PER SAKTIJIT DEY, J.M: This appeal filed by the department is directed against the order dated 30-12-2011 of CIT (A)-IV, Hyderabad pertaining to the assessment year 2006-07.
2. The department has filed the aforesaid appeal on the following two effective grounds:-
1. The ld CIT (A) ought to have upheld the penalty u/s 271(1)(c) levied on account of addition of Rs.97,74,968/- confirmed in respect of unexplained investment in stock.
2. The direction of CIT (A) to delete penalty on the issue of unexplained investment in stock is perverse to the facts of the case, in as much as the Income-tax Appellate Tribunal while disposing of the assessees appeal against assessment, held at ITA No. 381 of 2012 M/s. Siddi Jewellers, Hyd. para-9 of its order dated 30-9-2010 that the alleged purchases made by the assessee firm from Kalpatharu Jewellers having continuous bill Nos. 74 to 77 issued during the period from 24-89- 2005 to 27-8-2005 appeal to be accommodative one by considering human probabilities.
3. As can be seen from the aforesaid grounds raised by the department, the only grievance is with regard to the CIT (A) not sustaining penalty u/s 271(1)(c ) on the addition of Rs.97,74,968/- confirmed by the Income-tax Appellate Tribunal.
4. Briefly the facts relating to the issue in dispute are, the assessee a partnership firm is engaged in the business of trading in gold jewellery. A search and seizure operation u/s 132 of the Act was conducted in case of the assessee and other group concerns on 30-8-2005. In response to the notice issued by the Assessing Officer, the assessee filed its return of income on 27-8-2007 declaring a total income of Rs.63,22,751/-. The Assessing Officer however completed the assessment u/s 143(3) of the Act on 28-2-2007 determining the total income at Rs.28,75,42,130/- by making the following additions:- i) Unexplained cash Rs.13,47,980 ii) Unexplained investment in stock Rs.1,34,47,756 iii) Unexplained investment in purchase of bullion Rs.26,61,20,004 iv) Disallowance of claim of deduction u/s 80 G Rs.3,10,641
5. Against the assessment order passed, the assessee preferred an appeal before the CIT (A).
6. The CIT (A) after considering the submissions of the assessee restricted the addition made under the head unaccounted cash to ITA No. 381 of 2012 M/s. Siddi Jewellers, Hyd. Rs.54,123/- out of addition made of Rs.13,47,980/-. So far as the addition made of Rs.26,61,20,000/- on account of investment in purchase of bullion is concerned, it was fully deleted by the CIT (A). Out of the addition made of Rs.1,34,40,756/- on account of unexplained investment in stock, the CIT (A) granted relief of Rs.36,65,788/- thereby sustaining the addition to the extent of Rs.97,74,968/-. Against the aforesaid order passed by the CIT (A), the department preferred an appeal before the Income-tax Appellate Tribunal, Hyderabad. The assessee also filed a cross Objection before the Tribunal against the order passed by the CIT (A) sustaining the addition.
7. In the meanwhile, the Assessing Officer issued a notice for imposition of penalty u/s 271(1)(c ) of the Act. The assessee submitted its explanation strongly refuting the allegation of either concealment of income or furnishing inaccurate particulars of income so as to invite penalty u/s 271(1)(c ) of the Act. It was submitted by the assessee that there was no deliberate concealment on its part which could attract levy of penalty. The Assessing Officer did not accept the explanation submitted by the assessee and proceeded to impose penalty u/s 271(1)(c) of the Act on the entire addition made by the Assessing Officer in the assessment order, the Assessing Officer even imposed penalty on those additions which were deleted by the first appellate authority. As a result, an amount of Rs.9,46,58,443/- was imposed as penalty u/s 271(1)(c ) vide order passed on 29-3-2010 by the Assessing Officer. The assessee being aggrieved of the order passed imposing penalty preferred an appeal before the CIT (A) .
8. During pendency of appeal before the CIT (A), the appeal of the department and the C.O of the assessee were heard and disposed of by the Income-tax Appellate Tribunal vide order dated 30-9-2010 in ITA No.35/Hyd/2009 and C.O. No.2/Hyd/09. The Income-tax Appellate ITA No. 381 of 2012 M/s. Siddi Jewellers, Hyd. Tribunal upheld the order of the CIT (A) by dismissing both appeal and Cross Objection of the assessee. Thus, in effect the addition of Rs.97,74,968/- sustained by the CIT (A) was confirmed by the Income- tax Appellate Tribunal.
9. In course of hearing of appeal against penalty order before the CIT (A), it was contended by the assessee that the assessee in course of assessment proceedings has put all the facts before the Assessing Officer with regard to purchase of jewellery and the same were confirmed by the third party M/s Kalpataru Jewellers after issuance of summons u/s 131 of the Act. It was contended that the Assessing Officer while completing the assessment has never said that the evidences were false but only observed that it is difficult to comprehend that the assessee had taken delivery at Mumbai, continuously on 4 days, when the entire consignment could have been taken in one day only. It was further contended that the confirmation of additions of Rs.97,74,968 by the Income-tax Appellate Tribunal would also not lead to the conclusion that the assessee had either concealed particulars of income or furnished inaccurate particulars of income as the Income-tax Appellate Tribunal has confirmed the addition only on considering human probabilities. The CIT (A) therefore deleted the imposition of penalty on the addition made of Rs.97,74,968 observing as under:-
7.8 As regards the addition of Rs. 1,34,40,756/- on account of unexplained investment in Stock made by the Assessing Officer, it is seen that the Honble ITAT have upheld the decision of the CIT(A), restricting the addition on this issue to Rs. 97,74,968/- only.
7.8.1 However, from the order of the Honble ITAT, it can be seen that they have taken note of the fact that the appellant, during the course of search, had categorically submitted that its accounts had not been updated for the last 15 days prior to the search. Therefore, they felt that it was unfair on the part of the Assessing Officer to reject the appellants claim entirely. They further noted that the appellant during the assessment proceedings had made a claim regarding purchases not having been entered in the books of accounts, and therefore, they opined that the appellants claim could not have been rejected by the Assessing Officer by holding it as an afterthought. ITA No. 381 of 2012 M/s. Siddi Jewellers, Hyd.
7.8.2 Even in respect of upholding of the addition to the extent of Rs. 97,74,968/ -, it can be seen from the order of the Honble ITAT that they too a specific note of the fact that the alleged purchases made by the appellant from M/s. Kalpataru Jewellers had continuous bill Nos. 74 to 77, and had been issued during the period 24.8.2005 to
27.8.2005. They considered it to be accommodative in nature on the ground of human probabilities, as they felt that it was difficult to agree that M/ s. Kalpataru Jewellers did not have any business with any other concern during the said period, and that too a single bill in whole of the day was issued only to the appellant firm. They opined that the said transaction was quite unusual and abnormal, and appeared to be collusive. They felt that the invoices appeared to be accommodative in nature for justifying the excess stock found during the course of search. In view of these observations, the Honble ITAT held that the purchases relating to 4 bills did not conform to the normal human behaviour.
7.8.3 However, it is seen that, at the same time, the Honble ITAT observed that the Assessing Officer had not brought any adverse material on record in respect of bill Nos. 66 to 70 issued by the same M/ s. Kalpataru Jewellers, as also the bills issued by M/ s. Adarsh Kumar Jewellers and Others. Even these bills had been considered by the appellant in the reconciliation submitted for explaining the excess stock. It is, therefore, clear that while the purchases claimed by the appellant as made from M/s. Kalpataru Jewellers, Mumbai vide bills Nos. 66 to 70 have been considered as genuine, the other 4 bills, being bill Nos. 74 to 77 in respect of purchases of Rs. 97,74,968/ -, have been considered as accommodative only on the ground of human probabilities and normal human behaviour, considering the totality of the facts and circumstances.
7.8.4 It can be seen that while the addition of Rs. 1,34,40,756/- on account of unexplained investment in stock was finally restricted to Rs. 97,74,968/- as discussed above, the Assessing Officer has considered the entire addition of Rs. 1,34,40,756/ - made in the assessment order as the basis for levy of penalty u/s. 271(I)(c). However, from the above discussion, it is amply clear that the reconciliation of stock, showing that in all 8 purchase bills, including 6 from M/ s. Kalpataru Jewellers, Mumbai, had not been entered into the stock register, has been partly accepted as correct. It is only the purchases to the extent of Rs. 97,74,968/-, vide bill No. 74 to 77 that have been considered as not conforming to normal human behaviour, resulting the upholding of the disallowance.
7.8.5 However, from records it emerges that the Assessing Officer during the course of assessment proceedings had issued summon u/s 131 to M/ s. Kalpataru Jewellers, requiring them to produce their books of accounts and bills etc. Such books of accounts, bills etc. were duly produced by them before him and those were even examined by the Assessing Officer. In addition to such evidence regarding the sales made by them to the appellant, it was also stated and shown in their Sales Tax Returns as well. In spite of such evidence, the Assessing Officer considered the entire excess stock of Rs. 1,34,40,756/- as unexplained.
7.8.6 However, from the above, it clearly emerges that the appellant had discharged its burden of giving explanation in respect of the excess stock, and had also supported its explanation by furnishing the 8 bills under consideration. The said bills were found duly recorded in the books of accounts of the counter parties. Accordingly, even if part of the additions on this issue was upheld by the Honble ITAT on the ITA No. 381 of 2012 M/s. Siddi Jewellers, Hyd. ground of human probabilities, the burden was on the Assessing Officer to separately investigate the issue in the course of penalty proceedings, and to prove that the explanation so offered by the appellant was false. However, it is not clear that during the course of assessment proceedings, nor in the course of subsequent penalty proceedings, it has been proved that the evidence furnished in respect of the excess stock was false or inaccurate.
7.8.7 From the above, it is clear that the levy of penalty even on this Issue IS based merely on the view taken regarding addition in the assessment order. However, it is an established judicial proposition, as evidenced by the decision of the Honble Supreme Court in the case of Arianthrarn Veerasingaiah & Co. Vs. CIT (123 ITR 457) , that the findings in the assessment proceedings cannot be regarded as conclusive for he purpose of penalty proceedings. It is also clear that the Explanation 1 to C sec. 271(1)(c) of the Act raises a presumption of concealment, which the assessee is bound to rebut. The Honble Chennai Bench of the ITAT in the case of ITO Vs. Dr. V. Murali Krishnan dtd. 19.3.2010 in ITA No. 697(Mds) of 2007 (2010-TMI-207842-ITAT, Chennai) have noted that the circumstances in which the presumption arises are as under: (i) When the assessee failed to offer an explanation or offers an explanation which is found by the Assessing Officer or the CIT (A) or CIT to be false, or (ii) Such person offers an explanation, but cannot substantiate the same and fails to prove that such explanation is bonafide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him; The Horible ITAT have observed that in the above circumstances only the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of sec. 271(1), be deemed to represent the income of which particulars have been concealed.
7.8.8 Similarly, it is seen that the Honble Ahmedabad ITAT, in the case of Gandhi Service Station Vs. ACIT (100 TTJ 1143), have opined that the quantum and the penalty proceedings are distinct and separate, and while deciding the issue of penalty, facts have to be reconsidered. They have opined that the factum of concealment needs to be proved. They observed that the explanation of the assessee in the said case had been rejected on assumptions, drawing adverse inference based on probabilities. However, in the light of the decision of the Honble Apex Court in the case of CIT Vs. Orissa Corporation (159 ITR 78) , it was required that the assessees explanation proved to be false on facts and not merely on assumptions.
7.8.9 Likewise, the Honble ITAT, Ahmedabad also, in the case of Jayendra G. Soni Vs. ITa (2011)(16 taxmann.com 87), have opined that where pursuant to the search proceedings, certain additions were made on estimate or preponderance of probabilities, it would not be a fit case for levy of penalty u/s. 271(1)(c).
7.8.10 When examined m the light of the judicial pronouncements cited above, it emerges that the addition to the extent of Rs.97,74,968/- was sustained by the CIT(A), as also the Honble ITAT, in the appellants case, on the only ground that the purchases in respect of the 4 bills ( 74 to 77 ) from M/ s. Kalpataru Jewellers, ITA No. 381 of 2012 M/s. Siddi Jewellers, Hyd. Mumbai, were against normal human behaviour and probabilities. It was felt the transaction under consideration were unusual and abnormal, and therefore, appeared to be accommodative and collusive in nature. However, it is seen that even during the course of penalty proceedings, the Assessing Officer has not brought any further evidence to prove the above conclusion, which is purely based on the peculiar facts and circumstances of the case. He has not been able to prove the inference that the said transactions were indeed of a collusive nature or that those were accommodative, and that no actual purchases had ever been made by way of the bill No. 74 to 77. In fact, nothing further has been done to establish the doubts raised in respect of the said purchased. In view of the judicial pronouncements referred to above, therefore, no penalty can be levied in respect of the addition of Rs. 1,35,40,756/- or even of Rs. 97,74,968/- finally sustained by the Honble ITAT, as all of such addition is only based on preponderance of probabilities and normal human behaviour.
10. Being aggrieved of the aforesaid order of the CIT (A), the department is in appeal before us.
11. The learned Departmental Representative submitted before us that the addition of Rs.97,74,968/- having been confirmed not only by the CIT (A) but also by the Income-tax Appellate Tribunal proves the fact that the assessee has concealed his income to that extent. Hence, penalty imposed u/s 271(1)(c ) should have been confirmed by the CIT (A) to the extent of addition of Rs.97,74,968. It was submitted that both the CIT (A) and Income-tax Appellate Tribunal having confirmed the fact that the assessee has made unexplained investment in stock, imposition of penalty u/s 271(1)(c ) is fully justified on the addition made on account of such unexplained investment in stock.
12. The learned authorised representative for the assessee, on the other hand, strongly supported the order of the CIT (A) deleting penalty. The learned authorised representative for the assessee reiterating the stand taken before the CIT (A) submitted that the Assessing Officer in the order passed imposing penalty has merely relied upon the observation made at the time of making addition in the assessment order which cannot be a ground for imposition of penalty as the assessment proceedings and penalty proceedings are two different and distinct ITA No. 381 of 2012 M/s. Siddi Jewellers, Hyd. proceedings. In support of his contention, the learned authorised representative for the assessee relied upon the decision of Honble Supreme Court in the case of CIT vs. Khoday Eswarsa & Sons (83 ITR 369) . He further submitted that while imposing penalty, the Assessing Officer must give a conclusive finding that there is either concealment of income or furnishing of inaccurate particulars of income. In support of such contention, the learned authorised representative for the assessee relied upon a decision of Income-tax Appellate Tribunal, Hyderabad Bench in case of Hoe Leather Garments Ltd. Vs. DCIT (2010) 5 Taxman Co. 6 and the Tribunal, Delhi Bench in case of Vijay Power Generators Ltd. Vs. ITO, 6 DTR 64 (Del). It was further submitted that penalty also cannot be imposed u/s 271(1) (c ) only because the addition has been upheld by the Tribunal. It was submitted that mere fact of confirmation of addition cannot per se lead to the imposition of penalty as the assessment and penalty proceedings are independent of each other. In the penalty proceedings, if the assessee submits a satisfactory explanation making out a case for non imposition of penalty then no penalty can be imposed only on the basis of finding made in the assessment proceedings. In support of such contention, the learned authorised representative for the assessee relied upon the case of ACIT vs. VIP Industries Ltd., (122 TTJ 289), Chempure vs. ITO (40 SOT 164) (Mum), 219 ITR 267, 102 ITR 787, Jain Garnets vs. Dy.CIT (18 TDR 358). The learned authorised representative for the assessee relying upon the decision of Honble Supreme Court in case of Hindustan Steel in 83 ITR 27 submitted that order imposing penalty is a result of a quasi criminal proceedings, unless it is proved that there is a conscious and deliberate act on the part of the assessee to conceal his income or furnish inaccurate particulars of its income, no penalty can be imposed. In this regard, the assessee also relied upon the decision of Honble Supreme Court in the following cases:- i) Anantharam Veerasinghiah & Co. Vs. CIT (123 ITR 457) ITA No. 381 of 2012 M/s. Siddi Jewellers, Hyd. ii) Dilip N. Shroff v. JCIT (291 ITR 519) iii) UOI vs. Rajastan Spg. & Wvg. Mills (2009) 180 Taxmann 609 iv) T. Ashoka Pai vs. CIT 292 ITR 11
13. We have heard contentions of the parties and perused the materials on record. We have also applied our mind to the decisions relied upon by both the parties. The issue before us is whether the confirmation of addition of Rs.97,74,968/- would be treated as concealed income of the assessee so as to attract levy of penalty u/s 271(1)(c ) of the Act. As can be seen from the facts and materials on record, during the assessment proceedings the Assessing Officer after verifying the stock reconciliation statement found that total eight purchase bills including six purchase bills from M/s Kalpataru Jewellers, Bombay were not entered in the stock register which was taken into account in the stock reconciliation statement. It was observed by the Assessing Officer that four of the bills of M/s Kalpataru Jewellers, Bombay i.e. bill Nos. 74 to 77 are continuous numbers which according to the Assessing Officer shows that only the assessee has purchased jewellery from Kalpataru Jewellers, Bombay from 24 th to 27 th August, 2005. These four bills amounted to purchase of stock of Rs.97,74,968/-. The Assessing Officer therefore came to a conclusion that these bills were accommodative in nature and accordingly he made the addition of entire amount of purchases made from Kalpataru Jewellers under eight purchase bills amounting to Rs.1,34,40,756/-.
14. The CIT (A) after considering the submissions of the assessee held that the transactions covering bill Nos. 74 to 77 were quite unusual and abnormal and appears to be collusive. He therefore held that the purchases in respect of the said four bills did not conform to the normal human behaviour and therefore what was apparent was not real. ITA No. 381 of 2012 M/s. Siddi Jewellers, Hyd. Accordingly, the CIT (A) restricted the addition to Rs.97,74,968/- under bill Nos. 74 to 77 only and deleted the rest of the additions. This finding of the CIT (A) was also confirmed by the Income-tax Appellate Tribunal. From the order passed by both the CIT (A) as well as Income-tax Appellate Tribunal, it can be seen that the assessees claim of purchase from Kalpataru Jewellers in bill Nos. 74 to 77 was disbelieved and held to be accommodative in nature only because it was found to be opposed to normal human behaviour. However, as could be seen, neither the CIT (A) nor the Income-tax Appellate Tribunal completely disbelieved the fact that the assessee had in fact purchased jewellery from Kalpataru Jewellers and in fact the assessee s purchases from Kalpataru Jewellers in respect of Bill Nos. 66 to 70 were accepted by both the CIT (A) and Income-tax Appellate Tribunal. Therefore, the addition sustained by the CIT (A) and the Income-tax Appellate Tribunal were on the basis of peculiar facts and circumstances involved considering the human probabilities. However, such confirmation of addition made in the quantum assessment proceedings would ipso facto not lead to the conclusion that the assessee has either concealed particulars of income or furnished inaccurate particulars of his income. Assessment proceedings and penalty proceedings are distinct and independent to each other. The reasoning on the basis of which additions are made in the assessment proceedings would not be enough valid for imposing penalty u/s 271(1)(c ) of the Act. In case of imposition of penalty, the Assessing Officer has to give a conclusive finding of fact that the assessee has consciously made an attempt to conceal his income or furnish inaccurate particulars of his income. Unless this fact is established on record by bringing sufficient evidence, no penalty can be imposed u/s 271(1) (c ) of the Act. As is obvious from the order passed u/s 271(1)(c ) of the Act, the Assessing Officer has only relied upon the reasoning of the Assessing Officer in the assessment order while making additions. ITA No. 381 of 2012 M/s. Siddi Jewellers, Hyd.
15. The Assessing Officer has not considered the issue independently in the proceedings u/s 271(1)(c ). In fact, the finding recorded by the Assessing Officer while imposing penalty u/s 271(1)(c ) of the Act would reveal that there is no conclusive finding at all by the Assessing Officer that the assessee has either concealed his income or has furnished inaccurate particulars of his income. As can be gathered from the discussions made by the CIT (A) in his order while deleting the penalty, the assessee did prove the fact that he had entered into the transactions with M/s Kalpataru Jewellers and in course of assessment proceedings, the Assessing Officer also had examined the books of accounts, bills and vouchers of M/s Kalpataru Jewellers. Wherein the transaction under those right bills were found to be duly recorded It is another fact that the purchases made under Bill Nos. 74 to 77 were not accepted on the ground of human probabilities but that itself would not lead to the conclusion that the assessee has concealed his income when it is not disputed that when assessees business transaction with M/s Kalpataru Jewellers is not disputed and it is also fact that all the transactions in the said bills were recorded in the books of accounts of M/s Kalpataru Jewellers. As has been held in the decisions relied upon by the learned authorised representative for the assessee unless there is a conclusive finding by the Assessing Officer that there is conscious attempt on the part of the assessee to conceal his income or furnish inaccurate particulars of income, penalty cannot be imposed merely on the basis of the additions made in the assessment proceeding. As has been held by the Honble Supreme Court in case of Hindustan Steels (83 ITR 27), an order imposing penalty for failure to carry out statutory obligation is the result of quasi criminal proceedings and penalty will not ordinarily be imposed unless the party obliged under the Act has either acted deliberately in defiance of law or was guilty of conduct contumacious or acted in conscious disregard of its obligation. Considering the facts of the present case and in the light of ratio laid down by the Honble Supreme Court and ITA No. 381 of 2012 M/s. Siddi Jewellers, Hyd. other decisions of the Income-tax Appellate Tribunal, we are of the view that the Assessing Officer having not proved the fact of either concealment of income or furnishing inaccurate particulars of income, penalty u/s 271(1)(c) cannot be imposed. The order passed by the CIT (A) deleting the penalty, being founded on sound reasoning and as per the ratio laid down in the judicial precedents, needs no interference and accordingly confirmed.
16. In the result, the appeal filed by the department stands dismissed. Order pronounced in the court on 17 -6-2013. Sd/- ( CHANDRA POOJARI) ACCOUNTANT MEMBER Sd/- (SAKTIJIT DEY) JUDICIAL MEMBER Hyderabad, Dated the 17 th June, 2013 Copy to:-
1) ACIT, Cir-6(1), IT Towers, Masab Tank, Hyderabad.
2) M/s. Siddi Jewellers, Dr. No.6-3-862, Lal Bunglow, Ameerpet, Hyderabad. 3)CIT (A)-IV, Hyderabad.. 4.The CIT Concerned, Hyderabad 5.The Departmental Representative, I.T.A.T., Hyderabad. Jmr* It, " r:r ITA No. 381 of 2012 M/s. Siddi Jewellers, Hyd.
