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2016 (7) TMI 97 - ITAT AHMEDABAD

2016 (7) TMI 97 - ITAT AHMEDABAD - TMI - Penalty u/s 271(1)(c) - unaccounted sales - Held that:- In the case of assessee, since initiation of assessment proceedings u/s 143(3) r.w.s. 148 of the Act assessee has not challenged nor has been able to disprove the finding of the ld. Assessing Officer about the unaccounted sales at ₹ 10,82,958/- and has only requested for application of GP rather than making the addition to unaccounted sales. Penalty u/s 271(1)(c) of the Act is imposed if an ass .....

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- Shri R.P. Tolani, JM, & Shri Manish Borad, AM. For The Appellant : None (Written submission) For The Respondent : Shri A. R. Rewar, Sr.DR ORDER PER Manish Borad, Accountant Member. This appeal of assessee is directed against the order of ld. CIT(A)-IV, Baroda, dated 7.11.2012 in appeal no.CAB/IV-107/2012- 13, passed against order u/s 271(1)(c) of the IT Act, 1961 for Asst. Year 1994-95 on 30.6.2006 by ITO, Wd-2, Bharuch. Following grounds have been raised by the assessee :- 1. On the fact .....

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in clothes and job work of embroidery work. Return of income for Asst. Year 1994-95 was filed on 31.8.1994 declaring total income at ₹ 1,300/-. Survey proceedings were conducted u/s 133A of the Act at the premises of the assessee on 20.10.94. Pursuant thereto assessment proceedings were completed u/s 143(3) r.w.s. 148 of the Act on 17.3.1997 after making addition on account of unaccounted purchase and sales at ₹ 10,16,273/- and addition on account of loose bills impounded during sur .....

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at 15.42% on the total unaccounted sales at ₹ 10,82,958 (Rs.10,16,273 + ₹ 66,685/-). 4. At the time of completion of assessment u/s 143(3) r.w.s. 148 penalty proceedings u/s 271(1)(c) of the Act were initiated and after the completion of appellate proceedings before ld. CIT(A) order u/s 271(1)(c) of the Act was framed on 30.6.2006 by ITO, Wd-2, Bharuch imposing penalty at ₹ 74,810/- on the addition sustained by ld. CIT(A). While doing so ld. Assessing Officer observed as under .....

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indulged in unaccounted purchase and sales and finally the Learned CIT (A)-Vl, Baroda has also confirmed the part of the addition considering the same to have been earned by the assessee through unaccounted purchase and sales. As mentioned earlier, in the return of income filed by the assessee, in response to notice U/s 148 of the Act; that too, issued after the survey was carried out, the assessee did not offer the income earned out' of unaccounted purchase and sales as detected in survey. .....

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of the factual explanation offered by the assessee in the question involved In the first place, it is a case where the assessee made an attempt to explain but could not persuade the three authorities. Thirdly the reference court cannot go into the adequacy of the explanation' again in its reference jurisdiction in abstract form for want of any legal issue/interpretation involved and lastly, once the addition Is upheld, then the penalty has got to be imposed, consequent upon the rejection of .....

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r penalty U/s 271(1) (c) of the Act. The minimum and maximum penalty leviable in the case is ₹ 74,8107- and ₹ 2,24,4307-. (I.e. at the rate of 100% & 300% respt.) As against maximum penalty of ₹ 2,24,430/-,the minimum penalty is hereby levied of ₹ 74,810/- 5. Aggrieved, assessee went in appeal before ld. CIT(A) who confirmed the penalty of ₹ 74,810/- by observing as under :- 12. I have considered the penalty order u/s 271(l)(c) of the IT Act passed by the AO as .....

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Ld. CIT(A) clearly shows that the appellant had not filed accurate particulars of income. Moreover, the findings of the Ld. CIT(A) has been confirmed by Hon'ble ITAT, Ahmedabad. It is a different fact that the Hon'ble ITAT, Ahmedabad, has restricted the over all gross profit from 20% to 15.42%. From the observation of Ld. CIT(A), it cannot be said that the case of the appellant is mere estimation of GP addition. In this regard the observation of Ld. CIT(A) as given at para-4 of his abov .....

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e same have been accepted by the department. During the course of survey, separate set of books of account were found and hence profit from sales as per these books of account has to be brought to tax. The submissions of the A.R. that the profit at the rate of 25% of the sales will be exorbitant is to some extent reasonable. However, the arguments of the appellant that income from unaccounted sales may be restricted to 5% is not acceptable. It may be mentioned that whatever expenses incurred by .....

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as in that year there was an element of initial unaccounted purchases have to be brought to tax under section 69 of the Act in addition to the profit on sales. This year, as explained by the A.R. that funds were available from last year which were used for initial purchases and hence the net profit adopted at 20% for this assessment year will be reasonable. The assessing officer is directed to tax only 20% of the total unaccounted sales". 13. The Ld. CIT(A) has clearly observed that the pur .....

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s maintaining separate set of books of account. These facts clearly show that the appellant had concealed its income by furnishing inaccurate particulars of income. Considering these facts, I confirm the above penalty of ₹ 74,810/- as levied by the AO u/s 271(l)(c) of the IT Act. Thus, the above grounds of appeal no. l and 2 of the appellant are here by dismissed. 6. Aggrieved, assessee is now in appeal before the Tribunal. 7. None appeared in person on behalf of the assessee. However, wri .....

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Based on the papers found during survey, the Assessing Officer has worked out OK aforementioned amount as per details given in para 6 of the order. It was pointed out to her in letter dated 13-03-1997 (P. 7-9) (as reproduced in para 10 of the order) procedure of the work done by the appellant. (3) The assessee is primarily in the business of selling cloth only. On account of competition, it also offered to give another service in the form of embroidery work which was got done by it through outsi .....

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The sales are reflected in overall sales and therefore, there was no question of any income having remained undisclosed. The Assessing Officer, however, did not accept the explanation and made addition. (4) The assessee took this matter before the learned Commissioner of Income-tax (Appeals) to whom submissions were made by letter dated 21-01- 1998 (P. 10-11) and further in a note. (P. 12-17). These aspects were reiterated by the assessee. The learned Commissioner of Income-tax (Appeals), howev .....

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ness of the amount and because this was essentially a matter of fact, the assessee did not take up any further proceedings. (7) In the course of penalty proceedings, the assessee replied vide letter dated 26- 12-2006 (Page 32-33). It was pointed out that the assessee has been contending from day one that these were all estimates. (8) It is further put on record that the explanation given by the assessee has not been found to be false but merely not accepted. In the circumstances, it is submitted .....

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cer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year. (10) You will find from the above that what is taxed u/s.69 is deemed income. In fact, all the sections from section 68 to 69D result in taxation of income which is regarded as deemed income. (11) The question is whether penalty can be levied u/s271(l)(c) of e Act on deemed income. This particular point has been dealt with by Gujarat High Court and other Courts in respect of pen .....

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edit can be treated as income of the assessee. The department made no effort in penalty proceedings to establish that cash credits were income and that the explanation that cash credits were arranged as temporary loan was false. Following the earlier judgement of Gujarat High Court in case of Vinaychand Harilal [120-ITR-752], it was held that no penalty is leviable. The related portion from the judgement on page 135 and 136 is reproduced. The provisions of section 68 permitting the Assessing Off .....

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ence and documents. The parties who had advanced the alleged temporary loans were neither disclosed with their particulars nor any supporting documents were on record. Only two entries were explained. The accountant who had arranged the loan was not produced stating that he had left the service and relations with him are strained. On this state of accounts and evidence in the quantum proceedings, the Department was justified in treating the cash credits as income of the assessee but merely on th .....

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a case where there was no circumstance to lead to a reasonable and positive inference that the assessee's case - that the cash credits were arranged as temporary loans, was false. The facts and circumstances are equally consistent with the hypothesis that it could have been sundry loans in small amounts obtained from different parties. In our opinion, therefore even taking recourse to Explanation 1, the same circumstances or state of evidence on which the cash credits were treated as income, .....

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provisions u/s. 68 of the Act. However, the Court held that that was not sufficient for levy of penalty for concealment of income. The related portion on page.197 of the order is as under:- "However, de hors the said provision it is not possible to state with certainty that the said sums would be "concealed income" of the assessee for the year under consideration. The Tribunal has found as a matter of fact, that it was further necessary for the department to prove that the amount .....

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69B and 69C are all part of the same scheme where certain amounts though not proved to be the income of the assessee of the previous year concerned are for the purpose of charging to tax are deemed to be so by creating legal fiction absolving the Department from its initial duty to prove that any such is the income of the assessee. But for these provisions, it was for the Revenue to prove that any sum, not disclosed by the assessee but which is sought to be taxed as income of the assessee, is t .....

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ing this view the Tribunal relied on the judgement of Delhi High Court in case of Mrs. Baljit Jolly [263- ITR-239] and of Calcutta High Court in case of Amalendu Paul ]145-ITR- 439]. The related portion of page.916 of the judgement is reproduced. "Moreover the addition can be made u/s. 68 if the explanation of the assessee in regard to the source of credit found in the books of account of the assessee has not been found satisfactory by the AO. The addition is made under the deeming provisio .....

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d given loans to the assessee, the assessee voluntarily agreed for addition of ₹ 2,01,000/- to his income as cash credits. The High Court affirmed the order of the Tribunal for deletion of penalty u/s. 271(l)(c) of the Act. (12) In view of the above, it is respectfully submitted that penalty cannot be levied either because addition is based on deemed income and the income so represented was not earned by the assessee as per explanation given which has not been found false as also the fact .....

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(b) of Explanation-2 of section 147 of the Act and thereafter notice u/s 148 of the Act was issued to assessee on 15.11.1994 pursuant to survey action u/s 133A of the Act conducted on 20.10.1994 at the business premises of assessee. During the course of survey several bill books, loose papers, fadia book, embroidery book, vepar-yadi books and books of accounts were found. On the basis of information gathered from these books of accounts and documents, notice u/s 148 was issued and assessment pro .....

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on of ₹ 10,82,958/- should not be made to the total income of the assessee. Following reply was submitted by assessee on 13.3.1997 :- The account section at that relevant time was looked after by their partner Gulambhai. As he was old and uneducated he was helped by a part-time accountant. They are doing the embroidery work to attract more customers. They are not gaining anything from the embroidery work and the embroidery charges received are paid to skilled workers. They have further sta .....

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ere made out of undisclosed income earned. In such circumstances what is required to be added is net profit of ₹ 10,62,958/- as per the direct judgement of Calcutta High Court (201 ITR 608). Loose bills of ₹ 66,685/- may include duplicate bills and copies of which are also included in Vepar Yadi . 10. On going through the above reply made by assessee, it is pertinent to note that assessee has accepted that there is unaccounted sales of ₹ 10,82,958/- during the year and has requ .....

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was unaccounted sales and ld. CIT(A) sustained the addition by applying GP rate on the unaccounted sales. Even when the matter came up before the Tribunal, the co-ordinate bench vide its order in ITA No.1269/Ahd/1999 for Asst. Year 1994-95 dated 20.10.2005 directed the Assessing Officer to apply GP rate of 15.42% on the unaccounted sales by observing as under :- 8. After having considered the rival submissions and the facts and circumstances of the case we are of the opinion that so far as addi .....

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