GIRDHAR GOPAL LAHOTI,JAIPUR vs. ITO, KISHANGARH

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR Jh fot; iky jko] U;kf;d lnL; ,oa Jh Hkkxpan] ys[kk lnL; ds le{k BEFORE: SHRI VIJAY PAL RAO, JM & SHRI BHAGCHAND, AM vk;dj vihy la-@ITA No. 682/JP/2014 fu/kZkj.k o"kZ@Assessment Year : 2005-06 cuke Shri Girdhar Gopal Lahoti The ITO, Vs. Prop. M/s Shree Pushpa Ward- Marbles, 16B, Virat Nagar, Kishangarh. Madanganj, Kishangarh. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ABHPL 7131 M vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri Manish Agarwal (C.A.)& Shri O.P. Agarwal (C.A.) jktLo dh vksj ls@ Revenue by : Shri R. A. Verma (Addl.CIT) lquokbZ dh rkjh[k@ Date of Hearing : 14/12/2017 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 26/02/2018 vkns'k@ ORDER

PER: VIJAY PAL RAO, J.M. This appeal by the assessee is directed against the order dated 24.07.2014 of CIT (A), Ajmer arising from penalty order passed u/s 271(1)(c) of the I.T. Act for the assessment year 2005-06. The assessee has raised the following grounds:- “1. On the facts and in the circumstances of the case the Ld. CIT(A) has grossly erred in upholding the order of Assessing officer of levying the penalty u/s 271(1)(c) of the Income Tax Act, 1961 without appreciating the facts and circumstances of case and in ignorance of the submissions made before him. Therefore, the said penalty order under section 211 (1)(c) deserves to be quashed and held bad in law. 2. On the facts and in the circumstances of the case the Ld. CIT(A) has grossly erred in upholding the levy of penalty at Rs. 1,17,818/- U/s 271(1)(c) of the Income Tax Act, 1961, without considering the fact that there was no concealment of income in any manner nor were any inaccurate particulars of income furnished by the assessee. Therefore, the consequent penalty deserves to be deleted. 3. on the facts and in the circumstances of the case the Ld. CIT(A) has grossly erred in upholding the levy of penalty on account of profit estimated by him by applying a random/unreasonable profit rate, without appreciating the well established law that no penalty can be levied merely on the basis of estimation of income. Therefore the penalty levied on this account deserves to be deleted. 4. on the facts and in the circumstances of the case the Ld. CIT(A) has grossly erred in upholding the levy of penalty on account of addition made u/s 41(1)(a) without appreciating the fact that assessee had made every possible effort to establish the genuineness of opening credit balance however, acting on the wrong advice of the counsel, the said credit balance was shown as NIL in return filed in response to notice u/s 148 of Income Tax Act, 1961. Hence, this being purely a case of genuine mistake which was made under bona-fide belief and wrong advice of the then counsel, no penalty should be levied. Therefore, the penalty levied on this account deserves to be deleted. 4. That the appellant craves the right to add, delete, amend or abandon any of the grounds of appeal either before or at the time of hearing of appeal.”

declared total income of Rs. 98,644/-, the return of income was initially

processed u/s 143(1) of the I.T. Act. Thereafter, assessment was

reopened by the AO by issuing notice u/s 148 of the Act dated

03.04.2008. In response to the notice u/s 148 of the Act the assessee

filed its return of income declaring total income of Rs. 1,80,590/-. In the

reassessment completed u/s 147 r.w.s. 143(3) of the I. T. Act. The AO

computed the total income of the assessee at Rs. 24,23,900/- by

making various the additions to the tune of Rs. 22,45,222/- which as

under:-

S.No. Addition made by AO Amount 1. Additions u/s 69A 20,29,000.00 2. Addition u/s 41(1)(a) 2,14,309.00 3. Interest income 1,913.00 Total 22,45,222.00

On appeal the ld. CIT(A) vide order dated 02.12.2010 restricted the

addition in respect of the cash deposits in the bank account of Rs.

20,29,000/- by estimating the profit on the said turnover @ 10% and

thereby sustained the addition of Rs. 2,02,900/-. The ld. CIT(A) has

also allowed credit of Rs. 1,04,110/- being the additional income offered

in the revised return. Thus, the net addition sustained by the ld. CIT(A) 3 in respect of the deposits in the bank account of Rs. 98,790/-. The

remaining two addition were sustained by the ld. CIT(A) though the

assessee did not challenged the addition made on account of interest

income. On further appeal this Tribunal sustained the additions which

were confirmed by the ld. CIT(A) total amounting to Rs. 3,15,012/-. The

AO initiated the penalty proceedings u/s 271(1)(c) of the Act in respect

of the additions sustained by the ld. CIT(A) and levy of penalty of Rs.

1,17,818/- being 100% of the tax evaded on the amount of Rs.

4,17,209/-. The assessee challenged the action of the AO levying the

penalty u/s 271(1)(c) before the ld. CIT(A) but could not succeed.

addition was made by the AO u/s 69A of the Act in respect of the cash

deposits in the bank account of the assessee maintained with the IDBI

Bank to the tune of Rs. 20,30,913/-. The said deposit was made out of

the sale proceeds however, due to bona-fide mistake/ignorance on the

part of the assessee, the same could not be disclosed in the return of

income. On being pointed out during the course of assessment

proceedings, the assessee explained the deposits made in the bank

account out of the sale proceeds and the bank account could not be

disclosed due to bona-fide mistake. However, the AO added the entire amount of Rs. 20,29,000/-to the income of the assessee which was

restricted by the ld. CIT(A) to the extent of 10% of the said deposit by

estimating the profit on the said turnover fund deposited in the bank.

Thus, the ld. CIT(A) deleted the addition to the extent of 18,26,100/-

and sustained the balance amount of Rs. 2,02,900/-. The addition

sustained by the ld. CIT(A) in the quantum appeal is based on

estimation of income of the assessee and therefore, the penalty u/s

271(1)(c) of the Act cannot be levied on the addition made on the

basis of estimation. When the addition was sustained merely on

estimate basis without any adverse view or observation and without

providing any basis for adopting the profit of 10% the penalty cannot

be imposed on such addition. In support of his contention he has relied

upon the decision of Hon’ble jurisdiction High Court in case of CIT vs.

Krishi Tyre Retreading & Rubber Industries 360 ITR 580. Thus, ld. AR

has submitted that where the addition has been sustained primary on

estimated basis no penalty was leviable u/s 271(1)(c) of the Act.

2,14,309/- made u/s 41(1)(a) of the Act the ld. AR of the assessee has

submitted that there was an opening balance as on 01.04.2004 of Rs.

5,14,409/- as payable to a firm named M/s Shree Gurukripa Stones Pvt.

Ltd. During the year, the liability towards the aforesaid firm stood

satisfied by the assessee and the entire amount of Rs. 5,14,409/- stood

paid by the assessee. However, while filing the original return of

income, the aforesaid amount of Rs. 2,14,309/- was inadvertently

shown as outstanding liability towards the said firm and the said

mistake was rectified by the assessee when this pointed during the

assessment proceedings. The AO made an addition of the said amount

of Rs. 2,14,309/- u/s 41(1)(a) of the Act by treating the same as

cessation of liability. The ld. AR of the assessee has submitted that

though the addition was sustained by this Tribunal however, this liability

was shown in the original return of income but not in revised return of

income. The ld. AR has further contended that the said liability was

inadvertently shown in the original return of income filed in response to

notice u/s 148 of the Act but the mistake was rectified in the revised

return and therefore, it cannot be held as concealment of income or

furnishing of inaccurate particulars of income. The ld. AR has submitted

that the penalty proceedings are distinct and separate from assessment

proceedings and fresh enquiries must be made before arriving at the

conclusion of the concealed income or furnishing of inaccurate

particulars of income. He has asserted that it an established law that though the finding recorded in the assessment orders are relevant for

penalty proceedings, but these cannot be the foundation for holding the

assessee guilty of concealment of particulars of income. Penalty is not

an automatic or mandatory fallout of addition made during the

assessment proceedings. Therefore, the addition in the assessment

would not ipso facto constitute default of concealment on the part of

the assessee. The ld. AR has also relied upon the decision of Coordinate

Bench of this Tribunal dated 31.10.2014 in case of Smt. Durga Devi

Somani vs. ITO in ITA No. 672/JP/2011 as well as the decision dated

17.10.2014 in case of Sh. Ashish Gupta vs. ITO in ITA No.

671/JP/2011. The ld. AR has also relied upon the decision of Hon’ble

Gujarat High Court in caseof National Textiles vs. CIT 249 ITR 125 and

submitted that if the assessee gives an explanation which is unproved

but not dis-proved and circumstances do not lead to the reasonable and

positive inference that the assessee’s case is false, the explanation

cannot help the Department because there will be no material to show

that the amount in question was the income of the assessee. The ld AR

has also placed reliance on the decision of Hon’ble Supreme Court in

case of CIT vs. Reliance Petroproducts (P) Ltd. 322 ITR 158.

concealment of particulars of income when the assessee has not

disclosed the sales in the books of accounts which was detected during

the assessment proceedings. Therefore, when the assessee has

committed default of not disclosing the correct particulars of income

then, the income in respect of the undisclosed turnover may be

computed on the basis of applying net profit rate. The primary fact

remains undisturbed to the extent of the addition sustained by the ld.

CIT(A) and then by this Tribunal on account of concealment of

particulars of income. Further, the assessee has shown the outstanding

liability of Rs. 2,14,309/- which was denied by the creditor and

therefore, to that extent the assessee has again concealed the

particulars of income and the addition made by the AO was sustained

by this Tribunal. The ld. DR has relied upon the orders of the authorities

below as well as the decisions as under:- • CIT vs. Smt. Chandrakanta 205 ITR 607 • Shushil Kumar Sarad Kumar vs. CIT 232 ITR 588 • A.M. Shah & Co. vs. CIT 238 ITR 415

material on record. In the reassessment order passed u/s 143(3) r.w.s.

147 of the Act the AO made a total addition of Rs. 22,45,222/- on

account of three issues. The ld. CIT(A) has granted relief to the

assessee in respect of the addition made u/s 69A of the Act by

restricting the same to the extent of 10% of the undisclosed sales

treating the same as the profit on the said turnover. The rest of the

additions made by the AO were sustained by the ld. CIT(A). Though the

Revenue as well as assessee challenged the order of the ld. CIT(A)

however, the Tribunal has confirmed the quantum appeal order passed

by the ld. CIT(A). The details of the addition made by the AO and

sustained by the ld. CIT(A) and then by this Tribunal are as under:-

S.No. Particulars Addition Addition sustained by Addition disallowance CIT(A) sustained by made by AO ITAT 1. Additions u/s 20,29,000.00 98,790.00 ( after allowing 98,790.00 69A credit of Rs. 1,04,110/- being additional income offered by assessee in revised return 2. Addition u/s 2,14,309.00 2,14,309.00 2,14,309.00 41(1)(a) 3. Interest 1,913.00 1,913.00 (Not challenged) 1,913.00 income 22,45,222.00 3,15,012.00 3,15,012.00

The first addition made by the AO was in respect of the cash deposits

in the bank account of the assessee to the tune of Rs. 20,30,913/-which

was not disclosed by the assessee in the return of income. When it was

pointed out by the AO the assessee came out with explanation that due 9 to bona-fide mistake the assessee could not disclose the said bank

account and income on the sale proceeds deposited in the bank account

in the return of income. The AO made the addition of the entire amount

of deposit in the bank account however, the ld. CIT(A) restricted the

said addition by taking the profit element in the sales at 10%. Thus, the

income though estimated by the ld. CIT(A) by applying the profit @

10% however, the primary reason for addition is non discloser of the

sales by the assessee either in the books of accounts or in the return of

income. Only when the AO detected the deposit made in the bank

account through AIR information the assessee accepted the said deposit

made in the bank account representing the sales of the assessee.

Therefore, it is a clear case of concealment of particulars of income by

the assessee. We find that the explanation of the assessee being bona-

fide mistake is without any basis because of the reasons that this is not

a case of not recording these sales in the books of account but the

assessee has not disclosed even the bank account in which the said

deposits were made by the assessee. Therefore, we do not find that the

explanation furnished by the assessee in respect of the non discloser of

this turnover is a bona-fide so as to avail the benefit of section 273B of

the Income Tax Act or explanation 1(B) to Section 271(1)(1) of the Act.

It is not a case when the assessee claimed a deduction but could not

substantiate by the assessee or a case where during the assessment

proceeding the AO has made an adhoc/estimated disallowance or a

case where the assessee could not satisfied the AO about the claim and

consequentially the AO assess the income of the assessee on the basis

of estimation and such an addition made by the AO as estimated basis

would not constitute concealment of particulars of income or furnishing

inaccurate particulars of income so as to attract the provisions of

section 271(1)(c) of the Act. In the case in hand the assessee has not

disclosed the turnover either in the books of accounts or the in the

return of income and the bank account in which the sales was

deposited was also not disclosed therefore, the addition made due to

non discloser of the sales cannot be equated with the case where all the

particulars were disclosed by the assessee but because of failure on the

part of the assessee to satisfy the AO the additions were made by the

AO. Hence, we do not find any merit or substance in the contention of

ld. AR of the assessee. The decision relied upon the ld. AR in case of

CIT vs. Krishi Tyre Retreading & Rubber Industries (supra) cannot be

applied in the facts of the present case.

penalty levied by the AO u/s 271(1)(c) of the Act we find that the

assessee has shown an outstanding liability of Rs. 2,14,309/- towards

M/s Shree Gurukripa Stones Pvt. Ltd. The AO verified this outstanding

liability from the creditor who has confirmed the receipt of Rs. 3 lacs

only as against the liability of Rs. 5,14,409/-. When this was pointed out

to the assessee, the assessee revised its return of income and shown nil

liability towards M/s Shree Gurukripa Stones Pvt. Ltd. The AO made an

addition of this amount on the ground that the assessee in the original

return of income shown bogus liability of Rs. 2,14,309/-. The assessee

claimed in the revised return of income that the balance of Rs.

2,14,309/- was repaid by the assessee in cash apart from a sum of Rs.

3 lacs paid through cheques to M/s Shree Gurukripa Stones Pvt. Ltd.

who has confirmed the receipt of Rs. 3 lacs which was repaid by the

assessee through cheques. However, the said creditor has not admitted

receipt of remaining amount of Rs. 2,14,309/-. Thus, it is a clear that

because of this discrepancy in the accounts of the assessee and the

creditor the AO has made the addition. The ld. AR of the assessee has

relied upon the decision of Coordinate Bench of this Tribunal while in

case of Smt. Durga Devi Somani vs. ITO (supra) wherein the Coordinate Bench of this Tribunal dealing with an identical issue of levy of penalty

as held in para 2.11 as under:-

2.11 We have heard the rival contentions and perused the material available on record. We are inclined to delete the penalty on following reasons:- i. It clearly emerges that the amounts in question were carried over trade credits from earlier year, corresponding purchases were included in trading a/c thus legally speaking if trade credits are added as cessation of liability, the relevant entries exist in books and if they are held as bogus then they belong to earlier years. Besides relevant information is furnished along with return of income. ii. Though surrendered in assessment the assessee can take fresh pleas in the penalty proceedings which by settled law are distinct and separate. Assessee can make fresh submissions and lead fresh evidence. AO can take fresh investigations on the basis of new pleas and material. Thus when surrendered is technically rejected and assessee gives reasonable explanation, penalty can be ITA No.672/JP/2011 Smt. Durga Devi Somani vs. ITO, Kishangarh 18 imposed not on the sole basis of alleged refused surrender. AO has a duty to consider the material and submission of the assessee and decide whether income on the basis of these pleas was assessable in the year in question. iii. AO has held that the surrender is not acceptable and chose to add it u/s 41(1) of the Act. Thus technically even the surrender is not accepted and unilateral cessation of liable is assumed ignoring the plea that in subsequent years trading liability amounts were paid. iv. The Mak data judgment relied by ld DR also holds that penalty cannot be deleted merely holding that assesses voluntarily surrendered the income. There is no such immunity and it is the explanation which should be considered for penalty. In that case assessee did not offer any explanation except a 13 specious plea of voluntary surrender, which also on facts was found to be not voluntary. Thus in MAK DATA case also Hon’ble supreme court did not dispense with the consideration of explanation of the assesse and dermination of imposition on merits. v. The details about trading liabilities and transactions were reflected in the accounting statements which were part of the return of income. Hon’ble Supreme Court in Reliance Petro Products case (supra) has held that if the relevant information is filed with the return of income in that case any variation in the claims of the assessee will not entail penalty. This judgment also supports the case of the assessee, in view thereof also the penalty in this case can not be imposed by merely referring to the alleged surrender and without considering the explanation. vi. Assuming worst against assessee, penalty proceedings being separate and distinct the year of taxability can be ITA No.672/JP/2011 Smt. Durga Devi Somani vs. ITO, Kishangarh 19 determined during penalty proceedings. Looking from this angle the amount which at all may be considered for penalty are transactions of this year which are Rs. 2,45,000/- and Rs. 3,58,141/-. These also in our view are not liable for penalty as all the relevant particulars are filed along with the return. Thus, in consideration of entirety of facts, circumstances and case laws as relied on by assessee, we are of the view that it is not a fit case of imposition of penalty u/s 271(1)© of the Act . Therefore, we direct to delete the penalty.”

In case in hand the fact that the addition was made by the AO because

the difference of the outstanding liability shown in the original return of

income and in the revised return of income. However, the assessee has

disclosed the relevant facts which was subjected to the verification of

the AO and it was also brought on record that out of the opening 14 balance of the liability of Rs. 5,14,409/- the creditor has confirmed the

receipt of Rs. 3 lacs but deny the balance amount of Rs. 2,14,309/-.

Therefore, the explanation of the assessee may not be acceptable

however, the same is bonafide explanation then the penalty on such

addition made by the AO is not leviable. Following the order of the

Coordinate Bench of this Tribunal we delete the penalty in respect of

addition made u/s 41(1)(a) of the Act.

interest income since the assessee has not contested this addition in the

quantum appeal and also has not furnished any explanation for not

offering the said income to tax, therefore, in the facts and

circumstances of the case, we do not find any error or illegality in the

orders of the authorities below levying the penalty against the said

addition made by the AO.

In the result, the appeal filed by the assessee is partly allowed.

Order pronounced in the open court on 26/02/2018 Sd/- Sd/- ¼Hkkxpan ½ ¼fot; iky jko½ (Bhagchand) (Vijay Pal Rao) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 26/02/2018. *Santosh. आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 15

1. vihykFkhZ@The Appellant- Shri Girdhar Gopal Lahoti, Kishangarh. 2. izR;FkhZ@ The Respondent- ITO, Ward, Kishangarh. 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत. 6. xkMZ QkbZy@ Guard File {ITA No. 682/JP/2014} vkns'kkuqlkj@ By order,

सहायक पंजीकार@Aेेज. त्महपेजतंत