The ITO, Ward-1(3), RAJKOT-GUJARAT V. Shri Paraskumar V. Kataria, RAJKOT-GUJARAT

ITA 258/RJT/2011

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 6716 (ITAT-RAJKOT)
• Duration Of Justice: 5 year(s) 8 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-02-2017
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 08-02-2017
• Assessment Year: 1999-2000
• Appeal Filed On: 07-06-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: LALIT P JAIN
• Assessee Lawyers: D M RIMDANI
• Keywords: Gross profit estimation; Opportunity of being heard

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT [ CONDUCTED THROUGH E-COURT AT AHMEDABAD ] BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER 1. ./ I.T.A. NO.258/RJT/2011 2. ./ I.T.A. NO.542/RJT/2012 ( / ASSESSMENT YEAR : 1999-2000) 1.INCOME TAX OFFICER WARD-1(3) RAJKOT 2.SHRI PARASKUMAR V.KATARIA PROP.KATARIA ENTERPRISES AT: VAJDI VAD, RAJKOT / VS. 1. PARASKUMAR V.KATARIA PROP.KATARIA ENTERPRISE AT VAJDI VAD KALAVAD ROAD,RAJKOT 2. ITO, WARD-1(3) RAJKOT ./ ./ PAN/GIR NO. AETPK 0784J ( / APPELLANTS ) .. ( / RESPONDENTS ) REVENUE BY : SHRI LALIT P. JAIN, SR.DR ASSESSEE BY : SHRI D.M. RIMDANI, AR !'# $ % / DATE OF HEARING 08/02/2017 &' $ % / DATE OF PRONOUNCEMENT 20/02/2017 / O R D E R PER PRADIP KUMAR KEDIA, AM : THE CAPTIONED APPEALS RELATE TO ASSESSMENT YEAR (AY ) 1999-2000 WHEREIN REVENUE SEEKS TO ASSAIL THE ORDER OF CIT(A) ARISING IN QUANTUM ITA NO.258/RJT/ 2011 ITO VS. SHRI PARASKUMAR V.KATARI (CROSS-APPEALS) ASST.YEAR 1999-2000 - 2 - ASSESSMENT AND ASSESSEE, ON THE OTHER HAND, IS AGG RIEVED BY THE PENALTY ORDER PASSED BY THE ASSESSING OFFICER (AO). THEREF ORE, THE FACTS BEING BROADLY COMMON, BOTH THE APPEALS ARE BEING DISPOSED OF BY WAY OF A CONSOLIDATED ORDER. ITA NO.258/RJT/2012 FOR AY 1999-2000 REVENUES AP PEAL 2. THE AO SEEKS TO ASSAIL THE RELIEF GRANTED BY T HE COMMISSIONER OF INCOME TAX(APPEALS)-IV, AHMEDABAD [CIT(A) IN SHOR T] IN ITS ORDER DATED 01/04/2011 IN QUANTUM ASSESSMENT. 3. BRIEFLY STATED, THE ASSESSMENT OF THE ASSESSEE W AS REOPENED ON RECEIPT OF CERTAIN INFORMATION DURING THE SEARCH PR OCEEDINGS OF BALAJI GROUP OF CASES. THE ASSESSEE IS A PROPRIETOR OF M/ S.KATARIA ENTERPRISES AND IS A SOLE DISTRIBUTOR OF M/S.BALAJI WAFERS PVT. LTD. THE ASSESSMENT IN THIS CASE WAS REOPENED AND REASSESSMENT ORDER WAS P ASSED BY MAKING ADDITION OF RS.50,83,250/- ON ACCOUNT OF SUPPRESSED PROFITS. THE UNDISCLOSED SALES WERE ALLEGEDLY DETECTED AND ACCOR DINGLY THE GROSS PROFIT (GP) WAS ESTIMATED THEREON. THE CIT(A) IN T HE FIRST ROUND OF PROCEEDINGS REVISED THE TOTAL UNDISCLOSED SALES OF THE ASSESSEE AT RS.3,06,76,075/- AS AGAINST SUPPRESSED SALE OF RS.6 ,97,29,075/- DETERMINED BY THE AO. THE SALES ACCOUNTED IN THE B OOKS BY THE ASSESSEE STANDS AT RS.2,79,32,087/-. THE ISSUE WAS REVISIT ED BY THE AO AND THE ITA NO.258/RJT/ 2011 ITO VS. SHRI PARASKUMAR V.KATARI (CROSS-APPEALS) ASST.YEAR 1999-2000 - 3 - CIT(A) PURSUANT TO DIRECTIONS BY THE CO-ORDINATE BE NCH OF TRIBUNAL IN THE SECOND APPEAL OF THE ASSESSEE. IN THE SECOND R OUND OF PROCEEDINGS, THE AO OBSERVED THAT GP ON THE ACCOUNTED SALES OF T HE ASSESSEE STANDS AT 7.29%. HE ACCORDINGLY APPLIED SIMILAR GP FOR UNACC OUNTED SALES AT PAR WITH THE ACCOUNTED SALES AND ACCORDINGLY DETERMINED THE UNACCOUNTED PROFIT ON SUPPRESSED SALES AT RS.50,83,250/- AS NOT ED AFORESAID AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 4.THE CIT(A) IN THE SECOND ROUND OF PROCEEDINGS ADO PTED THE SUPPRESSED SALES AT RS.3,06,76,075/- IN SYNC WITH FIRST ROUND OF PROCEEDINGS BEFORE IT AND APPLIED THE GP RATE OF 3.75% HAVING REGARDING T O THE SIMILAR RATE AS CONSIDERED REASONABLE FOR THE SUBSEQUENT AYS 2000-0 1 TO 2005-06 BY THE CO-ORDINATE BENCH OF ITAT. THE CIT(A) GRANTED FURT HER ALLOWANCE OF 0.19% THEREON TOWARDS PROBABILITY OF RELATIVELY MOR E EXPENSES IN THE FIRST YEAR OF BUSINESS. THE GP RATE OF 3.56% WAS THUS CO NSIDERED REASONABLE AND APPROPRIATE BY THE CIT(A). CONSEQUENTLY, ADDIT ION MADE BY THE AO AT RS.50,83,250/- WAS REVISED TO RS.10,92,068/-. H E THUS GRANTED RELIEF OF RS.39,91,182/- IN GP ESTIMATIONS ON UNACCOUNTED SALES. 5. THE REVENUE IS AGGRIEVED BY THE AFORESAID RE LIEF IN THE PRESENT APPEAL. 6. THE GROUNDS OF APPEAL RAISED BY THE REVENUE R EAD AS UNDER:- ITA NO.258/RJT/ 2011 ITO VS. SHRI PARASKUMAR V.KATARI (CROSS-APPEALS) ASST.YEAR 1999-2000 - 4 - 1. THE LD.CIT(A)-I, RAJKOT HAS ERRED IN LAW AND O N FACT OF THE CASE IN RESTRICTING THE ADDITION MADE BY THE A.O. I N GIVING RELIEF OF RS.39,91,182/- TO THE ASSESSEE. 2. ON THE FACTS OF THE CASE, LD.CIT(A) OUGHT TO HA VE UPHELD THE ASSESSMENT ORDER OF THE A.O, DATED 07/05/2010. 7. THE LD.DR FOR THE REVENUE MR.LALIT P.JAIN CONTEN DED THAT THE REVISION OF SUPPRESSED SALES BY THE CIT(A) IS NOT P ROPER. THE LD.DR FURTHER SUBMITTED THAT THE GP ESTIMATIONS ON UNACCO UNTED SALES AT 03.75% FOLLOWING THE DECISION OF THE TRIBUNAL IN THE SUBSE QUENT ASSESSMENT YEARS IS NOT JUSTIFIED. THE GP ESTIMATIONS IN THE SUBSEQ UENT ASSESSMENT YEAR BY THE ITAT NATURALLY HAVE BEEN RENDERED IN THE FACTS OF THOSE YEARS. SUCH ESTIMATIONS IN THE SUBSEQUENT YEAR CANNOT TAKEN AS A PRECEDENT FOR APPLYING GP IN THE OTHER ASSESSMENT YEARS. THIS IS MORE SO BECAUSE THE ASSESSEE HIMSELF HAS DECLARED GP AT 07.29% TOWARDS ACCOUNTED SALE. THEREFORE, THERE IS NO REASON TO ADOPT GP OF THE S UBSEQUENT ASSESSMENT YEAR QUA UNACCOUNTED SALES. THE LD.DR RELIED UPON THE ORDER OF THE AO AND SOUGHT REVERSAL OF THE RELIEF GRANTED BY THE CI T(A). 8. THE LD.AR FOR THE ASSESSEE MR.D.M. RINDANI, ON T HE OTHER HAND, RELIED UPON THE ORDER OF THE CIT(A) AND SUBMITTED T HAT THE GP RATE WAS WORKED OUT BY THE CIT(A) ON RATIONAL BASIS HAVING R EGARD TO THE ESTIMATIONS APPROVED BY THE TRIBUNAL AS REASONABLE FOR THE AYS 2000-01 ITA NO.258/RJT/ 2011 ITO VS. SHRI PARASKUMAR V.KATARI (CROSS-APPEALS) ASST.YEAR 1999-2000 - 5 - TO 2005-06. THE LD.AR FURTHER SUBMITTED THAT THE E XPENSES INCURRED IN THE UNACCOUNTED SALES ARE ORDINARILY HIGH. THE LD. AR FINALLY SUBMITTED THAT IN VIEW OF THE DECISION OF THE ITAT IN THE SUB SEQUENT ASSESSMENT YEAR, THE BASIS OF ESTIMATION ADOPTED BY THE CIT(A) CANNOT BE VIEWED FAVOURABLY. 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. THE SHORT CONTROVERSY REVOLVE AROUND ESTIMATION OF GP ON SUP PRESSED SALES FOUND AS A RESULT OF SEARCH PROCEEDINGS. IT WAS CONTENDE D ON BEHALF OF THE REVENUE THAT THE CIT(A) HAS MISDIRECTED ITSELF ON R EVISING THE SUPPRESSED SALES AT LOWER FIGURE AS NOTED IN THE PR ECEDING PARA. IN THIS REGARD, WE NOTE THAT THE UNACCOUNTED SALES WERE MOD IFIED BY THE CIT(A) IN THE EARLIER PROCEEDING WHICH HAS NOT BEEN DISPUT ED BY THE AO. FURTHER, NO SUCH DISPUTE HAS ARISEN IN THE GROUNDS OF APPEAL ALSO. THEREFORE, THERE IS NO OCCASION FOR US TO EXAMINE T HE AFORESAID ISSUE RAISED ORALLY BY THE LD.AR IN THE COURSE OF HEARING . THUS, THIS POINT IN ISSUE CANNOT BE ENTERTAINED. 9.1. WE NOW ADVERT TO THE SECOND LIMB OF ARGUMEN T ON BEHALF OF REVENUE THAT THE CIT(A) HAS COMMITTED ERROR IN MODI FYING THE GP RATE AT 03.56% AS AGAINST 07.29% APPLIED BY THE AO ON SUPP RESSED SALES. IN THIS REGARD, WE NOTE THAT THE AO ISSUED NOTICE UNDE R S.142(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'T HE ACT') ASKING THE ITA NO.258/RJT/ 2011 ITO VS. SHRI PARASKUMAR V.KATARI (CROSS-APPEALS) ASST.YEAR 1999-2000 - 6 - ASSESSEE TO SHOW-CAUSE AS TO WHY THE GP OR UNACCOUN TED SALES SHOULD NOT BE ESTIMATED AT PAR WITH THE GP ON ACCOUNTED SALES. THE AO NOTED THAT THE ASSESSEE DID NOT FURNISH ANY RECORD IN RESPONSE TO SUCH NOTICE AND MERELY STATED THAT THE ITAT HAS ESTIMATED THE GP ON THE LOWER SIDE IN THE SUBSEQUENT ASSESSMENT YEARS. THE CIT(A) HAS MERRIL Y ACCEPTED THE AFORESAID CONTENTION OF THE ASSESSEE. WE NOTE THAT GP RATE ON THE ACCOUNTED SALES ESTIMATED BY THE ASSESSEE HIMSELF S TANDS AT 07.29%. WE THUS FAIL TO UNDERSTAND AS TO HOW THE GP FOR THE UN ACCOUNTED SALE SHOULD BE SO LOWER AT 03.56% WHICH IS LESS THAN HALF OF TH E GP RATE DECLARED BY THE ASSESSEE HIMSELF ON ACCOUNTED SALES. WE APPREC IATE THE CONTENTION OF THE AO THAT THE GP ON ACCOUNTED SALES ARE LIKELY TO BE ON HIGHER SIDE AS VARIOUS FIXED COSTS HAVE ALREADY BEEN FULLY CLAIMED . THE GP ARRIVED AT IN THE SUBSEQUENT ASSESSMENT YEAR CAN PROBABLY GIVE RI SE TO SOME BASIS ONLY WHEN THE GP OF THE CURRENT YEAR IS NOT AVAILABLE ON RECORDS. THE GP ON ACCOUNTED SALES IS AVAILABLE IN THE PRESENT CASE WH ICH FORMS SOUND BASIS FOR APPLYING THE SAME TOWARDS UNACCOUNTED SALES. T HEREFORE, THE ORDER OF THE CIT(A) GRANTING CONCESSION TO THE ASSESSEE ON E STIMATION OF GP ON SUPPRESSED SALES FOUND AS A RESULT OF SEARCH BASED ON SOME OTHER ASSESSMENT YEAR CANNOT BE APPROVED. THE RELIEF GRANTED BY THE CIT(A) IS THEREFORE REVERSED. 10. IN THE RESULT, APPEAL OF THE REVENUE IN ITA NO.258/RJT/2011 FOR AY 1999-2000 IS ALLOWED. ITA NO.258/RJT/ 2011 ITO VS. SHRI PARASKUMAR V.KATARI (CROSS-APPEALS) ASST.YEAR 1999-2000 - 7 - ITA NO.542/RJT/2012 FOR AY 1999-2000 ASSESSEES A PPEAL 11. THE GROUND OF APPEAL RAISED BY THE BY THE ASSES SEE READS AS UNDER:- 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS )-I, RAJKOT HAS ERRED IN DISMISSING THE APPEAL WHEREBY UPHOLDIN G THE PENALTY OR PASSED U/S.271(1)(C) OF THE I.T.ACT BY THE ASSES SING OFFICER LEVYING PENALTY OF RS.3,27,670/- IS UNWARRANTED, UN JUSTIFIED AND BAD IN LAW. 12. THE AO WHILE MAKING THE QUANTUM ADDITION TOWA RDS ESTIMATION OF GP ON SUPPRESSED SALES ALSO INVOKED PENALTY PROCEED INGS UNDER S.271(1)(C) AND IMPOSED PENALTY OF RS.3,27,670/- ON VARIOUS ADDITIONS MADE TO THE TOTAL INCOME OF THE ASSESSEE. 13. THE CIT(A) DISMISSED THE APPEAL OF THE ASSESSEE AGAINST THE PENALTY ORDER. 14. THE LD.AR IN THE SECOND APPEAL BEFORE US SUBMIT TED AT THE OUTSET THAT THE PENALTY NOTICE HAS BEEN ISSUED WITHOUT GIV ING REFERENCE TO THE NATURE OF DEFAULT ALLEGED AGAINST THE ASSESSEE. HE REFERRED TO THE NOTICE DATED 07/05/2010 AND 30/06/2011 AND SUBMITTED THAT CHARGE AS TO WHETHER IT IS A CASE OF CONCEALMENT OF PARTICULARS OF INCOME OR A CASE OF FURNISHING INACCURATE PARTICULARS OF INCOME IS NOT SPECIFIED IN THE NOTICE. ITA NO.258/RJT/ 2011 ITO VS. SHRI PARASKUMAR V.KATARI (CROSS-APPEALS) ASST.YEAR 1999-2000 - 8 - THE AO FINALLY IMPOSED PENALTY ALLEGING CONCEALMENT OF PARTICULARS OF INCOME. THE ASSESSEE NOTED THAT IN VIEW OF THE REC ENT DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF SAMSON PER INCHERY IN TAX APPEAL NO.1154 OF 2014 AND OTHERS (BOM.) FOLLOWING THE DECISION OF THE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. MANJUNATHA COTTON & GINNING FACTORY REPORTED AT (2013) 359 ITR 565 (KAR .), THE PENALTY CANNOT BE IMPOSED WITHOUT SPECIFIC NOTICE TO THE AS SESSEE TOWARDS THE NATURE OF DEFAULT. ON MERITS, THE LD.AR POINTED OU T THAT IT IS A CASE OF MERE ESTIMATION OF PROFIT AND THEREFORE THE PENALTY ON SUCH ESTIMATIONS IS ONEROUS AND OUGHT NOT TO HAVE BEEN IMPOSED. 15. THE LD.DR, ON THE OTHER HAND, RELIED UPON THE O RDER OF THE AO AND SUBMITTED THAT THE LEGAL GROUND OF SPECIFICATION TO WARDS CHARGE WAS NOT TAKEN BEFORE THE CIT(A). IT WAS FURTHER CONTENDED THAT NO IMMUNITY IS AVAILABLE TO THE ASSESSEE AS THE SUPPRESSED SALES H AVE BEEN DETECTED IN THE COURSE OF SEARCH. 16. WE HAVE CAREFULLY CONSIDERED RIVAL SUBMISSIONS. AT THE OUTSET, WE TAKE NOTE OF THE LEGAL ARGUMENTS RAISED ON BEHALF O F THE ASSESSEE THAT APPROPRIATE CHARGE HAS NOT BEEN SPECIFIED IN THE SH OW-CAUSE NOTICE ISSUED TO THE ASSESSEE. A PERUSAL OF NOTICE ISSUED UNDER S.274 READ WITH S.271(1)(C) SHOWS THAT THE RELEVANT PART OF THE NOT ICE HAS NOT BEEN STRUCK OFF. THUS, IT CAN BE INFERRED THAT THERE IS LACK O F APPLICATION OF MIND BY ITA NO.258/RJT/ 2011 ITO VS. SHRI PARASKUMAR V.KATARI (CROSS-APPEALS) ASST.YEAR 1999-2000 - 9 - THE AO. THE VAGUENESS AND AMBIGUITY IS CLAIMED TO HAVE PREVENTED THE ASSESSEE OF REASONABLE OPPORTUNITY TO DEFEND ITS CA SE. THUS, DEFINITE PREJUDICE HAS CAUSED TO THE ASSESSEE. IT IS THE RE QUISITE OF LAW THAT THE NOTICE TO THE ASSESSEE SHOULD BE SPECIFIC. THE REV ENUE HAS NOT BEEN ABLE TO POINT OUT THAT THE SO-CALLED AMBIGUOUS NOTICE HA S NOT IMPAIRED OR PREJUDICED THE RIGHT OF THE ASSESSEE TO REASONABLE OPPORTUNITY OF BEING HEARD. IT THEREFORE MUST FOLLOW THAT THE NOTICES ISSUED PROPOSING PENALTY WERE ILLUSORY AND THE ASSESSEE WAS INCAPACITATED TO DEFEND ITS CASE. THE DECISIONS QUOTED ON BEHALF OF THE ASSESSEE IN THE C ASE OF SAMSON PERINCHERY (BOMBAY) & MANJUNATHA COTTON (KARNATAKA) [SUPRA] ARE APPLICABLE TO THE FACTS OF THE CASE. THE PENALTY N OTICES, THUS, ISSUED ARE RENDERED INVALID AND CANNOT BE SUSTAINED. 17. IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA NO .542/RJT/2012 FOR AY 1999-200 IS ALLOWED. 18. IN THE COMBINED RESULT, RESPECTIVE APPEAL(S) OF REVENUE AND ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE COURT ON 20/02/2 017 AT AHMEDABAD. SD/- SD/- ( RAJPAL YADAV ) ( PRADIP KUMAR KEDIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD ; DATED 20/02/2017 ..!, '.+!../ T.C. NAIR, SR. PS ITA NO.258/RJT/ 2011 ITO VS. SHRI PARASKUMAR V.KATARI (CROSS-APPEALS) ASST.YEAR 1999-2000 - 10 - / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. , % -% / CONCERNED CIT 4. -% ( ) / THE CIT(A)-IV, AHMEDABAD 5. 1'23 +%+! , , /DR,ITAT, RAJKOT 6. 3>? @# / GUARD FILE. / BY ORDER, 1% +% //TRUE COPY// / ( DY./ASSTT.REGISTRAR) %&, / ITAT, RAJKOT 1. DATE OF DICTATION .. 9.2.17 (DICTATION-PAD 21 - PAGES ATTACHED AT THE END OF THIS FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER .. 13.2.17 3. OTHER MEMBER... 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S. 20.2.17 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 20.2.17 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER