1988-VIL-72-ITAT-DEL
Equivalent Citation: ITD 027, 044,
Income Tax Appellate Tribunal DELHI
Date: 09.03.1988
INCOME-TAX OFFICER.
Vs
MOTI RAM SUBHASH CHAND JAIN.
BENCH
Member(s) : CH. G. KRISHNAMURTHY., V. P. ELHENCE.
JUDGMENT
Per V.P. Elhence, Judicial Member --- These two appeals filed by the department, arise out of separate orders, both dated16-8-1985, of the learned Commissioner of Income-tax (Appeals)-V,New Delhi for the A.Y. 1980-81.
2. In both the cases the assessees are the registered firms (sister concerns). The facts are that on 21/22-7-1979 a search took place at the business premises of the aforesaid two firms. Stocks of the value of Rs. 6,10,742 were found in the shops and godowns occupied by these two firms. On a discussion of the whole matter and after looking into the accounts, the departmental officers came to the conclusion that stock in possession of the two firms to the extent of Rs. 4,41,000 were not explainable. The residences of the partners of the two firms were also searched on the abovementioned dates and cash amounting to Rs. 1,35,131 was found. In addition, the officers calculated that out of the amount of the cash lying in the shop premises Rs. 7,438 was the excess cash on the said date. It was also found that the amount of Rs. 30,000 deposited in the Allahabad Bank on20-7-1979was also not found entered in the books of account. Thus, a total sum of Rs. 1,72,569 (Rs. 1,35,131+ Rs. 30,000+Rs. 7,438) was considered unexplainable. The total unexplainable amount was worked out at Rs. 6,13,000 (in round figures). Thereupon the partners of the two firms came forward and moved a settlement petition dated4-9-1979before the Commissioner of Income-tax, Delhi-III,New Delhi. The total unexplained amount represented by stock and cash was to be divided equally between the two firms, for the purposes of assessment, i.e., Rs. 3,06,500 each. This amount of Rs. 3,06,500 was to be assessed in the hands of each of the aforesaid two firms in equal amounts of Rs. 1,53,250 spread over in two assessment years 1979-80 and 1980-81. Thereafter both the firms filed their respective returns for the assessment year in question in January 1981 M/s. Moti Ram Subhash Chand Jain (M/s. MRSCJ for short) returned an income of Rs. 2,01,210 whereas M/s. R.S. Paper Co. (M/s. RSPC for short) disclosed an income of Rs. 1,61,220. Both these firms derived income by trading in paper. In the case of M/s. MRSCJ, according to the settlement with the CIT, an amount of Rs. 1,53,410 was added to the income and assessment was completed on a total income of Rs. 2,24,463. In completing the assessment the ITO made an addition of Rs. 21,600 by way of the following cash credits held to be unexplained :---
Rs.
S/Shri
(1) Roshan Lal 2,200
(2) Ramesh Kumar 1,000
(3) Ram Lal 2,500
(4)OmPrakash 2,000
(5) Satish Kumar Janinder Kr. 2,200
(6) Munshi Lal Padam Kr. 2,400
(7) Abhinandan Kr. Pawan Kr. 2,300
(8)GangaDhar Sushil Kr. 2,000
(9) Munshi Lal Moti Lal 2,500
(10) Sunder Lal & Sons 2,500
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Total 21,600
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In the cases of all these cash credits no confirmations were filed by the assessees. The matter was taken by these assessees to the CIT(A) who reduced the addition of Rs. 21,600 to Rs. 4,700. However in further appeal, the Appellate Tribunal vide its order dated4-6-1982in ITA No. 1318/Del/82, restored the addition of Rs. 21,600. In the case of M/s. RSPC also, according to the settlement with the CIT, the assessee was to add in the amount of Rs. 1,53,410 for this assessment year. In the case of this assessee, the assessment was completed by the ITO on an income of Rs. 1,91,777 which included the cash credits amounting to Rs. 26,500 which were held to be unexplained. The details of such cash credits were the following :---
Rs.
(1) Sh. Darshan Lal 1,000
(2) Sh. Thakur Hardware 2,000
(3) Sh. Bishan Chand 2,500
(4) Kiran Automobiles 1,300
(5) Sh. Ram Sarup 1,500
(6) Promossion Printers 2,000
(7) Ram Nand Ganga Bishan 2,400
(8) Ram Kishan Nem Chand 2,200
(9) Shiv Shanker Satish Kr. 2,300
(10) Magan Lal Mohan Lal 1,300
(11) Shri Pal Jain 8,000
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Total 26,500
-------------------
No confirmations were filed for the first 10 cash creditors. The 11th cash creditor was the employee of the firm whose affidavit and pass-book were produced and he was also examined before the ITO on11-6-1981. There is no information that the addition of these cash credits was appealed against by the assessee. The ITO initiated penalty proceedings in both these cases u/s. 271(1)(c). In replies to the show-cause notices, 3 main contentions were raised on behalf of the assessees. Firstly, it was stated that so far as the addition as a result of settlement is concerned, the assessees had mentioned in their settlement petitions that no penalties u/s. 271(1)(c) be levied and that the returns were filed only after the settlement. Secondly, it was contended that for the A.Y. 1979-80 for which year also certain amounts were surrendered as a result of the aforesaid settlement, no penalties u/s. 271(1)(c) were levied in the cases of the two firms. Lastly, it was said that additions by way of unexplained cash credits were made due to the inability of the assessees to furnish confirmations and that those confirmations could not be furnished because parties were not available at the time of the assessment proceedings. It was also said that all material facts, information and explanations had been furnished in a bona fide manner without any fraud or gross or willful neglect on the part of the assessees. However, the ITO did not accept the explanation of the assessees and he levied penalties amounting to Rs. 77,680 and Rs. 81,210 in the cases of these two firms @ 100 per cent of the tax sought to be evaded, treating these firms as URF. This was done not only with reference to the addition by way of unexplained cash credits but also with reference to the addition of the amounts as a result of the settlement as aforesaid.
3. In appeal, the penalties were deleted by the learned Commissioner of the Income-tax (Appeals) in both the cases. So far as the unexplained cash detected at the time of the search is concerned, the learned CIT(A) took the view that it had already been disclosed by these firms in their returns and, therefore, there could be no concealment of income in respect of those amounts. So far as the additions by way of cash, unexplained cash credits are concerned, the learned CIT(A) took the view that no case of concealment was made out just because the assessees could not produce satisfactory explanation regarding the sources.
4. This is how the department has come up in appeals before us. Shri P.R. Toora, the learned Departmental Representative relying upon the assessment orders submitted that with reference to both the additions, penalties u/s. 271(1)(c) were leviable. In this connection, he also relied upon the following decisions :---
(1)BanarasChemical Factory v. CIT [1977] 108 ITR 96 (All.)
(2) CIT v. Ganpatrai Gajanand [1977] 108 ITR 403 (Ori.) ;
(3) CIT v. K. Mahim [1984] 149 ITR 737 (Ker.) ; and
(4) S.R. Arulprakasam v. ITO [1985] 11 ITD 752 (Mad.) (TM).
On the other hand, Shri B.B. Ahuja, the learned counsel for the assessees reiterated the submissions made on behalf of the assessee before the income-tax authorities as also on Explanation 1(B) and Explanation 5 to section 271(1)(c). Reliance was also placed by him on the decision of the Hon'ble Kerala High Court in the case of CIT v. Pawan Kumar Dalmia [1987] 168 ITR 1.
5. We have considered the rival submissions as also the decisions referred to above. The assessment year involved is 1980-81 and therefore, in terms of Explanation 1(B) to section 271(1)(c) as operative for the A.Y. in question, it is to be seen whether the explanation furnished by the assessees was bona fide and all the facts relating to the same and material to the computation of their total incomes had been disclosed by them. The copies of the settlement petitions filed by these firms show that they had specifically mentioned that no penalties u/s. 271(1)(c) were to be levied. The department has not placed any material on the record to establish that the settlement made by the learned CIT, Delhi-III was any different. In this regard, the learned Departmental Representative could not say that it was for the assessees to establish the same. In any case, the fact remains that in terms of the settlement with the CIT, the returns were filed by the two assessees in January 1981 wherein the amounts of Rs. 1,53,410 each were disclosed. This is not a case where returns were revised on the detection of concealment or after the assessees felt driven to the wall. Therefore, the decisions relied upon on behalf of the department do not help it. In the case of Banaras Chemical Factory the voluntary disclosure was made by the assessee when cornered by the ITO. In the case of Ganpatrai Gajanand the only point decided was that penalty for concealment could as well be attracted with reference to additions by way of unexplained cash credits. The case of K. Mahim was that of a revised return. Similar was the position in the case of S.R. Arulprakasam decided by Madras Bench ' C ' (Third Member case). In the case of Pawan Kumar Dalmia decided by the Hon'ble Kerala High Court, although the assessment year involved was 1970-71 it was held that if an amount was seized from the assessee before returns were filed by him and the explanation that that amount did not belong to him was rejected and the amount was included in the assessment, penalty could not be levied for concealment of income if there was nothing to show that the plea of the assessee was false or inherently not possible. In these cases as we have already seen so far as the amounts returned by the assessees in their returns in accordance with the settlement are concerned, no concealment could be said to be involved as the amounts were mentioned in the returns and no revised returns were filed. In fact nothing happened in regard thereto after the filing of the return nor any detection was made by the ITO after the filing of the returns. Therefore, no penalties were leviable with reference to these amounts. So far as the additions by way of unexplained cash credits are concerned, those additions were made due to the want of evidence produced by the assessees to the satisfaction of the ITO. The assessees had explained that confirmations could not be obtained as the parties were not available. In the case of M/s. MRSCJ neither the order of the CIT(A) nor that of the Tribunal contained any findings or observations to show that the explanation of the assessees in regard to the cash credits was not bona fide. As already noticed above, so far as the case of M/s. RSPC is concerned, the additional factor was that in the case of the creditor Shripal Jain not only the pass-book and affidavit was filed but he was also examined by the ITO. Therefore, it was a case of the cash credits remaining ' unproved ' or ' unexplained ' rather than ' disbelieved '. Therefore, having regard to the facts and circumstances of these cases, no penalties could be said to be leviable u/s. 271(1)(c), having regard to Explanation 1(B) as referred to above. However, we would like to point out that the learned CIT(A) was not justified in observing that the burden of proving that the cash credits were concealed incomes of the assessees, was on the department. However, as already mentioned above, notwithstanding this erroneous observation, we would confirm the conclusion of the learned CIT(A) that the penalties deserved to be deleted.
6. The appeals accordingly fail and are dismissed.
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