1. This appeal by the Revenue is directed against the deletion of penalty amounting to Rs. 20,57,477 levied under Section 271(l)(c) of the Income-tax Act, 1961 (hereinafter called 'the Act') and relates to the assessment year 1996-97.
2. We have heard the rival submissions in the light of material placed before us and precedents relied upon. Assessment was completed under Section 143(3) of the Act. A sum of Rs. 25 lakhs was added, inter alia, towards bogus loans. Assessee alleged to have taken loans from S.Thangavelu, V. Somasundaram, Natarajan, R. Rangaswamy and R.V.Ravichandran, Rs. 5 lakhs from each of them, total amounting to Rs. 25 lakhs. It is not clear from the records whether the assessee did file confirmation or just the addresses. Before the CIT(A) it was contended that the assessee did file confirmation but in the order of assessment there is no discussion in regard to the confirmation. At the time of hearing the learned Counsel for the assessee could not clarify this doubt. The Id. D.R. submitted that no confirmation is available in the record. Assessee did file only the addresses of loan creditors on the basis of which enquiry was conducted. Assessing Officer wrote letters to the aforesaid 5 persons. Three of them replied in a vague manner.
Thereafter Assessing Officer got enquiries conducted by Assessing Officer, Poliachi, Namakkal, and D.D.I.T., Coimbatore. Statements were recorded.
3. Assessing Officer reproduced the relevant portion of depositions in respect of R.V. Ravichandran, S. Thangavel, V. Somasundaram and N.Natarajan. Whereabout of R. Rangasamy could not be located at the address given. He did not respond to the letter. These persons are men of small means and from their statement it is clear that they don't have the capacity to advance this much of amount. Besides they denied having given any such loan.
4. Assessing Officer made enquiries with the Indian Bank where assessee did maintain the Savings account bearing No. 57024. It transpired that five Demand Drafts dated 30-3-1996 of Rs. 5 lakhs each were deposited into the assessee's a/c on 30-3-1996. The demand drafts were issued by City Union Bank, Triplicane Branch, Chennai. All the aforesaid five persons opened their account with City Union Bank on 27-3-1996. Each one deposited cash Rs. 5 lakhs on 30-3-1996. On the same date demand drafts were issued. All the five accounts were closed on 15-4-1996.
5. Assessing Officer required the assessee to produce the creditors by 17-3-1999 by issuing a letter on 11-3-1999. Assessee did not respond to this letter. Assessing Officer intimated the assessee about the enquiries conducted by him and gave another opportunity to produce the said creditors or to file any other objections by 26-3-1999.
6. Assessee filed a reply dated 26-3-1999 offering Rs. 25 lakhs and gave an undertaking not to go in appeal. The copy of the letter is reproduced here as under: With reference to the abovesaid letter dated 22-3-1999,1 am to inform you that the sundry creditors for Rs. 25,00,000 is identifiable and it is a genuine credit only.
Even though it is provable (sic) only I came forward to accept it as my income in order to have the peace of mind and to cooperate with the department. I will not prefer any Appeal against your Order and I will pay the taxes.
As such I hereby request you to kindly accept the same and pass the necessary orders.
On the basis of the aforesaid surrender made by the assessee assessment was completed and show-cause notice was issued for the levy of penalty for concealment under Section 271(l)(c).
7. In response to the show-cause notice assessee had filed her reply which was received by the Assessing Officer on 4-5-1999. This states as under : 3. In order to cooperate with the Department, I have voluntarily accepted the said loan amount as my income for the year under consideration vide my letter dated 26-3-1999 and accordingly, I have agreed to pay taxes thereon with interest and had requested to drop the penalty proceedings initiated under Section 271(1)(c).
8. Thereafter vide letter dated 6-8-1999 assessee relied, inter alia, on the ratio of the decision laid down by the Apex Court in the case of Sir Shadilal Sugar & General Mills Ltd. v. CIT .
Thereafter the case was fixed for hearing on 7-9-1999. Assessee did not produce the creditors. As such Assessing Officer opined that the assessee has got nothing further to say. Accordingly, penalty was levied. In the penultimate para of the order Assessing Officer held as under : Taking into consideration all the facts and circumstances and the defence advanced by the assessee and her failure to discharge the onus despite the opportunities given, I levy a minimum penalty of Rs. 20,57,477 which should be paid as per the demand notice enclosed.
9. Being aggrieved of the order, the assessee filed appeal before the CIT(A). The CIT(A) held that the onus is on the department to prove the conscious concealment. Assessee did file confirmation letters.
Assessing Officer wanted the assessee to produce the creditors before him. Assessee might have approached the creditor but could not bring them before the Department. The reluctance and fear of the creditors might have been responsible for surrendering of the credits. On these presumptions it was concluded that there was no mala fide or conscious concealment on the part of the assessee. As such he deleted the penalty.
10. When a cash credit entry appears in the assessee's books of account in an accounting year, the assessee has legal obligation to explain the nature and source of such credit. It is sine qua non for the assessee to prove primafaciethe transaction which results in cash credit in her books of account. Such proof includes proof of the identity of creditor, the capacity of such creditor to advance the money and, lastly the genuineness of the transaction. These things must be provedprimafacieby the assessee and only after the assessee has adduced evidence to establish prima facie the aforesaid, the onus shifts on the department. Merely establishing the identity of the creditor is not enough. In the case of CIT v. United Commercial & Industrial Co. (P.) Ltd. it was held that mere filing of confirmatory letters does not discharge the onus that lies on the assessee. In the present case, it is doubtful whether the assessee did file confirmation letters or not. Besides, the loan creditors were not produced for examination. When four out of five creditors were examined by the departmental authorities they refused to have given any such loan to the assessee. Assessee did not ask for any cross-examination. On the contrary assessee surrendered the amount de hors any stipulation for non-levy of penalty. From the surrounding circumstances it is clear that the loans were not genuine.
11. Learned Counsel for the assessee relied on the decision of the ITAT, Mumbai rendered in the case of Kumar Agencies (India) v. Asstt.
CIT. In this case loan transactions were through brokers. The addition was made purely on the declaration made by the assessee. There was no clinching evidence apropos the concealment.
After a lapse of over a period of a decade the assessee expressed inability to produce the parties for cross-examination. The Tribunal took into consideration the fact that parties were not directly known to the assessee. Loans' were deposited and repaid by account-payee cheques. Confirmations were filed. These confirmations bore the Permanent Account Number of the creditors. On this factual background, the Tribunal deleted the penalty. In the present case facts are different. As such the ratio of this decision cannot be applied.
12. Next the learned Counsel for the assessee relied on the decision of the Delhi High Court rendered in the case of CIT v. Aggarwal Pipe Co, . In this case categorical finding was given that surrender of cash credits for assessment was only because of inability to produce creditors and there was no concealment of income. On this factual finding of the Tribunal, Hon'ble High Court held that no question of law arose. Therefore, ratio of this decision cannot be applied in the facts of the present case.
13. Next reliance was placed by the learned Counsel for the assessee on the decision of the Hon'ble Rajasthan High Court rendered in the case of Shiv Lal Tak v. CIT [2001] 251 ITR 373. In this case explanation of the assessee was not accepted because assessee failed to substantiate it. It was not held to be false. As such it was taken as different from deliberate false explanation. It was held that there cannot be presumption about deliberate concealment and lack of bona fide.
14. Learned Counsel for the assessee further placed reliance on the decision of the Apex Court rendered in the case of CIT v. Suresh Chandra Mittal . In this case assessee had originally filed returns showing meagre income. When, after action under Section 132 of the Income-tax Act, 1961, a notice under Section 148 was served on him, he filed revised returns showing higher income. Eventually, assessment orders were passed and the returns submitted regularized under Section 148. In penalty proceedings under Section 271, the assessee claimed that he had offered additional income to buy peace of mind and avoid litigation. Penalty orders were passed and the Commissioner (Appeals) confirmed the orders. But the Tribunal held that the Department had not discharged its burden of proving concealment and had simply rested its conclusion on the act of voluntary surrender done by the assessee in good faith, and that penalty could not be levied. On a reference, the High Court held that no penalty could be levied for concealment. The Department preferred appeals to the Supreme Court. The Supreme Court dismissed the appeals holding that no interference with the order of the High Court was called for.
15. Alternatively it was prayed by the learned Counsel for the assessee that penalty should be restricted to the minimum as stated in the order by the Assessing Officer. The minimum amount of penalty should be based on the amount of tax sought to be evaded. This amount was roughly said to be below 10 lakhs whereas penalty was levied at Rs. 20,57,477. It was prayed that the Assessing Officer be directed to correctly calculate the amount of minimum penalty.
16. Learned D.R. heavily relied on the decision of the Apex Court rendered in the case of K.P. Madhusudhanan v. CIT . In this case assessee was a firm. It had taken certain bank drafts for payments to suppliers of rice in Andhra Pradesh. Entries in the accounts were made not on the dates on which they were obtained but a few days later. It was explained that the assessee did not have sufficient cash balance on those dates. It had obtained hand loans from friends. The assessee expected to repay such loans within a short time.
As such no entries were made in the books of account in respect thereof. On these reasonings such loans were offered for taxation as additional income. Assessing Officer found the assessee's explanation unacceptable. Applying Explanation 1(B) to Section 271, Assessing Officer levied penalty. Tribunal cancelled the penalty, inter alia, for the reason that in the notice initiating penalty proceedings the assessee was not intimated against the proposed action under Explanation 1(B) to Section 271(l)(c); but the High Court, on a reference, held that the imposition of penalty was valid. On appeal Supreme Court affirmed the decision of the High Court and held that penalty was validly levied.
17. There is no general principle of universal application that whenever addition is made of an amount offered by the assessee to be added, there cannot be any levy of penalty under Section 271(l)(c) as held in the case of Suresh Chandra Mittal (supra). The law laid down by the Apex Court in that case is that merely because the assessee has agreed to the assessment that can ipso facto be no ground for levy of penalty. If the assessee offers an explanation the Revenue authorities are required to consider the acceptability of the explanation. Levy of penalty depends on the acceptability of such explanation. If the explanation is vague or fanciful, de hors any foundation or basis, it is open for the Revenue to levy the penalty.
18. In the case of K.P Madhusudhanan (supra), the Apex Court has held that because of the addition of the Explanation to Section 271(l)(c), the view taken in SirShadilal Sugar & General Mills Ltd. 's case (supra) can no longer be said to be applicable. Explanation for Section 271(l)(c) was said to be part of Section 271. By virtue of the notice under Section 271 the assessee is put to notice that, if he does not prove, in the circumstances stated in the Explanation, that his failure to return his correct income was not due to fraud or neglect, he shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars thereof and, consequently be liable to the penalty under Section 271.
19. Levy of penalty depends upon the acceptability of the explanation offered by the assessee. In all the cases of agreed addition, assessee cannot be exonerated from the rigour of penalty. In the case of Suresh Chandra Mittal, department had not discharged its burden of proving concealment. As such penalty was deleted. It is nowhere laid down in the judgment that agreed additions are outside the ambit of penal provisions and assessee is not required to explain the source of income. It is true, mere acceptance by the assessee cannot automatically bring in levy of penalty. If assessee offers an explanation, the Assessing Officer is duty-bound to examine it in consonance with the cannons of justice. If explanation is plausible, there is no question of levying any penalty. But if the explanation is vague or fanciful it is open for the Assessing Officer to levy penalty.
In the present case, we find that the assessee failed to discharge the initial onus. Creditors categorically denied the f actum of loan. It revealed from the bank account that the transactions were not genuine.
No plausible explanation was offered by the assessee. Assessee surrendered the loan credits consequent upon the detection. As such in our opinion, the Assessing Officer was correct in levying the penalty.
Accordingly, we maintain the penalty levied by the Assessing Officer and reverse the order of the CIT(A).
20. Coming now to the alternate argument of the learned Counsel for the assessee that penalty should be restricted to the minimum, Assessing Officer is required to find out the net tax to be evaded by reason of the concealment. We direct him to levy the minimum penalty after making the correct calculation of tax.