M/s. Kadmawala Dyeing & Printing Pvt.Ltd., Surat V. The Income tax Officer,Ward-1(3), Surat

ITA 111/AHD/2012

• Counselvise Citation: 11120514 RSA 2012
• Duration Of Justice: 2 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2006-2007
• Appeal Filed On: 16-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B L YADAV
• Keywords: Gross profit estimation
• Section: 27

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH AHMEDABAD (BEFORE SHRI MUKUL KUMAR SHRAWAT, JM AND SHRI A. MO HAN ALANKAMONY, AM) ITA NO.111/AHD/2012 A. Y.: 2006-07 KADAMWALA DYEING & PRINTING PVT. LTD., 122, SARVODAYA MARKET, RING ROAD, SURAT PA NO. AACCK 1112 E VS THE INCOME TAX OFFICER, WARD 1 (3), AAYAKAR BHAVAN, MAJURA GATE, SURAT (APPELLANT) (RESPONDENT) APPELLANT BY SHRI HARDIK VORA, AR RESPONDENT BY SHRI B. L. YADAV, SR. DR DATE OF HEARING: 14-03-2012 DATE OF PRONOUNCEMENT: 23-03-2012 O R D E R PER A. MOHAN ALANKAMONY: THIS APPEAL IS FILED BY THE ASSESSEE AGGRIEVED BY THE ORDER OF THE LEARNED CIT(A) IN APP EAL NO. CAS- I/28/2011-12 DATED 17-11-2011 FOR THE ASSESSMENT YE AR 2006-07 PASSED U/S 250 READ WITH 271 (1) (C) OF THE IT ACT. 2. THE ASSESSEE HAS RAISED 3 GROUNDS IN ITS APPEAL WHEREIN GROUNDS NO.2 AND 3 ARE GENERAL IN NATURE AND DO NOT SURVIVE FOR ADJUDICATION. THE LONE GROUND WHICH SURVIVES FOR ADJUDICATION IS REPR ODUCED HEREIN BELOW: 2 ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AS W ELL AS LAW ON THE SUBJECT, THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN LEVYING PENALTY U/S. 271 (1) ( C ) OF THE ACT OF RS.2,40,473/-. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSE SSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF DYEING OF GREY C LOTHS ON JOB WORK BASIS. THE ASSESSEE FILED ITS RETURN OF INCOME ON 1 5-12-2006 SHOWING TOTAL INCOME AT NIL. ASSESSMENT U/S 143 (3) OF THE IT ACT WAS COMPLETED ON 30-07-2008 DETERMINING THE TOTAL INCOME OF THE A SSESSEE AT RS.4,73,150/- AND BOOK PROFIT AT RS.16,98,581/-. DU RING THE COURSE OF THE ASSESSMENT PROCEEDINGS IT WAS OBSERVED BY THE LEARN ED AO THAT THE ASSESSEE HAS SHOWN TURNOVER OF RS.4.96 CRORES DECLA RING GP AT 16.3% AS AGAINST THE TURNOVER OF RS.3.97 CRORES WITH A GP OF 19.7% SHOWN DURING THE PRECEDING ASSESSMENT YEAR. THE ASSESSEE EXPLAINED FOR THE REASON OF SHORTFALL IN GP DUE TO ENHANCEMENT OF PRO DUCTION WITH LOWER MARGIN FOR MAXIMUM UTILIZATION OF RESOURCES. IT WAS FURTHER SUBMITTED THAT THE JOB WORK CHARGES PER METER OF PRODUCTION WAS RE DUCED BY RS.0.41 IN ORDER TO PROCURE MORE ORDERS. HOWEVER THE LEARNED A O WAS NOT CONVINCED WITH THE REPLY AND MADE ADDITION ON ESTIM ATED BASIS AT GP 19% AND ACCORDINGLY ADDED AN AMOUNT OF RS.14,74,501 /- TO THE GROSS PROFIT OF THE ASSESSEE. WHEN THE MATTER REACHED BEF ORE THE LEARNED CIT(A), THE LEARNED CIT(A) CONSIDERED THE EXPLANATI ONS OF THE ASSESSEE TO BE REASONABL AND REDUCED THE ADDITION FROM RS.14 ,74,501/- TO RS.7,14,420/-. SUBSEQUENTLY, NOTICE WAS ISSUED ON 3 0-07-2008 REQUIRING THE ASSESSEE TO SHOW CAUSE AS TO WHY PENALTY U/S 27 1 (1) (C) READ WITH SECTION 274 OF THE IT ACT SHOULD NOT BE LEVIED. BRU SHING ASIDE THE CONTENTION OF THE ASSESSE, THE LEARNED AO LEVIED PE NALTY OF RS.2,40,473/- U/S 271 (1) ( C ) OF THE ACT WITH THE FOLLOWING OBSERVATIONS: 3 IT IS TRITE LAW THAT THE ASSESSMENT PROCEEDING AND THE PENALTY PROCEEDINGS ARE DISTINCT AND SEPARATE PROCEEDINGS. THEREFORE, THE FINDINGS RECORDED IN THE ASSESSMENT PROCEEDINGS CAN NOT BE CONCLUSIVE, IN THE PENALTY PROCEEDINGS, THOUGH THE SAME MAY NOT BE IRRELEVANT. IT IS NOT LEGALLY INCUMBENT ON THE D EPARTMENT TO MAKE ANY FURTHER ENQUIRY WHERE THERE IS SUPPRESSION OF I NCOME, WITH A VIEW TO DEMONSTRATING THE SAME AS ATTRIBUTABLE TO A NY DISHONEST INTENTION, ON THE PART OF THE ASSESSEE. IT IS ADDED THAT WITH DELETION OF THE WORD DELIBERATE FROM THE PROVISIONS OF SEC TION 271 (1) ( C ) OF THE ACT AND THE INTRODUCTION OF EXPLANATION- 1 T HERETO AND ALSO HAVING REGARD TO THE PRINCIPLE LAID DOWN BY THE APE X COURT IN THE CASE OF DHARMENDRA TEXTILE PROCESSORS & OTHERS (200 8) 306 ITR 277 (SC), THE PENALTY PROCEEDINGS ARE NO LONGER QUA SI CRIMINAL PROCEEDINGS AND, HENCE, T HE PRESENCE OF MENS REA I S NOT REQUIRED TO BE ESTABLISHED. IT IS NO LONGER ESSENTIAL AND NE CESSARY FOR THE REVENUE TO GO FURTHER AND ESTABLISH THAT THERE WAS CONSCIOUS CONCEALMENT OF PARTICULARS OF INCOME OR A DELIBERAT E FAILURE TO FURNISH ACCURATE PARTICULARS, AS HELD IN THE CASE O F ADDL. CIT VS. JEEVANLAL SHAH 205 ITR 244 (SC). THE HONBLE APEX C OURT IN THE CASE OF K. P. MADHUSUDAN VS. CIT, 251ITR 99 (SC) HA S LAID DOWN THAT IT IS FOR THE ASSESSEE, TO PROVE IN THE CIRCUM STANCES STATED IN THE EXPLANATION THAT HIS FAILURE TO RETURN THE CORR ECT INCOME WAS NOT DUE TO FRAUD OR NEGLECT. IF FAILS TO DO SO, HE SHAL L BE DEEMED TO HAVE CONCEALED THE PARTICULARS OF HIS INCOME OR FUR NISHED INACCURATE PARTICULARS THEREOF AND CONSEQUENTLY, LI ABLE FOR PENALTY AS CONTEMPLATED U/S. 271 (1) ( C) OF THE ACT. 4. THE ASSESSE ON APPEAL BEFORE THE LEARNED CIT(A) IT WAS SUBMITTED THAT (I) THE LEARNED AO FAILED TO POINT OUT ANY SIGNIFIC ANT DEFECTS IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE, (II) THE LEARNED AO HAS SIMPLY COMPARED THE GP RATE WITH THE PRECEDING YEAR WITHOUT EXAMINING THE FACTS IN ORDER TO ARRIVE AT THE ADDITION, (III) THE LEARNED AO FAILED TO LOOK INTO THE VARIOU S ASPECTS WHICH AFFECTED THE BOOK RESULTS OF THE ASSESSEE, 4 (IV) THE REJECTION OF BOOKS BY THE AO WAS ONLY ON T HE BASIS THAT QUALITY WISE RECORDS OF STOCK WERE NOT MAINTAINED, WHICH IS NOT APPRECIABLE, SINCE THERE ARE MORE THAN 150 VARIETI ES OF DIFFERENT ITEMS AND MAINTENANCE OF STOCK RECORDS OF ALL SUCH ITEMS ARE CUMBERSOME AND A LENGTHY PROCESS, (V) THE REASONS SUBMITTED BY THE ASSESSEE TO THE LE ARNED AO FOR SHORTFALL IN GP WERE SIMPLY BRUSHED ASIDE BY THE LE ARNED AO WITHOUT GIVING ANY REASONS, (VI) THE LEARNED CIT(A) HAS APPRECIATED THE REASONS SUBMITTED BY THE ASSESSEE AND SUBSTANTIALLY REDUCED THE ADDITION . 5. HOWEVER, IN THE PENALTY PROCEEDINGS THE LEARNED CIT(A) CONFIRMED THE PENALTY IMPOSED BY THE LEARNED AO AND HELD AS F OLLOWS: HOWEVER, THE FACT REMAINS THAT CIT(A) HAS CONFIRME D THE ADDITION OF RS.7,14,420/-. THIS MEANS THAT APPELLANT HAS UND ERSTATED HIS INCOME BY RS.7,14,420/-. IT IS FOR NOT DISCLOSING T HE INCOME CORRECTLY, THE PENAL PROVISIONS OF SECTION 271 (1) ( C ) IS THERE ON STATUE BOOK. IT IS FOUND THAT SOMEBODY HAS NOT DIS CLOSED HIS INCOME IN FULL, PENAL PROVISIONS OF SECTION 271 (1) ( C ) ARE ATTRACTED. 6. THE LEARNED AR VEHEMENTLY ARGUED THAT PENALTY WA S LEVIED BASED ON ADDITIONS MADE ON ESTIMATE BASIS AND THEREFORE, IT IS NOT SUSTAINABLE. THE LEARNED AR SUBMITTED THAT THE ASSESSEE HAD MAIN TAINED PROPER BOOKS OF ACCOUNTS AND FURNISHED ALL THE INFORMATION REQUIRED DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND NO DISCREPANCY COULD BE UNEARTHED BY THE LEARNED AO. HE FURTHER REITERATED ALL THE ARGUMENTS RAISED BEFORE THE LEARNED CIT(A) MENTIONED SUPRA AN D PRAYED THAT THE ADDITION MADE ON SUCH ESTIMATE BASIS DESERVES TO BE DELETED. ON THE 5 OTHER HAND, THE LEARNED DR HOTLY CONTESTED AND RELI ED UPON THE ORDER OF THE LEARNED CIT(A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULL Y PERUSED THE MATERIALS ON RECORD. THE MAIN GROUND TAKEN BY THE L EARNED AO TO MAKE THE ADDITION OF RS.14,74,501/- WAS BASED ON THE PRE MISES THAT THE ASSESSEE HAD DECLARED LOWER GROSS PROFIT COMPARING TO THE EARLIER YEAR. HE DID NOT STEP INTO THE BOOKS OF ACCOUNTS TO LOGIC ALLY DEDUCE THE RESULTS FOR SUCH SHORTFALL. VARIOUS REASONS WERE POINTED OU T BY THE ASSESSEE IN ORDER TO EXPLAIN THE DEFICIENCY IN GROSS PROFIT. TH E LEARNED AO WITHOUT ANALYSING AND REJECTING THE SAME BY VALID REASONS M ADE THE ADDITION BY MERE ESTIMATE. THE LEARNED CIT(A) THOUGH APPRECIATE D THE SUBMISSIONS OF THE ASSESSEE WAS NOT CONVINCED FULLY AND, THEREF ORE, SUSTAINED AN ADDITION OF RS.7,14,420/- AGAIN BASED ON ESTIMATE. FROM THE FACTS AND CIRCUMSTANCES OF THE CASE, THOUGH FOUND FIT FOR MAK ING AN ADDITION, LEVY OF PENALTY IS NOT APPRECIABLE IN OUR CONSIDERED VIE W BECAUSE THE ENTIRE BASIS OF ADDITION IS BASED ON ESTIMATE. IN THESE GI VEN CIRCUMSTANCES, THE LEARNED AO WAS NOT ABLE TO CLEARLY ESTABLISH THAT T HERE WAS A CONCEALMENT OF PARTICULARS OF INCOME BY THE ASSESSE E OR THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF SUCH INCOME . THEREFORE, WE DO NOT FIND THIS CASE FIT FOR LEVY OF PENALTY AND ACCO RDINGLY, WE HEREBY DELETE THE PENALTY. 6 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 23 RD DAY OF MARCH, 12 SD/- SD/- ( MUKUL KUMAR SHRAWAT ) JUDICIAL MEMBER (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER LAKSHMIKANT DEKA/ LAKSHMIKANT DEKA/ LAKSHMIKANT DEKA/ LAKSHMIKANT DEKA/- -- - 7 COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY. REGISTRAR, ITAT, AHMEDABAD