ACIT, C-6, LUDHIANA vs. M/S ARADHANA FABRICS PVT. LTD., LUDHIANA

आदेश/ORDER

PER A.D.JAIN, VICE PRESIDENT

This is Revenue’s appeal for assessment year 2012-13 against the order dated 17.10.2018 passed by the ld. CIT(A)-3, Ludhiana.

i) Whether on the facts and circumstances of the case, order of the CIT(A) is sustainable.

ii) Whether the CIT(A) was justified in deleting the penalty of Rs.68,14,577/- by holding that the assessee has not concealed any particular of income or has not furnished inaccurate particulars of income.

ITA 1605/CHD/2018 A.Y.2012-13 Page 2 of 10

business of manufacture of hosiery goods, readymade

garments and trading of cloth, etc. It filed its return of

income declaring income of Rs.91,76,744/-. Vide order

dated 03.03.2015, the assessment was completed at an

income of Rs.2,10,03,473/-, making addition of a sum of

Rs.1,14,76,729/- by denying set off of business loss against

income surrendered at the time of survey u/s 133A of the

Income Tax Act and addition of Rs.3,50,000/- on account of

unexplained share premium. By virtue of order dated

28.09.2015, passed u/s 271(1)(c)of the Income Tax Act, the

AO imposed a penalty of Rs.68,14,577/- on the assessee,

holding that the assessee had furnished inaccurate

particulars of income amounting to Rs.2,10,03,473/-

(Rs.2,06,53,473/- + Rs.3,50,000/-). By virtue of the

impugned order, the ld. CIT(A) has deleted the penalty.

This brings the Department in appeal before us.

contended that the ld. CIT(A) has erred in deleting the

penalty of Rs.68,14,577/- by holding that the assessee has

not concealed any particulars of income or has not

furnished inaccurate particulars of its income. The ld.

ITA 1605/CHD/2018 A.Y.2012-13 Page 3 of 10 Counsel for the assessee, on the other hand has placed

strong reliance on the impugned order.

business premises of the assessee, the assessee surrendered

an amount of Rs.2,00,00,000/- on account of receivables

and stock of cloth. The undisclosed income of Rs.

2,00,00,000/- surrendered during the course of survey was

credited to the assessee's Profit & Loss Account, as

business income. The assessee claimed bad debts worth

Rs.1,72,15,093/- against the surrendered income. The

surrender was made because certain receivables had not

been shown in the books of account of the assessee. Set off

of business loss against income surrendered at the time of

survey, amounting to Rs.1,14,7,6,729/- was denied to the

assessee and the amount was added to the income of the

assessee.

Rs.3,50,000/-. The assessee having not provided the

details of the persons from whom the share premium was

received, or any discrete method of calculation of the share

premium, or the business purpose for which the share

ITA 1605/CHD/2018 A.Y.2012-13 Page 4 of 10 premium was utilized, the amount of Rs.3,50,000/- was

added back to the income of the assessee.

7.1 In the penalty order, the AO held that had the survey

not been conducted, the amount of Rs.1,14,76,729/- would

never had been reflected by the assessee as its business

income; and that as such, the amount of surrender needed

to be treated under a separate head, i.e., that of deemed

income.

7.2 Apropos the addition of share premium, in the

penalty order, the AO held that the assessee had not

submitted any explanation as to why penalty u/s 271(1)(c)

of the Act may not be imposed on the assessee; that the

assessee had merely stated that it had preferred an appeal

against the assessment order; that in this case, the

assessee had filed an appeal after more than 30 days of the

date of service of Demand Notice relating to the assessment

order; that hence, in view of delay in filing the appeal before

the CIT(A), penalty u/s 271(1)(c) of the Act was being

imposed on the assessee. The AO also held that evidently,

the assessee had taken a chance by filing wrong particulars,

knowing the policy of the Department regarding scrutiny

assessments, where-under, only a small number of returns

ITA 1605/CHD/2018 A.Y.2012-13 Page 5 of 10 are taken up for scrutiny, else, the returns are accepted

without any further verification from the books of account;

that had the case not been selected for scrutiny, the

assessee would have gotten away by declaring less income

and evading the tax payable on it. The tax sought to be

evaded on income amounting to Rs.2,10,03,473/-,

amounted to Rs.68,14,577/-, which was the amount of the

penalty levied also. While passing the impugned order

deleting the penalty levied on the assessee, the ld. CIT(A)

duly took into consideration the fact that the assessee had

disclosed all the necessary details regarding the two

additions made in the assessment. It also remains

undisputed that it was a case of a mere difference of opinion

on the allowability of the claims. In fact, there is no

concealment or furnishing of inaccurate particulars of

income. The AO erred in holding that it was a case of filing

of wrong particulars, firstly considering that as per the

policy of the Department, the case of the assessee might

well not have been taken up for scrutiny assessment

proceedings, and that had the survey not taken place, the

amount would never have been reflected as business

income; and that therefore, the amount of surrender had

been treated as deemed income.

ITA 1605/CHD/2018 A.Y.2012-13 Page 6 of 10 7.3 There is no dispute raised regarding the fact that it

was a case of an estimate versus an estimate. The income

of the assessee was assessed on estimate basis. The

addition had been made on the basis of an estimate rather

than being based on any evidence. It was a case of a mere

difference of opinion where no penalty could be levied. This

is so since no concealment of income or furnishing of

inaccurate particulars of income stands established. That

the matter involved two views also stands established from

the fact that vide order dated 23.03.2018, passed before the

impugned order dated 17.10.2018, in the quantum appeal

against the additions made, the ld. CIT(A) allowed the

assessee to write off 1/3rd of the bad debts of

Rs.1,72,15,093/-, amounting to Rs.57,38,365/-, out of his

business income including the surrendered income of

Rs.2,00,00,000/-. This fact has also been rightly taken into

consideration by the ld. CIT(A). In fact, both the quantum

appellate order as well as the penalty appellate order were

passed by the same ld. CIT(A). It was rightly held that

disallowance on account of bad debts did not call for

penalty for furnishing inaccurate particulars.

ITA 1605/CHD/2018 A.Y.2012-13 Page 7 of 10 7.4 So far as regards the addition of Rs.3,50,000/-, it has

not been disputed that as correctly observed by the ld.

CIT(A), information with regard to the unexplained share

premium was already available on record when the return

was furnished and the AO had not brought anything on

record, whereby the assessee could be made liable for levy

of concealment penalty.

7.5 Otherwise too, though the AO had not considered it

legally permissible to allow the assessee's claim of

deduction for write off of bad debts and set off of resulting

business loss against the surrendered income, since it was ,

in the view of the AO, not business income, on considering

the assessee's submissions, the AO agreed to allow 1/3rd of

the claim of write off to be set off in the current year and

the remaining 2/3rd in the two subsequent years. As such,

loss of Rs.57,38,364/-was allowed to be written off in the

current year and the loss of Rs.1,14,76,729/- was allowed

to be carried forward to be written off in the succeeding two

assessment years. In the quantum appellate proceedings,

the ld. CIT(A) held the surrendered income to be the

business income of the assessee and that so, the bad debts

were entitled to be set off against the surrendered income.

ITA 1605/CHD/2018 A.Y.2012-13 Page 8 of 10 7.6 We also find that while levying the penalty, the AO

had, in fact, held that the assessee was supposed to file an

appeal against the assessment order within 30 days of

service of notice of demand, as per Section 249 of the

Income Tax Act; that the assessee had filed the appeal after

more than 30 days of service of the demand notice; and that

hence, penalty u/s 271(1)(c)of the Act was being imposed on

the assessee “in view of delay in filing the appeal before the

ld. CIT(A)”. This finding of the AO has not been shown to be

in accordance with the requirements of the provisions of

Section 271(1)(c)of the Act. On this score also, the penalty

order deserves to go.

7.7 In the written submissions filed on behalf of the

Department, it has been submitted that the CIT(A)’s

decision in the quantum proceedings was not challenged by

the Department because of the low tax effect involved. This,

however, does not preempt us from considering the findings

recorded by the ld. CIT(A) in the quantum appeal order,

which we have dealt with herein-above. In the written

submissions, as reiterated by the ld. DR, it has been

contended that had the case of the assessee not been

selected for scrutiny, the assessee would have got away with

ITA 1605/CHD/2018 A.Y.2012-13 Page 9 of 10 declaring less income and evading the tax payable on it and

had the survey not been conducted, the surrendered amount

would never have been reflected as business income, due to

which, it is a case of furnishing of inaccurate particulars of

income/concealment of income. Here also, we are unable to

persuade ourselves to agree with the stand taken by the

Department. It is patent on record that it was a case of an

estimation versus an estimation, rather than it having been

made on the basis of any concrete evidence.

7.8 The decisions relied on by the Department are not

applicable, in the facts and circumstances of the case as

discussed herein above.

sought to be raised by the Department, the same is hereby

rejected. The order passed by the ld. CIT(A) is found to be

well versed. The same is, hence, confirmed.

Order pronounced on 05th Feb.,2024.

Sd/- Sd/- (VIKRAM SINGH YADAV) (A.D.JAIN ) ACCOUNTANTMEMBER VICE PRESIDENT

“Poonam”

ITA 1605/CHD/2018 A.Y.2012-13 Page 10 of 10

आदेश क� �ितिलिप अ�ेिषत/ Copy of the order forwarded to : 1. अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent 3. आयकर आयु�/ CIT 4. िवभागीय �ितिनिध, आयकर अपीलीय आिधकरण, च�डीगढ़/ DR, ITAT, CHANDIGARH 5. गाड� फाईल/ Guard File आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar