M/S. Akash Enterprises,, Jalgaon vs Department Of Income Tax

M/s. Akash Enterprises, 88/1, Chincholi Village, Ajantha Road, Jalgaon, Dist. Jalgaon - 425 001 PAN No. AAKFA6905A .. Respondent

Appellant by : Shri Nikhil Pathak Department by : Shri B.C. Malakar Date of Hearing : 10-06-2015 Date of Pronouncement : 12-06-2015

ORDER

PER R.K. PANDA, AM :

This appeal filed by the Revenue is directed against

the order dated 29-07-2013 of the CIT(A), Aurangabad

relating to Assessment Year 2003-04.

2. The grounds raised by the Revenue are as under :

"1. On the facts and in the circumstances of the case, the CIT(A), Aurangabad has erred in deleting the penalty levied u/s 271(1)(c) of the Act on the ground that the receipts are advances and hence not taxable as income of the assessee in spite of the fact that these cash receipts have not been recorded in the books of accounts by assessee and therefore these receipts are unaccounted income of the assessee. When the advances were not accounted in the books, it becomes the income of the assessee over and above the disclosed income.

2. On the facts and in the circumstances of the case, the CIT(A), Aurangabad has erred in holding as advances that the advances are not taxable as income in the current year in spite of the fact that the CIT(A), Nagpur has already confirmed the addition for the A.Y. 2003-04. Thus the decision of CIT(A), Aurangabad is against the decision of CIT(A), Nagpur. Since 2

the receipts were received in the F.Y. 2002-03 it represents unaccounted income for the A.Y. 2003-04 only.

3. On the facts and in the circumstances of the case, the appellant therefore, prays that the order of the CIT(A), Aurangabad be vacated and that of the Assessing Officer be restored.

4. The Appellant craves leave to add/amend/alter any grounds of appeal at the time hearing."

3. Facts of the case, in brief, are that the assessee is a

partnership firm engaged in the business of building

construction. An action u/s.132 of the I.T. Act was

conducted on 23-09-2004 in the group of cases of M/s.

Ramdev Oil Industries Pvt. Ltd. of Jalgaon belonging to the

Jagwani group. A search action u/s.132 of the I.T. Act was

also carried out at the business and residence premises

located at Jalgaon and Mumbai of partners Shri Gurumukh

M. Jagwani and Jethanand M.Jagwani. Simultaneously,

the factory premises and residence of other business

concerns of brothers and the close associates were covered

either in search u/s.132 or survey u/s.133A. In response

to notice u/s.153A the assessee filed the return of income

for the impugned assessment year on 15-02-2006 declaring

total income of NIL.

4. During the course of assessment proceedings the AO

noted that during the search documentary evidence of cash

receipt of Rs.25 lakhs was found and seized. The statement

of Shri Gurumukh Jagwani, partner of the assessee firm

was recorded u/s.132(4) of I.T. Act, 1961 on 24-09-2004.

In the said statement he had stated that these are the cash

receipts related to booking advance for shops of Nath Plaza 3

received from various customers and has agreed to offer

Rs.25,00,000/- as income.

5. However, the assessee did not offer these receipts in

the income-tax return filed in response to notice u/s.153A.

The AO, therefore, confronted the same to the assessee.

The AO further noted that at the time of revocation of order

u/s.132(3) of factory premises of M/s. Ramdev Oil

Industries Ltd. vide Question No.17 of his statement

recorded on 19-11-2004, he was asked to clarify the

incomplete answer in respect of unaccounted cash receipts

of Rs.59 lakhs belonging to sale of shops in Nath Plaza

complex. In answer to this question Shri Gurumukh

Jagwani had stated that an amount of Rs.25 lakhs on this

account had already been offered and further stated that

the receipts for booking of the shops were duly reflected in

the regular books of accounts. However, he failed to show

any entry in the regular books of account to support his

claim. Since the assessee failed to show and confirm that

the receipt of Rs.25 lakhs is duly reflected in the regular

books of accounts, therefore, according to the AO the

assessee should have offered/disclosed the undisclosed

income of Rs.25 lakhs. Since the entire amount of Rs.25

lakhs was received on 21-05-2002, therefore, the AO held

that this unrecorded, unaccounted cash receipts amounting

to Rs.25 lakhs are taxable in the F.Y. 2002-03 relevant to

A.Y. 2003-04. He accordingly made an addition of Rs.25

lakhs to the total income of the assessee on account of

unaccounted cash receipts.

4

6. The assessee preferred an appeal but without

success. The AO thereafter initiated penalty proceedings

u/s.271(1)(c) of the I.T. Act. Rejecting the various

explanations given by the assessee and observing that

assessee has not reflected Rs.25 lakhs as income for A.Y.

2003-04 even though he had earned the same and admitted

in the statement recorded u/s.132(4) of the Act, the AO

relying on various decisions levied penalty of Rs.9,18,750/-

u/s. 271(1)(c) of the I.T. Act. While doing so, he further

observed that but for the search action an amount of Rs.25

lakhs would have remained untaxed. The act of the

assessee is deliberate with a view to evade tax and hence

this is a fit case for imposition of penalty. He accordingly

levied penalty of Rs.9,18,750/- u/s. 271(1)(c) of the I.T. Act.

being 100% of the tax sought to be evaded.

7. Before CIT(A) the assessee argued that AO has

initiated penalty proceedings for furnishing the inaccurate

particulars and has not charged the assessee for concealing

his income. The assessee argued that assessee has not

furnished any inaccurate particulars of income. The show

cause notice issued by the AO does not give any particulars

of alleged concealed income nor its assessment order

anywhere says that the assessee has concealed income of

Rs.25 lakhs. It was submitted that for attracting penalty

for concealing income there has to be guilty mind and

deliberateness and the AO has to prove the same. However,

in the instant case, the AO has not recorded such finding to

prove concealment or how the cash receipts were concealed 5

income of the assessee. It was further submitted that in

view of clause 2 of Explanation 5 to section 271(1)(c) the

assessee is entitled to immunity from the penalty for

concealment.

8. The assessee further argued that the amount of Rs.25

lakhs represents booking advance for shops at Nath Plaza

received from various customers which have not been

recorded in the books of account. It was argued that such

cash advances received for proposed sale forms part of the

sale consideration and cannot be regarded as income of the

assessee. It was submitted that advance received in respect

of proposed sale of shops cannot be taxed in the year of

receipt itself but the income is to be taxed in the year in

which the shops are sold. Relying on various decisions it

was argued that the amount of Rs.25 lakhs being advance

for purchase of shops is part of the sale consideration and

cannot be regarded as income of the assessee. It has to be

taxed only in the year when the shops are sold and the

profit is earned.

9. The Ld.CIT(A) cancelled the penalty on the basis of

the alternate arguments advanced by the assessee that the

amount of Rs.25 lakhs represents booking advance for

shops at Nath Plaza received from various customers which

are not recorded in the books of account and the profit will

accrue to the assessee on such advances only in the year of

sale. He further noted that the AO has not brought any

evidence on record that the said shops in respect of which

the advance has been received have been sold in the year 6

under appeal, i.e. in the year of receipt of advance.

Therefore, the profit on sale of the said shops is taxable in

the subsequent years and not in the year under appeal.

Relying on various decisions he observed that penalty

u/s.271(1)(c) of the I.T. Act is not leviable where the income

relates to different year. Since the income is not taxable in

the impugned assessment year, he held that no penalty

u/s.271(1)(c) of the I.T. Act can be levied for the year under

appeal. He accordingly deleted the penalty levied by the

AO.

10. Aggrieved with such order of the CIT(A) the Revenue

is in appeal before us.

11. The Ld. Departmental Representative strongly

objected to the order of the CIT(A). He submitted that

during the search documentary evidence of cash receipts

have been found. These cash receipts have not been

recorded in the books of account of the assessee and

therefore these receipts are undisclosed. This fact is

undisputed as these receipts are not recorded in the books

of accounts and cannot form part of the Profit and Loss A/c

disclosed by the assessee firm. It is not acceptable that

advances are not taxable and only income is taxable.

However, this applies only to the advances accounted for in

the books of accounts. When the advances are not

accounted in the books of account, it becomes the income

of the assessee over and above the disclosed income. The

receipts are to be taxed in the year of receipt only. Further,

the CIT(A), Nagpur has already upheld the addition of these 7

advances in the A.Y. 2003-04. Therefore, there is no dispute

that these receipts are not taxable in the year under

consideration. Therefore, the CIT(A)'s decision that the

advances are not taxable and income is also not taxable in

the current year is contrary to the facts. The CIT(A) has

decided that the advances are not taxable in the current

year in spite of the fact that the CIT(A), Nagpur has already

confirmed the addition. He accordingly submitted that order

of Ld.CIT(A) be reversed and that of the AO be restored.

12. The Ld. Counsel for the assessee on the other hand

strongly supported the order of the CIT(A). He submitted

that there is no dispute to the fact that during the course of

search on the Jagwani group on 23-09-2002 the statement

of the partner of the assessee firm Shri Gurukukj Jagwani

was recorded u/s.132(4) where he has admitted that an

amount of Rs.25 lakhs was received in cash on account of

sale of shops at Nath Plaza. The AO made addition of Rs.25

lakhs to the total income of the assessee which has been

upheld by the CIT(A). Therefore, the quantum addition is

confirmed. However, the question that arise is as to

whether the amount of Rs.25 lakhs is the income of the

assessee for the impugned assessment year 2003-04.

Referring to page 148 of the paper book the Ld. Counsel for

the assessee drew the attention of the Bench to the chart

which shows that only 3 shops have been sold during the

year for a total consideration of Rs.9 lakhs and payments

were received by cheque. Referring to page 149 of the paper

book the Ld. Counsel for the assessee drew the attention of 8

the Bench to the sale of shops to 21 customers for a total

consideration of Rs.50,98,500/- out of which an amount of

Rs.21,74,500/- was received in cash and Rs.29,24,000/-

was received by cheque. Referring to page 150 of the paper

book the Ld. Counsel for the assessee drew the attention of

the Bench to the sale of 7 shops to different persons and

has received an amount of Rs.61,92,000/- out of which an

amount of Rs.5,07,000/- was received in cash and

Rs.56,85,000/- was received by cheque. Referring to page

151 of the paper book the Ld. Counsel for the assessee

submitted that during F.Y. 2005-06 the assessee has sold 5

shops for a total consideration of Rs.31,34,000/- out of

which an amount of Rs.2,64,000/- has been received by

cash and Rs.28,70,000/- has been received by cheque. He

submitted that the amount of Rs.25 lakhs for which the

documents were found during the course of search in fact

refers to the advance received for sale of flats which was

sold in subsequent assessment years. Referring to the

profit and loss account in the subsequent assessment years

he tried to explain that the sale proceeds which included

cash receipts as well as cheque receipts have been reflected

in the relevant profit and loss account.

13. Referring to the decision of the Hon'ble Bombay High

Court in the case of CIT Vs. Karda Construction Pvt. Ltd.

vide ITA No.1960/2012 order dated 25-02-2013 the Ld.

Counsel for the assessee submitted that the Hon'ble High

Court in the said decision has held that profit has to be

computed only in the year of sale and not on the basis of 9

advance received which were not recorded in the books of

account. He submitted that in that case during the course

of search unaccounted cash receipts of Rs.71,67,000/- was

found. It was explained by the assessee to the search party

that these were booking advances collected by the assessee

from its customer and were part of sale consideration

declared by the assessee at the time of sale of flats after the

date of search. The Tribunal upheld the order of the CIT(A)

who had deleted the addition made by the AO. On further

appeal by the Revenue, the Hon'ble High Court held that

the cash receipts were undisputedly in respect of sale of

flats and the same were offered to tax in the years in which

flats were sold. The Hon'ble High Court had rejected the

objection of the Revenue that the amounts of

RS.71,68,000/- have been in cash has to be taxed in the

year in which cash was received by the respondent assessee

and not in the year the sale of the flats took place.

14. Referring to the relevant seized papers found and

placed at page 42 to 45 of the paper book and the list of the

buyers placed at pages 148 to 151 of the paper book the Ld.

Counsel for the assessee submitted that cash receipts from

different persons are in the form of booking advances and

the shops were sold in subsequent assessment years.

Therefore, in view of the decision of the Hon'ble Bombay

High Court penalty u/s.271(1)(c) cannot be levied in the

impugned assessment year since the assessee has not

earned any income out of such booking advance received for

sale of shops.

10

15. Referring to the decision of the Pune Bench of the

Tribunal in the case of ITO Vs. Vijaya Builders vide ITA Nos.

1605 and 1606/PN/2012 he submitted that under identical

facts and circumstances the penalty levied by the AO and

deleted by the CIT(A) was upheld by the Tribunal and the

appeal filed by the Revenue was dismissed. He accordingly

submitted that there is no justification for levy of penalty on

the advances received for sale of flats which were sold in

subsequent assessment years. He accordingly submitted

that the grounds raised by the Revenue should be

dismissed.

16. We have considered the rival arguments made by

both the sides, perused the orders of the Assessing Officer

and the CIT(A) and the Paper Book filed on behalf of the

assessee. We have also considered the various decisions

cited before us. In the instant case during the course of

search at the Jagwani group of cases certain documentary

evidence showing cash receipt of Rs.25 lakhs was found

and seized. The statement of Shri Gurumukh Sukhwani,

Partner of the assessee firm was also recorded u/s.132(4) of

the I.T. Act on 24-09-2004. In the said statement Shri

Gurumukh Sukhwani had admitted that these are the cash

receipts on account of advances for sale of immovable

property. Since the assessee did not offer these receipts to

income in the return filed in response to notice u/s.153A

the Assessing Officer made addition of Rs.25 lakhs to the

total income of the assessee. In appeal the Ld.CIT(A)

upheld the addition of Rs.25 lakhs made by the Assessing 11

Officer on account of unaccounted cash receipts. The

Assessing Officer therefore levied penalty u/s.271(1)(c) of

the I.T. Act. We find the Ld.CIT(A) cancelled the penalty on

the ground that the sale has not materialised during the

year and has materialised in subsequent assessment years.

Therefore, these booking advances cannot form part of the

total income of the assessee and therefore penalty is not

leviable u/s.271(1)(c) of the I.T. Act.

17. From the relevant seized papers placed at pages 42 to

45 of the paper book we find the seized documents contain

receipts of cheque as well as cash from different persons.

From page 148 of the paper book which gives the details of

sale of shops to different persons at Nath Plaza, we find the

assessee has sold only 3 shops during the year for a total

consideration of Rs.9 lakhs. There is no such cash receipts

from the 3 persons to whom the shops have been sold

during A.Y. 2003-04. The cash receipts relate to sale of

shops to different persons where the sale has taken place

only in subsequent years, i.e. A.Y. 2004-05 and onwards.

We therefore find merit in the submission of the Ld.

Counsel for the assessee that no income has accrued to the

assessee on account of such unaccounted cash receipts and

the assessee has accounted for the cash receipts in

subsequent years when the shops were sold. He also

clarified that since these are unaccounted receipts the same

has not entered into the books of account but the fact

remains that the cash receipts were disclosed in the 12

subsequent years along with cheque receipt and profit has

been offered to tax.

18. We find an identical issue had come up before the

Hon'ble Bombay High Court in the case of CIT Vs. Karda

Construction Pvt. Ltd., (Supra). In that case the following

question of law was framed before the Hon'ble High Court

for consideration :

"Whether on the facts and in the circumstances of the case and in law the Tribunal was justified in deleting the addition made by the Assessing Officer of Rs.71,67,000/- being unaccounted cash receipts found during the time of search action by accepting the explanation of the assessee that the unaccounted cash receipts of rs.71,67,000/- found at the time of search were booking advances collected by the assessee from its customers and were part of sale consideration declared by the assessee at the time of sale of flats after the date of search?

19. The Hon'ble High Court dismissed the appeal filed by

the Revenue by observing as under :

"The Tribunal by the impugned order upheld the finding of fact recorded by the CIT(A) that receipt of Rs.71,67,000/- was part of the sale consideration of the flats sold by the respondent assessee and the same has to be taxed in the year in which the assessee has recorded the sale of flats. The objection of the revenue is that amount of Rs.71,67,000/- found in cash has to be taxed in the year in which cash was received by the respondent assessee and not in the year the sale of the flats took place. The Tribunal records a fact that there is no dispute that unrecorded entries of cash found with the respondent assessee were in respect of sale of flats and forming part of consideration for sale of flats. Further the names of the buyers of the flats and the cash receipts from the buyers were also found during the course of the search. In these circumstances, on the basis of the finding of fact that cash receipts were undisputedly in respect of sale of flats and the same were offered to tax in the year in which flats were sold that the appeal of the revenue before the Tribunal was dismissed."

20. Since the facts of the instant case are identical to the

case decided by the Hon'ble Bombay High Court, therefore, 13

respectfully following the decision cited (Supra) we are of

the considered opinion that the unaccounted cash receipt of

Rs.25 lakhs will form part of the sale consideration of the

flats sold by the assessee in the year when the sale has

taken place. Therefore, the income has not accrued to the

assessee during the impugned assessment year and

therefore no penalty u/s.271(1)(c) of the I.T. Act can be

levied. Although the quantum assessment has been

finalised, however, assessment proceedings and penalty

proceedings are separate and distinct. The assessee can

make fresh arguments during penalty proceedings. We

therefore reject the contention of the Ld. Departmental

Representative that the assessee cannot make fresh

argument.

21. An identical issue had also come up before the Pune

Bench of the Tribunal in the case of ITO Vs. M/s.Vijaya

Builders vide ITA Nos.1605 and 1606/PN/2012 order dated

25-11-2013 where penalty was levied u/s.271(1)(c) on the

basis of on-money received by the assessee from various

customers which was shown as advance received in the

balance sheet. In that case, the assessee which was a

partnership firm was engaged in the business of Builders

and Developers. During the course of search and seizure

action u/s.143(2) of the I.T. Act certain documents were

seized according to which the assessee has received on-

money from various customers which was shown as cash

advance received in the balance sheet. During assessment

proceedings the assessee claimed that said advance cannot 14

be treated as income of the assessee. Since the on-money

received was not recorded in the books of account prior to

search action the Assessing Officer rejected the contention

of the assessee and held that the amounts of on-money is

taxable in the year of receipt and accordingly made the

addition. Subsequently, the Assessing Officer levied penalty

on said addition. Before CIT(A) the assessee pleaded that

the assessee has received advance from customers for sale

in future. It was argued that the income will accrue to the

assessee only when the actual completion of flat takes place

and possession of the same is given to the customers.

Based on the arguments advanced by the assessee the

Ld.CIT(A) deleted the penalty u/s.271(1)(c) of the I.T. Act

holding that the on-money received by the assessee cannot

be the income of the assessee of the said year. The

Tribunal upheld the order of the CIT(A) and dismissed the

appeal filed by the Revenue holding that Assessing Officer is

not justified in imposing penalty u/s.271(1)(c) of the I.T. Act

in respect of on-money received in the year of receipt as

such money cannot be treated as the income of the

assessee even though the same is brought to tax.

22. In view of the above decisions and considering the

fact that the Ld.CIT(A) while deleting the penalty has also

relied on various other decisions which support the case of

the assessee, we do not find any infirmity in the order of the

CIT(A) deleting the penalty. The grounds raised by the

Revenue are accordingly dismissed.

15

23. In the result, the appeal filed by the Revenue is

dismissed.

Pronounced in the open court on 12-06-2015.

Sd/- Sd/- (VIKAS AWASTHY) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER

satish Pune Dated: 12th June, 2015

Copy of the order forwarded to :

1. Assessee 2. Department 3. CIT(A), Aurangabad 4. CIT, Aurangabad 5. The D.R, "B" Pune Bench 6. Guard File

By order

// True Copy // Senior Private Secretary ITAT, Pune Benches, Pune