VIKRAM SINGH, Jaipur V. DCIT, Jaipur

ITA 143/JPR/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 5627 (ITAT-JAIPUR)
• Duration Of Justice: 10 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-01-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2007-2008
• Appeal Filed On: 17-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase; Unexplained investment; Search and seizure; Agreed addition
• Section: 44AD; 40A(3)

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH DQY HKKJR] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YA DAV, AM VK;DJ VIHY LA- @ ITA NO. 143/JP/2016 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2007-08 SHRI VIKRAM SINGH, 1, THALTARA, SIRSI ROAD, KHATIPURA, JAIPUR CUKE VS. THE DY.C.I.T., CIRCLE-3, JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AFPPS 1181 J VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI RAJEEV SOGANI (CA) JKTLO DH VKSJ LS @ REVENUE BY : SHRI RAJENDRA JHA (ADDL. CIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 12/01/2017 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT: 16/01/2017 VKNS'K@ ORDER PER: VIKRAM SINGH YADAV, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A) DATED 17.12.2015 FOR A.Y. 2007-08. THE SOLE GR OUND OF APPEAL TAKEN BY THE ASSESSEE IS AS UNDER:- 1 . IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN CONFIRMING THE PENALTY AMOUNTING TO RS .2,00,043/- U/S 271(1)(C) OF THE INCOME TAX ACT, 1961 ON ESTIMATED TRADING ADDITIONS. THE ACTION OF LD. CIT(A) IS ILLEGAL, UNJUSTIFIED, A RBITRARY AND AGAINST THE ITA NO.143/JP/2016_ SHRI VIKRAM SINGH VS. DCIT, CIRCLE-3, JAIPUR 2 FACTS OF THE CASE. RELIEF MAY PLEASE BE GRANTED BY DELETING THE SAID ADDITIONS OF RS.2,00,043/- 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORT OF ALL TYPE OF ARTISTIC HANDICRAFTS ITEMS MAINLY MADE OF WOOD. THE RETURN OF INCOME WAS FI LED BY THE ASSESSEE ON 30-10-2007 THROUGH E-FILING DECLARING T OTAL INCOME OF RS.612,73,640/-. THE CASE OF THE ASSESSEE WAS SELECT ED FOR SCRUTINY U/S 143(2) OF THE ACT. ON SCRUTINY OF THE DETAILS/INFOR MATION PRODUCED BY THE ASSESSEE THE AO OBSERVED THAT THE BUSINESS RESU LTS SHOWN BY THE ASSESSEE IN COMPARISON TO IMMEDIATELY LAST TWO YEARS ARE AS UNDER:- ASSTT. YEAR TURNOVER (RS. IN LACS) GROSS PROFIT RATE 2007-08 302.00 38.45% 2006-07 375.70 40.34% 2005-06 472.20 44.39% THE AO FROM THE TRADING RESULTS OBSERVED THAT THE GR OSS PROFIT RATE HAS FALLEN DOWN FROM 40.34% TO 38.45% AND THE AO ASKED F OR THE REASONS FROM THE ASSESSEE FOR FALL IN GROSS PROFIT RATE. THE ASSESSEE SUBMITTED THAT THE FALL IN GROSS PROFIT RATE WAS DUE TO NOT GE TTING THE ORDERS FROM THE FOREIGN BUYERS AND THE ASSESSEE HAD TO INTRODUC E NEW ITEMS TO SUSTAIN IN THE MARKET WHICH AFFECTED THE PROFITS MAR GINS OF THE ITA NO.143/JP/2016_ SHRI VIKRAM SINGH VS. DCIT, CIRCLE-3, JAIPUR 3 ASSESSEE. FURTHER, THE ASSESSEE SUBMITTED THAT THER E WAS ESCALATION OF INPUT COSTS LIKE RAW MATERIAL, LABOUR ETC. CONSIDERI NG THE SUBMISSION OF THE ASSESSEE AND DOCUMENTS AVAILABLE ON RECORD AT T HE TIME OF ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT THERE ARE DEFECTS IN THE BOOKS OF ACCOUNT OF THE ASSESSEE AND THEREFORE, HE APPLIED THE PROVISION OF SECTION 145(3) OF THE ACT AND THE AO T OOK THE MEAN OF LAST TWO YEARS OF GROSS PROFIT RATE AND APPLIED THE GROSS PROFIT RATE OF 42.36% AGAINST THE GROSS PROFIT RATE OF 38.45% SHOW N BY THE ASSESSEE WHICH RESULTED IN TRADING ADDITION OF RS.11,79,652/- . 3. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTE R BEFORE THE LD. CIT(A) WHO CONFIRMED THE REJECTION OF BOOKS OF ACCOU NT U/S 145(3) AND ALSO ESTIMATED THE GROSS PROFIT RATE OF 40.40% WHICH RESULTED INTO TRADING ADDITION OF RS.5,92,194/-. 4. ON FURTHER APPEAL, THE COORDINATE BENCH CONFIRME D THE FINDINGS OF THE LD CIT(A) AND OPERATIVE PART OF ITS ORDER IS AS UNDER: WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED TH E MATERIAL ON RECORD. THE LD AR HAS NOT PRESSED THE GROUND RELATIN G TO REJECTION OF BOOKS OF ACCOUNT. THEREFORE, THE LIMITE D ISSUE FOR CONSIDERATION IS WHAT SHOULD THE REASONABLE BASIS FO R ESTIMATION OF G.P. RATE AND WHETHER ESTIMATION DONE BY THE LOWER AUTHORITIES ITA NO.143/JP/2016_ SHRI VIKRAM SINGH VS. DCIT, CIRCLE-3, JAIPUR 4 CALL FOR ANY INTERFERENCE. THE A.O. HAS APPLIED AVER AGE G.P. RATE OF LAST TWO YEARS @ 42.36%. THE LD. CIT(A) BY FOLLOWING THE G.P. RATE OF LAST YEAR HAS BROUGHT THE SAME DOWN AND APPL IED G.P. RATE OF 40.40%. APPARENTLY, BOTH THE AO AS WELL AS L D. CIT(A) ARE GUIDED BY ASSESSEES PAST HISTORY. AT THE SAME TIME , IT IS OBSERVED FROM THE ORDER OF THE LD. CIT(A) THAT HE HA S CONSIDERED THE UNUSUAL BUSINESS CONDITIONS PREVALENT DURING TH E SUBJECT MATTER IN TERMS OF PROFIT MARGINS GETTING EFFECTED BY INCREASE IN COST OF RAW MATERIAL, INTRODUCTION OF NEW PRODUCTS I N THE MARKET AND FACT THAT SOME OF THE ASSESSEES CUSTOMERS DID NOT PLACE ORDERS DURING THE YEAR RESULTING IN FALL IN TURNOVE R FROM RS.375.70 LACS TO RS.302 LACS DURING THE YEAR. IN OUR VIEW, TH E VIEW OF THE LD. CIT(A) IS FAIR AND REASONABLE WHICH HAS FACTORED IN THE BUSINESS ENVIRONMENT PREVALENT DURING THE YEAR AND AT THE SAME GUIDED BY ASSESSEES PAST HISTORY, APPLIED GROSS PR OFIT RATE OF 40.40% AS AGAINST 42.36% APPLIED BY THE AO. IN LIGH T OF ABOVE, WE DO NOT SEE ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) WHICH CALLS FOR OUR INTERFERENCE. THUS GROUND NO.1 OF THE ASSESSEE AS WELL AS GROUND NO.1 OF THE REVENUE ARE DISMISSED. ITA NO.143/JP/2016_ SHRI VIKRAM SINGH VS. DCIT, CIRCLE-3, JAIPUR 5 5. ON THE TRADING ADDITION SUSTAINED IN THE QUANTUM PROCEEDING BY THE COORDINATE BENCH, THE AO LEVIED PENALTY U/S 271 (1)(C) AMOUNTING TO RS.2,00,043/-. 6. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). THE ASSESSEE CONTENDED THAT NO PENAL TY CAN BE IMPOSED WHERE THE TRADING ADDITIONS ARE PURELY BASED ON AN E STIMATION AND RELIANCE WAS PLACED ON THE DECISION OF THE HONBLE R AJASTHAN HIGH COURT IN CASE OF SHIV LAL TAK (251 ITR 373) & MAHENDRA SIN GH KHEDLA (252 CTR 453), BESIDES OTHER DECISIONS. THE LD. CIT(A), HO WEVER, REJECTED THE CONTENTION OF THE ASSESSEE AND STATED THAT SINC E SPECIFIC DEFECTS HAVE BEEN ESTABLISHED IN THE BOOKS OF ACCOUNT, THER EFORE, ESTIMATION IS NOT JUST PLAIN ESTIMATION BUT IS SUPPORTED BY POSIT IVE EVIDENCE AND ACCORDINGLY, PENALTY U/S 271(1)(C) WAS CONFIRMED. 7. DURING THE COURSE OF HEARING, THE LD. AR SUBMITT ED THAT FOR THE SO CALLED DEFECTS POINTED OUT BY THE LD. AO, COMPLETE EXPLANATION WAS FURNISHED DURING THE COURSE OF ASSESSMENT PROCEEDIN GS. WOOD IS A NATURAL PRODUCT AND ITS SPECIFIC VARIETY/QUALITY DE TERMINES ITS NET REALIZABLE VALUE. EVEN THE RATE OF TEAK WOOD OR YELL OW OAK WOOD VARY WIDELY DEPENDING ON ITS VARIETY. THE EXPLANATION OFFE RED BY THE ASSESSEE WAS NOT FOUND FALSE. THE EXPLANATION, EVEN T HOUGH WAS NOT ITA NO.143/JP/2016_ SHRI VIKRAM SINGH VS. DCIT, CIRCLE-3, JAIPUR 6 ACCEPTED, WAS NOT HELD TO BE LACKING IN BONA-FIDES. NEEDLESS TO MENTION THAT ALL FACTS WERE PLACED BEFORE THE LD. AO. IN VIE W OF THIS PROVISION OF EXPLANATION 1 TO SECTION 271(1) ARE NOT ATTRACTED. OTHERWISE ALSO, ADDITIONS ARE NOT BASED ON ANY SPECIFIC DEFECTS BUT ARE ON AD-HOC BASIS BY APPLYING A GP RATE. THIS ESTIMATION HAS ALSO UNDE RGONE CHANGE IN FAVOUR OF ASSESSEE BY LD. CIT(A) IN QUANTUM APPEAL. HONBLE RAJASTHAN HIGH COURT IN THE CASE OF MAHENDRA SINGH KHEDLA (SU PRA) HAS HELD THAT FACT OR ALLEGATION BASED ON ESTIMATION CANNOT BE SA ID TO BE CORRECT ONLY, IT CAN BE INCORRECT ALSO. 8. HONBLE BOMBAY HIGH COURT IN THE CASE OF UPENDRA V. MITHANI ITA (L) NO.1860 OF 2009, DECIDED ON 05.08.2009 OBSERVED IN THE MATTER OF LEVY OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT, THAT IF THE ASSESSEE GIVES AN EXPLANATION WHICH IS UNPROVED BUT NOT DISPR OVED I.E IT IS NOT ACCEPTED BUT CIRCUMSTANCES DO NOT LEAD TO THE REASO NABLE AND POSITIVE INFERENCE THAT THE ASSESSEES CASE IS FALSE, THEN N O PENALTY CAN BE IMPOSED IN SUCH CASE. SAME RATIO WAS LAID DOWN BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF NATIONAL TEXTILES (2001) 2 49 ITR 0125 (GUJ- HC) 9. FURTHER RELIANCE IS PLACED ON THE JUDGMENT OF TH E HONBLE DELHI HIGH COURT IN THE CASE OF VATIKA CONSTRUCTION (P.) LTD. [2014] 45 ITA NO.143/JP/2016_ SHRI VIKRAM SINGH VS. DCIT, CIRCLE-3, JAIPUR 7 TAXMAN.COM 471 (DELHI) (CASE LAW PAGE 21), IN WHICH I T HAS BEEN HELD THAT HEAD NOTES SECTION 271(1)(C), READ WITH SECTIONS 40A(3) AND 44AD OF THE INCOME-TAX ACT, 1961 PENALTY FOR CO NCEALMENT OF INCOME (AGREED ADDITIONS) ASSESSMENT YEAR 2004-05 ASSESSEE CARRIED ON CONSTRUCTION BUSINESS IT HAD ISSUED LA RGE NUMBER OF BEARER CHEQUES TO SMALL SUPPLIERS OF BUILDING MATERIAL I N RESPONSE TO NOTICE ISSUED BY ASSESSING OFFICER SEEKING TO DISALLOW SAID PAYMENTS UNDER SECTION 40A(3), ASSESSEE OFFERED THAT ITS INCOME MI GHT BE COMPUTED BY APPLYING NET PROFIT RATE OF 8 PER CENT OF GROSS REC EIPTS ASSESSING OFFICER HAVING ACCEPTED ASSESSEES OFFER, MADE ADDI TION IN TERMS OF SECTION 44AD HE ALSO PASSED A PENALTY ORDER UNDER SECTION 271(1)(C) TRIBUNAL, HOWEVER, SET ASIDE SAID PENALTY ORDER W HETHER SINCE AT TIME TO INITIATING PENALTY PROCEEDINGS ASSESSING OF FICER DID NOT HAVE ANY MATERIAL ON RECORD SHOWING THAT PAYMENTS MADE TO SUP PLIERS WERE BOGUS, HE COULD NOT HAVE MERELY ON BASIS OF ASSESSE ES OFFER TO BE TAXED ON ESTIMATE BASIS, CONCLUDED THAT ASSESSEE HA D PROVIDED INACCURATE PARTICULARS IN ITS RETURN HELD, YES WHETHER, THEREFORE, TRIBUNAL WAS JUSTIFIED IN SETTING ASIDE IMPUGNED PENA LTY ORDER HELD, YES [PARA 14] [IN FAVOUR OF ASSESSEE] ITA NO.143/JP/2016_ SHRI VIKRAM SINGH VS. DCIT, CIRCLE-3, JAIPUR 8 10. LD. CIT(A) MISPLACED HIS RELIANCE ON VARIOUS JUD GMENTS, AS SET OUT AT PAGE 14 OF HIS ORDER, AS THE FACTS OF THOSE CASES ARE TOTALLY DIFFERENT FROM THE FACTS OF THE CASE AT HAND. BELOW MENTIONED PARAS HIGHLIGHT SUCH DIFFERENCE:- 10.I IN THIS CASE OF SWARUP COLD STORAGE & GENERAL M ILLS ( SUPRA ), THE ASSESSEE HAD NOT EVEN FILED ITS RETURN OF INCOME BEFORE THE DUE DATE. THE SAME WAS FILED, IN RESPONSE TO THE NOTICE UNDER SECTION 142. FURTHER, THE ASSESSMENT WAS MADE BY THE AO EX-PARTE AND ASSESSEE AT NO POINT OF TIME, DURING THE ASSESSMENT AND APPELLA TE PROCEEDINGS, PRODUCED ITS BOOKS OF ACCOUNTS. THE APP ELLATE AUTHORITIES EVEN DOUBTED THE ASSERTION, OF THE ASSE SSEE, THAT THE RETURN OF INCOME WAS FILED ON THE BASIS OF REGULARLY MAINTAINED BOOKS OF ACCOUNTS. WHEREAS, IN THE PRESENT CASE, THE ASSESSEE HAS BEEN REGULARLY MAINTAINING HIS BOOKS OF ACCOUNTS WHICH A RE DULY AUDITED WHICH HAVE NOWHERE BEEN DOUBTED BY THE LOWER AUTHORITIES. THESE BOOKS OF ACCOUNTS WERE EVEN PRODUC ED BEFORE THE LD. AO FOR HIS EXAMINATION DURING THE ASSESSMENT PROCEEDINGS. ITA NO.143/JP/2016_ SHRI VIKRAM SINGH VS. DCIT, CIRCLE-3, JAIPUR 9 10.II IN THE CASE OF A.K. BASHU SAHIB ( SUPRA ), ASSESSEE HIMSELF DENIED THE MAINTENANCE OF ANY BOOKS OF ACCOUNTS INC LUDING THE TRIP SHEETS, OR CORRESPONDENCES WITH THE REGIONA L TRANSPORT AUTHORITY. THE ASSESSEE HIMSELF ESTIMATED HIS INCOME ON THE BASIS OF ASSESSMENT OF EARLIER YEARS. WHEREAS, IN THE PRESENT CASE, THE ASSESSEE HAS BEEN REGULARLY MAINTAINING HIS BOOKS OF ACCOUNTS WHICH HAS NOWHERE BEEN DOUBTED BY THE LOWER AUTHORITIES. THE BOOKS OF ACCO UNTS WERE EVEN PRODUCED BEFORE THE LD. AO FOR HIS EXAMINATION DURING THE ASSESSMENT PROCEEDINGS. EVEN THE RETURN WAS FILED, B Y THE ASSESSEE, BASED ON THE BOOKS OF ACCOUNTS REGULARLY MAINTAINED AND NOT ON THE BASIS OF ANY ESTIMATION. 10.III IN THIS CASE OF DR. (MRS) K.D. ARORA ( SUPRA ) THE ASSESSEE DID NOT FILE HER RETURN OF INCOME, FOR THE RELEVANT ASSESSMENT YEAR, BUT THE SAME WAS FILED IN RESPONSE TO NOTICE UNDER SECTION 148. DURING THE COURSE OF ASSE SSMENT PROCEEDINGS, IT WAS NOTED BY THE AO THAT THE ASSESSE E HAD MADE CERTAIN UNEXPLAINED INVESTMENTS OVER THE CONSTRUCTION OF THE HOUSE. WHEN THE ASSESSEE WAS CONFRONTED WITH THIS ASPECT, SHE DID NOT DENY THAT T HE HOUSE WAS CONSTRUCTED BY HER IN THE NAME OF HER MINO R ITA NO.143/JP/2016_ SHRI VIKRAM SINGH VS. DCIT, CIRCLE-3, JAIPUR 10 SON. SHE EVEN EXPLAINED THE INVESTMENTS. AO THEN ESTIMATED THE AMOUNT OF EXPENDITURE FOR THE CONSTRU CTION OF SUCH HOUSE. THE JUDICIAL AUTHORITIES EVEN QUESTI ONED THE MENTAL ATTITUDE OF THE ASSESSEE IN NOT FILING THE R ETURN U/S 139(1). THE FACTS IN THE PRESENT CASE ARE TOTALLY DIFFERENT AS THIS IS NOT A CASE WHERE THE ASSESSEE TRIED, EVEN MINUTELY, TO CO NCEAL THE PARTICULARS OF HIS INCOME. IT IS A CASE WHERE THE L D. AO NOT BEING SATISFIED BY THE PERCENTAGE OF GROSS PROFIT DECLARE D BY THE ASSESSEE AS COMPARED TO THE PAST YEARS ESTIMATED A GP RATE. 10.IV IN THE CASE OF MD. WARASAT HUSSAIN ( SUPRA ) THERE WAS A CLEAR FINDING BY THE AO THAT THE ASSESSEE HAD CONCE ALED HIS CAPITAL GAINS ON SALE OF LAND. THE ASSESSEE CALCULAT ED CAPITAL GAINS, BUT, HOWEVER FAILED TO PROVIDE THE DOCUMENTS FOR SUCH SALE BEFORE THE AO AND EVEN ASKE D THE REVENUE AUTHORITIES TO DETERMINE THE CAPITAL GAINS ON ESTIMATE BASIS. THE PRESENT CASE IS NOT RELATED TO CAPITAL GAINS. I N THIS CASE, ASSESSEE HAS PROVIDED ALL THE RELEVANT DOCUMENTS/RE CORDS PREPARED BY HIM. HOWEVER, THE SAME, NOT BEING MADE TO THE ITA NO.143/JP/2016_ SHRI VIKRAM SINGH VS. DCIT, CIRCLE-3, JAIPUR 11 SATISFACTION OF THE AO, BOOKS WERE REJECTED BY HIM AND INCOME WAS ESTIMATED. 10.V IN THE CASE OF BALAKRISHNA TEXTILES & ORS. ( SUPRA ) THERE WAS A RAID, ON THE BUSINESS PREMISES, OF THE ASSESSEE BY THE ECONOMIC OFFENCES WING AND AS A RESULT, THE ASSESSEE CAME FORWARD WITH CERTAIN DISCLOSURES UNDER SECTION 68. THE ASSESSEE EVEN ADMITTED TO HAVE MANIPULATED HIS BOOKS OF ACCOUNTS AT THE TIME OF FI LING THE RETURN OF INCOME. WHEREAS, IN THE CASE AT HAND, IT IS NOT THE ALLEGAT ION OF THE DEPARTMENTAL AUTHORITIES THAT ASSESSEE HAS MANIPULA TED THE BOOKS OF ACCOUNTS AT ANY POINT OF TIME. 11. LD. CIT(A) HAS MISPLACED HIS RELIANCE ON THE JUD GMENT OF THE HONBLE SUPREME COURT IN THE CASE OF DHARMENDRA TEXT ILE PROCESSORS & OTHERS [2008] 306 ITR 277 (SC). LD. CIT(A) HAS MISRE AD THE JUDGMENT. HONBLE APEX COURT HAS NOT AT ALL HELD THAT MENS REA IS NOT ESSENTIAL. 12. IT IS SUBMITTED THAT THE HONBLE APEX COURT IN UNION OF INDIA V. RAJASTHAN SPG. & WVG. MILLS [2009] 224 CTR 1 (SC) AN D IN CIT V. RELIANCE PETROPRODUCTS (P.) LTD. [2010] 322 ITR 158 (SC) OBSERVED THAT CONDITIONS IN SECTION 271(1)(C), NAMELY, CONCEALMEN T AND FURNISHING OF INACCURATE PARTICULAR, MUST BE PROVED TO LEVY PENAL TY, DEMONSTRATED ITS ITA NO.143/JP/2016_ SHRI VIKRAM SINGH VS. DCIT, CIRCLE-3, JAIPUR 12 INTENTION THAT ONES STATE OF MIND HAD TO BE TAKEN INTO ACCOUNT TO SEE IF THAT PERSON WANTED TO CONTRAVENE LAW BY CONCEALING INCOME. RELEVANT EXTRACTS OF THE HONBLE SUPREME COURT JUDGMENTS HAV E BEEN SET OUT FOR THE SAKE OF CONVENIENCE:- 12.I UNION OF INDIA V. RAJASTHAN SPG. & WVG. MILLS [2009 ] 224 CTR 1 (SC) .. WE NEED TO EXAMINE THE RECENT DECISION OF THIS COUR T IN DHARMENDRA TEXTILE PROCESSORS CASE (SUPRA). IN ALM OST EVERY CASE RELATING TO PENALTY, THE DECISION IS REFERRED TO ON BEHALF OF THE REVENUE AS IF IT LAID DOWN THAT IN EVERY CASE O F NON-PAYMENT OR SHORT PAYMENT OF DUTY THE PENALTY CLAUSE WOULD A UTOMATICALLY GET ATTRACTED AND THE AUTHORITY HAD NO DISCRETION I N THE MATTER. ONE OF US (AFTAB ALAM, J.) WAS A PARTY TO THE DECIS ION IN DHARAMENDRA TEXTILE PROCESSORS CASE (SUPRA) AND WE SEE NO REASON TO UNDERSTAND OR READ THAT DECISION IN THAT MANNER. IN DHARAMENDRA TEXTILE PROCESSORS CASE (SUPRA) THE CO URT FRAMED THE ISSUES BEFORE IT, IN PARAGRAPH 2 OF THE DECISIO N.. ..WE FAIL TO SEE HOW THE DECISION IN DHARAMENDRA TEXTILE PROCESSORS CASE (SUPRA) CAN BE SAID TO HOLD THAT S ECTION 11AC WOULD APPLY TO EVERY CASE OF NON-PAYMENT OR SHORT P AYMENT OF DUTY REGARDLESS OF THE CONDITIONS EXPRESSLY MENTION ED IN THE ITA NO.143/JP/2016_ SHRI VIKRAM SINGH VS. DCIT, CIRCLE-3, JAIPUR 13 SECTION FOR ITS APPLICATION. THERE IS ANOTHER VERY STRONG REASON FOR HOLDING THAT DHARAMENDRA TEXTILE PROCESSORS CA SE (SUPRA) COULD NOT HAVE INTERPRETED SECTION 11AC IN THE MANN ER AS SUGGESTED BECAUSE IN THAT CASE THAT WAS NOT EVEN TH E STAND OF THE REVENUE. 12.II CIT V. RELIANCE PETROPRODUCTS (P.) LTD. [2010 ] 322 ITR 158 (SC) ..WE DO NOT AGREE, AS THE ASSESSEE HAD FURNISHED ALL THE DETAILS OF ITS EXPENDITURE AS WELL AS INCOME IN ITS RETURN, WHICH DETAILS, IN THEMSELVES, WERE NOT FOUND TO BE INACCU RATE NOR COULD BE VIEWED AS THE CONCEALMENT OF INCOME ON ITS PART. IT WAS UP TO THE AUTHORITIES TO ACCEPT ITS CLAIM IN TH E RETURN OR NOT. MERELY BECAUSE THE ASSEESSEE HAD CLAIMED THE E XPENDITURE, WHICH CLAIM WAS NOT ACCEPTED OR WAS NOT ACCEPTABLE TO THE REVENUE, THAT BY ITSELF WOULD NOT, IN OUR OPINION, ATTRACT THE PENALTY UNDER SECTION 271(1)(C). IF WE ACCEPT THE C ONTENTION OF THE REVENUE THEN IN CASE OF EVERY RETURN WHERE THE CLAIM MADE IS NOT ACCEPTED BY ASSESSING OFFICER FOR ANY REASON , THE ASSESSEE WILL INVITE PENALTY UNDER SECTION 271(1)(C ). THAT IS CLEARLY NOT THE INTENDMENT OF THE LEGISLATURE. 13. THE PROPER ANALYSIS OF THE DHARMENDRA TEXTILE JUD GMENT HAS BEEN DONE BY THE HONBLE ITAT PUNE BENCH IN THE CAS E OF KANBAY SOFTWARE INDIA (P.) LTD. VS. DCIT [2009] 31 SOT 153 (P UNE). THE ITA NO.143/JP/2016_ SHRI VIKRAM SINGH VS. DCIT, CIRCLE-3, JAIPUR 14 RELEVANT EXTRACTS ARE REPRODUCED BELOW FOR PROPER AP PRECIATION OF THE POSITION: ..THE VIEWS EXPRESSED BY THEIR LORDSHIPS IN DARAME NDRA TEXTILE PROCESSORS CASE (SUPRA) CANNOT BE VIEWED AS AN AUTHORITY FOR T HE PROPOSITION THAT A PENALTY UNDER SECTION 271(1)(C) IS AN AUTOMATIC CON SEQUENCE OF AN ADDITION BEING MADE TO INCOME OF THE TAXPAYER, FOR THE REASO N THAT WHETHER IT IS A CIVIL LIABILITY OR A CRIMINAL LIABILITY, PENALTY UNDER SE CTION 271(1)(C) CAN ONLY COME INTO PLAY WHEN THE CONDITIONS LAID DOWN UNDER THAT SECTION ARE TO BE SATISFIED. IN VIEW OF THE ELABORATE DISCUSSIONS IN THE PRECEDI NG PARAGRAPHS, BY NO STRETCH OF LOGIC OR RATIONALE IT COULD BE SAID THAT IMPOSITION OF PENALTY UNDER SECTION 271(1)(C) HAS A CAUSE AND EFFECT RELATIONSH IP WITH ADDITION BEING MADE TO THE RETURNED INCOME PER SE. AN ADDITION BEI NG MADE TO INCOME DOES, BECAUSE OF IMPACT OF EXPLANATION 1, EFFECTIVELY DOES RAISE A PRESUMPTION AGAINST THE ASSESSEE BUT THAT IS AN ENTIRELY REBUTT ABLE PRESUMPTION AND THE SCHEME OF REBUTTAL IS PROVIDED IN THE EXPLANATION IT SELF IN THE LIGHT OF THE ABOVE DISCUSSIONS, AND FOR THE DETAILED REASONS SET OUT ABOVE, WE ARE OF THE CONSIDERED VIEW THAT EVEN POST DHARAMENDRA TEXTILE PROCESSORS JUDGMENT (SUPRA) BY THE HONBLE SUPREME COURT, MERELY BECAUS E AN ADDITION IS MADE TO THE INCOME DECLARED BY THE ASSESSEE, PENALTY UNDER SECTION 271(1)(C) CANNOT BE IMPOSED. IN OUR CONSIDERED VIEW, HONBLE SUPREME COURTS JUDGMENT IN THE CASE OF DHARMENDRA TEXTILE PROCESSORS (SUPRA) DOES NOT BRING ABOUT ANY RADICAL CHANGE IN THE SCHEME OF SECTION 271(1)(C) T HOUGH IT DOES NULLIFY THE ITA NO.143/JP/2016_ SHRI VIKRAM SINGH VS. DCIT, CIRCLE-3, JAIPUR 15 EARLIER DIVISION BENCH JUDGMENT ON HONBLE SUPREME COURT IN THE CASE OF DILIP N. SHROFF JUDGMENT (SUPRA) TO THE EXTENT THAT IT HE LD THAT THE ONUS WAS ON THE TAX AUTHORITIES TO ESTABLISH MENS REA BEFORE A PENA LTY UNDER SECTION 271(1)(C) CAN BE IMPOSED A PROPOSITION WHICH, IN THE ESTEEM ED VIEWS OF THE LARGER BENCH, DID NOT TAKE INTO ACCOUNT THE CORRECT SCHEME OF THINGS AS THESE WERE MORE PARTICULARLY OF EXPLANATION 1, AS IT EXISTS NOW , TO SECTION 271(1)(C). THEIR LORDSHIPS HAVE INDEED HELD THAT A PENALTY UNDER SEC TION 271(1)(C) IS A CIVIL LIABILITY BUT THAT EXPRESSION IS USED IN CONTRADIST INCTION WITH CRIMINAL LIABILITY AND, AS HELD BY THE HONBLE SUPREME COURT ITSELF IN THE CASE OF OM PRAKASH SHIV PRAKASH (SUPRA), THERE IS NO CONFLICT IN A LIA BILITY BEING A CIVIL LIABILITY AND AT THE SAME TIME BEING PENAL IN CHARACTER. IN EFFEC T, THEREFORE, LIABILITY UNDER SECTION 271(1)(C) CONTINUES TO HAVE ITS BASIC PENAL CHARACTER EVEN AS IT IS HELD TO BE A CIVIL LIABILITY 14. LD. CIT(A) HAS NOT DISTINGUISHED THE JURISDICTIO NAL HIGH COURT DECISIONS. THEREFORE, LD. ICT(A) HAS ERRED IN NOT FOL LOWING THE SAME. 15. IT IS NOT THE FINDING OF THE LD. AO OR LD. CIT(A ), IN THE QUANTUM PROCEEDINGS, THAT THE ASSESSEE WAS INDULGED IN BOGUS PURCHASES. 16. HONBLE ITAT JAPUR BENCH HAS CONSISTENTLY TAKEN A VIEW THAT NO PENALTY SHOULD BE LEVIED ON ESTIMATED ADDITIONS. BE LOW MENTIONED ARE SOME OF THE CASES IN WHICH SUCH VIEW HAS BEEN FOLLOWED BY THE HONBLE JAIPUR BENCH. ITA NO.143/JP/2016_ SHRI VIKRAM SINGH VS. DCIT, CIRCLE-3, JAIPUR 16 16.I INDUS JEWELLERY PRIVATE LIMITED, ITA. NO.933/JP/13 (CSE LAW PAGE 30) 16.II VIJAY SOLVEX LTD., ITA NO.641/JP/14 (CASE LAW PAGE 34-35) 16.III DEEPSHREE BUILDCON LTD., ITA 310/JP/12 (CASE LAW PAGE 41-42) 16.IV DEEPAK DALELA, ITA NO.1027/JP/2013 (CASE LAW PAGE 4348) IN VIEW OF THE ABOVE, PENALTY LEVIED BY THE LD. AO AND CONFIRMED BY THE LD. CIT(A), ON TRADING ADDITIONS SUSTAINED ON ESTIMA TED BASIS, MAY PLEASE BE DELETED. 17. THE LD. DR HAS HEARD WHO HAS RELIED ON THE ORDER OF THE CIT(A) AND SUBMITTED THAT SINCE SPECIFIC DEFECTS HAVE BEEN POINTED OUT, THE LEVY OF PENALTY WAS JUSTIFIED AND RIGHTLY CONFIRMED BY THE CIT(A). 18. WE HAVE HEARD THE RIVAL CONTENTION AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN THIS CASE, BOOKS OF ACCOUNT S HAVE BEEN REJECTED AND THEREAFTER, THE ASSESSING OFFICER HAS ESTIMATED A GP RATE OF 42.36% AS AGAINST DECLARED GP RATE OF 38.45% WHICH HAS FINALLY BEEN SUSTAINED BY THE COORDINATE BENCH AT 40.40%. THIS G P RATE 40.40% HAS BEEN APPLIED BY THE CIT(A) FOLLOWING THE GP RATE OF 4 0.34% IN THE IMMEDIATELY PRECEDING A.Y. 2006-07. AS WE HAVE NOTED ABOVE, THE COORDINATE BENCH WHILE SUSTAINING THE GP RATE OF 40. 40% HAS HELD THAT THE LD. CIT(A) HAS CONSIDERED THE UNUSUAL BUSINESS CONDITIONS PREVALENT DURING THE SUBJECT MATTER IN TERMS OF PROFIT MARGIN S GETTING EFFECTED BY INCREASE IN COST OF RAW MATERIAL, INTRODUCTION OF NE W PRODUCTS IN THE ITA NO.143/JP/2016_ SHRI VIKRAM SINGH VS. DCIT, CIRCLE-3, JAIPUR 17 MARKET AND FACT THAT SOME OF THE ASSESSEES CUSTOME RS DID NOT PLACE ORDERS DURING THE YEAR RESULTING IN FALL OF THE TUR NOVER AND THE VIEW OF THE LD. CIT(A) WAS HELD TO BE FAIR AND REASONABLE WHIC H HAS FACTORED IN THE BUSINESS ENVIRONMENT AS WELL AS GUIDED BY THE AS SESSEES PAST HISTORY. IN THE LIGHT OF THE FINDINGS OF FACT IN TH E QUANTUM PROCEEDING, WE DO NOT SEE ANY LINKAGE IN TERMS OF BASIS OF REJEC TION OF THE BOOKS OF ACCOUNTS AND THE ESTIMATION OF GP RATE BY THE ASSES SING OFFICE AT 42.36% WHICH HAS BEEN FINALLY BROUGHT DOWN TO 40.40% . THE ADDITIONS HAVE THUS BEEN CONFIRMED ON A PURE ESTIMATION BASIS TAKEN INTO CONSIDERATION THE PREVALENT BUSINESS ENVIRONMENT AN D THE PAST HISTORY OF THE ASSESSEE AND THE SAME CANNOT BE BASIS FOR LE VY OF PENALTY. FURTHER, THE ASSESSEE HAS RELIED ON THE DECISION OF SHIV LAL TAK WHEREIN THE HONBLE HIGH COURT HAS HELD THAT : IN MAKING COMPUTATION OF TOTAL INCOME WHERE THE IN COME RETURNED HAS BEEN REJECTED BY REJECTING THE TRADING RESULTS, FINDING SOME DISCREPANCY IN THE BOOKS OF ACCOUNT AND SUBSTITUTING THE SAME BY AN ES TIMATED FIGURE, IN THE STRICT SENSE, CAN NEITHER BE SAID TO BE ADDITION OF ANY AMOUNT IN THE RETURNED INCOME NOR DISALLOWANCE OF ANY AMOUNT AS DEDUCTIONS CLAIMED. THE WORD AMOUNT OF WHICH ADDITIONS MADE OR DEDUCTIONS DISA LLOWED ALSO DENOTES REFERENCE TO SPECIFIC ITEM OF AMOUNT ADDED OR DISAL LOWED AS DEDUCTION IN CONTRAST TO SUBSTITUTION OF ALTOGETHER A NEW ESTIMA TED SUM IN PLACE OF THE ITA NO.143/JP/2016_ SHRI VIKRAM SINGH VS. DCIT, CIRCLE-3, JAIPUR 18 INCOME RETURNED. IT IS A CASE NEITHER OF ADDITION O R DISALLOWANCE BUT A CASE OF SUBSTITUTION. 18. FURTHER, THE ASSESSEE HAS RELIED ON DECISION OF HONBLE RAJASTHAN HIGH COURT IN CASE OF MAHENDRA SINGH KHEDLA WHEREIN THE HIGH COURT HAS CONFIRMED THE FINDINGS OF THE TRIBUNAL AT PARA-8 WHICH ARE AS UNDER:- UNDER THESE CIRCUMSTANCES WHEN IN THE PRESENT CASE THERE WAS NO POSITIVE EVIDENCE BEYOND DOUBT REGARDING ESTIMATED TRADING ADDITION THAT THE AMOUNT IN DIFFERENCE BETWEEN THE RESULT SHOWN BY TH E ASSESSEE AND THAT ESTIMATED BY THE AO WAS RESULTANT OF CONCEALMENT OF PARTICULARS OF INCOME OR FURNISHING INACCURATE PARTICULARS THEREOF ON THE PA RT OF THE ASSESSEE, PENALTY UNDER SECTION 271(1)(C) OF THE ACT CANNOT BE LEVIED . THE AO HAD REJECTED THE BOOKS OF ACCOUNT AND ESTIMATED THE TRADING ADDITION ON THE BASIS THAT THE ASSESSEE HAD NOT MAINTAINED SITE-WISE ACCOUNT, NO H EAD-WISE DETAILS OF CLAIMED PURCHASES WERE FURNISHED, NO SEPARATE HEAD OF EXPENSES WAS MAINTAINED, WORK IN PROGRESS WAS NOT DECLARED, SOME WAGES WERE SHOWN OUTSTANDING WITHOUT COMPLETE DETAILS OF CREDITORS, STOCK REGISTER WAS NOT MAINTAINED AND MISC. EXPENSES ON WATER TRANSPORTATI ON ETC. WERE NOT VERIFIABLE AND PURCHASE VOUCHERS OF SAND, STEEL, BA JRI ETC. WERE SELF MADE ETC. ASSESSEE EXPLAINED REASONS FOR THE ABOVE DEFECTS WH ICH WERE NOT ACCEPTED BY THE AO AS NOT FOUND SATISFACTORY. THE AO ACCORDINGL Y MADE ESTIMATE. THE CIRCUMSTANCES SUGGEST THAT IT MAY BE JUST AND PROPE R CASE OF MAKING ITA NO.143/JP/2016_ SHRI VIKRAM SINGH VS. DCIT, CIRCLE-3, JAIPUR 19 ESTIMATED TRADING ADDITION BUT AN INFERENCE THEREFR OM CANNOT BE DRAWN BEYOND DOUBT ESPECIALLY KEEPING IN MIND THE NATURE OF WORK IN NOT MAINTAINING THOSE BOOKS AND DETAILS SUPPORTED WITH PROPER VOUCHERS ETC. THAT THERE WAS CONCEALMENT OF PARTICULARS OF INCOME OR F URNISHING INACCURATE PARTICULARS THEREOF ON THE PART OF THE ASSESSEE TO ATTRACT THE PENAL PROVISIONS. IN VIEW OF ABOVE DISCUSSION AND KEEPING IN MIND THE FACT AND CIRCUMSTANCES OF THE PRESENT CASE, WE ARE OF THE VIEW THAT THE LD . CIT(A) WAS JUSTIFIED IN DELETING THE PENALTY IN ABSENCE OF POSITIVE EVIDENC E WITH THE DEPARTMENT THAT THERE WAS CONCEALMENT OF PARTICULARS OF INCOME OR F URNISHING INACCURATE PARTICULARS THEREOF ON THE PART OF THE ASSESSEE TOW ARDS THE ADDITION IN QUESTION. THE FIRST APPELLATE ORDER ON THE ISSUE IS THUS UPHELD. WHILE AFFIRMING THE ABOVE FINDINGS OF THE TRIBUNAL, THE HIGH COURT FURTHER HELD AS UNDER: THE ABOVE FINDING OF THE TRIBUNAL MAKES IT CLEAR T HAT ADDITIONS MADE BY THE ASSESSING OFFICER WERE BASED ON ESTIMATION ONLY. A FACT OR ALLEGATION BASED ON ESTIMATION CANNOT BE SAID TO BE CORRECT ONLY, IT CA N BE INCORRECT ALSO. THEREFORE, IN THE FACTS AND CIRCUMSTANCES OF THE CA SE, PENALTY WAS WRONGLY LEVIED BY THE ASSESSING OFFICER. THE BASIS FOR LEVY ING PENALTY IN THE PRESENT CASE IS ONLY ESTIMATION, WHICH IS PURELY A QUESTION OF FACT AND THERE IS A CONCURRENT FINDING OF FACT RECORDED BY FIRST APPELL ATE AUTHORITY AS WELL AS THE APPELLATE TRIBUNAL BOTH. 19. IN LIGHT OF ABOVE FACTUAL POSITION AND RESPECTF ULLY FOLLOWING THE DECISIONS OF THE HONBLE JURISDICTIONAL HIGH COURT REFERRED SUPRA, WE ITA NO.143/JP/2016_ SHRI VIKRAM SINGH VS. DCIT, CIRCLE-3, JAIPUR 20 HEREBY DIRECT THE ASSESSING OFFICER TO DELETE THE P ENALTY ON THE ESTIMATED ADDITION. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16/01/2017. SD/- SD/- DQY HKKJR FOE FLAG ;KNO (KUL BHARAT) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 16/01/2017. * SANJEEV. VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- SHRI VIKRAM SINGH, KHATIPURA, JAIPUR. 2. IZR;FKHZ@ THE RESPONDENT- THE D.C.I.T, CIRCLE-3, JAIPUR. 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE {ITA NO. 143/JP/2016} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR