IT: Admission of substantial question of law by High Court in respect of addition itself could not be reason to delete penalty
IT: Where explanation of assessee in respect of jewellery found during course of search had been substantially accepted in quantum proceeding, marginal difference added to total income of assessee could not be basis to impose penalty under section 158BFA
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[2013] 40 taxmann.com 153 (Mumbai - Trib.)
IN THE ITAT MUMBAI BENCH 'F'
Vasant Thakoor
v.
Assistant Commissioner of Income-tax*
P.M. JAGTAP, ACCOUNTANT MEMBER
AND SANJAY GARG, JUDICIAL MEMBER
AND SANJAY GARG, JUDICIAL MEMBER
IT (SS) APPEAL NOS. 60, 65, 66, 77 & 79 (MUM.) OF 2009
[BLOCK PERIOD 1-4-1987 TO 15-9-2007]
[BLOCK PERIOD 1-4-1987 TO 15-9-2007]
MARCH 20, 2013
I. Section 158BFA, read with section 158BC, of the Income-tax Act, 1961 - Block assessment in search cases - Levy of interest and penalty in certain cases [General] - Whether even where substantial question of law was admitted by High Court on issue of addition, penalty could be imposed in respect of said addition - Held, yes - In search proceedings undisclosed income on account of interest received in cash as well as unexplained fixed deposits was admitted by assessee in his statement recorded under section 132(4) wherein assessee had not actually accepted that said income was belonging to him but agreed to disclose same as his undisclosed income in block return - Later on, assessee made an attempt to retract said statement by taking different stand that said income was belonging to partnership firm - Such retraction came after a long gap of more than two years and same was not accepted by Tribunal in quantum proceedings - Assessing Officer thereafter imposed penalty under section 158BFA on such addition - Whether penalty imposed by Assessing Officer in respect of said addition was justified - Held, yes [Paras 27 & 28] [In favour of revenue]
II. Section 158BFA, read with section 158BC, of the Income-tax Act, 1961 - Block assessment in search cases - Levy of interest and penalty in certain cases [Others] - In search proceedings, certain jewellery was found in possession of assessee - Assessee offered said jewellery to extent of Rs. 2,66,176 in his return of income accepting same as unexplained and balance jewellery worth to Rs. 4,37,725 was explained by assessee as belongings of his relatives - Assessing Officer however made an addition of Rs. 4,37,725 to undisclosed income of assessee on account of unexplained jewellery - Based on said addition penalty under section 158BFA was imposed on assessee - Commissioner (Appeals) restricted said addition to only Rs. 41,305 in quantum proceedings - Whether since explanation of assessee in respect of jewellery found during course of search had been substantially accepted in quantum proceedings, marginal difference added to total income of assessee on account of unexplained jewellery could not be treated as concealment in order to attract penalty under section 158BFA(2) - Held, yes [Para 31] [In favour of assessee]
CASE REVIEW-I
CIT v. Splender Construction [2013] 352 ITR 588/[2012] 22 taxmann.com 407/208 Taxman 302 (Mag.) (Delhi) (para 27) followed.
CASES REFERRED TO
Nayan Builders & Developers (P.) Ltd. v. ITO [I.T. Appeal No. 2379 (Mad.) of 2009, dated 18-3-2011] (para 25), Kandoi Bhogilal Mulchand v.Dy. CIT [2012] 341 ITR 271/21 taxmann.com 153 (Guj.) (para 26) and CIT v. Splender Construction [2013] 352 ITR 588/[2012] 22 taxmann.com 407/208 Taxman 302 (Delhi)(Mag.) (para 27).
D.P. Bapar for the Appellant. O.P. Meena for the Respondent.
ORDER
P. M. Jagtap, Accountant Member - These five appeals filed in the case of four assessees belonging to one group/family have been heard together and are being disposed of by a single composite order for the sake of convenience.
2. First we shall take up the appeal filed by the assessee namely Mr. Vasant Thakoor being I. T. (SS) A. No. 60/Mum/2009 which is directed against the order of the learned Commissioner of Income-tax (Appeals)-XXXII, Mumbai dated March 15, 2009. The solitary issue arising out of this appeal relates to the quantification of exact amount of undisclosed income chargeable to tax in the hands of the assessee.
3. The relevant facts of the case giving rise to this appeal are that a search and seizure action was conducted in the case of the assessee, his family members and the business concerns on September 4, 1997. Pursuant to the said action, block assessment under section 158BC of the Income-tax Act, 1961 (the Act) was passed by the Assessing Officer on September 30, 1999 determining the undisclosed income of the assessee at Rs. 53,52,237. The said order was set aside by the learned Commissioner of Income-tax (Appeals) vide his order dated March 28, 2001 passed under section 250 of the Act with a direction to the Assessing Officer to carry out certain enquiries and verifications. In the said order, the learned Commissioner of Income-tax (Appeals) accepted the stand of the assessee that certain undisclosed income assessed in his hands should be considered in the hands of the firm namely M/s. Thakoor Metal Industries. The order of the learned Commissioner of Income-tax (Appeals) dated March 28, 2001 was challenged by the assessee as well as by the Department before the Tribunal and the Tribunal vide its order dated August 31, 2005 allowed the appeal of the Department holding that the undisclosed income was rightly taxed by the Assessing Officer in the hands of the assessee in his individual capacity. Meanwhile, the order passed by the Assessing Officer dated March 28, 2003 giving effect to the order of the learned Commissioner of Income-tax (Appeals) dated March 28, 2001 was set aside by the Commissioner of Income-tax under section 263 vide an order dated September 30, 2003 directing the Assessing Officer to make certain further enquiries and verifications. The Assessing Officer accordingly passed a fresh order under section 158BC read with sections 250 and 263 on April 30, 2004 computing the undisclosed income of the assessee at Rs. 43,83,737. Incidentally, the assessee moved a miscellaneous application before the Tribunal stating that one of the issues raised by him regarding correct quantification of undisclosed income in his individual hands had not been adjudicated by the Tribunal. The Tribunal vide its order dated July 17, 2006 disposed of the said miscellaneous application directing the learned Commissioner of Income-tax (Appeals) to determine correctly the quantum of addition to be made in the hands of the assessee on account of unexplained cash/assets/ interests. As per the direction of the Tribunal, the learned Commissioner of Income-tax (Appeals) considered the issue of quantification of undisclosed income of the assessee. In this regard, it was submitted on behalf of the assessee before the learned Commissioner of Income-tax (Appeals) that the issue of quantification of undisclosed income was confined to interest received in cash of Rs. 7,50,000 and cash sale of scrap/machinery estimated at Rs. 30 lakhs. It was submitted that the quantification made by the Assessing Officer in respect of interest at Rs. 7,50,000 was acceptable to the assessee and the only dispute was relating to the quantification of undisclosed income from cash sales of scrap/machinery. It was submitted in this regard that the cash sale of scrap/machinery was quantified by the Assessing Officer at Rs. 14,27,680, Rs. 10,23,906 and Rs. 40,525 for the assessment years 1996-97, 1997-98 and 1998-99 respectively based on the material found during the course of search. It was contended that the correct amount of un-accounted sale of scrap/machinery thus was quantified by the Assessing Officer at Rs. 24,94,211 but the same was estimated at Rs. 30 lakhs taking into consideration the amounts spent by the assessee for personal as well as household expenses and other purposes such as repairs, renovation, purchase of personal effects, etc. It was submitted that the aggregate of amounts so spent by the assessee was only Rs. 10.80 lakhs and if the same was reduced from cash sale of scrap/machinery amounting to Rs. 24.92 lakhs and interest of Rs. 7.50 lakhs received in cash, cash available with the assessee at the time of search was Rs. 21.62 lakhs which was much more than the cash of Rs. 15,58,500 found during the course of search. It was contended that there was thus no justification in estimating the amount of cash sale of scrap/machinery over and above Rs. 24.92 lakhs as quantified by the Assessing Officer on the basis of seized documents and the estimation of Rs. 30 lakhs made by the Assessing Officer should be restricted to Rs. 24.92 lakhs.
4. The submissions made on behalf of the assessee were found acceptable by the learned Commissioner of Income-tax (Appeals). He noted that the undisclosed interest of Rs. 7.50 lakhs received in cash from Ramnit Chawda was stated to be distributed by the assessee amongst the partners of the firm whereas the cash of Rs. 24.92 lakhs received from sale of scrap/ machinery was stated to be utilised for giving Rs. 3.82 lakhs to Mr. B.B. Thakoor (Dada) for personal expenditure and for incurring the personal expenditure including renovation and repairs to the extent of Rs. 10.80 lakhs as per the seized documents. He found that the cash only to the extent of Rs. 10.30 lakhs thus was available with the assessee at the time of search out of the undisclosed cash receipts of Rs. 32.42 lakhs as against the cash of Rs. 15,58,500 found during the course of search. The learned Commissioner of Income-tax (Appeals) held that the cash found during the course of search thus had remained unexplained to the extent of Rs.5,28,500 and if the same is included in the other undisclosed income assessed by the Assessing Officer including income from sale of scrap/ machinery amounting to Rs. 24,92,111, the total undisclosed income of the assessee would come to Rs. 46,04,348 as against the total undisclosed income of Rs. 45,83,737 computed by the Assessing Officer. He held that the estimate of Rs. 30 lakhs made by the Assessing Officer on account of cash sale of scrap/machinery thus was correct taking into account the unexplained cash of Rs. 5,28,500 found during the course of search for which no separate addition was made. Aggrieved by the order of the learned Commissioner of Income-tax (Appeals), the assessee has preferred this appeal before the Tribunal.
5. During the course of appellate proceedings before the Tribunal, the assessee has filed modified ground as well as additional ground to dispute the addition of Rs. 5,28,500 sustained by the learned Commissioner of Income-tax (Appeals) while quantifying his undisclosed income. The said grounds read as under :
Modified ground
"The learned Commissioner of Income-tax (Appeals) has erred in upholding the quantification of the addition on account of undisclosed income from sale of scrap/machinery of Rs. 30,00,000 as against the contention that the addition on this account should not exceed Rs. 24,92,111 (emphasis supplied to highlight the modification)
Additional ground
The learned Commissioner of Income-tax (Appeals) has erred in rendering the finding that the amount of cash found at the time of search was unexplained to the extent of Rs. 5,28,500."
6. Learned counsel for the assessee, at the outset, raised a preliminary objection by submitting that the learned Commissioner of Income-tax (Appeals) has surpassed the direction given by the Tribunal and has gone beyond the scope of the order of the Tribunal setting aside the issue relating to quantification of undisclosed income of the assessee. He submitted that the learned Commissioner of Income-tax (Appeals) ought to have restricted himself the quantification of undisclosed income of the assessee on account of cash sale of scrap/machinery as per the direction of the Tribunal but he has also taken into account the quantification of undisclosed cash found during the course of search which is beyond the scope of the order of the Tribunal setting aside the matter to the learned Commissioner of Income-tax (Appeals). He contended that the assessee therefore has now filed an additional ground challenging the action of the learned Commissioner of Income-tax (Appeals) on this issue and requested that the same may be admitted.
7. Without prejudice to his preliminary objection, learned counsel for the assessee submitted that the cash of Rs. 7.50 lakhs received as interest from Ramnit Chawda was distributed amongst the partners and the same was available to meet the personal expenditure including the renovation and repairs amounting to Rs. 10.80 lakhs. He submitted that even the quantification of such expenses at Rs. 10.80 lakhs was without any basis and therefore the quantification of undisclosed cash found during the course of search as made by the learned Commissioner of Income-tax (Appeals) at Rs. 5,28,500 is not correct. He contended that the quantification of cash sale of scrap/machinery thus should have been made by the learned Commissioner of Income-tax (Appeals) only to the tune of Rs. 24.92 lakhs independently as done by the Assessing Officer on the basis of seized documents.
8. The learned Departmental representative, on the other hand, invited our attention to the relevant portion of the Tribunal's order at pages 125 and 126 of the assessee's paper book and submitted that the matter was set aside by the Tribunal to the file of learned Commissioner of Income-tax (Appeals) for correct determination of quantum of addition on account of undisclosed cash/assets/interests. He contended that the quantification of undisclosed cash as found during the course of search thus has been made by the learned Commissioner of Income-tax (Appeals) as per the specific direction given by the Tribunal and he has not gone beyond the scope of the order of the Tribunal. He contended that there is thus no merit in the objection raised by learned counsel for the assessee in this regard and the additional ground filed by the assessee is liable to be dismissed at the threshold. As regards the quantification of undisclosed income made by the learned Commissioner of Income-tax (Appeals) as per the direction of the Tribunal, the learned Departmental representative invited our attention to the working given by the learned Commissioner of Income-tax (Appeals) on page 6 of his impugned order to show that the total undisclosed income of the assessee was quantified by him at Rs. 46,04,348 as against the total income of Rs. 45,83,737 computed by the Assessing Officer. He contended that the said working given by the learned Commissioner of Income-tax (Appeals) clearly shows that there is no mistake in the undisclosed income of the assessee as quantified by the Assessing Officer warranting any further relief to the assessee.
9. We have considered the rival submissions and also perused the relevant material on record. It is observed that while disposing of the miscellaneous application filed by the assessee vide its order dated July 17, 2006, the matter was sent back by the Tribunal to the file of the learned Commissioner of Income-tax (Appeals) for the limited purpose of correct determination of quantum of addition on account of unexplained cash/assets/interests in the hands of the assessee as an individual vide paragraph 5 which reads as under :
"5. Factual background of the case has already been narrated above while disposing of the miscellaneous application filed by the assessee. As mentioned above all the assessees had challenged the addition of unexplained cash, asset and interest in their individual hands. The learned Commissioner of Income-tax (Appeals) decided the issue in favour of the assessee by holding that the unexplained cash/asset/ interest belonged to the firm in which they were partners. Therefore, he did not adjudicate upon the correctness of the quantum of addition. It is in this background that the learned authorised representative for the assessee had specifically raised a plea at the time of hearing of the appeals and cross-objections that if the issue was to be decided in favour of the Department, the matter would still need to go back to the file of the Commissioner of Income-tax (Appeals) for correct determination of quantum of addition on account of unexplained cash/asset/interest in the hands of individual assessees. We find that the aforesaid submission made by the assessee carried force. The plea of the assessee for adjudication with regard to quantum of addition has not been considered either by the Commissioner of Income-tax (Appeals) or by this Tribunal. It is, therefore, considered appropriate to restore the matter back to the file of the learned Commissioner of Income-tax (Appeals) with the direction to adjudicate upon the limited issue of correctness of the quantum of addition made on account of unexplained cash/asset/interest in all the aforesaid cases in accordance with law. We order accordingly. Consequently, the orders passed by us in the aforesaid cross-objection will stand amended to the aforesaid extent."
10. A perusal of the relevant portion of the order of the Tribunal as extracted above clearly shows that the matter was restored by the Tribunal to the file of the learned Commissioner of Income-tax (Appeals) for the purpose of correct determination of quantum of addition on account of unexplained cash/assets/interests. Keeping in view this specific direction given by the Tribunal, we do not find ourselves in agreement with the contention of learned counsel for the assessee that the learned Commissioner of Income-tax (Appeals) has gone beyond the scope of the direction given by the Tribunal in determining the exact quantum of addition made on account of unexplained cash. We therefore overrule the objection raised by him in this regard and proceed to decide the issue relating to quantification of undisclosed income on merit.
11. As regards the additional ground filed by the assessee, it is observed that the issue raised therein relating to quantification of unexplained cash found at the time of search is very much arising from the order of the learned Commissioner of Income-tax (Appeals) and the same is also linked with the main issue as originally raised in the appeal of the assessee. We therefore admit the said additional ground and proceed to decide the same on merit along with the original ground as modified by the assessee.
12. It is observed that the quantum of unexplained cash found at the time of search as well as the total undisclosed income of the assessee has been determined by the learned Commissioner of Income-tax (Appeals) at Rs.5,28,500 and Rs. 46,04,348 respectively on the basis of the following working given on page 6 of his impugned order :
| (1) | Cash sale of scrap/machinery | 24.92 | |
| (2) | Cash interest from Ramnit Chawda | 7.50 | |
| Less outgoings | 32.42 | 32.42 | |
| (a) | Personal expenditure including. renovation and repairs as per seized documents | 10.80 | |
| (b) | Amount distributed to partners (excluding appellant) | 7.50 | |
| (c) | Amount given to Dada | 3.82 | 22.12 |
| 10.30 | |||
It is thus evident that the cash found during the course of search in the premises of the appellant to the extent of Rs. 10.30 lakhs gets accounted for from cash sale of scrap/machinery and interest from the builder. Therefore the excess cash found of Rs. 5,28,500 still remains unexplained. The total undisclosed income should therefore be worked out as under :
| (Rs.) | ||
| (a) | Income declared in the return | 2,87,871 |
| (b) | Addition on account of unexplained jewellery | 5,20,866 |
| (c) | Unexplained cash credit | 25,000 |
| (d) | Interest from builders | 7,50,000 |
| (e) | Income from sale of scrap/machines | 24,92,111 |
| (f) | Excess cash found but not explained | 5,28,500 |
| 46,04,348 |
At the time of hearing before us, learned counsel for the assessee has submitted that the amount of Rs. 10.80 lakhs taken by the learned Commissioner of Income-tax (Appeals) as cash outgoing on account of personal expenditure including repairs and renovation is without any basis. However, as mentioned in paragraph 8 of his impugned order by the learned Commissioner of Income-tax (Appeals), cash of Rs. 10.80 lakhs was stated by the assessee himself to have been spent on personal expenditure as per the seized documents. As regards the other contention raised by learned counsel for the assessee in this regard that the cash of Rs. 7.50 lakhs received as interest and distributed amongst the partners was used to meet the personal expenditure of Rs. 10.80 lakhs, it is observed that the learned Commissioner of Income-tax (Appeals) has specifically noted in the working given above that the amount of Rs. 7.50 lakhs was distributed to the partners excluding the assessee whereas the personal expenditure of Rs. 10.80 lakhs was found to be incurred by the assessee. We, therefore, find no mistake in the working made by the learned Commissioner of Income-tax (Appeals) while quantifying the unexplained cash found during the course of search at Rs. 5,28,500. It is also noted that if the said amount of unexplained cash is added to the other undisclosed income of the assessee as computed by the Assessing Officer including cash sale of scrap/machinery, total undisclosed income of the assessee would come to Rs. 46,04,348 as computed by the learned Commissioner of Income-tax (Appeals) and since the same is more than the undisclosed income of the assessee assessed by the Assessing Officer at Rs. 45,83,737, we are of the view that no further relief to the assessee is warranted after the quantification of correct undisclosed income as per the direction of the Tribunal as rightly held by the learned Commissioner of Income-tax (Appeals). We therefore find no infirmity in the impugned order of the learned Commissioner of Income-tax (Appeals) on this issue and upholding the same, we dismiss the appeal of the assessee filed in the case of Mr. Vasant B. Thakoor in I.T. (SS)A. No.60/Mum/2009.
13. Now we shall take up the appeal filed by Mr. Madhukar B. Thakoor in I.T. (SS)A. No. 77/Mum/2009 which is directed against the order of the learned Commissioner of Income-tax (Appeals)-XXXII, Mumbai dated April 23, 2009.
14. The solitary issue involved in this appeal relates to the quantification of exact amount of undisclosed income of the assessee on account of sale of scrap/machinery.
15. In this case, the issue involved as well as all the material facts relevant thereto are almost similar to that of the case of Mr. Vasant Thakoor inasmuch as after the initial round of litigation arising from the block assessment order passed by the Assessing Officer in pursuance of the search and seizure operation, a fresh order was passed by the Assessing Officer under section 158BC read with sections 263 and 250 of the Act on April 30, 2004 computing the undisclosed income of the assessee at Rs. 21,76,560 after making addition on account of cash sale of scrap/machinery at Rs. 12.50 lakhs. Thereafter the appeal filed by the Department against the order of the learned Commissioner of Income-tax (Appeals) was allowed by the Tribunal holding that the undisclosed income was rightly assessed by the Assessing Officer in the individual hands of the assessee. The assessee then moved a miscellaneous application before the Tribunal and while disposing of the same, the Tribunal sent back the issue to the file of the learned Commissioner of Income-tax (Appeals) with a direction to determine the exact quantum of undisclosed income of the assessee on account of unexplained cash/assets/interests. As per the direction of the Tribunal, the learned Commissioner of Income-tax (Appeals) carried out the exercise of exact quantification of undisclosed income of the assessee and after considering the submissions of the assessee as well as the material available on record, he decided the issue regarding quantification finally in paragraph 12 of his impugned order which reads as under :
"12. No other material or document indicating any other cash sale of scrap/machinery by the appellant was found during search. The appellant group had sold its factory and miscellaneous items of scrap/ machinery (which were not sold to the builder). On the consideration of the submissions made by the authorised representative and the detailed examination of the facts as discussed above, it stands demonstrated that the sale of scrap as noted in the loose papers found from the possession of the assessee to the extent of Rs. 2,94,300 is over and above the amount assessed in the hands of Shri Vasant B. Thakoor. Furthermore, out of 9 machines reflected in the appellant's diary, it is seen that 7 such machines have already been considered in the hands of Shri Vasant B. Thakoor and balance 2 machines are over and above that. Hence the average value of sale price of these machines is liable to be assessed in the hands of the appellant as his undisclosed income. Thus undisclosed income of the appellant from sale of scrap/machinery should be estimated at Rs. 4,94,300. The addition made by the Assessing Officer in this regard is therefore upheld to the extent of Rs. 4,94,300 and the balance of Rs. 7,55,700 is deleted. The Assessing Officer is directed accordingly. The aggregate undisclosed income of the appellant for block period would therefore be Rs. 14,20,860."
16. The learned Commissioner of Income-tax (Appeals) thus held that the undisclosed income of the assessee from sale of scrap/machinery should be estimated at Rs. 4,94,300 as against the estimation of Rs. 12,50,000 made by the Assessing Officer and allowed a relief of Rs. 7,55,700 to the assessee. Still aggrieved, the assessee has preferred this appeal before the Tribunal.
17. We have heard the arguments of both sides and also perused the relevant material available on record. Learned counsel for the assessee has not made any submission on the issue of quantification of undisclosed income made by the learned Commissioner of Income-tax (Appeals) on merit. He however has raised the similar preliminary objection as raised in the case of Mr. Vasant Thakoor that the learned Commissioner of Income-tax (Appeals) has gone beyond the scope of order of the Tribunal in determining the quantum of addition on account of cash sale of scrap/ machinery. Since similar issue involved in identical facts and circumstances has already been decided by us holding that a direction was given by the Tribunal to the learned Commissioner of Income-tax (Appeals) to determine the exact quantum of unexplained cash/assets/interests and the issue relating to estimation of sale of scrap/machinery being incidental to and forming part of the quantification of unexplained cash/assets/interests, it is not a case where the learned Commissioner of Income-tax (Appeals) can be said to have gone beyond the direction of the Tribunal. Following the said conclusion drawn in the case of Mr. Vasant Thakoor (supra), we uphold the impugned order of the learned Commissioner of Income-tax (Appeals) estimating the undisclosed income of the assessee on account of sale of scrap/machinery at Rs. 4,94,300 and dismiss this appeal of the assessee.
18. Now we shall take up the appeal filed in the case of late Shri Balchandra B. Thakoor by legal heir Mrs. Sunita Samir Sao being I.T. (SS) A. No. 65/ Mum/09 which is directed against the order of the learned Commissioner of Income-tax (Appeals)-XXXII Mumbai dated March 16, 2009 whereby he sustained the penalty imposed by the Assessing Officer under section 158BFA(2) of the Act to the extent it was in respect of additions made to the undisclosed income of the assessee on account of unexplained fixed deposits amounting to Rs. 4,20,000 and interest received in cash from the builder amounting to Rs. 7,38,000.
19. In pursuance of the search and seizure action taken in the assessee's case, notice under section 158BC was issued by the Assessing Officer in response to which return for the block period was filed by the assessee declaring his undisclosed income at Rs. 1,40,088 on account of excess jewellery found during the course of search. Thereafter, assessment for the block period was framed by the Assessing Officer under section 158 on September 30, 1999 and after the initial round of litigation, a fresh order under section 158BC read with sections 263 and 250 of the Act was passed by the Assessing Officer on April 30, 2004 making the following three additions :
| (Rs.) | ||
| (i) | Interest received in cash | 7,38,000 |
| (ii) | Income on sale of scrap/machinery | 7,00,000 |
| (iii) | Unexplained fixed deposits | 4,20,000 |
20. After the confirmation of the above three additions by the Tribunal vide its order dated August 31, 2005 passed in the quantum proceedings in I. T. A. No. 161/Mum/2001, notice was issued by the Assessing Officer requiring the assessee to show cause as to why penalty under section 158BFA(2) should not be imposed in respect of all the three additions made to his undisclosed income. In reply, the following submissions were made by the assessee in writing vide his letter dated January 21, 2006 :
| "1. | At the outset, it bears mention that in view of the contemplated action of fling appeal with the High Court of Mumbai against the order of the Tribunal, it will be appreciated that the status of assessed income has not reached the stage of finality as yet. We will file with you a copy of the appeal papers after filing the appeal with the High Court of Mumbai. | |
| 2. | From the aforesaid sequence of events, it will be noticed by you that the quantum of assessed income has undergone variation at many a stage of the proceedings. It is manifest that the authorities have taken differing views at various stages of the proceedings. It is, therefore, obvious that the nature and quantum of the undisclosed income has been the subject matter of differing viewpoints either in favour of or against the assessee. It is our primary submission that when the status of undisclosed income has been subjected to the resolution of disputes involving contentious questions of law and fact, no penalty should at all be levied under section 158BFA of the Act. | |
| 3. | Without prejudice to the aforesaid, we now proceed to make our submissions on the merits of the case, in respect of each of the elements of undisclosed income, which survive, at this stage, as per the order of the Tribunal. For this purpose, since the order giving effect to the order of the Tribunal has not been received as yet, we have taken the status of undisclosed income as per the enclosed working. Further, our submissions are confined to the additions of undisclosed income over and above the undisclosed income that was returned by the assessee. |
| (a) | Two elements of undisclosed income are being taken together in view of the commonality of the facts being interest of Rs. 7.38 lakhs and income of sale of scrap/machines of Rs. 7 lakhs. |
| (i) | The addition made in the original assessment order was set aside by the Commissioner of Income-tax (Appeals) with a direction that the said income should be assessed in the hands of the partnership firm after conducting certain enquiries. | |
| (ii) | It is noteworthy that in the order dated March 28, 2003 giving effect to the order of the Commissioner of Income-tax (Appeals), these additions were deleted. | |
| (iii) | However, the Commissioner of Income-tax set aside this order under section 263 as a result of which the assessment was reframed and these elements of undisclosed income were restored as per the order dated April 30, 2004. | |
| (iv) | As a further development the Tribunal has set aside the directions of Commissioner of Income-tax (Appeals). As stated earlier, the assessee is in the process of filing appeal with the hon'ble High Court of Mumbai against the order of the Tribunal. | |
| (v) | This is a case where two appellate authorities took divergent views. Further, even the administrative authorities have taken divergent views regarding the interpretation of the order of the Commissioner of Income-tax (Appeals). We, therefore, submit that this is a clear case where the additions have been subjected to conflicting process of adjudication at the hands of appellate and administrative authorities. It is our submission that such contentious additions cannot be subject to levy of penalty under section 158BFA of the Act." |
21. After considering the above submissions made by the assessee, the Assessing Officer found that there was nothing new in the said submissions and what was contained therein was merely reiteration of the submissions made during the course of quantum proceedings which was already considered by him as well as by the appellate authority. He therefore rejected the said submission treating the same as unacceptable and imposed penalty of Rs. 11,14,801 under section 158BFA(2) of the Act being 100 per cent. of tax sought to be evaded by the assessee in respect of additions made to the undisclosed income of the assessee.
22. The penalty imposed by the Assessing Officer under section 158BFA(2) was challenged by the assessee in an appeal filed before the learned Commissioner of Income-tax (Appeals). It was submitted, at the outset, on behalf of the assessee that the issue of correct determination of undisclosed income of the assessee had been restored by the Tribunal to the file of the learned Commissioner of Income-tax (Appeals) in the quantum proceedings and accordingly in the set aside proceedings, the addition of Rs. 7 lakhs made on account of cash sale of scrap/machinery was deleted by the learned Commissioner of Income-tax (Appeals).
23. As regards the remaining two additions, it was submitted that the said amounts had been held to be liable to tax in the hands of the partnership firm by the learned Commissioner of Income-tax (Appeals) vide appellate order dated March 28, 2001 after having found that the same did not belong to the assessee. It was contended that although this decision of the learned Commissioner of Income-tax (Appeals) was subsequently reversed by the Tribunal, the difference in views expressed by the two appellate authorities was sufficient to show that the issues were debatable and penalty under section 158BFA(2) of the Act could not be imposed in respect of the additions made on account of such debatable issue. It was also submitted that the addition on account of unexplained fixed deposits was made to the undisclosed income of the assessee relying merely on the statement recorded under section 132(4) of the Act without any detection/ recovery of any fixed deposits receipt in the name of the assessee. It was contended that the penalty imposed by the Assessing Officer under section 158BFA(2) of the Act in respect of additions made to the undisclosed income of the assessee thus was not justified and the same should be cancelled.
24. The learned Commissioner of Income-tax (Appeals) did not find the submissions made on behalf of the assessee to be acceptable. According to him, the provisions of section 158BFA(2) of the Act were different from the provisions of section 271(1)(c) of the Act inasmuch as penalty under section 158BFA(2) of the Act was leviable if the undisclosed income determined by the Assessing Officer was in excess of the income shown by the assessee in the return. He held that sufficient time was available to the assessee after the date of search to file his return of undisclosed income and it was thus incumbent upon him to correctly compute his undisclosed income for the block period and disclose the same in his return. He held that the adverse findings of the search and the statement of the assessee recorded under section 132(4) of the Act were sufficient to establish the undisclosed income of the assessee on account of interest income received in cash from builders as well as unexplained fixed deposits belonging to him. He also noted that in his statement recorded during the course of search, the assessee had admitted his undisclosed income at Rs. 15 lakhs consisting of cash receipt of interest and fixed deposits and the retraction of the said statement made by the assessee after a period of about two years was a result of an afterthought with an intention to complicate this simple issue. He held that although the assessee had made an attempt to contend that the undisclosed income accepted by him in the search was actually belonging to the partnership firm, the said contention was not finally accepted by the Tribunal. The learned Commissioner of Income-tax (Appeals) held that keeping in view of these facts and circumstances of the case, penalty under section 158BFA(2) was leviable at least in respect of two additions of Rs. 4,20,000 made on account of unexplained fixed deposits and Rs. 7,38,000 made on account of interest received in cash as the remaining addition of Rs. 7 lakhs made on account of cash sale of scrap/ machinery had already been deleted in the quantum proceedings. Accordingly he sustained the penalty imposed by the Assessing Officer to the extent it was in respect of the said two additions. Aggrieved by the order of the learned Commissioner of Income-tax (Appeals), the assessee has preferred this appeal before the Tribunal.
25. Learned counsel for the assessee, at the outset, submitted that the issue involved in addition of Rs. 7,38,000 on account of interest received in cash from the builder has been raised by the assessee in the appeal filed before the hon'ble Bombay High Court and a question raised in this regard has already been admitted by the hon'ble Bombay High Court as a substantial question of law. Relying on the decisions of the Tribunal in the case of Nayan Builders & Developers (P.) Ltd. v. ITO [I.T. Appeal No. 2379 (Mad.) of 2009, dated 18-3-2011], he contended that the admission of the substantial question of law by the hon'ble Bombay High Court clearly shows that the addition of Rs. 7,58,000 involve debatable issue and penalty cannot be imposed in respect of the said addition. As regards the addition on account of unexplained fixed deposits, he submitted that the said addition was made to the undisclosed income of the assessee merely on the basis of statement recorded during the course of search under section 132(4) of the Act and there was no evidence found during course of search to show the existence of any such deposit in the name of the assessee. He contended that the case of the assessee thus is not a fit case to impose penalty under section 158BFA(2) of the Act and the same as imposed by the Assessing Officer and sustained by the learned Commissioner of Income-tax (Appeals) may be cancelled.
26. The learned Departmental representative, on the other hand, submitted that merely because substantial question of law has been admitted by the hon'ble Bombay High Court, it cannot be said that the relevant issue involved is a debatable issue and penalty cannot be imposed in respect of the addition made on such issue. He contended that the issue relating to imposition of penalty needs to be considered and decided on merits keeping in view all the relevant facts of the case as well as the provisions of law. He contended that all the submissions made in this regard on behalf of the assessee before the learned Commissioner of Income-tax (Appeals) which have now been reiterated before the Tribunal, are already considered by the learned Commissioner of Income-tax (Appeals) and the same have been rejected by him by passing a well discussed and a well reasoned order. He also contended that the additions made to the undisclosed income of the assessee having been finally confirmed by the Tribunal in the quantum proceedings, the penalty provisions of section 158BFA(2) are clearly attracted. In support of this contention, he relied on the decision of the hon'ble Gujarat High Court in the case of Kandoi Bhogilal Mulchand v. Dy. CIT [2012] 341 ITR 271/21 taxmann.com 153 (Guj.). He therefore relied strongly on the impugned order of the learned Commissioner of Income-tax (Appeals) sustaining the penalty imposed by the Assessing Officer under section 158BFA(2).
27. We have considered the rival submissions and also perused the relevant material on record. As regards the contention raised by learned counsel for the assessee relying on the decision of the Tribunal in the case of Nayan Builders & Developers (P.) Ltd. (supra) that the substantial question of law having been already admitted by the hon'ble Bombay High Court on the issue of addition made on account of interest received from the builder in cash, no penalty under section 158BFA(2) can be imposed in respect of the said addition involving a debatable issue, it is observed that a similar contention raised on behalf of the assessee was accepted by the Tribunal in the case of Splender Construction, but the hon'ble Delhi High Court did not agree with the same in its judgment delivered on January 14, 2011 in Income Tax Appeal No. 1977 of 2010 (CIT v. Splender Construction [2013] 352 ITR 588/[2012] 22 taxmann.com 407/208 Taxman 302 (Delhi)(Mag.)) holding that the admission of substantial question of law by the hon'ble High Court by itself would not be sufficient to hold that the issue was debatable on which levy of penalty could not be attracted. It was held that the additions made to the undisclosed income of the assessee had been confirmed by the Tribunal in the quantum proceedings showing clearly that the assessee had furnished inaccurate particulars of its income and after admission of the appeal of the assessee filed against the order of the Tribunal, the said appeal was dismissed by the hon'ble High Court. Keeping in view the said decision of the hon'ble Delhi High Court, we reject the contention raised by learned counsel for the assessee being devoid of merit.
28. It is observed that the undisclosed income on account of interest received in cash as well as unexplained fixed deposits in respect of which the impugned penalty is levied, was admitted by the assessee in his statement recorded under section 132(4) of the Act wherein the assessee had not actually accepted that the said income was belonging to him but also agreed to disclose the same as his undisclosed income in the block return. Although the assessee made an attempt to retract the said statement by taking different stand that the said income was belonging to the partnership firm, such retraction came after a long gap of more than two years and the same was not accepted by the Tribunal in the quantum proceedings keeping in view all the facts of the case as well as the statement given by the assessee under section 132(4) of the Act. The issues involving the two additions made to the undisclosed income of the assessee on account of unexplained fixed deposits and receipt of interest from the builder in cash thus have been decided against the assessee by the Tribunal whereby the different stands taken by the assessee as an afterthought with an intention to create a dispute have not been accepted and the explanation/submission made in this regard by the assessee has been rejected after having found the same to be unsatisfactory/unacceptable. During the course of penalty proceedings, the assessee again has made an attempt to reiterate the same submissions which have already been rejected in the quantum proceedings by the Tribunal. Moreover, there is nothing new brought on record by the assessee to support and substantiate his explanation or to establish satisfactorily that the said explanation is bona fide. In the case of Kandoi Bhogilal Mulchand (supra) cited by the learned Departmental representative, the hon'ble Gujarat High Court has held that the income which is detected as a result of search operation under section 132 is undisclosed income of the assessee within the meaning of section 158BFA(2) of the Act and penalty provision under section 158BFA(2) would arise when the Assessing Officer has assessed the income in the block period in excess of the income declared by the assessee. Keeping in view the said decision of the hon'ble Gujarat High Court and having regard to all these facts of the case, we are of the view that there is no justifiable reason to interfere with the impugned order of the learned Commissioner of Income-tax (Appeals) sustaining the penalty imposed by the Assessing Officer under section 158BFA(2) of the Act to the extent it is in respect of two additions made to the undisclosed income of the assessee which had become final at the stage of the Tribunal. In that view of the matter, we uphold the order of the learned Commissioner of Income-tax (Appeals) and we dismiss the appeal filed by the assessee.
29. Now we shall take up the appeal filed by Mr. Mohan B. Thakoor being I.T. (SS) A. No. 66/Mum/2009 which is directed against the order of the learned Commissioner of Income-tax (Appeals)-XXXII, Mumbai dated March 31, 2009 whereby he sustained the penalty imposed by the Assessing Officer under section 158BFA(2) of the Act to the extent it was in respect of additions made to the undisclosed income of the assessee on account of interest received in cash from the builder amounting to Rs. 7,71,000 and unexplained jewellery found during the course of search amounting to Rs.41,305.
30. After considering the rival submissions and perusing the relevant material on record, it is observed that the issue relating to penalty under section 158BFA(2) of the Act imposed in respect of addition made to the total income of the assessee on account of interest received in cash from the builder is similar to the one involved in the case of late Shri Balchandra B. Thakur, legal heir Mrs. Sunita Samir Sao which has already been considered and decided by us in the foregoing portion of this order. Since all the material facts relevant to the said issue as involved in the present case as well as the submissions made by both sides are similar to that of the case of Mr. Shri Balchandra B. Thakur, legal heir Mrs. Sunita Samir Sao we follow our conclusion drawn in the case of Shri Balchandra B. Thakoor, legal heir Mrs. Sunita Samir Sao and uphold the impugned order of the learned Commissioner of Income-tax (Appeals) confirming the penalty imposed by the Assessing Officer under section 158BFA(2) of the Act in respect of addition of Rs. 7,71,000 made to the undisclosed income of the assessee on account of interest received in cash from the builder.
31. As regards the penalty imposed in respect of addition made on account of unexplained jewellery amounting to Rs. 41,305, it is observed that out of the total jewellery worth Rs. 6,98,721 found during the course of search, jewellery worth Rs. 24,920 was found to be already declared by the assessee in his wealth-tax return. The same therefore was treated by the Assessing Officer as explained. As regards the balance jewellery, the assessee offered the same to the extent of Rs. 2,66,176 in his return of income accepting the same as unexplained and the balance jewellery worth to Rs. 4,37,725 was explained by the assessee as belongings of his relatives. This explanation of the assessee was not accepted by the Assessing Officer and he made an addition of Rs. 4,37,725 to the undisclosed income of the assessee on account of unexplained jewellery. As noted by the learned Commissioner of Income-tax (Appeals) in the penalty order passed under section 158BFA(2) of the Act, the said addition has been restricted by the learned Commissioner of Income-tax (Appeals) to only Rs. 41,305 vide his appellate order dated November 25, 2003 passed in the quantum proceedings. The explanation of the assessee in respect of jewellery found during the course of search thus has been substantially accepted in the quantum proceedings and keeping in view the estimations and appropriations involved in the valuation of jewellery as made at different stages, we are of the view that the marginal difference of Rs. 41,305 added to the total income of the assessee on account of unexplained jewellery cannot be treated as concealment in order to attract penalty under section 158BFA(2) of the Act. We therefore sustain the penalty imposed under section 158BFA(2) of the Act only to the extent it is in respect of addition of Rs.7,71,000 made to the undisclosed income of the assessee on account of interest received in cash from the builder and partly allow this appeal of the assessee.
32. Now we shall take up the appeal filed by Mr. Madhukar B. Thakoor being I.T. (SS) A. No. 79/Mum/2009 which is directed against the order of the learned Commissioner of Income-tax (Appeals)-XXXII, Mumbai dated May 20, 2009 whereby he sustained the penalty imposed by the Assessing Officer under section 158BFA(2) of the Act to the extent it was in respect of additions made to the undisclosed income of the assessee on account of interest received in cash from the builder amounting to Rs. 7,52,000 and cash sale of scrap/machinery amounting to Rs. 4,94,300.
33. In this case, the issue involved as well as material facts relevant thereto are similar to the case of Late Shri Balchandra B. Thakoor, legal heir Mrs.Sunita Samir Sao and Mr. Mohan B. Thakoor inasmuch as pursuant to the search and seizure operation, block assessment was originally completed by the Assessing Officer under section 158BC of the Act on September 30, 1999 and after the initial round of litigation, fresh order was passed by the Assessing Officer under section 158BC read with sections 250 and 263 on April 30, 2004 determining the total income of the assessee at Rs. 21,76,560 after making addition of Rs. 12,50,000 on account of cash sale of scrap/machinery and Rs. 7,52,000 on account of interest received by the assessee in cash from the builder. Thereafter, the miscellaneous application filed by the assessee was disposed of by the Tribunal directing the learned Commissioner of Income-tax (Appeals) to determine the exact quantum of addition made to the undisclosed income of the assessee on account of cash/assets/interests. Accordingly, the undisclosed income of the assessee on account of interest received in cash from builder was quantified by the learned Commissioner of Income-tax (Appeals) at the same amount of Rs. 7,50,000 as computed by the Assessing Officer. He, however, restricted the addition of Rs. 12,50,000 made on account of cash sale of scrap/machinery to Rs. 4,94,300 and sustained the penalty imposed by the Assessing Officer under section 158BFA(2) of the Act to the extent it was in respect of the said additions as was done in the case of late Shri Balchandra B. Thakoor, Legal heir Mrs. Sunita Samir Sao and Mr. Mohan B. Thakoor, the assessees belonging to the same group.
34. At the time of hearing before us, the learned representatives of both sides have reiterated the same submissions as made in the case of Shri Balchandra B. Thakoor, legal heir Mrs. Sunita Samir Sao and Mr. Mohan B. Thakoor which have already been considered by us and on such consideration, the action of the learned Commissioner of Income-tax (Appeals) sustaining the penalty imposed by the Assessing Officer under section 158BFA(2) of the Act has been upheld by us in the case of Shri Balchandra B. Thakoor, legal heir Mrs. Sunita Samir Sao and Mr. Mohan B. Thakoor. As held by us in the said cases, there being nothing new brought on record by the assessees and the explanation offered in respect of the impugned additions made to the total income of the assessee, which are reiterated during the penalty proceedings, having been already rejected by the Tribunal in the quantum proceedings, we are of the view that the assessee has failed to support and substantiate his explanation offered during the course of penalty proceeding. As regards the contention raised by learned counsel for the assessee relying on the decision of the co-ordinate Bench of this Tribunal in the case of Nayan Builders & Developers (P.) Ltd. (supra) that the issues raised by the assessee in the appeal filed before the hon'ble Bombay High Court relating to both additions made on account of interest received in cash and sale of scrap/machinery having been admitted by the hon'ble Bombay High Court as a substantial questions of law, it becomes apparent that the said additions involve debatable issues for which penalty cannot be imposed, we have already noted that a similar view was taken by the Tribunal in the case of Splender Construction (supra) but the hon'ble Delhi High Court did not agree with the same in its judgment delivered on January 14, 2011 in Income-tax Appeal No. 1977 of 2010 (Splender Construction (supra)) holding that the admission of substantial question of law by the hon'ble High Court by itself would not be sufficient to hold that the issue was debatable on which levy of penalty could not be attracted. It was held that the additions made to the undisclosed income of the assessee had been confirmed by the Tribunal in the quantum proceedings showing clearly that the assessee had furnished inaccurate particulars of its income and after admission of the appeal of the assessee filed against the order of the Tribunal, the said appeal was dismissed by the hon'ble High Court. In the case of Kandoi Bhogilal Mulchand(supra) cited by the learned Departmental representative, the hon'ble Gujarat High Court has held that the income which is detected as a result of search operation under section 132 is undisclosed income of the assessee within the meaning of section 158BFA(2) of the Act and penalty provision under section 158BFA(2) would arise when the Assessing Officer has assessed the income in the block period in excess of the income declared by the assessee.
35. Keeping in view the ratio of the judicial pronouncements discussed above and having regard to all the facts of the case, we find no justifiable reason to interfere with the order of the learned Commissioner of Income-tax (Appeals) and following our decision rendered in the case of late Shri Balchandra B. Thakoor, legal heir Mrs. Sunita Samir Sao and Mr. Mohan B. Thakoor, we uphold the impugned order of the learned Commissioner of Income-tax (Appeals) sustaining the penalty imposed by the Assessing Officer under section 158BFA(2) to the extent it is in respect of the additions made to the undisclosed income of the assessee on account of interest received in cash from builder amounting to Rs. 7,52,000 and cash sale of scrap/machinery amounting to Rs. 4,94,300.
36. In the result, the appeals of the assessees being I. T. (SS) A. No. 60/ Mum/2009, I. T. (SS) A. No. 77 and 79/Mum/2009 and I. T. (SS) A. No. 65/ Mum/2009 are dismissed whereas I. T. (SS) A. No. 66/Mum/2009 is partly allowed.
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