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Income Tax Appellate Tribunal, DELHI BENCH ‘H’ : NEW DELHI
Before: SHRI S.V. MEHROTRA & SHRI KULDIP SINGH
PER KULDIP SINGH, JUDICIAL MEMBER : Appellant, M/s. Tayal Concast (P.) Ltd. (hereinafter referred to as ‘the assessee’), by filing the present appeal sought to set aside the impugned order dated 01.12.2014 passed by the Commissioner of Income-tax, Muzaffarnagar qua the assessment year 2005-06 on the grounds inter alia that :- “1. That the order is against law & facts on record.
2. That Ld. CIT (A) was wrong in confirming the penalty u/s 271(1)(c) without considering the submissions made by the appellant.
3. That Ld. CIT (A) was wrong in not considering the levy of penalty without pointing out the defaults for which penalty u/s 271(1)(c) has been imposed, i.e. whether for concealment of income or filing inaccurate particulars of income or of both.
4. The Ld. CIT (A) was wrong in not considering various rulings cited by the appellant.
5. The Ld. CIT (A) was wrong in mentioning “….when these was no explanation regarding cash credit- --“ although dispute was about penalty of concealment u/s 271(1)(c).”
Briefly stated the facts of this case are : the assessee company is a private limited company engaged into the manufacturing and sale of cement, filed return of income qua assessment year 2005-06 showing loss at Rs.13,64,000/-. During assessment, it was noticed that the assessee has declared gross profit at Rs.23,53,539/- i.e. @ 37.56% on the total turnover of Rs.62,06,215/- in the immediately preceding year and after applying the same GP rate in the year under consideration, the gross profit was estimated on proportionate enhanced sale of Rs.74,31,010/-, which came to be Rs.27,86,629/- and consequently, an addition of Rs.27,86,629/- has been made to the income of the assessee. Assessee carried the matter before the CIT (A) who has extended the partial relief to the assessee. Then the assessee filed an appeal before the Tribunal and its appeal has been allowed directing the AO to pass a speaking order.
During the second round of assessment proceedings completed u/s 143(3)/147 of the Income-tax Act, 1961 (hereinafter ‘the Act’), the AO made the following addition :-
(i) On account of G.P. on manufactured items Rs.15,50,757/- (ii) On account of N.P. on trading items Rs. 45,018/- (iii) Unsecured loans sundry creditors etc. unexplained Rs. 2,03,481/- (iv) On account of late payment of UPFC interest Rs. 2,59,152/- Then, the assessee carried the matter before the ld. CIT (A) who has extended the relief of Rs.2,03,481/- on account of unexplained unsecured loans and sundry creditors, however, affirmed the remaining addition and directed to initiate the penalty proceedings u/s 271(1)(c) of the Act for the AY 2005-06. On the basis of evidence which has come on record during the assessment proceedings, the AO came to the conclusion that assessee has furnished inaccurate particulars of income and thereby imposed a penalty of Rs.6,00,000/- u/s 271(1)(c) of the Act.
The assessee carried the matter before the ld. CIT (A) who has affirmed the penalty order. Feeling aggrieved, the assessee has come up before the Tribunal.
We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
The ld. AR for the assessee challenging the impugned order contended inter alia that no findings have been returned by the ld. CIT (A) on technical objections raised by the assessee nor he has demanded or perused books of accounts, register, etc.; that even in the remand report, the AO has failed to controvert any of the contentions raised by the assessee; that the AO has not considered the changed process for manufacturing of cement rather both the AO as well as the CIT (A) have proceeded to make an addition on the basis of estimated gross profit; that no penalty can be imposed on the basis of estimated addition. However, on the other hand, ld. DR for the revenue relied upon the orders passed by the AO as well as the CIT (A).
Undisputedly, in the first round of litigation, the AO applied the GP rate at 37% on estimated turnover of Rs.7,43,100/-, however ld. CIT (A) reduced the estimated turnover to Rs.61,44,381/- and applied the GP rate of 33%. Then, in the second round of litigation, the AO passed assessment order and assessed the estimated gross profit of Rs.55,99,627/- by applying the GP rate of 33%.
Now, the question arises for determination is, “as to whether the penalty can be imposed on the basis of estimated addition by applying the gross profit on the basis of immediate preceding year’s gross profit on the estimated turnover”?
We are of the considered view that the penalty order passed by the AO and affirmed by the ld. CIT (A) vide impugned order is not sustainable in the eyes of law for the following reasons :-
(i) that the entire exercise as to the assessment of the income on the basis of return of income qua the assessment year 2005-06, has been made on the estimation basis without perusing and rejecting the books of accounts; (ii) that in the first round of litigation, the AO estimated the turnover of the assessee at Rs.74,31,000/- and GP rate at 37%, however the ld. CIT (A) reduced the turnover to Rs.61,44,381/- and applied the GP rate of 33% again on the basis of guesswork; (iii) that in the second round of litigation, assessment order was passed on the basis of estimated turnover of Rs.55,99,627/- and estimated GP rate of 33%, which came to be Rs.15,50,757/- without rejecting the books of account; (iv) that in the penalty notice dated 01.05.2013, the AO sought to initiate the penalty proceedings against assessee by proposing minimum penalty of Rs.5,72,484/- but proceeded to impose penalty of Rs.6,00,000/- without any explanation; (v) that the AO as well as ld. CIT (A) are not clear enough as to whether the penalty has been imposed/ affirmed for furnishing inaccurate particulars of income or for having concealed the particulars of income, particularly when the entire exercise is on the basis of estimated turnover and estimated gross profit, that too without rejecting the books of accounts. One cannot be assumed to have furnished inaccurate particulars, when he has already concealed the particulars of income; (vi) that the AO as well as the ld. CIT (A) proceeded to impose the penalty on the ground that there are glaring discrepancies in the books of accounts of the assessee.
But we are of the considered view that again on the basis of mere discrepancies in the account books, particularly when books of accounts have not been rejected the penalty cannot be imposed; (vii) that when the books of accounts have been maintained, produced before AO who has simply found the discrepancies but he has not found sufficient reason to reject the books of accounts, the estimated turnover and estimate gross profit cannot be taken into consideration to impose the penalty; (viii) that the AO has not recorded his satisfaction to impose the penalty but merely recording the finding that, “Since the evidence has already been proved in the assessment order and the additions have been confirmed by the ld. CIT (A), hence it is a fit case for imposition of penalty u/s 271(1)(c) of the I.T. Act for the A.Y. 2005-06 on the following additions, as the assessee has furnished inaccurate particulars of income :-
(i) On account of G.P. on manufactured items:Rs.15,50,757/- (ii) On account of N.P. on trading items : Rs. 45,018/- Since the evidence has been proved in the assessment order and the above additions have been confirmed by the ld. CIT (A), M. Nagar, accordingly a show cause notice u/s 271(1)(c) of the I.T. Act dated 1.5.2013 was duly served upon the assessee fixing the case for 17.5.2013. In compliance to the show cause notice, counsel of the assessee attended and sought adjournment. In the meantime counsel of the assessee filed reply which was received in this office on 23.5.2013 mentioning inter alia as under :-
“…..For the addition about G.P. no penalty is valid as has been held in various rulings….”
I have gone through the reply and found no force. Considering all the facts, it is seen that it is a fit case for imposition of penalty u/s 271(1)(c) of the I.T. Act for the A.Y. 2005-06.”
So from the aforesaid findings, satisfaction of the AO is not reflected rather he has acted as post office on the basis of assessment proceedings.
(ix) that the penalty order has been passed by the AO without applying his mind and without considering the reply filed by the assessee and the order itself is a cryptic one; (x) that at the same time, ld. CIT (A) has also affirmed the penalty on the basis of estimated turnover and estimated gross profit without looking into the fact if the AO has made himself satisfied to impose the penalty for furnishing the inaccurate particulars or have concealed the particulars of income; (xi) that AO as well as CIT (A) being quasi-judicial authorities are required to provide sufficient opportunity of being heard to the party before imposing penalty, which is missing in this case and as such, the impugned order is not sustainable; (xii) that when the penalty has been imposed merely on the basis of estimated turnover as well as estimated gross profit, necessary ingredients of section 271(1)(c) that, “concealment of particulars of income and furnishing of inaccurate particulars of income” are missing and as such, the AO is precluded from imposing penalty; (xiii) that CIT (A) in its order dated 07.01.2013 has not made any independent enquiry or called any remand report if the assessee has actually indulged in making sales and purchases outside the books of accounts but blindly followed the assessment order passed by the AO; (xiv) that the AO has also proceeded to pass the assessment order with biased mind that the raid was conducted on the premises of the assessee on1 2.09.2004 and FIR was registered regarding seizure of three trucks of spurious cement. But, merely on the basis of registration of FIR, no order to the prejudice to the assessee can be passed that he had been making sales and purchases outside the books of accounts.
Undisputedly, no such material has been brought on record by the AO nor called upon by the CIT (A) during appellate proceedings, if the allegations levelled in the said FIR have been proved in the court; (xv) that AO proceeded to adopt the estimated gross profit at 33% on the ground that, “in the assessment year 2000-01, a TEP was received by the department wherein it was informed that the appellant had indulged in making sales and purchases outside the books. Such old habits seldom vanish and the same is indicated in terms of discrepancies pointed out by the AO in the books of accounts and the Excise Department has also reported evasion of tax.” These observations of the AO are based upon conjecture and surmises without having any cogent material on record which have been confirmed by the CIT (A) in mechanical manner and then the said order has been blindly adopted by the AO to pass the penalty order; (xvi) that merely on the basis of the fact that the Excise Department has conducted raid on the business premises of the assessee and detected tax evasion, the assessment order cannot be passed that too on the basis of estimated turnover and estimated gross profit in the face of books of accounts which have never been rejected by the revenue authorities; (xvii) that the AO even in the original assessment proceedings have not given any reason as to why in his opinion it was just and proper to initiate the penalty proceedings. Reliance in this regard is placed upon order passed by the coordinate Bench in the case of British Airways PLC vs. Deputy Director of Income-tax – (2008) 114 TTJ (Del.) 220; (xviii) that the reasoning given by the assessee for low GP, during the year under consideration, due to the change in the process of manufacturing of cement has never been considered and replied with by the AO.
In view of what has been discussed above, the present appeal filed by the assessee is hereby allowed.
Order pronounced in open court on this 12th day of April, 2016.