ITAT AHMEDABAD “D” BENCH, AHMEDABAD,
Goyal Industries Ltd. Vs. Dy. CIT,
APPEAL NO: ITA No. 702/Ahd/2008,
DECIDED ON May 28, 2010
PER D.C.Agrawal, Accountant Member:-
This appeal is filed by assessee raising following grounds:-
“1. That Hon’ble C.I.T.(A) has erred in confirming the Penalty of Rs.2,83,412/- u/s.271(1)(C) of the Income Tax Act, 1961.”
2. The only issue involved in this appeal that Ld. CIT(Appeals) has confirmed the penalty of Rs. 2,83,412/- levied by the Assessing Officer.
3. The facts of the case are that assessee- company is engaged in the business of manufacturing of texturised yarn and art silk cloth. For the year under consideration return of income was filed on 27-10-2004 on a total income of Rs. Nil. In the assessment order, Assessing Officer proposed following additions:-
” – Addition on account of unexplained creditors Rs.7,00,000/-
– Dis allowance of hotel expenses incurred for business purpose Rs. 90,000/-“
After making these additions, Assessing Officer also initiated penalty proceedings u/s.271(1)© of the Act.
4. During the course of assessment proceedings on verification of Schedule attached to the balance-sheet credit balance of Rs.7 lakh was noticed. It was the sum claimed to have been received from M/s. Shree Corporation against order for supply of polyester textured yarn to be imported from Singapore. It was submitted that market subsequently declined. Therefore that party refused to take the goods at the pre- determined price. The assessee did not furnish details like confirmation from that other party and period corresponding to purchase of yarn, or placing of order or dispute for recovery. Accordingly, he proposed an addition of Rs. 7 lakh u/s.68 of the Act which was finally not disputed and accepted by the assessee. Similarly addition of Rs. 90,000/- made after disallowing total expenses claimed to be incurred on business promotion was confirmed because assessee failed to produces necessary evidence. In the penalty proceedings, assessee furnished following explanation:-“1.11.1 Both additions have been made purely on the basis of probability.
1.11.10The explanation of the assessee has not been found to be false.
1.11.11Penalty can be levied on when thee is an undoubted finding that an actual income was earned, the particulars of which were concealed or inaccurate particulars of which were furnished.
1.11.12In respect of both additions, sufficient explanation on the basis of fact and documents available with us was furnished.
1.11.13The explanations are bona fide and the same wee not found to be incorrect.
1.11.14In respect of addition of Rs.7,00,000/-, the amount represents an advance received from a customer by name Shree Corporation through broker. The broker has disappeared and the party is not in our direct contract. Hence matter could not be settled.
1.11.15 Regarding the addition of Rs.90,000/- on disallowance of Hotel promoting business and that it can not be proved documentarily.
1.11.16 The bonafide of the assessee company’s case is evident from the huge unabsorbed loss/ depreciation and that there is no income despite the addition.
1.11.17 No satisfaction of concealment was reached by the assessing officer at the time of initiating the penalty proceedings and hence no penalty can be imposed.”
Assessing Officer rejected the explanation and observed that:-
i) No evidence regarding identity of the creditor who paid the sum was furnished
ii) The details of the broker, through whom money was rightly received were not given
iii) Not giving on the ground that broker is not receivable
iv) There is no evidence that credit was in the nature of advance
v) Creditworthiness of the alleged creditor was not established
vi) Even today said sum has remained unclaimed from the said creditor and neither the goods has been supplied to them nor money has returned to them.
He accordingly levied the penalty of Rs. 2,83,412/- by treating the sum of Rs. 7.90 lakhs as concealed income.
5. The Ld. CIT(Appeals) confirmed the penalty on both the amount on the ground that neither during the assessment proceedings nor during appellate proceedings, the assessee gave any evidence of identity of the creditor. The genuineness of the transaction was also not shown. It is not shown why the creditor did not bother about the refund of the money or for supply of the goods. In respect of the sum of Rs. 90,000/-, Ld. CIT(Appeals) mentioned that assessee did not show as to who stayed in the hotel, what was the nature of expenditure, whether any meeting were conducted in the hotel and who attended such meeting. Thus, business purpose of the expenditure was not established.
6. Before us Ld. AR submitted that assessee- firm is in liquidation as total loss is over Rs.85 lakh during this year. In view of this, the creditor and the broker have not bothered to file any claim against the assessee. In fact non-furnishing of documentary evidence would be sufficient for making addition but for levy of penalty, the Assessing Officer has to show that impugned addition was in fact income of the assessee. Ld. AR further submitted that the explanation furnished by the assessee was bona fide for both the items of additions. The Assessing Officer did not find any evidence of concealment and both the additions were made purely on presumptive basis. The assessee had furnished copy of ledger account of the credit or in the books of the assessee showing the details. The order was orally received through broker. That party was not in direct contact with assessee, thus the assessee was prevented by reasonable cause from furnishing the confirmation from that party. It is not a case of non-furnishing of explanation. All material facts like cheque No. name of the bank and date has been furnished to the Assessing Officer. The explanation is bona fide and there is no finding that income in fact has been actually earned by the assessee. The issue is directly covered by the decision of Hon’ble Gujarat High Court in the case of National Textiles v. CIT (2000) 249 ITR 125 (Guj), it is held in that case that merely because an addition u/s.68 has been made penalty cannot be levied. Regarding addition of Rs.90,000/- Ld. AR submitted that sum was paid in respect of business purpose. The expenditure was actually incurred and amount was actually paid. The addition was made only on the ground that details of the person who attended the meeting were not furnished. The incurring of expenditure was not disputed. what was disputed was business purposes of the expenditure. Penalty cannot be levied in view of the decision of Hon’ble Gujarat High Court in the case of Sayaji Iron & Engg. Co. v. CIT(2002) 253 ITR 749 (Guj) and also as per the decision of Hon’ble Supreme Court in the case of T.Ashok Pai v. CIT (2007) 292 ITR 11 (SC) and in the case of Dilip N. Shroff v. JCIT (2007) 291 ITR 51 (SC). Further decision of Hon’ble Kerala High Court in the case of CIT v. P.K. Narayanan 238 ITR 905 (Ker) and in the case of Shivlal Tak v. CIT (2001) 251 ITR 272 (Raj) support the view of assessee.
7. On the other hand, Ld. SR-DR submitted that penalty is leviable under explanation 1B to Sec. 271(1)© as explanation furnished by the assessee is not bona fide. He has not been able to substantiate the explanation furnished by it and the material facts necessary for assessment and in support of explanation have not been furnished.
8. We have considered the rival submissions and perused the materials facts on record. In our considered view penalty u/s.271(1)© in case of addition of Rs.90,000/- cannot be sustained. It is only a claim of expenditure on hotel. The case of the assessee is that business clients had come on which he had to incur expenditure for arranging meeting in the hotel. The claim of the assessee was not supported with evidence inasmuch as he was unable to produce evidence about the nature of meetings and the persons who attended the meeting. The fact of incurring of expenditure was not doubted but what was doubted was the business purpose of the expenditure. We derive support from the decision of Hon’ble High Court in the case of CIT v. Reliance Petroleum Products (2010) 322 ITR 158 (SC). In view of this, we cancel the penalty in respect of addition of Rs.90,000/-.
9. However, same cannot be said about the addition of Rs.7 lakh. Even though onus of the assessee during the assessment proceedings is confined to submitting evidence regarding identity of the creditor, creditworthiness of the creditor and genuineness of the transaction. However, in penalty proceedings it is not the case that entire burden is on the Department to show that what was added was in fact concealed income of the assessee. Explanation to Sec.271(1)© provides for deeming addition as concealed income or income in respect of which inaccurate particulars have been furnished provided conditions laid down in either of the clauses are satisfied. If assessee does not furnish any explanation, in respect of addition made, or explanation furnished is found false, then clause (A) of Explanation-I can be invoked. Where assessee furnishes an explanation in respect of addition made, then as per Clause (B) of Explanation-I., the addition would be deemed as concealed income or income in respect of which inaccurate particulars have been furnished, provided following three conditions are satisfied.:-
(i) Assessee is not able to substantiate his explanation.
(ii) Explanation furnished by him is not bona fide.
(iii) All the material facts, necessary for assessment, or in respect of explanation, are not furnished by him. If assessee is able to show prima facie that he is neither hit by clause (A) or by Clause (B) of the Explanation-I, then onus will shift to the A.O. that condition laid down therein are satisfied.
For the sake of convenience we produce Sec.271(1)© as under:-
“271. (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—
(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,— (i)******
(iii) In the eases 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 falls to offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner (Appeals) or the Commissioner 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 bona fide and 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 purpose of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed.”
In respect of Explanation (1) the deeming fiction is raised and added/disallowed amount is treated as the income in respect of which particulars have been concealed. Explanation- I (B) will not apply if the explanation, given by the assessee in the quantum proceedings which he could not substantiate in those proceedings was (i) bona fide and (ii) he had disclosed all the facts relating to the same and material to the computation of his total income. In cases where explanation was offered, but was rejected as it could not be substantiated by the assessee, there would arise no presumption of concealment of the particulars of income that was added or disallowed if such assessee can show that the said explanation offered by him was a bona fide one and that he had disclosed all facts relating to such explanation and material to the computation of his total income during the quantum proceedings. For bringing the case under the main provision the onus is put on the Department to prove that the assessee has concealed the particulars of his income or furnished inaccurate particulars thereof. To bring the case of the assessee within its mischief, mere rejection of assessee’s claim would not be sufficient and the assessee cannot be held guilty of concealment. It is by virtue of explanation that Assessing Officer can raise the presumption about additions made to the total income or deduction disallowed that it represents assessee’s concealed income or the income in respect of which assessee has furnished inaccurate particulars. When we examine part-B of the explanation-I carefully then we are of the view that the words `not substantiate’ used in that clause does not mean that it is not accepted by the concerned authority, but it means that there is no substance in the claim made by the assessee. The word `substantiate’ is opposite to the word “vague” or “fanciful” or “without any foundation or basis”. The phrase” to prove that such explanation is bona fide” means that the assessee has to show that circumstances existed whereby it has made the claim, or that, as in the present case, it had in fact received the money from the creditors but their credentials cannot be established. It has to be proved that failure of the assessee to furnish evidence in support the claim was beyond his control. Assessee has to prove or furnish evidence that circumstances existed which disabled him to furnish the evidence in support of his claim. The third condition is that all the facts relating to the claim and material to the computation of its total income has been disclosed by him. It means that all the material facts which are relevant for computation of income of the assessee have been disclosed to the Department not merely during the assessment proceedings but in the return of income.
10. When we examine the facts of the present case, we notice that assessee did not furnish any evidence about identity of the creditor or of the broker through whom it was claimed that cheques were received as advance against alleged purchase of the goods to be imported by the assessee. If same broker is providing cheques to the assessee as advance against purchase to be made by his client, he should necessarily submit a covering letter and place order for purchase. There should be details about Ph. No. of the alleged purchaser, or of the broker. In the present case, there is no identification detail either of the alleged purchaser or of the broker. Further, there are no details about alleged purchase order. Further, we notice that in spite of expiry of so many years, since this money was allegedly received by the assessee, there is neither sale of goods to the party nor refund of money. There is also no evidence that assessee had imported the goods for being supplied to the alleged purchaser as claimed in the explanation. Thus, explanation furnished by the assessee cannot be said to be substantiated. It is apparently vague, fanciful and without any foundation or basis. In respect of second condition, in explanation-1(B), we are of the view that explanation furnished by the assessee is not bona fide. Assessee explained that money was received from a purchaser. It was further claimed that it was received through a broker and for import of material. In addition to this, it was further claimed that due to change in market rate of the goods the purchaser refused to accept stock for which the order was placed by him. This explanation is bundle of contradictions leading to the belief that it is false. There is no evidence that the assessee really made any attention to import any goods from Singapore. The details of the goods for which order was placed were not furnished, the rates at which goods were sought to be purchased are not provided. The details that market has changed to the detriment of the purchaser are also not provided. Any correspondence from purchaser regarding refusal to purchase the goods as per purchaser’s order was also not provided. The detail as to amount of loss either to the purchaser of goods, or to the assessee was also not provided. The variation in prices which would have caused the loss are also not provided. The detail of any attempt to settle down the dispute for the return of money was also not provided. In fact there is no claim that there was any attempt to the claim. No party having paid money to the assessee for purchase of the goods would forgo its money if it cancels the order. It would prefer to settle down on an amount by bearing a burden of money as loss and not forgoing entire sum and totally disappearing from the scene. The ingredient about a bona fide claim is that the assessee should be able to show or prove some intermediate steps in the whole process of transaction. If it is not able to give evidence in respect of any step in the whole process of transaction then it can be said that explanation furnished by the assessee is not bona fide. It is nothing but a bald claim. There is nothing to show that the details of the funds as claimed by the assessee have actually come from the alleged purchaser or of alleged transaction or of allege failure of the transaction. Thus the explanation furnished by the assessee cannot be treated as bona fide.
11. Regarding the third condition that all the facts relating to the explanation and computation of income has been disclosed by the assessee, we are of the view that in the present case details of the identity of the creditor or of the broker or of the terms and conditions of the purchase or of attempts to import the goods from Singapore, or of attempt to return the money and or, of attempt to settle the dispute have not been provided. In view of these all the three ingredients laid down in explanation 1(B) are fully satisfied and, therefore Assessing Officer can deem the addition as income in respect which the assessee has concealed the income or furnished inaccurate particulars of income. As a result, we hold that penalty is leviable under Explanation 1(B) to Sec. 271(1)(c) in respect of addition of Rs.7 lakh. Accordingly, we confirm penalty in respect of this addition.
12. In the result, appeal filed by the assessee is partly allowed.
Order pronounced in Open Court on 28/05/2010