JNANTOSH BHANDARI,KOLKATA vs. I.T.O WD - 53(2),KOLKATA, KOLKATA

In this appeal the Assessee has challenged the order of the CIT(A) whereby the CIT(A) confirmed the order of the AO imposing penalty on the Assessee u/s.271(1)( c ) of the Income Tax Act, 1961 (Act).

The facts and circumstances under which penalty was imposed on the Assessee by the AO are as follows: The Assessee is an individual. He derives income from the business of acting as clearing and forwarding agent. The Assessee filed his return of income for the relevant assessment year 2005-06 on 29.10.2005 declaring total income at Rs.3,24,066/- and the return was processed u/s. 143(1) of the Act. Subsequently, notice u/s 143(2) was issued and the assessee was required to produce the books of accounts, bills and vouchers etc. The assessee produced the cash book, ledger and Bhandary A.Y.2005-06 2 other bills and vouchers. The Assessing Officer on verification found that the expenses of lending in the name of Ashok Das are recorded in the books accounts but not vouched for amounting to Rs.21,384/-, Rs. 22,988/- and Rs.29,033/- on 17.05.2004, 28.05.2004 and 27.11.2004 respectively. Similarly, vehicle charges expenses were recorded but supported by bills, as pointed out by Assessing Officer. Similarly, brokerage expenses and steamer expenses were not vouched. Accordingly, the Assessing Officer invoked the provisions of section 145(3) of the Act and rejected the book results. It is to be mentioned that the assessee has not challenged the rejection of book results either before CIT (A) or before the Tribunal in the quantum proceedings and that means the book results rejected by the Assessing Officer has become final. The Assessing Officer after rejecting the book results applied net profit rate @ 8% as against the declared net profit at 2.03% on the total turnover of Rs.1,63,01,231/- and assessed the same at Rs.13,04,099/- after excluding the net profit disclosed by assessee at Rs.3,30,641/-. The Assessing Officer also made addition on account of unsecured loans/cash credit u/s 68 of the Act for an amount of Rs.4,01,259/-.

Ultimately the Tribunal in the quantum proceedings determined the total income of the Assessee by adopting a net profit @ 5% of the turnover and deleted the addition will meet the end of justice. As regards the separate addition of unsecured loans, since the income of the Assessee from business was estimated, the Tribunal held that from the pattern of receipt of unsecured loans it was clear that the same was received during the year and arose out of the same business income, which has already been added and no separate addition of unsecured loan should be made. Thus the Tribunal in the quantum appeal directed the Assessing Officer to take only one addition i.e. estimation of net profit @ 5% and assess the same.

The AO initiated penalty proceedings u/s.271(1)( c) of the Act in respect of the additions made in the quantum proceedings. The CIT(A) after taking note of the order of the Tribunal upheld penalty in respect of the addition of cash credit though that Bhandary A.Y.2005-06 3 addition was deleted by the Tribunal in the quantum appeal. The following were the reasons assigned by the CIT(A) for doing so. “5. Although the assessing officer had levied penalty in respect of the assessed income as reduced after first appeal order, the only addition discussed in the penalty order is that of unexplained cash credit. It is true that the tribunal as, vide its order dated 09.03.2011 deleted the separate addition for unsecured loan. However on carefully going through the order it is seen that the said addition has not been deleted on merit. Rather, the tribunal has observed as -under- "As regards the separate addition of unsecured loans, we are in agreement with the Ld. Counsel for the assessee that going by the pattern of receipt that the same was received during the year is arising out of the same business income, which has already been added and no separate addition of unsecured loan should be made. As regards the another plea of the assessee regarding repetitive addition of income declared to the total income of the assessee, we are unable to agree with the plea of the Ld. Counsel for the assessee as the assessing officer has clearly reduced the same from net profit, but however, the assessing officer is directed to take only one addition in the present case i.e. estimation of net profit @ 5% and assess the same. The assessing officer will compute the income on the above basis. Accordingly, the appeal of the assessee is partly allowed as indicate above. " Thus, the tribunal had confirmed estimation of profit at the rate of 5% and has felt that since the unsecured loans must have come out of same business income, no separate addition was required to be made. In other words, the addition for unsecured loan has not been deleted per se, but benefit of its telescoping has been allowed with the addition made for net profit. Since the addition made by way of estimation of net profit was higher than the unsecured loan of Rs.3,60,262/- confirmed in first appeal, the same was considered to be covered by the addition to net profit.

Aggrieved by the order of the CIT(A), the Assessee has preferred the present appeal before the Tribunal. We have heard the rival submissions. The learned counsel for the Assessee submitted that penalty cannot be imposed in respect of an addition that has been deleted and to this extent the reasoning of the CIT(A) is wrong. The G.P. addition has been made on the basis of estimation and that estimation was sufficient to explain the unexplained cash credits. When that is the situation, the total income of the Assessee stands assessed only on the basis of estimate of income from business by the AO. The law is well settled that generally when income is estimated there cannot be a charge of concealment of income, unless there are exceptional circumstances that prevail in a particular case. The learned DR relied on the order of the CIT(A).

We have given a very careful consideration to the rival submissions. We are of the view that the addition ultimately sustained was an addition by estimating income of the Assessee applying 5% rate of net profit on the turnover of the Assessee. The said addition was held by the Tribunal to be sufficient to take care of the unexplained cash credits to the extent of Rs.3,60,262/-. The law is well settled that when addition made to total income by resorting to an estimation of income by applying a profit percentage on turnover declared by the Assessee there cannot be any imposition of penalty on such addition, unless there are some other strong circumstances to show contumacious conduct of the Assessee. We are of the view that in the facts and circumstances of the present case no such circumstances exist to draw any adverse inference against the Assessee. We are therefore of the view that imposition of penalty in the facts and Bhandary A.Y.2005-06 5 circumstances of the present case was not justified. Accordingly the penalty imposed is directed to be cancelled. The appeal of the Assessee is allowed.

In the result appeal by the Assessee is allowed.