Perfect Security Services, Ahmedabad V. The Dy.CIT., Circle-2, Ahmedabad

ITA 420/AHD/2009

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 1800 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-03-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 17-03-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 09-02-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Additional evidence; Bad and doubtful debts
• Section: 139

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE S/SHRI BHAVNESH SAINI, JM AND D.C.AGRAWAL, A M PERFECT SECURITY SERVICES, PROP. SHYOURAJSINGH B. CHAUHAN, 240, 2 ND FLOOR, SARVODAYA COMMERCIAL CENTRE, SALAPOSE ROAD, NEAR GPO, AHMEDABAD. VS. DY. CIT, CIRCLE-2, AHMEDABAD. APPELLANT RESPONDENT APPELLANT BY :- SHRI SAKAR SHARMA, AR RESPONDENT BY:- SHRI MUDIT NAGPAL, SR.DR O R D E R PER D.C. AGRAWAL, ACCOUNTANT MEMBER . THIS IS AN APPEAL FILED BY THE ASSESSEE RAISING FO LLOWING GROUND :- (1) THE LD. CIT(A) ERRED IN LAW AND ON FACTS OF THE CAS E IN UPHOLDING THE ACTION OF THE AO IN LEVY OF PENALTY U /S 271(1)(C) ON RS.4,53,986/- ADDED BY APPLYING ESTIMATED RATE O F PROFIT. 2. THE ONLY ISSUE INVOLVED IN THIS APPEAL IS LEVY O F PENALTY UNDER SECTION 271(1)(C) ON ADDITION OF RS.4,53,986/-. 3. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROVI DING SECURITY PERSONNEL TO VARIOUS ORGANIZATIONS IN PRIVATE AND P UBLIC SECTOR. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO EXAMINE D THE BONUS REGISTER AND FOUND VARIOUS DEFECTS SUCH AS, LACK OF RESIDENT IAL ADDRESSES OF THE PERSONNEL, THEIR SIGNATURES AND LACK OF REVENUE STA MP ON THE PAYMENT, WRITING OF THE REGISTER APPARENTLY IN ONE SITTING A ND HENCE MAKING IT DIFFICULT TO VERIFY THE PAYMENT. HE ALSO FOUND BAD DEBT WRITTEN OFF BUT NOT ITA NO.420/AHD/2009 ASST. YEAR 2003-04 ITA NO.420/AHD/2009 ASST. YEAR 2003-04 2 PROVED. THERE WAS CLAIM OF EXPENDITURE WHICH WAS PA RTLY CONSIDERED BOGUS. THE ASSESSEE HAD MOVED A PETITION BEFORE THE SETTLEMENT COMMISSION FOR ASST. YEAR 1999-2000 TO 2001-02 WHER EIN INCOME WAS ESTIMATED AT 7% AS AGAINST 2% DECLARED BY THE ASSES SEE. IN ASST. YEAR 2002-03 BUSINESS INCOME WAS ESTIMATED @ 10% OF THE GROSS RECEIPT. IN ASST. YEAR 2003-04 AO ALSO ESTIMATED BUSINESS INCOM E AT RS.3496919/- @ 10% OF THE GROSS RECEIPT. HE ALSO INITIATED PENAL TY PROCEEDINGS. IN PENALTY PROCEEDINGS THE AO LEVIED PENALTY OF RS.4,5 5,172/- BEING 100% OF THE TAX SOUGHT TO BE EVADED IN RESPECT OF THE AD DITION MADE. THE LD. CIT(A) DELETED THE PENALTY IN RESPECT OF BAD DEBTS. 4. BEFORE US, THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THE TRIBUNAL HAS DELETED THE QUANTUM ADDITION BY DIRECTING TO AC CEPT THE TAX AS UNDER :- 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND TH E MATERIAL AVAILABLE ON RECORD. IT IS ADMITTED FACT THAT SURVE Y WAS CONDUCTED IN THE PRECEDING ASSESSMENT YEAR. NO SURVEY WAS CONDUC TED IN THE ASSESSMENT YEAR UNDER APPEAL. THEREFORE, THE DEFECT S FOUND DURING THE COURSE OF SURVEY AND STATEMENT RECORDED IN EARLIER YEARS CANNOT BE THE BASIS FOR REJECTION OF THE BOOK RESULTS OF THE ASSE SSEE IN THE ASSESSMENT YEAR UNDER APPEAL. THE ASSESSEE MAINTAIN ED PROPER BOOKS OF ACCOUNT WHICH WERE ALSO AUDITED AND THE ASSESSEE PRODUCED ALL THE DETAILS AND LEDGER OF VARIOUS PARITIES INCLUDING BO NUS REGISTER AND DETAILS OF THE BAD DEBTS. THE LEARNED COUNSEL FOR T HE ASSESSEE EXPLAINED THAT BONUS REGISTER WAS CONSOLIDATED FOR SEVERAL SECURITY PROVIDED TO DIFFERENT ORGANIZATIONS IN WHICH ALSO N O SPECIFIC DEFECT HAS BEEN POINTED OUT BY THE AO. CONSIDERING THE HISTORY OF THE ASSESSEE AS NOTED BY THE AO AT PAGE 4 OF THE ASSESSMENT ORDER I T IS CLEAR THAT THE ASSESSEE HAS MORE OR LESS SHOWN BETTER RESULTS IN T HE BOOKS OF ACCOUNT AS COMPARED TO THE PRECEDING ASSESSMENT YEA RS 2000-01 AND 2001-02. SINCE THE BOOK RESULTS CANNOT BE REJECTED ON THE BASIS OF THE FINDINGS GIVEN IN THE EARLIER YEARS, THEREFORE, THE AO SHOULD HAVE APPLIED MIND INDEPENDENTLY IN ORDER TO MAKE OUT A C ASE OF REJECTION OF BOOK RESULTS IN THE ASSESSMENT YEAR UNDER APPEAL. T HE DEFECTS NOTED IN THE BONUS REGISTER REGARDING SAME PAN USED BY SA ME PERSON FOR MAKING THE ENTRIES ARE INSIGNIFICANT OBSERVATIONS W HICH WOULD NOT MAKE OUT A CASE OF REJECTION OF WHOLE OF THE BOOKS OF ACCOUNT OF THE ASSESSEE. THE AO HAS NOT POINTED OUT AS TO WHICH BO NUS HAS BEEN CLAIMED WITHOUT ANY JUSTIFICATION. THE AO HAS ALSO NOT MADE OUT ANY CASE AS TO WHICH OF THE BONUS PAYMENT WAS NOT CONNE CTED WITH THE ITA NO.420/AHD/2009 ASST. YEAR 2003-04 3 BUSINESS ACTIVITIES OF THE ASSESSEE. THE AO HAS MEN TIONED IN THE ASSESSMENT ORDER THAT THE ASSESSEE FURNISHED XEROX COPY OF THE BONUS PAYMENT REGISTER OF VARIOUS PARTIES FOR MAKING CLAI M FOR BONUS EXPENDITURE. THE AO INSTEAD OF POINTING OUT ANY SPE CIFIC DEFECT IN THE PAYMENTS REJECTED THE WHOLE OF THE BOOK RESULTS OF THE ASSESSEE. CONSIDERING THE ABOVE FACTS AND CIRCUMSTANCES AND T HE FACT THAT NO SPECIFIC DEFECT HAS BEEN POINTED OUT IN THE BOOKS O F ACCOUNT OF THE ASSESSEE, WE DO NOT FIND IT TO BE A FIT CASE FOR RE JECTION OF THE BOOK RESULTS MERELY ON THE BASIS OF FACTS FOUND DURING T HE COURSE OF SURVEY IN THE PREVIOUS YEARS. AS REGARDS BAD DEBTS, THE AO COULD HAVE DISALLOWED CLAIM OF THE ASSESSEE SEPARATELY BUT SUC H CANNOT BE THE REASON FOR REJECTION OF THE BOOK RESULTS AGAINST TH E ASSESSEE. SIMILARLY, IF ANY BOGUS PAYMENT WOULD HAVE BEEN FOUND IT WOULD HAVE BEEN DISALLOWED SEPARATELY, BUT THE AO HAS NOT IDENTIFIE D WHICH OF THE BONUS PAYMENTS WERE UNJUSTIFIED OR NOT CONNECTED WI TH THE BUSINESS ACTIVITIES OF THE ASSESSEE. WE ACCORDINGLY, HOLD TH AT THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN REJECTING THE BOOK RESU LTS OF THE ASSESSEE AND APPLYING HIGHER PROFIT RATE IN THE MATTER. WE A CCORDINGLY, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DIRECT THE AO TO ACCEPT THE BOOK RESULTS DECLARED BY THE ASSESSEE. AS A RESULT, GROUNDS NO.1 AND 2 OF THE APPEAL OF THE ASSESSEE ARE ALLOWED. HE SUBMITTED THAT ONCE ADDITION DOES NOT SURVIVE TH E QUESTION OF LEVYING PENALTY UNDER SECTION 271(1)(C) DOES NOT ARISE. 5. THE LD. DR ON THE OTHER HAND SUPPORTED THE ORDER OF AO. 6. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE MATERIAL ON RECORD, WE DIRECT TO CANCEL THE PENALTY BECAUSE ADDITION WHICH FORMED THE BASIS OF LEVY OF PENALTY WAS DELETED BY THE TRI BUNAL. SIMILAR ISSUE CAME UP BEFORE THE TRIBUNAL IN THE CASE OF DY CIT, BHARUCH CIRCLE VS. DR.I.A. KHAN, PROP. OF ZAIN BURNS CENTRE IN ITA NO.1477/AHD/2010 ASST. YEAR 2006-07 WHEREIN THE ISS UE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE. THE OBSERVA TIONS OF THE TRIBUNAL ARE AS UNDER :- 9. FURTHER CLAUSE (C) TO SECTION 271(1) MENTIONS AS CONCEALED..OR FURNISHED. THEY ARE PAST TENSE WOR DS INDICATING THAT ASSESSEE HAS COMMITTED CERTAIN ACT ON WHICH PENALTY IS LEVIABLE. THUS THE ITA NO.420/AHD/2009 ASST. YEAR 2003-04 4 ACT OF CONCEALMENT OR FURNISHING OF INACCURATE PART ICULARS SHOULD BE VIEWED BY THE AO AS DONE WITH RESPECT TO RETURN OF INCOME. THE OMISSION OR COMMISSION OR CONTUMACIOUS CONDUCT HAS TO BE VIE WED FROM THE RETURN OF INCOME AND IF CERTAIN THING IS NOT DISCLOSED OR NOT FURNISHED THEREIN ONLY THEN IT CAN BE SAID THAT ASSESSEE HAS CONCEALE D THE PARTICULARS OF INCOME OR FURNISHED INACCURATE PARTICULARS OF INCOM E. PRIOR TO THIS ASSESSEE HAS NOT DONE ANY CONTUMACIOUS CONDUCT ON W HICH PENALTY CAN BE LEVIED. MERELY BECAUSE CERTAIN RECEIPTS ARE NOT REC ORDED IN THE BOOKS OF ACCOUNT OR RECEIPTS ARE NOT ISSUED TO THE PATIENTS, BUT INCOME THEREFROM WAS FINALLY DECLARED IN THE RETURN OF INCOME, THEN THERE IS NO CONTUMACIOUS CONDUCT. FOR NOT MAINTAINING BOOKS OF ACCOUNT OR NOT ISSUING RECEIPTS TO THE PATIENTS FOR THE AMOUNT REC EIVED BY THE ASSESSEE, THE BOOKS, AT THE BEST, CAN BE REJECTED BY INVOKING PROVISIONS OF SECTION 145(3) AND INCOME CAN BE ESTIMATED IN ACCORDANCE WI TH SECTION 144. BUT WHERE THE AO ACCEPTS THE INCOME DECLARED IN THE RET URN OF INCOME THEN ASSESSEE CANNOT BE CHARGED FOR ANY CONTUMACIOUS CON DUCT. THERE ARE IN FACT SEVERAL JUDGMENTS ACCORDING TO WHICH PENALTY I S NOT LEVIABLE IF ADDITION IS DELETED. HON. PUNJAB & HARYANA HIGH COU RT IN CIT VS. PRAKASH INDUSTRIES LTD. (2010) 322 ITR 622 (P & H) HELD THAT BASIS FOR LEVY OF PENALTY IS RETURNED INCOME. IF ADDITIONS AR E DELETED IN QUANTUM PROCEEDINGS PENALTY COULD NOT BE IMPOSED. THE HON. HIGH COURT HAS HELD AS UNDER :- A SEARCH SHOWED THAT THE ASSESSEE HAD RECEIVED AMO UNT OF RS.3.5 CRORES FROM THE BANK ACCOUNT OF S. FARIDABAD. IT WAS OBSERVED THAT THE FIRM WAS A BOGUS FIRM AND THE CLAIM OF THE ASSESSEE THAT THE AMOUNT WAS RECEIVED TOWARDS CONSIDERATION FOR SALE OF MATERIAL, WAS NOT ACCEPTED. HENCE, ADDITION WAS MAD E TO THE DECLARED INCOME. FURTHER ADDITIONS WERE MADE BY HOLDING THAT LEASE R ENT SHOWN TO HAVE BEEN PAID BY THE ASSESSEE HAD NOT BEEN IN FACT BEEN PAID AND THE CLAIM FOR DEPRECIATION COULD NOT BE ALLOWED AS THE MACHINERY WAS NOT IN THE POSSESSI ON OF THE ASSESSEE DURING PHYSICAL VERIFICATION. THE COMMISSIONER (APPEALS) UPHELD THE ADDITION IN RESPECT OF RECEIPTS SHOWN TO HAVE BEEN MADE FROM S BUT DELETED THE ADDI TION TOWARDS LEASE RENT AND DEPRECIATION ALLOWANCE, TAKING INTO ACCOUNT ADDITIO NAL EVIDENCE LED BY THE ASSESSEE. ON FURTHER APPEAL, THE TRIBUNAL UPHELD THE PLEA OF THE ASSESSEE IN RESPECT OF AMOUNT RECEIVED FROM S BUT DISMISSED THE APPEAL OF THE REV ENUE IN RESPECT OF DELETIONS IN RESPECT OF LEASE RENT AND DEPRECIATION ALLOWANCE. T HE TRIBUNAL CANCELLED THE PENALTY LEVIED UNDER SECTION 271(1)(C) OF THE INCOME-TAX AC T, 1961. ON APPEAL TO THE HIGH COURT: HELD, DISMISSING THE APPEAL, THAT AS REGARDS THE DE LETION BY THE COMMISSIONER (APPEALS) AFTER REFERRING TO THE ADDITIONAL EVIDENC E LED BEFORE HIM, THE TRIBUNAL HAD EXAMINED THE MATTER AND RECORDED THAT A REMAND REPO RT WAS DULY SOUGHT AND THUS NO PREJUDICE WAS CAUSED BY CONSIDERING THE ADDITIONAL EVIDENCE. WITH REGARD TO THE AMOUNT RECEIVED FROM S THE MATTER WAS IN THE REALM OF APPRECIATION OF EVIDENCE. EVEN IF IT IS HELD THAT TWO VIEWS ARE POSSIBLE, THE INFE RENCE DRAWN BY THE TRIBUNAL, BEING THE ITA NO.420/AHD/2009 ASST. YEAR 2003-04 5 FINAL FACT FINDING AUTHORITY, COULD NOT BE HELD TO BE PERVERSE. THE CANCELLATION OF PENALTY WAS VALID. SIMILAR VIEW HAS BEEN TAKEN IN THE FOLLOWING JUDGME NTS ALSO: CIT VS. RELIANCE PETRO PRODUCTS 322 ITR 158 (SC) ADDL. CIT V. BADRI KASHI PRASAD (1993] 200 ITR 0206 (ALL) PRABHAT OIL TRADERS V. ITO(NO. 3) (1996) 218 ITR (A .T.) 0039 ITAT, AHD. CITY DRY FISH COMPANY V. CIT (1999) 238 ITR 0063 (A .P.) CIT VS. MOHD. BUX SOKAT ALI (2004) 265 ITR 326 (RAJ ) ACIT VS. VIP INDUSTRIES (2009) 122 TTJ 289 (MUM) 10. OUR VIEW THAT NO PENALTY IS LEVIABLE IF IMPUGNE D AMOUNT IS DISCLOSED IN THE RETURN OF INCOME IS SUPPORTED BY T HE DECISION OF HON. ALLAHABAD HIGH COURT IN THE CASE OF SMT. GOVINDA DE VI VS. CIT (2008) 304 ITR 0340 (ALL). IN THAT CASE ASSESSEE RECEIVED LOTTERY PRIZE MONEY IN JANUARY, 1992 AND DISCLOSED THE SAME IN THE RETURN FILED FOR ASST. YEAR 1992-93 AND PAID THE TAXES. THE ASSESSING AUTHORITY PASSED AN EX PARTE ASSESSMENT ORDER AND EX PARTE PENALTY ORDER IN ASST . YEAR 1991-92. IT WAS HELD BY THE HON. COURT THAT ONCE PRIZE MONEY HAS BE EN DISCLOSED IN THE RETURN OF INCOME FOR ASST. YEAR 1992-93 AND ALSO TA XES WERE PAID THEN ASSESSING AUTHORITY HAD APPARENTLY COMMITTED AN ERR OR IN LEVYING THE PENALTY. IN K.C. BUILDERS VS. ACIT (2004) 265 ITR 5 62 (SC) IT WAS HELD BY THE HON. APEX COURT THAT WHERE ADDITIONS ARE MAD E IN THE ASSESSMENT ORDER ON THE BASIS OF WHICH PENALTY FOR CONCEALMENT IS LEVIED, ARE DELETED, THERE REMAINS NO BASIS AT ALL FOR LEVYING PENALTY F OR CONCEALMENT. NO PENALTY WOULD SURVIVE IF ADDITION DID NOT SURVIVE. IN CIT VS. ARTHANARISWAMY CHETTIAR (S.S.K.G.) (1982) 136 ITR 1 45 (MAD) HON. MADRAS HIGH COURT HELD THAT PENALTY CAN BE IMPOSED WITH REFERENCE TO THE CONCEALMENT DONE IN THE ORIGINAL RETURN FILED U NDER SECTION 139. IN THE CASE OF SULEMANJI GANIBHAI VS. CIT (1980) 121 I TR 0373 (M.P.) IT WAS HELD THAT AN ASSESSEE INCURS PENALTY UNDER SECT ION 271(1)(C) IF HE FILES INACCURATE PARTICULARS OF HIS INCOME IN THE R ETURN OR CONCEALS THE PARTICULARS OF INCOME THEREIN. THERE CAN BE NO CONC EALMENT UNTIL THERE IS A DUTY TO DISCLOSE. THE DUTY TO DISCLOSE PARTICULA RS OF INCOME ARISES AT THE TIME WHEN ASSESSEE FURNISHES RETURN OF INCOME U NDER SECTION 139 AND IF IN FILING HIS RETURN HE CONCEALS THE PARTICULARS OF INCOME OR FURNISHES INACCURATE PARTICULARS HE INCURS PENALTY UNDER SECT ION 271(1)(C). IN THE CASE OF PATNA GUINEA HOUSE VS. CIT (2000) 243 ITR 0 274 (PAT) IT IS HELD THAT THERE IS NO CASE FOR LEVY OF PENALTY IF INCOME IS DISCLOSED IN THE RETURN OF INCOME BUT ASSESSEE HAS REFUSED TO DISCLOSE SOUR CE OF INCOME. ITA NO.420/AHD/2009 ASST. YEAR 2003-04 6 THEREFORE, FOLLOWING THE ABOVE DECISION OF THE TRIB UNAL, WE CANCEL THE PENALTY LEVIED BY THE AO AND CONFIRMED BY THE LD. C IT(A). AS A RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER WAS PRONOUNCED IN OPEN COURT ON 25/3/11. SD/- SD/- (BHAVNESH SAINI) (D.C. AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMB ER AHMEDABAD, DATED : 25/3/11. MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD 1.DATE OF DICTATION 17/3/2011 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 23/3/ 2011 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..