M/s SVC Projects(P) Ltd,, Visakhapatnam v. The JCIT, Range-4., Visakhapatnam

ITA 646/VIZ/2008 | 2004-2005
Pronouncement Date: 15-03-2011 | Result: Allowed

Appeal Details

RSA Number 64625314 RSA 2008
Bench Visakhapatnam
Appeal Number ITA 646/VIZ/2008
Duration Of Justice 2 year(s) 3 month(s) 11 day(s)
Appellant M/s SVC Projects(P) Ltd,, Visakhapatnam
Respondent The JCIT, Range-4., Visakhapatnam
Appeal Type Income Tax Appeal
Pronouncement Date 15-03-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted DB
Tribunal Order Date 15-03-2011
Date Of Final Hearing 25-10-2010
Next Hearing Date 25-10-2010
Assessment Year 2004-2005
Appeal Filed On 04-12-2008
Judgment Text
ITA 646/V/08 SVC PROJECTS P LTD. VSKP IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SHRI BR BASKARAN ACCOUNTANT MEMBER ITA NO. 646 /VIZAG/ 20 08 ASSESSMENT YEAR : 2004 - 05 SVC PROJECTS (P) L TD VISAKHAPATNAM VS. JCIT RANGE - 4 VISAKHAPATNAM (APPELLANT) (RESPONDENT) PAN NO.AAFCS 3057D APPELLANT BY: SHRI C. SUBRAHMANYAM CA RESPONDENT BY: SHRI TH.L. PETER CIT(DR) ORDER PER SHRI S.K. YADAV JUDICIAL MEMBER:- THIS APPEAL OF THE ASSESSEE IS PREFERRED AGAINST THE ORDER OF THE CIT(A) CONFIRMING THE PENALTY LEVIED U/S 271(1)(C) AFTER HAVING INVOKED THE EXPLANATION 2 TO SECTION 271(1)(C) OF THE I.T. ACT BY THE A.O. 2. THE FACTS IN BRIEF WITH REGARD TO THE IMPUGNED I SSUE ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN TH E BUSINESS OF EXECUTION OF CIVIL CONTRACT WORKS. FOR THE ASSESSMENT YEAR 2004 -05 THE ORIGINAL RETURN OF INCOME WAS FILED ON 31.10.2004 ADMITTING THE INCOME OF RS.1 05 96 720/-. A SURVEY U/S 133A WAS CONDUCTED IN THE BUSINESS PREMI SES OF THE ASSESSEE ON 10.3.2005. IN THE COURSE OF SURVEY PROCEEDINGS A CERTAIN DISCREPANCIES WERE NOTICED IN THE BOOKS OF ACCOUNTS BILLS AND VOUCHER S MAINTAINED BY THE ASSESSEE AND AN ADDITIONAL INCOME OF RS.65 LAKHS WA S DISCLOSED BY THE ASSESSEE TO COVER UP SUCH DEFICIENCY NOTED IN THE A CCOUNTS. SUBSEQUENTLY THE ASSESSEE FILED A REVISED RETURN OF INCOME OF 17 .3.2005 DISCLOSING AN INCOME OF RS.1 70 96 720/-. ACCORDINGLY THE ASSES SMENT FOR THE ASSESSMENT YEAR 2004-05 WAS COMPLETED. 3. FOR THE ASSESSMENT YEAR 2005-06 THE ASSESSEE FIL ED RETURN OF INCOME ON 31.10.2005 DECLARING AN INCOME OF RS.2 25 61 000 /-. ON EXAMINATION OF THE PROFIT AND LOSS ACCOUNT FILED ALONG WITH THE RE TURN OF INCOME THE A.O. ITA 646/V/08 SVC PROJECTS P LTD. VSKP 2 OBSERVED THAT ADDITIONAL INCOME OF RS.65 LAKHS DECL ARED FOR ASSESSMENT YEAR 2004-05 SUBSEQUENT TO THE SURVEY WAS TREATED AS A P ART OF OTHER RECEIPTS AND THE SAID AMOUNT WAS CLAIMED AS A DEDUCTION IN THE C OMPUTATION OF INCOME FILED ALONG WITH THE RETURN OF INCOME ON THE GROUND THAT THE SAID AMOUNT WAS ALREADY OFFERED FOR TAXATION FOR THE ASSESSMENT YEA R 2004-05. THE A.O. FURTHER FOUND THAT SAID AMOUNT OF RS.65 LAKHS WAS C LAIMED AS A SOURCE OF INVESTMENT FOR GIVING SITE ADVANCES TO THE KENDRAPA RA WORK SITE. THEREFORE BY INVOKING THE EXPLANATION 2 TO SECTION 271(1)(C) THE A.O. INITIATED THE PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT FOR TH E ASSESSMENT YEAR 2004- 05. 4. IN RESPONSE TO PENALTY NOTICE THE ASSESSEE CONT ENDED BEFORE THE ASSESSING OFFICER THAT ORIGINALLY THE ADVANCES PAID WHICH WERE IN THE NATURE OF CAPITAL OUTGO WERE WRONGLY BOOKED AS REVENUE EXPEND ITURE IN THE BOOKS OF ACCOUNTS. IN THE COURSE OF SURVEY THE ASSESSEE RE CTIFIED THE SAME AND OFFERED THE INCOME. BUT THE PAYMENTS BEING CAPITAL IN NATURE IT WAS ALWAYS OPEN TO THE ASSESSEE TO SHOW IT UNDER THE CORRECT H EAD I.E. CAPITAL EXPENDITURE IN THE BOOKS OF ACCOUNTS. AS THE BOOKS OF ACCOUNTS OF THE ASSESSEE FOR THE YEAR ENDING 31.3.2004 HAD ALREADY BEEN CLOSED BY THE TIME OF SURVEY THE RECTIFICATION ENTRIES COULD BE PASSE D ONLY IN THE YEAR ENDING ON 31.3.2005 EVEN THOUGH THE TRANSACTION PERTAINED TO THE YEAR ENDING 31.3.2004. AS NO ADDITION WAS MADE IN THE ASSESSME NT ORDER FOR THE ASST. YEAR 2004-05 WHICH WAS COMPLETED U/S 143(3) VIDE OR DER DATED 30.3.2006 EXPLANATION 2 TO SECTION 271(1)(C) CANNOT BE INVOKE D. 5. THE ASSESSING OFFICER HOWEVER DID NOT ACCEPT T HE SAID EXPLANATION. THE ASSESSING OFFICER WAS OF THE VIEW THAT ADVANCE S BOOKED AS REVENUE EXPENDITURE WAS NEVER THE ISSUE IN CONSIDERATION E ITHER DURING OR AFTER THE SURVEY PROCEEDINGS. RATHER THE ASSESSEE DISCLOSED THE ADDITIONAL INCOME ON ACCOUNT OF THE FACT THAT EXPENDITURES UNDER THE HEA DS `LABOUR CHARGES `MACHINERY MAINTENANCE ETC. WERE NOT SUPPORTED BY PROPER VOUCHERS & BILLS AS WELL AS SATISFACTORY PROOF. FURTHER THE ASSESS ING OFFICER OBSERVED THAT FILING OF THE REVISED RETURN FOR THE ASST. YEAR 200 4-05 INCORPORATING THE ADDITIONAL INCOME WAS NOT A VOLUNTARY ACT ON THE PA RT OF THE ASSESSEE AND IN ITA 646/V/08 SVC PROJECTS P LTD. VSKP 3 FACT THE REVISED RETURN WAS FILED ONLY BECAUSE OF T HE DEFECTS NOTICED BY THE DEPARTMENT IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE IN COURSE OF THE SURVEY. THEREFORE BY INVOKING THE PROVISIONS CONTAINED IN EXPLANATION 2 TO SECTION 271(1)(C) THE ASSESSING OFFICER IMPOSED A PENALTY OF RS.25 LAKHS AS AGAINST THE MINIMUM PENALTY LEVIABLE OF RS.23 32 000/- AND MAXIMUM PENALTY LEVIABLE OF RS.69 96 000/-. 6. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT( A) WITH THE SUBMISSION THAT WHILE COMPLETING THE ASSESSMENT FOR THE ASSESSMENT YEAR 2005-06 THE ASSESSING OFFICER INITIATED THE PENALT Y PROCEEDINGS U/S 271(1)(C) FOR THAT ASSESSMENT YEAR VIDE NOTICE DATED 26.12.20 07. HOWEVER HE IMPOSED THE PENALTY FOR THE ASSESSMENT YEAR 2004-05 WITHOUT INITIATING THE PENALTY FOR THAT ASSESSMENT YEAR. THE SAID ACTION OF THE A.O. IS HIGHLY IRREGULAR AND NOT IN CONFORMITY WITH LAW. IT WAS F URTHER CONTENDED THAT DISCREPANCIES WAS IN THE NATURE OF BOOKING TO REVEN UE EXPENDITURE ITEMS WHICH WERE ONLY ADVANCES AND WERE IN THE NATURE OF CAPITAL OUTFLOW. THE ASSESSEE DISCLOSED THE ADDITIONAL INCOME OF RS.65 L AKHS FOR THE ASSESSMENT YEAR 2004-05 DUE TO THE SAID DISCREPANCIES/IRREGULA RITIES. THE DISCREPANCIES WERE DULY RECTIFIED BY PASSING APPROPRIATE ENTRIES IN THE BOOKS FOR THE YEAR ENDING 31.3.2005 I.E. FOR A.Y. 2005-06. THE ENTRIE S PASSED WAS DEBITING KENDRAPARA SITE ADVANCE WITH RS.65 LAKHS AND CREDIT ING MISCELLANEOUS INCOME WITH THE SAME AMOUNT. THOUGH IN THE BOOKS RELEVANT CREDIT WAS GIVEN TO THE INCOME DURING THE FINANCIAL YEAR 2004-05 THE INCOM E ACTUALLY BELONGED TO ASSESSMENT YEAR 2004-05. THE ENTRIES MADE IN THE B OOKS OF ACCOUNTS DID NOT RESULT IN A NEW ADVANCE AT THE KENDRAPARA WORK SITE . 7. IT WAS FURTHER CONTENDED BEFORE THE CIT(A) THAT THE EXPLANATION 2 TO SECTION 271(1)(C) IS APPLICABLE ONLY WHEN CERTAIN A DDITIONS ARE MADE IN THE ASSESSMENT. NO ADDITIONS WERE MADE WHILE COMPLETIN G THE ASSESSMENT FOR THE ASSESSMENT YEAR 2004-05 WHEREIN THE INCOME DIS CLOSED BY THE ASSESSEE IN THE REVISED RETURN WAS ACCEPTED. IT WAS FURTHER CONTENDED THAT EXPLANATION 2 TO SECTION 271(1)(C) IS APPLICABLE ON LY IN CASE OF INTANGIBLE ADDITIONS LIKE APPLICATION OF PRESUMPTIVE RATE OF GROSS PROFIT OR OF YIELD OR ON ACCOUNT OF ESTIMATED DISALLOWANCE OF CERTAIN EXPENS ES SHORTFALL WASTAGE ITA 646/V/08 SVC PROJECTS P LTD. VSKP 4 ETC. MADE BY THE ASSESSING OFFICER IN THE COURSE O F ASSESSMENT PROCEEDINGS. BUT IN THE INSTANT CASE NO SUCH ADDITIONS EITHER I NTANGIBLE OR TANGIBLE WAS MADE WHILE COMPLETING THE ASSESSMENT. HE HAS ALSO PLACED A RELIANCE UPON THE ORDER OF THE TRIBUNAL IN THE CASE OF ACIT VS. A VTAR SINGH REPORTED AT 86 TTJ 1075. 8. THE CIT(A) RE-EXAMINED THE ISSUE IN THE LIGHT OF ASSESSEES CONTENTIONS BUT HE WAS NOT CONVINCED WITH IT. WHILE CONFIRMING THE PENALTY LEVIED BY THE A.O. THE CIT(A) HAS OBSERVED THAT IN THE STATEMENT OF THE MANAGING DIRECTOR OF THE ASSESSEE COMPANY RECORDED DURING THE COURSE OF SURVEY AS WELL AS IN THE NOTE FILED ALONG WITH THE REVISED RETURN SUBSEQ UENT TO THE SURVEY IT WAS UNEQUIVOCALLY STATED THAT THE ADDITIONAL INCOME OF RS.65 LAKHS WAS OFFERED BECAUSE DEFICIENCY AND IRREGULARITIES NOTICED IN MA INTAINING LABOUR AS WELL AS EXPENDITURE VOUCHERS. THEREFORE THE ADDITIONAL IN COME OF RS.65 LAKHS WAS DISCLOSED TO COVER THE DEFICIENCY OR IRREGULARITIES IN MAINTENANCE OF LABOUR CHARGES VOUCHERS AND THE EXPENDITURE VOUCHERS ETC. NOWHERE IT WAS STATED THAT DISCLOSURE WAS ON ACCOUNT OF WRONGLY TREATING CERTAIN CAPITAL EXPENDITURE AS REVENUE EXPENDITURE. THEREFORE THE EXPLANATION 2 TO SECTION 271(1)(C) WAS PROPERLY INVOKED BY THE A.O. THE RELEVANT OBSE RVATION OF THE CIT(A) ARE EXTRACTED HEREUNDER FOR THE SAKE OF REFERENCE: I HAVE CAREFULLY EXAMINED THE FACTS OF THE CASE AS WELL AS THE SUBMISSIONS MADE BY THE AUTHORIZED REPRESENTATIVE O F THE APPELLANT. VIDE THE FIRST GROUND OF APPEAL THE APPELLANT HAS OBJECTED TO THE FACT THAT THOUGH PENALTY PROCEEDINGS WERE INITIATED FOR THE ASST. YE AR 2005-06 THE PENALTY WAS IMPOSED FOR THE ASST. YEAR 2004-05 WITHOUT INIT IATING ANY PENALTY PROCEEDINGS FOR THAT ASST. YEAR. VERIFICATION OF T HE RECORD INDICATE THAT THE ASSESSMENT FOR THE ASST. YEAR 2005-06 WAS COMPLETED ON 26.12.2007AND SIMULTANEOUSLY ON THE SAID DATE PENALTY PROCEEDING S U/S 271(1)(C) WAS INITIATED. THE COPY OF THE NOTICE DATED 26.12.2007 INITIATING PENALTY PROCEEDINGS CLEARLY INDICATE THAT THE SAID PENALTY PROCEEDINGS WAS INITIATED FOR THE ASST. YEAR 2005-06. HOWEVER VIDE SHOW CAU SE LETTER DATED 13.6.2008 THE ASSESSING OFFICER CLEARLY INDICATED THAT THE PE NALTY PROCEEDINGS WERE INITIATED FOR THE ASST. YEAR 2004-05 IN VIEW OF EXP LANATION 2 TO SECTION 271(1)(C). IN FACT WHILE INITIATING THE PENALTY P ROCEEDINGS AT THE TIME OF COMPLETION OF THE ASSESSMENT FOR THE ASST. YEAR 200 5-06 THE ASSESSING OFFICER IN THE BODY OF THE ASSESSMENT ORDER CLEARL Y MENTIONED THAT IN THE LIGHT OF THE ABOVE ADMISSION MADE BY THE ASSESSEE D URING THE COURSE OF SURVEY AND AS THE ASSESSEE IS CLAIMING THIS ADMISSI ON AS A SOURCE FOR INVESTMENT MADE BY THE ASSESSMENT COMPANY PENALTY PROVISIONS U/S 271(1)(C) ARE SQUARELY APPLICABLE AND THEREFORE T HE PENALTY PROCEEDINGS ARE INITIATED SEPARATELY FOR THIS. THEREFORE THE ASS ESSING OFFICER CLEARLY SPELT OUT ITA 646/V/08 SVC PROJECTS P LTD. VSKP 5 THE REASON FOR INITIATING THE PENALTY PROCEEDINGS U /S 271(1)(C) TO THE EFFECT THAT THE ADDITIONAL INCOME DISCLOSED FOR THE ASST. YEAR 2004-05 WAS CLAIMED AS A SOURCE OF INVESTMENT IN THE ASST. YEAR 2005-06 . HENCE THE ASSESSING OFFICER CLEARLY HAD IN MIND THE PROVISIONS CONTAINE D IN EXPLANATION 2 TO SEC.271(1)(C) WHILE INITIATING THE PENALTY PROCEEDI NGS. THEREFORE MENTIONING OF THE ASST. YEAR AS 2005-06 IN THE PENALTY NOTICE DATED 26.12.2007 IS PRIMA- FACIE APPEARS TO BE A TYPOGRAPHICAL ERROR WHICH WAS SUBSEQUENTLY RECTIFIED BY THE ASSESSING OFFICER VIDE THE SHOW CAUSE LETTER DA TED 23.6.2008. IN THIS CONTEXT THE PROVISIONS CONTAINED IN SEC.292B OF TH E ACT ARE RELEVANT. SEC.292B HAS BEEN ENACTED TO PROVIDE AGAINST PURELY TECHNICAL OBJECTIONS WITHOUT SUBSTANCE COMING IN THE WAY OF THE VALIDITY OF THE ASSESSMENT PROCEEDINGS ETC. IT HAS BEEN PROVIDED THAT NO RETU RN OF INCOME ASSESSMENT NOTICE SUMMONS OR OTHER PROCEEDINGS SHALL BE INVAL ID MERELY BY REASON OF ANY MISTAKE DEFECT OR OMISSION IF THE RETURN ASS ESSMENT NOTICE SUMMONS OR OTHER PROCEEDINGS IS IN SUBSTANCE AND EFFECT IN CONFORMITY WITH OR ACCORDING THE INTENT AND PURPOSE OF THE ACT. IN TH E INSTANT CASE THE INTENTION OF THE ASSESSING OFFICER WAS CLEAR AND TR ANSPARENT AND THEREFORE MENTIONING THE WRONG ASST. YEAR IN THE ORIGINAL PEN ALTY NOTICE IS A CURABLE MISTAKE AS PER THE PROVISIONS CONTAINED IN SEC.292B AND THE SAID MISTAKE WAS IN FACT CURED BY THE SUBSEQUENT SHOW CAUSE LETTER D T.23.6.2008. THEREFORE THIS GROUND OF APPEAL IS DISMISSED. THE NEXT GROUND OF APPEAL PERTAINS TO APPLICABILIT Y OF EXPLANATION 2 TO S.271(1)(C) OF THE ACT. AS PER EXPLANATION 2 TO U/ S 271(1)(C) ANY RECEIPT DEPOSIT OUTGOING OR INVESTMENT CAN BE TREATED AS I NCOME IN RESPECT OF WHICH INACCURATE PARTICULARS WERE FURNISHED OF THE YEAR I N WHICH ADDITION OF AMOUNT UTILIZED FOR RECEIPT DEPOSIT OUTGOING ETC. WAS M ADE. THE EXPLANATION RAISES A PRESUMPTION OF CONCEALMENT OF INCOME OR FURNISHIN G OF INACCURATE PARTICULARS OF INCOME. THE EXPLANATION IS APPLICAB LE IN CASES WHERE TANGIBLE OR INTANGIBLE ADDITION IS MADE BUT THERE IS NO SUFF ICIENT PROOF TO LEVY THE PENALTY. THE SAID PROOF IS FURNISHED BY THE ASSESS EE BY CREDITING THE AMOUNT AND BY ADMITTING THAT INCOME ADDED WAS IN FACT EARN ED BY THE ASSESSEE. IN SUCH CIRCUMSTANCES THE EXPLANATION HELPS TO ESTABL ISH CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME T O JUSTIFY THE LEVY OF PENALTY. VIDE CIRCULAR NO.204 DT.24 TH JULY 1976 WHICH CONTAINS EXPLANATORY NOTES ON THE PROVISIONS OF THE TAXATION LAWS (AMENDMENT) ACT 1975 THE PURPOSE OF INTRODUCTION OF EXPLANATION 2 TO U/S 271(1)(C) WAS EXPLAINED AS UNDER: NEW EXPLN.2 MAKES A PROVISION IN RESPECT OF INTAN GIBLE ADDITIONS. ADDITIONS ARE SOMETIMES MADE BY THE ITO FOR PURELY TECHNICAL REASONS E.G. APPLICATION OF A PRESUMPTI VE RATE OF GROSS PROFITS OR OF YIELD OR ON ACCOUNT OF ESTIMATED DIS ALLOWANCE OF CERTAIN EXPENSES SHORTFALLS WASTAGE ETC. BUT NO PENALTY FOR CONCEALMENT IS LEVIED IN RESPECT OF THESE ADDITIONS FOR WANT OF ADEQUATE EVIDENCE TO ESTABLISH THAT THESE ADDITIONS REPRESENT THE ASSESSEES CONCEALED INCOME. IN LATER ASSESSMENTS WHEN CALLED UPON TO EXPLAIN CERTAIN DEPOSITS ETC. THE ASSESSE E URGE AT TIMES THAT SUCH DEPOSITS ETC. HAVE COME OUT OF THE INCO ME REPRESENTED BY THE AFORESAID ADDITIONS MADE EARLIER. DESPITE T HIS VIRTUAL CONFESSION OF CONCEALMENT ON THE PART OF THE ASSESS EE NO PENALTY ITA 646/V/08 SVC PROJECTS P LTD. VSKP 6 WAS HITHERTO LEVIABLE IN SUCH CASES AS THE TIME LIM IT FOR INITIATING CONCEALMENT PENALTY PROCEEDINGS IN RESPECT OF THE E ARLIER YEAR IN WHICH THE ADDITION WAS MADE WOULD HAVE EXPIRED. TH E PENALTY COULD ALSO NOT BE IMPOSED IN RESPECT OF THE YEAR IN WHICH THE DEPOSIT WAS MADE AS THERE WAS NO CONCEALMENT IN TH AT YEAR THE DEPOSIT HAVING BEEN EXPLAINED AS OUT OF AN EARLIER YEARS INCOME. NEW EXPLN.2 PROVIDES THAT IN SUCH CASES THE ASSESS EE WOULD BECOME LIABLE TO PENALTY FOR CONCEALMENT IN RESPECT OF ADDITIONS MADE IN THE EARLIER YEAR IN WHICH THE ADDITIONS WER E MADE.' AGAINST THE ABOVE BACKGROUND THE FACTS OF THE APP ELLANTS CASE NEEDS TO BE EXAMINED REGARDING THE APPLICABILITY OF EXPLA NATION 2 TO S.271(1)(C). IT IS NOT DISPUTED THAT AN AMOUNT OF RS.65 LAKHS WAS C REDITED TO THE PROFIT & LOSS ACCOUNT AS INCOME FROM MISCELLANEOUS SOURCES F OR THE ASST. YEAR 2005- 06. THE SAID INCOME WAS SHOWN AS A SOURCE FOR GIVI NG SITE ADVANCE TO KENDRAPARA WORK SITE. WHEN CONFRONTED ABOUT THIS F ACT THE APPELLANT ADMITTED THAT THE SAID INCOME PERTAIN TO ASST. YEAR 2004-05 WHICH WAS DISCLOSED IN COURSE OF THE SURVEY AND IN THE REVISE D RETURN FILED FOR THAT ASST. YEAR SUBSEQUENT TO SURVEY. THE APPARENT CONCLUSION FROM THE ABOVE TRANSACTIONS RECORDED IN THE BOOKS OF ACCOUNTS OF T HE APPELLANT IS THAT THE AMOUNT OF RS.65 LAKHS WAS SOUGHT TO BE EXPLAINED AS SOURCE OF INVESTMENT FOR MAKING SITE ADVANCES TO THE KENDRAPARA WORK SIT E. THEREFORE PRIMA- FACIE THE PROVISIONS CONTAINED IN EXPLANATION 2 TO SEC.271(1)(C) COMES INTO PLAY IN THE INSTANT CASE. THE EXPLANATION OF THE A PPELLANT COMPANY THAT THE SAID TRANSACTION REFLECTED IN THE BOOKS OF ACCOUNTS OF THE ASST. YEAR 2005-06 IS A CONTRA ENTRY ONLY AND WAS UNDERTAKEN TO RECTIF Y THE MISTAKE COMMITTED EARLIER OF TREATING CERTAIN EXPENDITURES AS REVENUE EXPENDITURES THOUGH IN FACT THEY WERE CAPITAL EXPENDITURE ONLY IS NOT ACC EPTABLE ON THE BASIS OF FACTS AVAILABLE ON RECORD. AT PAGE-(4) OF THE PENALTY OR DER THE ASSESSING OFFICER HAS REPRODUCED THE EXTRACTS OF THE SWORN STATEMENT OF THE MANAGING DIRECTOR OF THE APPELLANT COMPANY RECORDED ON 10.3.2005 IN C OURSE OF THE SURVEY U/S 133A AS WELL AS THE NOTE FILED ALONG WITH THE REVIS ED RETURN SUBMITTED FOR THE ASST. YEAR 2004-05 ON 17.3.2005 SUBSEQUENT TO THE S URVEY. IN BOTH THE SWORN STATEMENT AS WELL AS THE NOTE IT WAS CLEARLY AND UNEQUIVOCALLY STATED THAT THE ADDITIONAL INCOME OF RS.65 LAKHS WAS OFFER ED BECAUSE OF DEFICIENCIES AND IRREGULARITIES NOTICED IN MAINTAINING LABOUR AS WELL AS EXPENDITURE VOUCHERS. FROM THE FACTS AS ABOVE IT IS CLEAR THA T THE ADDITIONAL INCOME OF RS.65 LAKHS WAS DISCLOSED ON ACCOUNT OF DEFICIENCIE S/IRREGULARITIES NOTED WITH REGARD TO MAINTENANCE OF LABOUR VOUCHERS AND EXPEND ITURE VOUCHERS ETC. AT NO STAGE EITHER IN COURSE OF THE SURVEY PROCEEDINGS OR IN COURSE OF THE ASSESSMENT PROCEEDINGS FOR THE ASST. YEAR 2004-05 IT WAS CONTENDED THAT THE DISCLOSURE WAS ON ACCOUNT OF WRONGLY TREATING CERTA IN CAPITAL EXPENDITURES AS REVENUE EXPENDITURES. THE APPELLANT HAS CONTENDED THAT EXPLANATION 2 IS APPLICABLE ONLY WHEN THERE ARE ANY TANGIBLE OR INTANGIBLE ADDITIONS MADE IN COURSE OF THE ASSESSMENT PROCEEDINGS. IT WAS ARGUED THAT FOR THE ASST. YEAR 2004-05 NO ADDITIONS WERE MADE TO THE INCOME RETURNED BY THE A PPELLANT COMPANY. IN THIS CONTEXT IT IS OBSERVED THAT FOR THE ASST. YEA R 2004-05 THE ORIGINAL INCOME DISCLOSED WAS RS.1 05 96 720/-. SUBSEQUENT TO THE SURVEY CONDUCTED AT THE BUSINESS PREMISES OF THE APPELLANT COMPANY ON 10.3. 2005 AND IN PURSUANCE ITA 646/V/08 SVC PROJECTS P LTD. VSKP 7 TO THE STATEMENT RECORDED FROM THE MANAGING DIRECTO R OF THE APPELLANT COMPANY ON THE DAY OF SURVEY A REVISED RETURN WAS FILED ON 17.3.2005 DISCLOSING AN INCOME OF RS.1 70 96 720/- WHICH INCL UDED THE ADDITIONAL INCOME OF RS.65 LAKHS WHICH WAS DISCLOSED IN COURSE OF SURVEY. WHILE COMPLETING THE ASSESSMENT U/S 143(3) VIDE ORDER DAT ED 30.3.2006 THE INCOME DISCLOSED IN THE REVISED RETURN WAS ACCEPTED . IN THIS CONTEXT IT IS OBSERVED THAT A REVISED RETURN IS POSSIBLE ONLY WHE RE IT IS BONAFIDE IN THE SENSE THAT THE OMISSION SHOULD HAVE BEEN DUE TO AN INADVERTENCE OR MISTAKE AND NOT WHERE THERE WAS DELIBERATE CONCEALMENT. TH E EFFECT OF THE REVISED RETURN BECOMES RELEVANT FOR THE PURPOSES OF LEVY OF PENALTY. THE PREPONDERANT VIEW OF THE COURTS AS REGARDS ITS EFFE CT ON PENALTY HAS BEEN THAT THE ASSESSEE COULD NOT AVOID THE CONSEQUENCES OF A DELIBERATELY FALSE AND ORIGINAL RETURN BY FILING REVISED RETURN AFTER THE CONCEALMENT HAS BEEN BROUGHT HOME BY THE ASSESSING OFFICER. THIS VIEW C AN BE TAKEN TO BE FINAL AFTER THE DECISION OF HONBLE SUPREME COURT BY A BE NCH OF THREE JUDGES IN THE CASE OF G.C. AGARWAL V. CIT REPORTED IN 186 ITR 571 . AS PER THE FACTS OF THE APPELLANTS CASE IT IS NOTED THAT THE APPELLANT WA S OBLIGED TO FILE A REVISED RETURN BECAUSE OF THE DEFICIENCIES NOTED IN THE ACC OUNTS WHICH WERE DETECTED IN COURSE OF THE SURVEY. NOT ONLY THE DEFICIENCIES WERE DETECTED THEY WERE CONFRONTED ALSO TO THE APPELLANT COMPANY. ON BEING CONFRONTED THE APPELLANT COMPANY DISCLOSED AN ADDITIONAL INCOME OF RS.65 LAKHS AND FILED THE RETURN OF INCOME. THEREFORE SUCH FILING OF REVISE D RETURN CANNOT BE TERMED AS BONAFIDE AND THE AMOUNT OF RS.65 LAKHS HAS TO BE TREATED AS ADDITIONS MADE TO THE INCOME DISCLOSED ORIGINALLY. HENCE TH E ARGUMENT OF THE APPELLANT IS NOT ACCEPTED. THE APPELLANT RELIED UPON THE DECISION OF HONBLE ITAT CHANDIGARH IN THE CASE REPORTED IN 86 TTJ 1075 (SUPRA). HOWEVER IN THE SAID CASE THE CONCERNED ASSESSEE HAD VOLUNTARILY SURRENDERED CERT AIN INCOME BY FILING A REVISED RETURN. THOUGH PENALTY PROCEEDINGS U/S 271 (1)(C) WAS INITIATED THE SAME WAS DROPPED ON THE BASIS OF EXPLANATION OFFERE D BY THE SAID ASSESSEE. IN THE SUBSEQUENT YEAR WHEN THE ADDITIONAL INCOME DISCLOSED IN THE REVISED RETURN WAS CREDITED TO THE ACCOUNTS THE ASSESSING OFFICER INITIATED PENALTY PROCEEDINGS FOR THE EARLIER YEAR BY INVOKING EXPLAN ATION 2 TO SEC.271(1)(C). UNDER THESE FACTS THE HONBLE ITAT CAME TO THE CON CLUSION THAT EXPLANATION 2 TO S.271(1)(C) IS NOT APPLICABLE AND CANNOT BE RE SORTED TO REVIVE THE LEVY OF PENALTY U/S 271(1)(C) OF THE ACT. IN CONTRAST THE FACTS OF THE APPELLANTS CASE ARE DIFFERENT. IN THE CASE OF THE APPELLANT NO PE NALTY PROCEEDINGS U/S 271(1)(C) WAS INITIATED AT THE TIME OF COMPLETION O F THE ASSESSMENT FOR THE ASST. YEAR 2004-05. THEREFORE THE QUESTION OF REV IVAL OF THE SAID PENALTY PROCEEDINGS DO NOT ARISE. HENCE THE FACTS OF THE APPELLANTS CASE ARE DIFFERENT FROM THE FACTS ON THE BASIS OF WHICH THE SAID DECISION OF HONBLE ITAT CHANDIGARH WAS RENDERED. RATHER THE FACTS OF THE APPELLANTS CASE ARE SIMILAR TO THE FACTS OF THE CASE REPORTED IN 178 IT R 430 WHEREIN THE HONBLE KERALA HIGH COURT DECIDED THE CASE OF CALICUT TRADI NG CO. V. CIT. IN THE SAID CASE THE RELEVANT ASSESSEE FILED THE ORIGINAL RETU RN OF INCOME SHOWING A TOTAL INCOME OF RS.2 74 510/-. WHEN THE ASSESSING OFFICE R POINTED OUT CERTAIN DEFECTS IN ITS ACCOUNTS THE ASSESSEE FILED A REVIS ED RETURN OF INCOME DISCLOSING AN INCOME OF RS.5 24 510/- WHICH INCLUDE D AN ADDITIONAL INCOME OF RS.2 50 000/-. THE SAID INCOME SHOWN IN THE REVISE D RETURN WAS ACCEPTED BY THE ASSESSING OFFICER. IN THE SUBSEQUENT ASST. YEA R THE ASSESSING OFFICER ITA 646/V/08 SVC PROJECTS P LTD. VSKP 8 NOTED THAT THE ADDITIONAL INCOME OF RS.2 50 000/- W AS CREDITED TO THE PARTNERS ACCOUNTS IN PROPORTION TO THEIR PROFIT SHA RING RATIO WITH A NARRATION THAT THESE CREDITS REPRESENTED ADDITIONAL INCOME OF FERED FOR THE EARLIER ASST. YEAR. THEREFORE THE ASSESSING OFFICER INITIATED P ENALTY PROCEEDINGS FOR THE EARLIER ASST. YEAR. THEREFORE THE ASSESSING OFFIC ER INITIATED PENALTY PROCEEDINGS FOR THE EARLIER ASST. YEAR WHEN THE ADD ITIONAL INCOME WAS OFFERED AND IMPOSED THE PENALTY. THE SAID PENALTY WAS CONF IRMED BY THE FIRST APPELLATE AUTHORITY AND THE TRIBUNAL. THE SAID ORD ER WAS CONFIRMED BY HONBLE KERALA HIGH COURT BY STATING THAT PROVISION S OF EXPLANATION 2 WAS SQUARELY APPLICABLE. THE SPECIAL LEAVE PETITION AG AINST THE SAID DECISION OF HONBLE KERALA HIGH COURT WAS DISMISSED BY HONBLE SUPREME COURT AS REPORTED IN 180 ITR (ST) 40. IN VIEW OF THIS AND IN VIEW OF THE SIMILARITY OF THE FACTS IT IS CONCLUDED THAT THE ASSESSING OFFIC ER IS JUSTIFIED IN LEVYING THE IMPUGNED PENALTY U/S 271(1)(C) OF THE ACT FOR THE A SST. YEAR 2004-05. AS AGAINST THE MINIMUM PENALTY LEVIABLE OF RS.23 32 00 0/- THE ASSESSING OFFICER HAS IMPOSED A PENALTY OF RS.25 LAKHS WHICH IS REASO NABLE AND NO INTERFERENCE IS CALLED FOR ON THE QUANTUM OF PENALTY ALSO. 9. AGGRIEVED THE ASSESSEE HAS PREFERRED AN APPEAL BEFORE THE TRIBUNAL AND REITERATED ITS CONTENTIONS AS RAISED BEFORE THE CIT(A). IT WAS EMPHATICALLY ARGUED BY THE LD. COUNSEL FOR THE ASSE SSEE THAT THE DISCREPANCIES NOTICED DURING THE COURSE OF SURVEY W AS IN THE NATURE OF BOOKING THE REVENUE EXPENDITURE ITEMS WHICH ARE ONL Y ADVANCES AND WERE IN THE NATURE OF CAPITAL OUTFLOW. THESE DISCREPANCIES /IRREGULARITIES WERE DULY RECTIFIED BY PASSING APPROPRIATE ENTRIES IN THE BOO KS FOR THE ASSESSMENT YEAR 2005-06. THE ENTRY PASSED WAS DEBITING KENDRAPARA SITE ADVANCES WITH RS.65 LAKHS AND CREDITING MISCELLANEOUS INCOME WITH THE SAME AMOUNT. THE LD. COUNSEL FOR THE ASSESSEE FURTHER CONTENDED THAT FOR PASSING THE PROPER ENTRIES IN THE BOOKS OF ACCOUNTS EXPLANATIONS 2 TO SECTION 271(1)(C) CANNOT BE INVOKED. 10. THE LD. COUNSEL FOR THE ASSESSEE HAS ALSO CHALL ENGED THE VALIDITY OF THE INITIATION OF PENALTY PROCEEDINGS ON THE GROUND THAT WHILE COMPLETING THE ASSESSMENT FOR THE ASSESSMENT YEAR 2005-06 THE ASS ESSING OFFICER INITIATED THE PENALTY PROCEEDINGS U/S 271(1)(C) FOR THAT ASSE SSMENT YEAR VIDE NOTICE DATED 26.12.2007. HOWEVER HE IMPOSED THE PENALTY FOR THE ASSESSMENT YEAR 2004-05 WITHOUT INITIATING THE PENALTY PROCEEDINGS FOR THAT ASSESSMENT YEAR. THE COPY OF NOTICE DATED 26.12.2007 INITIATING PENA LTY PROCEEDINGS CLEARLY INDICATE THAT SAID PENALTY PROCEEDINGS WERE INITIAT ED FOR THE ASSESSMENT YEAR 2005-06. THEREFORE THERE IS NO SPECIFIC ORDER FOR INITIATING THE PENALTY ITA 646/V/08 SVC PROJECTS P LTD. VSKP 9 PROCEEDINGS U/S 271(1)(C) FOR THE ASSESSMENT YEAR 2 004-05 AND IN THIS SITUATION THE PENALTY U/S 271(1)(C) CANNOT BE LEVIE D IN A.Y. 2004-05 BY INVOKING THE EXPLANATION 2 TO SECTION 271(1)(C) OF THE ACT. 11. THE LD. COUNSEL FOR THE ASSESSEE HAS ALSO INVIT ED OUR ATTENTION TO THE EXPLANATION 2 TO SECTION 271(1) WITH THE SUBMISSION THAT IT CAN ONLY BE INVOKED WHERE INTANGIBLE ADDITIONS WERE MADE BY THE ASSESSING OFFICER IN THE EARLIER ASSESSMENT YEAR OR YEARS WHILE COMPUTING TH E INCOME IN THE ASSESSMENT OF ASSESSEE AND IN SUBSEQUENT YEAR SUCH AMOUNT OF ADDITION WAS CLAIMED TO BE THE SOURCE OF RECEIPT DEPOSIT OR OU TGOING OR VALUE OF SUCH INVESTMENT. IN THE INSTANT CASE THE ASSESSEE HAS OFFERED THE ADDITIONAL INCOME TO COVER UP THE DEFICIENCIES IN MAINTENANCE OF VOUCHERS FOR EXPENDITURE. MEANING THEREBY THE ACTUAL EXPENDITU RE CLAIMED BY THE ASSESSEE WOULD NOT HAVE BEEN INCURRED AND THE OFFER ED ADDITIONAL INCOME WAS AVAILABLE WITH THE ASSESSEE THOUGH NOT INTRODUC ED IN THE BOOKS OF ACCOUNTS AND THE SAID ADDITIONAL INCOME WAS TAKEN A S A RECEIPT IN THE SUBSEQUENT ASSESSMENT YEARS AND WAS DEBITED TO THE KENDRAPARA SITE ADVANCE. THEREFORE THE ADDITIONAL INCOME OFFERED BY THE ASSESSEE CANNOT BE CALLED TO BE THE INTANGIBLE ADDITIONS. THE LD. COU NSEL FOR THE ASSESSEE HAS SUBMITTED THAT WHEREVER ADDITIONS ARE MADE ON ACCOU NT OF UNEXPLAINED CASH CREDIT THAT ADDITION CAN BE CALLED TO BE THE INTANG IBLE ADDITIONS BECAUSE NOTHING IS AVAILABLE WITH THE ASSESSEE TO SAY THAT THAT AMOUNT OF ADDITION CAN BE TAKEN AS A RECEIPT IN SUCCEEDING YEAR. THEREFOR E THE ADDITIONAL INCOME OFFERED IN THE INSTANT CASE DOES NOT FALL WITHIN TH E DEFINITION OF INTANGIBLE ADDITION AND THUS EXPLANATION 2 TO SECTION 271(1) C ANNOT BE INVOKED. 12. THE LD. COUNSEL FOR THE ASSESSEE FURTHER CONTEN DED THAT THE EXPLANATION 2 CAN ONLY BE INVOKED WHERE THE SOURCE OF ANY RECEIPT DEPOSIT OUTGOING OR INVESTMENT IS CLAIMED TO BE AN AMOUNT W HICH HAD BEEN ADDED IN COMPUTING THE INCOME OR DEDUCTED IN COMPUTING THE L OSS IN THE ASSESSMENT FOR ANY EARLIER ASSESSMENT YEAR. MEANING THEREBY THIS EXPLANATION 2 CAN ONLY BE INVOKED WHERE ADDITION IN COMPUTING THE INC OME OR DEDUCTION IN COMPUTING THE LOSS IS RESULTED DURING THE ASSESSMEN T PROCEEDING OF ANY ITA 646/V/08 SVC PROJECTS P LTD. VSKP 10 EARLIER ASSESSMENT YEAR. IF NO ADDITION OF INCOME OR DEDUCTION IN LOSS IS COMPUTED DURING THE COURSE OF ASSESSMENT PROCEEDING S OF ANY EARLIER ASSESSMENT YEAR THE PROVISIONS OF EXPLANATION 2 CA NNOT BE INVOKED EVEN THOUGH THE ASSESSEE CLAIMS THE SOURCE OF ANY RECEIP T DEPOSIT OUTGOING OR INVESTMENT TO BE AN AMOUNT WHICH HAS BEEN OFFERED A S AN ADDITIONAL INCOME WHILE FILING THE REVISED RETURN. IN THE INSTANT CAS E DURING THE ASSESSMENT YEAR 2004-05 THE ASSESSEE HAS DECLARED THE ADDITIONAL I NCOME DURING THE COURSE OF SURVEY AND FILED THE REVISED RETURN ACCORDINGLY AFTER MAKING THE PAYMENT OF TAX THERE ON. THEREFORE THERE WAS NO ADDITION MADE TO THE DECLARED INCOME OF THE ASSESSEES DURING THE COURSE OF ASSESS MENT PROCEEDINGS. THUS THE PROVISIONS OF EXPLANATION 2 CANNOT BE APPLIED T O THE PRESENT CASE. 13. THE D.R. ON THE OTHER HAND HAS SUBMITTED THAT D URING THE COURSE OF SURVEY STATEMENT OF THE MANAGING DIRECTOR OF THE A SSESSEE COMPANY WAS RECORDED IN WHICH IT WAS DEPOSED BY HIM THAT THE AD DITIONAL INCOME OF RS.65 LAKHS WAS DISCLOSED ON ACCOUNT OF DEFICIENCY AND IR REGULARITIES NOTED WITH REGARD TO THE LABOUR VOUCHERS AND EXPENDITURE VOUCH ERS ETC. BESIDES A NOTE ALONG WITH THE RETURN OF INCOME WAS ALSO FILED TO T HIS EFFECT. AT NO STAGE EITHER IN THE COURSE OF SURVEY PROCEEDINGS OR IN TH E COURSE OF ASSESSMENT PROCEEDINGS FOR THE ASSESSMENT YEAR 2004-05 IT WAS CONTENDED ON BEHALF OF THE ASSESSEE THAT DISCLOSURE WAS ON ACCOUNT OF WRON GLY TREATING CERTAIN CAPITAL EXPENDITURE AS REVENUE EXPENDITURE. 14. WITH REGARD TO THE DEFECT IN THE NOTICE THE LD. D.R. HAS CONTENDED THAT THERE WAS A TYPOGRAPHICAL ERROR IN THE NOTICE BY ME NTIONING THE ASSESSMENT YEAR AS 2005-06 IN PLACE OF 2004-05 AND FOR THIS TY POGRAPHICAL ERROR PROVISIONS OF SECTION 292B CAN BE INVOKED AND ACCOR DING TO WHICH FOR THIS TECHNICAL MISTAKE OR OMISSION IN THE RETURN ASSES SMENT NOTICE OR SUMMONS THE ENTIRE PROCEEDINGS CANNOT BE HELD TO BE INVALID . MOREOVER WHILE INITIATING THE PENALTY PROCEEDINGS THE A.O. HAS SQ UARELY SPELT OUT THE REASONS FOR INITIATING PENALTY PROCEEDINGS U/S 271(1)(C) TO THE EFFECT THAT THE ADDITIONAL INCOME DISCLOSED FOR THE ASSESSMENT YEAR 2004-05 WAS CLAIMED AS SOURCE OF INVESTMENT IN THE ASSESSMENT YEAR 2005-06 . HENCE THE A.O. CLEARLY HAD IN MIND THE PROVISIONS CONTAINED IN THE EXPLANATION 2 TO SECTION ITA 646/V/08 SVC PROJECTS P LTD. VSKP 11 271(1)(C) WHILE INITIATING THE PENALTY PROCEEDINGS. MOREOVER IN THE LETTER DATED 23.6.2008 THE CORRECT ASSESSMENT YEAR WAS ME NTIONED AS 2004-05. THEREFORE FOR THIS TYPOGRAPHICAL ERROR IN THE NOTI CE THE ENTIRE PENALTY PROCEEDINGS CANNOT BE HELD TO BE INVALID. 15. THE LD. D.R. INVITED OUR ATTENTION TO THE PROVI SIONS OF EXPLANATION 2 AND BOARD CIRCULAR NO.204 DATED 24.7.1976 IN SUPPOR T OF HIS CONTENTION THAT EXPLANATION 2 CAN BE INVOKED IF THE ASSESSEE TAKES THE BENEFIT OF INTANGIBLE ADDITIONS MADE IN EARLIER YEARS AND CLAIMED IT TO B E THE SOURCE OF ANY RECEIPT DEPOSIT OUTGOING OR INVESTMENT IN SUCCEEDING YEARS . THE INTANGIBLE ADDITIONS ARE THOSE ADDITIONS WHICH WERE MADE BY THE A.O. FOR TECHNICAL REASONS I.E. APPLICATION OF PRESUMPTIVE RATES OF GROSS PROFIT OR OF YIELD OR ON ACCOUNT OF ESTIMATED DISALLOWANCE OF CERTAIN EXPENSES SHORTFA LLS WASTAGE ETC. AS HAS BEEN EXPLAINED THROUGH CIRCULAR OF THE CBDT. THERE FORE IT IS NOT PROPER TO SAY THAT INTANGIBLE ADDITIONS ARE ONLY THOSE ADDITI ONS WHICH WERE MADE ON ACCOUNT OF UNEXPLAINED CASH CREDITS. HENCE THE PR OPOSITION RAISED BY THE ASSESSEE THAT ON ACCOUNT OF DISALLOWANCE OF EXPENDI TURE THE AMOUNT OF ADDITION IS AVAILABLE WITH THE ASSESSEE WHICH CAN BE CLAIMED AS A SOURCE OF ANY RECEIPT DEPOSIT OUTGOING OR INVESTMENT IN SUC CEEDING YEAR IS NOT A CORRECT PROPOSITION OF LAW. IN THE INSTANT CASE T HE ADDITIONS WERE MADE ON ACCOUNT OF ESTIMATED DISALLOWANCE ON CERTAIN EXPEND ITURES AND AS SUCH THE EXPLANATION 2 WAS RIGHTLY INVOKED BY THE A.O. 16. BESIDES HE HAS ALSO PLACED A HEAVY RELIANCE UP ON THE ORDER OF THE CIT(A). 17. HAVING HEARD THE RIVAL SUBMISSIONS AND FROM A C AREFUL PERUSAL OF RECORD WE FIND DURING THE COURSE OF SURVEY CERTAIN DISCREPANCIES WERE NOTED IN THE BOOKS OF ACCOUNTS BILLS AND VOUCHERS MAINTA INED BY THE ASSESSES RELATING TO LABOUR CHARGES MACHINERY MAINTENANCE E TC. WHEN THE ASSESSEE WAS QUESTIONED ABOUT IT HE ACCEPTED THAT THERE ARE CERTAIN DISCREPANCIES AND TO COVER UP THESE DISCREPANCIES HE OFFERED AN ADDI TIONAL INCOME OF RS.65 LAKHS FOR THE ASSESSMENT YEAR 2004-05 OVER AND ABOV E THE INCOME ALREADY DECLARED VIDE RETURN FILED ON 31.10.2004. BESIDES THIS STATEMENT ASSESSEE ITA 646/V/08 SVC PROJECTS P LTD. VSKP 12 HAS ALSO FILED A NOTE ON 17.3.2005 WITH THE ASSESSI NG OFFICER REITERATING THE FACTS THAT THE SURRENDER OF ADDITIONAL INCOME OF RS .65 LAKHS WAS OFFERED TO COVER CERTAIN DEFICIENCIES IRREGULARITIES OBSERVED WITH REGARD TO THE MAINTENANCE OF LABOUR VOUCHERS EXPENDITURE VOUCHER S ETC. FOR A.Y. 2004-05 AND ACCORDINGLY THE REVISED RETURN WAS FILED. 18. DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR THE ASSESSMENT YEAR 2005-06 IT WAS NOTED BY THE A.O. THAT ADDITIONAL I NCOME OF RS.65 LAKHS DECLARED FOR THE ASSESSMENT YEAR 2004-05 SUBSEQUENT TO THE SURVEY WAS TREATED AS A PART OF OTHER RECEIPTS AND SAID AMOUNT WAS CLAIMED AS DEDUCTION IN THE COMPUTATION OF INCOME FILED ALONG WITH THE R ETURN OF INCOME ON THE GROUND THAT SAID AMOUNT WAS ALREADY OFFERED FOR TAX ATION FOR THE ASSESSMENT YEAR 2004-05. A NOTE TO THIS EFFECT WAS ALSO GIVEN IN A STATEMENT OF ACCOUNT FOR THE ASSESSMENT YEAR 2005-06 STATING THEREIN THA T NECESSARY ENTRIES HAVE BEEN PASSED IN THE BOOKS OF ACCOUNTS DURING THE FIN ANCIAL YEAR 2004-05. 19. DURING THE COURSE OF PENALTY PROCEEDINGS INITIA TED U/S 271(1)(C) AFTER INVOKING ITS EXPLANATION 2 THE ASSESSEE HAS TAKEN A STAND THAT ORIGINALLY THE ADVANCES PAID WHICH WERE IN THE NATURE OF CAPITAL O UTGO WERE WRONGLY BOOKED AS REVENUE EXPENDITURE IN THE BOOKS OF ACCOU NTS. IN THE COURSE OF SURVEY THE ASSESSEE RECTIFIED THE SAME AND OFFERED THE INCOME. BUT THE PAYMENTS BEING CAPITAL IN NATURE IT WAS ALWAYS OPE N TO THE ASSESSEE TO SHOW IT UNDER THE CORRECT HEAD I.E. THE CAPITAL EXPENDIT URE IN THE BOOKS OF ACCOUNTS. THIS ARGUMENT OF THE ASSESSEE IS ALTOGETHER DIFFERE NT PLEA THAN THAT WAS TAKEN DURING THE COURSE OF SURVEY. OUR ATTENTION W AS CATEGORICALLY INVITED TO THE ORDER OF THE A.O. IN PENALTY PROCEEDINGS IN WHI CH HE HAS REPRODUCED THE STATEMENT OF THE ASSESSEE RECORDED DURING THE COURS E OF SURVEY. ASSESSEE HAS CATEGORICALLY ACCEPTED THE DISCREPANCIES IN MAI NTENANCE OF VOUCHERS AND OFFERED THE ADDITIONAL INCOME OF RS.65 LAKHS FOR TH E ASSESSMENT YEAR 2004- 05. QUESTION NO.15 AND ITS ANSWER IS EXTRACTED HER E UNDER FOR THE SAKE OF REFERENCE: Q.15 FOR THE A.Y. 2004-05 L UPON VERIFICATION IT IS NOTICED THAT THE EXPENDITURE UNDER THE HEADS `LABOUR CHARGES MACHI NERY MAINTENANCE ETC. ITA 646/V/08 SVC PROJECTS P LTD. VSKP 13 ARE NOT SUPPORTED BY PROPER VOUCHERS/BILLS AND SATI SFACTORY PROOF. PLEASE EXPLAIN THESE DISCREPANCIES. ANS. I ACCEPT THAT THERE ARE CERTAIN DISCREPANCIE S. IN VIEW OF THESE DEFICIENCIES WE OFFER AN ADDITIONAL INCOME OF RS.6 5 LAKHS FOR THE A.Y. 2004- 05 OVER AND ABOVE THE INCOME ALREADY DECLARED VIDE RETURN FILED ON 31.10.2004. WE SHALL FILE THE REVISED RETURN AND T HE ADDITIONAL INCOME OF RS.65 LAKHS SHALL BE DECLARED ACCORDINGLY. WE SHAL L UNDERTAKE TO PAY THE NECESSARY TAXES BY 31.3.2005. 20. BESIDES THE ASSESSEE HAS ALSO FILED A NOTE ON 1 7.3.2005 IN THE OFFICE OF THE A.O. REITERATING THE SAME FACTS. THE WORDINGS OF THE NOTES ARE ALSO EXTRACTED HEREUNDER FOR THE SAKE OF REFERENCE: DURING THE COURSE OF SURVEY OPERATION CONDUCTED IN OUR BUSINESS PREMISES ON 10.3.2005 CERTAIN DEFICIENCIES/IRREGULA RITIES WERE OBSERVED WITH REGARD TO MAINTENANCE OF LABOUR VOUCHERS EXPENDITU RE VOUCHERS ETC. TO OVERCOME THE DEFICIENCIES ADDITIONAL INCOME OF RS.6 5 00 000/- IS OFFERED FOR THE ASST. YEAR 2004-05 AND A REVISED RETURN OF INCO ME FILED. 21. FROM A CAREFUL PERUSAL OF THE STATEMENT AND NOT E OF THE ASSESSEE IT IS ABUNDANTLY CLEAR THAT DURING THE COURSE OF SURVEY P ROCEEDINGS ASSESSEE HAS CATEGORICALLY ADMITTED THAT DISCREPANCIES RELATE TO THE LABOUR CHARGES AND MACHINERY MAINTENANCE ETC. NOWHERE HE HAS TAKEN AN Y STAND THAT DISCREPANCIES WAS IN THE NATURE OF BOOKING TO REVEN UE EXPENDITURE ITEMS WHICH WERE ONLY ADVANCES AND WERE IN THE NATURE OF CAPITAL OUTFLOW. THEREFORE THE ASSESSEE HAS TRIED TO TAKE A BENEFIT OF ITS OWN DISCLOSURE UNDER THE GARB OF DIFFERENT PLEA IN SUBSEQUENT YEARS. TO DEAL WITH THE ADDITIONS MADE IN COMPUTING INCOME THE LEGISLATURE HAS INTRO DUCED THE EXPLANATION 2 TO SECTION 271(1)(C) OF THE ACT. THIS DEEMING PROV ISION WAS INSERTED TO CURB THE PRACTICE OF THE ASSESSES TO CLAIM THE BENEFIT I N SUCCEEDING YEARS OF THE AMOUNT ADDED IN COMPUTING THE TOTAL INCOME. THE EX PLANATION 2 TO SECTION 271(1)(C) IS EXTRACTED HEREUNDER FOR THE SAKE OF RE FERENCE: EXPLANATION 2 WHERE THE SOURCE OF ANY RECEIPT DE POSIT OUTGOING OR INVESTMENT IN ANY ASSESSMENT YEAR IS CLAIMED BY ANY PERSON TO BE AN AMOUNT WHICH HAD BEEN ADDED IN COMPUTING THE INCOME OR DED UCTED IN COMPUTING THE LOSS IN THE ASSESSMENT OF SUCH PERSON FOR ANY E ARLIER ASSESSMENT YEAR OR YEARS BUT IN RESPECT OF WHICH NO PENALTY UNDER CLAU SE (III) OF THIS SUB-SECTION HAD BEEN LEVIED THAT PART OF THE AMOUNT SO ADDED O R DEDUCTED IN SUCH EARLIER ASSESSMENT YEAR IMMEDIATELY PRECEDING THE YEAR IN W HICH THE RECEIPT DEPOSIT OUTGOING OR INVESTMENT APPEARS (SUCH EARLI ER ASSESSMENT YEAR HEREAFTER IN THIS EXPLANATION REFERRED TO AS THE FI RST PRECEDING YEAR) WHICH IS SUFFICIENT TO COVER THE AMOUNT REPRESENTED BY SUCH RECEIPT DEPOSIT OR OUTGOING OR VALUE OF SUCH INVESTMENT (SUCH AMOUNT O R VALUE HEREAFTER IN THIS ITA 646/V/08 SVC PROJECTS P LTD. VSKP 14 EXPLANATION REFERRED TO AS THE UTILIZED AMOUNT) SHA LL BE TREATED AS THE INCOME OF THE ASSESSEE PARTICULARS OF WHICH HAD BEEN CONC EALED OR INACCURATE PARTICULARS OF WHICH HAD BEEN FURNISHED FOR THE FIR ST PRECEDING YEAR; AND WHERE THE AMOUNT SO ADDED OR DEDUCTED IN THE FIRST PRECEDING YEAR IS NOT SUFFICIENT TO COVER THE UTILIZED AMOUNT THAT PART OF THE AMOUNT SO ADDED OR DEDUCTED IN THE YEAR IMMEDIATELY PRECEDING THE FIRS T PRECEDING YEAR WHICH IS SUFFICIENT TO COVER SUCH PART OF THE UTILIZED AMOUN T AS IS NOT SO COVERED SHALL BE TREATED TO BE THE INCOME OF THE ASSESSEE PARTIC ULARS OF WHICH HAD BEEN CONCEALED OR INACCURATE PARTICULARS OF WHICH HAD BE EN FURNISHED FOR THE YEAR IMMEDIATELY PRECEDING THE FIRST PRECEDING YEAR AND SO ON UNTIL THE ENTIRE UTILIZED AMOUNT IS COVERED BY THE AMOUNTS SO ADDED OR DEDUCTED IN SUCH EARLIER ASSESSMENT YEARS. 22. THE SCOPE OF EXPLANATION WAS EXPLAINED IN PARAG RAPH 61.9 IN CIRCULAR NO.204 DATED 24.7.96 ACCORDING TO WHICH EXPLANATION 2 SEEKS TO PUNISH CONCEALMENT DISCOVERED AS THOUGH IN RETROSPECT. AD DITIONS MAY BE MADE MERELY FOR LACK OF PROOF OR ON ESTIMATE AS FOR LACK OF STOCK ACCOUNT COUPLED WITH LOWER GROSS PROFIT COMPARED TO OTHER DEALERS I N THE SAME LINE OF BUSINESS. NO PENALTY WOULD HAVE BEEN LEVIED IN SUC H A CASE. BUT WHEN THE TAXPAYER MAKES AN INVESTMENT OR BRINGS MONEYS INTO HIS BOOKS AND RELIES UPON THE PAST ADDITIONS TO EXPLAIN SUCH INVESTMENT OR CASH CREDITS IT IS A CASE OF EVIDENCE TURNING UP AFTER THE ADDITION. TH IS CLAIM TO SET OFF OF PAST ADDITIONS IS KNOWN AS TELESCOPING AND THE RIGHT T O SUCH SET OFF HAS BEEN RECOGNIZED THOUGH NOT AS A MATTER OF RIGHT BUT AS A N ACCEPTABLE CLAIM WHERE THE AVAILABILITY OF SUCH ADDITIONAL INCOME IS PROBA BLE FOR EXPLAINING A LATER INVESTMENT OR CASH CREDIT. INCOME-TAX DEPARTMENT F ELT CHEATED OUT OF PENALTY IN SUCH CASES WHERE TELESCOPING HAD TO BE ALLOWED. THE EXPLN. 2 ENABLES THE ASSESSING OFFICER TO CATCH UP WITH PENA LTY IN THE YEAR IN WHICH THE PAST ADDITIONS SURFACE. IT IS A CASE OF PUNISHMENT FOR VIRTUALLY CAPITALIZING THE INTANGIBLE ADDITIONS MADE IN THE PAST. THE AMOUNT SURFACED MAY BE EITHER RECEIPT DEPOSIT OUTGOING OR INVESTMENT TO THE EXT ENT TO WHICH THE ASSESSEE RELIES UPON THE PAST ADDITION DESCRIBED IN THE EXPL ANATION AS UTILIZED AMOUNT SUCH AMOUNT IS TREATED AS CONCEALED. 23. THERE IS NO NEED FOR REOPENING OF PAST ASSESSME NT. IT IS OPEN TO THE ASSESSING OFFICER BY VIRTUE OF THIS EXPLANATION TO TREAT SUCH INCOME AS THE CONCEALED INCOME OF THE YEAR IN WHICH THE AMOUNT HA S SURFACED. IN OTHER WORDS THOUGH THERE IS NO ADDITION TO THE INCOME P ENALTY IS EXIGIBLE BY ITA 646/V/08 SVC PROJECTS P LTD. VSKP 15 TREATING THE AMOUNT SO SET OFF AGAINST PAST INTANGI BLE ADDITIONS AS THE CONCEALED INCOME OF THE YEAR. PARA-61.9 OF CIRCULA R OF BOARD IS EXTRACTED AS UNDER: NEW EXPLN.2 MAKES A PROVISION IN RESPECT OF INTANGI BLE ADDITIONS. ADDITIONS ARE SOMETIMES MADE BY THE ITO FOR PURELY TECHNICAL REASONS E.G. APPLICATION OF A PRESUMPTIVE RATE OF GROSS PROFITS OR OF YIELD OR ON ACCOUNT OF ESTIMATED DISALLOWANCE OF CERTAIN EXPENSES SHORTFA LLS WASTAGE ETC. BUT NO PENALTY FOR CONCEALMENT IS LEVIED IN RESPECT OF THE SE ADDITIONS FOR WANT OF ADEQUATE EVIDENCE TO ESTABLISH THAT THESE ADDITIONS REPRESENT THE ASSESSEES CONCEALED INCOME. IN LATER ASSESSMENTS WHEN CALLE D UPON TO EXPLAIN CERTAIN DEPOSITS ETC. THE ASSESSEES URGE AT TIMES THAT SU CH DEPOSITS ETC. HAVE COME OUT OF THE INCOME REPRESENTED BY THE AFORESAID ADDITIONS MADE HITHERTO LEVIABLE IN SUCH CASES AS THE TIME LIMIT FOR INITIA TING CONCEALMENT PENALTY PROCEEDINGS IN RESPECT OF THE EARLIER YEAR IN WHICH THE ADDITION WAS MADE WOULD HAVE EXPIRED. THE PENALTY COULD ALSO NOT BE IMPOSED IN RESPECT OF THE YEAR IN WHICH THE ADDITION WAS MADE AS THERE WAS N O CONCEALMENT IN THAT YEAR THE DEPOSIT HAVING BEEN EXPLAINED AS OUT OF A N EARLIER YEARS INCOME. NEW EXPLN. 2 PROVIDES THAT IN SUCH CASES THE ASSES SEE WOULD BECOME LIABLE TO PENALTY FOR CONCEALMENT IN RESPECT OF ADDITIONS MADE IN THE EARLIER YEAR IN WHICH THE ADDITIONS WERE MADE. 24. THE SCOPE OF EXPLANATION WAS ALSO EXAMINED BY T HE HONBLE KERALA HIGH COURT IN THE CASE OF CALICUT TRADING COMPANY V S. CIT 178 ITR 430 IN WHICH THEIR LORDSHIP HAVE HELD THAT THE ASSESSMENT ORDER PASSED BY THE ITO ACCEPTING THE REVISED RETURN NOT BEING FILED VOLUNT ARILY BEFORE THE CONCEALMENT WAS DEDUCTED COULD NOT BE TREATED AS RE VISED RETURN FILED U/S 139(5) AND WILL NOT ABSOLVE THE ASSESSEE FROM PENAL CONSEQUENCES. DURING THE EXAMINATION OF ASSESSEES ACCOUNT FOR THE SUBSE QUENT YEAR IF THE ITO FOUND THAT SUCH ENHANCED INCOME WAS CREDITED TO THE PARTNERS ACCOUNT THE EXPLANATION OF THE ASSESSEE WAS THAT AMOUNT REPRESE NTED THE INCOME OFFERED FOR EARLIER ASSESSMENT YEAR CANNOT BE ACCEPTED AS A SSESSEE CLAIMED THE SOURCE FOR INVESTMENT MADE IN A YEAR AS THE INCOME ASSESSED FOR THE EARLIER ASSESSMENT YEAR FOR WHICH NO PENALTY FOR CONCEALMEN T HAD BEEN LEVIED. IT HAS FALLEN WITHIN THE EXPLANATION 2 TO SECTION 271( 1) AND PENALTY WAS RIGHTLY LEVIED. AGAINST THIS JUDGMENT SPECIAL LEAVE PETIT ION WAS FILED BEFORE THE SUPREME COURT BUT IT WAS REJECTED AND THE JUDGEMENT TO THIS EFFECT IS REPORTED AT 180 ITR STATUTE 40. THEREFORE THE VIE W TAKEN BY THE KERALA HIGH COURT HAS BEEN APPROVED BY THE SUPREME COURT. THE RELEVANT OBSERVATION OF ITA 646/V/08 SVC PROJECTS P LTD. VSKP 16 THEIR LORDSHIP OF THE KERALA HIGH COURT IS ALSO EXT RACTED HEREUNDER FOR THE SAKE OF REFERENCE: WE HEARD COUNSEL ON BEHALF OF THE ASSESSEE AS WELL AS ON BEHALF OF THE REVENUE. THE MAIN QUESTION CANVASSED ON BEHALF OF THE ASSESSEE IS THAT EXPLN. 2 TO S. 271(1)(C) WILL NOT APPLY TO THE FACT S OF THE CASE. IT WAS SUBMITTED THAT THERE WAS NO CONCEALMENT OF INCOME A S THE ASSESSEE FILED A REVISED RETURN FOR 1983-84 ENHANCING THE INCOME BY RS.2 50 000/- ON DECEMBER 22 1984. THE ITO ACCEPTED THIS RETURN AN D PASSED AN ASSESSMENT ORDER ON DECEMBER 28 1984. THEREFORE IT IS SUBMITTED THAT EXPLN. 2 TO S. 271(1)(C) HAS NO APPLICATION AS THER E WAS NO CONCEALMENT OF INCOME. WE DO NOT AGREE. IT WILL BE SEEN FROM EXH IBIT P-1 THAT IN THE COURSE OF ASSESSMENT PROCEEDINGS CERTAIN CASH CREDITS AND OTHER CREDIT BALANCES IN THE ASSESSEES ACCOUNTS WERE FOUND OUT WHICH COULD NOT BE SATISFACTORILY EXPLAINED BY THE ASSESSEE. THE AAC CLEARLY FOUND T HAT THE RETURN FILED BY THE ASSESSEE ON DECEMBER 22 1984 WAS NOT A VOLUNTARY RETURN AND THAT IT WAS FILED ONLY AFTER THE ITO HAD MADE ENQUIRIES AND WAN TED THE ASSESSEE TO PROVE CERTAIN TRANSACTIONS AND ESTABLISH THE NATURE AND S OURCE OF THE CREDITS WHICH APPEARED IN THE BOOKS. WHEN THE ASSESSEE COULD NOT SATISFACTORILY EXPLAIN THE CASH CREDITS IN THE BOOKS AND ALSO THE TRANSACT IONS WITH THE OTHER PARTIES HE FILED A RETURN ON DECEMBER 22 1984 SHOWING ENH ANCEMENT OF INCOME BY RS.2 50 000/-. THEREFORE THE AAC FOUND THAT THE C ONCEALMENT OF INCOME AND FURNISHING OF INACCURATE PARTICULARS HAD TAKEN PLAC E IN THE RETURN OF INCOME FILED BY THE ASSESSE. THE TRIBUNAL ALSO FOUND THAT THE ENTIRE MOVE OF THE ASSESSEE WAS TO FILE A REVISED RETURN DISCLOSING A HIGHER INCOME SO THAT IF THE ITO ACCEPTED THE SAME THE ADDITIONAL AMOUNT COULD BE BROUGHT IN THE BOOKS OF THE COMPANY WITHOUT ANY PENAL LIABILITY FOR CONC EALMENT. THEREFORE THE RETURN FILED SO AS TO INCLUDE THE CONCEALED INCOME CANNOT BE CHARACTERIZED AS A REVISED RETURN WITHIN THE MEANING OF S. 139(5) OF THE IT ACT. IT CANNOT BE STATED THAT THE RETURN WAS FILED WHEN THE ASSESS EE DISCOVERED ANY OMISSION OR ANY WRONG STATEMENT IN THE ORIGINAL RET URN. IN SHORT A RETURN FILED SO AS TO INCLUDE CONCEALED INCOME CANNOT BE T REATED AS A REVISED RETURN AT ALL. THE RETURN IN FACT IS AN ADMISSION OF CO NCEALED INCOME MASQUERADING AS A REVISED RETURN. THE TRIBUNAL ALSO FOUND THAT THE SO-CALLED REVISED RETURN WAS NOT FILED VOLUNTARILY BEFORE THE CONCEALMENT WA S DETECTED. AS STATED BY THE TRIBUNAL THE ENTIRE MOVE OF THE ASSESSEE WAS TO FILE A REVISED RETURN DISCLOSING A HIGHER INCOME SO THAT I F THE ITO ACCEPTED THE SAME AN ADDITIONAL AMOUNT COULD BE BROUGHT IN THE BOOKS OF THE COMPANY WITHOUT ANY PENAL LIABILITY FOR CONCEALMENT. IT IS WELL SETTLED THAT THE BLAMEWORTHINESS OF THE ASSESSEE WITH RESPECT TO THE ORIGINAL RETURN CANNOT BE AVOIDED BY FILING A FRESH RETURN AFTER CONCEALMENT WAS DETECTED BY THE ITO. THEREFORE WE ARE OF THE OPINION THAT THE RETURN FI LED BY THE ASSESSEE ON DECEMBER 22 1984 OFFERING ENHANCEMENT OF INCOME B Y RS.2 50 000/- WILL NOT ABSOLVE THE ASSESSEE FROM THE PENAL CONSEQUENCE S. THE ITO FOUND THAT DURING THE EXAMINATION OF THE ASSESSEES ACCOUNTS F OR THE ASST. YR. 1984-85 AN AMOUNT OF RS.2 50 000/- WAS CREDITED IN THE ACCO UNTS OF THE SEVEN PARTNERS IN PROPORTION TO THEIR PROFIT-SHARING RATI O. THE EXPLANATION OF THE ASSESSEE WAS THAT THE AMOUNT REPRESENTED THE INCOME OFFERED FOR ASSESSMENT FOR THE ASST. YR. 1983-84. AS THE ASSES SEE CLAIMED THE SOURCE FOR ITA 646/V/08 SVC PROJECTS P LTD. VSKP 17 INVESTMENT MADE IN A YEAR AS THE INCOME ASSESSED FO R THE EARLIER ASSESSMENT YEAR FOR WHICH NO PENALTY FOR CONCEALMENT HAD BEEN LEVIED IT HAS FALLEN WITHIN EXPLN. 2 TO S. 271(1). BY VIRTUE OF EXPLN. 2 TO S. 271(1) THE SUM OF RS.2 50 000/- ASSESSED FOR THE YEAR 1983-84 WHICH I S CLAIMED BY THE ASSESSEE AS THE SOURCE FOR INVESTMENT IN THE NAMES OF THE PA RTNERS DURING THE SUBSEQUENT ASSESSMENT YEAR BECAME THE INCOME OF THE ASSESSEE THE PARTICULARS OF WHICH HAVE BEEN CONCEALED. IN THAT VIEW OF THE MATTER THE ITO CLEARLY FOUND THAT IT IS AN INCOME CONCEALED. T HE CIT(A) ALSO FOUND THAT EXPLN. 2 TO S. 271(1)(C) OF THE IT ACT SQUARELY APP LIES TO THE FACTS OF THE CASE AS THE ASSESSEE HAD CREDITED THE ACCOUNTS OF THE PA RTNERS WITH A SUM OF RS.2 50 000 IN THE SUBSEQUENT YEAR. THE CIT(A) FOU ND THAT THE SUM REPRESENTED THE ADDITIONAL INCOME OF THE APPELLANT IN THE PREVIOUS YEAR RELEVANT TO THE ASST. YR. 1983-84 WHICH HAD NOT BEE N DISCLOSED IN THE RETURN FILED ON APRIL 28 1984. THE TRIBUNAL ALSO CAME TO THE SAME CONCLUSION. THE TRIBUNAL FOUND THAT AN AMOUNT OF RS.2 50 000 WAS FO UND CREDITED TO THE CAPITAL ACCOUNT OF THE PARTNERS AND IT FURTHER FOUN D THAT THE AMOUNT REPRESENTED INCOME OF THE ASSESSEE FOR THE ASST. YR . 1983-84. THE EXPLANATION OF THE ASSESSEE HAS NOT BEEN ACCEPTED B Y ANY OF THE AUTHORITIES AND CONCEALMENT OF INCOME AS A MATTER OF FACT WAS FOUND BY ALL THE THREE AUTHORITIES. COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO THE WANCHOO COMMITTEE REPORT FORMING THE BASIS OF THE AMENDMENT TO S. 271 INTRODUCED BY WAY OF EXPLN. 2 TO S. 271 TO SHOW THAT THE SAID EXPLANATION CAN BE RELIED UPON ONLY IF THERE IS ANY INTANGIBLE ADDITION. WHE RE INTANGIBLE ADDITIONS MADE IN THE EARLIER YEARS ARE CITED BY AN ASSESSEE AS THE SOURCE OF HIS FUNDS IN A SUBSEQUENT YEAR THE SAID FUNDS WOULD BE DEEME D TO REPRESENT THE ASSESSEES INCOME PARTICULARS IN RESPECT OF WHICH H AVE BEEN CONCEALED WITHIN THE MEANING OF CL(C) OF SUB-S.(1) OF S.271 OF THE I T ACT. IN SO FAR AS THERE IS NO INTANGIBLE ADDITION IN THE CASE IN QUESTION ACC ORDING TO THE ASSESSEE EXPLN. 2 IS NOT ATTRACTED. AS STATED ALREADY ALL THE AUTHORITIES AS A MATTER OF FACT FOUND THAT THERE HAD BEEN INTANGIBLE ADDITION OF RS.2 50 000 AND THEREFORE WE DO NOT FIND ANY SUBSTANCE IN THE SAID ARGUMENT. FURTHER THE STATEMENT PREFACING THE RECOMMENDATION OF THE WANCH OO COMMITTEE ALSO SAYS THAT: WHILE WE ARE OF THE VIEW THAT PENALTIES SHOULD NO T BE DRACONIAN WE ALSO STRONGLY FEEL THAT THOSE WHO ARE TEMPTED TO RE SORT TO CONCEALMENT OF INCOME SHOULD NOT BE ALLOWED TO GET AWAY WITH TENUO US LEGAL INTERPRETATIONS. THAT IS EXACTLY WHAT THE ASSESSEES COUNSEL IS ATT EMPTING TO DO IN THIS CASE BY RELYING UPON THE SO-CALLED REVISED RETURN. WE HOLD THAT THE ORDER OF THE TRIBUNAL IS NOT DEFECTIVE IN LAW OR IN FACT. 25. IN THE LIGHT OF LEGAL PROPOSITIONS LAID DOWN BY THE AFORESAID JUDICIAL PRONOUNCEMENTS AND THE CLARIFICATION GIVEN BY THE C BDT WE PROCEED TO DEAL WITH MULTIFOLD ARGUMENTS OF THE ASSESSEE. THE FIRS T OBJECTION RAISED BY THE ASSESSEE IS WITH REGARD TO THE DEFECT IN THE NOTICE ISSUED TO IT. WE HAVE ITA 646/V/08 SVC PROJECTS P LTD. VSKP 18 CAREFULLY EXAMINED THE ASSESSMENT ORDER FOR THE ASS ESSMENT YEAR 2005-06 NOTICE DATED 26.12.2007 AND 23.6.2008 AND WE FIND T HAT IN THE ASSESSMENT ORDER FOR A.Y. 2005-06 THE ASSESSING OFFICER HAS C ATEGORICALLY OBSERVED IN THE LIGHT OF ABOVE ADMISSIONS MADE BY THE ASSESSEE DURING THE COURSE OF SURVEY AND AS THE ASSESSEE IS CLAIMING THIS ADMISSI ON AS A SOURCE FOR INVESTMENT MADE BY THE ASSESSEE COMPANY PENALTY PR OVISIONS U/S 271 ARE SQUARELY APPLICABLE AND THEREFORE THE PENALTY PROCE EDINGS ARE INITIATED SEPARATELY FOR THIS. FROM A CAREFUL PERUSAL OF TH E ASSESSMENT ORDER FOR A.Y. 2005-06 IT IS ABUNDANTLY CLEAR THAT ASSESSING OFFI CER HAD AN INTENTION TO INVOKE THE EXPLANATION 2 TO SECTION 271 FOR THE ASS ESSMENT YEAR 2004-05 IN WHICH THE ADDITIONAL INCOME WAS OFFERED BY THE ASSE SSEES DURING THE COURSE OF SURVEY. BUT WHILE ISSUING A NOTICE DATED 26.12. 2007 U/S 274 READ WITH 271 OF THE I.T. ACT THE ASSESSMENT YEAR WAS MENTIONED AS A.Y. 2005-06 IN PLACE OF 2004-05. BUT SUBSEQUENTLY ANOTHER NOTICE WAS I SSUED ON 23.6.2008 AND IN THAT NOTICE THE ASSESSMENT YEAR WAS CLEARLY MEN TIONED TO BE A.Y. 2004-05 BY THE ASSESSING OFFICER. THE PENALTY ORDER WAS AC CORDINGLY PASSED ON 27.6.2008. THE ISSUE OF DEFECT IN THE SHOW CAUSE N OTICE WAS NOT RAISED BEFORE THE ASSESSING OFFICER AND THE ASSESSEE HAS J OINED THE PENALTY PROCEEDINGS AND FURNISHED HIS EXPLANATIONS. THIS O BJECTION WAS RAISED BEFORE THE CIT(A) ONLY. 26. HAVING CAREFULLY PERUSED THE ASSESSMENT ORDERS AND THE NOTICES ISSUED BY THE A.O. WE ARE OF THE VIEW THAT IT WAS A TYPOG RAPHICAL ERROR IN THE PENALTY NOTICE AND THE PROVISIONS OF SECTION 292B O F THE I.T. ACT COMES IN RESCUE FOR THE DEPARTMENT ACCORDING TO WHICH NO RET URN OF INCOME ASSESSMENT NOTICE SUMMONS OR OTHER PROCEEDINGS SH ALL BE INVALID MERELY BY REASONS OF ANY MISTAKE DEFECT OR OMISSION IF THE R ETURN ASSESSMENT NOTICE SUMMONS OR THE PROCEEDINGS ARE IN SUBSTANCE AND EFF ECT IN CONFORMITY WITH OR ACCORDING TO THE INTENT AND PURPOSE OF THE ACT. THUS WE HOLD THIS DEFECT IN THE NOTICE TO BE A TYPOGRAPHICAL ERROR IN MENTIO NING THE ASSESSMENT YEAR FOR WHICH THE ENTIRE PENALTY PROCEEDINGS CANNOT BE HELD TO BE INVALID. 27. THE NEXT ARGUMENT OF THE ASSESSEE THAT THE EXPL ANATION 2 TO SECTION 271 CAN ONLY BE INVOKED WHERE INTANGIBLE ADDITIONS I.E. ON ACCOUNT OF ITA 646/V/08 SVC PROJECTS P LTD. VSKP 19 UNEXPLAINED CREDITS ARE MADE IN EARLIER ASSESSMENT YEARS AND THE ASSESSEE CLAIMS THE SAID AMOUNT OF ADDITION AS A SOURCE OF A NY RECEIPT DEPOSIT OUTGOING OR INVESTMENT IN SUCCEEDING YEAR HAS BEEN ANSWERED BY CLARIFICATION BY THE BOARD THROUGH CIRCULAR NO.204 DATED 24.7.197 6. THROUGH THIS CIRCULAR THE BOARD HAS CLARIFIED THAT ADDITIONS ARE SOMETIME S MADE BY THE ITO FOR PURELY TECHNICAL REASONS I.E. APPLICATION OF PRESUM PTIVE RATE OF GROSS PROFITS OR OF YIELD OR ON ACCOUNT OF ESTIMATED DISALLOWANCE O F CERTAIN EXPENSES SHORTFALLS WASTAGE ETC. BUT NO PENALTY FOR CONCE ALMENT IS LEVIED IN RESPECT OF THESE ADDITIONS FOR WANT OF ADEQUATE EVIDENCE TO ESTABLISH THAT THESE ADDITIONS REPRESENTS THE ASSESSEES CONCEALED INCOM E BUT IN LATER ASSESSMENT WHEN CALLED UPON TO EXPLAIN CERTAIN DEPOSITS ETC. THE ASSESSEE URGES AT TIME THAT SUCH DEPOSITS ETC. HAVE COME OUT OF THE INCOME REPRESENTED BY THE AFORESAID ADDITIONS MADE EARLIER. IT WAS FURTHER C LARIFIED THAT DESPITE THIS VIRTUAL CONFESSIONS OF CONCEALMENT ON THE PART OF T HE ASSESSEE NO PENALTY WAS HITHERTO LEVIABLE IN SUCH CASES AS THE TIME LIM IT FOR INITIATING CONCEALMENT PENALTY PROCEEDINGS IN RESPECT OF THE EARLIER YEAR S IN WHICH THE ADDITION WAS MADE WOULD HAVE EXPIRED. THE PENALTY COULD ALSO NO T BE IMPOSED IN RESPECT OF THE YEAR IN WHICH THE DEPOSITS WAS MADE AS THER E WAS NO CONCEALMENT IN THAT YEAR THE DEPOSITS HAVING BEEN EXPLAINED AS OU T OF AN EARLIER YEARS INCOME. IN THIS TYPE OF SITUATION THE EXPLANATION 2 BECOMES OPERATIVE AND PROVIDES THAT IN SUCH CASES ASSESSEE WOULD BECOME LIABLE FOR PENALTY FOR CONCEALMENT IN RESPECT OF ADDITIONS MADE IN THE EAR LIER YEAR IN WHICH THE ADDITIONS WERE MADE. IN THE INSTANT CASE ADDITION AL INCOME WAS OFFERED ON ACCOUNT OF ESTIMATION OF DISALLOWANCE OF CERTAIN EX PENSES FOR WHICH VOUCHERS WERE NOT PROPERLY MAINTAINED. THEREFORE THIS IS A N INTANGIBLE ADDITION FOR WHICH EXPLANATION 2 CAN ALSO BE INVOKED. IN THE LI GHT OF THESE PROPOSITIONS WE DO NOT FIND MUCH FORCE IN THE ARGUMENTS OF THE L D. COUNSEL FOR THE ASSESSEE THAT DISALLOWANCE MADE ON ACCOUNT OF CERTA IN EXPENSES DOES NOT FALL WITHIN THE DEFINITION OF INTANGIBLE ADDITIONS. 28. ONE MORE ARGUMENT WAS ALSO RAISED BY THE LD. CO UNSEL FOR THE ASSESSEE THAT THE ASSESSEE HAS DECLARED THE ADDITIO NAL INCOME AND DECLARATION OF ADDITIONAL INCOME CANNOT BE CALLED T O BE THE ADDITIONS MADE BY THE A.O. THIS ASPECT WAS EXAMINED BY THEIR LORDSHI P OF KERALA HIGH COURT IN ITA 646/V/08 SVC PROJECTS P LTD. VSKP 20 THE CASE OF CALICUT TRADING COMPANY VS. CIT (SUPRA) IN WHICH THE ADDITIONS WERE MADE FOR ADDITIONAL INCOME OFFERED BY THE ASSE SSEES ON ACCOUNT OF UNEXPLAINED CASH CREDITS BY FILING THE REVISED RETU RN. THIS ADDITIONAL INCOME OFFERED BY THE ASSESSEE DURING THE COURSE OF ASSESS MENT PROCEEDINGS WAS CONSIDERED TO BE THE ADDITION BY THE HONBLE KERALA HIGH COURT AND APPROVED THE INVOCATION OF PROVISIONS OF EXPLANATION 2 TO SE CTION 271 OF THE ACT. THEREFORE WE FIND NO FORCE IN THE CONTENTION OF TH E ASSESSEE THAT EXPLANATION 2 CANNOT BE INVOKED WHERE ADDITIONAL INCOME IS OFFE RED BY THE ASSESSEES DURING THE COURSE OF ASSESSMENT. 29. THE LD. COUNSEL FOR THE ASSESSEE ALSO RAISED TH E LEGAL ARGUMENT THAT THE EXPLANATION 2 CAN ONLY BE INVOKED WHERE THE SOU RCE OF ANY RECEIPT DEPOSITS OUTGOING OR INVESTMENT IN ANY ASSESSMENT YEAR IS CLAIMED BY AN ASSESSEE TO BE AN AMOUNT WHICH HAD BEEN ADDED IN CO MPUTING THE INCOME OR DEDUCTED IN COMPUTING THE LOSS IN ASSESSMENT OF SUC H PERSON FOR ANY EARLIER ASSESSMENT YEAR OR YEARS BUT IN RESPECT OF WHICH NO PENALTY UNDER THIS SECTION HAD BEEN LEVIED. WE HAVE CAREFULLY EXAMINED THIS ARGUMENT OF THE ASSESSEE IN THE LIGHT OF PROVISIONS OF EXPLANATION 2 JUDGEMENT OF THE KERALA HIGH COURT AND THE BOARD CIRCULAR AND WE FIND FORCE IN THIS ARGUMENT IN AS MUCH AS THE EMPHASIS WAS GIVEN IN EXPLANATION 2 TO THE ADDITIONS MADE DURING THE COURSE OF ASSESSMENT FOR ANY EARLIER ASS ESSMENT YEARS. BEFORE INITIATING THE ASSESSMENT IF THE ASSESSEE HAS FILE D THE REVISED RETURN BY OFFERING AN ADDITIONAL INCOME THEREIN AND THE ASSES SING OFFICER FRAME THE ASSESSMENT ON THE BASIS OF THE REVISED RETURN; CAN THE ADDITIONAL INCOME OFFERED IN THE REVISED RETURN BE CALLED TO BE AN AD DITION MADE IN THE ASSESSMENT? THE ANSWER IS CERTAINLY IN THE NEGATIV E. IN A COMMON PARLANCE ADDITIONS MEANS THE ADDITIONAL INCOME ASSESSED BY T HE ASSESSING OFFICER WHEN THE ASSESSEE INITIALLY DISPUTES THE OBJECTIONS RAISED BY THE A.O. THE ASSESSMENT U/S 143 IS A PROCESS FOR EXAMINATION/PRO CESSING THE RETURNS FILED BY THE ASSESSEE U/S 139 OR IN RESPONSE TO NOTICE UN DER SUB-SECTION 1 OF SECTION 142. BEFORE FILING THE RETURN THE ASSESSM ENT WOULD NOT START. IN EXPLANATION 2 TO SECTION 271(1) IT HAS BEEN MADE E MPHATICALLY CLEAR THAT ADDITION TO THE INCOME OR DEDUCTION OF LOSS SHOULD BE COMPUTED IN THE ASSESSMENT OF SUCH PERSON FOR ANY EARLIER ASSESSMEN T YEARS. THEREFORE ITA 646/V/08 SVC PROJECTS P LTD. VSKP 21 BEFORE THE START OF THE ASSESSMENT IF THE RETURNS ARE REVISED BY DECLARING THE ADDITIONAL INCOME THROUGH REVISED RETURN THE ADDIT IONAL INCOME WOULD NOT FALL WITHIN THE PURVIEW OF THE ADDITION TO THE INCOME OF THE ASSESSEE MADE DURING THE COURSE OF ASSESSMENT. 30. TURNING TO THE FACTS OF THE CASE WE FIND THAT THE ADDITIONAL INCOME WAS OFFERED DURING THE COURSE OF SURVEY FOR DISCREP ANCIES IN THE MAINTENANCE OF VOUCHERS OF DIFFERENT EXPENSES. THE ASSESSEE FI LED A REVISED RETURN OF INCOME ON 17.3.2005 AND PAID THE TAXES THEREON. TH E REVISED RETURN FILED BY THE ASSESSEE WAS ACCEPTED BY THE ASSESSING OFFICER BY PASSING AN ORDER DATED 30.3.2006 WITHOUT TINKERING WITH THE ACCOUNTS MAINT AINED BY THE ASSESSEE. THEREFORE IN THE ASSESSMENT NO ADDITIONS WERE MADE BY THE ASSESSING OFFICER UNDER ANY ACCOUNT. NOW THE QUESTION ARISE WHETHER THE ADDITIONAL INCOME DECLARED BY THE ASSESSEE DURING THE COURSE OF SURVE Y CONDUCTED BEFORE THE START OF THE ASSESSMENT PROCEEDINGS CAN BE CALLED T O BE AN ADDITION FOR INVOKING THE EXPLANATION 2 ON CLAIM OF THE ASSESSE E RAISED IN SUCCEEDING YEAR TO BE THE SOURCE OF DEPOSITS? THE ANSWER IS C ERTAINLY IN THE NEGATIVE BECAUSE THE EXPLANATION 2 CAN ONLY BE INVOKED WHERE THE ADDITIONS OF INCOME ARE MADE DURING THE COURSE OF ASSESSMENT OF EARLIER ASSESSMENT YEARS. THEREFORE WE ARE OF THE CONSIDERED VIEW THAT THE P ROVISIONS OF EXPLANATION TO SECTION 271 CAN ONLY BE INVOKED WHERE THE SOURCE OF ANY RECEIPT DEPOSIT OUTGOING OR INVESTMENT IN ANY ASSESSMENT YEAR IS CL AIMED BY ANY PERSON TO BE AN AMOUNT WHICH HAD BEEN ADDED IN COMPUTING THE INCOME OR DEDUCTED IN COMPUTING THE LOSS IN THE ASSESSMENT YEAR OF SUCH P ERSON FOR ANY EARLIER ASSESSMENT YEAR OR YEARS BUT IN RESPECT OF WHICH NO PENALTY UNDER CLAUSE 3 OF SECTION 271(1) HAD BEEN LEVIED. MEANING THEREBY IF NO ADDITIONS WERE MADE OR LOSSES WERE REDUCED IN ANY ASSESSMENT OF AN Y EARLIER ASSESSMENT YEARS EXPLANATION 2 TO SECTION 271(1) CANNOT BE INV OKED EVEN THEN THE ASSESSEE CLAIMED THE ADDITIONAL INCOME OFFERED IN E ARLIER ASSESSMENT YEARS TO BE THE SOURCE OF ANY RECEIPT DEPOSIT OUTGOING OR INVESTMENT IN SUCCEEDING YEAR. IT IS ALSO A SETTLED POSITION OF LAW THAT TH E RULE OF STRICT INTERPRETATION BE APPLIED TO THE PENAL PROVISION UNDER THE I.T. AC T. ITA 646/V/08 SVC PROJECTS P LTD. VSKP 22 31. IN THE INSTANT CASE UNDISPUTEDLY NO ADDITIONS WERE MADE IN THE ASSESSMENT FOR THE ASSESSMENT YEAR 2004-05 AS THE A .O. HAS ACCEPTED THE REVISED RETURN FILED BY THE ASSESSEE WITHOUT TINKER ING WITH ACCOUNTS PREPARED BY HIM AND COMPUTED HIS INCOME. THEREFORE THE EXP LANATION 2 TO SECTION 271(1) CANNOT BE INVOKED AND THE PENALTY U/S 271(1) (C) CANNOT BE LEVIED IN ASSESSMENT YEAR 2004-05 FOR THE ADDITIONAL INCOME O FFERED DURING THE COURSE OF SURVEY. WE THEREFORE SET ASIDE THE ORDER OF TH E CIT(A) AND DELETE THE PENALTY. 32. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 15.3.2011 SD/- SD/- (BR BASKARAN) (SUNIL KUMAR YADAV) ACCOUNTA NT MEMBER JUDICIAL MEMBER VG/SPS VISAKHAPATNAM DATED 15 TH MARCH 2011 COPY TO 1 M/S. S.V.C. PROJECTS (P) LTD. C/O C. SUBRAHMANYAM FCA CHARTERED ACCOUNTANT 102 LAKSHMI APARTMENT FACOR LAYOUT WA LTAIR UPLANDS VISAKHAPATNAM-530 003 2 JCIT RANGE - 4 VISAKHAPATNAM 3 THE CI T VISAKHAPATNAM 4 THE CIT (A) VISAKHAPATNAM 5 THE DR ITAT VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM