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2015 (11) TMI 936 - ITAT MUMBAI

2015 (11) TMI 936 - ITAT MUMBAI - TMI - Penalty u/s 271(1)(c) - addition sustained on account of GP addition of 2% of the alleged cash purchases and peak investment in the grey market purchases - Held that:- So far as the assessment year 2002-03 is concerned, the penalty has been levied on the ground of surrender of peak investment made by the assessee on cash purchases in the return of income filed in response to notice u/s 153C. From the facts as discussed above, it is quite clear that the ass .....

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ccount.

Here the penalty has been levied mainly on the ground that assessee has not offered the peak investment voluntarily albeit only 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 expla .....

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e 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 shoul .....

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s made for the AYs 2003-04 to 2008-09, we agree with the contention of the assessee that no penalty can be levied; firstly, for the reason that addition on account of peak investment stands deleted in so far as it has been subsumed in the GP addition, which ultimately has been made on estimate basis and secondly, application of 2% of gross profit on cash purchases is purely on ad-hoc basis without there being any material on record to suggest that assessee has earned profit over and above what h .....

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suggesting that assessee was suppressing the gross profit on cash purchases. Another very important fact, which is borne out from the finding given in the quantum proceedings and also from the material on record is that, the assessee had disclosed all the purchases in the books i.e. instead of actual purchases made from party A in cash, the assessee has shown the purchases from party B in cheque. The amount encashed out of cheque has been utilized for making the payment of purchase. No varia .....

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um/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 rel .....

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,900 2007-08 97,121 2008-09 11,91,321 2. Brief facts of the case are that, assessee is a partner in various concerns of Kothari Group, which is mainly engaged in the business of chemicals and other allied products. For all the assessment years in question, the assessee had filed its return of income u/s 139(1), that is on respective due dates. A search and seizure action was carried out in the case of a different person, Shri Jitendra Doshi and his associates / concerns on 26.07.2007. During the .....

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Kothari, brother of the assessee and one of the partners of Kothari Group made a statement and submitted a letter dated 26.12.2007, wherein it was categorically admitted that the assessee and his group had obtained bogus purchase bills from Jitendra Doshi Group to the tune of ₹ 35 crores, in various assessment years. The modus operandi of the Kothari Group firms used to be that, it purchases certain goods from grey market in cash from various suppliers and these purchases were regularized .....

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othari (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 .....

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53 9,29,641 04-05 25,37,244 6,19,872 19,17,372 05-06 52,71,013 7,91,765 44,79,248 06-07 82,94,354 30,62,508 52,31,846 07-08 1,20,79,823 1,08,76,281 12,03,542 08-09 35,71,614 - 35,71,614 3,52,32,942 2,01,77,480 1,73,33,263 Thus, the addition made by the AO in the assessment order was by way of estimating the gross profit @ 25% on grey market purchase made in cash on the ground that it will cover the higher profit from such transaction. The Ld. AO however telescoped the peak credit offered by the .....

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ly, partly confirmed the addition on account of GP rate of 2% on alleged bogus purchases, and secondly, restored the peak investment as declared by the assessee. Since, there was no GP addition made by the AO in assessment year 2002-03, therefore, only the peak investment offered by the assessee at ₹ 22,77,801/- stood confirmed. However, the Ld. CIT(A) vide para 3.2.8 made very important observation after considering all the facts, which are very relevant :- The appellant's group conce .....

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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 .....

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ales tax and Vat and, other duties and even income-tax on such production and sales. Sales tax assessment orders accepting sales and purchases has not been disputed by the Ld. Assessing Officer . 4. In the second appeal, the Tribunal vide order dated 28.12.2011 passed in bunch of group cases including that of the assessee, upheld the GP addition of 2% of profit on grey market purchase transaction, i.e. the first limb of addition made by CIT(A), however, gave set off of telescoping the peak of am .....

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ue s appeals are also dismissed. 19. The Ld. Counsel submits that the benefit of the telescoping may be given to assessees, as admittedly, the extra profit generated was used for the purpose of the investment for buying material/goods in the grey market. He submits that the A.O. himself has admitted this factual position and hence, has given the benefit of telescoping to the assessees and on the same line, if the GP addition is sustained then to that extent the peak amount may be reduced. 20 In .....

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example, addition of 2% of profit/benefit towards grey market transactions sustained in A.Y. 2002-03, should be set off in immediate next A.Y. 2003-04 from peak of amounts offered by the assessees and like wise in all other years. Accordingly, ground no.2 in all assesses appeals is partly allowed . Accordingly, addition sustained from AYs 2003-04 to 2008-09 was on account of GP addition of 2% of the alleged cash purchases and for AY 2002-03 the peak investment amount of ₹ 22,77,801/-. Now .....

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f 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 .....

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red by the AO only to rebut the plea of the assessee regarding revised returns filed suo motu. Ld. CIT(A), however, held that revised return filed by the assessee were not suo motu or voluntary but income was offered only in the face of direct evidence found during the search in the case of Shri Doshi and inability of the assessee to establish the genuineness of the purchase from the Doshi Group. After detailed discussion and referring to various case laws, he confirmed the penalty for the AY 20 .....

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cted all purchases in the books of accounts but instead of making from Party A it has made from Party B . In assessee s line of trade, identity of suppliers and customers are not disclosed because they mostly sell in grey, i.e. in cash therefore, the assessee was required to procure the goods from grey market and thereafter same was regularized by taking accommodation bills. Further, the assessee has offered negative peak of investment which was not based on any evidence albeit was taxed on vari .....

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nvestment from 2003-04 onwards have been telescoped from such addition. 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 .....

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eedings). 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 been finalized on estimate basis, he relied upon various decisions, the compilation of which have been filed separately, which includes decision of Delhi High Court in the case of CIT vs SAS Pharmaceuticals [2011] 335 ITR 359. 9. On the oth .....

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material and information was gathered and confronted to the assessee. Hence penalty u/s 271(1)(c) has rightly been confirmed. He thus strongly relied upon the order of the CIT(A) and also the decision of Hon ble Karnataka High Court in the case of CIT vs. Sudharshan Silks and Sarees, reported in 253 ITR 145 (Karnataka). 10. We have heard the rival contentions, perused the relevant material on record and also the finding given in the impugned orders. The assessee and his group concerns were enga .....

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Jitendra Doshi Group by paying the purchase amount through account payee cheques. In turn, Jitendra Doshi and his group concerns pay back the amount in cash to the assessee which again was used to make the payments for purchases. When confronted with such an information and simultaneous survey action, the assessee offered for surrendering of additional income in form of cash investment after working out the peak investment in respect of purchases made from the grey market for each year, the det .....

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stment 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 investm .....

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he AY 2002-03, the addition stands on account of peak investment of ₹ 22,77,804/-. 11. Now, under these facts and circumstances, we have to examine, whether penalty for concealment of income can be levied u/s 271(1)(c) or not. So far as issue of Explanation 5A to section 271(1)(c), the same is not in dispute before us, as the Ld. CIT(A) has clarified that Explanation 5A was not invoked by the AO but was resorted to rebut the assessee s explanation. Even before us, it is not the case of the .....

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micals and materials from the grey market and to regularize the same, he was involved in getting the accommodation bills from Jitendra Doshi Group. It is also true that such modus operandi of regularizing cash purchase, would not have surfaced, had there not been any search or survey action. But it is equally borne out from the record, that nothing was found that assessee was making the purchases from the sources outside the books of account. At the time of surrendering the peak investment, the .....

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, there was substantial discounts if the goods were purchased in cash and the above system was followed since many years due to the business expediency and other relevant factors in the interest of the business. We would have to lost major clients, 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. Howev .....

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, 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 purchases in the grey market. Once, we take into factor of reason .....

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by any of the authorities either in the course of the assessment proceedings or in the course of the penalty proceedings. Though, the addition has been made in the quantum proceedings but that alone is not a material factor so as to come to a conclusion that assessee is guilty for concealment of income. In adjudging as to whether the assessee is guilty of concealment or of furnishing of inaccurate particulars thereof, the matter has to be reappraised afresh and cannot be solely guided by the fin .....

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t voluntarily albeit only 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 o .....

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otating 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 .....

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-04 to 2008-09, we agree with the contention of the assessee that no penalty can be levied; firstly, for the reason that addition on account of peak investment stands deleted in so far as it has been subsumed in the GP addition, which ultimately has been made on estimate basis and secondly, application of 2% of gross profit on cash purchases is purely on ad-hoc basis without there being any material on record to suggest that assessee has earned profit over and above what has been disclosed in th .....

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