TaxTMI 
TaxTMI 
2004 (9) TMI 368
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....alaji 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 authorities concerned, as also by the assessee in the ....
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.....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 20-4-1989. In this petition, Banne disclosed his income for....
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....00. 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 which the construction of building of Balaji Apartment was show....
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....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 passed an order for the assessment year 1988-89 stating that the addition of Rs. 6,65....
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....refore 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 assessee had stated that the building belonged to him, it was only to give effect to the agreement between him and Shri Banne dated 26-2-....
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.... 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 evidence like the deed made in July 1987 selling plot to Shri Banne, statement of Shri Shirodkar that the plot was sold by Smt. Shirodkar as well as by the assessee to Shri Banne, statement of ....
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....etter. 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 claimed that Rs. 80,000 was out of cash balance. Chart of receipts and payments as reproduced by the CIT as on 2-7-1987 showed that the assessee had sufficient receipts so as to enable him to invest Rs. 80,000 o....
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....his 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 of this gross profit addition of Rs. 3,00,704 in explaining the investment made in the assessment year 1989-90 in respect of the building construction of Balaji Apartments. In deciding the appeal against this penalty, the ld. CIT(A) deleted the penal....
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....solutely 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 investment not because he was the real owner, but there were compelling circumstances as has been revealed by the settlement agreement. The document itself shows that the investment was made by Shri Banne and in return for that investment two flats were to be ....
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....ng 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 not believe the explanation and added the amount as assessee's income. On appeal to the AAC, the assessee agreed to the addition in order to avoid litigation and hardship. The penalty imposed by the ITO was cancelled by the Tribunal on the ground that there....
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....rge 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 belongs to him. If that declaration is taken out, there are no facts to show that the assessee was the owner of the investment and he had failed to show it in the return of income. It would therefore mean that the assessee is to be penalised on the basis of declaration ....
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....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, Kolhapur NIL (II) Profits and Gains from business (a) Share profit from firm: M/s. Shree Venkateshwar Bulk Carriers Kolhapur 2,235 (b) Income from truck plying business Net loss as per P & L a/c 1,38,279 Add: Depreciation ....
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....rried 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 different occasions. In a petition filed after the search before the CIT, Kolhapur, in April 1989, Shri Banne disclosed the building in his name. During the course of assessment proceedings, initially the assessee in his letter dated 10-10-1990 himself admitted that he had sold the plot to Shri R.B. Banne and he had nothing to do with the building Balaji Apartments Again in petition dated 8-3-1991 addressed to the CIT the assessee took a contrary st....
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....ave 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 CIT, Kolhapur on 8-3-1991. The relevant portion of the said letter is reproduced as under: "In the process of expansion of business, I have purchased plot at 532-E, Shahupuri, Kolhapur along with Smt. T.B. Shirodkar in Nov. 1986 and constructed the building styled as Balaji Apartments in assessment years 1988-89 and 1989-90. Due to misguidance, I tried to construct the said building in the name of Shri R.B. Banne. The plot at 532-E, Shahupuri, Kolhapur and the buil....
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....he 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: "The investment in the building styled as 'Balaji Apartment' has been taxed on protective basis. I had filed the petition to the ICIT, Kolhapur on 8-3-1991 and though 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 my other person." And on t....
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....ee. 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 revised return by the assessee at any time prior to the Department cornering the assessee in relation to a particular concealed income, would not be sufficient to exonerate the assessee from the penal consequences. The mere fact that investigation by the Department is afoot, though nothing tangible had come into the possession of the Department at any particular point of time, may, induce a dishonest assessee to submit a revised return. Such an exercise will not absolve him of the consequences flowing from an act which on....
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....ntra-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. Similarly, so far as penalty with regard to unexplained margin money of truck at Rs. 80,000 is concerned, it is noted from the assessment order that the assessee could not prove the source of money and even in quantum appeal, the assessee did not raise this issue before the CIT(A). Moreover, explanation offered by the assessee before the Assessing Officer is found to be silent on this point. Therefore, with regard to this point, no explanation has been offered at all before the Assessing Officer so the Assessing Officer is found....
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....kar 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 construction was done. Both the co-owners entered into sale agreement with one Shri R.B. Banne. The assessee transferred by a registered deed, his one-half share for a consideration of Rs. 77,000. The other co-owner also transferred to Shri R.B. Banne, her one-half share for Rs. 77,000. Thereafter, Shri Banne started the construction work under the name and style of "Balaji Apartments". Nine flats were constructed. Shri Banne filed a deed of Apartment declaration on 2-1-1990. He took some amount from the customers as booking advances for construction. During the course of cons....
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....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 petition, the assessment of the assessee for the assessment year 1987-88 was already completed, while the assessment for the assessment year 1988-89 was under appeal and the assessment for the assessment year 1989-90 was pending. Along with the petition for clearing the additional income, the assessee submitted a cash flow statement in which the construction of Balaji Apartments was shown at Rs. 6,50,000. In view of the availability of funds as per cash flow statement, the additional income of Rs. 54,288 was offered for taxation as net profit of Balaji Traders. This firm was do....
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....vestment 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 cash flow statement, I have offered Rs. 1,76,974 as my additional income out of profit of Shree Balaji Traders which have been utilised for construction of the building, Balaji Apartment. This amount has remained to be shown in my return filed on 9th July, 1991. This may kindly be brought to tax and my computation of income may be treated as revised to that extent" 14. Smt. Tarabai B Shirodkar, the other co-owner of the plot, vide her letter dated 19-3-1991, intimated the sale of plot to the DCIT, Kolhapur, as under:- "I have purchased plot at 532 E, Shahupuri, Kolhapur in November 1986 from Shri Shah Prakash chandra Ch....
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....ssed 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 rendered in the case of CIT v. Suresh Chandra Mittal [2001] 251 ITR 9. According to the learned DR, the assessee agreed for she addition and the ratio laid down in the case of Sir Shadilal Sugar & General Mills Ltd. v. CIT [1987] 168 ITR 705 (SC), held not good law alter the addition of the Explanation to section 271 by the Hon'ble Supreme Court in K.P. Madhusudhanan's case. As such, penalty was lightly levied. He vehemently supported the order of learned Judicial Member. 19. The learned counsel for the assessee relied on the decision of the Tribunal rendered in the case of ITO v. Devibai H. Parmani [2003] 84 ITD 342 (Mum.). In this case the Tribuna....
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....sure 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 the books. The assessee produced before the revenue authorities cash flow statement for the year. Availability of cash was explained with reference to the said statement. Chart of receipts and payments, as reproduced by the CIT, proves that the assessee had sufficient funds to enable him to make investment of Rs. 80,000. As such, penalty was not justified on this count also. 24. Hon'ble Madras High Court in the case of CIT v. J.K.A. Rajappa Chettiar [1985] 153 ITR 215 has held that where, on the basis of a true disclosure of the assessee's source of income and where, in the absence of direct materials, the determination of the taxable income had to be taken up ....