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2015 (10) TMI 735 - ITAT JAIPUR

2015 (10) TMI 735 - ITAT JAIPUR - TMI - Penalty under section 271(1)(c) - disallowance of loss - books of account of the company deliberately not produced before the AO as concluded by CIT(A) - Held that:- This is not a fit case for imposition of penalty u/s 271(1)(c) as in assessment order, no incriminating document is alleged to be discovered as a result of search or has been relied on by AO in assessment order to disallow the loss. There is no finding of the AO alleging any document showing u .....

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are discovered. 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.

There is no justifiable basis to disbelieve the assessee's contention that the books of accounts could not b .....

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of a loss making concern. This also indicate that non production of books was non deliberate. 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.

Hon'ble Apex Court in Hindustan Steels Ltd. Vs. State of Orissa (1969 (8) TMI 31 - SUPREME Court). has held that Penalty shall not be imposed merely because it is lawful to do so. Even .....

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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 ₹ 6,20,651/- under section 271(1)(c) of .....

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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 ₹ 16,96,113/-. Search & Seizure operations were carried on 27-08-20 .....

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d the factual position that computerized books were maintained at Mumbai office under the control of working Director Shri 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 ₹ 16,96,113/- claimed in return. Assessee claims to have not filed the appeal as there were continuous losses and the future was .....

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eproduced 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 .....

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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 .....

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dictory findings of facts. Assessee's contention are corroborated and strengthened in view of the following facts:- 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 .....

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(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 assessme .....

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ed 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. .....

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udited 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 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 adm .....

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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 (R .....

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ere 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 techni .....

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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. (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 Chemic .....

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ssion 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, reaso .....

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sment 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 l .....

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ho 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. (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 th .....

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