TaxTMI 
TaxTMI 
TaxTMI 
2015 (1) TMI 521
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.... First, we shall take up appeals of the Revenue. Shri Sachidanand Dubey, ld. DR, contended that declaration was made by the assessee, pursuant to search action u/s 132 of the Act, carried out at the business premises of Etco Group as well as the residential premises of the Directors. It was pleaded that the amount of Rs. 7,08,69,757/- was surrendered in the hands of the different concerns/persons of the group and M/s Etco telecom Ltd. is one of the concerns of Etco Group which has made disclosure of Rs. 2,52,08,546/- for Assessment Years 2002-03 to 2007-08. The penalty was argued to be rightly levied by the Assessing Officer and wrongly deleted by the ld. First Appellate Authority. 2.1. On the other hand, the ld. Counsel for the assessee, Shri Anuj Kisnadwala, defended the conclusion drawn by the ld. Commissioner of Income tax (Appeals), wherein the penalty was deleted (in six appeals) and challenged sustenance of penalty in ITA No.5243/Mum/2012. The crux of argument is that the penalty was imposed merely on the basis of statement recorded from a third party, which as per the assessee is quite unjustified. It was also pleaded that no incriminating material was found from the premi....
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.... 1. Gross profit @1% of sales 2002-03 77,09,505/- Disallowance of Interest 2002-03 6,43,738/- Withdrawal of claim u/s35D 2002-03 2,09,430/- 2. Gross profit @1% of sales 2003-04 46,29,878/- Disallowance of Interest 2003-04 22,33,128/- Withdrawal of claim u/s35D 2003-04 2,09,430/- 3. Gross profit @1% of sales 2004-05 57,18,060/- Disallowance of Interest 2004-05 8,30,821/- Disallowance u/s 14A 2004-05 4,000/- Withdrawal of claim u/s35D 2004-05 2,09,430/- 4. Gross profit @1% of sales 2005-06 16,95,239/- Disallowance of Interest 2005-06 1,85,597/- Disallowance u/s 14A 2005-06 2,000/- Withdrawal of claim u/s35D 2005-06 2,09,430/- 5. Withdrawal of claim u/s 35-D 2006-07 2,09,430/- Withdrawal of foreign Travel exp. 2006-07 3,00,000/- 6. Withdrawal of claim u/s 35-D 2007-08 2,09,430/- Total 2,52,08,546/- 2.4. Pursuant to the above disclosure, the ld. Assessing Officer initiated penalty proceeding u/s 271(1)(c) of the Act by issuance of show cause notice u/s 274 r.w.s. 271(1)(c) dated 31/12/2009 and 12/02/2010, asking the assessee, as to why penalty may not be imposed. The assessee in its reply explained as under: "....
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....y was not given any opportunity to cross examine Shri Krishna Kumar Gupta, Director of M/s Triton Infotech Pvt. Ltd. To prove the falsity of his statement that he had only issued accommodation bills. j) The Hon'ble CIT(A) has upheld the addition to the extent of only Rs. 11,20,0001- in place of Rs. 55,72,000/- vide order dated 19.11.2010. k) Even the addition of Rs. 11,20,0001- sustained by the CIT(A) is also on estimate basis. l) The assessee has filed appeal before the ITAT against the addition of Rs. 11,20,0001- sustained by the CIT(A). In these circumstances no penalty is leviable as held in the following cases:- i. CIT Vs Reliance petro Products Pvt. Ltd. 230 CTR 320 (SC) ii. National Textile V. CIT [2001] 249 ITR 125 (114 Taxman 203) (Guj.) iii. CIT Vs. Inden Bislers [1999] 240 ITR 943 (Mad) iv. CIT v. Mata Prasad [2005] 278 ITR 354 (All) v. Diip N.shroffvs. JCIT (2007) 291 ITR 519 (SC) vi. Hindustan Steel Ltd. V. State of Orissa, (1972) 83 ITR 26 (SC) Gross profit@ 1% of sales Rs. 16,95,239/-. Penalty u/s 271(1)(c) is not attracted on this surrendered income because of the following reasons:- a) The disclosure of additional income by way of 1% of sales was ma....
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....r disallowance on re- compute as directed by CIT(A), it would not amount of concealment of income or' furnishing of inaccurate particulars. On the question of levy of penalty u/s 271(1)(c), it has been held by the Hon'ble Supreme Court that merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the revenue, that by itself would not attract penalty u/s 271 (1)(c). In the light of the above submission and the various judicial decisions cited above, we humbly request your honour to kindly drop the penalty proceedings u/s 271(1)(c) of the I. T. Act." 2.5. Unsatisfied with the above reply of the assessee, the ld. Assessing Officer held that the assessee has committed default, therefore, the penalty is imposable and he levied the penalty as detailed in the respective penalty orders. 2.6. On appeal, before the ld. First Appellate Authority, the ld. Commissioner of Income tax (Appeals), considered the reply of the assessee for imposing penalty and placing reliance upon various judicial pronouncements deleted the penalty. The relevant portion of the order is reproduced hereunder for ready reference: "5.2. I have considered ....
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....t's purchases included purchase of Rs. 2,78,60,000/- from M/s. Triton lnfotech Pvt. Ltd. It has been observed in the assessment order that during the course of search and seizure operation the statement of Shri Krishna Kumar Gupta, Director of M/s. Triton Infotech Pvt. Ltd., was recorded in which he stated that actual sales has not been made to the assessee company by M/s. Triton Infotech Pvt. Ltd., but only they had issued accommodation bills. However, it was submitted by the appellant in course of assessment proceedings that payments were made to the said party through banking channels by cheque. It was further submitted that AO himself has confirmed that sales made by the assessee company were genuine as all the parties have confirmed the purchases from the assessee company. It was concluded by AO that since the sales were confirmed, the purchases have been made from grey market, thereby avoiding payment of sales tax and VAT, etc. As the grey market purchase price would be lower than' the billed purchase consideration, 20% of purchases of Rs. 2,78,60,000/- was disallowed on estimate basis which led to the addition of Rs. 52,92,001/- after allowing telescoping of the 1 % ....
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....urate particulars of income or concealed particulars of its income." d) In the case of assessee the addition is estimated by AO at Rs. 55,72,000/-. The Hon'ble CIT(A) has reduced the estimated addition to Rs. 11,20,0001- by giving substantial relief of Rs. 44,52,000/-. Applying the ratio of decision of the ITAT to the facts of the assessee, no penalty is leviable on estimation. e) Apart from this, the facts of the addition and the amount in question were not the income of the appellant. The addition was made on account of explanation given by the appellant having not been accepted on account of estimation. Therefore, the penalty is not leviable on such addition. f) Reliance is placed on the decision of CIT Vs Dhillon Rice Mills (2002) 256 ITR 447 (P&H) wherein it has been held that "the AO simply estimated the yield of super phak as well as of chillka and estimated the price of chillka and made the addition but that estimation will not lead to penalty." g) This disallowance has been made solely on the basis of the statement of Shri Krishna Kumar Gupta, Director of M/s. Triton Infotech Pvt. Ltd., who was not allowed to be cross examined. This statement of Shri Krishna Kumar ....
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....n, it is clear from the facts of the present case that during the course of search and seizure operation, documents were found and seized and it was noticed that the assessee company had made purchases from M/s. Triton Infotech Pvt. Ltd. Thestatement of Shri Krishna Kumar Gupta, Director of this company was recorded who has stated that no actual sales were made to the assessee company and only accommodation bills were issued. In the assessment order, the AO has held that the assessee has made purchases not from M/s. Triton Infotech Pvt. Ltd. but from the grey market to avoid payment of local taxes and to this extent the assessee had concealed income. The AO had made disallowance @ 20% but the CIT(A) has reduced this amount to Rs. 11,20,000/- on the basis of actual rate of local taxes. Although, the AO has made disallowance on estimated basis but the CIT(A) has restricted the addition on the basis of actual rate of taxes. Therefore, it is a clear case of concealment of income and penalty u/s. 271(1)(c) is leviable. The argument of the appellant that the AO has made disallowance on estimated basis, penalty is not leviable is not acceptable because in the appellate proceedings the CIT....
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....sure amounts. Although the AO has mentioned at the end of the assessment order that penalty u/s 271 (1)(c) r.w.s 274 of the I.T. Act is initiated separately, yet the said penalty notice cannot cover issues on which the AO has not recorded any specific satisfaction regarding concealment of income or furnishing of inaccurate particulars of income. Therefore, without any such satisfaction in course of assessment proceedings specifically on this surrendered income, the AO cannot levy penalty u/s 271 (1)(c) of I.T. Act in respect of these surrendered incomes". 7.2 I have considered the submissions and facts of the case. It is noticed that during the search and seizure operation, the assessee has declared an amount of Rs. 3,00,000/- on account of foreign travelling expenses because complete supporting documents were not available with the assessee. This amount was declared in the return filed in response to notice u/s. 153A and due taxes were paid. The AO has accepted this amount in the assessment order but penalty was initiated. During the penalty proceedings, the appellant has submitted that assessee has claimed foreign expenditure but due to non-availability of complete evidences it ....
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....cts available on record, penalty is not imposable when the quantum addition is on estimated basis. It is well established position of judicial precedence, where quantum addition is deleted, penalty cannot survive, because the basis on which penalty was imposed, after its deletion the base itself does not remain in existence. Our view is fortified, and the ratio laid down therein, by the following decisions, 1) K.C. Builders vs ACIT 265 ITR 562 (SC) 2) CIT vs S.P. Viz Construction Company 176 ITR 47 (Pat.) 3) Barkey Chacko vs CIT 203 ITR 885 (SC) 4) Addl. CIT vs. Chandrakanta & Others (205 ITR 602), 5) CIT vs. Krishnaswamy & Sons (219 ITR 157), 6) CIT vs. Chandra Silas Hotel (291 ITR 202) 7) A.M. Shah & Co. vs. CIT (238 ITR 415). 2.8. We are also of the view that, it cannot be said that finding given in the assessment proceedings for determining or computing the tax is conclusive. However, it is a good evidence, before penalty can be imposed, the entirety of circumstances must reasonably point to the conclusion that the disputed amount represent income and the assessee has consciously concealed the particulars of income or deliberately furnished inaccurate particulars, as wa....
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....e basis of some estimation ?" wherein, the Tribunal has found that the assessee had reported an expenditure of Rs. 70,000/- as the cost of construction of a factory building. That amount came to be debited in the assessee's books of account on 2-1-1971. The Income Tax Officer being of the opinion that the amount so shown, as a expenditure on the construction was on the lower side, obtained a report of the valuer and estimated the cost of construction. The Hon'ble High Court held that mere revision of income to a higher figure does not automatically warrant inference of concealment of income, consequently, it was held that penalty imposed u/s 271(1)(c) of the Act was not valid and thus deleting the penalty by the Tribunal was held to be justified. It is also noted that the ld. Commissioner of Income tax (Appeals), while examining the assessment order/penalty order has dealt with the disallowances/additions, individually/separately and after full analysis of the same came to a particular conclusion holding that the estimation was either not maintainable or towards higher side. It is not the case that the ld. Commissioner deleted the penalty without analyzing the facts and sud....
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....ntirely on estimated disallowance, which is not supported by any concrete material on record that the appellant had shown bogus purchases in the name of Triton Infotech Pvt. Ltd. The Hon'ble CIT(A) reduced the estimated disallowance to Rs. 11,20,000/- in place of disallowance of Rs. 55J2,000/- made by the AO. Such estimated addition is not subject to penalty u/s 271(1)(c) of the Act. . c) Reliance is placed on the decision of Purnima Devi Gupta (2004) 83 TTJ (Jodh), 586, 589, 590 wherein facts of the cases are as under:- "The assessee had shown gross receipts of Rs. 10,96,370/- from bus plying business which were estimated by the AO at Rs. 16,95,506/- and the AO determined the income of the assessee by applying net profit rate of 33 per cent. The action of the AO was confirmed by the CIT(A), however, the Tribunal estimated the gross receipts at Rs. 15,00,000/- and directed the AO to apply a net profit rate of 20 per cent subject to depreciation and interest to third parties. From the above facts it would be clear that there was an estimate at the level of the AO as well as at the level of Tribunal in respect of receipts as well as net profit rate. The above facts clearly show....
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....om sales parties which proves the genuineness of the purchases made by the assessee company from M/s. Triton Infotech Pvt. Ltd. h) The assessee company was not given any opportunity to cross examine Shri Krishna Kumar Gupta, Director of M/s. Triton Infotech Pvt. Ltd., to prove the falsity of his statement that he had only issued accommodation bills. i) The Hon'ble CIT (A) has upheld the addition to the extent of only Rs. 11,20,000/- in place of Rs. 55,72,000/- vide his order dated 19-11-2010. j) Even the addition of Rs. 11,20,000/- sustained by the CIT(A) is also on estimate basis. k) The appellant has also filed appeal before ITAT against the CIT(A)'s order sustaining this addition of Rs. 11,20,000/-. The appeal is pending before ITAT'." After considering the submissions of the assessee, the ld. Commissioner of Income tax (Appeals) upheld the levy of penalty on this count. The concluding portion of the order is reproduced hereunder for ready reference: 6.2 I have considered the submissions of the appellant and facts of the case. It is noticed that during the course of search, documents were found and seized. It was noticed that the assessee has made purchases fro....
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.... on this issue that on addition made on estimated basis penalty is leviable - Addl. CIT vs. Chandrakanta & Others (205 ITR 602), CIT vs. Krishnaswamy & Sons (219 ITR 157), CIT vs. Chandra Silas Hotel (291 ITR 202) and A.M. Shah & Co. vs. CIT (238 ITR 415). In view of these facts and circumstances and the decisions of Hon'ble Courts, it is held that the assessee has concealed income to the extent of Rs. 11,20,000/- and therefore, submitted inaccurate particulars of income and 'penalty levied by the AO is upheld." 4. We have considered the material available on record, reasons of imposing penalty, conclusion drawn in the impugned order and the assertions made by the ld. respective counsel. The crux of argument on behalf of the assessee is the even the addition of Rs. 11,20,000/-, sustained by the ld. Commissioner of Income tax (Appeals), is on estimate basis and further the assessee was not given opportunity to cross examine Shri K.K. Gupta, Director of M/s Triton Infotech Pvt. Ltd, to prove the falsity of the statement that he had issued only accommodation bills. It was pleaded that on the other hand, the Assessing Officer assumed that sales made by the assessee are genuine....