9911796707
TMI Blog2016 (7) TMI 662X X X X Extracts X X X X X X X X Extracts X X X X ..... ugned penalty cancelled. - Decided in favour of assessee. - ITA No. 699/Chd/2011 - - - Dated:- 9-3-2016 - SHRI H.L.KARWA, HON'BLE VICE PRESIDENT For The Appel lant By : Sh. Rakesh Jain For The Respondent By : Sh. S.K. Mittal This appeal filed by the assessee is directed against the order of Ld. CIT(A), Karnal dated 24.3.2011 in confirming the penalty of ₹ 4,27,770/- imposed u/s 271(1)(c) of the Act relating to assessment year 2005-06. 2. Briefly stated, the facts of the case are that the assessee firm submitted its return of income for 2005-06 on 31.10.2005 declaring total income at ₹ 1,790/-. The Assessing officer noted that as per capital account of partners as appearing in the books of firm there was an addition in capital of the partners during the year amounting to ₹ 17,35,000/-. The case of the assessee was selected for scrutiny and during the course of which, addition in capital account of partners were noticed as under:- (i) Sh. Sunil Choupal (addition in capital ₹ 11,70,000/-) (ii) Sh. Sudhir Choupal (addition in capital ₹ 5,65,000/-) During the course of assessment proceedings, the Assessing Officer required t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Out of ₹ 5,65,000/-, the Assessing Officer accepted the explanation of the assessee regarding the source of addition in capital account to the extent of ₹ 2,51,000/-. However, the Assessing Officer did not accept the explanation of the assessee regarding cash loans received from friends and relatives to the extent of ₹ 3,14,000/- 3. The Assessing officer noted that the total amount on account of addition in capital account of partners remained unexplained to the extent of ₹ 11,69,000/- (Rs. 8,55,000 in capital account of Shri Sunil Choupal + ₹ 3,14,000/- in capital account of Shri Sudhir Choupal). The Assessing officer again asked the assessee to explain with evidence the source of addition in capital amounting to ₹ 11,69,000/- which remained unexplained. However, the assessee vide its letter dated 18.12.2007, surrendered ₹ 11,69,000/- as income of the firm from undisclosed sources, subject to no penalty u/s 271(1)(c) of the Act. Thus, the Assessing officer made the addition of ₹ 11,69,000/- as income of the firm from undisclosed sources u/s 68 of the Act. The addition was made in the assessment order passed u/s 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... started its production during January, 2005. He further pointed out that the firm has received capital from partners during the period 1.4.2004 to 13.7.2004 which period is prior to January, 2005 when the firm started its business. According to him, the onus was upon the partners to explain the source of the capital introduced and in case having failed to discharge the onus then such deposits could be added in the hands of the partners only, while assessee firm started its production from January, 2005. He further submitted that the Assessing officer has levied impugned penalty overlooking that assessee firm has no other sources of income after the execution of partnership deed on 7.11.2003 to December 2005 and the assessee has not undertaken any business of whatsoever nature upto January 2005. Hence, there cannot be any undisclosed income which can be introduced by the assessee firm through partners capital and additionally there is no material of whatsoever nature available with the Assessing officer to drew an adverse inference against the assessee. Thus, there was no justification in treating the partners contribution towards capital as undisclosed income of the assessee firm. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apital account of Shri Sunil Chopal partner M/s Chopal Plywood in the FY 2004-05 is ₹ 1,17,000.00 - out of this I hereby surrender ₹ 8,55,000/- as Loan introduced in the capital a/c of Shri Sunil Chopal. (b) Addition in the capital account of Shri Sudhir Chopal Partner M/s Chopal Plywood in the FY 2004-05 is ₹ 5,65,000/- . Out of this I hereby surrender ₹ 3,14,000 as cash loan introduced in the capital a/c of Shri Sudhir Chopal. Thus, I surrender ₹ 11,69,000/- as undisclosed income of the firm for the assessment year 2005-06 subject to no penalty. The amount surrendered in the case of firm is to cooperate the Deptt purchase peace of mind. Please do the needful and oblige. Thanking you, Sd/- (S.K. Goel) 9. In view of the above letter, the Revenue authorities concluded that the firm itself has surrendered the income as income of the firm. Furthermore, the Assessing officer stated that the offer of surrender is not applicable because the same was made after detecting / pointing out the unexplained credit in the capital account of the partners by the Revenue. It is also observed that the Revenue authorities relied on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0.4.2004 cash 1,00,000 26.4.2004 Wheat Sale in cash 15,000 Accepted by Assessing officer 26.4.2004 cash 15,000 1.5.2004 Gift from Sh. Sunder Lal Chaupal in cash 1,20,000 Disputed by Assessing officer 1.5.2004 cash 1,20,000 31.5.2004 Sale of jewellery received through cheque 1,50,000 Accepted by Assessing officer 31.5.2004 Chq No.404182 1,50,000 11.7.2004 Cash loan received from Ram Kumar. Cash loan received from Phool Singh 1,25,000 1,25,000 Disputed by Assessing officer. Disputed by Assessing officer 12.7.2004 Chq No.410301 2,50,000 13.7.2004 Cash Loan received from Niranjan Singh. Agriculture income in cash 1,00,000 50,000 Dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pears that assessee took a plea before the CIT(A) that acceptance of part of the credits clearly established that firm has discharged its onus. The said plea has been rejected by the CIT(A) stating that there is no such provision in the Income tax Act that in case of acceptance of part of the credit as genuine, the entire credit is to be taken as genuine. In my opinion, these findings have no relevancy in the penalty proceedings. However, in quantum proceedings, while making the addition on account of unexplained cash credits, such findings may be relevant. In the instant case, the Revenue authorities have accepted that out of ₹ 17,55,000/-, ₹ 5,66,000/- has been deposited by the partners in their respective capital account. In other words, the Revenue authorities below have accepted partly that the partners have deposited the money in their respective capital account. Now, this aspect of the matter is required to be seen together with other circumstances of the case. It appears that the Assessing officer asked the assessee firm to establish the genuineness of other credits amounting to ₹ 8.55 lacs and ₹ 3.15 lakhs. In this regard, the assessee firm submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of Shri Rakesh Jain, Ld. Counsel for the assessee is that the firm has started its business from January 2005. In the assessment order at page-1, the Assessing officer has admitted this fact that the assessee started its production during January, 2005. The relevant observations made by the Assessing officer at page 1 of the assessment order reads as under;- The assessee firm has debited ₹ 18505/- on account of bank charges, Details have been filed. The assessee firm has started its production during Jan. 2005. As such bank charges up to December, 2004 amounting to ₹ 17,670/- being pre-operative expenses is disallowed. 11. There is no material on record to controvert the above contention of Shri Rakesh Jain, Ld. Counsel for the assessee. It is also worthwhile to mention that the assessee firm has received capital from partners during the period 1.4.2004 to 13.7.2004, as per the details reproduced herein above, i.e. before the assessee firm started its business in January, 2005. Thus, it was for the partners to explain the source of the capital introduced and in case of having been failed to discharge the onus, then such deposits could be added in the hands o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llahabad High Court in the case of Abhyudaya Pharmaceuticals Vs. CIT (2013) 350 ITR 358 (All.) (Head note,) held as under;- Tribunal was not justified in holding that the unexplained cash credit recorded in the assessee's books be added in the hands of the assessee. There was no material before the Tribunal to hold that the capital introduced by the minor partner at the time of starting of the business, was income of the assessee-firm. The Tribunal erroneously came to the conclusion that the deposits represented undisclosed income of the assessee-firm. All the three authorities below committed the same mistake and in this regard their orders cannot be allowed to stand. 12. At this stage, I may also refer to the decision of the Hon'ble High Court of Rajasthan in the case of CIT v. Kewal Krishan Partners [2009] 18 DTR 121 wherein the Hon'ble High Court held that capital contribution made by the partners on the first day of commencement of business could not be added in the hands of the firm u/s 68 of the Act. The Hon'ble High Court further held that addition if at all can be made u/s 69 in the hands of the partners, if they failed to discharge the onus. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. On appeal, the CIT(A) accepted the plea of the assessee holding that there was no intention on the part of the assessee to hide the income. The Revenue filed an appeal before the Tribunal. The appeal was dismissed by the Tribunal. The Revenue challenged the order of the Tribunal in appeal u/s 260A of the Act before the Hon'ble High Court of Andhra Pradesh. The Hon'ble Andhra Pradesh High Court rejected the appeal of the Revenue, observing as under;- The principle that runs cutting across any systems of law is that before person is visited with punishment or penalty, the wrongful act on his part must be established. If not a deliberate intention, at least, intention, as such, must be proved to be existing. The intention of this nature may not be equated to the concept of mens rea. At the same time, the minimum contrast with an instance of mere omission, or failure must be made. Otherwise, every inadvertent omission, or a bona fide understanding of a particular provision, which is not accepted by the Income Tax Officer may expose the assessee to penalty. If that time is pursued, Act may turn out to be the one of the collection of penalties than the income tax. Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee to conceal income and the assessee had agreed to offer sundry credits which were carried forward from the previous year as income as a measure of purchasing peace, imposition of penalty u/s 271(1)(c) of the Act was not justified. In the instant case also, the assessee had clearly disclosed the reasons on account of which, it agreed to treat the contribution made by the partners towards capital as its income. In my opinion, there was almost a measure to purchase peace. It is not a case where the assessee had furnished inaccurate particulars of its income. 14. Viewed from any angle, in the facts and circumstances of the present case, no penalty u/s 271(1)(c) of the Act for furnishing inaccurate particulars of income can be validly levied in this case. In that view of the matter, I cancel the impugned penalty. 15. Before parting with this case, I may observe here that the assessee filed appeal before the CIT(A) against the assessment order passed by the Assessing officer. However, there was a delay of 5 months and 19 days in filing the appeal before the CIT(A) and the Ld. CIT(A) did not condone the delay in filing the appeal before him. Hence, he has not given any find ..... X X X X Extracts X X X X X X X X Extracts X X X X
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