1993-VIL-164-ITAT-

Equivalent Citation: ITD 051, 123,

Income Tax Appellate Tribunal BOMBAY

Date: 17.11.1993

DIAMOND TRUST INVESTMENT (P.) LTD.

Vs

ASSISTANT COMMISSIONER OF INCOME-TAX.

BENCH

Member(s)  : M. K. CHATURVEDI., V. K. SINHA.

JUDGMENT

Sinha, AM---This is an appeal by the assessee against an order of the CIT (Appeals), confirming a levy of penalty under section 271(1)(c) of the Income-tax Act, 1961, of Rs. 1,95,930.

2. The relevant facts are that the assessee is an investment company and its office premises were searched under section 132 of the Act, on 5-9-1985. The search revealed, inter alia, cash of Rs. 11,001 which was seized. The amount was added to the assessee's total income in the assessment order under section 69A of the Act. Further, there was a cash credit of Rs. 3 lac for receiving loans from B.J. Properties & Constructions and this was also added to the assessee's total income under section 68 of the Act. The additions were confirmed in appeal by the Tribunal. Thereafter, the Assessing Officer gave opportunity to the assessee in continuation with penalty proceedings initiated under section 271(1)(c) of the Act, along with the assessment order. It was submitted that mere disallowance could not be the basis for the levy of penalty and this was only a case where the assessee's explanation had been disbelieved. This could not lead to a reasonable and positive conclusion that the amount represented the assessee's income. However, the Assessing Officer did not accept the explanation. He referred to the orders of the CIT (Appeals) and the Tribunal holding that the assessee had failed to discharge the onus of proving the genuineness of the credit of Rs. 3 lac and, therefore, it amounted to "concealed income of the assessee and, therefore, penalty under section 271(1)(c) should be levied on the amount of Rs. 3 lac at under section 68".

3. A similar explanation was submitted with regard to the addition of Rs. 11,001 saying that the assessee's explanation had been disbelieved and this did not invite a penalty for concealment. However, the Assessing Officer observed that "in absence of any satisfactory explanation Rs. 11,001 had been considered income of the assessee and held by the appellate authority. I consider this amount for the purposes of levy of penalty". Thereafter, he calculated minimum penalty on concealed income of Rs. 3,11,001 which came to Rs. 1,95,930 and a penalty was levied accordingly of that amount.

4. It is significant that the Assessing Officer did not invoke Explanation 1, below section 271(1)(c) of the Act, in any manner.

5. The CIT (Appeals) considered the matter further and it was submitted before him that the department has to prove conscious and deliberate concealment on the part of the assessee. He found this argument to be untenable and pointed out that the word "deliberate" had been dropped by the Legislature as far as the year under consideration was concerned. Thereafter, he reproduced Explanation 1(A), below section 271(1)(c) and held that it was clear that the story of the assessee regarding the amount of Rs. 11,001 as well as the cash credit of Rs. 3 lac had been treated as false. In view of the above, he held that this was a case where the explanation given by the assessee was found to be false and, therefore, the income in question was deemed to represent the income in respect of which particulars had been concealed. The penalty was confirmed on this ground.

6. The learned counsel for the assessee has raised a preliminary ground before us, which will be considered first. Our attention was invited to a statement of the case prepared by the Tribunal in RA No. 2110/Bom./1990, in assessee's own case, for the same assessment year under section 256(1) of the Act, in respect of the addition of Rs. 3 lac. Following question of law was referred to the Hon'ble High Court for its opinion :

"Whether, on the facts and in the circumstances of the case, the Tribunal erred in law in confirming the addition of Rs. 3 lac received from M/s. Deejay Properties and Construction Co. Pvt. Ltd. in place of restoring this item also to the file of the Assessing Officer, as was done for the other items of Rs. 4 lakhs shown in the name of M/s. P.S.B. Construction Co. Ltd."

7. The learned counsel for the assessee submitted before us that as far as the addition of Rs. 3 lac was concerned, the matter had become wide open due to the reference of the question of law extracted above and, therefore, no penalty under section 271(1)(c) of the Act could be levied. In support of this contention, it was stated that if a penalty was levied on merits in such a situation, then an irremediable hardship could possibly accrue to the assessee. This could happen in case the question of law was answered in favour of the assessee and, thereafter the addition of Rs. 3 lac was deleted from the assessee's income. In such a situation, the assessee would have no remedy to have the penalty also cancelled.

8. The learned counsel for the assessee also invited our attention in the same connection to an order of the Tribunal, Bombay Bench 'B' in the case of K.C. Nariman v. ITO [IT Appeal No. 6400 (Bom.) of 1983 dated January 1989]. In that case, the Tribunal had rejected an application under section 256(1) of the Act in respect of an addition of Rs. 2,64,781 sustained by the Tribunal. However, the Hon'ble High Court had directed the Tribunal under section 256(2) of the Act, to draw up a statement of the case and refer the following question for their opinion :

"Whether, on the facts and the circumstances of the case and on a proper interpretation of section 68 of the Income-tax Act, 1961, the sum of Rs. 2,64,781 was assessable as income of the assessee under that section?"

9. According to the learned counsel, a penalty of Rs. 1,80,440 under section 271(1)(c) of the Act had been cancelled by the Tribunal because of the above direction of the High Court to grant reference under section 256(2) of the Act and, on the basis that the question of addition was wide open. Following the above decision, it was submitted that the penalty should be cancelled here also.

10. The learned Departmental Representative, on the other hand, argued that the mere fact that a reference application had been allowed under section 256(1) of the Act could not lead to a conclusion that no penalty was leviable under section 271(1)(c) of the Act. In this regard, he tried to distinguish the facts of the present case with the facts in the order of the Tribunal relied upon by the learned counsel for the assessee. In the present case, the question of law was whether the addition of Rs. 3 lac should have been restored to the file of the Assessing Officer, while in the case of K.C. Nariman the question was whether the addition should be deleted. Continuing further, the learned Departmental Representative took us through the order of the Tribunal in the case of K.C. Nariman and submitted that the reference to a question of law under section 256(2) of the Act was only a passing remark and could not be treated as a ratio of the case and not even an obiter dicta. According to him, the matter had been decided on merits otherwise by holding that clause (B), of Explanation 1, to section 271(1)(c) of the Act was not attracted in the facts and circumstances of the case and further that the proviso below it was applicable and the explanation given by the assessee was bona fide.

11. We have considered the rival submissions carefully. In our opinion, the fact that in the present case an application under section 256(1) of the Act was granted whereas in the other case, the Hon'ble High Court directed that a reference should be filed under section 256(2), of the Act, is not a material difference. In both the cases, there is a possibility that the answer may go in favour of the assessee and the addition itself may be deleted from the assessment. We will proceed on this basis.

12. We have gone through the order of the Tribunal in the case of K.C. Nariman carefully. It is seen that the fact that the assessee's application had been accepted under section 256(2) of the Act was only one of the considerations which weighed with the Tribunal. The assessee's arguments were also manifold. Firstly, it was submitted that Explanation 1(B), to section 271(1)(c) of the Act did not apply to the assessee's case. Secondly, even if it applied, the assessee's case would be saved by the proviso to the said Explanation Thirdly, the CIT (Appeals) had deleted Rs. 2,64,781 in the quantum proceeding, meaning thereby that the matter was substantially contentious. Fourthly, the Tribunal had restored the addition on inference drawn on the material available on record. Fifthly, the High Court had granted reference under section 256(2) of the Act. The facts of the case were considered in detail thereafter and the Tribunal cancelled the penalty as a result of the above cumulative five factors. Thus, the decision cannot be said to have laid down a legal proposition that in a case where reference was granted under section 256(2), of the Act, no penalty under section 271(1)(c) of the Act could be sustained solely on this ground. However, the decision is a precedent for the proposition that such a reference is one of the valid considerations in favour of the assessee. We will proceed accordingly.

13. The learned counsel for the assessee has raised another preliminary objection which will now be taken up. Our attention has been invited to the decision of the Bombay High Court in the case of CIT v. P.M. Shah [1993] 203 ITR 792 (Bom.). In that case, a notice was sent to the assessee in respect of section 271(1)(c) of the Act, but the penalty proceedings were finalised under Explanation to section 271(1)(c) of the Act, as it stood from 1-4-1964 to 31-3-1976. It was held, on the facts of the case, that the basis for issuing notice was concealment of income or furnishing inaccurate particulars of income under section 271(1)(c) of the Act, and when the Tribunal held that there was no such concealment, the very basis for issuing the notice disappeared. The IAC could not have proceeded to levy the penalty under Explanation to section 271(1)(c) of the Act in the absence of any initiation of penalty proceedings under Explanation to section 271(1)(c) of the Act. The levy of penalty under the Explanation was, therefore, not sustainable. In the light of the above decision, it was submitted that the penalty was not sustainable in the present case either.

14. The learned Departmental Representative, on the other hand, relied on the order of the CIT (Appeals).

15. We have considered the rival submissions and find that the facts in the present case are distinguishable from the facts in the case of P.M. Shah, relied upon by the learned counsel for the assessee. In the present case also, it is not in dispute that the notice was issued under section 271(1)(c), of the Act and not under Explanation to section 271(1)(c) of the Act. To this extent, the facts may be similar. However, in the present case, the penalty has been levied by the Assessing Officer under section 271(1)(c) itself and not under Explanation to section 271(1)(c) of the Act. The ratio of the case relied upon is, therefore, not applicable to the facts of the present case.

16. Coming to the merits of the case, the learned counsel for the assessee invited our attention to the order of the Tribunal confirming the additions to the assessee's income. With regard to the addition of Rs. 11,001 for unexplained cash found during search, it was explained that the premises where the search was conducted contained offices of many associate concerns and there was no information and evidence to prove that the money actually belonged to the assessee-company. However, there was no evidence or information available to show where the said sum of Rs. 11,001 was actually found. The Tribunal also examined a letter dated 28-10-1985, stated to have been filed by the assessee, according to which, the sum was found "at the office premises of Diamond Trusts Investments Private Limited" and the same position was reiterated on the next page. In view of this, the Tribunal held that the cash was found at the assessee's premises itself. The owner of the money was not identified, as claimed by the assessee. In view of this, the addition of Rs. 11,001 was confirmed.

17. Regarding the sum of Rs. 3 lac, it was in the name of Deejay Properties & Constructions Pvt. Ltd. and a confirmatory letter dated 18-2-1987 was available which showed that the creditor was assessed by the Income-tax Officer, Company Circle 20, at Delhi, with GIR No. D-9. However, the letter contained Bombay address and not the Delhi address and did not specify the reason for giving the money and giving it by bearer cheque. Further, the assessee did not prove the return of the money. In view of this, the addition was confirmed.

18. The learned counsel for the assessee submitted that an affidavit had been filed in the course of penalty proceedings by Sri Darshanjeet Singh, Director of Deejay Properties & Constructions Pvt. Limited, giving particulars of the advance as well as the return and stating that the company was assessed by the IAC, Range II, Delhi and the Permanent Account Number was also given. A copy of the account of the party in assessee's books was also filed. According to him, this affidavit had not been considered although the assessee was entitled to file the same in the penalty proceedings. If it was considered, he submitted, the penalty would not be leviable.

19. It was further submitted that the assessee's explanation had not been found to be false and, therefore, Explanation 1(A), below section 271(1)(c), of the Act, was not applicable

20. The learned counsel also invited our attention to the decision of the Andhra Pradesh High Court in the case of CIT v. H. Abdul Bakshi & Bros. [1986] 160 ITR 94. In that case, there was a prima facie evidence that cash credits were genuine but it was rejected in the assessment proceedings. It was held that levy of penalty was not valid under Explanation to section 271(1)(c) of the Act. Further, the Gauhati High Court had held, in the case of CIT v. Tezpur Roller & Flour Mills [1976] 103 ITR 259 that in a case of unexplained cash credit, if there was no material against the assessee except the rejection of explanation and the Tribunal refused to make a reference because it was a finding of fact, that there was no question of law which arose out of the order of the Tribunal. In the light of these decisions, it was submitted that the penalty should be cancelled.

21. The learned Departmental Representative, on the other hand, submitted that the order of the CIT (Appeals) deserves to be affirmed as the assessee has failed to prove the genuineness of the credit and the source of the cash. He invited our attention to the decision of the Bombay High Court in R.B. Shreeram Durgaprasad & Fatechand Narsinghdas (Export Firm) v. CIT [1987] 168 ITR 619, where, after the cash credit was confirmed, the levy of penalty was also confirmed. Further, he submitted, the Madras High Court had held in the case of H.V. Venugopal Chettiar v. CIT [1985] 153 ITR 376 that no independent enquiry was necessary to prove concealment. According to him, the affidavit filed during the penalty proceedings was only a self-serving document and should, therefore, be ignored relying on the decision reported in 82 ITR 514.

22. The learned counsel for the assessee, in reply, stated that the affidavit had evidenciary value and could not be rejected without cross-examination, relying on the decision of the Supreme Court in Mehta Parikh Co. v. CIT [1956] 30 ITR 181.

23. We have considered the rival submissions carefully. The CIT (Appeals) has confirmed the penalty with reference to clause (A) of Explanation 1, to section 271(1)(c) of the Act only and, therefore, we will confine our attention to this provision. They are reproduced below for the sake of convenience :

"Explanation 1 : Where in respect of any facts material to the computation of the total income of any person under this Act,---

(A) such person fails to offer are explanation or offers an explanation which is found by the Assessing Officer or the Deputy Commissioner (Appeals) or the Commissioner (Appeals) to be false, or

(B).......................................................................................

then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed."

24. It is evident that the assessee offered explanations with regard to both the amounts of Rs. 11,001 and Rs. 3 lac. The first part of clause (A), of Explanation 1, is, therefore, not applicable. The second part can be applicable only if the explanation offered by the assessee is found to be false. Thus, cases where the assessee's explanations have been merely rejected, without a positive finding that they were false, cannot fall within the purview of clause (A), of Explanation 1. In the present case, the explanation regarding cash credit of Rs. 3 lac was supported by a confirmatory letter giving the details of the transaction and later on by an affidavit from the director of the creditor-company. We are unable to accept the contention of the learned Departmental Representative that the affidavit was a self-serving document because it is not a case where the assessee himself has given the affidavit in its favour but a case where a third party has given the affidavit in assessee's favour. It is definitely a valid evidence and we agree with the learned counsel for the assessee that it cannot be summarily ignored. The details of the payment as well as repayment were given in the affidavit and the designation of the Assessing Officer as well as the Permanent Account Number of the creditor were also supplied. The Tribunal has even granted a reference under section 256(1) of the Act. In the circumstances, there is no question of holding that the assessee's explanation has been found to be false.

25. Coming to the sum of Rs. 11,001, only one part of the assessee's explanation was found to be false, i.e., the assessee's claim that the cash was not found at the assessee's premises. However, the second part of the explanation that the assessee received the sum from another party was disbelieved but was not found to be false.

26. In view of the above, we hold that the case does not fall under clause (A), of Explanation 1, to section 271(1)(c) and, therefore, direct that the penalty under section 271(1)(c) of the Act should be cancelled.

27. The assessee's appeal is allowed.

 

DISCLAIMER: Though all efforts have been made to reproduce the order accurately and correctly however the access, usage and circulation is subject to the condition that VATinfoline Multimedia is not responsible/liable for any loss or damage caused to anyone due to any mistake/error/omissions.