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Income Tax Appellate Tribunal, MUMBAI BENCHES “A”, MUMBAI
Before: SHRI G.S.PANNU (AM) & SHRI RAM LAL NEGI (JM)
PER RAM LAL NEGI, JM
This appeal has been preferred by the revenue against order dated 16/04/2013 passed u/s 271(1)(c) of the Income Tax Act, 1961 (in short ‘the Act’) by the Ld. CIT(Appeals)-35, Mumbai, for the Asst. year 2007-08, whereby the Ld.CIT(A) deleted the penalty levied u/s 271 (1)(c) of the Act.
Brief facts of the case are that the appellant/assessee filed its return of income for the A.Y. 2007-08 declaring the total income of Rs. 1,39,64,580/-. The A.O completed the assessment u/s 143(3) determining total income of Rs. 9,22,22,795/- after making the following additions:-
i) Loan from agriculturists Rs. 24,50,000/- ii) Other loans u/s 68 Rs. 30,00,000/- iii) Penalty Charges Rs. 2,88,353/- iv) Bogus purchases Rs. 2,87,57,709/- v) Payments u/s 40A(2)(b) for sub-contract charges Rs. 2,13,78,870/- vi) Sub-contract charges to others Rs. 2,23,83,278/-
The assessee assailed the assessment order by filing appeal before the CIT(A) who partly allowed the appeal of the assessee. Still aggrieved, the assessee challenged the appellate order before the ITAT. During pendency of second appeal, the A.O issued notice u/s 271(1)(c) of the Act and after considering the submissions of the assessee levied penalty of Rs. 25,30,668/-. The appellant/assessee challenged the penalty order before the Ld. CIT(A). The Ld. CIT(A) after hearing the contention of the parties, allowed the appeal of the assessee and deleted the penalty. Hence, the revenue has challenged the impugned order on the following effective ground of appeal:-
i) “ On the facts and in the circumstances of the case and in law, ld. CIT(A) erred in deleting the penalty levied under section 271(1)(c) of the Income Tax Act, despite the fact that addition to the income of the assessee by rejecting the books of accounts has been confirmed by the ITAT in quantum appeal.”
Before us, the Ld. Departmental Representative heavily relying upon the assessment order, submitted that the Ld. CIT(A) has wrongly deleted the penalty levied by the A.O. Since, the ITAT has rejected the books of accounts of the assessee in quantum appeal, the assessee is liable for penalty u/s 271(1)(c) of the Act for concealment of particulars of income.
On the other hand, the Ld. Counsel for the assessee submitted that the Ld. CIT(A) has rightly deleted the penalty levied by the A.O. The Ld. Counsel further submitted that the disallowance on account of loans from agriculturists and other unsecured loans at Sr. No (i) & (ii) have been set aside by the “D” Bench of the ITAT in quantum appeal with the direction to reconsider the issue afresh and additions made on account of bogus purchases, disallowance u/s 40A(2)(b) and disallowance of sub contract payment at Sr. No (iv), (v) &(vi) have been substituted by estimating the overall net profit @ 8% of turnover without passing any adverse remarks relating to concealment of income or furnishing inaccurate particulars thereof. Since, disallowance at Sr. No. (i) & (ii) have been set aside with direction to reconsider the issue afresh, no penalty can be levied on account of addition made. Similarly, the CIT(A) and the ITAT has nowhere observed in their orders that the appellant has concealed his income or has furnished inaccurate particulars of his income in respect of additions at Sr. No. (iv), (v) & (vi) so as to impose penalty u/s 271(1)(c) of the Act. The Ld. Counsel relied upon the following judgments in support of his contention. i) Commissioner of Income Tax vs. P. Rojes (2013) 31 taxmann.com 253 ii) Associate Traders vs. Income Tax Officer (1992) 62 taxman 151.
We have heard the rival submissions and carefully perused the material placed on record and also gone through the orders passed by the authorities below as well as the cases relied upon by the parties. The Ld. CIT(A) has allowed the appeal of the assessee and deleted the penalty holding as under:-
“5.3 I have gone through the assessment order, the orders of the ld. CIT(A) as well as Hon. ITAT and also carefully considered the written filed on behalf of the Appellant and find force in the submissions made on behalf of the Appellant.
Since the issues of additions made on account of Loans from agriculturists for Rs. 24,50,000/- and Loan from others for Rs. 30,00,000/- have already been set aside by the Hon. ITAT for examining the loans afresh, no penalty is leviable on these two amounts of additions. Coming to the remaining three additions for a total amount of Rs. 7,25,19,857/-, since the net profit of the business has been estimated at 8% of the total contract receipts and such estimate of 8% has reached its finality by reason of the order of the Hon. ITAT. As far as the estimate of Appellant’s profit as 8% is concerned, I am of the opinion that such estimate of net profit will not attract the provisions of penalty proceedings u/s 271(1)(c). When the net profit of the business is estimated in this case, I do not find any rider to such estimate in the Appellate orders of both the ld. CIT(A) and the Hon. ITAT to the effect that the Appellant has to face penalty proceedings. The submission made by the Appellant in this respect is found to be acceptable for which the following cases are referred to and relied upon because as rightly held in the decision of the Madras High Court in the case of CIT vs. P Rojes (2013) (31 taxmann.com 253), no penalty can be imposed u/s 271(1)(c) on estimation of income.”
In the present case, since, the coordinate Bench of ITAT has set aside the additions at Sr. No (i) & (ii) to the file of the AO with the direction to reconsider the same afresh, it cannot be held conclusively that the assessee has concealed his income. Similarly, the remaining additions are since based on estimation, no penalty can be imposed u/s 271(1)(c). As per the settled law, the penalty proceedings are penal in nature, therefore, the authority is bound to hold the assessee guilty of concealment of income before imposing penalty and the standard of proof required for imposition of penalty is higher than the proof required for making additions or sustaining the same in quantum appeals. Hence, in our considered view the CIT(A) has passed the impugned order in accordance with the settled principles of law. We do not find any legal or factual infirmity in the order of the CIT(A) to interfere with the same. We, therefore, uphold the order passed by the Ld. CIT(A) and dismiss this sole ground of appeal of the revenue.
In the result appeal filed by the revenue for the Assessment year 2007-08 is dismissed.
Order pronounced in the open court 4thAugust, 2016.