Vipul Life Sciences Ltd, Mumbai vs Assessee

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH "H", MUMBAI ी आर आर.. सी सी.. शमा , लेखा सद य एवं ी िववेक वमा , याियक सद य के सम । BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER ITA No. : 5948/Mum/2014 (Assessment year: 2009-10) ITA No. : 5949/Mum/2014 (Assessment year: 2010-11) Vipul Life Sciences Ltd., Vs The Dy. Commissioner of Income 205/206, BPS Plaza, Tax -Circle 7(3), Devi Dayal Road. Near Bus Depot., Room No. 615, Mulund (West) Aayakar Bhavan, Mumbai -400 080 M K Road, ःथयी लेखा सं.:PAN: AAACV 2736 R Mumbai -400 020 अपीलाथ (Appellant) ू यथ (Respondent) Appellant by : Shri D V Lakhani Respondent by : Shri Love Kumar

सुनवाई क# तार%ख /Date of Hearing : 09-01-2015 घोषणा क# तार%ख /Date of Pronouncement : 11-02-2015

आदेश ORDER ी िववेक वमा , या स: PER VIVEK VARMA, JM:

The two appeals are against levy of penalty of Rs. 11,80,489/- and Rs. 13,43,019/- u/s 271(1)(c) has been filed by the assessee against the combined order of CIT(A)-13, Mumbai, dated 01.09.2014. Since the issue as well as the GOA are common in the both the years, we are disposing off the appeals through this common and consolidated order for the sake of brevity and convenience.

2. The facts are that the assessee is a trader in chemicals, bulk drugs and bulk drugs intermediaries. A survey operation was conducted on the assessee u/s 133A on 20.11.2012, consequent to the information received from investigation wing to whom the information was given by the Sales Tax Department 2 Vipul Life Sciences Ltd.

ITA 5948/Mum/2014 ITA 5949/Mum/2014 that assessee has taken bogus bills for purchase from various parties.

3. In the survey operations, the assessee offered Rs. 34,73,047/-, which it included in its return in response to notice u/s 148. The assessee had filed its original return at Rs. 84,36,018/- and in response to notice u/s 148, the assessee filed its return at Rs. 1,19,10,300/-.

4. The AO finalized the assessment u/s 143(3) read with section 148 at returned figure plus a small difference of Rs. 1,235/-, which was at Rs. 1,19,11,555/-, and included the same in its return of income u/s 148, the AO initiated penalty proceedings on the difference amount and levied the penalty of Rs. 11,80,489/-.

5. Since the assessee had himself offered the additional income, the assessee did not file any appeal u/s 250 before the CIT(A).

6. The assessee being subjected to penal proceedings, approached the CIT(A) on penalty issue. Before the CIT(A), the assessee reiterated its submissions and the CIT(A) observed, "We would further like to point out that appellant has filed the return u/s 148 by adding Rs. 34,73,047/- on account of peak working and the Learned Assessing Officer in the assessment order has made the further addition of Rs. 1235/- in the assessment order. Please note that the allegation against the appellant is that the appellant has filed in inaccurate particulars of income for A.Y. 2009-10. The appellant, vide no stretch of imagination could have disallowed the sum of Rs. 34,74,282/- at the time of filing original return of income for A.Y. 2009-10. The filing of inaccurate particulars relates back to the filing of the original return. The assessee should tile in accurate particulars of income in the original return of income which is filed by the assessee. As regard the peak credit is concerned it is derived figurer which is computed in order to work out what could be the maximum amount of the quantum which can be added to the total income. In the assessment order also there is no allegation that the 3 Vipul Life Sciences Ltd.

ITA 5948/Mum/2014 ITA 5949/Mum/2014 appellant has concealed the income to the extent of the peak credit. The original allegation was the purchases are not genuine from certain parties. However, for each and every purchase from these parties the corresponding sale is established. In view of this the Assessing Officer has adopted the peak credit method for the purpose of making addition. We submit that \ the peak credit is not the amount of the income for which it could be alleged that the appellant has filed in accurate particulars of income. We therefore submit that the levy of penalty on the peak credit amount is not justified and be deleted.

14. The penalty proceedings are quasi criminal proceedings and the burden is on the Department to prove that the assessee had acted with a guilt mind to defraud the revenue. The intention of the appellant should be such that knowingly and willingly he conducts his business in such a manner with the ultimate objective of evading tax. This particular aspect is totally missing from the conduct of appellant which is demonstrated in the earlier paragraphs. Even the Assessing Officer in the assessment proceedings has not brought out any specific issue or material to demonstrate that our client has acted mala fide with the intention to defraud the revenue. The Assessing Officer has accepted the income offered which is on the basis of the peak working and in this offer of income there is no specific identification as which part of the income is concealed or for which part of the income the incorrect particulars are filed. The peak working only gives the net result of the various transactions over a period of time without pin pointing as to for which particular purchases our client has offered the income in A.Y. 2009-10.

The appellant then have relied upon decision of Supreme Court in the case of &mr. of Income Tax vs Suresh Chandra Mittal 251 ITR ,decision of Hon'ble Bangalore ITAT in case of Vasavi Shelters vs ITO Bangalore 141 ITD ,decision of Karnataka High Court in case of CIT vs Vega Auto Accessories Pvt. Ltd., 26 Taxmann.com 335, decision of Gujarat High Court in case of CIT vs Shankerlal Nebhumal Uttamchandani 311 ITR 327, decision of Bangalore ITAT in case of Maninaga Reddy vs ACIT 6(1), Bangalore 37 Taxmann.com 440, decision of Vishakapatnam ITAT in case of SVS Projects (F) Ltd vs JCIT, Range-4 12 Taxmann.corn 155, decision of Chandigarh ITAT in case of Ajay Sangari& Co vs Add. CIT 16 Taxmann.com 115 and decision of Hyderabad Tribunal in case of Dilip Kedia vs ACIT (2013) 40 Taxmann.com 102.

During the appellate proceedings, the appellant have reiterated these very submissions which was taken before the AO. As there is no dispute that appellant had been able to reconcile the quantity of the stock purchases and sold which is admitted by the AO also, I have gone through the audit report filed in Form 3CB along with the return and noted that as per clause 9(b) of form 3CB also there was a stock registered maintained by the appellant and further details of opening purchases as well as 4 Vipul Life Sciences Ltd.

ITA 5948/Mum/2014 ITA 5949/Mum/2014 closing were also available, inventoried and valued as per clause 28(a) of the audit report for both the assessment years. In view of this the income was taxable only for the block peak credit which was offered also by assessee on peak basis and has rightly been accepted while assessing the income for both the A.Yrs by the Assessing Officer.

3.5 As assessment and penalty proceedings deal with different aspects meaning thereby the assessment proceedings are to assess the income correctly whereas the penalty proceedings are there to deal with the issue if inaccurate particulars or wrong particulars were filed, resulting into concealment of income. In these case of appellant on the given facts these parameters are to be seen irrespective of the fact that income due was assessed. Accordingly, all the pleas taken by the appellant before A.O and reiterated in appellate proceedings are dealt one after other as under:

1. The first plea taken by the appellant is that consequent to survey action they have offered the income for AY.2010-11 and as regards the AY.2009-10 they have offered income by filing return of income which has been treated as filed in response to the notice u/s. 148 and has been accepted with minor addition on some other issue. I have considered this plea and I am not able to agree with the appellant for the very reason that for AY.2009- 10 though return of income was filed it was not a return filed u/s.139(1) nor it was a revised return as per provisions of sec.139(5). In fact 'consequent to survey action taken on 20/11/2012 the appellant filed letter dated 14/01/2013 and subsequently have filed return of income in response to the notice u/s. 148 dated 04/03/2013 and income was assessed by order dated 26.03.20 13 u/s 143(3) r.w.s 147. Then as regards AY.2010-11 the income was offered vide letter dated 20/02/2013,consequent to survey carried on 22.11.2012, when the original return of income was filed on 25/09/2010 and the income offered was not discovered in the survey conducted on 22.11.2012 then assessment was completed u/s. 143(3) on 05/03/2013.

Thus for both these A.Ys., the income offered which was assessed so, is not income offered consequent to survey action. For the same the appellant have relied upon the decisions given by Hon'ble Bangalore ITAT in case of Vasavi Shelters vs ITO Bangalore 141 ITD and decision of Karnataka High Court in case of CIT vs Vega Auto Accessories Pvt. Ltd., 26 Taxmann.com 335 and A.O on the given facts have relied on decisions by Hon'ble High Court of Delhi in CIT vs Zoom Communication (P) Ltd (2010) 191Taxman 179, by Hon'ble High Court of Allahabad in Bajrang Glass Entprium vs CIT(2013) 20 Taxman.Com 18(All) and Standard Hind Co. vs CIT(2012) 27axman.com 62(All) High Court of Bombay in Sanghvi Swiss Refills(P) Ltd vs fT(2012) 28 Taxman.com 208(Bom) and Hon'ble ITAT Delhi in Ajay Jain vs ACIT(20 13) 32 Taxman.com 270(Delhi) . I have gone through the decisions relied upon by appellant and 5 Vipul Life Sciences Ltd.

ITA 5948/Mum/2014 ITA 5949/Mum/2014 found that same were delivered min survey proceedings and resulting income was offered by filing return of income which was due for the relevant A.Y. or by revising return already filed as per provisions of sec 139 (5) of the Act. Here admitted facts are that income for A.Y. 200910 was already assessed u/s 143(3) and thus was reassessed u/s 147. This plea could have worked for A.Y. 2010-11 if the income would have been detected in survey, however for the reason that survey was conducted subsequent to inquiry based information received from Sales Tax Authorities coupled with the fact that survey did not result into discovery of this income, either' for AN 2009-10 or AN 2010-11 the ratio of the decisions are not applicable even for A.Y. 2010-11, in case of appellant. On the other hand decisions cited by A.O are found covering the issue in the instant case on these given facts. Thus here in these instant appeals, facts being totally different the plea taken by appellant is discarded. The appellant falls on this ground.

2. The appellant have taken another plea that they were not give cross examination of all the parties and hence their statement should not be relied upon. However, cross examination done of two concerns managed by one individual party has proved beyond doubt that they have not purchased any such material from the said two concerns which account for almost 50% of total purchases claimed by appellant. Besides this, the appellant have also failed to furnish any supporting document of transportation and physical delivery of such purchases claimed from these parties as is evident from records that there are no document to support Transportation and further there is no acknowledgment of physical delivery of material (i.e. weighing slip and transportation charges paid etc)as claimed to have been purchased by all these alleged bogus bills provided by these 18 parties.)appellant have also tried to plead that said party which was cross not identified them and hence they are under no obligation to prove the purchases which have been stated by them as accommodation bills. I find that this 'act goes against appellant. It is for the reason that the appellant in absence in giving the name of the party from whom actually, if at all they have i.e. material, have not been able to explain the actual sourcing for the us the appellant have failed to prove that their claim of transaction of om these 18 parties are genuine , for want of details i.e. names of the whom actual purchases were made, if any, along with their addresses, [ties and rate of the purchases . To this extent the appellant undoubtedly actual particulars as they have given inaccurate and actually wrong y concealing real ones. The appellant have also relied upon payment made to these havala parties by bank as evidence supporting their claim of purchases of material. I have considered, however I am not inclined to accept the same as supporting their case n that consequent to statement 6 Vipul Life Sciences Ltd.

ITA 5948/Mum/2014 ITA 5949/Mum/2014 given already and then cross examination appellant, the fact has been confirmed that these parties are hawala dealers, which has not been disputed by appellant before Sales Tax Authorities earlier and even later before A.O. by furnishing supporting document of material or alternatively by furnishing name of those parties with details from whom the appellant have actually purchased . The appellant have not been able to furnish any reason also that if it was so why that genuine party was not paid by the appellant who have chosen to issue the cheque in the name of these bogus 18 parties, and are now relying upon mere encashment of these cheques done by these havala dealers Mere payment alone even routed through bank in case of these 18 parties, in absence of genuine purchase transaction, thus are of no help to the appellant. They fail on this count also. 3.6 Thus even though the appellant have maintained the stock register meaning thereby purchases of goods are not doubted, they have not been able to explain or give details of transactions done with actual party from whom they have purchased the goods, to justify their claim. As the appellant have chosen to obtain bogus bills from parties who have already accepted that they are into accommodation billing business and not actually suppliers of goods, thus appellant have on one hand has furnished bills which are not genuine, on the other hand have concealed the identity of the parties, if any from whom they have purchased the goods. On both these counts they are liable for furnishing inaccurate particulars as well as wrong particulars. Hon'ble Supreme Court in CIT vs Reliance Petroproducts Pvt Ltd [20101 322 ITR 158 have also defined what is the meaning of "furnishing incorrect particulars of income"

According to that the word 'particulars' must mean the details supplied in the return, which are not accurate, not exact or correct, not according to truth or erroneous. In the instant case, undoubtedly and undisputed fact has been confirmed that claim of purchase from these parties as made by appellant could not be proved and they have further failed to give names of actual parties and details of transaction of purchases of these trials. As the purchases shown in name of these 18 parties as supplied by the assessee in its return were found to be incorrect or erroneous or false, they are liable for consequences i.e. provisions of penalty under section 271(1)(c) are attracted in their case in these instant appeals. 3.7. The appellants' other plea is that penalty cannot be levied because the tax amount sought to be 7 Vipul Life Sciences Ltd.

ITA 5948/Mum/2014 ITA 5949/Mum/2014 evaded does not relate to any specific transaction and when income concealed itself is not determined, penalty cannot be levied. I have considered this plea also and found it a strange submission devoid of any logic and reasoning. The peak theory is applicable following the ratio given by Hon'ble courts in such cases where it is found that actual purchases have not been made and hence payment shown towards such bogus purchases have to be taken logically as having come back to the assessee indulging into this kind of transactions. It was decided so by Hon'ble ITAT, Ahmedabad in Vijay Protein 1996 58 ITD 428 Ahd It is in view of these facts that peak is worked out, wherein cash is taken as decrease in the cash book on date of bill of purchases and cash is increased on the date of issue of cheque for the reason that bills are treated as obtained against cash paid and same cash is taken as returned after deducting commission for the job of providing bogus bills when the cheques issued in their names are encashed by such hawala dealers. Thus only the peak amount is taxed as the concealed income and hence the plea taken by appellant that since the peak amount does not reflect the specific transactions and concealment penalty is not leviable and so it cannot be calculated, is not sustainable and hence is dismissed. Thus appellant fails on this ground also.

3.8 In view of this, I am in agreement with the AO. that having furnished wrong particulars which were found to be wrong only subsequently , i.e. after assessment was over for A.Y. 2009-10 and then for A.Y. 2010-11 , appellant could not rebut the findings made by VAT authorities before them and again before A.O. thus attracted penalty in their case. Now having concealed the particulars, merely because appellant have offered the income which was detected and thus has become due and was so accepted while assessing the income, does not absolve the appellant from provision of penalty u/s.27 1(1)(c) which are attracted so , following the ratio of decision given by Hon'ble Apex court in case of JOlT, Surat vs Saheli Leasing & Industries Ltd [2010] 191 TAXMAN 165 (SC) . There Hon'ble court held that even if return is NIl and after addition , there is no tax payable , the penalty u/s 271(i)(c) lies . In words of Supreme Court, the purpose behind section 271(1)(c) is to penalize the assessee for

(a) concealing particulars of income and/or

(b) furnishing inadequate particulars of such income and whether income returned was a profit or loss, was really of no consequence. Therefore, even if no tax was payable, the penalty was still leviable. Even prior to the amendment, it could not be read to mean that if no tax was payable by the assessee due to filing of the return disclosing loss, the assessee was not liable to pay penalty even if it had concealed and/or furnished inadequate particular.

8 Vipul Life Sciences Ltd.

ITA 5948/Mum/2014 ITA 5949/Mum/2014 3.9 In the instant appeals the appellant having filed wrong particulars thus cannot get away with the plea taken that they have offered the income".

7. The CIT(A), thus sustained the penalty u/s 271(1)(c), as levied by the AO.

8. Against this order of the CIT(A), the assessee is now before the ITAT.

9. Before us, the AR pointed out that during the survey operations, the assessee had offered Rs. 34,73,047/- and included the amount in its return of income u/s 148. The AR further pointed out that the assessee had offered the peak of purchase, which had been held to be bogus, which accordingly were Rs. 3,18,55,857/-. The AR pointed out though the purchases were questioned and the 18 parties deposed before the AO that they were providing only the entries, the AR submitted that the purchases as such were genuine and were duly entered in its books, its stock register and were as per sales tax records.

10. The AR also submitted that sales were also fully recorded, which were duly submitted to the Sales Tax Department.

11. The AR submitted that the assessee was dealing in bulk drugs used in pharma industry, therefore, not only the quantity, quality was also subject matter of purchase and sales, i.e. the assessee could not risk the purchase of drugs, which were not as per the medical specifications.

12. In so far as the allegation of the revenue authorities were concerned, the AR pointed out complete details of goods carriers were submitted before the revenue authorities to show that whatever entered in its godown were recorded in stock 9 Vipul Life Sciences Ltd.

ITA 5948/Mum/2014 ITA 5949/Mum/2014 register/records and its books. The AR also pointed out that carriage details had been filed, showing description of goods, quantity, consignee and finally the consigner, i.e. the assessee. This evidence the AR demonstrated that it was recorded in its book and details prepared for the purposes of preparing regular accounts.

13. The AR also submitted before us that in the year under consideration, its G.P. & N.P. were much better than the subsequent two years.

14. The AR, submitted that since there is no discrepancy as such in the book results, the penalty should not have been levied. The AR then took us through the technical infirmities, committed by the AO.

15. The AR pointed out that notice u/s 274, mandatorily required to be issued for the initiation of penalty, giving out reasons for the initiation of penalty. But in the instant case, the notice under section 274 does not mention against which charge, the penalty is being initiated. Besides this, the AO in assessment order as well as in the penalty order mentions, "on careful perusal of all submissions, it cannot be denied that purchase have not been made. However, the assessee has taken bills from these parties and goods have been purchased from other sources in cash, which has not been accounted for. Considering the market trend in respect of purchases...".

16. The AR also pointed out that the AO levied the penalty on the income offered at Rs. 34,73,047/-, being the peak of the purchases which were under scan. The AR submitted that if the purchases were unsubstantiated and bogus, then the entire Rs. 3.18 crores should have been held against the assessee. The AR 10 Vipul Life Sciences Ltd.

ITA 5948/Mum/2014 ITA 5949/Mum/2014 submitted that on the one hand the revenue authorities are accepting that the purchase had been made and recorded in the books and on the other hand, what was taken to be bogus was only the peak of the whole amount.

17. The AR further submitted that no allegation has been leveled against the assessee with regard to the quantum of business done and/or incorrect keeping and maintaining of books of accounts. This is evident because the GP and NP both are better in the impugned years and accepted by the revenue authorities.

18. In such a case, both on facts and legality, the penalty should not be sustained.

19. The DR on the other hand supported the orders of the revenue authorities and submitted that it is a clear case of substantiated purchase, where the source has not been established. The DR further submitted that the argument of the AR, that there are no charges leveled against the assessee is also not correct because furnishing of inaccurate particulars would lead to concealment. In the case at hand, the revenue authorities have proved beyond point of any comprehension, that the assessee has furnished inaccurate particulars of income, which by itself, is more than enough to sustain the penalty.

20. On a query from the Bench as to what was the effect on the assessee's business and to the revenue and whether there was a revenue loss emerging from books, the DR was unable to give a specific reply.

21. On the other hand, the AR insisted that, had it been a case of bogus transactions, the AO would have rejected the 11 Vipul Life Sciences Ltd.

ITA 5948/Mum/2014 ITA 5949/Mum/2014 books. Since the books had not been rejected, and the book results accepted, and the return accepted as such, that cannot lead to levy of penalty.

22. The AR placed reliance on a number of decisions and prayed that the penalty as levied should be deleted.

23. We have heard the facts of the case and perused the orders of the revenue authorities.

24. The facts that have come to our knowledge are that there was a survey operation conducted on the assessee on 22.11.2012, wherein the assessee declared Rs. 34,73,047/- in assessment year 2009-10 and based on the surrender, the AO initiated reassessment proceedings u/s 148. In response to that the assessee filed its return of income, adopting the figure of normal return and the amount surrendered at Rs. 34,73,047/-, at Rs. 1,19,10,300/-. Similarly in assessment year 2010-11, the assessee filed its original return at Rs. 48,21,950/- and as a consequence of survey offered Rs. 43,46,339/- as peak of purchases under scan, and the ROI was filed on aggregate amount of Rs. 91,68,290/-.

25. The difference in the two years is that assessment year 2009-10 was reassessment proceedings and assessment year 2010-11 was regular assessment proceedings. Rest all facts are similar and identical.

26. It is a fact that in live assessments, no addition whatsoever was made by the AO. It is also a fact that while examining the books in the course of assessment proceedings, the AO did not lay his hands on any item of income, which the assessee had not declared in the return or till the assessment 12 Vipul Life Sciences Ltd.

ITA 5948/Mum/2014 ITA 5949/Mum/2014 was framed. It is also a fact that the AO has accepted the book results.

27. The fact that the assessee had made the purchases and brought them in its books as well as stock books has also not been disputed by the AO, because the AO in the assessment order records, "on careful perusal of all submissions, it cannot be denied that purchases have not been made ..."

28. These facts lead us to the conclusion that the books of account as maintained by the assessee were correct and gave true and fair view, which gets further proved from the comparison of GP & NP ratios,

Asst. Year GP NP 2009-10 7.25% (survey period) 1.18% 2010-11 7.08% (survey period) 0.98% 2011-12 6.39% 1.4% 2012-13 6.00% 0.95%

29. The fact that no charge as such has been leveled against the assessee, as seen from the notice u/s 274 also go to prove that the revenue authorities did not have any ground to prove either the concealment or inaccurate particulars, which resulted in revenue loss.

30. We are supported by the decision of the coordinate Bench at Bangalore in the case of Muninapa Reddy vs ACIT, reported in 2013-37 taxman.com 440, where it was held, "There can be no concealment or non-disclosure, as the assessee had made a complete disclosure in the return and offered the surrendered amount for the purposes of tax and, therefore, no penalty under section 271(1)(c) could be levied. The words 'in the course of any proceedings under this Act' in section 271(1) are prefaced by the satisfaction of the Assessing Officer or the Commissioner (Appeals). When a survey is conducted by a survey team, the question of satisfaction of Assessing Officer or the Commissioner (Appeals) or the Commissioner does not arise. One has to keep in mind that it is the Assessing Officer who initiates penalty 13 Vipul Life Sciences Ltd.

ITA 5948/Mum/2014 ITA 5949/Mum/2014 proceedings and directs the payment of penalty. He cannot record any satisfaction during the course of survey. Decision to initiate penalty proceedings is taken while making assessment order. It is thus obvious that the expression 'in the course of any proceedings under this Act' cannot have the reference to survey proceedings. It necessarily follows that concealment of particulars of income or furnishing of inaccurate particular of income by the assessee has to be in the return filed by him. The assessee can furnish the particulars of income in his return and everything would depend upon the return filed by the assessee. This view gets supported by Explanations 4, 5 and 5A of section 271 (1). Obviously no penalty can be imposed unless the conditions stipulated in the said provisions are duly and unambiguously satisfied. Section 271(1)(c) has to be construed strictly. Unless it is found that there is actually a concealment or non-disclosure of the particulars of income, penalty cannot be imposed. There is no such concealment or non-disclosure, as the assessee had made a complete disclosure in the return and offered the surrendered amount for the purposes of tax".

This is an identical case, where survey operations had taken place and the assessment was reopened u/s 148, the coordinate Bench deleted the penalty.

31. In the case of Valavi Shelters vs ITO, reported in 2013-32 taxman.com 26, the coordinate Bench at Bangalore held, "There can be no concealment or non-disclosure as the assessee had made a complete disclosure in the return and offered the surrendered amount for the purposes of tax and therefore no penalty under section 271(1)(c) could be levied. The words 'in the course of any proceedings under this Act' in section 271(1)(c) are prefaced by the satisfaction of the Assessing Officer or. the Commissioner (Appeals).

When a survey is conducted by a survey team, the question of satisfaction of Assessing Officer or the Commissioner (Appeals) or the Commissioner does not arise. One has to keep in mind that it is the Assessing Officer who initiates penalty proceedings and directs the payment of penalty. He cannot record any satisfaction during the course of survey. Decision to initiate penalty proceedings is taken while making assessment order. It is, thus, obvious that the expression 'in the course of any proceedings under this Act' cannot have the reference to survey proceedings.

It necessarily, follows that concealment of particulars of income or furnishing of inaccurate particular of income by the assessee has to be in return filed by it. The assessee can furnish the particulars of income in his 14 Vipul Life Sciences Ltd.

ITA 5948/Mum/2014 ITA 5949/Mum/2014 return and everything would depend upon the return filed by the assessee. This view gets supported by Explanations 4 as well as 5 and 5A of section 271. Obviously, no penalty can be imposed unless the conditions stipulated in the said provisions are duly and unambiguously satisfied. Since the assessee was exposed during survey, may be, it would not have disclosed the income but for the said survey. However, there cannot be any penalty only on surmises, conjectures and possibilities.

Section 271(1)(c) has to be construed strictly. Unless it is found that there is actually a concealment or non- disclosure of particulars of income in return filed by assessee, penalty cannot be imposed. There is no such concealment or non-disclosure as the assessee had made a complete disclosure in the return and offered the surrendered P. amount for the purposes of tax".

32. In the case of Ajay Sangari & Co. vs Add CIT, reported in 2011-16 taxman.com115, coordinate Bench at Chandigarh held, "Whether since Assessing Officer had failed to point out any discrepancy in explanation furnished by assessee and had proceeded to assess income in hands of assessee on basis of surrender made by assessee, it could not be said that assessee had concealed any income and there was no merit in levy of penalty under section 271(1)(c)".

33. In the case of CIT vs Shankerlal Nebhumal Uttamchandanji, reported in 311 ITR 327 (Guj), it was held, "In the circumstances, it is apparent that the same income, namely, the amounts in the bank accounts along with interest thereon, have been assessed in the hands of the assessee as well as different family members. Hence, even the Department is not certain as to the right person who is amenable to tax qua the said income. in the circumstances, the Tribunal rightly came to the conclusion that no penalty is exigible under the provisions of section 271(1)(c) of the Act when the Tribunal has found that admittedly the family members have not been treated as benamidars of the assessee nor have the family members stated that they are the benamidars of the assessee.

13. In the view that the court has taken it has not been found necessary to enumerate and deal with more than a dozen authorities cited by both the sides. The question referred for the opinion of this court is, therefore, answered in the affirmative, i.e., in favour of the assessee and against the Revenue. The reference stands disposed of accordingly with no order as to costs".

34. In the case of Dilip Kedia vs ACIT, reported in 2013-40 taxman.com 102, the coordinate Bench at Hyderabad held, 15 Vipul Life Sciences Ltd.

ITA 5948/Mum/2014 ITA 5949/Mum/2014 "considering all the aspects viz., the assessee had declared the amount he will be offering in the course of statement recorded under section 132(4), the Assessing Officer has not brought on record any other materials or evidence for coming to the conclusion that the assessee had concealed any income except for the statement recorded under section 132(4), even the CBDT has cautioned the Assessing Officers to make additions based purely on the sworn statements recorded under section 132(4), the Explanation 5A as it stood on the date of filing of return/revised return by the assessee, levy of penalty on the additional income included in the return based only on the sworn statement of the assessee cannot be sustained. Accordingly the penalty levied upon the assessee deserved to be deleted".

35. In the case of SVC Projects (P) Ltd. vs JCIT, reported in 2011-12 taxman.com 155, the coordinate Bench at Vishakhapatnam held, "Turning to the facts of the case, we find that the additional income was offered during the course of survey for discrepancies in the maintenance of vouchers of different expenses. The assessee filed a revised return of income on 17-3-2005 and paid the taxes thereon. The revised return filed by the assessee was accepted by the Assessing Officer by passing an order dated 30-3-2006 without tinkering with the accounts maintained by the assessee. Therefore, in the assessment no additions were made by the Assessing Officer under any account. Now the question arise whether the additional income declared by the assessee during the course of survey conducted before the start of the assessment proceedings can be called to be an addition for invoking the Explanation 2, on claim of the assessee raised in succeeding year to be the source of deposits? The answer is certainly in the negative because the Explanation 2 can only be invoked where the additions of income are made during the course of assessment of earlier assessment years. Therefore, we are of the considered view that the provisions of Explanation to section 271 can only be invoked where the source of any receipt, deposit, outgoing or investment in any assessment year is claimed by any person to be an amount which had been added in computing the income or deducted in computing the loss in the assessment year of such person for any earlier assessment year or years but in respect of which no penalty under clause (3) of section 271 (1) had been levied. Meaning thereby, if no additions were made or losses were reduced in any assessment of any earlier assessment years Explanation 2 to section 271 (1) cannot be invoked even then the assessee claimed the additional income offered in earlier assessment years to be the source of any receipt, deposit, outgoing or investment in succeeding year. It is also a settled position of law that the rule of strict 16 Vipul Life Sciences Ltd.

ITA 5948/Mum/2014 ITA 5949/Mum/2014 interpretation be applied to the penal provision under the I.T. Act.

In the instant case, undisputedly no additions were made in the assessment for the assessment year 2004- 05 as the Assessing Officer has accepted the revised return filed by the assessee without tinkering with accounts prepared by him and computed his income. Therefore, the Explanation 2 to section 271(1) cannot be invoked and the penalty under section 271(1)(c) cannot be levied in assessment year 2004-05 for the additional income offered during the course of survey. We therefore, set aside the order of the CIT(A) and delete the penalty".

36. As it can be noted, that the in all the above cases extracted by us, either there was a search operation or there was a survey operation on the assessee and as a consequence thereof, the assessee filed its return/revised return/reassessment return including the amount offered for tax and which was accepted by the AO. In all these cases, the judicial fora was of the view that penalty was not exigible.

37. We are also supported by the order of the coordinate bench of Pune in the case of Kanbay Software India (P) Ltd. vs DCIT, reported in 31 SOT 153 (Pune), it was held, "... it is not for AO to ponder over what should have happened in ideal circumstances and reject explanation but he is to consider explanation objectively and unless he finds some against human probabilities or unless there are any real inconsistencies or factual errors in such an explanation, AO ought to accept the same". In the instant cases before us, we have found that the revenue authorities have accepted that the purchases had been made and rightly recorded in stock book and books of account and giving out correct result. The AO did not disturb anything, but went on to levy the penalty, which even he could not substantiate under the phrase, "inaccurate particulars of income". We are in acceptance with the argument of the AR that if the revenue authorities were holding the purchase of Rs. 3,18,55,857/- in 2009-10 and Rs. 2,44,98,719/- as bogus in 17 Vipul Life Sciences Ltd.

ITA 5948/Mum/2014 ITA 5949/Mum/2014 assessment year 2010-11, why accept assessee's declaration of peak amounts and not add back the purchase taken to be bogus, by rejecting the books.

38. The fact that the revenue authorities accepted the books of accounts go to prove that accept for the reliance on assessee's statement, and the statements of 18 persons, whose statements were taken at the back of the assessee and without affording an opportunity for cross examination, the revenue authorities did not have anything to show and prove that here is the concealment of income, resulting from furnishing of inaccurate particulars of income. This is so because there has been nothing with the revenue authorities to prove and show that any income has been concealed.

39. We cannot accept the arguments of the revenue authorities as well as of the DR that the assessee has not been able to prove the movement of its stock. This is because, the assessee is a distributor of bulk drugs, which either comes to the assessee's godowns or is directly delivered by the supplies to the consumer under the direction of the assessee. In so far as the material coming into godown is concerned, the goods are entered in the gate pass but in case goods are directly delivered at the gates of the consumer, the goods receipt clearly shows that, and which was demonstrated by the AR at the time of hearing. In such a situation, the allegation that the assessee has not been able to clearly show the stock position is not correct. In fact, we find complete details had been supplied to the revenue authorities in the form of stock books, bank statements and goods carriage challans.

40. The scheme of section 271(1)(c) visualizes imposition of penalty when the assessee has concealed income or when the 18 Vipul Life Sciences Ltd.

ITA 5948/Mum/2014 ITA 5949/Mum/2014 assessee has furnished inaccurate particulars of income. In addition to these two situations, penalty can also be imposed when the assessee is deemed to have concealed particulars of income under the Explanation 1 to section 271(1)(c). This Explanation provides that the assessee will be deemed to have concealed particulars of income where in respect of any facts, material to the computation of the total income of any person under this Act,

(i) the assessee fails to provide an explanation;

(ii) when the assessee provides an explanation which is found to be false; and

(iii) when the assessee provides an explanation which he fails to substantiate and he fails to prove that the explanation was bona fide and that all the facts necessary for the same and material for computation of income have been duly disclosed by the assessee.

41. The expression 'concealment of income' has not been defined in the Act but the natural meanings of the expression 'concealment' are 'to keep from being seen, found, observed, or discovered'. It would, therefore, follow that the expression 'concealment of income', in its natural sense and grammatical meaning, implies that an income is being hidden, camouflaged or covered up so that it cannot be seen, found, observed or discovered. That was certainly not the case.

42. The assessee filed its ROI declaring the amount surrendered. This income was accepted by the AO. By no stretch of logic, this situation could be treated as a situation in which any income was concealed by the assessee.

43. Concealment of an income by an assessee cannot be a passive situation. It implies that the person concealing the 19 Vipul Life Sciences Ltd.

ITA 5948/Mum/2014 ITA 5949/Mum/2014 income is hiding, covering up or camouflaging an income - something which essentially requires a conscious effort. On the contrary, the assessee had acted in very transparent and straight forward manner by maintaining proper and regular primary and final books, which were accepted by the revenue authorities as such. In such a situation, there could not be any concealment of income. The expression 'furnishing of inaccurate particulars of income' has also not been defined in the Act. The expression 'inaccurate' refers to 'not in conformity with the fact or truth' and that is the meaning which is relevant in the context of furnishing of inaccurate particulars. The expression 'particulars' refers to facts, details, specifics, or information about someone or something. Therefore, the plain meaning of the expression furnishing of inaccurate particulars of income' implies furnishing of details or information about income which is not in conformity with facts or truth. The details or information about income deal with factual details of income and this cannot be extended to areas which are subjective, such as status of taxability of an income, admissibility of a deduction and interpretation of law. The furnishing of inaccurate information, thus, relates to furnishing of/actually incorrect details and information about income, so that, that part of income could be covered up by the assessee. In the instant case, what had been treated as furnishing of inaccurate particulars was offering an income on ad hoc basis, i.e. peak of questioned purchases, this was not contested by the assessee. The admission or rejection of a claim is a subjective exercise, whether a claim is accepted or rejected has nothing to do with furnishing of inaccurate particulars of income. The revenue authorities had apparently proceeded to treat the assessee's surrender of income as furnishing of inaccurate particulars. What is a correct claim and what is an incorrect claim is a 20 Vipul Life Sciences Ltd.

ITA 5948/Mum/2014 ITA 5949/Mum/2014 matter of perception, which in the instant case was accepted as such. In fact, the revenue authorities actually never questioned the books results of the assessee. Expression, 'inaccurate' is something factually incorrect, but once it is accepted as such to be correct, it does not remain inaccurate. We are aware that various decisions have been consistently reversed by the decisions of the Hon'ble Supreme Court at regular intervals on the above issue. The development of law is a dynamic process which is affected by the innumerable factors, and it is always an ongoing exercise. In such circumstances, a bona fide offer by the assessee being visited with penal consequences because, though it has factually been accepted but still not considered appropriate by the revenue authorities brings in an absurdity in the approach of the revenue authorities. Therefore, the instant case could not be said to be a case of furnishing of inaccurate particulars of income, in its normal sense.

44. There is one more eventuality in which penalty can be imposed and that is the situation in which deeming fiction of the Explanation 1 to section 271(1)(c) comes into play. This deeming fiction comes into play, where in respect of any facts material to the computation of the total income would show that it relates only to the factual aspects. In the instant case, the only controversy was regarding the amount offered and including the same to the returned income. This deeming fiction cannot be invoked in the instant case at all. The deeming fiction of the Explanation 1 to section 271(1)(c) can only be pressed into service in connection with facts material to the computation of income and not in connection with the computation of income per se, which in the instant cases are apparent from the fact that the revenue authorities did not touch the facts leading to 21 Vipul Life Sciences Ltd.

ITA 5948/Mum/2014 ITA 5949/Mum/2014 the computation, but initiated penal provisions, because the assessee could not have preferred appeal in the quantum.

45. In the instant cases, there was no dispute that all the relevant facts, material to the computation of total income were duly furnished by the assessee and no deficiencies in furnishing of such facts were pointed out by the revenue authorities. There was, thus, no cause of action for deeming fiction being triggered by the conduct of the assessee.

46. Be that as it may, even assuming that the deeming fiction under the Explanation 1 to section 271(1)(c) could be triggered by an assumed discrepancy, still, it cannot be taken to be a wrong interpretation. The deeming fiction under section 271(1)(c) only shifts the onus of proof on the assessee, as this explanation itself provides that a penalty can only be imposed (a) when there is no explanation by the assessee, (b) when the explanation given by the assessee is found to be false and (c) when the assessee provides an explanation which he fails to substantiate and he fails to prove that the explanation was bona fide and that all the facts necessary for the same and material for computation of income had not been duly disclosed by the assessee. In the instant case, the above ingredients are germane to the case and therefore, the burden shifted on the AO, as to how the penalty became exigible, when the returns were accepted as such. Coming to the fact, whether the conduct of the assessee was bona fide or not is essentially a question of fact and the related facts are always in the exclusive knowledge of the assessee. The assessee's contention that the entire purchases as had been made had been recorded in the primary and final books, such as stock and ledger books have not been negated or controverted by the revenue authorities and even by the DR. The assessee had also shown the evidence of movement 22 Vipul Life Sciences Ltd.

ITA 5948/Mum/2014 ITA 5949/Mum/2014 of goods in and out of the warehouse and goods transport receipts. These evidences bore the character of bona fide conduct of business by the assessee. The revenue authorities therefore, clearly erred in holding the issue against the assessee, even on an assumption. In any event, when an explanation is offered by the assessee in discharge of onus cast upon him by the Explanation 1 to section 271(1)(c), it is not for the AO to explain the conduct of business to the assessee and to what should have happened in ideal circumstances, and reject explanation, but he is to consider explanation objectively and unless he finds something against the human probabilities or unless there are any real inconsistencies or factual errors in such an explanation, the AO ought to accept same, because nobody can explain anything to the hilt. Whether or not a person has acted bona fide reflects the state of his mind in respect of his conduct, and, therefore, the assessee has his inherent limitations in establishing this aspect of the manner. It was in this regard that the higher judicial fora has tried to keep mens rea outside the perimeters for sustaining the penalty under normal business conduct or explanations of the assessee. All that the assessee can do, is to explain the circumstances in which he has acted in a particular manner and set out the related facts. This gets proved in favour of the assessee, when the AO writes in the assessment order, "on careful perusal of all submissions, it cannot be denied that purchases have not been made". Hence The assessee's explanation regarding bona fides of claim did not suffer from any apparent in consistencies or factual errors and it was quite in line with human probabilities and market trends, therefore, there was no good reason to reject the explanation and proceed to initiate and levy of penalty under section 271(1)(c).

23 Vipul Life Sciences Ltd.

ITA 5948/Mum/2014 ITA 5949/Mum/2014

47. Keeping in mind the above, facts and judicial precedents explaining as to where the penalty is to be levied and to be deleted, we are of the view that the years under consideration, the revenue authorities erred in initiating penalty proceeding and levying of penalty.

48. We, therefore set aside the orders of the CIT(A) and cancel the orders passed by the AO levying penalty u/s 271(1)(c) in assessment years 2009-10 and 2010-11.

49. In the result, the appeals as filed by the assessee are allowed.

Order pronounced in the open Court on 11th February, 2015.

Sd/- Sd/- आर. आर. सी. (आर सी. शमा ) िववेक वमा ) (िववे लेखा सद य याईक सद य (R C SHARMA) (VIVEK VARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER

Mumbai, Date: 11th February, 2015 ूित/Copy to:- 1) अपीलाथ /The Appellant. 2) ू यथ /The Respondent. 3) The CIT(A) -13, Mumbai. 4) The CIT-7, Mumbai/CIT -7, Mumbai.

5) *वभागीय ूितिनिध "H", आयकर अपीलीय अिधकरण, मुब ं ई/ The D.R. "H" Bench, Mumbai.

6) गाड. फाईल Copy to Guard File.

आदे शानुसार/By Order / / True Copy / /

उप/सहायक पंजीकार आयकर अपीलीय अिधकरण, मुबं ई Dy./Asstt. Registrar I.T.A.T., Mumbai

*च हान व.िन.स *Chavan, Sr.PS