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

आदेश/ORDER

PER A.D.JAIN, VICE PRESIDENT

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

This brings the Department in appeal before us.

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.

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.

Order pronounced on 05th Feb.,2024.