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TMI Blog2016 (9) TMI 1034X X X X Extracts X X X X X X X X Extracts X X X X ..... onse to the notice issued u/s 153A of the Income Tax Act, 1961 (hereinafter called as 'the Act') admitting total income as admitted in the original return of income. In the assessment order, the A.O. has observed that during the course of search & seizure operations some incriminating materials were found and seized. The company had executed the following projects during the financial year 2003-04 relevant to financial year 2002-03 to 2005-06: (i) Meridian Towers (ii) Meridian SeaShells (iii) Meridian Shire (iv) Meridian Enclave (v) Maharshi Towers. During the course of assessment proceedings the A.O. further observed that the assessee was given a detailed show cause letter pointing out the discrepancies noticed as per the seized/impounded material and after considering the explanation of the assessee, assessment was completed u/s 143(3) r.w.s. 153A of the Act. According to the A.O., the assessee has incurred labour expenses - fictitious book entry for the assessment year 2005-06 of Rs. 36,26,032/-, for the assessment year 2006-07 of Rs. 1,17,50,529/-, labour expenses - cash payments for the assessment year 2005-06 of Rs. 17,20,000/-, for the assessment year 2006 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, it is not possible for us to pay even a minute part of the said demands at this critical point of time. Moreover, we also hereby bring to your kind notice that we have got strong case in appeals which ware pending before the Hon'ble Incometax Appellate Tribunal, Visakhapatnam. We have got all evidences and supporting documents in support of our contentions and the impugned share Investors and persons who gave advances for purchase of flats are all clearly identifiable and well established personalities in the society and confirmations from them have already been filed. However, the Commissioner of income Tax (Appeals) Visakhapatnam in the first appeal dismissed these appeals relating to the Asst year 2003-04 arbitrarily and in a cryptic manner and hence our company has preferred appeals second appeal to the Hon'ble Income Tax Appellate Tribunal, Visakhapatnam and we are sure to get relief in second appeal. Regarding the other two appeals also though we got substantial relief in the Asst years 2005-06 and 2006-07, the estimation rate adopted by the Hon'ble Commissioner of Incometax (Appeals), Visakhapatnam was very high and unrealistic in any view of the matter and hence our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... challan enclosed." 6. On being aggrieved, assessee carried matter in appeal before the Ld. CIT(A). The Ld. CIT(A) after considering the explanation of the assessee he has cancelled the penalty imposed by the A.O. The relevant portion of the order of Ld. CIT(A) is as under: "7 .0 I have gone through the facts of the case and the submissions of the appellant. From the discussion made above, it is clear that the disallowances made by the Assessing Officer in the assessment order in both the years were substantially reduced by the first appellate authority and, subsequently, even the Hon'ble Income-tax Appellate Tribunal agreed with the view of the Commissioner of Income-tax (Appeals) with regard to restriction of such disallowances. It is clear that even though the expenditure on account of labour expenses and subcontract payments to masons were partly disallowed, such disallowance was made not on the bass of any specific finding with regard to any specific expenditure, but on any estimate basis only. It is seen that even in the course of penalty proceedings, the Assessing Officer did not bring any further evidence on record to establish that the amounts so disallowed on estimate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer. 8.2 It is also seen that the Hon1be Income-tax Appellate Tribunal, Ahmadabad Bench in the case of Jayendra G Soni Vs. ITO (2011) (16 taxmann.com 87) have opined that where pursuant to the search proceedings, certain additions were made on estimate or preponderance of probabilities, it would not be a fit case for levy of penalty u/s 271(1)(c) of the Act. 8.3 It is seen that in the case of Commissioner of Income-tax Vs Dabwali Transport Co. (ITA No 872 of 2010) (O&M) also, the Hon'ble High Court of Punjab and Haryana have held, "No doubt the assessee claimed expenses which could not be substantiated and on that ground, the same were disallowed and disallowance was partly upheld upto this Court, but mere fact that the assessee could not furnish evidence in support of the expenses claimed, was not by itself enough to hold that the assessee had furnished incorrect particulars of income consciously". The Hon'ble High Court noted that substantial part of expenditure claimed was duly explained by the assessee in the said case. It is clear that even in the present case, substantial part of the expenditure claimed has been accepted as explained and only a pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eedings cannot be initiated on mere suspicion or on account of assumption. We find that the additions i.e. fictitious book entry & cash payments of labour expenses respectively as disallowed by A.O. on assumption basis and the same was restricted by CIT(A) to the extent of 25%. Against the order of the CIT(A), when revenue carried the matter in appeal before the ITAT in ITA Nos.75 & 76/Vizag/2010 dated 3.6.2011 in the assessee's own case, ITAT has observed that the CIT(A) has examined each and every aspect of the claim of the expenses raised by the assessee. No specific defect has been pointed out in the order of the CIT(A) and hence found no infirmity therein and accordingly confirmed the order of the CIT(A). In view of the above, we find that the disallowance sustained for the assessment years 2005-06 as well as 2006-07 is only on assumption basis, therefore, no penalty can be levied. Therefore, we find no infirmity in the order passed by the Ld. CIT(A). In so far as difference of turnover is concerned, during the course of the assessment proceedings, the A.O. has asked the assessee to reconcile the difference of Rs. 2,91,964/- being the difference between the net project turnove ..... X X X X Extracts X X X X X X X X Extracts X X X X
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