2010-VIL-415-ITAT-JAI

Income Tax Appellate Tribunal JAIPUR

IT(SS)A No. 1/Jp/2010

Date: 16.07.2010

SADHU RAM GOYAL

Vs

. DEPUTY COMMISSIONER OF INCOME TAX

For the Petitioner : P.C. Parwal
For the Respondent : Smt. Irina Garg

BENCH

R.K. GUPTA, J.M. & N.L. KALRA, A.M.

JUDGMENT

R.K. GUPTA, J.M. :

These are two appeals filed by two assessees against the orders of learned CIT(A), dt. 16th Dec., 2009 relating to block period 1st April, 1996 to 10th Feb., 2003. The common ground raised in both the appeals is that the learned CIT(A) has erred in facts and in law in confirming the levy of penalty of Rs. 36,37,998 [IT(SS)A No. 1/Jp/2010] and Rs. 10,91,959 [IT(SS)A No. 2/Jp/2010] under s. 158BFA(2). Since common ground is involved in both the appeals, therefore, we dispose of both the appeals by a consolidated order. The brief facts explained in the written submissions filed by learned Authorised Representative are as under :

4.1 Shri Praveen Goyal is proprietor of M/s Tirupati Plywood Industries. Shri Sadhuram Goyal is proprietor of M/s Swastik Udhyog. Both these concerns are engaged in manufacturing of plywood and board.

4.2 A search was conducted at the business and residential premises of assessee on 10th Feb., 2003. In search of Shri Praveen Goyal stock valued at Rs. 6 lacs was found whereas the stock as per books works out to Rs. 14.40 lacs. No undisclosed valuable/asset was found. He filed block return on 15th Sept., 2003 offering undisclosed income of Rs. 2 lacs on account of profit on sale of stock found short.

4.3 Similarly in search of Shri Sadhuram Goyal stock valued at Rs. 9.93 lacs was found whereas the stock as per books works out to Rs. 13.63 lacs. No undisclosed valuable/asset was found. He filed block return on 15th Sept., 2003 offering undisclosed income of Rs. 1 lac on account of profit on sale of stock found short.

4.4 The block assessment in case of Praveen Goyal has been made at the total undisclosed income of Rs. 51,94,405 as against Rs. 2 lacs offered by assessee (reduced from Rs. 73,38,660 after order under s. 154 dt. 31st March, 2005). The particulars of undisclosed income determined by AO, CIT (A) and Tribunal are tabulated below : 19,32,586

4.5 The block assessment in the case of Sadhuram Goyal has been made at the total undisclosed income of Rs. 70,04,176 as against Rs. 1 lac offered by assessee. The particulars of undisclosed income determined by AO, CIT(A) and Tribunal are tabulated, below : 58,74,601

4.6 The AO, thereafter initiated penalty proceedings under s. 158BFA(2) of the Act. In penalty proceedings assessee filed detailed explanation as to why the variation between the returned income and assessed income cannot be considered as undisclosed income for the purpose of levy of penalty under s. 158BFA(2).

4.7 The AO, however, held that both the CIT(A) and Tribunal confirmed the finding of AO that the assessee has indulged in unaccounted and underinvoiced sales. Lowering of GP rate by Tribunal cannot be construed as difference in opinion. Relying on the decisions reported in CIT vs. K.N. Singh (1998) 150 CTR (MP) 448 : (2001) 247 ITR 432 (MP) and Yashwant Singh vs. CIT (1995) 128 CTR (Raj) 12 : (1995) 212 ITR 207 (Raj), he held that penalty is leviable even on estimated addition. Accordingly, he imposed penalty with reference to the undisclosed income determined by Tribunal as reduced by undisclosed income declared in the return.

5. Assessee preferred appeals before the learned CIT(A).

6. The learned CIT(A) as per his discussion on pp. 13-22 at paras 4-4.12 uphold the levy of penalty imposed by the AO. The summarized finding of CIT(A) is as under : (a) Sh. Kemchand Sindhi, employee, Sh. Vinay Gupta, proprietor and Ashish Gupta, manager of Ashish International admitted that both their purchase and sales are underinvoiced. Sh. Vinay Gupta again accepted this fact in his statement recorded in case of Vikas Timbers Products (P) Ltd. (Para 4) (b) In file TFL2K3 found from M/s Ashish International some of the entries in the ledger account of Lalitji Sikar is found recorded in the bank account of the assessee and therefore it cannot be denied that all the entries in these files relate to the assessee and the other associate concern. (Para 4.1) (c) As per the finding of the AO in paras 10.23 and 10.26 of the assessment order, AO after verification has observed that cash payment found noted in the seized papers is linked to the ledger account of Lalitji which proves that part of the sales are not recorded in books. This apart AO found corroborative evidence from other manufacturers and the retailers which shows that assessee has indulged in unaccounted and underinvoiced sales. (Paras 4.2 and 4.3). (d) The argument of learned Authorised Representative that ledger account in name of Lalit Goyal has no link with assessee cannot be accepted as some of the entries in said account is recorded in the books of the assessee and therefore it cannot be said that there is no evidence in support of the conclusion of the AO for which he relied on the decision reported in Mriganka Mohan Sur vs. CIT (1979) 120 ITR 529 (Cal). (Para 4.4) (e) The argument of learned Authorised Representative that addition was made on estimated basis is without any basis since wherever estimation was made the same was deleted by Tribunal. Further GP rate is not estimated but taken as average for the block period. Thus this estimation is not based on surmises or conjectures. (Para 4.5) (f) Hon’ble Tribunal has given a finding that ledger account of Lalitji Sikar in KFL file is related to assessee and though there is no direct evidence of underinvoicing found in premises of assessee but considering the material collected from third party and the surrounding circumstances AO has rightly observed underinvoicing by the assessee. Therefore the evidence collected from third party can be relied upon. (Paras 4.6 and 4.7) (g) The factum of concealment of income by the assessee has been upheld by both the CIT(A) and Tribunal and therefore there is no difference of opinion as claimed by the assessee. Even if CIT(A) has lowered the GP rate the decision of Tribunal will prevail. (Para 4.8) (h) The learned Tribunal has given reasons for taking a different view in case of the assessee than that taken in case of Vikas Timber Product (P) Ltd. (Para 4.9) (i) As regards the contention that AO himself was not sure as to where the addition is to be made, major part of addition made on substantive basis in the hands of the assessee has been upheld by the Hon’ble Tribunal. (Para

4.10) (j) The addition for initial investment in unrecorded transaction has been estimated on a reasonable basis and therefore on this amount also penalty is leviable. (Para 4.11) Now the assessees are in appeal here before the Tribunal.

7. The learned counsel of the assessee who appeared before the Tribunal submitted that the penalty levied and confirmed by lower authorities are on the basis of additions made on account of estimated gross profit on alleged underinvoiced sales and addition for initial investment on such sales. Accordingly it was submitted on such estimated additions penalty under s. 158BFA(2) is not leviable. In support of this contention the learned Authorised Representative invited attention of the Bench on the written submissions filed during the course of appellate proceedings by which it is explained as under :

7.1 Along with search on assessee, a search was also conducted at the premises of M/s Ashish International Group, Jaipur, wholesaler of plywood and board. From this group certain records were found on his computer in files named as TFL and TFL2K3. The data in these files were from 1st July, 2001 to the date of search. In these files a ledger account titled ‘Lalitji Sikar’ was found. The AO considered the transactions in this ledger account as pertaining to Tirupati Plywood Industries, proprietary concern of Praveen Goyal and another concern M/s Swastik Udyog, proprietary concern of Sadhuram Goyal.

7.2 The AO observed that as per the ledger account, the unaccounted sales come to Rs. 2,98,21,612 alleged to have been made by M/s Tirupati Plywood Industries and sister concern M/s Swastik Udyog to M/s Ashish International group during the period 1st July, 2001 to 10th Feb., 2003. He also worked out the ratio of unrecorded sale to the sale as per regular books at 14.66. He applied this ratio to the sale made in various years during the block period and worked out total unrecorded sales at Rs. 4,46,64,221. On this alleged unaccounted sales GP rate of 24 per cent is applied and profit of Rs. 1,07,19,414 was worked out. Out of this, addition of Rs. 44,77,200 is made in case of Tirupati Plywood Industries and balance in case of M/s Swastik Udyog in proportion to the recorded sales.

7.3 The CIT(A), based on the statement of Shri Vinay Gupta, proprietor of Ashish International, held that both the assessees had indulged in underinvoicing of sales to the extent of 50 per cent of the recorded sales. The recorded sales during the period relevant to TFL and TFL2K3 files of both the concerns is Rs. 21,83,148. Accordingly, he worked out the unaccounted sales at Rs. 21,83,148 on which by applying a GP rate of 20 per cent, income was determined at Rs. 4,36,630 which was proportionately considered in the hands of Praveen Goyal and Sadhuram Goyal. The relevant finding given by the CIT(A) at p. 21 of its order (paper book 220) is as under : "The assessee is a manufacturer and supplied the material to the Ashish International, During the period relevant to TFL and TFL2K3 file the total sales made were Rs. 21,83,148 (Rs. 4,94,406 of Tirupati Industries + Rs. 16,88,742 of Swastik Udyog). If on the basis of the above statement 50 per cent is treated as onmoney payment and 50 per cent by cheque, unaccounted sales work out to Rs. 21,83,148. On this unaccounted sales both the concerns must have earned a normal profit of 20 per cent which comes to Rs. 4,36,630. In this, it is presumed that 50 per cent is received in cash and 50 per cent in cheque. On the basis of turnover, a sum of Rs. 4,36,630 X 4,94,406/21,83,148 = 98,881 in the case of M/s Tirupati Industries and Rs. 3,37,649 in the case of Swastik Udyog has to be taxed as undisclosed income."

7.4 The Hon’ble Tribunal in its order dt. 20th June, 2008 accepted that there is no direct evidence found in the premises of the assessee about underinvoicing the sales (paper book 197) but considering the material collected from private parties/third persons and in the surrounding circumstances, AO has rightly observed underinvoicing by the assessee. It further held that the unaccounted sales worked out on the basis of TFL and TFL2K3 files at Rs. 2,98,21,612 by AO appears to be more convincing and accordingly accepted it as unaccounted sales made by M/s Tripti Plywood Industries and sister concern M/s Swastik Udyog. On this sales application of GP rate @ 24 per cent as done by AO has been confirmed by not considering the profit rate applied in case of Vikas Timbers Products (P) Ltd. (paper book 198). This resulted into an addition of Rs. 71,57,186 which was proportionately assessed in the hands of Shri Praveen Goyal at Rs. 16,32,586 and in the hands of Sadhuram Goyal at Rs. 55,24,600.

8. Thereafter, learned counsel invited further attention on the brief contentions made through writtensubmissions which are as under :

8.1 At the outset it may be noted that while determining the undisclosed income in respect of the alleged sale in TFL and TFL2K3 file seized from Ashish International group the following facts were not correctly appreciated.

8.2 Shri Lalit Goyal, under whose name, account in TFL and TFL2K3 file is appearing, in his statement recorded on 2nd Feb., 2005 (paper book 20-26) has stated that he has no link with M/s Tirupati Plywood Industries, which belongs to Shri Praveen Goyal, his cousin and M/s Swastik Udyog which belongs to his relative Shri Sadhuram Goyal to whom they call uncle (question No. 3). On being asked about the entries recorded in ledger account ‘Lalitji Sikar’ in TFL and TFL2K3 file, he stated that he used to arrange purchases for M/s Ashish International group from Yamunanagar, Delhi, Ahmedabad etc. and the entries recorded in this ledger account may relate to those transactions. He also stated that he was getting commission for this job, which he has offered before Settlement Commission in his case. He admitted that no transactions out of books pertaining to Tirupati and Swastik was done by him. (Question No. 15).

8.3 Shri Vinay Gupta, proprietor. M/s Ashish International in statement dt. 16th Feb., 2005 (paper book 28-31) stated that they used to purchase goods from various parties through Lalit Kumar Goyal who resides at Sikar and the entries recorded in ledger account ‘Lalitji Sikar" pertains to the same (question Nos. 3-4). In reply to question No. 5 he stated that he arranges the goods through Sikar, Delhi etc. On being specifically asked that some of the payments recorded in this ledger account pertains to M/s Tirupati Plywood and Swastik Udyog, he stated that these payments might have been made through Lalitji and, therefore, it has been recorded in ledger account of Lalitji Sikar (question No. 6).

8.4 Shri Praveen Goyal in his statement recorded on 11th Feb., 2005 (paper book 13-14) has stated that he has no knowledge of the transactions recorded in TFL/TFL2K3 file as these have not been done by him (question No. 3). On being specifically asked about the entries of bank posted in Lalitji Sikar account which are verifiable from regular books of account of M/s Tirupati Plywood and Swastik Udyog, he stated that these entries are duly recorded in regular books of both the concerns (question No. 4). Similar statement was given by Shri Sadhuram Goyal on 4th Feb., 2005 (paper book 15-19). He further stated in reply to question No. 7 that his firm has no relationship with the cash transaction recorded in the name of Lalitji Sikar in TFL/TFL2K3 file.

8.5 Shri Kemchand Sindhi in his statement dt. 10th Feb., 2003 (paper book 32-37) has nowhere stated that the sale is underinvoiced. What is treated is that he makes entries in the books of Ashish International for 3 per cent commission. This statement has no relevance with the business of the assessee.

8.6 From the statements given by all these persons it is clear that the ledger account ‘Lalitji Sikar’ records the transactions of purchases made and payment given through Lalit Goyal, Sikar by M/s Ashish International. These transactions have no connection with Tirupati Plywood and Swastik Udyog, except some bank entries, which are verifiable from books of these concerns. Therefore even if an adverse inference is drawn on the basis of the entries recorded in the ledger account of Lalitji in the records seized from M/s Ashish International, the same cannot be a foundation for levy of penalty without bringing any positive evidence of any undisclosed income having been earned by the assessee.

8.7 During assessment proceedings Shri Lalit Goyal filed his affidavit (paper book 27) stating that he is having business transactions with M/s Ashish International in his personal capacity as he was arranging goods for them and getting commission. He also owned the ledger account ‘Lalitji Sikar’ found from computer file of Ashish International group. He stated that this account contains the transactions of goods purchased through him by the Ashish International. He admitted this account as belonging to him. Before Settlement Commission also he admitted the said account and transactions in this account and offered income from commission in his case. The case of Shri Lalit Goyal has been admitted by the Settlement Commission under s. 245D(1) vide order dt. 9th May, 2005 (paper book 40-46). In the order of Settlement Commission also it is specified that ledger account of ‘Lalitji Sikar’ found in file TFL and TFL2K3 pertains to him, as he was commission agent for Ashish International group. Hence without any evidence, all the transactions in this account cannot be considered as pertaining to M/s Triputi Plywood Industries and M/s Swastik Udyog and the income estimated on that basis should not lead to levy of penalty.

8.8 It is pertinent to mention that in search carried out at the residence and business premises of the assessee, no evidence/document was found to indicate that the assessee has indulged in underinvoicing/making unaccounted sales. Further no undisclosed asset or valuable article/ thing was found. The AO simply on surmises and conjectures and on the basis of certain documents/evidence found from the premises of third party and that too in the name of third person held that the assessee has indulged in underinvoicing of sales/making unaccounted sales. The observation made by the AO in paras 10.20 and 10.22 and in paras 10.35-10.37 referred in the order of Hon’ble Tribunal is duly replied to the AO (paper book A/23-A/25). Therefore the addition made by AO by drawing presumption on the basis of material found from premises of third party which is not related to the assessee, even if partly upheld, cannot be a basis for imposing the penalty with reference to such addition.

8.9 The presumption that all the transactions recorded in ledger account ‘Lalitji Sikar’ pertain to the assessee is incorrect for the following reasons : -No evidence was found in search of assessee to indicate that other transactions in this account pertain to assessee. -Evidence found from third party has no evidentiary value unless it is corroborated with evidence found from assessee. -Admission of transactions in the captioned ledger account by Shri Lalit Goyal as pertaining to him and offer of income before Settlement Commission which stands admitted by the Settlement Commission. -Statement and affidavit given by Shri Lalit Goyal and Vinay Gupta, proprietor of Ashish International during assessment proceedings wherein both the persons have confirmed that the goods have been purchased through Lalit Goyal and payment made through him is entered in this ledger account. -Nowhere the assessee or any other person has stated that transactions in ledger account ‘Lalitji Sikar’ relates to them.

8.10 Considering the above facts CIT(A) in quantum proceedings accepted that transaction in TFL file in the name of ‘Lalitji Sikar’ do not pertain to assessee but since Shri Ashish/Vinay Gupta who are purchasers stated that there is underinvoicing of 10 per cent to 70 per cent, he assumed underinvoiced sales of assessee at 50 per cent, of recorded sales. Thus the CIT(A) accepted the contention of the assessee that transactions in TFL files do not pertain to any unaccounted sales made by the assessee. The income determined by the CIT(A) on this basis worked out at Rs. 4,36,630 as against Rs. 3,00,000 declared by both the assessees. In these circumstances, considering the totality of the fact, the penalty levied by the AO and confirmed by the CIT(A) on the income estimated by Hon’ble Tribunal is uncalled for.

8.11 The Tribunal at p. 23 of its order held that the transactions in the TFL file, which is under the name of "Lalitji Sikar" pertain to the assessee only for the reason that the order of the AO appears to be more convincing. Accordingly it accepted the unaccounted sale as per TFL file at Rs. 2,98,21,612 and also upheld estimation of GP rate at 24 per cent to confirm the above addition. The Hon’ble Tribunal neither accepted the working of the AO in totality nor approved the working of CIT(A) but held that transaction in TFL file for the period, pertained to the assessee and thus directed to estimate income on sales for that period only. There is no positive evidence to hold that the transaction in TFL file pertains to the assessee. This fact is accepted by the Hon’ble Tribunal also on p. 23 of its order (paper book 197). In the search conducted on the assessee, no evidence of unrecorded sale was found, nor any asset/expenditure to the extent of the income estimated by the Tribunal was found. Even in respect of the transaction recorded in TFL file, the CIT(A) and the Tribunal has taken the different view. The explanation of the assessee is not found false nor was the affidavit rebutted. The explanation given by the assessee is bona fide and the same is substantiated with evidence. These facts were not re-examined in the penalty proceedings even though the assessee specifically requested to examine the same again in penalty proceedings being independent of assessment proceedings. Hence on the additions restored by Tribunal no penalty is leviable as the same is not only on estimation but also there is difference of opinion by appellate authorities on this issue. For this reliance is placed on the case mentioned hereinafter.

8.12 It may also be pointed out that Tribunal itself in case of Asstt. CIT vs. Vikas Timbers Products (P) Ltd. [IT(SS)A Nos. 39 and 53/Jp/2006] (paper book 158-174) where ledger account in its own name was found in the same TFL file has taken altogether different view than in case of assessee. In that case also the AO has made addition by applying GP rate of 24 per cent on the transactions recorded in same TFL files found from Ashish International. The CIT(A) has reduced that rate to 10 per cent by accepting the sales [in case of assessee, sale is not admitted by CIT(A) as ledger account is in name of Lalit Goyal]. The Hon’ble Tribunal, however, held that profit rate of 3 per cent be applied by giving following findings (paper book 170) : "However, looking to the circumstances and also considering the fact that in the case of underinvoiced sales assessee might have saved the taxes etc. the profit rate of 3 per cent is quite reasonable on the underinvoiced sales found recorded in the seized diaries TFL and TFL2K3 at Rs. 1,03,33,438 which comes to Rs. 3,10,003."

8.13 In present case also the average GP rate for the block period is 24 per cent but the net profit rate for the asst. yr. 2002-03 is 2.64 per cent and in 2003-04 it is 2.63 per cent i.e., below 3 per cent. From this decision also it can be noted that on identical issue a rate of 3 per cent has been applied in case of Vikas Timbers Products (P) Ltd. whereas the rate of 24 per cent is applied in case of assessee which shows that even on the rate two different views are taken on estimation basis.

8.14 Both the AO and CIT(A) in their orders have not brought any evidence on record to negate the explanation of the assessee. They are simply carried away by the fact that addition is confirmed by Hon’ble Tribunal without bringing any evidence on record as to the destination of such alleged undisclosed income. In penalty proceedings also no independent enquiry to rebut the explanation of assessee was carried out. The various observations made by CIT(A) in penalty order is fully explained by assessee to AO itself and even the CIT(A) has not found any falsehood in the said explanation. In these circumstances the order of CIT(A) confirming levy of penalty is not sustainable. Accordingly it was submitted that in view of above discussion the levy of penalty on the income estimated on account of unrecorded/underinvoiced sales is unjustified. Regarding initial investment, the learned counsel of the assessee explained the facts and his contentions in the following manner.

10.1 The AO observed that for making unaccounted sales unaccounted purchases must have been made by the assessee. He estimated that purchases for one month are required as initial cost of purchases. One month purchases cost was estimated at Rs. 13,68,175. This cost was bifurcated in various years over the block period according to sales and addition for Rs. 6,17,213 was made in case of Praveen Goyal and balance in case of Sadhuram Goyal.

10.2 The CIT(A) upheld addition of Rs. 84,437 in case of Praveen Goyal and Rs. 24,720 in case of Sadhuram Goyal on the unaccounted sales estimated by him by holding that initially there must be unaccounted payment for one month. The Hon’ble Tribunal (paper book 198, para 8) sustained addition of Rs. 3 lakhs in case of Praveen Goyal and Rs. 3.50 lakhs in case of Sadhuram Goyal on ad hoc basis by holding that though the profit earned is revolved in making purchases from time to time but there is possibility of leakage of revenue.

10.3 It is a fact on record that in search stock was found short. The presumption in case of short stock is that the stock as per books has been sold out of books. In such a situation no initial investment can be presumed.

10.4 In case of Vikas Timbers Products (P) Ltd. (supra) in para 28 the Hon’ble Tribunal (paper book 172) restricted the addition for possible leakage of revenue at Rs. 1 lakh on unaccounted turnover of Rs. 1,03,33,438 but no separate addition was made by covering it against the addition upheld on account of unaccounted profits earned from underinvoiced sales. Therefore in the case of assessee also no separate addition on estimated basis was called for. Moreover as submitted above the presumption of unaccounted sales made by assessee is incorrect. Therefore, no question arises for making investment in purchases. This is also supported from the fact that in search stock was found short. Thus the addition sustained by the Tribunal is on estimated and ad hoc basis and there are two views on the addition. Hence on such addition penalty should not be levied.

11. After explaining the factual aspects, the learned counsel of the assessee argued that no penalty can be levied when AO himself is not sure as to whom the income pertains. It was explained that the AO at p. 33 para 11.3 of the assessment order in the case of Praveen Kumar Goyal and similarly in the case of Sadhuram Goyal has observed that to safeguard the interest of the Revenue, similar addition will be considered in the hands of Shri Lalit Kumar Goyal on protective basis. Accordingly, it was submitted that when AO himself is not sure in whose hand addition is warranted, then no penalty can be levied in the hands of these two assessees.

12. It was further submitted that against the addition confirmed by the Tribunal, the assessee had preferred appeal before the Hon’ble High Court which has admitted the appeals by holding that there is a question of law involved. Attention of the Bench was drawn on copy of order of Hon’ble High Court placed on record where the question referred to it were admitted. Reliance was placed on the decision of the Tribunal in the case of Rupam Mercantiles Ltd. (In Liquidation) & Ors. vs. Dy. CIT (2004) 85 TTJ (Ahd)(TM) 609 : (2004) 91 ITD 237 (Ahd)(TM) wherein it is held that a plea or claim held by High Court to give rise to a substantial question of law cannot be treated as frivolous or mala fide so as to attract levy of penalty under s. 271(1)(c). Accordingly it was submitted that in the present case the Hon’ble High Court as submitted earlier, has admitted the appeal of the assessee on the issue which goes to the root of the matter of addition and, therefore, on such additions penalty cannot be levied.

13. It was further argued that on estimated additions penalty cannot be levied. It was further submitted that in another case i.e., in the case of Vikas Timber Products (P) Ltd. (supra) on identical issue, the Tribunal has confirmed the addition @ 3 per cent whereas in these two cases the Tribunal has confirmed the addition @ 24 per cent. It was further submitted that on this very basis the Hon’ble High Court has admitted the appeals of these two assessees. Therefore, it was pleaded that on estimated addition, penalty cannot be levied. Reliance was placed in the cases of Smt. Mala Dayanithi vs. Dy. CIT (2005) 92 TTJ (Bang) 270 : (2004) 270 ITR 56 (Bang)(AT), Dy. CIT vs. Suresh Kumar (2005) 95 TTJ (Kol) 926 : (2005) 284 ITR 104 (Kol)(AT), Dy. CIT vs. Koatex Infrastructure Ltd. (2006) 102 TTJ (Mumbai) 737 : (2006) 100 ITD 510 (Mumbai) and Asstt. CIT vs. Shivkant Khandelwal & Ors. decided in IT(SS)A Nos. 147 to 149/Jp/2005.

14. The learned counsel of the assessee further argued that penalty is not leviable on difference of opinion. It was explained that from the above facts it is evident that there is difference of opinion amongst the two appellate authorities in relation to the transaction in TFL file, GP rate and the alleged unexplained initial investment. The learned CIT(A) has held that transaction in TFL file does not belong to assessee whereas Tribunal has held that it belongs to the assessee. In respect of this contention, reliance has been placed on the decision in the case of CIT vs. Calcutta Credit Corporation (1986) 56 CTR (Cal) 142 : (1987) 166 ITR 29 (Cal), in the case of Smt. Neelam Saxena vs. Dy. CIT [IT(SS)A No. 160/Jp/2003] and in case of Durga Kamal Rice Mills vs. CIT (2003) 183 CTR (Cal) 223 : (2004) 265 ITR 25 (Cal).

15. On the other hand, the learned Departmental Representative has strongly placed reliance on the written submissions filed during the course of search. In the written submissions filed by learned Departmental Representative, the facts in brief have been explained and it has been stated that the Tribunal has confirmed the addition in both these cases by drawing adverse inference and, therefore, penalty levied and confirmed by lower authorities are justified. It was further submitted that the learned counsel of the assessee has strongly stated that Hon’ble High Court has admitted the question of law but the Hon’ble High Court has not decided the issue in favour of the assessee. Therefore, merely admitting the question of law does not hold that no penalty can be levied. It was strongly argued that detailed ledger accounts maintained by Shri Lalitji of these two parties were found from the possession of Shri Lalitji. Shri Lalitji had prepared a separate account of each party from whom the purchases have been shown as made for supplying to M/s Ashish International and others. Payment made through cheque is also recorded in the same page. Therefore, whatever the items have been purchased from these parties, which are not recorded in the books of account belong to these two parties. It was further submitted that the AO has clearly recorded a categorical finding that entries found recorded in the notices found from the possession of Shri Lalitji pertains to these two parties. It was also submitted that the seized documents found during the course of search has to be read in totality. Accordingly, it was submitted that the ledger account cannot be segregated that some entries belong to these parties and some are not. It was explained that the payments made through cheques have been recorded in the books of account. However, the other payments made have not been recorded in the regular books. Therefore, the AO and learned CIT (A) were justified in confirming levy of penalty. It was further submitted that the additions have been confirmed by the Tribunal placing reliance on various case laws mentioned at p. 4 of the written note filed by learned Departmental Representative. The argument of the assessee that penalty cannot be levied on estimated addition, it was submitted that penalty may not be levied on the estimated income where estimation of income has been made on the basis of regular entries. However, where the estimated income is made on the basis of non-recording of entries penalty can be levied. Reliance was placed on various cases i.e., CIT vs. Kedar Nath Ram Nath 1975 CTR (All) 13 : (1977) 106 ITR 172 (All), CIT vs. Swarup Cold Storage & General Mills (1982) 29 CTR (All) 273 : (1982) 136 ITR 435 (All), Addl. CIT vs. Lakshmi Industries & Cold Storage Co. (1983) 32 CTR (All) 195 : (1984) 146 ITR 492 (All), CIT vs. T.J. Mathai (2004) 190 CTR (Ker) 201 : (2004) 269 ITR 492 (Ker) and Yashwant Singh vs. CIT (supra).

Regarding argument that penalty is not leviable on difference of opinion, reliance is placed on the decision of Hon’ble Rajasthan High Court in the case of CIT vs. Smt. Shakuntala Devi (2003) 183 CTR (Raj) 520 : (2004) 270 ITR 590 (Raj). At the close of hearing, the Bench required the assessee to file copy of Panchnama. Panchnama was required on the ground that no material whatsoever was found during the course of search relating to these two assessees. Copy of Panchnama was filed which has been taken into consideration.

We have heard rival submissions and considered them carefully. After considering the relevant material along with written submissions and also various case laws relied upon by both the parties, we find that these assessees deserve to succeed in their respective appeals. We have gone through the copy of Panchnama filed and found that on the basis of material found during the course of search in the case of Lalitji and Praveen Gupta, no addition has been made in the hands of these two assessees. In the Panchnama some jewellery items were found. Some Vikas Patras and NSS totalling to Rs. 18,000 were found. On this account, no addition has been made in hands of these two assessees as stated above. It is a settled position of law that any addition can be made only on the basis of material found. Though in the present case the Tribunal has confirmed the addition made by AO on estimated gross profit on the basis that the entries found recorded in the ledger account found from the possession of Lalitji pertain to assessee. Therefore, we do not want to comment on those findings of the Tribunal. However, the fact is that no addition has been made on the basis of material found from the possession of these two assessees. Since no direct evidence is there that assessees had concealed particulars of income, therefore, in our considered view the penalty should not be levied.

19.1 We have gone through the various documents placed on the paper book. It is seen that copy of ledger account found from the possession of Lalitji is also placed and in that ledger account there are many names of different parties mentioned. Many hundreds of entries have been recorded including four entries relating to the assessee have been recorded. As stated above, various names of different parties have been mentioned and from this fact alone it can easily be inferred that entire ledger account does not pertain to the entries belonging to the assessee. Only four entries relate to assessee and these four entries have been recorded in regular books of account of the assessee. Though the addition on merit has been confirmed by the Tribunal and as stated earlier, we do not want to comment on the finding of the Tribunal. However, we find that since the penalty proceedings are distinct and separate from the assessment proceedings, therefore, all the material has to be taken into consideration for the purpose of levying of penalty and this fact has been taken into consideration. Therefore penalties levied under s. 158BFA(2) are not justified.

19.2 We further noted that even learned CIT(A) while confirming the penalty has observed in his order that no direct evidence of underinvoicing was found in the premises of the assessee but a ledger account was found from the possession of Lalitji and on the same basis the Tribunal has confirmed the quantum addition. Therefore, he has confirmed the levy of penalty. From the observation of learned CIT(A) it is clearly established that no direct evidence was found either from the possession of these two assessees or from the possession of Lalitji. Therefore, for this reason also, in our considered view, the penalty is not leviable as they are separate and distinct from the assessment proceedings.

19.3 We further noted that even all the authorities have difference of opinion. The AO is saying that all the entries recorded in the ledger account found from the possession of Lalitji pertain to the assessee, on the other hand the learned CIT(A) while deciding appeals in quantum says that it may be possible that some percentage of recorded entries in the books of these assessees may be unrecorded. Thereafter matter travelled to the Tribunal who is in agreement with the finding of learned AO. We further noted that on identical facts in another case i.e., in case of Vikas Timbers Products (P) Ltd. (supra), the same Bench of the Tribunal has applied a GP rate of 3 per cent whereas in these two cases the same Bench of the Tribunal has applied a GP rate of 24 per cent. From these facts it is clearly established that all the authorities are having difference of opinion. Where there are difference of opinion, many Courts have held that no penalty can be levied. Such decisions have been mentioned in this order while recording the argument of the learned Authorised Representative. In view of those decisions, the penalty cannot be levied where difference of opinion are there. Some of these decisions are discussed here as under.

20. In the case of Calcutta Credit Corporation (supra), the Hon’ble Calcutta High Court has held that where two opinions on the facts of the case are possible, concealment is not established and, therefore, penalty cannot be levied.

21. The Hon’ble Calcutta High Court in the case of CIT vs. Jagabandhu Prasanna Kumar Ruplal Sen Poddar (1981) 23 CTR (Cal) 156 : (1982) 133 ITR 156 (Cal) have taken similar view.

22. The Jaipur Bench of the Tribunal in the case of Smt. Neelam Saxena (supra) has also held that when there is difference of opinion between the two appellate authorities, no penalty is leviable either under s. 271(1)(c) or 158BFA(2).

23. The Hon’ble Calcutta High Court again in the case of Durga Kamal Rice Mills (supra) has cancelled the levy of penalty. The facts and finding of the Hon’ble Calcutta High Court are as under : "In this case excess of opening balance of capital of the assessee firm over the closing balance of the previous year was found. It was discovered in a duplicate book of account and treated as income of the assessee for the previous year. It could alternatively be treated as income of the following previous year and, therefore, penalty under s. 271(1)(c) cannot be imposed. Here it was nothing to show that the Tribunal has ever come to any conclusion that the assessee owned this amount. Even then in this case once it had added to the income of the assessee and then again same amount have been accepted as income of the partners in their revised return, the IT authority is precluded from contending that the assessee is the owner of the amount of income. In this case it appears that two views are possible. Because of the two stands taken by the IT authority in this case i.e., by adding the amount in the income of the assessee and again accepting the same at the hands of partners, the IT authority cannot fall back on one and reject the other. Hence no penalty is leviable either under s. 271(1)(c) or 158BFA(2)."

24. We further noted that the Third Member in the case of Rupam Mercantiles Ltd. (In Liquidation) (supra) has held that where appeal against quantum has been admitted by the High Court, then there is no question of levy of penalty. Undisputedly, the Hon’ble High Court vide its order dt. 21st Jan., 2010 have admitted the question of law. The questions of law admitted by the Hon’ble High Court are as under : "(1) Whether the specific scope defined under the law for the determination of undisclosed income in block assessment under Chapter XIV-B of the Act can be extended beyond the evidences discovered during the search in the case of an assessee under s. 132 of the Act and whether in the absence of any direct material/evidence, undisclosed income can be determined on the basis of mere suspicion, conjectures and inferences drawn by the AO ? (2) Whether the Tribunal was justified in deciding two cases having identical allegations differently in as much as in case of Asstt. CIT vs. Vikas Timbers Products (P) Ltd. [IT(SS)A Nos. 39 and 53/Jp/2006] it has sustained the addition to the extent of profit computed @ 3 per cent on the undisclosed turnover whereas in case of the appellant it has sustained the addition to the extent of profit computed @ 24 per cent on the undisclosed turnover ?" While deciding the appeal in the case of HDFC where one of us was party, on similar facts the penalty has been cancelled by Mumbai Bench of the Tribunal. Therefore, we have no hesitation in holding that where question of law has been admitted by the Hon’ble High Court against quantum addition, no penalty can be levied. We have also gone through the various case laws relied upon by learned Departmental Representative and found that they are distinguishable on facts.

The reliance has been placed in the case of K.N. Singh (supra). In this case the assessee was a contractor but did not maintain the books of account. He filed the return on the basis of the certificate filed with the Excise Department. The AO conducted enquiry from the Excise Department and found that the certificate filed was forged. Accordingly he estimated the income by estimating sales and GP rate. Thereafter the AO levied penalty which was deleted by the Tribunal. However, the Hon’ble Madhya Pradesh High Court has held that the assessee made a deliberate attempt to mislead the Department by filing the forged certificate and confirmed the levy of penalty. Here, the facts are totally distinguishable as nothing has been found that was forged by the assessee. A ledger account containing list of items purchased was found from the possession of Lalitji and he has categorically stated that he purchased material from several parties and supplied to other parties. He has not taken the name of assessee that he purchases the material from these two parties underhand and thereafter had supplied. Therefore, at least for the purpose of levy of penalty, no adverse inference should have been drawn against the assessee.

Reliance has been placed on the decision of Yashwant Singh’s case (supra). This case relates to addition for low household withdrawal on the basis of detailed enquiries conducted by the Inspector. The assessee failed to offer any explanation and, therefore, additions were made. On such addition penalty was levied and confirmed. The facts are distinguishable as in the present case no such facts are involved. Similarly, the facts in the case decided by Hon’ble Calcutta High Court in the case of Mriganka Mohan Sur (supra), on which reliance has been placed by learned Departmental Representative are distinguishable. Therefore, this case also does not help the case of the Department.

In view of the above facts and circumstances and in view of the detailed discussion, we hold that penalty levied and confirmed by lower authorities under s. 158BFA(2) are not justified. Therefore, the same are cancelled.

In the result, both the appeals are allowed.

 

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