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Income Tax Appellate Tribunal, MUMBAI BENCHES “D” MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI N.K. PRADHAN
ORDER
PER N.K. PRADHAN, AM
This is an appeal filed by the assessee. The relevant assessment year is 2005-06. The appeal is directed against the order of the Commissioner (Appeals) – 7, Mumbai and arises out of the order u/s 271(1)(c) of the Income Tax Act, 1961 (the ‘Act’).
The ground of appeal filed by the assessee reads as under:-
1. On the facts and circumstances of the case and in the law, the learned Commissioner of Income Tax (Appeal) erred in confirming the penalty of Rs. 9,06,459/- levied by the Income Tax Officer u/s 271 (1)(c) of the Income Tax Act, on the estimated additions made during the assessment. 3 In a nutshell, the facts are that the assessee – firm file its return of income for the A.Y. 2005-06 on 06.01.2006 declaring nil income. In the assessment made u/s 143(3), the Assessing Officer (AO) rejected the books of accounts u/s 145(2) of the Act and made additions / disallowances of (i) estimation of receipts on sale of medicines & estimation of receipts on X-ray, pathology, sonography, OPD of Rs. 15, 37,447/- (ii) expenses disallowed u/s 40(a)(ia) of Rs. 5,23,672/- and (iii) estimation on non-posted items and maternity cases of Rs. 2,97,822/-:
3.1 The assessee preferred an appeal against the above additions made by the AO before the learned CIT(A). The learned CIT(A) upheld the said additions made by the AO. Then the AO imposed a minimum penalty of Rs. 9,06,459/- u/s 271(1)(c) of the Act. The assessee preferred an appeal before the learned CIT(A) against the said penalty order. The learned CIT(A) observed that the income could be assessed to tax as a result of survey u/s 133A of the Act. Also taking into account the fact that the additions made by the AO in a quantum proceedings having been confirmed by the CIT(A) and ITAT, the learned CIT(A) dismissed the appeal filed by the assessee.
Before us, the learned counsel of the assessee submits that the ITAT “D’’ Bench, Mumbai have passed an order in the case of the assessee for the A.Y. 2005-06 (ITA No. 5128/Mum/2008). After the appeal effect, the net addition comes to Rs. 7,95,266/-. It is stated that penalty cannot be levied on estimated income. Further it is stated that the Hon'ble Bombay High Court in of 2011 have admitted the substantial question of law of the assessee. Thus it is submitted that the penalty imposed by the AO u/s 271(1)(c) be deleted.
On the other hand, the learned DR supports the order passed by the learned CIT(A) confirming the penalty imposed by the AO. It is stated by him that the income could be estimated because of action u/s 133A of the Act.
We have heard the rival submissions and perused the relevant material on record. We find that the Tribunal in the case of the assessee for the impugned assessment year have held as under:
‘’ON MERITS 10. Gr.No.I This is regarding addition pertaining to sale of medicine estimated by the Assessing Officer. As we have discussed earlier, the assessee has not shown the sale of medicine in the bills and the plea of the assessee is that, the assessee in the initial year of the business had not charged the medicine cost from the patient. While deciding the issue of rejection of books of accounts we found that the plea of the assessee, that the assessee did not charge the cost of medicine for initial year, does not inspire confidence because when the assessee has not given any discount on the other services then the claimed to have not charged the cost of the medicine which were purchased from outside is not acceptable. However, the Assessing Officer has made addition by estimating the profit ratio of 40% on the purchase cost of the medicine. We do not found any basis for estimation of profit of 40% in the cost of medicine. Accordingly, we are of the view that the addition on account of not showing the cost of medicine shall beat Rs.16,63,326/- being cost only instead of Rs.23,28,656/- added by the Assessing Officer on estimate basis.
Gr.No.II. Regarding receipt from X-Ray, Sonography, Pathology and OPD estimated by the Assessing Officer, we found that as per the impounded record the collection of 3 months i.e. January, February and March, 2004 was found at Rs. Rs.1,35,000/-, Rs.1,39,421/- and Rs.1,41,349/-. The monthly average of collection on this account was computed at Rs.1,35,000/-. Accordingly, the Assessing Officer has estimated that the receipt on account of these services at Rs.16,20,000/- by taking into account the average collection of month of January, February and March, 2004. The only contention of the assessee is that the 3 months collection cannot be basis for an assessment of entire year. We do not agree with the contention of AR because the Assessing Officer has taken the amount of 3 consecutive months and these 3 months are not considered as diseases prone season in India. Therefore, the Assessing Officer made the estimation on reasonable basis by taking the average of collection of 3 consecutive months. Needless to say that, the diseases prone season in India is monsoon period and after monsoon period. Accordingly, we do not find any irregularity or illegality in the basis of the estimation made by the Assessing Officer.
Gr.No.III Regarding indoor receipts and maternity collection not posted in the books of accounts. The Assessing Officer on the basis of impounded bill book containing bearing Sr.No.1 to 1,452 made addition of Rs.60,708/- towards the indoor patients receipt not posted in the cash book. Similarly the Assessing Officer has made the addition on accounts of not posting of the maternity cases in the cash book which were found in BMC list. We have heard the learned DR as well as learned AR and considered the relevant record, we found that the Assessing Officer has not discussed anything about non recording of the books of accounts, and only referred to Sr. No. of the bills and the name as per the BMC list without inviting the objection or the comments from the assessee. Therefore, for these additions the Assessing Officer has not given the sufficient opportunity to the assessee. Accordingly, in the interest of justice we set aside these issue to the record of the Assessing Officer for re-examination and re-verification of the relevant record as well as the contention and submissions of the assessee and thereafter, deciding the same as per the law. Needless to say the assessee to be given an opportunity before passing the order.’’ 6.1 Regarding the disallowance of Rs. 5,23,673/- made by the A.O. u/s 40(a)(ia), the Tribunal held as under:
‘’We have considered the rival contention and relevant record, we note that the Assessing Officer has not discussed this issue while making the addition by applying the provision u/s.40(a)(ia). The CIT(Appeal) has also not discussed the contention and claim of the assessee regarding the payment made for the purchase of material. In the facts and circumstances of the case we are of the opinion that this issue is required at proper verification and examination at the level of the Assessing Officer. Accordingly, we set aside this issue to the Assessing Officer to verify and examine the relevant record and then decide the issue after considering the claim of the assessee.’’ 6.2 To sum up, the ITAT reduced the estimated addition on account of medicine made by the AO from Rs. 23,28,656/- to Rs. 16,63,326/- being cost only. The estimation of receipts from X-ray, Pathology, Sonography, OPD at Rs. 14,40,000/- has been upheld by the ITAT. On the balance additions, the ITAT have set aside the issues to the record of the AO for re-examination.
6.3 We may say that findings given in assessment proceedings are certainly relevant and have probative value, but such findings are material alone and may not justify the imposition of penalty in a given case, because the consideration that arise in penalty proceedings are different from those that arise in assessment proceedings . We rely on the decision in Banaras Textorium vs CIT, (1988) 169 ITR 782, 790, 791 (All); CIT vs Govindankutty Menon, (1989) 178 ITR 509, 515 (Ker); Hotel & Allied Trades (P) Ltd. vs CIT, (1996) 221 ITR 619, 646 (Ker).
6.4 We find that the following substantial question of law of the assessee has been admitted by the Hon'ble Bombay High Court (ITA No. 1202 of 2011):
‘’Whether the order of the Appellate Tribunal is perverse as it has directed the Respondent No. 1 to adopt the purchase cost of the medicines as the income of the Appellant overlooking the findings of the learned CIT(A)?’’ 6.5 Once the Hon'ble High Court admits substantial question of law on an addition, it becomes apparent that the same is certainly debatable. In such circumstances penalty cannot be levied u/s 271(1)(c) as has been held in several cases including Rupam Mercantile vs. DCIT [(2004) 91 ITD 237 (Ahd)(TM)] and Smt. Ramila Ratilal Shah vs. ACIT [(1998) 60 TTJ (Ahd) 171].
6.6 To sum up, the Hon'ble Bombay High Court have admitted the substantial question of law of the assessee in respect of the order of the Tribunal reducing the cost of medicine from Rs. 23,28,656/- estimated by the AO to Rs. 16,63,326/- being cost only. Thus it becomes a debatable issue and penalty is not leviable. The next estimated receipt from X-ray, Pathology, Sonography, OPD made by the AO of Rs. 14,40,000/- has been confirmed by the CIT(A) as well as the Tribunal. The assessee has shown receipts from X-ray, Pathology, Sonography. In CIT vs Metal Products of India [(1984) 150 ITR 714 (Punj)], it has been held that merely because the addition has been made on estimate under the first proviso to section 145(1) cannot automatically lead to the conclusion that there was failure to return the correct income by means of fraud or gross or wilful neglect. In view of the ratio laid down by the Hon'ble Punjab High Court in Metal Products of India (supra) penalty is not leviable on such estimated income. We find that in respect of the remaining additions / disallowances made by the AO and then confirmed by the CIT(A), the Tribunal have set aside the issues to the record of the AO for proper verification of the relevant record as well as the contention and submission of the assessee and thereafter decide the same as per law. Needless to say, penalty is not leviable on such set aside issues.
6.7 In view of the above, the penalty of Rs. 9,06,459/- imposed by the A.O. is deleted.
In the result, the appeal is allowed.
Order pronounced in the open court on 29/03/2017