TMI Blog2010 (7) TMI 1045X X X X Extracts X X X X X X X X Extracts X X X X ..... e business and residential premises of assessee on 10th Feb., 2003. In search of Shri Praveen Goyal stock valued at ₹ 6 lacs was found whereas the stock as per books works out to ₹ 14.40 lacs. No undisclosed valuable/asset was found. He filed block return on 15th Sept., 2003 offering undisclosed income of ₹ 2 lacs on account of profit on sale of stock found short. 4.3 Similarly in search of Shri Sadhuram Goyal stock valued at ₹ 9.93 lacs was found whereas the stock as per books works out to ₹ 13.63 lacs. No undisclosed valuable/asset was found. He filed block return on 15th Sept., 2003 offering undisclosed income of ₹ 1 lac on account of profit on sale of stock found short. 4.4 The block assessment in case of Praveen Goyal has been made at the total undisclosed income of ₹ 51,94,405 as against ₹ 2 lacs offered by assessee (reduced from ₹ 73,38,660 after order under s. 154 dt. 31st March, 2005). The particulars of undisclosed income determined by AO, CIT (A) and Tribunal are tabulated below : 19,32,586 4.5 The block assessment in the case of Sadhuram Goyal has been made at the total undisclosed income of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (Paras 4.2 and 4.3). (d) The argument of learned Authorised Representative that ledger account in name of Lalit Goyal has no link with assessee cannot be accepted as some of the entries in said account is recorded in the books of the assessee and therefore it cannot be said that there is no evidence in support of the conclusion of the AO for which he relied on the decision reported in Mriganka Mohan Sur vs. CIT (1979) 120 ITR 529 (Cal). (Para 4.4) (e) The argument of learned Authorised Representative that addition was made on estimated basis is without any basis since wherever estimation was made the same was deleted by Tribunal. Further GP rate is not estimated but taken as average for the block period. Thus this estimation is not based on surmises or conjectures. (Para 4.5) (f) Hon ble Tribunal has given a finding that ledger account of Lalitji Sikar in KFL file is related to assessee and though there is no direct evidence of underinvoicing found in premises of assessee but considering the material collected from third party and the surrounding circumstances AO has rightly observed underinvoicing by the assessee. Therefore the evidence collected from third party can be relied u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period 1st July, 2001 to 10th Feb., 2003. He also worked out the ratio of unrecorded sale to the sale as per regular books at 14.66. He applied this ratio to the sale made in various years during the block period and worked out total unrecorded sales at ₹ 4,46,64,221. On this alleged unaccounted sales GP rate of 24 per cent is applied and profit of ₹ 1,07,19,414 was worked out. Out of this, addition of ₹ 44,77,200 is made in case of Tirupati Plywood Industries and balance in case of M/s Swastik Udyog in proportion to the recorded sales. 7.3 The CIT(A), based on the statement of Shri Vinay Gupta, proprietor of Ashish International, held that both the assessees had indulged in underinvoicing of sales to the extent of 50 per cent of the recorded sales. The recorded sales during the period relevant to TFL and TFL2K3 files of both the concerns is ₹ 21,83,148. Accordingly, he worked out the unaccounted sales at ₹ 21,83,148 on which by applying a GP rate of 20 per cent, income was determined at ₹ 4,36,630 which was proportionately considered in the hands of Praveen Goyal and Sadhuram Goyal. The relevant finding given by the CIT(A) at p. 21 of its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2005 (paper book 20-26) has stated that he has no link with M/s Tirupati Plywood Industries, which belongs to Shri Praveen Goyal, his cousin and M/s Swastik Udyog which belongs to his relative Shri Sadhuram Goyal to whom they call uncle (question No. 3). On being asked about the entries recorded in ledger account Lalitji Sikar in TFL and TFL2K3 file, he stated that he used to arrange purchases for M/s Ashish International group from Yamunanagar, Delhi, Ahmedabad etc. and the entries recorded in this ledger account may relate to those transactions. He also stated that he was getting commission for this job, which he has offered before Settlement Commission in his case. He admitted that no transactions out of books pertaining to Tirupati and Swastik was done by him. (Question No. 15). 8.3 Shri Vinay Gupta, proprietor. M/s Ashish International in statement dt. 16th Feb., 2005 (paper book 28-31) stated that they used to purchase goods from various parties through Lalit Kumar Goyal who resides at Sikar and the entries recorded in ledger account Lalitji Sikar pertains to the same (question Nos. 3-4). In reply to question No. 5 he stated that he arranges the goods through Sikar, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om computer file of Ashish International group. He stated that this account contains the transactions of goods purchased through him by the Ashish International. He admitted this account as belonging to him. Before Settlement Commission also he admitted the said account and transactions in this account and offered income from commission in his case. The case of Shri Lalit Goyal has been admitted by the Settlement Commission under s. 245D(1) vide order dt. 9th May, 2005 (paper book 40-46). In the order of Settlement Commission also it is specified that ledger account of Lalitji Sikar found in file TFL and TFL2K3 pertains to him, as he was commission agent for Ashish International group. Hence without any evidence, all the transactions in this account cannot be considered as pertaining to M/s Triputi Plywood Industries and M/s Swastik Udyog and the income estimated on that basis should not lead to levy of penalty. 8.8 It is pertinent to mention that in search carried out at the residence and business premises of the assessee, no evidence/document was found to indicate that the assessee has indulged in underinvoicing/making unaccounted sales. Further no undisclosed asset or va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ances, considering the totality of the fact, the penalty levied by the AO and confirmed by the CIT(A) on the income estimated by Hon ble Tribunal is uncalled for. 8.11 The Tribunal at p. 23 of its order held that the transactions in the TFL file, which is under the name of Lalitji Sikar pertain to the assessee only for the reason that the order of the AO appears to be more convincing. Accordingly it accepted the unaccounted sale as per TFL file at ₹ 2,98,21,612 and also upheld estimation of GP rate at 24 per cent to confirm the above addition. The Hon ble Tribunal neither accepted the working of the AO in totality nor approved the working of CIT(A) but held that transaction in TFL file for the period, pertained to the assessee and thus directed to estimate income on sales for that period only. There is no positive evidence to hold that the transaction in TFL file pertains to the assessee. This fact is accepted by the Hon ble Tribunal also on p. 23 of its order (paper book 197). In the search conducted on the assessee, no evidence of unrecorded sale was found, nor any asset/expenditure to the extent of the income estimated by the Tribunal was found. Even in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce on record to negate the explanation of the assessee. They are simply carried away by the fact that addition is confirmed by Hon ble Tribunal without bringing any evidence on record as to the destination of such alleged undisclosed income. In penalty proceedings also no independent enquiry to rebut the explanation of assessee was carried out. The various observations made by CIT(A) in penalty order is fully explained by assessee to AO itself and even the CIT(A) has not found any falsehood in the said explanation. In these circumstances the order of CIT(A) confirming levy of penalty is not sustainable. Accordingly it was submitted that in view of above discussion the levy of penalty on the income estimated on account of unrecorded/underinvoiced sales is unjustified. Regarding initial investment, the learned counsel of the assessee explained the facts and his contentions in the following manner. 10.1 The AO observed that for making unaccounted sales unaccounted purchases must have been made by the assessee. He estimated that purchases for one month are required as initial cost of purchases. One month purchases cost was estimated at ₹ 13,68,175. This cost was bifurcated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on is warranted, then no penalty can be levied in the hands of these two assessees. 12. It was further submitted that against the addition confirmed by the Tribunal, the assessee had preferred appeal before the Hon ble High Court which has admitted the appeals by holding that there is a question of law involved. Attention of the Bench was drawn on copy of order of Hon ble High Court placed on record where the question referred to it were admitted. Reliance was placed on the decision of the Tribunal in the case of Rupam Mercantiles Ltd. (In Liquidation) Ors. vs. Dy. CIT (2004) 85 TTJ (Ahd)(TM) 609 : (2004) 91 ITD 237 (Ahd)(TM) wherein it is held that a plea or claim held by High Court to give rise to a substantial question of law cannot be treated as frivolous or mala fide so as to attract levy of penalty under s. 271(1)(c). Accordingly it was submitted that in the present case the Hon ble High Court as submitted earlier, has admitted the appeal of the assessee on the issue which goes to the root of the matter of addition and, therefore, on such additions penalty cannot be levied. 13. It was further argued that on estimated additions penalty cannot be levied. It was fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the question of law does not hold that no penalty can be levied. It was strongly argued that detailed ledger accounts maintained by Shri Lalitji of these two parties were found from the possession of Shri Lalitji. Shri Lalitji had prepared a separate account of each party from whom the purchases have been shown as made for supplying to M/s Ashish International and others. Payment made through cheque is also recorded in the same page. Therefore, whatever the items have been purchased from these parties, which are not recorded in the books of account belong to these two parties. It was further submitted that the AO has clearly recorded a categorical finding that entries found recorded in the notices found from the possession of Shri Lalitji pertains to these two parties. It was also submitted that the seized documents found during the course of search has to be read in totality. Accordingly, it was submitted that the ledger account cannot be segregated that some entries belong to these parties and some are not. It was explained that the payments made through cheques have been recorded in the books of account. However, the other payments made have not been recorded in the regular bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh in the present case the Tribunal has confirmed the addition made by AO on estimated gross profit on the basis that the entries found recorded in the ledger account found from the possession of Lalitji pertain to assessee. Therefore, we do not want to comment on those findings of the Tribunal. However, the fact is that no addition has been made on the basis of material found from the possession of these two assessees. Since no direct evidence is there that assessees had concealed particulars of income, therefore, in our considered view the penalty should not be levied. 19.1 We have gone through the various documents placed on the paper book. It is seen that copy of ledger account found from the possession of Lalitji is also placed and in that ledger account there are many names of different parties mentioned. Many hundreds of entries have been recorded including four entries relating to the assessee have been recorded. As stated above, various names of different parties have been mentioned and from this fact alone it can easily be inferred that entire ledger account does not pertain to the entries belonging to the assessee. Only four entries relate to assessee and these fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be levied where difference of opinion are there. Some of these decisions are discussed here as under. 20. In the case of Calcutta Credit Corporation (supra), the Hon ble Calcutta High Court has held that where two opinions on the facts of the case are possible, concealment is not established and, therefore, penalty cannot be levied. 21. The Hon ble Calcutta High Court in the case of CIT vs. Jagabandhu Prasanna Kumar Ruplal Sen Poddar (1981) 23 CTR (Cal) 156 : (1982) 133 ITR 156 (Cal) have taken similar view. 22. The Jaipur Bench of the Tribunal in the case of Smt. Neelam Saxena (supra) has also held that when there is difference of opinion between the two appellate authorities, no penalty is leviable either under s. 271(1)(c) or 158BFA(2). 23. The Hon ble Calcutta High Court again in the case of Durga Kamal Rice Mills (supra) has cancelled the levy of penalty. The facts and finding of the Hon ble Calcutta High Court are as under : In this case excess of opening balance of capital of the assessee firm over the closing balance of the previous year was found. It was discovered in a duplicate book of account and treated as income of the assessee for the previou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat where question of law has been admitted by the Hon ble High Court against quantum addition, no penalty can be levied. We have also gone through the various case laws relied upon by learned Departmental Representative and found that they are distinguishable on facts. The reliance has been placed in the case of K.N. Singh (supra). In this case the assessee was a contractor but did not maintain the books of account. He filed the return on the basis of the certificate filed with the Excise Department. The AO conducted enquiry from the Excise Department and found that the certificate filed was forged. Accordingly he estimated the income by estimating sales and GP rate. Thereafter the AO levied penalty which was deleted by the Tribunal. However, the Hon ble Madhya Pradesh High Court has held that the assessee made a deliberate attempt to mislead the Department by filing the forged certificate and confirmed the levy of penalty. Here, the facts are totally distinguishable as nothing has been found that was forged by the assessee. A ledger account containing list of items purchased was found from the possession of Lalitji and he has categorically stated that he purchased material f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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