Whether, even if no incriminating document is found during the search but assessee makes some voluntary disclosure, penalty is still warranted?

Abdul Razzak A Rajkotia Vs ACIT (ITAT Mumbai)- There is no material worth the name found at the time of search divulging the undisclosed income earned by the assessee by way of unrecorded sales. Seized material relates to unrecorded sale by the `Compay’ and that too for a period of 18 days from 0 1.04.2003 to 18.04.2003. Neither there is any mention of such seized material containing the unrecorded sales of the assessee’s proprietorship concern, nor it is the case of the Assessing Officer that there was anything else to show that the assessee was also indulging in recording sales partly only.

Here also the assessee, as a group, surrendered a particular sum, which was honoured by duly offering the additional income for taxation by filing revised returns containing such income. It is further important to note that it is a case of search and there is no reference to any other undisclosed income having been earned by the assessee or any undisclosed assets in the shape of stock or otherwise fund to have been possessed at the time of search. The offering of Rs.8,00,000 by the assessee in the shape of additional income in these six years was a voluntary surrender uncoupled with any adverse material which could form the basis of concealing of income or furnishing of inaccurate particulars of income by the assessee. In our considered opinion, no case has been made out for the levy of penalty u/s 271(1)(c).

IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES “A”, MUMBAI

Before Shri R.S. Syal, AM and Shri V.Durga Rao, JM

ITA Nos. 5198, 5199, 5200, 5201, 5202 & 5203/Mum/2009

Asst. Years- 2000- 2001, 2001- 2002, 2002- 2003,

2003- 2004, 2004- 2005 & 2005- 2006

Shri Ashok N. Mishra, 601, Suman Tower, Lokhandwala Complex, Andheri (West), Mumbai- 400053. PAN : AADPM2660D.	Vs.	The Asst. Commissioner of Income-tax Circle 9, Mumbai.
		(Respondent)
(Appellant)

 ITA Nos. 5197, 5196, 5195, 5194 & 5193/Mum/2009

Asst. Years 2000-2001, 2001-2002, 2002-2003,

2003-2004 & 2004-2005

Shri Abdul Razzak A. Rajkotia, 2nd Taj Building, A.K. Marg Gowalia Tank, Mumbai- 400036. PAN :ADYPR9972K.	Vs.	The Asst. Commissioner of Income-tax Circle 9, Mumbai.
		(Respondent)
(Appellant)

 Appellants by : Shri H.S.Raheja
Respondent by : Shri Shravan Kumar

O R D E R

Per Bench :

This batch of eleven appeals consisting of six by Shri Ashok N.Mishra for assessment years 2000-2001 to 2005-2006 and five by Shri Abdul Razzak A.Rajkotia for assessment years 2000-2001 to 2004-2005 are directed against the confirmation of penalty u/s 271(1)© of the Income-tax Act, 1961. Since some of the issues raised in these appeals are common, we are, therefore, proceeding to dispose them off by this consolidated order for the sake of convenience.

Shri Ashok N.Mishra : ITA Nos. 5198 to 5203/Mum/2009 :

2. Briefly stated the facts of the case are that the assessee is a proprietor of M/s.Sweta Agencies which was dealing in purchase and sale of wafers, farsan, sweets and bakery products produced by M/s.Camy Wafers (India) Private Limited. A search and seizure action was taken u/s. 132 on the assessee’s premises on 25.11.2005. During the course of search at the residence of assessee, 19 pages as per Annexure A-2 were seized. These seized papers contained detail of sale from 01.04.2003 to 18.04.2003 by M/s. Camy Wafers (India) Private Limited, in which the present assessee has a stake, to the outlets of the present assessee and that of Sh. Abdul Razzack, who is the other assessee in the present batch of appeals, who also happened to have a stake in the company. In response to notice u/s. 153A the assessee filed return of income on 30.11.2009 for A.Y. 2000-01 declaring total income of Rs.2,41,009 as against the income shown in the original return at Rs. 1,41,009. The Assessing Officer noted from the seized papers that from Colaba, Mumbai outlet, M/s.Camy Wafers (India) Private Limited (hereinafter called the `Company’) total cash sales for the above period of 18 days have been made at Rs. 10,68,300 whereas sales shown by the `Company’ in the books were at Rs.5,35,934. It was thus seen that there was suppression of sales to the tune of Rs.5,32,366 for the above period. Similarly the A.O. noted that the assessee had made sales of Rs.5,87,500 but the sales were shown in the books at Rs.2,68,754. The total suppression of sales for the period 01.04.2003 to 18.04.2003 was found at Rs.8,51, 112. During the course of search proceedings, statement of the assessee was recorded and in answer to question no.5 it was stated that 75% of the sale proceeds were received with sales cash memo by omitting certain cash sales and balance average 25% of sale proceeds in cash every day were returned back to the company daily and not recorded in the books of Company. The assessee also admitted that the use of computer billing software was done since July 2002 and prior to that billing was done manually. Practice of manipulation of sales for the remaining period was admittedly almost similar. During the course of assessment proceedings, the assessee submitted that the sales effected from 01.04.2003 to 18.04.2003 were only for a promotional campaign of their products on the occasion of anniversary falling on 18^th April, which resulted into an extra sale. The assessee filed returns u/s. 153A for assessment years 2000-200 1 to 2005-2006 offering additional sales at around 33% shown in the books and profit thereon as under:-

Sr. No.	Asst. Year	Additional        Sales (Rs.)	Additional profit (Rs.)
1.	2000-2001	28,00,000	1,00,000
2.	2001-2002	30,05,000	1,00,000
3.	2002-2003	35,00,000	2,00,000
4.	2003-2004	47,00,000	1,00,000
5.	2004-2005	59,00,000	1,50,000
6.	2005-2006	61,00,000	1,50,000
		2,60,05,000	8,00,000

3. On going through the details of additional sales and expenses it was noticed by the A.O. that the assessee had debited bonus, incentive, packing material and other expenses which were not verifiable. The A.O. made addition for such expenses at Rs. 9,000, Rs.9,000, Rs. 39,000, Rs. 1,23,000, Rs. 1,47,000 and Rs. 1,56,000 respectively for assessment years 2000-2001 to 2005-2006. As the assessee had earlier filed return declaring income of Rs. 1,41,009 for A.Y. 2000-0 1 and now showed additional income on sales at Rs.1,00,000, the Assessing Officer made further addition of Rs.9,000 towards expenses thereby computing total taxable income at Rs.2,50,010. Similar types of additions for dis allowance of expenses for made other years as well. Apart from that the explanation offered by the assessee in respect of sales for the period 01.04.2003 to 18.04.2003 amounting to Rs.8,51, 112 was not accepted by the A.O. as these were not accounted for in the books. He estimated gross profit at Rs. 1,53,200 and added the same to the total income of the assessee for assessment year 2004-2005. The assessee preferred appeals before the learned CIT(A), who held that the dis allowance of the expenses made by the A.O. was not sustainable. Further the Assessing Officer’s stand for making separate addition for assessment year 2004-2005 in respect of out of books sales made for the period 01.04.2003 to 18.04.2003 was also not sustained as in the opinion of the learned CIT(A) the assessee came out clean by making substantial disclosure in terms of undisclosed sales, turnover as well as profit. He, therefore, deleted all the additions made by the Assessing Officer in all the years. On a specific question from the bench, the learned A.R. admitted that the appeals filed by the Revenue against the deletion of additions in all above years stand dismissed by the Tribunal. The net effect of this development is that only the amount offered by the assessee totalling to Rs.8,00,00, as reproduced in the table above, remained included in the total income of the assessee for assessment years 2000-2001 to 2005-2006 besides the income originally disclosed in the returns filed prior to search for these years and resultant there is no other addition which has been sustained in the appellate proceedings.

4. The Assessing Officer observed that the income of Rs. 1,00,000, as offered in the return u/s. 153A for assessment year 2000-2001, was concealed income of the assessee. He, therefore, imposed penalty of Rs. 29,053 u/s.271(1)(c) of the Act. Similarly penalty for assessment year 200 1-2002 to 2005-2006 was imposed at Rs. 39,370, Rs. 73,134, Rs. 37,301, Rs. 53,247 and Rs. 48,022 respectively. The assessee remained unsuccessful before the learned CIT(A) in relation to the appeals preferred against the penalty orders passed by the A.O. u/s.271(1)(c) for the years in question. That is how these appeals have come up before us.

5. We have heard the rival submissions at length and perused the relevant material on record. It is noticed that the assessee offered additional profit of Rs.8,00,000 spread over assessment year 2000-2001 to 2005-2006 on the basis of statement made at the time of search. Only 19 pages, marked as per Annexure A2, were seized in the search action, which in the opinion of the Assessing Officer contained unrecorded sales by the `Company’ for the period 01.04.2003 to 18.04.2003. Copies of these 19 pages are available at pages 29 on wards of the paper book. Only four pages are relevant which have been numbered as 30 to 33 of the paper book containing some date-wise details and at some places the word `Sales’ has also been mentioned. The other pages contain only rough work or some mathematical exercise done by a student. According to the assessee this rough work was done by his daughter who was studying at the relevant time. Apart from these four pages numbering 30 to 33, there is nothing in the assessment order also, which contradicts the assessee’s version about the other pages containing nothing incriminating. It can be seen that there is no reference to such other pages in the assessment order. Even when we go through the statement of the assessee recorded at the time of search, it can be seen that the mention is only to these four pages and the Assessing Officer has also determined the quantum of undisclosed sales for the period 01.04.2003 to 18.04.2003 on the basis of the entries recorded on such page vis-à-vis that found in the books of account of the `Company’. At the very outset, it is necessary to mention that these four pages allegedly contain details of suppressed sales by the `Company’, which is a distinct entity, for the period 01.04.2003 to 18.04.2003. There is no reference to any unaccounted sale made by the assessee’s proprietorship concern on these pages. Thus it can be seen that except for relying on the statement made by the assessee for which the above referred additional income was declared in the returns filed u/s. 153A, there is no mention of any material indicating that the assessee, in fact, indulged into having some part of the total sales as unrecorded. It is the case of the assessee that the Department obtained total surrender of Rs. 1 crore, which was to be declared in the hands of assessee, Shri Abdul Razzak A. Rajkotia, the other assessee in the present set of appeals and the`Company’. The learned A.R. stated that in order to comply with the total surrender of Rs. 1 crore, the present assessee declared a sum of Rs.8,00,000 by way of splitting into six years. When we view the facts in totality it becomes apparent that apart from the statement of the assessee, which in turn is based on unrecorded sale by `Company’ for 18 days starting from 01.04.2003 to 18.04.2003, there is no material against the assessee to indicate that he had, in fact, made any sales outside the books of account, on which profit was earned to the extent declared in the returns. In order to be caught within the mischief of section 271(1)(c) it is necessary that there should be some concealment of particulars of income or furnishing of inaccurate particulars of such income.

–

6. The learned A.R. has relied on the order passed by the Mumbai Bench of the Tribunal in Narendra J.Ashar HUF Vs. DCIT in ITA No. 1757/Mum/2009 etc. in which the penalty has been deleted under similar circumstances vide order dated 20.08.2010. In that case also certain loose papers were found. When the assessee was called upon to produce the parties referred to on these loose papers the assessee admitted that those were non-existent and goods mentioned therein were not actually produced but bills were arranged to inflate the purchases. The assessee offered certain amount for these years as his unaccounted income. It was also stated that since goods which were sold at higher price were booked at lower price, the difference on account of booking of the sale at the higher price was made up by the local unsupported purchases at higher price. The Tribunal noted that earlier a sum of Rs.214.7 lakhs represented the amount reflected in the ledger accounts of the eleven parties from whom local purchases were made whereas the disclosure was made of Rs.2.50 crores. The filed revised returns with income of Rs.268.34 lacs. Since no inquiry was made into the method of calculation of such additional income, the Tribunal came to hold that penalty was not sustainable as the offer of additional income was voluntary and not provoked by any adverse material after the assessees were cornered.

7. Adverting to the facts of the instant case we find that there is no material worth the name found at the time of search divulging the undisclosed income earned by the assessee by way of unrecorded sales. Seized material relates to unrecorded sale by the `Com pay’ and that too for a period of 18 days from 0 1.04.2003 to 18.04.2003. Neither there is any mention of such seized material containing the unrecorded sales of the assessee’s proprietorship concern, nor it is the case of the Assessing Officer that there was anything else to show that the assessee was also indulging in recording sales partly only. Here also the assessee, as a group, surrendered a particular sum, which was honoured by duly offering the additional income for taxation by filing revised returns containing such income. It is further important to note that it is a case of search and there is no reference to any other undisclosed income having been earned by the assessee or any undisclosed assets in the shape of stock or otherwise fund to have been possessed at the time of search. The offering of Rs.8,00,000 by the assessee in the shape of additional income in these six years was a voluntary surrender uncoupled with any adverse material which could form the basis of concealing of income or furnishing of inaccurate particulars of income by the assessee. In our considered opinion, no case has been made out for the levy of penalty u/s 271(1)(c). We, therefore, set aside the impugned orders for these six years and order for the deletion of penalty. Before parting with these appeals, we would like to make it clear that the observations made above and the findings so recorded by us should not be considered to have any bearing on taking a decision on the question of penalty in the hands of `Company’, for which the facts are required to be examined independently.

8. In the result, these six appeals are allowed.

Shri Abdul Razzak A.Rajkotia : ITA Nos. 5193 to 5197/Mum/2009 :

9. This assessee is running a proprietorship concern called as `Camy Wafers Company’ dealing in manufacture and sale of Wafers, farsan, sweets and bakery products. He is also a director in the `Company’ along with Sh. Ashok Mishra, whose appeals have been disposed of above. Search was conducted simultaneously on this assessee’s premises also. In response to notice u/s 153A, the assessee furnished returns declaring additional income of Rs. 20.50lacs, Rs. 15.50 lacs, Rs. 20.50 lacs, Rs. 16.00 lacs and Rs.5.00 lacs on account of profit on unaccounted sales in assessment years under appeal. This fact is coming up from para no. 8 of the assessment order in each year. Here it is important to note that apart from the above, the following facts need to mention which have been incorporated in the assessment orders for all the years in paras 5 to 7. Para no.5 of the assessment order talks about certain jewellery found at the time of search some part of which was admittedly purchased out of undisclosed income. Para no.6 of the assessment order refers to receipts of Rs.25 lakhs executed by Shri Harun A. Yusuf dated 25^th October, 2002. It was stated by the assessee before the AO that this amount was given to Shri Harun A.Yusuf with the intention to buy some property but the deal could not be finalised and the amount given in cash was received by the assessee within a week’s time. It is also mentioned in the assessment order that the amount was given out of assessee’s accumulated balance of undisclosed income pertaining to assessment year 2000-2001 to 2003-2004 which was offered to tax. Para no.7 of the assessment order refers to taking over of premises Jaji Niwas, 55, S.B.S.Road, Colaba, Mumbai-5 by the assessee from the occupants vide deed dated 26.08.2003 where he started baking shop. The assessee had issued 5 post dated cheques to the occupants worth Rs.35 lakhs (as per Panchnama dated 21.1.2006 Annexure-III and Annexure A-1, Page 115). As per the assessment orders, it was stated by the assessee that this was cash payment of Rs.35 lakhs for acquiring tenancy right of the said premises and the said payment was made out of his accumulated income in the year relating to assessment year 2000-2001 to 2004-2005 which was offered to tax in the return of income filed in response to notice u/s. 153A. As the assessee had declared the above referred additional income on account of profit on unaccounted sales in the returns filed, the AO did not make any separate addition on account of his discussion in paras 5 to 7 of the assessment orders. The A.O. made dis allowance for expenses and for the profit on unrecorded sales for the A.Y. 2004-05, in the same way in which it was been done in the case of Sh. Ashok N. Misra. The assessee preferred appeals against the additions so made in the assessment and the ld. CIT(A) deleted all the additions made by the AO. Thus the total income of the assessee remained at the level at which it was disclosed by the assessee in the returns filed u/s 153A including the above referred additional income for the five assessment years under consideration. Thereafter, penalty was imposed by the AO u/s 271(1)(c) of the Act for these years, which came to be upheld in the first appeals. That is how the present appeals have come up before us.

10. Both the sides are in agreement that facts and circumstances in the case of Shri Abdul Razzak A.Rajkotia, the present assessee, are similar to those of Shri Ashok N.Mishra in so far as the addition on account of profit on undisclosed sales is concerned. Here also it is important to mention that no incriminating material was found at the time of search divulging the assessee not recording sales fully. In that view of that matter and in the light of our above discussion in the case of Sh. Ashok N Misra above, we hold that no penalty is exigible u/s 271(1)(c) in respect of the profit on unrecorded sales.

11. However it is relevant to note that the assessee was found in the possession of unexplained jewellery as discussed in para 5 of the assessment order. On a pertinent query, the learned A.R. admitted that this was the jewellery found at the time of search which was partly purchased outside the books of account to the extent stated in the order. Even though no separate addition on this issue was made by the AO because of his telescoping the trading addition in to such separate additions on account of jewellery and other items, but once the trading addition is deleted, the substance of the other separate additions would come to surface. In our considered opinion once a particular item of asset is found at the time of search which is admitted to have been purchased from undisclosed sources it becomes a clear cut case for the imposition of penalty u/s 271(1)© to that extent. We, therefore, hold that penalty u/s.271(1)(c) be calculated at the rate of 100% of the amount of tax on the amount of undisclosed jewellery found at the time of search.

12. Coming to paras 6 and 7 of the assessment orders, it becomes clear that as per para 6, the assessee gave a sum of Rs. 25 lakhs to Shri Harun A.Yusuf for buying some property but the deal did not finalise and the amount came back to the assessee. This contention raised at the assessment stage has not been controverted by the AO. Further there is no material to indicate that this sum was spent elsewhere. Thereafter, as per para 7, a sum of Rs.35 lakhs was given in cash to certain occupants who were using the premises Jaji Niwas which was taken by the assessee for carrying on his bake shop. It shows that the sum of Rs.25 lakhs which was earlier given to Shri Harun A.Yusuf came back to the assessee and then a sum of Rs. 35 lakhs went to earlier tenants who were occupying the premises, Jaji Niwas which was thereafter taken over by the assessee for carrying on the business. In our considered opinion penalty is rightly exigible on such amount of Rs. 35.00 lacs as well. To sum up we confirm the penalty u/s.271(1)(c) on the amount of undisclosed gold jewellery and on sum of Rs. 35 lakhs at the rate of 100% of the amount of tax sought to be evaded and order for the deletion of the remaining penalty.