SHRI VIJAY KUMAR KAKKAR, PROP.,SAHARANPUR vs. ITO, SAHARANPUR

This appeal by the assessee is preferred against the order of the Commissioner of Income Tax [Appeals], Muzaffarnagar dated 14.07.2011 pertaining to A.Y 2007-08.

The solitary grievance of the assessee is that the CIT(A) erred in confirming the levy of penalty u/s 271(1)(c) of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short].

Roots for levy of penalty lie in the assessment order dated 14.12.2009 framed u/s 143(3) of the Act. Facts on record show that the assessee is a wholesale cloth merchant. During the course of scrutiny assessment proceedings, the assessee was required to furnish details of month-wise sales/purchases. The requisite details were furnished by the assessee. The Assessing Officer found certain discrepancies in the stock details furnished by the assessee. After correcting the same, the purchases and sales details were as under:

The Assessing Officer was of the opinion that the closing balance at the end of the F.Y. comes to Rs. 37.09 lakhs as against closing stock shown by the assessee at Rs. 15.03 lakhs. The Assessing Officer was of the firm belief that the excess stock comes to Rs. 22.05 lakhs which was considered as purchases outside the books. Considering the discrepancies in the month of January 2007 of Rs. 8,11,253/- made a total addition of Rs. 30,16,579/-.

The assessee carried the matter before the ld. CIT(A) and the ld. CIT(A), after considering the facts and submissions, came to the conclusion that the assessee has made outside books sales of the goods amounting to Rs. 22.05 lakhs and only profit on such outside book sales should be added to the income of the assessee. Such addition was computed at Rs. 2,81,536/-. To this extent the ld. CIT(A) confirmed the levy of penalty.

We have given careful consideration to the orders of the authorities below. It is true that some discrepancies were found in the book results of the assessee. However, we find that the Assessing Officer completed assessment by treating Rs. 30,16,579/- as purchases outside the books whereas in the quantum appellate proceedings, the first appellate authority was convinced that the stock at Rs. 15,03,985/- was definitely recorded stock in the books of account of the assessee, hence the addition on this account cannot be made under the head ‘out of books purchases’. We further find that the first appellate authority took a different view and came to the conclusion that the assessee must have made sales outside the books of account and accordingly restricted the addition to the profit element of such sales at Rs. 2,81,536/-.

A careful consideration of the facts emanating from the assessment order and order of the first appellate authority show that it is not clear whether the assessee had made purchases outside the books of account or he has made sales outside the books of account. Ultimately, addition has been sustained on profit estimation. Considering all these facts in totality, we do not find this a fit case for levy of penalty u/s 271(1)(c) of the Act. We, accordingly, direct the Assessing Officer to delete the penalty so levied.

For the sake of completeness of the adjudication, we find that notice issued u/s 274 of the Act r.w.s 271(1)(c) of the Act is on account of non- application of mind in as much as it is proforma notice where the Assessing Officer has not mentioned whether the fault is for concealment of particulars of income or furnishing of inaccurate particulars of income. On this account itself, the penalty imposed u/s 271(1)(c) of the Act is liable to be deleted.

In the result, the appeal of the assessee in is allowed.