Commissioner of Income Tax-III vs Babul Harivadan Parikh

M.R. Shah, J.—The present tax appeal has been preferred by the Revenue challenging the impugned judgment and order passed by the income tax Appellate Tribunal [for short "ITAT"] dated 25-06-2012 in Tax Appeal No. 72/Ahd/2010 with respect to the assessment year 2001-02 by which the ITAT has dismissed the said appeal preferred by the Revenue confirming the order passed by the CIT(A) by which the CIT(A) set aside the order of penalty imposed u/s 271(1)(c) of the income tax Act, 1961 [for short "IT Act"]. Facts leading to the present appeal in nut-shell are as under:

1.1 That a search action u/s 132 of the I.T. Act was carried out covering residential and business premises of one Kabhai Chauhan Group of Companies on 04-03-2005 inclusive of one M/s. Om Shivam Corporation. During the search, two cheques worth of Rs. 16,43,000/- and 14,50,000/- were seized from the premises of M/s. Om Shivam Corporation which were in the name of assessee. A notice u/s 153C of the I.T. Act was issued upon the assessee however, the assessee did not file any return of income. Thereafter, the assessee stated that the original return filed be treated as return of the income filed in response to the notice u/s 153C of the I.T. Act. The original return was filed on 31-07-2001 declaring income of Rs. 1,51,615. That a notice u/s 142(1) and a detailed questionnaire were issued to the assessee on 01-11-2006. Thereafter the assessee filed his revised return declaring total income of Rs. 79,70,070/- on 06-12-2006. Assessment proceedings u/s 153C read with section 143(3) of the I.T. Act was completed on 19-12-2006 at total income of Rs. 1,10,63,700/-.

1.2 It appears that the assessee was one of the confirming parties for sale of the land to one M/s. Om Shivam Corporation. As per the agreement dated 29-06-2000 seized from the premises of M/s. Om Shivam Corporation, the assessee had received a sum of Rs. 1,73,30,000/- [Rs. 73.80 lacs for relinquishment of his right on the land and an amount of Rs. 43.56 lacs for road/pathway through post dated cheques]. During the assessment proceedings, the assessee was required to furnish his explanation in that regard. The assessee vide his letter dated 06-12-2006 admitted to have received Rs. 86,37,000/- on account of land which he had disclosed in his revised return of income but stated that Rs. 29 lacs has not been received from M/s. Om Shivam Corporation. As stated above, the two cheques worth Rs. 16,43,000/- and Rs. 14,50,000/- were seized from the premises of M/s. Om Shivam Corporation during the course of search action which were in the name of the assessee. The AO was of the opinion that as the assessee could not furnish any satisfactory explanation with respect to the aforesaid cheques and therefore, it proved that the said amount was settled in cash between the assessee and the purchaser and the aforesaid two cheques were returned. Therefore, the AO passed an order to add Rs. 30.93 lacs in the total income of the assessee and also passed an order to initiate penalty proceedings u/s 271(1)(c) of the Act for concealment of particulars of income/filing inaccurate particulars of income.

1.3 A notice was issued u/s 271(1)(c) of the I.T. Act on 29-12-2006. That thereafter the assessee preferred appeal before the CIT(A) against the order of assessment and CIT(A) dismissed the said appeal by order dated 29-08-2007. That thereafter by order dated 17-03-2008, the AO - Assistant Commissioner of income tax passed an order of penalty of Rs. 29,25,280/- by observing that the assessee has tried to evade tax by furnishing inaccurate particulars of income of Rs. 1,09,48,085/- and therefore, the assessee is liable for penalty u/s 271(1)(c) for concealment of particulars of the income/furnishing inaccurate particulars of income. The Assistant Commissioner also passed an order that the aforesaid amount be levied on the consolidated income of Rs. 1,09,48,085/-.

Feeling aggrieved and dissatisfied with the penalty order dated 17-03-2009 passed by the Assistant Commissioner of IT, the assessee preferred appeal before the CIT(A) and the CIT(A) by order dated 27-11-2009 allowed the said appeal quashing and setting aside the order of penalty passed u/s 271(1)(c) of the I.T. Act.

Feeling aggrieved and dissatisfied with the order dated 27-11-2009 passed by the CIT(A) in quashing and setting aside the penalty order passed u/s 271(1)(c), Revenue preferred appeal before the ITAT. During the pendency of the appeal before the ITAT, even the quantum appeal preferred by the assessee before the ITAT against the order passed by the CIT(A) confirming the assessment order and in directing to add Rs. 30.93 lacs in the income of the assessee, came to be allowed by the ITAT by judgment and order dated 01-07-2011 and set aside the orders of the authorities below and directed to delete the condition of Rs. 30.93 lacs.

1.4 In view of the fact that the orders of authorities below making addition of Rs. 30.93 lacs [with respect to two cheques recovered from the premises of M/s. Om Shivam Corporation] came to be set aside by the ITAT and directed to delete the addition of Rs. 30.93 lacs which was the basis of the order of penalty u/s 271(1)(c) of the I.T. Act, the ITAT by impugned order has dismissed the appeal preferred by the Revenue and has confirmed the order passed by the CIT(A) quashing and setting aside the penalty order passed u/s 271(1)(c) of the I.T. Act.

Feeling aggrieved and dissatisfied with the order passed by the ITAT as well as the CIT(A) in quashing and setting aside the order of penalty, the Revenue has preferred the present Tax Appeal raising the following question of law.

Whether the ITAT was right in law in deleting penalty of Rs. 29,25,280/- levied u/s. 271(1)(c) of the I.T. Act by relying on ITAT''s decision in quantum appeal, holding that since quantum addition was deleted, penalty would not survive, ignoring the fact that penalty levied was not merely on quantum addition but on the entire income assessed as reduced by income declared in original return and also that deletion of quantum addition was perverse finding on facts?

Shri Ketan Parikh, learned counsel appearing for the Revenue has vehemently submitted that the ITAT has materially erred in deleting the penalty of Rs. 29,25,280/- levied u/s 271(1)(c) of the I.T. Act relying upon ITAT''s decision in quantum appeal, holding that quantum addition was deleted, penalty would not survive. It is submitted that ITAT has not properly appreciated the fact that as such the penalty levied was not merely on quantum addition but it was on the entire income assessed as reduced by income declared in original return. It is submitted that as such the Revenue though aggrieved by the decision of the ITAT in quantum appeal, did not prefer appeal before this Court on account of low tax effect. It is submitted that therefore, the Tribunal has materially erred in deleting the penalty solely relying upon the decision of the ITAT in quantum appeal deleting the addition of Rs. 30.93 lacs.

Heard Shri Parikh, learned counsel appearing for the Revenue and perused the impugned order passed by the AO imposing the penalty u/s 271(1)(c) of the I.T. Act; the order passed by the CIT(A) quashing and setting aside the order of penalty as well as the impugned order passed by the ITAT as well as the order passed by the ITAT in quantum appeal directing to delete addition of Rs. 30.93 lacs.

3.1 At the outset it is required to be noted that as such the penalty proceedings were initiated pursuant to the order passed by the AO making the addition of Rs. 30.93 lacs [with respect to the two cheques of Rs. 16,43,000/- and Rs. 14,50,000/-] recovered from the premises of M/s. Om Shivam Corporation recovered during the search carried out. However, subsequently, in quantum appeal before the ITAT, the aforesaid addition has been ordered to be deleted and the appeal preferred by the assessee has been allowed by the ITAT. Thus, in the quantum appeal, the assessee has succeeded and the addition of Rs. 30.93 lacs has been deleted. However, it is the case on behalf of the Revenue that though the revenue was aggrieved by the decision of the ITAT in quantum appeal because of the low tax effect, the Revenue did not challenge before the High Court. However, the aforesaid stand has not been substantiated by the Revenue. Apart from that even we have considered the reasoning given by the ITAT in order passed in quantum appeal and while deleting the addition of Rs. 30.93 lacs and considering the reasons given by the Tribunal in para. 5, we are of the opinion that as such the Tribunal had not committed any error in deleting the addition of Rs. 30.93 lacs. Para. 5 is reproduced hereunder:

We have considered the rival submissions and do not find any justification to sustain the addition. The assessee filed copy of the agreement in question which was seized from M/s. Om Shivam Corporation during the course of search. According to the said agreement the assessee had such development rights in the property belonging to the land owners and such development rights were ultimately purchased by M/s. Om Shivam Corporation subject to payment. The amount received by the assessee through this agreement and shown in the revised return is not in dispute surrendering his undisclosed income. The dispute is left with the amount of Rs. 30,93,000/- which relates to the recovery of two postdated cheques during the course of search which were in the name of the assessee. The learned Counsel for the assessee demonstrated from the agreement in question that both the two post-dated cheques referred to in the assessment order pertained to dated 31-12-2000 and 31-12-2001. The same were found in the possession of M/s. Om Shivam Corporation at the time of search carried out on 04-03-2005. Thus, till the date of search both the post-dated cheques were not encashed by the assessee. Accordingly to law dealing with negotiable instruments, the validity of both the cheques would have expired on the date of search, therefore, the same could not have been encashed by the assessee even in future. Since the dates of the cheques shows these were not valid on the date of the search in 2005, therefore, it would not be considered as cheques under the law which could be enforced for payments. The AO merely presumed on the basis of recovery of these post-dated cheques that the assessee received cash in lieu of return of these post-dated cheques to M/s. Om Shivam Corporation. However, the AO has not brought any evidence on record to support his presumption. Presumption cannot take place of legal proof. Further the balance amount was to be paid subject to realization of compensation from Municipal Corporation. The agreement also states that cheques in question were given for security deposit. Unless the terms of the agreement have been complied with and acted upon by the parties, the same cheques could not have been encashed. Nothing is brought on record if the terms of the agreement were subsequently complied with or acted upon by the parties. The AO has not brought any evidence on record that the assessee received cash for return of the cheques. The AO has also not recorded any statement of concerned person of M/s. Om Shivam Corporation that the said firm has paid the amount in question to the assessee. No statement either of the assessee or of M/s. Om Shivam Corporation in this regard has been brought on record. Considering the facts and circumstances of the case noted above, we are of the view that addition is made against the assessee merely on presumption or suspicion expressed by the AO regarding some facts which are not in existence. The law is settled that suspicion howsoever may be grave but it cannot take the place of legal proof. For making addition u/s. 153C of the I.T. Act, the AO shall have to prove that the seized documents or the undisclosed income belongs to the assessee. In the absence of any cogent or reliable evidence available on record regarding alleged receipt of cash by the assessee, the authorities below were unjustified in making and confirming the addition. In the absence of any evidence incriminating in nature against the assessee, we do not justify the addition. We accordingly, set aside the orders of the authorities below and delete the addition of Rs. 30,93,000/-. In the result, Grounds No. 2 and 3 of the appeal of the assessee are allowed.

Considering the aforesaid facts and circumstances when the ITAT has confirmed the order passed by the CIT(A) in quashing and setting aside the penalty order passed u/s 271(1)(c) of the I.T. Act, no error and/or illegality has been committed by the ITAT which calls for interference of this Court.

For the reasons stated hereinabove and as no question of law much less substantial question of law arise in the present appeal, the present appeal deserves to be dismissed and is, accordingly, dismissed.