Income Tax Appellate Tribunal - Ahmedabad
Ramanlal & Brothers, Ahmedabad vs Assessee on 21 June, 2010
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH " B "
Before Shri MUKUL SHRAWAT, JUDICIAL MEMBER and
Shri N.S. SAINI, ACCOUNTANT MEMBER
Date of hearing : 14/06/2008 Drafted on: 21/06/2010
ITA No.546/AHD/2008
Assessment Year : 2003-04
M/s.Ramanlal & Brothers Vs. The Dy.CIT (OSD)
S-8, Shroff Chambers Circle-9
Opp. Navchetan School Ahmedabad
Paldi, Ahmedabad-380007
PAN/GIR No. : AAEFR 9043 G
(APPELLANT) .. (RESPONDENT)
Appellant by : Shri S.V. Agarwal
Respondent by: Shri K.Madhusudan, Sr. D.R.
ORDER
PER SHRI MUKUL SHRAWAT, JUDICIAL MEMBER :
This is an appeal at the behest of the Assessee which has emanated from the order of Learned CIT(Appeals)-XV, Ahmedabad dated 13/12/2007. The only issue pertained to the confirmation of levy of penalty u/s.271(1)(c) of the I.T. Act, 1961 of Rs.2,87,845/-.
2. Facts in brief as emerged from the corresponding penalty order u/s.271(1)(c) dated 06/08/2007 and the assessment order passed u/s.143(3) of the I.T. Act, 1961 dated 06/03/2006 were that the assessee- firm was in the business of Road Construction. It was noticed by the Assessing Officer that during the year under consideration the profit was 0.41% as against the profit @ 28.24% for Assessment Year 2002-03. It was also noted by the Assessing Officer that for Assessment Year ITA No.546/Ahd/2008 M/s.Ramanlal & Brothers vs. Dy.CIT Asst.Year - 2003-04 -2- 2001-02 as well the rate of profit was 31.59%. The appellant was given opportunity, however, the Assessing Officer was not satisfied with the explanation submitted in respect of the impugned fall in Gross Profit. In the absence of maintenance of Stock Register, details of consumption, etc. the Assessing Officer has invoked the provisions of section 145(3) of the I.T. Act, 1961 and estimated the Gross Profit at 20% with the result, Gross Profit addition was made.
3. In the penalty order it has also been noted by the Assessing Officer that when the matter was carried before the first appellate authority, it was directed to compute the business income @ 8% of the gross receipts of the contracts as prescribed u/s.44A, 44D of the I.T. Act, 1961. In respect of sale of construction material supplied the profit rate at 5% as prescribed u/s.44AF of the I.T. Act, 1961 was applied. Since a part relief was granted, therefore, the Assessing Officer has taken a view that considering the facts of the case that the accounts have not been properly produced and the appellant deliberately failed to substantiate its returned income, therefore, liable to be penalized u/s. 271(1)(c) of the I.T.Act, 1961. Accordingly, a penalty of Rs.2,87,845/- was imposed. Being aggrieved the assessee has challenged the levy of penalty before the first appellate authority.
3.1. Though the Learned CIT(Appeals) has elaborately discussed the legal aspect and the submissions of the assessee, however, he ITA No.546/Ahd/2008 M/s.Ramanlal & Brothers vs. Dy.CIT Asst.Year - 2003-04 -3- has opined that the assessee was not able to justify the fall of Gross Profit either by producing evidence or the necessary books of account. Vide paragraph No.15, the Learned CIT(Appeals) has commented that on one hand the assessee has claimed that the return was filed on the basis of the audited books of account, however, on the other hand, the assessee did not file any paper in support of the figures declared in the said return. He has also mentioned that in quantum appeal, the rejection of books of account was upheld by the Learned CIT(Appeals) and on legal principle the addition was reduced by invoking section 44AD and 44AF of the I.T. Act, 1961. He has also noted that no second appeal was filed before the Tribunal by this assessee. The levy of penalty was affirmed.
4. We have heard both the sides at some length. We have also perused the compilation filed before us through which Learned Authorised Representative of the assessee has primarily relied upon the details furnished before the Assessing Officer in support of the expenses claimed and the Gross Profit declared. It has also been placed on record that due to certain unavoidable circumstances which were beyond the reach of this assessee, the books of account could not be produced at that point of time. It was explained that the "entry gate" of the assessee's business premises was sealed by the Ahmedabad Municipal Corporation, hence, during those days when the assessment proceedings were going on, the books of account were not readily available when demanded by the Assessing ITA No.546/Ahd/2008 M/s.Ramanlal & Brothers vs. Dy.CIT Asst.Year - 2003-04 -4- Officer. However, the vehement contention of the assessee was that the books of account were duly audited and there was no classification was made by the Chartered Accountant, hence, the correctness of Gross Profit was due to certain explained reason which ought to have been appreciated by the Assessing Officer while imposing the penalty. Before us, the Learned Authorised Representative of the assessee has also drawn our attention on the calculation of the Gross Profit and pointed out that a mistake was committed while disclosing the same at 0.41%. Instead of bifurcating the Gross Profit into separate activities, namely, re-sale activity, road construction, activity wherein the percentage was 10.70% and 17.59%; a combined Gross Profit result was disclosed which was not depicting the true and correct picture of the business results of the assessee for the year under consideration. The Learned Authorised Representative of the assessee has mentioned that it was clearly explained that Gross Profit in re-sale activity was 10.70%, Gross Profit in Road construction activity was 17.59% and Gross Profit in combined activity was 14.87%. An another aspect has also been vehemently argued before us that the figures of trading interest of Rs.13,65,690/- and the rent of the machinery of Rs.57,000/- was included for the purpose of calculation of Gross Profit by the Auditor and thereafter arrived at 0.41%. It was argued that in the past it had never been calculated in that manner, therefore, the Gross Profit disclosed this year @ 0.41% was only due to the said calculation mistake.
ITA No.546/Ahd/2008M/s.Ramanlal & Brothers vs. Dy.CIT Asst.Year - 2003-04 -5-
5. Be that as it was, the fact that the Learned CIT(Appeals) has granted part relief and taken a tangent view by invoking the provisions of section 44AF and 44AD and also taken the guidance for adoption of percentage of profit itself proves that the Assessing Officer as well as Learned CIT(Appeals) both have merely proceeded on an estimation to determine the profit of the assessee. Rather, during the course of argument it was also pointed out that the Learned CIT(Appeals) has wrongly directed to compute the income u/s.44AF or u/s.44AD of the I.T. Act, 1961 because the turnover of the assessee had exceeded the prescribed limit, therefore, the application of presumptive rate of profit as prescribed in those sections should not have been applied. This is not the case where the assessee has deliberately not produced the books of account but the facts have revealed that due to certain unforeseen and unavoidable circumstances the books were sealed by a Government Authority. However, this fact should also not be over- looked that the books of account have duly been audited and the Auditors Report was very much a part of the Revenue record being filed alongwith the return. No specific defect was pointed out to demonstrate that a particular item of income was concealed by the assessee. Rather a general view was taken that since the rate of Gross Profit was shown at lower percentage, therefore, the assessee was liable for concealment penalty. On those very facts a view has been taken by the ITAT Lucknow Bench in the case of Sahyog ITA No.546/Ahd/2008 M/s.Ramanlal & Brothers vs. Dy.CIT Asst.Year - 2003-04 -6- Sahkari Shram Samvida Samiti Ltd. vs. Asst.CIT reported as 111 TTJ 540 (Lucknow) that merely because books of account of the assessee have been rejected, ipso facto not be held that the assessee had concealed the particulars of its income or the assessee is guilty of fraud or willful neglect unless and until a concealment is detected. In the present appeal, there was no positive evidence to demonstrate that the concealment of income was detected by the Assessing Officer. There is one more decision of ITAT Mumbai Bench in the case of Mimosa Investment Co.(P) Ltd. vs. ITO reported as 28 SOT 470 (Mumbai) and therein a view was taken that once all relevant facts were furnished alongwith the return but merely on account of fact the Assessing Officer recalculated the profit, the assessee must not be held responsible for concealment of the particulars of its income or even furnishing inaccurate particulars of such income. The argument was that nothing was concealed or hidden by the assessee, rather everything was in the knowledge of Revenue Department due to the furnishing of the Auditors Report. An another decision of ITAT Pune Bench in the case of Darshan Enterprises vs. ITO reported as 113 TTJ 857 (Pune) has also been cited for the legal proposition that once the deeming provision have been invoked, i.e. 44AF and 44AE of the I.T. Act, 1961, then there was no reason to assume the jurisdiction for levy of penalty u/s. 271(1)(c) of the I.T.Act, 1961. In that decision, interestingly it was noted that section 44AF starts with a non obstante clause giving overriding effect to other provisions such as ITA No.546/Ahd/2008 M/s.Ramanlal & Brothers vs. Dy.CIT Asst.Year - 2003-04 -7- the provisions of ss.28 to 43C of the I.T. Act, 1961. In a normal situation, the profits are to be computed under the provisions of sections 28 to 43C of the I.T. Act, 1961 but in section 44AF an overriding effect is prescribed which means that the profits computed in those two sections was nothing but the imposition of presumptive tax by deeming the income of the assessee. Due to this reason, the Respected Co-ordinate Bench has held not a fit case for levy of concealment penalty. The view expressed by the Bench applies mutatis mutandis on the facts of the present case. The Revenue Authorities have imposed the tax on this assessee by applying the presumptive provisions of section 44AF and 44AD of the I.T. Act, 1961 by adopting an estimated percentage of profit without narrating any particular instance of concealment, therefore, following the legal ratio laid down in the above cited decisions, we hereby reverse the findings of the Learned CIT(Appeals) and direct to delete the penalty.
6. In the result, Assessee's appeal is allowed.
Order signed, dated and pronounced in the Court on 30/ 06 /2010.
Sd/- Sd/-
( N.S. SAINI ) ( MUKUL SHRAWAT )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad; Dated 30 / 06 /2010
T.C. NAIR, Sr. PS
ITA No.546/Ahd/2008
M/s.Ramanlal & Brothers vs. Dy.CIT
Asst.Year - 2003-04
-8-
Copy of the Order forwarded to :
1. The Appellant.
2. The Respondent
3. The CIT Concerned.
4. The ld. CIT(Appeals)-XV, Ahmedabad
5. The DR, Ahmedabad Bench.
6. The Guard File.
BY ORDER,
स×याǒपत ूित //True Copy//
(Dy./Asstt.Registrar), ITAT, Ahmedabad