Income Tax Appellate Tribunal - Delhi
M S Apparels (P) Ltd, New Delhi vs Assessee on 2 March, 2009
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH 'E': NEW DELHI)
BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER
and
SHRI B.C. MEENA, ACCOUNTANT MEMBER
ITA NO.2891/DEL/ 2009
(Assessment Year : 1998-99)
M/s. M.S. Apparels (P) Limited, vs. ITO, Ward 6 (1),
38 / 14, Aram Park, Gali No.4, New Delhi.
Khureji,
Delhi - 110 031.
(PAN : AAACM6803E)
(APPELLANT) (RESPONDENT)
Assessee by : Shri A.K. Srivastava, CA
Respondent by : Mrs. Renuka Jain Gupta, Senior DR
ORDER
PER B.C. MEENA, ACCOUNTANT MEMBER :
This appeal filed by the assessee emanates from the order of the CIT (Appeals)-IX, New Delhi dated 02.03.2009.
2. The assessee is engaged in the business of export of garments. The return of income was filed on 30.11.1998 declaring a loss of Rs.21,99,840/-. The current year loss was Rs.13,67,073/- and brought forward loss was Rs.8,32,754/-. The return of income was accompanied with the audited balance sheet and tax audit report u/s 44AB of the Income-tax Act, 1961. Assessment u/s 143(3) was made at the income of Rs.12,52,667/- and after adjusting the brought forward loss, the total 2 ITA No.2891/Del/2009 income was determined at Rs.4,19,913/-. As per the records, the books of accounts were produced and examined on test check basis by the Assessing Officer. Books of account and part of the vouchers produced on 22.03.2001 were impounded u/s 131(1) of the Act fur further verification. The books of accounts were rejected u/s 145(3) of the Act for non-production of complete books of accounts and vouchers. As per the auditor's report, the assessee was maintaining proper books of account. The Assessing Officer made an addition on account of estimating g.p. rate and also on account of disallowing charity and donations debited in profit & loss account and ad hoc disallowance of 5% of expenses of remaining expenses. The Assessing Officer did not allow deduction u/s 80HHC of the Act. The assessee claimed that it was entitled for deduction u/s 80HHC as income was only from exports. In the quantum appeal, the CIT (A) determined the g.p. rate @ 10%. The assessee was denied 80G benefits for contribution to the school on the ground that school did not have registration u/s 12AA and exemption u/s 80-G of the Income-tax Act, 1961. The CIT (A) also upheld the 5% disallowance out of other expenses. The assessee's appeal at the ITAT level was dismissed for non-prosecution. The Assessing Officer levied the penalty u/s 271(1)(c) of the Act of Rs.3,81,058/-. The CIT (A) confirmed the same by holding as under :-
3 ITA No.2891/Del/2009
"3.3 After considering the facts on record, my considered view is that the AO has rightly levied the penalty for concealment. The onus lies on the appellant to show as to whether the book results/trading results shown by it are in order but during the course of the assessment proceeding as well the appellate proceedings, the appellant had failed to substantiate that the trading results shown by it are in order. There is no mens rea to be proved by the Department as in the case of UOI vs. Dharmendra Textile Processors (2008) 306.ITR 277 (SC), the Apex Court overruled its earlier judgment in the case of Dilip N. Shroff vs. JCIT (2008) 291 ITR 519 (SC) and held that "it is of significance to note that the conceptual and contextual difference between section 271(1)(c) and Section 276C of the IT Act was lost sight of in Dilip Shroff's case (supra). The Explanations appended to Section 271 (1)(c) of the IT Act entirely indicates the element of strict liability on the assessee for concealment or for giving inaccurate particulars while filing return. The judgment in Dilip N. Shroff's case (supra) has not considered the effect and relevance of Section 276C of the I.T. Act. Object behind enactment of Section 271 (1) (c) read with Explanations indicate that the said section has been enacted to provide for a remedy for loss of revenue. The penalty under that provision is a civil liability. Wilful concealment is not an essential ingredient for attracting civil liability as is the case in the matter of prosecution under Section 276C of the I.T. Act." The AO has rightly held that for the purpose of section 271(1)(c), income includes positive income and the negative income as recently in the case of CIT vs. Goldcoin Health Food P. Ltd. (2008) 304 ITR 308 (SC), the Apex Court again overruled its decision in the case of Virtual Soft Systems Ltd. vs. CIT 289 ITR 83 (SC) and held that "even in a case where loss returned was reduced and no positive income was assessed, a penalty under section 271(1)(c) was leviable. Explanation 4 to section 271(1) (c) was clarificatory and was retrospective in operation that is w.e.f 1st April 1976." In view of the above, I confirm the action of the AO to levy penalty for concealment on the appellant as the appellant had failed to explain and justify its trading results with books of accounts and other supporting documents."
3. Now the assessee is in appeal before us by taking the following grounds :-
"1. That, the learned Commissioner of Income-tax (Appeals) failed to appreciate the facts of the case and erred in upholding that the Assessing Officer had validly levied penalty.4 ITA No.2891/Del/2009
2. That on the facts and circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) erred in holding that the decision in the case UOI v Dharmendra Textile Processors (2008) 306 ITR 277(SC) is applicable in the present case.
3. That the learned Commissioner of Income-tax (Appeals) failed to consider the evidences filed before him and submissions made during penalty proceedings.
4. That the learned Commissioner of Income-tax (Appeals) failed to appreciate that the appellant being an exporter, was entitled to deduction u/s 80HHC of the Income-tax Act and that after granting the said deduction, the appellants would have no income liable to tax.
5. That on the facts and circumstances erred in holding that the appellant is not interested to pursue the appeal filed by it."
4. While pleading on behalf of the assessee, the ld. AR submitted that assessee was engaged in the export of garments. The entire turn over comprises of export realization and profits on that were entitled for deduction u/s 80HHC of the Act. The return of income was filed declaring loss for the year. Ld. AR submitted that assessee was entitled for deduction u/s 80HHC for any enhancement of the income by the Assessing Officer but he has failed to allow the same. Similarly, the CIT (A) has also not allowed the claim of the assessee on the ground that the report of accountant was not filed along with the return of income. He further submitted that in assessee's own case for the Assessment Year 1994-95, the CIT (A) has directed the Assessing Officer to allow the deduction u/s 80HHC when it was simply denied on the ground that the 5 ITA No.2891/Del/2009 accountant's report was not filed along with the return of income. Therefore, there was no intention of the assessee not to file the report before the Assessing Officer when there was a loss as per the return. He further submitted that no comparable instances have been given for estimating the gross profit rate. The Assessing Officer's estimation of gross profit was not supported by his successor in his remand report. The books of account were also produced before the sales-tax authorities where no discrepancies were found and assessment was finalized. Copy of sales-tax assessment is filed at pages 68 - 69 of the paper book. He also submitted that three different officers of the department has estimated g.p. rate differently. The Assessing Officer calculated g.p. rate @ 8.64% and CIT (A) estimated at 10% which itself show that it was totally based on estimates. Similarly, the disallowances for the amounts paid to the school are also not justified as no reason was stated for the same. For further ad hoc disallowance of 5% from other expenses is also completely based on ad hoc basis and it was estimated even when there was estimation of the gross profit. It has been held by various courts that once there is estimate of profit then no other disallowance from expenses is called for. These facts clearly suggest that assessee has not concealed any income for which assessee could be visited any penalty u/s 271(1)(c) of the Act. The Assessing Officer has also not given any reason why assessee's bona fide explanation is not accepted. The Assessing Officer 6 ITA No.2891/Del/2009 has also not addressed the issue of deduction u/s 80HHC where the assessee was entitled when the assessee's income was enhanced by any addition to it. The assessee made submissions before the CIT (A) and the paper book was also filed on 06.10.2008. The CIT (A) simply upheld the penalty by relying on the decision of Hon'ble Supreme Court in the case of Union of India vs. Dharmendra Textile Processors - 306 ITR 277 (SC). Ld. AR pleaded that the ratio of this case is not at all applicable to assessee's case as facts are at complete variance. He further submitted that simply rejection of the claim does not invite penalty u/s 271(1)(c) of the Act. For this proposition, he relied on the decision of Hon'ble Supreme Court in the case of CIT vs. Reliance Petroproducts Pvt. Ltd. - 322 ITR 158 (SC) wherein Hon'ble Supreme Court held that mere making of a claim not maintainable in law, will not amount to furnishing of inaccurate particulars. He further submitted that penalty cannot be levied where addition has been made on estimate basis. For this proposition, he relied on the following case laws :-
(i) CIT vs Aero Traders (P) Ltd. 322 ITR 319 (Delhi)
(ii) CIT vs Modi Industrial Corporation (2010) 195 Taxman 68 (P&H H C)
(iii) CIT vs Raj Bans Singh (2005) 276 ITR 351 (All. HC)
(iv) Dabwali Transport Company vs ACIT 137 TTJ 49 (Chd. Trib)
(v) ACIT vs Allied Construction (2007) 106 TTJ 616 (Delhi Trib)
(vi) ITO vs C Chhotalal Textiles (P) Ltd. (2005) 95 TTJ 436 (Mum Trib)
(vii) Jt CIT vs VXL (India) Ltd. (2005) 94 TIJ 513 (Amritsar Trib)
(viii) Brij Bala Chaudhary (Smt) vs ITO 82 TIJ 355 (Luck Trib) 7 ITA No.2891/Del/2009 For the proposition that when addition made on gross profit rate and estimation is confirmed by the Tribunal, it does not amount to concealment of particulars of income by furnishing inaccurate particulars of income, he relied on the decision of ITAT, Ahmedabad Bench in the case of Sudesh Khanna vs. ACIT - (2005) 98 TTJ 106. He further submitted that the Tribunal is well within its jurisdiction to record fresh findings in penalty proceedings and it will not amount to reviewing its earlier order in quantum appeal. Even where the Tribunal has sustained the addition in quantum appeal, its order deleting penalty based on such addition could not be said to suffer from any legal infirmity. For this proposition, he relied on the decision of Hon'ble Allahabad High Court in the case of CIT vs. Mata Prasad reported in 278 ITR 354 (All.). He further submitted that even the addition has been confirmed in appeal concealment still to be established. No penalty u/s 271(1)(c) can be levied only on the ground that some additions have been made in the assessment which were subsequently confirmed in the appeal. Although the findings given in assessment are good evidence however same is not conclusive in penalty proceedings. For levying the penalty it has to be seen that additions made are based on material from which an inference can be drawn that assessee has concealed particulars of income. For this proposition, he relied on the decision of ITAT, Delhi Bench in the case of ITO vs. Ravi Khurana - 173 Taxman 26 (Mag.)(Delhi Trib.) and ITO vs. 8 ITA No.2891/Del/2009 Kuldeep Sood Enterprises - 103 TTJ 573. The assessee has included duty drawback /DEPB in the amount eligible for deduction u/s 80IB when the issue was debatable regarding allowability or otherwise of such claim, therefore, penalty u/s 271(1)(c) cannot be levied. For this proposition, he relied on the decision of ITAT, Delhi Bench in the case of Baldev Woolen International vs. ITO reported in 131 TTJ 338 (Delhi Trib.).
5. On the other hand, ld. DR relied on the order of the authorities below and submitted that assessee has not produced all the vouchers as desired by the Assessing Officer, therefore, the addition was made by rejecting the books of account and the addition has been confirmed upto the level of ITAT. Therefore, the levy of penalty is justified.
6. We have heard both the sides on the issue. We have also perused the records. We have also gone through the quantum assessment order and CIT (A) order. The assessee was exporting the garments during the financial year relevant to Assessment Year under consideration and was entitled for deduction u/s 80HHC on the profits derived from these exports. The assessee's turnover was consisted only export sales as evident from page 59 of the paper book. The export sales are Rs.67,56,240/- and no other income has been shown in the trading account for the year under consideration. Thus, there is no dispute that assessee was entitled for deduction u/s 80HHC as profits for the year. The return of income was filed declaring loss. In the loss return, there was no 9 ITA No.2891/Del/2009 possibility of claim of deduction u/s 80HHC on the income. In view of these facts, the assessee could not file accountant's report in Form No.10CCAC along with the return of income. In the Assessment Year 1994-95, CIT (A) himself had directed Assessing Officer to allow 80HHC claim when report of accountant was not submitted along with the return of income but filed later. The claim of the assessee u/s 80HHC was rejected by the CIT (A) only on this basis. The ITAT has dismissed the assessee's appeal in quantum, only on the basis of non-prosecution. The Assessing Officer made addition by rejecting the books of account of the assessee and estimating the gross profit rate and also made disallowances out of the charity and donations and 5% of other expenses. Thus, the additions were merely on estimate and ad hoc basis. No specific defect was noted in the books of accounts. All these facts show that the additions were not based on any specific finding of the defects in the books of account of the assessee and defects in the claim of expenses by the assessee. Had there been contest of the appeal in quantum certain additions could not have been sustained at ITAT level. Assessee was entitled for 80HHC on 100% export profits. Thus, there cannot be any intention to conceal the income. Further at none of the stage, the claim of assessee has been found false or non-genuine. The penalty has been levied u/s 271(1)(c) of the Act which has been confirmed by the CIT (A) by relying on the decision of Hon'ble Supreme Court in the case of Union 10 ITA No.2891/Del/2009 of India vs. Dharmendra Textile Processors - 306 ITR 277 (SC). But facts of that case are at variance to assessee's case. In our considered view, while making the addition on estimate basis and no specific defect in the books, no penalty u/s 271(1)(c) can be levied when the assessee was entitled as per law for deduction u/s 80HHC for any enhancement in the income being exporter. We also find support from the case laws relied upon by ld. AR, cited supra, in accepting the appeal of the assessee. Therefore, we set aside the orders of the authorities below and allow the relief to the assessee.
7. In the result, the appeal of the assessee is allowed.
Order pronounced in open court on this 31st day of October, 2013.
Sd/- sd/-
(R.P. TOLANI) (B.C. MEENA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated the 31st day of October, 2013/TS
Copy forwarded to:
1.Appellant
2.Respondent
3.CIT
4.CIT(A)-IX, New Delhi.
5.CIT(ITAT), New Delhi. AR/ITAT
New Delhi