TaxTMI 
TaxTMI 
2014 (3) TMI 1007
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....he matter involved in the computation of income is debatable issue. 2. That the assessee never did the broking business as assumed by the AO and ignored by CIT(A)-II, hence the penalty levied and conformed by CIT-II should be deleted. 3. That the CIT(A)-II has not considered the explanations and correct reasons and has not considered the ITAT order on this issue for quantum appeal. " 4 Brief facts of the case are that the assessee is a C.A and a survey was conducted in his premises on 15.6.2004. During the course of survey it was discovered that the assessee was engaged in giving accommodation/book entries on account of long/short term capital gains/Gifts/loans by charging commission. Modus operandi adopted by the assessee was that the cash was being received from different beneficiaries which was deposited in various bank accounts of the assessee, his family members and some other entities from where cheques were issued in favour of such beneficiaries/clients for bogus capital gains/share profit/gifts etc. During the course of survey it was admitted by the assessee that he has issued cheques against bogus entries for capital gains/gifts etc. Various documents etc. including b....
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....initiated. 5 In response to the show cause notice for levy of penalty u/s 271 (1) (c) it was simply stated that the appeals were pending before the ITAT, therefore penalty proceedings should be kept in abeyance. Accordingly to the Assessing officer penalty proceedings were getting time barred, therefore this request was rejected. Thereafter the Assessing officer noticed that addition on account of commission received against bogus entries of capital gain etc. amounting to Rs. 4408571/- got reduced to Rs. 1891012/- because the Ld. CIT(A) has reduced the turn over from Rs. 44.08 crores to Rs. 37.82 crores and even the estimated profit @ 1% adopted was reduced to 0.5%. The Assessing officer concluded that the assessee has neither disclosed these transactions to the Revenue nor filed any return of income against this income, therefore particulars in respect of income amounting to Rs. 1891012/- have been concealed. Similarly the assessee had also not disclosed the transactions for investment in shares as well as profit from shares was not disclosed, therefore particulars of income assessed during the assessment proceedings amounting to Rs. 791615/- on account of profit earned on shares....
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....ation in the light of the directions of the Tribunal, has noted that the assessee has made purchase of shares of Silverline, Reliance Petro, RCFL Ltd., etc. and the payments were made from the bank accounts of Smt. Kanta Rani, Bipin Jain and Rajiv Jain. Thus all investments were made by the assessee and his family members and therefore no relief was granted while giving effect to the order of the Tribunal. In respect of non levy of penalty in cases of estimated income, the Ld. CIT(A) observed that it would depend on the facts of each case. He also relied on the following decisions where the penalty was held to be leviable: (a) Addl. CIT Vs. Chandrakantha and another, 205 ITR 607 (MP) (b) Addl. CIT Vs. Lakshmi Industries and cold storage Co. Ltd, 146 ITR 492(All) (c) Sushil Kumar Sharad Kumar Vs. CIT 232 ITR 588(All) (d) CIT Vs. Md. Warasat Hussain, 171 ITR 405 (Patna) (e) A.M. Shah & Co. Vs. CIT, 238 ITR 415(Guj.) (f) CIT Vs. Krishnaswamy and Sons, 219 ITR 157 (Mad) (g) CIT Vs. Swarup Cold Storage & General Mills, 136 ITR 435 (All) (h) CIT Vs. Chandra Vilas Hotel, 291 ITR 202 (Guj.) 9 In respect of last contention that the appeal was pending before the Hon'ble Punjab a....
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....e. Thus higher profit has been estimated, therefore no penalty is leviable. In this regard he also placed reliance on the following decisions: Aggarwal Construction Co. Vs. ACIT, ITA No. 843/Chd/2009 Bharti Airtel Ltd. Vs. CIT, ITA No. 94/ASR/2011 Fine Line Construction Pvt Ltd Vs. ACIT, ITA No. 4907/Del/2012 Deepshikha Maheswari Vs. ITO, ITAs No. 581, 582, 583, 584, 585 & 586/Del/2013 Ppp Associates Vs. ACIT, ITA No. 946 to 953/PN/2009 Jugendra Singh & Co., Vs. DCIT, ITA No. 420/Agra/2012 M/s OMRS Wines Vs. ITO, ITA No. 410 to 414/Hyd/2013 12 On the other hand, the Ld. D.R. for the Revenue carried us through various contents of the impugned order. He particularly referred to the relevant portion of the statement recorded during survey which have been extracted by the Ld. CIT(A) which clearly shows that the assessee during survey admitted that the assessee was providing accommodation entries by receiving cash from the beneficiaries / clients. Para 3.1.1. clearly show that the statement of other persons were also recorded who had also clearly stated that it was the assessee who were doing business of providing accommodation entries and cheque books duly signed by these perso....
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....eby set aside the assessment order. During reassessment proceedings, the assessee admitted that a sum of Rs. 11,027 relating to the sale of a tempo van on account of wrong totaling is liable to be added to the income. The Assessing officer passed a reassessment order adding Rs. 11,027 to the total income. He also initiated penalty proceedings against the assessee. The assessee did not challenge the reassessment order in appeal. The penalty proceedings ended with an order levying penalty of Rs. 12,000 on account of concealment of income of Rs. 11,027. The appeal filed by the assessee was dismissed by the Commissioner and the second appeal was dismissed by the Tribunal. 14 While adjudicate question No. 2, it has been observed by the Hon'ble High Court as under: "Question No. 2 : It is contended for the Revenue that even assuming that the addition of Rs. 11,027 in the income was erroneous, the assessee cannot raise this question in penalty proceedings since the reassessment order was not challenged in appeal. The answer of the assessee is that penalty proceedings are quasi-criminal in nature, that the Department has to establish in penalty proceedings that there has been conceal....
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.... Assessing Officer that there was a suppression of income to the extent of Rs. 11,027. This was also verified by the Assessing Officer, and hence the question of the authority in penal proceedings coming to any conclusion different from the one arrived at in the reassessment proceedings does not arise. The above decision is not an authority for the proposition that where the reassessment is not challenged in appeal, the order as such can be collaterally challenged in penalty proceedings. If the assessment order or reassessment order becomes final, that is binding on both the parties and neither party can seek to reopen it in a penalty proceeding. This conclusion, of course, does not affect the settled position of law that the assessment order or reassessment order is not conclusive in penalty proceeding. We, therefore, hold that question No. 2 has to be answered in favour of the Revenue." Thus from above it is clear that issues which obtained finality in the assessment, cannot be re-agitated during penalty proceedings. Therefore during penalty proceedings for this year i.e. Assessment year 2002-03 it cannot be contended that no documents were found for Assessment year 2002-03 or p....
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....pers are provided to the clients on commission by the company through me. For this purpose / services / charge commission of five paisa per hundred...... of profit bill issued. The company charges balance twenty paisa per thousand. Thus total commission charged is twenty five paisa per hundred of the profit bill issues." Q.3 For which companies you are working on commission and intimate the bank accounts ? Ans. At present I am working only for M/s B. Finlease India Pvt. Ltd. Its bank account No. 99040 with Bank of Punjab, Pakhowal Road, Ludhiana. Prior to this, I have worked for the following companies. A. M/s P.K Khanna & Company C/o (ISE), Ludhiana Stock Exchange. B. Usha Garg & Co. C/o Ludhiana Stock Exchange at present, I do not remember the account number which stand closed as on date.... Q.4. Please explain the nature of bank signed cheque book by Garg Investment Services No. 052719 to 052750 A/c No. 746 of Lord Krishna Bank Ltd. Capital Plaza, Mall Road, Ludhiana. Ans. This was a sub brokership firm of M/s Usha Garg & Company. I have since stopped working for this firm eighteen cheques were issued upto 25.06.2002 and the balance cheques are being unused." 3.1.1 Simult....
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....found that the appellant's income relevant to AY 2002-03 had escaped assessment within the meaning of section 147 and hence proceedings u/s 148 of the Act were initiated, in response to which the appellant furnished return of income declaring income of Rs. 45,000,/- 3.1.3 During the course of assessment proceedings, the AO identified the various bank accounts used by the appellant for his business and copies of these accounts were called from the respective banks u/s 133 (6) of the I.T. Act. The AO from the aforesaid copies of accounts from the concerned banks collected the information for the year under consideration and the deposits were worked out to Rs. 44,08,57,148/-. The AO adopted the rate of commission of 1% as reasonable for working out the income of the appellant. The income from business was computed at Rs. 4408571/-. 3.1.4 During the course of assessment proceedings, information was received from M/s R. Kohli & Company, Stock Broker with regard to transactions of purchases and sale of shares by the appellant during the accounting period relevant to AY 2002-03. From the details, the AO noted that the appellant had made total investment of Rs. 86,14,657/-. Further on sa....
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....s of th assessee was on large scale and was flourishing. The quantum of deposit in the accounts operated by him was in crores. In these circumstances the act of not disclosing his income from such business by not filling the return, amounts is nothing but deliberate concealment of income. Even in the return filed u/s 147 this income was not disclosed by the assessee. The assessee was running a well organized continuous business and yet concealed his income completely which could only be unearthed by the survey and the subsequent assessment proceedings. The assesse is a Chartered Accountant. Such act, coming from a professional means only one thing, that the concealment of income was a well thought out and deliberate act to cheat the revenue." 3.1.7 The A.O. thereafter, imposed a penalty of Rs. 27,95,170/- @ 100% tax sought to be evaded. " The above clearly shows that the assessee has clearly admitted in response to question No. 2 that he was providing accommodation entries and he was receiving cash against which he was providing entries towards fake capital gain, the gifts, loans etc. It further shows that the assessee has also admitted that he was working for P.K. Khanna & Co., ....
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....hash Bhardwaj & Co., kept in Bank of Punjab and Lord Krishna Bank. I have given him a blank cheque book duly signed by me. He use to send me a parchi giving details of clients name, address and amount of bill and name of shaes, no of shares, date of shares and name of company with distinctive no in some cases on the basis of these particulars received from Bipan Kumar Jain, I will print out the bills of share profits, clients account and contract note and hand over to Bipan Kumar Jain or his son and one more employee Shri Harinder. The details of advance payment received as cheque payment were also provided by him. The deposit / withdrawals of cash / cheque was made by Bipan Kumar Jain and his son. The bills of sale/purchase of shares issued under my signature and the transactions of sale /purchase mentioned in the bills are bogus. " The above extract makes it absolutely clear that it was assessee who was the main kingpin in carrying out the business of providing bogus entries. 16 The Ld. CIT(A) has also noted that the information was gathered from R. Kohli & Co. during assessment proceedings which clearly shows that the assessee had made total investments of Rs. 8614657/-. Out ....
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.... Tribunal has confirmed that these are only initial estimates and when actual position became clear during assessment proceedings then ultimately profit was estimated at 1% by the Assessing officer of total credits which was also reduced to 0.5% by the Ld. CIT(A) which was confirmed by the Tribunal. One more aspect was involved that is why the addition on account of profit from share and investment which has been discussed by the Ld. CIT(A) at para 3.3(ii) which is as under: 3.3 (ii)- Regarding contention of the appellant that certain issues have been restored by the Hon'ble ITAT to the Assessing officer, it may be mentioned that the Hon'ble ITAT has passed the order in the appellant's case for Assessment year 2002-03 in ITA No. 1094/Chd/2008 vide order dated 27.4.2010. The Hon'ble ITAT has confirmed the decision of LD. CIT(A) on all the issues except one which was restored back to the Assessing officer. The relevant part of the Hon'ble ITAT's order read as under: The second contention of the assessee was that the amounts for the purchase of shares were paid out of the bank accounts of the assessee, his mother and his son, which has been considered while estimating the income in ....
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....ecific information that the assessee has made investments in shares and when the Tribunal directed to verify the actual investment the same were verified by the Assessing officer and it was noted that the investment has been made by issuing cheques in the HDFC Bank of the assessee and his family members and such investments were not declared by the assessee and therefore this is a clear cut case of concealment. 17 Now only question which is required to be considered whether the penalty can be levied in cases where income has been estimated. We are of the opinion that the Ld. CIT(A) has correctly observed that it would depend on the facts of each case. In this regard let us consider the case laws relied on by the Ld. Counsel for the assessee. We may observe that the Ld. Counsel for the assessee has relied on many judgments, therefore we are discussing them in short. Firstly we consider the decisions of Tribunal relied on by the Ld. Counsel for the assessee. (i) First decision relied on is in case of Aggarwal Construction Co. Vs. ACIT, ITA No. 843/Chd/2009. In this case the assessee has declared Net profit at 10% which was ultimately estimated at 12%. Penalty was levied u/s 271(1)(....
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....ccounts were rejected and addition of Rs. 149624/- was made which was reduced to Rs. 80000/- by AAC. On the Balance amount penalty of Rs. 12000/- was levied. The penalty was deleted by observing that merely because the addition has been made on estimated basis by adopting a view that Gross profit shown in the books was too low, did not automatically lead to the conclusion that there was a failure to return the correct income by means of fraud, gross or willful income. This decision is totally distinguishable because later on Exp (i) was inserted to Sec 271 (1) (c) which shifted the burden to the assessee to prove that there was no concealment. Moreover Full Bench of the Hon'ble Supreme Court in case of Union of India Vs. Dharmendra Textiles (supra) has clearly held that there is no need to prove mens rea in case of penalty leviable under different statutes. (ii) Next case relied on is CIT Vs. M.M. Rice Mills (supra). In this case the assessee had filed return of income for Rs. 63310/-. Additions were made to the tune of Rs. 145200/- on account of khudi phak and and on account of chhilka. Penalty was deleted by the Court by confirming the order of CIT that no concealment ....
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....intended ws to make the position explicit which otherwise was implied. VIRTUAL SOFT SYSTEMS LTD. V. CIT [2007] 289 ITR 83 (SC) overruled. A combined reading of the recommendations of the Wanchoo Committee and Circular No. 204 dated July 24,1976, makes the position clear that Explanation 4 (a) to section 271(1)(c) (iii) intended to levy penalty not only in a case where after addition of concealed income, a loss returned, after assessment becomes positive income, but also in a case where addition of concealed income reduces the returned loss and finally the assessed income is also a loss or a minus figure. Therefore, even during the period between April 1, 1976 and April 1,2003, the position was that penalty was leviable even in a case where addito of concealed income reduces the returned loss. The circumstances under which an amendment was brought into existence and the consequences of the amendment will have to be taken care of while deciding whether the amendment was clarificatory or substantive in nature and whether it will have retrospective effect or it was not so." (v) Next decision relied on was in case of CIT Vs. Devndas Perumal (supra). In this case also certain addition....
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....for a remedy for loss of revenue. The penalty under that provision is a civil liability. Wilful concealment is not an essential ingredient for attracting civil liability as is the case in the matter of prosecution under section 276C. Therefore clearly there is no more requirement of mens rea and the decision rendered prior to this decision, are operative no more. In the second set of decisions penalty was deleted because it was merely a case of reduction of loss. That decision is also not available in view of the latter decision of larger bench of the Hon'ble Supreme Court in case of Gold Coin (supra). We have already discussed the findings of the Hon'ble Supreme Court as well as the implications. Third set of decisions are where only a particular estimate has been made. For example incase of contractors where books are not found to be correct and the profit is estimated say at 8,10 or 12%, the penalty was held not to be leviable but at the same time as pointed out by the LD. CIT(A) there are various decisions where the penalty has been held to be leviable even in the case of estimated income. For example in case of Addl CIT Vs. Smt. Chander Kanta (supra). Hon'ble Madh....
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....to make a best judgment assessment by estimate. An assessment by estimate is as much legal as any other assessment. Once an assessment has been done, whether it is a best judgment assessment or otherwise, the figure assessed must be held to be the income of the assessee. Such an assessment would not affect the levy of penalty." 22 Again Hon'ble Allahabad High Court in case of Sushil Kumar Sarad Kumar Vs. CIT, 232 ITR 588 (All) observed as under: The findings recorded in the assessment order constitute good evidence in the penalty proceedings but those findings cannot be regarded as conclusive for the purposes of the penalty proceedings. In deciding whether penalty can be imposed in a given case, the entirety of the circumstances must be taken into account. There may b cases where additions may be made purely on estimate without reference to any evidence / materials being on record. In such a case, it could be argued with some force that penalty cannot be levied on the figures which are merely based on guess work or estimate. But in a case where after detailed investigation the assessee was confronted with evidence and materials and he failed to dislodge the factual position o....
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....late Tribunal held that the totality of circumstances clearly pointed out that at best it was a case of gross and willful neglect on the part of the assessee and that the concealment having taken place in the original returns, the tax that would have been avoided had those original returns been accepted would be the correct figure to be taken into consideration while calculating the penalty under section 271(1)(c). The Tribunal, therefore, upheld the order of the Inspecting Assistant Commissioner levying penalty but reduced the penalty to 20% of the tax sought to be avoided. On a reference at the instance of the assessee. "Held, that considering the material on record and the staggering differences between the original returns and the revised returns and that no particular item of income had been pointed out to explain that the revised returns were merely the result of inadvertent mistakes or omissions, the Tribunal had come to the conclusion that the assessee had submitted inaccurate particulars of his income and had also concealed the particulars of his income while filing the original returns. This was a finding of fact arrived at by the Tribunal after considering the materials....
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....e omission or mistake. That being so, the revised returns were not really within the correct ambit and scope of section 139(5) of the Act so as to allow immunity to the assessee from the mischief of section 271(1)(c) of the Act. " 24 Above decision was later on confirmed by the Hon'ble Apex Court reported at 186 ITR 571 as G.C. Agarwal Vs. CIT. This means that penalty on estimate basis has been held to be leviable even by the Hon'ble Apex Court. Again Hon'ble Supreme Court in case of B.A. Balasubramaniam and Bros Co. Vs. CIT, 236 ITR 977 confirmed the decision of Hon'ble Madras High Court in case of CIT Vs. B.A. Balasubramaniam and Bros, 152 ITR 529. In that case the assessee received certain import licences based on a percentage value of the goods exported, it did not import the goods against the said import licences but sold them as such. As the assessee did not furnish at the time of assessment the details of commodities covered bythe licences, the parties to whom they were sold and the profit earned with reference to each of eh import licences, the officer estimated the profit earned bythe sale of the licences based on the market quotations on premises publishe....
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....simple matter of estimate and no two experts would ever agree on similar estimate. However, if the estimate is based on the basis of documents found and it is not possible to compute the income otherwise then by estimate then penalty would be clearly leviable. In the case before us, during survey various documents including blank cheque books were found and the assessee clearly admitted that he was engaged in providing accommodation entries in the form of capital gain, gifts, loans etc by receiving cash and issuing cheques. The assessee has not only defrauded Revenue by concealing his own income but has also defrauded Revenue by helping others in saving taxes by hiding the actual information of gifts, loans etc. Now it is very difficult to come to a correct figure in the form of charges received by the assessee for providing such accommodation entries and only estimation was possible. The estimate has been made on the total accommodation entries provided by the assessee. The fact of doing this business was never disclosed to the Revenue. In fact the assessee has not filed returns of income from 1996 till date of survey which clearly show that the assessee has deliberately concealed....
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....b le to hold that in every case, mere surrender of income will foreclose any action for concealment of income. Judgments of Hon'ble Supreme Court in Sir Shadi Lal and CIT Suresh Chandra Mittal (2001) 170 CTR 182: 251 ITR 9 have rightly been distinguished by the Tribunal. Findings recorded by the Tribunal cannot be held to be perverse in any manner, the same being based on relevant material. The assessees have been held to be members of the same family and it has also been found that revised returns were filed on coming to know about detection of concealment. A Division Bench of this court in Padam Kumar Garg Vs. ITO & Anr, 26 IT Rep 26 (PH) held that assessee could not escape penalty merely on the ground that he had surrendered the amount. Similar view has been taken in P.C. Joseph & Bros Vs. CIT. 158 CTR 104: 240 ITR 818 and CIT Vs. Sudharshan Silks & Sarees, 171 CTR 256: 253 ITR 145 (Kar)." 26 In the case before us, even no return of income was filed and therefore case of the assessee is worse than the case of Rajesh Chawla (supra). 27 We may observe that after insertion of Exp the situation has totally changed. This becomes absolutely clear from the decision of Hon'ble....
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....he Inspecting Assistant Commissioner could not have proceeded to levy the penalty under the Explanation to section 271(1) (c). These are pnalty proceedings and the section must be strictly construed. The assessee, in our view, had no opportunity of meeting the case under the Explanation to section 271(1)(c)." `The Bench of the High Court at Bombay that delivered the judgment in the case of P.M. Shah [1993]203 ITR 792 followed it in ht ecase of CIT v. Dharamchand L. Shah [1993] 204 ITR 462 (Bom). It said (page 468): "... in the absence of invoking the Explanation specifically, the burden would remain on the Revenue to bring the assessee's case within the mischief of the main provisions of section 271(1)(c) of the Act." We find it difficult to accept as correct the two judgments aforementioned. The Explanation to section 271(1)(c) is a part of section 271. When the Income-tax Officer or the Appellate Assistant Commissioner issues to an assessee a notice under section 271, he makes the assessee aware that the provisions thereof are to be used against him. These provisions include the Explanation. By reason of the Explanation, where the total income returned by the assessee is less t....
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....Hon'ble Punjab and Haryana High Court in case of Shveta Nanda Vs. CIT (supra). In that case also a survey was conducted in the premises of the assessee and some discrepancies were detected in the record and some incriminating documents were found. From these documents it was found that the assessee had been paying handsome commission and incentives to its directors and family members. Rohit Khanna, the MD of the company who is the husband of the assessee, on being asked to explain th above discrepancies gave an undertaking in writing on 12.3.2003 to get an additional amount of Rs. 90,00,000/- surrendered from 14 persons, including Rs. 2,50,000/- from his wife, i.e. the present assessee, subject to the condition that no penal action would be initiated against them. Later on the case of the assessee was selected for scrutiny and it was noticed that the assessee had not declared any additional amount in the return of income for Assessment year 2003- 04. The assessee, however, agreed to pay tax on the full income along with interest. The Assessing officer did not agree with these submissions and added this amount and also initiated penalty proceedings f or levy of penalty u/s 271 (....