Shri Kawaljit Singh Chhabra, Baroda V. The ACIT.,Circle-2(1), Baroda

ITA 53/AHD/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 6278 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 07-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase; Gross profit estimation; Corroborative evidences
• Section: 143(3)

Judgement Text

, CKH CKHCKH CKH IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI MAHAVIR PRASAD, JUDICIAL MEMBER !# I.T.A. NO.53/AHD/2015 ( / ASSESSMENT YEAR : 2007-08) SHRI KAWALJIT SINGH CHHABRA PROP. HINDUSTAN PHARMA B-2, NILAMBER-II, VASNA ROAD, BARODA 390 015 # VS. ASST. COMMISSIONER OF INCOME TAX, CIRCLE 2(1), BARODA. $ # % & # PAN/GIR NO. : ABKPC 6445 Q ( !$' / APPELLANT ) .. ( ($' # RESPONDENT ) !$') # APPELLANT BY : SHRI MANISH SHAH, A.R. ($'*) / RESPONDENT BY : SHRI MUDIT NAGPAL, SR. D.R. + ,*-. / DATE OF HEARING 16/01/2018 /012*-. / DATE OF PRONOUNCEMENT 18/01/2018 3# O R D E R PER MAHAVIR PRASAD, JUDICIAL MEMBER : THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-II, BARODA, VI DE APPEAL NO.CAB/II-39/12-13 DATED 17/09/2014 FOR UPHOLDING THE LEVY OF PENALTY U/S.271(1)(C) FOR ASSESSMENT YEAR (A.Y.) 2007-08, O N THE FOLLOWING GROUNDS: 1. THE CIT(APPEALS) HAS ERRED IN UPHOLDING THE LEVY OF PENALTY U/S.271(1)(C) OF RS.33,16,430/-. 1.1 THE CIT(A) FAILED TO APPRECIATE THE OVERALL FACTUAL AND LEGAL SUBMISSION MADE BEFORE HIM. ITA NO.53/AHD/2 015 SHRI KAVALJIT SINGH CHHABRA VS. ACIT A.Y. 2007-08 - 2 - 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERI ALS ON RECORD ARE AS UNDER:- IN THIS CASE, THE RETURN OF INCOME WAS FILED BY THE ASSESSES ON 02.11.2007 DECLARING TOTAL LOSS OF RS.11,86,665/-. THE ASSESSMENT WAS FINALIZED UNDER SECTION 143(3) OF THE ACT ON 30.12. 2009 AT ASSESSED INCOME OF RS.72,49,850/-. WHILE FINALIZING THE ASSE SSMENT PROCEEDINGS PENAL PROCEEDINGS WERE INITIATED ON FOLLOWING ADDIT IONS : 1. ON ACCOUNT OF GP RS. 23,12,724/- 2. ON ACCOUNT OF BOGUS PURCHASES RS. 72,45,255/- 3. DIFFERENCE ON ACCOUNT OF GP RS. 2,94,754/- 2. THE INITIAL NOTICE UNDER SECTION 271(1)(C) WAS ISSU ED TO THE ASSESSEE ON 30.12.2009. AGAINST THE ASSESSMENT ORDER THE ASS ESSEE HAD FILED APPEAL BEFORE CIT(A). THE LD.CIT(A) VIDE HIS ORDER NO.CAB/II- 402/09-10, DATED 20.01.2011 HAD CONFIRMED ALL THE A DDITIONS MADE BY THE ASSESSING OFFICER. 3. BEFORE DECIDING THE PENAL PROCEEDINGS, IT IS PERTIN ENT TO GO THROUGH THE ASSESSMENT PROCEEDINGS WHEREIN THE ADDITIONS IN QUESTION WERE MADE. 3.1 THE ASSESSEE HAD BEEN CARRYING OUT THE BUSINESS OF MANUFACTURING/FORMULATION OF PHARMACEUTICALS AND WA S PROPRIETOR OF M/S EXCEL PHARMACHEM. THEREAFTER, THE BUSINESS H AD BEEN SHIFTED FROM MANUFACTURING TO TRADING IN MAJOR WAY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS NOTICED THAT THERE WA S FALL IN GP FROM 37.83% TO 22.57% ON THE ONE HAND AND AN INCREASE IN CONSUMPTION OF RAW MATERIAL FROM 61% TO 36.86% ON THE OTHER HAN D. THEREFORE, THE ASSESSEE WAS ASKED TO JUSTIFY THE SAME. IN REPL Y ASSESSEE HAD EXPLAINED THAT AS HE HAD SHIFTED FROM MANUFACTURE T O TRADING IN MAJOR WAY DURING THE YEAR, GP WAS AT LOWER SIDE. IN RESPECT OF MONTH WISE PRODUCTION OF WIP AND FINISHED GOODS, TH E ASSESSEE HAD MENTIONED THAT BECAUSE OF SMALL BUSINESS OF PROPRIE TOR CONCERN, HE WAS NOT MAINTAINING DAY TO DAY STOCK OF WIP AND FIN ISHED GOODS. ITA NO.53/AHD/2 015 SHRI KAVALJIT SINGH CHHABRA VS. ACIT A.Y. 2007-08 - 3 - FURTHER ASSESSEE HAD STATED THAT HE COULD NOT RECON CILE SEPARATELY SALES OF MANUFACTURED AND TRADING GOODS AS NO SUCH RECORD WAS MAINTAINED. AS THE ASSESSEE FAILED TO PRODUCE COMPL ETE BOOKS/INFORMATION AND ALSO COULD NOT RECONCILE THE DISCREPANCIES POINTED OUT AND AS THE BOOKS WERE NOT MAINTAINED PR OPERTY, BOOK RESULTS OF THE ASSESSEE WERE REJECTED AND THE INCOM E WAS COMPUTED BY APPLYING THE RATE OF PROFIT @42.73% FOR THE YEAR UNDER CONSIDERATION. 3.2 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS OBSERVED THAT THE ASSESSEE HAD DECLARED LOSS OF RS.11,89,665/-. T HE GP DISCLOSED BY THE ASSESSEE WAS VERY LOW. THE ASSESSEE DID NOT PRODUCE COMPLETE BOOKS OF ACCOUNT FOR VERIFICATION AND COULD NOT JUS TIFY THE DISCREPANCIES. FURTHER, THE ASSESSEE HAD NOT MAINTA INED DAY TO DAY STOCK AND THEREBY TRIED TO MANIPULATE HIS ACCOUNTS. AFTER TAKING INTO ACCOUNT THE ASSESSEE'S SUBMISSION, THE PROFIT OF TH E ASSESSEE WAS WORKED OUT AS UNDER. GROSS SALES SHOWN BY THE ASSESSEE RS.2,78,68,958/- LESS: TRADING SALES SHOWN RS. 5,68,315/- TOTAL RECEIPTS RS.2,73,00,643/- G.P. TAKEN AT 42.73% RS.1,16,65,560/- LESS: ADMINISTRATIVE EXPENSES SALARY & WAGES RS.14,39,935/- ADM. & OTHER EXP. RS.34,08,322/- FINANCIAL CHARGES RS.18,89,670/- RS.93,52,836/- PROFIT RS.23,12,724/- THEREFORE, BOOK RESULT OF THE ASSESSEE WAS REJECTED AND AFTER APPLYING RATE OF GP @42.73% GROSS PROFIT WORKED OUT AT RS.23,12,724/- . THUS, AN ADDITION OF RS.23,12,724/- ON ACCOUNT OF GROSS PROFIT WAS MADE. PENALTY PROCEEDINGS U/S.271(1)(C) OF THE ACT WERE ALSO INITIATED. 3.3 THE CIT(A) WHILE DECIDING THE ASSESSEE'S APPEA L HAS UPHELD ESTIMATION OF PROFIT @42.73% AND THEREBY CONFIRMED THE ADDITION ON THIS COUNT OF RS.23,12,724/-. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED THAT THE ASSESSEE HAD PURCHASED FINISHED GOODS WORTH RS. 88,27,952/-. ITA NO.53/AHD/2 015 SHRI KAVALJIT SINGH CHHABRA VS. ACIT A.Y. 2007-08 - 4 - THEREFORE, THE ASSESSEE WAS ASKED TO FURNISH THE DE TAILS OF FINISHED GOODS PURCHASED AND RESPECTIVE SALES OF THE SAME AL ONGWITH PARTY WISE AND ITEM WISE DETAILS OF FINISHED GOODS PURCHASED A ND SOLD. IN REPLY THE ASSESSEE HAD SUBMITTED PARTY WISE DETAILS OF PURCHA SES ONLY AND HAD STATED THAT HE WAS NOT MAINTAINING DAY TO DAY STOCK OF WIP AND FINISHED GOODS. HOWEVER, IN AUDIT REPORT REGARDING PARTICULA RS OF PAYMENT MADE TO PERSONS SPECIFIED U/S.40A(2)(B) AS PER ANNEXURE D, HEALTH & HYGIENE PROD (I) LTD. AND HINDUSTAN BIOSYNTH LTD. W AS MENTIONED AS FIRMS IN WHICH THE ASSESSEE WAS INTERESTED. FURTHER ON VERIFICATION OF AUDIT REPORT, IT WAS SEEN THAT AUDITOR HAD NOT MENT IONED THAT THE FINISHED GOODS PURCHASED FROM THESE TWO CONCERNS. A S THE AUDITORS HAD NOT FOUND ANY SUCH PURCHASES RECORDED AND ALSO BECA USE NO EVIDENCE WAS PRODUCED, TREATING SUCH PURCHASES AS BOGUS, AN AMOUNT OF RS.72,45,255/- WAS ADDED TO THE INCOME OF ASSESSEE. AS THE ASSESSEE HAD CONCEALED PARTICULARS OF INCOME TO THAT EXTENT, PEN AL PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT WAS INITIATED ON THIS ISSUE. THE CIT (A) HAD CONFIRMED THE ADDITION MADE ON ACCOUNT OF BOGUS PUR CHASES OF RS.72,45,255/-. 5. FURTHER MORE, DURING THE COURSE OF ASSESSMENT PR OCEEDINGS, IT WAS NOTICED THAT THE ASSESSEE HAS NOT FURNISHED PROFIT & LOSS ACCOUNT, BALANCE SHEET ETC. FROM EXCEL PHARMACHEM INDUSTRIES , WHERE THE ASSESSEE WAS A PROPRIETOR. IN ABSENCE OF DETAILS AN D IN ABSENCE OF ANY SUPPORTING MATERIAL, BILLS/VOUCHERS, GP WAS ESTIMAT ED @42.73%, WHICH WORKS OUT TO RS.7,03,940/-. THE ASSESSEE HAD SHOWN GROSS PROFIT OF RS.4,09,186/-. THEREFORE, DIFFERENCE OF RS.2,94,754 /- WAS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. PENALTY PROCEEDIN GS U/S.271(1)(C) OF THE ACT WAS INITIATED ON THIS ISSUED AS THE ASSESSE E HAS FURNISHED INACCURATE PARTICULARS OF HIS INCOME. THE CIT(A) HA S CONFIRMED THE ADDITION. 6. IN VIEW OF THE CIT(A)'S ORDER NO. CAB/11-402/09 -10, DATED 20.01.2011, A FRESH OPPORTUNITY WAS GRANTED BY ISSU ING NOTICE U/S.271(1)(C) OF THE ACT ON 24.01.2012 REQUIRING HI M TO ATTEND ON 03.02.2012, HOWEVER, TILL DATE THE ASSESSEE HAS NOT SUBMITTED ANY SUBMISSION/EXPLANATION IN THIS REGARD. THEREFORE, I T IS PRESUMED THAT THE ASSESSEE HAS NOTHING TO SAY IN THE MATTER AND THE O RDER IS PASSED ON THE FACTS OF THE CASE AND ON MERITS. ITA NO.53/AHD/2 015 SHRI KAVALJIT SINGH CHHABRA VS. ACIT A.Y. 2007-08 - 5 - 7. IN THIS CASE, THE ADDITIONS WERE MADE AFTER IN-D EPTH INQUIRIES; AND VERIFICATION OF MATERIAL AVAILABLE ON RECORD. I T IS ONUS ON THE ASSESSEE TO SUBSTANTIATE WITH SUPPORTING EVIDENCE A NY ENTRY IN THE BOOKS OF THE ASSESSEE. FARTHER, IN RECENT DECISION OF HON 'BLE SUPREME COURT IN THE CASE OF DHARMENDRA TAXTILES PROCESSORS & OTHERS 306 ITR 277(SC), HAS HELD AS UNDER. 'OBJECT BEHIND ENACTMENT OF S.271(1)(C) R/W EXPLANA TIONS INDICATES THAT THE SAID SECTION HAS BEEN ENACTED TO PROVIDE A REMEDY OF LOSS OF REVENUE. THE PENALTY UNDER THAT P ROVISION IS A CIVIL LIABILITY. WILLFUL CONCEALMENT IS NOT AN ESSE NTIAL INGREDIENT FOR ATTRACTING CIVIL LIABILITY AS IS THE CASE IN TH E MATTER OF PROSECUTION UNDER S.276C OF THE IT ACT. IN UNION BU DGET OF 1996-97, S.11AC OF THE CENTRAL EXCISE ACT, 1944 WAS INTRODUCED. IT IS MADE THE POSITION CLEAR THAT THERE IS NO SCOP E FOR ANY DISCRETION. IN PARA 136 OF THE UNION BUDGET REFEREN CE HAS BEEN MADE TO THE PROVISION STATING THAT LEVY OF PENALTY IS A MANDATORY PENALTY. IN THE NOTES ON CLAUSES ALSO THE SIMILAR I NDICATION HAS BEEN GIVEN. ABOVE BEING THE POSITION, THE PLEASE TH AT THE RR.96ZQ AND 96ZO HAVE A CONCEPT BUT CHAIRMAN, SEBI V/S SHRI RAM MUTUAL FUND & ANR.2006 (5) SCC 361 HAS DECIDED THE LEGAL POSITION IN THE CORRECT PERSPECTIVES. SECTION 11AC OF THE CENTRAL EXCISE ACT 1944 INSERTED BY FINANCE ACT 1996 WITH T HE INTENTION OF IMPOSING MANDATORY PENALTY ON PERSONS WHO EVADED PAYMENT OF TAX CANNOT BE READ TO CONTAIN MENS REA AS AN ESS ENTIAL INGREDIENT' 8. IN VIEW OF THE OBSERVATION OF THE HON'BLE SUPREM E COURT IT IS CLEAR THAT THE ASSESSEE HAS CONCEALED HIS INCOME TO THE EXTENT OF RS.98,52,733/-(RS.23,12,724/- ON ACCOUNT OF LOW GP + RS.72,45,255/- ON ACCOUNT BOGUS PURCHASES + RS. 2,94,754/- ON ACCO UNT OF GP IN EXCEL PHARMACHEM), FOR WHICH HE IS LIABLE TO BE PENALIZED U/S.271(1)(C) OF THE ACT AS HELD IN THE DECISION OF THE SUPREME COURT CI TED ABOVE. THE ONUS OF PROVING THAT THERE WAS NO CONCEALMENT IS ON THE ASSESSEE AND THE ASSESSEE FAILED TO DO SO. 9. WITHOUT PREJUDICE TO THE ABOVE, PENALTY IS LEVI ABLE IN VIEW OF EXPLANATION 1 TO SECTION 271(1)(C) OF THE ACT ALSO. THE EXPLANATION 1 TO SECTION 271(1)(C) IS REPRODUCED AS UNDER:- ITA NO.53/AHD/2 015 SHRI KAVALJIT SINGH CHHABRA VS. ACIT A.Y. 2007-08 - 6 - 'EXPLANATION 1 - WHERE IN RESPECT OF ANY FACTS MATE RIAL TO THE COMPUTATION OF THE TOTAL INCOME OF ANY PERSON UNDER THIS ACT, - (A) SUCH PERSON FAILS TO OFFER AN EXPLANATION OR OF FERS AN EXPLANATION WHICH IS FOUND BY THE ASSESSING OFFICER OR THE COMMISSIONER (APPEALS) TO BE FALSE, OR (B) SUCH PERSON OFFERS AN EXPLANATION WHICH HE IS N OT ABLE TO SUBSTANTIATE AND FAILS TO PROVE THAT SUCH EXPLANATI ON IS BONA FIDE AND THAT ALL THE FACTS RELATING TO THE SAME AND MAT ERIAL TO THE COMPUTATION OF HIS TOTAL INCOME HAVE BEEN DISCLOSED BY HIM, 10. WITH THE ENACTMENT OF THE AFORESAID EXPLANATION , MENS REA HAS NOT TO BE PROVED BY THE DEPARTMENT BUT THE ASSESSEE HAS TO PROVE THAT THERE WAS NO CONCEALMENT, AS SETTLED IN THE CASE OF C1T VS. MUSSADILAL RAMBHAORSE, 165 ITR 14, 20 (SC); CIT VS. K.R. SADY APPAN, 185 ITR 49 (SC) CIT (ADDL.) VS. JEEVAN LAL SHAH, 205 ITR 24 4 (SC), B.A. BALASUBRAMANIAM AND BRORTHERS CO. VS. CIT, 236 ITR 977, 978 (SC) AND K.P. MADHUSUDANAN VS. CIT, 251 ITR 99 (SC). 11. FROM THE ABOVE, IT IS CLEAR THAT AT THE TIME O F ASSESSMENT PROCEEDINGS AND THE PENALTY PROCEEDINGS, THE ASSESS EE COULD NOT PROVE THAT THERE WAS NO CONCEALMENT. IN VIEW OF THE FACTS OF THE CASE, I AM SATISFIED THAT IN THIS CASE, THE ASSESSEE HAS FURNI SHED INACCURATE PARTICULARS OF HIS INCOME AND THEREBY CONCEALED ITS INCOME TO THE EXTENT OF RS.98,52,733/- BY REDUCING GP IN BOTH THE PROPRI ETARY CONCERNS AND BY CLAIMING BOGUS PURCHASES AND THEREBY COMMITTED A DEFAULT WITHIN THE MEANING OF SECTION 271(1)(C) OF THE I.T. ACT, 1 961. THIS IS A FIT CASE FOR LEVYING PENALTY U/S.271(1)(C) OF THE I.T. ACT A FTER INVOKING EXPLANATION (1) TO SECTION 271(1) OF THE ACT. (A) AMOUNT OF INCOME ON WHICH TAX IS SOUGHT TO BE EVADE D :RS. 98,52,733/- (B) AMOUNT OF TAX SOUGHT TO BE EVADED : RS. 33,16,430/- (C) PENALTY U/S. 271(1)(C) 100% THEREOF : RS. 33,16,430/- (D) PENALTY U/S. 271(1)(C) 300% THEREOF : RS. 99,49,290/-. 3. LD. COMMISSIONER OF INCOME TAX LEVIED THE PENALT Y OF RS.33,16,430/- @ 100% OF TAX. ITA NO.53/AHD/2 015 SHRI KAVALJIT SINGH CHHABRA VS. ACIT A.Y. 2007-08 - 7 - 4. AGAINST THE SAID ORDER ASSESSEE PREFERRED FIRST STATUTORY APPEAL BEFORE THE LD. CIT(A) WHO DISMISSED THE APPEAL OF T HE ASSESSEE. 5. NOW APPEAL IS BEFORE US. 6. WE HAVE GONE THROUGH THE RELEVANT RECORD AND IMP UGNED ORDER. IN THIS CASE, ADDITIONS HAVE BEEN MADE ON ACCOUNT OF R EJECTION OF PLAUSIBLE EXPLANATION FURNISHED BEFORE THE LOWER AUTHORITY AN D ALL ADDITIONS ARE ON ESTIMATED ADDITION. LD. AR CITED AN ORDER OF CO-ORD INATE BENCH IN ITA NO.3130 & 3131/AHD/2011 FOR ASST. YEAR 1996-97 & 19 97-98. IN SIMILAR CASE CO-ORDINATE BENCH DELETED THE PENALTY WITH FOL LOWING OBSERVATION: WE FURTHER FIND THAT HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SUBHASH TRADING COMPANY (1996) 221 ITR 110 (GUJ) HA D CONCLUDED THAT WHERE INCOME IS ASSESSED ON ESTIMATE BASIS AFT ER REJECTING BOOK RESULTS, PENALTY U/S. 271(L)(C) CANNOT BE IMPOSED B Y MERE APPLICATION OF EXPLANATION THEREOF IN THE ABSENCE OF ANY EVIDENCE TO CONCLUDE A POSITIVE FINDING THAT THERE WAS CONCEALMENT OF INCO ME. IN VIEW OF THE AFORESAID FACTS AND FOLLOWING THE DECISION OF HON'B LE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SUBHASH TRADING (SUPRA ) WE ARE OF THE VIEW THAT NO PENALTY IS LEVIABLE IN THE PRESENT CASE AND THEREFORE DIRECT ITS DELETION. IN THE RESULT THIS GROUND OF ASSESSEE IS ALLOWED. 7. RESPECTFULLY FOLLOWING THE ORDERS OF CO-ORDINATE BENCH, WE DELETE THE PENALTY AND WE ARE ALSO OF THE OPINION THEN WHE RE INCOME IS ASSESSED ON ESTIMATE BASIS AFTER REJECTING THE BOOK RESULT, PENALTY U/S.271(1)(C) CANNOT BE LEVIED. ITA NO.53/AHD/2 015 SHRI KAVALJIT SINGH CHHABRA VS. ACIT A.Y. 2007-08 - 8 - 8. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS A LLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 18 /01/2018 SD/- SD/- ( ) 4 5 ( N.K. BILLAIYA ) ( MAHAVIR PRASAD ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 18/01/2018 PRITI YADAV, SR. PS !'# $#! # COPY OF THE ORDER FORWARDED TO : 1. !$' / THE APPELLANT 2. ($' / THE RESPONDENT. 3. 67- + 8- / CONCERNED CIT 4. + 8- 4!5 / THE CIT(A)-II, BARODA. 5. 9:;-67 !.!672 ! / DR, ITAT, AHMEDABAD 6. ;<=, # GUARD FILE. % & / BY ORDER, (9-- //TRUE COPY// '/& () ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION 16/01/2018 . 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 17/01/2018 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S. 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER