MIHIR AGENCIES P.LTD,MUMBAI vs. DCIT CC 46, MUMBAI

4.Challenging the penalty order of the AO the assessee referred to the cases of Reliance Petro Products Ltd.(322 ITR 158), Sreenivasa Pai (242 ITR 29) and Durga Timber Works(79 ITR 63) and contended that it had declared 0.15% income

695 & 996/M/15-Mihir & Mukesh from its activities, that the third parties also confirmed the assessee was getting commission of same percent, that the AO had applied rate of 2%, that the Tribunal had reduced the rate to 0.15%,when income was assessed on estimate basis no concealment penalty could be levied,that there was no concrete proof with the AO on the basis of its a reasonable estimate could be applied to determine the taxable income,that it was a case where two views were possible,that the assessee had declared one rate based on statements of the directors and third parties,that the AO applied another percent, that the application is directed by the AO had no co - relation to the income, that if income was determined on estimate basis it was not a fit case for living penalty u/s.271(1)(c),that the assessee had extended full coopera -tion,that merely because a high percentage of income was adapted direction should not automatically result into levying of concealment penalty, that entire particulars of income,as called for by the AO,were furnished during the assessment proceedings,that the statement of the third parties confirmed that commission was earned by the assessee at the rate of 0.15%, that the assessment and penalty proceedings were separate and distinct proceedings, that the quantum finding were not binding in the penalty proceedings.After considering the available material on record,the FAA held that the assessee had basically disputed the rate of commission,that it was submitted that no incriminating documents were seized during the course of search,that statements of employees and agents of the assessee recorded.He referred to the seized documents and held that AO was justified in applying the rate of 2% for the transactions entered into by the assessee, that is predecessor had confirmed the order of the AO.Referring to the order of the Tribunal in the case of Gold Star Finvest Private Ltd., for the AY. 2002-03 held that commission income at the rate of 0.15% was based on the survey conducted at the business premises of that company, that the incriminating material seized during the course of search and the statements record is from the persons concern- 3

695 & 996/M/15-Mihir & Mukesh ed is revealed that the assesses of the group including the assessee and the considerations per charges commission in the range of 1%-3.6%, that though the determination of commission income at the rate of 2% was on estimate but the estimate was based on relevant statement and the incriminating seized documents, that the concealment of particulars income was established, that the assessee had failed to disclose the true and correct commission income in the original return, that the AO were justified in invoking the provisions of section 271(1)(c). Referring to judgment of MAK Data Private Ltd.(328 ITR 593), the FAA held that voluntary disclosure did not release the assessee from mischief penalty provisions. Finally,he upheld the penalty levied by the AO, u/s. 271(1)(c), amounting to Rs. 6.30 lakhs.

5.During the course of hearing before us Mukesh Choksi stated that the Tribunal had held that commission income should be taken at the rate of 0.15%, that it was a case of estimation of income, that assessee had not concealed particulars of income or had filed inaccurate particulars of income. The Departmental Representative (DR) supported the order of F AA.

6.We have heard the rival submissions and produce the material before us. We find that case under consideration an action u/s.132 of the Act was carried out covering all the group entities including the assessee under consideration, that it was found group concerns were engaged in providing accommodation bills/hawala entries, that the assessee did not dispute the said fact,that the AO estimated the income from the accommodation entries @ 2% of the total transactions appearing in the bank accounts of the assessee,that the then FAA confirmed the quantum addition made by the AO,that in the case under consideration the Tribunal had held that commission income should be taken at the rate of 0.15% (ITA /6435/Mum/2012 – AY-2004-05 and other six appeals dt.6.1.16).

695 & 996/M/15-Mihir & Mukesh The undisputed fact is that there is difference of opinion as to how much income should be estimated for the hawala entries-the AO estimated at a particular percentage, whereas the assessee had shown the income at a different percent. The addition made by the AO and confirmed by the FAA in quantum addition may or may not be.But,levying penalty on the basis of an estimated addition could not be held to be justified.No authority is required to be cited that penalty and assessment proceedings are separate and distinct proceedings and the quantum proceedings should not result in automatic levy of concealment penalty. It is a case of estimation of income by the AO and the assessee.

Here we would like to discuss two cases.One of them is Aero Traders P. LTD.(322 ITR 316).In that case the assessee-company had filed its return of income for the year 1997-98 on a notice u/s.148 of the Act, 1961declaring a loss of Rs. 83, 64, 468/-.The assessee had, in the return attached a note stating that it was impossible for it to substantiate its claim of loss by way of any evidence as the relevant records were seized and were with the police authorities. The AO after being unable to obtain copies of the seized documents, based his assessment order on the limited documents provided and rejected the book results declared by the assessee. He estimated the income of the assessee at Rs.61,00,000/-.He also initiated penalty proceedings separately. The FAA estimated the total income of the assessee at Rs. 1,02,980/-.The Tribunal confirmed this order. The AO observed that the profit was estimated after rejection of books of account due to certain discrepancies and imposed a penalty on the assessee of Rs. 36,41,003/-, on the ground that it was a clear case of furnishing inaccurate particulars of income. The FAA deleted the penalty holding that the addition made by the AO on the basis of estimated profit could not be a subject-matter of penalty for concealment of income. The Tribunal confirmed this order. On appeal,the AO dismissed the appeal and held that the 695 & 996/M/15-Mihir & Mukesh finding arrived at by the Tribunal did not warrant interference as it was purely a finding of fact.In the case of Durga Kamal Rice Mills(265 ITR 25)the Hon’ble Calcutta High Court has held as under: “When two views are possible and when no clear and definite inference can be drawn, in a penalty proceeding, penalty cannot be imposed…….In quantum proceedings, a particular provision might be attracted for addition to the income of the assessee. But when it comes to the question of imposition of penalty, then independent of the finding arrived at in the quantum proceedings, the authority has to find conclusively that the assessee owns the concealed amount.” Considering the fact that Tribunal has adopted a particular rate for estimating the income of the assessee for the year under consideration,we hold that the FAA was not justified in confirming the order passed by the AO u/s. 271(1)(c) of the Act. Therefore, reversing his order, we decide the effective ground of appeal in favour of the assessee.

ITA/996/Mum/2015-AY.2005-06:

7.The facts and circumstances of the case or similar to the facts of the earlier matter-the only difference is the amount of penalty levied by the AO.Following our order, in the earlier appeal,we decide the effective ground of appeal in favour of the assessee.

As a result appeals filed by both the assessees stand allowed. फलतः दोन� िनधा�रितय� �ारा दािखल क� ग! अपील" मंजूर क� जाती ह$. Order pronounced in the open court on 27th July,2016. आदेश क� घोषणा खुले �यायालय म" &दनांक 27 जुलाई, 2016 को क� गई । Sd/- Sd/- (सी .एन .�साद / C.N. Prasad ) (राजे�� / Rajendra) �याियक सद�य / JUDICIAL MEMBER लेखा लेखा सद�य सद�य / ACCOUNTANT MEMBER लेखा लेखा सद�य सद�य मुंबई Mumbai; �दनांकDated : 27.07.2016. Jv.Sr.PS. आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order forwarded to : आदेश आदेश आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत 1.Appellant /अपीलाथ� 2. Respondent /��यथ� 3.The concerned CIT(A)/संब� अपीलीय आयकर आयु�, 4.The concerned CIT /संब� आयकर आयु� 6

695 & 996/M/15-Mihir & Mukesh