The ITO, Ward-4, Bharuch V. M/s. Honest Construction Co., Bharuch

ITA 3268/AHD/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5840 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 9 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 29-06-2010
• Assessment Year: 1995-1996
• Appeal Filed On: 25-09-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K KHANDELWAL
• Assessee Lawyers: M K PATEL
• Keywords: Difference of opinion
• Section: 44AD; 143(3); 63

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH AHMEDABAD (BEFORE S/SHRI G. D. AGARWAL, VP AND BHAVNESH SAINI , JM) ITA NO. 3268/AHD/2008 A. Y.: 1995-96 THE INCOME TAX OFFICER, WARD-4, BHARUCH, 2 ND FLOOR, ABOVE BANK OF BARODA, STATION ROAD, BHARUCH VS M/S. HONEST CONSTRUCTION CO., C/O. MEGHA AUTOMOBILES, N. H. NO.8, ANKLESHWAR, BARUCH PAN NO. AABFH 4788 M (APPELLANT) (RESPONDENT) C.O. NO. 286/AHD/2008 (IN ITA NO.3268/AHD/2008) M/S. HONEST CONSTRUCTION CO., C/O. MEGHA AUTOMOBILES, N. H. NO.8, ANKLESHWAR, BARUCH VS THE INCOME TAX OFFICER, WARD-4, BHARUCH, 2 ND FLOOR, ABOVE BANK OF BARODA, STATION ROAD, BHARUCH PAN NO. AABFH 4788 M (APPLICANT) (RESPONDENT) DEPARTMENT BY SHRI A. K. KHANDELWAL, DR ASSESSEE BY SHRI M. K. PATEL, AR O R D E R PER BHAVNESH SAINI: THE DEPARTMENTAL APPEAL AS WELL AS THE CROSS OBJECTION BY THE ASSESSEE ARE DIRECTED AGAINS T THE ORDER OF THE CIT(A)-VI, BARODA DATED 28-07-2008 FOR ASSESSMENT YEAR 1995-96. 2. IN THE DEPARTMENTAL APPEAL, THE REVENUE HAS CHAL LENGED THE ORDER OF THE LEARNED CIT(A) IN CANCELING THE PENALTY LEVI ED U/S 271 (1) ( C ) OF THE IT ACT. THE LEARNED COUNSEL FOR THE ASSESSEE HO WEVER, DID NOT PRESS THE CROSS OBJECTION BECAUSE IT WAS FILED ONLY IN SU PPORT OF THE ORDER OF THE LEARNED CIT(A). THE CROSS OBJECTION OF THE ASSE SSEE IS ACCORDINGLY DISMISSED BEING NOT PRESSED. ITA NO.3268/AHD/2008 AND CO NO.286/AHD/2008 ITO, W-4, BHARUCH VS M/S. HONEST CONSTRUCTION CO. 2 3. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND C ONSIDERED THE MATERIAL ON RECORD. 4. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASSE SSEE FIRM IS ENGAGED IN BUSINESS OF CIVIL CONSTRUCTION AND FILED RETURN OF INCOME AT RS.6,11,852/-. SUBSEQUENTLY ASSESSMENT WAS FINALIZE D U/S 143(3) OF THE IT ACT AT TOTAL INCOME OF RS.28,06,530/-. THE EFFEC TIVE GROUND OF APPEAL IS AGAINST LEVY OF PENALTY OF RS.4,01,683/-. THE AO OB SERVED THAT ON CONTRACT RECEIPTS OF RS.2,75,15,279/-, NET PROFIT R ATE OF 1.91% WAS DISCLOSED. THE AO WAS OF THE VIEW THAT NET PROFIT P ERCENTAGE WAS LOW. DURING THE ASSESSMENT PROCEEDINGS IT WAS INDICATED TO THE AO THAT THE BOOKS OF ACCOUNT WERE AUDITED AND CONSIDERING THE N ATURE OF THE BUSINESS OF THE ASSESSEE WHEREIN NUMEROUS ITEMS ARE REQUIRED FOR CONSTRUCTION WORK IT WAS IMPOSSIBLE TO MAINTAIN DAY TO DAY STOCK REGISTER AND ONLY AT THE YEAR END STOCK TALLY WAS TAKEN AND THAT ANNUAL PROFIT COULD BE PROPERLY COMPUTED FROM THE METHOD EMPLOYED . THE AO HOWEVER, IN THE ABSENCE OF STOCK REGISTER, NO DEFINITE BASIS FOR VALUATION OF WORK IN PROGRESS AND DEFICIENCIES IN THE LABOUR REGISTER, R EJECTED THE BOOK RESULTS AND ESTIMATED PROFIT @10% OF THE GROSS RECEIPTS. IN THE QUANTUM APPEAL, REJECTION OF THE BOOK RESULTS WAS CONFIRMED ON THE GROUND THAT THERE WAS NO METHOD OF VALUATION OF WORK IN PROGRESS AND IN T HE ABSENCE OF STOCK REGISTER, CONSUMPTION OF RAW MATERIAL ALSO COULD NO T BE VERIFIED. NET PROFIT WAS HOWEVER, RESTRICTED TO 8% IN THE LIGHT O F THE PROVISIONS OF SECTION 44AD OF THE IT ACT. THE ORDER OF THE LEARNE D CIT(A) WAS CONFIRMED BY THE TRIBUNAL. DURING THE COURSE OF PENALTY PROCE EDINGS IT WAS SUBMITTED BEFORE THE AO THAT IN THE CASE OF CONSTRU CTION CONTRACT, VALUE OF STOCK AND DETERMINATION OF PROFIT IS BASED ON ES TIMATION OF PROGRESS OF WORK AS PER ACCOUNTING STANDARD AND SUCH ESTIMATION DOES NOT CALL FOR ANY ADVERSE INFERENCE. THE AO HAS THEREFORE, MADE A N AD HOC ADDITION WHICH IS ULTIMATELY REDUCED. THE AO HOWEVER, DID NO T ACCEPT THE ITA NO.3268/AHD/2008 AND CO NO.286/AHD/2008 ITO, W-4, BHARUCH VS M/S. HONEST CONSTRUCTION CO. 3 CONTENTION OF THE ASSESSEE AND LEVIED THE PENALTY. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT THE AO HAS WRONGLY L EVIED THE PENALTY. IT WAS FURTHER SUBMITTED THAT LEARNED CIT(A) HAS FOLLO WED THE ORDER OF HIS PREDECESSOR FOR ASSESSMENT YEAR 1994-95 AND CONFIRM ED THE ESTIMATION OF PROFIT @8% AND THE DEPARTMENT DID NOT LEVY ANY P ENALTY U/S 271 (1)(C ) OF THE IT ACT. IT WAS ALSO POINTED OUT THAT IN SUBS EQUENT ASSESSMENT YEARS 1996-97 AND 1997-98 ALSO IN RESPECT OF SIMILA R ESTIMATION OF NET PROFIT AT 8%, NO PENALTY U/S 271 (1) ( C ) OF THE I T ACT HAS BEEN LEVIED. IT WAS SUBMITTED THAT THE ASSESSEE MAINTAINED REGULAR BOOKS OF ACCOUNT AND NO EVIDENCE OF ANY CONTRACT RECEIPTS OUTSIDE TH E BOOKS OF ACCOUNT WAS FOUND. ALL THE PAYMENTS WERE MADE THROUGH ACCOU NT PAYEE CHEQUES. THEREFORE, FOR NON-MAINTENANCE OF STOCK REGISTER PE NALTY SHOULD NOT BE LEVIED. THE LEARNED CIT(A) CONSIDERING THE SUBMISSI ONS OF THE ASSESSEE AND THE MATERIAL ON RECORD CANCELED THE PENALTY LEV IED U/S 271 (1) ( C ) OF THE IT ACT. HIS FINDINGS IN PARA 6 TO 7 ARE REPRODU CED AS UNDER: 6. I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORDE R, QUANTUM APPEAL ORDER, ORDER OF HONBLE ITAT, PENALT Y ORDER AND SUBMISSION OF THE APPELLANT. THE ASSESSING OFFI CER HAD REJECTED THE BOOK RESULT ON THE GROUND THAT NO STOC K REGISTER WAS MAINTAINED AND THE LABOUR EXPENSES WERE ALSO NO T FULLY VERIFIABLE AND ESTIMATED PROFITS @10% OF CONTRACT R ECEIPTS. THE CIT(A) AND ITAT REDUCED THE ESTIMATED PROFIT TO 8% FOLLOWING THE SPIRIT OF SECTION 44AD. 6.1 THE APPELLANT HAD STATED THAT IT HAD BEEN FOLLO WING SAME METHOD OF ACCOUNTING AND THAT IN ITS LINE OF B USINESS, IT WAS NOT POSSIBLE TO MAINTAIN DAY-TO-DAY STOCK REGIS TER. THE EXPLANATION WAS NOT FOUND FALSE BY THE ASSESSING OF FICER OR CIT(A). IN TERMS OF EXPLANATION 1 TO SECTION 271 ( 1) ( C ), ALL THE FACTS AND MATERIAL RELEVANT FOR COMPUTATION OF TOTA L INCOME WERE BEFORE THE ASSESSING OFFICER AND THE EXPLANATI ON OF APPELLANT DOES NOT APPEAR TO BE MALAFIDE. MOREOVER, NO PENALTY WAS LEVIED BY THE A. O. FOR IDENTICAL ADDIT ION IN A. Y. 1994-95, 96-97 AND 97-98. IN MY HUMBLE VIEW, CONSID ERING THE FACTS AND CIRCUMSTANCES AND ALSO THE JUDICIAL D ECISIONS ON THE ISSUE AND ALSO PROVISIONS OF SECTION 271 (1) (C ) R. W. EXPLANATION 1, THE LEVY OF PENALTY IS NOT JUSTIFIED . ITA NO.3268/AHD/2008 AND CO NO.286/AHD/2008 ITO, W-4, BHARUCH VS M/S. HONEST CONSTRUCTION CO. 4 7. IN THE EVENT, THE APPEAL IS ALLOWED. 5. LEARNED DR RELIED ON THE ORDER OF THE AO AND SUB MITTED THAT PENALTY WAS RIGHTLY IMPOSED BECAUSE OF NON-VERIFICA TION OF THE STOCK. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSE E REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW. 6. ON CONSIDERATION OF THE RIVAL SUBMISSIONS WE ARE OF THE VIEW THAT PENALTY WAS RIGHTLY CANCELLED BY THE LEARNED CIT(A) . THE ASSESSEE SPECIFICALLY PLEADED BEFORE THE AUTHORITIES BELOW T HAT IT HAS MAINTAINED REGULAR BOOKS OF ACCOUNT ON THE SAME METHOD OF ACCO UNTING. IN EARLIER YEARS ALSO PROFIT RATE OF 8% WAS APPLIED AND ALSO T HE SAME PROFIT WAS APPLIED IN THE SUBSEQUENT YEARS. IN THE PRECEDING A SSESSMENT YEAR AS WELL AS IN THE SUBSEQUENT ASSESSMENT YEARS NO PENAL TY WAS LEVIED BY THE AO ON IDENTICAL FACTS. 7. HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF HARIGOPAL SINGH VS CIT 258 ITR 85 HELD AS UNDER: IN ORDER TO ATTRACT CLAUSE ( C ) OF SECTION 271 (1 ) OF THE INCOME-AX ACT, 1961 IT IS NECESSARY THAT HERE MUST BE CONCEALMENT BY THE ASSESSEE OF THE PARTICULARS OF H IS INCOME OR FURNISHING OF INACCURATE PARTICULARS OF S UCH INCOME. THE PROVISIONS OF SECTION 271 (1) ( C ) OF THE ACT ARE NOT ATTRACTED TO CASES WHERE THE INCOME OF AN ASSESSEE IS ASSESSED ON ESTIMATE BASIS AND ADDITION S ARE MADE THEREIN. THE ASSESSEE FILED HIS RETURN ON ESTIMATE BASIS AND DECLARED HIS INCOME AT RS.52,000. THE INCOME WAS, HOWEVER, ASSESSED BY THE ASSESSING OFFICER AT RS.2,07,500 BY ESTIMATING THE ASSESSEES SALES AND GROSS PROFIT. THE TRIBUNAL REDUCED THE ADDITION TO RS.1,50,000. THE ASSESSING OFFICER IMPOSED PENALTY. THE COMMISSIONER OF INCOME-TAX (APPEALS) AND THE TRIBUNAL HELD THAT PENALTY COULD NOT BE IMPOSED. ON FURTHER APPEAL TO THE HIGH COURT: ITA NO.3268/AHD/2008 AND CO NO.286/AHD/2008 ITO, W-4, BHARUCH VS M/S. HONEST CONSTRUCTION CO. 5 HELD, THAT THERE WAS A DIFFERENCE OF OPINION AS REG ARDS THE ESTIMATE OF THE INCOME OF THE ASSESSEE. SINCE T HE ASSESSING OFFICER AND THE TRIBUNAL ADOPTED DIFFEREN T ESTIMATES IN ASSESSING THE INCOME OF THE ASSESSEE, IT COULD NOT BE SAID THAT THE ASSESSEE HAD CONCEALED T HE PARTICULARS OF HIS I0NCOME SO AS TO ATTRACT CLAUSE ( C ) OF SECTION 271 (1). 8. HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS DHILLON RICE MILLS 256 ITR 447 HELD THAT NO PENALTY IS LEVIABLE ON THE ADDITION BASED ON ESTIMATE. 9. THE HONBLE SUPREME COURT IN THE CASE OF CIT VS RELIANCE PETROPRODUCTS PVT. LTD. 322 ITR 158 (SC) HELD THAT A GLANCE AT THE PROVISIONS OF SECTION 271(1) (C ) OF THE INCOME-TAX ACT, 1961, SUGGEST THAT IN ORDER TO BE COVERED BY IT, THERE HAS TO BE CONCEALMENT OF PARTICULARS OF THE INCOME OF THE ASSESSEE. SECONDLY , THE ASSESSEE MUST HAVE FURNISHED INACCURATE PARTICULARS OF HIS I NCOME. THE MEANING OF THE WORD PARTICULARS USED IN SECTION 2 71(1) ( C ) WOULD EMBRACE THE DETAILS OF THE CLAIM MADE. WHERE NO INF ORMATION GIVEN IN THE RETURN IS FOUND TO BE INCORRECT OR INACCURAT E, THE ASSESSEE CANNOT BE HELD GUILTY OF FURNISHING INACCURATE PART ICULARS. IN ORDER TO EXPOSE THE ASSESSEE TO PENALTY, UNLESS THE CASE IS STRICTLY COVERED BY THE PROVISION, THE PENALTY PROVISION CAN NOT BE INVOKED. BY NO STRETCH OF IMAGINATION CAN MAKING AN INCORREC T CLAIM TANTAMOUNT TO FURNISHING INACCURATE PARTICULARS. TH ERE CAN BE NO DISPUTE THAT EVERYTHING WOULD DEPEND UPON THE RETUR N FILED BY THE ASSESSEE, BECAUSE THAT IS THE ONLY DOCUMENT WHERE T HE ASSESSEE CAN FURNISH THE PARTICULARS OF HIS INCOME. WHEN SUC H PARTICULARS ARE FOUND TO BE INACCURATE, THE LIABILITY WOULD ARI SE. TO ATTRACT PENALTY, THE DETAILS SUPPLIED IN THE RETURN MUST NO T BE ACCURATE, NOT EXACT OR CORRECT, NOT ACCORDING TO THE TRUTH OR ERRONEOUS. WHERE THERE IS NO FINDING THAT ANY DETAILS SUPPLIED BY TH E ASSESSEE IN ITS RETURN ARE FOUND TO BE INCORRECT OR ERRONEOUS OR FA LSE THERE IS NO ITA NO.3268/AHD/2008 AND CO NO.286/AHD/2008 ITO, W-4, BHARUCH VS M/S. HONEST CONSTRUCTION CO. 6 QUESTION OF INVITING THE PENALTY UNDER SECTION 271( 1) ( C ). A MERE MAKING OF A CLAIM WHICH IS NOT SUSTAINABLE IN LAW, BY ITSELF, WILL NOT AMOUNT TO FURNISHING INACCURATE PARTICULARS REG ARDING THE INCOME OF THE ASSESSEE. SUCH A CLAIM MADE IN THE RE TURN CANNOT AMOUNT TO FURNISHING INACCURATE PARTICULARS. DECISI ON OF THE GUJARAT HIGH COURT AFFIRMED. 10. THE HONBLE SUPREME COURT IN THE CASE OF M/S. R AJASTHAN SPINNING & WEAVING MILLS 2009 PIOL 63 SC HELD THAT ON EVERY DEMAND PENALTY IS NOT AUTOMATIC. 11. CONSIDERING THE FACTS OF THE CASE AND MORE PART ICULARLY WHEN THE INCOME OF THE ASSESSEE IS ESTIMATED IN THE YEAR UND ER APPEAL AS WELL AS IN THE EARLIER AND SUBSEQUENT YEARS ON IDENTICAL FA CTS, WE DO NOT FIND IT TO BE A FIT CASE FOR HOLDING CONCEALMENT OF INCOME OR FILING OF INACCURATE PARTICULARS OF INCOME. 12. CONSIDERING THE FACTS OF THE CASE AS NOTED ABOV E, IN THE LIGHT OF THE ABOVE DECISIONS AND IN THE LIGHT OF THE FINDINGS OF THE LEARNED CIT(A), WE ARE OF THE VIEW THAT IT IS NOT A FIT CASE FOR IMPOS ITION OF PENALTY. THE LEARNED CIT(A) HAS ON PROPER APPRECIATION OF FACTS AND MATERIAL ON RECORD RIGHTLY CANCELLED THE PENALTY U/S 271 (1) ( C ) OF THE IT ACT. WE ACCORDINGLY CONFIRM HIS FINDINGS AND DISMISS THE AP PEAL OF THE REVENUE. 13. AS A RESULT, THE DEPARTMENTAL APPEAL IS DISMISS ED. ITA NO.3268/AHD/2008 AND CO NO.286/AHD/2008 ITO, W-4, BHARUCH VS M/S. HONEST CONSTRUCTION CO. 7 14. IN THE RESULT, THE DEPARTMENTAL APPEAL AS WELL AS THE CROSS OBJECTION OF THE ASSESSEE, BOTH ARE DISMISSED. ORDER PRONOUNCED ON 30-06-2010 SD/- SD/- (G. D. AGARWAL) VICE PRESIDENT (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 30-06-2010 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR, ITAT, AHMEDABAD