The ITO, Ward-1 (2) (1), RAJKOT-GUJARAT V. M/s Dolat Proteins, GONDAL

ITA 271/RJT/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 0056 (ITAT-RAJKOT)
• Duration Of Justice: 1 year(s) 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-11-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 1995-1996
• Appeal Filed On: 11-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: USHA N SHROTE
• Keywords: Bogus purchase; Rejection of books of accounts; Question of law
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH , RAJKOT BEFORE: SHRI S.S. GODARA, JUDICIAL MEMBER AND S H RI AMARJIT SINGH , ACCOUNTANT MEMBER [CONDUCTED THROUGH E - COURT AT AHMEDABAD] THE ITO, WARD - 1(2)(1), RAJKOT (APPELLANT) VS M/S. DOLAT PROTEINS, NATIONAL HIGHWAY - 8B, BHOJPARA, GONDAL DIST: RAJKOT P AN: AABFD4400A (R ESPONDENT) REVENUE BY : S MT. USHA N. SHROTE , SR. D . R. ASSESSEE BY: S H RI VIMAL DESAI , A.R. DATE OF HEARING : 04 - 1 0 - 2 016 DATE OF PRONOUNCEMENT : 22 - 11 - 2 016 / ORDER P ER : AMARJIT SINGH, ACCOUNTANT MEMBER : - THI S REVENUE S APPEAL FOR A.Y. 1995 - 96 , AR ISES FROM ORDER OF THE CIT(A) - I, RAJKOT DATED 2 0 - 03 - 2015 IN APPEAL NO. CIT(A) - I / RJT/0237/13 - 14 , IN DELETING THE PENALTY OF RS. 12,51,800/ - , IN PROCEEDINGS U NDER SECTION 271(1 ) (C) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . I T A NO . 271 / RJT /20 15 A SSESSMENT YEAR 1995 - 96 I.T.A NO. 271 /RJT /20 15 A.Y. 1995 - 96 PAGE NO ITO VS. M/S. DOLAT PROTEINS 2 2. IN THIS CASE, THE ASSESSING OFFICER HAS MADE ASSESSMENT IN THE CASE OF THE ASSESSEE U/S. 143(3) R.W.S. 147 OF THE ACT. THE ASSESSING OFFICER HAD OBSERVED THAT THE PU RCHA S ES MADE B Y THE ASSESSEE FROM M/S. SHREENATHJI INDUSTRIES WERE NOT GENUINE , THEREFORE , HE MADE ADDITION OF R S. 30,85,578/ - ON ACCOUNT OF BOGUS PURCHASES BEING 25% OF THE PURCHASE S MADE FROM M/S. SHREENATHJI INDUSTRIES OF RS. 1 , 23,52,311/ - BY APPLYING THE RATIO LAID DOWN BY THE AHMEDABAD ITAT IN THE CASE OF VIJAY PROTEINS LTD. (ITA NO. 5898/AHD/1994 DATED 18 - 01 - 1996). THE ASSESSING OFFICER HAD ALSO MA DE CONSEQUENT DISALLOWANCE OF RS . 43,933/ - OUT OF GROUNDNUT OIL EXPENSES. ON APPEAL, THE LD. COMMISSIONER OF INCOME T AX(A) SUSTAINED THE TOTAL ADDITIONS TO THE EXTENT OF RS. 3,60,000/ - WHICH WAS UPHELD BY THE RAJKOT IT AT. ON APPEAL BY THE REVENUE, THE HON BLE HIGH COURT SET ASIDE THE MATTER TO THE ITAT FOR AFRESH DECISION. AFTERWARDS, THE ITAT CONFIRMED THE ADDITION O F RS. 30,85,578/ - ON ACCOUNT OF BOGUS PURCHASES, RS. 43 , 933/ - ON ACCOUNT OF GROUNDNUT OIL EXPENSES AND RS. 10 ,0 00/ - ON ACCOUNT OF PERSONAL USE OF TELEPHONE. SUBSEQUENTLY, THE ASSESSING OFFICER LEVIED PENALTY OF RS. 12,5 1 , 800/ - U/S. 271(1)(C) OF THE ACT O N THE GROUND THAT ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME AND THE ADDITION WAS CONFIRMED BY THE HIGHER AUTHORITY. 3. AGGRIEVED AGAINST THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE HAS FILED APPEAL BEFORE THE LD. COMMISSIONER OF INCOME TAX(A). THE LD. COMMISSIONER OF INCOME TAX(A) HAS DELETED THE PENALTY LEVIED BY THE ASSESSING OFFICER ON T HE REASONING THAT I.T.A NO. 271 /RJT /20 15 A.Y. 1995 - 96 PAGE NO ITO VS. M/S. DOLAT PROTEINS 3 DISALLOWANCE WAS MADE ON ESTIMATED BASIS AND PLACED RELIANCE ON A NUMBER OF JUDICIAL PRONOUNCEMENTS. THE DECISION OF THE LD. COM MISSIONER OF INCOME TAX(A) IS REPRODUCED AS UNDER: - 7. I HAVE DULY CONSIDERED THE PENALTY ORDER OF THE A.O. AND SUBMISSIONS OF THE APPELLANT. 7.1 IT IS SEEN FROM THE PENALTY ORDER THAT THE A.O. HAS LEVIED PENALTY BY STATING THE FACTS OF ADDITION IN QUANTUM PROCEEDINGS AND CONFIRMATION OF THE SAME BY ITAT. IT IS A SETTLED MATTER UNDER THE LAW THAT PENALTY PROCEEDINGS ARE SEPARATE AND DISTINCT FROM THE ASSESSMENT PROCEEDINGS AND THEREFORE FINDING OF ASSESSMENT PRO CEEDINGS MAY BE GUIDING BUT CAN NOT BE CONCLUSIVE IN THE MATTER OF LEVY OF PENALTY. THERE HAS TO BE RE - APPRAISAL OF CONFIRMED ADDITION TO DECIDE WHETHER THE SAME SHOULD BE SUBJECTED TO PENALTY OR NOT. THE MERE FACT OF CONFIRMATION OF ADDITIONS BY HIGHER AUTHORITY CAN NEVER BE A GROUND FOR LEVY OF PENALTY. IN THE PENALTY PROCEEDINGS, THE APPELLANT SUBMITTED THAT THE ADDITION, BEING ON ESTIMATE, SHOULD NOT BE VISITED WITH PENALTY. AGAINST THIS, THE A.O. HAS NOWHERE JUSTIFIED IN THE PENALTY ORDER AS TO WHY THIS CO NTENTION OF THE APPELLANT WAS NOT A CCEPTABLE. I AM THEREFORE OF THE VIEW THAT THE LEVY OF PENALTY IS NOT IN ACCO RDANCE WITH THE SETTLED POSITION OF LAW THAT PENALTY PROCEEDINGS ARE SEPARATE THAN ASSESSMENT PROCEEDINGS. 7.2 ON PERUSAL OF ORDERS OF QUANTUM PROCEEDINGS, IT IS OBSERVED THAT THE A.O. DISALLOWED 25% OF PURCHASES, AFTER REJECTION OF BOOKS, ON THE GROUND THAT THE SAME WAS FROM A CONCERN NAMELY M/S. SHREENATHJI INDUSTRIES WHICH WAS NOT SUPPLYING THE GOODS IN GENUINE MANNER BUT WAS ENGAGED IN PROVIDING FAKE BILLS. THIS DISALLOWANCE WA S BASED ON ITAT AHMEDABAD DECISION IN CASE OF M/S. VIJAY PROTEINS LTD. THE PENALTY IS LEVIED BY THE A.O. AS THIS DISALLOW ANCE IS CONFIRMED BY THE ITAT. A DMITTEDLY, THE DISALLOWANCE OF 25% OF THE PURCHASES REPRESENTS AN ESTIMATE AFTER REJECTION OF BOOKS OF ACCOUNTS AND THE LAW IS VERY WELL SETTLED THAT NO PENALTY IS ATTRACTED IN CASE OF AN ESTIMATED ADDITION MADE AFTER REJECTION OF BOOKS. THERE IS A PLETHORA OF JUDGMENTS IN SUPPORT OF THIS LEGAL CONTENTION INCLUDING THOSE CITED BY THE APPELLANT IN PARA 15 (S UPRA) OF ITS SUBMISSION. IT IS WORTHWHILE TO MENTION THAT THE JUDGMENTS OF GUJARAT HIGH COURT AND RAJKOT ITAT RELIED UPON BY THE APPELLANT HAVE BINDING FORCE. FURTHER, THE CASE OF THE APPELLANT IS SQUARELY COVERED BY THE 3 AHMEDABAD ITAT DECISIONS CITED IN PARA 16 (SUPRA) OF ITS SUBMISSIONS AS IN THOSE CASES ALSO, DISALLOWANCE OF 25% OF I.T.A NO. 271 /RJT /20 15 A.Y. 1995 - 96 PAGE NO ITO VS. M/S. DOLAT PROTEINS 4 PURCHASES WAS MADE ON THE GROUND OF BOGUS PURCHASES AND THE ITATS DELETED THE PENALTY TAKING THE VIEW THAT PENALTY IS NOT ATTRACTED IN SUCH CASE OF ESTIMATED DISALLOWANCE. I N PARTICULAR, THE AHMEDABAD ITAT DECISION IN CASE OF RAJLAXMI PRINTS PVT. LTD. (ITA NO. 809/AHD/2010) IS IDENTICAL SINCE IN THAT CASE, DISALLOWANCE OF 25% OF THE PURCHASES WAS MADE FOLLOWING THE ITAT DECISION IN CASE OF M/S. VIJAY PROTEINS LTD. AND THE HON 'BLE ITAT DELETED THE PENALTY OBSERVING THAT THE DISALLOWANCE REPRESENTED AN ESTIMATE, NOT LIABLE FOR PENALTY. THE APPELLANT DESERVES TO SUCCEED ON THE STRENGTH OF THESE DECISIONS. 7.3 FURTHER, IT IS OBSERVED THAT IN THE QUANTUM PROCEEDINGS, THE APPELLANT HAS EXPLAINED THAT IT WAS A TRADING CONCERN AND THERE WERE CORRESPONDING SALES AGAINST THE PURCHASES FROM M/S. SHREENATHJI INDUSTRIES AND THAT THE A.O. HAD ACCEPTED SUCH SALES. IT WAS FURTHER EXPLAINED THAT THERE WAS NO ADVERSE FINDING REGARDING THE RATES AND COMPLETE QUANTITATIVE DETAILS WERE MAINTAINED. IT WAS FURTHER EXPLAINED THAT THE PURCHASES WERE SUPPORTED BY BILLS, GATE PASSES AND WEIGH BRIDGE RECEIPTS AND THE PAYMENTS WERE MADE THROUGH BANKING CHANNELS. BEFORE ME, THE APPELLANT REITERATED THE ABOV E AND SUBMITTED THAT NONE OF THE ABOVE WAS DISPROVED OR FOUND TO BE FALSE AND THE DISALLOWANCE WAS BASED ON THE FOOTING THAT M/S. SHREENATHJI INDUSTRIES WAS NOT GENUINELY SUPPLYING ANY GOODS. ON THIS REASONING, - THE APPELLANT SUBMITTED THAT IT IS. A CASE O F REJECTION OF EXPLANATIONS WITHOUT DISPROV ING THEM. THE APPELLANT RELIED UPON GUJARAT HIGH COURT JUDGMENT IN CASE OF NATIONAL TEXTILE CO. (249 ITR 12 5) AND MUMBAI ITAT DECISION IN C ASE OF M/S. RELIANCE INDUSTRIES LTD. (ITA NO. 7219 TO 7221/MUM/2011) IN ' 'SUPPORT OF ITS CONTENTION THAT NO PENALTY SHOULD BE LEVIED IN SUCH FACTUAL PREMISES. ON CAREFUL CONSIDERATION, I AM INCLINED TO AGREE WITH THE APPELLANT. UNLESS THE EXPLANATIONS AND THE EVIDENCES FURNISHED BY AN ASSESSEE A RE DISPROVED, PENALTY U/S. 271(1 ) (C) IS NOT ATTRACTED. M ERE REJECTION OR DISBELIEF TO SUCH EXPLANATIONS MAY HOLD GOOD IN ASSESSMENT PROCEEDINGS BUT THE SAME IS NEVER SUFFICIENT OR CONCLUSIVE SO AS TO CHARGE PENALTY. BESIDES THE GUJARAT HC JUDGMENT, THE MUMBAI ITAT DECISION IN CASE OF M/S. RELIANCE INDUSTRIES LTD. (SUPRA) IS FOUND TO BE DIRECTLY APPLICABLE TO THE CASE OF THE APPELLANT AS IN THAT CASE ALSO, THE ITAT WAS CONCERNED WITH THE PENALTY ON BOGUS PURCHASES. THE ITAT TOOK NOTE OF THE FACT THAT THOUGH THE STAND OF THE APPELLANT WAS NO T ACCEPTED AND THE ADDITION WAS CONFIRMED AS THE SUPPLIERS WERE FOUND TO BE BOGUS, SUCH STAND WAS NOT DISPROVED AND THEREFORE THE E XPLANATIONS OF THE ASSESSEE I.T.A NO. 271 /RJT /20 15 A.Y. 1995 - 96 PAGE NO ITO VS. M/S. DOLAT PROTEINS 5 CAN NOT BE TREATED AS FALSE EXPLANATIONS SO AS TO LEVY PENALTY. THE CASE OF THE APPELLANT IS SIMIL AR TO THIS AS THE EXPLANATIONS AND EVIDENCES OF THE APPELLANT ARE REJECTED BUT THEY ARE NOT DISPROVED. THEREFORE, IN MY VIEW, PENALTY OUGHT NOT TO HAVE BEEN LEVIED JUST BECAUSE THE DISALLOWANCE WAS CONFIRMED IN QUANTUM/PROCEEDINGS BY REJECTING THE EXPLANAT IONS AND EVIDENCES OF THE APPELLANT. 7. 4 THERE IS ONE MORE ASPECT OF THE M ATTER. THE HON'BLE GUJARAT HIGH COURT HAS ADMITTED THE APPEAL OF THE APPELLANT FORMING A SUBSTANTIAL QUESTION OF LAW. THIS INDICATES THAT THE ISSUE INVOLVED IS COMPLEX AND REQUI RES INTERPRETATION OF LAW. THE APPELLANT HAS CITED SEVERAL DECISIONS IN PARA 21 (SUPRA) OF ITS SUBMISSION WHEREIN IT HAS BE EN HELD THAT PENALTY U/S. 271(1 )(C) IS NOT CHARGEABLE IN RESPECT OF A SUBSTANTIAL QUESTION OF LAW. THE CA SE OF THE APPELLANT FINDS DU E SUPPORT FROM THIS TO EXONERATE IT FROM THE CHA RGE OF PENALTY. 5 IN VIEW OF THE DISCUSSIONS IN PARA 7 TO 7.3 AND IN VIEW OF JUDICIAL PRONOUNCEMENTS DIRECTLY APPLICABLE TO THE CASE OF THE APPELLANT, I HOLD THAT THE CASE OF THE APPELLANT IS NOT FIT FOR LEVY OF PENALTY U/S. 271(1)(C) OF THE ACT. THE PENALTY OF RS. 12,51,800/ - LEVIED BY THE A.O. IS HEREBY CANCELLED. THIS GROUND OF APPEAL IS ALLOWED. 4 . DURING THE APPELLATE PROCEEDINGS BEFORE US , THE LD. D.R. HAS PLACED RELIANCE ON THE ORDER OF ASSESSI NG OFFICER. ON THE OTHER HAND, THE LD. COUNSEL FURNISHED PAPER BOOK CONTAINING DETAILS OF WRITTEN SUBMISSION MADE BEFORE LD. COMMISSIONER OF INCOME TAX(A), COPIES OF JUDICIAL PRONOUNCEMENTS, COPIES OF PURCHASE BILLS, PURCHASE REGISTERS TEC. THE LD. COUNS EL CONTENDED THAT IT IS A SETTLED PRINCIPLE IN THE CONTEXT OF PENALTY THAT WHERE ADDITION/DISALLOWANCE SUSTAINED ON THE BASIS OF ESTIMATION , PENALTY U/S. 271(1)(C) CANNOT BE LEVIED. HE ALSO PLACED RELIANCE ON A NUMBER OF JUDICIAL PRONOUNCEMENT S . 5 . WE HA VE HEARD BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE ASSESSING OFFICER HAD MADE ADDITION BY I.T.A NO. 271 /RJT /20 15 A.Y. 1995 - 96 PAGE NO ITO VS. M/S. DOLAT PROTEINS 6 ESTIMATING 25% OF THE PURCHASES MADE BY THE ASSESSEE FROM M/S. SHREENATH JI INDUSTRIES BY RELYING UPON THE DECISION OF AHMEDABAD ITAT I N THE CASE OF M/S. VIJAY PROTEINS LTD . WE OBSERVED THAT A GAINST THE PURCHASES FROM M/S. SHREEJATHJI INDUSTRIES, THERE WAS CORRESPONDING SALES WHICH WAS SHOWN BY THE ASSESSEE IN THE PROFIT AND LOSS ACCOUNT AND THE A SSESSING O FFICER HAD ACCEPTED THE SAME. WE HAV E ALSO CONSIDERED THE JUDGMENT OF THE HON BLE H IGH C OURT OF GUJARAT IN THE CASE OF NATIONAL TEXTILE CO. (249 ITR 125) STATING THAT IF THE EXPLANATION OF THE ASSSESEE ARE NOT DISPROVED PENALTY U/S. 271(1)(C) OF THE ACT CANNOT BE LEVIED. WE FIND THAT, THE A SSESSING O FFICER HAS REJECTED THE EXPLANATION OF THE ASSESSEE WITHOUT DISPROVING IT AND THE DISALLOWANCE IS MADE ON ESTIMATED BASIS THEREFORE, LEVYING OF PENALTY U/S 271(1)(C) IS NOT JUSTIFIED . IN VIEW OF THE ABOVE STATED FACTS AND LEGAL FINDINGS, WE U PHOLD THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX(A). 6 . IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PR ONOUNCED IN THE OPEN C OUR T ON 22 - 11 - 201 6 SD/ - SD/ - (S.S. GODARA ) ( AMARJIT SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 22 /11 /2016 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE I.T.A NO. 271 /RJT /20 15 A.Y. 1995 - 96 PAGE NO ITO VS. M/S. DOLAT PROTEINS 7 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, ASSISTANT REGISTRAR, IN COME TAX APPELLATE TRIBUNAL, RAJKOT