The ITO, Ward-1, Rajahmundry., Rajahmundry v. The Raghavendra Finance, Rajahmundry

ITA 273/VIZ/2009 | 2002-2003
Pronouncement Date: 19-07-2010 | Result: Dismissed

Appeal Details

RSA Number 27325314 RSA 2009
Assessee PAN AAGFR8424F
Bench Visakhapatnam
Appeal Number ITA 273/VIZ/2009
Duration Of Justice 1 year(s) 1 month(s) 29 day(s)
Appellant The ITO, Ward-1, Rajahmundry., Rajahmundry
Respondent The Raghavendra Finance, Rajahmundry
Appeal Type Income Tax Appeal
Pronouncement Date 19-07-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted SMC
Tribunal Order Date 19-07-2010
Assessment Year 2002-2003
Appeal Filed On 21-05-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SHRI BR BASKARAN ACCOUNTANT MEMBER ITA NO.273 TO 275/VIZAG/2009 ASSESSMENT YEARS : 2002-03 TO 2003-04 & 2005-06 ITO WARD-1 RAJAHMUNDRY RAGHAVENDRA FINANCE RAJAHMUNDRY (APPELLANT) VS. (RESPONDENT) PAN NO.AAGFR 8424F APPELLANT BY: SHRI D. MANOJ KUMAR DR RESPONDENT BY: SHRI G.V.N. HARI CA ORDER PER SHRI S.K. YADAV JUDICIAL MEMBER:- THESE APPEALS ARE PREFERRED BY THE REVENUE AGAINS T THE ORDER OF THE CIT(A) ON COMMON GROUNDS THAT CIT(A) HAS ERRED IN D ELETING THE PENALTY LEVIED U/S 271(1)(C) OF THE I.T. ACT. THEREFORE TH ESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS CONSOLI DATED ORDER. 2. THE FACTS IN BRIEF BORNE OUT FROM THE RECORD ARE THAT FOLLOWING A SURVEY OPERATION CONDUCTED IN THE PREMISE OF THE ASSESSEE SCRUTINY PROCEEDINGS WERE UNDERTAKEN FOR THE ASSESSMENT YEARS 2002-03 TO 2005-06 IN THE ASSESSEES CASE WHICH WAS ENGAGED IN THE BUSINESS O F AUTO FINANCING. DURING THE SCRUTINY ASSESSMENT PROCEEDINGS THE ISSUE OF E XAMINATION OF GENUINENESS OF CREDITS INTRODUCED DURING THE RELEVA NT ACCOUNTING YEAR WAS TAKEN UP AND CERTAIN DEFICIENCIES WERE NOTICED. AF TER CALLING FOR THE CONFIRMATORY LETTERS IN RESPECT OF THE CREDITORS AN D UPON THE ISSUE OF NOTICES TO SUCH CREDITORS THE A.O. HELD THAT IN SOME CASES THE FILING OF CONFIRMATORY LETTERS WERE NOT ACCOMPANIED BY THE SUPPORTING EVID ENCE REGARDING CREDITWORTHINESS OF THE ALLEGED CREDITORS. IN SOME OF THE CASES IT WAS ALSO OBSERVED BY THE A.O. THAT THE ADDRESSES FURNISHED B Y THE ASSESSEE WERE INCOMPLETE AND NOTICES SENT BY THE A.O. WERE RECEIV ED UN-SERVED. ON SUCH SHORTCOMINGS THE ASSESSING OFFICER HAS TREATED THE CREDITS INTRODUCED DURING 2 THE YEAR AS UNEXPLAINED AND MADE THE ADDITION OF TH E SAME. ACCORDINGLY THE PENALTY PROCEEDINGS WERE INITIATED. 3. DURING THE PENALTY PROCEEDINGS IT WAS EXPLAINED ON BEHALF OF THE ASSESSEE FIRM THAT SINCE IT HAD SUBMITTED CONFIRMAT ORY LETTERS FROM MOST OF THE CREDITORS AND ASSESSING OFFICER HAVING EXAMINED SOME OF THE CREDITORS AND SATISFIED ABOUT THE GENUINENESS AND ALSO THE ASSESS EE HAVING VOLUNTARY ADMISSION OF THE ADDITIONAL INCOME AND THE DEPARTME NT NOT HAVING DISCOVERED ANY CONCEALMENT CONCEALMENT PROCEEDINGS FOR EACH A SSESSMENT YEAR UNDER CONSIDERATION ARE NOT EXIGIBLE IN THE LIGHT OF RATI O OF DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. M. PACHAMU THU (214 CTR 524). BEING NOT CONVINCED WITH THE EXPLANATIONS OF THE AS SESSEE THE A.O. LEVIED THE PENALTY OF RS.1 67 000/- RS.2 06 200/- AND RS. 2 28 700/- FOR THE ASSESSMENT YEARS 2002-03 2003-04 & 2005-06 RESPECT IVELY. ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) AND PLACED AL L EVIDENCE IN SUPPORT OF HIS CONTENTIONS THAT BY PLACING THE EVIDENCE HE HAS DISCHARGED THE PRIMARY ONUS TO PROVE THE GENUINENESS OF THE CREDITS AND TH E IDENTITY AND CREDITWORTHINESS OF THE CREDITORS. CIT(A) RE-EXAMI NED THE ISSUE IN THE LIGHT OF VARIOUS JUDICIAL PRONOUNCEMENTS AND BEING CONVINCED WITH THE EXPLANATIONS OF THE ASSESSEES HE DELETED THE PENALTY. THE RELE VANT OBSERVATION OF THE CIT(A) IS EXTRACTED HEREUNDER: AFTER HEARING THE LEARNED AUTHORIZED REPRESENTATIV E AND ON A CAREFUL CONSIDERATION OF THE FACTS RELATING TO THE ISSUE T HE FOLLOWING OBSERVATIONS MADE AND DECISIONS TAKEN:- EXPLANATION 1 TO SECTION 271(1) WHICH DEEMS CONCEA LMENT WHERE THERE IS A DIFFERENCE BETWEEN THE INCOME RETU RNED BY THE ASSESSEE AND THAT COMPUTED BY THE ASSESSING OFFICER HAS BEEN THE SUBJECT MATTER OF EXTREME INTERPRETATION AGAINST TH E ASSESSEE WITH THE ASSUMPTION THAT CONCEALMENT PENALTY IS MERELY C ONSEQUENTIAL IN THE SENSE THAT IT IS AUTOMATIC ONCE ADDITION IS FO UND TO BE SUSTAINABLE. BUT THE CONTROVERSY WITH REGARD TO TH E SCOPE AND APPLICABILITY OF EXPLANATION-1 APPEARS TO HAVE BECO ME A SETTLED ISSUE. THE HONBLE SUPREME COURT IN THE CASE OF B. A. BALASUBRAMANIAM AND BROTHERS CO. VS. CIT (236 ITR 9 77) HAS HELD THAT THE BURDEN OF PROOF IS NO DOUBT PLACED ON TH E TAX PAYER TO SHOW THAT THERE HAS BEEN NO CONCEALMENT BUT AS POI NTED OUT BY THE COURT EARLIER IN THE CASE OF CIT VS. MUSSADILAL RAM BHAROSE (165 ITR 14) IT RAISED ONLY A PRESUMPTION THAT CAN BE REBUTTED 3 WITH REFERENCE TO THE FACTS OF EACH CASE. ACCORDIN GLY IT HAS TO BE HELD THAT WHERE THERE IS NOTHING TO SUGGEST GROSS O R WILLFUL NEGLECT OR FRAUD THE EXPLANATION CANNOT BE INVOKED TO JUST IFY PENALTY. IN THE CASE OF CIT VS. GURUBACHAN LAL (250 ITR 157) T HE HONBLE DELHI HIGH COURT ACCEPTED THE CONTENTION OF THE ASS ESSEE THAT THE OBJECT OF THE PROVISION IN CONCEALMENT THAT SUCH P ROVISION WAS RECOGNIZED ONLY AS A RULE OF EVIDENCE BASED UPON TH E PRINCIPLE THAT IT IS THE ASSESSEE WHO KNOWS HIS OWN AFFAIRS BEST AND THEREFORE IT WOULD NOT BE CORRECT TO ASSUME AFTER THE RULE THAT THE ONUS IS STRICTLY ON THE ASSESSEE TO PROVE THAT HE DID NOT C ONCEAL ANY INCOME AND THEREAFTER HELD THAT THE EXPLANATION ITSELF IS SELF- CONTAINED AND IT COMES INTO OPERATION WHERE THERE I S NO EXPLANATION AT ALL OR WHERE EXPLANATION OFFERED IS FOUND TO BE FALSE OR WHERE EXPLANATION HAS NOT BEEN SUBSTANTIATED AND AT THE SAME TIME NOT SHOWN TO BE BONAFIDE AFTER THE ASSESSEE HA S PLACED ALL THE FACTS RELATING TO THE ADDITION BEFORE THE ASSESSING AUTHORITY. IN OTHER WORDS THE ASSESSEE WHO OFFERS AN EXPLANATION WHICH IS NOT FOUND TO BE FALSE CAN SAVE HIMSELF FROM PENALTY EV EN IF HE WAS NOT ABLE TO SUBSTANTIATE HIS CASE AS LONG AS THE EXPLAN ATION IS BONAFIDE AND AS LONG AS HE PLACES ALL THE RELEVANT FACTS AVA ILABLE WITH HIM. THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. KH ODAY ESWARSA & SONS (83 ITR 369) HAS HELD THAT THE MERE FACT THA T AN EXPLANATION IS DISBELIEVED IN ASSESSMENT PROCEEDING S DOES NOT IPSO FACTO JUSTIFY LEVY OF PENALTY. THE HONBLE GUJARAT HIGH COURT IN THE CASE OF NATIONAL TEXTILES VS. CIT (249 ITR 125) HAS HELD THAT THE PROVISIONS OF SECTION 68 AUTHORIZING THE ASSESSING OFFICER TO TREAT UNEXPLAINED CASH CREDITS AS INCOME ARE ENABLING PRO VISIONS FOR MAKING CERTAIN ADDITIONS WHERE THERE IS FAILURE BY THE ASSESSEE TO TENDER AN EXPLANATION OR WHERE THE EXPLANATION GIVE N IS NOT TO THE SATISFACTION OF THE ASSESSING OFFICER. HOWEVER AN Y ADDITION MADE ON SUCH COUNT WOULD NOT AUTOMATICALLY JUSTIFY THE I MPOSITION OF PENALTY U/S 271(1) OF THE ACT BY RECOURSE ONLY TO EXPLANATION 1 TO SECTION 271(1) OF THE ACT. NO PENALTY CAN BE IMPOS ED IF THE FACTS AND CIRCUMSTANCES ARE EQUALLY CONSISTENT WITH THE H YPOTHESIS THAT THE AMOUNT SUBJECTED TO AN ADDITION U/S 68 OF THE A CT DOES NOT REPRESENT CONCEALED INCOME AS WITH THE HYPOTHESIS T HAT IT DOES. IF THE ASSESSEE GIVES AN EXPLANATION WHICH IS UNPROVED BUT NOT DISPROVED I.E. IT IS NOT ACCEPTED BUT CIRCUMSTANCE S DO NOT LEAD TO A REASONABLE AND POSITIVE INFERENCE THAT THE ASSESSEE S CASE IS FALSE THE EXPLANATION-1 CANNOT COME TO THE HELP OF THE DE PARTMENT ON THE GROUND THAT THERE WOULD BE NO MATERIAL TO SHOW THAT THE AMOUNT IN QUESTION WAS THE CONCEALED INCOME OF THE ASSESSEE. (II) APPLYING THE AFORESTATED ENUNCIATION OF LAW RE GARDING EXPLANATION-1 TO SECTION 271(1) OF THE ACT TO THE F ACTS AND CIRCUMSTANCES OF THE APPELLANTS CASE IT COULD BE OBSERVED THAT THE APPELLANT DID FILE EXPLANATION WITH REGARD TO THE L OAN CREDITS RECORDED IN ITS BOOKS OF ACCOUNTS FOR THE RELEVANT ASSESSMENT YEARS AND SUCH EXPLANATION WAS NOT FOUND BY THE ASSESSING OFFICER TO BE FALSE. NOW THE QUESTION ARISES AS TO WHETHER THE APPELLANT COULD SUBSTANTIATE HIS EXPLANATION WITH SUPPORTING EVIDEN CES BY PLACING 4 ALL MATERIAL FACTS RELEVANT TO THE ISSUE BEFORE THE ASSESSING OFFICER AND WHETHER SUCH EXPLANATION WAS BONAFIDE ONE OR NO T. WHILE SOME OF THE CREDITS IN RESPECT OF WHICH THE APPELL ANT FILED CONFIRMATORY LETTERS AND OTHER SUPPORTING MATERIALS WERE FOUND TO BE GENUINE HOWEVER IN RESPECT OF SOME OTHER CREDI TS THE ASSESSING OFFICER EXPRESSED DISSATISFACTION ON THE GROUND THAT SUCH CREDITORS WERE NOT TRACEABLE AT THE ADDRESSES GIVEN IN THE CONFIRMATORY LETTERS AND A FEW CREDITORS HAVE NOT F URNISHED THE CONFIRMATORY LETTERS AT ALL AND AS SUCH THE INGRE DIENTS OF IDENTITY AND CREDITWORTHINESS IN SUCH CASES REMAINED UNPROVE D. FURNISHING FURTHER EXPLANATION THE APPELLANT THEN STATED THAT AS REGARDS THE SMALL PERCENT OF CREDITORS IN RESPECT OF WHOM NO CO NFIRMATORY COULD BE FILED SUCH PARTIES HAVING RECEIVED BACK THE LOA N AMOUNTS WERE EITHER NOT TRACEABLE OR NOT COOPERATING IN FURNISHI NG CONFIRMATORY LETTERS AND AS REGARDS THE CREDITORS IN RESPECT O F WHOM THE NOTICES ISSUED BY THE ASSESSING OFFICER REMAINED UN SERVED THEY APPEAR TO HAVE SHIFTED THEIR ADDRESSES AND WERE NOT READILY TRACEABLE AROUND THE TIME THE ASSESSMENT PROCEEDING S IN THE APPELLANTS CASE WERE LIKELY TO GET BARRED BY LIMIT ATION. FROM SUCH EXPLANATION OF THE APPELLANT IT IS QUITE EVIDENT T HAT IT PRODUCED ALL MATERIAL FACTS TO THE BEST OF ITS ABILITY AND ALSO TENDERED A BONAFIDE EXPLANATION BUT AT THE SAME TIME FAILED TO SUBSTAN TIATE THE GENUINENESS OF CASH CREDITS IN SOME CASES IN RESPEC T OF WHICH CONFIRMATORY LETTERS HAD NOT BEEN FILED AND IN RESP ECT OF WHICH THE NOTICES OF THE ASSESSING OFFICER WERE RETURNED UNSE RVED. THEREFORE IN THE LIGHT OF THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF NATIONAL TEXTILES VS. CIT(SUPRA) THE NET FA CTUAL POSITION IN THE APPELLANTS CASE IS THAT THE ASSESSEES EXPLANA TION IN RESPECT OF CERTAIN LOAN CREDITS REMAINED UNPROVED BUT IT WAS NOT DISPROVED EITHER; THE APELLANTS EXPLANATION WAS NOT ACCEPTED BUT ITS CIRCUMSTANCES DOES NOT LEAD TO THE REASONABLE AND P OSITIVE INFERENCE THAT ITS CASE IS FALSE SINCE THERE IS NO MATERIAL IN THE HANDS OF THE ASSESSING OFFICER TO SHOW THAT EITHER THE AMOUNTS VOLUNTARILY ADMITTED BY THE APPELLANT OR THOSE ASSE SSED BY THE ASSESSING OFFICER WERE THE CONCEALED INCOMES OF THE APPELLANT FOR THE RELEVANT ASSESSMENT YEARS UNDER CONSIDERATION. IT IS ALSO PERTINENT TO MENTION HERE THAT WHILE EFFECTING ADDI TIONS IN RESPECT OF UNEXPLAINED CASH CREDITS THE ASSESSING OFFICER COULD NOT IDENTIFY IN THE BODY OF THE ASSESSMENT ORDER THE SPECIFIC CR EDITORS IN RESPECT OF WHOM HE RECKONED THAT THE CREDITS ARE NOT GENUIN E. IN THE ABSENCE OF ANY SPECIFIC NEXUS BETWEEN THE AGGREGATE AMOUNTS DISALLOWED AND THE SPECIFIC CREDIT WISE CREDITS IT CANNOT BE HELD THAT THE ASSESSING OFFICER HAS FOUND THE EXPLANATIO N OF THE APPELLANT FALSE AND ACCORDINGLY IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANTS CASE CONCEALMENT PENALTIES AS PER EXPLANATION 1 TO SECTION 271(1) OF THE ACT WERE NOT EXIGIBLE. (III) IT WOULD NOT BE IRRELEVANT AT THIS JUNCTURE TO DWELL ON THE ISSUE OF WHETHER THE APPELLANT DURING THE SCRUTINY ASSESSMENT PROCEEDINGS WAS PREVAILED UPON TO SURRENDER ADDITI ONAL INCOMES FOR ALL THE THREE ASSESSMENT YEARS. ALTHOUGH THE L ETTER OF THE 5 APPELLANT DATED 18.12.2007 DOES NOT EXPLICITLY INDI CATE ANY CONDITIONAL OFFER OF ADDITIONAL INCOME UNDER DURESS THE POSSIBILITY OF FINALIZING A COMPRISING ASSESSMENTS I.E. OFFER O F ADDITIONAL INCOMES IN RETURN FOR ASSURANCE OF NON-INITIATION O F PENALTY AND PROSECUTION PROCEEDINGS CANNOT BE RULED OUT IN THE PRESENT CASE. IF THAT BE THE CASE IT WOULD BE UNJUST AND UNFAIR T O INITIATE AND LEVY CONCEALMENT PENALTIES ON THE APPELLANT WITHOUT THE DEPARTMENT LAYING ITS HANDS ON ANY INCRIMINATING MATERIAL TO E STABLISH FOOLPROOF CONCEALMENT ON THE PART OF THE APPELLANT. IN ANY C ASE SUCH AN ISSUE HAS BEEN RENDERED ACADEMIC IN VIEW OF THE DEC ISION TAKEN IN FAVOUR OF THE APPELLANT ON THE MERITS OF THE CASE. 4. NOW THE REVENUE HAS PREFERRED AN APPEAL BEFORE T HE TRIBUNAL AND PLACED A HEAVY RELIANCE UPON THE PENALTY ORDERS. 5. THE LD. COUNSEL FOR THE ASSESSEE ON THE OTHER HA ND HAS SUBMITTED THAT ASSESSEE HAS PLACED ALL RELEVANT EVIDENCE TO PROVE THE GENUINENESS OF THE CREDITS AND THE IDENTITY AND CREDITWORTHINESS OF TH E CREDITORS. FOR MAKING AN ADDITION MERE EXPLANATIONS WERE NOT ACCEPTED BY THE REVENUE AUTHORITIES. BUT IT DOES NOT MEAN THAT THERE IS A CONCEALMENT ON THE PART OF THE ASSESSEES. HE HAS FURNISHED THE COMPLETE DETAILS B EFORE THE REVENUE AUTHORITIES AND IN SUCH TYPE OF CASES THE PENALTY P ROCEEDINGS U/S 271(1)(C) CANNOT BE INITIATED. 6. HAVING CAREFULLY EXAMINED THE ORDER OF THE LOWER AUTHORITIES AND IN THE LIGHT OF RIVAL SUBMISSIONS WE FIND THAT PENALTY WAS LEVIED ON ACCOUNT OF NON- ACCEPTANCE OF THE EXPLANATIONS OF THE ASSESSEES. T HOUGH THE ASSESSEE HAS PLACED THE RELEVANT EVIDENCE TO PROVE THE GENUINENE SS OF CASH CREDITS BUT IT WAS NOT ACCEPTED BY THE A.O. FOR CERTAIN REASONS. ON ACCOUNT OF NON- ACCEPTANCE OF THE EXPLANATIONS THE ADDITION CAN BE MADE BUT THE PENALTY PROCEEDINGS BEING A QUASI-CRIMINAL PROCEEDINGS SHOU LD NOT BE INITIATED. IF THE ASSESSING OFFICER WANTS TO IMPOSE PENALTY HE HAS T O MAKE OUT A CASE THAT ASSESSEE HAS EITHER CONCEALED THE INCOME WHICH IS E XIGIBLE TO TAX OR HAS FURNISHED THE INACCURATE PARTICULARS. WITHOUT BRIN GING EVIDENCE ON RECORD PENALTY U/S 271(1)(C) SHOULD NOT BE IMPOSED. 6 7. WE HAVE CAREFULLY EXAMINED THE ORDER OF THE CIT (A) AND WE FIND THAT HE HAS MADE THE THREAD BEAR ANALYSIS IN HIS ORDER. SINCE WE DO NOT FIND ANY INFIRMITY THEREIN WE CONFIRM HIS ORDER. 8. IN THE RESULT THE APPEALS OF THE REVENUE ARE DIS MISSED. PRONOUNCED IN THE OPEN COURT ON 19.7.2010 SD/- SD/- (BR BASKARAN) (SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER VG/SPS VISAKHAPATNAM DATED 19 TH JULY 2010 COPY TO 1 ITO WARD-1 RAJAHMUNDRY 2 M/S. RAGHAVENDRA FINANCE D.NO.36-10-1 STADIUM R OAD RAJAHMUNDRY 3 THE CIT RAJAHMUNDRY 4 THE CIT(A) RAJAHMUNDRY 5 THE DR ITAT VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM