D.K.B. and Co. vs Dy. CIT (Assessment)

All the three appeals pertain to levy of penalty u/s 271(1)(c) of the Income Tax Act on the very same assessee for the assessment years 1982-83 and 1983-84. For the assessment year 1982-83, the Tribunal granted partial reduction in penalty against which department as well as assessee filed appeals and consequently there are two appeals for the year 1982-83. The other appeal, I.T.A. No. 272 of 2002 for the year 1983-84 is filed by the assessee. We have heard Sri. Arun Raj, counsel appearing for the assessee and senior counsel Sri. P.K. R. Menon appearing for the department.

The assessee is a partnership firm engaged in abkari business, that is sale of arrack. During the search conducted, the department detected unaccounted sales and inflation of expenditure. For the assessment year 1982-83, it was seen that Sri. Bharathan who was managing the business of the assessee-firm had deposits in the bank account and on questioning, he admitted that deposits were the unaccounted income of the firm. Further, the employees of the firm gave evidence to the effect that bank deposits in the name of Bharathan, are the undisclosed income of the assessee-firm Additions made in the assessment for 1982-83 are purely based on evidence collected during search and in assessment appeal, the additions were confirmed. However in penalty proceedings the Tribunal found that out of Rs. 15 lakhs of penalty levied, Rs. 6,74,600 represented estimated income in respect of which penalty cannot be levied. The case of the assessee is that penalty is not at all leviable as no concealment is proved. After hearing both sides and after going through the orders of the Tribunal we find that penalty is levied only on income found concealed by the assessee. The total income returned by the assessee in the original return was Rs. 1,20,429 as against the income of Rs. 21,54,240 assessed and finally got confirmed for the year 1982-83. Penalty levied for the year 1982-83 is only on the fixed deposit amount retained by Sri. Bharathan who was managing the assessee-firm. Sri. Bharathan himself gave a statement that deposits represented unaccounted income of the assessee-firm. Three employees of the assessee-firm also gave statement to that effect. But for the detection of bank accounts and recording of evidence from employees concealment would not have been detected and so much so department has established a clear case of concealment and the authorities rightly levied penalty. So far as departmental appeal is concerned, we do not think there is any need to interfere with the Tribunals order because Tribunal has taken a lenient view in respect of estimated income which is not positive income concealed, but suppression noticed by the department. We therefore dismiss the appeals filed by the assessee and department for the year 1982-83.

For the assessment year 1983-84, in the assessees appeal, i.e., I.T.A. No. 272 of 2002, the assessees contention is that penalty is not levied based on any concealment detected, but on the income returned by the assessee. In this year, the assessee has originally returned Rs. 5,13,150 whereas the additional income offered for assessment was Rs. 41 lakhs. The Tribunal has dealt with the magnitude of evasion in the form of suppression, inflation of expenditure and evidence of sharing of the unaccounted income by the partners detected by the department. After the department seized all the materials and got evidence against the assessee, the assessee offered additional income of Rs. 41 lakhs for assessment which was accepted by the department. The contention that there cannot be penalty in respect of additional income offered is negatived by this court in the first round of litigation vide judgment in Commissioner of Income Tax Vs. D.K.B. and Co., . When the matter went back to the Tribunal after remand by this Court, the Tribunal found that the department obtained materials during search which justify addition of higher amount and in order to avoid such a consequence, the assessee offered an additional income of Rs. 41 lakhs. We do not think assessee can escape from penalty because the materials seized and explained in the Tribunals order speak of assessees suppression and inflation of expenditure, which if estimated would have led to higher addition to the returned income. In order to avoid penalty in search cases, what is provided in Explanation 5(2) of section 271(1)(c) is that disclosure should be made in the course of search. However, in this case, the assessee offered additional income for assessment only after the department collected evidence and almost determined the magnitude of evasion. We therefore find that income additionally offered after detection was rightly treated by all the authorities, including the Tribunal, as concealed income in respect of which penalty was levied u/s 271(1)(c) of the Act. Since the penalty levied is not the maximum penalty, there is no scope for quantum of relief. Therefore the appeal filed by the assessee is dismissed.