M/s. M.R. Mutha, Ahmednagar V. Assistant Commissioner of Income-tax,

ITA 447/PUN/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 1469 (ITAT-PUNE)
• Duration Of Justice: 4 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 15-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANIL CHAWARE
• Assessee Lawyers: SUNIL PATHAK

Judgement Text

] IQ.KS ] IQ.KS ] IQ.KS ] IQ.KS IQ.KS IQ.KSIQ.KS IQ.KS IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE , . . , # BEFORE MS. SUSHMA CHOWLA, JM AND SHRI R.K. PANDA, AM . / ITA NO.447/PN/2016 % % / ASSESSMENT YEAR : 2008-09 M/S. M.R. MUTHA, SECTOR NO.1A, M.R. TRADE CENTRE, WADIA PARK, TILAK ROAD, AHMEDNAGAR PAN NO.AADFM8587B . / APPELLANT V/S ACIT, AHMEDNAGAR CIRCLE, AHMEDNAGAR . / RESPONDENT / APPELLANT BY : SHRI SUNIL PATHAK / RESPONDENT BY : SHRI ANIL CHAWARE / ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 06-11-2015 OF THE CIT(A)-II, PUNE RELATING TO THE ASSESSMENT YEAR 2008-09. 2. LEVY OF PENALTY U/S.271(1)(C) IN RESPECT OF ADDITION FINALLY CONFIRMED AT RS.16,62,098/- IS THE ONLY ISSUE RAISED BY THE ASSESSEE IN THE GROUNDS OF APPEAL. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN CONSTRUCTION BUSINESS. FOR THE IMPUGNE D / DATE OF HEARING :26.07.2016 / DATE OF PRONOUNCEMENT:29.07.2016 2 ITA NO.447/PN/2016 ASSESSMENT YEAR, THE ASSESSEE FILED ITS RETURN OF INCOME O N 29-09- 2008 DECLARING TOTAL INCOME OF RS.64,02,390/-. THE AO COMPLET ED THE ASSESSMENT U/S.143(3) ON 21-12-2010 DETERMINING THE TOTA L INCOME AT RS.92,37,553/-. THE AO DURING THE COURSE OF ASSESSMEN T PROCEEDINGS AFTER EXAMINING THE BOOKS OF ACCOUNT, HAD CON CLUDED THAT THERE WAS INCREASE IN TURNOVER OF CONTRACT RECEIPTS B Y 57%. THE GROSS PROFIT PERCENTAGE DECLINED FROM 21.59% TO 15.84%. THE MAJO R EXPENSES SUCH AS LABOUR PAYMENTS, LABOUR SUB-CONTRACT AND SUB- CONTRACT EXPENSES INCREASED BY RS.1,10,80,653/-. IN TERM S OF PERCENTAGE, EXPENDITURE ON ACCOUNT OF THESE 3 HEADS HA VE SHOWN THE INCREASE FROM 26.45% TO 30.33%. THE AO ALSO HAD NOTICED T HAT PAYMENTS HAVE BEEN MADE TO VARIOUS LABOUR CONTRACTOR S IN CASH AS WELL AS BANK WHICH SHOWS THAT DESPITE HAVING BANK ACCO UNTS PAYMENTS HAVE BEEN MADE IN CASH. AFTER ANALYZING THE BO OKS OF ACCOUNT THE AO WAS OF THE OPINION THAT ASSESSEE HAD RE SORTED TO INFLATE EXPENDITURE ON VARIOUS HEADS BY MAKING EXPENDITURE ON SELF- DRAWN VOUCHERS. SINCE THERE WAS SUBSTANTIAL INCREASE O N ACCOUNT OF LABOUR PAYMENT, SUB-CONTRACT PAYMENT AND SUB-CONTRACT EXPENDITURE, THE AO DISALLOWED AN AMOUNT OF RS.27,70,163/- BEING 25% OF T HE INCREASED EXPENDITURE OF RS.1,10,80,653/-. 4. IN APPEAL THE LD.CIT(A) CONFIRMED THE ADDITION MADE BY THE AO. ON FURTHER APPEAL, THE TRIBUNAL RESTRICTED SUCH DISALLOWANCE TO 15% OF THE EXPENDITURE OF RS.1,10,80,653/- AS NON-GENUINE AND FIC TITIOUS INCOME. THUS, ADDITION TO THE TUNE OF RS.16,62,098/- HAS BE EN FINALLY SUSTAINED. 5. AFTER THE ORDER OF THE CIT(A) THE AO INITIATED PENALTY PROCEEDINGS U/S.271(1)(C) OF THE I.T. ACT. REJECTING THE VAR IOUS EXPLANATIONS GIVEN BY THE ASSESSEE THE AO LEVIED PENALTY OF RS.8,49,446/- BEING 100% OF THE TAX SOUGHT TO BE EVADED ON THE ADDITION OF RS.27,70,163/- MADE BY THE AO AND UPHELD BY THE CIT(A). 6. IN APPEAL THE LD.CIT(A) WHILE UPHOLDING THE LEVY OF PENA LTY, HOWEVER, DIRECTED THE AO TO RE-COMPUTE THE AMOUNT OF P ENALTY ON THE AMOUNT OF ADDITION FINALLY CONFIRMED BY THE TRIBUNAL. 7. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSESSEE IS IN APPEA L BEFORE US. 3 ITA NO.447/PN/2016 8. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ADDITIO N HAS BEEN MADE BY THE AO BY DISALLOWING PART OF THE EXPENDITUR E ON ESTIMATE BASIS. REFERRING TO THE DECISION OF HONBLE CHATTIS GARH HIGH COURT IN THE CASE OF CIT VS. VIJAY KUMAR JAIN REPORTED IN 325 ITR 378 HE SUBMITTED THAT PENALTY CANNOT BE LEVIED ON ESTIMATED DISALLOWANCE OF EXPENDITURE. HE SUBMITTED THAT VARIOUS BENCHES OF THE TRIBUNAL AND DIFFERENT HIGH COURTS ARE ALSO TAKING THE VIEW THAT PE NALTY CANNOT BE LEVIED ON ACCOUNT OF ADDITION/DISALLOWANCE OF EXPENDITURE ON ESTIMATE BASIS. 9. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAN D HEAVILY RELIED ON THE ORDER OF THE CIT(A). HE SUBMITTED THAT AO H AS GIVEN A CATEGORICAL FINDING THAT ASSESSEE HAS INFLATED ITS EXPENDITUR E BY MAKING SELF-MADE VOUCHERS WHICH WERE PAID IN CASH. THEREFO RE, UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A ) WAS JUSTIFIED IN SUSTAINING THE PENALTY LEVIED BY THE AO U/S.271(1)(C) OF THE I.T. ACT. 10. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND CIT(A) AND THE P APER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED TH E VARIOUS DECISIONS RELIED ON BY BOTH THE SIDES. IN THE INSTANT CAS E WE FIND THE ASSESSEE FIRM IS ENGAGED IN THE BUSINESS OF CONSTRUCTION. IT HAS FILED ITS RETURN OF INCOME ALONG WITH THE TAX AUDIT REPORT U/S.4 4AB OF THE I.T. ACT. AUDITORS HAVE NOT MADE ANY OBSERVATION REGAR DING NON- GENUINE OF EXPENDITURE. WE FIND THE AO ON THE BASIS OF INCR EASE IN TURNOVER AND DECREASE IN GROSS PROFIT HAS MADE ESTIMATE D DISALLOWANCE OF EXPENDITURE OF RS. 27,70,163/-. WE FIND ON FUR THER APPEAL THE TRIBUNAL RESTRICTED SUCH DISALLOWANCE TO 15%. PE NALTY HAS BEEN LEVIED ON ACCOUNT OF SUCH DISALLOWANCE OF EXPENDITURE WHICH HAS BEEN CONFIRMED BY THE LD.CIT(A). HOWEVER, HE HAS GIVEN A DIRECTION TO THE AO TO RE-COMPUTE THE PENALTY ON THE A MOUNT OF ADDITION/DISALLOWANCE OF EXPENDITURE FINALLY SUSTAINED BY THE TRIBUNAL. 11. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESS EE THAT PENALTY IS NOT LEVIABLE U/S.271(1)(C) OF THE I.T. ACT ON ACCOU NT OF 4 ITA NO.447/PN/2016 ESTIMATED ADDITION OR ESTIMATED DISALLOWANCE OF EXPENDITURE. WE FIND MERIT IN THE ABOVE ARGUMENT OF THE LD. COUNSEL FOR THE AS SESSEE. THE DIFFERENT BENCHES OF THE TRIBUNAL ARE CONSISTENTLY TAKING THE VIE W THAT PENALTY SHOULD NOT BE LEVIED U/S.271(1)(C) OF THE I.T. ACT ON ACCOUNT OF ESTIMATED DISALLOWANCE OF EXPENDITURE OR ESTIMATED ADDITION. 12. WE FIND THE HONBLE CHATTISGARH HIGH COURT IN THE CASE OF CIT VS. VIJAY KUMAR JAIN WHILE DISMISSING THE APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE TRIBUNAL CANCELLING THE P ENALTY HAS OBSERVED AS UNDER : 12. THE SUPREME COURT IN ITS LATEST DECISION IN THE MATTER OF CIT VS. RELIANCE PETROPRODUCTS (P) LTD. (2010) 230 CTR (SC) 320 : (2010) 36 DTR (SC) 449 : (2010) 322 ITR 158 (SC), WHILE CONSID ERING APPLICABILITY OF S. 271(1)(C) OF THE ACT, HELD THAT IN ORDER TO IM POSE PENALTY UNDER THE AFORESAID SECTION, THERE HAS TO BE CONCEALMENT OF PART ICULARS OF INCOME OF THE ASSESSEE AND THE ASSESSEE MUST HAVE FURNISHED INACCURATE PARTICULARS OF HIS INCOME. THE MEANING OF THE WORD 'PARTICULARS' USED IN S. 271(1)(C) WOULD EMBRACE THE DETAILS OF THE CLAIM MADE. WHERE N O INFORMATION GIVEN IN THE RETURN IS FOUND TO BE INCORRECT OR INAC CURATE, THE ASSESSEE CANNOT BE HELD GUILTY OF FURNISHING INACCURATE PARTI CULARS. IN ORDER TO EXPOSE THE ASSESSEE TO PENALTY, UNLESS THE CASE IS STRICTLY C OVERED BY THE PROVISION, THE PENALTY PROVISION CANNOT BE INVOKED. B Y NO STRETCH OF IMAGINATION CAN MAKING AN INCORRECT CLAIM TANTAMOUN T TO FURNISHING INACCURATE PARTICULARS. THERE CAN BE NO DISPUTE THAT EVERYTHING WOULD DEPEND UPON THE RETURN FILED BY THE ASSESSEE, BECAUSE T HAT IS THE ONLY DOCUMENT WHERE THE ASSESSEE CAN FURNISH THE PARTICULARS O F HIS INCOME. WHEN SUCH PARTICULARS ARE FOUND TO BE INACCURATE, THE LIABILITY WOULD ARISE. TO ATTRACT PENALTY, THE DETAILS SUPPLIED IN THE RETURN MUST NOT BE ACCURATE, NOT EXACT OR CORRECT, NOT ACCORDING TO TH E TRUTH OR (SIC- ERRONEOUS) ASSESSEE IN ITS RETURN ARE FOUND TO BE INCORRE CT OR ERRONEOUS OR FALSE THERE IS NO QUESTION OF INVITING THE PENALTY UNDER S. 271(1)(C). A MERE MAKING OF A CLAIM, WHICH IS NOT SUSTAINABLE IN LA W, BY ITSELF, WILL NOT AMOUNT TO FURNISHING INACCURATE PARTICULARS REGARDIN G THE INCOME OF THE ASSESSEE. SUCH A CLAIM MADE IN THE RETURN CANNOT AMOUNT TO FURNISHING INACCURATE PARTICULARS. 13. IF WE EXAMINE FACTS OF THE PRESENT CASE IN THE LIG HT OF THE PRINCIPLES OF LAW LAID DOWN BY THE SUPREME COURT IN THE AFORESAID JUDGMENTS, WE FIND THAT THE ASSESSEE FURNISHED ACCURATE PARTICULARS OF ENTIR E RECEIPT OF RS. 21,76,274. AFTER DEDUCTION TOWARDS EXPENDITURE AND A DDITION OF NET PROFIT THROUGH OTHER SOURCES, TAXABLE NET INCOME WAS SHOWN AT RS. 70,818. HOWEVER, SINCE THE ASSESSEE DID NOT PRODUCE ANY EVIDENCE AND BOOKS OF ACCOUNT INCLUDING THE BALANCE SHEET FOR THE ASSESSMENT YEAR, NET PROFIT WAS ESTIMATED @ 10 PER CENT OF THE RECEIPT FRO M ALL SOURCES AND ON DIFFERENCE OF PROFIT SO ESTIMATED, ADDITIONAL TAX WAS IMPOSED AND IT WAS FURTHER DIRECTED THAT PROCEEDING UNDER S. 271(1)(C) OF THE ACT FOR IMPOSITION OF PENALTY BE SEPARATELY DRAWN AGAINST THE ASSESSEE FOR CONCEALMENT OF INCOME BY NOT PRODUCING PROPER EVIDE NCE OF EXPENDITURE. TO IMPOSE PENALTY UNDER S. 271(L)(C), CONDITIONS STATED THEREIN MUST 5 ITA NO.447/PN/2016 EXIST MEANING THEREBY THE ASSESSEE MUST HAVE CONCEALED PA RTICULARS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME. 14. IN THE INSTANT CASE, IT IS NOT THE CASE OF THE REV ENUE THAT THE ASSESSEE CONCEALED PARTICULARS OF HIS INCOME OR ANY PARTICULA RS OF INCOME FURNISHED BY HIM WERE FOUND TO BE INACCURATE BY THE AO. THE ASSESSEE DECLARED NET PROFIT BY ESTIMATING IT @ 6.36 PER CENT OF HIS GROSS RECEIPT AS THE AO IN SIMILARLY SITUATED CASES HAD ACCEPTED LOWER N ET PROFIT THAN 6.36 PER CENT DECLARED BY THE ASSESSEE. CONSIDERING THE AFORE SAID FACTS, THE TRIBUNAL HELD THAT THE ORDER OF CIT(A) IN CANCELLIN G PENALTY CANNOT BE FAULTED WITH AND ACCORDINGLY UPHELD THE ORDER. 15. IN OUR CONSIDERED OPINION, IN VIEW OF THE UNDISPU TED FACTS THAT PARTICULARS FURNISHED BY THE ASSESSEE REGARDING RECEIPT I N THE RELEVANT FINANCIAL YEAR HAVE NOT BEEN FOUND INACCURATE; IT I S ALSO NOT THE CASE OF THE REVENUE THAT THE ASSESSEE CONCEALED ANY INCOME IN H IS RETURN, THE ORDER OF THE TRIBUNAL CONFIRMING THE ORDER OF THE C IT(A) CANCELLING PENALTY IMPOSED BY THE AO UNDER S. 271(1)(C) OF THE A CT CANNOT BE FAULTED WITH. 13. IF WE CONSIDER THE FACTS OF THE PRESENT CASE, WE FIND THE FACTS ARE ON A BETTER FOOTING THAN THE FACTS BEFORE HONBLE CHATTISGARH HIGH COURT CITED (SUPRA). THE ASSESSEE IN THE INSTANT CASE HA S MAINTAINED BOOKS OF ACCOUNT AND GOT ITS ACCOUNT AUDITED. THE AO H AS MERELY DISBELIEVED THE PROFIT RATE AND THEREBY DISALLOWED A PART O F THE EXPENDITURE ON ESTIMATE BASIS. AS WE HAVE MENTIONED EAR LIER, THE DIFFERENT BENCHES OF THE TRIBUNAL ARE TAKING THE CONSISTEN T VIEW THAT PENALTY CANNOT BE LEVIED ON ACCOUNT OF DISALLOWANCE OF EXPENDITURE ON ADHOC BASIS. SINCE IN THE INSTANT CASE THE PENALTY HAS BEEN LEVIED ON THE ADDITION MADE BY DISALLOWING A PART OF THE EXPENDITURE ON ESTIMATE BASIS, THEREFORE, WE ARE OF THE CONSIDERED OPINION THAT IT IS NOT A FIT CASE FOR LEVY OF PENALTY U/S.271(1)(C) OF THE I.T. AC T. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT T HE AO TO CANCEL THE PENALTY. GROUNDS RAISED BY THE ASSESSEE ARE ACCORDINGLY ALLOWE D. 14. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29-07-2016. SD/- SD/- ( SUSHMA CHOWLA ) ( R.K. PANDA ) JUDICIAL MEMBER ACCOUNTANT MEMBER IQ.KS PUNE ; DATED : 29 TH JULY , 2016. LRH'K 6 ITA NO.447/PN/2016 ' (*+ ,+ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. % ( ) - THE CIT(A)-II, PUNE 4. % S / THE CIT-II, PUNE 5. ( ++, , , , IQ.KS / DR, ITAT, A PUNE; 6. 0 / GUARD FILE. / BY ORDER , ( + //TRUE COPY// 23 + , / SR. PRIVATE SECRETARY ,, IQ.KS / ITAT, PUNE