COMMISSIONER OF INCOME TAX-III vs. M/S. SONAL CONSTRUCTION CO.

O/TAXAP/1007/2006 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 1007 of 2006

FOR APPROVAL AND SIGNATURE:

HONOURABLE MR.JUSTICE KS JHAVERI Sd/-

and HONOURABLE MR.JUSTICE K.J.THAKER Sd/-

================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? No 2 To be referred to the Reporter or not ? No 3 Whether their Lordships wish to see the fair copy of the judgment ? No 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? No 5 Whether it is to be circulated to the civil judge ? No ================================================================ COMMISSIONER OF INCOME TAX-III....Appellant(s) Versus M/S. SONAL CONSTRUCTION CO.....Opponent(s) ================================================================ Appearance: MR SUDHIR M MEHTA, ADVOCATE for the Appellant(s) No. 1 MRS SWATI SOPARKAR, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and Page 1 of 8

O/TAXAP/1007/2006 JUDGMENT HONOURABLE MR.JUSTICE K.J.THAKER

Date : 09/12/2014

ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE K.J.THAKER) 1. Heard learned Advocates for the respective parties. 2. While admitting this Appeal of the Revenue on 19.01.2007, this Court framed the following substantial question of law :- (A) Whether on the facts and in the circumstances of the case and in law, the Appellate Tribunal is right in deleting penalty of Rs.13,12,666/- imposed by the Assessing Officer u/s. 271(1)(c) of the I.T. Act?” 3. The facts giving rise to this Appeal are as under :- Order u/s. 143(3) r.w.s. 144 of the I.T. Act dated 13.07.2002 The assessee firm engaged in the business of civil construction filed its income-tax returns for the Assessment Year 2001 – 2001 on 31.10.2001 declaring an income of Page 2 of 8

O/TAXAP/1007/2006 JUDGMENT Rs.1,98,170/-. The assessment of the Assessing Officer was completed at an income of Rs.38,05,860/- making an addition of Rs.36,07,690/- on account of bogus/non-existing liabilities in respect of labour charges as reflected in the balance sheet. According to the trading account, the assessee showed construction income of Rs.3,88,25,672/- declaring gross profit of Rs.19,10,123/- @ 4.91 and the net profit of Rs.4,12,500/- was shown in the profit and loss account @ 1.06%. The profit and loss

account

debited

with Rs.1,17,38,951/- on account of labour charges out of which outstanding liability was shown in the balance sheet at Rs.46,79,034/-. The assessee furnished necessary details and other evidences in support of the above liabilities. However, the assessee failed to prove the genuineness of the liabilities to the extent of Rs.36,07,690/- and the addition was made by the Assessing Officer accordingly invoking the provisions of Section 145(3) of the Income Tax Act. The Page 3 of 8

O/TAXAP/1007/2006 JUDGMENT above addition was duly agreed to by the assessee vide letter dated 21.06.2002 and the penalty proceedings u/s. 271(1)(c) of the I.T. Act were initiated accordingly. No reply was filed by the assessee against the above assessment order. Penalty order u/s. 271(1)(c) of the I.T. Act During the course of penalty proceedings, the assessee contended that the addition of Rs.36,07,690/- was agreed to avoid litigation and to purchase peace of mind and the same does not represent concealed income or income in respect of which inaccurate particulars of income have been furnished. However, for the reasons as discussed in the penalty order, the Assessing Officer was satisfied that the assessee has concealed the income by furnishing inaccurate particulars of income without reasonable cause within the meaning of Section 271(1)(c) of the Act and minimum penalty of Rs.13,12,666/- was imposed accordingly. Appeal order passed by the CIT(A)-VI, Page 4 of 8

O/TAXAP/1007/2006 JUDGMENT Surat dated 26.08.2003 No appeal was preferred by the assessee against the assessment order. However, the assessee preferred an appeal before CIT(A)-VI, Surat against the Assessing Officer's order levying penalty of Rs.13,12,666/-. The CIT(A)-VI, Surat confirmed the levy of above penalty u/s. 271(1)(c) and the assessee's appeal was dismissed. Order of the Appellate Tribunal dated 16.12.2006 The assessee filed an Appeal before the Appellate Tribunal, Ahmedabad against the order of CIT(A)-VI, Surat. The Appellate Tribunal allowed the assessee's appeal and deleted the penalty of Rs.13,12,666/-. 4. In the above background of facts, it is submitted by learned Advocate for the appellant that the assessee was allowed proper opportunity to furnish the details / evidences to prove the genuineness of the outstanding liabilities of Rs.36,07,690/- on account of labour charges as reflected in the balance sheet. Page 5 of 8

O/TAXAP/1007/2006 JUDGMENT The assessee, however, failed to discharge his obligation to prove his claim and the addition was agreed to by him accordingly. It is further submitted that the Assessing Officer has proved beyond doubt that the above liabilities were bogus / non- existent. Besides, the addition was agreed to by the assessee when no evidences were produced in support thereof and the same tantamounts to furnishing of inaccurate particulars u/s.271(1)(c) of the Income Tax Act. 5. We have learned Advocates for the parties at length. Having perused the record of the case, we are of the view that the answer to the question is in the affirmative, i.e. the Appellate Tribunal was right in deleting the penalties imposed by the Assessing Officer under Section 271(1)(C) of the Income Tax Act. 6. We are taking this view in light of the factual scenario as it emerges and more particularly, Paragraph 5 of the reasons given by the Tribunal which we propose to reproduce hereunder :- Page 6 of 8

O/TAXAP/1007/2006 JUDGMENT “5. We have heard rival submission and perused material available on record. As the facts emerge, it is clear that assessee furnished relevant details i.e. names, addresses, confirmations etc. and offered AO to call some of them for examination. It appears that these details were not inquired into further, however, assessee offered about amount for addition purpose. We find merit in the argument of learned counsel that assessment proceedings and penalty proceedings are separate and distinct and merely because additions has been made, same will not lead to automatic levy of penalty. Assessee reiterated its stand in penalty proceedings, AO should have inquired matter independently

penalty proceedings and given a finding about correctness or otherwise of assessee's explanation. AO has imposed penalty solely on the basis of agreed addition by assessee, in the given facts and circumstances,

explanation furnished by assessee remains uncontroverted, and therefore, it cannot be held that explanation given by the assessee have been found to be incorrect or false. In view of the above facts, ratio of Hon'ble Supreme Court in the case of K.P. Madhusudanan Vs. CIT, 25 ITR 99 is not applicable as explanation offered by the Page 7 of 8

O/TAXAP/1007/2006 JUDGMENT assessee remains uncontroverted on record and addition offered was clearly

worded

avoid litigation, and offer cannot be held to be without bonafide. Penalty imposition solely on the basis

such

addition, overlooking

details

and explanation filed by the assessee cannot be sustained. In view thereof, we delete the penalty.” 7. We are even supported in our view by the latest decision of the Apex Court in reported in 348 Income Tax Reports 561 and in the case of Northland Development and Hotel Corporation v. CIT reported in 349 Income Tax Reports 363. The twin decisions will permit us to hold in favour of the Assessee and against the Revenue. 8. Hence, this appeal is devoid of merits and is dismissed. Sd/- (K.S. JHAVERI, J.) Sd/- (K.J. THAKER, J) CAROLINE Page 8 of 8