M/s International Engineer, Amritsar. V. The Assistant Commissioner of Income Tax, Amritsar.

ITA 165/ASR/2016

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0630 (ITAT-AMRITSAR)
• Duration Of Justice: 3 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2006-2007
• Appeal Filed On: 21-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A N MISRA
• Keywords: Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR BEFORE SH. A.D.JAIN, JUDICIAL MEMBER AND SH. T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A NO.165(ASR)/2016 ASSESSMENT YEAR: 2006-07 M/S. INTERNATIONAL ENGINEERS, RSD STREET, I/S HALL BAZAR, AMRITSR. PAN:AAAF1388Q VS. ASST. CIT, CIRCLE-1, AMRITSAR. (APPELLANT) (RESPONDENT) APPELLANT BY: SH. ASHWANI KALIA (CA. ) RESPONDENT BY: SH. A.N. MISRA (DR.) DATE OF HEARING: 25.05.2016 DATE OF PRONO UNCEMENT: 12.07.2016 ORDER PER T. S. KAPOOR (AM): THIS IS AN APPEAL FILED BY ASSESSEE AGAINST THE OR DER OF LEARNED CIT(A), AMRITSAR, DATED 4.01.2016 FOR ASST. YEAR:20 06-07. 2. THE ONLY ISSUE RAISED IN THIS APPEAL IS THE ACTI ON OF LEARNED CIT(A), BY WHICH HE HAD CONFIRMED THE PENALTY IMPOSED BY AS SESSING OFFICER U/S 271(1)(C) OF THE ACT. 3. THE BRIEF FACTS OF THE CASE AS NOTED IN THE PENA LTY ORDER ARE THAT THE ASSESSEE IS A CONTRACTOR AND ITS BOOKS OF ACCOU NTS WERE REJECTED DURING THE ASSESSMENT PROCEEDINGS AND THE INCOME OF THE ASSESSEE WAS COMPUTED AFTER APPLYING NET PROFIT @ 8%, AND THE AS SESSEE WAS IMPOSED WITH THE PENALTY U/S 271(1) (C ) OF THE ACT. ITA NO.165 (ASR)/2016 ASST. YEAR : 2006-07 2 4. AGGRIEVED WITH THE ORDER THE ASSESSEE FILED APPE AL BEFORE LEARNED CIT(A) WHO ALSO UPHELD THE PENALTY ORDER BY HOLDING AS UNDER: IN THIS CASE THE A.O. HAS LEVIED A PENALTY U/S 271 (1)( C) OF THE INCOME TAX ACT, 1961 ON ACCOUNT OF APPLYING HIGHER NET PROFIT RATE AFTER REJECTING THE BOOKS OF ACCOUNTS OF THE ASSESSEE. IT IS CLEAR FROM THE ASSESSMENT ORDER AND SUBMISSION OF THE ASSESSEE THAT THE ASSESSEE HAS NOT MAINTAINED PROPER BOOKS OF ACC OUNTS HENCE ACCURATE INCOME OR EVASION COULD BE CALCULATED ACCURATELY. THUS REJECT ING THE BOOKS OF ACCOUNTS WAS THE ONLY OPTION REMAINING WITH THE AO AND CALCULATE THE PROFIT ACCORDINGLY WHEN BOOKS ARE NOT MAINTAINED BY THE ASSESSEE PROPERLY. ASSESSEE C ANNOT FIRST KEEP INCOMPLETE AND UNRELIABLE BOOKS OF ACCOUNTS AND THEN TAKE A PLEA T HAT AO CANNOT IMPOSE A PENALTY AS THE ADDITION WAS ON ESTIMATE BASIS. TO CALCULATE AC CURATE INCOME OR EVASION/CONCEALMENT THE AO NEEDS PROPERLY AND ACCUR ATE BOOKS OF ACCOUNTS. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE IT IS CL EAR THAT PENALTY LEVIED BY THE AO IS JUSTIFIED. HENCE UPHELD. 5. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. 6. AT THE OUTSET, THE LEARNED AR SUBMITTED THAT ASS ESSEE HAD CLAIMED BEFORE A.O. THAT WHILE APPLYING NET PROFIT RATE OF 8% THE ASSESSING OFFICER MUST ALLOW INTEREST AND SALARY PAID TO PARTNERS AND ALSO ALLOW DEPRECIATION ON FIXED ASSETS. THE ASSESSING OFFICER AND LEARNED CIT(A) DID NOT ALLOW THE SAME, HOWEVER, THE HONBLE ITAT, AMRI TSAR BENCH, VIDE ORDER DATED 11.2.2016 IN ITA NOS.195 &196(ASR)/2014 HAS ALLOWED APPEAL OF ASSESSE BY HOLDING THAT AFTER APPLICATION OF NET PROFIT RATE OF 8%, SALARY AND INTEREST TO PARTNERS AS WELL AS DEPR ECIATION OF FIXED ASSETS IS TO BE ALLOWED. THE LEARNED AR SUBMITTED THAT AFT ER ALLOWING OF SALARY INTEREST AND DEPRECIATION THE INCOME ASSESSED WILL BE ALMOST EQUAL TO THE RETURN OF INCOME AND THEREFORE, THE PENALTY U/S 271 (1) (C) DOES NOT SURVIVE. ITA NO.165 (ASR)/2016 ASST. YEAR : 2006-07 3 7. WITHOUT PREJUDICE THE LEARNED AR SUBMITTED THAT IN A LARGE NUMBER OF CASES, IT HAS BEEN HELD THAT WHERE THE INCOME OF THE ASSESSEE HAS BEEN ASSESSED ON ESTIMATION BASIS THE PENALTY U/S 271(1) (C) WAS NOT IMPOSABLE. RELIANCE IN THIS RESPECT WAS PLACED ON T HE FOLLOWING CASE LAWS. I) CIT VS. BHOJ RAJ LTD. (2001) 247 ITR 697 (P&H) II) CIT VS. KAILASH CROCKERY HOUSE (1999) 235 ITR 5 44 (PAT) III) CIT VS. SUBHASH TRADING COMPANY (1996) 221 ITR 110 (GUJ) IV) CIT AARKAY SAREE MUSEUM (1991)187 ITR 147 (BOM) V) ADDL. CIT VS CHANDRAVILAS HOTEL (1987) 165 ITR 3 00 (GUJ) VI) CIT VS. K.A. RAJAPPA CHETTIAR (1985) 153 ITR 21 5 (MAD) 8. THE LEARNED DR, ON THE OTHER HAND, RELIED UPON T HE ORDERS OF AUTHORITIES BELOW. 9. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE TH ROUGH THE MATERIAL PLACED ON RECORD. WE FIND THAT IN THE PRES ENT CASE THE BOOKS OF ACCOUNTS WERE REJECTED AND THE INCOME OF THE ASSESS EE WAS ESTIMATED BY APPLYING A PERCENTAGE AND THEREFORE, AS HELD BY VAR IOUS ORDERS OF THE TRIBUNAL AND HIGH COURTS THE PENALTY U/S 271(1) (C) WAS NOT IMPOSABLE IN THE PRESENT CASE. THE GUJRAT HIGH COURT IN THE C ASE OF CIT VS. SUBHASH TRADING COMPANY (1996) 221 ITR 110 (GUJ) HA S HELD AS UNDER: HELD, THAT A BEST JUDGMENT ASSESSMENT HAD BEEN MAD E. WHILE THE ASSESSEE IN ITS BOOKS OF ACCOUNT DISCLOSED THE TOTA L SALES TO BE RS.7,75,000/-THE INCOME-TAX OFFICER ON REJECTION OF THE BOOKS OF ACCOUNT ESTIMATED THE SALES TO BE RS.8,75,000 WHICH ON APPE AL, THE TRIBUNAL REDUCED TO RS.8,00,000. SO ALSO, WHILE THE GROSS PR OFIT DISCLOSED BY THE BOOKS OF ACCOUNT OF THE ASSESSEE WAS 5 PER CENT., T HE INCOME-TAX OFFICER ITA NO.165 (ASR)/2016 ASST. YEAR : 2006-07 4 ESTIMATED THE GROSS PROFIT RATE AT 15 PER CENT. WHI CH AGAIN WAS REDUCED BY THE TRIBUNAL TO 12 PER CENT. IN THIS CIRCUMSTANCES, IN THE ABSENCE OF ANY OTHER MATERIAL WHICH MIGHT REFLECT ON THE CONDUCT O F THE ASSESSEE ABOUT A DELIBERATE ATTEMPT TO MAINTAIN FALSE BOOKS OF ACCOU NT, ON A PREPONDERANCE OF PROBABILITIES, NO OTHER CONCLUSION COULD BE REAC HED THAN THAT THE FAILURE TO RETURN THE CORRECT INCOME WAS NO ON ACCOUNT OF A NY FRAUD OR GROSS OR WILLFUL NEGLECT ON THE PART OF THE ASSESSEE. THE TR IBUNAL WAS RIGHT IN HOLDING THAT PENALTY OF RS.92,894 IMPOSED BY THE IN SPECTING ASSISTANT COMMISSIONER UNDER SECTION 271(1) OF THE ACT WAS N OT JUSTIFIED. RESPECTFULLY FOLLOWING THE ABOVE JUDGMENT OF HONBL E GUJRAT HIGH COURT, WE HOLD THAT PENALTY IN THE PRESENT CASE IS NOT IMP OSABLE. 10. SIMILARLY, THE HONBLE BOMBAY HIGH COURT I N THE CASE OF CIT VS. AARKAY SAREE MUSEUM (1991) 187 ITR 147 HAS DELETED THE PENALTY U/S 271(1) (C) BY HOLDING AS UNDER: HELD, THAT THE TRIBUNAL HAD RIGHTLY HELD THAT MERE LY BECAUSE CERTAIN ADDITIONS WERE MADE IN THE TRADING ACCOUNT BY THE A SSESSING OFFICER, IT DID NOT NECESSARILY FOLLOW THAT ASSESSEE HAD CONCEALED ITS INCOME THE CANCELLATION OF PENALTY WAS VALID. FOLLOWING THE ABOVE JUDICIAL PRECEDENTS, WE ALLOW T HE APPEAL OF THE ASSESSEE. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 12 .07. 2016. SD/- SD/- (A.D. JAIN) (T. S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED:12.07.2016. /PK/ PS. COPY OF THE ORDER FORWARDED TO: (1) THE ASSESSEE: (2) THE ITA NO.165 (ASR)/2016 ASST. YEAR : 2006-07 5 (3) THE CIT(A), (4) THE CIT, (5) THE SR DR, I.T.A.T., TRUE COPY