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Income Tax Appellate Tribunal, MUMBAI BENCHES “B”, MUMBAI
Before: SHRI M. BALAGANESH (AM) & SHRI RAM LAL NEGI (JM)
O R D E R
PER RAM LAL NEGI, JM
This is a part recalled matter. In this case, the assessee filed its return of income for the assessment year 2010-11 on 22.09.2010 declaring total income of Rs. 9,93,545/-. A search and seizure action was carried out by the Income Tax Department at the premises of Zamkudi Group as well as the residential premises of the assessee on 09.10.2010. During the search, some papers were found from the premises of Zamkudi Group some of which were in respect of the assessee. Accordingly, AO issued notice u/s 153A of the Act on 05.10.2011. In response thereof, the assessee filed return of income on 08.11.2011 declaring total income of Rs. 51,34,120/- (including undisclosed income of Rs. 44,29,000/-).
2 Assessment Year: 2010-11
Assessment was accordingly completed u/s 143 (3) r.w.s. 153A of the Act determining the total income at Rs. 56,43,120/- after making a further addition of Rs.5,09,000/- to the income disclosed by the assessee. The ACIT accepted the return filed the assessee u/s 153A of the Act, however, estimated the gross profit at 26% of the sales instead of 24% adopted by the assessee. The assessee did no prefer any appeal against the said order. Thereafter, the AO issued notice u/s 271(1) (c) of the Act. In reply to the said notice, the assessee contended that additional income of Rs. 44,29,000/- was offered in the return of income filed pursuant to the notice u/s 153A of the Act, therefore, there is no concealment of income by the assessee to initiate proceedings u/s 271 (1) (c) of the Act. The assessee further contended that no penalty can be levied where addition is made on estimation basis. However, the ACIT rejecting the contention of the assessee and levied penalty of Rs. 15,25,842/- in respect of addition of Rs. 49,38,000/- (i.e. Rs. 44,29,000 + Rs. 5,09,000/-).
Aggrieved by the assessment order passed by the ACIT, the assessee preferred appeal before the Ld. CIT (A). The Ld. CIT(A) after hearing the assessee dismissed the appeal filed by the assessee and confirmed the penalty levied by the AO u/s 271 (1) (c) of the Act. The assessee further challenged the order passed by the Ld. CIT (A) before the ITAT on the following effective grounds:- 1. “The Commissioner (Appeals) erred in confirming penalty under section 271 (1) (c) of Rs. 15,25,842/- invoking Explanation-5A to section 271 (1) (c) of the I.T. Act, 1961. 2. The Commissioner (Appeals) failed to appreciate that the income of Rs. 49,39,000/- is added to the income of the assessee on estimation of gross profit at 26% of the goods sold. 3. The Commissioner (Appeals) failed to appreciate that Explanation-5A to section 271 (1) (c) of the Act provides that income offered in the return of income subsequent to the search would also amount to concealment or furnishing of inaccurate particulars of such income and thus it prevents the assessee 3 Assessment Year: 2010-11 from contending that income is already offered in the return of income and hence there is no concealment or furnishing of inaccurate particulars of income.
The Commissioner (Appeals) failed to appreciate that Explanation-5A to section 271 (1) (c) of the Act does not prohibit the assessee from contending that the income offered in return of income filed subsequent to the search is based on estimate of gross profit allegedly earned on the goods sold and therefore, there is no concealment of income or furnishing of accurate particulars of income.
5. The Commissioner (Appeals) erred in observing that further addition of Rs. 5,09,000/- has been made by the A.O. on the basis of seized documents only.
6. The Commissioner (Appeals) failed to appreciate that the addition of Rs. 5,09,000/- was made by the AO by estimating the gross profit at 26% of the goods sold as against 24% adopted by the assessee while offering the income.
The Commissioner (Appeals) failed to appreciate that in the course of the search the alleged stock register was found for the months of January to March 2010 and no material was found for the earlier period of nine months and therefore, income voluntarily offered for the said period of nine months cannot be said to have been concealed as there was no material found in the search for the said income.
The order of the Commissioner (Appeals) confirming the penalty is bad in law and without jurisdiction.”
4. The coordinate Bench after hearing the rival contentions of the parties, allowed the appeal of the assessee and deleted the penalty confirmed by the Ld. CIT (A) vide order dated 18.08.2017. The legal heir of the assessee filed miscellaneous application No. 125/Mum/2018 on the ground that the Tribunal has not decided ground No. 5 and 6 of the appeal, which read as under:-
“5 The Commissioner (Appeals) erred in observing that further addition of Rs. 5,09,000/- has been made by the A.O. on the basis of seized documents only.
4 Assessment Year: 2010-11
The Commissioner (Appeals) failed to appreciate that the addition of Rs. 5,09,000/- was made by the AO by estimating the gross profit at 26% of the goods sold as against 24% adopted by the assessee while offering the income.”
The coordinate Bench after hearing both the sides recalled the order dated 18.08.2017 passed by the “I” Bench of the Tribunal for a limited purpose of deciding the issue raised by the assessee appeal holding as under:-
4. After hearing both the parties and perusing the material on record, we observe that while passing the order dated 18.08.2017 the Bench has not adjudicated the issues of confirmation of penalty by Ld. CIT (A) in respect of addition of Rs. 5,09,000/- which has been challenged by the assessee in ground No. 5 of the grounds of appeal. The non adjudication of ground No. 5 constitutes a mistake which is apparent on the face of the order and hence the same requires rectification by recalling the order. We, therefore, recall our order dated 18.08.2017 to the extent of non adjudication of ground No. 5.
6. Before us, the Ld. counsel for the assessee submitted that the assessee has challenged the impugned order passed by the Ld.CIT (A) by raising two propositions i.e. (i) In the return of income u/s 153A of the Act, the assessee had disclosed income of Rs. 44,29,000/-, therefore, the assessee has not concealed the income as the original return has become non est and (ii) addition on account of estimation of GP @ 26% instead of 24% adopted by the assessee does not amount to concealment of income. The Ld. counsel further pointed out the Tribunal has deleted the addition accepting the proposition (i), however, the Tribunal did not record findings in respect of proposition (ii). The Ld. counsel further submitted that the AO has made addition of Rs. 5,09,000/- to the income returned by the assessee while computing the assessment u/s 143 (3) r.w.s. 153A of the Act. The AO estimated the GP at 26% instead of 24% adopted by the assessee on the basis of average of last three years gross profit. During the course of assessment proceedings, the AO issued show cause notice 5 Assessment Year: 2010-11 as to why the gross profit of 27.60% should not be adopted, however, in the light of explanation, the AO adopted the mean of 24% and 27.60% i.e. 26% and accordingly estimated the additional income of Rs. 5,09,000/-. The Ld. counsel further submitted that penalty u/s 271 (1) (c) of the Act cannot be levied in respect of estimation of gross profit as the same is based on presumption and surmises, therefore, the assessee is not liable for penalty u/s 271 (1)(c) in respect of addition of Rs. 5,09,000/-. The Ld. counsel relied on the law laid down by the Hon’ble Bombay High Court in the case of CIT vs. Aarkay Saree Museum 187 ITR 147, decision of Mumbai Tribunal in the case of Smt. Usha Ashok Kumar Shah vs. DCIT to substantiate the contention of the assessee.
7. On the other hand, the Ld. Departmental Representative (DR) submitted that since the ITAT has deleted the penalty confirmed by the Ld. CIT (A), there is no need to adjudicate the said ground separately. 8. We have carefully perused the relevant material on record in the light of the contentions of the parties. The only grievance of the assessee is that the Tribunal has not given any findings on the grounds challenging the confirmation of penalty in respect of the addition of Rs. 5,09,000/- made by the AO on account of estimation of GP @ 26% instead of 24% adopted by the assessee. As pointed out by the Ld. counsel in the case of Smt. Usha Ashok Kumar Shah vs. DCIT (supra), the coordinate Bench of the Tribunal has deleted the penalty levied on the basis of addition made on estimation. The operative part of the order of the Tribunal reads as under:-
5.1 We have considered the orders of the lower authorities as well as the order of the Tribunal and submissions made by both the sides. It is noted that this addition has been made by making estimate at all stages. The AO had estimated GP at 9% as against GP of 5.8% disclosed by the assessee, the Ld. CIT (A) adopted 8% whereas the Tribunal has reduced it to 7%. The assessee is aggrieved with the fact that the detailed working submitted by it pointing out fallacies in the estimation done at 6 Assessment Year: 2010-11 various stages has been ignored. It is further noted by us that in any case, the addition has been made on estimate basis only. Concealment of income has not been proved by the AO while levying penalty. We do not find any justification to levy penalty on the addition which has been made on estimate basis and also keeping in view the fact that there is no uniformity even on the estimation. Thus, penalty levied on this addition is directed to be deleted.
9. Similarly, in the case of CIT Vs. Aarkay Saree Museum, the Hon’ble Bombay High Court confirmed the findings of the Tribunal deleting the penalty confirmed by the First Appellate Authority imposed on the basis of addition made on estimation. The Hon’ble High Court affirmed the findings of the Tribunal holding as under:-
The Tribunal cancelled imposition of penalty of imports after recording a finding that the allegation of concealment of income was not proved. The Tribunal rightly recorded in paragraph 8 of its judgment that merely because certain additions were made in trading account by the Assessing Officer, it did not necessarily follow that the assessee had concealed the income. The above recorded finding of the Tribunal recorded in paragraph 8 of the judgment is unassailable.