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2016 (9) TMI 695 - ITAT CHENNAI

2016 (9) TMI 695 - ITAT CHENNAI - TMI - Penalty u/s 271(1)(c) - estimate income on sale of yarn - Held that:- In the present case, the assessee has taken a plea as stated above that addition was made on estimate basis. The Assessing Officer placed reliance on the survey report collected during the course of survey and also inspection report of sales tax authorities and central excise authorities. However, the material brought on record that the gross profit rate of every year is not constant, it .....

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there is no concrete evidence of concealment of sale of yarn, levying penalty in this case cannot be sustained. Accordingly, this is not a fit case for levy of penalty u/s 271(1)(c) of the Act. We are inclined to delete the penalty in respect of estimate income on sale of yarn. - Aaddition sustained u/s 68 - Held that:- After going through the explanation of the assessee, we are of the opinion that the explanation given by the assessee was a possible one though it was not satisfactory. The .....

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is not a fit case for levy of penalty u/s 271(1)(c) of the Act. - Disallowance u/s 40A(3) - Held that:- There is a judgment of the Delhi High Court in the case of CIT vs Vatika Construction Pvt. Ltd. [2012 (10) TMI 808 - DELHI HIGH COURT] wherein held that when there is addition u/s 40A(3) of the Act levy of penalty on this disallowance u/s 271(1)(c) of the Act is not justified. Further, in our opinion, disallowance u/s 40A(3) cannot be construed as concealment of income and furnishing inac .....

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ice Water Coopers Pvt. Ltd vs CIT, [2012 (9) TMI 775 - SUPREME COURT ], wherein held that imposition of penalty would be unwarranted in case the assessee has committed an inadvertent and bona fide error and had not intended to or attempted to either conceal its income or furnish inaccurate particulars of income. Merely because the assessee claimed deduction of interest expenditure which had not been accepted by the Assessing Officer, penalty u/s 271(1)(c) of the Act is not attracted, merely maki .....

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NDRA POOJARI, ACCOUNTANT MEMBER These two appeals of the assessee are against the different order of the Commissioner of Income-tax (Appeals)-II, Coimbatore, dated 29.9.2012 for assessment years 2005-06 and 2006-07 wherein the CIT(A) confirmed the penalty levied by the Assessing Officer u/s 271(1)(c) of the Act. Since the issue involved in these appeals are common in nature, these were clubbed together, heard together and disposed of by this common order for the sake of convenience. 2. In I.T.A. .....

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oceedings. Under the circumstances such additions cannot be considered as concealment of income or furnishing of inaccurate particulars warranting levy of penalty. 4. Your appellant further states that statutory disallowance under section 40A(3) in respect of payments made in a village without banking facilities cannot justify levy of penalty particularly in view of provisions of Rule 6DD. 5. Your appellant further states that additions made under section 68 in respect of payments received by ch .....

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the return of income for assessment year 2005-06 on 27.10.2005 admitting loss of ₹ 1,15,634/-. A survey u/s 133A of the Act was conducted in the case of the assessee on 16.2.2007. Subsequently, the case was subjected to scrutiny. During the course of assessment proceedings, the Assessing Officer made the following additions: (i) Addition u/s 68 of the Act ₹ 74,75,000 (ii) Suppressed sale of yarn ₹ 38,18,131 (iii) Disallowance u/s 40A(3) ₹ 9,56,300 4. Aggrieved by the abo .....

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f tax sought to be evaded as against the maximum penalty of ₹ 38,88,141/-. Against this, the assessee carried the matter before the CIT(A). The CIT(A) confirmed the levy of penalty. However, he reduced the penalty at 100% of tax sought to be evaded instead of 200% levied by the Assessing Officer. Against this the assessee is in appeal before us. 6. The ld. AR submitted that the addition towards suppressed sale, the Assessing Officer estimated the suppressed sale at ₹ 22,23,566/-. How .....

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in gross profit rate which is fluctuating. It would depend upon market conditions. In this assessment year, the machinery was kept idle and also there is rate difference of raw material. Because the addition was sustained by the Tribunal for this assessment year, it cannot be reason for sustaining penalty u/s 271(1)(c) of the Act in the penalty proceedings. 7. On the other hand, the ld. Departmental Representative submitted that there was an inspection carried out by the sales tax authorities a .....

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assessee, the CIT(A) reduced the suppressed sales to ₹ 11,47,500/- on account of typographical error in mentioning 30,000 kgs as 3 lakhs of yarn because of which the assessee cannot take advantage that addition was only estimate basis, penalty cannot be levied. 8. We have considered the rival submissions and also perused the material available on record. Originally, the Assessing Officer levied penalty towards addition of suppressed sale of yarn at ₹ 22,23,566/-. However, this addit .....

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the judgment of High Court in Harigopal Singh vs CIT, 258 ITR 85 (P&H) wherein held that when income is estimated and addition sustained on that basis, penalty u/s 271(1)(c) of the Act cannot be attracted. For the same proposition, he also relied on the judgment of CIT vs Modi Industrial Corporation 195 taxman 68 (P&H), CIT vs Sangrur Vanaspati Mills Ltd, 303 ITR 53 (P&H), CIT vs Suresh Kumar Bansal, 254 ITR 130 (P&H), and Dr. Hakeem S.A. Syed Sathar vs ACIT, 120 ITD 1(Chennai). .....

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ion was made on estimate basis. The Assessing Officer placed reliance on the survey report collected during the course of survey and also inspection report of sales tax authorities and central excise authorities. However, the material brought on record that the gross profit rate of every year is not constant, it depends upon various factors like demand and supply, inflation situation and production capacity, variable factors like change in direct labour cost and material cost. The lower authorit .....

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he Act. We are inclined to delete the penalty in respect of estimate income on sale of yarn. 9. The next issue is with regard to levying penalty in respect of addition sustained u/s 68 of the Act. 10. The assessee said to have received a sum of ₹ 4,77,609/- from M/s Kalavathy Finance Ltd. Since M/s Kalavathy Finance Ltd did not confirm the above transaction, addition was sustained by the CIT(A). According to the Assessing Officer, the assessee has not discharged the burden cast upon it. Co .....

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said amount was being arranged by Vijay Daima, who was located at Bhurhanpur as security advance. Out of the said amount, ₹ 40 lakhs was transferred to M/s Gurusikh Trading Co. and ₹ 35 lakhs to M/s Rishab Trading Co. as per Vijay Daima s instruction. The other two receipts of ₹ 3 lakhs and ₹ 3.5 lakhs are recorded in the books of account and ledger of M/s Kalavathy Finance Ltd. However, no confirmation by it. The assessee did not give any details in this regard during t .....

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e opportunities to explain the credits, the assessee failed to explain the same, hence, penalty levied u/s 271(1)(c) of the Act is to be confirmed. 13. We heard the rival submissions and perused the material on record. The main contention of the assessee is that the transaction between M/s Kalavathy Finance Ltd and the assessee is not disputed. However, there was a difference of ₹ 4,77,609/- due to nonreconciliation between the accounts of these parties. After going through the explanation .....

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g Officer and not disproving the contention of the assessee about the genuineness of the receipts. Accordingly, in our opinion, this issue is not a fit case for levy of penalty u/s 271(1)(c) of the Act. Placing reliance on the order of the Co-ordinate Bench in the case of Supreme Steel and General Mills vs DCIT 45 CCH 61, (Delhi Tribunal), we delete the penalty levied u/s 271(1)(c) of the Act. 14. The next issue is with regard to penalty on disallowance of ₹ 9,56,300/- u/s 40A(3) of the Ac .....

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he order of the CIT(A) confirming the penalty. 17. We heard the rival submissions on this issue. There is a judgment of the Delhi High Court in the case of CIT vs Vatika Construction Pvt. Ltd. 229 taxman 562 wherein held that when there is addition u/s 40A(3) of the Act levy of penalty on this disallowance u/s 271(1)(c) of the Act is not justified. Further, in our opinion, disallowance u/s 40A(3) cannot be construed as concealment of income and furnishing inaccurate particulars of income. In vie .....

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to any specific credit in the account of the partners. b) Profit on sale of machinery reworked on the basis of income tax records. c) Difference noticed at the time of survey on 16.2.2007 which date falls in the subsequent year d) Addition made for want of copy of invoice in respect of purchase which has not been proved to be false where payment was made by cheque. e) Addition made adopting fluctuating conversion factor towards investment in stock, particulars when the sale accounted are more t .....

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20. Facts of the case are that the assessee filed its return of income for the assessment year 2006-07 on 31.1.2005 admitting income of ₹ 6,82,530/-. A survey u/s 133A of the Act was conducted in the case of the assessee on 16.2.2007. Subsequently, the case was subjected to scrutiny. During the course of assessment proceedings, the Assessing Officer made the following additions: (i) Unexplained cash credit u/s 68 of the Act ₹ 1,19,199 (ii) Short Term capital gains ₹ 6,26,718 (i .....

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6,30,178 (iii) Disallowance u/s 40A(3) ₹ 4,91,599 Total ₹ 29,03,224 22. It is also noted that the assessee has not challenged the disallowance towards unexplained cash credit u/s 68 of ₹ 1,19,999/-, short term capital gains of ₹ 6,26,718/-, stock in process of ₹ 5,36,355/- and undisclosed sale of yarn of ₹ 43,800/-. Subsequently, the Assessing Officer initiated penalty proceedings u/s 271(1)(c) of the Act and levied penalty at ₹ 27,07,062/- being 200% of .....

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2150/Mds/2012. As discussed in para 13 in the former part of this order, we delete the penalty. 24. The next addition for levying penalty is stock in process not considered in closing stock to the extent of ₹ 5,36,355/-. The addition is made only on estimate basis. As discussed in para 8 of this order, we delete the penalty. 25. The last issue is with regard to penalty levied under wrong computation o short term capital gains disallowance to the extent of ₹ 6,26,718/-. 26. The ld. AR .....

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