Case Law Details
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-
| Notice / Reply | Page in P/B |
| a) Assessee’s letter dated 16/5/2006 in response to notice of the A.O. dated 10/5/2006. | 7 – 8 |
| b) Notice dated 12/9/2006 u/s. 142(1) seeking various details/ information and copies thereof. | 9 – 10 |
| c) Notice dated 18/10/2006 u/s. 142(1) requiring assessee to submit detailed reply of the queries made. | 11 |
| d) Notice dated 20/11/2006 u/s. 142(1) requiring assessee to submit detailed reply of further queries. | 12 |
| e) Assessee’s reply dated 24/11/2006 in response to notice dated 20/11/2006 in (d) above. | 13 |
| f) Notice dated 04/12/2006 u/s. 142(1) requiring the assessee to submit details as mentioned in the notice. | 14 |
| g) Notice dated 13/12/2006 u/s. 142(1) reiterating explanation from assessee in respect of purchases & expenses recorded in the seized documents. | 15 – 16 |
| h) Assessee’s reply dated 20/12/2006 in response to notice dated 13/12/2006 expressing desire to disclose additional income by way of G.P. at 15% to buy peace. | 17 – 18 |
It is thus evident that after series of enquiries made by the A.O. and confronting the assessee with the same and in particular after receipt of notice u/s. 142(1) dated 13/12/2006, the assessee ultimately filed revised return and offered additional income by way of enhancing G.P. from 6.93% to 15% on the turnover.
12. In the notice dated 13/12/2006, the A.O. has summarized the finding of inquiry/investigation conducted by him. The contents of the said notice is reproduced below :-
“Sub: Requirement in terms of notice under section 142(1) of Income-tax Act, 1961 for Assessment Year 2004-05.
With reference to above, you are requested to furnish following documents/ details on 15.12.2006 at 01:00 P.M.:
1. In the books of account of M/s Ritwika Creation, purchases from parties like
(i) Shyam Saree Kendra
(ii) M.S. Textiles
(iii) India Saree (P) Ltd.
(iv) Alauddin & sons
(v) Choudhury Textiles
(vi) Vichitra Handlooms
(vii) Navrang Sarees
(viii) Pannalal Sarees (P) Ltd.
(ix) Rajmal Paraskumar Sarees (P) Ltd.
(x) Shree Saree Centre
(xi) Anuparn sarees,
(xii) Cherry Fab Trade (P) Ltd.
(xiii) Jagriti Mercantile (P) ltd.,
(xiv) Pushpanjali Fashions,
(xv) United Sales Corporation and
(xvi) Gm Shanti Textiles
(xvii) Geetanjali Saree House,
(xviiii) Vaishali-Jaipur and
(xix) Tirupati Agencies are shown.
In the books of M/s Ritwika Creation, payments by way of cheques to these parties are shown. However, on enquiries (from bank & other sources), it was found that in realty no payment was made to above parties. Instead, cheques were deposited in the account number 61CA7OO1777 of Bank of Punjab Ltd. (now Centurion Bank of Punjab Ltd.) which is maintained by Shri Suresh Kumar Agarwal. In view of this you are required to give explanation as to why the claim of purchase from above mentioned parties should not be treated as bogus. Further you are also required to explain as to why the books of account of M/s Ritwika Creation should not be rejected.
2.1 In several submissions made on various dates by your husband, Shri Suresh Kumar Agarwal, he has claimed that seized document with identification mark RC/l to RC/lO belong to him and these documents contain detail of expenses incurred on manufacturing of sarees. However, on the basis of material on record, it is established that in individual capacity, Shri Suresh Kumar Agarwal was not having any saree manufacturing activity. In fact credit entries in the bank account of Shri Agarwal in Bank of Punjab Ltd. (account number 61CA7OO1777) has nothing to do with the saree manufacturing activity of Shri Agarwal in his personal capacity. I am of the view that RC/l to RC/lO represents undisclosed expenditure of M/s Ritwika Creation. Few reasons of such view is mentioned below:
(i) In hundreds of documents m RC/l to RC/lO, letter head and logo of M/s Ritwika Creation is used. Similarly, in seized documents with identification mark RI/I to RI/21, there are hundreds of letters head (including cash vouchers) in the name of M/s Ritwika Creation and all entries as per these letter heads are reflected in RC/l to RC/lO.
(ii) There are hundreds of bills raised by various Karigar in the seized document RC/l and RC/lO and each of these bills name of M/s Ritwika Creation is written. Similar bills are there in RI/l to RI/21 which are reflected in RC/l to RC/lO and all such bills are raised in the name of M/s Ritwika Creation.
(iii) RC/l to RC/lO contains details of expenditure incurred on karigar. Similarly, many of seized bunches in RI/l to RI/21 relates to payment made to Karigar. All of these documents are reflected in RI/ll. In other words, RI/ll summarises undisclosed expenditures in respect of Karigar. The print out of RI/ll is taken from the computer of M/s Ritwika Creation.
(iv) All of the seized documents from RI/l to RI/21 and RC/l to RC/lO were found in the premise of M/s Ritwika Creation.
(v) During the course of search operation, Shri Ashwini Agarwal stated on oath that seized document with identification mark RC/l to RC/lO are undisclosed cash vouchers, bills etc. of M/s Ritwika Creation.
(vi) RI/l to RI/21 contains documents related with both disclosed and undisclosed activities of M/s Ritwika Creation. Both type of documents are intermingled and can not be separated. In fact, most of the trading activities in saree are disclosed but business activity related with Karigar is not disclosed. The fact that both type of documents are inseparable further establishes that both activities were carried out by M/s Ritwika Creation.
2.2 In view of reasons mentioned in para 2.1, you are requested to explain as to why expenses as per RC/l to RC/10, RI/1 RI/2, RI/4 to RI/15 and RI/20 should not be treated as your undisclosed expenditure.”
13. On perusal of the above show cause notice, it is evident that not only during the course of search, several incriminating documents were found and seized but during the course of assessment proceedings also, the AO made thorough investigation. As a result of investigation, it was noticed that the assessee has shown to have made payment by cheques for purchase to 19 parties. However, on inquiry from the bank and other sources it was detected by the AO that the payments were not made to the above parties. On the other hand, the cheques were deposited in the bank account which belonged to Shri Sureshkumar Agrawal, husband of the assessee. Thus, it is evident that the books of accounts which were claimed to have been audited were not correct. In the books of accounts, the payments have been shown in the names of various parties and in fact no cheques were issued to those parties. When the assessee was confronted with the above facts, she came out with the explanation that although the entries in the books of accounts have been made for cheque payments to karigar, but actually cheques were issued in the name of the firm of her husband who deposited these cheques in his bank account and withdrew cash for making the payment to karigar. It was thus explained that payment was actually made in cash to the karigars. From the above it is evident that the payment for purchase to 19 parties amounting to Rs.3.17 crores were shown in the books of accounts, as having been made by cheques, but in fact those cheques were encashed by the assessee’s husband. On inquiry, none of the above mentioned parties were found at the address given by the assessee. Thus, it is evident that in books of accounts, payments have been shown by cheque to give colour of genuineness to those transactions of purchase. In the show cause notice dated 13-12-2006, the AO also pointed out that the seized documents with identification mark RC1 to RC10 contained details of expenditure incurred on manufacturing of saris. In several explanation furnished by Shri Suresh Agrawal, husband of the assessee, he claimed that the seized documents with identification mark, RC1 to RC1O belonged to him. However, it was noticed by the AO that Shri Suresh Agrawal was not having any sari manufacturing activity and moreover in hundreds of documents in RC1 to RC1O, the letter head and logo of M/s.Ritwik Creation i.e. proprietary concern of the assessee was found. Thus, the explanation of the assessee that seized documents RC1 to RC1O belonged to her husband Shri Suresh Agrawal was found to be false by the AO. The AO also noticed that apart from RC1 to RC1O there is another bunch of seized documents with the identification mark R11 to R21 which shows payments to karigars and both these bunch of documents belonged to the assessee’s proprietary business. Admittedly these documents were not recorded in the assessee’s books of accounts. Thus, in this case, on the search of the assessee’s business premises, several incriminating documents were found and seized and the assessee’s explanation with reference to those documents were found to be false during the assessment proceedings. Moreover, during the assessment proceedings it was also detected that the payments claimed to have been made by cheque and debited in the assessee’s books of accounts as such was also false because such payments were encashed by the assessee’s husband. When all these findings were confronted to the assessee then only the assessee furnished the revised return disclosing higher income. Therefore, the contention of the assessee that the revised return was furnished before the detection by the department and was made to buy peace cannot be accepted. The revised return was furnished by the assessee only when after thorough investigation the AO established that the seized documents which recorded various expenditure were belonging to the assessee and also that the assessee’s books of account is incorrect and false and when result of the investigation was confronted to the assessee, then only the assessee furnished the revised return.
14. Identical issue has been considered by Honourable Madras High Court in the case of CIT vs. C. Ananthan Chettiar (supra). In that case, the department in a search and seizure operation conducted in the assessee’s shop and residence, seized cash, jewellery and certain documents. Thereafter, the assessee filed a revised return for the A.Y. 1986-87 disclosing additional income which was accepted and assessment was made on the basis of revised return. The assessee took the stand that there was no concealment and it was only for the purpose of buying peace with the Department that the additional income was disclosed and revised return was filed. The Tribunal accepted this plea of the assessee and held that no penalty, in the circumstances, was leviable by relying on the Supreme Court decision in Sir Shadilal Sugar and General Mills Ltd. vs. CIT [168 ITQ 705 (SC)]. On the reference, the Hon’ble Madras High Court set aside the order and observed 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 s. 271(1)(c) of the Act. Learned counsel also placed reliance on the decision in the case of K.P. Madhusudhanan vs. CIT (2001) 169 CTR (SC) 489 : (2001) 251 ITR 99 (SC), wherein it was held that the law declared by the Court in the case of Sir Shadi Lal Sugar & General Mills Ltd. vs. CIT (1987) 64 CTR (SC) 199 (1987) 168 ITR 705 (SC) was no longer applicable by reason of the addition of the Explanation to s. 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 Tribunal 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 vs. CIT (supra).”
15. The Honourable Jharkhand High Court in the case of CIT vs. Mahabit Prasad Bajaj (supra), relying on the aforesaid decision of Honourable Madras High Court in the case of C. Ananthan Chettiar (supra) and also relying on another decision of Honourable Bombay High Court in the case of Sheraton Apparels vs. ACIT [256 ITQ 20 (Bom)] has held as under :-
“Concealment means an attempt to hide an item of income or a portion thereof from the knowledge of the IT authorities. from a bare reading of s. 139(5) and s. 271(1)(c), it is manifestly dear that both the aforesaid sections meet two different situations. Sec. 139(5) proceeds on the basis of omission or wrong statement which had crept into the original return being inadvertent and unintentional, whereas s. 271(1)(c) proceeds on the basis of concealment being deliberate and the furnishing of inaccurate particulars being willful and intentional. In the instant case, the Tribunal, while allowing the appeal by setting aside the order of penalty, proceeded on the basis that the assessee disclosed the additional amount voluntarily in call of amnesty scheme and that such disclosure of income and offering the same for tax may be for various reasons. Such voluntary disclosure cannot be said to be concealed income of the assessee. The Tribunal further proceeded on the basis that the Revenue has to prove mens rea on the part of the assessee by adducing evidence. The Tribunal has totally misconstrued the provisions of the Act and the finding is wholly perverse in law. The Tribunal has not considered the effect of Expln. S to s. 271(1)(c). The assessee did not act voluntarily and bona fidely in filing the revised return and offering the additional income. Admittedly, the revised return was not filed within the financial year or even before search and seizure was conducted and incriminating documents were recovered showing undisclosed income of the assessee. Explanation 5 was added in s. 271(1)(c) in order to meet such situations. The AO was therefore, fully justified in initiating penalty proceedings and levying penalty under s. 271(1)(c). The finding of the Tribunal is wholly perverse and cannot be sustained in law.”
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 Rs.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.
17. For the assessment year 2005-06, the issue is similar to that of assessment year 2004-05. That is to say, whether the revised return filed by the assessee was voluntary and in good faith to buy peace with the department and no penalty u/s. 271(1)(c) of the Act is leviable on such circumstances. Both the parties have also admitted that facts of A.Y.2005-2006 are similar to A.Y.2004-05 and decision taken in A.Y.2004-05 would be applicable in 2005-2006 also. I have discussed in detail this matter while dealing with the case of the assessee for assessment year 2004-05 above. For the reasons stated therein, I am of the opinion that penalty u/s. 271(1)(c) of the Act of Rs. 25,84,000/- thereof has rightly been levied by the A.O. and the ld. C.I.T.(A) was not justified in cancelling 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.
I.T(SS)A. No. 89 (Kol) of 2008
(A.Y. 2004-05)
Smt. Moriika devi Agarwal
18. Both the parties have stated that the facts of the case of this assessee are identical to those of Smt. Sushma devi Agarwal for assessment year 2004-05 vide ITA No. 876 (Kol)/2008. In this case penalty of Rs. 13,43,999/- has been levied u/s. 271(1)(c) of the Act, which was deleted by the ld. C.I.T.(A). The ld. J.M. in his proposed order has upheld the order of ld. C.I.T.(A), whereas the ld. A.M. in his proposed order disagreeing with the ld. J.M. has upheld the penalty levied by the A.O. u/s. 271(1)(c) of the Act. For the reasons discussed above while dealing with the case of Smt. Sushma devi Agarwal for assessment year 2004-05 in ITA No. 876 (Kol)/2008, I concur with the conclusion of ld. A.M. in his proposed order.
19. The matter will now go to the regular Bench for passing the order as per the majority view.
Dated 23-06-2011
Amit , pl see this order