IN INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D, MUMBAI BEFORE SHRI SAKTIJIT DEY(JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA No. 6140 & 6141/MUM/2014 Assessment Year: 2010-11 & 2011-12 ITO 14(1)(2) Vs. Diwa Exports 2nd Floor, R.No. 204 205 B Glitz Mall, Earnest House 99 Vithalwadi Zaveri Bazar Nariman Point Mumbai - 400002 Mumbai- 400021 PAN No. AAGFD0180N (Appellant) (Respondent) Appellant by : Ms. Amrita Singh Respondent By : Shri. Ketan L. Vajani Date of Hearing : 16/08/2016 Date of pronouncement : 30/09/2016 ORDER PER N.K. PRADHAN, A.M. Both appeals are filed by Revenue. relevant assessment years are 2010-11 & 2011-12. appeals are directed against order of Commissioner (Appeals)-25 at Mumbai and arise out of order passed under section 271(1|)(c) of Income Tax Act 1961(here-in-after Act ) . In this batch of appeals, controversy raised being similar, they were heard analogously and are disposed of by common order. 2. assessee is manufacturer, importer and exporter of gold and gold jewellery. assessee exports manufactured gold jewellery on behalf of foreign parties as per their instructions. Gold is received from these parties for manufacturing. manufacturing unit is located at Noida Special Economic Zone (NSEZ), Noida , Uttar ITA No. 6140 & 6141/MUM/2014 2 Pradesh. During AY 2010-11, business income from NSEZ was declared by assessee at Rs. 8,52,74,580/-. After claiming 100% deduction under section 10AA of Act of Rs. 8,52,74,580/-, total income was shown as NIL. Similarly for AY 2011- 12, assessee declared business income from NSEZ at Rs. 9,87,78,428/-. After claiming 100% deduction under section 10AA of Rs. 9,87,78,428/-, total income was shown as NIL. AO, during course of assessment proceeding for A.Y. 2010-11, sent show cause notice to assessee dated 08/03/2013 stating following- 1. From profit and loss account submitted by you it is observed that you have paid salaries & bonus expenses of Rs. 10,98,121/- to 24 employees during year for manufacturing more than 500 Kg of jewellery. Further, as per Fixed Assets statement enclosed with your balance sheet it is observed that Plant & Machinery worth Rs. 1,32,263/- is only used for purpose of manufacturing. This shows that no sophisticated tools have been used by you for purpose of manufacturing this jewellery. It is impractical to manufacture such huge quantity of jewellery with such low cost of labour. electricity consumption is also low. 2.Furnish justification regarding claim of deduction u/s 10AA of Income Tax Act, 1961... 2.1 In response to above, ld. AR of assessee submitted that jewellery manufactured was handmade, not requiring sophisticated tools and assessee had neither suppressed nor given any inaccurate particulars of income. There was no evidence of any expenses incurred or income earned which were not recorded in books of account. Without prejudice to above, it was submitted before AO that it was impossible to quantify as to what would be expenditure incurred towards salary, electricity and other expenses at factory at SEZ. This would differ from assessee to assessee and it is debatable issue. proposed disallowance of deduction under section 10AA on such grounds would lead to prolonged litigation. It was finally submitted that assessee with desire to avoid litigation and to buy peace, suo motu and voluntarily, with condition that there would be no penalty levied and to cooperate ITA No. 6140 & 6141/MUM/2014 3 with Department, filed revised of return income offering additional income Rs. 1,25,00,000/- on ad hoc basis for A.Y. 2010-11 and Rs. 1,40,00,000/- for AY 2011-12 to be taxed by treating not having been earned in SEZ and having been spent towards business expenses in SEZ. assessee filed revised computation of taxable income for above assessment years and copy of challans evidencing tax payment on revised return of income. AO brought to tax above amount under section 69C in relevant assessment years. These facts are part of record. 2.2 AO, during course of penalty proceeding under section 271(1)(c) of Act, came to finding that assessee had filed return of income for above assessment years declaring NIL income. Subsequently, cases were selected for scrutiny and enquiries were conducted. Then assessee filed revised return income offering additional income Rs. 1,25,00,000/- on adhoc basis for A.Y. 2010-11 and Rs. 1,40,00,000/- for AY 2011-12 to be taxed by treating not having been earned in SEZ and having been spent towards business expenses in SEZ. As per AO, revised return of income filed pursuant to notice issued under section 143(2) of Act and after enquiry conducted, indicate that assessee had not furnished full particulars of its true income. Therefore, AO concluded that explanation of assessee being not bonafide and assessee having furnished inaccurate particulars of income had concealed income. Therefore, AO imposed minimum penalty of Rs. 38,62,500/- for AY 2010-11 and Rs. 43,26,000/- for AY 2011-12. Assessee challenged penalty orders before CIT(A). 2.3 ld. CIT(A) relied on judgment in case of Suresh Chandra Mittal (2000) 241 ITR 124 (MP), wherein it has been held that in case of additional ITA No. 6140 & 6141/MUM/2014 4 income offered to buy peace and avoid litigation, no penalty could be levied for concealment. said judgment was later upheld by Hon ble Supreme Court in 251 ITR 9(SC). He also relied upon decision in case of CIT vs. Careers Education and Infotech (Pvt .Ltd.) (2012) 336 ITR 257 (P&H) wherein it has been held that in every case where surrender is made, inference of concealment of income cannot be drawn under section 58 of evidence Act . As AO failed to establish through evidence that assessee had concealed its income, ld. CIT(A) deleted penalty of Rs. 38,62,500/- imposed for AY 2010-11 and Rs. 43,26,000/- for AY 2011-12. 3. Ld. DR relied on assessment order passed by AO. She also relied on decision in case of Prem Pal Gandhi vs. CIT (2011) 335 ITR 23 (P&H). 4. ld. Counsel of assessee referred to decision in case of Sudharshan Silk & Sarees vs. CIT (2008) 300 ITR 205 (SC); Careers Education and Infotech (P) Ltd. ( supra) and Suresh Chandra Mittal (supra). He further stated that assessee with desire to avoid litigation and to buy peace voluntarily filed revised return offering additional income of Rs. 1,25,00,000/- for AY 2010-11 and Rs. 1,40,00,000/- for AY 2011-12 on ad hoc basis to be taxed by treating not having been earned in SEZ and having been spent towards business expenses in SEZ. In view of above, ld. Counsel of assessee supported order passed by ld. CIT(A). 5. We have carefully considered matter. After considering rival submissions and perusing relevant material on record, we find that assessee in response to notice issued by AO, offered additional income of Rs 1,25,00,000/- for AY 2010-11 and Rs. 1,40,00,000/- for AY 2011-12 on ad hoc basis to be taxed by ITA No. 6140 & 6141/MUM/2014 5 treating not having been earned in SEZ and having been spent towards business expenses in SEZ. 5.1 Now let us go through decision in case of Prem Pal Gandhi (supra) relied on by ld. DR. In this case after assessment was completed, it came to notice of AO that assessee had substantial transactions in Bank which were not disclosed. Proceedings were initiated for re-assessment. assessee filed revised income and offered peak credits in bank account and interest thereon with condition that no penalty be imposed. After following due procedure, penalty was imposed by AO. Hon ble High Court dismissed appeal filed by assessee. However, we find that case of assessee in present appeal is distinguishable from decision in case of Prem Pal Gandhi(supra) relied on by ld. DR, as in instant case assessment was not completed and assessee offered during course of assessment proceedings additional income on ad hoc basis to be taxed. 5.2 We now turn to decisions relied on by ld. Counsel of assessee. In case of Sudharshan Silk and Sarees (supra), there was disclosure of additional income in revised return after search and seizure. Revised return filed by assessee declaring additional income for several years were accepted in toto. Tribunal upheld findings of CIT(A) cancelling levy of penalty under section 271(1)(c) holding that assessments were made totally on basis of estimated income disclosed in revised return rather than on basis of incriminating materials found during search. Hon ble Supreme Court held that penalty under section 271(1)(c) was not exigible on facts and circumstances of case. ITA No. 6140 & 6141/MUM/2014 6 In case of Careers Education & Infotech (supra), we find that Hon ble High Court observed not only survey team but during course of assessment, AO has all materials before him to find out if there are any discrepancies which can be correlated to amount of surrender made by assessee. However, AO has not uttered single word in assessment order to say that there was any concealment of income of assessee having noticed by survey team or by AO himself. It was held that there was no material to infer concealment of income or furnishing inaccurate particulars by assessee, therefore, no penalty for concealment be levied under section 271(1)(c) merely because assessee surrendered additional sum for taxation subsequent to survey operation. In case of Suresh Chandra Mittal (supra), revised return was filed by assessee showing higher income. Assessee had surrendered income after persistent queries by AO. However, revised returns have been regularised by Revenue. Explanation by assessee that he has declared additional income to buy peace and to come out of vexed litigation could be treated as bonafide. It was held by Hon ble High Court that Tribunal was justified in cancelling penalty levied under section 271(1)(c). This decision has been upheld by Hon ble Supreme Court in CIT vs. Suresh Chandra Mittal(supra). 5.3 It has been held by Hon ble Supreme Court in Jain Bros. vs. Union of India. (1970) 77 ITR 107, 116 (SC) that though penalty has been regarded as additional tax in certain sense and for certain purposes, it is not possible to hold that penalty proceedings are essentially continuation of proceedings relating to assessment ITA No. 6140 & 6141/MUM/2014 7 5.4 Let us go back to beginning. In instant case, assessments were made by AO on basis of estimated income disclosed in revised return rather than on basis of incriminating materials. AO had no material before him to find out that ad hoc estimated income offered by assessee could be correlated with any discrepancy. 6. present factual matrix is to be tested on anvil of above enunciation of law. In light of decision in case of Sudharshan Silk and Sarees; Careers Education & Infotech; and Suresh Chandra Mittal referred here-in-above and facts being similar, we uphold order passed by ld. CIT(A) for A.Y. 2010-11 and A.Y. 2011-12. 7. In result, both appeals filed by Revenue are dismissed. Order pronounced in open court on 30/09/2016. Sd/- Sd/- (SAKTIJIT DEY) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated:30/09/2016 AKV(On Tour) Copy of Order forwarded to : 1. Appellant 2. Respondent. 3. CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, //True Copy// (Dy./Asstt. Registrar) ITAT, Mumbai ITO-14(1)(2), Mumbai v. Diwa Export