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 Appellate Tribunal (for short, "ITAT") dt.24/05/2013 passed in ITA No.9/JP/2008 by which the ITAT has allowed the appeal filed by the respondent-revenue against the order of the Commissioner of Income Tax (Appeals)-I, Jaipur (for short, the "CIT(A))".
2. The brief facts, as emerging on the face of record, are that the appellant-assessee, a private limited company, is carrying on the business of manufacturing of industrial chemicals. A search operation came to be carried out at Thakkar Group by the name of Ram Remedies Pvt. Ltd. and its Managing Director Mr. Mayur M. Thakkar. While carrying out the search proceedings at Mayur M. Thakkar's business and residential premises, certain incriminating documents relating to the appellant-assessee were also found and on the basis of which a notice u/s 158 BD was issued in pursuance to which the block assessment was carried out. It is the claim of the respondent-revenue that Mr. Mayur M. Thakkar, in the name of his various companies and family members, had been obtaining delivery notes by fabricating documents in the name of various concerns namely; eight companies, the names of which 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 the impugned order wherein the addition was sustained working out commission at the rate of 2% that number of person/concerns engaged in manufacturing, trading and dealership of petrochemical products were using accommodation entries by way of fictitious bills of paper concerns issued by Vora Group. Thakkar group is one such group engaged in the business of manufacturing, trading, dealership and transportation of bulk chemicals like kerosene, MTO, Benzene, Mineral Turpentine, Solvent, NGL/Naphtha, LPG etc. Some of these chemicals such as naphtha are procured mainly from the public sector companies like BPCL, HPCL, OICL, etc. There is a quota fixed by the public sector undertakings, supply of such chemicals for actual users which in turn are to be utilized by them in the manufacturing of various petro chemical products. These chemicals could however, be used for many other illegal purposes and common among them is adulteration of petrol. Due to quota allocation system these chemicals command a premium in the market and are mostly sold at such high rate than the procurement price which are usually in cash and not recorded in the books of account. As the allotted chemicals are sold in cash by the quota holders instead of utilizing them for manufacturing process, certain bogus buyers of manufactured items, which in fact are not produced at all are required to be shown in record. Actually no manufacturing or distillation is done but invoices of bogus sale showing sale of manufactured item or by product of Naphtha are made. For this purpose the concern of Vora group use to give accommodation entry for purchase of chemicals from such parties by issuing bogus purchase bills.
4. Modus operandi followed by Vora group was to receive cash from various parties and the same were deposited in bank accounts maintained in the name of various fictitious, non-existing paper concerns. Thereafter, cheques/DD/Pay orders were issued either directly from the said account or after transferring the deposited amount to another account held by Vora family only.
5. The core issue before the AO was as to how the said transactions have to be treated in the hands of the assessee, particularly, in view of the overwhelming evidence that Mr. Sanjay Bhatia, Director of the assesseecompany had given to Mr. Mayur M. Thakkar the letter heads of the assessee so also the signed blank cheque books and it has been found as a fact that Mr. Mayur M. Thakkar was, in-fact, operating even the bank account of the appellant with Union Bank of India. Obviously, a person in the ordinary course of his business or any other person would keep letter heads, cheque books in safe custody and one would not allow a third person to operate a bank account and leave even the signed blank cheque books and if the above facts, which have been found admittedly correct, then there had to be some consideration having been received by Mr. Sanjay Bhatia, Director of the appellant-company in allowing not only to operate the bank account but also in providing blank signed cheques. While the AO appeared to have treated all the credit balances i.e. deposits in the Union Bank of India in the account of the assessee as having not been proved, however, the ITAT, after considering the connected case of Vora Group where commission of 3% was assessed on the entire transaction but in the case of assessee, rate of 2% was worked out on the basis that this could have been an adequate consideration. The above findings clearly indicate that the Thakkar family has acted as an active accomplice in this entire unaccounted trade undertaken by M/s. Apex Metchem (P) Ltd. the appellant from its undisclosed bank account at Mumbai. Various evidences collected in this regard clearly indicate the involvement of Thakkar family. Some of the clinching evidences establishing nexus of Thakkar family with unaccounted operation of Bank account in the name of M/s. Apex Metchem (P) Ltd. the appellant are as under:-
a)The Mumbai address of M/s. Apex Metchem (P) Ltd. as per bank record is actually office address of Thakkar family.
b)Though Mr. Sunil Thakkar has denied that he has introduced the bank account of M/s Apex Metchem (P) Ltd. However, evidences in the bank records confirm Mr. Sunil Thakkar as introducer.
c)Telephone number of SCI and mobile numbers of Manoj M. Thakkar is recorded in the bank records it was found that Mr. Vinod, who is the cashier of Sunil and Manoj Thakker has received DD and PO on various occasions from M/s. Apex Metchem (P) Ltd. account.
6. In view of the above, though it is a fact that bank account was maintained by M/s. Apex Metchem (P) Ltd., however, Thakkar family cannot be absolved in respect of its 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 an active agent. Apex Metchem (P) Ltd. the assessee has accepted unaccounted earning of brokerage/ commission on sales so affected.
8. The ITAT in the quantum proceedings, as aforesaid, after considering all the facts and the findings, upheld addition at the rate of 2% as commission on account of the said accommodation entries while in the connected case of Vora Group, who had also been providing similar accommodation entries, computed commission at the rate of 3%. In the penalty proceedings, the AO, on the basis of the 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% as prescribed in the said section. It was observed by the AO that it was own admission of the appellant-assessee that it had given accommodation entries on which it is earning half percent of commission.
9. Dissatisfied with the said imposition of penalty, the matter 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 paid any commission to the appellant-assessee for providing accommodation entries.
10. The respondent-revenue carried the matter in appeal before the ITAT and the ITAT, after elaborate discussion, has reversed the finding of the CIT(A) and came to the conclusion that the order of the CIT(A) was not proper as the addition was based on material detected as a result of the search operation and further held that the addition is nothing but the undisclosed income of the appellant-assessee which was not disclosed or recorded in the books of accounts of the appellant-assessee and sustained the penalty, 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 evide 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 commission having been earned by the appellant-assessee. Even the ITAT, in the original proceedings, on assumption and presumptions, has held 2% as the commission when nothing was received by the appellant-assessee nor there was any evidence of receipt of any such amount. He further contended that on assumptions, presumptions and estimations, no penalty in law is leviable and the very finding of the ITAT in the original proceedings applying commission at the rate of 2% and in the present case is nothing else but imposing of penalty without any evidence or justification. He relied upon judgment of this Court rendered in the case of CIT Vs. Dr. Giriraj Agarwal Giri: (2012) 346 ITR 152 (Raj.). He submitted that the order of the ITAT is perverse and substantial question of law arises out of the order of the ITAT.
12. We have considered the arguments advanced by counsel for the appellant-assessee and also perused the orders impugned in the present proceedings as also the orders of the ITAT in the original proceedings.
13. It will be fruitful to refer to Sec. 158 BFA of the IT Act which is as under:-
Section 158BFA - Levy of interest and penalty in certain cases
(1) Where the return of total income including undisclosed income for the block period, in respect of search initiated under section 132 or books of account, other documents or any assets requisitioned under section 132A on or after the 1st day of January, 1997 as required by a notice under clause (a) of section 158BC, is furnished after the expiry of the period specified in such notice, or is not furnished, the assessee shall be liable to pay simple interest at the rate of 1[one per cent] of the tax on undisclosed income, determined under clause (c) of section 158BC, for every month or part of a month comprised in the period commencing on the day of immediately following the expiry of the time specified in the notice, and -
(a) where the return is furnished after the expiry of the time aforesaid, ending on the date of furnishing the return ; or
(b) where no return has been furnished, on the date of completion of assessment under clause(c) of section 158BC.
(2) The Assessing Officer or the Commissioner (Appeals), in the course of any proceedings under this Chapter, may direct that a person shall pay by way of penalty a sum which shall not be less than the amount of tax leviable but which shall not exceed three times the amount of tax so leviable in respect of the undisclosed income determined by the Assessing Officer under clause (c) of section 158BC :
Provided that no order imposing penalty shall be made in respect of a person if -
(i) such person has furnished, a return under clause (a) of section 158BC ;
(ii) the tax payable on the basis of such return has been paid or, if the assets seized consists of money, the assessee offers the money so seized to be adjusted against the tax payable ;
(iii) evidence of tax paid is furnished along with the return ; and
(iv) an appeal is not filed against the assessment of that part of income which is shown in the return :
Provided further that the provisions of the preceding proviso shall not apply where the undisclosed income determined by the Assessing Officer is in excess of the income shown in the return and in such cases the penalty shall be imposed on that portion of undisclosed income determined which is in excess of the amount of undisclosed income shown in the return.
14. In our view, it is purely a finding of fact by the ITAT and imposition of penalty is based on the order of the ITAT where the addition was sustained after elaborate discussion by the ITAT in its order dt. 29/03/2006. The said order has become final and no appeal was filed by the assessee-appellant. For ready reference, we quote hereunder Para 30 of the aforesaid order dt.29/03/2006 of the ITAT which is reproduced ad-infra:-
"30.As regards of ground no.8 by own admission of the assessee company and it is true that there are some interrelation between the assessee company and Mr. Mayur M. Thakkar and the said accommodation entries could not have been given by assessee company without any consideration. The assessee company has admitted himself that he has earned only ½% commission for providing such accommodation of entries and for that he has also not received the same as the same has not been made by Mr. Mayur M. Thakkar because of search proceedings have been started against him and his group. However, there is no proof as regards the quantum of commission having been earned or entitling him from Mr. Mayur M. Thakkar. Such a commission @ 3% has been assessed at the hands of Vora Group as has been mentioned in the case of Mr. Mayur M Thakkar and it will be reasonable and justifiable to make assessment to make additions in the hands of the present appellant @ 2% of the total turnover of the transactions of Rs. 2,53,24,314/- which is an amount of turnover which is in the form of deposits in the bank account. It is also important to mention that in case these deposits are considered or this bank account is considered to have been operated and transactions having been regularly carried out by the assessee company and Mr. Mayur M. Thakkar is not beneficiary of these account the whole of the deposits in the form of premium @85.7% cannot be taxed in the hands of the assessee company. It is only peak credit which could be taxed alternatively but since we have held the assessee company has only given accommodation entry and the actual business has been carried out by Mr. Mayur M Thakkar who has used these accounts and blank letter heads for his benefit and therefore no income accrues and arises in the hands of the present assessee company. This alternate submission may not be applicable though our finding is very clear on the said submission also. Thus ground no.8 of the assessee is partly allowed."
15. From above, it shows that the ITAT was of the opinion that the entire transaction of Rs. 2,53,24,314/-, which was deposited in the bank account, had gone unnoticed and was undisclosed transaction but since the assesseecompany 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 a connected case of Vora Group of Companies, rate of 3% was applied.
16. Thus, from above finding of the ITAT, it is apparent that the addition was not on estimate basis, rather in the connected case of Vora Group, the same was computed at the rate of 3%, whereas in the instant case, it has been assessed at the rate of 2% only. Therefore, in our view, the submission of the counsel for the appellant-assessee in contending that the addition was made on estimate or merely on conjectures or surmises has no force.
17. We observe that the ITAT, while sustaining the aforesaid penalty in the impugned order, has come to a categorical finding of fact which is reproduced here under:-
"It is pertinent to note that the commission income sustained by the Tribunal is based on the entires in the bank account of the assessee which were not recorded in the books of accounts of the assessee. Therefore, the addition sustained by the Tribunal is based on material and evidence found during the course of search and seizure action in the shape of copy of bank account statement of the assessee's account. Only because of the material found during the course of search and seizure action, the entries in the assessee's bank account were come to light and therefore, the addition sustained by the Tribunal being the commission income earned by the assessee on these transactions is nothing but the undisclosed income based on the material found during the course of search and seizure action. It is not the case where the income is estimated without any evidence or material found during the course of search and seizure. Therefore, we do not find any substance or merit in the contention of the assessee that the addition sustained by the Tribunal is based on estimation and therefore, the penalty should not be levied. In our view, the ld. CIT(A) has ignored the very material aspect of the matter that the addition sustained by this Tribunal is based on the material detected as a result of search operation u/s 132 of the Act and therefore, this addition is nothing but the undisclosed income of the assessee which was not disclosed or recorded in the books of account of the assessee. The assessee has accepted the addition as sustained by the Tribunal. Therefore, there is no dispute that the addition of income to the extent of Rs. 5,06,696/- is nothing but undisclosed income detected during the course of search and seizure action. Therefore, the penalty levied u/s 158BFA(2) is justified."
18. On perusal of above section 158 BFA(2), it provides that the AO can levy penalty in a sum which shall not be less than the amount of tax leviable but which shall not exceed three times the amount of tax so leviable in respect of undisclosed income determined by the AO under clause (c) of Sec. 158 BC of the IT Act. The first proviso to subsection 2 of Section 158 BFA, however, provides that no order imposing penalty shall be made if the conditions (i) to (iv) , quoted herein above, are satisfied. In essence, no penalty would be imposed, if the assessee furnishes return of income, pays or offers tax by way of adjustment of such income, produces evidence of tax having been paid alongwith return and also does not dispute by filing appeal against that return of assessment which he has shown in his return. By a further proviso, it is clarified that such exclusion will not be available where the undisclosed income determined by the AO is in excess of the income shown in the return and in such a case, penalty shall be imposed on that portion of the undisclosed income determined which is in excess of the amount which is undisclosed income shown in the return.
19. Thus, it is clear that penalty under sub-section (2) of Sec. 158 BFA of the Act is provided where the AO computes income in excess of what is declared by the assessee for the block period.
20. In our view, the submission of counsel for the appellant that penalty provisions contained in Sec. 271(1) (c) of the Act so also Sec. 158 BFA(2) are pari-materia, the same cannot be said to be correct as both are independent sections and in different situations. However, we are of the view that if the assessee fulfills the criteria, as laid down herein above i.e. conditions (i) to (iv), then certainly, no penalty is leviable but in the case under consideration, there is a categorical finding by all the three authorities that the assessee was involved in undisclosed transactions and had huge credits in the bank account to the tune of more than Rs.2.5 crores and in case the search operation would not have taken place, would have gone unnoticed. Overwhelming evidence on record clearly proves that all these transactions were out of books and the Tribunal, after considering the connected case of Vora Group, where three percent commission was assessed, however, assessed only two percent in the present case and therefore, the same cannot be said to be merely on the basis of estimated/adhoc basis but after considering the overall facts and circumstances of various searches in the group and 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 Section 271(1)(c) of the Act. Thus, in ultimate analysis, we do not find that the AO has committed any error in imposing such penalty or the Tribunal in confirming the same.
21.The facts of the case of Dr. Giriraj Agrawal (supra) are completely distinguishable to the facts of the appellant-assessee.
22. On perusal of the aforesaid findings, the order of the ITAT cannot be said to be perverse or based on no material rather, in our view, it is pure appreciation of evidence and on such appreciation of evidence, no question of law much less substantial question of law can be said to arise out of the order of the ITAT. In our view, no substantial question of law can be said to arise out of the order of the ITAT.
23. Consequently, the appeal, being devoid of merit, is hereby dismissed in limine