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M/s Choudhary Brothers, C/o M/s Ravi and Dev and Dev, CAS Versus The Addl. CIT, Range-7, Jaipur

2016 (12) TMI 607 - ITAT JAIPUR

Penalty u/s 271(1)(c) - adhoc disallowance of expenses - Held that:- In the present case, the income of the assessee was assessed after rejection of books of accounts and 10% of certain expenses have been disallowed on estimate basis. What is relevant is finding of fact or bringing on record any evidence supporting the estimate. If there is none, it is only a matter of one’s person estimate against the other. In the instant case, there is no positive evidence as to why only 10% of the expenses h .....

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iculars of income or concealment of income. Further, the estimation done by the AO have been partially confirmed by ITAT by taking a macro view in terms of N. P rate instead of individual expenses and is again an estimation and nothing more. - The Hon’ble Rajasthan High Court in case of CIT vs. Mahendra Singh Khedla (2012 (3) TMI 568 - RAJASTHAN HIGH COURT) has held that the additions have been sustained by the Tribunal only on estimation and a fact or allegation based on estimation cannot .....

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round of appeal: The ld. CIT(A) erred in confirming the penalty of ₹ 29,05,775/- levied u/s 271(1)(c) of the IT Act,1961 by the Assessing Officer on the basis of adhoc disallowance of expenses. 2. The brief facts of the case are that the assessee derives income from civil contract work. During the year, it carried out construction work of road, bridges etc. for PWD Rajasthan & various other government departments. Against returned income of ₹ 1,07,75,656, assessment was completed .....

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ions and at Para 8 of its order held as under :- It is seen that N.P. rate shown by assessee during the year is 10.07% against 10.82% in immediately preceding year. Therefore, we are of the view that instead of disallowing various expenses under the individual head, it will be better if a reasonable net profit rate is applied. Keeping in mind the past history of the case and defects noted by the AO, we are of the view that if a N.P. rate of 11.5% is applied, then it will meet the ends of justice .....

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, the assessee submitted that penalty u/s 271(1)(c) cannot be levied in case of estimation of profit. The AO, however, held that the assessee could not substantiate its claim of expenditure in assessment proceedings and till now also it has not produced any supporting documentary evidence in support of its claim at any stage of consideration i.e. before the Ld. CIT(A) and Hon ble ITAT. Further, the assessee has again not provided any documentary evidence during the penalty proceedings to prove t .....

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e. Accordingly, the AO imposed penalty of ₹ 29,05,775/- u/s 271(1)(c) on the amount of ₹ 86,32,725/- on account of concealment of particulars of income. The Ld. CIT(A) confirmed the levy of penalty by holding that in the assessment order dt. 30.12.2009, the AO has noted specific defects in the accounts of the appellant. In view of the said defects, AO made specific disallowances of various expenses resulting into total addition of ₹ 1,39,94,870/-. These disallowances were confi .....

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of the Act. Appellant has failed to substantiate his particulars of income. The Ld. AR s argument that penalty cannot be levied in case of estimated income is misconceived. Relying on certain case laws, he upheld the imposition of penalty u/s 271(1)(c). He further held that the reports of the statutory auditor and the conduct of the appellant during the assessment proceedings by not producing the bills/vouchers and other details required by the AO also establish the means rea. Similar defects in .....

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d wages, repair & maintenance, diesel & petrol, freight, job work and hire charges made adhoc disallowance of 10% out of these expenses i.e. ₹ 80,80,238/- and also made disallowance of ₹ 59,14,632/- on account of outstanding wages, totaling to ₹ 1,39,94,87/-. The Ld. CIT(A) confirmed the action of AO as per his finding at Page 6 Para 2.3 of the order dt. 05.08.2010 (PB 10). The fact that assessee has submitted the tax audit report containing the qualification, itself sh .....

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est and remuneration to partners and interest to third parties as well as the N.P. after depreciation, interest and remuneration to partners and interest to third parties as under:- A.Y. Turnover Net profit before depreciation, interest & remuneration to partners & interest to third parties N.P. Rate Net profit after depreciation, interest & remuneration to partners & interest to third parties N.P. Rate 07-08 16,75,20,136 1,68,67,512/- 10.07% 1,07,77,678/- 6.43% 06-07 4,62,66,360 .....

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ed is subject to the claim of depreciation, interest and remuneration to partners and interest to third parties. However, the AO while giving the appeal effect has applied N.P. rate of 11.5% on the gross receipts without giving deduction of depreciation, interest and remuneration to partners and interest to third parties and thereby worked out the addition at ₹ 86,32,725/-. From the above facts, it can be noted that the quantum of addition on which penalty is levied by the AO is incorrectl .....

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der of Hon ble ITAT in ITA No. 897/JP/11 for A.Y. 08-09 where in Para 2.10 (PB 43-45) it was held that in A.Y. 07-08 also, the Tribunal taking into consideration the N.P rate of 10.07% directed to apply N.P. rate of 11.5%. In the year under consideration also, the Ld. CIT(A) has directed to apply the N.P. rate of 11.5% subject to depreciation, interest and remuneration to the partners on the basis of the order of the Tribunal of the immediately preceding year and accordingly the order of CIT(A) .....

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ed by AO with reference to the amount of ₹ 86,32,725/- is incorrect. It was further submitted that so far as levy of penalty on the addition confirmed after the order of ITAT by application of N.P. rate is concerned, it may be noted that the AO made adhoc disallowance out of certain expenses for the reason that the same are not fully vouched for want of supporting vouchers of expenses. Nowhere in the assessment order, the AO has alleged that the expenses claimed are not genuine or inflated .....

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pheld the addition by applying higher N.P. rate of 11.5% to simplify the matter. For such reason, without pointing out any specific instance of inflation of expenses or claim of bogus or non-genuine expenses, penalty cannot be levied. The cases relied by CIT(A) are therefore distinguishable on facts as in those cases either there was a finding that the expenses claimed are bogus or the assessee admitted of the same. However, in the present case, there is no allegation of inflation in expenses or .....

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e. Reliance in this connection is placed on the following cases:- • CIT vs. Mahendra Singh Khedla (2012) 71 DTR 189 (Raj) • Shiv Lal Tak Vs. CIT (2001) 251 ITR 353 (Raj.) • Jugendra Singh & Co. Vs. DCIT (2013) 37 CCH 189 (Agr.) (Trib.) • Parasmal Parekh Vs. ACIT 58 ITD 0034 (Jpr.) (Trib.) • Sahyog Sahkari Shram Samvida Samiti Ltd. Vs. ACIT (2007) 111 TTJ 0540 (Luck.) • Naresh Chand Agarwal Vs. CIT (2013) 357 ITR 514 (All.) (HC) • Harigopal Singh Vs. CIT (20 .....

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lty levied by the AO, it was submitted that the ITAT has confirmed the trading additions by application of N.P rate of 11.5% as against 10.07% disclosed by the assessee in its return of income. The N.P rate so confirmed by the ITAT was before depreciation, interest, remuneration to partners and interest to third parties as N. P rate of 10.07% disclosed by the assessee was before depreciation, interest, remuneration to partners and interest to third parties. It was thus submitted that additions s .....

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.P rate of 10.07% shown by the assessee. The contentions of the ld AR thus prima facie seems correct as the addition sustained by the ITAT shall form the basis for levy of penalty. Where the additions have been deleted, there would not be any basis to levy penalty as the machinery provisions would fail. The AO is directed to verify N. P rate of 10.07% disclosed by the assessee and whether the same was before depreciation, interest, remuneration to partners and interest to third parties, and wher .....

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- on account of outstanding wages at the year end, totalling to ₹ 1,39,94,87/-. The Coordinate Bench has held that in instead of disallowing various expenses under the individual head, it will be better if a reasonable net profit rate is applied and keeping in mind, the past history of the case and defects noted by AO, N.P rate of 11.5% was directed to be applied. In the penalty proceedings, the AO has mentioned that in view of non-verifiability of expenses claimed, it leads to both inaccu .....

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