Kawaljit Enterprises, vs The Commissioner Of Income Taxi,
2023 Latest Caselaw 2512 Tel

             HONOURABLE SRI JUSTICE P.SAM KOSHY
                              AND
         HON'BLE SRI JUSTICE LAXMI NARAYANA ALISHETTY


           INCOME TAX TRIBUNAL APPEAL NO.224 OF 2007


JUDGMENT: (per Hon'ble Sri Justice Laxmi Narayana Alishetty)

       The present appeal has been filed under section 260-A of

Income Tax Act, 1961 (for short, the "Act") assailing the order

passed by Income Tax Appellate Tribunal, Bench-B, Hyderabad (for

short "Tribunal") in ITA No.649/Hyd/03, dated 29.12.2006 for the

Assessment       Year     1998-99.      Vide     impugned      order,   dated

29.12.2006, the Tribunal dismissed the appeal filed by the

appellant by observing that the appellant failed to satisfactorily

explain the income         and     thereby confirmed the order of         the

Commissioner of Income Tax (Appeals)-II, Hyderabad [for short,

CIT(A)] and levied penalty under Section 271(1)(c) of the Act.


2.     Heard learned counsel Ms. K.Neeraja for the appellant and

the learned standing counsel Ms. B.Swapna Reddy for the

respondent.

3. The brief facts leading to filing of present appeal are as

under:

4. The appellant-firm is engaged in the business of exhibition

and distribution of films. The appellant filed return on 31.10.1998 PSK,J & LNA,J ITTA No.224 of 2007

for the assessment year 1998-99, thereby declaring the total

income of Rs.69,940/-. Survey operation was conducted on

18.12.1998 under Section 133-A of the Act and consequently,

appellant filed revised return declaring total income of

Rs.5,79,940/-. The said return was initially processed under

Section 143(1)(a) of the Act and later, the same was converted into

scrutiny by issuing notice under Section 143(2) of the Act.

5. During the course of scrutiny, the appellant was asked to

explain difference between the figures obtained from the profit and

loss account annexed to the return of income and printouts taken

from the computer available in the business premises of the

appellant, which was found during survey operations. In the profit

and loss account filed along with return, the gross receipts shown

to a tune of Rs.66,31,340/- as against sum of Rs.66,18,041/- was

claimed as expenditure, thereby showing a net profit of

Rs.15,298/-. However, as per the profit and loss account obtained

from the computer, the total receipts were to a tune of

Rs.84,99,708/- as against expenditure of Rs.67,24,420/- and

thus, the net profit was worked out to Rs.17,75,279/-.

6. The Assessing Officer (A.O.) issued notices from time to time

seeking clarification from the appellant with regard to gross

receipts declared in the computerized profit and loss account. The PSK,J & LNA,J ITTA No.224 of 2007

appellant vide its letter dated 16.03.2001 admitted the profit and

loss account found during the survey. The A.O. proceeded further

and completed the assessment taking into consideration the profit

and loss account from the computer at the time of survey. Thus,

the A.O., made an addition of Rs.8,86,984/-. Further, the A.O.,

also initiated penalty proceedings under Section 271(1)(c) of the

Act. In response to the penalty notice, the appellant again

contended that they were not aware as to how the accountant

maintained the accounts and though all the information regarding

the transactions of the business was furnished to the accountant,

he admits to have forgotten to enter certain entries regarding to

certain expenditure incurred by the firm.

7. The A.O. further observed that the statements of the

asssessee are self-contradictory. On one hand, the appellant

admits the correctness of the receipts shown in the computerized

profit and loss account, but claims that certain expenditure was

not entered at that time and in fact, claimed additional expenditure

of Rs.3,01,605/-, which was accepted in the assessment order and

thus, the further difference is only on account of concealment of

income and therefore, the A.O. levied a minimum penalty of

Rs.3,09,307/-, vide his order dated 28.09.2001.

PSK,J & LNA,J ITTA No.224 of 2007

8. Aggrieved by the order dated 28.09.2001, the appellant filed

appeal before the first appellate authority contending that the

penalty was levied only on the basis of findings given in the

assessment order without bringing anything on record to prove

that the assessee has concealed the income or furnished

inaccurate particulars. The appellant further contended that the

explanations given by the assessee were not considered properly by

the A.O., with regard to the profit and loss account obtained from

the computer of the accountant and that only to purchase peace

with the Department, the appellant agreed to the additions.

9. The appellant filed rectification petition on the ground that

an amount of Rs.2,34,267/- was added to the total income treating

it as stock in trade and therefore, claimed deduction under Rule

9B. The said petition was allowed vide order dated 19.12.2002 and

the total income was determined at Rs.12,29,262/-.

10. The first appellate authority observed that in view of

Explanation (1) to Section 271(1)(c) of the Act, upon making an

addition a presumption of concealment is an automatic. That it is

for the assessee to adduce evidence to the satisfaction of the A.O.

to the effect that that it is not the concealed income or the

explanation given by him is a bona fide and all the facts relating to PSK,J & LNA,J ITTA No.224 of 2007

the same and material for the computation of the total income has

been fully disclosed by the assessee.

11. The first appellate authority further observed that the

assessee has not furnished any explanation as to how the

additional income arose. Further contention of the appellant that

the trial balance etc. prepared by the accountant was found to be

false by the A.O. The first appellate authority held that the

assessee has not discharged the burden cast upon it to prove to

the satisfaction of the A.O., the income earned by it from business

of exhibition of films and thus, confirmed the penalty order of the

A.O. vide it's order dated 10.01.2023.

12. Aggrieved by the order of first appellate authority, dated

10.01.2003, the appellant filed appeal before the Income Tax

Appellate Tribunal (for short, 'ITAT'), vide I.T.A.No.649/H/2003.

The appellant reiterated all the contentions which were taken

before the first appellate authority and further contended that

before initiating penalty proceedings, the A.O. has to record his

satisfaction that there was concealment of income and in the

instant case, the A.O., has not recorded such satisfaction in the

assessment proceedings and thus, initiation of the proceedings

without recording requisite satisfaction is bad in law.

PSK,J & LNA,J ITTA No.224 of 2007

13. The ITAT after careful consideration of the contentions raised

on behalf of the appellant and also material placed before it,

dismissed the appeal, which is now under challenge.

14. The learned counsel for the appellant during the course of

hearing submitted that the printouts taken during the survey

operation from the computer available at the premises of the

appellant were not that of the appellant and further contended

that the accountant was also working for other firms. It is further

contended that only to purchase peace and to avoid protracted

enquiry and litigation, the appellant accepted the assessment of

the A.O. to a tune of Rs.8,86,984/-.

15. The appellant further contended that during the assessment

proceedings, the A.O., wanted the appellant to reconcile the

difference between the two accounts and while completing the

assessment, the A.O. did not consider all the expenditure and

allowed deduction in respect of partial expenditure, resulting in

determination of total income at Rs.14,63,674/- as against the

returned income of Rs.5,79,940/-.

16. The learned counsel further contended that the detailed

explanation submitted by the appellant was not considered by the

A.O., and that initial burden is on the revenue. However, revenue PSK,J & LNA,J ITTA No.224 of 2007

failed to prove that the difference between the income returned and

income assessed as the concealed income and the A.O., has to

record his satisfaction before initiating the penalty proceedings and

in the present case, the A.O. failed to record the same. It is finally

contended that the first appellate authority as well as appellate

tribunal is not justified in rejecting the contention of the appellant

and therefore, finally prayed to allow the appeal.

17. Learned counsel for the appellant had relied upon the

following decisions:

(i) Chennakesava Pharmaceuticals vs. Commissioner of Income-Tax 1;

(ii) Commissioner of Income-Tax, Vijayawada vs. Lotus Constructions 2;

(iii) Principal Commissioner of Income Tax (Central) vs. Golden Peace Hotels and Resorts (P) Ltd., 3

18. Per contra, learned standing counsel for the respondent

would submit that the appellant itself admitted to the profit and

loss account taken from the computer during the survey operation

and further, the appellant failed to provide any satisfactory

explanation with regard to huge difference of gross income declared

by the assessee and the income shown in the profit and loss

account during the survey.

(2013) 30 Taxmann.Com 385 (AP)

(2015) 55 Taxmann.com 182 (AP)

(2021) 124 Taxmann.com 249 (SC) PSK,J & LNA,J ITTA No.224 of 2007

19. She further contended that first appellate authority as well

as Appellate Tribunal clearly observed that before initiating penalty

proceedings, the A.O., had carefully considered the material and

satisfied about the concealment of the income during the course of

assessment proceedings and therefore, presumption in explanation

(1) to Section 271 (1)(c) of the Act is attracted. She further

contended that the burden is on the assessee to satisfactorily

explain with regard to the huge difference of gross income, which

the assessee failed and therefore, the A.O., is justified in initiating

the penalty proceedings and prayed for dismissal of the appeal.

Consideration:

20. Perusal of the material, proceedings of the A.O., would

clearly show that before initiating the penalty proceedings, A.O.

had sought clarification/explanation from the asseesee with regard

to huge difference in gross income declared by the assessee with

that of the income shown in the profit and loss account found

during the survey operation. Further, the record also shows that

the assessee failed to satisfactorily explain the huge difference of

gross income. On the contrary, the appellant admitted the

difference amounts and final assessment proceedings of the A.O.,

making an addition of Rs.8,86,984/-. Record also shows that the

additions were made on the basis of the clear documentary PSK,J & LNA,J ITTA No.224 of 2007

evidence found during the survey, which the appellant agreed and

the evidence found during the survey was signed by the

accountant as well as the Managing Partner of the appellant firm.

Consequently, the AO issued the penalty proceedings under

Section 271(1)(c) of the Act.

21. The appellant is aggrieved by the consequential penalty

proceedings issued under Section 271(1)(c) of the Act by the A.O.

and challenged the same before first appellate authority and

thereafter, before the Appellate Tribunal, however, without any

success.

22. The ITAT while dismissing the appeal had recorded the

following conclusions/observations:

(i) though the assessee claimed that certain expenditure was

not entered in the computerized accounts, his claim was limited to

the expenditure of Rs.3,01,605/- and even after allowing the same,

there is huge difference and this was brought out by the A.O. after

exhaustive discussion, which implies that the A.O. was satisfied

that the income returned by the assessee do not disclose the true

and correct particulars and the differential amount was the

concealed income of the assessee.

PSK,J & LNA,J ITTA No.224 of 2007

(ii) the assesseee had admitted that he had carefully gone

through the print outs and sat with his accountant to notice that

the print outs taken were of their concern. The dispute was only

with regard to the expenditure part, which was also limited to

deduction of Rs.3,01,605/- and the assessee admitted the

differential income and could not furnish valid explanation for the

difference in the gross income.

(iii) Once it is assumed that the A.O., was satisfied about the

concealment during the course of the assessment proceedings, the

presumption in Explanation (1) to Section 271(1)(c) automatically

arises when there is difference between the income returned and

income assessed as held by the apex Court in the case of CIT vs.

K.P.Madhusudhan 4, the burden is on the assessee to prove that

the addition made by the A.O. does not refer to the concealed

income of the assessee. However, the assessee failed to provide

satisfactory explanation.

23. The material on record shows that A.O., has provided

reasonable opportunity to the petitioner and also sought

clarification and having not satisfied with the explanation/

clarification provided by the petitioner, the A.O., had passed the

impugned order and recorded the reasons for his conclusion as

251 ITR 99 (SC) PSK,J & LNA,J ITTA No.224 of 2007

mentioned in the preceding paragraphs. The first appellate

authority had also adverted to the contentions raised by the

petitioner and on due consideration had confirmed the orders of

the A.O.

24. The judgments relied upon by the appellants are

distinguishable on facts and therefore, do not apply to the facts of

the present case, since in those cases, the Hon'ble Court came to

conclusion that the Assessing Officer neither satisfied nor there

were findings for initiation of the penalty proceedings.

25. In view of above discussion, the contentions and grounds

raised by the petitioner are devoid of merits and are contrary to

material on record, more so, in the light of the reasons recorded

and observations made by the A.O., the First Appellate Authority

as well as the Appellate Tribunal.

Conclusion:

26. In view of the facts explained above and the legal position,

the appellant failed to make out any case warranting interference

of this Bench with the orders passed by the Income Tax Appellate

Tribunal.

PSK,J & LNA,J ITTA No.224 of 2007

27. For all the aforesaid reasons, we are of the firm view that the

questions of law raised by the appellant deserves to be decided in

negative and thus, appeal deserves to be and is accordingly

dismissed confirming the order of the Appellate Tribunal. There

shall be no order as to costs.

28. Pending miscellaneous applications, if any, shall stand

closed.

__________________________________ P.SAM KOSHY,J

__________________________________ LAXMI NARAYANA ALISHETTY,J Date: 20.09.2023 kkm PSK,J & LNA,J ITTA No.224 of 2007

HONOURABLE SRI JUSTICE P.SAM KOSHY AND HON'BLE SRI JUSTICE LAXMI NARAYANA ALISHETTY

INCOME TAX TRIBUNAL APPEAL NOs.224 OF 2007

Date: 20.09.2023

kkm