D.b. Income Tax Appeal v. Assistant Commissioner Of Income Tax

IN THE HIGH COURT OF JUDICATURE FOR RAJASTHANBENCH AT JAIPUR *** D.B. Income Tax Appeal No.5/2014Apex Metchem (P) Ltd. Vs. Assistant Commissioner of Income Tax. DATE OF ORDER : 12/02/2014 PRESENTHON'BLE MR.JUSTICE AJAY RASTOGIHON'BLE MR.JUSTICE J.K. RANKA Mr. Prakul Khurana on behalf of Mr. Sanjay Jhanwar,Advocate, for the appellant. BY THE COURT (Per Hon'ble Ranka, J.) 1.This appeal u/s 260-A of the Income Tax Act, 1961(for short, “IT Act”) has been preferred by the appellant-assessee against the order of the Income Tax AppellateTribunal (for short, “ITAT”) dt.24/05/2013 passed in ITANo.9/JP/2008 by which the ITAT has allowed the appealfiled by the respondent-revenue against the order of theCommissioner of Income Tax (Appeals)-I, Jaipur (for short,the “CIT(A))”. 2.The brief facts, as emerging on the face of record, arethat the appellant-assessee, a private limited company, iscarrying on the business of manufacturing of industrialchemicals. A search operation came to be carried out atThakkar Group by the name of Ram Remedies Pvt. Ltd. and its Managing Director Mr. Mayur M. Thakkar. Whilecarrying out the search proceedings at Mayur M. Thakkar'sbusiness and residential premises, certain incriminatingdocuments relating to the appellant-assessee were alsofound and on the basis of which a notice u/s 158 BD wasissued in pursuance to which the block assessment wascarried out. It is the claim of the respondent-revenue thatMr. Mayur M. Thakkar, in the name of his variouscompanies and family members, had been obtainingdelivery notes by fabricating documents in the name ofvarious concerns namely; eight companies, the names ofwhich are quoted here ad-infra:- 1.M/s. Apex Metchem (P) Ltd. 2.M/s. A.R.A.R. Chemicals (P) Ltd. 3.M/s.Texol Chemicals 4.M/s.VIP Chem & Chemicals 5.M/s.Neelchal Chemicals Industries 6.M/s. S.S. Chemicals 7.M/s.Thinner & Co. 8.M/s.Manu Points & Chemicals. 3.It is a finding of fact as observed by the ITAT in theimpugned order wherein the addition was sustainedworking out commission at the rate of 2% that number ofperson/concerns engaged in manufacturing, trading anddealership of petrochemical products were usingaccommodation entries by way of fictitious bills of paperconcerns issued by Vora Group. Thakkar group is one such group engaged in the business of manufacturing, trading,dealership and transportation of bulk chemicals likekerosene, MTO, Benzene, Mineral Turpentine, Solvent,NGL/Naphtha, LPG etc. Some of these chemicals such asnaphtha are procured mainly from the public sectorcompanies like BPCL, HPCL, OICL, etc. There is a quotafixed by the public sector undertakings, supply of suchchemicals for actual users which in turn are to be utilized bythem in the manufacturing of various petro chemicalproducts. These chemicals could however, be used formany other illegal purposes and common among them isadulteration of petrol. Due to quota allocation system thesechemicals command a premium in the market and aremostly sold at such high rate than the procurement pricewhich are usually in cash and not recorded in the books ofaccount. As the allotted chemicals are sold in cash by thequota holders instead of utilizing them for manufacturingprocess, certain bogus buyers of manufactured items,which in fact are not produced at all are required to beshown in record. Actually no manufacturing or distillation isdone but invoices of bogus sale showing sale ofmanufactured item or by product of Naphtha are made. Forthis purpose the concern of Vora group use to giveaccommodation entry for purchase of chemicals from such parties by issuing bogus purchase bills. parties by issuing bogus purchase bills. 4.Modus operandi followed by Vora group was toreceive cash from various parties and the same weredeposited in bank accounts maintained in the name ofvarious fictitious, non-existing paper concerns. Thereafter,cheques/DD/Pay orders were issued either directly from thesaid account or after transferring the deposited amount toanother account held by Vora family only. 5.The core issue before the AO was as to how the saidtransactions have to be treated in the hands of theassessee, particularly, in view of the overwhelmingevidence that Mr. Sanjay Bhatia, Director of the assessee-company had given to Mr. Mayur M. Thakkar the letterheads of the assessee so also the signed blank chequebooks and it has been found as a fact that Mr. Mayur M.Thakkar was, in-fact, operating even the bank account ofthe appellant with Union Bank of India. Obviously, a personin the ordinary course of his business or any other personwould keep letter heads, cheque books in safe custody andone would not allow a third person to operate a bankaccount and leave even the signed blank cheque booksand if the above facts, which have been found admittedlycorrect, then there had to be some consideration havingbeen received by Mr. Sanjay Bhatia, Director of the appellant-company in allowing not only to operate the bankaccount but also in providing blank signed cheques. Whilethe AO appeared to have treated all the credit balances i.e.deposits in the Union Bank of India in the account of theassessee as having not been proved, however, the ITAT,after considering the connected case of Vora Group wherecommission of 3% was assessed on the entire transactionbut in the case of assessee, rate of 2% was worked out onthe basis that this could have been an adequateconsideration. The above findings clearly indicate that theThakkar family has acted as an active accomplice in thisentire unaccounted trade undertaken by M/s. ApexMetchem (P) Ltd. the appellant from its undisclosed bankaccount at Mumbai. Various evidences collected in thisregard clearly indicate the involvement of Thakkar family.Some of the clinching evidences establishing nexus ofThakkar family with unaccounted operation of Bank accountin the name of M/s. Apex Metchem (P) Ltd. the appellantare as under:- a)The Mumbai address of M/s. Apex Metchem(P) Ltd. as per bank record is actually officeaddress of Thakkar family.(P) Ltd. as per bank record is actually officeaddress of Thakkar family. b)Though Mr. Sunil Thakkar has denied that hehas introduced the bank account of M/s ApexMetchem (P) Ltd. However, evidences in thehas introduced the bank account of M/s ApexMetchem (P) Ltd. However, evidences in the bank records confirm Mr. Sunil Thakkar asintroducer. c)Telephone number of SCI and mobile numbersof Manoj M. Thakkar is recorded in the bankrecords it was found that Mr. Vinod, who is thecashier of Sunil and Manoj Thakker has receivedDD and PO on various occasions from M/s. ApexMetchem (P) Ltd. account. 6.In view of the above, though it is a fact that bankaccount was maintained by M/s. Apex Metchem (P) Ltd.,however, Thakkar family cannot be absolved in respect ofits role of operating the aforesaid bank account. 7. The role of assessee in the entire trading in name of M/s. Apex Metchem (P) Ltd. is of not passive but as anactive agent. Apex Metchem (P) Ltd. the assessee hasaccepted unaccounted earning of brokerage/ commissionon sales so affected. 8.The ITAT in the quantum proceedings, as aforesaid,after considering all the facts and the findings, upheldaddition at the rate of 2% as commission on account of thesaid accommodation entries while in the connected case ofVora Group, who had also been providing similaraccommodation entries, computed commission at the rateof 3%. In the penalty proceedings, the AO, on the basis ofthe said addition having been sustained by the ITAT, 7. The role of assessee in the entire trading in name of M/s. Apex Metchem (P) Ltd. is of not passive but as anactive agent. Apex Metchem (P) Ltd. the assessee hasaccepted unaccounted earning of brokerage/ commissionon sales so affected. 8.The ITAT in the quantum proceedings, as aforesaid,after considering all the facts and the findings, upheldaddition at the rate of 2% as commission on account of thesaid accommodation entries while in the connected case ofVora Group, who had also been providing similaraccommodation entries, computed commission at the rateof 3%. In the penalty proceedings, the AO, on the basis ofthe said addition having been sustained by the ITAT, accordingly imposed penalty on Rs.5,06,496/- u/s 158 BFA(2) amounting to Rs.3,03,898/- at the rate of 60% asprescribed in the said section. It was observed by the AOthat it was own admission of the appellant-assessee that ithad given accommodation entries on which it is earning halfpercent of commission. 9.Dissatisfied with the said imposition of penalty, thematter was carried in appeal before the CIT(A). The CIT(A),however deleted the said penalty as according to the CIT(A), there was no evidence that Thakkar Group has paidany commission to the appellant-assessee for providingaccommodation entries. 10.The respondent-revenue carried the matter in appealbefore the ITAT and the ITAT, after elaborate discussion,has reversed the finding of the CIT(A) and came to theconclusion that the order of the CIT(A) was not proper asthe addition was based on material detected as a result ofthe search operation and further held that the addition isnothing but the undisclosed income of the appellant-assessee which was not disclosed or recorded in the booksof accounts of the appellant-assessee and sustained thepenalty, as aforesaid. Hence this appeal. 11.Shri Prakul Khurana, ld. counsel for the appellant-assessee, submitted that the penalty imposed is highly unjustified and there was no evidence of the commissionhaving been earned by the appellant-assessee. Even theITAT, in the original proceedings, on assumption andpresumptions, has held 2% as the commission whennothing was received by the appellant-assessee nor therewas any evidence of receipt of any such amount. He furthercontended that on assumptions, presumptions andestimations, no penalty in law is leviable and the veryfinding of the ITAT in the original proceedings applyingcommission at the rate of 2% and in the present case isnothing else but imposing of penalty without any evidenceor justification. He relied upon judgment of this Courtrendered in the case of CIT Vs. Dr. Giriraj Agarwal Giri:(2012) 346 ITR 152 (Raj.). He submitted that the order ofthe ITAT is perverse and substantial question of law arisesout of the order of the ITAT. 12.We have considered the arguments advanced bycounsel for the appellant-assessee and also perused theorders impugned in the present proceedings as also theorders of the ITAT in the original proceedings. 13.It will be fruitful to refer to Sec. 158 BFA of the IT Actwhich is as under:- Section 158BFA - Levy of interest and penalty in certain cases (1) Where the return of total income includingundisclosed income for the block period, inrespect of search initiated under section 132 orbooks of account, other documents or anyassets requisitioned under section 132A on orafter the 1st day of January, 1997 as requiredby a notice under clause (a) of section 158BC,is furnished after the expiry of the periodspecified in such notice, or is not furnished, theassessee shall be liable to pay simple interest atthe rate of 1[one per cent] of the tax onundisclosed income, determined under clause(c) of section 158BC, for every month or part ofa month comprised in the period commencingon the day of immediately following the expiry ofthe time specified in the notice, and – Section 158BFA - Levy of interest and penalty in certain cases (1) Where the return of total income includingundisclosed income for the block period, inrespect of search initiated under section 132 orbooks of account, other documents or anyassets requisitioned under section 132A on orafter the 1st day of January, 1997 as requiredby a notice under clause (a) of section 158BC,is furnished after the expiry of the periodspecified in such notice, or is not furnished, theassessee shall be liable to pay simple interest atthe rate of 1[one per cent] of the tax onundisclosed income, determined under clause(c) of section 158BC, for every month or part ofa month comprised in the period commencingon the day of immediately following the expiry ofthe time specified in the notice, and – (a) where the return is furnished after the expiryof the time aforesaid, ending on the date offurnishing the return ; or (b) where no return has been furnished, on thedate of completion of assessment under clause(c) of section 158BC. (2) The Assessing Officer or the Commissioner(Appeals), in the course of any proceedingsunder this Chapter, may direct that a personshall pay by way of penalty a sum which shallnot be less than the amount of tax leviable butwhich shall not exceed three times the amount of tax so leviable in respect of the undisclosedincome determined by the Assessing Officerunder clause (c) of section 158BC : Provided that no order imposing penalty shall bemade in respect of a person if – (i) such person has furnished, a return underclause (a) of section 158BC ; (ii) the tax payable on the basis of such returnhas been paid or, if the assets seized consists ofmoney, the assessee offers the money soseized to be adjusted against the tax payable ; (iii) evidence of tax paid is furnished along withthe return ; and (iv) an appeal is not filed against theassessment of that part of income which isshown in the return : Provided further that the provisions of thepreceding proviso shall not apply where theundisclosed income determined by theAssessing Officer is in excess of the incomeshown in the return and in such cases thepenalty shall be imposed on that portion ofundisclosed income determined which is inexcess of the amount of undisclosed incomeshown in the return. 14.In our view, it is purely a finding of fact by the ITATand imposition of penalty is based on the order of the ITATwhere the addition was sustained after elaborate discussionby the ITAT in its order dt. 29/03/2006. The said order hasbecome final and no appeal was filed by the assessee-appellant. For ready reference, we quote hereunder Para30 of the aforesaid order dt.29/03/2006 of the ITAT which isreproduced ad-infra:- “30.As regards of ground no.8 by own admissionof the assessee company and it is true that thereare some interrelation between the assesseecompany and Mr. Mayur M. Thakkar and the saidaccommodation entries could not have beengiven by assessee company without anyconsideration. The assessee company hasadmitted himself that he has earned only ½%commission for providing such accommodation ofentries and for that he has also not received thesame as the same has not been made by Mr.Mayur M. Thakkar because of searchproceedings have been started against him andhis group. However, there is no proof as regardsthe quantum of commission having been earnedor entitling him from Mr. Mayur M. Thakkar. Sucha commission @ 3% has been assessed at thehands of Vora Group as has been mentioned inthe case of Mr. Mayur M Thakkar and it will bereasonable and justifiable to make assessment to make additions in the hands of the presentappellant @ 2% of the total turnover of thetransactions of Rs.2,53,24,314/- which is anamount of turnover which is in the form ofdeposits in the bank account. It is also importantto mention that in case these deposits areconsidered or this bank account is considered tohave been operated and transactions havingbeen regularly carried out by the assesseecompany and Mr. Mayur M. Thakkar is notbeneficiary of these account the whole of thedeposits in the form of premium @85.7% cannotbe taxed in the hands of the assessee company.It is only peak credit which could be taxedalternatively but since we have held the assesseecompany has only given accommodation entryand the actual business has been carried out byMr. Mayur M Thakkar who has used theseaccounts and blank letter heads for his benefitand therefore no income accrues and arises inthe hands of the present assessee company. Thisalternate submission may not be applicablethough our finding is very clear on the saidsubmission also. Thus ground no.8 of theassessee is partly allowed. “ 15.From above, it shows that the ITAT was of the opinionthat the entire transaction of Rs.2,53,24,314/-, which wasdeposited in the bank account, had gone unnoticed andwas undisclosed transaction but since the assessee-company had given accommodation entry and the actual business was being carried out by Mr. Mayur M. Thakkar,the ITAT applied a rate of 2% considering that in aconnected case of Vora Group of Companies, rate of 3%was applied. 16.Thus, from above finding of the ITAT, it is apparentthat the addition was not on estimate basis, rather in theconnected case of Vora Group, the same was computed atthe rate of 3%, whereas in the instant case, it has beenassessed at the rate of 2% only. Therefore, in our view, thesubmission of the counsel for the appellant-assessee incontending that the addition was made on estimate ormerely on conjectures or surmises has no force. 17.We observe that the ITAT, while sustaining theaforesaid penalty in the impugned order, has come to acategorical finding of fact which is reproduced here under:- “It is pertinent to note that the commissionincome sustained by the Tribunal is based onthe entires in the bank account of the assesseewhich were not recorded in the books ofaccounts of the assessee. Therefore, theaddition sustained by the Tribunal is based onmaterial and evidence found during the courseof search and seizure action in the shape ofcopy of bank account statement of theassessee's account. Only because of thematerial found during the course of search and 17.We observe that the ITAT, while sustaining theaforesaid penalty in the impugned order, has come to acategorical finding of fact which is reproduced here under:- “It is pertinent to note that the commissionincome sustained by the Tribunal is based onthe entires in the bank account of the assesseewhich were not recorded in the books ofaccounts of the assessee. Therefore, theaddition sustained by the Tribunal is based onmaterial and evidence found during the courseof search and seizure action in the shape ofcopy of bank account statement of theassessee's account. Only because of thematerial found during the course of search and seizure action, the entries in the assessee'sbank account were come to light and therefore,the addition sustained by the Tribunal being thecommission income earned by the assessee onthese transactions is nothing but theundisclosed income based on the materialfound during the course of search and seizureaction. It is not the case where the income isestimated without any evidence or materialfound during the course of search and seizure.Therefore, we do not find any substance ormerit in the contention of the assessee that theaddition sustained by the Tribunal is based onestimation and therefore, the penalty should notbe levied. In our view, the ld. CIT(A) hasignored the very material aspect of the matterthat the addition sustained by this Tribunal isbased on the material detected as a result ofsearch operation u/s 132 of the Act andtherefore, this addition is nothing but theundisclosed income of the assessee which wasnot disclosed or recorded in the books ofaccount of the assessee. The assessee hasaccepted the addition as sustained by theTribunal. Therefore, there is no dispute that theaddition of income to the extent of Rs.5,06,696/-is nothing but undisclosed income detectedduring the course of search and seizure action.Therefore, the penalty levied u/s 158BFA(2) isjustified.” that the AO can levy penalty in a sum which shall not beless than the amount of tax leviable but which shall notexceed three times the amount of tax so leviable in respectof undisclosed income determined by the AO under clause(c) of Sec. 158 BC of the IT Act. The first proviso to sub-section 2 of Section 158 BFA, however, provides that noorder imposing penalty shall be made if the conditions (i) to(iv) , quoted herein above, are satisfied. In essence, nopenalty would be imposed, if the assessee furnishes returnof income, pays or offers tax by way of adjustment of suchincome, produces evidence of tax having been paidalongwith return and also does not dispute by filing appealagainst that return of assessment which he has shown inhis return. By a further proviso, it is clarified that suchexclusion will not be available where the undisclosedincome determined by the AO is in excess of the incomeshown in the return and in such a case, penalty shall beimposed on that portion of the undisclosed incomedetermined which is in excess of the amount which isundisclosed income shown in the return. 19.Thus, it is clear that penalty under sub-section (2) ofSec. 158 BFA of the Act is provided where the AOcomputes income in excess of what is declared by theassessee for the block period. 19.Thus, it is clear that penalty under sub-section (2) ofSec. 158 BFA of the Act is provided where the AOcomputes income in excess of what is declared by theassessee for the block period. 20.In our view, the submission of counsel for theappellant that penalty provisions contained in Sec. 271(1)(c) of the Act so also Sec. 158 BFA(2) are pari-materia, thesame cannot be said to be correct as both are independentsections and in different situations. However, we are of theview that if the assessee fulfills the criteria, as laid downherein above i.e. conditions (i) to (iv), then certainly, nopenalty is leviable but in the case under consideration,there is a categorical finding by all the three authorities thatthe assessee was involved in undisclosed transactions andhad huge credits in the bank account to the tune of morethan Rs.2.5 crores and in case the search operation wouldnot have taken place, would have gone unnoticed.Overwhelming evidence on record clearly proves that allthese transactions were out of books and the Tribunal, afterconsidering the connected case of Vora Group, where threepercent commission was assessed, however, assessedonly two percent in the present case and therefore, thesame cannot be said to be merely on the basis ofestimated/adhoc basis but after considering the overallfacts and circumstances of various searches in the groupand after appreciation of evidence on record. 21.In our view, the penalty envisaged under sub-section(2) of Section 158 BFA, is entirely on different background as compared to one that can be imposed under Section271(1)(c) of the Act. Thus, in ultimate analysis, we do notfind that the AO has committed any error in imposing suchpenalty or the Tribunal in confirming the same. 21.The facts of the case of Dr. Giriraj Agrawal (supra) arecompletely distinguishable to the facts of the appellant-assessee. 22.On perusal of the aforesaid findings, the order of theITAT cannot be said to be perverse or based on no materialrather, in our view, it is pure appreciation of evidence andon such appreciation of evidence, no question of law muchless substantial question of law can be said to arise out ofthe order of the ITAT. In our view, no substantial questionof law can be said to arise out of the order of the ITAT. 23.Consequently, the appeal, being devoid of merit, ishereby dismissed in limine. [J.K. RANKA],J. ,J. Raghu/p.17/ Certificate:All corrections made in the judgment/order havebeen incorporated in the judgment/order being e-mailed.Raghu, Sr. PA.