Case Law Details

Case Name : Sanjay Enterprises (P.) Ltd. Vs Income-tax Officer (ITAT Delhi)
Appeal Number : IT Appeal Nos. 3036 & 4083 (Delhi) Of 2007
Date of Judgement/Order : 16/12/2011
Related Assessment Year : 2001-02
Courts : All ITAT (4212) ITAT Delhi (925)

Income Tax Appellate Tribunal, Delhi

IT APPEAL NOS. 3036 & 4083 (DELHI) OF 2007-

[ASSESSMENT YEAR 2001-02]

Date of Decision – DECEMBER 16, 2011

Sanjay Enterprises (P.) Ltd.

v.

Income-tax Officer

ORDER

A.N. Pahuja, Accountant Member – These two appeals – quantum appeal filed on 19.6.2007 against an order dated 30.11.2005 & penalty appeal filed on 10.10.2007 against an order dated 16th July, 2007 of the learned CIT(A)-X, New Delhi, raise the following grounds:-

ITA no. 3036/Del/07

1. “The learned Commissioner of Income Tax (Appeals)-X & the learned Income Tax Officer have erred in making an addition of Rs. 10,00,000/- as income from undisclosed sources.

2. The learned Commissioner of Income Tax (Appeals)-X & the learned Income Tax Officer have erred in making an addition of Rs. 20,000/- as cost of unexplained credit.

3. The Assessee-Company may kindly be given the right to make further additions to the above grounds at the time of hearing of the Appeal.”

ITA no. 4083/Del/07

1. The learned Commissioner of Income Tax (Appeals)-X & the learned Income Tax Officer have erred in levying a penalty of Rs. 4,03,000/- u/s 271(1)(c) of the Income-tax Act,1961.

2. The Assessee-Company may kindly be given the right to make further additions to the above grounds at the time of hearing of the Appeal.”

2. These appeals-quantum and penalty, initially disposed of vide orders dated 10.12.2008 & 11.11.2008, were subsequently recalled vide order dated 19.2.2010 & 17.7.2009 in MA nos.3/Del./2010 & 169/Del./2009 respectively.

3. Adverting first to quantum appeal, facts, in brief, as per the orders that return declaring loss of Rs. 2,15,350/- filed on 31st October, 2001 by the assessee, an 100% EOU, after being processed on 12th July, 2002 in section 143(1) of the Income Tax Act 1961 (hereinafter referred to as the Act) was selected for scrutiny with the service of a notice u/s 143(2) of the Act issued on 24th October, 2002. Subsequently assessment was completed u/s 143(3) of the Act on 16th October, 2003, accepting the returned income. Thereafter, in consequence of survey, information was received from the Investigation wing of the Department vide letter dated 17th October, 2003 about some bogus transactions entered into by the assessee with companies operated by Shri Sanjay Rastogi and his family members. It transpired from the information that the assessee received a loan/credit entry of Rs. 10,00,000/- vide cheque No. 323197 in the month of May, 2000 in its bank account No. CA-28255 held in ING Vysya Bank, Chandni Chowk, from M/s. Frenzy Products (P) Ltd., a company managed by Shri Sanjay Rastogi and his associates. In the light of this information, after recording reasons, in writing and with the prior approval of the Addl. CIT, assessment was reopened u/s 147 of the Act with the service of a notice u/s 148 of the Act, issued on 28th November, 2003. In response, the assessee filed return declaring NIL income on 10th December, 2004, claiming deduction u/s 10B of the Act. During the course of reassessment proceedings, Shri Sunil Agarwal, Director of the company appeared and he was informed that the office of Shri Sanjay Rastogi was surveyed u/s 133A of the IT Act 1961 on 4th March, 2003, when it transpired that Shri Sanjay Rastogi along with his father Shri M.S. Rastogi and Associates Shri Ashwani Uppal & his employees, was running concerns, which were engaged in giving bogus/accommodating entries. The address of most of these concerns was at 210, Vakil Chambers, A-115, Shakarpur, Delhi. The residential addresses of Shri Sanjay Rastogi, 37- Saini Enclave, Delhi was found to have been used for same purpose of giving bogus entries. In his statement recorded by investigation wing, Shri Sanjay Rastogi in reply to question no. 14 admitted that he was providing certain services in connection with companies/concern/entities, which were not doing the real genuine business exclusively. Few Private Ltd./Ltd. companies were used as front companies as conduit for execution of such entries/transactions, which were not doing business in actual. Shri Sunil Agarwal Director of the company was confronted with the aforesaid question and reply of Shri Sanjay Rastogi and he was handed over a copy of the above statement to read for himself with the request to furnish their reply.. In response to a query regarding entry of Rs. 10,00,000/- taken by the assessee on 2nd May, 2000, Shri S.K. Sarkar authorized representative on behalf of the assessee replied that Rs. 10,00,000/- was received vide cheque no. 323197 dated 2.5.2000 and an amount of Rs. 5,00,000/- was repaid vide cheque no. 411681 dated 26.04.2001. However the assessee did not furnish the confirmed copy of account from the books of M/s. Frenzy Products (P) Ltd. In another letter dated 18th March, 2005, the assessee contended that Shri Sanjay Rastogi did not name the assessee company as recipient of any accommodation amount and that amount outstanding was only Rs. 5,00,000/-. However, the AO did not accept the submissions of the assessee and added an amount of Rs. 10,00,000/- by way of unexplained credits besides an amount of Rs. 20,000/- by way of commission @ 2% for failure of the assessee in establishing genuineness of the transactions.

4. On appeal, the ld. CIT(A) directed the AO to summon to all the concerned parties including Managing Director of M/s. Frenzy Products (P) Ltd. from whom the alleged loan was claimed to have been received and record their statements.Inter alia, it was also directed that to give an opportunity to the assessee to rebut the statement if that was made against the assessee and submit a remand report. In terms of these directions, the AO recorded the statement of Shri Sanjay Rastogi on oath on 27.9.2005 as reproduced in the impugned order on page 3 to 7. In reply to question 5 wherein, Shri Sanjay Rastogi was, inter alia, asked about the bogus entry of Rs. 10 lacs given to M/s. Sanjay Enterprises Pvt. Ltd., he stated as under :-

I have seen and have carefully gone through the list of companies operated from my office, which have been reported in the list by your department’s investigation wing, having been reported to be engaged in giving bogus/accommodation entries to various persons/beneficiaries.

I have carefully seen the names and have also read the details of the bogus entries given to the parties/persons whose name are mentioned in the question stated above from (i) to (iv) above. After seeing the details I confirm that the companies M/s. Aadhunik Systems Pvt. Ltd., M/s. Frenzy Products Pvt. Ltd. and M/s. M.S. Leasing Pvt. Ltd. operated from my office and were under our control. Although the directors in these companies were my associates but the control was of my self and my father, and commission income received on giving these bogus entries through our various companies was received by us.

I also confirm that the bank accounts stated in the question were operated in the name of M/s. Aadhunik Systems Pvt. Ltd., M/s. Frenzy Products Pvt. Ltd. and M/s. M.S. Leasing Pvt. Ltd. by me in the name of my associates.

I also confirm that the below mentioned loan/advance/share application entries appearing in the name of various companies were given by us from bank accounts of different companies operated from my office on charging of commission for giving the entry and on receipt of equivalent amount of cash and these entries were given as bogus/accommodation entries.

(i) The bogus entry of Rs. 1000000/- (Ten Lacs) was given to M/s. Sanjay Enterprises Pvt. Ltd. by our company M/s. Frenzy Products Pvt. Ltd.vide cheque No. 0323197 dated 2.5.2000.

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4.1 In reply to question no. 6, Shri Sanjay Rastogi replied as under :-

“The share application money was given as a permanent entry to the beneficiary person and the loan and advance entry was at time returned/reverted back by the party who took the loan/advance bogus entry. In this particular case the cash of Rs. 500000/- was credited into our account through a cheque and an amount of Rs. 5,00,000/- was paid in cash for return of the bogus entry.”

4.2 Subsequently Shri S.K. Sarkar, Chartered Accountant of the assessee company sought copy of the aforesaid statement recorded on 27.9.2005., which was supplied to the assessee. On receipt of copy of said statement, instead of rebutting any of the averments made in the statement, the assessee surrendered the aforesaid amount of Rs. 10,00,000/- taken as loan from Frenzy Products (P) Ltd. before the AO on 22.11.2005. Consequently, the assessee submitted an application before Ld. CIT(A) on 30th November, 2005 seeking withdrawal of the appeal. In the light of these facts the Ld. CIT(A) concluded as under :-

On 18.10.2005 Shri S.K. Sarkar, CA Counsel of the appellant applied for a copy of the statement of Shri Sanjay Rastogi recorded on 27.9.2005 which was supplied to the appellant. On receipt of the copy of statement of Shri Sanjay Rastogi, instead of rebutting any of the averments recorded in the statement, the appellant company surrendered the loan amount of Rs. 10,00,000/- taken from Frenzy Products (P) Ltd. before the AO on 22.11.2005. The counsel of the appellant appeared before me on 30.11.2005 submitting an application for withdrawal of its appeal in view of its surrender before the AO. From the statement of Shri Sanjay Rasotgi, it is established beyond doubt that the amount of Rs. 10,00,000/- shown to have been obtained as loan from M/s. Frenzy Products (P) Ltd. is nothing but an accommodating entry obtained on payment. The appellant could not rebut the statement of Shri Sanjay Rastogi, with any material even after giving an opportunity to do so. The appellant was therefore left with no other alternative but to surrender the amount for taxation which the assessee has done. Under the circumstances, the addition of Rs. 10,00,000/- being bogus loan and Rs. 20,000/- being payment made for obtaining the entry is justified and confirmed. Both the grounds are therefore dismissed.

5. The assessee preferred an filed an appeal before the ITAT against the aforesaid order of the ld. CIT(A). The ITAT, vide their order dated 10th December, 2008 concluded on the aforesaid addition of Rs. 10 lac in the following terms :-

“2.3 We have considered the facts and rival submissions. We find that the statement of Shri M.S. Rastogi was recorded on 27.09.2005 by the Assessing Officer, in which it was deposed that the entry of Rs. 10,00,000/- was merely an accommodation entry and that he was charging commission at the rate 0.25% of the amount for furnishing such entries. Thereafter, the amount was surrendered by the assessee for taxation and the addition was made, inter alia, on the ground that the amount was surrendered by the assessee in the course of assessment proceedings by way of a written letter. In view thereof, it was not necessary to afford an opportunity of cross-examination to the assessee as the statement was not the primary basis for making the addition. Therefore, it is held that the learned CIT(Appeals) was right in upholding the addition of Rs. 10,00,000/-. The letter of the assessee dated 22.11.2005 did not admit that any commission was paid for obtaining the entry. Thus, the addition of Rs. 20,000/- emanates from the statement of Shri S.M. Rastogi. The assessee was not allowed an opportunity of cross examine Shri S.M. Rastogi. In absence thereof, there is no firm evidence on record to come to the conclusion that the sum of Rs. 20,000/- was paid for obtaining the entry, which was not accounted for in the books of account. The result of the above discussion is that the addition of Rs. 10,00,000/- is upheld and the addition of Rs. 20,000/- is deleted.”

6. Later the aforesaid order was recalled in MA No. 169/D/09 vide order dated 17th July, 2009. This is how appeal is now fixed before us. At the outset, the ld.. AR on behalf of the assessee submitted that the assessee is not inclined to press grounds raised in the appeal. The ld. DR did not oppose these submissions of the ld. AR.

7. We have heard both the parties and gone through the facts of the case. In view of categorical statement made before us by the ld. AR that the assessee does not want to press the grounds raised in this appeal, accordingly ground nos. 1 to 3 in the quantum appeal are dismissed.

ITA No. 4083/Del/2007

8. Adverting now to the appeal relating to levy of penalty of Rs. 4,03,410/- u/s 271(1)(c) of the Act, after the dismissal of appeal by the ld. CIT(A), in response to a show cause notice dated 9.1.2007 before levy of penalty, the assessee did not submit any reply or explanation before the AO. Accordingly, the AO levied a penalty of Rs. 4,03,410/- @ 100% of the tax are to be evaded on the aforesaid amount of Rs. 10,00,000/- & Rs. 20,000/- on account of commission in relation to the entry on the ground that the assessee concealed the particulars of its income.

9. On appeal, the ld. CIT(A) upheld the levy of penalty as under:.

9. “I have carefully considered the submission of the AR and perused the assessment order and appellate order of Ld. CIT(A) for A.Y. 2001-02. In this case the department had gathered the evidence by examining Shri Sanjay Rastogi regarding the modus operandi adopted by Shri Sanjay Rastogi in accommodating appellant to bring into their books their undisclosed income in the guise of loans. It is pertinent to note that the statement of Shri Sanjay Rastogi recorded on 27.09.2005 specifically pointed out that the name of the appellant company and admitted that he had given a bogus accommodation entry of Rs. 10,00,000/- as loan through M/s. Frenzy Products (P) Ltd., which was managed by him. Thus, there was a direct evidence to show that the appellant had used the services of Mr. Sanjay Rastogi for the purpose of bringing into its accounts its undisclosed income in the guise of loans. When the statement of Shri Sanjay Rastogi was confronted to the appellant, the appellant instead of rebutting the contents of the statement, had surrendered the amount before the AO and, hence, in a way admitted the fact that the amount of Rs. 10,00,000/- shown as loan from M/s. Frenzy Products (P) Ltd. was not a genuine loan and was only a bogus accommodation entry obtained through Shri Sanjay Rastogi. The appellant came forward to surrender the amount only when the appellant was cornered with cogent evidence gathered by the department that the loan of Rs. 10,00,000/- shown was not a genuine transaction. Thus, it was proved beyond doubt by the department that the amount of Rs. 10,00,000/- shown to have been obtained as loan from M/s. Frenzy Products (P) Ltd. was nothing but an accommodation entry obtained with the help of Shri Sanjay Rastogi. Hence, it was a fit case for levying penalty u/s 271(1)( c) as there was a definite finding of concealment of income by the appellant by furnishing inaccurate particulars of income regarding a loan of Rs. 10,00,000/-.

The Circular No. 451 dated February 17, 1986 does not help the appellant. First, the circular does not grant immunity for penalty u/s 271(1)(c) for withdrawn of appeal as contended by the AR. Secondly, the appellant had not voluntarily withdrawn the appeal. The appeal was withdrawn only when Sh. Rastogi categorically stated in his statement that he had provided an accommodation entry of Rs. 10,00,000/- to the appellant company after obtaining an equivalent amount of cash and the appellant company had nothing to rebut the averments of Shri Rastogi.

It may be noted that the ratio in the case of CIT v. Freemental India Television [2007] 159 Taxman 31 (Del) relied upon by the A.R. is not applicable to the facts of the appellant’s case as the facts of that case were different and distinct from the appellant’s case. In that case the appellant had claimed a deduction of Rs. 10,66,029/- as format fee. The AO had not allowed this deduction and the amount was added to the total income. But before the assessment was completed, the appellant had withdrawn the claim for deduction and had offered the amount for tax. On these facts, the penalty was deleted by the Honourable High Court observing that the appellant had offered the amount for tax in November, 1997 well in advance of assessment order being passed in March, 2000. Whereas, in the instant case of the appellant, it is pertinent to note that there was no such withdrawal or surrender by the appellant during the course of assessment proceedings. Rather the appellant hade filed an appeal against the assessment order before the CIT(A) and contested the addition made by the A.O. The appellant surrendered the amount after the completion of assessment when the appellant was confronted with the statement recorded by the AO for submitting of remand report during the appellant proceedings. Thus, it was not a surrender made voluntarily by the appellant. It was made because the appellant had no option/nothing to rebut the evidence gathered by the department. The appellant had no alternative but to surrender the amount before the department. Keeping in view the totality of facts and circumstances of the case, I am of the opinion that it was a fit case for levying penalty u/s 271(1)(c). Hence, the penalty of Rs. 4,03,410/-levied u/s 271(1)(c) by the AO for A.Y. 2001-02 is confirmed.”

10. The assessee is now in appeal before us against the aforesaid findings of the ld. CIT(A). The ld. AR on behalf of the assessee while carrying us through the impugned order contended that though the AO and the Ld. CIT(A) have mentioned in the order that copy of the statement of Shri Sanjay Rastogi recorded on 27th September, 2005 was supplied to the assessee, in fact, it was never supplied. He pointed out that the assessee had already returned an amount of Rs. 5,00,000/- to M/s. Frenzy Products (P) Ltd. The ld. AR added that surrender was made in the quantum proceedings only to buy peace of mind and therefore, penalty should not be levied. In support, the ld. AR relied upon the decision in CIT v. D & H Secheron Electrodes Ltd. [2008] 296 ITR 193 /[2006] 157 Taxman 463 (MP). On the other hand, the ld. DR pointed out that before the investigation wing during the course of survey, Shri Sanjay Rastogi admitted the bogus entries given to the assessee and subsequently in the statement recorded by the AO on 27.9.2005 at the behest of Ld. CIT(A), Shri Sanjay Rastogi categorical admitted to giving accommodation entries to the assessee. Instead of cross examining Shri Sanjay Rastogi, the assessee just chose to surrender the amount. He added that the assessee never sought cross examination of Shri Sanjay Rastogi during the quantum proceedings or even in the penalty proceedings before the AO. Inter alia, the ld. DR relied upon the decision in H. V. Venugopal Chettiar v. CIT [1985] 153 ITR 376/ 23 Taxman 412(Mad.), Dy. CIT v. Chirag Metal Rolling Mills Ltd. [2008] 305 ITR 29/[2007] 162 Taxman 317 (MP) and added that levy of penalty should be upheld. In his rejoinder, the ld. AR submitted that in the decisions relied upon by Ld. DR the respective assessees categorically admitted concealment whereas in the instant case nowhere the assessee admitted concealment of income. He added that statement recorded at the back of the assessee could not be relied upon.

11. We have heard both the parties and gone through the facts of the case as also decision referred to by both the sides. As is apparent from the aforesaid facts, in this case during the course of survey, Shri Sanjay Rastogi, CA explained hismodus operandi in giving accommodation entries to various persons through concerns controlled and managed by him. He admitted having received cash and issued cheque of an equivalent amount to various persons, including the assessee. On the basis of information revealed during the survey, the assessment in this case was reopened u/s 147 of the Act. During the course of reassessment proceedings, Shri Sunil Aggarwal, Director of the company appeared and he was informed by the AO that Shri Sanjay Rastogi admitted during the survey that he along with his father Shri M.S. Rastogi and Associates Shri Ashwani Uppal & his employees, was running concerns, which were engaged in giving bogus/accommodating entries. In his statement recorded by investigation wing, Shri Sanjay Rastogi in reply to question no. 14 admitted that he was providing certain services in connection with companies/concern/entities, which were not doing the real genuine business exclusively. Few Private Ltd./Ltd. companies were used as front companies as conduit for execution of such entries/transactions, which were not doing business in actual. Shri Sunil Aggarwal Director of the company was confronted with the aforesaid question and reply of Shri Sanjay Rastogi and he was handed over a copy of the above statement to read for himself with the request to furnish their reply. Since the assessee received from M/s Frenzy Product (P) Ltd. an accommodation entry of Rs. 10 lacs and the assessee did not controvert the statement of Shri Sanjay Rastogi, after considering the reply of the assessee, the AO added an amount of Rs. 10,00,000/- by way of unexplained credits besides an amount of Rs. 20,000/- by way of commission @ 2%. On appeal, the ld. CIT(A) directed the AO to summon to all the concerned parties including Managing Director of M/s. Frenzy Products (P) Ltd. from whom the alleged loan was claimed to have been received and record their statements. In terms of these directions, the AO recorded the statement of Shri Sanjay Rastogi on oath on 27.9.2005 as reproduced in the impugned order on page 3 to 7.In this statement, Shri Sanjay Rastogi specifically pointed out the name of the assessee company and admitted that he had given a bogus accommodation entry of Rs. 10,00,000/- as loan to the assessee through M/s. Frenzy Products (P) Ltd., which was managed by him. When the statement of Shri Sanjay Rastogi was confronted to the assessee, instead of rebutting the contents of the statement, the assessee surrendered the amount before the AO and sought permission to withdraw the appeal. Apparently, the assessee came forward to surrender the amount only when the assessee was cornered with cogent incriminating evidence gathered by the AO that the loan of Rs. 10,00,000/- shown was not a genuine transaction. Even before us, as aforesaid, the assessee did not press grounds relating to the said addition in quantum appeal. During the course of penalty proceedings, the assessee did not furnish any explanation in response to showcause notice issued by the AO. In the absence of any explanation during the penalty proceedings, apparently, clause (A) of Explanation 1 to sec. 271(1)(c) of the Act is attracted. Before proceeding further, we may have a look at the relevant provisions of section 271(1)(c) of the Act, which read as under:

“271.Failure to furnish returns, comply with notices, concealment of income, etc.

(1) If the Assessing Officer or the Commissioner (Appeals) or the Commissioner in the course of any proceedings under this Act, is satisfied that any person

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(c) has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty,-

(iii) in the cases referred to in clause (c), in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed three times, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or the furnishing of inaccurate particulars of such income

Explanation 1.-Where in respect of any facts material to the computation of the total income of any person under this Act,-

(A) such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Deputy Commissioner (Appeals) or the Commissioner (Appeals) to be false, or

(B) such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bonafideand that all the facts relating to the same and material to the computation of his total income have been disclosed by him,

then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed.

11.1 As is evident from the aforesaid cl. (c) of s. 271(1) of the Act, the words used are ‘has concealed the particulars of his income’ or furnished ‘inaccurate particulars of such income’. Thus, both in case of concealment and inaccuracy, the phrase ‘particulars of income’ has been used. The legislature has not used the words ‘concealed his income’. From this it would be apparent that penal provision would operate when there is a failure to disclose fully or truly all the particulars. The words ‘particulars of income’ refer to the facts which lead to the correct computation of income in accordance with the provisions of the Act. So when any fact material to the determination of an item as income or material to the correct computation is not filed or that which is filed is not accurate, then the assessee would be liable to penalty under s. 271(1)(c) of the Act. The expression ‘has concealed the particulars of income’ and ‘has furnished inaccurate particulars of income’ have not been defined either in section 271 or elsewhere in the Act. However, notwithstanding the difference in the two circumstances, it is now well established that they lead to the same effect namely, keeping off a certain portion of the income from the return. According to Law Lexicon, the word “conceal” means:

“to hide or keep secret. The word ‘conceal’ is con-celare which implies to hide. It means to hide or withdraw from observation; to cover or keep from sight; to prevent the discovery of; to withhold knowledge of. The offence of concealment is, thus, a direct attempt to hide an item of income or a portion thereof from the knowledge of the income-tax authorities.”

In Webster’s Dictionary, “inaccurate” has been defined as :

“not accurate, not exact or correct; not according to truth; erroneous; as an inaccurate statement, copy or transcript.”

11.2 If the disclosure of facts is incorrect or false to the knowledge of the assessee and it is established, then such disclosure cannot take it out from the purview of the act of concealment of particulars or furnishing inaccurate particulars thereof for the purpose of levy of penalty. The penalty u/s 271(1)(c) of the Act is leviable if the AO is satisfied in the course of any proceedings under this Act that any person has concealed the particulars of his income or furnished inaccurate particulars of such income. In this context, Hon’ble Gujrat High Court in the case of A.M. Shah & Co. v.CIT [1999] 238 ITR 415/[2000] 108 Taxman 137 (Guj) observed that

“there cannot be a straight jacket formula for detection of these defaults of concealment or of furnishing inaccurate particulars of income and indeed concealment of particulars of income and inaccurate particulars of income may at times overlap, as for example when half of the income under a particular head is not at all disclosed, that would be concealed to that extent while the remaining half which is in fact disclosed would, not being his complete disclosure amount to inaccurate particulars of income as regards that constituent item of the return. By the very nature of the assessment proceedings the ITO while ascertaining the total income chargeable to tax would be in a position to detect the specific or definite particulars of income concealed or of which false particulars are furnished. Where in the constituents of income returned, such specific or definite particulars of income are detected as concealed, then even in the total income figure to that extent they reflect, it would amount to concealment to that extent. In the same way where specific and definite particulars of income are detected as inaccurate, then such figure will also make the total income inaccurate in particulars to the extent it does not include such income. Whether it be a case of only concealment or of only inaccuracy or both, the particulars of income so vitiated would be specific and definite and be known in the assessment proceedings by the ITO, who on being satisfied about each concealment or inaccuracy of particulars of income would be in a position to initiate the penalty proceedings on one or both of the grounds of default as may have been specifically and directly detected. The opportunity of hearing given by the notice under section 271(1)(c), obviously is against such concealment and inaccuracy as is detected in the assessment proceedings”.

11.3 Indisputably, the assessee, instead of rebutting the statement of Shri Sanjay Rastogi recorded on 27.9.2005 on oath during the remand proceedings, surrendered the amount and sought to withdraw the appeal filed before the ld. CIT(A). Even during the penalty proceedings, the assessee did not submit any explanation at all before the AO. In these circumstances, it does not lie in the mouth of the assessee that it did not conceal particulars of its income in the return filed originally. In the course of penalty proceedings, the assessee did not bring any material before the AO to rebut the inferences drawn by the Assessing Officer in the course of reassessment proceedings. In terms of provisions of sec. 271(1)(c) of the Act read with explanation 1 thereto and the judicial pronouncements in the case of B.A. Balasubramaniam & Bros. Co. v. CIT [2001] 116 Taxman 842 (SC),CIT v. B.A. Balasubramaniam & Bros. Co. [1985] 152 ITR 529 / 20 Taxman 215(Mad.), CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14 /30 Taxman 546H; CIT v.K.R. Sadayappan [1990] 185 ITR 49 / 51 Taxman 304 , Addl. CIT v. Jeevan Lal Sah[1994] 205 ITR 244 / 73 Taxman 182 (SC) and K.P. Madhusudanan v. CIT [2001] 251 ITR 99/ 118 Taxman 324 (SC), it is well established that whenever there is difference between the returned and assessed income, there is inference of concealment. The Explanation 1 to sec. 271(1)(c) of the Act raises a presumption that can be rebutted by the assessee with reference to facts of the case. Thus, the onus is on the assessee to rebut the inference of concealment. The absence of explanation itself would attract penalty. The onus laid down upon the assessee to rebut the presumption raised under Explanation 1 would not be discharged by any fantastic or fanciful explanation. It is not the law that any and every explanation has to be accepted. In our considered view, the provisions of clause (A) of Explanation 1 to section 271(1)(c), when the assessee did not submit any explanation during penalty proceedings, is clearly attracted and the assessee has miserably failed to discharge the onus laid down in this explanation. The plea of the assessee before us that copy of the statement of Shri Sanjay Rastogi recorded on oath on 27.9.2005 was not confronted to them for rebuttal, is baseless in view of observations of the ld. CIT(A) on page 7, reproduced above in para 4.2, where in it is clearly mentioned that copy of the statement was supplied to the assessee and thereafter alone, the assessee surrendered the amount and sought permission to withdraw the appeal. Even otherwise, for the first time an affidavit dated 26.6.2008 has been filed by Shri Sunil Agarwal, Director the assessee company before the ITAT in quantum proceedings wherein it is stated that the said statement of Shri Sanjay Rastogi was not made available to them.. However, Shri S.K. Sarkar, who appeared before the ITAT on 30.7.2008 was specifically informed that the affidavit is not of the appropriate person, Shri S.K. Sarkar, AR, having obtained copy of the statement on his request dated 18.10.2005. Thereafter, the assessee did not file any affidavit of Shri S.K. Sarkar nor disputed the findings of the ld. CIT(A) in quantum proceedings before the ITAT. In penalty proceedings also, the assessee did not submit any reply before the AO. It is only on 30.7.2008 that Shri Sunil Agarwal, Director of the company filed affidavit, seeking copy of the statement. Since the facts on record establish that the assessee was supplied a copy of the aforesaid statement recorded on oath on 27.9.2005 and only thereafter, amount was surrendered during the remand proceedings and the assessee sought to withdraw their appeal before the ld. CIT(A), the plea made before us that copy of the said statement was not made available is meaningless and is not tenable. Even otherwise, since the transaction was between the assessee company and M/s Frenzy Product(P) Ltd, a company controlled by Shri Sanjay Rastogi, all the facts were within the specific knowledge of the assessee and its Director. In fact, Shri Sanjay Rastogi was confronted with the statement of Shri Sanjay Rastogi recorded during the course of survey, in the reassessment proceedings. In any case, the fact remains that the said surrender was not voluntary and it is only after statement of Shri Sanjay Rastogi was recorded during the remand proceedings, the assessee felt cornered and offered the amount to tax.

11.4 Here, we may have a look at the meaning of word ‘ Voluntary.’ The meaning of word “Voluntarily” has been deliberated upon by the Hon’ble Allahabad High Court in the case of CIT v. Rakesh Suri [2011] 331 ITR 458 /9 taxmann.com 5 as under:-

“41. A Full Bench of the Allahabad High Court in the case reported in (1998)230 ITR 855: Bhairav Lal Verma Versus Union of India, while interpreting the word ‘voluntarily’ given in Section 273(A) of the Act held that voluntarily means out of free will without any compulsion. When the assessee concealed the incriminating material with regard to income so disclosed cannot be held to be voluntarily. It shall be appropriate to reproduce the relevant portion from the judgement of Bhairav Lal Verma (supra) as under:

‘The position thus settled is that the word “voluntarily” in section 273A of the Act means out of free will without any compulsion. Disclosure of concealed income after the Department has seized the incriminating material with regard to the income so disclosed, cannot be voluntary disclosure, because it was made under the constraint of exposure to adverse action by the Department. But it cannot be held as a principle of law that the disclosure of income made after the search/raid cannot be voluntary. It is a question which has to be decided by the Department in each case on the basis of the material on the record. If on record there is incriminating material with regard to the disclosed income, the disclosure cannot be voluntary. But if the Department has no incriminating material with regard to the income disclosed, the disclosure is liable to be treated as voluntary having been made without any compulsion or constraint of exposure to adverse action by the Department. In a case where the assessee has disclosed not only the income regarding which the Department has incriminating material, but has also disclosed the income with regard to which no incriminating material was seized by the Department, the disclosure of the income with regard to which the Department has no incriminating material, is liable to be treated as voluntary. For example, if an assessee is having five accounts and the Department has incriminating material with regard to one of those accounts only, the disclosure of income relating to four accounts with regard to which the Department has no incriminating material, is voluntary, because it was made without any constraint or compulsion, even though the disclosure of the income relating to the account regarding which the Department has incriminating material, is liable to be treated as non-voluntary.’

Dictionary:-

42. Black’s Law Dictionary (Seventh Edition) defines “voluntarily” as intentionally or without coercion. It shall be appropriate to reproduce meaning of “voluntarily” and “voluntary” as given in Black’s Law Dictionary, which is as under:-

“Voluntarily, adv. Intentionally; without coercion. Voluntary, Adj. 1. Done by design or intention . 2. Unconstrained by interference; not impelled by outside influence . 3. without valuable consideration; gratuitous . 4. Having merely nominal consideration -voluntariness, n.

43. In the Law Lexicon by P. Ramanatha Aiyar, meaning of Voluntary has been given as, to quote:-

“Voluntary – Of one’s free will, impulse of choice; not constringed by another; acting voluntarily or willingly [S. 2(2), Sale of Goods Act]; [Art. 101(3), prov., Const.] Voluntary – The expression ‘voluntary’ is used in this section to mean ‘naturalisation’ in the narrow sense of that term and excluding compulsory, involuntary of collective naturalization which some states have adopted at different times. T.E. Mohomed Usman v. State of Madras, AIR 1961 Mad 129, 138. [Citizenship Act, 1955, S. 9(1)] “Means doing of something as the result of the free exercise of the will but not something done under a legal duty.”

“Where a person obtained a passport acted on his own volition and knew the nature of his act and did not act in performance of a legal duty, nor due to coercion or fraud or misrepresentation or mistake he has acted voluntarily.”Abdul Salam v. Union of India, AIR 1969 All. 223 at 228. [Citizenship Rules (1956) R. 30]”

11.4.1 From the said decision it is, thus, clear that voluntarily means out of free will without any compulsion. It is also observed therein that when the assessee concealed incriminating material with regard to the income disclosed by the assessee, surrender cannot held to be voluntarily. Surrender of income after the department has collected incriminating material with regard to the income so disclosed, cannot be voluntary surrender, because it was made under the constraint of exposure to adverse action by the Department. In the present case, the Department has collected sufficient material against the assessee and only after incriminating material collected by the Department was brought to the knowledge of the assessee, the surrender was, thus, made by the assessee under the constraint of exposure to adverse action by the AO. We totally agree with the conclusion of the ld. CIT(A) that the assessee had no option and nothing to rebut the evidence gathered by the department. In such circumstances, levy of penalty is justified. Moreover, merely because amount of Rs. 5 lacs has been paid in subsequent year, does not make a ingenuine transaction, genuine. The assessee miserably failed to rebut the incriminating statement of Shri Sanjay Rastogi recorded during the course of survey and that recorded during the remand proceedings in relation to transaction of Rs. 10 lacs, in the reassessment proceedings as also in penalty proceedings. In fact, no explanation was filed before the AO during the penalty proceedings. Thus, the assessee miserably failed to discharge the initial onus laid down upon the assessee in terms of Explanation 1 to sec. 271(1)(c) of the Act.

11.5 We find that the legal position is squarely covered by the decision of the Hon’ble Apex Court in K.P. Madhusudhanan (supra). Therein, the Hon’ble Court affirmed the decision of the Kerala High Court in CIT v. K.P. Madhusudanan [2000]246 ITR 218/[2002] 125 Taxman 265. Considering the effect of the addition of theExplanation to section 271(1) of the Act and the amendment to section 271(1)(c) of the Act by deletion of the word “deliberately”, the Honourable Kerala High Court came to the conclusion that whether penalty was liable to be imposed in a case where the assessee could offer no acceptable explanation for the income not disclosed or the inaccurate particulars he had furnished in his return, had to be examined and if found unacceptable, penalty was liable to be imposed. The Honourable Kerala High Court observed as follows:

“Section 271(1)(c) of the Income-tax Act, 1961, is attracted where, in the course of any proceedings under the Act, the Assessing Officer or the first appellate authority is satisfied that: (a) any person has concealed the particulars of his income; or (b) has furnished inaccurate particulars of such income. The expressions ‘has concealed’ and ‘has furnished inaccurate particulars’ have not been defined either in the section or elsewhere in the Act. However, notwithstanding differences in the two circumstances, they lead to the same effect, viz., keeping off a certain portion of income. The former is direct while the latter may be indirect in its execution.

A conspectus of the Explanation added by the Finance Act, 1964, and the subsequent substituted Explanations makes it clear that the statute visualised the assessment proceedings and penalty proceedings to be wholly distinct and independent of each other. In essence, the Explanation (both after 1964 and 1976) is a rule of evidence. Presumptions which are rebut-table in nature are available to be drawn. The initial burden of discharging the onus of rebuttal is on the assessee. Explanation 1 automatically comes into operation when, in respect of any facts material to the computation of total income of any person, there is failure to offer an explanation or an explanation is offered which is found to be false by the Assessing Officer or the first appellate authority, or an explanation is offered which is not substantiated. In such a case, the amount added or disallowed in computing the total income is deemed to represent the income in respect of which particulars have been concealed. As per the provision of Explanation 1, the onus to establish that the explanation offered was bona fide and all facts relating to the same and material to the computation of his income have been disclosed by him will be on the person charged with concealment. The Assessing Officer is not obliged to intimate the assessee that Explanation 1 to section 271(1)(c) is proposed to be applied.

The scheme of the provisions does not provide for such a requirement either directly or inferential. In Sir Shadilal’s case [1987] 168 ITR 705, what the Supreme Court observed was that there may be several reasons for which the assessee may have offered an amount for addition, but that itself is not sufficient to infer concealment. It has not laid down as a rule of general application that whenever such is the case, penalty cannot be imposed. On the contrary, in such cases also the assessee is required to discharge the burden placed by the Explanation appended to section 271(1)(c). In case an explanation is offered, the Assessing Officer is to examine it and find out whether the assessee has been able to establish that there was no concealment.

Held, that, in the case at hand, no explanation worth the name was offered by the assessee. The statement made by the assessee was to the effect that hand loans were obtained which were intended to be refunded immediately and, therefore, the entries were not made, but, later on, the arrangement did not work out. Therefore, the amount was offered for taxation. There was a clear admission that the entries were not made on the relevant dates. It was not a case where entries were made on the relevant dates and the source of money was omitted. The entries on the contrary were made on dates when there was sufficient cash balance. The intention to hide the actual state of affairs was clear. The explanation offered was fanciful and vague. The imposition of penalty was valid and the Tribunal erred in cancelling it.”

11.6 Honourable Supreme Court in the case of K.P. Madhusudanan (supra) while affirming the aforesaid view held that

“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 than 80 per cent. of the total income assessed under section 143 or 144 or 147, reduced to the extent therein provided, the assessee is deemed to have concealed the particulars of his income or furnished inaccurate particulars thereof, unless he proves that the failure to return the correct income did not arise from any fraud or neglect on his part. The assessee is, therefore, by virtue of the notice under section 271 put to notice that if he does not prove, in the circumstances stated in the Explanation, that his failure to return his correct income was not due to fraud or neglect, he shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars thereof and, consequently, be liable to the penalty provided by that section. No express invocation of the Explanation to section 271 in the notice under section 271 is, in our view, necessary before the provisions of the Explanation therein are applied. The High Court at Bombay was, therefore, in error in the view that it took and the Division Bench in the impugned judgment was right.”

11.7 We find that while imposing penalty under section 271(1)(c), the Assessing Officer has not invoked Explanation 1 to section 271(1)(c). But their Lordships of Honourable Punjab & Haryana High Court in the case of CIT v. Rajeshwar Singh [1986]162 ITR 173/ 26 Taxman 439 , have held that Explanation 1 to section 271(1)(c) can be invoked for the first time by the ITAT. By following the aforesaid judgement of Punjab & Haryana High Court in the case of Rajeshwar Singh (supra) the ITAT, Chandigarh Bench in the case of Roshan Lal Madan v. Asstt. CIT [1998] 67 ITD 33(Chd.) (TM)., has taken the same view that Explanation 1 to section 271(1)(c) can be invoked for the first time by the Tribunal.

12. As regards decision in D & H Sec-heron Electrodes Ltd. (supra ) relied upon by the ld. AR, facts in the cited decision were altogether different. In the said case, the assessee had claimed expenses under various heads, like sales promotion, lease rent, bad debts, entertainment expenses, etc. The AO was of the view that the expenses claimed by the assessee were on the higher side. During the course of assessment proceedings vide letter dt. 2nd Jan., 1994 it was stated by the assessee that though all the expenses and purchases, etc. are genuine, fully vouched and are fully allowable but in order to avoid protracted litigation with the Department, and to purchase peace an additional income of Rs. 25 lacs was offered with the understanding that no penalty proceedings would be initiated. It is with reference to the above surrendered amount of Rs. 25 lacs that the AO imposed the impugned penalty. However, the CIT(A) and later Tribunal set it aside by holding that no case for penalty is made out on facts and that explanation offered by the assessee is acceptable. It was further held that in somewhat similar circumstances, the AO had imposed penalty for the asst. yr. 1991-92 and the same was set aside by the Tribunal for that year on same facts. It was also not disputed that the said order was not questioned in appeal by the Revenue and the same thus attained finality. In these circumstances, the Tribunal while upholding the order of CIT(A) quashed the penalty which was imposed by the AO on the assessee for the assessment year. On appeal, Honourable High Court while relying on decision in Sir Shadi Lal Sugar & General Mills Ltd. v. CIT [1987] 168 ITR 705/33 Taxman 460A (SC), Girdharilal Soni v. CIT [1989] 179 ITR 111/ 46 Taxman 180 (Cal), upheld the findings of the ITAT. However, facts in the instant case are altogether different. In this case, incriminating material was gathered during the course of survey and the result of enquiries was confronted to the assessee. When Sh Sanjay Rastogi reiterated in the remand proceedings, the facts narrated by him during the course of survey, the assessee surrendered the amount of Rs. 10 lacs in the proceedings before the AO, remanded to him by the ld. CIT(A). Even otherwise decision in Sir Shadilal Sugar & General Mills Ltd. is no longer good law after the insertion of explanation as held by the Honourable Supreme Court in the case of K.P. Madhusudhanan (supra). In the case of CIT v. C. Ananthan Chettiar [2005] 273 ITR 401 / 142 Taxman 556 (Mad.), the Honourable Madras High Court was considering a similar issue & concluded as under:

“Learned counsel for the revenue submitted that the order of the Tribunal is not in accordance with law, as it has ignored the Explanation to section 271(1)(c) of the Act. Learned counsel also placed reliance on the decision in the case of K.P. Madhusudhanan v. CIT [2001] 251 ITR 99 (SC), wherein it was held that the law declared by the Court in the case of Sir Shadilal Sugar & General Mills Ltd.v. CIT [1987] 168 ITR 705 (SC) was no longer applicable by reason of the addition of the Explanation to section 271. That Explanation casts a burden on the assessee to show that the additional income that had not been disclosed was not due to fraud or neglect.

In this case, the assessee offered no explanation at all except to assert that he disclosed the income only to buy peace with the Department and what was disclosed, in fact, was additional income. The reason for not having disclosed the income earlier was not stated. In these circumstances, the ITAT was in error in setting aside the penalty. The question is answered in favour of the Revenue and against the assessee, in the light of the later decision of the three judge Bench of the Supreme Court in the case of K.P. Madhusudhanan v. CIT [2001] 251 ITR 99.”

12.1 In H. V. Venugopal Chettiar (supra), relied upon by the ld. DR, it was held that so long as the admission made by the assessee in the assessment proceedings had not been retracted and so long as there is a variation between the statement made at the stage of the original assessment proceedings and the admission made at the stage of the reassessment proceedings leading to an inference that the suppression of income was intentional or wilful, the assessing authority is entitled to rely on, the discrepancy in the statement made by the assessee and act on the admission made by the assessee at the reassessment stage.

12.2 In Chirag Metal Rolling Mills Ltd. (supra) relied upon by the ld. DR, it was held as under:

“12. The combined reading of Expln. 1 to s. 271(1)(c) of the Act and the verdict of Honourable apex Court in the matter of Sir Shadilal and K.P. Madhusudhanan it is crystal clear that prior to Expln. 1, the position of law was if assessee agrees for addition of his income to buy peace then it will not follow that agreed amount to be added was concealed income and the Revenue was required to prove the mens rea. Because of this view taken by Hon’ble Apex Court in the matter of Sir Shadilal the Expln. 1 to s. 271(1)(c) of the Act was added to the IT Act and after taking into consideration the Explanation, Honourable Apex Court in the matter of K.P. Madhusudhanan has laid down that no separate enquiry is necessary for imposing the penalty. However, from plain reading of Explanation, it is evident that some sort of enquiry is necessary, therefore, the proceedings initiated by the Revenue for imposing the penalty under s. 271(1)(c) of the Act shall be treated as proceedings and the assessee is at liberty to show his bona fides in that proceeding. If the assessee fails to show his bona fides, in that case penalty can be imposed by the Revenue.

13. This Court is of the view that the learned Tribunal was not justified in holding that the onus is on the Revenue to prove mala fide, even when the primary onus was on the assessee to prove that there was no concealment in view of Expln. 1 to s. 271(1)(c) of the Act. In view of the answer to first question it appears that no separate enquiry is necessary before imposing the penalty. In the penalty proceedings itself, initiated by the Revenue, the assessee can explain his bona fides and that all the facts relating to the same and material to the computation of his total income have been disclosed by him. Thus, the answer to question No. 2 is no separate enquiry is necessary.”

12.3 In the instant case, surrender made by the assessee during the remand proceedings, when the assessee was confronted with the statement of Shri Sanjay Rastogi recorded on oath on 27.9.2005, has never been retracted either during the reassessment proceedings or during the penalty proceedings at any stage. The assessee has not even attempted to establish its bona fide nor submitted any explanation before the AO during the penalty proceedings. Thus, in the light of view taken in the aforesaid two decisions relied upon by the ld. DR, we are of the opinion that the ld. CIT(A) rightly upheld the levy of penalty.

13. Therefore, in view of the facts and circumstances and in the light of above noted authoritative pronouncements, when the assessee failed to discharge the onus laid down upon him in terms of Explanation 1 to section 271(1)(c) of the Act and did not offer any explanation during the penalty proceedings before the AO, we have no option but to uphold the findings of the ld. CIT(A), confirming the levy of penalty. Even otherwise the breach of civil obligation which attracts a penalty under the provisions of an Act would immediately attract the levy of penalty irrespective of the fact whether the contravention was made by the defaulter with any guilty intention or not, vide SEBI v. Shriram Mutual Fund [2006] 131 Comp Cas 591/68 SCL 216 (SC). This view has been reiterated by the Honourable Supreme Court in their decision dated 29.9.2008 in the case of Union of India v. Dharmendra Textile Processors [civil appeal nos.10289 -10303 of 2003].

14. Honourable jurisdictional High Court in Jaswant Rai v. CBDT [1982] 133 ITR 19/[1981] 7 Taxman 210 (Delhi) held that the subsequent act of disclosure of an income would not make any difference and it cannot be said that the assessee had not concealed particulars of their income or had not furnished inaccurate particulars of such income.

15. A very heavy onus was placed on the assessee to explain the difference between the assessed income and returned income and the assessee did not discharge the said onus. In the light of the discussion made above and conduct of the assessee, it is thus clear that all the material facts and particulars relating to the assessee’s computation of income were never disclosed by the assessee, and it is further clear that the assessee did not offer any explanation at all before the AO during the penalty proceedings. In these circumstances and in the light of decisions of the Honourable Supreme Court and jurisdictional High Court referred to above, we are of the opinion that the assessee has not been able to discharge the burden that lay upon them by Explanation 1 to s. 271(1)(c) of the Act. Therefore, we have no hesitation in upholding the order of the ld. CIT(A) in confirming the penalty imposed by the AO under s. 271(1)(c) of the Act. Consequently, ground no.1 in the appeal is dismissed.

16. Ground no. 3 in the quantum appeal, being general nature nor any submissions having been made before us on this ground, does not require any separate adjudication while no additional ground having been raised before us in terms of residuary ground no.2 in the appeal, accordingly, this ground is dismissed.

17. No other plea or argument was raised before us.

18. In the result, both these appeals are dismissed.

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