Vildirect: IncomeTax-caselaws-1998-VIL-110-ITAT-PNE

1998-VIL-110-ITAT-PNE

Equivalent Citation: ITD 068, 550, TTJ 064, 120,

Income Tax Appellate Tribunal PUNE

Date: 24.06.1998

SILVER PALACE.

INCOME-TAX OFFICER

BENCH

Member(s) : B. L. CHHIBBER., K. C. SINGHAL.

JUDGMENT

Per Shri K.C Singhal, Judicial Member--- The only issue arising out of this appeal relates to the levy of penalty of Rs. 34,663 under section 271(1)(c) pertaining to assessment year 1988-89.

2. The brief facts giving rise to this appeal are these. The assessee is a dealer in gold and silver ornaments. For assessment year 1988-89, the return of income was filed by the assessee on 3rd June, 1988 declaring total income of Rs. 66,810 and the same was accepted under section 143(1) on 22nd July, 1988. Subsequently, a survey under section 133A was conducted at the premises of the assessee as well as its sister concern on 3rd November, 1988. On the date of survey, an undertaking was given by the assessee to offer additional income of Rs. 1,50,000 by filing revised return in respect of assessment year 1988-89 by 31st March, 1989. The copy of the undertaking is placed at page 18 of the paper book. In pursuance of this undertaking, the assessee filed the revised return on 30th March, 1989 declaring additional income of Rs. 1.5 lakhs. The assessment was completed on 31st March, 1989 on the total income of Rs. 2,31,039. The perusal of the order shows that a sum of Rs. 14,288 was also assessed with reference to certain discrepancies pertaining to the financial year 1988-89 relevant to assessment year 1989-90. This assessment was accepted by the assessee.

3. However, in the course of assessment proceedings, the penalty proceedings under section 271(1)(c) was initiated by the Assessing Officer. In response to the show-cause notice, the assessee vide his letter dated 7th August, 1990 stated the circumstances under which the undertaking was given by the assessee. According to the assessee, the undertaking was given at the advice and assurance of the officers conducting survey to the effect that no penalty would be imposed if the amount of Rs. 1.5 lakhs was offered by the assessee for assessment year 1988-89. It was also pointed out that no specific discrepancy had been found in the course of survey pertaining to assessment year 1988-89. Hence, it was prayed that penalty proceeding should be dropped. Another letter dated 6th November, 1990 was written by him to the Assessing Officer alongwith the affidavit of Shri Ghisulal Joharmal Solanki, partner of the assessee-firm reiterating his earlier stand. The assessee also disclosed the names of the officers who gave the assurance to the firm. It was also requested by the assessee that in order to meet the ends of justice, the assessee be given an opportunity to cross examine the concerned officers to prove his case. The Income-tax Officer vide his letter dated 18th December, 1990 informed the assessee that there was no provision in the Income-tax Act to cross examine the officers conducting survey. Hence, request to cross examine could not be acceded to. The assessee wrote again on 31st December, 1990 to the Income-tax Officer concerned. The assessee requested that if the cross examination is not possible, then, the truth may be verified by making enquiry from the concerned officers.

4. However, the Assessing Officer did not accept any of the explanation given by the assessee. According to him, there was nothing on the record to suggest that departmental officers advised the assessee to declare the additional income and giving immunity from the levy of penalty under section 271(1)(c). Even the revised return did not contain any such note. The affidavit of the assessee was rejected. According to the Assessing Officer there was concealment of particulars of income. Hence, the penalty of Rs. 34,663 was imposed which has been confirmed by the CIT(A). Aggrieved by the same, the present appeal has been preferred by the assessee.

5. The learned counsel for the assessee Mr. Khandelwal has vehemently assailed the order of the lower authorities by contending:---

1. That no specific charge has been made by the Assessing Officer. The assessee had specifically asked the Assessing Officer to specify the specific amount, in respect of which the penalty notice was issued. The failure on the part of the Assessing Officer has vitiated the order of the penalty.

2. The burden lies on the Assessing Officer to prove that the additions made by the Assessing Officer represented the income of the assessee pertaining to assessment year 1988-89 and particulars of such income had been concealed by the assessee. There was no direct material on the record to suggest any discrepancy pertaining to assessment year under consideration. He drew our attention to the assessment order to show that discrepancies related to only four transactions as mentioned in the assessment order and these pertain to the financial year 1988-89 relevant to assessment year 1989-90 with which we are not concerned. Despite the fact, the same has been added as income of the assessment year 1988-89.

3. Despite the fact that there was no discrepancy pertaining to assessment year 1988-89, the survey officers persuaded the assessee to offer additional income of Rs. 1.5 lakhs for Assessment Year 1988-89 and given assurance that no penalty would be imposed if such undertaking was given. It is in these circumstances that undertaking was given. In these circumstances, the penalty proceedings should not have been initiated by the Assessing Officer. Merely, the assessee had agreed for the addition, the same should not amount to concealment of the income for Assessment Year 1988-89.

4. The affidavit filed by the assessee has not been rebutted by the department and therefore, in view of the Supreme Court decision in the case of Mehta Parikh & Co. v. CIT [1956] 30 ITR 181, the contents of the affidavit should be accepted. It was further stated that assessee had given the names of the various officers who gave the assurance. In order to rebut the contents of the affidavit, the Assessing Officer could make enquiry from the concerned officers.

5. That similar survey was conducted on the same very date at the premises of the sister concern of the assessee, namely M/s. Solanki Jewellers and similar undertaking was given by that firm under the similar circumstances, offering additional income of Rs. 6.5 lakhs. He drew our attention to the assessment order of the said concern to show that no penalty was initiated under section 271(1)(c) in that case.

6. That the revised return filed by the assessee was non est in as much as it was filed after the assessment under section 143(1). At the best, such return could be treated as information and nothing more. No notice under section 148 has been issued by the Assessing Officer and therefore, the assessment itself was illegal.

7. That no penalty could be imposed in view of the Bombay High Court decision in the case of Bombay Cloth Syndicate v. CIT [1995] 214 ITR 210/79 Taxman 352.

6. The learned D.R. Mr. Hari Krishan has supported the order of CIT(A) and contended that specific charge of concealment of particulars of income had been framed by the Assessing Officer and therefore, the order of Assessing Officer was not vague. Regarding the affidavit, it was submitted that it was a self-serving document not substantiated by any material on record. Hence, the same could not be relied on. In support, he relied on the decision of Punjab and Haryana High Court in the case of Sardar Store v. CIT [1986] 161 ITR 53. Proceeding further, it was submitted by him that the contention of assessee's counsel regarding cross examination of officer who conducted the survey is misconceived. According to him, they were the witnesses of the assessee and it was for the assessee to produce them before the Assessing Officer and therefore, the question of cross examination does not arise. It was further submitted by him that each case is independent case and no support can be drawn from the assessment of sister concern ie. M/s. Solanki Jewellers. It was also his contention that there is no material to indicate that any assurance was given by the survey officers regarding immunity from the penalty. Even the assessee has not made any mention in the undertaking given by him that it was subject to no penal action. Once the surrender was made by the assessee, it does not lie in the mouth of the assessee to say that income did not belong to Assessing Year 1988-89. Regarding the legal contention of the assessee's counsel that assessment was bad, it was contended by him that after the assessment is completed under section 143(1), the Assessing Officer was legally entitled to re-open the assessment under section 143(2)(b) after the approval of DCIT. In the present case, the assessment had been made under the aforesaid section after getting the approval of the DCIT. Therefore, the assessment is valid. Regarding the Bombay High Court decision, he submitted that the same is distinguishable on facts of the case. In support of his contention, he has relied on various decisions namely:----

Western Automobiles (India) v. CIT [1978] 112 ITR 1048 (Bom.), Durga Timber Works v. CIT [1971] 79 ITR 63 (Delhi), Mahavir Metal Works v. CIT [1973] 92 ITR 513 (Punj. & Har.), CIT v. P.B. Shah & Co. (P.) Ltd [1978] 113 ITR 587 (Cal.), India Sea Foods v. CIT [1978] 114 ITR 124 (Ker) CIT v. Krishna & Co. [1979] 120 ITR 144 (Mad.), and CIT v. Warasat Hussain [1988] 171 ITR 405 (Pat.).

7. Rival submissions of the parties as well as material placed before us have been considered carefully. Admittedly, either of the Explanations to Section 271 (1)(c) has not been invoked by the Assessing Officer, Therefore, the penalty has to be justified under the main provisions of section 271 (1)(c). Hence, the burden lies heavily on the department to prove that alleged addition was the income of the assessee for the year under consideration and particulars of which were concealed by the assessee. This view is fortified by the judgment of the Jurisdictional High Court in the case of ClT v. Dharamchand L. Shah [1993] 204 ITR 462/70 Taxman 390 (Bom.).

8. In view of the above legal position, let us examine whether the Revenue has discharged its onus in the present case. The materials on the basis of which addition was made are as under:

1. The undertaking given by the assessee on the day of survey under section 133(A) ie. 3rd November, 1988.

2. The alleged revised return filed by the assessee on 30th March, 1989 in pursuance of the said undertaking.

3. The discrepancies of various amounts totalling Rs. 14,228 as narrated in the assessment order.

It appears to us that there is no direct -evidence on the record to suggest that discrepancies were found in the survey pertaining to assessment year 1988-89. The statement recorded during the survey also does not suggest any specific discrepancy in the said year. Para 6 of the Assessment Order points out the discrepancies found in the course of survey. Such discrepancies amounting Rs. 14,228 related to four transactions pertaining to the financial year 1988-89 relevant to Assessment Year 1989-90 and not for the year under consideration. The assessee was asked to explain these transactions. On failure to explain these transactions, it was agreed that the same may be added to the income of the firm. Though these transactions related to Assessment Year 1989-90, surprisingly, the same had been assessed for Assessment Year 1988-89.

9. It is the contention of the assessee from the beginning that assessee was advised to surrender a sum of Rs. 1.5 lakhs for Assessment Year 1988-89 by filing the revised return despite the fact that no discrepancy was found for such year and it was assured that no penalty would be imposed. It was on the basis of this assurance and advice that the undertaking was given by the assessee to file the revised return by surrendering 1.5 lakhs. It is to be noted that the said undertaking to offer additional income was given on the very date of survey. At the time of survey, the assistant of the Chartered Accountant was not available to the assessee. It is the common practice that the survey party is always interested in collecting the text at the earliest. Hence, it might have persuaded the assessee to give undertaking for surrendering Rs. 1.5 lakhs for Assessment Year 1988-89. If left to the assessee, it would not have given such undertaking without consulting its counsel particularly when there was no material pertaining to Assessment Year 1988-89.

10. At this point, it is pertinent to note about the letters written by the assessee to the Assessing Officer in the course of penalty proceedings. The letter dated 7th August, 1990 which is the first letter states that assessee was assured that no penalty would be imposed if return was revised for Assessment Year 1988-89. An affidavit sworn by Shri Ghisulal Joharmal Solanki, partner of the assessee firm dated 29th October, 1990 stating all the facts of the case was filed by the assessee before the Assessing Officer alongwith the letter dated 6th November, 1990 in which the assessee had categorically stated that such assurance was given by Mr. Tarashwala, DCIT and Mr. Iyer, ITO who were parties to the survey conducted. It was prayed therein that in the interest of justice, assessee be allowed to cross examine these officers to corroborate the stand of the assessee. The Assessing Officer vide letter dated 18th December, 1990 informed the assessee that there was no provision in the Income-tax Act for cross examination of the officers. Then, assessee wrote on 31st December, 1990 stating that the internal enquiry may please be made from these officers to find out the truth.

11. It is also pertinent to note that on the very same date ie. 3rd November, 1988, the survey was also conducted at the premises of its sister concern M/s. Solanki Jewellers. There also similar undertaking was given by the partners of the firm. The amount offered was Rs. 6.5 lakhs. The assessment order of M/s. Solanki Jewellers shows that no penalty proceedings was initiated by the department for concealment of income under section 271(1)(c).

12. As already pointed out, there is no direct evidence indicating any concealment For Assessment Year 1988-89. The question, therefore, to be considered is whether there is any circumstantial evidence to justify the penalty. In our opinion, the circumstances of the case, suggest to the contrary ie. there was tacit agreement between the assessee and the survey officers that no penalty would be imposed if the sum of Rs. 1.5 lakhs was surrendered for Assessment Year 1988-89 if there turn was filed after paying the tax by 31st March, 1989. In the course of penalty proceedings, the assessee had asserted this fact in its correspondence to the Assessing Officer and the affidavit was also filed to the effect. Such stand of the assessee was never denied by the Assessing Officer. Even before us the learned Senior D.R. has not been able to show that Assessing Officer denies such stand of the assessee. In the circumstances of the case, it was the duty of the Assessing Officer to verify such facts by making any enquiry from the concerned officers to meet the end of justice. Justice not only be done but appears to have been done. The statement of assessee was supported by the affidavit stating clearly that declaration of additional income of Rs. 1.5 lakhs was made at the advice and assurance of the officers conducting survey to the effect that no penalty would be imposed if such sum was offered for Assessment Year 1988-89. The names of the officers who gave such assurance were also given in the affidavit. This affidavit is not a mere self serving document as contended by the learned Senior DR. The stand of the assessee could be rebutted by Assessing Officer by making necessary enquiry from the concerned officers. If Assessing Officer had not performed his duty properly, then, the stand of the assessee has to be believed. Besides, the survey was also conducted by the same officers at the premises of its sister concern M/s. Solanki Jewellers on the same date. Identical undertaking was given by the partners of that firm. We have seen the said undertaking which is identical to the undertaking in the present case. But, in that case, no penalty preceding was initiated. This fact also supports the case of the assessee. The conduct of the Assessing Officer to persuade the assessee to agree for addition of Rs. 14,288 in respect of discrepancies relating to Assessment Year 1989-90 in the Assessment Year 1988-89 also supports the stand of the assessee that undertaking was taken for Assessment Year 1988-89 despite the fact that there was no adverse material on record for such year. Therefore, in our opinion, the circumstantial evidences show that there was tacit agreement between the assessee and the survey party that no penalty would be imposed if return for Assessment Year 1988-89 was revised by offering additional sum of Rs. 1.5 lakhs. Merely such assurance was not mentioned in the undertaking, the assessee cannot be hanged. There must be some material on the record to justify the concealment of income pertaining to Assessment Year 1988-89. It is now the settled position of law that addition on agreed basis does not justify the levy of penalty. There may be hundreds of reasons for such agreement. Reference may be made to the decision of Apex Court in the case of Sir Shadilal Sugar & General Mills Ltd. v. CIT [1987] 168 ITR 705/33 Taxman 460A. On the contrary, if no such undertaking has been obtained, the assessee would have been in a advantageous position by offering the additional income in the original return for Assessment Year 1989-90 since discrepancies related to Assessment Year 1989-90 and the Revenue would not have been in a position to levy any penalty because it would not have amounted to concealment in as much as Explanation 5 to Section 271(1)(c) could not be applied as it was not a case of search.

13. The decisions relied upon by the learned D.R. are distinguishable on the facts of the case. In the case of P. V Shah & Co. (P) Ltd, the assessee had. admitted that the addition represented undisclosed income of the assessee for the year under consideration and there was material on the record that cash credits related to the same year. But, in the present case, the additional income was offered under different circumstances of the case and no discrepancy has been found by the department in respect of the year under consideration. Similar is the position with reference to the decision of Bombay High Court in the case of Western Automobiles (India) and also in the case of Durga Timber Works. The decision of Patna High Court, Warasat Hussain's case is distinguishable as in that case, the explanation to section 271(1)(c) was invoked in the case of India Sea Foods the assessee has agreed to the levy of minimum penalty for concealment of income whereas in the present case such position does not prevail. Since these decisions are distinguishable on the facts of the case, the same cannot be applied to the facts of the present case.

14. In view of the above discussion, we are of the considered view that Revenue has not been able to discharge its onus to prove that addition made by the Assessing Officer represented income of the assessee for Assessment Year 1988-89. Hence, the order of CIT(A) is set aside and the penalty sustained by him is cancelled.

15. In the result, appeal of the assessee 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.