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2016 (9) TMI 1034 - ITAT VISAKHAPATNAM

2016 (9) TMI 1034 - ITAT VISAKHAPATNAM - TMI - Penalty u/s 271(1)(c) - fictitious book entry & cash payments of labour expenses - difference in turnover - Held that:- 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 the assessee’s own case, ITAT has o .....

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y 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 ₹ 2,91,964/- being the difference between the net project turnover which is of ₹ 4,00,00,304/- and the turnover reflected in the books of accounts of ₹ 3,97,08,340/-. The assessee was not able to substantiate the difference and paid taxes accordingly. In our opinion, the difference in turnover is neit .....

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cted against the order of CIT(A)-I, Hyderabad dated 29.11.2012 for the assessment years 2005-06 & 2006-07. Since the facts are identical and issues are common, they are heard together and disposed of by this common order for the sake of convenience. 2. Facts are in brief that the assessee is a Private Limited company incorporated in the month of February, 2002 in the name & style of M/s. Meridian Promoters Pvt. Ltd., Visakhapatnam engaged in the business of construction of apartment comp .....

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e 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 c .....

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2,91,964/- and accordingly assessment was completed. 3. On being aggrieved, assessee carried matter in appeal before the CIT(A). 4. The Ld. CIT(A) so far as labour expenses - fictitious book entry is concerned directed the A.O. to restrict the disallowance in A.Y. 2005-06 to 25% of ₹ 36,26,032/- and so far as labour expenses - cash payments are concerned directed the A.O. to restrict the disallowance of expenditure to 25% of ₹ 17,20,000/- i.e. 25% of ₹ 53,46,032/-. So far as s .....

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as under: 4. In view of the above in order to finalize the penalty proceedings U/s 271 (1)(c) the asssessee was asked to show cause as to why penalty u/s 271(1)(c) should not be imposed for concealment/ furnishing of inaccurate particulars of his income vide this office letter dated 03- 04-2010. In reply the asssessee flied his explanation on 25-03-2010 wherein he submitted that as under: With reference to your above letter it is hereby most respectfully submitted that the demands mentioned by .....

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tanding as we are not able to pay the same due to our precarious financial position, as the real estate and construction sectors have been very much slowed down and are facing severe recession. So we are facing severe liquidity crunch and infact we have been facing lot of financial problems in our day to day business. So in these circumstances, 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 notic .....

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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 .....

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u/s 271(1)(c) of the Act by observing as under: 6. The asessee's explanation has been carefully considered. However the same is found to be not acceptable as the explanation is vague in nature. As seen from the assessee's explanation with regard to levy of penalty the assessee has neither made any contention nor shown any substantial ground as to why the penalty u/s 271(1)(c) should not be levied in his case. He has simply sought time to defer the penalty proceedings till the disposal of .....

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mmissioner of Income tax (Appeals), Visakhapatnam. 7. In light of the above facts and circumstances of the case, it is clear that the assessee had resorted to concealment of income of labour expenses, through fictitious books entry, labour expenses by cash payments and suppressed gross receipts in meridian tower project comes to ₹ 16,28,472/- [ Totalling to ₹ 13,36,508/- + Ps 2,91,964/- which were ultimately assessed to tax and also attracts penal provisions of Section 271(1)(c) of t .....

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ed 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 authorit .....

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ty proceedings, the Assessing Officer did not bring any further evidence on record to establish that the amounts so disallowed on estimate basis actually represented any false claims. He rather proceeded to levy the penalty only on the ground that disallowances to the extent mentioned in the foregoing discussion were confirmed by the Commissioner of Incometax (Appeals). 8.0 On the other hand, it is a settled law that the findings recorded in the assessment proceedings are not conclusive, even th .....

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iah & Co., Vs. Commissioner of Income-tax (123 ITR 457). The Hon'ble Jurisdictional Income-tax Appellate Tribunal in the case of HOE Leather Garments Ltd Vs DCIT (2010) (5 taxmann.com 6) have opined that the penalty order should he a self contained one and the findings regarding concealment or furnishing of inaccurate particulars of income in the assessment order cannot automatically get transferred to the penalty order. It is clear that in the instant case the Assessing Officer has not .....

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ding, the issue of penalty, facts have to be re-considered. They have observed that the factum of concealment needs to be proved. It was noted that the explanation of the said assessee was rejected on assumptions, drawing adverse inference based on probabilities. It is clear that even in the present case, adverse inference based on probabilities, has been drawn, leading to disallowances on estimated basis merely on account of the fact that the appellant could not furnish evidence in support of e .....

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ort 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 Hi .....

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sustained. Deleting the penalties of ₹ 5,95,898/- and ₹ 15,02,391/- in the Assessment Years 2005-06 and 2006-07, respectively, the grounds raised in these appeals are decided in favour of the appellant. 7. On being aggrieved, revenue is in appeal before us. The Ld. D.R. relied on the orders of the A.O. 8. On the other hand, the Ld. Counsel for the assessee has supported the order passed by the Ld. CIT(A). 9. We have heard both the parties, perused the materials available on record an .....

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₹ 1,17,50,529/-, labour expenses - cash payments made for A.Y. 2005-06 of ₹ 17,20,000/- for A.Y. 2006-07 of ₹ 38,97,000/- and there is a suppressed turnover of ₹ 2,91,964/- for A.Y. 2005-06. By observing the above, the A.O. completed the assessment by making the above additions. On appeal, Ld. CIT(A) has restricted the disallowance of expenditure in respect of booked fictitious labour expenses to 25% and for cash payments also to 25%. So far as the suppression of turnove .....

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onafide. The entire case of the assessee before us is that the addition sustained only on the basis of assumption and mere suspicion and submitted that penalty proceedings 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 .....

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