2009-TIOL-519-ITAT-DEL
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "H" DELHI
IT [SS] Appeal No. 146 (Del) of 2005
Block Assessment period : 1/04/1987 to 24/09/1997
M/s AHUJASONS SHAWLWALE PVT LTD
6/44, WEA KAROL BAGH, NEW DELHI
PAN NO: AAACP7122R
Vs
Dy COMMISSIONER OF INCOME-TAX
CIRCLE : 1(1), NEW DELHI
Rajpal Yadav, JM and K D Ranjan, AM
Dated : April 30, 2009
Appellant Rep by : Shri M P Rastogi, & S Anantharaman, CA
Respondent Rep by : Shri V K Tiwari, CIT DR
Income tax - Penalty u/s 158-BFA(2) - Assessee is a trader - Revenue conducts search & seizure u/s 132 - finds excess stock, unaccounted purchases and cash - Assessee asked to file block return - return filed but NIL undisclosed income shown - AO makes additions and initiates penalty u/s 158-BFA(2) - held, the first proviso to section 158-BFA (2) offers a concession to the assessee to escape penalty by admitting undisclosed income in the block return and paying taxes. Since the assessee had filed Nil undisclosed income and the AO had rightly make additions for undisclosed income through unaccounted stocks, the second proviso to the Sec 158-BFA(2) comes into force as what is required to be established is only the undisclosed income in excess to the one disclosed in the block return - concealment of income like in Sec 271(1)(c) is not a pre-condition under this Section for imposing penalty - this is more so in view the Apex Court decision in Dharmendra Textiles case where it is held that penalty is a civil liability and no mens rea is required to be established for imposing it - Assessee's appeal dismissed
ORDER
Per : K D Ranjan:
This appeal filed by the assessee for Block assessment period 1/04/1987 to 24/09/1997 arises out of the order passed by the ld. Commissioner of Income-tax (Appeals) IV, New Delhi.
2. The only issue for consideration relates to imposition of penalty under section 158-BFA (2) of the IT Act, 1961. The facts of the case stated in brief are that search and seizure operation u/s. 132 of Income Tax Act, 1961 was carried out on business of the assessee on 23.09.1997 and concluded on 28.10.1997. The assessing officer issued notice on 10.12.1998 u/s. 158BC requiring the assessee to file return of income for the block period 1.4.1987 to 23.09.1997. The return of income was filed on 17.9.1999 after issue of subsequent notice and reminder showing nil undisclosed income. During the course of search the assessee was found in possession of 92,523 pieces of shawls. However, as per stock register the numbers of pieces of shawls were 66,269. The assessing officer also noticed that the Annexure A-2 contained papers 1 to 69 which were purchase bills in the name of Ahujasons Shawlwale P. Ltd. issued by various parties and they were dated 1st August, 1977 till 20th September, 1997. Similarly the sales bills as contained in the Annexure A-1 were the bills of sales on various dates from 2nd September, 1977 till 16th September, 1977. The assessing officer also noted that stock of shawls of 92,523 included 5,211 sample pieces as mentioned in the Panchnama. Thus, the stock as per physical verification was at 87,312. However as per reconciliation the stock was 89,379. Therefore, there was difference of 2,067 shawls. As regards sample pieces of shawls the AO noted that there was no record of such samples. Even the assessee could not give names of the persons to whom samples were given. Therefore, the conclusion drawn was that the shawls numbering 2,067 were sold outside the books of accounts. The assessing officer in order to determine the sale price of 2,067 pieces of shawls applied the average tag price of Rs.752/- per shawl. The sale value of 2,067 pieces of shawls came to Rs.15,55,483/-. He treated the amount of Rs.15,55,483/- as sale outside the books of accounts and added the same as trading addition. He also added the excess cash of Rs.42,400/- as income of the financial year for the block period 1.04.1987 to 23.09.1997.
3. The assessee being aggrieved by the assessment order went in appeal before the ld. CIT (Appeals). The ld. CIT (Appeals) confirmed the addition of Rs.42,400/-. The issue of shortage of stock was restored to the assessing officer to be decided afresh. However, the ld. CIT (Appeals) enhanced the income by Rs.1,72,14,704/-. The assessee aggrieved with the order passed by the ld. CIT (Appeals) preferred an appeal before the ITAT, Delhi. ITAT in order IT (SS) Appeal No. 87 (Del) of 2002 of October 2000 set aside the order of the ld. CIT (Appeals) with the directions to frame assessment order after giving due opportunity to the assessee. The assessing officer by order dated 31st March, 2004 passed under section 158-BC read with section 254 of the Act completed the assessment at an income of Rs.43,85,705/- by making the following additions :-
1. / Income as per order dated 29.03.2004 passed u/s. 154/254/158BC / Rs.15,96,7842. / Unaccounted purchases / Rs.3,71,759/-
3. / Addition on account Jagdish Industries / Rs.1,57,250/-;
4. / Addition on account of 6 invoices of Annexure A-2 / Rs.22,17,512/-;
5. / Unaccounted cash / Rs.42,400/-.
The assessing officer also initiated penalty proceedings under section 158-BFA (2) of the Income-tax Act.
4. During the course of penalty proceedings it was submitted that addition made on account of unaccounted purchases aggregating to Rs.27,46,521/- (3,71,759 +1,57,250 +22,17,512) was not undisclosed income. It was submitted that the assessing officer made addition of Rs.3,71,759/- based purely in his opinion and inference drawn by him that the assessee could not establish its stand and it had been purchasing shawls from the parties on approval basis as they were not regular suppliers and a new supplier who had not dealt with the assessee it was very unlikely that the supplier will leave goods at the premises of a new purchaser. The second addition of Rs.1,57,250/- was made on the basis of finding recorded by the assessing officer that from invoices raised it was seen that all the invoices were serial numbered but the dates which have been written have a gap of 7 and 8 days between two invoices which also indicated that the party was not genuine because in a normal course of business the invoices were issued regularly and it was highly unlikely that in 15 days three serial numbered invoices were only issued. The assessing officer also noted that invoice No. 8 had date of 15.09.1997 where invoice No. 9 was dated 14.09.1997 which was not possible in a bonafide transaction. These circumstances and evidences suggested that the transaction was not a genuine transaction and purchases were treated as non-verifiable and the same were never intended to be recorded in the regular books of accounts. Likewise, the addition of Rs.22,17,512/- was made on the ground that all six invoices were pending for 6 to 8 months and those were tempered to show as if the same were purchases for year 1997-98 and not 1996-97. According to the assessing officer it created a bonafide belief that these purchases were not meant to be entered in the books of accounts and, therefore, the amount shown in the invoices was treated as undisclosed income. It was also pleaded that provisions of section 158-BFA (2) of the Act were not applicable at all and the penalty was leviable only when (i) assessee had concealed particulars of income; (ii) assessee furnished inaccurate particulars; and (iii) the assessee was not able to justify its claim. Since none of the condition was satisfied the penal provisions were not applicable at all. The findings of the assessing officer were only by way of inference, not believing the claim of the assessee. It was also submitted that satisfaction was not recorded and, therefore, the very initiation of penalty proceedings was ban in law. Further it was submitted that during the the proceedings under section 132 of the Act, the stocks found was inventorised. It has not been found that the goods as per invoices were found in the stock. The ld. CIT (Appeals) gave a finding that it was not found as to when such goods were purchased; whether such goods were sold; whether such goods have been remaining in the stock etc. Therefore, there was complete lack of evidence to point out any concealment or even an attempt for concealment. Further it was also submitted that the issue had been viewed by different authorities in different ways:
(1) JCIT did not consider the mode to be unaccounted.
(2) CIT (Appeals) considered it so and enhanced the income;
(3) The Appellate Tribunal could not even uphold such enhancement;
(4) DCIT Acquiesces in the major part of the stock and the explanation of the assessee and remains only a portion of the same.
Therefore, looking from any point of view the assessee had not concealed particulars of income or furnished inaccurate particulars of income. The assessee claimed that there were purchases as such. There was no corroborative evidence to show that the purchases were made.
5. The contention of the assessee was rejected by the assessing officer on the ground that the undisclosed income had been out on the basis of the documents which have not been disclosed by the assessee or would have not been disclosed. It has been established that these transactions were not recorded in the books of accounts and would not have been disclosed for the purposes of Income-tax. The contention of the assessee that penalty under section 158-BFA can only be imposed when the assessee concealed the particulars of income or furnished inaccurate particulars of its income or has not been able to justify the claim, was also not acceptable to assessing officer on the ground that the provisions of section 158-BFA (2) of the Act did no stipulate any such condition. For imposition of penalty under section 158-BFA (2) of the Act, the only requirement to be established was that undisclosed income of block period had been determined in accordance with the provisions of Chapter-XIV-B of the Act. The assessing officer, therefore, came to the conclusion that it has been established that the assessee has indulged in the transactions, which were not recorded in the books of accounts. The assessee was given opportunity to declare undisclosed income for the block period, but the assessee responded by filing block period return with NIL un-disclosed income. Therefore, the assessee clearly and intentionally failed to disclose or declare its true and correct undisclosed income. Since the assessee filed the return of undisclosed income for the block period at nil, the provisions of section 158-BFA (2) were attracted. He, therefore, treated the undisclosed income at Rs.43,85,705/- and imposed penalty of Rs.30,26,126/-.
6. Before the ld. CIT (Appeals) the arguments advanced by the assessee were that the penalty under section 158-BFA (2) of the Act was not sustainable because the initial satisfaction in terms of decision of Hon'ble Delhi High Court in the case of CIT Vs. Ram Commercial Enterprises 246 ITR 568 (Del.) = (2003-TIOL-69-HC-DEL-IT) had not been recorded by the assessing officer at the time of initiation of penalty proceedings. This contention of the assessee was rejected by the ld. CIT (Appeals) on the ground that the said decision was rendered in respect of penalty under section 271(1)(c) of the Act. Since the provision of sections 271(1)(c) and 158-BFA (2) were differently worded the decision was not applicable in respect of penalty under section 158-BFA (2) of the Act. Section 158-BFA (2) nowhere referred to the assessing officer's satisfaction. It was also argued that the additions have been made by the assessing officer only on non-acceptance of the explanation of the explanation furnished by the assessee. Therefore, the additions have been made on a difference of opinion and hence penalty proceedings could not be attracted. The ld. CIT (Appeals) rejected this contention of the assessee on the grounds that the assessee had not filed any appeal against order of the assessing officer dated 31st March, 2004 determining the assessee's undisclosed income at Rs.43,85,705/- as against NIL undisclosed income as shown by the assessee in the block return of income. The ld. CIT (Appeals) in view of provisions of section 158-BFA (2) of the Act observed that where undisclosed income determined by the assessing officer was in excess of the income shown in the return, the penalty shall be imposed on that portion of the undisclosed income determined, which is in excess of the amount undisclosed income shown in the return. The assessee had shown NIL undisclosed income in the return and the assessing officer had determined undisclosed income at Rs.43,85,705/-. The assessing officer did not file any appeal against the assessment order. Thus the undisclosed income determined at Rs.43,85,705/- became final. That being the case in view of the language employed in section 15-BFA (2) the imposition of penalty on undisclosed income of Rs. 43,85,705/- was automatic and, therefore, he upheld the order of the assessing officer imposing penalty of Rs.30,26,126/-.
7. Before us the ld. AR of the assessee submitted that the search was conducted on 23rd September, 1994. Certain purchase invoices, which were posted up to the date of search, were seized. The goods were received by the assessee on approval basis. During the course of search shortage of stock of Rs.15,54,483/- was found an excess cash of Rs.42,400/- was found at the time of search. The ld. CIT (Appeals) confirmed the addition of Rs.42,400/-. The issue of shortage of stock was restored to the assessing officer to be decided afresh. However, the ld. CIT (Appeals) enhanced the income by Rs. 1,72,14,704/-. On further appeal, ITAT restored the matter to the file of the assessing officer with regard to enhancemnent made by the ld CIT (Appeals). As regards addition on account of shortage of stock, no appeal was preferred as CIT(A) had set aside the issue to the file of assessing officer with the directions that pass order after adopting the correct stock available with the assessee as on the date of search. During the second round of assessment proceedings, the assessing officer maintained addition of Rs.42,400/- on account of excess cash found. The assessing officer had not discussed addition on account of the shortage of stock in the assessment order. However, he added the amount the amount of Rs.15,96,784/-. The assessee had paid tax on the same. As against the enhanced income of Rs.1,72,14,704/-, the assessing officer has determined income of Rs.27,46,521/- against which no appeal has been filed by the assessee. The ld. AR of the assessee further submitted that the addition of Rs.15,96,784/- on account of shortage of stock could have been made. At the best the assessing officer could have made addition of gross profits treating shortage of stock as unrecorded sales. He placed reliance on decisions various High Courts in the case of CIT Vs. Gurubachhan Singh J. Juneja (2008) 302 ITR 63 (Guj.) = (2008-TIOL-410-HC-AHM-IT); Man Mohan Sadani Vs. CIT (2008) 304 ITR 52 (MP); CIT Vs. Balchand Ajit Kumar (2003) 263 ITR 610 (MP); & CIT Vs. S M Omer (1993) 201 ITR 608 (Cal). As regards the addition of Rs.3,71,759/- and Rs.1,57,250/- it has been submitted that the purchases were made on approval basis from new parties. No questions were asked at the time of search. The payments have been made to these parties through demand drafts; the details thereof are available at pages 52, 52-A and 53 of the paper book. The payments were also evidenced from entries made in the books of accounts. As regards the purchases made from Srinagar parties, the ld. AR submitted that the shawls were also received on approval basis and were not unaccounted for. Hence the assessing officer had made addition on presumption basis. He further submitted that levy of penalty under section 158BFA(2) is not automatic. The provisions of section 158-BFA (2) of the Ac t are pari materia with the provisions of section 271(1)(c). He placed decision on ITAT order reported in 97 ITD 527 (KOL) for the proposition that penalty under section 158BFA(2) is not automatic.
8. On the other hand, the CIT [DR] submitted that the quantum addition have been accepted by the assessee and no appeal has been filed. The assessing officer passed order u/s. 154/254/158BC on 29.03.2004 determining undisclosed income from trading at Rs.15,96,784/-, copy thereof has not been placed on record by the assessee. Therefore, it is incorrect on part of the ld. AR of the assessee that assessing officer had made addition without any discussion in assessment order. He further submitted that for imposition of penalty under section 158-BFA (2) the element of mens rea is not is not required. The provisions of section 158-BFA (2) of the Act are not pari materia with the provisions of section 271(1)(c). Penalty under section 158BFA(2) is imposable on excess undisclosed income determined by the assessing officer. If the assessee was aggrieved against the additions made by the assessing officer, he should have filed appeal before the ld. CIT (Appeals) and agitated additions in appeal. Since the assessee was not aggrieved from the assessment order and, therefore, no appeal was filed by it. He further submitted that the appeal filed by the assessee is against the penalty order and not against the quantum and, therefore, the assessee is not permitted to advance arguments that the additions could not have been made. Under section 158-BFA (2) when quantum additions are determined, penalty under section 158-BFA is automatic and has to be levied.
9. We have heard both the parties. In the case before us the assessee filed return of the block period at NIL income. However, the assessing officer in the course of assessment proceedings had made various additions which has resulted in computation of undisclosed income of Rs.43,85,705/-. The above undisclosed income is consisted of excess cash found Rs.42,000/-; trading addition of Rs.15,96,784/-; unaccounted purchases Rs.3,71,759/-; addition on account of Jagdish Industries: Rs.1,57,250/-; & addition on account of 6 invoices of Annexure A-2 : Rs.22,17,512/-. The assessee had not filed any appeal against the additions made by the assessing officer in final assessment order made under section 158-BC read with section 254 of the Act dated 31st March, 2004. Therefore, the undisclosed income determined by the assessing officer at Rs.43,85,705/- has attained finality. Under section 158-BFA (2) of the Act the assessing officer or the ld. Commissioner (Appeals) in the course of proceedings under Chapter-XIV-B may direct that a person shall pay by way of penalty a sum which shall not be less than the amount of tax leviable, but which shall not exceed three times of the amount of tax so leviable in respect of undisclosed income determined by the assessing officer under clause (c) of section 158-BC of the Act. However, the first proviso to section 158-BFA (2) provides that no order imposing penalty shall be made in respect of a persons if - (i) such person has furnished a return under clause (a) of section 158BC(a); (ii) the tax payable on the basis of such return has been paid or, if the assets seized consist of money, the assessee offers the money so seized to be adjusted against the tax payable; (iii) evidence of tax paid is furnished along with the return; and (iv) an appeal is not filed against the assessment of that part of income which is shown in the return. Therefore the first proviso to section 158-BFA (2) of the Act grants concession to the assessee even after search and seizure operations to disclose undisclosed income in block period return on the basis of seized material or information that came into possession of the Department and pay tax thereon and relax. No penalty was imposable if the discloser of undisclosed income for the block period was made. However, second proviso to section 158-BFA (2) of the Act provides that the provisions of first proviso shall not apply where undisclosed income is determined by the assessing officer in excess of income shown in the return and in such cases penalty shall be imposed on that portion of the undisclosed income determined which is in excess of the amount of undisclosed income shown in the return. In the instant case, the assessee had chosen to file return of undisclosed income for the block period at NIL income when assessing officer had issued notices u/s. 158BC two times and a reminder subsequently. Thus the assessee had not only chosen to avail the concession granted by the law under the first proviso but had accepted the determination of undisclosed income at Rs. 43,85,705/- after two rounds of litigations and had paid tax thereon. Therefore, the assessee's case falls under second proviso to section 158-BFA (2) of the Act.