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2016 (6) TMI 34 - ITAT MUMBAI

2016 (6) TMI 34 - ITAT MUMBAI - TMI - Penalty under section 271(1)(c) - concealment of income - Held that:- There are two components of income assessed, one, income originally assessed and other, addition made in the second assessment order. Now, in the second order penalty under section 271(1)(c) has been initiated, which was not in the original assessment order . Satisfaction of the AO in the second order was with regard to ₹ 35 lakhs only, which was evident from the finding and observat .....

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s concerned, there was no initiation at the time of original assessment, therefore, the same cannot be revived in the second assessment order sans any satisfaction or initiation. Thus, on this preliminary ground itself, we are of the opinion that, contention raised by the Ld. Counsel appears to be correct and no penalty under section 271(1)(c) on addition of ₹ 3,20,870/- can be sustained. Accordingly, we direct the AO to delete the penalty of ₹ 73,774/-. Thus, the appeal for the asse .....

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ideration which arises in the penalty proceedings are separate and distinct from assessment proceedings. Here, in this case now the entire assessment and consequent addition rests upon pure estimation of income, therefore, neither the case of concealment of income nor for furnishing of inaccurate particulars. Thus, penalty levied by the AO and confirmed by the CIT(A) on the premise raised by the authorities below cannot be confirmed. Accordingly, we delete the penalty for both the years. - Decid .....

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roceedings under section 271(1)(c) for the assessment year 2001-02, 2002-03 and 2003-04. The quantum of penalty levied for all the three years: Assessment year Quantum penalty levied 2001-02 Rs.5,98,661/- 2002-03 Rs.2,31,900/- 2003-04 ₹ 73,774/- 2. We will first take-up appeal for the assessment year 2003-04 in ITA No. 1117/Mum/2012. 3. Brief background of the case is that, the assessee is an individual and carrying out activities of a Civil Contractor, mainly working for the Government De .....

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4AD, vide order dated 28.12.2005. The income was estimated at a net profit of ₹ 3,20,866/- which was 8% of the gross receipts. Later, on an information was received/collected from some earlier survey action in the premises of the assessee in the year 2002, during the course of which, assessee had disclosed an amount of ₹ 35 lakhs to be assessed as his income in the assessment year 2003-04. This information was stated to have been received by the AO on 13.04.2006, that is, after the p .....

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declared by the assessee and net profit shown for various assessment years including AY 2003-04 as discussed in the assessment order is reproduced hereunder :- It is important to note that during the survey proceedings, an understatement of income was worked by the survey party, as shown below and accordingly the assessee had agreed to offer ₹ 35 lakhs being undisclosed income accrued out of income for various previous years. The survey party had gathered information on total contract rece .....

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,29,196 12,35,560 2000-01 2,01,01,713 6,06,904 2001-02 23,00,000 6,91,680 Total 9,93,56,249 38,50,458 Estimation of profit @ 8% u/s 44AD, of ₹ 9,93,56,249 Rs.79,48,499/- Profit offered by the assessee for These years Rs.38,50,458/- Difference is treated as Understatement of income Rs.40,98,014/- From this it is crystal clear that the survey party had gathered enough evidence and therefore, the assessee conceded exclusion of the above amount and offered ₹ 35 lakhs in toto as undisclos .....

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.3,20,870 Add: Income disclosed by the assessee during the survey action u/s133-A Rs.35,00,000 Total Taxable Income Rs.38,20,870 3. Against the said order, the assessee preferred an appeal before the CIT(A). We find that Ld. CIT(A) though held that the computation of income by estimating the net profit @ 8% is correct, however, he deleted the amount of ₹ 35,00,000/- which was surrendered in his order dated 03.03.2009 after giving detail reasoning and holding as under: I have carefully cons .....

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ellant in his respective returns of income. This is evident from the relevant part of the assessment order reproduced above, wherein the AO has computed estimated income of the appellant @ 8% of gross contract receipt of ₹ 79,48,499/- and reduced there from the net profit as per return of income already disclosed in the respective assessment years of ₹ 38,50,556/- and, accordingly worked out the difference as under statement of income of ₹ 40,98,071/- of the appellant. The AO, .....

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worked out should have been made in the respective assessment years and not in the present assessment year. It is a settled law that as per the scheme of the Income -tax Act, the income of an assessee for a particular previous year relevant to the concerned assessment year is only to be assessed in the relevant assessment year. The income pertaining to one year cannot be clubbed or assessed in another assessment year. If the AO had valid reasons or evidence that the appellant has concealed or n .....

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dditional income pertaining to A.Yrs. 1996-97 to 2001-02, in the AY 2003-04. I find that same is not warranted since the same is found to be contrary to the basic provisions of the Act. The declaration or disclosure made by the appellant during the survey based on above mentioned facts are also found to be against the basic provisions of the Act. There is no material or evidences brought on record, which suggest that the appellant has earned the declared income in the previous year relevant to c .....

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computed for the A.Yrs. 1996-97 to 2001-02 and the net profit disclosed in the concerned assessment years as discussed above. There are no evidences or any incriminating material found in survey to suggest that the net profit shown in the current assessment years is understated by the appellant to the extent of ₹ 35 lakhs. The income pertaining to the current assessment year as discussed above in the para 3 of this order is separately worked out @ 8% of his gross contract receipts credited .....

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ve the above addition made, I am of the considered opinion that under the given circumstances, AO is not required to make the addition, just for the sake of making an addition. Nevertheless, even if it is construed that the AO is fair and reasonable to estimate net contract income of the appellant @ 8% of gross contract receipts for the relevant assessment years, I find that the AO should have proceeded to re-assess the escaped income of relevant assessment years of the appellant, as per various .....

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d in this year was ₹ 3,20,870/- which was as per the original assessment order dated 28.11.2005 passed under section 144 r w s 147. The AO has levied the penalty of ₹ 73,774/- on this amount after discussing the issue in detail. This penalty has been confirmed by the Ld. CIT(A) in his consolidated order. However, in the impugned order, the Ld. CIT(A) has mainly gone by the fact that, assessee had not filed his return of income and was solely guided by the fact that assessee has volun .....

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s I find the appellant is engaged in the business of a civil contractor mainly executing road construction for various Government Departments during the relevant accounting years under consideration He has not filed his returns of income for these assessment years as required under section 139(1) of the Act. Further, in the case of the appellant a survey under section 133A of the Act was carried out on 12.08.2002; during the course of the said proceedings, the appellant has voluntarily disclosed .....

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returns of income were filed by the appellant in response to the notices issued under section 148 of the Act. Besides, as per the facts brought on record by the AO in the assessment orders under appeal, the appellant has failed to attend the assessment proceedings before the AO and he has also failed to furnish the relevant details and its supporting evidences as called for the AO. Therefore, on account of these facts and circumstances, all the three assessment orders were completed ex parte und .....

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pellant has no mala fide intention to deliberately avoid or evade the payment of taxes due to the Government. However, the AR has submitted that it is only because of the above reasons that the appellant could not furnish his returns of income and therefore, could not make the payment of taxes due in all these assessment years under appeal. 2.3.1 With this background, I find no merits in the submissions of the AR, a discussed above. From the bare facts available on record as discussed in detail .....

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casions, in all these three assessment years under appeal. This coupled with the fact that the appellant has also failed to furnish any necessary details and supporting evidences which has directly resulted into the completion of assessment orders in an ex parte manner as per the provisions of section 144 of the Act. Therefore, on account of these facts placed on record which are not disputed or denied by the AR, I find little merits in the submissions of the AR that the appellant has reasonable .....

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at the appellant could not file his returns of the income due to noncooperation of his earlier chartered accountant and due to non-availability of the books of account and records. The AR has also failed to substantiate the relevant submissions made inasmuch as no such details and evidences were furnished or placed on record. Nothing is brought on record to prove the non-cooperation on the part of his earlier Chartered Accountant as well as non-availability of the books of account and records. M .....

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hat the AO is fully justified in holding that the demining provisions of Explanation (1) to section 271(1)(c) are clearly attracted in the case of the appellant and therefore, making him liable for the levy of penalty under section 271(1)(c) of the Act in all these assessment yeas under appeal . 3.3.2 x x x.. 3.3.3 x x x… 3.3.4 In the case of the appellant the explanation furnished by the AR as discussed above is unsubstantiated inasmuch as noting is brought on record to prove that the ap .....

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en not to file the relevant returns of income which has ultimately resulted into completion of ex parte assessment orders u/s 144 of the Act in all these assessment years under appeal. It may further be noted that even after conducting a survey u/s 133A and voluntary disclosure of undisclosed income therein, the appellant has still failed to furnish his return of income for the AY. 2003-04. These undisputed facts demolish the submissions of the AR that the appellant has reasonable or sufficient .....

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nt of the income on the part of the appellant is duly established as per the assessment orders passed in the case of the appellant which are substantially confirmed in the appellate orders dated 30.12.2008 for the assessment year 2001-02 and 2002-03 and dated 03.30.2009 for the Assessment year 2003-04. Therefore, on account of these fact the explanation of the AR furnished before the AO as well as in appeal, as discussed above is proved to be false or unsubstantiated. Therefore, on account of th .....

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f making the addition and the addition itself was deleted. The only income surviving was originally assessed income. This factum itself vitiates the finding of ld. CIT(A). 4. Before us, the Ld. Counsel for the assessee canvassed a very pertinent point that here in this case, original assessment was completed under section 144/148 whereby the income of the assessee was assessed after estimating at a net profit @ 8% on the lines of section 44AD at ₹ 3,20,870/-. In such an order, no penalty p .....

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the underlying substance of second assessment proceedings and the assessment order. Thus, on this ground, the penalty levied by the AO cannot be sustained. 5. On the other hand, Ld. DR strongly relying upon the order of the CIT(A) submitted that, even though penalty was not initiated originally but the original order got merged with the second order, therefore, penalty which has been initiated in the second order should be the basis for levy of penalty. 6. We have heard the rival submissions, pe .....

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en initiated. Subsequently, in the wake of survey action whereby assessee has offered ₹ 35 lakhs to be assessed as income, a proposal was moved before the CIT to revise the assessment order under section 263. Thereafter assessment order in pursuance thereof was passed and assessment framed for making further addition of ₹ 35 lakhs. In the second assessment order, the AO has solely given his finding on the additional income of ₹ 35 lakhs offered by the assessee during the survey .....

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ment order . Satisfaction of the AO in the second order was with regard to ₹ 35 lakhs only, which was evident from the finding and observation of the AO as reproduced above. It is an undisputed fact in the appellate proceedings the addition of ₹ 35 lakhs was deleted and confirmed from the stage of ITAT and has attained finality. Since the very basis for the initiation of penalty and satisfaction of the AO for the addition of ₹ 35 lakhs got vitiated, therefore, the entire procee .....

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on of ₹ 3,20,870/- can be sustained. Accordingly, we direct the AO to delete the penalty of ₹ 73,774/-. Thus, the appeal for the assessment year 2003-04 is allowed. 7. Now, we will take-up the penalty appeal for the assessment year 2002-03 and 2001-02, which have identical set of facts. From the perusal of the facts as discussed in the assessment order is that, a survey action was conducted in the case of the assessee s office premise on 12.08.2002 during the course of which assessee .....

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the best judgment assessment under section 144, after taking into account the receipts shown in the Proprietor business bank account and also individual saving account, which reflected total transaction of ₹ 85,28,521/- in the case of Proprietorship Firm and ₹ 76,73,044/- in his individual capacity for the assessment year 2001-02 and aggregate of ₹ 2,61,01,900/- in the assessment year 2002-03 on account of the bank account of the firm as well as the individual saving account. .....

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penalty was initiated by the AO. In the penalty order, the Ld. AO held that, since no return of income was filed and no books of accounts were maintained, therefore, there was no option but to estimate the income on some reasonable basis and accordingly, he levied the penalty of ₹ 5,98,661/- for the assessment year 2001-02 and ₹ 2,31,891/- for the assessment year 2002-03. The Ld. CIT(A) too has confirmed the penalty, the relevant finding on which has already been reproduced by us whi .....

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ncome was there on the record along with contract receipts as well as net profit shown. Thus, the very premise for levy of penalty does not stand. 9. On the other hand, Ld. DR strongly relied upon the order of the CIT(A) and submitted that, there is a categorical observation and finding of CIT(A) that assessee has not filed the return of income and hence a penalty confirmed by the CIT(A) is justified. 10. After considering the rival submissions and on perusal of the relevant material discussed i .....

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me has been filed disclosing any contract receipts and net profit and assessee do not bother to comply with the notices and did not put forth any explanation. While confirming the penalty he has taken note of the disclosure of undisclosed income of ₹ 35 Lakhs offered by the assessee during the survey, without realizing the fact that the said order and addition does not survive as the addition itself stands deleted by the CIT(A) in the quantum proceedings but also got confirmed by the Tribu .....

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t portion of the assessment order for AY 2003-04 which has been reproduced above, is again being reiterated as under: The survey party had gathered information on total contract receipt of the assessee for AY 1996-97 to AY 2001-02 on the basis of return of income filed and cross verified it with net profit actually declared by the assessee in these years, whereby it was evident that there was an omission of ₹ 40,98,041/- (as worked out below) on the part of the assessee to offer the same f .....

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e of this information already on record, that return of income was filed and also cross verified by the Survey Party, can the finding of CIT(A) be sustained. Once the contract receipts has been shown in the return of income along with the net profit, then the whole premise on which penalty has been levied and confirmed gets vitiated. Only issue for the levy of penalty can be, firstly, the enhancement of contract receipts and secondly, the net profit estimated in the assessment proceedings initia .....

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