Income Tax Appellate Tribunal - Ahmedabad
Shikhar Yarns Pvt.Ltd.,, Surat vs Department Of Income Tax on 25 July, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD '' C " BENCH - AHMEDABAD
Before Shri R. P. Tolani, JM, & Shri Manish Borad, AM.
ITA No.1503/Ahd/2012
Asst. Year: 2001-02
Income-tax Officer, Ward - Vs. Shikhar Yarns Pvt. Ltd.,
4(2), Surat. 2nd floor, Amarship
Apartment, Nanpura,
Surat.
Appellant Respondent
PAN AADCS3951N
Appellant by Shri Prasoon Kabra, Sr.DR
Respondent by None
Date of hearing: 19/7/2016
Date of pronouncement: 25/7/2016
ORDER
PER Manish Borad, Accountant Member.
This appeal of Revenue is directed against the order of ld. CIT(A)-IV, Surat, dated 27.03.2012 passed against order u/s 154 of the IT Act, 1961 (in short the Act) on 04/02/2010 by ITO, Ward-4(2), Surat, for Asst. Year 2001-02.
2. None is appearing on behalf of the respondent since the date of first hearing of appeal i.e. 6.9.2012 and, therefore, this appeal has been heard on the basis of submissions made by ld. DR and available records in the file.
ITA No. 1503/Ahd/2012 2Asst. Year 2001-02
3. Grounds of appeal raised in this appeal are as under :-
1. As per the facts and circumstances of the case and in law, the Ld.CIT(A) has grossly erred in interpreting the order of the Ld. CIT(A) bearing No. CAS-III/16/2009-10 dated 10,08.2009 and directed to the A.O.to cancel the penalty of Rs.25,78,504/- levied u/s.271(l)(c) of the IT Act.
2. As per the facts and circumstances of the case arid in law, the Ld.CIT(A) has erred and directed to cancel the penalty of Rs,25,78,504/- levied u/s.271(1)© of the I.T. Act, on concealment of income of Rs.65/19/606/- which was sustained by the CIT(A)-IV, Surat in his appeal order dated 15.01.2008,
3. On the. facts and in the circumstances of the case and in law, the CIT(AJ-
IV, Surat ought to have upheld at least the order of the Assessing Officer.
4. It is, therefore, prayed that the order of the CIT(A)-IV, Surat may be set aside and that of the Assessing Officer's order may be restored.
4. Briefly stated facts of the case are that the assessee is a limited company. Return of income for Asst. Year 2001-02 was filed on 31.10.2001 declaring business loss of Rs.64,89,606/-. Case was processed u/s 143(1) of the Act accepting the returned loss. Thereafter, proceedings u/s 147 of the Act were initiated and during the course of re-assessment proceedings assessee could not produce any details as computer hard disc in which the accounts of the company have been stored got corrupted and the hard copy of the books of accounts and vouchers of the company have also been destroyed by the termites. As a result, re-assessment was completed by estimating net profit @ 5% at Rs.3,40,274/- on the total turnover of Rs.64,89,606/- and addition of Rs.30,000/- towards unexplained cash credit. Penalty proceedings u/s. 271(1)(c) of the Act were initiated. Quantum appeal was filed by assessee on 25.1.2007 but later on withdrawn vide letter dated 28.11.2007.
ITA No. 1503/Ahd/2012 3Asst. Year 2001-02
5. Thereafter ld. Assessing Officer initiated penalty proceedings and passed order u/s 271(1)(c) of the Act on 24.3.2009 and levied penalty of Rs.27.12.082/-.
6. Aggrieved, assessee preferred appeal before ld. CIT(A) against the penalty order u/s 271(1)(c) of the Act and the same was partly allowed. Pursuant to appeal effect by ld. Assessing Officer there arose a dispute as regards the relief given by ld. CIT(A). As per assessee penalty u/s 271(1)(c) of the Act was sustained only with regard to addition on unexplained cash credit of Rs.30,000/- whereas ld. Assessing Officer while giving effect was of the view that ld. CIT(A) has only deleted the penalty relating to addition of Rs. 3,40,274/- and has sustained the penalty on explained cash credit of Rs.30,000/- and disallowance of loss of Rs.64,89,606/-. Due to this reason assessee filed an application u/s 154 of the Act for rectification of the order giving appeal effect. Ld. Assessing Officer did not make any change in the impugned order and rejected the application of assessee u/s 154 of the Act by passing an order on 4.2.2010 u/s 154 of the Act.
7. Assessee thereafter preferred an appeal against the order u/s 154 of the Act and got succeeded and penalty u/s 271(1)(c) of the Act was sustained only on the unexplained cash credit.
8. Aggrieved, Revenue is now in appeal before the Tribunal.
ITA No. 1503/Ahd/2012 4Asst. Year 2001-02
9. Ld. DR supported the order of ld. Assessing Officer.
10. We have heard the contentions of ld. DR and perused the material on record. Revenue is aggrieved with the order of ld. CIT(A) passed u/s 154 of the Act giving relief to the assessee of sustained penalty only to the extent of unexplained cash credit. We observe that in the original return of income assessee declared a loss of Rs.64,89,606/-. Thereafter due to unavailability of books of accounts and records income of assessee was estimated by applying 5% on the total turnover calculated at Rs.3,40,274/- and also made addition for unexplained cash credit of Rs.30,000/-. Appeal was withdrawn by assessee on quantum issue. In the penalty proceedings the matter travelled to the first appellate authority and ld. CIT(A) dealt with the alternative submissions made by assessee which were given effect to by ld. Assessing Officer as per his wisdom. Assessee did not agree to the appeal effect given by ld. Assessing Officer. Thereafter we observe that ld. CIT(A) while adjudicating appeal u/s 154 of the Act has clearly made out the crux of the order of ld. CIT(A) passed u/s 271(1)(c) of the Act by observing as under :-
2.3. I have gone through the facts of the case, the appellate order, order of the A.O. giving effect to the appeal order, rectification application, order rejecting the application and the submissions of the appellant. In view of the reasons given for delay in filing this appeal the said delay is condoned. Looking to the peculiar nature of facts, I am of the opinion that my jurisdiction in this appeal is limited to the interpretation of the order passed by my predecessor. Therefore, the operative ITA No. 1503/Ahd/2012 5 Asst. Year 2001-02 part of the decision of my predecessor, i.e. para-7, 8, 9 & 10 of the appellate order dated 10.08.2009 is reproduced below for clarity :-
"7. I have considered the. facts of the case and the circumstances made by the learned AR, I have also perused the various judicial pronouncements on this issue. As regards the legal aspect regarding applicability of Explanation 4 to section 27l(l)(c) of the Act, as amended by the Finance Act, 2002, it has been held by the Hon'ble ITAT, Ahmedabad in the case of ACIT Vs Apsara Processors (P) Ltd. [(2005) 92 TTJ (Ahd) (SB) 645] that the said amendment to Explanation 4 to section 271(l)(c) was not clarificatory and, therefore, not retrospective in operation and that before the amendment by the Finance Act, 2002, penalty u/s. 27l(l)(c) of the Act could not be levied in cases where the assessed income was a loss. The aforesaid judgment was delivered by the Hon'ble ITAT (SB) on 27.12.2004. In their judgment in the case of Virtual Soft System Ltd. Vs CIT [(2007) 289 ITR 83 (SC)] also, it was held by the Apex Court that the said amendment to Explanation 4 to section 271(l)(c) could not be applied in respect of any period prior to 1st April, 2003 and hence, prior to this amendment penalty for concealment could not be levied in the absence of any positive income. The said judgment was delivered by the Hon'ble Court on 06.02.2007. However, while admitting the SLP filed in the case of CIT Vs Raman Lal C Hathi [(2008) 217 CTR )SC) 105], on 07.01,2008, having regard to the nature of the aforesaid amendment in section 271 and to the judgment of the Court in Virtual Soft Systems Ltd.(supra), the Hon'ble Apex Court have taken the view that the point laid down by its Division Bench in their said decision needs ^ration. Further, in their later judgment delivered on 18.08.2008 in the cane of CIT Vs Gold Coin Health Pood (P) Ltd. [(2008) 218 CTR (SC) 359], the Hon'ble Supreme Court have held that the said amendment to Explanation 4 to section 27l(l)(cj WO.T darificatory and not substantive, and is hence applicable retrospectively. Thus, even during the period between 1s' April, 1976 to Ist April, 2003, the position was that the penalty was leviable even in a case where addition of concealed income reduced the returned loss. And, in such a case, "the tax sought to be evaded" will be the tax chargeable on the concealed income, as if it is the "total income" of the assessee. In view of the aforesaid legal position in the matter, the decision of the Hon'ble jurisdictional Tribunal in the case of ACIT Vs Apsara Processors (P) Ltd.(supra) is respectfully not being followed and the latest judgement of the Apex Court in the case of Gold Coin Health Food (P) Ltd. (supra) is being respectively followed. The argument of the learned AR that the amendment to Explanation 4 to section 271(!)(c) of the Act made by the Finance Act. 2002, was not applicable in the A.Y. under consideration, i.e., A.Y.20QO-01, is, therefore, not acceptable and is rejected. It is, accordingly, held that penalty was leviable u/s. 27l(l)(c) in the instant case under consideration, even though the assessed income was a loss/Nil.ITA No. 1503/Ahd/2012 6
Asst. Year 2001-02
8. As regards the second argument of the learned AR that the A 0 has erred in computing the "amount oj tax sought to be evaded", the contentions of the appellant are found to be correct. It is seen that the AO has, at para 9(c) of the impugned penalty order, adopted the figure of 'concealed income' at Rs.68,59,880/-, which amount in fact represents the total turnover declared by the appellant, instead of the amount of estimated profit of Rs.3,40,274/-, being 5% of the total turnover of Rs. 68,59,880/-. To this extent, therefore, there is an apparent mistake in computation of the amount of penalty leviable.
9. However, coming to the third contention of the appellant on the merits of the case, it is seen that the difference between the returned and assessed income is mainly on account of two additions made to the total income viz; (i) addition of Rs.3,40,274/- on the basis of ad-hoc estimation of g.p @ 5% of total turnover, and
(ii) addition of Rs. 30.000/- on account of unexplained credits. As regards the first addition of Rs 3,40,274/-, the same is apparently an estimated addition, which has bten made to the g.p. declared by the appellant in the facts and circumstances of the case discussed above. This addition of g.p. @ 5% of the turnover declared by the appellant has been made only on the basis oj an estimate by the AO. The said g.p. addition has been confirmed in appeal by the CIT(A) as the appeal was not pressed by the appellant and not on any concrete evidence of concealment of any transaction or furnishing of inaccurate particulars.. It is a well settled position of law that addition to income made on estimate basis does not, by itself, lead to the conclusion that the assessee either concealed particulars of his income or furnished inaccurate particulars thereof Penalty u/s.27l(l)(c) of the Act is thus not leviable in cases where income is assessed on estimate basis and there is no material/evidence to show that the assessee has concealed his taxable income or furnished inaccurate particulars thereof. It is further seen that a similar g.p. addition was also made in the preceding A.Y. in the appellant's case of identical grounds, and penalty proceedings were initiated u/s.271(l)(c) in that year also. However, in the penalty order for that year no penalty was imposed by the AO in respect of a similar estimated g.p. addition made in that year even though both the said penalty orders, (i.e., for AY's 2000-01 & 2001-02) have been passed on the same date. Keeping in view the aforesaid facts and circumstances of the case, it is held that no penalty was eligible u/s.271(l)(c) of the Act in regard to the aforesaid ad-hoc estimated g.p. addition of Rs 3,40,274/- (as against the incorrect figure of^ 68,59,880/-adopted by the AO in the impugned penalty order) and, to this extent, the penalty levied is deleted.
10, As regard the second addition of Rs. 30,000/- on account of unexplained credits/loans, however, the contentions of the appellant are not acceptable. When a cash credit appears in the books of account, the burden lies on the assessee to prove prima-facie the source and nature thereof. Such roof includes proof of (i) the identity of the creditors, (ii) their credit worthiness/capacity to advance the 'money, and lastly (in) the genuineness of the transaction. It has also been held by the Courts ITA No. 1503/Ahd/2012 7 Asst. Year 2001-02 that the mere fact that the assessee had established the existence and identity of the creditor or had filed confirmatory letter from the creditor was not sufficient to establish the ability of the creditor to advance the loan or the genuineness of the transaction. In the instant case, it is seen that in spite of ample opportunity provided to it, the appellant has not discharged the burden cast upon it to prove the said cash credits. The confirmatory letters filed by the appellant were not even properly signed by the alleged creditors not were other details in this regard furnished before the AO to prove their credit worthiness etc. The said cash credits totaling to Rs. 30,000/-, thus remain unproved. In the above facts of the case, the penal provisions of we 271(l)(c) are, therefore, clearly attracted in regard to the addition of Rs. 30.000/- on account of unexplained cash credits and the penalty levied thereon is accordingly confirmed. The AO is directed to recompute the penalty leviable u/s. 271(l)(c) of the Act in accordance with the above directions."
2.3.1. From the appeal order, especially v/hen all paras are read together, it is clear that the observations in para-7 was on a point of law (legal aspect) and in principle it was held that penalty is leviable even if income was; assessed at a loss or Nil income. It is seen that in the instant case the assessed income was a positive figure and therefore the explanation-4 has no application. The A.O. has therefore wrongly interpreted the observations of the CIT(A) to mean that the penalty was leviable on the "book loss". This aspect becomes abundantly clear from the decision of my predecessor in para-8 and 9 where she, after taking into consideration the facts that addition to GP was on estimated & adhoc basis only, that there was no evidence of concealment of income or furnishing of inaccurate particulars of income and that on identical facts the same A.O. in the case of the same person, i.e. the assessee, on the same date passed different orders - imposing penalty in A.Y. 2001-02 (under reference) and dropped proceedings for A.Y. 2000-01 - concluded that no penalty was leviable on adhoc estimated GP addition of Rs.3,40,274/-. She deleted the penalty levied on the assessed business income of Rs.3,40,274/- and further clarified that this figure had been wrongly taken as Rs. 68,59,880/- by the A.O. Further, she has categorically mentioned in para-8 as well as para-9 that the figure of concealment had been wrongly adopted by the A.O. as Rs. 68.59.880/- instead of the correct figure oft 3,40,274/-. The A.O. may not be in agreement with this finding in the order but then the correct course would have been to seek clarification from the appellate authority or make an application u/s. 154 before the appellate authority or file an appeal to the ITAT. The A.O. could not have interpreted the order to mean that the CIT(A) had confirmed the penalty on book loss and deleted the penalty only en the positive part of the addition because she has first sought to replace the figure of Rs.68,59,880/- with Rs. 3,40,274/- and then directed that the penalty on Rs.3,40,274/- be deleted. Therefore whichever way one looks at it
- substance of the order or actual words used - the penalty on the adhoc addition made rejecting book loss an estimating GP was required to be deleted and only the penalty to the extent levied on "second addition" of Rs.30,000/- on account of unexplained ITA No. 1503/Ahd/2012 8 Asst. Year 2001-02 credit / loans was confirmed and required to be retained. The A.O. will modify his order accordingly.
11. From going through the observation of ld. CIT(A) we find that in the order passed u/s 271(1)(c) of the Act by ld. CIT(A) penalty was sustained only towards unexplained cash credit of Rs.30,000/- and the remaining penalty invoked by ld. Assessing Officer on the concealed income of Rs.68,59,888/- was deleted because the amount represented the total turnover declared by the assessee and similarly penalty invoked on the estimated profit of Rs.3,40,274/- being 5% of total turnover was also deleted being estimated in nature.
12. In the given facts and circumstances of the case, wherein assessee has declared business loss of Rs.64,89,606/- in the return of income duly processed u/s 143(1) of the Act and in the re- assessment proceedings u/s 147 of the Act no material record was available before the Assessing Authority to assess the income as the records were destroyed. We also observe that assessee company incurred heavy losses due to which even quantum appeal was also withdrawn due to non-availability of records as well as lack of office data. We also observe that Assessing Officer has not brought on record any material evidence to prove that assessee has concealed any income. It was just due to lack of records and books of account that Assessing Officer has to frame an assessment order by applying net profit rate of 5% on the gross turnover of the assessee. But there was no iota of evidence against the assessee which could prove that there was concealment of income or furnishing of inaccurate ITA No. 1503/Ahd/2012 9 Asst. Year 2001-02 particulars. In these circumstances, we are of the view that no penalty is required to levied u/s 271(1)(c) except on the unexplained cash credit of Rs.30,000/-. We find no reason to interfere with the order of ld. CIT(A). This ground of Revenue is dismissed.
13. Ground No.3 & 4 are general in nature, which do not require any adjudication.
14. In the result, appeal of Revenue is dismissed.
Order pronounced in the open Court on 25th July, 2016
Sd/- sd/-
(R.P.Tolani) (Manish Borad)
Judicial Member Accountant Member
Dated 25/7/2016
Mahata/-
Copy of the order forwarded to:
1. The Appellant
2. The Respondent
3. The CIT concerned
4. The CIT(A) concerned
5. The DR, ITAT, Ahmedabad
6. Guard File
BY ORDER
Asst. Registrar, ITAT, Ahmedabad
ITA No. 1503/Ahd/2012 10
Asst. Year 2001-02
1. Date of dictation: 21/07/2016
2. Date on which the typed draft is placed before the
Dictating Member: 21/07/2016 other Member:
3. Date on which approved draft comes to the Sr. P. S./P.S.:
4. Date on which the fair order is placed before the Dictating Member for pronouncement: __________
5. Date on which the fair order comes back to the Sr. P.S./P.S.:
6. Date on which the file goes to the Bench Clerk: 25/7/16
7. Date on which the file goes to the Head Clerk:
8. The date on which the file goes to the Assistant Registrar for signature on the order:
9. Date of Despatch of the Order: