Income Tax Appellate Tribunal - Jaipur
Siraigo Pharma Pvt. Ltd., Jaipur vs Assessee on 26 June, 2015
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IN THE INCOME TAX APPELLATE TRIBUNAL,
JAIPUR BENCHES, JAIPUR
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BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM
vk;dj vihy la-@ITA No. 209/JP/2015
fu/kZkj.k o"kZ@Assessment Year : 2005-06
M/s. Siraigo Pharma (P) cuke The DCIT
Ltd. B-18, Sardar Patel Vs. Central Circle- 3
Marg, Chomu House, Jaipur
Jaipur
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAICS 2958 J
vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrh dh vksj ls@ Assessee by : Shri Vijay Goyal, CA
jktLo dh vksj ls@ Revenue by : Smt. Neena Jeph, JCIT -DR
lquokbZ dh rkjh[k@ Date of Hearing : 04/06/2015
?kks"k.kk dh rkjh[k@ Date of Pronouncement : 26/06/2015
vkns'k@ ORDER
PER R.P. TOLANI, JM
This appeal is filed by the assessee challenging confirmation of imposition of penalty u/s 271(1) (c) of the Act by the order of ld. CIT(A)-4, Jaipur dated 1-1-2015, raising following grounds:-
"1. On the facts and in the circumstances of the case the ld CIT(A) erred in holding that books of account of the company deliberately not produced before the AO.
2. On the facts and in the circumstances of the case and in law the ld. CIT (A) erred in confirming the imposition of penalty of Rs. 6,20,651/- under section 271(1) (c ) of I.T. Act, 1961 which was levied by ld AO by holding that the 2 assessee is guilty of concealment of income to the extent of Rs. 16,96,113/-
3. On the facts and in the circumstances of the case and in law the ld CIT(A) erred in holding that the facts of the case of the appellant are distinct from the facts of the case of Shiv Lal Tak vs CIT (2001) 251 ITR 373 (Raj), CIT Vs Harshwardhan Chemical & Material Ltd (2003) and Durga Kamal Rice Mills Vs CIT(2004).
2.1 Brief facts of the case are that the assessee is a Private Limited Co. engaged in manufacturing and trading of medicines with registered office at Navi Mumbai. Shri Radhey Shyam Mittal and Shri Atul Burman (working director) are Directors of the company and not related. Shri Atul looked after the business and accounts at Mumbai office. Assessee filed its regular return u/s 139(1) on the basis of its audited books of accounts declaring loss of Rs. 16,96,113/-. Search & Seizure operations were carried on 27-08-2008 as a consequence to searches over Mittal Group at Mumbai. Neither incriminating documents qua the assessee were found during search or post search inquiries and in statement of Mr. Mittal taken during the search. Consequent to notice u/s 153A assessee filed its return declaring same loss of Rs. 16,96,113/-. By that time assessment was taken up, dispute arose between the directors due to various reasons. Ld. AO in 153A assessment asked for production of books of accounts. Assessee explained the factual position that computerized books were maintained at Mumbai office under the control of working Director Shri 2 3 Atul Burman and due to impeding disputes, the responding director i.e. Shri Radhey Shyam Mittal was not able to produce them. Consequently ld. AO framed best judgment order u/s 144 of Income Tax Act by summarily disallowing the entire loss of Rs. 16,96,113/- claimed in return. Assessee claims to have not filed the appeal as there were continuous losses and the future was bleak due to disputes. Carry forwarding of losses was of no avail as in the subsequent years business operations were closed. Penalty proceedings were initiated; in reply thereto assessee filed detailed explanation dated 18-03-2011 along with various case laws. Ld. A.O. without any objective consideration of reply imposed the penalty under section 271(1)(c) qua the summary disallowance of loss.
2.2 Aggrieved, assessee preferred first appeal where also detailed submissions were filed which are reproduced in the order of Ld CIT(A) who confirmed the AO's order imposing penalty.
2.3 Aggrieved, the assessee is now before us and the Ld. Counsel for the assessee contends that:-
(i) Both the authorities below have erroneously held that the assessee deliberately did not produce the books of accounts.
These observations are contrary to facts and evidence available on record. They failed to appreciate that despite intensive search operations no documents or books of account pertaining to the 3 4 assessee in question were found at Jaipur. This fact itself proves that the books of account of the assessee company were not lying at Jaipur office but at Mumbai. In other parallel 153A assessments of Mittal group and during the course thereof books of accounts and other record were duly produced before assessing officers. In such circumstances, there was no reason to assume that the books at Mumbai were in possession of Shri Mittal and deliberately were not produced before AO.
(ii) Ld. CIT(A) in AY 2007-08 vide order dated 29-10- 2012, on same facts while admitting the additional evidence has endorsed the dispute between directors. For non production of books earlier before AO, it has been held that assessee was prevented by sufficient cause in this behalf by following observations:-
''6. ........... Having considered the above facts it is noticed that there was definitely some dispute between the directors on the issue of books of account. However, circumstantial corroborated facts indicate that the appellant was prevented by sufficient cause for production of books of account and the case of appellant is covered under clause -b of rule 46A(1) of IT Rules...."
Surprisingly the present ld. CIT(A) on same material and evidence held that assessee has deliberately not produced the books of account. Thus the penalty in question is based on two contradictory findings in AY 2005-06 & AY 2007-08 which is not justifiable in the light of such contradictory findings of facts. Assessee's contention are corroborated and strengthened in view of the following facts:-4 5
a) In AY 2005-2006, no application for additional evidence was made as no quantum appeal was filed for this year.
b) In AY 2005-2006, in Assessment Order there is no findings that the assessee has shown low GP or understated revenue or inflated expenses. The ld AO has only disallowed the loss for the reason the books of account were not produced before him.
Ld. Counsel for the assessee vehemently argued that penalty proceedings being separate and independent of quantum proceedings, the assessee can raise the issue about validity of 153A assessment and merits of quantum additions in penalty proceedings. It is obligatory on the part of A.O. to consider the issues and explanation from judicial perspective in penalty proceedings. Reliance is placed on the case of Tidewater Marine International Inc Vs DCIT 96 ITD 406 (Delhi).
"In the case of Deep Chand Kothari V. CIT (1988) 171 ITR 381 (Raj) the Hon'ble High Court has held that an order passed by an authority without jurisdiction is a nullity and its invalidity can be challenged whenever and wherever it is sought to be enforced or relied upon. In the case of Jaidayal Pyarelal V. CIT 1973 Tax LR 880 the Allahabad High Court held with reference to a new plea taken in the penalty proceedings which was not taken in the regular assessment proceedings as under:-
"It is thus clear that the regular assessment order is not a final word upon the plea taken therein or which might have been taken at this stage. The assessee is entitled to show cause in penalty proceedings and to establish by the material and relevant 5 6 facts which may go to affect his liability or the quantum of penalty. He cannot be held to be debarred from taking appropriate plea simply on the ground that such a plea was not taken in the regular assessment proceedings."
It is thus emphatically pleaded that assessee has demonstrated that its assessment had attained finality due to non service of notice u/s 143(2) within limitation period. Admittedly neither any incriminating material was found as a result of search nor it is relied on by ld. AO while disallowing the loss; consequently the 153A assessment and summary disallowance of loss is void ab initio. Hence the impugned 153A assessment and addition/ disallowance of loss is not sustainable in law. On this plea also the impugned penalty is liable to be deleted. 2.4 Ld. Counsel contends that assessee has shown GP rate of 62.85%, there is no finding of ld AO in assessment order that the GP declared by the assessee is at lower side or the expenses are inflated. Return of income is filed on the basis of books of account audited by Chartered Accountants under Companies Act and Income Tax Act i.e. by independent statutory agencies after due examination have given a statutory certificate that audited record give a true and fair view of the loss of the company. The Audited annual accounts should be accepted as evidence in view of the ratio laid down by Hon'ble Delhi High Court in the case of Addl. CIT Vs Jai Engineering Works Ltd. (1978) 113 ITR 6 7 389, 391-2 (Del), wherein, Hon'ble High Court has held that audit report is a reliable evidence. It is further contended that:
a. It is by now settled law that the scope of the assessment u/s 153A is limited to incriminating documents/evidence found as a result of search. In search and seizure operations admittedly no incriminating material belonging to this assessee was found. In assessment order, no such incriminating document is relied to disallow the loss. There is no finding of the AO as regard document showing unaccounted sales or purchases or inflation of expenses or any other unaccounted income. b. The assessee filed its regular return u/s 139(1) on 8-10-2005 which was processed u/s 143(1). No notice u/s 143(2) was issued till the last date of limitation for issue of such notice i.e. 30.09.2006. Consequently by operation of the provisions impugned assessment for AY 2005-06 of the assessee stands abated. In these circumstances notice u/s 153A cannot be issued for an abetted assessment, 'more particularly where no incriminating documents as a result of search are discovered by search & seizure operations on 27-08-2008.
c. Reliance is placed on the decision of Hon'ble Jurisdictional High Court in the case of Jai Steel (India) Vs Astt Commissioner of Income Tax (2013) 88 DTR (Raj) 1 : (2013) 259 CTR (Raj) 281 : (2013) 219 TAXMAN 223 (Rajasthan). ITAT Jodhpur Bench relying on this decision has accordingly held in the case of Vishal Dembla Vs Deputy Commissioner of Income Tax ITA 308/Jd/2013; 22nd July, 2013 (2013) 93 DTR 7 8 (Jd)(Trib) 1 (2013) 36 CCH 484 JodhTrib (2014) 61 SOT 10 (Jodhpur)(URO).
2.5 It is contended that:-
(i) Assessee was suffering continuous losses in subsequent years also and ultimately, the business operations of the assessee were closed. Therefore, there can be no design to show loss. Besides in case of disallowance of loss there is no loss to the revenue. Reliance is placed on Hindustan Steels Ltd. Vs. State of Orissa, 83 ITR 26 (SC). Hon'ble Apex Court has held that -
Penalty shall not be imposed merely because it is lawful to do so. Even if a minimum penalty is prescribed the authority shall exercise the discretion judicially and on consideration of all the relevant circumstances; the penalty should not be imposed when there is technical or venial breach of the provisions.
(ii) Similarly penalty cannot be levied merely on the ground that the assessee has not filed appeal against the addition, not filing appeal does not mean that the issue is not debatable. The Hon'ble Karnatka High Court in the case of CIT V Manjunath Cotton and Ginning Factory 2013-TIOL-536-HC-Kar/263 CTR 153 held that penalty is not automatic even if tax liability is admitted meaning thereby that no appeal against order. Finding in assessment order will not operate as res-judicata in penalty.
(iii) No reasons have been assigned for grossly and summarily wiping out the entire loss. Thus it is a case of arbitrary disallowance and not judicious and reasonable estimation of income. In such cases of guesswork and conjecture based estimation penalty u/s 271(1) ( c ) can not be levied. 8 9
(iv) Reliance is placed on following decisions of Hon'ble Rajasthan High Court: -
a) Shiv Lal Tak Vs CIT [2001] 251 ITR 373 (Raj)
b) CIT Vs Harshvardhan Chemicals & Minerals Ltd
[2003] 133 Taxman 320 (Raj)
2.6 In view of the these submissions, it is pleaded that the assessee has neither concealed the income nor filed inaccurate particulars thereof, therefore penalty u/s 271(1)(c) is not imposable in this case. 2.7 LD. DR relied on the orders of lower authorities and contends that ld. CIT(A) has held that facts of the assessee's case are different than AY 2007-08. Assessee could not properly substantiate that books of accounts were in the possession of Mr. Barman, therefore, a proper inference has been drawn that assessee deliberately failed to produce the books. Adverting to the assessee's plea about no loss to revenue, it is contended that after amendment in sec. 271(1) (c), penalty can be imposed even in cases of reduction of losses.
2.8 We have heard the rival contentions and peruse the material available on record. We are of the view that this is not a fit case for imposition of penalty u/s 271(1) c on following facts, reasoning and observations:
(i) In assessment order, no incriminating document is alleged to be discovered as a result of search or has been relied on 9 10 by AO in assessment order to disallow the loss. There is no finding of the AO alleging any document showing unaccounted sales or purchases or inflation of expenses or any other unaccounted income.
(ii) Assessee's contention about non service of notice u/s 143(2) till the last date of limitation has not been rebutted.
Consequently the impugned assessment stands deemed as abetted. In view thereof there is merit in assessee's plea that notice u/s 153A cannot be issued for an abetted assessment, based on search & seizure operations on 27-08-2008 where no incriminating documents as a result of search are discovered.
(iii) Reliance is placed on the decision of Hon'ble Jurisdictional High Court in the case of Jai Steel (India) Vs ACIT (2013) 259 CTR (Raj) 281 and it is by now settled law that the scope of the assessment u/s 153A is limited to incriminating documents/evidence found as a result of search. In search and seizure operations admittedly no incriminating material belonging to this assessee was found. It is by now settled law that the scope of the assessment u/s 153A is limited to incriminating documents/evidence found as a result of search.
(iv) There is no justifiable basis to disbelieve the assessee's contention that the books of accounts could not be produced as they were in the custody of Shri Atul Burman who also replied that he has left the company. Besides ld. CIT(A) in AY 2007-08 has endorsed the fact of disputes between directors and assessee's sufficient cause in not producing the books of accounts. 10 11
(v) Assessee's contention that in search assessments of other group cases which were in their control, all the documents and books were duly produced is not rebutted. There is no reason to assume as to why assessee will not produce the books of a loss making concern. This also indicate that non production of books was non deliberate.
(vi) Ld. CIT(A) in AY 2007-08 qua the non production of books has given clear finding of fact that there was definitely some dispute between the directors on the issue of books of account. The circumstantial evidence and facts indicate that the appellant was prevented by sufficient cause for production of books of account. Based on these observation additional evidence was admitted by an order under rule 46A(1). No reasons have been assigned as to how the facts are distinguishable in this year.
(vii) Except non production of books, no reason or basis whatsoever has been assigned by authorities below in disallowing the entire loss. Thus disallowance is based on pure guesswork and not on any cogent reason.
(viii) Hon'ble Apex Court in Hindustan Steels Ltd. Vs. State of Orissa, 83 ITR 26 (SC). has held that Penalty shall not be imposed merely because it is lawful to do so. Even if a minimum penalty is prescribed the authority shall exercise the discretion judicially and on consideration of all the relevant circumstances; the penalty should not be imposed when there is technical or venial breach of the provisions.
11 12 2.9 In consideration of all the above facts, circumstances, case laws and contentions, we are of the view that there is no justification in the imposition of penalty u/s 271(1)c in the instant case. The same stands deleted.
3.0 In the result assessee's appeal is allowed.
Order pronounced in the open court on 26/06/2015.
Sd/- Sd/- ¼Vh-vkj-ehuk½ ¼vkj-ih-rksykuh½ (T.R. Meena) (R.P.Tolani) ys[kk lnL;@ Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 26/06/ 2015 *Mishra
vkns'k dh izfrfyfi vxzfs 'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- M/s. Siraigo Pharma (P) Ltd. Jaipur
2. izR;FkhZ@ The Respondent- The DCIT, Central Circle- 3, , Jaipur
3. vk;dj vk;qDr¼vihy½@ CIT(A).
4. vk;dj vk;qDr@ CIT
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur
6. xkMZ QkbZy@ Guard File (ITA No.209/JP/2015) vkns'kkuqlkj@ By order, lgk;d iathdkj@ Assistant. Registrar 12