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2015 (5) TMI 819 - ITAT AHMEDABAD

2015 (5) TMI 819 - ITAT AHMEDABAD - TMI - Penalty u/s. 271(1)(c) - failure to produce certain primary records exhibiting how much rough diamonds were finally converted into polished diamonds, and how one can establish the quality and size - Held that:- stand of the assessee is that it has been maintaining the books of accounts as per the accounting standard notified by the income tax authorities u/s. 145(2) of the Income Tax Act. Assessing Officer has not pointed out any factual error in the det .....

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In our opinion, if the basic details were not maintained by the assessee and its action put the Assessing Officer against the wall leaving no choice except to reject the book result and estimate the income, then, probably this argument may not be available with the assessee that income has been determined on an estimate basis, therefore, no penalty is imposable on it. But in the present case, the Assessing Officer has not brought on record the facts with this angle. It has not been established t .....

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al before us against the order of Ld. CIT(A)-V dated 13th June, 2011 passed for assessment year 2006-07. 2. The solitary grievance of the revenue is that Ld. CIT(A) has erred in deleting the penalty of ₹ 14,61,959/- which was imposed by the Assessing Officer u/s. 271(1)(c) for furnishing inaccurate particulars of income. 3. The brief facts of the case are that assessee has filed its return of income on 30th December, 2006 declaring total income at ₹ 3,99,48,424/-. The case of the ass .....

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preceding year, it was 33.20%. The Assessing Officer has rejected the books of the assessee, and proceeded to determine the income on an estimate basis. The Assessing Officer has estimated the yield at 31.91% as against 30.92% shown by the assessee. He made an addition of ₹ 3,65,88,431/- to the income of the assessee. On appeal, Ld. CIT(A) has confirmed the addition. 4. On further appeal, Tribunal has confirmed the estimation of income but directed the Assessing Officer to recompute the a .....

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proper books of accounts, out of which true income can be deduced, therefore, it is construed that asesssee has furnished inaccurate particulars of income. The Ld. Assessing Officer in order to bring home his pint of view made reference to various defects in the books of accounts of the assesse in para 4 of the penalty order. The assessee in response to the show cause notice has contended that assessing officer could not find factual inaccuracy in its particulars in the books of account. The st .....

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e assortment, rejection, boiling, sawing ghat etc. He was of the opinion, that on the basis of these details, yield cannot be worked out. Accordingly, Assessing Officer has imposed a penalty of ₹ 14,61,959/-. 5. On appeal, Ld. First Appellate Authority re-appreciated the facts and circumstances. It reproduced their detailed written submission of the assesse from pages 2 to o11 of the impugned order. Ld. CIT(A) has recorded following finding. 6. I have carefully considered the penalty order .....

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ee years. Hence only the basis of estimation has changed. The A.O. has not pointed out any specific defect in the books of the assessee. In my opinion, no penalty u/s. 271(1)(c) can be levied in case of an addition which is based on estimation. Hence, the penalty of ₹ 14,61,959/- levied by the AO is hereby deleted and the ground of appeal is allowed. 6. With the assistance of Ld. Representatives, we have gone through the record carefully. Section 271(1)(c) of the Act has a direct bearing o .....

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ars of such income. He may direct that such person shall pay by way of penalty. (i)and (Income-tax Officer,) ** ** ** (iii) in the cases referred to in Clause (c) or Clause (d), in addition to tax, if any, payable by him, a sum which shall not be less than, but which shall not exceed three times, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or fringe benefit the furnishing of inaccurate particulars of such income or fringe benefits: Explanation .....

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ome have been disclosed by him, then, the amount added or disallowed in computing the total income or such person as a result thereof shall, for the purposes of Clause (c) of this subsection, be deemed to represent the income in respect of which particulars have been concealed. 7. A bare perusal of this section would reveal that for visiting any assessee with the penalty, the Assessing Officer or the Learned CIT(Appeals) during the course of any proceedings before them should be satisfied, that .....

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which the assessee has concealed the income or furnished inaccurate particulars, in certain situation, even without there being anything to indicate so, statutory deeming fiction for concealment of income comes into play. This deeming fiction, by way of Explanation I to section 271(1)(c) postulates two situations; (a) first whether in respect of any facts material to the computation of the total income under the provisions of the Act, the assessee fails to offer an explanation or the explanation .....

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ion would come to play if the assessee failed to give any explanation with respect to any fact material to the computation of total income or by action of the Assessing Officer or the Learned CIT(Appeals) by giving a categorical finding to the effect that explanation given by the assessee is false. In the second situation, the deeming fiction would come to play by the failure of the assessee to substantiate his explanation in respect of any fact material to the computation of total income and in .....

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f section 271(1)(c) would be deemed to be representing the income in respect of which inaccurate particulars have been furnished. 8. At this stage, we deem it pertinent to take note of the explanation of assessee recorded by the CIT(A) in para 5 of the impugned order explaining the yield. It reads as under: (3) Before proceeding with the aforementioned aspect, it would be necessary to understand what exactly is yield. A rough diamond taken out of mine becomes polished diamond after it undergoes .....

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on of other materials. That has to be taken out before polished diamonds take place. Depending upon how deep inclusion is, the cutting proportion varies. There is another factor. Diamond being an item of fashion, the fancy of the people changes and while at some point of time the round shape has more value or sometimes the prince or the fancy cutting fetches more value. At the time of beginning of polishing itself, artisans take a decision as to the manner of cutting to bring out the shape which .....

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s and circumstances, we are of the view that Assessing Officer has visited the assesse with penalty u/s. 271(1)(c) for the reason that it failed to produce certain primary records exhibiting how much rough diamonds were finally converted into polished diamonds, and how one can establish the quality and size. Therefore, it amounts to furnishing of inaccurate particulars of income. On the other hand, the stand of the assessee is that it has been maintaining the books of accounts as per the account .....

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