ACIT, Trivandrum V. M/S PARTHAS TEXTILES, Kottayam

ITA 436/COCH/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65008 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-12-2012
• Appeal Filed By: Department
• Bench Allotted: DB
• Assessment Year: 2002-2003
• Appeal Filed On: 06-06-2011
• Court: TRIBUNAL
• Department Lawyers: M ANIL KUMAR
• Assessee Lawyers: R KRISHNAN
• Keywords: Depreciation; Search and seizure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. NOS. 436-442/COCH/2011 ASSESSMENT YEARS: 2002-03-2008-09 THE ASSISTANT COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-2, TRIVANDRUM VS. M/S. PARTHAS TEXTILES, K.K. ROAD, KOTTAYAM. [PAN : AAFFP 6117J] (REVENUE-APPELLANT) (ASSESSEE -R ESPONDENT) REVENUE BY SHRI M. ANIL KUMAR, CIT DR ASSESSEE BY SHRI R. KRISHNAN, CA DATE OF HEARING 11/10/2012 DATE OF PRONOUNCEMENT 07/12/2012 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: ALL THESE APPEALS, FILED AT THE INSTANCE OF THE REVENUE ARE DIRECTED AGAINST THE COMMON ORDER DATED 01-03-2011 PASSED BY THE LD. CIT (A)-I, TRIVANDRUM CANCELLING THE PENALTIES LEVIED U/S. 271(1)(C) OF THE ACT IN THE H ANDS OF THE ASSESSEE FOR THE ASSESSMENT YEARS 2002-03 TO 2008-09. 2. THE FACTS RELATING TO THE SAID ISSUE ARE STATED IN BRIEF. THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN RETAIL TEXTILE BUSINESS AT KOTTAYAM. THE DEPARTMENT CARRIED OUT SEARCH AND SEIZURE OPERATIONS IN THE PREMISES O F M/S. PARTHAS, TRIVANDRUM, SISTER CONCERN OF THE ASSESSEE AND ALSO IN THE HANDS OF TH E PARTNERS OF THE ASSESSEE-FIRM ON 11-10-2007. DURING THE COURSE OF SEARCH PROCEEDIN GS, CERTAIN DOCUMENTS RELATING TO THE ASSESSEE WERE SEIZED AND HENCE, PROCEEDINGS U/S . 153C OF THE ACT WAS INITIATED IN THE HANDS OF THE ASSESSEE FOR THE ASSESSMENT YEARS UNDER CONSIDERATION. THESE ASSESSMENTS WERE COMPLETED U/S. 153C R.W.S. 144 OF THE ACT BY ADOPTING THE TOTAL INCOME AT 1% OF THE TURN OVER DECLARED BY THE ASSES SEE FOR ALL THE YEARS UNDER I.T.A. NOS.436-442COCH/2012 2 CONSIDERATION. IT IS PERTINENT TO NOTE THAT THE AS SESSEE HAS DECLARED EITHER LOSS OR NIL INCOME IN THE RETURNS OF INCOME FILED BY IT FOR ALL THESE YEARS AFTER CLAIMING BROUGHT FORWARD LOSS. 3. THE ASSESSING OFFICER INITIATED PENALTY PROCEEDI NGS U/S. 271(1)(C) OF THE ACT. THE ASSESSING OFFICER OBSERVED THAT THE DEPARTMENT HAS NOTICED SERIOUS DEFICIENCIES IN THE BOOKS OF ACCOUNTS AND THE ASSESSEES CLAIM OF H UGE LOSS HAS ARISEN NOT DUE TO EXIGENCIES OF BUSINESS BUT DUE TO OTHER FACTORS LIK E DIVERSION OF FUNDS FOR NON BUSINESS PURPOSES, USE OF ASSETS OF THE FIRMS FOR PERSONAL P URPOSES, SUPPRESSION OF SALES, DIVERSION OF BUSINESS STOCK BY PARTNERS, HUGE SALAR Y PAYMENTS TO RELATIVE EMPLOYEES, CLAIM OF DEPRECIATION ON ASSETS USED FOR PERSONAL P URPOSES ETC. ACCORDINGLY, THE ASSESSING OFFICER TOOK THE VIEW THAT THE ASSESSEE H AS RESORTED TO CONCEALMENT OF PARTICULARS OF ITS INCOME OR FURNISHING INACCURATE PARTICULARS OF ITS INCOME. ACCORDINGLY, THE ASSESSING OFFICER LEVIED MINIMUM PENALTY FOR AL L THESE YEARS. HOWEVER, THE ASSESSEE CHALLENGED THE PENALTY ORDERS BEFORE THE L D. CIT(A) AND GOT RELIEF. AGGRIEVED BY THE ORDERS OF THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD . WE HAVE ALSO GONE THROUGH THE ORDERS PASSED BY THE LD. CIT(A). BEFORE THE FI RST APPELLATE AUTHORITY, THE ASSESSEE HAS SUBMITTED THE BACK GROUND FOR ESTIMATING THE IN COME @ 1% OF THE TOTAL TURNOVER AS UNDER:- THE APPELLANT IS A TEXTILE DEALER AT KOTTAYAM. FO R THE A.Y. 2002-03 APPELLANT ORIGINALLY FILED A RETURN OF INCOME DISCLOSING A LO SS OF RS.1,15,16,292/-. THERE WAS A SEARCH N THE BUSINESS PREMISES OF THE APPELLA NT ON 11.10.2007. FOLLOWING THE SEARCH, THE ASSESSING OFFICER HAD NOTICED THAT THERE WAS LITIGATION AMONG THE PARTNERS AND ONE OF THE PARTNERS, VIZ., VARADARAJUL U WAS EXPELLED FROM THE FIRM ON 20.11.2005. FOLLOWING THIS, THE PARTNERS ENTERE D INTO ARBITRATION. THE ASSESSING OFFICER CALLED FOR DETAILS WHICH WERE FIL ED BY THE APPELLANT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESS ING OFFICER PROPOSED TO REJECT THE BOOKS, PRIMARILY BECAUSE THE PARTNERS HA D LEVELLED CHARGES AGAINST EACH OTHER. WITHOUT POINTING OUT ANY DEFECT IN THE BOOKS OR SUP PRESSION, THE A.O. MERELY COMPLETED THE ASSESSMENT ESTIMATING THE INCOME @ 1% OF THE TURNOVER AND I.T.A. NOS.436-442COCH/2012 3 ARRIVED AT AN ESTIMATED TOTAL INCOME OF RS.9,05,157 /-. THIS IS EVIDENT FROM THE ASSESSMENT ORDER...... EVEN THOUGH, THE PENALTY ORDER MAKES REFERENCE TO CE RTAIN DEFECTS, THE FUNDAMENTAL DOCUMENT ON WHICH A PENALTY WOULD LIE, IF IT IS LEVIABLE IS THE FINDINGS IN THE ASSESSMENT ORDER. IN THIS CASE, TH E ASSESSMENT ORDER IS TOTALLY SILENT ON THE DEFECTS. MAY BE THE PRE-ASSESSMENT N OTICE OR THE PROPOSAL CONTAINS THE GIST OF THESE DEFECTS NOTICED BY THE ASSESSING OFFICER. BUT THE FACT REMAINS THAT THE A.O RESORTED TO ESTIMATE THE INCOME AND TH AT TOO AS A PERCENTAGE ON THE TURNOVER RATHER THAN MAKING SPECIFIC ADDITIONS ON THE SO CALLED DEFECTS. THIS IS BECAUSE THE DEFECTS REFERRED TO ARE SUCH THAT, T HEY ARE CAPABLE OF POSSIBLY REDUCING THE INCOME, BUT A DEFINITE FINDING COULD N OT BE ENTERED INTO THE ABSENCE OF SPECIFIC MATERIALS. THAT IS PRECISELY THE REASO N WHY THE A.O HAS REJECTED THE BOOKS AND RESORTED TO ESTIMATE.... 5. THE LD. CIT(A) HAS DELETED THE PENALTY FOR A LL THE YEARS WITH THE FOLLOWING OBSERVATIONS: 6. I HAVE CONSIDERED THE GROUNDS RAISED IN APPEAL AND THE FACTS OF THE CASE. THE ASSESSING OFFICER HAS LEVIED PENALTY STATING T HE REASONS THAT THE ADDITIONS MADE IN THE ASSESSMENT ORDER PASSED U/S. 153C R.W. S. 144 WERE WITHIN THE SCOPE OF THE 271(1)(C). ON GOING THROUGH THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND THE ORDER OF ASSESSMENT, I FIND THAT THE ASSESSING OFFICER HAS COMPLETED THE ASSESSMENT BY ESTIMATING THE INCOME @ 1% OF THE TURNOVER AND AS SUCH NO SUPPRESSION HAS BEEN FOUND IN THE BOOKS OF ACCOUNT AND WHILE FRAMING THE PENALTY ORDER THE ASSESSING OFFI CER HAS HELD THAT THE ESTIMATION OF INCOME AT 1% OF THE TOTAL TURNOVER HA S BEEN MADE ON THE BASIS OF INCRIMINATING EVIDENCE FOUND DURING THE COURSE OF SEARCH AND THAT THE APPELLANT HAD NOT DISPUTED THE ESTIMATED ADDITION. 6.1 I THINK THE FACTS OF THE CASE DID NOT FALL WI THIN THE SCOPE FOR LEVYING PENALTY U/S. 271(1)(C) HAS FIRST OF ALL THE PENALTY HAS TO BE LEVIED BASED ON THE FINDINGS IN THE ASSESSMENT ORDER. THE ASSESSING OFFICER RESOR TED TO ESTIMATION OF INCOME AND THAT TO AS A PERCENTAGE ON THE TURNOVER RATHER THAN MAKING SPECIFIC ADDITIONS POINTING OUT SPECIFIC FACTS. THERE IS N O FINDING ABOUT ANY CONCEALMENT OR FURNISHING OF INACCURATE PARTICULARS IN THE RET URN OF INCOME ATTRACTING LEVY OF PENALTY U/S. 271(1)(C), THE INCOME HAS ONLY BEEN E STIMATED ON THE BASIS OF THE TOTAL TURNOVER OF THE ASSESSEE AND AS SUCH THERE I S NOT FINDING BY THE ASSESSING OFFICER ABOUT THE INCRIMINATING EVIDENCE DETECTED DURING THE COURSE OF SEARCH AS POINTED OUT BY THE ASSESSING OFFICER IN THE ORDER OF THE PENALTY. IN VIEW OF THIS, I HOLD THAT THE APPELLANTS CASE DOES NOT FALL WIT HIN THE SCOPE OF LEVY OF PENALTY U/S. 271(1)(C) OF THE I.T. ACT AND THE SAME IS DIR ECTED TO BE DELETED. I.T.A. NOS.436-442COCH/2012 4 6. WE NOTICE THAT THE LD CIT(A) HAS GIVEN A CL EAR FINDING TO THE EFFECT THAT THE DEPARTMENT DID NOT NOTICE ANY INSTANCE OF SUPPRESSI ON OF SALES. THE ASSESSEE HAS DECLARED LOSS OR NIL INCOME IN THE RETURNS OF INCOM E FILED FOR THE IMPUGNED YEARS. IT WAS ALSO BROUGHT ON RECORD BY THE ASSESSEE THAT THE RE WAS DISPUTE AMONGST THE PARTNERS AND EACH OF THEM LEVELLED SERIOUS ALLEGATI ONS AGAINST EACH OTHER. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS STATED THAT THE ASSESSED HAS FILED A DETAILED REPLY TO THE PROPOSAL U/S 144 ISSUED ON 23.12.2009. THUS THERE IS MERIT IN THE CONTENTIONS OF THE ASSESSEE THAT IT HAS FURNISHED A LL THE DETAILS THAT WERE CALLED FOR BY THE AO. THEREAFTER, THE AO HAS PROPOSED TO REJECT THE BOOK RESULTS AND ESTIMATE THE INCOME @ 1% OF THE TOTAL TURNOVER, TO WHICH THE ASS ESSEE HAS ALSO AGREED. ACCORDINGLY, THE ASSESSMENTS OF THE YEARS UNDER CON SIDERATION WERE COMPLETED ON AGREED BASIS. THUS, THERE IS NO REFERENCE IN THE A SSESSMENT ORDER TO ANY OF THE DEFECTS. IN THE PENALTY ORDER, THE ASSESSING OFFIC ER STATES THAT SERIOUS DEFICIENCIES WERE NOTICED IN THE ACCOUNTS, NOTHING WAS BROUGHT ON REC ORD EVEN IN THE PENALTY ORDER EXCEPT MAKING GENERAL OBSERVATIONS LIKE, THERE WERE DIVERSION OF FUNDS, USE OF ASSETS FOR PERSONAL PURPOSES, SUPPRESSION OR SALES, DIVERS ION OF BUSINESS STOCK BY PARTNERS, HUGE SALARY PAYMENTS TO RELATIVE EMPLOYEES, CLAIM O F DEPRECIATION ON ASSETS UTILISED FOR PERSONAL PURPOSES ETC. SUCH OBSERVATIONS DID NOT F IND PLACE IN THE ASSESSMENT ORDER. IN THE PENALTY ORDER, THE AO DID NOT MAKE ANY CASE AS TO HOW THE DEFECTS STATED BY HER HAS RESULTED IN SUPPRESSION OF INCOME. 7. IT IS A WELL SETTLED PROPOSITION OF LAW THAT THE ADDITIONS MADE IN THE ASSESSMENT PROCEEDINGS HAVE TO BE LOOKED AT AFRESH DURING THE COURSE OF PENALTY PROCEEDINGS AND FOR THAT PURPOSE, THE FINDINGS MADE IN THE ASSESSME NT ORDER CAN BE TAKEN AS A GUIDE. HOWEVER, IN THE INSTANT CASE, THERE WAS NO FINDING ABOUT ANY OF THE DEFECTS AND IN THE PENALTY ORDER ALSO, THERE WAS NO SPECIFIC FINDING E XCEPT POINTING OUT TO CERTAIN DEFECTS IN A GENERAL MANNER. THE ASSESSING OFFICER DID NOT MAKE ANY REFERENCE TO THE EXPLANATIONS FILED BY THE ASSESSEE IN THE PENALTY P ROCEEDINGS, WHERE AS THE LD CIT(A) HAS EXTRACTED THE SUBMISSIONS MADE IN THIS REGARD. UNDER THESE FACTS AND ALSO BY CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE BE FORE LD CIT(A), WE ARE OF THE VIEW THAT THE LD CIT(A) HAS EXAMINED THE FACTS SURR OUNDING THE CASE AND ACCORDINGLY I.T.A. NOS.436-442COCH/2012 5 DELETED THE PENALTY LEVIED IN THE HANDS OF THE ASSE SSEE U/S 271(1)(C) OF THE ACT. HENCE, WE DO NOT FIND ANY INFIRMITY IN THE DECISION S REACHED BY LD CIT(A). 8. IN THE RESULT, ALL THE APPEALS FILED BY THE REVE NUE ARE DISMISSED. PRONOUNCED ACCORDINGLY ON 07-12-2 012. SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 7 TH DECEMBER, 2012 GJ COPY TO: 1. M/S. PARTHAS TEXTILES, K.K. ROAD, KOTTAYAM. 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CENTRA L CIRCLE-2, TRIVANDRUM. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-I, TRIV ANDRUM. 4. THE COMMISSIONER OF INCOME-TAX, CENTRAL KOCHI. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN