The ACIT, Circle-2(1), Vijayawada., Vijayawada v. M/s Agri Gold Foods & Farm Products Ltd.(formerly Agri Gold Farms Ltd.), Vijayawada

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SHRI BR BASKARAN ACCOUNTANT MEMBER ITA NOS.414 TO 420/VIZAG/2009 ASSESSMENT YEARS : 2000-01 TO 2006-07 RESPECTIVELY ACIT CIRCLE-2(1) VIJAYAWADA M/S. AGRI GOLD FOODS & FARM PRODUCTS LTD (FORMERLY AGRI GOLD FARM LTD.) VIJAYAWADA (APPELLANT) VS. (RESPONDENT) PAN NO.AABCA 8733R APPELLANT BY: SHRI SUBRATA SARKAR DR RESPONDENT BY: SHRI G.V.N. HARI CA AND SHRI M. CHANDRAMOULESWARA RAO CA ORDER PER BENCH:- THESE APPEALS ARE PREFERRED BY THE REVENUE AGAINS T THE RESPECTIVE ORDERS OF THE CIT(A) DELETING THE PENALTIES LEVIED U/S 271(1)(C) OF THE I.T. ACT (HEREINAFTER CALLED AS AN ACT). WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY PERUSED THE ORDERS OF THE AUTHORITIES BEL OW AND DOCUMENTS PLACED ON RECORD. 2. THE FACTS IN BRIEF BORNE OUT FROM THE RECORD ARE THAT THE ASSESSEE COMPANY BELONGING TO AGRI GOLD GROUP IS ENGAGED IN THE BUSINESS OF PURCHASE OF AGRICULTURAL LANDS AND SELLING THE SAME IN A SMALL FARM PLOTS APART FROM OTHER ALLIED ACTIVITIES SUCH AS MANUFACT URE AND TRADING IN FOOD PRODUCTS ETC. SEARCH U/S 132 OF THE ACT WAS CONDUC TED AT VARIOUS PREMISES OF THIS GROUP ON 24.11.2005. CONSEQUENTLY ASSESSM ENT U/S 153A R.W.S. 143(3) WERE COMPLETED DURING WHICH PENALTY PROCEEDI NGS U/S 271(1)(C) WERE INITIATED. DURING THE COURSE OF ASSESSMENT PROCEED INGS IT WAS OBSERVED BY THE A.O. THAT THE ASSESSEE FORMULATED CERTAIN SCHEM ES FOR SALE OF FARM PLOTS (I) LUMPSUM SCHEME IN WHICH ENTIRE SALE CONSIDERATI ON WAS COLLECTED AT THE TIME OF SALE ITSELF (II) SWIFT INSTALMENT MONTHLY S CHEME (SIM) IN WHICH ASSESSEE COLLECTED SALE CONSIDERATION IN MONTHLY IN STALMENTS AND (III) SWIFT 2 INSTALMENT DAILY SCHEME (SID) IN WHICH THE ASSESSEE COLLECTED SALE CONSIDERATION IN INSTALMENTS ON DAILY BASIS. AS PE R THE ACCOUNTING SYSTEM FOLLOWED BY THE ASSESSEE THE CONSIDERATIONS RECEIV ED UNDER LUMPSUM SCHEME WAS SHOWN AS SALE RECEIPTS IN THE YEAR OF RE CEIPT WHILE THE AMOUNT COLLECTED UNDER THE SIM AND SID WAS SHOWN AS ADVANC ES IN THE BALANCE SHEET. THE SAME WERE SHOWN AS SALE RECEIPTS AFTER THE COLLECTION OF LAST INSTALMENT. AGAINST SUCH RECEIPTS /ADVANCES THE A SSESSEE DEBITED THE ENTIRE EXPENDITURE ON MARKETING IN THE PROFIT AND LOSS ACC OUNT OF THE YEAR IN WHICH THE SAME WAS INCURRED. CERTAIN OTHER EXPENSES WERE PARTLY CLAIMED UNDER THE HEAD DEFERRED REVENUE AND CARRIED OVER TO THE BALANCE SHEET. IT WAS FURTHER OBSERVED BY THE A.O. THAT IN THE RETURN OF INCOME ORIGINALLY FILED ASSESSEE DEBITED MARKETING DEVELOPMENT AND LAND DE VELOPMENT EXPENDITURE UNDER THE HEAD DEFERRED REVENUE EXPENDITURE AND 1 /5 TH OF THE SAME WAS WRITTEN OFF EACH YEAR. HOWEVER IN THE RETURNS FIL ED U/S 153A THE ENTIRE EXPENDITURE WAS CLAIMED AS REVENUE EXPENDITURE IN T HE YEAR IN WHICH THE SAME WAS INCURRED. THE A.O. FURTHER OBSERVED THAT CERTAIN EXPENSES INCURRED IN CASH WERE SUPPORTED BY SELF MADE VOUCHERS AND H ENCE MAY NOT BE VERIFIABLE. HE ACCORDINGLY CONCLUDED THAT THE ACCO UNTING SYSTEM OF THE ASSESSEE WAS NOT IN ACCORDANCE WITH THE MATCHING C OST CONCEPT AND TRUE PROFITS CANNOT BE DETERMINED THERE FROM. THE A.O. THEREFORE PROPOSED TO ESTIMATE THE INCOME OF THE ASSESSEE AT 8% OF THE GR OSS RECEIPTS. AFTER DISCUSSION WITH THE CHAIRMAN OF THE GROUP SHRI A.V. RAMA RAO THE INCOME WAS ESTIMATED AND ASSESSED @ 5% OF GROSS RECEIPTS I N EACH ASSESSMENT YEAR. THE PENALTY PROCEEDINGS U/S 271(1)(C) OF TH E ACT WAS ALSO INITIATED. 3. IN RESPONSE TO THE SHOW CAUSE NOTICE ISSUED IN PE NALTY PROCEEDINGS THE ASSESSEE FILED A REPLY DATED 8 TH MARCH 2008 STATING THAT THERE WAS NO CONCEALMENT OF ANY INCOME BY THE ASSESSEE OR NO INA CCURATE PARTICULARS OF INCOME WERE FURNISHED IN ANY OF THE ASSESSMENT YEAR S. THE ASSESSMENT WAS COMPLETED ON AGREED BASIS WHEREIN THE ASSESSEE HAS AGREED FOR DETERMINATION OF INCOME ON ESTIMATED BASIS TO AVOID ANY DISPUTE WITH THE DEPARTMENT AND ALSO TO BUY PEACE. ON SUCH FACTS AN D SITUATION PENALTY IS NOT LEVIABLE U/S 271(1)(C) OF THE ACT. THE EXPLANA TIONS OF THE ASSESSES WERE REJECTED BY THE A.O. AND HE LEVIED THE MINIMUM PENA LTY U/S 271(1)(C) AFTER 3 CONCLUDING THAT ASSESSEE COMPANY FAILED TO FURNISH ACCURATE PARTICULARS OF INCOME AND RESORTED TO CONCEALMENT OF INCOME BY WAY OF SUPPRESSION OF RECEIPTS AND INFLATION OF EXPENDITURE UNDER VARIOUS HEADS. 4. THE ASSESSEE PREFERRED APPEALS AGAINST THE PENAL TY U/S 271(1)(C) LEVIED IN DIFFERENT ASSESSMENT YEARS AND FILED A WR ITTEN SUBMISSION STATING THEREIN THAT A.O. HAS NOT MADE ANY SPECIFIC ALLEGAT ION NOR DID HE POINTED OUT ANY SPECIFIC EXCESS CLAIM OF EXPENDITURE OR ANY ESC APED ITEM OF INCOME IN TIME EITHER DURING THE COURSE OF SEARCH OPERATION O R DURING THE COURSE OF ASSESSMENT PROCEEDINGS OR PENALTY PROCEEDINGS WITH ANY POSITIVE MATERIAL ON RECORD OR WITH ANY DOCUMENTARY EVIDENCE. THE CHARG ES LEVELED IN THE SHOW CAUSE NOTICE WERE ONLY WILD ALLEGATIONS BASED ON AS SUMPTIONS AND SURMISES. THE ACCOUNTS OF THE ASSESSEE FIRM WERE DULY AUDITED BY THE CHARTERED ACCOUNTANTS AND STATUTORY AUDITORS HAVE CERTIFIED T HE ACCOUNTS TO BE TRUE AND FAIR AND THE POLICY OF THE COMPANY FOR REVENUE RECO GNITION WAS NOT ADVERSELY COMMENTED UPON. IT WAS ALSO CONTENDED BEFORE THE C IT(A) THAT THE ACCOUNTING POLICY FOR REVENUE RECOGNITION FOLLOWED BY THE ASSESSEE WAS IN ACCORDANCE WITH THE ACCOUNTING STANDARDS ISSUED IN THE CASE OF REAL ESTATE ACCOUNTING AND GUIDANCE NOTES ISSUED BY THE INSTITUT E OF CHARTERED ACCOUNTANTS OF INDIA. THE A.O. COULD NOT BRING ANY THING ON RECORD TO SHOW THAT ASSESSEE HAS SUPPRESSED THE TAXABLE INCOME BY FOLLOWING SUCH ACCOUNTING POLICY. IN FACT A TEAM OF INSPECTORS WA S DEPUTED TO THE BUSINESS PREMISES OF THE ASSESSEE COMPANY TO VERIFY THE BILL S AND VOUCHERS AND OTHER EVIDENCE OF EXPENDITURES AND NO ERROR WAS POINTED O UT BY THE INSPECTORS TEAM. THE ASSESSES CLAIM OF DEBITING THE ENTIRE EX PENDITURE IN THE PROFIT AND LOSS ACCOUNT OF THE YEAR IN WHICH THE SAME WAS INCU RRED INSTEAD OF CLAIMING A DEFERRED REVENUE EXPENDITURE WAS IN ACCORDANCE WI TH THE PROVISIONS OF SECTION 37(1) OF THE ACT. THE ASSESSEE DISALLOWED CERTAIN EXPENDITURE IN THE RETURNS FILED U/S 153A SOLELY IN ORDER TO HONOUR TH E COMMITMENT MADE DURING THE SEARCH PROCEEDINGS TO PAY THE ADDITIONAL TAX. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AN AGREEMENT WAS REACHED WIT H THE CHAIRMAN OF THE GROUP FOR ESTIMATION OF TOTAL INCOME AT 5% OF THE G ROSS RECEIPTS WITH A CLEAR AGREEMENT AND UNDERSTANDING THAT THE AGREEMENT FOR ESTIMATION DID NOT MEAN ANY CONCEALMENT OF INCOME AND NO FURTHER ADDIT ION/DISALLOWANCE WOULD 4 BE MADE TO THE ESTIMATED INCOME AND NO PENALTY OR P ROSECUTION WOULD BE INITIATED AGAINST THE COMPANYS FIRMS AND INDIVIDUA LS OF THE GROUP. THIS AGREEMENT IS EVIDENT FROM THE LETTER DATED 27.12.20 07 ADDRESSED TO THE A.O. HE HAS ALSO PLACED A RELIANCE UPON VARIOUS JUDGEMEN TS. 5. THE CIT(A) EXAMINED THE CLAIM OF THE ASSESSES IN THE LIGHT OF VARIOUS JUDGEMENTS AND ARRIVED AT A CONCLUSION THAT THE INC OME OF THE ASSESSEE WAS ESTIMATED ON AGREED BASIS AND NOTHING HAS BEEN BROU GHT ON RECORD BY THE A.O. TO SHOW THAT THE ASSESSEE HAS EITHER CONCEALED THE PARTICULARS OF ITS INCOME OR FURNISHED INACCURATE PARTICULARS OF ITS I NCOME. HE ACCORDINGLY DELETED THE PENALTY. THE RELEVANT OBSERVATION OF T HE CIT(A) ARE EXTRACTED HEREUNDER FOR THE SAKE OF REFERENCE.: I HAVE DULY CONSIDERED THE SUBMISSIONS OF THE APPEL LANT AND THE MATERIAL AVAILABLE ON RECORD. IT IS EVIDENT FROM TH E FACTS MENTIONED IN THE ASSESSMENT ORDER AND THE PENALTY ORDER THAT NO EVID ENCE WAS FOUND DURING SEARCH SHOWING THE SUPPRESSION OF RECEIPTS OR INFLA TION OF EXPENDITURE. AO HAS ADVERSELY COMMENTED ON THE ACCOUNTING POLICY AD OPTED BY THE APPELLANT COMPANY FOR REVENUE RECOGNITION. IT WAS STATED THAT THE SAME DEFEAT THE MATCHING COST CONCEPT BETWEEN THE REVENUE AND EXPEN DITURE. THIS ACCOUNTING POLICY WAS CONSISTENTLY FOLLOWED BY THE APPELLANT SINCE DAY ONE AND WAS ACCEPTED BY THE DEPARTMENT BEFORE THE SEARC H. HENCE THIS ISSUE CANNOT LEAD TO INFERENCE THAT THE APPELLANT HAS EIT HER CONCEALED THE PARTICULARS OF INCOME OR FURNISHED INACCURATE PARTI CULARS OF INCOME REQUIRING LEVY OF PENALTY U/S 271(1)(C) OF THE ACT. SIMILARL Y THE AOS OBSERVATIONS THAT CERTAIN EXPENDITURE WERE INCURRED IN CASH WERE SUP PORTED BY SELF MADE VOUCHERS AND HENCE NOT VERIFIABLE CANNOT BE A GROU ND FOR LEVY OF PENALTY U/S 271(1)(C) OF THE ACT. THERE WAS NO MATERIAL ON REC ORD TO SHOW THAT THE EXPENDITURE CLAIMED BY THE APPELLANT WERE BOGUS IN NATURE OR WERE NOT ALLOWABLE U/S 37(1) OF THE ACT. THE AO HAS NOT DIS CHARGED THE BURDEN OF ESTABLISHING THAT BY CLAIMING THE SAID EXPENDITURE THE APPELLANT HAD CONCEALED ITS INCOME. MERELY BECAUSE THE AO DID NO T AGREE WITH THE APPELLANT WITH REGARD TO ACCOUNTING POLICY AND MAIN TENANCE OF ACCOUNTS IT COULD NOT BE SAID THAT THERE WAS CONCEALMENT OF INC OME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME. THIS IS THE RATI O LAID DOWN BY THE HONBLE ITAT HYDERABAD IN THE CASE OF NAVABHARAT ENTERPRIS ES PVT. LTD. (309 ITR [AT]79) WHICH IN TURN FOLLOWED THE DECISIONS OF HON BLE SUPREME COURT IN THE CASES OF K.C. BUILDERS (265 ITR 562) VIRTUAL SOFT SYSTEMS LTD. (289 ITR 83) AND T. ASHOK PAI (292 ITR 11). THE OBSERVATION OF THE HONBLE SUPREME COURT IN THE LAST MENTIONED CASE IS ENLIGHTENING THE WORD INACCURATE IN THE CONTEXT OF LEVYING P ENALTY UNDER SECTION 271(1)(C) SIGNIFIES A DELIBERATE OMIS SION ON THE PART OF THE ASSESSEE. SUCH DELIBERATE ACT MUST BE EITHE R FOR THE PURPOSE OF CONCEALMENT OF INCOME OR FURNISHING OF I NACCURATE PARTICULARS. 5 THE ASSESSING OFFICER IS REQUIRED TO ARRIVE AT A F INDING THAT THE EXPLANATION OFFERED BY THE ASSESSEE IN THE EVE NT HE OFFERS ONE WAS FALSE. HE MUST BE FOUND TO HAVE FAILED TO PROV E THAT SUCH EXPLANATION WAS NOT ONLY NOT BONA FIDE BUT ALL THE FACTS RELATING TO THE SAME WHICH ARE MATERIAL TO THE INCOME WERE NOT DISCLOSED BY HIM. THUS APART FROM HIS EXPLANATION BEING NOT BON A FIDE IT SHOULD BE FOUND AS A FACT THAT HE HAS NOT DISCLOSED ALL TH E FACTS WHICH WERE MATERIAL FOR THE COMPUTATION OF HIS INCOME. THE ORDER IMPOSING PENALTY IS QUASI-CRIMINAL IN NA TURE AND THE BURDEN LIES ON THE DEPARTMENT TO ESTABLISH THAT THE ASSESSEE HAS CONCEALED HIS INCOME. SINCE THE BURDEN OF PROO F IN PENALTY PROCEEDINGS VARIES FROM THAT IN THE ASSESSMENT PROC EEDING A FINDING IN AN ASSESSMENT PROCEEDING THAT A PARTICUL AR RECEIPT IS INCOME CANNOT AUTOMATICALLY BE ADOPTED THOUGH A FI NDING IN THE ASSESSMENT PROCEEDING CONSTITUTES GOOD EVIDENCE IN THE PENALTY PROCEEDINGS. IN THE PENALTY PROCEEDINGS THE AUTHORI TIES MUST CONSIDER THE MATTER AFRESH AS THE QUESTION HAS TO B E CONSIDERED FROM A DIFFERENT ANGLE. IT IS NOW A WELL SETTLED PRINCIPLE OF LAW THAT THE MORE THE LAW IS STRINGENT MORE STRICT A CONSTRUCTION THEREOF WO ULD BE NECESSARY. EVEN WHEN THE BURDEN IS REQUIRED TO BE DISCHARGED B Y AN ASSESSEE IT WOULD NOT BE AS HEAVY AS THAT ON THE PROSECUTION P. N. KRISHNA LAL V. GOVERNMENT OF KERALA [1995] SUPP 2 SCC 187 F OLLOWED. THE REQUIREMENTS AND CONDITIONS OF IMPOSING THE PE NALTY U/S 271(1)(C) READ WITH ITS EXPLANATIONS HAVE BEEN ELABORATELY E XPLAINED BY THE HONBLE ITAT LUCKNOW IN THE CASE OF STAR INTERNATIONAL PVT. LTD. (308 ITR [AT] 33). THE HEAD NOTES OF THIS DECISION READS AS UNDER UNDER EXPLANATION 1(B) TO SECTION 271(1)(C) OF TH E INCOME- TAX ACT 1961 THERE ARE THREE CONDITIONS WHICH ARE REQUIRED TO BE SATISFIED SIMULTANEOUSLY VIZ. (A) THE ASSESSEE OF FERS AN EXPLANATION WHICH HE IS NOT ABLE TO SUBSTANTIATE; (B) HE FAILS TO PROVE THAT SUCH EXPLANATION IS BONA FIDE AND (C) ALL THE FACTS RELA TING TO THE SAME AND MATERIAL TO THE COMPUTATION OF TOTAL INCOME HAV E BEEN DISCLOSED BY HIM. UNLESS THE ASSESSING OFFICER GIV ES A FINDING ON THE BASIS OF MATERIAL ON RECORD THAT ALL THE THREE CONDITIONS ARE CUMULATIVELY AND SIMULTANEOUSLY SATISFIED PENALTY UNDER SECTION 271(1)(C) OF THE ACT READ WITH EXPLANATION 1(B) CAN NOT BE LEVIED. ONCE IT IS TO BE HELD THAT THE PARTICULARS FURNISHE D BY THE ASSESSEE ARE INACCURATE IT WOULD REQUIRE THE ASSESSING OFFI CER TO SHOW WHAT SHOULD BE THE ACCURATE PARTICULARS. MERELY DISBELI EVING THE CLAIM OF THE ASSESSEE WOULD NOT BE SUFFICIENT. THERE ARE TWO THINGS TO BE COMPARED: (A) WHAT IS FURNISHED BY THE ASSESSEE AND (B) WHAT IS FURNISHED BY THE ASSESSING OFFICER EITHER FROM THE ASSESSEE OR FROM A THIRD PARTY WHICH HE CONSIDERS TO BE ACCURATE. F URTHER THIS INACCURACY SHOULD HAVE A MATERIAL BEARING ON THE CO MPUTATION OF 6 INCOME. IF THE INACCURACY IS SUCH THAT IT DOES NOT AFFECT THE COMPUTATION OF INCOME IT WOULD NOT ATTRACT THE LEVY OF PENALTY. PAYMENT OF COMMISSION TO VILLAGERS ARTISANS AND UN EDUCATED PERSONS THROUGH BEARER CHEQUES IS A COMMON PHENOMEN ON. UNLESS IT IS FOUND THAT MONEY ON THE BEARER CHEQUES DID NOT REALLY GO TO THE PAYEE IT CANNOT BE PRESUMED THAT PAYMENT AS CLAIMED WAS ACTUALLY NOT SO MADE. THUS A POSITIVE ACT ON T HE PART OF THE ASSESSING OFFICER TO PROVE THAT THE PARTICULARS FUR NISHED BY THE ASSESSEE WERE INACCURATE IS NECESSARY. MERELY DEPE NDING ON REJECTION OF THE CLAIM IS NOT SUFFICIENT FOR THE PU RPOSES OF LEVYING PENALTY. SIMILAR RATIO WAS LAID DOWN IN THE CASE OF GUJARAT CREDIT CORPORATION LTD. VS. ACIT (302 ITR (AT) 250)(SB)(AHD) WHERE IT WAS HELD THAT- CONCEALMENT PROCEEDINGS ARE PENAL IN CHARACTER AND UNDER THE SUBSTANTIVE PROVISIONS OF SECTION 271(1)(C) OF THE ACT IT IS FOR THE DEPARTMENT TO PROVE THAT THE ASSESSEE HAS CONCEALED PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS THER EOF TO BRING THE CASE OF THE ASSESSEE WITHIN THE MISCHIEF OF THE MAI N PROVISIONS OF SECTION 271(1)(C) OF THE ACT. MERE REJECTION OF TH E ASSESSEES CLAIM WOULD NOT BE SUFFICIENT TO HOLD THE ASESSEE GUILTY OF CONCEALMENT. IT IS BY VIRTUE OF THE EXPLANATION ONLY THAT THE AS SESSING OFFICER HAS BEEN GIVEN A RIGHT TO RAISE A PRESUMPTION THAT A SUM ADDED TO INCOME OR DISALLOWED IN COMPUTING THE INCOME OF A P ERSON REPRESENTS INCOME IN RESPECT OF WHICH PARTICULARS H AVE BEEN CONCEALED IF THE ASSESSEE DID NOT FURNISH AN EXPLA NATION OR WHEN THE EXPLANATION FURNISHED WAS FOUND FALSE OR WHEN S UCH PERSON OFFERS AN EXPLANATION WHICH HE IS NOT ABLE TO SUBST ANTIATE OR FAILS TO PROVE THAT SUCH EXPLANATION IS BONA FIDE AND THAT A LL THE FACTS RELATING TO AN MATERIAL TO THE COMPUTATION OF HIS T OTAL INCOME HAVE BEEN DISCLOSED BY HIM. IN OTHER WORDS THE EXPLANA TION COULD EXONERATE AN ASSESSEE IF IT WAS BONA FIDE AND ALL THE FACTS RELATING TO IT AND MATERIAL TO THE COMPUTATION OF HIS TOTAL INCOME HAVE BEEN DISCLOSED BY AN ASSESSEE. PART B OF THE EXPLANATION STARTS WITH THE WORDS SU CH PERSON OFFERS AN EXPLANATION WHICH HE IS NOT ABLE TO SUBSTANTIATE . NOT ABLE TO SUBSTANTIATE DOES NOT MEAN NOT ACCEPTED BY THE AUT HORITY CONCERNED BUT NOT SHOWING A SUBSTANCE IN THE CLAIM MADE BY THE ASSESSEE. THE WORD SUBSTANTIATE IS OPPOSITE TO T HE WORDS VAGUE OR FANCIFUL OR WITHOUT ANY FOUNDATION OR BASIS. I T CANNOT BE EQUATED WITH THE EXPENDITURE/LOSS DISALLOWED. IN THE APPELLANTS CASE NEITHER ANY POSITIVE CONCEA LMENT WAS FOUND BY AO NOR HE HAS GIVEN ANY FINDING THAT ALL THE THREE CONDITIONS MENTIONED IN EXPLANATION 1(B) TO SECTION 271(1)(C) WERE CUMULAT IVELY AND SIMULTANEOUSLY SATISFIED. IN FACT THE APPELLANT COMPANY HAD OFFER ED AN EXPLANATION WHICH WAS BONAFIDE AND WHICH IT WAS ABLE TO SUBSTANTIATE. 7 THE FACTS OF THE APPELLANTS CASE ARE SIMILAR TO TH E CASE OF CAFCO SYNDICATE SHIPPING CO (294 ITR 134) (MAD.) WHERE DURING THE COURSE OF SURVEY AT THE BUSINESS PREMISES OF THE ASSESSEE IT WAS NOTICED T HAT SOME OF THE VOUCHERS OF EXPENSES WERE SELF MADE AND WERE NOT SUPPORTED B Y THIRD PARTY RECEIPTS/VOUCHERS. ASSESSEE FILED REVISED RETURN A DMITTING HIGHER INCOME. THE AO HELD THAT SINCE THE EXPENDITURE WAS NOT SUPP ORTED BY PROPER VOUCHERS THE ASSESSEE SHOULD NOT HAVE CLAIMED THE EXPENDITURE FOR DEDUCTION ESPECIALLY WHEN THE AMOUNT INVOLVED WAS HUGE. HE THEREFORE LEVIED THE PENALTY U/S 271(1)(C). THE PENALTY WAS DELETED BY THE CIT(A) AND ITAT. ON FURTHER APPEAL OF THE DEPARTMENT THE HON BLE HIGH COURT HELD THAT- DISMISSING THE APPEAL THAT THE ONE AND ONLY REASO N FOR THE ASSESSEE TO FILE THE REVISED RETURN WAS THAT IT WAS NOT ABLE TO PRODUCE THE PROPER VOUCHERS FOR THE EXPENSES INCURR ED. THE PRIMARY BURDEN OF PROOF WAS ON THE REVENUE. THE BO OKS OF ACCOUNT REVEALED THAT THE EXPENSES WERE INCURRED BY THE ASSESSEE BUT THE ONLY INCAPACITY ON THE PART OF THE ASSESSEE WAS THAT IT WAS NOT ABLE TO PRODUCE PROPER VOUCHERS FOR THE EXPENSE S INCURRED AND THAT WOULD NOT AMOUNT TO CONCEALMENT OF INCOME. THE IMPOSITION OF PENALTY UNDER SECTION 271(1)(C) WAS IMPERMISSIBL E. SIMILAR RATIO WAS HELD BY THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. JAYARAJ TALKIES (239 ITR 914) WHERE PENALTY WAS IMPOSED BY AO FOR DISALLOWANCE OF VARIOUS EXPENSES ON ACCOUNT OF NON- MAINTENANCE OF PROPER VOUCHERS AND RECEIPTS WHICH WAS AGREED TO BY THE A SSESSEE. IT WAS HELD THAT FROM THE ASSESSEE AGREEING TO ADDITIONS TO HIS INCOME IT DID NOT FOLLOW THAT THE AMOUNT AGREED TO BE ADDED WAS CONCEALED I NCOME. PENALTY IMPOSED ON THE ADDITIONS OF INCOME MADE BY WAY OF DISALLOWANCE OF EXPENSES OR OTHER TRADING ADDITIONS WAS DELETED IN THE CASES OF CIT VS. AJAIB SINGH & CO. (253 ITR 630) (P&H) C IT VS. KAILASH CROCKERY HOUSE (235 ITR 544) (PAT.) CIT VS. HONEYWELL DACE (INDIA) LTD. (292 ITR 169) (DEL.) SAHYOG SAHKARI SHRAM SAMVIDA SAMITI LTD . (2008) (25 SOT 23) (LUCK) & HARI OM KUMAR UMESH CHAND VS. ITO (257 ITR [AT] 121) (AGRA). IT IS EVIDENT THAT ASSESSMENT IN THE CASE OF APPELL ANT COMPANY WAS COMPLETED ON ESTIMATED BASIS AS AGREED BY THE APPE LLANT AND NOT ON THE BASIS OF ANY CONCEALMENT DETECTED DURING SEARCH OR DURING ASSESSMENT PROCEEDINGS. THE AO PROPOSED ESTIMATION OF INCOME @ 8% OF GROSS RECEIPTS WHICH WAS SCALED DOWN TO 5% AFTER DISCUSSION WITH T HE CHAIRMAN OF THE GROUP. DUE TO THIS AGREEMENT THE TOTAL INCOME OF A.Y. 2003-04 WAS ASSESSED AT RS.1 95 81 610/- AGAINST THE RETURNED INCOME OF RS.3 78 11 752/- I.E. LESSER THAN THE RETURNED INCO ME U/S 153A. NO ADDITION ON ACCOUNT OF SUPPRESSION OF RECEIPTS WAS MADE NOR ANY SUCH EVIDENCE WAS FOUND DURING SEARCH. THERE ARE PLETHORA OF JUDGEME NTS HOLDING THAT WHERE THE ADDITIONS OF INCOME HAVE BEEN MADE ON THE BASIS OF ESTIMATE AND NOT ON ACCOUNT OF ANY CONCRETE EVIDENCE OF CONCEALMENT PE NALTY U/S 271(1)(C) IS NOT LEVIABLE CIT VS. SANGRUR VANASPATI MILLS LTD. (303 ITR 53) (P&H) CIT VS. SMT. K. MEENAKSHI KUTTY (258 ITR 494) (MAD.) H ARIGOPAL SINGH VS. CIT (258 ITR 85) (P&H) CIT VS. M. PACHAMUTHU (295 ITR 502) (MAD.). IT WAS HELD IN CASE OF A.V.R. PRASAD VS. ITO (97 ITD 325)( HYD) THAT 8 IN RESPONSE TO THE PENALTY NOTICE THE ASSESSEE SU BMITTED THAT THE REVISED RETURNS WERE FILED IN ORDER TO PURCHASE PEA CE AND COOPERATE WITH THE DEPARTMENT WHICH STAND OF THE A SSESSEE WAS NOT FOUND TO BE FALSE BY THE DEPARTMENT. THE EXPLA NATION OF AN ASSESSEE THAT HE HAS FILED THE REVISED RETURN TO BU Y PEACE WITH THE DEPARTMENT IS A BONA FIDE EXPLANATION DEPENDING ON THE CIRCUMSTANCES OF THE CASE AND THUS AS PER THE PRO VISO TO EXPLANATION (1) THE ONUS SHIFTED ON TO THE DEPARTM ENT . [PARA 16] IN THE INSTANT CASE IT COULD NOT BE SAID THAT THE A SSESSEE HAD NOT TENDERED ANY EXPLANATION. THE ISSUE WAS WHETHER TH E EXPLANATION OFFERED BY THE ASSESSEE WAS BONA FIDE OR NOT. EXPL ANATION (1) OF SECTION 271(1)(C) SHIFTS THE ONUS ON TO THE DEPARTM ENT IF THE EXPLANATION OF THE ASSESSEE IS FOUND TO BE BONA FID E. THE QUESTION WHETHER THE EXPLANATION OF THE ASSESSEE THAT HE HAD FILED THE REVISED RETURNS TO BUY PEACE AND TO AVOID VEXATIOUS LITIGATION CAN BE CONSIDERED AS A BONA FIDE EXPLANATION OR NOT HA S TO BE EXAMINED IN THE BACKDROP OF THE FACTS AND CIRCUMSTA NCES OF EACH CASE. IT WAS FURTHER HELD THAT IN PENALTY PROCEEDINGS WHERE THE ASSESSEE HAD G IVEN AN EXPLANATION THE DUTY IS CAST UPON THE REVENUE TO H IGHLIGHT THAT THE REVISED RETURNS WERE FILED NOT MERELY TO BUY PEACE WITH THE DEPARTMENT BUT ON ACCOUNT OF DETECTION BY THE REVEN UE AUTHORITIES. SOME FACTS AND FIGURES AND ESTIMATED WORKING ARE NE CESSARY TO SHOW THAT THE FINALLY ASSESSED INCOME IS THE ACTUAL /PROBABLE INCOME EARNED BY THE ASSESSEE. IN THE INSTANT CASE SUCH AN EXERCISE HAVING NOT BEEN DONE BY THE REVENUE AUTHOR ITIES THE ASSESSING OFFICER HAD NOT MADE OUT A CASE FOR THE L EVY OF PENALTY. THEREFORE THE PENALTIES LEVIED BY THE ASSESSING OF FICER WERE TO BE CANCELLED AND THE APPEALS OF THE ASSESSEE WERE TO BE ALLOWED. [PARA 17]. IT WAS HELD IN THE CASE OF CIT VS. SURAJ BHAN (294 ITR 481) (P&H) THAT WHEN AN ASSESSEE FILES A REVISED RETURN SHOWING HI GHER INCOME AND GIVES AN EXPLANATION THAT HE OFFERED HIGHER INCOME TO BUY PE ACE OF MIND AND AVOID LITIGATION PENALTY COULD NOT BE IMPOSED MERELY ON ACCOUNT OF H IGHER INCOME HAVING BEEN SUBSEQUENTLY DECLARED. CIT V. SURESH C HANDRA MITTAL [2001] 251 ITR 9 (SC) RELIED ON. SIMILAR RATIO WAS LAID DOWN IN THE CASE OF MAHAVIR TRANSPORT CO. (23 ITD 206)(HYD) WHERE IT WAS HELD THAT THE ASSESS EE FIRM BONA FIDE AGREED TO PURCHASE PEACE WITH THE DEPARTMENT BY AGREEING T O AN ADDITION OF RS.50 PER LORRY TRIP AND THERE IS NO EVIDENCE ON RECORD T O SHOW THAT THE FREIGHT CHARGES GIVEN AND RECORDED IN THE ACCOUNTS OF THE A SSESSEE FIRM ARE EITHER FALSE OR CONCOCTED OR DELIBERATELY INFLATED. EXPLA NATGION TO SECTION 271(1)(C) WAS NOT THEREFORE APPLICABLE. FURTHER THE STATE MENTS OF THE LORRY OWNERS CANNOT BE USED FOR ANY PURPOSE WHATSOEVER INASMUCH AS NO FAIR OPPORTUNITY 9 WAS GIVEN TO THE ASSESSEE TO CROSS-EXAMINE THESE WI TNESSES. NO PENALTY WAS THEREFORE LEVIABLE. CONSIDERING ALL THE FACTS AND CIRCUMSTANCES OF THE CASE AND VARIOUS JUDICIAL PRONOUNCEMENTS DISCUSSED ABOVE IT IS HELD THAT THE INCOME OF THE APPELLANT COMPANY WAS ESTIMATED ON AGREED BASIS AND NOTHING HAS BEEN BROUGHT ON RECORD BY THE AO TO SHOW THAT THE APPELL ANT HAS EITHER CONCEALED THE PARTICULARS OF ITS INCOME OR FURNISHED INACCURA TE PARTICULARS OF ITS INCOME. HENCE PENALTY IMPOSED U/S 271(1)(C) FOR ALL THE FO UR ASSESSMENT YEARS ARE DELETED. 6. AGGRIEVED THE REVENUE HAS PREFERRED AN APPEAL B EFORE THE TRIBUNAL AGAINST THE CONSOLIDATED ORDER OF THE CIT(A) WITH T HE SUBMISSION THAT ORIGINAL RETURNS FOR THE ASSESSMENT YEAR 2001-02 TO 2005-06 WERE FILED EITHER SHOWING NIL INCOME OR NEGATIVE INCOME. DUE TO THE SEARCH ACTION THE INCOME WAS ASSESSED AT RS.14.37 CRORES COVERING ALL THE AS SESSMENT YEARS. THUS THE INCOME WAS PURELY CONCEALED INCOME IN NATURE. THE INSTALMENTS COLLECTED IN SID & SIM SCHEMES BY THE ASSESSEE WERE NOT INCLUDED I N SALES WHEREAS THE EXPENDITURE INCURRED FOR THESE TWO SCHEMES WERE DEB ITED IN THE ACCOUNTS THEREBY DEFEATED THE MATCHING CONCEPT BETWEEN THE R EVENUE AND THE EXPENDITURE. IT WAS FURTHER CONTENDED BY THE LD. D. R. THAT HAD THERE BEEN NO SEARCH OPERATION THE ISSUE RELATING TO FICTITIOU S CLAIM OF EXPENDITURE DUBIOUS METHOD OF REVENUE RECOGNITION IN THE FINANC IAL STATEMENTS COULD NOT BE NOTICED. AS THERE WAS NO OTHER ALTERNATIVE THE ASSESSEE GROUP ACCEPTED THE DISCREPANCIES IN THE ACCOUNTS FOUND OUT AS A RE SULT OF SEARCH AND OFFERED UNDISCLOSED INCOME OF RS.14.37 CRORES. 7. IT WAS FURTHER CONTENDED THAT THE AGREED ESTIMATI ON WAS NOT SIMPLY ESTIMATION OF REGULAR INCOME BUT ESTIMATION OF CONC EALED INCOME UNEARTHED AS A RESULT OF SEARCH. HAD THERE BEEN NO SEARCH AC TION THIS CONCEALED INCOME COULD NEVER HAVE SEEN THE LIGHT OF THE EARTH. THE LD. D.R. PLACED A RELIANCE UPON THE FOLLOWING JUDGEMENTS: 1. 251 ITR 99(SC) (2001) IN THE CASE OF K.P. MADHUSUDH ANAN VS. CIT 2. 99 ITD 359 (CHENNAI) (2006) IN THE CASE OF DCIT VS. SMT. K.R. KALAIMATHI. 3. 78 ITD 176 (RAJKOT) (2001) IN THE CASE OF PAWAN CO NSTRUCTION VS. ITO 4. 291 ITR 202 (GUJ)(HC)(2007) IN THE CASE OF CIT VS. CHANDRA VILAS HOTEL. 10 5. 120 ITR 144 (MAD)(HC)(1979) IN THE CASE OF CIT VS. KRISHNA & CO. 6. 122 ITR 567 (RAJ)(HC)(1980) IN THE CASE OF CIT VS. DR. R.C. GUPTA & CO. 7. 287 ITR 276 (KER)(2006) IN THE CASE OF CIT VS. R. K ESAVAN NAIR. 8. THE LD. COUNSEL FOR THE ASSESSEE BESIDES PLACING A HEAVY RELIANCE UPON THE ORDER OF THE CIT(A) AND THE WRITTEN SUBMIS SIONS FILED BEFORE THE CIT(A) APPEARING AT PAGE NOS.1 TO 12 OF THE COMPILA TION OF THE ASSESSES HAS MADE A REFERENCE TO VARIOUS ORDERS OF THE TRIBUNAL AND JUDGEMENTS OF THE APEX COURT AND DIFFERENT HIGH COURTS IN SUPPORT OF HIS CONTENTION THAT THE PENALTY U/S 271(1)(C) CANNOT BE LEVIED ON ESTIMATED OR AGREED INCOME OF THE ASSESSES. IT WAS ALSO CONTENDED THAT THE APEX COURT IN THE CASE OF CIT VS. RELIANCE PETRO PRODUCTS PVT. LTD. IN SLP NO.27161 O F 2008 HAS EXAMINED THE JUDGEMENT OF THE APEX COURT IN THE CASE OF UOI VS. DHARMENDRA TEXTILE PROCESSORS 2008 (13) SCC 369 AND UOI VS. RAJASTHAN S PINNING & WEAVING MILLS 2009(13) SCC 448 AND HAVE HELD THAT IN UOI VS. DHARMENDRA TEXTILE PROCESSORS NO FAULT WAS FOUND WITH THE REASONING IN THE DECISION IN DILIP N. SHROFF VS. JCIT 2007(6) SCC 329 WHERE THE COURT EXP LAINED THE MEANING OF TERMS CONCEALED AND INACCURATE. THEY HAVE ALSO DEFINED THE WORD INACCURATE AND THE CIRCUMSTANCES UNDER WHICH THE PENALTY U/S 271(1)(C) CAN BE LEVIED. THE LD. COUNSEL FOR THE ASSESSEE HA S ALSO PLACED THE RELIANCE UPON VARIOUS JUDGEMENTS IN WHICH IT HAS BEEN REPEAT EDLY HELD THAT FOR ATTRACTING THE PENALTY PROVISIONS A STRICT PROOF IS REQUIRED AND ONUS TO PROVE THE SAME IS ON THE DEPARTMENT AND WHERE THE ASSESS MENT IS MADE ON ESTIMATE BASIS THE PENALTY U/S 271(1)(C) IS NOT IM POSABLE. THE JUDGEMENTS REFERRED TO BY THE ASSESSES ARE AS UNDER: 1. R.V. RAYANAM VS. ACIT ITA 118/VIZAG/2005 DATED 30.1 1.2009 2. M/S. EAST COAST INSULATIONS VS. DCIT ITA 329/VIZAG/ 2005 DATED 27.2.2009. 3. CIT VS. RELIANCE PETRO PRODUCTS PVT. LTD. - CIVIL A PPEAL OF 2010 ARISING OUT OF SLP(C) NO.27161 OF 2008 IN THE HONB LE SUPREME COURT OF INDIA DATED 17.3.2010 4. GEM GRANITES (KARNATAKA) VS. DCIT (2009) 120 TTJ (C HENNAI) 992 5. CIT VS. MODDI INDUSTRIAL CORPORATION (2010) 34 DTR (P&H) 158 6. DR. HAKEEM S.A. SYED SATHAR VS. ACIT (2009) 123 TTJ (CHENNAI) 573 7. CIT VS. RAM PRAKASH (2008) 6 DTR (ALL) 295. 11 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULL Y PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE DOCUMENTS PLACED O N RECORD AND THE JUDGEMENT REFERRED TO BY THE PARTIES. UNDISPUTEDLY THE ASSESSEE COMPANY ENGAGED IN BUSINESS OF PURCHASE AND SALE OF AGRICUL TURAL LANDS HAS FORMULATED CERTAIN SCHEMES. IN LUMPSUM SCHEMES THE ENTIRE SALE CONSIDERATION WAS COLLECTED AT THE TIME OF SALE ITS ELF AND THE PROFIT EARNED THERE ON WAS OFFERED TO TAX IN THE SAME YEAR. BUT IN SWIFT INSTALMENT MONTHLY SCHEMES (SIM) AND SWIFT INSTALMENT DAILY SCHEME (SID ) THE ENTIRE SALE CONSIDERATION WAS NOT COLLECTED AT ONE POINT OF TIM E. IT WAS RECEIVED IN MONTHLY INSTALMENTS IN SIM AND ON DAILY BASIS IN SID . IN BOTH THESE SCHEMES THE AMOUNTS COLLECTED WAS SHOWN AS ADVANCE S IN THE BALANCE SHEET. THE ENTIRE AMOUNT COLLECTED WAS SHOWN AS SA LE RECEIPTS AFTER THE COLLECTION OF THE LAST INSTALMENT. THIS METHOD OF ACCOUNTING WAS NOT DISPUTED BY THE REVENUE AS IT WAS IN ACCORDANCE WITH THE GUI DELINES OF INSTITUTE OF CHARTERED ACCOUNTANTS. THE DISPUTE WAS WITH REGARD TO THE EXPENDITURE INCURRED ON MARKETING DEBITED IN THE PROFIT & LOSS ACCOUNT IN THE YEAR IN WHICH THE SAME WAS INCURRED. THE OBJECTION OF THE REVENUE WAS THAT THE EXPENDITURES RELATING TO SIM & SID WAS ALSO DEBITED TO IN THE PROFIT & LOSS ACCOUNT WHERE AS THE RECEIPT UNDER THESE SCHEMES WE RE NOT OFFERED TO TAX. THE A.O. ACCORDINGLY CONCLUDED THAT THE ACCOUNTING SYSTEM OF THE ASSESSEE WAS NOT IN ACCORDANCE WITH THE MATCHING COST CONCEP T AND TRUE PROFITS CANNOT BE DETERMINED THERE FROM. 10. THE ASSESSEE HAS EMPHATICALLY CONTENDED THE AC COUNTS OF THE ASSESSEE COMPANY WAS DULY AUDITED AND THE ACCOUNTING POLICY FOR REVENUE RECOGNITION FOLLOWED BY THE ASSESSEE WAS IN ACCORDANCE WITH THE ACCOUNTING STANDARDS ISSUED IN THE CASE OF REAL ESTATE ACCOUNTING AND GU IDANCE NOTES ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. THE CO MPLETE FACTS RELATING TO BUSINESS ACTIVITIES WERE PROPERLY EXPLAINED TO THE A.O. AND EXPENDITURES OR RECEIPTS RELATING TO ALL THESE SCHEMES WERE ALSO PR OPERLY ACCOUNTED FOR IN THE REGULAR BOOKS OF ACCOUNTS OF THE ASSESSES. THOUGH THE ASSESSEE HAS CLAIMED THAT DEBITING THE ENTIRE EXPENDITURE IN THE PROFIT & LOSS ACCOUNT OF THE YEAR IN WHICH THE SAME WAS INCURRED INSTEAD OF CLAIMING A DEFERRED REVENUE EXPENDITURE WAS IN ACCORDANCE WITH THE PROVISIONS OF SECTION 37(1) OF THE ACT 12 BUT IT WAS NOT ACCEPTED BY THE A.O. ON THE GROUND T HAT THE ACCOUNTS ARE NOT MAINTAINED IN ACCORDANCE WITH THE MATCHING COST CON CEPT. IT IS NOT A CASE OF THE REVENUE THAT THE ASSESSEE HAS CONCEALED CERTAIN FACTS OR THE INCOME CHARGEABLE TO TAX. THOUGH THE REVENUE HAS CLAIMED THAT ASSESSEE HAS FURNISHED THE INACCURATE PARTICULARS BUT THERE IS N O EVIDENCE THAT BY ADOPTING A PARTICULAR METHOD OF ACCOUNTING THE ASSESSEE CAN BE CALLED TO HAVE FURNISHED THE INACCURATE PARTICULARS INVITING THE P ENALTY U/S 271(1)(C) OF THE ACT MORESO IN THE LIGHT OF THE FACTS THAT THE ASSES SEE HAS AGREED FOR ESTIMATION OF INCOME AT A PARTICULAR PERCENTAGE OF THE GROSS RECEIPT. DURING THE COURSE OF HEARING OUR ATTENTION WAS INVITED BY THE LD. D.R. TO THE JUDGEMENT OF THE APEX COURT IN THE CASE OF UOI VS. DHARMENDRA TEXTILE PROCESSORS (SUPRA) AND UOI VS. RAJASTHAN SPINNING & WEAVING MILLS (SUPRA). BOTH THESE JUDGEMENTS WERE CONSIDERED BY THE APEX C OURT IN THE CASE OF CIT VS. RELIANCE PETRO PRODUCTS PRIVATE LTD. (SUPRA) AN D THEIR LORDSHIP HAVE CATEGORICALLY HELD THAT A MERE MAKING OF THE CLAIM WHICH IS NOT SUSTAINABLE IN LAW BY ITSELF WILL NOT AMOUNT TO FURNISHING INACCUR ATE PARTICULARS REGARDING THE INCOME OF THE ASSESSES. SUCH CLAIM MADE IN THE RET URN CANNOT AMOUNT TO INACCURATE PARTICULARS. THEIR LORDSHIP HAVE ALSO H ELD THAT ON THE POINT OF MENS REA JUDGEMENT OF DILIP N. SHROFF VS. JCIT (SUP RA) WAS UPSET BY THE APEX COURT THROUGH ITS JUDGEMENT IN THE CASE OF UOI VS. DHARMENDRA TEXTILE PROCESSORS BUT MERELY BECAUSE THE ASSESSEE HAD CLAI MED THE EXPENDITURE WHICH CLAIM WAS NOT ACCEPTED OR WAS NOT ACCEPTABLE TO THE REVENUE THAT BY ITSELF WOULD NOT ATTRACT THE PENALTY U/S 271(1)(C) OF THE ACT. THEIR LORDSHIP FURTHER EXPLAINED THAT IF THE CONTENTION OF THE REV ENUE IS ACCEPTED IN CASE OF EVERY RETURN WHERE THE CLAIM MADE IS NOT ACCEPTED B Y THE A.O. FOR ANY REASON THE ASSESSEE WILL INVITE PENALTY U/S 271(1) (C) OF THE ACT AND THAT IS CLEARLY NOT THE INTENDMENT OF THE LEGISLATURE. THE RELEVANT OBSERVATIONS OF THE APEX COURT IN THIS REGARD ARE EXTRACTED HEREUND ER: THEREFORE IT IS OBVIOUS THAT IT MUST BE SHOWN THAT THE CONDITIONS UNDER SECTION 271(1)(C) MUST EXIST BEFORE THE PENAL TY IS IMPOSED. THERE CAN BE NO DISPUTE THAT EVERYTHING WOULD DEPEND UPON THE RETURN FILED BECAUSE THAT IS THE ONLY DOCUMENT WHERE THE ASSESSEE CAN F URNISH THE PARTICULARS OF HIS INCOME. WHEN SUCH PARTICULARS ARE FOUND TO BE INACCURATE THE LIABILITY WOULD ARISE. IN DILIP N. SHROFF VS. JOINT COMMISSIO NER OF INCOME TAX MUMBAI & ANR. [2007(6) SCC 329] THIS COURT EXPLAIN ED THE TERMS 13 :CONCEALMENT OF INCOME AND FURNISHING INACCURATE PARTICULARS. THE COURT WENT ON TO HOLD THEREIN THAT IN ORDER TO ATTRACT TH E PENALTY UNDER SECTION 271(1)(C) MENS REA WAS NECESSARY AS ACCORDING TO THE COURT THE WORD INACCURATE SIGNIFIED A DELIBERATE ACT OR OMISSION ON BEHALF OF THE ASSESSEE. IT WENT ON TO HOLD THAT CLAUSE (III) OF SECTION 271( 1) PROVIDED FOR A DISCRETIONARY JURISDICTION UPON THE ASSESSING AUTHO RITY IN AS MUCH AS THE AMOUNT OF PENALTY COULD NOT BE LESS THAN THE AMOUNT OF TAX SOUGHT TO BE EVADED BY REASON OF SUCH CONCEALMENT OF PARTICULARS OF INCOME BUT IT MAY NOT EXCEED THREE TIMES THEREOF. IT WAS POINTED OUT THAT THE TERM INACCURATE PARTICULARS WAS NOT DEFINED ANYWHERE IN THE ACT AN D THEREFORE IT WAS HELD THAT FURNISHING OF AN ASSESSMENT OF THE VALUE OF TH E PROPERTY MAY NOT BY ITSELF BE FURNISHING INACCURATE PARTICULARS. IT WA S FURTHER HELD THAT THE ASSESSEE MUST BE FOUND TO HAVE FAILED TO PROVE THAT HIS EXPLANATION IS NOT ONLY NOT BONA FIDE BUT ALL THE FACTS RELATING TO TH E SAME AND MATERIAL TO THE COMPUTATION OF HIS INCOME WERE NOT DISCLOSED BY HIM . IT WAS THEN HELD THAT THE EXPLANATION MUST BE PRECEDED BY A FINDING AS TO HOW AND IN WHAT MANNER THE ASSESSEE HAD FURNISHED THE PARTICULARS OF HIS INCOME. THE COURT ULTIMATELY WENT ON TO HOLD THAT THE ELEMENT OF MENS REA WAS ESSENTIAL. IT WAS ONLY ON THE POINT OF MENS REA THAT THE JUDGEMEN T IN DILIP N. SHROFF VS. JCIT MUMBAI & ANR. WAS UPSET. IN UNION OF INDIA VS. DHARAMANDRA TEXTILE PROCESSORS (CITED SUPRA) AFTER QUOTING FROM SECTIO N 271 EXTENSIVELY AND ALSO CONSIDERING SECTION 271(1)(C) THE COURT CAME TO TH E CONCLUSION THAT SINCE SECTION 271(1)(C) INDICATED THE ELEMENT OF STRICT L IABILITY ON THE ASSESSEE FOR THE CONCEALMENT OR FOR GIVING INACCURATE PARTICULAR S WHILE FILING RETURN THERE WAS NO NECESSITY OF MENS REA. THE COURT WENT ON TO HOLD THAT THE OBJECTIVE BEHIND ENACTMENT OF SECTION 271(1)(C) READ WITH EXP LANATIONS INDICATED WITH THE SAID SECTION WAS FOR PROVIDING REMEDY FOR LOSS OF REVENUE AND SUCH A PENALTY WAS A CIVIL LIABILITY AND THEREFORE WILLF UL CONCEALMENT IS NOT AN ESSENTIAL INGREDIENT FOR ATTRACTING CIVIL LIABILITY AS WAS THE CASE IN THE MATTER OF PROSECUTION UNDER SECTION 276C OF THE ACT. THE BAS IC REASON WHY DECISION IN DILIP N. SHROFF VS. JCIT MUMBAI & ANR. (CITED SUPR A) WAS OVERRULED BY THIS COURT IN UNION OF INDIA VS. DHARAMENDRA TEXTILE PRO CESSORS (CITED SUPRA) WAS THAT ACCORDING TO THIS COURT THE EFFECT AND DIF FERENCE BETWEEN SECTION 271(1)(C) AND SECTION 276-C OF THE ACT WAS LOST SIG HT OF IN THE CASE OF DILIP N. SHROFF VS. JCIT MUMBAI & ANR. (CITED SUPRA). HOWE VER IT MUST BE POINTED OUT THAT IN UNION OF INDIA VS. DHARAMENDRA TEXTILE PROCESSORS (CITED SUPRA) NO FAULT WAS FOUND WITH THE REASONING IN THE DECISI ON IN DILIP N. SHROFF VS. JCIT MUMBAI & ANR. (CITED SUPRA) WHERE THE COURT EXPLAINED THE MEANING OF THE TERMS CONCEAL AND INACCURATE. IT WAS ONLY T HE ULTIMATE INFERENCE IN DILIP N. SHROFF VS. JCIT MUMBAI & ANR. (CITED SUPR A) TO THE EFFECT THAT MENS REA WAS AN ESSENTIAL INGREDIENT FOR THE PENALTY UND ER SECTION 271(1)(C) THAT THE DECISION IN DILIP N. SHROFF VS. JCIT MUMBAI & ANR. (CITED SUPRA) WAS OVERRULED. WE ARE NOT CONCERNED IN THE PRESENT CASE WITH THE MENS REA. HOWEVER WE HAVE TO ONLY SEE AS TO WHETHER IN THIS CASE AS A MATTER OF FACT THE ASSESSEE HAS GIVEN INACCURATE PARTICULARS. IN W EBSTERS DICTIONARY THE WORD INACCURATE HAS BEEN DEFINED AS:- NOT ACCURATE NOT EXACT OR CORRECT; NOT ACCORDING TO TRUTH; ERRONEOUS; AS AN INACCURATE STATEMENT COPY OR TRANSCRIPT. 14 WE HAVE ALREADY SEEN THE MEANING OF THE WORD PART ICULARS IN THE EARLIER PART OF THIS JUDGEMENT. READING THE WORDS IN CONJUNCTION THEY MUST MEAN THE DETAILS SUPPLIED IN THE RETURN WHICH ARE NOT ACCURATE NOT EXACT OR CORRECT NOT ACCORDING TO TRUTH OR ERRONEOUS. WE MUST HASTEN TO ADD HERE THAT IN THIS CASE THER E IS NO FINDING THAT ANY DETAILS SUPPLIED BY THE ASSESSEE IN ITS RETURN WERE FOUND TO BE INCORRECT OR ERRONEOUS OR FALSE. SUCH NOT BEING THE CASE TH ERE WOULD BE NO QUESTION OF INVITING THE PENALTY UNDER SECTION 271(1)(C) OF THE ACT. A MERE MAKING OF THE CLAIM WHICH IS NOT SUSTAINABLE IN LAW BY ITS ELF WILL NOT AMOUNT TO FURNISHING INACCURATE PARTICULARS REGARDING THE INC OME OF THE ASSESSEE. SUCH CLAIM MADE IN THE RETURN CANNOT AMOUNT TO THE INACC URATE PARTICULARS. IT WAS TRIED TO BE SUGGESTED THAT SECTION 14A OF TH E ACT SPECIFICALLY EXCLUDED THE DEDUCTIONS IN RESPECT OF THE EXPENDITU RE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. IT WAS FURTHER POINTED OUT THAT THE DIVIDENDS FROM THE SHARES DID NOT FORM THE PART OF THE TOTAL INCOME. IT WAS THEREFORE REITERATED BEFORE US THAT THE ASSESSING OFFICER HAD CORRECTLY REACHED THE CONCLUSION THAT SINCE THE ASSESSEE HAD CLAIMED EXCESSIVE DEDUCTIONS KNOWI NG THAT THEY ARE INCORRECT; IT AMOUNTED TO CONCEALMENT OF INCOME. I T WAS TRIED TO BE ARGUED THAT THE FALSEHOOD IN ACCOUNTS CAN TAKE EITHER OF T HE TWO FORMS; (I) AN ITEM OF RECEIPT MAY BE SUPPRESSED FRAUDULENTLY; (II) AN ITE M OF EXPENDITURE MAY BE FALSELY (OR IN AN EXAGGERATED AMOUNT) CLAIMED AND BOTH TYPES ATTEMPT TO REDUCE THE TAXABLE INCOME AND THEREFORE BOTH TYPE S AMOUNT TO CONCEALMENT OF PARTICULARS OF ONES INCOME AS WELL AS FURNISHIN G OF INACCURATE PARTICULARS OF INCOME. WE DO NOT AGREE AS THE ASSESSEE HAD FURNI SHED ALL THE DETAILS OF ITS EXPENDITURE AS WELL AS INCOME IN ITS RETURN WHICH DETAILS IN THEMSELVES WERE NOT FOUND TO BE INACCURATE NOR COULD BE VIEWED AS THE CONCEALMENT OF INCOME ON ITS PART. IT WAS UP TO THE AUTHORITIES TO ACCEPT ITS CLAIM IN THE RETURN OR NOT. MERELY BECAUSE THE ASSESSEE HAD CLA IMED THE EXPENDITURE WHICH CLAIM WAS NOT ACCEPTED OR WAS NOT ACCEPTABLE TO THE REVENUE THAT BY ITSELF WOULD NOT IN OUR OPINION ATTRACT THE PENAL TY UNDER SECTION 271(1)(C). IF WE ACCEPT THE CONTENTION OF THE REVENUE THEN IN C ASE OF EVERY RETURN WHERE THE CLAIM MADE IS NOT ACCEPTED BY ASSESSING O FFICER FOR ANY REASON THE ASSESSEE WILL INVITE PENALTY UNDER SECTION 271( 1)(C). THAT IS CLEARLY NOT THE INTENDMENT OF THE LEGISLATURE. IN THIS BEHALF THE OBSERVATIONS OF THIS COURT MADE IN SREE KRISHNA ELECTRICALS VS. STATE OF TAMIL NADU & ANR. [(2009) 23 VST 249 (SC)] AS REGARDS THE PENALTY ARE APPOSITE. IN THE AFOREMENTIONED DECISION WHICH PERTAINED TO T HE PENALTY PROCEEDINGS IN TAMIL NADU GENERAL SALES TAX ACT TH E COURT HAD FOUND THAT THE AUTHORITIES BELOW HAD FOUND THAT THERE WERE SOM E INCORRECT STATEMENTS MADE IN THE RETURN. HOWEVER THE SAID TRANSACTIONS WERE REFLECTED IN THE ACCOUNTS OF THE ASSESSEE. THIS COURT THEREFORE O BSERVED: SO FAR AS THE QUESTION OF PENALTY IS CONCERNED TH E ITEMS WHICH WERE NOT INCLUDED IN THE TURNOVER WERE FOUND INCORPORATE D IN THE APPELLANTS 15 ACCOUNT BOOKS. WHERE CERTAIN ITEMS WHICH ARE NOT I NCLUDED IN THE TURNOVER ARE DISCLOSED IN THE DEALERS OWN ACCOUNT BOOKS AND THE ASSESSING AUTHORITIES INCLUDE THESE ITEMS IN THE DEALERS TURNOVER DISALL OWING THE EXEMPTION PENALTY CANNOT BE IMPOSED. THE PENALTY LEVIED STAN DS SET ASIDE. 11. WE HAVE ALSO EXAMINED THE FACTS OF THE CASE AND WE FIND THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE A.O. HAD M ADE A PROPOSAL TO ESTIMATE THE INCOME AT 8% OF THE GROSS RECEIPT AND IT WAS SCALED DOWN TO 5% AFTER DISCUSSION WITH THE CHAIRMAN OF THE GROUP. T HUS THE INCOME OF THE ASSESSEE WAS ESTIMATED ON AN AGREEMENT OF THE ASSES SEE THROUGH ITS LETTER DATED 27.12.2007. THE ISSUE WHETHER THE PENALTY CA N BE LEVIED ON AN AGREED ADDITION WAS ALSO EXAMINED BY THE TRIBUNAL IN THE C ASE OF EAST COAST INSULATIONS VS. DCIT (SUPRA) AND GEM GRANITES VS. DC IT (SUPRA) IN WHICH TRIBUNAL HAS EXAMINED THE JUDGEMENT OF THIS APEX CO URT IN THE CASE OF DHARAMENDRA TEXTILE PROCESSORS BESIDES OTHER JUDGE MENTS AND HAVE HELD THAT THOUGH THE LIABILITY MAY BE A CIVIL LIABILITY BUT IT CANNOT BE EQUATED WITH OTHER LIABILITY OF PAYMENT OF TAX IN THE ACT. THER EFORE FOR ATTRACTING THE PENALTY PROVISIONS A STRICT PROOF IS REQUIRED AND O NUS TO PROVE THE SAME IS ON THE DEPARTMENT. 12. IN THE CASE OF CIT VS. MODDI INDUSTRIAL CORPORATI ON (2010) 34 DTR (P&H)158 THEIR LORDSHIP OF THE PUNJAB & HARYANA HIG H COURT HAVE FURTHER HELD THAT ASSESSEES ASSESSMENT HAVING BEEN MADE ON ESTIMATE BASIS PENALTY U/S 271(1)(C) IS NOT IMPOSABLE VIS--VIS ADDITIONS MADE TO THE INCOME. THE TRIBUNAL IN THE CASE OF DR. HAKEEM S.A. SYED SATHAR VS. ACIT 123 TTJ 573 HAS TAKEN A SIMILAR VIEW IN CASE OF PENALTY LEVIED U/S 158 BFA(2) AND HAS HELD THAT THE ADDITIONS ON THE BASIS OF THE ESTIMATE DOE S NOT IPSO FACTO SUPPLY EVIDENCE OF CONCEALMENT SO AS TO JUSTIFY THE PENALT Y. THE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. RAMPRAKASH (2008) 6 DT R (ALL) 295 HAS ALSO HELD WHERE THE ASSESSEE HAS SHOWN THAT ALL THE FACTS WER E DISCLOSED BY HIM AND THE EXPLANATION WAS NOT FOUND LACKING BONA FIDE TH E PENALTY U/S 271(1)(C) IS NOT LEVIABLE. 13. WE HAVE ALSO EXAMINED THE CASE LAWS REFERRED TO BY THE REVENUE BUT THEY ALL ARE DISTINGUISHABLE ON FACTS. IN ALL THOSE CASES THERE ARE SOME EVIDENCE OF CONCEALMENTS OR FURNISHING OF INACCURAT E PARTICULARS. BUT IN THE 16 INSTANT CASE THE ASSESSEE HAS ACCOUNTED FOR ALL RE CEIPTS IN DIFFERENT SCHEMES AND THE EXPENDITURES RELATING THERETO. THE DISPUTE WAS WITH REGARD TO THE EXCESS CLAIM OF EXPENDITURE WITH REGARD TO THOSE SC HEMES FOR WHICH THE RECEIPTS WERE NOT OFFERED TO TAX. ASSESSEE HAS FUR NISHED THE PROPER EXPLANATIONS FOR ADOPTING A PARTICULAR SYSTEM OF AC COUNTING WHICH IS RECOGNIZED AS PER THE GUIDELINES OF THE INSTITUTE OF CHARTERED ACCOUNTANTS BUT THAT EXPLANATIONS WAS NOT ACCEPTED BY THE A.O. WHIC H RESULTED INTO AN AGREED ADDITIONS. SINCE THE ASSESSEE HAS DISCLOSED ALL FA CTS BEFORE THE A.O. AND ACCOUNTED FOR ALL RELEVANT RECEIPTS AND EXPENDITURE S IN THE BOOKS OF ACCOUNTS THE ACTION OF THE ASSESSES CANNOT BE TERMED TO BE E ITHER CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS. WE THEREFORE FIND OURSELVES IN AGREEMENT WITH THE FINDINGS OF THE CIT(A) WHO HAS R IGHTLY ADJUDICATED THE ISSUE BEFORE DELETING THE PENALTY IN ALL APPEALS. WE THEREFORE CONFIRM HIS ORDERS. 14. IN THE RESULT THE APPEALS OF THE REVENUE ARE DI SMISSED. PRONOUNCED IN THE OPEN COURT ON 30.4.2010 SD/- SD/- (BR BASKARAN) (SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER VG/SPS VISAKHAPATNAM DATED 30 TH APRIL 2010 COPY TO 1 THE ACIT CIRCLE-2(1) VIJAYAWADA 2 M/S. AGRI GOLD FOODS & FARM PRODUCTS LTD. (FORME RLY AGRI GOLD FARMS LTD.) 40-1-21/3 SURYA TOWERS 1 ST FLOOR M.G. ROAD VIJAYAWADA-520 010. 3 THE CIT (CENTRAL) HYDERABAD 4 THE CIT(A) HYDERABAD 5 THE DR ITAT VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM