M/s. Arham Prints Pvt.Ltd., Surat V. The Income tax Officer,Ward-1(1), Surat

ITA 3843/AHD/2008

• Counselvise Citation: 384320514 RSA 2008
• Duration Of Justice: 3 year(s) 1 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-01-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 08-12-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 25-11-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VINOD TANWANI
• Assessee Lawyers: R N VEPARI
• Section: 271(1)(c)

Judgement Text

, , , , , IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, C BENCH . .. . . .. . , !' !' !' !', , , , #$ #$ #$ #$ # ## #. .. .% $% % $% % $% % $%, , , , &' ( &' ( &' ( &' ( & ' & ' & ' & ' BEFORE S/SHRI G.C. GUPTA, VICE-PRESIDENT AND A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER) ITA NO.3843/AHD/2008 [ASSTT.YEAR : 2003-2004] ARHAM PRINTS PVT. LTD. C/O. M.K. CREATION PVT. LTD. 2001, SHREE SAIKRUPA MARKET NR. MAHAVEER MARKET RING ROAD, SURAT. /VS. ITO, WARD-1(1) SURAT. ( (( (*+ *+ *+ *+ / APPELLANT) ( (( (,-*+ ,-*+ ,-*+ ,-*+ / RESPONDENT) ./ 0 1 &/ ASSESSEE BY : SHRI R.N. VEPARI ( 0 1 &/ REVENUE BY : SHRI VINOD TANWANI 3 0 /4'/ DATE OF HEARING : 8 TH DECEMBER, 2011 5%6 0 /4'/ DATE OF PRONOUNCEMENT : 5 TH JANUARY, 2012 &7 / O R D E R PER G.C. GUPTA, VICE-PRESIDENT: THIS APPEAL OF THE ASSESSEE FOR A.Y.2003-2004 IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-I, SURAT. 2. THE ONLY GROUND RAISED IN THE APPEAL OF THE ASSE SSEE IS AS UNDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE LD. CIT(A ) HAS ERRED IN CONFIRMING PENALTY ON RS.30,97,826/- BEING DISALLOW ANCE OF CONSUMPTION OF RAW MATERIAL MADE ON ADHOC BASIS AT 20%. 3. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE PENALTY WAS IMPOSED UNDER SECTION 271(1)(C) OF THE ACT AMOUNTIN G TO RS.11,98,705/- ON DISALLOWANCE MADE OUT OF EXPENSES. HE SUBMITTED THAT IT WAS NOT A CASE OF NOT FILING ANY EXPLANATION BY THE ASSESSEE AND THE ASSESSEE HAS IN FACT FILED A DETAILED EXPLANATION DATED 18-7-2007 B EFORE THE AO. HE ITA NO.3843/AHD/2008 -2- SUBMITTED THAT THE ASSESSEE COMPANY WAS CLOSED FOR THE PAST TWO YEARS AND THE DIRECTORS OF THE ASSESSEE-COMPANY HAD LEFT SURAT AND SHIFTED TO OTHER PLACES AND THE REGULAR STAFF OF THE COMPANY H AD ALSO LEFT THE ESTABLISHMENT SINCE THE CLOSE OF THE COMPANY AND TH EIR WHEREABOUTS WERE NOT KNOWN. HE SUBMITTED THAT IN THESE CIRCUMSTANC ES, AFTER THE CLOSURE OF THE FACTORY, PAPERS, DOCUMENTS, ACCOUNT BOOKS ETC. WERE NOT AT THE PROPER PLACE. HE SUBMITTED THAT DUE TO EXTRA ORDINARY IN FLATIONARY TREND IN THE CHEMICAL BUSINESS, THE EXPENSES OF THE ASSESSEE HAD INCREASED DURING THE RELEVANT YEAR. HE SUBMITTED THAT LIKEWISE THERE WA S AN INCREASE OF 225% IN SALES DURING THE YEAR AS COMPARED TO THE EARLIER YEAR. HE SUBMITTED THAT ALL THESE FACTS WERE GIVEN IN WRITING TO THE A O VIDE LETTER DATED 20-3- 2006 BY THE ASSESSEE. 4. THE LEARNED DR HAS OPPOSED SUBMISSIONS OF THE LE ARNED COUNSEL FOR THE ASSESSEE. HE SUBMITTED THAT THE EXPENSES C LAIMED BY THE ASSESSEE WERE DISPROPORTIONATE AND THE EXPLANATION OF THE AS SESSEE WAS NOT BONA FIDE AND THEREFORE THE EXPLANATION 1 TO SECTION 271(1)(C) APPLIES TO THE FACTS OF THE ASSESSEE. HE SUBMITTED THAT THE ASSES SEE FAILED TO PRODUCE ITS BOOKS OF ACCOUNTS BEFORE THE REVENUE AUTHORITIES IN SPITE OF AFFORDING MANY OPPORTUNITIES TO THE ASSESSEE. HE SUBMITTED T HAT THE CIT(A) HAS RECORDED A FINDING THAT CONSUMPTION RATIO OF RAW MA TERIAL DURING THE YEAR WAS 20% HIGHER ALTHOUGH THE POWER AND FUEL RATIO WA S LOWER THAN THE LAST YEAR. THE CIT(A) HAS FURTHER RECORDED THAT THIS SH OWS THAT THERE WERE SOMETHING DRASTICALLY WRONG WITH THE ACCOUNTS AND T HIS CLEARLY SHOWS THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS A ND CONCEALED ITS INCOME. HE REFERRED TO RELEVANT PORTION OF THE PEN ALTY ORDER AND THE APPELLATE ORDER PASSED BY THE CIT(A) IN SUPPORT OF THE CASE OF THE REVENUE. HE RELIED UPON THE ORDERS OF THE AO AND T HE CIT(A). ITA NO.3843/AHD/2008 -3- 5. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND HAVE PE RUSED THE ORDERS OF THE AO AND THE CIT(A). WE FIND THAT THIS IS CAS E OF PENALTY IMPOSED UNDER SECTION 271(1)(C) ON DISALLOWANCE OF CERTAIN EXPENSES MADE BY THE AO. REGARDING THE PLEA OF THE DEPARTMENT THAT THE EXPENSES WERE DISPROPORTIONATELY HIGH, WE FIND THAT THE ASSESSEE HAS EXPLAINED THAT THERE WAS EXTRA ORDINARY INFLATIONARY TREND DURING THE RE LEVANT YEAR IN THE CHEMICAL BUSINESS OF THE ASSESSEE AS COMPARED TO TH E LAST YEAR. WE FIND THAT IT WAS NOT A CASE WHERE NO EXPLANATION COULD B E OFFERED BY THE ASSESSEE. IN FACT THE ASSESSEE HAS FILED DETAILED EXPLANATION DATED 20-1- 2006 AND 18-7-2007 WITH REGARD TO THE PENALTY PROCE EDINGS. THERE IS NO MATERIAL BEFORE US TO SUGGEST THAT THE EXPLANATION FILED BY THE ASSESSEE WAS NOT BONA FIDE . WE ARE AWARE THAT THE ASSESSEE COULD NOT PRODUC E ITS BOOKS OF ACCOUNTS BUT WE ARE EQUALLY AWARE THAT THE ASSESSEE HAS FILED A DETAILED EXPLANATION BEFORE THE AO SUBMITTING THAT THE FACTORY OF THE ASSESSEE-COMPANY WAS CLOSED SINCE LAST TWO YEARS AN D THE DIRECTORS OF THE COMPANY HAVE LEFT THE CITY OF SURAT AND HAS SHIFTED TO SOME OTHER PLACES AND THAT REGULAR STAFF OF THE ASSESSEE COMPANY HAS LEFT THE JOB DUE TO CLOSURE OF THE COMPANY AND THE ASSESSEE WAS NOT AWA RE ABOUT THEIR WHEREABOUTS. IT WAS FURTHER PLEADED BY THE ASSESSE E THAT IN THESE CIRCUMSTANCES OF THE CLOSURE OF THE FACTORY, PAPERS , DOCUMENTS, BOOKS OF ACCOUNTS ETC. WERE NOT AT THE PROPER PLACE. THE AS SESSEES SALES DURING THE PERIOD HAVE INCREASED BY 225% AS COMPARED TO IM MEDIATELY PRECEDING YEAR. WE FIND THAT THE DISALLOWANCES HAV E BEEN MADE OUT OF OUTGOINGS ON ACCOUNT OF CONSUMPTION OF RAW-MATERIAL AT THE RATE OF 20% ON ESTIMATE BASIS. THE CLAIM OF THE ASSESSEE THAT THERE WERE EXTRA ORDINARY INFLATIONARY TREND IN CHEMICAL BUSINESS OF THE ASSESSEE, COULD NOT BE CONTROVERTED BY THE REVENUE. THE FACTS OF THE CA SE MAY JUSTIFY THE ITA NO.3843/AHD/2008 -4- DISALLOWANCE IN THE ASSESSMENT CASE OF THE ASSESSEE , BUT ARE NOT SUFFICIENT TO SUSTAIN THE PENALTY UNDER SECTION 271(1)(C) OF T HE ACT. ACCOUNTS OF THE ASSESSEE WERE AUDITED AND THE AUDITED REPORT WAS FI LED ALONG WITH ITS RETURN OF INCOME. THE ASSESSMENT PROCEEDINGS AND T HE PENALTY PROCEEDINGS ARE INDEPENDENT TO EACH OTHER. IT IS N OT A CASE WHERE THE ASSESSEE HAS WILLFULLY NOT PRODUCED ITS ACCOUNT BOO KS BEFORE THE REVENUE AUTHORITIES. IT IS A CASE WHERE DUE TO ADVERSE CIR CUMSTANCES AS DETAILED IN THE EXPLANATION OF THE ASSESSEE DATED 20-3-2006 AND DUE TO CLOSURE OF THE ASSESSEE-COMPANY SINCE LAST TWO YEARS AND NON-AVAIL ABILITY OF DIRECTORS AND REGULAR STAFF OF THE COMPANY, THE ACCOUNTS BOOK S COULD NOT BE PRODUCED BEFORE THE AO, IN SUPPORT OF ITS CLAIM OF OUTGOING ON ACCOUNT OF CONSUMPTION OF RAW-MATERIAL AND THERE IS NO MATERIA L TO SUGGEST THAT CONDUCT AND EXPLANATION OF THE ASSESSEE WAS NOT BONA FIDE. ACCORDINGLY WE HOLD THAT IT IS NOT A FIT CASE FOR IMPOSITION OF PENALTY ON THE DISALLOWANCE MADE IN THE ASSESSMENT OF THE ASSESSEE AND THE PENALTY UNDER SECTION 271(1)(C) OF THE ACT IS ACCORDINGLY C ANCELLED AND THE GROUND OF THE ASSESSEE IS ALLOWED. 6. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE. SD/- SD/- ( #.% $% /A.MOHAN ALANKAMONY) &' ( /ACCOUNTANT MEMBER ( . .. . . .. . /G.C. GUPTA) !' !' !' !' /VICE-PRESIDENT C OPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR/AR, ITAT, AHMEDABAD