TaxTMI 
TaxTMI 
2011 (3) TMI 973
X X X X Extracts X X X X
X X X X Extracts X X X X
....tained by the assessee and an additional income of Rs. 65 lakhs was disclosed by the assessee to cover up such deficiency noted in the accounts. Subsequently, the assessee filed a revised return of income of 17-3-2005 disclosing an income of Rs. 1,70,96,720. Accordingly, the assessment for the assessment year 2004-05 was completed. 3. For the assessment year 2005-06 the assessee filed return of income on 31-10-2005 declaring an income of Rs. 2,25,61,000. On examination of the profit and loss account filed along with the return of income, the Assessing Officer observed that additional income of Rs. 65 lakhs declared for assessment year 2004-05 subsequent to the survey was treated as a part of other receipts and the said amount was claimed as a deduction in the computation of income filed along with the return of income on the ground that the said amount was already offered for taxation for the assessment year 2004-05. The Assessing Officer further found that said amount of Rs. 65 lakhs was claimed as a source of investment for giving site advances to the Kendrapara work site. Therefore, by invoking the Explanation 2 to section 271(1)(c), the Assessing Officer initiated the penalt....
X X X X Extracts X X X X
X X X X Extracts X X X X
....enalty for the assessment year 2004-05 without initiating the penalty for that assessment year. The said action of the Assessing Officer is highly irregular and not in conformity with law. It was further contended that discrepancies was in the nature of booking to revenue expenditure items which were only advances and were in the nature of capital outflow. The assessee disclosed the additional income of Rs. 65 lakhs for the assessment year 2004-05 due to the said discrepancies/irregularities. The discrepancies were duly rectified by passing appropriate entries in the books for the year ending 31-3-2005 i.e. for assessment year 2005-06. The entries passed was debiting Kendrapara site advance with Rs. 65 lakhs and crediting miscellaneous income with the same amount. Though in the books relevant credit was given to the income during the financial year 2004-05, the income actually belonged to assessment year 2004-05. The entries made in the books of account did not result in a new advance at the Kendrapara work site. 7. It was further contended before the CIT(A) that the Explanation 2 to section 271(1)(c) is applicable only when certain additions are made in the assessment. No addit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....1)(c) was initiated. The copy of the notice dated 26-12-2007 initiating penalty proceedings clearly indicate that the said penalty proceedings was initiated for the asst. year 2005-06. However, vide show cause letter dated 13-6-2008 the Assessing Officer clearly indicated that the penalty proceedings were initiated for the asst. year 2004-05 in view of Explanation 2 to section 271(1)(c). In fact, while initiating the penalty proceedings at the time of completion of the assessment for the asst. year 2005-06, the Assessing Officer, in the body of the assessment order clearly mentioned that "in the light of the above admission made by the assessee during the course of survey and as the assessee is claiming this admission as a source for investment made by the assessment company, penalty provisions under section 271(1)(c) are squarely applicable and, therefore, the penalty proceedings are initiated separately for this". Therefore, the Assessing Officer clearly spelt out the reason for initiating the penalty proceedings under section 271(1)(c) to the effect that the additional income disclosed for the asst. year 2004-05 was claimed as a source of investment in the asst. year 2005-....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t, 1975, the purpose of introduction of Explanation 2 to section 271(1)(c) was explained as under: "New explanation 2 makes a provision in respect of intangible additions. Additions are sometimes made by the ITO, for purely technical reasons, e.g., application of a presumptive rate of gross profits or of yield, or on account of estimated disallowance of certain expenses, shortfalls, wastage, etc., but no penalty for concealment is levied in respect of these additions for want of adequate evidence to establish that these additions represent the assessee's concealed income. In later assessments, when called upon to explain certain deposits, etc., the assessee urge at times that such deposits, etc., have come out of the income represented by the aforesaid additions made earlier. Despite this virtual confession of concealment on the part of the assessee, no penalty was hitherto leviable in such cases as the time limit for initiating concealment penalty proceedings in respect of the earlier year in which the addition was made would have expired. The penalty could also not be imposed in respect of the year in which the deposit was made, as there was no concealment in that year, the de....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... vouchers and expenditure vouchers etc. At no stage either in course of the survey proceedings or in course of the assessment proceedings for the asst. year 2004-05, it was contended that the disclosure was on account of wrongly treating certain capital expenditures as revenue expenditures. The appellant has contended that Explanation 2 is applicable only when there are any tangible or intangible additions made in course of the assessment proceedings. It was argued that for the asst. year 2004-05, no additions were made to the income returned by the appellant company. In this context, it is observed that for the asst. year 2004-05 the original income disclosed was Rs. 1,05,96,720. Subsequent to the survey conducted at the business premises of the appellant company on 10-3-2005 and in pursuance to the statement recorded from the Managing Director of the appellant company on the day of survey, a revised return was filed on 17-3-2005 disclosing an income of Rs. 1,70,96,720 which included the additional income of Rs. 65 lakhs which was disclosed in course of survey. While completing the assessment under section 143(3) vide order dated 30-3-2006, the income disclosed in the revised r....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... completion of the assessment for the asst. year 2004-05. Therefore, the question of revival of the said penalty proceedings do not arise. Hence, the facts of the appellant's case are different from the facts on the basis of which the said decision of Hon'ble ITAT, Chandigarh was rendered. Rather the facts of the appellant's case are similar to the facts of the case reported in 178 ITR 430 wherein the Hon'ble Kerala High Court decided the case of Calicut Trading Co. v. CIT. In the said case, the relevant assessee filed the original return of income showing a total income of Rs. 2,74,510. When the Assessing Officer pointed out certain defects in its accounts, the assessee filed a revised return of income disclosing an income of Rs. 5,24,510 which included an additional income of Rs. 2,50,000. The said income shown in the revised return was accepted by the Assessing Officer. In the subsequent asst. year, the Assessing Officer noted that the additional income of Rs. 2,50,000 was credited to the partners accounts in proportion to their profit sharing ratio with a narration that these credits represented additional income offered for the earlier asst. year. Therefore, the Assessing Offi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....for the assessment year 2005-06. Therefore, there is no specific order for initiating the penalty proceedings under section 271(1)(c) for the assessment year 2004-05 and in this situation the penalty under section 271(1)(c) cannot be levied in assessment year 2004-05 by invoking the Explanation 2 to section 271(1)(c) of the Act. 11. The Ld. Counsel for the assessee has also invited our attention to the Explanation 2 to section 271(1) with the submission that it can only be invoked where intangible additions were made by the Assessing Officer in the earlier assessment year or years while computing the income in the assessment of assessee and in subsequent year such amount of addition was claimed to be the source of receipt, deposit, or outgoing or value of such investment. In the instant case, the assessee has offered the additional income to cover up the deficiencies in maintenance of vouchers for expenditure. Meaning thereby, the actual expenditure claimed by the assessee would not have been incurred and the offered additional income was available with the assessee though not introduced in the books of account and the said additional income was taken as a receipt in the subsequ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....his effect. At no stage either in the course of survey proceedings or in the course of assessment proceedings for the assessment year 2004-05, it was contended on behalf of the assessee that disclosure was on account of wrongly treating certain capital expenditure as revenue expenditure. 14. With regard to the defect in the notice the Ld. D.R. has contended that there was a typographical error in the notice by mentioning the assessment year as 2005-06 in place of 2004-05 and for this typographical error, provisions of section 292B can be invoked and according to which for this technical mistake or omission, in the return, assessment, notice or summons, the entire proceedings cannot be held to be invalid. Moreover, while initiating the penalty proceedings, the Assessing Officer has squarely spelt out the reasons for initiating penalty proceedings under section 271(1)(c) to the effect that the additional income disclosed for the assessment year 2004-05 was claimed as source of investment in the assessment year 2005-06. Hence, the Assessing Officer clearly had in mind the provisions contained in the Explanation 2 to section 271(1)(c) while initiating the penalty proceedings. Moreov....
X X X X Extracts X X X X
X X X X Extracts X X X X
....enance of labour vouchers, expenditure vouchers etc. for assessment year 2004-05 and accordingly the revised return was filed. 18. During the course of assessment proceedings for the assessment year 2005-06, it was noted by the Assessing Officer that additional income of Rs. 65 lakhs declared for the assessment year 2004-05 subsequent to the survey was treated as a part of other receipts and said amount was claimed as deduction in the computation of income filed along with the return of income on the ground that said amount was already offered for taxation for the assessment year 2004-05. A note to this effect was also given in a statement of account for the assessment year 2005-06 stating therein that necessary entries have been passed in the books of account during the financial year 2004-05. 19. During the course of penalty proceedings initiated under section 271(1)(c) after invoking its explanation 2, the assessee has taken a stand that originally the advances paid which were in the nature of capital outgo were wrongly booked as revenue expenditure in the books of account. In the course of survey, the assessee rectified the same and offered the income. But the payments be....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to take a benefit of its own disclosure under the garb of different plea in subsequent years. To deal with the additions made in computing income, the legislature has introduced the Explanation 2 to section 271(1)(c) of the Act. This deeming provision was inserted to curb the practice of the assessees to claim the benefit in succeeding years of the amount added in computing the total income. The Explanation 2 to section 271(1)(c) is extracted hereunder for the sake of reference: "Explanation 2.-Where the source of any receipt, deposit, outgoing or investment in any assessment year is claimed by any person to be an amount which had been added in computing the income or deducted in computing the loss in the assessment of such person for any earlier assessment year or years but in respect of which no penalty under clause (iii) of this sub-section had been levied, that part of the amount so added or deducted in such earlier assessment year immediately preceding the year in which the receipt, deposit, outgoing or investment appears (such earlier assessment year hereafter in this Explanation referred to as the first preceding year) which is sufficient to cover the amount represented b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....amount is treated as concealed. 23. There is no need for reopening of past assessment. It is open to the Assessing Officer by virtue of this explanation to treat such income as the concealed income of the year in which the amount has surfaced. In other words, though there is no addition to the income, penalty is exigible by treating the amount so set off against past intangible additions as the concealed income of the year. Para-61.9 of circular of Board is extracted as under: "New Explanation 2 makes a provision in respect of intangible additions. Additions are sometimes made by the ITO for purely technical reasons, e.g., application of a presumptive rate of gross profits or of yield, or on account of estimated disallowance of certain expenses, shortfalls, wastage, etc. but no penalty for concealment is levied in respect of these additions for want of adequate evidence to establish that these additions represent the assessee's concealed income. In later assessments, when called upon to explain certain deposits, etc., the assessees urge at times that such deposits, etc., have come out of the income represented by the aforesaid additions made hitherto leviable in such cases as....
X X X X Extracts X X X X
X X X X Extracts X X X X
....submitted that Explanation 2 to section 271(1)(c) has no application as there was no concealment of income. We do not agree. It will be seen from exhibit P-1 that in the course of assessment proceedings, certain cash credits and other credit balances in the assessee's accounts were found out which could not be satisfactorily explained by the assessee. The AAC clearly found that the return filed by the assessee on December 22, 1984, was not a voluntary return and that it was filed only after the ITO had made enquiries and wanted the assessee to prove certain transactions and establish the nature and source of the credits which appeared in the books. When the assessee could not satisfactorily explain the cash credits in the books and also the transactions with the other parties, he filed a return on December 22, 1984, showing enhancement of income by Rs. 2,50,000. Therefore, the AAC found that the concealment of income and furnishing of inaccurate particulars had taken place in the return of income filed by the assessee. The Tribunal also found that the entire move of the assessee was to file a revised return disclosing a higher income so that if the ITO accepted the same, the additi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....) of the IT Act squarely applies to, the facts of the case as the assessee had credited the accounts of the partners with a sum of Rs. 2,50,000 in the subsequent year. The CIT(A) found that the sum represented the additional income of the appellant in the previous year relevant to the assessment year 1983-84 which had not been disclosed in the return filed on April 28, 1984. The Tribunal also came to the same conclusion. The Tribunal found that an amount of Rs. 2,50,000 was found credited to the capital account of the partners and it further found that the amount represented income of the assessee for the assessment year 1983-84. The explanation of the assessee has not been accepted by any of the authorities and concealment of income, as a matter of fact, was found by all the three authorities. Counsel for the assessee drew our attention to the Wanchoo Committee Report forming the basis of the amendment to section 271 introduced by way of Explanation 2 to section 271 to show that the said Explanation can be relied upon only if there is any intangible addition. Where intangible additions made in the earlier years are cited by an assessee as the source of his funds in a subsequent....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... another notice was issued on 23-6-2008 and in that notice, the assessment year was clearly mentioned to be assessment year 2004-05 by the Assessing Officer. The penalty order was accordingly passed on 27-6-2008. The issue of defect in the show cause notice was not raised before the Assessing Officer and the assessee has joined the penalty proceedings and furnished his explanations. This objection was raised before the CIT(A) only. 26. Having carefully perused the assessment orders and the notices issued by the Assessing Officer, we are of the view that it was a typographical error in the penalty notice and the provisions of section 292B of the I.T. Act comes in rescue for the department according to which no return of income, assessment, notice, summons or other proceedings shall be invalid merely by reasons of any mistake, defect or omission if the return, assessment, notice, summons or the proceedings are in substance and effect in conformity with or according to the intent and purpose of the Act. Thus we hold this defect in the notice to be a typographical error in mentioning the assessment year for which the entire penalty proceedings cannot be held to be invalid. 27. Th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eclared the additional income and declaration of additional income cannot be called to be the additions made by the Assessing Officer. This aspect was examined by their Lordship of Kerala High Court in the case of Calicut Trading Co. (supra) in which the additions were made for additional income offered by the assessees on account of unexplained cash credits by filing the revised return. This additional income offered by the assessee during the course of assessment proceedings was considered to be the addition by the Hon'ble Kerala High Court and approved the invocation of provisions of explanation 2 to section 271 of the Act. Therefore, we find no force in the contention of the assessee that Explanation 2 cannot be invoked where additional income is offered by the assessees during the course of assessment. 29. The Ld. Counsel for the assessee also raised the legal argument that the Explanation 2 can only be invoked where the source of any receipt, deposits, outgoing or investment in any assessment year is claimed by an assessee to be an amount which had been added in computing the income or deducted in computing the loss in assessment of such person for any earlier assess....