2017 (2) TMI 1214 - AT - Income Tax

Tax Appeals: Revenue wins on quantum assessment, Assessee succeeds on penalty notice specificity.

Income Tax Officer, Ward-1 (3), Rajkot Versus Paraskumar V. Kataria Prop. Kataria Enterprises and Vice Versa

The ITAT allowed the Revenue's appeal in ITA No.258/RJT/2011 for AY 1999-2000, reversing the relief granted by CIT(A) in the quantum assessment. The ITAT ... Estimation of GP on suppressed sales - search proceedings - Held that:- The unaccounted sales were modified by the CIT(A) in the earlier proceeding which has not been disputed by the AO. Further, no such dispute has arisen in the grounds of appeal also. Therefore, there is no occasion for us to examine the aforesaid issue raised orally by the ld.AR in the course of hearing. Thus, this point in issue cannot be entertained. Whether CIT(A) has committed error in modifying the GP rate at 03.56% as against 07.29% applied by the AO on suppressed sales? - Held that:- We note that GP rate on the accounted sales estimated by the assessee himself stands at 07.29%. We thus fail to understand as to how the GP for the unaccounted sale should be so lower at 03.56% which is less than half of the GP rate declared by the assessee himself on accounted sales. We appreciate the contention of the AO that the GP on accounted sales are likely to be on higher side as various fixed costs have already been fully claimed. The GP arrived at in the subsequent assessment year can probably give rise to some basis only when the GP of the current year is not available on records. The GP on accounted sales is available in the present case which forms sound basis for applying the same towards unaccounted sales. Therefore, the order of the CIT(A) granting concession to the assessee on estimation of GP on suppressed sales found as a result of search based on some other assessment year cannot be approved. The relief granted by the CIT(A) is therefore reversed. Penalty u/s.271(1)(c) - defective notice - Held that:- A perusal of notice issued under s.274 read with s.271(1)(c) shows that the relevant part of the notice has not been struck off. Thus, it can be inferred that there is lack of application of mind by the AO. The vagueness and ambiguity is claimed to have prevented the Assessee of reasonable opportunity to defend its case. Thus, definite prejudice has caused to the Assessee. It is the requisite of law that the notice to the assessee should be specific. The Revenue has not been able to point out that the so-called ambiguous notice has not impaired or prejudiced the right of the assessee to reasonable opportunity of being heard. It therefore must follow that the notices issued proposing penalty were illusory and the assessee was incapacitated to defend its case. The decisions quoted on behalf of the assessee in the case of Samson Perinchery (2017 (1) TMI 1292 - BOMBAY HIGH COURT) & Manjunatha Cotton (Karnataka) [2013 (7) TMI 620 - KARNATAKA HIGH COURT] are applicable to the facts of the case. The penalty notices, thus, issued are rendered invalid and cannot be sustained. - Decided in favour of assessee. Issues:1. Assessment Year (AY) 1999-2000 - Revenue challenging CIT(A) order in quantum assessment, Assessee aggrieved by penalty order by AO.Analysis:1. Revenue's Appeal - ITA No.258/Rjt/2012 for AY 1999-2000:- The AO contested the relief granted by CIT(A) in the quantum assessment where undisclosed sales led to the addition of profits. The CIT(A) revised the undisclosed sales and applied a GP rate of 3.56%, reducing the addition from Rs. 50,83,250 to Rs. 10,92,068. Revenue disputed this relief.- Revenue argued that CIT(A) erred in revising suppressed sales and justifying a lower GP rate. They contended that the GP estimations in subsequent years cannot set a precedent for the current assessment year, especially when the assessee declared a higher GP rate for accounted sales. The AO's GP estimation of 7.29% was considered more appropriate than CIT(A)'s 3.56%.- The ITAT reversed the relief granted by CIT(A) and allowed Revenue's appeal in ITA No.258/RJT/2011 for AY 1999-2000.2. Assessee's Appeal - ITA No.542/Rjt/2012 for AY 1999-2000:- The AO imposed a penalty of Rs. 3,27,670 under s.271(1)(c) along with the quantum addition. The CIT(A) upheld the penalty, leading to the Assessee's appeal.- The Assessee argued that the penalty notice lacked specificity regarding the nature of the default, violating legal requirements. They cited recent court decisions emphasizing the need for clear charges in penalty notices. Additionally, they contended that penalty on profit estimations was unjust.- The ITAT found the penalty notice ambiguous and vague, denying the Assessee a fair opportunity to defend the case. Citing legal precedents, the ITAT held the penalty notices invalid and allowed the Assessee's appeal in ITA No.542/Rjt/2012 for AY 1999-2000.3. Conclusion:- The ITAT, in a consolidated order, allowed the respective appeals of the Revenue and Assessee for AY 1999-2000. The Revenue's appeal on the quantum assessment was upheld, reversing the relief granted by CIT(A). The Assessee's appeal against the penalty imposition was allowed due to the lack of specificity in the penalty notice, rendering it invalid.