Jawaharlal Goyal vs Income Tax Officer.
1993 Latest Caselaw 220 Del

ORDER

VIMAL GANDHI, J. M. :

This appeal by the assessed for the asst. yr. 1980-81 is directed against order of CIT(A) upholding levy of penalty of Rs. 7,000 under S. 27(1)(c) of IT Act.

2. Briefly stated facts of the case are that assessed HUF made construction of godown on land measuring 420 sq. yds. Total sum of Rs. 64,840 was spent on construction. assessed was asked to explain the source of aforesaid construction. It was explained that 1/2 of total amount was spent by the HUF by taking loan from others. This claim was accepted. The other 1/2 portion was claimed to have been spent by Shri Mukesh Kumar as per agreement dt. 2nd Aug., 1979. Shri Mukesh Kumar was further stated to have paid Rs. 15,000 to the assessed representing 50% of price of portion of land which was part of Rs. 35,000 spent by the assessed as his share. The Assessing Officer summoned Shri Mukesh Kumar and recorded his statement on oath. On the basis of deposition of Shri Mukesh Kumar, the Assessing Officer held that sum of Rs. 24,840 remained unexplained investment and added the same in the hands of the assessed with the following observations :

"It was deposed by Shri Mukesh Kumar that his only source of income is of commission, which he received for the supply of building material from the dealers to the customer. That his monthly income from this source was only Rs. 700 to 900 per month, it was also deposed that he is an unmarried individual having no rented house and living in a shop near a school which belongs to some person and he is living with the help of Dr. Veer Sen, resident of Dabri, Distt. Bulandshahr. On questioning whether he owns any immovable property, it was replied by him that he owns only one shop situated at Shahadra in the co-ownership of Shri Amar Nath r/o Dabri, Distt. Bulandshahr. That he got 1/2 share in the shop and this shop was stated to have been purchased about 2 1/2 years ago for a sum of Rs. 15,000. That he has invested a sum of Rs. 7,500 out of his savings from his income of Rs. 800 or 900 per month. It was also deposed by him that except this, he does not own any immovable property. But, on further questioning that did he make any agreement with one Shri Jawahar Lal, Advocate, for the purchase of a land belonging to Shri Jawahar Lal, it was replied that he did make an agreement for the purchase of 1/2 portion of land belonging to Shri Jawahar Lal measuring about 420 sq. yds. and under this agreement he has paid a sum of Rs. 15,000 at the time of agreement. Regarding the nature and the source and the source of investment of Rs. 15,000, it was deposed by him that it was deposed by him that he had taken a loan of Rs. 20,000 from one Shri Hari Kishan son of Shri Nanak Singh, r/o Vill. Akbarpur. Distt. Bulandshahr. That Shri Hari Kishan is the Pradhan of the village and he has given this loan out of his agricultural income. Necessary papers of the agricultural holdings, a confirmatory letter and an affidavit sworn by Shri Hari Kishan, has been filed when questioned that did he make any construction of godown of this plot, it was replied that he had given Rs. 35,000 for the construction of godown on the plot of land owned by him. Regarding the nature and source of Rs. 35,000 it was stated that Rs. 5,000 was out of the loan which he had taken from Shri Hari Kishan and remaining 30,000 was stated to be out of his personal savings. From the statement on oath of Shri Mukesh Kumar it is established that explanation given by Shri Mukesh Kumar with regard to the nature and source of Rs. 35,000 is not satisfactory and does not lead to prove that the assessed was in a position to invest a huge sum of Rs. 35,000 in view of the fact that he was earning a meagre sum of Rs. 700 to 900 per month and that about 2 1/2 years back he had already invested a sum of Rs. 7,500 in the purchase of the shop with the co-ownership of some other person. Keeping this fact in view, it cannot be believed that he was above to save a sum of Rs. 30,000 in order to invest the sum in the construction of godown. Moreover, the plot of land on which the godown was constructed legally cannot be held to be owned by Shri Mukesh Kumar, when no sale deed was executed after the agreement to sale was made. Even this agreement of sale was not registered under the Registration Act. In this way, Shri Mukesh Kumar could not prove the nature and source of investment in the construction of godown nor he could prove the ownership of plot land said to have been transferred by Shri Jawahar Lal. From these facts, it is clear that entire plot of land measuring 420 sq. yds. belongs to Shri Jawahar Lal, karta of HUF and he had himself got constructed the godown and in order to explain the nature and source of investment made on it, he had taken the help of Shri Mukesh Kumar who is not in a position to help him entirely. In this way, the investment stated to have been made by Shri Jawahar Lal was properly explained but so far as the investment of Shri Mukesh Kumar is concerned, that was not explained satisfactorily and as legally plot of land cannot be held is treated to have been made by Shri Jawahar Lal, karta of the HUF. It can only be admitted that the sum of Rs. 15,000 and further Rs. 5,000 can be treated as loan from Shri Mukesh Kumar to Shri Jawahar Lal, karta of the HUF. In this way, Shri Jawahar Lal is able to explain the nature and source of Rs. 35,000. Further Rs. 5,000 which he had taken from the balance of Rs. 24,840 remains unexplained investment which will be added in the total income of the assessed as income from undisclosed sources."

The addition made by the Assessing Officer was confirmed on further appeal by the learned CIT(A) and ultimately by the Tribunal. The Hon'ble Allahabad High Court as per order dt. 22nd April, 1991 under S. 256(2) has directed the Tribunal to refer the following questions :

"1. Whether, under the facts and circumstances of the case, the Tribunal was justified in holding Shri Mukesh Kumar as benamidar of Jawahar Lal Goyal and not a co-sharer of land and building in terms of unregistered agreement and statement on oath of Shri Mukesh Kumar ?

2. Whether, the Tribunal was justified in treating the investment of Rs. 20,000 in land and building made by Shri Mukesh Kumar as loan to appellant and further rejecting the investment of Rs. 24,840 thereby confirming it as undisclosed income of the appellant, ignoring the agreement to purchase land ?"

The reference is pending before the Hon'ble High Court.

3. The Assessing Officer also initiated penalty proceedings under S. 271(1)(c) of IT Act based on the finding recorded in the assessment order. He held that the assessed concealed his income relating to unexplained investment and property income of Rs. 1,402. The Assessing Officer thus levied penalty of Rs. 7,000 for concealed income of Rs. 26,840. The levy of penalty has been confirmed on appeal by the learned CIT(A). Hence this appeal.

4. I have heard at length the rival submissions of the parties. The assessed contended that no income was concealed. In the course of assessment proceedings the assessed acted bona finely and furnished all particulars material to the computation of his income and, therefore, no penalty under S. 271(1)(c) read with proviso to Expln. 1 was exigible. It was further contended that the addition in assessment proceedings was based on misreading of evidence available on record. The learned Department Representative on the other hand, supported the impugned order. It was claimed that addition was upheld by the Tribunal and statement of Shri Mukesh Kumar was found to be unreliable. Thus case of concealment was fully established.

5. I have carefully considered rival submissions of the parties. There is no doubt that addition in this case has been sustained right up to Tribunal. The penalty proceedings are distinct and separate from assessment proceedings and it is open to the assessed to show that there is no concealment of income. This can be shown even on existing material already considered during the assessment proceedings. It is necessary for the Revenue authorities to reappraise the material and then arrive at a finding in penalty proceedings relating to concealment of income. Of course assessment order and addition of income would have the effect of shifting burden of proof depending upon Explanation to S. 271(1)(c) as applicable in the relevant assessment year. In the asst. yr. 1980-81 with which I am concerned, proviso to Expln. 1 introduced w.e.f. 1st April, 1976 was applicable. The gist of the proviso was that no penalty should be levied in respect of any amount added or disallowed if explanation furnished by the assessed is bona fide and all the facts relating to the same and material to the computation of his total income have been disclosed by the assessed. In the light of statutory provision I proceed to examine the facts of the case.

6. In support of the claim that 1/2 amount in the construction was contributed by Shri Mukesh Kumar who further gave Rs. 15,000 to the assessed towards 50% of price of land, the assessed relied upon agreement dt. 2nd Aug., 1979. As per the cl. 3 of the said agreement that both the parties were to construct jointly a godown on land measuring 420 sq. yds. detailed in the agreement. As per cl. 4, Shri Mukesh Kumar was to give Rs. 15,000 to the karta of HUF towards 1/2 price of land. The genuineness of aforesaid agreement was duly accepted by the Assessing Officer in the course of assessment proceedings. The learned CIT(A) in the penalty order has called this agreement as sham but these observations in view of assessment order are erroneous. The Assessing Officer also accepted receipt of Rs. 15,000 representing price of 1/2 share of land and also contribution toward cost of construction to the extend of Rs. 5,000. The aforesaid finding clearly accepted that agreement was given effect to. The Assessing Officer did not accept the validity of the agreement as, according to him, the agreement should have been registered and further followed by registered transfer deed which was not the case. He further disbelieved the case to the extend of Rs. 24,814, as according to him, Shri Mukesh Kumar had no means to contribute the aforesaid amount. The assessment order as also the penalty order are based on appraisal of statement of Shri Mukesh Kumar recorded by the Assessing Officer on oath on 18th March, 1986. In order to appreciate the controversy between the parties it is deemed appropriate to reproduce the aforesaid statement :

"Statement on oath in the case of Shri Mukesh Kumar alias Gauri Shanker, Son of Shri Deepti Sharan, Resident of Kasba Sikandrabad, District Bulandshahr.

I, solemnly affirm that whatever statement I will give, I will speak truth and I will not speak anything beyond truth. So help me God.

(Mukesh Kumar)

Q. No. 1: What is the source of your income ?

Ans. My only source of income is from commission agency of supply of building material from the dealer to the customer. My monthly income from this source is by estimate ranges Rs. 700 to Rs. 900.

Q. No. 2: State the number of family members you have got ?

Ans. I am an unmarried individual and living alone. I have got no rented house and living in a shop near a school which belongs to some person, but due to the help of Dr. Veer Sen of Dadri, I am living in that shop for which no rent is being paid by me.

Q. No. 3: Do you own any immovable property ? If so, state the full particulars of the same.

Ans. I own one shop situated in Shahdara in the co-ownership of Shri Amar Nath s/o Sri Gopi Chand, r/o Dadri. I have got 1/2 share in the shop. This shop was purchased by me 2 1/2 years back for Rs. 15,000. My investment in this property is Rs. 7,500. The investment in this property was made by me out of my savings of monthly income of Rs. 900. I have saved Rs. 500 each month and the balance amount of salary was used for my messing charges of hotel etc. Except this, I do not own any immovable property in my own name or in the co-ownership of anybody else.

Q. No. 4: Have you made any agreement for the purchase of plot of land measuring 420 sq. yds. in the co-ownership of Shri Jawahar Lal Goyal, Advocate, s/o Shri Amolak Chand, resident of Gulauto, District Bulandshahr.

Ans. Yes. I did enter into an agreement with Sri Jawahar Lal s/o Shri Amolak Chand to purchase the 1/2 share of plot of land measuring 420 sq. yds. in the month of August 1979. This agreement was made for a sum of Rs. 15,000 for 210 sq. yds. of plot of land. The amount of Rs. 15,000 was paid to Shri Jawahar Lal Advocate by taking loan from Sri Hari Kishan Lal s/o not known, r/o Akbarpur Roni, District : Bulandshahr Rs. 20,000. I can file evidence to this effect. Thereafter, the registration of plot was never made in my name.

Q. No. 5: Do you know as to when the construction of godown was made by Shri Jawahar Lal on the above plot of land and as to when it was got constructed by you ?

Ans. Yes. The construction of the godown was started in the year 1979 and the entire godown was got constructed by Shri Jawahar Lal, Advocate, but 50% investment amounting to Rs. 32,000 was made me. Rs. 5,000 was out of the loan of Rs. 20,000 and the remaining 27,000 was given to him in Installments. The same is not remembered by me because it is not noted by me and the papers are at my residence which I can produce later on. This sum of Rs. 27,000 was out of my savings from my income.

Q. No. 6: You were known that the plot of land has not been got registered in your name, then why you have invested further sum of Rs. 32,000 in the construction of the godown of the plot of which you were not the owner ?

Ans. I was having trust on Shri Jawahar Lal due to Sri Veer Sen under whose protection I am living and he had assured that you should rely upon me and nothing will happen, so that your money make to waste.

Q. No. 7: Have you got any written receipt for the payment of Rs. 32,000 which you had given to Shri Jawahar Lal, for the construction of godown in the share of your plot for which you had already made an agreement to purchase with him ?

Ans. The receipt of Rs. 15,000, the purchase price of the plot is the agreement which I entered into with Shri Jawahar Lal in 1979 and for the payment of Rs. 32,000 there is no receipt.

Q. No. 8: What is your contribution in the construction of godown ?

Ans. The godown which was constructed in Gulaute, was mainly made by Shri Jawahar Lal and I did not make any help except the payment of money of Rs. 32,000. The godown was let out and I receipt Rs. 1,400 for the year 1980. In the year 1981, he gave me Rs. 8,000 as rent from the godown.

Read over and confirmed.

Sd./- Mukesh K. Gauri Shanker"

7. A major portion of above statement was accepted by the Assessing Officer. For purpose of present proceedings questions No. 1, 5, 6 and 8 and answers thereto are relevant. The Assessing Officer accepted first portion of answer to question No. 5 but doubted the claim that Shri Mukesh Kumar could save and give Rs. 27,000 out of his savings. The aforesaid doubt could be removed by only by Shri Mukesh Kumar and he alone could answer the question as to how he could save Rs. 27,000 from his earnings. It would not be reasonable to expect the answer to the above question from the assessed as he is not expected to establish source of a source. If examination of Shri Mukesh Kumar is objectively considered it is clear that Assessing Officer at the time of examination accepted answer given by the deponent to question No. 5 as next question No. 6 asked by him is on a different subject altogether. He did not doubt or challenge the answer given to question No. 5. It would have been fair and proper to ask Shri Mukesh Kumar to explain how he could save Rs. 27,000 from his income before drawing adverse conclusion ultimately drawn. In answer to question No. 8 Shri Mukesh Kumar gave details of rent received in 1980-81. From the above and from answer to question No. 1 it would not be unreasonable to infer that Shri Mukesh Kumars answer to question No. 1 related to sources of income in 1986 when his statement was recorded by the Assessing Officer and not to earlier years. On the aforesaid circumstances I find it difficult to conclude that assessed can be said to have concealed his income for purposes of S. 271(1)(c) of IT Act. The case in my view is fully covered by proviso to Expln. 1 to S. 271(1)(c) of IT Act. The assessed has done whatever was possible for him to do and gave a bona fide explanation. His explanation in part relating to agreement and advancement of funds to the extend of Rs. 20,000 has already been accepted. He also put Shri Mukesh Kumar in the hands of the Assessing Officer to confirm the investment. The Assessing Officer ultimately found certain holes in the statement which as discussed above were not got clarified at the appropriate time. Even if one agrees with the conclusion of the Assessing Officer that from the statement of Shri Mukesh Kumar saving and investment of Rs. 27,000 is not explained, it is still a question mark whether source of Rs. 27,000 was not withheld by Shri Mukesh Kumar in his own interest. Thus case is fully covered by proviso to Expln. 1 mentioned above. On totality of facts and circumstances and for reasons given above I hold that present is not a fit case for levy of penalty under S. 271(1)(c) of IT Act. I cancel the same.

In the result, assesseds appeal is allowed.