Sh Pragati Agrawal, Bhopal v. The ACIT, Bhopal

ITSSA 94/IND/2009 | 2003-2004
Pronouncement Date: 28-10-2013 | Result: Dismissed

Appeal Details

RSA Number 9422716 RSA 2009
Assessee PAN AATPA4604P
Bench Indore
Appeal Number ITSSA 94/IND/2009
Duration Of Justice 4 year(s) 3 month(s) 19 day(s)
Appellant Sh Pragati Agrawal, Bhopal
Respondent The ACIT, Bhopal
Appeal Type Income Tax (Search & Seizure) Appeal
Pronouncement Date 28-10-2013
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted DB
Tribunal Order Date 28-10-2013
Date Of Final Hearing 05-05-2011
Next Hearing Date 05-05-2011
Assessment Year 2003-2004
Appeal Filed On 09-07-2009
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH INDORE BEFORE SHRI JOGINDER SINGH J.M. AND SHRI R.C.SHARM A A.M. PAN NO. : AATPA4604P I.T(SS).A.NOS. 92 TO 95 /IND/20 09 A.Y. : 2003-04 TO 2006-07 SHRI PRAGTI AGARWAL B-281 SHAHPURA BHOPAL VS. ACIT 1(2) BHOPAL APPELLANT RESPONDENT I.T(SS).A.NOS. 98 TO 100/IND/2009 A.Y. : 2003-04 2005-06 & 2006-07 ACIT 1(2) BHOPAL VS. SHRI PRAGTI AGARWAL B-281 SHAHPURA BHOPAL APPELLANT RESPONDENT I.T.A.NOS. 42 & 43/IND/201 3 A.Y. : 2005-06 & 2006-07 ACIT 1(2) BHOPAL VS. SHRI PRAGTI AGARWAL B-281 SHAHPURA BHOPAL APPELLANT RESPONDENT ASSESSEE BY : SHRI PRAKASH JAIN C.A. DEPARTMENT BY : SMT. MRIDULA BAJPAI CIT DR DATE OF HEARING : 04 . 0 9 .201 3 2 DATE OF PRONOUNCEMENT : 28 . 10 .201 3 O R D E R PER R. C. SHARMA A.M. THESE ARE CROSS APPEALS FILED BY THE DEPARTMENT AND ASSESSEE AGAINST DIFFERENT ORDERS OF CIT(A) FOR THE ASSESSME NT YEARS 2003-04 TO 2006-07 IN THE MATTER OF ORDER PASSED U/S 153A READ WITH SECTION 143(3) OF THE INCOME-TAX ACT 1961. 2. IN THE APPEALS FILED BY THE ASSESSEE THE ASSESSEE IS AGGRIEVED FOR THE ADDITION MADE BY THE ASSESSING OFFICER WH EN NO INCRIMINATING MATERIAL WAS FOUND DURING COURSE OF S EARCH WITH REGARD TO PAYMENT MADE BY THE COMPANY TO THE ASSESS EE AND FOR THE ADDITION MADE U/S 2(22)(E) ON ACCOUNT OF DEEMED DIV IDEND AND ALSO FOR THE ADDITION MADE ON ACCOUNT OF BENEFIT/PERQUIS ITE U/S 2(24)(IV) OF THE INCOME-TAX ACT 1961 IN THE ASSESSMENT YEAR S 2003-04 TO 2006-07. REVENUE IS AGGRIEVED BY THE ORDER OF CIT(A ) FOR REDUCING THE QUANTUM OF ADDITION MADE U/S 2(24)(IV) OF INCOME-TA X ACT 1961 IN THE ASSESSMENT YEAR 2003-04. ASSESSING OFFICER HAS ALSO LEVIED PENALTY U/S 271(1)(C) IN THE ASSESSMENT YEARS 2005- 06 & 2006-07 WITH RESPECT TO ADDITION SO MADE LD. CIT(A) HAD DE LETED THE SAME AGAINST WHICH REVENUE IS IN APPEAL BEFORE US. 3 3. THE RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORDS PERUSED. FACTS IN BRIEF ARE THAT THE ASSESSEE IS AN INDIVIDUAL DERIVING INCOME FROM SALARY AS DIRECTOR OF M/S.MECHMAN & FEB INDUSTRIES SHARE OF PROFIT FROM FIRM AND INTEREST INCOME. THER E WAS SEARCH U/S 132(1) ON 16.9.2005. DURING THE COURSE OF SEARCH NO INCRIMINATING MATERIAL WAS FOUND RELATING TO PAYMENTS MADE BY MEC HMAN MOTORS PRIVATE LIMITED TO ASSESSEE. HOWEVER WHILE FRAMING ASSESSMENT U/S 153A THE ASSESSING OFFICER MADE ADDITION ON ACCOUN T OF LOAN AMOUNT RECEIVED BY THE ASSESSEE FROM MECHMAN MOTORS PRIVATE LIMITED U/S 2(22)(E) AND ALSO TAXED NOTIONAL INTERE ST ON SUCH LOAN U/S 2(24)(IV) OF THE INCOME-TAX ACT 1961. THE LD. AUTHORIZED REPRESENTATIVE PLACED RELIANCE ON THE DECISION OF HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF JAI STEELS (INDIA) 259 C TR 281 IN SUPPORT OF PROPOSITION THAT NO ADDITION U/S 153A IS TO BE M ADE WHEN NO INCRIMINATING MATERIAL IS FOUND DURING COURSE OF SE ARCH. THE PRECISE OBSERVATION OF HON'BLE COURT WAS AS UNDER :- ' IN THE FIRM OPINION OF THIS COURT FROM A PLAN REA DING OF THE PROVISION ALONG WITH THE PURPOSE AND PURPORT OF THE SAID PROVISION. WHICH IS INTRICATELY LINKED WITH SEARCH AND REQUISITION U/S 132 AND 132A OF THE ACT IT IS APPARENT THAT : 4 (A) THE ASSESSMENTS OR REASSESSMENT WHICH STAND ABA TED IN TERMS OF SECOND PROVISO TO SECTION153A OF THE ACT THE AO ACTS UNDER HIS ORIGINAL JURISDICTION FOR WHICH ASSESS MENT HAVE TO BE MADE; (B) REGARDING OTHER CASES THE ADDITION TO THE INCO ME HAS ALREADY BEEN ASSESSED THE ASSESSMENT WILL BE MADE ON THE BASIS OF INCRIMINATING MATERIAL AND (C) IN THE ABSENCE OF ANY INCRIMINATING MATERIAL T HE COMPLETED ASSESSMENT CAN BE REITERATED AND THE ABATED ASSESSM ENT OR REASSESSMENT CAN BE MADE;' 4. ATTENTION WAS ALSO DRAWN BY LD. AUTHORIZED REPRESEN TATIVE ON PAGE 294 OF THE SAID ORDER WHEREIN FOLLOWING WAS TH E OBSERVATION OF THE COURT AT PAGES 29 & 30 :- THE ARGUMENT OF THE LD. COUNSEL THAT THE A.O. IS AL SO FREE TO DISTURB INCOME EXPENDITURE OR DEDUCTION DE HORS THE INCRIMINATING MATERIAL WHILE MAKING ASSESSMENT U/S 153A OF THE ACT IS ALSO NOT BORNE OUT FROM THE SCHEME OF TH E SAID PROVISION WHICH AS NOTICED ABOVE IS ESSENTIALLY IN CONTEXT OF SEARCH AND/OR REQUISITION. THE PROVISIONS OF SECTION 153A TO 153C CANNOT BE 5 INTERPRETED TO BE A FURTHER INNINGS FOR THE AO AND/ OR ASSESSEE BEYOND PROVISIONS OF SECTION 139 (RETURN O F INCOME) 139(5) ( REVISED RETURN OF INCOME) 147 ( INCOME E SCAPING ASSESSMENT) AND 263 ( REVISION OF ORDERS) OF THE AC T. THE PLEA RAISED ON BEHALF OF THE ASSESSEE THAT AS T HE FIRST PROVISO PROVIDES FOR ASSESSMENT OR REASSESSMENT OF THE TOTAL INCOME IN RESPECT OF EACH ASSESSMENT YEAR FALLING W ITHIN THE SIX ASSESSMENT YEARS IS MERELY READING THE SAID PR OVISION IN ISOLATION AND NOT IN THE CONTEXT OF THE ENTIRE SECT ION. THE WORDS' ASSESS' OR 'REASSESS' HAVE BEEN USED AT MORE THAN ONE PLACE IN THE SECTION AND A HARMONIOUS CONSTRUCTION OF THE ENTIRE PROVISION WOULD LEAD TO AN IRRESISTIBLE CONC LUSION THAT THE WORD ASSESS HAVE BEEN USED IN THE CONTEXT OF ABATED PROCEEDINGS AND 'REASSESS' HAS BEEN USED FOR COMPLE TED ASSESSMENT PROCEEDINGS. WHICH WOULD NOT ABATE AS TH EY ARE NOT PENDING ON THE DATE OF INITIATION OF THE SEARCH OR MAKING OF REQUISITION AND WHICH WOULD ALSO NECESSARY SUPPORT THE INTERPRETATION THAT FOR THE COMPACTED ASSESSMENT T HE SAME CAN BE TINKERED ONLY BASED ON THE INCRIMINATING MAT ERIAL FOUND DURING THE COURSE OF SEARCH OR REQUISITION OF DOCUMENTS. 6 5. THE LD. AUTHORIZED REPRESENTATIVE ALSO PLACED RELI ANCE ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS IN SUPPORT OF THE PROPOSITION THAT IN THE ABSENCE OF INCRIMINATING MATERIAL NO A DDITION IS WARRANTED WHILE FRAMING ASSESSMENT U/S 153A/153C :- (I) ALCARGO GLOBAL LOGISTICS LTD. VS. DCIT (2012) 137 I TD 287 (MUM) SPECIAL BENCH (II) MGF AUTOMOBILES LTD VS. ACIT CENT CIRCLE-7 NEW DELHI ITA NOS.4212 & 4213/DEL/2 011 ORDER DATED 28.06.2013. (III) ARUN SEHLOT BHOPAL VS. ACIT 3(1) BHOPAL IT(SS) A.NOS. 186 TO 192/IND/2012 ORDER DATED 30 TH APRIL 2013. (IV) GURINDER SINGH BAWA DCIT ITA NOS. 2075 & 2 669 (MUM.) OF 2010 ORDER DATED 16.11.2012. (V) ACIT(CC)-45 MUMBAI VS. M/S PRATIBHA INDUSTRIES LTD MUMBAI ITA NOS. 2197 TO 2199/MUM/2008 ORDER DATED 19.12.2012. (VI) SHREE YAMUNA PROTEINS DAHOD VS. ACIT CC-1 BARODA IT(SS) A NOS.227 TO 232/AHD/2010 ORDER DATED 18.10.2012. (VII) ACIT CENTRAL CIRCLE XXVII KOLKATA VS. HIND USTAN STORAGE & DISTRIBUTION CO. LTD. IT(SS) A. NO.135/KOI./2011 ORDER DATED 04.08.2012. (VIII) SHANKAR R.JHUNJHUNWALA AURANGABAD VS. ACIT C EN CIRCLE AURANGABAD ITA NO. 225/PN/11 ORDER DATED 31 ST JULY 2012. (IX) HIREN N PATEL MUMBAI VS. ACIT CC-10 MUMBAI ITA NO. 39 TO 41/MUM/2010 ORDER DATED 12.10.2012. (X) ATITHI N. PATEL MUMBAI VS. ACIT CEN. CIRCLE - 10 MUMBAI ITA NO. 43/MUM/2010 ORDER DATED 22 ND AUGUST 2012. 7 6. AS PER LD. AUTHORIZED REPRESENTATIVE THE FINDING G IVEN BY THE HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF JAI STEEL (INDIA) VS. ACIT (2013) 259 CTR (RAJ.) 281 IS A BINDING DECISIO N ON TRIBUNAL IN VIEW OF THE DECISION OF THE JURISDICTIONAL HIGH COU RT IN THE CASE OF CIT VS. VRAJLAL MANILAL & CO. (1981) 127 ITR 512 (M.P). 7. ON MERITS IT WAS CONTENDED THAT ADDITION OF RS. 3 09 915/- WAS MADE BY THE ASSESSING OFFICER BEING BENEFIT/PER QUISITE U/S 2(24)(IV) OF THE INCOME-TAX ACT 1961 BEING CLOSIN G DEBIT BALANCE IN THE ACCOUNT OF THE COMPANY. THE LD. CIT(A) REDUCED THE SAME TO RS. 30 992/- BEING 10 % OF RS. 3 09 915/- INTEREST AS BENEFIT/PERQUISITE. AS PER LD. AUTHORIZED REPRESENT ATIVE THE ADVANCE WAS GIVEN BY THE COMPANY TO THE ASSESSEE AG AINST THE CURRENT RUNNING ACCOUNT IN WHICH MOST OF THE TRANSA CTION ARE FOR THE PURPOSE OF BUSINESS. THUS THE ADVANCE WAS GIVEN FO R THE BUSINESS OF THE COMPANY. MOREOVER THE LD. CIT(A) CONFIRMED THE ADDITION OF RS. 30 992/- BEING INTEREST @ 10% ON THE CLOSING DEBIT BALANCE O F RS. 3 09 915/- ON AD HOC BASIS. IN FACT IF ONE WORKS OUT THE INTER EST ON DAY TODAY BASIS ON ALL THE DEBIT AND CREDIT THE AMO UNT OF INTEREST @ 10% WORKS OUT TO DEBIT (-) RS.418 WHICH WILL BE CLE AR FROM THE 8 ENCLOSED WORKING OF INTEREST. THE COPY OF ACCOUNT O F ASSESSEE IS ON PAGE NO.95 & 96 OF THE PAPER BOOK. 8. AS PER LD. AUTHORIZED REPRESENTATIVE NO ASSESSMENT PROCEEDING IN RELATION TO THE ASSESSMENT YEAR 2003- 04 WAS PENDING ON THE DATE OF SEARCH I.E. 16/09/2005 WHICH IS CLEAR FROM THE FOLLOWINGS:- SR. NO. PARTICULARS REMARK (I) DATE OF SEARCH 16/09/2005 (II) DATE OF FILING OF RETURN PAPER BOOK PAGE NO. 02 10/12/2003 (III) DATE UP TO WHICH CASE COULD BE SELECTED FOR SCRUTINY 31/12/2004 (IV) WEATHER ANY NOTICE U/S 142(1) OF 143(2) RECEIVED PR IOR NO TO SEARCH. AS PER LD. AUTHORIZED REPRESENTATIVE NO INCREMENTIN G DOCUMENT/EVIDENCE/MATERIAL/LOOSE PAPERS ETC. WERE F OUND DURING THE COURSE OF SEARCH NOR ANY EVIDENCE RELATING TO T HE ADVANCE TAKEN FROM MECHMEN MOTORS PVT. LTD. WAS FOUND DURING THE COURSE OF SEARCH. IT IS SETTLED LAW THAT WHERE NOTHING INCRIM INATING IS FOUND IN THE COURSE OF SEARCH RELATING TO ANY ASSESSMENT YEA RS THE ASSESSMENTS FOR SUCH YEARS CANNOT BE DISTURBED. ITE MS OF REGULAR ASSESSMENT CANNOT BE ADDED BACK IN THE PROCEEDINGS U/S. 153C WHEN NO INCRIMINATING DOCUMENTS WERE FOUND IN RESPECT OF THE ADDITION 9 DISALLOWANCE AMOUNTS IN THE SEARCH PROCEEDING. 9. AS PER LD. AUTHORIZED REPRESENTATIVE NO ASSESSMENT PROCEEDING IN RELATION TO THE ASSESSMENT YEAR 2004- 05 WAS PENDING ON THE DATE OF SEARCH I.E. 16/09/2005 WHICH WILL BE MORE CLEAR FROM THE FOLLOWINGS:- SR. NO. PARTICULARS REMARK (I) DATE OF SEARCH 16/09/2005 (II) DATE OF FILING OF RETURN 02/12/2004 (III) DATE UP TO WHICH CASE COULD BE SELECTED FOR SCRUTIN Y 31/12/2005 (IV) WHETHER ANY NOTICE U/S 142(1) OF 143(2) RECEIVED PR IOR TO SEARCH NO 10. THE LD. AUTHORIZED REPRESENTATIVE FURTHER CONTENDE D THAT THE ADDITION MADE WITHOUT REFERRING TO THE ANY INCR IMINATING DOCUMENT/LOOSE PAPER IS LIABLE TO BE DELETED IN VIE W OF DETAILED ARGUMENT MADE FOR THE ASSESSMENT YEAR 2003-04. 11. ON MERIT IT WAS CONTENDED THAT THE LD. A.O. MADE ADDITION OF RS. 90 743/- BEING BENEFIT/PERQUISITE U/S 2(24)( IV) OF THE INCOME- TAX ACT 1961 WHICH WERE CONFIRMED BY THE LD. CIT( A). NOW OUR HUMBLE SUBMISSION ON THIS GROUND ARE AS UNDER:- (I) THE ADVANCE WAS GIVEN BY THE COMPANY TO THE ASSESSEE AGAINST CURRENT RUNNING ACCOUNT IN WHICH M OST OF 10 THE TRANSACTION ARE FOR THE PURPOSE OF BUSINESS. (II) MOREOVER THE LD. CIT(A) CONFIRMED THE ADDIT ION OF RS. 90 793/- BEING INTEREST @ 10% ON THE CLOSING DE BIT BALANCE OF RS. 9 07 431/- (THE CORRECT AMOUNT OF CL OSING BALANCE IS RS. 6 72 489/- REFER PAGE-58 TO 60 OF TH E PAPER BOOK) ON AD HOC BASIS. IN FACT IF ONE WORKS OUT THE INTEREST ON DAY BASIS ON ALL THE DEBIT AND CREDIT THE AMOUNT OF INTEREST @ 10% WORKS OUT TO RS. 58 481/- WHICH WILL BE CLEAR F ROM THE ENCLOSED WORKING OF INTEREST. THE COPY OF ACCOUNT O F APPELLANT IS ON PAGE NO. 58 TO 60 OF THE PAPER BOOK . 12. IN RESPECT OF ASSESSMENT YEAR 2005-06 IT WAS CONTE NDED BY LD. AUTHORIZED REPRESENTATIVE THAT ADDITION MADE U /S 2(24)(IV) WITHOUT REFERRING TO ANY INCRIMINATING DOCUMENTS/LO OSE PAPERS IS LIABLE TO BE DELETED. IN VIEW OF THE DETAILED ARGUM ENTS PLACED FOR ASSESSMENT YEAR 2003-04. 13. WITH REGARD TO MERIT OF ADDITION IN THE ASSESSMENT YEAR 2005-06 AND 2006-07 IT WAS CONTENDED THAT T HE ADVANCE WAS GIVEN BY THE COMPANY TO THE ASSESSEE AGAINST CURRENT RUNN ING ACCOUNT IN WHICH MOST OF THE TRANSACTION ARE FOR THE PURPOS E OF BUSINESS 11 AND MORE TOO AGAINST THE LAND WHICH IS TO BE USED B Y THE COMPANY FOR THE PURPOSE OF ITS BUSINESS AND NO RENT WILL BE PAYABLE BY THE COMPANY TO THE ASSESSEE. A COPY OF M OU ENTERED BETWEEN THE COMPANY AND ASSESSEE IS ENCLOSED WITH P APER BOOK REFER PAGE-26 TO 28. THUS THE ADVANCE IS GIVEN FOR THE BUSINESS OF THE COMPANY. 14. AS PER LD. AUTHORIZED REPRESENTATIVE THE ASSESSEE HAS PROVIDED ITS LAND AND BUILDING FOR THE BUSINESS PUR POSES OF COMPANY NAMELY MECHMEN MOTORS PVT. LTD. FOR WHICH N O RENT IS CHARGED BY THE ASSESSEE AND COMPANY PAID HIM ADVANC E. THE LD. CIT(A) CONFIRMED THE ADDITION BY HOLDING THAT W HY THE ASSESSEE HAS NOT CHARGED RENT? IN THIS REGARD IT IS SUBMITTED THAT IT IS FOR THE ASSESSEE TO DECIDE HOW TO MANAGE ITS BUSINESS AND NOT FOR THE DEPARTMENT VIDE SASOON J. DAVID & C O. P. LTD. VS. CIT (1979) 118 ITR 261 275-6 (SC.) ADDL CIT V S. KUBER SINGH BHAGWANDAS (1979) 118 ITR 379 386-7 (MP-FB). IN THIS CASE THE HON'BLE COURTS HELD AS UNDER:- 'ORDINARY IT IS FOR THE ASSESSEE TO DECIDE WHETHER ANY EXPENDITURE SHOULD BE INCURRED IN THE COURSE OF ITS OR HIS 12 BUSINESS AND IF IT IS INCURRED FOR PROMOTING THE B USINESS AND TO EARN PROFITS THE ASSESSEE CAN CLAIM DEDUCTION THER EFORE UNDER SECTION 37(1) EVEN THOUGH THERE WAS NO COMPELLING NECESSITY TO INCUR SUCH EXPENDITURE. 15. AS PER LD. AUTHORIZED REPRESENTATIVE DURING THE Y EAR THE COMPANY HAS STARTED KEEPING ITS VEHICLES ON THE SAI D LAND AND BUILDING CONSTRUCTION THEREON FOR WHICH NO RENT IS PAID BY THE COMPANY TO THE ASSESSEE. THUS THE ADVANCE WAS GIVE N FOR THE BUSINESS PURPOSE OF THE COMPANY AND NOT FOR THE BEN EFIT OF THE ASSESSEE. AS PER LD. AUTHORIZED REPRESENTATIVE THE ASSESSEE HAS ALSO CREATED MORTGAGE ON THE SAID LAND FOR THE PURPOSE O F RAISING LOAN BY THE COMPANY FROM STATE BANK OF INDIA AND ICICI BANK LIMITED AND FINALLY WITH UCO BANK. THE SAID LAND IS STILL MORTG AGED WITH THE BANK IN RESPECT OF LOAN TAKEN BY THE COMPANY. THE C ONTENTION OF THE LD. AUTHORIZED REPRESENTATIVE WAS THAT SINCE AMOUNT WAS GIVEN FOR THE PURPOSE OF ACQUIRING THE LAND FOR CONSTRUCTION OF THE BUILDING WHICH WAS EFFECTIVELY USED BY THE COMPANY THE AMOU NT SO GIVEN WAS NOT A GRATUITOUS LOAN BUT IN CONSIDERATION OF ASSE SSEE AGREEING TO GIVE THE LAND AND BUILDING FOR USE BY THE COMPANY A ND ALSO 13 MORTGAGING THE LAND IN FAVOUR OF THE BANK FOR ADVAN CING MONEY TO THE COMPANY. ACCORDINGLY SEC. 2(22)(E) IS NOT ATTR ACTED IN VIEW OF THE DECISION OF HON'BLE CALCUTTA HIGH COURT IN THE CASE OF PRADIP KUMAR MALHOTRA VS. CIT (2011) 338 ITR 538 (CAL) WHEREIN THE HON'BLE CALCUTTA HIGH COURT HELD AS UNDER :- PAGE NO. 545 PARA 10 & 11 '10 AFTER HEARING THE LEARNED COUNSEL FOR THE PART IES AND AFTER GOING THROUGH THE AFORESAID PROVISIONS OF THE ACT WE ARE OF THE OPINION THAT THE PHRASE 'BY WAY OF ADVANCE O R LOAN' APPEARING IN SUB-C/O (E) MUST BE CONSTRUED TO MEAN THOSE ADVANCES OR LOANS WHICH A SHAREHOLDER ENJOYS FOR SI MPLY ON ACCOUNT OF BEING A PERSON WHO IS THE BENEFICIAL OWN ER OF SHARES (NOT BEING SHARES ENTITLED TO A FIXED RATE O F DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN P ROFITS) HOLDING NOT LESS THAN TEN PER CENT OF THE VOTING PO WER; BUT IF SUCH LOAN OR ADVANCE IS GIVEN TO SUCH SHAREHOLDER A S A CONSEQUENCE OF ANY FURTHER CONSIDERATION WHICH IS B ENEFICIAL TO THE COMPANY RECEIVED FROM SUCH A SHAREHOLDER IN SU CH CASE SUCH ADVANCE OR LOAN CANNOT BE SAID TO A DEEMED DIV IDEND WITHIN THE MEANING OF THE ACT. THUS FOR GRATUITOUS LOAN OR 14 ADVANCE GIVEN BY A COMPANY TO THOSE CASES OF SHAREH OLDERS WOULD COME WITHIN THE PURVIEW OF S. 2(22)(E) BUT NO T TO THE CASES WHERE THE LOAN OR ADVANCE IS GIVEN IN RETURN TO AN ADVANTAGE CONFERRED UPON THE COMPANY BY SUCH SHAREH OLDER. 11. IN THE CASE BEFORE US THE ASSESSEE PERMITTED HIS PROPERTY TO BE MORTGAGED TO THE BANK FOR ENABLING T HE COMPANY TO TAKE THE BENEFIT OF LOAN AND IN SPITE OF REQUEST OF THE ASSESSEE THE COMPANY IS UNABLE TO RELEASE T HE PROPERTY FROM THE MORTGAGE. IN SUCH A SITUATION FO R RETAINING THE BENEFIT OF LOAN AVAILED FROM VIJAYA B ANK IF DECISION IS TAKEN TO GIVE ADVANCE TO THE ASSESSEE S UCH DECISION IS NOT TO GIVE GRATUITOUS ADVANCE TO ITS SHAREHOLDER BUT TO PROTECT THE BUSINESS INTEREST OF THE COMPANY. 16. AS PER LD. AUTHORIZED REPRESENTATIVE SINCE ADVANCE WAS GIVEN BY THE COMPANY FOR THE PURPOSE OF ITS BUSINES S EXPEDIENCY THE SAME IS NOT COVERED BY THE DEFINITION OF DEEMED DIV IDEND U/S 2(22)(E). THE LD. AUTHORIZED REPRESENTATIVE ALSO I NVITED OUR ATTENTION TO THE ACCUMULATED PROFIT OF THE COMPANY WHICH AFT ER CONSIDERING 15 THE ADVANCE GIVEN TO OTHER DIRECTORS COMES TO NEGAT IVE FIGURE IN RESPECT OF WHICH NO ADDITION CAN BE MADE U/S 2(22)( E). AS PER LD. AUTHORIZED REPRESENTATIVE DEEMED DIVIDEND IS TO BE WORKED OUT ON ACCUMULATED PROFIT AT THE BEGINNING OF THE YEAR FOR WHICH RELIANCE WAS PLACED ON THE DECISION IN THE CASE OF RAJESH P. VED 126 TTJ 711 AND B. M. STOCK HOLDING PRIVATE LIMITED 75 TTJ 898 . AS PER LD. AUTHORIZED REPRESENTATIVE ADJUSTMENT OF DEPRECIATI ON IN COMPUTING ACCUMULATED PROFIT FOR THE PURPOSE OF SECTION 2(22) (E) IS TO BE MADE IN VIEW OF DECISION IN THE CASE OF YASIN HOTELS PRI VATE LIMITED 121 TTJ 713 JAMUNADAS KHIMJI KOTHARI 92 ITR 105 (BOM) AND NAVNEETLAL C. ZAVERI 80 ITR 582 (BOM). OUR ATTENTI ON WAS ALSO INVITED TO THE CHART PREPARED AFTER ADJUSTMENT OF D EPRECIATION AND THE ADDITION MADE ON ACCOUNT OF DEEMED DIVIDEND IN CASE OF OTHER DIRECTORS. 17. THE LD. AUTHORIZED REPRESENTATIVE ALSO DREW OUR AT TENTION TO THE ACCUMULATED PROFIT OF THE COMPANY AFTER ADJUSTM ENT OF DEPRECIATION AND THE ADDITION MADE IN THE HANDS OF OTHER DIRECTORS NEGATIVE BALANCE OF PROFIT WORKS OUT ON WHICH NO A DDITION WAS WARRANTED U/S 2(22)(E). ON THE OTHER HAND THE LD. CIT DR RELIED ON ORDERS OF LOWER AUTHORITIES. 16 18. RIVAL CONTENTIONS HAVE BEEN CONSIDERED AND RECORDS PERUSED. FACTS IN BRIEF ARE THAT THE ASSESSEE IS A DIRECTOR OF M/S. MECHMAN AND FEB INDUSTRIES. THERE WAS SEARCH AT ASSESSEES PREMISES CONSEQUENT TO WHICH ASSESSMENT WAS FRAMED U/S 153A READ WITH SECTION 143(3) WHEREIN ADDITION WAS MADE BY THE AS SESSING OFFICER ON THE PLEA THAT THE ASSESSEE HAS RECEIVED LOAN FRO M M/S. MECHMAN MOTORS PRIVATE LIMITED WHEREIN ASSESSEE WAS HAVING SUBSTANTIAL INTEREST ACCORDINGLY AMOUNT OF LOANS SO RECEIVED WAS HELD TO BE DEEMED DIVIDEND U/S 2(22)(E). THE ASSESSING OFFICER ALSO MADE ADDITION U/S 2(24)(IV) ON THE PLEA THAT THE ASSESSE E WAS IN RECEIPT OF PERQUISITE IN THE FORM OF NOTIONAL INTEREST ON THE AMOUNT OF LOANS SO TAKEN. BY THE IMPUGNED ORDER THE LD. CIT(A) PARTLY DELETED THE ADDITION MADE U/S 2(24)(IV) FOR THE ASSESSMENT YEAR 2003-04. BOTH THE ASSESSEE AND REVENUE ARE IN APPEAL BEFORE US. F ROM THE RECORD WE FOUND THAT IN THE ASSESSMENT YEAR 2003-04 THE A SSESSING OFFICER HAS MADE ADDITION OF RS. 3 09 915/- U/S 2(24)(IV). THE LD. CIT(A) REDUCED THE SAME TO RS. 30 992/- BEING 10 % OF THE LOAN AMOUNT. SIMILAR ADDITION U/S 2(24)(IV) WAS MADE IN ASSESSME NT YEAR 2004-05 TO 2006-07. IN THE ASSESSMENT YEAR 2005-06 AND 2006 -07 ASSESSING 17 OFFICER ALSO MADE ADDITION U/S 2(22)(E). CONTENTION OF ASSESSEE BEFORE ASSESSING OFFICER WAS AS UNDER :- MECHMEN MOTORS PRIVATE LIMITED HAS BEEN INCORPORA TED PURELY FOR THE PURPOSE OF DEALERSHIP OF TATA MOTORS . TILL THE FINANCIAL YEAR THE COMPANY WAS NOT SURE OF CONTINUI NG WITH DEALERSHIP BESIDE THIS THERE WAS A TREMENDOUS PRES SURE FROM TATA MOTORS TO CONSTRUCT SHOW ROOM. SINCE THE EXIST ENCE OF THE COMPANY WAS IN DOUBT THEREFORE THE COMPANY EN TERED INTO AN AGREEMENT DATED 27.5.2004 ( COPY FILED) WIT H MR. PRAGATI DIRECTORS TO SEARCH SUITABLE LAND AND CONST RUCT A SHOW ROOM ON THE SAME AND THEN TRANSFER ENTIRE PROPERTY IN THE NAME OF THE COMPANY AFTER AGREED CONSIDERATION IS F ULLY PAID TO MR. PRAGATI AGRAWAL. SINCE THE COMPANY COULD NOT PU RCHASE LAND IN ITS NAME MR.PRAGATI AGRAWAL ENTERED INTO V ARIOUS AGREEMENT FOR PURCHASING LAND AT MISROD AND RATANP UR. IT WAS A CLEAR UNDERSTANDING BETWEEN THE COMPANY AND MR.PRAGATI AGRAWAL THE LAND WHICH WILL BE PURCHASED OUT OF THE ADVANCES GIVEN WILL BE PURELY UTILIZED FOR THE PURP OSE OF THE COMPANY FURTHER THE COMPANY WILL BE USING THE LAND AND BUILDING PURCHASED OUT OF THE ADVANCES WITHOUT ANY LEASE RENT 18 OR ANY RENT IN THIS PROCESS ALL THE LAND WHICH WER E PURCHASED HAS BEEN MORTGAGED WITH THE BANK FROM WHERE THE COM PANY HAS RAISED VARIOUS LOAN LIKE WORKING CAPITAL AND TE RM LOAN. THE APPELLANT HAS ALREADY CREATED MORTGAGE ON THE ABOVE LAND FOR THE PURPOSE OF RAISING LOAN FOR THE COMPANY. INITIALLY IT WAS OFFERED TO STATE BANK OF INDIA AND THEN THE SAME WAS MORTGAGED WITH ICICI BANK LIMITED. FINALLY THE SAME IS MORTGAGED WITH UCO BA NK WHICH IS STILL MORTGAGED. FURTHER IT IS RESPECTFULLY SUBMITTED THAT THE ENTI RE ADVANCE WHICH HAS BEEN OBTAINED BY THE APPELLANT HAS BEEN F ULLY UTILIZED FOR THE USE OF THE COMPANY. THE COMPANY IS NOW RUNNING ITS SHOW ROOM CONSTRUCTED ON THE LAND PURCH ASE OUT OF THE ADVANCES GIVEN BY THE COMPANY WITHOUT PAYING A NY RENT OR ANY CONSIDERATION FOR THE SAME. IT IS CLEARLY STATE D IN THE AGREEMENT ENTERED UNTIL FULL CONSIDERATION IN ANY F ORM. AS THE ADVANCE GIVEN IS AGAINST PURCHASE OF PROPERTY AND H AS BEEN UTILIZED FOR THE PURPOSE OF COMPANY WITHOUT ANY PER SONAL BENEFIT TO THE DIRECTOR THEREFORE THE PROVISIONS OF SECTI ON 2(22)(E) IS NOT ATTRACTED TOWARDS THE ADVANCES GIVEN TO THE DIRECTO R. 19 HOWEVER THE ASSESSING OFFICER DID NOT ACCEPT THE F ACTUM OF SUCH AGREEMENT AND MADE ADDITION U/S 2(22)(E) WHICH WAS CONFIRMED BY CIT(A). 19. WE FOUND THAT ADDITION MADE U/S 2(24)(IV) IN THE AS SESSMENT YEAR 2003-04 WAS EQUAL TO AMOUNT OF LOAN. SINCE THE RE WAS NO ACCUMULATED PROFIT NO ADDITION WAS MADE U/S 2(22)(E ). HOWEVER CIT(A) REDUCED THE ADDITION MADE U/S 2(24)(IV) TO T HE EXTENT OF 10 % OF LOAN AMOUNT. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) FOR SUSTAINING ADDITION TO THE EXTENT OF 10 % OF LOAN A MOUNT AS ASSESSEE WAS GETTING BENEFIT/PERQUISITE FROM THE COMPANY IN WHICH HE WAS HAVING SUBSTANTIAL INTEREST. AGREEMENT SO ENTERED WAS DATED 27.5.2004 WHICH COVERS THE FINANCIAL YEAR 2004-05 RELEVANT TO ASSESSMENT YEAR 2005-06 AND SUBSEQUENT YEARS. SINCE NO AGREEMENT WAS THERE IN ASSESSMENT YEAR 2003-04 AND 2004-05 FO R USE OF LOAN FOR PURCHASE OF LAND TO BE USED BY THE COMPANY FOR THE PURPOSE OF ITS BUSINESS THE ASSESSEE WAS GETTING BENEFIT OF INTER EST FREE LOAN TAKEN FROM THE COMPANY . SUCH BENEFIT AMOUNTS TO PERQUISI TE U/S 2(24)(IV) IN THE HANDS OF ASSESSEE. SINCE ENTIRE AMOUNT OF LO AN CANNOT BE SAID TO BE PERQUISITE IN THE HANDS OF ASSESSEE LD. CIT( A) WAS JUSTIFIED IN 20 RESTRICTING THE ADDITION TO THE EXTENT OF BENEFIT I N THE FORM OF INTEREST @ 10% ON SUCH AMOUNT OF LOAN. WE ALSO DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) FOR UPHOLDING THE ADDITION MADE U/S 2(24)(IV) IN THE ASSESSMENT YEAR 2004-05. IN THE RESULT APPEAL OF ASSESSEE AND REVENUE IN ASSESSMENT YEAR 2003-04 ARE DISMISSED W HEREAS APPEAL OF ASSESSEE IN ASSESSMENT YEAR 2004-05 IS DISMISSED . 20. NOW COMING TO THE ADDITION MADE U/S 2(24)(IV) & 2(2 2)(E) IN THE ASSESSMENT YEAR 2005-06 AND 2006-07. 21. ON VERIFYING THE ACCOUNT OF ASSESSEE IN THE COMPAN Y WE FOUND THAT ADVANCE WAS GIVEN BY THE COMPANY TO THE ASSESSEE AGAINST CURRENT RUNNING ACCOUNT IN WHICH MOST OF TH E TRANSACTIONS WERE FOR THE PURPOSE OF BUSINESS WHICH ALSO INCLUD ED THE PURPOSE OF PURCHASE OF LAND WHICH WAS TO BE USED BY M/S. MECH MAN MOTORS FOR THE PURPOSE OF ITS BUSINESS AND FOR WHICH NO RENT W AS PAYABLE TO THE ASSESSEE BY THE COMPANY. AN MOU WAS ALSO ENTERED BE TWEEN THE ASSESSEE AND THE COMPANY IN SUPPORT OF THE SAID TRA NSACTION. IT IS CLEAR FROM THE TERMS OF MOU THAT ADVANCE WAS GIVEN TO THE ASSESSEE FOR THE PURPOSE OF BUSINESS AND NOT FOR HIS PERSONA L USE. ADDITION U/S 2(24)(IV) IS WARRANTED WHEN ASSESSEE IS IN REC EIPT OF SOME BENEFIT OR PERQUISITE. HOWEVER IN THE INSTANT CASE BEFORE US THE ASSESSEE 21 WAS NOT IN RECEIPT OF ANY BENEFIT OR PERQUISITE IN THE AY A .Y. 2005- 06 AND 2006-07 IN SO FAR AS AMOUNT IN QUESTION WAS PAID TO THE ASSESSEE FOR THE PURPOSE OF PURCHASE OF LAND WHICH WAS TO BE USED BY THE COMPANY FOR ITS BUSINESS FOR WHICH NO RENT W AS PAYABLE BY THE COMPANY TO THE ASSESSEE. THUS IT WAS NOT A GRATUIT OUS LOAN BUT WAS GIVEN TO ASSESSEE FOR PURCHASE OF LAND TO BE USED B Y COMPANY FOR THE PURPOSES OF ITS BUSINESS. FACT THAT ASSESSEE HAS NO T CHARGED ANY RENT FROM THE COMPANY FOR USE OF LAND BY THE COMPAN Y IS ALSO NOT IN DISPUTE. THUS AMOUNT OF NOTIONAL INTEREST ON SUCH LOAN IS FULLY COMPENSATED BY RENT WHICH THE COMPANY DID NOT PAY T O ASSESSEE. ACCORDINGLY THERE WAS NO BENEFIT OR PERQUISITE TO ASSESSEE IN THESE YEARS THEREFORE ADDITION U/S 2(24)(IV) IN THESE ASSESSMENT YEARS 2005-06 & 2006-07 ARE NOT SUSTAINABLE. 22. ADDITION U/S 2(22)(E) ON ACCOUNT OF DEEMED DIVIDEND IS WARRANTED WHEN AMOUNT IS RECEIVED BY THE ASSESSEE I N THE FORM OF LOAN WITHOUT ANY PURPOSE AND ONLY BECAUSE OF ASSESS EE HAVING SUBSTANTIAL SHARE HOLDING IN THE COMPANY. HOWEVER WHEN THE AMOUNT IS PAID TO THE ASSESSEE FOR THE BUSINESS PUR POSE OF THE COMPANY PAYING IT IT CANNOT BE SAID THAT THE ASSE SSEE WAS IN RECEIPT 22 OF ANY DEEMED DIVIDEND WITHIN THE MEANING OF SECTIO N 2(22)(E). HON'BLE CALCUTTA HIGH COURT IN THE CASE OF PRADIP K UMAR MALHOLTRA (SUPRA) HAVE CONSIDERED THE SITUATION WHERE ASSESSE E BEING SHAREHOLDER OF THE COMPANY RECEIVED CERTAIN LOAN A ND ALSO AT THE SAME TIME MORTGAGED HIS PROPERTY TO THE BANK FOR TH E PURPOSE OF BUSINESS OF THE COMPANY FROM WHOM LOAN WAS RECEIVED . UNDER SUCH CIRCUMSTANCES IT WAS HELD BY HON'BLE CALCUTTA HIGH COURT THAT IF SUCH LOAN OR ADVANCES GIVEN TO SUCH SHAREHOLDERS AS A CONSEQUENCE OF ANY FURTHER CONSIDERATION WHICH IS BENEFICIAL TO THE COMPANY SUCH ADVANCE OR LOAN CANNOT BE SAID TO BE DEEMED DIVIDEN D WITHIN THE MEANING OF SECTION 2(22)(E). IT WAS HELD THAT ONLY GRATUITOUS LOAN OR ADVANCE GIVEN BY THE COMPANY WOULD COME WITHIN THE PURVIEW OF SECTION 2(22)(E) BUT NOT THE CASES WHERE LOAN OR AD VANCE IS GIVEN IN RETURN TO AN ADVANTAGE CONFERRED UPON THE COMPANY B Y SUCH SHAREHOLDER. HON'BLE HIGH COURT FOUND THAT THE ASSE SSEE HAS PERMITTED HIS PROPERTY TO BE MORTGAGED TO THE BANK FOR ENABLING THE COMPANY TO TAKE THE BENEFIT OF LOAN. IN SUCH A SITU ATION FOR RETAINING BENEFIT OF LOAN AVAILED FROM BANK THE DECISION WAS TAKEN BY THE COMPANY TO GIVE ADVANCE TO THE ASSESSEE. IT WAS HEL D THAT SUCH ADVANCE WAS NOT GRATUITOUS BUT TO PROTECT THE BUSIN ESS INTEREST OF 23 THE COMPANY ACCORDINGLY NO ADDITION COULD HAVE BE EN MADE U/S 2(22)(E). APPLYING THE PROPOSITION LAID DOWN BY TH E HON'BLE HIGH COURT TO THE FACTS OF THE PRESENT CASE WE FOUND TH AT THE ADVANCE WAS GIVEN BY THE COMPANY TO THE ASSESSEE FOR THE PURPOS E OF ITS BUSINESS EXPEDIENCY THE SAME IS NOT COVERED BY THE DEEMED D IVIDEND U/S 2(22)(E). FROM THE RECORD WE FOUND THAT THE ASSESS EE HAD UTILIZED THE AMOUNT OF LOAN TAKEN FROM COMPANY FOR THE PURCHASE OF LAND WHICH WAS UTILIZED BY COMPANY FOR ITS BUSINESS PURPOSE WI THOUT PAYING ANY RENT TO ASSESSEE. FURTHERMORE ASSESSEE HAD MORTGAG ED THIS LAND TO BANKS FOR PURPOSE OF ADVANCING LOAN TO THE COMPANY. UNDER THESE CIRCUMSTANCES NO ADDITION IS WARRANTED U/S 2(22)(E ). 23. FURTHERMORE WHILE COMPUTING DEEMED DIVIDEND THE ACCUMULATED PROFIT IS TO BE TAKEN AS IT STOOD AT TH E BEGINNING OF THE YEAR. ADJUSTMENT FOR DEPRECIATION IS TO BE ALLOWED OUT OF SUCH ACCUMULATED PROFIT IN VIEW OF THE DECISION IN THE CASE OF YASIN HOTELS PRIVATE LIMITED 121 TTJ 713 JAMUNADAS KHIMJI KOTH ARI 92 ITR 105 (BOM) AND NAVNEETLAL C. ZAVERI 80 ITR 582 (BOM ). DURING THE COURSE OF HEARING OUR ATTENTION WAS ALSO INVITED T O THE CHART PREPARED AFTER ADJUSTMENT OF DEPRECIATION AND THE A DDITION MADE IN THE HANDS OF OTHER DIRECTORS ON ACCOUNT OF DEEMED D IVIDEND NO 24 PROFIT WAS LEFT OUT FOR THE PURPOSE OF MAKING ADDIT ION IN THE HANDS OF ASSESSEE U/S 2(22)(E). THE I.T.A.T. COORDINATE BEN CH IN THE CASE OF PRASHANT AGARWAL ANOTHER DIRECTOR IN THE SAME COMP ANY IN ITS ORDER DATED 7 TH DECEMBER 2010 TAKEN THE VIEW THAT A DEEMED DIVID END IS TO BE WORKED OUT ON THE BASIS OF ACCUMULATED PROFIT ARRIVED AT AFTER ALLOWING CLAIM OF DEPRECIATION AS PER INCOME TAX RU LES AND IT IS NOT THE PROFIT SHOWN IN THE COMPANYS BALANCE SHEET. TH E TERM ACCUMULATED PROFIT FOR THE PURPOSE OF ARRIVING AT DEEMED DIVIDEND HAVE BEEN JUDICIOUSLY DEALT WITH BY THE HON'BLE BOM BAY HIGH COURT IN THE CASE OF JAMUNADAS KHIMJI KOTHARI (SUPRA) W HEREIN THE DISTINCTION HAS BEEN MADE BETWEEN THE PROFIT AS DIS CLOSED IN THE COMPANYS BALANCE SHEET VIS--VIS THE PROFIT AFTER MAKING ADJUSTMENT ON ACCOUNT OF DEPRECIATION ELIGIBLE TO THE ASSESSEE AT THE RATE PRESCRIBED BY THE INCOME TAX ACT/RULES. IT HAS BEEN CATEGORICALLY OBSERVED BY BOMBAY HIGH COURT THAT PHRASE ACCUMULA TED PROFIT DOES NOT MEAN PROFIT AS DISCLOSED IN COMPANYS BALA NCE SHEET BUT THE PROFIT DISCLOSED IS SUBJECT TO ADJUSTMENT FOR D EPRECIATION AS GRANTED IN ACCORDANCE WITH THE RATES PRESCRIBED BY THE INCOME-TAX ACT 1961 AND SUCH DEPRECIATION WOULD HAVE TO BE D EDUCTED FOR ASCERTAINING THE ACCUMULATED PROFIT. HON'BLE SUPREM E COURT IN THE 25 CASE OF P.K. BAIDANI (SUPRA) HAS DEALT WITH THE MEA NING OF EXPRESSION ACCUMULATED PROFIT AND OBSERVED THAT ACCUMULATED PROFIT MEANS PROFIT IN THE COMMERCIAL SENSE AND NOT ASSESSABLE O R TAXABLE PROFIT LIABLE TO TAX AS INCOME. IT WAS ALSO OBSERVED BY T HE HON'BLE SUPREME COURT THAT MERE TRANSFERRING OF AMOUNT FROM PROFIT AND LOSS ACCOUNT TO DEVELOPMENT RESERVE ACCOUNT DOES NOT AMOUNT TO C APITALIZATION OF PROFIT ACCORDINGLY DECISION OF HON'BLE BOMBAY HIG H COURT WAS AFFIRMED IN THE CASE OF P.K. BAIDANI. THIS DECISION OF HON'BLE SUPREME COURT WAS ALSO SUBSEQUENTLY FOLLOWED IN TH E CASE OF URMILA RAMESH 230 ITR 422 ( S. C.). ACCORDINGLY THERE IS NO MERIT IN THE ADDITION MADE U/S 2(22)(E) OF THE INCOME-TAX ACT 1 961. 24. THE ASSESSING OFFICER HAS ALSO LEVIED PENALTY U/S 2 71(1)(C) IN THE ASSESSMENT YEAR 2005-06 AND 2006-07 WITH RESPEC T TO THE ADDITIONS SO MADE. BY THE IMPUGNED ORDER THE LD. C IT(A) DELETED THE SAME AFTER HAVING THE FOLLOWING OBSERVATIONS :- 6. I HAVE CAREFULLY GONE THROUGH THE ASSESSMENT ORDER PENALTY ORDER OF THE A.O. ORDER PASSED BY LD. CIT( A) AGAINST ASSESSMENT U/S 143(3) AND SUBMISSIONS OF THE APPELL ANT. I FIND THAT THE A.O COULD MAKE THE ADDITIONS ON ACCOU NT OF 26 INCOME U/S 2(24)(IV) AND 2(22)(E) BY VIRTUE OF THE FACT THAT THE UNDERLYING TRANSACTIONS WERE DULY REFLECTED IN THE FINANCIAL STATEMENTS OF THE COMPANIES AND THE A.O. DID NOT PO INT OUT ANY MISTAKE IN THE AMOUNT OF LOAN OR ADVANCE THUS THE ESSENCE OF CONCEALMENT OR INACCURATE PARTICULARS GE TS DILUTED TO A LARGE EXTENT. IT IS NOT THE CASE OF THE A. O. THAT THE APPELLANT HAS COMPLETELY FAILED TO OFFER ANY EXPLAN ATION GIVING JUSTIFICATION FOR THE LOAN AND ADVANCES. THE APPELLANT HAS EXPLAINED THE PURPOSE OF LOAN/ADVANCE HOWEVER FAILED TO IMPRESS THE A.O. FURTHERMORE BOTH THE SAID SECTIONS PROVIDE THAT IF CERTAIN CONDITIONS ARE FULFILLED THEN CERTAIN SUM WILL BE TAXED AS INCOME. THUS THE ELEMENT OF SUBJECTIVITY IS CERTAINLY INVOLVED IN THE CASE OF B OTH THE SAID SECTIONS AND MAY INVOLVE DEBATABLE ISSUES WITH DIVE RGENT VIEWS ON THE SAME SET OF FACTS. THERE MAY BE DIVERG ENT VIEWS AS REGARDS APPLICABILITY OF SAID SECTIONS AT ALL OR QUANTIFICATION OF THE AMOUNT OF DEEMED INCOME. THE SAID SECTIONS BRING WITHIN THEIR AMBIT DEEMED INCOME WHI CH IS DIFFERENT FROM REAL INCOME. I AM OF THE CONSIDERED OPINION THAT NO PENALTY IS LEVIABLE IN CASE OF SUCH DEEMED INCOME. SO 27 FAR AS ADDITION OF RS. 10 32 000/ON ACCOUNT OF INVE STMENT IN PLOT IS CONCERNED I AM CONVINCED WITH THE SUBMISSI ON OF THE APPELLANT THAT THE ADDITION HAS NOT BEEN MADE ON TH E BASIS OF STATEMENT OF THE SELLER. THE ADDITION HAS BEEN M ADE ON THE BASIS OF SALE AGREEMENT AND REGISTERED DEED HAS BEE N DISREGARDED. IN OTHER WORDS THE A.O HAS GIVEN WEIGHED SALE AGREEMENT OVER REGISTERED SALE DEED. IT WAS INCUMBE NT UPON THE A.O. TO RECORD THE STATEMENT OF THE SELLER OR MAKE SOME FIELD ENQUIRY SO AS TO SUBSTANTIATE THE ACT OF CONC EALMENT OF INCOME. I FIND THAT THE ADDITION ON ACCOUNT OF UNEX PLAINED INVESTMENT IN CONSTRUCTION OF BOUNDARY WALL HAS BEE N MADE ON THE STRENGTH OF THE VALUATION REPORT. IT IS A MA TTER OF COMMON KNOWLEDGE THAT EVERY VALUATION INVOLVES CERT AIN DEGREE OF ESTIMATION ALTHOUGH UNDER TAX LAW ADDI TION OF INCOME ON THE BASIS OF ESTIMATION IS PREVALENT HOW EVER IN MY CONSIDERED VIEW THE SAME CANNOT BE STRETCHED UP TO LEVY OF PENALTY FOR CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS. IT IS SETTLED PRINCIPLE OF LAW THAT NO PENALTY IS LEVIABLE WHERE THE ADDITION HAS BEEN MAD E ON THE BASIS OF ESTIMATES. IT IS SEEN THAT THE ADDITION HA S NOT BEEN 28 MADE WITH REFERENCE TO SPECIFIC BILL OR VOUCHER OR PROOF OF PAYMENT MADE BY THE APPELLANT OUT OF BOOKS. THE ADD ITION OF RS. 60 000/- HAS ALSO BEEN MADE IN COMPLETE DISREGA RD TO THE APPELLANT'S EXPLANATION. IT IS SETTLED PRINCIPL E OF LAW THAT NO PENALTY IS LEVIABLE IN THOSE CASES WHERE THE APP ELLANT HAS MADE BONA FIDE EXPLANATION HOWEVER THE A.O TAKES A DIFFERENT VIEW AND REJECTS THE APPELLANT'S EXPLANAT ION. THE DECISIONS RELIED UPON BY THE APPELLANT ARE PROVIDIN G STRENGTH TO THE CASE OF THE APPELLANT. 7. THE GENUINENESS AND BONA FIDES IN THE STATED CIRCUMSTANCES HAVE TO BE PROVED AS A FACT LIKE ANY OTHER FACT ON PREPONDERANCE OF PROBABILITIES UNINFLUENCED BY ANY RULE OF PRESUMPTION. THERE CANNOT BE ANY PRESUMPTIO N AGAINST BONA FIDES. WHILE ALL OFFICIAL ACTS ARE PRE SUMED TO BE DONE BONA FIDE THERE APPEARS TO BE NO REASON TO ASSUME THAT IT IS OTHERWISE FOR THE TAX PAYER. AN EXPLANAT ION COULD NOT BE REJECTED MERELY BECAUSE IT WAS NOT SUPPORTED . GROUNDS FOR PENALTY ARE NOT THE SAME AS FOR ADDITIO N. WHERE THE INCOME WAS SUBSTITUTED FOR THE RETURNED I NCOME IN MY CONSIDERED VIEW IT IS NOT A CAUSE OF ADDITIO N OR 29 DISALLOWANCE TO WARRANT PENALTY SINCE THE SUBSTITUT ION FOR THE RETURNED INCOME WAS BASED ON ESTIMATIONS ONLY. THIS IS A CASE WHERE THE ADDITION SUSTAINED WAS BASED PUREL Y ON ESTIMATIONS AND NO SUPPRESSION IN RECEIPTS WAS DETE CTED. IN SUCH CIRCUMSTANCES THERE COULD BE NO PENALTY SINCE THE AO FAILED TO BRING ON RECORD SOMETHING MORE TO INDICAT E AND ESTABLISH THAT THERE HAS BEEN CONCEALMENT ON THE PA RT OF THE APPELLANT [CIT V. DHILLON RICE MILLS (2002) 256 ITR 447 (P&H) AND CIT V. METAL PRODUCTS OF INDIA (1984) 150 ITR 714 (P&H). IN MY CONSIDERED VIEW PENALTY SHOULD NO T BE EXIGIBLE MERELY BECAUSE INCOME WAS ESTIMATED DUE TO THE INABILITY OF THE APPELLANT TO PROVE ITS INCOME. THE TAX PAYERS WHO FILE THE RETURN NECESSARILY DESERVE BETTER TREA TMENT THAN THOSE WHO DO NOT FILE THE RETURNS AT ALL. MY P ROPOSITION THAT PENALTY COULD NOT BE IMPOSED SINCE THE IMPUGNE D ADDITION ULTIMATELY SUSTAINED WAS BASED MERELY ON ESTIMATE FINDS FURTHER SUPPORT FROM THE DECISION O F THE P&H HIGH COURT IN HARIGOPAL SINGH V. CIT (2002) 258 ITR 85 (P&H). 8. PENALTY PROCEEDINGS ARE NOT MECHANICAL BUT THE S AME 30 WERE QUASI-CRIMINAL AND HENCE PENALTY COULD NOT BE LEVIED IN CASE OF ESTIMATION OF INCOME. THE AO HAD NOR BRO UGHT ANY EVIDENCE ON RECORD TO PROVE CONSCIOUS CONCEALME NT ON THE PART OF THE APPELLANT NOR HAD HE BROUGHT ANY EV IDENCE TO JUSTIFY THAT THE APPELLANT FURNISHED INACCURATE PARTICULARS OF ITS INCOME. IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE RESPECTFULLY FOLLOWING T HE DECISION IN NAI DUNIA V ACIT (2008) 10 IT1 162 (I TAT INDORE) THE IMPUGNED PENALTY IMPOSED BY THE AO IS HELD UNSUSTAINABLE. 9. IT IS UNDISPUTED THAT PENALTY PROCEEDINGS ARE DI STINCT FROM ASSESSMENT PROCEEDINGS AND IS SUCH BEFORE IMPOSING PENALTY U/S 271 (L)(C) A HEAVY BURDEN WAS CAST UPON THE AO TO CONCLUSIVELY PROVE BEYOND ALL SHADOW S OF DOUBT THAT THE ADDITION ULTIMATELY SUSTAINED ON ESTIMATIONS WITH REFERENCE TO WHICH THE IMPUGNED PENALTY WAS IMPOSED WAS THE INCOME EARNED BY THE APPELLANT DURING THE RELEVANT PREVIOUS YEAR FROM SO URCES UNDISCLOSED TO THE DEPARTMENT. IN THE CASE OF THE APPELLANT UNDER CONSIDERATION THIS ESSENTIAL INGR EDIENT 31 WAS NOT PROVED BY THE AO AGAINST THE APPELLANT TO JUSTIFY THE IMPUGNED LEVY. 10. AS ALREADY STATED THE IMPUGNED PENALTY WAS IMP OSED SIMPLY BECAUSE THE ADDITION MADE WAS SUSTAINED IN APPEAL. NO EVIDENCE WHATSOEVER WAS INDEPENDENTLY BROUGHT AGAINST THE APPELLANT TO PROVE BEYOND ALL SHADOWS OF DOUBT THAT THE IMPUGNED SUM ULTIMATELY SUSTAINED ON ESTIMATIONS WAS THE APPELLANT'S INCOME FROM UNDISCLOSED SOURCES EARNED DURING THE RELEVANT PREV IOUS YEAR. UNLESS THERE IS A CATEGORICAL FINDING OF FACT BASED ON EVIDENCE TO BE BROUGHT ON RECORD AGAINST THE APP ELLANT TO THIS EFFECT IMPOSITION OF PENALTY U/S 271 (L)( C) IN RESPECT OF SUCH ADDITION MADE AND SUSTAINED IN APP EALS WITHOUT PROVING FALSITY IN THE EXPLANATION SUBMITTE D AND WITHOUT BRINGING ANY EVIDENCE AGAINST THE APPELLANT WAS UNJUSTIFIED. RELIANCE FOR THIS PROPOSITION IS PLACE D ON THE DECISION OF THE MP HC IN CIT VS. CHIRAG INGOTS (P) LTD. (2005) 275 ITR 310 (MP) WHEREIN IT WAS HELD THAT TH E IT AT WAS JUSTIFIED IN HOLDING THAT IN ORDER TO IMPOSE PENALTY 32 U/S 271(L)(C) IN RESPECT OF ADDITION MADE IN ASSESS MENT THERE MUST BE A CATEGORICAL FINDING OF FACT WHICH WAS NECESSARILY TO BE RECORDED AND PROVED BY THE AO. OI L THE STRENGTH OF SUBSTANTIATING EVIDENCE THAT THE IMPU GNED CLAIM OF THE APPELLANT WAS BOGUS. IN THE CASE OF T HE APPELLANT UNDER CONSIDERATION DESPITE EXTENSIVE S EARCH OPERATION NOTHING INCRIMINATING WAS FOUND/SEIZED EI THER IN KIND OR IN COIN TO SUBSTANTIATE THAT INCOME ASSE SSED AND ULTIMATELY SUSTAINED ON ESTIMATIONS WAS IN FAC T THE CONCEALED INCOME EARNED BY THE APPELLANT DURING THE RELEVANT PREVIOUS YEAR AND SINCE THIS WAS NOT CONCLUSIVELY AND INDEPENDENTLY PROVED AGAINST THE APPELLANT ON THE STRENGTH OF SUBSTANTIATING EVIDEN CE IN THE IMPUGNED PENALTY PROCEEDINGS THE PENALTY IMPOS ED U/S 271(1) IS UNSUSTAINABLE ON FACTS AND IN LAW. 11. IN DURGA KAMAL RICE MILLS V. CIT (2003) 130 TAXMAN 553 (CAL.) 265-ITR-25 (CAL.) IT WAS HELD TH AT FOR THE PURPOSE OF QUANTUM PROCEEDINGS IT MIGHT ATTRAC T A PARTICULAR PROVISIONS FOR ADDITION TO THE INCOME O F THE APPELLANT. BUT WHEN IT COMES TO THE QUESTION OF IMP OSITION 33 OF PENALTY THEN INDEPENDENT OF THE FINDINGS ARRIVE D AT IN THE QUANTUM PROCEEDINGS THE AUTHORITY HAS TO FIND OUT CONCLUSIVELY THAT THE APPELLANT OWNED AND CONCEALED THE AMOUNT IN QUESTION. IN DY. CIT V. ROYAL METAL PRINT ERS P. LTD. (2005) 93 TTJ (MUM.) 119 THE PENALTY IMPOSED U/S 271 (1)( C) WAS HELD NOT JUSTIFIED. RELIANCE WAS PL ACED ON THE DECISION OF THE IT A T BANGALORE BENCH IN BANGA LORE STEEL DISTRIBUTORS V. ITO (1995) 124 TAXMAN 94 (BAN G. TRIB.) WHEREIN IT WAS HELD THAT THOUGH ADDITION MA DE IN THE ASSESSMENT ORDER CONSTITUTED MATERIAL FOR THE P URPOSE OF PENALTY PROCEEDINGS FOR THE IMPOSITION OF PENAL TY THE AO IS REQUIRED TO BRING COGENT MATERIAL ON RECORD O N THE BASIS OF WHICH IT COULD BE ESTABLISHED THAT THE APP ELLANT HAD CONCEALED THE PARTICULARS OF INCOME OR HAD FURN ISHED INACCURATE PARTICULARS THEREOF. NO SUCH MATERIAL HA D BEEN BROUGHT ON RECORD TO JUSTIFY THE IMPOSITION OF PENA LTY U/S 271 (1)( C) IN THE PRESENT CASE. HENCE. THE LEVY OF PENALTY WAS HELD UNJUSTIFIED. 12. MERE ADDITION TO THE APPELLANT'S INCOME COULD N OT BY ITSELF PROVE CONCEALMENT OF INCOME BY THE APPELLANT AND 34 THE REVENUE COULD NOT IMPOSE PENALTY WITHOUT PROVIN G THE CONCEALMENT OF INCOME BY THE APPELLANT. CIT VS. STE EL ROLLING MILLS OF HINDUSTAN (P) LTD. (1983) 143 ITR 933 (CAL.);CIT VS. MURLIDHAR CHIRANJILAL (1980) 121 IT R 528. IT IS THE DUTY OF THE AO TO ESTABLISH BY EVIDENCE THAT THERE WAS CONCEALMENT OF INCOME AND THE AMOUNT DEEMED AND ADDED REPRESENTED THE APPELLANT'S UNDISCLOSED INCOM E [CIT VS. M.P. NARAYANAN (1998) 149 CTR (MAD.) I]. INTENTION TO CONCEAL THE INCOME IS NECESSARY TO BE ESTABLISHED .. [AMULDAS VS.' CIT (1983) 144 ITR 848 (M.P.). IT IS SETTLED THAT THE ASSESSMENT AND THE P ENALTY PROCEEDINGS ARE INDEPENDENT OF EACH OTHER AND THE IMPOSITION OF THE PENALTY DOES NOT AUTOMATICALLY FO LLOWS AS A MATTER OF COURSE IF AN ADDITION HAS BEEN MADE ON THE QUANTUM SIDE [CIT V. GANGA COAL STORAGE (1995) 125 TAXATION 4 5 (AIL.)]. THE BURDEN IS ON THE DEPARTME NT TO PROVE THAT A PARTICULAR AMOUNT IS A REVENUE RECEIPT . IT WOULD BE PERFECTLY LEGITIMATE TO SAY THAT THE MERE FACT THAT THE EXPLANATION OF THE APPELLANT IS NOT ACCEPT ABLE DOES NOT NECESSARILY GIVE RISE TO THE INFERENCE THA T THE 35 DISPUTED AMOUNT REPRESENTS INCOME. IT CANNOT BE SAI D THAT THE FINDING IN THE ASSESSMENT PROCEEDINGS FOR . COMPUTING TAX IS CONCLUSIVE FOR LEVY OF PENALTY. BE FORE PENALTY CAN BE IMPOSED THE ENTIRETY OF CIRCUMSTANCE S MUST REASONABLY POINT TO THE CONCLUSION THAT THE DI SPUTED AMOUNT REPRESENTED AND THAT THE APPELLANT HAD CONSCIOUSLY CONCEALED THE PARTICULARS OF HIS INCOME OR HAD DELIBERATELY FURNISHED INACCURATE PARTICULARS [CIT VS. ANWAR ALI (1970) 76 ITR 696 - 70 I (SC) AND [CIT VS . KHODAY ESWARA AND SONS (1972) 83 ITR 369 (SC). IT I S NOT IN EVERY CASE WHERE AN ADDITION IS UPHELD THAT PENALTY BECOMES ELIGIBLE AS HELD BY THE KER. HC IN CIT VS. KERALA SPINNERS LTD. (2001) 247 ITR 541 (KER.) WHICH HAD FOLLOWED THE DECISION OF SC IN CIT VS. MUSSADIL AL RAM BHAROSA (1987) 165 ITR 14 (SC). 13. MERE NON-ACCEPTANCE OF EXPLANATION DOES NOT JUS TIFY NECESSARY INFERENCE OF CONCEALMENT; LT IS SETTLED L AW THAT WHERE AN EXPLANATION OFFERED BY THE APPELLANT HAS N OT BEEN ACCEPTED IT IS OPEN TO THE REVENUE TO TREAT A PARTICULAR SUM AS INCOME FROM UNDISCLOSED SOURCES. BUT 36 FROM THE MERE FACT THAT THE EXPLANATION OF THE TAXP AYER HAS NOT BEEN ACCEPTED IT CANNOT NECESSARILY BY INF ERRED THAT THE AMOUNT ULTIMATELY SUSTAINED ON ESTIMATIONS AS IN THE CASE OF THE APPELLANT UNDER CONSIDERATION CONS TITUTED CONCEALED INCOME WHICH WOULD ATTRACT PENALTY U/S 27 1 (1)( C). THE BURDEN OF PROVING THAT THE APPELLANT W AS GUILTY OF OFFENCE IS UPON THE DEPARTMENT. IF APART FROM PO INTING OUT THE FALSITY OF EXPLANATION OR FROM REJECTING T HE EXPLANATION NO MATERIAL IS BROUGHT IN EVIDENCE BY THE AO TO PROVE CONCEALMENT IT WAS TO BE HELD THAT THE ON US RESTING ON THE DEPARTMENT HAS NOT BEEN DISCHARGED. 14. AS THE PROCEEDINGS FOR IMPOSITION OF PENALTY AN D ASSESSMENT PROCEEDINGS ARE TWO SEPARATE AND INDEPENDENT PROCEEDINGS SEPARATE AND DISTINCT PROV ISIONS HAVE BEEN ENACTED IN THE STATUTE FOR INITIATION OF THE SAME. THEREFORE THE FINDINGS RECORDED BY THE AUTHORITIES IN THE QUANTUM APPEAL CANNOT BE SAID TO BE DECISIVE AND CONCLUSIVE FACTOR IN THE PENALTY PROCEEDINGS [CIT V . J.K. SYNTHETICS LTD. (1966) 219 ITR 267 270 (DEL.)]. 15. EVEN UNDER EXPLANATION I INITIAL BURDEN IS ON THE 37 DEPARTMENT TO PRIMA FACIE RECORD CONCEALMENT - AS P ER EXPLANATION I IF THE ASSESSING AUTHORITY OR THE CO NCERNED AUTHORITY ON THE MATERIAL BEFORE IT FINDS THAT TH E EXPLANATION OFFERED BY THE APPELLANT IS FALSE THEN PENALTY CAN BE LEVIED ON THE AMOUNT WHICH IS FOUND TO BE CONCEALED. THEREFORE THE WHOLE IDEA BEHIND THE EXPLANATION I IS THAT THE ASSESSING AUTHORITY HAS T O FIRST RECORD REASONS FOR ARRIVING AT A CONCLUSION THAT TH ERE IS A FAILURE ON THE PART OF THE APPELLANT HENCE AFTER SEEKING AN EXPLANATION IF THE AUTHORITY COMES TO A CONCLUSI ON THAT IT IS FALSE THEN THE AUTHORITY CAN PROCEED TO LEVY PENALTY. THEREFORE THIS EXPLANATION I WHICH HAS BEEN INSERT ED BY THE AMENDING ACT OF 1975 W.E.F APRIL 1 1976 HAS CA ST A DUTY ON THE AO THAT HE SHOULD FIRST RECORD REASONS THAT THERE HAS BEEN CONCEALMENT OF INCOME AND THEN THE EXPLANATION IS SOUGHT. THESE ARE THE BASIC REQUIREM ENTS FOR NATURAL JUSTICE DESIRED BY THE LEGISLATURE FOR PROVIDING THIS EXPLANATION. THEREFORE THE INITIAL BURDEN IS ON THE DEPARTMENT TO PRIMA FACIE RECORD THAT THERE WAS CONCEALMENT AND THEREAFTER EXPLANATION IS TO BE SOU GHT 38 AND IN CASE THE EXPLANATION IS FOUND TO BE FALSE T HEN TO THE EXTENT THE INCOME IS FOUND TO HAVE BEEN CONCEAL ED AND THE EXPLANATION IS FOUND TO BE FALSE THEN THE AUTH ORITY CAN PROCEED AGAINST THE APPELLANT. THEREFORE THIS EXPL ANATION DOES NOT CHANGE THE POSITION AND ABSOLVE THE DEPART MENT JUST TO ISSUE NOTICE FOR GIVING FALSE EXPLANATION A ND PROCEEDING AGAINST HIM. BEFORE THIS MUCH HAS TO BE DONE BY THE DEPARTMENT UNDER THIS EXPLANATION [CIT V. GA NESH PRASAD BADRIPARASAD & CO. (1998) 23 I ITR 951-953-9 54 (MP)]. 16. THE STATUTE HAS CLEARLY DRAWN A DISTINCTION BET WEEN A DELIBERATE FALSE EXPLANATION FURNISHED BY THE APPEL LANT AND AN EXPLANATION WHICH MAY NOT BE FALSE BUT' IS NOT ACCEPTED BECAUSE THE APPELLANT WAS NOT ABLE TO SUBSTANTIATE IT. WHILE THERE IS NO RELAXATION IN TH E RIGOUR OF THE EXPLANATION IN RAISING A PRESUMPTION AGAINST TH E APPELLANT IN THE FORMER CASE IN THE LATTER CLASS O F CASES THE STATUTE ITSELF RELAXES ITS RIGOUR BY DIRECTING THAT WHEREIN RESPECT OF ANY AMOUNT ADDED OR DISALLOWED AND ANY EXPLANATION IS OFFERED BY SUCH PERSON WHICH IS NOT 39 ACCEPTED BECAUSE THE APPELLANT HAS FAILED TO SUBSTA NTIATE THE SAME BUT SUCH EXPLANATION IS BONA FIDE AND ALL THE FACTS RELATING TO THE SAME AND MATERIAL TO THE COMP UTATION OF THE TOTAL INCOME HAVE BEEN DISCLOSED BY HIM THE EXPLANATION SHALL NOT APPLY [SHIV LAL TAK V. CIT (2 001) 251 ITR 373 379-80 (RAJ.)]. 17. IN CIT VS. RM. LALWANI (2003) 22 SITC 112 (RAJ . HC) IT WAS HELD THAT THE WORD 'MAY' HAVING BEEN USED B Y THE LAW FRAMERS IN THE CHARGING SECTION WHICH IS PE NAL IN CHARACTER A SIGNIFICANT AMOUNT OF DISCRETION HAS BE EN VESTED WITH THE AO TO INFLICT OR NOT TO INFLICT PEN ALTY. SUCH DISCRETION HAS TO BE EXERCISED JUDICIOUSLY. THIS IS MORE SO BECAUSE PENALTY IS NOT A SOURCE OF REVENUE TO TH E GOVT. AND IT SHOULD NOT BE IMPOSED MERELY BECAUSE I T IS LAWFUL TO DO SO UNLESS THE CONTUMACIOUS CONDUCT ON THE PART OF THE APPELLANT IS ESTABLISHED BEYOND ALL SHA DOWS OF DOUBT. IN THE INSTANT CASE UNDER CONSIDERATION THE IMPUGNED PENALTY WAS IMPOSED SIMPLY BECAUSE THE ADDITION WAS UPHELD IN QUANTUM APPEAL WITHOUT PROVI NG CONTUMACIOUS CONDUCT ON THE PART OF THE APPELLANT. THE 40 WORD 'CONCEALMENT' AS APPEARING IN SECTION 271 (1)( C) INHERENTLY CARRIES WITH IT THE ELEMENT OF MENS REA AS HELD BY THE ALL. HC IN BHARAT RICE MILL V. CIT (200 5) 278 ITR 599 (ALL.). IN THE CASE OF THE APPELLANT UNDER CONSIDERATION THE IMPUGNED PENALTY WAS IMPOSED WITHOUT ESTABLISHING MENS REA. HENCE THE SAME IS UNSUSTAINABLE ON FACTS AND IN LAW. L8. IN CIT VS. V.S.K. ADI CHETTY SURAVEL CHETTY (2 002) 254 ITR 633 (MAD.) IT WAS HELD THAT THE AO.HAS DISCRETION U/S 271(\)(C) WHETHER OR NOT TO INITIATE PENALTY PROCEEDINGS. THE WORD USED IN THE SECTION IS 'MAY' AND NOT 'SHALL' AND HENCE SIGNIFICANT AMOUNT OF DISCRET ION IS VESTED IN THE AO WHICH SHOULD BE JUDICIOUSLY EXERC ISED. (SC DECISION IN 237 ITR 570) IN CIT V. SMT. P. K. NOORJAHAN. THE SC IN THE CASE OF HINDUSTAN STEEL LT D. V. STATE OF ORISSA (1972) 83 ITR 26 HAD LAID DOWN THA T THE PENALTY WILL NOT BE IMPOSED MERELY BECAUSE IT IS LA WFUL TO DO SO WHERE A DISCRETION IS GIVEN TO THE AUTHORITY. IN THE CASE OF THE APPELLANT UNDER CONSIDERATION SUCH DISCRETION DOES NOT SEEM TO HAVE BEEN JUDICIOUSLY 41 EXERCISED. SINCE THE AO FAILED TO BRING ON RECORD E VIDENCE TO CORROBORATE THAT THE IMPUGNED SUM ULTIMATELY SUSTAINED ON ESTIMATIONS WAS THE INCOME EARNED BY THE APPELLANT DURING THE RELEVANT PREVIOUS YEAR FROM SO URCES UNDISCLOSED TO THE DEPARTMENT. 19 IN CHARAN BROS. VS. ITO (2002) 120 TAXMAN 25 (HYD.) IT WAS HELD THAT THE EXPRESSION 'CONCEALED' IN SECTION 271 (1)(C) IMPORTS THE CONCEPT OF MENS REA OR GUILTY MIND IN THE SECTION AND CONSEQUENTLY THE INTENTION OF THE LEGISLATURE APPEARS TO BE THAT AN APPELLANT IS NOT TO BE PENALIZED UNLESS THE NECESSARY MENTAL ELEMENT COULD BE SPELT OUT IN HIS ACT FROM THE MATERIAL ON RECORD. THE DELETION OF TH E WORD 'DELIBERATELY' FROM THE TEXT OF SECTION 271(1) ( C) BY THE FINANCE ACT. 1964 DOES NOT SEEM TO SERIOUSLY ALTER THE LAW ON THE POINT AS TILL THE EXPRESSION 'CONCEALMENT' WOULD REQUIRE THE MENTAL ELEMENT TO BE ESTABLISHED. THE WORD 'CONCEALED' WOULD ITSELF IMPORT THIS REQUIREMENT. IN THE CASE OF THE APPELLA NT UNDER CONSIDERATION THE MENTAL CLEMENT OF THE 42 APPELLANT TO DODGE THE REVENUE WAS NOT ESTABLISHED. HENCE THE PENALTY IMPOSED IS UNSUSTAINABLE ON FACTS AND IN LAW. 20. THE SC HAS REITERATED ITS VIEW IN CIT VS. MUKUNDRAY K.SHAH (2007) 290 ITR 433 AND DILIP N. SHROFFVS. J1 CIT (2007) 291 ITR 519 (SC) AND IN T. ASHOK PAI VS. CIT (2007) 292ITR 11 (SC) AGAIN AFTER AN ELABORATE REVIEW OF THE LAW ON THE SUBJECT AS A LAW WHICH HAS ALWAYS BEEN PART OF THE JURISPRUDENCE RELATING TO PENALTY PROCEEDINGS. IT WAS POINTED OUT THAT THE MEANING OF EXPRESSION 'CONCEAL' IS OF GREAT IMPORTANCE. JURISDICTION FOR PENALTY PROCEEDINGS PRECEDES THE RULE OF EVIDENCE INCORPORATED IN EXPLANATION SO THAT THERE CAN BE NO VALID INITIATION OF PROCEEDINGS UNLESS THERE IS PRIMA FACIE CONCEALMENT. IT WAS POINTED OUT THAT THE SC IN K.C. BUILDERS V. ASSTT. CIT (2004) 265 IT R 562 (SC) HAD HELD THAT DELIBERATENESS IS IMPLIED IN 43 THE CONCEPT OF CONCEALMENT. FURTHER IT HAS ALWAYS BEEN THE LAW THAT PENAL PROVISIONS HAVE TO BE CONSTRUED 'STRICTLY AND NARROWLY AND NOT WIDELY' AS POINTED OUT IN VIRTUAL SOFT SYSTEMS LTD. VS. CIT (2007) 289 ITR 83 (SC). THE SUM AND SUBSTANCE OF THESE PRECEDENTS IS THAT THE CONCEPT A STANDS RESTORED AS A PRE-REQUISITE FOR JURISDICTION. EXPLANATION TO SECTION 271(1)(C) IT MAY BE POINTE D OUT IT NOT ADVERSE TO THIS INFERENCE BUT ONLY STRENGTHENS IT INASMUCH AS PENALTY WILL BE EXIGIBLE UNDER THIS PROVISIONS WHERE THERE IS NO EXPLANATION AT ALL OR EXPLANATION FURNISHED IS FALS E. EVEN WHERE APPELLANT WAS NOT ABLE TO SUBSTANTIATE HIS EXPLANATION PENALTY WILL NOT BE EXIGIBLE UNDER THE EXPLANATION IF APPELLANT'S EXPLANATION IS BONA FIDE AND APPELLANT PLACES ALL THE FACTS AND MATERIA L AVAILABLE WITH HIM BEFORE THE AO. IN THE CASE OF TH E APPELLANT UNDER CONSIDERATION THE BONA FIDE EXPLANATION SUBMITTED WITH CIRCUMSTANTIAL EVIDENCE WAS NOT PROVED AS FALSE. BEFORE IMPOSITION OF THE 44 IMPUGNED PENALTY MENS REA WHICH WAS A PRE- REQUISITE FOR ASSUMPTION OF JURISDICTION WAS NOT ESTABLISHED ON THE STRENGTH OF EVIDENCE BROUGHT ON RECORD AGAINST THE APPELLANT. 21. THE LAW THAT ASSESSMENTS AND PENALTY PROCEEDINGS ARE DIFFERENCE AND THAT PENALTY DOES NOT BECOME EXI GIBLE MERELY BECAUSE THE ADDITION WAS PARTLY SUSTAINED OR HAD BECOME FINAL IS WELL-SETTLED. IT WAS IN THIS CONTEX T THE HIGH COURT IN CIT V. MATA PRASAD ( 200S) 278 ITR 354(ALL.) FOUND NO MERIT IN DEPARTMENT APPEAL QUESTIONING THE DELET ION OF PENALTY ON THE GROUND. THAT THE TRIBUNAL ITSELF HAV ING UPHELD THE ADDITION COULD NOT HAVE DELETED THE PEN ALTY. THE HC FOUND THAT THE DECISION RENDERED BY THE TRIBUNAL DID NOT SUFFER FROM ANY FACTUAL OR LEGAL INFIRMITY AND THAT THE TRIBUNAL WAS WELL WITHIN ITS JURISDICTION IN COMING TO THE CONCLUSION THAT PENALTY WAS NOT LEVIABLE THOUGH A DDITION WAS JUSTIFIED. 22. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE AS ALSO DECISIONS CITED ABOVE THE PENALTY LEVIED CANN OT BE SUSTAINED AND THEREFORE CANCELLED. 45 25. IT IS CLEAR FROM THE FINDING RECORDED BY THE L D.CIT(A) THAT PENALTY IS NOT IMPOSABLE ON THE IMPUGNED ADDIT IONS SO MADE. THE LD. CIT(A) HAS DEALT WITH VARIOUS JUDICIA L PRONOUNCEMENTS AND AFTER APPLYING THE SAME TO THE F ACTS OF THE PRESENT CASE HELD THAT THE PENALTY WAS NOT IMPO SABLE. WITH RESPECT TO THE ADDITION MADE ON ACCOUNT OF INVESTME NT IN CONSTRUCTION OF BOUNDARY WALL AND FOR WHICH PENALTY WAS IMPOSED WE FOUND THAT ADDITION WAS MADE MERELY ON THE BASIS OF REPORT OF DVO WHICH IS AN ESTIMATE. IT IS SETTL ED LAW THAT NO PENALTY U/S 271(1)(C) IS LEVIABLE ON THE ADDITION M ADE ON ESTIMATE BASIS. OUR VIEW IS ALSO SUPPORTED BY THE J UDICIAL PRONOUNCEMENT IN THE CASE OF T.P.K. RAMALINGAM 211 ITR 520 (MAD) CIT VS. APSARA TALKIES 155 ITR 303 (MAD ) CIT VS. MOHD. KUNNI 87 ITR 189 (KER) ASHOK PAI VS. CIT 2 10 CTR 259 ( S. C.). APPLYING THE PROPOSITION OF LAW TO TH E INSTANT ADDITION MADE ON ACCOUNT OF VALUATION REPORT WHICH IS AN ESTIMATE THERE IS NO JUSTIFICATION FOR LEVY OF PEN ALTY U/S 271(1)(C). -: 46: - 46 26. SIMILARLY ADDITION FOR DIFFERENCE IN VALUE OF SALE DEED AND AGREEMENT FOUND DURING COURSE OF SEARCH W E FOUND THAT EVEN IN THE PRELIMINARY STATEMENT RECORDED DUR ING THE COURSE OF SEARCH U/S 132(4) THE ASSESSEE HAS CLARI FIED THE FACTS AND CIRCUMSTANCES UNDER WHICH DIFFERENCE IN T HE AMOUNT OF CONSIDERATION AND AGREEMENT WAS ARISEN. THE ASSE SSEE STATED THAT AT THE TIME OF EXECUTION OF AGREEMENT THE SELLER HAS NOT BROUGHT THE FACTS IN THE KNOWLEDGE OF ASSES SEE THAT THERE WAS HIGH TENSION LINE ABOVE THE LAND AND THE AREA SHOWN BY THE SELLER WAS FOUND LESS ON PHYSICAL MEASUREMEN T. THUS WE FOUND THAT THE ADDITION WAS MADE ONLY BY SEEING THE FIGURE OF CONSIDERATION IN THE AGREEMENT AND SALE DEED WIT HOUT VERIFYING THE TRUTH OF THE EXPLANATION OFFERED BY T HE ASSESSEE. EVEN THAT DURING COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE HAS REQUESTED TO SUMMON BRIJESH KUMAR SHUK LA TO CONFIRM THE FACT BUT THE ASSESSING OFFICER HAS NOT ACCEDED TO ASSESSEES REQUEST . IN VIEW OF THE JUDICIAL PRONOUNCEMENTS THAT NO PENALTY IS LEVIABLE UNDER SECTION 271(1)(C ) WHERE THE EXPLANATION OFFERED BY THE ASSESSEE IS NOT FOUND TO BE FALSE BY THE DEPARTMENT ASSESSING OFFICER WAS NOT JUSTIFIED IN LEVYING -: 47: - 47 THE PENALTY AND THE CIT(A) AFTER DISCUSSING THE ISS UE IN DETAIL RECORDED FINDING TO THE EFFECT THAT IT WAS NOT A FI T CASE FOR LEVY OF PENALTY. OUR VIEW IS SUPPORTED BY THE DECISION O F HON'BLE SUPREME COURT IN THE CASE OF DILIP AND SHROFF 291 ITR 519 CIT VS. OUTDOOR PUBLICITY 296 ITR 520 (KER) BTX C HEMICALS PVT.LIMITED 288 ITR 196 (GUJ). ACCORDINGLY CIT(A) WAS JUSTIFIED IN DELETING THE PENALTY IMPOSED U/S 271(1 )(C) OF THE ACT. 27. ON MERITS WE HAVE ALREADY DELETED ADDITIONS M ADE U/S 2(24)(IV) AND 2(22)(E) IN TERMS OF OUR OBSERVAT IONS CONTAINED HEREIN ABOVE. SINCE THE ADDITIONS ITSELF HAVE BEEN DELETED PENALTY IMPOSED THEREON HAS NO LEGS TO STA ND. ACCORDINGLY WE CONFIRM THE ACTION OF THE LD. CIT(A ) FOR CANCELLING THE PENALTY. 28. THIS ISSUE OF ADDITION U/S 2(22)(E) IS ALSO COV ERED BY THE DECISION OF I.T.A.T. INDORE BENCH IN THE CASE OF ARUN KUMAR & OTHERS VIDE ORDER DATED 30 TH APRIL 2013 PASSED IN I.T(SS).A.NOS. 186 TO 192/IND/2012 ETC. WHEREIN TH E FOLLOWING WAS OBSERVATION OF THE TRIBUNAL :- -: 48: - 48 41. RELIANCE WAS ALSO PLACED ON THE DECISION OF COORDINATE BENCH IN THE CASE OF SHRI VAIDYA I.T.A.NO. 1270/MAD/2011 ORDER DATED 28 TH JUNE 2012 WHEREIN IT WAS HELD THAT SHAREHOLDERS OFFERING PERSONAL BANK GUARANTEE AND COLLATERAL SECURITIES FOR LOAN FOR THE BENEFIT OF COMPANY WAS OUT OF BUSINESS EXPEDIENCY. HENCE ANY FINANCE OR LOAN GIVEN BY THE COMPANY TO THE SHAREHOLDER WILL NOT B E HIT BY DEEMING PROVISIONS OF SECTION 2(22)(E). RELI ANCE WAS ALSO PLACED ON THE DECISION OF HON'BLE DELHI HI GH COURT IN THE CASE OF CIT VS. CREATIVE DYEING AND PRINTING P.LTD. (2009) 318 ITR 476 (DEL) WHEREIN IT WAS HELD THAT AMOUNT PAID FOR GENUINE PURPOSE OF BUSINESS OR FOR PROTECTING BUSINESS OR IN VIEW OF COMMERCIAL EXPEDIENCY ARE OUTSIDE THE PURVIEW OF SECTION 2(22)(E). IT WAS FURTHER SUBMITTED THAT AGA INST THIS ORDER OF DELHI HIGH COURT REVENUE APPROACHED TO THE HON'BLE SUPREME COURT THROUGH SLP AND THE HON'BLE SUPREME COURT HAS REJECTED THE SLP FILED BY THE DEPARTMENT AND THE SAME HAD BEEN REPORTED AT (STATUTE)(2010)328 ITR (ST) 10. 42. IN OUR CONSIDERED VIEW BEFORE BRINGING ANY LOANS OR ADVANCES WITHIN THE MEANING OF SECTION 2(22)(E) THE NATURE OF TRANSACTION IS TO BE EXAMIN ED IN THE LIGHT OF ANY BENEFIT RECEIVED BY THE COMPANY IN CONSIDERATION OF LOANS SO ADVANCED AND WHICH THE -: 49: - 49 ASSESSING OFFICER WANTED TO BRING WITHIN THE MISCHI EF OF SECTION 2(22)(E). IF IT IS FOUND THAT AN ADVANCE BY COMPANY HAD BEEN GIVEN TO FULFILL SOME COMMERCIAL OBLIGATION CASTED ON IT AS PER THE BOARDS RESOLUTI ON AND ALSO IN TERMS OF THE LOAN SANCTION LETTER THROU GH WHICH COMPANIES ARE IN RECEIPT OF LOANS FROM BANK/FINANCIAL INSTITUTION THE LOANS SO ADVANCED T O SHAREHOLDER CAN NOT BE BROUGHT IN MISCHIEF OF SECTI ON 2(22)(E) IN TERMS OF JUDICIAL PRONOUNCEMENTS DISCUSSED ABOVE. WHEN THE COMPANIES ARE IN RECEIPT OF LOAN FROM BANK ON THE CONDITION OF PROVIDING PERSONAL GUARANTEE BY THE DIRECTOR OR COLLATERAL SECURITIES OF PERSONAL PROPERTY OF DIRECTOR AND A BOARDS RESOLUTION IS PASSED FOR MAKING THE DIRECTO R AGREEING TO PROVIDE HIS PERSONAL GUARANTEE ETC. AND IN CONSIDERATION OF IT THE DIRECTOR WHO IS ALSO SHAREHOLDER OF COMPANY IS ALLOWED TO WITHDRAW FUND FORM THE COMPANY TO THAT EXTENT THE ADVANCE GIVE N BY THE COMPANY CANNOT BE TREATED AS DEEMED DIVIDEND WITHIN THE MEANING OF SECTION 2(22)(E) IN TERMS OF JUDICIAL PRONOUNCEMENTS DISCUSSED ABOVE. 29. RESPECTFULLY FOLLOWING THE DECISION OF COORDI NATE BENCH WE DO NOT FIND ANY MERIT FOR THE ADDITIONS M ADE IN ASSESSMENT YEAR 2005-06 AND 2006-07 UNDER SECTION 2(24)(IV) AND 2(22)(E) OF THE INCOME-TAX ACT 1961. -: 50: - 50 30. IN THE RESULT THE APPEALS OF ASSESSEE FOR ASS ESSMENT YEAR 2003-04 AND 2004-05 ARE DISMISSED WHEREAS APP EALS FOR ASSESSMENT YEAR 2005-06 AND 2006-07 ARE ALLOWED IN PART. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 28 TH OCTOBER 2013. SD/- SD/- (JOGINDER SINGH) (R. C. SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 28 TH OCTOBER 2013. CPU* 4.7.9.17