SC sets aside concurrent findings of assessment made under Sec 143(3) Income Tax - on proving of innocence by assessee in separate, subsequent penalty proceedings under Sec 271 by leading cogent evidence

The SC on April 24, 2020 {Basir Ahmed Sisodiya v The Income Tax Officer} held that it  has   now   come   on   record   that   the appellant/assessee   in subsequent & separate  penalty   proceedings   offered   explanation and caused to produce affidavits and record statements of the concerned unregistered dealers and establish their credentials - in which penalty proceedings qua same assessment year he was exonerated from findings of concealment of Income. Which findings recorded subsequently in penalty proceedings u/s 271, are contrary to findings recorded in assessment order passed u/s 143 (impugned in present appeal).

It was further held by the SC Bench, comprising of Justice A.M. Khanwilkar &  Justice Dinesh Maheshwari, that explanation has   been accepted by the CIT(A) vide order dated 13.1.2011. It was observed that in paragraph   17   of   the   said subsequent decision, it has been noted that the Officer recorded statements of 12 unregistered dealers out of 13 and their identity was   also   duly   established. It was held that after   analysing   the   evidence   so produced   by   the   appellant/assessee,   the   appellate   authority [(CIT(A)] noted that the Officer had neither doubted the identity of those dealers nor any adverse comments were offered in reference to their version regarding sale of marble slabs by them to the appellant/assessee in the financial year relevant to assessment year 1998­-1999 and receipt of payments after two to three years. Further, it was held   there   was   no   denial   of   purchase   of   marbles   worth Rs. 4,78,900/­- (Rupees four lakhs seventy ­eight thousand nine hundred   only)   by   the   assessee   and   sale   thereof   worth Rs.3,57,463/-­   (Rupees   three   lakhs   fifty ­seven   thousand   four hundred sixty three only) with closing stock of Rs.2,92,490/-­ (Rupees   two   lakhs   ninety   two   thousand   four   hundred   ninety only), as disclosed in the trading account for the year ended on 31.3.1998.     It was held that the   appellate   authority  thus   found in subsequent penalty proceedings  that   without purchases of marbles, there could be no sale and disclosure of closing   stock   in   the   trading   account.

It was observed that the SC is conscious of the fact that these observations   are   made   by   the   competent   forum   (appellate authority) in penalty proceedings under Section 271 of the 1961 Act in favour of the assessee. However, it was held that what needs to be noted is that   the   stated   penalty   proceedings   were   the   outcome   of   the assessment order in question concerning assessment year 1998­-1999. It was held that indeed, at the time of assessment, the appellant/assessee had failed to produce any explanation or evidence in support of the entries regarding purchases made from unregistered dealers. In the   penalty   proceedings, however, it was held that the   appellant/assesse produced affidavits of 13 unregistered dealers out of whom 12 were   examined   by   the   Officer.  It was held that the   Officer   recorded   their statements and did not find any infirmity therein including about their credentials. It was observed that the dealers stood by the assertion made by the appellant/assessee about the purchases on credit from them; and which explanation has been accepted by the appellate authority in paragraphs 17 and 19 of the order dated 13.1.2011.

In the present case, the findings and conclusions recorded u/s 143 assessment by the appellate authority, as well as, the High Court are : it must follow that the appellant/assesse despite   being   given   sufficient   opportunity,   failed   to   prove   the correctness and genuineness of his claim in respect of purchases of   marbles   from   unregistered   dealers   to   the   extent   of Rs.2,26,000/­   (Rupees  two   lakhs   twenty­ six   thousand   only). Resultantly, the said transactions were assumed as bogus entries (standing to the credit of named dealers who were non­-existent  creditors of the assessee) - which finding was assailed before the SC in the present case. Those findings were set aside by the SC due to subsequent exoneration of the assessee in separate, subsequent proceedings of penalty under Sec 271.

The appellant moved before the SC, application for   permission to   bring   on record   subsequent  events.     By   this   application,   the appellant/assessee has placed on record an order passed by the CIT(A) dated 13.1.2011, in respect of penalty proceedings, which considered the challenge to the order passed by the Income­Tax Officer under Section 271(1)(c) dated 17.11.2006 qua the appellant/assessee for the self­-same assessment year 1998-­1999. Vide order dated 13.1.2011 the appeal was allowed by CIT(A) with a finding that the appellant/assessee had not made any concealment of income   or   furnished   inaccurate   particulars   of   income   for   the concerned assessment year.

Accordingly,   the   appeal   was   allowed.     The   addition   of Rs.2,26,000/­- (Rupees two lakhs twenty­ six thousand only) by the Officer under Section 68 of the Income Tax Act, 1961, towards cash credit amount   shown   against   the   names   of   concerned   unregistered dealers for the assessment year 1998-­1999, was set aside by the SC.