TaxTMI 
TaxTMI 
2006 (5) TMI 172
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....rried forward depreciation. The revised return was necessary because the assessee had not shown his share of profit of Rs. 10,850/- from M/s. Kolhapur Ice & Cold Storage. 3. During the course of assessment proceedings, the Assessing Officer dealt with the proprietary business of M/s. Shree Balaji Traders. This business was newly started by the assessee from November, 1987 to 31-3-1989. For the detailed reasons given by him and also based on certain diaries found during the course of search, the Assessing Officer made a G.P. addition of Rs. 7,36,323/-. For this addition, penalty proceedings were initiated. 4. The Assessing Officer brought to tax an amount of Rs. 40,000/- which represented the cash deposited by the assessee in November, 1987 which deposit was not reflected in the books of account. For this addition also, penalty was initiated. The third addition was on account of disallowance of depreciation Rs. 2,30,374/- in respect of vehicle No. CRA 5402. According to the Assessing Officer, though the truck was registered with the R.T. authorities as on 30-3-1989, there was no evidence that the said truck was used for the purpose of business. For this addition also, penalty ....
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....dras High Court in Addl. CIT v. E. Bhoopathy [1978] 113 ITR 188, the CIT(A) held that in that case sales were found to be not correctly shown and they were enhanced. In the case under consideration, however, sales have been accepted. 7. After observing that no penalty was justified on the G.P. addition of Rs. 7,36,323/- the CIT(A) held that as far as the amount of Rs. 3,00,704/- was concerned which was claimed to be capitalised by the assessee with reference to his investment in Balaji Apartments in the year under appeal, penalty was justified. He, therefore, upheld penalty in respect of the amount of Rs. 3,00,704/-. 8. In regard to the addition of Rs. 40,000/-, the CIT(A) observed that the said cash was deposited in November 1987 and the addition under section 69 should have been made in the assessment year 1988-89 and not in the assessment year 1989-90 which was under appeal. He, therefore, held that if addition itself could not have been made for the year under appeal, penalty was not leviable with reference to the sum of Rs. 40,000/-. 9. In regard to the third addition of Rs. 2,30,374/- the CIT(A) observed that penalty was imposed on Rs. 2,30,374/- which was cost of th....
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.... the decisions referred to by the CIT(A), he pointed out two more decisions of the Bombay High Court, viz., CIT v. Mohammed Yakub Mohd. Ibrahim & Co. [1983] 143 ITR 67 and CIT v. B.D. Ramchandra [1984] 150 ITR 242. He also relied on the decision of the Delhi Tribunal in Janta Wine Store v. ITO [1984] 10 ITD 348 for the proposition that merely because estimate by the Assessing Officer was not challenged in appeal was not the reason for sustaining the penalty. He relied on the decision of the Bangalore Bench in ITO v. Nandi Steel Works (P.) Ltd. [1997] 63 ITD 364. In regard to the addition of Rs. 40,000/- representing the deposit made by the assessee, he submitted that the CIT(A) was right in canceling the penalty in view of the fact that the said addition did not pertain to assessment year 1989-90. He referred to the decision of the Bombay High Court in this behalf in Jainarayan Babulal v. CIT [1988] 170 ITR 399 in which case on similar facts, the Bombay High Court had upheld cancellation of penalty. 13. With reference to the disallowance of depreciation, Shri Sathe submitted that in view of the decision of this Bench in the case of Mirje Bros. v. Asstt. CIT [IT Appeal No. 1620 (....
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....n ITA No. 850/PN/97 relating to the assessment year 1988-89. Accordingly, the penalty sustained by the CIT(A) in respect of the amount of Rs. 3,00,704/- is deleted. 18. In the result, Revenue's appeal is dismissed and the assessee's appeal is allowed. Per U.B.S. Bedi, Judicial Member 19. After having gone through the proposed order of the learned Accountant Member I do not find myself to be in agreement with any of findings and conclusions arrived at by him with respect to assessee's appeal as well as department's appeal and my reasons for being so, are given hereunder. 20. So far as the facts of the case and arguments of both the sides are concerned, I find that those have been appropriately recorded and hence not repeated for the sake of brevity. 21. The Assessing Officer made the following three additions: (a) Addition on account of G.P. Rs. 7,36,323 (b) Unexplained investment in deposit Rs. 40,000 (c) Disallowance of depreciation Rs. 2,30,374 The Assessing Officer also initiated penalty proceedings after due opportunity to the assessee and penalty of Rs. 10 lakhs has been imposed on the assessee against the minimum pe....
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.... of the total investment as construction expenses of Balaji Apartments of Rs. 2,50,000/- admitted for the assessment year 1989-90, Rs. 1,76,974/- are shown as made from the additional net profit of proprietary concern M/s. Shree Balaji Traders, not disclosed in the books of account as per cash flow statements filed. Considering the above facts and the basis mentioned below the books of account were rejected on the following grounds: (i) Non-maintenance of bills/vouchers for en route purchases to the extent of Rs. 2,23,49,616/-; (ii) Non-maintenance of day-to-day stock registers; (iii) Admission of assessee himself of profits undisclosed in M/s. Shree Balaji Traders as utilized for construction of Balaji Apartment; (iv) Evidence collected during search and seizure action; (v) Further unexplained investment seen from books of M/s. Shree Balaji Traders, discussed in detail in para 18 of the assessment order dated 29-11-1991. (vi) Too low of G.P. declared. In view of the above discussion, the Assessing Officer estimated the G.P. of 4 per cent on total sales of Rs. 6,74,14,018/- which works out to Rs. 27,04,560/-. As the G.P....
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.... have considered the case as relied upon by the appellant, i.e., in 140 ITR 943 where the Hon'ble Bombay High Court held that no penalty would be sustained merely on account of estimate of profit where no suppression of sales or inflation of purchases was detected. As held in 106 ITR 720 (All.) and 110 ITR 532 (Gau.) a finding has to be reached and recorded that the difference between the income returned and the income assessed was due to the fraud or gross or wilful neglect on the part of the assessee. In 150 ITR 714 (Punj.), it has been held that merely because the addition has been made on estimate under the first proviso to section 145(1) by adopting the view that the gross profit shown in the books of account was too low as there were defects in the method of accounting employed cannot automatically lead to the conclusion that there was failure to return the correct income by means of fraud or gross or wilful neglect. In the case as relied upon by the Assessing Officer, the sales were found as not correctly shown and they were enhanced. However, in the case under consideration, the sales have been accepted as such. Therefore, the Assessing Officer was not justified in levy....
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....niam & Bros. Co. v. CIT [1999] 236 ITR 977, while following CIT v. B.A. Balasubramaniam & Bros. Co. [1985] 152 ITR 529 (Mad.), CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14 (SC), CIT v. K.R. Sadayappan [1990] 185 ITR 49 (SC) and Addl. CIT v. Jeevan Lal Sah [1994] 205 ITR 244 (SC), has held as under: "Difference between the income assessed and the income returned being more than 20 per cent, the Explanation to section 271(1)(c) became applicable and the ITO was justified in imposing penalty because the assessee bad not been able to discharge the onus which was on it under the said Explanation notwithstanding the fact that income was assessed on estimate basis." In recently pronounced judgment, on the point of applying precedents, in the case of State Financial Corpn. v. Jagdamba Oil Mills AIR 2002 SC 834 the Hon'ble Supreme Court of India has held as under: "Circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases. Disposal of cases by blindly placing reliance on a decision is not proper." 26. Since on the basis of search and seizure operation conducted, documents seized and detailed in....
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....month November not only falls in the said period but close to the relevant financial year covered within the previous year of the assessee. Since the period falls in the previous year relevant to the assessment year under consideration and the assessee was unable to explain the source of the deposit for obtaining a bank guarantee therefore, the addition has properly been made and the penalty in this regard is attracted. Therefore, the action of the Assessing Officer is found to be proper and the CIT(A) is unjustified in deleting the penalty with respect to this amount. Therefore, while upholding the penalty in this regard, I restore the order of the Assessing Officer on this issue but restrict such penalty to minimum imposable. 30. As regards the penalty relatable to addition of Rs. 2,30,374/- is concerned, the addition in this regard is made for claiming depreciation on the truck, which was not put to use in the year under consideration. It is the case of the assessee that since the truck was registered on 30-3-1989 therefore, it was ready for use and the assessee is entitled to depreciation and even if it is not allowed, penalty cannot be imposed on the amount relatable to dis....
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....Member and the Judicial Member, the matter is being referred to the President of the Income-tax Appellate Tribunal with a request that the following questions may be referred to a Third Member or to pass such orders as the President may desire: I.T.A No. 423/PN/94 "Whether on the facts and in the circumstances of the case, the CIT(A) is justified in confirming the penalty levied by Assessing Officer under section 271(1)(c) of the Act in respect of the amount of Rs. 3,00,704/- on account of alleged undisclosed investment by the assessee in Balaji Apartments?" I.T.A No. 455/PN/94 "Whether on the facts and circumstances of the case, the CIT(A) is justified in deleting the penalty levied by the Assessing Officer under section 271(1)(c) of the Act in respect of the following additions: (i) Addition on account of G.P. Rs. 7,36,323 (ii) Unexplained investment in deposit Rs. 40,000 (iii) Disallowance of depreciation Rs. 2,30,374 THIRD MEMBER ORDER Shri K.P.T. Thangal, Vice President As there arose a difference of opinion between the Members, the Hon'ble President referred the following questions under section 255(4....
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....ddition for the reason that in fact there was no evidence, and no case for the Assessing Officer even that there was suppression of sales. According to the CIT(A), the notings of the Assessing Officer was indicative of the fact that there was neither suppression of sales nor inflation of purchases, because the Assessing Officer himself has made a specific reference in para 13 of his order that sales were supported by vouchers. It was further noted that the trading account seized during the course of search and seizure action did not correctly incorporate the actual figures of sales and expenses. It was noticed, in fact the assessee himself shown more sales in the fair books than the seized papers. Similarly, in recasting the accounts, transportation charges were assumed by the Assessing Officer, on estimate basis, was less than actually reflected in the transport charges account. Processing charges also estimated on a lesser figure whereas the actual shown by the assessee was more. Hence, it was contended and accepted that the GP addition made on estimate basis is without any basis. Relying upon the decision of the jurisdictional High Court in the case of CIT v. Devandas Perumal & ....
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....ntemplated in the said Explanation and the onus had not been properly discharged. Revenue also relied upon the decision of the Hon'ble Allahabad High Court in the case of Sushil Kumar Sharad Kumar v. CIT [1998] 232 ITR 588, wherein penalty was confirmed in a case where additions were made to the income based on estimate. Revenue also relied upon the decision of the Hon'ble Kerala High Court in the case of CIT v. Gates Foam & Rubber CO. [1973] 91 ITR 467. 12. On the other hand, in regard to GP addition, assessee relied upon the decisions of the jurisdictional High Court in the case of CIT v. Mohammed Yaqub Mohd. Ibrahim & Co. [1983] 143 ITR 67 (Bom.) and in the case of CIT v. B.D. Ramachandra [1984] 150 ITR 242 (Bom.). Assessee also relied upon the decisions of the Tribunal in Janta Wine Store v. ITO [1984] 10 ITD 348 (Delhi) and ITO v. Nandi Steel Works (P.) Ltd. [1997] 63 ITD 364 (Bang.). In regard to the addition of Rs. 40,000/- representing deposit made, assessee relied upon the decision of the jurisdictional High Court in the case of Jainarayan Babulal v. CIT [1988] 170 ITR 399 (Born.). Coming to the penalty on account of disallowance of depreciation, assessee relied....
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....ments and GP declared was too low, the penalty on estimated addition was justified and validly imposed. He held, therefore, the restriction on penalty imposable on Rs. 3,00,704/- was not justified. 16. Coming to revenue's appeal, deleting the penalty on Rs. 40,000/-, learned JM held, the accounting period involved is transitional period and the month of November falls in this transitional period and also close to the relevant financial year covered within the previous year of the assessee. Assessee was unable to explain the source of deposit for obtaining the bank guarantee. Hence the addition was rightly made and therefore penalty, he held, was attracted and order of the CIT(A) was reversed on this point. 17. Coming to the addition of Rs. 2,30,374/-, i.e., made on account of disallowance of depreciation on truck, learned JM noted, the case of the assessee is that it was registered on 30-3-1989 but there was no evidence of use and no evidence of even kept ready for use. He further noted, nothing found to have been shown spent as per the books of account either for obtaining a permit or any expenditure on account of diesel, oil or any other related expenditure. Hence, he h....
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....sion of the Tribunal in the case of ITO v. Patil Automobiles [2003] 79 TTJ (Pune) (TM) 359. In this case the Third Member held, mere offering of an additional income because the assessee could not explain the credits owing to adverse circumstances, in the absence of any detailed enquiries regarding these credits by the revenue authorities, and also in the absence of any incriminating evidence against the assessee, is not sufficient to levy the penalty under section 271(1)(c). 20. Coming to the depreciation point, wherein the revenue is in appeal, learned counsel for the assessee supported the order of the CIT(A) and submitted, even if the addition is made correctly, penalty cannot survive and it was rightly deleted by the CIT(A). 21. As against this, the learned Departmental Representative submitted, the additions were made on account of seized materials; particularly, he brought my attention to para 3 of the assessment order. There was building construction going on and undisputedly the assessee made the investment, which was claimed to be made from certain income offered under voluntary disclosure, vide letter dated 8-3-1991, addressed to CIT, Kolhapur. In other words, asse....
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....eady for use after registration. 24. The learned DR further submitted, the assessee has not preferred any appeal on quantum, which itself tacitly an admission that the additions were rightly made. He brought my attention to the decision of the Hon'ble Madras High Court in the case of P. Govindaswamy v. CIT [2000] 244 ITR 510 and submitted, admission by the assessee that certain amounts added to his income, constitute concealed income and penalty is leviable. Relying upon the decision of the Hon'ble Karnataka High Court in the case of CIT v. Aboo Mohmed [2001] 250 ITR 313, learned DR submitted, assessee cannot claim immunity under amnesty scheme in respect of the amount detected as a result of search. Again the learned DR relied upon the decision of the Hon'ble High Court in the case of Sushil Kumar Sharad Kumar, wherein their Lordships upheld the penalty levied under section 271(1)(c) on an estimated addition. Relying upon the decision of the Hon'ble Rajasthan High Court in the case of Yashwant Singh v. CIT [1995] 212 ITR 207, learned DR submitted that in the instant case the additions were made after detailed enquiry and confronting the assessee with the evidenc....
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....particularly so, where in the assessment order no specific finding on discrepancies are brought out. Hence, the learned counsel submitted that the penalty is liable to be deleted even on the portion, i.e., to say Rs. 3,00,704/- retained by the CIT(A). 27. Considering the rival submissions and going through the orders of the revenue authorities, I am of the opinion that the view taken by the learned AM is to be accepted as the correct view. As rightly noted by the learned AM, jurisdictional High Court has taken clear view in the case of CIT v. Mohammed Yaqub Mohd. Ibrahim & Co. and in the case of B.D. Ramachandra, that there cannot be penalty under section 271(1)(c) in respect of GP addition made on estimate basis. The learned JM, on the other hand, held that the decision of the Hon'ble Supreme Court is to be preferred over the decisi9n of the High Court or of the Tribunal. On this proposition there cannot be any controversy. The decision of the Hon'ble Supreme Court in the case of B.A. Balasubramaniam & Bros. Co. v. CIT [1999] 236 ITR 977 is clearly distinguishable on facts. This was a case wherein the Hon'ble Supreme Court held, invoking Explanation to section 271(1....
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....s that it was not on actual use. At that point of time the jurisdictional High Court was taking the view that if the vehicles were kept ready for use; that was sufficient to claim depreciation. 30. The decisions relied by the learned DR are distinguishable on facts. In the case of Sushil Kumar Sharad Kumar, the Hon'ble Allahabad High Court held that under what circumstances penalty can be levied, where the additions were made on estimate basis. The relevant portion reads as under:- "The findings recorded in the assessment order constitute good evidence in the penalty proceedings but those findings cannot be regarded as conclusive for the purposes of the penalty proceedings. In deciding whether penalty can be imposed in a given case, the entirety of the circumstances must be taken into account. There may be cases where additions may be made purely on estimate without reference to any evidence/materials being on record. In such a case, it could be argued with same force that penalty cannot be levied on the figures which are merely based on guess work or estimate. But in a case where after detailed investigation, the assessee was confronted with evidence and materials ....
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....ng the penalty levied by the Assessing Officer under section 271(1)(c) of the Act in respect of the following additions: (i) Addition on account of GP Rs. 7,36,323/- (ii) Unexplained investment in deposit Rs. 40,000/- (iii) Disallowance of depreciation Rs. 2,30,374/-" 2. With regard to the question referred to in appeal filed by the assessee (ITA No. 423/PN/94), the ld. Accountant Member of the Bench came to the conclusion that no penalty under section 271(1)(c) is leviable for the reasons discussed in detail in Tribunal's order in ITA No. 850/PN/97 relating to the assessment year 1988-89 and accordingly, penalty sustained by the CIT(A) in respect of the amount of Rs. 3,00,704/- was not justified, whereas the ld. Judicial Member held otherwise that penalty under section 271(1)(c) was imposable with respect to the said amount. 3. With regard to the question referred to in appeal filed by the Revenue (ITA No. 455/PN/94), the ld. Accountant Member of the Bench came to the conclusion that the CIT(A) was justified in holding that no penalty is leviable in respect of the gross profit addition, disallowance of depreciation and as well with regard to th....