Judgment:
ORDER
V. DONGZATHANG, SENIOR VICE PRESIDENT :
These appeals - two by the assessee and one by the Department - are directed against the consolidated order of the CIT(A) in respect of penalties under ss. 271(1)(c), 273(1)(a) and 271(1)(a) of the IT Act. They are relevant for the asst. yr. 1983-84.
2. The brief facts are as follows : The assessee is an individual maintaining account on cash system. The previous year is the financial year ending on 31st March, 1983. The assessee, according to the AO is a well-known story and screenplay writer for Hindi films. A search was conducted at his residential premises on 29th January, 1983. During the course of the search, cash of Rs. 3 lakhs was found out of which an amount of Rs. 2,85,000 was seized. In the course of the proceedings under s. 132(5), the assessee came up with the explanation that Rs. 2,50,000 was received from Film Unit, a proprietary concern of Shri Amit Khanna. The money was kept by his wife who forgot to inform the assessee about the same. In the meanwhile, the assessee filed the return for the asst. yr. 1983-84 in which gross professional receipt of Rs. 5,35,629 and a net income at Rs. 2,48,207 were shown. The assessee claimed deduction of Rs. 2,50,000 as professional fees to be returned back to Film Unit. The AO however, did not accept the explanations and treated the entire amount of Rs. 3 lakhs less possible saving of Rs. 5,000 as representing cash found during action under s. 132 included under s. 69A. He accordingly added Rs. 2,95,000. This issue in the quantum assessment came upto the Tribunal and the Tribunal upheld the addition by order dt. 13th April, 1989, in ITA 3694/Bom/87.
3. In the meanwhile, the AO initiated penalty proceedings under s. 271(1)(c) of the Act. In the course of the penalty proceedings the assessee did not comply with the notices and the AO passed the order in the light of the finding in the assessment year. In doing so, the AO considered the explanation given at the time of assessment proceedings where it was explained that the amount was received by the wife of the assessee in his absence and she forgot to inform about the same. It was further submitted that the confirmation from Film Unit was filed confirming that the amount was given on 27th January, 1983, i.e., just a day before the action under s. 132 took place. The AO did not accept the explanation. According to him, the assessee did not give any indication about this amount received from Film Unit at the time of the search. It was also found by him that the amount was found in two places, i.e., in the assessees own bedroom and of his son. There was no time for splitting the amount if it was received only a day before. Even in any case, it is impossible for the wife of the assessee not to inform her husband about this transaction. It was also found by the AO that the assessee normally deposited professional fees into the bank immediately. Keeping in view the above facts and also considering that the assessee failed to comply with the notices, it was held by him that the assessee failed to submit an explanation for the default. Since the addition has been confirmed by the CIT(A), he held that the assessee was liable to penalty for concealment in terms of s. 271(1)(c) of the Act and imposed a penalty of Rs. 2,50,000 being minimum penalty leviable under the provisions of this Act.
4. The assessee took up the matter in appeal before the CIT(A), who, however, upheld the penalty by the impugned order.
5. The assessee is still aggrieved and has come up in appeal before the Tribunal. At the hearing Shri Prakash Jotwani, the learned counsel of the assessee, vehemently objected to the order of the CIT(A). According to him, the search was conducted on 29th January, 1983, much before the end of the previous year. In such a case, it cannot be said that the assessee has concealed the income on the basis of cash found on 29th January, 1983. The return of income was filed in 1985 and the assessee fully declared the professional receipts and claimed deduction of the amount of Rs. 2,50,000 being the amount refundable to Shri Amit Khanna, proprietor of Film Unit. Secondly, it is submitted that penalty proceedings is totally different from assessment proceedings and in the absence of any specific finding regarding the concealment, there can be no justification for imposition of penalty under s. 271(1)(c) of the Act. It is also submitted that the AO in this case initiated penalty proceedings under s. 271(1)(c) and imposed penalty under the above section. However, such order cannot be sustained in view of the fact that there is no finding of concealment by the assessee. If the AO imposed the penalty on the basis of the Expln. to s. 271(1)(c), then such specific notice has to be given to the assessee in terms of the decision of the Honble Bombay High Court in the case of CIT vs . P. M. Shah : [1993]203ITR792(Bom) . In the absence of such specific notice it is submitted that the penalty is liable to be cancelled. With regard to the explanation given by the assessee, it is submitted that the assessee fully explained the source of the money and the party duly confirmed the said payment. It is further pointed out that the party, namely, Film Unit, was not examined by the authorities and when the matter was taken up before the Honble High Court of Judicature at Bombay, the Honble High Court was pleased to direct reference of the following question :
'Whether, the Tribunal was right in law in rejecting the claim that the amount of Rs. 2,50,000 was received from Shri Amit Khanna without even examining Shri Amit Khanna though under s. 132(5) the order has to be passed only after affording a reasonable opportunity to the person concerned of being heard.'
Since the addition was made on suspicion without proving that the explanation was false, it is submitted that the case of the assessee comes within the proviso to Expln. 1 which provides that nothing contained in the Explanation shall apply to a case referred to in cl. (B) in respect of any amount added or disallowed as a result of the rejection of any explanation offered by such person, if such explanation is bona fide and all the facts relating to the same and material to the computation of his total income have been disclosed by him. Since the assessee has fulfilled all the requirements and there being no specific finding about the concealment in this case, it is submitted that no penalty is leviable and the same is to be cancelled.
6. On the other hand, Shri U. Vishwakumaran, the learned Departmental Representative, strongly supported the order of the CIT(A). According to him, the learned CIT(A) extensively quoted the findings of the Tribunal which in no uncertain terms recorded a finding that the explanation of the assessee was not plausible. The learned CIT(A) further recorded a finding at para 1.5 that the explanation given by the assessee should not be normally believed by even the most gullible for the following reasons :
'Further facts need reiteration to show how palpably false is the explanation. If it is true that the cash in question has been handed over by Shri Amit Khanna to the assessees wife a couple of days before the date of the search, then it appears unusual why this cash has been split and found lying in two different bed rooms at the time of search. Throughout his career as a scriptwriter the assessee has never received any amount at one time to exceed even Rs. 1 lakh and there is hardly any amounts received professionally by way of cash. In fact the explanation is so varied that it was not even necessary to ask Shri Amit Khanna whether in his professional career he has even given anybody any advance of this magnitude. But in the present case, if this cock and bull story were to be believed he would more appear to be in search of some place to get rid of the cash he has. He goes to the house of the assessee at the time when the assessee is not there, and dumps the cash with his wife. And the wife, when the search is going on does not even whisper where such an unusual size of cash came from. The more likely the actual story is that after the search the only way the assessee could fabricate books could show availability of cash for expenditure. Since the assessee himself had denied the knowledge of the cash in the statement at the time of the search, it was necessary to invent one more character in the drama viz., the assessees wife. Again, the assessee is only a scriptwriter who, it is well-known would never command such a price and, therefore, he is supposed to have promised to render services also as a director of the proposed film which ultimately never materialised.'
With regard to the requirement of invocation of the Expln. to s. 271(1)(c), the learned Departmental Representative submitted that the Honble Bombay High Court in the subsequent decision in the case of CIT vs . S. K. Agarwal : [1994]208ITR668(Bom) held that imposition of penalty under Expln. to s. 271(1)(c) is valid in the circumstances of the case. Relying on the decision in the case of CIT vs . Somnath Oil Mills : [1995]214ITR32(Guj) , it is submitted that findings in assessment proceedings constitute good evidence of concealment and, therefore, the CIT(A) was justified in confirming the penalty imposed. Reliance was also placed on the decision in the case of Nandlal Kanaiyalal vs . CIT : [1994]205ITR360(Guj) and in the case of CIT vs . Prathi Hardware Stores : [1993]203ITR641(Orissa) . The decision of the Honble Supreme Court in the case of Sumati Dayal vs . CIT : [1995]214ITR801(SC) was also cited in support of the claim. It is, therefore, submitted that no interference is called for in this regard.
7. We have carefully considered the rival submissions. From a careful reading of the facts on record, it is seen that there is a preponderance for assessing the amount as income from undisclosed sources as rightly done by the AO and confirmed upto the level of the Tribunal. However, a penalty proceeding is a separate proceeding for which the tests are more stringent and the findings have to be more specific. The residential premises of the assessee was searched on 29th January, 1983. A cash of Rs. 3 lakhs was found. It was explained by the assessee that the amount was received by his wife in his absence on the previous day and the assessee was not aware of the cash. The cash was found kept in two places, namely, the bedroom of the assessee and his son. Later on, it was explained that the amount was received from Shri Amit Khanna as advance. The explanation was rejected by the AO, the CIT(A) and the Tribunal in the quantum assessment proceeding on the reasoning that the said explanation was not plausible. Firstly, it is impossible for the lady of the house not to inform about the cash of such amount to her husband immediately. Secondly, such amount has already been split and kept at two places, namely, in the bedrooms of the assessee and his son. Thirdly, no one mentioned about this receipt from Shri Amit Khanna of Film Unit and the ongoing negotiation for the advance payment of such amount. Even, in any case, such huge amount was never received by the assessee in the past and it is not possible for him to receive such amount for this work which is not even properly specified. Keeping in view the status of the assessee, his capacity to save, the AO estimated the possible savings at Rs. 5,000 and treated the balance amount as undisclosed income under s. 69A of the Act.
8. As observed earlier, the AO is justified in rejecting the explanations and assessing the said amount as income of the assessee for the year. However, for treating it as undisclosed income, we are of the view that the action taken by the AO cannot be sustained. Firstly, the search was conducted on 28/29th January, 1983. This is two months before the end of the previous year of the assessee. The assessee claims that this amount is an advance received from Shri Amit Khanna of Film Unit for professional work. In the return of income filed for the year under consideration this amount was included as forming part of the professional receipt. The assessee further claimed that this amount of Rs. 2,50,000 was returnable to Shri Amit Khanna and claimed deduction therefrom. From the assessment order and also appellate orders, it is seen that the explanation given by the assessee has been rejected without examining Shri Amit Khanna of Film Unit. The assessee took up this issue before the Honble High Court and the Honble High Court was pleased to direct the following question :
'Whether, the Tribunal was right in law in rejecting the claim that the amount of Rs. 2,50,000 was received from Shri Amit Khanna without even examining Shri Amit Khanna though under s. 132(5) the order has to be passed only after affording a reasonable opportunity to the person concerned of being heard.'
From this fact, it is apparently clear that the claim of the assessee has not been disproved and the amount has been assessed on mere suspicion.
9. At the appellate stage of the penalty proceedings the learned CIT(A) allowed the assessee the opportunity to examine Shri Amit Khanna and Shri Amit Khanna was examined on 26th October, 1989. In the said statement Shri Amit Khanna, proprietor of Film Unit, confirmed the payment of Rs. 2,50,000 to Shri Sachin Bhaumick. It was also confirmed by him that he received back a sum of Rs. 30,000 as interest in two instalments of Rs. 15,000 each in 1983 and 1984. Shri Amit Khanna was further examined on 18th January, 1990, and he did not deny the payment of Rs. 2,50,000. He further explained the sources of the money. It was also admitted by him that the amount was not received back by him so far. The learned CIT(A) did not accept the explanation and simply treated the explanation as cock and bull story. The learned CIT(A) even observed that the explanation was so varied that it was not even necessary to ask Shri Amit Khanna whether in his professional career he has given anybody any advance of this magnitude. We are unable to understand such appreciation of fact as made by the CIT(A). There appears to be a predetermined action rather than finding out cogent reasons to justify the action. The said amount of Rs. 2,50,000 was seized by the Department and it is adjusted by the Revenue authorities against the taxes due from the assessee. It is, therefore, not possible to see whether this amount actually belongs to Shri Amit Khanna, who, according to the CIT(A), has never given such advance of this magnitude. It is not the case of the CIT(A) that Shri Amit Khanna has not got the capacity to make such advance. The only objection raised appears to be the manner in which the amount was advanced. On the other hand, it is the finding of the AO that the assessee never received such big amount in his professional life in the past. From the above finding it cannot be said that the assessee could save such amount from his professional receipt. Moreover, it will be very unusual for the assessee to keep the past savings in the drawers which is easily accessible. The fact that the cash was put openly in two places is explained to be due to shortage of space in the drawer to keep the entire amount at one place. It is also doubtful if the assessee would keep its entire life-saving so openly. Therefore, the contention that the amount came from some other person and that it was claimed by Shri Amit Khanna to be the advance money paid by him is quite plausible and cannot, therefore, be rejected outright.
10. In the case of the assessee some foreign currencies were also discovered at the time of the search. It was explained by the assessee that these foreign currencies were received for shooting of films in foreign countries. The amount remained with the assessee as the shooting of the film was eventually done in India instead of Canada. Such explanation was also acceptable to the Revenue authorities. In such a case, the Revenue authorities have not made out any case that the cash also was not the advance money received by the assessee for the professional work. In the absence of such finding penalty levied by the AO cannot be sustained under s. 271(1)(c) of the Act.
11. With regard to the application of Expln. to s. 271(1)(c) of the Act, we are of the view that the AO never invoked the Explanation for imposition of the penalty. In such a case, the decision of the Honble Bombay High Court in the case of CIT vs. P. M. Shah (supra) is directly on this point and, therefore, the penalty cannot also be sustained in the light of the Expln. to s. 271(1)(c). The decision in the case of CIT vs. S. K. Agarwal (supra) is distinguishable as has been done by the Honble High Court by observing that the wording of the question in the present reference is quite different from that in the case of CIT vs. P. M. Shah (supra). In this view of the matter, we fail to appreciate how the decision in that case would be of any help to the assessee. In view of this observation, it is not necessary for us to give a separate finding for distinguishing the latter decision from that of P. M. Shah (supra).
12. Insofar as the penalty under s. 273(1)(a) is concerned, it is the case of the assessee that the default arose due to the addition of Rs. 2,50,000 made by the AO which was not anticipated. This explanation was rejected by the AO and the CIT(A). Keeping in view, however, our finding in the penalty proceedings under s. 271(1)(c) of the Act, we are of the view that the assessee is entitled to the benefit of doubt and, therefore, it is to be held that the assessee has got reasonable cause in this regard for its failure to file an estimate under s. 212(3A) of the Act. The order on this point is accordingly deleted.
13. With regard to the penalty under s. 271(1)(a), the learned CIT(A) accepted the explanation given before him as follows :
'3. Regarding penalty under s. 271(1)(a) the submissions made on behalf of the appellant are as under :
'The basic fact is that there was a raid on the appellants residential premises on 29th January, 1983. During the course of the raid almost all the belongings of the appellant were seized, such as, jewellery, etc., The appellant was not in a position to collect the material necessary for filing a return for a long time. The appellant was not aware that extension in Form No. 6 was required to be filed.
The appellant is story and scriptwriter in the Film Industry. In fact, since the appellants bank account as well as the entire cash was seized, the appellant was handicapped in making routine payments also. Naturally, the appellant could not approach any reputed chartered accountant for completing the returns, etc., for a long time. The appellant used to receive annuities from LIC and the appellant was required to collect all these details before filing the return.'
14. After hearing both the parties, we see no infirmity in the order of the CIT(A) and it is accordingly upheld.
15. In the result, the appeal of the assessee succeeds and that of the Revenue fails and is dismissed.