Boparai Metals (P) Ltd., Chandigarh V. ITO, Chandigarh

ITA 1013/CHANDI/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 8425 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-10-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 18-08-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 14-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S S KEMWAL
• Assessee Lawyers: B M KHANNA
• Keywords: Depreciation; Onus to prove

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES B CHANDIGARH BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER AND MS SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 1013/CHD/2010 ASSESSMENT YEAR: 2006-07 M/S BOPARAI METALS (P) LTD., VS. THE ITO, CHANDIGARH WARD 2(1), CHANDIGARH PAN NO. AAACE3055B (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI B.M.KHANNA RESPONDENT BY: SHRI S.S.KEMWAL ORDER PER SUSHMA CHOWLA, JM THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER O F CIT(A) DATED 27.5.2010 RELATING TO ASSESSMENT YEAR 2006-07 AGAIN ST PENALTY LEVIED U/S 271(1)(C) OF THE ACT. 2. THE ISSUE RAISED IN THE PRESENT APPEAL IS AGAINS T THE LEVY OF PENALTY U/S 271(1)(C) OF THE ACT AMOUNTING TO RS.1,34,843/- . 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E HAD FURNISHED RETURN OF INCOME SHOWING NIL INCOME. DURING THE YEAR UNDE R CONSIDERATION, THERE WAS A FALL IN G.P. RATE IN COMPARISON TO THE GP RAT E SHOWN IN THE PRECEDING YEAR. THE ASSESSING OFFICER APPLYING THE GP RATE 14.96% DECLARED BY THE ASSESSEE IN ASSESSMENT YEAR 2004-05 AS COMPARED TO 11.42% SHOWN DURING THE YEAR UNDER APPEAL, MADE AN ADDITION OF 2 RS.1,75,000/- THE ASSESSING OFFICER ALSO FROM THE PERUSAL OF THE DETAILS NOTED THAT VOUCHERS OF MACHINERY REPAIRED, LABOUR W ELFARE, SALES PROMOTION, TELEPHONE AND CAR RUNNING AND MAINTENANC E EXPENSES WERE NOT PROPERLY VOUCHED AND INCLUDED PERSONAL EXPENSES OF THE DIRECTORS OF THE ASSESSEE COMPANY. THE COUNSEL FOR THE ASSESSEE DUR ING THE ASSESSMENT PROCEEDINGS AGREED FOR DISALLOWANCE OF 25% OF THESE EXPENSES SUBJECT TO NON-LEVY OF PENALTY U/S 271(1)(C) OF THE ACT. AN ADDITION OF RS.2,25,603/- WAS MADE ON THIS ACCOUNT. THE TOTAL INCOME COMPUTED FOR THE YEAR UNDER CONSIDERATION WAS ADJUSTED AGAINST T HE DEPRECIATION TO THE EXTENT OF AVAILABLE PROFITS OUT OF TOTAL CLAIM OF D EPRECIATION OF RS.20,63,484/-. THE INCOME IN THE CASE WAS ASSESSE D AT NIL. PENALTY PROCEEDINGS WERE INITIATED U/S 271(1)(C) OF THE ACT . IN REPLY, IT WAS CLAIMED BY THE ASSESSEE THAT ADHOC ADDITION OF RS.1 ,75,000/- WAS MADE REJECTING THE EVIDENCE AND REASON FILED FOR DECLINE IN GP RATE AND FOR SUCH ESTIMATION OF INCOME NO PENALTY IS LEVIABLE. RELI ANCE WAS PLACED ON VARIOUS CASE LAWS FOR THE PROPOSITION. THE ASSESSI NG OFFICER WAS OF THE VIEW THAT THE ASSESSEE HAD WILLFULLY AND INTENTIONA LLY SHOWN DECLINE IN GP RATE WITHOUT ANY REASON. THE ASSESSING OFFICER HEL D THE ASSESSEE TO HAVE FAILED TO DISCHARGE ITS ONUS TO PROVE THE CORRECTNE SS OF INCOME AND WAS HELD TO HAVE FURNISHED INACCURATE PARTICULARS OF IN COME AND IN VIEW OF THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN UNI ON OF INDIA & OTHERS VS. DHARMENDRA TEXTILE PROCESSORS & OTHERS [( 306 I TR 277 (SC)] HELD THE LEVY OF PENALTY U/S 271(1)(C) OF THE ACT A CIV IL LIABILITY AND THERE BEING NO REQUIREMENT OF PROVING MENS REA OR WILLFUL CONDUCT OF THE ASSESSEE IN IMPOSING PENALTY FOR CONCEALMENT OF INC OME, PENALTY WAS IMPOSABLE. THE ASSESSING OFFICER LEVIED PENALTY U /S 271(1)(C) OF THE ACT ON THE CONCEALED INCOME OF RS.400603/- AMOUNTING TO RS.1,34,843/-. THE CIT(A) UPHELD THE LEVY OF PENALTY. THE CIT(A) OBSE RVED THAT AS THE 3 REASONS FOR FALL IN GP RATE COULD NOT BE EXPLAINED, THE AGREEMENT FOR ASSESSMENT FOR A HIGHER GP RATE WOULD IMPLY ADMITTA NCE FOR HAVING FILED INACCURATE PARTICULARS OF INCOME. FURTHER THE DISA LLOWANCE OF EXPENSES WAS ALSO DUE TO THE FACT THAT THEY WERE NOT PROPERL Y VOUCHED AND THE ASSESSEE HAD TO AGREE TO THE SAID DISALLOWANCE. TH E ASSESSEE IS IN APPEAL AGAINST THE SAID LEVY OF PENALTY U/S 271(1)(C) OF T HE ACT. 4. THE LD. AR FOR THE ASSESSEE POINTED OUT THAT THE PENALTY U/S 271(1)(C) OF THE ACT WAS LEVIED ON THE ADDITIONS MA DE ON ESTIMATE BASIS. THE LD. AR FURTHER POINTED OUT THAT THE CIT(A) HAD RELIED ON THE CASE LAWS, WHICH WERE NOT RELEVANT. FURTHER RELIANCE WA S PLACED ON THE RATIO LAID DOWN BY HON'BLE PUNJAB & HARYANA HIGH COURT IN HARI GOPAL SINGH VS. CIT [258 ITR 85 (P&H)], CIT VS. RAVAIL SINGH & COMPANY [ 254 ITR 191 (P&H)] AND CIT VS. SANGRUR VANASPATI MILLS LTD. [303 ITR 53 (P&H)]. THE LD. DR PLACED RELIANCE ON THE ORDER OF CIT(A), SPECIAL REFERENCE TO PARA-9, PAGE 5 OF THE APPELLATE ORDER . 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. UNDER THE PROVISIONS OF INCOME-TAX ACT FOR LEVYING PENALT Y U/S 271(1)(C) OF THE ACT , THE REQUIREMENT IS THAT EITHER THE ASSESSEE HAD CONCEALED ITS INCOME OR FURNISHED INACCURATE PARTICULARS OF THE INCOME. EITHER OF THE TWO CONDITIONS NEEDS TO BE SATISFIED IN ORDER TO JUSTI FY THE LEVY OF PENALTY U/S 271(1)(C) OF THE ACT. 6. THEIR LORDSHIPS OF PUNJAB & HARYANA HIGH COURT I N HARI GOPAL VS. CIT (SUPRA) HELD AS UNDER : IN ORDER TO ATTRACT CLAUSE (C) OF SECTION 271(1)(C ) OF THE INCOME-TAX ACT, 1961, IT IS NECESSARY THAT THERE MUST BE CONCEALMENT BY THE ASSESSEE O THE PARTICULARS OF HIS INCOME OR FURNISHING OF 4 INACCURATE PARTICULARS OF SUCH INCOME. THE PROVISIONS OF SECTION 271(1)(C) OF THE ACT ARE NOT ATTRACTED TO CASES WHERE THE INCOME OF AN ASSESSEE IS ASSESSED ON ESTIMATE BASIS AND ADDITIONS ARE MADE THEREIN 7. THE HON'BLE HIGH COURT FURTHER IN HARI GOPAL VS. CIT (SUPRA) HELD AS UNDER:- ADDITIONS IN HIS INCOME WERE MADE, AS ALREADY OBSERVED, ON ESTIMATE BASIS AND THAT BY ITSELF DOES NOT LEAD TO THE CONCLUSION THAT THE ASSESSEE EITHER CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHE D INACCURATE PARTICULARS OF SUCH INCOME. THERE HAS T O BE A POSITIVE ACT OF CONCEALMENT ON HIS PART AND TH E ONUS TO PROVE THIS IS ON THE DEPARTMENT. WE ARE ALSO OF THE CONSIDERED VIEW THAT THE TRIBUNAL GROSSLY ERRED IN LAW IN RELYING ON EXPLANATION I(B) TO SECTION 271(1)(C) OF THE ACT TO RAISE A PRESUMPTION AGAINST THE ASSESSEE. 8. THE HON'BLE PUNJAB & HARYANA HIGH COURT IN CIT V S. SANGRUR VANASPATI MILLS LTD (SUPRA) HELD AS UNDER : IN ORDER TO ATTRACT CLAUSE (C) OF SECTION 271(1) O F THE INCOME-TAX ACT, 1961, IT IS NECESSARY THAT THER E MUST BE CONCEALMENT BY THE ASSESSEE OF THE PARTICULARS OF HIS INCOME OR FURNISHING OF INACCURATE PARTICULARS OF SUCH INCOME. THE PROVISIONS OF SECTION 271(1)(C) OF THE ACT ARE NOT ATTRACTED TO CASES WHERE THE INCOME OF AN ASSESSEE IS ASSESSED ON ESTIMATE BASIS AND ADDITIONS ARE MADE THEREIN. WHEN THE ADDITIONS HAVE BEEN MADE ON THE BASIS OF ESTIMATE AND NOT ON ACCOUNT OF ANY CONCRETE EVIDENCE OF CONCEALMENT, THEN THE PENALTY IS NOT LEVIABLE. 9. SIMILAR VIEW HAS LAID DOWN IN THE EARLIER DECISI ON OF PUNJAB & HARYANA HIGH COURT IN RAVEL SINGH & COMPANY. (SUPRA ) WHEREIN IT HAS BEEN HELD THAT W HERE THE ASSESSEE HAD DISCHARGED THE INITIAL ONUS A ND THERE WAS NO EVIDENCE OF CONCEALMENT OR FURNISHING OF INACCURATE PARTICULARS OF INCOME, PENALTY WAS NOT LEVIABLE. IN THE FACTS BEFORE THE HON'BLE COURT THOUGH THERE WAS A DECREASE IN THE LI CENCE FEE, THE ASSESSEE 5 HAD SHOWN LOSS AND THE CASE OF THE ASSESSEE WAS TH AT MARGIN OF PROFIT HAD NOT GONE UP, IN FACT, IT CLAIMED TO HAVE SOLD LIQUO R AT A LOWER RATE. IN THE SAID CASE, ADDITION WAS MADE ON THE BASIS OF AN EST IMATE AND NOT ON ANY CONCRETE EVIDENCE. THE ORDER OF THE TRIBUNAL IN HO LDING THAT THE PENALTY U/S 271(1)(C) OF THE ACT WAS NOT LEVIABLE, WAS AFFI RMED BY THE HON'BLE COURT. 10. IN THE FACTS OF THE PRESENT CASE, WE FIND THAT ADDITION ON ACCOUNT OF GP RATE WAS MADE AS ACCORDING TO THE ASSESSING OFFI CER, THERE WAS NO JUSTIFICATION FOR DECLINE IN GP RATE WHEN COMPARED TO THE EARLIER YEARS. THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION, H AD DECLARED GP RATE 11.42% AS AGAINST 11.43% SHOWN IN ASSESSMENT YEAR 2 005-06 AND 14.96% SHOWN IN ASSESSMENT YEAR 2004-05. THE EXPLANATION OF THE ASSESSEE WAS THAT THE RATES OF RAW MATERIAL, SCRAP, HARD COKE AN D BP COKE HAD INCREASED WHEREAS THE SALE RATES OF THE PRODUCTS HAD NOT INCR EASED AS COMPARED TO PURCHASE RATES, RESULTING IN FALL IN GP RATE, WAS N O ACCEPTED BY THE ASSESSING OFFICER AS THE SALE RATE DURING THE YEAR HAD ALSO INCREASED. THE LD. AR FOR THE ASSESSEE AGREED FOR THE APPLICATION OF GP RATE @ 14.96% AS APPLIED IN THE ASSESSMENT YEAR 2004-05 RESULTING IN ADDITION OF RS.1,75,000/-. THE ADDITION WAS MADE ON ESTIMATE BASIS IN TURN RELYING ON THE GP RATE SHOWN BY THE ASSESSEE IN ASSESSMENT YEAR 2004-05 AND NO CONCRETE EVIDENCE WAS FOUND AGAINST THE ASSESSEE. FURTHER, ADDITION WAS MADE ON ACCOUNT OF DISALLOWANCE OF EXPENSES BEING N OT PROPERLY VOUCHED AND ALSO BECAUSE OF PERSONAL EXPENSES OF DIRECTORS OF THE COMPANY. THE SAID DISALLOWANCE WAS COMPUTED AT RS.2,25,603/-. T HE DISALLOWANCE WAS WORKED OUT OF VARIOUS EXPENSES DEBITED TO THE PROFI T & LOSS ACCOUNT DURING THE YEAR UNDER APPEAL. IN ORDER TO ATTRACT THE LEVY OF PENALTY U/S 271(1)(C) OF THE ACT, IT NEEDS TO BE ESTABLISHED TH AT THE ASSESSEE HAD 6 CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHE D INACCURATE PARTICULARS OF ITS INCOME. IN SUCH CASES WHERE THE INCOME OF THE ASSESSEE HAS BEEN ASSESSED ON ESTIMATE BASIS AND ADDITION HAS BEEN MA DE ON THE BASIS OF ESTIMATE AND NOT ON ACCOUNT OF ANY CONCRETE EVIDENC E OF CONCEALMENT BEING FOUND, THERE IS NO MERIT IN THE LEVY OF PENAL TY FOR CONCEALMENT U/S 271(1)(C) OF THE ACT. FOLLOWING THE RATIO LAID DO WN BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN HARI GOPAL SINGH VS. CIT & CIT VS. SANGRUR VANASPATI AND CIT VS. RAVAIL SINGH & COMPAN Y, WE HELD THAT WHERE ADDITIONS WERE MADE ON ESTIMATE BASIS AND/OR DISALLOWANCE WAS MADE ON ADHOC BASIS OUT OF EXPENSES CLAIMED, THERE IS NO JUSTIFICATION FOR LEVY OF PENALTY FOR CONCEALMENT U/S 271(1)(C) OF TH E ACT. ACCORDINGLY, WE REVERSE THE ORDER OF THE CIT(A) AND DIRECT THE A SSESSING OFFICER TO DELETE THE PENALTY LEVIED U/S 271(1)(C) OF THE ACT. THE GROUND OF APPEAL RAISED BY THE ASSESSEE IS THUS ALLOWED. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 18 TH DAY OF OCTOBER, 2010. SD/- SD/- (G.S.PANNU) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 18 TH OCTOBER, 2010 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR 7