JITENDRA J. GOWDA,MUMBAI vs. ITO 15(2)(3), MUMBAI

आदेश / O R D E R

Per Sandeep Gosain, Judicial Member:

Jitendra J. Gowda The learned AO has erred in passing penalty order U/s 271(1)(c) for concealment & filing of inaccurate particulars of income as under: a) For addition of Rs. 7,76,247/- on account of low gross profit ratio. b) For addition of Rs. 32,741/- on account of profit on the undisclosed sales.

Jitendra J. Gowda c) Housing loan interest of Rs.1,50,000I- due to non submission of supporting evidences. d) Deduction claimed U/s 80C of Rs.1,00,000I- due to non submission of supporting evidences. Against the assessment order, the assessee preferred appeal before the Ld.CIT(A)-26, Mumbai. The Ld. CIT(A) vide order dated 20.12.2012 partly allowed ground no. 1, ground no. b is dismissed and ground nos. c & dare allowed in favour of the assessee. Thus the Ld. CIT(A) confirmed the following additions/disallowances :- a) Rs.32,741/- being the profit on the undisclosed sales reported by the AO in the assessment order. b) Rs.7,76,247/- being the addition on account of low gross profit ratio. Accordingly, the AO initiated penalty proceedings uls.274 r.w.s.271 (1)(c) of the l.T.Act in respect of the above additions/disallowances. Aggrieved by the order of AO, assessee preferred appeal before Ld. CIT(A) and Ld. CIT(A) after considering the case of both the parties dismissed the appeal of the assessee and uphold the order of penalty.

Jitendra J. Gowda Now before us, the assessee has preferred the appeal by raising the above grounds.

by the assessee relates to challenging the order of Ld. CIT(A) in upholding the order of penalty levied by AO.

5. We have heard Ld. DR at length and we have also perused the material placed on record as well as the orders passed by revenue authorities. From the records, we noticed that the assessee had filed written submissions vide letter dated 27.06.16 before the CIT(A) and in the said written submission, the assessee had relied upon several judgments wherein it has been time and again held that Jitendra J. Gowda where addition are made on estimation basis then no penalty sustainable. The written submission filed by the assessee are reproduced below:-

1.

1. The learned AO had made following disallowances during scrutiny for A. Y. 2008-09: e) Rs. 14,29,7621-, (being duff of Rs. 7,29,58,0661- Sales turnover as per P&L and Rs. 7,43,87,828/- Sales turnover as per Safes Tax Department) as unaccounted income. f) Rs. 7,76,2471- (being duff of Rs. 8,94,492/- gross profit @1.22% and Rs. 16,70,739/- gross profit @2.29%) considering Gross profit Ratio'of 2.29% shown by another party i.e. MIs. Pushpak Gas & Fuel Station with same nature of business. g) Housing loan interest of Rs. 1,50,000/- due to non submission of supporting evidences. h) Deduction claimed U/S 80C of Rs. 1,00,000/- due to non submission of supporting evidences.

2. On subsequent appeal by the assessee against the above order with Commissioner of Income Tax (Appeals), ground nos. 1, 3 & 4 were allowed by the learned CIT (Appeals) in favour of the assessee. Hence Jitendra J. Gowda additions on ground no. 2, i.e. applying higher G.P. rate on an estimated basis was confirmed by the learned CIT (Appeals).

3. The additions of Rs. 32,7411- & Rs. 7,76,247/- are on acqount of low gross profit ratio which is estimated at a higher figure by the learned AO. 4 The estimate of higher G. P. ratio by the ld. AO was based on following facts: i) Higher G.P. ratio of 2.29% declared by unrelated third party not known to the assessee & assessed by AO for A. Y. 2008-09, a fact which was not known to the assessee at the time of filing his Income Tax Return for A. Y. 2008-09. ii) Higher G.P. ratio declared by the assessee himself during subsequent years, again a fact which could not have been anticipated by the assessee at the time of filing his income Tax Return for A. V. 2008-09.

5. Your assessee submits that no penalty can be levied u/s. 271(1)(c) on additions made on an estimated basis without any concrete evidence of actual concealment.

6. S. 271 (1) (c) applies where the assessee has concealed the particulars of his income or furnished inaccurate particulars of such income. Your assessee further submits that estimation of higher rate of profits based on results of other party or his own profits for subsequent years cannot be termed as either concealment or furnishing of inaccurate particulars of income.

7. Concealment of Income: No penalty u/s. 271(1)(c) can be invoked on this ground, since such concealment penalty cannot be levied on additions made on estimated basis without any concrete evidence of actual concealment We state Jitendra J. Gowda that the assessee has not concealed any income, but has prepared his return of income based on actual working of his business as recorded in the books of accounts. Estimation of higher rate of gross profit on the presumption that the same was shown by some other party who is not known to the assessee at all, cannot, by any stretch of imagination, be termed as concealment of income. Based on above facts, we request your good self not to levy penalty u/s. 271(1)(c) of the Income Tax Act, 1961. To further substantiate our claim, we submit following additional judicial pronouncements: i) Commissioner of Income-tax v. Norton Electronics Systems (P) Ltd. (2014) 41 Taxmann.com 280 (Allahabad HC) When addition is made on estimate basis, no penalty is sustainable. ii) Asst. Commissioner of Income-tax v. Vision Research Management ('P) Ltd. ITAT Lucknow (2015) 63 Taxmann.com 8 (Lucknow Trib) Imposition of Penalty upon assessee u/s. 271(1)(c) on basis of adhoc & estimated disallowance/addition, without bringing any clinching material suggesting concealment of income or furnishing of inaccurate particulars of income, was not justified. iii) Prem Chand vs. Asst. Commissioner of Income-tax (2014) 52 Taxmann.com 95 (Chandigarh Trib) When addition in hands of assessee was made by estimating value of rice husk without any concrete evidence, levy of penalty on such addition was not sustainable. iv) Commissioner of Income-tax v. Brahmaputra Consortium Ltd. (Del): Penalty—concealment of Jitendra J. Gowda income—disallowance of claim for deduction of expenditure and depreciation—finding that claims were erroneous and there was no concealment of income or furnishing of inaccurate particulars-- penalty could not be levied—income-tax act, 1961, s. 271(1)(c). v) Commissioner of Income-tax v. P. Roles (Mad): Further, it was clear that the levy of penalty was based on the estimation of income. There cannot be any imposition of penalty based on estimation of income. vi) Naresh Chand Aga,wal v. Commissioner of Income- tax (All): Penalty under section 271(1)'c) could not be imposed on the basis of estimating sales and making addition by applying net profit rate-Same was rightly sustained by Tribunal and no substantial question of law arises. vii) Commissioner of Income-tax v. P. H. I. Seeds India Ltd., 120081 301 ITR 0013—(DeI): Section 271 (1) (C) of the Income-tax Act, 1961, is attracted only in those instances where the assessee has concealed the particulars of his income or has furnished inaccurate particulars of such income with an intent to 'mislead the Revenue. The Income-tax Act does not envisage or explicitly provide that in every case where the return is not accepted as correct and the assessment is framed at an income higher than that presented and offered for taxation by an assessee in the form of its return, penalty proceedings must be initiated. This proposition must logically 'follow from the use of the word "may" in section 271 in contradistinction to "shall" in section 234. Where two options were possible, adopting one of them could scarcely be viewed as mala fide, with an intent to evade payment of income-tax. Recompense had been Jitendra J. Gowda provided for in section 234 of the Act by way of levy of interest, which, in the present case, had been paid without demur. viii) Dilip N. Shroff v. Joint Commissioner of Income- tax, 120071 291 1 T 0519 (SC): Clause (c) of section 271(1) of the Income-fax Apt, 1961, categorically states that penalty would be leviable if the assessee conceals particulars of his income or furnishes inaccurate particulars thereof. But by reason of such concealment or furnishing of inaccurate particulars alone, the assessee does not ipso facto become liable for penalty. Imposition of penalty is not automatic. Penalty proceedings are not to be initiated merely to harass the assessee. The approach of the Assessing Officer in this behalf must be fair and objective. "Concealment of income" and "furnishing inaccurate particulars" are different. Both concealment and furnishing of inaccurate particulars refer to del/berate acts on the part of the assessee. A mere omission or negligence would not constitute a deliberate act of suppressio yen or suggestio falsi.

Jitendra J. Gowda ii) S. 271 (1) (c) penalty cannot be imposed even for making unsustainable claims. The assessee claimed deduction u/s 36 (1) (iii) for interest paid on loan taken for purchase of shares. The AO disallowed the interest u/s 14A and levied penalty u/s 271 (1) (c) on the ground that the claim was unsustainable. The penalty was deleted by the appellate authorities. On appeal by the department to the Supreme Court, HELD dismissing the appeal: (a) S. 271 (1) (a) applies where the assessee "has concealed the particulars of his income or furnished inaccurate particulars of such income" The present was not a case of concealment of the income. As regards the furnishing of inaccurate particulars, no information given in the Return was found to be incorrect or inaccurate. The words "inaccurate particulars" mean that the details supplied in the Return are not accurate, not exact or correct, not according to truth or erroneous. In the absence of a finding by the AO that any details supplied by the assessee in its Return were found to be incorrect or erroneous or false, there would be no question of inviting penalty u/s 271(1)(c) (b) The argument of the revenue that "submitting an incorrect claim for expenditure would amount to giving inaccurate particulars of such income" is not correct. By no stretch of imagination can the making of an incorrect claim in law tantamount to furnishing inaccurate particulars. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. If the contention of the Revenue is accepted then in case of every Return where the claim made is not accepted by the AO for any reason, the assessee will invite penalty u/s 271(1)(c). That is clearly not the intendment of the Legislature..

Jitendra J. Gowda Assistant Commissioner of Income-tax v. Meg/i Mat hradas 120111 007 ITR (Trib2 0749 ITAT[Mumbai: The assessee had disclosed full facts pertaining to the claim made in the return of income. The assessee has not concealed his income and not furnished inaccurate particulars of his income. There was no finding by the Assessing Officer that the claim was not "bona fide". Merely on a difference of judicial opinion between the Assessing Officer and the assessee penalty cannot be levied. The facts of the case did not warrant levy of penalty under section 271(1)(c) of the Act. iv) Commissioner of Income-tax v. Shahabad Co-op. Sugar Mills Ltd. 120101 322 1TR 0073 P & H: Making a wrong claim for deduction is not at par with concealment or giving inaccurate information, which may call for levy of penalty under section 271(1)(c) of the Income-tax Act, 1961.

Jitendra J. Gowda Apart from above, it was stated that all the details pertaining to the business income were duly submitted in the return of income and merely making a wrong claim for deduction is not at par with concealment or giving inaccurate information. After considering the totality of the facts and circumstances and while considering the judgments relied upon in the written submission, we are of the view that there is no active concealment of income on the part of the assessee and additions made on estimation by the AO do not called for initiation of penalty. Thus, in our view, the penalty levied by AO and upheld by CIT(A) is not sustainable in the eyes of law and is thus set aside. Resultantly, this ground raised by the assessee stands allowed.

7. In the net result, the appeal filed by the assessee stands allowed. Order pronounced in the open court on 8th Nov.2017 Sd/- Sd/- (Shamim Yahya) (Sandeep Gosain) लेखासदस्य / Accountant Member न्याययकसदस्य / Judicial Member मुंबई Mumbai;यदनांकDated : 08.11.2017 Sr.PS. Dhananjay Jitendra J. Gowda आदेशकीप्रनिनिनिअग्रेनर्ि/Copy of the Order forwarded to : अपीलाथी/ The Appellant 1. 2. प्रत्यथी/ The Respondent 3. आयकरआयुक्त(अपील) / The CIT(A) 4. आयकरआयुक्त/ CIT- concerned यवभागीयप्रयतयनयध, आयकरअपीलीयअयधकरण, मुंबई/ DR, ITAT,