assessee as advance against the properties at Charthawal and Muzaffarnagar belonging to his family. However, the Assessing Officer continued to conduct the proceeding, in compliance to which assessee produced the books of accounts including Ledger, Cash Book and Journal. Statement of the assessee was also recorded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nalty could be levied. He also relied upon certain case law and submitted that the provisions of Evidence Act are not strictly applicable to the income tax proceeding as the same are not the criminal proceeding. Accordingly, he requested to drop the penalty proceeding. The true copy of the reply-dated 10.05.2012 is enclosed herewith as Annexure- P . y) However, the Assessing Officer did not convince with the same and imposed the penalty of ₹ 17 lac u/s 271(1)(c) of the Act. The true copy of the order is already enclosed to the appeal along with Form No. 35. z) The Assessing Officer has imposed the penalty on the following grounds: i) There is no promissory estoppel against statute. No condition can be attached with agreed addition for surrender. During the reassessment proceedings, anomalies were found out on comparing the bank statement supplied by the Canara Bank after passing order u/s 143(3) dated 30.12.2009 and copy of statement furnished by the assessee. ii) The assessee has neither surrendered the amount suo moto in the original assessment proceeding nor in compliance to notice u/s 148. It was only when assessee was not left except ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come is a prerequisite for initiating penalty proceeding. Hon'ble Delhi High Court in the case of CIT vs Ram Commercial Enterprises (246 ITR 568), after relying on the judgment of Supreme Court in the case of D M Manasvi (86 ITR 557) and S V Angidi Chettiar (44 ITR 739) had repelled the argument of the revenue that all the facts available on record coupled with the direction by Assessing Officer to initiate the proceeding u/s 271(1)(c) of the Act in the assessment order itself leads to an inference that the requisite satisfaction was arrived at by the Assessing Officer. Hon'ble Delhi High Court held that it is the assessing authority which has to form its own opinion and record its satisfaction before initiating penalty proceeding. Merely because the penalty proceeding have been initiated, it cannot be assumed that such a satisfaction was arrived at in the absence of the same being spelt out by the order of the assessing authority. This judgment has been followed by the various High Courts in various cases. After considering all the judgments on this aspect, Hon'bie Delhi High Court again in the case of Ms Madhushree Gupta vs UOI (183Taxmann 100) has held as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Assessing Officer u/s 148 are incorrect when it stated that the information u/s 133(6) were called from Canara Bank but the same was not received till 30.12.2009 i.e. the date of passing the assessment order u/s 143(3) of the Act. In fact, the copy of bank statement was furnished by the Canara Bank on 24.12.2009 itself and the same was before the Assessing Officer at the time of passing assessment order. Rather, Assessing Officer had satisfied himself about the entries of ₹ 50 lac, which were existing the bank statement. The Assessing Officer had examined the books of accounts on 21.12.2009 and again on 30.12.2009 in pursuance to information received by him by way of sales tax assessment order from trade tax Department and the bank statement from Canara Bank. The entries of ₹ 50 lac were existing in the ledger, which were debited and credited to Mohd. Irshad Personal Fund Account. Thus very basis for initiating the proceeding u/s 147 of the Act was incorrect. This fact has been admitted by the CIT(A) also when he observed at page 23 of the order that the copy of bank account was furnished by Canara Bank on 24.12.2009, before completion of the assessment proceedi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee in the relevant year and therefore, were existing in the ledger. There were no entries pertaining to Mohd Irshad Personal Fund Account in the immediately preceding and subsequent year and therefore, the said account was not existing in the ledger of those years. Hence, the conclusion drawn by the Assessing Officer that the books of accounts of the assessee were fabricated is incorrect in the facts and circumstances of the case. Hence, the reassessment proceeding initiated by the Assessing Officer was not sustainable in law and therefore, any satisfaction arrived at in such proceeding for initiating the penalty proceeding is also bad-in-law. Accordingly, the penalty imposed in pursuance to such satisfaction is liable to be deleted. The assessee is challenging the reassessment proceeding only for the purpose that the every penalty presupposes a valid assessment proceeding. Hence, penalty imposed in pursuance to such an invalid assessment is liable to be quashed. However, it is to be pointed out that the quantum appeal, challenging the initiation of proceeding u/s 147, is pending before ITAT. v) That the information on the basis of which proceeding was ini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court have held that where assessee had disclosed receipt of impugned amount from a party, though as, a liability and Assessing Officer had also gone into that aspect specifically and did not treat the said receipt as income, such fact would demonstrate that assessee had not concealed particulars of income nor had it deliberately furnished inaccurate particulars of income. 08) In CIT vs Rajdev Singh Company (202 Taxmann 433), Delhi High Court have held that where assessee had disclosed amount in entirety, produced books of accounts and claimed deduction which was allowed and thereafter, there was a reassessment, imposition of penalty u/s 271(1)(c) is not justified. 09) The Assessing Officer has accepted the surrender but has not accepted the conditions subject to which surrender was made. It is a well established principle of law that admissions have to be read as a whole and in the context in which, they are made and not de hors the context. The admission of the assessee that he had no proper explanation for a certain amount does not ipso facto absolve the revenue of its burden of proving that the amount was the income of the assessee for the relevant year and o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional Textiles vs CIT (249 ITR 125), Gujarat High Court have held where assessee s explanation is unproved but not disproved by the Assessing Officer, reliance on explanation 1 to section 271(1)(c) is not enough for levy of penalty. 18) The Assessing Officer has levied the penalty stating that there is no promissory estoppel against statute and therefore, no condition can be attached with agreed addition for surrender. It is submitted that estoppel has been held to be only a rule of evidence and not a cause of action. It is not a basis of liability to assessment order under the Act. Hence, the assessment of a person for an amount of income which does not belong to him cannot be based on the ground that he himself wanted to be assessed on it as held by the Calcutta High Court in Asit Kumar Ghose vs CIT (24 ITR 576). 19) Last but not the least, it is humbly submitted that the law is well settled; an order imposing penalty is a result of quasicriminal proceedings and penalty cannot ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct, contumacious or dishonest, or acted in conscious disregard of its obligatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r) 243 ITR 818 CIT vs Rakesh Suri (All) 331 ITR 458 CIT vs Sushma Devi Agarwal (ITAT, Kol- TM) 67 DTR 430 b) Whether assessee has concealed the particulars of income or has furnished inaccurate particulars of income is a finding of fact and depends upon the facts and circumstances of the case. Hence each case has to be examined by the facts involved therein. In all these afore cited cases, concealment has been detected why the Department before the disclosure made by the assessee and therefore, it is observed that the disclosure made by the assessee was not voluntary and in good faith. Each case has been briefly discussed as under: i) 242 ITR 29 (Ker) CIT vs A Sreenivasa Pai In this case, assessee filed the return on 29.06.1987 for AY 1987-88 after filing the return, scrutiny notice was issued various books of accounts. The case was posted for scrutiny on 29.09.1987. When the assessee's representative appeared before the AO, the date was adjourned to the next date when several books of accounts were impounded for scrutiny of the correctness of the entries made therein. 15 days time available for retention expired and before that date, the CIT&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure by filing revised return voluntarily ending good faith. iv) 230 ITR 855 (AII) Bhairav Lal Verma vs UOI Full Bench of the Allahabad High Court in this case, have curled out the following principle: The word voluntarily in section 273A of the Act means out of free will without any compulsion. Voluntary disclosure of income means the disclosure of income out of free will without any compulsion/constraint. As a principle of law it cannot be held that the disclosure of the concealed income after the raid or search cannot be voluntary. It is a question which has to be decided by the Department in each case on the basis of the material available on the record. The criteria for deciding this question is to find out as to whether the Department has any incriminating material with regard to the disclosed income. If the answer is in. the affirmative, the disclosure cannot be said to be voluntary. But if the Department has no incriminating material with regard to the income disclosed, the disclosure is liable to be treated as voluntary even if it was made after raid/search. Observations made in this case support the case of the assessee. v) 243 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment proceeding, opined to be invalid by the legal consultants, assessee surrendered the amount of ₹ 50 lac. Surrender was bonafide and was made with clean hands to avoid any dispute in future, to avoid any litigation and to purchase peace of mind subject to no penal action. Thus assessee had explained the source of ₹ 50 lac, which were duly entered into the books of accounts. Explanation offered by the assessee was bonafide. d) It is submitted that mere agreement to addition of income or surrender of income does not imply concealment of income. i) where the assessee failed to give satisfactory proof of certain cash credits and surrendered them for addition to the income, it was not open to the Department to impose on that basis alone penalty for concealment because the onus of proving deliberate concealment had not been discharged by the Department. CIT vs Net Ram Ram Swaroop (88 ITR 213) (All) Additional CIT vs Solar Chemicals (P) Ltd. (150 ITR 410) (All) CIT vs Amalandu Paul (145 ITR 439) (Cal) ii) where in respect of certain cash credits, the assessee, in the course of reassessment proceeding, submitted that as the loans wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... between the parties. What is necessary for the principle to apply to a given case is only that the promise should have altered his position in reliance on the promise. The party asserting the estoppel must have acted upon the assurance given to him must have relied upon the representations made to him. The alteration of position by the party is the only indispensable requirement of the doctrine. In the present case, on the basis of surrender made by the assessee the Department has not altered his position. Had the Department acted upon the statement of the assessee then the assessee would have been stopped from saying that the amount was not chargeable to tax at all. Thus in the present case, there are no circumstances existing so as to apply the principle of promissory estoppel. This principle has been' explained by the Hon'ble Supreme Court in the case of Moti Lal Padam Pat Sugar Mills Co. Ltd. vs State of Uttar Pradesh (118 ITR 326). In Moti Lal Padam Pat's case, Hon'ble Supreme Court have held that this doctrine can be invoked against the Govt. as well. In this case, on the basis of an announcement in a newspaper that the state of UP had decide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... py of bank account, the bank account entry dated 21.04.2006 showing cash deposit at ₹ 50,00,000/- and subsequent withdrawal of the same amount for preparation of DD on the same date was deliberately omitted and the AO completed the assessment making addition of ₹ 50 lac and later on imposed penalty on such addition. On the argument of the assessee that satisfaction of concealment was not recorded by the AO, the ld. CIT(A) observed that the AO in his last sentence of the assessment order has mentioned that penalty notice u/s 271(1)(c) of the Act is being issued separately . The ld. CIT(A) was of the view that the initiation of penalty proceedings coupled with the observations made by the AO, in the body of assessment order left no scope for any doubt that the satisfaction for initiation of penalty was not recorded in the assessment order. The ld. CIT(A) also observed that the surrender made by the assessee was not voluntarily and with clean hands and that at no stage the surrender made by the assessee was accepted by the AO. Thus, such surrender was made under compelling circumstances which could not in any case said to be voluntarily. He also observed that the surrende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hed by the aforesaid bank was confronted to the assessee. Thus, surrender of income was not voluntarily made but was made after detection by the department and after the assessee had no escape route. Therefore, the proceeding offered by the assessee was not bonafide and the same was made after the positive detection by the department. It was also observed that the assessee had not been able to establish that the explanation offered was bonafide. According to the ld. CIT(A), the surrender from the assessee was a mercy petition filed before the AO accepting the undisclosed income of ₹ 50 lac and the acceptance of cheque of ₹ 10,00,000/- towards taxes by the AO should not be understood that he agreed for non-initiation of penalty. The ld. CIT(A) was of the view that if the department had incriminating material with regard to addition of concealed income, disclosure was not voluntarily and vice versa and simply because the assessee agreed to the addition of concealed income after detection thereof and surrendering the undisclosed income at the time of reassessment proceedings, the assessee cannot escape from penalty u/s 271(1)(c) of the Act. The reliance was placed on the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrived at during the penalty proceedings cannot be substituted for the satisfaction to be arrived at during the assessment proceedings. It was stated that the assessee surrendered ₹ 50,00,000/- himself during reassessment proceedings, the said surrender was bonafide and made with clean hands to avoid any dispute in future, to avoid any litigation and to purchase peace of mind subject to no penal action. It was emphasized that the assessee handed over the cheque of ₹ 10 lac towards tax liability, in the said surrender of ₹ 50 lac the assessee had also explained the source as ₹ 10 lac out of ₹ 12 lac received from father before 40 years in pursuance to family arrangement and ₹ 40 lac as advance money received for sale of two houses one at Charthawal and another at Muzaffarnagar. Thus, the assessee had explained the source of ₹ 50 lac which were duly entered into books of accounts for the relevant year. However, the AO ignored the same by stating that the books were fabricated. It was contended that the entries of ₹ 50 lac were existing in the bank account of the assessee and also in the ledger maintained for the assessment relevant year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itions subject to which surrender was made. It was further stated that as per the established principle of law the admissions have to be read as a whole and in the context in which, they were made and not de hors the context and the admission cannot be a basis for leaving the penalty when it is made for purchase of peace with the department. The reliance was placed on the following case laws: CIT Vs Paripushpam (S.I.) 249 ITR 550 (Mad) CIT Vs Garg Trader 253 ITR 736 (P H) CIT Vs Suresh Kumar Bansal 254 ITR 130 (P H) CIT Vs Jalaram Oil Mills 253 ITR 192 (Guj) CIT Vs Pioneer Engineering Syndicate 188 ITR 287 (Mad) CIT Vs Punjab Tyres 162 ITR 517 (MP) CIT VS Saran Khandsari Sugar Works 246 ITR 216 (All) CIT Mansa Ram Sons 106 ITR 307 (All) CIT Vs Careers Education Infotech (P) Ltd. 336 ITR 257 (P H) CIT Vs Gujamgadi (M.M.) 290 ITR 168 (Kar) National Textiles Vs CIT 249 ITR 125 (Guj) 14. It was further submitted that the assessee is an illiterate person and despite the advise of legal consultant that the reassessment proceedings initiated by the AO was bad-in-law as based on mere change of opinion, he surrendered the amount of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he deposit which was ₹ 10 lac claimed to have been received from his father during family arrangements and ₹ 40 lac on account of advance money received in April 2006 for sale of two houses. However, the assessee during the course of assessment proceedings agreed for addition of ₹ 50 lac in spite of the fact that the amount was recorded in his books of accounts, the said surrender was made to buy peace of mind and to avoid litigation and subject to no penalty u/s 271(1)(c) of the Act. In the present case, the AO also made another addition of ₹ 7,13,535/- on account of unexplained expenditure but the same was deleted by the ld. CIT(A) and the department has not preferred any appeal for the said deletion. The AO levied the penalty of ₹ 16,88,730/- u/s 271(1)(c) of the Act by considering the surrendered amount of ₹ 50 lac as a concealed income of the assessee. It is well settled that assessment proceedings and the penalty proceedings are two separate and distinct proceedings and even when some addition is made it does not ipso facto absolve the revenue of its burden of proving that the amount added was concealed income of the assessee. It is not in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be arrived at by the Assessing Officer during the course of any proceedings under the Act, which would mean the assessment proceedings, without which, the very jurisdiction to initiate the penalty proceedings is not conferred on the assessing authority by reference to clause (c) of sub-section (1) of section 271 of the Income Tax Act, 1961. A bare reading of the provisions of section 271 and the law laid down by the Supreme Court makes it clear that, it is the assessing authority who has to form his own opinion and record his satisfaction before initiating the penalty proceedings. Merely because the penalty proceedings have been initiated it cannot be assumed that such a satisfaction was arrived at. 19. In the present case also the AO while framing the assessment u/s 143(3) r.w.s 147 of the Act nowhere recorded the satisfaction that the assessee either concealed the income or furnished inaccurate particulars of income. He simply stated that the penalty notice u/s 271(1)(c) of the Act was being issued separately, therefore, in view of the ratio laid down by the Hon ble Jurisdictional High Court in the aforesaid referred to cases the penalty u/s 271(1)(c) of the Act was not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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