WIN PRINTS ,,AHMEDABAD vs INCOME TAX OFFICER,, AHMEDABAD

Income Tax Appellate Tribunal, “SMC” BENCH, AHMEDABAD

Before: Shri Pramod Kumar]

SMC-ITA No.1075/Ahd/2015 Win Prints Vs. ITO AY : 2009-10 Page 1 of 3 IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, AHMEDABAD [ Before Shri Pramod Kumar, Accountant Member ] ITA No. 1075/Ahd/2015 Assessment Year : 2009-10 Win Prints ......…………......Appellant H-903, Sarjan Tower, Gurukul Road, Memnagar, Ahmedabad - 380052 [PAN : AAAFW 4084 A] Vs. Income Tax Officer .......................Respondent Ward 6 (2), Ahmedabad

Appearances by: JP Shah, for the appellant VK Singh, for the respondent Date of concluding the hearing : 20.06.2018 Date of pronouncing the order : 14.09.2018 O R D E R 1. By way of this appeal, the assessee appellant has challenged correctness of the order dated 13th March 2015 passed by the CIT(A) upholding the penalty of Rs 10,96,100/- imposed on the assessee under section 271(1)(c) of the Income- tax Act, 1961, for the assessment year 2009-10.

Grievances raised by the appellant are as follows:

“1. Your appellant being aggrieved by the order passed by Learned CIT (Appeals)-III, Ahmedabad, dated 13.03.2015, presents this appeal on following grounds. 2. The Learned CIT (Appeals)-III, Ahmedabad has erred in levying penalty u/s 271(1)(c) on addition u/s 41(1) of the Income-tax Act, 1961 for Rs.31,48,943/- though explained. The penalty levied be deleted.” 3. To adjudicate on this appeal, only a few material facts need to be taken note of. During the course of the assessment proceedings, the Assessing Officer noticed that there are sundry creditors which have remained outstanding for more than three years. After probing the matter further, the Assessing Officer concluded that “as the assessee failed to furnish any proof of payment to these parties, the same are treated as ceased liabilities and added to the total income under section 41(1) of the Income Tax Act 1961”. As regards the claim of the assessee that these creditors pertained to the disclosure made before the Settlement Commission, the Assessing Officer rejected the said plea by observing that “if

SMC-ITA No.1075/Ahd/2015 Win Prints Vs. ITO AY : 2009-10 Page 2 of 3 these accounts pertained to the disclosure/ addition before the Settlement Commission, the assessee would have squared up the same while giving effect to the order of the Settlement Commission”. In appeal, learned CIT(A) held that the assessee has admitted the position with respect to payments of Rs 24,72,670 made by the assessee out of the undisclosed bank accounts, which were stated to have been covered by the disclosure made before the Settlement Commission, at least to this extent the liabilities were bogus and liable to be added under section 41(1). Aggrieved, assessee carried the matter in appeal before the Tribunal but again without any success. A division bench of this Tribunal, vide order dated 30.11.2016, confirmed the said disallowance by observing that “learned counsel fails to rebut this factual position by placing on record any cogent material”. As regards the balance amount of Rs 6,76,273, the CIT(A) observed that there are no arguments on merits but then the same was deleted by the division bench of this Tribunal. There is one more addition related to this penalty and that is with respect to gross profit. The Assessing Officer made an addition of Rs 7,96,616 in respect of gross profit as there was a fall in the GP rate in the impugned period. The GP addition was brought down to Rs 3,98,308 by the CIT(A), and to Rs.2,00,000 by a division bench of this Tribunal. As the things stand now, this addition is purely on a estimated basis and, while confirming the impugned addition to the extent of Rs.2,00,000, the division bench has also observed, justifying the fall in GP, that “the impugned assessment year has witnessed exorbitant cost of main raw material component and it cannot be denied that in such circumstances the corresponding handling and other supplementary charges also see an upward trend in a normal situation”. The matter, however, did not stop at that. The Assessing Officer also imposed penalty under section 271(1)(c) for concealment of income in respect of these additions. This penalty has been confirmed by the CIT(A) as well, aggrieved by which the assessee is in further appeal before the Tribunal.

I have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position.

I find that the explanation of the assessee has been rejected only because the assessee had not closed these accounts to give effect to the order of the Settlement Commission and as the purchases offered by the assessee before the Settlement Commission was only Rs.11,81,600 which is much less than the addition under section 41(1) made in this case. As for the first part, that is only an inference drawn by authorities below that the mere fact that the accounts were not squared up to give effect to the order of the Settlement Commission. Such an inference cannot be the basis of rejecting the explanation of the assessee. What is also overlooks is the actual case of the assessee, according to which, these creditors were covered by the order of the Settlement Commission because the payments to these parties were made out of the undisclosed bank accounts which were included in the disclosure made before the Settlement Commission. As long as the payments are made from the undisclosed bank accounts which are covered by the order of the Settlement Commission, the explanation of the assessee would indeed deserve to be accepted. However, at this stage, I am not inclined to conduct this exercise for the first time. On this point, i.e. penalty with respect to addition of Rs 24,72,670, I deem it fit and proper to remit the matter to the file of

SMC-ITA No.1075/Ahd/2015 Win Prints Vs. ITO AY : 2009-10 Page 3 of 3 the Assessing Officer for adjudication de novo after taking into account the plea of the assessee correctly, and after examining whether or not, as claimed by the assessee, the undisclosed bank accounts, from which the payments were made to the parties, were indeed covered by the disclosure before the Settlement Commission. I have noted that so far as this addition is concerned, the matter is right now pending before Hon’ble jurisdictional High Court. In case by the time the Assessing Officer gives effect to this order, Hon’ble High Court’s judgment in quantum proceedings is available, the Assessing Officer will take the same into account, and, in any case, now that the matter is being remitted to the file of the Assessing Officer, all aspects are left open for consideration of the Assessing Officer. While so deciding the matter afresh, the Assessing Officer will decide the matter by way of a speaking order, in accordance with the law and after giving a fair and reasonable opportunity to the assessee. Ordered, accordingly. 6. As regards the penalty in respect of GP addition of Rs.2,00,000, I find that the division bench has already accepted explanation, in principle, of the assessee and the related GP addition is purely on estimate basis. Such an addition on estimate basis, and after the explanation, in principle, having been accepted by the Tribunal in quantum proceedings, does not call for the imposition of penalty under section 271(1)(c). The penalty in respect of the GP addition is thus deleted. 7. In the result, the appeal is partly allowed in the terms indicated above. Pronounced in the open court today on the 14th day of September, 2018.

Sd/-

Pramod Kumar (Accountant Member) Ahmedabad, the 14th day of September, 2018 **pk-bt Copies to: (1) The appellant (2) The respondent (3) Commissioner (4) CIT(A) (5) Departmental Representative (6) Guard File By order TRUE COPY Assistant Registrar Income Tax Appellate Tribunal Ahmedabad benches, Ahmedabad 1. Date of dictation: ......14.09.2018.......... 2. Date on which the typed draft is placed before the Dictating Member: ... 14.09.2018... 3. Date on which the approved draft comes to the Sr. P.S./P.S.: …14.09.2018….. 4. Date on which the fair order is placed before the Dictating Member for Pronouncement: .. 5. Date on which the file goes to the Bench Clerk : .. 15.09.2018……. 6. Date on which the file goes to the Head Clerk : ……15.09.2018………………………. 7. The date on which the file goes to the Assistant Registrar for signature on the order: …. 8. Date of Despatch of the Order: ………………......

WIN PRINTS ,,AHMEDABAD vs. INCOME TAX OFFICER,, AHMEDABAD