Chandrakant Kashinath Kele,, Dhule vs Department Of Income Tax

Asstt. Commissioner of Income Tax, Circle-3(1), Dhule. .... Appellant

Vs.

Shri Chandrakant Kashinath Kele, Shree Dinesh Complex, Agra Road, Deopur, Dhule - 424 002. PAN : ABCPK8875G .... Respondent

Department by : Shri B. C. Malakar Assessee by : Shri Sunil Pathak Date of hearing : 21-01-2015 Date of pronouncement : 13-03-2015

ORDER

PER G. S. PANNU, AM

The captioned appeal by the Revenue is directed against an order of

the Commissioner of Income Tax (Appeals)-I, Nashik dated 24.01.2013 which,

in turn, has arisen from an order dated 30.09.2011 passed by the Assessing

Officer u/s 158BFA(2) of the Income-tax Act, 1961 (in short "the Act")

pertaining to the block period 1990-91 to 2000-01 upto 02.02.2000 &

03.02.2000 to 31.03.2000.

2. In this appeal, Revenue is aggrieved by the action of the CIT(A) in

deleting the penalty levied by the Assessing Officer u/s 158BFA(2) of the Act

with respect to the additions of (i) Rs.11,71,687/- on account of unexplained

investment in house property; and, (ii) Rs.1,96,335/- on account of

unexplained marriage expenditure.

3. In brief, the relevant facts are that the respondent-assessee is an

individual engaged in the business of construction, purchase and sale of plots 2 ITA No.804/PN/2013

and is a partner in partnership firms. A search action u/s 132(1) of the Act was

conducted in the case of the assessee on 02.02.2000, as a consequence of

which the Assessing Officer finalized a block assessment u/s 158BC r.w.s.

143(3) of the Act dated 27.02.2002 for the block period comprising of

assessment years 1990-91 to 2000-01 (upto 02.02.2000 & 03.02.2000 to

31.03.2000) whereby the total undisclosed income was assessed at

Rs.1,62,93,506/-. The aforesaid assessment was subject-matter of appeal

before the CIT(A) as well as before the Tribunal. As a result of the order of the

Tribunal dated 28.02.2011 certain additions were sustained. The Assessing

Officer thereafter has passed an order u/s 158BFA(2) of the Act dated

30.09.2011 levying penalties with respect to the additions of Rs.11,71,687/-

and Rs.1,96,335/- sustained by the Tribunal on account of unexplained

investment in house property and unexplained marriage expenditure

respectively. The Assessing Officer imposed a penalty of Rs.8,20,814/- which

was carried in appeal before the CIT(A). The CIT(A) vide his impugned order

has deleted the penalty levied by the Assessing Officer with respect to the

aforesaid two additions. The CIT(A) has deleted the penalty primarily on the

ground that both the additions were made on the basis of estimation and thus

penalty u/s 158BFA(2) of the Act was not maintainable. Against the aforesaid

order of the CIT(A), Revenue is in appeal before us.

4. Before us, the Ld. Departmental Representative appearing for the

Revenue contended that the CIT(A) erred in deleting the penalty because the

additions in this case were based on material seized during the course of

search action u/s 132(1) of the Act. According to the Ld. Departmental

Representative, the Assessing Officer finalized the assessment u/s 158BC

r.w.s. 143(3) of the Act based on the seized material found during the course

of search as also the statements of the assessee and therefore it could not be

said that the additions have been made entirely on estimate basis. 3 ITA No.804/PN/2013

5. On the other hand, the Ld. Representative for the respondent-assessee

vehemently pointed out that the CIT(A) was justified in deleting the penalty for

the reasons stated in the impugned order. As per the Ld. Representative, the

addition with respect to the unexplained investment in house property was

primarily based on estimation and that there was no clinching evidence found

in the course of search which showed any unexplained investment. Even with

regard to the unexplained expenditure incurred on the marriage of assessee's

daughters, it was pointed out that the addition was made on the basis of

estimate only. The Ld. Representative submitted that levy of penalty u/s

158BFA(2) of the Act is directory and not mandatory as held by the Hon'ble

Bombay High Court in the case of CIT vs. Dodsal Ltd., (2008) 218 CTR 430

(Bom). In the present case, the CIT(A) has appropriately found it fit to delete

the penalty in the facts and circumstances of the present case. The Ld.

Representative also relied upon the judgement of the Hon'ble Rajasthan High

Court in the case of CIT vs. Dr. Giriraj Agarwal Giri, (2012) 346 ITR 152 (Raj)

for the proposition that penalty u/s 158BFA(2) of the Act cannot be imposed on

estimated additions.

6. We have carefully considered the rival submissions. The CIT(A) in this

case has deleted the penalty imposed by the Assessing Officer u/s 158BFA(2)

of the Act on the ground that the undisclosed income assessed by the

Assessing Officer on account of unexplained investment in house property of

Rs.11,71,687/- and unexplained marriage expenditure of Rs.1,96,335/- was

determined on the basis of estimation. In this case, we find the Hon'ble

Rajasthan High Court in the case of Dr. Giriraj Agarwal Giri (supra) has upheld

the proposition that penalty u/s 158BFA(2) of the Act is not imposable on

additions which were based on estimation only. Apart from that, it is also a

well-settled proposition that imposition of penalty would depend on the facts

and circumstances of each case. The Hon'ble Bombay High Court in the case

of Dodsal Ltd. (supra) held in the context of section 158BFA(2) of the Act that 4 ITA No.804/PN/2013

the section provides a discretion to the Assessing Officer in levy of penalty. In

the background of the aforesaid legal position what is required to be examined

is as to whether the CIT(A) has recorded appropriate reasons for exercise of

discretion of deleting the penalty, having regard to the facts and circumstances

of the case.

7. In the above context, we have perused the orders of the authorities

below in the penalty proceedings as well as in the quantum assessment

proceedings. With respect to the addition on account of unexplained

investment in house property of Rs.11,71,687/-, the relevant facts are that in

the books of account assessee had shown investment of Rs.18,29,313/- prior

to the search action. The Assessing Officer estimated the investment in the

house property known as "Chandravel Bungalow" at Rs.40 lakhs. The

assessee relied upon the report of an Approved Valuer who valued the

investment in property at Rs.17,01,401/- and accordingly assessee had

submitted that the investment of Rs.18,29,313/- shown in the account books

was proper. The CIT(A) had noted that the Departmental Valuation Officer

(DVO) estimated the investment in property at Rs.19,64,000/-. It is also noted

that in the quantum proceedings, CIT(A) estimated the investment in property

at Rs.30,00,000/- and he sustained the addition of Rs.11,71,687/- being the

difference between Rs.30,00,000/- and Rs.18,29,313/- declared by the

assessee in the account books. The Tribunal vide its order dated 28.02.2011

(supra) has confirmed the aforesaid addition. It is also noticed that the CIT(A)

while upholding the addition of Rs.11,71,687/- noted that the loose papers

found in the course of search indicated an expenditure on construction of

Rs.9.99 lakhs.

8. The plea of the assessee on this aspect has been that no evidence was

found in the course of search to demonstrate that assessee had incurred any

unaccounted expenditure on construction of the house property in question. 5 ITA No.804/PN/2013

In the course of hearing before us also, the Ld. Representative explained that

the loose papers found of Rs.9.99 lakhs pertained to the construction being

carried out by the assessee at the relevant point of time at three different

locations namely, (i) the Bungalow in question; (ii) Dinesh Complex; and, (iii)

Factory of Vishalsagar Home & Agro Products Ltd.. Since no proper books of

account were maintained by the assessee, the loose papers found in the

course of search could not be reconciled and the addition has been sustained.

However, it was pointed out that the loose papers did not clinchingly suggest

that the expenditure was relatable to the construction in the impugned property

and that the valuation made by the DVO at Rs.19.64 lakhs also justifies the

investment shown in the account books, which is almost near about the value

of investment estimated by the DVO. The Ld. Representative pointed out that

if the expenditure referred to in the loose papers of Rs.9.99 lakhs pertained to

the construction of the impugned property then the report of the DVO would

have been much higher than Rs.19.64 lakhs. It was pointed out that assessee

could not co-relate the loose papers found in the course of search vis-à-vis the

account books maintained and therefore the addition was sustained.

9. In our considered opinion, the fact that the addition has been sustained

in the quantum proceedings cannot ipso facto be a basis for sustaining penalty

u/s 158BFA(2) of the Act, whose application is not mandatory as held by the

Hon'ble Bombay High Court in the case of Dodsal Ltd. (supra). The manner in

which the addition has been made in the course of the quantum assessment

proceedings clearly shows that the unexplained investment in house property

of Rs.11,71,687/- has been arrived at on an estimate basis. In so far as the

reference made by the Revenue to the loose papers found of Rs.9.99 lakhs is

concerned, it is quite clear that the addition has not been made with reference

to the said loose papers found in the course of search. Ostensibly, Revenue

has justified the addition in the quantum proceedings on the basis of

estimation and so far as the estimation is concerned, even the DVO has 6 ITA No.804/PN/2013

estimated the investment in the property near about the same amount as

declared by the assessee in the account books. The CIT(A) in the quantum

proceedings estimated the value of investment at Rs.30 lakhs as against

Rs.40 lakhs made by the Assessing Officer. Under these circumstances, in

our view, the CIT(A) has correctly appreciated the facts and circumstances of

the case and held that the impugned addition on account of unexplained

investment in house property of Rs.11,71,687/- was on estimation basis and

not on the basis of any concrete evidence found in the course of search

towards incurrence of unaccounted expenditure qua the impugned property.

Therefore, having regard to the facts and circumstances of the present case,

we affirm the action of the CIT(A) in deleting the penalty with respect to the

addition of Rs.11,71,687/- on account of unexplained investment in house

property.

10. With respect to the addition on account of unexplained marriage

expenditure of Rs.1,96,335/-, in this regard the relevant facts are as follows.

The quantum assessment proceedings revealed that in the course of search

certain loose papers were found which indicated marriage expenses and on

the basis of which the Assessing Officer estimated the expenditure at

Rs.12,00,000/-. On the other hand, assessee had shown an expenditure on

account of marriage at Rs.5,26,712/- and therefore the Assessing Officer

made an addition of Rs.6,73,228/-. In the appellate proceedings, the

estimation of total marriage expenditure was scaled down to Rs.7,34,047/- as

against Rs.12,00,000/- made by the Assessing Officer and as a consequence

addition on account of unexplained marriage expenditure came to

Rs.1,96,335/-. On the aforesaid resultant addition, Assessing Officer has

imposed penalty u/s 158BFA(2) of the Act. The expenditure has been

estimated for marriage of two daughters of the assessee. The CIT(A) has

reproduced the submissions of the assessee in para 6.2 of the impugned 7 ITA No.804/PN/2013

order on the basis of which he has inferred that the addition of Rs.1,96,335/-

has been made on estimate basis only.

11. We have perused the case setup by the assessee before the CIT(A)

and find that the CIT(A) has thoroughly examined it and his inference that

addition is based on estimate basis is a reasoned one. Before us, no cogent

material or reasoning has been advanced by the Ld. Departmental

Representative to say that any document or evidence was found in the course

of search which would indicate clinchingly incurrence of unaccounted

expenditure on marriage of assessee's daughters. Merely because,

assessee's explanation with respect to the loose papers was rejected in the

quantum proceedings and the marriage expenses estimated cannot be a

ground to levy penalty u/s 158BFA(2) of the Act in the context of the facts and

circumstances of the present case. Therefore, order of the CIT(A) on this

aspect is also hereby affirmed.

12. Thus, we find no reasons to interfere with the decision of the CIT(A)

which is hereby affirmed and accordingly, Revenue fails in its appeal.

13. In the result, the appeal of the Revenue is dismissed.

Order pronounced on 13 th March, 2015.

Sd/- Sd/- (SUSHMA CHOWLA) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER

Pune, Dated: 13 th March, 2015. Sujeet 8 ITA No.804/PN/2013

Copy of the order is forwarded to: - 1) The Assessee; 2) The Department; 3) The CIT(A)-I, Nashik; 4) The CIT-I, Nashik; 5) The DR "B" Bench, I.T.A.T., Pune; 6) Guard File.

By Order //True Copy//

Assistant Registrar I.T.A.T., Pune