Full Judgment
2. The learned Counsel for the assessee submitted that the assessee was clearing and forwarding agent, and that survey under Section 133A was conducted at its business premises on 19th Oct., 2000 during the course of which the assessee surrendered an amount of Rs. 60 lakhs on account of its expenses not being fully verifiable and being supported by only self-made vouchers. The amount of Rs. 60 lakhs was surrendered in four assessment years as under: The learned Counsel submitted that during the course of survey under Section 133A, the statement of Shri Ashok Bhagat, partner of the firm, was recorded and during the course of recording of statement, Shri Ashok Bhagat specifically mentioned "surrender is being made on account of expenses being not fully verifiable" and that a request was made not to levy penalty on these amounts and it was made clear that it is to buy peace of mind and also to ward off unnecessary litigation. The assessee accordingly revised its return of income and paid off the tax as per the revised returns filed by it. He submitted that the surrender made by the assessee was the conditional one and it was a sort of agreement with the Department and the Department had accepted only a part of the agreement favourable to it and denied the other part of the same statement. He submitted that the amount in question surrendered by the assessee was not credited in its accounts by the assessee. There is no other evidence, material on record except the statement on the part of the assessee that expenses were not fully verifiable. He submitted that the concealment is not proved on the part of the assessee by the Department. He submitted that no satisfaction of concealment of income or filing of inaccurate particulars of income was recorded by the AO at the time of assessment and therefore, the very initiation of penalty proceedings is bad in law. He relied on series of decisions in support of his argument reported as CIT v. Ram Commercial Enterprises Ltd. , CIT v. Munish Iron Store , Amir(Del), Harnam Singh Bishan Singh Jewellers (P) Ltd. v. Asstt. CIT (2000) 69 TTJ (Del) 14, Jt. CIT v. Signature (2004) 85 TTJ (Del) 117, Narendra Kumar v. ITO (2005) 94 TTJ (Jd) 156.
3. The learned Departmental Representative has opposed the submission of learned Counsel for the assessee. He submitted that but for the issue of notice under Section 148 or survey operations under Section 133A of the Act, the assessee would not have come forward with admission that the expenses claimed by it are inflated or not fully vouched. He submitted that by making a surrender of income, the assessee has stopped the Department from making further investigations in the matter. The return of income for the asst. yr. 2000-01 was filed after the survey operations and even then the assessee has not added the. amount surrendered by and later on revised its return of income.
He has relied on series of decisions in support of his argument reported as Kamal Chand Jain v. ITO , K.P.Madhusudhanan v. CIT , Asstt. CIT v. Goutham Public School (2004) 88 TTJ (Visakha) 933 : (2004) 88 ITD 31 (Visakha), Hasmukhbhai M. Patel v. ITO (2004) 82 TTJ (Ahd) 150 : (2003) 85 ITD 152 (Ahd).
4. We have considered the rival submissions carefully. We find that at the time of survey operations under Section 133A, the statement of Shri Ashok Bhagat, a partner of the firm, was recorded, but no question regarding inflation of expenses was put to him. No other enquiry was made by the Department and apart from the admission of the assessee, there is no other evidence brought on record to suggest that the expenses were inflated by the assessee. The surrender of the assessee is a conditional one with a request not to levy penalty and is specifically mentioned that it is to buy peace of mind and also to ward off unnecessary litigation. The relevant answer of the partner, Shri Ashok Bhagat in his statement recorded by the Department is reproduced as under: I admit that nature of business is such that these expenses are incurred in cash only, and these expenses cannot be verified with proper documentary evidence. Moreover, the persons to whom payments have been made cannot be traced. In view of the fact that the expenditure incurred on account of labour and mukandami charges, dock and customs expenses, sealing and strapping charges are not fully verifiable. I voluntarily disclose the following amount for the corresponding assessment years :Asst. yr.
Income disclosed1998-99 Rs. 12,50,000 (Rs. Twelve Lakhs fifty thousand only)1999-00 Rs. 13,50,000 (Rs. Thirteen Lakhs fifty thousand only)2000-01 Rs. 14,00,000 (Rs. Fourteen lakhs only)2001-02 Rs. 20,00,000 (Rs. Twenty lakhs only) ------------------------------------------Total Rs. 60,00,000 (Rs. Sixty lakhs only) ------------------------------------------ The above disclosure is made by me voluntarily and without any undue pressure or coercion. I promise to pay the necessary taxes for the above disclosure with a request not to levy penalty and to buy peace of mind and also ward off unnecessary litigation. The above disclosure has been made by me over and above my regular income.
5. The surrender made by the assessee is clearly a conditional surrender and the Department has chosen to accept part of the proposal favourable to it and deny the other part of the same proposal, which is not favourable to the Revenue, This position of the Revenue is unacceptable. This issue was decided in favour of the assessee in the case of Harnam Singh Bishan Singh Jewellers (P) Ltd. v. Asstt. CIT (supra). The observation of the CIT(A) regarding the conditional surrender that there is nothing on record to suggest that such a request of the appellant was ever accepted by the AO or an understanding to that effect reached between the assessee and the AO, is not sustainable. There is nothing to prevent the Revenue officers from rejecting the conditional offer of the assessee in making surrender of income subject to no penal action at the time of survey and the rejection can be recorded during the course of survey proceedings itself. The conduct of the Revenue authorities in adding same figure of surrendered amount in the income of the assessee while framing the assessment and in not making any further investigation into the matter shows that they have accepted the conditional offer of the assessee. There may be number of valid reasons for making a surrender of income at the time of survey and penalty under Section 271(1)(c) of the Act cannot be imposed merely on the basis of the conditional surrender made by the assessee and particularly in a case where apart from the admission of the assessee, there is no other evidence or material brought on record by the Revenue to prove that the assessee has concealed its income. The argument of the learned Departmental Representative that but for the survey operations, the assessee .would not have come forward with the surrendered amount, we find that this proposition is too hypothetical and penalty for concealment of income or filing of inaccurate particulars of income cannot be levied merely on a mere possibility. In this case, the penalty for concealment of income or filing of inaccurate particulars of income was imposed without any objective material brought on record and by accepting only a. part of the conditional offer of the assessee, which is unsustainable in law and accordingly, we cancel the penalty imposed under Section 271(1)(c) of the Act for all the three years on the assessee and the grounds of the appeal of the assessee in all the years are allowed.