TMI Blog2015 (11) TMI 936X X X X Extracts X X X X X X X X Extracts X X X X ..... y when he was cornered. This factum may have great probative value for initiation of penalty proceedings or arriving at a satisfaction, but that alone is not a conclusive fact to levy the penalty. Presumption as cast upon the assessee under Explanation 1 is a rebuttable presumption and if such a onus upon the assessee has been rebutted with proper explanation and facts, then no penalty can be levied, without any material evidence to controvert the assessee’s explanation or facts. Such material facts which raises the presumption in favour of the assessee are that, firstly, the books of account and trading result for AY 2002- 03 has been accepted by the AO inasmuch as no defect whatsoever has been found either in the quantitative tally of the purchases made and the value of purchases; Secondly, the source of purchases have been explained from the books of accounts and there is no other material to show that assessee has made purchases outside the book other than rotating the cheque purchases to cash purchases; Lastly, one of the most crucial explanation which stands unrebutted is that, assessee had stated that all these purchases were made by various concerns belonging to the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome on the addition made on ad-hoc basis/estimate basis by applying of 2% of the GP rates on cash purchases. Accordingly, penalty levied for the assessment year 2003-04 to 2008-09 stands deleted. - Decided in favour of assessee. - ITA No. : 5926/Mum/2013, ITA No. : 5927/Mum/2013, ITA No. : 5928/Mum/2013, ITA No. : 5929/Mum/2013, ITA No. : 5930/Mum/2013, ITA No. : 5931/Mum/2013, ITA No. : 5932/Mum/2013 - - - Dated:- 5-10-2015 - SHRI G S PANNU, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER For The Appellant : Shri Vijay Mehta and Shri Govind Javeri For The Respondent : Shri Premanand J ORDER PER AMIT SHUKLA, JM: The aforesaid appeals have filed by the assessee against impugned common order dated 26.07.2013 passed by CIT(A)-37, in relation to the penalty proceedings u/s 271(1)(c) for the AYs 2002-03; 2003-04; 2004-05; 2005-06; 2006-07; 2007-08 and 2008-09. Since the issue involved in all the appeals are common arising out of identical set of facts therefore, they were heard together and are being disposed off by way of this consolidated order. The details of penalty levied in various assessment years are as under : Assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kothari (Rs. 40,96,841/-); assessee (Rs. 2,14,52,862/-); and Shri Keki J Vakil (Rs. 2,01,77,182/-). Now in wake of such an offer, the aforesaid three persons revised their return of income on 27.03.2008 and 29.04.208 for various assessment years, wherein income offered on peak basis was declared and additional taxes were paid for in the month of March, 2008. Such revised returns for AY 2002-03 to 2006-07 were beyond the statutory time limit of section 139(5). Later on, notices u/s 153C was issued to the assessee on 04.09.2009 and in compliance thereof, the assessee filed his return of income on 23.09.2009, declaring same income as was shown in the revised return of income. Thereafter, the AO completed the assessment u/s 143(3) r.w.s. 153C after making the following additions :- AY Estimation of disallowance by AO after applying GP rate of 25% on purchases Made from grey market in cash Rs. Peak offered by By the assessee Rs. Net addition made Rs. 02-03 22,77,801 --- 03-04 34,78,894 25,49,2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er. The Assessing Officer has not brought any positive material on record to prove the falsity of the entries in the books of accounts. 3. No enquiry was conducted to prove contrary that the materials were not received by the appellant. 4. No material evidence was found nor seized from the appellant's premises in the surveys conducted on 29/7/2003 in which appellant's all business, office, factory premises were covered by the Income Tax Authorities but of no avail. 5. The G.P. rate shown by the appellant's group concerns was reasonable or above the market rate and no reasons cited by the Ld. Assessing Officer to estimate higher and more than forty percent G.P. rate which is unreasonable and arbitrary. Books of accounts have not been rejected. 6. In case the purchase of raw material are treated as bogus then it is impossible to produce alpeno products used for sizing of yarns and which is sold by the appellant out of maize starch and binder, colours, dyes and preservatives in a pre-calculated ratio. The appellant has paid prescribed sales tax and Vat and, other duties and even income-tax on such production and sales. Sales tax assessment orders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,77,801/-. Now penalty has been levied and confirmed on the additions sustained by the Tribunal. 5. In the penalty proceedings, the assessee gave detailed submissions as to why the penalty cannot be levied, the relevant submissions have been incorporated by the AO at para 5 of the penalty order. However, the Ld. AO invoked the provision of Explanation 5A to section 271(1)(c) and held that it is a case of deemed concealment of income. His main reason for confirming the penalty was that peak amount in respect of investment in the grey market purchases was offered by the assessee only when search and seizure action was carried out in the case of Jitendra Doshi Group and Kothari Group. Thus it was not suo motu offer or voluntary disclosure but when assessee was confronted with the adverse material and was called upon and; secondly, if such an action would not have been taken, the assessee would not have shown such an income at all. Accordingly, he levied 100% penalty on the income seized. 6. Before the CIT(A), very exhaustive submissions were made including the contention that Explanation 5A cannot be held to be applicable at all in this case and also on the main provision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition. Thus, no penalty can be levied on such an estimated income. On the issue of deemed penalty under Explanation 5A, he submitted the same cannot be held to be applicable, firstly, the Ld. CIT(A) himself has clarified that Explanation 5A has not been invoked by the AO; secondly, Explanation 5A will apply where there is a search in case of a person, here in this case there was no search in case of assessee as the proceedings have been initiated u/s 153C. Lastly, he submitted that the investments were disclosed in the hands of various concerns and if any GP addition is called for, then same should have been made in the hands of the concerns and not in the case of the assessee. Such a plea can be raised during the course of penalty proceedings , being separate from assessment proceedings . The details of these concerns are already there in the records (which is evident from page 9 of the CIT(A) s order in the quantum proceedings). These concerns were, M/s S Kothari Chemicals Industries; M/s ABR Industries; M/s Bharat Commercial and Company; M/s Empire Dychem; and M/s D R Dychem Industries Pvt Ltd. In support of his contention that penalty cannot be invoked when assessment has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ept for the fact that for the assessment year 2002-03 to assessment year 2006-07, the revised returns were not valid as it was beyond the statutory time limit of 139(5). These revised returns were later on reiterated in the return filed in response to notice u/s 153C. In the assessment order, the addition was not made on account of peak investment offered by the assessee but , by estimating the gross profit @ 25% on the alleged cash purchases made in the impugned assessment years from the grey market. The AO telescoped the peak investment offered by the assessee from the GP addition, i.e., the addition was restricted to GP addition. However so far as AY 2002-03 is concerned, the addition was sustained at ₹ 22,77,807/-, which was the amount declared and offered by the assessee in the return of income on account of peak investment. As discussed above, now for the assessment years 2003-04 to 2008-09, the addition has been restricted to 2% of gross profit on alleged cash purchased from the grey market, from the stage of the Tribunal. The entire peak investment has been telescoped from such a GP addition barring for AY 2002-03. In other words, as a result of ITAT order, from asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, if this system is not adhere to. The said system was carried out regularly and due to passages of time, we were also getting credit from the suppliers in the grey market and they were paid as and when cash was received from Shri Jitendera Doshi. However, since we do not have any concrete evidence to prove the same and further in order to buy mental peace and to avoid prolonged litigation we had offered the peak of investments in the hands of various partners/persons for the various Assessment Years, since the activity of purchase in grey market was done by persons in their individual capacity, the same may be treated as introduction of capital by the above persons in the respective firms . Other than the assessee s working of peak investment, there is no material evidence found that actual cash investment outside the books of accounts was made by the assessee or his group concerns. If the assessee has been paying the money for cash purchase from the source recorded in the books of account in the form of account payee cheques to Shri Jitendra Doshi Group who in turn was giving cash to the assessee, then the same cash constitutes the source of investment for making the purcha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchases have been explained from the books of accounts and there is no other material to show that assessee has made purchases outside the book other than rotating the cheque purchases to cash purchases; Lastly, one of the most crucial explanation which stands unrebutted is that, assessee had stated that all these purchases were made by various concerns belonging to the assessee and his family members / group, from which these trading of chemicals were carried out. If at all any peak investment was to be added then the same should have been examined in the hands of the firm. Be that as it may, all these material facts points out that preponderance of probability is in favour of the assessee, because all the probable factors given by the assessee has neither been disbelieved nor has been rebutted by any enquiry or evidence gathered by the AO. Thus, we are of the opinion that no penalty is leviable on such peak investment of ₹ 22,27,804/- made for the assessment year 2002-03. Accordingly, the penalty levied for the assessment year 2002-03 stands deleted. 13. So far as levy of penalty on the gross profit additions made for the AYs 2003-04 to 2008-09, we agree with the cont ..... X X X X Extracts X X X X X X X X Extracts X X X X
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