Income Tax Appellate Tribunal - Ahmedabad
Vinodbhai Kantilal Shah,, vs Department Of Income Tax on 10 September, 2009
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "B"
Before SHRI T K SHARMA, JUDICI AL MEMBER
And SHRI A N P AHUJ A, ACCOUNTANT MEMBER
ITA no.3282/Ahd/2009
(Assessment Year:-1996-97)
Income-tax Officer, W ard- V/s Shri Vinod Kantilal Shah
3(3),RK Building,Near Prop. Arihant Gems, 11/36,
Railway Crossing, Sanghnani Estate,
Petlad,Distt. Anand- Ghatkopar (W ), Mumbai-400
388450. 086
PAN:
[Appellant] [Respondent]
Revenue by :- Shri Samir Tekriwal, DR
Assessee by:- None
O R D E R
A N Pahuja: This appeal by the Revenue against an order dated 10-09-2009 of the ld. CIT(Appeals)-I, Baroda, for the Assessment Year 1996-97, raises the following grounds:-
"[1] On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the penalty levied u/s 271(1)(c) of the Act on G.P. addition on the ground that the addition was solely on estimation.
[2] The appellant craves leave to add to amend or alter the above grounds as may be deemed necessary.
Relief claim in Appeal:
The order of the CIT(A) on the above issue may be set aside and that of the AO be restored."
2. None appeared on behalf of the Revenue despite service of notice nor any request for adjournment had been received. Considering the nature of issue, we, therefore, decided to dispose of the appeal after hearing the learned Departmental Representative. 2 ITA no.3282/Ahd/2009
3. Facts, in brief, as per relevant orders are that in consequence of investigation of transactions by the Enforcement Directorate in the case of Shri Dhiren A Modi ,Prop.M/s Tirupati Enterprises, it was revealed that the assessee was also engaged with Shri Dhiren A Modi, in bogus purchases and sale bills. For the AY 1996-97, the assessee filed return declaring an income of Rs.57,550/- on 31-03- 1997,reflecting income from the business of trading in cut and polished diamonds. Subsequently, the assessment was reopened u/s 147 of the Income-tax Act, 1961 [hereinafter referred to as the "Act"]. During the course of reassessment proceedings, the Assessing Officer ['AO' in short] noticed that the assessee reflected gross profit[GP] @ 0.156% on turnover of Rs.21,40,78,679/-. The AO was of the opinion that the GP reflected was low and in the light of investigation of transactions by the Enforcement Directorate, rejected the book results and estimated the GP@1% of the turnover, resulting in an addition of Rs.18,06,405/-[2140786-334381]. Besides, an amount of Rs.3,38,708/- in the name of M/s Asha Enterprises, Rs.6,14,739/- in the name of Lunar Diamond and Rs.9,50,000/- in the name of Chandra Diamond were added u/s 68 / 69 of the Act, the assessee having failed to establish their creditworthiness and genuineness of the transactions. Inter alia, penalty proceedings u/s 271(1)(c) of the Act were also initiated.
4. On appeal the learned CIT(A) concluded on the issue of trading addition in his common order for the three assessment years 1995- 96 to 1997-98 as under:-
"It was found that most of the purchases of the appellant were from unregistered dealers against cash payment and, despite ample opportunity given in this regard, the appellant failed to produce any evidence to establish the identity of these unregistered dealers and the genuineness of the purchases from them. The appellant failed to give complete address or PAN or confirmation of these dealers or any other document, which could evidence the existence of these dealers and the purchases from them. Thus, most of the purchases of the appellant are unveriflable. It is, however, conspicuous that sizable amount out of purchases was shown in 3 ITA no.3282/Ahd/2009 the appellant's balance sheet as outstanding and due to these unregistered dealers. The position of purchases from, and outstanding to, these unregistered dealers in the years under appeal is as under:-
Asstt. Year Purchases during the year Outstanding at the end of the (Rs.) year (Rs.) 1995-96 10,48,05,670 5,23,32,794 1996-97 21,37,44,297 12,88,41,541 1997-98 2,93,97,220 57,73,076 1999-2000 7,05,74,013 4,46,04,613 There is apparent contradiction between the cash purchases from unidentified and unregistered dealers on the one hand and huge outstanding shown as due to them on the other. The appellant's explanation that these dealers always approach the appellant for getting the outstanding dues is too specious to lend credit.
It is conspicuous that despite such huge transactions, the appellant has not shown any closing stock in any of these 4 years.
In the tax audit report, under the head 'Audit Notes', the auditors have pointed out that-
(i) There were no balance confirmation certificates from debtors.
(ii) Some vouchers of payment made for purchases from unregistered dealers have been found unsigned or unstamped.
(iii) For the 'nil' value of closing stock, there was nothing else but the certificate of the proprietor.
(iv) There was no satisfactory evidence regarding loans accepted from various parties, only verbal explanation was given by the assessee's accountant. In the assessment year 1995-96 this is specifically mentioned in relation to loan from M/s. Gem. Exports.
(v) In the assessment year 1997-98, the accounts of M/s. Meena International and M/s. V.K. International were converted from debit balance of Rs.5,57,77,525/- and Rs.2,03,949/- as on 31.3.1996 into credit balance of Rs.96,01,569/- and Rs.2,96,051/- respectively as on 313.1997 on account of excess amount received. But for want of conclusive evidence/satisfactory explanation in respect of nature of such excess amount received - whether towards advance against 4 ITA no.3282/Ahd/2009 goods or borrowings - these credit balances were classified under current liabilities. Hence, it was not possible to furnish particulars referred to in clause 10 of the tax audit report (meant for loans or deposits above Rs.20,000/-)(note no.8) All this goes to show that accounts were not maintained as per norms of tax audit. Particularly, the purchases made in cash from the so-called unregistered dealers were debited as and when it suited the requirement of the appellant and represent just book entries.
In the tax audit report, in from no. 3CD, item no. 28(a) meant for quantitative details of a trading concern is omitted. In the course of appellate proceedings, it was admitted that no quantitative records were maintained despite the item (diamond) dealt with by the appellant being quite valuable and also of manageably small quantity and size. Even the quantitative tally of the goods dealt with during the whole year could not be furnished. There is no question of day-to-day quantitative record. This position of quantitative record coupled with the fact of purchases being in cash and from unidentifiable parties, and the remark of the tax auditors paraphrased above, leave no doubt that the books of account were incorrect and incomplete.
The affairs of the appellant being in his special knowledge, the onus u/s, 106 of the Evidence Act was on the appellant to clear the doubts raised in the remarks of the and to establish the correctness of the books of account in which he failed. Production of all the suppliers would of course have been impracticable.
But the appellant failed to establish the identity of even some of these suppliers on sample basis by filing relevant documents, not to speak of producing them. And then assessee claims huge outstanding due to them in the balance sheet. That irresistibly leads to the conclusion that the accounts are not correct and complete.
The only explanation of the appellant offered in the course of appellate proceedings was that the books of account were accepted by the sales tax authorities. This explanation is lame one inasmuch as the levy of sales tax is on the sales turnover which has not been questioned by the A.O. whereas income tax is a charge on the profits. Moreover, the appellant has failed to support this explanation by filing any express order of the sales tax authorities indicating that his books of account (as distinct from total sales) were accepted as correct and complete.
4.1 As regards basis of estimation of G.P, the ld. CIT(A) concluded as under.
"It is seen that in the case of Shri Kaushikkumar Natwarlal Bhavsar, Proprietor of Disha Exports, having loan transactions with the appellant and being in the same line of business (the nature and the modus
5 ITA no.3282/Ahd/2009 operandi of their business being identical), the G.P. rate disclosed in the assessment year 1998-99 was 0.79%. Having regard to these facts and circumstances of the case, it would be fair and reasonable to determine the profits in all the years under appeal by applying the g.p. rate of O.79%."
5. On further appeal by the assessee & the Revenue, the Tribunal vide their order dated 31-08-2007 in ITA nos.1829 to 1832/Ahd/2004 and 1933 to 1936/Ahd/2004 for the AYs 1995-96 to 1997-98 & 1999- 2000 concluded in respect of trading addition as under:-
"3.3 We, therefore, on a consideration of the totality of the facts and circumstances of the case, including the assessee's conduct before the authorities below, which has been not cooperative, and the fact that the onus to establish its case, in law, by leading evidence, direct or indirect, i.e., as permitted by the circumstances of its case, or the peculiarities of its trade, is on the assessee, and which it has completely failed to, consider a G.P. rate of 0.65% would be reasonable estimate of its gross profit for the first three years, that is the assessment years 1995-96 to 1997-98, and which would, we also observe, be at par with that assessed in its case for A.Y. 1998-99. The said rate stands arrived at by adopting the base (normative) rate of 0.80%, i.e., the rate as adopted by the Revenue, in the first appellate authority, being the rate as disclosed by another assessee in the trade for A.Y. 1998-99, rounded off to the nearest round (whole) figure; the figure of 0.79 being worked only to the two decimal places. Next, as some variability from year to year is a normal incident of any trade, and the Revenue has not shown any reason for it to be not so for this trade, some leverage, to account for the same, would have to be allowed. The assessee states of it to be to the tune of 0.25%, when it claims the g.p. rate in its trade to be varying from 0.15% to 0.40%. However, firstly, the assessee has not substantiated it's this claim and, secondly, even so, a range of 0.25%, i.e., the difference between the maximum and minimum values, would only be, by definition, a result of lower average variability. We consider this at 0.15%, so that discounting the base rate of 0.80% thereby leads to a g. p. rate of 0.65%. For the fourth year under appeal (A.Y. 1999-2000), the assessee's disclosed rate is 0.746%, which implies a lower variability factor for that year, and which we, therefore, consider at 0.05%. resulting in the estimation of the g.p. rate for that year at almost the disclosed rate, i.e., subject to its rounding off to the nearest round figure, or 0.75%. We decide accordingly."
6. Since the matter relating to the addition u/s 68 / 69 of the Act appears to have been restored to the file of the AO by the learned CIT(A) and was not in dispute before the Tribunal, the AO while giving effect to the order of the learned CIT(A), added an amount of 6 ITA no.3282/Ahd/2009 Rs.3,38,708/- in the name of M/s Asha Enterprises, Rs.6,14,739/- in the name of Lunar Diamond and Rs.9,50,000/- in the name of Chandra Diamond u/s 68 / 69 of the Act, the assessee having failed to establish identity & creditworthiness of these creditors as also genuineness of the transactions.
7. After receipt of the aforesaid order of the Tribunal, in response to a showcause notice before levy of penalty, the assessee submitted his reply, citing certain decisions which are not mentioned in the penalty order. After considering the reply of the assessee, the AO while relying upon the decisions in the case of B A Balasubramaniam and Brothers Co. vs. CIT [1999] 236 ITR 977, 978 (SC), CIT vs. Mussadilal Ram Bharose [1987] 165 ITR 14, 20 (SC), CIT vs. K R Sadyappan [1990] 185 ITR 49 (SC), CIT (Addl.) vs. Jeevan Lal Shah [1994] 205 ITR 244 (SC) and K. C. Builders v. CIT [2004] 135 Taxman 461 (SC), levied a penalty of Rs.11,77,759/- u/s 271(1)(c) of the Act @ 100% of the tax sought to be evaded.
8. On appeal, the learned CIT(A) cancelled the penalty in relation to trading addition, following the decision of the Tribunal in the case of Ashok K Shah, in the following terms:-
"3.3 I have considered the submissions of the Id. A.R. and the facts of the case. I find that additions have been made for the three years in the case of the appellant, which are as under:-
A.Y. Additions Amount [Rs.]
1995-96 (i)On account of low GP rate (ii) U/s 68 8,55,638
NIL
Total 8,55,638
7 ITA no.3282/Ahd/2009
1996-97 (i)On account of low GP rate (ii) U/s 68 13,56,840
(iii) U/s 69 9,53,447;
9,50,000
Total 32,60,287
1997-98 (i)On account of low GP rate (ii) U/s 68 1,59,101 9,00,000
Total 10,59,101
In identical circumstances, the Hon. ITAT has cancelled the penalty levied in respect of Ashok K Shah on the ground that the addition "on account of low GP rate was solely an estimate without there being any material or a finding as to the concealment of income or furnishing of wrong particulars of income. Such disallowance cannot be a basis for levy of penalty u/s 271(l)(c) of the Act and, therefore, relying on the decisions referred to by the assessee in its written submissions, we are of the opinion that this is not a fit case for levy of penalty us 271(l)(c) of the Act. Consequently, common order of the CIT(Appeals) for all the four assessment years confirming the penalty u/s 271(l)(c) of the Act is set aside and penalty orders are cancelled. Identical facts prevail in the case of the appellant also. Accordingly, penalty levied on account of additions on estimate due to low GP, i.e., Rs.1,84,940/-, Rs.11,77,759/- and Rs.3,96,950/-for assessment years 1995-96, 1996-97 and 1997-98 respectively, are cancelled.
3.4 However, I find that the Tribunal has not given any finding with respect to the penalty imposed on account of additions u/s 68 and sec. 69. In the absence of any finding with regard to these additions, it is quite clear that the Hon. ITAT has declined to interfere in the decision of the first appellant authority. The net result would be that the penalties relatable to the additions under sections 68 & 69 would remain. Following this decision of the ITAT it is held that the AO has rightly imposed penalty u/s 271(1)(c) in respect of Rs.9,53,447 and Rs.9,50,000/- for AY 1996-97 and in respect of Rs.9,00,000 for 1997-98. Penalties relatable to these additions are accordingly confirmed."
9. The Revenue is now in appeal before us against the aforesaid findings of the learned CIT(A) while none appeared on behalf of the assessee despite service of notice. Even earlier also when the appeal was fixed for hearing, none appeared on behalf of the assessee on 26-05-2011.Since there is nothing to suggest as to whether or not the assessee is in appeal before us in respect of levy 8 ITA no.3282/Ahd/2009 of penalty in relation to the amounts added u/s 68 / 69 of the Act, we proceeded to dispose of the appeal of the Revenue after hearing the learned Departmental Representative in relation to the penalty on GP addition. The learned DR merely supported the findings of the AO.
10 W e have heard the learned DR and gone through the facts of the case. Indisputably, the AO while rejecting the book results, estimated GP @1% of the turnover ,which was reduced to 0.79% by the ld. CIT(A) and 0.65% by the ITAT in their common order dated 31.8.2007. In these circumstances, the learned CIT(A) cancelled the levy of penalty in relation to GP addition, following the decision of the Tribunal in the case of Ashok K Shah. A copy of the said decision of the ITAT has not been placed before us while the learned DR appearing before us did not controvert the findings of the learned CIT(A) recorded by him in the light of the decision of the Tribunal in the case of Ashok K Shah.
10.1 In connection with levy of penalty on estimated profits after rejection of book results, we may refer to the following observations of the Hon'ble jurisdictional High Court in the case of CIT Vs. Subhash Trading Co.,221 ITR 110(Gujrat), wherein it was held "The facts of the present case, as noticed by us, amply demonstrate that this was a case in which a best judgment assessment has been made by rejecting the results disclosed by books of account maintained by the assessee and the figure of assessable income has been arrived at by applying an estimated gross profit rate on estimated sales, viz., both the figures are adopted by the Revenue authorities on certain assumptions but are not the actual figures of sales or gross profit earned by the assessee. There is bound to be a guess-work and application of the rule of thumb to some extent in such matters. The facts reflect that, while the assessee in its books of account disclosed the total sales to be Rs. 7,75,000, the Income-tax Officer on rejection of books of account estimated the sales to be Rs. 8,75,000 which on appeal before the Tribunal were substituted by Rs. 8,00,000. So also, while the gross profit disclosed by the books of account of the assessee was five per cent., the Income-tax Officer estimated the gross profit rate at 15 per cent. which again was reduced by the Tribunal to 12 per cent. In this circumstance, in the absence of any other material which might reflect on the 9 ITA no.3282/Ahd/2009 conduct of the assessee about deliberate attempt to maintain false books of account, on a preponderance of probabilities, no other conclusion can be reached but that the failure to return the total assessed income was not on account of any fraud or gross or wilful neglect on the part of the assessee. In the present case, the assessee has raised this contention. The material available on record in that regard was before the Revenue authorities and the Tribunal accepted those contentions of the assessee about invalidity of the levy of penalty under section 271(1)(c) of the Act merely by resorting to its Explanation. In this circumstance, we are unable to sustain the contentions of learned counsel for the Revenue that merely because the finding recorded by the Tribunal is not happily worded, the order of the Tribunal must be held to be erroneous, particularly when the Tribunal has recorded succinctly the contentions raised by the assessee in this regard and allowed its appeal. At best, it can be said to be an opinion unhappily worded on this aspect of the matter.
10.2 In the light of aforesaid decision, especially when in the case under consideration also addition has been made merely on estimating the gross profits, we are in agreement with the findings of ld. CIT(A) that this is not a clear case of furnishing inaccurate particulars of income. In order to examine the case of penalty, one has primarily to see the nature of concealment, the explanation offered by the assessee, his conduct, etc. These are essentially the matters which are required to be gone into with a view to find out whether or not any case as contemplated in section 271(1)(c) is made out so as to exercise the discretion of imposing the penalty on the assessee . The Hon'ble Punjab and Haryana High Court in the case of CIT v. Metal Products of India [1984] 150 ITR 714 observed that the addition if made on estimate under the proviso to section 145(1) of the Act by adopting the view that gross profit shown in the books of account was too low, then that does not automatically lead to the conclusion that there was failure to return the correct income by means of fraud or gross or wilful neglect. The provisions of sec. 271(1)(c) of the Act are not attracted in cases where the income of an assessee is assessed on estimate basis and additions are made therein.[CIT Vs. Sangrur Vanaspati Ltd.,303 ITR 53(Punjab & Haryana) & CIT vs. Dhillon Rice Mills (2002) 256 ITR 447 (P&H)].
10.3. In the light of aforesaid discussion, especially when there is no material before us so as to enable us to take a different view in the matter while admittedly the Revenue have not preferred any appeal against the findings of the learned CIT(A) in respect of cancellation of penalty in similar circumstances in the AYs 1995-96 and 1997- 10 ITA no.3282/Ahd/2009 98,we are of the opinion that since the difference in estimates was based on a difference of opinion and the revenue did not bring to our notice any positive proof regarding concealment of income by the assessee, we have no hesitation in concluding that it is not a case fit for levy of penalty u/s 271(1)(c) of the Act .Accordingly, we have no hesitation in upholding the conclusion of the ld. CIT(A). Therefore, ground no.1 in the appeal is dismissed.
11. No additional ground having been raised before us in terms of residuary ground no.2 in the appeal, accordingly, this ground is dismissed.
12. In the result, appeal is dismissed.
Order pronounced in the court today on 5-08-2011
Sd/- Sd/-
(T K SHARMA) (A N P AHUJ A)
JUDICI AL MEMBER ACCOUNTANT MEMBER
Dated : 5-08-2011
Copy of the order forwarded to:
1. Shri Vinod Kantilal Shah Prop. Arihant Gems, 11/36, Sanghnani Estate, Ghatkopar (W ), Mumbai-400 086
2. Income-tax Officer, W ard-3(3),RK Building,Near Railway Crossing, Petlad,Distt. Anand-388450.
3. CIT concerned
4. CIT(A)-I, Baroda
5. DR, ITAT, Ahmedabad Bench-B, Ahmedabad
6. Guard File BY ORDER Deputy Registrar Assistant Registrar ITAT, AHMEDABAD