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TMI Blog2011 (12) TMI 624X X X X Extracts X X X X X X X X Extracts X X X X ..... 110.50 lakhs. 3. The brief facts leading to the levy of penalty by the AO are as under : A search under s. 132 of the IT Act was initiated on 2nd Dec., 2004 in the case of the assessee along with M/s Marathon Realty Ltd. and other group cases. During the course of the said search various documents, books of accounts etc. were found and seized. During the course of search action at the residence of Shri Virendra Shetty, senior executive of the assessee group companies residing at C-401, Saidham Complex, PK Road Extension, Mulund (W), Mumbai-80, a file marked as 'Annex. A1' containing pp. 1 to 10 as per Panchnama dt. 2nd Dec., 2004 was found and seized. Page Nos. 6 (both sides) and 7 of this file pertain to the assessee. In the statement recorded at the time of search proceedings from Shri Virendra Shetty and Shri Mayyur Shah, directors of the assessee company they admitted the fact that the contents of the pp. 6 and 7 pertain to the assessee group companies. The page No. 6 revealed that the cash reflected in the seized paper was received by Shri Virendra Shetty on various dates between 4th Sept., 2004 to 1st Dec., 2004 on behalf of the assessee and was ultimately handed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cs and its allowability in computation of total income of the assessee company as deduction from the gross amount of cash of ₹ 4.49 crores as appearing in the seized paper. The AO noted that the assessee could not submit any details being nature of such expenses, persons to whom payments made, bills, vouchers or any of the relevant documents. Regarding middlemen payments the assessee could not give any details as to names of persons who acted as middlemen. According to him even otherwise also those payments are to be considered as illegal payments, since the assessee could not substantiate the claim of such expenditure or payments to middlemen. The AO asked the assessee to show-cause as to why the total of transaction recorded in the seized papers being ₹ 4,49,48,800 should not be treated as "undisclosed income" of the assessee on account of on-money receipts. 4.2 The assessee in its reply filed its submissions which read as under : "There was search and seizure action under s. 132 of IT Act 1961 at the premises of Marathon Group as on 2nd Dec., 2004 and 3rd Dec., 2004. At that time we had declared an undisclosed Income of ₹ 1,23,85,000 (in asst. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se were relatively new projects there is no question of charging on-money previously. Whatever amounts collected by us were to meet expenses of middlemen for freeing the property from encroachments and other expenses to meet for the same purpose. This is not the normal business practice of us. All the above amounts stated though the same are genuine expenses for us, we are not in the position to justify the same with IT Department. We want to buy peace of mind and to avoid protracted litigation we have no objection if the IT Department makes addition to its undisclosed income at the tune of ₹ 2,78,68,800 as discussed above. We request that the IT Department should not levy penalty proceedings under s. 271(1)(c) of IT Act, 1961 taking into consideration the fact that we have always co-operated with the IT Department on all issues." 5. However, the AO was not convinced with the explanation given by the assessee. He observed that the seized papers found from the residence of Shri Virendra Shetty as well as unaccounted cash found from the residence of directors clearly show that the assessee group has charged on-money on the sale of flats and commercial premises in its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 78,68,800 is concerned, it was submitted that during the course of assessment proceedings it was explained before the AO that ₹ 110.50 lacs was not received at all, as there was no initials of any family member receiving such amount in the loose papers seized, on the basis of which the addition is made. So far as the balance amount of ₹ 1,68,18,800 is concerned it was categorically stated during the course of search proceedings itself that this was incurred as expenses for removing encroachments etc. It was submitted that merely because the explanation given could not be substantiated, that by itself would not lead to concealment of income or furnishing of inaccurate particulars of income and hence, the penalty proceedings initiated may be dropped. 5.4 Various decisions were also cited before the AO. It was submitted that during the course of assessment proceedings the assessee had offered the entire amount of ₹ 2,78,68,800 by filing a letter wherein the amount offered was a conditional offer for not to initiate or levy penalty proceedings under s. 271(1)(c) of the Act. Referring to the decision of Hon'ble Bombay High Court in the case of Ramnath Jagannath vs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessee's offer of the amount and there is no other independent material/evidence on record to establish that the amount of addition represented the assessee's income so as to conclude that the assessee has concealed the particulars of its income. It was submitted that in this case since the AO had made the addition on the basis of offer/surrender by the assessee, and has thus accepted the offer, therefore, the offer has to be accepted along with the condition and not without that. The Department cannot blow hot and cold at the same time. It cannot accept the offer to make the addition and reject the attaching condition to impose the penalty. It was submitted that the Department in the instant case has not made any independent enquiry. Therefore, if the assessee's conditional offer is removed, there remains nothing on record to establish or even to suggest that the amount of ₹ 110.50 lacs, which does not bear initials of the recipient in the last column on p. 6 of Annex. A1 was indeed received. Similarly, there is no evidence with the Department that the amount of ₹ 1,68,18,800 had not been incurred as expenditure. It was submitted that in the Expln. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid entries in the seized documents. The above explanation has not been proved to be false or untrue. Therefore, the penalty under s. 271(1)(c) of the IT Act. cannot be levied on the amount of ₹ 110.50 lakhs. 6.2 So far as the other two amounts i.e., 1.38 crore and 25 lakhs are concerned, he noted that the same has been claimed to be expenditure on account of payments made to middlemen to settle property encroachments and business expenditure respectively. However, no evidence was filed to substantiate the said statement, no documents indicating any such expenses having been incurred were found and seized during the course of search action. Therefore, the expenditure cannot be accepted as genuine merely on the basis of statement without filing any document or evidence to corroborate the said statement. The submission of the assessee that disclosure was made only to buy peace of mind and avoid protracted litigation has not much truth, since it is a matter of record, that material was found during the course of search indicating the receipt of on-money and no such evidence was found during the course of search regarding any expenditure. In the instant case, there was material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the amounts of ₹ 100.50 lakhs and ₹ 10 lacs were never received. Referring to the statement of Shri Mayur Shah, director of the assessee company recorded by the search party on 22nd Jan., 2005 under s.132(4) of the Act, the learned counsel for the assessee drew the attention of the Bench to Q. No. 7 put by the Dy. Director of IT and the reply given by him according to which an amount of ₹ 3.38 crores only is received which is duly acknowledged. He submitted that in response to Q. No. 8, the director had stated that out of ₹ 3.38 crores received, ₹ 1.75 crore was found and the balance amount was spent. Further, the director had also given the break-up of expenditure according to which an amount of ₹ 25 lacs was incurred for business needs and an amount of ₹ 1.38 crore was paid to middlemen to settle property encroachment. Referring to the answer given by the director in reply to the Q. No. 10 put by the Dy. CIT(A), the learned counsel for the assessee submitted that the director at that time had stated that due to business exigencies, he is unable to disclose their names. Referring to the letter addressed to the AO on 26th Dec., 2006, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee in the instant case has offered an explanation to the AO who has not brought out anything on record to show that such explanation is false. The assessee has also substantiated the disparity made by it giving the gross and net amount. He submitted that the bona fide of the assessee shows that the statement given at the time of search was not an afterthought. 8.2 Referring to the decision of Pune Bench of the Tribunal in the case of Kanbay Software India (P) Ltd. vs. Dy. CIT (2009) 22 DTR (Pn)(Trib) 481he drew the attention of the Bench to paras 60 to 68 of the order and submitted that when an explanation is offered by the assessee in discharge of the onus cast upon him by Expln. 1 to s. 271(1)(c) of the IT Act, it is not for the AO to ponder over what should have happened in ideal circumstances, and reject the explanation because what has actually happened is less than such an imaginary ideal situation; he has to consider the Explanation objectively and unless he finds the same against the human probabilities or unless there are any real inconsistencies or factual errors in such an explanation, the AO ought to accept the same. It cannot always be feasible to prove the claim of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of Hon'ble Supreme Court in the case of V.C. Shukla (supra) relied on by the learned counsel for the assessee, he submitted that the ratio of the said decision is not applicable to the facts of the present case. He submitted that when the assessee during the course of search proceedings and assessment proceedings has admitted the receipt of on-money, no further enquiry was required by the Department. 9.1 The learned Departmental Representative also relied on the decision in the case of Dy. CIT vs. Chirag Metal Rolling Mills Ltd. (2007) 207 CTR (MP) 395: (2008) 305 ITR 29(MP) and the decisions in H.V. Venugopal Chettiar vs. CIT (1985) 153 ITR 376(Mad), CIT vs. D.K.B. & Co. (2000) 161 CTR (Ker) 187: (2000) 243 ITR 618(Ker) and Rathnam & Co. vs. IAC (1980) 14 CTR (Mad) 310: (1980) 124 ITR 376(Mad). So far as the amount of ₹ 110.50 (sic-lakhs) crores is concerned, the learned Departmental Representative submitted that although the signature is not there but all other conditions are fulfilled such as specific date, name of the project, area, amount etc. Since the assesseee has offered the amount during the course of assessment proceedings, it is not correct to say that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he amount of ₹ 1,10,50,000 and ₹ 1,63,00,000 respectively which is the dispute in the impugned cross-appeals. 11.1 We find the learned CIT(A) deleted the penalty levied by the AO on the amount of ₹ 110.50 lacs on the ground that there is no signature on the seized document as a token of receipt of on-money against the entries of ₹ 100.5 lakhs and ₹ 10 lakhs respectively. Further Shri Virendra Shetty in his statement recorded under s. 132(4) had stated non-receipt of the said amount and the director Shri Mayyur Shah had also stated during the assessment proceedings about non-receipt of the said amount. However, he sustained the penalty of ₹ 1.63 crore on the ground that no documentary evidence was filed to substantiate that such expenditure has been incurred. It is the submission of the learned counsel for the assessee that the amount of ₹ 1,10,50,000 was not received by the asessee as on-money since it does not contain initials of any of the family members which is supported by the statement of Shri Virendra Shetty during the course of search and of Shri Mayyur shah during the course of assessment proceedings. Further the amount of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itials of any family member or director of the assessee company acknowledging the receipt of the same, therefore, merely because the assessee has offered the same as additional income during the course of assessment proceedings, the same in our opinion does not call for levy of penalty under s. 271(1)(c) of the Act. In this view of the matter and in view of the detailed discussion by the learned CIT(A) on this issue and in absence of any contrary material brought to our notice against the findings of the learned CIT(A) on this issue we do not find any infirmity in his order deleting the penalty levied on ₹ 1,10,50,000. We accordingly uphold the same and the ground raised by the Revenue is dismissed. 12. Now coming to the ground raised by the assessee, we find the director of the assessee company Shri Mayyur Shah in his statement recorded under s. 132(4) of the Act on 22nd Jan., 2005 vide question No. 8 has categorically stated that the amount of ₹ 25 lacs was spent as business expenditure and not debited in the regular books of account. Similarly ₹ 1.38 crore was given to various middlemen to settle the property encroachment. We find Shri Mayyur Shah in his reply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see. Secondly, the assessee must have furnished inaccurate particulars of his income. The meaning of the word 'particulars' used in s. 271(1)(c) would embrace the details of the claim made. Where no information given in the return is found to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing inaccurate particulars. In order to expose the assessee to penalty, unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By no stretch of imagination can making an incorrect claim tantamount to furnishing inaccurate particulars. There can be no dispute that everything would depend upon the return filed by the assessee, because that is the only document where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise. To attract penalty, the details supplied in the return must not be accurate, not exact or correct, not according to the truth or erroneous. Where there is no finding that any details supplied by the assessee in its return are found to be incorrect or erroneous or false there is no question of inviting the penalty under s. 271(1)(c). A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;s counsel to the Dy. and in the light of the facts, it was clear that the offer made in the letter to give up the claim of deduction under first proviso to s. 9 of the Act was clearly a conditional offer on the post-assessment penalty levied and leviable being given up. If it was rejected by the Dy. CIT he was bound to deal with the claim of the assessees for deduction under the first proviso to s. 9 of the Act on merits. That an offer if coupled with conditions which are not reasonable or one which cannot be accepted in laid completely would not render unconditional the offer which is in terms made on a condition. If it is not possible to accept that condition, the only result would be that offer must be rejected. But where an offer is coupled with conditions which cannot be accepted fully, the offer cannot be treated as an unconditional offer merely on that count." 12.3 Considering the totality of the facts of the case and considering the fact that the assessee during the course of search in the statement recorded under s. 132(4) had stated that the amount of ₹ 25 lacs was unaccounted expenses though they were genuine expenses and an amount of ₹ 1.38 crore h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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