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Income Tax Appellate Tribunal, ‘’ D’’ BENCH, AHMEDABAD
Before: SHRI MAHAVIR PRASAD & SHRI WASEEM AHMED
Assessee by : Shri Aseem Thakkar, A.R Revenue by : Shri Mohd. Usman, CIT. D.R with Shri Purushottam Kumar, Sr.D.R सुनवाई क� तारीख/Date of Hearing : 05/05/2022 घोषणा क� तारीख /Date of Pronouncement: 27/05/2022 आदेश/O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Commissioner of Income (Appeals)-1, Ahmedabad, dated 29/04/2019 arising in the matter of penalty order passed under s. 271(1)(c) of the Income Tax Act, 1961 (here- in-after referred to as "the Act") relevant to the Assessment Year 2004-05.
The assessee has raised the following grounds of appeal:
The learned Commissioner of Income Tax (Appeals) has erred in confirming the penalty of Rs.3,89,542/- u/s.271(1)(c) of the I.T. Act, 1961 which is illegal and bad in law. Hence the same should be cancelled.
2. The Appellant craves leave to add, alter, amend or modify any of the grounds of appeal on or before the date of hearing of appeal.
3. The only issue raised by the assessee is that the learned CIT-A erred in sustaining the penalty for Rs. 3,89,542/- levied under section 271(1)(c) of the Act.
4. The fact in brief is that the assessee is a private limited company and engaged in the business of manufacturing of various kinds/series of tiles. There was a search operation carried out at the premises of the assessee dated 7th February 2008 and its group companies. During the search it was found that assessee has made unaccounted sales and unaccounted investment in land. The AO, calculated GP on the unaccounted sales at Rs. 21,04,980/- and also worked out the value of unaccounted investment at Rs. 1.75 crores. Finally, the AO made addition of unaccounted investment only being higher amount and initiated penalty proceeding for concealing the particulars of income. The dispute reached to the level of ITAT wherein the addition to the extent of 1% of total disclosed sales was confirmed by holding that amount of suppressed sale is not final and conclusive. As such the amount of undisclosed sales has been calculated on hypothetical basis. Accordingly, the AO initiated the penalty with respect to the addition confirmed by the ITAT as concealment of income under section 271(1)(c) of the Act by issuing a show cause notice.
4.1 The assessee vide letter dated 22nd February 2018 submitted that the addition was made for undisclosed investment by the AO which was deleted by the learned CIT-A by holding that the there was no undisclosed investment but the addition was made by applying net profit rate on alleged unaccounted sale. Further Hon’ble ITAT changed the basis of making addition by applying additional 1 % of profit on accounted sales. Thus, the final addition was made completely on different basis and footing than the addition made by the AO in assessment proceeding. Accordingly question of concealing income or furnishing inaccurate particular of income does not arise in the given fact and circumstances. The assessee in support of its submission relied on various case laws which are incorporated in the penalty order.
However, the AO held that there is no dispute to the fact that the assessee has suppressed its sale by making unaccounted sales and purchases and derived income from the unaccounted business which was utilized for making unaccounted investment. As such, the addition confirmed by the Hon’ble ITAT was based on unaccounted sales. Therefore it is established that the assessee has concealed the income by way of suppressing the sale which attracts the provision of section 271(1)(c) of the Act. Thus, the AO levied the penalty of Rs. 3,89,542/- being 100% of the amount of tax sought to be evaded.
Aggrieved assessee preferred an appeal before the learned CIT-A.
6.1 The assessee before the learned CIT-A submitted that it is the settled position of law by the order of Hon’ble jurisdictional High court of Gujarat in case of CIT vs. Subhash Trading Co. reported in 221 ITR 110 that penalty under section 271(1)(c) of the Act cannot be levied on the addition made on account of estimation of profit.
6.2 The assessee further submitted that to levy penalty on account of concealment of income there should be deliberate act of concealment which has to be established based on cogent materials. But the Revenue has not alleged that there was deliberate act on the part of the assessee.
However, the learned CIT-A after considering the facts in totality sustained the penalty levied by the AO by observing as under: 4.1 I have carefully considered the penalty order and submission filed by the Appellant. The Assessing Officer has levied penalty of Rs.3,89,542/- u/s.271(1)(c) for concealment of income in respect of undisclosed profit of Rs.10,85,831/- The Assessing Officer in the assessment order has made addition of suppressed sales and initiated penalty u/s.271(1)(c). The CIT(A) has restricted the addition of only Gross Profit @ 29.62% as the purchase was not doubted. On appeal, the Hon’ble ITAT has restricted the addition to the GP@ 1% of the suppressed sale at Rs 10,85,831/-. The appellant has contended that the penalty is not leviable as the addition has been made on the basis
or estimate of Net Profit and has relied upon the case at ClT Vs. Suchash Trading Co. (Supra) and Reliance Petro Products Ltd. (Supra). 4.2 I do not agree with the submissions made by the appellant as the facts of the case relied by the appellant in the case of Subhash Trading Co. is clearly different and distinguishable. In the present case, all the authorities upto Hon'ble ITAT has held that there is a suppression of sales and accordingly they have confirmed the addition of Gross Profit on suppressed sale. Therefore, there is no dispute that there is a suppression of Gross Profit. In the case relied by the appellant, there was no suppression of the sales but it was difference of estimate made by the appellant versus estimate made by the Department. In view of the above, the penalty levied by the Assessing Officer is confirmed.
Being aggrieved by the order of the learned CIT-A, the assessee is in appeal before us.
The learned AR before us filed a paper book running from pages 1 to 136 and contended that there cannot be any penalty with respect to the addition made based on estimates. It was also contended by the learned AR that the whole basis of the addition made by the AO and the learned CIT-A was changed by the ITAT in its order with respect to the quantum addition. Therefore in such a situation the penalty under section 271(1)© of the Act cannot be levied.
On the contrary the learned DR before us submitted that there is no dispute to the fact that the assessee was engaged in the unaccounted sales. This fact was also confirmed by the ITAT. Therefore, the assessee cannot be absolved from the penalty merely on the reasoning that the basis for calculating the undisclosed income from the unaccounted sales was changed by the higher authorities. The learned DR vehemently supported the order of the authorities below
We have heard the rival contentions of both the parties and perused the materials available on record. In the present case the AO in the assessment framed under section 153A read with section 143(3) of the Act has made the addition under the provisions of section 69 of the Act on account of unexplained investment. As such, it was discovered in the search proceedings that the assessee was engaged in the trading of unaccounted tiles/products. The AO during the quantum proceedings determined the income of the assessee from its unaccounted trading activities for Rs. 21,04,980/- being gross profit on the suppressed sales. The amount of undisclosed income worked out by the AO in relation to unaccounted trading activities was lesser than the amount of unaccounted investments made by him under the provisions of section 69 of the Act. Thus the AO confirmed the addition qua the unaccounted investments under the provisions of section 69 of the Act. As such the AO has not made any addition qua the unaccounted business of the assessee. The reason for not making the addition on account of unaccounted business was that the AO has treated the amount of income of the assessee generated from the undisclosed trading activities as representing the application in the unaccounted investments which have already been added to the income of the assessee under section 69 of the Act.
11.1 However, the learned CIT-A was pleased to delete the addition made by the AO on account of undisclosed investments in the properties under the provisions of section 69 of the Act but confirmed the addition at the rate of net profit ratio on the unaccounted trading activities of the assessee which is representing the net profit.
11.2 Nevertheless, the ITAT has taken a new base by holding that the addition of GP or NP on suppressed sale is not sustainable for the reason that volume of suppressed sale was not final and conclusive. Therefore the ITAT to meet the end of justice made addition of 1% only on accounted sale of the assessee.
11.3 Admittedly, there remains no scope of confusion to hold that the assessee was engaged in the activity of unaccounted business which was also admitted by the ITAT in its order dated 05-05-2017 for the assessment year under consideration. But it is interesting to note that the basis of making the addition was changed before the learned CIT-A and subsequently before the ITAT. Thus the question arises whether the penalty can be imposed upon the assessee under section 271(1)(c) of the Act on account of concealment of income in a situation where amount of suppressed sale was not known and quantifiable but the addition was sustained on estimated basis. There is no dispute to the fact that the addition was finally made based on the estimate. In this regard we note that the Hon’ble Gujarat High Court in the case CIT vs. Subhash Trading Co. reported in 221 ITR 110 has deleted the penalty by observing that the quantum addition was based on estimated basis and therefore the penalty cannot be levied. The relevant extract of the order of the Hon’ble Gujarat High Court reads as under: In the instant case, a best judgment assessment had been made by rejecting the results disclosed by books of account maintained by the assessee and the figure of assessable income had been arrived at by applying an estimated gross profit rate on estimated sales, viz., both the figures were adopted by the revenue authorities on certain assumption but were not the actual figures of sales or gross profit earned by the assessee. There was bound to be a guess-work and application of rule of thumb to some extent in such matters. In these circumstances, in absence of any other material which might reflect on the conduct of the assessee about deliberate attempt to maintain false books of account, on a preponderance of probabilities, no other conclusion could be reached but that the failure to return the total assessed income was not on account of any fraud or gross or wilful neglect on the part of the assessee. In the instant case, the assessee had raised this contention. The material available on record in that regard was before the revenue authorities, and the Tribunal which accepted those contentions of the assessee about invalidity of levy of penalty under section 271(1)(c), merely by resorting to its Explanation. The only possible conclusion in the present circumstances was that necessary implication of the material appearing on the record was that failure to return the total assessed income was not on account of any fraud or gross or neglect on the part of the assessee. The burden which lay upon the assessee must be taken in the instant case to be discharged so as to repel the applicability of the legal fiction in the Explanation. There being no other ground the Tribunal was right in holding that penalty imposed by Assessing Officer was not justified.
11.4 In view of the above and after considering the facts in totality, we are not inclined to uphold the penalty levied by the AO which was subsequently confirmed by the learned CIT- A. Accordingly we set aside the finding of the learned CIT-A and direct the AO to delete the penalty levied by him. Hence the ground of appeal of the assessee is allowed.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the Court on 27/05/2022 at Ahmedabad.