THE ITO, WARD-2(3)(5), SURAT vs. M/S. GLOBAL SYNTAX, SURAT

Ground No.1 to 3 states that CIT(A) erred in deleting the penalty of Rs.14,58,400/- levied under section 271(1)(c) of the Act, by observing that the GP addition is on estimated basis.

Briefly stated facts are that the assessee has filed return of income on 25.09.2010 declaring total loss at Rs.88,57,420/- which was assessed at Rs.41,21,602/- by making GP addition of Rs.46,45,955/-, addition u/s.41(1) of the Act of Rs.16,194/- and addition on account of late payment of employees contribution

The assessee carried the matter before CIT(A) who noted that the Assessing Officer made additions on GP addition of Rs.46,45,955/-, addition u/s.41(1) of the Act of Rs.16,194/- and addition on account of delayed payment of EPF of Rs.73,669/-. The ld.CIT(A), after perusal of the record viewed that G.P. addition being trading addition due to application of higher profit rate wrongly estimated by the Assessing Officer than that of declared by the assessee, the same being the result of estimation and cannot be treated to be concealed income by any standard. Notwithstanding, the Assessing Officer has not brought any positive evidence on record to show that actually assessee has earned more profit/income than what has been shown in the books of accounts and the assessee enjoyed the benefit of such excess income by making investment/expenses etc. In nutshell, this is a simple case of rejection of books of accounts and application of higher GP rate without having any positive finding about the concealment of income. The CIT(A) further observed that the AO has not brought on record anything to establish that the assessee has earned more profit than and shown in the books of accounts. Likewise, disallowance made for delayed payment of Employees’ EPF contribution of Rs.73,669/- towards late deposit of PF amount is concerned the CIT(A) relied on the decision in the case of CIT v. Mother India Refrigeration Pvt. Ltd. [1985] 155 ITR 711(SC) wherein it was held that legal fiction is created only for some definite purpose and they must be limited to that purpose and should not be extended beyond that legitimate field. Therefore, the CIT(A) observed that the ld.AO was thoroughly unjustified in levying penalty under section 271(1)(c) of the Act. The CIT(A) further supported his view by placing reliance in the case of CIT v. Reliance Petro Products Pvt. Ltd [2010] 322 ITR 158 (SC); [2010] 189 Taxmann 322

Being aggrieved, the Revenue filed this appeal before the Tribunal. The ld.Sr.DR relied on the order of the Assessing Officer. The ld.Sr.DR argued that this is not issue of rejection of books of accounts but the Assessing Officer has given reason in fall of Gross Profit Rate as compared to last two years and only applied average Gross Profit Rate to make addition. With regard to disallowance on account of Employees EPF payments. The ld.Sr.DR relied on the order of the Assessing Officer.

Per contra, the ld.Authorised Representative submitted that similar penalty imposed for the assessment year 2009-10 was deleted by the CIT(A) against which the Department has filed appeal before the Tribunal ITA No.3146/Ahd/2015. The Tribunal has also heard the same on 23.11.2017 which was decided in favour of the assessee. Therefore, the assessee relies on the order of CIT(A) for the assessment year 2008-09 and assessment year 2009-10 in this regard.

We have heard the rival submissions and perused the relevant material on record. We find that in the assessment order, the AO has relied on the decision of Dharmendra Textile Processors & Ors. (2008) 306 ITR 277 (SC). Addl. CIT vs. Jeevanlal Shah 205 ITR 244 (SC) and K P Madhusudan vs. CIT 251 ITR 99 (SC) and levied penalty of Rs.14,58,400/- which deleted by the CIT(A). The AO has estimated the income on pure guess work. The similar issue had come before the Hon’ble M.P.High Court in the case of CIT vs. Shivnarayan Jamnalal, (1998) 232 ITR

In the instant case, in order to protect the clause (c) of Section 271(1) of the Act, it is necessary that there must be concealment by the assessee of particulars of his income or if he furnished the inaccurate particulars of income. The assessee has maintained books of accounts and he has filed the return of income and during the course of assessment, the AO has estimated profit purely on the guess work that Gross Profit Rate declared by the assessee was less than of preceding assessment years. Therefore, the addition was made estimated basis. Similarly, the Hon’ble Gujarat High Court in the case of CIT v. Subhash Trading Co. [1996] 131 CTR 121 (Guj) held that where penalty under Explanation to section 271(1)(c) of is sought to be imposed on the basis of estimated income after rejecting books results, the preponderance of probability is that failure to return the assessed income was not on account of any fraud or gross or willful neglect on the part of the assessee. It has been held that onus on the assessee stands discharged and the presumption under Explanation to section 271(1)(c) stands rebutted. Hence, penalty under section 271(1)(c) cannot be imposed in such a case. In the case of Dilip N Shroff v. JCIT [2007] 291 ITR 519 (SC), the Hon’ble Supreme Court held that finding in assessment proceedings can not be

In the result, the appeal of the Revenue is dismissed.