Income Tax Appellate Tribunal - Mumbai
Rishabh Impex, Mumbai vs Department Of Income Tax on 10 April, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL,
MUMBAI BENCH "D", MUMBAI
BEFORE SHRI B.R BASKARAN, ACCOUNTANT MEMBER AND
SHRI AMIT SHUKLA, JUDICIAL MEMBER
ITA No. 93/Mum/2011
Assessment Year: 2004-05
DCIT-14(2) M/s. Rishabh Impex
3rd Floor Earnest House Gulabdas & Co.
Nariman Point Mumbai Ramdas Building, 4th
Vs.
Floor, 456,
Mumbai 400 002
PAN:-AAAFR 5747 B
(Appellant) (Respondent)
Assessee by Shri Reepal G
:
Tralshawala
Revenue by : Shri Love Kumar
Date of hearing : 17.03.2015
Date of Pronouncement : 10.04.2015
ORDER
PER AMIT SHUKLA, JM:
This appeal has been preferred by the Revenue against order dated 28.10.2010, passed by the Ld.CIT(A)-25, Mumbai in relation to the penalty proceeding u/s 271(1)(c) for the A.Y. 2004-05. The Revenue is mainly aggrieved by deletion of penalty of Rs.33,94,175/-, which was levied on addition made on account of gross profit.
2. The brief facts of the case are that, the assessee is engaged in the business of manufacturing and export of fabrics and other items. The return of income was filed on 01.11.2004 at Rs.61,39,482/-, after claiming deduction u/s 80HHC of Rs.25,87,814/-. As against the return 2 ITA No. 93/Mum/2011 Assessment Year: 2004-05 income, the assessment was completed at an income of Rs.4,39,90,930/- after making the following disallowances:-
i) On account of GP Rs.2,75,89,717/- ii) Disallowance of loss on exchange rate fluctuation Rs.9,19,212/- iii) Disallowance of Keyman insurance Rs.67,54,701/- iv) Disallowance of dedn. U/s 80HHC Rs.25,87,814/-
After the appeal affect, the penalty proceedings have been initiated on the addition made on account of gross profit. The assessee had shown sales of Rs.31,22,46,861/- which comprised of export sales of Rs.31.20 crores. The gross profit was shown at Rs.36,34,969/- which was 1.17%. The Assessing Officer noted that in the earlier years the gross profit shown by the assessee were as under:-
A.Y. Total sales Gross Profit Gross profit (%) 2003-04 39,02,02,282 4,67,24,149 11.97 2002-03 35,00,71,469 4,14,22,279 11.83 2001-02 43,55,29,670 5,37,52,961 12.34
3. In response to show cause notice by the AO, it was submitted by the assessee that the gross profit had declined due to continuous fall/ devaluation of US $ during the relevant year and also gave the evidence to the effect that average fall of forex during the period was around 10%. The Assessing Officer held that even though part of the decline in GP could be attributed to fall in exchange rate, however same cannot be implied for the whole year. He worked out the percentage fall in exchange rate from April 2003 to March 2004 which has been tabulated by him at page 3 of the penalty order and analyzed that fall in exchange 3 ITA No. 93/Mum/2011 Assessment Year: 2004-05 rate was around 2%, whereas fall in GP is around 12% and therefore, the reason given by the assessee for downfall in GP is not correct. Accordingly he estimated gross profit @ 10%, after taking the average GP rate and also factor relating to fall in the exchange rate.
4. In the first appeal, the Ld. CIT(A) has reduced the GP addition by holding that GP rate should be 7% as average fall in forex was around 3%, which has been confirmed by the Tribunal also In the penalty proceedings, the assessee submitted that fall in GP was mainly due to decrease in sales realization due to rising value of Indian rupee. This was also palpable with the increase to the cost of production. The assessee had submitted various documentary evidences in support of the explanation furnished not only during the course of the assessment proceedings but was also during the penalty proceedings. Entire quantitative details of purchases were submitted in which no discrepancy was found in the course of the quantum proceedings. The entire purchases were fully verified by the Excise department because, the assessee has claimed rebate under the Central Excise. Further the GP addition has been reduced by the Ld. CIT(A) which shows that there is difference of opinion with regard to the quantification of addition. However, the Ld. AO levied the penalty on GP addition which was sustained at 7%.
5. The Ld. CIT(A) has deleted the penalty after observing and holding as under:-
"4.2 There is no dispute that penalty is levied in respect of GP addition only which was reduced by appellate authorities substantially. The para 7 and para 9 of the penalty order are contradictory in the sense that in para 9, the AO states that "Therefore, the amount of Rs.2505098 is treated as income in respect of which particulars have been concealed." Whereas in 4 ITA No. 93/Mum/2011 Assessment Year: 2004-05 para 9 he states that the minimum penalty leviable being 100% of the tax sought to be evaded is Rs.33,94,175/-. It is difficult to understand how minimum penalty @ 100% of tax sought to be evaded on concealed income of Rs.25,05,098/- works out to Rs.33,94,195/-. Thus, it transpires that para 5 to 9 which contains conclusions and findings lacks application of mind. 4.3 Without prejudice to above, it is undisputed that penalty is levied in respect of GP addition only. The GP addition is made for low GP rate in comparison of preceding years. Neither any bogus purchases nor any inflated purchases are found. Similarly, neither any suppression of sale is found nor any understatement/under invoicing of sale is found. No violation either u/s 40A(3) or section 40A(2) is noticed. Neither any bogus or inflated expense is found. Neither any excess nor shortage of stock is found. In given circumstances, it is difficult to believe that there was any deliberate or willful concealment of income. Whole addition is based on estimation only. In such factual matrix, none of case laws referred by the AO is applicable to the facts of the case. On the contrary the judici8al pronouncements referred and explained in the Ld. AR's written submissions divulges the correct state of law on concealment penalty. Apart therefrom, the latest decision of the Hon'ble Supreme Court in the case of Reliance Petroproducts (323 ITR 158) should not lose sight which states that mere making a claim which is not sustainable in law, by itself will not amount to concealment. Even in the instant case, it is not a case of wrong claim but it is a case of pure estimation. No false purchase/sales/expenses etc. have been found. The Hon'ble High Court of Punjab and Haryana had in the case of Harigopal Singh V. CIT (125Taxman 242) held that provisions of section 271(1)(c) Are not attracted to cases where income is assessed on estimate basis and additions are made therein on that basis. Similarly in the case of CIT Vs. MM Rice Mills (123 Taxman 308), the Hon'ble High Court had held that mere addition made by applying proviso to section 145(1) cannot be made basis for imposition of penalty for concealment u/s 271(1)(c). The case laws referred in Ld. AR's submission, discussed in para 3.1 also do not justify levy of penalty in given facts of the case. In view of facts of the case and judicial pronouncements referred or discussed above, the penalty levied by the AO is not justifiable and the same is deleted. Accordingly, the appeal is allowed."5 ITA No. 93/Mum/2011
Assessment Year: 2004-05
6. We have heard the rival submissions and perused the relevant finding given in the impugned order and also the material placed on record. The subject matter of levy of penalty is on account of addition made on account of estimation of GP rate. In the penalty order, the Assessing Officer has held that amount of Rs.25,05,095/- is treated as income in respect of which particulars have been concealed. On such addition, he has levied penalty of Rs.33,94,175/-. From the explanation furnished by the assessee before the AO, and also the facts of the case, it is seen that out of total turnover of 31.22 crores, the export sales is at 31.20 crores. Thus, the major sales is by way of export only. In the quantum proceedings, the assessee has filed the entire quantitative details of purchases, in which no discrepancy has been found and entire purchases stood verified. This is also evident from the fact that the assessee has claimed rebate under the Central Excise, therefore, the said purchases have been verified by the excise department also. There is no discrepancy either in the quantity or in the value of sales made by the assessee. The addition has been made on the ground that there is steep fall in the gross profit rate as compared to the earlier years. The assessee's case was that, same was due to decrease in sales realization due to devaluation of foreign exchange along with increased in cost of production. The assessee's explanation regarding fall in foreign exchange has been not been accepted completely on the ground that the average fall of US $ was not much. This cannot be reason for rejecting the assessee's books and estimating the gross profit unless no discrepancy has been found either in the quantity in value of purchase and sales. Thus, mere estimation of gross profit at 10% which has been further reduced to 7%, cannot be the basis for levy of penalty for 6 ITA No. 93/Mum/2011 Assessment Year: 2004-05 furnishing of inaccurate particulars. The finding of the Ld. CIT(A) after analyzing the facts of the case, appears to be legally and factually correct, accordingly, order of the Ld. CIT(A) is affirmed and ground raised by the Revenue is treated as dismissed.
7. In the result, appeal filed by the Revenue is dismissed.
Order pronounced in the open court on this 10th day of April, 2015.
Sd/- Sd/-
(B.R. BASKARAN) (AMIT SHUKLA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 10.04.2015
*Srivastava
Copy to: The Appellant
The Respondent
The CIT, Concerned, Mumbai
The CIT(A) Concerned, Mumbai
The DR "D" Bench
//True Copy//
By Order
Dy/Asstt. Registrar, ITAT, Mumbai.