Thursday, July 31, 2014

Cash Credit ITAT Mumbai Bench

ITA No.1341/Mum/2011 Assessment Year 1996-97 Arun Kumar Muchhala ,
INCOME TAX APPELLATE TRIBUNALMUMBAI BENCHES “I” MUMBAI  Date of Pronouncement: 30/07/ 2014

Over the years law regarding cash credits have evolved and has taken a definite shape. So, before proceeding further, we would like to mention a few important aspects of the law; culled out from the decisions of the Hon’ble Court;with regard to Sec.68 and same can be enumerated as under :

i).Provisions of the Section 68 can be invoked when following three conditions are satisfied- first when there is credit of amounts in the books maintained by
the assessee and secondly such credit  has to be a sum of money during the previous year  ii) either the assessee offers no explanation  about the nature and source of such credits found in the books or the explanation offered by the
assessee,in the opinion of the AO,is not satisfactory. It is only then that the sum so credited may be charged to income-tax as the income of the assessee
.
ii). Assessee has to establish identity and creditworthiness of the creditor as well as the genuineness of the transaction. All the three ingredients are cumulative and not exclusive.

iii). In matters regarding cash credit the onus of proof is not a static one. As per the provisions of the section the initial burden of proof lies on the assessee. Amount appearing in the books of a/cs. of the assessee is considered a proof against him.  He can prove the identity of the creditors by  either furnishing their PANs or assessment orders. Similarly, genuineness of the transaction can be
proved by showing that the money was received by an account payee cheque or by draft. Credit worthiness of the lender can be established by attending circumstances. Once the assessee produces evidences about identity,genuineness and credit worthiness of the lender onus of proof
shifts to the Revenue.

iv). Under section 68 of the Act,the AO has jurisdiction to make enquiries with regard to the  nature and source of a sum and it is immaterial as
to whether the amount credited is given the  colour of a loan or a sum represents sale proceeds or it is share application money.

v). The expression the assessee offers no explanation means the it offers no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the  assessee.The opinion of the AO for not accepting the explanation of the assessee as not  satisfactory is required to be based on proper appreciation of material and other attending  circumstances available on the record. The opinion of the AO is required to be formed objectively  with reference to the material on record file.

vi). Phrase nature and sources of such credits has to be understood in right prespective, so that  genuineness of the transaction can be decided on merits and not on prejudices. Courts are of the firm view that the evidence produced by the assesse e cannot be brushed aside in a causal manner.

vii). Once the explanation of the assessee is found unbelievable or false,the AO is not required to bring positive evidence on record to treat amount in question as income of the assessee.While considering the explanation of the assessee,the AO  has to act reasonably-application of mind is the sine qua non for forming the opinion.

viii). Matters related to section 68 should be decided on  the particular facts of the case as well as  on the basis of preponderance of probabilities. Credibility of the explanation, not the materiality of  evidences, is the basis for deciding the cases falling under the section.

ix). Confirmatory letters or A/c. payee cheques do not p rove that the amount in question is  properly explained for the purpose of section 68 of the Act.In other words money coming by way  of bank cheques and being paid through the process of banking transaction are not by itself of any  consequence for deciding the cash credit issue.

x). Contents of section 68,may be divided into two parts-(a) It requires the assessee to explain the  sum found credited in the books of the assessee abo
ut the nature and source thereof.This part only  requires the assessee to disclose the source from which the money has been received by him.This  does not require the assessee to disclose the source of that source, i.e., the source from which the donor or investor has received the money which has  been invested. (b) It consists of offering an  explanation which is satisfactory in the opinion of
the AO.What explanation would be considered  satisfactory and how much of details should be furnished to make the explanation satisfactory  normally depend upon the facts.

xi).But,the doctrine of source of source or origin of origin cannot be applied universally, without  reference to the factual matrix and facts of each case.The said test in case of normal business  transactions may be light and not vigorous.The said doctrine is applied when there is evidence to  show that assessee may not be aware, could not have knowledge or was unconcerned as to the  source of money paid or belonging to the third party.This may be due to the nature and character of the commercial/business transaction relationship
between the parties, statutory postulates, etc. But,when there is surrounding evidence and material manifesting and revealing involvement of
the assessee in the transaction and that it is not  entirely an arm's length transaction, resort  or  reliance to the said doctrine may be counter-productive and contrary to equity and justice. The  doctrine is not an eldritch or a camouflage to circulate ill-gotten and unrecorded money.

xii).The burden is on the assessee to take the plea that ,even if the explanation is not acceptable, the material and attending circumstances available on record do not justify the sum found credited in the books being treated as a receipt of income nature.

xiii).In the context of unexplained cash credits,when an assessee does not produce evidence or tries to avoid appearance before the AO,it necessarily creates difficulties and prevents ascertainment of the true and correct facts as the AO is denied the advantage of the contention or factual assertion by the assessee before him. If an assessee deliberately and intentionally fails to
produce evidence before the AO with the desire to prevent inquiry or investigation, an adverse  inference should be drawn.Mere production of Perman
ent Account Number(PAN)or assessment  particulars does not establish the identity of a person. The identification of a person includes the
place of work, the staff and the fact that that person was actually carrying on business and further  recognition of the company or individual in the eye
s of public.PANs are allotted on the basis of  applications without actual de facto verification of the identity or ascertainment of the active  nature of business activity. PANs are allotted as a facility to the Revenue to keep track of transac -
tions.They cannot,blindly and without consideration of surrounding circumstances,be treated as  sufficiently disclosing the identity of the person.
In a case of accommodation entries, in view of  the link between the entry providers and incriminating evidence,the mere filing of permanent
account numbers,acknowledgment of income-tax returns of the entry providers and bank account  statements,is not sufficient to discharge the onus
on the assessee.(361ITR258)

xiv).A conclusion regarding creditworthiness or otherwise of a person is essentially one of fact.

5.1.Here,we would like to refer to the case of Pushp Trading Co.,delivered by the Hon’ble Delhi High Court(190ITR618).In that matter certain cash credits were assessed as the assessee's income for a particular year.The original assessment was set aside on the ground that the assessee had not been granted full opportunity and wanted further opportunity to substantiate its claim that the cash
credits were genuine. A fresh assessment was passed after 14 years treating the cash credits as the assessee's income.Tribunal held that the assessee w
as not able to produce any evidence to establish the genuineness of the cash credits and also rejected the assessee's reference application.On an application for calling for a reference before the High Court, it was contended on behalf of the assessee that, after a lapse of 14years, it was not possible to have the creditors produced for cross-examination. Dismissing the petit
ion,Hon’ble Court held as under:
“The assessee was not unaware of the evidence to be produced to substantiate its claim with regard to the genuineness of the cash credits. Having succeeded in its claim that full opportunity had not been granted to substantiate the claim, it was not open to the assessee thereafter to turn round and say that, after the lapse of many years,
it was not possible for it to lead any evidence.  The Tribunal was right in holding that no question of law arose out of its order.”

Saturday, May 10, 2014

PENALTY UNDER SECTION 271(1)(c) NOT LEVIABLE WHEN AN ASSESSEE ACTED IN BONA FIDE BELIEF OR THE ISSUE WAS CONTROVERSIAL?

[2014] 41 taxmann.com 165  (Article)
PENALTY UNDER SECTION 271(1)(c) NOT LEVIABLE WHEN AN ASSESSEE ACTED IN BONA FIDE BELIEF OR THE ISSUE WAS CONTROVERSIAL?
AKHILESH KUMAR SAH
Advocate
Introduction
1. The penalty under section 271(1)(c) has remained the most vexing one for the assessees. A lot of cases have been decided on the imposition of penalty while many rulings have also relieved assessees. The basic thing to save penalty is that there should not be mens rea and there should not be deliberate action on the part of the assessee to evade tax. Many a times an assessee acts honestly without having any mala fide intention of evading tax under his bona fide belief or where a particular circumstance remains the controversial, i.e., more in favour of assessee, in those cases the penalty levied under section 271(1)(c) of the Income- tax Act, 1961(hereinafter referred to as 'the Act') can be deleted on the facts & circumstances of the case.
2.1 Relevant Case Laws - The Supreme Court in Price Waterhouse Coopers (P.) Ltd. v. CIT [2012] 348 ITR 306/25 taxmann.com 400/211 Taxman 40, : held that all that happened in the present case was that through a bona fide and inadvertent error the assessee failed to add the provision for gratuity to its total income. This could only be described as a human error which we are all prone to make. The calibre and expertise of the assessee had little or nothing to do with the inadvertent error. That the assessee should have been careful could not be doubted, but the absence of due care, would not mean that the assessee was guilty of either furnishing inaccurate particulars or was attempting to conceal its income. Consequently, given the peculiar facts of this case, the imposition of penalty on the assessee was not justified.'
2.2 In Dy. CIT v. Rural Electrical Co-operative Society Ltd. [2006] 152 Taxman 237/[2005] 279 ITR 319 (M.P.), the AO imposed penalty of Rs.1 lakh; it was set aside by CIT (Appeals) and the order of CIT (appeals) was maintained by the Tribunal holding, inter alia, that no case for imposing penalty under section 271(1)(c) was made out, so far as applicability of the Explanation to section 271(1)(c) was concerned, the same was not attracted. The issue of Explanation was considered on facts and it was held that the same was properly explained on facts, every concealment would not attract the rigour of section 271(1)(c); it must be deliberate and intentional being in the knowledge of assessee so as to evade payment of income-tax. The assessee, being a non-profit organization, managed and controlled by the Government of India for supply/distribution of electricity in the State, it could not be held that they had any deliberate intention to evade payment of tax. If due to some accountancy system maintained, one entry could not be subjected to tax, the same was rightly not made basis for imposing a penalty of Rs.100,000 under section 271(1)(c).
2.3 Pandit Govind Prasad Mishra v. CIT  - The Allahabad High Court, in the case of Pandit Govind Prasad Mishra v. CIT [1999] 238 ITR 338/[2000] 109 Taxman 160, held that a reading of section 271(1)(c) made it abundantly clear that the amount added or disallowed as a result of the rejection of any explanation offered by such person, if such explanation is bonafide and all the facts relating to the same and material to the computation of his total income are disclosed, no penalty proceedings could be initiated.
2.4 Bharat Rice Mill v. CIT -In Bharat Rice Mill v. CIT [2005] 278 ITR 599/148 Taxman 145 (All.), while completing the reassessment, the AO issued penalty notice to the applicant-rice miller in terms of section 271(1)(c). It was explained on behalf of the applicant before the AO that "non-disclosure of closing stock of Ghuta (rice) was not intentional and it was only a mistake by the accountant not to have included it in the closing stock".
The AO did not accept the explanation to be satisfactory and he imposed the penalty of Rs. 33,380. The Allahabad High Court held that the word "concealment" inherently carried with it the element of mens rea. The explanation offered by the applicant in the present case was bona fide also stood substantiated specially when the closing stocks of Ghuta rice and Kinki rice though omitted to had been disclosed in the previous year relevant to the assessment year in question had been voluntarily disclosed in the revised return filed by the applicant and which stocks had been bona fide disclosed by the applicant in the subsequent assessment year, i.e., 1982-83, and had also been subjected to tax in that year also, apart from being subjected to tax in the assessment year 1981-82 by the re-assessment order. Thus, the Tribunal was not justified in upholding the levy of penalty.
2.5 CIT v. JKA Subramania Chettiar - In CIT v. J K A Subramania Chettiar [Appeal No. 560 of 2009, dated 4-5-2010] the assessee had claimed deduction under section 80-IA under the bona fide belief that it was entitled to deduction under section 80-IA of the Act. Thereafter, the assessee had withdrawn the same vide its revised return. According to the Tribunal, when the assessee had committed the default under a bona fide belief which was rectified by filing a revised return, it could not be held liable for penalty under section 271(1)(c) of the Act.
The Gujarat High Court held that in the light of the concurrent findings recorded by the Commissioner (Appeals) as well as by the Tribunal, it was apparent that the assessee had bona fide made a claim for deduction under section 80-IA of the Act, which came to be rectified by filing a revised return withdrawing the claim and that, as such, there was no concealment or furnishing of inaccurate particulars of income on the part of the assessee.
[Also see CIT v. J.K.A. Subramania Chettiar [1977] 110 ITR 602 (Mad.)].
2.6 CIT v. Harshvardhan Chemicals & Minerals Ltd. - The Rajasthan High Court in CIT v. Harshvardhan Chemicals & Mineral Ltd. [2003] 259 ITR 212/133 Taxman 320, has held that when the assessee claimed some amount that was debatable, in such cases, it could not be said that the assessee had concealed any income or furnished inaccurate particulars of income for the evasion of tax.
2.7 Dhoolie Tea Co. Ltd. - In the case of CIT v. Dhoolie Tea Co. Ltd. [1998] 231 ITR 65, the Calcutta High Court has held that where the assessee had bona fide belief that his income was not taxable and he had failed to disclose such income under bona fide belief, no penalty had to be imposed under section 271(1)(c) of the Act.
2.8 CIT v. Reliance Petroproducts (P.) Ltd.  - In CIT v. Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158/189 Taxman 322, the Supreme Court had observed that because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not, in our opinion, attract the penalty under Section 271(1)(c). If we accept the contention of the Revenue then in case of every return where the claim made is not accepted by Assessing Officer for any reason, the assessee will invite penalty under Section 271(1) (c). That is clearly not the intendment of the Legislature.
2.9 In CIT v. Sambhav Media Ltd. [2013] 32 taxmann.com 371 (Guj.) for the assessment year 2000-01, the assessee claimed deduction under section 24 as well as also for depreciation. The Assessing Officer disallowed deduction on plea that assessee was disentitled to claim double deduction of depreciation as well as deduction under section 24 and made addition to its income. The AO also imposed penalty under section 271(1)(c) upon it. The Gujarat High Court held that this being a matter of bona fide difference of opinion between assessee and department regarding allowability of claim, imposition of penalty was not justified in the case.
2.10 In Dy. DIT (International Taxation)-2(1) v. Satellite Television Asian Region Ltd. [2012] 23 taxmann.com 100/[2013] 53 SOT 22 (Mum.) (URO) relying on the decision in CIT v. Eli Lilly & Co. (P.) Ltd. [2009] 312 ITR 225/178 Taxman 505 (SC), held that if the assessee had a bona fide belief that it was not required to deduct tax at source even if the amount was held taxable later on, would not result in levy of penalty on it under section 271C of the Act.
2.11 The Apex Court in the case of K.C. Builders v. Asstt. CIT [2004] 135 Taxman 461/265 ITR 562 (SC) has observed at page 425 as follows :
"One of the amendments made to the above-mentioned provisions is the omission of the word 'deliberately' from the expression 'deliberately furnished inaccurate particulars of such income'. It is implicit in the word 'concealed' that there has been a deliberate act on the part of the assessee. The meaning of the word 'concealment' as found in Shorter Oxford English Dictionary, third edition, Volume I, is as follows:
'In law, the intentional suppression of truth or fact known, to the injury or prejudice of another'.
The word 'concealment' inherently carried with it the element of mens rea. Therefore, the mere fact that some figure or some particulars have been disclosed by itself, even if it takes out the case from the purview of non-disclosure, it cannot by itself take out the case from the purview of furnishing inaccurate particulars. Mere omission from the return of an item of receipt does neither amount to concealment nor deliberate furnishing of inaccurate particulars of income, unless and until there is some evidence to show or some circumstances found from which it can be gathered that the omission was attributable to an intention or desire on the part of the assessee to hide or conceal the income so as to avoid the imposition of tax thereon. In order that a penalty under section 271(1)(iii) may be imposed, it has to be proved that the assessee has consciously made the concealment or furnished inaccurate particulars of his income. Where the additions made in the assessment order, on the basis of which penalty for concealment was levied, are deleted, there remains no basis at all for levying the penalty for concealment and, therefore, in such a case no such penalty can survive and the same is liable to be cancelled as in the instant case. Ordinarily, penalty cannot stand if the assessment itself is set aside. Where an order of assessment or reassessment on the basis of which penalty has been levied on the assessee has itself been finally set aside or cancelled by the Tribunal or otherwise, the penalty cannot stand by itself and the same is liable to be cancelled as in the instant case ordered by the Tribunal and later cancellation of penalty by the authorities."
2.12 In Northland Development & Hotel Corpn. v. CIT [2012] 349 ITR 363/25 taxmann.com 369/210 Taxman 249 (SC), the outstanding balance of loan was shown by appellant as Rs. 52,07,873 along with interest while the amount payable in the bank books was Rs. 42,45,477. Due to classification by bank the loan as a non-performing asset the interest was probably not charged by bank. The loan was settled to be paid by appellant through consent decree, to the tune of Rs.42,45,477.
On the issue of levy of penalty before the Apex Court (on the appeal against the decision of the Allahabad High Court) it was held, on the facts and circumstances of the case, that the penalty was not leviable under section 271(1)(c).
2.13 The SC in Cement Marketing Co. of India Ltd. v. Asstt. CST [1980] 124 ITR 15/4 Taxman 44 has held that a return cannot be "false", unless there is an element of deliberateness in it. If there was omission to include certain item in return of turnover on bona fide belief that it was not taxable, the return was not false (held in respect of S. 43 of M.P. General Sales Tax Act, 1958/s. 9(2) of Central Sales Tax Act,1956).
2.14 DIT v. Asia Attractive Dividend Stock Fund - Penalty for the concealment of income could not be levied in the case of bona fide error which was rectified by the assessee on its own [DIT v. Asia Attractive Dividend Stock Fund [2013] 35 taxmann. com 265 (Bom)].
2.15 CIT v. Trident Infotech Corp. Ltd. - Where additions were made on the basis of decision of the High Court, it did not establish that assessee had earlier concealed its income or furnished inaccurate particular of income, penalty was deleted. Also, the assessee claimed deduction on account of bad debt and later on he withdraw this treating it to be an inadvertent mistake and offered same as additional income, it was held that assessee had not furnished particulars of income [CIT v. Trident Infotech Corp. Ltd. [2013] 34 taxmann. com 132/216 Taxman 58 (Punj. & Har.) (Mag.)].
2.16 CIT v. Madhushree Gupta - Mere making of claim, which was not sustainable, in law, would not ipso facto, amount to furnishing inaccurate particulars regarding income [CIT v. Madhushree Gupta [2013] 33 taxmann.com 286/216 Taxman 65 (Delhi) (Mag.)].
2.17 CIT v. Jaswinder Singh Ahuja  - Where issue of capital gains was debatable at the time of filing of return, penalty was deleted [CIT v. Jaswinder Singh Ahuja [2013] 34 taxmann.com 116/216 Taxman 67 (Delhi)(Mag.)].
2.18 CIT v. Celetronix Power India (P.) Ltd. - When assessee had claimed deduction relying upon a judgment which was subsequently reverted by the Supreme Court, penalty was deleted [CIT v. Celetronix Power India (P) Ltd. [2013] 34 taxmann.com 90/216 Taxman 68 (Mag.)/352 ITR 70 (Bom.)].
2.19 CIT v. Yahoo India (P.) Ltd. - Where the very issue was debatable, penalty was held to be not justified [CIT v. Yahoo India (P) Ltd. [2013] 33 taxmann.com 332/216 Taxman 66 (Bom.)(Mag.)].
2.20 CIT v. Sundaram Finance Ltd. - When assessee withdrew excess claim only in view of action initiated by I T Deptt., there being lack of bona fide on the part of the assessee, penalty under section 271(1)(c) levied on the assessee was not deleted [CIT v. Sundaram Finance Ltd. [2013] 35 taxmann.com 65/216 Taxman 60/353 ITR 375 (Mad.)].
2.21 Hindustan Steel Ltd. v. State of Orissa - In Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 (SC), the Supreme Court has held that an order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding and penalty will not ordinarily be imposed, unless the party obliged by either acting deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances.
Concluding remark
3. It appears that the issue of levy of penalty under section 271(1)(c), where the assessee has acted in a bona fide belief is finally in the favour of him in view of various decisions, but where the assessee lacks bona fide action, penalty can be levied.
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• DT - Sec. 271.

u/s 271(1)(c)- Krishi Tyre Retreading & Rubber Industries

IT: Merely because books of account of assessee were rejected or estimated addition was made, no penalty is leviable under section 271(1)(c)
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[2014] 44 taxmann.com 9 (Rajasthan)
HIGH COURT OF RAJASTHAN
Commissioner of Income-tax
v.
Krishi Tyre Retreading & Rubber Industries*
NARENDRA KUMAR JAIN AND J.K. Ranka, JJ.
D.B. ITA No. 542 of 2008
SEPTEMBER  19, 2013 
Section 271(1)(c) of the Income-tax Act, 1961 - Penalty - For concealment of income (In case of addition on estimate basis) - Assessment year 1996-97 - Whether where addition had been sustained purely on estimate basis and no positive fact or finding had been found so as to even make said addition, no penalty was leviable under section 271(1)(c) - Held, yes [In favour of assessee]
FACTS


A survey operation came to be carried out at the business premises of the assessee, where some documents were found, which, according to the Assessing Officer, were not satisfactorily explained and, accordingly, on account of the said discrepancies, an estimated addition was made of Rs. 1,44,000. The addition was sustained by the Commissioner (Appeals) but on second appeal, the Tribunal restricted the addition to Rs. 1,00,000 preferring to the fact that the addition was made on estimate basis by lower authorities.

Based on such addition, the Assessing Officer levied penalty under section 271(1)(c).

On appeal, the Commissioner (Appeals) sustained the penalty.

On second appeal, the Tribunal deleted penalty.
HELD


On a perusal of the facts it transpired that the addition has been sustained purely on estimate basis and, no positive fact or finding has been found so as to even make the said addition. It is a pure guess work and on such guess work or estimation, no penalty under section 271(1)(c) can be said to be leviable. For imposing penalty under section 271(1)(c), the Assessing Officer has to clearly prove the conduct of the assessee, which in this case, has not been proved. Merely because the books of account of the assessee were rejected or estimated addition was made, no penalty is leviable. The assessee offered an explanation which could not be termed as not bona fide. In the absence of any corroborative evidence to prove the charge of concealment, the penalty could not be imposed. [Para 9]

Penalty proceedings are entirely distinct from assessment proceedings and, howsoever relevant and good the findings in assessment proceedings may be, they are not conclusive so far as the penalty proceedings are concerned. [Para 10]

From the above discussion, it can be seen that the opinion of the Tribunal with respect to the deletion is based on appreciation of evidence on record. [Para 11]

The finding reached by the Tribunal is essentially a finding of fact and no substantial question of law is involved in the instant appeal. Accordingly, the appeal is dismissed. [Para 24]
CASES REFERRED TO

Dilip N. Shroff v. Jt. CIT [2007] 291 ITR 519/161 Taxman 218 (SC) (para 12), CIT v. Kailash Crockery House [1999] 235 ITR 544/107 Taxman 386 (Pat.) (para 13), CIT v. Metal Products of India [1984] 150 ITR 714/18 Taxman 412 (Punj. & Har.) (para 14), CIT v. Whitelene Chemicals [2014] 360 ITR 385/[2013] 32 taxmann.com 192/214 Taxman 93 (Mag.) (Guj.) (para 15), CIT v. Subhash Trading Co. [1996] 221 ITR 110/86 Taxman 30 (Guj.) (para 16), Harigopal Singh v. CIT [2002] 258 ITR 85/125 Taxman 242 (Punj. & Har.) (para 17), CIT v. Shivnarayan Jamnalal & Co. [1998] 232 ITR 311/[1996] 89 Taxman 420 (MP) (para 18), CIT v. Raj Bans Singh [2005] 276 ITR 351 (All.) (para 19), CIT v. Chaturbhuj Bhanwarlal [1987] 166 ITR 659/31 Taxman 363 (Raj.) (para 20), CIT v. Aero Traders (P.) Ltd. [2010] 322 ITR 316 (Delhi) (para 21), CIT v. Modi Industrial Corpn. [2010] 195 Taxman 68 (Punj. & Har.) (para 22) and CIT v. Vijay Kumar Jain [2010] 325 ITR 378/[2011] 10 taxmann.com 9/198 Taxman 156 (Chhattisgarh) (Mag.) (para 23).
JUDGMENT

J.K. Ranka J. - The Revenue is in appeal under section 260A of the Income-tax Act, 1961, against the order of the Income-tax Appellate Tribunal (for short "the ITAT") dated October 6, 2006, raising the following questions for our consideration :
"(i)

Whether, under the facts and in the circumstances of the case and in law, the Tribunal was justified in deleting the penalty levied under section 271(1)(c) ?
(ii)

Whether, under the facts and in the circumstances of the case and in law, the order of the Tribunal can be sustained when the additions made by the Assessing Officer were upheld by the Tribunal and, therefore, the assessee was falling under the four corners of section 271(1)(c) ?
(iii)

Whether the penalty is imposable or not when the additions are made on estimation and the same are sustained at the appellate stage ?"
2. The issue pertains to the penalty imposed by the Assessing Officer on the amount of Rs. 1,00,000, which was sustained as addition, which was confirmed by the Commissioner of Income-tax (Appeals) (for short "the CIT(A)") under section 271(1)(c) of the Income-tax Act, 1961 (for short "the Act of 1961"), for the assessment year 1996-97. The said penalty was, however, deleted by the Income-tax Appellate Tribunal (for short "the ITAT")
3. Brief facts may be observed that the respondent is a registered firm and is engaged in retreading of old (worn out) tyres of all vehicles. Besides the job work, the respondent-assessee was also selling such raw material to local parties. A survey operation came to be carried out at the business premises of the respondent on November 16, 1995, where some documents were found, which, according to the Assessing Officer, was not satisfactorily explained and, accordingly, on account of the said discrepancies, an estimated addition was made of Rs. 1,44,000. The respondent preferred an appeal against the said addition of Rs. 1,44,000, which came to be sustained by the Commissioner of Income-tax (Appeals) and on further challenge before the Income-tax Appellate Tribunal, the Tribunal modified the order passed by the lower authorities and restricted the addition to Rs. 1,00,000 by, inter alia, preferring to the fact that the addition was made on estimate basis by lower authorities and looking to the facts on record and the explanation of the assessee, part relief of Rs. 44,000 was granted, thereby sustaining an addition of Rs. 1,00,000 on estimate basis.
4. In the penalty proceedings, the assessee submitted that it has not concealed the particulars of income, nor has it deliberately furnished inaccurate particulars of such income. It was further submitted by the assessee that the addition has been made on estimate basis and only because of the estimated addition, penalty in law under section 271(1)(c) of the Act cannot be levied but the Assessing Officer was not satisfied and, accordingly, penalty came to be imposed by the Assessing Officer. In first appeal the penalty was sustained, as aforesaid. However, the Tribunal, as aforesaid has deleted the said penalty.
5. Ms. Parinitoo Jain, learned counsel for the appellant-Department, submitted that the Tribunal was unjustified in deleting the penalty as the addition was sustained by the final fact finding authority, i.e., the Tribunal itself, who came to the conclusion that the addition was called for and sustained major addition. She submitted that the Assessing Officer had to make the estimated addition as during the course of survey, the assessee could not offer proper explanation which was based on the discrepancies and addition was made. She further submitted that though the addition has been sustained on estimate basis, but then it cannot be said that there is no concealment. Accordingly, she submitted that the Tribunal erred in deleting the penalty and question of law do arise and requires consideration of this court.
6. Mr. B.B. Ojha, learned counsel for the respondent, submitted that merely because the addition has been sustained, that too on estimate basis, it cannot be said that the assessee concealed the income or furnished inaccurate particulars of such income. He further submitted that no positive income has been found or admitted. It is merely rejection of a claim, which could not be substantiated by the assessee and the Assessing Officer has not been able to justify the imposition of penalty and the Tribunal had rightly deleted the penalty. He further submitted that merely because proper explanation was not offered, it does not make out that the assessee became liable for imposition of penalty. He also submitted that it is basically a finding of fact and no question of law arises for consideration.
7. We have considered the arguments advanced by the learned counsel for the parties and have also perused the impugned order.
8. On a perusal of facts, it is apparent that the Tribunal in the regular proceedings had upheld the addition by observing that the Assessing Officer, though justified in making some addition, however, it observed that even the Assessing Officer had made an estimated addition for he was not sure as to exact amount of addition, to be made and considering the peculiar facts of the case, the Tribunal modified the order by observing that "we find justification in the order of the lower authorities who have rightly made the addition on estimate basis. But the same is looking on higher side due to the peculiar facts and circumstances of the case. By modifying both the orders of the lower authorities, we restrict the addition to Rs. 1,00,000 (Rs. one lakh) only. Thus, the assessee will get the relief of Rs.44,000 (Rs. forty four thousand) from the orders of the lower authorities on ad hoc basis".
9. On a perusal of the facts stated hereinbefore, it transpired that the addition has been sustained purely on estimate basis and, in our view, no positive fact or finding has been found so as to even make the said addition. It is, according to us, a pure guess work and, in our view, on such guess work or estimation, no penalty under section 271(1)(c) of the Act can be said to be leviable. For imposing penalty under section 271(1)(c) of the Act, the Assessing Officer has to clearly prove the conduct of the assessee, which in this case, has not been proved. Merely because the books of account of the assessee were rejected or estimated addition was made, in our view, no penalty is leviable. The assessee offered an explanation, which could not be termed as not bona fide. In the absence of any corroborative evidence to prove the charge of concealment, in our view, the penalty could not be imposed.
10. Penalty proceedings are entirely distinct from assessment proceedings and, howsoever relevant and good, the findings in assessment proceedings may be, they are not conclusive so far as the penalty proceedings are concerned.
11. From the above discussion, it can be seen that the opinion of the Tribunal with respect to the deletion is based on appreciation of evidence on record.
12. The hon'ble apex court in the case of Dilip N. Shroff v. Jt. CIT [2007] 291 ITR 519/161 Taxman 218 has held that if there is no evidence on material to show that the assessee had deliberately furnished inaccurate particulars and there was any mala fide intention on his part so as to make him liable for penalty. A mere omission or negligence would not constitute deliberate act of concealing particulars of income or suppressed or furnished inaccurate particulars of income.
13. The Patna High Court in the case of CIT v. Kailash Crockery House [1999] 235 ITR 544/107 Taxman 386, had an occasion to consider the issue of penalty under section 271(1)(c) on the basis of the fact that the gross profit rate shown by the assessee was found to be low and trading addition was made on estimate basis though the trading addition was sustained by the Tribunal but in so far as penalty under section 271(1)(c) is concerned, it held that the trading addition had been made on the basis of an estimate and on account of estimated trading addition penalty could not be levied under section 271(1)(c) of the Income-tax Act.
14. The Punjab and Haryana High Court in the case of CIT v. Metal Products of India [1984] 150 ITR 714/18 Taxman 412, has held that merely because the addition has been made on estimate basis that did not automatically lead to the conclusion that there was failure to return the correct income.
15. The Gujarat High Court in the case of CIT v. Whitelene Chemicals [2014] 360 ITR 385/[2013] 32 taxmann.com 192/214 Taxman 93 (Mag.) (Guj) has observed that no penalty can be imposed merely because account books of the assessee were rejected and that profit was estimated on the basis of fair gross profit ratio. The assessee filed its explanation which could not be termed as not bona fide and, accordingly, the Gujarat High Court came to a conclusion that mere rejection of books of account and estimation of profit cannot be a ground for imposition of penalty.
16. The Gujarat High Court in the case of CIT v. Subhash Trading Co. [1996] 221 ITR 110/86 Taxman 30, has held as under (headnote) :
"Held, that a best judgment assessment had been made. While the assessee in its books of account disclosed the total sales to be Rs. 7,75,000, the Income-tax Officer on rejection of the books of account estimated the sales to be Rs. 8,75,000 which on appeal, the Tribunal reduced to Rs. 8,00,000. So also, while the gross profit disclosed by the books of account of the assessee was 5 per cent., the Income-tax Officer estimated the gross profit rate at 15 per cent which again was reduced by the Tribunal to 12 per cent. In this circumstance, in the absence of any other material which might reflect on the conduct of the assessee about a deliberate attempt to maintain false books of account, on a preponderance of probabilities, no other conclusion could be reached than that the failure to return the correct income was not on account of any fraud or gross or willful neglect on the part of the assessee. The Tribunal was right in holding that penalty of Rs. 92,894 imposed by the Inspecting Assistant Commissioner under section 271(1)(c) of the Act was not justified."
17. The Punjab and Haryana High court in the case of Harigopal Singh v. CIT [2002] 258 ITR 85/125 Taxman 242, has held as under (page 86) :
"In order to attract clause (c) of section 271(1) of the Act, it is necessary that there must be concealment by the assessee of the particulars of his income or if he furnishes inaccurate particulars of such income. What is to be seen is whether the assessee in the present case had concealed his income as held by the Assessing Officer and the Tribunal. He had not maintained any accounts and he filed his return of income on estimate basis. The Assessing Officer did not agree with the estimate of the assessee and brought his income to tax by increasing it to Rs. 2,07,500. This, too, was on estimate basis. The Tribunal agreed that the income of the assessee had to be assessed on an estimate of the turnover but was of the view that the estimate as made by the Assessing Officer was highly excessive and it fixed the total income of the assessee at Rs. 1,50,000 for the year under appeal. It is, thus, clear that there was a difference of opinion as regards the estimate of the income of the assessee. Since the Assessing Officer and the Tribunal adopted different estimates in assessing the income of the assessee, it cannot be said that the assessee had "concealed the particulars of his income" so as to attract clause (c) of section 271(1) of the Act. There is not even an iota of evidence on the record to show that the income of the assessee during the year under appeal was more than the income returned by him. Additions in his income were made, as already observed, on estimate basis and that by itself does not lead to the conclusion that the assessee either concealed the particulars of his income or furnished inaccurate particulars of such income. There has to be a positive act of concealment on his part and the onus to prove this is on the Department. We are also of the considered view that the Tribunal grossly erred in law in relying on Explanation 1(B) to section 271(1)(c) of the Act to raise a presumption against the assessee. The assessee had justified his estimate of income on the basis of household expenditure and other investments made during the relevant period. It is not the case of the Revenue that he had, in fact, incurred expenditure in excess of what he had stated. In this view of the matter, it cannot be said that the explanation furnished by the assessee had not been substantiated or that he had failed to prove that such explanation was not bona fide."
18. The Madhya Pradesh High Court in the case of CIT v. Shivnarayan Jamnalal & Co. [1998] 232 ITR 311/[1996] 89 Taxman 420 held thus (page 313) :
"We have gone through the orders of the Tribunal and the Commissioner of Income-tax (Appeals). We are satisfied that both the authorities have correctly approached the matter and found that there was no fraudulent attempt on the part of the assessee. The assessee had placed before the authorities whatever books of account it had maintained-whether they were properly maintained or not but it has not withheld or concealed any material or made any deliberate attempt to defraud the authorities. The assessing authority has employed the flat rate for assessing the income of the assessee and on that basis, he has been taxed.
Therefore, we are of the opinion that the view taken by the Tribunal in setting aside the penalty appears to be justified and we answer both these questions against the Revenue and in favour of the assessee."
19. The Allahabad High Court in the case of CIT v. Raj Bans Singh [2005] 276 ITR 351 has held that "On appeal, the Tribunal came to the conclusion that it was a case of an estimate against an estimate and there was no concealment and accordingly it was held that no penalty was imposable".
20. This court in the case of CIT v. Chaturbhuj Bhanwarlal [1987] 166 ITR 659/31 Taxman 363 (Raj.) observed as under (page 682) :
"Having given our anxious consideration to the rival contentions advanced before us and to the law cited by both the sides, we are of the view that the Tribunal proceeded to take into account various circumstances referred to above and had reached the finding after considering those circumstances. It cannot be said that the finding reached by the Tribunal was based on no evidence. All material facts and circumstances positive and negative, constitute evidence and on consideration of the positive and negative circumstances, the finding can be arrived at after weighing the probabilities. Such a finding, in our opinion, cannot be said to be a finding which is vitiated on any count, i.e., such a finding cannot be said to be perverse or based on no evidence. It is true that this course was also open to the Tribunal and the Tribunal should have asked the assessee to submit his explanation with respect to capital accretion considered by the authorities below, but failure to do so by the Tribunal would not in any way affect the jurisdiction of the Tribunal to proceed to decide the appeal on the basis of the material on record. The finding of the Tribunal, therefore, cannot be said to be based on no evidence and the finding that there has been no concealment of income is a finding of fact and it does not raise any question of law and the Tribunal was right in cancelling the penalty imposed on the assessee."
21. The Delhi High Court in the case of CIT v. Aero Traders (P.) Ltd. [2010] 322 ITR 316 has held that penalty is not leviable when income was based on estimated profit and substantially reduced by the Tribunal.
22. The Punjab and Haryana High Court in the case of CIT v. Modi Industrial Corpn. [2010] 195 Taxman 68 has held that where the assessment of the assessee was completed on estimated basis penalty under section 271(1)(c) of the Act was not imposable with respect to the additions made on such estimate by the Assessing Officer.
23. The Chhattisgarh High Court in the case of CIT v. Vijay Kumar Jain [2010] 325 ITR 378/[2011] 10 taxmann.com 9/198 Taxman 156 (Mag.) has held that the assessee declared the net profit by estimating it at the rate of 6.36 per cent. of his gross receipt while it was estimated at the rate of 10 per cent of gross receipts by the Assessing Officer and on these facts held that penalty for concealment cannot be levied as the assessee cannot be said to have concealed any particulars of income or furnished any inaccurate particulars of income.
24. In view of the above facts and what we have observed above, the finding reached by the Tribunal is essentially a finding of fact and no substantial question of law is involved in the present appeal. This appeal has no force and accordingly, the same is dismissed.
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*In favour of assessee.