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Facts
The assessee, engaged in the restaurant business, filed its return for A.Y. 2019-20. A survey operation revealed suppressed sales. The assessee's partner admitted to suppressing sales and additional income. Subsequently, the assessment order was passed with additions and disallowances. A penalty under section 270A was levied.
Held
The Tribunal held that while the CIT(A) was justified in upholding the penalty, the quantum of penalty needs to be recomputed in light of the ITAT's subsequent decision in the quantum appeal, which had reduced the addition. The Tribunal also imposed a cost on the assessee for its non-compliant attitude.
Key Issues
Whether the penalty under section 270A for suppressed sales is justified, and if so, what should be the quantum of penalty in light of subsequent appellate decisions.
Sections Cited
270A, 133A, 144, 250
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Before: SHRI NARENDER KUMAR CHOUDHRY & SHRI PRABHASH SHANKAR
आदेश / O R D E R PER PRABHASH SHANKAR [A.M.] :- The present appeal is preferred by the assessee against the order passed by the Learned Commissioner of Income-tax, Appeal/CIT(A), Pune – 11 [hereinafter referred to as “CIT(A)”] pertaining to a penalty order u/s. 270A of the Income-tax Act, 1961 [hereinafter referred to as “Act”] dated 16.03.2022 passed by the ACIT, CC-3, Thane, for the Assessment Year [A.Y.] 2019-20.
A.Y. 2019-20 Hotel Galaxy, Thane 2. In the only ground of appeal, the assessee has agitated action of the ld.CIT(A)in upholding the penalty of Rs. 53,02,999/- levied u/s. 270A of the Act at the rate of 200 percent of tax on ‘Under Reporting of Income’ of Rs. 72,93,493/-, alleged suppressed sales. It is prayed that the penalty being void ab-initio, bad-in-law, illegal, baseless, unwarranted and hence be deleted.
Brief facts of the case are that the assessee is in the business of running a restaurant. The return of income for A.Y. 2019-20 was filed on 24.09.2019 declaring income of Rs. 32,09,130/-. Subsequently, a survey operation u/s 133A of the Act was conducted on the assessee’s premises on 05.02.2020. During the survey operation, incriminating documents were found indicating that the assessee firm was suppressing its sales and for the year under consideration, the sale was suppressed to the extent of Rs. 72,93,493/-. When confronted, the working partner of the firm Shri Talha A Mukhi, admitted that the sale for A.Y. 2019-20 had been suppressed and an additional income of Rs. 72,93,493/- was declared by him. He also stated that no additional expenses were incurred on such suppressed sale of Rs. 72,93,493/-. During the assessment proceedings, various notices were issued to the assessee, however, it did not respond to them. Accordingly, assessment order was passed u/s 144 of the Act by making following two additions:- i. Addition of Rs. 72,93,493/- on account of additional income declared during the survey. ii. Disallowance of Rs. 12,25,605/- out of Salary, GST and electricity expenses debited in the P& L account on ad-hoc basis. 3.1 The assessment was completed determining total income of Rs. 1,17,28,228/-. Subsequently, penalty of Rs. 61,94,120/- u/s 270A of the Act on the misreporting of income of Rs. 72,93,493/- (suppressed sales) and Rs. 12,25,605/- (disallowance of expenses). It was noted by the ld.CIT(A) during appellate proceeding that the assessee had filed quantum appeal against the assessment order which was decided by him vide order u/s 250 dated 07.11.2023 whereby, based on remand report called for from the AO, the addition of Rs. 72,93,493/- corresponding to suppressed sales was upheld and the addition of Rs. 12,25,605/- on account of disallowance of expenses on ad-hoc basis was deleted. In the light of such facts, the ld.CIT(A) while dealing with penalty appeal, reduced the quantum of penalty by restricting it to the suppressed sales of Rs 72,93,493/- only.
Aggrieved by the order of the Ld. CIT(A) against the quantum addition, assessee had filed an appeal before the Tribunal and the Coordinate Bench of ITAT in dated 04.09.2024 allowed substantial relief to the assessee on the quantum addition of Rs 72,93,493/-. Addition confirmed by the Hon'ble ITAT A.Y. 2019-20 Hotel Galaxy, Thane was determined at Rs. 10,94,023/-(r/o to Rs 11 lakh), being estimated net profit taken at the rate of 15% of the alleged suppressed sales.
In the course of hearing before us, the ld.AR contented that the assessee was never aware of its case being selected for scrutiny assessment and no notices were received by it. In respect of the survey.it was submitted that statement under oath was recorded of Shri Talha Abbas Mukhi, one of the partners wherein he was compelled to declare an additional income of Rs. 72,93,493/- over and above the regular income for the A.Y. 2019-20. However, he was not the only partner of the firm and hence immediately thereupon, he had filed his retraction statement on 11.03.2020 and had confirmed that the earlier statement recorded was under duress, pressure and force. Thus, no revised return of income declaring such additional income was filed.
The ld.DR has relied on the orders of the lower authorities. However, the ld.AR has submitted that no penalty u/s 270A is justified on income determined on estimated basis. 6.1 We have heard rival submissions and have carefully gone through the record. We find that the assessment order was passed u/s 144 of the Act on account of non-compliance by the assessee. The AO in para 12 of the assessment order has dealt with the outcome of survey operation. It is stated that the as per Bundle of loose sheets marked 1- A.Y. 2019-20 Hotel Galaxy, Thane 12, total sales stated therein for the period April 2018 to March 2019 amounted to Rs 4,67,32,596/-while the audited books of account disclosed sales of Rs 3,94,39,103/- only. Therefore, on being confronted one of the partners present during survey admitted the excess as undisclosed income of the assessee though retracted later. We find that the basis of the addition to the income as also imposition of penalty is not purely on estimate, rather based on undisclosed sales reflected in the incriminating papers found during survey. Even though the ITAT in quantum appeal(supra) has applied 15%, being net profit on the figures of suppressed sales only, in a way accepted the stand of the revenue that the said sales were unaccounted and undisclosed income of the assessee. 6.2 Besides, the assessee has pleaded that the penalty could not be imposed on estimated addition, without adducing any reason for repeated non-compliance both during assessment and penalty proceedings before the ld.AO. Even during penalty appeal, the assessee did not make any compliance though the ld.CIT(A) was fair enough to reduce the quantum of penalty partially. However, he upheld the penalty vis-a-vis the suppressed sales which was subsequently reduced to Rs. 11 lakh by the hon’ble ITAT(supra). Therefore, it is very much evident that the assessee did no plead its case before the lower authorities for reasons best known to it only. Merely by claiming that the statement of the A.Y. 2019-20 Hotel Galaxy, Thane partner was retracted would not negate the evidences of suppressed sales found during survey. Apparently, the undisclosed income of the assessee worked out on the basis of suppressed sales tantamount to misreporting/underreporting of income which liable to penalty in terms of section 270A of the Act.
We therefore, do not find any infirmity in the action of the ld.CIT(A) upholding the penalty levied u/s 270A of the Act. However, in view of the subsequent decision of hon’ble ITAT(supra) in quantum appeal, we direct the AO to work out the quantum of penalty with reference to the reduced income.
Before parting, we would like to reiterate the non-compliant and non-cooperative attitude of the assessee as discussed in para 6.2 above. No reasons have been attributed for such inaction on its part before any of the authorities. It is the fundamental duty of the assessee to diligently pursue its case and comply with the notices and proceedings initiated by the Revenue authorities. The failure of the assessee to make any response before the authority reflects gross negligence and indifference. The principles of natural justice operate both ways, while the Revenue authorities are required to provide a reasonable opportunity of being heard, the taxpayer is equally obligated to co-operate with the authorities and utilize the opportunities extended. In the present case, A.Y. 2019-20 Hotel Galaxy, Thane despite receiving adequate opportunities, the assessee displayed a casual approach and indifference. We therefore, impose a cost of Rs 11,000/- on the assessee which is required to be paid under ‘Other Heads’ in favour of the Income Tax Department within 15 days of this order.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open court on 30/04/2025.