M/s. Ace Steel Fab (P) Ltd., Meerut V. DCIT, Faridabad

ITA 5431/DEL/2016

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 6843 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-04-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC 1
• Assessment Year: 2010-2011
• Appeal Filed On: 20-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATPAL GULATI
• Assessee Lawyers: P S KASHYAP
• Keywords: Search and seizure; Set aside
• Section: 133A; 13; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A: NEW DELHI (THROUGH VIDEO CONFERENCING) BEFORE, SHRI G.S. PANNU, VICE PRESIDENT AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER I.T.A NO.5431/DEL/2016 (ASSESSMENT YEAR 2 010-11) M/S ACE STEEL FAB (P) LTD. KASHYAP & CO. CHARTERED ACCOUNTANTS 214, CITI CENTER, BEGUM BRIDGE ROAD, MEERUT (U.P) 250001. PAN-AAECA 6938N VS. DY.CIT CENTRAL CIRCLE-1, FARIDABAD. (APPELLANT) (RESPONDENT) APPELLANT BY SH. P.S. KASHYAP, ADV. RESPONDENT BY SH. SATPAL GULATI, CIT- DR DATE OF HEARING 13.01.2021 DATE OF PRONOUNCEMENT 12.04.2021 ORDER PER SUDHANSHU SRIVASTAVA, JM: THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINS T ORDER DATED 16.08.2016 PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-3, GURGAON {CIT(A)} FOR ASSESSMENT YEAR 2010-11 AND 2 ITA NO.5431 /DE L/2016 M/S ACE S TEEL FAB (P) LTD. VS. DCIT CHALLENGES THE CONFIRMATION OF PENALTY OF RS.1,15,2 30/- IMPOSED U/S 271AAA OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED THE ACT). 2.0 THE BRIEF FACTS OF THE CASE ARE THAT TH E SEARCH AND SEIZURE ACTION U/S 132 OF THE ACT AND SURVEYS U/S 133A OF T HE ACT WERE CARRIED OUT ON 06.11.2009 AT VARIOUS BUSINESS PREMI SES OF M/S ACTION CONSTRUCTION EQUIPMENT LTD., GROUP OF COMPAN IES, FARIDABAD. A SEARCH OPERATION U/S 132 OF THE ACT WA S ALSO CARRIED OUT AT THE RESIDENTIAL AND BUSINESS PREMISES OF THE ASSESSEE AND IN OTHER ASSOCIATED CASES. THE RETURN OF INCOME WAS FIL ED DECLARING INCOME AT NIL AND HAD ALSO SHOWN CURRENT YEAR LOSS O F RS.1,42,45,889/- TO BE CARRIED FORWARD. ALTHOUGH, THE DUE DATE FOR FILING OF RETURN WAS 30.09.2010, THE RETURN WAS FILED ON 12.10.2010. THE ASSESSMENT WAS COMPLETED AT AN INCOME OF RS.11,5 2,314/- (ROUNDED OF TO RS.11,52,300/-) ON ACCOUNT OF ESTIMA TION OF GROSS PROFIT RATE DUE TO DIFFERENCE IN STOCK AS PER THE B OOKS OF ACCOUNTS AND THE STOCK AS PER THE PHYSICAL INVENTORY TAKEN. SUBSEQUENTLY, PENALTY OF RS.1,15,230/- WAS IMPOSED U/S 271AAA OF T HE ACT BEING 3 ITA NO.5431 /DE L/2016 M/S ACE S TEEL FAB (P) LTD. VS. DCIT 10% OF THE ALLEGED UNDISCLOSED INCOME. THE ASSESSEE S APPEAL AGAINST THE IMPOSITION OF THIS PENALTY WAS DISMISSED BY THE LD. CIT(A) AND NOW THE ASSESSEE HAS APPROACHED THIS TRI BUNAL CHALLENGING THE CONFIRMATION OF THE PENALTY BY RAIS ING THE FOLLOWING GROUNDS OF APPEAL: 1. THAT ON FACTS AND IN LAW IMPOSITION OF PENALTY UNDE R SECTION 271AAA FOR RS.1,15,230/- IS WITHOUT ANY BAS IS, TOTALLY WRONG, UNJUSTIFIED, ILLEGAL AND UNWARRANTED. THE AP PELLANT IS NOT LIABLE TO PENALTY U/S 271AAA ON THE FOLLOWING G ROUNDS: I) THAT THE LD. CIT(A) HAS NOT CONSIDERED THE VARIOUS FACTS BEFORE PASSING THE ORDER. II) THAT ADDITION WAS MADE ON ESTIMATION BASIS OF GP RA TE ASSUMING A CERTAIN AMOUNT AS STOCK IN TRADE. THERE WAS NO MATERIAL AVAILABLE TO ASSUME THE STOCK FIGURES A ND NO PENALTY CAN BE IMPOSED ON AD HOC ADDITIONS. III) THAT THE LD. A.O HAS IMPOSED PENALTY EVEN WHEN NO UNDISCLOSED INCOME WAS DISCOVERED. THEREFORE THE BASIS TAKEN AND METHOD ADOPTED BY THE ASSESSING OFFICER FOR IMPOSING PENALTY U/S 271AAA F OR RS.1,15,230/- AND CONFIRMED BY CIT(A) IS TOTALLY WR ONG, UNJUSTIFIED AND UNWARRANTED AND THE SAME DESERVES T O BE DELETED IN FULL. 4 ITA NO.5431 /DE L/2016 M/S ACE S TEEL FAB (P) LTD. VS. DCIT 2. THAT THE ASSESSEE CRAVES LEAVE TO ADD, AMEND, ALTER OR WITHDRAW ANY OF THE GROUND OF APPEAL ON OR BEFORE T HE DATE OF HEARING. 3.0 THE LD. AUTHORIZED REPRESENTATIVE (AR) SUBMITT ED THAT NO SURRENDER HAD BEEN MADE BY THE ASSESSEE DURING THE COURSE OF SEARCH AND THAT THE ADDITION OF RS.11,52,314/- IN T HE ASSESSMENT PROCEEDINGS WAS MADE BY THE ASSESSING OFFICER BY APP LYING AVERAGE GROSS PROFIT RATE FOR THE LAST THREE YEARS @ 3.68% ON ACCOUNT ON SOME DISCREPANCY IN STOCK. IT WAS FURTHER SUBMITTED THAT THE DISCREPANCY IN THE STOCK FIGURES HAD ARISEN DUE TO SOME TECHNICAL PROBLEM IN THE NEW ERP SOFTWARE INSTALLED BY THE ASSE SSEE AND, THEREFORE, THE DISCREPANCY IN STOCK COULD NOT BE AT TRIBUTED TO ANY DEFAULT ON THE PART OF THE ASSESSEE. THE LD. AR FUR THER SUBMITTED THAT THIS WAS AN ADHOC ADDITION BASED ON APPLYING TH E AVERAGE GROSS PROFIT RATE FOR LAST THREE YEARS AND, THEREFO RE, THE PENALTY IMPOSED U/S 271AAA OF THE ACT WOULD NOT APPLY. IT WA S SUBMITTED THAT THERE WAS NO UNDISCLOSED INCOME OF THE ASSESSEE IN THIS YEAR AND, THEREFORE, THE PENALTY WAS WRONGLY IMPOSED. IT WA S FURTHER SUBMITTED THAT THERE WAS NO ADDITION BY THE ASSESSI NG OFFICER ON 5 ITA NO.5431 /DE L/2016 M/S ACE S TEEL FAB (P) LTD. VS. DCIT ACCOUNT OF ANY UNDISCLOSED SALE, ALTHOUGH, THE PHYS ICAL STOCK WAS FOUND TO BE LESS THAN THE BOOK STOCK. IT WAS ALSO SU BMITTED THAT THE ASSESSEE MANUFACTURED HYDRAULIC CRANES WHICH COULD N OT BE SOLD WITHOUT PAYMENT OF EXCISE DUTY AND, THEREFORE, ON TH IS ACCOUNT ALSO THE SALES FIGURES OF THE ASSESSEE WERE DULY CORROBOR ATED. HE ALSO DREW OUR ATTENTION TO A PETITION FILED BY THE ASSESS EE BEFORE THE COMPANY LAW BOARD SEEKING EXTENSION OF DATE FOR ADOP TING THE ANNUAL ACCOUNTS IN VIEW OF THE FAILURE OF THE IMPLEM ENTATION OF NEW ACCOUNTING SOFTWARE. IT WAS SUBMITTED THAT THIS PETI TION, WHICH WAS ACCEPTED AND THE OFFENCE WAS COMPOUNDED VIDE ORDER D ATED 29.04.2011, ALSO ESTABLISHES THE BONAFIDE OF THE AS SESSEE IN THIS CASE. 4.0 PER CONTRA, THE LD. CIT-DR SUBMITTED THAT THE ASSESSEE HAD ACCEPTED THE DISMISSAL OF THE ASSESSEE S APPEAL IN THE QUANTUM PROCEEDINGS BY THE LD. CIT(A) AND, THEREFOR E, THE PENALTY HAD RIGHTLY BEEN LEVIED. IT WAS FURTHER SUBMITTED T HAT THE DIFFERENCE IN THE STOCK CANNOT BE IGNORED. THE LD. CIT-DR SUB MITTED THAT THE DISCREPANCY IN STOCK HAD BEEN EXISTING FOR THREE YE ARS AS PER THE 6 ITA NO.5431 /DE L/2016 M/S ACE S TEEL FAB (P) LTD. VS. DCIT RECORDS AND THE ASSESSEE HAD NOT TAKEN SUITABLE STE PS TO GET THE SAME RECTIFIED. THE LD. CIT-DR ALSO SUBMITTED THAT THE ISSUE AROSE OUT OF DATA MIGRATION AND NOT OUT OF DATA MALFUNCTI ON AND, THEREFORE, THE PENALTY HAD BEEN RIGHTLY IMPOSED AND SHOULD BE UPHELD. 5.0 WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE A LSO PERUSED THE MATERIAL ON RECORD. THE FACTS LEADING T O IMPOSITION OF PENALTY ARE THAT THERE WAS A SEARCH OPERATION U/S 13 2(1) OF THE ACT AT THE FACTORY PREMISES OF THE ASSESSEE AT 45 TH MILE STONE, PRITHLA, PALWAL. PHYSICAL INVENTORY OF THE STOCK WAS PREPARED WITH THE HELP OF SH. SANJEEV SHARMA WHO WAS WORKING IN THE CAPACITY OF MANAGER (PRODUCTION) SINCE 2004. THE TOTAL STOCK AS ON THE DATE OF SEARCH I.E., 06.11.2009 WAS INVENTORIZED AND VALUED AT RS.4 ,46 25,176.94 AND THE STATEMENT OF SH. SANJEEV SHARMA WAS RECORDED U/S 132(4) OF THE ACT AND HE AGREED TO THE ABOVE MENTIONED FIG URE. THE ASSESSING OFFICER CONCLUDED THAT SINCE THERE WAS DI FFERENCE IN STOCK AS PER THE PHYSICAL INVENTORY TAKEN AND THE BOOKS O F ACCOUNT PREPARED BY THE ASSESSEE, SALES HAD BEEN MADE OUT O F BOOKS. THE ASSESSEE WAS ASKED TO EXPLAIN ITS POSITION VIDE QUES TIONNAIRE DATED 7 ITA NO.5431 /DE L/2016 M/S ACE S TEEL FAB (P) LTD. VS. DCIT 04.10. 2011 AND THE ASSESSEE WAS ALSO ASKED TO SHOW C AUSE AS TO WHY AN ADDITION OF RS.15,53,119/- FOR THE YEAR UNDER CONSIDERATION BY TAKING THE GROSS PROFIT RATE OF 4.6% ON THE DIFF ERENCE OF STOCK OF RS.3,13,12,889/- MAY NOT BE MADE. THE ASSESSEE, VID E REPLY DATED 19.10.2011, STATED THAT THE DISCREPANCY IN STOCK WAS ONLY DUE TO FAILURE OF THE ACCOUNTING SOFTWARE. HOWEVER, THE ASS ESSING OFFICER DID NOT ACCEPT THE ASSESSEES CONTENTION AND MADE A N ADDITION OF RS.11,52,314/-. THE QUANTUM APPEAL BY THE LD. CIT(A ) WAS DISMISSED AND SUBSEQUENTLY, PENALTY U/S 271AAA WAS I MPOSED WHICH WAS ALSO CONFIRMED BY THE LD. CIT(A). THE ESSE NTIAL QUESTION FOR OUR CONSIDERATION AT THIS JUNCTURE IS ONLY WHETH ER AN ADDITION MADE ON ACCOUNT OF TAKING THE AVERAGE GROSS PROFIT RATE CAN BE CONSIDERED TO BE ASSESSEES UNDISCLOSED INCOME FOR THE PURPOSE OF IMPOSITION OF PENALTY U/S 271AAA OF THE ACT. 5.1 SECTION 271AAA(1) SPECIFIES THAT: THE ASSESSING OFFICER MAY, NOTWITHSTANDING ANYTHIN G CONTAINED IN ANY OTHER PROVISIONS OF THIS ACT, DIRE CT THAT, IN A CASE WHERE SEARCH HAS BEEN INITIATED UNDER SECTION 132 ON OR AFTER THE 1 ST DAY OF JUNE, 2007 (BUT BEFORE THE 1 ST DAY OF JULY, 2012), THE ASSESSEE SHALL PAY BY WAY OF PENALTY IN ADDITION TO 8 ITA NO.5431 /DE L/2016 M/S ACE S TEEL FAB (P) LTD. VS. DCIT TAX, IF ANY, PAYABLE BY HIM, A SUM COMPUTED AT THE RATE OF TEN PER CENT OF THE UNDISCLOSED INCOME OF THE SPECIFIED PREVIOUS YEAR. FOR THE PURPOSES OF THIS SECTION UNDISCLOSED INCOM E MEANS: (I) ANY INCOME OF THE SPECIFIED PREVIOUS YEAR REPRESENT ED, EITHER WHOLLY OR PARTLY, BY ANY MONEY, BULLION, JEW ELLERY OR OTHER VALUABLE ARTICLE OR THING OR ANY ENTRY IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS OR TRANSACTIONS FOUND IN THE COURSE OF A SEARCH UNDER SECTION 132, WHICH HAS- (A) NOT BEEN RECORDED ON OR BEFORE THE DATE OF SEAR CH IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS MAINTAINED IN T HE NORMAL COURSE RELATING TO SUCH PREVIOUS YEAR; OR (B) OTHERWISE NOT BEEN DISCLOSED TO THE CHIEF COMMISSIO NER OR COMMISSIONER BEFORE THE DATE OF THE SEARCH; OR (II) ANY INCOME OF THE SPECIFIED PREVIOUS YEAR REPRESENT ED, EITHER WHOLLY OR PARTLY, BY ANY ENTRY IN RESPECT OF AN EXPENSE RECORDED IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS MAINTAINED IN THE NORMAL COURSE RELATING TO THE SPE CIFIED PREVIOUS YEAR WHICH IS FOUND TO BE FALSE AND WOULD NOT HAVE BEEN FOUND TO BE SO HAD THE SEARCH NOT BEEN CONDUCT ED . 5.2 IN THE PRESENT APPEAL, THE ONLY ADDITION MADE IN THE INCOME WAS OF RS.11,52,300/- ON ACCOUNT OF ESTIMATION OF GR OSS PROFIT @ 3.68%. IT IS THE CONTENTION OF THE ASSESSEE THAT T HE DISCREPANCY IN 9 ITA NO.5431 /DE L/2016 M/S ACE S TEEL FAB (P) LTD. VS. DCIT STOCK WAS DUE TO MALFUNCTION IN THE ERP SOFTWARE. THO UGH, THIS EXPLANATION WAS NOT ACCEPTED BY THE ASSESSING OFFICE R, THE ASSESSEE HAS DEMONSTRATED WITH EVIDENCE THAT DUE TO MALFUNCTI ON OF THE SOFTWARE, THE ACCOUNTS COULD NOT BE COMPLETED IN TIM E AND THAT THE ASSESSEE HAD TO APPROACH THE COMPANY LAW BOARD WITH A PETITION TO EXTEND THE DATE FOR ADOPTION OF AUDITED ACCOUNTS . THIS PETITION WAS ACCEPTED BY THE COMPANY LAW BOARD AND THE OFFENCE WAS COMPOUNDED. THEREFORE, IN OUR CONSIDERED OPINION, T HE ASSESSEE HAD A REASONABLE EXPLANATION FOR THE DISCREPANCY FO UND IN STOCK AND DUE CREDENCE SHOULD HAVE BEEN GIVEN TO THIS EXP LANATION. THEREFORE, IT CANNOT BE SAID THAT THE ASSESSEE HAD NO EXPLANATION TO OFFER REGARDING THE DIFFERENCE IN STOCK. FURTHER, T HE AMOUNT ON WHICH THE PENALTY HAS BEEN IMPOSED IS ONLY AN AD-HOC ADDITION BASED ON AVERAGE GROSS PROFIT RATE AND DOES NOT REL ATE DIRECTLY TO ANY UNDISCLOSED INCOME UNEARTHED DURING THE COURSE OF SEARCH. IN SUCH A SITUATION, IT IS OUR CONSIDERED OPINION THAT THE IMPOSITION OF PENALTY U/S 271AAA IS NOT SUSTAINABLE. WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND DELETE THE IMPUGNED PENALTY. 10 ITA NO.5431 /DE L/2016 M/S ACE S TEEL FAB (P) LTD. VS. DCIT 6.0 IN THE FINAL RESULT, THE APPEAL OF THE ASS ESSEE STANDS ALLOWED. ORDER PRONOUNCED ON 12 TH APRIL, 2021. SD/- SD/- (G.S.PANNU) (SUDHANSHU SRIVASTAVA) VICE PRESIDENT JUDICIAL MEMBER DATED:12/04/2021 PK/PS COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI