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2011 (8) TMI 1341

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....ding that the appellant had concealed income by not showing the value of excess stock, though in fact it was specifically credited in the P&LA/c., copy of which was filed before him.   2.2 That in the facts and circumstances of the case as well as in law, the Ld. CIT(A) has erred in upholding the penalty levied by AO by observing that the appellant had concealed the value of excess stock found during the survey.   2.3 The Ld. CIT(A) has erred in relying upon the decision of Fakir Mohd. Haji Hasan (supra), though it was distinguishable both on facts and in law.   3.1 The Ld. CIT(A) has failed to appreciate that it was a matter of dispute and difference of opinion as to whether the income disclosed during the course of survey was assessable under any of the heads of income or was it a headless income. Similarly, the disallowance of partners remuneration on such income was a consequential one.   It is therefore prayed that the penalty of Rs. 5,75,000 may please be cancelled.   2 Facts, in brief, as per relevant orders are that return declaring income of Rs. 27,98,970/- filed on 30-10-2004 by assessee, a jeweller, after being processed u/s 143(1) of th....

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....o be evaded on the income of Rs. 15,56,370/-[43,55,340-27,98,970].   4. On appeal, the learned CIT(A) upheld the levy of penalty in the following terms:-   "2.3 I have considered the facts of the case, assessment order, first quantum appeal order and the submission filed along with case laws relied upon by the Id. Counsel of the appellant and the Assessing Officer. In this case, the excess stock of Rs. 35,70,518/- detected by the survey party which was admitted by the appellant and who also agreed to declare in its return of income and to pay tax thereon. But when the appellant filed the return for the year under consideration, he had declared net profit of Rs. 18,14,587/- inspite of the fact that the disclosure of Rs. 35,70,518/- was credited to the trading and profit and loss account. Though the appellant had admitted and declared the unrecorded stock of Rs. 35,70,518/- during survey and promised to show in the return of income, the same has not been shown independently by the appellant knowingly to evade the tax. This is nothing but clear and glaring concealment of income on the part of the appellant. Before me also, the appellant has not been able to clarify the po....

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....argued that no penalty could be imposed. He added that the AO did not specifically initiate penalty proceedings u/s 271(1)(c) of the Act in relation to amount added u/s 68 of the Act in the assessment order nor discussed the issue in the penalty order. Even there is no discussion in the impugned order in respect of levy of penalty u/s 271(1)(c) of the Act in relation to the addition u/s 68 of the Act, the ld. AR pointed out . The learned DR, on the other hand, relied upon the findings of the learned CIT(A).   6. We have heard both the parties and gone through the facts of the case. Indisputably, the penalty in this case has been imposed on an amount of Rs. 15,56,370/-/-[43,55,340-27,98,970] comprising disallowance of remuneration to partners on account of treatment of the amount of Rs. 35,75,518/- disclosed on account of excess stock u/s 69B of the Act and the amount of Rs. 1,05,000/- added u/s 68 of the Act. In quantum appeal, the Tribunal vide their order dated 2101-2011 in ITA No.486/Ahd/2008 concluded on these two additions as under:-   "8 We have considered the rival submissions and perused the material on record. In our considered view the issue in the present ca....

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....t is not declared to the department is receipt from business and not any investment as it cannot be co-related with any specific asset.   13. Thus in a. case where source of investment/expenditure is clearly identifiable and alleged undisclosed asset has no independent existence of its own or there is no separate physical identity of such investment / expenditure then first 'what is to be taxed is the undisclosed business receipt invested in unidentifiable unaccounted asset and only on failure it should be considered to be taxed under section 69 on the premises that such excess investment is not recorded in the books of account and its nature and source is not identifiable. Once such excess investment is taxed as undeclared business receipt then taxing it further as deemed, income under section 69 would not be necessary. Therefore, the first attempt of the assessing authority should be to find out link of undeclared investment/expenditure with, the known head, give opportunity to the assessee to establish nexus and. if it is satisfactorily established then first such investment, should be considered, as undeclared receipt under that particular head. It is only where no n....

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....come of the nature as described in section 69, 69A, 69B & 69C and sought to be taxed has to be necessarily brought under any one head as enumerated in section 14 then the opening words of that section "Save as otherwise provided by this Act.......... " will become otios and meaningless. No words of the Statute can be read as meaningless, irrelevant or otiose. Therefore, this interpretation sought to be advanced by the Id. AR is not acceptable. Hon. Gujarat High Court in Fakir Mohmed Haji Has an (supra) has only said that if assessee is found to be owner of an asset which is not disclosed and in which unaccounted investment has been made then such unexplained investment has to be taxed as deemed income and any other expenditure which relates to business cannot be allowed as deduction against such deemed income as the two heads are different, one is business for adjusting expenditure and the other is for deemed .income as covered u/s 69, 69A, 69B & 69C. It is also not correct to say if any income is not brought to any of the heads as mentioned in section 14 then such income would be headless and, therefore, would go beyond computation machinery and hence will become untaxable. The pr....

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....p; 6.1 As is apparent from the aforesaid findings, the Tribunal have accepted the claim of the assessee that excess stock has to be treated as business income, entitled to deduction of a higher amount of remuneration to partners in terms of provisions of section 40(b) of the Act. As regards the amount added u/s 68, the matter has been restored to the file of the AO for fresh decision in accordance with law. Hon'ble Supreme Court in the case of K.C.Builders Vs. ACIT,265 ITR 562(SC) held that ordinarily, penalty cannot stand if the assessment itself is set aside. Where an order of assessment or reassessment on the basis of which penalty has been levied on the assessee, has itself been finally set aside or cancelled by the Tribunal or otherwise, the penalty cannot stand by itself and the same is liable to be cancelled. Hon'ble Delhi High Court in the case of CIT Vs. R.Dalmia,(1992)107 Taxation 107, held that no penalty survives after deletion of additions, forming the basis for the levy of penalty. Similar view was taken in Addl. Commissioner of Incometax v. Badri Kashi Prasad (1993] 200 ITR 206 (All) and Prabhat Oil Traders v. Income-tax Officer (No. 3) (1996) 218 ITR (A.T.) 39 (ITA....