The ACIT, Circle-1., Rajahmundry V. M/s Prasad Engineering Company, Rajahmundry

ITA 410/VIZ/2007

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 2678 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 3 year(s) 1 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 04-10-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 27-09-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D S SUNDER SINGH
• Keywords: Depreciation; Search and seizure
• Section: 144

Judgement Text

ITA NO.410/VIZAG/2007 PRASAD ENGINEERING COMPANY, R JY - VIZAG PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO.410/VIZAG/2007 ASSESSMENT YEAR:2003-04 ACIT CIRCLE-1 RAJAHMUNDRY VS. M/S. PRASAD ENGINEERING COMPANY RAJAHMUNDRY (APPELLANT) (RESPONDENT) GIR NO.P-345 APPELLANT BY: SHRI D.S. SUNDER SINGH, DR RESPONDENT BY: SHRI G.V.N. HARI, CA ORDER PER SHRI B. R. BASKARAN, ACCOUNTANT MEMBER: THE APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF LD. CIT(A), RAJAHMUNDRY DELETING THE PENALTY LEVIED UNDER SECTI ON 271(1)(C) OF THE ACT FOR THE ASSESSMENT YEAR 2003-04. 2. THE FACTS THAT LEAD TO THE LEVY OF PENALTY IN TH E HANDS OF THE ASSESSEE HEREIN, UNDER SECTION 271(1)(C) OF THE ACT ARE STATED IN BRIEF. THE ASSESSEE IS A PARTNERSHIP FIRM AND IS ENGAGED IN TH E BUSINESS OF EXECUTION OF CIVIL CONTRACT WORKS. IT FILED ITS RETURN OF INC OME FOR THE YEAR UNDER CONSIDERATION ADMITTING A TOTAL INCOME OF RS.1,94,2 60/-. THE CASE WAS SELECTED FOR SCRUTINY. THE STATUTORY NOTICE WHICH IS REQUIRED TO BE SENT TO THE ASSESSEE UNDER SECTION 143(2) OF THE ACT WAS SE RVED UPON THE AUDITOR OF THE ASSESSEE AND THERE AFTER SOME MORE NOTICES W ERE ALSO SENT BY THE ASSESSING OFFICER, WHICH WERE SERVED UPON THE AUDIT OR AND FINALLY ONE NOTICE WAS SENT TO THE MANAGING PARTNER OF THE ASSE SSEE ON 14.9.2005. THE ASSESSEE FILED CERTAIN DETAILS THEREAFTER, BUT DID NOT PRODUCE THE BOOKS OF ACCOUNT BEFORE THE ASSESSING OFFICER. HENCE THE ASSESSING OFFICER ITA NO.410/VIZAG/2007 PRASAD ENGINEERING COMPANY, R JY - VIZAG PAGE 2 OF 6 PROCEEDED TO COMPLETE THE ASSESSMENT TO THE BEST OF HIS JUDGMENT UNDER SECTION 144 OF THE ACT BY ESTIMATING THE INCOME OF THE ASSESSEE AT 12.5% OF THE GROSS CONTRACT RECEIPTS BEFORE DEPRECIATION. THE ASSESSEE WAS CHALLENGED BEFORE THE APPELLATE AUTHORITIES AND IN THE SECOND APPEAL FILED BY THE ASSESSEE; THE TRIBUNAL REDUCED THE ESTIMATE TO 10%. IN THE MEAN TIME THE ASSESSING OFFICER INITIATED THE PENALTY PR OCEEDINGS AND LEVIED A MINIMUM PENALTY OF RS.10,03,233/-. THE ASSESSEE CH ALLENGED THE PENALTY BEFORE THE LEARNED CIT(A), WHO DELETED THE SAME. H ENCE THE REVENUE IS IN APPEAL BEFORE US. 3. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBM ITTED THAT THE ASSESSEE DID NOT CO-OPERATE WITH THE ASSESSING OFFI CER DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND HENCE THE ASSESSING OFFI CER WAS CONSTRAINED TO ESTIMATE THE INCOME OF THE ASSESSEE AT 12.5% OF THE GROSS CONTRACT RECEIPTS, WHICH WAS HIGHER THAN THE INCOME ADMITTED BY THE ASSESSEE. AS PER LAW, THE DIFFERENCE BETWEEN THE ASSESSED INCOME AND THE RETURNED INCOME HAS TO BE TREATED AS CONCEALMENT OF INCOME A ND ACCORDINGLY THE ASSESSING OFFICER HAS RIGHTLY LEVIED THE PENALTY BY PLACING RELIANCE ON THE FOLLOWING CASE LAW.: A. CIT VS. BALAKRISHNA TEXTILES (MAD) (193 ITR 361 ) B.CIT VS. S.KRISHNASWAMY (MAD) (219 ITR 157) HE FURTHER SUBMITTED THAT THE PENALTY CAN BE LEVIED ON THE ADDITIONS MADE ON ESTIMATE ALSO AND IN THAT REGARD, HE RELIED UPON THE FOLLOWING CASE LAW. A. ADDL. CIT VS. CHANDRAKANTHA AND ANOTHER (MP)(20 5 ITR 607) B. SUSHIL KUMAR SHARAD KUMAR VS. CIT (ALL) (232 IT R 588) C. A. M. SHAH & CO. VS. CIT (GUJ) (238 ITR 415) D. CIT VS. KRISHNASWAMY AND SONS (MAD) (219 ITR 15 7) E. CIT VS. CHANDRA VILAS HOTEL (GUJ) (291 ITR 202) F. VIDYA SHANKAR DIXIT VS. CIT (ALL) (277 ITR 285) 4. THE LEARNED AUTHORISED REPRESENTATIVE SUBMIT TED THAT THE ASSESSEE FIRM WAS CLOSED IN THE SUCCEEDING YEAR AND THE PART NERS HAD SHIFTED THEIR PLACE BY THE TIME THE NOTICES OF ASSESSMENT WERE IS SUED. THE MANAGING ITA NO.410/VIZAG/2007 PRASAD ENGINEERING COMPANY, R JY - VIZAG PAGE 3 OF 6 PARTNER OF THE ASSESSEE FIRM HAD SHIFTED TO THE HYD ERABAD. HENCE THE PARTNERS WERE NOT AWARE OF THE NOTICES ISSUED BY TH E ASSESSING OFFICER. HE FURTHER STATED THAT THE STATUTORY NOTICE TO BE ISSU ED UNDER SECTION 143(2) WAS ISSUED ONLY ON THE AUDITOR OF THE ASSESSEE AND NOT UPON THE ASSESSEE. HE FURTHER SUBMITTED THAT THE ASSESSEE HAD MAINTAIN ED REGULAR BOOKS OF ACCOUNT, GOT IT AUDITED AND FILED TAX AUDIT REPORT ALONG WITH RETURN OF INCOME. IN THIS REGARD, THE ASSESSEE HAS ALSO FURN ISHED PROPER EXPLANATION TO THE ASSESSING OFFICER DURING THE COURSE OF PENAL TY PROCEEDINGS AND THE SAID EXPLANATION OF THE ASSESSEE WAS NOT FOUND TO B E FALSE. THUS THE ASSESSEE HAS DISCHARGED THE PRIMARY ONUS PLACED UPO N IT UNDER THE EXPLANATION TO SEC. 271. WITH REGARD TO THE CASE L AW RELIED UPON BY THE ASSESSING OFFICER, THE LEARNED AUTHORISED REPRESENT ATIVE SUBMITTED THAT THE LEARNED CIT(A) HAS ACCEPTED THE FACT THAT THEY ARE DISTINGUISHABLE AND HENCE DO NOT APPLY TO THE FACTS OF THE INSTANT CASE . THE LEARNED AUTHORISED REPRESENTATIVE PLACED HIS RELIANCE ON THE FOLLOWING CASE LAW IN SUPPORT OF THE ORDER PASSED BY LEARNED CIT(A). A. CIT VS. AERO TRADERS (P) LTD. (2010)(231 CTR (D EL) 524) B. CIT VS. VIJAY KUMAR JAIN (2010)(232 CTR (CHHATT ISGARH) 255) C. ITAT ORDER DT.27.2.2009 IN THE CASE OF M/S EAS T COAST INSULATIONS D. CIT VS. RELIANCE PETRO PRODUCTS LTD. (2010)(36D TR(S.C)(499) 5. IN THE REJOINDER THE LEARNED D.R SUBMITTED THAT THE CASE LAW RELIED UPON BY THE LEARNED A.R ARE DISTINGUISHABLE AND DO NO AP PLY TO THE FACTS OF THE INSTANT CASE. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND CARE FULLY PERUSED THE RECORD. THERE IS NO DISPUTE WITH REGARD TO THE SETTLED POSI TION OF LAW THAT THE EXPLANATION 1 TO SEC. 271 PLACES A REBUTTABLE PRESU MPTION TO THE EXTENT OF THE AMOUNT ADDED OR DISALLOWED IN COMPUTING THE TOT AL INCOME OF AN ASSESSEE. THUS IF THE ASSESSED INCOME EXCEEDS THE RETURNED INCOME, TO THE EXTENT OF THE DIFFERENCE, THE CONCEALMENT CAN BE AS SUMED. THE CASE LAW RELIED UPON BY LEARNED D.R ARE VERY MUCH ON THIS KI ND OF PROPOSITIONS ONLY ITA NO.410/VIZAG/2007 PRASAD ENGINEERING COMPANY, R JY - VIZAG PAGE 4 OF 6 AND THE HON'BLE SUPREME COURT HAS ALSO CONFIRMED TH E SAID POSITION OF LAW IN THE CASE OF K.P.MADHUSUDHANAN V CIT (251 ITR 99) . IN ANY CASE, THE QUESTION OF CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS WOULD DEPEND UPON THE FACTS OF EACH CASE, WHICH HAV E BEEN DECIDED BY DULY CONSIDERING THE FACTS AND APPLICABLE LEGAL POS ITION. 7. COMING TO THE FACTS OF THE CASE, WE NOTICE T HAT THE ASSESSING OFFICER HAS ESTIMATED THE INCOME AT 12.5% OF THE GROSS CONT RACT RECEIPTS, SINCE THERE WAS FAILURE ON THE PART OF THE ASSESSEE TO PR ODUCE THE BOOKS OF ACCOUNT. IN THE PENALTY PROCEEDINGS, THE ASSESSEE HAS EXPLAINED THE REASONS FOR ITS FAILURE TO PRODUCE THE BOOKS OF ACC OUNT, WHICH WERE STATED DURING THE COURSE OF ARGUMENT BY LEARNED AUTHORISED REPRESENTATIVE,VIZ., THE CLOSURE OF BUSINESS, DISLOCATION OF PARTNERS, L OGISTIC PROBLEMS ETC. HENCE, THE LEARNED CIT(A) HAS POINTED OUT THAT THE NON-COOPERATION ON THE PART OF THE ASSESSEE WOULD ALONE WILL NOT LEAD TO T HE CONCLUSION THAT THERE WAS CONCEALMENT OF INCOME. 8. IT IS NOW A WELL SETTLED PROPOSITION THAT A FINDING IN THE ASSESSMENT PROCEEDING CONSTITUTES A GOOD EVIDENCE IN THE PENAL TY PROCEEDING. HOWEVER THE AUTHORITIES, DURING THE COURSE OF PENAL TY PROCEEDING, HAVE TO CONSIDER THE MATTER AFRESH, SINCE THE QUESTION OF C ONCEALMENT HAS TO BE CONSIDERED IN A DIFFERENT ANGLE. THUS, IN OUR VIEW , THE LEVY OF PENALTY IS NOT AUTOMATIC ON COMPLETION OF THE ASSESSMENT AND THE S AME HAS TO BE DECIDED AFRESH AFTER MAKING REAPPRAISAL OF THE FACTS IN ACC ORDANCE WITH SECTION 271 OF THE ACT. 9. AS POINTED OUT BY THE LEARNED AUTHORISED RE PRESENTATIVE, THE DECISIONS RELIED UPON BY THE ASSESSING OFFICER ARE DISTINGUISHABLE. IN THIS CONNECTION, WE EXTRACT BELOW THE OBSERVATIONS OF LE ARNED CIT(A) ON THIS POINT. THE FACTS AND CIRCUMSTANCES IN THE CASE LAWS RELIE D UPON BY THE ASSESSING OFFICER BEING CIT VS. BALAKRI SHNA ITA NO.410/VIZAG/2007 PRASAD ENGINEERING COMPANY, R JY - VIZAG PAGE 5 OF 6 TEXTILES (193 ITR 361) AND CIT VS. KRISHNASWAMY & S ONS (219 ITR 157) ARE THAT CONSEQUENT TO SEARCH & SEIZU RE OPERATIONS IN BOTH THE CASES CERTAIN SPECIFIC OMISSIONS/SUPPRESSIONS CAME TO LIGHT WHICH BECAME T HE BASIS FOR REJECTION OF THE INCOME SHOWN BY THE RESP ECTIVE ASSESSEES AND ENTAILING ESTIMATION OF HIGHER INCOME . THE SAID CASES INVOLVED CLEAR DETECTION OF CONCEALM ENT OF INCOME CONSEQUENT TO RAIDS AND THEREAFTER ESTIMATIO N OF INCOME, AS DISTINGUISHED FROM THE CASES WHERE THE B OOKS RESULTS ARE REJECTED ON ACCOUNT OF THE SOME APPAREN T DISCREPANCIES AND IRREGULARITIES AND THEREAFTER INC OME ESTIMATED AND THAT IN THE CASE OF THE APPELLANT WHE RE THE APPELLANT DID NOT PRODUCE THE BOOKS OF ACCOUNTS FOR VERIFICATION, THEREBY PROMPTING THE ASSESSING OFFIC ER TO REJECT THE BOOK RESULTS AND ESTIMATE THE INCOME AT A HIGHER PERCENTAGE. THUS THE CASE OF THE ASSESSEE IS NOT THAT OF DETECT ION OF ANY CONCEALMENT OF THE INCOME. IT IS ALSO NOT A CASE THAT THE BOOKS R ESULTS WERE REJECTED ON ACCOUNT OF DEFICIENCIES THEREIN. THE ASSESSING OFF ICER HAS PROCEEDED TO ESTIMATE THE INCOME SINCE THE ASSESSEE DID NOT PROD UCE THE BOOKS OF ACCOUNT. THUS THE ASSESSING OFFICER HAS NOT BROUGH T OUT ANY MATERIAL ESTABLISHING SPECIFIC CONCEALMENT OF INCOME. 10. NOW THE NEXT QUESTION THAT ARISES IS WHETHER THERE IS ANY DEEMED CONCEALMENT AS STATED IN EXPLANATION 1 TO SECTION 2 71 OF THE ACT. IN OUR VIEW, THE LEARNED CIT(A) HAS ADDRESSED THIS QUESTIO N ALSO IN ACCORDANCE WITH LAW AND HIS OBSERVATIONS IN THIS REGARD ARE EX TRACTED BELOW: THEREFORE, THE ESSENTIAL INGREDIENTS IN THE CITED CASE LAWS BEING, THE DETECTION OF SPECIFIC CONCEALED INC OME THAT FORMED THE BASIS FOR ESTIMATION OF HIGHER INCO ME IN SUCH CASES, CANNOT BE SAID TO EXIST IN THE APPELLAN TS CASEAS REGARDS THE APPLICABILITY OF THE REBUTTAB LE PRESUMPTION OF CONCEALMENT WITH REFERENCE TO THE DIFFERENTIAL INCOME BETWEEN THAT RETURNED BY THE APPELLANT AND THAT ESTIMATED BY THE ASSESSING OFFIC ER, IT MAY BE STATED THAT IN THE APPELLANTS CASE, SUCH PRESUMPTION HAS BEEN REBUTTED IN AS MUCH AS, EXCEPT FOR NOT PRODUCING THE BOOKS OF ACCOUNTS AND SOME INFORMATION CALLED FOR BY THE ASSESSING OFFICER, TH E MATERIAL FACTS RELATING TO THE ACCOUNTS OF THE APPE LLANT STOOD DISCLOSED AS CONTAINED IN THE TAX AUDIT REPOR T AND ITA NO.410/VIZAG/2007 PRASAD ENGINEERING COMPANY, R JY - VIZAG PAGE 6 OF 6 ACCORDINGLY THE EXPLANATION OF THE APPELLANT DURING THE CONCEALMENT PENALTY PROCEEDINGS TO THE EFFECT THAT THE CONTENTS OF THE TAX AUDIT REPORT CONSEQUENT TO THE EXAMINATION OF ITS ELEMENTARY BOOKS OF ACCOUNTS BY THE AUDITORS AND NOT SPECIFICALLY POINTING OUT ANY OMIS SION OR CONCEALMENT OF INCOME UNDER ANY HEAD CONSTITUTE ENOUGH EVIDENCE, CAN BE SAID TO BE A BONAFIDE EXPLANATION THEREBY SETTING THE APPELLANT FREE FROM ANY PRESUMPTION OF CONCEALMENT UNDER THE SAID EXPLANATI ON. 11. IN VIEW OF THE FOREGOING DISCUSSIONS, WE ARE OF THE CONSIDERED VIEW THAT THE PENALTY UNDER SECTION 271(1)(C) IS NOT LEV IABLE IN THE HANDS OF THE ASSESSEE AND ACCORDINGLY WE UPHOLD THE ORDER OF LEA RNED CIT(A). 12. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. PRONOUNCED IN THE OPEN COURT ON 18 TH NOVEMBER, 2010. SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM, DATE:18-11-2010 COPY TO 1 THE ACIT, CIRCLE-1, RAJAHMUNDRY 2 M/S. PRASAD ENGINEERING COMPANY, D.NO.24-13-9, R. V. NAGAR, RAJAHMUNDRY 3 4 THE CIT, RAJAHMUNDRY THE CIT(A), RAJAHMUNDRY 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM