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TMI Blog2014 (3) TMI 1007X X X X Extracts X X X X X X X X Extracts X X X X ..... were heard together so these are being disposed off by this common order: 2. In all these cases the assessee has filed common revised grounds. The issues involved are common namely - confirmation of levy of penalty u/s 271 (1) (c). By the consent of parties in ITA No. 1062/Chd/2012 taken up for detailed adjudication as it was pointed out by both the parties that the issues in other years are common and identical. 3 In this appeal the assessee has raised the following revised grounds: "1 That the Ld. CIT-II has not considered the correct facts of the case and appeal has been dismissed ignoring this fact that the matter involved in the computation of income is debatable issue. 2. That the assessee never did the broking business as assumed by the AO and ignored by CIT(A)-II, hence the penalty levied and conformed by CIT-II should be deleted. 3. That the CIT(A)-II has not considered the explanations and correct reasons and has not considered the ITAT order on this issue for quantum appeal. " 4 Brief facts of the case are that the assessee is a C.A and a survey was conducted in his premises on 15.6.2004. During the course of survey it was discovered that the assessee was engag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 8614659/- for purchase of 185,000 equity shares has been made. Out of which 50,000 shares of Silver Line were already sold and therefore balance investment was ₹ 6449024/- for which the assessee was asked to explain the source. It was simply stated that the assessee did not have any money and whatever transaction he was doing were on behalf of the clients and profits were distributed among the clients. The Assessing officer did not find force in these submissions and further added a sum of ₹ 6449024/-. On all these items penalty proceedings u/s 271 (1) (c) were initiated. 5 In response to the show cause notice for levy of penalty u/s 271 (1) (c) it was simply stated that the appeals were pending before the ITAT, therefore penalty proceedings should be kept in abeyance. Accordingly to the Assessing officer penalty proceedings were getting time barred, therefore this request was rejected. Thereafter the Assessing officer noticed that addition on account of commission received against bogus entries of capital gain etc. amounting to ₹ 4408571/- got reduced to ₹ 1891012/- because the Ld. CIT(A) has reduced the turn over from ₹ 44.08 crores to S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment proceedings then such higher income can be estimated. He further observed that it was also noted during quantum proceedings by the Ld. CIT(A) that the departmental officers were not aware of total assts of the assessee and his family members and therefore latter estimation was justified. 8 On the second issue of restoration of matter by the Tribunal to the Assessing officer it was observed that only the issue which was restored by the Tribunal, was relating to verification of source of payment made by the assessee to R.K. Kohli & Co. in respect of acquisition of shares and the Assessing officer after verification in the light of the directions of the Tribunal, has noted that the assessee has made purchase of shares of Silverline, Reliance Petro, RCFL Ltd., etc. and the payments were made from the bank accounts of Smt. Kanta Rani, Bipin Jain and Rajiv Jain. Thus all investments were made by the assessee and his family members and therefore no relief was granted while giving effect to the order of the Tribunal. In respect of non levy of penalty in cases of estimated income, the Ld. CIT(A) observed that it would depend on the facts of each case. He also relied on the following d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he books of these firms could not have been considered for estimating income in the case of assessee. 11 He referred to page 2 to 6 of the paper book which is part of the internal correspondence of the department in which ultimately it has been suggested that the assessee was sharing commission received with these firms and therefore credit of 0.15% should be allowed on these accounts which would make Gross profit of the assessee at 0.25%. Ignoring this correspondence the Assessing officer estimated the profit at 1% which was later on reduced by 0.5% by the Ld. CIT(A) and thereafter the Tribunal confirmed the same. Thus higher profit has been estimated, therefore no penalty is leviable. In this regard he also placed reliance on the following decisions: Aggarwal Construction Co. Vs. ACIT, ITA No. 843/Chd/2009 Bharti Airtel Ltd. Vs. CIT, ITA No. 94/ASR/2011 Fine Line Construction Pvt Ltd Vs. ACIT, ITA No. 4907/Del/2012 Deepshikha Maheswari Vs. ITO, ITAs No. 581, 582, 583, 584, 585 & 586/Del/2013 Ppp Associates Vs. ACIT, ITA No. 946 to 953/PN/2009 Jugendra Singh & Co., Vs. DCIT, ITA No. 420/Agra/2012 M/s OMRS Wines Vs. ITO, ITA No. 410 to 414/Hyd/2013 12 On the other hand, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 was legally valid? (2) - If the answer to question No. (1) is in the affirmative whether the question of legality of the assessment could be gone into in penalty proceedings?" In that case the assessee was an Hindu Undivided Family and the assessment was finalized for Assessment year 1971-72. In appeal by the assessee, the appellate authority reduced certain additions and on the question whether the amount of sales tax penalty paid by the assessee is liable to be deducted from the income, it directed the Assessing officer to decide afresh after giving an opportunity to the assessee. The appellate authority thereby set aside the assessment order. During reassessment proceedings, the assessee admitted that a sum of ₹ 11,027 relating to the sale of a tempo van on account of wrong totaling is liable to be added to the income. The Assessing officer passed a reassessment order adding ₹ 11,027 to the total income. He also initiated penalty proceedings against the assessee. The assessee did not challenge the reassessment order in appeal. The penalty proceedings ended with an order levying penalty of ₹ 12,000 on account of concealment of income of ₹ 11,027. The ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces must reasonably point to the conclusion that the disputed amount represented income and that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars." [Emphasis, supplied] A reading of the above observations shows that while assessment proceedings may constitute good evidence in penalty proceedings, they are not conclusive. The statutory authority dealing with penalty proceedings must be satisfied that the assessee had consciously concealed the particulars of his income which attracts the penal provisions of the Act. In the present case, the assessee himself told the Assessing Officer that there was a suppression of income to the extent of ₹ 11,027. This was also verified by the Assessing Officer, and hence the question of the authority in penal proceedings coming to any conclusion different from the one arrived at in the reassessment proceedings does not arise. The above decision is not an authority for the proposition that where the reassessment is not challenged in appeal, the order as such can be collaterally challenged in penalty proceedings. If the assessment order or reassessment order become ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith Bank of Punjab, 112, Pakhowal Road for issue of cheque / drafts for the profit earned by the clients. The deposits in the bank are of two types. One is the amount of advance received from the clients and the other is for loss incurred by the second party. However, I may clarify that in fact there is no second party to the deal and in fat the amount is provided by the party seeking profits and after deposit of cash received from him we issue him cheque / draft. In other words, only profit entries are provided by us in the name of M/s B. Finlease India Pvt. Ltd. and no transactions with the stock exchanges are entered into and only profits on papers are provided to the clients on commission by the company through me. For this purpose / services / charge commission of five paisa per hundred…… of profit bill issued. The company charges balance twenty paisa per thousand. Thus total commission charged is twenty five paisa per hundred of the profit bill issues." Q.3 For which companies you are working on commission and intimate the bank accounts ? Ans. At present I am working only for M/s B. Finlease India Pvt. Ltd. Its bank account No. 99040 with Bank of Punjab, Pakho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of the firm / company or in his name and in the name of his family members and nephew including other brokers / sub brokers. The surrender was also to cover all earnings or other misc. income / sub brokerage / sub commission earned during the period of surrender. The income surrendered by the appellant was disclosed in the return of income furnished for AYs 2004-05 and 2005-06. The appellant had not furnished any return of income since after AY 1996-97 till the date of survey on 25.06.2004. Information was collected during the survey operation that the business was being carried out in the earlier years also. In view of the information gathered during the survey, the AO found that the appellant's income relevant to AY 2002-03 had escaped assessment within the meaning of section 147 and hence proceedings u/s 148 of the Act were initiated, in response to which the appellant furnished return of income declaring income of ₹ 45,000,/- 3.1.3 During the course of assessment proceedings, the AO identified the various bank accounts used by the appellant for his business and copies of these accounts were called from the respective banks u/s 133 (6) of the I.T. Act. The AO from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itions were confirmed by the CIT(A). 3.1.6 The AO therafter, issue a show-cause notice on the appellant as to why penalty u/s 271(1)(c) may not be imposed. The AO after considering the reply of the appellant held as under:- " From the documentary evidences which include the bank accounts, the statement of the assessee an other findings as mentioned in the assessment order also, it is clear that the assessee has a very systematic and organized business of giving bogus entries. Yet the assessee never disclosed this profit making activity for income tax purposes. In fact the assessee had not filed the return of income u/s 139 at all even when the taxable income was much higher than the threshold limit. The business of th assessee was on large scale and was flourishing. The quantum of deposit in the accounts operated by him was in crores. In these circumstances the act of not disclosing his income from such business by not filling the return, amounts is nothing but deliberate concealment of income. Even in the return filed u/s 147 this income was not disclosed by the assessee. The assessee was running a well organized continuous business and yet concealed his income completely which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i - ₹ 1171250/- 3 Damodar Prasad Todi & Sons HUF - ₹ 2231750/- 4 Suresh Kumar Todi - ₹ 1167600/- 5 Pana Devi Todi - ₹ 1172125/- These are just bills and their was no share transactions. The name of the share, distinctive no. etc were also provided by Mr. B.K.Jain. Normally his son will come and handover us a parchi containing these details. We will issue the bills accordingly. This reply is at paper book page 19." Question - Give brief description of transactions in the bank accounts? Answer - The source of deposit in three bank accounts can be explained by Bipan Kumar Jain, 94-D, BRS Nagar. It was mutually decided between me and B.K. Jain that he will deposit cash in the bank account of M/s Subhash Bhardwaj & Co., kept in Bank of Punjab and Lord Krishna Bank. I have given him a blank cheque book duly signed by me. He use to send me a parchi giving details of clients name, address and amount of bill and name of shaes, no of shares, date of shares and name of company with distinctive no in some cases on the basis of these particulars received from Bipan Kumar Jain, I will print out the bills of share profits, clients account and contract note and ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt and if during the assessment proceedings, the AO had necessary material to conclude that the rate of profit in the case of the appellant was higher than the rate mentioned in these notes, the AO could very well estimate the income by applying that rate." The CIT(A) further noted that at the time of preparing these notes, the officers were not aware of the total assets of the appellant and his family members other than assets of about 26 lacs which included the residential house of ₹ 20 Lacs. This observation of the CIT(A) has been referred to by the Hon'ble ITAT on page 16 of its order and the contention raised by the appellant was rejected. This contention of the appellant therefore has no merit. The above clearly show that even the Tribunal has confirmed that these are only initial estimates and when actual position became clear during assessment proceedings then ultimately profit was estimated at 1% by the Assessing officer of total credits which was also reduced to 0.5% by the Ld. CIT(A) which was confirmed by the Tribunal. One more aspect was involved that is why the addition on account of profit from share and investment which has been discussed by the Ld. CIT(A) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income in the hands of eth assessee on accommodation basis. Therefore the investment in these shares is to be treated as unaccounted investment of the assessee and is to be included in the hands of the assessee as per order of the Hon'ble ITAT page 39 thus no relief on this account is available to the assessee for the Assessment year 2002-03. however, the benefit of telescoping for the Assessment year 2003-04 has already been allowed by the Ld. CIT(A)-II, Ludhiana vide his order dated 29.9.2008 referred above. Thus the order of the Hon'ble ITAT has not resulted in any change in the quantum additions as decided by the Ld. CIT(A). Thus contention of the appellant therefore does not help his case." Therefore it become clear that there was specific information that the assessee has made investments in shares and when the Tribunal directed to verify the actual investment the same were verified by the Assessing officer and it was noted that the investment has been made by issuing cheques in the HDFC Bank of the assessee and his family members and such investments were not declared by the assessee and therefore this is a clear cut case of concealment. 17 Now only question which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Supra). In that case also a survey was conducted and certain business income was unearthed during survey for various years. Ultimately profit was estimated at 1.5%. Ultimately even the Tribunal confirmed the penalty in respect of Assessment year 1998-99 and 2001-02. However, penalty was deleted for Assessment year 2003-04 to 2005-06 because the assessee still had not filed the return. Other decisions relied on by the Ld. Counsel for the assessee are of similar pattern. 18 Now let us consider the decisions of various Hon'ble High Courts relied on by the Ld. Counsel for the assessee. (i) CIT Vs. Metal Products of India (supra). The assessee filed return of income for ₹ 52416/- on the basis of books of accounts maintained. The Books of accounts were rejected and addition of ₹ 149624/- was made which was reduced to ₹ 80000/- by AAC. On the Balance amount penalty of ₹ 12000/- was levied. The penalty was deleted by observing that merely because the addition has been made on estimated basis by adopting a view that Gross profit shown in the books was too low, did not automatically lead to the conclusion that there was a failure to return the correct income b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns the tax that would have been chargeable on the income in respect of which particulars have been concealed or inaccurate particulars have been furnished had such income been the total income;] Otherwise this position has bee clarified by the Larger Bench of the Hon'ble Supreme Court in case of CIT Vs. Gold Coin Health Foods (P) Ltd. 304 ITR 308 wherein it has been observed that penalty is leviable even if it is a case of reduction of loss. The head note reads as under: "Explanation 4 to section 271(1) (c)(iii) of the Income-tax Act, 1961, regarding the imposition of penalty even if the returned income is a loss, is clarificatory and not substantive. It applies even to assessment years prior to April 1, 2003, the date on which it was brought into force. What the Finance Act, 2002, intended ws to make the position explicit which otherwise was implied. VIRTUAL SOFT SYSTEMS LTD. V. CIT [2007] 289 ITR 83 (SC) overruled. A combined reading of the recommendations of the Wanchoo Committee and Circular No. 204 dated July 24,1976, makes the position clear that Explanation 4 (a) to section 271(1)(c) (iii) intended to levy penalty not only in a case where after addition of concealed i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Union of India Vs. Dharmendra Textile Processors, 306 ITR 277. 19 Therefore it is clear that the above decisions relate to the situation which was prevalent in those assessment year. For example there was no willful income on the part of the assessee. All these cases are totally distinguishable in the light of the decision of Hon'ble Supreme Court in case of Union of India Vs. Dharmendra Textile Processors (supra). It is very clearly held as under: "The Explanation appended to section 271(1) (c) of the Income-tax Act, 1961, indicate the element of strict liability on the assessee for concealment or for giving inaccurate particulars while filing the return. The object behind the enactment of section 271(1) (c) read with the Explanations indicates that the section has been enacted to provide for a remedy for loss of revenue. The penalty under that provision is a civil liability. Wilful concealment is not an essential ingredient for attracting civil liability as is the case in the matter of prosecution under section 276C. Therefore clearly there is no more requirement of mens rea and the decision rendered prior to this decision, are operative no more. In the second set of decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee firm's business. The assessee firm had four partners and if two of the partners were engaged otherwise, the other partners could have looked after the business. This was not a case of the assessing authority estimating the income. Even assuming that the revised assessment was based on an seizure effected gross omissions of collections were found out, and, subsequently, the assessee itself had filed revised returns accepting the omission. The cancellation of penalty was not valid." 21 Similarly the Ld. Commissioner further relied on the order of Hon'ble Patna High Court in case of CIT Vs. Warasat Hussain, 171 ITR 405 and held as under: "Assessment by estimate is one of the known processes in the taxation world. Where the assessee conceals relevant material / evidence, the Revenue has no option but to make a best judgment assessment by estimate. An assessment by estimate is as much legal as any other assessment. Once an assessment has been done, whether it is a best judgment assessment or otherwise, the figure assessed must be held to be the income of the assessee. Such an assessment would not affect the levy of penalty." 22 Again Hon'ble Allahabad High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Income-tax Officer completed the assessments by estimating the sales at slightly higher figures. The Income-tax Officer was of the view that the assessee had deliberately not disclosed his correct income in the returns and initiated penalty proceedings under section 271(1)(c) of the Income-tax Act, 1961, and referred the matter to the Inspecting Assistant Commissioner under section 274. The Inspecting Assistant Commissioner found that the assessee had not been able to discharge the onus of showing that the difference between the income shown in the original returns and the income assessed had not arisen as a result of any fraud or gross or willful neglect on the part of the assessee and, therefore, the provisions of the Explanation to section 271(1)(c) applied and levied penalty in respect of all the three years. On appeal, the Appellate Tribunal held that the totality of circumstances clearly pointed out that at best it was a case of gross and willful neglect on the part of the assessee and that the concealment having taken place in the original returns, the tax that would have been avoided had those original returns been accepted would be the correct figure to be taken into con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present case, no doubt, the discovery of the omission or wrong statement was made by the assessee. That by itself is not sufficient to bring the revised return within the ambit of section 139(5). The further requirement is that this omission or wrong statement in the original return must be due to bona fide inadvertence or mistake on the part of the assessee. The assessee in this case could not give any particulars basis for the original returns. The contentions of the assessee that he had no proper accounts notwithstanding the admitted fact that he had incomes in lakhs of rupees was rightly rejected by the Tribunal. In the circumstances, the omission or wrong statements in the original returns as admitted by the asessee, could not be stated to be, by any standard of evaluation of evidence or material on record, inadvertent or bona fide omission or mistake. That being so, the revised returns were not really within the correct ambit and scope of section 139(5) of the Act so as to allow immunity to the assessee from the mischief of section 271(1)(c) of the Act. " 24 Above decision was later on confirmed by the Hon'ble Apex Court reported at 186 ITR 571 as G.C. Agarwal Vs. CIT. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years in question." When the matter traveled to the Hon'ble Supreme Court it was held as under: "Affirming the decision of the Hon'ble High Court that the Hon'ble High Court was correct in holding that as the income returned was less than 80 per cent, of income assessed, the Explanation to Sec 271 (1) (c) became applicable and the ITO was justified in imposing penalty because the assessee had not been able to discharge the onus which was on it under the Explanation to Sec 271(1)(c)." Therefore it depends on the circumstances how the income was estimated. For example if it is only a case of pure estimate, let us say for determining cost of construction the Assessing officer estimated the cost. This was later on reduced by the Tribunal to a lesser amount then perhaps penalty is not leviable because cost of construction is simple matter of estimate and no two experts would ever agree on similar estimate. However, if the estimate is based on the basis of documents found and it is not possible to compute the income otherwise then by estimate then penalty would be clearly leviable. In the case before us, during survey various documents including blank cheque books were fou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... return surrendering agricultural income was filed. The Assessing officer taking it to be a case of escaped assessment, issued notice u/s 148 of the Act on 16th Oct. 1996 and after accepting the revised returns u/s 143(3) r.w.s. 147 initiated penalty proceedings u/s 271(1)(c) of the Act. It was mainly contended that penalty was not leviable because the assessee has voluntarily disclosed the income and in view of the decision of Hon'ble Supreme Court in case of Sir Shadi Lal Sugar and General Mills Vs. CIT, 168 ITR 705 observed that penalty was not leviable. Hon'ble High Court after considering the detailed arguments as well as the case law observed at para 4 as under: "The above discussion by the Tribunal clearly shows that it was not a case of bonafide voluntary disclosure but only to avoid consequences of law. It is not possib le to hold that in every case, mere surrender of income will foreclose any action for concealment of income. Judgments of Hon'ble Supreme Court in Sir Shadi Lal and CIT Suresh Chandra Mittal (2001) 170 CTR 182: 251 ITR 9 have rightly been distinguished by the Tribunal. Findings recorded by the Tribunal cannot be held to be perverse in any manner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 271(1) (c) create a legal fiction. It was that the assessee would be deemed to have concealed the particulars of his income or furnished inaccurate particulars thereof in the circumstances set out in the Explanation. But for such a legal fiction, it could never have been said that there was nay concealment or furnishing of inaccurate particulars of income simply because the returned income was less than 80 per cent. of the assessed income. The Explanation shifted the burden of proof on the assessee. Therefore, it said (page 797): " when the Explanation is being resorted to by the Income-tax Officer or by the Inspecting Assistant Commissioner in penalty proceedings, it is essential that the assessee must be informed that penalty proceedings against him are being commenced under the Explanation to section 271(1) (c)." It added (page 799): " The Inspecting Assistant Commissioner could not have proceeded to levy the penalty under the Explanation to section 271(1) (c). These are pnalty proceedings and the section must be strictly construed. The assessee, in our view, had no opportunity of meeting the case under the Explanation to section 271(1)(c)." `The Bench of the High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tedly what was laid down by this court in the case of Sir Shadilal Sugar and General Mills Ltd. [1987] 168 ITR 705 and that, therefore, the Revenue was required to prove the mens rea of a quasi-criminal offence. But it was because of the view taken in this and other judgments that the Explanation to section 271 was added. By reason of the addition of that Explanation, the view taken in this case can no longer be said to be applicable." 28 Thus it becomes clear that after insertion of this explanation the burden has shifted to the assessee to give bonafide explanation regarding a particular item of income and if no bonafide explanation is available then penalty is to be levied. In the case before us, no explanation has been given and therefore penalty has been rightly levied. 29 The Ld. D.R. for the Revenue had also strongly relied on the decision of Hon'ble Punjab and Haryana High Court in case of Shveta Nanda Vs. CIT (supra). In that case also a survey was conducted in the premises of the assessee and some discrepancies were detected in the record and some incriminating documents were found. From these documents it was found that the assessee had been paying handsome commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X
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