TaxTMI 
TaxTMI 
2004 (9) TMI 368
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....sis on account of unexplained investment in Balaji Apartments allegedly belonging to the assessee. The income from truck was computed at Rs. 2,35,000 subject to depreciation of Rs. 3,73,279. Further, addition of Rs. 80,000 was made on account of unexplained margin money of truck. Penalty under section 271(1)(c) was initiated for the additions made. The assessment was taken in appeal challenging the value of property known as Balaji Apartments as adopted and the CIT(A) granted reduction of Rs. 71,836 from the assessed income. No further appeal was filed. 3. Thereafter, penalty proceedings were initiated and penalty was levied in respect of the addition made on account of investment in Balaji Apartment as also on account of unexplained investment in margin money in purchase of truck of Rs. 80,000. A minimum penalty of Rs. 3,31,627 was levied under section 271(1)(c) of the Income-tax Act. For the detailed reasons given by the CIT(A), the entire penalty has been cancelled and the department is in appeal challenging the deletion of the penalty. 4. Before adverting to the department's contentions, it would be necessary to note certain facts as have been brought out by the autho....
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....s sold to Shri R.B. Banne for Rs. 77,000 and Shri R.H. Shinde was asked to receive the amount from Shri Banne and to adjust it against the amount payable to him on account of retirement from the firm M/s. Hotel Govind. 6. Thus, after purchasing undivided one-half shares from the assessee Shri R.H. Shinde and Smt. T.B. Shirodkar, Shri Banne started constructing the property called Shree Balaji Apartment. It appears from the settlement agreement between Shri R.H. Shinde and Shri R.S. Banne that there were 9 flats in the said building. Shri Banne had filed a Deed of Apartment Declaration on 2-1-1990. He had also taken some amounts from the customers as booking advances for construction. During the course of construction, Shri Banne had received Rs. 2,25,000 from the assessee Shri R.H. Shinde during the year 1987-88. Shri Banne had spent Rs. 1,54,000 towards purchase of plot and Rs. 9 lakhs or about on the construction cost of the building. Total cost of the building including value of the plot was stated to be of Rs. 10,54,000. 7. Initially, the investment as above was disclosed by Shri R.B. Banne in his own assessment. Shri Banne made a petition for disclosure of income on 20-4....
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....ducting this amount, Shri Banne was to receive Rs. 8,29,000. Instead of paying the said amount of Rs. 8,29,000, flat Nos. 4 & 5 as per the Apartment Declaration were to be allotted to Shri Banne and remaining flats were to be taken over by the assessee and on sale of these flats, money was to be adjusted against the dues. It was also the term of the agreement that the land and building shall be offered for taxation by the assessee in his hands and Income-tax liability thereon shall be paid by the assessee. Shri Banne stated that he would withdraw his petition before the CIT in respect of the building and he shall also transfer 5 flats in Balaji Apartments in favour of the assessee. 9. Consequently on 8-3-1991 the assessee made a petition to the CIT for voluntary disclosure of additional income for the assessment years 1987-88 to 1989-90. At the time of this petition, assessment of the assessee for the assessment year 1987-88 was already completed while assessment for the assessment year 1988-89 (under appeal) and assessment year 1989-90 were pending. Alongwith this voluntary petition for the purposes of declaring additional income, the assessee gave a cash flow statement in whic....
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.... if assessee's sources are considered as explained by it the credit of Rs. 2,26,700 only can be given and balance investment of (Rs. 8,91,710 minus Rs. 2,26,700) = Rs. 6,65,010 remains undisclosed investment of assessee in respect of building disclosed by assessee in the return dated 8-3-1991, filed before the CIT, Kolhapur. Hence Rs. 6,65,010 are added on a protective basis in the hands of the assessee for this year. Penalty proceedings under section 271(1)(c) are initiated." It is this addition of Rs. 6,65,010 in the construction of Balaji Apartments which is subject-matter of penalty in the present case. 10. In para 3 of the assessment order, the Assessing Officer noted that in purchasing tanker M WK 463 the assessee had paid an amount of Rs. 80,000 in cash out of truck plying business. This cash was said to have been paid on 20-7-1987. However, since no evidence was produced in respect of the source of the cash of Rs. 80,000 because the assessee was unable in absence of books to show the said cash of R.s 80,000 was available to him out of truck plying business, an addition of Rs. 80,000 was made by the Assessing Officer. 11. On 13-3-1992, the Assessing Officer pass....
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....on and the assessee in regard to the amounts receivable by the assessee from the firm M/s. Hotel Govind. Though therefore the statement of Smt. T.B. Shirodkar was factual, in the context in which it was made, it was not on account of the fact that the assessee has received the sale consideration. (2) The department accepted the sale of one-half portion of the plot of Smt. T.B. Shirodkar which was on a stamp paper of Rs. 40 and rejected the sale of one-half portion standing in the name of Shri R.H. Shinde which was registered before the registering authorities prior to the date of search. In the property Cards, the property stood in the name of Shri Banne and the flats in the building also were shown as sold by Shri Banne. Remaining two flats as per settlement between the assessee and Shri Banne dated 26-2-1991 still stood in the name of Shri Banne. (3) Shri Banne had explained the investment in the construction of the property out of his own resources, i.e. agricultural income, truck income and amount received from booking of flats. The receipt of deposits from the flat purchasers was accepted by the DCIT by issuing summons under section 131. (4) If the a....
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....nsequence of settlement deed dated 26-2-1991. No enquiry was conducted by the Assessing Officer in making assessment or while levying penalty. On the contrary, para 2.3 of the order showed the investigation had not even been started in regard to the investment, but it was only contemplated at the time of completion of assessment. (9) The settlement deed also showed that the investment was made by Shri Banne himself out of his own resources and as a result of which he was given consideration for the investment by allotment of two flats by the assessee. (10) It was a case of change of opinion and not finding of fact of any independent proof. A protective assessment was converted into regular assessment on the basis of same facts which were prevailing when the original assessment was made and, therefore, the basis on which penalty could have been levied did not exist. 14. In considering the arguments of the assessee, the ld. CIT(A) concluded in para 6 of his order, accepting more or less the contentions raised by the assessee, as under: (i) The statement that investment in Balaji Apartments was made by Shri Banne is supported by certain documentary eviden....
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....ssee which even the Assessing Officer while making assessment did not rely upon conclusively. The protective assessment was made into regular assessment only on the basis of the assessee's letter. Protective assessment as well as substantial assessment are made only on the basis of assessee's surrender of the amounts. (iii) As there are contradictory statements of the assessee and Shri Banne regarding ownership of flats and documentary evidence indicates that investment might be relating to Shri Banne subject to verification, it could not be conclusively said that the assessee had concealed any particulars of investment while filing the return of income. The penalty, therefore, on unexplained investment in Balaji Apartments was concelled. (iv) As regards the addition of Rs. 80,000, the CIT(A) stated that the assessee had not maintained books of account in respect of his truck plying business. The assessee had produced cash flow statement for the year and on that basis income was assessed. A general view therefore of the availability of the cash had to be taken. Remaining investment in the truck had been made through cheques and the assessee himself had cla....
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....ean that there was any agreement not to levy penalty. When the statute puts a liability on the assessee, no agreement with the department could entitle it to avoid that liability, because there could be no agreement or estoppel against statute. In this behalf, reliance was placed on the decision of the Delhi High Court in the case of Tube Fabrico (I) Ltd. v. CIT [1994] 210 ITR 1035 (Delhi), and on the decision of the Kerala High Court in the case of CIT v. D.K.B. & Co. [2000] 243 ITR 618. The ld. CIT (DR) further submitted that the ld. CIT(A) instead of considering the findings of the Assessing Officer has re-done the assessment and therefore, such exercise was not warranted in the present case. The concealment being very clear, there was no justification for cancellation of the penalty. 16. The ld. CIT drew our attention to the department's appeal for the assessment year 1989-90, and submitted that this appeal had also a bearing on the merits of the appeal for the assessment year 1988-89. In that appeal, the Assessing Officer had levied penalty in respect of gross profit additions made to the assessee's income from dairy business. The assessee had sought to take benefit....
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....ided independently. 18. Shri Sathe heavily relied upon the order of the ld. CIT(A) and submitted that there was substantial evidence to show that Shri Banne was owner of the building and if no admission had come from the assessee, the department had absolutely no evidence to show that the impugned investment was that of the assessee. In fact, if the declaration of the assessee is removed, the department had virtually accepted the investment in the hands of Shri Banne. 19. According to Shri Sathe, penalty proceedings were initiated in the course of the assessment, but the assessment itself shows that even the assessee's alleged admission that the property belonged to him was not acceptable to the department and they wanted to make further investigation. Thus, when the Assessing Officer himself was not sure whether addition was to be made in the hands of the assessee or not, initiation of proceedings in such a protective assessment itself vitiated the entire proceedings. Reliance in this behalf was placed on the decision of the Calcutta High Court in the case of CIT v. Super Steel (Sales) Co. [1989] 178 ITR 451 Shri Sathe further submitted that the assessee owned up the inv....
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....es of his agreement with Shri Banne and in these circumstances in absence of any independent finding based on any valid enquiry regarding concealment of income, penalty was not leviable. In our opinion, to assess a person on admission or confession is one thing and to penalise is altogether a different thing. The Revenue has to firmly establish mens rea under the substantive provisions of section 271(1)(c), after the assessee furnishes an Explanation denying charge of concealment. The Revenue has a heavy burden to be discharged as per the substantive provisions of section 271(1)(c) in spite of Explanation 1 appended to the said provisions. In this connection, reference is invited to the decision of Calcutta High Court in the case of CIT v. Nuruddin & Bros. [1990] 185 ITR 481. 21. In Hari Ram Sri Ram's case, the assessee HUF had filed a return and subsequently the ITO found from the information that the assessee had received a number of drafts in the name of his employees and in the name of coparceners. He issued notice under section 148. The assessee, however, explained that these amounts belonged to coparcener's individual capacity and did not belong to it. The ITO did ....
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....d. CIT (DR) that once crime was committed and admitted, no further burden lay upon the Revenue, we find that the assessee had merely offered the investment for taxation purpose and the alleged crime of concealment was never admitted. The Revenue has still to discharge the basic burden of showing that the assessee had concealed income. 24. In regard to the various cases cited by the ld. CIT, we are of the opinion that each case of penalty turns on its peculiar facts and whether in a given case penalty is leviable or not would depend on the peculiar facts of that case. Only legal propositions will have to be considered which are being laid down by the Courts. In this behalf, the well accepted legal position is that penalty is leviable if the assessee is found to be conscious of his non-declaration of income at the time of filing of the return. In the present case, there is nothing to show that the assessee was aware of the subsequent developments, such as settlement with Shri Banne etc. There is no independent evidence to show that Shri Banne was not owner of the property. In fact, the whole case of the department is based on the declaration of the assessee that the investment bel....
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....e or that there was no explanation. This was a case where a bona fide explanation was rejected and penalty was being levied. Even assuming therefore that the Explanation was to be invoked, there was no penalty leviable merely because of rejection of explanation. 27. In the light of above discussion, we hold that the ld. CIT(A) is justified in deleting the impugned penalty. We accordingly decline to interfere. 28. In the result, the appeal is dismissed. Per U.B.S. Bedi, Judicial Member. 29. I have gone through the proposed order of the learned Accountant Member but despite my best persuasion of myself, I have not been able to agree with the findings and conclusions arrived at by him and my reasons for being so, are given hereunder. 30. This is revenue's appeal against the order of deletion of penalty of Rs. 3,31,627 imposed under section 271(1)(c) of the Income-tax Act, 1961 by the Assessing Officer. In this case, return of income for the assessment year 1988-89 was filed on 8-8-1988 declaring total income at Rs. NIL as computed below: (I) Income from house property (Rs.) Residential flat No. 19B Mansmruti Co-op. Housing Society, Takala....
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....sessed total income. After the decision of the CIT(A), Kolhapur, a reminder was issued and served on the assessee on 18-1-1992 to seek his explanation, if any, to finalize the penalty proceedings under section 271(1)(c) of the Act. The assessee has filed his written submission on 27-1-1992 as under: "I have filed the return of income on 8-8-1988 declaring total income of Rs. NIL. The search and seizure action was carried out on 28-9-1988. In order to purchase the peace of mind and settle the income-tax matters, I have filed the petition for disclosure of additional income to the CIT, Kolhapur on 8-3-1991. The returned income was NIL and the income assessed was voluntarily offered by me through petition to CIT Kolhapur. I have also fully cooperated to the department in the matter of assessment and payment of taxes." The explanation offered by the assessee was not found to be convincing by the Assessing Officer who observed as under: "(a) So far as undisclosed investment in the building viz. Balaji Apartments are concerned, as is seen from para 2 of the assessment order, the assessee and one Shri R.B. Banne took different and contrary stands on differ....
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....ficer was satisfied that this is a fit case to levy penalty as the assessee has deliberately concealed the particulars of his income and accordingly he levied the penalty of Rs. 3,31,627 under section 271(1)(c) of the Act being minimum imposable. 31. Aggrieved by this order of the Assessing Officer the assessee took up the matter in appeal and the learned CIT(A) while taking on record certain new documents and so-called settlement dated 26-2-1991 stated to have been executed between the assessee and Shri Banne concluded to delete the entire penalty against which the revenue is in appeal. 32. So far as the arguments of both sides are concerned, for the sake of brevity they are not being repeated and adopted as recorded in the proposed order. 33. After hearing both sides and going through the record as well as the case law cited by rival parties, I find that during the penalty proceedings in response to show cause notice issued by the department, no plea other than the one taken earlier during assessment proceedings was taken i.e. in order to purchase the peace of mind and settle the income-tax matters the assessee filed petition for disclosure of additional income to the CI....
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.... request sympathetically and allow me to withdraw the petition without levying any penalty/interest/prosecution, if any." 35. In another letter filed on 2-8-1991, placed at page 31 of the paper book, the assessee, inter alia contended as under. "I have filed the revised return of income on 9-7-1991. Vide a petition filed to the CIT, Kolhapur on 8-3-1991, the cost of construction of building Balaji Apartment has been offered by me for taxation in assessment years 1988-89 and 1989-90 as the building is actually owned by me. In the petition, on the basis of my cash flow statement, I have offered Rs. 1,76,974 as my additional income out of profit of Shree Balaji Traders, which have been utilized for construction of the building, Balaji Apartment. This amount has remained to be shown in my return filed on 9-7-1991. This may kindly brought to tax and my computation of income may be treated as revised to that extent." In a further petition dated 12-3-1992 placed at page 32 of the paper book, the assessee inter alia contended to treat the investment in the building styled as "Balaji Apartments" on substantial basis instead of protective one in the following words: "....
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...., yet the same would not by itself lead to the conclusion that there was no intention on the part of the assessee to conceal its income when he filed his original/revised return. The question whether there was any such intention would depend upon the facts and circumstances of each case that would throw light on the mental process of the assessee at the relevant time. Subsequent conduct may be one of the factors which can be taken note of but mere filing of a letter may not be sufficient to exonerate the assessee. Even if the department had not come across any further tangible evidence in regard to the concealment, yet so long as the question whether there was any such concealment was open before the Department, and the latter had the option to initiate appropriate proceedings, the submission of a letter by the assessee cannot be viewed in isolation. 37. Since filing of letter showing additional income can be equated with filing of revised return disclosing additional income, so following case law would be relevant for the proposition. 38. In the case of CIT v. K. Mahim [1984] 149 ITR 737 the Kerala High Court has taken the following view: "However, mere filing of a ....
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.... the course of assessment proceedings. Similarly, Shri Banne also reversed his stand and in a letter dated 19-3-1991 addressed to the CIT Kolhapur wherein he had admitted that the ownership of the building and plot actually belong to Shri Shinde. All these factual position show that the assessee, in concurrence with Shri Banne made a conscious and deliberate efforts to conceal his investment in the building. His disclosure came only after the Assessing Officer probed into the matter. The sequence of the events and stands and contra-stands taken by the assessee at different stages negative the assessee's stand that he has made the disclosure voluntarily and co-operated with the department. Even otherwise also when the fact of concealment of income is established, any subsequent act of voluntary disclosure by filing a letter would not affect the imposition of penalty because it does not erode the assessee's earlier guilt. Therefore, in my considered view the explanation offered by the assessee has rightly been held by the Assessing Officer to be not satisfactory in view of the facts and circumstances of the present case and as such it is a fit case for levy of penalty. 40.....
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....n:- "Whether on the facts and in the circumstances of the case, the CIT(A) is justified in canceling penalty of Rs. 3,31,627 levied by the Assessing Officer under section 271(1)(c) of the Income-tax Act, 1961?" 2. I have heard the rival submissions in the light of material placed before me and precedents relied upon. For the relevant assessment year the assessee filed his return on 8-8-1988, declaring total income at Mi On 29-8-1988 search operation was conducted. 3. The assessee purchased plot at 532-E, Shahupuri, Kolhapur, along with Smt. T.B. Shirodkar in November, 1986, for a sum of Rs. 1,50,000. The investment in the said plot was disclosed at that point of time. The department did accept it. At the time of search, a statement of Shri S.B. Shirodkar, son of the co-owner was recorded. It was stated that the building was purchased with the intention of constructing flats. Plan for construction was made in the joint name of the owners. It was submitted to the Kolhapur Municipal Corporation in January 1987 and the plan was sanctioned in April 1987. On account of dispute between the co-owners, the idea of construction was abandoned. At that time some minor constructi....
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....oan proposals of the flat holders who made the bookings were not sanctioned by the banks and due to this the persons were not interested for completing the agreement. Shri Banne requested the assessee to take over the building. His investment in the building was to the tune of Rs. 10,54,000. A sum of Rs. 2,25,000 was payable to the assessee. Thus, after deducting this amount, Shri Banne was to receive Rs. 8,29,000. 6. Instead of paying the said amount of Rs. 8,29,000 flat Nos. 4 and 5, as per the Apartment Declaration were to be allotted to Shri Banne and the remaining flats were to be taken over by the assessee. On sale of these flats the money was to be adjusted against the dues. 7. It was also agreed that the land and building shall be offered for taxation by the assessee. Income-tax liability shall be paid by the assessee. Shri Banne stated that he would withdraw his petition before the CIT in respect of the building and transfer five flats in Balaji Apartments in favour of the assessee. 8. Ex consequenti, on 8-3-1991 the assessee made a petition to the CIT for voluntary disclosure of additional income for the assessment years 1987-88 and 1989-90. At the time of this p....
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....9;s letter dated 12-3-1992, on the basis of which the aforesaid order was passed are reproduced here as under:- "Respected Madam, The investment in the building styled as 'Balaji Apartment' has been taxed on protective basis. I had filed the petition to the Commissioner of Income-tax, Kolhapur on 8-3-1991 and through that petition; I had offered the investment in said building in my hand. The appeal in respect of assessment year 1988-89 is already been decided. The investment in the said building which is included on protective basis, be taxed in my hand on regular basis, as the said investment is not taxed in the hands of any other person." 13. The additional income was disclosed by petition dated 8-3-1991. Thereafter, on 2-8-1991, the assessee has given the letter to DCIT, Special Range I, Kolhapur, which reads as under:- "I have filed the revised return of income on 9th July, 1991. Vide a petition filed to the CIT Kolhapur on 8-3-1991, the cost of construction of building Balaji Apartment has been offered by me for taxation in assessment years 1988-89 and 1989-90 as the building is actually owned by me. In the petition, on the basis of my ca....
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....nly the admission of the assessee and the denial of Shri Banne about the investment. Subsequently, as a consequence of the settlement deed dated 26-2-1991 that the investment was shown in the name of the assessee. Nothing incriminating was found at the time of search from the premises of the assessee. 17. The learned counsel for the assessee submitted that a protective assessment was converted into regular assessment on the basis of very facts which are prevailing when the original assessment was made. This amply demonstrates that the Assessing Officer was not sure as to in whose hands the income is to be assessed. The income which was to be assessed in the hands of Shri Banne was assessed in the hands of the assessee because of his admission. The admission was made consequent upon settlement with Shri Banne. As such, there is no iota of concealment in the deal. 18. Reliance was placed on various precedents. The learned Departmental Representative relied on the decision of the Hon'ble Apex Court rendered in the case of K.P. Madhusudhanan v. CIT [2001] 251 ITR 99. The learned counsel for the assessee placed his reliance on the decision of the Hon'ble Apex Court rendere....
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.... as under:- "On the facts and in the circumstances of the case and in law, the CIT(A) has failed to appreciate the fact that the assessee did not disclose the investments in Balaji Apartments and milk tanker in his income-tax return filed on 8-8-1988 nor it revised the return though there was sufficient time to do so. The assessee also did not come forward for disclosure of the above investments at the time of search conducted on 28-9-1988 by the Department when the Department found certain documents which showed investment in Balaji Apartments in the name of Shri R.B. Banne - a benami." 22. From the aforesaid discussion it is quite clear that the disclosure was necessitated due to settlement with Shri Banne. Nothing incriminating was found at the time of search requiring disclosure of income. The declaration was purely voluntary. There is absolutely nothing on record to indicate that it was made under lurking fear of detection. 23. In regard to the payment of Rs. 80,000 out of truck plying business, it was stated that the cash was paid on 20-7-1987. The assessee was not maintaining the books of account. As such the evidence could not be produced with reference to th....