When assessee declares higher profits in its revised return filed after detection of concealment, penalty u/s 271(1)(c) is warranted
DCIT, Kolkata Vs Sushma Devi Agarwal (ITAT Kolkata)- Assessee has failed to establish that disclosure of additional income in the revised return by way of declaring G. P. rate at 15% as against 6.93% shown in return filed u/s. 153A of the Act was voluntary and in good faith to buy peace with the department. On the other hand, the assessee filed the revised return only after the concealment was detected by the AO and he confronted the assessee with the same. In such circumstances, penalty u/s. 271(1)(c) of the Act of Rs.14,61,678/- for concealment of income has rightly been levied by the A.O.
ITAT Kolkata
Dy. Commissioner of Income Tax Vs Sushma devi Agarwal
I.T.A No. 876/Kol/2008
Assessment Year: 2004- 2005
Dy. Commissioner of Income-tax -Vs- Sushma devi Agarwal
I.T(SS)A.No. 90 (Kol) of 2008
Assessment Year- 2005- 06
Dy. Commissioner of Income-tax -Vs- Monika devi Agarwal
I.T(SS)A.No. 89 (Kol) of 2008
Assessment Year- 2004- 05
(C.D. Rao), Accountant Member :
Since there was a difference of opinion between the Ld. Members constituting “C” Bench of I.T.A.T., Kolkata with regard to the following issue, the matter was referred to Third Member u/s.255(4) of I.T. Act, 1961 for his opinion :-
“Whether, on the facts and circumstances of the above cases/appeals, the learned CIT(A) was justified in cancelling the penalty u/s. 271(1)(c) of the Income Tax Act, 1961 ?”
2. Honourable Vice-President (KZ), as Third Member in these cases, after hearing the parties and considering the facts and circumstances of the case, concurred with the proposed order of the Ld. A.M., vide order dated 23/6/2011 for assessment years 2004- 05 and 2005-06, by observing as under :-
“16. Considering the totality of the facts and circumstances of the case, arguments of both the sides and on careful perusal of the proposed orders of both the ld . Members and the judicial pronouncements referred to above, I am of the opinion that the assessee has failed to establish that disclosure of additional income in the revised return by way of declaring G. P. rate at 15% as against 6.93% shown in return filed u/s. 153A of the Act was voluntary and in good faith to buy peace with the department. On the other hand, the assessee filed the revised return only after the concealment was detected by the AO and he confronted the assessee with the same. In such circumstances, penalty u/s. 271(1)(c) of the Act of Ps.14,61,678/- for concealment of income has rightly been levied by the A.O. and the ld . C.I.T .(A) was not justified in canceling the same. I, therefore, concur with the conclusion arrived at by the ld . A.M. in upholding the penalty levied u/s. 271(1)(c) of the act.”
Therefore, in accordance with the majority view, the appeals of the department are allowed.
This order is pronounced in open Court on 18.07.2011.
Order dated 23/06/2011 is as follows
ITAT KOLKATA [Third Member]
Dy. Commissioner of Income-tax Vs Sushma devi Agarwal
I.T.A No. 876/Kol/2008
Assessment Year: 2004-2005
Dy. Commissioner of Income-tax -Vs- Sushma devi Agarwal
I.T(SS)A.No. 90 (Kol) of 2008
Assessment Year- 2005-06
Dy. Commissioner of Income-tax -Vs- Monika devi Agarwal
I.T(SS)A.No. 89 (Kol) of 2008
Assessment Year- 2004-05
ORDER
Since there was a difference of opinion between the Ld. Members constituting the division Bench of I.T.A.T., Kolkata in respect of the aforesaid appeals, I was nominated as Third Member by the Honourable President, I.T.A.T. u/s. 255(4) of I.T. Act, 1961. As the facts and circumstances of these cases and the issue involved therein are identical, these appeals are dealt with by this consolidated order. The common question referred to me reads as under :-
“Whether, on the facts and circumstances of the above cases/appeals, the learned CIT(A) was justified in cancelling the penalty u/s 271(1)(c) of the Income Tax Act, 1961 ?”
2. Both the parties mainly argued on appeal in the case of Sushma devi Agarwal [ITA No. 876 (Kol)/2008 for A.Y. 2004-05] and submitted that the decision which may arrive in this case shall also be followed in other cases. Therefore, appeal in respect of Smt. Sushma devi Agarwal for assessment year 2004-05 is taken first.
I.T.A. No. 876 (Kol) of 2008 (A.Y. 2004-05):
3. The facts in brief are that a search & seizure operation u/s. 132 of the Act was conducted on 24/1/2005 in Ritwika Group of cases and the assessee, Smt. Sushma devi Agarwal, is one of the associates of the group and proprietor of M/s. Ritwika Creations. The assessee deals in wholesale saree business, during the said search action, some documents were found and impounded. In response to notice issued u/s. 153A of the Act, the assessee filed return showing income of Rs. 2,11,297/- without disclosing any unaccounted income, which was also the total income declared by the assessee in the return filed u/s. 139(1) of the Act. On the basis of the seized documents, the A.O. made enquiries during assessment proceedings and issued show-cause notices on several occasions to the assessee requiring her to explain, inter alia, as to why purchases made from about 20 parties should not be treated as bogus, the books of account should not be rejected and the expenses recorded in the seized documents should not be treated as unexplained expenditure. The assessee filed revised return declaring a gross profit @ 15% as against 6.93% declared in the return filed u/s. 153A of the Act. The A.O. observed that even though the assessee claimed to have made purchases from about 20 parties and cheques were shown to have been issued in the names of respective parties in the books, but ultimately all the cheques of the value of about 3.17 crores were deposited in the bank account of the assessee’s husband, Sri Suresh Kr. Agarwal. The assessee stated that she used to issue cheques for payments to be made to karigars and the cheques were handed over to her husband for depositing in his bank account and making payments to the karigars by withdrawing the money from his bank account. The A.O. completed the assessment by taking gross profit @ 15% declared by the assessee in her revised return and initiated penalty proceeding u/s. 271(1)(c) of the Act. during the course of penalty proceedings, the assessee stated that after she received photo copies of seized documents, revised return declaring additional income was filed to buy peace and to avoid litigation. The A.O., however, did not accept the above explanation of the assessee by observing that the assessee has surrendered the higher income in the revised return only after the investigation was carried out by the department and after the assessee was confronted with the same. He, therefore, levied penalty of Rs.14,61,678/- u/s. 271(1)(c) of the Act, which was equal to tax sought to be evaded by the assessee on the undisclosed income.
4. Being aggrieved, the assessee preferred appeal before the ld. C.I.T.(A) agitating levy of penalty u/s. 271(1)(c) of the Act and the ld. C.I.T.(A) deleted the penalty. . Being dissatisfied with the said order of ld. C.I.T.(A), the department came in appeal before the Tribunal on the following grounds ~-
“i) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in canceling the order of penalty u/s. 271(1) (c) of the I.T. Act, 1961 dated 02.04.2007.
ii) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in relying on the ratio of the judgement of the Honourable Supreme Court in the case of CIT -vs- Suresh Chandra Mittal [2001] 251 ITR 9 (SC), which is distinguishable on facts from the instant case.
iii)Whether on the facts and in the circumstances of the case, the Ld. CIT(A) had considered that the assessee, who had filed the original Return in response to notice u/s 153A declaring income of Rs. 2,11,297/-, was compelled to file a revised Return of Rs. 50,66,896/- in the face of in depth investigation by the Assessing Officer and further evidence against the assessee and the disclosure was not an act of voluntary surrender by the assessee in good faith.”
5. After hearing the parties and considering the evidence on record, the Ld. J.M. in his proposed order confirmed the order of ld. C.I.T.(A), deleting the penalty of Rs.14,61,678/- levied u/s. 271(1)(c) of the Act by holding as under –
“7. We have considered the rival submissions and material available on record. It is not in dispute that during the course of search certain incriminating papers were recovered which explained that the assessee made payments to the purchasers/ karigars through her husband because the cheques were deposited in the account of the husband of the assessee and from where payments were made to the karigars. The sales and purchases shown by the assessee in the books of account are not disputed by the A.O. The A.O. accepted the revised return as it is on enhanced GP rate shown by the assessee. During the course of search the seized papers relating to this issue were not confronted and the issue was also not properly explained. Copies of the order sheets are filed in the paper book to show that on 7.12.06, the seized documents on the above issue on which penalty was imposed were supplied to the assessee. The A.O. recorded in this order sheet that the assessee explained that on the basis of the seized documents, the assessee would file revised return of income showing higher gross profit. The order sheet dated 15th December 2006 also shows that the A.O. recorded in the order sheet that the xerox copies of the seized documents are supplied to the assessee on the aforesaid issue. Thus the reply of the assessee is clearly supported by the order sheets of the A.O. that the photo copies of the seized documents on the above issues were made available to the assessee only in December, 2006. The A.O. in the letter dated 13th December, 2006 on the above issue directed the assessee as to why book results of the assessee should not be rejected and why the same purchases should not be treated as undisclosed expenditure of the assessee. The learned CIT(A) specifically noted in the impugned order that seized documents RC 1 to RC 10 and RI/1 to RI/21 are related to the transactions in question. It would, therefore, prove that complete seized papers were not supplied to the assessee at the time of issuing notice u/s 153A of the Income Tax Act. The order sheets recorded by the A.O. also support the contention of the assessee that complete seized documents on this issue of payment to the karigars through husband of the assessee were supplied to the assessee only in December, 2006. Therefore, there was no occasion for the assessee to make surrender the additional income at the time of filing original return of income. At the most, it may be taken that in case the assessee would not have surrendered the additional income by enhancing gross profit rate, the A.O. would have rejected book results of the assessee and enhanced the income by enhancing the gross profit of the assessee. There would not have been any concealment of income or furnishing inaccurate particulars, in such a situation because it is settled law that on mere revision of income to a higher figure by A.O. did not automatically warrant an inference of concealment of income. On estimated income also no penalty would be justified. We arc fortified in our view by the judgements of the Honourable Punjab & Haryana High Court in the cases of Dhillo Rice Mills (256 ITR 447) and Hari Gopal Singh (258 ITR 85). We may also mention that the Honourable Supreme Court in the recent decision in the case of M/s Rajasthan Spinning and Weaving Mills (2009) TIOL 63 held that on every demand penalty is not automatic. Now coming to the facts of the case it is clear that penalty is imposed on surrender of additional income by enhancing gross profit rate because payments to the karigars for purchases are made through accounts of the husband of the assessee. Admittedly, the A.O. did not make any addition on account of bogus purchases. Even otherwise the A.O. could not have made any addition on account of bogus purchases because there could not be any sales without purchases. The facts and circumstances noted above clearly prove that the assessee at the earliest opportunity on being supplied, the complete seized papers made the surrender of additional income. Therefore, it was not a fit case for holding concealment of income or furnishing inaccurate particulars in the return of income. Thus the finding of fact recorded by the C1T(A) does not suffer from any perversity . The decisions relied upon by the learned D.R. are clearly distinguishable on the facts and circumstances of the present appeal. We accordingly, confirm the order of the CIT(A).”
6. The Ld. A.M. disagreed with the said view of Ld. J.M. and proposed a separate order. The Ld. A.M. has extensively discussed the submissions made by the ld. Departmental Representative and case laws relied upon by him as also the submissions made on behalf of the assessee at pages 3 to 10 of his proposed order. After hearing the parties and taking into considerations the following decisions, viz. –
Samunder Bhan Sadh vs. CIT [188 ITR 638 (All.)]
Vidya Sagar Oswal vs. CIT [108 ITR 861 (P&H)]
DCIT vs. Glamour Restaurant [80 TTJ 763 (Mum)]
ACIT vs. Kirit bahyabhai Patel [121 ITb 159 (Ahd-TM)]
the ld. A.M. held that levy of penalty under secton 271(1)(c) was justified. He, therefore, in his proposed order has set aside the order of ld. C.I.T.(A) and restored that of the A.O. with the following observations ~-
“After hearing the rival submissions and on careful perusal of the materials available on record, it is observed that the assessee was subjected to search under section 132 of the I.T. Act on 24.01.2005 and after filing the return in response to notice under section 153A(1)(a) of the I.T.Act. When the AO has confronted the assessee, the outcome of the enquiries made by him on the basis of the seized document, the assessee has filed a revised return after a gap of more than one year and. offered the G.P. rate at 15% as against 6.93%. In my considered opinion, the Ld. DR has contradicted the various findings given by the Ld. CIT(A), while deleting the penalty, based on the various judicial pronouncements which are referred to in preceding para nos. 7.1 to 7.17.
9.1 In my opinion, there is no Rule that penalty for concealment under section 271(1)(c) cannot be imposed where income is estimated. The levy of penalty under section 271(1)(c) depends on the facts and circumstances of each case. If the concealment of income is apparent from the record, there is no reason why the penalty under section 271(1)(c) cannot be imposed for concealment of income. Reliance has been placed on (i) 188 ITR 638 of the Honourable Allahabad High Court and (ii) 108 ITR 861 of the Honourable Punjab & Haryana High Court.”
7. At the time of hearing before me, the ld. Departmental Representative submitted that the order proposed by ld. J.M. is not a speaking order. He further submitted that the revised return was filed only after the A.O. issued show-cause notice when the assessee was caught and confronted with the seized documents. That original return u/s. 139(1) was filed on 11/8/2004 showing total income of Rs. 2,11,297/-. That even after receipt of notice u/s. 153A of the Act and seized material supplied to her in December, 2005, the assessee did not disclose her unaccounted income and filed return u/s. 153A of the Act on 05/5/2006 showing the income which was originally shown by her in 139(1) return. Referring to several notices issued by the A.O., in particular notice dated 13/12/2006, copies of which are placed in the department’s paper book, the ld. Departmental Representative submitted that the assessee vide her reply dated 20/12/2006 in response to notice dated 13/12/2006 has surrendered higher rate of gross profit @ 15% as against 6.93% declared in the return filed u/s. 153A of the Act and, accordingly, filed revised return on 22/12/2006. Further, there was no specific declaration of undisclosed income and source thereof in the statement recorded u/s. 132(4) of the Act from the husband of the assessee. Referring to page 5, para 7.3 of ld. A.M.’s order, the ld. Departmental Representative submitted that there was clear proof of non-existence of parties and concealment of income by wilfully inflating the expenses detected due to search operation. He submitted that the burden lies on the assessee to establish that the additional income that had not been disclosed was not due to fraud or neglect and he relied on the decisions in the cases of CIT vs. C. Ananthan Chettiar [273 ITR 401 (Mad)] and Kamal Chand Jain vs. ITO [277 ITR 429 (Del)]. He further submitted that the ld. J.M. in his proposed order did not consider the decisions relied upon by the department in proper perspective; and the decisions cited by ld. J.M. are distinguishable on facts. The ld. Departmental Representative referred to pages 28 to 30 of the department’s paper book, which are copies of statement recorded u/s. 132(4) of the Act from Sri Suresh Kr. Agarwal, husband of the assessee, during the course of search operation and referring to questions No. 5 & 11 and answers thereof, he pointed out that Sri Suresh Kr. Agarwal has admitted that the entries in the books of account marked RI/20 are undisclosed in nature and he will be filing a disclosure petition covering all unaccounted sales and purchases. However, no such disclosure was made. In this connection, the ld. Departmental Representative relied on the decisions in the cases of CIT vs. Handloom Emporium [282 ITR 431 (All.)] and CIT vs. Mahabit Prasad Bajaj [298 ITR 109 (Jharkhand)]. He, therefore, submitted that on the above facts and circumstances of the case and settled position in law, the ld. A.M. has rightly held that penalty u/s.271(1)(c) was rightly levied by the A.O. His order should, therefore, be upheld.
8. The learned counsel for the assessee, on the other hand, supported the order proposed by ld. J.M. He further submitted that the assessee is the whole seller of fashion saree. Job work on such sarees is done from karigars and direct purchases are also made from karigars. The assessee’s accounts are duly audited and audit report was filed along with the original return filed u/s. 139(1) of the Act. The A.O. did not dispute sales. His only suspicion was about purchases from parties/ karigars. The learned counsel submitted that karigars are unorganised working persons who mostly reside in remote village and they do not accept cheque. Therefore, as per arrangement made with her husband, Suresh Kr. Agarwal, the assessee used to issue cheques in the name of ‘Shradha Fashion’, which is the proprietary concern of her husband. In the books of account, the assessee debited the payments in the name of the respective parties and not Shradha Fashion. Referring to pages- 8 & 9 of assessee’s paper book, which is a copy of A.O.’s notice u/s. 142(1) dated 13/12/2006, the learned counsel submitted that the show-cause notice does not record even a prima facie belief of concealment and even if the A.O. had at all prima facie belief about concealment of income, it would not mean that concealment has been detected. In this connection the ld. counsel relied on C.B.D.T. Circular No. 451 dated 17/2/1986. Further, referring to pages 17 & 18 of department’s paper book, which is copy of assessee’s reply in response to the aforesaid notice dated 13/12/2006, the learned counsel submitted that the assessee has explained the modus operandi for handing over the cheques to her husband for onward payments to karigars by withdrawing cash from his bank account and this would be evident that there was no concealment in substance. Further, income disclosed in the revised return has been accepted. The gross profit shown at 15% was never the profit of the assessee in earlier years and the higher G.P. was shown in the revised return to buy peace and avoid litigation. He, therefore, submitted that Explanation 1 of sec. 271(1)(c) of the Act shall not be applicable to the case of the assessee, because assessee’s explanation was not found to be false. The ld. Counsel further submitted that the assessee on getting copies of seized documents filed revised return showing higher income and as per sec. 139(5) of the Act, revised return can be furnished at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier. He, therefore, submitted that on the facts and circumstances of the case, conditions contained in sec. 271(1)(c) of the Act for levying penalty are not satisfied in the case of the assessee and the ld. J.M. has rightly deleted the penalty which should be upheld and proposed order of ld. A.M. be quashed.
9. In his rejoinder, the ld. Departmental Representative submitted that there was no dispute to the fact that concealment was already detected and only quantification of the extent of concealment was pending. In this connection, he has referred to paras 1 & 2 of show-cause notice dated 13/12/2006 of the A.O. placed at page-8 of the assessee’s paper book whereby the assessee was asked to explain as to why purchases should not be treated as bogus and books of account be not rejected. The A.O. also expressed his view that RC/1 to RC/10 represents undisclosed expenditure of the assessee. He further submitted that if the Tax Audit would have reflected the correct picture of the affairs of the assessee, there would have been no need to revise gross profit, which the assessee did in her revised return after detection of concealment by the A.O.
10. I have heard the parties and perused the material available on record. I have also carefully gone through the dissenting orders proposed by the Ld. Members. The undisputed facts of the case are that search operation u/s. 132 of the Act took place in the premises of the assessee on 24/1/2005. As per assessee’s letter dated 16/5/2006 addressed to the A.O., it is seen that the assessee has stated that she was supplied with photo copies of seized documents in December, 2005. In response to notice u/s. 153A of the Act dated 11.11.2005, the assessee filed her return on 05/5/2006 disclosing income at Rs.2,11,297/- which was the total income declared by the assessee in the return filed u/s.139(1). Thereafter, on the basis of seized documents, the A.O. issued several show-cause notice to the assessee, copies of which are placed in the department’s paper book, seeking her explanation on the purchases made from about 20 parties and the expenditure found recorded in the seized documents. I observe from the order sheet entry dated 07/12/2006 that ld. A/R of the assessee appeared before the A.O. and asked for xerox copies of some seized documents so as to file revised return showing suitable gross profit which would be much higher than the disclosed G.P., which was handed over to him on 15/12/2006. The revised return showing G.P. at 15% as against 6.93% declared in the return filed u/s. 153A was filed on 22/12/2006. It was also stated by the assessee before the A.O. that as per arrangement with her husband, she used to issue cheques to her husband for payments to be made to karigars, who used to deposit those cheques to his bank account and in turn made payments to karigars in cash. According to the A.O., the assessee did not disclose the higher gross profit in good faith, but she has surrendered the higher income in the revised return only after the investigation was carried out by the department and after she was confronted with the same. The A.O., however, completed the assessment on the basis of revised return declaring higher gross profit at 15%. He also found the case of the assessee to be a good case for imposition of penalty u/s. 271(1)(c) of the Act. Penalty of Rs.14,61,678/- was thus levied by the A.O. u/s. 271(1)(c) of the Act, which was cancelled by the ld. C.I.T.(A).
11. On the aforesaid admitted facts, it is evident that some incriminating documents were found and impounded during search operation conducted u/s. 132 of the Act at the assessee’s premises. The assessee filed her return of income u/s. 139(1) of the Act before the search took place declaring income of Rs.2,11,297/- and gross profit at 6.93%. Xerox copies of seized documents were made available to the assessee in December, 2005. In response to notice issued u/s. 153A of the Act, the assessee filed return on 5/5/2006 showing income of Rs.2,11,297/- without disclosing any unaccounted income. I further observe that there was a gap of about 12 months between supply of Xerox copies of seized documents in December, 2005 and asking for further copies of some other seized documents on 7/12/2006 and during this period, as per order sheet entries, several notices were issued by the A.O. and replies given by the assessee. Several hearings also took place before the A.O. during this period. Copies of notices issued by the A.O. and replies given by the assessee after filing of return u/s. 153A of the Act on 05/5/2006 have been filed in the department’s paper book, which are as under-
