M/s. Acid & Chemicals Co.,, Ahmedabad v. The Income tax Officer, Ward-12(2),, Ahmedabad

ITA 2159/AHD/2007 | 2001-2002
Pronouncement Date: 01-10-2010 | Result: Allowed

Appeal Details

RSA Number 215920514 RSA 2007
Bench Ahmedabad
Appeal Number ITA 2159/AHD/2007
Duration Of Justice 3 year(s) 4 month(s) 10 day(s)
Appellant M/s. Acid & Chemicals Co.,, Ahmedabad
Respondent The Income tax Officer, Ward-12(2),, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 01-10-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted A
Tribunal Order Date 01-10-2010
Date Of Final Hearing 23-09-2010
Next Hearing Date 23-09-2010
Assessment Year 2001-2002
Appeal Filed On 21-05-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A AHMEDABAD BEFORE SHRI MAHAVIR SINGH JUDICIAL MEMBER AND SHRI D. C. AGRAWAL ACCOUNTANT MEMBER ITA NO.2159-2160/AHD/2007 ASSESSMENT YEARS:2001-02 & 2003-04 DATE OF HEARING:23.9.10 DRAFTED:23.9.10 M/S. ACID & CHEMICAL CO. 31 ANANT INDUSTRIAL ESTATE RAKHIAL AHMEDABAD PAN NO.AGFA5481D V/S . COMMISSIONER OF INCOME-TAX (APPEALS)-XVIII AHMEDABAD (APPELLANT) .. (RESPONDENT) ASSESSEE BY :- SHRI K.H. SHAH AR REVENUE BY:- SHRI R.K. DHANESTA DR O R D E R PER MAHAVIR SINGH JUDICIAL MEMBER:- THESE TWO APPEALS BY THE ASSESSEE ARE ARISING OUT OF THE ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-XVIII AHMEDAB AD IN APPEAL NOS. CIT(A)- XVIII/69-70/2006-07 DATED 29-03-2007. THE ASSESSMEN TS WERE FRAMED BY ITO WARD-12(2) AHMEDABAD U/S.143(3) OF THE INCOME-TAX ACT 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDERS DATED 21-03-2006 F OR ASSESSMENT YEAR 2003-04. THE PENALTY UNDER DISPUTE WAS LEVIED BY ITO WARD-12(2) AHMEDABAD U/S.271(1)(C) OF THE ACT VIDE HIS ORDER DATED 22-03-2006. FIRST WE WILL ASSESSEES APPEAL IN ITA NO.2159/AHD/ 2007. 2. THE ONLY ISSUE IN THIS APPEAL OF ASSESSEE IS AGA INST THE ORDER OF CIT(A) CONFIRMING THE LEVY OF PENALTY U/S.271(1)(C) OF THE ACT. FOR THIS ASSESSEE HAS RAISED THE FOLLOWING TWO EFFECTIVE GROUNDS :- ITA NO.2159-60/AHD/2007 A.YS 2001-02 & 2003-04 M/S. ACID & CHEMICAL CO. V. CIT(A)-XVIII ABD PAGE 2 1) THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACT S IN HOLDING THE PENALTY IMPOSED BY THE LEARNED ITO JUSTIFIED AMOUNTING TO R S.1 48 680/- ON ACCOUNT OF VARIOUS DISALLOWANCES. 2) THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT CONSIDERING THE FACTS UNDER APPEAL FRESH BUT IN TAKING THE VIEW OF THE DECISION OF HIS PREDECESSOR FOR A.Y. 2000-01. 3. AT THE OUTSET LD. COUNSEL FOR THE ASSESSEE SHRI K.H. SHAH STATED THAT THE TRIBUNAL IN QUANTUM APPEAL IN ASSESSEES OWN CASE I N ITA NO.1292/AHD/2005 DATED 11-07-2005 FOR ASSESSMENT YEAR 2001-02 HAS SET ASID E THE QUANTUM ADDITION VIDE PARA-4 AS UNDER:- 4. AT THE TIME OF HEARING BEFORE US BOTH THE PARTI ES FAIRLY AGREED THAT THE ISSUE UNDER CONSIDERATION IS PURELY CONSEQUENTIAL TO THE ACCEPTANCE OF THE CASH CREDITS WHICH IS PENDING BEFORE THE APPELLATE TO BE RE-ADJUDICATED IN ACCORDANCE WITH THE OUTCOME OF THE APPEAL WITH REGA RD TO ACCEPTANCE OF CASH CREDITS IN THE EARLIER YEARS. THE SUBMISSIONS OF TH E ASSESSEE ARE QUITE FAIR AND REASONABLE. WE THEREFORE ACCEPT THE SAME AND SET AS IDE THE ORDER OF THE AUTHORITIES BELOW WITH REGARD TO DISALLOWANCE OF IN TEREST AMOUNTING TO RS.4 24 800/-. THE MATTER IS RESTORED BACK TO THE F ILE OF THE AO WITH THE DIRECTION THAT HE WILL RE-ADJUDICATED THE SAME IN A CCORDANCE WITH THE OUTCOME OF THE APPEAL WITH REGARD TO ADDITION FOR CASH CRED ITS ON WHICH THE INTEREST IS DISALLOWED I.E. WHATEVER CASH CREDIT IS ACCEPTED AS GENUINE BY THE APPELLATE AUTHORITY IN THE YEAR OF CREDIT THE INTEREST THEREO N WILL BE ALLOWED AND WHATEVER CREDIT IS NOT ACCEPTED THE INTEREST THERE ON WILL BE DISALLOWED. THE AO WILL PASS FRESH ORDER AFTER ALLOWING AN OPPORTUN ITY OF BEING HEARD TO THE ASSESSEE. IN VIEW OF THESE LD. COUNSEL FOR ASSESSEE STATED T HAT THIS ISSUE NEEDS RE- ADJUDICATION AT THE LEVEL OF ASSESSING OFFICER AND PENALTY CANNOT BE SUSTAINED AT THIS STAGE. 4. WE HAVE HEARD RIVAL CONTENTIONS ON THIS ISSUE AN D FIND THAT THIS PENALTY CANNOT SURVIVE AT THIS STAGE. ACCORDINGLY WE DELETE THE P ENALTY. HOWEVER ASSESSING OFFICER IS DIRECTED TO RE-INITIATE THE PENALTY PROCEEDINGS IN CASE HE COME ACROSS ANY CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE P ARTICULARS OF INCOME AS THE CASE MAY BE IN THE FRESH ASSESSMENT PROCEEDINGS. THE AO WILL INITIATE THE PENALTY AS PER THE PROVISION OF LAW. ACCORDINGLY ASSESSEES ISSUE IS ALLOWED FOR STATISTICAL PURPOSES. NOW COMING TO ASSESSEES APPEAL IN ITA NO.2160/AHD/ 2007. ITA NO.2159-60/AHD/2007 A.YS 2001-02 & 2003-04 M/S. ACID & CHEMICAL CO. V. CIT(A)-XVIII ABD PAGE 3 5. THE ONLY ISSUE IN THIS APPEAL OF ASSESSEE IS AGA INST CONFIRMATION OF LEVY OF PENALTY BY CIT(A) U/S.271(1)(C) OF THE ACT ON THE F OLLOWING GROUNDS:- 1) THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACT S IN HOLDING THE DISALLOWANCE OF CLAIM OF INTEREST AMOUNTING TO RS.4 88 038/- MADE BY THE LEARNED ITO AS JUSTIFIED. 2) THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN HOLDING THE DISALLOWANCE OF RS.37 240/- OUT OF DEPRECIATION MAD E BY THE LEARNED ITO AS JUSTIFIED. 3) THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN HOLDING THE DISALLOWANCE OF RS.4 331/- OUT OF TELEPHONE EXP & R S.1902/- OUT OF DEPRECIATION ON SCOOTER & CAR AS JUSTIFIED. 6. AT THE OUTSET THE LD. COUNSEL FOR THE ASSESSEE AS WELL AS LD. DR FAIRLY STATED THAT THIS DISALLOWANCE OF INTEREST ON WHICH PENALTY IS LEVIED AND CONFIRMED BY CIT(A) PERTAINS TO THE ISSUE RAISED IN EARLIER YEAR WHERE IN THE TRIBUNAL IN ASSESSMENT YEAR 2000-01 IN ITA NO.157/AHD/2006 VIDE ORDER DATED 23-04-2010 HAS CONFIRMED THE LEVY OF PENALTY ON THE SAME ISSUE INCLUDING THE CAS H CREDITS ON WHICH INTEREST WAS PAID AS WELL AS DISALLOWANCE OF OTHER EXPENSES LIKE DEPRECIATION. BOTH THE SIDES FAIRLY AGREED THAT THE ISSUE IS EXACTLY IDENTICAL ON FACTS . ACCORDINGLY THE ORDER PASSED BY THE TRIBUNAL IN ASSESSMENT YEAR 2000-01 AS UNDER:- THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF LD. CIT(A) IN CONFIRMING LEVY OF PENALTY. IT HAS RAISED FOLLOWING GROUNDS :- 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN HOLDING THE IMPOSITION OF PENALTY ON CASH CREDIT OF RS. 30 LACS SUSTAINABLE. 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE IMPOSITION OF PENALTY ON PAYMENT OF INTEREST OF RS. 5 48 000/- ON DEPOSITS WHICH WERE ASSESSED AS CASH CREDIT. 3. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS ON NOT CONSIDERING VARIOUS SUBMISSIONS MADE BY THE APPELLANT DURING TH E COURSE OF HEARING WITH THE LD. ITO AND DURING THE COURSE OF A PPEAL PROCEEDINGS. 2. THE FACTS OF THE CASE ARE THAT ASSESSMENT WAS CO MPLETED UNDER SECTION 143(3) ON 21.10.2002 ON A TOTAL INCOME OF R S.36 24 261/- AS AGAINST RETURNED INCOME OF RS.43 987/-. THE AO PROPOSED THE FOLLOWING ADDITIONS :- 1. UNEXPLAINED CASH CREDITS U/S 68 RS.30 00 000/- 2. INTEREST EXPENSES RS. 5 40 000/- 3. EXCESS DEPRECIATION RS. 40 271/- ITA NO.2159-60/AHD/2007 A.YS 2001-02 & 2003-04 M/S. ACID & CHEMICAL CO. V. CIT(A)-XVIII ABD PAGE 4 3. THE LD. A.O. IN THE COURSE OF ASSESSMENT PROCEED INGS FOUND THAT ASSESSEE IS TRADING IN ACID AND CHEMICALS. IT HAD C REDITED DEPOSITS OF RS.30 00 000/- IN THE BOOKS OF ACCOUNTS AS ON 1.4.9 9 IN THE NAMES OF FOLLOWING FAMILY MEMBERS AS UNDER :- AMOUNT DATE OF DEPOSIT 1. BHARTIBEN JAGDISHBHAI PATEL RS.7 50 000/- 01.04. 1999 2. NEETABEN UMESHBHAI PATEL RS.7 50 000/- 01.04.199 9 3. PROVINABEN RAMESHBHAI PATEL RS.5 00 000/- 01.04. 1999 4. DIPTIBEN HASMUKHBHAI PATEL RS.5 00 000/- 01.04.1 999 5. SHARMILABEN DINESHBHAI PATEL RS.5 00 000/- 01.04 .1999 THE AO ISSUED SUMMONS TO THESE PERSONS BUT NONE OF THEM ATTENDED BEFORE THE AO AND REPLIED THAT THEIR REPRESENTATIVE IS BUS Y IN FILING THE RETURNS. HOWEVER ON SUBSEQUENT OCCASION ABOVE LADIES APPEA RED BEFORE THE AO. THEIR STATEMENTS UNDER SECTION 131 WERE RECORDED. T HEY IN COMMON ACCEPTED FOLLOWING FACTS :- -THAT THE ACCOUNTING OF THE FIRM WAS HANDLED ENTIR ELY BY SHRI JAGDISH SOMBHAI PATEL PARTNER. -THAT SHRI JAGDISH SOMBHAI PATEL WAS THE ONLY PERS ON WHO COULD OFFER ANY EXPLANATION ABOUT THE CASH CREDITS. -THAT WHATEVER EXPLANATION WAS OFFERED BY HIM WOULD BE BINDING ON ALL OF THEM. STATEMENT OF SHRI JAGDISH PATEL WAS ALSO RECORDED W HO ADMITTED THAT ENTIRE AMOUNT OF 30 LACS WAS UNACCOUNTED INCOME OF THE FIR M BUT EARNED DURING THE PERIOD 1987-88 TO 2000-01. THE MANNER IN WHICH SUCH INCOME WAS EARNED WAS ALSO EXPLAINED. IT WAS STATED BY SHRI JAGDISH P ATEL THAT INCOME WAS EARNED ON COMMISSION BASIS. DURING THE COURSE OF BU SINESS THE PARTNERS OF THE FIRM HAD ACTED AS MEDIATOR ON NUMBER OF OCCASIO NS BETWEEN THE BUYERS AND THE SELLER AND EARNED COMMISSION FROM SUCH DEAL S. THIS WAS NOT ACCOUNTED FOR AND HE WAS UNABLE TO GIVE YEAR-WISE B IFURCATION. LD. CIT(A) CONFIRMED THE ADDITION. THE MATTER WENT TO THE TRIB UNAL WHICH VIDE ITS ORDER IN ITA NO.508/AHD/2003 FOR ASST. YEAR 2000-01 DATED 2 7.8.2004 ALSO CONFIRMED THE ADDITION. IN THIS REGARD IT IS RELEVA NT TO REFER TO PARA 7 TO 10 FROM THE ORDER OF THE TRIBUNAL AS UNDER :- 7. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF B OTH THE PARTIES AND PERUSED THE MATERIAL PLACED BEFORE US. THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT AS PER STATEMENT OF SHR I JAGDISH SOMABHAI PATEL THE SUM OF RS.30 LACS IS UNACCOUNTE D INCOME OF THE PRECEDING YEAR. THEREFORE THE SAME CANNOT BE TAXED IN THE YEAR UNDER CONSIDERATION. HOWEVER WE FIND THAT THE REVENUE HA S NOT MADE ANY ADDITION ON THE BASIS OF STATEMENT OF SHRI JAGDISH SOMABHAI PATEL. THE ASSESSING OFFICER HAS MADE THE ADDITIO N OF RS 30 LAKHS BECAUSE OF UNEXPLAINED CREDIT IN THE NAME OF FIVE CREDITORS IN THE ASSESSEE'S BOOKS OF ACCOUNTS DURING THE ACCOUNTI NG YEAR RELEVANT TO THE ASST. YEAR UNDER CONSIDERATION. COMING TO THE CONTENTION OF THE LD. COUNSEL THAT SINCE THE CREDIT WAS ON THE 1ST DAY OF THE ACCOUNTING YEAR SEC 68 WOULD NOT BE APPLICABLE WE FIND THAT THE HO N'BLO JURISDICTIONAL ITA NO.2159-60/AHD/2007 A.YS 2001-02 & 2003-04 M/S. ACID & CHEMICAL CO. V. CIT(A)-XVIII ABD PAGE 5 HIGH COURT AS WELL AS HON'BLE APEX COURT HAVE HELD AGAINST THE ASSESSEE IN THIS RESPECT. IN THE CASE OF MANSURALI VALLBHANI DUDHANI (SUPRA) THE ASSESSING OFFICER HAS MADE THE ADDIT ION OF RS.72 000/- FOR UNEXPLAINED CASH CREDITS. THE SAME WAS SUSTAIN ED BY THE AAC. HOWEVER THE ITAT DELETED THE ADDITION ON THE GROUN D THAT THE CREDIT WAS MADE ON THE 1 ST DAY OF THE YEAR OF ACCOUNT AND THE ASSESSEE COULD NOT HAVE EARNED SO MUCH AMOUNT ON THE 1 ST DAY OF THE YEAR OF ACCOUNT. ON APPEAL BY THE REVENUE THE HON. JURISDICTIONAL H IGH COURT REVERSED THE FINDING OF THE ITAT AND HELD THAT THE SUM OF RS .72 000/- SHOWN CREDITED IN THE CAPITAL ACCOUNT IS LIABLE TO BE ADD ED AS INCOME U/S 68 OF THE ACT. 8. THE HON'BLE APEX COURT ALSO CONSIDERED SIMILAR ARGUMENTS. IN THE CASE OF ORISSA CORPORATION P.LTD (SUPRA). AT PAGE 82 OF THE REPORTS. THEIR LORDSHIPS HAVE DISTINGUISHED THE PROVISIONS OF SEC. 68 IN THE INCOME-TAX ACT 1961 WITH ITS SIMILAR PROVISION IN THE INCOME-TAX A CT 1922 AND OBSERVED AT PAGE 82 OF THE REPORTS AS UNDER :- UNDER THE 1922 ACT WHERE A LARGE AMOUNT OF CASH W AS FOUND CREDITED ON THE VERY FIRST DAY OF THE ACCOUNTING YEAR AND CONSIDER ING THE EXTENT OF THE BUSINESS IT WAS NOT POSSIBLE THAT THE ASSESSEE EAR NED A PROFIT OF THAT AMOUNT IN ONE DAY THE AMOUNT COULD NOT BE ASSESSED AS THE INCOME OF THE YEAR ON THE FIRST DAY ON WHICH IT WAS CREDITED IN THE BOOKS . UNDER THIS SECTION EVEN IN SUCH A CASE THE UNEXPLAINED CASH CREDIT MIGHT BE A SSESSED AS THE INCOME OF THE ACCOUNTING YEAR FOR WHICH THE BOOKS ARE MAINTAI NED. SEE IN THIS CONNECTION THE OBSERVATION IN KANGA AND PALKHIWALA S INCOME-TAX SEVENTH EDICITION VOLI PAGES 609 AND 610. IN VIEW OF ABOVE DECISIONS OF THE HON. APEX COURT A S WELL AS JURISDICTIONAL HIGH COURT IT IS EVIDENT THAT SEC.68 IS APPLICABLE EVEN WHEN THERE IS CREDIT ON THE FIRST DAY OF THE ACCOUNTING YEAR. THE LD. COUNS EL FOR THE ASSESSEE HAS RELIED UPON THE DECISION OF HON. JURISDICTIONAL HIG H COURT IN THE CASE OF MITESH ROLLING MILLS (P) LTD. (SUPRA) TO SUPPORT HI S CLAIM THAT ADDITION U/S 68 CANNOT BE MADE WHEN THE CREDIT IS ON THE 1 ST DAY OF THE ACCOUNTING YEAR. HOWEVER WE FIND THAT THE FACTS IN THAT CASE WERE S LIGHTLY DIFFERENT. IN THAT CASE THERE WERE CREDITS IN THE BOOKS OF ACCOUNTS O F THE ASSESSEE WHICH WAS A PRIVATE LIMITED COMPANY AND HAD NOT COMMENCED THE BUSINESS. ON THAT FACT THE HON. JURISDICTIONAL HIGH COURT REMANDED THE MAT TER TO THE TRIBUNAL FOR FRESH CONSIDERATION. THEREFORE IN THAT CASE NO LA W HAS BEEN LAID THAT IF THERE IS A CREDIT ON THE 1 ST DAY OF THE ACCOUNTING YEAR SEC.68 WILL NOT BE APPL ICABLE. ON THE OTHER HAND THE HON. JURISDICTIONAL HIGH COU RT ONLY DIRECTED THE TRIBUNAL TO RE-ADJUDICATE THE MATTER CONSIDERING TH E FACT THAT WHEN THERE IS A CREDIT IN THE ASSESSEES BOOKS OF ACCOUNTS THE ASS ESSEE COMPANY HAS NOT EVEN COMMENCED THE BUSINESS. THE FACTS IN THE CASE OF THE ASSESSEE WERE ALTOGETHER DIFFERENT. THE ASSESSEE COMPANY IS ALREA DY RUNNING THE BUSINESS SINCE PAST SEVERAL YEARS. THEREFORE THE ABOVE DECI SION OF HON. JURISDICTIONAL HIGH COURT WOULD NOT BE OF ANY HELP TO THE ASSESSEE . 9. IT IS A SETTLED LAW THAT WHEN THERE IS A CREDIT IN THE ASSESSEES BOOKS OF ACCOUNTS THE BURDEN IS UPON THE ASSESSEE TO ESTABL ISH THE IDENTITY OF THE ITA NO.2159-60/AHD/2007 A.YS 2001-02 & 2003-04 M/S. ACID & CHEMICAL CO. V. CIT(A)-XVIII ABD PAGE 6 CREDITOR THE CREDITWORTHINESS OF THE CREDITOR AND GENUINENESS OF THE TRANSACTION. IN THIS CASE THE ASSESSEE HAS NOT BEE N ABLE TO DISCHARGE THE ABOVE BURDEN. IN FACT WHEN THE CREDITORS APPEARED BEFORE THE AO THEY DENIED HAVING ANY KNOWLEDGE ABOUT THE CREDITS IN TH EIR NAMES. THEREAFTER THE ASSESSEE HAS ALSO NOT PRODUCED ANY EVIDENCE TO ESTA BLISH THAT THE AMOUNT IS ACTUALLY DEPOSITED BY THE ABOVE CREDITORS AND HAS N OT GIVEN ANY DETAILS WITH REGARD TO THE CREDITWORTHINESS OF THE CREDITORS. TH EREFORE IN THIS CASE NEITHER THE CREDITWORTHINESS OF THE CREDITORS NOR THE GENUI NENESS OF THE TRANSACTIONS HAS BEEN PROVED. 10. THE LD. COUNSEL FOR THE ASSESSEE HAS FURTHER A RGUED THAT EVEN IF THE ASSESSEE IS UNABLE TO DISCHARGE THE BURDEN OF PROVI NG THE GENUINENESS OF THE CREDITS IT IS NOT NECESSARY THAT ADDITION SHOULD B E MADE U/S 68 BECAUSE SEC.68 GIVES DISCRETION TO THE AO TO MAKE SUCH ADDI TION OR NOT TO MAKE THE ADDITION BECAUSE THE WORD USED U/S 68 IS MAY AND NOT SHALL. IN SUPPORT OF THIS CONTENTION HE RELIED UPON THE DECISION OF HON . APEX COURT IN THE CASE OF SMT. P.K. NOORJAHAN AND ALSO OF THE GAUHATI HIGH CO URT IN THE CASE OF NEMI CHAND KOTHARI (SUPRA). WE FIND THAT IN THE CASE OF P.K.NOORJAHAN (SUPRA) THE FACTS WERE ALTOGETHER DIFFERENT. IN THAT CASE THE ASSESSEE WHO WAS MUSLIM LADY AGED ABOUT 20 YEARS AT THE RELEVANT TIME HAD PURCHASED AGRICULTURAL LAND FOR RS. 34 628/- FOR ASST. YEAR 1968-69. THE ASSESS ING OFFICER ACCEPTED THE ASSESSEES EXPLANATION WITH REGARD TO SOURCE OF ABO VE INVESTMENT PARTLY AND MADE THE ADDITION OF RS.32 628/-.WHEN THE MATTER RE ACHED TO THE TRIBUNAL THE ITAT DELETED THE ADDITION AND HELD THAT EVEN TH OUGH THE EXPLANATION ABOUT THE NATURE AND SOURCE OF PURCHASE WAS NOT SATISFACT ORY BUT IN THE FACTS AND CIRCUMSTANCES OF THE CASE IT WAS NOT POSSIBLE FOR THE ASSESSEE TO EARN THE AMOUNT INVESTED IN THE PROPERTY AND THAT BY NO STRE TCH OF IMAGINATION COULD THE ASSESSEE BE CREDITED WITH HAVING EARNED THIS IN COME IN THE COURSE OF THE ASSESSMENT YEAR OR WAS EVEN IN A POSITION TO EARN I T FOR A DECADE OR MORE. ON THE ABOVE FACTS THE HONBLE APEX COURT SUSTAINED T HE ORDER OF THE TRIBUNAL AND HELD THAT THE DISCRETION U/S.69 WAS NOT PROPERL Y EXERCISED BY THE INCOME- TAX OFFICER AND THE TRIBUNAL RIGHTLY DELETED THE AD DITION. HOWEVER THE FACTS IN APPEAL BEFORE US ARE ALTOGETHER DIFFERENT. THE ASSE SSEE IS A FIRM WHICH IS IN THE BUSINESS OF ACID AND CHEMICALS SINCE SEVERAL YE ARS. THERE WAS HUGE CREDIT OF RS.30 LAKHS IN THE ASSESSEES BOOKS OF AC COUNTS IN THE NAMES OF FIVE LADIES WHO ARE WIVES OR CLOSE RELATIVES OF THE PART NERS OF THE ASSESSEE FIRM. THE ABOVE CREDITORS APPEARED BEFORE THE ASSESSING O FFICER AND STATED THAT THEY ARE NOT AWARE OF ANY CREDIT IN THEIR NAMES IN THE BOOKS OF ACCOUNTS AND SHRI JAGDISH SOMABHAI PATEL PARTNER OF THE FIRM WO ULD BE ABLE TO EXPLAIN THE ABOVE CREDITS. WHEN THE STATEMENT OF SHRI JAGDISH S OMABHAI PATEL WAS RECORDED HE FAIRLY ADMITTED THAT IT IS UNRECORDED INCOME OF THE FIRM. OF COURSE HE CLAIMED THAT IT IS THE INCOME OF THE PAS T YEARS. HOWEVER DURING THE COURSE OF HEARING BEFORE US THE LD. COUNSEL FOR TH E ASSESSEE HAS FAIRLY ADMITTED THAT DESPITE THE ABOVE STATEMENT GIVEN BY THE PARTNER SHRI JAGDISH SOMABHAI PATEL THE ABOVE INCOME OF RS.30 LAKHS IS N OT DISCLOSED IN ANY OF THE PRECEDING YEARS. IN OUR OPINION SEC. 68 HAS BE EN BROUGHT ON THE STATUTE BOOK TO COVER THE CASES WHERE THE ASSESSEE CREDITS HIS UNRECORDED INCOME IN HIS BOOKS OF ACCOUNTS IN THE NAMES OF OTHERS. THERE FORE THE PRESENT CASE IS THE FITTEST CASE WHERE SEC. 68 SHOULD BE APPLIED AN D THEREFORE IN OUR OPINION HAS RIGHTLY BEEN APPLIED BY THE ASSESSING OFFICER. WE THEREFORE UPHOLD THE ITA NO.2159-60/AHD/2007 A.YS 2001-02 & 2003-04 M/S. ACID & CHEMICAL CO. V. CIT(A)-XVIII ABD PAGE 7 ADDITION OF RS.30 LAKHS FOR UNEXPLAINED CASH CREDIT S AND REJECT GROUND NO.1 OF THE ASSESSEES APPEAL. 4. THEREAFTER THE AO PROCEEDED TO LEVY THE PENALTY. DURING THE COURSE OF PENALTY PROCEEDINGS FOLLOWING EXPLANATION WAS SUBMI TTED BY THE ASSESSEE VIDE HIS LETTER DATED 18.6.2005 :- DURING THE ASSESSMENT PROCEEDINGS THE ENTIRE FACTS WERE SUBMITTED TO THE AO AND THERE WAS NOTHING WHICH WAS CONCEALED. THE DETAILED DISCUSSION OF OUR SUBMISSIONS DURING T HE ASSESSMENT AND APPELLATE PROCEEDINGS WILL REVEAL THAT IN THE STATE MENT RECORDED THE INCOME OF THE FIRM EARNED DURING LAST SEVERAL YEARS WAS ADMIT TED. HOWEVER THE ADDITION HAS BEEN MADE FOR THE YEAR UNDER REFERENCE AND THER E WAS NO POSITIVE PROOF OF ANY CONCEALMENT OF INCOME FOR THE YEAR UNDER REF ERENCE NOR ANY MALA-FIDE INTENSION. THE FACTS WERE STATED BUT ON ACCOUNT OR NOT BEING ABLE TO SATISFY THE APPEAL AUTHORITIES THE ADDITION WAS MADE FOR ASSES SMENT YEAR 2000-01 ONLY. WE SUBMIT THAT MERELY BECAUSE THE FICTION OF U/S 68 IS APPLIED AND ADDITION MADE IT COULD NOT AMOUNT TO CONCEALMENT OF INCOME O F THE YEAR. AS HELD IN CIT VS. JALARAM OIL MILLS 253 ITR 192 (G UJ) WHEREIN THE HON. HIGH COURT AFTER RELYING UPON THE SUPREME COURT DECISION IN P. K. NOOR JAHAN 237 ITR 570 AND EARLIER DECISION OF THE GUJARAT HIGH CO URT HAS HELD THAT EVEN IN CASE OF ADMISSION (PAGE 196 PARA 2 OF THE JUDGMENT) IT CANNOT BE SAID WITH CERTAINTY THAT THE ADMITTED AMOUNT WAS CONCEALED IN COME OF YEAR OF ADDITION. ALSO AT PARA E-F AT PAGE 197 THE HIGH COURTS HAS A GAIN REITERATED THAT DEHORS THE PROVISION OF MAKING ADDITION U/S 68 IT IS NOT POSSIBLE TO STATE WITH CERTAINTY THAT THE SAID SUM WOULD BE CONCEALED INCOME OF TH E ASSESSEE FOR THE YEAR UNDER CONSIDERATION. IT WAS ALSO EMPHASIZED THAT TH E DE0PARTMENT HAD TO PROVE THAT THE AMOUNT IN QUESTION WAS ASSESSEES IN COME OF THE YEAR UNDER CONSIDERATION. IT IS RESPECTFULLY SUBMITTED THAT IN VIEW OF THE AB OVE JUDGMENT AND ALSO CONSIDERING THE BONA FIDE THE ADDITION MADE BY NOT ACCEPTING THE ADMISSION IN TO DOES NOT AMOUNT TO CONCEALMENT OF INCOME NOR ANY DELIBERATE OR MALAFIDE ATTEMPT ON THE PART OF THE FIRM. RELIANCE IS ALSO PLACED ON THE FOLLOWING CASE LAWS: - - CIT VS. HAJI GAFAR HAJI DADACHINI 169 ITR 33 (BOM) - ITO VS. DEVIBAI 84 ITD 342 (MUMBAI) IT MAY ALSO BE STATED THAT AGAINST THE CONFIRMATION OF ADDITION BY THE APPELLATE AUTHORITIES PROCEEDINGS ARE BEING PREFERRED FURTHE R. TAKING OVERALL VIEW OF THE MATTER AND IN VIEW OF T HE STATEMENTS RECORDED AND THE SUBMISSION MADE EARLIER AS ALSO CONSIDERING THE BIN DING FORCE OF THE ABOVE JUDGMENT WE REQUEST YOU TO PLEASE DROP THE PENALTY PROCEEDINGS INITIATED BY YOU. THE AO CONSIDERED THE SUBMISSIONS OF THE ASSESSEE A ND REJECTED THE EXPLANATION ON THE GROUND THAT EXPLANATION OF THE A SSESSEE THAT UNACCOUNTED INCOME PERTAINING TO EARLIER YEARS WAS NOT FOUND SA TISFACTORY AS ASSESSEE COULD ITA NO.2159-60/AHD/2007 A.YS 2001-02 & 2003-04 M/S. ACID & CHEMICAL CO. V. CIT(A)-XVIII ABD PAGE 8 NOT ADDUCE ANY EVIDENCE IN RESPECT OF THE CLAIM. HE ACCORDINGLY LEVIED A PENALTY OF RS.13 78 404/- BEING 100% OF THE TAX SOUGHT TO B E EVADED. 5. THE LD. CIT(A) CONFIRMED THE LEVY OF PENALTY. HI S REASONINGS ARE SUMMARISED AS UNDER :- -1. SHRI JAGDISH PATEL IN HIS STATEMENT RECORDED O N 20.8.2002 HAS CLEARLY STATED THAT AMOUNT OF RS.30 LACS SHOWN IN ASST. YEA R 2000-01 IN THE NAMES OF THE FAMILY MEMBERS IN THE BOOKS OF THE ASSESSEE WAS IN FACT INCOME EARNED BY WAY OF COMMISSION ON TRANSACTION OF SALE AND PUR CHASES BETWEEN DIFFERENT PARTIES; -2. NO SPECIFIC YEAR-WISE AMOUNT WAS GIVEN; -3. SUCH INCOME WAS NOT ACCOUNTED FOR IN THE BOOKS; -4. NO EVIDENCE WAS FURNISHED IN RESPECT OF YEARS I N WHICH IT WAS EARNED; -5. THE ELEMENT OF CONCEALMENT IS ESTABLISHED IN TH E PRESENT CASE; & -6. IT IS A CASE OF AUTOMATIC LEVY OF PENALTY ON TH E ADDITION OF CASH CREDIT. 6. HE ALSO CONFIRMED THE LEVY OF PENALTY IN RESPECT OF ADDITION OF 1RS.5 40 000/- BEING THE AMOUNT OF INTEREST DEBITED AS PAID TO THE CREDITORS. 7. BEFORE US LD. AR FOR THE ASSESSEE SUBMITTED THA T LEVY OF PENALTY IS NOT JUSTIFIED BECAUSE AMOUNT WAS CREDITED ON THE FIRST DAY OF ACCOUNTING YEAR AND ASSESSEE COMPANY COULD NOT HAVE EARNED THIS MUCH OF INCOME ON THE VERY FIRST DAY. HE SUBMITTED THAT IT IS A GOOD CASE FOR MAKING ADDITION BUT NOT FOR LEVYING PENALTY AS NO POSITIVE PROOF OF CONCEALMENT HAS BEEN FOUND. FURTHER AO HAS NOT MENTIONED ANY DEFECTS IN THE MAINTENANCE OF BOOKS OF ACCOUNT. THE INCOME EARNED PERTAINED TO EARLIER YEARS AND T HEREFORE CANNOT BE SAID TO BE CONCEALED INCOME OF ASST. YEAR 2000-01. FURTH ER THE DEPARTMENT HAS NOT REOPENED ANY ASSESSMENT OF EARLIER YEARS SO AS TO FIND ANY CONCEALMENT. THE LD. AR FURTHER SUBMITTED THAT STATEMENT OF SHRI JAGDISH PATEL SHOULD BE ACCEPTED AS A WHOLE. IF IT IS ACCEPTED THAT SUM OF RS.30 LACS IS UNACCOUNTED INCOME OF ASSESSEE FIRM THEN OTHER PART OF THE STAT EMENT THAT IT PERTAINED TO EARNINGS IN EARLIER YEARS SHOULD ALSO BE ACCEPTED. 8. AGAINST THIS LD. DR SUBMITTED THAT ONCE THE PAR TNER HAS ADMITTED THE SUM TO BE UNACCOUNTED INCOME NO FURTHER EVIDENCE IS REQUIRED TO BE COLLECTED. THE EXPLANATION IS NOT FOUND SATISFACTORY AS ASSESS EE FAILED TO PROVE THAT SUCH UNACCOUNTED INCOME PERTAINED TO EARLIER YEARS. THE TRIBUNAL HAS CONFIRMED THE ADDITION HOLDING THAT ASSESSEE HAS FAILED TO PROVE THE IDENTITY CREDITWORTHINESS AND GENUINENESS OF THE TRANSACTION. THE LD. DR REF ERRED TO THE FOLLOWING DECISIONS: (1) BALWANT RAI & CO. VS. CIT (2005) 274 ITR 269 (A LL) (2) NAINU MAL HET CHAND VS. CIT (2007) 294 ITR 185 (ALL) (3) CHUHARMAL VS. CIT (1988) 172 ITR 250 (4) CIT VS. ABOO MOHMED (2001) 250 ITR 313 ( KAR) (5) B-TEX CORPORATION VS. ITO (1993) 46 TTJ (BOM)(TM) 668 ITA NO.2159-60/AHD/2007 A.YS 2001-02 & 2003-04 M/S. ACID & CHEMICAL CO. V. CIT(A)-XVIII ABD PAGE 9 FOR THE PROPOSITION THAT WHERE ASSESSEE FAILED TO E XPLAIN THE CASH CREDITS OR FAILED TO SUBSTANTIATE EXPLANATION PENALTY CAN BE LEVIED. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THERE IS NO REASON F OR INTERFERENCE IN THE ORDER OF LD. CIT(A). THE REASONS ARE THAT - THE PARTNER OF T HE FIRM WHO IS MANAGING THE AFFAIRS OF THE FIRM HAS CLEARLY ADMITTED THAT WHAT WAS INVESTED ON FIRST APRIL 1999 WAS UNACCOUNTED INCOME OF THE FIRM. IN THIS REGARD WE REFER TO THE QUESTION- ANSWER RELIED ON BY THE AO AS UNDER :- QUESTION -4 TODAY ALL THE PARTNERS OF YOUR FIRM AN D THE LADY DEPOSITORS WHO ARE THE PARTNERS WIVES HAVE STATED ON OATH THAT TH E CLARIFICATION REGARDING DEPOSITS OF RS.30 LACS WILL BE GIVEN BY J AGDISH S. PATEL AS HE IS THE ONE WHO KNOWS ABOUT THE SAME. PLEASE EXPLAIN . ANSWER -5 IN REPLY TO THE ABOVE I HAVE TO STATE TH AT WHATEVER THE OTHER PARTNERS OF THE FIRM AND THE LADY DEPOSITORS HAVE S TATED IS TRUE AND BINDING ON ME. AS REGARDS DEPOSIT OF RS.30 LACS THI S AMOUNT HAS BEEN COLLECTED BIT BY BIT AND HAS BEEN CREDITED IN THE N AMES OF THE LADY DEPOSITORS. QUESTION -6 OVER HOW MANY YEARS HAS THIS SUM BE EN COLLECTED ? ANSWER-6 MY FATHER SHRI SOMBHAI SHIVRAMBHAI PATEL W AS HANDLING THE ACCOUNTS TILL 1987 AFTER WHICH THIS RESPONSIBIL ITY WAS GIVEN TO ME. SINCE THEN THIS AMOUNT HAS BEEN COLLECTED BIT BY BI T. THIS SUM HAS BEEN COLLECTED OUT OF THE BUSINESS INCOME OF M/S AC IT & CHEMICALS CO. QUESTION -7 HAVE YOU MAINTAINED ANY YEAR WISE DETAI LS/ACCOUNTS OF THIS AMOUNT FOR THE PERIOD 1987 TO 2000. ANSWER -7 NO. I HAVE NOT MAINTAINED ANY YEAR WISE D ETAILS/ACCOUNTS. QUESTION -8 IN REPLY TO Q.5 YOU HAVE STATED THAT TH E SUM OF RS.30 LACS HAS BEEN COLLECTED BIT BY BIT. HAS THIS BEEN ACCOUN TED FOR IN THE BOOKS OF THE FIRM? ANSWER-8 NO. THIS AMOUNT HAS NOT BEEN ACCOUNTED FOR YEAR-WISE IN THE BOOKS OF THE FIRM BUT HAS BEEN TAKEN TO THE BAL ANCE SHEET IN THIS YEAR. QUESTION -9 HAS THIS INCOME BEEN EARNED OUT OF PURC HASES/SALES OF ACID AND CHEMICALS CO. OR BY ANY OTHER MEANS ? PLEA SE EXPLAIN THE MODUS OPERANDI. ANSWER -9 YES. THE PURCHASE AND SALE IS OF ACIDS & CHEMICALS (PRODUCTS) BUT NOT OF PURCHASE & SALE OF M/S ACID & CHEMICALS CO. WE HAVE ACTED AS MEDIATORS BETWEEN PURCHASERS AND SELL ERS OF THESE PRODUCTS AND OUT OF THE DEALS FINALIZED BETWEEN SUC H THIRD PARTIES WE ITA NO.2159-60/AHD/2007 A.YS 2001-02 & 2003-04 M/S. ACID & CHEMICAL CO. V. CIT(A)-XVIII ABD PAGE 10 HAVE RECEIVED COMMISSION INCOME. THIS INCOME IS THE REFORE THE COMMISSION INCOME FROM THIRD PARTIES. QUESTION-10 ARE YOU EARNING THE ABOVE COMMISSION INCOME FROM BOTH PURCHASERS AND SELLERS ? PL EASE CLARIFY. ANSWER-10 THIS TYPE OF INCOME/COMMISSION IS USU ALLY CHARGED FROM SELLERS ONLY BUT SOMETIMES DEPENDING ON URGENCY OF THE PURCHASERS REQUIREMENT WE EARN THE COMMISSION FROM PURCHASERS ALSO. I WISH TO EMPHASIZE THAT THERE IS NO FIXED PERCENTAGE OF SUCH COMMISSION. QUESTION-11 ARE SUCH PURCHASING AND SELLING PARTIES FROM WHOM YOU HAVE EARNED COMMISSION FIXED I.E. REGULAR? ANSWER-11 NO. SUCH PURCHASERS AND SELLERS ARE NOT F IXED. EVEN THE GOODS TRADED IN ARE NOT FIXED. ACIDS & CHEMICALS AR E OF THOUSAND VARIETIES IN MAJORITY OF DEALINGS THE PRODUCTS TRAD ED IN ARE MAINLY ACIDS OR CHEMICALS AND VERY RARELY ANY OTHER ITEM. QUESTION-12`WHY HAS THE AMOUNT OF RS.30 LACS BEEN S HOWN IN THE BALANCE SHEET FOR ASST. YEAR 2 000-01ONLY. PLEASE CLARIFY. ANSWER-12 THIS AMOUNT HAD BEEN COLLECTED SINCE LONG . IN ORDER THAT THIS SHOULD NOT BE A CAUSE FOR DIFFERENCE AMONGST P ARTNERS THIS AMOUNT WAS CREDITED IN THE BOOKS IN THE NAMES OF ALL FIVE PARTNERS WIVES. QUESTION-16 CAN YOU GIVE THE NAMES AND ADDRESS OF A T LEAST 2 OR 3 PERSONS FROM WHO WHOM YOU HAVE EARNED THE COMMISSIO N INCOME? ANSWER-16 I DO NOT REMEMBER ANY SUCH PARTIES. FROM THE ABOVE STATEMENT FOLLOWING THINGS ARE APPAR ENT :- (1) SUM OF RS.30 LACS IS UNACCOUNTED INCOME OF THE FIRM. (2) NO YEAR-WISE DETAILS OR ACCOUNT HAS BEEN MAINTA INED. (3) IT IS CLAIMED THAT THE SUM HAS BEEN COLLECTED O UT OF BUSINESS INCOME OF THE FIRM FROM 1987 ONWARDS. (4) THE AMOUNT IS NOT RECORDED IN THE REGULAR BOOKS . (5) THIS AMOUNT REPRESENTED COMMISSION CHARGED FROM PARTIES FOR WHOM SALES AND PURCHASES WERE ARRANGED. (6) THE SUM OF RS.30 LACS IS NOT SHOWN IN THE BALAN CE SHEET. (7) HE DOES NOT REMEMBER THE DETAILS OF PARTIES WHO HAVE PAID THIS COMMISSION INCOME. (8) THE AMOUNT WAS CREDITED IN THE BOOKS TO AVOID T HE DIFFERENCES AMONG THE PARTNERS. ITA NO.2159-60/AHD/2007 A.YS 2001-02 & 2003-04 M/S. ACID & CHEMICAL CO. V. CIT(A)-XVIII ABD PAGE 11 NO DOUBT THIS MUCH OF EVIDENCE IS SUFFICIENT FOR SU STAINING THE ADDITION AS HELD BY THE TRIBUNAL IN ITS ORDER ON QUANTUM ADDITION AND W HICH IS REFERRED TO ABOVE BUT IT IS NOT NECESSARY THAT AO IS ALWAYS BOUND TO COLLECT FURTHER EVIDENCE OVER AND ABOVE WHAT IS USED IN ASSESSMENT PROCEEDINGS. IT IS TO BE EXAMINED WHETHER EVIDENCE COLLECTED DURING THE COURSE OF ASSESSMENT PROCEEDINGS IS SUFFICIENT TO SUSTAIN LEVY OF PENALTY. IF IN A CASE WHERE ADDITIO N IS SUSTAINED MERELY BY REJECTING THE EXPLANATION OF THE ASSESSEE THEN FOR THE PURPOSE OF LEVY OF PENALTY SUCH REJECTION OF EXPLANATION WILL NOT BE SUFFICIEN T AND AO HAS TO FURTHER BRING POSITIVE MATERIAL TO SHOW THAT ADDITION REPRESENTS CONCEALED INCOME OF THE ASSESSEE OR IN RESPECT OF WHICH ASSESSEE HAS FURNIS HED INACCURATE PARTICULARS. PRIOR TO 1.4.1964 THE REQUIREMENT FOR LEVYING PENAL TY WAS TO ESTABLISH MENS REA. IF AO WAS NOT ABLE TO COLLECT EVIDENCE IN RESPECT OF M ENS REA OF THE ASSESSEE THEN PENALTY COULD NOT HAVE BEEN SUSTAINED. AFTER REMOVA L OF THE WORD DELIBERATE FROM THE PROVISION OF SECTION 271(1)(C) THE MATERIA L TO ESTABLISH MENS REA WAS NO LONGER CONSIDERED NECESSARY. STILL CERTAIN COURTS H AVE HELD THAT WORD CONCEALMENT ITSELF CONTAINS AN INGREDIENTS OF MENS REA AND THEREFORE TO SOME EXTENT AO IS BOUND TO COLLECT EVIDENCE TO SHOW THAT ASSESSEE HAS CONCEALED THE PARTICULARS OF INCOME OR FURNISHED INACCURATE PARTI CULARS OF INCOME. SUBSEQUENTLY AFTER 1.4.1989 EXPLANATION WAS ADDED TO THE PROVISI ONS OF SECTION 271(1)(C) PROVIDING THEREIN TWO CLAUSES (A) & (B). IF PENALTY COULD NOT BE LEVIED UNDER THE MAIN PROVISION THEN IT COULD BE LEVIED UNDER EXPLAN ATION-1 TO SECTION 271(1)(C) IF INGREDIENTS MENTIONED IN TERMS OF EXPLANATION ARE S ATISFIED. WHEN THOSE INGREDIENTS ARE SATISFIED A DEEMING FICTION IS INVO KED FOR TREATING THE AMOUNT OF ADDITION AS THE AMOUNT IN RESPECT OF WHICH ASSESSEE HAS CONCEALED PARTICULARS OF INCOME OR FURNISHED INACCURATE PARTICULARS OF INCOM E. IT IS NOT NECESSARY THAT WHILE INITIATING PENALTY PROCEEDINGS AO SHOULD SPEC IFICALLY MENTION INVOKING EITHER THE MAIN PROVISION OR EXPLANATION. IF PENALTY IS IN ITIATED UNDER THE MAIN PROVISION THEN IT COULD BE LEVIED UNDER EXPLANATION ALSO. IT IS NOT NECESSARY THAT THERE SHOULD BE ANY SPECIFIC REFERENCE TO THE EXPLANATION DEALING WITH DEEMED CONCEALMENT OF INCOME. WE DERIVE SUPPORT FROM THE D ECISION OF HON. SUPREME COURT IN THE CASE OF K.P. MADHUSUDAN VS. CIT (2001) 251 ITR 99 (SC). IN THE PRESENT CASE PENALTY IS NOT ONLY LEVIABLE UNDER MAI N PROVISIONS BUT ALSO UNDER THE EXPLANATION. THEREFORE THE ARGUMENTS OF LD. AR THA T AO WAS NOT SPECIFIC IN MENTIONING THE MAIN PROVISIONS OR THE EXPLANATION A ND ON THAT GROUND PENALTY SHOULD BE CANCELLED IS NOT SUSTAINABLE. WHEN WE AP PLY THE MAIN PROVISION FOR LEVYING PENALTY THE INGREDIENTS REQUIRED TO SATISFY ARE - (1) ASSESSEE HAS CONCEALED THE PARTICULARS OF INCOM E; (2) OR FURNISHED INACCURATE PARTICULARS OF SUCH INC OME. WHILE FILING THE RETURN OF INCOME THE ASSESSEE HAS SHOWN THE AMOUNT OF RS.30 LACS AS CASH CREDIT OF THE LADIES IN THE FIRM AND I T ACCORDINGLY TREATED THEM AND CLAIMED INTEREST EXPENDITURE THEREON AS A WHOLE. ON THE OTHER HAND ENQUIRY CARRIED OUT BY THE AO REVEALED THAT THE AMOUNT REPR ESENTED INCOME OF THE FIRM NOT ACCOUNTED FOR. IT WAS CLEARLY FURNISHING OF INA CCURATE PARTICULARS IN THE RETURN OF INCOME. NO DOUBT FOR SHOWING WHAT IS INACCURATE ONUS IS ON THE AO. HERE IT IS SHOWN THAT CORRECT FACTS ARE THAT THE CREDITS REPRE SENTED UNACCOUNTED INCOME OF THE ASSESSEE AND NOT WERE ACTUALLY GENUINE CASH CRE DITS. ONCE IT IS ESTABLISHED THAT RS. 30 LACS REPRESENTED UNACCOUNTED INCOME OF THE ASSESSEE THEN CHARGE LAID DOWN IN THE MAIN PROVISION IS ESTABLISHED. THE RE IS NO FURTHER DUTY CAST ON THE ITA NO.2159-60/AHD/2007 A.YS 2001-02 & 2003-04 M/S. ACID & CHEMICAL CO. V. CIT(A)-XVIII ABD PAGE 12 AO TO BRING MORE MATERIAL IN SUPPORT OF WHAT IS FIN ALLY ADMITTED BY THE PARTNER OF THE FIRM. THIS STATEMENT WAS NOT CONTROVERTED/RETRA CTED IN ANY OF THE PROCEEDINGS. THE AO HAD CALLED THE LADIES PARTNERS AND RECORDED THEIR STATEMENT WHO SHOWED THEIR IGNORANCE ABOUT THE MONEY DEPOSITED IN THEIR NAMES IN THE FIRM AND REFERRED TO THE NAME OF THE MANAGING PARTNER SHRI JAGDISH PA TEL. THEREFORE IT IS NOT A CASE WHERE AO RELIED ONLY ON THE SURRENDER MADE BY THE MANAGING PARTNER BUT HE RELIED ALSO ON THE STATEMENTS OF THE CREDITORS B EING THE LADIES MEMBERS OF THE FAMILY. SINCE MONEY WAS DEPOSITED IN CASH IN THE FI RM THERE WAS NO SCOPE OF CARRYING OUT ANY FURTHER ENQUIRY AND COLLECT MORE M ATERIAL AS SOUGHT TO BE ARGUED BY THE LD. AR. WHERE MONEY IS DEPOSITED IN CASH AS CREDIT CREDITOR IS CALLED HIS/HER STATEMENT IS RECORDED AND WHEN THEY DENY AN Y KNOWLEDGE OR CONNECTION WITH THE MONEY DEPOSITED IN THEIR NAMES IN THE FIRM AND THEREAFTER MANAGING PARTNER ADMITS THE SAME AS UNDISCLOSED BUSINESS INC OME OF THE FIRM THEN IT IS NOT A CASE OF MERE SURRENDER AND ADDITION THEREON BUT I T IS A CASE WHERE ALL POSSIBLE AVENUES OF ENQUIRIES HAVE BEEN EXPLORED BY THE AO A ND THEREAFTER ADDITION HAS BEEN MADE. 10. IN BALWANT RAI & CO. VS. CIT (SUPRA) THE FACTS BEFORE HON. ALLAHABAD HIGH COURT WERE THAT AO MADE ADDITION OF RS.13 000/- BEI NG CASH CREDIT AND IMPOSED PENALTY UNDER SECTION 271(1)(C) BY INVOKING EXPLANA TION-1 TO SECTION 271(1)(C) OF THE ACT. IT WAS HELD THAT ASSESSEE DID NOT OFFER AN Y EXPLANATION REGARDING THE SOURCE OF DEPOSIT OF RS.13 000/- IN THE ASSESSMENT PROCEEDINGS OR IN PENALTY PROCEEDINGS. ACCORDINGLY IN VIEW OF CLAUSE (A) OF E XPLANATION-1 TO SECTION 271(1)(C) THE AMOUNT OF RS.13 000/- HAD TO BE DEEME D INCOME IN RESPECT OF WHICH PARTICULARS HAD BEEN CONCEALED BY THE ASSESSEE. 11. IN NAINU MAL HET CHAND VS. CIT (SUPRA) THE FAC TS BEFORE HON. ALLAHABAD HIGH COURT WERE THAT THE DEPOSITS OF RS.1 65 000/- APPEARED IN THE NAME OF MINORS AS CASH CREDITS WHICH WAS ADDED IN THE HANDS OF ASSESSEE FIRM. THE EXPLANATION OF THE ASSESSEE WAS FOUND TO BE FALSE B Y ALL THE AUTHORITIES INCLUDING THE TRIBUNAL. ON THE ISSUE OF LEVY OF PENALTY UNDER SECTION 271(1)(C) HON. ALLAHABAD HIGH COURT HELD THAT PROFITS OF THE FIRM HAVE BEEN DIVERTED THROUGH THE DEPOSITS. THE ASSESSEE WAS NOT ABLE TO SUBSTANTIATE THE EXPLANATION TO THE EFFECT THAT DEPOSITORS HAD RECEIVED GIFTS IN ANY PREVIOUS YEAR OR HAD ANY INDEPENDENT SOURCE OF INCOME OR TO PROVE THAT EXPLANATION WAS B ONA FIDE. THERE WAS NO DOCUMENTARY EVIDENCE IN SUPPORT OF THE ASSESSEES C ONTENTIONS GIVING THE NAMES OF THE PERSONS FROM WHOM ALLEGED GIFTS WERE RECEIVE D. NO SUCH EVIDENCE WAS DISCLOSED TO THE DEPARTMENT. MINOR DEPOSITORS WERE INTIMATELY RELATED TO THE PERSONS OF THE ASSESSEE FIRM. ON THIS BASIS PENALTY WAS HELD VALID. 12. IN CHUHARMAL VS. CIT (SUPRA) WATCHES OF FOREIGN MAKE VALUING RS.87 455/- WERE SEIZED BY CUSTOMS AUTHORITIES FROM THE ASSESSE ES BED ROOM. NO STATEMENT WAS GIVEN BY THE ASSESSEE. SUBSEQUENT OPPORTUNITIES GRANTED WERE NOT AVAILED. HE ALSO DID NOT AVAIL PERSONAL HEARING AND OPPORTUN ITY OF CROSS-EXAMINATION OF THE WITNESSES IN WHOSE PRESENCE PANCHNAMA WAS PREPA RED. IN THE RETURN FOR THE ASST. YEAR 1974-75 VALUE OF THOSE WATCHES WERE NOT DECLARED BY THE ASSESSEE AND THEREFORE THE SAME WAS ADDED AS ASSESSEES DE EMED INCOME UNDER SECTION 69A. PENALTY FOR CONCEALMENT WAS ALSO LEVIE D BY INVOKING THE EXPLANATION TO SECTION 271(1)(C) AS THE ASSESSEE FAILED TO DISC HARGE THE ONUS LYING ON HIM OF ITA NO.2159-60/AHD/2007 A.YS 2001-02 & 2003-04 M/S. ACID & CHEMICAL CO. V. CIT(A)-XVIII ABD PAGE 13 PROVING THAT WATCHES DID NOT BELONG TO HIM. THE HON . HIGH COURT CONFIRMED THE LEVY OF PENALTY IN APPEAL. IN FURTHER APPEAL HON. SUPREME COURT HELD THAT ONUS OF PROVING THAT ASSESSEE WAS NOT OWNER OF THE GOODS FO UND IN HIS POSSESSION WAS ON THAT PERSON AND REVENUE AUTHORITIES CAN INVOKE T HE PRINCIPLES OF EVIDENCE ACT IN THE PROCEEDINGS BEFORE THEM. UNDER THE CIRCUMSTA NCES WHERE RETURNED INCOME WAS LESS THAN 80% OF THE SEIZED INCOME PENALTY WAS LEVIABLE WITHIN THE MEANING OF EXPLANATION TO SECTION 271(1)(C). 13. IN CIT VS. ABOO MOHMED (SUPRA) THE FACTS BEFO RE HON. KARNATAKA HIGH COURT WERE THAT A CASH OF RS.10 51 650/- WAS SEIZED ON 1.1.86 FROM THE ASSESSEE BY CUSTOMS AND CENTRAL EXCISE AUTHORITIES. THIS AMOUNT WAS REQUISITIONED BY THE INCOME-TAX DEPARTMENT UNDER SE CTION 132A ON 3 RD JANUARY 1986. THE ASSESSEE FILED RETURN OF INCOME ON JULY 1986 AND INCLUDING THEREIN THE SEIZED CASH. THE ADDITION WAS SUSTAINED IN APPEAL. THE AO LEVIED PENALTY UNDER SECTION 271(1)(C). EVEN THOUGH PENALTY WAS CANCELLE D BY THE TRIBUNAL HON. KARNATAKA HIGH COURT HELD THAT ASSESSEE FAILED TO P ROVE THE SOURCE OF ACQUISITION OF THAT MONEY AND ULTIMATELY HAD OFFERED THE AMOUNT FOR TAXATION. 14. B-TEX CORPORATION VS. ITO (1993) 46 TTJ (BOM) ( TM) 668 (SUPRA) THE ASSESSEE HAD FILED REVISED RETURN SHOWING FURTHER I NCOME AND ASSESSMENTS WERE MADE EX PARTE. IN ALL APPEALS ASSESSMENTS WERE SET ASIDE. THE ASSESSEE FURTHER REVISED THE RETURN BY ADMITTING HIGHER INCOME. THE ASSESSMENTS WERE COMPLETED ON THE REVISED RETURN. IT WAS HELD THAT LEVY OF PEN ALTY IS JUSTIFIED BECAUSE NO CREDITOR APPEARED BEFORE THE AO AND ASSESSEE SURREN DERED FURTHER INCOME ON QUESTIONING BY THE DEPARTMENT. THE FILING OF THE RE VISED RETURN WAS NOT VOLUNTARY AND THERE WAS MATERIAL ON RECORD TO SHOW THAT THE D EPARTMENT WAS ENQUIRING INTO THE GENUINENESS AS WELL AS CREDITWORTHINESS OF THE LOAN AT WHICH POINT OF TIME ASSESSEE CAME FORWARD WITH THE FILING OF VOLUNTARY RETURNS THEREBY PREVENTING THE DEPARTMENT FROM PURSUING THE MATTER FURTHER. 15. WHEN WE APPLY THE PRINCIPLES LAID DOWN IN ABOV E CASES TO THE FACTS OF THE PRESENT CASE WE FIND THAT THE AO HAD CARRIED OUT E NQUIRIES INTO THE CASH CREDIT OF RS.30 LACS SUMMONED THE CREDITORS RECORDED THEIR S TATEMENTS WHO EXPRESSED THEIR IGNORANCE ABOUT THE CREDS AND INFORMED THE AO THAT SHRI JAGDISH PATEL KNEW EVERY THING. IT WAS ONLY AFTER THIS THAT THE A O SUMMONED JAGDISH PATEL RECORDED HIS STATEMENT WHO FINALLY SURRENDERED THE SUM OF RS.30 LACS AS AN INCOME OF THE FIRM. SECONDLY THE CREDITORS WERE NOT STRANGERS TO THE FIRM AND THEY WERE WIVES OF THE PARTNERS OR CLOSE RELATIONS. THEI R NAMES WERE USED TO INTRODUCE THE UNACCOUNTED INCOME OF THE FIRM. THIRDLY NO EVI DENCE HAS BEEN FURNISHED BY THE FIRM SO AS TO SHOW AS TO IN WHICH YEAR SUCH INC OME WAS EARNED. NO NAME OF ANY PARTY ALLEGEDLY GIVING COMMISSION TO THE FIRM W AS GIVEN. THE INFORMATION PROVIDED BY SHRI JAGDISH PATEL WAS UNSUBSTANTIATED AND WAS ALSO NOT SUBJECTED TO ANY VERIFICATION BY THE DEPARTMENT AS NO VERIFIA BLE INFORMATION WAS PROVIDED. 16. FROM THE DISCUSSION HELD ABOVE WE HOLD THAT PEN ALTY IS ALSO LEVIABLE WITHIN THE MEANING OF EXPLANATION 1(B) OF SECTION 271(1)(C ). THERE ARE THREE INGREDIENTS WHICH ARE REQUIRED TO BE SATISFIED. THEY ARE (I) ASSESSEE OFFERS AN EXPLANATION WHICH HE IS NOT ABLE TO SUBSTANTIATE (II) HE FAILS TO PROVE THAT SUCH EXPLANATION IS ITA NO.2159-60/AHD/2007 A.YS 2001-02 & 2003-04 M/S. ACID & CHEMICAL CO. V. CIT(A)-XVIII ABD PAGE 14 BONA FIDE & (III) HE FAILS TO PROVE THAT ALL THE FA CTS RELATING TO THE EXPLANATION AND MATERIAL TO COMPUTATION OF HIS TOTAL INCOME HAS BEE N DISCLOSED BY HIM. THE EXPLANATION FURNISHED BY THE ASSESSEE FIRM IS THAT THE CASH REPRESENTED UNACCOUNTED INCOME EARNED IN EARLIER YEARS PARTICUL ARLY FROM 1987 ONWARDS. THIS UNACCOUNTED INCOME WAS EARNED BY WAY OF COMMISSION CHARGED FROM PARTIES FOR WHOM THE FIRM MEDIATED AS MEDIATOR FOR EFFECTING TH EIR SALES AND PURCHASES. THIS EXPLANATION WAS NOT SUBSTANTIATED IN AS MUCH AS NO SPECIFIC YEAR OF EARNING INCOME WAS INFORMED NO NAME OF THE PARTIES FOR WHO M SUCH MEDIATION WAS DONE WAS GIVEN NO RATE OF COMMISSION WAS ALSO PROVIDED. NO DOCUMENTARY EVIDENCE IN SUPPORT OF EXPLANATION WAS FURNISHED. THEREFORE NOT ONLY ASSESSEE WAS UNABLE TO SUBSTANTIATE THE EXPLANATION FURNISHED BY HIM BUT ALSO FAILED TO PROVE THAT ALL THE FACTS RELATING TO THE EXPLANATION ARE DISCLOSED BY HIM. ONCE THE INGREDIENTS OF CLAUSE (B) TO EXPLANATION-1 TO SECTI ON 271(1)(C) ARE FULFILLED AND AO HAS CLEARLY ESTABLISHED THAT CLAUSE (B) CAN BE INVO KED THEN LEVY OF PENALTY HAS TO FOLLOW. IN VIEW OF THIS LEVY OF PENALTY IS CONFIRM ED AND APPEAL OF THE ASSESSEE IS DISMISSED. RESPECTFULLY FOLLOWING THE FACTS OF THE TRIBUNALS ORDER IN ASSESSMENT YEAR 2000-01 AND TAKING A CONSISTENT VIEW WE DISMISS THIS ISSUE OF ASSESSEES APPEAL. 6. IN THE RESULT ASSESSEES APPEAL IN ITA NO.2159/AHD /2007 IS ALLOWED FOR STATISTICAL PURPOSES AND THAT OF APPEAL NO.2160/AHD /2007 IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 01/10 /2010 SD/- SD/- (D.C.AGRAWAL) (MAHAVI R SINGH) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) AHMEDABAD DATED : 01/10/2010 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)-XVIII AHMEDABAD 4. THE CIT CONCERNS. 5. THE DR ITAT AHMEDABAD 6. GUARD FILE. BY ORDER /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT AHMEDABAD