INNOCENCE, MUMBAI V. ASST CIT 17(3), MUMBAI

ITA 3083/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75389 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-01-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 19-11-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 04-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P SINGH
• Assessee Lawyers: ABHISHEK TILAK
• Keywords: Reasonable cause

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH I, MUMBAI BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND DR. S.T.M. PAVALAN, JUDICIAL MEMBER ITA NO. 3083/MUM/2012 ASSESSMENT YEAR: 2005-06 M/S. INNOCENCE 309, AMIT INDL. ESTATE. 61, DR. S.S. RAO RD, PAREL, MUMBAI-. 400 012 PAN :AAAFI 0417 K VS. ACIT, 17(3) PIRAMAL CHAMBERS, LALBAUG, PAREL. MUMBAI-400 012 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI NISHIT GANDHI & ABHISHEK TILAK RESPONDENT BY : SHRI O.P. SINGH DATE OF HEARING : 19.11.2013 DATE OF PRONOUNCEMENT : 15.01.2013 O R D E R PER DR. S.T.M. PAVALAN, JM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF THE LD.CIT(A) - 19, MUMBAI DATED 09.02.2012 PARTLY CONFIRMING THE PENALTY LEVIED BY THE AO U/S 271(1)(C) OF THE INCOME TAX ACT FOR THE ASSESSMENT YEAR 2005-06. 2. BRIEFLY STATED, THE ASSESSEE, A FIRM ENGAGED IN THE BUSINESS OF MANUFACTURING AND SELLING OF READYMADE GARMENTS FOR KIDS, IN RESP ECT OF WHICH SURVEY WAS CONDUCTED ON 09.03.2005. DURING THE COURSE OF THE SURVEY, THE ASSESSEE HAD ADMITTED AN ADDITIONAL INCOME TO TUNE OF RS.25 LACS CONSISTING OF EXCESS STOCK OF RS.22.50 LACS AND DISCREPANCY IN CASH OF RS.2.50 LACS. IN THE STATEME NT RECORDED DURING THE COURSE OF SURVEY ON 9 TH & 10 TH OF MARCH, 2005, THIS INCOME WAS ADMITTED AS ADDITI ONAL INCOME OVER AND ABOVE THE REGULAR INCOME. IN THE ASSESSMEN T FRAMED, THE AO FOUND THAT THE ASSESSEE DID NOT DISCLOSE EVEN THE AMOUNT OF RS.25 LAKHS ADMITTED AT THE TIME OF SURVEY AS RETURN WAS FILED DECLARING INCOME OF RS.2 1,94,585/-. IT WAS NOTICED THAT THE ITA NO. 3083/MUM/2012 M/S. INNOCENCE ASSESSMENT YEAR: 2005-06 2 ASSESSEE HAD SHOWN LOWER G.P FOR THE PERIOD SUBSEQU ENT TO THE SURVEY. THE GP FOR THE PERIOD 1.4.04 TO 9.3.05 WAS 25.7% AND POST SURVEY P ERIOD 10.03.05 TO 31.03.05 WAS 11.41%. ACCORDING TO THE ASSESSEE, THE REASON FOR T HE FALL IN GP RATE DURING THE YEAR UNDER CONSIDERATION WAS THAT CERTAIN NON MOVING DEA D STOCK WAS SOLD AT CONSIDERABLE LOW PRICE WHICH BROUGHT THE RATE OF GP MUCH LOWER. IN THE INVENTORY OF STOCK TAKEN DURING THE COURSE OF SURVEY, THESE NON MOVING ITEMS OF DEAD STOCK WERE INCLUDED AND WERE VALUED AT MRP RATES BY THE SURVEY TEAM. HOWEVE R, IT WAS THE CLAIM OF THE ASSESSEE THAT WHEN THESE ITEMS OF STOCK WERE SOLD, IT RESULTED IN CONSIDERABLE LOSS AS COMPARED TO THE RATES AT WHICH THESE WERE TAKEN IN STOCK DURING THE COURSE OF SURVEY. THE AO DID NOT ACCEPT THE EXPLANATION OF THE ASSESS EE AS THE INVENTORY OF STOCK WAS CERTIFIED TO BE TRUE AND CORRECT BY THE PARTNER AND AFTER THE SURVEY AND NO SUCH STAND RETRACTING THE DISCLOSURE HAD BEEN TAKEN BY THE ASS ESSEE BEFORE THE DEPARTMENT AT ANY POINT OF TIME. FURTHER, THE AO ALSO NOTED THAT THE ASSESSEE HAD NOT MAINTAINED THE QUANTITY WISE RECORD OF THE STOCK OF THE NON MOVING DEAD STOCK WHICH THE ASSESSEE SUBSEQUENTLY CLAIMED TO BE SOLD. FURTHER, THE GP RA TE FOR THE PERIOD 01.04.2004 TO 09.03.2005 (I.E. UPTO THE DATE OF SURVEY) WAS 25.75 % AND GP FOR THE PERIOD 10.03.2005 TO 31.03.2005 WAS 11.41% ONLY, SUGGESTIN G MANIPULATION IN THE EXPENDITURE DURING THE PERIOD AFTER THE SURVEY. TAK ING INTO CONSIDERATION THE ABOVE FACTS, THE AO REJECTED BOOKS OF THE ACCOUNTS INVOKI NG THE PROVISIONS OF 145(3) OF THE IT ACT AND ESTIMATED THE NET PROFIT AT 1% OF THE TOTAL TURNOVER AS AGAINST 0.76% SHOWN IN THE IMMEDIATELY PRECEDING YEAR AND THEREFORE, THE N ET PROFIT WAS ACCORDINGLY ESTIMATED AT RS.3,06,041/-. THE AO ALSO ADDED AN AMOUNT OF RS .25 LACS DISCLOSED DURING THE COURSE OF SURVEY AS ADDITIONAL INCOME OVER AND ABOV E THE REGULAR INCOME SHOWN BY THE ASSESSEE AND ASSESSED THE TOTAL INCOME AT RS.27,56, 041/-. THE ASSESSEE FILED AN APPEAL BEFORE THE LD.CIT(A) CONTESTING THE ACTION O F THE AO IN ASSESSING THE INCOME AT RS.27,56,041/- AS AGAINST THE RETURNED INCOME OF RS .21,81,174/-. THE LD.CIT(A) FOUND NO MERIT IN THE APPEAL OF THE ASSESSEE AND THEREFOR E DISMISSED THE APPEAL VIDE HIS ORDER DATED 25.01.2008. CONSEQUENTLY IN THE PENALTY PROCEEDINGS, AS THE ASSESSEE DID NOT PROVIDE SATISFACTORY EXPLANATION AND THAT THE D EFAULT U/S 271(1)(C) HAS BEEN COMMITTED WITHOUT ANY REASONABLE CAUSE, THE AO LEVI ED A MINIMUM PENALTY OF 100% OF TAX SOUGHT TO BE EVADED UNDER SECTION 271(1)(C) OF THE I.T. ACT, 1961, WHICH HE WORKED OUT AT RS.9,14,813/-. IN THE MEAN TIME, THE TRIBUNAL, IN QUANTUM APPEAL, VIDE ITA NO. 3083/MUM/2012 M/S. INNOCENCE ASSESSMENT YEAR: 2005-06 3 ITS ORDER DATED 18 TH JUNE 2010 DIRECTED THE AO TO RESTRICT THE ESTIMATI ON OF INCOME TO 0.5%. ON APPEAL AGAINST THE PENALTY ORDER, SINCE TH E TRIBUNAL DIRECTED TO RESTRICT THE ESTIMATION OF INCOME TO 0.5%, THE LD.CIT(A) DIRECTE D THE AO TO REWORK THE PENALTY IN VIEW OF THE ADDITION SUSTAINED BY THE TRIBUNAL AND THEREBY PARTLY CONFIRMED THE LEVY OF PENALTY. AGGRIEVED BY THE IMPUGNED ORDER, THE ASSES SEE IS IN APPEAL BEFORE US. 3. HAVING HEARD BOTH THE SIDES AND PERUSED THE MAT ERIAL ON RECORD, IT IS PERTINENT TO MENTION THAT IT IS THE CONTENTION OF THE ASSESSE E THAT THE SALES OF THE NON-MOVING ITEMS MADE DURING POST SURVEY PERIOD AT VERY LOW PR ICE IS THE REASON FOR THE FALL IN GP RATE DURING THE YEAR UNDER CONSIDERATION. THIS EXPL ANATION FURNISHED BY THE ASSESSEE IS CONSIDERED UNACCEPTABLE BY THE AO AND THEREBY PROCE EDED TO ESTIMATE THE NET PROFIT AT 1% OF THE TOTAL TURNOVER AS AGAINST 0.76% SHOWN IN THE IMMEDIATELY PRECEDING YEAR. ON THE SAID ISSUE, THE TRIBUNAL, IN QUANTUM APPEAL DIRECTED THE AO TO RESTRICT THE ESTIMATION OF INCOME TO 0.5%. CONSIDERING THE ENTIR E CONSPECTUS OF THE CASE, THE ADDITION HAS BEEN MADE/CONFIRMED ON ESTIMATION BASI S ONLY. IN THIS CONTEXT, IT IS RELEVANT TO MENTION THAT THE TRIBUNAL IN THE CASE O F LAXMI NARAYAN SHIVHARE VS. JCIT IN ITA NO. 68/AGRA/2013 HAS HELD THAT PENALTY IS NOT L EVIABLE ON ESTIMATE OF INCOME. FOR THE SAID DECISION, THE TRIBUNAL IN TURN HAS RELIED ON THE DECISION OF THE CHATTISGARH HIGH COURT IN THE CASE OF CIT VS. VIJAY KUMAR JAIN 232 CTR 255 AND THE DECISION OF THE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. ARJUN PRASAD AJIT KUMAR. IN THE LATER CASE, THE ALLAHABAD HIGH COURT HAS HELD THAT PENALTY COULD NO T BE IMPOSED ON THE BASIS OF ESTIMATING SALES AND APPLYING NET PROFIT FOR THE PU RPOSE OF MAKING ADDITION. THE SAID LEGAL POSITION IS ALSO SUPPORTED BY THE DECISIONS O F THE DELHI HIGH COURT IN THE CASE OF CIT VS. AERO TRADERS (P) LTD., 322 ITR 316, PUNJAB & HARYANA HIGH COURT IN THE CA SES OF CIT VS. MODI INDUSTRIAL CORPORATION, 195 TAXMAN 68 & CIT VS. SANGRUR VANASPATI MILLS LTD., 303 ITR 53 AND THE DECISION OF TRIBUNAL IN THE CAS E OF HOE LEATHER GARMENTS LTD. VS. DCIT , 39 SOT 210. IN THE LIGHT OF THE SAID RATIO OF THE TRIBUNAL AND VARIOUS HIGH COURTS, THERE IS NOTHING CONCRETE AND COGENT T O SAY THAT THE ASSESSEE HAS CONCEALED THE PARTICULARS OF INCOME OR FURNISHED IN ACCURATE PARTICULARS OF INCOME. THEREFORE, WE DO NOT FIND IT TO BE A FIT CASE FOR L EVY OF PENALTY. WE, ACCORDINGLY, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELET E THE IMPUGNED PENALTY. ITA NO. 3083/MUM/2012 M/S. INNOCENCE ASSESSMENT YEAR: 2005-06 4 4. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 15 TH DAY OF JANUARY, 2014. SD/- SD/- (P.M. JAGTAP) (DR. S.T.M. PAVALAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 15 .01.2013. *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR I BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.