SURESH JINDAL,KARNAL vs. ITO, KARNAL

The Assessee has filed this Appeal against the Order dated 03.03.2014 of the Ld. CIT(A), Karnal relating to assessment year 2007-08 on the following grounds:-

1. On the facts and circumstances of the case, the order passed by the learned CIT(A) confirming the penalty under section 271(1)(c) is bad, both in the eye of law and on the facts.

2. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in confirming the action of the AO in levying penalty

amounting to Rs.3,75,300/-.

3. On the facts and circumstances of the case, the learned CIT(A) has erred both on the facts and in law in confirming the penalty under section 271(1)(c) despite

the fact that there is neither concealment nor furnishing of inaccurate particulars.

4. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the penalty rejecting the contention of the assessee that no penalty for concealment can be levied

on the income assessed on estimate basis.

5. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the penalty despite the fact that the assessee

has got relief from the Hon'ble ITAT.

6. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the penalty rejecting the contention of the assessee that no penalty is leviable on such a debatable

and controversial issue.

7. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the penalty ignoring the fact that the penalty

proceedings are independent proceedings, as such merely on the basis of disallowances and additions made by the AO, penalty cannot be levied.

8. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the penalty u/s 271(1)(c) of the Act without

giving any finding as to the merits of the case on concealment and furnishing of inaccurate particulars of income.

9. The appellant craves leave to add, amend or alter any of the grounds of appeal.

2. The brief facts of the case are that against the returned income of Rs. 1,53,990/-, assessment in this case was completed at a total income of Rs. 20,62,570/- vide order dated 18.12.2009 passed u/s. 143(3) of the Income Tax Act, 1961 (hereinafter referred as the Act). While completing the assessment, it was noticed that the books of account maintained by the assessee did not reflect true state of affairs of business and as such the trading results were rejected after restoring to section 145(3) of the Act profit was worked out by applying GP rate of 4.9% to the total sales declared by the assessee. An addition of Rs.19,08,580/- was made on this account. In appeal, against the order u/s. 143(3) of the Act dated 18.12.2009 the Ld. CIT(A), upheld the rejection of books u/s. 145(3) of the Act and applied the GP rate of 4% as against 4.9%. The AO levied penalty on the amount of Rs. 13,21,870/- which was as a result of application GP rate @4% by holding that the closing stock was not ascertainable as the assessee was not maintaining the stock register quality-wise and item- wise and there was no description of timber and quality of timber on the sales bills, and, therefore, it was not possible to compare the sale bills and co-relate them with the purchase bills in order to ascertain the gross profit earned and to establish the correctness of trading reserves. Against the penalty order, the assessee appealed before the Ld. CIT(A), who vide his impugned order dated 03.3.2014 has upheld the penalty made by the AO by observing that the penalty was levied on an addition made on estimated basis is a wrong contention of the assessee as the penalty was levied by the AO on the basis of the inaccurate particulars merging from the books of accounts of the assessee and also due to the failure of the assessee to provide any explanation for the inaccurate particulars pointed out by the AO. Aggrieved with the impugned order, the assessee is in appeal before the Tribunal.

3. During the hearing, Ld. Counsel of the assessee has filed a Paper Book containing pages 1-49 having the copy of assessment order dated 18.12.2009 passed by the AO u/s. 143(3) of the Act; notice dated 18.12.2009 issued by the AO u/s. 274 read with section 271 of the Act; Assessee’s reply dated 10.1.2013 filed before the AO during the course of penalty proceedings; written submissions dated 26.12.2013 filed before the Ld. CIT(A) during the course of appellate proceedings and the order passed by the ITAT in the quantum proceedings bearing 3590/Del/2011. He stated that Ld. CIT(A) has wrongly confirmed the penalty under section 271(1)(c) of the Act despite the fact that there is neither concealment nor furnishing of inaccurate particulars.

He further stated that Ld. CIT(A) has failed to understand the contention of the assessee that no penalty for concealment can be levied on the income assessed on estimate basis and assessee got relief from the ITAT. He further stated that Ld. CIT(A) also wrongly confirmed the penalty u/s 271(1)(c) of the Act without giving any finding as to the merits of the case on concealment and furnishing of inaccurate particulars of income.

In the last it was submitted that it is a settled law that in case where the income has been estimated by applying a flat estimated rate of profit, and no other specific defects have been established which lead to concealment or furnishing of inaccurate particulars of income, no allegation could be made out against the assessee, making the conduct of assessee punishable with penalty. In support of his contention, he relied upon the following case laws:-

- Decision of the Hon’ble Jurisdictional High

Court of Punjab and Haryana in the case of CIT vs. Metal Products of India (1984) 150 ITR

714.

- Decision of Hon’ble Gujarat High Court in the case of CIT vs. Whitelene Chemicals (2014)

360 ITR 385 - ITAT, Jaipur in the case of Ravi Haldia, Dinesh Haldia, Mamta Haldia vs. ACIT 92017) 60 ITR (Trib.) 651. - ITAT, Mumbai in the case of Sonali A. Shah vs. ITO in dated 7.11.2016

Processors [(2007) 295 ITR 244] where Hon'ble

Supreme Court held that Penalty under section 271 (1 )(c) is a civil liability for which willful concealment is not an essential ingredient for attracting the civil liability as is the case in the matter of proceedings under section 276C.

DEL-IT) where Hon'ble Delhi High Court held that citing of past instance or lack of absence of cross-examination, cannot vitiate the initiation and culmination of penalty proceedings in case of accommodation entry.

448 (SC)/[2013] 358 ITR 593 (SC)/[2013] 263

CTR 1]

Where Hon'ble Supreme Court held that Under Explanation 1 to s. 271(1)(c), voluntary disclosure of concealed income does not absolve assessee of s. 271(1)(c) penalty if the assessee fails to offer an explanation which is bona fide and proves that all the material facts have been disclosed.

"9. We are of the view that the surrender of income in this case is not voluntary in the sense that the offer of surrender was made in view of detection made by the AO in the search conducted in the sister concern of the assessee. In that situation, it cannot be said that the surrender of income was voluntary.

AO during the course of assessment proceedings has noticed that certain documents comprising of share application forms, bank statements, memorandum of association of companies, affidavits, copies of Income Tax Returns and assessment orders and blank share transfer deeds duly signed, have been impounded in the course of survey proceedings under Section 133A conducted on 16.12.2003, in the case of a sister concern of the assessee. The survey was conducted more than 10 months before the assessee filed its return of income.

Had it been the intention of the assessee to make full and true disclosure of its income, it would have filed the return declaring an income inclusive of the amount which was surrendered later during the course of the assessment proceedings. Consequently, it is clear that the assessee had no intention to declare its true income.

It is the statutory duty of the assessee to record all its transactions in the books of account, to explain the source of payments made by it and to declare its true income in the return of income filed by it from year to year. The AO, in our view, has recorded a categorical finding that he was satisfied that the assessee had concealed true particulars of income and is liable for penalty proceedings under Section 271 read with Section 274 of the Income Tax Act, 1961."

[191 Taxman 179 (Delhi)l[2010] 327 ITR 510

(Delhi)l[2010] 233 CTR 465] where Hon'ble

Delhi High Court held that If assessee makes a claim which is not only incorrect in law, but is also wholly without any basis and explanation furnished by him for making such a claim is not found to be bona fide, Explanation 1 to section 271 (1)(c) would come into play and assessee will be liable to penalty.

Taxman 8 (SC)I[2009] 315 ITR 460

(SC)[2009] 222 CTR 213) where Hon'ble

Supreme Court confirmed Penalty under section 271(1)(c) for wrong adjustment of Unabsorbed Depreciation.

467] CIT vs India Seafood [105 ITR 708] where

Hon'ble Kerala High Court held that Claiming excessive deduction also amounts to concealment of income.

7. Steel Ingots Ltd vs. CIT [296 ITR 228] where Hon'ble Madhya Pradesh High Court held that in case of concealment of true income chargeable to tax by making bogus claim, levy of penalty u/s 271 (1)( c) read with Explanation 1 is justified.

5. We have heard both the parties and perused the records, especially the orders of the authorities below, Written Submissions/Synopsis filed by both the parties and the case laws cited therein alongwith the Paper Book filed by the Assessee containing pages 1-49 having the copy of assessment order dated 18.12.2009 passed by the AO u/s. 143(3) of the Act; notice dated 18.12.2009 issued by the AO u/s. 274 read with section 271 of the Act; Assessee’s reply dated 10.1.2013 filed before the AO during the course of penalty proceedings; written submissions dated 26.12.2013 filed before the Ld. CIT(A) during the course of appellate proceedings and the order passed by the ITAT in the quantum proceedings bearing 3590/Del/2011. We find that assessee filed its return of income for the year under consideration on 31.10.2007, declaring an income of Rs.1,53,993/-. Subsequently, the case of assessee was selected for scrutiny and the income of assessee was assessed at Rs.20,62,570/-, vide order dated 18.12.2009 passed u/s 143(3) of the Act. In the said order, the AO has rejected the books of accounts of the assessee and has estimated the profit of the assessee by applying the G.P. rate of 4.90%. In appeal Ld. CIT(A), vide order dated 18.03.2011 has upheld the rejection of books of accounts, however, has restricted the G.P rate to 4%, as against 4.9% applied by the AO. Aggrieved by the order of the Ld. CIT(A), the assessee as well as the Revenue filed appeals before this Tribunal and the Tribunal vide order passed in ITA Nos. 3542, 3590/Del/2011 (attached at PB 41-49) has further restricted the addition by adopting the G.P. rate of 3.53% to serve the interest of justice.

On merits of the case it was noted that mere basis for penalty by AO is on the basis of his estimation of GP rate of the assessee and AO has rejected the books of accounts of the assessee without pointing out any particular defect in the same and the Ld. CIT(A) and ITAT have also confirmed the part of the addition merely on an estimate basis. We further note that the GP rate has been estimated and no defect has been pointed out by the AO in the books of accounts of the assessee which could lead to the fact that particulars of income have not been disclosed by the assessee. However, it is a settled law that in case where the income has been estimated by applying a flat estimated rate of profit, and no other specific defects have been established which lead to concealment or furnishing of inaccurate particulars of income, no allegation could be made out against the assessee, making the conduct of assessee punishable with penalty. Our view is fortified by the decision of the Hon’ble Jurisdictional High Court of Punjab and Haryana in the case of CIT vs. Metal Products of India (1984) 150 ITR 714, wherein it has been observed that the addition if made on estimation under the proviso of Section 145(1) of the Act by adopting the view that GP shown in the books of accounts was too low, does not automatically lead to the invocation of penalty. We further note that the case laws cited by the Ld. Sr.

DR. are on distinguished facts.

6. In the background of the aforesaid discussions and respectfully following the precedent, as aforementioned, the penalty levied by the AO and confirmed by the Ld. CIT(A) is deleted and accordingly the grounds raised by the Assessee are allowed.

Order pronounced on 29-06-2018.