Income Tax Appellate Tribunal - Ahmedabad
Ombhole Transport And Construction, ... vs Assessee on 1 July, 2012
1 ITA No.164/AHD/2010
Asst Year 2004-05
.
IN THE INCOME TAX APPELLATE TRIBUNAL " C" BENCH, AHMEDABAD
(BEFORE SHRI G.C.GUPTA VICE PRESIDENT & SHRI ANIL CHATURVEDI, A.M.)
I.T.A. No.164/AHD/2010
(Asst. Year: 2004-05)
Ombhole Transport & Vs. Assistant Commissioner of
Construction Income Tax, Circle-6,
93-94 Vishnu Nagar Society, RoomNo.623,
Hazira Road, Surat. Aayakar Bhavan,
Majura Gate, Surat.
(Appellant) (Respondent)
PAN: AAAFO9876C
Appellant by : Mr. Rajesh Upadhyay
Respondent by : Mr. Rakesh Agrawal, Sr.D.R.
आदे श)/ORDER
(आदे Date of hearing : 1 - 7-2012 Date of Pronouncement : 9-8-2012 PER: SHRI ANIL CHATURVEDI, A.M. This appeal is filed by the assessee against the order of Ld. CIT (A)- IV, Surat dated 18-11-2009 for the assessment year 2004-05.
2. The assessee has raised the following grounds of appeal:-
"1. The A.C.I.T. has erred in law and on facts to levy penalty u/s.271(1)(c) of the Act without recording his satisfaction. Ld. CIT (A)-2 ITA No.164/AHD/2010
Asst Year 2004-05 .
IV, Surat has also erred to uphold the action of the A.C.I.T. Circle-6, Surat.
2. The A.C.I.T. has erred in law and on facts to levy penalty u/s. 271(1) (c ) of the Act ignoring the fact that the all sundry creditors appearing in the balance sheet as on 31-3-2004 are proved as genuine and disbelieving appellant's explanation penalty was levied. Ld. CIT (A) -IV Surat has also erred to uphold penalty levied by ACIT Circle-6, Surat without considering such vital fact of appellant's case.
3. The ACIT has erred in law and on facts to levy penalty u/s. 271(1)(c ) of the Act without considering the facts and circumstances of the case. Ld. CIT (A)-IV Surat has also erred in directing the ACIT Circle-6,Surat to levy of such penalty to the extent of his addition on account of sundry creditors made u/s. 68 of the Act for Rs.10,33,422.
3. The assessee is a partnership firm engaged in the work of Civil Construction. It filed its return of income on 30-10-2006 declaring loss of Rs.14,07,052/-. In this case the assessment was completed u/s. 144 of the Act on 19-12-2006 and after making addition of Rs.10,33,422/- u/s.68, the total income was determined at Rs.9,93,890/-. The A.O. during the course of assessment proceedings observed that during the year the unsecured loans and sundry creditors have increased by Rs.10,32,422/-. The assessee was asked to produce confirmations from the debtors and lenders of unsecured loan. Assessee stated that he was not able to furnish the required information as all the records were destroyed in flood. In the absence of any details the A.O. made addition of Rs.10,33,422/- as cash credit u/s. 68 of the Act and this addition was later on confirmed by the Ld. CIT (A) and also by Hon'ble ITAT. Apart from the aforesaid addition, the A.O. also made addition of Rs.13,67,524/- on account of disallowance of labour and diesel expenditure. The Ld. CIT (A) sustained the addition only 3 ITA No.164/AHD/2010 Asst Year 2004-05 .
to the extent of Rs.5,47,010/- on disallowance of labour and diesel expenses and further the said amount was telescoped with addition made u/s. 68 of the Act. As such the entire addition on account of disallowance of labour and diesel expenditure stood deleted. The A.O. initiated penalty proceedings u/s. 271(1)(c)of the Act by issuing notice dated 19-12-2006 requiring the assessee to show cause notice as to why the penalty should not be levied on the addition made. In the penalty order dated 30-3-2009 the A.O. contended that the assessee has failed to file any reply to the show cause notice and therefore, he was of the view that the assessee has concealed the particulars of income and has no explanation to offer and accordingly imposed penalty of Rs.8,61,339/- on the addition of Rs.24,00,546/-. Against the penalty order the assessee preferred appeal before the Ld. CIT (A). Ld. CIT (A) gave partial relief to the assessee by holding as under:-
" I have considered the reasons given by A.O. and also the submissions of appellant. After carefully analyzing the same I find that appellant's contention relating to imposition of penalty by Assessing Officer on total addition of Rs.24,00,946/- instead of imposing the penalty only on addition of Rs.10,33,422/- which is sustained in appeal is found to be correct. It is also seen that appellant has filed reply vide dated 3-3-2009 but the same has not been considered by Assessing Officer. As the disallowance on account of unverifiable labour and diesel expenses of Rs.13,67,524/- does not survive in appeal, penalty cannot be imposed on said addition. As such the question of levy of penalty could arise only on account of Rs.10,33,422/- addition made u/s. 68 of the Act. So far as this addition is concerned, it is seen that Hon'ble ITAT has also confirmed the addition vide its order dated 14-3-2008. While dealing with the issue relating to section 68 of the Act, Hon'ble ITAT has observed that no material has been brought which requires any interference with the findings of Ld. CIT (A).As such facts of the case are that assessee was unable to prove the genuineness of creditors 4 ITA No.164/AHD/2010 Asst Year 2004-05 .
and the facts stand confirmed by Hon'ble ITAT. In this way when assessee is unable to prove the genuineness of creditors as o evidence at all has been filed, the action of Assessing Officer in imposing penalty on the addition of Rs.10,33,422/- is hereby confirmed. However, as discussed above the penalty on the addition of Rs.13,67,524/- is directed to be deleted."
4. Aggrieved by the order of Ld. CIT (A), assessee is in appeal before us.
5. Before us the Ld. A.R. submitted that though the assessee had submitted the Explanation vide letter dated 3-3-2009 the A.O. levied penalty for the reason that there was no response or submission to the notice issued by the A.O. The Ld. A.R. placed on page 1 & 2 of the paper book the acknowledged copy of the letters submitted before the ACIT. He also submitted that the CIT (A) in its order has given a categorical finding to the effect that the assessee had filed reply vide letter dated 3-3-2009 but the same was not considered by the A.O. It was thus contended that the explanation of assessee was ignored by the A.O. in its entirety and therefore, the order levying penalty suffers from violation of principles of natural justice and it is a case of non application of mind of the A.O to the explanation offered by assessee. In view of these facts, the Ld. A.R. submitted that the penalty order was bad in law and should therefore be quashed. For this proposition the Ld. A.R. relied on the decision of Hon'ble Gujarat High Court in the case of CIT vs. Scientific Chemicals (2005) 198 CTR 665 (Guj.).On the merits of the case, the Ld. A.R. submitted that the addition u/s. 68 has been made on estimate basis. The A.O. worked out the difference between sundry creditors on the basis of balance sheet as on 5 ITA No.164/AHD/2010 Asst Year 2004-05 .
31-3-2004 and 31-3-2003 and the difference was considered as unexplained cash credit and added to the income. The Ld. A.R. submitted that the list considered by the A.O. included sundry creditors for goods. He further submitted that the expenses pertaining to the creditors have been allowed and no additions have been made on that account. As far as sundry creditors are concerned it was submitted that addition cannot be made u/s. 68 as they are not cash credits. Even if section 68 is invoked in quantum proceedings the scope of section 68 cannot be extended for levy of penalty because section 68 is a deeming provision. The Ld. A.R. further submitted that the assessee had no intention to conceal the income because even after giving effect to CIT (A)'s order there still remains loss of Rs.3,73,624/- which is to be carried forward. He placed on record the copy of the order dated 5-12-2007 giving effect to CIT (A)'s order. He also relied on the decision of Karnataka high Court in the case of CIT vs. SLN Trader 341 ITR 235.
6. On the other hand the Ld. D.R. submitted that the assessee failed to produce any sort of evidence either in the form, of confirmation or an agreement from the creditors He submitted that assessee was provided sufficient time to produce the documents but it failed to discharge the onus cast on the assessee. In view of these circumstances; he urged that the A.O. has rightly levied the penalty.
7. We have heard the rival contentions, perused the material on record. It is a fact that the assessee had filed reply vide its letter dated 3-3-2009 before the A.O. in response to the show cause notice. The A.O. has not 6 ITA No.164/AHD/2010 Asst Year 2004-05 .
only not considered the submissions made in the aforesaid letter but on the contrary he stated that there was no response from the assessee to its notice. Ld. CIT (A) in his order has given a categorical finding that the assessee had filed reply but the same was not considered by the A.O. The Ld. D.R. has not been able to controvert the above factual position nor has he produced any documents to the contrary.
8. In the case of CIT vs. Scientific Chemicals (2005) 198 CTR 665 (Guj), Hon'ble Gujarat High Court has held that "when the explanation tendered by the assessee is ignored or omitted from the zone of consideration before the order is made, it would definitely violate the principles of natural justice. The order would be vitiated by exercise of arbitrariness in decision-making process and the discretion cannot be stated to have been exercised judicially." It further held that "when an authority is vested with discretionary powers and omits to take into consideration, the explanation tendered which has admittedly been filed in response to show cause notice, the order would suffer from the vice of non-application of mind when the order records that no explanation is tendered."
9. In the case of CIT vs. SLN Traders (supra) the Hon'ble High Court has held that where the addition towards unproved credits has been conceded by the assessee, but the assessee's explanation that there was no intention to avoid payment of tax has been accepted by the Tribunal, no penalty proceedings u/s. 271(1)(c) could be initiated.
7 ITA No.164/AHD/2010Asst Year 2004-05 .
10. In the present case of penalty before us, it is seen that the explanation that was tendered by the assessee was ignored and not considered before passing the order u/s. 271(1)(c). In view of the aforesaid facts and respectfully following the decision of the Hon'ble Gujarat High Court we are of the view that the penalty order was passed in violation of principles of natural justice and therefore the order levying penalty cannot be upheld. Even on merits the factual position that emerges is that the assessee has losses to be carried forward to the extent of Rs.3.73 lacs after giving effect to CIT (A)'s order. In such a case following the decision of Hon'ble Karnataka High Court in the case of SLN Traders (supra), we are of the view that the assessee cannot be considered to have concealed income so as to justify the levy of penalty. In view of this matter, the order levying penalty is deleted. Assessee's appeal is allowed.
11. Thus the appeal of the assessee is allowed.
Order pronounced in Open Court on 9 - 8 - 2012.
Sd/- Sd/-
(G.C.GUPTA) (ANIL CHATURVEDI)
VICE PRESIDENT ACCOUNTANT MEMBER
Ahmedabad.
S.A.Patki.
8 ITA No.164/AHD/2010
Asst Year 2004-05
.
Copy of the Order forwarded to:-
1. The Appellant.
2. The Respondent.
3. The CIT (Appeals) -IV, Surat.
4. The CIT concerned.
5. The DR., ITAT, Ahmedabad.
6. Guard File.
By ORDER
Deputy/Asstt.Registrar
ITAT,Ahmedabad
1.Date of dictation 11 - 7 -2012
2.Date on which the typed draft is placed before the Dictating 2,3 / 8 / 2012 Member................Other Member................
3.Date on which the approved draft comes to the Sr.P.S./P.S - -2012.
4.Date on which the fair order is placed before the Dictating Member for pronouncement - -2012
5.Date on which the fair order comes back to the Sr.P.S./P.S - -2012
6.Date on which the file goes to the Bench Clerk - -2012.
7.Date on which the file goes to the Head Clerk.............
8.The date on which the file goes to the Asstt. Registrar for signature on the order........................
9.Date of Despatch of the Order.................