M/s. Deccan Jewellers Private Limited, Vijayawada V. The Assistant Commissioner of Income Tax Central Circle-2, Guntur

ITA 663/VIZ/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 6305 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 9 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2020
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2016-2017
• Appeal Filed On: 04-12-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Initiation of penalty proceedings; Reasonable cause; Set aside
• Section: 132; 13; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM (T HROUGH WEB - BASED VIDEO CONFERENCING PLATFORM) BEFORE SHRI V. DURGA RAO , HONBLE JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH , HONBLE ACCOUNTANT MEMBER I . T . A . NO. 572 /VIZ/2019 (ASST. YEAR: 20 1 6 - 1 7 ) THE ACIT, CENTRAL CIRCLE - 2, GUNTUR. VS. M/S. DECCAN JEWELLERS PVT. LTD., D.NO. 27 - 16 - 65, BESANT ROAD , GOVERNORPET, VIJAYAWADA . PAN NO. AACCD 1524 H (APP ELLANT ) (RESPONDENT) I.T.A. NO. 663/VIZ/2019 (ASST. YEAR : 2016 - 17 ) M/S. DECCAN JEWELLERS PVT. LTD., D.NO. 27 - 16 - 65, BESANT ROAD, GOVERNORPET, VIJAYAWADA. VS. THE ACIT, CENTRAL CIRCLE - 2, GUNTUR. PAN NO. AACCD 1524 H (APPELLANT ) (RESPONDENT) ASSESSEE BY : SHRI M.V. PRASAD , C A . DEPARTMENT BY : SHRI D.K. SONAWAL , CIT DR DATE OF HEARING : 21 / 0 9 /2020 . DATE OF PRONOUNCEMENT : 23 / 0 9 /20 20 . O R D E R PER D.S. SUNDER SINGH , ACCOUNTANT MEMBER THESE CROSS APPEAL S BY THE REVENUE AND THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX 2 ITA NO S . 572 & 663/VIZ/2019 ( M/S. DECCAN JEWELLERS PVT. LTD. ) (APPEALS) - 3 , VISAKHAPATNAM , DATED 19 /0 7 /201 9 FOR THE ASSESSMENT YEAR 20 1 6 - 1 7 . ITA NO. 572/VIZ/2019 2. ALL THE GROUNDS RAISED ARE RELATING TO CANCELLATION OF PENALTY LEVIED U/SEC. 271AAB OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'ACT') . A SEAR CH U/SEC. 132 WAS CONDUCTED IN THE CASE OF THE ASSESSEE ON 20/09/2016 . DURING THE COURSE OF SEARCH FROM THE BOOKS OF ACCOUNT S SEIZED BY THE DEPARTMENT FOUND THAT THE ASSESSEE HA S CLAIMED THE PURIFICATION LOSS OF 20% - 21% ON CONVERSION OF GOLD PURCHASED FROM THEIR CUSTOMERS. A STATEMENT U/SEC. 132(4) WAS RECORDED ON 22/09/2016 AND ON QUESTIONING THE PURIFICAT ION LOSS CLAIMED BY THE ASSESSE E , THE ASSESSEE HAS ADMITTED THE ADDITIO NAL INCOME OF RS. 2, 62,62,954/ - IN AGGREGATE FOR THE F.Y. 2015 - 16 & 2016 - 17. FOR THE ASSESSMENT YEAR UNDER CONSIDE R ATION I.E. A.Y. 2016 - 17 THE ASSESSEE HAD ADMITT ED THE ADDITIONAL INCOME OF RS. 1,75,95,335/ - AND FILED ITS RETURN OF INCOME AS DECLARED IN S EC. 132(4) OF THE ACT. THE ASSESSING OFFICER HAD INITIATED PENALTY PROCEEDINGS U/SEC. 271AAB AND ISSUED SHOW CAUSE NOTICE TO THE ASSESSE E CALLING FOR ITS EXPLANATION AS TO WHY THE PENALTY SHOULD NOT BE LEVIED U/SEC. 271AAB OF THE ACT. IN RESPONSE TO THE NOTICE ISSUED U/SEC. 271AAB, THE ASSESSEE SUBMITTED ITS EXPLANATION STATING THAT NO 3 ITA NO S . 572 & 663/VIZ/2019 ( M/S. DECCAN JEWELLERS PVT. LTD. ) UNDISCLOSED INCOME WAS FOUND DURING THE COURSE OF SEARCH. THE ADDITIONAL INCOME ADMITTED WAS PURELY TO PURCHASE PEACE WITH THE DEPARTMENT ON ESTIMATION BASIS THOUGH T HERE WAS NO EVIDENCE W A S F O U N D INDICATING THE ADDITIONAL INCOME DURING THE COURSE OF SEARCH. THE ASSESSEE FURTHER STATED THAT NO INCRIMINATING MATERIAL OR UNDISCLOSED STOCK , MONEY BULLION, JEWELLERY WAS FOUND DURING THE COURSE OF SEARCH WITHIN THE DEFINITION OF UNDI SCLOSED INCOME AS ENVISAGED IN S EC. 271AAB OF THE ACT AND HENCE, REQUESTED TO DROP THE PENALTY PROCEEDINGS. THE ASSESSING OFFICER CONSIDERED THE EXPLANATION AND VIEW ED THAT SINCE , THE ASSESSEE HAD ADMITTED THE ADDITIONAL INCOME AND A CCEPTED THE SAME, PENALTY IS LEVIABLE AND SEC. 271AAB AND IT DOES NOT GIVE ANY SCOPE TO THE ASSESSING OFFICER TO DROP THE PENAL TY PROCEEDINGS ON THE REASON OF REASONABLE CAUSE . THUS, ACCORDING TO THE ASSESSING OFFICER ONCE THE ADDITIONAL INCOME IS ADMITTED IRRESPECTIVE OF THE FACT WHETHER THE SAME REPRESENT ED UNDISCLOSED INCOME OR NOT , PENALTY IS LEVIABLE . ACCORDINGLY, THE ASSESSING OFFICER LEVIED THE PENALTY OF RS.52, 78,600/ - U/SEC. 271AAB OF THE ACT. 3 . AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE WENT ON APPEAL BEFORE THE LD. CIT(A) AND THE LD. CIT(A) VIEWED THAT THE ADDITION WAS PURELY MADE ON ESTIMATION AND T HERE WAS NO EXCESS STOCK FOUND DURING THE COURSE OF SEARCH , NO INCRIMIN A TING 4 ITA NO S . 572 & 663/VIZ/2019 ( M/S. DECCAN JEWELLERS PVT. LTD. ) MATERIAL RELATING TO EARNING OF UNDISCLOSED INCOME WAS FOUND BY THE DEPARTMENT. THEREFORE, VIEWED THAT THE EXCESS PURIFICATION LOSS ADMITTED BY THE ASSESSEE WAS DERIVED FIGURES AND NOT ON THE BASIS OF ENTRIES IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. ACCORDINGLY, HELD T H A T THE ADDITIONAL INCOME ADMITTED B Y THE ASSESSEE DOES NOT FALL UNDER THE DEFINITION OF UNDISCLOSED INCOME . ACCORDINGLY, CANCELLED THE PENALTY LEVIED BY THE ASSESSING OFFICER AND ALLOWED THE APPEAL OF THE ASSESSEE . AGAINST WHICH, THE DEPARTMENT IS IN APPEAL BEFORE US. 4 . DURING THE APPEAL HEARING , LD.DR ARGUED THAT IN THE INSTANT CASE , THE ASSESSEE HA D CLAIMED THE EXCESS PURIFICATION LOSS OF AROUND 21% AGAINST THE INDUSTRY AVERAGE OF 13% AND E XCESS LOSS CLAIMED BY THE ASSESSEE WAS ADMITTED IN THE STATEMENT RECORDED U/SEC. 132(4), THEREFORE ARGUED T H A T ADDITIONAL INCOME ADMITTED BY THE ASSESSEE FALLS UNDER THE DEFINITION U/SEC. 271AAB OF THE ACT. THUS, ARGUED THAT AO RIGHTLY LEVIED THE PENALTY AND REQUESTED TO SET ASIDE THE ORDER OF LD. CIT(A) AND ALLOW THE APPEAL OF THE R EVENUE. 5. ON THE OTHER HAND, LD. AR ARGUED THAT THE ASSESSEE HAS ADMITTED THE ADDITIONAL INCOME ONLY TO PURCHASE PEACE FROM THE DEPARTMENT AND THERE WAS NO EXCESS STOCK , MONEY, BULLION, JEWELLERY OR ANY OTHER VALUABLE ARTICLE OR THINGS OR ANY ENTRIES IN 5 ITA NO S . 572 & 663/VIZ/2019 ( M/S. DECCAN JEWELLERS PVT. LTD. ) THE BOOKS OF ACCOUNT WERE FOUND . THUS, THERE IS NO CASE FOR UNDISCLOSED INCOME, HENCE, REQUESTED TO UPHOLD THE ORDER OF THE LD. CIT(A) AND DISMISS THE APPEAL OF THE REVENUE. 6 . WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED ON RECORD. IN THE INSTANT CASE, THE LD. CIT(A) HAS GIVEN A FINDING THAT ADDITIONAL INCOME ADMITTED BY THE ASSESSEE DOES NOT REPRESENT ANY U NDISCLOSED ASSET, EXCESS STOCK OR MONEY, BULLION, JEWELLERY OR ANY OTHE R VALUABLE ARTICLE OR THING WHICH FOUND DURING THE COUR SE OF SEARCH. THE LD. CIT(A) ALSO OBSERVED THAT THE SAME WAS NOT REPRESENTED BY ANY ENTRY IN THE BOOKS OF ACCOUNT , DOCUMENTS OR TRANSACTION THAT WAS FO UND DURING THE COURSE OF SEARCH . THEREFORE HELD THAT THERE WAS NO UNDISCLOSED INCOME AND HENCE CANCELLE D THE PENALTY. FOR THE SAKE OF CLARITY AND CONVENI E N C E THE RELEVANT PART OF THE ORDER OF THE LD. CIT(A) IN PAR A 6 IS EXTRACTED WHICH READS AS UNDER: - 6.0 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS OF THE APPELLANT. THE MAIN CONTENTION OF THE .ASSESSEE IS THAT THERE IS NO 'UNDISCLOSED INCOME' AS DEFINED U/S271AAB OF THE ACT ASSESSED ON WHICH PENAL TY COULD BE LEVIED. THE ADDITION OF R S .1 , 75 , 96 ,3 35 / - WAS MADE ON ACCOUNT OF EXCESS STOCK FOUND DURING THE COURSE OF SEARCH WHICH WAS ADMITTED BY THE ASSESSEE AS ADDITIONAL INCOME IN THE STATEMENT RECORDED U/S.132(4 ). BUT IT IS SEEN FROM THE COPY OF STATEMENT FILED BEFORE ME THAT THE DISCL OSURE OF RS.1,75 , 96 , 335 / - WAS MADE AS UNDER: 'Q6. DURING THE SEARCH A SEIZURE OPERATION C ONDUCTED AT THE BUSINESS PREMISES OF M/S, KHAN MOHAMMED DIAMOND& JEWELLERS P V T . LTD. ON 20 .0 9 .2016 THE REGULAR BOOKS OF ACCOUNTS MAINTAINED HAVE BEEN SEIZED. FROM THE BOOKS, IT IS NOTICED THAT THE COMPANY HAS PURCHASED 6 ITA NO S . 572 & 663/VIZ/2019 ( M/S. DECCAN JEWELLERS PVT. LTD. ) HUGE QUANTITY OF OLD GOLD FROM I TS CUSTOMERS DURING THE F.Y.2015 - 16 A 201617 (TI LL DATE OF SEARCH). THE COMPANY HAS SHOWN PURIFICATION LOSS VARIES FROM 13 TO 20% FOR CONVERTING THE OLD GOLD INTO NEW ONE W HICH IS QUITE HIGHER WHEN COMPARE TO INDUSTRY AVERAGE HENCE THE EXCESS PURIFICATION TOS S SHOWN MAY BE ARRIVED AS UNDER: SL NO F.Y. OLD GOLD PURCHASES IN GMS PURIFICATION LOSS SHOWN AS PER BOOKS OF A/C IN GMS STANDARD PURIFICATION LOSS @13% IN GMS DIFFERENCE IN GMS VALUE IN RS. 1 2015 - 16 55597.960 11552.124 7227.735 4324.389 12886690 2 2016 - 17 22924.320 3087.927 2980.162 107.765 321141 T OTAL 13207821 PLEASE EXPLAIN THE REASON FOR ADOPTING HIGH PURIFICATION TOSS WHEN COMPARE TO INDUSTRY AVERAGE. ANS. DUE TO IGNORANCE THE COMPANY WAS ADOPTING HIGH PERCENTAGE OF LOSS OF PURIFICATION OF OL D G OLD. IN VIEW OF T HE SAME, I VOLUNTARIL Y ADMIT THE EXCESS PURIFICATION L OSS OF RS. 1, 32 , 0 7 , 821/ - AS UNDISCLOSED INCOME IN THE HANDS OF M/S.KHAN MOHAMMED DIAMONDS A JEWE LL ERS P VT . LIMITED FOR THE FINANCIAL YEAR 2015 - 16 & 2016 - 17 RESPECTIVELY AS MENTIONED IN THE TABLE ABOVE. FROM THE ABOVE, IT IS SEEN THAT THE DISCLOSURE OF RS. 1,75,96,335/ - WAS NOT MADE ON ACCOUNT OF EXCESS STOCK .AS MENTIONED IN THE ASSESSMENT ORDER AND THE PENALTY ORDER. 6.1 IT IS TO BE S EEN WHETHER THE AMOUNT OF R. 1,7 5,96,335/ - WHICH WAS ADD E D ON ACCOUNT OF DISCLOSURE MADE DURING THE SEARCH BY THE AO, SATISFIES THE DEFINITION OF 'UNDISCLOSED INCOME' AS PER SECTION 271AAB. THE 'UNDISCLOSED INCOME' FOR THE PURPOSE OF LEVYING PENALTY FOR THE PURPOSE OF SECTION 271AAS IS AS UNDER: '(C) 'UNDISCLOSED INCOME' MEANS - ( I) ANY INCOME OF THE SPECIFIED PREVIOUS YEAR REPRESENTED, EITHER WHOLLY OR PARTLY, BY ANY MONEY, BULLION, JEWELLERY 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 SEARCH IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS MAINTAINED IN TH E NORMA L COURSE R ELATING TO SUCH PREVIOUS YEAR; O R (B) OTHERWISE NOT BEEN DISCLOSED TO THE CHIEF COMMISSIONER OR COMMISSIONER BEFORE THE DATE OF SEARCH; OR (I I ) ANY INCOME OF THE SPECIFIED PREVIOUS YEAR REPRESENTED, EITHER 7 ITA NO S . 572 & 663/VIZ/2019 ( M/S. DECCAN JEWELLERS PVT. LTD. ) 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 SPECIFIED PREVIOUS YEAR WHICH IS FOUND TO BE FALSE AND WOULD NOT HAVE BEEN FOUND TO BE SO HAD THE SEARCH NOT BEEN CONDUCTED'. ON EXA MINATION OF FACTUAL POSITION W . R . T. THE DEFINITION AS ABOVE, IT IS SEEN THAT THE ADDITION MADE IS NOT REPRESENTED BY MONEY, BULLION, JEWELLERY OR OTHER ARTICLE OR THING. FURTHER , THE SAME IS NOT REPRESENTED BY ANY ENTRY IN THE BOOKS OF ACCOUNT OR OTHER DOC UMENTS OR TRANSACTION FOUND DURING THE COURSE OF SEARCH. THE DISCLOSURE MADE WAS ON ACCOUNT OF ESTIMATED EXCESS PURIFICATION TOSS SUFFERED BY THE APPELLANT. THE SAME IS DERIVED FIGURES AND NOT AS PER ENTRIES IN THE BOOKS OF ACCOUNT MAINTAINED BY THE APPELL ANT. THERE IS NO INCRIMINATING EVIDENCE BROUGHT ON RECORD BY THE AO E ITHER DURING THE ASSESSMENT PROCEEDINGS OR DURING THE PENALTY PROCEEDINGS. AS THERE IS NO FINDING/EVIDENCE TO SHOW THAT THE ABOVE INCOME FALLS UNDER, THE N OF 'UNDISCLOSED INCOME' FOR THE PURPOSE OF SECTION 271AA8 NO PENALTY IS IN THE FACTS OF THE CASE. ACCORDINGLY, THE PENALTY LEVIED IS CANCELLED . 7 . WE FIND FROM THE ORDER S OF THE L OWER AUTHORITIES THAT THE BASIS FOR ADDITIONAL INCOME WAS ONLY ESTIMATION BUT NOT SUPPORTED BY ANY EVIDENCE. EVEN THE DEPARTMENT FAILED TO SUBST ANTIATE THE INDUSTRY AVERAGE OF PURIFICATION LOSS WITH AUTHENTICATED DOCUMENTARY EVIDENCE S . THE ASSESS EE SUBMITTED THAT THE ADDITIONAL INCOME WAS ADMITTED ONLY TO PURCHASE PEACE AND TO AVOID LITIGATION WITH THE DEPARTMENT EVEN THOUGH THERE WAS NO EVIDENCE. THE CLAIM OF LOSS WAS FOUND FROM REGULAR BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESS E E WHICH WERE DULY ACCOUNTED. I F THE DEPARTMENT CONTENTION IS ACCEPTED, THE INCOME GENERA T ED OUT OF EXCESS LOSS CLAIMED BY THE ASSESSEE SHOULD BE AVAILABLE IN 8 ITA NO S . 572 & 663/VIZ/2019 ( M/S. DECCAN JEWELLERS PVT. LTD. ) THE FORM OF UNDISCLOSED ASSETS OR MONEY, BULLION, JEWELLERY OR ANY OTHER VALUABLE ARTICLE OR THING . T HOUGH SEARCH U /SEC. 132 WAS CONDUCTED, NO SUCH EVIDENCE WAS FOUND BY THE DEPARTMENT IN THE HANDS OF THE ASSESSEE. THUS, IT IS ESTABLISHED THAT THE ADDITIONAL INCOME ADMITTED BY THE ASSESSEE WA S PURELY ON ESTIMATION AND NOT SUPPORTED BY ANY EVIDENCE . FOR THE PURPOSE OF UNDISCLOSED INCOME AS PROVIDED IN SECTION 271AAB THERE MUST BE MONEY, BULLION, JEWELLERY OR OTHER VALUABLE ARTICLE OR THING OR ANY ENTRY IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS OR TRANSACTIONS WHICH REQUIRED TO BE FOUND DURING THE COURSE OF SEARCH. IN THE INSTANT CASE THERE WAS NO SUCH EVIDENCES WERE FOUND EVIDENCING UNDISCLOSED INCOME. WE ARE UNABLE ACCEPT THE CONTENTION OF THE AO THAT THE PENALTY IS LIVEABLE IRRESPECTIVE OF UNEARTHING ANY EVIDENCE OF EARNING UNDISCLOSED INCOME WHICH FITS IN TO THE DEF INITION OF UNDISCLOSED INCOME. SINCE, THE UNDISCLOSED IS DEFINED IN THE ACT FOR THE PURPOSE OF PENALTY U/S 271AAB, IT IS INCUMBENT UP ON THE DEPARTMENT TO SHOW THAT THE IMPUGNED ADDITION FALLS UNDER THE DEFINITION OF UNDISCLOSED INCOME. IN THE INSTANT CASE THE DEPARTMENT FAILED TO ESTABLISH THAT THE ADDITIONAL INCOME ADMITTED REPRESENTS THE UNDISCLOSED INCOME. THEREFORE, AS RIGHTLY HELD BY THE LD. CIT(A) , THE ADDITIONAL INCOME ADMITTED BY THE ASSESSEE 9 ITA NO S . 572 & 663/VIZ/2019 ( M/S. DECCAN JEWELLERS PVT. LTD. ) DOES NOT FALL UNDER THE DEFINITION OF UNDISCLOSED INCOM E HENCE, THERE IS NO CASE FOR LEVY OF PENALTY U/SEC. 271AAB OF THE ACT. ACCORDINGLY, WE UPH O LD THE ORDER OF THE LD. CIT(A) AND DISMISS THE APPEAL OF THE REVENUE. ITA NO. 663/VIZ/2019 8 . THE ASSESSEE FILED THE CROSS APPEAL CHALLENGING THE VALIDITY OF INITIATION OF PENALTY PROCEEDINGS FOR NOT RECORDING THE SATISFACTION NOTE AND SPECIFYING THE GROUNDS FOR ISSUING SHOW CAUSE NOTICE. DURING THE APPEAL HEARING, LD.AR COULD NOT SHOW ANY DEFECTS IN THE NOTICE ISSUE D BY THE DEPARTMENT AND DID NOT PRESS THE GROUNDS RAISED BY THE ASSESS E E IN THE CROSS APPEAL. T HEREFO RE THE APPEAL OF THE ASSESSEE ALSO STANDS DISMISSED. 9 . IN THE RESULT, APPEAL S FILED BY THE REVENUE AS WELL AS ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON TH IS 2 3 R D DAY OF SEP. , 2020 . S D / - S D / - (V. DURGA RAO) (D.S. SUNDER SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 2 3 R D SEPTEMBER , 20 20 . VR/ - 10 ITA NO S . 572 & 663/VIZ/2019 ( M/S. DECCAN JEWELLERS PVT. LTD. ) COPY TO: 1. THE ASSESSEE - M/S. DECCAN JEWELLERS PVT. LTD., D.NO. 27 - 16 - 65, BESANT ROAD, GOVERNORPET, VIJAYAWADA. 2. THE REVENUE THE ACIT, CENTRAL CIRCLE - 2, GUNTUR. 3. THE PR. CIT (CENTRAL) , VISAKHAPATNAM. 4. THE CIT(A) - 3 , VISAKHAPATNAM. 5. THE D.R . , VISAKHAPATNAM. 6. GUARD FILE. BY ORDER (VUKKEM RAMBABU) SR. PRIVATE SECRETARY, ITAT, VISAKHAPATNAM.