ORDER
I.S. Verma, J.M.
1. In this appeal, the assessee has objected to the order of the CIT(A)-I, Ahmedabad, dt. 19th Nov., 2004 whereby he has confirmed the levy of penalty under Section 158BFA(2) of the Act.
2. I have heard the parties.
3. The brief facts relating to the issue involved in this penalty and as have been revealed from the records are that the assessee was working as operating assistant in Usha X-ray and Sonography Clinic run by Dr. Harshad R. Shah. Search action under Section 132 of the Act was carried on at the clinic of Dr. Harshad R. Shah on 8th April, 1999 when assessee being present there, was also made subject-matter of search. During the course of search, KVP of face value of Rs. 3,10,000 which were in assessee’s name, FDR with Bank of India for Rs. 50,000 again in assessee’s name, another FDR for Rs. 20,000 with Dena Bank in the name of Dhanjibhai T. Parmar and Smt. Maniben D. Parmar and IDBI Deep Discount Bonds for Rs. 5,300 in assessee’s name were found.
3.1 Assessee’s statement was recorded in which he admitted to have claimed the ownership of aforesaid instruments.
3.2 The return of income for block period in response to notice under Section 158BC r/w Section 158BD dt. 15th May, 2001 was furnished declaring undisclosed income at Nil, on 3rd Sept., 2002. During the course of proceedings for block assessment, the assessee was called upon to explain the source of investment in aforesaid instruments. However, the assessee had enclosed the following explanation along with statement of total income filed along with the return of undisclosed income:
Its forming part of statement of total income for the block period in case of Jaswant D. Parmar
The search proceeding under Section 132 of the IT Act, 1961 was carried out on 8th April, 1999 at the residential premises of Dr. Harshad R. Shah situated at Ambawadi, Ahmedabad, as well as his clinics situated at Sahyog Building, Laldarwaja, Ahmedabad, and White House Building, Panchvati, Ahmedabad, which finally concluded on 26th April, 1999. The assessee was serving as a technician in clinic of Dr. Harshad R. Shah at White House Building Panchvatim, since last many years.
The search proceedings under Section 132 of the Act at both clinics were carried out in the absence of the owner, Dr. Harshad R. Shah, and only statement, of staff members were recorded by the search party at both clinics.
The search party recorded statement of the assessee on oath on 8th April, 1999.
Notice under Section 158BC and under Section 158BD of the IT Act, 1961 dt. 15th May, 2001 was issued and served on 6th May, 2001 by the Asstt. CIT, Cir-4, Ahmedabad, within 30 days of notice. However, the assessee has not received xerox copy of his statement recorded by the search party during the course of search on 8th April, 1999 in spite of several oral requests/reminders to the Asstt. CIT, Cir-4 as well as to Dy. CIT, Cent. Gir. 1(2), Ahmedabad, till date. No communication for granting the xerox copies from Asstt. CIT, Cir-4 or Dy. CIT Cent, Cir 1(2) has been received till date.
The details of assets found and seized from White House clinic, Panchwati, Ahmedabad, in the name of the assessee and family members during the course of search proceedings on 8th April, 1999 were as under:
Assets Found Seized 1. KishanVikasPatra(in the name of assessee) 3,10,000 3,10,000 (Annexure V of the Panchnama dt. 8-4-1999) 50,000 2. FDR. with BOI Panchwati Branch(in the name of assessee) (Annexure V of the Panchnama dt. 8-4-1999) 3. FDR with Dena Bank, Laldarwaja Branch (in the name 20,000 of Dhanjibhai T. Parmar and Smt.Maniben D. Parmar) (Annexure V to the Panchnama) 4. IDBI Deep Discount Bonds,(in the name of assessee) 5,300 (Annexure V of the Panchnama). The assessee is salaried person serving with M/s Usha X-ray and Sonography Clinics as a technician since 1991 and living in a joint family.
The assessee has given an explanation regarding assets found in his name and in the name of parents as above during the course of search at Usha X-ray and Sonography Clinic at White House premises vide answer to question No. 16 of the statement recorded on 8th April, 1999. The search party had not seized any of the assets found during the course of search except KVP worth Rs. 3,10,000 after satisfying with the explanation. The search party seized KVP of Rs. 3,10,000 in spite of his statement that the same were purchased out of all family members contributions/accumulated savings of last many years. The search party seized KVP in the absence of evidences regarding source of investment.
The assessee is staying in a joint family in a very small rented premises since years. The details of family members, age, occupation etc. are as under:
Name Age Relationship Occupation
1.Dhanjibhai T. Parmar 71 Father Retired in 1989 from Tata Advance Mills Ltd
thereafter he helped in Pan house run by son
Prahladbhai, he expired in 1999. The amount
received on retirement and savings given to
the assessee for investment in KVP.
2.Maniben D. Parmar 65 Mother Worked as a construction labourer (Kcidia
Work) She is of 65 years of age having
approx. Rs. 2,000 income per month for the
many years.
3.Jayantibhai D. Parmar 42 Brother Working as an operating assistant in Usha X-
ray and Sonography Clinic, Sahyog, A'bad.
Having approx. income of Rs. 4,000 per month.
4.Jaswant D. Parmar 36 Self Working as an operating assistant in Usha X-
ray and Sonography Clinic, Sahyog, White
House, A'bad. Having approx. income of Rs.
3,000 per month.
5.Prahladbhai D. Parmar 32 Brother Running Pan house and night duty at Times
of India press, having approx. income of Rs.
4,000 to Rs. 5,000 per month. He was not
married till the date of search, i.e. 8th
April, 1999
6.Hansrajbhai D. Parmar 39 Brother Running rickshaw having monthly income of
Rs. 2,000 per month. He expired in the year
of Rs. 2,000, not married till life.
Accordingly, there were 9 family members in the joint family out of which 6 family members were earning members having total monthly income of Rs. 12,000 to Rs. 15,000 approx. and looking to the living style, location, etc total monthly expenditures were Rs. 5,000 to Rs. 7,000 approx. Hence, total monthly savings of the family were Rs. 7,000 to Rs. 9,000 approx. which annually were Rs. 80,000 to Rs. 1,00,000 approx.
10. All family members had given the accumulated saving to Shri Jaswant D. Parmar, the assessee, to invest in Kishan Vikas Patra in his name being somewhat literate person in the family and having knowledge about the investments; the main object of investment in KVP was to have certain funds available after certain period to purchase a small residential house property which at present a rented property. It is to be noted that no family member had taxable income all the years and not liable to file returns of income, not filed returns of income in any year. Looking to the family size and income/expenditure and in turn savings pattern of the family, investments in KVP and/or FDR are not so high which cannot be affordable to assessee’s family. The assessee had given an explanation to the search party at the time of search on 8th April, 1999 but without considering the explanation and in absence of evidences, the search party seized KVP of Rs. 3,10,000. An affidavit of the family members containing the fact of accumulated saving and investment in the KVP in the name of the assessee shall be submitted at the time of assessment proceedings.
11. Though the assessee had operated bank account in his name, it should be considered as that of family members, In view of above facts the deposit of cash should be considered as cash funds of the whole family and investment out of the funds can also be considered as that of the whole family. Though investment in KVP stands in the name of the assessee, it should be considered as investment out of the funds/accumulated savings of all family members with a particular object to purchase a residential house and/or to meet with an exceptional expenditure in the family.
12. It is to be taken note of that whenever the assessing authority proposes to compute the undisclosed income on the basis of source of income, the corresponding unexplained asset/identification against the source of income is required to be established by the assessing authority with material and evidence on record and in absence of such asset/identification, the income computed is merely a notional and hypothetical income determined without observing the principle of real income as laid down by Hon’ble Supreme Court and various High Courts.
13. The undisclosed income under this chapter is required to be computed by the AO on the basis of principle of real income as discussed by the Hon’ble Supreme Court and various High Courts. Hence, any undisclosed income computed without following the principle of real income and without corroborative material/evidence brought on record and on the basis of hypothesis would tantamount to computing of notional undisclosed income which would be against the provision of Chapter XIV-B.
14. The assessee contends that any addition on account of difference of option as regards to any of the statutory provisions from the view of the assessing authority would not be treated as failure to disclose fully and truly the income earned, material fact and/or furnishing of inaccurate particulars of income.
3.3 Another explanation was filed by the assessee as per letter dt. 2nd Dec, 2002, wherein the assessee had tried to explain the sources of investment in the instruments found with him during the course of search in case of Dr. Harshad R. Shah.
4.The AO rejected the assessee’s explanation on the ground that the explanation and confirmation of other members of the family were self-serving mode of explanation and assessee and his family members could not have saved the amount sufficient for making investment in the concerned instruments. The another reason given by the AO was that had they saved the money, then the same should have been invested in these instruments only after first having deposited the cash in bank account maintained by the assessee and since the money has not been routed through the bank, the assessee’s explanation was not acceptable. He, therefore, considered the whole of the investment amounting to Rs. 4,11,600 as well as another advance given by the assessee amounting to Rs. 15,000 and interest thereon as assessee’s undisclosed income.
5. The assessee went in appeal before the CIT(A) and in addition to reiterating the submissions made before the AO furnished affidavits from all family members confirming their monthly income and savings. However, the CIT(A) also did not find the assessee’s explanation as fully acceptable. The CIT(A), therefore, allowed a relief of Rs. 1,02,800 with respect to investment in instruments during the financial years 1993-94, 1994-95 and 1995-96. In financial year 1996-97, the CIT(A) considered the savings of Rs. 15,000 as reasonable. Similarly, he considered savings of Rs. 15,000 each for financial year 1997-98 and financial year 1998-99, investment of fixed deposit of Rs. 20,000 with Dena Bank was accepted to be investment by assessee’s father. Ultimately, the assessee got a relief of Rs. 1,02,800.
6. The assessee is stated to have taken the matter to the Hon’ble Tribunal, but could succeed only on the point, of levy of surcharge. So far as undisclosed income is concerned, the Hon’ble Tribunal rejected the assessee’s plea of further relief as per observations contained in para No. 3 of its order dt. 30th Aug., 2004 which reads as under:
3. We have heard the parties and considered their rival submissions. The assessee reiterated the same arguments which were advanced before the CIT(A). We however find that the CIT(A) has dealt with the same in accordance with law and after taking into consideration the fact of earnings of other family members, no further relief is called for and we uphold the order of the CIT(A).
7. It was in view of above facts and circumstances of the case that the learned Counsel for the assessee, first of all, submitted that the additions which have been made by the AO and sustained by appellate authorities, were due to patent miscarriage of justice, because none of the authorities considered it necessary to examine the family members of the assessee, who had filed confirmation before the AO and affidavits before the CIT(A) stating their income and savings, before arriving at the finding that the confirmations in the form of letters and affidavits were self-serving documents. He, therefore, submitted that such addition cannot justifiably be made the basis for levy of penalty under Section 158BFA(2). of the Act and for this purpose, reliance was placed on the decision of Hon’ble Gujarat High Court in the case of Glass Lines Equipments Co. Ltd. v. CIT .
7.1 The learned Counsel for the assessee further submitted that since penalty provisions under Section 158BFA of the Act are analogous to the provisions of Section 271(1)(c) of the Act, the law relating to the reasonable cause, which is a relevant factor for non-levy of penalty, is equally applicable to the penalty under Section 158BFA of the Act and, therefore, relied on the decision of Tribunal, Bangalore ‘C Bench, in the case of Smt. Mala Dayanithi v. Dy. CIT (2005) 92 TTJ (Bang) 270 : (2004) 91 ITD 46 (Bang) and decision as reported in Addl. CIT v. K.S.G. Panickei, Kerala Produce Exporting Co. for the proposition that the explanation given by the assessee having not been found to be false, i.e. the assessee’s explanation having been simply rejected; the assessee cannot be penalized for concealment of income or furnishing wrong particulars. The learned Counsel for the assessee further submitted that even otherwise the addition in question was simply on estimate basis, because benefits of savings had been allowed on estimate basis and, therefore, it was not a fit case for levy of penalty under appeal. To support this plea, the learned Counsel relied on the decision of Tribunal, Ahmedabad, ‘SMC Bench, in the case of Dy. CIT v. Pmkash C. Shah in ITA No. 1463/Ahd/2G01, asst. yr. 1987-88, passed on 27th Aug., 2003.
8. The learned Departmental Representative, on the other hand, in addition to supporting the order of the CIT(A), submitted that if assessee’s explanation of having savings of Rs. 7,000 to Rs. 9,000 per month is accepted, then sufficient cash should have been available with the assessee, at the time of search, and it is so because the assessee is claiming that the instruments found during the search were kept by him at the place of service for safety reason, the cash also should have been with him. The learned Departmental Representative further submitted that decision in the case of B.A. Balasubiamaniam & Bios. Co. v. CIT (1999) 157 CTR (SC) 556 : (1999) 236 HR 977 (SC) wherein the Hon’ble Supreme Court has held that in case of difference in returned and assessed income, onus to establish that difference is not due to any fraud or mala fide intention is on the assessee which has not been discharged in the present case, he, therefore, pleaded that order of the CIT(A) be confirmed.
9. I have considered the rival submissions, facts and circumstances of the case and various decisions relied upon by the parties and are of the opinion that scale of substantial justice, on the facts itself, weighs in favour of assessee as explained below:
(i) From the facts on records, it is established beyond doubt that the assessee had at the first instance admitted the investment in the instruments as having been made out of savings of all family members consisting of the assessee, his parents and his three brothers for which monthly income of each of the family members was also disclosed (which was never disputed by the Revenue). This admission on the part of the assessee amply establishes the bona fide and truthfulness of the assessee’s statement. The assessee’s further admission that instruments were kept ‘by him at the place of service for safety reason got supported by the fact that the house, which was on a monthly rent of Rs. 12 with the assessee’s family, was in dilapidated condition-as is gathered from photographs of the house placed at page Nos. 47 to 50 of assessee’s paper book and this fact also supports the truthfulness of assessee’s statement.
(ii) Coming to the assessee’s submission that none of the authorities had examined the family members and ignored the evidence in the form of letters and affidavits from the family members, we are of the opinion that this plea of the assessee having not been disputed by the Revenue and there being not even a single word relating to consideration of this evidence-either in the order of the CIT(A) or in the assessment order, their findings to the effect that this evidence was self-serving was nothing but an arbitrary and unjustifiable conclusion. When none of these authorities ever disputed the quantum of income earned by various members of the family, then how they could arrive at the conclusion that their confirmations or affidavits, which were explaining the quantum of income as well as savings were self-serving and how they could reject the one part of the evidence relating to savings. In other words, we are of the opinion that the Revenue authorities having not disputed the income part of the evidence, rejection of evidence with respect to savings only cannot be considered so as to mean that the assessee could not save the amount sufficient to make the investment in the instruments found during the search. Even otherwise, the Revenue, on one hand, has disputed the savings claimed by the assessee and his family members, but, on the other hand, has considered the investment in those instruments as that of the assessee which is very astonishing. If one cannot have savings more than the savings presumed by the Revenue authorities, then how he can be alleged to have any other income liable to be assessed as undisclosed income. The undisclosed income is only that part of income which the Revenue accepted to be the income of the assessee, but either not disclosed to the Revenue or not liable to be disclosed to the Revenue; meaning thereby that the factum of assessee having income has to be first accepted and it is only, then that Revenue can tax it as undisclosed income.
10. So far as present case is concerned, I am, once again, constrained to restate that though the undisclosed income assessed in the present case has been sustained upto the level of Hon’ble Tribunal but that factor cannot be used against the interest of the assessee with respect to the point that the Revenue having rejected the claim of savings without any basis could not consider the same as undisclosed income so as to merit the levy of penalty under Section 158BFA of the Act. In any case, assessment of such income cannot be, at least, basis for levy of penalty under Section 158BFA of the Act.
11. In addition to aforesaid discussion, I am further of the opinion that the Revenue authorities having given the benefit of savings only on estimate basis, the so-called unexplained investment has to be considered as determined on estimate basis and, therefore, the same cannot, be basis for levy of penalty under appeal.
12. Without prejudice to the above, I am further of the opinion that on one hand the Revenue is disputing the savings, but, on the other hand, has assessed the undisclosed income without bringing any material as to the source of such undisclosed income; meaning thereby that undisclosed income was assessed only under the deeming provisions which again cannot be the basis for levy of penalty under Section 158BFA of the Act.
13. In the totality of the facts and circumstances of the case, aforesaid discussion and settled law on this point, I am of the opinion that the assessee’s case is not a fit case where penal provisions of Section 158BFA of the Act may justifiably be held applicable. Consequently, the penalty order under appeal is cancelled and order of the GIT(A) is set aside.
14. In the result, the appeal of the assessee is allowed.
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