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TMI Blog2009 (10) TMI 927X X X X Extracts X X X X X X X X Extracts X X X X ..... 27,526 under s. 158BFA(2) being arbitrary, uncalled for and bad in law, the same should be annulled and your appellant be given such relief(s) as prayed for. 2.1 The relevant facts as culled out from the impugned order are as under : A search and seizure operation was conducted on 30th Aug., 1998 in case of the assessee and assessment order under s. 158BC was passed on 27th July, 2000 determining additional undisclosed income of ₹ 10,22,940 for the block period and penalty proceedings under s. 158BFA(2) have been initiated simultaneously. Though, the appeal has been filed against the block assessment order before the CIT(A) but later on, the appeal was withdrawn by the assessee. In course of penalty proceedings, in response to the subsequent show-cause notice issued by the AO, the assessee argued that no penalty was imposable as the reasons for initiating the penalty were not mentioned in the assessment order. But rejecting that argument, the AO mentioned that the order under s. 158BC/143(3) was passed after determination of an additional undisclosed income of ₹ 10,22,940 based on the books of account and other documents found during the search. The reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o point out as to how it is relatable to the assessee. In fact what transaction is supposed to be recorded in these dumb documents it was argued has also not been spelt out by the AO. The assessee's stand is that these are dumb documents as they neither show the nature of the transaction nor are they relatable to the assessee. Thus if the AO is of the view that it relates to the assessee he has to bring some evidence on record to establish how a specific document warrants an addition. 4.4 Assailing the finding of the tax authorities that the assessee has accepted the additions it was argued that the penalty order itself shows that against the block assessment order the assessee had filed an appeal in 2000. However, since till 2006 it was not decided and kept lingering accordingly exhausted with the whole proceedings the assessee finally withdrew the appeal and paid due taxes in order to buy peace. These facts it was submitted are found recorded in the penalty order itself. It was his submission that the psychology of an assessee who has agitated the additions in the appellate proceedings and finally withdraws the same to buy peace without getting into the aspect of pressur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t neither the printout is complete nor was it possible to ascertain the nature of the transactions and the purpose of different numbers mentioned therein. Despite these clear-cut speaking observations by the AO himself he proceeds to make additions resorting to estimation and pure guesswork based on suspicions and surmises. Attention was also invited to the penalty order on the basis of which it was argued that the factum of filing appeal against the block assessment order is recorded for which purposes the penalty order was kept in abeyance. It was reiterated that since in six years the appeals in the quantum proceedings could not be decided the assessee was persuaded to withdraw the same on the understanding that no penal action would be attracted. Having done so it was submitted penalty was imposed in a mechanical manner for which purpose heavy reliance was placed on the penalty order to argue that no effort was made in the penalty order to establish how the penal action was attracted qua each and every addition. As such on this basis alone it was argued it deserves to be quashed. 4.8 Referring to the impugned order it was further submitted that even in the appellate proceedi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a bare reading of the discussions made by the AO in the block assessment order. 4.10 Addressing the documents specifically inviting attention to the written submissions before the Bench it was submitted that the material does not warrant any addition let alone penalty. For ready reference the relevant portion of the written submissions is reproduced hereunder : (1) NCJ-2 : These loose sheets were found from the residence of Shri Nemchand Jain. However, these pages did not belong to the assessee and they related mainly to M/s R.J. Enterprises and M/s Cargo Corporation. This fact has been duly acknowledged by the AO in his order at para 2, p. 3. This goes to show that the papers found from the residence of the assessee did not necessarily belong to the assessee firm. They were in the nature of mixed pages belonging to various individuals and firms. (2) NCJ-1 : These were certain loose sheets found from the residence of Shri Nemchand Jain. Again here also most of the loose sheets related to N.C. Cargo Corporation and not to the assessee. This has been accepted by the AO at para 3, p. 3 of his order. However, arbitrarily he chose to treat the pp. 48 to 52 and pp. 56 to 58 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Asst. yr. 1995-96 ₹ 48,000 Asst. yr. 1996-97 ₹ 48,000 ₹ 2,42,000 ₹ 3,38,000 (3) NCJ-11, p. 11 : The AO has alleged at the last para, p. 3 of his order that the said page indicates the carrying of goods of the assessee company wherein the total cardamom purchase of 3850 kgs was recorded as against the disclosed purchases of 2550 kgs., thus resulting in unrecorded purchases of 1300 kgs. In this connection it was submitted to the AO that the particular loose sheet was a gate pass issued by one transport company namely N.C. Cargo Corporation for the carriage of cardamom purchased by the assessee from a supplier M/s Purushottamdas Agarwal of Sikkim. The assessee had made purchases from the said party through two bills containing 1250 kgs. and 1300 kgs. of cardamom and each purchase was supported by a sales permit issued by the CTO, Siliguri. The permit number as mentioned in the gate pass evidences the purchases which are as per the purchase invoice. The total quantity of the purchase as sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o exactly ascertain the nature of transaction. Different numbers are mentioned. Different code numbers are also given'. To determine any nature of transaction from these pages is absolutely not possible. However, in complete contradiction to himself and in sheer neglect of the fact that the computer printouts were totally unreliable, the AO has held, in the very next line of his order that 'however, from the set of accounts it is clear that these are business transactions, sales purchases are noted.' The AO has not provided any explanations or produced any evidences to show how the said computer printouts were held by him to reflect any sort of business activity, whose nature is also not determinable. He has further gone on to calculate the undisclosed income of the assessee based on these computer printouts. With a total predetermined mind, oblivious to all the glaring facts of the assessee's case, the AO has held the various rough notings appearing in all the separate computer printouts to be the stray figures of the unrecorded sales of the assessee. He has then summed up the various figures appearing in separate loose sheets and arrived at some vague imaginary fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account required for 'running this undisclosed business activity' and treated ₹ 1,50,000 to be the capital coming from undisclosed source for the asst. yr. 1996-97, holding the financial year 1995-96 to be the year this undisclosed activity may have started. No mention was made by the AO as to the source or nature of the undisclosed source of income. No evidence, no information gathered during the course of search was produced by the AO. 4.11 Referring to the above written submissions it was submitted by him that the AO has calculated the undisclosed income on the basis of loose computer printouts in the following manner : Asst. yr. 1998-99 ₹ 51,950 Asst. yr. 1997-98 ₹ 52,650 Asst. yr. 1996-97 ₹ 1,69,460 ₹ 1,50,000 Asst. yr. 1995-96 ₹ 2,656 ₹ 4,26,716 4.12 On the basis of these arguments advanced supported by way of written submissions it was his contention that the very basis of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO. The cash found during the course of search, it was submitted, was duly explained and accepted as per p. 7 of the block assessment order itself and no assets whatsoever of the assessee were found to indicate any earning of any undisclosed income. Emphasis was laid on the arguments that simply because the quantum proceedings before the CIT(A) were withdrawn in order to buy peace and to avoid prolonged litigation the same has been the sole reason for levying penalty. It was canvassed that since the documents are not relatable to the assessee however acting in good faith due to the flux of time the assessee accepted the additions. In these circumstances it was argued it cannot be said that the assessee is liable for penal action. It was argued that something much more than that is required in the penalty order before the assessee can be saddled with the penalty. It was emphasized that the fact that the assessee had chosen in 2000 to contest the quantum proceedings is a fact available on record. However, exhausted by 2006 the assessee chose to withdraw the same in November, 2006 after a prolonged gap of 6 years. The bona fide belief of the assessee that the discretion to levy th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the AO under s. 158BC(c) of the Act. Further the AO must exercise his discretion therein to see whether the addition invites penal action or not; if the AO does not exercise his discretion then there shall be no question of imposition of penalty under section of the Act. In the facts of the present case, it was argued the penalty has been imposed in a mechanical manner. It was his argument that the same submission was before the CIT(A) who has also proceeded in an identical manner and confirmed the action of the AO holding that in this case a search and seizure operation has been conducted wherein additions have been made which have been accepted the penalty was confirmed. It was emphasized that the undisclosed income as computed by the AO was never accepted by the assessee at any stage. Since the assessee had filed the appeal against the same simply because the additions were not contested in order to buy peace penalty has been mechanically imposed as though it is mandatory ignoring the settled principles of law that levy of penalty is discretionary and the discretion has not been exercised judicially. The documents being dumb documents, it was his submission that in fact did no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely passed the same on the basis of the assessee's letter. 4.22 Reliance was also placed upon the order of the Co-ordinate Benches in the cases of Dy. CIT vs. Suresh Kumar (2005) 95 TTJ (Kol) 926: (2006) 284 ITR 104(Kol)(AT), Smt. Mala Dayanithi vs. Dy. CIT (2005) 92 TTJ (Bang) 270: 270 ITR 56(Bang)(AT) and Sudarshan Silks Sarees vs. CIT (2008) 216 CTR (SC) 12: (2008) 5 DTR (SC) 261: (2008) 300 ITR 205 (SC). 4.23 Reliance was also placed upon the following judgments of the various High Courts and of the Co-ordinate Benches of the Tribunal some of which have been specifically considered in the orders of the Tribunal relied upon by the assessee : (i) CIT vs. Gurbax Lal Co. (2002) 176 CTR (P H) 82 : (2002) 256 ITR 133 (P H); (ii) CIT vs. Saran Khandsari Sugar Works (2000) 246 ITR 216 (All); (iii) CIT vs. Dharamchand L. Shah (1993) 113 CTR (Bom) 214 : (1993) 204 ITR 462 (Bom); (iv) CIT vs. Abril Pharmaceuticals (P) Ltd. (2001) 70 TTJ (Ind) 60 : (1999) 70 ITD 206 (Ind); (v) Asstt. CIT vs. Sharp Springs Staples Co. (P) Ltd. (1999) 65 TTJ (Rajkot) 74: (1999) 105 Taxman 241 (Rajkot)(Mag). 4.24 Accordingly on the basis of these facts, arguments and position ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eedings under s. 158BD are being taken for the above two concerns. 5.6 Similarly referring to the same page in the context of documents of NCJ-1 he again invited attention to the action of the AO to hold that the loose sheets found from the residence of Shri Nemichand Jain wherein few papers relating to M/s N.C. Cargo Corporation were found as such the AO confined himself only to certain transactions found incorporated in pp. 48 to 52 and also pp. 56 to 58 which the assessee submitted belonged to father-in-law of Shri Rabindra Kr. Jain'Shri Jethmall Golcha. For ready reference the said portion is reproduced from the assessment order : NCJ-1 : The loose sheets as found from the residence of Sri Nemchand Jain. A few papers are related to N.C. Cargo Corporation. Certain transactions are found incorporated in the pp. 48 to 52 and also pp. 56 to 58 which the assessee denied to be of their own. It was stated that those entries are related to Shri Jethmall Golcha, the father-in-law of Sri Rabindra Kr. Jain. They failed to offer any evidences for the case. The papers were found from the possession of Shri Nemchand Jain and hence this is treated as the undisclosed transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty proceedings as the authorities can analyse the same evidence and material produced and base their finding therein. As such it was not necessary that there should be fresh material in penalty proceedings. For this proposition reliance was placed upon the following three judgments : (a) R. Srinivasan Co. vs. CIT (1974) 97 ITR 431 (Mad); (b) Kedar Nath Sanwal Dass vs. CIT (1978) 111 ITR 440 (P H); (c) CIT vs. Hoshiarpur Express Transport Co. Ltd. (1986) 52 CTR (P H) 103 : (1986) 162 ITR 393(P H). 5.15 It was also the submission on behalf of the Department that once the assessee has admitted the concealment of certain income the law does not require the Department to prove again that the assessee has concealed in the penalty proceedings and reliance was placed upon the following judgments : (a) CIT vs. P.B. Shah Co. (P) Ltd. (1978) 113 ITR 587 (Cal); (b) India Sea Foods vs. CIT (1978) 114 ITR 124 (Ker); (c) CIT vs. Krishna Co. (1979) 13 CTR (Mad) 24 : (1979) 120 ITR 144 (Mad); (d) CIT vs. Rajaram Pannalal Bros. (1980) 19 CTR (Cal) 35 : (1981) 127 ITR 679 (Cal); (e) Addl. CIT vs. Bhartiya Bhandar (1979) 13 CTR (MP) 159 : (1980) 122 ITR 622 (MP); ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of Sudarshan Silks Sarees (supra) it was his submission that it was not relevant since the apex Court had merely held that the finding of the fact arrived at by the Tribunal was not perverse on facts and the High Court could not go into the facts since the Tribunal is the final fact-finding body. 5.20 In the aforementioned facts and circumstances it was the submission of the learned Departmental Representative that the penalty order deserves to be confirmed. 5.21 Before closing the learned Departmental Representative questioned whether the additional grounds which have been raised by the assessee should be addressed by him or not since the learned Authorised Representative has not argued the admission of the same. Accordingly whether they were to be treated as admitted or dismissed. 6. In response to the same it was clarified by the learned Authorised Representative that ground Nos. 1 and 2 raised originally in the appeal were not pressed and the assessee would only argue ground Nos. 3 and 4, in regard to which he had already advanced arguments. The additional ground it was submitted by him is not being argued as such no arguments were advanced for admission of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fer to certain relevant facts. A perusal of the block assessment order shows that in regard to certain papers the AO has taken care to note whether it is relatable to the assessee or not and as such has not based any additions thereon. To the extent the arguments advanced by the learned Departmental Representative can be accepted. It is also seen that certain documents have been considered to be duplicate by the AO. However, since those documents which are not the subject-matter of additions in the block assessment proceedings the care and caution taken by the AO for the purposes of the present proceedings are of no relevance. What is relevant and crucial to be examined for the purpose of the present proceedings is the care and caution taken by the AO in making the additions in the block assessment proceedings since it is those additions which on facts have to be considered to decide the issue of levy of penalty. 9.1 Accordingly we consider it necessary to discuss the reasoning and the findings arrived at in the block assessment order for making the additions. A perusal of the block assessment order shows that the AO has made addition of ₹ 48,000 each in asst. yrs. 1995-96 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00 kgs is taken as extra purchase not recorded in the books of accounts on record it is seen that ₹ 23 per kg. is normally the profit earned by the firm. And hence here the profit comes at ₹ 29,900 which is added for the financial year 1996-97. It is quite natural that initial capital required for running these transactions. Considering the nature of transaction (i.e. ₹ 9,60,000 sale, 1300 kgs. cardamom purchase). I was of the view that minimum ₹ 1,20,000 as initial capital required for running this show and the same is also treated as capital coming from undisclosed source for the financial year 1996-97. 9.3 Similarly, qua the next addition no reason has been given to reject the explanation of assessee and the arguments on behalf of the assessee that the explanation has been rejected purely on suspicion is borne out from the reasoning given. Simply because the mistake is corrected after a lapse of time that itself should not lead to the conclusion that the certificate of an independent third party is self-serving as it is not a document created by the assessee in his own signature. At least some effort to cross-examine or cross-check the authenticity o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n are recorded in DRCR (1). Similar type of entries are found in other accounts. The assessee denied the ownership of the printouts. These printouts were taken from CPU of the assessee. All other printouts are related to their business. No evidence was produced to substantiate their contention. These entries are also not found in the regular books of accounts. I am of the view that these are the undisclosed business transactions of the assessee firm. The nature of business is not clear. And hence, I take net profit @ 10 per cent of total turnover which comes at ₹ 51,950 (odd) and the same is treated as the firm's undisclosed income for the financial year 1997-98 i.e. asst. yr. 1998-99. 9.5 Thus from a perusal of the above it is seen that after holding that the nature of the transactions having different numbers and code names could not be ascertained and moreover they were not complete the AO in the next few sentences however contradicts himself in concluding that it is clear that they are business transactions again holding that the nature of transaction is not clear; he estimates profit at 10 per cent. The other additions have also been made more or less in an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned in the assessment order. And to support his contest, the assessee has cited several case laws in the matter. Taking cognizance of the assessee's submission, I hereby proceed with this order after discussing the merits of case based totally on facts as enumerated hereafter : The order under s. 158BC/143(3) was passed after determination of an additional undisclosed income of ₹ 10,22,940 based on the books of account and other documents found during the search. The reasons for all the additions made had been discussed head-wise in details in the assessment order and it was clearly stated that these additions were on account of undisclosed sources of the assessee. Hence, where each and every addition was made on account of undisclosed sources, the assessee's contention that no reasons for initiating penalty under s. 158BFA(2) were not recorded stands refuted. Further, by having withdrawn its appeal against the order under s. 158BC/143(3), the assessee has in fact accepted the order under s. 158BC/143(3) and all the additions made therein. And as all the additions made were on account of undisclosed sources of the assessee, it also constitutes the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2) were not recorded stands refuted. The AO also mentioned that withdrawing the appeal filed before the CIT(A), the assessee has accepted the undisclosed income determined by the AO. The AO also mentioned that all the additions were made on account of undisclosed sources and withdrawing the appeal, the assessee has accepted the undisclosed income of the assessee which was intentionally and wilfully evaded. Therefore, the AO has imposed penalty @ 200 per cent of the amount of tax of ₹ 6,13,763 sought to have been evaded. 9.10 It is pertinent to refer to the assessee's arguments recorded therein which are reproduced as hereunder : The Authorised Representative has made a very brief submission during the appeal hearing stating that the penalty imposed @ 200 per cent was unreasonable when assessee did not deliberately suppressed any material fact or filed any inaccurate particulars. Only to buy mental peace, the assessee has paid the entire demand to avoid further litigation. Apart from this submission, in the statement of fact, the assessee also mentioned that detailed reasons for initiating the penalty proceeding have not been mentioned by the AO. 9.11 C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has paid the tax cannot absolve the imposition of the penalty. In this case, a search and seizure operation has been conducted when many incriminating documents have been seized. The assessee was served with a notice for filing the return for the block assessment period. In that return, separate provision has been made for additional undisclosed income to be disclosed before making the assessment under s. 158BC of the Act. Even then, the said concealed income detected by the learned AO has not been disclosed by the assessee in that return. The assessee paid the tax when the assessment was made including the additional undisclosed income of ₹ 10,22,940. This fact clearly suggests that assessee has deliberately evaded tax furnishing inaccurate particulars of his income in the block assessment return. The assessee also failed to advance any explanation in course of penalty proceedings or the appellate proceedings in respect of non-disclosure of the undisclosed income in the block assessment return. Considering the facts and circumstances of the case, I hold that the learned AO has rightly imposed the penalty. Same is confirmed. 9.12 In the aforementioned fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are accepted it cannot be inferred that the assessee has infringed the requirements of law. If that was so there will be no purpose in having a separate penalty proceeding. The very fact that penalty proceedings are separately taken and an opportunity granted to the assessee to show cause and produce evidence etc., shows that before levying penalty it is to be examined whether there is a deliberate violation of the provisions of law. A perusal of the reasons set out in the penalty order and the reasons for upholding the same in the impugned order clearly demonstrates that this is a case of non-application of the mind by the AO. As such we are unable to uphold either the legality of the action taken or the legitimacy of the same. 9.15 The reasons alone are the link between the material on which certain conclusions are based and actual conclusions are drawn. They disclose how the mind is applied to the subject-matter for decision and reveal a rational nexus between the facts considered and the conclusion reached. Only in this way can opinion and decisions recorded be shown to be manifestly just, fair and reasonable which is why we are of the view the requirement of setting out re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the assessee did file an appeal against the quantum order. The record would show that the additions were not accepted and were challenged as it is an undisputed fact that in 2000 the assessee filed an appeal before CIT(A). It is also an undisputed fact that the said appeal was withdrawn in November, 2006. The arguments in regard to this fact that out of sheer desperation in order to avoid prolonged litigation the same was withdrawn has not been disputed; the factum of withdrawal of the appeal after six years by an assessee cannot be treated lightly. By no stretch of imagination can it be said to be an act of passive acceptance of the additions made. The withdrawal after a prolonged time safely supports the arguments that the withdrawal was done for the sake of peace of mind and a conscious act of avoiding the litigation. The bona fide trust and faith in the fairness and judicious approach on the authorities that as and when called for the discretion would be exercised fairly and judiciously cannot be faulted with. The trust and faith reposed in the authority of law that the order will not be mechanically passed and would be passed after a fair and independent appraisal of the mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seen that it has been canvassed on behalf of the assessee that he has filed neither inaccurate particulars nor deliberately suppressed any material fact and only to buy mental peace the assessee has paid the entire demand as per the block assessment order in order to avoid further litigation. The penalty order has also been assailed on the ground that the detailed reasons for initiating penalty proceedings have not been mentioned by the AO. 9.19 It is seen that the argument of the assessee in regard to the satisfaction recorded by the AO has been upheld by the CIT(A) which is not the subject-matter of the present proceedings as no arguments thereon are advanced; however the action of the AO to levy penalty solely on account of withdrawal of the appeal in the quantum proceedings has also been upheld by the CIT(A) which is under challenge. In the facts as they stand we are of the considered view that the CIT(A) was not justified on facts in rejecting the arguments of the assessee outright. The background in which the additions stood accepted stands unaddressed by the Department. The law requires penalty proceedings to be decided separately and independently. The fact that the AO h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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