M/s Goyal Brothers, Chandigarh V. Addl. CIT, Chandigarh

ITA 509/CHANDI/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 7791 (ITAT-CHANDIGARH)
• Duration Of Justice: 11 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-04-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 18-04-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 09-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJEET SINGH
• Keywords: Principle of natural justice
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES B CHANDIGARH BEFORE SHRI H.L.KARWA, HON'BLE, VICE PRESIDENT AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER ITA NO. 509/CHD/2011 ASSESSMENT YEAR: 2006-07 M/S GOYAL BROTHERS, VS THE ADDL. CIT, CHANDIGARH RANGE-V, CHANDIGARH PAN NO. AAAFG7957J (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ASHOK GOYAL RESPONDENT BY : SHRI MANJEET SINGH DATE OF HEARING : 18.04.2012 DATE OF PRONOUNCEMENT : 19.04.2012 ORDER PER H.L.KARWA, VP THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF CIT(A),CHANDIGARH DATED 15.3.2011 IN CONFIRMING THE PENALTY OF RS. 1,61,568/- IMPOSED U/S 271(1) (C) OF THE INCOME TAX ACT, 1961 (IN SHORT 'THE ACT') RELATING TO ASSESSMENT YEAR 2006-07. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT D URING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO S UPPLY COMPLETE DETAILS OF 2 SALARY PAYMENTS OF RS. 38,56,828/-. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD DEBITED SALARY OF 32 EMPLOYEES IN HIS BOOKS OF ACCOUNT ON AN AVERAGE AND THE ASSESSEE CLAIMED TO HAVE PAID SALAR Y OF RS. 8,000/- PER MONTH TO EACH EMPLOYEE. WHEN THIS PAYMENT WAS VERIFIED F ROM ASSESSEES CASH BOOK AND BANK ACCOUNT, THE SAME DID NOT TALLY. ACC ORDING TO THE ASSESSING OFFICER, DISCREPANCY IN THE SALARY ACCOUNT OF THE A SSESSEE VIS-A-VIS CASH AND BANK ACCOUNT WERE BROUGHT TO THE NOTICE OF THE ASSE SSEE VIDE ORDER SHEET ENTRY DATED 26.12.2008. THE ASSESSING OFFICER REQU IRED THE ASSESSEE TO PRODUCE THESE EMPLOYEES, WHICH THE ASSESSEE SHOWED HIS INABILITY TO PRODUCE THE EMPLOYEES. THE ASSESSEE ALSO DID NOT PRODUCE A NY EVIDENCE OF PF AND ESI DETAILS OF THESE EMPLOYEES. THE ASSESSING OFFI CER OPINED THAT THE ASSESSEE HAD DEBITED SALARY OF FIVE EMPLOYEES MORE THAN THE ACTUAL NUMBER OF EMPLOYEES EMPLOYED DURING THE COURSE OF BUSINESS. THEREFORE, A SUM OF RS. 4,80,000/- (I.E. 5 X 8000 X 12) BEING NOT GENUINE E XPENSE WAS DISALLOWED AND ADDED TO THE INCOME OF THE ASSESSEE. THE ASSESSIN G OFFICER INITIATED PENALTY PROCEEDINGS U/S 271(1) (C) OF THE ACT FOR FURNISHIN G INACCURATE PARTICULARS OF INCOME. IN RESPONSE TO THE SHOW CAUSE NOTICE ISSUE D BY THE ASSESSING OFFICER REGARDING LEVY OF PENALTY U/S 271(1) (C) OF THE ACT , THE ASSESSEE SUBMITTED THAT THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSE E WERE SUBJECT TO AUDIT AND ALL THE DETAILS OF EXPENSES WERE PROVIDED TO TH E ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS. FURTHER, THE ASSESSEE ALSO SUBMITTED BEFORE THE ASSESSING OFFICER THAT THEY ARE READY TO COMPLY WITH THE DIRECTIONS GIVEN BY THE ASSESSING OFFICER VIDE ORDER SHEET ENT RY DATED 26.12.2008 AND SINCE THE ASSESSMENT WAS TO BE COMPLETED BEFORE 31. 12.2008, IT WAS NOT PRACTICALLY FEASIBLE TO PRODUCE THE EMPLOYEES. THE ASSESSEE ALSO SUBMITTED IN ITS REPLY THAT DURING THE ASSESSMENT PROCEEDINGS, N O SPECIFIC DISALLOWANCE OF 3 SALARY OF ANY PARTICULAR EMPLOYEE WAS MADE AS SUCH DISALLOWANCE OF EXPENSES WAS GENERAL IN NATURE. IT WAS ALSO CLAIMED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER THAT ASSESSING OFFICER HAD DISALL OWED THE SALARY ON ADHOC BASIS, NO PENALTY U/S 271(1) (C) WAS LEVIABLE IN CA SE OF ADHOC DISALLOWANCE OF EXPENSES. IT WAS ALSO CLAIMED BY THE ASSESSEE BEFO RE THE ASSESSING OFFICER THAT IT HAS PRODUCED ALL BOOKS OF ACCOUNT AND VOUCH ERS DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND HAS NOT CONCEALED THE PA RTICULARS OF ITS INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME. T HE ASSESSING OFFICER DID NOT ACCEPT THE ABOVE EXPLANATION OF THE ASSESSEE ST ATING THAT DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE HAD CLAIMED SA LARY OF FIVE EMPLOYEES WHO WERE NOT ACTUAL EMPLOYEES WITH THE ASSESSEE, TH EREFORE, CLAIM OF EXPENSES OF THE FIVE EMPLOYEES WAS HELD AS INGENUIN E. ACCORDING TO ASSESSING OFFICER THE DISALLOWANCE MADE WAS A VERY MUCH SPECIFIC DISALLOWANCE. HE, THEREFORE, LEVIED A PENALTY OF R S. 1,61,568/- U/S 271(1) (C) OF THE ACT. 3. AGGRIEVED BY THE ORDER OF ASSESSING OFFICER, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). THE ASSESSEE S UBMITTED THAT THERE WAS NO SPECIFIC DISALLOWANCE OF SALARY TO ANY EMPLOYEE. D ISCREPANCY WAS POINTED OUT ON THE BASIS OF ORDER SHEET ENTRY 26.12.2008 AN D AS SUCH NO PROPER OPPORTUNITY WAS GIVEN TO THE ASSESSEE TO EXPLAIN TH E DISCREPANCY AND THE ASSESSMENT ORDER WAS ALSO PASSED ON 26.12.2008. IT WAS ALSO SUBMITTED BY THE ASSESSEE BEFORE THE CIT(A) THAT THE BOOKS OF AC COUNT OF THE ASSESSEE WERE NOT REJECTED BY THE ASSESSING OFFICER U/S 145(3) OF THE ACT AND AS SUCH DISALLOWANCE OF THE EXPENSES WERE UNCALLED FOR. TH E ASSESSEE ALSO SUBMITTED THAT IT HAD PAID THE TAX TO AVOID LITIGATION AND TO BUY PEACE OF MIND. 4 4. THE CIT(A) CONFIRMED THE PENALTY FOR THE REASONS STATED IN PARAS 8 TO 16 OF THE IMPUGNED ORDER. THE CIT(A) OBSERVED THAT THE PROVISIONS OF PF & ESI ARE NOT APPLICABLE TO THE ASSESSEE. HE HAS ALS O HELD THAT PRODUCTION OR NON PRODUCTION OF THE EMPLOYEES IS NOT THAT SERIOUS A MATTER SINCE IT IS ALWAYS NOT POSSIBLE TO DO SO BECAUSE EMPLOYEES CANNOT BE A VAILABLE AT ALL TIMES. HOWEVER, THE CIT(A) TOOK THE VIEW THAT PAYMENT OF S ALARY IS NOT TALLYING WITH THE CASH BOOK AND BANK STATEMENTS WOULD CONSTI TUTE FILING OF INACCURATE PARTICULARS BECAUSE EXPENSES ARE NOT VERIFIABLE AND THERE IS A DISCREPANCY. THE CIT(A) OBSERVED THAT IT IS TRUE THAT NO PENALTY CAN BE IMPOSED ON ESTIMATED ADDITIONS WHEREAS IN THE INSTANT CASE, TH E ADDITION IS SPECIFIC AND NOT ESTIMATED. HE THEREFORE, UPHELD THE ORDER OF AS SESSING OFFICER. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE ALS O PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE , THE ASSESSEE MAINTAINED PROPER BOOKS OF ACCOUNT DURING THE COURSE OF BUSINE SS AND SAME WERE SUBJECTED TO AUDIT. IT IS ALSO TRUE THAT ASSESSEE PROVIDED ALL THE BOOKS OF ACCOUNT AND VOUCHERS AND ALSO FILED DETAILS OF EXPE NSES DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THIS FACT IS MENTIONED AT PAGE 1 OF THE ASSESSMENT ORDER DATED 26.12.2008 PASSED U/S 143(3) OF THE ACT . IT IS ALSO OBSERVED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESS EE HAS FILED DETAILS OF EXPENSES. IN THE ASSESSMENT ORDER, THE ASSESSING O FFICER OBSERVED THAT DISCREPANCY IN THE SALARY ACCOUNT OF THE ASSESSEE V IS-A-VIS CASH AND BANK ACCOUNT WERE BROUGHT TO THE NOTICE OF THE ASSESSEE VIDE ORDER SHEET ENTRY DATED 26.12.2008. ON 26.12.2008, THE ASSESSING OFF ICER ALSO ASKED THE ASSESSEE TO PRODUCE ALL THE EMPLOYEES FOR EXAMINATI ON. HOWEVER, IT IS SEEN THAT ON THE SAID DATE ITSELF, THE ASSESSING OFFICER HAS PASSED ASSESSMENT 5 ORDER. IT MEANS THAT THE ASSESSING OFFICER HAS NOT PROVIDED PROPER OPPORTUNITY TO THE ASSESSEE TO EXPLAIN THE DISCREPA NCY, IF ANY, POINTED OUT BY THE ASSESSING OFFICER IN THE ORDER SHEET ENTRY DATE D 26.12.2008. FROM THE ASSESSMENT ORDER DATED 26.12.2008 PASSED U/S 143(3) OF THE ACT, IT IS CLEAR THAT NO SPECIFIC DISALLOWANCE OF SALARY TO ANY PART ICULAR EMPLOYEE WAS MADE, AS SUCH THE DISALLOWANCE OF EXPENSES WAS GENERAL IN NATURE. IT IS ALSO OBSERVED THAT THE CIT(A) HAS CATEGORICALLY STATED T HAT THE PROVISIONS OF PF & ESI WERE NOT APPLICABLE TO THE ASSESSEE. HE HAS AL SO STATED THAT THE PRODUCTION OR NON-PRODUCTION OF THE EMPLOYEES BEFOR E THE ASSESSING OFFICER IS NOT THAT SERIOUS A MATTER SINCE IT IS NOT ALWAYS POSSIBLE TO DO SO BECAUSE EMPLOYEES CANNOT BE AVAILABLE AT ALL TIME. IN THE I NSTANT CASE, THE CIT(A) CONFIRMED THE PENALTY ON THE GROUND THAT PAYMENT OF SALARY DID NOT TALLY WITH THE CASH BOOK AND BANK STATEMENT AND, THEREFORE, HE LD THAT SAME WOULD CONSTITUTE FILING OF INACCURATE PARTICULARS. IN OU R OPINION, IF AT ALL THERE WAS ANY DISCREPANCY IN THE SALARY ACCOUNT OF THE ASSESS EE VIS-A-VIS CASH AND BANK ACCOUNT THAT WAS BROUGHT TO THE NOTICE OF THE ASSES SEE VIDE ORDER SHEET ENTRY DATED 26.12.2008. SURPRISINGLY, THE ASSESSING OFFI CER PASSED ASSESSMENT ORDER ON THE SAME DATE WITHOUT AFFORDING PROPER OPP ORTUNITY TO ASSESSEE TO EXPLAIN THE DISCREPANCY. THAT MEANS, THE DISALLOWA NCE OF SALARY HAS BEEN MADE BY THE ASSESSING OFFICER IN THE ASSESSMENT ORD ER IN UTTER VIOLATION OF PRINCIPLES OF NATURAL JUSTICE. ON THIS SCORE ALONE , LEVY OF IMPUGNED PENALTY IS NOT JUSTIFIED. IT IS ALSO OBSERVED THAT DURING THE ASSESSMENT PROCEEDINGS, NO SPECIFIC DISALLOWANCE OF SALARY TO ANY PARTICULA R EMPLOYEE WAS MADE, AS SUCH DISALLOWANCE OF EXPENSES WAS GENERAL IN NATURE . THE ASSESSEE HAD CLAIMED SALARY PAYMENT OF RS. 38,56,828/- BEING PAI D TO 32 EMPLOYEES. THE ASSESSING OFFICER DISALLOWED RS. 4,80,000/- OUT OF SALARY AMOUNT OF 6 RS.38,56,828/- STATING THAT THE ASSESSEE HAD DEBITE D SALARY OF FIVE EMPLOYEES MORE THAN ACTUAL NUMBER OF EMPLOYEES EMPLOYED DURIN G THE COURSE OF BUSINESS. HOWEVER, THE ASSESSING OFFICER HAS NOT P OINTED OUT ANY PARTICULAR EMPLOYEE WHO WAS NOT EMPLOYED BY THE ASSESSEE. IT IS TRUE THAT WHEN A DISALLOWANCE IS MADE MERELY ON ADHOC BASIS, PENALT Y CANNOT AUTOMATICALLY BE IMPOSED. IN THE INSTANT CASE, THE ASSESSEE HAS PRO DUCED ALL THE BOOKS OF ACCOUNT AND VOUCHERS AND ALSO FILED DETAILS OF EXPE NSES DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE EXPLANATION FURNISHED BY THE ASSESSEE WAS NOT FOUND FALSE BY THE LOWER AUTHORITIES. EVEN THERE I S NO MATERIAL ON RECORD WHICH MAY PROVE THAT ASSESSEE WAS NOT ABLE TO SUBST ANTIATE ITS EXPLANATION. CONSIDERING THE ENTIRE FACTS AND CIRCUMSTANCES OF T HE PRESENT CASE, WE HOLD THAT THE ASSESSEE CANNOT BE HELD GUILTY FOR FURNISH ING INACCURATE PARTICULARS OF INCOME. IT IS SETTLED LAW THAT THE PENALTY PROCEED INGS AND ASSESSMENT PROCEEDINGS, BOTH ARE DIFFERENT. IN THE INSTANT CA SE, DISALLOWANCE OF SALARY HAS BEEN MADE MERELY ON ADHOC BASIS, THEREFORE, NO PENALTY U/S 271(1) (C) OF THE ACT IS LEVIABLE. IN VIEW OF THE ABOVE DISCUSSION, WE ARE OF THE VIEW , THAT IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, PENALTY IS N OT LEVIABLE AND ACCORDINGLY WE CANCEL THE SAME. 6. IN THE RESULT, APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 19 TH DAY OF APRIL, 2012 SD/- SD/- (MEHAR SINGH) (H.L.KARWA) ACCOUNTANT MEMBER VICE PRESIDENT DATED : 19 TH APRIL, 2012 RKK 7 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR TRUE COPY BY ORDER ASSISTANT REGISTRAR