TaxTMI 
TaxTMI 
2022 (3) TMI 17
X X X X Extracts X X X X
X X X X Extracts X X X X
....mstances of the case, the ld. CIT(A) has erred in confirming the penalty of Rs. 2,65,630/- u/s 271(1)(c) of the Income Tax Act, 1961 imposed by the ld. A.O. 4. The assessee craves your indulgence to add, amend or alter all or any grounds of appeal before or at the time of hearing." 2. The hearing of the appeal was concluded through video conference in view of the prevailing situation of Covid-19 Pandemic. 3. The brief facts of the case are that the assessee is an individual and proprietor of M/s Molto Bello Gems Enterprises and is engaged in the business of trading of diamond studded silver and gold jewellery. The assessee filed return of income declaring income of Rs. 6,39,190/- on 30.09.2012. The A.O. completed assessment u/s 143(3) of the Income Tax Act, 1961 (in short, the Act) on 30/03/2016 determining total income at Rs. 49,90,425/- inter-alia making the addition of Rs. 11,12,645/- on account of alleged bogus purchases @ 25% on total purchase of Rs. 44,50,581/- and addition of Rs. 32,38,590/- u/s 41(1) of the Act on account of cessation of liability of trade creditors. Thereafter, the A.O. initiated penalty proceedings U/s 271(1)(c) of the Act and imposed the p....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... for furnishing inaccurate particulars of income. In the case of the assessee the Learned Assessing Officer has not done so. In view of this the very initiation of penalty proceedings is vitiated. Accordingly the levy of penalty was not justified. On similar grounds the Hon'ble ITAT Banglore following the decision of Karanataka High Court cited above as deleted penalty in the case of H. Lakshminarayana vs. ITO (2015) 41 ITR 465 order dated 03.07.2015. The Hon'ble Tribunal deleted the penalty on the sole ground that the show cause notice was defective as it did not spell out specifically the ground on which the penalty was sought to be imposed. The Hon'ble Tribunal further held that such defect was not curable u/s 292BB. In view of these facts the penalty in the case of the assessee also deserves to be deleted. (iii) It is further submitted that the Karnataka High Court has specifically held that in the case of CIT vs. Manjunath Cotton and Ginning Factory 359 ITR 565 that the assessee should know the grounds which he has to meet specifically otherwise the principles of natural justified are offended. On the basis of such notice no penalty could be imposed. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....arious decision of Gujarat High Court and other the Learned CIT(A) has applied the GP rate of 16% as against 15.23% declared by the assessee to estimate the income of the assessee. The learned CIT(A) has not given any specific finding in this regard. He has only mentioned that to plug to leakage of the revenue and in the interest of justice he applied 16% GP rate in the given circumstances. Therefore it is a case of estimation only where the learned AO has estimated the profit and these estimates were further reduced by learned CIT(A). There is no specific finding with regard to the concealment of income. There are number of cases of jurisdiction high court as well as Jurisdictional ITAT. (3) No penalty can be levied on disallowance made alleging unverifiable purchases (Jurisdictional High Court of Rajasthan)- In the case of CIT Vs. Malpani House of Stones order dated 01/03/2017 in ITA no. 341 of 2005 it has been held that on the basis of bogus purchases/enhancement of GP rate and the addition was made in quantum proceedings cannot be made basis for levy of penalty u/s 271(1)(c) of the IT Act, 1961. Copy of High Court order is enclosed herewith. In other ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....racted only when the assessee has concealed his income. When two opinions are possible, adopting one of them can scarcely be viewed as malafide, with intent to evade the payment of income tax. (v) Penalty cannot be levied only estimated addition and reliance is placed on the following decisions: - 1. CIT Vs. S. Rahamat Khan Birbal Khan Badruddin & Party, 240 ITR 778 (Raj.) 2. ACTT Vs. Bansiwala Iron & Steel Re-rolling Mills, 21 TW 533 (JP) 3. CIT Vs. Subhash Trading Co., 221 ITR 110 (Guj.) 4. Harigopal Singh Vs. CIT, 258 ITR 85 (P&H) 5. ACTT Vs. Gan Pat Lal Goyal, 32 TW 91 (JP) In view of the aforesaid facts it is a case most justified for deletion of the penalty. Addition sustained of 5,90,320/- out of Rs. 32,38,590/- (5) The second addition sustained by the learned CIT(A) on account of this addition by mentioning following - I have considered the above mentioned facts of the case. It has been found that Rs. 26,48,270/- out of Rs. 32,38,590/- were paid through banking channels and only an amount of Rs. 5,90,320/- were paid in cash and can be termed as doubtful to that extent. Therefo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....orted by the assessee does not by itself lead to the inference that there had been concealment - CIT VS. K.R. Chinni Krishna Chetty (2000) 246 ITR 121 (Mad.) 7. No concealment of any fact/ income - penalty not leviable It is humbly submitted that it is a case where the assessee has disclosed all the material facts for the purposes of assessment. The Learned Assessing Officer has applied the provision of section 145(3) merely on ground of non maintenance of stock register or kachha bills. Kachha bills are subject to verification. However despite this the Learned Assessing Officer rejected the books of account and applied GP rate of 10%. The Learned Assessing Officer has failed to point out in the assessment order any item of income which was concealed by the assessee. The Learned Assessing Officer himself has resorted to estimate for making addition. Thus this is not a case where there was any specific item of income which is concealed by the applicant. In the circumstances penalty is not leviable. Supreme Court decision is quoted below for support - Dilip N-Shroff Vs. Jt. CIT (2007) 161 Taxman 218/291 ITR 519 (SC) Primary burden of proof is on re....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... imposed merely because the 'A' agreed to be assessed on a particular income. The decision of the apex court was based on the provisions as they were originally enacted. The view taken by the division bench in the case of Dilip N. Shroff was doubted and overruled in UOI-v-Dharmendra Textiles Processors 306 ITR 277 SC by holding that-penalty under the above provision is a civil liability and therefore willful concealment is not an essential ingredient for attracting the civil liability. It was pointed out that the division bench in the case of Dilip N Shroff failed to notice conceptual and contextual difference between sec 271(1)(c); and sec 271C. Further, it approved the other decision of the division bench in the case of Chairman SEBI (2006) 55CC 361. It is pertinent to note that the decisions rendered earlier in the cases: Anwar Ali, Hindustan Steels and Ananthram Veerasinghiah were also rendered by the benches of three judges. In all these cases it was clearly held that proceedings under section 271(1)(c) are quasi criminal in nature. However, if such onus is discharged then assessee would be out of the mischief of the Explanation unless the de....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... difference between criminal liability u/s 276C and penalty u/s 271(1)(c) must be kept in mind. The concept of penalty has not been changed by the said decision. Penalty is imposed only when there is some element of deliberate default and not when there is merely a mistake or bona fide claim. Considering the above case laws it is clear that the explanation offered by the assessee was possible one which were rejected by the revenue authorities without assigning any reason or without examining the evidences submitted by the assessee. The Learned Assessing Officer has not proved any mens rea of the assessee in this regard. Therefore penalty is not leviable under the given circumstances and facts of the case of the assessee." In view of the above facts and circumstances your honor is requested to delete the penalty and oblige." 7. On the contrary, the ld. DR has vehemently supported the orders of the lower authorities. 8. We have considered the rival contentions and carefully perused the material placed on record. As per facts of the present case, we noticed that the A.O. made addition of Rs. 11,12,645/- on account of bogus purchases @ 25% on total purchase of R....
X X X X Extracts X X X X
X X X X Extracts X X X X
....timate". In the case of CIT V. P.H.I. Seeds India Ltd. 159 Taxman 9 (Delhi) wherein it has been held that "the Act does envisage or explicitly provide that in every case where return is not accepted as correct and assessment is framed at a higher income than that presented, penalty proceedings u/s 271 (1)(c) must be initiated. Section 271(1)(c) is attracted only when the assessee has concealed his income. When two opinions are possible, adopting one of them can scarcely be viewed as malafide, with intent to evade the payment of income tax." 9. Considering the totality of facts and circumstances of the case, we found merit in the contention raised by the ld. AR and no new facts and circumstances has been put forth by the ld. DR to controvert or rebut the contentions made by the ld. AR, therefore, we direct to delete the penalty. 10. The second issue with regard sustenance of addition U/s 41(1) of the Act on account of cessation of liability of trade creditors by treating the payments as doubtful, we observed that the cash payment amount of Rs. 5,90,320/- was sustained by the ld. CIT(A). In this count the ld. CIT(A) has not given any specific finding with regard to the concealm....
X X X X Extracts X X X X
X X X X Extracts X X X X
....viable. In this regard, we draw strength from the decision of the Hon'ble Supreme Court in the case of Dilip N-Shroff Vs. Jt. CIT (2007) 161 Taxman 218/291 ITR 519 (SC) wherein it has been held that "Primary burden of proof is on revenue; even when burden is required to be discharged by an assessee, it would not be as heavy as in prosecution cases; before a penalty can be imposed, the entirety of circumstances must reasonably point to conclusion that disputed amount represented income and that assessee had consciously concealed the particular of his income or had furnished inaccurate particulars thereof (Assessment Year 1998-99)." From the above, it can be seen that the facts of the case disclosed that in this case addition was made purely on account of estimate. No penalty is warranted on addition sustained on estimate basis. It is a case where the explanation of the assessee has been rejected. The assessee fully explained why income was not disclosed at the time of return filing. The addition has been made by rejecting a plausible explanation. It is settled position of law that no penalty is leviable where additions have been made by rejecting the explanation of the assessee. The....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s is discharged then assessee would be out of the mischief of the Explanation unless the deptt is able to establish afresh that assessee had in fact concealed the particulars or furnished inaccurate particulars of income. This view has been approved by the Apex Court in Musadilal Ram Bharose 165 ITR 14 SC, CIT-v-K.R.Sadayappan 185 ITR 49 SC and in Chuharmal 172 ITR 250 SC. 12. At this stage, it would be appropriate to refer the latest decision of SC in the case of Dharmendra Textiles (supra) wherein it has been held-(i) the Explanations appended to section 271(1)(c) indicate the element of strict liability,(ii) the object behind the enactment shows that it provides for remedy for loss of revenue,(iii)that penalty under the section is civil liability,(iv)willful concealment is not an essential ingredient for attracting penalty (v) no discretion with the authority imposing penalty. Hence, revenue is not required to prove the element of mens rea on the part of assessee. This decision was understood to mean that levy of penalty is automatic. The above decision has been explained by the SC in subsequent decision in the case of UOI-v- Rajasthan Spg & Wyg Mills 224 CTR 1 SC wherein it ....