Wednesday, February 17, 2010

In penalty proceedings, assessee can always show that finding recorded in quantum proceedings is neither reliable nor sufficient to impose penalty

In penalty proceedings, assessee can always show that finding recorded in quantum proceedings is neither reliable nor sufficient to impose penalty

ITAT, AHMEDABAD `D' BENCH (THIRD MEMBER)

Dhirajlal Maganlal Shah

v.

ITO

ITA No. 2522/Ahd/2006

September 25, 2009

RELEVANT EXTRACTS:

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On careful consideration of relevant facts, I am of the view that important fact stated by the assessee in his reply to penalty notice has not been considered in accordance with law. The revenue authority and the Tribunal in the quantum proceedings proceeded mainly on a presumption that the payment was made through account payee cheque, decided the issue against the assessee and the expenditure claimed was disallowed and added to the income of the assessee. In the penalty proceedings, which admittedly are different and separate from the assessment proceedings, the assessee was entitled to render fresh explanation and accordingly detailed reply dated 8-11-2004 was filed before the AO. In the said reply it was emphasized that payments were made to transporter through "crossed cheques". It was further explained that the transporter had produced evidences of having carried on transport business. He had categorically accepted the payments in question. It was accordingly claimed that the explanation of the assessee could not be treated as non-genuine or false and there was no case for imposition of penalty for concealment. The aforesaid claim of the assessee was rejected merely by referring to the order passed b} the learned CIT (A) and by observing that question of unsigned bills issued by the "SJT" remained unanswered. The aforesaid incorrect finding has also been adopted by the learned AM to confirm the levy of penalty. In addition to the above, the learned AM has further wrongly stated that the assessee has not given any afresh explanation except what has been stated in quantum/ assessment proceedings. This is against record as discussed above. The learned AM, I say with lot of respect, was also not correct in observing that the finding of the ITAT in quantum appeal has become final, nor even disputed before him. The finding of ITAT was vehemently challenged. The learned AM has further observed that certificate from bank relating to issue of cheques was rightly rejected. The explanation of the assessee was held to be not bona fide and that the matter was fully covered by Explanation 1 to section 271(l)(c) of the Act. The premise on above conclusion was arrived at is not correct.

12. Having considered the facts carefully, I am unable to ascribe to the view taken by the learned AM. The question involved in penalty proceedings was whether the claim of the assessee relating to the deduction of Rs.4,68,301/-towards transport charges in the account of "SJT" was false and therefore the assessee was covered by provision of Section 271(l)(c) of the Act. It is settled law that the findings recorded in the assessment proceedings is not conclusive, although it is entitled to great weight. The penalty proceedings being separate and independent proceedings, the assessee can always show that the finding recorded in the quantum proceedings is neither reliable nor sufficient to impose penalty. This is what the assessee has done in this case. Unfortunately, the stand of the assessee has not been appreciated. When the assessee took up the stand that the payment was made through' payee cross-cheques and other evidences relating to the activities carried on by the transport was filed, the AO in remand report filed with the Id. CIT(A) has stated as under:

".. .But as Shree J alar am Transport is not holding any bank accounts, it cannot be ascertained whether the cheques encashed by Shri Mahendra T. Rana Prop. Of Shree J alar am Transport or by another persons. "

Now when the cross cheques were issued in the name "SJT", whether these were encashed by "SJT" or endorsed to somebody-else was not concern of the assessee. The ITAT in quantum appeal did not consider the above facts recorded in the remand report. From the findings of the AO noted above, it could not be inferred that the claim made by the assessee is false. It is further to be appreciated that the payee duly acknowledged the payment and filed an affidavit in support of the work carried out and payments -receipt* He also appeared before the AO and led evidences in support of services rendered. There is no finding that "SJT" could not or did not carry on transport work for and on behalf of the assessee. In the above circumstances, there is absolutely no justification for rejecting the explanation of the assessee. There is no justification to term the explanation of the assessee as false. In my considered opinion, no case for levy of penalty has been made by the revenue as relevant facts stated above were neither considered nor challenged during the course of the proceedings. These were partly accepted and remaining are established on 'the record. For the aforesaid reasons, 1 agree with the view taken by the learned JM in canceling the penalty imposed in his proposed order. The question is answered accordingly.

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