Income Tax Appellate Tribunal - Ahmedabad
Noble Cloth Stores , Bharuch vs Assessee on 7 June, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD '' A " BENCH - AHMEDABAD
Before Shri R.P. Tolani, JM, & Shri Manish Borad, AM.
ITA No.271/Ahd/2013
Asst. Year: 1994-95
Noble Cloth Stores, Beside Vs. ITO, Wd-2, Bharuch.
Musaji Chahwala, Katopor
Bazar, Bharuch.
Appellant Respondent
PAN AABFN 6020E
Appellant by None (Written submission)
Respondent by Shri A. R. Rewar, Sr.DR
Date of hearing: 31.5.2016
Date of pronouncement: 7/6/2016
ORDER
PER Manish Borad, Accountant Member.
This appeal of assessee is directed against the order of ld. CIT(A)-IV, Baroda, dated 7.11.2012 in appeal no.CAB/IV-107/2012- 13, passed against order u/s 271(1)(c) of the IT Act, 1961 for Asst. Year 1994-95 on 30.6.2006 by ITO, Wd-2, Bharuch. Following grounds have been raised by the assessee :-
1. On the facts and circumstances of the case and as per law, the learned Commissioner of Income-tax (Appeals) erred in confirming penalty u/s.271(l)(c)of the Act.
2. The appellant submits that since no default has taken place u/s.27l(l)(c).
penalty may be deleted.
ITA No. 271/Ahd/2013 2Asst. Year 1994-95
3. The appellant craves leave to add, alter or vary any of the grounds of appeal.
2. Briefly stated facts of the case as culled out from the assessment records are that the assessee is a partnership firm engaged in the business of whole sale dealer in clothes and job work of embroidery work. Return of income for Asst. Year 1994-95 was filed on 31.8.1994 declaring total income at Rs.1,300/-. Survey proceedings were conducted u/s 133A of the Act at the premises of the assessee on 20.10.94. Pursuant thereto assessment proceedings were completed u/s 143(3) r.w.s. 148 of the Act on 17.3.1997 after making addition on account of unaccounted purchase and sales at Rs.10,16,273/- and addition on account of loose bills impounded during survey proceedings at Rs.66,685/-.
3. On appeal before ld. CIT(A) on quantum additions, addition relating to unaccounted sales at Rs.10,16,273/- was sustained at 20% of the unaccounted sales bringing down the addition to Rs.2,03,255/- and addition of Rs.66,685/- as per loose bills was confirmed. Thereafter both the assessee and the Revenue went in appeal before the Tribunal, Ahmedabad, through which assessee got further relief as the additions were sustained by applying GP rate at 15.42% on the total unaccounted sales at Rs.10,82,958 (Rs.10,16,273 + Rs.66,685/-).
4. At the time of completion of assessment u/s 143(3) r.w.s. 148 penalty proceedings u/s 271(1)(c) of the Act were initiated and after the completion of appellate proceedings before ld. CIT(A) order u/s ITA No. 271/Ahd/2013 3 Asst. Year 1994-95 271(1)(c) of the Act was framed on 30.6.2006 by ITO, Wd-2, Bharuch imposing penalty at Rs.74,810/- on the addition sustained by ld. CIT(A). While doing so ld. Assessing Officer observed as under :-
"I have carefully gone through the submission of the assessee but it is not acceptable. It is pertinent to mention here that on the basis of findings, during the course of survey U/s 133A of the Act the notice U/s 148 was issued to the assessee and the assessment U/s 143(3) read with section 147 was finalized. The issuance of notice U/s 147 itself is based upon the additional evidence of escapement of income from the tax. Accordingly the A.O. has categorically established that the assessee has indulged in unaccounted purchase and sales and finally the Learned CIT (A)-Vl, Baroda has also confirmed the part of the addition considering the same to have been earned by the assessee through unaccounted purchase and sales. As mentioned earlier, in the return of income filed by the assessee, in response to notice U/s 148 of the Act; that too, issued after the survey was carried out, the assessee did not offer the income earned out' of unaccounted purchase and sales as detected in survey. It proves that the assessee has concealed the income by furnishing inaccurate particulars of its income, in view of the same the assessee's contention cannot be accepted especially when the appellate authority have also confirmed the addition made by the A.O. Further in the case of M/s Vimal Ginning and Pressing Factory Vs CIT 279 ITR 100 (MR), it was held that "In our considered opinion, it is difficult to take a different view than the one taken by the three authorities on the bests of the factual explanation offered by the assessee in the question involved In the first place, it is a case where the assessee made an attempt to explain but could not persuade the three authorities. Thirdly the reference court cannot go into the adequacy of the explanation' again in its reference jurisdiction in abstract form for want of any legal issue/interpretation involved and lastly, once the addition Is upheld, then the penalty has got to be imposed, consequent upon the rejection of the explanation offered. In other words once the explanation offered by the assessee is rejected then in that event, a case for imposition of penalty under 271(1) (c) is made out. It is much more so when there is not technical issue is involved"
In view of the above discussion, I am of the opinion that it is fit case for levy of penalty U7s 271 (1(c) of the act, as the assessee has concealed the income by furnishing inaccurate particulars of its income. Accordingly the assessee is liable for penalty U/s 271(1) (c) of the Act. The minimum and maximum penalty leviable in the case is Rs. 74,8107- and Rs. 2,24,4307-. (I.e. at the rate of 100% & 300% respt.) As against maximum penalty of Rs.2,24,430/-,the minimum penalty is hereby levied of Rs. 74,810/-"
ITA No. 271/Ahd/2013 4Asst. Year 1994-95
5. Aggrieved, assessee went in appeal before ld. CIT(A) who confirmed the penalty of Rs.74,810/- by observing as under :-
"12. I have considered the penalty order u/s 271(l)(c) of the IT Act passed by the AO as well as the submission of appellant. The above entire submission of the appellant is not found to be tenable. I agree with the view of the AO that issuance of notice u/s 147 itself is based upon the additional evidence of escapement of income from the tax. The Ld. CIT (A) in the case of appellant vide his order no. CAB/II-94/97-98 date 29-04-1997 has confirmed the addition in the case of appellant for the year under consideration on difference footings. However, the observation / findings of the Ld. CIT(A) clearly shows that the appellant had not filed accurate particulars of income. Moreover, the findings of the Ld. CIT(A) has been confirmed by Hon'ble ITAT, Ahmedabad. It is a different fact that the Hon'ble ITAT, Ahmedabad, has restricted the over all gross profit from 20% to 15.42%. From the observation of Ld. CIT(A), it cannot be said that the case of the appellant is mere estimation of GP addition. In this regard the observation of Ld. CIT(A) as given at para-4 of his above order is reproduced here under for reference:
'7 have considered the facts of the case, submissions of the A.R. and the finding of my learned predecessor. It is clear that the purchases and corresponding sales were out of the books of account. It is also accepted that the total sales cannot be added and only the element of profit from such unaccounted transactions can be brought to tax. The appellant has been declaring gross profit in his business at a rate less than 15% In the past and the same have been accepted by the department. During the course of survey, separate set of books of account were found and hence profit from sales as per these books of account has to be brought to tax. The submissions of the A.R. that the profit at the rate of 25% of the sales will be exorbitant is to some extent reasonable. However, the arguments of the appellant that income from unaccounted sales may be restricted to 5% is not acceptable. It may be mentioned that whatever expenses incurred by the appellant have already been debited to the P & L account and it is only the unaccounted purchases and sales which were kept out of the books of account and hence the profit of margin on such sales have to be higher than the profit as declared in the books of account Taking a reasonable view, I hold that the net profit from the unaccounted sales at the rate of 20% will be reasonable. The learned C.I.T. (Appeals) in earlier assessment year perhaps estimated gross profit at the rate of 25% as in that year there was an element of initial unaccounted purchases have to be brought to tax under section 69 of the Act in addition to the profit on sales. This year, as explained by the A.R. that funds were available from ITA No. 271/Ahd/2013 5 Asst. Year 1994-95 last year which were used for initial purchases and hence the net profit adopted at 20% for this assessment year will be reasonable. The assessing officer is directed to tax only 20% of the total unaccounted sales".
13. The Ld. CIT(A) has clearly observed that the purchases and corresponding sales were out of books of account. During the course of survey action in the case of appellant, separate set of books of account were found and hence profit from sales as per these books of account had to be brought to tax. The Ld. CIT(A) has not accepted the argument of the appellant that the income from unaccounted sales may be restricted to 5%. Thus, in the case of appellant it is clear that the purchases and corresponding sales were out of books of account and it was maintaining separate set of books of account. These facts clearly show that the appellant had concealed its income by furnishing inaccurate particulars of income. Considering these facts, I confirm the above penalty of Rs. 74,810/- as levied by the AO u/s 271(l)(c) of the IT Act. Thus, the above grounds of appeal no. l and 2 of the appellant are here by dismissed."
6. Aggrieved, assessee is now in appeal before the Tribunal.
7. None appeared in person on behalf of the assessee. However, written submissions were filed by the ld. AR of the assessee in support of the grounds raised wherein following has been submitted :-
Written submissions :
(1) The Assessing Officer has levied penalty of Rs.74,810/- by order dated 30-6-
2006 confirmed by Commissioner of Income-tax (Appeals). Against that order this appeal is filed.
(2) The Assessing Officer had made addition of Rs.10,82,958/- u/s.69 of the Act by order dated 17-03-1997. Copy of the assessment order is enclosed: (P. 1-6). Based on the papers found during survey, the Assessing Officer has worked out OK aforementioned amount as per details given in para 6 of the order. It was pointed out to her in letter dated 13-03-1997 (P. 7-9) (as reproduced in para 10 of the order) procedure of the work done by the appellant.
(3) The assessee is primarily in the business of selling cloth only. On account of competition, it also offered to give another service in the form of embroidery ITA No. 271/Ahd/2013 6 Asst. Year 1994-95 work which was got done by it through outside karigars. The assessee was merely getting reimbursement of payment made to karigars because his main profit was in sale of cloth. Addition was made on the basis of figures mentioned in embroidery books and Vepar Yadi. Items mentioned in embroidery books find place in Vepar Yadi where moneys received on credit, sales, advances received, outstanding balances, etc. are recorded. Total of both debits and credits in Vepar Yadi are wrongly suggested as sales whereas the other side is mere recovery. The sales are reflected in overall sales and therefore, there was no question of any income having remained undisclosed. The Assessing Officer, however, did not accept the explanation and made addition.
(4) The assessee took this matter before the learned Commissioner of Income-tax (Appeals) to whom submissions were made by letter dated 21-01- 1998 (P. 10-11) and further in a note. (P. 12-17). These aspects were reiterated by the assessee. The learned Commissioner of Income-tax (Appeals), however, did not accept the view of the assessee. However, he restricted the addition to 20% of the sales as per order dated 25-02-1999 and thus addition was reduced by 80%. (P. 18-25).
(5) The matter was further taken before the Income-tax Appellate Tribunal which took the view that the overall gross profit of 15.42% should be taken as income resulting in further reduction in income. Copy of the order of the Income-tax Appellate Tribunal dated 20-10-2005 is enclosed. (26-31).
(6) On account of smallness of the amount and because this was essentially a matter of fact, the assessee did not take up any further proceedings.
(7) In the course of penalty proceedings, the assessee replied vide letter dated 26- 12-2006 (Page 32-33). It was pointed out that the assessee has been contending from day one that these were all estimates.
(8) It is further put on record that the explanation given by the assessee has not been found to be false but merely not accepted. In the circumstances, it is submitted that no penalty would be leviable.
(9) I may further draw attention to section 69 of the Income-tax Act which is reproduced.
69. Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the [Assessing] Officer, ITA No. 271/Ahd/2013 7 Asst. Year 1994-95 satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year.
(10) You will find from the above that what is taxed u/s.69 is deemed income. In fact, all the sections from section 68 to 69D result in taxation of income which is regarded as deemed income.
(11) The question is whether penalty can be levied u/s271(l)(c) of e Act on deemed income. This particular point has been dealt with by Gujarat High Court and other Courts in respect of penalty u/s. 271(l)(c) on additions made u/s.68 of the Act in following cases:.
(i) Gujarat High Court in case of National Textiles [249-ITR-125] dealt with the above issue. The assessee could not satisfactorily explain cash credits by evidence and documents. The parties who had advanced the loans were neither disclosed nor were their any supporting documents on record. The Accountant who had arranged the loan was not produced as he had left. In the background of the above, it was held that cash credit can be treated as income of the assessee. The department made no effort in penalty proceedings to establish that cash credits were income and that the explanation that cash credits were arranged as temporary loan was false. Following the earlier judgement of Gujarat High Court in case of Vinaychand Harilal [120-ITR-752], it was held that no penalty is leviable. The related portion from the judgement on page 135 and 136 is reproduced.
The provisions of section 68 permitting the Assessing Officer to treat unexplained cash credit as income are enabling provisions for making certain additions, where there is failure by the assessee to give an explanation or where the explanation is not to the satisfaction of the Assessing Officer. However, the addition made on this count would not automatically justify imposition of penalty under section 271(l)(c) by recourse only to Explanation 1 below section 271(1)(c).
In the instance case, the cash credits were not satisfactorily explained by evidence and documents. The parties who had advanced the alleged temporary loans were neither disclosed with their particulars nor any supporting documents were on record. Only two entries were explained. The accountant who had arranged the loan was not produced stating that he had left the service and relations with him are strained. On this state of accounts and evidence in the quantum proceedings, the Department was justified in treating the cash credits as income of the assessee but merely on that basis by recourse to Explanation 1, penalty under section 271(l)(c) ITA No. 271/Ahd/2013 8 Asst. Year 1994-95 could not have been imposed without the Department making any other effort to come to a conclusion that the cash credits could in no circumstances could have been amoujnts received as temporary loans from various parties. The assessee in the quantum proceedings failed to produce the accountant but the Department also in penalty proceedings made no effort to summon him. Applying the test (ii) discussed above, therefore it was a case where there was no circumstance to lead to a reasonable and positive inference that the assessee's case -- that the cash credits were arranged as temporary loans, was false. The facts and circumstances are equally consistent with the hypothesis that it could have been sundry loans in small amounts obtained from different parties. In our opinion, therefore even taking recourse to Explanation 1, the same circumstances or state of evidence on which the cash credits were treated as income, could not by themselves justify imposition of penalty without anything more on record produced by the assessee or the Department.
(ii) Subsequently, in another judgement in case of Jalaram Oil Mills [253-ITR-
192], the department not accepting the explanation regarding cash credits, made addition to income u/s. 68 of the Act. In fact, in this case unable to explain the credits, the assessee himself agreed that credit • entries in Books of Accounts may be treated as its income by virtue of provisions u/s. 68 of the Act. However, the Court held that that was not sufficient for levy of penalty for concealment of income. The related portion on page.197 of the order is as under:-
"However, de hors the said provision it is not possible to state with certainty that the said sums would be "concealed income" of the assessee for the year under consideration. The Tribunal has found as a matter of fact, that it was further necessary for the department to prove that the amount in question was the assessee's income for the year under consideration. In that regard there is no material to prove the same fact."
Concurring with the above judgement, the High Court dismissed the appeal of the department.
(iii) Earlier, Gujarat High Court in case of Baroda Tin Works [221-ITR=661] was concerned with similar situation where the penalty was levied for addition u/s. 68 of the Act. The related portion of the judgement on page 671 is reproduced.
"Sections 68, 69, 69A, 69B and 69C are all part of the same scheme where certain amounts though not proved to be the income of the assessee of the previous year concerned are for the purpose of charging to tax are deemed to be so by creating legal fiction absolving the Department from its initial ITA No. 271/Ahd/2013 9 Asst. Year 1994-95 duty to prove that any such is the income of the assessee. But for these provisions, it was for the Revenue to prove that any sum, not disclosed by the assessee but which is sought to be taxed as income of the assessee, is the income of the assessee for the previous year relevant to the assessment year."
(iv) Amritsar Tribunal in case of Rakesh Gupta [107-TTJ-109] dealt with the case where addition was made u/s. 68 but it held that addition by operation of deeming provisions of section 68 by itself cannot justify penalty in the absence of any finding that assessee had furnished inaccurate particulars with malafide intention to evade tax or the explanation given by the assessee was not bonafide or false. In taking this view the Tribunal relied on the judgement of Delhi High Court in case of Mrs. Baljit Jolly [263- ITR-239] and of Calcutta High Court in case of Amalendu Paul ]145-ITR- 439]. The related portion of page.916 of the judgement is reproduced.
"Moreover the addition can be made u/s. 68 if the explanation of the assessee in regard to the source of credit found in the books of account of the assessee has not been found satisfactory by the AO. The addition is made under the deeming provisions of s. 68 of the Act. But the operation of the deeming provisions of s. 68 cannot be extended to penalty under s. 271(l)(c). For the purpose of levy of penalty, the AO is required to establish the explanation furnished by the assessee is false or the same is not bona fide and that all the material facts relating to computation of income have not been disclosed."
(v) Karnataka High Court in case of M. M. Gujamgadi [290-ITR-168] dealt with similar issue. Unable to produce the lenders who had given loans to the assessee, the assessee voluntarily agreed for addition of Rs.2,01,000/- to his income as cash credits. The High Court affirmed the order of the Tribunal for deletion of penalty u/s. 271(l)(c) of the Act.
(12) In view of the above, it is respectfully submitted that penalty cannot be levied either because addition is based on deemed income and the income so represented was not earned by the assessee as per explanation given which has not been found false as also the fact that it is levied on estimate.
8. On the other hand, ld. DR supported the orders of lower authorities.
ITA No. 271/Ahd/2013 10Asst. Year 1994-95
9. We have heard the ld. DR and gone through the written submissions filed by the assessee. Through this appeal assessee is aggrieved with the action of ld. CIT(A) confirming penalty of Rs.74,810/- imposed by ld. Assessing Officer u/s 271(1)(c) of the Act. We observe that it was noticed by the ld. Assessing Officer that the income chargeable to tax had escaped assessment in view of clause
(b) of Explanation-2 of section 147 of the Act and thereafter notice u/s 148 of the Act was issued to assessee on 15.11.1994 pursuant to survey action u/s 133A of the Act conducted on 20.10.1994 at the business premises of assessee. During the course of survey several bill books, loose papers, fadia book, embroidery book, vepar-yadi books and books of accounts were found. On the basis of information gathered from these books of accounts and documents, notice u/s 148 was issued and assessment proceedings were completed u/s 143(3) r.w.s 148 of the Act. During the course of assessment proceedings ld. Assessing Officer observed that on the basis of documents found during survey proceedings there stood unaccounted sales at Rs.10,82,958/- which comprised of sales as per loose bills at Rs.66,685/- and the remaining being unaccounted sales not accounted in the regular books of account at Rs.10,16,273/-. Explanation was called for by the ld. Assessing Officer as to why the addition of Rs.10,82,958/- should not be made to the total income of the assessee. Following reply was submitted by assessee on 13.3.1997 :-
"The account section at that relevant time was looked after by their partner Gulambhai. As he was old and uneducated he was helped by a part-time accountant. They are doing the embroidery work to attract more ITA No. 271/Ahd/2013 11 Asst. Year 1994-95 customers. They are not gaining anything from the embroidery work and the embroidery charges received are paid to skilled workers. They have further stated that Vepari Yadi reports, moneys received on credit, sales, advances, received, outstanding balances etc. All entries in embroidery book are again reported in Vepari Yadi and these are recorded in books of accounts. The totals of both debits and credits in Vepar Yadi are wrongly suggested to sales as one side is of sales which is already reflected in books and other is mere recovery thereof. In para 6 of their reply it is stated that "purchases of unaccounted sales, as also admitted by you, were made out of undisclosed income earned." In such circumstances what is required to be added is net profit of Rs.10,62,958/- as per the direct judgement of Calcutta High Court (201 ITR 608). Loose bills of Rs.66,685/- may include duplicate bills and copies of which are also included in Vepar Yadi".
10. On going through the above reply made by assessee, it is pertinent to note that assessee has accepted that there is unaccounted sales of Rs.10,82,958/- during the year and has requested for addition only to the extent of net profit of unaccounted sales, which means that assessee has furnished inaccurate particulars of income at the time of filing income-tax return and if the survey proceedings had not been initiated then the assessee would have gone away without paying due taxes on the profit earned on the unaccounted sales.
11. We further observe that during the appellate proceedings before ld. CIT(A) on quantum addition, assessee has not controverted the fact that there was unaccounted sales and ld. CIT(A) sustained the addition by applying GP rate on the unaccounted sales. Even when the matter came up before the Tribunal, the co-ordinate bench vide its order in ITA No.1269/Ahd/1999 for Asst. Year 1994-95 dated 20.10.2005 directed the Assessing Officer to apply GP rate of 15.42% on the unaccounted sales by observing as under :-
ITA No. 271/Ahd/2013 12Asst. Year 1994-95 "8. After having considered the rival submissions and the facts and circumstances of the case we are of the opinion that so far as addition on account of Gross Profit rate is concerned, we are unable to accept the submission of the ld. counsel for the assessee that its gross profit rate being higher than the gross profit upheld by the Tribunal, there is no reason for making any addition, because if there are unaccounted sales then addition on account of gross profit has to be made and since assessee itself has shown the gross profit rate of 15.42% for asst. year 1994-95, we direct the Assessing Officer to make addition on account of gross profit rate on disclosed sales @ 15.42%."
12. We further observe that in the written submissions filed by the assessee various judgments/decisions have been relied on but in most of these cases, the issues relate to the cash credit u/s 68 of the Act and unaccounted investment u/s 69 of the Act whereas in the case under appeal penalty has been imposed on the income concealed by the assessee arising on unaccounted sales. In the case of assessee, since initiation of assessment proceedings u/s 143(3) r.w.s. 148 of the Act assessee has not challenged nor has been able to disprove the finding of the ld. Assessing Officer about the unaccounted sales at Rs.10,82,958/- and has only requested for application of GP rather than making the addition to unaccounted sales. Penalty u/s 271(1)(c) of the Act is imposed if an assessee conceals income or furnishes inaccurate particulars of income and both these conditions are being fulfilled by the assessee by way of furnishing inaccurate particulars of sales and also concealing income earned on the unaccounted sales and, therefore, we are of the view that ld. Assessing Officer has rightly imposed the penalty u/s 271(1)(c) of the Act and we do not find any reason to interfere with ITA No. 271/Ahd/2013 13 Asst. Year 1994-95 the order of ld. CIT(A). We uphold the same. Accordingly ground nos. 1 & 2 raised by assessee are dismissed.
13. Other ground is general in nature, which needs no adjudication.
14. In the result, appeal of assessee is dismissed.
th .Order pronounced in the open Court on 7 June, 2016 Sd/- sd/-
(R.P. Tolani) (Manish Borad)
Judicial Member Accountant Member
Dated 7/6/2016
Mahata/-
Copy of the order forwarded to:
1. The Appellant
2. The Respondent
3. The CIT concerned
4. The CIT(A) concerned
5. The DR, ITAT, Ahmedabad
6. Guard File
BY ORDER
Asst. Registrar, ITAT, Ahmedabad
ITA No. 271/Ahd/2013 14
Asst. Year 1994-95
1. Date of dictation: 7/06/2016
2. Date on which the typed draft is placed before the Dictating Member: 7/06/2016 other Member:
3. Date on which approved draft comes to the Sr. P. S./P.S.:
4. Date on which the fair order is placed before the Dictating Member for pronouncement: __________
5. Date on which the fair order comes back to the Sr. P.S./P.S.:
6. Date on which the file goes to the Bench Clerk: 7.6.16
7. Date on which the file goes to the Head Clerk:
8. The date on which the file goes to the Assistant Registrar for signature on the order:
9. Date of Despatch of the Order: