ASST CIT 11(3)(2), MUMBAI vs. VINATI ORGANICS LTD, MUMBAI

. : 7768 and 7770/Mum/2012 (Assessment year: 2006-07 & 2007-08) Hariram Bhambhani, Vs JCIT (ODS) Rg. 8(1), 205-206 Meera Hari Niwas Aayakar Bhavan, SVP Nagar, Near Varsova Telephone M K Road, Exch., Andheri (West), Mumbai -400 020 Mumbai -400 053 �थयी लेखा सं.:PAN: AABPB 0908 P अपीलाथ� (Appellant) ��यथ� (Respondent) Appellant by Written Submissions dt.17.8.2015 : Respondent by : Shri Vijay Shankar सुनवाई क� तार�ख /Date of Hearing : 20-08-2015 घोषणा क� तार�ख /Date of Pronouncement : 26-08-2015 आदेश ORDER अिमत शु�ला, �या. स.: PER AMIT SHUKLA, JM: The aforesaid appeals have been filed by the assessee against separate impugned order of even date viz. 19.10.2012 passed by the CIT(A)-16, Mumbai in relation to the penalty proceedings u/s 271(1)(c) for the assessment year 2006-07 and 2007-08. In AY 2006-07, the assessee is aggrieved by levy of penalty of Rs. 1,14,444/- on account of disallowance of expenses relating to Speed Money paid by the assessee amounting to Rs. 2 lakhs and profit on unaccounted sales amounting to Rs 1,40,000/- and levy of penalty of Rs. 1,61,568/- for the assessment year 2007-08 for the same nature of additions i.e. 1 lakh on account of Speed Money and Rs. 1,40,000/- on account of profit on unaccounted sales.

“Q. No.11. On going through the books of accounts and documents available it is seen that a whole bunch of challans on account of supplies to M. V. Pooja and M. V. Stephine have not been reflected in the sales account. Please explain?

Ans. M V Stephien is a vessel owned by our sister concern in Dubai. It has been employed In Indian Water In the year 2005- 06. Similarly MV Pooja also belongs to the same concern and this vessel too is being handled by me for ship supplies since last year, I agree to the fact that we have supplied provisions for crew members on both the ships which were around 10 Members in each ship. Both the vessels are supply boats for domestic sea faring. Besides the provisions for crew members we have also supplied spares and other consumable as reflected in the challans.

Since both these jobs have begun in the FY 2005-06 the sales on account of this supply were yet to be included in the sales register for reasons like rate to be charged, party to whom the bills should be raised upon etc. However the issue is now sorted out and the manning agency has clarified that the bills are to be raised on the owners. Being sister concerns we have not kept a , full fledged records of the supply but going by the current rate of about UD 4.5 per crew per day the total amount of provision of supplies for the year comes to 20 x 4.5. x 365 = 3 Hariram Bhambhani ITAs 7768 & 7770/Mum/2012 32850 USD. Therefore a sum of Rs.15,11,100/- say Rs. 15 lakhs will be offered to tax on account of these sale for FY 2005 06 Besides the provision, we have also supplied spare parts and stores, hardware items, etc for these two, boats. Based on the documents available and my personal experience a sum of Rs 20 lakhs on account of sale of stores, spare and supplies, etc. will be sufficient to cover these sales. Therefore a further amount of Rs. 20 lakhs on account of sale of stores and supplies etc. will be offered to tax for FY 2005- 06. The total sum of under sales to the two vessels for FY 2005-06 as discussed above and offered to tax comes to Rs. 35 lakhs”.

4 Hariram Bhambhani ITAs 7768 & 7770/Mum/2012 Further, during the course of survey, it was found that certain cash expenses incurred by the assessee were not properly accounted for as all the vouchers were not supported by proper bills. The assessee in response to such a question, held that expenses like ‘speed money’ were to the tune of Rs. 20/- to Rs. 200/- and it was not possible to have an independent bill for such petty sums. The total expenses on account of speed money was also not very high as against the huge cash withdrawals in the book. However, the assessee said that Rs. 2 lakhs will be offered to tax for AY 2006-07 and Rs. 1 lakh for AY 2007-08. Before the Assessing Officer, at the time of assessment proceedings, the assessee submitted that such an offer was made only to buy peace as these additions were offered only on estimate basis. However the Ld. Assessing Officer added the amount which was offered by the assessee in the course of survey.

I have considered all the decisions of the Hon’ble Courts cited above and noticed that it is true that on the date of survey unaccounted sales were amounted to Rs. 35,00,000/-. However, in the final accounts all the sales were entered and audited and no unaccounted sales / invoices were impounded during the course of survey. Therefore, only statement recoded without any cogent evidence can not be relied upon. Secondly, all the sales can not be treated as income as held by the Bombay Tribunal in the case of Shahdilal Sons v ACIT (supra). Keeping in view the facts and circumstances of the case and principle of the natural justice, it is held that 4% of net profit shown by the appellant is taken as income of the appellant and addition is sustained to Rs. 1,40,000/- and balance addition of Rs. 33,60,000/- is deleted. This ground of appeal is partly allowed 5 Hariram Bhambhani ITAs 7768 & 7770/Mum/2012 This finding of CIT(A) has attained finality.

5. As regards addition on account of disallowance of expenses of ‘speed money’ and other expenses, the Ld. CIT(A) confirmed the said addition on the ground that during the course of survey some cash vouchers were confronted for which no supporting bills could be furnished. The relevant observation for confirming the said addition is as under :-

“I have considered the issue. The statement recorded u/s 131 of the Act has offered an amount of Rs. 3 lakhs as unexplained expenses including speed money of Rs. 2 lakhs. However the additional amount offered for taxation as additional income was not offered to tax in the return of income filed by the appellant in A.Y. 2006-07 nor given any explanation. During the course of survey, some cash vouchers were confronted to the appellant, which were also impounded. The scrutiny of these papers proved that these vouchers are not supported by the bills and the appellant had also agreed that these expenses are not incurred wholly and exclusively for the purposes of business. Therefore, it is not only a case of statement but also corroborated with documentary evidences. Hence the action of the AO is confirmed. This ground of appeal is dismissed”. Now, the penalty has been levied on these two additions, which have been confirmed by the CIT(A), though after detailed discussion and reasoning, which are more on theory and without any proper analysis of the facts.

6. After considering the relevant finding given in the impugned orders, written submissions filed by the assessee and the arguments of the Ld. DR, we find that so far as the addition made on account of ‘profit on unaccounted sales, the Ld. CIT(A) in the quantum proceedings has given a very categorical finding of a fact that in the final accounts prepared by the assessee all the sales 6 Hariram Bhambhani ITAs 7768 & 7770/Mum/2012 were entered and reconciled in the books of account, which were duly audited. No unaccounted sales/invoices were actually found or impounded during the course of survey. This finding of fact by the CIT(A) has attained finality. Here the entire addition is based on the statement of the assessee recorded at the time of survey sans any cogent material or evidences found, therefore, the alleged unaccounted sales cannot be treated as “income” when finally it stood reconciled and recorded in the books. However, the Ld. CIT(A) as a matter of estimating the income element on such sales, has confirmed net profit rate of 4%. Such an estimate is purely ad- hoc, without any finding of fact that there is either defect in audited books of account or any unaccounted sales has been made outside the books of account. Now on these facts such an addition does not warrant any levy of penalty u/s 271(1)(c) either for concealment of income or furnishing of inaccurate particulars, firstly, the assessee’s explanation that there was no unaccounted sales in the final accounts or outside the books of account, has neither been found to be false nor any material or evidence has been brought on record to rebut the same; and secondly, there is no basis to hold that there is actual suppression of profit on account of unaccounted sales. The facts are same for AY 2007-08. Therefore, penalty levied on such addition for both the assessment years stands deleted.

7. As regard the addition on account of Speed Money and other expenses, again the same is made on the basis of statement recorded u/s 131 that these are ‘unexplained expenses’. Again such an addition is without any supporting material found at the time of survey that assessee has actually claimed bogus expenses. Assessee’s claim was based on vouchers for which assessee could not corroborate with third party bills. Finally the AO has made the addition on estimate basis in the quantum proceedings. Though such an addition has been confirmed in the quantum proceedings, however, there is no material or evidence to support that such an addition has not been incurred by the assessee. It is now quite a 7 Hariram Bhambhani ITAs 7768 & 7770/Mum/2012 settled law that the considerations that arise in penalty proceedings are separate and distinct from the quantum proceedings, in as much as assessee in the penalty proceedings can take a fresh plea from same material and facts or adduce some additional evidence to show that he is not guilty of concealment of income or furnishing of inaccurate particulars. Explanation1 raises a rebuttable presumption which can be rebutted by pointing out the factors in favour that claim made by the assessee was based on bona fide considerations. Here the assessee has made a claim of certain expenses which were supported by vouchers but could not be corroborated by independent bills at that time. However it is equally a admitted fact that no evidence was found either at the time of survey or at the assessment stage that such a claim of expenses are false or not commensurate with assessee’s business. Hence no penalty is warranted for concealment or furnishing of inaccurate particulars on such adhoc estimate of disallowance of expenses when these expenses debited in the books of account are duly supported by vouchers and verified by the Auditors. Thus, we are unable to sustain the penalty on such disallowances. Accordingly, penalty levied on this score also stands deleted. It has been admitted by the parties that the facts for AY 2007-08 on this score is also similar, therefore, finding for deletion of penalty given for AY 2006-07 will apply mutatis mutandis in this year also. Accordingly, penalty levied for AY 2007-08 is also deleted.

8. In the result, both the appeals of the assessee are allowed. Order pronounced in the open court on 26th August, 2015. Sd/- Sd/- (RAMIT KOCHAR) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Date: 26th August, 2015 ��त/Copy to:- 1) अपीलाथ� /The Appellant. 2) ��यथ� /The Respondent.