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TMI BlogPractice Support:Deletion of penalty u.s. 271.1. c led to deletion of additions by the Supreme Court which was earlier confirmed in assessment and appeals against assessment order.X X X X Extracts X X X X X X X X Extracts X X X X ..... Practice Support:Deletion of penalty u.s. 271.1. c led to deletion of additions by the Supreme Court which was earlier confirmed in assessment and appeals against assessment order. X X X X Extracts X X X X X X X X Extracts X X X X ..... of any evidences during assessment and appeal proceeding. Addition was confirmed by the first appellate authority (CIT(A) Second appellate authority (ITAT), and also by the High Court. Judgments of ITAT and High Court could not be found on this and some other websites, therefore, observations and discussions made in the judgment of the Supreme Court are considered while writing this article. Although various contentions were raised including books of account, recorded stock which was sold and carried as stock and sold in subsequent year order u.s. 144 and its significance for other additions, rejection of books of account etc. However, addition stood confirmed up to the stage of the High Court due to lack of direct and documentary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evidence for purchases which also remained un-paid as on closign day of previous year. In proceedings related to quantum addition to income for alleged bogus purchases various contentions were raised at stages from assessment to appeal before the High Court. However, no relief was allowed to assesse . The assessee had to prefer appeal against judgment of High Court which upheld addition in assessment. Therefore, so far the impugned addition for purchases disallowed due to absence of evidence for purchases was concerned it remained disallowed at all stages. Penalty proceedings for concealment of income/ furnishing of inaccurate particulars of income u.s. 271.1.c was initiated by the AO and penalty was imposed. In the course of first app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal against penalty order assessee made further efforts and produced affidavits of petty suppliers. It is worth to note that all these took place after the judgment of High Court in appeal against assessment of income. Based on the additional and new evidence Ld. CIT(A) deleted penalty. After the order of CIT(A) i deleting penalty, amount earlier collected was also refunded.. Therefore, department has accepted the order of CIT(A) about penalty deleted. Appeal of assesse against judgment and order of High Court was pending before the Supreme Court in respect of addition made in assessment ( quantum addition). The assessee was lucky due to this pendency of appeal. This appeal came to be heard after disposal of first appeal against pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nalty order. Counsel of assesse filed and relied on the order of Ld. CIT(A) deleting penalty and facts found therein and related documents also before the Supreme Court following due process. Though these fact finding took after the order of ITAT ( final fact finding authority) in quantum appeal, but it was considered by the Supreme Court and based on the same addition made in assessment was deleted. In the judgment of honorable Supreme Court we find details of discussions and descriptions in assessment order, order of CIT(A) , order of Tribunal and High Court. According to which it was concluded that no evidence, was produced to substantiate the purchases, by way of any documents from the supplier's side. Even notices sent to suppliers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remained unanswered. As per author also in view of the documents and explanations, so far purchases were concerned, and liability remained unpaid addition under section 68 was liable to be confirmed and was confirmed. However, efforts made by assessee in course of first appeal against order for penalty levied u.s. 271.1.c in which assessee could satisfy the Ld. CIT(A) by filing affidavits of suppliers. Those affidavits were also examined and commented by the Ld. AO in his remand report submitted to L.d CIT(A) in respect of new and additional evidences provided. It is important to note that assessee followed proper procedure to submit new and additional evidence and Ld. CIT(A) also followed proper procedure, provided opportunity to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Ld. AO and sought his report on additional evidences. And after doing the same deleted penalty. The Supreme Court took into account the evidence presented during penalty proceedings, including affidavits and statements from unregistered dealers to substantiate the legitimacy of the purchases which remained un-vouched, unpaid, and were added as unexplained credits under section 68. On the aspect of this article that new evidence produced during penalty proceedings and favorable order in appeal against penalty could help in pending quantum appeal ( or other proceeding) it is not necessary to go into unfavorable orders relating quantum addition from stage of assessment to appeal before High Court. On aspect of importance and releva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of evidence produced during penalty proceedings for seeking relief in pending or further proceeding in matter of quantum addition the judgment of the Supreme Court is very important. Important and relevant portion from the judgment of the Supreme Court on this aspect are re-produced with highlights added by way of underlining , block print and separate observations of author. From paragraph 1 and 2: 1. This appeal takes exception to the final judgment and order dated 21.8.2008 passed by the High Court of Judicature for Rajasthan at Jodhpur (for short, "the High Court") in Income Tax Appeal No. 69 of 2006, whereby the appellant's appeal was dismissed and the order of Income Tax Appellate Tribunal, Jodhpur Bench (for short, 'the ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T') came to be upheld. 2. In short, the appellant/assessee was served with a notice under Section 143(2) of the Income Tax Act, 1961 (for short, '1961 Act') by the Assessing Officer (for short, 'Officer') for the assessment year 1998-1999, pursuant to which an assessment order was passed on 30.11.2000. This appeal involves limited challenge to certain addition made under the heads "Trading Account" and "Credits" in the assessment order. The Officer, inter alia, while relying on the Balance Sheet and the books of account, took note of the credits amounting to ₹ 2,26,000/( Rupees two lakhs twenty six thousand only). The Officer treated that amount as "Cash credits" under Section 68 of the 1961 Act and added the same in declared income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee (for short, 'second addition'). From paragraph 13 13. Reverting to the findings and conclusions recorded by the Officer and which commended to the appellate authority, as well as, the High Court, it must follow that the appellant/assessee despite being given sufficient opportunity, failed to prove the correctness and genuineness of his claim in respect of purchases of marbles from unregistered dealers to the extent of ₹ 2,26,000/( Rupees two lakhs twenty six thousand only). Resultantly, the said transactions were assumed as bogus entries (standing to the credit of named dealers who were nonexistent creditors of the assessee). Observations of author about quantum addition: Accordingly it appears that from proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eedings and documents till the High Court in matter of quantum appeal, the Supreme court also considered that the addition under section 68 was justified About documents in penalty proceeding relied before the Supreme court: From Paragraphs 14 to 17: 14. However, it has now come on record that the appellant/assessee in penalty proceedings offered explanation and caused to produce affidavits and record statements of the concerned unregistered dealers and establish their credentials. That explanation has been accepted by the CIT(A) vide order dated 13.1.2011. In paragraph 17 of the said decision reproduced hitherto, it has been noted that the Officer recorded statements of 12 unregistered dealers out of 13 and their identity was also du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly established. After analysing the evidence so produced by the appellant/assessee, the appellate authority [(CIT(A)] noted that the Officer had neither doubted the identity of those dealers nor any adverse comments were offered in reference to their version regarding sale of marble slabs by them to the appellant/assessee in the financial year relevant to assessment year 19981999 and receipt of payments after two to three years. Further, there was no denial of purchase of marbles worth ₹ 4,78,900/( Rupees four lakhs seventyeight thousand nine hundred only) by the assessee and sale thereof worth ₹ 3,57,463/( Rupees three lakhs fiftyseven thousand four hundred sixty three only) with closing stock of ₹ 2,92,490/( Rupees two l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... akhs ninety two thousand four hundred ninety only), as disclosed in the trading account for the year ended on 31.3.1998. The appellate authority thus found that without purchases of marbles, there could be no sale and disclosure of closing stock in the trading account. In other words, the materials on record would clearly suggest that the concerned unregistered dealers had sold marble slabs on credit to the appellant/assessee, as claimed. As a consequence of this finding, the appellate authority concluded that there was neither any concealment of income nor furnishing of inaccurate particulars of income by the assessee. We are conscious of the fact that these observations are made by the competent forum (appellate authority) in penalty proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eedings under Section 271 of the 1961 Act in favour of the assessee. However, what needs to be noted is that the stated penalty proceedings were the outcome of the assessment order in question concerning assessment year 1998-1999. Indeed, at the time of assessment, the appellant/assessee had failed to produce any explanation or evidence in support of the entries regarding purchases made from unregistered dealers. In the penalty proceedings, however, the appellant/assessee produced affidavits of 13 unregistered dealers out of whom 12 were examined by the Officer. The Officer recorded their statements and did not find any infirmity therein including about their credentials. The dealers stood by the assertion made by the appellant/assessee abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut the purchases on credit from them; and which explanation has been accepted by the appellate authority in paragraphs 17 and 19 of the order dated 13.1.2011. 15. To put it differently, the factual basis on which the Officer formed his opinion in the assessment order dated 30.11.2000 (for assessment year 1998-1999), in regard to addition of ₹ 2,26,000/( Rupees two lakhs twenty six thousand only), stands dispelled by the affidavits and statements of the concerned unregistered dealers in penalty proceedings. That evidence fully supports the claim of the appellant/assessee. The appellate authority vide order dated 13.1.2011, had not only accepted the explanation offered by the appellant/assessee but also recorded a clear finding of fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that there was no concealment of income or furnishing of any inaccurate particulars of income by the appellant/assessee for the assessment year 1998-1999. That now being the indisputable position, it must necessarily follow that the addition of amount of ₹ 2,26,000/( Rupees two lakhs twenty six thousand only) cannot be justified, much less, maintained. 16. Accordingly, this appeal ought to succeed on this count alone and it would be unnecessary for us to dilate on other questions/contentions urged by the parties as referred to in the earlier part of this judgment. 17. Accordingly, this appeal is allowed. The addition of ₹ 2,26,000/( Rupees two lakhs twenty six thousand only) by the Officer under Section 68 of the 1961 Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... towards cash credit amount shown against the names of concerned unregistered dealers for the assessment year 1998-1999, is hereby set aside. The rest of the assessment order dated 30.11.2000 as modified by the CIT(A) vide order dated 9.1.2003, shall remain undisturbed. There shall be no order as to costs. All pending interlocutory applications are also disposed of. Observations of the author: The appeal was against final judgment and order dated 21.8.2008 passed by the High Court . Meanwhile first appeal against penalty was heard in which additional evidence were produced following due procedures by assesse, CIT(A) and AO. The CIT(A) afforded opportunity to AO also to send his report. I turn officer also made enquiry, recorded statem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents of 12 creditors out of 13 and send his report. From his report, also satisfaction was reflected. The Assessing Officer recorded statements of 12 unregistered dealers out of 13. In the report dated 22.12.2010, he mentioned that statements of above 12 persons were recorded on 15/16.12.2010. And the CIT(A) , passed order on 13.1.2011 all these are more than two years after the date of the judgment of the High Court in quantum appeal against assessment order. This means that the assessee made efforts and could produce evidence for goods purchased long ago during FY 2007-08 and produced the suppliers and proved reality of transactions and genuineness of credits found in his books of account. This is an important and interesting issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and judgment of Apex Court thereon
This was somehow missed by author for discussion and writing by him. On search on web article by any other author is also not found about this judgment. This shows that learned authors also need to be more alert about such judgments.
Reply By DEVKUMAR KOTHARI as =
In relation to the judgment it is found that this has been referred in eight judgments of ITAT reported. Details of "Referred in" is found at the link
https://www.taxmanagementindia.com/visitor/detail_case_laws.asp?ID=394886
I hope these judgments of ITAT will also provide interesting reading and practice support.
Dated: 13-2-2025 X X X X Extracts X X X X X X X X Extracts X X X X
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