M/s. Orbit Textiles,., Surat V. The ACIT, Circle-9, Surat

ITA 304/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 8743 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 2 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 29-03-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 17-01-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K KHANDELWAL
• Assessee Lawyers: M J SHAH
• Keywords: Gross profit estimation; Capital Gains
• Section: 271(1)(c); 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD C BENCH (BEFORE S/SHRI G.D. AGARWAL, VICE-PRESIDENT AND T.K. SHARMA, JUDICIAL MEMBER) ITA.NO.304/AHD/2007 ASSTT.YEAR : 2003-2004 M/S.ORBIT TEXTILES 412/1, VASTA DEVDI ROAD OPP: RESHAMWALA RAYONS SURAT. VS. ACIT, CIR.9 SURAT. (APPELLANT) (RESPONDENT) REVENUE BY : SHRI A.K.KHANDELWAL ASSESSEE BY : SHRI M.J.SHAH O R D E R PER G.D. AGARWAL, VICE-PRESIDENT: THIS IS THE ASSESSEES APPEAL AGAINST THE ORDER OF THE CIT(A)-V DATED 22-11-2006 FOR THE A.Y.2003-2004 CONFIRMING THE ORDER OF THE AO PASSED UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961. 2. THE SOLE GROUND RAISED IN THE APPEAL IS AS UNDER : 1. THE CIT(A) ERRED IN UPHOLDING THE LEVY OF PENAL TY OF RS.2,69,812/- UNDER SECTION 271(1)(C) OF THE ACT, 1 961. 3. AT THE TIME OF HEARING US, IT IS STATED BY THE L EARNED COUNSEL FOR THE ASSESSEE THAT THE AO MADE ADDITION OF RS.7,34,181/- BY APPLYING THE HIGHER GROSS PROFIT (GP) RATE; THAT THE ABOVE ADDITION I S ACCEPTED BY THE ASSESSEE TO BUY PEACE WITH THE DEPARTMENT AND THAT NO APPEAL IS FILED AGAINST THE ASSESSMENT ORDER. IT IS FURTHER SUBMITTED THAT THE AO COMPARED THE RATES OF GP PRIOR TO THE SURVEY AND AFTER THE SURVEY AND SINCE THE GP AFTER THE DATE OF SURVEY WAS LESS, HE APPLIED THE SAME GP RATE AND MA DE ADDITION; THAT THE ASSESSEE HAS ALSO EXPLAINED THE REASON FOR THE LOW GP IN A PERIOD SUBSEQUENT TO THE SURVEY. IN THE PRE-SURVEY PERIOD, THE ASSESSE E WAS GETTING THE PRODUCTION WORK DONE FROM THE OUTSIDE ON JOB WORK BASIS. BUT IN THE POST-SURVEY PERIOD, ITA.NO.304/AHD/2007 -2- THE ASSESSEE INSTALLED ITS OWN MACHINERY FOR MANUFA CTURING OF GREY CLOTH; THAT SINCE THE MACHINERIES WERE NEW IT TOOK SOME TIME FO R PROPER SETTING UP OF THE MACHINERY AND THEREFORE THERE WAS A SUBSTANTIAL INC REASE IN THE ELECTRICITY CHARGES RESULTING IN LOW GP. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS MAINTAINED REGULAR BOOKS OF ACCOUNTS, DAY-TO-DAY PR ODUCTION REGISTERS ETC., IN WHICH NO DEFECTS WERE POINTED; THAT THE AO SIMPLY M ADE THE ADDITION BY COMPARING THE GP OF TWO PERIODS. THE AO ALSO LEVIE D THE PENALTY UNDER SECTION 271(1)(C) OF THE ACT ON THE ABOVE GP ADDITI ON. HE HAS STATED THAT NO DEFECT IN THE BOOKS OF ACCOUNTS IS POINTED BY THE A O NOR ANY SINGLE INSTANCE OF EITHER CONCEALMENT OF INCOME OR FURNISHING OF INACC URATE PARTICULARS IS POINTED OUT. THE PENALTY IS LEVIED ON SIMPLE ESTIMATE BASI S; THAT IN THE PENALTY ORDER, THE AO EVEN NOT POINTED OUT WHETHER IT IS A CASE OF CONCEALMENT OF INCOME OR IT IS A CASE OF FURNISHING OF INACCURATE PARTICULARS. IN SUPPORT OF THESE CONTENTIONS, HE RELIED UPON THE FOLLOWING DECISIONS: I) CIT VS. SUBHASH TRADING CO., 221 ITR 110 (GUJ) II) CIT VS. DHILLON RICE MILLS, 256 ITR 447 (P&H) III) NEW SORATHIA ENGG. VS. CIT, 282 ITR 642 (GUJ) 4. THE LEARNED DR ON THE OTHER HAND RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. HE HAS STATED THAT IT IS NOT A CASE OF THE ESTIMATION OF GP, BUT THE AO FOUND THAT THE ASSESSEE HAS SHOWN SUBSTA NTIALLY LOWER GP AFTER THE DATE OF SURVEY FOR WHICH NO SATISFACTORY EXPLANATIO N WAS GIVEN. IF THE ASSESSEE HAS SET UP NEW MACHINERY AND STARTED ITS OWN PRODUC TION AS AGAINST THE JOB WORK GOT DONE EARLIER, IT SHOULD HAVE INCREASED THE GP IN STEAD OF REDUCING THE SAME. THE AO HAS NOT ESTIMATED THE GP AT ANY ARBIT RARY OR PRESUMPTIVE FIGURES, BUT HAS WORKED OUT THE SAME ON THE BASIS O F GP DISCLOSED BY THE ASSESSEE ITSELF IN PRE-SURVEY PERIOD. HE THEREFORE SUBMITTED THAT THE PENALTY UNDER SECTION 271(1)(C) HAS BEEN RIGHTLY LEVIED BY THE AO AND SUSTAINED BY THE CIT(A). IN SUPPORT OF THESE CONTENTIONS, HE RELIED UPON THE FOLLOWING DECISIONS: ITA.NO.304/AHD/2007 -3- I) SUSHIL KUMAR SARAD KUMAR VS. CIT, 232 ITR 588 (ALL) II) CIT VS. WARASAT HUSSAIN, 171 ITTR 405 (PATNA) 5. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF BO TH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. WE FIND THA T THE AO MADE THE ADDITION BY COMPARING THE GP RATIO IN TWO PERIODS I.E. PRE A ND POST-SURVEY PERIODS. AS ON 27-8-2002 SURVEY UNDER SECTION 133A TOOK PLACE A T THE ASSESSEES PREMISES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO ASKED THE ASSESSEE TO PREPARE THE TRADING ACCOUNT TILL THE DATE OF SURVEY AND ALSO SEPARATE TRADING ACCOUNT FOR THE PERIOD AFTER THE SURVEY. THE GP IN THE PERIOD PRIOR TO SURVEY WAS WORKED OUT TO BE 5.96% WHILE IN THE PERIOD AFTE R SURVEY IT WAS FOUND TO BE 1.71%. THE AO APPLIED THE GP RATE OF 5.96% FOR THE POST-SURVEY PERIOD WHICH RESULTED IN THE ADDITION OF RS.7,34,181. HOWEVER, WE FIND THAT NO SPECIFIC INSTANCE OF ANY SUPPRESSION OF SALE OR INFLATION OF PURCHASE OR ANY OTHER EXPENDITURE HAS BEEN POINTED OUT BY THE AO. NO INS TANCE OF ANY CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS I S ALSO POINTED OUT EITHER IN THE ASSESSMENT ORDER OR IN THE PENALTY ORDER. IN O UR OPINION, MERELY BECAUSE THE ADDITION IS MADE BY APPLYING THE HIGHER GP RATE THAT DOES NOT AUTOMATICALLY LEAD TO A CONCLUSION OF ANY CONCEALMENT OF ANY INCO ME OR FURNISHING OF ANY INACCURATE PARTICULARS OF INCOME BY THE ASSESSEE. THE HONBLE PUNJAB AND HARYANA HIGH COURT CONSIDERED THE IDENTICAL FACTS I N THE CASE OF DHILLION RICE MILLS (SUPRA) IN THAT CASE THE PENALTY UNDER SECTIO N 271(1)(C) WAS LEVIED FOR THE ADDITION MADE BY THE AO BY ESTIMATING THE HIGHER YI ELD, WHICH WAS DELETED BY THE TRIBUNAL AND THE HONBLE COURT UPHELD THE ORDER OF THE TRIBUNAL. THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF SU BHASH TRADING CO. UPHELD THE ORDER OF THE ITAT CANCELING THE PENALTY LEVIED BY THE AO IN RESPECT OF THE ADDITION MADE BY APPLYING HIGHER GP RATE. IN THE C ASE OF NEW SORATHIA ENGG. (SUPRA), THE JURISDICTIONAL HIGH COURT CANCELLED TH E PENALTY BECAUSE THERE WAS NO CLEAR CUT FINDINGS REACHED BY THE AO WITH REGARD TO THE FACT WHETHER THERE WAS A CONCEALMENT OF INCOME OR FURNISHING OF INACCU RATE PARTICULARS. IN THIS ITA.NO.304/AHD/2007 -4- CASE ALSO, THE AO HAS NOT POINTED OUT ANY SPECIFIC INSTANCE OF EITHER CONCEALMENT OF INCOME OR FURNISHING INACCURATE PART ICULARS. THE DECISIONS RELIED UPON BY THE LEARNED DR ARE ON DIFFERENT FACT S. IN THE CASE OF SUSHIL KUMAR SARAD KUMAR (SUPRA), THERE WAS A SEARCH AT TH E ASSESSEES PREMISES AND DURING THE COURSE OF SEARCH IT WAS FOUND THAT THE A SSESSEE HAS TWO WIVES. HIS HOUSE-HOLD EXPENDITURE WAS FOUND TO BE MUCH MORE TH AN WHAT WAS DISCLOSED IN THE BOOKS OF ACCOUNTS. IT WAS ON THE ABOVE FACTS, THE PENALTY LEVIED BY THE AO ON ACCOUNT OF DISCLOSURE OF LOW HOUSE-HOLD EXPENDIT URE WAS SUSTAINED BY THE ITAT AND ALSO BY THE HONBLE ALLAHABAD HIGH COURT. HOWEVER, THE FACTS OF THE ASSESSEES CASE ARE ALL TOGETHER DIFFERENT. IN THE CASE OF WARASAT HUSSAIN (SUPRA), THE HONBLE PATNA HIGH COURT UPHELD THE LE VY OF PENALTY ON CONCEALMENT OF CAPITAL GAINS ON THE SALE OF THE LAN D. IN THAT CASE, THE ASSESSEE FAILED TO FURNISH THE PARTICULARS BY WAY OF SALE DE ED AND THEREFORE CAPITAL GAINS WAS ESTIMATED. HOWEVER, THE FACT OF SALE OF THE LA ND AND FAILURE OF THE ASSESSEE TO DISCLOSE THE CAPITAL GAIN WAS NOT IN DISPUTE. T HOSE FACTS ARE ALSO DIFFERENT FROM THE FACTS OF THE CASE ON HAND. IN VIEW OF THE ABOVE, WE RESPECTFULLY FOLLOWING THE DECISION OF HONBLE JURISDICTIONAL HI GH COURT IN THE CASE OF CIT VS. SUBHASH TRADING CO. AND NEW SORTHIA ENGG. AND H ONBLE PUNJAB AND HARAYANA HIGH COURT IN THE CASE OF DHILLON RICE MIL LS, CANCEL THE PENALTY LEVIED UNDER SECTION 271(1)(C) OF THE ACT. 6 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLO WED. ORDER PRONOUNCED IN OPEN COURT ON 31 ST MARCH, 2010. SD/- SD/- (T.K. SHARMA) JUDICIAL MEMBER (G.D. AGARWAL) VICE-PRESIDENT PLACE : AHMEDABAD DATE : 31-03-2010 ITA.NO.304/AHD/2007 -5- VK* COPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER AR, ITAT, AHMEDABAD