ASSISTANT COMMISSIONER OF INCOME-TAX vs. M/S. GHODAWAT FOODS INTERNATIONAL PVT. LTD.,, KOLHAPUR

The brief facts of the case as emanating from records are: The assessee company is engaged in manufacturing of Refined Oil. The assessee filed its return of income for the impugned assessment year on 01-11-2004 declaring total income of Rs.94,42,109/-. The case of the assessee was selected for scrutiny. Accordingly, statutory notice u/s. 143(2) was issued to the assessee. During the course of scrutiny assessment proceedings the Assessing Officer observed that the assessee has creditors to the tune of Rs.20,51,06,603/-. The total number of creditors shown by the assessee was 315. The Assessing Officer after detailed enquiry concluded that the assessee has not been able to prove the identity of creditors, failed to show creditworthiness of the creditors and genuineness of the creditors. The Assessing Officer inter alia made addition of Rs.18,68,90,938/- u/s. 68 of the Act on account of unproved creditors. In First Appellate proceedings the Commissioner of Income Tax (Appeals) restricted addition to Rs.8,87,03,901/-. Thereafter, the assessee carried the matter in second appeal before the Tribunal. The Tribunal in ITA No. 866/PN/2009 for assessment year 2004-05 decided on 30-10-2013 further reduced the addition to 20% of the addition sustained by the Commissioner of Income Tax (Appeals) i.e. 20% of Rs.8,87,03,901/- (Rs.1,77,40,780/-). The Assessing Officer levied penalty of Rs.64,91,794/- u/s. 271(1)(c) on account of furnishing inaccurate particulars of income to the extent of addition confirmed by Tribunal. Against the order passed u/s. 271(1)(c) dated 13-08-2014, the assessee filed appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) by placing reliance on the decision of Tribunal in assessee‟s own case for assessment years 2005-06 and 2006-07 deleted penalty in toto. Now, the Revenue is in appeal against the order of Commissioner of Income Tax (Appeals).

Dr. Vivek Aggarwal representing the Department submitted that during the course of assessment proceedings it was found that the assessee company has shown creditors to the extent of Rs.27 crores as on 31-03-2014. On detailed investigation it transpired that in the normal course the assessee makes payment within 6-8 days. However, in the period relevant to the assessment year under appeal, there was unusual delay of 6-8 months in payment of creditors. There was long list of creditor‟s totaling to 315. The assessee could not show the genuineness of the creditors. Most of the creditors were petty to whom payments were made in 6-8 days. Detailed enquiry was made from the creditors. The creditors admitted that within 6-8 days payments were received in cash from the assessee. The ld. DR pointed that modus operandi of the assessee was that the assessee purchased soya seeds from petty traders and used to make cash payment at the time of purchase itself or within 6-8 days time. Most of the payments against purchases were made out of funds available in the books but in respect of bogus creditors payments were made out of unaccounted funds but bills in the name of these creditors were shown outstanding (though paid) till the end of financial year showing it as creditors. For making unaccounted bills the assessee used to pay bearer cheques in the names of creditors. On reverse of cheques fake signatures of the creditors were made and the assessee‟s own employees use to withdraw money from the bank. The ld. DR submitted that it is a fit case for levy of penalty as the assessee in order to suppress his income has furnished inaccurate particulars of income by creating bogus creditors in the books. The ld. DR further submitted that the Commissioner of Income Tax (Appeals) has erred in following the order of Tribunal in assessee‟s own case for assessment years 2005-06 and 2006- 07. The facts in those years are distinguishable. In the present case, the

On the other hand Shri R.G. Nahar appearing on behalf of the assessee vehemently defended the order of Commissioner of Income Tax (Appeals) in deleting penalty. The ld. AR submitted that the Tribunal has made ad hoc addition in respect of unproved creditors. It is a well settled law that no penalty is to be levied in respect of estimated additions.

We have heard the submissions made by representatives of rival sides and have perused the orders of authorities below. The Revenue in appeal has assailed the order of Commissioner of Income Tax (Appeals) in deleting levy of penalty u/s. 271(1)(c) in respect of addition made u/s. 69 of the Act on account of unproved sundry creditors. The Assessing Officer in assessment proceedings had made addition of Rs.18,68,90,938/-, which

The ld. AR has further pointed that there is a defect in recording satisfaction for initiating penalty proceedings u/s. 271(1)(c). A perusal of assessment order (para 7.7) shows that the Assessing Officer has recorded satisfaction for initiating penalty proceedings u/s. 271(1)(c) in respect of addition under reference by mentioning both the limbs of section 271(1)(c) i.e. concealing particulars of income and furnishing inaccurate particulars of income. The relevant extract of the satisfaction recorded by the Assessing Officer for initiating penalty proceedings read as under : “I therefore, hold that an amount of Rs.18,68,90,938/- as assessee’s income u/s. 69 of the Act and added to the income returned for which penalty proceedings u/s. 271(1)(c) are initiated separately for concealing particulars of income and furnishing inaccurate particulars of income.”

While passing the order levying penalty u/s. 271(1)(c), the Assessing Officer has referred to only one of the two limbs i.e. inaccurate particulars of income. The relevant extract of the order levying penalty is extracted here-in-below : “The assessee has furnished inaccurate particulars of its income. Therefore, the provisions of section 271(1)(c) of the Act are attracted.”

It is a well settled proposition that the penalty has to be levied only on the ground for which it has been initiated. Mentioning of both the limbs at the time of recording satisfaction or one of the limbs of section 271(1)(c) at the time of recording satisfaction and levying penalty on another would make the penalty proceedings unsustainable in the eye of law and hence, under such circumstances penalty is liable to be set aside.

The Hon‟ble Bombay High Court in the case of Commissioner of Income Tax Vs. Samson Perinchery reported as 392 ITR 4 under circumstances where both the limbs were mentioned by Assessing Officer for levy of penalty has held the penalty order bad in law. The relevant extract of the order of Hon‟ble High Court reads as under : “6. The above submission on the part of the Revenue is in the face of the decision of the Supreme Court in Ashok Pai v/s. CIT 292 ITR 11 [relied upon in Manjunath Cotton & Ginning Factory (supra)] – wherein it is observed that concealment of income and furnishing of inaccurate particulars of income in Section 271(1)(c) of the Act, carry different meanings/ connotations. Therefore, the satisfaction of the Assessing Officer with regard to only one of the two breaches mentioned under Section 271(1)(c) of the Act, for initiation of penalty proceedings will not warrant/ permit penalty being imposed for the other breach. This is more so, as an Assessee would respond to the ground on which the penalty has been initiated/notice issued. It must, therefore, follow that the order imposing penalty has to be made only on the ground of which the penalty proceedings has been initiated, and it cannot be on a fresh ground of which the Assessee has no notice.”

In the present case we are of considered view that there was ambiguity in the mind of Assessing Officer while recording satisfaction for initiating penalty proceedings u/s. 271(1)(c) of the Act. The Assessing Officer was not clear of the charge u/s. 271(1)(c) that has to be invoked for levy of penalty and hence mentioned both the limbs i.e. concealment of income, as well, furnishing inaccurate particulars of income. However, the penalty has been levied only on the charge of „furnishing inaccurate particulars of income‟. The manner in which satisfaction has been

In the result, the appeal of Revenue is dismissed.