DCIT 14(2), MUMBAI V. RISHABH IMPEX, MUMBAI

ITA 93/MUM/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92282 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-04-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 17-03-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 06-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LOVE KUMAR
• Assessee Lawyers: REEPAL G TRALSHAWALA
• Keywords: Bogus purchase; Gross profit estimation; Business income; Wrong claim; Difference of opinion
• Section: 40A(3); 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH D, MUMBAI BEFORE SHRI B.R BASKARAN, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO. 93/MUM/2011 ASSESSMENT YEAR: 2004-05 DCIT - 14(2) 3 RD FLOOR EARNEST HOUSE NARIMAN POINT MUMBAI VS. M/S. RISHABH IMPEX GULABDAS & CO. RAMDAS BUILDING, 4 TH FLOOR, 456, MUMBAI 400 002 PAN:-AAAFR 5747 B (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI REEPAL G TRALSHAWALA REVENUE BY : SHRI LOVE KUMAR DATE OF HEARING : 17.03.2015 DATE OF PRONOUNCEMENT : 10 .04.2015 O R D E R PER AMIT SHUKLA, JM: THIS APPEAL HAS BEEN PREFERRED BY THE REVENUE AGAI NST ORDER DATED 28.10.2010, PASSED BY THE LD.CIT(A)-25, MUMBA I IN RELATION TO THE PENALTY PROCEEDING U/S 271(1)(C) FOR THE A.Y. 2 004-05. THE REVENUE IS MAINLY AGGRIEVED BY DELETION OF PENALTY OF RS.33 ,94,175/-, WHICH WAS LEVIED ON ADDITION MADE ON ACCOUNT OF GROSS PROFIT. 2. THE BRIEF FACTS OF THE CASE ARE THAT, THE ASSESS EE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORT OF FABRICS AND OTHER ITEMS. THE RETURN OF INCOME WAS FILED ON 01.11.2004 AT RS.61,3 9,482/-, AFTER CLAIMING DEDUCTION U/S 80HHC OF RS.25,87,814/-. AS AGAINST THE RETURN ITA NO. 93/MUM/2011 ASSESSMENT YEAR: 2004-05 2 INCOME, THE ASSESSMENT WAS COMPLETED AT AN INCOME O F RS.4,39,90,930/- AFTER MAKING THE FOLLOWING DISALLO WANCES:- I) ON ACCOUNT OF GP RS.2,75,89,717/- II) DISALLOWANCE OF LOSS ON EXCHANGE RATE FLUCTUATI ON RS.9,19,212/- III) DISALLOWANCE OF KEYMAN INSURANCE RS. 67,54,701/- IV) DISALLOWANCE OF DEDN. U/S 80HHC RS.25 ,87,814/- AFTER THE APPEAL AFFECT, THE PENALTY PROCEEDINGS HA VE BEEN INITIATED ON THE ADDITION MADE ON ACCOUNT OF GROSS PROFIT. THE A SSESSEE HAD SHOWN SALES OF RS.31,22,46,861/- WHICH COMPRISED OF EXPOR T SALES OF RS.31.20 CRORES. THE GROSS PROFIT WAS SHOWN AT RS.36,34,969/ - WHICH WAS 1.17%. THE ASSESSING OFFICER NOTED THAT IN THE EARLIER YEA RS THE GROSS PROFIT SHOWN BY THE ASSESSEE WERE AS UNDER:- A.Y. TOTAL SALES GROSS PROFIT GROSS PROFIT (%) 2003-04 39,02,02,282 4,67,24,149 11.97 2002-03 35,00,71,469 4,14,22,279 11.83 2001 - 02 43,55,29,670 5,37,52,961 12.34 3. IN RESPONSE TO SHOW CAUSE NOTICE BY THE AO, IT W AS SUBMITTED BY THE ASSESSEE THAT THE GROSS PROFIT HAD DECLINED DUE TO CONTINUOUS FALL/ DEVALUATION OF US $ DURING THE RELEVANT YEAR AND AL SO GAVE THE EVIDENCE TO THE EFFECT THAT AVERAGE FALL OF FOREX DURING TH E PERIOD WAS AROUND 10%. THE ASSESSING OFFICER HELD THAT EVEN THOUGH PA RT OF THE DECLINE IN GP COULD BE ATTRIBUTED TO FALL IN EXCHANGE RATE, HO WEVER SAME CANNOT BE IMPLIED FOR THE WHOLE YEAR. HE WORKED OUT THE PERCE NTAGE FALL IN EXCHANGE RATE FROM APRIL 2003 TO MARCH 2004 WHICH H AS BEEN TABULATED BY HIM AT PAGE 3 OF THE PENALTY ORDER AND ANALYZED THAT FALL IN EXCHANGE ITA NO. 93/MUM/2011 ASSESSMENT YEAR: 2004-05 3 RATE WAS AROUND 2%, WHEREAS FALL IN GP IS AROUND 12 % AND THEREFORE, THE REASON GIVEN BY THE ASSESSEE FOR DOWNFALL IN GP IS NOT CORRECT. ACCORDINGLY HE ESTIMATED GROSS PROFIT @ 10%, AFTER TAKING THE AVERAGE GP RATE AND ALSO FACTOR RELATING TO FALL IN THE EXC HANGE RATE. 4. IN THE FIRST APPEAL, THE LD. CIT(A) HAS REDUCED THE GP ADDITION BY HOLDING THAT GP RATE SHOULD BE 7% AS AVERAGE FALL I N FOREX WAS AROUND 3%, WHICH HAS BEEN CONFIRMED BY THE TRIBUNAL ALSO I N THE PENALTY PROCEEDINGS, THE ASSESSEE SUBMITTED THAT FALL IN GP WAS MAINLY DUE TO DECREASE IN SALES REALIZATION DUE TO RISING VALUE O F INDIAN RUPEE. THIS WAS ALSO PALPABLE WITH THE INCREASE TO THE COST OF PRODUCTION. THE ASSESSEE HAD SUBMITTED VARIOUS DOCUMENTARY EVIDENCE S IN SUPPORT OF THE EXPLANATION FURNISHED NOT ONLY DURING THE COURS E OF THE ASSESSMENT PROCEEDINGS BUT WAS ALSO DURING THE PENALTY PROCEED INGS. ENTIRE QUANTITATIVE DETAILS OF PURCHASES WERE SUBMITTED IN WHICH NO DISCREPANCY WAS FOUND IN THE COURSE OF THE QUANTUM PROCEEDINGS. THE ENTIRE PURCHASES WERE FULLY VERIFIED BY THE EXCISE DEPARTMENT BECAUSE, THE ASSESSEE HAS CLAIMED REBATE UNDER THE CENTRAL E XCISE. FURTHER THE GP ADDITION HAS BEEN REDUCED BY THE LD. CIT(A) WHIC H SHOWS THAT THERE IS DIFFERENCE OF OPINION WITH REGARD TO THE QUANTIF ICATION OF ADDITION. HOWEVER, THE LD. AO LEVIED THE PENALTY ON GP ADDITI ON WHICH WAS SUSTAINED AT 7%. 5. THE LD. CIT(A) HAS DELETED THE PENALTY AFTER OBS ERVING AND HOLDING AS UNDER:- 4.2 THERE IS NO DISPUTE THAT PENALTY IS LEVIED IN RESPECT OF GP ADDITION ONLY WHICH WAS REDUCED BY APPELLATE AUTHOR ITIES SUBSTANTIALLY. THE PARA 7 AND PARA 9 OF THE PENALTY ORDER ARE CONTRADICTORY IN THE SENSE THAT IN PARA 9, THE AO S TATES THAT THEREFORE, THE AMOUNT OF RS.2505098 IS TREATED AS INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED. WHEREAS IN ITA NO. 93/MUM/2011 ASSESSMENT YEAR: 2004-05 4 PARA 9 HE STATES THAT THE MINIMUM PENALTY LEVIABLE BEING 100% OF THE TAX SOUGHT TO BE EVADED IS RS.33,94,175/-. I T IS DIFFICULT TO UNDERSTAND HOW MINIMUM PENALTY @ 100% OF TAX SOUGHT TO BE EVADED ON CONCEALED INCOME OF RS.25,05,098/- WORKS OUT TO RS.33,94,195/-. THUS, IT TRANSPIRES THAT PARA 5 TO 9 WHICH CONTAINS CONCLUSIONS AND FINDINGS LACKS APPLICATION OF MIND. 4.3 WITHOUT PREJUDICE TO ABOVE, IT IS UNDISPUTED TH AT PENALTY IS LEVIED IN RESPECT OF GP ADDITION ONLY. THE GP ADDIT ION IS MADE FOR LOW GP RATE IN COMPARISON OF PRECEDING YEARS. NEITH ER ANY BOGUS PURCHASES NOR ANY INFLATED PURCHASES ARE FOUND. SIM ILARLY, NEITHER ANY SUPPRESSION OF SALE IS FOUND NOR ANY UNDERSTATE MENT/UNDER INVOICING OF SALE IS FOUND. NO VIOLATION EITHER U/S 40A(3) OR SECTION 40A(2) IS NOTICED. NEITHER ANY BOGUS OR INF LATED EXPENSE IS FOUND. NEITHER ANY EXCESS NOR SHORTAGE OF STOCK IS FOUND. IN GIVEN CIRCUMSTANCES, IT IS DIFFICULT TO BELIEVE THA T THERE WAS ANY DELIBERATE OR WILLFUL CONCEALMENT OF INCOME. WHOLE ADDITION IS BASED ON ESTIMATION ONLY. IN SUCH FACTUAL MATRIX, N ONE OF CASE LAWS REFERRED BY THE AO IS APPLICABLE TO THE FACTS OF THE CASE. ON THE CONTRARY THE JUDICI8AL PRONOUNCEMENTS REFERRED AND EXPLAINED IN THE LD. ARS WRITTEN SUBMISSIONS DIVULGES THE CO RRECT STATE OF LAW ON CONCEALMENT PENALTY. APART THEREFROM, THE LA TEST DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF RELIANC E PETROPRODUCTS (323 ITR 158) SHOULD NOT LOSE SIGHT W HICH STATES THAT MERE MAKING A CLAIM WHICH IS NOT SUSTAINABLE I N LAW, BY ITSELF WILL NOT AMOUNT TO CONCEALMENT. EVEN IN THE INSTANT CASE, IT IS NOT A CASE OF WRONG CLAIM BUT IT IS A CASE OF PURE ESTI MATION. NO FALSE PURCHASE/SALES/EXPENSES ETC. HAVE BEEN FOUND. THE H ONBLE HIGH COURT OF PUNJAB AND HARYANA HAD IN THE CASE OF HARI GOPAL SINGH V. CIT (125TAXMAN 242) HELD THAT PROVISIONS OF SECT ION 271(1)(C) ARE NOT ATTRACTED TO CASES WHERE INCOME IS ASSESSE D ON ESTIMATE BASIS AND ADDITIONS ARE MADE THEREIN ON THAT BASIS. SIMILARLY IN THE CASE OF CIT VS. MM RICE MILLS (123 TAXMAN 308), THE HONBLE HIGH COURT HAD HELD THAT MERE ADDITION MADE BY APPL YING PROVISO TO SECTION 145(1) CANNOT BE MADE BASIS FOR IMPOSITI ON OF PENALTY FOR CONCEALMENT U/S 271(1)(C). THE CASE LAWS REFERR ED IN LD. ARS SUBMISSION, DISCUSSED IN PARA 3.1 ALSO DO NOT JUSTI FY LEVY OF PENALTY IN GIVEN FACTS OF THE CASE. IN VIEW OF FACT S OF THE CASE AND JUDICIAL PRONOUNCEMENTS REFERRED OR DISCUSSED ABOVE , THE PENALTY LEVIED BY THE AO IS NOT JUSTIFIABLE AND THE SAME IS DELETED. ACCORDINGLY, THE APPEAL IS ALLOWED. ITA NO. 93/MUM/2011 ASSESSMENT YEAR: 2004-05 5 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDER AND ALSO THE MA TERIAL PLACED ON RECORD. THE SUBJECT MATTER OF LEVY OF PENALTY IS ON ACCOUNT OF ADDITION MADE ON ACCOUNT OF ESTIMATION OF GP RATE. IN THE PE NALTY ORDER, THE ASSESSING OFFICER HAS HELD THAT AMOUNT OF RS.25,05, 095/- IS TREATED AS INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CO NCEALED. ON SUCH ADDITION, HE HAS LEVIED PENALTY OF RS.33,94,175/-. FROM THE EXPLANATION FURNISHED BY THE ASSESSEE BEFORE THE AO, AND ALSO T HE FACTS OF THE CASE, IT IS SEEN THAT OUT OF TOTAL TURNOVER OF 31.22 CROR ES, THE EXPORT SALES IS AT 31.20 CRORES. THUS, THE MAJOR SALES IS BY WAY OF EX PORT ONLY. IN THE QUANTUM PROCEEDINGS, THE ASSESSEE HAS FILED THE ENT IRE QUANTITATIVE DETAILS OF PURCHASES, IN WHICH NO DISCREPANCY HAS B EEN FOUND AND ENTIRE PURCHASES STOOD VERIFIED. THIS IS ALSO EVIDENT FROM THE FACT THAT THE ASSESSEE HAS CLAIMED REBATE UNDER THE CENTRAL EXCIS E, THEREFORE, THE SAID PURCHASES HAVE BEEN VERIFIED BY THE EXCISE DEP ARTMENT ALSO. THERE IS NO DISCREPANCY EITHER IN THE QUANTITY OR IN THE VALUE OF SALES MADE BY THE ASSESSEE. THE ADDITION HAS BEEN MADE ON THE GRO UND THAT THERE IS STEEP FALL IN THE GROSS PROFIT RATE AS COMPARED TO THE EARLIER YEARS. THE ASSESSEES CASE WAS THAT, SAME WAS DUE TO DECREASE IN SALES REALIZATION DUE TO DEVALUATION OF FOREIGN EXCHANGE ALONG WITH I NCREASED IN COST OF PRODUCTION. THE ASSESSEES EXPLANATION REGARDING FA LL IN FOREIGN EXCHANGE HAS BEEN NOT BEEN ACCEPTED COMPLETELY ON T HE GROUND THAT THE AVERAGE FALL OF US $ WAS NOT MUCH. THIS CANNOT BE REASON FOR REJECTING THE ASSESSEES BOOKS AND ESTIMATING THE G ROSS PROFIT UNLESS NO DISCREPANCY HAS BEEN FOUND EITHER IN THE QUANTITY I N VALUE OF PURCHASE AND SALES. THUS, MERE ESTIMATION OF GROSS PROFIT AT 10% WHICH HAS BEEN FURTHER REDUCED TO 7%, CANNOT BE THE BASIS FOR LEVY OF PENALTY FOR ITA NO. 93/MUM/2011 ASSESSMENT YEAR: 2004-05 6 FURNISHING OF INACCURATE PARTICULARS. THE FINDING O F THE LD. CIT(A) AFTER ANALYZING THE FACTS OF THE CASE, APPEARS TO BE LEGA LLY AND FACTUALLY CORRECT, ACCORDINGLY, ORDER OF THE LD. CIT(A) IS AF FIRMED AND GROUND RAISED BY THE REVENUE IS TREATED AS DISMISSED. 7. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 10 TH DAY OF APRIL, 2015. SD/- SD/- (B.R. BASKARAN) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 10.04.2015 *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR D BENCH // TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.