The ACIT, Central Circle-1, Surat V. M/s. Shahlon Silk Mills Pvt.Ltd., Surat

ITSSA 10/AHD/2014

• Counselvise Citation: [2017] 122 COUNSELVISE.COM (IT) 2945 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 2 month(s) 20 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 27-03-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 09-03-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 07-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHIVA SEWAK
• Keywords: Gross profit estimation; Business income; Income from undisclosed sources
• Section: 143(3); 153A; 132

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL CAMP AT SURAT BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ./ IT(SS)A NO.10/AHD/2014 / ASSTT. YEAR: 2010-2011 ACIT, CENT.CIR.1 SURAT. VS. M/S.SHAHLON SILK MILLS P.LTD. 91, KHATODARA GIDC B/H. SUB-JAIL RING ROAD SURAT 395 002. PAN : AALCS 7927 G / (APPELLANT) / (RESPONDENT) REVENUE BY : SHRI SHIVA SEWAK, SR.DR ASSESSEE BY : SHRI MEHUL SHAH ! / DATE OF HEARING : 09/03/2017 '#$ ! / DATE OF PRONOUNCEMENT: 27/03/2017 %& / O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST OR DER OF THE LD.CIT(A)-II, AHMEDABAD DATED 30.10.2013 PASSED FOR THE ASSTT.YEAR 2010-11. 2. SOLE GRIEVANCE OF THE REVENUE IS THAT THE LD.CIT (A) HAS ERRED IN DELETING PENALTY OF RS.20,96,777/- LAKHS IMPOSED BY THE AO UNDER SECTION 271AAA OF THE INCOME TAX ACT, 1961. IT(SS)A NO.10/AHD/2014 2 3. BRIEF FACTS OF THE CASE ARE THAT A SEARCH AND SE IZURE OPERATION WAS CARRIED OUT UNDER SECTION 132 OF THE INCOME TAX ACT ON 28.1.2010 AT THE RESIDENTIAL AND BUSINESS PREMISES OF SHAHLON GROUP. DURING THE COURSE OF SEARCH INCRIMINATING MATERIAL WERE FOUND AND SEIZED. THE STATEMENT OF SHRI DHIRAJ SHAH, MAIN PERSON OF THE G ROUP WAS RECORDED UNDER SECTION 132(4) OF THE ACT. IN HIS STATEMENT, HE HAD ADMITTED UNACCOUNTED INCOME OF RS.7.00 CRORES FOR THE ENTIRE GROUP WHICH WAS EARNED AS A TRADING PROFIT. BIFURCATION OF THE SAI D UNDISCLOSED INCOME WAS ALSO GIVEN ON 19.3.2010 BY WAY OF A LETTER BEFO RE DDIT (INVESTIGATION)-3, SURAT. SHARE OF THE ASSESSEE IN THE SAID DISCLOSURE WAS RS.2,09,67,770/-CRORES. ACCORDING TO THE ASSES SEE, THE SOURCE OF EARNING THIS UNACCOUNTED INCOME WAS A TRADING PROFI T OUT OF WHICH RS.2.00 CRORES WAS INVESTED IN STOCK AND RS.9.68 LA CS IN CASH. THE ASSESSEE HAS FILED HIS RETURN OF INCOME ON 29.9.201 0 AND DECLARED INCOME OF RS.60,89,058/-. THE AO PASSED AN ASSESSM ENT ORDER UNDER SECTION 143(3) R.W.S. 153A OF THE INCOME TAX ACT ON 29.12.2011. HE FOUND THAT GP DISCLOSED BY THE ASSESSEE WAS LOW, TH EREFORE, HE REJECTED BOOK RESULTS AND MADE AN ESTIMATED ADDITION ON ACCO UNT OF LOW GP AT RS.1,62,77,255/-. HE DETERMINED TAXABLE INCOME OF THE ASSESSEE AT RS.2,23,66,310/-. 4. THIS ADDITION AS CHALLENGED BEFORE THE LD.CIT(A) WHO DELETED IT. DEPARTMENT TOOK THE MATTER IN APPEAL BEFORE THE ITA T VIDE ITA NO.62/AHD/2013. THE TRIBUNAL FOUND THAT GP DISCLOS ED BY THE ASSESSEE FOR THE PERIOD OF PRE-SEARCH WAS 5.88% OF THE TURNO VER WHEREAS FOR THE PERIOD OF POST-SEARCH, ITS GP WAS 13.24%. IF THIS GP WAS COMPARED WITH GP RATE OF LAST YEAR, THEN, THERE WAS A VERY S LIGHT DECLINE IN THE GP RATE. ACCORDINGLY, THE TRIBUNAL UPHELD THE ORDER O F THE LD.CIT(A). 5. THE AO HAS INITIATED PENALTY PROCEEDINGS UNDER S ECTION 271AAA OF THE ACT ON THE GROUND THAT THE ASSESSEE FAILED TO D ISCLOSE THE MANNER AND SUBSTANTIATE SUCH MANNER WITH REGARD TO UNDISCL OSED INCOME IT(SS)A NO.10/AHD/2014 3 OFFERED FOR TAX IN THE STATEMENT MADE UNDER SECTION 132(4) OF THE ACT. ACCORDINGLY, THE LD.AO HAS IMPOSED A PENALTY OF RS. 20,96,777/- ON THE ALLEGED UNDISCLOSED INCOME OF RS.2,09,67,770/-. 6. ON APPEAL, THELD.CIT(A) HAS HELD THAT THE ASSESS EE HAS NOT ONLY DISCLOSED THE MANNER BUT ALSO SUBSTANTIATE THE MANN ER. DURING THE COURSE OF SEARCH, IT WAS EXPLAINED BY THE ASSESSEE THAT THIS UNDISCLOSED INCOME WAS EARNED AS A TRADING PROFIT. THEREFORE, IN THE OPINION OF THE LD.CIT(A), THE ASSESSEE HAS FULFILLED THE CONDITION S ENUMERATED IN SUB- SECTION (2) OF SECTION 271AAA OF THE ACT. THE LD. CIT(A) ACCORDINGLY DELETED THE PENALTY. 7. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND GO NE THROUGH THE RECORD CAREFULLY. SHORT QUESTION BEFORE US IS, WHE THER THE ASSESSEE HAS FULFILLED ALL CONDITIONS STIPULATED IN SUB-SECTION (2) OF SECTION 271AAA OF THE ACT, THAT ABSOLVES IT FROM THE RIGOURS OF PENAL TY. IT IS PERTINENT TO TAKE NOTE OF RELEVANT PART OF SECTION 271AAA. IT R EADS AS UNDER: (1) THE ASSESSING OFFICER MAY, NOTWITHSTANDING ANY THING CONTAINED IN ANY OTHER PROVISIONS OF THIS ACT, DIRECT THAT, I N A CASE WHERE SEARCH HAS BEEN INITIATED UNDER SECTION 132 ON OR A FTER THE 1ST DAY OF JUNE, 2007, THE ASSESSEE SHALL PAY BY WAY OF PEN ALTY, IN ADDITION TO TAX, IF ANY, PAYABLE BY HIM, A SUM COMPUTED AT T HE RATE OF TEN PER CENT OF THE UNDISCLOSED INCOME OF THE SPECIFIED PREVIOUS YEAR. (2) NOTHING CONTAINED IN SUB-SECTION (1) SHALL APPL Y IF THE ASSESSEE, (I ) IN THE COURSE OF THE SEARCH, IN A STATEMENT UNDER SUB- SECTION (4) OF SECTION 132, ADMITS THE UNDISCLOSED INCOME AND SPECIFIES THE MANNER IN WHICH SUCH INCOME HAS B EEN DERIVED; (II ) SUBSTANTIATES THE MANNER IN WHICH T HE UNDISCLOSED INCOME WAS DERIVED; AND (III ) PAYS THE TAX, TOGETHER WITH INTERES T, IF ANY, IN RESPECT OF THE UNDISCLOSED INCOME. IT(SS)A NO.10/AHD/2014 4 (3) NO PENALTY UNDER THE PROVISIONS OF CLAUSE (C) O F SUB-SECTION (1) OF SECTION 271 SHALL BE IMPOSED UPON THE ASSESS EE IN RESPECT OF THE UNDISCLOSED INCOME REFERRED TO IN SUB-SECTION ( 1). 8. A BARE PERUSAL OF THIS SECTION WOULD INDICATE TH AT THE AO DID NOT DISPUTE CONDITIONS ENUMERATED IN SUB-CLAUSE (I) AND (III) OF SECTION 271AAA OF THE ACT, BECAUSE DURING THE COURSE OF SEA RCH STATEMENT OF MAIN PERSON, SHRI DHIRAJ SHAH WAS RECORDED AND HE H AD ADMITTED UNDISCLOSED INCOME OF RS.7 CRORES OUT OF WHICH RS.2 .09 CRORE WAS ALLOCATED TO THE ASSESSEE. THUS, THERE IS NO DISPU TE WITH REGARD TO THE DISCLOSURE PART AS CONTEMPLATED IN SUB-CLAUSE (I) O F SUB-SECTION (2). SIMILARLY, THE ASSESSEE HAS PAID TAX ALONG WITH INT EREST AS CONTEMPLATED IN SUB-CLAUSE (III). THE DISPUTE BETWEEN THE ASSES SEE AND THE AO RELATES TO FULFILLMENT OF CONDITIONS MENTIONED IN S UB-CLAUSE (II). WE FIND THAT THIS ASPECT HAS BEEN CONSIDERED BY THE LD.CIT( A) ELABORATELY IN THE FOLLOWING FINDING: 5. I HAVE CAREFULLY PERUSED THE PENALTY ORDER AS W ELL AS SUBMISSIONS MADE BY THE AR ON BEHALF OF THE APPELLANT. IT IS OB SERVED THAT THE DURING SEARCH ACTION U/S. 132 IN THE CASE OF SHAHLON GROUP OF ASSESSEES ON 28- 01-2010 AND THE MAIN PERSON OF THE GROUP SHRI DHIRA JLAL R. SHAH ADMITTED UNACCOUNTED INCOME OF RS. 7 CRORE OF ENTIR E GROUP WHICH WAS EARNED AS TRADING PROFIT. THE BIFURCATION OF THE SA ID UNDISCLOSED INCOME OF RS. 7 CRORE WAS ALSO GIVEN ON 19-03-2010 BY WAY OF LETTER BEFORE DDIT (INVESTIGATION)-III SURAT AND THE SHARE OF APP ELLANT IN THE SAID DISCLOSURE WAS RS.209,67,770/-. THE SOURCE OF EARNI NG THIS UNACCOUNTED INCOME WAS TOLD BY THE APPELLANT AS TRADING PROFIT OUT OF WHICH RS.2 CRORE WAS INVESTED IN STOCK AND RS.9.68 LAC IN CASH. IT H AS BEEN SUBMITTED BY THE ARS THAT IN THE SCHEDULE 17 OF THE NOTES FORMIN G PART OF ACCOUNTS ANNEXED WITH THE AUDITED FINAL STATEMENTS AT NOTE N O. 12, IT HAS BEEN CLEARLY STATED THAT THE DECLARATION THE IN COMPANY IS ON ACCOUNT OF INCOME FROM TRADING ACTIVITY AND THE SAID DISCLOSUR E HAS BEEN SHOWN IN THE RETURN OF INCOME UNDER THE HEAD 'PROFITS AND GA INS OF BUSINESS AND PROFESSION' AND THE ASSESSING OFFICER HAS ASSESSED THIS DISCLOSURE AS BUSINESS INCOME ONLY. 5.1 THE A.R. OF THE APPELLANT HAS SUBMITTED THAT TH E ASSESSEE MADE THE DISCLOSURE OF RS. 2,09,67,770/-. THE TOTAL GROUP DI SCLOSURE OF RS. 7 CRORES WAS MADE AND INITIALLY THE AMOUNT OF RS.8,19 ,67,770/- WAS UNIDENTIFIED WHICH WAS LATER ON DISCLOSED IN CASE O F DIFFERENT ENTITIES AND THEREFORE ASSESSEE'S DISCLOSURE OF RS. 2.00 CRORES WAS INCREASED TO IT(SS)A NO.10/AHD/2014 5 2,09,67,770/-. SO THE DISCLOSURE OF RS.9,67,770/- W AS VOLUNTARILY DISCLOSED. THE DISCLOSURE OF RS. 2,09,67,770/- WAS REFLECTED IN THE RETURN OF INCOME AS CAN BE SEEN FROM PROFIT AND LOSS ACCOU NT AND SCHEDULE 10 ANNEXED THEREWITH. 5.2 IT IS ALSO OBSERVED THAT THE DISCLOSURE WAS MAD E DURING THE COURSE OF SEARCH ACTION U/S. 132(4) AND IN THE STATEMENT SHRI DHIRAJLAL R. SHAH CLEARLY STATED THAT THE INCOME WAS BEING ADMITTED O N BEHALF OF ALL THE ASSESSEES OF THE GROUP AND IN THE CASE OF APPELLANT COMPANY, THE UNACCOUNTED INCOME WAS EARNED AS TRADING PROFIT OF BUSINESS. THE SOURCE OF THIS INCOME WAS THUS EXPLAINED. THE APPLI CATION OF THE DISCLOSED INCOME WAS STATED AS TO RS.2 CRORE INVEST ED IN STOCK AND RS. 9.68 LAC IN CASH. 5.3. THE BIFURCATION OF RS. 7 CRORE WAS GIVEN ON 19-03-2010 WHEN THE LIFTING OF PROHIBITORY ORDER U/S. 132(3) WAS PENDIN G AND HENCE IT CAN BE STATED THAT THE MANNER OF DERIVING THE UNACCOUNTED INCOME AND ALSO THE INVESTMENT MADE THEREFROM WAS MADE BY THE APPELLANT BEFORE THE CONCLUSION OF SEARCH PROCEEDINGS. 5.4 DURING APPELLATE PROCEEDINGS, THE ASSESSING OFF ICER WAS REQUESTED TO GIVE THE INFORMATION WHETHER THE DECLARATION ABO UT BIFURCATION OF DISCLOSED INCOME WAS MADE BY THE ASSESSEE DURING TH E COURSE OF SEARCH PROCEEDINGS OR NOT AND WHETHER THE TAXES WER E PAID IN TIME OR NOT. THE ACIT, CENTRAL CIRCLE-1, SURAT HAS SUBMITTE D HIS REPORT VIDE LETTER NO. ACIT/CC.1/SRT/2013-14 DATED 17-10-2013, THE REL EVANT PORTION OF WHICH IS REPRODUCED AS UNDER: 'SUB:- APPELLATE PROCEEDINGS IN THE CASE OF M/S. SH AHLON INDUSTRIES PVT LTD, SURAT IN RESPECT OF PENALTY U/S . 271 MA OF THE IT ACT, 1961 FOR RS 34.00 LACS FOR THE A.Y. 2010-11 -REG. *************** KINDLY REFER TO YOUR TELEPHONIC TALKS HELD WITH THE JT. CIT, CENTRAL RANGE, SURAT ON 14.10.2013 ON THE SUBJECT CITED ABOVE AND YOU HAVE CALLED FOR FOLLOWING INFORMATIONS FROM THE A. O. RELATING TO A PPELLATE PROCEEDINGS:- I. BIFURCATION OF THE DISCLOSURE OF RS.7.00 CRORE F ILED BY THE ASSESSEE BEFORE THE INVESTIGATION WING IS A PART OF APPRAISA L REPORT. THE SAID DISCLOSURE THE FIGURE OF OFFERED UNDISCLOSED INCOME HAS BEEN SHOWN AS RS.2.09 RELATING TO THE ASSESSEE COMPANY FOR THE A. Y.2010-11. COPY OF THE SAID BIFURCATION LETTER IS ENCLOSED HEREWITH FO R YOUR REFERENCE. IN THE RETURN OF INCOME FOR THE A.Y.2010-11, THE AS SESSES HAS SHOWN OFFERED UNDISCLOSED INCOME OF RS.2.09 CRORE WHEREAS IN THE BIFURCATION LETTER OF THE ASSASSEE THE FIGURE OF OFFERED UNDISC LOSED INCOME HAS BEEN SHOWN AS RS.2.00 CRORE ONLY AS STATED ABOVE. HENCE THE DISCLOSURE IT(SS)A NO.10/AHD/2014 6 SHOWN IN THE APPRAISAL REPORT HAS BEEN DECLARED IN THE ASSESSMENT PROCEEDINGS. //. ISSUE OF DISCLOSURE OF RS.7.00 CRORE RELATING T O SHAHLON GROUP WAS DISCLOSED IN THE APPRAISAL REPORT, WHICH INCLUDES D ISCLOSURE OF RS.2.00 CRORE RELATING TO THE ASSESSES COMPANY FOR THE A. Y . 2010-11. THE A. O. HAS IMPOSED THE PENALTY OF RS.29.96 LACS U/S. 271 A AA ON THE BASIS OF OFFERED UNDISCLOSED INCOME OF RS.2.09 CRORE SHOWN I N THE RETURN OF INCOME BY THE ASSESSES. ///. THE ASSESSEE COMPANY HAS FILED RETURN OF INCOM E SHOWING AN INCOME OF RS.60,89,058/- ON 29.09.2010 FOR THE YEAR UNDER CONSIDERATION. DETAILS OF TAX & INTEREST PAYABLE & TAX PAID ARE AS UNDER- TAX AND INTEREST PAYABLE DETAILS OF TAX PAID TAX PAYABLE THE RETURN AT THE TIME OFFING OF 19,99,370/- ADVTAX:- NIL NIL TDS:- 6,95,749/- 140A:- 13,58,738/- TOTAL:- 19,99,370/- 5.5 IT IS ALSO SEEN THAT THE ASSESSING OFFICER HAS NO WHERE DOUBTED THE MANNER OF EARNING OF THIS UNDISCLOSED INCOME OF RS. 2.09 CRORE AND THE DISCLOSURE HAS BEEN ACCEPTED AS SUCH IN THE ASSESSM ENT ORDER. THUS, IT IS (FEAR THAT THE MANNER IN WHICH UNDISCLOSED INCOM E WAS DERIVED WAS NEVER DISPUTED AND THE SAME WAS EXPLAINED VIDE LETT ER DATED 19-03- 2010. THE CONDITIONS OF SECTION 271AAA(2) ARE FULFI LLED AS THE TAXES ON THE UNDISCLOSED INCOME ALSO HAVE BEEN PAID AS SEEN FROM RECORDS. 5.6 THE ARS HAVE ALSO RELIED UPON THE GUJARAT HIGH COURT IN THE CASE OF CIT V/S. MAHENDRA C. SHAH (2008) 299 ITR 205 (GUJ) WHERE HON'BLE COURT HAS STATED IT IS INCUMBENT UPON THE AUTHORIZE D OFFICER TO EXPLAIN THE PROVISIONS OF EXPLANATION 5 IN ENTIRETY TO THE ASSESSEE AND THE AUTHORIZED OFFICER CANNOT STOP SHORT AT A PARTICULA R STAGE SO AS TO TAKE ADVANTAGE OF SUCH A LAPSE IN THE STATEMENT. THEREFO RE, EVEN IN THE STATEMENT DOES NOT SPECIFY THE MANNER IN WHICH THE INCOME IS DERIVED AND IF THE INCOME IS DECLARED AND THE TAXES THEREON PAID, THERE WOULD BE SUBSTANTIAL COMPLIANCE NOT WARRANTING ANY FURTHER D ENIAL OF THE BENEFICIAL UNDER EXCEPTION 2 IN EXPLANATION 5 IS COMMENDABLE. IT(SS)A NO.10/AHD/2014 7 5.7 THE AR HAS ALSO REFERRED TO THE JUDGMENT OF I.T .A.T. AHMEDABAD BENCH DECISION IN THE CASE OF RAJENDRA PRASAD DOKAN IA - ITA NO. 525/A/2012 WHERE THE AFORESAID JUDGMENT OF GUJARAT HIGH COURT WAS CITED. THE JUDGMENT OF ALLAHABAD HC IN THE CASE OF CIT V/S. RADHA KISHAN GOEL - 278 ITR 454 (ALL) HAS ALSO BEEN REFER RED TO BY THE ARS. 6. IT IS NOTICED THAT THOUGH THE JUDGMENT OF CIT VS. MAHENDRA C. SHAH; WAS GIVEN IN THE CONTEXT OF SECTION 271(1)(C) THE WORDINGS USED FOR GRANTING IMMUNITY FROM PENALTY U/S. 271(1)(C) A RE SIMILAR TO THE WORDING USED UNDER SUB-SECTION (2) OF SECTION 271AA A. TAKING INTO ACCOUNT THE ENTIRE FACTS AND CIRCUMSTANCES OF THE C ASE AND LEGAL POSITION AS CITED ABOVE, I AM OF THE CONSIDERED VIEW THAT LE VY OF PENALTY U/S. 271AAA BY THE ASSESSING OFFICER IN THE CASE OF APPE LLANT IS HELD TO BE NOT JUSTIFIED AND THE SAME IS HEREBY DELETED. 7. IN THE RESULT, THE APPEAL IS TREATED AS AL LOWED. 9. THE LD.CIT(A) HAS OBSERVED THAT THE ASSESSEE HAS DEMONSTRATED THE MANNER AND ALSO SUBSTANTIATED IT. DEPARTMENT I S UNABLE TO DISPROVE THIS FINDING OF THE LD.CIT(A). IT IS SAY OF THE AS SESSEE THAT THIS AMOUNT WAS EARNED AS A TRADING PROFIT WHICH WAS NOT DISCLO SED TO THE DEPARTMENT. IT HAS ALSO POINTED OUT THAT A SUM OF RS.2.00 CRORES WAS INVESTED IN STOCK AND RS.9.68 CRORES WAS KEPT IN CA SH. THUS, TO OUR MIND THE ASSESSEE HAS FULFILLED ALL CONDITIONS ENUM ERATED IN ORDER TO AVAIL IMMUNITY FROM PENALTY IMPOSABLE UNDER SECTION 271AAA OF THE ACT. THE LD.CIT(A) HAS APPRECIATED THE FACTS IN RI GHT PERSPECTIVE, AND WE DO NOT FIND ANY ERROR IN THE FINDING OF LD.CIT(A ). ACCORDINGLY, APPEAL OF THE REVENUE IS DISMISSED. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE COURT ON 27 TH MARCH, 2017 AT AHMEDABAD. SD/- SD/- (AMARJIT SINGH) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 27/03/2017