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Shri Vikram Singh Versus The Dy. C.I.T., Circle-3, Jaipur

2017 (2) TMI 411 - ITAT JAIPUR

Penalty u/s 271(1)(c) - estimated trading additions - Held that:- Books of accounts have been rejected and thereafter, the Assessing Officer has estimated a GP rate of 42.36% as against declared GP rate of 38.45% which has finally been sustained by the Coordinate Bench at 40.40%. This GP rate 40.40% has been applied by the CIT(A) following the GP rate of 40.34% in the immediately preceding A.Y. 2006-07 and considered the unusual business conditions prevalent during the subject matter in terms of .....

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of basis of rejection of the books of accounts and the estimation of GP rate by the Assessing Office at 42.36% which has been finally brought down to 40.40%. The additions have thus been confirmed on a pure estimation basis taken into consideration the prevalent business environment and the past history of the assessee and the same cannot be basis for levy of penalty. - Decided in favour of assessee - ITA No. 143/JP/2016 - Dated:- 16-1-2017 - Shri Kul Bharat, JM And Shri Vikram Singh Yadav, AM A .....

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e action of ld. CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by deleting the said additions of ₹ 2,00,043/- 2. Brief facts of the case are that the assessee is engaged in the business of manufacturing and export of all type of artistic handicrafts items mainly made of wood. The return of income was filed by the assessee on 30-10-2007 through E-filing declaring total income of ₹ 612,73,640/-. The case of the assessee was sel .....

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ssee for fall in gross profit rate. The assessee submitted that the fall in gross profit rate was due to not getting the orders from the foreign buyers and the assessee had to introduce new items to sustain in the market which affected the profits margins of the assessee. Further, the assessee submitted that there was escalation of input costs like raw material, labour etc. Considering the submission of the assessee and documents available on record at the time of assessment proceedings, the AO .....

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3) and also estimated the gross profit rate of 40.40% which resulted into trading addition of ₹ 5,92,194/-. 4. On further appeal, the Coordinate Bench confirmed the findings of the ld CIT(A) and operative part of its order is as under: We have heard the rival contentions and perused the material on record. The Ld AR has not pressed the ground relating to rejection of books of account. Therefore, the limited issue for consideration is what should the reasonable basis for estimation of G.P. .....

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matter in terms of profit margins getting effected by increase in cost of raw material, introduction of new products in the market and fact that some of the assessee s customers did not place orders during the year resulting in fall in turnover from ₹ 375.70 lacs to ₹ 302 lacs during the year. In our view, the view of the ld. CIT(A) is fair and reasonable which has factored in the business environment prevalent during the year and at the same guided by assessee s past history, appli .....

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CIT(A). The assessee contended that no penalty can be imposed where the trading additions are purely based on an estimation and reliance was placed on the decision of the Hon ble Rajasthan High Court in case of Shiv Lal Tak (251 ITR 373) & Mahendra Singh Khedla (252 CTR 453), besides other decisions. The ld. CIT(A), however, rejected the contention of the assessee and stated that since specific defects have been established in the books of account, therefore, estimation is not just plain est .....

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he assessee was not found false. The explanation, even though was not accepted, was not held to be lacking in bona-fides. Needless to mention that all facts were placed before the ld. AO. In view of this provision of Explanation 1 to section 271(1) are not attracted. Otherwise also, additions are not based on any specific defects but are on ad-hoc basis by applying a GP Rate. This estimation has also undergone change in favour of assessee by ld. CIT(A) in quantum appeal. Hon ble Rajasthan High C .....

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and positive inference that the assessee s case is false, then no penalty can be imposed in such case. Same ratio was laid down by the Hon ble Gujarat High Court in the case of National Textiles (2001) 249 ITR 0125 (Guj- HC) 9. Further reliance is placed on the judgment of the Hon ble Delhi High Court in the case of Vatika Construction (P.) Ltd. [2014] 45 taxman.com 471 (Delhi) (Case Law Page 21), in which it has been held that …Head Notes - Section 271(1)(c), read with sections 40A(3) a .....

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pted assessee s offer, made addition in terms of section 44AD - He also passed a penalty order under section 271(1)(c) - Tribunal, however, set aside said penalty order - Whether since at time to initiating penalty proceedings Assessing Officer did not have any material on record showing that payments made to suppliers were bogus, he could not have merely on basis of assessee s offer to be taxed on estimate basis, concluded that assessee had provided inaccurate particulars in its return - Held, .....

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fore the due date. The same was filed, in response to the notice under section 142. Further, the assessment was made by the AO ex-parte and assessee at no point of time, during the assessment and appellate proceedings, produced its books of accounts. The appellate authorities even doubted the assertion, of the assessee, that the return of income was filed on the basis of regularly maintained books of accounts. Whereas, in the present case, the assessee has been regularly maintaining his books of .....

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in the present case, the assessee has been regularly maintaining his books of accounts which has nowhere been doubted by the lower authorities. The books of accounts were even produced before the ld. AO for his examination during the assessment proceedings. Even the return was filed, by the assessee, based on the books of accounts regularly maintained and not on the basis of any estimation. 10.iii In this case of DR. (MRS) K.D. ARORA (Supra) the assessee did not file her return of income, for th .....

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house. The judicial authorities even questioned the mental attitude of the assessee in not filing the return u/s 139(1). The facts in the present case are totally different as this is not a case where the assessee tried, even minutely, to conceal the particulars of his income. It is a case where the ld. AO not being satisfied by the percentage of Gross Profit declared by the assessee as compared to the past years estimated a GP rate. 10.iv In the case of MD. WARASAT HUSSAIN (Supra) there was a c .....

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were rejected by him and income was estimated. 10.v In the case of BALAKRISHNA TEXTILES & ORS. (Supra) there was a raid, on the business premises, of the assessee by the Economic Offences Wing and as a result, the assessee came forward with certain disclosures under section 68. The assessee even admitted to have manipulated his books of accounts at the time of filing the return of income. Whereas, in the case at hand, it is not the allegation of the departmental authorities that assessee has .....

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Ltd. [2010] 322 ITR 158 (SC) observed that conditions in section 271(1)(c), namely, concealment and furnishing of inaccurate particular, must be proved to levy penalty, demonstrated its intention that one s state of mind had to be taken into account to see if that person wanted to contravene law by concealing income. Relevant extracts of the Hon ble Supreme Court judgments have been set out for the sake of convenience:- 12.i Union of India v. Rajasthan Spg. & Wvg. Mills [2009] 224 CTR 1 (SC) .....

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no reason to understand or read that decision in that manner. In Dharamendra Textile Processors case (supra) the court framed the issues before it, in paragraph 2 of the decision….. …..we fail to see how the decision in Dharamendra Textile Processors case (supra) can be said to hold that section 11AC would apply to every case of non-payment or short payment of duty regardless of the conditions expressly mentioned in the section for its application. There is another very strong rea .....

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me on its part. It was up to the authorities to accept its claim in the Return or not. Merely because the asseessee had claimed the expenditure, which claim was not accepted or was not acceptable to the revenue, that by itself would not, in our opinion, attract the penalty under section 271(1)(c). If we accept the contention of the revenue then in case of every Return where the claim made is not accepted by Assessing Officer for any reason, the assessee will invite penalty under section 271(1)(c .....

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tion 271(1)(c) is an automatic consequence of an addition being made to income of the taxpayer, for the reason that whether it is a civil liability or a criminal liability, penalty under section 271(1)(c) can only come into play when the conditions laid down under that section are to be satisfied. In view of the elaborate discussions in the preceding paragraphs, by no stretch of logic or rationale it could be said that imposition of penalty under section 271(1)(c) has a cause and effect relation .....

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ble Supreme Court, merely because an addition is made to the income declared by the assessee, penalty under section 271(1)(c) cannot be imposed. In our considered view, Hon ble Supreme Court s judgment in the case of Dharmendra Textile Processors (supra) does not bring about any radical change in the scheme of section 271(1)(c) though it does nullify the earlier Division Bench judgment on Hon ble Supreme Court in the case of Dilip N. Shroff judgment (supra) to the extent that it held that the o .....

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by the Hon ble Supreme Court itself in the case of Om Prakash Shiv Prakash (supra), there is no conflict in a liability being a civil liability and at the same time being penal in character. In effect, therefore, liability under section 271(1)(c) continues to have its basic penal character even as it is held to be a civil liability… 14. Ld. CIT(A) has not distinguished the jurisdictional High Court decisions. Therefore, ld. ICT(A) has erred in not following the same. 15. It is not the fi .....

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d., ITA 310/JP/12 (Case Law Page 41-42) 16.iv Deepak Dalela, ITA No.1027/JP/2013 (Case Law Page 43-48) In view of the above, penalty levied by the ld. AO and confirmed by the ld. CIT(A), on trading additions sustained on estimated basis, may please be deleted. 17. The ld. DR has heard who has relied on the order of the CIT(A) and submitted that since specific defects have been pointed out, the levy of penalty was justified and rightly confirmed by the CIT(A). 18. We have heard the rival contenti .....

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t the Ld. CIT(A) has considered the unusual business conditions prevalent during the subject matter in terms of profit margins getting effected by increase in cost of raw material, introduction of new products in the market and fact that some of the assessee s customers did not place orders during the year resulting in fall of the turnover and the view of the Ld. CIT(A) was held to be fair and reasonable which has factored in the business environment as well as guided by the assessee s past hist .....

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relied on the decision of Shiv Lal Tak wherein the Hon ble High Court has held that : in making computation of total income where the income returned has been rejected by rejecting the trading results, finding some discrepancy in the books of account and substituting the same by an estimated figure, in the strict sense, can neither be said to be addition of any amount in the returned income nor disallowance of any amount as deductions claimed. The word amount of which additions made or deductio .....

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nces when in the present case there was no positive evidence beyond doubt regarding estimated trading addition that the amount in difference between the result shown by the assessee and that estimated by the AO was resultant of concealment of particulars of income or furnishing inaccurate particulars thereof on the part of the assessee, penalty under section 271(1)(c) of the Act cannot be levied. The AO had rejected the books of account and estimated the trading addition on the basis that the as .....

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