MOTTA CONSTRUCTION P.LTD, MUMBAI V. ACIT CEN CIR 15 & 16, MUMBAI

ITA 2856/MUM/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3336 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 4 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 24-02-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 12-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VINITA MENON
• Keywords: Search and seizure
• Section: 143(3); 6; 132; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE SHRI MAHAVIR SINGH , JM AND SHRI B. R. BASKARAN , AM ./ I.T.A. NO S . 2856 & 2857/MUM/2013 ( / ASSESSMENT YEAR S : 2005 - 0 6 & 2006 - 07 ) MOTTA CONSTRUCTION PVT. LTD. 1, PRABODH BUILDING, 221, DEODHAR ROAD, MATUNGA, MUMBAI - 19 / VS. ACIT, CENTRAL CIRCLE - 15 & 16 , MUMBAI ./ ./ PAN/GIR NO. AACCM 3577 F ( / APPELLANT ) : ( / RESPO NDENT ) / APPELLANT BY : SHRI PARESH SHAPARIA / RESPONDENT BY : SHRI VINITA MENON / DATE OF HEARING : 30.08.2016 / DATE OF PRONOUNCEMENT : 30 .0 8 .2016 / O R D E R PER MAHAVIR S INGH, JM : THE S E A PPEAL S BY THE ASSESSEE ARE ARISING OUT OF THE ORDERS OF COMMISSIONER OF INCOME TAX (APPEALS) - 39 , MUMBAI (CIT(A) FOR SHORT) IN APPEAL NOS. CIT(A) - 39/AC.CC.15&16/IT - 34 & 33 /2011 - 12 VIDE ORDER OF COMMON DATE 07.01.2013. T HE ASSESSMENT WERE FRAMED BY ACIT - CENTRAL CIRCLE - 15 & 16, MUMBAI U/S. 143(3) R/W S. 153C OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR (A.Y.) 2005 - 06 AND 2006 - 07 VIDE HIS ORDER OF COMMON DATE 04.5.2007. THE PENALTIES UNDER DISPUTE WERE LEVIED B Y DCIT, CENTRAL CIRCLE 15 & 16, MUMBAI U/S. 271(1) (C) OF THE ACT VIDE HIS ORDER OF COMMON DATE 24.3.2011. 2 ITA NO S . 2856 & 2857/M/13 (A.YS. 2005 - 06 & 2006 - 07) MOTTA CONSTRUCTION PVT. LTD. VS. ACIT 2 . IN BOTH THE YEARS, THE ONLY COMMON ISSUE IS AGAINST THE ORDER S OF CIT(A) CONFIRMING THE LEV IES OF PENALTIES U/S. 271(1)(C) OF THE ACT ON ADDITION S MADE BY A.O. ON ESTIMATE BASIS. THE FACTS AND CIRCUMSTANCES IN BOTH THE YEARS ARE EXACTLY IDENTICAL , HENCE, WE WILL TAKE UP THE ISSUE FROM THE A.Y. 2006 - 07 AND WILL DECIDE BOTH THE APPEALS. GROUNDS RAISED IN ITA NO. 2857/MUM/2013 FOR A.Y. 2006 - 07, READS AS UNDER: 1. THE LEARNED CIT(A) ERRED IN CONFIRMING THE PENALTY LEVIED U/S. 271(1)(C) BEING 100% OF THE TAX SOUGHT TO BE EVADED ON THE UNDISCLOSED INCOME BEING DIFFERENCE BETWEEN ASSESSED INCOME AND RETURNED INCOME. 2. THE LEARNED CIT(A)FAILED TO APPRECIATE THE FACT THAT THE PENALTY PROCEEDINGS WERE INITIATED ONLY ON ACCOUNT OF ADDITIONS MADE ON ESTIMATION BASIS. 3. THE PENALTY U/S. 271(1)(C) BEING 100% OF THE TAX SOUGHT TO BE EVADED ON THE UNDISCLOSED INCOME REQUIRES TO BE DELETED. 3 . BRIEFLY STATED FACTS ARE THA T A SEARCH AND SEIZURE ACTION WAS CONDUCTED BY THE DEPARTMENT ON VIJAY GROUP AND ALONG WITH THAT ON ONE CA FIRM NAMELY M/S. N. M. ASSOCIATES U/S. 132 OF THE ACT ON 22.9.2005. DURING THE COURSE OF SEARCH VARIOUS DOCUMENTS, PAPERS, RELATING TO THE ASSESSEE, I.E., VARIOUS UNACCOUNTED AND UNEXPLAINED EXPENSES INCURRED BY THE ASSESSEE COMPANY WERE FOUND AND SEIZED. THE DETAILS OF SUCH EXPENDITURE CLAIM THE RETURN YEAR - WISE READS AS UNDER: ASSTT. YEAR TOTAL EXPENSES (UNACCOUNTED) EXPENSES CLAIMED AS ALLOWABLE I N THE P & L A/C FILED WITH THE RETURN U/S. 153C 2000 - 01 49,02,781 38,97,825 2001 - 02 23,75,693 7,74,874 2002 - 03 23,47,337 12,00,430 2003 - 04 89,62,914 34,55,356 2004 - 05 70,85,795 27,41,482 2005 - 06 7,50,000 6,00,000 2006 - 07 50,000 50,000 4 . IN BOTH T HE ASSESSMENT YEARS, THE ASSESSING OFFICER (A.O.), INSTEAD OF DISALLOWING THESE UNACCOUNTED EXPENSES, REPRESENTING CASH EXPENDITURE TO THE TUNE OF RS.30,65,633/ - IN THE A.Y. 2005 - 06 AND RS.31,15,633/ - IN THE A.Y. 2006 - 07, THE A.O. ON ACCOUNT OF ADDITIONAL COST ESTIMATED THE ADDITIONAL PROFIT @ 26.52% AND MADE ADDITION TO THE RETURN OF INCOME OF THE ASSESSEE. SIMILAR ADDITIONS WERE MADE IN THE A.Y. 2005 - 06. FINALLY, THE TRIBUNAL IN BOTH THE YEARS DIRECTED THE A.O.TO REDUCE THE ESTIMATE AT 23% BY OBSERVING IN 3 ITA NO S . 2856 & 2857/M/13 (A.YS. 2005 - 06 & 2006 - 07) MOTTA CONSTRUCTION PVT. LTD. VS. ACIT PARA 4 IN MOTTA CONSTRUCTION (IN ITA NOS. 4794, 4795, 4604 & 4065/MUM/2010 DATED 06.06.2012): 4. BEFORE US, AUTHORISED REPRESENTATIVE (AR) SUBMITTED THAT ESTIMATE MADE BY THE CIT(A) WAS ON HIGHER SIDE, THAT NO SEIZURE WAS MADE FROM THE ASSESSEES PREMI SES, THAT DURING 153C PROCEEDINGS, ASSESSEE HAD FILED FULL DETAILS OF HIS INCOME. DEPARTMENTAL REPRESENTATIVE (DR) SUPPORTED THE ORDERS OF THE FAA. AFTER HEARING THE RIVAL SUBMISSION AND PERUSING THE MATERIAL AVAILABLE ON RECORD, WE FIND THAT ASSESSEE HAD SHOWN 19.27% GROSS PROFIT (GP). AO FIXED THE GP AT 26.52%. FAA REDUCED IT TO 25%. 4.1 THUS, BASICALLY IT IS A MATTER OF ESTIMATION AND THAT ALSO IN A SEARCH AND SEIZURE RELATED MATTER. ASSESSEE HAS ADMITTED THAT EXPENSES OUTSIDE THE BOOKS WERE INCURRED. CONSIDERING ALL THESE FACTS, AR AGREED THAT IF RATE OF ESTIMATE OF THE FAA IS REDUCED TO A REASONABLE LEVEL, ASSESSEE WOULD HAVE NO GRIEVANCE. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE OPINION THAT 2% REDUCTION IN THE FORMULA ADOPT ED BY THE FAA WILL MEET THE END OF JUSTICE. AO IS DIRECTED TO RECALCULATE THE INCOME OF THE ASSESSEE @ 23% OF THE COST OF THE SALES (SALES MINUS PROFIT). AO IS DIRECTED NOT TO CONSIDER 40 A(3) DISALLOWANCES. ACCORDINGLY, THE A.O. STARTED PENALTY PROCEEDI NGS U/S. 271(1)(C) OF THE ACT AND LEVIED THE PENALTY FOR FURNISHING OF INACCURATE PARTICULARS OF SUCH INCOME AT RS.9,12,679/ - IN A.Y. 2006 - 07. SIMILAR PENALTY WAS LEVIED IN A.Y. 2005 - 06 AT RS.36,40,057/ - . 5 . AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BE FORE THE CIT(A) WHO ALSO CONFIRMED THE ACTION OF THE A.O., ON THE BASIS THAT THE ACTION OF SEARCH AND SEIZURE LEADING TO ISSUANCE OF NOTICE U/S. 158BC , WHICH COULD DETECT THE UNEXPLAINED CASH EXPENDITURE NOT ACCOUNTED IN THE REGULAR BOOKS OF ACCOUNTS. THE CIT(A) FINALLY OBSERVED IN PARA 7 AS UNDER: 7. I HAVE CONSIDERED THE FACTS OF THE CASE AND THE LEGAL ASPECTS OF THE MATTER. IT IS AGREED THAT IT IS CONSEQUENT TO THE SEARCH ACTION THAT THE DETAILS OF CASH EXPENDITURE, NOT ACCOUNTED IN THE REGULAR BOOKS, WERE DISCOVERED. IT IS ALSO NOT DISPUTED THAT IN THE PROFIT AND LOSS ACCOUNT ACCOMPANYING THE REGULAR RETURN, THE SAID EXPENDITURE WAS NOT REFLECTED, IN T FURNISHED. I AM IN AGREEMENT WITH THE OBSERVATION OF THE ASSESSING OFFICER THAT A SEARCH AND SEIZURE ACTION, LEADING TO ISSUE OF NOTICE UNDER S. 158BC, CANNOT BE MADE USE OF BY THE ASSESSEE TO HIS BENEFIT TO REDUCE HIS INCOME FOR THE IMPUGNED YEAR. THE SAID PROVISION IS TO HELP THE REVENUE TO COLLECT TAX DUE FROM UNDISCLOSED INCOME AND NOT FOR THE BENEFI T OF THE ASSESSEE. FURTHER, THE POSITION TAKEN BY THE ASSESSING OFFICER THAT PROFIT CORRESPONDING TO THE UNACCOUNTED CASH EXPENDITURE, HAS TO BE BROUGHT TO TAX CANNOT BE DISCREDITED. EVEN THE HON'BLE ITAT HAS SUPPORTED THIS VIEW OF THE ASSESSING OFFICER, S INCE ON PRINCIPLE, THE ESTIMATION OF INCOME HAS BEEN SUSTAINED, 4 ITA NO S . 2856 & 2857/M/13 (A.YS. 2005 - 06 & 2006 - 07) MOTTA CONSTRUCTION PVT. LTD. VS. ACIT ONLY ACCORDING MARGINAL RELIEF TO THE ASSESSEE. THE CONDUCT OF THE ASSESSEE IS SUCH THAT IT HAS CONDUCTED ITS AFFAIRS IN SUCH A MANNER SO AS TO DEFRAUD REVENUE. AS PER SETTLED LAW, PENALTY IS A CIVIL LIABILITY TO COMPENSATE FOR LOSS OF REVENUE. MENS REA OR DELIBERATE INTENTION TO CONCEAL NEED NOT BE PROVED. BOTH THE CIT(A) AND THE ITAT HAVE COME TO A FINDING THAT THE BOOKS AS MAINTAINED ARE NOT RELIABLE, HENCE THE APPELLANT IS TO BE VISITED WIT H PENALTY IN RESPECT OF SUCH INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED. HENCE I AM OF THE FIRM VIEW THAT THIS IS A FIT CASE FOR IMPOSITION OF PENALTY UNDER S. 271(1)(C). HOWEVER, THE ASSESSING OFFICER WILL COMPUTE THE PENALTY ON THE UNDISC LOSED INCOME DETERMINED AFTER GIVING EFFECT TO THE ORDER OF THE ITAT IN THE CASE OF THE ASSESSEE IN ITA NO.4794 & 4795/MUM/2010 DATED 06.06.2012. AGGRIEVED , NOW THE ASSESSEE IS IN SECOND APPEAL BEFORE THE TRIBUNAL IN BOTH THE YEARS. 6 . WE HAVE HEARD TH E RIVAL CONTENTIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE ARGUED THAT IN VIEW OF THE ORDER OF THE TRIBUNAL IN QUANTUM, THE ADDITION IS MADE ON ESTIMATE BASIS BY APPLYING RATE OF ESTIMATION OF PROFIT AND FORMULA ADOPTED BY LOWER AUTHORITIES DIRECTING TO REDUCE THE PROFIT RATE AT 23% OF THE COST OF SALES. THE LD. COUNSEL FOR THE ASSESSEE ARGUED THAT ONCE THE ESTIMATION IS MADE, THERE IS NO FINDING BY THE LOWER AUTHORITIES THAT THERE IS CONCEALME NT OF INCOME OR THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME. ACCORDING TO THE LD. COUNSEL ONCE THE ESTIMATION IS MADE, THE PENALTY U/S. 271(1)(C) OF THE ACT CANNOT BE LEVIED. HENCE, HE REQUEST ED FOR DELETION OF THE SAME. ON THE OTHER HAND, THE LD. SR. DR SUPPORT S THE ORDERS OF THE LOWER AUTHORITIES. 7 . WE FIND THAT THE AUTHORITIES BELOW HAVE NOTICED THAT THE ASSESSEE HAS INCURRED CASH EXPENDITURE IN BOTH THE ASSESSMENT YEARS, THE BASIS FOR THIS FINDING WAS THE DOCUMENTS RECOVERED DURING TH E COURSE OF SEARCH BY THE REVENUE FROM THE PREMISES OF THIRD PARTY. BUT FINALLY THE LOWER AUTHORITIES HAVE NOT MADE ANY ADDITION ON THE BASIS OF THESE CASH EXPENDITURE BUT ESTIMATED THE PROFIT RATE ON GROSS RECEIPTS AS THE ASSESSEE IS ENGAGED IN THE BUSINE SS OF THE CONSTRUCTION ACTIVITY, I.E., THE CIVIL CONTRACTOR. EVEN THE TRIBUNAL HAS ACCEPTED THE ESTIMATION OF INCOME AND REDUCED THE PROFIT RATE FROM 25% TO 23% . THE OBSERVATIONS OF TRIBUNAL IN QUANTUM APPEAL IS REPRODUCED IN ABOVE PARA 5 OF THIS ORDER . IN ALL, NOW THE ISSUE ARISES WHETHER THE ESTIMATE ON PENALTY CAN BE LEVIED BECAUSE 5 ITA NO S . 2856 & 2857/M/13 (A.YS. 2005 - 06 & 2006 - 07) MOTTA CONSTRUCTION PVT. LTD. VS. ACIT ASSESSMENT IS FINALLY MADE ON ESTIMATING THE PROFIT RATE. THE LOWER AUTHORITIES HAS INITIATED THE PENALTY FOR THE REASON THAT THE ASSESSEE HAS INCURRED CASH EXPENDITURE AND FO R THIS , EVIDENCES WERE FOUND DURING THE SEARCH PROCEEDINGS ON CHARTERED ACCOUNTANT FIRM OF THE ASSESSEE. WE ALSO FIND THAT THE PROFIT RATE APPLIED ON COST OF SALE AS PER THE WORKING OF SALE ADOPTED BY THE DEPARTMENT CAN AT THE BEST BE THE BASIS FOR QUANTUM ADDITION BUT IT CANNOT ATTRACT PENAL T Y FOR FURNISHING OF INACCURATE PARTICULARS OF INCOME BECAUSE THE ASSESSMENT IS MADE NOT ON THE ISSUE OF UNACCOUNTED CASH EXPENDITURE BUT ON ESTIMATE OF PROFIT RATE. ACCORDINGLY, IN OUR VIEW, AS PER R ULE OF EVIDENCE THE RE IS DISTINCTION BETWEEN SET OF FACTS NOT PROVED AND FACTS DISPROVED AND FACTS PROVED. HERE WE HAVE TO GIVE BENEFIT TO THE ASSESSEE BECAUSE THERE IS A DOUBT FOR THE REASON THAT MERE NON - SATISFACTORY EXPLANATION FURNISHED BY THE ASSESSEE CANNOT AMOUNT PROO F OF FALSITY OF EXPLANAT ION FURNISHED. ACCORDINGLY, WE ARE OF THE VIEW THAT THE LOWER AUTHORITIES HAVE ERRED IN LEVYING PENALTY FOR FURNISHING OF INACCURATE PARTICULARS OF INCOME ON INCOME ESTIMATED AFTER APPLYING PROFIT RATE. WE DELETE THE PENALTY AND ALL OW THE APPEAL OF THE ASSESSEE. 8. SIMILAR ARE THE FACTS IN OTHER ASSESSMENT YEAR , I.E., A.Y. 2005 - 06, HENCE TAKING A CONSISTENT VIEW, THE PENALTY FOR CONCEALMENT IN THIS YEAR ALSO DELETED. 9. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON AUGUST 30 , 201 6 SD/ - SD/ - ( B. R. BASKARAN ) (MAHAVIR SINGH) / ACCOU NTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED : 30 . 0 8 .201 6 . . ./ ROSHANI , SR. PS 6 ITA NO S . 2856 & 2857/M/13 (A.YS. 2005 - 06 & 2006 - 07) MOTTA CONSTRUCTION PVT. LTD. VS. ACIT / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI