M/s. Kundalia Traders, JAMNAGAR V. The Income Tax Officer, Ward-2(1), JAMNAGAR

ITA 61/RJT/2013

• Counselvise Citation: 6124914 RSA 2013
• Duration Of Justice: 2 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-06-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 10-06-2013
• Assessment Year: 2004-2005
• Appeal Filed On: 18-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K C MATHEWS
• Assessee Lawyers: C HETAN AGARWAL CA S
• Keywords: Rejection of books of accounts; Bad and doubtful debts; Revised return

Judgement Text

I , IN THE INCOME TAX APPELLATE TRIBULAL; RAJKOT BENCH, RAJKOT. . . 6 I . . I I BEFORE SHRI T. K. SHARMA JM AND SHRI D. K. SRIVASTAVA AM ITA NO. 6 1 /RJT/2013 D D / ASSESSMENT YEAR 200 4 - 0 5 M /S. KUNDALIA TRADERS, K. P. SHAH HOUSE, K.V. ROAD, JAMNAGAR. PAN : A ACFK2128H ( / APPELLANT) THE INCOME - TAX OFFICER, WARD - 2 ( 1 ), JAMNAGAR NR / RESPONDENT D S / ASSESSEE BY SHRI C HETAN AGARWAL , CA. S / REVENUE BY SHRI K. C. MATHEWS, DR. S / DATE OF HEARING 10 - 06 - 2013 S / DATE OF PRONOUNCEMENT 14 - 06 - 2013 / ORDER . . , 6 I / T. K. SHARMA, J. M. : THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER DATED 2 3 - 0 1 - 201 3 OF CIT (A) , JAMNAGAR CONFIRMING THE PENALTY OF RS.62,300/ - LEVIED BY AO U/S.271(1)(C) OF THE I.T. ACT, 1961 FOR THE ASSESSMENT YEAR 200 4 - 0 5 . 2. THE FACTS IN BRIEF, ARE THAT THE ASSESSEE IS A FIRM ENGAGED IN TRADING AND JOB CONTRACTOR OF COLOUR PAINTS. FOR THE ASSESSMENT YEAR UNDER APPEAL, IT FILED THE RETURN OF INCOME ON 31 - 10 - 2004 DECLARING TOTAL LOSS OF RS.2,86,597/ - ALONGWITH AUDIT REPORT U/S.44AB OF THE I.T. ACT, 19 61. IN THIS CASE, SURVEY U/S.133A WAS CONDUCTED ON 10 - 12 - 2003 AND FOR THIS REASON, THIS CASE WAS SELECTED FOR SCRUTINY. AO MADE THE ASSESSMENT U/S.143(3) R.W.S.145(3) ON 29 - 12 - 2006 AND ESTIMATED TH E TOTAL INCOME OF RS.3,79,760/ - AFTER REJECTING THE BOOKS OF ACCOUNT. IN THIS ASSESSMENT ORDER, AO ALSO INITIATED THE PENALTY PROCEEDINGS U/S.271(1)(C) OF THE I.T. ACT, 1961 FOR FURNISHING INACCURATE PARTICULARS OF INCOME AS PER EXPLANATION - 1 OF SECTION 271(1)(C) OF THE I.T. ACT, 1961. 3. ON APPEAL BEFORE LD. CIT (A), REGARDING REJECTION OF BOOKS OF ACCOUNTS AND ESTIMATING SALES AT RS.65,00,000/ - AND APPLYING GP @ 10.25% WAS NOT PRESSED. ITA 61 - 201 3 2 HOWEVER, THE SEPARATE ADDITION OF COMMISSION INCOME AMOUNTING TO 1,87,421/ - AND ADDITION OF RS.13,271/ - AS BAD DEBTS WERE D ELETED BY LD. CIT (A). APART FROM THIS, THE LD. CIT (A) RESTRICTED THE DISALLOWANCE OF TELEPHONE EXPENDITURE TO RS.7,500/ - . AFTER GIVING THE EFFECT TO THE ORDER OF LD. CIT (A), THE TOTAL WAS DETERMINED AT RS.1,07,450/ - AS AGAINST THE TOTAL LOSS RETURNED BY THE ASSESSEE IN THE RETURN OF INCOME AT RS. 2,86 ,597/ - WAS REDUCED TO RS.1,07,450/ - . 4. AFTER GIVING THE APPEAL EFFECT, THE PENALTY PROCEEDING U/S.271(1)(C) WERE RESUMED BY AO BY ISSUING SHOW CAUSE NOTICE. 5. IN REPLY TO THE SHOW CAUSE NOTICE, ASSESSEE MADE THE FOLLOWING SUBMISSIONS: - 1 . IN THE ASSESSMENT, LD. AO HAS MADE AS ESTIMATION OF SALES OF RS.65,00,000/ - AND APPLIED THE GROSS PROFIT RATE AT 10.25% WITHOUT CONSIDERING THE GROSS PROFIT DISCLOSED BY THE ASSESSEE AND ESTIMATION MADE BY AO IN EARLIER ASSESSMENT YEAR WHICH WAS INCLUSIVE OF COMMISSION AND INCENTIVE INCOME A PART AND PARCEL OF GROSS PROFIT. 2 . YOUR HONOUR MAY KINDLY NOTE THAT THE ADDITION MADE WAS PURELY ON ADHOC BASIS, WITHOUT POINTING OUT ANY SPECIFIC DEFECT IN BOOKS OF ACCOUNTS, WITHOUT REJECTING BOOKS OF ACCOUNTS. 3 . THE ADDITION MADE ON ADHOC AND ESTIMATED BASIS CANNOT ATTRACT PENALTY AS ENVISAGED IN SECTION 271(1)(C) OF THE ACT. MERE ADDITION MADE IN ASSESSMENT DOES NOT AUTOMATICALLY LEAD TO PENALTY. 4 . IN VIEW OF THIS, WE KINDLY REQUEST YOUR HONOUR TO DROP THE PENALTY PROCEEDING AND OBLIGE. 6. AFTER CONSIDERING THE AFORESAID REPLY, AO OBSERVED THAT ASSESSEE MADE SALES AS WELL AS PURCHASES OUTSIDE THE BOOKS OF ACCOUNT. AS PER SURVEY REPORT, STOCK FOUND ON PHYSICAL VERIFICATION IS ALSO IN DEFICIT FIGURE OF RS.9,17,841/ - . THIS WAS ONE OF THE REASON S FOR REJECTION OF BOOKS OF ACCOUNT S AND ESTIMAT ION OF GP @ 10. 2 5% . THEREFORE, THE REPLY OF THE ASSESSEE TO DROP THE PROCEEDINGS IS NOT ACCEPTABLE. AO FURTHER OBSERVED THAT AFTER REJECTION OF BOOKS OF ACCOUNTS, TURNOVER WAS ESTIMATED AT RS.65,00,000/ - AND GP RATE WAS ADOPTED @ 10.25% AND GROSS PROFIT WAS ARRIVED AT RS.6,66,250/ - AND ADDITION OF RS.13,271/ - WAS MADE ON ACCOUNT OF DIFFERENCE AS WORKED OUT IN THE REVISED TRADING ACCOUNT FROM 11 - 1 2 - 2003 TO 31 - 03 - 2004. THESE PARTICULARS ARE WELL WITHIN THE KNOWLEDGE OF THE ASSESSEE. AO ACCORDINGLY WORKED OUT THE TAX SOUGHT TO BE EVADED AT RS.62,293/ - AND LEVIED THE MINIMUM PENALTY OF RS.62,300/ - U/S. 271(1)(C) OF THE I.T. ACT, 1961 BEING TAX SOUGH T TO BE EVADED @ 100% ITA 61 - 201 3 3 OF CONCEALED INCOME. ON APPEAL AGAINST THE PENALTY ORDER, BEFORE LD. CIT (A) ASSESSEE FILED DETAILED SUBMISSIONS WHICH ARE PRODUCED BY LD. CIT (A) IN PARA - 5 OF THE IMPUGNED ORDER. AFTER CONSIDERING THE REPLY OF THE ASSESSEE, THE LD. CIT (A) CONFIRMED THE PENALTY MAINLY ON THE GROUND THAT EXPLANATION - 1 TO SECTION 271(1)(C) IS ATTRACTED. THE RELEVANT OBSERVATIONS MADE BY LD. CIT (A) IN PARA - 7 READ AS UNDER: - 7. IN THE INSTANT CASE THERE IS NO DISPUTE OVER THE FACT THAT A SURVEY OPER ATION WAS CARRIED OUT IN THE BUSINESS PREMISES OF THE APPELLANT DURING WHICH, UNACCOUNTED SALES OF RS.9,17,841/ - AS EVIDENCED FROM THE DEFICIT ON PHYSICAL STOCK WAS FOUND, WHICH FORMED THE BASIS FOR MAKING ADDITION TO THE GP IN THE HANDS OF THE APPELLANT. THE ADDITION OF RS.1,73,639 MADE BY THE AO PERTAINING TO UNACCOUNTED SALES, VIDE HIS ORDER DTD. 29 - 12 - 2006 NOW REMAINS AN ACCEPTED AMOUNT OF CONCEALED INCOME. THE APPELLANT DID NOT PURSUE ITS GROUNDS OF APPEAL AGAINST THE DETERMINATION OF SALES TURNOVER NOR AGAINST THE COMPUTATION OF GP @ 10.25% MADE BY THE AO, THEREBY IMPLICITY ACCEPTING THE ADDITIONS TO GP ON THE UNACCOUNTED SALES AND DISCREPANCY NOTICE IN TRADING ACCOUNT AS MENTIONED ABOVE. THE AO HAS DETERMINED THE TOTAL QUANTUM OF CONCEALED INCOME A T RS.1,73,639/ - IN THE PENALTY ORDER AND THIS HAS REACHED ITS FINALITY AND THE APPELLANT HAS ACCEPTED THE ADDITION. NEEDLESS TO MENTION HERE THAT THE CONCEALED INCOME OF RS.1,73,639 COULD NOT HAVE BEEN BROUGHT TO THE PURVIEW OF TAXATION HAD THERE BEEN NO SURVEY CONDUCTED IN ITS PREMISES. THE AMOUNT WHICH WAS ADDED BY THE AO AND WAS CONFIRMED BY THE CIT (A) WAS NEITHER VOLUNTARILY DISCLOSED BY THE APPELLANT NOR OFFERED TO TAX IN THE COURSE OF ASSESSMENT PROCEEDINGS NOR ANY REVISED RETURN WAS FILED. THE AM OUNT WAS SUSTAINED PURELY ON THE FACTS OF THE CASE AND ON ACCOUNT OF FURNISHING OF INACCURATE PARTICULARS OF INCOME BY THE APPELLANT IN ITS RETURN OF INCOME. UNDER THE CIRCUMSTANCES THE APPELLANT CANNOT CLAIM THAT MISCHIEF OF SEC. 271(1)(C) READ WITH EXPL ANATION - 1 CANNOT APPLY TO ITS CASE. AGGRIEVED WITH THE ORDER OF LD. CIT (A), THE ASSESSEE IS NOW IN APPEAL BEFORE THE TRIBUNAL. 7. AT THE TIME OF HEARING BEFORE US, ON BEHALF OF THE ASSESSEE, SHRI CHETAN AGARWAL, CA, APPEARED AND CONTENDED THAT ASSESS EE DID NOT PURSUE ITS GROUNDS OF APPEAL AGAINST THE DETERMINATION OF SALES TURNOVER NOR AGAINST THE COMPUTATION OF GP @ 10.25% MADE BY THE AO BECAUSE FINALLY ASSESSED INCOME AFTER GIVING APPEAL EFFECT TO THE ORDER OF LD. CIT (A) WORKED OUT THE LOSS OF RS. 1,07,450/ - AS AGAINST THE TOTAL LOSS DECLARED AT RS.2,86,597/ - . THE COUNSEL OF THE ASSESSEE POINTED OUT THAT SINCE THERE WAS NO TAX DEMAND AFTER GIVING APPEAL EFFECT TO THE ORDER OF LD. CIT (A), THE ASSESSEE DID NOT PURSUE ITS GROUNDS OF APPEAL BEFORE TH E LD. CIT (A). COUNSEL OF THE ASSESSEE FURTHER POINTED OUT THAT DURING THE COURSE OF SURVEY U/S.133A ON 10 - 12 - 2003, SHORTAGE OF STOCK OF RS.9,17,841/ - WAS FOUND . TO SURVEY PARTY IT WAS EXPLAINED THAT THIS SHORTAGE OF STOCK WAS DUE TO THE FACT THAT ASSESSE E HAS GIVEN THE GOODS ON DELIVERY CHALLAN S AND SALES BILLS ARE NOT MADE AS PER BUSINESS PRACTICE. DELIVERY CHALLANS ARE SUBMITTED ITA 61 - 201 3 4 TO SURVEY PARTY, WHICH WERE IMPOUNDED. ALL THESE CHALLANS WERE SUBSEQUENTLY DULY ENTERED IN THE BOOKS OF ACCOUNTS. THE AO T REATED THE SHORTAGE AS UNDISCLOSED SALES AND REJECTED THE BOOKS OF ACCOUNT AND ESTIMATE D THE TURNOVER AT RS.65,00,000/ - AND ALSO MADE ANOTHER ADDITION OF RS.13,271/ - ON ACCOUNT OF ARITHMETICAL MISTAKE IN PREPARING TRADING ACCOUNT. ON TURNOVER ESTIMATED AO APPLIED GP @ 10.25%. THE COUNSEL OF THE ASSESSEE POINTED OUT THAT SINCE SUBSEQUENTLY, ALL THE DELIVERY CHALLANS WERE ENTERED IN THE BOOKS OF ACCOUNT , ADDITIONS WERE MADE ON ESTIMATED BASIS, NO PENALTY U/S.271(1)(C) IS LEVIABLE. 8. CONTINUING HIS ARGUMENT , THE COUNSEL OF THE ASSESSEE POINTED OUT THAT THE SHORTAGE CANNOT BE EQUATED WITH VERSION OF AO THAT ASSESSEE HAS NOT MADE ANY SALES WHICH ARE NOT RECORDED IN THE BOOKS OF ACCOUNT. HE FURTHER SUBMITTED THAT PENALTY U/S.271(1)(C) IS NOT AUTOMATIC. IN ASS ESSMENT, ADDITION CAN BE ON THE BASIS OF PRESUMPTION . B UT IN PENALTY PROCEEDINGS, THE ASSESSING O FFICER HAS TO ESTABLISH THAT THERE IS A CONSCIOUS CONCEALMENT. IN THIS CASE, THE RETURN SALES FINALLY ASSESSED IS A LOSS. THEREFORE, THERE WAS NO MOTIVE TO A VOID TAX OR NOT TO REC ORD THE ENTIRE SALES IN THE BOOKS OF ACCOUNTS. 9. THE COUNSEL OF THE ASSESSEE FURTHER POINTED OUT THAT IN THE CASE OF CIT V. RAVAIL SINGH & CO. (2002) 254 ITR 191 (P&H) AND HARIGOPAL SINGH V. CIT (2002) 258 ITR 85 (P&H). PUNJAB AND H ARYANA HIGH COURT HAS HELD THAT IN ORDER TO ATTRACT CLAUSE OF SECTION 271(1) OF THE ACT, IT IS NECESSARY THAT THERE MUST BE CONCEALMENT BY THE ASSESSEE OF THE PARTICULARS OF HIS INCOME OR FURNISHING OF INACCURATE PARTICULARS OF SUCH INCOME. THE PROVISION S OF SECTION 271(1)(C) OF THE ACT ARE NOT ATTRACTED TO CASES WHERE THE INCOME OF ASSESSEE IS ASSESSED ON ESTIMATE BASIS AND ADDI TI ONS ARE MADE THEREIN. IT WAS HELD THAT WHEN THE ADDITION HAD BEEN MADE ON THE BASIS OF ESTIMATE AND NOT ON ACCOUNT OF ANY CON CRETE EVIDENCE OF CONCEALMENT, THEN THE PENALTY WAS NOT LEVIABLE. A SIMILAR VIEW WAS TAKEN ALSO BY PUNJAB & HARIYANA HIGH COURT IN CIT V. DHILON RICE MILLS (2002) 256 ITR 447 (P&H), WHERE THE ADDITION WAS MADE BY THE ASSESSING OFFICER BY ESTIMATING THE YI ELD OF SUPER PHAK AS WELL AS OF CHHILKA AND ALSO THE PRICE OF CHHILKA, THAT ADDITION WAS REDUCED BY THE COMMISSIONER (APPEALS). HOWEVER, THE PENALTY LEVIED BY THE ASSESSING OFFICER WAS DELETED BY THE COMMISSIONER (APPEALS). THE ORDER OF ITA 61 - 201 3 5 COMMISSIONER (APPE ALS) WAS CONFIRMED BY THE TRIBUNAL AND THE APPEAL FILED BY THE REVENUE AGAINST THE SAID ORDER OF THE TRIBUNAL WAS DISMISSED BY THE COURT, ON THE GROUND THAT THE ASSESSING OFFICER HAD MADE THE ADDITION ON THE BASIS OF ESTIMATE OF THE YIELD OF PHAK AND CHHIL KA AND AN ESTIMATE OF THE PRICE AND THAT THE ESTIMATE WOULD NOT IPSO FACTO LEAD TO PENALTY. LIKEWISE, WHERE ASSESSEES EXPLANATION WAS BONA FIDE, PENALTY UNDER SECTION 271(1)(C) COULD NOT BE IMPOSED AFTER ESTIMATING THE SALE AND MAKING ADDITION APPLYING T HE NET PROFIT RATE. VIDE CIT V. ARJUN PRASAD AJ IT KUMAR (2008) 1 DTR (ALL) 272. 10. AS AGAINST THIS, THE LD. DR POINTED OUT THAT IN THIS CASE, THE BOOKS OF ACCOUNT ARE REJECTED AS AT THE TIME OF SURVEY DEFICIT STOCK OF RS.9,17,841/ - WAS FOUND. THE AO TOO K THE VIEW THAT THE ASSESSEE MADE UNACCOUNTED SALES AND FOR THIS REASON, THE BOOKS OF ACCOUNT WERE REJECTED. TURNOVER WAS ESTIMATED AT RS.65,00,000/ - AND GP @10.25% WAS APPLIED. HE ACCORDINGLY POINTED OUT THAT THIS IS THE FIT CASE TO LEVY THE PENALTY. T HE LD. DR ALSO RELIED ON THE DECISION OF ITAT, RAJKOT BENCH IN THE CASE OF SHRI G HANSHYAMDAS KOTUMAL ISSRANI WHEREIN ALSO AO MADE THE ADDITION OF RS.58,98,140/ - IN RESPECT OF UNRECORDED SALES WHICH WAS FOUND AT THE TIME OF SURVEY. ON APPEAL, THE LD. CIT ( A) RESTRICTED THE ADDITION OF RS.1,25,062/ - BY ESTIMATING PROFIT ON UNRECORDED SALES OF RS.58,98,140/ - AND TRIBUNAL CONFIRMED THE PENALTY LEVIED U/S.271(1)(C) AMOUNTING TO RS.39,480/ - . IN REJOINDER, COUNSEL OF THE ASSESSEE POINTED OUT THAT THE AFORESAID J UDGMENT OF THE TRIBUNAL IS NOT APPLICABLE TO THE FACTS OF THE ASSESSEES CASE IN THE CASE OF SHRI GHANSHYAMDAS KOTUMAL ISSRANI (SUPRA) RELIED BY LD. DR. UNRECORDED SALES OF RS.58,98,140/ - WAS FOUND WHEREAS IN THE CASE OF ASSESSEE, DEFICIT STOCK WAS FOUND W HICH WAS RECORDED IN THE BOOKS OF ACCOUNT AFTER THE DATE OF SURVEY. AO IN ASSESSMENT ORDER REJECTED THE BOOKS OF ACCOUNT, ESTIMATED THE TURNOVER AND APPLIED GO @ 10.25%. THEREFORE, THE FACTS OF THE ASSESSEE ARE DIFFERENT THAN OF SHRI GHANSHYAMDAS KOTUMAL ISSRANI (SUPRA) RELIED ON BY LD. DR. 11. HAVING HEARD BOTH SIDES, WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT DEFICIT SALE FOUND AT THE TIME OF SURVEY, HAS DULY BEEN RECORDED BY THE ASSESSEE SUBSEQUENTLY I.E. IN THE ACCOUNTING YEAR ITSELF, IN THE BOOKS OF ACCOUNTS. IN THE IMPUGNED ORDER, AO REJECTED THE BOOKS OF ACCOUNTS, ITA 61 - 201 3 6 ESTIMATED THE SALE AND APPLIED GP @ 10.24%. IN THIS MANNER, HE MADE ADDITION OF RS.13,271/ - . THE DECISION OF THIS TRIBUNAL IN THE CASE OF SHRI GHANSHYAMDAS KOTUMAL ISSRANI (SUPRA) IS NOT APPLICABLE TO THE FACTS OF THE ASSESSEES CASE. BE THAT IT MAY BE, IN THE PRESENT CASE, AO ESTIMATED THE INCOME AND IT IS WELL SETTLED LAW THAT WHEN INCOME IS ESTIMATED BY ESTIMATING THE TURNOVER AND AP PLYING GP THEREON, PENALTY U/S.271(1)(C) IS NOT LEVIABLE. WE ARE THEREFORE OF THE VIEW THAT THIS IS NOT A FIT CASE FOR LEVYING THE PENALTY U/S. 271(1)(C) OF THE I.T. ACT, 1961. THEREFORE, PENALTY OF RS.13,271/ - LEVIED BY AO U/S.271(1)(C) OF THE I.T. ACT, 1961 IS HEREBY QUASHED. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. 13. THIS O RDER IS PRONOUNCED IN OP EN COURT ON THE DATE MENTIONED HEREINABOVE. SD/ - SD/ - ( . . D. K. SRIVASTAVA ) ( . . D / T. K. SHARMA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / ORDER DATE 14 - 0 6 - 2013. /RAJKOT NVA/ - 4 6JO O / COPY OF ORDER FORWARDED TO: - 1 . / APPELLANT - M/S. KUNDALIA TRADERS,K. P. SHAH HOUSE, K.V. ROAD, JAMNAGAR. 2 . NR / RESPONDENT - THE INCOME - TAX OFFICER, WARD - 2(1), JAMNAGAR. 3 . I M / CONCERNED CIT , JAMNAGAR. 4 . M - / CIT (A) , JAMNAGAR. 5 . NI , I , / DR, ITAT, RAJKOT 6 . D / GUARD FILE. / BY ORDER TRUE COPY. SENIOR PRIVATE SECRETARY, ITAT, RAJKOT