Raj Katha Products P Ltd., Delhi V. ACIT, New Delhi

ITA 401/DEL/2017

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2736 (ITAT-DELHI)
• Duration Of Justice: 5 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-07-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 08-05-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 25-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BEDOBANI
• Assessee Lawyers: SURESH K GUPTA
• Keywords: Bogus purchase; Depreciation; Income from undisclosed sources; Search and seizure; Initiation of penalty proceedings; Unabsorbed depreciation
• Section: 153A; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH SMC NEW DELHI BEFORE SHRI R.K.PANDA, ACCOUNTANT MEMBER ITA NO. 4 01 /DEL/2017 ASSESSMENT YEAR: 20 08 - 09 RAJ KATHA PRODUCTS P.LTD. 2042, KATRA TOBACCO KHARI BAOLI DELHI 110 006 PAN: AAACR 5763 N VS ACIT CENTRAL CIRCLE 13 NEW DELHI (APPELLANT) (RESPONDENT) APPELLANT BY SH. SURESH K GUPTA, C.A. RESPONDENT BY MS. BEDOBANI, SR.DR DATE OF HEARING 08 .05.2017 DATE OF PRONOUNCEMENT 12 . 0 7 .2017 ORDER THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 09.12.2016 OF THE CIT(A) - 28, NEW DELHI RELATING TO ASSESSMENT YEAR (A.Y.) 2008 - 09 . 1.1. LEVY OF INTEREST OF RS.1,06,097/ - BY THE ASSESSING OFFICER (AO) U/S 271(1)(C) OF THE INCOME TAX ACT, 1961 (THE ACT) AND CONFIRM ED BY THE LD.CIT(A) IS THE ONLY ISSUE RAISED BY THE ASSESSEE IN THE GROUNDS OF APPEAL . ITA 401/DEL/2017 A.Y. 2008 - 09 RAJ KATHA PRODUCTS P.LTD., DELHI 2 2. F ACTS OF THE CASE IN BRIEF ARE THAT TH E ASSESSEE IS A COMPANY ENGAGED IN KATTHA BUSINESS . A S EARCH UNDER SECTION 132 OF THE INCOME TAX ACT, 1961 (THE ACT ) WAS CONDUCTED AT THE RESIDENCE AS WELL AS BUSINESS PREMISES OF MAHESH MEHTA GROUP OF COMPANIES ON 30 TH JUNE, 2009. THE ASSESSEE IS A CONCERN OF SHRI MAHESH MEHTA GROUP OF COMPANIES. IN RESPONSE TO NOTICE UNDER SECTION 153 A OF THE ACT THE ASSESSEE STATED THAT THE RETURN ALREADY FILED ON 30 TH SEPTEMBER, 2008 M AY BE TREATED AS RETURN IN RESPONSE TO NOTICE ISSUED UNDER SECTION 153 A OF THE A CT . O N THE BASIS OF VARIOUS DETAILS FILED BY THE ASSESSEE FROM TIME TO TIME AND ON THE BASIS OF MATERIAL SEIZED DURING THE COURSE OF S EARCH, THE AO COMPLETED THE ASSESSMENT O N A TOTAL INCOME OF RS.15,88,012/ - . IN THE SAID ORDER THE AO MADE ADDITION OF RS .9,26,640/ - ON ACCOUNT OF PURCHASE OF COAL OUTSIDE THE BOOKS OF ACCOUNTS AND AN AMOUNT OF RS.20,27,478/ - ON ACCOUNT OF KATTHA BUSINESS. 3. IN A PPEAL THE LD.CIT(A) DELETED THE ADDITION OF RS.20,27,478/ - MADE BY THE AO ON ACCOUNT OF KATTHA BUSINESS . H OWEVER , HE RESTRICTED THE ADDITION TO RS.3,43,360/ - ON ACCOUNT ITA 401/DEL/2017 A.Y. 2008 - 09 RAJ KATHA PRODUCTS P.LTD., DELHI 3 OF PURCHASE OF COAL OUTSIDE THE BOOKS OF ACCOUNTS BY OBSERVING AS UNDER . 4.3. I HAVE CONSIDERED THE ASSESSMENT ORDER AND THE GROUNDS RAISED BY THE APPELLANT AND THE SUBMISSIONS FILED IN REL ATION THERETO. FACTS ARE THAT DURING SEARCH AND SEIZURE, INCIRMINATING DOCUMENTS WERE SEIZED FROM VARIOUS PREMISES, PARTICULARLY INDICATING PURCHASES AND SALES OUTSIDE THE BOOKS OF ACCOUNTS. BASED ON THE SEIZED MATERIALS, THE APPELLANT ADMITTED UNDISCLOS ED INCOME OF RS.80 LAKHS IN ASSESSMENT YEAR 2009 - 10 AND RS.10 LAKHS IN ASSESSMENT YEAR 2010 - 11 BEING GROSS PROFIT MARGIN @ 10%. CASE OF THE REVENUE IS THAT RS.9,26,640/ - WAS ADMITTEDLY UNDISCLOSED PURCHASES AND RELATED TO THE PERIOD 6.3.2008 TO 31.3.20 08, I.E. ASSESSMENT YEAR 2008 - 09. THE CASE OF THE APPELLANT IS THAT THE DELIVERY OF THESE PURCHASES WAS RECEIVED FROM M/S DURGA OVERSEAS IN APRIL, 2008 AND THE CORRESPONDING SALES RELATING TO THESE PURCHASES WERE RECORDED IN FY 2008 - 09 . THEREFORE, THESE PURCHASES WERE COVERED AS PART OF THE UNDISCLOSED SALES FOR ASSESSMENT YEAR 2009 - 10. THE APPELLANT HAS ALSO TAKEN AN ALTERNATIVE PLEA THAT EVEN IT IS ASSUMED THAT THESE TRANSACTIONS RELATE TO FY 2007 - 08, THE PEAK OF THESE TRANSACTIONS, AND THE PROFIT THER EON, SHOULD ALONE BE BROUGHT TO TAX AND NOT THE ENTIRE PURCHASES AS SUCH PURCHASES ARE FOLLOWED BY UNDISCLOSED SALES RESULTING IN ROTATION OF MONEY. 4.4. I HAVE CONSIDERED THE RIVAL CLAIMS. THERE IS NO EVIDENCE TO SPECIFICALLY LINK THESE PURCHASES TO THE SALES EFFECTED IN THE SUBSEQUENT FY. THEREFORE, THESE PURCHASES CANNOT BE TREATED AS ITA 401/DEL/2017 A.Y. 2008 - 09 RAJ KATHA PRODUCTS P.LTD., DELHI 4 TRANSACTIONS RELATED TO ASSESSMENT YEAR 2009 - 10. THESE AMOUNTS HAVE TO BE BROUGHT TO TAX IN THIS ASSESSMENT YEAR 2008 - 09. HOWEVER, IT IS UNDENIABLE THAT IN UNACCOUNTED TRANSACTIONS PURCHASES ARE FOLLOWED BY SALES AND THE CYCLE GENERATES UNACCOUNTED INCOME. WHAT CAN BE TAXED IN SUCH SITUATIONS IS THE PEAK TRANSACTION AND THE PROFIT GENERATED ON THE GROSS TRANSACTIONS. THE ALTERNATIVE SUGGESTION MADE BY LD.AR APPEARS REASONABLE IN THE FACTS OF THE CASE. ACCORDINGLY, THE ADDITION IS RESTRICTED TO RS.3,43,360/ - AND APPELLANT GETS RELIEF OF RS.5,83,280/=. 4. T HEREAFTER TH E AO INITIATED PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE A CT . R EJECTING THE VARIOUS EXPLANATION GIVEN BY THE ASSESSEE THE AO LEVIED PENALTY OF RS.1,06,097/ - UNDER SECTION 271(1)(C) OF THE A CT . THE LD.CIT(A) CONFIRM ED THE PENALTY SO LEVIED BY THE AO FOR WHICH THE ASSESSEE I S IN APPEAL BEFORE THE TRIBUNAL. 5 . LD.C OUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE DURING THE COURSE OF SEARCH HAD OFFERED AN ADDITIONAL INCOME OF RS. 80 LAKH TO BE TAXED IN THE ASSESSMENT YEAR 2009 - 1 0 ON ACCOUNT OF UNACCOUNTED KATTHA BUSINESS . HE SUBMITTED THAT THE ASSESSMENT WAS FOR THE ASSESSMENT YEAR 2008 - 09 AND PROVISIONS OF SECTION 271 AAA OF THE ACT ARE APPLICABLE FROM THIS ITA 401/DEL/2017 A.Y. 2008 - 09 RAJ KATHA PRODUCTS P.LTD., DELHI 5 ASSESSMENT YEAR. SINCE THE AO IN THE INSTANT CASE HAS LEVIED P ENALTY UNDER UNDER SECTION 271(1)(C) OF THE A CT AND NOT UNDER SECTION 271 AAA THEREFORE THE PENALTY SO LEVIED BY THE AO AND UPHELD BY LD.CIT(A) IS NOT JUSTIFIED . 5 .1. R EFERRING TO THE DECISION OF DELHI A BENCH OF THE TRIBUNAL IN THE CASE OF SH. ASHWANI KUMAR ARORA VS. ACIT IN ITA NO.844/DEL/2014 FOR THE ASSESSMENT YEAR 2008 - 09 ORDER DT. 19 TH MAY, 2016 HE SUBMITTED THAT THE TRIBUNAL IN THE SAID DECISION HA S HELD THAT ON THE INCOME FOUND DURING THE COURSE OF SEARCH PENALTY U/S 271AAA OF THE ACT WILL BE APPLICABLE AND NO PENALTY U/S 271(1)(C ) OF THE ACT IS LEVIABLE. FURTHER WHEN THE ADDITION HAS BEEN MADE ON ESTIMATE BASIS WHICH HAS BEEN SUBSTANTIALLY REDUC ED BY THE LD.CIT(A) IN THE APPELLATE PROCEEDINGS, THEREFORE, LEVY OF PENALTY U/S 271(1)(C ) OF THE ACT IN THE INSTANT CASE IS ALSO NOT JUSTIFIED. FOR THE ABOVE PROPOSITION HE RELIED ON THE DECISION OF HON BLE DELHI HIGH COURT IN THE CASE OF PRINCIPAL CIT VS. FORTUNE TECHNOCOMPS P.LTD. VIDE ITA 313/2016 DATED 13 TH MAY, 2016. REFERRING TO THE SAID DECISION HE SUBMITTED THAT THE HON BLE DELHI HIGH COURT HAS HELD THAT ONCE THE ASSESSMENT ORDER OF THE AO IN THE QUANTUM PROCEEDINGS ITA 401/DEL/2017 A.Y. 2008 - 09 RAJ KATHA PRODUCTS P.LTD., DELHI 6 WAS ALTERED BY THE LD.CIT(A), IN A SIGNIFICANT WAY, THE VERY BASIS OF INITIATION OF PENALTY PROCEEDINGS WAS NONEXISTENT. FURTHER THE AO HAS RECORDED SATISFACTION U/S 271(1)(C ) OF THE ACT FOR FURNISHING OF INACCURATE PARTICULARS OF INCOME/CONCEALMENT OF INCOME. HOWEVER, THE DIRECTI ON IN THE ORDER WAS FOR FURNISHING INACCURATE PARTICULARS OF INCOME. THE SHOW CAUSE NOTICE ISSUED MENTIONS THE TWO DEFAULTS IN THE PRINTED NOTICE WHERE INAPPLICABLE CHARGES W ERE NOT STRUCK OFF. SINCE THE AO IS NOT CLEAR IN REACHING TO A SATISFACTION AB OUT THE NATURE OF DEFAULT ATTRIBUTABLE TO THE ASSESSEE AT ANY POINT OF TIME OF COMPLETING THE ASSESSMENT AS TO WHETHER THE DEFECT IS FOR FURNISHING OF INACCURATE PARTICULARS OF INCOME OR FOR CONCEALMENT OR BOTH , T HEREFORE , IN VIEW OF THE DECISION OF HON BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. MANJUNATHA COTTON AND GINNING FACTORY REPORTED IN 359 ITR 565 WHICH HAS BEEN APPROVED BY THE HON BLE APEX COURT IN THE CASE OF CIT VS. SSA S EMERALD MEADOWS VIDE CC NO.11845/16 DT. 23.11.2016, THE PENALTY CO NFIRMED BY THE LD.CIT(A) IS BAD IN LAW. HE ACCORDINGLY SUBMITTED THAT NO PENALTY U/S 271(1)(C ) OF THE ACT IS LEVIABLE. ITA 401/DEL/2017 A.Y. 2008 - 09 RAJ KATHA PRODUCTS P.LTD., DELHI 7 6 . THE LD.D.R. ON THE OTHER HAND WHILE SUPPORTING THE ORDER OF THE LD.CIT(A) RELIED ON THE DECISION OF HON BLE SUPREME COURT IN THE CASE OF MAXDATA LTD. REPORTED IN 358 ITR 593, THE DECISION S OF HON BLE DELHI HIGH COURT IN THE CASE OF CIT VS. ZOOM COMMUNICATIONS LTD. REPORTED IN 327 ITR 501 AND THE DECISION IN THE CASE OF CIT VS. ESCORTS FINANCE LTD. REPORTED IN 328 ITR 44. 7 . THE LD.COUNSEL FOR THE ASSESSEE IN HIS REJOINDER SUBMITTED THAT SINCE THE ASSESSEE HAS FULFILLED THE CONDITIONS PRESCRI BED U/S 271AAA OF THE ACT, TH EREFORE, NO PENALTY IS LEVIABLE U/S 271(1)(C ) OF THE ACT. 8 . I HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH SIDES, PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. I HAVE ALS O CONSIDERED THE VARIOUS DECISIONS CITED BEFORE ME. I FIND IN RESPONSE TO NOTICE U/S 153A OF THE ACT THE ASSESSEE HAD SUBMITTED THAT THE ORIGINAL RETURN FILED ON 30 TH SEPTEMBER, 2008 MAY BE TREATED AS RETURN IN RESPONSE TO NOTICE U/S 153A OF THE ACT. TH E AO COMPLETED ASSESSMENT ON A TOTAL INCOME OF RS.15,88,012/ - AFTER ALLOWING UNABSORBED DEPRECIATION OF RS.16,84,255/ - . OUT OF THE TWO ITA 401/DEL/2017 A.Y. 2008 - 09 RAJ KATHA PRODUCTS P.LTD., DELHI 8 ADDITIONS MADE BY THE AO THE MAJOR ADDITION OF RS.20,27,478/ - HA S BEEN DELETED BY THE LD.CIT(A) AND THE REVENUE IS NOT IN APPEAL. SO FAR AS ADDITION OF RS.9,26,640/ - ON ACCOUNT OF UNACCOUNTED PURCHASES OUTSIDE THE BOOKS OF ACCOUNTS IS CONCERNED, I FIND THE LD.CIT(A) HAS ALREADY G RANTED SUBSTANTIAL RELIEF OF RS.5,85,280/ - AND FOR THAT ALSO THE REVENUE IS NOT IN APPEAL. I F IND ON THE BASIS OF ADDITION SUSTAINED BY THE LD.CIT(A) OF RS.3,48,360/ - THE AO LEVIED PENALTY OF RS.1,06,097/ - U/S 271(1)(C ) OF THE ACT WHICH HAS BEEN CONFIRMED BY THE LD.CIT(A). 9. IT IS THE SUBMISSION OF THE LD.COUNSEL FOR THE ASSESSEE THAT SINCE SUBSTANTIAL AMOUNT HAS BEEN REDUCED BY THE LD.CIT(A) AND THE ADDITION IS ON ESTIMATION BASIS, THEREFORE, NO PENALTY U/S 271(1)(C ) OF THE ACT IS LEVIABLE. IT IS ALSO HIS SUBMISSION THAT WHEN THE PROVISIONS OF S.271AAA OF THE ACT ARE APPLICABLE THE AO SHOUL D NOT HAVE LEVIED PENALTY U/S 271(1)(C ) OF THE ACT. IN YET ANOTHER ALTERNATE CONTENTION IT IS THE SUBMISSION OF THE LD.COUNSEL FOR THE ASSESSEE THAT THE INAPPLICABLE PORTION OF THE NOTICE ISSUED U/S 274 OF THE ACT WAS NOT STRUCK OFF AND THEREFORE IN VIEW OF THE DECISION OF HON BLE KARNATAKA HIGH COURT IN THE ITA 401/DEL/2017 A.Y. 2008 - 09 RAJ KATHA PRODUCTS P.LTD., DELHI 9 CASE OF CIT VS. MANJUNATHA COTTON AND GINNING FACTORY (SUPRA) THE PENALTY CONFIRMED BY THE LD.CIT(A) HAS TO BE DELETED. 10. I FIND MERIT IN THE ARGUMENTS OF THE LD.COUNSEL FOR THE ASSESSEE. I T IS AN ADMITTED FACT THAT THE ADDITION OF RS.9,26,640/ - MADE BY THE AO ON ACCOUNT OF UNACCOUNTED PURCHASES OUTSIDE THE BOOKS OF ACCOUNTS HAS BEEN REDUCED SUBSTANTIALLY BY THE LD.CIT(A). THUS THE ORDER IN THE QUANTUM PROCEEDINGS HAS BEEN ALTERED BY THE LD.CI T(A) IN A SIGNIFICANT WAY . T HEREFORE, IN VIEW OF THE DECISION OF HON BLE DELHI HIGH COURT IN THE CASE OF PRINCIPAL CIT VS. FORTUNE TECHNOCOMPS P.LTD.(SUPRA), THE VERY BASIS OF INITIATION OF PENALTY PROCEEDINGS HAS BEEN RENDERED AS NONEXISTENT. THE RELEV ANT OBSERVATION OF THE HON BLE HIGH COURT AT PARA 7 READ S AS UNDER. 7. HAVING EXAMINED THE IMPUGNED ORDER OF THE ITAT AND HAVING CONSIDERED THE SUBMISSIONS OF THE LD.COUNSEL FOR THE REVENUE, THE COURT IS UNABLE TO DISCERN ANY LEGAL INFIRMITY IN THE ANALYSIS OR CONCLUSION REACHED BY THE ITAT. ONCE THE ASSESSMENT ORDER OF THE AO IN THE QUANTUM PR OCEEDINGS WAS ALTERED BY THE CIT(A) IN A SIGNIFICANT WAY, THE VERY BASIS OF INITIATION OF THE PENALTY PROCEEDINGS WAS RENDERED NON - EXISTENT. THE AO COULD NOT HAVE ITA 401/DEL/2017 A.Y. 2008 - 09 RAJ KATHA PRODUCTS P.LTD., DELHI 10 THEREAFTER CONTINUED THE PENALTY PROCEEDINGS ON THE BASIS OF THE SAME NOTICE. ALSO, THE COU RT CONCURS WITH THE CIT(A) AND THE ITAT THAT ONCE THE FINDING OF THE AO ON BOGUS PURCHASES WAS SET ASIDE, IT COULD NOT BE SAID THAT THERE WAS ANY CONCEALMENT OF FACTS OR FURNISHING OF INACCURATE PARTICULARS BY THE ASSESSEE THAT WARRANTED THE IMPOSITION OF PENALTY U/S 271(1)(C ) OF THE ACT. 10.1. I FURTHER FIND THE SEARCH IN THE INSTANT CASE TOOK PLACE ON 30.06.2009. PROVISION OF SECTION 271AAA SPEAKS OF PENALTY LEVIABLE IN CASE OF SEARCHES CONDUCTED ON OR AFTER 1.6.2007 BUT BEFORE 1.7.2012. THUS PENALT Y SHOULD HAVE BEEN LEVIED U/S 271AAA AND NOT U/S 271(1)(C) OF THE ACT. 10.2 . SINCE THE PENALTY HAS BEEN LEVIED U/S 271(1)(C) INSTEAD OF S.271AAA AND C ONSIDERING THE FACT THAT THE LD.CIT(A) IN THE INSTANT CASE IN THE QUANTUM PROCEEDINGS HAS ALTERED THE ASSESSMENT ORDER IN A SIGNIFICANT WAY, THEREFORE, IN VIEW OF THE DECISION CITED (SUPRA) , THE VERY BASIS OF INITIATION OF PENALTY PROCEEDINGS HAS TO BE TRE ATED AS NONEXISTENT. I, THEREFORE, SET ASIDE THE ORDER OF THE LD.CIT(A) AND DIRECT THE AO TO CANCEL THE PENALTY. THE GROUNDS RAISED BY THE ASSESSEE ARE ACCORDINGLY ALLOWED. ITA 401/DEL/2017 A.Y. 2008 - 09 RAJ KATHA PRODUCTS P.LTD., DELHI 11 1 1 . IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 12 .0 7 .2017. SD/ - (R.K.PANDA) ACCOUNTANT MEMBER DATE: - THE 12 TH JULY, 2017 * MANGA COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(APPEALS) 5 . DR: ITAT ASST. REGISTRAR ITAT N EW DELHI