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Income Tax Appellate Tribunal, MUMBAI BENCHES “E”, MUMBAI
Before: SHRI B.R.BASKARAN (AM) & SHRI RAM LAL NEGI (JM)
These appeals have been preferred by the assessees against two orders dated 22/01/2015 passed by the Ld. CIT(Appeals)-39, Mumbai for the Asst. Year 2002-03 and 2008-09 respectively. Since both the assessees are the members of same family and the issues involved in both the appeals are common, the same were clubbed and heard together and are being disposed of by this common order for the sake of convenience.
ITA No. 2639/Mum/2015 A.Y. 2002-03
2. Since the facts and circumstances of both the case are identical except the amount involved, we take the facts of the ITA 2639/M/2015 as lead case. Survey action u/s 133A was carried out at the business premises of the assessee’s husband at shop no. 4, Ram Gali, Pankaj Market, Champa Gali, Mumbai 400002, and the assessee and her son (assessee in were covered in the said survey action. Since the assessee admitted that she is engaged in issuing accommodation sale bills, the AO passed the assessment order by estimating the commission income @ 6% of sales and further allowing 5% expenses thereof. In the first appeal the Ld. CIT(A) confirmed the findings of the AO. The assessee assailed the order of the Ld. CIT(A) before the ITAT and during pendency of quantum appeal, A.O levied penalty of Rs. 9,33,424/ u/s 271(1)(c) of the Act which was confirmed by the Ld. CIT(A) in the first appeal. In the mean time the ITAT vide order dated 14/09/2016 decided the quantum appeal and partly allowed the appeal of the assessee by reducing the commission to 0.6%. The assessee has challenged the penalty order confirmed by the Ld. CIT(A) by raising the following effective grounds of appeal:-
“1. (a) The learned Commissioner of Income Tax (Appeals) (CIT(A)] erred in facts and law in confirming the action of the Assessing Officer and sustaining the penalty of Rs. 9,33,424/- levied u/s 271(1)(c) without appreciating that the assessment proceedings and penalty proceedings are distinct and separate.
(b) The learned Commissioner of Income Tax (Appeals) erred in facts and law in not appreciating that the penalty u/s 271(1)(c) cannot be levied on the additions made solely on the basis of estimation and without bringing on record any tangible material to show that the appellant had infact earned a higher rate of commission over and above 1% on sale bills.”
3. Before us the Ld. Authorised Representative (AR) submitted that in the present case the A.O levied penalty on the addition of 6% of sales but in some years the addition was made at @ 4% of sales and 3% of purchases. However, in appeal the Tribunal, vide order dated 14/09/2016 changed the basis of estimation by holding that addition of 0.60% of turnover is reasonable. Since, the Tribunal has substantially changed the basis of estimation, penalty u/s 271(1)(c) cannot be imposed. Secondly, penalty cannot be levied where the addition is made on the basis of estimation; Thirdly, mere making of a claim which is not sustainable in law does not attract section 271(1)(c) of the Act and when there is a difference of opinion then penalty cannot be levied. The Ld. AR placed reliance on following cases: PCIT vs. Fortune Technocomps P. Ltd. ITA 313 of 2016 (Delhi HC), CIT vs. Reliance Petro Products P. Ltd. 322 ITR 158 (SC), Naresh Chand Agarwal vs. CIT (2013) 38 taxmann.com 397 (Allahabad HC), California Design & Construction INC India, Chandigarh vs. ITO (2016) 65 taxmann.com 248 (Chandigarh Tribunal), Mahaveer Jain vs. DCIT (2014) 51 taxmann.com 204(Jodhpur-Tribunal), JCIT vs. Bhagwan Dass Garg (2014) 48 taxmann. com 185(Chandigarh-Tribunal, ITO vs. Gurunanak Oil Agency (2013) 35 taxmann. com 562 (Jodhpur-Tribunal) & CIT v/s Mahendra Singh Khedla (2013) 33 taxmann.com 666 (Rajasthan) to substantiate the contention of the assessee.
On the other hand, the Ld. DR relying on the findings of authorities below submitted that there is no infirmity in the impugned order passed by the Ld. CIT(A) to interfere with the same.
We have heard the rival submission and also carefully perused the material placed on record including the cases relied upon, in the light of the respective contentions of the parties. We notice that in quantum appeal and 5018/Mum/2014 sought assessment years 2002–03 to 2009–10, the coordinate bench vide order dated 14/09/2016, following the decision rendered in the case of Sanjay Kumar Garg versus ACIT (2011) 12 taxmann.com 294 (Delhi) and the decision rendered by the coordinate bench in the case of gold star Finvest (P) Ltd versus ITO (2013) 33 taxmann.com 129 (Mumbai tribunal) held that addition of 0.6%. of turnover is reasonable. The relevant portion of the order reads as under:-
“6.1 We find that Tribunal in case of Sanjay Kumar versus Garg vs. ACIT (supra) held that rate of commission cannot be more than 1%, but in present case, the assessee had already offered the same for taxation purpose but with rider of allowability of certain expenses against same. Hence, the rate of 6% adopted by Assessing Officer was highly one. Hence, the commission income was to be taken @ 0. 6% of sales turnover. Similar view has also been taken by the jurisdictional Mumbai Tribunal in case of Gold Star Finvest (P.) Ltd. vs ITO (2013) 33 taxmann.com129 (Mumbai – Trib.), wherein Tribunal held as under:
“12. Having carefully examined the various Orders in the case of different assessees, it has become amply at that in these type of activities brokers are only concerned with their commission on the value of the transactions. Now the question comes what would be the reasonable percentage of commission on the total turnover? The assessee has also made out a case that the customers do not come directly to him and they come through a sub-broker who also charges a particular share of commission. In all the judgments what has been stated his that an average percentage of commission these between.15% to .25%. In the case of Palresha & Co (supra) and Kiran & and Co. (supra), the Tribunal has considered reasonableness of percentage of commission to be earned on turnover was at .1%. The assessee himself has offered the percentage of commission at 0.15%, which is more than the percentage of commission considered to be reasonable by the Tribunal in the cases of Palresha & Co. (supra) and Kiran & Co. (supra), in similar type of projections. The theory of the Assessing Officer to treat the entire deposit as unexplained cash credits, cannot be accepted in the light of assessment orders in the case of beneficiaries and also in the light of the fact that assessee is only concerned with the commission earned on providing accommodation entries. We, therefore, of the view that since the assessee itself has declared the commission on turnover at 0.15% which is more than the percentage considered to be reasonable by the Tribunal in the case of Palresha & Co. (supra) and Kiran & Co. (supra), the same should be accepted. We, accordingly, accept the commission declared by the assessee and set aside the order of the CIT (A) in this regard.” 6.2 we find that ITAT in case of Sanjay Kumar Garg (supra) has applied 0.2% commission on turnover and in Gold Star Finvest (P) Ltd. (supra) approved 0.15%. So, taking all factors into consideration, we hold that percentage of commission to be earned on turnover is reasonable at 0.6%. We hold so.”
Admittedly, the AO had levied penalty in question under section 271 (1) (C) of the Act on the addition made on the basis of estimation and the basis of estimation was further changed substantially by the Tribunal in quantum appeal. As per the settled law penalty proceedings are different from assessment proceedings because the standard of proof required for imposition of penalty is different from that on which an addition could be maintained. Mere addition to the income of the assessee does not mean that the assessee has concealed In Naresh Chand Agarwal vs.CIT(2013)38 taxmann.com 397 Hon’ble Allahabad High Court has held that when addition is made on estimate basis, penalty under section 271(1)(c) cannot be imposed. The Hon'ble Punjab & Haryana High Court in case of Harigopal Singh Vs. Commissioner of Income Tax reported in (2002) 125 Taxman 242, wherein the estimated addition made by the AO was considerably reduced by the Tribunal, has held that in such cases, provisions of section 271 (1 )(c) of the Act are not attracted. The same view have been taken by the ITAT Chandigarh in JCIT v. Bhagwan Dass Garg (2014) 48.taxmann185 (Chandigarh–Trib), Jodhpur Tribunal in ITO v. Gurunanak Oil Agency (2013) 35 taxmann 562(Jodhpur-Trib.) and other Benches of ITAT. So, in view of the decisions of the Hon’ble High Courts and Tribunals, we are of the considered opinion that this is not a fit case where penalty can be imposed under section 271(1)(c) of the Act for concealment of income or for furnishing incorrect particulars of income. We, therefore, set aside the impugned order and allow the grounds of appeal of the assessee.
The assessee has challenged the impugned order passed by the Ld. CIT(A) on the following effective ground of appeal:-
“1(a) The learned Commissioner of Income Tax (Appeals) [CIT (A)] erred in facts and law in confirming the action of the Assessing Officer and sustaining the penalty of Rs. 12,98,327/-levied u/s 271
(1) (C) without appreciating that the assessment proceedings and penalty proceedings are distinct and separate. (b) the Learned Commissioner of Income Tax (appeals) erred in facts and law in not appreciating that the penalty/s 271 (1) (C) cannot be levied on the conditions made solely on the basis of estimation and without bringing on record any a tangible material to show that the appellant had in fact earned a higher rate of commission over and above 1% on sale bills.”
Since we have decided the identical issue in favour of the assessee in for the assessment year 2002-03 aforesaid, on the same analogy and reasoning we set aside the impugned order passed by the Ld. CIT(A) and allow the grounds of appeal of the present case.
In the result, both the appeals are allowed.
Order pronounced in the open court on 30th Sept. 2016