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Shri Hafeez S Contractor, 29, Bank Street, Sonawal Building, Mumbai-400023 Vs. Asstt. Commissioner of Income Tax Central Circle-44, Aayakar Bhavan, M K Road, Mumbai-400020
September, 03rd 2015
                  ,  , "" 

  ,    ..,  

            ./I.T.A. No.6222 and 6223/Mum/2013
            (   / Assessment Year :2007-08 & 2008-09)
 Shri Hafeez S Contractor, / Asstt. Commissioner of Income
 29, Bank Street, Sonawal       Tax ­Central Circle-44,
 Building, Mumbai-400023        Aayakar Bhavan,
                                M K Road,
        ( /Appellant)      ..   ( / Respondent)

        ./   ./PAN :AADPC1634R

           / Appellant by               Shri Neelkanth Khandelwal
           /Rspondent by                Shri Jitendra Kumar

            / Date of Hearing
                                             : 7.7.2015
           /Date of Pronouncement: 2.9.2015

                               / O R D E R


      Both the appeals filed by the assessee are directed against the
common order dated 29.8.2013 passed by Ld CIT(A)-38, Mumbai and they
relate to the assessment years 2007-08 and 2008-09.

2.    The assessee is aggrieved by the decision of ld.CIT(A) in confirming
the penalty levied in both the years u/s 271(1)(c) of the Act.

3.    The facts relating to the issue are stated in brief.       The Revenue
carried out the search and seizure operation under section 132(1) of the
Act in the hands of the assessee on 22.01.2009. During the course of
search proceedings, it was noticed that the assessee has claimed
                                     2           I.T.A. No.6222 and 6223/2013

expenditure in respect of commission paid to two parties namely (a) M/s
Nischal Corporate Services Private Limited and (b) M/s Twinkle Vanijya
Pvt.Ltd. The first party was paid a sum of Rs.2 crores in the year relevant
to the assessment year 2007-08 and the second party was paid a sum of
Rs.1.5 crores in the year relevant to the assessment year 2008-09. The
assessee had paid the commission by way of cheques and also had
deducted tax at source. The recipients had also collected service tax from
the assessee. In the statement taken from the assessee under section
132(4) of the Act, the assessee submitted that the above said commission
payments were made to persons who gave the lead for the contract works
obtained by the assessee and such kind of commission payments are
normal. He submitted that he got the work of ICICI, India Bulls and Cloud
Nine, which was to the tune of about Rs.100 crores, through M/s Nischal
Corporate services private limited   He further submitted that he got the
work of Chennai and Bangalore projects of M/s Carmen Builders &
Constructions Pvt Ltd, worth about Rs.24 crores, through M/s Twinkle
Vanijya Pvt Ltd, Kolkatta.

4.     The search officials pointed out to the assessee that M/s Nischal
Corporate Services Pvt Ltd has admitted that it was providing only
accommodation entries. With regard to the payment made to M/s Twinkle
Vanijya Pvt Ltd also, the search officials pointed out that the commission
payment is made to a Kolkatta based company for the work obtained in
Chennai and Bangalore and the enquiry made through an Inspector
located Kolkatta revealed that the office of the above said company
generally remains closed. In reply, the assessee submitted that he had
given the cheque in the name of the concerns as sought by the concerned
person, who brought the work. The assessee further submitted that he
does not normally verify the bonafides of the company, since huge
contract work was brought by them.       He further submitted that he had
                                      3             I.T.A. No.6222 and 6223/2013

not received cash against the cheque so given and accordingly contended
that the commission payments were genuine. The assessee was asked to
produce the persons who brought the work and the assessee also initially
agreed to produce them. However, at the time of conclusion of the sworn
statement, he expressed his inability to produce those parties and
accordingly agreed to offer the above said commission payments as his
income, in order to buy peace of mind. The assessee also filed returns of
income for both the years declaring the above said amount as his income
and the same was also accepted by the AO.

5.    The AO initiated penalty proceedings in both the years under
consideration and accordingly levied the penalty u/s 271(1)(c) of the Act
on the commission expense surrendered by the assessee, with the
reasoning that the assessee would not have offered these amounts, had
there been no search and the same proves the malafide intention on the
part of the assessee to conceal true and correct income.

6.   In the appellate proceedings, the ld CIT(A) also confirmed the penalty
levied by the AO for both the years. Aggrieved, the assessee has filed
these appeals before the Tribunal.

7.   We heard the parties and perused the record. We feel it pertinent to
extract the reply given by the assessee, wherein he had surrendered the
above said amount of Rs.2.00 crores and Rs.1.50 crores respectively for
assessment years 2007-08 and 2008-09:
       I have been repeatedly asked to prove the genuineness and bonafide of
       two parties i.e. M/s.Twinkle Vanijya Pvt.Ltd. and M/s.Nishchal Corporate
       Services Pvt. Ltd. To whom we had made payments. I have also been
       told by you about certain facts about genuineness of payments. I have
       made payments to these companies as per request of persons who has
       got me the work. It is my inability as of now to produce these parties to
       support my contention that the payments are for genuine business
                                       4          I.T.A. No.6222 and 6223/2013

       purpose. However, I am once again saying that I have not received cash
       from anyone, else you would have found unaccounted investments, cash
       or expenses during the course of search. My investments and expenses
       are properly acounted for. When I am paying so much tax honestly for
       so many-years, I have no intention to book these expenses to save or
       evade taxes. These are technical matters forwhich I have no answer at
       present and now they are adversely affecting my mental state and
       professional work. I have no time to spend on these matters as my
       professional assignments require more attention from me. Therefore, to
       buy my peace of mind and on the condition that there will not be any
       adverse consequences including penalty and/or prosecution I offer a sum
       of Rs.4 crores as income which will take care of the alleged bogus
       payments, the excess and possible any other discrepancies in any
       payment and/or jewellery the year wise breakup of the additional income
       being offered is as under:

            Financial Year       Asstt.Year          Amount
                                                     (Rs.In lakhs)
            2006-07              2007-08                     200
            2007-08              2008-09                     150
            2008-09              2009-10                      50

      Since I have co-operated with the Department, I request you that
      lenient view be taken and no penalty and prosecution should be
      imposed on me. I shall pay the taxes shortly.

8.   In the reply to the penalty notice issued u/s 271(1)(c) of the Act, the
assessee has stated that he had surrendered the amount as per the
statement without retracting from the same. It was further stated that, if
any adverse view is sought to be taken of the conditional offer including in
initiating penalty proceedings, the assessee should be provided with all the
material on the basis of such adverse inference is sought to be made,
including-but not limiting- the following:-
      (a)     Copy of statement taken of the Mr. Sandeep Sitlani of M/s
      Nishchal corporate services Pvt Ltd.
      (b) Copy of the Report of Inspector of Addl. DDI, Kolkatta
      (c) Any other material relied upon by the AO.
                                     5           I.T.A. No.6222 and 6223/2013

9.    Thus, we notice that the case of the assessee is that the impugned
commission payments were genuine. Further they have been paid along
with service tax by way of cheque and the assessee had also deducted tax
at source.   The assessee has also specified the projects for which the
commission payments have been made. It is not the case of the assessing
officer that the assessee did not get the projects for which the impugned
commission payments were made. It is also not the case of the assessing
officer that such kind of commission payments are not the trade practice.
The professional income declared by the assessee for AY 2007-08 was
Rs.47.30 crores and for AY 2008-09 was Rs.69.56 crores. This shows the
level of operation of the assessee. We notice that the assessee has been
repeatedly claiming before the search officials that the commission
payments were genuine and further, if had been accommodation bills, he
should have received corresponding amount by way of cash.            He has
repeatedly submitted that he did not receive any cash and the said
submission is also corroborated by the fact that the revenue did not
unearth huge amount of cash during the course of search.

10.       Further, we notice that the assessee had surrendered the
commission expenses at the conclusion of the sworn statement and he has
clearly stated therein that he is surrendering in view of his inability to
produce the concerned persons at that stage.       At the time of penalty
proceedings, the assessee has sought the copy of statement given by the
director of M/s Nishchal corporate services Pvt Ltd and also the copy of the
report of the Inspector who inspected the office of M/s Twinkle Vanijya Pvt
Ltd. The assessee has also sought any other materials on the basis of
which adverse inference was drawn by the AO.       However, we notice that
the assessee was not provided with all the above said documents.
Accordingly, we are of the view that the surrender of commission
                                     6            I.T.A. No.6222 and 6223/2013

expenditure would not automatically lead to the malafides of the assessee
as presumed by the assessing officer, since the assessing officer has not
afforded an opportunity to the assessee to contradict the documents that
were relied upon by the AO.        Accordingly, we are of the view that
assessment of commission income does not result in concealment of
particulars of income, in the facts and circumstances of the case.

11.   If we examine the explanations furnished by the assessee in terms
of Explanation 1 to sec. 271 of the Act, we notice that the assessee has
offered an explanation and the same has not been found to be false. It is
pertinent to note that the revenue was having only suspicion about the
genuineness of the payments at the time of search proceedings on the
basis of enquiries conducted by them.      However, the assessee has all
through maintained that the payments were genuine. In support of the
same, the assessee has stated that the payments were made by way of
cheque, TDS were deducted and the service tax was also paid. Hence, in
our view, it cannot be said that the explanation of the assessee was found
to be false. Though the AO has expressed the view that the admission of
the assessee proves malafides, we are of the view that the explanation of
the assessee was not proved to be not bonafide one. It is not the case of
the assessing officer that the assessee has failed to furnish all facts and
material relating to computation of income. Accordingly, we are of the
view the deeming provisions of Explanation-1 shall also not apply to the

12.   The Ld A.R invited our attention to the copy of notices issued by the
AO u/s 274 read with section 271 of the Act at the time of initiation of
penalty proceedings. He submitted that the above said notice issued for
"concealment of particulars of income or furnishing of inaccurate
particulars of income". He submitted that the assessing officer has not
                                     7            I.T.A. No.6222 and 6223/2013

specified that as to which limb the notice was issued, i.e., whether it is
issued for concealment of particulars of income or furnishing of inaccurate
particulars of income. The Ld A.R contended that the assessing officer
should be clear about the charge at the time of issuing the notice and the
assessee should be made aware of the charge.         He submitted that the
penalty order is liable to be quashed, if the AO has not correctly specified
the charge.   In this regard, he placed reliance on the decision dated
11.10.2013 passed by the co-ordinate bench of Tribunal in the case of Shri
Samson Perinchery in ITA No.4625 to 4630/M/2013, wherein the Tribunal
followed the decision rendered by the Hon'ble Karnataka High Court in the
case of CIT Vs. Manjunatha Cotton & Ginning Factory (2013)(35 250)(kar dated 13.12.2012) and held as under:-
      "13. From the above, it is clear that the penalty should be clear as
      "to the limb for which it is levied and the position being unclear here
      the penalty is not sustainable. Therefore, considering the same, we
      are of the opinion that the ground raised by the assessee should be
      allowed on technical grounds. Accordingly, adjudication of the
      penalties on merits become an academic exercise. Therefore, the
      grounds raised in all the six assessment years are allowed."

In the case considered by the co-ordinate bench also, the assessing officer
issued the penalty notice without specifying the charge under which the
notice was issued. Before us, the Ld D.R could not distinguish the above
said decision. Hence, on this legal ground also, the assessee's appeal is
required to be allowed.

13.   In view of the foregoing discussions, we set aside the orders passed
by Ld CIT(A) for both the years under consideration and direct the
assessing officer to delete the penalty levied u/s 271(1)(c) of the Act in
both the years.
                                      8           I.T.A. No.6222 and 6223/2013

14.    In the result, both the appeals filed by the assessee are allowed.
            Pronounced accordingly on 2nd Sept, 2015.
                  2 Sept, 2015    

      Sd                                             sd
( /JOGINDER SINGH)                        (.. ,/ B.R. BASKARAN)
  / Judicial Member                        /Accountant Member
 Mumbai: 2nd Sept, 2015.

.../ SRL , Sr. PS
    /Copy of the Order forwarded to :
1.  / The Appellant
2.     / The Respondent.
3.     () / The CIT(A)- concerned
4.      / CIT concerned
5.     ,   ,  /
      DR, ITAT, Mumbai concerned
6.      / Guard file.

                                                           / BY ORDER,
True copy
                                                     (Asstt. Registrar)
                                             ,  /ITAT, Mumbai
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