M/s. C.B. Suratwala & Sons, Surat V. The Income tax Officer,Ward-7(1), Surat

ITA 776/AHD/2006

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5904 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 2 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 15-06-2010
• Assessment Year: 1997-1998
• Appeal Filed On: 29-03-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MEHUL K PATEL
• Keywords: Business income; Search and seizure; Difference of opinion; Change of opinion; Ignorance of law
• Section: 143(1); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B BEFORE SHRI MUKUL SHRAWAT, JUDICIAL MEMBER AND SHRI N.S.SAINI, ACCOUNTANT MEMBER DATE OF HEARING: 16.06.10 DRAFTED ON:16.06.10 ITA NO.776/AHD/2006 ASSESSMENT YEAR : 1997-1998 M/S. C.B.SURATWALA & SONS. 7/4715, NEAR SUPER CINEMA, STATION ROAD, SURAT, 395003 VS. INCOME TAX OFFICER, WARD-7(1), AAYAKAR BHAVAN, MAJURA GATE, SURAT PAN/GIR NO. :AABFC7000M (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI MEHUL K. PATEL RESPONDENT BY: SHRI K.MADHUSUDAN SR. D.R. O R D E R PER N.S.SAINI , ACCOUNTANT MEMBER :- THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TW O SEPARATE ORDERS OF THE LEARNED COMMISSIONER OF INCO ME TAX(APPEALS)-V, SURAT DATED ,24.01.2006. 2. THE SOLE GROUND OF APPEAL TAKEN BY THE ASSESSEE READS AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES AS WELL A S LAW ON THE SUBJECT, THE LEARNED I.T.O. WARD-7[1], SURAT ERRED IN LEVYING THE PENALTY U/S.271B AS IT IS ISSU ED ON ACCOUNT OF CHANGE OF OPINION. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E FILED RETURN OF INCOME DECLARING TOTAL INCOME OF RS. NIL ON 31.03.2000 AS AGAINST THE DUE DATE OF 31.08.1997. IN THE SAID RETURN OF INCOME THE ASSESSEE DISCLOSED PURCHASES OF RS.39,45 ,424/- ON ESTIMATE BASIS AND SALE OF RS.49,71,814/- CLAIMED T O BE AS PER - 2 - THE SALE TAX RECORDS. DURING THE ASSESSMENT PROCEE DING, THE LEARNED ASSESSING OFFICER FOUND THAT THE RETURN OF INCOME WAS NOT ACCOMPANIED WITH THE AUDIT REPORT THOUGH THE AS SESSEE DECLARED TOTAL SALES OF RS.49,71,814/- IN ITS RETUR N OF INCOME. THE ASSESSEE DID NOT GET ITS BOOKS OF ACCOUNT AUDI TED. EVEN THOUGH ITS SALE WAS MORE THAN THE LIMIT OF RS.40,00 ,000/- PRESCRIBED UNDER SECTION 44AB, THUS, THE ASSESSEE H AD CONTRAVENED THE PROVISIONS OF SECTION 44AB OF THE I NCOME TAX ACT, 1961. THE PLEA THAT THE BOOKS OF ACCOUNT WERE STOLEN ON 19.06.1998 WAS OF NO AVAIL TO THE ASSESSEE BECAUSE AFTER THE CLOSE OF THE FINANCIAL YEAR THE ASSESSEE WAS HAVING AMPLE TIME FOR GETTING OF ITS BOOKS OF ACCOUNT AUDITED AND MOR E SO THE TIME LIMIT WAS AVAILABLE UPTO 31.10.1997 TO FILE THE RET URN OF INCOME FOR THE ASSESSMENT YEAR 1997-98 WITH THE AUDIT REPO RT. THIS FACT CLEARLY PROVES THAT BEFORE THE DUE DATE OF FILING T HE RETURN OF INCOME, THE BOOKS OF ACCOUNT WERE IN POSSESSION OF THE ASSESSEE WHICH WERE DELIBERATELY NOT GOT AUDITED SO AS THE ABNORMALITY AND CONCEALMENT OF INCOME COULD NOT BE DETECTED BY THE AUDITORS. 4. THE ASSESSEE RAISED VARIOUS SUBMISSIONS AGAINST THE LEVY OF PENALTY UNDER SECTION 271B OF THE ACT FOR NOT GE TTING THE ACCOUNTS AUDITED WHICH WERE REJECTED BY THE LEARNED ASSESSING OFFICER FOR THE FOLLOWING REASONS:- (1) AS REGARDS THE ASSESSEES CONTENTION THAT THIS WAS THE FIRST YEAR WHERE AUDIT WAS APPLICABLE WHICH WAS NOT KNOWN TO THE ASSESSEE, IT WOULD BE SUFFICE TO STATE THAT THE ASSESSEE WAS REQUIRED TO GET ITS BOO KS OF ACCOUNTS AUDITED U/S. 44AB OF THE I.T.ACT AS ITS TURNOVER EXCEEDED THE PRESCRIBED LIMIT OF RS.40 LAC S. IGNORANCE OF LAW IS NO EXCUSE. (2) THE ASSESSEES CONTENTION THAT THE ACCOUNTANT O F THE ASSESSEES DID NOT APPROACH THE TAX CONSULTANT FOR FILING RETURN OF INCOME IN TIME DUE TO DIFFICULTIES OF - 3 - WRITING BOOKS OF ACCOUNTS MANUALLY, IT WOULD BE SUFFICE TO STATE THAT THE ASSESSEE FIRM HAD ALL THE TIME ON HAND TO PREPARE THE BOOKS OF ACCOUNTS, GET THEM AUDITED AND FINISHED THE RETURN OF INCOME ALONGWITH THE AUDIT REPORT BY THE DUE DATE OF FILIN G THE RETURN OF INCOME I.E. BY 31.08.1997. (3) THE ASSESSEES ARGUMENT REGARDING CORRUPTION IN THE COMPUTER IS NOT TRUE. IT WOULD BE PERTINENT TO MENTION HERE THAT THE ASSESSEE HAD NOT GOT ITS BOOKS OF ACCOUNTS AUDITED IN RESPECT OF THE A.Y. 1998-99 ALSO FOR WHICH HE HAD OFFERED THE SAME REASON OF GETTING ITS COMPUTER CORRUPTED. IT IS UNBELIEVABLE THAT THE COMPUTER REMAINED CORRUPTED FOR SUCH A LONG PERIOD. FURTHER, WHILE CONDUCTING RAID ON 20.03.1998, THE DEPARTMENT OF CENTRAL EXCISE HAD OBTAINED PRINT-OUTS OF THE BOOKS FROM TH E COMPUTER OF THE ASSESSEE. THUS, THE COMPUTER WAS IN A WORKING CONDITION. (4) THE ASSESSEES CONTENTION THAT THE MANAGING PARTNER OF THE FIRM DID NOT KNOW THE PROVISIONS REGARDING AUDIT IS NOT ACCEPTABLE AS IGNORANCE OF L AW IS NO EXCUSE. (5) AGAIN REGARDING THE IGNORANCE OF THE ACCOUNTANT FOR GETTING THE BOOKS OF ACCOUNTS AUDITED, IT WOULD BE SUFFICE TO MENTION THAT IGNORANCE OF LAW IS NO EXCUSE. (6) THE ASSESSEES CONTENTION THAT THE DEFAULT IS UNINTENTIONAL IS ALSO NOT TENABLE. THE FACTS REMAIN THAT THE BOOKS OF ACCOUNTS WERE NOT GOT AUDITED ALTHOUGH THE ASSESSEE HAD AMPLE TIME TO GET THEM AUDITED, OBTAIN AN AUDIT REPORT AND FURNISH THE SAM E WITH THE RETURN OF INCOME BEFORE THE DUE DATE OF FILING THE RETURN OF INCOME. THE ASSESSEE HAS ALSO COMMITTED SUCH DEFAULT FOR THE A.Y.1998-99 FOR WHICH A PENALTY ORDER U/S. 271B OF THE ACT IS BEING PASSED SEPARATELY. (7) THE ASSESSEES CONTENTION THAT THE ASSESSMENT O RDER IS BAD IN LAW AND WITHOUT JURISDICTION ALSO DOES NO T HAVE ANY FORCE AT ALL, AS THERE WAS INFORMATION IN POSSESSION OF THE DEPARTMENT REGARDING CONCEALMENT OF INCOME. HENCE, ESCAPEMENT ASSESSMENT PROCEEDINGS WERE INITIATED UNDER THE PROVISIONS OF SECTION 147 OF THE I.T.ACT AND AFTER RECORDING REASONS U/S.148(2), NOTICE U/S.148 WAS ISSUED ON 28.03.2003 AND SERVED UPON THE ASSESSEE ON 29.03.2003. FURTHER AT THE TIME OF PASSING - 4 - ASSESSMENT ORDER, A NOTICE U/S.271 R.W.S. 271B OF THE ACT WAS ALSO DULY ISSUED AND SERVED ON THE ASSESSEE. (8) ASSESSEES FEEBLE ATTEMPT TO AVOID PENALTY U/S. 271B OF THE I.T. ACT BY TAKING OBJECTION THAT NOTICE U/S.271B WAS NOT ISSUED OR SERVED AT THE RELEVANT TIME BY THE DEPARTMENT DOES NOT HAVE ANY LEGAL FORCE IN IT AND EVEN IN CONTRADICTION OF ITS OWN LE TTER DATED 29.04.2004 WHEREIN THE ASSESSEE HAD CONTENDED THAT THE PARTNER AND THE ACCOUNTANT HAD NO KNOWLEDGE OF LAW REGARDING RETTING THE BOOKS OF ACCOUNTS AUDITED AND THAT THE DEFAULT WAS NOT INTENTIONAL. THE NOTICE U/S.274 R.W.S. 271B OF THE I.T.ACT WAS DULY ISSUED ON 29.03.2004 WHICH WAS SERVED ON THE ASSESSEE ON 30.03.2004. THUS, THE PROCEEDINGS FOR LEVY OF PENALTY U/S.271B WERE DULY INITIATED AS PER LAW. OBSERVING AS ABOVE, THE LEARNED ASSESSING OFFICER H ELD THAT THE TURNOVER OF THE ASSESSEE WAS ESTIMATED AT RS.2,89,4 9,329/- AT THE TIME OF PASSING ORDER UNDER SECTION 147 OF THE INCOME TAX ACT, 1961 ON 29.03.2004 WHICH WAS CONFIRMED BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) VIDE ORDER DATE D 17.08.2004 IN APPEAL NO.CAS-V/37/04-05 LEVIED PENAL TY UNDER SECTION 271B ON THE ASSESSEE FOR CONTRAVENTION OF T HE PROVISIONS OF SECTION 44AB OF THE INCOME TAX ACT, 1961 @ 0.50% OF THE TURNOVER OF RS.2,89,49,329/- WHICH COMES TO RS.1,44 ,474/- OR RS.1,00,000/- WHICHEVER IS LOWER. IN THIS WAY PENAL TY WAS LEVIED UNDER SECTION 271B OF THE ACT OF RS.1,00,000/- ON T HE ASSESSEE. 5. IN APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) CONFIRMED THE ACTION OF THE LEARNED AS SESSING OFFICER. 6. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASS ESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LEARNED ASSESSING OFFICER AND FURTHER RELIED ON THE DECISION OF DELHI BENCH OF THE - 5 - TRIBUNAL IN THE CASE OF CHADHA SUDHIR KUMAR VS. ITO (1996) 56 ITD (DEL)470, WHEREIN IT WAS HELD THAT WHEN NO ACC OUNTS ARE MAINTAINED, QUESTIONS OF AUDIT OF BOOKS DOES NOT AR ISE HENCE, NO PENALTY COULD BE LEVIED. 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTE D THE ORDERS OF THE LOWER AUTHORITIES. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ASSESSEE DID NOT GET ITS ACCOUNTS AUDITED UNDER SECTION 44AB OF THE ACT, AND THEREFORE, THE LEARNED ASSESSING OFFICER LEVIED PENALTY UNDER SECTION 271B OF THE ACT FOR RS.1,00,000/-. TH E ASSESSEE CONTENDED THAT THE TURNOVER OF THE ASSESSEE DID NO EXCEEDS RS.40,00,000/- IN THE PAST AND THIS WAS THE FIRST Y EAR WHEN THE TURNOVER EXCEED RS.40,00,000/- AND THE ASSESSEE WAS REQUIRED TO GET ITS ACCOUNT AUDITED WHICH WAS NOT KNOWN TO T HE ASSESSEE. THE ASSESSEE FURTHER EXPLAINED THAT COMPUTER WAS US ED IN PREPARING THE ACCOUNTS AND AS NOBODY WAS ACQUAINTED WITH THE SAME, THE BOOKS HAD TO BE WRITTEN MANUALLY AFTER KN OWING THE DIFFICULTIES ABOUT THE SAME AND IN VIEW OF THE SAME , THE ACCOUNTANT DID NOT APPROACH TAX CONSULTANT FOR FILI NG THE RETURN OF INCOME IN TIME. THE ASSESSEE ALSO TRIED RETRIEVE THE DATA FROM THE COMPUTER BUT THE COMPUTER PERSON SHOWED HIS INA BILITY TO GET IT BACK. THE MANAGING PARTNER CAME TO KNOW ABOU T THE AUDIT AND NON FILING OF THE RETURN IN THE MONTH OF AUGUST , 1998 THROUGH HIS TAX CONSULTANT WHEN HE APPROACHED TO OB TAIN THE DETAILS FROM HIM. THE ASSESSEE EMPLOYED PART TIME A CCOUNTANT WHO WAS NEW IN THIS LINE AND WAS NOT KNOWING ABOUT THE REQUIREMENT OF GETTING THE ACCOUNTS AUDITED. THUS, THE DEFAULT WAS UNINTENTIONAL AND WITHOUT ANY MALAFIDE. - 6 - 9. THE ASSESSEE ALSO SUBMITTED THAT RETURN OF INCOM E WAS FILED ON 31.03.2000 FOR THE YEAR UNDER CONSIDERATIO N WHICH WAS ACCEPTED UNDER SECTION 143(1) WHEREIN THE TURNOVER OF RS.0.49 CRORES WAS SHOWN. THE RETURN WAS FILED ON 31.03.20 00 WHICH WAS BEYOND THE TIME LIMIT PRESCRIBED UNDER SECTION 139(4), REOPENING OF THE CASE UNDER SECTION 148 OR NOTICE U NDER SECTION 271B WAS NOT ISSUED OR SERVED AT THE RELEVANT TIME BY THE DEPARTMENT. THUS, IT IS CLEAR FROM THE SAME THAT CO NSIDERING THE FOOTNOTE PLACED BELOW THE COMPUTATION OF INCOME ENC LOSED WITH THE SAID RETURN, THE THEN INCOME TAX OFFICER APPLYI NG HIS MIND DECIDED NOT TO TAKE ANY ACTION IN RESPECT OF PROC EEDINGS UNDER SECTION 148 OR 271B OF THE INCOME TAX ACT, 1961. AC CORDINGLY, ONCE THE PROCEEDINGS HAVE BEEN DROPPED ON THE BASIS OF SPECIFIC NOTE AS MENTIONED ABOVE, THE NOTICE UNDER SECTION 2 71B ON ACCOUNT OF CHANGE OF OPINION WAS BAD IN LAW AND WIT HOUT JURISDICTION. 10. WE FIND THAT IT IS NOT IN DISPUTE THAT THE ASSE SSEES TURNOVER FOR THE YEAR UNDER CONSIDERATION WAS MORE THAN RS.40,00,000/- AND THEREFORE, THE ASSESSEE WAS LIAB LE TO GET ITS BOOKS OF ACCOUNT AUDITED UNDER SECTION 44AB OF THE ACT. THE CONTENTION OF THE ASSESSEE IS THAT THIS WAS THE VER Y FIRST YEAR IN WHICH ASSESSEES TURNOVER EXCEEDED RS.40,00,000/- W AS NOT DISPUTED BY THE REVENUE. FURTHER, IT IS OBSERVED FR OM THE ORDER OF THE ASSESSMENT PASSED BY THE LEARNED ASSESSING O FFICER THAT THE ASSESSEE FILED ITS RETURN OF INCOME ON THE BASI S OF ESTIMATE ONLY AND THE ASSESSEE NEVER PRODUCED BOOKS OF ACCOU NT. THE RELEVANT OBSERVATION IN THE ORDER OF THE ASSESSMENT IS AS UNDER:- IN THIS CASE THE RETURN OF INCOME DECLARING THE TO TAL INCOME/LOSS AT NIL WAS FILED ON 31.03.2000 AGAINST THE DUE DATE OF 31.08.1997 BY DISCLOSING THE - 7 - PURCHASE AT RS.39,45,424/- ON ESTIMATED BASIS AND SALES AT RS.49,71,814/- AS PER THE SALES TAX RECORD S LIKEWISE THE ASSESSEE HAS ALSO WORKED OUT GROSS PROFIT AS WELL AS NET PROFIT ON HYPOTHETICAL/ ESTIMATED BASIS I.E. GROSS PROFIT AT RS.7,95,490/- @ 16% AND NET PROFIT RS.NIL BY CLAIMING EXPENDITURE UNDER VARIOUS HEADS AT @ 12.50%, ON THE TOTAL TURNOVER, TAKING THE BASE OF A.Y. 1996-1997. IT IS PERTINENT TO MENTION HERE THAT THE ASSESSEE FABRICATED THE STORY OF THEFT OF THE BOOKS OF ACCOU NTS ON 19.06.1998 FROM HIS CAR, JUST TO AVOID FURTHER INVESTIGATION, AS THE DEPT. OF CENTRAL EXCISE HAS DETECTED UNACCOUNTED PURCHASE AND SALES, WHILE CONDUCTING THE RAID ON 20/03/1998. THE ASSESSEE HAS ESTIMATED PURCHASE, SALES, GROSS PROFIT, NET PROFIT, EXPENSES INCURRED ETC. AS PER THE FOLLOWING DETAILS. 11. THE CRUX OF THE ARGUMENT OF THE ASSESSEE IS THA T THE ASSESSEE WAS NOT ABLE TO MAINTAIN BOOKS OF ACCOUNT PROPERLY FOR THE YEAR UNDER CONSIDERATION BECAUSE OF THE INT RODUCTION OF THE COMPUTER FOR THE FIRST TIME IN HIS BUSINESS FOR MAINTAINING THE ACCOUNTS WHICH COULD NOT BE OPERATED PROPERLY D UE TO LACK OF KNOWLEDGE AND SKILL. THUS, AS NO PROPER BOOKS O F ACCOUNTS WAS MAINTAINED, AS RETURN OF INCOME WAS ALSO NOT FI LED ON THE BASIS OF ANY BOOKS OF ACCOUNT MAINTAINED, ASSESSMEN T WAS ALSO NOT MADE ON THE BASIS OF ANY BOOKS OF ACCOUNT, MAIN TAINED, THE SUBMISSION OF THE ASSESSEE THAT IN ABSENCE OF PROPE R BOOKS OF ACCOUNT, IT COULD NOT GET ITS ACCOUNTS AUDITED IS S USTAINABLE. AS FOR NON MAINTENANCE OF BOOKS OF ACCOUNT, PENALTY UN DER SEPARATE SECTION IS PROVIDED AND THAT NOT BEING THE ISSUE BEFORE US, WE REFRAIN FROM MAKING ANY OBSERVATION IN THAT REGARD. BEFORE US, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE RELIED UPON THE ORDER OF THE DELHI BENCH O F THE TRIBUNAL IN THE CASE OF CHADHA SUDHIR KUMAR (SUPRA) , WHERE IT WAS HELD THAT WHEN NO ACCOUNTS ARE MAINTAINED QUEST ION OF - 8 - AUDIT OF BOOKS DOES NOT ARISE, HENCE, NO PENALTY UN DER SECTION 271B COULD BE LEVIED. 12. IN THE INSTANT CASE, WE FIND THAT REVENUE HAS B ROUGHT NO MATERIAL ON RECORD TO SHOW THAT THE ASSESSEE THOUGH HAS MAINTAINED PROPER BOOKS OF ACCOUNT BUT INSPITE OF T HAT NOT GOT SUCH ACCOUNT AUDITED. IN ABSENCE OF ANY SUCH MATERI AL HAVING BEEN BROUGHT ON RECORD, THE CONTENTION OF THE ASSES SEE THAT THE ABSENCE OF PROPER BOOKS OF ACCOUNT WAS THE SUFFICIE NT CAUSE FOR NOT GETTING THE ACCOUNTS AUDITED FINDS SUPPORT FROM THE ABOVE CITED DECISION OF THE DELHI TRIBUNAL. WE THEREFORE, FOLLOWING THE SAME DELETE THE PENALTY OF RS.1,00,000/- LEVIED UND ER SECTION 271B OF THE ACT. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 18 TH DAY OF JUNE, 2010. SD/- SD/- (MUKUL SHRAWAT ) ( N.S. SAINI ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; ON THIS 18 TH DAY OF JUNE, 2010 PARAS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-V, SURAT. 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD - 9 - DATE INITIALS 1. DRAFT DICTATED ON 16.06.2010 -------------- ----- 2. DRAFT PLACED BEFORE AUTHORITY 17.06.2010 ---- --------------- 3. DRAFT PROPOSED & PLACED 17.06.2010 ---------- --------- JM BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED 17.06.2010 ---------- --------- JM BY SECOND MEMBER 5. APPROVED DRAFT COMES TO P.S 18.06.2010 -------- ------------ 6. KEPT FOR PRONOUNCEMENT ON 18.06.2010 -------- ------------ 7. FILE SENT TO THE BENCH CLERK 18.06.2010 ----- --------------- 8. DATE ON WHICH FILE GOES TO THE ---------------- -------------------- 9. DATE OF DISPATCH OF ORDER ---------------- --- ------------------