SRIRAMKRISHNA SECURITY SERVICES,MUMBAI vs. ASST CIT CC 35, MUMBAI

Briefly stated relevant facts of the case necessary for the adjudication of the above issue include that the assessee belongs to Sriram Group of concerns, which is engaged in providing securities against the payment of service charges. The group is owned by Shri Hemendra Merchant and others. The assessee‟s under consideration were, either firms or proprietorship concerns, started their operations during the year 2001-02 and the same were wound up in the AY 2004-05. There was search and seizure action on this group cases on 21.12.2006. During the search action, no incriminating evidence relating to the above said concerns were found as their existence is never there at the time of search action. Whatever was found during the search action were relatable to the family members of Mr. Hemendra Merchant and that independently yielded the undisclosed income offered u/s 132(4) of the Act. Coming to the assessments of the concerns under consideration, the assessee had particulars relating to the business turnover out of the said security services and the particulars of net profits over the years as per the records are as under:-

During the assessment proceedings, Assessing Officer quantified the assessed income out of the said services applying the flat rate of 70% on the turnover supplied by the assessee. There is no evidence, regarding the suppression of turnover or the said 70%, gathered by the Revenue. Further, Assessing Officer also added the interest income earned by the assessee on the fixed deposits from the banks. Matter travelled to the first appellate authority.

During the first appellate proceedings, assessee accepted the taxability of the said interest income, which is a clear case of concealment of income. However, on the decision of applying 70% of the turnover applied by the AO, as stated above, it is the case of the assessee that the same is on higher side. Before AO / CIT (A), assessee also demonstrated before the CIT (A) that the said percentage (70%) does not exist in this line of business activities. Resultantly, CIT (A) restricted the percentages to 10% of the turnover. Assessee could not demonstrate the reported GP rates with the books of accounts as they were already seized by the Service Tax Department and Provident Fund Department. The matter travelled to the Tribunal on the above conclusions vide and others, dated 16.12.2015. The correctness of rejection of books of accounts, adopting the rate of 10% on the gross receipts, allowability of other expenses such as administrative expenses, remuneration to partners were the common issues raised before the Tribunal in all the quantum appeals. The Tribunal upheld the correctness of the 10% adopted by the CIT (A) and rejected the Revenue‟s contention relating to confirming of 70% of the gross receipts. The contents of paras 13 and 14 of the said Tribunal‟s order (supra) are relevant in this regard. However, Tribunal granted statutory deductions u/s 40(b) of the Act out of the income determined applying the said flat rate of 10%. So far as the interest income is concerned, assessee did not contest in the Tribunal. In the background of the above facts, the Assessing Officer proceeded to levy penalty u/s 271(1)(c) of the Act in respect of the said income applying the flat rate of 10% and also the interest income on the fixed deposits.

Before us, Ld Counsel for the assessee submitted that he has nothing to say about the concealment of interest income on the fixed deposits for all the AYs wherever such addition of interest income appears in the 22 appeals under consideration. Considering the stated position in the matter, we are of the opinion, it is a fit case of concealment and the relatable penalties to the addition on account of interest income on the said fixed deposits are confirmed.

Regarding the addition of income determined applying the flat rate of 10% on the turnover, the case of the assessee is that the income determined by the AO and the CIT (A) / Tribunal is out of an exercise of estimations / surmises only. These estimations do not lead to concealment so far as the provisions of section 271(1)(c) is concerned. In support of this, ld Counsel for the assessee brought our attention to various decisions viz., (i) CIT vs. Aero Traders P Ltd [2010] 322 ITR 316 (Delhi); (ii) CIT vs. Smt. K. Meenakshi Kutty (258 ITR 494) (Mad); (iii) Harigopal Singh vs. CIT (258 ITR 85) (P&H) etc. On the other hand, the case of the Revenue is that though it is a case of estimations, the disclosure goes back to the search action.

On hearing both the parties, we find, the penalty orders in all these cases are of routine type. No assessment-year-specific-concealment was made out by the Assessing Officer. So far as the appeals in this group (Srikrishna Securities Ltd) for the AYs 2001-02 to 2004-05 are concerned, we find, no seized material was either referred to in the assessment order / penalty order or utilised by the AO both for estimation of turnover or estimation of income applying the flat rate of 70% or 10% as the case may be. Therefore, in our view, it is a case of mere estimation. There is no documentary evidence to suggest that the concealed of income constitutes 10% of the turnover. There is no reference to these figures anywhere on the seized material. The Revenue Officers fairly admitted on this issue regarding the absence of clear cut evidence in support of the said 10% confirmed by the Tribunal (supra). We have also perused the relevant decisions relied upon by the Ld Counsel for the assessee and the binding decisions which are relevant for the proposition „where income is merely estimated, but there is no conclusive proof available as is evident from the fact that estimated addition was reduced in first appeal, there is no scope for levy of penalty‟. Considering the settled position of the issue, in our view, this is not a fit case for levy of penalty u/s 271(1)(c) of the Act in respect of the business profits of the assessee. We order accordingly. Thus, all the four appeals filed by the assessee (group cases of Srikrishna Securities Ltd) are allowed.

In the all the four appeals filed by the assessee are allowed. II