THE DY. COMMR. OF INCOME TAX, MORBI CIRCLE,, MORBI vs. M/S ITALICA FLOOR TILES PVT. LTD.,, MORBI

आदेश/O R D E R

ITA No. 475, 476 & 480/Rjt/2015 [DCIT vs. M/s. Italica Floor Tiles Pvt. Ltd. & M/s. Vrundavan Ceramics Pvt. Ltd.] - 2 -

PER PRADIP KUMAR KEDIA - AM:

The captioned appeals by the Revenue are directed against the Commissioner of Income Tax (Appeals)-1, Rajkot. The relevant details are tabulated as under:

ITA Nos. Name of AY CIT(A)’s AO’s AO’s order assessee order penalty under Section dated order dated 475/Rjt/15 M/s. Italica 2006-07 27.07.15 21.03.14 271(1)(c) of the Floor Tiles Pvt. Income Tax Ltd. Act, 1961 (in short ‘the Act’) 476/Rjt/15 -Do- 2007-08 -Do- -Do- -Do- 480/Rjt/15 2008-09 28.07.15 -Do- -Do- M/s. Vrundavan Ceramics Pvt. Ltd.

ITA No.475/Rjt/2015 - AY- 2006-07 (in case of M/s. Italica Floor Tiles Pvt. Ltd.)

“6. I have perused the written submission, assessment order, penalty order, order of the ld. CIT(A) on the quantum appeal and the Hon. ITAT on the quantum appeal. The ld. AR of the appellant had taken up the case of the appellant on following multiple grounds. a. Penalty is not leviable where the profit itself is worked out on estimation basis.

b. Penalty is not leviable on notional income. c. Penalty not leviable where the case has not reached its finality.

ITA No. 475, 476 & 480/Rjt/2015 [DCIT vs. M/s. Italica Floor Tiles Pvt. Ltd. & M/s. Vrundavan Ceramics Pvt. Ltd.] - 3 -

d. The decision of the Hon. Gujarat High Court in the case covered under VAT on a similar issue, has been decided against the Revenue.

e. The decision of the Hon. ITAT Hyderabad on similar issue has been decided against the Revenue. f. Penalty is not leviable where two opinions exists. g. Addition by itself does not justify penalty

In support of all the above arguments, the Id. AR of the appellant has made exhaustive and deep arguments in the case. Further, as pointed out by the ld. AR of the appellant, similar to the action of the Income tax department, the Sales tax department had also initiated punitive action against all the manufacturers in whose case suppression of evasion of excise duty was alleged by the Excise department. One such case was that of M/s. Futura Ceramics P. Ltd, The Hon'ble High Court of Gujarat has in the case of the said Futura Ceramics Pvt. Ltd., Vs. State of Gujarat Through The Secretary, in Special Civil Application No. 6500 of 2012 held that:

"The question, however, is whether on a mere show cause issued by the Excise Department, the Sales tax Department can make additions for the purpose of collecting tax under the Gujarat Value Added Tax Act without any further inquiry. If the Assistant Commissioner of Commercial Tax has utilized the material collected by the Excise Department; including the statements of the petitioner and other relevant witnesses and had come to an independent opinion that there was in fact evasion of excise duty by clandestine removal of goods, he would have been justified in making additions for the purpose of VAT Act. In the present case, however, no such exercise was undertaken. All that the Assessing Officer did was to rely on the show cause notice issued by the Excise Department. Nowhere did he conclude that there was a case of clandestine removal of goods without payment of tax under the VAT Act. Merely because the Excise Department issued a show cause notice, that cannot be a Ground to presume and conclude that there was evasion of excise duty implying thereby that there was also evasion of tax under the VAT Act. It is not even the case of the Department that such show cause notice proceedings has culminated into any final order against the petitioner. We wonder what would happen to the order of reassessment, if ultimately the Excise Department were to drop the proceedings without levying any duty or penalty from the petitioner.

All in all, the Asstt. Commissioner has acted in a mechanical manner and passed final order of assessment merely on the premise that the Excise Department has issued a show cause notice alleging clandestine removal of the goods. Such orders therefore, cannot be sustained and is accordingly quashed. When the order is ex facie illegal and wholly untenable in law, mere availability of alternative remedy would not preclude us from interfering at this stage in a writ petition".

ITA No. 475, 476 & 480/Rjt/2015 [DCIT vs. M/s. Italica Floor Tiles Pvt. Ltd. & M/s. Vrundavan Ceramics Pvt. Ltd.] - 4 - Besides, the appellant also relied upon the decision of Hon'ble ITAT, Hyderabad Bench "A" has in the case of M/s Varalaxmi Granites (p) Ltd., Hyderabad vs. DCIT in ITA No. 1435 to 1438/Hud/2010 as can be seen supra. The argument of the ld. AR that no penalty can be levied where the addition is made on estimation basis, also has substantial force. Moreover, the above decision of the Hon. Gujarat High Court also upholds the fact that the very addition stands on a shaky ground. I also find that the quantum order on which penalty has been levied was an assessment order passed u/s. 143(3) r.w.s. 147 of the I T Act. Since the very proceeding of reopening has been cancelled by the Hon. ITAT, therefore, the penalty no longer survives. Hence, the impugned order which is contested by virtue of the present appeal, is also cancelled and accordingly the penalty proceedings stand deleted. Hence, duly respecting the judicial principles viz., the decision of the Hon. Gujarat High Court and the decision of the Hon. ITAT Rajkot Bench in the appellant's own case wherein the very reopening of proceedings have been cancelled, the present penalty order which is contested by virtue of the present appeal, is also cancelled and accordingly the penalty proceedings stands deleted. The AO is therefore directed to cancel the penalty. 7. In the result, the appeal is allowed.”

ITA No. 475, 476 & 480/Rjt/2015 [DCIT vs. M/s. Italica Floor Tiles Pvt. Ltd. & M/s. Vrundavan Ceramics Pvt. Ltd.] - 5 - been reversed by the co-ordinate bench of Tribunal, the very basis for imposition of penalty under s.271(1)(c) of the Act has ceased to exist and does not survive any more. Hence, conclusion drawn by the CIT(A) towards deletion of penalty does not call for any interference.

This Order pronounced in Open Court on 20/12/2019

Sd/- Sd/- (MADHUMITA ROY) (PRADIP KUMAR KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad: Dated 20/12/2019 True Copy S. K. SINHA आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. राज�व / Revenue 2. आवेदक / Assessee 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त- अपील / CIT (A) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाइल / Guard file.

By ORDER

Deputy/Asstt.Registrar ITAT, Rajkot