CHARUDUTT B. SHAH,MUMBAI vs. ITO 21(1)(1), MUMBAI

The aforesaid appeal has been filed by the assessee against impugned order dated 18.07.2013, passed by CIT(A)-32, Mumbai in relation to the penalty proceedings u/s 271(1)(c) for the assessment year 2006-07. The assessee is aggrieved by levy of penalty of Rs. 3,93,231/- on account of additional income offered by the assessee of Rs. 22 lakhs, which comprised of unrecorded cash sales amounting to Rs. 13,05,597/- and excess stock of Rs. 8,91,250/-.

The brief facts qua the issue are that, assessee is a proprietor of M/s Maharashtra Impex Corporation dealing in chemicals. A survey u/s 133A was carried out in the premises of 2 Charudutt B Shah 04.02.1999, during the course of which, statements of certain persons were recorded in which assessee admitted that entries made in pencil in the register mentioning the dates, names of the parties, item nos. and value represented cash sales aggregating to Rs. 13,05,597/- for the period 01.04.1998 to 31.12.1998 which were not recorded in the regular books of accounts. To cover up the discrepancy on account of these unrecorded sales and excess stock, the assessee had offered additional income of Rs. 22 lakhs over and above his regular income. However, while passing the order u/s 143(3) on 28.03.2002, the unrecorded cash sales and excess stock found which was disclosed by the assessee was not taken into account. Accordingly, such an assessment order was cancelled/set aside under revisionary jurisdiction u/s 263 by CIT-21, Mumbai. In the set aside proceedings, the assessee did not appear and order u/s 144 r.w.s. 263 was passed determining the total income at Rs. 30,90,740/-.

The Tribunal in the quantum proceedings had set aside the matter to the file of the AO on the issue of additional income of Rs. 22 lakhs with a direction to determine investment in the sales and gross profit earned on the total unaccounted sales. However, the AO repeated the same addition as made earlier. In the first appeal, the CIT(A) held that gross profit is to be worked out at Rs. 1,20,090/- on unaccounted sales and investment on such unaccounted sales was taken by him at Rs. 1 lakh. Now, the penalty of Rs. 3,93,231/- has been levied on addition of Rs. 2,20,090/- which has been confirmed by the CIT(A) also.

After hearing both the parties and on perusal of various orders passed the entire chronology of events as submitted by the ld. counsel can be summed up as under:-

From the aforesaid events, ld counsel submitted that ultimately the addition on account of estimated gross profit and estimated undisclosed investment has been made on estimate basis, hence, no penalty can be levied on such an estimated addition. Secondly, there cannot be a presumption that assessee must have made some undisclosed investment from unexplained sources for making the sales. Even the GP worked out is also purely on estimate and ad-hoc basis, therefore, there cannot be any presumption of any concealment of income.

On the other hand, Ld. DR has strongly relied upon the order of the CIT(A) and submitted that ultimately, assessee has been found doing sales outside the books and even if sales has not been added, the gross profit earned from such sales is definitely concealed income, which has not been disclosed and would not have been found if the survey had not taken place.

After considering the rival contention and on perusal of the impugned orders, we find that after various rounds of litigation, the quantum of addition on account of unaccounted income from sales and undisclosed investment has been determined at Rs. 1,20,090/- + Rs. 1 lakh. The assessee was found to be engaged in making the sales outside the books i.e. the sales were not recorded in the books of accounts. So far as the addition on account of unexplained investment is concerned, same is based on the presumption that for effecting the sales of Rs.13.05 lakhs some investment is required which has been estimated at Rs. 1 lakh. On such a estimated undisclosed investment, no penalty can be levied u/s 271(1)(c), because there is no material to substantiate the same. Thus, penalty on Rs. 1 lakh stands deleted. So far as the addition of Rs. 1,20,090/- on account of gross profit, the same is definitely in the realm of undisclosed income which the assessee

Appeal of the assessee is allowed. Order pronounced in the open court on 30th October, 2015.