ITA No.386 of 2014 1 IN HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No.386 of 2014 Date of decision: 19.10.2015 B.K.Jain Appellant Commissioner of Income Tax, Ludhiana (Punjab) ..Respondent CORAM: HON BLE MR. JUSTICE AJAY KUMAR MITTAL HON BLE MR. JUSTICE RAMENDRA JAIN 1. Whether Reporters of local papers may be allowed to see judgment? 2. To be referred to Reporters or not? 3. Whether judgment should be reported in Digest? Present: Mr. Divya Suri, Advocate, Advocate for appellant. Mr. Rajesh Katoch, Advocate for revenue. Ajay Kumar Mittal,J. 1. This order shall dispose of ITA Nos.386, 390 and 412 of 2014 as according to learned counsel for parties, issue involved in all these appeals is identical. However, facts are being extracted from ITA No.386 of 2014. 2. ITA No.386 of 2014 has been filed by assessee under Section 260A of Income Tax Act, 1961 (in short, Act ) against order dated 24.3.2014, Annexure A.9 passed by Income Tax Appellate Tribunal, Chandigarh Bench 'B' in ITA No.1062/CHD/2012, for assessment year 2002-03, claiming following substantial question of law:- Whether on facts and circumstances of case, Tribunal order is unreasonable, while justifying levy of GURBAX SINGH 2015.11.17 12:37 I attest to accuracy and integrity of this document High Court Chandigarh ITA No.386 of 2014 2 penalty under section 271(1)(c) on estimated brokerage income and qua non discharge of burden under section 271(1)(c) Explanation 1 w.e.f 1.4.1976 in accordance with National Textiles vs. CIT (2001) ITR 125 (Gujarat)? 3. few facts relevant for decision of controversy involved as narrated in ITA No.386 of 2014 may be noticed. appellant- assessee is Fellow Chartered Accountant by profession and operating from his office cum residence at 94-D, BRS Nagar, Ludhiana. survey was conducted under Section 133A of Act at premises of appellant. statement of appellant was recorded on 15.6.2004. Thereafter on 6.7.2004, notice under section 148 of Act was issued to appellant on 13.7.2004. appellant made surrender of ` 27,00,000/- in assessment years 2004-05 and 2005-06 i.e ` 15,00,000/- and ` 12,00,000/- respectively. Thereafter, in response to notice dated 6.7.2004 under section 148 of Act, appellant filed return of income on 30.3.2005 declaring income of ` 45,000/- and assessment under Section 147 read with section 143(3) of Act was completed on 30.3.2006 at amount of ` 1,16,94,211/-. Penalty proceedings were initiated and notice under Section 274 read with section 271 of Act was issued on 30.3.2006 which was served on assessee on 31.3.2006. Aggrieved by quantum order dated 30.3.2006, appellant filed appeal before Commissioner of Income Tax (Appeals) [CIT(A)] who vide order dated 29.9.2008, Annexure A.4 partly allowed appeal. Both appellant and revenue filed appeals before Tribunal. On 15.6.2009, appellant requested that penalty proceedings should be kept in abeyance till decision of appeal in Tribunal. Subsequently, again show cause GURBAX SINGH 2015.11.17 12:37 I attest to accuracy and integrity of this document High Court Chandigarh ITA No.386 of 2014 3 notice dated 26.2.2010 qua penalty under section 271(1)(c) of Act was issued to appellant on 3.3.2010 and in response to notice, appellant on 22.3.2010 prayed to keep penalty proceedings pending till decision of Tribunal. On 31.3.2010, Annexure A.5, Assessing Officer imposed penalty of ` 27,95,170/- under section 271(1)(c) of Act for concealment and furnishing inaccurate particulars of income. Vide quantum order dated 29.4.2010, Annexure A.6, Tribunal partly allowed appellant's appeal and dismissed revenue's appeal. Aggrieved by quantum order of Tribunal dated 29.4.2010, revenue filed appeal before this court as ITA No.36 of 2011 and against same quantum order of Tribunal, appellant filed cross appeal i.e. ITA No.365 of 2011. ITA No.36 of 2011 was dismissed on 14.11.2011 and ITA No.365 of 2011 was dismissed vide order dated 21.5.2014. Aggrieved by penalty order dated 31.3.2010, appellant filed appeal before CIT(A) inter alia on various grounds like income of appellant had been taken on estimation basis; no penalty could be levied on such estimation of income etc. assessee filed written submissions. CIT(A) dismissed penalty appeal vide order dated 17.7.2012, Annexure A.8. appellant filed appeal before Tribunal which was also dismissed vide order dated 24.3.2014, Annexure A.9. Hence instant appeals by appellant-assessee. 4. We have heard learned counsel for parties. 5. Learned counsel for appellant-assessee submitted that income of assessee was determined on basis of estimate only. In such situation, levy of penalty for concealment of income under Section 271(1) (c) was uncalled for. Tribunal was thus in error in maintaining levy GURBAX SINGH 2015.11.17 12:37 I attest to accuracy and integrity of this document High Court Chandigarh ITA No.386 of 2014 4 of penalty on assessee. Reliance was placed on judgment of Gujarat High Court in National Textiles vs. CIT, (2001) 249 ITR 125. 6. Learned counsel for revenue while supporting findings recorded by Tribunal urged that there was concealment of income by assessee and penalty under Section 271(1)(c) of Act had been rightly imposed. 7. perusal of findings recorded by Tribunal show that assessee had not furnished his return of income for year under consideration within time allowed under section 139 of Act. Survey operations were carried out under Section 133A of Act at office premises of appellant who was engaged in giving accommodation/book entries on account of long/short term capital gains/gifts/loans by charging commission. modus operandi was that cash received from different beneficiaries was deposited in various bank accounts of appellant, his family members and other share brokers from where cheques were issued in favour of clients for bogus capital gains/share profits/gifts etc. appellant in his statement recorded during course of survey operation on 15.6.2004 admitted to have issued cheques/drafts for bogus profits in return of cash provided to him by his clients. appellant also disclosed names of various concerns under which he was carrying on his business and also bank accounts from where cheques/drafts were issued. appellant after conclusion of survey vide letter dated 1.3.2005 made surrender of ` 27 lacs i.e. ` 15 lacs relating to assessment year 2004-05 and ` 12 lacs relating to assessment year 2005-06. income surrendered by appellant was disclosed in return of income furnished GURBAX SINGH 2015.11.17 12:37 I attest to accuracy and integrity of this document High Court Chandigarh ITA No.386 of 2014 5 for assessment years 2004-05 and 2005-06. appellant had not furnished any return of income since after assessment year 1996-97 till date of survey on 25.6.2004. Information was collected during survey operation that business was being carried out in earlier years also. In view of information gathered during survey, Assessing Officer found that appellant's income relevant to assessment year 2002-03 had escaped assessment within meaning of section 147 of Act and hence proceedings under Section 148 of Act were initiated. investments made by assessee were not declared and thus there was clear cut case of concealment. relevant findings recorded by Tribunal read thus:- - 17. Now only question which is required to be considered whether penalty can be levied in cases where income has been estimated. We are of opinion that learned CIT(A) has correctly observed that it would depend on facts of each case. In this regard let us consider case laws relied on by learned counsel for assessee. We may observe that learned counsel for assessee has relied on many judgments, therefore,we are discussing them in short. Firstly we consider decisions of Tribunal relied on by learned counsel for assessee. i) First decision relied on is in case of Aggarwal Construction Co. vs. ACIT, ITA No.843/Chd/2009. In this case assessee has declared net profit at 10% which was ultimately estimated at 12%. Penalty was levied under section 271(1)(c) and matter travelled to Tribunal which observed that it was mainly case of substitution of one estimate by another, therefore penalty consequences were not attracted. Thus in this case purely estimate was made instead of 10% - 12%. ii) Second case relied on is in case of Bharti Airtel Limited vs. GURBAX SINGH 2015.11.17 12:37 I attest to accuracy and integrity of this document High Court Chandigarh ITA No.386 of 2014 6 CIT(supra). In that case addition was made on account of disallowances under Section 14A read with Rule 8D. Tribunal observed that applicability of rule 8D itself was doubtful in assessment year 2007-08 and therefore penalty was deleted particularly because assessee had made all disclosure. We find rule 8D was held not to be applicable in assessment year 2007-08 by Hon'ble Bombay High Court in case of Godrej and Boycee vs. DCIT 328 ITR 81 (Bom.). Therefore, even if addition was made it was made on account of doubtful item and in any case particulars have been disclosed by assessee, therefore, penalty was correctly deleted. iii)Next case relied on is in case of Fine Line Construction Pvt. Limited vs. ACIT (supra) of Delhi Bench of Tribunal. In that case books of account were rejected and net profit rate of 5% was applied. Penalty was deleted as it was case of simply estimate. iv)Next case relied on is in case of Deepshikha Maheshwari vs. ITO(supra) where addition was made on account of undisclosed investment in construction on valuation made by DVO. DVO had applied CPWD rates which was revised by Tribunal and it was directed to apply PWD rates. In these circumstances penalty was deleted. v) Next case relied on by learned counsel for assessee is that of PPP Associates vs. ACIT (supra). In that case also survey was conducted and certain business income was unearthed during survey for various years. Ultimately profit was estimated at 1.5%. Ultimately even Tribunal confirmed penalty in respect of assessment year 1988-89 and 2001-02. However, penalty was deleted for assessment year 2003-04 to 2005-06 because assessee still had not filed return. Other decisions relied on by learned counsel for assessee are of similar pattern. GURBAX SINGH 18. Now let us consider decisions of various Hon'ble High Courts 2015.11.17 12:37 I attest to accuracy and integrity of this document High Court Chandigarh ITA No.386 of 2014 7 relied on by learned counsel for assessee. i) CIT vs. Metal Products of India (supra). assessee filed return of income for ` 52416/- on basis of books of account maintained. books of account were rejected and addition of ` 149624/- was made which was reduced to ` 8000/- by AAC. On balance amount penalty of ` 12000/- was levied. penalty was deleted by observing that merely because addition has been made on estimated basis by adopting view that gross profit shown in books was too low did not automatically lead to conclusion that there was failure to return correct income by means of fraud, gross or wilful income. This decision is totally distinguishable because later on Exp. (i) was inserted to Section 271(1)(c) which shifted burden to assessee to prove that there was no concealment. Moreover Full Bench of Hon'ble Supreme Court in case of Union of India vs. Dharmendra Textiles (supra) has clearly held that there is no need to prove means rea in case of penalty leviable under different statutes. ii) Next case relied on is CIT vs. M.M.Rice Mills (supra). In this case assessee had filed return of income for ` 63310/-. Additions were made to tune of ` 145200/- on account of khundi phak and on account of chhilka. Penalty was deleted by court by confirming order of CIT that no concealment was established. As observed earlier there is no need to establish concealment by department. This aspect we shall discuss later on. iii)Next case relied on is CIT vs.Dhillon Rice Mills (supra). In this case also decision of CIT vs. Metal Products has been followed and it was observed that concealment was not proved, therefore penalty could not be imposed. iv)Next case relied on by learned counsel for assessee is that of CIT vs. Valimkbhai H.Patel (supra). In this case assessee has filed return of income declaring loss of ` 337414/-. Income was assessed at ` 294480/-. addition was mainly on account of loss of salt for which certificate from Deputy Commissioner was filed. However, GURBAX SINGH Assessing Officer accepted loss but reduced value of 2015.11.17 12:37 I attest to accuracy and integrity of this document High Court Chandigarh ITA No.386 of 2014 8 salt from ` 118 to ` 80. Penalty was deleted mainly by following earlier decision of Hon'ble Punjab and Haryana High Court in case of CIT vs. Prithipal Singh and co. 183 ITR 69 wherein it was observed that mere reduction in loss would not lead penal consequences. .......... In case before us also surrender was not made voluntarily and documents were found in this assessment year, still assessee had not bothered to file any return. Even in assessment year 2004- 05 and 2005-06, only part of income was declared therefore assessee has clearly concealed particulars of his income which would attract penal consequences. Tribunal after considering case law on point recorded finding and concluded as under:- In case before us also surrender was not made voluntarily and documents were found in this assessment year still assessee had not bothered to file any return. Even in Assessment year 2004- 05 and 2005-06 only part of income was declared therefore assessee has clearly concealed particular of his income which would attract penal consequences. This said finding has not been shown to be illegal or perverse in any manner by learned counsel for appellant-assessee. 8. Adverting to judgment in National Textiles's case (supra) relied upon by learned counsel for assessee therein, it was held that in order to justify levy of penalty for addition of cash credits, there must be some material or circumstances leading to reasonable conclusion that amount does represent assessee's income and circumstances must show that there was conscious concealment or act of furnishing of inaccurate particulars. Explanation 1 to Section 271(1)(c) does not make assessment order conclusive evidence that amount assessed was infact income of assessee. There is no quarrel with proposition of law GURBAX SINGH 2015.11.17 12:37 I attest to accuracy and integrity of this document High Court Chandigarh ITA No.386 of 2014 9 enunciated. However, in present case, there is concealment of income by assessee as rightly held by authorities below. 9. Learned counsel for appellant has not been able to show that findings recorded by Tribunal are perverse or erroneous in any manner. Thus, no substantial question of law arises. Consequently, appeals stand dismissed. (Ajay Kumar Mittal) Judge October 19, 2015 (Ramendra Jain) 'gs' Judge GURBAX SINGH 2015.11.17 12:37 I attest to accuracy and integrity of this document High Court Chandigarh B.K. Jain v. Commissioner of Income Tax, Ludhiana (Punjab)