AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2019 (3) TMI 1459
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....he assessee for AY 2006-07. The grounds of appeal raised by assessee in memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called "the tribunal") in ITA No. 6246/Mum/2017 for AY 2006-07 , read as under:- "1. On the facts and in the circumstances of the case and in law, the learned CIT (Appeals) has erred in sustaining penalty of Rs. 81,387/- levied by the Assessing Officer under section 271(1)(c) of the Act for the assessment year 2006-07. 1. On the facts and in the circumstances of the case and in law, the learned CIT (Appeals) has erred in not following the decision of the Karnataka High Court in CIT v. Manjunatha Cotton & Ginning Factory 359 ITR 565 which was later followed by the same court in CIT v. SSA's Emerald Meadows (ITA No. 380 of 2015) against which Special Leave Petition filed by the Revenue before the Supreme Court was dismissed by the Hon'ble Court finding no merits in the case. Further, Bombay High Court has followed the ratio of the same judgment in CIT v. Shri Samson Perinchery (ITA No. 1154 of 2004 Order dated 5th January, 2017)." 3. The brief facts of the case are that the assessee is doing business in dairy products. A s....
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....mit the quantitative details of purchase of milk in litre of A.Y. 2006-07 and 2007-08 alongwith quantitative details of all your products in litre/kgms. Ans. I shall submit the details of purchase of milk at the earliest. I shall submit the sales register details at the earliest. Q. No. 12: It Is once again requested that you should provide quantitative details of milk and quantitative details of sales? Ans. We shall provide you all the details and prior to that we shall shown you all the registers and we shall give you details on your guidance." 4.2. The assessee did not produce books of accounts and vouchers before the Investigation Wing of the Revenue. Sale voucher of milk sale were not found during the survey at the assessee's premises or at various outlets of the assessee . Thus, the AO was of the prima-facie view that claim of the assessee that it is selling milk was found to be not correct and sale of milk is not proved. The assessee was asked by the AO to explain the same during the course of assessment proceedings conducted by the AO u/s 153A read with Section 143(3) of the 1961 Act. The assessee claimed that it is dealing in milk and milk products and its factory prem....
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.... thereof for sale of milk was received by cheque from these parties, which was duly accounted for in the books of accounts. It was also claimed that in financial year 2007-08 , sale of milk was made in the name of Asian Chemist Prop., Godrej Nature Basket-Kandivili, Kailash Parbat, Nanda Distributors, R.K. Shashank Diary and the amount was received in cash, which is duly accounted for in books of accounts. The assessee also submitted complete analysis of milk wherein it also included cash sales made by it for all these years. The clarificatory statements of employees were also submitted by the assessee who earlier gave statements before the Revenue, wherein they clarified now that the assessee was also selling milk in early morning prior to opening of sales outlet and the said sales were directly accounted for by the factory. The AO had disbelieved the whole story of selling of milk as set out by the assessee and books of accounts were rejected by the AO u/s. 145(3) and it was held by the AO that the assessee has shown bogus sale of milk in its books of accounts in order to suppress production and sale of various milk products namely paneer , which led to suppression of profits and....
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....ontentions of the assessee and accepted that the assessee was engaged in the business of sale of milk in ITA no. 7965/Mum/2010 , order dated 11.06.2015, mainly on the grounds that for this impugned assessment year 2008-09, the assessee has duly submitted the relevant records/evidences before the authorities below with respect to sale of milk. The assessee for AY 2008-09 produced registers and books of accounts which gave entire details of day to day purchases, production/consumption and sales before all the authorities including tribunal. It was also observed by tribunal while adjudicating appeal for AY 2008-09 that the AO has itself accepted sale of milk by the assessee for AY 2009-10 and 2010-11. Thus since factual matrix in the assessment year 2008-09 was different than in the assessment year 2006-07 and 2007-08. The tribunal held that principal of res -judicata are not applicable and relief was granted to the assessee. 7. The AO for the impugned assessment year invoked penalty provisions as are contained in Section 271(1)(c) of the 1961 Act and levied penalty of Rs. 81,387/- on the assessee vide penalty order dated 29.03.2012 passed by the AO u/s 271(1)(c) of the 1961 Act , by....
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....able to substantiate the entries made in the books of accounts. These entries relating to sale of milk were apparently made to reflect a lower profit, as sale of Paneer would yield a higher profit. ii) The decision of CIT Vs Metal Products of India 150 ITR 714(P&H) was delivered in favour of the assessee because, it was held by the Hon'ble Tribunal that the assessee has discharged the onus to produce books of accounts and the Dividend income was not accounted for, as it was assumed by the Firm, that the same is taxable in the hands of the Partners. In the present case the assessee has not been able to substantiate the entries made in the books of accounts. Therefore, this case law is also not applicable to the assessee's case. iii) The decision of CIT Vs Ajay Hari Dalmiya 157 1TR 145 (DEL) relates to a case, where penalty was deleted in appeal, because no proper opportunity of being heard was provided to the assessee. This case law is also not applicable here, as proper opportunely of being heard has been given to the assessee. iv)The case cited at 114 1TR 586 (Mad) pertains to section 28(1)(c) of the Indian Income Tax Act, 1922. On the other hand, the same high court of....
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....hich was dismissed, there is no merit in this contention and the ground is dismissed. 7. The second ground of appeal is on merits of the penalty levied. During the appellate proceedings, the appellant contended that during the assessment proceedings, computerized books of accounts were produced for verification and no defect was found relating to books of accounts. The AO has only estimated the difference in gross profit percentage on sale of milk products and gross profit percentage of sale of milk which works out to 27%. For this computation, the total purchase and sales has been adopted as per books of accounts. No expenses have been expressly disallowed. The correctness and completeness of books of accounts has not been questioned. The inference that there is no milk sales was purely based on the statements made by salesmen who however were not concerned with the sale of milk. The statement recorded U/S.133A does not empower any Income Tax Authority to examine any person on oath and such statements have no evidentiary value. Regarding the conclusion of the A.O. that the books of accounts were not produced before the Investigation Wing, it was submitted that computerized books....
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....ppellant. Attention was invited to the observations of the Hon'ble ITAT in its order for A.Y.2008-09 where it was observed that the AO should have carried out the necessary enquiry for such buyers of milk which was not done. 8. In the course of appellate proceedings, the appellant was asked to file the status of appeal filed against the Hon'ble ITAT order for A.Ys. 2006-07 and 2007-08. The appellant filed the copy of the order Hon'ble Bombay High Court in ITA Nos.950 and 951 of 2014 dated 13.12.2016. A perusal of this High Court decision shows that the appellant had framed the following 2 Questions of Law:- "1. Whether on the facts and in the circumstance of the case and in law, the Tribunal is right in maintaining rejection of books of account u/s. 145(3) of the Act for A.Ys.2006-07 and 2007-08 ? 2. Whether on the facts and in the circumstances of the case and in law, the Tribunal is correct in approving gross profit addition Rs. 12,15,244/- for A.Y.2006-07 and Rs.l6,11,580/-for A.Y.2007-08 ?" In their decision, the Hon'ble Bombay High Court noted that the it was not the case of the appellant that it was not possible to maintain production register. The rejection....
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....ion is on the basis of material on record and also statements made by the employees and director during the search and survey proceedings. Such an estimation is not perverse or wild. The appeal of appellant for A.Ys.2006-07 and 2007-08 was thus dismissed by the Hon'ble High Court. 9. A perusal of the Hon'ble ITAT Order for A.Y.2008-09 in ITA No,7965/Mum/2010 dated 11.06.2015 shows that the Authorised Representative admitted before the Bench that the ITAT had decided against the appellant in A.Ys.2006-07 and 2007-08. The Authorised Representative itself had pointed out that unlike in earlier year, in A,Y.2008-09, the assessee had not only produced the entire books of accounts and details but also the stock register, which gives the complete details of purchase of milk, milk processed for milk products, consumption of milk products and sale of milk not only quantity wise but also value wise (Page 8 of the ITAT order). Thus the appellant argued that the facts for the A.Y.2008-09 were different. The stock register produced showed the production, consumption and sales. In para 14 of the order, the Hon'ble ITAT has discussed in some detail the stock register produced before ....
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....ronic form on Tally at mezzanine floor of registered office of the company (reference was made on Page 3 reproducing the submissions made by the assessee before the Hon'ble ITAT in its order dated 03.07.2014). The Survey Team did not extract the accounts from the computer, the production records were maintained on loose sheets and were not considered as books of account by the AO. ii- Evidence regarding sale of milk:- Reference was made to the last para on Page 17 of the ITAT's order for A.Y.2008-09 and on Page 22 of the same ITAT order for A.Y.2008-09 to claim that there were clinching evidence in the shape of invoices made to parties to whom goods were sold on credit and account payee cheques received. iii. Reliance on statement recorded of employees:- Heavy reliance has been placed on statement recorded of employees who were not concerned with the sale of milk. Sale of milk takes in the earlier hours of the morning at 6.00 a.m. at the factory site. No sale of milk can ever took place at 8.30 a.m. when the retail outlets open. Statements of employees were subsequently retracted as appearing on Pages 83 and 103 of the Paper Book. Statement recorded in survey operation has ....
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....lk in cash of 800 to 1200 litres of milk. As much as 235680 litres are claimed as sales of milk during the year amounting to Rs. 5235661/- Only 1590 litres sales is claimed to made to parties who are named as instances where invoice was presented before the assessing officer. Balance sales are in cash for which no verifiable details are available. The sales is through casual non-permanent employees. Thus, the veracity of contentions of appellant cannot be verified. Vouchers are not prepared. The purchase of milk during the year is reported to be 803980 litres. If the appellant's explanation is accepted it means that as much as 30% of purchases are substandard. It is clear that these are after thoughts and were not shown with evidence at the time of search and survey action. The appellant's business is to manufacture and sell its dairy products through its various outlets. Appellant is now stating that it tests the milk received and that which is not fit for manufacturing dairy products, is sold as milk in retail. It has not given any evidence as to when testing is done nor shown any test reports. If the testing is done in the morning sales will not take place before 830 am.....
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.... of CIT v Samson Perincherry 392 ITR 4 (Bom) in support of the contention. 17. It is noted that in the case of CIT vs Samson Perincherry the penalty was initiated for furnishing of inaccurate particulars of income whereas the penalty was levied for concealment of income. The Hon'ble Tribunal had relied upon the extract of the decision of the Hon'ble High Court of Karnataka in the case of CIT vs Manjunatha Cotton and Ginning Factory. The penalty in such facts was upheld. 18. In the recent decision dated 2.5.2017 in the case of Earthmoving Equipment Service Corporation vs DCIT, ITA No. 6617/Mum/2014 reported in (2017) 50 CCH 0099 Mum Trib the Hon'ble Mumbai ITAT though has deleted the penalty on merits, the contention raised by the appellant that the relevant clause was not appropriately marked in the notice issued u/s 274 and reliance placed on decision in the case of CIT vs Manjunatha Cotton and Ginning Factory was dismissed as follows. "6. We have heard the rival contentions and perused the relevant material on record including cited case laws. So far as the legal grounds are concerned, a perusa! of quantum order reveals that the penalty was initiated for furnishing of inac....
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....raised are rejected." 19. Now in the case before me, the penalty has been levied for furnishing inaccurate particulars of income. The appellant has vehemently contested the levy of penalty in the penalty proceedings. There is no evidence shown that the appellant had any difficulty in representing its case and has suffered on account of any lack of clarity as to the charge. 20. In the case of K.P. MADHUSUDHANAN vs. COMMISSIONER OF INCOME TAX reported in (2001) 251 ITR 0099, the Apex Court held that "The Explanation to s. 271(1)(c) is a part of s. 271. When the ITO or the AAC issues to an assessee a notice under s. 271, he makes the assessee aware that the provisions thereof are to be used against him. These provisions include the Explanation. By reason of the Explanation, where the total income returned by the assessee is less than 80 per cent of the total income assessed under s. 143 or 144 or 147, reduced to the extent therein provided, the assessee is deemed to have concealed the particulars of his income or furnished inaccurate particulars thereof, unless he proves that the failure to return the correct income did not arise from any fraud or neglect on his part. The assessee....
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....lty levied by the AO u/s 271(1)(c) of the 1961 Act both on merits and on legal grounds, vide appellate order dated. 22.08.2017. 9. Aggrieved by the appellate order dated 22.08.2017 passed by learned CIT(A) , the assessee has now filed an appeal with tribunal. The contentions are raised by learned counsel for the assessee that assessee was dealing in milk and milk products. It was submitted that there was search & seizure operations conducted by Revenue on 08.05.2007. It was submitted that survey action u/s 133A was also conducted by Revenue simultaneously on 08.05.2007. It was submitted that the additions to the income was made in assessment framed by the AO on estimated basis wherein the income to the tune of 14.13 lacs was added on estimated basis as undisclosed income on account of alleged bogus sale of milk as the sale of milk as per the AO remained unproved , which was reduced by learned CIT(A) owing to computational error made by the AO. It was submitted that Gross Profit rate of milk product was applied to the sale of milk declared by the assessee to estimate higher profits. It was claimed that the assessee has declared sale of milk in its books of accounts and offered inco....
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.... Singh Bajaj, Director made the statement u/s 131 on 08.05.2007 before the survey team that books of accounts were maintained in electronic form in tally software and are available in the mezzanine floor at Registered Office in the statement recorded u/s 131 during the course of survey action u/s. 133A on 08.05.2007 which is placed in paper book at page no. 73 onwards (Page no. 75/paper book). It was also submitted that quantum additions were made on the grounds that no documentary evidences were available regarding sale of milk during the course of search and survey operations. Our attention was drawn to assessment order passed by the AO u/s 143(3) read with Section 153A, dated 29.12.2009. It was submitted that complete details were furnished during assessment proceedings including production of books of accounts and stock registers . It is also submitted that additions were made on the basis of statement's of salesmen which were recorded by Revenue, wherein these sales personnel averred that no milk is sold from the sales outlets, which is the third reason for disbelieving the sales of milk. It is claimed that the said salesmen later clarified by filing a letter before the AO tha....
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....l matrix prevailing in that year as the assessee produced production records along with stock records and books of accounts before all the authorities in AY 2008-09 but for instant year under consideration, the assessee failed to prove sale of milk and the tribunal has upheld the appellate order of learned CIT(A) that the assessee has failed to prove sale of milk. It was contended that even Hon'ble Bombay High Court has dismissed the appeal of the assessee for the impugned assessment year by holding that no substantial question of law arose from the order of the tribunal. So far as legal grounds are concerned regarding non striking of the relevant clause in a notice issued u/s. 274 r.w.s. 271(1)(c) of the 1961 Act, it was submitted that non striking of notice is a procedural aspect and the entire proceeding cannot be vitiated mainly on the reasons that the relevant clause is not struck off in the notice issued u/s. 274 r.w.s. 271(1)(c) of the Act. Reliance was placed on the decision of the Hon'ble Bombay High Court in the case of CIT v. Smt. Kaushlya (1995) 2016 ITR 660 ,decision of Hon'ble Bombay High Court in the case of Maharaj Garage & Co. v. CIT (2018) 400 ITR 292(Bom.) , deci....
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.... the books of accounts maintained at factory . Our attention was drawn to page no. 145-174 of the paper book wherein detail of purchase of milk , sale of milk and analysis of sale and purchase of milk is placed which it is claimed was duly submitted before the authorities below. It was submitted the purchase of milk was not rejected by the AO. It was submitted that there is no justification for estimating profit of the assessee without bringing on record any incriminating material. It was submitted that ITAT in AY 2008-09 in assessee's own case vide orders dated 11.06.2015 in ITA no. 7965/Mum/2010 has duly accepted the contentions of the assessee that it is selling milk apart from selling milk products. It was claimed that the AO has itself accepted in AY 2009-10 and 2010-11 that the assessee is engaged in selling milk as well milk products. It was also submitted that the decision of Hon'ble Tribunal in the case Mahesh M. Gandhi(supra) and Trishul Enterprises(supra) are old orders while in the latest orders in the case of Orbit Enterprises(supra), the penalty u/s 271(1)(c) was deleted on legal ground that notice u/s 271(1)(c) read with Section 274 was not properly struck off as to ....
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.... difficult to maintain such registers and so I do not maintain such registers. Q. No. 10: Please give details of all your dairy products and since your principal raw material is milk, please give details of yield ratio of each products vis-a-vis 1 litre of milk? Ans. We make all dairy products i.e. paneer, cream, mawa, ghee, Lassi and butter milk, shrikhand etc.. The yielding ratio cannot be ascertained as the clarification of these have been stated in earlier answers. Q. No. 11: Please submit the quantitative details of purchase of milk in litre of A.Y. 2006-07 and 2007-08 alongwith quantitative details of all your products in litre/kgms. Ans. I shall submit the details of purchase of milk at the earliest. I shall submit the sales register details at the earliest. Q. No. 12: It Is once again requested that you should provide quantitative details of milk and quantitative details of sales? Ans. We shall provide you all the details and prior to that we shall shown you all the registers and we shall give you details on your guidance." The assessee did not produce books of accounts and vouchers before the Investigation wing of the Revenue. Sale voucher of milk sale were not foun....
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....not selling milk which remained unproved. The tribunal also disbelieved the theory as set out by the assessee of selling milk. The tribunal sustained the additions in quantum appeal wherein appeal of the assessee stood dismissed in ITA no. 7963 & 7964/Mum/2010 for AY 2006-07 & 2007-08 respectively, vide common order dated 22.01.2014, by holding as under:- "13. Ground no.4 relates to merits of addition of Rs. 12,15,244/- confirmed by the CIT (A) as per the estimations discussed above. We have already extracted the finding of the AO as well as the CIT (A) in the preceding paragraphs of this order. So far as, we have not only upheld the validity of the search assessment but also confirmed the act of rejection of books of accounts. Once the books of accounts are rejected under the provisions of section 145(3) of the Act, best judgment' assessment becomes a follow up activity of the AO. In this case, AO has made certain errors while making additions which are subsequently corrected by the CIT (A), determining the GP at 23.23%. 14. This is a case where allegation of use of milk for dairy products was not substantiated, by the fact that there is no sale of milk as evidenced by way of fi....
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....d Consumption. Thus the view to reject books of account for the Assessment Years 200607 and 200708 is a possible view on facts. Therefore it cannot be said to be perverse and/or arbitrary. (j) In the above view, Question No.(1) does not give rise to a substantial question of law. Thus, not entertained. **** **** (g) In the above view,we find that the view taken by th authorities under the Act is a possible view, Therefore, the Question No. 2 as formulated, does not give rise to any substantial question of law. Thus, not entertained. 6. Accordingly, both Appeals dismissed . No order as to costs." The assessee has however consistently maintained that it is also selling milk. The statements of various staff members who were engaged in sales were also recorded by revenue during search and survey operations wherein these sales personnel averred in their statement before Revenue that the assessee is not selling milk through these outlets. However , undisputedly these outlets were found to be selling milk product. The assessee claimed that direct sales of bulk quantities of milk were made wherein suppliers are instructed to supply directly milk to the buyers. It was also claimed tha....
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....g at 6AM through casual workers prior to opening of sales outlet at 8.30AM and the said sales were directly accounted for by the factory. The AO has not made any investigations as to the installed capacity of the factory for processing of milk and production of milk products vis-a-vis processing of milk and production of milk products reflected in books of accounts. No discrepancies in the stock of milk and milk product as maintained at factory and/or sales outlet has been brought on record by the AO. The clarificatory statements of the sales personnel given before the AO clarifying their statements recorded on 08.05.2007 that sales of milk took place at 6AM from outlets before the sales outlet open at 8.30 AM through casual labours were rejected by the AO. However, the AO did not re-examine these sales personnel's who retracted their original statements vide clarificatory letter. The AO did not recorded statements of production personnel who were engaged in processing milk and producing milk products to unearth truth. The assessee has also claimed that sale of milk was also made directly from factory in bulk wherein the suppliers were directed to sell to the buyers. It is also cla....
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....he AO in quantum assessment based on preponderance of probabilities which was upheld upto by Hon'ble Bombay High Court is no-doubt a justifiable view so far as quantum additions are concerned but to fasten liability to penalty u/s 271(1)(c) which albeit is a civil liability stands on higher pedestal and requires cogent evidences of furnishing of inaccurate particulars of income or for concealment of particulars of income which in-fact was not brought on record by the AO to justify levy of penalty u/s 271(1)(c). Hon'ble Bombay High Court while adjudicating appeal u/s 260A filed by the assessee for AY 2006-07 has held that no substantial question of law arises as the view adopted by authorities below is one of the plausible view and cannot be termed as perverse view. Merely because quantum additions are upheld by appellate authorities as one of the possible view will not automatically lead to levying of penalty u/s 271(1)(c) is a well settled position of law and the AO ought to have brought on record cogent incriminating material to show that the assessee had infact furnished inaccurate particulars of income or had concealed its particulars of income in the return of income filed wit....